<PAGE>
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                                                                               .
                                                                               .

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

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

                            FORM 10-K EQUIVALENT(1)

<Table>
<C>        <S>
(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, 2003.


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

               FOR THE TRANSITION PERIOD FROM           TO
</Table>

                        COMMISSION FILE NUMBER 333-80337

                               TEAM HEALTH, INC.
            (Exact name of registrant as it appears in its charter)

<Table>
<S>                                            <C>
                  TENNESSEE                                      62-1562558
       (State or other jurisdiction of                    (IRS Employer ID Number)
        Incorporation or organization)

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

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

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

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

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

     Indicate 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 -- 9,917,796 shares as of February
24, 2004. 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.
<PAGE>

                                     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. As a result of an acquisition on May 1,
2002, we also are the leading provider of medical staffing to military treatment
facilities. In addition to providing physician staffing in various specialties
within military treatment facilities, we also provide to such facilities 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 or subcontract with 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 450 hospitals, imaging
centers, surgery centers, clinics and military treatment facilities in 44
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 63% of our net revenue
less provision for uncollectibles in 2003. 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 payer mixes
and recruit and retain high quality physicians and other providers and staff.

     We are the leading provider of permanent healthcare staffing services to
military treatment facilities which accounted for 23% of our net revenue less
provision for uncollectibles for 2003. We significantly expanded our overall
base of business in 2002 by acquiring the leading provider of permanent
healthcare staffing services to military treatment facilities. This acquisition
provided an entry into a portion of the healthcare staffing market not
previously served by us. In the current military healthcare setting, permanent
staffing agreements exist on a three-way basis to include a military hospital or
clinic, a TRICARE (the U.S. military healthcare payer system) Regional Managed
Care Support Contractor ("MCSC"), which functions as the paying entity, and us.
The decision to enter into, expand or cancel a staffing contract is made by a
military commander. We currently have contracts with all four MCSCs that serve
the military market. However, as discussed under Business Risks, the TRICARE
Program will be undergoing significant changes during 2004.

                                        1
<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
payers 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 are continuously 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, we have core competencies that have made us 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 entity.

     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 2002 increased 9.3%. Hospital services have
historically represented the single largest component of these costs, accounting
for approximately 32% of total healthcare spending in 2002. According to
industry sources, over 3,800 U.S. community hospitals operated hospital
emergency departments and 83% of these hospitals outsourced their physician
staffing and administrative services. In 2002, emergency department expenditures
were approximately $75.0 billion, with emergency department physician services
accounting for approximately $26.0 billion. According to the American Hospital
Association, emergency departments handle approximately 110 million patient
visits annually and up to 39% 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 4% between 2002 and 1998.

     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 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.

                                        2
<PAGE>

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. We are currently the leading provider of permanent staffing solutions
to the military in the industry with an estimated 39% market share in 2003.
Significant competitors for the military market 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 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 1,100 health facility contracts or military treatment
facility sub-contracts. In 2003, 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 current military
staffing business is derived from securing sub-contracts from the four MCSC's
that presently serve as the prime contractors for TRICARE. Payments for its
services are received by us directly from the applicable MCSC. The percentage

                                        3
<PAGE>

of the Company's consolidated net revenues less provision for uncollectibles
derived from each of the four MCSC's in 2003 was as follows:

<Table>
<Caption>
                                                              CONSOLIDATED    SHR
                                                              ------------   -----
<S>                                                           <C>            <C>
MCSC #1.....................................................      12.0%       52.4%
MSCS #2.....................................................       5.5        24.1
MCSC #3.....................................................       5.2        23.0
MCSC #4.....................................................       0.1         0.5
                                                                  ----       -----
                                                                  22.8%      100.0%
                                                                  ====       =====
</Table>

     As indicated earlier, the TRICARE Program will undergo significant changes
beginning in 2004. We believe our current abilities and strengths in providing
outsourced permanent healthcare staffing to military treatment facilities will
be significant factors in maintaining our existing staffing business and in
successfully competing for new business under the TRICARE Program.

     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
regionally-based service provider. We have developed 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, 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
recruiting cost per physician and other healthcare professionals 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, benefit 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. In
addition, our financial size and strength enables us to provide to our
physicians and other professional staff professional liability insurance
coverage at levels of coverage that may not be available or affordable to other
physicians as the result of local insurance market conditions.

                                        4
<PAGE>

     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 20.5%. 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 2003, net
revenue less provision for uncollectibles from steady state contracts grew by
approximately 8.9% on a year over year basis. 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 military sites of service as the
       result of military commanders realizing the benefits of outsourcing their
       staffing needs. Historically, this has resulted in our 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.

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

     - replacing competitors 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 serve 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,

                                        5
<PAGE>

     - 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.

     During the past three years, we have been awarded 426 new outsourced
contracts, including 336 contracts to service areas of military treatment
facilities with outsourced healthcare staffing.

     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 governmental 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 spent an estimated $500 million
       less in the community in 2003 and is targeting to increase its savings by
       at least 10% per year, and

     - decrease in active duty and government employed staff (GS). The 131,000
       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.

     The global war on terrorism effort has lead to additional opportunities for
growth as the system requires professionals to replace active duty healthcare
professionals shipped overseas to front line military hospitals.

     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 recently experienced a lack of adequate coverage and
significant increases in the cost and thus affordability of professional
liability insurance beyond that experienced by us. This circumstance coupled
with our financial strength affords us a competitive 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, 2001, we have completed seven acquisitions with current
annualized revenues of approximately $260.7 million. We expect to continue to
fund acquisitions using our existing cash and credit line resources.

INDUSTRY

     According to CMS, national health care spending in 2002 increased 9.3%,
compared to an increase of 8.5% in 2001. Health care spending grew 5.7% faster
than the overall economy as measured by the growth of the gross domestic product
(GDP). The health care share of the GDP increased from 14.1% in 2001 to 14.9% in
2002. Public spending continued its accelerated pace in 2002 accounting for
approximately 46% of total health care payments with the Medicaid program
funding 16% of aggregate spending and Medicare 17%. Private payers funded more
than half of the national health expenditures in 2002. Hospital services have
historically represented the single largest component of these costs, accounting
for approximately 30.4% of total healthcare spending in 2002. Hospital spending
increased by 9.5% in 2002, marking the fourth consecutive year of accelerated
growth and the first time the rate of hospital spending outpaced the overall

                                        6
<PAGE>

spending rate of growth since 1991. Spending for physician services reached $340
billion in 2002, an increase of 7.7% from 2001.

     In the increasingly complex healthcare regulatory, managed care and
reimbursement environment, healthcare facilities are under significant pressure
from the government and private payers 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.

     Emergency Medicine.  According to the American Hospital Association, over
3,800 community hospitals in the United States operate emergency departments,
and approximately 83% of these hospitals outsource their physician staffing and
management for this department. In 2002, emergency department expenditures were
approximately $75.0 billion, with emergency physician services accounting for
approximately $26.0 billion. In 2002, emergency departments handled over 110
million patient visits, and up to 39% 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 4% between 1998 and 2002.

     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 often 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.  The demand for radiologists is estimated to be growing 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 employment marketplace. The current market for
radiologists and their services has altered the traditional fee-for-service
compensation arrangement with a hospital. In today's market for radiology
services we more frequently 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, to a lesser extent, regional
radiology groups. Smaller radiology groups are often at a competitive
disadvantage since they often lack the capital, range of medical equipment,
teleradiology night time support 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
                                        7
<PAGE>

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 we are one
of the largest single providers of management services to anesthesia groups.

     Inpatient Services (Hospitalist).  According to the Society of Hospital
Medicine (SHM), a hospitalist is "a doctor whose primary professional focus is
the general medical care of hospitalized patients." A recent study by the SHM
indicates that hospitals employed 75% more hospitalists in 2003 than in 2002.
There are presently approximately 7,000-8,000 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 2003, approximately 56% 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 our growth in contracting in
military staffing, 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
currently 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 existing hospital contracts is approximately eight years. Our 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. However, as
discussed under Business Risks, the TRICARE Program will be undergoing
significant changes during 2004.

     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 exclusivity to us for such services, to authorize us to bill and
collect the professional component of the charges for such professional
services. Under the fee-for-service arrangements, we bill patients and third
party payers for services rendered. Depending on the underlying economics of the
services provided to the hospital, including its payer 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.

                                        8
<PAGE>

     Military Treatment Facilities.  Our current 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 pay physicians: (1) an hourly rate for
each hour of coverage provided at rates comparable to the market in which they
work; (2) a relative value unit (RVU) based payment, or (3) a combination of
both a fixed rate and a RVU-based 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.

     Our contracts with physicians generally have "evergreen" provisions 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, 2003, we had working
relationships with approximately 3,100 physicians, of which approximately 2,500
were independently contracted.

     Other Healthcare Professionals.  We provide through contractual agreements,
para-professional providers, nurses, specialty technicians and administrative
support staff on a long-term contractual basis to military treatment facilities.
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, 2003, we employed approximately 3,900 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
payers 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 our successful growth 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 63% of our net revenue less
provision for uncollectibles in 2003 came from hospital emergency department
contracts. As of December 31, 2003, we independently contracted with or employed
approximately 2,200 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

                                        9
<PAGE>

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.
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 20 contracts as a result of
the acquisition of three 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 55 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, 66 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 2003, we experienced a net loss of 12 emergency
department contracts. During 2003, the Company terminated a number of contracts
due to the cost of professional liability insurance affecting the profitability
of certain contracts on a localized market basis.

     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. A smaller but rapidly
growing component of our radiology business is our teleradiology support
services. The customers for these services are typically radiologists or
radiology groups. The business provides nighttime support to our customers from
a centralized reading location. As of December 31, 2003, we independently
contracted with or employed approximately 70 radiologists. We have traditionally
focused on the hospital-based radiology market, although we also maintain
contracts with outpatient diagnostic imaging centers.

     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 a 61.1% 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,
2003, we independently contracted with or employed approximately 110 inpatient
physicians. Since 2001, 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 in existing contracts.

     Anesthesiology.  We provide a wide range of management services to
anesthesiology practices on a fee basis including strategic management,
management information systems, third-party payer contracting, financial and
accounting support, benefits administration and risk management, scheduling
support, operations management and quality improvement services using
proprietary anesthesia management practice software. We also arrange for the
provision of billing and other management services on a management fee basis to
anesthesiologist practices. Our anesthesiologist services are organized under an
anesthesiologist operating unit
                                        10
<PAGE>

known as "THAMS" (Team Health Anesthesiology Management Services). THAMS
currently provides management and/or billing services to 15 integrated
anesthesia practices with approximately 500 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
business management 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, 2003, we independently contracted with or employed
approximately 140 pediatric physicians providing pediatric services in such
settings. Since 2001, 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. During
2003, we opened three additional after hours and weekends pediatric 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.
These services are provided either on a fee-for-service basis or most
frequently, on a contract basis. Revenues less provision derived from such
non-physician staffing services grew to approximately 13% of our revenues in
2003.

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,

                                        11
<PAGE>

     - 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 55 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.

     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 to provide professional liability coverage at lower rates 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 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.

                                        12
<PAGE>

     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 services 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 payers. As a result, we often participate in the
       negotiation of managed care contracts to make those managed care
       relationships effective for patients, payers, physicians and hospitals.
       We provide managed care consulting services in the areas of contracting,
       negotiating, reimbursement analysis/projections, payer/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 payers
       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 military staffing 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
an electronic registration interface that has the capability of gathering
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-military staffing 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 is more cost effective than the use of outside
agencies and improved the collectibility of existing
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<PAGE>

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.  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. 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,

     - pre-hire risk assessment and screening, semi-annual risk review for all
       providers,

     - risk management quality improvement programs,

     - physician education and service programs, including peer review and
       monitoring,

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

     - early intervention of potential professional liability claims and
       pre-deposition review.

     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. In addition to
providing life support certification courses, we have designed a series of
client support seminars entitled Successful Customer Relations for physicians,
nurses and other personnel to learn specific techniques for becoming effective
communicators and delivering top-quality customer service. These seminars help
the clinical team sharpen its customer service skills, further develop
communication skills and provide techniques to help deal with people in many
critical situations.

SALES AND MARKETING

     Contracts for outsourced physician staffing and administrative services are
generally obtained either through direct selling efforts or requests for
proposals. We have a team of five 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

                                        14
<PAGE>

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 either
estimates of the cost of procuring tail coverage in those instances where such
tail coverage is provided by commercial insurance companies or through self-
insurance cost provisions for incurred but not reported claims based on
actuarial projections.

     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, 2003, we had approximately 6,700 employees, of which
approximately 4,500 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

                                        15
<PAGE>

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 our operations and contractual relationships.

     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 44 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 2003, we
derived approximately 12% 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 2003, we derived approximately 17% 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 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 TRICARE (formerly 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

                                        16
<PAGE>

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.

     In order to obtain additional clarification on the anti-kickback statute, a
provider can obtain written interpretative advisory opinions under the federal
anti-kickback statute from the Department of Health and Human Services regarding
existing or contemplated transactions. Advisory opinions are binding as to the
Department of Health and Human Services but only with respect to the requesting
party or parties. The advisory opinions are not binding as to other governmental
agencies, e.g. the Department of Justice.

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

     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 may 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.

     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
                                        17
<PAGE>

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 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, under the Health Insurance Portability
and Accountability Act of 1996 there are two additional 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 payers. 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.

     Administrative Simplification.  The Health Insurance Portability and
Accountability Act of 1996 "HIPAA" mandates the adoption of standards for the
exchange of electronic health information in an effort to

                                        18
<PAGE>

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, were 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 was therefore required
to comply with these regulations by October 16, 2003. However in September 2003
CMS granted an indefinite extension due to the number of both providers and
carriers, both government and commercial, not being ready to implement the new
standards. The Company has completed the necessary actions to comply with these
new standards and is ready to convert electronic data into this new format as
carriers notify Team Health of their ability to accept the format.

     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, were 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. The Company has entered into business
associate agreements with its affiliated providers, including physicians,
hospitals and other covered entities, and has entered into business associate
agreements with its vendors and believes it is in substantial compliance with
the final regulations concerning the privacy of healthcare information.

     In February 2003, CMS issued final regulations concerning the security of
electronic protected healthcare information and data. These regulations mandate
the use of certain administrative, physical and technical safeguards to protect
the confidentiality, integrity, and availability of electronic protected
healthcare information. Most affected entities, including our Company, are
required to comply with these regulations by April 21, 2005.

