PHYCOR INC/TN, S-4/A, 1998-03-17

PHYCOR INC/TN
S-4/A, 1998-03-17
OFFICES & CLINICS OF DOCTORS OF MEDICINE

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<PAGE> 1

As filed with the Securities and Exchange Commission on March 16, 1998

Registration No. 333-45209
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
AMENDMENT NO. 1 TO
------------------
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
PHYCOR, INC.

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

(Exact Name of Registrant as Specified in its Charter)

<TABLE>
<S> <C> <C>
TENNESSEE 8099 62-1344801
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification Number)
Incorporation or Organization) Classification Code Number)
</TABLE>
30 BURTON HILLS BLVD., SUITE 400
NASHVILLE, TENNESSEE 37215
(615) 665-9066
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
JOSEPH C. HUTTS
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PHYCOR, INC.
30 BURTON HILLS BOULEVARD, SUITE 400
NASHVILLE, TENNESSEE 37215
(615) 665-9066
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)

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

WITH COPIES TO:
<TABLE>
<S> <C>
J. CHASE COLE, ESQ. DIANA M. HUDSON, ESQ.
WALLER LANSDEN DORTCH & DAVIS, MAYOR, DAY, CALDWELL & KEETON, L.L.P
A PROFESSIONAL LIMITED LIABILITY COMPANY 700 LOUISIANA, SUITE 1900
NASHVILLE CITY CENTER HOUSTON, TEXAS 77002-2778
511 UNION STREET, SUITE 2100 (713) 225-7000
NASHVILLE, TENNESSEE 37219
(615) 244-6380
</TABLE>

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

Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this Registration Statement and
the effectiveness of the Merger described in the Prospectus included herewith.

If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]

If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
------------

If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
------------

CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==============================================================================================================================
Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Aggregate Amount of
Securities to be Registered Registered Offering Price Per Share Offering Price(1) Registration Fee(2)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Common Stock,
no par value 3,067,216 Shares Not applicable $108,680.49 $33.00
Rights to Purchase Series A
Preferred Stock 3,067,216 Rights
==============================================================================================================================
</TABLE>

(1) Estimated solely for purposes of determining the amount of the
registration fee in accordance with Rule 457(f)(2) under the Securities
Act of 1933. Based upon one-third of the aggregate par value of the
capital stock to be received by the Registrant in exchange for the
Common Stock registered, the issuer of such capital stock having an
accumulated deficit at September 30, 1997.

(2) The Registrant paid the registration fee in connection with the initial
filing of this Registration Statement on January 29, 1998.

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

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
[FPC Letterhead]

___________________, 1998

Dear Stockholder:

You are cordially invited to attend a Special Meeting of Stockholders
(the "Meeting") of First Physician Care, Inc. ("FPC") on _____________________,
1998. Details as to the time and place of the Meeting are set forth in the
accompanying Notice of Special Meeting of Stockholders.

The purpose of the Meeting is to consider and vote upon (i) the
approval and adoption of the Agreement and Plan of Merger (the "Merger
Agreement") providing for the merger (the "Merger") of Falcon Acquisition Sub,
Inc., a Delaware corporation and wholly-owned subsidiary of PhyCor, Inc., a
Tennessee corporation ("PhyCor") with and into FPC, with FPC being the
surviving corporation and (ii) the approval of certain payments to Stephen A.
George, M.D., the Chairman, Chief Executive Officer and President of FPC, that
will result from the Merger under the terms of FPC's employment agreement with
Dr. George, the Amended and Restated Consulting and Non-Compete Agreement among
Dr. George, FPC and PhyCor, and FPC's stock option plans (collectively, the
"Change of Control Payments"). If the Merger is consummated, each outstanding
share of FPC Class A Common Stock will be converted into the right to receive
0.247429 shares of PhyCor Common Stock (the "Common Stock Exchange Ratio"),
each outstanding share of FPC Class A Preferred Stock will be converted into
the right to receive 4.607016 shares of PhyCor Common Stock, each outstanding
share of FPC Class B Convertible Preferred Stock will be converted into the
right to receive 9.526966 shares of PhyCor Common Stock, and each outstanding
share of FPC Class C Convertible Preferred Stock will be converted into the
right to receive 2.474289 shares of PhyCor Common Stock. The FPC Class A Common
Stock, FPC Class A Preferred Stock, FPC Class B Convertible Preferred Stock and
the FPC Class C Convertible Preferred Stock collectively are referred to as the
FPC Capital Stock.

After careful consideration, the Board of Directors has unanimously
approved the Merger Agreement and the Change of Control Payments and has
determined that the proposed Merger is in the best interests of stockholders
and recommends that you vote FOR the approval and adoption of the Merger
Agreement and FOR approval of the Change of Control Payments. The Board of
Directors believes that PhyCor and FPC are strategically complementary and that
the combined companies will be able to compete more effectively in the changing
health care marketplace. In addition, Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ"), financial advisor to FPC in connection with the Merger,
has delivered to the FPC Board of Directors a written opinion dated December
19, 1997 to the effect that, as of the date of such opinion and based upon and
subject to certain matters stated therein, the Common Stock Exchange Ratio was
fair, from a financial point of view, to the holders of FPC Common Stock.
Affiliates of DLJ own approximately 12% of the outstanding shares of FPC Class A
Common Stock, 30% of the outstanding shares of FPC Class A Preferred Stock and
27% of the outstanding shares of FPC Class B Convertible Preferred Stock, and,
as a result, DLJ is not independent.

The attached Prospectus-Proxy Statement describes the Merger
Agreement, the proposed Merger and the Change of Control Payments more fully
and includes other information about PhyCor and FPC including the risks
associated with becoming a PhyCor shareholder as more fully described under the
caption "Risk Factors" beginning at page 19 of the Prospectus-Proxy Statement.
Please give this information your thoughtful attention.

Approval and adoption of the Merger Agreement requires the affirmative
vote of a majority of the outstanding shares of FPC Class A Common Stock, FPC
Class B Convertible Preferred Stock and FPC Class C Convertible Preferred Stock
(voting together as a class, with holders of the FPC Class B Convertible
Preferred Stock and FPC Class C Convertible Preferred Stock being entitled to
cast the same number of votes as they would be entitled to cast had they
converted such securities into FPC Class A Common Stock) and the affirmative
vote of 66 2/3% of the outstanding shares of FPC Class A Preferred Stock.
Therefore, you are urged to mark, sign, date and return promptly the
accompanying proxy card for the Meeting even if you plan to attend. You may
vote in person at that time if you so desire even if you have previously
returned your proxy.

Sincerely,

STEPHEN A. GEORGE, M.D.
Chairman, Chief Executive Officer and
President

YOUR VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR PROXY

1
<PAGE> 3

FIRST PHYSICIAN CARE, INC.
SUITE 400 WEST
3200 WINDY HILL ROAD
ATLANTA, GEORGIA 30339

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

A Special Meeting of Stockholders of First Physician Care, Inc.
("FPC") will be held at the corporate offices of FPC located at 3200 Windy Hill
Road, Suite 400 West, Atlanta, Georgia 30339 on ___________, 1998, at 9:00 a.m.,
Eastern Time, for the following purposes:

1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of December 19, 1997 (the "Merger
Agreement"), among First Physician Care, Inc. ("FPC"), Falcon Acquisition Sub,
Inc. ("Subsidiary") and PhyCor, Inc. ("PhyCor"), pursuant to which, among
other things, (i) Subsidiary will be merged with and into FPC upon the terms
and subject to the conditions contained in the Merger Agreement (the "Merger"),
with FPC being the surviving corporation, (ii) each share of FPC Class A Common
Stock, par value $.001 per share (the "FPC Class A Common Stock"), issued and
outstanding immediately prior to the effective time of the Merger will be
converted into the right to receive 0.247429 shares of PhyCor Common Stock (the
"Common Stock Exchange Ratio"), (iii) each share of FPC Class A Preferred
Stock will be converted into the right to receive 4.607016 shares of PhyCor
Common Stock (the "Class A Preferred Exchange Ratio"), (iv) each share of FPC
Class B Convertible Preferred Stock will be converted into the right to receive
9.526966 shares of PhyCor Common Stock (the "Class B Preferred Exchange
Ratio"), (v) each share of FPC Class C Convertible Preferred Stock will be
converted into the right to receive 2.474289 shares of PhyCor Common Stock (the
"Class C Preferred Exchange Ratio") (collectively, the Common Stock Exchange
Ratio, the Class A Preferred Exchange Ratio, the Class B Preferred Exchange
Ratio and the Class C Preferred Exchange Ratio are referred to herein as the
Exchange Ratios) and (vi) the FPC stock option plans will be adopted by PhyCor
and outstanding stock options previously issued thereunder to purchase shares
of FPC Class A Common Stock held by FPC's directors, officers and employees
will be converted into options to purchase shares of PhyCor Common Stock, or,
at the election of PhyCor, PhyCor will issue options under PhyCor's stock
option plans in substitution thereof, as adjusted to give effect to the
Exchange Ratios, all as described in the accompanying Prospectus-Proxy
Statement. The FPC Class A Common Stock, FPC Class A Preferred Stock, FPC
Class B Convertible Preferred Stock and the FPC Class C Convertible Preferred
Stock collectively are referred to as the FPC Capital Stock. Based on the
$25.94 closing sales price of PhyCor Common Stock on March 11, 1998, the
aggregate merger consideration to be paid by PhyCor is $100.4 million (which
includes net debt of approximately $9.6 million), the FPC Common Stock Exchange
Ratio is valued at $6.42 (an aggregate of $38.9 million), the FPC Class A
Preferred Stock Exchange Ratio is valued at $119.49 (an aggregate of $23.9
million), the FPC Class B Preferred Stock Exchange Ratio is valued at $247.11
(an aggregate of $27.2 million) and the FPC Class C Preferred Stock Exchange
Ratio is valued at $64.18 (an aggregate of $0.8 million). The Merger is more
completely described in the accompanying Prospectus-Proxy Statement and a copy
of the Merger Agreement is attached as Annex A.

2. To consider and vote upon a proposal to approve certain
payments to Stephen A. George, M.D. that will result from the Merger under the
terms of (i) FPC's employment agreement with Dr. George, (ii) the Amended and
Restated Consulting and Non-Compete Agreement among Dr. George, FPC and PhyCor,
and (iii) FPC's stock option plans (collectively, the "Change of Control
Payments"). The Change of Control Payments are more completely described in
the accompanying Prospectus-Proxy Statement and a copy of the Consulting
Agreement is attached as Annex E.

3. To transact such other business as may properly come before
the Special Meeting or any adjournment thereof.
<PAGE> 4

Holders of record of FPC Class A Common Stock, FPC Class B Convertible
Preferred Stock and FPC Class C Convertible Preferred Stock (collectively, the
"FPC Voting Stock") at the close of business on _________________, 1998 (the
"Record Date") are entitled to notice of, and to vote at, the Special Meeting
or any adjournment thereof. Holders of record of FPC Class A Preferred Stock
at the close of business on the Record Date are also entitled to notice of the
Special Meeting and to vote upon the approval and adoption of the Merger
Agreement, but are not entitled to vote on the Change of Control Payments, and
may not be entitled to vote with respect to any other matters as may properly
come before the Special Meeting. The affirmative vote of the holders of a
majority of the outstanding FPC Voting Stock (voting together as a class, with
holders of the FPC Class B Convertible Preferred Stock and FPC Class C
Convertible Preferred Stock being entitled to cast the same number of votes as
they would be entitled to cast had they converted such securities into FPC
Class A Common Stock) and the affirmative vote of 66 2/3% of the outstanding
shares of FPC Class A Preferred Stock, are necessary to approve the Merger.
The affirmative vote of the holders of 75%, excluding those shares held by Dr.
George of the outstanding FPC Voting Stock (voting together as a class, with
holders of the FPC Class B Convertible Preferred Stock and Class C Convertible
Preferred Stock being entitled to cast the same number of votes as they
converted such securities into Class A Common Stock) is necessary to approve
the Change of Control Payments. Certain beneficial owners of an aggregate of
approximately 82.31% of the votes attributable to the outstanding shares of FPC
Voting Stock and 96.81% of the FPC Class A Preferred Stock as of the Record
Date have granted irrevocable proxies to certain officers of PhyCor allowing
such persons to vote such stock at the Special Meeting.

Holders of FPC Capital Stock as of the Record Date are entitled to
appraisal rights as a result of the of the Merger. Holders who perfect
appraisal rights may obtain payment of the fair value of their shares in
accordance with Section 262 of the Delaware General Corporation Law, a copy of
which is included in the accompanying Prospectus-Proxy Statement as Annex D.

PLEASE COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY AND RETURN IT
PROMPTLY. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE
IN PERSON IF YOU DESIRE TO DO SO, BUT ATTENDANCE AT THE SPECIAL MEETING DOES
NOT ITSELF SERVE TO REVOKE YOUR PROXY.

By order of the Board of Directors,

STEPHEN A. GEORGE, M.D.
Chairman, Chief Executive Officer and
President

PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY
PROMPTLY, WHETHER YOU PLAN TO ATTEND THE
SPECIAL MEETING OR NOT.

A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
NO POSTAGE IS REQUIRED IF MAILED WITHIN THE UNITED STATES.

Atlanta, Georgia
__________, 1998
<PAGE> 5

PROSPECTUS AND PROXY STATEMENT

3,067,216 SHARES

PHYCOR, INC.

COMMON STOCK

_________________

This Prospectus-Proxy Statement (the "Prospectus-Proxy Statement") is
being furnished to the holders of FPC Class A Common Stock, FPC Class A
Preferred Stock, FPC Class B Convertible Preferred Stock and FPC Class C
Convertible Preferred Stock of First Physician Care, Inc., a Delaware
corporation ("FPC"), in connection with the solicitation of proxies by the
Board of Directors of FPC, for use in connection with a special meeting of
stockholders of FPC (the "Special Meeting"), which is to be held on
_____________________, 1998, or any adjournment(s) or postponement(s) thereof.
At such meeting, the stockholders of FPC will consider and vote upon (i) a
proposal to approve and adopt an Agreement and Plan of Merger, dated as of
December 19, 1997, by and between PhyCor, Inc., a Tennessee corporation
("PhyCor"), Falcon Acquisition Sub, Inc., a Delaware corporation and
wholly-owned subsidiary of PhyCor (the "Subsidiary"), and FPC (the "Merger
Agreement"), pursuant to which the Subsidiary will be merged with and into FPC
(the "Merger"), with FPC being the surviving corporation and (ii) a proposal to
approve certain payments to Stephen A. George, M.D., the Chairman, Chief
Executive Officer and President of FPC, that will result from the Merger under
the terms of FPC's employment agreement with Dr. George, the Amended and
Restated Consulting and Non-Compete Agreement among Dr. George, FPC and PhyCor,
and FPC's stock option plans (collectively, the "Change of Control Payments").
As a result of the Merger, each of the then outstanding shares of FPC Class A
Common Stock, par value $.001 per share (the "FPC Class A Common Stock"), will
be converted into the right to receive 0.247429 shares (the "Common Stock
Exchange Ratio") of Common Stock, no par value per share, of PhyCor (the
"PhyCor Common Stock"), each share of FPC Class A Preferred Stock, par value
$1.00 per share, will be converted into the right to receive 4.607016 shares of
PhyCor Common Stock (the "Class A Preferred Exchange Ratio"), each share of FPC
Class B Convertible Preferred Stock, par value $1.00 per share, will be
converted into the right to receive 9.526966 shares of PhyCor Common Stock (the
"Class B Preferred Exchange Ratio"), and each share of FPC Class C Convertible
Preferred Stock, par value $1.00 per share, will be converted into the right to
receive 2.474289 shares of PhyCor Common Stock (the "Class C Preferred Exchange
Ratio") (the Common Stock Exchange Ratio, the Class A Preferred Exchange Ratio,
the Class B Preferred Exchange Ratio and the Class C Preferred Exchange Ratio
collectively shall be referred to as the "Exchange Ratios").

In the event the average of the closing sales prices of PhyCor Common
Stock as reported on the Nasdaq Stock Market's National Market (the "Nasdaq
National Market") for the ten consecutive trading days ending on the second
trading day immediately preceding the Special Meeting (the "Closing Price") is
less than $20.00, FPC may terminate the Merger Agreement unless PhyCor agrees
to increase the Exchange Ratios such that the aggregate value of the shares of
PhyCor Common Stock to be received by FPC's stockholders is equal to $20.00
times the number of shares of PhyCor Common Stock to be received using the
current Exchange Ratios. The FPC Common Stock, FPC Class A Preferred Stock, FPC
Class B Convertible Preferred Stock and FPC Class C Convertible Preferred Stock
are collectively referred to herein as the FPC Capital Stock. The FPC Class A
Common Stock, FPC Class B Convertible Preferred Stock and FPC Class C
Convertible Preferred Stock are collectively referred to herein as the FPC
Voting Stock.

1
<PAGE> 6

Pursuant to agreements with PhyCor dated December 19, 1997, Stephen A.
George, M.D., Andrew B. Adams, M.D., Kelly J. DeKeyser, Donald B. Smallwood,
Karl A. Hardesty, Michael A. Jutras, M.D., Sprout Capital VI, L.P., Sprout
Growth II, L.P., DLJ Capital Corporation and Welsh, Carson, Anderson & Stowe,
VI, L.P., in their individual capacities as stockholders, have granted to
certain officers of PhyCor irrevocable proxies to vote all of their outstanding
shares of FPC Capital Stock (representing approximately 82.31% of the votes
attributable to the outstanding shares of FPC Voting Stock and 96.81% of the
outstanding shares of FPC Class A Preferred Stock) of record as of March 11,
1998 at the Special Meeting. Sprout Capital VI, L.P., Sprout Growth II, L.P.
and DLJ Capital Corporation (which in the aggregate own 12% of the outstanding
FPC Class A Common Stock, 30% of the outstanding FPC Class A Preferred Stock
and 27% of the outstanding FPC Class B Convertible Preferred Stock) are each
affiliates of Donaldson, Lufkin & Jenrette Securities Corporation, which
provided certain advice and delivered a fairness opinion to the Board of
Directors of FPC in connection with the Merger. The Merger is subject to the
satisfaction of a number of conditions, including, among others, approval of the
Merger Agreement and the Merger by the affirmative vote of a majority of the
outstanding shares of FPC Voting Stock and 66 2/3% of the outstanding shares of
FPC Class A Preferred Stock, voting in the manner described herein. As of March
11, 1998, there were 117 holders of record of FPC Class A Common Stock (ten of
whom have provided irrevocable proxies to officers of PhyCor), 15 holders of
record of Class A Preferred Stock (four of whom have provided irrevocable
proxies to officers of PhyCor), 25 holders of record of Class B Convertible
Preferred Stock (nine of whom have provided irrevocable proxies to officers of
PhyCor) and one holder of record of FPC Class C Convertible Preferred Stock (who
has not provided an irrevocable proxy to officers of PhyCor). Other than such
irrevocable proxies, no holders of FPC Capital Stock have agreed with PhyCor or
FPC to vote such shares in favor of the Merger. See "THE MERGER."

This Prospectus-Proxy Statement also constitutes a prospectus of
PhyCor for the issuance of up to 3,067,216 shares of PhyCor Common Stock to be
issued in connection with the Merger. Unless the context otherwise requires,
all references to shares of PhyCor Common Stock in this Prospectus-Proxy
Statement will include the associated preferred share purchase rights issued
pursuant to the Rights Agreement, dated as of February 18, 1994, between PhyCor
and First Union National Bank. PhyCor Common Stock is listed and traded on the
Nasdaq National Market under the symbol "PHYC." On March 11, 1998, the closing
sales price for PhyCor Common Stock as reported on the Nasdaq National Market
was $25.94 per share. The aggregate merger consideration based on such closing
price is $100.4 million (which includes net debt of approximately $9.6 million).
After the Merger, the former holders of FPC Capital Stock collectively will own
approximately 4.7% of the outstanding PhyCor Common Stock.

This Prospectus-Proxy Statement and the form of Proxy are first being
mailed to holders of FPC Capital Stock on or about ___________________, 1998.

SEE "RISK FACTORS" BEGINNING AT PAGE 19 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS OF SHARES OF FPC CAPITAL STOCK.

THE SECURITIES TO BE ISSUED IN THE MERGER HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR BY ANY
STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS--PROXY STATEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this Prospectus-Proxy Statement is _____________, 1998.

2
<PAGE> 7

TABLE OF CONTENTS

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Page
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AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . 5

SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

THE SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Date, Place and Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Record Date; Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Votes Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Voting and Revocation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Solicitation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Terms of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Background of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Reasons for the Merger; Recommendations of the Board of Directors . . . . . . . . . . 31
Opinion of Donaldson, Lufkin & Jenrette Securities Corporation . . . . . . . . . . . . 36
Effective Time of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Conditions to the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Certain Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Waiver and Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Break-up Fee; Third Party Bids . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Interests of Certain Persons in the Merger; Approval of Change of Control Payments . . 46
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Resale of PhyCor Common Stock by Affiliates . . . . . . . . . . . . . . . . . . . . . 50
No Solicitation of Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Nasdaq National Market Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

APPRAISAL RIGHTS OF FPC STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

MARKET PRICE DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

FPC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Nine Months Ended September 30, 1996 Compared to Nine Months Ended
September 30, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Year Ended December 31, 1995 Compared to Year Ended December 31, 1996 . . . . . . . . . 58
Year Ended December 31, 1994 Compared to Year Ended December 31, 1995 . . . . . . . . . 58
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
</TABLE>

3
<PAGE> 8

<TABLE>
<S> <C>
BUSINESS OF FPC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

PRINCIPAL STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

BUSINESS OF PHYCOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

COMPARISON OF RIGHTS OF FPC AND PHYCOR SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . 69
Classes and Series of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . 69
Class A Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Class B Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Class A Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Class B Convertible Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . 70
Class C Convertible Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . 70
Size and Election of the Board of Directors . . . . . . . . . . . . . . . . . . . . . 71
Removal of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Conversion, Dissolution and Redemption . . . . . . . . . . . . . . . . . . . . . . . . 71
Amendment or Repeal of the Certificate of Incorporation or Charter and Bylaws . . . . 72
Special Meetings of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Liability of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Indemnification of Directors and Officers . . . . . . . . . . . . . . . . . . . . . . 73
Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Shareholder Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

CONSOLIDATED FINANCIAL STATEMENTS OF FIRST PHYSICIAN CARE, INC. . . . . . . . . . . . . . . . F-1

Annex A Agreement and Plan of Merger by and among PhyCor, Inc., Falcon Acquisition Sub,
Inc. and First Physician Care, Inc. . . . . . . . . . . . . . . . . . . . . . . . A-1

Annex B Opinion of Donaldson, Lufkin & Jenrette Securities Corporation . . . . . . . . . B-1

Annex C Form of Proxy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1

Annex D Text of Section 262 of the Delaware General Corporation Law . . . . . . . . . . D-1

Annex E Amended and Restated Consulting and Non-Compete Agreement by and among Stephen A.
George, M.D., PhyCor, Inc. and First Physician Care, Inc. . . . . . . . . . . . . E-1
</TABLE>

4
<PAGE> 9

AVAILABLE INFORMATION

PhyCor has filed a Registration Statement on Form S-4 under the
Securities Act of 1933, as amended (the "Securities Act"), with the Securities
and Exchange Commission (the "Commission") covering the shares of PhyCor Common
Stock to be issued in connection with the Merger (including exhibits and
amendments thereto, the "Registration Statement"). As permitted by the rules
and regulations of the Commission, this Prospectus-Proxy Statement omits
certain information contained in the Registration Statement. For further
information pertaining to the securities offered hereby, reference is made to
the Registration Statement.

PhyCor is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy statements and other information with
the Commission. Copies of such reports, proxy statements and other information,
can be inspected and copied at the public reference facilities maintained by
the Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549, and at the regional offices of the Commission located
at Seven World Trade Center, New York, New York 10048, and 500 West Madison
Street, Suite 1400, Citicorp Center, Chicago, Illinois 60601. Copies of such
material can be obtained at prescribed rates from the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. The PhyCor
Common Stock is quoted on the Nasdaq National Market, and such reports, proxy
statements and other information with respect to PhyCor can be inspected at the
offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006. The
Commission maintains a Web site at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission.

----------

PhyCor was incorporated in Tennessee in January 1988. Unless the
context requires otherwise, references in this Prospectus-Proxy Statement to
"PhyCor" refer to PhyCor, Inc., and its subsidiaries. PhyCor's executive
offices are located at 30 Burton Hills, Suite 400, Nashville, Tennessee 37215,
and its telephone number is (615) 665-9066.

----------

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

This Prospectus-Proxy Statement incorporates documents by reference
which are not presented herein or delivered herewith. Copies of such reports,
proxy statements and other information filed by PhyCor, other than exhibits to
such documents unless such exhibits are specifically incorporated herein by
reference, are available without charge, upon written or oral request, from the
Secretary of PhyCor, Inc., 30 Burton Hills Boulevard, Suite 400, Nashville,
Tennessee 37215, telephone (615) 665-9066.

The following documents previously filed by PhyCor with the Commission
are incorporated by reference into this Prospectus-Proxy Statement:

1. PhyCor's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996.

2. PhyCor's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997.

3. PhyCor's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997.

5
<PAGE> 10

4. PhyCor's Quarterly Report on Form 10-Q, as amended by
PhyCor's Quarterly Report on Form 10-Q/A, for the quarter ended
September 30, 1997.

5. PhyCor's Current Report on Form 8-K filed February 3,
1997, as amended by PhyCor's Current Report on Form 8-K/A filed
February 26, 1997.

6. PhyCor's Current Report on Form 8-K filed October 31,
1997.

7. PhyCor's Current Report on Form 8-K filed January 8,
1998.

8. PhyCor's Current Report on Form 8-K filed January 16,
1998.

9. The description of PhyCor Common Stock and associated
preferred stock purchase rights contained in PhyCor's Registration
Statements on Form 8-A dated January 8, 1992 and March 8, 1994,
respectively.

All documents filed by PhyCor pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus-Proxy Statement and
prior to termination of the offering of PhyCor Common Stock hereunder shall be
deemed to be incorporated by reference into this Prospectus-Proxy Statement and
to be made a part hereof from the date of the filing of such documents. Any
statement contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for the purpose hereof to the extent that a
statement contained herein (or in any other subsequently filed document which
also is incorporated by reference herein) is modified or superseded by such
statement. Any statement so modified or superseded shall not be deemed to
constitute a part hereof except as so modified or superseded.

All information contained in this Prospectus-Proxy Statement or
incorporated herein by reference with respect to PhyCor was supplied by PhyCor,
and all information contained in this Prospectus-Proxy Statement with respect
to FPC was supplied by FPC. Although neither PhyCor nor FPC has actual
knowledge that would indicate that any statements or information (including
financial statements) relating to the other party contained or with respect to
PhyCor, incorporated by reference herein, are inaccurate or incomplete, neither
PhyCor nor FPC warrants the accuracy or completeness of such statements or
information as they relate to the other party.

NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS-PROXY STATEMENT, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. NEITHER THE DELIVERY OF THIS PROSPECTUS-PROXY STATEMENT NOR
ANY DISTRIBUTION OF THE SECURITIES TO WHICH THIS PROSPECTUS-PROXY STATEMENT
RELATES SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONCERNING PHYCOR OR FPC CONTAINED IN THIS PROSPECTUS-PROXY
STATEMENT IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. THIS
PROSPECTUS-PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES OTHER THAN THE SECURITIES
TO WHICH IT RELATES, OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO
PURCHASE, THE SECURITIES OFFERED BY THIS PROSPECTUS-PROXY STATEMENT IN ANY
JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT LAWFUL.

6
<PAGE> 11

SUMMARY

The following is a brief summary of certain information contained
elsewhere in this Prospectus-Proxy Statement, including the Annexes hereto,
which are a part of this Prospectus-Proxy Statement. This Summary does not
purport to be complete and is qualified in its entirety by reference to the
more detailed information contained in this Prospectus-Proxy Statement, the
Annexes hereto and the documents incorporated by reference herein. Certain
capitalized terms used in this Summary are defined elsewhere in this
Prospectus-Proxy Statement.

THE COMPANIES

PhyCor, Inc. PhyCor is a physician practice management ("PPM")
company that acquires and operates multi-specialty medical clinics and
develops and manages independent practice associations ("IPAs"). As of December
31, 1997, PhyCor managed 55 clinics which employ approximately 3,860 physicians
in 28 states and managed IPAs with over 19,000 physicians in 28 markets.
Physicians employed by clinics managed by PhyCor provide medical services to
approximately 1,140,000 members under prepaid health plans, including
approximately 177,000 Medicare members. The clinics managed by PhyCor provide a
wide range of primary and specialty physician care and ancillary services.
PhyCor acquires certain assets of established clinics and operates each clinic
under a long-term service agreement with an affiliated multi-specialty
physician group practicing exclusively through the clinic. Pursuant to the
service agreement, PhyCor generally manages all aspects of the clinic other
than the provision of medical services, which is controlled by the physician
groups. PhyCor, under the terms of the service agreement, provides the
physician group with the equipment and facilities used in their medical
practices, manages clinic operations, employs most of the clinic's
non-physician employees, other than certain diagnostic technicians, and
receives a service fee. Under substantially all of its service agreements,
PhyCor receives a service fee equal to the clinic expenses it has paid plus
percentages of operating income of the clinic (net clinic revenue less certain
contractually agreed upon clinic expenses before physician distributions) plus,
in some cases, percentages of net clinic revenue. As clinic operating income
improves, whether as a result of increased revenue or lower expenses, PhyCor's
service fees increase. PhyCor's objective is to organize physicians into
professionally managed networks that assist physicians in assuming increased
responsibility for delivering cost-effective medical care while attaining
high-quality clinical outcomes. See "BUSINESS OF PHYCOR."

Since September 30, 1997, PhyCor has acquired four multi-specialty
clinics with an aggregate of approximately 263 physicians. In December 1997,
PhyCor announced an agreement to purchase Seattle-based CareWise, Inc., a
nationally recognized leader in the health care decision support industry. On
January 12, 1998, PhyCor announced that it anticipates recording, in the first
quarter of 1998, a pre-tax charge to earnings of approximately $15 million
relating to the termination of its proposed merger with MedPartners, Inc.
PhyCor also announced plans to restructure five of its multi-specialty clinic
operations with approximately 300 physicians and provide for the potential sale
or closure of two additional clinics with approximately 70 physicians. In
connection with these plans, PhyCor anticipates recording a pre-tax charge for
asset revaluation of approximately $83 million in the fourth quarter of 1997,
of which approximately $70 million represents intangible asset value. In
addition, PhyCor expects to incur approximately $22 million in the first
quarter of 1998 in pre-tax restructuring charges relating to anticipated costs
which are to provide for consolidating facilities and clinic operations and to
reduce overhead costs. Exclusive of these non-recurring costs, these
restructuring plans are not expected to adversely affect PhyCor's earnings
targets for either 1997 or 1998. The effect of these restructuring plans could
vary from PhyCor's expectations based upon continued developments, including
the actual amount of expenditures required in connection with PhyCor's
restructuring plans and other factors, risks and uncertainties applicable to
PhyCor's business described herein. See "RISK FACTORS."

7
<PAGE> 12

At September 30, 1997, PhyCor had consolidated assets of approximately
$1.5 billion, consolidated shareholders' equity of approximately $744.3 million
and, employed directly or indirectly through wholly-owned subsidiaries,
approximately 18,000 persons.

PhyCor was incorporated under the laws of Tennessee in 1988. Its
principal executives offices are located at 30 Burton Hills Boulevard, Suite
400, Nashville, Tennessee 37215, and its telephone number is (615) 665-9066.

First Physician Care, Inc. FPC was incorporated in Delaware in June
1993 for the purpose of delivering and managing the delivery of primary care
and certain multi-specialty medical services through multi-sited,
community-based medical groups and IPAs. FPC currently manages the non-medical
aspects of three physician groups pursuant to long-term service agreements and
one physician group pursuant to an interim service agreement (the "Managed
Group Practices"). FPC owns the non-medical assets related to the Managed
Group Practice with which it has long-term service agreements and has an option
to purchase the non-medical assets of the Managed Group Practice with which it
has an interim service agreement. The Managed Group Practices are comprised of
(i) 15 full-time and part-time physicians at two sites in the St. Louis,
Missouri/Alton, Illinois market, (ii) 56 full-time and part-time physicians at
21 sites in the Dallas/Fort Worth, Texas market, (iii) 10 full-time and
part-time physicians at two sites in the New York, New York market and (iv) 27
full-time and part-time physicians at 10 sites in the Midland/Odessa, Texas
market. FPC also directly delivers primary care and certain specialty medical
services through three wholly-owned subsidiaries including (a) a primary care
group of 47 full-time and part-time physicians at 18 sites in the Tampa and St.
Petersburg, Florida markets, (b) a primary care and multi-specialty group of 28
full-time and part-time physicians at two sites in the Boca Raton and West Palm
Beach, Florida markets and (c) a primary care group of three full-time
physicians at two sites in the Atlanta, Georgia market (collectively, these
groups are referred to herein as the "FPC Group Practices"). FPC also owns one
IPA in the New York, New York market.

As of December 31, 1997, FPC employed 1,157 individuals, including 28
in its corporate office, 193 in the South Florida market group practices, 333
in the Tampa Bay market group practices, 16 in the Atlanta market group
practices, 135 in the St. Louis market group practices, 408 in the Dallas/Fort
Worth market group practices and 44 in the New York market group practices.

FPC's executive offices are located at 3200 Windy Hill Road, Suite 400
West, Atlanta, Georgia, 30339, and its telephone number is (770) 980-9800.

Falcon Acquisition Sub, Inc. The Subsidiary was incorporated on
December 18, 1997 for purposes of the transactions contemplated by the Merger
Agreement. The Subsidiary engages in no other business. The principal offices
of the Subsidiary are located at 30 Burton Hills Boulevard, Suite 400,
Nashville, Tennessee 37215, and its telephone number is (615) 665-9066.

RISK FACTORS

Certain risks and uncertainties relating to the Merger, PhyCor and the
health care industry should be considered carefully by the holders of FPC
Capital Stock in evaluating the Merger, including, but not limited to, the
businesses of PhyCor and FPC, PhyCor's future business prospects, PhyCor's
dependence on its affiliated physicians, PhyCor's ability to acquire additional
clinics, the adequacy of PhyCor's capital resources, the future profitability
of PhyCor's capitated fee arrangements and increased scrutiny of health care
arrangements, in general. See "RISK FACTORS."

8
<PAGE> 13

SPECIAL MEETING

At the Special Meeting, the holders of FPC Voting Stock will consider
and vote upon the recommendation of the FPC Board to approve and adopt the
Merger and to approve the Change of Control Payments. Holders of record of FPC
Class A Common Stock, Class B Convertible Preferred Stock and Class C
Convertible Preferred Stock at the close of business on ______, 1998 (the
"Record Date") are entitled to notice of, and to vote at, the Special Meeting
and any adjournment thereof. Holders of record of FPC Class A Preferred Stock
at the close of business on the Record Date are also entitled to notice of the
Special Meeting and to vote upon the approval and adoption of the Merger
Agreement, but are not entitled to vote on the Change of Control Payments, and
may not be entitled to vote with respect to any other matters as may properly
come before the Special Meeting. Holders of FPC Class B Convertible Preferred
Stock and Class C Convertible Preferred Stock are entitled to vote on the
Merger based upon the number of shares of Class A Common Stock that would
result from the conversion of the shares of each respective class of Preferred
Stock. As of March 11, 1998, there were 4,041,473 shares of FPC Class A Common
Stock issued and outstanding, 200,000 shares of FPC Class A Preferred Stock
issued and outstanding, 110,000 shares of Class B Convertible Preferred Stock
issued and outstanding shares (which are entitled to vote as if converted into
4,235,425 shares of Class A Common Stock) and 12,000 shares of Class C
Convertible Preferred Stock issued and outstanding (which are entitled to vote
as if converted into 120,000 shares of Class A Common Stock). Each share of FPC
Class A Common Stock is entitled to one vote at the Special Meeting. Shares of
FPC Class A Preferred Stock are not entitled to vote on all matters, but will
be entitled to vote at the Special Meeting with respect to the proposal to
approve and adopt the Merger Agreement and will vote separately as a class.
For additional information relating to the Special Meeting, see "THE SPECIAL
MEETING."

VOTES REQUIRED

Approval and adoption of the Merger Agreement by the stockholders of
FPC requires the affirmative vote of a majority of the outstanding shares of
the FPC Voting Stock (voting together as a class, with holders of the FPC Class
B Convertible Preferred Stock and FPC Class C Convertible Preferred Stock being
entitled to cast the same number of votes as they would be entitled to cast had
they converted such securities into FPC Class A Common Stock) and the
affirmative vote of 66 2/3% of the outstanding shares of FPC Class A Preferred
Stock. Approval of the Change of Control Payments requires the affirmative vote
of the holders of 75%, excluding those shares held by Dr. George, of the
outstanding FPC Voting Stock (voting together as a class, with holders of the
FPC Class B Convertible Preferred Stock and Class C Convertible Preferred Stock
being entitled to cast the same number of votes as they would be entitled to
cast had they converted such securities into Class A Common Stock). As of March
11, 1998, the directors and executive officers of FPC and other affiliates of
FPC beneficially owned an aggregate of 3,181,925 shares of FPC Voting Stock
(excluding shares issuable upon exercise of options and convertible
securities), representing approximately 82.31% of the votes attributable to
shares of FPC Voting Stock and 96.81% of the shares of FPC Class A Preferred
Stock outstanding on such date. As of such date, 103 non-affiliated
stockholders held the remaining shares of FPC Voting Stock. Stephen A.
George, M.D., Andrew B. Adams, M.D., Kelly J. DeKeyser, Donald B. Smallwood,
Karl A. Hardesty, Michael A. Jutras, M.D., Welsh, Carson, Anderson & Stowe, VI,
L.P. ("WCAS"), Sprout Capital VI, L.P., Sprout Growth II, L.P. and DLJ Capital
Corporation each have granted an irrevocable proxy to Joseph C. Hutts,
Chairman, President and Chief Executive Officer of PhyCor, and Steven R. Adams,
Vice President of PhyCor, to vote the shares of FPC Capital Stock beneficially
owned by them at the Special Meeting. Messrs. Hutts and Adams intend to vote
such shares in favor of approval and adoption of the Merger Agreement and in
favor of approval of the Change of Control Payments.

In the event that the Merger Agreement is not approved and adopted by
FPC's stockholders, the Merger Agreement may be terminated by FPC or PhyCor in
accordance with its terms. Such approval is also a condition to FPC's and
PhyCor's obligations to consummate the Merger. See "THE

9
<PAGE> 14

SPECIAL MEETING--Votes Required," "THE MERGER--Conditions to the Merger" and
"--Termination."

THE MERGER

Terms of the Merger. Pursuant to the Merger Agreement, the Subsidiary
will merge with and into FPC at the effective time of the Merger (the
"Effective Time"), with FPC being the surviving corporation (the "Surviving
Corporation"). The Subsidiary's Certificate of Incorporation, as amended and
existing at the Effective Time, and the Bylaws of Subsidiary in effect at the
Effective Time, will govern the Surviving Corporation until amended or repealed
in accordance with applicable law. At the Effective Time, (i) each outstanding
share of FPC Class A Common Stock will be converted into the right to receive
0.247429 shares of PhyCor Common Stock, (ii) each outstanding share of FPC
Class A Preferred Stock will be converted into the right to receive 4.607016
shares of PhyCor Common Stock, (iii) each outstanding share of FPC Class B
Convertible Preferred Stock will be converted into the right to receive
9.526966 shares of PhyCor Common Stock and (iv) each outstanding share of FPC
Class C Convertible Preferred Stock will be converted into the right to receive
2.474289 shares of PhyCor Common Stock. The Exchange Ratios assume the
exercise as of or prior to the Effective Time of (i) options to purchase
233,676 shares of FPC Class A Common Stock, 96,326 of which are currently
vested or are expected to vest prior to the Effective Time and 137,350 of which
will become vested at the Effective Time as a result of the Merger, (ii)
options to purchase 121,928 shares of FPC Class A Common Stock, which options
will not be vested at the Effective Time or vest as a result of the Merger and
(iii) currently exercisable warrants to purchase 41,869 shares of FPC Class A
Common Stock. The Exchange Ratios do not assume the exercise as of or prior to
the Effective Time of 426,100 options that are currently vested or are expected
to vest prior to the Effective Time or 242,750 options which will become vested
at the Effective Time as a result of the Merger because the exercise prices of
these options (as adjusted to give effect to the Exchange Ratios) are, in each
case, higher than the $26.88 closing sales price of the PhyCor Common Stock on
December 19, 1997 (the date of execution of the Merger Agreement). Fractional
shares of PhyCor Common Stock will not be issuable in connection with the
Merger. Holders of FPC Capital Stock will receive cash (without interest) in
lieu of fractional shares of PhyCor Common Stock. See "THE MERGER."

In addition, at the Effective Time, all options to purchase shares of
FPC Capital Stock which are outstanding at such time, whether or not then
vested or exercisable, will immediately become options to purchase PhyCor
Common Stock, and PhyCor will assume each such option and each stock option
plan under which it was issued, or, at the election of PhyCor, PhyCor will
issue options under PhyCor's stock option plans in substitution thereof. The
number of shares of PhyCor Common Stock subject to each stock option assumed,
or substituted therefor, and the exercise prices for such shares will be
adjusted to give effect to the Exchange Ratios. See "THE MERGER--Certain
Covenants." Further, FPC is contractually obligated to deliver an aggregate of
1,627,197 shares of its Class A Common Stock to physicians of certain Managed
Group Practices at specified future dates, and it is anticipated that such
rights will become rights to receive a number of shares of PhyCor Common Stock
determined by giving effect to the Common Stock Exchange Ratio.

Recommendations of the Board of Directors. The FPC Board has approved
the Merger Agreement and the Change of Control Payments and recommends a vote
FOR approval and adoption of the Merger Agreement and FOR approval of the
Change of Control Payments by the stockholders of FPC. The FPC Board believes
that the terms of the Merger are in the best interests of FPC and its
stockholders.

Opinion of Financial Advisor. Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") has acted as financial advisor to FPC in connection with
the Merger and has delivered to the FPC Board its written opinion dated
December 19, 1997 to the effect that, as of the date of such opinion and based
upon and subject to certain matters stated therein, the Common Stock Exchange
Ratio

10
<PAGE> 15

was fair, from a financial point of view, to the holders of FPC Class A Common
Stock and FPC Class B Common Stock, in the aggregate (together, the "FPC Common
Stock"). The full text of the written opinion of DLJ, which sets forth the
assumptions made, matters considered and limitations on the review undertaken,
is attached as Annex B to this Prospectus-Proxy Statement and should be read
carefully and in its entirety. DLJ'S opinion is directed only to the fairness
of the Common Stock Exchange Ratio from a financial point of view, does not
address the fairness of the other Exchange Ratios or any other aspect of the
Merger or related transactions and does not constitute a recommendation to any
stockholder as to how such stockholder should vote at the Special Meeting. FPC
did not seek, and DLJ did not deliver, an opinion with respect to the
consideration to be paid in the Merger to holders of FPC Capital Stock, other
than the holders of FPC Common Stock. Affiliates of DLJ own approximately 12%
of the outstanding FPC Class A Common Stock, 30% of the outstanding FPC Class A
Preferred Stock and 27% of the outstanding FPC Class B Convertible Preferred
Stock, and, as a result, DLJ is not independent. For its services in rendering
its opinion, DLJ is entitled to a fee that is based in part on the value of the
Merger consideration and would have equaled $0.9 million using the closing
sales prices of the PhyCor Common Stock on both December 19, 1997 and March 11,
1998, respectively. See "THE MERGER--Opinion of Donaldson, Lufkin & Jenrette
Securities Corporation."

Effective Time of the Merger. The Merger will become effective upon
the filing by Subsidiary and FPC of a Certificate of Merger under the General
Corporation Law of the State of Delaware (the "DGCL"), or at such later time as
may be specified in such Certificate of Merger. The Merger Agreement requires
that this filing be made as soon as practicable following satisfaction or
waiver of the various conditions to the Merger set forth in the Merger
Agreement, or at such other time as may be agreed by PhyCor, Subsidiary and
FPC. See "THE MERGER--Effective Time of the Merger" and "--Conditions to the
Merger."

Exchange of Certificates. At least two business days prior to the
date FPC provides notices to its stockholders of the Special Meeting, PhyCor
and FPC will enter into an agreement with First National Bank of North Carolina
(the "Exchange Agent") which will provide that PhyCor shall deposit with the
Exchange Agent, for the holders of FPC Capital Stock, for exchange pursuant to
the Merger Agreement, through the Exchange Agent, (i) as soon as practicable
(but in any event within five business days) after such agreement has been
entered into, certificates representing the shares of PhyCor Common Stock
issuable pursuant to the Merger Agreement and (ii) at least two business days
prior to the Effective Time, cash in an amount equal to the aggregate amount
required to be paid to holders of FPC Capital Stock in lieu of fractional
interests of PhyCor Common Stock and any dividends or distributions to which
such holder is entitled pursuant to the Merger. STOCKHOLDERS SHOULD NOT SEND
ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS. See "THE MERGER--Exchange of
Certificates."

Representations and Warranties. The Merger Agreement contains certain
representations and warranties made by each of the parties thereto. See "THE
MERGER--Representations and Warranties."

Conditions to the Merger. The obligations of PhyCor and FPC to
consummate the Merger are subject to the satisfaction of certain conditions,
including, among others, (i) obtaining the requisite approval of FPC's
stockholders, (ii) the expiration or termination of the waiting period
applicable to the consummation of the Merger under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (iii) the
absence of any material adverse change in the financial condition, business or
results of operations of the other party, other than as a result of changes
generally applicable to the industries in which both PhyCor and FPC operate,
(iv) the absence of any injunction prohibiting consummation of the Merger, (v)
in the case of FPC, the receipt of a legal opinion with respect to certain tax
consequences of the Merger and (vi) qualification of the Merger as a pooling of
interests. See "THE MERGER--Federal Income Tax Consequences," "--Accounting
Treatment" and "--Conditions to the Merger." Each party may waive any of the
conditions to its

11
<PAGE> 16

obligations to consummate the Merger. In the event that the waiver of a
condition by FPC would, in the opinion of the FPC Board, materially and
adversely affect the Merger consideration or the tax consequences of the Merger
to FPC's stockholders, FPC would provide supplemental proxy information to its
stockholders and, if the Special Meeting has not been held, the opportunity to
revoke previously delivered proxies or, if the Special Meeting has been held,
notice of another Special Meeting to consider the Merger.

Regulatory Approvals. The HSR Act provides that certain business
mergers (including the Merger) may not be consummated until certain information
has been furnished to the Department of Justice (the "DOJ") and the Federal
Trade Commission (the "FTC") and certain waiting period requirements have been
satisfied. On January 22, 1998, PhyCor and FPC made their respective filings
with the DOJ and the FTC with respect to the Merger Agreement. On February 13,
1998, the DOJ and the FTC granted PhyCor and FPC early termination of the HSR
Act waiting period. Notwithstanding the early termination of the HSR Act
waiting period, at any time before or after the Effective Time, the FTC, the
DOJ or others could take action under the antitrust laws, including requesting
additional information, seeking to enjoin the consummation of the Merger or
seeking the divestiture by PhyCor of all or any part of the stock or assets of
FPC. There can be no assurance that a challenge to the Merger on antitrust
grounds will not be made or, if such a challenge were made, that it would not
be successful.

Interests of Certain Persons in the Merger; Approval of Change Control
of Payments. In considering the recommendation of the FPC Board with respect
to the Merger Agreement and the Change of Control Payments and the transactions
contemplated thereby, stockholders should be aware that certain members of the
management of FPC and the FPC Board have interests in the Merger that are in
addition to the interests of stockholders of FPC generally. Specifically, the
executive officers and directors own options to purchase 280,750 shares of FPC
Class A Common Stock that will become immediately exercisable as a result of
the Merger. Stephen A. George, M.D., Chairman, Chief Executive Officer and
President of FPC, has entered into an Amended and Restated Consulting and
Non-Compete Agreement (the "Consulting Agreement") with PhyCor that provides
for services and payments after the Merger. Additionally, pursuant to his
employment agreement with FPC, Dr. George will be entitled to receive $300,000
payable in twelve monthly installments as a severance payment. The Change of
Control Payments payable to Dr. George are conditioned on the completion of the
Merger and will be due and owing if the Merger is approved. If the Merger is
not approved by FPC's stockholders, or is otherwise not completed, Dr. George
will not be entitled to the Change of Control Payments. FPC is taking steps,
including obtaining stockholder approval of the Change of Control Payments to
ensure that the Change of Control Payments do not result in excise tax
liability under Section 4999 of the Code. In the event, however, that any
portion of the Change of Control Payments do result in the imposition of such
excise tax liability, PhyCor will pay such amounts on behalf of Dr. George and
will provide additional compensation to him to offset the effect of such taxes.
FPC has been advised by legal counsel that tax liability under Section 4999 of
the Code should not be imposed if the Change of Control Payments are approved
by the holders of 75%, excluding those shares held by Dr. George, of the
outstanding FPC Voting Stock (voting together as a class, with holders of the
FPC Class B Convertible Preferred Stock and Class C Convertible Preferred Stock
being entitled to cast the same number of votes as they would be entitled to
cast had they converted such securities into Class A Common Stock). In
addition to the severance payments

12
<PAGE> 17

to Dr. George, PhyCor will make severance payments to each of FPC's other
executive officers. Andrew B. Adams, M.D., the Executive Vice President of
Managed Care Services of FPC, and Karl A. Hardesty, the Senior Vice President
and Chief Financial Officer of FPC, will be entitled under the terms of their
existing employment agreements to receive $200,000 and $73,500, respectively,
if they voluntarily terminate their employment following the Merger. PhyCor
has also agreed to pay Donald B. Smallwood, the Executive Vice President of
Managed Care Services of FPC, and Kelly J. DeKeyser, the Executive Vice
President of Clinic Operations of FPC, $82,500 and $60,000, respectively, upon
the earlier of their involuntary termination of employment or, subject to
completion of the Merger, May 15, 1998. See "THE MERGER--Interests of Certain
Persons in the Merger; Approval of Change of Control Payments" and "--Certain
Covenants."

Termination. The Merger Agreement may be terminated at any time prior to
the Effective Time in a number of circumstances, which include, among others:
(a) by the mutual consent of FPC, the Subsidiary and PhyCor; (b) by either FPC
or PhyCor if (i) the adoption of the Merger Agreement and the approval of the
transactions contemplated thereby by the holders of FPC Capital Stock shall not
have been obtained, (ii) the Merger shall have not been consummated by July 31,
1998, provided that the terminating party shall not have willfully and
materially breached its obligations under the Merger Agreement, (iii) a court
or governmental, regulatory or administrative agency or commission shall have
issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the Merger and such order shall
have become final and nonappealable, (iv) the other party has materially
breached any representation, warranty, covenant or agreement contained in the
Merger Agreement or experienced a material adverse change which cannot be, or
has not been, cured within 30 days after written notice of such breach or (v)
the conditions to the obligations of such party shall be satisfied and such
obligations of the other party are not capable of being satisfied; (c) by FPC
if (i) the FPC Board, prior to approval of the Merger by the stockholders of
FPC, in the exercise of its good faith judgment as to its fiduciary duties to
its stockholders imposed by law, determines not to recommend the Merger to
FPC's stockholders or shall have withdrawn such recommendation or approval, or
recommended or endorsed any Acquisition Transaction (as defined hereinafter);
(ii) the Closing Price of the PhyCor Common Stock is equal to or less than
$20.00 unless PhyCor agrees to increase the Exchange Ratios such that the
aggregate value of the shares of PhyCor Common Stock to be received by FPC's
stockholders is equal to $20.00 times the number of shares to be received by
FPC's stockholders using the current Exchange Ratios; or (iii) the Registration
Statement has not been declared effective or if the waiting period (and any
extension thereof) under the HSR Act has not expired or been terminated by
April 30, 1998; or (d) by either party within ten days upon receipt of notice
of the occurrence of a subsequent event to the other party that would prevent
such other party from fulfilling its conditions to the Merger. See "THE
MERGER--Termination."

In the event that the Closing Price of the PhyCor Common Stock is less
than $20.00 per share, the FPC Board intends to reconsider its determination
that the Merger is in the best interests of its stockholders. It is
anticipated that such reconsideration would include an analysis of the various
factors set forth herein under "THE MERGER - Reasons for the Merger;
Recommendation of the Board of Directors" in light of then existing
circumstances and market conditions, the actual Closing Price and any
information FPC may have received from its stockholders in connection with the
solicitation of proxies for the Special Meeting. If the FPC Board continues to
believe that the Merger is in the best interests of its stockholders and if the
merger consideration would be materially below $20.00, FPC would provide its
stockholders with notice of another special meeting to consider the Merger. If
the FPC Board does not continue to believe the Merger is in the best interests
of its stockholders, FPC would exercise its termination right subject to
PhyCor's electing to increase the Exchange Ratios as discussed above. See "THE
MERGER - Termination."

Break-Up Fee, Third Party Bids. In the event that the Merger
Agreement is terminated as a result of the FPC Board, in the exercise of its
fiduciary duties under applicable law, approving, recommending or endorsing an
Acquisition Transaction and within one year after the effective date

13
<PAGE> 18

of such termination, FPC is the subject of an Acquisition Transaction with any
Person (as defined in Sections 3(a)(9) and 13(d)(3) of the Exchange Act), then
at the time of the execution by FPC of a definitive agreement with respect
thereto, FPC shall pay PhyCor a break-up fee of 3% of the aggregate
consideration that PhyCor would have paid to FPC if the Merger had been
consummated. Such break-up fee would have equaled approximately $3.0 million
based on the $25.94 closing sales price of PhyCor Common Stock on March 11,
1998. See "THE MERGER--Break-Up Fee."

Irrevocable Proxies. As a condition to PhyCor entering into the
Merger Agreement, Stephen A. George, M.D., Andrew B. Adams, M.D., Kelly J.
DeKeyser, Donald B. Smallwood, Karl A. Hardesty, (each an executive officer of
FPC), Michael A. Jutras, M.D. (a director of FPC), Sprout Capital VI, L.P.,
Sprout Growth II, L.P., DLJ Capital Corporation and WCAS, who beneficially owned
shares representing approximately 82.31% of the votes attributable to
outstanding FPC Voting Stock and 96.81% of the outstanding shares of FPC Class A
Preferred Stock as of March 11, 1998, granted irrevocable proxies to Messrs.
Hutts and Adams to vote their respective shares of FPC Capital Stock (and any
other shares of FPC Capital Stock acquired after the date of the Merger
Agreement, including shares acquired pursuant to the exercise of any rights to
purchase or otherwise acquire shares) at the Special Meeting.

Accounting Treatment. It is intended, and a condition to the
consummation of the Merger, that the Merger be accounted for as a pooling of
interests. See "THE MERGER--Accounting Treatment."

Federal Income Tax Consequences. The Merger is intended to qualify
for federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
If the Merger so qualifies, in general, no gain or loss will be recognized by a
holder of FPC Capital Stock who exchanges such stock for PhyCor Common Stock
pursuant to the Merger except that (i) gain or loss may be recognized to the
extent of cash received in lieu of fractional shares of PhyCor Common Stock and
(ii) gain may be recognized to the extent that PhyCor pays, on behalf of such
holder, any "transfer taxes" imposed on such holder by virtue of the Merger.
Each FPC stockholder's aggregate tax basis in the PhyCor Common Stock received
in the Merger will be equal to his or her aggregate tax basis in the FPC
Capital Stock surrendered in the Merger, and his or her holding period for the
PhyCor Common Stock will include the holding period for the FPC Capital Stock
surrendered. It is the opinion of Mayor, Day, Caldwell & Keeton, L.L.P. that
the Merger will be treated as a reorganization within the meaning of Section
368(a) of the Code and that the federal income tax consequences of the Merger
to FPC's stockholders will be as described herein. See "THE MERGER--Federal
Income Tax Consequences" for a more detailed description of the above federal
income tax matters.

