<PAGE>   1
                                                                  EXECUTION COPY



                                                                    EXHIBIT 10.2


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                                  PHYCOR, INC.




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                          SECURITIES PURCHASE AGREEMENT

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               Zero Coupon Convertible Subordinated Notes due 2014


                            Dated as of June 15, 1999





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<PAGE>   2


                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                               Page
                                                                                                               ----
<S>                 <C>                                                                                        <C>
1. ISSUANCE OF NOTES..............................................................................................1
         1.1.       Authorization; Conversion of Notes into Common Stock; Etc.....................................1
         1.2.       Purchase and Sale of Notes; the Closing.......................................................1

2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................................................................2
         2.1.       Organization, Qualification, Authorization....................................................2
         2.2.       Capital Stock.................................................................................3
         2.3.       Incorporation, Good Standing and Ownership of Subsidiaries....................................3
         2.4.       Consents and Approvals........................................................................4
         2.5.       SEC Reports; Financial Statements.............................................................5
         2.6.       Absence of Changes............................................................................6
         2.7.       No Undisclosed Liabilities....................................................................6
         2.8.       Absence of Defaults, etc......................................................................7
         2.9.       Material Contracts............................................................................7
         2.10.      Litigation and Orders.........................................................................7
         2.11.      Compliance with Law...........................................................................8
         2.12.      Taxes........................................................................................10
         2.13.      Title to Properties..........................................................................10
         2.14.      Compliance with ERISA........................................................................10
         2.15.      Private Offering.............................................................................11
         2.16.      Investment Company Act and Holding Company Status, Etc.......................................11
         2.17.      Environmental Matters........................................................................11
         2.18.      Insurance....................................................................................13
         2.19.      Registration Rights..........................................................................13
         2.20.      Brokerage....................................................................................13
         2.21.      Takeover Statute; Rights Plan................................................................13
         2.22.      Y2K Compliance...............................................................................13

3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS...............................................................14
         3.1.       Purchase of Notes............................................................................14
         3.2.       Organization, Qualification, Authorization...................................................14
         3.3.       Accredited Investor Status, etc..............................................................14
         3.4.       Brokerage....................................................................................15

4. INVESTOR CLOSING CONDITIONS...................................................................................15
         4.1.       Representations and Warranties; No Default...................................................15
         4.2.       Injunction...................................................................................15
         4.3.       Counsel's Opinion............................................................................15
         4.4.       Adverse Development..........................................................................16
         4.5.       Election of Directors........................................................................16
         4.6.       Consents and Approvals.......................................................................16
         4.7.       Secretary's Certificate......................................................................16
         4.8.       Officer's Certificate........................................................................16
         4.9.       Registration Rights Agreement................................................................17
         4.10.      Amendments to Bank Debt......................................................................17
         4.11.      Approval of Proceedings......................................................................17
</TABLE>


                                      (i)

<PAGE>   3

<TABLE>
<S>                 <C>                                                                                        <C>
5. COMPANY CLOSING CONDITIONS....................................................................................17
         5.1.       Representations and Warranties...............................................................17
         5.2.       Injunction...................................................................................17
         5.3.       Consents and Approvals.......................................................................18
         5.4.       Investors' Certificate.......................................................................18
         5.5.       Amendments to Bank Debt......................................................................18

6. COVENANTS.....................................................................................................18
         6.1.       Resale of Securities.........................................................................18
         6.2.       Covenants Pending Closing....................................................................19
         6.3.       Board Nominees...............................................................................19
         6.4.       Use of Proceeds..............................................................................19
         6.5.       Standstill...................................................................................20
         6.6.       Additional Purchases of Common Stock.........................................................21
         6.7.       Restrictions on Transfer.....................................................................22
         6.8.       Reasonable Efforts; Cooperation..............................................................24
         6.9.       Financial and Business Information...........................................................24
         6.10.      Inspection...................................................................................26
         6.11.      Confidentiality..............................................................................26
         6.12.      Takeover Statute.............................................................................27
         6.13.      Rights Agreement Inapplicable................................................................28
         6.14.      Hart-Scott Filings...........................................................................28
         6.15.      Conduct of Business; Negative Covenants......................................................28