     In April 2003, CMS issued interim final regulations related to the
enforcement and imposition of penalties on entities that violate HIPPA
standards. These regulations are the first installment of enforcement
regulations which, when issued in complete form, will set forth procedural and
substantive requirements for the enforcement and imposition of penalties under
HIPPA. 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 believe our operations are currently conducted in
substantial compliance with these HIPAA 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 our 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, our operations are impacted by 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.
                                        19
<PAGE>

BUSINESS RISKS

     The Company derives a substantial portion of its net revenues less
provision ($229.0 million in 2003) from services provided to the Department of
Defense under the TRICARE Program. This Program will undergo significant changes
beginning in June 2004 that could have a material impact on our current revenues
and profits.  The Company provides health care provider staffing located on
military bases to provide related services 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. The Company 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
for the next generation of managed care support contracts, also known as the
"TRICARE Contracts". The intent of the TRICARE Contracts is to replace the
existing managed care support contracts on a phased-in basis between June and
November 2004. The TRICARE Contracts proposal provided for the awarding of prime
contracts to three managed care organizations to cover three distinct
geographical regions of the country. The award of the prime contracts was
announced in August 2003.

     The Department of Defense is currently in the process of determining how it
will procure the civilian positions that it will require going forward. Options
currently being discussed include "rolling-over" existing staffed positions with
existing providers, such as the Company, through the recently selected managed
care organizations, to terminating all existing contracts for staffed positions
and putting ongoing staffing needs of military treatment facilities out for
competitive bidding.

     The impact on the results of operations and financial condition of the
Company resulting from the changes in the TRICARE Contracts program are not
known or able to be estimated at this time. The Company has exclusive contracts
with two of the three future prime contractors for future resource sharing. In
the event the Department of Defense opts to allow for the rollover of existing
staffing, we expect to maintain and expand on the business that it currently has
in the West and North regions under the TRICARE Contracts. The Company does not
have a contract to provide staffing with the managed care organization that has
been awarded the South region under the TRICARE Contracts. In 2003, the Company
derived approximately $47.9 million of net revenue from staffing contracts
located in the South region. The Company expects that it will be able to pursue
direct service contracts with individual military treatment facilities in the
South region, as it currently provides staffing to numerous military treatment
facilities in the South region. The potential success and impact on the results
of operations of the Company in obtaining direct service contracts is not known
or able to be estimated at this time. Alternatively, if the Department of
Defense opts to terminate its existing staffing contracts and enter into a
competitive bidding process for such positions across all regions, the Company's
existing revenues and margins and financial condition may be materially
adversely affected.

     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, 2003 we had total indebtedness of $299.4 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,

                                        20
<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 Professional Liability Lawsuits, Some of Which We
May not Be Fully Insured or Reserved For.  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 either obtain from commercial insurance companies claims-made
coverage for Team Health and other corporate entities with per incident and
annual aggregate limits or, since March 12, 2003, provide reserves for such
potential losses through a self-insurance program. We believe such limits or
reserves 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 or reserve levels 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 professional liability claims, which includes
costs associated with litigating or

                                        21
<PAGE>

settling claims, is accrued when the incidents that give rise to the claims
occur. The accrual includes an estimate of the losses that will result from
incidents, which occurred during the claims-made period, but were not reported
during that period. These claims are referred to as incurred-but-not-reported
("IBNR") claims. We provide insurance or reserves 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, for periods prior to March 12, 2003, we have acquired from a
commercial insurance company such tail coverage. We cannot assure you that claim
losses for periods prior to March 12, 2003, will not exceed the limits of
available insurance coverage or reserves established by the Company for any
losses in excess of such insurance coverage limits.

     The Company prior to March 12, 2003, had obtained professional liability
insurance from insurance companies to cover its professional liability loss
exposures. The Company's principal insurance policy in effect for such potential
claims ended March 11, 2003. The current insurance market for professional
liability insurance coverage had 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 became increasingly more limited and, as a result, more costly.
Effective March 12, 2003, the Company began insuring its professional liability
risks principally through a program of self-insurance reserves and a captive
insurance company arrangement. Under this program, the Company provides reserves
for its professional liability losses using actuarial estimates, including an
estimate for IBNR. A portion of those claims, as determined on an actuarial
basis, 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 Company's current professional liability insurance program, the Company's
exposure for claim losses is limited to the amounts of individual policy
coverage limits but there is no limit for aggregate claim losses. 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 losses and related expenses
in the future.

     Furthermore, for those portions of the Company's professional liability
insurance risks and periods that are insured through commercial insurance
companies, the Company is subject to the "credit risk" of those insurance
companies. While the Company believes its commercial insurance company providers
are currently credit worthy, there can be no assurance that such insurance
companies will remain so in the future.

     We May Incur Substantial Costs Defending Our Interpretations of Government
Regulations and if We Lose the Government Could Force Us to Restructure and
Subject Us to Fines, Monetary Penalties and Exclusion from Participation in
Government Sponsored Programs such as Medicare and Medicaid.  Our operations and
arrangements with healthcare providers are subject to extensive government
regulation, including numerous laws directed at preventing fraud and abuse, laws
prohibiting general business corporations, such as us, from practicing medicine,
controlling physicians' medical decisions or engaging in some practices such as
splitting fees with physicians, and laws regulating billing and collection of
reimbursement from governmental programs, such as the Medicare and Medicaid
programs. Of particular importance are:

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

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

                                        22
<PAGE>

          (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
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, profes-

                                        23
<PAGE>

sional 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. Historically, there was no exception that allowed us
to receive directly Medicare payments related to the services of independent
contractor physicians. However, the Medicare Prescription Drug Improvement and
Modernization Act of 2003 amended the Medicare reassignment statute as of
December 8, 2003 to permit our independent contractor physicians to reassign
their Medicare receivable to the Company. At this time we expect to restructure
our method of billing and collecting Medicare payments to comply with this new
statutory reassignment exception.

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

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

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

     The continual flux of healthcare rules and regulations at the federal,
state and local level could revise the future of our relationships with the
hospitals and physicians with whom we contract. In addition to the
                                        24
<PAGE>

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 reductions in the Medicare physician fee schedule in
the future. Any such reductions could reduce our revenues.

     On November 7, 2003, CMS issued its updates to the physician fee schedule
payment rates for 2004. These 2004 physician fee schedule payment rate updates
were subsequently revised on January 7, 2004 to implement provisions of The
Medicare Prescription Drug Improvement and Modernization Act of 2003, which
provide that the update to the conversion factor for physicians' services for
2004 and 2005 will increase by at least 1.5%. Without this legislative change,
the update for 2004 would have reduced fee schedule payment rates by 4.5% with a
smaller reduction in 2005. As a result of the legislative change in January
2004, we now estimate that we will realize an increase in such revenues in 2004
from Medicare and other related revenue sources of approximately $3.9 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.

                                        25
<PAGE>

     A Reclassification of Our Independent Contractor Physicians by Tax
Authorities Could Require Us to Pay Retroactive Taxes and Penalties.  As of
December 31, 2003, we contracted with approximately 2,500 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 evaluate 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 eight 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 payers 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,

                                        26
<PAGE>

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
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, training and experience 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 some 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 payers, such as self-pay
patients, various forms of commercial insurance companies and the Medicare and
Medicaid Programs. These different payers 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

                                        27
<PAGE>

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 payers as to which party is responsible for payment,

     - variation in coverage for similar services among various payers,

     - 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 payers.

     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 the Former Shareholders of Spectrum
Healthcare Resources ("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 Equivalent, 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 Equivalent 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
$1,000 to $54,000. Our aggregate monthly lease payments total approximately
$638,000. We expect to be able to renew each of our leases or to lease
comparable facilities on terms commercially acceptable to us.

                                        28
<PAGE>

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 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 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, 2003.

                                    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,
2003. The Company has not declared any dividends on its shares of its common
stock during fiscal years 2003 and 2002.

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, 2003 and the
balance sheet data at December 31, 2003 and 2002 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, 2000 and the balance sheet data at December 31, 2001,
2000 and 1999 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,
                                       --------------------------------------------------------
                                          2003         2002        2001       2000       1999
                                       ----------   ----------   --------   --------   --------
                                                            (IN THOUSANDS)
<S>                                    <C>          <C>          <C>        <C>        <C>
STATEMENT OF OPERATIONS DATA:
Net revenue..........................  $1,479,013   $1,230,703   $965,285   $918,974   $852,153
Provision for uncollectibles.........     479,267      396,605    336,218    329,291    309,713
                                       ----------   ----------   --------   --------   --------
Net revenue less provision for
  uncollectibles.....................     999,746      834,098    629,067    589,683    542,440
Cost of services rendered
  Professional service expenses......     746,409      635,573    493,380    444,320    419,607
  Professional liability costs.......     115,970       36,992     29,774     24,276     21,899
                                       ----------   ----------   --------   --------   --------
Gross profit.........................     137,367      161,533    105,913    121,087    100,934
General and administrative
  expenses...........................      95,554       81,744     63,998     57,794     51,491
Terminated transaction expense.......          --           --         --      2,000         --
Management fee and other expenses....         505          527        649        591        506
Impairment of intangibles............         168        2,322      4,137         --         --
</Table>

                                        29
<PAGE>

<Table>
<Caption>
                                                       YEAR ENDED DECEMBER 31,
                                       --------------------------------------------------------
                                          2003         2002        2001       2000       1999
                                       ----------   ----------   --------   --------   --------
                                                            (IN THOUSANDS)
<S>                                    <C>          <C>          <C>        <C>        <C>
Depreciation and amortization........      22,018       20,015     14,978     12,638      9,943
Recapitalization expense.............          --           --         --         --     16,013
Interest expense, net................      23,343       23,906     22,739     25,467     20,909
Refinancing costs....................          --        3,389         --         --         --
                                       ----------   ----------   --------   --------   --------
Earnings (loss) before income taxes
  and cumulative effect of change in
  accounting principle...............      (4,221)      29,630       (588)    22,597      2,072
Provision (benefit) for income
  taxes..............................      (1,410)      13,198        871      9,317      1,250
                                       ----------   ----------   --------   --------   --------
Earnings (loss) before cumulative
  effect of change in accounting
  principle..........................      (2,811)      16,432     (1,459)    13,280        822
Cumulative effect of change in
  accounting principle, net of income
  tax benefit........................          --         (294)        --         --         --
Dividends on preferred stock.........      14,440       13,129     11,889     10,783      8,107
                                       ----------   ----------   --------   --------   --------
Net earnings (loss) attributable to
  common stockholders................  $  (17,251)  $    3,009   $(13,348)  $  2,497   $ (7,285)
                                       ==========   ==========   ========   ========   ========
NET CASH PROVIDED BY (USED FOR):
Operating Activities.................  $  101,741   $   52,480   $ 49,737   $ 52,130   $ 37,963
Investing Activities.................     (26,279)    (174,762)   (22,826)   (12,900)   (14,984)
Financing Activities.................     (22,287)      99,888    (12,132)   (13,646)     3,369
Capital Expenditures.................      (8,972)      (9,796)    (5,955)    (7,359)   (10,615)
BALANCE SHEET DATA (AT END OF
  PERIOD):
Cash and cash equivalents............  $  100,964   $   47,789   $ 70,183   $ 55,404   $ 29,820
Working capital......................      86,729       70,163    104,039    124,105    107,550
Total assets.........................     731,049      674,240    500,198    502,098    442,199
Total debt...........................     299,415      320,500    217,300    229,201    241,676
Mandatory redeemable preferred
  stock..............................     158,846      144,405    130,779    118,890    108,107
Total stockholders' equity
  (deficit)..........................    (115,203)     (97,432)   (99,690)   (86,123)   (88,620)
</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 450 hospitals,
imaging centers,

                                        30
<PAGE>

surgery centers, clinics and military treatment facilities in 44 states. Since
our inception, we have focused primarily on providing outsourced services to
hospital emergency departments and urgent care centers, which accounted for
approximately 63% of our net revenue less provision for uncollectibles in 2003.
We are the leading provider of medical staffing to military treatment
facilities, providing outsourced physician staffing and administrative services
as well as 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 three hospital-based physician groups and
related companies in addition to the acquisition in 2002 of the leading provider
of military staffing to the military. In addition, during the past three years
we have also acquired three businesses engaged in providing such services as
billing and collection, physician management services and non-hospital-based
physician services.

     Acquisitions, with the exception of the military staffing business, 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 60% 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 existing hospital contracts is
approximately eight years. Our 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. However, as further discussed later and in
footnote 16 to the accompanying consolidated financial statements, the existing
managed care support contracts are currently scheduled to be replaced on a
phase-in basis between June and November 2004.

     Approximately 56% 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

                                        31
<PAGE>

others, affect its more significant judgments and estimates used in the
preparation of its consolidated financial statements.

     Revenue Recognition

     Net Revenue.  A significant portion (70%) of the Company's revenue in 2003
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 payer(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 payer information may
change following an initial attempt to bill for services due to a change in
payer status. Such changes in payer status have an impact on recorded net
revenue due to differing payers being subject to different contractual allowance
amounts. Such changes in net revenue are recognized in the period that such
changes in payer become known. Similarly, the actual volume of medical charts
not processed into our billing systems may be different from the amounts
estimated. Such differences in net revenue are adjusted in the following month
based on actual chart volumes processed.

     Net Revenue Less Provision For Uncollectibles.  Net revenue less provision
for uncollectibles reflects management's estimate of billed amounts to
ultimately be collected. Management, in estimating the amounts to be collected
resulting from its over six million annual fee-for-service patient visits and
procedures, considers such factors as prior contract collection experience,
current period changes in payer 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 beginning 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
professional liability lawsuits. Historically, to mitigate a portion of this
risk, the Company has maintained insurance for individual professional liability
claims with per incident and annual aggregate limits per physician for all
incidents. Prior to March 12, 2003, such insurance coverage has been provided by
a commercial insurance company provider. Professional liability 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 have been 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 has recorded 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.