Resale Restrictions. All shares of PhyCor Common Stock received by
holders of FPC Capital Stock in the Merger will be freely transferable, except
that shares of PhyCor Common Stock received by persons who are deemed to be
"affiliates" (as such term is defined under the Securities Act) of FPC at the
time of the Special Meeting may be resold by such persons only in certain
permitted circumstances. See "THE MERGER--Resale of PhyCor Common Stock by
Affiliates."

Appraisal Rights. Holders of FPC Capital Stock are entitled to
appraisal rights as a result of the Merger. Holders who perfect appraisal
rights may obtain payment of the fair value of their shares in accordance with
Section 262 of the DCGL, a copy of which is included herein as Annex D. See
"APPRAISAL RIGHTS OF FPC STOCKHOLDERS."

Nasdaq Listing. A listing application will be filed with the Nasdaq
National Market to list the shares of PhyCor Common Stock to be issued to the
holders of FPC Capital Stock in the Merger. Although no assurance can be given
that the Nasdaq National Market will accept such shares of PhyCor Common Stock
for listing, PhyCor and FPC anticipate that these shares will qualify for
listing. It is a condition to the obligation of PhyCor and FPC to consummate
the Merger that such

14
<PAGE> 19

shares of PhyCor Common Stock be approved for listing on the Nasdaq National
Market upon official notice of issuance at the Effective Time. See "THE
MERGER--Nasdaq National Market Listing."

COMPARISON OF RIGHTS OF FPC STOCKHOLDERS AND PHYCOR SHAREHOLDERS

Upon consummation of the Merger, FPC stockholders will become PhyCor
shareholders. There are differences between the rights of FPC stockholders and
the rights of PhyCor shareholders as a result of certain differences between
Delaware and Tennessee law and between the governing instruments of FPC and
PhyCor. The material differences include the following: (i) directors of
PhyCor are divided into three classes and serve staggered terms while directors
of FPC do not; (ii) holders of 75% of the shares of FPC Voting Securities are
parties to a voting agreement with respect to the election of directors and, as
a result, can control the composition of the FPC Board; (iii) directors of FPC
can be removed with or without cause while PhyCor directors can be removed only
for cause; (iv) special meetings of stockholders may be called by holders of
25% of the outstanding shares of capital stock of FPC as compared to 10% of the
outstanding shares of capital stock of PhyCor; and (v) the ability of a third
party to effect a change of control of PhyCor may be somewhat more restricted
as a result, in part, of differences in Delaware and Tennessee law and the fact
that PhyCor has adopted a shareholder rights plan while FPC has not. See
"COMPARISON OF RIGHTS OF FPC AND PHYCOR SHAREHOLDERS."

MARKET AND MARKET PRICE

PhyCor Common Stock is listed under the symbol "PHYC" on the Nasdaq
National Market. The closing sales prices of PhyCor Common Stock as reported on
the Nasdaq National Market on December 19, 1997, the last business day
preceding public announcement of the Merger, was $26.88, and on March 11, 1998
was $25.94. The chart below shows the value of each Exchange Ratio based on
these closing sales prices and on $20.00, which is the price below which FPC
has termination rights pursuant to the Merger Agreement.

<TABLE>
<CAPTION>
EXCHANGE RATIOS
----------------------------------------------------------------------
Class B Class C
Class A Convertible Convertible
Common Stock Preferred Preferred Preferred
----------------- ----------------- ------------------ --------------
<S> <C> <C> <C> <C>
Stock Price of:
$26.88 (1)
Single $6.65 $123.81 $256.08 $66.51
Aggregate(2) $40.3 $ 24.8 $ 28.2 $ 0.8

$25.94 (3)
Single 6.42 119.49 247.11 64.18
Aggregate(2) 38.9 23.9 27.2 0.8

$20.00
Single 4.95 92.14 190.54 49.49
Aggregate(2) 30.0 18.4 21.0 0.6
</TABLE>

- ----------
(1) Based on the closing sales price of PhyCor Common Stock on December 19,
1997, the trading day immediately preceding the public announcement of the
Merger.

(2) Dollars in millions.

(3) Based on the closing sales price of PhyCor Common Stock on March 11, 1998.

FPC is a privately-held Delaware corporation. There has been no
public trading market in the securities of FPC and, therefore, there is no
historical per share price for FPC Capital Stock. See "MARKET PRICE DATA."

15
<PAGE> 20

Holders of FPC Capital Stock are advised to obtain current market
quotations for PhyCor Common Stock. No assurance can be given as to the market
price of PhyCor Common Stock at the Effective Time or at any other time.

COMPARATIVE PER SHARE INFORMATION

The following summary presents selected comparative per share
information (i) for each of PhyCor and FPC on a historical basis, (ii) for the
combined companies on a pro forma basis giving effect to the Merger as a
pooling of interests and (iii) for FPC on a pro forma equivalent basis giving
effect to the Merger as a pooling of interests. This financial information
should be read in conjunction with the historical consolidated financial
statements of PhyCor and FPC and the related notes thereto contained elsewhere
herein or in documents incorporated herein by reference.

Neither PhyCor nor FPC has paid any cash dividends since inception.
It is anticipated that PhyCor will retain all earnings for use in the expansion
of the business and therefore does not anticipate paying any cash dividends in
the foreseeable future. The payment of future dividends will be at the
discretion of the Board of Directors of PhyCor and will depend, among other
things, upon PhyCor's earnings, capital requirements, financial condition and
debt covenants.

The following information is not necessarily indicative of the
combined results of operations or combined financial position that would have
resulted had the Merger been consummated at the beginning of the periods
indicated, nor is it necessarily indicative of the combined results of
operations in future periods or future combined financial position.

<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30, 1997
------------------------- ------------------
1994 1995 1996 (Unaudited)
<S> <C> <C> <C> <C>
Net earnings (loss) per common share:
PhyCor historical . . . . . . . . . . $0.32 $0.41 $0.60 $0.61
PhyCor pro forma combined . . . . . . 0.23 0.31 0.46 0.58
FPC historical . . . . . . . . . . . . (1.25) (1.92) (2.69) (0.50)
FPC pro forma equivalent(1) . . . . . 0.06 0.08 0.11 0.14
</TABLE>

<TABLE>
<CAPTION>
December 31, 1996 September 30, 1997
----------------- ------------------
Book value (deficit) per common share: (Unaudited)
<S> <C> <C>
PhyCor historical . . . . . . . . . . . . . $8.24 $11.57
PhyCor pro forma combined . . . . . . . . . 8.39 11.54
FPC historical . . . . . . . . . . . . . . . (2.42) (2.04)
FPC pro forma equivalent(1) . . . . . . . . 2.07 2.86
</TABLE>

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

(1) FPC equivalent pro forma per share amounts are calculated by
multiplying the respective PhyCor pro forma combined per share amounts
by the Common Stock Exchange Ratio.

16
<PAGE> 21

SELECTED CONSOLIDATED FINANCIAL DATA--PHYCOR

The following table sets forth selected consolidated financial data
which have been derived from the consolidated financial statements of PhyCor as
of and for the years ended December 31, 1992 through 1996. The consolidated
financial statements as of and for the years ended December 31, 1992 through
1996 have been audited by KPMG Peat Marwick LLP. The selected consolidated
financial information as of and for the nine month periods ended September 30,
1996 and 1997 are derived from unaudited consolidated financial statements
that, in the opinion of PhyCor, reflect all adjustments necessary for a fair
presentation of the results of PhyCor for those periods. The consolidated
statements of operations data for the interim periods are not necessarily
indicative of results for subsequent periods or the full year. The information
set forth below should be read in conjunction with and are qualified in their
entirety by the consolidated financial statements and related notes which have
been incorporated by reference herein.

NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ----
Statement of Operations Data: (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue . . . . . . . . . . . . $135,866 $167,381 $242,485 $441,596 $766,325 $535,562 $802,297
Net operating expenses . . . . . . . 145,354 155,580 223,355 395,452 684,593 478,217 712,242
Earnings (loss) from operations. . . (9,488) 11,801 19,130 46,144 81,732 57,345 90,055
Interest expense and minority . . .
interests . . . . . . . . . . . . 3,852 3,569 2,629 10,347 22,577 16,398 23,073
-------- -------- -------- -------- -------- -------- --------
Earnings (loss) before income
taxes . . . . . . . . . . . . . . (13,340) 8,232 16,501 35,797 59,155 40,947 66,982
-------- -------- -------- -------- -------- -------- --------
Income tax expense . . . . . . . . . 405 1,092 4,826 13,923 22,775 15,765 25,929
-------- -------- -------- -------- -------- -------- --------
Net earnings (loss) . . . . . . . . $(13,745)(1) $ 7,140(2) $ 11,675(2) $ 21,874 $ 36,380 $ 25,182 $ 41,053
======== ======== ======== ======== ======== ======== ========
Net earnings (loss) per share
Primary . . . . . . . . . . . . . . $ (0.57)(1) $ 0.28(2) $ 0.32(2) $ 0.41 $ 0.60 $ 0.42 $ 0.61
======== ======== ======== ======== ======== ======== ========
Fully diluted . . . . . . . . . . . $ -- $ -- $ 0.31 $ -- $ -- $ -- $ --
======== ======== ======== ======== ======== ======== ========
Weighted average shares
outstanding . . . . . . . . . . . . .
Primary . . . . . . . . . . . . . . 23,942 25,869 36,329 53,510 61,096 60,555 66,853
Fully diluted . . . . . . . . . . . -- -- 43,427 -- -- -- --
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------------- -------------
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA: (IN THOUSANDS) (UNAUDITED)
Working capital . . . . . . . 35,920 46,927 80,533 111,420 212,946 $235,161
Total assets . . . . . . . . 141,442 171,174 351,385 643,586 1,118,581 1,502,010
Long-term debt, less current
portion . . . . . . . . 54,087 69,014 94,653 140,633 474,600 464,825
Total stockholders' equity . 53,879 70,005 184,125 388,822 451,703 744,263
</TABLE>

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

(1) Excluding the effect of the non-recurring pre-tax charge to earnings
of $18.6 million incurred in connection with the restructuring and
sale of assets of the Miller Medical Clinic, which was formerly
affiliated with PhyCor, and a net operating loss carryforward,
PhyCor's net earnings per share for 1992 would have been approximately
$3.2 million and $0.14 per share, respectively.

(2) Excluding the effect of the utilization of a net operating loss
carryforward to reduce income taxes in 1993 and 1994, net earnings and
net earnings per share would have been $5.1 million, or $0.20 per
share, and $10.2 million, or $0.27 per share, in such years.

17
<PAGE> 22

SELECTED CONSOLIDATED FINANCIAL DATA -- FPC

The selected consolidated financial data presented below is as of and
for the nine months ended September 30, 1996 and 1997 and for the years ended
December 31, 1993, 1994, 1995 and 1996. Information for the years ended
December 31, 1993, 1994, 1995 and 1996 has been audited by Ernst & Young LLP.
The selected consolidated financial data presented for the nine month periods
ended September 30, 1996 and 1997 and as of September 30, 1997 is derived from
unaudited consolidated financial statements that, in the opinion of FPC,
reflect all adjustments necessary for a fair presentation of the results of
operations of FPC for those periods. The consolidated statements of operations
data for interim periods are not necessarily indicative of results for
subsequent periods or the full year. The information set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements,
and related notes and other financial information included elsewhere herein.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- ---------------------
1993 1994 1995 1996(1) 1996(1) 1997(2)
------- ------- -------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue from owned FPC Group Practices . $ -- $ 3,744 $ 19,718 $ 32,169 $ 23,062 $ 26,213
Total revenue from Managed Group Practices . . -- - -- 5,422 1,371 31,894
------- ------- -------- -------- ------- --------
Total Revenue . . . . . . . . . . . . . . . . . -- 3,744 19,718 37,591 24,433 58,107
Less amounts retained by managed groups . . . . -- -- -- (2,355) (628) (11,975)
------- ------- -------- -------- ------- --------
Net Revenue . . . . . . . . . . . . . . . . . . -- 3,744 19,718 35,236 23,805 46,123

Operating costs and expenses:
Cost of Medical Services . . . . . . . . . . -- 2,264 12,139 17,375 12,798 12,942
Clinic operations . . . . . . . . . . . . . -- 2,303 9,042 19,558 12,233 30,376
Corporate, general and administrative . . . 474 2,172 3,181 4,211 2,983 3,439
Depreciation and amortization . . . . . . . 1 149 624 1,332 882 1,607
Loss on impairment of long-term assets . . . -- -- -- 884 884 --
------- ------- -------- -------- -------- --------
Total operating costs and expenses . . . . . . 474 6,888 24,986 43,360 29,780 48,364
Other (income) expense . . . . . . . . . . . . 5 (250) (293) (721) (497) (701)
------- ------- -------- -------- -------- --------
Net loss . . . . . . . . . . . . . . . . . . . $ (480) $(2,894) $ (4,975) $ (7,403) $ (5,478) $ (1,531)

Cumulative dividends and accretion on Class A
Preferred Stock . . . . . . . . . . . . . . -- -- (109) (1,007) (650) (1,082)
------- ------- -------- -------- -------- --------
Net loss attributable to common stockholders . $ (480) $ (2,894) $ (5,084) $ (8,410) $ (6,128) $ (2,613)
======= ======== ======== ======== ======== ========
Net loss per common share . . . . . . . . . . . $ (2.00) $ (1.25) $ (1.92) $ (2.69) $ (2.11) $ (0.50)
======= ======== ======== ======== ======== ========
Weighted average shares outstanding . . . . . 240 2,321 2,655 3,126 2,898 5,265
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------------------------------------- -------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
BALANCE SHEET DATA: (IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C>
Working capital . . . . . . . . . . . . . . . . $2,486 $4,072 $1,610 $3,437 $ 5,453
Total assets . . . . . . . . . . . . . . . . . 2,844 10,626 12,738 32,451 35,423
Long-term debt . . . . . . . . . . . . . . . . - 458 2,482 7,315 7,310
Total common stockholders' deficit . . . . . . (448) (3,306) (8,247) (12,259) (11,783)
</TABLE>

- -------------------------------------------------------------------------------
(1) Includes the operations of Doctors Walk-In Clinic from June 1, 1996,
Riverbend Physicians & Surgeons from August 1, 1996 and Physician Capital
Partners from December 1, 1996.

(2) Includes Eastside Physicians from August 1, 1997.

18
<PAGE> 23

RISK FACTORS

In addition to the other information in this Prospectus-Proxy
Statement, the following should be considered carefully by holders of FPC
Capital Stock in evaluating the Merger. This discussion also identifies
important cautionary factors that could cause PhyCor's actual results to differ
materially from those projected in forward-looking statements of PhyCor included
herein or incorporated herein by reference. In particular, forward-looking
statements including, but not limited to, those regarding the integration of the
operations of FPC, the achievement of certain benefits in the Merger, future
business prospects, the acquisition of additional clinics, the development of
additional IPAs, the adequacy of PhyCor's capital resources, the future
profitability of capitated fee arrangements and other statements regarding
trends relating to various revenue and expense items, could be affected by a
number of risks and uncertainties including those described below.

UNCERTAINTIES IN INTEGRATING BUSINESS OPERATIONS AND ACHIEVING BENEFITS OF THE
MERGER

The full benefits of a business combination of PhyCor and FPC will
require the integration of each company's operational management. There can be
no assurance that such actions will be successfully accomplished as rapidly as
currently expected, if at all. Moreover, although the primary purpose of such
actions will be to realize direct cost savings and other operating
efficiencies, synergies and benefits, which PhyCor estimates will total
approximately $4.0 million annually, there can be no assurance of the extent to
which or whether such cost savings, efficiencies, synergies and benefits will
be achieved.

Acquisitions of PPM companies and physician practices entail the risks
that such acquisitions will fail to perform in accordance with expectations and
that PhyCor will be unable to successfully integrate such acquired businesses
and physician practices into its operations. The profitability of PhyCor is
largely dependent on its ability to develop and integrate networks of
physicians, to manage and control costs and to realize economies of scale from
acquisitions of PPM companies and physician practices. The histories,
geographic locations, business models, including emphasis on managed care and
fee-for-service, and cultures of acquired PPM businesses and physician
practices may differ from PhyCor's past experiences. Dedicating management
resources to the integration process may detract attention from the day-to-day
business of PhyCor. Moreover, the integration of the acquired businesses and
physician practices may require substantial capital and financial investments.
PhyCor estimates that the costs of integrating the business operations will
total approximately $6.4 million. These, together with other risks described
herein, could result in the incurrence of substantial costs in connection with
acquisitions that may never achieve revenue and profitability levels comparable
to PhyCor's existing physician networks, which could have a material adverse
effect on the operating results and financial condition of PhyCor.

NO ASSURANCE OF CONTINUED RAPID GROWTH

PhyCor's continued growth will be primarily dependent upon its ability
to achieve significant consolidation of multi-specialty medical clinics, to
sustain and enhance the profitability of those clinics and to develop and
manage IPAs. The process of identifying suitable acquisition candidates and
proposing, negotiating and implementing an economically feasible affiliation
with a physician group or formation or management of a physician network is
lengthy and complex. Clinic and physician network operations require intensive
management in a dynamic marketplace increasingly subject to cost containment
pressures. There can be no assurance that PhyCor will be able to sustain its
historically rapid rate of growth. The success of PhyCor's strategy to develop
and manage IPAs is largely dependent upon its ability to form networks of
physicians, to obtain favorable payor contracts, to manage and control costs
and to realize economies of scale. Many of the agreements entered into by
physicians participating in PhyCor managed IPAs are not exclusive arrangements.
The physicians, therefore, could join competing networks or terminate their
relationships with the IPAs. There can be no assurance that PhyCor will be
successful in acquiring additional physician

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practice assets or PPMs, establishing new IPA networks or maintaining
relationships with affiliated physicians.

ADDITIONAL FINANCINGS

PhyCor's multi-specialty medical clinic acquisition and expansion
program and IPA development program and management plans require substantial
capital resources. The operations of existing clinics require ongoing capital
expenditures for renovation and expansion and the addition of costly medical
equipment and technology utilized in providing ancillary services. PhyCor, in
certain circumstances, has acquired real estate in connection with clinic
acquisitions. PhyCor will require additional financing for the development of
additional IPAs and the expansion and management of existing IPAs. PhyCor
expects that its capital needs over the next several years will exceed capital
generated from operations. PhyCor plans to incur indebtedness and to issue,
from time to time, additional debt or equity securities, including the issuance
of Common Stock or convertible notes in connection with acquisitions. PhyCor's
bank credit facility requires the lenders' consent for borrowings in connection
with the acquisition of certain clinic assets and their consent prior to
consummation of the Merger. There can be no assurance that sufficient financing
will be available on terms satisfactory to PhyCor or at all.

COMPETITION

The business of providing health care related services is highly
competitive. Many companies, including professionally managed PPM companies
like PhyCor and FPC, have been organized to pursue the acquisition of medical
clinics, manage such clinics, employ clinic physicians or provide services to
IPAs. Large hospitals, other multi-specialty clinics and health care
companies, health maintenance organizations ("HMOs") and insurance companies
are also involved in activities similar to those of PhyCor and FPC. Some of
these competitors have longer operating histories and significantly greater
resources than PhyCor. There can be no assurance that PhyCor will be able to
compete effectively, that additional competitors will not enter the market, or
that such competition will not make it more difficult to acquire the assets of
multi-specialty clinics on terms beneficial to PhyCor.

DEPENDENCE ON AFFILIATED PHYSICIANS

Substantially all of PhyCor's revenue is derived from service or
management agreements with PhyCor's affiliated clinics, the loss of certain of
which could have a material adverse effect on PhyCor because of the loss of
revenue from such agreements and the loss of any funds previously loaned by
PhyCor to such clinics to cover the clinics expenses. In addition, any
material decline in revenue by PhyCor's affiliated physician groups, whether as
a result of physicians leaving the affiliated physician groups or otherwise,
could have a material adverse effect on PhyCor.

Two of the clinics which are parties to service agreements with PhyCor
and certain of the group practices managed by FPC operate in overlapping
geographic areas. Each PhyCor service agreement restricts PhyCor's ability to
provide management services to other clinics within the geographic area served.
If PhyCor violates these provisions, the clinics have the right to terminate
the existing service agreement. PhyCor intends to seek the waiver and consent
of both of the clinics with a right to terminate prior to consummation of the
Merger; however, there can be no assurance that the clinics will consent or
grant a waiver to enable PhyCor to provide management services to a competing
FPC clinic. Failure to obtain such consents or the termination of service
agreements by the clinics affiliated with PhyCor is not expected to have a
material adverse effect on the operations of PhyCor.

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RISKS ASSOCIATED WITH CAPITATION; RELIANCE ON PHYSICIAN NETWORKS

Most of the payor contracts entered into by PhyCor IPAs are based on
capitated fee arrangements. Through its service agreements, PhyCor also shares
in capitation risk assumed by its affiliated physician groups. Approximately
13% of PhyCor's net revenue is derived from these capitated fee arrangements.
Under capitation arrangements, health care providers bear the risk, generally
subject to certain loss limits, that the aggregate costs of providing medical
services to the members will exceed the premiums received. The management fees
are based, in part, upon a share of surplus, if any, of a capitated amount of
revenue. Some agreements with payors also contain "shared risk" provisions
under which additional compensation can be earned or economic penalties can be
incurred based on utilization of hospital services by members. Any such losses
could have a material adverse effect on PhyCor. The profitability of a
capitated fee arrangement is dependent upon the ability of the providers to
effectively manage the per patient costs of providing medical services and the
level of utilization of medical services. The management fees are also based
upon a percentage of revenue. Any loss of revenue as a result of losing
affiliated physicians, the termination of third party payor contracts or
otherwise could have a material adverse effect on management fees derived by
PhyCor. Managed care providers and management entities such as PhyCor and FPC
are increasingly subject to liability claims arising from utilization
management, provider compensation arrangements and other activities designed to
control costs by reducing services. A successful claim on this basis against
PhyCor, FPC or an affiliated clinic or IPA could have a material adverse effect
on PhyCor.

RISKS OF CHANGES IN PAYMENT FOR MEDICAL SERVICES

The United States Congress and many state legislatures routinely
consider proposals to reform or modify the health care system, including
measures that would control health care spending, convert all or a portion of
government reimbursement programs to managed care arrangements and balance the
federal budget by reducing spending for Medicare and state health programs.
These measures can affect a health care company's cost of doing business and
contractual relationships. For example, recent developments that affect
PhyCor's activities include: (i) federal legislation requiring a health plan to
continue coverage for individuals who are no longer eligible for group health
benefits and prohibiting the use of "pre-existing condition" exclusions that
limit the scope of coverage; (ii) a Health Care Financing Administration policy
prohibiting restrictions in Medicare risk HMO plans on a physician's
recommendation of other health plans and treatment options to patients; and
(iii) regulations imposing restrictions on physician incentive provisions in
physician provider agreements. There can be no assurance that such legislation,
programs and other regulatory changes will not have a material adverse effect
on PhyCor.

The profitability of PhyCor may be adversely affected by Medicare and
Medicaid regulations, cost containment decisions of third party payors and
other payment factors over which PhyCor has no control. The federal Medicare
program has undergone significant legislative and regulatory changes in the
reimbursement and fraud and abuse areas, including the adoption of the
resource-based relative value scale ("RBRVS") schedule for physician
compensation under Medicare, which may continue to have a negative impact on
PhyCor's revenue. Efforts to control the cost of health care services are
increasing. Many of PhyCor's physician groups are becoming affiliated with
provider networks, managed care organizations and other organized health care
systems, which often provide fixed fee schedules or capitation payment
arrangements that are lower than standard charges. Future profitability in the
changing health care environment, with differing methods of payment for medical
services, is likely to be affected significantly by management of health care
costs, pricing of services and agreements with payors. Because PhyCor derives
its revenues from the revenues generated by its affiliated physician groups and
from managed IPAs, further reductions in payments to physicians generally or
other changes in payment for health care services could have a material adverse
effect on PhyCor.

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ADDITIONAL REGULATORY RISKS

The health care industry and physicians' medical practices are highly
regulated at the state and federal levels. At the state level, all state laws
restrict the unlicensed practice of medicine, and many states also prohibit the
splitting or sharing of fees with nonphysician entities and the enforcement of
noncompetition agreements against physicians. Many states also prohibit the
"corporate practice of medicine" by an unlicensed corporation or other
nonphysician entity. Florida and Georgia, the states in which FPC subsidiaries
directly employ physicians, do not, however, currently enforce any "corporate
practice of medicine" doctrine and direct employment of physicians by
nonphysician entities is permissible. In those states that do prohibit the
corporate practice of medicine, neither PhyCor nor FPC employ physicians.
Instead PhyCor and FPC manage physician groups, and the physicians continue to
be employed at the group level by professional associations or corporations,
which are specifically authorized under most state laws to employ physicians.
Furthermore, most state fee-splitting laws provide that it is a violation only
if a physician shares fees with a referral source. Neither PhyCor nor FPC is a
referral source for their managed groups, and therefore the fee-splitting laws
in most states should not restrict the payment of a management fee by the
physician groups to PhyCor. In Florida, however, the Board of Medicine has
interpreted the Florida fee-splitting law very broadly so as to arguably
include the payment of any percentage-based management fee, even to a
management company that does not refer patients to the managed group. That
particular Board of Medicine opinion is being appealed. Because of the
structure of the relationships of PhyCor with its affiliated physician groups
and managed IPAs, and because of the recent broad fee-splitting interpretation
in the State of Florida, there can be no assurance that review of PhyCor's or
FPC's business by courts or health care, or other regulatory authorities will
not result in determinations that could adversely affect the financial
condition or results of operations of PhyCor. If PhyCor or FPC were found to
have violated the corporate practice of medicine or fee-splitting statutes,
possible consequences could include revocation or suspension of the physicians'
license, resulting in reduced revenue to PhyCor. Courts could also refuse to
uphold the service agreements between PhyCor and its managed physicians on the
grounds that PhyCor was engaging in the unlicensed practice of medicine and
that therefore its contracts were invalid.

Federal law prohibits the offer, payment, solicitation or receipt of
any form of remuneration in return for the referral of, or the arranging for
the referral of, Medicare or other federal or state health program patients or
patient care opportunities, or in return for the purchase, lease or order of
items or services that are covered by Medicare or other federal or state health
programs. In addition, federal law prohibits physicians with certain financial
relationships with health care providers from referring certain types of
Medicare or Medicaid reimbursed "designated health services" to those providers
unless the referral fits within an exception to the law. One of the exceptions
that is used most often requires that physician groups be included within a
definition of "group practice" in order to be permitted to make referrals
within the group. Federal antitrust law also prohibits conduct that may result
in price-fixing or other anticompetitive conduct. The PhyCor and FPC
arrangements have been carefully structured so that the physician groups being
managed fit within the definition of "group practice", and all referrals from
those physicians to ancillary centers are structured to fit within an
applicable exception to federal law. In addition, PhyCor does not make or
influence referrals to its managed or employed physicians, and the compensation
received by PhyCor is not directly related to any referral levels between the
parties. Nevertheless, because of the structure of the relationships of PhyCor
with its affiliated physician groups and managed IPAs, there can be no
assurance that review of PhyCor's or FPC's business by courts or healthcare,
tax or other regulatory authorities will not result in determinations that
could adversely affect the financial condition or results of operations of
PhyCor, or that the health care regulatory environment will not change in a
manner that would restrict PhyCor's and FPC's existing operations or limit the
expansion of PhyCor's business or otherwise adversely affect PhyCor. In
addition to civil and, in some cases, criminal penalties for violation of
Medicare and Medicaid statutes, violators of these statutes may be excluded
from participation in Medicare or state health programs.

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INCREASED GOVERNMENT SCRUTINY OF HEALTH CARE ARRANGEMENTS

There is increasing scrutiny by law enforcement authorities, the
Office of Inspector General ("OIG") of the Department of Health and Human
Services ("DHHS"), the courts, and the United States Congress of arrangements
between health care providers and potential referral sources to ensure that the
arrangements are not designed as a mechanism to exchange remuneration for
patient care referrals and opportunities. Investigators have also demonstrated
a willingness to look behind the documents evidencing a business transaction to
determine the underlying purpose of payments between health care providers and
potential referral sources. Enforcement actions have increased as evidenced by
recent highly publicized enforcement investigations of certain hospital
activities. Although, to their knowledge, PhyCor and FPC are not currently the
subject of any investigation which is likely to have a material adverse effect
on their respective businesses, there can be no assurance that they will not be
the subject of investigations or inquiries in the future.

RISKS ASSOCIATED WITH STRAUB CLINIC & HOSPITAL, INCORPORATED ("STRAUB")
TRANSACTION

In January 1997, PhyCor consummated its merger with Straub, an
integrated health care system with a 152- physician multi-specialty clinic and
159-bed acute care hospital located in Honolulu, Hawaii. In connection with the
transaction with Straub, PhyCor agreed to provide certain management services
to both a physician group practice and a hospital owned by the group. Because
the hospital is subject to extensive regulation and because hospital management
companies have, in some instances, been viewed as referral sources by federal
regulatory agencies, the relationship between PhyCor and the physician group
could come under increased scrutiny under the Medicare fraud and abuse law.

TAX AUDIT

PhyCor has been subject to an audit by the Internal Revenue Service
(the "IRS") covering the years 1988 through 1993. The IRS has proposed
adjustments relating to the timing of recognition for tax purposes of certain
revenue and deductions relating to uncollectible accounts and PhyCor's
relationship with affiliated physician groups. PhyCor disagrees with the
positions asserted by the IRS including any recharacterization and is
vigorously contesting these proposed adjustments. PhyCor believes that any
adjustments resulting from resolution of this disagreement would not affect
reported net earnings of PhyCor but would defer tax benefits and change the
levels of current and deferred tax assets and liabilities. For the years under
audit and, potentially, for subsequent years, any such adjustments could result
in material cash payments by PhyCor. PhyCor does not believe the resolution of
this matter will have a material adverse effect on its financial condition,
although there can be no assurance as to the outcome of this matter.

APPLICABILITY OF INSURANCE REGULATIONS

PhyCor's managed IPAs enter into contracts and joint ventures with
licensed insurance companies, such as HMOs, whereby the IPAs may be paid on a
capitated fee basis. Under capitation arrangements, health care providers bear
the risk, subject to certain loss limits, that the aggregate costs of providing
medical services to members will exceed the premiums received. To the extent
that the IPAs subcontract with physicians or other providers for those
physicians or other providers to provide services on a fee-for-service basis,
the managed IPAs may be deemed to be in the business of insurance, and thus
subject to a variety of regulatory and licensing requirements applicable to
insurance companies or HMOs resulting in increased costs to the managed IPAs,
and corresponding reduced revenue to PhyCor. In connection with
multi-specialty medical clinic acquisitions, PhyCor has and may continue to
acquire HMOs previously affiliated with such clinics. The HMO industry is
highly regulated at the state level and is highly competitive. Additionally,
the HMO industry has been subject to numerous legislative initiatives within
the past several years that would increase potential HMO liability to patients,
resulting in increased costs to HMOs and correspondingly

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<PAGE> 28

reduced revenue to PhyCor. There can be no assurance that developments in any
of these areas will not have an adverse effect on PhyCor's wholly-owned HMOs or
on HMOs in which PhyCor has a partial ownership interest or other financial
involvement.

RISKS INHERENT IN PROVISION OF MEDICAL SERVICES

The physician groups with which PhyCor and FPC affiliate and the
physicians participating in networks developed and managed by PhyCor and FPC
are involved in the delivery of medical services to the public and, therefore,
are exposed to the risk of professional liability claims. Claims of this
nature, if successful, could result in substantial damage awards to the
claimants which may exceed the limits of any applicable insurance coverage.
Insurance against losses related to claims of this type can be expensive and
varies widely from state to state. PhyCor and FPC typically are indemnified
under their service agreements for claims against the physician groups,
maintain liability insurance for themselves and negotiate liability insurance
for the physicians affiliated with their clinics and, in some cases, for claims
against the IPAs and physician members. Successful malpractice claims asserted
against the physician groups, the managed IPAs, PhyCor or FPC, however, could
have a material adverse effect on PhyCor.

ANTI-TAKEOVER CONSIDERATIONS

PhyCor is authorized to issue up to 10,000,000 shares of preferred
stock, the rights of which may be fixed by the Board of Directors. In February
1994, the Board of Directors approved the adoption of a Shareholder Rights Plan
(the "PhyCor Rights Plan"). The PhyCor Rights Plan is intended to encourage
potential acquirers to negotiate with PhyCor's Board of Directors and to
discourage coercive, discriminatory and unfair proposals. PhyCor's stock
incentive plans provide for the acceleration of the vesting of options in the
event of a change in control. The PhyCor Charter provides for the
classification of its Board of Directors into three classes, with each class of
directors serving staggered terms of three years. Provisions in the executive
officers' employment agreements provide for post-termination compensation,
including payment of certain of the executive officers' salaries for 24 months,
following a change in control. Most physician groups may terminate their
service agreements with PhyCor in certain events, including a change in control
of PhyCor which is not approved by a majority of PhyCor's Board of Directors. A
change in control of PhyCor also constitutes an event of default under PhyCor's
bank credit facility. The foregoing matters may, together or separately, have
the effect of discouraging or making more difficult an acquisition or change of
control of PhyCor. None of the protective measures discussed above are
triggered by the Merger.

INTERESTS OF CERTAIN PERSONS IN THE MERGER

Certain executive officers and directors of FPC have interests in the
Merger that are in addition to and potentially in conflict with the interests
of the holders of FPC Capital Stock generally. The FPC Board was aware of
these interests and considered them, among other matters, prior to approving
the Merger Agreement and the transactions contemplated thereby. See "THE
MERGER - Interests of Certain Persons in the Merger."

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THE SPECIAL MEETING

GENERAL

This Prospectus-Proxy Statement is being furnished to holders of FPC
Capital Stock in connection with the solicitation of proxies by the Board of
Directors for use at the Special Meeting to consider and vote upon a proposal
to approve and adopt the Merger Agreement and a proposal to approve the Change
of Control Payments and to transact such other business as may properly come
before the Special Meeting or any adjournments or postponements thereof.

Each copy of this Prospectus-Proxy Statement mailed to holders of FPC
Capital Stock is accompanied by a form of Proxy to be used at the Special
Meeting.

This Prospectus-Proxy Statement is also furnished to holders of FPC
Capital Stock as a Prospectus in connection with the issuance to them of the
shares of PhyCor Common Stock upon consummation of the Merger.

DATE, PLACE AND TIME

The Special Meeting will be held at the corporate offices of FPC
located at 3200 Windy Hill Road, Suite 400 West, Atlanta, Georgia 30339, on
__________________, 1998 at 9:00 a.m., Eastern time.

RECORD DATE; QUORUM

The FPC Board has fixed the close of business on the Record Date for
the determination of holders of FPC Capital Stock entitled to receive notice of
and to vote at the Special Meeting. The presence, in person or by proxy, of a
majority of the shares of each of the FPC Voting Stock (voting together as a
class) and the FPC Class A Preferred Stock entitled to vote at the Special
Meeting will constitute a quorum at the Special Meeting. Abstentions (but not
broker non-votes) will be counted for purposes of determining the presence of a
quorum at the Special Meeting.

VOTES REQUIRED

As of March 11, 1998, there were outstanding and entitled to vote
4,041,473 shares of FPC Class A Common Stock (held of record by 117 persons),
200,000 shares of FPC Class A Preferred Stock (held of record by 15 persons),
110,000 shares of FPC Class B Convertible Preferred Stock (held of record by 25
persons) and 12,000 shares of FPC Class C Convertible Preferred Stock (held of
record by one person). As of such date, the directors and executive officers
of FPC and their affiliates beneficially owned an aggregate of 3,181,925 shares
of FPC Capital Stock (excluding shares issuable upon exercise of options and
convertible securities into FPC Class A Common Stock), representing
approximately 82b.31% of the votes attributable to shares of FPC Voting Stock
outstanding on such date and 96.81% of the outstanding shares of FPC Class A
Preferred Stock outstanding on such date. Additionally, Stephen A. George,
M.D., Andrew B. Adams, M.D., Kelly J. DeKeyser, Donald B. Smallwood, Karl A.
Hardesty (each an executive officer of FPC), Michael A. Jutras, M.D. (a
director of FPC), Sprout Capital VI, L.P., Sprout Growth II, L.P., DLJ Capital
Corporation and WCAS have granted to Joseph C. Hutts, Chairman, President and
Chief Executive Officer of PhyCor, and Steven R. Adams, Vice President of
PhyCor, an irrevocable proxy to vote all shares of FPC Capital Stock
collectively owned by them at the Special Meeting. As of the Record Date,
neither PhyCor nor its affiliates beneficially owned any shares of FPC Capital
Stock. See "THE MERGER--Interest of Certain Persons in the Merger."

Merger Agreement. Approval and adoption of the Merger Agreement
requires the affirmative vote of a majority of the outstanding shares of FPC
Voting Stock (voting together as a class, with holders of the FPC Class B
Convertible Preferred Stock and FPC Class C Convertible Preferred

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<PAGE> 30

Stock being entitled to cast 38.504 and 10 votes per share, respectively, which
is the same number of votes as they would be entitled to cast had they
converted such securities into FPC Class A Common Stock) and the affirmative
vote of 66 2/3% of the outstanding shares of FPC Class A Preferred Stock, at
the Special Meeting. Messrs. Hutts and Adams intend to vote the shares for
which they have received irrevocable proxies for the adoption of the Merger
Agreement. By the unanimous vote of the members of the FPC Board at a special
meeting held on December 19, 1997, the FPC Board determined that the proposed
Merger, and the terms and conditions of the Merger Agreement, were in the best
interests of FPC and its stockholders. The Merger Agreement was unanimously
adopted and approved by the FPC Board, which also unanimously recommended that
the holders of FPC Capital Stock vote FOR approval and adoption of the Merger
Agreement.

In the event that the Merger Agreement is not approved and adopted by
the FPC stockholders, the Merger Agreement may be terminated by PhyCor or FPC
in accordance with its terms. Such approval is also a condition to PhyCor's and
FPC's obligations to consummate the Merger. See "THE MERGER--Conditions to the
Merger" and "--Termination."

Change of Control Payments. Approval of the Change of Control
Payments requires the affirmative vote of the holders of 75%, excluding those
shares held by Dr. George, of the outstanding FPC Voting Stock (voting together
as a class, with holders of the FPC Class B Convertible Preferred Stock and
Class C Convertible Preferred Stock being entitled to cast the same number of
votes as they would be entitled to cast had they converted such securities into
Class A Common Stock). Messrs. Hutts and Adams intend to vote the shares for
which they have received irrevocable proxies for the Change of Control
Payments.

VOTING AND REVOCATION OF PROXIES

The shares of FPC Capital Stock represented by a Proxy properly signed
and received at or prior to the Special Meeting, unless subsequently revoked,
will be voted in accordance with the instructions thereon. IF A PROXY FOR THE
SPECIAL MEETING IS PROPERLY EXECUTED AND RETURNED WITHOUT INDICATING ANY VOTING
INSTRUCTIONS, SHARES OF FPC VOTING STOCK REPRESENTED BY THE PROXY WILL BE VOTED
FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. Any Proxy given pursuant to
the solicitation may be revoked by the person giving it at any time before the
Proxy is voted by the filing with the Secretary of FPC of an instrument
revoking it or of a duly executed Proxy bearing a later date, prior to or at
the Special Meeting, or by voting in person at the Special Meeting. Attendance
at the Special Meeting will not in and of itself constitute a revocation of a
Proxy. Only votes cast for approval of the Merger Agreement, the Change of
Control Payments or other matters constitute affirmative votes. Abstentions and
broker non-votes will, therefore, have the same effect as votes against
approval of the Merger Agreement and the Change of Control Payments at the
Special Meeting.

The FPC Board is not aware of any business to be acted upon at the
Special Meeting other than as described herein. If, however, other matters are
properly brought before the Special Meeting, or any adjournments or
postponements thereof, the persons appointed as proxies will have discretion to
vote or act thereon according to their best judgment and subject to applicable
rules of Delaware law. Discretionary authority will not be used to vote in
favor of adjournment of the Special Meeting. Votes against approval of the
Merger Agreement and the Change of Control Payments will not be voted for
adjournment of the Special Meeting.

SOLICITATION OF PROXIES

In addition to solicitation by mail, directors, officers and employees
of FPC, who will not be specifically compensated for such services, may solicit
proxies from the holders of FPC Capital Stock, personally or by telephone or
telegram or other form of communication. Nominees, fiduciaries and

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<PAGE> 31

other custodians will be requested to forward soliciting materials to
beneficial owners and will be reimbursed for their reasonable expenses incurred
in doing so.

FPC will bear its own expenses in connection with the solicitation of
proxies for its Special Meeting, except that PhyCor and FPC each will pay
one-half of the expenses incurred in printing this Prospectus-Proxy Statement.
See "THE MERGER--Expenses."

STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY
CARDS. THE PROCEDURE FOR THE EXCHANGE OF SHARES IS SET FORTH ELSEWHERE IN THIS
PROSPECTUS--PROXY STATEMENT. SEE "THE MERGER--EXCHANGE OF CERTIFICATES."

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THE MERGER

The description of the Merger contained in this Prospectus-Proxy
Statement summarizes the material provisions of the Merger Agreement; it is not
complete and is qualified in its entirety by reference to the Merger Agreement,
the full text of which is attached hereto as Annex A and incorporated herein by
reference. All stockholders are urged to read Annex A in its entirety.

TERMS OF THE MERGER

The acquisition of FPC by PhyCor will be effected by means of the
merger of Subsidiary with and into FPC, with FPC being the Surviving
Corporation and a wholly-owned subsidiary of PhyCor. The Subsidiary's
Certificate of Incorporation, as amended and existing at the Effective Time,
and the Bylaws of Subsidiary in effect at the Effective Time, will govern the
Surviving Corporation until amended or repealed in accordance with applicable
law.

At the Effective Time, (i) each outstanding share of FPC Class A
Common Stock will be converted into the right to receive 0.247429 shares of
PhyCor Common Stock, (ii) each outstanding share of FPC Class A Preferred Stock
will be converted into the right to receive 4.607016 shares of PhyCor Common
Stock, (iii) each outstanding share of FPC Class B Convertible Preferred Stock
will be converted into the right to receive 9.526966 shares of PhyCor Common
Stock and (iv) each outstanding share of FPC Class C Convertible Preferred
Stock will be converted into the right to receive 2.474289 shares of PhyCor
Common Stock. The Exchange Ratios assume the exercise as of or prior to the
Effective Time of (i) options to purchase 233,676 shares of FPC Class A Common
Stock, 96,326 of which are currently vested or are expected to vest prior to
the Effective Time and 137,750 of which will become vested at the Effective
Time as a result of the Merger, (ii) options to purchase 121,928 shares of FPC
Class A Common Stock, which options will not be vested at the Effective Time or
vest as a result of the Merger and (iii) currently exercisable warrants to
purchase 41,869 shares of FPC Class A Common Stock. The Exchange Ratios do not
assume the exercise as of or prior to the Effective Time of 426,100 options
that are currently vested or are expected to vest prior to the Effective Time
or 242,750 options which will become vested at the Effective Time as a result
of the Merger since the exercise prices of these options (as adjusted to give
effect to the Exchange Ratios) are, in each case, higher than the $26.88
closing sales price of the PhyCor Common Stock on December 19, 1997 (the date
of execution of the Merger Agreement).

As of the Effective Time, all outstanding shares of FPC Capital Stock
will automatically be canceled and retired and will cease to exist, and each
holder of a certificate representing such shares will cease to have any rights
with respect thereto, except the right to receive shares of PhyCor Common
Stock, cash (without interest) in lieu of fractional shares and any dividends
or other distributions to which such holder is entitled as a result of the
Merger. Each share of FPC Capital Stock that is owned by FPC or any subsidiary
of FPC will automatically be canceled and retired and will cease to exist, and
no consideration will be delivered in exchange therefor.

The Merger Agreement provides that, at the Effective Time, all options
to purchase shares of FPC Class A Common Stock that are outstanding at such
time, whether or not then vested or exercisable, shall be converted into and
become rights with respect to PhyCor Common Stock, and PhyCor will assume each
such option in accordance with the terms of any stock option plan under which
it was issued, or, at the election of PhyCor, PhyCor will issue options under
PhyCor's stock option plans in substitution thereof. The number of shares of
PhyCor Common Stock subject to each stock option assumed, or substituted
therefor, and the exercise prices for such shares shall be adjusted to reflect
the Exchange Ratios. All warrants to purchase shares of FPC Capital Stock which
are outstanding at the Effective Time shall become warrants to purchase shares
of PhyCor Common Stock, and PhyCor shall assume all such warrants (with
exercise prices adjusted in accordance with the Exchange Ratios). Further, FPC
is contractually obligated to deliver an aggregate of 1,627,197

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<PAGE> 33

shares of its Class A Common Stock to physicians of certain Managed Group
Practices at specified future dates, and it is anticipated that such rights
will become rights to receive a number of shares of PhyCor Common Stock
determined by giving effect to the Common Stock Exchange Ratio.

BACKGROUND OF THE MERGER

Over the past few years, changes in the health care environment,
including the growth of managed care, have caused increased pressure on
participants in the PPM industry to grow and consolidate in order to maintain
critical mass and achieve economies of scale. PhyCor has pursued growth
primarily through development of its managed physician practices and, from time
to time, has evaluated other strategic acquisition opportunities.

In July 1997, the FPC Board created a sub-committee (the
"Sub-Committee") comprised of Stephen A. George, M.D., Chairman, Chief
Executive Officer and President of FPC, and three other members of the FPC
Board to explore the various options available to FPC to enhance stockholder
value. The other members of the Sub-Committee were Patrick J. Welsh, Andrew M.
Paul and Paul Queally, each of whom is a general partner of Welsh, Carson,
Anderson & Stowe, which is an affiliate of WCAS. WCAS owns 70% of the
outstanding shares of FPC Class A Preferred Stock, approximately 64% of the
outstanding shares of FPC Class B Convertible Preferred Stock and approximately
28% of the outstanding shares of FPC Class A Common Stock, and has extended
credit to FPC and is entitled to receive 29,309 warrants to purchase shares of
FPC Class A Common Stock in connection therewith. Michael Jutras, M.D., the
only member of the FPC Board who was not a member of the Sub-Committee, is the
Medical Director of one of the Managed Group Practices and owns approximately
1.6% of the outstanding shares of FPC Class A Common Stock.

The key directives of the Sub-Committee included: (i) assisting
management and FPC's financial advisors in determining likely interested and
qualified potential buyers for a possible affiliation; (ii) reviewing
acquisition proposals from any potential buyers; (iii) consulting with senior
management and FPC's financial and legal advisors on strategy and negotiations;
and (iv) approving key decisions prior to final approval by the FPC Board.

On August 5, 1997, FPC engaged DLJ to advise FPC regarding potential
strategic opportunities to strengthen FPC's capital structure, to enable FPC to
grow its business and to enhance FPC stockholder value. DLJ discussed the
possibility of an initial public offering of the corporation's stock as well as
the sale of FPC. DLJ presented financial analyses comparing the potential
values that could be obtained for the FPC stockholders through an affiliation
with a larger company and those obtainable through an initial public offering
of FPC Class A Common Stock. The FPC Board and FPC management concluded that a
merger with an established public company would provide a greater opportunity
than an initial public offering for FPC to achieve its potential growth and for
FPC stockholders to obtain liquidity and enhanced stockholder value. After a
review of the companies active in the PPM industry, the FPC Board authorized
DLJ to approach a selected group of public companies (the "Potential Buyers"),
including PhyCor, to determine their interest in a possible transaction with
FPC.

During August 1997, DLJ prepared, with FPC's cooperation, a
confidential information memorandum ("CIM") containing information regarding
FPC's organizational and legal structure, growth history, current operations,
and historical and projected financial information to circulate to the
Potential Buyers. In early September 1997, after discussions with the
Sub-Committee and FPC senior management, DLJ called the representatives of the
Potential Buyers to determine their interest in pursuing a combination with
FPC. In September 1997, five Potential Buyers (all of which were large public
companies), including PhyCor, expressed interest and were sent copies of the
CIM after executing confidentiality agreements.

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<PAGE> 34

During September 1997, representatives from four Potential Buyers,
including PhyCor (which participated in a meeting held on September 18, 1997),
and their respective financial advisors, met at the FPC corporate offices in
Atlanta, Georgia with the FPC senior management personnel and their financial
advisors. During these meetings, the FPC senior management team along with
their financial advisors presented FPC's history, current financial position,
operating philosophy and the potential benefits of a merger with FPC to each
Potential Buyer. The Potential Buyers had the opportunity to ask questions
about the CIM and to discuss the benefits of a merger and other relevant issues
regarding a potential transaction. During these meetings, all four Potential
Buyers were asked to submit Preliminary Indications of Interest outlining
preliminary terms of a proposed transaction and to complete their preliminary
due diligence procedures during the next several weeks. In addition, the
Potential Buyers were provided with a proposed draft merger agreement prepared
by FPC's legal advisors, asked to make their proposed written comments to the
document and submit the document with their Preliminary Indications of
Interest. Thereafter, Preliminary Indications of Interest were received from
three Potential Buyers.

Between September 27, 1997 and October 10, 1997 the Sub-Committee, FPC
senior management and representatives from FPC's financial advisors reviewed
the Preliminary Indications of Interest and evaluated the merits of each
Potential Buyer's proposal. DLJ was instructed to contact the three remaining
Potential Buyers, including PhyCor, to clarify the proposed terms and related
assumptions of each Preliminary Indication of Interest and to indicate that all
final proposals should be sent to FPC by October 24, 1997. During October
1997, the three remaining Potential Buyers that attended management
presentations in Atlanta, including PhyCor, sent company representatives along
with representatives from their respective financial and legal advisors to the
FPC corporate offices in Atlanta, Georgia to conduct financial and legal due
diligence procedures. Two Potential Buyers, including PhyCor, submitted
revised proposals on October 24, 1997.

From October 25, 1997 through November 20, 1997, DLJ, at the direction
of the Sub-Committee, continued to negotiate the terms of the revised proposals
with PhyCor and the other Potential Buyer. On November 21, 1997, PhyCor
submitted a proposal that contemplated the issuance of 3,500,000 shares of
PhyCor Common Stock in exchange for all the outstanding FPC Capital Stock and
the assumption of FPC's net debt (which is expected to be approximately $9.6
million at the Effective Time of the Merger). PhyCor's proposal also requested
that FPC representatives and their financial and legal advisors meet with
PhyCor representatives and their financial and legal advisors on November 25,
1997 and that FPC enter into exclusive negotiations with PhyCor.

On November 24, 1997, a telephonic meeting of the Sub-Committee was
conducted, with representatives of DLJ participating. The purpose of the
meeting was to review the offers that had been received from the two Potential
Buyers, review the status of the negotiations with the Potential Buyers and
discuss recent events in the PPM industry, including the proposed merger of
PhyCor and MedPartners, Inc. ("MedPartners") announced on October 29, 1997, and
the effect of the announcement of that transaction on the stock prices of the
companies in the PPM sector as a whole. After discussion and review, the
Sub-Committee concluded that the best course of action would be to pursue a
potential transaction with PhyCor. This decision was based on the view that
the offer received from PhyCor was superior to that of the other Potential
Bidder in terms of the consideration offered as well as other terms.

On November 25, 1997, representatives from FPC and PhyCor and their
respective financial and legal advisors met in Atlanta, Georgia and executed an
exclusive negotiating agreement which was to expire on December 16, 1997. The
agreement provided that, during the term of the agreement, (i) FPC would
negotiate a definitive agreement for PhyCor to acquire the FPC Capital Stock.
(ii) FPC would deal exclusively with PhyCor and (iii) FPC would terminate all
discussions with other parties. During the next three weeks, representatives
of PhyCor and FPC completed their

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<PAGE> 35

respective financial and legal due diligence and continued to negotiate the
terms of the proposed transaction.

On the morning of December 19, 1997, the FPC Board met to consider
approval of the Merger Agreement. DLJ delivered its oral fairness opinion to
the FPC Board, subsequently confirmed in writing, that as of such date and
based upon and subject to certain matters stated therein, the Common Stock
Exchange Ratio was fair to the holders of FPC Common Stock from a financial
point of view. See "--Opinion of Donaldson, Lufkin & Jenrette Securities
Corporation." DLJ also presented and summarized for the FPC Board certain
financial analyses performed by DLJ in arriving at its opinion. FPC did not
seek, and DLJ did not deliver, an opinion with respect to the consideration to
be paid in the Merger to holders of FPC Capital Stock other than the holders of
FPC Common Stock. See "--Opinion of Donaldson, Lufkin & Jenrette Securities
Corporation." FPC's outside legal advisors with respect to the Merger reviewed
the legal terms of the Merger and advised the FPC Board of its fiduciary duties
in considering approval of the proposed transaction. After a full discussion
of all of the relevant issues and upon consideration of the factors described
below, the FPC Board concluded that the Merger Agreement was fair to, and in the
best interests of, FPC and its stockholders and unanimously approved the Merger
Agreement. As a result of their relationship with FPC or its affiliates, none
of such directors is independent. The parties executed the definitive Merger
Agreement shortly after the conclusion of the FPC Board Meeting on December 19,
1997.

REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARD OF DIRECTORS

PhyCor. PhyCor believes that FPC's Managed Group Practices and Group
Practices are located in markets which offer significant growth opportunities,
including Fort Worth/Dallas, Texas, Tampa/St. Petersburg Florida, New York, New
York and St. Louis, Missouri. In certain of these markets, PhyCor has existing
operations that are complementary to FPC's groups, and PhyCor believes it may
be able to achieve certain operating synergies totaling approximately $4.0
million annually from corporate and regional overhead reductions.

FPC. ON DECEMBER 19, 1997, the FPC Board, after consultation with its
management and financial and legal advisors, unanimously determined that the
terms of the Merger Agreement and the transactions contemplated thereby were in
the best interests of FPC and its stockholders. The FPC Board focused on the
effect of the Merger on its stockholders and determined, among other things,
that the consideration to be paid in the Merger was fair to the holders of FPC
Capital Stock from a financial point of view (which, as to the FPC Common Stock
only, was based, in part on an opinion of DLJ delivered to the FPC Board (see
"-- Opinion of Donaldson, Lufkin & Jenrette Securities Corporation")) and
provided all classes of stockholders with liquidity for their holdings. In
determining whether the Merger was in the best interests of FPC and its
stockholders, the FPC Board also considered the effect of the Merger on FPC in
light of current market conditions, the relative strengths and weaknesses of
FPC and PhyCor, the increased market strength, the similarity of vision,
strategy and organizational structure, and the potential for savings and
increased profits of the combined companies.

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<PAGE> 36

Although none of the FPC is independent, none of such members is
affiliated with DLJ and, other than Dr. George, none has an interest in the
Merger other than as an affiliate of WCAS (in the cases of Messrs. Welch, Paul
and Queally) or as the medical director of a Managed Group Practice (in the case
of Dr. Jutras). While WCAS owns a substantial percentage of the outstanding
shares of FPC Class A Preferred Stock and FPC Class B Convertible Preferred
Stock, the Exchange Ratios for each class of FPC Capital Stock were determined
by FPC's Chief Financial Officer after discussion with DLJ, FPC's legal advisors
and representatives of WCAS in light of the relative liquidation and dividend
preferences of each class of FPC Capital Stock and the estimated Effective Time
of the Merger, as more fully described below. The FPC Board considered the
following factors, without limitation and without assigning relative weights
thereto (which represent all of the material factors considered by the FPC Board
and none of which was considered by the FPC Board to mitigate against pursuing
the Merger or to adversely affect the fairness of the Merger):

(i) MERGER CONSIDERATION. Of primary concern to the FPC Board in
considering the Merger was the fair treatment of its stockholders as a whole.
The FPC Board sought advice from its financial and legal advisors as to the
customary and appropriate methods for determining an exchange ratio for the
various classes of FPC Capital Stock which include FPC Class A and B Common
Stock (the 872,460 shares of FPC Class B Common Stock were converted to FPC
Class A Common Stock on January 20, 1998), and FPC Preferred Stock. The
exchange ratios for the various classes of FPC stock were calculated as
follows.

