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

                             FORM 10-K EQUIVALENT(1)
(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, 2002.

         [ ]      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)

                       TENNESSEE                              62-1562558
            (State or other jurisdiction o              (IRS Employer ID Number)
            Incorporation or organization)

           1900 WINSTON ROAD, KNOXVILLE, TN                     37919
       (Address of principal executive offices)               (Zip Code)

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

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

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

                                (TITLE OF CLASS)

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

         Indicate by check mark whether the Registrant is an accelerated filer
(as defined in the Exchange Act Rule 12b-2). 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--10,067,513 shares as of March
15, 2003. 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: Certain exhibits filed with the
Registrant's Registration Statement on Form S-4 (File No. 333-80337 as amended)
is incorporated by reference into Part IV of the Report on Form 10-K.

         (1)This Form 10-K Equivalent is only being filed solely pursuant to a
requirement contained in the indenture governing Team Health, Inc.'s 12% Senior
Subordinated Notes due 2009.

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                                     PART I

ITEM 1.           BUSINESS

INTRODUCTION

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

         We believe we are among the largest national providers of outsourced
physician staffing and administrative services to hospitals and other healthcare
providers in the United States. Since our inception, we have focused primarily
on providing outsourced services to hospital emergency departments, which
account for the majority of our revenue. Spectrum Healthcare Resources ("SHR"),
which was acquired effective May 1, 2002, also provides outsourced physician
staffing and administrative services and is the leading provider of medical
staffing to military treatment facilities. SHR, in addition to providing
physician staffing in various specialties, also provides a broad array of
non-physician healthcare services including specialty technical staffing,
para-professionals and nurse staffing on a permanent basis.

         Our regional operating models include comprehensive programs for
emergency medicine, radiology, anesthesiology, inpatient care, pediatrics and
other healthcare services, principally within hospital departments and other
healthcare treatment facilities, including military treatment facilities. We
primarily provide permanent staffing that enables management of hospitals and
other healthcare facilities to outsource their recruiting, hiring, payroll and
benefits functions to companies with expertise in those functions such as our
Company. We recruit and hire healthcare professionals who then provide
professional services within the healthcare facilities we contract or
subcontract with. Overall, we presently provide permanent staffing, management
and administrative services to approximately 397 hospitals, imaging centers,
surgery centers, clinics and military treatment facilities in 42 states.

         The range of physician and non physician staffing and administrative
services that we provide includes the following:

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

         -        providing of administrative support services, such as payroll,
                  insurance coverage, continuing education services, management
                  training, and

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

         Our historical focus has primarily been on providing outsourced
services to emergency departments, which accounted for approximately 65% of our
net revenue less provision for uncollectibles in 2002. The emergency departments
that we staff are generally located in larger hospitals with emergency
departments whose patient volumes are more than 15,000 patient visits per year.
In higher volume emergency departments, we believe our experience and expertise
in such a complex environment provides our hospital clients with the ability to
provide their patients with high quality and efficient physician and
administrative services. Our experience in such settings has been that we can
generate profitable margins, establish stable long-term relationships, obtain
attractive payor mixes and recruit and retain high quality physicians and other
providers and staff.

         SHR, which accounted for 15% of our net revenue less provision for
uncollectibles for 2002, is the leading provider of permanent healthcare
staffing services to military treatment facilities. The acquisition of SHR
significantly expanded our base of business by providing an entry into a portion
of the healthcare staffing market not previously served by us. In the military
healthcare setting, the permanent staffing agreements are entered into on a
three-way basis among a military hospital or clinic, SHR and a TRICARE (the U.S.
military healthcare payor system) Regional Managed Care Support Contractor
("MCSC"), which functions as the paying entity. The decision to enter into,
expand or cancel a staffing contract is made by the military commander. SHR
currently has contracts with all four MCSCs (HealthNet Federal Services, Humana
Military Healthcare Services, TriWest Healthcare Alliance and Sierra Military
Healthcare Services) that serve the military market.

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<PAGE>

         The healthcare environment is very complex due to numerous Federal and
state regulations and continual changes thereto, as well as diverse
reimbursement policies and practices among the various government and insured
payors for healthcare services. Healthcare providers are under significant
pressure to improve the quality of care while at the same time minimizing the
cost of such care. Traditional hospitals and military treatment facilities
outsource 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, such healthcare facilities have become increasingly challenged to
manage their clinical areas more effectively due to:

         -        increasing patient volume,

         -        complex billing and collection procedures, and

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

         We believe we are well positioned to capitalize on outsourcing
opportunities as a result of our:

         -        national presence,

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

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

         -        successful record of recruiting and retaining high quality
                  physicians and other healthcare technicians and clinicians.

         In addition to the above, SHR has developed additional core
competencies that has made it the largest provider of healthcare staffing to the
military. Such additional competencies include the ability to:

         -        provide a full range of staffing to meet the military market's
                  needs, including physicians, para-professional providers,
                  nurses, specialty technicians and administrative support
                  staff, and

         -        build strong relationships with key decision makers at
                  military healthcare facilities through development of
                  innovative solutions to meet their needs.

         Our regional operating models allow 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 and the military permanent staffing
market. According to the Centers for Medicare and Medicaid Services ("CMS"),
national healthcare spending in 2001 increased 8.7%. Hospital services have
historically represented the single largest component of these costs, accounting
for approximately 32% of total healthcare spending in 2001. According to
industry sources, approximately 3,900 U.S. community hospitals operated hospital
emergency departments and 81% of these hospitals outsourced their physician
staffing and administrative services. In 2001, emergency department expenditures
were approximately $20.0 billion, with emergency department physician services
accounting for approximately $7.0 billion. According to the American Hospital
Association, emergency departments handle approximately 106 million patient
visits annually and up to 38% of all hospital inpatient admissions originate in
the emergency department. In addition, the average number of patient visits per
hospital emergency department increased at a compounded annual growth rate of
approximately 3% between 1997 and 2001.

         The military permanent healthcare staffing market is projected to
increase to at least $750 million over the next five years, representing an
approximate 6% compounded annual growth rate. Military hospitals have been the
innovators and early adopters of permanent staffing. Faced with insufficient
staffing levels and the inability to effectively recruit and retain physicians

                                       2

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and nurses, military hospitals were underutilized. By increasing staffing
levels, the military has been able to leverage excess facility space and
"recapture" medical services, providing them on base at a lower cost to the
Federal government.

COMPETITION

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

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

         -        the breadth of staffing and management services offered,

         -        the ability to recruit and retain qualified physicians,
                  technicians and nursing staffing,

         -        billing and reimbursement expertise,

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

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

         While we compete in the emergency medicine marketplace with such
national and regional groups as Emcare, Inc; PhyAmerica Physician Group, Inc.;
The Schumacher Group; and NES, the majority of our competition comes from small,
local groups as well as hospitals that employ their own physicians. There are
presently no large direct national competitors in the anesthesia or radiology
markets. In these staffing areas, we again compete with smaller groups and
hospitals that employ their own physicians and other types of healthcare
staffing. SHR is the leading provider of permanent staffing solutions to the
military in the industry with an estimated 35% market share. Significant
competitors of SHR include Sterling Medical Associates, PhyAmerica Government
Services, JSA Healthcare and CR Associates.

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 and the largest provider of healthcare staffing on a
permanent basis to military treatment facilities under the U.S. government's
TRICARE Program. In addition, we provide outsourced radiology staffing and
administrative services and have a growing presence in other hospital
departments such as anesthesiology, pediatrics and inpatient services. We
believe our ability to spread the relatively fixed costs of our corporate
infrastructure over a broad national contract and revenue base generates
significant cost efficiencies that are generally not available to smaller
competitors. As a full-service provider with a comprehensive understanding of
changing healthcare regulations and policies and the management information
systems that provide support to manage these changes, we believe we are well
positioned to maintain and grow our market share from other service providers.
Furthermore, we have a geographically diverse base of over 1,046 health facility
contracts or military treatment facility sub-contracts. In 2002, the largest
single direct facility contract accounted for no more than 0.8% of our net
revenue less provision for uncollectibles, and as a result, the loss of any one
such contract would not significantly impact our financial performance. However,
the SHR business is derived from securing sub-contracts from the four MCSC's
that serve as the prime contractors for TRICARE. Payments for its services are
received by SHR directly from the applicable MCSC. The percentage of the
Company's consolidated and SHR's net revenues less provision for uncollectibles
derived from each of the four MCSC's is as follows:


                                       3

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<TABLE>
<CAPTION>
                         CONSOLIDATED           SHR
                         ------------           ----
<S>                        <C>                <C>
MCSC #1                      8.1%               54.6%
MCSC #2                      4.2                28.3
MCSC #3                      2.5                17.0
MCSC #4                       --                 0.1
                            ----               -----
                            14.8%              100.0%
                            ====               =====
</TABLE>

         Regional Operating Models Supported by a National Infrastructure. We
service our agreements from fourteen regional management sites organized under
eight 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 healthcare facilities, resulting in responsive
service and high physician retention rates. Our strong relationships in local
markets enable us to effectively market our services to both local hospital and
military treatment facility administrators, who generally are involved in making
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 management sites with centralized staffing support,
purchasing economies of scale, payroll administration, coordinated marketing
efforts and risk management. We believe our regional operating models supported
by our national infrastructure improve productivity and quality of care while
reducing the cost of care.

         Significant Investment in Information Systems and Procedures. Our
proprietary information systems link our billing, collection, recruiting,
scheduling, credentials coordination and payroll functions among our regional
management sites, 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 four years, we have spent over $21
million to develop and maintain integrated, advanced systems to facilitate the
exchange of information among our operating units and clients. These systems
include our Lawson financial reporting system, IDX Billing System, our
WaitLoss(TM) process improvement program and our TeamWorks(TM) physician
database and software package. As a result of these investments and the
company-wide application of best practices, we believe our average cost per
patient billed and average cost per physician and other healthcare professionals
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 with hospitals and military treatment facilities, our
national presence and infrastructure enable us to provide physicians with a
variety of attractive client locations, advanced information and reimbursement
systems and standardized procedures. Furthermore, we offer physicians
substantial flexibility in terms of geographic location, type of facility,
scheduling of work hours, benefits packages and opportunities for relocation and
career development. This flexibility, combined with fewer administrative
burdens, improves physician retention rates and stabilizes our contract base. We
believe we have among the highest physician retention rates in the industry.

         Experienced Management Team with Significant Equity Ownership. Our
senior management team has extensive experience in the outsourced physician
staffing and administrative services industry. Our Chief Executive Officer, H.
Lynn Massingale, M.D., has been with Team Health and its predecessor entities
since 1979. Our senior corporate and affiliate executives have an average of
over 20 years experience in the outsourced physician staffing and medical
services industry. Members of our management team have, with the inclusion of
performance-based options, an indirect fully diluted ownership interest of
approximately 20.7%. As a result of its substantial equity interest, we believe
our management team has significant incentive to maintain its existing client
base through the continued provision of high quality services to them and to
continue to increase our revenue and profitability through new growth.

GROWTH STRATEGY

         Key elements of our growth strategy include the following:

         Increase Revenue from Existing Customers. We have a strong record of
achieving growth in revenue from our existing customer base. In 2002, net
revenue less provision for uncollectibles from steady state contracts (excluding
newly acquired SHR related contracts) grew by approximately 5.7% on a year over
year basis. Since the inception of SHR, its growth has been

                                       4

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achieved entirely through internal sales efforts reflecting its market
leadership position, core competencies, experienced operating managers and field
staff. We plan to continue to grow revenue from existing customers by:

         -        capitalizing on increasing patient volumes,

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

         -        implementing fee schedule increases, where appropriate,

         -        increasing the scope of services offered within contracted
                  healthcare facilities,

         -        capitalizing on our financial strength and resources with
                  respect to potential clients looking for financial stability
                  among various alternative providers when making their
                  outsourcing decision, and

         -        increasing staffing levels at current SHR sites of service as
                  the result of military commanders realizing the benefits of
                  outsourcing their staffing needs resulting in entering into
                  new agreements with a military treatment facility to staff a
                  new department (e.g. pediatric, cardiology, neurology, etc.)
                  since a typical staffing agreement only covers one specific
                  department, or by such facilities increasing the number of
                  positions staffed under an existing agreement in order to
                  increase the size or productivity of a given department.

         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,

         -        obtaining new contracts from healthcare facilities that do not
                  currently outsource, and

         -        expanding our present base of military treatment facility
                  contracts by demonstrating the economic benefits of our
                  service arrangements to such facilities.

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

         Furthermore, we believe that our ability to gain a greater market share
of larger volume hospital clinical departments and the permanent military
staffing market is enhanced as a result of our:

         -        national presence,

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

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

         -        successful record of recruiting and retaining high quality
                  physicians and other healthcare professionals, and

         -        financial strength and resources.

         Since 2000, excluding the SHR business, we have been awarded 119 new
outsourced contracts. During this same time period, SHR has been awarded over
327 contracts to service areas of military treatment facilities with outsourced
healthcare staffing.

                                       5

<PAGE>

         Expansion of Military Staffing Market Penetration. The medical staffing
market in governmental settings is expected to experience continued growth due
to the growth of military healthcare expenditures coupled with the
well-documented shortage of nurses and other healthcare professionals. The key
growth drivers of the government staffing market are:

         -        government "Optimization" plan implementation. The government
                  is critically aware of the healthcare costs it bears when
                  individuals entitled to military healthcare go off base for
                  healthcare treatments. As such, it has implemented an
                  "Optimization" plan that seeks to recapture this spending
                  primarily through increased staffing levels of healthcare
                  providers on base. By recapturing medical services through
                  augmented military staffing, the government has saved an
                  estimated $500 million in 2000 and is targeting to increase
                  its savings by at least 10% per year,

         -        potential increase in TRICARE enrollment. One of the key
                  drivers of the permanent military medical staffing market is
                  the government's offer of healthcare benefits for "life".
                  TRICARE for Life, which was brought about by legislation
                  enacted in 2002, has increased the number of retirees eligible
                  for care under TRICARE from an estimated 50,000 retirees to an
                  estimated 300,000 retirees by extending TRICARE benefits to
                  military retirees who are over the age of 65 years and are
                  currently receiving their healthcare needs through the
                  Medicare Program, and

         -        decrease in active duty and government employed staff (GS).
                  The 130,000 active-duty and government employed staff is not
                  expected to grow in the near future due to budgetary
                  constraints of the federal government. This number has
                  decreased from approximately 143,000 since the mid-1990s and
                  we are anticipating a similar trend over the next decade. As
                  the GS staff is reduced, the opportunity to prevent the loss
                  of current military hospital services into civilian community
                  hospitals at a greater cost to the government presents itself.

         Grow through Acquisitions. We intend to continue to pursue strategic
acquisitions of contracts currently held by local and regional physician groups
as well as complementary healthcare staffing and related medical billing
companies as such opportunities are presented to us. Many physician groups are
faced with increasing pressure to provide the systems and services of a larger
organization. In addition, some smaller physician groups lacking in certain
economies of scale have experienced recent significant increases in the cost and
thus affordability of medical malpractice insurance beyond that experienced by
us. This circumstance affords us a cost advantage in competing for new business
and acquisitions. We have developed and implemented a disciplined acquisition
methodology utilized by our in-house mergers and acquisitions team. Since
January 1, 2000, we have completed eight acquisitions with current annualized
revenues of approximately $222 million. We expect to continue to fund
acquisitions using our existing cash and credit line resources.

INDUSTRY

         According to CMS, national health spending in 2001 increased 8.7%,
compared to an increase of 6.9% in 2000. The 1.8% gain in the rate of spending
growth primarily reflects an increase in medical related inflation, with only a
1.1% gain in real spending. Public spending increased its pace in 2001 with
growth of 9.4%, up from 7.0% in 2000. Private spending growth also accelerated
in 2001, led by 10.5% growth in private health insurance premiums. Growth in
expenditures in 2000 and 2001 slightly outpaced growth in gross domestic product
(GDP). The healthcare share of GDP increased from 13.3% in 2000 to 14.1% in
2001. Recent reports of continuing health inflation suggest further increases in
the near future. Hospital services have historically represented the single
largest component of these costs, accounting for approximately 32% of total
healthcare spending in 2001.

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

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         Emergency Medicine. According to the American Hospital Association,
approximately 3,900 community hospitals in the United States operate emergency
departments, and approximately 81% of these hospitals outsource their physician
staffing and management for this department. In 2001, emergency department
expenditures were approximately $20.0 billion, with emergency physician services
accounting for approximately $7.0 billion. In 2001, emergency departments
handled over 106 million patient visits, and up to 38% of all hospital inpatient
admissions originate in the emergency department. In addition, the average
number of patient visits per hospital emergency department increased at a
compounded annual growth rate of approximately 3% between 1997 and 2001.

         The market for outsourced emergency department medical and
administrative services is highly fragmented. Approximately 61% 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.

         Military Staffing. Permanent civilian staffing is used extensively in
military hospitals today and we believe that this model will gain acceptance
within other government markets as hospital administrators grapple with
shortages of physicians, para-professional providers, nurses and specialty
technicians coupled with a growing demand for services. Industry sources project
the military permanent medical staffing market to increase from $572 million to
at least $750 million over the next five years, representing a 6% compounded
annual growth rate. Military hospitals have been among the innovators and early
adopters of permanent staffing. Faced with insufficient staffing levels and the
inability to effectively recruit and retain sufficient numbers of physicians and
nurses, military hospitals were losing patients to more costly civilian
hospitals. By increasing staffing levels, the military has been able to leverage
excess facility space and "recapture" medical services, providing them on base
at a lower cost to the federal government.

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

         The national shortage of radiologists presents an advantage to a
company like Team Health that has the resources to effectively recruit in the
current tight marketplace. The current market for radiologists and their
services has altered the traditional fee-for-service compensation arrangement
with a hospital. We more frequently in today's market for radiology services are
entering into cost-plus arrangements with hospitals. These arrangements reduce
our economic risk for such services in a time of escalating professional
compensation for radiologists in general. As with the outsourced hospital
emergency department clinical and administrative services, the market for
outsourced radiology services is highly fragmented and served by a large number
of small, local and regional radiology groups. 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.

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

         Inpatient Services (Hospitalist). According to the National Association
of Inpatient Physicians (NAIP), a hospitalist is "a doctor whose primary
professional focus is the general medical care of hospitalized patients." A
recent study by the NAIP indicates that hospitals employed 50% more hospitalists
in 1999 than in 1997. There are presently approximately 7,000 - 8,000

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practicing hospitalists in the U.S., and a recent analysis projects an ultimate
hospitalist workforce of approximately 20,000, making it comparable in size to
cardiology. An article in the January 2002 issue of the Journal of the American
Medical Association reported that the implementation of hospitalist programs was
associated with significant reductions in resource use, usually measured as
hospital costs (average decrease of 13.4%) or average length of stay (average
decrease of 16.6%). Studies of patient satisfaction levels indicated no change
in using a hospitalist model, and several studies have indicated improved
clinical outcomes, such as inpatient mortality and readmission rates.

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

CONTRACTUAL ARRANGEMENTS

         In 2002, approximately 61% of our net revenue less provision for
uncollectibles was generated under fee-for-service arrangements. Our contracts
with military treatment facilities are primarily hourly rate contracts but also
include fee-for-service contracting. As a result of the acquisition of SHR, a
growing percentage of our consolidated net revenues are being derived from
hourly contracts. Neither form of contract requires any significant financial
outlay, investment obligation or equipment purchase by us other than the
professional expenses associated with obtaining and staffing the contracts.

         Our contracts with hospitals generally have terms of three years. Our
contracts with military treatment facilities are generally for one year and are
in the form of a subcontractor relationship with the prime contractor holding a
contract with the government. Both forms of contracts are generally
automatically renewable under similar 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 hospital contracts is approximately seven years. SHR's contracts with the
four MCSC's have been in place since 1995 to 1998, which are the inception dates
of participation by the MCSC's in the TRICARE program.

         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 to
us for such services, to authorize us to bill and collect the professional
component of the charges for such medical services. Under the fee-for-service
arrangements, we bill patients and third party payors for services rendered.
Depending on the underlying economics of the services provided to the hospital,
including its payor mix, we may also receive supplemental revenue from the
hospital. In a fee-for service arrangement, we accept responsibility for billing
and collection.

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

         Military Treatment Facilities. Our contracts with military treatment
facilities are similar to our contracts with hospitals in that we contract on
both an hourly or fee-for-service basis. We provide permanent staffing solutions
to military treatment facilities primarily under hourly rate contracts as a
subcontractor to the prime contractor holding a contract with the government.
Other contractual arrangements include fee-for-service contracts where we bill
and collect the charges for medical services provided by our contracted
healthcare professionals. In a fee-for service contract we accept responsibility
for billing and collection.

         Physicians. We contract with physicians as independent contractors or
employees to provide services to fulfill our contractual obligations to our
hospital clients. We typically either (1) pay physicians an hourly rate for each
hour of coverage provided at rates comparable to the market in which they work;
(2) an incentive-based payment, or (3) a combination of both a fixed rate and an
incentive component. The hourly rate varies depending on whether the physician
is independently contracted or an employee. Independently contracted physicians
are required to pay a self-employment tax, social security, and workers'
compensation insurance premiums. In contrast, we pay these taxes and expenses
for employed physicians.

