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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, 1999.

[ ] 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                  (ZIP CODE)
              OFFICES)
</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 [ ]  No [X]

     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 28,
2000. 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.

     Documents Incorporated by Reference: Part IV incorporates certain
information by reference from the registrant's Registration Statement on Form
S-4, as filed with the Securities and Exchange Commission on January 5, 2000 and
declared effective on January 18, 2000.
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                                     PART I

ITEM 1.  BUSINESS

INTRODUCTION

     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 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 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 owns securities
representing approximately 92.0% of the voting power of our outstanding capital
stock and Physician Services owns securities representing approximately 8.0% 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 earnout payments. These earnout payments may be paid over the next 5
years to the sellers of various acquired groups in the event that those acquired
groups achieve designated financial targets. As of December 31, 1999, we believe
these earnout payments will not exceed a total of $18.2 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
emergency department and urgent care center physician staffing and
administrative services to hospitals and clinics in the United States, with 353
hospital contracts in 27 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:

     - staffing, recruiting and credentialing of clinical and non-clinical
       medical professionals;

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

     - billing and collection of fees for services provided by the medical
       professionals.

     Since our inception in 1979, we have focused primarily on providing
outsourced services to emergency department and urgent care centers, which
accounted for approximately 85% of our net revenue less provision for
uncollectibles in 1999. We generally target larger hospitals with high volume
hospital emergency departments and urgent care centers whose patient volume is
more than 15,000 patient visits per year. In higher volume emergency departments
and urgent care centers, we believe we can generate attractive margins,

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establish stable long-term relationships, obtain attractive payor mixes and
recruit and retain high quality physicians. In 1999, we generated net revenue
less provision for uncollectibles of $542.4 million.

     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 emergency
departments and urgent care centers effectively due to:

     - increasing patient volume;

     - complex billing and collection procedures; and

     - the legal requirement that hospital emergency departments and urgent care
       centers 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 our 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 $1.0 trillion, in 1996 to 16.4% of gross domestic
product, or $2.1 trillion, by the year 2007, 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 urgent care centers
and 80% of these hospitals outsourced their hospital emergency departments and
urgent care centers. In the same year, hospital emergency department and urgent
care center expenditures were approximately $20 billion, with hospital emergency
department and urgent care center physician services accounting for
approximately $7 billion. According to the American Hospital Association,
hospital emergency departments and urgent care centers handle approximately 100
million patient visits annually and nearly 40% of all hospital inpatient
admissions originate in the hospital emergency department and urgent care
center. In addition, the average number of patient visits per hospital emergency
department and urgent care center increased at a compound 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 hospital emergency departments and urgent care centers 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 traditional structure of hospital management for its physician
staffing and scheduling 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 the second largest provider
of outsourced radiology staffing and administrative services and have a growing
presence in other hospital departments. 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 353 hospital contracts, with an average contract
tenure of approximately 9 years. In 1999, no single contract accounted for more
than 1.0% 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 13 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, credentialing 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 six years, we have spent over $15
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
VBS(TM) patient information system, our WaitLoss(TM) process improvement
program, our TeamWorks(TM) physician database and software package and the
company-wide

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application of best practices. As a 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 us since our inception in 1979. Our top 23
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 will have
significant incentive to continue to increase our sales 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 both 1998 and 1999, net revenue
less provision for uncollectibles from continuing contracts grew by
approximately 6%. We plan to continue to increase revenue from existing
customers by

     - improving 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 emergency departments and urgent
care centers will grow as patient visits increase and hospital consolidation
continues.

     Furthermore, we believe that our market share of larger volume hospital
emergency departments and urgent care centers 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 106 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
hospital emergency department and urgent care center physician staffing services
is highly fragmented. Approximately 75% 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
dedicated in-house mergers and acquisitions team. Since 1996, we have completed
17 acquisitions. We expect to continue to fund acquisitions with a combination
of cash and earnout payments based on future operating performance.

     IMPLEMENT OPERATIONS IMPROVEMENT PROGRAM.  We have recently initiated a
comprehensive program to maximize productivity and improve profitability in our
administrative areas. Our operations improvement program was approved in the
second quarter of 1998. The three primary initiatives of the operations
improvement program include:

     - integrating our twelve billing locations into a national network of four
       billing centers operating on the uniform IDX billing system;

     - consolidating call centers from four locations to one central location;
       and

     - reducing controllable costs.

     We began the operations improvement program in the second half of 1998 and
we expect substantially all of the initiatives to be fully implemented by the
middle of 2000.

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 15.9% of gross domestic product, or $1.8 trillion, by the
year 2005, representing a 6.4% compound annual growth rate. Hospital services
have historically represented the single largest component of these costs,
accounting for more than 40% 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 advent 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 the emergency department and
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 1997 approximately 5,000 U.S. hospitals operated hospital
emergency departments and urgent care centers and 80% of these hospitals had
outsourced their hospital emergency department and urgent care center
departments. According to the American Hospital Association, hospital emergency
departments and urgent care centers handle nearly 100 million patient visits
annually, and nearly 40% of all hospital inpatient admissions originate in the
hospital emergency department and urgent care center. According to the American
Hospital Association, the average number of patient visits per hospital
emergency department and urgent care center

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increased at a compound annual growth rate of 3.0% between 1988 and 1996. The
market for outsourced hospital emergency department and urgent care center
medical services is highly fragmented. Approximately 80% 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 and urgent care center medical services, the market for outsourced
radiology services is highly fragmented and served by a large number of small
local and regional radiology groups. Competition for outsourced radiology
services contracts is intense and based on the ability of the radiology group to
provide a high level of medical and non-medical services. Smaller radiology
groups are often at a competitive disadvantage since they often lack the
capital, range of medical equipment and information systems required to meet the
increasingly complex needs of hospitals.

     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 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 medical services rendered by our contracted and employed physicians.
Under the fee-for-service arrangements, we receive direct or indirect
disbursements from patients and payors of the amounts collected. 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 for physician coverage.

     In 1999, approximately 78% 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 9 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 radiologists and primary care physicians employed by
us, who are paid a base salary. The hourly rate varies if 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

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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 and competing for and/or soliciting our
clients. As of December 31, 1999, we had working relationships with
approximately 2,100 physicians, of which approximately 1,430 were independently
contracted, and over 250 other healthcare professionals.

SERVICE LINES

     We provide a full range of outsourced physician staffing and administrative
services for hospital emergency department and urgent care centers, radiology,
inpatient services, pediatrics, and other departments of the hospital. As
hospitals experience growing pressure from managed care companies and other
payors to reduce costs while maintaining or improving the quality of service, we
believe hospitals will increasingly turn to single-source providers of
outsourced physician staffing and administrative services with an established
track record of success. 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 the hospital
emergency department and urgent care center in the United States. Approximately
85% of our net revenue less provision for uncollectibles in 1999 came from
hospital emergency department and urgent care center contracts. As of December
31, 1999, we independently contracted with or employed approximately 1,960
hospital emergency department and urgent care center physicians. We contract
with the hospital to provide qualified emergency physicians and other healthcare
providers for the hospital emergency department and urgent care center. In
addition to the core services of contract management, recruiting, credentialing,
staffing and scheduling, we provide our client hospitals with enhanced services
designed to improve the efficiency and effectiveness of the hospital emergency
department and urgent care center. 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. Information systems such as the
VBS(TM) documentation and billing information system are installed in some
client hospital emergency department and urgent care centers to improve
physician documentation and to track utilization of clinical resources.
Physician documentation templates ensure 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 urgent care center physician groups. The
acquired hospital emergency department and urgent care center 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 79
new outsourced hospital emergency department and urgent care center physician
staffing and administrative services 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 and urgent care center contracts attributed to acquisitions and
direct sales are contract terminations. Since 1996, 120 hospital

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emergency department and urgent care center 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 1999, we had a net loss of approximately 11 hospital emergency
department and urgent care center contracts.

     RADIOLOGY.  We believe we are the second largest provider 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,
1999, we employed over approximately 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, 1999, we independently contracted with or employed approximately 60
inpatient physicians. Since 1996, we experienced net revenue and contract growth
in our inpatient services business primarily due to new contract sales,
acquisitions, and to a lesser extent, rate increases on existing contracts.

     PEDIATRICS.  We are one of the largest providers of 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, 1999, we
independently contracted with or employed over 40 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 hospital emergency departments and urgent care centers, radiology,
inpatient services, pediatrics, and other areas of the hospital.

     Our outsourced physician staffing and administrative services include:

     - Contract Management

     - Staffing

     - Recruiting

     - Credentialing

     - Scheduling

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     - Payroll Administration and Benefits

     - Information Systems

     - Consulting Services

     - Billing and Collection

     - Risk Management

     - Continuing Education Services

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

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

     RECRUITING.  Many hospitals lack the resources necessary to identify and
attract specialized, career-oriented physicians. We have a staff of over 25
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 currently in operation at the majority of the operating units,
with final rollout scheduled to be completed by the end of the year. The
database uses the American Medical Association Masterfile of over 700,000
physicians as the raw data source on potential candidates. Recruiters contact
potential 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.

     CREDENTIALING.  We conduct a comprehensive review of a candidate's
background, academic records and previous medical experience. Once a candidate's
application is complete, it is loaded into our proprietary credentials software
program. While the hospital has the ultimate responsibility for verifying
credentials prior to granting medical staff privileges, we conduct this
extensive review prior to presenting the candidate, ensuring that only qualified
candidates are presented to the client.

     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
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<PAGE>   11

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 VBS, a system that facilitates the
documentation, utilization review, coding and billing of the professional
services of the emergency physicians to ensure appropriate reimbursement and
TeamWorks(TM), a national physician database and software package that
facilitates the recruitment and retention of physicians and supports our
contract requisition, credentialing, automated application generation,
scheduling, and payroll operations.

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

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

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

     MANAGED CARE CONTRACTING.  We have developed extensive knowledge of the
treatment protocols, and related documentation requirements, of a variety of
managed care payors. As a result, we often participate in the negotiation of
managed care contracts to make those managed care relationships effective for
the patients, the payors, the physicians and the 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. We are in the process of consolidating all billing
and collections operations into four core billing facilities, each of which has
already been converted into our uniform billing system -- the IDX software
system. Two sites have been on the IDX system for several years, a third site
was converted in June 1998, and the last site was converted in February 1999.
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

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<PAGE>   12

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, approximately 4.3 of 5.0 million billed
annual patient encounters are being processed by the four billing facilities.
The remaining 0.7 million billed annual patient encounters, which are being
processed by third-party billing companies will be transitioned to one of the
four billing facilities. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Operations Improvement Program."

     We use a patient information system known as VBS(TM), which is presently
installed in 40 hospital emergency departments and urgent care centers that we
staff and manage. Using purchased software which has the capability to recognize
the spoken voice, we have installed personal computers in these hospital
emergency departments and urgent care centers and have modified the software to
enable the physician to generate the clinical note. This note is interfaced with
demographic information from the hospital information system. Each day, the
combined clinical note/demographic information is transmitted to our Plantation,
Florida operation center, where the information is scanned and electronically
loaded into the billing system and into a data warehouse for production of
sophisticated utilization and practice management reports.

     We also operate an internal collection agency, called IMBS, to handle our
outstanding receivables deemed uncollectible. This agency utilizes an advanced
collection agency software package linked to a predictive dialer. Presently,
approximately 90% of 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. By
combining the VBS(TM) system, the regional Team Health billing operation centers
on a common platform and the IMBS collection agency, we have built an integrated
system combining the generation of clinical information with the electronic
capture of billing information which passes unpaid accounts into an internal
collection agency. This advanced comprehensive billing and collection system
allows us to have full control of accounts receivable at each step of the
process.

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

     - incident reporting systems,

     - tracking/trending the cause of accidents and claims,

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

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

     - early intervention of malpractice claims.

     Through our risk management staff, the quality assurance staff and the
Medical Director, we conduct an aggressive claims 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.

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<PAGE>   13

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 13 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
</TABLE>

INSURANCE

     We require the physicians with whom we contract to obtain professional
liability insurance coverage. For both our independently contracted and employed
physicians, we typically arrange the provision of claims-made coverage of
$1,000,000 per incident and $3,000,000 annual aggregate per physician and
$1,000,000 per incident and $50,000,000 for all incidents during the term of the
policy which currently is 24 months with respect to Team Health. 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.

                                       12
<PAGE>   14

     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, 1999, we had approximately 2,300 employees, of which
approximately 1,300 worked in billings and collections, operations and support
and over 130 of which worked in clinics providing clinical 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 27 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 1999, we
derived approximately 8% 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 1999, we derived approximately 22%
of our net revenues less provision for uncollectibles from Florida. While we
seek to comply substantially with existing applicable laws relating to the
corporate practice of medicine and fee splitting, we cannot assure you that our
existing contractual arrangements, including noncompetition agreements, with
physicians, professional corporations and hospitals will not be successfully
challenged in certain states as unenforceable or as constituting the unlicensed
practice of medicine or prohibited fee-splitting.