FPC Class A Preferred Stock. The holders of FPC Class A
Preferred Stock have a priority claim over the other classes of
Preferred and Common Stock. In a merger, the holders of FPC Class A
Preferred Stock are entitled to receive the redemption value of $100
per share in cash plus accrued dividends. Because of pooling of
interest rules and because all of the FPC Class A Preferred Stock is
owned by persons who also own significant amounts of FPC Class A
Common Stock and Class B Convertible Preferred Stock, it was
determined that the holders of FPC Class A Preferred Stock must
receive PhyCor Common Stock in exchange for their FPC Class A
Preferred Stock. To determine the FPC Class A Preferred Stock
Exchange Ratio, the following formula was applied:

1. The Effective Date was estimated to be March 15, 1998.

2. The FPC Class A Preferred Stock liquidation amount as of March
15, 1998 was calculated to be $23,035,079. Calculated as
follows: (200,000 Class A Preferred Shares x $100 per share
liquidation value) + (accrued dividends of $3,035,070 through
March 15, 1998).

3. To determine the number of shares of PhyCor Common Stock that
the holders of FPC Class A Preferred Stock would receive, the
liquidation amount was divided by the

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$25.00 closing sales price of PhyCor Common Stock on November
21, 1997. November 21, 1997 is the date the final PhyCor
offer letter was received. The calculation is as follows:
$23,035,079 / $25.00 = 921,403 shares of PhyCor Common Stock.

4. To determine the FPC Class A Preferred Stock Exchange Ratio,
the number of shares of PhyCor Common Stock allocated to the
holders of FPC Class A Preferred Stock as determined above
were divided by the number of FPC Class A Preferred shares
outstanding. The calculation of the exchange ratio is as
follows: 921,403 PhyCor shares / 200,000 FPC Class A Common
Stock = 4.607

FPC Class B and C Preferred Stock and FPC Class A and B Common
Stock. The FPC Class B and Class C Preferred shares and the FPC Class
B Common shares are convertible into FPC Class A Common shares at the
following conversion rates:

FPC CLASS B PREFERRED STOCK - The holders of Class B Preferred
Stock are entitled to convert their shares into Class A Common
Stock at the rate of 38.503855 shares of Class A Common Stock
for each share of Class B Preferred Stock held.

FPC CLASS C PREFERRED STOCK - The holders of FPC Class C
Preferred Stock are entitled to convert their shares into FPC
Class A Common Stock at the rate of 10 shares of Class A
Common Stock for each share of Class C Preferred Stock held.

CLASS B COMMON STOCK - The holders of FPC Class B Common Stock
are entitled to convert their shares into Class A Common Stock
at the rate of one share of Class A Common Stock for each
share of Class B Common Stock held.

The Exchange Ratios for the FPC Class B Preferred Stock, Class C
Preferred Stock and the Class A and B Common Stock were determined as
follows.

1. To determine the FPC Class B Preferred Stock Exchange Ratio
and the FPC Class C Preferred Stock Exchange Ratio, the number
of shares of FPC Class A Common Stock that would be issued for
each class of preferred stock upon conversion to FPC Class A
Common Stock was considered. The 110,000 shares of FPC Class
B Preferred Stock issued and outstanding are convertible into
4,235,424 shares of FPC Class A Common Stock. The 12,000
shares of FPC Class C Preferred Stock are convertible into
120,000 shares of FPC Class A Common Stock.

2. As of December 19, 1997, there were 3,169,013 shares of FPC
Class A Common Stock issued and outstanding.

3. As of December 19, 1997, there were 872,460 shares of FPC
Class B Common Stock issued and outstanding (these shares were
subsequently converted to 872,460 shares of FPC Class A Common
Stock on January 20, 1998).

4. As of December 19, 1997, there were 1,627,197 shares of FPC
Class A Common Stock that are to be issued and delivered at
future dates.

5. As of December 19, 1997, there were unexercised options to
purchase 355,604 shares of FPC Class A Common Stock at
exercise prices less than $7.00 per share.

6. As of March 15, 1998, the estimated number of warrants to
purchase shares of FPC Class A Common Stock to be earned in
connection with the Subordinated Debt was 41,869 shares.

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<PAGE> 38

7. The total number of shares of FPC Class A Common Stock
estimated to be outstanding at the Effective Date is
10,421,567, giving effect to the conversion of the FPC Class B
Common Stock, and Class B and C Preferred Stock estimated to
be outstanding, deliverable at future dates and available
under certain option or warrant agreements that are expected
to be exercised at the Effective Date.

8. The shares of PhyCor Common Stock to be allocated to the other
classes of FPC Capital Stock is calculated as follows:
3,500,000 total PhyCor shares less 921,403 shares allocated to
the FPC Class A Preferred Stock equals 2,578,597 shares of
PhyCor Common Stock to be allocated to the other classes of
FPC Capital Stock.

9. To determine the Exchange Ratio for the FPC Class A and B
Common Stock, the 2,578,597 remaining PhyCor shares available
for the other classes of FPC Capital Stock were divided by the
total common stock equivalents from paragraph 7 above of
10,421,567. The results are as follows: 2,578,597 /
10,421,567 = .247429.

10. To determine the FPC Class B Preferred Stock Exchange Ratio,
the FPC Class A Common Exchange Ratio of .247429 was
multiplied by the FPC Class B conversion ratio of 38.503855.
The result is 9.526966.

11. To determine the FPC Class C Preferred Stock Exchange Ratio
the FPC Class A Common Exchange Ratio of .247429 was
multiplied by the FPC Class C conversion ratio of 10. The
result is 2.474289.

(ii) COMPETITIVE POSITION OF FPC AND INDUSTRY CONSOLIDATION. A
significant objective of the FPC Board was to strengthen FPC's competitive
position and enhance its reputation among physicians and payors. Additionally,
the FPC Board was concerned with the increasingly competitive pressures within
the managed care sector of the health care industry and the resulting trend
towards consolidation among payors, providers and PPMs. The FPC Board
determined that FPC would be in a stronger competitive position as part of a
larger entity.

(iii) BENEFITS OF THE MERGER WITH PHYCOR. The FPC Board focused on
the specific benefits to be obtained in combining with PhyCor. The FPC Board
determined that the combined entity would be able to operate more effectively
and profitably based on size, geographic scope and expertise. In addition, the
FPC Board believed that there would be considerable cost savings, synergies and
economies of scale achieved by merging the companies. In addition, FPC would
benefit from access to national managed care payor contracts, same-market
integration of primary and specialty referral opportunities and same-market
momentum and growth. The FPC Board also concluded that PhyCor offered the FPC
stockholders the best long-term value based on PhyCor's strong historical
operational performance and growth, its current growth plans, its strong
reputation among the investment community, providers, and payors, and its
ability to generate long-term earnings growth.

(iv) TERMS OF THE MERGER. The terms and conditions of the proposed
Merger, including the parties reciprocal representations, warranties and
covenants, conditions to FPC's obligations and the circumstances under which
FPC would be able to terminate the Merger Agreement were considered by the FPC
Board to be fair. In particular, the FPC Board believed that its ability to
terminate the Merger Agreement if the Closing Price of the PhyCor Common Stock
was below $20.00 or in the event of another superior, bona fide proposal
preserved the FPC Board's ability to reconsider, if necessary, the fairness of
the transaction. The FPC Board did not believe the termination fee that would
be payable in the event it terminated the Merger Agreement to pursue another
proposal would impede another bona fide, superior proposal, and it believed
such fee was consistent with fees payable in other similar transactions.

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(v) INTERESTS OF CERTAIN PERSONS. The FPC Board realized that
certain members of management had certain interests in the Merger in addition
to the interests of FPC stockholders generally. These interests arise from,
among other things, Dr. George's consulting agreement, certain employment
agreements, management retention programs, and provisions of the Merger
Agreement providing for the continuation of certain indemnification rights and
benefit plans. The FPC Board believed that these payments and inducements to
management (i) acted to align the interests of management with those of FPC in
negotiating and effectuating the Merger, (ii) provided the necessary incentives
for the key members of FPC's management team to continue with FPC and PhyCor
after the Merger is consummated and (iii) after consultation with its advisors,
were reasonable based on the size of FPC and PhyCor and industry standards. See
" Interests of Certain Persons in the Merger."

(vi) POTENTIAL MERGER RISKS. In analyzing a combination with
PhyCor, in addition to the matters set forth under "RISK FACTORS," the FPC
Board considered the following: (a) the ability of PhyCor to maintain its
current growth strategy, growth rate and price/earnings multiple; (b) the
effect of PhyCor's then contemplated merger with MedPartners, whether or not
consummated; and (c) the amount of PhyCor's indebtedness in relation to its
stockholders' equity. In addition, the FPC Board reviewed the employment
agreements of the executive officers of FPC, the terms of the Consulting
Agreement to be entered into by Dr. George and other employee benefit
provisions described below under "--Interests of Certain Persons in the
Merger." The FPC Board was aware of the risks associated with the Merger and
the interests of management and determined that, despite such factors, FPC
would be better positioned to fulfill its business plan as a combined entity.

(vii) POTENTIAL RISKS TO NON-AFFILIATED STOCKHOLDERS. The FPC Board
considered the potential benefits and risks of the transaction to the
non-affiliated stockholders. The non-affiliated stockholders own approximately
15.64% of FPC Voting Stock. The non-affiliated stockholders of FPC consist
primarily of (a) physicians employed by FPC Group Practices and physicians
employed by Managed Group Practices (representing 8.21% of the FPC Voting
Stock); (b) non-physician employees of FPC and its wholly owned subsidiaries
(representing 2.66% of the FPC Voting Stock); (c) a healthcare system
(representing 3.34% of the FPC Voting Stock); and (d) a venture capital firm
(representing 1.43% of the FPC Voting Stock). While evaluating the effect on
physician and employee stockholders, the FPC Board considered the physician
practice management reputation, philosophy, corporate culture and operating
practices of PhyCor. In addition, the FPC Board considered the benefits of
expanded employment opportunities for the physician stockholders and non-
physician stockholders. Although certain non-affiliated employee stockholders
in the FPC corporate offices are not expected to be retained permanently by
PhyCor, the FPC Board was of the view that the proposed corporate severance
policy would provide sufficient payments to allow these employees to seek new
employment opportunities. In total, the FPC Board determined that these
factors were predominately positive and did not pose any particular risk to
this stockholder group. The healthcare system stockholder is the primary
admitting hospital system for one of the managed physician groups. The FPC
Board believed that a medical group affiliated with PhyCor should benefit the
healthcare system because PhyCor can help the group grow at a faster rate.
This growth could cause increased admissions, HMO enrollment growth and higher
utilization of the healthcare systems facilities. The Board also believed that
the Merger will benefit the venture capital stockholder (Pacific Capital White
Pines Management) due to the liquidity available from a publicly traded
security.

ACCORDINGLY, THE FPC BOARD UNANIMOUSLY CONCLUDED THE MERGER WAS FAIR
TO, AND IN THE BEST INTERESTS OF, FPC'S STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS
THAT THE STOCKHOLDERS OF FPC VOTE "FOR" APPROVAL OF THE PROPOSAL TO ADOPT THE
MERGER AGREEMENT. IN ADDITION, THE FPC BOARD HAS UNANIMOUSLY APPROVED THE
AGREEMENTS AUTHORIZING THE CHANGE OF CONTROL PAYMENTS AND UNANIMOUSLY
RECOMMENDS THAT

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THE STOCKHOLDERS OF FPC VOTE "FOR" APPROVAL OF THE PROPOSAL TO ADOPT THE MERGER
AGREEMENT. IN ADDITION, THE FPC BOARD HAS UNANIMOUSLY APPROVED THE AGREEMENTS
AUTHORIZING THE CHANGE OF CONTROL PAYMENTS AND UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS OF FPC VOTE "FOR" THE PROPOSAL TO APPROVE THE CHANGE OF CONTROL
PAYMENTS. STOCKHOLDERS SHOULD BE AWARE THAT CERTAIN MEMBERS OF THE FPC BOARD AND
MANAGEMENT HAVE CERTAIN INTERESTS IN THE MERGER THAT ARE IN ADDITION TO THOSE OF
OTHER STOCKHOLDERS OF FPC. SEE "--INTERESTS OF CERTAIN PERSONS IN THE MERGER."

OPINION OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION

On August 5, 1997, FPC engaged DLJ as its exclusive financial advisor
with respect to advising FPC as to various strategic alternatives. On December
19, 1997, DLJ delivered its written opinion (the "DLJ Opinion") to the FPC Board
to the effect that, as of such date, and based upon and subject to the
assumptions, limitations and qualifications set forth in such opinion, the
Common Stock Exchange Ratio was fair to the holders of FPC's Common Stock, in
the aggregate, from a financial point of view.

THE FULL TEXT OF THE DLJ OPINION IS SET FORTH AS ANNEX B TO THIS
PROSPECTUS-PROXY STATEMENT AND SHOULD BE READ CAREFULLY AND IN ITS ENTIRETY FOR
INFORMATION AS TO THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, OTHER MATTERS
CONSIDERED AND LIMITS OF THE REVIEW BY DLJ.

The DLJ Opinion was prepared for the FPC Board and addresses only the
fairness of the Common Stock Exchange Ratio to the holders of FPC Common Stock,
in the aggregate, from a financial point of view and does not constitute a
recommendation to any stockholder of FPC as to how such stockholder should vote
on the proposed transaction. The DLJ Opinion does not constitute an opinion as
to the price at which PhyCor Common Stock will actually trade at any time. DLJ
was not requested by the FPC Board to make, nor did DLJ make, any recommendation
as to the Common Stock Exchange Ratio to be received by FPC stockholders, which
determination was reached through negotiations between FPC and PhyCor, in which
negotiations DLJ advised FPC. No restrictions or limitations were imposed upon
DLJ with respect to the investigations made or procedures followed by DLJ in
rendering its opinion. FPC did not seek, and DLJ did not deliver, an opinion
with respect to the consideration to be paid in the Merger to holders of FPC
Capital Stock, other than the holders of FPC Common Stock.

In arriving at its opinion, DLJ reviewed a draft of the Merger
Agreement dated December 17, 1997. DLJ also reviewed financial and other
information that was publicly available or furnished to it by FPC or PhyCor,
including information provided during discussions with their respective
managements. Included in the information provided during discussions with the
respective managements were certain financial projections for FPC and PhyCor
prepared by the respective managements. In addition, DLJ compared certain
financial and securities data of FPC and PhyCor with that of various other
companies whose securities are traded in public markets, reviewed the historical
stock prices and trading volumes of the PhyCor Common Stock, reviewed prices
paid in certain other business combinations and conducted such other financial
studies, analyses and investigations as DLJ deemed appropriate for purposes of
rendering its opinion.

In rendering its opinion, DLJ relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
it from public sources, that was provided to it by FPC or PhyCor or their
respective representatives, or that was otherwise reviewed by DLJ. With respect
to the financial projections supplied to DLJ, DLJ assumed that they were
reasonably prepared (i) with respect to PhyCor, on the basis reflecting the best
currently available estimates and judgments of the management of PhyCor as to
the future operating and financial performance of PhyCor and (ii) with respect
to FPC, included the best currently available estimates and judgments of the
management of FPC as to the future operating and financial performance of FPC.
DLJ

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assumed no responsibility for making an independent evaluation of any assets or
liabilities or for making any independent verification of any of the information
reviewed by it. DLJ relied as to certain legal matters on advice of counsel to
FPC. For purposes of its opinion, DLJ assumed that the Merger would be accounted
for as a pooling of interests.

The DLJ Opinion is necessarily based on economic, market, financial and
other conditions as they exist on, and on information made available to DLJ as
of, the date of its opinion. DLJ does not have any obligation to update, revise
or reaffirm its opinion.

The following is a summary of all of the analyses performed by DLJ in
connection with the preparation of the DLJ Opinion. All analyses discussed below
assume the Common Stock Exchange Ratio of 0.247429 shares of PhyCor Common Stock
per share of FPC Common Stock.

Selected Public Company Analysis. To provide contextual data and
comparative market information, DLJ analyzed the operating performance of FPC
relative to certain companies whose securities are publicly traded and that were
deemed by DLJ to be reasonably similar to FPC, including FPA Medical Management,
Inc. ("FPA"); MedPartners; PhyMatrix Corp. ("PhyMatrix"); PhyCor; ProMedCo
Management Co. ("ProMedCo") and PHP Healthcare Corp. ("PHP") (collectively, the
"Selected Companies"). Historical financial information used in connection with
the ratios provided below with respect to the Selected Companies was derived
from the most recent financial statements publicly available for each company as
of December 19, 1997.

DLJ examined certain publicly available financial data of the Selected
Companies, including (i) enterprise value (defined as the market value of common
equity plus book value of total debt and preferred stock less cash) as a
multiple of latest 12 months ("LTM") revenues, LTM EBITDA (defined as earnings
before interest, taxes, depreciation and amortization but not including
non-recurring items) and LTM EBIT (defined as earnings before interest and taxes
but not including non-recurring items), and (ii) price to earnings ratios based
on estimated calendar year 1997 earnings per share ("EPS") and estimated
calendar year 1998 EPS. DLJ noted that as of December 19, 1997, the Selected
Companies were trading at implied multiples of enterprise value and earnings, as
the case may be, in (i) a range of 0.9x to 1.9x (with an average, excluding high
and low values (the "Average"), of 1.5x) LTM revenues; (ii) a range of 11.9x to
19.6x (with an Average of 13.3x) LTM EBITDA; (iii) a range of 15.6x to 33.7x
(with an Average of 19.1x) LTM EBIT; (iv) a range of 19.2x to 28.3x (with an
Average of 21.7x) estimated calendar year 1997 EPS; and (v) a range of 13.7x to
19.5x (with an Average of 16.1x) estimated calendar year 1998 EPS. The calendar
year 1997 and 1998 EPS estimates for the Selected Companies were based on
estimates provided by IBES, Inc. Based on the Common Stock Exchange Ratio and
assuming a $25.00 price for PhyCor Common Stock, the Merger consideration
represented a multiple of 1.4x FPC's LTM revenue and 22.7x FPC's estimated
calendar year 1998 EPS as projected by FPC's management prior to the
consideration of any potential synergies. Other multiples were not meaningful
since FPC's LTM EBITDA, LTM EBIT and estimated calendar year 1997 EPS as
projected by FPC's management were negative.

No company utilized in the selected public company analysis is
identical to FPC. Accordingly, an analysis of the results of the foregoing
necessarily involves complex considerations and judgments concerning differences
in financial and operating characteristics of the Selected Companies and FPC and
other factors that could affect the public trading value of the Selected
Companies. Mathematical analysis such as determining the average is not in
itself a meaningful method of using selected company data.

Selected Transaction Analysis. DLJ performed an analysis of FPC based
on selected merger and acquisition transactions in the PPM industry set forth
below (the "Selected Transactions"). Multiples reviewed in the Selected
Transactions analysis included (i) aggregate transaction value (defined as the
equity value of the offer plus book value of total debt and preferred stock less
cash) as a multiple of (when available) LTM revenues, LTM EBITDA and LTM EBIT,
and (ii) aggregate

<PAGE> 42

purchase price (defined as the equity value of the offer) as a multiple of (when
available) estimated calendar year EPS for the first and second calendar years
("CY+1" and "CY+2", respectively) immediately ended subsequent to the
announcement of each transaction. The Selected Transactions were comprised of
the following 14 transactions announced during the period 1994 to 1997
(Target/Acquiror): PhyCor, Inc./MedPartners; MedPartners/Talbert Medical
Management Holdings Corporation; Laidlaw, Inc./EmCare Holdings, Inc.;
MedPartners/InPhyNet Medical Management, Inc.; FPA/AHI Healthcare Systems, Inc.;
Physician Resource Group, Inc./American Ophthalmic, Inc.; FPA/Foundation Health
Systems, Inc.; FPA/Sterling Healthcare Group, Inc.; MedPartners/Caremark
International, Inc.; MedPartners/Pacific Physicians Services, Inc.; Equivision,
Inc./Colkitt Oncology Group, Inc.; Physician Resource Group/Eyecorp, Inc.;
MedPartners/Mullikin, Inc. and Caremark International, Inc./Friendly Hills
Healthcare Network. DLJ noted that the implied multiples of aggregate
transaction value and aggregate purchase price, as the case may be, for these
transactions were in (i) a range of 0.3x to 5.6x (with an Average of 1.5x) LTM
revenues; (ii) a range of 10.2x to 29.2x (with an Average of 16.3x) LTM EBITDA;
(iii) a range of 14.5x to 117.4x (with an Average of 24.0x) LTM EBIT; (iv) a
range of 21.3x to 31.1x (with an Average of 23.5x) estimated CY+1 EPS; (v) a
range of 15.8x to 24.6x (with an Average of 19.2x) estimated CY+2 EPS. Based on
the Common Stock Exchange Ratio and assuming a $25.00 price for PhyCor Common
Stock, the merger consideration represented a multiple of 1.4x LTM revenue and
22.7x estimated calendar year 1998 EPS as projected by FPC's management prior to
the consideration of any potential synergies. Other multiples were not
meaningful since FPC's LTM EBITDA, LTM EBIT and estimated calendar year 1997 EPS
as projected by FPC's management were negative.

No transaction utilized in the selected transaction analysis is
identical to the Merger. Accordingly, an analysis of the results of the
foregoing necessarily involves complex considerations and judgments concerning
differences in financial and operating characteristics of FPC and other factors
that could affect the acquisition value of the companies to which they are being
compared. Mathematical analysis such as determining the average is not itself a
meaningful method of using selected transaction data.

Discounted Cash Flow Analysis. DLJ performed a discounted cash flow
("DCF") analysis for the five-year period commencing January 1, 1998 and ending
December 31, 2002 based on two scenarios for the projected stand-alone unlevered
free cash flows of FPC provided by FPC's management. Unlevered free cash flows
were calculated as the after-tax operating earnings of FPC, plus depreciation
and amortization and other non-cash items, plus (or minus) net changes in
working capital, minus capital expenditures. DLJ calculated terminal values by
applying a range of estimated EBITDA multiples of 8.0x to 12.0x to the projected
EBITDA of FPC in 2002. The unlevered free cash flows and terminal values were
then discounted to the present using a range of discount rates of 13.0% to
17.0%. Based on this analysis, DLJ derived a summary valuation range for FPC of
$62.5 million to $139.1 million. Based on a PhyCor Common Stock price of $25.00
per share, the total consideration of the Merger represented an aggregate
transaction value of $97.1 million.

EPS Impact Analysis. DLJ also analyzed the pro forma effects resulting
from the Merger on the projected EPS of PhyCor including, without independent
verification, an assumed level of synergies projected by the management of FPC
for each of the years ending December 31, 1998 and 1999. This analysis was based
on a number of assumptions, including, among other things, estimated amounts and
timing of the synergies and the projected financial performance of PhyCor and
FPC. The analysis assumed that the Merger would be consummated on January 1,
1998. The analysis indicated that the Merger, accounted for as a pooling
transaction, would be dilutive to PhyCor's stand-alone EPS estimates by (0.2%),
and (0.3%) assuming no synergies and accretive by 4.7% and 3.0%, assuming $7.4
million of recurring annual synergies for the years ending December 31, 1998 and
1999, respectively.

<PAGE> 43

Contribution Analysis. DLJ also analyzed the pro forma relative
contributions of FPC to certain PhyCor operations measures (the "Operations
Measures") resulting from the Merger for the LTM period and each of the calendar
years ending December 31, 1997 and 1998 (based on projections provided by FPC
and PhyCor management). Operations Measures reviewed in this analysis included
(i) LTM revenue, LTM EBITDA, LTM EBIT, LTM pretax income (defined as earnings
before taxes) and LTM net income (defined as earnings after taxes) and (ii)
estimated revenue, estimated EBITDA, estimated EBIT, estimated pretax income and
estimated net income for the calendar years ending December 31, 1997 and 1998.
This analysis was based on a number of assumptions, including, among other
things, the projected financial performance of FPC and PhyCor provided by their
respective managements. The analysis indicated that FPC contributed 5.5% of pro
forma LTM revenue. Other LTM Operations Measures were not meaningful since FPC's
LTM EBITDA, LTM EBIT, LTM pretax income and LTM net income as projected by FPC's
management were negative. The analysis also indicated that FPC would contribute
5.6% of pro forma 1997 revenue and 1.0% of pro forma 1997 EBITDA. Other 1997
multiples were not meaningful since FPC's 1997 EBIT, 1997 pretax income and 1997
net income as projected by FPC's management were negative. The analysis further
indicated that FPC would contribute (i) 5.8% of pro forma 1998 revenue; (ii)
3.5% of pro forma 1998 EBITDA; (iii) 3.9% of 1998 EBIT; (iv) 4.3% of 1998 pretax
income; and (v) 4.3% of 1998 net income. The Merger Agreement contemplates the
issuance of approximately 3.5 million shares of PhyCor Common Stock,
representing approximately 5.0% of the total pro forma shares of PhyCor Common
Stock, in exchange for the total equity value of FPC including all classes of
FPC Capital Stock.

PhyCor Comparison. To provide contextual data and comparative market
information, DLJ analyzed the operating performance of PhyCor relative to
certain companies whose securities are publicly traded and that were deemed by
DLJ to be reasonably similar to PhyCor, including FPA, PhyMatrix, ProMedCo and
PHP (collectively, the "PhyCor Selected Companies"). Historical financial
information used in connection with the ratios provided below with respect to
PhyCor Selected Companies was derived from the most recent financial statements
publicly available for each company as of December 19, 1997.

DLJ examined certain publicly available financial data of the PhyCor
Selected Companies, including (i) enterprise value as a multiple of LTM
revenues, LTM EBITDA and LTM EBIT, and (ii) price to earnings ratios based on
estimated calendar year 1997 EPS and estimated calendar year 1998 EPS. DLJ noted
that as of December 19, 1997, the PhyCor Selected Companies were trading at
implied multiples of enterprise value and earnings, as the case may be, in (i) a
range of 1.1x to 1.9x (with an Average of 1.4x) LTM revenues; (ii) a range of
11.9x to 19.6x (with an Average of 14.1x) LTM EBITDA; (iii) a range of 15.9x to
33.7x (with an Average of 20.7x) LTM EBIT; (iv) a range of 19.2x to 23.4x (with
an Average of 21.4x) estimated calendar year 1997 EPS; and (v) a range of 13.7x
to 18.0x (with an Average of 15.2x) estimated calendar year 1998 EPS. The
calendar year 1997 and 1998 EPS estimates for the PhyCor Selected Companies were
based on estimates provided by IBES, Inc. PhyCor recently traded at a multiple
of 1.9x LTM revenue, 13.2x LTM EBITDA, 19.0x LTM EBIT, 28.3x estimated calendar
year 1997 EPS as projected by PhyCor's management and 19.5x estimated calendar
year 1998 EPS as projected by PhyCor's management assuming the consummation of
the MedPartners transaction.

No company utilized in the selected public company analysis is
identical to PhyCor. Accordingly, an analysis of the results of the foregoing
necessarily involves complex considerations and judgments concerning differences
in financial and operating characteristics of the PhyCor Selected Companies and
PhyCor and other factors that could affect the public trading value of the
PhyCor Selected Companies. Mathematical analysis such as determining the average
is not in itself a meaningful method of using selected company data.

Common Stock Performance Analysis. DLJ'S analysis of the performance of
PhyCor Common Stock consisted of a historical analysis of closing prices and
trading volumes for the period from

<PAGE> 44

December 17, 1996 through December 17, 1997. During that period, PhyCor Common
Stock reached a high of $35.13 per share and a low of $23.00 per share. On
December 17, 1997, the closing price of PhyCor Common Stock was $26.75 per
share.

The summary set forth above does not purport to be a complete
description of the analyses performed by DLJ, but describes, in summary form,
the principal elements of all of the analyses contained in the materials
presented by DLJ to the FPC Board in connection with DLJ rendering its opinion.
The preparation of a fairness opinion involves various determinations as to the
most appropriate and relevant methods of financial analysis and the application
of these methods to the particular circumstances and, therefore, such an opinion
is not readily summarized. Each of the analyses conducted by DLJ was carried out
in order to provide a different perspective on the Merger and to add to the
information available to the FPC Board. DLJ did not form a conclusion as to
whether any individual analysis, considered in isolation, supported or failed to
support an opinion as to fairness from a financial point of view. Rather, in
reaching its conclusion, DLJ considered the results of the analyses in light of
each other and ultimately reached its opinion based on the results of the
analyses taken as a whole. DLJ did not place particular reliance or weight on
any individual factor, but instead concluded that its analyses, taken as a
whole, supported its determination. Accordingly, notwithstanding the separate
factors summarized above, DLJ believes that its analyses must be considered as a
whole and that selecting portions of its analysis and the factors considered by
it, without considering all analyses and factors, could create an incomplete or
misleading view of the evaluation process underlying its opinion. The analyses
performed by DLJ are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than suggested by
such analyses.

DLJ was selected to render an opinion in connection with the Merger
based upon DLJ'S qualifications, expertise and reputation, including the fact
that DLJ, as part of its investment banking services, is regularly engaged in
the valuation of businesses and securities in connection with mergers,
acquisitions, underwritings, sales and distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.

Pursuant to a letter agreement between FPC and DLJ dated August 5, 1997
(the "DLJ Engagement Letter"), DLJ is entitled to (i) a fee of $0.3 million for
the delivery of the DLJ Opinion and (ii) a percentage fee equal to the 0.9% of
the value of the aggregate merger consideration less the amount previously paid
pursuant to clause (i) above. The total fees payable to DLJ would have equaled
approximately $0.9 million using the closing sales price of PhyCor Common Stock
on both December 19, 1997 and March 6, 1998. In addition, FPC has agreed to
reimburse DLJ for certain out-of-pocket expenses incurred by DLJ in connection
with its engagement thereunder, whether or not the Merger is consummated, and to
indemnify DLJ for certain liabilities and expenses arising out of the Merger or
the transactions in connection therewith, including liabilities under federal
securities laws. The terms of the fee arrangement with DLJ, which DLJ and FPC
believe are customary for transactions of this nature, were negotiated at arm's
length between FPC and DLJ, and the FPC Board was aware of such arrangement.

DLJ provides a full range of financial, advisory and brokerage services
and in the course of its normal trading activities may from time to time effect
transactions and hold positions in the securities or options on the securities
of PhyCor for its own account or for the account of customers. As of the date of
this Prospectus-Proxy Statement, DLJ, through its affiliate the Sprout Group,
owned (i) approximately 19.4% of the fully diluted common equity of FPC and (ii)
Class A Convertible Preferred Stock of FPC with a liquidation preference of $6.0
million (plus accrued but unpaid dividends of $0.9 million). Additionally, as of
the date of this Proxy Statement--Prospectus, DLJ, through its affiliate the
Sprout Group, had a loan outstanding to FPC in the aggregate principal amount of
$1.5 million.

<PAGE> 45

EFFECTIVE TIME OF THE MERGER

The Merger will become effective upon the filing by the Subsidiary and
FPC of the Certificate of Merger under the DCGL, or at such later time as may be
specified in such Certificate of Merger. The Merger Agreement requires that this
filing be made as soon as practicable following satisfaction or waiver of the
various conditions to the Merger set forth in the Merger Agreement, or at such
other time as may be agreed by PhyCor, Subsidiary and FPC. It is currently
anticipated that such filing will be made as soon as reasonably practicable
after the Special Meeting and after all regulatory approvals have been obtained,
and that the Effective Time will occur upon such filing. However, there can be
no assurance as to whether or when the Merger will occur. See "--Conditions to
the Merger" and "--Regulatory Approvals."

EXCHANGE OF CERTIFICATES

At least two business days prior to the date FPC provides notices to
its stockholders of the Special Meeting, PhyCor and FPC will enter into an
agreement with the Exchange Agent which will provide that PhyCor shall deposit
with the Exchange Agent, for the holders of FPC Capital Stock, for exchange
pursuant to the Merger Agreement, through the Exchange Agent, (i) as soon as
practicable (but in any event within five business days) after such agreement
has been entered into, certificates representing the shares of PhyCor Common
Stock issuable pursuant to the Merger Agreement and (ii) at least two business
days prior to the Effective Time, cash in an amount equal to the aggregate
amount required to be paid to holders of FPC Capital Stock in lieu of fractional
interests of PhyCor Common Stock and any dividends or distributions to which
such holder is entitled pursuant to the Merger.

PRIOR TO THE EFFECTIVE TIME, HOLDERS OF FPC CAPITAL STOCK WILL BE
ENTITLED TO TENDER THE STOCK CERTIFICATES REPRESENTING OUTSTANDING SHARES OF FPC
CAPITAL STOCK TO THE EXCHANGE AGENT CONDITIONED UPON CONSUMMATION OF THE MERGER.
From and after the Effective Time, each holder of a stock certificate, which
immediately prior to the Effective Time represented outstanding shares of FPC
Capital Stock (the "Certificates"), will be entitled to receive in exchange
therefor, upon surrender thereof to the Exchange Agent, a certificate or
certificates representing the number of whole shares of PhyCor Common Stock into
which such holder's Certificates have been converted, cash in lieu of fractional
shares and any dividends or other distributions to which such holder is entitled
as a result of the Merger.

No fractional shares of PhyCor Common Stock and no certificates or
scrip therefor, or other evidence of ownership thereof, will be issued in the
Merger; instead, PhyCor will pay to each holder of shares of FPC Capital Stock
who would otherwise be entitled to a fractional share of PhyCor Common Stock an
amount of cash determined by multiplying such holder's fractional interest by
the Closing Price. See "--Terms of the Merger."

The certificates representing shares of PhyCor Common Stock, the
fractional share payment (if any) which any holder of shares of FPC Capital
Stock is entitled to receive, and any dividends or other distributions paid on
such PhyCor Common Stock prior to the delivery to PhyCor of the Certificates,
will not be delivered to such holder of FPC Capital Stock until the Certificates
are delivered to PhyCor through the Exchange Agent; provided, however, that
holders of stock certificates representing FPC Capital Stock who tendered
Certificates to the Exchange Agent at least ten business days prior to the
Effective Time shall be entitled to receive certificates representing shares of
PhyCor Common Stock at the Effective Time. No interest will be paid on dividends
or other distributions or on any fractional share payment which the holder of
such shares shall be entitled to receive upon such delivery.

At the Effective Time, holders of FPC Capital Stock immediately prior
to the Effective Time will cease to be, and shall have no rights as, holders of
FPC Capital Stock, other than the right to

<PAGE> 46

receive the shares of PhyCor Common Stock into which such shares have been
converted and any fractional share payment and any dividends or other
distributions they may be entitled to under the Merger Agreement (or, with
respect to holders properly exercising appraisal rights, to receive the fair
value of such person's shares of FPC Capital Stock). Holders of shares of FPC
Capital Stock (other than those who have exercised appraisal rights) will be
treated as holders of record of PhyCor Common Stock for purposes of voting at
any annual or special meeting of shareholders of PhyCor after the Effective
Time, both before and after such time as they exchange their Certificates for
certificates of PhyCor Common Stock as provided in the Merger Agreement.

Neither PhyCor nor FPC will be liable to any holder of shares of FPC
Capital Stock for any shares of PhyCor Common Stock (or dividends or other
distributions with respect thereto) or cash in lieu of fractional shares
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.

REPRESENTATIONS AND WARRANTIES

The Merger Agreement contains various customary representations and
warranties of the parties thereto. The representations and warranties of PhyCor,
Subsidiary and FPC include, but are not limited to, representations as to: (i)
the organization and existence of each of PhyCor, Subsidiary and FPC, as
applicable, (ii) the capitalization of each of PhyCor, Subsidiary and FPC, as
applicable, (iii) the name and state of incorporation of the subsidiaries and
affiliated entities, including partnerships and limited liability companies, as
applicable, (iv) the organization, existence and foreign qualification of the
FPC subsidiaries and PhyCor significant subsidiaries (as defined in the Merger
Agreement), (v) the name of each physician group and the number of physicians in
such group with which FPC is affiliated, (vi) the power and authority of each
party to execute, deliver and perform the Merger Agreement, (vii) the fact that
PhyCor has furnished FPC with a true and complete copy of each report, schedule,
registration statement and proxy statement filed by PhyCor with the Commission
and FPC has provided PhyCor with its audited financial statements, (viii) the
legal proceedings against each party, (ix) the validity of PhyCor's or FPC's
material contracts, as applicable, (x) the conduct of business, since September
30, 1997, in the ordinary course and the absence of certain changes or material
adverse effects, (xi) certain tax matters, (xii) FPC's employee benefit plans
and employment matters, (xiii) FPC's compliance with laws in general, (xiv) each
party's regulatory approvals, (xv) the commissions and fees paid by each party,
(xvi) FPC's stockholder votes required to approve the Merger Agreement, (xvii)
the pooling of interests of the Merger, (xviii) FPC's ownership and good title
to its properties and assets, (xix) the validity of FPC's accounts receivables,
(xx) FPC's compliance with environmental regulations and (xxi) FPC's insurance
and malpractice coverage.

CONDITIONS TO THE MERGER

The obligations of each of PhyCor and FPC to consummate the Merger are
subject to, among others, the fulfillment of each of the following conditions:
(i) the other party shall have performed, in all material respects, all of its
obligations as contemplated by the Merger Agreement at or prior to the
consummation date of the Merger; (ii) the representations and warranties of the
other party set forth in the Merger Agreement shall be true and correct as of
the dates of the Merger Agreement and the Closing; (iii) FPC shall have received
the opinion of its counsel that the Merger will be treated as a reorganization
within the meaning of Section 368(a) of the Code; (iv) each party shall have
received an opinion of the other party's counsel substantially in the form
specified in the Merger Agreement; (v) each party shall have received a
certificate, executed by an authorized officer of the other party, certifying
the fulfillment of the conditions to the Merger; and (vi) PhyCor shall have
received letters from those persons deemed Affiliates (as such term is defined
under the Securities Act).

The respective obligations of PhyCor and FPC to consummate the Merger
are subject to certain additional conditions including the following: (i) no
order, decree or injunction by a court of

<PAGE> 47

competent jurisdiction preventing or materially delaying the consummation of the
Merger or imposing any material limitation on the ability of PhyCor effectively
to operate the business of FPC or which would have a material adverse effect on
FPC shall be in effect; (ii) no statute, rule or regulation shall have been
enacted by the government (or any governmental agency) of the United States or
any state, thereof that makes the consummation of the Merger or any other
transaction contemplated by the Merger Agreement illegal; (iii) the waiting
period under the HSR Act shall have expired or shall have been terminated; (iv)
the Merger shall have been approved by the affirmative vote of a majority of the
outstanding shares of FPC Capital Stock entitled to vote thereon; (v) the shares
of PhyCor Common Stock to be issued in connection with the Merger shall have
been approved for listing on Nasdaq National Market (or other such exchange on
which the shares of PhyCor Common Stock are then listed) upon official notice of
issuance and shall have been issued in transactions qualified or exempt from
registration under applicable securities or Blue Sky laws; (vi) the Merger shall
qualify for pooling of interests accounting treatment; (vii) PhyCor and FPC
shall have received all consents, waivers, approvals and authorizations of third
parties with respect to all material contracts, leases, service agreements and
management agreements (except where failure to obtain such consent, approval or
authorization would not have a material adverse effect on the business of
PhyCor); (viii) all consents, authorizations, orders and approvals of (or
filings or registrations with) any governmental commission, board or other
regulatory body required in connection with the execution, delivery and
performance of the Merger Agreement shall have been obtained; and (ix) the
Registration Statement shall have been declared effective under the Securities
Act and shall not be subject to any stop order.

REGULATORY APPROVALS

The HSR Act prohibits consummation of the Merger until certain
information has been furnished to the Antitrust Division of the DOJ and the FTC
and certain waiting period requirements have been satisfied. On January 22,
1998, PhyCor and FPC made their respective filings with the DOJ and the FTC with
respect to the Merger Agreement. On February 13, 1998, the DOJ and the FTC
granted PhyCor and FPC early termination of the HSR Act waiting period.
Notwithstanding the termination of the HSR Act waiting period, at any time
before or after the Effective Time, the FTC, the DOJ or others could take action
under the antitrust laws, including requesting additional information, seeking
to enjoin the consummation of the Merger or seeking the divestiture by PhyCor of
all or any part of the stock or assets of FPC. There can be no assurance that a
challenge to the Merger on antitrust grounds will not be made or, if such a
challenge were made, that it would not be successful.

As conditions precedent to the consummation of the Merger, the Merger
Agreement requires, among other things, (i) that the HSR Act waiting period has
expired or been terminated and (ii) that all other governmental approvals
required for the consummation of the Merger have been obtained.

Prior to the Merger, the FTC or the DOJ could seek to enjoin the
consummation of the Merger under the federal antitrust laws or require that
PhyCor or FPC divest certain assets to avoid such a proceeding. The FTC or DOJ
could also, following the Merger, take action under the federal antitrust laws
to rescind the Merger, to require divestiture of assets of either PhyCor or FPC,
or to obtain other relief.

Certain other persons, such as states' attorneys general and private
parties, could challenge the Merger as violative of the antitrust laws and seek
to enjoin the consummation of the Merger and, in the case of private persons, to
obtain treble damages. There can be no assurance that a challenge to the Merger
on antitrust grounds will not be made or, if such a challenge is made, that it
would not be successful. FPC does not intend to seek any further stockholder
approval or authorization of the Merger Agreement as a result of any action that
it may take to resist or resolve any FTC, DOJ or other objections, unless
required to do so by applicable law.

<PAGE> 48

The operations of PhyCor and FPC are subject to a substantial body of
federal, state, local and accrediting body laws, rules and regulations relating
to the conduct, licensing and development of health care businesses and
facilities. As a result of the Merger, many of the arrangements between FPC and
third-party payors may be deemed to have been transferred, which may require the
approval and consent of such payors. In addition, a number of the facilities
operated by FPC may be deemed to have been transferred, which may require the
consents or approvals of various state licensing and/or health regulatory
agencies. In some instances, new licenses may be required to be obtained. It is
anticipated that, prior to the time this Prospectus-Proxy Statement is mailed to
the stockholders of FPC, all filings required to be made prior to such date to
obtain the consents and approvals required from federal and state health care
regulatory bodies and agencies will have been made. However, certain of such
filings cannot be made under the applicable laws, rules and regulations until
after the Effective Time. Although no assurances to this effect can be given, it
is anticipated that the companies will be able to obtain any required consent or
approval.

CERTAIN COVENANTS

Preserve Business. The Merger Agreement provides that, during the
period from the date of the Merger Agreement to the Effective Time, except as
provided in the Merger Agreement, PhyCor and FPC will conduct their respective
businesses in the usual, regular and ordinary course in substantially the same
manner as previously conducted, and each of FPC and PhyCor will use its
reasonable best efforts to preserve intact its business organization, to keep
available to PhyCor the services of its present employees and to preserve for
PhyCor its relationships with physicians, patients, suppliers and others having
business relations with them and their respective subsidiaries.

Material Transaction. Under the Merger Agreement, FPC, its
subsidiaries, partnerships and other affiliated entities may not (other than as
required pursuant to or contemplated by the terms of the Merger Agreement and
related documents), without first obtaining the written consent of PhyCor, (i)
encumber any asset or enter into transaction relating to the properties, assets
or business of FPC other than in ordinary course, (ii) except for physician
employment agreements and certain terminable agreements, enter into any
employment agreement with compensation in excess of $75,000 or for greater than
a one year term, (iii) except in ordinary course, enter into a contract which
cannot be performed within three months or which involves expenditure of over
$250,000, (iv) issue or sell, or agree to issue or sell, any shares of capital
stock of FPC or its subsidiaries, except upon exercise of currently outstanding
options or warrants or conversion of the FPC Class B Convertible Preferred Stock
or the FPC Class C Convertible Preferred Stock, (v) make any payment or
distribution to the trustee under any bonus, pension, profit-sharing or
retirement plan or incur any obligation relating to any such plan, create or
terminate any such plan, except in ordinary course, (vi) extend credit to
anyone, except in ordinary course, (vii) guaranty the obligation of any person,
firm or corporation except in ordinary course, (viii) amend its Certificate of
Incorporation or Bylaws, (ix) take any action that would cause certain material
changes in FPC or (x) enter into any transaction, agreement or contract for the
purchase of substantially all of the stock or assets of another company.

Both PhyCor and FPC have agreed to cooperate in the prompt preparation
and filing of certain documents under federal and state securities laws with
applicable governmental entities.

Stock Option Plans and Stock Options. At the Effective Time, all
options to purchase shares of FPC Capital Stock which are outstanding at such
time, whether or not then vested or exercisable, will immediately become options
to purchase PhyCor Common Stock. The number of shares of PhyCor Common Stock
subject to each stock option assumed and the exercise prices for such shares
shall be adjusted to give effect to the Exchange Ratios. PhyCor shall deliver to
the holders of FPC stock options appropriate notices setting forth such holders'
rights pursuant to any stock option plans which such FPC stock options were
issued. PhyCor will either adopt the stock option plans of FPC in

<PAGE> 49

connection with the Merger or will issue new options under the existing PhyCor
option plans in order to continue the options previously granted by FPC, as
described herein.

WAIVER AND AMENDMENT

The Merger Agreement provides that, at any time prior to the Effective
Time, PhyCor and FPC may (i) extend the time for the performance of any of the
obligations or other acts of the other party contained in the Merger Agreement,
(ii) waive any inaccuracies in the representations and warranties of the other
party contained in the Merger Agreement or in any document delivered pursuant to
the Merger Agreement and (iii) waive compliance with the agreements or
conditions under the Merger Agreement. In addition, the Merger Agreement may be
amended at any time upon the written agreement of PhyCor and FPC without the
approval of the shareholders of either party, except that after the Special
Meeting, no amendment may be made which by law requires a further approval by
the stockholders of FPC without such further approval being obtained.

TERMINATION

The Merger Agreement may be terminated at any time prior to the
Effective Time in a number of circumstances, which include, among others: (a) by
the mutual consent of FPC, the Subsidiary and PhyCor; (b) by either FPC or
PhyCor if (i) the adoption of the Merger Agreement and the approval of the
transactions contemplated thereby by the holders of FPC Capital Stock shall not
have been obtained, (ii) the Merger shall have not been consummated by July 31,
1998, provided that the terminating party shall not have willfully and
materially breached its obligations under the Merger Agreement, (iii) a court or
governmental, regulatory or administrative agency or commission shall have
issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the Merger and such order shall
have become final and nonappealable, (iv) the other party has materially
breached any representation, warranty, covenant or agreement contained in the
Merger Agreement or experienced a material adverse change which cannot be, or
has not been, cured within 30 days after written notice of such breach or (v) if
the conditions to the obligations of such party shall be satisfied and such
obligations of the other party are not capable of being satisfied; (c) by FPC if
(i) the FPC Board, prior to approval of the Merger by the stockholders of FPC,
in the exercise of its good faith judgment as to its fiduciary duties to its
stockholders imposed by law, determines not to recommend the Merger to FPC's
stockholders or shall have withdrawn such recommendation or approval or
recommended or endorsed any Acquisition Transaction (as defined below), (ii) the
Closing Price of the PhyCor Common Stock is equal to or less than $20.00, unless
PhyCor agrees to increase the Exchange Ratios such that the aggregate value of
shares of PhyCor Common Stock to be received by FPC's stockholders is equal to
$20.00 times the number of shares to be received by FPC's stockholders using the
current Exchange Ratios, or (iii) the Registration Statement has not been
declared effective or if the waiting period (and any extension thereof) under
the HSR Act has not expired or been terminated by April 30, 1998; or (d) by
either party upon the occurrence of a subsequent event to the other party that
would give rise to a failure of such other party's ability to fulfill its
conditions to the Merger.

BREAK-UP FEE; THIRD PARTY BIDS

In the event that the Merger Agreement is terminated by action of the
FPC Board, in the exercise of its fiduciary duties under applicable law,
approving, recommending or endorsing an Acquisition Transaction and within one
year after the effective date of such termination, FPC is the subject of an
Acquisition Transaction with any Person (as defined in Sections 3(a)(9) and
13(d)(3) of the Exchange Act), then at the time of the execution by FPC of a
definitive agreement with respect thereto, FPC shall pay to PhyCor in
immediately available funds a break-up fee of 3% of the aggregate consideration
that PhyCor would have paid to FPC if the Merger had been consummated
(determined as it would have been calculated on the effective date of
termination of the Merger Agreement, substituting the effective date of such
termination for the Effective Time of the Merger

<PAGE> 50

for purposes of calculating the aggregate value of PhyCor Common Stock that
would have been issued to holders of FPC Capital Stock), the break-up fee would
have equaled approximately $3.0 million based on the March 11, 1998 closing
sales price of PhyCor Common Stock.

"Acquisition Transaction" is defined in the Merger Agreement as any
bona fide superior proposal to acquire all or any significant portion of the
equity securities of FPC or of the assets of FPC upon a merger, purchase of
assets, purchase of or tender offer for shares of FPC Capital Stock or similar
transaction.

INTERESTS OF CERTAIN PERSONS IN THE MERGER; APPROVAL OF CHANGE OF CONTROL
PAYMENTS

Certain FPC executive officers and members of its Board of Directors
have interests in the Merger that are in addition to their interests as
stockholders of FPC generally. Certain of these persons participated in the
negotiation of the Merger Agreement. The FPC Board was aware of these interests
and considered them, among other matters, in approving the Merger Agreement and
the transactions contemplated thereby. Specifically, the executive officers and
directors of FPC own options to purchase 280,750 shares of FPC Class A Common
Stock that will become immediately exercisable as a result of the Merger.
Stephen A. George, Chairman, Chief Executive Officer and President of FPC, has
entered into a Consulting Agreement with PhyCor that provides for services and
payments after the Merger. Each of the executive officers may be entitled to
severance payments if their employment is terminated following the Merger.

Described below are the material provisions of the Consulting
Agreement. The following description is qualified in its entirety by reference
to the complete text of the agreement, a copy of which is attached hereto as
Annex E. Also described below are other payments to which FPC's executive
officer may be entitled and which certain other persons will be entitled as a
result of the Merger.

At the time of execution of the Merger Agreement, PhyCor, FPC, and Dr.
George entered into the Consulting Agreement, which was amended and restated on
January 29, 1998. During the term of such agreement (which commences at the
Effective Time and continues for three years thereafter), Dr. George agrees to
provide consulting services in connection with acquisitions by PhyCor and FPC
following the Merger and in connection with the consummation of the transactions
contemplated by the Merger Agreement. In consideration of such services, PhyCor
and FPC have agreed to pay Dr. George a consulting fee of $1,188,750, $563,750
of which is payable on August 1, 1998 and the remainder of which is payable in
installments of $312,500 each on the first and second anniversaries of the
Effective Time. In the event of a change in control of PhyCor, all of such
payments would become immediately due and payable. In addition, Dr. George is
eligible to participate, at PhyCor's expense, during the term of the Consulting
Agreement and thereafter at his own expense, in certain of PhyCor's employee
benefit programs and is entitled to reimbursement of expenses incurred by him in
performing his services under the agreement. In addition, Dr. George will
receive continuation of certain health and welfare benefits at the expense of
FPC for a period of three years and, thereafter, at his own expense. Dr. George
is also entitled to receive (i) reimbursement for up to $50,000 per year for his
expenses in retaining secretarial services, plus the provision of certain health
and welfare benefits for such secretary, (ii) provision of up to 1,500 square
feet of office space, including office equipment and furnishings, and (iii) a
fully vested option to purchase 25,000 shares of PhyCor Common Stock at the fair
market value of the Common Stock on the effective date of the Merger. Under the
Consulting Agreement, Dr. George agrees not to compete with PhyCor or FPC during
the term of the agreement or as long as he is entitled to receive any payments
thereunder and to maintain the confidentiality of such companies' non-public
information.

Dr. George, Andrew B. Adams, M.D. (the Executive Vice President of
Medical Affairs of FPC) and Karl A. Hardesty (the Senior Vice President and
Chief Financial Officer of FPC) are each parties to employment agreements with
FPC that provide them with certain benefits in the event of

<PAGE> 51

termination of their employment upon or after the "change in control" that will
occur upon consummation of the Merger. Under Dr. George's employment agreement,
FPC will be required to pay Dr. George an amount equal to one year's base salary
($300,000) in 12 equal monthly installments following the Effective Time. Dr.
George will also be entitled to continuation of his existing car allowance and
to payments for costs associated with continuing medical education and
professional fees incurred by him during the 12 month period following the
Effective Time. Dr. Adams' and Mr. Hardesty's employment agreements provide for
severance pay in an amount equal to one year ($200,000 in the case of Dr. Adams)
and six months ($73,500 in the case of Mr. Hardesty) of their respective base
salaries in the event either of such persons voluntarily terminates their
employment following the Merger. In addition to these severance payments, PhyCor
has agreed to make severance payments to the two other executive officers,
Donald B. Smallwood and Kelly J. DeKeyser, of $82,500 and $60,000, respectively,
and other members of FPC's corporate management and staff upon the earlier of
their involuntary termination or subject to completion of the merger, May 15,
1998. Assuming all such persons were terminated, these payments would aggregate
$1.3 million (including the payments required under Dr. George's, Dr. Adams' and
Mr. Hardesty's employment agreements). Additionally, PhyCor has agreed to pay
bonuses to certain FPC employees who agree to continue their employment for
specified periods following the Merger.

The Change of Control Payments payable to Dr. George are conditioned on
the completion of the Merger and will be due and owing if the Merger is
approved. If the Merger is not approved by FPC's stockholders, or is otherwise
not completed, Dr. George will not be entitled to the Change of Control
Payments. FPC is taking steps, including obtaining stockholder approval of the
Change of Control Payments to ensure that the Change of Control Payments do not
result in excise tax liability under Section 4999 of the Code. In the event,
however, that any portion of the Change of Control Payments do result in the
imposition of such excise tax liability, PhyCor will pay such amounts on behalf
of Dr. George and will provide additional compensation to him to offset the
effect of such taxes. FPC has been advised by legal counsel that tax liability
under Section 4999 of the Code should not be imposed if the Change of Control
Payments are approved by the holders of 75%, excluding those shares held by Dr.
George, of the outstanding FPC Voting Stock (voting together as a class, with
holders of the FPC Class B Convertible Preferred Stock and Class C Convertible
Preferred Stock being entitled to cast the same number of votes as they would be
entitled to cast had they converted such securities into Class A Common Stock).

The Merger Agreement also includes certain provisions that may be
deemed to benefit its directors and executive officers, including provisions for
the continuation of the indemnification of, and director and officer insurance
for, such persons and for the continuation of benefits under specified FPC
employee benefit and compensation plans.

ACCOUNTING TREATMENT

It is intended, and a condition to the consummation of the Merger, that
the Merger qualify for pooling of interests accounting treatment. PhyCor and FPC
have agreed not to intentionally take or cause to be taken or omit to take any
action that would disqualify the Merger as a pooling of interests for accounting
purposes.

Under the pooling of interests method of accounting, the historical
basis of the assets and liabilities of PhyCor and FPC will be combined at the
Effective Time and carried forward at their previously recorded amounts, the
equity accounts of the holders of PhyCor Common Stock and FPC Capital Stock will
be combined on PhyCor's consolidated balance sheet and no goodwill or other
intangible assets will be created. Financial statements of PhyCor issued after
the Merger will be restated retroactively to reflect the consolidated operations
of PhyCor and FPC as if the Merger had taken place prior to the periods covered
by such financial statements.

