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                                                                   EXHIBIT 10.42

                             EMPLOYMENT AGREEMENT

     Employment Agreement, dated as of January 24, 1998 (the "Agreement"), by
and between Physicians Resource Group, Inc., a Delaware corporation (the
"Company"), and Peter Dorflinger ("Employee").  This Agreement is executed on
January 24, 1998, and is effective as of its date.

                              W I T N E S S E T H:

     In consideration of the mutual covenants and conditions contained herein,
the parties hereto agree as follows:

     Section 1.  Employment.  The Company hereby agrees to employ Employee, and
Employee hereby accepts employment by the Company, upon the terms and subject to
the conditions hereinafter set forth.  During the term of his employment
hereunder, the Employee shall have the title of President and Chief Operating
Officer of the Company.

     Section 2.  Duties.  In his capacity as President and Chief Operating
Officer of the Company, the Employee shall perform such reasonable executive
duties as a president would normally perform or as otherwise specified in the
By-laws of the Company, and such other reasonable executive duties as the Board
of Directors of the Company may from time to time reasonably prescribe with the
concurrence of Employee.  Except as otherwise provided herein, except as may
otherwise be approved by the Board of Directors of the Company, and except
during vacation periods and reasonable periods of absence due to sickness,
personal injury or other disability, Employee agrees to devote substantially all
of his available time to the performance of his duties to the Company hereunder,
provided that nothing contained herein shall preclude the Employee from (i)
serving on the board of directors of any business or corporation on which he is
serving on the date hereof or, with the consent of the Board of Directors,
serving on the board of directors of any other business or corporation, (ii)
serving on the board of, or working for, any charitable or community
organization, (iii) pursuing his personal financial and legal affairs so long as
such activities do not materially interfere with the performance of Employee's
duties hereunder.

     Section 3.  Term.  Except as otherwise provided herein, the term of this
Agreement shall be for three years (the "Initial Term"), commencing on the date
of this Agreement.  This Agreement shall be automatically renewed thereafter for
successive one year terms (each such renewal term, an "Renewal Term") unless
either party gives to the other written notice of termination no fewer than
ninety (90) days prior to the expiration of any such Renewal Term, which notice
shall expressly refer to this Section 3 of the Agreement and state that such
party does not wish to extend this Agreement (any such notice, a "Non-Renewal
Notice").  Any such Non-Renewal Notice given by the Company shall constitute a
termination of Employee's employment without Cause for purposes of this
Agreement.  The Initial Employment Term, as the same may be extended by any
Renewal Term, is referred to herein as the "Employment Term."  The provisions of
this Agreement shall survive any termination hereof.

     Section 4.  Compensation and Benefits.  In consideration for the services
of the Employee hereunder, the Company shall compensate Employee and perform its
other obligations as provided in this Section 4.

     (a)  Base Salary.  Commencing on the date hereof, Employee shall be
entitled to receive, and the Company shall pay the Employee in equal bi-weekly
installments, a base salary at a rate per annum of Three Hundred Thousand United
States Dollars ($300,000), as increased from time to time by the Board of
Directors 

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of the Company or the Option and Compensation Committee of the Board of
Directors (the "Compensation Committee"). Commencing in 1999 and from time to
time at least annually thereafter, the Compensation Committee shall review and
evaluate the annual base salary of the Employee in accordance with its standard
policies and practices for key executive employee compensation and, in its
discretion, may increase the Employee's annual base salary commencing on January
24, 1999 and on anniversaries of such date thereafter. The amount of such base
salary for each respective annual one year period, including any increases
hereafter approved, is referred to as the "Base Salary" for such respective one
year period. The Employee's Base Salary may not and shall not be decreased or
reduced, including but not limited to after giving effect to any such increase.

     (b)  Bonuses.  During the Employment Term, the Employee shall be eligible
to participate in any annual fiscal year bonus program that may be provided by
the Company for its key executive employees, subject to its terms and
conditions.  To the extent that any payment thereunder is subject to the
achievement by the Company of certain financial performance objectives, such
objectives shall not be less favorable to the Employee than those applicable to
other executive employees participating thereunder.  On January 24, 1998, the
Board adopted a formal bonus plan (the "Executive Bonus Plan") for eligible
senior executive officers, including Employee, which shall be in form and
substance reasonably satisfactory to the Company and Employee and contain terms
and conditions consistent with this Agreement.  The Executive Bonus Plan shall
provide Employee with a target bonus opportunity of seventy-five percent (75%)
of Base Salary for each calendar year in the Employment Term if the Company
attains specified budgeted financial performance objectives for such year, and
an over achievement bonus opportunity of five percent (5%) of target bonus for
each one percent (1%) the Company exceeds such specified budgeted financial
performance objectives.  Such objectives and targets shall be determined on an
annual basis each year during the Employment Term, and shall be reasonably
satisfactory to the Company and Employee.  The Executive Bonus Plan (including
such objectives and targets) will be initially prepared by the Chief Executive
Officer or (to the extent he so determines) under his supervision and presented
to the Compensation Committee for review.  All bonuses payable to Employee under
the Executive Bonus Plan or any other  annual bonus plan shall be determined and
paid on or prior to January 31 of the year following the year for which such
bonus is payable.