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

     ANTI-KICKBACK STATUTES.  We are subject to the federal healthcare fraud and
abuse laws including the federal anti-kickback statute. The federal
anti-kickback statute prohibits the knowing and willful offering, payment,
solicitation or receipt of any bribe, kickback, rebate or other remuneration in
return for the referral
                                       13
<PAGE>   15

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 overutilization, 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 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 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, only proposed regulations have been issued
to clarify its meaning and application. Regulations for a predecessor law, Stark
I, which is applicable only to clinical laboratory services, were published in
August 1995 and remain in effect. However, neither the final Stark I regulations
nor the proposed Stark II regulations provide definitive guidance as to the
application of some key exceptions to Stark I and Stark II as
                                       14
<PAGE>   16

they relate to our arrangements with physicians and hospitals. We believe that
we can present reasonable arguments that our arrangements with physicians and
hospitals meet the requirements of an exception to Stark II. In addition, we
believe that these arrangements do not subvert the intent of Stark II as
indicated by comments made by Congress in connection with the enactment of Stark
I. 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 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
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<PAGE>   17

applied to us, could result in significant loss of reimbursement to us, thereby
significantly affecting our financial condition.

     FACILITY RULES AND REGULATIONS.  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, 1999 we had total indebtedness of $241.7
million. Our substantial indebtedness could have important consequences to our
business. For example, it could:

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

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

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

     - limit our ability to borrow additional funds.

     FAILURE TO COMPLY WITH ANY OF THE RESTRICTIONS CONTAINED IN OUR SENIOR BANK
FACILITIES OR THE INDENTURE 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,

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<PAGE>   18

     - 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, which currently is 24 months. 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 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. 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;
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<PAGE>   19

(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 our 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 unlicenced practice of medicine or
prohibited fee-splitting. If federal or state government officials challenge our
operations or arrangements with third parties which we have structured based
upon our interpretation of these laws, rules and regulations, the challenge
could potentially disrupt our business operations and we may incur substantial
defense costs, even if we successfully defend our interpretation of these laws,
rules and regulations. In the event regulatory action limited or prohibited us
from carrying on our business as we presently conduct it or from expanding our
operations to certain jurisdictions, we may need to make structural and
organizational modifications of our company and/or our contractual arrangements
with physicians, professional corporations and hospitals. Our operating costs
could increase significantly as 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.

     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

                                       18
<PAGE>   20

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. As of January 1, 1998, we began
using a "lockbox" model which we believe complies with the Medicare reassignment
rules and we 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. We are
reviewing our billing arrangements involving physician-controlled professional
corporations and, to ensure compliance with the Medicare reassignment rules, we
may modify those billing arrangements so that Medicare carriers send payments
for Medicare services provided by employed physicians to a "lockbox" bank
account under the control of the physician-controlled professional corporation.
The physician-controlled professional corporation, fulfilling its contractual
obligations to us, would then direct the bank to transfer the funds in that bank
account into a company bank account. In return, we would pay the
physician-controlled professional corporation an agreed upon fee for providing
its physician employees and provide management and administrative services to or
on behalf of the physician-controlled professional corporation. This change
would create additional costs related to the opening and maintenance of
additional bank accounts. 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 DEBTS OR
OBTAIN DEBT HOLDER CONSENT.  Legislators have introduced and may introduce in
the future numerous proposals into the United States Congress and state
legislatures relating to healthcare reform in response to various healthcare
issues. We cannot assure you as to the ultimate content, timing or effect of any
healthcare reform legislation, nor is it possible at this time to estimate the
impact of potential legislation. Further, although we exercise care in
structuring our arrangements with physicians, professional corporations,
hospitals and other facilities to comply in all significant respects with
applicable law, we cannot assure you that: (1) government officials charged with
responsibility for enforcing those laws will not assert that we or transactions
into which we have entered violate those laws or (2) governmental entities or
courts will ultimately interpret those laws in a manner consistent with our
interpretation. The continual flux of healthcare rules and regulations at the
federal, state and local level, could revise the future of our relationships
with the hospitals and physicians with whom we contract. In addition to the
regulations referred to above, aspects of our operations are also subject to
state and federal statutes and regulations governing workplace health and safety
and, to a small extent, the disposal of medical waste. Changes in ethical
guidelines and operating standards of professional and trade associations and
private accreditation commissions such as the American Medical Association and
the Joint Commission on Accreditation of Healthcare Organizations may also
effect our operations. Accordingly, changes in existing laws and regulations,
adverse judicial or administrative interpretations of these laws and regulations
or enactment of new legislation could force us to restructure our relationships
with physicians, professional corporations, hospitals and other facilities. This
could cause our operating costs to increase significantly. A restructuring could
also result in a loss of contracts or a reduction in revenues under existing
contracts. Moreover, if these laws require us to modify our structure and
organization to comply with these laws, our financing agreements, including the
indenture relating to our outstanding 12% senior subordinated notes due 2009 and
the senior credit facilities may prohibit such modifications and require us to
obtain the consent of the holders of such indebtedness or require the
refinancing of such indebtedness.

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<PAGE>   21

     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. The federal government has
implemented, through the Medicare program, a payment methodology for physician
services that sets physician fees according to a fee schedule known as the
Resource Based Relative Value System that, except for certain geographical and
other adjustments, pays similarly situated physicians the same amount for the
same services. Medicare authorities adjust the Resource Based Relative Value
System each year and Congress may, in its discretion, increase or decrease fees
paid in accordance with the schedule. To date, the implementation of the
Resource Based Relative Value System has reduced payment rates for some of the
procedures that hospital emergency department or urgent care center physicians
and radiologists have historically provided. Effective January 1, 1999, the
federal government adopted new regulations that provide for reductions in
payments for physician services over a four-year period ending in 2002. The new
regulations provide for the implementation of a resource-based methodology for
payment of physician practice expenses under the physician fee schedule. With
respect to radiology services and services provided in hospital emergency
departments and urgent care centers, the new regulations require a cumulative
reduction of 10% in the payments for these physician services. The federal
government will phase in this reduction over a four year period beginning in
1999 with reductions of 2.5% each year until 2002. These reductions will offset
the increases in payments for emergency department, urgent care center and
radiology physician services tied to the medical economics index and implemented
by the Medicare program, which historically have been approximately 2.5% per
year. We cannot assure you, however, that Medicare will continue to implement
the increases tied to the medical economics index. Consequently, we believe
that, with respect to emergency department, urgent care center and radiology
physician services, the portion of our revenues effected by the Resource Based
Relative Value System will remain constant over the next four years rather than
increasing. Over the last several years, with respect to emergency department,
urgent care center and radiology physician services, we derived approximately
$90 to $100 million of payments for services from sources to which the Resource
Based Relative Value System applies. 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.

                                       20
<PAGE>   22

     A RECLASSIFICATION OF OUR INDEPENDENT CONTRACTOR PHYSICIANS BY TAX
AUTHORITIES COULD REQUIRE US TO PAY RETROACTIVE TAXES AND PENALTIES.  As of
December 31, 1999, we contracted with approximately 1,430 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, 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 safeharbor 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 though two 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 or urgent care center physician
staffing context because federal law requires hospital emergency departments and
urgent care centers 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 startup 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 9 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,

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<PAGE>   23

the acquisition of healthcare businesses. We engage in evaluations of potential
acquisitions and are in various stages of discussion regarding possible
acquisitions, certain of which, if consummated, could be significant to us. Our
strategy of growing through acquisitions has presented some challenges in the
past. Some of the difficulties we have encountered include, problems identifying
all service and contractual commitments of the acquired entity, evaluating the
stability of the acquired entity's hospital contracts, integrating financial and
operational software, and accurately projecting physician and employee costs.
Moreover, because we have grown by acquisitions, we have had some difficulty
achieving consistent implementation of a compliance plan in the area of
physician documentation, procedure coding, and billing practices. Our strategy
of growing through acquisitions is also subject to the risk that we may not be
able to identify suitable acquisition candidates in the future, we may not be
able to obtain acceptable financing or we may not be able to consummate any
future acquisitions, any of which could inhibit our growth. In addition, in
connection with acquisitions, we may need to obtain the consent of third parties
who have contracts with the entity to be acquired, such as managed care
companies or hospitals contracting with the entity. We may be unable to obtain
these consents. If we fail to integrate acquired operations, fail to manage the
cost of providing our services or fail to price our services appropriately, our
operating results may decline. Finally, as a result of our acquisitions of other
healthcare businesses, we may be subject to the risk of unanticipated business
uncertainties or legal liabilities relating to such acquired businesses for
which we may not be indemnified by the sellers of the acquired businesses.

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

     THE HIGH LEVEL OF COMPETITION IN OUR INDUSTRY COULD ADVERSELY AFFECT OUR
CONTRACT AND REVENUE BASE. The provision of outsourced physician staffing and
administrative services to hospitals and clinics is characterized by a high
degree of competition. Such competition could adversely affect our ability to
obtain new contracts, retain existing contracts and increase our profit margins.
We compete with both national and regional enterprises, some of which have
substantially greater financial and other resources available to them. In
addition, some of these firms may have greater access than us to physicians and
potential clients. We also compete against local physician groups and
self-operated hospital emergency departments and urgent care centers for
satisfying staffing and scheduling needs.

     WE MAY BE UNABLE TO ADEQUATELY REPLACE SOME SERVICES MEDPARTNERS PROVIDED
TO US.  Prior to the recapitalization we operated within and were controlled by
MedPartners Corporate Compliance Program, which was designed to reduce the
likelihood of noncompliant activities by us. Now, we must implement our own
compliance program. MedPartners also provided us with certain corporate
services, including legal services, risk management, administration of certain
employment benefits, tax advice and preparation of tax

                                       22
<PAGE>   24

returns, software support services, and certain financial and other services. We
have not entered into along-term agreement with MedPartners to supply these
services. Our failure to obtain replacement services in a timely manner or the
failure of such services to adequately replace existing systems could interfere
with the operation of our business and detract management's attention from the
business.

     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 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. A
significant negative change in the financial condition of MedPartners could
prevent MedPartners from fulfilling its indemnification obligations. As such,
with respect to the indemnification rights granted to us in connection with the
recapitalization, we are subject to MedPartners' credit risk.

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

     These forward looking statements are identified by the use of terms and
phrases such as "anticipate", "believe", "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 ranging from
one to seven years and monthly rents ranging from $510 to $60,000. 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

                                       23
<PAGE>   25

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 EmCare, Inc. and InPhyNet Medical
Management, 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. EmCare, Inc. and InPhyNet Management, Inc. et al.
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 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 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 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 has been stayed until
the earlier of June 30, 2000 or twenty-one days after the issuance of an opinion
by the United States Supreme Court in United States ex rel. Stevens v. Vermont
Agency of Natural Resources, which may address whether private persons have
standing to bring qui tam actions alleging claims of fraud upon the government.

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, 1999.

                                    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,
1999. The Company has not declared any dividends on its shares of its common
stock during fiscal years 1998 and 1999.

                                       24
<PAGE>   26

ITEM 6.  SELECTED HISTORICAL FINANCIAL AND OTHER DATA

     Set forth below are selected historical financial data of Team Health for
the five fiscal years ended December 31, 1999.

          (1) We have derived and you should read the data in conjunction with
     the historical financial information for each of the three fiscal years
     ended December 31, 1999 from our audited financial statements and related
     notes thereto included elsewhere in this report, except for the items noted
     in footnote 2 to the table below.

          (2) In February 1996 and June 1997, MedPartners, Inc. ("MedPartners")
     combined with Pacific Physician Services, Inc. ("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 the second half of 1997, MedPartners combined the
     operations of the Hospital Services Division ("Hospital Services") of
     InPhyNet and the physician groups with Team Health, Inc. a wholly-owned
     subsidiary of Physician Services. The selected financial data below
     reflects the operations of these combinations for all periods included.

          (3) During 1999, 1998 and 1997, Team Health, Inc. acquired the
     operating assets of several medical staffing and related companies. The
     results of the selected historical financial data reflect these
     acquisitions as of their respective dates of acquisition. The accompanying
     notes of our audited financial statements reflect our pro forma results as
     though the acquisitions 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 financial statements and the related
notes thereto included elsewhere in this report.