<PAGE> 52

FPC Class A Preferred Stock is non-convertible and votes as a separate
class on certain matters. FPC Class B Convertible Preferred Stock may be
converted into FPC Class A Common Stock at the rate of 38.504 shares of Class A
Common for each share of Class B Convertible Preferred held. FPC Class C
convertible Preferred Stock may be converted into FPC Class A Common Stock at
the rate of 10 shares of Class A Common for each share of Class C Convertible
Preferred held. The holders of Class B and Class C Convertible Preferred Stock
are entitled to vote on matters as if they had converted such securities into
FPC Class A Common Stock. The Class B Convertible Preferred Stock and Class C
Convertible Preferred Stock is automatically converted into FPC Class A Common
Stock under certain events. In addition the Class B Convertible Preferred and
Class C Convertible Preferred Shareholders may convert to Class A Common Stock
at any time at the option of the shareholder. See - "COMPARISON OF RIGHTS OF FPC
AND PHYCOR SHAREHOLDERS-CLASS B CONVERTIBLE PREFERRED STOCK AND CLASS C
CONVERTIBLE PREFERRED STOCK". The voting interests of the Class B Convertible
Preferred and Class C Convertible Preferred Stockholders will not change as a
result of a conversion to Class A Common Stock or as a result of the Merger in
which the Class B Convertible Preferred and Class C Convertible Preferred
Shareholders will receive the same number of PhyCor shares as if they had
converted their securities into FPC Class A Common Stock. It is not anticipated
that any of the holders of Class B or Class C Convertible Preferred Stock will
convert any outstanding preferred shares into FPC Class A Common prior to the
Effective Time. At the Effective Time, the holders of Class B Convertible
Preferred and Class C Convertible Preferred Stock will receive the same number
of PhyCor shares as if they had converted their securities into FPC Class A
Common Stock based upon their respective conversion ratios. The exchange ratio
for the Class A Preferred Stock was determined based upon the redemption price
per share plus accrued and unpaid dividends as of the estimated Effective Time.
See "COMPARISON OF RIGHTS OF FPC AND PHYCOR SHAREHOLDERS-CLASS A PREFERRED
STOCK" and "MERGER CONSIDERATION". The exchange ratio for the Class B and Class
C Convertible Preferred Stock was determined based upon the conversion ratio of
each class of preferred stock to the FPC Class A Common Stock. See "MERGER
CONSIDERATION."

FEDERAL INCOME TAX CONSEQUENCES

The following is a discussion of the material federal income tax
consequences applicable to holders of FPC Capital Stock who, pursuant to the
Merger, exchange their FPC Capital Stock solely for PhyCor Common Stock. The
summary does not purport to deal with aspects of federal income taxation that
may uniquely affect particular stockholders in light of their particular
individual circumstances and is not intended for holders of FPC Capital Stock
subject to special treatment under the federal income tax law (including
insurance companies, tax-exempt organizations, financial institutions,
broker-dealers, foreign persons or entities, holders of FPC Capital Stock who
hold their stock as part of a hedge, straddle or conversion transaction, holders
of FPC Capital Stock who do not hold their stock as capital assets and holders
of FPC Capital Stock who have acquired their stock upon the exercise of assets
and holders of FPC Capital Stock who have acquired their stock upon the exercise
of employee options or otherwise as compensation). In addition, this discussion
does not consider the effect of any applicable state, local or foreign tax laws.
Accordingly, each FPC stockholder is strongly urged to consult with his tax
advisor to determine the tax consequences of the Merger.

The following summary is based upon current provisions of the Code,
currently applicable Treasury regulations, and judicial and administrative
decisions and rulings. Future legislative, judicial or administrative changes or
interpretations could alter or modify the statements and conclusions set forth
herein, and any such changes or interpretations could be retroactive and could
affect the tax consequences to the stockholders of FPC.

Tax Opinion. Consummation of the Merger is conditioned upon the receipt
by FPC of an opinion of Mayor, Day, Caldwell & Keeton, L.L.P., dated the Closing
Date, addressed to FPC and in form and substance satisfactory to FPC, which
opinion will be based on certain representations of

<PAGE> 53

PhyCor and FPC, to the effect that the Merger will be treated as a
reorganization within the meaning of Section 368(a) of the Code. There can be no
assurance that the Internal Revenue Service ("IRS") will not take a contrary
view, and no ruling from the IRS has been or will be sought concerning the
federal income tax consequences of the Merger. An opinion of counsel expresses
what counsel believes a court should properly hold if presented with the issue
which is the subject of the opinion. An opinion is not a guarantee of a certain
tax treatment and is not binding on the IRS or the courts. The following
discussion assumes that the Merger will be treated in the manner described in
the opinion of Mayor, Day, Caldwell & Keeton, L.L.P.

Treatment of Holders of FPC Capital Stock. Except as discussed below
under "--Cash in Lieu of Fractional Shares" and "--Transfer Taxes," a holder of
FPC Capital Stock who, pursuant to the Merger, exchanges FPC Capital Stock for
PhyCor Common Stock generally will not recognize gain or loss upon such
exchange. Such holder's aggregate tax basis in the PhyCor Common Stock received
pursuant to the Merger will be equal to its aggregate tax basis in the FPC
Capital Stock surrendered in the exchange (reduced by any tax basis allocable to
fractional shares exchanged for cash) and its holding period for the PhyCor
Common Stock will include its holding period for the FPC Capital Stock
surrendered.

A holder of FPC Capital Stock who exercises his appraisal rights under
DGCL and solely receives cash in exchange for his FPC Capital Stock will
recognize taxable gain or loss equal to the difference between the amount of
cash received and his adjusted basis in his FPC Capital Stock. Provided the FPC
Capital Stock was held as a capital asset, the gain or loss will be a capital
gain or loss and if the FPC Capital Stock has a holding period of more than one
year, but not more than 18 months, the gain or loss will be mid-term capital
gain or loss and if the FPC Capital Stock has a holding period of more than 18,
the gain or loss will be long-term capital gain or loss. Reduced rates are
imposed on mid-term and long-term capital gains with the rate being determined
by the length of the taxpayer's holding period and certain other factors. This
discussion assumes that all of the holder's FPC Capital Stock under the rules
regarding the constructive ownership of stock owned by family members and
related entities.

Cash in Lieu of Fractional Shares. No fractional shares of PhyCor
Common Stock will be issued upon the surrender for exchange of certificates
representing shares of FPC Capital Stock. A holder of FPC Capital Stock who
receives cash in lieu of fractional shares of PhyCor Common Stock will be
treated as having received such fractional shares pursuant to the Merger and
then as having exchanged such fractional shares for cash in a redemption by
PhyCor. Any gain or loss attributable to fractional shares generally will be
capital gain or loss. The amount of such gain or loss will be equal to the
difference between the portion of the tax basis of the FPC Capital Stock
surrendered in the Merger that is allocated to such fractional shares and the
cash received in lieu thereof. Any such capital gain or loss will constitute
long-term capital gain or loss if the FPC Capital Stock has been held by the
holder for more than one year at the Effective Time. Capital gain on assets held
for more than one year recognized by certain non-corporate stockholders is
subject to federal income tax at preferential capital gains rates, and such gain
recognized with respect to an asset with a holding period of more than 18 months
is generally subject to federal income tax at further reduced capital gains
rates.

Transfer Taxes. Certain state and local taxing authorities may impose
certain taxes on the direct or indirect transfer of an interest in real property
(including leases) located within such jurisdiction ("Transfer Taxes"). Transfer
Taxes may also be imposed in connection with certain direct or indirect
ownership changes of an entity owning a real property interest located within
such jurisdiction. PhyCor will pay any Transfer Taxes that arise from the
Merger. In certain circumstances, such payments may be considered for federal
income tax purposes to be additional consideration paid to each holder of FPC
Capital Stock. In that event, each such holder would be treated as if it
received cash equal to the amount of Transfer Taxes paid on its behalf, which
could

<PAGE> 54

result in additional taxable gain to such holder and a corresponding increase in
tax basis of such holder's shares of PhyCor Common Stock.

Reporting Requirements. Each holder of FPC Capital Stock that receives
PhyCor Common Stock in the Merger will be required to retain records and file
with such holder's federal income tax return a statement setting forth certain
facts relating to the Merger.

Backup Withholding. Unless an exemption applies under the applicable
law and regulations, the Exchange Agent may be required to withhold, and, if
required, will withhold, 31% of any cash payments to a holder of FPC Capital
Stock in the Merger unless such holder provides the appropriate form. A holder
should complete and sign the Substitute Form W-9 enclosed with the letter of
transmittal sent by the Exchange Agent, so as to provide the information
(including the holder's taxpayer identification number) and certification
necessary to avoid backup withholding, unless an applicable exemption exists and
is proved in a manner satisfactory to the Exchange Agent.

THE FOREGOING SUMMARY OF CERTAIN MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER WITH RESPECT TO HOLDERS OF FPC CAPITAL STOCK IS
WITHOUT REFERENCE TO THE PARTICULAR FACTS AND CIRCUMSTANCES OF ANY PARTICULAR
HOLDER. IN ADDITION, THE FOREGOING SUMMARY DOES NOT ADDRESS ANY NON-INCOME TAX
OR ANY FOREIGN, STATE OR LOCAL TAX CONSEQUENCES OF THE MERGER NOR DOES IT
ADDRESS THE TAX CONSEQUENCES OF ANY TRANSACTION OTHER THAN THE MERGER OR ANY
ASPECT OF THE MERGER NOT INVOLVING THE EXCHANGE OF FPC CAPITAL STOCK.
ACCORDINGLY, EACH HOLDER OF FPC CAPITAL STOCK IS STRONGLY URGED TO CONSULT WITH
SUCH HOLDER'S TAX ADVISOR TO DETERMINE THE PARTICULAR UNITED STATES FEDERAL,
STATE, LOCAL OR FOREIGN INCOME OR OTHER TAX CONSEQUENCES OF THE MERGER TO SUCH
HOLDER.

RESALE OF PHYCOR COMMON STOCK BY AFFILIATES

The shares of PhyCor Common Stock to be issued to holders of shares of
FPC Capital Stock in connection with the Merger have been registered under the
Securities Act. PhyCor Common Stock received by the holders of shares of FPC
Capital Stock upon consummation of the Merger will be freely transferable under
the Securities Act, except for shares issued to any person who may be deemed an
"Affiliate" (as defined below) of FPC or PhyCor within the meaning of Rule 145
under the Securities Act. "Affiliates" are generally defined as persons who
control, are controlled by, or are under common control with, FPC or PhyCor at
the time of the Special Meeting (generally, directors, certain executive
officers and principal stockholders). For two years following the Effective
Time, Affiliates of FPC or PhyCor may not sell their shares of PhyCor Common
Stock acquired in connection with the Merger except pursuant to an effective
registration statement under the Securities Act covering such shares or in
compliance with Rule 145 or another applicable exemption from the registration
requirements of the Securities Act. In general, under Rule 145 following the
Effective Time, an Affiliate (together with certain related persons) would be
entitled to sell shares of PhyCor Common Stock acquired in connection with the
Merger only through unsolicited "broker transactions" or in transactions
directly with a "market maker", as such terms are defined in Rule 144 under the
Securities Act. Additionally, the number of shares to be sold by an Affiliate
(together with certain related persons and certain persons acting in concert)
within any three-month period for purposes of Rule 145 may not exceed the
greater of 1% of the outstanding shares of PhyCor Common Stock or the average
weekly trading volume of such stock during the four calendar weeks preceding
such sale. Rule 145 would remain available to Affiliates only if PhyCor remained
current with its information filings with the Commission under the Exchange Act.
One year after the Effective Time, an Affiliate would be able to sell such
PhyCor Common Stock without such manner of sale or volume limitations, provided
that PhyCor were current with its Exchange Act information filings and such
Affiliate had not been an Affiliate of PhyCor for the three months prior
thereto. Two years after the Effective Time, an Affiliate would be able to sell
such PhyCor Common Stock without such manner of

<PAGE> 55

sale or volume limitations, provided such Affiliate had not been an affiliate of
PhyCor for three months prior thereto.

Each of FPC and PhyCor have agreed to use its reasonable, good faith
efforts to cause each holder of shares of FPC Capital Stock deemed to be an
Affiliate of FPC or PhyCor to enter into an agreement providing that such
Affiliate will not sell, pledge, transfer or otherwise dispose of shares of
PhyCor Common Stock to be received by such person in the Merger, (i) except in
compliance with the applicable provisions of the Securities Act and the rules
and regulations thereunder and (ii) until after such time as results covering at
least 30 days of post-Merger combined operations of PhyCor and FPC have been
published. PhyCor has agreed that it shall publish the combined results within
60 days of the Effective Time on a Current Report on Form 8-K, which shall be
filed with the SEC.

NO SOLICITATION OF TRANSACTIONS

FPC has agreed that it, its subsidiaries and affiliates will not, and
FPC will direct each officer, director, employee, representative and agent of
FPC not to, directly or indirectly, encourage, solicit, participate in or
initiate discussions or negotiations with, or provide any information to, any
corporation, partnership, person or other entity or group (other than PhyCor or
an affiliate, or representative of PhyCor) concerning any merger, sale of
assets, sale of or tender offer for its shares or similar transactions involving
all or any significant portion of the equity securities of FPC or the assets of
FPC or its subsidiaries. Notwithstanding the foregoing, FPC may furnish
information concerning its business, properties or assets to a person or group,
and may participate in discussions and negotiations with such person or group
concerning an Acquisition Transaction if the FPC Board determines, in its good
faith judgment in the exercise of its fiduciary duties, after consultation with
legal counsel and its financial advisors, that such action is appropriate in
furtherance of the best interests of FPC's stockholders. FPC shall promptly
notify PhyCor if FPC enters into a confidentiality agreement with any third
party in response to an unsolicited request for information and access in
connection with a possible Acquisition Transaction. Additionally, FPC shall
notify PhyCor within two business days of determining to provide information to
any party in connection with any possible Acquisition Transaction.

The Merger Agreement provides that all costs and expenses incurred in
connection with the Merger Agreement and the transactions contemplated thereby
shall be paid by the party incurring such expense.

NASDAQ NATIONAL MARKET LISTING

An application for listing of additional shares will be filed with the
Nasdaq National Market to list the shares of PhyCor Common Stock to be issued to
holders of shares of FPC Capital Stock in connection with the Merger. Although
no assurance can be given that the shares of PhyCor Common Stock so issued will
be accepted for listing, PhyCor and FPC anticipate that these shares will
qualify for listing on the Nasdaq National Market upon official notice of
issuance thereof. It is a condition to the Merger that such shares of PhyCor
Common Stock be approved for listing on the Nasdaq National Market upon official
notice of issuance at the Effective Time.

APPRAISAL RIGHTS OF FPC STOCKHOLDERS

Holders of FPC Capital Stock as of the Record Date (the "Record
Holders") are entitled to appraisal rights under Section 262 of the DGCL
("Section 262") for such securities. The following discussion represents a
summary of the material provisions of Section 262. For additional information,
reference is made to the full text of Section 262, which is reprinted in its
entirety as Annex D to this Prospectus-Proxy Statement. A person having a
beneficial interest in FPC Capital Stock as of the Record Date held of record in
the name of another person, such as a nominee, must

<PAGE> 56

act promptly to cause the Record Holder to follow the steps summarized below
properly and in a timely manner to perfect the appraisal rights provided under
Section 262.

Under Section 262, when a merger is to be submitted for approval at a
meeting of stockholders, as in the case of the Special Meeting, not less than 20
days prior to the meeting, a constituent corporation must notify each of the
holders of its capital stock for which appraisal rights are available that such
appraisal rights are available and include in each such notice a copy of Section
262. THIS PROSPECTUS -- PROXY STATEMENT SHALL CONSTITUTE SUCH NOTICE TO THE
RECORD HOLDERS OF FPC COMMON STOCK AND FPC PREFERRED STOCK. ANY SUCH STOCKHOLDER
WHO WISHES TO EXERCISE SUCH APPRAISAL RIGHTS SHOULD REVIEW THE FOLLOWING
DISCUSSION AND ANNEX D CAREFULLY BECAUSE FAILURE TO TIMELY AND PROPERLY COMPLY
WITH THE PROCEDURES SPECIFIED WILL RESULT IN THE LOSS OF APPRAISAL RIGHTS UNDER
THE DGCL.

Under the DGCL, a Record Holder of FPC Capital Stock who makes the
demand described below with respect to such shares, who continuously is the
record holder of such shares through the Effective Time, who otherwise complies
with the statutory requirements set forth in Section 262 and who neither votes
in favor of approval of the Merger Agreement and the Merger nor consents thereto
in writing will be entitled to have his or her FPC Capital Stock appraised by
the Delaware Court of Chancery and to receive payment of the "fair value" of
such shares as described below. Such holders are, in such circumstances,
entitled to appraisal rights because they hold shares of a constituent
corporation to the Merger and may be required by the Merger Agreement to accept
the Merger Consideration.

A Record Holder of FPC Capital Stock wishing to exercise his or her
appraisal rights must deliver to the Secretary of FPC, before the vote on the
Merger Agreement at the Special Meeting, a written demand for appraisal of his
or her FPC Capital Stock. Merely voting or delivering a proxy directing a vote
against approval of the Merger Agreement and the Merger will not constitute a
demand for appraisal. A written demand is essential. Such written demand must
reasonably inform FPC of the identity of the Record Holder and that such holder
intends thereby to demand appraisal of the holder's shares. All written demands
for appraisal of FPC Capital Stock should be sent or delivered to FPC at 3200
Windy Hill Road, Suite 400W, Atlanta, Georgia, 30339, Attention: Corporate
Secretary. In addition, a Record Holder of FPC Capital Stock wishing to exercise
his or her appraisal rights must hold such shares of record on the date the
written demand for appraisal is made and must hold such shares continuously
through the Effective Time. Stockholders who hold their FPC Capital Stock in
nominee form and who wish to exercise appraisal rights must take all necessary
steps in order that a demand for appraisal is made by the record holder of such
shares and are urged to consult with their nominee to determine the appropriate
procedures for the making of a demand for appraisal by the record holder.

Within ten days after the Effective Time of the Merger, FPC, as the
Surviving Corporation in the Merger, must send a notice as to the effectiveness
of the Merger to each person who has satisfied the appropriate provisions of
Section 262 and who is entitled to appraisal rights under Section 262. Within
120 days after the Effective Time, any Record Holder of FPC Capital Stock who
has complied with the requirements for exercise of appraisal rights will be
entitled, upon written request, to receive from the Surviving Corporation a
statement setting forth (i) the aggregate number of shares of each class of FPC
Capital Stock not voted in favor of the Merger Agreement and with respect to
which demands for appraisal have been received and (ii) the aggregate number of
holders of such shares. Any such statement must be mailed within ten days after
a written request therefor has been received by the Surviving Corporation.

Within 120 days after the Effective Time, but not thereafter, the
Surviving Corporation or any Record Holder of FPC Capital Stock who has complied
with the foregoing procedures and who is entitled to appraisal rights under
Section 262 may file a petition in the Delaware Court of Chancery

<PAGE> 57

demanding a determination of the "fair value" of such shares. The Surviving
Corporation is not under any obligation to file a petition with respect to the
appraisal of the "fair value" of the FPC Capital Stock, and neither PhyCor nor
FPC currently intends that the Surviving Corporation file such a petition.
Accordingly, it is the obligation of the stockholders to initiate all necessary
action to perfect their appraisal rights within the time prescribed in Section
262. A Record Holder of FPC Capital Stock will fail to perfect, or effectively
lose, his or her right to appraisal if no petition for appraisal of shares of
FPC Capital Stock is filed within 120 days after the Effective Time.

If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Court of Chancery will determine the holders of FPC
Capital Stock entitled to appraisal rights and will appraise the "fair value" of
the FPC Capital Securities, exclusive of any element of value arising from the
accomplishment or expectation of the Merger. Stockholders considering seeking
appraisal should be aware that the "fair value" of their FPC Capital Stock as
determined under Section 262 could be more than, the same as, or less than the
value of the Merger Consideration they would have received if they did not seek
appraisal. The Delaware Supreme Court has stated that "proof of value by any
techniques or methods which are generally considered acceptable in the financial
community and otherwise admissible in court" should be considered in the
appraisal proceedings. In addition, Delaware courts have decided that the
statutory appraisal remedy, depending on factual circumstances, may or may not
be a dissenter's exclusive remedy.

The Delaware Court of Chancery will determine the amount of interest,
if any, to be paid upon the amounts to be received by persons whose FPC Capital
Stock have been appraised. The costs of the action may be determined by which
court and imposed upon the parties as the court deems equitable. The Delaware
Court of Chancery may also order that all or a portion of the expenses incurred
by any holder of FPC Capital Stock in connection with an appraisal, including
without limitation, reasonable attorneys' fees and the fees and expenses of
experts utilized in the appraisal proceeding, be charged pro rata against the
value of all of the FPC Capital Stock entitled to appraisal.

If any Record Holder of FPC Capital Stock who demands appraisal of his
or her shares under Section 262 fails to perfect, or effectively withdraws or
loses, his or her right to appraisal, as provided in the DGCL, the FPC Capital
Stock of such stockholder will be deemed to receive Merger Consideration in
accordance with the Merger Agreement. A holder may withdraw his or her demand
for appraisal by delivering to the Surviving Corporation a written withdrawal of
his or her demand for appraisal and acceptance of the Merger, except that any
such attempt to withdraw made more than 60 days after the Effective Time will
require the written approval of the Surviving Corporation. Failure to follow the
steps required by Section 262 of the DGCL for perfecting appraisal rights may
result in the loss of such rights.

Any Record Holder of FPC Capital Stock who has duly demanded an
appraisal in compliance with Section 262 will not, after the Effective Time, be
entitled to vote the FPC Capital Stock subject to such demand for any purpose or
be entitled to the payment of dividends or other distributions on those shares
(except dividends or other distributions payable to holders of record of shares
of FPC Capital Stock as of a date prior to the Effective Time).

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<PAGE> 58

MARKET PRICE DATA

PhyCor Common Stock is quoted on the Nasdaq National Market under the
symbol "PHYC". The following table sets forth the range of high and low sales
prices on the Nasdaq National Market for the period from January 1, 1996 through
January 22, 1998, as reported by Nasdaq:

<TABLE>
<CAPTION>
PhyCor
Common Stock
----------------------------------------
High Low
------ ------
<S> <C> <C>
1996
First Quarter...................................... $37.00 $25.50
Second Quarter..................................... 41.75 26.67
Third Quarter...................................... 39.25 26.75
Fourth Quarter..................................... 41.50 26.63
1997
First Quarter...................................... 35.38 26.50
Second Quarter..................................... 35.50 22.88
Third Quarter...................................... 34.75 27.63
Fourth Quarter..................................... 33.25 22.88
1998
First Quarter (through March 11, 1998)............. 28.50 18.88
</TABLE>

The closing sales price for PhyCor Common Stock as reported by the
Nasdaq National Market was $26.88 on December 19, 1997, the date immediately
prior to the public announcement of the proposed Merger. The closing sales price
for PhyCor Common Stock as reported by the Nasdaq National Market was $25.94 on
March 11, 1998. As of March 11, 1998 there were approximately 3,180 holders of
record of PhyCor Common Stock. All share prices listed above give effect to the
three-for-two stock split of PhyCor Common Stock effected as a stock dividend on
June 14, 1996.

FPC is a privately held Delaware corporation. There has been no public
trading market in the securities of FPC and, therefore, there is no historical
per share price for such securities for any period. As of March 11, 1998, there
were approximately 117 holders of record of FPC Class A Common Stock. The FPC
Board believes that consideration to be paid by PhyCor in connection with the
Merger Agreement is fair, based upon, among other factors, the DLJ Opinion. See
"THE MERGER--Reasons for the Merger; Recommendations of the Board of Directors"
and "--Opinion of Donaldson Lufkin & Jenrette Securities Corporation."

DIVIDENDS

PhyCor has never declared or paid a dividend on its Common Stock.
PhyCor intends to retain its earnings to finance the growth and development of
its business. PhyCor's bank credit facility currently prohibits the declaration
of dividends. It is anticipated that any loan agreements which PhyCor may enter
into in the future will also contain restrictions on the payment of dividends by
PhyCor. FPC has never declared or paid a dividend on any shares of FPC Capital
Stock.

54
<PAGE> 59
FPC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with FPC's
Consolidated Financial Statements and related notes and "Selected Consolidated
Financial Data" included elsewhere herein.

GENERAL

FPC delivers primary care and certain specialty care medical services
through the FPC Group Practices in Georgia and Florida. In addition, FPC
provides management services pursuant to service agreements to the Managed Group
Practices in Illinois, Texas and New York and to an IPA in New York, and is
pursuing opportunities to provide management services in other select geographic
areas. FPC derives its revenues directly from services performed by the
physicians in the FPC Group Practices and through management fees collected from
the Managed Group Practices and the IPA. FPC believes that offering physician
groups a wide range of affiliation structures, from limited management services
to practice acquisition and comprehensive management services, enhances its
ability to attract and affiliate with high quality primary care and
multi-specialty physicians and group practices.

FPC (either directly or through subsidiaries) has acquired the assets
of 14 primary care and multi-specialty groups in Georgia, Florida, Illinois,
Texas and New York, merged with an existing practice management company in Texas
and entered into an interim management contract with a physician group in
Midland/Odessa, Texas. The acquisitions of the FPC Group Practices in Florida
and Georgia were structured as asset purchases in which FPC purchased the
furniture, fixtures and equipment, accounts receivable, cash, and other tangible
and intangible assets of each of the Group Practices. In connection with the FPC
Group Practice acquisitions, FPC or its subsidiaries entered into employment
agreements, generally for five-year terms, with the physicians practicing in
such groups which contained, among other provisions, restrictive covenants
including non-solicitation and non-compete provisions. In connection with the
acquisitions of the Managed Group Practices, FPC entered into 40 year agreements
to provide management services to the Managed Group Practices. The Managed Group
Practices entered into employment agreements with each of the physicians
practicing in the groups. FPC also entered into a two year management agreement
with an option to purchase the assets of a group in Midland/Odessa, Texas.

Under the long-term management service agreements, FPC provides
exclusive management and administration of the Managed Group Practices
day-to-day business operations. Services provided by FPC include: (i) billing
and collection of patient accounts and other accounting and finance functions;
(ii) the provision of all non-physician employees to the Managed Group
Practices; (iii) negotiation of all participation agreements with third party
payors; (iv) preparation of operating and capital budgets for approval by the
executive committees; and (v) other administrative and management services.
Executive committees, with equal membership by the FPC and the Managed Physician
Groups, are responsible for the review and approval of operating and capital
budgets and establishing strategic plans and overall policy for the Managed
Group Practices. Managed Group Practices have authority over (a) issues related
to the practice of medicine, (b) hiring and retention of physicians or (c)
allocation of distributions to the physicians. Each management service agreement
has an initial term of 40 years with provisions for extensions beyond the
initial term.

The management fee earned by FPC is typically based upon a percentage
(15-20%) of the net operating income of the practice after clinic operating
costs and corporate, general and administration costs, but before the cost of
medical services. Two management service agreements contain a minimum
management fee that must be paid without regard to the net operating income of
the medical practice plus a performance bonus paid to FPC if the net operating
income exceeds a predetermined threshold. FPC's ability to manage the
profitability of the medical practice results from its ability to directly
manage clinic operating costs, providing attractive clinics to grow patient
volume

55
<PAGE> 60

and its ability to effectively negotiate managed care and preferred provider
organization contracts. FPC also manages profitability indirectly by supporting
physician productivity through operational enhancements, staff management and
patient management reporting systems.

Contractual agreements with managed care and other organizations to
provide physician services are contracted directly by the Company for owned
physician groups and thus the Company retains the risk related to these
contracts. However, all contractual agreements involving physician groups
related to the Company's management service agreements remain at the physician
group level; risk related managed care contracts involving those groups are
shared by the physician group and the Company through the management fee.
Capitation revenue under HMO contracts is recognized during the period in which
the Company is obligated to provide services.

FPC acquires the capitated contracts or the rights to capitated
contracts with the acquisition of owned practices or through the acquisition of
management services agreements with the Managed Group Practices. Additional
capitated contracts and associated enrollment are typically added to both owned
and Managed Group Practices after the date FPC assumes management of the medical
practice. The terms of the capitated contracts contain various risk-sharing
arrangements that are designed to promote appropriate utilization management of
the capitated members. FPC monitors the performance of these contracts through
various financial and other indicators. Profitability under the capitated
contracts historically has been superior to traditional fee for service
arrangements. Revenue recognized under capitated agreements was approximately
$18,651,000, $12,374,000 and $2,644,000 for the years ended December 31, 1996,
1995, and 1994, respectively and $20,010,000 and $13,390,000 for the nine months
ended September 30, 1997 and 1996, respectively.

FPC is currently in the process of evaluating its computer software and
databases to ensure that any modifications required to be year 2000 compliant
are made in a timely manner. Management does not expect the financial impact of
such modifications to be material to FPC's financial position or results of
operations in any given year.

Dividends on the FPC Preferred Stock are payable at the direction of
the Board of Directors. Dividends on the FPC Class B Convertible Preferred Stock
and FPC Class C Convertible Preferred Stock are not cumulative. As of September
30, 1997, no dividends have been declared on the FPC Class A Preferred Stock,
the FPC Class B Convertible Preferred Stock or the Class C Convertible Preferred
Stock. The FPC Class A Preferred Stock restricts FPC from paying dividends or
making other distributions on the FPC Class B Convertible Preferred Stock, FPC
Class C Convertible Preferred Stock or FPC Common Stock unless full cumulative
dividends on the FPC Class A Preferred Stock through the most recent June 30 or
December 31 have been declared and paid. Additionally, the outstanding shares of
the FPC Class B Convertible Preferred Stock restrict FPC from paying dividends
or making other distributions on the FPC Class C Convertible Preferred Stock or
FPC Common Stock, and the outstanding shares of FPC Class C Convertible
Preferred Stock restrict FPC from paying dividends or making other distributions
on the FPC Common Stock.

In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted by FPC on
December 31, 1997. At that time, FPC will be required to change the method
currently used to compute earnings per share and to restate all prior periods.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options will be excluded. The impact of Statement No.
128 on the calculation of FPC's loss per share for the periods presented below
is not material as all common stock equivalents are currently anti-dilutive.

On November 20, 1997, the Emerging Issues Task Force (EITF) of the
Financial Accounting Standards Board reached a consensus concerning certain
matters relating to the physician practice management industry with respect to
the requirements which must be met to consolidate a managed professional

56
<PAGE> 61

corporation and the accounting for business combinations involving professional
corporations. In accordance with the EITF's guidance, FPC will discontinue use
of the "display method" to report revenues from management contracts in
financial statements for periods ending after December 15, 1998. Thus, after
December 15, 1998, fees from management contracts for all periods presented will
be reported as a single line item ("Net revenue") in the Company's statements of
operations.

RESULTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997

Total Revenue. Total revenue increased from $24.4 million for the nine
months ended September 30, 1996 to $58.1 million for the nine months ended
September 30, 1997, an increase of 138%. This increase is attributable to
acquisitions closed subsequent to September 30, 1996 and the effects of a full
nine-month period's results for acquisitions closed during the nine-month period
ended September 30, 1996.

Amounts Retained by Managed Groups. Amounts payable to the Managed
Group Practices are classified as Amounts Retained by Managed Groups. These
amounts increased from $628,000 for the nine months ended September 30, 1996 to
$12.0 million for the nine months ended September 30, 1997. This increase is
attributable to the acquisitions of the Managed Groups in Illinois in August
1996, in Texas in December 1996 and New York in August 1997.

Cost of Medical Services. The cost of medical services increased from
$12.8 million for the nine months ended September 30, 1996 to $12.9 million for
the nine months ended September 30, 1997, an increase of 1.1%. Decreases of
approximately $1.5 million in the cost of medical services resulting from the
conversion of a full risk managed care contract to a limited risk contract were
offset by increases in physician compensation and malpractice costs of $1.6
million attributable to acquisitions closed during the nine-month period ended
September 30, 1997 and the inclusion of the Doctors Walk-In Clinic operations,
which were acquired in June 1996, for a full nine months.

Clinic Operating Costs. Clinic operating costs increased from $12.2
million for the nine months ended September 30, 1996 to $30.4 million for the
nine months ended September 30, 1997, an increase of 149%. $18.0 million or 99%
of this increase is attributable to the acquisitions of the Managed Groups in
Illinois in August 1996, in Texas in December 1996 and in New York in August
1997, and the effect of a full nine months operations for the Doctors Walk-In
Clinic that was acquired in June 1996.

Corporate, General and Administration. Corporate, general and
administration costs increased from $3.0 million for the nine months ended
September 30, 1996 to $3.4 million for the nine months ended September 30, 1997,
an increase of 13.3%. This increase is primarily attributable to the addition of
corporate personnel, increases in travel costs, and increases in legal and
consulting costs associated with the increased size of FPC.

Depreciation and Amortization. Depreciation and amortization increased
from $881,000 for the nine months ended September 30, 1996 to $1.6 million for
the nine months ended September 30, 1997, an increase of 82%. This increase is
attributable to the Eastside Physician acquisition closed during the nine-month
period ended September 30, 1997 and the effects of a full nine months operations
for the Doctors Walk-In Clinic acquisition closed June 1996; the Riverbend
Physicians & Surgeons acquisition closed August of 1996 and the Physician
Capital Partners acquisition closed in December 1996 (the "1996 Acquisitions").

57
<PAGE> 62

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1996

Total Revenue. Total revenue increased from $19.7 million for the year
ended December 31, 1995 to $37.6 million for the year ended December 31, 1996,
an increase of 91%. This increase is primarily attributable to acquisitions
closed during 1996 ("1996 Acquisitions") and the effects of a full year's
revenue recognition in 1996 related to acquisitions closed in 1995 (the "1995
Acquisitions").

Amounts Retained by Managed Groups. Amounts payable to the Managed
Group Practices in Illinois and Texas are classified as Amounts Retained by
Managed Groups. Amounts Retained by Managed Groups totaled $2.4 million for the
year ended December 31, 1996. FPC had not entered into any such arrangements
during the year ended December 31, 1995.

Cost of Medical Services. Cost of medical services increased from $12.1
million for the year ended December 31, 1995 to $17.4 million for the year ended
December 31, 1996, an increase of 43%. Of this increase, $2.5 million or 47%, is
attributable to the 1996 Acquisitions, with the remainder related to the full
year effect of the 1995 Acquisitions.

Clinic Operating Costs. Clinic operating costs increased from $9.0
million for the year ended December 31, 1995 to $19.6 million for the year ended
December 31, 1996, an increase of 121%. Of this increase, $8.5 million or 77%,
is attributable to the 1996 Acquisitions, with the remainder related to the full
year effect of the 1995 Acquisitions.

Corporate, General and Administration. Corporate, general and
administration costs increased from $3.2 million for the year ended December 31,
1995 to $4.2 million for the year ended December 31, 1996, an increase of 31%.
This increase was primarily due to the employment of additional corporate
personnel, increased occupancy costs and increased legal costs associated with
development activities.

Depreciation and Amortization. Depreciation and amortization increased
from $624,000 for the year ended December 31, 1995 to $1.3 million for the year
ended December 31, 1996, an increase of $676,000 or 108% This increase was
primarily due to the increased amortization of goodwill and other intangibles
resulting from the 1995 Acquisitions and the 1996 Acquisitions.

Loss on Impairment of Long-Term Assets. The loss on impairment of
long-term assets in 1996 was the result of the writedown of goodwill associated
with acquisitions for which the undiscounted cash flows are estimated to be
negative.

Other (Income) Expense. Other income increased from $293,000 for the
year ended December 31, 1995 to $721,000 for the year ended December 31, 1996,
an increase of 146%. The majority of this increase is attributable to the 1996
Acquisitions.

YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1995

Total Revenue. Total revenue increased from $3.7 million for the year
ended December 31, 1994 to $19.7 million for the year ended December 31, 1995,
an increase of 432%. Of this increase $7.6 million was attributable to
acquisitions closed during 1995 (the "1995 Acquisitions"), and the remainder of
such increase is attributable to a full year's revenue recognition in 1995 of
the acquisitions closed in 1994 (the "1994 Acquisitions").

Costs of Medical Services. Cost of medical services increased from $2.3
million for the year ended December 31, 1994 to $12.1 million for the year ended
December 31, 1995, an increase of 426%. Of this increase $5.0 million is
attributable to the 1995 Acquisitions and the remainder of such increase is
attributable to the full year's effect of the 1994 Acquisitions.

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<PAGE> 63

Clinic Operating Costs. Clinic operating costs increased from
approximately $2.3 million for the year ended December 31, 1994 to $9.0 million
for the year ended December 31, 1995, an increase of 291%. Of this increase,
$3.7 million or 55%, is attributable to 1995 acquisitions, with the remainder
related to 1994 acquisitions with a full year of operating results in 1995 and
the addition of staff to support additional physicians.

Corporate, General and Administration. Corporate, general and
administration costs increased from $2.2 million for the year ended December 31,
1994 to $3.2 million for the year ended December 31, 1995, an increase of 46%.
This increase was primarily due to the employment of additional corporate
personnel and increased occupancy costs due to the expansion of the corporate
office space to pursue FPC's growth and operational strategy.

Depreciation and Amortization. Depreciation and amortization increased
from $149,000 for the year ended December 31, 1994 to $624,000 for the year
ended December 31, 1995, an increase of 319%. This increase was primarily due to
the purchase of computer equipment and software and the increased amortization
of goodwill and other intangibles resulting from the 1994 Acquisitions and the
1995 Acquisitions.

LIQUIDITY AND CAPITAL RESOURCES

Historically, FPC has satisfied its acquisition, working capital and
capital expenditure needs through leasing arrangements, seller financing in the
form of deferred payment arrangements and subordinated notes, and private equity
financing. FPC's acquisition, working capital and capital expenditure needs are
expected to increase as FPC pursues its growth and operational improvement
strategies.

During 1994, FPC issued a total of 74,767 shares of FPC Class B
Convertible Preferred Stock to officers of FPC and FPC's principal investors,
WCAS and each of DLJ Capital Corporation, Sprout Capital VI, L.P. and Sprout
Growth II, L.P. (collectively, the "Sprout Group"). These sales were at $100 per
share and resulted in net proceeds to FPC of $7,451,000 after issuance costs.
The proceeds were used to finance the acquisition of certain of the Group
Practices and for working capital and capital expenditure needs through August
1995.

In August 1995, FPC sold 40,000 shares of FPC Class A Preferred Stock
in a private transaction to WCAS and the Sprout Group at $100 per share,
resulting in net proceeds to FPC of $3,947,000 after issuance costs. These
proceeds were used to fund acquisitions, working capital requirements and
capital expenditure requirements.

In February 1996, FPC sold 50,000 shares of FPC Class A Preferred Stock
to WCAS and the Sprout Group at $100 per share in a private transaction,
resulting in net proceeds to FPC of $4,975,000 after issuance costs. In June
1996, FPC sold an additional 60,000 shares of FPC Class A Preferred Stock to
WCAS and the Sprout Group at $100 per share in a private transaction, resulting
in net proceeds to FPC of $5,975,000 after issuance costs. In September 1996,
FPC sold an additional 25,000 shares of FPC Class A Preferred Stock to WCAS and
the Sprout Group at $100 per share, resulting in net proceeds to FPC of
$2,485,000 after issuance costs. In each case, these proceeds were used to fund
acquisitions, working capital requirements and capital expenditure requirements.

In January 1997, FPC sold 25,000 shares of FPC Class A Preferred Stock
to WCAS and the Sprout Group at $100 per share, resulting in net proceeds to FPC
of $2,495,000 after issuance costs. These proceeds were used to fund
acquisitions, working capital requirements and capital expenditure requirements.

In July of 1997, FPC entered into a $5 million credit facility with
WCAS, the Sprout Group and other FPC stockholders, all of which has been drawn
by FPC as of January 15, 1998. Amounts

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<PAGE> 64

drawn under the credit facility bear interest at 10% per annum and are repayable
in seven years. Each month the note holders earn warrants to purchase a number
of shares of FPC Class A Common Stock based on the following formula: (i) the
average daily principal amount outstanding under the credit facility during such
month, divided by (ii) $1,000,000 and multiplied by (iii) 1,667. The warrants
are exercisable at $.01 per share subject to certain adjustments. At December
31, 1997, warrants to purchase 21,800 shares had been earned by the note holders
under this agreement.

On December 3, 1997, FPC issued 12,000 shares of FPC Class C
Convertible Preferred Stock to Pacific Capital, L. P. in connection with the
purchase of a $3,000,000 Subordinated Note from Primary Management, Inc.
("Primary Management"), a PPM company in the Midland/Odessa, Texas area. FPC
intends to record the Subordinated Note as a long-term asset at a collectable
value of $600,000. If FPC exercises its option to purchase the assets of Primary
Management, the Subordinated Note will be canceled and the recorded value
$600,000 will be included in the purchase price.

At September 30, 1997, FPC had working capital of $5,453,000, a cash
balance of $2,406,000 and current liabilities of $8,096,000, including
$3,125,000 of long-term indebtedness and capital leases maturing by September
30, 1998. In the years ending December 31, 1998 and 1999 FPC will have aggregate
principal payments for all notes and other obligations of $1,686,000 and
$1,999,000. Respectively. Also in the years ending December 31, 1998 and 1999,
FPC will have aggregate minimum capital lease commitments for all non-cancelable
leases of $409,000 and $361,000, respectively, and aggregate minimum operating
lease commitments for all non-cancelable leases of $4,619,000 and $4,512,000,
respectively. The sources of funds for these amounts due are expected to come
from the cash flows generated by the company. In addition, FPC may consider
various financing sources, such as commercial lending institutions and
additional private sales of equity.

On March 12, 1998, FPC entered into a revolving credit agreement with
a commercial bank to be used for general working capital purposes. FPC may draw
amounts under the agreement totaling $1.8 million. The agreement expires on
August 31, 1998 and is guaranteed severally by WCAS and Sprout Growth II, L.P.,
which are stockholders of FPC. Borrowings bear interest at the then applicable
prime rate as published by the bank or LIBOR dependent on the type of loan
selected. As of March 13, 1998 there were no borrowings under the loan
agreement.

<PAGE> 65

BUSINESS OF FPC

SERVICES

FPC currently provides management services to the FPC Group Practices
and the Managed Group Practices. FPC's provision of management services is
designed to relieve physicians of many administrative burdens, thereby allowing
them to focus on the delivery of high quality medical care, and to enable FPC
and the physician groups to take advantage of the operating efficiencies and
economics of scale resulting from the provisions of similar services to a number
of groups.

Under the long-term management service agreements, FPC provides
exclusive management and administration of the Managed Group Practices'
day-to-day business operations. Services provided by FPC include: (i) billing
and collection of patient accounts and other accounting and finance functions;
(ii) the provision of all non-physician employees to the Managed Group
Practices; (iii) negotiation of all participation agreements and third party
payors; (iv) preparation of operating and capital budgets for approval by the
executive committees formed pursuant to the management service agreements; and
(v) other administrative and management services. The executive committees, with
equal membership by FPC and the Managed Group Practices, are responsible for the
review and approval of operating and capital budgets and strategic plans and
overall policy setting for the Managed Group Practices. FPC has no authority
over: (i) issues related to the practice of medicine; (ii) hiring and retention
of physicians; and (iii) allocation of distributions to the physicians. Each
management service agreement has an initial term of 40 years with provisions for
extensions beyond the initial term.

Many physician groups do not have the capital to invest in or the
expertise to manage or develop the sophisticated management information systems
FPC believes are required to succeed in a capitated payment environment. FPC
believes that to manage capitated patient populations effectively, it must
assemble and make easily accessible clinical and financial information to
physicians, other providers, support personnel and management. FPC is currently
in the process of implementing its management information system. The basic FPC
management information system, which has been implemented in each FPC Group
Practice site may include, depending on the needs of the site, the following
practice management functions: patient management, appointment scheduling,
collections management, cashiering, report writing, chart tracking, lab order
entry and radiology order entry.

OPERATIONS

The FPC Group Practices currently deliver medical services in the Tampa
Bay, Florida market; the South Florida market, and the Atlanta, Georgia market.
Each of the FPC Group Practices derives its revenue from the delivery of primary
care and, in some cases, specialty medical services to the local community. Each
of the FPC Group Practices employs physicians, and the Tampa Bay and South
Florida subsidiaries also retain physician extenders such as physician
assistants and nurse practitioners. Each of the FPC Group Practices also employs
support and administrative personnel, such as medical assistants, nurses,
ancillary service technicians, office managers, billing clerks and
receptionists, to provide operational support to the physicians and other
providers. The Tampa Bay subsidiary retains 45 full-time and part-time
physicians and four physician extenders in 18 sites in the cities of Tampa, St.
Petersburg, Pinellas Park, Brandon and Clearwater, Florida. The South Florida
subsidiary retains 29 full-time and part-time physicians in three sites in the
cities of Boca Raton and West Palm Beach, Florida. Although the FPC Group
Practices at each of the South Florida sites focus on primary care, the FPC
Group Practice at West Palm Beach site also retains physicians specialized in
dermatology, cardiology, ophthalmology, orthopedic surgery, general surgery and
urology. The Atlanta, Georgia subsidiary employs three full-time physicians in
two sites in the cities of Lithia Springs and Douglasville, Georgia.

<PAGE> 66

The table below sets forth certain information regarding group
practices of which FPC had purchased assets or has the option to purchase the
assets through March 6, 1998.

NUMBER OF
NUMBER OF PHYSICIAN OWNED OR
LOCATION SITES PHYSICIANS(1) EXTENDERS(2) MANAGED SPECIALTIES DATE ACQUIRED
-------- ----- ------------- ------------ -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Pinellas Park, FL......... 2 4 Owned Primary Care February 1994
Atlanta, GA............... 2 2 Owned Primary Care September 1994
St. Petersburg, FL........ 1 1 Owned Primary Care March 1994
Boca Raton, FL............ 1 14 Owned Primary Care September 1994
Tampa, FL................. 3 7 1 Owned Primary Care October 1994
Tampa, FL................. 1 3 Owned Primary Care April 1995
West Palm Beach, FL 1 17 Owned Primary Care and April 1995
Multi-Specialty
Brandon, FL............... 2 6 2 Owned Primary Care January 1996
Tampa, FL................. 7 26 2 Owned Primary Care June 1996
Alton, IL (St. Louis area) 2 15 2 Managed Primary Care and August 1996
Multi-Specialty

Dallas/Ft. Worth area, TX. 20 53 19 Managed Primary Care December 1996
Tampa, FL................. 1 1 Owned Primary Care June 1997
Dallas/Ft. Worth area, TX. 1 1 1 Managed Primary Care May 1997
New York.................. 2 10 Managed Primary Care and July 1997
Multi-Specialty

Midland/Odessa area,
TX(3).................... 10 24 3 Managed Primary Care and August 1997
----- ----- ----- Multi-Specialty
56 184 30

</TABLE>

- --------------------------------------------------------------------------------
(1) Includes physicians added to practices subsequent to their acquisition
by FPC.
(2) As used herein, the term "Physician Extenders" means nurse
practitioners and physician assistants.

(3) The FPC subsidiary with respect to this area currently has a two-year
interim management service agreement with Primary Management in the
Midland/Odessa, Texas market and an option to purchase the assets of
Primary Management and certain of its affiliates.

In July 1997, FPC acquired Manhattan Physicians IPA (the "IPA") in New
York. As of February 1998, the IPA had contracts to provide managed care
contracting and administrative services to 395 physicians in Manhattan
representing 5,743 members. The IPA maintains provider contracts with Aetna U.S.
Healthcare, Inc. and United Healthcare, Inc./Metra. FPC believes that as IPAs
encounter the increasing challenges of capitated payment systems and the
associated increased capital requirements, such groups will seek to be acquired
by, or to enter into long-term management agreements with, entities such as FPC.

FPC does not employ the physicians of the Managed Group Practices or
the IPA and does not control the practice of medicine by physicians employed by
the FPC Group Practices. Accordingly, FPC believes that it is not in violation
of applicable state laws prohibiting the unauthorized practice of medicine. FPC
or its subsidiaries employ physicians in the states of Florida and Georgia.
Accordingly, FPC is a provider of designated health services and subject to the
federal laws regulating such providers. Neither Florida or Georgia currently
enforce any "corporate practice of medicine" doctrine and the direct employment
of physicians by nonphysician entities is permissible, therefore FPC believes
that it is in compliance with applicable state laws.

PROPERTIES

FPC leases approximately 18,300 square feet at 3200 Windy Hill Road,
Atlanta, Georgia, 30339, for its corporate headquarters. FPC also leases or
subleases the facilities for the FPC Group Practices and for certain other of
its regional operations. The leases and subleases have various

62
<PAGE> 67

terms ranging from one to eleven years and monthly rents ranging from $1,000 to
$36,000. FPC does not currently own any real property.

EMPLOYEES

As of December 31, 1997, FPC employed 1,157 individuals, including 28
in its corporate office, 193 in South Florida market group practices, 333 in
Tampa Bay market group practices, and 16 in Atlanta market group practices, 135
in St. Louis market group practices, 408 in Dallas/Fort Worth market group
practices and 44 in New York market group practices. The 200 employees of the
managed group practice in the Midland/Odessa, Texas market are employed by an
organization not affiliated with FPC and its subsidiaries. None of FPC's
employees is a member of a labor union, and FPC considers its relations with its
employees to be good.

LITIGATION

In connection with FPC's transaction with its Managed Group Practice in
the Dallas/Fort Worth area, several of the stockholders of Physician Capital
Partners Corp. ("PCP"), a Texas corporation that was the former manager of the
Managed Group Practice in Dallas/Fort Worth, voted against the merger between
PCP and FPC and asserted their rights as dissenting stockholders under Section
5.11 of the Texas Business Corporation Act ("Texas Act").

On February 10, 1997, 11 of the dissenting stockholders filed suit in
Texas State District Court in Tarrant County, Texas, alleging that they are
entitled to have the PCP shares owned by them appraised and are further entitled
to receive from FPC such appraised value for their shares. FPC has responded to
such assertion in compliance with Section 5.12 of the Texas Act. The dissenting
stockholders have alleged that each share of PCP owned by them had a value at
the date of the merger of $5.76. FPC has offered the dissenting stockholders
$0.21 per PCP share, its valuation of such shares. The dissenting stockholders
who are party to the suit own, in the aggregate, approximately 1,033,052 shares
of PCP and are therefore alleging that they are entitled to a payment from FPC
in excess of $5,950,000. FPC has offered an aggregate payment of $216,941 for
the PCP shares owned by such dissenting stockholders.

The court is expected to set a date for a hearing to determine whether
the dissenting stockholders are entitled to an appraisal of their shares. In the
event that the Court determines at such hearing that such an appraisal is
warranted, it will appoint appraisers who will accept evidence from FPC and from
the dissenting stockholders in appraising the value of the shares. This
appraised value subsequently may be contested by any party to the litigation in
an appropriate judicial proceeding. FPC does not consider the dissenting
stockholders' valuation of their PCP shares to be accurate and is vigorously
defending this matter. There can be no assurance, however, that FPC will
ultimately prevail or that the court will not ultimately determine that the
shares of PCP owned by the dissenting stockholders should be valued in excess of
FPC's valuation of such shares. If this litigation is adversely determined it
could have a material, adverse affect on FPC's financial condition.

In addition, the provision of medical services by the affiliated
physicians with which FPC contracts entails an inherent risk of professional
liability claims. Further, from time to time FPC is party to certain claims,
suits and complaints, which primarily arise in the ordinary course of business.
Although there are currently no such claims, suits or complaints which, in the
opinion of management, would have a material adverse effect on FPC's financial
position or results of operations, there can be no assurances that such claims
will not be asserted against FPC in the future. FPC maintains insurance coverage
that it believes to be adequate both as to risks and amounts. Successful
malpractice or other claims asserted against FPC or one of its affiliated
physician groups could, however, have a material adverse effect on FPC and its
financial condition and results of operations.

63
<PAGE> 68

- --------------------------------------------------------------------------------
PRINCIPAL STOCKHOLDERS
- --------------------------------------------------------------------------------

The following table sets forth certain information regarding beneficial
ownership of the FPC Capital Stock as of March 6, 1998, by (i) each director and
executive officer of FPC, (ii) all directors and executive officers as a group
and (iii) each stockholder known by FPC to be the beneficial owner of more than
5% of the outstanding FPC Capital Stock other than the FPC Class C Convertible
Preferred Stock, information as to which is set forth below the table. Except as
otherwise indicated, the persons or entities listed below have sole voting and
investment power with respect to all shares shown to be beneficially owned by
them, except to the extent such power is shared by a spouse under applicable law

SHARES OF FPC CAPITAL STOCK PERCENT OF FPC CAPITAL STOCK
BENEFICIALLY OWNED BY CLASS BENEFICIALLY OWNED BY CLASS
------------------------------------ ----------------------------------
CLASS A PREFERRED CONVERTIBLE CLASS A PREFERRED CONVERTIBLE
NAME OF BENEFICIAL OWNER COMMON A (1) PREFERRED B COMMON A (1) PREFERRED B
- ------------------------ ------ ----- ------------ ------ ----- ------------
(2) (2)
--- ---
<S> <C> <C> <C> <C> <C> <C>
Stephen A. George, M D. (4) 850,000 -- 3,175 20.52% -- 2.89%
3200 Windy Hill Road,
Suite 400W
Atlanta, Georgia 30339

Donald B Smallwood (5) 255,000 -- 2,000 6.25 -- 1.82
3200 Windy Hill Road,
Suite 400W
Atlanta, Georgia 30339

Karl A Hardesty (5) 165,000 -- 2,000 4.05 -- 1.82
3200 Windy Hill Road,
Suite 400W
Atlanta, Georgia 30339

Andrew B. Adams, M.D., (6) 175,000 2,000 4.20 -- 1.82
3200 Windy Hill Road,
Suite 400W
Atlanta, Georgia 30339

Kelly J. DeKeyser (7) 128,000 -- 200 3.14 -- 0.18
3200 Windy Hill Road,
Suite 400W
Atlanta, Georgia 30339

Michael A. Jutras, M.D. (8) 65,300 -- -- 1.62 -- --
221 Bedford Road, Suite
200
Bedford, Texas 76022

Patrick J. Welsh (9) 1,131,809 140,000 70,000 27.80 70.00% 63.64
Welsh, Carson, Anderson
& Stowe
1 World Financial
Center, Suite 3601
New York, New York 10281

Andrew M. Paul (10) 1,131,809 140,000 70,000 27.80 70.00 63.64
Welsh, Carson, Anderson
& Stowe
1 World Financial
Center, Suite 3601
New York, New York 10281

Paul B. Queally (11) 1,131,809 140,000 70,000 27.80 70.00 63.64
Welsh, Carson, Anderson
& Stowe
1 World Financial
Center, Suite 3601
New York, New York 10281

All directors and officers 2,770,109 140,000 79,375 62.79 70.00 72.16
as a group (12)
(9 persons)

Welsh, Carson, Anderson & 1,131,809 140,000 70,000 27.80 70.00 63.64
Stowe, VI, L.P. (13)
1 World Financial
Center, Suite 3601
New York, New York 10281

DLJ Capital 485,061 60,000 30,000 11.96 30.00 27.27
Corporation/Sprout Group(14)
277 Park Ave., 21st
Floor
New York, New York 10172

Sprout Capital VI, L.P. (15) 420,493 60,000 28,228 10.37 30.00 25.66
277 Park Ave., 21st
Floor
New York, New York 10172

Sprout Growth II, L.P. (16) 420,493 60,000 28,228 10.37 30.00 25.66
277 Park Ave., 21st
Floor
New York, New York 10172

<CAPTION>
SHARES OF
PHYCOR
COMMON
STOCK PERCENT
BENEFICIALLY OF PHYCOR
PERCENT OF OWNED STOCK TO
OUTSTANDING AFTER THE BE
NAME OF BENEFICIAL OWNER VOTING STOCK MERGER (3) OWNED
- ------------------------ BENEFICIALLY ---------- AFTER THE
OWNED MERGER
------
<S> <C> <C> <C>
Stephen A. George, M D. (4) 11.44% 240,563 *
3200 Windy Hill Road,
Suite 400W
Atlanta, Georgia 30339

Donald B Smallwood (5) 3.94 82,148 *
3200 Windy Hill Road,
Suite 400W
Atlanta, Georgia 30339

Karl A Hardesty (5) 2.87 59,879 *
3200 Windy Hill Road,
Suite 400W
Atlanta, Georgia 30339

Andrew B. Adams, M.D., (6) 2.96 62,354 *
3200 Windy Hill Road,
Suite 400W
Atlanta, Georgia 30339

Kelly J. DeKeyser (7) 1.61 33,576 *
3200 Windy Hill Road,
Suite 400W
Atlanta, Georgia 30339

Michael A. Jutras, M.D. (8) 0.78 16,157 *
221 Bedford Road, Suite
200
Bedford, Texas 76022

Patrick J. Welsh (9) 45.42 1,591,912 2.47%
Welsh, Carson, Anderson
& Stowe
1 World Financial
Center, Suite 3601
New York, New York 10281

Andrew M. Paul (10) 45.42 1,591,912 2.47
Welsh, Carson, Anderson
& Stowe
1 World Financial
Center, Suite 3601
New York, New York 10281

Paul B. Queally (11) 45.42 1,591,912 2.47
Welsh, Carson, Anderson
& Stowe
1 World Financial
Center, Suite 3601
New York, New York 10281

All directors and officers 66.46 2,086,590 3.23
as a group (12)
(9 persons)

Welsh, Carson, Anderson & 45.42 1,591,9120 2.47
Stowe, VI, L.P. (13)
1 World Financial
Center, Suite 3601
New York, New York 10281

DLJ Capital 19.50 405,827 *
Corporation/Sprout Group(14)
277 Park Ave., 21st
Floor
New York, New York 10172

Sprout Capital VI, L.P. (15) 17.92 372,969 1.01
277 Park Ave., 21st
Floor
New York, New York 10172

Sprout Growth II, L.P. (16) 17.92 372,969 1.01
277 Park Ave., 21st
Floor
New York, New York 10172
</TABLE>

- ---------------------------------------------------
* Less than 1%

** All 12,000 shares of the FPC Class C Convertible Preferred Stock that
are outstanding are owned by Pacific Capital/White Pines Management,
2401 Plymouth Road, Suite B, Ann Arbor, Michigan 48105. Such shares
represent 1.43% of the outstanding FPC Voting Stock and the holder
thereof would own 29,691 shares (less than 1%) of PhyCor Common Stock
after the Merger.