     (c)  Other Long Term Incentive Compensation.  Employee shall be entitled to
participate in all long-term incentive compensation programs for key executives
(if any) at a level commensurate with his position.

     (d)  Other Benefits.  During the term of this Agreement, Employee shall be
entitled to participate in and receive benefits under any and all pension,
profit-sharing, life and other insurance, medical, dental, health and other
welfare and fringe benefit plans and programs, and be provided any and all other
perquisites, that are from time to time made available to executive employees or
other employees of the Company.  Employee shall also be entitled to an amount of
paid vacation per calendar year, and sick leave and illness and disability
benefits, in accordance with such reasonable Company policy as may be applicable
from time to time to key executive employees.

     (e)  Options.  To induce Employee to enter into employment with the Company
and as a condition of his acceptance of such employment, effective upon the date
of this Agreement, the Company shall grant to Employee an option to purchase Two
Hundred Thousand (200,000) shares of the Common Stock, par value $0.01 per
share, of the Company (the "Common Stock") at an exercise price of Three and
Five Eighths ($3.625) per share (the "Option").  To evidence the Option,
promptly after the execution of this Agreement, but in no event later than
February 15, 1998, the Company shall execute and deliver to the Employee an
option agreement (the "Option Agreement"), which shall contain terms and
conditions consistent with this Agreement and shall provide, among other things,
for the following:

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          (i)   The Option shall be vested over a 3-year term, with an ultimate
     expiration date of the later of (x) January 23, 2008 and (y) the tenth
     anniversary of the date on which the Option is granted to Employee.

          (ii)  The grant of the Option shall not be subject to any approval by
     stockholders of the Company.

          (iii) If Employee voluntarily terminates his employment without Good
     Reason (as defined in Section 6 hereof), the Option, to the extent it is
     vested, shall remain exercisable for thirty (30) days following the date of
     such termination.  In the event of any other termination of Employee's
     employment with the Company, the Option, to the extent it is vested, shall
     remain exercisable for three hundred sixty-five (365) days following the
     date of such termination.

          (iv)  The shares of Common Stock of the Company issuable under the
     Option shall be fully registered and freely tradeable and shall be of the
     same class of voting common stock of the Company, with the same rights,
     powers and privileges, as is currently publicly traded on the New York
     Stock Exchange and registered with the United States Securities and
     Exchange Commission (the "SEC"). Without limiting the foregoing, such
     shares shall not be subject to any restriction, on transfer, on exercise of
     any right, power or privilege or otherwise, not applicable to all of such
     class of voting common stock generally.

     Section 5.  Expenses and Other Employment-Related Matters.  (a)  It is
acknowledged by the parties that Employee, in connection with the services to be
performed by him pursuant to the terms of this Agreement, will be required to
make payments for travel, entertainment and similar expenses.  The Company shall
reimburse Employee for all reasonable expenses incurred by Employee in
connection with the performance of his duties hereunder or otherwise on behalf
of the Company.

     (b)  Employee shall receive a car leasing allowance of One Thousand United
States Dollars ($1,000) per month.  Employee may continue to maintain his
principal residence in Houston, Texas, and the Company shall promptly reimburse
Employee for reasonable travel expenses between Houston, Texas and the principal
executive offices of the Company and the reasonable living expenses of Employee
incurred in connection with residing in or near the city or area in which the
principal executive offices of the Company are located.

     (c)  If a federal, state or local income or other similar tax for any
portion of the items for which the Company pays or reimburses Employee pursuant
to this Section 5 is assessed against Employee by the Internal Revenue Service
or any other taxing authority and the Company is unable to successfully contest
such assessment, the Company shall promptly make an additional payment to
Employee equal to the amount of the taxes, interest and penalties ultimately
payable by Employee with respect thereto, plus any taxes due by reason of such
additional payment.

     Section 6.  Termination.  Employee's employment may terminate prior to the
end of the Employment Term as provided in this Section 6.

     (a)  Death or Disability.  Employee's employment will terminate (x)
immediately upon the death of Employee during the term of his employment
hereunder or (y) at the option of the Company, upon 30 days' prior written
notice to Employee, in the event of Employee's disability.  Employee shall not
be deemed disabled unless, as a result of Employee's incapacity due to physical
or mental illness (as determined by a physician mutually selected by Employee or
his representative and the Company), Employee shall have been absent from 

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and unable to perform his duties with the Company on a full-time basis for 120
consecutive business days. In the event of termination of Employee's employment
pursuant to this Section 6(a):

          (1)  The Company shall immediately pay Employee (i) any portion of
     Employee's Base Salary accrued but unpaid through the date of such
     termination, (ii) all payments and reimbursements under Section 5 hereof
     for expenses incurred prior to such termination, and (iii) a prorated
     annual bonus for the year of termination equal to seventy-five percent
     (75%) of the amount calculated by dividing Employee's annual Base Salary at
     the date of such termination by twelve and multiplying the result by the
     number of months in the year of such termination that began or ended prior
     to the date of such termination.  If the Company achieves target
     performance objectives for the entire year in which such termination occurs
     that, under the Executive Bonus Plan or any other then effective bonus
     plan, would have entitled Employee to receive an annual bonus for such year
     calculated at a percent greater than seventy-five percent (75%) of Base
     Salary, Employee (or his estate) shall be entitled to receive, at the time
     such bonus would have normally been payable, an additional amount equal to
     (x) such larger bonus amount divided by twelve and multiplied by the number
     of months in the year of such termination that began or ended prior to the
     date of such termination minus (y) the amount previously paid pursuant to
     clause (iii) of the preceding sentence.