<TABLE>
<CAPTION>
                                                      YEAR ENDED DECEMBER 31,
                                      --------------------------------------------------------
                                        1995        1996        1997        1998        1999
                                      --------    --------    --------    --------    --------
                                                       (DOLLARS IN THOUSANDS)
<S>                                   <C>         <C>         <C>         <C>         <C>
STATEMENT OF OPERATIONS DATA:
Net revenue.........................  $593,664    $664,029    $737,018    $805,403    $852,153
Less provisions for
  uncollectibles....................   181,969     204,069     227,362     257,618     309,713
                                      --------    --------    --------    --------    --------
Net revenue less provision for
  uncollectibles....................   411,695     459,960     509,656     547,785     542,440
Professional expenses...............   316,526     354,455     399,376     430,362     430,530
                                      --------    --------    --------    --------    --------
Gross profit........................    95,169     105,505     110,280     117,423     111,910
General and administrative
  expenses..........................    52,241      67,522      64,389      58,362      62,467
Depreciation and amortization.......     4,808       5,628       6,455       9,464       9,943
Novation program expense
  allocation........................        --          --      11,000          --          --
Merger expenses.....................       519       5,944      13,563          --          --
Management fee......................       594       1,055       1,660       2,941          --
Interest expense, net...............     2,256         535         886       5,301      20,909
Write down of assets................        --          --       2,117       2,992          --
Recapitalization expenses...........        --          --          --          --      16,013
Other operating expenses............       393        (204)        768         871         506
                                      --------    --------    --------    --------    --------
Income before income taxes..........    34,358      25,025       9,442      37,492       2,072
Income tax expense..................    12,798       8,415       5,761      15,883       1,250
                                      --------    --------    --------    --------    --------
</TABLE>

                                       25
<PAGE>   27

<TABLE>
<CAPTION>
                                                      YEAR ENDED DECEMBER 31,
                                      --------------------------------------------------------
                                        1995        1996        1997        1998        1999
                                      --------    --------    --------    --------    --------
                                                       (DOLLARS IN THOUSANDS)
<S>                                   <C>         <C>         <C>         <C>         <C>
Income before cumulative effect of a
  change in accounting principle....    21,560      16,610       3,681      21,609         822
Cumulative effect of a change in
  accounting principle..............        --          --          --         912          --
Dividends on preferred stock........        --          --          --          --      (8,107)
                                      --------    --------    --------    --------    --------
Net income (loss) available to
  common stockholders...............    21,560      16,610       3,681      20,697      (7,285)
                                      ========    ========    ========    ========    ========

OTHER DATA:
EBITDA(1)...........................    42,928      32,039      32,328      59,061      58,443
Adjusted EBITDA(2)..................        --          --          --      57,000      58,443

NET CASH PROVIDED BY (USED IN):
Operating Activities................     7,560      11,643      42,475      42,843      38,017
Investing Activities................    (6,241)     (9,224)    (34,339)    (22,864)    (15,038)
Financing Activities................    17,414      (4,869)     (8,255)    (21,975)      3,369
Capital Expenditures................     6,620       6,854       7,474       5,015      10,615

BALANCE SHEET DATA (AT END OF
  PERIOD):
Cash and cash equivalents...........  $  6,458    $  5,550    $  5,468    $  3,472    $ 29,820
Working capital.....................    64,276      82,921      90,487      98,780     103,808
Total assets........................   131,160     158,444     197,684     210,457     350,450
Total debt..........................    12,074       2,303       7,820       2,544     241,676
Mandatory redeemable preferred
  stock.............................        --          --          --          --     108,107
Total shareholders' equity
  (deficit).........................    73,288      97,596      96,393      98,729     (88,620)
</TABLE>

---------------
(1) EBITDA represents income before income taxes plus depreciation and
    amortization, net interest expense and what we consider non-operational and
    non-cash charges such as writedown of assets, Management fees, Novation
    Program expense, other operating expenses 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 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 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 for 1998 represents EBITDA less $2,061,000 of incremental
    stand alone costs that were incurred in fiscal year 1999 in order to replace
    certain services formerly provided by MedPartners. Adjusted EBITDA is
    presented only for fiscal years 1998 and 1999, the year immediately prior to
    and the year of the recapitalization.

                                       26
<PAGE>   28

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
emergency department and urgent care center physician staffing and
administrative services to hospitals and clinics in the United States, with 353
hospital contracts in 27 states. Since our inception in 1979, we have focused
primarily on providing outsourced services to hospital emergency departments and
urgent care centers, which accounted for approximately 85% of our net revenue
less provision for uncollectibles in 1999. 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 17 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 as of their
respective dates of acquisitions. The remaining acquisitions, however, have been
accounted for using the pooling of interests method of accounting whereby the
historical results of the acquired company are included in our consolidated
financial statements. Following each acquisition, we have converted the acquired
group's financial accounting systems to our systems infrastructure.

     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 75% of the market and generally lack the resources and depth of services
necessary to compete with national providers. Our acquisition strategy is to
target those companies with strong clinical reputations and quality contracts
with larger hospitals.

     CONTRACTS.  Our growth has historically resulted from increases in the
number of patient visits and fees for services provided under existing contracts
and the addition and acquisition of new contracts. Our 353 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 9 years.

     Approximately 78% 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

                                       27
<PAGE>   29

payments for such services are made directly to us. In states where the
physician 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 in 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 contract with the 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 all of 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 upon the individual contract experience. 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
performance of individual contracts as well as the company as a whole.

     Approximately 30% of our net 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 the 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 Health Care Financing Administration and some state
laws and regulations.

     ANTICIPATED IMPACT ON NET REVENUES OF THE RESOURCE BASED RELATIVE VALUE
SYSTEM.  The federal government has implemented, through the Medicare program, a
payment methodology for physician services that sets physician fees according to
a fee schedule referred to as the "Resource Based Relative Value System" that,
except for certain geographical and other adjustments, pays similarly situated
physicians the same amount for the same services. Medicare authorities adjust
the Resource Based Relative Value System each year and Congress may, in its
discretion, increase or decrease fees paid in accordance with the schedule. To
date, the implementation of the Resource Based Relative Value System has reduced
payment rates for some of the procedures that hospital emergency department or
urgent care center physicians and radiologists have historically provided.
Effective January 1, 1999, the federal government adopted new Medicare
regulations that provide for reductions in payments for physician services over
a four-year period ending in 2002. The new regulations provide for the
implementation of a resource-based methodology for payment of physician practice
expenses under the physician fee schedule. With respect to radiology services
and services provided in hospital emergency departments and urgent care centers,
the new regulations require a cumulative reduction of 9% in payments for these
physician services. The federal government will phase in this reduction over a
four year period beginning in 1999. These reductions will offset the increases
in payments for emergency department, urgent care center and radiology physician
services tied to the medical economics index and implemented by the Medicare
program, which historically have been approximately 2.5% per year. We cannot
assure you, however, that Medicare will continue to implement the increases tied
to the medical economics index. Consequently, we believe that, with respect to
emergency department, urgent care center
                                       28
<PAGE>   30

and radiology physician services, the portion of our revenues effected by the
Resource Based Relative Value System will remain constant over the next four
years rather than increasing. Over the last several years, with respect to
emergency department, urgent care center and radiology physician services, we
derived approximately $90 to $100 million of payments for services from sources
to which the Resource Based Relative Value System applies. 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 there
will not impose reductions in the Medicare physician fee schedule in the future.
These reductions could reduce our revenues.

     PROFESSIONAL EXPENSES.  Professional expenses primarily consist of fees
paid to physicians under contract with us, outside collection fees relating to
independent billing contracts, operating expenses of our internal billing
centers and professional liability insurance premiums for physicians under
contract. Approximately 68% of our physicians are independently contracted
physicians who are not employed by us, and the remainder are our employees. We
typically pay emergency department and urgent care center physicians a flat
hourly rate for each hour of coverage provided. We 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
claims made 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. As a result, our cash payments for medical
malpractice in 1999 were less than our accrued expense of approximately $21.9
million. 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 expense insurance policy that
we believe will cover us for all claims made during the term of the agreement,
which is a minimum of two years. 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.

     NOVATION PROGRAM.  Prior to closing the InPhyNet Medical Management, Inc.
merger, MedPartners and InPhyNet developed a program, the "Novation Program," to
provide a form of medical malpractice insurance for InPhyNet's physician
services, government services and hospital-based businesses. The program was
designed to protect MedPartners from InPhyNet's malpractice exposure for all
periods prior to the MedPartners merger and to allow InPhyNet to begin with new
first-year claim made insurance coverage as the effective date of the merger.
Reserves for liabilities within the Novation Program recorded on MedPartners'
balance sheet and not on our balance sheet. A related non-cash charge of $11.0
million, however, was allocated to us in the year ended December 31, 1997 and is
included in the line item for Novation Program expense allocation on the
consolidated and combined statements of operating. We did not assume these
liabilities in the recapitalization. Moreover, 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

                                       29
<PAGE>   31

liabilities and obligations for any claims for medical malpractice arising, any
time in connection with our operations and those of our subsidiaries prior to
the closing date of recapitalization transactions for which we or any of our
subsidiaries or physicians become liable.

     PARENT 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
costs incurred amounts recorded by us for these allocations on the consolidated
and combined financial statements $1.7 million, $2.9 million and $0 for the
years ended December 31, 1997, 1998 and 1999 respectively. The amounts allocated
are not necessarily indicative of the actual costs which may have incurred.
These expenses are expected to be significantly higher on a stand-alone basis.
Management and independent consultants have carefully examined the costs we
expect to incur as a stand-alone entity and estimate those costs would have been
approximately $5.9 million in 1998.

     MERGER COSTS.  We incurred non-recurring merger costs that were included in
income from operations during the year ended December 31, 1997 in association
with the pooling acquisitions that occurred in 1997. These costs included:

<TABLE>
<CAPTION>
                                                               YEAR ENDED
                                                              DECEMBER 31,
                                                                  1997
                                                              ------------
<S>                                                           <C>
Investment banking and professional fees....................    $ 6,778
Severance costs and related benefits........................    $ 6,785
                                                                -------
                                                                $13,563
                                                                =======
</TABLE>

     The severance costs and related benefits were incurred as a result of the
1997 mergers as we terminated a total of 26 employees and closed a corporate
office with respect to these mergers. In addition, as a result of the
combination with the Hospital Services division in 1997, we wrote down
approximately $2.1 million in assets.

     OPERATIONS IMPROVEMENT PROGRAM.  In 1998, we engaged an independent
consulting firm to coordinate a process improvement study, which focused largely
on our billing and collections services and on controllable costs. The process
improvement study indicated opportunities for improvement through, among other
things, a combination of insourcing all billing and collections functions and
improving product. In order to capitalize on these opportunities, we are
implementing a comprehensive program to maximize productivity and improve
profitability. The three primary initiatives of the operations improvement
program include:

     - integrating our twelve billing locations into a national network of four
       billing centers operating on the uniform IDX billing system;

     - consolidating call centers from four locations to one central location;
       and

     - reducing controllable costs.

     We began the operations improvement program in the second half of 1998, and
we expect substantially all of the initiatives to be fully implemented by the
middle of 2000.

     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 will realize 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 in an anticipated cash tax benefit of
approximately $5.7 million per year over each of the next 15 years, if fully
utilized.

                                       30
<PAGE>   32

     RESULTS OF OPERATIONS.  The following discussion provides an analysis of
our results of operations and should be read in conjunction with our
consolidated and combined 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 income and EBITDA as a
percentage of net revenue less provision for uncollectibles for the periods
indicated:

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                              -----------------------
                                                              1997     1998     1999
                                                              -----    -----    -----
<S>                                                           <C>      <C>      <C>
Fee for service revenue.....................................  115.5%   117.9%   129.2%
Contract revenue............................................   27.4     27.8     26.0
Other revenue...............................................    1.7      1.2      1.9
Net revenue.................................................  144.6    147.0    157.1
Provision for uncollectibles................................   44.6     47.0     57.1
Net revenue less provision for uncollectibles...............  100.0    100.0    100.0
                                                              =====    =====    =====
Professional expenses.......................................   78.4     78.6     79.4
General and administrative expenses.........................   12.6     10.7     11.5
Depreciation and amortization...............................    1.3      1.7      1.8
Novation program expense allocation.........................    2.2       --       --
Merger expenses.............................................    2.7       --       --
Recapitalization expense....................................     --       --      3.0
Management fee..............................................     .3       .5       --
Interest expense, net.......................................     .2      1.0      3.9
Write down of assets........................................     .4       .5       --
Other operating expenses....................................     .2       .2       --
Income Tax expense..........................................    1.1      2.9       .2
  Net income................................................    0.7      3.8       .2
Dividends on preferred stock................................     --       --      1.5
Net income (loss) available to common stockholders..........    0.7      3.8     (1.3)
OTHER FINANCIAL DATA
EBITDA(1)...................................................    6.3     10.8     10.8
Net Cash provided by (used in):
Operating Activities........................................    8.3      7.8      7.0
Investing Activities........................................   (6.7)    (4.2)    (2.8)
Financing Activities........................................   (1.6)    (4.0)     0.6
</TABLE>

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

  Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998.

     NET REVENUES.  Net revenues 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 as 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. Net revenue as a percentage of net revenue less provision
for uncollectibles was 157.1% in 1999 as compared to 147.0% in 1998.