(1) The shares of Class A Preferred Stock are non-voting securities, but
are eligible to vote on the Merger at the Special Meeting.
(2) The Class B Convertible Preferred Stock is initially convertible, at
the option of the stockholder, into a number of Class A Common Shares
determined by a prescribed formula. The conversion ratio is 38.50386
shares of Class A Common Stock for each share of Class B Convertible
Preferred Stock. The holders are entitled to vote the number of Common
Shares into which their shares are convertible.
(3) Based upon the product of the number of shares of FPC Class A Common
Stock held by each stockholder as of January 20, 1998 and the Exchange
Ratios. In the event the number of shares of PhyCor Common Stock
issuable to the holders of FPC Class A Common Stock is adjusted
pursuant to the terms of the Merger Agreement, these share amounts will
be adjusted accordingly.
(4) Class A Common Stock includes options to purchase 100,000 shares
that will become exercisable within 60 days of the date hereof. The
shares of Class B Convertible Preferred Stock are convertible into
122,249 shares of Class A Common Stock.
(5) Class A Common Stock includes options to purchase 37,500 shares
that will become exercisable within 60 days of the date hereof. The
shares of Class B Convertible Preferred Stock are convertible into
77,008 shares of Class A Common Stock.
(6) Class A Common Stock includes options to purchase 125,000 shares
that will become exercisable within 60 days of the date hereof. The
shares of Class B Convertible Preferred Stock are convertible into
77,008 shares of Class A Common Stock.
(7) Class A Common Stock includes options to purchase 40,750 shares
that will become exercisable within 60 days of the date hereof. The
shares of Class B Convertible Preferred Stock are convertible into
7,701 shares of Class A Common Stock.
(8) Excludes 65,300 shares of Class A Common Stock that are to be delivered
on December 11, 1999.
(9) Includes 6,475 shares of Class A Common Stock and 416 shares of Class B
Convertible Preferred Stock, convertible into 16,018 shares of Class A
Common Stock, owned individually by Mr. Welsh. The remaining shares are
owned by WCAS or its affiliates. Includes 29,309 warrants which can be
issued at the request of the holders from time to time pursuant to the
June 1997 agreement among WCAS, the Sprout Group and FPC and are
expected to be earned through the estimated date of closing. Mr. Welsh
is a general partner of WCAS and shares voting and dispositive power
with respect to such shares.
(10) Includes 1,540 of Class A Common Stock and 100 shares of Class B
Convertible Preferred Stock, convertible into 3,850 shares of Class A
Common Stock, owned individually by Mr. Paul. The remaining shares are
owned by WCAS or its affiliates. Includes 29,309 warrants which can be
issued at the request of the holders from time to time pursuant to the
June 1997 agreement among WCAS, the Sprout Group and FPC and are
expected to be earned through the estimated date of closing. Mr. Paul
is a general partner of WCAS and shares voting and dispositive power
with respect to such shares.
(11) Represents shares owned by WCAS or its affiliates. Includes 29,309
warrants which can be issued at the request of the holders from time to
time pursuant to the June 1997 agreement among WCAS, the Sprout Group
and FPC and are expected to be earned through the estimated date of
closing. Mr. Queally is a general partner of WCAS and shares voting and
dispositive power with respect to such shares.
(12) Includes 79,375 shares of Class B Convertible Preferred Stock,
convertible into 3,056,245 shares of Class A Common Stock, and options
to purchase 340,750 shares of Class A Common Stock that will become
exercisable within 60 days of the date hereof. Includes 29,309 warrants
which can be issued at the request of the holders from time to time
pursuant to the June 1997 agreement among WCAS, the Sprout Group and
FPC and are expected to be earned through the estimated date of
closing.
(13) Represents shares owned by WCAS or its affiliates. The shares of Class
B Convertible Preferred Stock are convertible into 2,695,270 shares of
Class A Common Stock. Includes 29,309 warrants which can be issued at
the request of the holders from time to time pursuant to the June 1997
agreement among WCAS, the Sprout Group and FPC and are expected to be
earned through the estimated date of closing.
(14) Includes 407,932 shares of Class A Common Stock and 11,055 shares of
Class B Convertible Preferred Stock, convertible into 425,660 shares of
Class A Common Stock, owned by Sprout Capital Vl, L.P. and 17,173
shares of Class B Convertible Preferred Stock, convertible into 661,227
shares of Class A Common Stock, owned by Sprout Growth II, L.P.,
affiliates of DLJ Capital Corp. Includes 12,561 warrants which can be
issued at the request of the holders from time to time pursuant to the
June 1997 agreement among WCAS, the Sprout Group and FPC and are
expected to be earned through the estimated date of closing.
(15) Includes 407,932 shares of Class A Common Stock and 11,055 shares of
Class B Convertible Preferred Stock convertible into 425,660 shares of
Class A Common Stock owned by Sprout Capital Vl, L.P. The remaining
shares are owned by Sprout Growth II, L.P., an affiliate of Sprout
Capital Vl, L.P. Includes 12,561 warrants which can be issued at the
request of the holders from time to time pursuant to the June 1997
agreement among WCAS, the Sprout Group and FPC and are expected to be
earned through the estimated date of closing.

(16) Includes 17,173 shares of Class B Convertible Preferred Stock,
convertible into 661,227 shares of Class A Common Stock owned by Sprout
Growth II, L.P. The remaining shares are owned by Sprout Capital Vl,
L.P., an affiliate of Sprout Growth II, L.P. Includes 12,561 warrants
which can be issued at the request of the holders from time to time
pursuant to the June 1997 agreement among WCAS, the Sprout Group and
FPC and are expected to be earned through the estimated date of
closing.

64
<PAGE> 69

BUSINESS OF PHYCOR

PhyCor is a PPM company that acquires and manages multi-specialty
medical clinics and develops and manages IPAs. PhyCor's objective is to organize
physicians into professionally managed networks that assist physicians in
assuming increased responsibility for delivering cost-effective medical care
while attaining high-quality clinical outcomes and patient satisfaction. PhyCor
manages 55 clinics with approximately 3,860 physicians in 28 states. PhyCor also
manages IPAs, which are networks of independent physicians, that include over
19,000 physicians in 28 markets. PhyCor's affiliated physicians provide medical
services to approximately 1,140,000 members under prepaid health plans,
including approximately 177,000 Medicare members.

PhyCor believes that primary care-oriented physician organizations are
a critical element of organized health care systems, because physician decisions
determine the cost and quality of care. PhyCor believes that physician-driven
organizations, including multi-specialty medical clinics, IPAs and the
combination of such organizations, present more attractive alternatives for
physician consolidation than hospital or insurer/HMO-controlled organizations.
The combination of PhyCor's multi-specialty medical clinic and IPA management
capabilities and new group-formation efforts enables PhyCor to offer physician
practice management services to substantially all types of physician
organizations.

Upon the acquisition by PhyCor of a clinic's operating assets, the
affiliated physician group simultaneously enters into a long-term service
agreement with PhyCor. PhyCor, under the terms of the service agreement,
provides the physician group with the equipment and facilities used in its
medical practice, manages clinic operations, employs most of the clinic's
non-physician personnel, other than certain diagnostic technicians, and receives
a service fee. Under substantially all of its service agreements, PhyCor
receives a service fee equal to the clinic expenses it has paid plus percentages
of operating income of the clinic (net clinic revenue less certain contractually
agreed upon clinic expenses before physician distributions) plus, in some cases,
percentages of net clinic revenue. As clinic operating income improves, whether
as a result of increased revenue or lower expenses, PhyCor's service fees
increase.

The affiliated physicians maintain full professional control over their
medical practices, determine which physicians to hire or terminate and set their
own standards of practice in order to promote high quality health care. Pursuant
to its service agreements with physician groups, PhyCor manages all aspects of
the clinic other than the provision of medical services, which is controlled by
the physician groups. At each clinic, a joint policy board equally compromised
of physician and PhyCor personnel focuses on strategic and operational planning,
marketing, managed care arrangements and other major issues facing the clinic.

The physician groups offer a wide range of primary and specialty
physician care and ancillary services. Approximately 53% of PhyCor's affiliated
physicians are primary care providers. The primary care physicians are those in
family practice, general internal medicine, obstetrics, pediatrics and emergency
and urgent care. PhyCor works closely with its affiliated physician groups to
recruit new physicians and merge sole practices or single specialty groups,
especially primary care groups, into the clinics' physician groups.
Substantially all of the physicians practicing in the clinics are certified or
eligible to be certified by applicable specialty boards.

PhyCor established its presence in the IPA management business in 1995
and believes that a significant opportunity exists to develop and manage IPAs.
IPAs consolidate independent physicians by providing general organizational
structure and management to the physician network. IPAs provide or contract for
medical management services to assist physician networks in obtaining and
servicing managed care contracts and enable previously unaffiliated physicians
to assume and more effectively manage capitated risk.

65
<PAGE> 70

PhyCor has assessed its practice management systems, managed care
information systems, business information systems and other clinic systems for
compliance with the Year 2000 issue. In general, the Year 2000 issue exists
because many computer systems and applications currently use two-digit date
fields to designate a year. As the century date change occurs, date-sensitive
systems may not recognize the year 2000. PhyCor is in its normal process of
standardizing the various systems utilized by its clinics and IPA's. This
standardization includes implementation of Year 2000 compliant systems. PhyCor
has performed an assessment of its various clinics and IPA's to identify which
systems specifically require replacement or upgrade due to the Year 2000 issue
in order to ensure timely upgrade or installation. PhyCor believes it has a
replacement strategy in place such that the Year 2000 issue will not have a
significant effect on its operations. Total capital costs to implement new
systems and to address the Year 2000 issue are expected to be less than $20
million.

Additional information concerning PhyCor is included in the reports,
proxy statements and other information of PhyCor filed with the Commission which
are incorporated by reference in this Prospectus-Proxy Statement. See
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."

66
<PAGE> 71

COMPARISON OF RIGHTS OF FPC AND PHYCOR SHAREHOLDERS

PhyCor is incorporated in Tennessee and FPC is incorporated in
Delaware. Holders of the shares of FPC Capital Stock, whose rights are currently
governed by Delaware corporate law and the Certificate of Incorporation, as
amended, of FPC (the "FPC Certificate"), and the Bylaws of FPC (the "FPC
Bylaws"), will have their rights and obligations as shareholders of PhyCor after
the Merger governed by Tennessee law and the PhyCor Charter and Amended Bylaws
of PhyCor (the "PhyCor Bylaws"). Set forth below is a summary comparison of the
rights of a PhyCor Shareholder under Tennessee law, the PhyCor Charter and
PhyCor Bylaws, on the one hand, and the rights of a FPC Shareholder under
Delaware law, the FPC Certificate and FPC's Bylaws, on the other hand. The
information set forth below is qualified in its entirety by reference to the
Tennessee Business Corporation Act ("TBCA"), the PhyCor Charter, the PhyCor
Bylaws, the DGCL, the FPC Certificate and the FPC Bylaws.

CLASSES AND SERIES OF CAPITAL STOCK

FPC. Pursuant to the FPC Certificate, the authorized capital stock of
FPC consists of 15,000,000 shares of Class A Common Stock, par value $.001 per
share, 900,000 shares of Class B Common Stock, par value $.001 per share,
200,000 shares of Class A Preferred Stock, par value $1.00 per share, 110,000
shares of Class B Convertible Preferred Stock, par value $1.00 per share, and
20,000 shares of Class C Convertible Preferred Stock, par value $1.00 per share.
In addition, as of December 31, 1997, there were outstanding options under FPC
stock option plans to purchase an additional 986,954 shares of FPC Capital
Stock. An additional 1,004,801 shares of FPC Capital Stock were reserved for
future option grants under such plans. Additionally, there are warrants to
purchase 21,754 shares of FPC Class A Common Stock outstanding, and contractual
rights of certain physicians in the Managed Group practices to receive 1,627,197
shares of FPC Class A Common Stock at specified future dates.

The following description of the FPC Capital Stock is a summary, does
not purport to be complete or to give effect to applicable statutory or common
law and is subject in all respects to the applicable provisions of the FPC
Certificate, and the information herein is qualified in its entirety by this
reference.

CLASS A COMMON STOCK

Holders of Class A Common Stock are entitled to one vote per share in
the election of directors and on all other matters on which the shareholders are
entitled or permitted to vote. Holders of Class A Common Stock are not entitled
to cumulative voting rights. Therefore, holders of a majority of the shares
voting for the election of directors can elect all the directors. The preferred
stock purchase agreements and management plan prohibit FPC from declaring or
paying cash dividends or other distributions on the Class A Common Stock. Upon
liquidation or dissolution, holders of Class A Common Stock are entitled to
share ratably in all net assets available for distribution to stockholders after
payment of any liquidation preferences to holders of Preferred Stock. Holders of
Class A Common Stock have no redemption, conversion or preemptive rights.

CLASS B COMMON STOCK

The Class B Common Stock is non-voting and is convertible into an equal
number of Class A Common shares, at the option of the holder, provided that
subsequent to such conversion any one shareholder does not have direct or
beneficial voting control over, in the aggregate, more than 49% of the voting
securities of the Company outstanding at the time of conversion or immediately
after the conversion. The preferred stock purchase agreements and Management
Plan prohibit the Company from declaring or paying cash dividends or other
distributions on the Class B Common Stock. Upon liquidation or dissolution,
holders of Class B Common Stock are entitled to share ratably in all net

67
<PAGE> 72

assets available for distribution to stockholders after payment of any
liquidation preferences to holders of Preferred Stock. Holders of Class B Common
Stock have no redemption, conversion or preemptive rights. All of the
outstanding shares of FPC Class B Common Stock were converted into shares of FPC
Class A Common Stock on January 20, 1998.

CLASS A PREFERRED STOCK

The holders of Class A Preferred shares do not have voting rights,
except as described herein and are entitled to receive dividends at the annual
rate of $8 per share. Dividends are cumulative. The Class A Preferred shares
restrict the Company's ability to pay dividends or make other distributions on
FPC Class B and C Convertible Preferred or FPC Common Stock. The Class A
Preferred Stock holders are entitled to a liquidation preference over the
holders of FPC Class B and C Convertible Preferred Stock and FPC Common Stock
equal to the purchase price of such preferred stock plus declared but unpaid
dividends, if any. Stockholders of each series of preferred stock are entitled
to certain preferences in liquidation over stockholders of previously issued
series or preferred stock in order of issuance. In the event of certain changes
of 50% of the voting power of FPC or the sale of substantially all of the
properties and assets of FPC, and in any case, no later than December 9, 2003,
the holders of FPC Class A Preferred Stock and FPC Class B Convertible Preferred
Stock are entitled to redeem their outstanding shares at a redemption price per
share equal to $100 plus any declared but unpaid dividends. Additionally, upon
the completion of an underwritten public offering of FPC's common stock, FPC
will apply 25% of the net proceeds to FPC therefrom, or such lessor amount as
will be sufficient, to redeem the outstanding shares of FPC Class A Preferred
Stock. FPC may, at any time, redeem the FPC Class A Preferred Stock at the
redemption price noted above.

CLASS B CONVERTIBLE PREFERRED STOCK

The holders of FPC Class B Convertible Preferred Stock are entitled to
vote the number of common shares into which their shares are convertible, based
on a prescribed formula. Under certain conditions, shares of FPC Class B
Convertible Preferred Stock will automatically convert at the then effective
conversion price upon the completion of an underwritten public offering of the
Company's common stock. Dividends on FPC Class B Convertible Preferred Stock are
payable, when, as and if declared by the Board of Directors and are not
cumulative. The FPC Class B Convertible Preferred Stock holders are entitled to
a liquidation preference over the holders of FPC Class C Convertible Preferred
Stock and FPC Common Stock equal to the purchase price of such preferred stock
plus declared but unpaid dividends, if any.

CLASS C CONVERTIBLE PREFERRED STOCK

The holders of FPC Class C Convertible Preferred Stock are entitled to
vote the number of common shares into which their shares are convertible, based
on a prescribed formula. Under certain conditions, shares of FPC Class C
Convertible Preferred Stock will automatically convert at the then effective
conversion price upon the completion of an underwritten public offering of the
Company's common stock. Dividends on FPC Class C Convertible Preferred Stock are
payable, when, as and if declared by the Board of Directors and are not
cumulative. The FPC Class C Convertible Preferred Stock holders are entitled to
a liquidation preference over the holders of FPC Common Stock equal to the
purchase price of such preferred stock plus declared but unpaid dividends, if
any.

PhyCor. PhyCor is authorized by the PhyCor Charter to issue up to
260,000,000 shares of capital stock, of which 250,000,000 shares are designated
PhyCor Common Stock, no par value per share, and 10,000,000 shares are
designated PhyCor Preferred Stock, no par value per share. As of December 31,
1997, there were approximately 64,530,000 shares of PhyCor Common Stock
outstanding. In addition, there were outstanding options under PhyCor stock
option plans to purchase an additional 13,476,000 shares of PhyCor Common Stock.
An additional 2,386,000 shares of PhyCor Common Stock were reserved for future
option grants under such plans. Furthermore,

68
<PAGE> 73

7,909,000 shares are currently reserved for issuance upon conversion of the 4.5%
Convertible Subordinated Debentures due 2003 and subordinated convertible notes
payable to affiliated physicians and physician groups, and 1,401,000 shares are
reserved for issuance upon the exercise of outstanding warrants. The Board of
Directors of PhyCor has the authority to issue the PhyCor Preferred Stock in one
or more series and to fix the rights, preferences, privileges and restrictions
for each such series, without any further vote or action by the Shareholders. As
of December 31, 1997, there were no shares of PhyCor Preferred Stock issued and
outstanding, and the Board of Directors of PhyCor has no present intention of
issuing shares of PhyCor Preferred Stock.

SIZE AND ELECTION OF THE BOARD OF DIRECTORS

FPC. The FPC Bylaws provide that the FPC Board shall consist of at
least one member and not more than seven members and that the size of the FPC
Board may be fixed by resolution of the FPC Board or the FPC Stockholders. The
FPC Board are elected by a plurality of the votes cast at the annual meeting of
FPC stockholders and their terms expire at the next annual FPC stockholders'
meeting. Holders of shares representing approximately 75% of the votes
attributable to the outstanding shares of FPC Capital Stock are parties to a
voting agreement in which such persons have agreed to vote their shares of FPC
Capital Stock so as to cause the FPC Board to fix the number of directors at no
more than seven and to nominate (i) Stephen A. George, M.D. so long as he is
chief executive officer of FPC, (ii) two individuals designated by WCAS, (iii)
two individuals designated by Sprout Capital VI, L.P. and up to two additional
individuals mutually agreeable to the parties thereto. Vacancies in the FPC
Board, including any vacancies resulting from an increase in the number of
directors, are filled by the FPC Stockholders, the FPC Board, or, if the
directors remaining in office constitute fewer than a quorum of the FPC Board,
by the affirmative vote of a majority of all the directors on the FPC Board
remaining in office.

PhyCor. The PhyCor Charter provides that the PhyCor Board of Directors
shall consist of at least three (3) directors and not more than fifteen (15)
directors and that the size of the PhyCor Board of Directors may be fixed by the
directors then in office. Directors are divided into three classes with
elections for one class of directors being held at each annual meeting of
Shareholders. Directors of PhyCor are elected by a plurality of votes cast at
the annual meeting of Shareholders. Vacancies in the Board of Directors and
newly created directorships resulting from any increase in the authorized number
of directors are filled by a majority of directors then in office or the
Shareholders. The PhyCor Bylaws also provide for the election of a maximum of
three Advisory Directors by a majority of the Board of Directors. Such Advisory
Directors, who are to assist the Board of Directors in its conduct of the
affairs of PhyCor, hold office for such term as determined by the Board of
Directors.

REMOVAL OF DIRECTORS

FPC. The FPC Bylaws provide that a director may be removed from office,
with or without cause, at any meeting of FPC Stockholders with respect to which
notice of such purpose has been given if the number of votes cast to remove a
director exceed, the number of votes cast not to remove such director.

PhyCor. The PhyCor Bylaws provide that a director may be removed only
for cause at a Shareholders meeting called for the purpose of removing a
director if the number of votes cast to remove a director exceed the number of
votes cast not to remove such director.

CONVERSION, DISSOLUTION AND REDEMPTION

FPC. The FPC Class A Common Stock and FPC Class A Preferred Stock have
no conversion rights. Each share of FPC Class B Common Stock is convertible into
one share of Class A Common Stock. Each share of FPC Class B Convertible
Preferred Stock is convertible into such number of

69
<PAGE> 74

shares of FPC Class A Common Stock as is obtained by multiplying the number of
shares of FPC Class B Convertible Preferred Stock to be converted by $100 and
dividing the result by $2.59714 per share or the adjusted conversion price as of
the date such shares are surrendered for conversion (the "Conversion Price").
Each share of FPC Class C Convertible Preferred Stock is convertible into such
number of FPC Class A Common Stock as is obtained by multiplying the number of
shares to be converted by $100 per share and dividing the result by $10 per
share or the adjusted conversion price as of the date such shares are
surrendered for conversion. The conversion prices of the FPC Class B Convertible
Preferred Stock and FPC Class C Convertible Preferred Stock are subject to
adjustment in accordance with the terms of customary antidilution provisions
applicable to such securities (i.e., change in FPC's capital structure, stock
splits, reverse stock splits, etc.). Upon a firm commitment underwritten public
offering pursuant to a registration statement on Form S-1 by which FPC Class A
Common Stock is sold at a price of at least $7.71 per share resulting in
proceeds of not less than $10,000,000, each share of FPC Class B Convertible
Preferred Stock is automatically converted into shares of FPC Class A Common
Stock at the Conversion Price in effect at such time. In the event of
dissolution of FPC, (i) holders of FPC Class A Preferred Stock are entitled to
certain payments prior to any payments made upon any FPC Common Stock, FPC Class
B Convertible Preferred Stock or FPC Class C Convertible Preferred Stock, (ii)
holders of FPC Class B Convertible Preferred Stock are entitled to certain
payments prior to any payments made upon any FPC Common Stock and FPC Class C
Convertible Preferred Stock, and (iii) holders of FPC Class C Convertible
Preferred Stock are entitled to certain payments prior to any payments made upon
any FPC Common Stock. The FPC Class A Preferred Stock is subject to mandatory
redemption on December 9, in each of the years 2001, 2002 and 2003. The FPC
Class B Convertible Preferred Stock is subject to mandatory redemption on
December 9, 2003. The FPC Class C Convertible Preferred Stock is subject to
optional redemption at any time.

PhyCor. The PhyCor Common Stock has no conversion features. The PhyCor
Charter authorizes 10,000,000 shares of PhyCor Preferred Stock, no par value per
share, and provides that such shares of PhyCor Preferred Stock may have such
voting powers, preferences and other special rights (including, without
limitation, the right to convert the shares of such PhyCor Preferred Stock into
shares of PhyCor Common Stock) as shall be determined by the Board of Directors.
The Board of Directors has designated 500,000 shares of PhyCor Preferred Stock
as Series A Junior Participating Preferred Stock. PhyCor Preferred Stock is
entitled to preferential payments in the event of dissolution of PhyCor.

AMENDMENT OR REPEAL OF THE CERTIFICATE OF INCORPORATION OR CHARTER AND BYLAWS

FPC. The FPC Certificate provides that FPC may amend, alter, change or
repeal any provisions contained in the FPC Certificate. The DGCL requires (i)
the FPC Board to adopt a resolution declaring the proposed amendment advisable
and (ii) the approval of the amendment by a majority of the outstanding stock
entitled to vote thereon and a majority of the outstanding stock of each class
entitled to vote thereon as a class. The FPC Certificate provides that the FPC
Board may make, alter or repeal the FPC Bylaws, subject to the power of the FPC
Stockholders to alter any bylaw made by the FPC Board.

PhyCor. With the exception of certain administrative amendments, the
TBCA requires approval by holders of at least a majority of the outstanding
shares entitled to vote thereon to repeal or amend the PhyCor Charter. The
PhyCor Bylaws provide that a majority of the PhyCor Board of Directors or the
holders of a majority of the outstanding shares of capital stock entitled to
vote at a meeting may alter, amend or repeal the PhyCor Bylaws.

70
<PAGE> 75

SPECIAL MEETINGS OF SHAREHOLDERS

FPC. The FPC Bylaws provide that a special meeting of the FPC
Stockholders may be called by a "majority" of the FPC Board or by the holders of
at least 25% of the outstanding shares of capital stock of FPC entitled to vote
on any issue proposed to be considered at the proposed special meeting.

PhyCor. The PhyCor Bylaws provide that a special meeting of the PhyCor
Shareholders may be called by a majority of the Board of Directors or by the
holders of at least 10% of the outstanding shares of capital stock of PhyCor
entitled to vote on any issue proposed to be considered at the proposed special
meeting.

LIABILITY OF DIRECTORS

FPC. The FPC Certificate provides that the directors shall not be
personally liable to FPC or its stockholders for monetary damages for breach of
a fiduciary duty by such director as a director to the fullest extent permitted
by the DGCL. A director shall be liable (i) for any breach of the director's
duty of loyalty to FPC or its Shareholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL or (iv) for any transaction from which
the director derived improper personal benefit.

PhyCor. The PhyCor Charter provides that directors of PhyCor shall not
be personally liable to PhyCor or its Shareholders for monetary damages for any
breach of fiduciary duty by such director as a director. A director shall be
liable to the extent provided by applicable law for breach of the director's
duty of loyalty to PhyCor or its Shareholders, for acts or omissions not in good
faith or which involve intentional misconduct, or for liability pursuant to the
TBCA relating to unlawful distributions.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

FPC. The FPC Bylaws provide that FPC will indemnify, and upon the
request of the FPC Board, shall advance expenses to any officer or director of
FPC and any officer or director of any subsidiary of FPC who was or is a party
to, or is threatened to be made a party to, any action because such person is or
was a director or officer of FPC or is or was serving at the request of FPC as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust, employee benefit plan or other enterprise.

PhyCor. The PhyCor Charter provides that PhyCor will indemnify and upon
request shall advance expenses to, any person who was, or is a party to, or is
threatened to be made a party to, any such action because such person is or was
a director, officer or employee of PhyCor or is or was serving at the request of
PhyCor as a director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise. This indemnification is
subject to the limitations stated above.

The Merger Agreement provides that all rights to indemnification for
acts or omissions occurring prior to the Effective Time of the Merger now
existing in favor of the current or former directors or officers of FPC as
provided by the DGCL or in FPC Certificate or Bylaws shall survive the Merger.

CHANGE OF CONTROL

FPC. Section 203 of the DGCL restricts a wide range of transactions
("business combinations") between a corporation and an interested stockholder.
An "interested stockholder" is, generally, any person who beneficially owns,
directly or indirectly, 15% or more of the corporation's outstanding voting
stock. Business combinations are broadly defined to include (i) mergers or

71
<PAGE> 76

consolidations with (ii) sales or other dispositions of more than 10% of the
corporation's assets to, (iii) certain transactions resulting in the issuance or
transfer of any stock of the corporation or any subsidiary to, (iv) certain
transactions which would result in increasing the proportionate share of stock
of the corporation or any subsidiary owned by the corporation, or (v) receipt of
the benefit (other than proportionately as a stockholder) of any loans, advances
or other financial benefits by, an interested stockholder. Section 203 provides
that an interested stockholder may not engage in a business combination with the
corporation for a period of three years from the time of becoming an interested
stockholder unless (i) the board of directors approved either the business
combination or the transaction which resulted in the person becoming an
interested stockholder prior to the time such person became an interested
stockholder; (ii) upon consummation of the transaction which resulted in the
person becoming an interested stockholder, that person owned at least 85% of the
corporation's voting stock (excluding shares owned by persons who are officers
and also directors and shares owned by certain employee stock plans); or (iii)
the business combination is approved by the board of directors and authorized by
the affirmative vote of at least 66 2/3% of the outstanding voting stock not
owned by the interested stockholder. The restrictions on business combinations
with interested stockholder contained in Section 203 do not apply to a
corporation whose certificate of incorporation contains a provision expressly
electing not to be governed by Section 203. The FPC Certificate does not contain
a provision electing to "opt-out" of Section 203.

PhyCor. The Tennessee Business Combination Act (the "Combination Act")
provides that any corporation to which the Combination Act applies, including
PhyCor, shall not engage in any "business combination", as defined in the
Combination Act, with an "interested Shareholder" for a period of five years
following the date that such Shareholder became an interested Shareholder
unless, prior to such date, the board of directors of the corporation approved
either the business combination or the transaction which resulted in the
Shareholder becoming an interested Shareholder.

"Interested Shareholder" is defined in the Combination Act as any
person that is (a) the beneficial owner of 10% or more of the voting power of
any class or series of stock of the corporation or (b) is an affiliate and at
any time within the five-year period immediately prior to the date in question
was the beneficial owner of 10% or more of the voting power of any class of
series of stock of the corporation.

The Tennessee Control Share Acquisition Act (the "Acquisition Act")
prohibits certain Shareholders from exercising in excess of 20% of the voting
power in a corporation acquired in a "control share acquisition", as defined in
the Acquisition Act, unless such voting rights have been previously approved by
the disinterested Shareholders of the corporation. The Acquisition Act does not
apply to PhyCor presently, because PhyCor has not elected to be covered by such
act. No assurance can be given that such an election, which must be expressed in
the form of a charter or bylaw provision, will be made by PhyCor.

The Tennessee Greenmail Act prohibits PhyCor from purchasing or
agreeing to purchase any of its securities at a price in excess of fair market
value from a holder of 3% or more of any class of such securities who has
beneficially owned such securities for less than two years, unless such purchase
has been approved by the affirmative vote of a majority of the outstanding
shares of such class of voting stock issued by PhyCor or PhyCor makes an offer
of at least equal value per share to all holders of shares of such class.

SHAREHOLDER RIGHTS AGREEMENT

FPC. The FPC Shareholders have not entered into a Shareholder Rights
Agreement, but holders of shares representing approximately 75% of the votes
attributable to the outstanding shares of FPC Voting Stock are subject to a
Voting Agreement in which certain FPC Stockholders agree to

72
<PAGE> 77

vote their shares so as to cause the FPC Board to fix the number of directors at
no more than seven and nominate certain people as members of the FPC Board.

PhyCor. In February 1994, the Board of Directors of PhyCor declared a
dividend distribution of one right (a "PhyCor Right") for each share of PhyCor
Common Stock. Each Right entitles the holder to purchase from PhyCor one
one-hundredth of a share of Series A Junior Participating Preferred Stock at a
price of $150 per one-hundredth of a share, as adjusted. The PhyCor Rights are
not initially exercisable, but will become exercisable upon the acquisition by
any person of, or the announcement of the intention of any person to commence a
tender or exchange offer upon the successful consummation of which such person
would be the beneficial owner of, 15% or more of the shares of PhyCor Common
Stock then outstanding, without the prior approval of PhyCor's Board of
Directors. The PhyCor Rights are generally designed to deter coercive takeover
tactics and to encourage all persons interested in potentially acquiring control
of PhyCor to treat each Shareholder on a fair and equal basis.

EXPERTS

The consolidated financial statements of PhyCor as of December 31, 1996
and 1995, and for each of the years in the three-year period ended December 31,
1996, have been incorporated by reference herein and in the Prospectus-Proxy
Statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.

The consolidated financial statements of FPC at December 31, 1996 and
1995, and for each of the three years ended December 31, 1996, appearing in this
Prospectus-Proxy Statement and Registration Statement have been audited by Ernst
& Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included herein in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.

LEGAL MATTERS

The validity of the shares of PhyCor Common Stock to be issued to the
stockholders of FPC pursuant to the Merger will be passed upon by Waller Lansden
Dortch & Davis, A Professional Limited Liability Company. The federal income tax
treatment of the Merger to the FPC stockholders will be passed upon by Mayor,
Day, Caldwell & Keeton, LLP.

ADDITIONAL INFORMATION

The FPC Board does not know of any matter to be brought before its
Special Meeting other than described in the Notice of Special Meeting
accompanying this Prospectus-Proxy Statement mailed to the Shareholders of such
company. If any other matter comes before such Special Meeting, it is the
intention of the persons named in the accompanying proxy to vote the proxy in
accordance with their best judgment with respect to such other matter.

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<PAGE> 78
Consolidated Financial Statements

First Physician Care, Inc.

Years ended December 31, 1996, 1995 and 1994
with Report of Independent Auditors
and
Nine Months ended September 30, 1997 and 1996 (unaudited)

F-1
<PAGE> 79

First Physician Care, Inc.

Consolidated Financial Statements

INDEX

<TABLE>
<S> <C>
Report of Independent Auditors.................................................................. F-3

Audited Consolidated Financial Statements:

Consolidated Balance Sheets...................................................................... F-4
Consolidated Statements of Operations............................................................ F-6
Consolidated Statements of Redeemable Preferred Stock and Common Stockholders' Deficit........... F-7
Consolidated Statements of Cash Flows............................................................ F-8
Notes to Consolidated Financial Statements....................................................... F-9
</TABLE>

F-2
<PAGE> 80

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
First Physician Care, Inc.

We have audited the accompanying consolidated balance sheets of First Physician
Care, Inc. as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' deficit and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of First
Physician Care, Inc. at December 31, 1996 and 1995, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.

/s/ Ernst & Young LLP

Atlanta, Georgia
April 18, 1997

F-3
<PAGE> 81

FIRST PHYSICIAN CARE, INC.

CONSOLIDATED BALANCE SHEETS

(DOLLAR AMOUNTS IN 000'S EXCEPT FOR PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996 1995
---- ---- ----
(UNAUDITED)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 2,406 $ 4,323 $ 2,163
Accounts receivable 10,628 8,589 2,025
Less allowance for doubtful accounts (1,357) (2,224) (442)
-------- -------- --------
Net accounts receivable 9,271 6,365 1,583
Prepaid expenses and other current assets 1,872 767 486
Notes receivable from employees -- -- 590
-------- -------- --------
Total current assets 13,549 11,455 4,822

Property and equipment:
Furniture, fixtures and equipment 7,454 6,021 2,377
Leasehold improvements 783 819 286
Accumulated depreciation and amortization (2,229) (1,184) (345)
-------- -------- --------
Net property and equipment 6,008 5,656 2,318

Intangible assets:
Goodwill 9,073 9,073 4,297
Management service agreements 5,882 5,017 --
Covenants not to compete 1,426 1,426 1,386
Accumulated amortization (1,730) (899) (414)
-------- -------- --------
Net intangible assets 14,651 14,617 5,269

Other assets 1,215 723 329
-------- -------- --------
Total assets $ 35,423 $ 32,451 $ 12,738
======== ======== ========
</TABLE>

F-4
<PAGE> 82

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ----------------------
1997 1996 1995
----- ---- ----
LIABILITIES, REDEEMABLE PREFERRED STOCK (UNAUDITED)
AND COMMON STOCKHOLDERS' DEFICIT
<S> <C> <C> <C>
Current liabilities:
Accounts payable $ 1,314 $ 1,552 $ 513
Accrued compensation and related expenses 2,336 3,120 2,060
Other accrued liabilities 888 656 259
Amounts due to related parties 433 592 --
Current portion of long-term obligations 3,125 2,098 380
-------- -------- --------
Total current liabilities 8,096 8,018 3,212

Long-term obligations:
Notes and other obligations payable to former physician owners
of medical groups and their related parties, less current
portion 2,276 2,606 1,587
Other notes payable, less current portion 4,257 3,767 --
Capital lease obligations, less current portion 777 942 895
Other liabilities 1,056 1,131 615

Commitments and contingencies

Redeemable preferred stock:
Class A Redeemable Preferred Stock, $8.00 cumulative, $1.00 par
value: Authorized shares - 200,000; issued and outstanding shares
- 200,000, 175,000 and 40,000 at September 30, 1997 and
December 31, 1996 and 1995, respectively;
Redemption value - $22,198,000, $18,615,000 and $4,100,000
at September 30, 1997 and December 31, 1996 and 1995, respectively 2,398 1,291 149
Class B Convertible Redeemable Preferred Stock, $1.00 par value:
Authorized shares - 110,000; issued and outstanding shares -
110,000, 110,000 and 108,134 at September 30, 1997 and
December 31, 1996 and 1995, respectively
Redemption value - $11,000,000, $11,000,000 and $10,813,000 at
September 30, 1997 and December 31, 1996 and 1995, respectively 110 110 108
Class C Convertible Redeemable Preferred Stock, $1.00 par value:
Authorized shares - 20,000 at September 30, 1997, none at
December 31, 1996 and 1995; issued and outstanding shares - none -- -- --
Additional paid-in capital on redeemable preferred stock 28,236 26,845 14,419

Common stockholders' deficit:
Class A Common Stock, $.001 par value:
Authorized shares -15,000,000; issued and outstanding
shares - 3,169,013, 2,977,641 and 1,873,590 at September 30, 1997
and December 31, 1996 and 1995, respectively 3 3 2
Class A Common Stock to be issued, 1,627,197, and 1,293,000 shares at
September 30, 1997 and December 31, 1996, respectively, none at
December 30, 1995, $.001 par value 2,263 1,293 --
Class B Common Stock, convertible, non-voting, $.001 par value:
Authorized shares - 900,000; issued and outstanding shares -
872,460 at September 30, 1997 and December 30, 1996 and 1995,
respectively 1 1 1
Additional paid-in capital on common stock 3,233 2,196 99
Accumulated deficit (17,283) (15,752) (8,349)
-------- -------- --------
Total common stockholders' deficit (11,783) (12,259) (8,247)
-------- -------- --------
Total liabilities, redeemable preferred stock and common
stockholders' deficit $ 35,423 $ 32,451 $ 12,738
======== ======== ========
</TABLE>

See accompanying notes.

F-5
<PAGE> 83

FIRST PHYSICIAN CARE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN 000'S EXCEPT FOR PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30 YEAR ENDED DECEMBER 31
----------------------- ---------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Total revenue from owned physician groups $ 26,213 $ 23,062 $ 32,169 $ 19,718 $ 3,744
Total revenue from managed physician groups 31,894 1,371 5,422 -- --
-------- -------- -------- -------- -------
58,107 24,433 37,591 19,718 3,744
Less amounts retained by managed physician groups (11,975) (628) (2,355) -- --
-------- -------- -------- -------- -------
Net revenue 46,132 23,805 35,236 19,718 3,744

Operating costs and expenses:
Cost of medical services 12,942 12,798 17,375 12,139 2,264
Clinic operations 30,376 12,233 19,558 9,042 2,303
Corporate, general and administrative 3,439 2,983 4,211 3,181 2,172
Depreciation and amortization 1,607 882 1,332 624 149
Loss on impairment of long-term assets -- 884 884 -- --
-------- -------- -------- -------- -------
Total operating costs and expenses 48,364 29,780 43,360 24,986 6,888
-------- -------- -------- -------- -------
Loss from operations (2,232) (5,975) (8,124) (5,268) (3,144)

Other income (expense):
Interest expense (507) (126) (222) (42) (33)
Interest income 30 102 129 160 171
Other 1,178 521 814 175 112
-------- -------- -------- -------- -------
Net loss (1,531) (5,478) (7,403) (4,975) (2,894)
Cumulative dividends and accretion on Class A Redeemable
Preferred Stock (1,082) (650) (1,007) (109) --
-------- -------- -------- -------- -------
Net loss attributable to common stockholders $ (2,613) $ (6,128) $(8,410) $ (5,084) $(2,894)
======== ======== ======== ======== =======

Net loss per common share $ (0.50) $ (2.11) $ (2.69) $ (1.92) $ (1.25)
======== ======== ======== ======== =======

Weighted average common shares outstanding 5,265 2,898 3,126 2,655 2,321
======== ======== ======== ======== =======
</TABLE>
See accompanying notes

F-6
<PAGE> 84

FIRST PHYSICIAN CARE, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK
AND COMMON STOCKHOLDERS' DEFICIT
(DOLLAR AMOUNTS IN 000'S EXCEPT PER SHARE AMOUNTS)

REDEEMABLE PREFERRED STOCK COMMON STOCK
-----------------------------------------------------------------------------------------
CLASS A CLASS B CLASS A
-------------------- -------------------- -------------------------
ADDITIONAL
PAR PAR PAID-IN PAR
SHARES VALUE SHARES VALUE CAPITAL SHARES VALUE
--------- ----------- -------- -------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 -- $ -- 30,775 $ 31,000 $ 2,957,000 2,275,000 $ 2,000

Issuance of Class B Preferred
Stock at $100 per share, net
of issue costs of $26,000 -- -- 74,767 75,000 7,376,000 -- --
Issuance of common stock -- -- -- -- -- 359,800 1,000
Net loss -- -- -- -- -- -- --
-------- ----------- -------- -------- ------------ --------- -----------
Balance, December 31, 1994 -- -- 105,542 106,000 10,333,000 2,634,800 3,000

Issuance of Class A Preferred
Stock at $100 per share, net
of issue costs of $13,100 40,000 40,000 -- -- 3,947,000 -- --
Issuance of Class B Preferred
Stock at $100 per share, net
of issue costs of $8,000 -- -- 2,692 2,000 258,000 -- --
Purchase of Class B Preferred
Stock at $100 per share -- -- (100) -- (10,000)
Subscribed stock -- -- -- -- 90,000 --
Exchange of Class A Common Stock
for convertible non-voting
Class common stock -- -- -- -- (872,460) (1,000)
Issuance of common stock -- -- -- -- 21,250 --
Accretion of Series A preferred
stock -- 109,000 -- -- (109,000) -- --
Net loss -- -- -- -- -- -- --
-------- ----------- -------- -------- ------------ ---------- ----------
Balance, December 31, 1995 40,000 149,000 108,134 108,000 14,419,000 1,873,590 2,000

Issuance of Class A Preferred
Stock at $100 per share, net
of issue costs of $27,000 135,000 135,000 -- -- 13,338,000 -- --
Issuance of Class B Preferred
Stock at $100 per share -- -- 1,866 2,000 95,000 -- --
Value of 1,216,965 Class A
Common shares to be issued at
specified future dates -- -- -- -- -- -- --
Issuance of common stock -- -- -- -- -- 1,104,051 1,000
Accretion of Series A preferred
stock -- 1,007,000 -- -- (1,007,000) -- --
Net loss -- -- -- -- -- -- --
-------- ----------- -------- -------- ------------ ---------- --------
Balance, December 31, 1996 175,000 1,291,000 110,000 110,000 26,845,000 2,977,641 3,000

Issuance of Series A preferred
stock at $100 per share, net
of issue costs of $2,407 25,000 25,000 -- -- 2,473,000 -- --

Value of 512,798 Class A common
shares to be issued at
specified future dates -- -- -- -- -- -- --
Issuance of common stock -- -- -- -- -- 191,372 --
Warrants earned -- -- -- -- -- -- --
Accretion of Series A preferred
stock -- 1,082,000 -- -- (1,082,000) -- --
Net Loss -- -- -- -- -- -- --
-------- ----------- -------- -------- ------------ ---------- ----------
Balance, September 30, 1997 200,000 $ 2,398,000 110,000 $110,000 $ 28,236,000 3,169,013 $ 3,000
(Unaudited) ======== =========== ======== ======== ============ ========== ==========

COMMON STOCK
-----------------------------------------
CLASS A CLASS B
------------ -------------------
VALUE OF ADDITIONAL ACCUMU- TOTAL COMMON
SHARES TO PAR PAID-IN LATED STOCK-HOLDERS'
BE ISSUED SHARES VALUE CAPITAL DEFICIT DEFICIT
------------ --------- ------ ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $ -- -- $ -- $ 30,000 $ (480,000) $ (448,000)

Issuance of Class B Preferred
Stock at $100 per share, net
of issue costs of $26,000 -- -- -- -- -- --
Issuance of common stock -- -- -- 35,000 -- 36,000
Net loss -- -- -- -- (2,894,000) (2,894,000)
------------ -------- -------- -------- ----------- ------------
Balance, December 31, 1994 -- -- -- 65,000 (3,374,000) (3,306,000)

Issuance of Class A Preferred
Stock at $100 per share, net
of issue costs of $13,100 -- -- -- -- -- --
Issuance of Class B Preferred
Stock at $100 per share, net
of issue costs of $8,000 -- -- -- -- -- --
Purchase of Class B Preferred
Stock at $100 per share
Subscribed stock -- -- -- 38,000 -- 38,000
Exchange of Class A Common Stock
for convertible non-voting
Class common stock -- 872,460 1,000 (9,000) -- (9,000)
Issuance of common stock -- -- -- 5,000 -- 5,000
Accretion of Series A preferred
stock -- -- -- -- -- --
Net loss -- -- -- -- (4,975,000) (4,975,000
------------ -------- -------- -------- ----------- ------------
Balance, December 31, 1995 -- 872,460 1,000 99,000 (8,349,000) (8,247,000)

Issuance of Class A Preferred
Stock at $100 per share, net
of issue costs of $27,000 -- -- -- -- --
Issuance of Class B Preferred
Stock at $100 per share -- -- -- --
Value of 1,216,965 Class A
Common shares to be issued at
specified future dates 1,293,000 -- -- -- -- 1,293,000
Issuance of common stock -- -- -- 2,097,000 -- 2,098,000
Accretion of Series A preferred
stock -- -- -- -- -- --
Net loss -- -- -- -- (7,403,000) (7,403,000)
------------ ------- --------- -------- ------------ ------------
Balance, December 31, 1996 1,293,000 872,460 1,000 2,196,000 (15,752,000) 12,259,000

Issuance of Series A preferred
stock at $100 per share, net
of issue costs of $2,407 -- -- -- -- -- --

Value of 512,798 Class A common
shares to be issued at
specified future dates 970,000 -- -- -- -- 970,000
Issuance of common stock -- -- -- 1,009,000 -- 1,009,000
Warrants earned -- -- -- 28,000 -- 28,000
Accretion of Series A preferred stock -- -- -- -- -- --
Net Loss -- -- -- -- (1,531,000) (1,531,000)
------------ ------- -------- ----------- ------------- ------------
Balance, September 30, 1997 (Unaudited) $ 2,263,000 872,460 $ 1,000 $ 3,233,000 $(17,283,000) $(11,783,000)
============ ======= ======== =========== ============= ============
</TABLE>
<PAGE> 85

FIRST PHYSICIAN CARE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLAR AMOUNTS IN 000'S)

<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------------- -------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
OPERATING ACTIVITIES: (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss $(1,531) $ (5,478) $ (7,403) $(4,975) $(2,894)
Adjustments:
Depreciation and Amortization 1,607 882 1,332 624 149
Loss on impairment of long-term assets -- 884 884 -- --
Change in operating assets and
liabilities:
Accounts receivable, net (1,930) (898) (487) (711) (78)
Prepaid expenses and other current (1,106) (250) 166 (227) (99)
assets
Accounts payable (238) 4 (174) 13 190
Accrued expenses and other liabilities (524) (33) 395 1,480 621
Amounts due to related parties (159) (324) (324) -- --
-------- --------- -------- ------- -------
Net cash used in operating activities (3,881) (5,213) (5,611) (3,796) (2,111)

INVESTING ACTIVITIES:
Cash paid for physician practices and
management services agreements, net of
cash acquired (2,034) (4,791) (4,880) (1,889) (733)
Purchases of property and equipment (587) (539) (683) (575) (216)
Other (610) (371) (300) (269) (18)
------- -------- -------- ------- -------
Net cash used in investing activities (3,231) (5,701) (5,863) (2,733) (967)

FINANCING ACTIVITIES:
Notes receivable from employees -- (295) 590 (2) (588)
Payments on acquisition debt assumed (244) (55) (74) (1,426) (450)
Proceeds from other notes payable 3,500 -- 34 -- --
Payments on other notes payable (283) (295) (393) (107) (29)
Payments on capital lease obligations (273) (306) (336) (150) (22)
Purchase of treasury stock -- -- -- (10) --
Proceeds from issuance of stock 2,495 13,813 13,813 4,281 7,487
------- -------- -------- ------- -------
Net cash provided by financing activities 5,195 12,862 13,634 2,586 6,398
------- -------- -------- ------- -------

(Decrease) increase in cash and cash
equivalents (1,917) 1,948 2,160 (3,943) 3,320
Cash and cash equivalents, beginning of
year 4,323 2,163 2,163 6,106 2,786
------- -------- -------- ------- -------
Cash and cash equivalents, end of year $ 2,406 $ 4,111 $ 4,323 $ 2,163 $ 6,106
======= ======== ======== ======= =======

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for interest $ 470 $ 105 $ 140 $ 61 $ 24
======= ======== ======== ======= =======
</TABLE>

See accompanying notes.

F-8

<PAGE> 86

FIRST PHYSICIAN CARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(INFORMATION PERTAINING TO SEPTEMBER 30, 1997 AND 1996 AND THE PERIODS THEN
ENDED IS UNAUDITED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

First Physician Care, Inc. was incorporated in Delaware in June 1993. The
Company and its subsidiaries (collectively, the "Company") operate and manage a
system of regional networks of primary care and multi-specialty physician
groups. Medical services are delivered through multi-sited group practices
staffed by interdisciplinary teams of physicians and allied professionals. As of
December 31, 1996, the Company operated 49 primary care and multi-specialty
physician clinics, of which 23 are owned by the Company and 26 are operated
under management services agreements (the "Managed Physician Groups"). As of
September 30, 1997, the Company operated 57 primary care and multi-specialty
physician clinics, of which 21 are owned by the Company and 36 are Managed
Physician Groups.

Basis of Presentation

The consolidated financial statements include the accounts of First Physician
Care, Inc. and its wholly owned and majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.

The Company or its subsidiaries have entered into long-term management services
agreements with the Managed Physician Groups having initial terms of 40 years,
which renew automatically and perpetually for successive 10-year periods and may
be terminated only for cause. The Company entered into one management services
agreement in August, 1997 with a 27-physician group with a 2-year initial term
which may be extended for an additional two years. Under the long-term
management services agreements, the Company provides exclusive management and
administration of the Managed Physician Groups' day-to-day business operations.
Services provided by the Company include: (i) billing and collection of patient
accounts and other accounting and finance functions; (ii) the provision of all
non-physician employees to the Managed Physician Groups; (iii) negotiation of
all participation agreements with third party payors; (iv) preparation of
operating and capital budgets for approval by the Executive Committees; and (v)
other administrative and management services. Executive Committees, with equal
membership by the Company and the Managed Physician Groups, are responsible for
the review and approval of operating and capital budgets and strategic plans and
overall policy setting for the Managed Physician Groups. The Managed Physician
Groups have authority over: (a) issues related to the practice of medicine; (b)

F-9
<PAGE> 87
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)

hiring and retention of physicians; and (c) allocation of distributions to the
physicians. The Company does not consolidate the accounts or operating results
of the Managed Physician Groups.

The management fee earned by FPC is typically based on a percentage (15-20%) of
the net operating income of the practice after clinic operating costs but before
the cost of medical services. Two of the management service agreements also
provide for a minimum management fee that must be paid without regard the net
operating income of the medical practice plus a performance bonus paid to FPC if
the net operating income exceeds a predetermined threshold. FPC's ability to
manage the profitability of the medical practice depends on its effectiveness in
directly managing clinic operating costs, providing for attractive clinics to
grow patient volume and its ability to negotiate profitable managed care and
preferred provider organization contracts. FPC also manages profitability
indirectly by supporting physician productivity through operational
enhancements, staff management and patient management reporting systems.

The laws of many states, including some of the states in which the Company
presently has management services agreements, prohibit business corporations
from practicing medicine or exercising control over the medical judgments or
decisions of physicians and from engaging in certain financial arrangements with
physicians. The Company intends that, pursuant to the management services
agreements, it will not exercise any responsibility on behalf of affiliated
physicians that could be construed as affecting the practice of medicine.
Accordingly, the Company believes that its operations do not violate applicable
state laws relating to the corporate practice of medicine.

Although the Company does not consolidate the Managed Physician Groups, for
presentation purposes, and in order to appropriately reflect the nature of the
Company's operations and its relationship to the Managed Physician Groups, the
accompanying consolidated statements of operations include net revenue from
Managed Physician Groups under long-term management agreements equal to the
gross billings of the Managed Physician Groups (less contractual allowances)
less amounts retained by Managed Physician Groups (primarily physician
compensation). Operating costs and expenses include all other operating costs
related to the Managed Physician Groups ("display method").

Accounting Developments

The Emerging Issues Task Force (the "Task Force") of the Financial Accounting
Standards Board is reviewing various accounting and reporting matters relating
to the physician practice management industry. Among other things, the Task
Force is addressing the consolidation of revenues of professional associations
with physician practice management companies and accounting for business
combinations. Although the Company believes that its accounting and reporting
practices are in conformity with generally accepted accounting principles and
common industry practice, there can be no assurance that the conclusions reached
by the Task Force, and ultimately adopted by the

F-10
<PAGE> 88

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)

industry, will not have a material impact on the Company's consolidated
financial statements.

On November 20, 1997, the Task Force reached a consensus concerning certain
matters relating to the physician practice management industry with respect to
the requirements which must be met to consolidate a managed professional
corporation and the accounting for business combinations involving professional
corporations. In accordance with the EITF's guidance, the Company will
discontinue use of the "display method" to report revenues from management
contracts in financial statements for periods ending after December 15, 1998.
Thus, after December 15, 1998, fees from management contracts for all periods
presented will be reported as a single line item ("Net revenue") in the
Company's statements of operations.

Use of Estimates

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

Net Revenue and Allowance For Doubtful Accounts

Net revenue includes fees for medical services provided by the Company's clinics
under capitated contracts with health maintenance organizations ("HMO
contracts"), fee-for-service arrangements and other reimbursement arrangements
with third party payors. Contractual agreements with managed care and other
organizations to provide physician services remain at the physician group level
under the Company's management services agreements. Capitation revenue under HMO
contracts is recognized during the period in which the Company is obligated to
provide services. Net revenue under fee-for-service and other reimbursement
arrangements is recorded at established billing rates reduced by an allowance
for contractual adjustments. Contractual adjustments arise due to the terms of
certain reimbursement and managed care contracts which reduce revenue to amounts
estimated to be reimbursable by Medicare, Medicaid, preferred provider
organizations and other third party-payors. Such adjustments are recognized in
the period the services are rendered. Certain HMO contracts contain provisions
under which the Company shares in risk fund surpluses and deficits based on the
management of medical expenditures. Estimates of fund settlements are recorded
during the period earned. Differences in estimates recorded and final
settlements are reported during the period final settlements are made.

F-11
<PAGE> 89

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)

involving those groups are shared by the physician group and the Company through
the management fee. Capitation revenue under HMO contracts is recognized during
the period in which the Company is obligated to provide services. Revenue
recognized under capitated agreements were approximately $18,651,000,
$12,374,000 and $2,644,000 for the years ended December 31, 1996, 1995 and 1994,
respectively, and $20,010,000 and 13,390,000 for the nine month periods ended
September 30, 1997 and 1996, respectively.

An allowance for doubtful accounts is established for revenue estimated to be
uncollectible and is adjusted periodically based upon management's evaluation of
current economic conditions, historical collection experience, and other
relevant factors which, in the opinion of management, deserve recognition in
estimating such allowance.