          (2)  The Employee shall be entitled to receive all vested benefits
     under the Company's otherwise applicable plans and programs.

     (b)  For Cause.  The Company may terminate the Employee's employment for
Cause (as defined below) upon written notice by the Company to Employee, such
termination to take effect on the date determined in accordance with the last
paragraph of this Section 6(b) below to be the termination date for such
purpose.  In the event of termination of Employee's employment for Cause
pursuant to this Section 6(b):

          (1)  The Company shall immediately pay Employee (i) any portion of
     Employee's Base Salary accrued but unpaid through the date of such
     termination and (ii) all payments and reimbursements under Section 5 hereof
     for expenses incurred prior to such termination.

          (2)  The Employee shall be entitled to receive all vested benefits
     under the Company's otherwise applicable plans and programs.

     For purposes of this Agreement, the term "Cause" shall mean Employee's (i)
gross negligence in the performance of his duties as the Company's President and
Chief Executive Officer, which gross negligence results in a material adverse
effect on the Company, provided that no such gross negligence will constitute
"Cause" if it relates to an action taken or omitted by Employee in the good
faith, reasonable belief that such action or omission was in or not opposed to
the best interests of the Company; or (ii) habitual neglect or disregard of his
duties as the Company's President and Chief Executive Officer that is materially
and demonstrably injurious to the Company, after written notice from the Company
stating the duties Employee has failed to perform; or (iii) conviction of a
felony, provided that no such conviction will constitute "Cause" if it relates
to an action taken or omitted by Employee in the good faith, reasonable belief
that such action or omission was in or not opposed to the best interests of the
Company.  The Employee's employment may not and shall not be terminated for
Cause unless (1) the Board of Directors provides the Employee with written
notice stating the conduct alleged to give rise to such Cause, (2) the Employee
has been given an opportunity to be heard by the Board, (3) in the case of
clause (i) or (ii) of the definition of Cause, the Employee has been given a
reasonable time to cure, and the Employee has not cured, such negligence or
failure to the reasonable 

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satisfaction of the Board and (4) the Board has approved such termination by
majority vote of the members of the Board of Directors, excluding the Employee.

     (c)  By Company Without Cause.  The Company may terminate Employee's
employment at any time for any reason without Cause.  In the event of any
termination of Employee's employment by the Company without Cause:

          (1)  The Company shall pay Employee severance pay for the Severance
     Period (as defined below), the per annum amount of which shall equal one
     hundred percent (100%) of his Base Salary at the date of such termination.
     The Company shall pay such severance pay in installments on a bi-weekly
     basis with the first payment being made with respect to the first bi-weekly
     payroll period for executive employees commencing after the date of his
     termination of employment (but not later than 14 days after the date of
     such termination).  The Company's obligation to make such payments shall be
     absolute and unconditional.  Without limiting the foregoing, such payments
     shall not be subject to any right of offset or similar right, and Employee
     shall have no obligation of mitigation or similar obligation with respect
     thereto.

          (2)  The Company shall immediately pay Employee (i) the portion of
     Employee's Base Salary accrued but unpaid through the date of such
     termination, (ii) all payments and reimbursements under Section 5 hereof
     for expenses incurred prior to such termination and (iii) a prorated annual
     bonus for the year of termination equal to seventy-five percent (75%) of
     the amount calculated by dividing Employee's annual Base Salary at the date
     of such termination by twelve and multiplying the result by the number of
     months in the year of such termination that began or ended prior to the
     date of such termination.  If the Company achieves target performance
     objectives for the entire year in which such termination occurs that, under
     the Executive Bonus Plan or any other then effective bonus plan, would have
     entitled Employee to receive an annual bonus for such year calculated at a
     percent greater than seventy-five percent (75%) of Base Salary, Employee
     (or his estate) shall be entitled to receive, and the Company shall pay, at
     the time the bonus would have normally been payable, an additional amount
     equal to (x) such larger bonus amount divided by twelve and multiplied by
     the number of months in the year of such termination that began or ended
     prior to the date of such termination minus (y) the amount previously paid
     pursuant to clause (iii) of the preceding sentence.

          (3)  Employee shall be entitled to receive all vested benefits under
     the Company's otherwise applicable plans and programs.

          (4)  Following such termination, Employee shall be entitled to
     continue participation (including participation of dependents, where
     applicable) in all medical, dental, health and other welfare benefit plans
     (or receive comparable coverage if such participation is not permitted
     under the terms of such plans or if the Board, at its option, determines
     that it is in the best interests of the Company to provide such comparable
     coverage rather than continued participation in the Company's plans) until
     the end of the Severance Period upon the same terms and conditions that
     would have applied if Employee continued to be employed by the Company,
     provided that the benefits referred to in this clause (4) will cease if and
     to the extent Employee becomes eligible for similar benefits by reason of
     new employment.