     Subsequent to March 11, 2003, the Company has provided for a significant
portion of its professional liability loss exposures through the use of a
captive insurance company and through greater utilization of self-insurance
reserves. Accordingly, beginning on March 12, 2003, a substantial portion of the
Company's provision for professional liability losses is based on periodic
actuarially determined estimates of such losses for periods subsequent to March
11, 2003. An independent actuary firm is responsible for preparation of the
periodic actuarial studies. Management's estimate of the Company's professional
liability costs resulting from such actuarial studies is significantly
influenced by assumptions, which are limited by the uncertainty of predicting
future events, and assessments regarding expectations of several factors. These
factors include, but
                                        32
<PAGE>

are not limited to: the frequency and severity of claims, which can differ
significantly by jurisdiction; coverage limits of third-party insurance; the
effectiveness of the Company's claims management process; and the outcome of
litigation.

     If in the event that losses for the period March 12, 1999 through March 11,
2003, become known to likely be greater than the insured limits applicable to
such coverage in such periods, or in the event that subsequent to March 11,
2003, such actuarial determined estimates of losses are greater or less than
previous loss estimates, such change in estimates will require an adjustment to
the Company's loss provisions in the periods such change in loss estimates are
determined. The Company in March 2003 had an actuarial projection made of its
potential exposure for losses under the provisions of its commercial insurance
policy that ended March 11, 2003. The results of that actuarial study indicated
that the Company would incur a loss for claim losses and expenses in excess of
the $130.0 million aggregate limit. Accordingly, the Company recorded a loss
estimate, discounted at 4%, of $50.8 million in its statement of operations for
the three months ended March 31, 2003. The results of future actuarial studies
may result in such loss estimate provision under the aggregate policy limit to
be further adjusted upward or downward as actual results are realized over time.

     The actuarial study completed in March 2003 included projections of
professional liability loss estimates for purposes of providing for such losses
under the Company's captive and self-insurance programs in effect since March
12, 2003. The Company's professional liability costs consist of the annual
projected costs resulting from such actuarial study along with the cost of
certain professional liability commercial insurance premiums and programs
available to the Company that remain in effect. The provisions for professional
liability costs will fluctuate as a result of several factors, including hours
of exposure as measured by hours of physician and related professional staff
services as well as actual loss development trends. Due to the long pattern of
payout for such exposures, the Company anticipates that a substantial portion of
such latter amount will not be realized in the form of actual cash outlays until
periods beyond 2003.

     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 2003, 2002 and 2001, the Company
recorded losses due to impairments of intangibles of $0.2 million, $2.3 million
and $4.1 million, respectively. Effective January 1, 2002, the Company adopted
Statement of Financial Accounting Standards (SFAS) 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 in 2002 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 payers. 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 payers and other payers.

                                        33
<PAGE>

We also record a provision for uncollectibles, which represents our estimate of
losses based on the experience of each individual contract. All services
provided are expected to result in cash flows and are therefore reflected as
revenues in the financial statements.

     Management, in estimating the amounts to be collected resulting from its
over six million annual fee-for-service patient visits and procedures, considers
several factors, including but not limited to, prior contract collection
experience, current period changes in payer 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 payer 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
subsequent development of a more formulaic and uniform estimation of its
collection rates which take 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 payer 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 42% of our revenue less provision for uncollectibles in 2003
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 2003, the Medicare program
announced that its physician reimbursement rates would increase in 2004 by
approximately 1.5%. We estimate that we will realize an increase in such
revenues in 2004 from Medicare and other related revenue sources of
approximately $3.9 million based on 2003 volumes of such covered patients.

     Cost of Services Rendered.  Cost of services rendered consists of
professional services expenses and professional liability costs. 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 and other direct
contract service costs. Approximately 81% 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 or,
increasingly more often, based on relative value units for services 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 costs represent the cost of covering our physician
and related professional staff that are under contract with us. The cost of
professional liability claims, which includes costs associated with

                                        34
<PAGE>

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

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,
                                                              ------------------------
                                                               2003     2002     2001
                                                              ------   ------   ------
<S>                                                           <C>      <C>      <C>
Fee-for-service revenue.....................................  104.1%   108.8%   125.5%
Contract revenue............................................   40.8     35.1     25.3
Other revenue...............................................    3.0      3.6      2.6
Net revenue.................................................  147.9    147.5    153.4
Provision for uncollectibles................................   47.9     47.5     53.4
Net revenue less provision for uncollectibles...............  100.0    100.0    100.0
                                                              =====    =====    =====
Professional service expenses...............................   74.7     76.2     78.4
Professional liability costs................................   11.6      4.4      4.8
Gross profit................................................   13.7     19.4     16.8
General and administrative expenses.........................    9.6      9.8     10.2
Management fee and other expenses...........................    0.1      0.1      0.1
Impairment of intangibles...................................     --      0.3      0.6
Depreciation and amortization...............................    2.1      2.4      2.4
Interest expense, net.......................................    2.3      2.8      3.6
Refinancing costs...........................................     --      0.4       --
Earnings (loss) before income taxes and cumulative effect of
  change in accounting principle............................   (0.4)     3.6     (0.1)
Provision (benefit) for income taxes........................   (0.1)     1.6      0.1
Earnings (loss) before cumulative effect of change in
  accounting principle......................................   (0.3)     2.0     (0.2)
Cumulative effect of change in accounting principle, net of
  income tax benefit........................................     --       --       --
Net earnings (loss).........................................   (0.3)     2.0     (0.2)
Dividends on preferred stock................................    1.4      1.6      1.9
Net earnings (loss) attributable to common stockholders.....   (1.7)     0.4     (2.1)
</Table>

                                        35
<PAGE>

YEAR ENDED DECEMBER 31, 2003 COMPARED TO THE YEAR ENDED DECEMBER 31, 2002

     Net Revenue.  Net revenue in 2003 increased $248.3 million, or 20.2%, to
$1,479.0 million from $1,230.7 million in 2002. The increase in net revenue of
$248.3 million included an increase of $133.4 million in fee-for-service
revenue, $115.4 million in contract revenue offset by a decrease of $0.5 million
in other revenue. Fee-for-service revenue was 70.4% of net revenue in 2003
compared to 73.7% in 2002, contract revenue was 27.6% of net revenue in 2003
compared to 23.8% in 2002 and other revenue was 2.0% of net revenue in 2003
compared to 2.5% in 2002. The change in the mix of revenues is principally due
to an acquisition in 2002. The acquired operation derives a higher percentage of
its revenues from hourly contract billings than fee-for-service contracts.

     Provision for Uncollectibles.  The provision for uncollectibles was $479.3
million in 2003 compared to $396.6 million in 2002, an increase of $82.7 million
or 20.9%. As a percentage of net revenue, the provision for uncollectibles was
32.4% in 2003 compared to 32.2% in 2002. The provision for uncollectibles is
primarily related to revenue generated under fee-for-service contracts which is
not expected to be fully collected. The increase in the provision for
uncollectibles percentage resulted from increased patient visits, fee schedule
increases and a continued payer mix shift toward more self-insured patients.

     Net Revenue Less Provision for Uncollectibles.  Net revenue less provision
for uncollectibles in 2003 increased $165.6 million, or 19.9% to $999.7 million
from $834.1 million in 2002. 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 $61.9
million or 8.9%, to $757.7 million in 2003 from $695.8 million in 2002. The
increase in same contract revenue of 8.9% includes the effects of both increased
billing volume and higher estimated net revenue per billing unit between
periods. Overall, same contract revenue increased approximately 4.0% between
periods due to an increase in billing volume and physician mix. Acquisitions
contributed $55.1 million and new contracts obtained through internal sales
contributed $105.5 million of the remaining increase. The increases noted above
were partially offset by $56.9 million of revenue derived from contracts that
terminated during the periods.

     Professional Service Expenses.  Professional service expense which includes
physician costs, billing and collection expenses and other professional
expenses, totaled $746.4 million in 2003 compared to $635.6 million in 2002 for
an increase of $110.8 million or 17.4%. The increase of $110.8 million included
$43.5 million resulting from acquisitions between periods. The remaining
increase in professional service expenses was principally due to increases in
provider hours as the result of new contract sales, principally for staffing
within military treatment facilities, including increases resulting from troop
deployments in 2003, as well as increases in average rates paid per hour of
provider service.

     Professional Liability Costs.  Professional liability costs were $116.0
million in 2003, including a provision for losses in excess of an aggregate
insured limit for periods prior to March 12, 2003 of $50.8 million. The total
professional liability cost of $116.0 million in 2003 compared with $37.0
million in 2002 increased $79.0 million (76.2% excluding the effect of the $50.8
million provision for excess insurance losses). The increase in professional
liability costs, in addition to increases resulting from the provision for
excess losses ($50.8 million) and from acquisitions ($1.3 million) is due to an
increase between periods in the Company's commercial insurance program premium
through its expiration date of March 11, 2003, plus an increased level of cost
resulting from an estimate of the Company's losses on a self-insured basis
subsequent to March 11, 2003.

     Gross Profit.  Gross profit decreased to $137.4 million in 2003 from $161.5
million in 2002. The decrease in gross profit is attributable to the effect of
the provision for excess losses of $50.8 million partially offset by the effect
of acquisitions, net new contract growth and increased profitability of steady
state operations between periods. Gross profit as a percentage of revenue less
provision for uncollectibles was 18.8% before the provision for excess losses
for prior periods compared to 19.4% for 2002. The decrease was principally due
to increases in professional liability costs increasing faster than growth in
revenues.

     General and Administrative Expenses.  General and administrative expenses
in 2003 increased to $95.6 million from $81.7 million in 2002, for an increase
of $13.8 million, or 16.9% between years. General and

                                        36
<PAGE>

administrative expenses as a percentage of net revenue less provision for
uncollectibles were 9.6% in 2003 compared to 9.8% in 2002. The increase in
general and administrative expenses between years included expenses associated
with acquired operations of $4.9 million accounting for 6.0% of the 16.9%
increase between periods. The remaining net increase of 10.9% or $8.9 million
was principally due to increases in salaries and benefits of approximately $7.8
million. Included in the increase in salaries and benefits between periods was
an increase of approximately $3.3 million related to the Company's management
incentive plan. Non salary related general and administrative expenses increased
$1.1 million between years principally due to costs related to a disputed
contract settlement of approximately $0.6 million and a net increase in outside
consulting and services fees of approximately $0.6 million. Other general and
administrative expenses remained approximately unchanged between years.

     Management Fee and Other Expenses.  Management fee and other expenses were
$0.5 million in 2003 and 2002.

     Impairment of Intangibles.  Impairment of intangibles was $0.2 million and
$2.3 million in 2003 and 2002, respectively. During 2003 an ED contract with a
noncompete intangible terminated and two of the Company's contracts were
determined to be impaired during 2002.

     Depreciation and Amortization.  Depreciation and amortization expense was
$22.0 million in 2003 compared to $20.0 million in 2002. Depreciation expense
decreased by $0.4 million between years while amortization expense increased
$2.4 million between years. The increase in amortization expense is principally
due to acquisitions between periods.

     Net Interest Expense.  Net interest expense decreased $0.6 million to $23.3
million in 2003 compared to $23.9 million in 2002. The decrease in net interest
expense is due to lower interest rates on outstanding debt and increased
investment income in 2003 offset by an increase in debt outstanding resulting
from acquisitions in 2002.

     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 (loss) before income taxes and cumulative effect
of change in accounting principle was a loss of $4.2 million in 2003 compared
with earnings of $29.6 million in 2002.

     Provision (Benefit) for Income Taxes.  Provision for income taxes in 2003
was a benefit of $1.4 million compared to a provision of $13.2 million in 2002.
The decrease in the provision for income taxes in 2003 from 2002 was due to the
decreased level of earnings before income taxes in 2003.

     Earnings (Loss) before Cumulative Effect of Change in Accounting
Principle.  Earnings (loss) before cumulative effect of change in accounting
principle in 2003 was a loss of $2.8 million compared with earnings of $16.4
million in 2002.

     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 loss in 2003 was $2.8 million compared to net
earnings of $16.1 million in 2002.

     Dividends on Preferred Stock.  The Company accrued $14.4 million and $13.1
million of dividends in 2003 and 2002, respectively, on its outstanding Class A
mandatory redeemable preferred stock.

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
                                        37
<PAGE>

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 an acquisition in 2002. The acquired operation
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 acquired operations in 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 Service Expenses.  Professional service expenses in 2002 were
$635.6 million compared to $493.4 million in 2001, an increase of $142.2 million
or 28.8%. Professional service expenses includes physician costs, billing and
collection expenses and other professional expenses. The increase of $142.2
million included $102.4 million resulting from acquisitions between periods. As
a percentage of net revenue less provision for uncollectibles, professional
service expenses were 76.2% in 2002 compared to 78.4% (75.5% after giving effect
to the charge of $24.5 million) in 2001. The remaining increase in professional
service 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.  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.

     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
                                        38
<PAGE>

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 expense was
$20.0 million in 2002 compared to $15.0 million in 2001. Depreciation expense
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
acquisitions 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 the
provision for income taxes 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.

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 2003 and 2002 was $101.7 million
and $52.5 million, respectively.

                                        39
<PAGE>

     The Company spent $9.0 million in 2003 and $9.8 million in 2002 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 acquisition. Cash
payments made in connection with acquisitions, including contingent payments,
were $2.5 million in 2003 and $165.7 million in 2002. Future contingent payment
obligations are approximately $9.2 million as of December 31, 2003.

     The Company made scheduled debt maturity payments of $12.7 million in 2003
and $10.9 million in 2002 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 $27.9 million for fiscal 2003 by April 29,
2004. The estimated excess cash flow payment has been included within current
maturities of long-term debt in the accompanying balance sheet at December 31,
2003.

     The Company's cash needs in 2003 were met from internally generated
operating sources and there were no borrowings by the Company under its
revolving credit facility.

     The Company began providing effective March 12, 2003, for its professional
liability risks in part through a captive insurance company. The Company prior
to such date insured such risks principally through the commercial insurance
market. The change in the Company's professional liability insurance program
resulted in increased cash flow due to the retention of cash formerly paid out
in the form of insurance premiums to a commercial insurance company coupled with
a long period (typically 2-4 years or longer on average) before cash payout of
such losses occurs. A portion of such cash retained will be retained within the
Company's captive insurance company and therefore not immediately available for
general corporate purposes. As of December 31, 2003, cash or cash equivalents
and related investments held within the captive insurance company totaled
approximately $14.9 million. As part of the change to the current program of
self-insurance for professional liability risks, the Company exercised an option
with its previous commercial insurance provider, at a cost of $30.6 million that
was paid in 2003, to insure the Company for its "tail" exposure for periods
prior to March 12, 2003 up to a maximum of commercial insurance company coverage
of $130.0 million.