Cash and Cash Equivalents

The Company classifies short-term highly liquid investments, with maturities of
three months or less at the date of purchase, as cash equivalents.

Property and Equipment

Property and equipment are stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives (generally five years) for
furniture, fixtures and equipment and the lease terms for leasehold
improvements.

Intangible Assets

Intangible assets consist primarily of goodwill, management services agreements
and covenants not to compete.

Goodwill represents the excess of cost over the market value of net tangible and
identifiable intangible assets acquired and is amortized using the straight-line
method over 40 years. The carrying value of goodwill is reviewed if facts and
circumstances suggest that it may be impaired. When this review indicates the
goodwill is not recoverable, as determined based on undiscounted cash flows over
the remaining amortization period, the Company's carrying value of the goodwill
is reduced by the estimated shortfall of discounted cash flows.

Long-term management services agreements are amortized using the straight-line
method over the lives of the initial agreements, currently 40 years. Management
service agreements represent the exclusive right to operate the Managed
Physician Groups during the terms of such agreements. In the event of a
termination of a management services agreement for cause by the Company, the
related physician group is required to purchase all clinic assets, including the
unamortized portion of related intangible assets, generally at their net book
values.

F-12
<PAGE> 90
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)

Covenants not to compete obtained from the physicians of the acquired physician
groups and the Managed Physician Groups are amortized using the straight-line
method over the lives of the agreements, which are generally five to seven
years.

Income Taxes

Deferred tax assets and liabilities are determined based on temporary
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when differences are expected to reverse. Tax benefits from loss carryforwards
are recognized for financial reporting purposes when the Company can reasonably
expect to realize the benefits of such losses.

Carrying Value of Long-Lived Assets and Long-Lived Assets to be Disposed Of

In accordance with FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of ("Statement No.
121") which the Company adopted effective January 1, 1996, the Company records
impairment losses on long-lived assets used in operations when events and
circumstances indicate that such assets might be impaired and the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
net book values. Statement No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. Except as discussed in Note 2, based
on the Company's estimate of future undiscounted cash flows, the Company expects
to recover the carrying amounts of its long-lived assets. Nonetheless, it is
reasonably possible that estimates of undiscounted cash flows may change in the
near term resulting in the need to write-down certain assets to their fair
values.

Stock Options and Stock Purchase Rights

The Company accounts for stock option and stock purchase right grants in
accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees and related Interpretations in accounting ("APB No. 25")
and, accordingly, recognizes no compensation expense in connection with its
stock option and stock purchase right grants. Information regarding pro forma
adjustments to net loss, as required by FASB Statement No. 123, Accounting for
Stock-Based Compensation ("Statement No. 123") which was adopted commencing
January 1, 1995, is included in Note 8.

Unaudited Financial Statements

The Company has made all adjustments it considers necessary for a fair
presentation of the financial position of the Company as of September 30, 1997
and the results of operations, redeemable preferred stock common stockholders'
deficit and cash flows for the nine month periods ended September 30, 1996 and
1997, as presented in the accompanying unaudited condensed consolidated
financial statements. Operating results

F-13

<PAGE> 91

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)

for the nine month period ended September 30, 1997 are not necessarily
indicative of the results that may be expected for the year 1997.

F-14
<PAGE> 92

2. MERGER AND ACQUISITIONS

During 1996, 1995, and 1994, and the nine month period ended September 30, 1997,
the Company acquired substantially all the assets and assumed certain
liabilities of each of the following primary care and multi-specialty physician
groups and merged with a physician practice management company:

<TABLE>
<CAPTION>
PURCHASE
PRICE ACQUISITION DATE
----------- -----------------
<S> <C> <C>
Adler & Associates, P. A. $1,100,000 September 1, 1994
Boca Raton Medical Group, P.A. and the individual physician practices of
Boca Raton Medical Group, P.A. 1,609,000 September 30, 1994
Family Physicians of Tampa, P.A. 615,000 April 1, 1995
PBMG, Inc. and the individual physicians of PBMG, Inc. ("PBMG") 3,636,000 April 29, 1995
Brandon Family Practice, P.A. 609,000 January 2, 1996
Doctors Walk In Clinics, Inc. 4,394,000 June 1, 1996
Riverbend Physicians and Surgeons, S.C. ("Riverbend") 2,445,000 August 1, 1996
Physician Capital Partners Corporation ("PCP") 3,292,000 December 11, 1996
East Side Physicians, P.C. ("ESP") 5,080,000 July 29, 1997
</TABLE>

Included in the purchase price of Adler & Associates, P.A. are 5.6% unsecured
notes payable totaling $1,050,000 which were paid January 15,1 995. Included in
the purchase price of Boca Raton Medical Group, P.A. are obligations to pay a
total of $1,009,000 which were satisfied on September 1996.

During 1994, the Company completed certain other acquisitions with an aggregate
purchase price of $573,000 including cash paid at closing, assumption of certain
liabilities, and issuance of a promissory note which was paid in February 1996.

The purchase price of PBMG included obligations to pay a total of $1,294,000 in
seven equal annual installments through April 2003 beginning April 1997.

Under certain conditions through January 2001, the purchase price of Brandon
Family Practice, P.A. may be increased by up to $426,000. The Company will
record additional goodwill for any such payments made.

The purchase price of Doctors Walk In Clinics, Inc. included promissory notes of
$1,220,000, a note payable of $630,000 convertible into 90,000 shares of the
Company's Class A Common Stock, and 160,000 shares of Class A Common Stock to be
delivered at specified future dates valued at $134,000.

The purchase price of Riverbend included promissory notes payable of $471,000
and 165,000 shares of Class A Common Stock to be delivered at specified future
dates valued at $136,000. In connection with this acquisition, the Company and
Riverbend entered into a long-term management services agreement.

F-15

<PAGE> 93
2. MERGER AND ACQUISITIONS (CONTINUED)

Effective December 11, 1996, the Company completed a merger (the "Merger") with
PCP, a physician practice management company. Under the related agreement, the
Company acquired all of PCP's outstanding shares of Common Stock in exchange for
891,992 shares of the Company's Class A common stock valued at $1,855,000 and
delivered on the date of the Merger and an additional 891,965 shares of Class A
Common Stock to be delivered at a specified future date valued at $1,023,000. In
connection with the Merger, the Company also entered into a long-term management
services agreement with an affiliate of PCP; Health Partners Medical Group P.A.,
a physician group with 23 primary care physician clinics. (See Note 10.)

During 1996, the Company completed certain other acquisitions with an aggregate
purchase price of $743,000, including cash paid at closing and the assumption of
certain liabilities.

The purchase price of ESP included 512,798 shares of Class A Common Stock to be
delivered at specified future dates valued at $970,116. In connection with this
acquisition, the Company and ESP entered into a long-term management services
agreement.

Each of the acquisitions and the Merger have been recorded using the purchase
method of accounting, and accordingly, the purchase price has been allocated to
the assets acquired and liabilities assumed based on their estimated fair values
as of the respective dates of acquisition. The purchase prices include cash paid
at closing, assumption of certain liabilities and the issuance of promissory
notes payable. The excess of such prices over the fair values of net tangible
and identifiable intangible assets acquired, including the values of the related
management services agreements, are classified as goodwill or management
services agreements. Operating results of the acquired businesses and the
management services agreements are included in the Company's consolidated
statements of operations from the effective dates of the acquisitions.

The values of the shares of the Company's Class A Common Stock issued and to be
issued in connection with each of the acquisitions and the Merger were
determined by management, in the absence of readily available trading market
values, using a discounted cash flow approach. These values have been
corroborated by an independent valuation of the Company's Class A common stock
as of each of the acquisition and Merger dates through December 31, 1996. The
shares to be issued at specified future dates were valued at a discount from
estimated fair values of deliverable shares after considering relevant factors,
including normal discounts for marketability due to the time delay in delivery
of the shares and estimates of the fair values of the Company's Class A Common
Stock which were issued in the relevant acquisition or Merger. The shares of
Class A Common Stock to be issued are generally deliverable on specified
transaction anniversary dates, generally over a period of three to four years.
The discounts for such shares range from 39% to 45%, with a weighted average
discount of 44% for all transactions through December 31, 1997 and were
corroborated by an independent valuation.

F-16

<PAGE> 94
2. MERGER AND ACQUISITIONS (CONTINUED)

Class A Common Stock to be issued is non-voting until issuance. Under certain
employment agreements with physician stockholders, the Company's obligation to
issue undelivered shares may be canceled to offset some or all of the liquidated
damages related to the early termination of employment as specified in such
employment agreement.

In 1996, due to recurring operating losses in certain of the Company's owned
physician practices and subsidiaries, the Company evaluated the ongoing values
of the long-lived assets held by such practices and subsidiaries to determine
the extent of impairment in the carrying values of those long-lived assets, if
any. Based on the evaluations, the Company determined the fair values of certain
assets with carrying values aggregating $884,000 were nominal and wrote such
assets (consisting primarily of goodwill previously recorded upon the
acquisition of those physician practices and subsidiaries) down to zero.
Management's determinations of fair values were based on estimated future cash
flows to be generated by those physician practices and subsidiaries, discounted
at a market rate of interest.

The Company entered into a two-year management services agreement with Primary
Management, Inc. ("Primary") in June 1997 and executed an option to purchase the
operating assets of Primary in August 1997. On December 3, 1997, the Company
issued 12,000 shares of Class C Convertible, Redeemable Preferred Stock ("Class
C Preferred Stock") to Pacific Capital, L.P. in exchange for a $3,000,000
Subordinated Note (the "Subordinated Note") made by Primary. The Class C
Preferred Stock is convertible at any time into 120,000 shares of Class A Common
Stock of the Company. The Note is subordinated to a bank Note and is
collateralized by certain real estate, personal property and accounts receivable
owned by Primary. The Subordinated Note includes warrant rights to purchase
50,000 shares of Primary's common stock which can be increased under certain
conditions. Primary is currently in default on the Subordinated Note due to
nonpayment of interest and principal.

In October and December 1997, the Company entered into notes receivable from
Primary totaling $250,000 to be used for general working capital purposes. The
note bears interest at 12% per annum and is due upon demand.

The following unaudited pro forma information for the years ended December 31,
1996 and 1995 is presented as if Doctors Walk In Clinics, Inc. and PCP had been
acquired on January 1, 1996 and 1995, respectively. The other 1996 and 1995
acquisitions did not have a significant impact on a pro forma basis. This
information does not purport to be indicative of the results that would have
actually been obtained if the acquisitions had occurred on such dates.

F-17
<PAGE> 95

2. MERGER AND ACQUISITIONS (CONTINUED)

<TABLE>
<CAPTION>
(in 000's except for per share amounts) 1996 1995
---- ----
<S> <C> <C>
Net revenues $ 54,216 $ 41,611
Net loss (7,512) (4,586)
Net loss attributable to common stockholders (8,519) (4,695)
Net loss per common share (2.07) (1.21)
</TABLE>

3. FINANCIAL INSTRUMENTS

CONCENTRATION OF CREDIT RISK

Financial instruments which potentially subject the Company to significant
concentrations of credit risk consist principally of cash equivalents and
accounts and notes receivable.

Substantially all revenue is earned in the Southeastern United States, Texas and
Illinois. The Company generally does not require collateral or other security in
extending credit to patients; however, the Company routinely obtains assignments
of (or is otherwise entitled to receive) benefits receivable under the health
insurance programs, plans or policies of patients (i.e., Medicare, Medicaid and
commercial insurance providers).

Management believes concentrations of credit risk with respect to accounts
receivable are limited due to the large number of entities comprising the
Company's revenue base. However, the Company has contracts with one third party
payor with initial terms of five years which represented approximately 31%, 39%
and 38% of net revenue during 1996, 1995 and 1994, respectively.

FAIR VALUES OF FINANCIAL INSTRUMENTS

The Company maintains cash and cash equivalents with various financial
institutions. These financial institutions are located throughout the
Southeastern United States, Texas and Illinois and the Company's policy is
designed to limit its exposure at any one institution. The Company performs
periodic evaluations of the relative credit standings of those financial
institutions that are considered in the Company's investment strategy. At
September 30, 1997 and December 31, 1996 and 1995, substantially all of the
Company's cash and cash equivalents are invested in short-term money market and
commercial paper accounts for which the carrying values approximate fair values.
At September 30, 1997 and December 31, 1996 substantially all of the Company's
cash and cash equivalents are deposited with two financial institutions.

Notes and other obligations payable to former physician owners of medical groups
and their related parties with carrying values of $3,934,000 and $1,687,000 at
December 31, 1996 and 1995, respectively, are at fixed interest rates and, as a
result of applying current interest rates for similar debt instruments, have
fair values of $2,806,000 and $1,138,000 at December 31, 1996 and 1995,
respectively. The carrying amounts for

F-18
<PAGE> 96
3. FINANCIAL INSTRUMENTS (CONTINUED)

accounts and notes receivable, accounts payable and accrued liabilities and
other notes payable approximate their fair values.

4. DEBT

On July 10, 1997, the Company entered into a $5 million subordinated note
purchase agreement (the "Note Agreement") with Welsh, Carson, Anderson, & Stowe,
VI, L.P., Sprout Capital VI, L.P. and several other shareholders of the Company.
The notes bear interest at 10% and are due with accrued interest seven years
from the note issuance dates. The Note Agreement provides that the holders of
the notes earn warrants to purchase the Company's Class A Common Stock for $.01
per share based upon the amount outstanding under the Note Agreement each month.
At September 30, 1997, $1,500,000 had been drawn under the Note Agreement and
the holders of the notes had earned warrants to purchase 6,800 shares of stock.
The fair value of the earned warrants was estimated using at Black-Scholes
option pricing model and is charged to interest expense at the time the warrants
are earned Subsequent to September 30, 1997, additional amounts totaling
$3,500,000 were drawn under the Note Agreement.

F-19
<PAGE> 97

4. DEBT (CONTINUED)

Notes and other obligations payable to former physician owners of medical groups
and their related parties consist of the following:

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
----------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Unsecured obligation payable, due annually through April 2003
commencing April 1997 $ 986,000 $ 1,294,000 $1,294,000

Notes payable, interest payable quarterly at 7%, principal due
January 1998, secured by assets acquired 1,000,000 1,000,000 --

Convertible notes payable, interest payable annually at 5.7% commencing
June 1997, convertible at the option of the noteholder into 90,000
shares of Class A common stock after July 1997, principal payable in five
annual installments commencing June 1999, secured by the assets acquired 630,000 630,000 --

Unsecured notes payable, interest payable annually at 7%, principal
payable in three equal annual installments commencing August 1999 471,000 471,000 --

Notes payable, interest payable quarterly at 7% commencing September 1996,
principal payable quarterly commencing September 1998,
secured by the assets acquired 220,000 220,000 --

8% unsecured note payable, principal and interest payable monthly
through August 2001 147,000 171,000 --
Other 150,000 148,000 393,000
----------- ----------- ----------
3,604,000 3,934,000 1,687,000
Less current portion (1,328,000) (1,328,000) (100,000)
----------- ----------- ----------
$ 2,276,000 $ 2,606,000 $1,587,000
=========== =========== ==========
</TABLE>

Other notes payable consist of the following:

SEPTEMBER 30, DECEMBER 31,
--------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>

Note payable to bank, interest at Eurodollar rate plus 0.5% (5.5%
at December 31, 1996 and 6.2% at September 30, 1997),
principal and interest due in monthly installments through
July 2000, first payment due October 15, 1997, secured by $ 4,000,000 $ 4,000,000 $ --
substantially all of the assets acquired in the Merger
Subordinated Notes payable to WCAS, IV, LP, Sprout Capital
IV, LP and other stockholders, interest at 10%, principal and
interest due in July 2004, unsecured 1,500,000 -- --
Other 199,000 173,000 53,000
----------- ----------- --------
5,699,000 4,173,000 53,000
Less current portion (1,442,000) (406,000) (53,000)
----------- ----------- --------
$ 4,257,000 $ 3,767,000 $ --
=========== =========== ========

</TABLE>

F-20
<PAGE> 98

4. DEBT (CONTINUED)

Aggregate future principal payments for all notes and other obligations payable
as of December 31, 1996 are as follows:

<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1997 $1,734,000
1998 1,686,000
1999 1,999,000
2000 1,660,000
2001 561,000
Thereafter 467,000
----------
$8,107,000
==========
</TABLE>

5. LEASES

The Company rents office space and office equipment under non-cancelable
operating leases through March 2001 and under month-to-month rental agreements.
The Company also leases computer equipment under capital leases which are
secured by the related assets. Property and equipment include the following
assets held under capital leases:

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------------- ------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Furniture, fixtures and equipment $1,620,000 $1,620,000 $1,166,000

Less accumulated amortization (609,000) (384,000) (85,000)
---------- ---------- ----------

$1,011,000 $1,236,000 $1,081,000
========== ========== ==========
</TABLE>

In May 1995, the Company entered into a non-cancelable, 70-month operating lease
commencing June 1995 for corporate office space approximating 14,000 square feet
and increasing to 18,000 square feet in June 1996. The lease agreement provides
for an initial base lease rate of $13 per square foot, increasing to $22 per
square foot over the term of the lease. The lease has one five-year renewal
option.

Effective with the purchase of the assets of PBMG, the Company entered into a
sublease arrangement with Triangle Medical Office Building, Ltd. (the
"Partnership") to lease land and medical office building space for initial
annual lease payments of $416,000. The majority of the PBMG physician employees
are limited partners in the Partnership. The Company also entered into
agreements with three of the PBMG physician employees to purchase their
partnership interests for a total of $112,000 should the physicians voluntarily
retire from the practice of medicine subsequent to April 1996. In October 1996,
the Partnership sold the building to an unrelated third party and the Company
entered into a new 150-month lease agreement with this third party for the land
and medical office space. Initial annual lease payments under the new lease are
$434,000

F-21
<PAGE> 99
5. LEASE (CONTINUED)

and are subject to adjustment based on changes in the Consumer Price Index. The
new lease is renewable for an additional 60-month period.

Future minimum lease commitments for all non-cancelable leases as of December
31, 1996 are as follows:

<TABLE>
<CAPTION>
CAPITAL LEASES OPERATING LEASES
--------------- ----------------
Year ending December 31,
<S> <C> <C>
1997 $ 486,000 $ 4,118,000
1998 409,000 4,619,000
1999 361,000 4,512,000
2000 302,000 4,184,000
2001 20,000 3,054,000
Thereafter -- 14,713,000
------------- --------------
Total minimum lease payments 1,578,000 $ 5,200,000
==============

Amount representing interest (272,000)
Present value of minimum payments under capital
lease obligations
1,306,000
Less current portion (364,000)
-------------
$ 942,000
=============
</TABLE>

Total rent expense was $466,000, $1,541,000 and $2,713,000 and sublease income
was $39,000, $112,000 and $111,000 during 1994, 1995 and 1996, respectively.

6. INCOME TAXES

A reconciliation of the provision (credit) for income taxes to the federal
statutory rate of 34% for 1996, 1995 and 1994 is:

<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax expense (benefit) $ (2,517,000) $ (1,692,000) $ (984,000)
State income taxes, net of federal benefit (206,000) (195,000) (114,000)
Other 152,000 28,000 11,000
Valuation allowance 2,571,000 1,859,000 1,087,000
------------- ------------- -----------
$ -- $ -- $ --
============= ============ ===========
</TABLE>

F-22
<PAGE> 100

6. INCOME TAXES (CONTINUED)

Significant components of the Company's deferred tax assets and liabilities are
as follows:

<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $4,938,000 $2,575,000
Asset valuation allowances 226,000 168,000
Accrued liabilities 466,000 401,000
Other 232,000 42,000
----------------------------------
Gross deferred assets 5,862,000 3,186,000
Valuation allowance (5,699,000) (3,128,000)
----------------------------------
163,000 58,000
Deferred tax liabilities:
Depreciation 145,000 58,000
Other 18,000 -
----------------------------------
$ - $ -
==================================
</TABLE>

At December 31, 1996, the Company had available net operating loss carryforwards
of approximately $12,996,000 for income tax purposes. The net operating loss
carryforwards expire beginning in 2008. Changes in ownership of the Company
could limit the future utilization of these carryforwards.

7. CAPITAL STOCK

PREFERRED STOCK

In August 1997, the Company's Board of Directors and stockholders approved for
issuance 20,000 shares of class C Preferred Stock. At September 30, 1997 no
class C Preferred Stock has been issued (see Note 2).

The holders of Class A Redeemable Preferred Stock ("Class A Preferred Stock")do
not have voting rights. The holders of Class B Convertible Redeemable Preferred
Stock ("Class B Preferred Stock") and Class C Preferred Stock are entitled to
vote the number of common shares into which their shares are convertible.

Dividends on Class A, Class B and Class C Preferred Stock are payable, when, as
and if declared by the Board of Directors. Dividends on Class B and Class C
Preferred Stock are not cumulative. As of December 31, 1996 and September 30,
1997, no dividends have been declared on Class A, Class B or Class C Preferred
Stock. The Class A Preferred Stock restricts the Company from paying dividends
or making other distributions on Class B and Class C Preferred Stock or common
stock unless full cumulative dividends on the Class A Preferred Stock through
the most recent June 30 or December 31 have been declared and paid.
Additionally, any outstanding shares of Class B and Class C Preferred Stock
restrict the Company from paying dividends or making other distributions on
common stock.

F-23

<PAGE> 101

7. CAPITAL STOCK (CONTINUED)

The Class B and Class C Preferred Stock is initially convertible, at the option
of the stockholder, into a number of shares of Class A Common Stock determined
by prescribed formulas. At September 30, 1997, the conversion ratio is 38.5
shares and 10 shares of Class A Common Stock for each share of Class B and Class
C Preferred Stock, respectively. Under certain conditions, including the
completion of an underwritten public offering of the Company's Class A Common
Stock, shares of Class B and Class C Preferred Stock will automatically convert
at the then effective conversion rate.

The Class A, Class B and Class C Preferred Stock stockholders are entitled to a
liquidation preference, in order of issuance by series, over the holders of
Common Stock equal to the original purchase price of such preferred stock plus
unpaid (only if declared in the case of Class B and Class C Preferred Stock)
dividends, if any.

In the event of certain changes of 50% or more of the voting power of the
Company or the sale of substantially all of the properties and assets of the
Company, and in any case no later than December 9, 2003, the holders of Class A,
Class B and Class C Preferred Stock are entitled to redeem their outstanding
shares at a redemption price equivalent to the liquidation preference.
Additionally, upon the completion of an underwritten public offering of the
Company's Class A Common Stock, the Company will apply 25% of the net proceeds
to the Company therefrom, or such lessor amount as will be sufficient, to redeem
the then outstanding shares of Class A Preferred Stock. The Company may at any
time, at its option, redeem the Class A Preferred Stock at the redemption price
noted above.

The Company entered into Preferred Stock purchase agreements with certain of the
holders of Class A and Class B Preferred Stock (the "Stockholders") which
obligated the Stockholders to purchase 200,000 shares of Class A Preferred Stock
at $100 per share (the "Obligation"). The Stockholders have the right of
approval for all acquisitions to be financed from the sale of Class A Preferred
Stock. The Stockholders purchased 40,000 and 135,000 shares of Class A Preferred
Stock at $100 per share pursuant to the Obligation in 1995 and 1996,
respectively. On January 9, 1997, the Stockholders purchased the remaining
25,000 shares of Class A Preferred Stock at $100 per share.

The Company has a Management Stock Purchase Plan (the "Stock Purchase Plan"),
pursuant to which the Company has issued 10,000 shares of Class B Preferred
Stock to certain members of management at a purchase price of $100 per share.
The shares issued pursuant to the Stock Purchase Plan generally vest over a
period of four years and are restricted as to transferability and sale.
Additionally, the Company has the right to repurchase vested and unvested shares
upon termination of the stockholders' employment.

In connection with the May 1996 sale of 900 shares of Class B Preferred Stock,
the Company received a note payable from an executive officer totaling $90,000.
The note is due December 31, 1998 and bears interest at 5.68%.

F-24

<PAGE> 102

7. CAPITAL STOCK (CONTINUED)

COMMON STOCK

In 1995, the Board of Directors authorized 900,000 shares of Class B Common
Stock and designated the 8,100,000 previously authorized shares of common stock
as Class A Common Stock. During 1996, the Board of Directors increased the
authorized Class A Common Stock to 15,000,000 shares. Class B Common Stock is
non-voting and is convertible into an equal number of shares of Class A Common
Stock, at the option of the holder, provided that, subsequent to such
conversion, any one stockholder does not have direct or beneficial voting
control, in the aggregate, of more than 49% of the Company's voting power at the
time of conversion or immediately after the conversion. In August 1995, the
Company reacquired and canceled 872,460 shares of Class A Common Stock in
exchange for 872,460 shares of Class B Common Stock.

All common shares have been issued at their fair values and all options and
stock purchase rights have been granted at exercise prices which equal or exceed
such fair values as determined by the Board of Directors in the absence of
readily available trading market values.

As of September 30, 1997 and December 31, 1996, the Company reserved a total of
7,818,790 shares and 9,186,148 shares, respectively, of Class A Common Stock for
future issuance upon the conversion of Preferred Stock, the exercise of stock
options and Common Stock purchase rights, the conversion of notes payable and
the delivery of shares to be issued at specified future dates in accordance with
the terms of the Merger and the acquisitions described in Note 2.

8. STOCK PLANS

The Company has stock option and stock purchase plans under which the Board of
Directors may, at its sole discretion, grant or authorize the issuance of: (i)
non-qualified and incentive stock options to acquire Class A Common Stock; (ii)
rights to purchase Class A Common Stock on a restricted basis; (iii) Class A
Common Stock on a restricted basis, subject to certain limitations, to officers,
physicians and certain other employees of the Company; and (iv) Class A Common
Stock to non-employees and directors of the Company. The purchase price of the
shares subject to incentive stock options granted is not to be less than 100% of
the fair market value of such shares at the date of grant, as determined by the
Board of Directors. The purchase price of shares subject to non-qualified stock
options and rights to purchase Class A Common Stock on a restricted basis will
be determined by the Board of Directors. Each stock plan terminates ten years
from its effective date. Options generally vest over four years and expire on
the tenth anniversary of the date of grant. Rights to purchase restricted shares
of Class A Common Stock generally vest over four years. At December 31, 1996 and
September 30, 1997, 3,989,608 shares of Class A Common Stock are authorized
under the various stock plans.

F-25

<PAGE> 103

8. STOCK PLANS (CONTINUED)

A summary of the activity in the stock plans follows:

<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE STOCK EXERCISE EXERCISE
SHARES UNDER PRICE PER PRICE PER PURCHASE PRICE PER PRICE PER
OPTION SHARE SHARE RIGHTS SHARE SHARE
------------ --------- --------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 -- --
Granted 308,200 $.01 - $.43 $ .14 245,000 $.14 $ .14
Exercised -- -- -- (245,000) $.14 $ .14
Forfeited -- -- --
--------- -------
Balance, December 31, 1994 308,200 $.01 - $.43 $ .14 --
Granted 377,186 $.43 $ .43 90,000 $.43 $ .43
Exercised (21,250) $.01 - $.43 $ .11 --
Forfeited (56,050) $.01 - $.43 $ .28 --
--------- ------
Balance, December 31, 1995 608,086 $.01 - $.43 $ .32 90,000 $.43 $ .43
Granted 802,750 $1.00 - $7.00 $4.99 --
Exercised (162,059) $.01 - $.43 $ .26 (90,000) $.43 $ .43
Forfeited (176,771) $.01-$1.00 $ .77 --
--------- -------
Balance, December 31, 1996 1,072,006 $.01-$7.00 $3.74 --
Granted 155,600 $7.00 $7.00 --
Exercised (149,744) $.01-$4.00 $4.21 --
Forfeited (75,358) $.01-$7.00 $ .42 --
------- ------
Balance, September 30, 1997 1,002,504 $.0 -$7.00 $4.75 --
========= ======
</TABLE>

The following table summarizes information concerning outstanding and
exercisable options at December 31, 1996:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------------------------------- ---------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXECISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE IN YEARS PRICE EXERCISABLE PRICE
-------- ----------- ------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ .01 - $ .43 346,356 7.97 $ .30 36,000 $ .23
$1.00 - $7.00 725,650 9.74 $5.39 3,125 $4.00
--------- -----------
1,072,006 9.17 $3.74 39,125 $ .32
========= ===========
</TABLE>

The Company has elected to follow APB No. 25 for its stock options and stock
purchase rights because, as discussed below, the alternative fair value
accounting provided for under Statement No. 123 requires the use of option
valuation models that were not developed for use in valuing employee stock
options and rights. Under APB No. 25, because the exercise price of the
Company's stock options and rights generally equals or exceeds the market price
of the underlying stock on the date of the grant, no compensation expense is
recognized.

F-26

<PAGE> 104

8. STOCK PLANS (CONTINUED)

PRO forma information regarding net income is required by Statement No. 123,
which also requires that the information be determined as if the Company has
accounted for its employee stock options and rights granted subsequent to
December 31, 1994 under the fair value method. The fair value for these options
and the rights was estimated at the date of grant using the minimum value method
with the following weighted-average assumptions for 1995 and 1996, respectively:
risk-free interest rates of 6.48% and 6.06%; no dividend yield; no volatility;
and a weighted average expected life of the options of 4.38 years and 5.05
years.

For purposes of pro forma disclosures, the estimated fair values of the options
and the rights are amortized to expense over the related vesting periods. The
Company's pro forma net loss for 1995 and 1996 was $4,998,000 and $7,387,000
respectively. The weighted-average fair value of options and rights granted in
1995 is $0.15. The weighted-average fair value of options granted in 1996 is
$0.25 for options granted with an exercise price equal to the fair values of the
underlying Common Stock, as determined by the Board of Directors, and zero for
options granted with an exercise price in excess of the fair values of the
underlying Common Stock, as determined by the Board of Directors.

Since Statement No. 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until 2000.

9. RETIREMENT PLAN

The Company has a defined contribution 401(k) plan. The plan is for the benefit
of generally all employees 21 years of age or older with at least three months
of employment and permits voluntary employee contributions and Company profit
sharing contributions. The Company has not made any such contributions to the
plan through September 30, 1997.

10. COMMITMENTS AND CONTINGENCIES

The Company maintains professional liability coverage on a claims-made basis for
its medical professional employees. Should the claims-made policies not be
renewed or replaced with equivalent insurance, claims based on occurrences
during the term of the respective policies, but asserted subsequently, would be
uninsured. Management intends to renew the existing or similar claims-made
policies annually and expects to be able to reasonably obtain such coverage. The
Company accrues the estimated cost of incurred but not reported claims.

Effective January 1, 1995, the Company adopted a deferred compensation plan
which permits eligible officers and other key employees to defer a portion of
their compensation. Contributions to the plan are held in a Rabbi Trust, which
is subject to the claims of the Company's creditors, and administered by the
Company or its designee. At December 31, 1995 and 1996, contributions by
employees to the plan aggregated $77,000 and $182,000, respectively.

F-27

<PAGE> 105

10. COMMITMENTS AND CONTINGENCIES (CONTINUED)

In connection with the Merger described in Note 2, as permitted under the Texas
Business Corporation Act (the "TBCA"), eleven former shareholders of PCP, owning
an aggregate of 2.47% of PCP's common shares, exercised dissenters' rights of
appraisal and demanded that, in lieu of receiving shares of the Company's Class
A Common Stock, the Company pay them the fair value of their PCP common shares
in cash. The Company's position is that the value ascribed by the dissenting PCP
shareholders to their shares significantly exceeds the fair value of such shares
as determined by the Company. In the event the Company and the dissenting PCP
shareholders are unable to agree on the fair value of such shares, either the
Company or the dissenting shareholders may file a petition in court asking for a
finding and determination of the fair value of the shares. Thereafter, the court
would determine which dissenting PCP shareholders have properly exercised their
dissenters' rights and appoint one or more qualified appraisers to determine
fair value. The Company believes the claims made by the dissenting PCP
shareholders are without merit and the final outcome will not have a material
impact on the Company's financial position. Negotiations with the dissenting PCP
shareholders are ongoing and any additional amounts paid to the dissenting PCP
shareholders will be treated as additional purchase price.

11. SUBSEQUENT EVENTS

On December 19, 1997, the Company executed an Agreement and Plan of Merger with
PhyCor Inc. ("PhyCor") under which PhyCor would acquire all of the capital stock
of the Company's outstanding and to be issued capital stock and certain
unexercised stock options in exchange for the issuance of shares and options as
to an aggregate of 3,500,000 shares of PhyCor Common Stock. The consummation of
the merger is subject to regulatory approvals and certain closing conditions.
The merger is expected to be accounted for as a pooling of interests.

On January 20, 1998, 872,460 shares of Class B Common Stock were converted to
872,460 shares of Class A Common Stock.

The Company entered into a revolving credit agreement with a commercial bank on
March 12, 1998 to be used for general working capital purposes. The Company may
draw amounts under the agreement totaling $1,779,000. The agreement expires on
August 31, 1998 and is guaranteed severally by WCAS VI, L.P. and Sprout Growth
II, L.P., which are stockholders of the Company. Borrowings bear interest at the
then applicable prime rate as published by the bank or LIBOR dependent on the
type of loan selected. As of March 13, 1998 there were no borrowings under the
loan agreement.

F-28

<PAGE> 106
Annex A

AGREEMENT AND PLAN OF MERGER

BY AND AMONG

PHYCOR, INC.

FALCON ACQUISITION SUB, INC.

AND

FIRST PHYSICIAN CARE, INC.

A-1
<PAGE> 107

AGREEMENT AND PLAN OF MERGER

<TABLE>
<CAPTION>
Page
----

<S> <C> <C>
SECTION 1. THE MERGER..................................................................................1
1.1. The Merger..................................................................................1
1.2. The Closing.................................................................................2
1.3. Effective Time..............................................................................2
1.4. Effect of the Merger........................................................................2

SECTION 2. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF
CERTIFICATES................................................................................2
2.1. Effect on Capital Stock.....................................................................2
2.2. Exchange of Certificates....................................................................4
2.3. Certificate of Incorporation of Surviving Corporation.......................................7
2.4. Bylaws of the Surviving Corporation.........................................................7
2.5. Directors and Officers......................................................................7
2.6. Assets, Liabilities, Reserves and Accounts..................................................7

SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY...............................................8
3.1. Organization and Existence of the Company...................................................8
3.2. Subsidiaries................................................................................8
3.3. Organization and Existence of Company Subsidiaries..........................................8
3.4. Foreign Qualifications......................................................................8
3.5. Affiliated Physician Groups.................................................................9
3.6. Capitalization..............................................................................9
3.7. Power and Authority; Non-Contravention......................................................9
3.8. Financial Statements........................................................................10
3.9. Contracts, etc..............................................................................11
3.10. Properties and Assets.......................................................................11
3.11. Legal Proceedings...........................................................................12
3.12. Subsequent Events...........................................................................12
3.13. Accounts Receivable.........................................................................13
3.14. Tax Returns.................................................................................13
3.15. Employee Benefit Plans; Employment Matters..................................................14
3.16. Compliance with Laws........................................................................17
3.17. Insurance; Malpractice......................................................................17
3.18. Environmental Matters.......................................................................17
3.19. Regulatory Approvals........................................................................18
3.20. Brokers.....................................................................................19
3.21. Vote Required...............................................................................19
3.22. Pooling Matters.............................................................................19
3.23. Company's Disclosure........................................................................19
</TABLE>

A-2
<PAGE> 108

<TABLE>
<S> <C> <C>
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE SUBSIDIARY RELATED TO THE SUBSIDIARY...19
4.1. Organization, Existence and Capitalization of the Subsidiary................................19
4.2. Power and Authority; Non-Contravention......................................................20
4.3. Brokers.....................................................................................20
4.4. No Subsidiaries.............................................................................20
4.5. Legal Proceedings...........................................................................20
4.6. No Contracts or Liabilities.................................................................20
4.7. The Subsidiary's Disclosure.................................................................20

SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE PARENT................................................21
5.1. Organization and Existence of the Parent....................................................21
5.2. Subsidiaries................................................................................21
5.3. Organization and Existence of Parent Subsidiaries...........................................21
5.4. Foreign Qualifications......................................................................22
5.5. Capitalization..............................................................................22
5.6. Parent Common Stock.........................................................................22
5.7. Power and Authority; Non-Contravention......................................................22
5.8. Parent Public Information...................................................................23
5.9. Contracts, etc..............................................................................23
5.10. Legal Proceedings...........................................................................24
5.11. Subsequent Events...........................................................................24
5.12. Tax Returns.................................................................................25
5.13. Compliance with Laws........................................................................25
5.14. Regulatory Approvals........................................................................25
5.15. Investment Intent...........................................................................26
5.16. Brokers.....................................................................................26
5.17. Pooling Matters.............................................................................26
5.18. The Parent's Disclosure.....................................................................26

SECTION 6. ACCESS TO INFORMATION AND DOCUMENTS.........................................................27
6.1. Access to Information.......................................................................27
6.2. Return of Records...........................................................................27

SECTION 7. COVENANTS...................................................................................27
7.1. Preservation of Business....................................................................27
7.2. Material Transactions.......................................................................27
7.3. Meeting of Shareholders.....................................................................28
7.4. Registration Statement......................................................................29
7.5. Exemption from State Takeover Laws..........................................................30
7.6. HSR Act Compliance..........................................................................30
7.7. Public Disclosures..........................................................................30
7.8. No Solicitations............................................................................31
7.9. Other Actions...............................................................................31
7.10. Accounting Methods..........................................................................31
7.11. Pooling and Tax-Free Reorganization Treatment...............................................31
7.12. Affiliate and Pooling Agreements............................................................32
</TABLE>

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<TABLE>
<S> <C> <C>
7.13. Cooperation.................................................................................32
7.14. Publication of Combined Results.............................................................32
7.15. Tax Opinion Certificates....................................................................32
7.16. Consents, Amendments, etc...................................................................33
7.17. Compensation Plans..........................................................................33
7.18. Insurance, Indemnification, Benefits........................................................33
7.19. Resignation of Company Directors............................................................34
7.20. Assignment of Certain Rights................................................................34
7.21. Notice of Subsequent Events.................................................................34
7.22. Conduct of Business by the Parent Pending the Merger........................................35
7.23. Tax Covenants Following the Effective Time..................................................35

SECTION 8. TERMINATION, AMENDMENT AND WAIVER...........................................................35
8.1. Termination.................................................................................35
8.2. Effect of Termination.......................................................................37
8.3. Amendment...................................................................................37
8.4. Extension; Waiver...........................................................................38
8.5. Procedure for Termination, Amendment, Extension or Waiver...................................38
8.6. Expenses; Break-up Fees.....................................................................38

SECTION 9. CONDITIONS TO CLOSING.......................................................................39
9.1. Mutual Conditions...........................................................................39
9.2. Conditions to Obligations of the Parent.....................................................40
9.3. Conditions to Obligations of the Company....................................................40

SECTION 10. MISCELLANEOUS...............................................................................41
10.1. Nonsurvival of Representations and Warranties...............................................41
10.2. Notices.....................................................................................41
10.3. Further Assurances..........................................................................42
10.4. Governing Law...............................................................................42
10.5. "Knowledge".................................................................................43
10.6. "Material adverse change" or "material adverse effect.".....................................43
10.7. "Hazardous Materials."......................................................................43
10.8. "Environmental Laws.".......................................................................43
10.9. Captions....................................................................................43
10.10. Entire Agreement............................................................................43
10.11. Counterparts................................................................................43
10.12. Binding Effect..............................................................................44
10.13. No Rule of Construction.....................................................................44
</TABLE>

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AGREEMENT AND PLAN OF MERGER

AGREEMENT AND PLAN OF MERGER, dated as of December 19, 1997 (the
"Agreement"), among PHYCOR, INC., a Tennessee corporation (the "Parent"), FALCON
ACQUISITION SUB, INC., a Delaware corporation (the "Subsidiary"), and FIRST
PHYSICIAN CARE, INC., a Delaware corporation (the "Company").

WHEREAS, the Boards of Directors of the Parent, the Company and the
Subsidiary have approved the merger of the Subsidiary with and into the Company
(the "Merger"), upon the terms and conditions set forth in this Agreement,
whereby each share of Class A Common Stock, par value $.001 per share, of the
Company (the "Company Class A Common Stock"), each share of Class B Common
Stock, par value $.001 per share, of the Company (the "Company Class B Common
Stock" and together with the Company Class A Common Stock, the "Company Common
Stock"), each share of Class A Preferred Stock, par value $1.00 per share, of
the Company (the "Company Class A Preferred Stock"), each share of Class B
Convertible Preferred Stock, par value $1.00 per share, of the Company (the
"Company Class B Preferred Stock") and each share of Class C Convertible
Preferred Stock, par value $1.00 per share, of the Company (the "Company Class C
Preferred Stock" and together with the Company Class A Preferred Stock and the
Company Class B Preferred Stock, the "Company Preferred Stock"), not owned
directly or indirectly by the Company, the Parent, or by any subsidiary of the
Company or the Parent, will be converted into the right to receive the merger
consideration provided for herein (the Company Common Stock and Company
Preferred Stock may be sometimes hereinafter referred to as the "Company Capital
Stock" or the "Company Shares");

WHEREAS, each of the Parent, the Subsidiary and the Company desire to
make certain representations, warranties, covenants and agreements in connection
with the Merger and also to prescribe various conditions to the Merger;

WHEREAS, for federal income tax purposes, it is intended that the
Merger (as defined herein) shall qualify as a reorganization under the
provisions of Section 368 of the Internal Revenue Code of 1986, as amended (the
"Code"); and

WHEREAS, for accounting purposes, it is intended that the Merger shall
be accounted for as a "pooling of interests."

NOW, THEREFORE, in consideration of the premises, and the mutual
covenants and agreements contained herein, the parties hereto do hereby agree as
follows:

SECTION 1. THE MERGER

1.1. The Merger. Upon the terms and subject to the conditions set forth
in this Agreement, and in accordance with the General Corporation Law of the
State of Delaware (the "DGCL"), the Subsidiary shall be merged with and into the
Company at the Effective Time (as defined in Section 1.3). Following the
Effective Time, the separate corporate existence of the Subsidiary shall cease
and the Company shall continue as the surviving corporation (the "Surviving
Corporation") as a business corporation incorporated under the laws of the State
of

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Delaware under the name "First Physician Care, Inc." and shall succeed to and
assume all the rights and obligations of the Subsidiary in accordance with the
DGCL.

1.2. The Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m. local time on a date to be specified by the parties (the
"Closing Date"), which shall be no later than the second business day after the
satisfaction or waiver of the conditions set forth in Sections 9.1, 9.2 and 9.3,
at the offices of Waller Lansden Dortch & Davis, A Professional Limited
Liability Company, Nashville, Tennessee, unless another date or place is agreed
to in writing by the parties hereto.

1.3. Effective Time. Subject to the provisions of this Agreement, the
Company and the Subsidiary shall file a Certificate of Merger (the "Certificate
of Merger") executed in accordance with the relevant provisions of the DGCL and
shall make all other filings or recordings required under the DGCL to effect the
Merger as soon as practicable on or after the Closing Date. The Merger shall
become effective at such time as the Certificate of Merger is duly filed with
the Secretary of State of the State of Delaware, or at such other time as the
Parent, the Subsidiary and the Company shall agree should be specified in the
Certificate of Merger (the "Effective Time").

1.4. Effect of the Merger. The Merger shall have the effects set forth
in the DGCL. Without limiting the generality of the foregoing, and subject
thereto and to any other applicable laws, at the Effective Time, all the
properties, rights, privileges, powers and franchises of the Company and the
Subsidiary shall vest in the Surviving Corporation, and all debts, liabilities,
restrictions, disabilities and duties of the Company and the Subsidiary shall
become the debts, liabilities, restrictions, disabilities and duties of the
Surviving Corporation.

SECTION 2. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES

2.1. Effect on Capital Stock. As of the Effective Time, by virtue of
the Merger and without any action on the part of any holder of the Company
Shares:

(a) Subsidiary Common Stock. Each share of Common Stock, par
value $.01 per share, of the Subsidiary issued and outstanding
immediately prior to the Effective Time shall be converted into one
share of Common Stock, par value $.01 per share, of the Surviving
Corporation.

(b) Cancellation of Certain Shares of Company Capital Stock.
Each share of Company Capital Stock that is owned by the Company, the
Parent or by any subsidiary of the Company or the Parent (other than
such shares owned by the Subsidiary pursuant to the conversion
described in Section 2.1(a) hereof) shall automatically be canceled and
retired and shall cease to exist, and none of the Common Stock, no par
value, of the Parent (the "Parent Common Stock"), cash or other
consideration shall be delivered in exchange therefor.

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(c) Conversion of the Company Shares. As of the Effective
Time, each share of Company Common Stock (other than the shares to be
canceled in accordance with Section 2.1(b)) outstanding as of the
Effective Time (including shares issuable as a result of the exercise
of stock options that become vested in accordance with their terms as
of the Effective Time) shall be converted into the right to receive
.2474 shares of Parent Common Stock (the "Common Stock Exchange
Ratio"); each share of Company Class A Preferred Stock (other than any
shares to be canceled in accordance with Section 2.1(b)) issued and
outstanding immediately prior to the Effective Time shall be converted
into the right to receive 4.6070 shares of Parent Common Stock (the
"Class A Preferred Exchange Ratio"); each share of Company Class B
Preferred Stock (other than any shares to be canceled in accordance
with Section 2.1(b)) issued and outstanding immediately prior to the
Effective Time shall be converted into the right to receive 9.5270
shares of Parent Common Stock (the "Class B Preferred Exchange Ratio");
and each share of Company Class C Preferred Stock (other than any
shares to be canceled in accordance with Section 2.1(b)) issued and
outstanding immediately prior to the Effective Time shall be converted
into the right to receive 2.4743 shares of Parent Common Stock (the
"Class C Preferred Exchange Ratio" and, together with the Common Stock
Exchange Ratio, the Class A Preferred Exchange Ratio and the Class B
Preferred Exchange Ratio, the "Exchange Ratios"). All such shares of
Parent Common Stock (including the corresponding rights associated
therewith issued pursuant to the terms of the Rights Agreement dated as
of February18, 1994 between Parent and First Union National Bank of
North Carolina) shall be fully paid and nonassessable and are
hereinafter sometimes referred to as the "Parent Shares." Upon such
conversion, all such Company Shares shall be canceled and cease to
exist, and each holder thereof shall cease to have any rights with
respect thereto other than the right to receive the Parent Shares
issued in exchange therefor and cash in lieu of fractional Parent
Shares in accordance with the terms provided herein. The Exchange
Ratios set forth in this Section 2.1 (c) assume the exercise as of or
prior to the Effective Time of all of the Exercisable Options (as
defined below), options to purchase 121,928 shares of Company Common
Stock, which options will not be vested as of the Effective Time and
for which it is expected that the exercise price per share multiplied
by the Common Stock Exchange Ratio will be less than the value of
Parent Common Stock per share as of the Effective Time and warrants to
purchase 41,869 shares of Company Common Stock.

(d) Stock Options. With respect to each unexpired and
unexercised option to purchase Company Common Stock ("Company
Options"), as listed on Schedule 2.1(d) to the Disclosure Schedule
delivered to the Parent by the Company at the time of the execution and
delivery of this Agreement (as so delivered and as thereafter amended
or supplemented pursuant to Section 7.25, the "Company Disclosure
Schedule"), the Company shall use its reasonable efforts to cause
holders of Company Options that will be vested as of the Effective
Time, for which it is expected that the exercise price per share
multiplied by the Common Stock Exchange Ratio will be less than the
value of Parent Common Stock per share at the Effective Time, to
exercise such Company Options (the "Exercisable Options") as of or
prior to the Effective Time. At the Effective Time, all rights with
respect to Company Common Stock pursuant to any Company Options which
are outstanding at the Effective Time, whether or not then vested or

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exercisable, shall be converted into and become rights with respect to
Parent Common Stock, and Parent shall assume each Company Option in
accordance with the terms of any stock option plan under which it was
issued and any stock option agreement by which it is evidenced or, at
the election of Parent, provide options under Parent's stock option
plans in substitution thereof in a manner that will result in a
transaction to which Section 424 of the Code applies. Each Company
Option so assumed or substituted therefor shall be exercisable for that
number of shares of Parent Common Stock equal to the number of shares
of Company Common Stock subject thereto multiplied by the Common Stock
Exchange Ratio, and shall have an exercise price per share equal to
such Company Option's exercise price divided by the Common Stock
Exchange Ratio. It is intended that the foregoing provision shall be
undertaken in a manner that will not constitute a "modification" as
defined in Section 424(h) of the Code as to any Company Option which is
an "incentive stock option."

(e) Adjustment of Exchange Ratios. If after the date hereof
and prior to the Effective Time the Parent shall have declared a stock
split (including a reverse split) of Parent Common Stock or a dividend
payable in Parent Common Stock or any other distribution of securities
or dividend (in cash or otherwise but excluding regularly declared cash
dividends) to holders of Parent Common Stock with respect to their
Parent Common Stock (including without limitation such a distribution
or dividend made in connection with a recapitalization,
reclassification, merger, consolidation, reorganization or similar
transaction) then the Exchange Ratios shall be appropriately adjusted
to reflect such stock split, dividend or other distribution of
securities.

2.2. Exchange of Certificates.

(a) Exchange Agent. As soon as practicable after the date
hereof, but in any event prior to two business days in advance of the
date the Company provides notice to its stockholders of the Shareholder
Meeting (as defined in Section 7.3 hereof), the Parent and the Company
shall enter into an agreement with First Union National Bank of North
Carolina (the "Exchange Agent"), which provides that the Parent shall
deposit with the Exchange Agent, for the benefit of the holders of the
Company Shares, for exchange in accordance with this Section 2.2 and
the Certificate of Merger, through the Exchange Agent, (i) as soon as
practicable (but in any event within five business days) after such
agreement has been entered into, certificates representing the shares
of the Parent Common Stock issuable pursuant to Section 2.1 and (ii) at
least two business days prior to the Effective Time, cash in an amount
equal to the aggregate amount required to be paid in lieu of fractional
interests of Parent Common Stock pursuant to Section 2.2(e) (such
shares of the Parent Common Stock, together with any dividends or
distributions with respect thereto with a record date after the
Effective Time, and together with the cash referred to in clause (ii)
of this Section 2.2(a), being hereinafter referred to as the "Exchange
Fund") in exchange for outstanding Company Shares. The Parent agrees to
use its best efforts to cause the Exchange Agent to comply with the
terms of this Section 2.2.

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(b) Exchange Procedures. As soon as practicable after the
execution of the agreement between the Parent, the Company and the
Exchange Agent, the Company will deliver to the Parent and the Exchange
Agent a list of each person who the Company believes will be a holder
of record of a certificate or certificates which immediately prior to
the Effective Time would represent outstanding Company Shares (the
"Certificates") along with the number of Company Shares expected to be
held by such holder, and the Parent will deliver to the Company for
inclusion in the notice of the Shareholder Meeting sufficient copies of
(i) a letter of transmittal, in such form reasonably satisfactory to
the Company, the Parent and the Exchange Agent, which shall (A) specify
that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent and (B) permit holders of Certificates to tender such
Certificates to the Exchange Agent in advance of the Effective Time but
conditioned on consummation of the Merger and (ii) instructions for use
by holders of Certificates in effecting the surrender of the
Certificates in exchange for certificates representing shares of Parent
Common Stock. The Company shall deliver a copy of such letter and
instructions to each such expected holder of record of the
Certificates. Upon surrender of a Certificate for cancellation to the
Exchange Agent or to such other agent or agents as may be appointed by
the Parent, together with such letter of transmittal, duly executed,
and such other documents as may reasonably be required by the Exchange
Agent, the Exchange Agent shall promptly prepare a certificate
representing that number of whole shares of Parent Common Stock which
such holder has the right to receive (assuming the consummation of the
Merger) pursuant to the provisions of Sections 2.1 and 2.2. The former
holder of such Certificate so surrendered shall be entitled to receive,
upon the earlier of (i) the Effective Time or, (ii) if such surrender
occurs not earlier than ten (10) business days prior to the Effective
Time, as soon as reasonably practicable but in all events within ten
(10) business days after such surrender, in exchange therefor a
certificate representing that number of whole shares of Parent Common
Stock and cash which such holder has the right to receive pursuant to
the provisions of Sections 2.1 and 2.2, and the Certificate so
surrendered shall forthwith be canceled. If any cash or any certificate
representing the Parent Shares is to be paid to or issued in a name
other than that in which the Certificate surrendered in exchange
therefor is registered, a certificate representing the proper number of
shares of the Parent Common Stock may be issued to a person other than
the person in whose name the Certificate so surrendered is registered,
if such Certificate shall be properly endorsed or otherwise be in
proper form for transfer and the person requesting such payment shall
pay to the Exchange Agent any transfer or other taxes required by
reason of the issuance of shares of the Parent Common Stock to a person
other than the registered holder of such Certificate or establish to
the satisfaction of the Exchange Agent that such tax has been paid or
is not applicable. Until surrendered as contemplated by this Section
2.2, each Certificate shall be deemed at any time after the Effective
Time to represent only the right to receive upon such surrender the
certificate representing shares of the Parent Common Stock and cash in
lieu of any fractional shares of the Parent Common Stock as
contemplated by this Section 2.2. No interest will be paid or will
accrue on any cash payable in lieu of any fractional shares of the
Parent Common Stock. To the extent permitted by law, former
shareholders of record of the Company shall be entitled to vote after
the Effective Time at any meeting of the Parent's shareholders the
number of whole shares of Parent Common Stock into which their

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respective Company Shares are converted, regardless of whether such
holders have exchanged their Certificates for certificates representing
Parent Common Stock in accordance with this Section 2.2.

(c) Distribution with Respect to Unexchanged Shares. No
dividends or other distributions with respect to Parent Common Stock
with a record date after the Effective Time shall be paid to the holder
of any unsurrendered Certificate with respect to the shares of Parent
Common Stock represented thereby and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to Section
2.2(e) until the surrender of such Certificate in accordance with this
Section 2.2. Subject to the effect of applicable laws, following
surrender of any such Certificate, there shall be paid to the holder of
the certificates representing whole shares of Parent Common Stock
issued in exchange therefor, without interest, (i) at the time of such
surrender, the amount of any cash payable in lieu of a fractional share
of Parent Common Stock to which such holder is entitled pursuant to
Section 2.2(e) and the amount of dividends or other distributions with
a record date after the Effective Time theretofore paid with respect to
such whole shares of Parent Common Stock, and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to such surrender and
with a payment date subsequent to such surrender payable with respect
to such whole shares of Parent Common Stock. If any holder of converted
Company Shares shall be unable to surrender such holder's Certificates
because such Certificates shall have been lost or destroyed, such
holder may deliver in lieu thereof an affidavit and indemnity bond in
form and substance and with surety reasonably satisfactory to the
Parent.

(d) No Further Ownership Rights in Company Shares. All shares
of Parent Common Stock issued upon the surrender for exchange of
Certificates in accordance with the terms of this Section 2 (including
any cash paid pursuant to Section 2.2(c) or 2.2(e)) shall be deemed to
have been issued (and paid) in full satisfaction of all rights
pertaining to the Company Shares theretofore represented by such
Certificates. If, after the Effective Time, Certificates are presented
to the Surviving Corporation or the Exchange Agent for any reason, they
shall be canceled and exchanged as provided in this Section 2, except
as otherwise provided by law.

(e) No Fractional Shares. No certificates representing
fractional shares of Parent Common Stock shall be issued upon the
surrender for exchange of Certificates, and such fractional share
interests will not entitle the owner thereof to vote or to any rights
of a shareholder of the Parent. Notwithstanding any other provision of
this Agreement, each holder of Company Shares exchanged pursuant to the
Merger who would otherwise have been entitled to receive a fraction of
a share of Parent Common Stock (after taking into account all
Certificates delivered by such holder) shall receive, in lieu thereof,
cash (without interest) in an amount equal to such fractional part of a
share of Parent Common Stock multiplied by the per share closing price
on the Nasdaq Stock Market (or such other exchange on which the Parent
Common Stock is then listed) of Parent Common Stock on the date of the
Effective Time (or, if shares of the Parent Common Stock do not trade
on the Nasdaq Stock Market (or such other exchange) on

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such date, the first date of trading of the Parent Common Stock on the
Nasdaq Stock Market (or such other exchange) after the Effective Time).