7. TERMS OF NOTES; PREPAYMENTS OF NOTES; PURCHASE OF NOTES.......................................................29
         7.1.       General Terms of Notes.......................................................................29
         7.2.       Optional Redemption by the Company...........................................................29
         7.3.       Repurchase at Option of the Holder Upon a Change in Control..................................31
         7.4.       Purchase of Notes at the Option of the Holder................................................32
         7.5.       Further Conditions for Purchase at the Option of Holders Upon a Change in Control
                        and Purchase of Notes at the Option of the Holder........................................38
         7.6.       Conversion of Notes..........................................................................39
         7.7.       Adjustments to Conversion Rate...............................................................41
         7.8.       Miscellaneous Provisions Relating to Conversion..............................................49

8. DEFINITIONS...................................................................................................52
         8.1.       Definitions..................................................................................52
         8.2.       Accounting Terms.............................................................................61

9. EVENTS OF DEFAULT; REMEDIES...................................................................................61
         9.1.       Events of Default; Acceleration of Maturity and Rescission...................................61
         9.2.       Suits for Enforcement........................................................................63
         9.3.       Remedies Cumulative..........................................................................64
         9.4.       Remedies Not Waived..........................................................................64
</TABLE>


                                      (ii)

<PAGE>   4
<TABLE>
<S>                 <C>                                                                                        <C>
10. SUBORDINATION OF NOTES.......................................................................................64
         10.1.      Securities Subordinated to Senior Indebtedness...............................................64
         10.2.      Notes Subordinated to Prior Payment of All Senior Indebtedness on Dissolution,
                        Liquidation, Reorganization, etc., of the Company........................................64
         10.3.      Holders of Notes to be Subrogated to Right of Holders of Senior Indebtedness.................66
         10.4.      Obligations of the Company Unconditional.....................................................66
         10.5.      Company Not to Make Payment with Respect to Notes in Certain Circumstances...................67
         10.6.      Subordination Rights Not Impaired by Acts or Omissions of Company or Holders of
                        Senior Indebtedness......................................................................68
         10.7.      Section 10 Not to Prevent Events of Default..................................................68

11. REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; RESTRICTIVE LEGENDS TRANSFER RESTRICTIONS......................69

12. LOST, ETC., NOTES............................................................................................70

13. AMENDMENT AND WAIVER.........................................................................................70

14. TERMINATION..................................................................................................71

15. PAYMENTS.....................................................................................................71

16. CERTAIN TAXES................................................................................................72

17. MISCELLANEOUS................................................................................................72
         17.1.      Expenses.....................................................................................72
         17.2.      Reliance on and Survival of Representations..................................................72
         17.3.      Successors and Assigns.......................................................................72
         17.4.      Communications...............................................................................72
         17.5.      Consent to Jurisdiction; Service of Process; Waiver of Jury Trial............................73
         17.6.      Indemnification..............................................................................74
         17.7.      Governing Law................................................................................74
         17.8.      Headings.....................................................................................74
         17.9.      Counterparts.................................................................................74
</TABLE>

                                     (iii)

<PAGE>   5

SCHEDULE I            --  Names and Addresses of Purchasers

EXHIBIT A             --  FORM OF NOTE
EXHIBIT B             --  FORM OF OPINION OF SPECIAL COUNSEL
                                 TO THE COMPANY
EXHIBIT C             --  FORM OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT D             --  FORM OF OFFICERS' CERTIFICATE OF THE COMPANY
SCHEDULE 2.2B         --  LIENS ON SHARES ISSUED UPON CONVERSION OF THE NOTES
SCHEDULE 2.2C         --  OUTSTANDING CONVERTIBLE SECURITIES,
                                 OPTIONS, ETC.
SCHEDULE 2.3          --  SIGNIFICANT SUBSIDIARIES
SCHEDULE 2.4          --  CONSENTS AND APPROVALS
SCHEDULE 2.6          --  ABSENCE OF CHANGES
SCHEDULE 2.7          --  UNDISCLOSED LIABILITIES
SCHEDULE 2.9          --  MATERIAL AGREEMENTS; SENIOR INDEBTEDNESS
SCHEDULE 2.10         --  LITIGATION
SCHEDULE 2.11         --  COMPLIANCE WITH LAW
SCHEDULE 2.13         --  TITLE TO PROPERTIES
SCHEDULE 2.14         --  COMPLIANCE WITH ERISA
SCHEDULE 2.17         --  ENVIRONMENTAL MATTERS
SCHEDULE 2.19         --  REGISTRATION RIGHTS
SCHEDULE 2.20         --  BROKERAGE
SCHEDULE 4.10         --  AMENDMENTS TO BANK DEBT
SCHEDULE 6.3          --  LIST OF APPROVED NOMINEES
SCHEDULE 7.7          --  SUBJECT LITIGATION