                                       8

<PAGE>

         Our contracts with physicians are generally perpetual and can be
terminated at any time under certain circumstances by either party without
cause, typically upon 180 days notice. In addition, we generally require the
physician to sign a non-compete and non-solicitation agreement. Although the
terms of our non-compete agreements vary from physician to physician, the
non-compete agreements generally have terms of two years after the termination
of the agreement. We also generally require our employed physicians to sign
similar non-compete agreements. Under these agreements, the physician is
restricted from divulging confidential information, soliciting or hiring our
employees and physicians, inducing termination of our agreements and competing
for and/or soliciting our clients. As of December 31, 2002, we had working
relationships with approximately 3,000 physicians, of which approximately 2,400
were independently contracted.

         Other Healthcare Professionals. We provide, through SHR contractual
agreements, para-professional providers, nurses, specialty technicians and
administrative support staff on a long-term contractual basis. These healthcare
professionals are compensated on an hourly or fee-for-service basis depending on
the arrangements in the staffing agreement. As of December 31, 2002 we employed
approximately 3,200 other healthcare professionals.

SERVICE LINES

         We provide a full range of outsourced physician staffing and
administrative services in emergency medicine, radiology, anesthesiology,
inpatient services, pediatrics, and other departments of a hospital. We also
provide a full range of healthcare management services to military treatment
facilities for the beneficiaries of U.S. military personnel through TRICARE. In
addition to physician related services within a military treatment facility
setting, we also provide non-physician staffing services to military treatment
facilities, including such services as para-professional providers, nursing,
specialty technicians and administrative staffing. As hospitals and other
healthcare providers continue to experience pressure from managed care companies
and other payors to reduce costs while maintaining or improving the quality of
service, we believe hospitals and other contracting parties will increasingly
turn to a single-source with an established track record of success for
outsourced physician staffing and administrative services. We believe that this
has also been a significant factor in the successful growth of SHR in the area
of military treatment facilities. As the outsourcing trend continues, we believe
our delivery platform of regional site management supported by a national
infrastructure will result in higher customer satisfaction and a more stable
contract base than many of our larger competitors.

         Emergency Department. We believe we are one of the largest providers of
outsourced physician staffing and administrative services for hospital emergency
departments in the United States. Approximately 65% of our net revenue less
provision for uncollectibles in 2002 came from hospital emergency department
contracts. As of December 31, 2002, we independently contracted with or employed
approximately 2,600 hospital emergency department physicians. We contract with
the hospital to provide qualified emergency physicians and other healthcare
providers for the hospital emergency department. In addition to the core
services of contract management, recruiting, credentials coordination, staffing
and scheduling, we provide our client hospitals with enhanced services designed
to improve the efficiency and effectiveness of the emergency department.
Specific programs like WaitLoss(TM) apply proven process improvement
methodologies to departmental operations. Publications such as the Emergency
Physician Legal Bulletin(TM) and Case Studies of Customer Service in the
Emergency Department(TM) are delivered to all client hospitals and physicians on
a quarterly basis. Physician documentation templates promote compliance with
federal documentation guidelines, enhance patient care and risk management 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.

         In the past three years, Team Health acquired eight contracts as a
result of the acquisition of two hospital emergency department and physician
groups. The acquired hospital emergency department contracts were generally with
hospitals in large markets with an average patient volume exceeding 15,000
visits per year. During this period we have also successfully negotiated 71 new
outsourced hospital emergency department contracts. These contracts have been
obtained either through direct selling or through a competitive bidding process
initiated by hospitals.

         Partially offsetting the growth in the number of hospital emergency
department contracts attributed to acquisitions and direct sales are contract
terminations. In the past three years, 73 hospital emergency department
contracts in total were terminated. Hospital cancellations can be attributed to
a number of factors, including consolidation among hospitals, medical staff
politics and pricing. In 2002, we experienced a net loss of five emergency
department contracts.

                                       9

<PAGE>

         Radiology. We provide outsourced radiology physician staffing and
administrative services in the United States both on a fee-for-service basis as
well as increasingly on a cost-plus basis with hospitals. We contract directly
with 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,
2002, we independently contracted with or employed approximately 45
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.

         Locum Tenens. We provide temporary staffing of physicians and
para-professionals to hospitals and other healthcare provider organizations
through Daniel and Yeager, Inc. Specialties placed through Daniel and Yeager
include anesthesiology, radiology, primary care, and emergency medicine among
others. Revenues from our locum tenens services are generally derived from a
standard contract rate based upon the type of service provided. During the past
three years, our locum tenens business has experienced an 81.5% increase in
business volume as measured by the number of hours staffed due to additional
demand for temporary specialty staffing.

         Inpatient Services. We also provide 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,
2002, we independently contracted with or employed approximately 220 inpatient
physicians. Since 2000, we experienced net revenue and contract growth in our
inpatient services business primarily due to new contract sales and to a lesser
extent, rate increases on existing contracts.

         Anesthesiology. We began providing a wide range of management services
to anesthesiology practices on a fee basis in 2001 following our acquisition of
Integrated Management Services, Inc. ("ISMS"). Services provided by ISMS include
strategic management, management information systems, third-party payor
contracting, financial and accounting support, benefits administration and risk
management, scheduling support, operations management and quality improvement
services using proprietary anesthesia management practice software. On January
1, 2002, we acquired the operations of L&S Medical Management, Inc. ("L&S"). L&S
provides billing and other management services on a management fee basis to
anesthesiologist practices. Both ISMS and L&S have been organized under an
anesthesiologist operating unit known as "THAMS" (Team Health Anesthesiology
Management Services). THAMS currently provides management and/or billing
services to thirteen integrated anesthesia practices with approximately 430
providers under management. Overall, we are able to offer essential services to
anesthesiologist groups that enable them to focus on the clinical practice of
medicine while leaving the day-to-day management and governance issues related
to their groups to us.

         Pediatrics. We also provide outsourced pediatrics physician staffing
and administrative services for general and pediatric hospitals. We provide
these services on a cost-plus or flat rate basis. These services include
pediatric 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, 2002, we independently contracted with or
employed approximately 115 pediatric physicians providing pediatric services in
such settings. Since 2000, we have experienced net revenue and contract growth
in our outsourced pediatric physician staffing and administrative services
business due primarily to new contract sales and acquisitions, and to a lesser
extent, rate increases on existing contracts. In addition, in 2002 we acquired
the assets and operations of three after-hours and weekend pediatric services
locations.

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

         Other Non-Physician Staffing Services. Other non-physician staffing
services, including such services as nursing, specialty technician and
administrative staffing are provided primarily in military treatment facilities
by our SHR operating unit. These services are provided either on a
fee-for-service basis or most frequently, on a contract basis. As a result of
the acquisition

                                       10

<PAGE>

of SHR on May 1, 2002, revenues less provision derived from such non-physician
staffing services grew to approximately 9.0% of our revenues in 2002.

SERVICES

         We provide a full range of outsourced physician and non-physician
healthcare professional staffing and administrative services for emergency
medicine, radiology, anesthesiology, inpatient services, pediatrics, and other
areas of healthcare facilities.

         Our outsourced staffing and administrative services include:

         -        contract management,

         -        staffing,

         -        recruiting,

         -        credentials coordination,

         -        scheduling,

         -        payroll administration and benefits,

         -        information systems,

         -        consulting services,

         -        billing and collection,

         -        risk management,

         -        continuing education services, and

         -        management training.

         Contract Management. Our delivery of services for a clinical area of a
healthcare facility 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 facility. 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 healthcare facility. 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, healthcare facilities 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
healthcare facilities on a national basis.

         Recruiting. Many healthcare facilities lack the resources necessary to
identify and attract specialized, career-oriented physicians. We have a staff of
approximately 45 professionals dedicated to the recruitment of qualified
physicians. These professionals are regionally located and are focused on
matching qualified, career-oriented physicians with healthcare facilities.
Common recruiting methods include the use of our proprietary national physician
database, attending trade shows, placing website and professional journal
advertisements and telemarketing.

                                       11

<PAGE>

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

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

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

         Payroll Administration and Benefits. We provide payroll administration
services for the physicians and other healthcare professionals with whom we
contract to provide physician staffing and administrative services. Our clinical
employees benefit significantly by our ability to aggregate physicians and other
healthcare professionals to negotiate more favorable employee benefit packages
and professional liability coverage than many hospitals or physicians could
negotiate on a stand-alone basis. Additionally, healthcare facilities benefit
from the elimination of the overhead costs associated with the administration of
the payroll and, where applicable, employee benefits.

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

         Consulting Services. We have a long history of providing outsourced
physician staffing and administrative services to healthcare facilities and, as
a result, have developed extensive knowledge in the operations of certain areas
of the facilities we service. As such, we provide consulting services to
healthcare facilities to improve the productivity, quality and cost of care
delivered by them. These service include:

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

         -        Managed Care Contracting. We have developed extensive
                  knowledge of the treatment protocols and related documentation
                  requirements of a variety of managed care payors. As a result,
                  we often participate in the negotiation of managed care
                  contracts to make those managed care relationships effective
                  for patients, payors, physicians and hospitals. We provide
                  managed care consulting services in the areas of contracting,
                  negotiating,

                                       12

<PAGE>

                  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 healthcare facility on issues
                  regarding risk management and total quality management. In
                  addition, the nurse consultants are available to make site
                  visits to client facilities 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. Excluding the SHR business which has its own
proprietary billing processes, our billing and collections operations are
concentrated in five core-billing facilities and operate on a uniform billing
system--the IDX software system. The IDX system has proven to be a powerful
billing and accounts receivable software package with strong reporting
capabilities. 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 a hospital's management information system. 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 94% of our approximately non-SHR six million
billed annual patient encounters are being processed by one of the five billing
facilities.

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

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

         -        incident reporting systems,

         -        tracking/trending the cause of accidents and claims,

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

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

         -        early intervention of malpractice claims.

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

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


                                       13

<PAGE>
SALES AND MARKETING

         Contracts for outsourced physician staffing and administrative services
are generally obtained either through direct selling efforts or requests for
proposals. We have a team of 19 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 healthcare facility to healthcare
facility, healthcare facilities generally issue a request for proposal with
demographic information of the facility 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 eight operating units with management
located at fourteen regional sites. Our regional sites are listed in the table
below. The operating units are managed semi-autonomously, in most cases 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>
AHP..............................................................           Tampa, FL                 Pediatrics
Daniel and Yeager................................................         Huntsville, AL             Locum Tenens
Emergency Coverage Corporation...................................         Knoxville, TN                   ED
Emergency Physician Associates...................................          Woodbury, NJ                   ED
Emergency Professional Services..................................     Middleburg Heights, OH              ED
Health Care Financial Services...................................         Plantation, FL               Billing
InPhyNet Medical Management......................................       Ft. Lauderdale, FL                ED
Northwest Emergency Physicians...................................          Seattle, WA                    ED
Spectrum Healthcare Resources....................................         St. Louis, MO           Military Staffing
Southeastern Emergency Physicians................................         Knoxville, TN                   ED
Team Anesthesia..................................................         Knoxville, TN             Anesthesiology
Team Health Southwest............................................          Houston, TX                    ED
Team Health West.................................................         Pleasanton, CA                  ED
Team Radiology...................................................         Knoxville, TN               Radiology
</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 with per
incident and annual aggregate per physician limits and per incident and annual
aggregate limits for all corporate entities. These limits are deemed appropriate
by management based upon historical claims, the nature and risks of the business
and standard industry practice.

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

                                       14

<PAGE>

         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, 2002, we had approximately 6,700 employees, of which
approximately 3,800 were physicians and other healthcare professionals with
remaining employees working in billing and collections, operations and
administrative support functions. Our employees are not covered by any labor
agreements nor affiliated with any unions.

REGULATORY MATTERS

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

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

         -        utilization and review of services and administrative
                  overhead,

         -        scheduling of staff physicians and other healthcare
                  professionals who provide clinical coverage in designated
                  areas of healthcare facilities, 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 healthcare facilities in 42 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 2002, we
derived approximately 13% of our net revenue less provision for uncollectibles
from services rendered in the state of 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 2002, we derived approximately 21% of our net revenues less provision for
uncollectibles from services rendered in the state of 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 non-competition
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

                                       15

<PAGE>

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

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

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

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

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

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

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

                                       16

<PAGE>

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

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

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

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

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

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

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

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

         In August 2000, the Health and Human Services agency ("HHS") issued
final regulations establishing electronic data transmission standards that
healthcare providers must use when submitting or receiving certain healthcare
data electronically. All affected entities, including our Company, are required
to comply with these regulations by October 16, 2002 or request an extension to
comply with these regulations by October 16, 2003 from CMS. The Company received
confirmation from CMS of CMS's receipt of its request and is therefore required
to comply with these regulations by October 16, 2003.

         In December 2000, HHS issued final regulations concerning the privacy
of healthcare information which were subsequently clarified in August 2002.
These regulations regulate the use and disclosure of individuals' healthcare
information, whether communicated electronically, on paper or verbally. All
affected entities, including our Company, are required to comply with these
regulations by April 2003. The regulations also provide patients with
significant new rights related to understanding and controlling how their health
information is used or disclosed.

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

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

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

BUSINESS RISKS

         Our Substantial Indebtedness Could Make it More Difficult to Pay Our
Debts, Divert Our Cash Flow from Operations for Debt Payments, Limit Our Ability
to Borrow Funds and Increase Our Vulnerability To General Adverse Economic and
Industry Conditions. We have a significant amount of indebtedness. As of
December 31, 2002 we had total indebtedness of $320.5 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,

                                       18

<PAGE>

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

         -        limit our ability to borrow additional funds.

         Failure to Comply with Any of the Restrictions Contained in Our Senior
Bank Facilities or the Indenture for the 12% Senior Subordinated Notes Could
Result in Acceleration of Our Debt and We May Not Have Sufficient Cash to Repay
Our Accelerated Indebtedness. Our senior bank facilities and the indenture
governing our outstanding 12% senior subordinated notes due 2009 restrict our
ability, and the ability of some of our subsidiaries, to take various actions
and enter into various types of transactions commonly undertaken by business
entities including our ability to:

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

         -        pay dividends on stock or repurchase stock,

         -        make investments,

         -        enter into transactions with affiliates,

         -        use assets as security in other transactions,

         -        create liens,

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

         -        enter into sale and leaseback transactions, and

         -        change the nature of our business.

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

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

                                       19

<PAGE>

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.

         The Company has historically obtained medical malpractice insurance
with insurance companies that has generally been determined to be adequate to
cover its medical malpractice loss exposures. The Company's insurance policy in
effect for all of 2002 for such potential claims ended March 11, 2003. The
current insurance market for medical malpractice insurance coverage has changed
significantly during the two years since the Company's last policy renewal.
Several significant insurance providers of such coverage have ceased to provide
such coverage and others have announced substantial rate increases for such
coverage. Because of the Company's significant volumes of patient encounters,
the number of insurance carriers in the market place with the ability to provide
such level of coverage for the Company has become increasingly more limited and,
as a result, more costly. Effective March 12, 2003 the Company began insuring
its professional liability risks through a program of self-insurance reserves
and a captive insurance company arrangement. Under this program, the Company
will provide reserves for its actuarily determined professional liability
losses, including an estimate for claims incurred but not reported ("IBNR"). A
portion of those claims, as determined actuarily, will be funded using a captive
insurance company arrangement. The captive insurance company is subject to
insurance regulatory laws and regulations, including actuarially determined
premiums and loss reserve requirements. Under the new insurance program, the
Company's exposure for claim losses is not "capped". While the Company's
provisions for professional liability claims and expenses will be determined
through actuarial estimates, there can be no assurance that such actuarial
estimates will not be exceeded by actual results in the future.

         The Department of Defense has issued a request for proposal that could
alter the way we conduct our military business. A substantial portion of our
revenue is derived from services rendered to military personnel and their
dependents as a subcontractor under the TRICARE program administered by the
Department of Defense. The Department of Defense has a requirement for an
integrated healthcare delivery system that includes a contractor managed care
support contract to provide health, medical and administrative support services
to its eligible beneficiaries. We currently provide our services through
subcontract arrangements with managed care organizations that contract directly
with the TRICARE program. On August 1, 2002, the Department of Defense issued a
request for proposals ("RFP") for the managed care support contracts, also known
as TRICARE Next Generation ("T-Nex"). The intent of the RFP is to replace the
existing managed care support contracts on a phased-in basis between April 2004
and November 2004.

         The responses to the RFP by interested managed care organizations were
submitted in January 2003. We have been actively pursuing contractual
relationships with several of the managed care organizations responding to the
RFP's. The current T-Nex proposal provides for awarding prime contracts to three
managed care organizations to cover three distinct geographical regions of the
country. The award of such prime contracts is currently expected to occur in
mid-2003 with the start of the delivery of healthcare services in 2004 as noted
above.

         The impact on our results of operations resulting from the changes
stemming from the T-Nex proposal are not known or able to be estimated at this
time. In the event that the managed care organizations that we have established
relationships with in response to the RFP process are not awarded prime
contracts, we expect that we will be able to pursue direct service contracts
with individual military treatment facilities. The potential success and impact
on our results of operations in obtaining direct service contracts is similarly
not known or able to be estimated at this time. If we are unable to establish
contracts with military treatment facilities either directly or through managed
care organizations, then it could have a material adverse effect on our
financial condition and results of operations.

         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:

                                       20

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

         In the ordinary course of business and like others in the healthcare
industry, we receive requests for information from government agencies in
connection with their regulatory or investigational authority. We review such
requests and notices and take appropriate action. We have been subject to
certain requests for information in the past and could be subject to such
requests for information in the future, which could result in significant
penalties, as well as adverse publicity. The results of any current or future
investigation or action could have a material adverse effect.

         With respect to state laws that relate to the practice of medicine by
general business corporations and to fee splitting, while we seek to comply
substantially with existing applicable laws, we cannot assure you that state
officials who administer these laws will not successfully challenge our existing
organization and our contractual arrangements, including noncompetition

                                       21

<PAGE>

agreements with physicians, professional corporations and hospitals as
unenforceable or as constituting the unlicensed practice of medicine or
prohibited fee-splitting.

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

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

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

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

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

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

         If Future Regulation Forces Us to Restructure Our Operations, Including
Our Arrangements with Physicians, Professional Corporations, Hospitals and Other
facilities, We May Incur Additional Costs, Lose Contracts and Suffer a Reduction
in Revenue under Existing Contracts and We May Need to Refinance Our Debt Or
Obtain Debt Holder Consent. Legislators have introduced and may introduce in the
future numerous proposals into the United States Congress and state legislatures
relating to healthcare reform in response to various healthcare issues. We
cannot assure you as to the ultimate content, timing or effect of any healthcare
reform legislation, nor is it possible at this time to estimate the impact of
potential legislation. Further, although we exercise care in structuring our
arrangements with physicians, professional corporations, hospitals and other
facilities to comply in all significant respects with applicable law, we cannot
assure you that: (1) government officials charged with responsibility for
enforcing those laws will not assert that we, or transactions into which we have
entered, violate those laws or (2) governmental entities or courts will
ultimately interpret those laws in a manner consistent with our interpretation.

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<PAGE>

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

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

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

         We believe that regulatory trends in cost containment will continue. 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.

         During 2002, the Medicare program announced that its physician
reimbursement rates would decline in 2003 by approximately 4.4%. Subsequently in
February 2003, as part of the Omnibus Fiscal Year 2003 Appropriations Bill,
Congress passed legislation that rescinded the planned rate reduction and
instead approved an increase in physician rates effective March 1, 2003 of
approximately 1.6%. The President signed the Omnibus Fiscal Year 2003
Appropriations Bill into law on February 20, 2003. We had previously estimated
the impact of the scheduled decrease in physician reimbursement rates on our net
revenues less provision for uncollectibles in 2003 from Medicare and other
insurance plans with fee schedules based on Medicare rates at approximately $4.9
million based on the Company's 2002 patient volume. As a result of the
legislative change in February 2003, we now estimate that we will realize an
increase in such revenues in 2003 from Medicare and other related revenue
sources of approximately $1.3 million.

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

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<PAGE>

         A Reclassification of Our Independent Contractor Physicians by Tax
Authorities Could Require Us to Pay Retroactive Taxes and Penalties. As of
December 31, 2002, we contracted with approximately 2,400 affiliated physicians
as independent contractors to fulfill our contractual obligations to clients.
Because we consider many of the physicians with whom we contract to be
independent contractors, as opposed to employees, we do not withhold federal or
state income or other employment related taxes, make federal or state
unemployment tax or Federal Insurance Contributions Act payments, except as
described below, or provide workers' compensation insurance with respect to such
affiliated physicians. Our contracts with our independent contractor physicians
obligate these physicians to pay these taxes. The classification of physicians
as independent contractors depends upon the facts and circumstances of the
relationship. In the event of a determination by federal or state taxing
authorities that the physicians engaged as independent contractors are
employees, we may be adversely affected and subject to retroactive taxes and
penalties. Under current federal tax law, a "safe harbor" from reclassification,
and consequently retroactive taxes and penalties, is available if our current
treatment is consistent with a long-standing practice of a significant segment
of our industry and if we meet certain other requirements. If challenged, we may
not prevail in demonstrating the applicability of the safe harbor to our
operations. Further, interested persons have proposed in the recent past to
eliminate the safe harbor and may do so again in the future.