(f) Termination of Exchange Fund. Any portion of the Exchange
Fund which remains undistributed to the holders of the Certificates for
six months after the Effective Time shall be delivered to the Parent,
upon demand, and any holders of the Certificates who have not
theretofore complied with this Section 2 shall thereafter look only to
the Parent for payment of Parent Common Stock, any cash in lieu of
fractional shares of Parent Common Stock and any dividends or
distributions with respect to the Parent Common Stock.

(g) No Liability. None of the Parent, the Subsidiary, the
Company or the Exchange Agent shall be liable to any person in respect
to any shares of Parent Common Stock (or dividends or distributions
with respect thereto) or cash from the Exchange Fund delivered to a
public official pursuant to any applicable abandoned property, escheat
or similar law. If any Certificates shall not have been surrendered
prior to the end of the applicable period after the Effective Time
under escheat laws (or immediately prior to such earlier date on which
any shares of Parent Common Stock, any cash in lieu of fractional
shares of Parent Common Stock or any dividends or distributions with
respect to Parent Common Stock in respect of such Certificates would
otherwise escheat to or become the property of any governmental
entity), any such shares, cash, dividends or distributions in respect
of such Certificates shall, to the extent permitted by applicable law,
become the property of the Surviving Corporation, free and clear of all
claims or interest of any person previously entitled thereto.

(h) Investment of Exchange Fund. The Exchange Agent shall
invest any cash included in the Exchange Fund, as directed by the
Parent, on a daily basis. Any interest and other income resulting from
such investments shall be paid to the Parent.

2.3. Certificate of Incorporation of Surviving Corporation. The
Certificate of Incorporation of the Subsidiary, effective immediately following
the Effective Time, shall be the Certificate of Incorporation of the Surviving
Corporation from and after the Effective Time and until thereafter amended as
provided by law.

2.4. Bylaws of the Surviving Corporation. The Bylaws of the Subsidiary
shall be the Bylaws of the Surviving Corporation from and after the Effective
Time and until thereafter altered, amended or repealed in accordance with the
DGCL, the Certificate of Incorporation of the Surviving Corporation and the
Bylaws.

2.5. Directors and Officers. The directors and officers of the
Subsidiary immediately prior to the Effective Time shall be the directors and
officers of the Surviving Corporation, each to hold office in accordance with
the Certificate of Incorporation and Bylaws of the Surviving Corporation.

2.6. Assets, Liabilities, Reserves and Accounts. At the Effective Time,
the assets, liabilities, reserves and accounts of each of the Subsidiary and the
Company shall be taken up on

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the books of the Surviving Corporation at the amounts at which they respectively
shall be carried on the books of said corporations immediately prior to the
Effective Time, except as otherwise set forth in this Agreement and subject to
such adjustments, or elimination of intercompany items, as may be appropriate in
giving effect to the Merger in accordance with generally accepted accounting
principles.

SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company hereby represents and warrants to the Parent and the
Subsidiary as follows:

3.1. Organization and Existence of the Company. The Company is a
corporation duly organized and validly existing under the laws of the State of
Delaware. The Company has all necessary corporate power and authority to own or
lease its properties and assets and to carry on its business as presently
conducted. The Company is not, and has not been within the two years immediately
preceding the date of this Agreement, a subsidiary or division of another
corporation, nor has the Company within such time owned, directly or indirectly,
any shares of the Parent Common Stock.

3.2. Subsidiaries. Attached as Schedule 3.2 to the Company Disclosure
Schedule is a list of all corporations, partnerships, joint ventures or other
business associations or entities in which the Company owns any interest (such
corporations, partnerships, joint ventures or other business entities of which
the Company owns, directly or indirectly, greater than fifty percent of the
shares of capital stock or other equity interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
cast at least a majority of the votes that may be cast by all shares or equity
interest having ordinary voting power for the election of directors or other
governing body of such entity are hereinafter referred to as the "Company
Subsidiaries").

3.3. Organization and Existence of Company Subsidiaries. Each Company
Subsidiary is duly organized and validly existing under the laws of its state of
organization, except where the failure to be so organized or validly existing
would not have a material adverse effect on the Company. Each Company Subsidiary
has all necessary power to own or lease its properties and assets and to carry
on its business as presently conducted, except where the failure to have such
power would not have a material adverse effect on the Company. All of the
outstanding shares of capital stock of, or other ownership interests in, each of
the Company Subsidiaries owned by the Company or a Company Subsidiary are owned
by the Company or by a Company Subsidiary free and clear of any liens, claims,
charges or encumbrances. There are not any voting trust, standstill or
stockholder agreements or understandings to which the Company or any Company
Subsidiary is a party or is bound with respect to the voting of the capital
stock of any of the Company Subsidiaries.

3.4. Foreign Qualifications. The Company and each Company Subsidiary
that is not a general partnership is qualified to do business as a foreign
corporation or foreign limited partnership or other entity, as the case may be,
and is validly existing in each jurisdiction where the nature or character of
the property owned, leased or operated by it or the nature of the business
transacted by it makes such qualification necessary, except where the failure to
be so

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qualified would not have a material adverse effect on the Company. Schedule 3.4
to the Company Disclosure Schedule sets forth each jurisdiction in which each
Company Subsidiary is qualified to do business.

3.5. Affiliated Physician Groups. Schedule 3.5 to the Company
Disclosure Schedule sets forth each physician group or entity with which the
Company or any of the Company Subsidiaries is affiliated, either through a
management or service agreement or other arrangement (the "Company Affiliated
Physician Groups"). To the best of the Company's knowledge, the Company
Disclosure Schedule also sets forth the number of physicians and other providers
employed or affiliated with each such Company Affiliated Physician Group as of
December 17, 1997. The Company has made available to the Parent true and correct
copies of the material documents by which each Company Affiliated Physician
Group became affiliated with the Company or one of the Company Subsidiaries.

3.6. Capitalization. The Company's authorized capital stock consists of
(i) 200,000 shares of Class A Preferred Stock, $1.00 par value, all of which are
issued and outstanding, (ii) 110,000 shares of Class B Convertible Preferred
Stock, $1.00 par value, all of which are issued and outstanding, (iii) 20,000
shares of Class C Convertible Preferred Stock, $1.00 par value, 12,000 shares of
which are issued and outstanding, (iv) 15,000,000 shares of Company Class A
Common Stock, $.001 par value, of which, as of November 30, 1997, 3,169,013
shares were issued and outstanding, (v) 900,000 shares of Company Class B Common
Stock, of which, as of November 30, 1997, 872,460 shares were issued and
outstanding. All of the issued and outstanding Company Shares have been duly and
validly issued and are fully paid and nonassessable. Except as disclosed in the
Financial Statements (as hereinafter defined), or described in Schedule 3.6 to
the Company Disclosure Schedule, there are no options, warrants or similar
rights granted by the Company or any other agreements to which the Company is a
party providing for the issuance or sale by it of any additional securities.
There is no liability for dividends declared or accumulated but unpaid with
respect to any shares of the Company Common Stock. Except as disclosed on
Schedule 3.6 to the Company Disclosure Schedule, there are no obligations,
contingent or otherwise, of the Company or any Company Subsidiary to repurchase,
redeem or otherwise acquire any shares of Company Capital Stock or the capital
stock of or other equity interest in any Company Subsidiary.

3.7. Power and Authority; Non-Contravention.

(a) Subject to the satisfaction of the conditions precedent
set forth herein, the Company has all necessary corporate power and
authority to execute, deliver and perform this Agreement and all
agreements and other documents executed and delivered or to be executed
and delivered by it pursuant to this Agreement, and, subject to the
satisfaction of the conditions precedent set forth herein, has taken
all action required by its Certificate of Incorporation, Bylaws or
otherwise, to authorize the execution, delivery and performance of this
Agreement and such related documents. The Agreement has been duly and
validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery by the Parent and the Subsidiary,
constitutes the legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms.

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(b) Except as set forth in Schedule 3.7(b) to the Company
Disclosure Schedule, the execution and delivery of this Agreement by
the Company does not and, subject to the receipt of required
shareholder and regulatory approvals and any other required third-party
consents or approvals, the consummation of the Merger will not, violate
any provisions of the Certificate of Incorporation or Bylaws of the
Company or any provisions of, or result in the acceleration of any
obligation under, any mortgage, lien, lease, agreement, instrument,
order, arbitration award, judgment or decree, to which the Company or
any Company Subsidiary is a party, or by which any of them is bound,
which, if violated or accelerated would have a material adverse effect
on the Company.

3.8. Financial Statements. The Company has furnished to the Parent (i)
the Company's consolidated audited financial statements for each of the years
ended December 31, 1994, 1995 and 1996, consisting of a balance sheet, the
related statement of operations, cash flows and stockholders' equity, together
with a report thereon by Ernst & Young LLP (the "Company Audited Financial
Statements") and (ii) the Company's unaudited financial statements for the
ten-month period ended October 31, 1997, consisting of a balance sheet and the
related statement of operation, cash flows and stockholders' equity (the
"Company Unaudited Financial Statements" and, together with the Audited
Financial Statements, the "Financial Statements"). Except as set forth in
Schedule 3.8 to the Company Disclosure Schedule, and, with respect to the
Company Unaudited Financial Statements, except for the omission of footnotes,
preparation in summary or condensed form and the effect of normal, recurring
year-end adjustments, the Financial Statements have been prepared in accordance
with generally accepted accounting principles, consistently applied, and the
Financial Statements (i) are true, complete and correct in all material respects
as of the respective dates and for the respective periods above stated and (ii)
fairly present the financial position of Company at such dates and the results
of its operations for the periods ended on such dates. Except as set forth in
Schedule 3.8 to the Company Disclosure Schedule, the Financial Statements
reflect all of the liabilities and obligations of the Company that are required
to be reflected or disclosed therein in accordance with generally accepted
accounting principles, consistently applied. For purposes of this Agreement, the
balance sheet of the Company included in the Company Unaudited Financial
Statements is referred to as the "Company Balance Sheet."

3.9. Contracts, etc.

(a) To the knowledge of the Company, all material contracts,
leases, agreements and arrangements to which the Company or any of the
Company Subsidiaries is a party (collectively, the "Company Material
Contracts") are legally valid and binding in accordance with their
terms and in full force and effect. The Company has not taken any
action or permitted any circumstance to exist that has caused any
Company Material Contract to cease being legally valid and binding in
accordance with its terms and in full force and effect. Except as
disclosed in Schedule 3.9 or 3.11 to the Company Disclosure Schedule,
to the knowledge of the Company, all parties to the Company Material
Contracts have complied with the provisions of such contracts, and to
the knowledge of the Company, no party is in default thereunder, and no
event has occurred which, but for the passage of time or the giving of
notice or both, would constitute a default thereunder,

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except, in each case, where the noncompliance with or invalidity of the
Company Material Contracts or the default or breach thereunder or
thereof would not, individually or in the aggregate, have a material
adverse effect on the Company, and the Company has not received any
notice of termination or cancellation or a request to renegotiate any
of the Company Material Contracts.

(b) Except as set forth in Schedule 3.9(b) to the Company
Disclosure Schedule, no Company Material Contract will, by its terms,
terminate as a result of the transactions contemplated hereby or
require any consent from any obligor thereto in order to remain in full
force and effect immediately after the Effective Time.

(c) Except as set forth in Schedule 3.9(c) to the Company
Disclosure Schedule, none of the Company or any Company Subsidiary has
granted any right of first refusal or similar right in favor of any
third party with respect to any material portion of its properties or
assets (excluding liens described in Section 3.10).

(d) Schedule 3.9(d) to the Company Disclosure Schedule sets
forth each agreement that either the Company or a Company Subsidiary is
a party to or bound by that requires expenditures or provides for
receipts of more than $250,000 in any calendar year.

(e) Except as set forth on Schedule 3.9(e) to the Company
Disclosure Schedule, neither the Company nor any Company Subsidiary is
a party to any agreement or contract that limits the rights of the
Company or any of its affiliates to engage in any business or to
compete with any person.

3.10. Properties and Assets. The Company (including, as applicable, the
Company Subsidiaries) owns and has good and marketable title to all of the real
property and personal property included in the Company Balance Sheet (except
assets recorded under capital lease obligations and such property as has been
disposed of during the ordinary course of the Company's business since the date
of the Company Balance Sheet), free and clear of any liens, claims, charges,
exceptions or encumbrances, except for those (i) if any, which in the aggregate
are not material and which do not materially affect continued use of such
property or (ii) which are set forth in Schedule 3.10 to the Company Disclosure
Schedule.

3.11. Legal Proceedings. Except as listed in Schedule 3.11 to the
Company Disclosure Schedule, there are no actions, injunctions, orders,
arbitrations, suits, proceedings, or, to the knowledge of the Company,
governmental investigations or inquiries pending against the Company on any
Company Subsidiary or, to the knowledge of the Company, threatened against the
Company or any Company Subsidiary or pending or threatened against any Company
Affiliated Physician Group, at law or in equity, before any court, arbitration
tribunal or governmental agency, relating to or affecting the Company, any
Company Subsidiary or any Company Affiliated Physician Group.

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3.12. Subsequent Events. Except as set forth in Schedule 3.12 to the
Company Disclosure Schedule, the Company (including the Company Subsidiaries)
has not, since the date of the Company Balance Sheet:

(a) Suffered any material adverse effect.

(b) Incurred, discharged or satisfied any material lien or
encumbrance, or paid or satisfied any material obligation or liability
(absolute, accrued, contingent or otherwise), which discharge or
satisfaction would have a material adverse effect on the Company, other
than (i) liabilities shown or reflected on the Company Balance Sheet or
(ii) liabilities incurred since the date of the Company Balance Sheet
in the ordinary course of business in individual amounts less than
$250,000.

(c) Incurred any material indebtedness or increased or
established any reserve for taxes or any other liability on its books
or otherwise provided therefor, except as may have been required with
respect to income or operations of the Company since the date of the
Company Balance Sheet and except in the ordinary course of business.

(d) Mortgaged, pledged or subjected to any lien, charge or
other encumbrance any of the assets, tangible or intangible, which
assets are material to the consolidated business or financial condition
of the Company.

(e) Sold or transferred any of the assets material to the
consolidated business of the Company, canceled any material debts or
claims or waived any material rights, except in the ordinary course of
business.

(f) Except for annual increases in the base rates of
compensation and bonuses of officers and employees in the ordinary
course of business, granted any general or uniform increase in the
rates of pay of employees. Schedule 3.12(f) to the Company Disclosure
Schedule sets forth all 1997 bonuses to be paid pursuant to the bonus
plan adopted by the Board of Directors of the Company for key
executives of the Company.

(g) Except for this Agreement and any other agreement executed
and delivered pursuant to this Agreement, entered into any material
transaction other than in the ordinary course of business or permitted
under this Agreement.

(h) Issued any stock, bonds or other securities or any options
or rights to purchase any of its securities (other than stock issued
upon (i) the exercise of outstanding options under the Company's stock
option plans or stock purchase plans (ii) the exercise of outstanding
warrants on (iii) the conversion of the Company Class B Preferred Stock
or Company Class C Preferred Stock).

(i) Declared, set aside or paid any dividend or made any other
distribution or payment with respect to any shares of its capital stock
or directly or indirectly redeemed, purchased or otherwise acquired any
shares of its capital stock or the capital stock or equity interests of
any Company Subsidiary.

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(j) Changed in any material respect the accounting methods or
practices followed by the Company, including any material change in any
assumption underlying, or method of calculating, any bad debt,
contingency or other reserve, except as may be required by changes in
generally accepted accounting principles.

(k) Amended, terminated or received notice of termination of
any of the Company Material Contracts.

(l) Canceled or failed to maintain reasonably necessary
insurance coverage.

3.13. Accounts Receivable.

(a) All of the Company's accounts receivable as of the date of
this Agreement constitute, and as of the Closing Date will constitute,
valid claims which arose in the ordinary course of the business of the
Company.

(b) Since the date of the Company Balance Sheet, the Company
has not changed any principle or practice with respect to the
recordation of accounts receivable or the calculation of reserves
therefor, or any material collection, discount or write-off policy or
procedure, except as may be required by changes in generally accepted
accounting principles.

(c) The Company (including the Company Subsidiaries) is in
compliance with the terms and conditions of all third-party payor
arrangements relating to its accounts receivable, except to the extent
that such noncompliance would not have a material adverse effect on the
Company. Without limiting the generality of the foregoing, neither the
Company nor any Company Subsidiary has received notice from any
government authority alleging that the Company or any Company
Subsidiary is in violation of any Medicare and Medicaid provider
agreements to which it is a party.

3.14. Tax Returns. The Company has delivered to the Parent true and
correct copies of all tax returns relating to income or franchise taxes filed by
or on behalf of the Company since 1994. The Company has timely filed all tax
returns required to be filed by it or requests for extensions to file such
returns or reports have been timely filed and granted and have not expired,
except to the extent that such failures to file, taken together, do not have a
material adverse effect on the Company. The Company has made all payments shown
as due on such returns. The Company has paid all taxes and other charges,
whether or not reflected on a tax return, claimed to be due from it by any
Federal, state or local taxing authority, except for matters the Company is
contesting in good faith and has disclosed on Schedule 3.14 to the Company
Disclosure Schedule. Except as reflected in Schedule 3.14 to the Company
Disclosure Schedule, the Company has not been notified that any tax returns of
the Company are currently under audit by the Internal Revenue Service ("IRS") or
any state or local tax agency or, to the knowledge of the Company, that there
are any pending or threatened questions or examinations relating to, or claims
asserted for taxes or assessments against, the Company. The Company is not a
party to any agreement for the extension of time or the waiver of the statute of
limitations

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for the assessment or payment of any federal, state, or local taxes. The Company
has withheld and paid all taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor or shareholder. The disallowance of a deduction under Section 280G of
the Code for employee renumeration will not apply to any amount paid or payable
by the Company or any Company Subsidiary under any contract, any benefit plan,
program, arrangement or understanding currently in effect. The Company is not a
party to any tax allocation or sharing agreement. The Company is not and has
never been a member of an affiliated group within the meaning of Section 1504 of
the Code, [except for the affiliated group of which the Company is the parent].
The Company's reserve for taxes reflected on the Company Balance Sheet is
adequate to cover all tax liabilities as of the Balance Sheet Date.

3.15. Employee Benefit Plans; Employment Matters.

(a) Except as disclosed in the Financial Statements or as set
forth in Schedule 3.15(a) to the Company Disclosure Schedule, neither
the Company nor any Company Subsidiary has established or maintains or
is obligated to make contributions to or under or otherwise participate
in (i) any bonus or other type of incentive compensation plan, program,
agreement, policy, commitment, contract or arrangement, (whether or not
set forth in a written document), (ii) any pension, profit-sharing,
retirement or other similar plan, fund, program or arrangement, or
(iii) any other employee benefit plan, fund, program of arrangement,
including but not limited to, those described in Section 3(3) of ERISA.
All such plans, funds, programs and arrangements described in clauses
(i) - (iii) of the immediately preceding sentence and disclosed in the
Financial Statements or listed in Schedule 3.15(a) (individually, a
"Company Plan" and collectively, the "Company Plans") have been
operated and administered in all material respects in accordance with,
as applicable, ERISA, the Code, Title VII of the Civil Rights Act of
1964, as amended, the Equal Pay Act of 1967, as amended, the Age
Discrimination in Employment Act of 1967, as amended, the Family
Medical Leave Act of 1993, as amended, and other applicable laws and
the related rules and regulations adopted by those agencies responsible
for the administration of such laws.

(b) The Company has made available to the Parent true,
complete and correct copies of (i) each Company Plan, including,
without limitation, participating employer agreements (or, in the case
of any unwritten Company Plans, descriptions thereof), (ii) the three
annual reports on Form 5500 most recently filed with the IRS and the
related summary annual report distributed to participants with respect
to each Company Plan (if such report was required), (iii) all minutes
of meetings of any committee established to administer any Company Plan
other than minutes that would be subject to privacy laws relating to
disclosure of medical information, (iv) the most recent actuarial
report for each Company Plan for which an actuarial report is required
by ERISA or other applicable law, (v) all summary plan descriptions for
each Company Plan for which summary plan description is required by
ERISA or other applicable law and each summary of material
modifications prepared, as required by ERISA or other applicable law,
(vi) each trust agreement relating to any Company Plan, (vii) all
applications, including all attachments, submitted to the IRS by the
Company for IRS determination letters or rulings with

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respect to Company Plans and the IRS determination letters or rulings
issued as a result of such applications and all other material
correspondence for the last three consecutive years prior to the
Closing Date with the IRS or the United States Department of Labor (the
"DOL") relating to plan qualification, filing of required forms, or
pending, contemplated and announced plan audits, (viii) descriptions of
all claims filed and pending (other than for benefits in the normal
course), lawsuits pending, grievances pending and similar actions
pending with respect to Company Plans, (ix) a listing of all employees
or former employees receiving long-term disability benefits under a
Company Plan, (x) a listing of all prior mergers, consolidations or
transfers of Company Plan assets or liabilities described in Section
414(i) of the Code or the regulations thereunder that have occurred
within the last three years prior to the Closing Date, (xi) copies of
all collective bargaining agreements (and any related side letters of
understanding) that relate to any Company Plan, and (xii) a listing of
all the Company's employees indicating date of birth, date of
commencement of service, job title or brief job description, the amount
of the employee's salary and bonus, if applicable, the date of the last
salary increase for each salaried employee, any material commitments,
arrangements, promises or understandings with the employee as to salary
or bonus, if applicable, and any other contract or payment agreement
between the Company and the employee.

(c) Neither the Company nor any Company Subsidiary is a party
to any oral or written union, guild or collective bargaining agreement
which agreement covers employees in the United States (nor is it aware
of any union organizing activity currently being conducted in respect
to any of its employees).

(d) Each Company Plan that is intended to be qualified under
Section 401(a) of the Code has a current favorable determination letter
that covers such plan and any amendments thereto and no event has
occurred which, to the knowledge of the Company, could cause the
Company Plan to become disqualified for purposes of section 401(a) of
the Code. All Company Plans have been operated in accordance with their
terms.

(e) All required reports, notices and descriptions of the
Company Plans (including IRS Form 5500 annual reports, summary annual
reports and summary plan descriptions) have been timely filed with the
IRS, the DOL and any other governmental agency or other authority, as
applicable, and, as appropriate, provided to participants in the
Company Plans.

(f) There are no pending claims, lawsuits or actions relating
to any Company Plan (other than ordinary course claims for benefits)
and, to the knowledge of the Company and any Company Subsidiary, none
are threatened.

(g) No written or oral representations have been made to any
employee or former employee of the Company or any Company Subsidiary
promising or guaranteeing any employer payment or funding, and no
Company Plans provide, for the continuation of medical, dental, life or
disability insurance coverage for any former employee of the Company or
any Company Subsidiary for any period of time beyond the end of the
current plan year (except to the extent of coverage required under
Title I, Part 6, of

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ERISA). Except as set forth on Schedule 3.15(g), the consummation of
the transactions contemplated by this Agreement will not accelerate the
time of vesting, of payment, or increase the amount, of compensation to
any employee, officer, former employee or former officer of the Company
or any Company Subsidiary. No Company Plans or other contracts or
arrangements provide for payments that would be triggered by the
consummation of the transactions contemplated by this Agreement that
would subject any person to excise tax under Section 4999 of the Code
(i.e., "golden parachute" taxes). All compensation amounts that have
been paid or are payable are or will become deductible by the Parent or
the Subsidiary pursuant to Section 162 of the Code. Any stock options
granted by the Company and not exercised by the Effective Time shall be
subject to Section 2.1. (g).

(h) The Company and each Company Subsidiary and other entities
that are required to be aggregated with the Company under Section 414
of the Code ("ERISA Affiliates") have complied with the continuation
coverage provisions of Title I, Part 6, of ERISA ("COBRA") with respect
to all current employees and former employees. Schedule 3.15(h) to the
Company Disclosure Schedule lists all of the former employees of the
Company and each Company Subsidiary and their beneficiaries who have
elected or are eligible to elect COBRA continuation of health insurance
coverage under the Company's group health plan and who are so covered
as of the date hereof, and as of the Closing Date.

(i) No act or failure to act by the Company, any Company
Subsidiary or any officer, director or employee thereof, or to the
knowledge of the Company, by any other person, has resulted in a
"prohibited transaction" (as defined in Section 4975 of the Code or
Sections 406 or 407 of ERISA) with respect to Company Plans that is not
subject to a statutory or regulatory exemption. Neither the Company nor
any other employer who has participated or is participating in any
Company Plan (a "Sponsor") has incurred any liability to the DOL or the
IRS or any other governmental agency or other authority in connection
with any of the Company Plans, and no condition exists that presents a
risk to the Company or any Sponsor of incurring any liability to the
DOL, the IRS or any other governmental agency or other authority.

(j) Neither the Company nor any Company Subsidiary has been
liable at any time for contributions to a plan that is subject to Title
IV of ERISA. Neither the Company nor any Company Subsidiary has
previously made, is currently making, has previously been obligated or
is currently obligated in any way to make any contributions to any
multi-employer plans within the meaning of Section 3(37) or Section
4001(a)(3) of ERISA.

(k) Full payment has been made of all amounts which are
required under the terms of each Company Plan and related funding
arrangement to have been paid as of the due date for such payments that
have occurred on or before the date of this Agreement, and no
accumulated funding deficiency (as defined in Section 302 of ERISA and
Section 412 of the Code) has been incurred with respect to such Company
Plan, whether or not waived.

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(l) Neither the Company nor any ERISA Affiliate has any
liability, nor will the transactions contemplated under this Agreement
result in any liability (i) for the termination of or withdrawal from
any plan under Sections 4062, 4063 or 4064 of ERISA, (ii) for any lien
imposed under Section 302(f) of ERISA or Section 412(n) of the Code,
(iii) for any interest payments required under Section 302(e) of ERISA
or Section 412(m) of the Code, (iv) for any excise tax imposed by
Section 4971 of the Code, (v) for any minimum funding contributions
under Section 302(c)(11) of ERISA or Section 412(c)(11) of the Code, or
(vi) for withdrawal from any multi-employer plan (as defined in Section
3(37) or 4001(a)(3) of ERISA) under Section 4201 and related provisions
of ERISA.

(m) Except as set forth on Schedule 3.15(m), any Company Plan
that provides for severance payments to employees after termination of
employment is in writing, has been operated in compliance with ERISA,
and expressly provides that no severance benefits are payable as the
result of a termination of employment to an employee who is hired by a
successor entity, or who otherwise continues employment with a
successor, in connection with a merger or acquisition transaction.

(n) Each Company Plan may be amended or terminated without
liability (other than with respect to benefits that are otherwise
payable in the ordinary course of business) to the Company or any
Company Subsidiary on or at any time after the consummation of the
transactions that are contemplated by this Agreement without
contravening the terms of such plan or any law or agreement that
pertains to the Company or any Company Subsidiary.

3.16. Compliance with Laws. Except as set forth in Schedule 3.16 to the
Company Disclosure Schedule, neither the Company nor any Company Subsidiary nor,
to the knowledge of the Company, any Company Affiliated Physician Group has
received any notices, written or oral, of violations of any federal, state or
local laws, regulations and ordinances relating to its business and operations,
including, without limitation, the Occupational Safety and Health Act, the
Americans with Disabilities Act, the applicable Medicare or Medicaid statutes
and regulations, including the Anti-Fraud and Abuse Amendments to the Medicare
and Medicaid statutes and any state or Federal physician self-referral laws,
except where such violation would not have a material adverse effect on the
Company, and no written notice of any pending inspection or inquiries or
violation of any such law, regulation or ordinance has been received by the
Company or any Company Subsidiary or, to the knowledge of the Company, Company
Affiliated Physician Group which, if it were determined that a violation had
occurred, would have a material adverse effect on the Company.

3.17. Insurance; Malpractice. Schedule 3.17(a) to the Company
Disclosure Schedule contains a list and brief description of all policies or
binders of fire, liability, product liability, worker's compensation, health and
other forms of insurance policies or binders currently in force insuring against
risks which will remain in full force and effect at least through the Effective
Time. Schedule 3.17(b) to the Company Disclosure Schedule contains a description
of all malpractice liability insurance policies of the Company since the date
the Company first

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acquired or began management of any physician group. Except as set forth on
Schedule 3.17(c) to the Company Disclosure Schedule, since the date the Company
first acquired or began management of any physician group, (i) the Company has
never filed a written application for any insurance coverage which has been
denied by an insurance agency or carrier, and (ii) the Company has been
continuously insured for professional malpractice claims. Schedule 3.17(c) also
sets forth a list of all claims for any insured loss in excess of $100,000 per
occurrence filed by the Company during the three year period immediately
preceding the Effective Time, including but not limited to worker's
compensation, general liability, environmental liability and professional
malpractice liability claims. The Company is not in material default with
respect to any provisions contained in any such policy and has not failed to
give any notice or present any claim under any such policy in due and timely
fashion.

3.18. Environmental Matters. To the knowledge of the Company, the
Company, the Company Subsidiaries and its Affiliated Physician Groups are in
compliance in all material respects with all federal, state, and local
Environmental Laws, rules, regulations, standards and requirements, including,
without limitation, those respecting Hazardous Materials. To the knowledge of
the Company, except as disclosed on Schedule 3.18 to the Company Disclosure
Schedule, the Company, the Company Subsidiaries and its Affiliated Physician
Groups have not engaged in any storage, holding, release, emission, discharge,
generation, processing, disposition, handling, or transportation of any
Hazardous Materials, except in the ordinary course of the Company's business.

3.19. Regulatory Approvals. Except as disclosed in Schedule 3.19 to the
Company Disclosure Schedule, the Company and each Company Subsidiary and, to the
knowledge of the Company, each Company Affiliated Physician Group, as
applicable, holds all licenses, permits, certificates of need and other
regulatory approvals required or necessary to be applied for or obtained in
connection with its business as presently conducted or as proposed to be
conducted except where the failure to obtain or hold such license, permit,
certificate of need or regulatory approval would not have a material adverse
effect on the Company. All such licenses, permits, certificates of need and
other regulatory approvals related to the business, operations and facilities of
the Company and each Company Subsidiary and, to the knowledge if the Company,
each Company Affiliated Physician Group, are in full force and effect, except
where any failure of such license, certificate of need or regulatory approval to
be in full force and effect would not have a material adverse effect on the
Company. Any and all past litigation concerning such licenses, certificates of
need and regulatory approvals, and all claims and causes of action raised
therein, has been finally adjudicated. No such license, certificate of need or
regulatory approval has been revoked, conditioned (except as may be customary),
limited or restricted, and no action (equitable, legal or administrative),
arbitration or other process is pending, or to the best knowledge of the
Company, threatened, which in any way challenges the validity of, or seeks to
revoke, condition or restrict any such license, permit, certificate of need, or
regulatory approval. Where applicable, the Company, the Company Subsidiaries
and, to the knowledge of the Company, the Company Affiliated Physician Groups
have current valid provider contracts with both Medicare and Medicaid. The
Company is not aware of any reasons why the Company, the Company Subsidiaries or
the Company Affiliated Physician Groups would be prevented from participating in
such programs. Subject to compliance with applicable securities laws and the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR Act"),
the

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consummation of the Merger will not violate any law or restriction to which the
Company is subject which, if violated, would have a material adverse effect on
the Company.

3.20. Brokers. Except for fees payable to Donaldson, Lufkin & Jenrette
pursuant to the engagement letter, dated August 5, 1997, there are no valid
claims for brokerage commissions or finder's or similar fees in connection with
the transactions contemplated by this Agreement which may be now or hereafter
asserted against the Parent or the Company or any subsidiary or other controlled
entity of the Parent or the Company resulting from any action taken by the
Company or its officers, directors or agents, or any of them.

3.21. Vote Required. The affirmative vote of the holders of a majority
of the outstanding Company Shares entitled to vote thereon, voting as a single
class, is the only vote of the holders of any class or series of the Company
capital stock necessary for the Company to approve this Agreement, the Merger
and the transactions contemplated thereby.

3.22. Pooling Matters. To the best knowledge of the Company, neither
the Company nor any of its affiliates has taken or agreed to take any action
that (without giving effect to any actions taken or agreed to be taken by the
Parent or any of its affiliates) would prevent the Parent from accounting for
the business combination to be effected by the Merger as a pooling of interests
for financial reporting purposes.

3.23. Company's Disclosure. No representations, warranties or
disclosures of information made by the Company, including disclosures made in
any Exhibit, Schedule or certificate or other writing delivered or to be
delivered in connection with the transactions contemplated hereby, contains or
will contain any untrue statement of a material fact or omits to state any
material fact which is necessary in order to make the disclosure not misleading.
The Disclosure Schedule to this Agreement shall be deemed part of the
representations and warranties, and any disclosure on any schedule shall be
deemed to be a disclosure on all other applicable schedules.

SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE SUBSIDIARY
RELATED TO THE SUBSIDIARY

The Subsidiary and the Parent, jointly and severally, hereby represent
and warrant to the Company as follows:

4.1. Organization, Existence and Capitalization of the Subsidiary. The
Subsidiary is a corporation duly organized and validly existing under the laws
of the State of Delaware. The Subsidiary's authorized capital consists of 1,000
shares of Common Stock, par value $.01 per share, all of which shares are issued
and registered in the name of and owned by the Parent. The Subsidiary has not,
within the two years immediately preceding the date of this Agreement, owned,
directly or indirectly, any Company Shares.

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4.2. Power and Authority; Non-Contravention.

(a) The Subsidiary has all necessary corporate power and
authority to execute, deliver and perform this Agreement and all
agreements and other documents executed and delivered, or to be
executed and delivered, by it pursuant to this Agreement, and subject
to the satisfaction of the conditions precedent set forth herein, has
taken all actions required by law, its Certificate of Incorporation,
its Bylaws or otherwise, to authorize the execution and delivery of
this Agreement and such related documents. The Agreement has been duly
and validly executed and delivered by the Subsidiary and, assuming the
due authorization, execution and delivery by the Company, constitutes
the legal, valid and binding obligation of the Subsidiary in accordance
with its terms.

(b) The execution and delivery of this Agreement does not and,
subject to the receipt of required regulatory approvals and any other
required third-party consents or approvals, the consummation of the
Merger contemplated hereby will not, violate any provisions of the
Certificate of Incorporation or Bylaws of the Subsidiary, or any
agreement, instrument, order, judgment or decree to which the
Subsidiary is a party or by which it is bound, violate any restrictions
of any kind to which the Subsidiary is subject, or result in the
creation of any lien, charge, or encumbrance upon any of the property
or assets of the Subsidiary.

4.3. Brokers. There are no claims for brokerage commissions, investment
banker's fees or finder's fees in connection with the transaction contemplated
by this Agreement resulting from any action taken by the Subsidiary or any of
its officers, directors or agents.

4.4. No Subsidiaries. The Subsidiary does not own stock in, and does
not control directly or indirectly, any other corporation, association or
business organization. The Subsidiary is not a party to any joint venture or
partnership.

4.5. Legal Proceedings. There are no actions, suits or proceedings
pending or threatened against the Subsidiary, at law or in equity, relating to
or affecting the Subsidiary, including the Merger. The Subsidiary does not know
or have any reasonable grounds to know of any justification for any such action,
suit or proceeding.

4.6. No Contracts or Liabilities. The Subsidiary was formed solely for
the purpose of engaging in the transactions contemplated hereby, has engaged in
no other business activities and has conducted its operations only as
contemplated hereby. Other than the obligations created under this Agreement,
the Subsidiary has no obligations or liabilities (contingent or otherwise) under
any contracts, claims, leases, loans or otherwise.

4.7. The Subsidiary's Disclosure. No representations, warranties or
disclosures of information made by the Subsidiary, including disclosures made in
any Exhibit, Schedule or certificate or other writing delivered or to be
delivered in connection with the transactions contemplated hereby, contains or
will contain any untrue statement of a material fact or omits to state any
material fact which is necessary in order to make the disclosure not misleading.
Any disclosure on any schedule shall be deemed to be a disclosure on all other
applicable schedules.

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SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE PARENT

The Parent hereby represents and warrants to the Company as follows:

5.1. Organization and Existence of the Parent. The Parent is a
corporation duly organized and validly existing under the laws of the State of
Tennessee. The Parent has all necessary corporate power to own or lease its
properties and assets and to carry on its business as presently conducted. The
Parent is not, and has not been within the two years immediately preceding the
date of this Agreement, a subsidiary or division of another corporation, nor has
the Parent within such time owned, directly or indirectly, any of the Company
Shares.

5.2. Subsidiaries. Attached as Schedule 5.2 to the Disclosure Schedule
delivered to the Company by the Parent at the time of the execution and delivery
of this Agreement (the "Parent Disclosure Schedule") is a list of all
corporations, partnerships, joint ventures or other business associations or
entities in which the Parent owns any interest (such corporations, partnerships,
joint ventures or other business entities of which the Parent owns, directly or
indirectly, greater than fifty percent of the shares of capital stock or other
equity interests (including partnership interests) entitled (without regard to
the occurrence of any contingency) to cast at least a majority of the votes that
may be cast by all shares or equity interest having ordinary voting power for
the election of directors or other governing body of such entity are hereinafter
referred to as the "Parent Subsidiaries"). Schedule 5.2 to the Parent Disclosure
Schedule also indicates each Parent Subsidiary that meets any of the following
conditions: (i) the Parent's and the Parent Subsidiaries' investments in and
advances to such subsidiary exceed 10% of the total assets of the Parent and the
Parent Subsidiaries consolidated as of the end of the most recently completed
fiscal year, (ii) the Parent's and its other Parent Subsidiaries' proportionate
share of the total assets (after intercompany eliminations) of such subsidiary
exceeds 10% of the total assets of the Parent and the Parent Subsidiaries
consolidated as of the end of the most recently completed fiscal year, or (iii)
the Parent's and its other Parent Subsidiaries' equity in the income from
continuing operations before income taxes, extraordinary items and cumulative
effect of a change in accounting principle of such subsidiary exceeds 10% of
such income of the Parent and its Parent Subsidiaries consolidated as of the end
of the most recently completed fiscal year (the "Parent Significant
Subsidiaries").

5.3. Organization and Existence of Parent Subsidiaries. Each Parent
Significant Subsidiary is duly organized and validly existing under the laws of
its state of organization, except where the failure to be so organized or
validly existing would not have a material adverse effect on the Company. Each
Parent Significant Subsidiary has all necessary power to own its properties and
assets and to carry on its business as presently conducted, except where the
failure to have such power would not have a material adverse effect on the
Company. All of the outstanding shares of capital stock of, or other ownership
interests in, each of the Parent Subsidiaries owned by the Parent or a Parent
Subsidiary are owned by the Parent or by a Parent Subsidiary free and clear of
any liens, claims, charges or encumbrances. There are not any voting trust,
standstill or stockholder agreements or understandings to which the Parent or
any Parent Subsidiary is a party or is bound with respect to the voting of the
capital stock of any of the Parent Subsidiaries.

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5.4. Foreign Qualifications. The Parent and each Parent Significant
Subsidiary that is not a general partnership is qualified to do business as a
foreign corporation or foreign limited partnership or other entity, as the case
may be, and is validly existing in each jurisdiction where the nature or
character of the property owned, leased or operated by it or the nature of the
business transacted by it makes such qualification necessary, except where the
failure to be so qualified would not have a material adverse effect on the
Parent.

5.5. Capitalization. The Parent's authorized capital stock consists of
250,000,000 shares of Common Stock, no par value, of which 64,530,414 shares
were issued and outstanding as of the close of business on December 11, 1997,
and no shares are held in treasury, and 10,000,000 shares of Preferred Stock, no
par value, of which no shares are issued and outstanding, and no shares are held
in treasury. All of the issued and outstanding shares of the Parent Common Stock
have been duly and validly issued and are fully paid and nonassessable. Except
as disclosed in the Parent Documents (as herein defined), or described in
Schedule 5.5 to the Parent Disclosure Schedule, there are no options, warrants
or similar rights granted by the Parent or any other agreements to which the
Parent is a party providing for the issuance or sale by it of any additional
securities. There is no liability for dividends declared or accumulated but
unpaid with respect to any shares of the Parent Common Stock. Except as shown on
Schedule 5.5 to the Parent Disclosure Schedule, there are no obligations,
contingent or otherwise, of the Parent or any Parent Subsidiary to repurchase,
redeem or otherwise acquire any shares of Parent Common Stock or the capital
stock of or other equity interest in any Parent Subsidiary.

5.6. Parent Common Stock. On the Closing Date, the Parent will have a
sufficient number of authorized but unissued and/or treasury shares of its
Common Stock available for issuance to the holders of the Company Shares in
accordance with the provisions of this Agreement. The Parent Common Stock to be
issued pursuant to this Agreement will, when so delivered, be (i) duly and
validly issued, fully paid and nonassessable, and (ii) listed on the Nasdaq
Stock Market (or such other exchange on which the Parent Common Stock is then
listed), upon official notice of issuance.

5.7. Power and Authority; Non-Contravention.

(a) Subject to the satisfaction of the conditions precedent
set forth herein, the Parent has all necessary corporate power and
authority to execute, deliver and perform this Agreement and all
agreements and other documents executed and delivered, or to be
executed and delivered, by it pursuant to this Agreement, and, subject
to the satisfaction of the conditions precedent set forth herein has
taken all actions required by law, its Certificate of Incorporation,
its Bylaws or otherwise, to authorize the execution and delivery of
this Agreement and such related documents. This Agreement has been duly
and validly executed and delivered by the Parent and, assuming the due
authorization, execution and delivery by the Company, constitutes the
legal, valid and binding obligation of the Parent enforceable against
the Parent in accordance with its terms.

(b) Except as disclosed on Schedule 5.7 (c) to the Parent
Disclosure Schedule and subject to the filings, permits,
authorizations, consents and approvals as may be

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required under, and other applicable requirements of, the Securities
Act of 1933, as amended (the "Securities Act"), the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), the HSR Act and the DGCL,
the execution and delivery of this Agreement does not, and the
consummation of the Merger contemplated hereby will not, violate any
provisions of the Restated Charter or Amended Bylaws of the Parent, or
any provision of, or result in the acceleration of any obligation
under, any mortgage, lien, lease, agreement, instrument, order,
arbitration award, judgment, decree, statute or law to which the Parent
or any Parent Subsidiary is a party or by which it is bound, or violate
any restrictions to which the Parent is subject which, if violated or
accelerated, would have a material adverse effect on the Parent.

5.8. Parent Public Information. The Parent has heretofore made
available to the Company a true and complete copy of each report, schedule,
registration statement and definitive proxy statement filed by it with the
Securities and Exchange Commission ("SEC") (as any such documents have since the
time of their original filing been amended, the "Parent Documents") since
January 1, 1995, which are all the documents (other than preliminary material)
that it was required to file with the SEC since such date. As of their
respective dates, the Parent Documents did not contain any untrue statements of
material facts or omit to state material facts required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. As of their respective dates, the Parent
Documents complied in all material respects with the applicable requirements of
the Securities Act and the Exchange Act and the rules and regulations
promulgated under such statutes. The financial statements contained in the
Parent Documents, together with the notes thereto, have been prepared in
accordance with generally accepted accounting principles consistently followed
throughout the periods indicated (except as may be indicated in the notes
thereto, or, in the case of the unaudited financial statements, as permitted by
Form 10-Q), reflect all known liabilities of the Parent, fixed or contingent,
required to be stated therein, and present fairly the financial condition of the
Parent at said dates and the consolidated results of operations and cash flows
of the Parent for the periods then ended. The consolidated balance sheet of the
Parent at September 30, 1997, included in the Quarterly Report on Form 10-Q for
the fiscal quarter ended September 30, 1997 of the Parent is herein sometimes
referred to as the "Parent Balance Sheet."

5.9. Contracts, etc.

(a) To the knowledge of Parent, all material contracts,
leases, agreements and arrangements to which the Parent or any of the
Parent Subsidiaries is a party (collectively, the "Parent Material
Contracts") are legally valid and binding in accordance with their
terms and in full force and effect. The Parent has not taken any action
or permitted any circumstances to exist that has caused any Parent
Material Contract to cease being legally valid and binding in
accordance with its terms and in full force and effect. To the
knowledge of the Parent, all parties to the Parent Material Contracts
have complied with the provisions of such Contracts, and to the
knowledge of the Parent, no party is in default thereunder, and no
event has occurred which, for the passage of time or the giving of
notice or both, would constitute a default thereunder, except, in each
case, where the noncompliance with or invalidity of the Parent Material
Contract or the default

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or breach thereunder or thereof would not, individually or in the
aggregate, have a material adverse effect on the Parent.

(b) Except as set forth in Schedule 5.9 to the Parent
Disclosure Schedule, no Parent Material Contract will by its terms
terminate as a result of the transactions contemplated hereby or
require any consent from any obligor thereto in order to remain in full
force and effect immediately after the Effective Time.

5.10. Legal Proceedings. Except as listed in Schedule 5.10 to the
Parent Disclosure Schedule, there are no actions, suits or proceedings pending
against the Parent or any Parent Subsidiary or, to the knowledge of the Parent,
threatened against the Parent or any Parent Subsidiary at law or in equity,
relating to or affecting the Parent or any Parent Subsidiary, including the
Merger, which individually or in the aggregate, could reasonably be expected to
have a material adverse effect on the Parent, or a material adverse effect on
the ability of the Parent to consummate the transactions contemplated hereby. To
the knowledge of the Parent, there are no pending or threatened actions, suits
or proceedings that would be required to be disclosed under the Securities Act
or the Exchange Act that have not previously been disclosed in the Parent
Documents.

5.11. Subsequent Events. Except as set forth on Schedule 5.11 to the
Parent Disclosure Schedule, the Parent (including the Parent Subsidiaries) has
not, since the date of the Parent Balance Sheet:

(a) Suffered any material adverse effect.

(b) Discharged or satisfied any material lien or encumbrance,
or paid or satisfied any material obligation or liability (absolute,
accrued, contingent or otherwise), which discharge or satisfaction
would have a material adverse effect on the Parent, other than (i)
liabilities shown or reflected on the Parent Balance Sheet or (ii)
liabilities incurred since the date of the Parent Balance Sheet in the
ordinary course of business.

(c) Incurred any material indebtedness or increased or
established any reserve for taxes or any other liability on its books
or otherwise provided therefor which would have a material adverse
effect on the Parent, except as may have been required with respect to
income or operations of the Parent since the date of the Parent Balance
Sheet.

(e) Sold or transferred any of the assets material to the
consolidated business of the Parent, canceled any material debts or
claims or waived any material rights, except in the ordinary course of
business.

(f) Except for annual increases in the base rates of
compensation and bonuses of officers and employees in the ordinary
course of business, granted any general or

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uniform increase in the rates of pay of employees or any material
increase in salary payable or to become payable by the Parent to any
officer, director, employee, group of employees, consultant or agent
(other than normal increases consistent with past practice), or by
means of any bonus or pension plan, contract or other commitment,
increased in a material respect the compensation of any officer,
director, employee, group of employees, consultant or agent.

(h) Issued any stock, bonds or other securities or any options
or rights to purchase any of its securities (other than stock issued
upon the exercise of outstanding options under the Parent's stock
option plans, stock options granted under such plans and shares of
Parent Common Stock or other securities issued pursuant to contractual
obligations or in connection with the acquisition of businesses).

(j) Changed in any material respect the accounting methods or
practices followed by the Parent, including any material change in any
assumption underlying, or method of calculating any bad debt,
contingency or other reserve, except as may be required by changes in
generally accepted accounting principles.

5.12. Tax Returns. The Parent has filed all tax returns required to be
filed by it or requests for extensions to file such returns or reports have been
timely filed and granted and have not expired, except to the extent that such
failures to file, taken together, do not have a material adverse effect on the
Parent. The Parent has made all payments shown as due on such returns.

5.13. Compliance with Laws. Except as set forth on Schedule 5.13 to the
Parent Disclosure Schedule, neither the Parent nor any Parent Subsidiary nor to
the knowledge of the Parent any Parent Affiliated Physician Group has received
any notices of violations of any federal, state and local laws, regulations and
ordinances relating to its business and operations, including, without
limitation, the Occupational Safety and Health Act, the Americans with
Disabilities Act, Medicare or applicable Medicaid statutes and regulations and
any Environmental Laws, and no notice of any pending inspection or violation of
any such law, regulation or ordinance has been received by the Parent or any
Parent Subsidiary or, to the knowledge of the Parent, any Parent Affiliated
Physician Group which, if it were determined that a violation had occurred,
would have a material adverse effect on the Parent.

5.14. Regulatory Approvals. Except as disclosed in the Parent Documents
or in Schedule 5.14 to the Parent Disclosure Schedule, the Parent and each
Parent Significant Subsidiary and to the knowledge of the Parent each Parent
Subsidiary and each Parent Affiliated

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Physician Group, as applicable, holds all licenses, certificates of need and
other regulatory approvals required or necessary to be applied for or obtained
in connection with its business as currently conducted or as proposed to be
conducted, except where the failure to obtain or hold such license, certificate
of need or regulatory approval would not have a material adverse effect on the
Parent. All such licenses, certificates of need and other regulatory approvals
relating to the business, operations and facilities of the Parent and each
Parent Significant Subsidiary and to the knowledge of the Parent each Parent
Subsidiary and each Parent Affiliated Physician Group are in full force and
effect, except where any failure of such license, certificate of need or
regulatory approval to be in full force and effect would not have a material
adverse effect on the Parent. Any and all past litigation concerning such
licenses, certificates of need and regulatory approvals, and all claims and
causes of action raised therein, have been finally adjudicated. No such license,
certificate of need or regulatory approval has been revoked, conditioned (except
as may be customary) or restricted, and no action (equitable, legal or
administrative), arbitration or other process is pending, or to the best
knowledge of the Parent, threatened, which in any way challenges the validity
of, or seeks to revoke, condition or restrict any such license, certificate of
need, or regulatory approval, except as would not have a material adverse effect
on Parent.

5.15. Investment Intent. The Parent is acquiring the Company Shares
hereunder for its own account and not with a view to the distribution or sale
thereof, and the Parent has no understanding, agreement or arrangement to sell,
distribute, partition or otherwise transfer or assign all or any part of the
Company Shares to any other person, firm or corporation.

5.16. Brokers. Except for the fee payable to Equitable Securities
Corporation, there are no valid claims for brokerage commissions, finder's fees
or similar fees in connection with the transactions contemplated by this
Agreement which may be now or hereafter asserted against the Parent or the
Company or any subsidiary or other controlled entity of the Parent or the
Company resulting from any action taken by the Parent or any of its officers,
directors or agents or any of them.

5.17. Pooling Matters. To the best knowledge of the Parent, neither the
Parent nor any of its affiliates has taken or agreed to take any action that
(without giving effect to any actions taken or agreed to be taken by the Company
or any of its affiliates) would prevent the Company from accounting for the
business combination to be effected by the Merger as a pooling of interests for
financial reporting purposes.

5.18. The Parent's Disclosure. No representations, warranties or
disclosures of information made by the Parent, including disclosures made in any
Exhibit, Schedule or certificate or other writing delivered or to be delivered
in connection with the transactions contemplated hereby, contains or will
contain any untrue statement of a material fact or omits to state any material
fact which is necessary in order to make the disclosure not misleading. The
Disclosure Schedule to this Agreement shall be deemed part of the
representations and warranties, and any disclosure on any schedule shall be
deemed to be a disclosure on all other applicable schedules.

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SECTION 6. ACCESS TO INFORMATION AND DOCUMENTS

6.1. Access to Information. Between the date hereof and the Closing
Date, each of the Company and the Parent will give to the other party and its
counsel, accountants and other representatives reasonable access to all the
properties, documents, contracts, personnel files and other records of such
party and shall furnish the other party with copies of such documents and with
such information with respect to the affairs of such party as the other party
may from time to time reasonably request. Each party will disclose and make
available to the other party and its representatives all books, contracts,
accounts, personnel records, letters of intent, papers, records, communications
with regulatory authorities and other documents relating to the business and
operations of such party.

6.2. Return of Records. If the transactions contemplated hereby are not
consummated and this Agreement terminates, each party agrees to promptly return
all documents, contracts, records or properties of the other party and all
copies thereof furnished pursuant to this Section 6 or otherwise. All
information disclosed by any party or other affiliate or representative of any
party shall be deemed to be "Evaluation Material" under the terms of the
Confidentiality Agreement, dated September 10, 1997, between the Company and the
Parent (the "Confidentiality Agreement").

SECTION 7. COVENANTS

7.1. Preservation of Business. Except as contemplated by this
Agreement, each of the Company and the Parent will use its reasonable best
efforts to preserve its business organization intact, to keep available to the
Parent and the Surviving Corporation the services of their present employees,
and to preserve for the Parent and the Surviving Corporation the goodwill of the
suppliers, customers and others having business relations with them and their
respective subsidiaries.

7.2. Material Transactions. Except as contemplated by this Agreement or
as disclosed on Schedule 7.2 to the Company Disclosure Schedule, prior to the
Effective Time, neither the Company nor any Company Subsidiary will (other than
as required pursuant to the terms of this Agreement and the related documents),
without first obtaining the written consent of the Parent:

(a) Encumber any asset or enter into any transaction or make
any contract or commitment relating to the properties, assets and
business of the Company or the Company Subsidiaries, other than in the
ordinary course of business or as otherwise disclosed herein.

(b) Enter into any employment contract or similar agreement in
which the cash compensation is in excess of $75,000 per annum, or the
term is greater than one year, which is not terminable upon notice of
90 days or less, at will, and without penalty to the Company or such
Company Subsidiary, other than physician employment contracts entered
into in the ordinary course of business.

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(c) Enter into any contract or agreement (i) which cannot be
performed within three months or less, or (ii) which involves the
expenditure of over $250,000, in either case other than in the ordinary
course of business.

(d) Issue or sell, or agree to issue or sell, any shares of
capital stock or other securities of the Company or such Company
Subsidiary, except upon exercise of currently outstanding stock options
and warrants or upon conversion of the Company Class B Preferred Stock
or Company Class C Preferred Stock.

(e) Make any payment or distribution to the trustee under any
bonus, pension, profit-sharing or retirement plan or incur any
obligation to make any such payment or contribution which is not in
accordance with the Company's usual past practice, or make any payment
or contributions or incur any obligation pursuant to or in respect of
any other plan or contract or arrangement providing for bonuses,
executive incentive compensation, pensions, deferred compensation,
retirement payments, profit-sharing or the like except as contemplated
by such plans, contracts or arrangements or establish or enter into any
such plan, contract or arrangement, or terminate any plan.

(f) Extend credit to anyone, except in the ordinary course of
business consistent with prior practices.

(g) Guarantee the obligation of any person, firm or
corporation, except in the ordinary course of business consistent with
prior practices.

(h) Amend its Certificate or Articles of Incorporation or
Bylaws.

(i) Take any action of a character described in Section
3.12(a) to 3.12(j), inclusive.

(j) Enter into any transaction, agreement or contract for the
purchase of substantially all of the stock or assets of another entity
or enter into any other material transaction.

Notwithstanding the foregoing, it is expressly agreed that the Company
may enter into acquisition transactions or affiliation transactions in which the
aggregate value of the consideration paid therein does not exceed $100,000 and
that all or a portion of such consideration may consist of Company Capital Stock
or non-convertible debt securities of the Company.

7.3. Meeting of Shareholders. The Company will take all steps necessary
in accordance with its Certificate of Incorporation and Bylaws to call, give
notice of, convene and hold meetings of its shareholders (the "Shareholder
Meeting") as soon as practicable after the effectiveness of the Registration
Statement (as defined in Section 7.4 hereof), for the purpose of approving and
adopting this Agreement and the transactions contemplated hereby and for such
other purposes as may be necessary. Unless this Agreement shall have been
validly terminated as provided herein, the Board of Directors of the Company
(subject to the provisions of Section 8.1(d) hereof) will (i) recommend to its
shareholders the approval and adoption of this

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Agreement, the transactions contemplated hereby and any other matters to be
submitted to the shareholders in connection therewith, to the extent that such
approval is required by applicable law in order to consummate the Merger, and
(ii) use its reasonable, good faith efforts to obtain the approval by its
shareholders of this Agreement and the transactions contemplated hereby.