     The Company as of December 31, 2003, had cash and cash equivalents of
approximately $101.0 million and a revolving credit facility borrowing
availability of $72.4 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.

                                        40
<PAGE>

     The following table reflects a summary of obligations and commitments
outstanding with payment dates as of December 31, 2003 (in thousands):

<Table>
<Caption>
                                                     PAYMENTS DUE BY PERIOD
                                   -----------------------------------------------------------
                                   LESS THAN                               AFTER 5
                                    1 YEAR     1 - 3 YEARS   4 - 5 YEARS    YEARS      TOTAL
                                   ---------   -----------   -----------   --------   --------
<S>                                <C>         <C>           <C>           <C>        <C>
Contractual cash obligations:
Long-term debt...................   $43,528      $40,359      $115,528     $100,000   $299,415
Operating leases.................     7,387       13,650         9,314        2,840     33,191
                                    -------      -------      --------     --------   --------
  Subtotal.......................    50,915       54,009       124,842      102,840    332,606
</Table>

<Table>
<Caption>
                                           AMOUNT OF COMMITMENT EXPIRATION PER PERIOD
                                   -----------------------------------------------------------
                                   LESS THAN                               AFTER 5
                                    1 YEAR     1 - 3 YEARS   4 - 5 YEARS    YEARS      TOTAL
                                   ---------   -----------   -----------   --------   --------
<S>                                <C>         <C>           <C>           <C>        <C>
Other commitments:
Standby letters of credit........   $ 2,629      $    --      $     --     $     --   $  2,629
Contingent acquisition
  payments.......................       709        8,318           171           --      9,198
                                    -------      -------      --------     --------   --------
                                      3,338        8,318           171           --     11,827
                                    -------      -------      --------     --------   --------
  Total obligations and
     commitments.................   $54,253      $62,327      $125,013     $102,840   $344,433
                                    =======      =======      ========     ========   ========
</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.

PROFESSIONAL LIABILITY COSTS

     A significant operating cost of the Company is the cost of providing for
its professional liability losses. The Company's cost associated with
professional liability losses was $65.2 million in 2003 (prior to a provision
for losses in excess of an aggregate loss limit of $50.8 million) compared to
$37.0 million in fiscal 2002. Such costs have historically been determined by a
combination of premiums for the purchase of commercial insurance or through
self-insurance reserve provisions. Due to adverse conditions in the commercial
insurance marketplace for such coverage, there was a significant increase in the
cost of such insurance coverage in 2003. The Company's professional liability
commercial insurance coverage in effect for the four-year period ended March 11,
2003, ended on such date. The Company implemented, effective March 12, 2003, a
program of insurance that includes both a captive insurance company arrangement
and self-insurance reserve provisions for potential losses beginning on such
date. The Company's provisions for its professional liability losses are now
substantially determined through actuarial studies of its projected losses. Such
actuarial projected losses, in addition to considering the Company's loss
experience and hours of professional exposure, also include assumptions as to
the frequency and severity of claims which in turn may be influenced by market
expectations and experience in general. Accordingly, the Company's cost for
professional liability risks has increased significantly between years.

TRICARE PROGRAM

     During 2003, the Company derived approximately $229.0 million of revenue
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. The Company currently provides its services through
subcontract arrangements with managed care organizations that contract directly
with the TRICARE program.

                                        41
<PAGE>

     On August 1, 2002, the Department of Defense issued a request for proposals
for the next generation of managed care support contracts, also known as the
"TRICARE Contracts". The intent of the TRICARE Contracts is to replace the
existing managed care support contracts on a phased-in basis between June and
November 2004. The TRICARE Contracts proposal provided for the awarding of prime
contracts to three managed care organizations to cover three distinct
geographical regions of the country. The award of the prime contracts was
announced in August 2003.

     The Department of Defense is currently in the process of determining how it
will procure the civilian positions that it will require going forward. Options
currently being discussed include "rolling-over" existing staffed positions with
existing providers, such as the Company, through the recently selected managed
care organizations, to terminating all existing contracts for staffed positions
and putting ongoing staffing needs of military treatment facilities out for
competitive bidding.

     The impact on the results of operations and financial condition of the
Company resulting from the changes in the TRICARE Contracts program are not
known or able to be estimated at this time. The Company has exclusive contracts
with two of the three future prime contractors for future resource sharing. In
the event the Department of Defense opts to allow for the rollover of existing
staffing, SHR expects to maintain and expand on the business that it currently
has in the West and North regions under the TRICARE Contracts. The Company does
not have a contract to provide staffing with the managed care organization that
has been awarded the South region under the TRICARE Contracts. In 2003, SHR
derived approximately $47.9 million of net revenue from staffing contracts
located in the South region. The Company expects that it will be able to pursue
direct service contracts with individual military treatment facilities in the
South region, as it currently provides staffing to numerous military treatment
facilities in the South region. The potential success and impact on the results
of operations of the Company in obtaining direct service contracts is not known
or able to be estimated at this time. Alternatively, if the Department of
Defense opts to terminate its existing staffing contracts and enter into a
competitive bidding process for such positions across all regions, the Company's
existing revenues and margins and financial condition may be materially
adversely affected.

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 hourly contract business is generally lower
in the fourth quarter of the year due to the number of holidays therein.

RECENTLY ISSUED ACCOUNTING STANDARDS

     On December 31, 2002, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (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.

                                        42
<PAGE>

     As more fully discussed in Note 12, the Company adopted the disclosure
requirements of SFAS No. 148 and the fair value recognition provisions of SFAS
No. 123, Accounting for Stock-Based Compensation, prospectively to all new
awards granted to employees after January 1, 2003.

     In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150
requires that certain financial instruments, which under previous guidance were
accounted for as equity-type instruments, must now be accounted for as
liabilities. The financial instruments affected include mandatory redeemable
stock, certain financial instruments that require or may require the issuer to
buy back some of its shares in exchange for cash or other assets and certain
obligations that can be settled with shares of stock. The Company's mandatory
redeemable preferred stock is subject to the provisions of this statement. In
addition, dividends on its redeemable preferred stock will be required to be
included in interest expense in the Company's statements of operations. The
provisions of SFAS No. 150 are applicable to the Company's financial statements
beginning in 2005. The Company does not expect the adoption of SFAS No. 150 to
have a material effect on the results of its operations or financial condition.

     In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities. FIN 46 provides guidance on how to
identify a variable interest entity (VIE) and determine when the assets,
liabilities, non-controlling interests, and results of operations of a VIE are
to be included in an entity's consolidated financial statements. A VIE exists
when either the total equity investment at risk is not sufficient to permit the
entity to finance its activities by itself, or the equity investors lack one of
three characteristics associated with owning a controlling financial interest.
Those characteristics include the direct or indirect ability to make decisions
about an entity's activities through voting rights or similar rights, the
obligation to absorb the expected losses of an entity if they occur, and the
right to receive the expected residual returns of the entity if they occur.

     FIN 46 was effective immediately for new entities created or acquired after
February 1, 2003. The Company has no interest in any entities created nor did it
acquire any entities after February 1, 2003. In December 2003, the FASB
published a revision to FIN 46 ("FIN 46R") to clarify some of the provisions of
the interpretation and defer the effective date of implementation for certain
entities. Under the guidance of FIN 46R, entities that do not have interests in
structures that are commonly referred to as special purpose entities are
required to apply the provisions of the interpretation in financial statements
for periods ending after March 14, 2004. Management believes that FIN 46R does
not have a material impact to the Company.

     In November 2003, the Emerging Issues Task Force (EITF) of the FASB issued
its codifying pronouncement Accounting for Claims-Made Insurance and Retroactive
Insurance Contracts ("EITF No. 03-8"). EITF No. 03-8 codified previously issued
authoritative accounting guidance in the area of insurance contracts and related
activity thereto. The Company had previously offset in its consolidated balance
sheets its liability for known and incurred but not reported professional
liability losses with a corresponding receivable for such estimated losses from
its commercial insurance companies under policies in effect for such periods.
Such prior accounting treatment was pursuant to the AICPA's "Audit and
Accounting Guide for Health Care Organizations". EITF No. 03-8 concluded that,
under circumstances such as in the Company's insured professional liability
policies, since a right of legal offset does not exist due to the fact that
there are three parties to an incurred claim, (the insured, the insurer and the
claimant), the related liability should be classified separately on a gross
basis with a separate related receivable recognized as being due from insurance
carriers. Accordingly, the Company's consolidated balance sheet as of December
31, 2003, reflects the provisions of EITF 03-8 and the corresponding liability
and receivable previously netted to zero in the Company's consolidated balance
sheet for 2002 has been reclassified.

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.

                                        43
<PAGE>

     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.

     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, 2003, the fair value of the Company's total debt, which has
a carrying value of $299.4 million, was approximately $306.8 million. The
Company had $199.4 million of variable debt outstanding at December 31, 2003. If
the market interest rates for the Company's variable rate borrowings averaged 1%
more during the twelve months subsequent to December 31, 2003, the Company's
interest expense would increase, and earnings before income taxes would
decrease, by approximately $1.7 million. This analysis does not consider the
effects of the reduced level of overall economic activity that could exist in
such an environment. Further, in the event of a change of such magnitude,
management could take actions to further mitigate its exposure to the change.
However, due to the uncertainty of the specific actions that would be taken and
their possible effects, the sensitivity analysis assumes no changes in the
Company's financial structure.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The financial statements and schedules are listed in Part IV Item 15 of
this Form 10-K.

                                        44
<PAGE>

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

     None.

ITEM 9A.  CONTROLS AND PROCEDURES.

     As of the end of the period covered by this Annual Report on Form 10-K
Equivalent, the effectiveness of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities
Exchange Act of 1934) was evaluated by our management, with the participation of
our Chief Executive Officer, H. Lynn Massingale, M.D. (principal executive
officer), and our Executive Vice President Finance and Administration, Robert J.
Abramowski (principal financial officer). Dr. Massingale and Mr. Abramowski have
concluded that our disclosure controls and procedures are effective, as of the
end of the period covered by this Report.

     There were no changes in our internal control over financial reporting that
occurred during our last fiscal quarter (the quarter ended December 31, 2003)
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.

                                    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..................   51    President, Chief Executive Officer and
                                               Director
Michael L. Hatcher....................   53    Chief Operating Officer -- Specialty
                                               Services
Robert J. Abramowski..................   53    Executive Vice President, Finance and
                                               Administration
Robert C. Joyner......................   56    Executive Vice President, General
                                               Counsel
Stephen Sherlin.......................   58    Executive Vice President, Billing and
                                               Reimbursement
David P. Jones........................   36    Chief Financial Officer
Nicholas W. Alexos....................   40    Director
Dana J. O'Brien.......................   48    Director
Glenn A. Davenport....................   50    Director
Earl P. Holland.......................   58    Director
Kenneth W. O'Keefe....................   37    Director
Timothy P. Sullivan...................   45    Director
</Table>

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

* As of February 24, 2004

     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.

                                        45
<PAGE>

     MICHAEL L. HATCHER joined Team Health in 1990 and since May 1, 2003 serves
as Chief Operating Officer -- Specialty Services. Previously, Mr. Hatcher held
the position of Chief Operating Officer for all of the Company's operations. Mr.
Hatcher received a B.S. from the University of Tennessee and an M.B.A. from
Vanderbilt University. Mr. Hatcher has resigned as an officer of the Company
effective February 29, 2004.

     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
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, Health Care
Financial Services 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.

     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, National Mentor, Inc. and Valitas Healthcare Services, Inc. Mr. Alexos
received a B.B.A. from Loyola University and an M.B.A. from the University of
Chicago Graduate School of Business.

     DANA J. O'BRIEN became a director in 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.

                                        46
<PAGE>

     EARL P. HOLLAND became a director of the Company in 2001. Mr. Holland has
over 32 years of experience working in the healthcare industry. Prior to his
retirement in January, 2001, Mr. Holland held several positions with Health
Management Associates, including the positions of Vice President and Chief
Operating Officer at the time of his retirement. 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 Valitas Healthcare Services, Inc., Same Day
Surgery, LLC, Seacoast Technologies, Inc. and PerfectServe, Inc. Mr. O'Keefe
received a B.A. from Northwestern University and an M.B.A. from the University
of Chicago Graduate School of Business.

     TIMOTHY P. SULLIVAN became a director in 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, in addition
to Team Health, currently serves on the Boards of Directors of Milnot Holding
Corporation, National Mentor, Inc. and Valitas 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.

CODE OF ETHICS

     Information regarding our code of ethics (Team Health, Inc. Code of Ethics)
applicable to our principal executive officer, our principal financial officer,
our controller and other senior financial officers is attached as exhibit 14 to
this Annual Report on Form 10-K or is available to any person upon request by
calling (865) 293-5205.

                                        47
<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 2003 of those
persons who served as

          (1) the chief executive officer during 2003 and

          (2) our other four most highly compensated executive officers for 2003
     (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. ....   2003   $516,566   $164,497          --      $    --     $ 76,815(3)     $757,878
  President and Chief        2002    418,022    206,813      45,000       75,000       78,222(3)      778,057
  Executive Officer          2001    412,000    206,929          --           --       81,700(3)      700,629

Michael L. Hatcher*.......   2003    324,236     84,204          --           --       26,515(4)      434,955
  Chief Operating
     Officer --              2002    270,652    106,509      22,500       25,000       24,649(4)      426,810
  Speciality Services        2001    262,998    103,464          --           --       26,076(4)      392,538

Robert J. Abramowski......   2003    289,913     64,998          --           --       15,247(5)      370,158
  Executive Vice President,  2002    288,325     95,597          --       50,000        9,295(5)      443,217
  Finance and
     Administration          2001    282,989     21,000          --           --      129,042(5)      433,031

Stephen Sherlin...........   2003    236,385     70,679          --           --       15,454(4)      322,518
  Executive Vice President,  2002    235,137     93,066       7,000       12,500       12,793(4)      353,496
  Billing and Reimbursement  2001    229,803     90,406          --           --       11,206(4)      331,415

Robert C. Joyner..........   2003    235,732     50,546          --           --       19,290(4)      305,568
  Executive Vice President,  2002    224,766     63,363       7,000       37,500       18,059(4)      343,688
  General Counsel            2001    203,189     55,871          --           --       16,048(4)      275,108
</Table>

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

* Mr. Hatcher has resigned his position with the Company effective February 29,
  2004.