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

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

         We May Not Be Able to Find Suitable Acquisition Candidates or
Successfully Integrate Completed Acquisitions into Our Current Operations in
Order To Profitably Operate Our Consolidated Company. When we obtain new
contracts with hospitals and managed care companies, which increasingly involves
a competitive bidding process, we must accurately assess the costs we will incur
in providing services in order to realize adequate profit margins or otherwise
meet our objectives. Increasing pressures from healthcare payors to restrict or
reduce reimbursement rates at a time when the costs of providing medical
services continue to increase make the integration of new contracts, as well as
maintenance of existing contracts, more difficult. A significant portion of our
growth in net revenue has resulted from, and is expected to continue to result
from, the acquisition of healthcare businesses. Our strategy of growing through
acquisitions could present some challenges. Some of the difficulties we could
encounter 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. 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

                                       24

<PAGE>

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 non compete agreements varies from state to state. Some states are
reluctant to strictly enforce non compete agreements with physicians. In such
event, we would be unable to prevent former affiliated physicians and
professional corporations from competing with us--potentially resulting in the
loss of some of our hospital contracts and other business.

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

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

         Additional factors that could complicate our billing include:

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

         -        variation in coverage for similar services among various
                  payors,

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

         -        failure to obtain proper physician credentialing and
                  documentation in order to bill various commercial and
                  governmental payors.

                                       25

<PAGE>

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

         We Are Subject to the Risk That Caremark Rx, Inc. ("Caremark")
(formerly known as "MedPartners, Inc.") Will Be Unable to Fulfill Its
Obligations to Us Under a Recapitalization Agreement. Under a 1999
recapitalization agreement, each of Caremark and Physician Services, Inc. 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 Caremark or Physician Services, Inc.
contained in the recapitalization agreement, a claim for which is made in most
cases within the 18 months following the closing of the recapitalization; (2)
some claims or audits by governmental authorities; and (3) litigation matters
specified in the recapitalization agreement, including some medical malpractice
claims to the extent not covered by third-party insurance. With respect to some
matters, we are only indemnified if our losses from certain indemnification
claims exceed $3.7 million and do not exceed a total of $50 million. There is no
basket or limit on the total payments with respect to other specified
misrepresentations or breaches of warranties and some litigation matters. A
significant negative change in the financial condition of Caremark could prevent
Caremark 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 Caremark's credit risk.

         We are Subject to the Risk That the Former Shareholders of SHR Will Be
Unable to Fulfill Their Obligations to Us under a Sale Agreement. In connection
with the acquisition of SHR on May 1, 2002, subject to certain limitations, the
previous shareholders of SHR and related entities have indemnified us against
certain potential losses attributable to events or conditions that existed prior
to May 1, 2002. The indemnity limit is $10.0 million, with certain potential
losses, as defined, subject to a $0.5 million "basket" before such losses are
recoverable from the previous shareholders. In addition, a separate
indemnification exists with a limit of $10.0 million relating to any claims
asserted against SHR during the three years subsequent to the date of SHR's
acquisition related to tax matters whose origin was attributable to tax periods
prior to May 1, 2002.

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

         These forward looking statements are identified by the use of terms and
phrases such as "anticipate", "that is", "could", "estimate", "intend", "may",
"plan", "predict", "project", "will" and similar terms and phrases, including
references to assumptions. However, these words are not the exclusive means of
identifying such statements. These statements are contained in many sections of
this report on Form 10-K, including those entitled "Business", "Legal
Proceedings", and "Management's Discussion and Analysis of Financial Condition
and Results of Operations". Although we believe that our plans, intentions and
expectations reflected in or suggested by such forward-looking statements are
reasonable, we cannot assure you that we will achieve the plans, intentions or
expectations. Important factors that could cause actual results to differ
materially from the forward-looking statements we make in this report on Form
10-K set forth elsewhere in 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 39,000 square feet at 1900 Winston Road,
Knoxville, Tennessee for our corporate headquarters. We also lease or sublease
facilities for the operations of the clinics, billing centers, and certain
regional operations. We believe our present facilities are adequate to meet our
current and projected needs. The leases and subleases have various terms
primarily ranging from one to ten years and monthly rents ranging from
approximately $3,000 to $53,000. Our aggregate monthly lease payments total
approximately $550,000. 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

                                       26

<PAGE>

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.

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

         There were no matters submitted to a vote of security holders during
the year ended December 31, 2002.

                                     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, 2002. The Company has not declared any dividends on its shares of
its common stock during fiscal years 2002 and 2001.

ITEM 6.           SELECTED HISTORICAL FINANCIAL AND OTHER DATA

         The following selected financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and the related notes
included elsewhere in this report. The selected statement of operations data
presented below for the three-year period ended December 31, 2002 and the
balance sheet data at December 31, 2002 and 2001 are derived from our audited
consolidated financial statements that are included elsewhere in this report.
The selected statement of operations data presented below for the two-year
period ended December 31, 1999 and the balance sheet data at December 31, 2000,
1999 and 1998 are derived from audited consolidated financial statements that
are not included in this report.

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

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

<TABLE>
<CAPTION>
                                                                        YEAR ENDED DECEMBER 31,
                                                                        -----------------------
                                                  2002           2001           2000           1999           1998
                                              ------------   ------------   ------------   ------------   ------------
                                                                     (DOLLARS IN THOUSANDS)
<S>                                           <C>            <C>            <C>            <C>            <C>
STATEMENT OF OPERATIONS DATA:
Net revenue ..............................    $  1,230,703   $    965,285   $    918,974   $    852,153   $    805,403
Provision for uncollectibles .............         396,605        336,218        329,291        309,713        257,618
                                              ------------   ------------   ------------   ------------   ------------
Net revenue less provision for
   uncollectibles ........................         834,098        629,067        589,683        542,440        547,785
Professional expenses ....................         672,565        523,154        468,596        441,506        441,625
                                              ------------   ------------   ------------   ------------   ------------
Gross profit .............................         161,533        105,913        121,087        100,934        106,160
General and administrative expenses ......          81,744         63,998         57,794         51,491         47,099
Terminated transaction expense ...........              --             --          2,000             --             --
Management fee and other expenses ........             527            649            591            506          3,812
Impairment of intangibles ................           2,322          4,137             --             --          2,992
Depreciation and amortization ............          20,015         14,978         12,638          9,943          9,464
Recapitalization expense .................              --             --             --         16,013             --
Interest expense, net ....................          23,906         22,739         25,467         20,909          5,301
Refinancing costs ........................           3,389             --             --             --             --
                                              ------------   ------------   ------------   ------------   ------------
Earnings (loss) before income taxes and
   cumulative effect of change in accounting
</TABLE>

                                       27

<PAGE>

<TABLE>
<S>                                           <C>            <C>            <C>            <C>            <C>
principle ................................          29,630           (588)        22,597          2,072         37,492
Provision for income taxes ...............          13,198            871          9,317          1,250         15,883
                                              ------------   ------------   ------------   ------------   ------------
Earnings (loss) before cumulative effect
    of change in accounting principle ....          16,432         (1,459)        13,280            822         21,609
Cumulative effect of change in accounting
    principle, net of income tax benefit..            (294)            --             --             --            912
Dividends on preferred stock .............          13,129         11,889         10,783          8,107             --
                                              ------------   ------------   ------------   ------------   ------------
Net earnings (loss) attributable to common
     stockholders ........................    $      3,009   $    (13,348)  $      2,497   $     (7,285)  $     20,697
                                              ============   ============   ============   ============   ============

NET CASH PROVIDED BY (USED FOR):
Operating Activities .....................    $     52,480   $     49,737   $     52,130   $     37,963   $     42,817
Investing Activities .....................        (174,762)       (22,826)       (12,900)       (14,984)       (22,838)
Financing Activities .....................          99,888        (12,132)       (13,646)         3,369        (21,975)
Capital Expenditures .....................          (9,796)        (5,955)        (7,359)       (10,615)        (5,015)
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents ................    $     47,789   $     70,183   $     55,404   $     29,820   $      3,472
Working capital ..........................          70,163        104,039        124,105        107,550         98,780
Total assets .............................         511,097        361,443        372,727        350,450        210,457
Total debt ...............................         320,500        217,300        229,201        241,676          2,544
Mandatory redeemable preferred stock .....         144,405        130,779        118,890        108,107             --
Total stockholders' equity (deficit) .....         (97,432)       (99,690)       (86,123)       (88,620)        98,729
</TABLE>

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

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

INTRODUCTION

         We believe we are among the largest national providers of outsourced
physician staffing and administrative services to hospitals and other healthcare
providers in the United States. Overall, we presently provide permanent
staffing, management and administrative services to approximately 397 hospitals,
imaging centers, surgery centers, clinics and military treatment facilities in
42 states. Since our inception, we have focused primarily on providing
outsourced services to hospital emergency departments and urgent care centers,
which accounted for approximately 65% of our net revenue less provision for
uncollectibles in 2002. Spectrum Healthcare Services ("SHR"), which was acquired
effective May 1, 2002, and which also provides outsourced physician staffing and
administrative services, is the leading provider of medical staffing to military
treatment facilities. SHR, in addition to providing physician staffing in
various specialties, also provides a broad array of non-physician healthcare
services including specialty technical staffing, para-professionals and nurse
staffing on a permanent basis.

         Our regional operating models include comprehensive programs for
emergency medicine, radiology, anesthesiology, inpatient care, pediatrics and
other healthcare services, principally within hospitals and other healthcare
facilities, including military treatment facilities.

         Acquisitions. During the past three years, we have successfully
acquired and integrated the contracts of two hospital-based physician groups and
related companies in addition to the acquisition of SHR. The acquisition of SHR
at a purchase price of $147 million (before transaction costs and adjustments
for net working capital) was the largest acquisition

                                       28

<PAGE>

during the past three years. The revenues of SHR in 2002 since the date of its
acquisition totaled $124.8 million or 15% of total revenues less provision in
2002. In addition, during the past three years we have also acquired five
businesses engaged in providing such services as billing and collection,
physician management services and non-hospital-based physician services.

         Acquisitions, with the exception of SHR, have been financed through a
combination of cash and future contingent payments. All of our acquisitions
during the past three years were accounted for using the purchase method of
accounting. As such, operating results of those acquired businesses are included
in our consolidated financial statements since their respective dates of
acquisition. Subsequent to each acquisition, the acquired operations have either
been converted to all or at least our key financial and operating systems.

         Strategic acquisitions continue to be a core component of our growth
strategy. The market for outsourced medical services is highly fragmented and
served primarily by small local and regional physician groups, which represent
over 61% 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. A significant portion of 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 contracts with traditional 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 for hospital contracts is
approximately seven years. SHR's contracts with the four MCSC's have been in
place since 1995 to 1998, which are the inception dates of participation by each
of the MCSC's in the TRICARE program.

         Approximately 61% of our net revenue less provision for uncollectibles
is generated under fee-for-service arrangements through which we bill and
collect the professional fees for the services provided. Conversely, under our
flat-rate contracts, hospitals or military treatment facilities pay us a fee
based on the hours of physician coverage provided, but the hospital or military
treatment facility is responsible for its own billing and collection. In states
where physician employees service our contracts directly because there is no
prohibition against such arrangements, Medicare payments for such services are
made directly to us. In states where the physicians providing services are our
independent contractors, Medicare payments for those services are paid into a
lockbox account in the name of the independent contractor physician and
subsequently directed into a Company account.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES.

         The consolidated financial statements of the Company are prepared in
accordance with United States generally accepted accounting principles, which
requires us to make estimates and assumptions (see Note 2 to the consolidated
financial statements). Management believes the following critical accounting
policies, among others, affect its more significant judgments and estimates used
in the preparation of its consolidated financial statements.

         Revenue Recognition

         Net Revenue. A significant portion (61%) of the Company's revenue in
2002 resulted from fee-for-service patient visits. The recognition of net
revenue (gross charges less contractual allowances) from such visits is
dependent on such factors as proper completion of medical charts following a
patient visit, the forwarding of such charts to one of the Company's billing
centers for medical coding and entering into the Company's billing systems, and
the verification of each patient's submission or representation at the time
services are rendered as to the payor(s) responsible for payment of such
services. Net revenues are recorded based on the information known at the time
of entering of such information into our billing systems as well as an estimate
of the net revenues associated with medical charts for a given service period
that have not been processed yet into the Company's billing systems. The above
factors and estimates are subject to change. For example, patient payor
information may change following an initial attempt to bill for services due to
a change in payor status. Such changes in payor status have an impact on
recorded net revenue due to differing payors being subject to different
contractual allowance amounts. Such changes in net revenue are recognized in the
period that such changes in payor become known. Similarly, the actual volume of
medical charts not processed into our billing systems may be different from the
amounts estimated. Such differences in net revenue are adjusted in the following
month based on actual chart volumes processed.

                                       29

<PAGE>

         Net Revenue Less Provision For Uncollectibles. Net revenue less
provision for uncollectibles reflects management's estimate of billed amounts to
ultimately be collected. Management, in estimating the amounts to be collected
resulting from its over six million annual fee-for-service patient visits and
procedures, considers such factors as prior contract collection experience,
current period changes in payor mix and patient acuity indicators, reimbursement
rate trends in governmental and private sector insurance programs, resolution of
credit balances, the estimated impact of billing system effectiveness
improvement initiatives and trends in collections from self-pay patients. Such
estimates in 2002 are substantially formulaic in nature and are calculated at
the individual contract level. The estimates are continuously updated and
adjusted if subsequent actual collection experience indicates a change in
estimate is necessary. Such provisions and any subsequent changes in estimates
may result in adjustments to our operating results with a corresponding
adjustment to our accounts receivable allowance for uncollectibles on our
balance sheet.

         Insurance Reserves

         The nature of the Company's business is such that it is subject to
medical malpractice lawsuits. To mitigate a portion of this risk, the Company
maintains insurance for individual malpractice claims with per incident and
annual aggregate limits per physician for all incidents. Malpractice lawsuits
are routinely reviewed by the Company's insurance carrier and management for
purposes of establishing ultimate loss estimates. Provisions for estimated
losses in excess of insurance limits are provided at the time such
determinations are made. In addition, where as a condition of a professional
liability insurance policy the policy includes a self-insured risk retention
layer of coverage, the Company records a provision for estimated losses likely
to be incurred during such periods and within such limits based on its past loss
experience following consultation with its outside insurance experts and claims
managers.

         Impairment of Intangible Assets

         In assessing the recoverability of the Company's intangibles the
Company must make assumptions regarding estimated future cash flows and other
factors to determine the fair value of the respective assets. If these estimates
or their related assumptions change in the future, the Company may be required
to record impairment charges for these assets. During 2002 and 2001, the Company
recorded losses due to impairments of intangibles of $2.3 million and $4.1
million, respectively. Effective January 1, 2002, the Company adopted Statement
of Financial Standards No. 142, Goodwill and Other Intangible Assets, which
required the Company to analyze its goodwill for impairment issues during the
first three months of 2002, and thereafter on an annual basis. As a result of
the initial impairment review, the Company recorded as a cumulative change of
accounting principle a loss of $0.3 million net of related tax benefit.

OVERVIEW OF STATEMENTS OF OPERATIONS

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

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

                                       30

<PAGE>

         Management, in estimating the amounts to be collected resulting from
its over six million annual fee-for-service patient visits and procedures,
considers several factors, including but not limited to, prior contract
collection experience, current period changes in payor mix and patient acuity
indicators, reimbursement rate trends in governmental and private sector
insurance programs and trends in collections from self-pay patients.
Historically, management has taken this information regarding net collections
and allocated the reductions from gross billings and estimated net collections
between contractual allowances (a reduction from gross revenues to arrive at net
revenue) and provision for uncollectibles based on trended historical data,
particularly with respect to such factors as payor mix and its collection
experience with self-pay accounts.

         In 2001, the Company recorded a charge of $24.5 million to increase its
contractual allowances for patient accounts receivable for periods prior to
2001. This charge resulted from a change in estimated collections rates based on
a detailed analysis of the Company's outstanding accounts receivable using
additional data developed during the period. The results of the additional
research indicated that the Company's estimated collection rates for prior
periods were lower than originally estimated. The charge in 2001 also led to the
development of a more formulaic and uniform estimation of its collection rates
in 2002 which takes into account the aforementioned factors as well as other
less significant factors.

         The complexity of the estimation process associated with the Company's
fee-for-service volumes and diverse payor mix, along with the difficulty of
assessing such factors as changes in the economy impacting the number of
healthcare insured versus uninsured patients and other socio-economic trends
that can have an impact on collection rates, could result in subsequent
adjustments to previously reported revenues.

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

         Approximately 35% of our revenue less provision for uncollectibles in
2002 was derived from payments made by government sponsored healthcare programs,
principally Medicare, Medicaid and TRICARE. These programs are subject to
substantial regulation by federal and state governments. Funds received under
Medicare and Medicaid are subject to audit and, accordingly, retroactive
adjustments of these revenues may occur. We, however, have never had any
substantial retroactive adjustment due to a Medicare or Medicaid audit.
Additionally, funds received from a MCSC as a result of participation in the
TRICARE program are subject to audit and subsequent retroactive adjustment.
Reimbursable fee payments for Medicare and Medicaid patients for some services
are defined and limited by the Centers for Medicare and Medicaid Services
("CMS") and some state laws and regulations. During 2002, the Medicare program
announced that its physician reimbursement rates would decline in 2003 by
approximately 4.4%. Subsequently in February 2003, as part of the Omnibus Fiscal
Year 2003 Appropriations Bill, Congress passed legislation that rescinded the
planned rate reduction and instead approved an increase in physician rates
effective March 1, 2003 of approximately 1.6%. The President signed the Omnibus
Fiscal Year 2003 Appropriations Bill into law on February 20, 2003. We had
previously estimated the impact of the scheduled decrease in physician
reimbursement rates on our net revenues less provision for uncollectibles in
2003 from Medicare and other insurance plans with fee schedules based on
Medicare rates at approximately $4.9 million based on the Company's 2002 patient
volume. As a result of the legislative change in February 2003, we now estimate
that we will realize an increase in such revenues in 2003 from Medicare and
other related revenue sources of approximately $1.3 million.

         Professional Expenses. Professional expenses primarily consist of fees
paid to physicians and other providers under contract with us, outside
collection fees relating to independent billing contracts, operating expenses of
our internal billing centers, professional liability insurance premiums for
physicians under contract and other direct contract service costs. Approximately
80% of our physicians are independently contracted physicians who are not
employed by us, and the remainder are our employees. We typically pay emergency
department and urgent care center physicians a flat hourly rate for each hour of
coverage provided. We typically pay radiologists and primary care physicians an
annual salary. The hourly rate varies depending on whether the physician is
independently contracted or an employee. Independently contracted physicians are
required to pay a self-employment tax, social security and expenses that we pay
for employed physicians.

         Professional liability expenses are recorded under professional
expenses. The cost of professional liability 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 that occurred during the
reporting period, but were not

                                       31

<PAGE>

reported that period. These claims are referred to as incurred-but-not-reported
claims. Our historical statements of operations include a professional liability
expense that is comprised of three components including insurance premiums,
incurred-but-not-reported claims estimates and self-insurance costs.

         Caremark agreed as a condition of a recapitalization in 1999 to
purchase insurance policies covering all liabilities and obligations for any
claim for professional liabilities 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 professional liability losses originating
prior to the recapitalization transactions. See "Certain Relationships and
Related Transactions."

         We entered into an initial two-year agreement on March 12, 1999 with a
major national provider of professional liability insurance for a professional
liability insurance policy that we believe will cover us for all claims made
during the term of the agreement. The term of the agreement was extended on
March 12, 2001 through March 12, 2003. The policy does not cover incidents that
occur during such term, but for which no claim is made during the term. In March
2003, we have the option to purchase a policy from the insurer that will cover
the liability for all professional liability claims relating to incidents that
occur during the term of the policy but for which no claim is made during that
period. The Company accrued the incremental cost of the tail liability on a
straightline basis over the term of the agreement. As a result of recent
conditions in the professional liability insurance market, including such
factors as a significant escalation in the cost of professional liability
coverage as well as fewer insurance carriers providing acceptable levels of such
coverage, we will provide for such risks following March 12, 2003, through a
funded captive insurance company that has recently been formed by us.
Accordingly, we have exercised our option to purchase the tail policy.

RESULTS OF OPERATIONS.