     For purposes of this Agreement, the term "Severance Period" means (i) if
the Employee's employment is terminated at or prior to the end of the Initial
Term (including but not limited to by the giving of any Non-Renewal Notice or
other notice as provided in Section 3 hereof), a period equal to the greater of
(x) two full 

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years beginning on the date of such termination and (y) the then remaining
portion of the Initial Term and (ii) if the Employee's employment is terminated
after the end of the Initial Term and prior to the end of the then-current
Renewal Term (including but not limited to by the giving of any Non-Renewal
Notice or other notice as provided in Section 3 hereof), a period equal to one
full year beginning on the date of such termination.

     (d)  By Employee for Good Reason.  Employee may terminate his employment at
any time for Good Reason.  In the event of any termination of Employee's
employment by Employee for Good Reason:

          (1)  The Company shall pay Employee severance pay for the Severance
     Period, the per annum amount of which shall equal one hundred percent
     (100%) of his Base Salary at the date of such termination.  The Company
     shall pay such severance pay in installments on a bi-weekly basis with the
     first payment being made with respect to the first bi-weekly payroll period
     for executive employees commencing after the date of his termination of
     employment (but not later than 14 days after the date of such termination).
     The Company's obligation to make such payments shall be absolute and
     unconditional.  Without limiting the foregoing, such payments shall not be
     subject to any right of offset or similar right, and Employee shall have no
     obligation of mitigation or similar obligation with respect thereto.

          (2)  The Company shall immediately pay Employee (i) the portion of
     Employee's Base Salary accrued but unpaid through the date of such
     termination, (ii) all payments and reimbursements under Section 5 hereof
     for expenses incurred prior to such termination and (iii) a prorated annual
     bonus for the year of termination equal to seventy-five percent (75%) of
     the amount calculated by dividing Employee's annual Base Salary at the date
     of such termination by twelve and multiplying the result by the number of
     months in the year of such termination that began or ended prior to the
     date of such termination.  If the Company achieves target performance
     objectives for the entire year in which such termination occurs that, under
     the Executive Bonus Plan or any other then effective bonus plan, would have
     entitled Employee to receive an annual bonus for such year calculated at a
     percent greater than seventy-five percent (75%) of Base Salary, Employee
     (or his estate) shall be entitled to receive, and  the Company shall pay,
     at the time the bonus would have normally been payable, an additional
     amount equal to (x) such larger bonus amount divided by twelve and
     multiplied by the number of months in the year of such termination that
     began or ended prior to the date of such termination minus (y) the amount
     previously paid pursuant to clause (iii) of the preceding sentence.

          (3) Employee shall be entitled to receive all vested benefits under
     the Company's otherwise applicable plans and programs.

          (4)  Following such termination, Employee shall be entitled to
     continue participation (including participation of dependents, where
     applicable) in all medical, dental, health and other welfare benefit plans
     (or receive comparable coverage if such participation is not permitted
     under the terms of such plans or if the Board, at its option, determines
     that it is in the best interests of the Company to provide such comparable
     coverage rather than continued participation in the Company's plans) during
     the Severance Period upon the same terms and conditions that would have
     applied if Employee continued to be employed by the Company, provided that
     the benefits referred to in this clause (4) will cease if and to the extent
     Employee becomes eligible for similar benefits by reason of new employment.

     For purposes of this Agreement, "Good Reason" means (A) a material
diminution of Employee's duties or responsibilities, (B) a reduction in
Employee's Base Salary, or annual bonus or long-term incentive 

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compensation opportunity, (C) a Change of Control (as defined in Section 7
hereof), (D) failure of the Board to adopt the Executive Bonus Plan by March 31,
1998, (E) failure of the Company to execute and deliver to Employee, on or prior
to January 24, 1998, the Option Agreement and Registration Rights Agreement in
form and substance reasonably satisfactory to Employee and containing terms and
conditions consistent with this Agreement, or (F) a material breach by the
Company of any other provision of this Agreement that is not cured promptly
after written notice to the Company by Employee.

     (e)  By Employee Without Good Reason.  Employee may terminate his
employment at any time without Good Reason upon 20 days' prior written notice to
the Company.  In the event of any such termination of Employee's employment by
Employee without Good Reason:

          (1)  The Company shall immediately pay Employee (i) any portion of
     Employee's Base Salary accrued but unpaid through the date of such
     termination and (ii) all payments and reimbursements under Section 5 hereof
     for expenses incurred prior to such termination.

          (2)  The Employee shall be entitled to receive all vested benefits
     under the Company's otherwise applicable plans and programs.

     (f)  Excise Tax Gross Up Payments.  If a Change of Control or other
transaction triggers or results in the imposition upon Employee of any excise or
similar tax under Section 4999 of the Internal Revenue Code (or any similar or
successor provision), the Company shall pay (or cause any acquiror in such
transaction to pay) any such excise or similar tax and make "gross-up" payments
to Employee to the extent necessary so that Employee will receive the same net
after-tax amount he would have received if no excise tax had been imposed on
him.

     (g)  No Penalty, Forfeiture or Liability.  Any termination by Employee of
his employment with the Company in accordance with the terms hereof shall be
without penalty, forfeiture or liability arising out of such termination of any
kind or nature.  Notwithstanding any other provision hereof, any termination of
Employee's employment on or after the occurrence of a Change of Control shall be
deemed to be a termination by the Company without Cause (if by the Company) or
by the Employee with Good Reason (in any other case).