                                       31
<PAGE>   33

     PROVISION FOR UNCOLLECTIBLES.  The provision for uncollectibles was $309.7
million in 1999 as 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 of uncollectibles was 57.1% in 1999 as compared to 47.0% in 1998. The
increase in the provision for uncollectibles is a 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 through 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 the increase. Offsetting the
increases was $51.7 million associated with contract terminations during the
periods and $14.0 million associated with an affiliate operation that is no
longer consolidated in 1999.

     PROFESSIONAL EXPENSES.  Professional expenses for 1999 were $430.5 million
compared to $430.4 million in 1998. Professional expenses remained essentially
flat 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 79.4% in 1999 from 78.6% in 1998.

     GROSS PROFIT.  Gross profit decreased to $111.9 million in 1999 from $117.4
million in 1998, primarily due to the reasons discussed above. Gross profit as a
percentage of revenues less provision for uncollectibles declined to 20.6%
during 1999 from 21.4% during 1998 due to the factors described above.

     GENERAL AND ADMINISTRATIVE EXPENSES.  General and administrative expenses
("G&A") for 1999 increased to $62.5 million from $58.4 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. G&A as a percent of
revenues less provision for uncollectibles increased to 11.5% in 1999 from 10.7%
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.

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

     NET INCOME.  Net income for 1999 was $.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.

                                       32
<PAGE>   34

  Year ended December 31, 1998 Compared to the Year ended December 31, 1997

     NET REVENUE.  Net revenue for 1998 increased $68.4 million, or 9.3% to
$805.4 million from $737.0 million in 1997. During 1998, fee-for-service revenue
was 80.2% of net revenue as compared to 79.9% in 1997. Contract revenue
represented 18.9% of net revenue in 1998 and 1997. Other revenue represented
0.8% of 1998 revenue and 1.2% of 1997 revenue. The increase in fee-for-service
revenue as a percentage of total revenue was primarily a result of rate
increases on fee-for-service contracts. Net revenue as a percentage of net
revenue less provision for uncollectibles was 147.0% in 1998 as compared to
144.6% in 1997.

     PROVISION FOR UNCOLLECTIBLES.  The provision for uncollectibles was $257.6
million in 1998 as compared to $227.4 million in 1997, an increase of $30.3
million or 13.3%. As a percentage of net revenue less provision for
uncollectibles, the provision for uncollectibles was 47.0% in 1998 as compared
to 44.6% in 1997. The increase in the provision for uncollectibles is a result
of increases in gross charges during 1998 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 1998 increased 7.5% to $547.8 million from $509.7 million
for 1997. 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 $22.6 million, or 5.6% to
$424.4 million in 1998 from $401.9 million in 1997. Acquisitions contributed
$40.3 million and new contracts obtained through incremental sales contributed
$29.0 million of the increase. Offsetting the increases was $55.6 million
associated with contracts terminated during the periods. We believe the net loss
of contracts is primarily attributable to issues related to the perceived
financial condition of MedPartners, uncertainty regarding our potential sale,
and the termination of a number of low margin contracts associated with
InPhyNet.

     PROFESSIONAL EXPENSES.  Professional expenses for 1998 increased 7.8% to
$430.4 million from $399.4 million in 1997. This increase was due primarily to
the net growth in contracts requiring additional medical professionals as well
as expected cost increases in professional and medical support costs. As a
percentage of net revenue less provision for uncollectibles, professional
expenses increased to 78.6% in 1998 from 78.4% in 1997.

     GROSS PROFIT.  Gross profit for 1998 increased 6.4% to $117.4 million from
$110.3 million in 1997. Gross profit as a percentage of revenue less provision
for uncollectibles decreased to 21.4% in 1998 from 21.6% in 1997, primarily due
to the factors described above.

     GENERAL AND ADMINISTRATIVE EXPENSES.  General and administrative expenses
for 1998 decreased 9.3% to $58.4 million from $64.4 million in 1997. General and
administrative expenses as a percentage of revenues less provision for
uncollectibles decreased to 10.7% in 1998 from 12.6% in 1997. The decrease in
general and administrative expenses was duly primarily to the ability to grow
revenue while eliminating duplicative corporate overhead expenses.

     DEPRECIATION AND AMORTIZATION.  Depreciation and amortization for 1998
increased to $9.5 million from $6.5 million in 1997. The increase was due
primarily to additional depreciation associated with equipment purchases and
increases in goodwill amortization associated with acquisitions.

     MERGER EXPENSES, NOVATION PROGRAM EXPENSE ALLOCATION, AND MANAGEMENT
FEES.  Merger expenses, Novation Program expense allocation, and Management fees
for 1998 decreased to $2.9 million from $26.2 million in 1997. This decrease was
primarily due to a combination of the following:

     - a decrease in merger expenses of $13.6 million from 1997 to 1998
       associated with acquisitions;

     - an $11.0 million non-recurring charge in 1997 from MedPartners for the
       Novation Program associated with InPhyNet's professional liability
       insurance coverage; and

     - an increase of $1.3 million in management fees from 1997 to 1998.

     NET INCOME.  Net income for 1998 increased to $20.7 million from $3.7
million in 1997. This increase was primarily due to the factors described above
with an offset from an increase of $4.4 million in interest
                                       33
<PAGE>   35

expense from 1997 to 1998. The increase in interest expense was the result of
our parent company internally assessing interest on the balance of the
intercompany account during 1998 which was not a consistent practice by our
parent in 1997. Also offsetting the increase in net income was an increase in
income tax expense of $10.1 million from 1997 to 1998.

LIQUIDITY AND CAPITAL RESOURCES

  Historical

     Historically, funds generated from operations, together with funds
available from MedPartners, have been sufficient to meet the Company's working
capital requirements and debt obligations and to finance any necessary capital
expenditures. Expansion of the Company's business through acquisitions may
require additional funds which, to the extent not provided by internally
generated sources, cash, and our senior credit facilities, will require the
Company to seek additional external financing.

     As of December 31, 1999, the Company has $103.8 million in working capital,
as compared to $98.8 million as of December 31, 1998. The Company's principal
sources of liquidity consisted of: (1) cash, cash equivalents, and marketable
equity securities aggregating $29.8 million as of December 31, 1999 and $3.5
million as of December 31, 1998; (2) accounts receivable totaling $152.4 million
as of December 31, 1999 and $148.4 million as of December 31, 1998; and (3)
$49.9 million of borrowing capacity under a revolving line of credit with a
syndicate of lenders as of December 31, 1999.

     For the year ended December 31, 1999, $38.0 million in cash was provided by
operations resulting from net income and non-cash charges and recapitalization
expenses offset by a negative change in operating assets and liabilities. The
change in operating assets and liabilities consists of increases in accounts
receivable and other assets offset by increases in accounts payable, accrued
malpractice and other liabilities. Cash of $15.0 million was used in investing
activities for the year ended December 31, 1999, primarily related to purchases
of property and equipment and payments under earnout agreements. Cash of $3.4
million was provided by financing activities for the year ended December 31,
1999 as proceeds from borrowings under the senior credit facilities and senior
subordinated notes exceeded payments made to MedPartners under the
recapitalization and the transaction costs of the recapitalization and the costs
of issuing the senior credit facilities and senior subordinated notes.
Additionally, the Company repaid $10.9 million of the term loans and other debt
during the period.

     For the year ended December 31, 1998, $42.8 million in cash was provided by
operations resulting from net income and non-cash charges offset by a negative
change in operating assets and liabilities. The change in operating assets and
liabilities consists of increases in accounts receivable offset by growth in
malpractice reserves and accrued compensation. Cash of $22.9 million was used in
investing activities for the year ended December 31, 1998 related to payments
for business acquisitions and purchases of property and equipment. Cash of $22.0
million was used in financing activities for the year ended December 31, 1998
due to working capital transfers from MedPartners.

     For the year ended December 31, 1997, $42.5 million in cash was provided by
operations resulting from net income combined with non-cash charges offset by a
negative change in operating assets and liabilities. The change in operating
assets and liabilities was primarily due to an increase in accrued compensation
and professional liability reserves offset by an increase in accounts
receivable, resulting from the start up of several new billing contracts during
1997, as well as a continuation of the delay in fee-for-service reimbursement
due to the Health Care Financing Administration's temporary moratorium on
issuing provider numbers for independent contractor physicians which began in
the middle of 1996. Cash of $34.3 million was used in investing activities for
the year ended December 31, 1997 related to payments for merger charges,
business acquisitions, and purchases of property and equipment. Cash of $8.3
million was used in financing activities for the year ended December 31, 1997
due to working capital transfers to MedPartners and the repayment of long-term
debt.

     We do not expect the impact of merger charges taken in historical periods
to be material with regard to results of operations, liquidity or capital
resources in the future.

                                       34
<PAGE>   36

  Following the Recapitalization

     We have significant amounts of scheduled debt payments, including interest
and principal repayments on the senior subordinated notes and under the senior
bank facilities. In addition, we may be required to make earnout payments
assumed by us in connection with the recapitalization. As of December 31, 1999,
we believe that the aggregate amount of these earnout payments will not exceed
$18.2 million. We intend to fund our future working capital, capital
expenditures and debt service requirements through cash flow generated from
operations and borrowings under the senior bank facilities. For the year ended
December 31, 1999, we generated cash from operations of approximately $38.0
million and made net capital expenditures of approximately $10.6 million.

     We believe that cash flow from operations and availability under the senior
bank facilities will provide adequate funds for our working capital needs,
planned capital expenditures, potential earnout payments and debt service
obligations for approximately one year. Any future acquisitions, joint ventures
or similar transactions will likely require additional capital and we cannot
assure you that any such capital will be available to us on acceptable terms or
at all. Our ability to fund our working capital needs, planned capital
expenditures and debt service obligations, to refinance indebtedness and to
comply with all of the financial covenants under our debt agreements, depends on
our future operating performance and cash flow, which in turn are subject to
prevailing economic conditions and to financial, business and other factors,
some of which are beyond our control.

MANAGEMENT INFORMATION SYSTEMS AND THE IMPACT OF THE YEAR 2000

     Our information technology department consists of an in-house staff of 71
professionals. This department provides support for all of the regional
operating units through a centralized, integrated network For selected regional
operating units with more complex needs, members of our professional staff are
located on site to provide support.

     We support our business operations through a wide area network. Based on
the commonality of functions across the business units, the wide area network
enhances the support of the business applications, facilitates communication
across the enterprise and allows flexibility in addressing changing business
needs and technology advancements. In addition, we are in the process of
upgrading our core applications to enhance the integration of the business
units.

     We have implemented a plan designed to ensure that all application software
and hardware used in connection with our management information systems,
including internally developed systems and software purchased from outside
vendors, will manage and manipulate data involving the transition of dates from
1999 to 2000 without functional or data abnormality and without inaccurate
results related to such dates. Due to the fact that existing software often
defines each year with two digits rather than four digits, our computers that
have date-sensitive software may recognize a date using "00" as occurring in the
year 1900 rather than the year 2000. This phenomenon could result in
abnormalities and inaccuracies and cause a disruption of our operations,
including a temporary inability to process customer orders, send invoices or
engage in other normal business activities. We spent approximately $1.7 million
implementing our year 2000 compliance plan as of December 31, 1999.

     Under the recapitalization agreement, MedPartners agreed to provide us with
some transition services. Some of these transition services involve our use of
MedPartners' hardware and software systems. Thus, we are subject to the risk
that these MedPartners systems are not Year 2000 compliant. In February 1999, we
mailed a letter to MedPartners requesting compliance.

     In addition to identifying and remedying our own noncompliant systems, we
have requested that each of our customers and suppliers take steps to ensure
that their own systems are year 2000 compliant. In February 1999, letters
requesting compliance were mailed to each of our customers and suppliers.

  Risks From Year 2000 Issues

     We believe that our year 2000 compliance plan has effectively addressed and
remediated our year 2000 issues for our systems. As of the date of this report,
we have not experienced any material disruption related to year 2000 issues.
Based upon our current assessment of our year 2000 program and the lack of any
material

                                       35
<PAGE>   37

disruptions of its internal systems as of the date of this report, Team Health
does not expect to experience any significant disruptions to its ability to
conduct normal business activities that would have a significant long term
effect on the results of its business operations.

  Inflation

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

  Seasonality

     Historically, our sales 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 income (loss) 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. We do not believe the adoption of SFAS No. 133 will
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 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 1999, the Company received a weighted average rate of 5.5% and
paid a weighted average of 5.6% 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
5.6% and the weighted average receive rate is 6.2%, using the rate in effect at
December 31, 1999.