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

         Net revenue less the provision for uncollectibles is an estimate of
future cash collections and as such it is a key measurement by which management
evaluates performance of individual contracts as well as the Company as a whole.
The following table sets forth the components of net earnings as a percentage of
net revenue less provision for uncollectibles for the periods indicated:

<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31,
                                                                         -----------------------
                                                                         2002    2001     2000
                                                                        -----    -----    -----
<S>                                                                     <C>      <C>      <C>
Fee-for-service revenue ..........................................      108.8%   125.5%   130.0%
Contract revenue .................................................       35.1     25.3     23.8
Other revenue ....................................................        3.6      2.6      2.0
Net revenue ......................................................      147.5    153.4    155.8
Provision for uncollectibles .....................................       47.5     53.4     55.8
Net revenue less provision for uncollectibles ....................      100.0    100.0    100.0
                                                                        =====    =====    =====
Professional expenses ............................................       80.6     83.2     79.5
Gross profit .....................................................       19.4     16.8     20.5
General and administrative expenses ..............................        9.8     10.2      9.8
Terminated transaction expense ...................................         --       --      0.3
Management fee and other expenses ................................        0.1      0.1      0.1
Impairment of intangibles ........................................        0.3      0.6       --
Depreciation and amortization ....................................        2.4      2.4      2.2
Interest expense, net ............................................        2.8      3.6      4.3
Refinancing costs ................................................        0.4       --       --
Earnings (loss) before income taxes and cumulative
   effect of change in accounting principle ......................        3.6     (0.1)     3.8
Provision for income taxes .......................................        1.6      0.1      1.6
</TABLE>

                                       32

<PAGE>

<TABLE>
<S>                                                                     <C>      <C>      <C>
Earnings (loss) before cumulative effect of change in accounting
   principle .....................................................        2.0     (0.2)     2.2
Cumulative effect of change in accounting principle, net of income
   tax benefit ...................................................         --       --       --
Net earnings (loss) ..............................................        2.0     (0.2)     2.2
Dividends on preferred stock .....................................        1.6      1.9      1.8
Net earnings (loss) attributable to common stockholders ..........        0.4     (2.1)     0.4
</TABLE>

YEAR ENDED DECEMBER 31, 2002 COMPARED TO THE YEAR ENDED DECEMBER 31, 2001

         Net Revenue. Net revenue in 2002 increased $265.4 million, or 27.5%, to
$1,230.7 million from $965.3 million in 2001. During 2001, the Company recorded
a charge of $24.5 million to increase its contractual allowances for patient
accounts receivable for periods prior to 2001. The impact of this charge was to
reduce fee-for-service net revenue in 2001 by $24.5 million. The increase in net
revenue of $265.4 million included an increase of $118.1 million in
fee-for-service revenue, $133.5 million in contract revenue and $13.8 million in
other revenue. Fee-for-service revenue was 73.7% of net revenue in 2002 compared
to 81.8% in 2001, contract revenue was 23.8% of net revenue in 2002 compared to
16.5% in 2001 and other revenue was 2.5% of net revenue in 2002 compared to 1.7%
in 2001. The change in the mix of revenues is principally due to the acquisition
of SHR in 2002. SHR derives a higher percentage of its revenues from hourly
contract billings than fee-for-service contracts.

         Provision for Uncollectibles. The provision for uncollectibles was
$396.6 million in 2002 compared to $336.2 million in 2001, an increase of $60.4
million or 18.0%. As a percentage of net revenue, the provision for
uncollectibles was 32.2% in 2002 compared to 34.8% in 2001. The provision for
uncollectibles is primarily related to revenue generated under fee-for-service
contracts which is not expected to be fully collected. The lower percentage of
net revenue in 2002 is principally due to the lower mix of fee-for-service
revenue within the total revenues of SHR which was acquired on May 1, 2002.

         Net Revenue Less Provision for Uncollectibles. Net revenue less
provision for uncollectibles in 2002 increased $205.0 million, or 32.6% ($180.5
million, or 27.6%, after giving effect to the $24.5 million charge in 2001), to
$834.1 million from $629.1 million in 2001. 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 $31.8 million or 5.7%, to $585.9 million in 2002 from $554.0 million
in 2001. The increase in same contract revenue of 5.7% includes the effects of
both increased billing volume and higher estimated net revenue per billing unit
between periods. Overall, same contract revenue increased approximately 4.1%
between periods due to an increase in billing volume and physician mix.
Beginning January 1, 2002, the Company's reimbursement under the Medicare
Program was reduced. The estimated effect of such reduction in 2002 was $9.0
million. Acquisitions contributed $139.1 million and new contracts obtained
through internal sales contributed $48.7 million of the remaining increase. The
increases noted above were partially offset by $39.2 million of revenue derived
from contracts that terminated during the periods.

         Professional Expenses. Professional expenses in 2002 were $672.6
million compared to $523.2 million in 2001, an increase of $149.4 million or
28.6%. The increase of $149.4 million included $98.9 million resulting from
acquisitions between periods. As a percentage of net revenue less provision for
uncollectibles, professional expenses were 80.6% in 2002 compared to 83.2% in
2001 (80.0% after giving effect to the charge of $24.5 million in 2001).
Physician costs, billing and collection expenses and other professional
expenses, excluding professional liability expense and the effect of
acquisitions, increased $43.4 million, or 8.8% between periods. The increase in
these professional expenses was principally due to increases in physician hours
and rates and costs associated with the addition of capacity in our billing
operations between periods. In addition, the Company experienced increased usage
of mid-level practitioners and physician assistants in 2002 in an effort to
improve emergency department productivity and to meet increased emergency
department volumes. Professional liability expense was $37.0 million in 2002
compared with $29.8 million in 2001, resulting in an increase between periods of
$7.2 million or 24.2%. The increase in the Company's professional liability
insurance cost in addition to increases resulting from acquisitions ($1.9
million), reflects the cost of higher premiums between periods under its two
year policy for such coverage which began March 12, 2001, as well as a provision
for claim losses in excess of insurance limits.

                                       33

<PAGE>

         Gross Profit. Gross profit increased to $161.5 million in 2002 from
$105.9 million in 2001. The increase in gross profit after giving effect to the
charge of $24.5 million in 2001 is attributable to the contribution of
acquisitions. Gross profit as a percentage of revenue less provision for
uncollectibles increased to 19.4% in 2002 compared to 16.8% in 2001 due to the
factors described above.

         General and Administrative Expenses. General and administrative
expenses in 2002 increased to $81.7 million from $64.0 million in 2001, for an
increase of $17.7 million, or 27.7% between years. General and administrative
expenses as a percentage of net revenue less provision for uncollectibles were
9.8% in 2002 compared to 10.2% in 2001. The increase in general and
administrative expenses between years included expenses associated with acquired
operations of $13.7 million accounting for 21.4% of the 27.7% increase between
periods. The remaining net increase of 6.3% was principally due to increases in
salaries and related benefit costs resulting from annual wage increases and
inflation and the full year effect of additional staff added in 2001.

         Management Fee and Other Expenses. Management fee and other expenses
were $0.5 million and $0.6 million in 2002 and 2001, respectively.

         Impairment of Intangibles. Impairment of intangibles was $2.3 million
and $4.1 million in 2002 and 2001, respectively. Two of the Company's contracts
were determined to be impaired during 2002 and in 2001 a portion of the
Company's intangibles relating to its radiology operations were reduced to their
estimated fair market value.

         Depreciation and Amortization. Depreciation and amortization was $20.0
million in 2002 compared to $15.0 million in 2001. Depreciation increased by
$1.2 million between years. The increase in depreciation expense was due to
capital expenditures made during 2001 and 2002. Amortization expense increased
$3.8 million between years principally due to amortization of identifiable
intangibles resulting from acquisitions made during 2001 and 2002, partially
offset by no longer amortizing goodwill subsequent to January 1, 2002
(amortization of goodwill was $2.0 million for the twelve months ended December
31, 2001) as a result of implementing SFAS No. 142, Goodwill and Other
Intangible Assets.

         Net Interest Expense. Net interest expense increased $1.2 million to
$23.9 million in 2002 compared to $22.7 million in 2001. The increase in net
interest expense is principally due to additional debt outstanding resulting
from the acquisition of SHR partially offset by lower interest rates between
periods.

         Refinancing Costs. The Company expensed in 2002 $3.4 million of
deferred financing costs related to its previously outstanding bank debt which
was refinanced in 2002.

         Earnings (Loss) before Income Taxes and Cumulative Effect of Change in
Accounting Principle. Earnings before income taxes and cumulative effect of
change in accounting principle in 2002 were $29.6 million compared to a loss of
$0.6 million in 2001.

         Provision for Income Taxes. Provision for income taxes in 2002 was
$13.2 million compared to a provision of $0.9 million in 2001. The increase in
income tax expense in 2002 over 2001 was due to the increased level of earnings
before income taxes in 2002.

         Earnings (Loss) before Cumulative Effect of Change in Accounting
Principle. Earnings before cumulative effect of change in accounting principle
in 2002 was $16.4 million compared to a loss of $1.5 million in 2001.

         Cumulative Effect of Change in Accounting Principle. In connection with
implementing SFAS No. 142, Goodwill and Other Intangible Assets, as of January
1, 2002, the Company completed a transitional impairment test of existing
goodwill and concluded that a portion of its goodwill was impaired. Accordingly,
an impairment loss of $0.5 million ($0.3 million net of taxes) was recorded as
the cumulative effect of a change in accounting principle in 2002.

         Net Earnings (Loss). Net earnings in 2002 were $16.1 million compared
to a net loss of $1.5 million in 2001.

         Dividends on Preferred Stock. The Company accrued $13.1 million and
$11.9 million of dividends in 2002 and 2001, respectively, on its outstanding
Class A mandatory redeemable preferred stock.

                                       34

<PAGE>

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

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

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

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

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

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

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

                                       35

<PAGE>

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

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

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

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

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

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

         Provision for Income Taxes. Provision for income taxes in 2001 was $0.9
million compared to $9.3 million in 2000. The decrease is due to the decreased
level of earnings before income taxes in 2001.

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

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

LIQUIDITY AND CAPITAL RESOURCES

         The Company's principal uses of cash are to meet working capital
requirements, fund debt obligations and to finance its capital expenditures and
acquisitions. Funds generated from operations during the past two years, with
the exception of the acquisition of SHR on May 1, 2002, have been sufficient to
meet the Company's cash requirements.

         Cash provided by operating activities in 2002 and 2001 was $52.5
million and $49.7 million, respectively.

         The Company spent $9.8 million in 2002 and $6.0 million in 2001 for
capital expenditures. These capital expenditures are primarily for information
technology related maintenance capital and development projects.

         The Company has historically been an acquirer of other physician
staffing businesses and interests. Such acquisitions in recent years have been
completed for cash. The acquisition of SHR on May 1, 2002, at a purchase price
of $147.0 million (before transaction costs and adjustment for net working
capital) was financed through the use of available cash of approximately $39.9
million and the use of new bank senior credit facilities. The acquisitions in
many cases (excluding the acquisition of SHR) include contingent purchase price
payment amounts that are payable in years subsequent to the years of

                                       36

<PAGE>

acquisition. Cash payments made in connection with acquisitions, including
contingent payments, were $165.7 million in 2002 and $16.2 million in 2001.
Future contingent payment obligations are approximately $11.1 million as of
December 31, 2002.

         The Company made scheduled debt maturity payments of $10.9 million in
2002 and $8.8 million in 2001 in accordance with its applicable term loan
facilities. In addition, in conjunction with the acquisition of SHR, the Company
on May 1, 2002, entered into a new senior credit facility to finance the
acquisition of SHR and to repay its outstanding bank term facilities in the
amount of $110.9 million on May 1, 2002.

         The senior credit facility provides for up to $75 million of borrowings
under a senior revolving credit facility and provided $225 million of new term
loans. Borrowings outstanding under the senior credit facility mature in various
years with a final maturity date of October 31, 2008. The senior credit facility
agreement contains both affirmative and negative covenants, including
limitations on the Company's ability to incur additional indebtedness, sell
material assets, retire, redeem or otherwise reacquire its capital stock,
acquire the capital stock or assets of another business, pay dividends, and
requires the Company to meet or exceed certain coverage, leverage and
indebtedness ratios. In addition, the senior credit agreement includes a
provision for the prepayment of a portion of the outstanding term loan amounts
at any year-end if the Company generates "excess cash flow," as defined in the
agreement. The Company has estimated that it will be required to make an excess
cash flow payment of approximately $7.0 million for fiscal 2002 by April 30,
2003. The estimated excess cash flow payment has been included within current
maturities of long-term debt in the accompanying balance sheet at December 31,
2002.

         Except for four days in 2002 during which a maximum of $2.8 million was
borrowed under the Company's revolving credit facility and in all of 2001, the
Company's cash needs were met from internally generated operating sources and
there were no other borrowings by the Company under its revolving credit
facility.

         The Company in March 2001 renewed its professional liability insurance,
which provides coverage for potential liabilities on a "claims-made" basis. The
coverage is in effect for a two-year period through March 12, 2003. The
Company's options for continued coverage beyond March 12, 2003 for claims
incurred but not reported before that date include the option of exercising a
"tail" policy, which would cover such potential claims. The cost of such tail
policy is approximately $30.6 million and, if exercised, would be payable no
later than April 10, 2003. As a result of recent conditions in the professional
liability insurance market, including such factors as a significant escalation
in the cost of professional liability coverage as well as fewer insurance
carriers providing acceptable levels of such coverage, we have decided to
provide for such risks following March 11, 2003, through a program of
self-insurance reserves and a captive insurance company arrangement.
Accordingly, we have exercised our option to purchase the tail policy and, as a
result of this expectation, we have classified the pro rata tail premium cost
($29.5 million as of December 31, 2002) as a current liability at December 31,
2002.

         The Company as of December 31, 2002, had cash and cash equivalents of
approximately $47.8 million and a revolving credit facility borrowing
availability of $73.4 million. The Company believes that its cash needs, other
than for significant acquisitions, will continue to be met through the use of
its remaining existing available cash, cash flows derived from future operating
results and cash generated from borrowings under its senior revolving credit
facility.

         The following table reflects a summary of obligations and commitments
outstanding with payment dates as of December 31, 2002 (in thousands):

<TABLE>
<CAPTION>
                                                                    PAYMENTS DUE BY PERIOD
                                                                    ----------------------
                                              LESS THAN 1
                                                 YEAR       1 - 3 YEARS   4 - 5 YEARS  AFTER 5 YEARS    TOTAL
                                                 ----       -----------   -----------  -------------    -----
<S>                                           <C>           <C>           <C>          <C>            <C>
Contractual cash obligations:
Long-term debt..............................   $  20,125     $  36,625     $  28,250    $  235,500    $  320,500
Operating leases............................       6,402        11,844         8,932         5,987        33,165
                                               ---------     ---------     ---------    ----------    ----------
     Subtotal                                     26,527        48,469        37,182       241,487       353,665
</TABLE>

                                       37

<PAGE>

<TABLE>
<CAPTION>
                                                          AMOUNT OF COMMITMENT EXPIRATION PER PERIOD
                                                          ------------------------------------------
                                              LESS THAN 1
                                                 YEAR       1 - 3 YEARS   4 - 5 YEARS  AFTER 5 YEARS     TOTAL
                                              -----------   -----------   -----------  -------------     -----
<S>                                           <C>           <C>           <C>          <C>            <C>
Other commitments:
Standby letters of credit...................   $   1,591     $      --     $      --    $       --    $    1,591
Contingent acquisition payments.............       1,299         9,145           630            --        11,074
                                               ---------     ---------     ---------    ----------    ----------
                                                   2,890         9,145           630            --        12,665
                                               ---------     ---------     ---------    ----------    ----------
    Total obligations and
        commitments.........................   $  29,417     $  57,614     $  37,812    $  241,487    $  366,330
                                               =========     =========     =========    ==========    ==========
</TABLE>

INFLATION

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

         The Company renewed an agreement on March 12, 2001, with an insurance
company to provide professional liability insurance for claims made during the
four-year period ending March 12, 2003. A number of other healthcare providers
attempting to renew or secure new professional liability insurance coverage have
experienced significant increases in the cost of such coverage in recent months.
The Company is not able to estimate at this time the effect on its professional
liability insurance costs if it should acquire such insurance coverage through a
third-party provider subsequent to the expiration of its current policy coverage
period.

MEDICARE PROGRAM PHYSICIAN REIMBURSEMENT RATES

         A portion of the Company's revenues are derived from services provided
to patients covered under the Medicare Program and commercial insurance plans
whose reimbursement rates are tied to Medicare rates. Physician reimbursement
rates for services provided to such Medicare Program beneficiaries are
established annually by CMS. During 2002, the Medicare program announced that
its physician reimbursement rates would decline in 2003 by approximately 4.4%.
Subsequently in February 2003, as part of the Omnibus Fiscal Year 2003
Appropriations Bill, Congress passed legislation that rescinded the planned rate
reduction and instead approved an increase in physician rates effective March 1,
2003 of approximately 1.6%. The President signed the Omnibus Fiscal Year 2003
Appropriations Bill into law on February 20, 2003. We had previously estimated
the impact of the scheduled decrease in physician reimbursement rates on our net
revenues less provision for uncollectibles in 2003 from Medicare and other
insurance plans with fee schedules based on Medicare rates at approximately $4.9
million based on the Company's 2002 patient volume. As a result of the
legislative change in February 2003, we now estimate that we will realize an
increase in such revenues in 2003 from Medicare and other related revenue
sources of approximately $1.3 million.

TRICARE PROGRAM

         Substantially all of the revenue derived by SHR is for services
rendered to military personnel and their dependents as a subcontractor under the
TRICARE program administered by the Department of Defense. The Department of
Defense has a requirement for an integrated healthcare delivery system that
includes a contractor managed care support contract to provide health, medical
and administrative support services to its eligible beneficiaries. SHR currently
provides its services through subcontract arrangements with managed care
organizations that contract directly with the TRICARE program. On August 1,
2002, the Department of Defense issued a request for proposals ("RFP") for the
managed care support contracts, also known as TRICARE Next Generation ("T-Nex").
The intent of the RFP is to replace the existing managed care support contracts
on a phased-in basis between April 2004 and November 2004.

         The responses to the RFP by interested managed care organizations were
submitted in January 2003. SHR is actively pursuing contractual relationships
with several of the managed care organizations responding to the RFP's. The
current T-Nex proposal provides for awarding prime contracts to three managed
care organizations to cover three distinct geographical regions of the country.
The award of such prime contracts is currently expected to occur in mid-2003
with the start of the delivery of healthcare services in 2004 as noted above.

         The impact on the results of operations of SHR resulting from the
changes stemming from the T-Nex proposal are

                                       38

<PAGE>

not known or able to be estimated at this time. In the event that the managed
care organizations that SHR has established relationships with in response to
the RFP process are not awarded prime contracts, SHR expects that it will be
able to pursue direct service contracts with individual military treatment
facilities. The potential success and impact on the results of operations of SHR
in obtaining direct service contracts is similarly not known or able to be
estimated at this time. If SHR is unable to establish contracts with military
treatment facilities either directly or through managed care organizations, then
it could have a material adverse effect on our financial condition and results
of operations.

SEASONALITY

         Historically, because of the significance of our revenues derived from
patient visits to emergency departments, which are generally open on a 365 day
basis, our revenues and operating results have reflected minimal seasonal
variation and also due to our geographic diversification. Revenue from our
non-emergency department staffing lines is dependent on a healthcare facility
being open during selected time periods. Revenue in such instances will
fluctuate depending upon such factors as the number of holidays in the period.
Accordingly, revenues derived from the hourly contract business of SHR is
generally lower in the fourth quarter of the year due to the number of holidays
therein.

RECENTLY ISSUED ACCOUNTING STANDARDS

         Effective January 1, 2002, the Company adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other
Intangible Assets. Under SFAS No. 142, goodwill and intangible assets deemed to
have indefinite lives are no longer amortized but are subject to impairment
tests on an annual basis, or more frequently if certain indicators arise. Other
intangible assets continue to be amortized over their useful lives. The Company
completed its required initial impairment testing of goodwill during the three
months ended March 31, 2002. As a result of this review, the Company concluded
that a portion of its recorded goodwill was impaired. Accordingly, an impairment
loss of $0.5 million ($0.3 million net of taxes) was recorded at March 31, 2002
as the cumulative effect of a change in accounting principle. The impact on net
earnings in 2001, had the nonamortization of goodwill been in effect for such
period, would have been an increase in previously reported net earnings of
approximately $2.0 million.

         Effective January 1, 2002, the Company adopted SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 significantly
changes the criteria that has to be met to classify an asset as held-for-sale,
and requires expected future operating losses from discontinued operations to be
displayed in discontinued operations in the period(s) in which the losses are
incurred (rather than as of the measurement date as previously required). In
addition, more dispositions qualify for discontinued operations treatment in the
statement of operations. The implementation of SFAS No. 144 did not have any
impact on the Company's results of operation or financial position.

         During May 2002, the Financial Accounting Standards Board (FASB) issued
SFAS No. 145 "Rescission of Statement No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections". SFAS No. 145 rescinds or changes
several previously issued accounting pronouncements. Included among such items
is an elimination of Statement No. 4 and specifically the requirement to
classify all gains and losses from the extinguishment of debt, if material, as
extraordinary items. Consequently, gains and losses from the extinguishments of
debt are subject to the criteria established in Accounting Principles Board
(APB) Opinion 30 "Reporting the Results of Operations -- Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions" with a current view that such
extinguishments generally do not meet the criteria of APB Opinion 30 as being
"unusual and infrequent". The provisions of SFAS No. 145 related to the
classification of gains or losses attributable to debt extinguishments are
effective for fiscal years beginning after May 15, 2002. The Company elected to
adopt the provisions of SFAS No. 145 during the three months ended September 30,
2002.

         During July 2002, the FASB issued SFAS No. 146 "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146 addresses significant
issues regarding the recognition, measurement, and reporting of costs that are
associated with exit and disposal activities, including restructuring activities
that are currently accounted for pursuant to the guidance that the Emerging
Issues Task Force (EITF) has set forth in EITF Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (Including Certain Costs Incurred in a Restructuring)". SFAS No. 146
requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a commitment to an
exit or disposal plan. The scope of SFAS No. 146 also includes (1) costs related
to

                                       39

<PAGE>

terminating a contract that is not a capital lease and (2) termination benefits
that employees who are involuntarily terminated receive under the terms of a
one-time benefit arrangement that is not an ongoing benefit arrangement or an
individual deferred-compensation contract. The new standard is effective for
exit or restructuring activities initiated after December 31, 2002.