                                      (iv)
<PAGE>   6


                                  PHYCOR, INC.
                            30 Burton Hills Boulevard
                                    Suite 400
                               Nashville, TN 37215



                          SECURITIES PURCHASE AGREEMENT


                                                             As of June 15, 1999

TO THE INVESTORS WHOSE NAMES
  APPEAR ON THE SIGNATURE PAGES HERETO

Ladies and Gentlemen:

               PHYCOR, INC., a Tennessee corporation (the "COMPANY"), hereby
agrees with you as follows:

1.       ISSUANCE OF NOTES.

1.1.     AUTHORIZATION; CONVERSION OF NOTES INTO COMMON STOCK; ETC.

               The Company has duly authorized the issue and sale of Zero Coupon
Convertible Subordinated Notes due 2014 (the "NOTES"), each such Note to be
substantially in the form of Exhibit A attached hereto. As used herein, the term
"NOTES" means all notes originally issued pursuant to this Agreement and all
notes delivered in substitution or exchange for any such notes and, where
applicable, includes the singular number as well as the plural. Certain
capitalized and other terms used in this Agreement are defined in Section 8.

               As provided in Section 7, the Notes are convertible into shares
of Common Stock, no par value, of the Company (the "COMMON STOCK").

1.2.     PURCHASE AND SALE OF NOTES; THE CLOSING.

               Subject to the terms and conditions hereof, the Company hereby
agrees to sell to each Investor, and each Investor agrees to purchase from the
Company, Notes in the aggregate Principal Amount at Final Maturity as set forth
opposite such Investor's name in Schedule I attached hereto. Each Note will be
issued at an issue price of $315.24 per $1,000 Principal Amount at Final
Maturity. The closing of such purchase shall be held at 10:00 A.M., New York
time, on the third Business Day following the satisfaction or waiver of the
conditions set forth in Sections 4 and 5 hereto or on such later Business Day as
may be agreed to by you and the Company (the "CLOSING DATE"), at the offices of
Willkie Farr & Gallagher, 787 Seventh Avenue, New York, NY 10019.


                                      -1-

<PAGE>   7

On the Closing Date, the Company will deliver to each Investor one or more
Notes, dated the Closing Date and registered in such Investor's name or in the
name of one or more of such Investor's nominees, in any denominations (in a
minimum amount of $500,000) and in the aggregate principal amount to be
purchased by the Investors, all as the Investors may specify by timely notice to
the Company (or, in the absence of such notice, one Note registered in each
Investor's name), in each case against delivery to the Company of immediately
available funds in the amount of the purchase price of such Notes, such delivery
to be by wire transfer to such account as the Company may direct in writing.

2.       REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

               The Company represents and warrants, as of the date hereof and as
of the Closing Date, to each of the Investors as follows:

2.1.     ORGANIZATION, QUALIFICATION, AUTHORIZATION.

               A. The Company is a corporation duly incorporated and validly
existing under the laws of the State of Tennessee and has the corporate power
and authority to own or hold under lease the property it owns or holds under
lease, to transact the business it transacts, to execute and deliver this
Agreement, the Notes and the Registration Rights Agreement and to perform the
provisions hereof and thereof. The Company is duly qualified as a foreign
corporation and is in good standing as a foreign corporation in each
jurisdiction in which the character of the properties owned or held under lease
by it or the nature of the business transacted by it requires such
qualification, except where the failure to be so qualified individually and in
the aggregate would not have a Material Adverse Effect.

               B. The execution and delivery by the Company of the Transaction
Documents, the issuance of the Notes, the performance by the Company of its
obligations hereunder and thereunder and the consummation by the Company of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company. This Agreement is, and the Notes
and the Registration Rights Agreement when executed and delivered by the Company
will be, legal, valid and binding obligations of the Company enforceable against
the Company in accordance with their respective terms, except as enforceability
may be limited by bankruptcy, insolvency or other similar laws relating to or
affecting the enforcement of creditors' rights generally and by general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law), and except as enforceability of the indemnity
provisions contained in the Registration Rights Agreement may be limited by
public policy considerations.