     At December 31, 1999, the fair value of the Company's total debt, which has
a carrying value of approximately $241.7 million, was approximately $239.2
million. The Company had $139.3 million of variable debt outstanding at December
31, 1999, 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, 2000 than they did during
fiscal 1999, the Company's interest expense would increase, and income before
income taxes would decrease by approximately $0.9 million. This analysis does
not consider the effects of the reduced level of overall economic activity that
could exist in such an environment. Further, in the event of a change of such
magnitude, management could take actions to further mitigate its exposure to the
change. However, due to the uncertainty of the specific actions that would be
taken and their possible effects, the sensitivity analysis assumes no changes in
the Company's financial structure.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

                                       36
<PAGE>   38

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

     None.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

MANAGEMENT

  Directors and Executive Officers

     Our directors and executive officers are as follows:

<TABLE>
<CAPTION>
NAME                                        AGE                    POSITION
----                                        ---                    --------
<S>                                         <C>   <C>
Lynn Massingale, M.D......................  47    President, Chief Executive Officer and
                                                  Director
Michael Hatcher...........................  49    Chief Operating Officer
Jeffrey Bettinger, M.D....................  50    Executive Vice President, Billing and
                                                  Reimbursement
Stephen Sherlin...........................  54    Executive Vice President, Finance and
                                                  Administration
Robert C. Joyner..........................  52    Executive Vice President, General Counsel
David Jones...............................  32    Chief Financial Officer
Nicholas W. Alexos........................  36    Director
Dana J. O'Brien...........................  44    Director
Kenneth W. O'Keefe........................  33    Director
Timothy P. Sullivan.......................  41    Director
Tyler J. Wolfram..........................  33    Director
</TABLE>

     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 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 and has served as a Board Member for
the Center for Services Marketing at the Owen School of Business at Vanderbilt
University. 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.

     JEFFREY BETTINGER, M.D. has been Executive Vice President, Billing and
Reimbursement for Team Health since MedPartners' acquisition of InPhyNet in June
1997. For InPhyNet, Dr. Bettinger directed the Healthcare Financial Services
Division since 1992. Dr. Bettinger is a board certified emergency physician and
is a fellow of the American College of Emergency Physicians. Dr. Bettinger
received an M.D. from Hahnemann Medical College. In February 2000, Dr. Bettinger
terminated employment with Team Health.

     STEPHEN SHERLIN joined Team Health in January 1997 as Senior Vice
President, Finance and Administration, and was promoted to Executive Vice
President, Finance and Administration in July 1998. From 1993 until February
1996, when he retired for several months prior to joining Team Health, Mr.
Sherlin served as Vice President and Chief Financial Officer of the Tennessee
Division of Columbia/HCA. Mr. Sherlin has also served as Chief Financial Officer
for the Athens Community Hospital in Athens, Tennessee; Park West Medical Center
in Knoxville, Tennessee; and Doctors Hospital in Little Rock, Arkansas. Mr.
Sherlin has
                                       37
<PAGE>   39

operations responsibility for accounting, finance, human resources, information
technology and risk management. Mr. Sherlin is a graduate of Indiana University.
In February 2000, Mr. Sherlin assumed the additional responsibilities of
Executive Vice President, Billing and Reimbursement.

     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 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.

     TYLER J. WOLFRAM became a director in connection with the recapitalization.
Mr. Wolfram has served as a Managing Director of Cornerstone Equity Investors,
LLC since March 1998. From 1993 to March 1998, Mr. Wolfram held various
positions in the High Yield Group of Donaldson, Lufkin & Jenrette Securities
Corporation. Mr. Wolfram currently serves on the Board of Directors of True
Temper Sports, Inc. Mr. Wolfram received an A.B. from Brown University and an
M.B.A. from the Wharton School of the University of Pennsylvania.

                                       38
<PAGE>   40

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 1999 of those
persons who served as

          (1) the chief executive officer during 1999 and

          (2) our other four most highly compensated executive officers for 1999
     (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           BONUS(2)    COMPENSATION   COMPENSATION
 ---------------------------   ----   --------   --------   ---------------------   ----------   ------------   ------------
<S>                            <C>    <C>        <C>        <C>                     <C>          <C>            <C>
Lynn Massingale, M.D. .......  1999   $400,000   $200,000               --          $1,445,205    $ 43,055(3)    $2,088,260
  President and Chief          1998    400,000    150,000           60,000(1)(a)            --     107,237(4)       657,237
  Executive Officer
Jeffrey Bettinger, M.D. .....  1999    269,615     66,000               --          $  354,863      27,019(5)       717,497
  Executive Vice President,    1998    219,985     25,000            7,500(1)(a)            --       3,331(6)       248,316
  Billing and Reimbursement
Michael Hatcher..............  1999    250,000    100,000               --          $  403,253     118,291(7)       871,543
  Chief Operating Officer      1998    239,154     80,000           32,400(1)(a)            --      20,865(8)       340,020
Stephen Sherlin..............  1999    175,000     52,500               --          $  282,277       9,303(9)       519,080
  Executive Vice President,    1998    143,608     30,000            3,000(1)(a)            --      5,595(10)       179,203
  Finance and Administration
David Jones..................  1999    154,385     42,000           10,000(1)(b)    $  225,822     73,735(11)       495,942
  Chief Financial Officer      1998    137,231     55,919           13,500(1)(a)            --     16,032(12)       209,182
</TABLE>

---------------
 (1)(a) Represents options to acquire shares of MedPartners' common stock
        granted during 1998 under the MedPartners Option Plan (as defined
        below).

 (1)(b) Represents options granted during 1999 under the Team Health Option Plan
        (as defined below).

 (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
Jeffrey Bettinger, M.D. ....................................  $284,507
Michael Hatcher.............................................  $323,303
Stephen Sherlin.............................................  $211,079
David Jones.................................................  $168,863
</TABLE>

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

<TABLE>
<S>                                                           <C>
Lynn Massingale, M.D. ......................................  $   345,315
Jeffrey Bettinger, M.D. ....................................  $    45,512
Michael Hatcher.............................................  $    51,717
Stephen Sherlin.............................................  $    47,170
David Jones.................................................  $    37,552
</TABLE>

 (3) Amounts shown reflect premiums paid for life insurance coverage ($12,129),
     medical insurance ($4,227), estate planning ($5,000), dental insurance
     ($580), long term disability insurance ($1,480), matching contributions
     under our 401(k) plan ($4,800), automobile allowance ($9,000), and deferred
     compensation ($5,840).

                                       39
<PAGE>   41

 (4) Amounts shown reflect premiums paid for life insurance coverage ($52,428),
     medical insurance ($1,885), dental insurance ($224) and long term
     disability insurance ($1,400) and matching contributions under our 401(k)
     plan ($4,800), automobile allowance ($9,000) and deferred compensation
     ($37,500).

 (5) Amounts shown reflect premiums paid for life insurance coverage ($360),
     medical insurance ($6,047), dental insurance ($580), long term disability
     insurance ($925), matching contribution under our 401(k) plan ($4,800), and
     automobile allowance ($14,308).

 (6) Amounts shown reflect premiums paid for life insurance coverage ($384),
     medical insurance ($2,023) and dental insurance ($224) and long term
     disability insurance ($700).

 (7) Amounts shown reflect premiums paid for life insurance coverage ($360),
     medical insurance ($8,204), dental insurance ($802), long-term disability
     insurance ($925), automobile allowance ($6,000), matching contributions
     under our 401(k) plan ($4,800), and income from exercise of MedPartner's,
     Inc. stock options of $(97,200).

 (8) Amounts shown reflect premiums paid for life insurance coverage ($480),
     medical insurance ($2,827), dental insurance ($309) and long-term
     disability insurance ($4,149) and automobile allowance ($6,000), matching
     contributions under our 401(k) plan ($4,800) and estate and financial
     planning benefits ($2,300).

 (9) Amounts shown reflect premiums paid for life insurance coverage ($252),
     medical insurance ($2,113), dental insurance ($290), long term disability
     insurance ($648) and automobile allowance ($6,000).

(10) Amounts shown reflect premiums paid for life insurance coverage ($336),
     medical insurance ($1,885), dental insurance ($224) and long term
     disability insurance ($612) and automobile allowance ($2,538).

(11) Amounts shown reflect premiums paid for life insurance coverage ($230),
     health insurance ($5,736), dental insurance ($802), long term disability
     insurance ($592), automobile allowance ($4,200), matching contributions
     under our 401(k) plan ($4,800), and income from exercise of MedPartners,
     Inc. stock options of ($57,375).

(12) Amounts shown reflect premiums paid for life insurance coverage ($269),
     health insurance ($5,655), dental insurance ($618) and long term disability
     insurance ($490) and automobile allowance ($4,200) and matching
     contributions under our 401(k) plan ($4,800).

STOCK OPTION PLANS

     Prior to the recapitalization, each of the Named Executive Officers
participated in the MedPartner's Inc. stock option plan (the "MedPartners Option
Plan") and each of the Named Executive Officers presently holds options issued
under that plan. 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 each of the plans is presented below, as applicable.

                                       40
<PAGE>   42

OPTION GRANTS IN LAST FISCAL YEAR

     No options were granted to any of the Named Executive Officers during 1999
under the MedPartners Option Plan. The chart below sets forth all options
granted to the Named Executive Officers under the Team Health Option Plan during
1999.

<TABLE>
<CAPTION>
                                                                                          POTENTIAL REALIZABLE
                                      INDIVIDUAL GRANTS                                         VALUE AT
                                 ---------------------------                              ASSUMED ANNUAL RATES
                                  NUMBER OF      PERCENT OF                                        OF
                                  SECURITIES       TOTAL                                       STOCK PRICE
                                  UNDERLYING    OPTIONS/SARS                                APPRECIATION FOR
                                 OPTIONS/SARS    GRANTED TO    EXERCISE OF                     OPTION TERM
                                   GRANTED      EMPLOYEES IN   BASE PRICE    EXPIRATION   ---------------------
             NAME                    (#)        FISCAL YEAR      ($/SH)         DATE       5%($)       10%($)
             ----                ------------   ------------   -----------   ----------   --------    ---------
<S>                              <C>            <C>            <C>           <C>          <C>         <C>
Lynn Massingale, M.D. .........         --            --             --          --            --           --
Jeffrey Bettinger, M.D. .......         --            --             --          --            --           --
Michael Hatcher................         --            --             --          --            --           --
Stephen Sherlin................         --            --             --          --            --
David Jones....................     10,000         33.33%         $1.50            (1)     $7,162(2)   $17,154(2)
</TABLE>

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

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

     OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES.  The following table sets forth the number of shares acquired and value
realized with respect to options exercised during 1999 as well as the number of
securities underlying unexercised options held by each of the Named Executive
Officers and the value of such options at the end of 1999:

<TABLE>
<CAPTION>
                                                                 NUMBERS OF SECURITIES           VALUE OF UNEXERCISED
                                                                 UNDERLYING UNEXERCISED        IN-THE-MONEY OPTIONS AT
                           SHARES ACQUIRED                     OPTIONS AT FISCAL YEAR END          FISCAL YEAR END
NAME                         ON EXERCISE     VALUE REALIZED   (#)EXERCISABLE/UNEXERCISABLE   ($)EXERCISABLE/UNEXERCISABLE
----                       ---------------   --------------   ----------------------------   ----------------------------
<S>                        <C>               <C>              <C>                            <C>
Lynn Massingale, M.D. ...          --                --                   80,000/0(1)                 $123,750/0(3)
Jeffrey Bettinger,
  M.D. ..................          --                --                   10,000/0(1)                 $ 15,469/0(3)
Michael Hatcher..........      32,400           $97,200                   10,800/0(1)                 $      0/0
Stephen Sherlin..........          --                                      4,000/0(1)                 $  6,188/0(3)
David Jones..............      13,500           $57,375               4,500/10,000(2)                 $      0/0
</TABLE>

---------------
(1) Consists entirely of options granted under the MedPartners Stock Option
    Plan.

(2) Consists of 4,500 options granted under the MedPartners Option Plan prior to
    1999 and the 10,000 options granted under the Team Health Option Plan during
    1999.

(3) Value of unexercised options at fiscal year-end represents the difference
    between the exercise price of any outstanding-in-the-money options and
    $5.06, the fair market value of MedPartners Shares on December 31, 1999. At
    the closing of the Recapitalization, all options were fully vested and
    immediately exercisable.

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.