         On December 31, 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure. SFAS No. 148 amends SFAS
No. 123, Accounting for Stock-Based Compensation, to provide alternative methods
of transition to the fair value method of accounting for stock-based employee
compensation under SFAS No. 123. SFAS No. 148 also amends the disclosure
provisions of SFAS No. 123 and APB Opinion No. 28, Interim Financial Reporting,
to require disclosure in the summary of significant accounting policies of the
effects of an entity's accounting policy with respect to stock-based employee
compensation on reported earnings in annual and interim financial statements.
While the Statement does not amend SFAS No. 123 to require companies to account
for employee stock options using the fair value method, the disclosure
provisions of SFAS No. 148 are applicable to all companies with stock-based
employee compensation, regardless of whether the accounting for that
compensation is using the fair value method of SFAS No. 123 or the intrinsic
value method of Opinion 25. As more fully discussed in Note 10 to the
consolidated financial statements, the Company has adopted only the disclosure
requirements of SFAS No. 148 effective for the year ended December 31, 2002.

ITEM 7A.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

         The Company's earnings are affected by changes in short-term interest
rates as a result of its borrowings under its senior credit facilities. Interest
rate swap agreements are used to manage a portion of the Company's interest rate
exposure.

         The Company was obligated under the terms of the new senior credit
facility agreement to obtain within 90 days of the date of entering into the
agreement interest rate hedge agreements covering at least 50% of all funded
debt, as defined, of the Company. Such hedge agreements are required to be
maintained for at least the first three years of the senior credit facility
agreement. On July 3, 2002, the Company entered into a forward interest rate
swap agreement effective November 7, 2002, to effectively convert $62.5 million
of floating-rate borrowings to 3.86% fixed-rate borrowings. The agreement is a
contract 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 agreement. The contract has a final expiration date of April 30, 2005. This
agreement exposes the Company to credit losses in the event of non-performance
by the counterparty to the financial instrument. The counterparty is a
creditworthy financial institution and the Company believes the counterparty
will be able to fully satisfy its obligations under the contract.

         At December 31, 2002, the fair value of the Company's total debt, which
has a carrying value of $320.5 million, was approximately $321.0 million. The
Company had $220.5 million of variable debt outstanding at December 31, 2002. If
the market interest rates for the Company's variable rate borrowings averaged 1%
more during the twelve months subsequent to December 31, 2002, the Company's
interest expense would increase, and earnings before income taxes would
decrease, by approximately $2.1 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 15 of
this Form 10-K.

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

         None.

                                       40

<PAGE>

                                    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................     50          President, Chief Executive Officer and Director
Michael L. Hatcher..................     52          Chief Operating Officer
Robert J. Abramowski................     52          Executive Vice President, Finance and Administration
Robert C. Joyner....................     55          Executive Vice President, General Counsel
Stephen Sherlin.....................     57          Executive Vice President, Billing and Reimbursement
David P. Jones......................     35          Chief Financial Officer
Nicholas W. Alexos..................     39          Director
Dana J. O'Brien.....................     47          Director
Glenn A. Davenport..................     49          Director
Earl P. Holland.....................     57          Director
Kenneth W. O'Keefe..................     36          Director
Timothy P. Sullivan.................     44          Director
</TABLE>

---------------
*  As of March 1, 2003

         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 provider of emergency physician services to hospitals in
the Southeast and the predecessor of Team Health, which Dr. Massingale
co-founded in 1979. Dr. Massingale served as the director of Emergency Services
for the state of Tennessee from 1989 to 1993. Dr. Massingale is a graduate of
the University of Tennessee Medical Center for Health Services.

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

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

         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

                                       41

<PAGE>

General Counsel for Paracelsus Healthcare Corporation, a privately held hospital
ownership and management company which became public in 1996. Mr. Joyner
graduated with a BSBA degree in 1969 and a JD in 1972, both from the University
of Florida.

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

         DAVID P. JONES, CPA 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
received a B.S. in Business Administration from The University of Tennessee in
Knoxville.

         NICHOLAS W. ALEXOS became a director in 1999. 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 National Mentor, 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 1999. Mr. O'Brien co-founded
Prudential Equity Investors, Inc. in 1984. Mr. O'Brien and the other principals
of Prudential Equity Investors, Inc. co-founded Cornerstone Equity Investors,
LLC in 1996. Mr. O'Brien currently serves on the Boards of Directors of a number
of private companies. Mr. O'Brien received a B.A. from Hobart College and an
M.B.A. from the Wharton School of the University of Pennsylvania.

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

         EARL P. HOLLAND became a director of the Company in 2001. Mr. Holland
has over 31 years of experience working in the healthcare industry. Prior to his
retirement in January, 2001, Mr. Holland held several positions with Health
Management Associates (HMA), including the positions of Vice President and Chief
Operating Officer at the time of his retirement. HMA is a publicly traded
healthcare company traded on the NYSE. Mr. Holland also serves on the board of
directors of several other companies engaged in the business of providing
healthcare services as well as other business services. Mr. Holland graduated
from Southeast Missouri State University with a B.S. degree in business
administration.

         KENNETH W. O'KEEFE became a director in 1999. 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, Mr.
O'Keefe was with The First National Bank of Chicago. Mr. O'Keefe currently
serves on the Boards of Directors of Spectrum Holdings of Delaware, LLC, Same
Day Surgery, LLC, Seacoast Technologies, Inc. and AbilityOne Corporation. 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 1999. Prior to co-founding
Madison Dearborn Partners, Inc. Mr. Sullivan was with First Chicago Venture
Capital. Mr. Sullivan concentrates on investments in the healthcare industry and
currently serves on the Boards of Directors of Milnot Holding Corporation,
National Mentor, Inc. and Spectrum Healthcare Services, Inc. Mr. Sullivan
received a B.S. from the United States Naval Academy, an M.S. from the
University of Southern California and an M.B.A. from Stanford University
Graduate School of Business.

                                       42

<PAGE>

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 2002 of those
persons who served as

                  (1) the chief executive officer during 2002 and

                  (2) our other four most highly compensated executive officers
for 2002 (collectively, the "Named Executive Officers"):

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>

                                                                       LONG-TERM
                                                                     COMPENSATION
                                                                        AWARDS
                                                                     ------------
                                         ANNUAL COMPENSATION          SECURITIES
                                ---------------------------------     UNDERLYING     SPECIAL      ALL OTHER          TOTAL
NAME AND PRINCIPAL POSITION        YEAR       SALARY       BONUS      OPTIONS(1)     BONUS(2)    COMPENSATION     COMPENSATION
---------------------------     ----------  ----------  ----------   -------------  ----------  --------------   --------------
<S>                             <C>         <C>         <C>          <C>            <C>         <C>              <C>
Lynn Massingale, M.D.........      2002      $ 418,022   $ 206,813     $ 45,000     $  75,000    $  78,222(3)    $    778,057
  President and Chief              2001        412,000     206,929           --            --       81,700(3)         700,629
  Executive Officer                2000        408,538     180,200           --            --       43,666(3)         632,404

Michael L. Hatcher...........      2002        270,652     106,509       22,500        25,000       24,649(4)         426,810
  Chief Operating Officer          2001        262,998     103,464           --            --       26,076(4)         392,538
                                   2000        255,337      90,100           --            --       22,804(4)         368,241

Robert C. Joyner.............      2002        224,766      63,363        7,000        37,500       18,059(5)         343,688
  Executive Vice President,        2001        203,189      55,871           --            --       16,048(5)         275,108
  General Counsel                  2000        183,842      20,261       20,000            --       81,203(5)         285,306

Stephen Sherlin..............      2002        235,137      93,066        7,000        12,500       12,793(4)         353,496
  Executive Vice President,        2001        229,803      90,406           --            --       11,206(4)         331,415
  Billing and Reimbursement        2000        217,308      63,070       20,000            --        9,362(4)         289,740

Robert J. Abramowski*........      2002        288,325      95,597           --        50,000        9,295(6)         443,217
  Executive Vice President,        2001        282,989      21,000           --            --      129,042(6)         433,031
  Finance and Administration       2000         58,154          --       47,000            --        8,783(6)          66,937
</TABLE>

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

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

(2)      Represents bonuses authorized and approved by the Company's Board of
         Directors in conjunction with the successful acquisition of SHR.

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

<TABLE>
<CAPTION>
                                                   2002       2001      2000
                                                 --------   --------   ------
<S>                                              <C>        <C>       <C>
Life insurance..........................         $ 46,210   $ 57,110  $ 17,003
Other...................................           32,012     24,590    26,663
</TABLE>

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

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

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

<TABLE>
<CAPTION>
                                                   2002       2001      2000
                                                 --------   --------   ------
<S>                                              <C>        <C>        <C>
401(k) matching contribution............          $ 5,100   $  5,100   $   --
Auto allowance..........................            6,000      6,000    6,000
Moving expenses.........................               --         --   70,971
Health insurance........................            4,558      3,328    2,903
Other...................................            2,401      1,620    1,329
</TABLE>

                                       43

<PAGE>

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

<TABLE>
<CAPTION>
                                                   2002       2001      2000
                                                 --------   --------   ------
<S>                                              <C>        <C>        <C>
Moving expenses.........................          $    --   $122,123   $8,783
Health insurance........................            5,964      5,137       --
Other...................................            3,331      1,782       --
</TABLE>

         Additionally, Dr. Massingale provides professional medical services to
client hospitals under independent contractor agreements with subsidiaries of
the Company. During 2002, 2001, and 2000, Dr. Massingale was paid $834, $1,918,
and $2,421, respectively.

STOCK OPTION PLANS

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

OPTION GRANTS IN LAST FISCAL YEAR

         The chart below sets forth options granted to the Named Executive
Officers under the Team Health Option Plan during 2002.

<TABLE>
<CAPTION>

                               INDIVIDUAL GRANTS
                           --------------------------                                 POTENTIAL REALIZABLE
                                                                                         VALUE AT
                                           PERCENT OF                                 ASSUMED ANNUAL RATES
                            NUMBER OF         TOTAL                                      OF STOCK PRICE
                            SECURITIES       OPTIONS                                    APPRECIATION FOR
                            UNDERLYING     GRANTED TO    EXERCISE OF                     OPTION TERM (2)
                             OPTIONS      EMPLOYEES IN   BASE PRICE    EXPIRATION     ---------------------
NAME                       GRANTED (#)     FISCAL YEAR     ($/SH)         DATE         5%($)         10%($)
----                       -----------    ------------   -----------   ----------      -----         ------
<C>                        <C>            <C>            <C>           <C>            <C>           <C>
Lynn Massingale, MD           45,000         12.6%           4.50          (1)        652,314       981,346
Michael L. Hatcher            22,500          6.3%           4.50          (1)        326,157       490,673
Stephen Sherlin                7,000          2.0%          12.00          (1)         53,957       113,965
Robert C. Joyner               7,000          2.0%          12.00          (1)         53,957       113,965
Robert J. Abramowski              --           --              --          --              --            --
</TABLE>

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

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

         Option Exercises in Last Fiscal Year and Fiscal Year End Option Values.
The following table sets forth the number of shares underlying unexercised
options held by each of the Named Executive Officers and the value of such
options at the end of 2002. There were no options exercised during 2002.

                                       44

<PAGE>

<TABLE>
<CAPTION>
                                                                        NUMBERS OF
                                                                        SECURITIES          VALUE OF
                                                                        UNDERLYING         UNEXERCISED
                                                                        UNEXERCISED       IN-THE-MONEY
                                                                        OPTIONS AT         OPTIONS AT
                                                                      FISCAL YEAR END    FISCAL YEAR END
                                     SHARES ACQUIRED                  (#)EXERCISABLE/    ($)EXERCISABLE/
NAME                                   ON EXERCISE    VALUE REALIZED    UNEXERCISABLE    UNEXERCISABLE (1)
----                                 ---------------  --------------  ---------------    -----------------
<S>                                  <C>              <C>             <C>                <C>
Lynn Massingale, M.D..........             --          $   --              --/45,000     $      --/405,000
Michael L. Hatcher............             --          $   --              --/22,500     $      --/202,500
Stephen Sherlin...............             --          $   --           4,667/22,333     $  41,999/148,501
Robert C. Joyner..............             --          $   --           4,667/22,333     $  41,999/148,501
Robert J. Abramowski.........              --          $   --          11,750/35,250     $ 105,750/317,250
</TABLE>

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

(1)      Value of unexercised options at fiscal year-end represents the
         difference between the exercise price of any outstanding-in-the-money
         options and the fair market value of such options on December 31, 2002.
         The fair market value of options under the Team Health, Inc. Stock
         Option Plan, as determined by the Company's Board of Directors, was
         $13.50 per share.

PENSION PLANS

         Substantially all of the salaried employees, including our executive
officers, participate in our 401(k) savings plan. Employees are permitted to
defer a portion of their income under our 401(k) plan. Beginning in 2002, at the
discretion of the Company's Board of Directors, the Company may make a matching
contribution up to 50% of the first 6% of employees' contributions under the
Plan. The Company's Board of Directors authorized the maximum discretionary
amount as a match on employees' 401(k) Plan contributions for 2002, including
the Named Executive Officers.

EMPLOYMENT AGREEMENTS

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

         The employment agreements for the Named Executive Officers include
five-year terms beginning March 11, 1999 for Dr. Massingale, Mr. Hatcher, and
Mr. Sherlin, and beginning August 1, 1999 for Mr. Joyner and beginning October
2, 2001 for Mr. Abramowski. The employment agreements include provision for the
payment of an annual base salary, subject to annual review and adjustment, as
well as the payment of a bonus as a percentage of such base salary based upon
the achievement of certain financial performance criteria. The annual base
salaries as of December 31, 2002 and the potential bonus that can be earned by
each of the named Executive officers is as follows:

<TABLE>
<CAPTION>
                                                                           ANNUAL
                                                                         BASE SALARY       BONUS %
                                                                         -----------       -------
<S>                                                                      <C>               <C>
Lynn Massingale, M.D.........................................            $  500,000          50%
Michael L. Hatcher...........................................               315,000          40%
Stephen Sherlin..............................................               236,385          40%
Robert C. Joyner.............................................               225,400          30%
Robert J. Abramowski.........................................               289,844          30%
</TABLE>

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

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

         Effective January 1, 2003, Dr. Massingale and Mr. Hatcher executed an
amendment to their employment agreements whereby targeted bonus percentage is
65%. Under both agreements, the maximum bonus percentage can increase to 75% of
base salary if the Company exceeds annual financial performance targets.

                                       45

<PAGE>

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 885,205 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 reimburse directors for any out-of-pocket expenses incurred by them
in connection with services provided in such capacity. Two of our directors, Mr.
Davenport and Mr. Holland, are compensated for services they provide in their
capacities as directors. The compensation for Mr. Davenport and Mr. Holland
includes an annual stipend of $12,000 as well as $3,000 for each meeting
attended.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

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

ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Team Health Holdings owns 92.7% of our outstanding common stock and
voting interests and 94.9% of our outstanding preferred stock. Physician
Services, Inc., a subsidiary of Caremark, Rx, Inc. (formerly known as
MedPartners, Inc.) owns the remaining 7.3% of our outstanding common stock and
voting interests and the remaining 5.1% of our outstanding preferred stock.
Physician Services, Inc. can be reached in care of Caremark Rx, Inc. at 3000
Galleria Tower, Suite 1000, Birmingham, Alabama 35244. The following table sets
forth certain information regarding the actual beneficial ownership of Team
Health Holdings' ownership units by:

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

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

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

                                       46

<PAGE>

<TABLE>
<CAPTION>
                                                                                   PERCENTAGE OF
                                                                PERCENTAGE OF       OUTSTANDING
                                                                 OUTSTANDING          COMMON        PERCENTAGE OF
BENEFICIAL OWNER                                               PREFERRED UNITS         UNITS        VOTING UNITS
----------------                                               ---------------    -------------     ------------
<S>                                                            <C>                <C>               <C>
Cornerstone Equity Investors IV, L.P.........................      41.4%               37.7%           37.7%
  c/o Cornerstone Equity Investors, LLC
  717 Fifth Avenue, Suite 1100
  New York, New York 10022
  Attention: Dana J. O'Brien
Madison Dearborn Capital Partners II, L.P...................       41.4                37.7            37.7
  c/o Madison Dearborn Partners
  Three First National Plaza, Suite 3800
  Chicago, Illinois 60602
  Attention: Timothy P. Sullivan
Healthcare Equity Partners, L.P. and
  Healthcare Equity Q.P. Partners, L.P.......................       9.2                 8.4             8.4
  c/o Beecken Petty & Company, L.L.C
  200 W. Madison St., Suite 1910
  Chicago, IL  60606
  Attention: Kenneth W. O'Keefe
Certain members of management and other directors............       8.0                16.2            16.2
</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
Physician Services, Inc. ("Physician Services"), a wholly owned subsidiary of
Caremark Rx, Inc. formerly known as MedPartners, Inc. ("Medpartners"). The
recapitalization agreement contains customary provisions for such agreements,
including representations and warranties with respect to the condition and
operations of the business, covenants with respect to the conduct of the
business prior to the closing date of the recapitalization and various closing
conditions, including the execution of a registration rights agreement and
stockholders agreement, the obtaining of financing, and the continued accuracy
of the representations and warranties.

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

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

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

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

                                       47

<PAGE>

         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 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.

         On May 1, 2002, the Company acquired all of the operations of Spectrum
Health Resources ("SHR), a provider of physician and other professional medical
staffing to military treatment facilities for a purchase price of approximately
$145.7 million. The Company's three equity sponsors control a majority of the
Company's voting common stock. Those three equity sponsors were also controlling
equity investors in SHR prior to and at the time of entering into the definitive
purchase agreement. Prior to negotiating the final purchase price and entering
into the definitive purchase agreement to acquire SHR, the Board of Directors
took the following steps:

         1. The Board of Directors appointed a Special Committee, consisting of
      three Directors who are not affiliated with the equity sponsors. The
      Special Committee was authorized to (i) consider, negotiate and approve
      the acquisition of SHR, (ii) retain such legal counsel and advisers and
      consultants as they deem appropriate, (iii) consider, negotiate and
      approve the terms of any financing related to the transaction, and (iv)
      expend any funds in furtherance of the duties granted to it. The final
      authority to approve the acquisition and financing rested with the full
      Board of Directors, but the Board of Directors could not approve any
      transaction not recommended by the Special Committee.

         2. Two of the three equity sponsors along with the Company's management
      members assisted the Special Committee in the evaluations and negotiations
      of the transaction on behalf of the Company. The largest common equity
      sponsor in SHR and the Company represented SHR in its evaluation and
      negotiation of the transaction.

         3. The Special Committee obtained an opinion by the investment banking
      firm of SunTrust Robinson Humphrey, a division of SunTrust Capital
      Markets, Inc., that the purchase price paid for SHR was fair from a
      financial point of view to the equity holders of the Company as well as
      its bond holders.

         In connection with the acquisition of SHR, subject to certain
limitations, the previous shareholders of SHR and related entities have
indemnified us against certain potential losses attributable to events or
conditions that existed prior to May 1, 2002. The indemnity limit is $10.0
million, with certain potential losses, as defined, subject to a $0.5 million
"basket" before such losses are recoverable from the previous shareholders. In
addition, a separate indemnification exists with a limit of $10.0 million
relating to any claims asserted against SHR during the three years subsequent to
the date of SHR's acquisition related to tax matters whose origin was
attributable to tax periods prior to May 1, 2002.

SECURITY HOLDERS 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 unit holders, entered into two separate security holders
agreements. The security holders 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.

                                       48

<PAGE>

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

MANAGEMENT SERVICES AGREEMENT

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

                  (1) general management services;

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

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

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

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

TEAM HEALTH HOLDINGS AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT

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

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

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

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

                                       49

<PAGE>

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

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

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

OTHER RELATED PARTY TRANSACTIONS

         We lease office space for our corporate headquarters from Winston Road
Properties, an entity that is owned 50% by Park Med Properties. Two of our
executive officers, Dr. Massingale and Mr. Hatcher, each own 20% of Park Med
Properties. We paid $628,515 in 2002 to Winston Road Properties in connection
with the lease agreement. In addition, Park Med Properties owns a building,
which houses a medical clinic that is operated by a consolidated affiliate of
the Company. In 2002, the consolidated affiliate paid $75,402 to Park Med
Properties in connection with the lease agreement.

ITEM 14.          CONTROLS AND PROCEDURES

         (a) The Company carried out an evaluation, under the supervision and
             with the participation of the Company's management, including the
             Company's Chairman and Chief Executive Officer along with the
             Company's Executive Vice President of Finance and Administration,
             of the effectiveness of the design and operation of the Company's
             disclosure controls and procedures pursuant to Exchange Act Rule
             13a-14 under the Securities Exchange Act of 1934, as amended (the
             "Exchange Act"). Based upon that evaluation the Company's Chief
             Executive Officer along with the Company's Executive Vice President
             of Finance and Administration concluded that as of March 20, 2003
             the Company's disclosure controls and procedures (1) are effective
             in timely alerting them to material information relating to the
             Company (including its consolidated subsidiaries) required to be
             included in the Company's periodic SEC findings and (2) are
             adequate to ensure that information required to be disclosed by the
             Company in the reports filed or submitted by the Company under the
             Exchange Act is recorded, processed, and summarized and reported
             within the time periods specified in the SEC's rules and forms.