     Section 7.  Change In Control.  For purposes of this Agreement, (1) the
term "Person" means any corporation, partnership (general, limited or other),
trust (business or other), company (limited liability, joint-stock, or other),
business, firm, association, organization, individual, governmental
instrumentality or entity, or other person or entity, (2) the term "Voting
Stock" shall mean, as to any Person, the then-outstanding securities of or other
interests in such corporation entitled to vote generally in the election of
directors, trustees or similar managers of such Person, and (3) the term "Change
in Control" shall mean:

     (a)  The Company is merged, consolidated or reorganized into or with
another corporation or other Per  son, or the stockholders of the Company
approve such a merger, consolidation or reorganization, and as a result of such
merger, consolidation or reorganization, the holders of the Voting Stock of the
Company immediately prior to such transaction hold or would hold in the
aggregate less than seventy percent (70%) of the combined voting power of the
then-outstanding Voting Stock of the surviving corporation or Person immediately
after such transaction; or

     (b)  The Company sells or otherwise transfers all or substantially all of
its assets to another corporation or other Person, or the stockholders of the
Company approve such a sale or transfer, and either (x) as a result of such sale
or transfer, the holders of Voting Stock of the Company immediately prior to
such sale or transfer 

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hold or would hold in the aggregate less than seventy percent (70%) of the
combined voting power of the then-outstanding Voting Stock of such corporation
or Person immediately after such sale or transfer, or (y) such corporation or
Person does not assume all of the Company's obligations to the Employee pursuant
to an instrument in form and substance reasonably satisfactory to the Employee;
or

     (c)  The Company is liquidated or dissolved, or the stockholders of the
Company approve such a liquidation or dissolution; or

     (d)  Any Person or "group" (as the term "group" is used in Section 13(d)(3)
or Section 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) becomes, or a report is filed on Schedule 13D or Schedule 14D-1
(or any successor schedule, form or report), each as promulgated pursuant to the
Exchange Act, disclosing that any Person or "group" (as the term "group" is used
in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become, the
beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or
any successor rules or regulations promulgated under the Exchange Act) of
securities representing 30% or more of the combined voting power of the then-
outstanding Voting Stock of the Company or 50% or more of the then-outstanding
shares of Voting Stock of the Company; or

     (e)  The Company files a report or proxy statement with the Securities and
Exchange Commission pursuant to the Exchange Act disclosing in response to Form
8-K or Schedule 14A (or any successor schedule, form or report or item therein)
that a change in control of the Company has occurred or will occur in the future
pursuant to any then-existing contract or transaction; or

     (f)  If, during any period of two consecutive years, individuals who at the
beginning of any such period constitute the Directors of the Company cease for
any reason to constitute at least a majority thereof; provided, however, that
for purposes of this clause (f) each Director who is first elected, or first
nominated for election by the Company's stockholders, by a vote of at least two-
thirds of the Directors of the Company then still in office who were Directors
of the Company at the beginning of any such period (other than an election or
nomination of any individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the election of the
Directors of the Company, as such terms are used in Rule 14a-11 or any successor
rule or regulation promulgated under the Exchange Act) will be deemed to have
been a Director of the Company at the beginning of such period.

     Section 8.  Indemnification.  (a)  The Company agrees that, to the maximum
extent permitted under the corporate laws of the State of Delaware or, if more
favorable, the By-Laws of the Company as in effect on the date of this
Agreement, (x) the Employee shall be indemnified and held harmless by the
Company as provided under such corporate laws or such By-Laws, as applicable,
for actions or matters taken, undertaken or omitted to be taken or undertaken,
whether in connection with the performance of his duties and responsibilities
under this Agreement, or otherwise on behalf of the Company or any of its
Affiliates (as defined below), and (y) without limiting the foregoing, the
Company shall indemnify and hold harmless the Employee from and against (i) any
claim, loss, liability, obligation, damage, cost, expense, action, suit,
proceeding or cause of action (collectively, "Claims") arising from or out of or
relating to the Employee's acting as an officer, director, employee or agent of
the Company or any of its Affiliates or in any other capacity, including any
fiduciary capacity, in which the Employee serves at the request of the Company
or any of its Affiliates, and (ii) any cost or expense (including fees and
disbursements of counsel) (collectively, "Expenses") incurred by the Employee in
connection with the defense or investigation thereof.  If any Claim is asserted
or other matter arises with respect to which the Employee believes in good faith
the Employee is entitled to indemnification as contemplated hereby, the Company
shall pay the Expenses incurred by the Employee in connection with the defense
or investigation of such Claim or matter (or cause such Expenses to be paid) on

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a bi-weekly basis, provided that the Employee shall reimburse the Company for
such amounts if the Employee shall be found, as finally judicially determined by
a court of competent jurisdiction, not to have been entitled to indemnification
hereunder.

     For purposes of this Section 8(a), the term "Affiliate" means any
corporation or other entity (i) that, directly or indirectly, controls or is
controlled by or under common control with the Company or (ii) in respect of
which the Company is the beneficial owner (as defined in Section 7(d) above) of
at least 10% of its voting common stock or similar equity interests entitled to
vote generally for the election of such corporation's or entity's board of
directors, managers or trustees.