                                       41
<PAGE>   43

EMPLOYMENT AGREEMENTS

     In connection with the recapitalization transactions, we entered into
employment agreements with some members of our senior management. The material
terms of these agreements for our Named Executive Officers are summarized below:

<TABLE>
<CAPTION>
                                                              ANNUAL BASE
NAMED EXECUTIVE OFFICER                   TERM                 SALARY(1)                BONUS
-----------------------                   ----                -----------               -----
<S>                           <C>                             <C>            <C>
H. Lynn Massingale, M.D. ...  5 years from March 11, 1999      $400,000      50% of base salary if
                                                                             certain of our financial
                                                                             goals are reached
Michael L. Hatcher..........  5 years from March 11, 1999      $250,000      40% of base salary if
                                                                             certain of our financial
                                                                             goals are reached
</TABLE>

<TABLE>
<CAPTION>
NAMED EXECUTIVE OFFICER                SEVERANCE COMPENSATION               NONCOMPETE AGREEMENT
-----------------------                ----------------------               --------------------
<S>                               <C>                                 <C>
H. Lynn Massingale, M.D. .......  If the agreement is terminated      The executive has agreed not to
                                  by us without cause, by the         disclose our confidential
                                  executive with good reason or       information, solicit our
                                  because of the executive's death    employees or contractors or
                                  or disability, the executive        compete with us or interfere
                                  will receive two years of base      with our business for two years
                                  salary and may receive a portion    after his employment with us has
                                  of his bonus.                       been terminated. The agreement
                                                                      provides, however, that the
                                                                      executive may practice medicine
                                                                      at any hospital that we do not
                                                                      staff.
Michael L. Hatcher..............  If the agreement is terminated      The executive has agreed not to
                                  by us without cause, by the         disclose our financial goals are
                                  executive with good reason or       reached confidential
                                  because of the executive's death    information, solicit our
                                  or disability, the executive        employees or contractors or
                                  will receive two years of base      compete with us or interfere
                                  salary and may receive a portion    with our business for two years
                                  of his bonus.                       after his employment with us has
                                                                      been terminated.
</TABLE>

<TABLE>
<CAPTION>
                                                              ANNUAL BASE
NAMED EXECUTIVE OFFICER                   TERM                 SALARY(1)                BONUS
-----------------------                   ----                -----------               -----
<S>                           <C>                             <C>            <C>
Jeffrey D. Bettinger,         5 years from March 11, 1999      $250,000      20% of base salary if
  M.D. .....................                                                 certain of our financial
                                                                             goals are reached and an
                                                                             additional 20% of base
                                                                             salary if certain of the
                                                                             financial goals of our
                                                                             affiliates are reached
Stephen Sherlin.............  5 years from March 11, 1999      $175,000      30% of base salary if
                                                                             certain of our financial
                                                                             goals are reached
David P. Jones..............  5 years from March 11, 1999      $140,000      30% of base salary if
                                                                             certain of our financial
                                                                             goals are reached
</TABLE>

                                       42
<PAGE>   44

<TABLE>
<CAPTION>
NAMED EXECUTIVE OFFICER                SEVERANCE COMPENSATION               NONCOMPETE AGREEMENT
-----------------------                ----------------------               --------------------
<S>                               <C>                                 <C>
Jeffrey D. Bettinger, M.D. .....  If the agreement is terminated      The executive has agreed not to
                                  by us without cause or because      disclose our confidential
                                  of the executive's death or         information, solicit our
                                  disability, the executive will      employees or contractors or
                                  receive one year of base salary     compete with us or interfere
                                  and may receive a portion of his    with our business for three
                                  bonus.                              years after his employment with
                                                                      us has been terminated. The
                                                                      agreement provides, however,
                                                                      that after the termination of
                                                                      his employment, the executive
                                                                      may provide consulting services,
                                                                      other than to three of our
                                                                      competitors.
Stephen Sherlin.................  If the agreement is terminated      The executive has agreed not to
                                  by us without cause or because      disclose our confidential
                                  of the executive's death or         information, solicit our
                                  disability, the executive will      employees or contractors or
                                  receive one year of base salary     compete with us of interfere
                                  and may receive a portion of his    with our business for two years
                                  bonus.                              after his employment with us has
                                                                      been terminated.
David P. Jones..................  If the agreement is terminated      The executive has agreed not to
                                  by us without cause or because      disclose our confidential
                                  of the executive's death or         information, solicit our
                                  disability, the executive will      employees or contractors or
                                  receive one year of base salary     compete with us or interfere wit
                                  and may receive a portion of his    our business for two years after
                                  bonus.                              his employment with us has been
                                                                      terminated.
</TABLE>

---------------
(1) As may be increased by Team Health from time to time.

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.

                                       43
<PAGE>   45

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. 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.

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

<TABLE>
<CAPTION>
                                                      PERCENTAGE OF     PERCENTAGE OF
                                                       OUTSTANDING       OUTSTANDING     PERCENTAGE OF
BENEFICIAL OWNER                                     PREFERRED UNITS    COMMON UNITS     VOTING UNITS
----------------                                     ---------------    -------------    -------------
<S>                                                  <C>                <C>              <C>
Cornerstone Equity Investors IV, L.P. .............       42.0%             38.1%            38.1%
  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. ........       42.0              38.1             38.1
  c/o Madison Dearborn Partners
  Three First National Plaza, Suite 3800
  Chicago, Illinois 60602
  Attention: Timothy P. Sullivan
Healthcare Equity Partners, L.P....................        2.3               2.1              2.1
  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......................        6.8              15.2             15.2
</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.

                                       44
<PAGE>   46

     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.

     Under the recapitalization agreement, MedPartners has 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

                                       45
<PAGE>   47

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.

CORPORATE PASS-THROUGH CHARGES

     MedPartners provided certain common services for us and other MedPartners
affiliates, including group insurance programs. Many of these services represent
services provided by third parties whereby MedPartners incurred the cost of the
service on behalf of us. MedPartners charged us for the estimated cost of these
services. The costs for these services and/or expenses have been allocated to us
by MedPartners based upon certain allocation methodologies determined by
MedPartners. Accordingly, there is no assurance that the amounts allocated for
such items provided by MedPartners would be indicative of the actual amounts
that we would have incurred on a stand-alone basis.

MANAGEMENT SERVICES AGREEMENT

     In connection with the recapitalization, we entered into a management
services agreement with Cornerstone, Madison Dearborn and Beecken Petty under
which each of Cornerstone, Madison Dearborn and Beecken Petty will agree 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 will collectively receive an annual advisory fee of $500,000, plus
reasonable out-of-pocket expenses (payable quarterly). Additionally,
Cornerstone, Madison Dearborn and Beecken Petty also received a one time
transaction fee and reasonable out of pocket expenses in connection with the
closing of the recapitalization. The management services agreement has an
initial term of 3 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.

NET TRANSFERS TO/FROM PARENTS TO PARENTS' SUBSIDIARIES

     MedPartners and Physician Services have paid some of our third party
liabilities. MedPartners and Physician Services have made advances to us to fund
operating and investing activities, including acquisitions, net of amounts
advanced to MedPartners and Physician Services from operating cash flows
generated by us. Such net transfers are included as part of MedPartners' and
Physician Services' equity because we were not required to settle these amounts
as part of the recapitalization.

CORPORATE EXPENSE ALLOCATION

     Prior to the recapitalization, MedPartners and Physician Services provided
some corporate services to us, including legal services, risk management, some
employment benefit administration, tax advice and preparation of tax returns,
software support services and some financial and other services. These fees were
allocated by MedPartners and Physician Services to us and approximate costs
incurred. The amounts recorded by us for these allocations in the consolidated
and combined financial statements were approximately $1.7 million, $2.9 million
and $0 for the years ended December 31, 1997, 1998 and 1999, respectively. The
amounts allocated by MedPartners and Physician Services were not necessarily
allocated on a basis which approximated our estimated usage of such services,
and consequently, were not necessarily indicative of the actual costs which may
have been incurred had we operated as an entity unaffiliated with MedPartners or
Physician Services.

                                       46
<PAGE>   48

However, our management believes that the allocation is reasonable and in
accordance with the Securities and Exchange Commission's Staff Accounting
Bulletin No. 55.

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 which 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 $502,000 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, a joint venture
of Team Health. In 1999, Park Med Ambulatory Care, PC paid $79,000 to Park Med
Properties in connection with the lease agreement.

                                       47
<PAGE>   49

                                    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 Income
        Consolidated Statements of Changes in Net Invested Capital and
       Stockholders' Equity (Deficit)
        Consolidated Statements Cash Flows
       Notes to the Consolidated Financial Statements

(2) Financial Statements Schedules

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

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

(b) Reports on Form 8-K

     The Company filed no reports on Form 8-K during the quarter ended December
     31, 1999.

(c) Exhibits

     See Exhibit Index.

                                       48
<PAGE>   50

                               TEAM HEALTH, INC.

                       CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

                                    CONTENTS

<TABLE>
<S>                                                           <C>
Report of Independent Auditors..............................   50
Consolidated Balance Sheets.................................   51
Consolidated Statements of Operations and Comprehensive
  Income....................................................   52
Consolidated Statements of Changes in Net Invested Capital
  and Stockholders' Equity (Deficit)........................   53
Consolidated Statements of Cash Flows.......................   54
Notes to the Consolidated Financial Statements..............   55
</TABLE>

                                       49
<PAGE>   51

                         REPORT OF INDEPENDENT AUDITORS

Board of Directors
Team Health, Inc.

     We have audited the accompanying consolidated balance sheets of Team
Health, Inc. as of December 31, 1998 and 1999, and the related consolidated
statements of operations and comprehensive income, net invested capital and
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 1999. 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, 1998 and 1999, and the consolidated results of operations
and cash flows for each of the three years in the period ended December 31,
1999, 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.

     As discussed in Note 16 to the financial statements, in 1998 the Company
changed its method for accounting for the costs of start-up activities.

                                          /s/ ERNST & YOUNG LLP

Nashville, Tennessee
February 9, 2000, except for Note 17
as to which the date is February 23, 2000

                                       50
<PAGE>   52

                               TEAM HEALTH, INC.

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                              --------------------
                                                                1998        1999
                                                              --------    --------
                                                                 (IN THOUSANDS)
<S>                                                           <C>         <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................  $  3,472    $ 29,820
  Accounts receivable, less allowance for uncollectibles of
     $141,668 and $125,067 at December 31, 1998 and 1999,
     respectively...........................................   148,447     152,376
  Prepaid expenses and other current assets.................     3,100       5,252
                                                              --------    --------
Total current assets........................................   155,019     187,448
Property and equipment, net.................................    14,886      19,570
Intangibles, net............................................    36,958      36,574
Deferred income taxes.......................................        --      86,403
Other.......................................................     3,594      20,455
                                                              --------    --------
                                                              $210,457    $350,450
                                                              ========    ========
LIABILITIES, REDEEMABLE PREFERRED STOCK, NET INVESTED
  CAPITAL AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Accounts payable..........................................  $  7,108    $ 14,185
  Accrued compensation and physician payable................    38,631      39,939
  Other accrued liabilities.................................    10,336      16,740
  Current maturities of long-term debt......................       164      12,776
                                                              --------    --------
Total current liabilities...................................    56,239      83,640
Long-term debt, less current maturities.....................     2,380     228,900
Other non-current liabilities...............................    53,109      18,423
                                                              --------    --------
                                                               111,728     330,963
Commitments and Contingencies
Mandatory redeemable preferred stock........................        --     108,107
Net invested capital........................................    98,729          --
Common Stock, $0.01 par value 12,000 shares authorized,
  10,000 shares issued and outstanding......................        --         100
Retained earnings (deficit).................................        --     (88,720)
                                                              --------    --------
                                                              $210,457    $350,450
                                                              ========    ========
</TABLE>

                            See accompanying notes.
                                       51
<PAGE>   53

                               TEAM HEALTH, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                            AND COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                             --------------------------------
                                                               1997        1998        1999
                                                             --------    --------    --------
                                                                      (IN THOUSANDS)
<S>                                                          <C>         <C>         <C>
Fee for service revenue....................................  $588,712    $646,042    $700,830
Contract revenue...........................................   139,438     152,545     141,129
Other revenue..............................................     8,868       6,816      10,194
                                                             --------    --------    --------
     Net revenue...........................................   737,018     805,403     852,153
Provision for uncollectibles...............................   227,362     257,618     309,713
                                                             --------    --------    --------
     Net revenue less provision for uncollectibles.........   509,656     547,785     542,440
Professional expenses......................................   399,376     430,362     430,530
                                                             --------    --------    --------
     Gross profit..........................................   110,280     117,423     111,910
General and administrative.................................    64,389      58,362      62,467
Depreciation and amortization..............................     6,455       9,464       9,943
Recapitalization expense...................................        --          --      16,013
Merger expense.............................................    13,563          --          --
Novation program expense allocation........................    11,000          --          --
Management fee.............................................     1,660       2,941          --
Other operating expenses...................................       768         871         506
Interest expense, net......................................       886       5,301      20,909
Write down of assets.......................................     2,117       2,992          --
                                                             --------    --------    --------
  Income before income taxes and cumulative effect of a
     change in accounting principle........................     9,442      37,492       2,072
Income tax expense.........................................     5,761      15,883       1,250
                                                             --------    --------    --------
  Income before cumulative effect of a change in accounting
     principle.............................................     3,681      21,609         822
Cumulative effect of a change in accounting principle, net
  of taxes of $559.........................................        --         912          --
                                                             --------    --------    --------
     Net income............................................     3,681      20,697         822
Dividends on preferred stock...............................        --          --       8,107
                                                             --------    --------    --------
     Net income (loss) available to common stockholders....     3,681      20,697      (7,285)
                                                             --------    --------    --------
Other comprehensive income:
  Unrealized gains on securities...........................       147         645          --
  Reclassification for gains included in net income........        --        (493)         --
  Income tax expense.......................................       (56)       (245)         --
                                                             --------    --------    --------
     Other comprehensive income (loss).....................        91         (93)         --
                                                             --------    --------    --------
Comprehensive income (loss)................................  $  3,772    $ 20,604    $ (7,285)
                                                             ========    ========    ========
</TABLE>