         (b) There have been no significant changes in the Company's internal
             controls or in other factors which could significantly effect
             internal controls subsequent to the date the Company carried out
             its evaluation.

                                       50

<PAGE>

                                     PART IV

ITEM 15.          EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS OF FORM
                  8-K

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

            Report of Ernst & Young LLP, Independent Auditors

            Consolidated Balance Sheets

            Consolidated Statements of Operations

            Consolidated Statements of Stockholders' Equity (Deficit) and
            Comprehensive Earnings

            Consolidated Statements of Cash Flows

            Notes to the Consolidated Financial Statements

            (2) FINANCIAL STATEMENT 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, 2002.

         (c) EXHIBITS

         See Exhibit Index.

                                       51

<PAGE>

                                TEAM HEALTH, INC.

                        CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

                                    CONTENTS

<TABLE>
<S>                                                                                                          <C>
Report of Independent Auditors...........................................................................    53
Consolidated Balance Sheets..............................................................................    54
Consolidated Statements of Operations....................................................................    55
Consolidated Statements of Stockholders' Equity (Deficit) and Comprehensive Earnings.....................    56
Consolidated Statements of Cash Flows....................................................................    57
Notes to the Consolidated Financial Statements...........................................................    58
</TABLE>

                                       52

<PAGE>

                REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

Board of Directors
Team Health, Inc.

         We have audited the accompanying consolidated balance sheets of Team
Health, Inc. as of December 31, 2002 and 2001, and the related consolidated
statements of operations, changes in stockholders' equity (deficit) and
comprehensive earnings and cash flows for each of the three years in the period
ended December 31, 2002. Our audits also included the financial statement
schedule listed in Item 15(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.

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

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Team
Health, Inc. at December 31, 2002 and 2001, and the consolidated results of
operations and cash flows for each of the three years in the period ended
December 31, 2002, 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 1 to the financial statements, in 2002 the Company
changed its method of accounting for goodwill.

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

Nashville, Tennessee
February 7, 2003

                                       53

<PAGE>

                                TEAM HEALTH, INC.

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                 DECEMBER 31,
                                                                                                 ------------
                                                                                           2002                2001
                                                                                           ----                ----
                                                                                           IN THOUSANDS, EXCEPT PER
                                                                                                  SHARE DATA)
<S>                                                                                     <C>                  <C>
ASSETS

CURRENT ASSETS:
   Cash and cash equivalents....................................................        $    47,789          $ 70,183
   Accounts receivable, less allowance for uncollectibles of $109,156 and
      $101,175 in 2002 and 2001, respectively...................................            156,449           119,776
   Prepaid expenses and other current assets....................................              9,956             7,732
   Income tax receivables.......................................................              1,074             8,721
                                                                                        -----------          --------
   Total current assets.........................................................            215,268           206,412
Property and equipment, net.....................................................             19,993            18,806
Intangibles, net................................................................             28,068            19,490
Goodwill .......................................................................            164,188            24,202
Deferred income taxes...........................................................             64,282            76,374
Other ..........................................................................             19,298            16,159
                                                                                        -----------          --------
                                                                                        $   511,097          $361,443
                                                                                        ===========          ========

LIABILITIES, REDEEMABLE PREFERRED STOCK AND
   STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
   Accounts payable.............................................................        $    13,895          $ 12,758
   Accrued compensation and physician payable...................................             65,697            49,521
   Other accrued liabilities....................................................             44,977            11,068
   Current maturities of long-term debt.........................................             20,125            24,211
   Deferred income taxes........................................................                411             4,815
                                                                                        -----------          --------
Total current liabilities.......................................................            145,105           102,373
Long-term debt, less current maturities.........................................            300,375           193,089
Other non-current liabilities...................................................             18,644            34,892
Mandatory redeemable preferred stock............................................            144,405           130,779
Commitments and Contingencies
Common Stock, $0.01 par value 12,000 shares authorized, 10,068 and 10,000
   shares issued and outstanding, respectively..................................                101               100
Additional paid in capital......................................                                644                --
Retained earnings (deficit).....................................................            (96,562)          (99,571)
Accumulated other comprehensive loss............................................             (1,615)             (219)
                                                                                        -----------          --------
                                                                                        $   511,097          $361,443
                                                                                        ===========          ========
</TABLE>

        See accompanying notes to the consolidated financial statements.

                                       54

<PAGE>

                                TEAM HEALTH, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                             YEAR ENDED DECEMBER 31,
                                                                             -----------------------
                                                                       2002            2001          2000
                                                                   -----------     -----------     --------
                                                                                  (IN THOUSANDS)
<S>                                                                <C>             <C>             <C>
Fee-for-service revenue.......................................     $   907,596     $   789,545     $ 766,583
Contract revenue..............................................         292,740         159,194       140,424
Other revenue.................................................          30,367          16,546        11,967
                                                                   -----------     ------------    ---------
  Net revenue.................................................       1,230,703         965,285       918,974
Provision for uncollectibles..................................         396,605         336,218       329,291
                                                                   -----------     ------------    ---------
  Net revenue less provision for uncollectibles...............         834,098         629,067       589,683
Professional expenses.........................................         672,565         523,154       468,596
                                                                   -----------     ------------    ---------
  Gross profit................................................         161,533         105,913       121,087
General and administrative expenses...........................          81,744          63,998        57,794
Terminated transaction expense................................              --              --         2,000
Management fee and other expenses.............................             527             649           591
Impairment of intangibles.....................................           2,322           4,137            --
Depreciation and amortization.................................          20,015          14,978        12,638
Interest expense, net.........................................          23,906          22,739        25,467
Refinancing costs.............................................           3,389              --            --
                                                                   -----------     ------------    ---------
 Earnings (loss) before income taxes and cumulative effect
          of change in accounting principle...................          29,630            (588)       22,597
Provision for income taxes....................................          13,198             871         9,317
                                                                   -----------     ------------    ---------
Earnings (loss) before cumulative effect of change
          in accounting principle.............................          16,432          (1,459)       13,280
Cumulative effect of change in accounting principle, net
          of income tax benefit of $209.......................            (294)             --            --
                                                                   -----------     -----------     ---------
  Net earnings (loss).........................................          16,138          (1,459)       13,280
Dividends on preferred stock..................................          13,129          11,889        10,783
                                                                   -----------     ------------    ---------
  Net earnings (loss) attributable to common stockholders.....     $     3,009     $   (13,348)    $   2,497
                                                                   ===========     ============    =========
</TABLE>

        See accompanying notes to the consolidated financial statements.

                                       55

<PAGE>

                                TEAM HEALTH, INC.

            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                           AND COMPREHENSIVE EARNINGS

<TABLE>
<CAPTION>

                                                                                                  ACCUMULATED
                                                  COMMON STOCK         ADDITIONAL                    OTHER
                                                  ------------           PAID IN     RETAINED    COMPREHENSIVE
                                                SHARES     AMOUNT        CAPITAL      DEFICIT         LOSS             TOTAL
                                              ---------  ---------    ------------  ----------  ---------------    -----------
                                                                                  (IN THOUSANDS)
<S>                                           <C>        <C>          <C>           <C>         <C>                <C>
BALANCE AT DECEMBER 31, 1999................    10,000    $   100       $     --    $ (88,720)        $    --        $(88,620)
  Net earnings..............................        --         --             --       13,280              --          13,280
  Dividends on preferred stock..............        --         --             --      (10,783)             --         (10,783)
                                              --------   --------      ---------     --------        --------        --------
BALANCE AT DECEMBER 31, 2000................    10,000        100             --      (86,223)             --         (86,123)
Comprehensive loss:
  Net loss..................................        --         --             --       (1,459)             --          (1,459)
  Other comprehensive loss, net of tax:
    Cumulative effect of change in
    accounting principle - fair value of
    interest rate swaps, net of tax of $36..        --         --             --           --              54              54
    Net change in fair value of swaps, net
    of tax of $182..........................        --         --             --           --            (273)           (273)
                                              --------   --------      ---------     --------        --------        --------
  Total comprehensive loss..................                                                                           (1,678)
  Dividends on preferred stock..............        --         --             --      (11,889)             --         (11,889)
                                              --------   --------      ---------     --------        --------        --------
BALANCE AT DECEMBER 31, 2001................    10,000        100             --      (99,571)           (219)        (99,690)
   Net earnings.............................        --         --             --       16,138              --          16,138
   Other comprehensive loss, net of tax:
    Net change in fair value of swaps, net
    of tax of  $844.........................        --         --             --           --          (1,396)         (1,396)
                                              --------   --------      ---------     --------        --------        --------
Total comprehensive earnings................                                                                           14,742
Issuance of stock...........................        68          1            644           --              --             645
Dividends on preferred stock................        --         --             --      (13,129)             --         (13,129)
                                              --------   --------      ---------    ---------        --------        --------
BALANCE AT DECEMBER 31, 2002................    10,068    $   101       $    644    $ (96,562)        $(1,615)       $(97,432)
                                              ========   ========      =========    =========        ========        ========
</TABLE>

        See accompanying notes to the consolidated financial statements.

                                       56

<PAGE>

                                TEAM HEALTH, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                              YEAR ENDED DECEMBER 31,
                                                                              -----------------------
                                                                          2002          2001            2000
                                                                      -----------   -----------      ----------
<S>                                                                   <C>           <C>              <C>
                                                                                   (IN THOUSANDS)
OPERATING ACTIVITIES
  Net earnings (loss).........................................         $   16,138    $   (1,459)     $   13,280
  Adjustments to reconcile net earnings (loss):
     Depreciation and amortization............................             20,015        14,978          12,638
     Amortization of deferred financing costs.................              1,583         1,852           1,856
     Write-off of deferred financing costs....................              3,389            --              --
     Provision for uncollectibles.............................            396,605       336,218         329,291
     Impairment of intangibles................................              2,322         4,137              --
     Deferred income taxes....................................              6,941         (1,767)        16,671
     Loss on sale of equipment................................                 59           240              50
     Cumulative effect of change in accounting principle......                294            --              --
     Equity in joint venture income...........................               (346)          (30)           (324)
     Changes in operating assets and liabilities, net of
       acquisitions:
       Accounts receivable....................................           (407,319)     (308,289)       (326,171)
       Prepaids and other assets..............................             (4,847)          (15)            456
       Income tax receivables.................................              7,797           (75)        (10,699)
       Accounts payable.......................................             (3,785)       (2,260)            213
       Accrued compensation and physician payable.............              4,806         4,101           5,580
       Other accrued liabilities..............................              2,797        (3,421)           (494)
       Professional liability reserves........................              6,031         5,527           9,783
                                                                       ----------    ----------      ----------
Net cash provided by operating activities.....................             52,480        49,737          52,130
INVESTING ACTIVITIES
  Purchases of property and equipment.........................             (9,796)       (5,955)         (7,359)
  Sale of property and equipment..............................                 31           170             108
  Cash paid for acquisitions, net.............................           (165,722)      (16,162)         (5,131)
  Other investing activities..................................                725          (879)           (518)
                                                                       ----------    ----------      ----------
Net cash used in investing activities.........................           (174,762)      (22,826)        (12,900)
FINANCING ACTIVITIES
  Payments on notes payable...................................           (121,800)      (11,901)        (12,815)
  Proceeds from notes payable.................................            225,000            --              --
  Payments of deferred financing costs........................             (5,226)         (231)           (815)
  Proceeds from sales of common stock.........................                644            --              --
  Proceeds from sales of preferred stock......................              1,270            --              --
  Payments of recapitalization expense........................                 --            --             (16)
                                                                       ----------    ----------      ----------
Net cash provided by (used in) financing activities...........             99,888       (12,132)        (13,646)
                                                                       ----------    ----------      ----------
Increase (decrease) in cash and cash equivalents...............           (22,394)       14,779          25,584
Cash and cash equivalents, beginning of year..................             70,183        55,404          29,820
                                                                       ----------    ----------      ----------
Cash and cash equivalents, end of year........................         $   47,789    $   70,183      $   55,404
                                                                       ==========    ==========      ==========
Supplemental cash flow information:
Interest paid.................................................         $   22,404    $   24,260      $   23,417
                                                                       ==========    ==========      ==========
Taxes paid....................................................         $    7,864    $    9,129      $    9,713
                                                                       ==========    ==========      ==========
</TABLE>

        See accompanying notes to the consolidated financial statements.

                                       57

<PAGE>

                                TEAM HEALTH, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002

1.       ORGANIZATION AND BASIS OF PRESENTATION

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

         The Company has two stockholders. Team Health Holdings, LLC, which is
owned by certain equity sponsors and certain members of the Company's senior
management, owns 92.7% of the Company's $0.01 par value common stock and 94.9%
of the Company's class A redeemable preferred stock. Caremark Rx, Inc., formerly
known as MedPartners, Inc., owns the remaining outstanding securities.

2.       SIGNIFICANT ACCOUNTING POLICIES

         PRINCIPLES OF CONSOLIDATION

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

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

         CASH AND CASH EQUIVALENTS

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

         ACCOUNTS RECEIVABLE

         Accounts receivable are primarily due from hospitals and clinics,
third-party payors, such as insurance companies, government-sponsored healthcare
programs, including Medicare and Medicaid, and self-insured employers and
patients. Accounts receivable are stated net of reserves for amounts estimated
by management to not be collectible. Concentration of credit risk relating to
accounts receivable is limited by the diversity and number of contracting
hospitals, patients, payors, Military Regional Managed Care Support Contractors
("MCSC"'s) and by the geographic dispersion of the Company's operations. The
largest concentration of credit risk with respect to the Company's accounts
receivable is with an MCSC that represents 8.1% of the Company's consolidated
accounts receivable as of December 31, 2002.

                                       58

<PAGE>

         PROPERTY AND EQUIPMENT

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

         INTANGIBLE ASSETS

         The Company's intangible assets include goodwill and other intangibles
that consist primarily of the fair value of service contracts acquired. Goodwill
represents the excess of purchase price over the fair value of net assets
acquired.

         Goodwill that was acquired prior to July 1, 2001, was amortized using
the straight-line method over an estimated life of 15 years through December 31,
2001. Effective January 1, 2002, the Company adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible
Assets. Under SFAS No. 142, goodwill and intangible assets deemed to have
indefinite lives are no longer amortized. The cost of service contracts and
other intangibles acquired is amortized using the straight-line method over
their estimated lives which range from twenty months to seven years.

         Goodwill is evaluated for possible impairment on an annual basis or
more frequently if events and circumstances occur that may indicate the
potential for impairment. Goodwill assigned to a reporting unit is evaluated for
potential impairment following a two-step procedure. The fair value of the
reporting unit is initially determined and compared to its carrying value. If
the carrying value exceeds the fair value of the applicable reporting unit, the
implied fair value of the reporting unit is then determined. If it is determined
that the fair value of the underlying assets and liabilities of the reporting
unit is less than the carrying value of goodwill, an impairment loss is recorded
equal to such difference.

         The carrying value of other intangibles is evaluated when indicators
are present to determine whether such intangibles may be impaired with respect
to their recorded values. If this review indicates that certain intangibles will
not be recoverable, as determined based on the undiscounted cash flows derived
from the assets acquired over the remaining estimated asset life, the carrying
value of the intangibles is reduced by the estimated shortfall of discounted
cash flows.

         DEFERRED FINANCING COSTS

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

<TABLE>
<CAPTION>
                                                             2002            2001
                                                             ----            ----
<S>                                                        <C>            <C>
Deferred financing costs.................................  $ 11,055       $  12,514
Less accumulated amortization............................    (3,414)         (5,128)
                                                           --------       ---------
                                                           $  7,641       $   7,386
                                                           ========       =========
</TABLE>

         RISK MANAGEMENT

         Although the Company does not principally engage in the practice of
medicine or provide medical services, it does require the physicians with whom
it contracts to obtain professional liability insurance coverage and makes this
insurance available to these physicians. The Company typically provides
claims-made coverage on a per incident and annual aggregate limit per physician
to affiliated physicians and other healthcare practitioners. In addition, the
Company has claims-made coverage on a per incident and annual aggregate limit
for all corporate entities. For the two-year period ending March 12, 2003, the
policy has an aggregate limit of $85.0 million inclusive of indemnity losses and
expenses. Prior to this period, the policy has no aggregate limits.

         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.

                                       59

<PAGE>

         DERIVATIVES

         The Company utilizes derivative financial instruments to reduce
interest rate risks. The Company does not hold or issue derivative financial
instruments for trading purposes. The Company recognizes all derivatives as
either assets or liabilities in the statement of financial condition and
measures those instruments at fair value. Changes in the fair value of these
instruments are reported in earnings or other comprehensive income depending on
the use of the derivative and whether it qualifies for hedge accounting. The
accounting for gains and losses associated with changes in the fair value of the
derivative and the effect on the consolidated financial statements depends on
its hedge designation and whether the hedge is highly effective in achieving
offsetting changes in the fair value of cash flows of the asset or liability
hedged. During 2002 and 2001, the decrease in fair value of interest rate swaps,
net of tax, of approximately $1.6 million and $0.3 million, respectively, was
recognized through other comprehensive earnings.

         NET REVENUE

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

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

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

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

         Net revenues are reduced for management's estimates of amounts that
will not be collected. The resulting net revenue less provision for
uncollectibles reflects net cash collections for services rendered in the period
plus management's estimate of the remaining collections to be realized for
services rendered in the period. Such estimates of amounts to be collected are
subject to adjustment as actual experience is realized. If subsequent
collections experience indicates that an adjustment to previously recorded
collection estimates is necessary, such change of estimate adjustment is
recorded in the current period in which such assessment is made.

         Management in estimating the amounts to be collected resulting from its
over six million annual fee-for-service patient visits and procedures considers
such factors as prior contract collection experience, current period changes in
payor mix and patient acuity indicators, reimbursement rate trends in
governmental and private sector insurance programs, resolution of credit
balances, the estimated impact of billing system effectiveness improvement
initiatives and trends in collections from self-pay patients. The complexity of
the estimation process associated with the Company's fee-for-service volumes and
diverse payor mix, along with the difficulty of assessing such factors as
changes in the economy impacting the number of healthcare insured versus
uninsured patients and other socio-economic trends that can have an impact on
collection rates, could result in subsequent adjustments to previously reported
revenues.

         The Company derives a significant portion of its net revenues less
provision for uncollectibles from government sponsored healthcare programs. Net
revenue less provision for uncollectibles derived from the Medicare and Medicaid
programs was approximately 20%, 25%, and 22% of total net revenue less provision
for uncollectibles in years 2002, 2001 and 2000, respectively. In addition, net
revenues less provision for uncollectibles derived from the TRICARE Program,
which is the U.S. military's dependent healthcare program, was 15.3% in 2002
primarily resulting from the Company's acquisition of SHR in 2002 (see Note 3).

                                       60

<PAGE>

         IMPLEMENTATION OF NEW ACCOUNTING STANDARDS

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

         Effective January 1, 2002, the Company adopted the provisions of SFAS
No. 142, Goodwill and Other Intangible Assets. Under SFAS No. 142, goodwill and
intangible assets deemed to have indefinite lives are no longer amortized but
are subject to impairment tests on an annual basis, or more frequently if
certain indicators arise. Other intangible assets continue to be amortized over
their useful lives. The Company completed its required initial impairment
testing of goodwill during 2002. As a result of this review, the Company
concluded that a portion of its recorded goodwill was impaired. Accordingly, an
impairment loss of $0.5 million ($0.3 million net of taxes) was recorded in 2002
as the cumulative effect of a change in accounting principle. The impact on net
earnings in 2001 and 2000, had the nonamortization of goodwill been in effect
for such years, would have been an increase in previously reported net earnings
of approximately $2.0 million and $1.3 million, respectively.

         Effective January 1, 2002, the Company adopted SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 significantly
changes the criteria that has to be met to classify an asset as held-for-sale,
and requires expected future operating losses from discontinued operations to be
displayed in discontinued operations in the period(s) in which the losses are
incurred (rather than as of the measurement date as previously required). In
addition, more dispositions qualify for discontinued operations treatment in the
statement of operations. The implementation of SFAS No. 144 did not have any
impact on the Company's results of operation or financial position.

         During May 2002, the Financial Accounting Standards Board (FASB) issued
SFAS No. 145 Rescission of Statement No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections. SFAS No. 145 rescinds or changes
several previously issued accounting pronouncements. Included among such items
is an elimination of Statement No. 4 and specifically the requirement to
classify all gains and losses from the extinguishment of debt, if material, as
extraordinary items. Consequently, gains and losses from the extinguishments of
debt are subject to the criteria established in Accounting Principles Board
(APB) Opinion 30 Reporting the Results of Operations -- Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions with a current view that such extinguishments
generally do not meet the criteria of APB Opinion 30 as being "unusual and
infrequent". The provisions of SFAS No. 145 related to the classification of
gains or losses attributable to debt extinguishments are effective for fiscal
years beginning after May 15, 2002. The Company elected to adopt the provisions
of SFAS No. 145 in 2002. Accordingly, the Company's statement of operations in
2002 includes refinancing costs of $3.4 million related to the write-off of
previously deferred financing costs as a result of a refinancing of the
Company's bank financing. Previously, such write-off of deferred financing costs
would have been classified as an extraordinary loss.