(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 a successful acquisition.

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

<Table>
<Caption>
                                                   2003      2002      2001
                                                  -------   -------   -------
<S>                                               <C>       <C>       <C>
Life insurance..................................  $51,660   $46,210   $57,110
Other...........................................   25,155    32,012    24,590
</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, Mr. Sherlin and Mr. Joyner is less
    than 10% of their annual compensation each year.

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

                                        48
<PAGE>

<Table>
<Caption>
                                                    2003     2002      2001
                                                   ------   ------   --------
<S>                                                <C>      <C>      <C>
Moving expenses..................................  $   --   $   --   $122,123
Health insurance.................................   7,176    5,964      5,137
401(k) matching contribution.....................   5,500       --         --
Other............................................   2,571    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 2003, 2002, and 2001, Dr. Massingale was paid $1,500, $834,
and $1,918, 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

     No options were granted to the Named Executive Officers under the Team
Health Option Plan during 2003.

     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 2003. There were no options exercised during 2003.

<Table>
<Caption>
                                                               NUMBERS OF
                                                               SECURITIES
                                                               UNDERLYING
                                                               UNEXERCISED      VALUE OF UNEXERCISED
                                                            OPTIONS AT FISCAL   IN-THE-MONEY OPTIONS
                                                                YEAR END         AT 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       $     --/607,950
Michael L. Hatcher.....        --               $--               --/22,500       $     --/303,975
Stephen Sherlin........        --               $--            4,667/22,333       $ 63,046/249,244
Robert C. Joyner.......        --               $--            4,667/22,333       $ 63,046/249,244
Robert J. Abramowski...        --               $--           11,750/35,250       $158,743/476,228
</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, 2003. The fair market
    value of options under the Team Health, Inc. Stock Option Plan, as
    determined by the Company's Board of Directors, was $18.01 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. 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 2003, 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.

                                        49
<PAGE>

     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 based upon the achievement of certain financial
performance criteria. The base bonus pool is established as a percentage of the
employee's base salary. Adjustments to the base bonus pool can occur based upon
over or under performance against established financial targets. The maximum
performance against the target is 105%, which can result in an upward adjustment
to the base bonus pool to 150%. The minimum performance against the target is
95%, which can result in a downward adjustment to the base bonus pool of 50%.
Financial performance between the maximum and minimum targets results in a
linear adjustment to the base bonus pool. The annual base salaries as of
December 31, 2003 and the base bonus that can be earned by each of the named
Executive officers is as follows:

<Table>
<Caption>
                                                                ANNUAL       BASE
                                                              BASE SALARY   BONUS %
                                                              -----------   -------
<S>                                                           <C>           <C>
Lynn Massingale, M.D. ......................................   $500,000       65%
Michael L. Hatcher..........................................    315,000       65%
Stephen Sherlin.............................................    246,385       50%
Robert C. Joyner............................................    240,000       50%
Robert J. Abramowski........................................    319,884       50%
</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.

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.

                                        50
<PAGE>

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 92.6% of our outstanding common stock and voting
interests and 94.9% of our outstanding preferred stock. Pacific Physician
Services, Inc., a subsidiary of Caremark, Rx, Inc. owns the remaining 7.4% of
our outstanding common stock and voting interests and the remaining 5.1% of our
outstanding preferred stock. Pacific Physician Services, Inc. can be reached in
care of Caremark Rx, Inc. at 2111 Commerce Street, Suite 800, Nashville,
Tennessee 37201. 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.

<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%            38.3%           38.3%
  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%            38.3%           38.3%
  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%             8.6%            8.6%
  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%            14.8%           14.8%
</Table>

                                        51
<PAGE>

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 Pacific
Physician Services, Inc., a wholly owned subsidiary of Caremark Rx, Inc.
formerly known as MedPartners, Inc. ("Medpartners"). The recapitalization
agreement contains customary provisions for such agreements, including the
execution of a registration rights agreement and a stockholders agreement.

ACQUISITION

     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 Pacific 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.

                                        52
<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 Pacific 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

                                        53
<PAGE>

distributions, whether in cash, property or securities of Team Health Holdings
at any time or from time to time in the following order of priority:

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

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

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

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

OTHER RELATED PARTY TRANSACTIONS

     We lease office space for our corporate headquarters from Winston Road
Properties, an entity that is owned 50% by Park Med Properties. Two of our
executive officers, Dr. Massingale and Mr. Hatcher, each own 20% of Park Med
Properties. We paid $658,945 in 2003 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 2003, the consolidated affiliate paid $76,156 to Park Med
Properties in connection with the lease agreement.

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

     Aggregate fees recognized by the Company during the fiscal years ending
December 31, 2003 and 2002 by its principal accounting firm, Ernst and Young,
LLP, are set forth below. The Audit Committee of the Company's Board of
Directors has considered whether the provision of the non-audit services
described below is compatible with maintaining the principal accountant's
independence.

<Table>
<Caption>
                                                                2003       2002
                                                              --------   --------
<S>                                                           <C>        <C>
Audit Fees(1)...............................................  $257,750   $250,942
Audit Related Fees(2).......................................        --         --
Tax Fees(3).................................................   342,439    250,131
All other Fees(4)...........................................     1,600    385,446
                                                              --------   --------
Total aggregate fees billed.................................  $601,789   $886,519
                                                              ========   ========
</Table>

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

(1) Includes the aggregate fees recognized in each of the last two fiscal years
    for professional services rendered by Ernst & Young, LLP for the audit of
    the Company's annual financial statements and the review of financial
    statements included in Form 10-Q. The fees are for services that are
    normally provided by Ernst & Young, LLP in connection with statutory or
    regulatory filings or engagements.

(2) There were no aggregate fees billed in each of the last two fiscal years for
    assurance and related services by Ernst & Young, LLP that are reasonably
    related to the performance of the audit or review of the Company's financial
    statements.

(3) Includes the aggregate fees recognized in each of the last two fiscal years
    for professional services rendered by Ernst & Young, LLP for tax compliance,
    tax advice, and tax planning.

(4) Includes the aggregate fees recognized in each of the last two fiscal years
    for products and services provided by Ernst & Young, LLP, other than those
    services described above. Services in this category include due diligence
    related to an acquisition.

                                        54
<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

     During the quarter ended September 30, 2003, the Company filed a Report on
Form 8-K under Item 12, dated August 11, 2003 relating to the announcement of
its earnings for the second quarter of 2003.

     During the quarter ended December 31, 2003, the Company filed a Report on
Form 8-K under Item 12, dated November 7, 2003 related to the announcement of
its earnings for the third quarter of 2003.

     (c) EXHIBITS

     See Exhibit Index.

                                        55
<PAGE>

                               TEAM HEALTH, INC.

                       CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

                                    CONTENTS

<Table>
<Caption>

<S>                                                            <C>
Report of Independent Auditors..............................    57
Consolidated Balance Sheets.................................    58
Consolidated Statements of Operations.......................    59
Consolidated Statements of Stockholders' Equity (Deficit)
  and Comprehensive Earnings................................    60
Consolidated Statements of Cash Flows.......................    61
Notes to the Consolidated Financial Statements..............    62
</Table>

                                        56
<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, 2003 and 2002, 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, 2003. 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, 2003 and 2002, and the consolidated results of operations
and cash flows for each of the three years in the period ended December 31,
2003, 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 2 to the financial statements, in 2002 the Company
changed its method of accounting for goodwill.

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

Nashville, Tennessee
February 6, 2004

                                        57
<PAGE>

                               TEAM HEALTH, INC.

                          CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>
                                                                     DECEMBER 31,
                                                              --------------------------
                                                                  2003          2002
                                                              ------------   -----------
                                                              (IN THOUSANDS, EXCEPT PER
                                                                     SHARE DATA)
<S>                                                           <C>            <C>
ASSETS
CURRENT ASSETS:
  Cash and cash equivalents.................................   $ 100,964      $ 47,789
  Accounts receivable, less allowance for uncollectibles of
     $120,653 and $109,156 in 2003 and 2002, respectively...     167,957       156,449
  Prepaid expenses and other current assets.................       4,243         9,956
  Receivables under insured programs........................      62,527        66,968
  Income tax receivables....................................          --         1,074
                                                               ---------      --------
Total current assets........................................     335,691       282,236
Property and equipment, net.................................      19,967        19,993
Other Intangibles, net......................................      16,990        28,068
Goodwill....................................................     167,665       164,188
Deferred income taxes.......................................      96,881        64,282
Receivables under insured programs..........................      60,697        96,175
Other.......................................................      33,158        19,298
                                                               ---------      --------
                                                               $ 731,049      $674,240
                                                               =========      ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
  STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
     Accounts payable.......................................   $  15,169      $ 13,895
     Accrued compensation and physician payable.............      76,557        65,697
     Other accrued liabilities..............................      82,876       111,945
     Income taxes payable...................................       9,948            --
     Current maturities of long-term debt...................      43,528        20,125
     Deferred income taxes..................................      20,884           411
                                                               ---------      --------
Total current liabilities...................................     248,962       212,073
Long-term debt, less current maturities.....................     255,887       300,375
Other non-current liabilities...............................     182,557       114,819
Mandatory redeemable preferred stock........................     158,846       144,405
Commitments and Contingencies
Common Stock, $0.01 par value 12,000 shares authorized,
  10,068 shares issued in 2003 and 2002.....................         101           101
Additional paid in capital..................................         703           644
Retained earnings (deficit).................................    (113,813)      (96,562)
Less treasury shares at cost................................      (1,045)           --
Accumulated other comprehensive loss........................      (1,149)       (1,615)
                                                               ---------      --------
                                                               $ 731,049      $674,240
                                                               =========      ========
</Table>

        See accompanying notes to the consolidated financial statements.

                                        58
<PAGE>

                               TEAM HEALTH, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<Table>
<Caption>
                                                                 YEAR ENDED DECEMBER 31,
                                                            ----------------------------------
                                                               2003         2002        2001
                                                            ----------   ----------   --------
                                                                      (IN THOUSANDS)
<S>                                                         <C>          <C>          <C>
Net revenue...............................................  $1,479,013   $1,230,703   $965,285
Provision for uncollectibles..............................     479,267      396,605    336,218
                                                            ----------   ----------   --------
  Net revenue less provision for uncollectibles...........     999,746      834,098    629,067
Cost of services rendered
  Professional service expenses...........................     746,409      635,573    493,380
  Professional liability costs............................     115,970       36,992     29,774
                                                            ----------   ----------   --------
     Gross profit.........................................     137,367      161,533    105,913
General and administrative expenses.......................      95,554       81,744     63,998
Management fee and other expenses.........................         505          527        649
Impairment of intangibles.................................         168        2,322      4,137
Depreciation and amortization.............................      22,018       20,015     14,978
Interest expense, net.....................................      23,343       23,906     22,739
Refinancing costs.........................................          --        3,389         --
                                                            ----------   ----------   --------
     Earnings (loss) before income taxes and cumulative
       effect of change in accounting principle...........      (4,221)      29,630       (588)
Provision (benefit) for income taxes......................      (1,410)      13,198        871
                                                            ----------   ----------   --------
Earnings (loss) before cumulative effect of change in
  accounting principle....................................      (2,811)      16,432     (1,459)
Cumulative effect of change in accounting principle, net
  of income tax benefit of $209...........................          --         (294)        --
                                                            ----------   ----------   --------
Net earnings (loss).......................................      (2,811)      16,138     (1,459)
Dividends on preferred stock..............................      14,440       13,129     11,889
                                                            ----------   ----------   --------
     Net earnings (loss) attributable to common
       stockholders.......................................  $  (17,251)  $    3,009   $(13,348)
                                                            ==========   ==========   ========
</Table>

        See accompanying notes to the consolidated financial statements.
                                        59
<PAGE>

                               TEAM HEALTH, INC.

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

<Table>
<Caption>
                             COMMON STOCK      TREASURY STOCK    ADDITIONAL                   OTHER
                            ---------------   ----------------    PAID IN     RETAINED    COMPREHENSIVE
                            SHARES   AMOUNT   SHARES   AMOUNT     CAPITAL      DEFICIT        LOSS          TOTAL
                            ------   ------   ------   -------   ----------   ---------   -------------   ---------
                                                                (IN THOUSANDS)
<S>                         <C>      <C>      <C>      <C>       <C>          <C>         <C>             <C>
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)
                            ------    ----     ----    -------      ----      ---------      -------      ---------
  Net loss................      --      --                            --         (2,811)          --         (2,811)
  Other comprehensive
    loss, net of tax:
    Net change in fair
      value of swaps, net
      of tax of $286......      --      --       --         --        --             --          466            466
                            ------    ----     ----    -------      ----      ---------      -------      ---------
Total comprehensive
  earnings................                                                                                   (2,345)
Stock option activity.....       2      --       --         --        59             --           --             59
Treasury stock
  purchased...............      --      --     (150)    (1,045)       --             --           --         (1,045)
Dividends on preferred
  stock...................      --      --       --         --        --        (14,440)          --        (14,440)
                            ------    ----     ----    -------      ----      ---------      -------      ---------
BALANCE AT DECEMBER 31,
  2003....................  10,070    $101     (150)   $(1,045)     $703      $(113,813)     $(1,149)     $(115,203)
                            ======    ====     ====    =======      ====      =========      =======      =========
</Table>

        See accompanying notes to the consolidated financial statements.
                                        60
<PAGE>