                            See accompanying notes.
                                       52
<PAGE>   54

                               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, 1996..........................  $  97,596       --    $ --    $     --
  Beginning balance of immaterial poolings of
     interests entities...............................        377       --      --          --
  Management fees.....................................      1,660       --      --          --
  Changes in tax accounts, included in net invested
     capital..........................................      1,126       --      --          --
  Net transfers from parents and parents'
     subsidiaries.....................................     (8,138)      --      --          --
  Net income..........................................      3,681       --      --          --
  Other comprehensive income..........................         91       --      --          --
                                                        ---------   ------    ----    --------
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 income..........................................     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 income 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)
                                                        =========   ======    ====    ========
</TABLE>

                            See accompanying notes.
                                       53
<PAGE>   55

                               TEAM HEALTH, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,
                                                              -----------------------------------
                                                                1997         1998         1999
                                                              ---------    ---------    ---------
                                                                        (IN THOUSANDS)
<S>                                                           <C>          <C>          <C>
OPERATING ACTIVITIES
  Net income................................................  $   3,681    $  20,697    $     822
  Adjustments to reconcile net income:
    Depreciation and amortization...........................      6,455        9,464        9,943
    Amortization of deferred financing costs................         --           --        1,421
    Provision for uncollectibles............................    227,362      257,618      309,713
    Deferred income taxes...................................         --           --      (10,406)
    Pre-recapitalization income tax expense.................         --           --        3,131
    Write down of assets....................................      2,117        2,992           --
    Novation program expense allocation.....................     11,000           --           --
    Loss (gain) on sale of equipment........................        947         (463)          68
    Merger expenses.........................................     13,563           --           --
    Management fees.........................................      1,660        2,941           --
    Recapitalization expense................................         --           --       16,013
    Cumulative effect of change in accounting principle.....         --        1,471           --
    Changes in operating assets and liabilities, net of
      acquisitions:
      Accounts receivable...................................   (244,544)    (272,581)    (314,597)
      Prepaids and other assets.............................      3,914        7,191       (1,964)
      Accounts payable......................................      1,454       (1,394)       7,077
      Accrued compensation and physician payable............     13,280        5,245        1,308
      Other accrued liabilities.............................    (11,031)        (555)       6,329
      Professional liability reserves.......................     12,617       10,217        9,159
                                                              ---------    ---------    ---------
Net cash provided by operating activities...................     42,475       42,843       38,017
INVESTING ACTIVITIES
  Purchases of property and equipment.......................  $  (7,474)   $  (5,015)   $ (10,615)
  Sale of property and equipment............................      1,385        1,084           29
  Transfers of equipment....................................      2,252           --           --
  Cash paid for merger costs................................    (12,711)      (1,071)        (316)
  Cash paid for acquisitions, net...........................    (15,726)     (16,658)      (3,952)
  Additions to intangibles..................................     (2,065)        (605)          --
  Other investing activities................................         --         (599)        (184)
                                                              ---------    ---------    ---------
Net cash used in investing activities.......................    (34,339)     (22,864)     (15,038)
FINANCING ACTIVITIES
  Payments on notes payable.................................     (1,396)        (766)     (10,868)
  Proceeds from notes payable...............................        153           --      250,000
  Payments of deferred financing costs......................         --           --      (11,496)
  Redemption of common stock in connection with
    recapitalization........................................         --           --     (210,761)
  Payments of recapitalization expense......................         --           --      (16,013)
  Net transfers (to) from parents and parents
    subsidiaries............................................     (8,138)     (40,301)       2,507
  Change in tax accounts, included in net invested
    capital.................................................      1,126       19,092           --
                                                              ---------    ---------    ---------
Net cash (used in) provided by financing activities.........     (8,255)     (21,975)       3,369
                                                              ---------    ---------    ---------
Increase (decrease) in cash and cash equivalents............       (119)      (1,996)      26,348
Cash and cash equivalents, beginning of year................      5,550        5,468        3,472
Cash and cash equivalents, beginning of year for immaterial
  poolings of interests entities............................         37           --           --
                                                              ---------    ---------    ---------
Cash and cash equivalents, end of year......................  $   5,468    $   3,472    $  29,820
                                                              =========    =========    =========
Supplemental cash flow information:
Interest paid...............................................  $     600    $     400    $  16,941
                                                              =========    =========    =========
Taxes paid..................................................  $   4,700    $  11,146    $   6,421
                                                              =========    =========    =========
</TABLE>

                            See accompanying notes.
                                       54
<PAGE>   56

                               TEAM HEALTH, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION

     The Company believes Team Health 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,
recruiting and credentialing of 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.

     Team Health, Inc. was incorporated in March 1994. In June 1995, Team
Health, Inc. merged with Pacific Physician Services, Inc. ("Physician
Services"). In February 1997, MedPartners, Inc. ("MedPartners") combined with
Physician Services in a business combination accounted for as a
pooling-of-interest by MedPartners. In June 1997, MedPartners combined with
InPhyNet Medical Management, Inc. ("InPhyNet") in a business combination
accounted for as a pooling-of-interests by 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. Of these costs, $16.0 million was
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 will be amortized over the term of the debt.

                                       55
<PAGE>   57
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

2. SIGNIFICANT ACCOUNTING POLICIES

  Principles of Consolidation

     The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries 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 the 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 to any person, at any
time, 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 in
ownership. The Company provides staffing services to its client hospitals
through a management services agreement between a subsidiary of Team Health and
the PCs.

  Cash and Cash Equivalents

     Cash and cash equivalents, which are highly liquid investments with
maturities of three months or less when acquired, consists primarily of funds on
deposit in commercial banks. The Company places its cash and cash equivalents in
financial institutions that are federally insured and limits the amount of
credit exposure with any one financial institution.

  Accounts Receivable

     Accounts receivable are primarily amounts due from hospitals and clinics,
amounts due from third-party payors, such as insurance companies, self-insured
employers and government-sponsored health care programs, i.e. Medicare and
Medicaid, and amounts due from 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 amortization of property under capital leases is included
with depreciation expense.

  Intangible Assets

     The majority of intangible assets relate to the fair value of the contracts
of the medical groups acquired, which are being amortized over a period of 8
years. Contracts acquired totaled $24,966,000 and $26,167,000 and accumulated
amortization totaled $2,965,000 and $6,162,000 at December 31, 1998 and 1999,
respectively.

                                       56
<PAGE>   58
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Goodwill, which represents costs in excess of net assets acquired, is being
amortized on a straight-line basis over 15 to 20 years. Goodwill totaled
$16,881,000 and $19,537,000 and accumulated amortization totaled $2,178,000 and
$3,158,000 at December 31, 1998 and 1999, respectively.

     Costs of non-compete agreements totaled $325,000 at December 31, 1998 and
1999, and accumulated amortization totaled $70,000 and $135,000 at December 31,
1998 and 1999, respectively.

     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 of the entity 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 deemed
that a portion of goodwill was impaired as indicated by a loss of contracts that
resulted in recurring losses from operations. Accordingly, the 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 $12,069,000 and accumulated amortization totaled
$1,421,000 at December 31, 1999.

  Risk Management

     Although Team Health does not principally engage in the practice of
medicine or provide medical services, the Company requires the physicians with
whom it contracts to obtain professional liability insurance coverage and makes
this insurance available to these physicians. Team Health 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, Team Health obtains 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 consists primarily of professional liability
insurance reserves with a balance of $49,700,000 and $9,434,000 at December 31,
1998 and 1999, respectively. In addition, a deferred compensation liability is
included with a balance of $3,412,000 and $8,989,000 at December 31, 1998 and
1999, respectively.

  Net Revenue

     Revenues are recorded in the period the services are rendered as determined
by the respective contract with the healthcare providers. Revenues are reported
at net realizable amounts from patients, third-party payors and other payors.

     Fee-for-service revenue represents revenue earned under contracts in which
the Company bills and collects the professional component of the charges for
medical services rendered by the Company's contracted
                                       57
<PAGE>   59
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and 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 enters 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 income (loss) 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
Company does not believe the adoption of SFAS No. 133 will have a material
effect on the results of operations, financial position, or cash flows of the
Company.

  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 July 1997, the Company acquired certain assets of an emergency
department staffing company for $1.7 million. In August 1997, the Company
acquired certain assets of an emergency department staffing company for two
promissory notes of $4.5 and $0.6 million. In November 1997, the Company
acquired certain assets of an emergency department staffing company for $1.7
million, and may have to pay up to $1.9 million in future contingent payments.
The future contingent payments are deferred payments of purchase price that are
based on the acquisitions achieving certain targets agreed to in the respective
acquisition agreements. In November 1997, the Company acquired certain assets of
a radiology group for $9.0 million, and may have to pay up to $2.5 million in
future contingent payments.

     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 $2.1 million in
future contingent payments. In March 1998, the Company acquired certain
operating assets an emergency department staffing company for $5.0 million, and
may have to

                                       58
<PAGE>   60
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

pay up to $8.0 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 $2.4 million in future contingent payments. In August
1998, the Company acquired certain operating assets of an emergency department
staffing company for $3.6 million, and may have to pay up to $3.2 million in
future contingent payments.

     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. During 1999, the Company also made payments of
approximately $2.7 million with respect to contingent payments established as a
result of certain 1997 and 1998 acquisitions. These amounts represent payments
of purchase price and have been recorded to goodwill. The amounts are being
amortized over their remaining useful lives.

     The 1997, 1998 and 1999 acquisitions are summarized as follows (in
thousands):

<TABLE>
<CAPTION>
                                                          1997       1998       1999
                                                         -------    -------    ------
<S>                                                      <C>        <C>        <C>
Fair value of net operating assets acquired
  (liabilities
  assumed).............................................  $   844    $(1,137)   $   96
Fair value of contracts acquired.......................   11,135     13,831        --
Goodwill...............................................    5,571      2,284     3,856
                                                         -------    -------    ------
Cost of acquisitions...................................  $17,550    $14,978    $3,952
                                                         =======    =======    ======
</TABLE>

     The foregoing acquisitions were accounted for using the purchase method of
accounting. The operating results of acquired businesses are included in the
accompanying consolidated and combined 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,
                                                     --------------------------------
                                                       1997        1998        1999
                                                     --------    --------    --------
<S>                                                  <C>         <C>         <C>
Net revenue........................................  $794,900    $831,124    $855,142
Income before income taxes.........................    14,466      39,302       2,443
Net income.........................................     6,796      21,840       1,045
</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 results which may occur in the future.

4.  MERGERS

     MedPartners merged with several physician groups that were combined with
Team Health operations during 1997 in transactions that were accounted for as
poolings of interests. The following chart summarizes these transactions:

<TABLE>
<CAPTION>
                                                  EFFECTIVE DATE    NUMBER OF MEDPARTNERS'
ACQUIRED ENTITY                                     OF POOLING           SHARES ISSUED
---------------                                   --------------    -----------------------
<S>                                               <C>               <C>
Fischer Mangold ("FM")..........................  June 30, 1997           2.0 million
InPhyNet Medical Management, Inc.
  ("InPhyNet")..................................  June 30, 1997          19.4 million
</TABLE>

     During the second half of 1997, MedPartners combined the Hospital Services
operations of InPhyNet with Team Health operations. As a result of the
combination with the Hospital Services division in 1997, the Company wrote down
approximately $2.1 million in assets.

                                       59
<PAGE>   61
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Merger costs totaling $13.6 million were incurred as a direct result of the
mergers in 1997. As a result of these transactions, the Company terminated a
total of 26 employees, and closed a corporate office with respect to the FM
merger and a billing company with respect to the Hospital Services operations.
The closings were completed in the second half of 1997 and 1998. Payments of the
1997 merger expense are as follows:

<TABLE>
<CAPTION>
                                                           1997       1998      1999
                                                          -------    -------    -----
<S>                                                       <C>        <C>        <C>
Accrued merger costs at January 1.......................  $    --    $ 2,328    $ 327
Merger expense for 1997.................................   13,563         --       --
Investment banking and professional fees paid...........   (5,979)      (837)     (95)
Severance costs and related benefits paid...............   (5,256)    (1,164)    (221)
                                                          -------    -------    -----
Accrued merger costs at December 31.....................  $ 2,328    $   327    $  11
                                                          =======    =======    =====
</TABLE>

     A portion of the payments were 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 and combined statements of
cash flows for the respective years.