                                      -2-

<PAGE>   8

2.2.     CAPITAL STOCK.

               A. The authorized capital stock of the Company consists of
250,000,000 shares of its Common Stock, no par value per share (the "COMMON
STOCK") and 10,000,000 shares of preferred stock, no par value per share,
500,000 shares of which have been designated "Series A Junior Participating
Preferred Stock". As of June 10, 1999, (i) 76,292,550 shares of Common Stock
were issued and outstanding, (ii) no shares of preferred stock were issued and
outstanding, (iii) 15,167,218 shares of Common Stock were issuable upon exercise
of stock options and (iv) 5,172,413 shares of Common Stock were issuable for
issuance upon conversion of the Existing Convertible Debentures and (v) 611,127
shares of Common Stock were issuable upon conversion of other promissory notes
of the Company. As of the date hereof, there are no bonds, debentures, notes or
other evidences of indebtedness having the right to vote on any matters on which
the Company's shareholders may vote issued or outstanding.

               B. All the outstanding shares of capital stock of the Company
have been duly and validly issued and are fully paid and non-assessable, and
were issued in accordance with the registration or qualification requirements of
the Securities Act and any relevant state securities laws or pursuant to valid
exemptions therefrom. Upon their issuance in accordance with the terms of this
Agreement and the Notes, the shares of Common Stock issuable upon conversion of
the Notes will be duly authorized, validly issued, fully paid and non-assessable
shares of the capital stock of the Company, free and clear of any Lien, except
for those provided for herein or set forth on Schedule 2.2B and other than
restrictions on transfer imposed by federal or state securities laws. The
Company has reserved for issuance the number of shares of Common Stock initially
issuable upon conversion of the Notes.

               C. Except as set forth in Section 2.2A or on Schedule 2.2C and
except for the Notes, on the Closing Date there will be no shares of Common
Stock or any other equity security of the Company issuable upon conversion or
exchange of any security of the Company or any Subsidiary of the Company nor
will there be any rights, options, calls or warrants outstanding or other
agreements to acquire shares of Common Stock nor will the Company be
contractually obligated to purchase, redeem or otherwise acquire any of its
outstanding shares. No shareholder of the Company is entitled to any preemptive
or similar rights to subscribe for shares of capital stock of the Company.

2.3.     INCORPORATION, GOOD STANDING AND OWNERSHIP OF SUBSIDIARIES.

               A. Schedule 2.3 is a list of the Significant Subsidiaries of the
Company, showing, as to each Significant Subsidiary, the correct name thereof,
the jurisdiction of its


                                      -3-
<PAGE>   9

organization and the percentage of shares of each class of securities of such
Significant Subsidiary owned by the Company and each other Subsidiary of the
Company. All of the outstanding shares of each of the Significant Subsidiaries
shown in Schedule 2.3 as being owned by the Company and its Significant
Subsidiaries have been validly issued, are fully paid and nonassessable and,
except as set forth in Schedule 2.3, are owned by the Company or another
Subsidiary free and clear of any Lien. No shares of the Company are owned by any
of its Significant Subsidiaries.

               B. Each Significant Subsidiary is a corporation duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and is duly qualified as a foreign corporation
and is in good standing as a foreign corporation in each jurisdiction in which
the character of the properties owned or held under lease by it or nature of the
business transacted by it requires such qualification, except where the failure
to be so qualified individually and in the aggregate would not have a Material
Adverse Effect. Each Significant Subsidiary has the corporate power and
authority to own or hold under lease the property it owns or holds under lease
and to transact the business it transacts.

2.4.     CONSENTS AND APPROVALS.


               A. Except as set forth in Schedule 2.4, the execution and
delivery by the Company of the Transaction Documents, the issuance of the Notes,
the performance by the Company of its obligations hereunder and thereunder and
the consummation by the Company of the transactions contemplated hereby and
thereby do not require the Company or any of its Subsidiaries to obtain any
consent, approval, clearance or action of, or make any filing, submission or
registration with, or give any notice to, any Governmental Body or any other
Person, except where the failure to obtain such consents, approvals, clearance
or action would not have a Material Adverse Effect.

               B. Except as set forth in Schedule 2.4, the execution and
delivery by the Company of the Transaction Documents, the issuance of the Notes,
the performance by the Company of its obligations hereunder and thereunder and
the consummation by the Company of the transactions contemplated hereby and
thereby will not: (i) conflict with the Restated Charter or Amended Bylaws of
the Company or any Subsidiary; (ii) result in any breach of, or constitute a
default under, or result in the creation of any Lien in respect of any property
of the Company or any Subsidiary under, any Material Agreement to which the
Company or any Subsidiary is a party or by which their respective properties may
be bound or affected; or (iii) conflict with or result in a breach of any of the
terms, conditions or provisions of any Order of any court, arbitrator or
Governmental Body applicable to the Company or any Subsidiary or violate any
provision of any law,


                                      -4-

<PAGE>   10

statute, rule or regulation of any Governmental Body applicable to the Company
or any Subsidiary which, in the case of clauses (ii) or (iii) would have a
Material Adverse Effect.