                               TEAM HEALTH, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                                 YEAR ENDED DECEMBER 31,
                                                            ---------------------------------
                                                              2003        2002        2001
                                                            ---------   ---------   ---------
                                                                     (IN THOUSANDS)
<S>                                                         <C>         <C>         <C>
OPERATING ACTIVITIES
  Net earnings (loss).....................................  $  (2,811)  $  16,138   $  (1,459)
  Adjustments to reconcile net earnings (loss):
     Depreciation and amortization........................     22,018      20,015      14,978
     Amortization of deferred financing costs.............      1,446       1,583       1,852
     Write-off of deferred financing costs................         --       3,389          --
     Provision for uncollectibles.........................    479,267     396,605     336,218
     Impairment of intangibles............................        168       2,322       4,137
     Deferred income taxes................................    (13,967)      6,941      (1,767)
     Loss on sale of equipment............................          5          59         240
     Cumulative effect of change in accounting
       principle..........................................         --         294          --
     Equity in joint venture income.......................       (235)       (346)        (30)
     Changes in operating assets and liabilities, net of
       acquisitions:
       Accounts receivable................................   (490,392)   (407,319)   (308,289)
       Prepaids and other assets..........................      5,842      (4,847)        (15)
       Income tax receivables.............................     10,761       7,797         (75)
       Receivables under insured programs.................     39,918     (24,388)     (9,384)
       Accounts payable...................................      1,287      (3,785)     (2,260)
       Accrued compensation and physician payable.........     11,907       4,806       4,101
       Other accrued liabilities..........................       (643)      2,797      (3,421)
       Professional liability reserves....................     37,170      30,419      14,911
                                                            ---------   ---------   ---------
Net cash provided by operating activities.................    101,741      52,480      49,737
INVESTING ACTIVITIES
  Purchases of property and equipment.....................     (8,972)     (9,796)     (5,955)
  Sale of property and equipment..........................          1          31         170
  Cash paid for acquisitions, net.........................     (2,472)   (165,722)    (16,162)
  Other investing activities..............................    (14,836)        725        (879)
                                                            ---------   ---------   ---------
Net cash used in investing activities.....................    (26,279)   (174,762)    (22,826)
FINANCING ACTIVITIES
  Payments on notes payable...............................    (21,085)   (121,800)    (11,901)
  Proceeds from notes payable.............................         --     225,000          --
  Payments of deferred financing costs....................       (278)     (5,226)       (231)
  Proceeds from sales of common stock.....................          2         644          --
  Proceeds from sales of preferred stock..................         --       1,270          --
  Purchase of treasury shares.............................       (926)         --          --
                                                            ---------   ---------   ---------
Net cash provided by (used in) financing activities.......    (22,287)     99,888     (12,132)
                                                            ---------   ---------   ---------
Increase (decrease) in cash and cash equivalents..........     53,175     (22,394)     14,779
Cash and cash equivalents, beginning of year..............     47,789      70,183      55,404
                                                            ---------   ---------   ---------
Cash and cash equivalents, end of year....................  $ 100,964   $  47,789   $  70,183
                                                            =========   =========   =========
Supplemental cash flow information:
Interest paid.............................................  $  23,365   $  22,404   $  24,260
                                                            =========   =========   =========
Taxes paid................................................  $   2,557   $   7,864   $   9,129
                                                            =========   =========   =========
</Table>

        See accompanying notes to the consolidated financial statements.
                                        61
<PAGE>

                               TEAM HEALTH, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2003

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 92.6% 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. 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 payers, 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, payers, 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 4.6% of the Company's consolidated
accounts receivable as of December 31, 2003.

                                        62
<PAGE>
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     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 ranged from twenty months to seven years in 2003.

     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>
                                                               2003      2002
                                                              -------   -------
<S>                                                           <C>       <C>
Deferred financing costs....................................  $11,333   $11,055
Less accumulated amortization...............................   (4,859)   (3,414)
                                                              -------   -------
                                                              $ 6,474   $ 7,641
                                                              =======   =======
</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

                                        63
<PAGE>
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

healthcare practitioners. In addition, the Company has claims-made coverage on a
per incident and annual aggregate limit for all corporate entities.

     Effective March 12, 2003, the Company began providing for its professional
liability losses principally under a program of self-insurance, including the
use of a wholly owned captive insurance company. The Company's estimated losses
under the self-insurance program are determined using periodic actuarial
estimates of losses and related expenses, adjusted on an interim basis for
actual physician hours worked and loss development trends. Any differences
between amounts previously recorded and the results of updated actuarial studies
of prior periods are recorded in the period when such differences are known.

     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.

     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
2003 the fair value of interest rate swaps, net of tax, increased approximately
$0.5 million. In 2002, the fair value, net of tax decreased approximately $1.6
million. In both years the change in fair value 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 payers. 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

                                        64
<PAGE>
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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
payer 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 payer 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 19%, 20%, and 25% of total net revenue less provision
for uncollectibles in years 2003, 2002 and 2001, 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 approximately 23%
and 15% in 2003 and 2002, respectively, primarily resulting from an acquisition
in 2002 (see Note 3).

     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, had the nonamortization of goodwill been in effect for such
year, would have been an increase in previously reported net earnings of
approximately $2.0 million.

     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
                                        65
<PAGE>
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 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 12, the Company has
adopted the disclosure requirements of SFAS No. 148 and the fair value
recognition provisions of SFAS 123, Accounting for Stock-Based Compensation,
prospectively for all new awards granted to employees after January 1, 2003.

     In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150
requires that certain financial instruments, which under previous guidance were
accounted for as equity-type instruments, must now be accounted for as
liabilities. The financial instruments affected include mandatory redeemable
stock, certain financial instruments that require or may require the issuer to
buy back some of its shares in exchange for cash or other assets and certain
obligations that can be settled with shares of stock. The Company's mandatory
redeemable preferred stock is subject to the provisions of this statement. In
addition, dividends on its redeemable preferred stock will be required to be
included in interest expense in the Company's statements of operations. The
provisions of SFAS No. 150 are applicable to the Company's financial statements
beginning in 2005. The Company does not expect the adoption of SFAS No. 150 to
have a material effect on the results of its operations or financial condition.

     In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities. FIN 46 provides guidance on how to
identify a variable interest entity (VIE) and determine when the assets,
liabilities, non-controlling interests, and results of operations of a VIE are
to be included in an entity's consolidated financial statements. A VIE exists
when either the total equity investment at risk is not sufficient to permit the
entity to finance its activities by itself, or the equity investors lack one of
three characteristics

                                        66
<PAGE>
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

associated with owning a controlling financial interest. Those characteristics
include the direct or indirect ability to make decisions about an entity's
activities through voting rights or similar rights, the obligation to absorb the
expected losses of an entity if they occur, and the right to receive the
expected residual returns of the entity if they occur.

     FIN 46 was effective immediately for new entities created or acquired after
February 1, 2003. The Company has no interest in any entities created nor did it
acquire any entities after February 1, 2003. In December 2003, the FASB
published a revision to FIN 46 ("FIN 46R") to clarify some of the provisions of
the interpretation and defer the effective date of implementation for certain
entities. Under the guidance of FIN 46R, entities that do not have interests in
structures that are commonly referred to as special purpose entities are
required to apply the provisions of the interpretation in financial statements
for periods ending after March 14, 2004. Management believes that FIN 46R does
have a material impact to the Company.

     In November 2003, the Emerging Issues Task Force (EITF) of the FASB issued
its codifying pronouncement "Accounting for Claims-Made Insurance and
Retroactive Insurance Contracts" ("EITF No. 03-8"). EITF No. 03-8 codified
previously issued authoritative accounting guidance in the area of insurance
contracts and related activity thereto. The Company had previously offset in its
consolidated balance sheets its liability for known and incurred but not
reported professional liability losses with a corresponding receivable for such
estimated losses from its commercial insurance companies under policies in
effect for such periods. Such prior accounting treatment was pursuant to
industry practice under the interpretative guidance under the AICPA's "Audit and
Accounting Guide for Health Care Organizations". EITF No. 03-8 concluded that,
under circumstances such as in the Company's insured professional liability
policies, since a right of legal offset does not exist due to the fact that
there are three parties to an incurred claim, (the insured, the insurer and the
claimant), the related liability should be classified separately on a gross
basis with a separate related receivable recognized as being due from insurance
carriers. Accordingly, the Company's consolidated balance sheet as of December
31, 2003, reflects the provisions of EITF 03-8 and the corresponding liability
and receivable previously netted to zero in the Company's consolidated balance
sheet for 2002 has been reclassified.

     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 December 31, 2003, the Company acquired all of the outstanding
stock of a corporation that provides hospital physician staffing services under
two contracts at locations in Ohio. The purchase price for the acquired
corporation was $1.6 million, including $0.1 million which was paid in cash on
December 31, 2003 and the remaining $1.5 million paid in January 2004. The
Company may have to make up to an additional $0.9 million in future payments if
targeted future earnings are achieved.

     During 2003, the Company made payments of approximately $0.7 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 2003 was approximately $3.3 million including $2.5
million that is not deductible for tax purposes. Amounts allocated to such
intangibles are being amortized over their estimated life which is seven years.

     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
                                        67
<PAGE>
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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"). 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 expanded the Company's base of business by providing an
entry into a portion of the healthcare staffing market not previously served by
the Company The Company acquired 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. The total purchase price for SHR was paid
in cash and totaled approximately $145.4 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.

     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 several 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 $2.5 million in future contingent payments
relating to this acquisition. 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 $3.1 million in future contingent payments for the existing
business operations if targeted future earnings levels are achieved.

     The Company acquired the assets of a diagnostic imaging center in February
2001 for $1.4 million. Effective March 1, 2001, the Company acquired all of the
outstanding stock of an emergency staffing company

                                        68
<PAGE>
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

for $1.5 million. Effective August 1, 2001, the Company acquired all of the
outstanding shares of Integrated Specialists Management Services, Inc. ("ISMS"),
a provider of anesthesiologist practice management services, for cash of $8.5
million.

     The following schedule summarizes investing activities related to
acquisitions and contingent payments included in the consolidated statements of
cash flows for 2003, 2002 and 2001, respectively, (in thousands):

<Table>
<Caption>
                                                          2003       2002      2001
                                                         -------   --------   -------
<S>                                                      <C>       <C>        <C>
Fair value of net operating assets acquired
  (liabilities assumed)................................  $(3,116)  $  3,676   $(1,522)
Fair value of contracts acquired.......................    2,110     21,510     4,380
Goodwill...............................................    3,478    140,536    13,304
                                                         -------   --------   -------
Cash paid for acquisitions, net........................  $ 2,472   $165,722   $16,162
                                                         =======   ========   =======
</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.

4. OTHER INTANGIBLE ASSETS

     The following is a summary of other intangible assets and related
amortization as of December 31, 2003 and 2002 for intangibles that are subject
to amortization (in thousands):

<Table>
<Caption>
                                                             GROSS CARRYING   ACCUMULATED
                                                                 AMOUNT       AMORTIZATION
                                                             --------------   ------------
<S>                                                          <C>              <C>
As of December 31, 2003:
  Contracts................................................     $35,614         $18,898
  Other....................................................         448             174
                                                                -------         -------
     Total.................................................     $36,062         $19,072
                                                                =======         =======
As of December 31, 2002:
  Contracts................................................     $46,763         $19,015
  Other....................................................         685             365
                                                                -------         -------
     Total.................................................     $47,448         $19,380
                                                                =======         =======
</Table>

     Total amortization expense for intangibles that continues to be amortized
following the implementation of SFAS No. 142 on January 1, 2002 was $10.6
million, and $4.8 million for the years 2003 and 2002, respectively. The
estimated annual amortization expense for intangibles for the next five years is
as follows (in thousands):

<Table>
<S>                                                            <C>
2004........................................................   $5,366
2005........................................................    4,147
2006........................................................    2,582
2007........................................................    2,151
2008........................................................    1,798
</Table>

     During 2003 and 2002, the Company recorded an additional $3.5 million and
$140.5 million of goodwill and $2.1 million and $21.5 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 amortized over their estimated lives which range from
approximately twenty months to seven years.

                                        69
<PAGE>
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     During 2003 and 2002, the Company recorded as an impairment loss $0.2
million and $2.3 million, respectively, to reduce its contract intangibles to
their estimated fair value. The impairment losses recorded in 2003 and 2002 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>
                                                                2003       2002
                                                              --------   --------
<S>                                                           <C>        <C>
Buildings and leasehold improvements........................  $  4,885   $  3,428
Furniture and equipment.....................................    30,280     27,478
Software....................................................     8,824     11,411
                                                              --------   --------
                                                                43,989     42,317
Less accumulated depreciation...............................   (24,022)   (22,324)
                                                              --------   --------
                                                              $ 19,967   $ 19,993
                                                              ========   ========
</Table>

     Depreciation expense in 2003, 2002 and 2001 was approximately $9.0 million,
$9.4 million and $8.1 million, respectively.

6. RECEIVABLES UNDER INSURED PROGRAMS

     Receivables under insured programs represent the portion of the Company's
reserves for professional liability losses estimated to be reimbursable under
commercial insurance company policies.

7. OTHER ACCRUED LIABILITIES

     The Company's other accrued liabilities at December 31 consist of the
following (in thousands):

<Table>
<Caption>
                                                               2003       2002
                                                              -------   --------
<S>                                                           <C>       <C>
Professional liability loss reserves........................  $66,136   $ 66,968
Accrued insurance premium...................................       --     29,553
Other.......................................................   16,740     15,424
                                                              -------   --------
                                                              $82,876   $111,945
                                                              =======   ========
</Table>

8. LONG-TERM DEBT

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

<Table>
<Caption>
                                                                2003       2002
                                                              --------   --------
<S>                                                           <C>        <C>
Term Loan Facility..........................................  $199,415   $220,500
12% Senior Subordinated Notes...............................   100,000    100,000
                                                              --------   --------
                                                               299,415    320,500
Less current portion........................................   (43,528)   (20,125)
                                                              --------   --------
                                                              $255,887   $300,375
                                                              ========   ========
</Table>

                                        70
<PAGE>
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The Term Loan Facilities consist of the following (in thousands):

<Table>
<Caption>
                                                                2003       2002
                                                              --------   --------
<S>                                                           <C>        <C>
Senior Secured Term Loan A..................................  $ 56,478   $ 70,500
Senior Secured Term Loan B..................................   142,937    150,000
                                                              --------   --------
                                                              $199,415   $220,500
                                                              ========   ========
</Table>

     The interest rates for any senior revolving credit facility borrowings and
for the Term Loan A amounts are based on a grid which is based on the
consolidated ratio of total funded debt to earnings before interest, taxes,
depreciation and amortization, all as defined in the credit agreement. The
interest rate on any Term Loan B amount outstanding is equal to the eurodollar
rate plus 3.25% or the agent bank's base rate plus 1.25%. In the event of a
default by the Company under its bank loan covenants, such interest rates would
increase by 2% over the current rates then in effect. Upon expiration of the
current interest rate period, the Company would have to pay the agent bank's
base rates plus 2% plus the maximum applicable margin. Under the bank's base
rate borrowing base, the maximum applicable margin for the senior revolving
credit facility borrowings and Term Loan A amounts is 1.0% and for the Term Loan
B amounts is 1.25%.