     (b)  The Company agrees not to amend or modify its By-Laws as in effect on
the date of this Agreement in any manner that would be adverse to Employee
without the prior written consent of Employee.  The Company further agrees to
maintain directors and officers insurance that covers Employee as an insured in
effect throughout the Employment Term in policy amounts not less than, and on
terms and conditions no less favorable to Employee than, those of the directors
and officers insurance policy that is currently in effect.  The Company
represents and warrants that it has previously provided to Employee a true,
complete and correct copy of such policy.

     Section 9.  Confidential Information.  Employee recognizes and acknowledges
that certain proprietary, non-public information owned by the Company and its
affiliates, including without limitation proprietary, non-public information
regarding customers, pricing policies, methods of operation, proprietary
computer programs, sales, products, profits, costs, markets, key personnel,
formulae, product applications, technical processes, and trade secrets
(hereinafter called "Confidential Information"), are valuable, special and
unique assets of the Company and its affiliates.  Employee will not, during or
after his term of employment, without the prior written consent of a member of
the Board believed by Employee to have been authorized by the Board for such
purpose, knowingly and intentionally disclose any of the Confidential
Information obtained by him while in the employ of the Company to any person,
firm, corporation, association or other entity for any reason or purpose
whatsoever, directly or indirectly (other than to an employee of the Company or
its affiliates, a director of the Company or its affiliates, or a Person to whom
disclosure is necessary or appropriate in Employee's good faith judgment in
connection with the performance of his duties hereunder or otherwise on behalf
of the Company), unless and until such Confidential Information becomes publicly
available (other than as a consequence of the breach by Employee of his
confidentiality obligations under this Section 9), and except as may be required
(or as Employee may be advised by counsel is required) in connection with any
judicial, administrative or other governmental proceeding or inquiry.  In the
event of the termination of his employment, whether voluntary or involuntary and
whether by the Company or Employee, Employee will deliver to the Company and
will not take with him any documents, or any other reproductions (in whole or in
part) of any items, comprising Confidential Information (except that Employee
may retain any documents or reproductions in his possession on the date hereof,
his personal address, telephone and other contact lists and information, and any
other documents or reproductions retained upon advice of counsel).
Notwithstanding any other provision hereof, the term "Confidential Information"
does not include any information that (a) is or becomes publicly available other
than as the result of the breach by Employee of his confidentiality obligations
under this Section 9, (b) became, is or becomes available to Employee on a
nonconfidential basis from a source, other than the Company, that to Employee's
knowledge is not prohibited from disclosing such information to Employee by a
confidentiality obligation owed to the Company or (c) was known to Employee
prior to becoming a member of the Board of Directors.  The provisions of this
Section 9 shall expire and be of no further force or effect on the third
anniversary of the date of termination of Employee's employment with the
Company.

                                       9
<PAGE>
 
     Section 10.  Noncompetition.  During his employment with the Company
pursuant to this Agreement, Employee will not knowingly and intentionally (i)
engage, directly or indirectly, alone or as a partner, officer, director,
employee or consultant of any other business organization, in any business
activities that are substantially and directly competitive with the business
activities then conducted by the Company (the "Designated Industry"), (ii)
divert to any competitor of the Company in the Designated Industry any customer
of Employee, which diversion has a material adverse effect on the Company, or
(iii) solicit or encourage any officer, employee, or consultant of the Company
to leave its employ for employment by or with any competitor of the Company in
the Designated Industry, which officer, employee or consultant so enters such
competitor's employment and which occurrence has a material adverse effect on
the Company, provided that Employee shall not be deemed to have breached his
obligations under clause (ii) or (iii) of the preceding sentence if Employee
takes such action in a good faith belief that such action is in the best
interests of the Company.  The parties hereto acknowledge that Employee's
noncompetition obligations hereunder will not preclude Employee from (i) owning
less than 5% of the common stock of any publicly traded corporation or other
Person conducting business activities in the Designated Industry, (ii) serving
as an officer, director, stockholder or employee of a corporation or other
Person engaged in the healthcare industry whose business operations are not
substantially and directly competitive with those of the Company, (iii) serving
on the board of directors of any business or corporation on which he is serving
on the date hereof.  If at any time the provisions of this Section 10 are
determined to be invalid or unenforceable, by reason of being vague or
unreasonable as to area, duration or scope of activity, this Section 10 will be
considered divisible and will become and be immediately amended to only such
area, duration and scope of activity as will be determined to be reasonable and
enforceable by the court or other body having jurisdiction over the matter; and
Employee agrees that this Section 10 as so amended will be valid and binding as
though any invalid or unenforceable provision had not been included herein.