7.4. Registration Statement.

(a) The Parent shall prepare and file with the SEC and any
other applicable regulatory bodies, as soon as reasonably practicable,
a Registration Statement on Form S-4 with respect to the shares of the
Parent Common Stock to be issued in the Merger (the "Registration
Statement"), and will otherwise proceed promptly to satisfy the
requirements of the Securities Act, including Rule 145 thereunder. The
Parent shall use its best efforts to cause the Registration Statement
to be declared effective and to maintain such effectiveness until all
of the shares of the Parent Common Stock covered thereby have been
distributed. The Parent shall promptly amend or supplement the
Registration Statement to the extent necessary in order to make the
material statements therein not misleading or to correct any material
statements which have become false or misleading. The Parent shall
provide the Company with copies of all filings made pursuant to this
Section 7.4 and shall consult with the Company on responses to any
comments made by the Staff of the SEC with respect thereto.

(b) The information specifically designated as being supplied
by the Company for inclusion or incorporation by reference in the
Registration Statement shall not, at the time the Registration
Statement is declared effective, at the time of the Shareholder Meeting
and at the Effective Time, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, not misleading.
If any time prior to the Effective Time, any event or circumstance
relating to the Company, or its officers or directors, should be
discovered by the Company which should be set forth in an amendment to
the Registration Statement, the Company shall promptly inform the
Parent.

(c) The information specifically designated as being supplied
by the Parent for inclusion or incorporation by reference in the
Registration Statement shall not, at the time the Registration
Statement is declared effective, at the time of the Shareholder Meeting
and at the Effective Time, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, not misleading.
If at any time prior to the Effective Time any event or circumstance
relating to the Parent or its officers or Directors, should be
discovered by the Parent which should be set forth in an amendment to
the Registration Statement, the Parent shall promptly inform the
Company and shall promptly file such amendment to the Registration
Statement. All documents that the Parent is responsible for filing with
the SEC in connection with the transactions contemplated herein will
comply as to form and substance in all material respects with the
applicable requirements of the Securities Act and the rules and
regulations thereunder and the Exchange Act and the rules and
regulations thereunder.

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(d) Prior to the Closing Date, the Parent shall use its best
efforts to cause the shares of Parent Common Stock to be issued
pursuant to the Merger to be registered or qualified under all
applicable securities or Blue Sky laws of each of the states and
territories of the United States, and to take any other actions which
may be necessary to enable the Parent Common Stock to be issued
pursuant to the Merger to be distributed in each such jurisdiction.

(e) Prior to the Closing Date, the Parent shall file a
Notification Form for Listing Additional Shares with the Nasdaq Stock
Market (or such notice as required by such other exchange on which the
Parent Common Stock is then listed) relating to the shares of the
Parent Common Stock to be issued in connection with the Merger, and
shall cause such shares of the Parent Common Stock to be listed on the
Nasdaq Stock Market (or such other exchange), upon official notice of
issuance, prior to the Closing Date.

(f) The Company shall furnish all information to the Parent
with respect to the Company and the Company Subsidiaries as the Parent
may reasonably request for inclusion in the Registration Statement and
shall otherwise cooperate with the Parent in the preparation and filing
of such document.

7.5. Exemption from State Takeover Laws. The Company shall take all
reasonable steps necessary to exempt the Merger from the requirements of any
state takeover statute or other similar state law which would prevent or impede
the consummation for the transactions contemplated hereby, by action of the
Company's Board of Directors or otherwise.

7.6. HSR Act Compliance. The Parent and the Company shall promptly make
their respective filings, and shall thereafter use their reasonable best efforts
to promptly make any required submissions, under the HSR Act with respect to the
Merger and the transactions contemplated hereby. The Parent and the Company will
use their reasonable best efforts to obtain necessary approvals under the HSR
Act to allow the consummation of the Merger and the transactions contemplated
hereby, including without limitation promptly responding to any objection to the
Merger made by the Federal Trade Commission or the Department of Justice under
the HSR Act. The Parent and the Company will use their respective reasonable
best efforts to obtain all other permits, authorizations, consents and approvals
from third parties and governmental authorities necessary to consummate the
Merger and the transactions contemplated hereby.

7.7. Public Disclosures. The Parent and the Company will consult with
each other before issuing any press release or otherwise making any public
statement with respect to the transactions contemplated by this Agreement, and
shall not issue any such press release or make any such public statement without
the written consent of the other party except as may be required by applicable
law or requirements of the Nasdaq Stock Market (or such other exchange on which
the Parent Common Stock is then listed). The parties shall issue a joint press
release, mutually acceptable to the Parent and the Company, promptly upon
execution and delivery of this Agreement.

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7.8. No Solicitations. The Company may, directly or indirectly, furnish
information and access, in response to unsolicited requests therefor, to the
same extent permitted by Section 6.1, to any corporation, partnership, person or
other entity or group, pursuant to appropriate confidentiality agreements, and
may participate in discussions and negotiate with such corporation, partnership,
person or other entity or group concerning any bona fide, superior proposal to
acquire all or any significant portion of the equity securities of the Company
or of the assets of the Company and the Company Subsidiaries upon a merger,
purchase of assets, purchase of or tender offer for shares of Company Capital
Stock or similar transaction (an "Acquisition Transaction"), if the Board of
Directors of the Company determines in its good faith judgment in the exercise
of its fiduciary duties, after consultation with legal counsel and its financial
advisors, that such action is appropriate in furtherance of the best interest of
its shareholders. Except as set forth above, the Company shall not, and will
direct each officer, director, employee, representative and agent of such party
not to, directly or indirectly, encourage, solicit, participate in or initiate
discussions or negotiations with or provide any information to any corporation,
partnership, person or other entity or group (other than the Parent or an
affiliate or associate or agent of the Parent) concerning any merger, sale of
assets, sale of or tender offer for its shares or similar transactions involving
all or any significant portion of the equity securities of the Company or of the
assets of the Company and the Company Subsidiaries. The Company shall promptly
notify the Parent if it shall, on or after the date hereof, have entered into a
confidentiality agreement with any third party in response to any unsolicited
request for information and access in connection with a possible Acquisition
Transaction. In addition, the Company shall notify the Parent within two
business days of determining to provide information to any corporation,
partnership, person or other entity or group in connection with any possible
Acquisition Transaction.

7.9. Other Actions. Subject to the provisions of Section 7.8 hereof,
none of the Company, the Parent and the Subsidiary shall knowingly or
intentionally take any action, or omit to take any action, if such action or
omission would, or reasonably might be expected to, result in any of its
representations and warranties set forth herein being or becoming untrue in any
material respect, or in any of the conditions to the Merger set forth in this
Agreement not being satisfied, or (unless such action is required by applicable
law) which would materially adversely affect the ability of the Company or the
Parent to obtain any consents or approvals required for the consummation of the
Merger without imposition of a condition or restriction which would have
material adverse effect on the Surviving Corporation or which would otherwise
materially impair the ability of the Company or the Parent to consummate the
Merger in accordance with the terms of this Agreement or materially delay such
consummation.

7.10. Accounting Methods. Neither the Parent nor the Company shall
change, in any material respect, its methods of accounting in effect at its most
recent fiscal year end, except as required by changes in generally accepted
accounting principles as concurred by such parties' independent accountants.

7.11. Pooling and Tax-Free Reorganization Treatment. Neither the Parent
nor the Subsidiary nor the Company shall intentionally take or cause to be taken
any action, whether on or before the Effective Time, which would disqualify the
Merger as a "pooling of interests" for accounting purposes or as a
"reorganization" within the meaning of Section 368(a) of the Code.

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7.12. Affiliate and Pooling Agreements. The Parent and the Company will
each use their respective reasonable best efforts to cause each of their
respective directors and executive officers and each of their respective
"affiliates" (within the meaning of Rule 145 under the Securities Act) to
execute and deliver to the Parent as soon as practicable an agreement in the
form attached hereto as Exhibit 7.12 relating to the disposition of shares of
the Company Capital Stock and shares of the Parent Common Stock held by such
person and the shares of the Parent Common Stock issuable pursuant to this
Agreement.

7.13. Cooperation.

(a) The Parent and the Company shall together, or pursuant to
an allocation of responsibility agreed to between them, (i) cooperate
with one another in determining whether any filings required to be made
or consents required to be obtained in any jurisdiction prior to the
Effective Time in connection with the consummation of the transactions
contemplated hereby and cooperate in making any such filings promptly
and in seeking to obtain timely any such consents, (ii) use their
respective best efforts to cause to be lifted any injunction
prohibiting the Merger, or any part thereof, or the other transactions
contemplated hereby, and (iii) furnish to one another and to one
another's counsel all such information as may be required to effect the
foregoing actions.

(b) Subject to the terms and conditions herein provided, and
unless this Agreement shall have been validly terminated as provided
herein, each of the Parent and the Company shall use all reasonable
efforts (i) to take, or cause to be taken, all actions necessary to
comply promptly with all legal requirements which may be imposed on
such party (or any subsidiaries or affiliates of such party) with
respect to this Agreement and to consummate the transactions
contemplated hereby, subject, in the case of the Company, to the vote
of its shareholders described above, and (ii) to obtain (and to
cooperate with the other party to obtain) any consent, authorization,
order or approval of, or any exemption by, any governmental entity
which is required to be obtained or made by such party or any of its
subsidiaries or affiliates in connection with this Agreement and the
transactions contemplated hereby. Each of the Parent and the Company
will promptly cooperate with and furnish information to the other in
connection with any such burden suffered by, or requirement imposed
upon, either of them or any of their subsidiaries or affiliates in
connection with the foregoing.

7.14. Publication of Combined Results. The Parent agrees that within
sixty (60) days after the Effective Time, the Parent shall cause publication of
the combined results of operations of the Parent and the Company on Form 8-K
which shall be filed with the SEC. For purposes of this Section 7.14, the term
"publication" shall have the meaning provided in SEC Accounting Series Release
No. 135.

7.15. Tax Opinion Certificates. Each of the Parent and the Company
agrees that it shall provide certificates containing reasonable representations
to counsel for the Parent in connection with such counsel rendering of its
opinion as to the federal income tax consequences of the Merger provided for in
Section 9 of this Agreement.

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7.16. Consents, Amendments, etc.

(a) The Parent, the Subsidiary and the Company shall use their
reasonable best efforts, consistent with sound business judgment, to
obtain all material consents, approvals and authorizations of third
parties with respect to all material agreements to which such parties
are parties, which consents, approvals and authorizations are required
of such third parties by such documents, in form and substance
acceptable to the Parent or the Company, as the case may be, except
where the failure to obtain such consent, approval or authorization
would not have a material adverse effect on the business of the
Surviving Corporation.

(b) The Parent, the Subsidiary and the Company shall use their
reasonable best efforts to obtain, or obtain the transfer of, any
licenses and other regulatory approvals necessary to allow the
Surviving Corporation to operate the Company's business, unless the
failure to obtain such transfer or approval would not have a material
adverse effect on the Company.

7.17. Compensation Plans. The Parent confirms that the consummation of
the Merger constitutes a "Change in Control" or "Changes of Control" of the
Company for all purposes within the meaning of all the Company Plans and any
other plans or agreements of the Company with or relating to its officers,
directors, employees or affiliated physicians or personnel.

7.18. Insurance, Indemnification, Benefits.

(a) From and after the Effective Time, the Parent and the
Surviving Corporation shall indemnify, defend and hold harmless each
present and former officer, director and employee of the Company or of
any of the Company Subsidiaries (the "Indemnified Parties") who was, is
or becomes a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact
that he is or was a director, officer, employee or agent of the Company
or a Company Subsidiary, or is or was serving at the request of the
Company or a Company Subsidiary as a director, officer, trustee,
fiduciary, administrator, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or arrangement
or other enterprise, from and against any expenses (including
attorney's fees), damages, claims, liabilities, judgments, fines and
amounts paid in settlement in connection with any such action, suit or
proceeding arising out of or pertaining to any action or omission
occurring prior to or at the Effective Time (including, without
limitation, any action, suit or preceding which arises out of or
relates to the transactions contemplated hereby) to the fullest extent
permitted or required under applicable law, provided, however that the
requirement to advance expenses shall be limited to those instances in
which, if required by applicable law, the indemnified party undertakes
to repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified under applicable law. The Parent agrees
that all rights to indemnification existing in favor of the directors,
officers and employees of the Company and the Company Subsidiaries as
provided in the Company's

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or the Company's Subsidiaries' Certificate of Incorporation or Bylaws,
as applicable and as in effect as of the date hereof, with respect to
matters occurring through the Effective Time, shall survive the Merger
and shall continue in full force and effect from and after the
Effective Time, and the Parent shall, and shall cause the Surviving
Corporation to, indemnify and hold harmless such persons to the extent
so provided. In the event of any actual or threatened claim, action,
suit, proceeding or investigation in respect to any indemnifiable
matter under this Section 7.18, (i) the Parent shall cause the
Surviving Corporation to pay the reasonable fees and expenses of
counsel selected by the Indemnified Party in advance of the final
disposition of any such action to the fullest extent permitted by
applicable law, upon receipt of any undertaking required by applicable
law, and (ii) the Parent shall cause the Surviving Corporation to
cooperate and assist in the defense of any such matter.

(b) The Parent covenants and agrees that, following the
Effective Time, it will, or it will cause the Surviving Corporation to,
(i) honor in accordance with their terms all benefits accrued or vested
under the Company Plans as of the Effective Time, (ii) honor in
accordance with their terms all contracts, arrangements, commitments,
or understandings described in Schedule 3.15(b) to the Company
Disclosure Schedule and (iii) maintain in effect the Company's Key
Physician and Executive Deferred Compensation Plan in accordance with
its terms.

(c) The provisions of this Section 7.18 and Section 7.17 shall
survive the Merger, and are intended to be for the benefit of, and
shall be enforceable by, any officer, director, employee, trustee,
fiduciary, administrator or agent of the Company (or any Company
Subsidiary), and such person's heirs or representatives (the expenses,
including reasonable attorneys' fees, that may be incurred thereby in
enforcing such provisions to be paid by the Parent).

7.19. Resignation of Company Directors. On or prior to the Closing
Date, the Company shall deliver to the Parent evidence satisfactory to the
Parent of the resignations of Directors of the Company, such resignations to be
effective immediately after the Effective Time.

7.20. Assignment of Certain Rights. On or prior to the Closing Date,
Stephen A. George shall have assigned all his stock of, all his rights to
acquire stock of, and all his positions, appointments and obligations in
relation to, any physician practice managed by the Company to an appropriate
person specified by Parent, and such person shall have executed an agreement
reasonably satisfactory to the Company accepting such assignment, such
assignment to be effective immediately upon the Effective Time. In connection
with the preparation and execution of such agreement, the parties shall prepare
all necessary governmental filings to effectuate such assignment, and the Parent
shall, as soon as practicable after the Effective Time, file such filings with
the appropriate governmental entities.

7.21. Notice of Subsequent Events. The Parent and the Company shall
notify each other of any changes or events occurring after the date hereof which
would cause any material

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adverse change or material adverse effect with respect to the notifying party,
promptly after obtaining knowledge of the same.

7.22. Conduct of Business by the Parent Pending the Merger. Prior to
the Effective Time, unless the Company shall otherwise agree in writing or
except as otherwise required by this Agreement, the Parent shall not, nor shall
it permit any of the Parent Subsidiaries to, amend its Certificate of
Incorporation, except to increase the authorized number of shares of capital
stock of the Parent, or amend its Bylaws in any manner which would have an
adverse effect on the Merger or the rights under Section 7.18 of the persons
identified in clause (c) thereof. In addition, during the period from the date
hereof to the Effective Time, the Subsidiary shall not engage in any activities
of any nature except as provided in or contemplated by this Agreement.

7.23. Tax Covenants Following the Effective Time. Following the
Effective Time, the Parent shall not intentionally, and shall cause the
Surviving Corporation not intentionally to, take any action following the
Effective Time which could disqualify the Merger as a "reorganization" within
the meaning of Section 368(a) of the Code.

7.24. Consulting Agreement. The Parent shall offer a consulting
agreement to Stephen A. George as of the Effective Time which contains terms and
conditions substantially similar to those agreed to by the parties at the
signing of this Agreement.

7.25. Supplemental Company Disclosure Schedule. At least two business
days prior to the Closing Date, the Company shall be entitled to deliver to the
Parent an amended or supplemented Company Disclosure Schedule. If the amendments
or supplements to the Company Disclosure Schedule reflect a material adverse
change with respect to the Company or developments which are reasonably likely
to have a material adverse effect on the Company, then the Parent shall have the
right to either (i) accept the Company Disclosure Schedule and close the Merger
subject to such disclosures or (ii) reject the Company Disclosure Schedule and
exercise its right to terminate this Agreement pursuant to Section 8.1 of this
Agreement.

SECTION 8. TERMINATION, AMENDMENT AND WAIVER

8.1. Termination. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of matters presented in
connection with the Merger by the holders of the Company Capital Stock:

(a) by mutual written consent of the Parent, the Subsidiary
and the Company;

(b) by either the Parent or the Company:

(i) if, upon a vote at a duly held meeting of
shareholders or any adjournment thereof, any required approval
of the holders of the Company Capital Stock shall not have
been obtained;

(ii) if the Merger shall not have been consummated on
or before July 31, 1998, unless the failure to consummate the
Merger is the result of a willful

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and material breach of this Agreement by the party seeking to
terminate this Agreement; provided, however, that the passage
of such period shall be tolled for any part thereof (but not
exceeding 60 days in the aggregate) during which any party
shall be subject to a nonfinal order, decree, ruling or action
restraining, enjoining or otherwise prohibiting the
consummation of the Merger or the calling or holding of a
meeting of shareholders;

(iii) if a United States federal or state court of
competent jurisdiction or other United States federal or state
governmental entity shall have issued an order, decree or
ruling or taken any other action permanently enjoining,
restraining or otherwise prohibiting the Merger and such
order, decree, ruling or other action shall have become final
and nonappealable; provided, that the party seeking to
terminate this Agreement shall have used all reasonable
efforts to remove such order, decree, ruling or other action;
or

(iv) in the event of a material breach by the other
party of any representation, warranty, covenant or other
agreement contained in this Agreement which (A) would give
rise to the failure of a condition set forth in Section 9.2(a)
or (b) or Section 9.3(a) or (b), as applicable, and (B) cannot
be or has not been cured within 30 days after the occurrence
or discovery of such breach by the breaching party, whichever
is later (a "Material Breach"), provided that the terminating
party is not then in Material Breach of any representation,
warranty, covenant or other agreement contained in this
Agreement; or

(c) by either the Parent or the Company in the event that (i)
all of the conditions to the obligation of such party to effect the
Merger set forth in Section 9.1 shall have been satisfied and (ii) any
condition to the obligation of such party to effect the Merger set
forth in Section 9.2 (in the case of the Parent) or Section 9.3 (in the
case of the Company) is not capable of being satisfied prior to the end
of the period referred to in Section 8.1(b)(ii); or

(d) by the Company, if the Company's Board of Directors shall
have (i) determined in the exercise of its fiduciary duties under
applicable law, not to recommend the Merger to the holders of Company
Shares or shall have withdrawn such recommendation or (ii) approved,
recommended or endorsed any Acquisition Transaction (as defined in
Section 7.8) other than this Merger or (iii) resolved to do any of the
foregoing; or

(e) by the Company, if the average of the last per share sale
price of the Parent Common Stock for the ten consecutive trading days
ending on the second trading day immediately preceding the date set for
the Shareholder Meeting as reported on the Nasdaq Stock Market (or such
other exchange on which the Parent Common Stock is then listed) is
equal to or less than $20 (the "Lower Limit"), unless the Parent agrees
to adjust the Exchange Ratios such that the aggregate number of shares
to be received by the Company's stockholders shall be increased to
arrive at a transaction value equal to that of the Lower Limit times
the number of shares that would be received by the

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Company's stockholders using the current Exchange Ratios set forth in
Section 2.1(c) hereof; or

(f) by the Company, if the Registration Statement has not been
declared effective or if the waiting period (and any extension thereof)
under the HSR Act has not expired or been terminated by April 30, 1998;
provided, however, the Company shall be entitled to terminate this
Agreement pursuant to this Section 8.1(f) only if the Company has (i)
used its reasonable best efforts to cause the Registration Statement to
be declared effective, including, without limitation, supplying on or
before January 31, 1998 all information relating to the Company
required under the Securities Act to be included in the Registration
Statement and (ii) complied with its obligations under Section 7.6
hereof.

(g) by the Company upon the occurrence of a change or event
requiring the Parent to give notice pursuant to Section 7.21 that (x)
would give rise to the failure of a condition set forth in Section
9.3(b) and (y) is not capable of being cured prior to the end of the
period referred to in Section 8.1(b)(ii); provided, that the Company
shall only be permitted to terminate the Agreement within ten days
after receipt of any such notice and the information reasonably
requested by it in order to evaluate the significance of such change or
event; and provided, further, that if the Company does not give the
Parent written notice of termination within such ten day period, the
Company shall be deemed to have consented to such change or event and
shall not be entitled thereafter to assert that such change or event
gives rise to a failure of a condition set forth in Section 9.3(b); or

(h) by the Parent, upon the occurrence of a change or event
requiring the Company to give notice pursuant to Section 7.21 that (x)
would give rise to the failure of a condition set forth in Section
9.2(b) and (y) is not capable of being cured prior to the end of the
period referred to in Section 8.1(b)(ii); provided, that the Parent
shall only be permitted to terminate the Agreement within ten days
after receipt of any such notice and the information reasonably
requested by it in order to evaluate the significance of such change or
event; and provided, further, that if the Parent does not give the
Company written notice of termination within such ten day period, the
Parent shall be deemed to have consented to such change or event and
shall not be entitled thereafter to assert that such change or event
gives rise to a failure of a condition set forth in Section 9.2(b).

8.2. Effect of Termination. In the event of termination of this
Agreement as provided in Section 8.1, this Agreement shall forthwith become void
and have no effect, without any liability or obligation on the part of any
party, other than the provisions of Sections 6.2, 7.7, and 8.6, and except to
the extent that such termination results from the willful and material breach by
a party of any of its representations, warranties, covenants or other agreements
set forth in this Agreement.

8.3. Amendment. This Agreement may be amended by the parties at any
time before or after any required approval of matters presented in connection
with the Merger by the holders of the Company Shares; provided, however, that
after such approval, there shall be made no amendment that pursuant to Section
251(d) of the DGCL requires further approval by such

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shareholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties.

8.4. Extension; Waiver. At any time prior to the Effective Time, the
parties may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties contained in this Agreement or in any other
document delivered pursuant to this Agreement or (c) subject to the proviso of
Section 8.3, waive compliance with any of the agreements or conditions contained
in this Agreement. Any agreement on the part of a party to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. The failure of any party to this Agreement to assert any
of its rights under this Agreement or otherwise shall not constitute a waiver of
such rights.

8.5. Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 8.1, an amendment of this
Agreement pursuant to Section 8.3, or an extension or waiver pursuant to Section
8.4 shall, in order to be effective, require in the case of each of the Parent,
the Subsidiary and the Company, action by its Board of Directors or the duly
authorized designee of the Board of Directors.

8.6. Expenses; Break-up Fees.

(a) All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expense, including any brokers fees pursuant to
Section 3.20 and 5.17.

(b) In the event of a termination of this Agreement by the
Company pursuant to Section 8.1(d) as a result of the Board of
Directors approving, recommending, or endorsing an Acquisition
Transaction and within one year after the effective date of such
termination, the Company is the subject of an Acquisition Transaction
with any Person (as defined in Sections 3(a)(9) and 13(d)(3) of the
Exchange Act) (other than a party hereto), then at the time of the
execution by the Company of a definitive agreement with respect
thereto, the Company shall pay to the Parent a break-up fee of 3% of
the aggregate consideration that would have been paid by Parent if the
Merger had been consummated (determined as it would have been
calculated on the effective date of termination of this Agreement,
substituting the effective date of such termination for the Effective
Time of the Merger for purposes of calculating the aggregate value of
the Parent Common Stock issued to the stockholders of the Company in
the Merger) in immediately available funds. Each of the Parent and the
Company acknowledges that the provisions for the payment of the
break-up fee and the allocation of expenses contained in this Section
8.6 are an integral part of the transactions contemplated by this
Agreement, and that without these provisions the Parent would not have
entered into this Agreement. The obligations of the Company under this
Section 8.6 shall survive any termination of this Agreement.

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SECTION 9. CONDITIONS TO CLOSING

9.1. Mutual Conditions. The respective obligations of each party to
effect the Merger shall be subject to the satisfaction, at or prior to the
Closing Date of the following conditions (any of which may be waived in writing
by the Parent, the Subsidiary and the Company):

(a) None of the Parent, the Subsidiary or the Company nor any
of their respective subsidiaries shall be subject to any order, decree
or injunction by a United States Federal or state court of competent
jurisdiction which (i) prevents the consummation of the Merger or (ii)
would impose any material limitation on the ability of the Parent
effectively to exercise full rights of ownership of the Common Stock of
the Surviving Corporation or any material portion of the assets or
business of the Company and the Company Subsidiaries, taken as a whole.

(b) No statute, rule or regulation shall have been enacted by
the government (or any governmental agency) of the United States or any
state that makes the consummation of the Merger and any other
transaction contemplated hereby illegal.

(c) Any waiting period (and any extension thereof) applicable
to the consummation of the Merger under the HSR Act shall have expired
or been terminated.

(d) The holders of shares of the Company Capital Stock shall
have approved the adoption of this Agreement and any other matters
submitted to them for the purpose of approving the transactions
contemplated hereby.

(e) The shares of the Parent Common Stock to be issued in
connection with the Merger shall have been listed on the Nasdaq Stock
Market (or such other exchange on which the Parent Common Stock is then
listed), upon official notice of issuance, and shall have been issued
in transactions qualified or exempt from registration under applicable
securities or Blue Sky laws of such states and territories of the
United States as may be required.

(f) The Merger shall qualify for "pooling of interests"
accounting treatment, and the Parent and the Company shall have
received a letter, dated the Closing Date, from each of KPMG Peat
Marwick and Ernst & Young LLP, respectively, as to their concurrence
with the Parent and the Company to that effect if the Merger is
consummated in accordance with the terms and provisions of this
Agreement.

(g) Parent and the Company shall have received all consents,
waivers, approvals and authorizations of third parties with respect to
all material contracts, leases, service agreements and management
agreements to which such entities are parties, which consents, waivers,
approvals and authorizations are required of such third parties by such
documents, in form and substance acceptable to Parent and the Company,
as the case may be, except where the failure to obtain such consent,
approval or authorization would not have a material effect on the
business of Parent or the Company.

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(h) All consents, authorizations, orders and approvals of (or
filings or registrations with) any governmental commission, board or
other regulatory body required to execute, deliver and perform this
Agreement shall have been obtained or made, except for fillings in
connection with the Merger and any other documents required to be filed
after the Effective Time.

(i) The Registration Statement shall have been declared
effective and no stop order with respect to the Registration Statement
shall be in effect.

9.2. Conditions to Obligations of the Parent. The obligations of the
Parent to consummate the Merger and the other transactions contemplated hereby
shall be subject to the satisfaction, at or prior to the Closing Date, of the
following conditions (any of which may be waived by the Parent):

(a) The agreements of the Company to be performed at or prior
to the Closing Date pursuant to the terms hereof shall have been duly
performed in all material respects, and the Company shall have
performed, in all material respects, all of the acts required to be
performed by it at or prior to the Closing Date by the terms hereof.

(b) The representations and warranties of the Company set
forth in this Agreement that are qualified as to materiality shall be
true and correct, and those that are not so qualified shall be true and
correct in all material respects, as of the date of this Agreement and
as of the Closing as though made at and as of such time, except to the
extent such representations and warranties expressly relate to an
earlier date (in which case such representations and warranties that
are qualified as to materiality shall be true and correct, and those
that are not so qualified shall be true and correct in all material
respects, as of such earlier date); provided, however, that the Company
shall not be deemed to be in breach of any such representations or
warranties by taking any action permitted (or approved by the Parent)
under this Agreement. The Parent and the Subsidiary shall have been
furnished with a certificate, executed by a duly authorized officer of
the Company, dated the Closing Date, certifying as to the fulfillment
of the foregoing condition.

(c) The Parent shall have received an opinion from Mayor, Day,
Caldwell & Keeton, L.L.P., in form and substance reasonably
satisfactory to the Parent as to the matters set forth in Exhibit
9.2(d) hereto.

(d) The Parent shall have received "Affiliate Letters" as
provided in Section 7.12 herein from the shareholders of the Company.

9.3. Conditions to Obligations of the Company. The obligations of the
Company to consummate the Merger and the other transactions contemplated hereby
shall be subject to the satisfaction, at or prior to the Closing Date, of the
following conditions (any of which may be waived by the Company):

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(a) The agreements of the Parent and the Subsidiary to be
performed at or prior to the Closing Date pursuant to the terms hereof
shall have been duly performed, in all material respects, and the
Parent and the Subsidiaries shall have performed, in all material
respects, all of the acts required to be performed by them at or prior
to the Closing Date by the terms hereof.

(b) The representations and warranties of the Parent and the
Subsidiary set forth in this Agreement that are qualified as to
materiality shall be true and correct, and those that are not so
qualified shall be true and correct in all material respects, as of the
date of this Agreement and as of the Closing as though made at and as
of such time, except to the extent such representations and warranties
expressly relate to an earlier date (in which case such representations
and warranties that are qualified as to materiality shall be true and
correct, and those that are not so qualified shall be true and correct
in all material respects, as of such earlier date). The Company shall
have been furnished with a certificate, executed by duly authorized
officers of the Parent and the Subsidiary, dated the Closing Date,
certifying in such detail as the Company may reasonably request as to
the fulfillment of the foregoing condition.

(c) The Company shall have received an opinion from Mayor,
Day, Caldwell & Keeton, L.L.P., to the effect that the Merger will
constitute a reorganization with the meaning of Section 368(a) of the
Code which opinion may be based upon reasonable representations of fact
provided by officers of the Parent, the Company and the Subsidiary.

(d) The Company shall have received an opinion from Waller
Lansden Dortch & Davis, A Professional Limited Liability Company, in
form and substance reasonably satisfactory to the Company as to the
matters set forth in Exhibit 9.3(d) hereto.

SECTION 10. MISCELLANEOUS

10.1. Nonsurvival of Representations and Warranties. Unless expressly
provided otherwise, none of the representations and warranties in this Agreement
or in any instrument delivered pursuant to this Agreement shall survive the
Effective Time. All covenants and agreements set forth in this Agreement shall
survive in accordance with their terms.

10.2. Notices. Any communications required or desired to be given
hereunder shall be deemed to have been properly given if sent by hand delivery
or by facsimile and overnight courier to the parties hereto at the following
address, or at such other address as either party may advise the other in
writing from time to time:

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If to the Parent or the Subsidiary:

PhyCor, Inc.
30 Burton Hills Blvd., Suite 400
Nashville, Tennessee 37215
Attention: President
Fax: (615) 665-9088

with a copy to:

Waller Lansden Dortch & Davis, PLLC
511 Union Street, Suite 2100
Nashville, Tennessee 37219-8966
Attention: J. Chase Cole, Esq.
Fax: (615) 244-6804

If to the Company:

First Physician Care, Inc.
3200 Windy Hill Road, Suite 400
Atlanta, Georgia 30339
Attention: President
Fax: (770) 980-0054

and with a copy to:

Mayor, Day, Caldwell & Keeton, L.L.P.
700 Louisiana, Suite 1900
Houston, Texas 77002-2778
Attention: Diana M. Hudson
Fax: (713) 225-7047

All such communications shall be deemed to have been delivered on the
date of hand delivery or on the next business day following the deposit
of such communications with the overnight courier.

10.3. Further Assurances. Each party hereby agrees to perform any
further acts and to execute and deliver any documents which may be reasonably
necessary to carry out the provisions of the Agreement.

10.4. Governing Law. This Agreement shall be interpreted, construed and
enforced with the laws of the State of Delaware, applied without giving effect
to any conflicts-of-law principles.

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<PAGE> 152

10.5. "Knowledge." "To the knowledge," "to the best knowledge," or any
other similar phrase shall be deemed to refer to the knowledge of the executive
officers of a party and to include the assurance that such knowledge is based
upon a reasonable investigation, unless otherwise expressly provided.

10.6. "Material adverse change" or "material adverse effect." "Material
adverse change" or "material adverse effect" means, when used in connection with
the Company or the Parent, any change, effect, event or occurrence having
individually or in the aggregate, a material adverse impact on the business or
financial position of such party and its subsidiaries and other controlled
entities, taken as a whole; provided however that "material adverse change" and
"material adverse effect" shall be deemed to exclude the impact of (i) changes
in generally accepted accounting principles, (ii) changes in applicable law,
(iii) changes in general economic or market conditions or in conditions
affecting the healthcare or physician practice management industries in general
and (iv) any changes resulting from any restructuring or other similar charges
or write-offs taken by the Company with the consent of the Parent; provided,
however, that no such charges or write-offs will be taken if such would
adversely affect pooling-of-interests accounting treatment for the Merger.

10.7. "Hazardous Materials." "Hazardous Materials" means any toxic or
hazardous wastes, pollutants or substances, including, without limitation,
asbestos, radon, PCBs, petroleum products and byproducts, substances defined or
listed as "hazardous waste," "hazardous substance," "hazardous air substance,"
"toxic substance," "toxic pollutant," "hazardous air pollutant," "medical
waste," "infectious waste," or similarly identified substance or mixture, in or
pursuant to any federal, state or local law.

10.8. "Environmental Laws." The term "Environmental Laws" means any
federal, state, or local statute, regulation, rule or ordinance, and any
judicial or administrative interpretation thereof, regulating the use,
generation, handling, storage, transportation, discharge, emission, spillage or
other release or threatened release of Hazardous Materials or relating to the
protection of the environment.

10.9. Captions. The captions or headings in this Agreement are made for
convenience and general reference only and shall not be construed to describe,
define or limit the scope or intent of the provisions of this Agreement.

10.10. Entire Agreement. This Agreement, the Company Disclosure
Schedule, the Parent Disclosure Schedule, the Appendices attached hereto and the
Confidentiality Agreement contain the entire agreement of the parties and
supersede any and all prior or contemporaneous agreements between the parties,
written or oral, with respect to the transactions contemplated hereby.

10.11. Counterparts. This Agreement may be executed in several
counterparts, each of which, when so executed, shall be deemed to be an
original, and such counterparts shall, together, constitute and be one an the
same instrument.

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10.12. Binding Effect. This Agreement shall be binding on, and shall
inure to the benefit of, the parties hereto, and their respective successors and
assigns, and, except as expressly provided in Section 7.18(c), no other person
shall acquire or have any right under or by virtue of this Agreement. No party
may assign any right or obligations hereunder without the prior written consent
of the other parties.

10.13. No Rule of Construction. The parties agree that, because all
parties participated in negotiating and drafting this Agreement, no rule of
construction shall apply to this Agreement which construes ambiguous language in
favor of or against any party by reason of that party's role in drafting this
Agreement.

IN WITNESS WHEREOF, the Parent, the Subsidiary and the Company have
caused this Agreement to be executed by their respective duly authorized
officers, all as of the day and year first above written.

PHYCOR, INC.

By: /s/ Steven R. Adams
------------------------------------------
Name: Steven R. Adams
----------------------------------------
Title: Vice President
---------------------------------------

FALCON ACQUISITION SUB, INC.

By: /s/ Steven R. Adams
------------------------------------------
Name: Steven R. Adams
----------------------------------------
Title: Vice President
---------------------------------------

FIRST PHYSICIAN CARE, INC.

By: /s/ Stephen A. George, M.D.
------------------------------------------
Name: Stephen A. George, M.D.
Title: Chairman, President & Chief
Executive Officer

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<PAGE> 154
Annex B

[LETTERHEAD OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION]

December 19, 1997

The Board of Directors
First Physician Care, Inc.
3200 Windy Hill Road
Suite 400 West
Atlanta, Georgia 30339

Gentlemen:

You have requested our opinion as to the fairness from a financial
point of view to the holders of Class A Common Stock, par value $.001 per share
("Class A Common Stock"), and holders of Class B Common Stock, par value $.001
per share ("Class B Common Stock," and together with the Class A Common Stock,
the "Company Common Stock") of First Physician Care, Inc. (the "Company"), in
the aggregate, of the Exchange Ratio (as defined below) pursuant to the terms of
the Agreement and Plan of Merger, to be dated as of December 19, 1997 (the
"Agreement") among PhyCor, Inc. ("PhyCor"), Falcon Acquisition Sub, Inc.
("Falcon"), a wholly owned subsidiary of PhyCor, and the Company pursuant to
which Falcon will be merged (the "Merger") with and into the Company.

Pursuant to the Agreement, each share of Company Common Stock will be
converted, subject to certain exceptions, into the right to receive 0.247429
shares (the "Exchange Ratio") of common stock, no par value, of PhyCor ("PhyCor
Common Stock").

In arriving at our opinion, we have reviewed the draft dated December
17, 1997 of the Agreement. We also have reviewed financial and other information
that was publicly available or furnished to us by the Company or PhyCor,
including information provided during discussions with their respective
managements. Included in the information provided during discussions with the
respective managements were certain financial projections of the Company for the
period beginning January 1, 1998 and ending December 31, 2002 prepared by the
management of the Company and certain financial projections of PhyCor for the
period beginning January 1, 1998 and ending December 31, 2002 prepared by the
management of PhyCor. In addition, we have compared certain financial and
securities data of the Company and PhyCor with various other companies whose
securities are traded in public markets, reviewed the historical stock prices
and trading volumes of the PhyCor Common Stock, reviewed prices paid in certain
other business combinations and conducted such other financial studies, analyses
and investigations as we deemed appropriate for purposes of this opinion.

In rendering our opinion, we have relied upon and assumed the accuracy
and completeness of all of the financial and other information that was
available to us from public sources, that was provided to us by the Company or
PhyCor or their respective representatives, or that was otherwise reviewed by
us. With respect to the financial projections supplied to us, we have assumed
that they

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December 19, 1997
The Board of Directors
First Physician Care, Inc.

have been reasonably prepared (i) with respect to PhyCor, on the basis
reflecting the best currently available estimates and judgments of the
management of PhyCor as to the future operating and financial performance of
PhyCor and (ii) with respect to the Company, include the best currently
available estimates and judgments of the management of the Company as to the
future operating and financial performance of the Company. We have not assumed
any responsibility for making an independent evaluation of any assets or
liabilities or for making any independent verification of any of the information
reviewed by us. We have relied as to certain legal matters on advice of counsel
to the Company.

Our opinion is necessarily based on economic, market, financial and
other conditions as they exist on, and on the information made available to us
as of, the date of this letter. It should be understood that, although
subsequent developments may affect this opinion, we do not have any obligation
to update, revise or reaffirm this opinion. We are expressing no opinion herein
as to the prices at which PhyCor Common Stock will actually trade any time. Our
opinion does not constitute a recommendation to any stockholder as to how such
stockholder should vote on the proposed transaction.

Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of
its investment banking services, is regularly engaged in the valuation of
businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. DLJ, through
its affiliate the Sprout Group, owns approximately 16% of the fully diluted
common equity of the Company and Class A Preferred Stock of the Company with a
liquidation preference of $6.0 million (plus accrued but unpaid dividends of
$0.8 million). Additionally, the Sprout Group has a loan outstanding to the
Company in the aggregate principal amount of $1.2 million.

Based upon the foregoing and such other factors as we deem relevant, we
are of the opinion that the Exchange Ratio is fair to the holders of Company
Common Stock, in the aggregate, from a financial point of view.

Very truly yours,

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

By: /s/ CRAIG R. CALLEN
------------------------------
Craig R. Callen
Managing Director

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Annex C
FIRST PHYSICIAN CARE, INC.
SPECIAL MEETING OF STOCKHOLDERS
_______________ , 1998
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF FIRST PHYSICIAN CARE, INC.

The undersigned hereby appoints Stephen A. George and Karl A. Hardesty and
each of them, with full power of substitution, attorneys and proxies of the
undersigned to vote the shares of Class A Common Stock, par value $.001 per
share, Class A Preferred Stock, par value $1.00 per share, Class B Convertible
Preferred Stock, par value $1.00 per share, and Class C Convertible Preferred
Stock, par value $1.00 per share, of First Physician Care, Inc. ("FPC"), which
the undersigned could vote, and with all power the undersigned would possess, if
personally present at the Special Meeting of Stockholders of FPC to be held at
the corporate office of FPC located at 3200 Windy Hill Road, Suite 400 West,
Atlanta, Georgia 30339 on _________, 1998, at 9:00 a.m., Eastern time, and any
adjournment thereof:

1. To approve and adopt the Plan and Agreement of Merger, dated as of
December 19, 1997, attached as Annex A to the Prospectus-Proxy Statement that
has been transmitted in connection with the Special Meeting, pursuant to which
FPC will merge with and into Falcon Acquisition Sub, Inc., a Delaware
corporation and wholly-owned subsidiary of PhyCor Inc. ("PhyCor"), and
stockholders of FPC will receive 0.247429 shares of Common Stock of PhyCor for
each share of Common Stock of FPC owned by them, holders of FPC Class A
Preferred Stock will be entitled to receive 4.607016 shares of PhyCor Common
Stock for each FPC share of Class A Preferred Stock held, holders of FPC Class B
Convertible Preferred Stock will be entitled to receive 9.526966 shares of
PhyCor Common Stock for each share of Class B Convertible Preferred Stock held
and holders of FPC Class C Convertible Preferred Stock shall be entitled to
receive 2.474289 shares of PhyCor Common Stock for each share of Class C
Convertible Preferred Stock held all as described in said Prospectus--Proxy
Statement.

FOR [ ] AGAINST [ ] ABSTAIN [ ]

(CONTINUED AND TO BE DATED AND SIGNED ON OTHER SIDE)

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<PAGE> 157

(CONTINUED FROM OTHER SIDE)

2. To consider and vote upon a proposal to approve certain payments to
Stephen A. George, M.D. that will result from the Merger under the terms of (i)
FPC's employment agreement with Dr. George, and (ii) the Amended and Restated
Consulting and Non-Compete Agreement among Dr. George, FPC and PhyCor, and (iii)
FPC's stock option plans (collectively, the "Change of Control Payments"). The
Change of Control Payments are more completely described in the accompanying
Prospectus-Proxy Statement and a copy of The Consulting Agreement is attached as
Annex E.

FOR [ ] AGAINST [ ] ABSTAIN [ ]

3. In their discretion, to act upon any matters incidental to the foregoing
and such other business as may properly come before the Special Meeting.

This Proxy, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this Proxy will
be voted FOR Items 1 and 2 above. Any holder who wishes to withhold the
discretionary authority referred to in Item 3 above should mark a line through
the entire Item. Discretionary authority and votes against approval of the
Merger Agreement and the Change of Control Payments will not be used to vote in
favor of adjournment.

Receipt of the Prospectus-Proxy Statement dated __________, 1998, is hereby
acknowledged.

Dated: __________, 1998

---------------------------------------------------------------
Signature(s)

(Please sign exactly and as fully as your name appears on your
stock certificate. If shares are held jointly, each stockholder
should sign.)
PLEASE MARK, SIGN, DATE AND RETURN PROMPTLY, USING THE ENCLOSED
ENVELOPE. NO POSTAGE IS REQUIRED.

<PAGE> 158
Annex D

SS. 262. APPRAISAL RIGHTS

(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to ss.228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value the shareholder's stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a non-stock corporation; the words "stock" and "share"
mean and include what is ordinarily meant by those words and also membership or
membership interest of a member of a non-stock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.

(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to ss.251 (other than a merger effected pursuant to ss.251(g)
of this title), ss.252, ss.254, ss.257, ss.258, ss.263 or ss.264 of this title.;

(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of ss.251 of this title.

(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to ss.ss.251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:

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a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;

b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in respect
thereof) or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;

c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or

d. Any combination of the shares of stock, depository receipts and cash
in lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.

(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under ss.253 of this title is not owned by the parent
corporation immediately prior to the merger, appraisal rights shall be available
for the shares of the subsidiary Delaware corporation.

(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.

(d) Appraisal rights shall be perfected as follows:

(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsection (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of his
shares shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably

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<PAGE> 160

informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares. A proxy or
vote against the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written demand
as herein provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become effective;
or

(2) If the merger or consolidation was approved pursuant to ss.228 or
ss.253 of this title, each constituent corporation, either before the effective
date of the merger or consolidation or within ten days thereafter, shall notify
each of the holders of any class or series of stock of such constituent
corporation who are entitled to appraisal rights of the approval of the merger
or consolidation and that appraisal rights are available for any or all shares
of such class or series of stock of such constituent corporation, and shall
include in such notice a copy of this section; provided that, if the notice is
given on or after the effective date of the merger or consolidation, such notice
shall be given by the surviving or resulting corporation to all such holders of
any class or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective date
of the merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such notice,
demand in writing from the surviving or resulting corporation the appraisal of
such holder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such holder's shares. If such notice
did not notify stockholders of the effective date of the merger or
consolidation, either (i) each such constituent corporation shall send a second
notice before the effective date of the merger or consolidation notifying each
of the holders of any class or series of stock of such constituent corporation
that are entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send such a
second notice to all such holders on or within 10 days after such effective
date; provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only be sent
to each stockholder who is entitled to appraisal rights and who has demanded
appraisal of such holder's shares in accordance with this subsection. An
affidavit of the secretary or assistant secretary or of the transfer agent of
the corporation that is required to give either notice that such notice has been
given shall, in the absence of fraud, be prima facie evidence of the facts
stated therein. For purposes of determining the stockholders entitled to receive
either notice, each

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constituent corporation may fix, in advance, a record date that shall be not
more than 10 days prior to the date the notice is given, provided, that if the
notice is given on or after the effective date of the merger or consolidation,
the record date shall be such effective date. If no record date is fixed and the
notice is given prior to the effective date, the record date shall be the close
of business on the day next preceding the day on which the notice is given.

(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.

(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by

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the Court, and the costs thereof shall be borne by the surviving or resulting
corporation.

(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with the provisions of this section and who have
become entitled to appraisal rights. The Court may require the stockholders who
have demanded an appraisal for their shares and who hold stock represented by
certificates to submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal proceedings; and if any
stockholder fails to comply with such direction, the Court may dismiss the
proceedings as to such stockholder.

(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.

(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any other state.

(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any

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stockholder in connection with the appraisal proceeding, including, without
limitation, reasonable attorney's fees and the fees and expenses of experts, to
be charged pro rata against the value of all of the shares entitled to an
appraisal.

(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.

(l) The shares of the surviving or resulting corporation into which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
120, L. '97, eff. 7-1-97.)

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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

(a) Article 8 of the Registrant's Amended Bylaws provides as follows:

The Corporation may indemnify, and upon request may advance expenses to,
any person (or the estate of any person) who was or is a party to, or is
threatened to be made a party to, any threatened, pending or completed
action, suit or proceeding, whether or not by or in the right of the
Corporation, and whether civil, criminal, administrative, investigative or
otherwise, by reason of the fact that such person is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, partner, trustee,
employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against any liability
incurred in the action, suit or proceeding, despite the fact that such
person has not met the standard of conduct set forth in Section
48-18-502(a) of the Tennessee Business Corporation Act (the "Act") or would
be disqualified for indemnification under Section 48-18-502(d) of the Act,
if a determination is made by the person or persons enumerated in Section
48-18-502(b) of the Act that the director or officer seeking
indemnification is liable for (i) any breach of the duty of loyalty to the
Corporation or its shareholders, (ii) acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law or
(iii) voting for or assenting to a distribution in violation of the Act.

Section 7 of the Registrant's Restated Charter provides as follows:

The Corporation shall indemnify, and upon request shall advance expenses
to, in the manner and to the full extent permitted by law, any person (or
the estate of any person) who was or is a party to, or is threatened to be
made a party to, any threatened, pending or completed action, suit or
proceeding, whether or not by or in the right of the Corporation, and
whether civil, criminal, administrative, investigative or otherwise, by
reason of the fact that such person is or was a director, officer, or
employee of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
(an "indemnitee"). The indemnification provided herein shall not be deemed
to limit the right of the Corporation to indemnify any other person for any
such expenses to the full extent permitted by law, nor shall it be deemed
exclusive of any other rights to which any person seeking indemnification
from the Corporation may have or hereafter acquire under this Charter or
the Bylaws of the Corporation or under any agreement or vote of
shareholders or disinterested directors or otherwise, both as to action in
his official capacity and as to action in another capacity while holding
such office; provided, however, that the Corporation shall not indemnify
any such indemnitee in connection with a proceeding (or part thereof) if a
judgment or other final adjudication adverse to the indemnitee establishes
his liability (i) for any breach of the duty of loyalty to the Corporation
or its shareholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law or (iii) under
Section 48-18-304 of the Tennessee Business Corporation Act.

(b) In addition to the foregoing provisions of the Amended Bylaws and
Restated Charter of the Registrant, directors, officers, employees and agents of
the Registrant may be indemnified by the Registrant, pursuant to the provisions
of Section 48-18-601 et seq. of the Tennessee Code Annotated.

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<PAGE> 165

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C>
2 -- Agreement and Plan of Merger, dated as of December 19, 1997, by and
among the Registrant, Falcon Acquisition Sub, Inc. and First
Physician Care, Inc. (included as Annex A to the Prospectus --
Proxy Statement filed as part of this Registration Statement)
3.1 -- Restated Charter of the Registrant (a)
3.2 -- Amendment to Restated Charger of Registrant (b)
3.3 -- Amendment to Restated Charter of Registrant (c)
4.1 -- Amended Bylaws of the Registrant (a)
4.2 -- Form of Common Stock Certificate (d)
4.3 -- Shareholder Rights Agreement, dated February 18, 1994, between the
Registrant and First Union National Bank of North Carolina (e)
5* -- Opinion of Waller Lansden Dortch & Davis, A Professional Limited
Liability Company
8** -- Opinion of Mayor, Day, Caldwell & Keeton, LLP as to tax matters
10 -- Amended and Restated Consulting and Non-Compete Agreement dated
January 29, 1998, by and among First Physician Care, Inc., PhyCor,
Inc. and Stephen A. George, M.D. (included as Annex E to
Prospectus-Proxy Statement)
23.1 -- Consent of KPMG Peat Marwick LLP
23.2 -- Consent of Ernst & Young LLP
23.3* -- Consent of Waller Lansden Dortch & Davis, A Professional Limited
Liability Company (included in Exhibit 5)
23.4**-- Consent of Mayor, Day, Caldwell & Keeton, LLP (included in Exhibit
8)
23.5 -- Consent of Donaldson, Lufkin & Jenrette Securities Corporation
24* -- Power of Attorney
99 -- Form of Proxy (included as Annex C to the Prospectus-Proxy
Statement)
</TABLE>

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

*Previously filed.
**To be filed by amendment.
(a) Incorporated by reference to the exhibits filed with the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994, Commission
No. 0-19786.
(b) Incorporated by reference to the exhibits filed with the Registrant's
Registration Statement on Form S-3, Registration No. 33-93018.
(c) Incorporated by reference to the exhibits filed with the Registrant's
Registration Statement on Form S-4, Registration No. 33-66210.
(d) Incorporated by reference to the exhibits filed with the Registrant's
Registration Statement on Form S-1, Registration No. 33-44123
(e) Incorporated by reference to exhibits filed with the Registrant's Annual
Report on Form 8-K dated February 18, 1994, Commission No. 0-19786.

(b) Financial Statement Schedules

All financial statement schedules are incorporated herein by reference to
PhyCor's Annual Report on Form 10-K for the year ended December 31, 1996.

ITEM 22. UNDERTAKINGS.

The undersigned Registrant hereby undertakes:

II-2
<PAGE> 166

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b), if, in the
aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
Registration Statement.

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.

(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof

(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.

(4) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fade offering thereof.

(5) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.

(6) That every prospectus: (i) that is filed pursuant to the paragraph
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Securities Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as part of an amendment to the
Registration Statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

II-3
<PAGE> 167

(7) To respond to requests for information that is incorporated by
reference into the prospectus pursuant Items 4, l0(b), 11, or 13 of this Form,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filet subsequent to the effective date of the
Registration Statement through the date of responding to the request.

(8) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the Registration Statement when it became
effective.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted against the
Registrant by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.

II-4
<PAGE> 168

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Nashville, State of
Tennessee, on March 16, 1998.

PHYCOR, INC.

By: /s/Joseph C. Hutts
-----------------------------------

Joseph C. Hutts
Chairman of the Board, President and
Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
NAME TITLE DATE
- ---- ----- ----
<S> <C> <C>
/s/ Joseph C. Hutts Chairman of the Board, President, March 16, 1998
- -------------------- Chief Executive Officer (Principal
Joseph C. Hutts Executive Officer) and Director

/s/ John K. Crawford Chief Financial Officer (Principal March 16, 1998
- -------------------- Financial and Accounting Officer)
John K. Crawford

*
- -------------------- Director March 16, 1998
Ronald B. Ashworth

- --------------------- Director March __, 1998
Sam A. Brooks, Jr.

/s/ Thompson S. Dent
- --------------------- Executive Vice President, Operations March 16, 1998
Thompson S. Dent and Director

*
- --------------------- Director March 16, 1998
Winfield Dunn

*
- --------------------- Director March 16, 1998
C. Sage Givens

*
- --------------------- Director March 16, 1998
Joseph A. Hill, M.D.
</TABLE>

II-5
<PAGE> 169

<TABLE>
<S> <C> <C>
*
- ------------------------ Director March 16, 1998
Kay Coles James

*
- ------------------------ Director March 16, 1998
James A. Moncrief, M.D.

/s/ Derril W. Reeves
- ------------------------ Executive Vice President, Development March 16, 1998
Derril W. Reeves and Director

/s/ Richard D. Wright
- ------------------------ Executive Vice President, Corporate March 16, 1998
Richard D. Wright Services and Director

</TABLE>

By /s/ Joseph C. Hutts
---------------------
Joseph C. Hutts
As Attorney-in Fact

II-6
<PAGE> 170

EXHIBIT INDEX

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

<PAGE> 1
EXHIBIT 23.1

The Board of Directors
PhyCor, Inc.:

We consent to the use of our report dated February 4, 1997, except for note
12(a) which is as of March 7, 1997, incorporated by reference herein and to the
reference to our firm under the heading "Experts" and "Selected Consolidated
Financial Data - PhyCor" in the registration statement on Form S-4 of PhyCor,
Inc.

/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP

Nashville, Tennessee
March 16, 1998

<PAGE> 1

EXHIBIT 23.2

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
First Physician Care, Inc.

We consent to the references to our firm under the captions "Selected
Consolidated Financial Data - FPC" and "Experts" and to the use of our report
dated April 18, 1997, with respect to the consolidated financial statements of
First Physician Care, Inc. included in Amendment No. 1 to the Prospectus-Proxy
Statement and Registration Statement on Form S-4 (No. 333-45209) of PhyCor, Inc.

ERNST & YOUNG, LLP

Atlanta, Georgia
March 16, 1998

<PAGE> 1
EXHIBIT 23.5

CONSENT OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION

We hereby consent to (i) the inclusion of our opinion letter, dated
December 19, 1997, to the Board of Directors of First Physician Care, Inc. (the
"Company") as Annex B to the Proxy Statement/Prospectus of the Company relating
to its proposed merger with PhyCor, Inc. and (ii) the references to DLJ in the
Prospectus and Proxy Statement which forms a part of the Registration Statement
on Form S-4 of PhyCor, Inc. (registration no. 333-45209) in the letter to
stockholders, on the cover page of the Prospectus and Proxy Statement and under
the captions "Summary -- Votes Required and - The Merger"; "The Special Meeting
- -- Votes Required"; and "The Merger -- Background of the Merger, -- Reasons for
the Merger; Recommendation of the Board of Directors, and -- Opinion of
Donaldson, Lufkin & Jenrette Securities Corporation". In giving such consent, we
do not admit that we come within the category of persons whose consent is
required under, and we do not admit that we are "experts" for purposes of, the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder.

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

By: /s/ Craig R. Callen
-----------------------------------
Craig R. Callen
Managing Director

New York, New York
March 12, 1998