5. PROPERTY AND EQUIPMENT

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

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                              --------------------
                                                                1998        1999
                                                              --------    --------
<S>                                                           <C>         <C>
Buildings and leasehold improvements........................  $  2,149    $  3,381
Furniture and equipment.....................................    38,686      43,138
Software....................................................     1,714       5,771
Less accumulated depreciation...............................   (27,663)    (32,720)
                                                              --------    --------
                                                              $ 14,886    $ 19,570
                                                              ========    ========
</TABLE>

     Depreciation expense 1997, 1998 and 1999 was approximately $4.4 million,
$4.1 million and $5.7 million.

6. LONG-TERM DEBT

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

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              ------------------
                                                               1998       1999
                                                              ------    --------
<S>                                                           <C>       <C>
12% Senior Subordinated Notes...............................  $   --    $100,000
Term Loan Facility..........................................      --     139,300
Other debt..................................................   2,544       2,376
                                                              ------    --------
                                                               2,544     241,676
                                                              ------    --------
Less current portion........................................    (164)    (12,776)
                                                              ------    --------
                                                              $2,380    $228,900
                                                              ======    ========
</TABLE>

     In connection with the recapitalization, the Company issued $100.0 million
of 12% senior subordinated notes due March 15, 2009. The Notes are subordinated
in right of payment to all senior debt of the Company and are senior in right of
payment to all existing and future subordinated indebtedness of the Company.
Interest on the Notes accrues at the rate of 12% per annum, payable
semi-annually in arrears on March 15 and September 15 of each year.

                                       60
<PAGE>   62
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Beginning March 15, 2004, the Company may redeem some or all of the Notes
at any time at various redemption prices. The Notes were issued under an
indenture with a Trustee that contains affirmative and negative covenants. As
further discussed in Note 17, the Company issued publicly registered debt and
exchanged the Notes for the newly registered debt.

     In connection with its recapitalization, the Company entered into the Term
Loan Facility agreement with a syndicate of financial institutions. 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.

     The Term Loan Facility agreement contains 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 requires the Company to meet or exceed
certain coverage, leverage and indebtedness ratios.

     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, 1999 were 9.3% and 9.8% 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, 1999. No funds have been
borrowed under the revolving credit facility as of December 31, 1999, but the
Company established a $0.1 million standby letter of credit against the
revolving credit facility on May 5, 1999.

     The other long-term debt related to acquisitions, payable in varying
amounts through 2000, with effective interest rates ranging form 7.50% to
10.80%.

     Aggregate maturities of long-term debt at December 31, 1999 (in thousands)
are as follow:

<TABLE>
<S>                                                 <C>
  2000............................................  $ 12,776
  2001............................................    12,322
  2002............................................    15,624
  2003............................................    16,526
  2004............................................    66,053
  Thereafter......................................   118,375
                                                    --------
                                                    $241,676
                                                    ========
</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 of March 13, 2002. In 1999,
the Company received a weighted average rate of 5.5% and paid a weighted average
of 5.6% 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

                                       61
<PAGE>   63
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$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, 1999, approximately $8.1 million in
dividends have been accrued.

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

     Prior to the recapitalization, MedPartners and its subsidiaries net
investment in Team Health was shown as net invested capital in lieu of
stockholder's equity. Net transfers to/from parents and parents' subsidiaries
includes 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 the parent companies. The Company was charged management
fees by its parent companies 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 allocated
to the Company and approximate costs incurred. The Company was charged interest
on a portion of its net balance payable to its parent companies. Interest
expense charged to Team Health was $0.9, $5.3 and $0.0 million for the years
ended December 31, 1997, 1998 and 1999, respectively.

9. STOCK OPTIONS

     The Company follows Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees (ABP 25), and related Interpretations in
accounting for its stock options. Under APB 25, no compensation expense is
recognized when the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant.

     In March 1999, the Company adopted the 1999 Stock Option Plan (the Plan).
Under the Plan, options to purchase shares may be granted to employees,
consultants and directors of the Company, and 526,316 shares of common stock
have been reserved for issuance. At December 31, 1999, options for 30,000 shares
of the Company's stock have been granted. The options have an exercise price of
$1.50 and vest at the end of an eight-year vesting period, but which allow for
the possible acceleration of vesting if certain performance related criteria are
met. At December 31, 1999, none of the options are exercisable, and the Company
has options representing 496,316 shares available for future grant.

     Pro forma information regarding net income is required by SFAS No. 123,
Accounting for Stock Based Compensation, and has been determined as if the
Company had accounted for its employee stock options under the fair value method
of that Statement. The fair value of the options was estimated at the date of
grant using the minimal value option pricing model with the following
assumptions: dividend yield of 0%; expected life of 8 years; and risk free
interest rate of 5.38%. The estimated fair value of the options granted using
the minimum value option pricing model was $0.52 per option. For purposes of pro
forma disclosures, the estimated fair value of the options is amortized to
expense over the options' vesting period, which would have had an immaterial
effect on the Company's 1999 net income.

10. INCOME TAXES

     Prior to the recapitalization, the Company filed as part of the
consolidated federal tax return of MedPartners. As a result, the provision for
income taxes was calculated and allocated to the Company from MedPartners.

                                       62
<PAGE>   64
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                                     --------------------------------
                                                       1997        1998        1999
                                                     --------    --------    --------
<S>                                                  <C>         <C>         <C>
Current:
  Federal..........................................  $ 14,562    $ 27,590    $ 10,199
  State............................................     2,762       4,500       1,457
                                                     --------    --------    --------
                                                       17,324      32,090      11,656
Deferred:
  Federal..........................................    (9,696)    (13,935)     (9,105)
  State............................................    (1,867)     (2,272)     (1,301)
                                                     --------    --------    --------
                                                      (11,563)    (16,207)    (10,406)
                                                     --------    --------    --------
                                                     $  5,761    $ 15,883    $  1,250
                                                     ========    ========    ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,
                                                          ---------------------------
                                                           1997      1998       1999
                                                          ------    -------    ------
<S>                                                       <C>       <C>        <C>
Tax at statutory rate...................................  $3,305    $13,122    $  725
State income tax (net of federal tax benefit)...........     582      1,448       101
Amortization and goodwill write-off.....................      --      1,480        --
Merger expense..........................................   2,711         --        --
Income not taxed at corporate level.....................    (935)        --        --
Other...................................................      98       (167)      424
                                                          ------    -------    ------
                                                          $5,761    $15,883    $1,250
                                                          ======    =======    ======
</TABLE>

     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 were included in net invested
capital prior to the recapitalization and were as follows (in thousands):

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              ------------------
                                                               1998       1999
                                                              -------    -------
<S>                                                           <C>        <C>
Deferred tax assets:
  Accounts receivable.......................................  $10,923    $ 3,420
  Accrual and other reserves................................      943        322
  Amortization and depreciation.............................       --     76,983
  Merger/acquisition costs..................................    3,945         --
  Net operating loss carryforward...........................    5,294         --
  Deferred compensation accrual.............................      649      2,093
  Accrued compensation......................................    1,687         --
  Malpractice...............................................    4,639      3,585
  Other.....................................................    1,351         --
                                                              -------    -------
          Total deferred tax assets.........................  $29,431    $86,403
                                                              -------    -------
</TABLE>

                                       63
<PAGE>   65
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              ------------------
                                                               1998       1999
                                                              -------    -------
<S>                                                           <C>        <C>
Deferred tax liabilities:
  Book over tax amortization and depreciation...............     (105)        --
  Change in accounting method from cash to accrual..........   (1,375)        --
  Other.....................................................   (3,071)        --
                                                              -------    -------
Total deferred tax liabilities..............................   (4,551)        --
                                                              -------    -------
Net deferred tax assets (liabilities).......................  $24,880    $86,403
                                                              =======    =======
</TABLE>

12. RETIREMENT PLANS

     The Company's employees participated in various employee benefit plans
sponsored by the Company and the Company's parent affiliates. The plans
primarily are 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
parent affiliate plans. The Company's contributions to the plans were
approximately $0.5 million, $1.2 million, and $3.5 million for the years ended
December 31, 1997, 1998 and 1999, respectively.

     Effective January 1, 1998, the Board of Directors of MedPartners approved a
retirement savings plan for employees and affiliates. Effective October 1, 1999,
the Company approved its new 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 50% of the employee's pre-tax contribution, up to 6%
of the employee's compensation, in any calendar year.

     The Company has acquired two deferred compensation plans in connection with
its 1997 mergers. As of December 31, 1998 and 1999, the aggregate deferred
compensation payable was approximately $4.1 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 of approximately $5.9 million at December 31,
1999.

13. COMMITMENTS AND CONTINGENCIES

Leases

     The Company leases office space for primary terms of one to seven years
with options to renew for additional periods. Future minimum payments due on
these non-cancelable operating leases at December 31, 1999 are as follows (in
thousands):

<TABLE>
<S>                                                  <C>
2000...............................................  $ 5,270
2001...............................................    4,672
2002...............................................    2,881
2003...............................................    1,438
2004...............................................    1,103
Thereafter.........................................    4,669
                                                     -------
                                                     $20,033
                                                     =======
</TABLE>

                                       64
<PAGE>   66
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Rent expense under operating leases was approximately $5.8 million, $5.7
million and $5.2 million for the years ended December 31, 1997, 1998 and 1999,
respectively.

  Litigation

     We are party to various pending legal actions arising in the ordinary
operation of our business such as contractual disputes, employment disputes and
general business actions as well as malpractice actions. We believe that any
payment of damages resulting from these types of lawsuits would be covered by
insurance, exclusive of deductibles, would not be in excess of 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 EmCare, Inc. and InPhyNet Medical
Management, 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. EmCare, Inc. and InPhyNet Management, Inc. et al.
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 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 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 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 has been stayed until
the earlier of June 30, 2000 or 21 days after the issuance of an opinion by the
United States Supreme Court in United States ex rel. Stevens v. Vermont Agency
of Natural Resources, which may address whether private persons have standing to
bring qui tam actions alleging claims of fraud upon the government.

                                       65
<PAGE>   67
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Contingent Acquisition Payments

     As of December 31, 1999, the Company may have to pay up to $18.2 million in
future contingent payments as additional consideration for its 1997, 1998 and
1999 acquisitions. These payments will be made and recorded as purchase price
should the acquired companies achieve the provisions provided in the respective
agreements.

14. RELATED PARTY TRANSACTIONS

     The Company leases office space from several partnerships that are
partially or entirely owned by employees of the Company. The leases were assumed
by the Company as part of merger or purchase transactions. Total rent paid was
approximately $2.0 million, $1.3 million and $1.3 million in 1997, 1998 and
1999, respectively.

     The Company has contractual arrangements with billing and collection
service companies that are owned or partially owned by 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 $2.2 million, $3.5
million and $3.2 million in 1997, 1998 and 1999, respectively.

15. FAIR VALUES OF FINANCIAL INSTRUMENTS

     The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:

     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 approximate the fair value.
                                 The fair value of the 12% Senior Subordinated
                                 Notes at December 31, 1999 is approximately
                                 $97.5 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
                                 $1.1 million at December 31, 1999 based on
                                 quoted market prices for similar interest rate
                                 contracts.

16. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE

     Effective January 1, 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." This is accounted for as a cumulative
effect of change in accounting principle.

17. SUBSEQUENT EVENT

     Effective January 19, 2000, the Company offered to exchange its outstanding
12% Senior Subordinated Notes due 2009 for new publicly registered 12% Senior
Subordinated Notes due March 15, 2009 (the "New Notes"). Effective February 23,
2000, 100% of the outstanding Notes were exchanged for New Notes. The terms of
the New Notes are identical in all significant respects to the terms of the
Notes, except that the Notes differed with respect to restrictions on transfer
and registration rights.

                                       66
<PAGE>   68

                                   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 29, 2000.

                                          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 29, 2000, 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/ TYLER WOLFRAM
                                          --------------------------------------
                                          Tyler Wolfram
                                          Director

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

                                       67
<PAGE>   69

                                 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>
<PAGE>   70
<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>
<PAGE>   71
<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>
<PAGE>   72

<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.*
    21.    Subsidiaries of Registrant.**
    27.    Financial Data Schedule.**
</TABLE>

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

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

** Filed herewith.
<PAGE>   73

ITEM 21(B)

                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                          BALANCE AT        COSTS AND                            BALANCE AT
                                      BEGINNING OF PERIOD   EXPENSES    OTHER   DEDUCTIONS   BEGINNING OF PERIOD
                                      -------------------   ---------   -----   ----------   -------------------
<S>                                   <C>                   <C>         <C>     <C>          <C>
31-Dec-97...........................        116,088          227,362     --      221,060           122,390
31-Dec-98...........................        122,390          257,618     --      238,340           141,668
31-Dec-99...........................        141,668          309,713     --      326,314           125,067
</TABLE>