         During July 2002, the FASB issued SFAS No. 146 Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 addresses significant
issues regarding the recognition, measurement, and reporting of costs that are
associated with exit and disposal activities, including restructuring activities
that are currently accounted for pursuant to the guidance that the Emerging
Issues Task Force (EITF) has set forth in EITF Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (Including Certain Costs Incurred in a Restructuring). SFAS No. 146
requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a commitment to an
exit or disposal plan. The scope of SFAS No. 146 also includes (1) costs related
to terminating a contract that is not a capital lease and (2) termination
benefits that employees who are involuntarily terminated receive under the terms
of a one-time benefit arrangement that is not an ongoing benefit arrangement or
an individual deferred-compensation contract. The new standard is effective for
exit or restructuring activities initiated after December 31, 2002.

         On December 31, 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure. SFAS No. 148 amends SFAS
No. 123, Accounting for Stock-Based Compensation, to provide alternative

                                       61

<PAGE>

methods of transition to the fair value method of accounting for stock-based
employee compensation under SFAS No. 123. SFAS No. 148 also amends the
disclosure provisions of SFAS No. 123 and APB Opinion No. 28, Interim Financial
Reporting, to require disclosure in the summary of significant accounting
policies of the effects of an entity's accounting policy with respect to
stock-based employee compensation on reported earnings in annual and interim
financial statements. While the Statement does not amend SFAS No. 123 to require
companies to account for employee stock options using the fair value method, the
disclosure provisions of SFAS No. 148 are applicable to all companies with
stock-based employee compensation, regardless of whether the accounting for that
compensation is using the fair value method of SFAS No. 123 or the intrinsic
value method of Opinion 25. As more fully discussed in Note 10, the Company has
adopted only the disclosure requirements of SFAS No. 148 effective for the year
ended December 31, 2002.

         USE OF ESTIMATES

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

3.       ACQUISITIONS

         Effective September 1, 2002, the Company acquired all of the
outstanding stock of three corporations held by a single stockholder. The
acquired corporations provide hospital emergency department and hospital
physician staffing services under five contracts for locations in West Virginia
and Virginia. The purchase price for the acquired corporations was $8.6 million
of which $5.2 million was paid in cash at September 1, 2002 with the remainder
of the purchase price due in four annual installments of $0.9 million, $0.9
million, $1.1 million and $0.5 million commencing on October 31, 2003. In
addition, the Company may have to pay up to $2.0 million in future contingent
payments.

         On May 1, 2002, the Company acquired all of the operations of Spectrum
Health Resources ("SHR"), a provider of physician and other professional medical
staffing to military treatment facilities. The agreement provided for the
Company to acquire the operations of SHR through the purchase of all of the
outstanding stock of the parent company of SHR and the refinancing of the parent
company's outstanding debt for cash of $147.0 million. The purchase price of SHR
of $147.0 million, in addition to adjustment for transaction costs, was also
subject to adjustment during the 90-day period subsequent to April 30, 2002 for
actual net working capital at April 30, 2002. The total purchase price for SHR
after consideration of the aforementioned adjustments was approximately $145.4
million.

         SHR is the leading provider of permanent healthcare staffing services
to military treatment facilities. The acquisition of SHR, which provides
services similar to the existing staffing operations of the Company,
significantly expands the Company's base of business by providing an entry into
a portion of the healthcare staffing market not presently served by the Company.

        The Company's three equity sponsors control a majority of the Company's
voting common stock. Those three equity sponsors were also controlling equity
investors in SHR prior to and at the time of entering into the definitive
purchase agreement. Prior to negotiating the final purchase price and entering
into the definitive purchase agreement to acquire SHR, the Board of Directors
took the following steps:

         1. The Board of Directors appointed a Special Committee, consisting of
    three Directors who are not affiliated with the equity sponsors. The Special
    Committee was authorized to (i) consider, negotiate and approve the
    acquisition of SHR, (ii) retain such legal counsel and advisers and
    consultants as they deem appropriate, (iii) consider, negotiate and approve
    the terms of any financing related to the transaction, and (iv) expend any
    funds in furtherance of the duties granted to it. The final authority to
    approve the acquisition and financing rested with the full Board of
    Directors, but the Board of Directors could not approve any transaction not
    recommended by the Special Committee.

         2. Two of the three equity sponsors along with the Company's management
    members assisted the Special Committee in the evaluations and negotiations
    of the transaction on behalf of the Company. The largest common equity
    sponsor in SHR and the Company represented SHR in its evaluation and
    negotiation of the transaction.

                                       62

<PAGE>

         3. The Special Committee obtained an opinion by the investment-banking
    firm of SunTrust Robinson Humphrey, a division of SunTrust Capital Markets,
    Inc., that the purchase price paid for SHR was fair from a financial point
    of view to the equity holders of the Company as well as its bond holders.

         Effective January 1, 2002, the Company completed the acquisition of
certain of the assets and related business operations of two businesses. The
operations acquired include those of L&S Medical Management, Inc. ("L&S") and a
pediatric services business. L&S provides billing and other management services
on a management fee basis to anesthesiology practices, principally in the
Southeastern portion of the United States. The pediatric services operation
provides evenings and weekend pediatric urgent care and non-trauma emergency
practice services at three locations in Florida. The pediatric services provided
are billed by the Company on a fee-for-service basis.

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

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

         During 2002, the Company also made payments of approximately $3.3
million with respect to contingent payments established as a result of certain
previous acquisitions. These amounts represent payments of purchase price and
have been recorded as goodwill.

         The portion of the purchase prices allocated to intangibles and
goodwill for the acquisitions in 2002 was approximately $158.7 million including
$140.8 million that is not deductible for tax purposes. Amounts allocated to
such intangibles are being amortized over their estimated lives which range from
twenty months to seven years.

         Effective March 1, 2001, the Company acquired all of the outstanding
stock of an emergency staffing company for $1.5 million and may have to pay up
to $0.7 million in future contingent payments. In addition, the Company acquired
the assets of a diagnostic imaging center in February 2001 for $1.4 million.

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

         ISMS, which along with the subsequent acquisition of L&S in 2002, have
been organized under an anesthesiologist operating unit known as "THAMS" (Team
Health Anesthesiologist Management Services). THAMS is a recognized leader in
the management of large urban anesthesia medical groups. The management services
offered by THAMS are provided to anesthesiology practices on a fee basis.
Services include strategic management, management information systems,
third-party payor contracting, financial and accounting support, benefits
administration and risk management, scheduling support, operations management
and quality improvement services. THAMS currently provides such services to four
integrated anesthesia practices with approximately 430 providers under
management. In addition to acquiring the existing management agreements and
proprietary anesthesia management practice software, the acquisition of ISMS
provided the Company with management resources, experience and infrastructure
support to allow the Company to evaluate and compete for additional anesthesia
practice opportunities as they are presented.

                                       63

<PAGE>

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

         The following schedule summarizes investing activities related to 2002,
2001 and 2000 acquisitions and contingent payments included in the consolidated
statements of cash flows (in thousands):

<TABLE>
<CAPTION>
                                                                     2002         2001         2000
                                                                   --------     --------     --------
<S>                                                                <C>          <C>          <C>
Fair value of net operating assets acquired
 (liabilities assumed)......................................       $  3,676     $ (1,522)    $   (834)
Fair value of contracts acquired............................         21,510        4,380          358
Goodwill....................................................        140,536       13,304        5,607
                                                                   --------     ---------    ---------
Cash paid for acquisitions, net.............................       $165,722     $ 16,162     $  5,131
                                                                   ========     =========    =========
</TABLE>

         The acquisitions noted above were accounted for using the purchase
method of accounting. The operating results of the acquired businesses have been
included in the accompanying consolidated statements of operations from their
respective dates of acquisition.

         The following unaudited pro forma supplemental information presents
consolidated results of operations as if the Company's significant current and
prior year acquisitions had occurred on January 1, 2001. The unaudited pro forma
data is based on historical information and does not include estimated cost
savings; therefore, it does not purport to be indicative of the results of
operations had the combinations been in effect at the dates indicated or of
future results for the combined entities (in thousands):

<TABLE>
<CAPTION>
                                                                 2002        2001
                                                               --------    --------
<S>                                                            <C>         <C>
Net revenues less provision for uncollectibles........         $900,488    $795,351
Earnings (loss) before cumulative effect of
  accounting change...................................           16,860      (3,788)
Net earnings (loss)...................................           16,566      (3,788)
</TABLE>

4.       INTANGIBLE ASSETS

         The following is a summary of intangible assets and related
amortization as of December 31, 2002 and 2001 for intangibles that continue to
be amortized following the implementation of SFAS 142 on January 1, 2002 (in
thousands):

<TABLE>
<CAPTION>
                                                         GROSS CARRYING    ACCUMULATED
                                                             AMOUNT       AMORTIZATION
                                                         --------------   ------------
<S>                                                      <C>              <C>
As of December 31, 2002:
  Contracts...........................................     $  46,763       $  19,015
  Other...............................................           685             365
                                                           ---------       ---------
     Total............................................     $  47,448       $  19,380
                                                           =========       =========
As of December 31, 2001:
  Contracts...........................................     $  32,035       $  12,977
  Other...............................................           685             253
                                                           ---------       ---------
     Total............................................     $  32,720       $  13,230
                                                           =========       =========
</TABLE>

         Total amortization expense for intangibles that continue to be
amortized following the implementation of SFAS No. 142 on January 1, 2002 is
$10.6 million, $4.8 million and $3.8 million, for the years 2002, 2001 and 2000,
respectively.

         The estimated annual amortization expense for intangibles for the next
five years is as follows (in thousands):

<TABLE>
<S>                        <C>
2003..............         $ 12,879
2004....................      5,109
2005....................      3,890
2006...................       2,325
2007...................       1,894
</TABLE>

                                       64

<PAGE>

         During 2002 and 2001, the Company recorded an additional $140.5 million
and $13.3 million of goodwill and $21.5 million and $4.4 million, respectively,
of contract intangibles as a result of its acquisitions during the periods and
contingent acquisition payments made for previous acquisitions. Contract
intangibles are being amortized over their estimated lives which range from
approximately twenty months to seven years.

         During 2002 and 2001, the Company recorded as an impairment loss $2.3
million and $4.1 million, respectively, to reduce its contract intangibles to
their estimated fair value. The impairment losses recorded in 2002 and 2001 are
the result of either reduced contract profitability and thus expected future
cash flows, or a termination of contracts for which an intangible asset had
previously been recorded.

5.       PROPERTY AND EQUIPMENT

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

<TABLE>
<CAPTION>
                                                                                          2002          2001
                                                                                        --------     ----------
<S>                                                                                     <C>          <C>
Buildings and leasehold improvements................................................    $  3,428     $    2,696
Furniture and equipment.............................................................      27,478         24,537
Software............................................................................      11,411         10,545
                                                                                        ---------    -----------
                                                                                          42,317         37,778
Less accumulated depreciation.......................................................     (22,324)       (18,972)
                                                                                        ---------    -----------
                                                                                        $ 19,993     $   18,806
                                                                                        =========    ===========
</TABLE>

         Depreciation expense in 2002, 2001 and 2000 was approximately $9.4
million, $8.1 million and $7.6 million, respectively.

6.       LONG-TERM DEBT

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

<TABLE>
<CAPTION>
                                                                                 2002          2001
                                                                               --------     ----------
<S>                                                                            <C>          <C>
12% Senior Subordinated Notes.............................................     $100,000     $  100,000
Term Loan Facility........................................................      220,500        117,300
                                                                               ---------    -----------
                                                                                320,500        217,300
Less current portion......................................................      (20,125)       (24,211)
                                                                               ---------    -----------
                                                                               $300,375     $  193,089
                                                                               =========    ===========
</TABLE>

         On May 1, 2002, in conjunction with the acquisition of SHR, the Company
entered into a new senior credit facility agreement with a group of banks. The
senior credit facilities were to refinance the Company's outstanding bank term
loans and to provide for a new revolving credit facility. The senior credit
facilities consisted of the following:

         -  $75 million Senior Secured Revolving Credit Facility,

         -  $75 million Senior Secured Term Loan A, and

         -  $150 million Senior Secured Term Loan B.

         The $225 million in proceeds from the new term loans, along with the
use of $39.9 million of existing cash balances, were used to fund the
acquisition of SHR and to retire the Company's outstanding loan balances as of
April 30, 2002, under

                                       65

<PAGE>

its previous senior credit facility.

         The Company borrowed under its revolving credit facility in 2002 on
four successive days shortly after the acquisition of SHR with an average
borrowing amount outstanding of $2.8 million during those days.

         The interest rates for any senior revolving credit facility borrowings
and for the Term Loan A amounts outstanding during the first six months of the
agreement were equal to either the eurodollar rate plus 2.75% or the agent
bank's base rate plus .75%. Thereafter, the revolver and Term Loan A interest
rates are based on a grid which is based on the consolidated ratio of total
funded debt to earnings before interest, taxes, depreciation and amortization
(EBITDA), both as defined in the credit agreement. The interest rate on the Term
Loan B amount outstanding is equal to the eurodollar rate plus 3.25% or the
agent bank's base rate plus 1.25%.

         The interest rates at December 31, 2002 were 4.3125% and 4.6875% for
Term Loans A and B, respectively. In addition, the Company pays a commitment fee
for the revolving credit facility which was equal to 0.5% of the commitment at
December 31, 2002. No funds have been borrowed under the revolving credit
facility as of December 31, 2002, but the Company had $1.6 million of standby
letters of credit outstanding against the revolving credit facility commitment.
On July 3, 2002, the Company entered into a forward interest rate swap agreement
effective November 7, 2002, to effectively convert $62.5 million of
floating-rate borrowings to 3.86% fixed-rate borrowings through April 30, 2005.
These agreements expose the Company to credit losses in the event of
non-performance by the counterparties to its financial instruments. The
counterparties are creditworthy financial institutions and the Company
anticipates that the counterparties will be able to fully satisfy their
obligations under the contracts.

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

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

         Both the Notes and the Term Loan Facility contain both affirmative and
negative covenants, including limitations on the Company's ability to incur
additional indebtedness, sell material assets, retire, redeem or otherwise
reacquire its capital stock, acquire the capital stock or assets of another
business, pay dividends, and require the Company to meet or exceed certain
coverage, leverage and indebtedness ratios. In addition, the senior credit
agreement includes a provision for the prepayment of a portion of the
outstanding term loan amounts at any year-end if the Company generates "excess
cash flow," as defined in the agreement. The Company has estimated that it will
be required to make an excess cash flow payment of approximately $7.0 million
for fiscal 2002 by April 30, 2003. The estimated excess cash flow payment has
been included within current maturities of long-term debt in the accompanying
balance sheet at December 31, 2002.

         Aggregate annual maturities of long-term debt as of December 31, 2002
are as follows (in thousands):

<TABLE>
<S>                <C>
2003........       $  20,125
2004........          16,250
2005........          20,375
2006........          21,688
2007........           6,562
Thereafter..         235,500
                   ---------
                   $ 320,500
                   =========
</TABLE>

         The Company expensed deferred financing costs related to its previously
outstanding bank debt of approximately $3.4 million in 2002 in conjunction with
entering into the new senior credit facilities.

                                       66

<PAGE>

7.       OTHER NONCURRENT LIABILITIES

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

<TABLE>
<CAPTION>
                                                                                           2002         2001
                                                                                           ----         ----
<S>                                                                                     <C>          <C>
Professional liability insurance reserves...........................................    $    2,069   $   25,182
Deferred compensation...............................................................        11,449        9,345
Other...............................................................................         5,126          365
                                                                                        ----------   ----------
                                                                                        $   18,644   $   34,892
                                                                                        ==========   ==========
</TABLE>

         The Company in March 2001 renewed its professional liability insurance
policy, which provides coverage for potential liabilities on a "claims-made"
basis. The coverage is in effect for a two-year period through March 11, 2003
and includes an aggregate limit of $85.0 million inclusive of indemnity losses
and expenses. Included in such policy is the ability for the Company to be able
to exercise a "tail" premium option. The tail premium option, if exercised, will
increase the aggregate limit to $130.0 million to include claims reported during
the two year period ended March 12, 2003 as well as all incurred but not
reported claims. The cost of such option at March 11, 2003 is estimated to be
$30.6 million. The Company has recorded the cost of such option over the two
year period from March 12, 2001 to March 11, 2003 on a straight-line basis.
Included in professional insurance liability reserves of $25.2 million at
December 31, 2001 is $24.4 million provided to such date for the exercise of the
tail option. As a result of recent conditions in the professional liability
insurance market, including such factors as a significant escalation in the cost
of professional liability coverage as well as fewer insurance carriers providing
acceptable levels of such coverage, the Company expects that it will provide for
such risks following March 12, 2003, through a funded captive insurance company.
Accordingly, at this time the Company expects to exercise its option to purchase
the tail policy and, as a result of this expectation, has classified the pro
rata portion of the $30.6 million tail premium cost as of December 31, 2002
($29.5 million) as a current liability.

8.       MANDATORY REDEEMABLE PREFERRED STOCK

         The Company as of December 31, 2002, had outstanding 100,381 shares of
class A redeemable preferred stock held by holders of its common stock. During
2002, the Company sold 944 shares of its redeemable preferred stock in exchange
for proceeds of $1.3 million consisting of $1,000 per share sold plus accrued
and unpaid dividends through the date of the respective sales. Additionally, the
Company accepted and subsequently cancelled 563 shares of preferred stock in
settlement of obligations due the Company under an existing indemnification
agreement with Caremark Rx, Inc. The preferred stock is subject to mandatory
redemption on March 12, 2009 at a redemption price equal to $1,000 per share
plus all accrued and unpaid dividends. The preferred stock accrues cumulative
preferential dividends from the date of issuance in the amount of 10% per year.
As of December 31, 2002, approximately $44.0 million in dividends has been
accrued.

9.       STOCKHOLDERS' EQUITY

         During 2002, the Company sold 67,513 shares of its $.01 par value
common stock to members of its management and Board of Directors for net
proceeds of $0.6 million.

10.      STOCK OPTIONS

         The Company's 1999 Stock Option Plan (the "Plan") allows the granting
of stock options to employees, consultants and directors of the Company. The
Company has reserved 885,205 shares of common stock for issuance. The options
vest at the end of an eight-year period, but allow for the possible acceleration
of vesting if certain performance related criteria are met.

         For stock options granted to employees prior to December 31, 2002, the
Company accounts for these awards under the recognition and measurement options
of Opinion 25. No stock-based compensation cost is reflected in net earnings for
2002, 2001, or 2000, as all options granted in these years had an exercise price
equal to the market value of the underlying common stock of the date of the
grant. Therefore, the cost related to stock-based employee compensation included
in the determination of net earnings for 2002, 2001 and 2000 is less than that
which would have been recognized if the fair value method had been

                                       67

<PAGE>

applied to all awards since the adoption of the Plan. The following table
illustrates the effect on net earnings if the fair value based method had been
applied to all outstanding and unvested awards in each period (in thousands):

<TABLE>
<CAPTION>
                                                                     YEAR ENDED DECEMBER 31,
                                                                     -----------------------
                                                             2002             2001              2000
                                                            -----             ----              ----
<S>                                                        <C>              <C>               <C>
Net earnings (loss) attributable to common
   stockholders......................................      $  3,009         $(13,348)         $   2,497
Total stock-based employee compensation expense
   determined under fair value based method for
   all awards, net of related tax effects............            46               23                 13
                                                           --------         ---------         ---------
Pro forma net earnings (loss) attributable to
   common stockholders...............................      $  2,963         $(13,371)         $   2,484
                                                           ========         ==========        =========
</TABLE>

         Stock option activity during 2000, 2001 and 2002 was as follows
(options in thousands):

<TABLE>
<CAPTION>
                                                      NUMBER OF        PRICE         WEIGHTED AVERAGE
                                                       OPTIONS         RANGE          EXERCISE PRICE
                                                      ---------        -----         ----------------
<S>                                                   <C>          <C>               <C>
Outstanding at December 31, 1999                          30       $       1.50         $   1.50
Granted.....................................             467          1.50-4.50             2.11
Cancelled...................................              39               1.50             1.50
                                                       -----       ------------         --------
Outstanding at December 31, 2000                         458          1.50-4.50             2.12
Granted.....................................              53               4.50             4.50
Cancelled...................................              14               1.50             1.50
                                                       -----       ------------         --------
Outstanding at December 31, 2001                         497          1.50-4.50             2.39
Granted.....................................             359         4.50-12.00            10.34
Cancelled...................................               6          1.50-4.50             2.00
                                                       -----       ------------         --------
Outstanding at December 31, 2002                         850       $ 1.50-12.00         $   5.75
                                                       =====       ============         ========
</TABLE>

         The following table summarizes information about stock options
outstanding at December 31, 2002 (options in thousands):

<TABLE>
<CAPTION>
                          WEIGHTED                            WEIGHTED AVERAGE
  OPTIONS                  AVERAGE            OPTIONS            REMAINING
OUTSTANDING            EXERCISE PRICE        EXERCISABLE      CONTRACTUAL LIFE
-----------            --------------        -----------      ----------------
<S>                    <C>                   <C>              <C>
    345                   $  1.50                134                7.1
    226                      4.50                 27                8.4
    279                     12.00                 --                9.4
    ---                   -------                ----               ---
    850                   $  5.75                161                8.2
    ===                   =======                ====               ===
</TABLE>

         As of December 31, 2002 and 2001, there were 161,532 and 69,513 shares
that were vested and exercisable, respectively. No options were vested and
exercisable at December 31, 2000.