     The interest rates at December 31, 2003 were 3.719% and 4.469% 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, 2003. No funds have been borrowed under the revolving credit
facility as of December 31, 2003, but the Company had $2.6 million of standby
letters of credit outstanding against the revolving credit facility commitment.
The Company has a forward interest rate swap agreement that became 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 $27.9 million
for fiscal 2003 by April 30, 2004. The estimated excess cash flow payment has
been included within current maturities of long-term debt in the accompanying
balance sheet at December 31, 2003.

                                        71
<PAGE>
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Aggregate annual maturities of long-term debt as of December 31, 2003 are
as follows (in thousands):

<Table>
<S>                                                            <C>
2004........................................................   $ 43,528
2005........................................................     19,550
2006........................................................     20,809
2007........................................................      6,300
2008........................................................    109,228
Thereafter..................................................    100,000
                                                               --------
                                                               $299,415
                                                               ========
</Table>

     The Company expensed deferred financing costs of approximately $3.4 million
related to its previously outstanding bank debt in 2002.

9.   OTHER NONCURRENT LIABILITIES

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

<Table>
<Caption>
                                                                2003       2002
                                                              --------   --------
<S>                                                           <C>        <C>
Professional liability loss reserves........................  $165,798   $ 98,244
Deferred compensation.......................................    12,626     11,449
Other.......................................................     4,133      5,126
                                                              --------   --------
                                                              $182,557   $114,819
                                                              ========   ========
</Table>

     The Company's professional liability loss reserves at December 31 consist
of the following (in thousands):

<Table>
<Caption>
                                                                2003       2002
                                                              --------   --------
<S>                                                           <C>        <C>
Estimated losses under self-insured programs................  $108,710   $  2,069
Estimated losses under commercial insurance programs........   123,224    163,143
                                                              --------   --------
                                                               231,934    165,212
Less -- estimated amount payable within one year............    66,136     66,968
                                                              --------   --------
                                                              $165,798   $ 98,244
                                                              ========   ========
</Table>

     The Company provides for its estimated professional liability losses
through a combination of commercial insurance company coverage as well as
reserves established to provide for future payments under self-insured retention
components and to establish reserves for future claims incurred but not
reported. During the period March 12, 1999 through March 11, 2003, the primary
source of the Company's coverage for such risks was a professional liability
insurance policy provided through one insurance carrier. The policy with the
Company's primary insurance carrier for such coverage and period provided
coverage for potential liabilities on a "claims-made" basis. The policy included
the ability for the Company to be able to exercise a "tail" premium option. The
tail premium option included an aggregate limit of $130.0 million during the
period March 12, 1999 to March 11, 2003. As a result of conditions in the
professional liability insurance market, the Company decided that it would
provide, beginning March 12, 2003, for such risks previously covered by the
Company's primary insurance carrier through a captive insurance company. Since
March 12, 2003, loss estimates on a "claims-made" basis are being provided for
and funded within the captive insurance company. Additionally, the Company is
providing for an actuarial estimate of losses for professional liability claims
incurred but not reported since March 12, 2003.

                                        72
<PAGE>
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The option for the tail premium was exercised by the Company effective
March 11, 2003, and its cost of approximately $30.6 million, was paid in April
2003. The Company had previously recorded the cost of such option over the
four-year period ended March 11, 2003.

     The Company's decision to forego commercial professional liability
insurance in favor of a self-insured program was, in part, based on the results
of an actuarial study. The actuarial study was prepared to provide the Company
with an actuarial estimate of the current annual cost of its professional
liability claim losses and related expenses and also to estimate the Company's
potential exposure to prior period losses under the $130.0 million aggregate
policy limit. The foregoing actuarial study included numerous underlying
estimates and assumptions, including assumptions as to future claim losses, the
severity and frequency of such projected losses, loss development factors, and
others. The results of the actuarial study included a projection that the
Company would incur a loss resulting from claims for the covered periods
exceeding the $130.0 million aggregate insurance company loss limit under the
previous policy. Such loss estimate, discounted at 4% over the projected future
payment periods, totaled $50.8 million and is reflected in the Company's
statement of operations for 2003.

     The Company's provisions for losses subsequent to March 11, 2003, that are
not covered by commercial insurance company coverage are subject to subsequent
adjustment should future actuarial projected results for such periods indicate
projected losses are greater or less than previously projected. In addition, the
results of future actuarial studies may result in the loss estimate provision
under the aggregate policy limit to be further adjusted upward or downward as
actuarial results are realized over time.

10. MANDATORY REDEEMABLE PREFERRED STOCK

     The Company as of December 31, 2003, 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, in
2002 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, 2003, approximately $58.5 million in cumulative
dividends has been accrued.

11. STOCKHOLDERS' EQUITY

     During 2003, the Company recorded the cost of acquiring 70,828 shares of
its common stock from members of its management at a total cost of $0.9 million.

     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.

12. 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.

     Effective January 1, 2003, the Company adopted the fair value recognition
provisions of SFAS No. 123, Accounting for Stock-Based Compensation,
prospectively to all new awards granted to employees after January 1, 2003.
Prior to January 1, 2003, the Company applied the recognition and measurement
provisions
                                        73
<PAGE>
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related
Interpretations in accounting for options awarded. No stock-based employee
compensation expense is reflected in net earnings for 2002 and 2001 as all
options granted prior to January 1, 2003 had an exercise price equal to the
market value of the underlying common stock on the date of grant. Therefore, the
expense related to stock-based employee compensation included in the
determination of net earnings (loss) for 2002 and 2001 is less than that which
would have been recognized if the fair value method had been applied to all
awards since adoption of the plan. The following table illustrates the effect on
net earnings (loss) if the fair value method had been applied to all outstanding
and unvested awards in each period (in thousands):

<Table>
<Caption>
                                                           YEAR ENDED DECEMBER 31,
                                                         ----------------------------
                                                           2003      2002      2001
                                                         --------   ------   --------
<S>                                                      <C>        <C>      <C>
Net earnings (loss) attributable to common
  stockholders.........................................  $(17,251)  $3,009   $(13,348)
Add: stock-based employee compensation expense included
  in net earnings (loss) attributable to common
  stockholders, net of related tax effects.............        19        5          5
Deduct: Total stock-based employee compensation expense
  determined under fair value based method for all
  awards, net of related tax effects...................      (151)    (114)       (55)
                                                         --------   ------   --------
Pro forma net earnings (loss) attributable to common
  stockholders.........................................  $(17,383)  $2,900   $(13,398)
                                                         ========   ======   ========
</Table>

     Stock option activity during 2001, 2002 and 2003 was as follows (options in
thousands):

<Table>
<Caption>
                                                NUMBER OF                 WEIGHTED AVERAGE
                                                 OPTIONS    PRICE RANGE    EXERCISE PRICE
                                                ---------   -----------   ----------------
<S>                                             <C>         <C>           <C>
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
Granted.......................................      48            13.50        13.50
Exercised.....................................      (2)            1.50         1.50
Cancelled.....................................     (33)       1.50-4.50         2.00
                                                   ---      -----------        -----
Outstanding at December 31, 2003..............     863      $1.50-13.50        $6.34
                                                   ===      ===========        =====
</Table>

                                        74
<PAGE>
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following table summarizes information about stock options outstanding
at December 31, 2003 (options in thousands):

<Table>
<Caption>
                 WEIGHTED                    WEIGHTED AVERAGE
  OPTIONS        AVERAGE         OPTIONS        REMAINING
OUTSTANDING   EXERCISE PRICE   EXERCISABLE   CONTRACTUAL LIFE
-----------   --------------   -----------   ----------------
<S>           <C>              <C>           <C>
311....           $1.50            121             6.1
225....            4.50             27             7.4
279....           12.00             --             8.4
48.....           13.50             --             9.4
    ---           -----            ---             ---
863....           $6.34            148             7.4
    ===           =====            ===             ===
</Table>

     As of December 31, 2003, 2002 and 2001, there were 148,343, 161,532 and
69,513 shares that were vested and exercisable, respectively.

     Approximately 101,000 of the 862,900 options outstanding at December 31,
2003 were granted to affiliated independent contractor physicians in previous
years. The Company recorded $18,061 of compensation expense in 2003, and $9,000
in 2002 and 2001, 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 2003, 2002 and 2001:

<Table>
<Caption>
                                                                WEIGHTED
                                                                AVERAGE
                                                               FAIR VALUE
                                                               ----------
<S>                                                            <C>
2003........................................................     $4.45
2002........................................................     $2.60
2001........................................................     $1.74
</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% in 2003, 2002 and 2001; risk-free interest rate of 4.0%,
2.0% and 4.9% in 2003, 2002 and 2001, respectively; and an expected life of ten
years in 2003, 2002 and 2001

13. NET REVENUE

     Net revenue in 2003, 2002 and 2001, respectively, consisted of the
following (in thousands):

<Table>
<Caption>
                                                       2003         2002        2001
                                                    ----------   ----------   --------
<S>                                                 <C>          <C>          <C>
Fee for service revenue...........................  $1,040,996   $  907,596   $789,545
Contract revenue..................................     408,147      292,740    159,194
Other revenue.....................................      29,870       30,367     16,546
                                                    ----------   ----------   --------
                                                    $1,479,013   $1,230,703   $965,285
                                                    ==========   ==========   ========
</Table>

     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.

                                        75
<PAGE>
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

14. INCOME TAXES

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

<Table>
<Caption>
                                                           YEAR ENDED DECEMBER 31,
                                                         ----------------------------
                                                           2003      2002      2001
                                                         --------   -------   -------
<S>                                                      <C>        <C>       <C>
Current:
  Federal..............................................  $ 15,468   $ 4,336   $ 2,395
  State................................................     2,524     1,904       304
                                                         --------   -------   -------
                                                           17,992     6,240     2,699
Deferred:
  Federal..............................................   (17,699)    7,646    (1,593)
  State................................................    (1,703)     (688)     (235)
                                                         --------   -------   -------
                                                          (19,402)    6,958    (1,828)
                                                         --------   -------   -------
                                                         $ (1,410)  $13,198   $   871
                                                         ========   =======   =======
</Table>

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

<Table>
<Caption>
                                                               YEAR ENDED DECEMBER 31,
                                                              -------------------------
                                                               2003     2002     2001
                                                              ------    -----   -------
<S>                                                           <C>       <C>     <C>
Tax at statutory rate.......................................  (35.0)%   35.0%     35.0%
State income tax (net of federal tax benefit)...............   (1.0)     1.6     114.9
Change in valuation allowance...............................     --      3.3    (111.1)
Expenses not deductible for tax purposes....................    5.2      1.5     (64.3)
Other.......................................................   (2.6)     3.1    (122.6)
                                                              -----     ----    ------
                                                              (33.4)%   44.5%   (148.1)%
                                                              =====     ====    ======
</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):

<Table>
<Caption>
                                                              YEAR ENDED DECEMBER 31,
                                                              -----------------------
                                                                 2003         2002
                                                              ----------   ----------
<S>                                                           <C>          <C>
Current deferred tax assets:
  Accounts receivable.......................................   $ 12,890     $  5,993
  Accrued compensation and other............................      2,478        2,546
  Professional liability reserves...........................        865       10,140
                                                               --------     --------
     Total current deferred tax assets......................     16,233       18,679
                                                               --------     --------
Current deferred tax liabilities:
  Amortization of intangibles...............................         --       (2,720)
  Affiliate deferred revenue................................    (37,117)     (16,370)
                                                               --------     --------
     Total current deferred tax liabilities.................    (37,117)     (19,090)
                                                               --------     --------
Net current deferred tax liability..........................   $(20,884)    $   (411)
                                                               ========     ========
</Table>

                                        76
<PAGE>
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<Table>
<Caption>
                                                              YEAR ENDED DECEMBER 31,
                                                              -----------------------
                                                                 2003         2002
                                                              ----------   ----------
<S>                                                           <C>          <C>
Long term deferred tax assets:
  Accrued compensation and other............................   $  2,100     $  2,410
  Amortization and depreciation.............................     56,669       64,001
  Professional liability reserves...........................     41,378          798
  Net operating losses......................................      2,623        2,995
                                                               --------     --------
     Total long term deferred tax assets....................    102,770       70,204
                                                               --------     --------
Long term deferred tax liabilities:
  Other reserves............................................     (3,630)      (3,630)
  Valuation Allowance.......................................     (2,259)      (2,292)
                                                               --------     --------
Net long-term deferred tax asset............................   $ 96,881     $ 64,282
                                                               ========     ========
Total deferred tax assets...................................   $119,003     $ 88,883
Total deferred tax liabilities..............................    (40,747)     (22,720)
Valuation allowance.........................................     (2,259)      (2,292)
                                                               --------     --------
Net deferred tax assets.....................................   $ 75,997     $ 63,871
                                                               ========     ========
</Table>

     The Company as of December 31, 2003, had operating loss carryforwards in
various states that begin to expire in 2005 through 2015.

15. 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
$3.3 million in 2003 and $3.6 million in each of 2002 and 2001.

     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
provisions in 2003 and 2002 reflect the maximum discretionary provisions
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, 2003 and 2002 was approximately $12.9 million and $11.8
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, 2003 and 2002 of $8.6 million and $8.4 million, respectively.

                                        77
<PAGE>
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

16. 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, 2003 are as follows (in
thousands):

<Table>
<S>                                                            <C>
2004........................................................   $ 7,387
2005........................................................     7,295
2006........................................................     6,355
2007........................................................     5,330
2008........................................................     3,984
     Thereafter.............................................     2,840
                                                               -------
                                                               $33,191
                                                               =======
</Table>

     Operating lease costs were approximately $8.0 million, $7.3 million and
$5.4 million for the years ended December 31, 2003, 2002 and 2001, 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.

     INDEMNITY

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

                                        78
<PAGE>
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     CONTINGENT ACQUISITION PAYMENTS

     As of December 31, 2003, the Company may have to pay up to $9.2 million in
future contingent payments as additional consideration for acquisitions made
prior to December 31, 2003. 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.

     POTENTIAL TAX ASSESSMENT

     The Company had previously received a Notice of Proposed Adjustment (NOPA)
from the Internal Revenue Service (IRS) relating to audits of its federal
corporate income tax returns for 2000 and 2001. The IRS has asserted
deficiencies of taxable income in such tax returns in the total amount of $88.4
million plus interest on the resulting taxes due. In addition, the IRS is
asserting deficiencies of taxable income in tax returns for the years 2000 and
2001 for two affiliated professional corporations in the amount of $10.6
million.