     Section 11.  Arbitration.  (a)  Subject Claims; Initiation of Binding
Arbitration.  The matters, claims, rights, and obligations subject to these
arbitration provisions consist of any and all rights, claims and obligations
arising out of or relating to this Agreement or to the Employee's employment as
it relates to this Agreement (collectively, "Subject Claims").  IN THE EVENT OF
A DISPUTE BETWEEN THE PARTIES HERETO RELATING TO ANY SUBJECT CLAIM, THEN, UPON
NOTICE BY ANY PARTY TO THE OTHER PARTY (AN "ARBITRATION NOTICE") AND TO THE
AMERICAN ARBITRATION ASSOCIATION ("AAA"), HOUSTON, TEXAS, THE DISPUTE SHALL BE
SUBMITTED TO THREE (3) ARBITRATORS WHO ARE INDEPENDENT AND IMPARTIAL, FOR
BINDING ARBITRATION IN HOUSTON, TEXAS, IN ACCORDANCE WITH AAA'S NATIONAL RULES
FOR THE RESOLUTION OF EMPLOYMENT DISPUTES (THE "RULES") AS MODIFIED OR
SUPPLEMENTED HEREBY.  THE COMPANY AND THE EMPLOYEE AGREE THAT THE LAWS OF THE
STATE OF DELAWARE SHALL APPLY. The Company and the Employee further agree that,
if the Employee prevails as to any material issue, the entire cost of such
proceedings (including, without limitation, the Employee's reasonable attorneys
fees) shall be borne by the Company.  If the Employee does not prevail as to any
material issue, the parties shall bear their own respective costs and expenses.
The arbitrators' authority shall be to interpret the terms of this Agreement as
applied to the facts of the Employee's employment by the Company (or its
successors) and his rights under this Agreement.  The parties agree that they
will faithfully observe the provisions of this Section 11 and the Rules and that
they will abide by and perform any award rendered by the arbitrators in
accordance herewith and therewith. The arbitration shall be subject to the
Federal Arbitration Act, 9 U.S.C. Section 1-16 (or to the principles enunciated
by such Act in the event it may not be technically applicable).  The award or
judgment of the arbitrators shall be final and binding on all parties and
judgment upon the award or judgment of the arbitrators may be entered and
enforced by any court having jurisdiction.  If any party becomes the subject of
a bankruptcy, receivership or other similar proceeding under the laws of the
United States of America, any state or commonwealth or any other nation or
political subdivision thereof, then, to the extent permitted or not prohibited
by applicable law, any factual or substantive legal issues arising in or during
the pendency of any such proceeding shall be subject to all of the foregoing
mandatory arbitration 

                                       10
<PAGE>
 
provisions and shall be resolved in accordance therewith. The agreements
contained herein have been given for valuable consideration, are coupled with an
interest and are not intended to be executory contracts.

     (b)  Selection of Arbitrators.  Promptly after the Arbitration Notice is
given, AAA will select seven possible arbitrators, to whom AAA will give the
identities of the parties and the general nature of the controversy. If any of
those arbitrators disqualifies himself or declines to serve, AAA shall continue
to designate potential arbitrators until the parties have seven to select from.
After the panel of seven potential arbitrators has been completed, a two-page
summary of the background of each of the potential arbitrators will be given to
each of the parties, and the parties will have a period of 10 days after
receiving the summaries in which to attempt to agree upon the arbitrators to
conduct the arbitration.  If the parties are unable to agree upon three
arbitrators, then one of the parties shall notify AAA and the other party, and
AAA will notify each party that it has five days from the AAA notice to strike
two names from the list and advise AAA of the two names stricken.  After
expiration of the strike period, if all but three candidates have been stricken,
the remaining three will be the arbitrators, but, if four or more have not been
stricken, AAA shall select the three arbitrators from those not stricken.  The
decision of AAA with respect to the selection of the arbitrator will be final
and binding in such case.

     (c)  No Litigation.  Unless and only to the extent mandatory arbitration is
validly prohibited or limited by applicable law, statute or regulation, no
litigation or other proceeding may ever be instituted at any time in any court
for the purpose of adjudicating, interpreting or enforcing any of the rights,
duties, liabilities or obligations hereunder of the parties hereto or any of
their respective rights, duties, liabilities or obligations relating to any
Subject Claim, or for the purpose of appealing any decision of an arbitrator,
except a proceeding instituted (i) for the purpose of having the award or
judgment of an arbitrator entered and enforced or (ii) to seek an injunction or
restraining order (but not damages in connection therewith) in circumstances
where such relief is available.

     (d)  Arbitration Hearing.  Within 10 days after the selection of the
arbitrators, the parties and their counsel will appear before the arbitrators at
a place and time designated by the arbitrators for the purpose of each party
making a presentation and summary of the case.  Thereafter, the arbitrators will
set dates and times for additional hearings in accordance with the Rules until
the proceeding is concluded.  The desire and goal of the parties is, and the
arbitrators will be advised that their goal should be, to conduct and conclude
the arbitration proceeding as expeditiously as possible.  If any party fails to
appear at any hearing, the arbitrators shall be entitled to reach a decision
based on the evidence that has been presented to them by the parties who did
appear.

     Section 12.  General.  (a)  Notices.  All notices and other communications
hereunder will be in writing, and will be deemed to have been duly given if
delivered personally, or three (3) business days after being mailed by certified
mail with return receipt requested, or upon receipt if sent by written
telecommunication, to the relevant address set forth below, or to such other
address as the recipient of such notice or communication will have specified to
the other party hereto in accordance with this Section 12(a):

                                       11
<PAGE>
 
If to the Company, to:                  with a copy to:
 
Physicians Resource Group, Inc.         Jackson & Walker
Three Lincoln Centre, Suite 1540        901 Main Street, Suite 6000
5430 LBJ Freeway                        Dallas, Texas 75202
Dallas, Texas 75240                     Attn: Jim Walker
Attn: General Counsel                   Fax No.: (214) 953-5822
Fax No. : (972) 982-8299

If to Employee, to:                     with a copy to:

Peter Dorflinger                        Andrews & Kurth
One Carolane Trail                      4200 Texas Commerce Tower
Houston, Texas 77024                    Houston, Texas 77002
Fax No.: (713) 467-4960                 Attn: Lawrence B. Schreve
                                        Fax No.: (713) 220-4285

     (b)  Withholding; No Offset.  All payments required to be made by the
Company under this Agreement to Employee will be subject to the withholding of
such amounts, if any, relating to federal, state and local taxes as may be
required by law.  No payment under this Agreement will be subject to offset or
reduction attributable to any amount or obligation Employee may owe or be liable
for to the Company or any other Person.