         Approximately 101,000 of the 848,650 options outstanding at December
31, 2002 were granted to affiliated independent contractor physicians during
2000. The Company recorded $9,000 of compensation expense per year in 2002, 2001
and 2000, based on a fair value of $0.68 per option, 6.0% risk-free interest
rate and a ten year expected option life relating to these options.

         The following table represents the weighted average fair value of
options granted during 2002, 2001 and 2000:

                                       68

<PAGE>

<TABLE>
<CAPTION>

                                   WEIGHTED
                                   AVERAGE
                                  FAIR VALUE
                                  ----------
<S>                               <C>
2002.......................        $   2.60
2001.......................        $   1.74
2000.......................        $   0.95
</TABLE>

         The fair value of stock options was estimated at the date of grant
using the minimal value option pricing model with the following assumptions:
expected dividend yield of 0.0% in 2002, 2001 and 2000; risk-free interest rate
of 2.0%, 4.9% and 6.0% in 2002, 2001 and 2000, respectively; and an expected
life of ten years in 2002, 2001 and 2000

11.      NET REVENUE ADJUSTMENT

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

12.      INCOME TAXES

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

<TABLE>
<CAPTION>
                                                                               YEAR ENDED DECEMBER 31,
                                                                               -----------------------
                                                                           2002         2001            2000
                                                                           ----         ----            ----
<S>                                                                      <C>          <C>            <C>
Current:
   Federal........................................................       $  4,336     $   2,395      $  (6,435)
   State..........................................................          1,904           304           (919)
                                                                         --------     ---------      ---------
                                                                            6,240         2,699         (7,354)

Deferred:
   Federal........................................................          7,646        (1,593)        14,588
   State..........................................................           (688)         (235)         2,083
                                                                         --------     ---------      ---------
                                                                            6,958        (1,828)        16,671
                                                                         --------     ---------      ---------
                                                                         $ 13,198     $     871      $   9,317
                                                                         ========     =========      =========
</TABLE>

         The reconciliation of the provision for 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,
                                                                              -----------------------
                                                                           2002         2001           2000
                                                                           ----         ----           ----
<S>                                                                        <C>         <C>             <C>
Tax at statutory rate...........................................           35.0%         35.0%         35.0%
State income tax (net of federal tax benefit)...................            1.6         114.9           6.6
Change in valuation allowance...................................            3.3        (111.1)         (1.5)
Expenses not deductible for tax purposes........................            1.5         (64.3)          0.7
Other...........................................................            3.1        (122.6)          0.4
                                                                           ----        ------          ----
                                                                           44.5%       (148.1)%        41.2%
                                                                           ====        ======          ====
</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. The components
of the Company's deferred tax assets and liabilities are as follows at December
31 (in thousands):

                                       69

<PAGE>

<TABLE>
<CAPTION>
                                                                           YEAR ENDED DECEMBER 31,
                                                                           -----------------------
                                                                           2002                  2001
                                                                           ----                  ----
<S>                                                                      <C>                   <C>
Current deferred tax assets:
     Accounts receivable                                                 $  5,993              $ 15,547
     Accrued compensation and other                                         1,623                   337
     Professional liability reserves                                       10,140                    --
     Interest rate swap                                                       923                   139
                                                                         --------              --------
       Total current deferred tax assets                                   18,679                16,023
                                                                         --------              --------
Current deferred tax liabilities
     Amortization of intangibles                                           (2,720)                   --
     Affiliate deferred revenue                                           (16,370)              (20,838)
                                                                         --------              --------
       Total current deferred tax liabilities                             (19,090)              (20,838)
                                                                         --------              --------
Net current deferred tax liability                                           (411)               (4,815)
Long term deferred tax assets:
     Accrued compensation and other                                         2,410                 1,943
     Amortization and depreciation                                         64,001                68,153
     Professional liability reserves                                          798                 8,238
     Net operating losses                                                   2,995                 1,988
                                                                         --------              --------
       Total long term deferred tax assets                                 70,204                80,322
                                                                         --------              --------
Long term deferred tax liabilities:
     Other reserves                                                        (3,630)               (2,662)
     Valuation Allowance                                                   (2,292)               (1,286)
                                                                         --------              --------
Net long-term deferred tax asset                                           64,282                76,374

     Total deferred tax assets                                             88,883                96,345
                                                                         --------              --------
     Total deferred tax liabilities                                       (22,720)              (23,500)
                                                                         --------              --------
     Valuation allowance                                                   (2,292)               (1,286)
                                                                         --------              --------
Net deferred tax assets                                                  $ 63,871              $ 71,559
                                                                         ========              ========
</TABLE>

         The Company as of December 31, 2002, had operating loss carryforwards
in various states that begin to expire in 2005 through 2014.

13.      RETIREMENT PLANS

         The Company's employees participated in various employee benefit plans
sponsored by the Company. The plans are primarily defined contribution plans.
The various entities acquired or merged into the Company have various retirement
plans that have been terminated, frozen or amended with terms consistent with
the Company's plans. The Company's contributions to the plans were approximately
$3.6 million in each of 2002, 2001 and 2000.

         The Company maintains a retirement savings plan for its employees. The
plan is a defined benefit contribution plan in accordance with the provisions of
Section 401(k) of the Internal Revenue Code. The plan prior to 2002 required the
Company to make a matching contribution equal to 50% of the first 6% of
compensation contributed by employees. Effective January 1, 2002, the plan was
amended to provide for a discretionary match by the Company up to a maximum of
50% of the first 6% of compensation contributed by employees. The Company's
provision in 2002 reflects the maximum discretionary provision provided for
under the amended plan.

         The Company also maintains non-qualified deferred compensation plans
for certain of its employees, including a Rabbi Trust for the benefit of certain
members of the Company's senior management. Total deferred compensation payable
as of December 31, 2002 and 2001 was approximately $11.8 million and $10.1
million, respectively. The Rabbi Trust holds preferred units in Team Health
Holdings, LLC. The deferred compensation liability and related investment held
by the Rabbi Trust are carried as a long-term liability and a long-term asset at
December 31, 2002 and 2001 of $8.4 million and $6.7 million, respectively.

                                       70
<PAGE>

14.      COMMITMENTS AND CONTINGENCIES

         LEASES

         The Company leases office space for terms of primarily one to ten years
with options to renew for additional periods. Future minimum payments due on
these noncancelable operating leases at December 31, 2002 are as follows (in
thousands):

<TABLE>
<S>                                             <C>
2003.....................................       $   6,402
2004.....................................           5,964
2005.....................................           5,880
2006.....................................           4,923
2007.....................................           4,009
Thereafter...............................           5,987
                                                ---------
                                                $  33,165
                                                =========
</TABLE>

         Operating lease costs were approximately $7.3 million, $5.4 million and
$4.9 million for the years ended December 31, 2002, 2001 and 2000, 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 professional liability actions. We believe
that any payment of damages resulting from these types of lawsuits would be
covered by insurance, exclusive of deductibles, would not be in excess of
related reserves, and such liabilities, if incurred, should not have a
significant negative effect on the results of operations and financial condition
of our Company.

         INDEMNITIES

         In connection with a recapitalization of the Company in 1999, subject
to certain limitations, the Company's previous owner, Caremark Rx, Inc., and
related entities, have jointly and severally agreed to indemnify us against
certain losses relating to litigation arising out of incidents occurring prior
to the recapitalization in 1999 to the extent those losses are not covered by
third party insurance. With respect to certain litigation matters, we are only
indemnified if our losses from all indemnification claims exceed a total of $3.7
million and do not exceed a total of $50 million. With respect to other
litigation matters, we are indemnified for all losses. Finally, also in
connection with the recapitalization, Caremark agreed to purchase, at its sole
cost and expense, for the benefit of Team Health Holdings, insurance policies
covering all liabilities and obligations for any claim for medical malpractice
arising at any time in connection with the operations of the Company and its
subsidiaries prior to the closing date of the recapitalization transactions for
which the Company or any of its subsidiaries or physicians becomes liable.

         In connection with the acquisition of SHR on May 1, 2002, subject to
certain limitations, the previous shareholders of SHR and related entities have
indemnified us against certain potential losses attributable to events or
conditions that existed prior to May 1, 2002. The indemnity limit is $10.0
million, with certain potential losses, as defined, subject to a $0.5 million
"basket" before such losses are recoverable from the previous shareholders. In
addition, a separate indemnification exists with a limit of $10.0 million
relating to any claims asserted against SHR during the three years subsequent to
the date of SHR's acquisition related to tax matters whose origin was
attributable to tax periods prior to May 1, 2002.

         HEALTHCARE REGULATORY MATTERS

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

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

                                       71

<PAGE>

is management's belief that the Company is in substantial compliance in all
material respects with such laws and regulations.

         CONTINGENT ACQUISITION PAYMENTS

         As of December 31, 2002, the Company may have to pay up to $11.1
million in future contingent payments as additional consideration for
acquisitions made prior to December 31, 2002. These payments will be made and
recorded as additional purchase price should the acquired operations achieve the
financial targets contracted in the respective agreements related to their
acquisition.

15.      RELATED PARTY TRANSACTIONS

         The Company leases office space from several partnerships that are
partially or entirely owned by certain employees of the Company. The leases were
assumed by the Company as part of merger or purchase transactions. Total related
party lease costs were approximately $1.0 million in 2002 and $1.4 million in
2001 and 2000.

         The Company has contractual arrangements with billing and collection
service companies that are owned or partially owned by certain employees of the
Company. The majority of these arrangements were assumed as part of merger or
purchase transactions. Billing fees paid for these services were $0.1 million,
$1.8 million and $3.3 million in 2002, 2001 and 2000, respectively.

16.      FAIR VALUES OF FINANCIAL INSTRUMENTS

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

         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:                     Fair values for debt were
                                             determined based on interest rates
                                             that are currently available to the
                                             Company for issuance of debt with
                                             similar terms and remaining
                                             maturities for debt issues that are
                                             not traded on quoted market prices.
                                             The fair value of the Company's
                                             total debt, which has a carrying
                                             value of $320.5 million, is
                                             approximately $321.0 million.

         Interest rate swap:                 The fair value of the Company's
                                             interest rate swap agreements is a
                                             liability of approximately $2.6
                                             million at December 31, 2002 based
                                             on quoted market prices for similar
                                             interest rate contracts.

                                       72

<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized in the
City of Knoxville, Tennessee, on March 20, 2003.

                             TEAM HEALTH, INC.

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

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

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

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report on Form 10-K has been signed below on March 20, 2003, by the
following persons on behalf of the registrant and in the capacities indicated.

                             TEAM HEALTH, INC.

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

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

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

                                       73

<PAGE>

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

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

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

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

                                       74

<PAGE>

                                 CERTIFICATIONS

I, H. Lynn Massingale, certify that:

1. I have reviewed this annual report on Form 10-K of Team Health, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

         a) designed such disclosure controls and procedures to ensure that
         material information relating to the registrant, including its
         consolidated subsidiaries, is made known to us by others within those
         entities, particularly during the period in which this annual report is
         being prepared;

         b) evaluated the effectiveness of the registrant's disclosure controls
         and procedures as of a date within 90 days prior to the filing date of
         this annual report (the "Evaluation Date"); and

         c) presented in this annual report our conclusions about the
         effectiveness of the disclosure controls and procedures based on our
         evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

         a) all significant deficiencies in the design or operation of internal
         controls which could adversely affect the registrant's ability to
         record, process, summarize and report financial data and have
         identified for the registrant's auditors any material weaknesses in
         internal controls; and

         b) any fraud, whether or not material, that involves management or
         other employees who have a significant role in the registrant's
         internal controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 20, 2003

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

                                       75

<PAGE>

                                 CERTIFICATIONS

I, Robert J. Abramowski, certify that:

1. I have reviewed this annual report on Form 10-K of Team Health, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

         a) designed such disclosure controls and procedures to ensure that
         material information relating to the registrant, including its
         consolidated subsidiaries, is made known to us by others within those
         entities, particularly during the period in which this annual report is
         being prepared;

         b) evaluated the effectiveness of the registrant's disclosure controls
         and procedures as of a date within 90 days prior to the filing date of
         this annual report (the "Evaluation Date"); and

         c) presented in this annual report our conclusions about the
         effectiveness of the disclosure controls and procedures based on our
         evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

         a) all significant deficiencies in the design or operation of internal
         controls which could adversely affect the registrant's ability to
         record, process, summarize and report financial data and have
         identified for the registrant's auditors any material weaknesses in
         internal controls; and

         b) any fraud, whether or not material, that involves management or
         other employees who have a significant role in the registrant's
         internal controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 20, 2003

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

                                       76

<PAGE>

                                  EXHIBIT INDEX

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.*

<PAGE>

3.24     Amended and Restated By-laws of Drs. Sheer, Abeam & Associates, Inc.
         dated February 15, 1989.*

3.25     Articles of Amendment to the Charter of Emergency Coverage Corporation
         dated February 15, 1993.*

3.26     Amendment to By-laws of Emergency Coverage Corporation dated June 12,
         1995.*

3.27     Restated Certificate of Incorporation of Emergency Physician
         Associates, Inc. dated June 25, 1996.*

3.28     By-laws of Emergency Physician Associates, Inc.*

3.29     Articles of Incorporation of Emergency Physicians of Manatee, Inc.
         dated June 1, 1988.*

3.30     By-laws of Emergency Physicians of Manatee, Inc.*

3.31     Certificate to Amend the Articles of Incorporation of Emergency
         Professional Services, Inc. dated September 30, 1997.*

3.32     Code Regulations of Emergency Professional Services, Inc. amended June
         22, 1987.*

3.33     Amended and Restated Charter of Emergicare Management, Incorporated
         dated February 28, 1995.*

3.34     By-laws of Emergicare Management Incorporated dated December 29, 1972.*

3.35     Articles of Incorporation of EMSA Contracting Service, Inc. dated
         November 30, 1995.*

3.36     By-laws of EMSA Contracting Service, Inc.*

3.37     Articles of Amendment of EMSA Louisiana, Inc. dated May 28, 1989.*

3.38     By-laws of EMSA Louisiana, Inc.*

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.*

<PAGE>

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, Seidelmann &
         Janicki Co. dated November 7, 1997.*

3.60     Code Regulations of Reich, Seidelmann & Janicki Co.*

3.61     Articles of Incorporation of Rosendorf, Marguiles, Borushok & Shoenbaum
         Radiology Associates of Hollywood, Inc. dated October 25, 1968.*

3.62     By-laws of Rosendorf, Marguiles, Borushok & Shoenbaum Radiology
         Associates of Hollywood, Inc.*

3.63     Articles of Amendment to the Articles of Incorporation of Sarasota
         Emergency Medical Consultants, Inc. dated August 7, 1997.*

3.64     By-laws of Sarasota Emergency Medical Consultants, Inc.*

3.65     Articles of Amendment to the Charter of Southeastern Emergency
         Physicians, Inc. dated November 5, 1992.*

3.66     By-laws of Southeastern Emergency Physicians, Inc. dated July 1, 1986.*

3.67     Articles of Amendment to the Charter of Southeastern Emergency
         Physicians of Memphis, Inc. dated June 15, 1992.*

3.68     By-laws of Southeastern Emergency Physicians Of Memphis, Inc.*

3.69     Charter of Team Health Financial Services, Inc. dated October 9, 1997.*

3.70     By-laws of Team Health Financial Services, Inc.*

3.71     Articles of Incorporation of Team Radiology, Inc. dated October 6,
         1993.*

3.72     By-laws of Team Radiology, Inc. dated November 5, 1993.*

3.73     Certificate of Incorporation of THBS, Inc. dated October 20, 1997.*

<PAGE>

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.*

3.88     Articles of Incorporation of Integrated Specialists Management
         Services, Inc. dated January 20, 1994.*

3.89     Certificate of Amendment to Articles of Incorporation of Integrated
         Specialists Management Services, Inc. dated January 29, 1997.*

3.90     Bylaws of Integrated Specialists Management Services, Inc. dated July
         18, 1994.*

3.91     Third Amendment to Bylaws of Integrated Specialists Management
         Services, Inc. dated February 23, 2001.*

3.92     Fifth Amendment to Bylaws of Integrated Specialists Management
         Services, Inc. dated June 12, 2001.*

3.93     Sixth Amendment to Bylaws of Integrated Specialists Management
         Services, Inc. dated July 30, 2001.*

3.94     Articles of Incorporation of Physician Integration Consulting Services,
         Inc. dated August 2, 1993.*

3.95     Bylaws of Physician Integration Consulting Services, Inc. dated August
         11, 1993.*

3.96     Articles of Incorporation of Sentinel Medical Services, Inc. dated
         September 2, 1994.*

3.97     Bylaws of Sentinel Medical Services, Inc. (undated)*

3.98     Articles of Incorporation of After Hours Pediatric Practices, Inc.*

<PAGE>

3.99     Bylaws of After Hours Pediatric Practices, Inc.*

3.100    Certificate of Incorporation of Spectrum Healthcare Services, Inc.
         dated January 18, 1994*

3.101    Certificate of Amendment of Restated Certificate of Incorporation of
         Spectrum Healthcare Services, Inc. dated July 21, 1997*

3.102    Amended and Restated Bylaws of Spectrum Healthcare Services, Inc.*

3.103    Certificate of Incorporation of Spectrum Occupational Health Services,
         Inc. dated August 30, 1994*

3.104    Certificate of Amendment of Certificate of Incorporation of Spectrum
         Primary Care, Inc. (f/k/a Spectrum Occupational Health Services, Inc.)
         dated November 3, 1994*

3.105    Bylaws of Spectrum Occupational Health Services, Inc.*

3.106    Certificate of Incorporation of Spectrum Healthcare Resources, Inc.
         dated November 3, 1994*

3.107    Bylaws of Spectrum Healthcare Resources, Inc.*

3.108    Certificate of Incorporation of Spectrum Healthcare Resources of
         Delaware, Inc. dated November 3, 1994*

3.109    Bylaws of Spectrum Healthcare Resources of Delaware, Inc.*

3.110    Certificate of Incorporation of Spectrum Primary Care of Delaware, Inc.
         dated November 3, 1994*

3.111    Bylaws of Spectrum Primary Care of Delaware, Inc.*

3.112    Certificate of Incorporation of Spectrum Healthcare, Inc. dated
         December 5, 1996*

3.113    Bylaws of Spectrum Healthcare, Inc.*

3.114    Certificate of Incorporation of Spectrum Cruise Care, Inc. dated July
         11, 1996*

3.115    Bylaws of Spectrum Cruise Care, Inc.*

3.116    Certificate of Incorporation of Spectrum Healthcare Nationwide, Inc.
         dated May 10, 2001*

3.117    Bylaws of Spectrum Healthcare Nationwide, Inc.*

3.118    Certificate of Incorporation of Kelly Medical Corporation dated August
         13, 1985*

3.119    Amended and restated bylaws of Kelly Medical Corporation*

3.120    Certificate of Incorporation of Medical Services, Inc. dated February
         4, 1992*

3.121    Amended and restated bylaws of Medical Services, Inc.*

3.122    Certificate of Incorporation of Health Care Alliance, Inc. dated
         January 4, 1995*

3.123    Amended and restated bylaws of Health Care Alliance, Inc.*

<PAGE>

3.124    Certificate of Amendment to the Articles of Incorporation of Kelly
         Medical Corporation dated September 16, 2002*

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.*

4.2      Supplemental Indenture dated March 28, 2001*

4.3      Supplemental Indenture dated September 3, 2001*

4.4      Supplemental Indenture dated May 31, 2002*

4.5      Supplemental Indenture dated November 11, 2002**

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.*

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.*

<PAGE>

10.11    Lease Agreement dated August 27, 1992 between Med: Assure Systems and
         Winston Road Properties for our corporate headquarters located at 1900
         Winston Road, Knoxville, TN.*

10.12    Lease Agreement dated August 27, 1999 between Americare Medical
         Services, Inc. and Winston Road Properties for space located at 1900
         Winston Road, Knoxville, TN.*

10.13    1999 Stock Option Plan of Team Health, Inc.*

10.14    Form of Employment Agreement for Dr. Massingale and Messrs. Hatcher,
         Sherlin, Joyner and Jones.*

10.15    Amendment No. 1 to Credit Agreement*

10.16    Amendment No. 1 to Security Agreement*

10.17    Amendment No. 2 to Credit Agreement*

10.18    Credit Agreement dated May 1, 2002 among Team Health, Inc., The Banks,
         Financial Institutions and Other Institutional Lenders Named Therein,
         Fleet National Bank, Bank of America, N.A., and Banc of America
         Securities, LLC*

21.      Subsidiaries of Registrant.**

-----------

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

**   Filed herewith.

<PAGE>

ITEM 15(a)

                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                             BALANCE
                                               AT
                                            BEGINNING     COSTS AND                               BALANCE AT
                                            OF PERIOD     EXPENSES      OTHER     DEDUCTIONS     END OF PERIOD
                                            ---------     ---------     -----     ----------     -------------
<S>                                         <C>           <C>           <C>       <C>            <C>
2002................................        $ 101,175     $ 396,605     $  --     $ 388,624        $ 109,156
2001...............................           106,819       336,218        --       341,862          101,175
2000...............................           125,067       329,291        --       347,539          106,819
</TABLE>