     A NOPA had previously been received for the Company's tax returns for the
two affiliated professional corporations referenced above for 1999. The issue
asserted by the IRS for such year is identical to the issue being asserted for
the 2000 and 2001 tax returns, as well as with the position being asserted by
the IRS with respect to the Company's federal corporate tax returns for 2000 and
2001. The Company had filed a protest with the Office of the Regional Director
of Appeals in connection with the 1999 tax returns of the affiliated
professional corporations and in September 2003 received a verbal indication
that a favorable "no change" ruling with respect to the 1999 tax returns has
been concluded to by the Office. The Office of the Regional Director of Appeals
advised the Company in December 2003 that the original NOPA had been returned to
the originating IRS agent for reconsideration of the agent's original position.
The IRS agent subsequently made a decision to close the audits of the 1999 tax
returns of the two professional corporations with no adjustment to the amounts
originally reported by the Company.

     The Company believes that it has meritorious legal defenses to the
deficiencies asserted and believes that the ultimate outcome of the proposed
adjustments will not result in a material impact on the Company's consolidated
results of operation or financial position.

     TRICARE PROGRAM

     During 2003, the Company derived approximately $229.0 million of revenue
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. The Company 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
for the next generation of managed care support contracts, also known as the
"TRICARE Contracts". The intent of the TRICARE Contracts is to replace the
existing managed care support contracts on a phased-in basis between June and
November 2004. The TRICARE Contracts proposal provided for the awarding of prime
contracts to three managed care organizations to cover three distinct
geographical regions of the country. The award of the prime contracts was
announced in August 2003.

     The Department of Defense is currently in the process of determining how it
will procure the civilian positions that it will require going forward. Options
currently being discussed include "rolling-over" existing staffed positions with
existing providers, such as the Company, through the recently selected managed
care organizations, to terminating all existing contracts for staffed positions
and putting ongoing staffing needs of military treatment facilities out for
competitive bidding.

                                        79
<PAGE>
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The impact on the results of operations and financial condition of the
Company resulting from the changes in the TRICARE Contracts program are not
known or able to be estimated at this time. The Company has exclusive contracts
with two of the three future prime contractors for future resource sharing. In
the event the Department of Defense opts to allow for the rollover of existing
staffing, SHR expects to maintain and expand on the business that it currently
has in the West and North regions under the TRICARE Contracts. The Company does
not have a contract to provide staffing with the managed care organization that
has been awarded the South region under the TRICARE Contracts. In 2003, SHR
derived approximately $47.9 million of net revenue from staffing contracts
located in the South region. The Company expects that it will be able to pursue
direct service contracts with individual military treatment facilities in the
South region, as it currently provides staffing to numerous military treatment
facilities in the South region. The potential success and impact on the results
of operations of the Company in obtaining direct service contracts is not known
or able to be estimated at this time. Alternatively, if the Department of
Defense opts to terminate its existing staffing contracts and enter into a
competitive bidding process for such positions across all regions, the Company's
existing revenues and margins and financial condition may be materially
adversely affected.

17. 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 2003, $1.0 million in 2002
and $1.4 million in 2001.

     The Company had 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 in
2002 and $1.8 million in 2001.

18. FAIR VALUES OF FINANCIAL INSTRUMENTS

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

<Table>
<S>                                         <C>
Cash and cash equivalents:                  The carrying amount reported in the balance
                                            sheets for cash and cash equivalents
                                            approximates its fair value.
Accounts receivable:                        The carrying amount reported in the balance
                                            sheets for accounts receivable approximates its
                                            fair value.
Long-term debt:                             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 $299.4 million, is
                                            approximately $306.8 million.
Interest rate swap:                         The fair value of the Company's interest rate
                                            swap agreements is a liability of approximately
                                            $1.9 million at December 31, 2003 based on
                                            quoted market prices for similar interest rate
                                            contracts.
</Table>

                                        80
<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 February 24, 2004.

                                          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 February 24, 2004, 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

                                        81
<PAGE>

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

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

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

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

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

                                        82
<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>
2003.....................................   $109,156    $479,267    $ --     $467,770      $120,653
2002.....................................   $101,175    $396,605    $ --     $388,624      $109,156
2001.....................................   $106,819    $336,218    $ --     $341,862      $101,175
</Table>

                                        83
<PAGE>

                                 EXHIBIT INDEX

<Table>
<C>      <S>
 2.1     Recapitalization Agreement dated January 25, 1999 by and
         among Team Health, Inc., MedPartners, Inc., Pacific
         Physician Services, Inc. and Team Health Holdings, L.L.C.*
 3.1     Articles of Amendment to the Articles of Incorporation of
         Alliance Corporation dated January 15, 1997.*
 3.2     By-laws of Alliance Corporation.*
 3.3     Articles of Incorporation of Emergency Management
         Specialists, Inc. dated August 12, 1983.*
 3.4     By-laws of Emergency Management Specialists, Inc.*
 3.5     Articles of Incorporation of EMSA South Broward, Inc. dated
         December 3, 1996.*
 3.6     By-laws of EMSA South Broward, Inc.*
 3.7     Articles of Incorporation of Herschel Fischer, Inc. dated
         February 18, 1997.*
 3.8     By-laws of Herschel Fischer, Inc. dated February 21, 1997.*
 3.9     Articles of Incorporation of IMBS, Inc. dated November 30,
         1995.*
 3.10    By-laws of IMBS, Inc.*
 3.11    Articles of Incorporation of InPhyNet Hospital Services,
         Inc. dated November 30, 1995.*
 3.12    By-laws of InPhyNet Hospital Services, Inc.*
 3.13    Certificate of Amendment of Certificate of Incorporation of
         InPhyNet Medical Management Institute, Inc. dated February
         28, 1996.*
 3.14    By-laws of InPhyNet Medical Management Institute, Inc.*
 3.15    Articles of Incorporation of Karl G. Mangold, Inc. dated
         February 14, 1997.*
 3.16    By-laws of Karl G. Mangold, Inc. dated February 20, 1997.*
 3.17    Amended and Restated Articles of Incorporation of Charles L.
         Springfield, Inc. dated November 21, 1997.*
 3.18    Amendment to By-laws of Charles L. Springfield, Inc. dated
         November 20, 1997.*
 3.19    Articles of Amendment to the Charter of Clinic Management
         Services, Inc. dated March 25, 1994.*
 3.20    By-laws of Clinic Management Services, Inc.*
 3.21    Articles of Incorporation of Daniel & Yeager, Inc. dated
         October 25, 1989.*
 3.22    By-laws of Daniel & Yeager, Inc. dated October 6, 1989.*
 3.23    Articles of Incorporation of Drs. Sheer, Abeam & Associates,
         Inc. dated March 31, 1969.*
 3.24    Amended and Restated By-laws of Drs. Sheer, Abeam &
         Associates, Inc. dated February 15, 1989.*
 3.25    Articles of Amendment to the Charter of Emergency Coverage
         Corporation dated February 15, 1993.*
 3.26    Amendment to By-laws of Emergency Coverage Corporation dated
         June 12, 1995.*
 3.27    Restated Certificate of Incorporation of Emergency Physician
         Associates, Inc. dated June 25, 1996.*
 3.28    By-laws of Emergency Physician Associates, Inc.*
 3.29    Articles of Incorporation of Emergency Physicians of
         Manatee, Inc. dated June 1, 1988.*
 3.30    By-laws of Emergency Physicians of Manatee, Inc.*
 3.31    Certificate to Amend the Articles of Incorporation of
         Emergency Professional Services, Inc. dated September 30,
         1997.*
 3.32    Code Regulations of Emergency Professional Services, Inc.
         amended June 22, 1987.*
</Table>
<PAGE>
<Table>
<C>      <S>
 3.33    Amended and Restated Charter of Emergicare Management,
         Incorporated dated February 28, 1995.*
 3.34    By-laws of Emergicare Management Incorporated dated December
         29, 1972.*
 3.35    Articles of Incorporation of EMSA Contracting Service, Inc.
         dated November 30, 1995.*
 3.36    By-laws of EMSA Contracting Service, Inc.*
 3.37    Articles of Amendment of EMSA Louisiana, Inc. dated May 28,
         1989.*
 3.38    By-laws of EMSA Louisiana, Inc.*
 3.39    Articles of Amendment to the Charter of Hospital Based
         Physician Services, Inc. dated March 25, 1994.*
 3.40    By-laws of Hospital Based Physician Services, Inc. dated
         July 18, 1993.*
 3.41    Articles of Incorporation of InPhyNet Anesthesia of West
         Virginia, Inc. dated February 29, 1997.*
 3.42    By-laws of InPhyNet Anesthesia of West Virginia, Inc.*
 3.43    Articles of Amendment to the Charter of Med: Assure Systems,
         Inc. dated October 28, 1992.*
 3.44    By-laws of Med: Assure Systems, Inc. dated February 25,
         1987.*
 3.45    Articles of Incorporation of MetroAmerican Radiology, Inc.
         dated April 19, 1989.*
 3.46    By-laws of MetroAmerican Radiology, Inc. dated April 23,
         1989.*
 3.47    Articles of Incorporation of Neo-Med, Inc. dated November
         15, 1993.*
 3.48    By-laws of Neo-Med, Inc.*
 3.49    Articles of Incorporation of Northwest Emergency Physicians,
         Incorporated dated June 4, 1985.*
 3.50    By-laws of Northwest Emergency Physicians, Incorporated.*
 3.51    Certificate of Amendment of Certificate of Incorporation of
         Paragon Anesthesia, Inc. dated September 20, 1994.*
 3.52    By-laws of Paragon Anesthesia, Inc.*
 3.53    Articles of Incorporation of Paragon Contracting Services,
         Inc. dated November 30, 1995.*
 3.54    By-laws of Paragon Contracting Services, Inc.*
 3.55    Certificate of Amendment of Certificate of Incorporation of
         Paragon Imaging Consultants, Inc. dated May 7, 1993.*
 3.56    By-laws of Paragon Imaging Consultants, Inc.*
 3.57    Articles of Incorporation of Quantum Plus, Inc. dated
         January 27, 1997.*
 3.58    By-laws of Quantum Plus, Inc. dated February 1, 1997.*
 3.59    Amendment and Restated Articles of Incorporation of Reich,
         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.*
</Table>
<PAGE>
<Table>
<C>      <S>
 3.67    Articles of Amendment to the Charter of Southeastern
         Emergency Physicians of Memphis, Inc. dated June 15, 1992.*
 3.68    By-laws of Southeastern Emergency Physicians Of Memphis,
         Inc.*
 3.69    Charter of Team Health Financial Services, Inc. dated
         October 9, 1997.*
 3.70    By-laws of Team Health Financial Services, Inc.*
 3.71    Articles of Incorporation of Team Radiology, Inc. dated
         October 6, 1993.*
 3.72    By-laws of Team Radiology, Inc. dated November 5, 1993.*
 3.73    Certificate of Incorporation of THBS, Inc. dated October 20,
         1997.*
 3.74    By-laws of THBS, Inc.*
 3.75    Amended and Restated Articles of Incorporation of The
         Emergency Associates for Medicine, Inc. dated August 30,
         1996.*
 3.76    By-laws of The Emergency Associates for Medicine, Inc.*
 3.77    Articles of Incorporation of Virginia Emergency Physicians,
         Inc. dated June 25, 1992.*
 3.78    Amended and Restated By-laws of Virginia Emergency
         Physicians, Inc.*
 3.79    Articles of Incorporation of EMSA Joilet, Inc. dated
         December 30, 1988.*
 3.80    By-laws of EMSA Joilet, Inc.*
 3.81    Certificate of limited Partnership of Paragon Healthcare
         Limited Partnership, dated August 3, 1993.*
 3.82    Certificate of Limited Partnership of Team Health Southwest,
         L.P., dated May 20, 1998.*
 3.83    Certificate of Limited Partnership of Team Health Billing
         Services, L.P., dated October 21, 1997.*
 3.84    Partnership Agreement of Fischer Mangold Group Partnership,
         dated February 21, 1996.*
 3.85    Partnership Agreement of Mt. Diablo Emergency Physicians, a
         California General Partnership, dated June 1, 1997.*
 3.86    Articles of Incorporation of Team Health, Inc.*
 3.87    By-laws of Team Health, Inc.*
 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.*
 3.99    Bylaws of After Hours Pediatric Practices, Inc.*
</Table>
<PAGE>
<Table>
<C>      <S>
 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.*
 3.124   Certificate of Amendment to the Articles of Incorporation of
         Kelly Medical Corporation dated September 16, 2002*
 3.126   Articles of Incorporation of Correctional Healthcare
         Solutions, Inc., dated December 2, 2002*
 3.127   Articles of Amendment to Articles of Incorporation of
         Correctional Healthcare Solutions, Inc., dated December 4,
         2002*
 3.128   Bylaws of Correctional Healthcare Advantage, Inc.*
 3.129   Certificate of Incorporation of Physicians Underwriting
         Group, Ltd., dated February 26, 2003*
 3.130   Memorandum of Association of Physicians Underwriting Group,
         Ltd.*
 3.131   Articles of Association of Physicians Underwriting Group,
         Ltd.*
 3.132   Articles of Incorporation of Greenbrier Emergency
         Physicians, Inc. dated April 10, 2003*
 3.133   Bylaws of Greenbrier Emergency Physicians, Inc.*
 3.134   Certificate and Articles of Organization of Team Health
         Contracting Midwest, LLC dated July 1, 2003*
 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.*
</Table>
<PAGE>
<Table>
<C>      <S>
 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*
 4.6     Supplemental Indenture dated September 9, 2003*
 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.*
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*
</Table>
<PAGE>
<Table>
<C>      <S>
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*
10.19    Amendment No. 1 to Credit Agreement dated May 1, 2002*
10.20    Amendment No. 2 to Credit Agreement dated May 1, 2002*
14.1     Code of Ethics**
21.      Subsidiaries of Registrant.**
31.1     Certification by Lynn Massingale, M.D. pursuant to 18 U.S.C.
         Section 1350, as adopted pursuant to Section 302 of the
         Sarbanes-Oxley Act of 2002**
31.2     Certification by Robert J. Abramowski pursuant to 18 U.S.C.
         Section 1350, as adopted pursuant to Section 302 of the
         Sarbanes-Oxley Act of 2002**
</Table>

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

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

** Filed herewith.