     (c)  Equitable Remedies.  Each of the parties hereto acknowledges and
agrees that upon any breach by Employee of his obligations under any of Sections
9 and 10 hereof, the Company will have no adequate remedy at law, and
accordingly will be entitled to specific performance and other appropriate
injunctive and equitable relief.

     (d)  Severability.  If any provision of this Agreement is held to be
illegal, invalid or unenforceable, such provision will be fully severable and
this Agreement will be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof will remain in full force and effect and will not be affected
by the illegal, invalid or unenforceable provision or by its severance herefrom.
Furthermore, in lieu of such illegal, invalid or unenforceable provision, there
will be added automatically as part of this Agreement a provision as similar in
its terms to such illegal, invalid or unenforceable provision as may be possible
and be legal, valid and enforceable.

     (e)  Waivers.  No delay or omission by either party hereto in exercising
any right, power or privilege hereunder will impair such right, power or
privilege, nor will any single or partial exercise of any such right, power or
privilege preclude any further exercise thereof or the exercise of any other
right, power or privilege.

     (f)  Counterparts.  This Agreement may be executed in multiple
counterparts, each of which will be deemed an original, and all of which
together will constitute one and the same instrument.

     (g)  Captions.  The captions in this Agreement are for convenience of
reference only and will not limit or otherwise affect any of the terms or
provisions hereof.

     (h)  Reference to Agreement.  Use of the words "herein," "hereof," "hereto"
and the like in this Agreement refer to this Agreement only as a whole and not
to any particular Section, subsection or provision 

                                       12
<PAGE>
 
of this Agreement, unless otherwise noted. Any reference to a "Section" or
"subsection" shall refer to a Section or subsection of this Agreement, unless
otherwise noted.

     (i)  Successors and Binding Agreement.  (1) The Company shall require any
successor (whether direct or indirect, by purchase, merger, consolidation,
reorganization or otherwise) to all or substantially all of the business or
assets of the Company, by agreement in form and substance satisfactory to the
Employee, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent the Company would be required to perform if no
such succession had taken place.  This Agreement shall be binding upon and inure
to the benefit of the Company and any successor to the Company, including
without limitation any Persons acquiring directly or indirectly all or
substantially all of the business or assets of the Company whether by purchase,
merger, consolidation, reorganization or otherwise (and such successor shall
thereafter be deemed the "Company" for the purposes of this Agreement), but
shall not otherwise be assignable, transferable or delegable by the Company.
Without limiting the foregoing, the surviving or transferee corporation or other
Person in any such transaction (whether by merger, consolidation,
reorganization, transfer of business or assets, or otherwise) shall be subject
to the provisions of Section 7 hereof and shall be deemed to be the Company for
purposes of such provisions, regardless of  whether such transaction itself
constituted a Change of Control of the Company.

     (2)  This Agreement is personal in nature and neither of the parties hereto
shall, without the consent of the other, assign, transfer or delegate this
Agreement or any rights or obligations hereunder except (x) in the case of the
Company, as expressly provided in the preceding clause (1) of this Section
12(i), and (y) in the case of Employee, for a transfer by Employee's will or by
the laws of descent and distribution.  If Employee dies while any amounts would
still be payable to him hereunder, such amounts will be paid to Employee's
estate.

     (3)  This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective heirs, successors, legal representatives and
assigns.

     (j)  Entire Agreement; Amendments and Waivers.  This Agreement (together
with the Option Agreement and the Registration Rights Agreement) contain the
entire understanding of the parties, and supersede all prior agreements and
understandings between them, relating to the subject matter hereof.  This
Agreement may not be amended or modified except by a written instrument
hereafter signed by each of the parties hereto, and may not be waived except by
a written instrument hereafter signed by the party granting such waiver.

     (K)  GOVERNING LAW.  THIS AGREEMENT AND THE PERFORMANCE HEREOF SHALL BE
GOVERNED AND CONSTRUED IN ALL RESPECTS, INCLUDING BUT NOT LIMITED TO AS TO
VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE 

                                       13
<PAGE>
 
STATE OF DELAWARE, WITHOUT REGARD TO THE PRINCIPLES OR RULES OF CONFLICT OF LAWS
THEREOF.

          EXECUTED as of the date and year first above written.

                                PHYSICIANS RESOURCE GROUP, INC.


                                By:   
                                      ------------------------------------------
                                      Richard Gilleland
                                      Chairman and Chief Executive Officer

                                EMPLOYEE


                                -----------------------------------------------
                                PETER DORFLINGER

                                       14