               C. The execution and delivery by the Company of the Transaction
Documents, the issuance of the Notes, the performance by the Company of its
obligations hereunder and thereunder and the consummation by the Company of the
transactions contemplated hereby and thereby will not result in, pursuant to the
terms of any contractual arrangement, (i) the acceleration of the vesting of any
outstanding option, warrant, call, commitment, agreement, conversion right,
preemptive right or other right to subscribe for, purchase or otherwise acquire
any of the shares of the capital stock of the Company or any of the stock of the
Company or any of its Subsidiaries, or debt securities of the Company or any of
its Subsidiaries (collectively "COMMITMENTS", and each individually a
"COMMITMENT"), (ii) any obligation of the Company to grant, extend or enter into
any Commitment, or (iii) any right in favor of any Person to terminate or cancel
any Material Agreement.

2.5.     SEC REPORTS; FINANCIAL STATEMENTS.

               A. The Company has furnished the Investors with complete copies
of the Company's (i) Annual Reports on Form 10-K for the fiscal years ended
December 31, 1996, December 31, 1997 and December 31, 1998, as filed with the
Commission, (ii) Quarterly Report on Form 10-Q for the quarter ended March 31,
1999, as filed with the Commission, (iii) proxy statements related to all
meetings of its shareholders (whether annual or special) held since January 1,
1997, and (iv) all other reports filed with or registration statements declared
effective by the Commission since January 1, 1997, except registration
statements on Form S-8 relating to employee benefit plans, which are all the
documents (other than preliminary material) that the Company was required to
file with the Commission since that date (clauses (i) through (iv) being
referred to herein collectively as the "COMPANY SEC REPORTS"). As of their
respective dates of filing, the Company SEC Reports were duly filed and complied
in all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the
Commission thereunder applicable to such Company SEC Reports. As of their
respective dates of filing, the Company SEC Reports filed with the Commission
after January 1, 1999 and through the date hereof did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except for such
statements or omissions, if any, as have been modified by or included in
subsequent filings with the Commission prior to the date hereof.


                                      -5-
<PAGE>   11

               B. The audited consolidated financial statements and unaudited
interim financial statements of the Company included in the Company SEC Reports
comply as to form in all material respects with applicable accounting
requirements of the Securities Act and with the published rules and regulations
of the Commission with respect thereto. The financial statements included in the
Company SEC Reports (i) have been prepared in accordance with GAAP applied on a
consistent basis (except as may be indicated therein or in the notes thereto),
(ii) present fairly, in all material respects, the financial position of the
Company and its Subsidiaries as at the dates thereof and the results of their
operations and cash flow for the periods then ended subject, in the case of the
unaudited interim financial statements, to normal year-end audit adjustments and
any other adjustments described therein and the fact that certain information
and notes have been condensed or omitted in accordance with the Exchange Act and
the rules promulgated thereunder, and (iii) are in all material respects, in
accordance with the books of account and records of the Company except as
indicated therein.

2.6.     ABSENCE OF CHANGES.

               Except as disclosed in the Company SEC Reports or on Schedule
2.6, since December 31, 1998, there has been no (i) change or event which would
have a Material Adverse Effect, (ii) declaration, setting aside or payment of
any dividend or other distribution with respect to the capital stock of the
Company, (iii) issuance of capital stock (other than pursuant to the exercise of
options, warrants, or convertible securities outstanding at such date) or
options, warrants or rights to acquire capital stock (other than the rights
granted to the Investors hereunder), (iv) material loss, destruction or damage
to any material amount of property of the Company or any Subsidiary, that was
not insured, (v) acceleration or prepayment of any indebtedness of the Company
for borrowed money or the refunding of any such indebtedness, (vi) loan or
extension of credit to any officer or employee of the Company or any Subsidiary
other than advances for travel-related expenses and similar advances to officers
and employees of the Company in the ordinary course of business or (vii)
acquisition or disposition of any material assets (or any contract or
arrangement therefor), or any other material transaction by the Company or any
Subsidiary otherwise than for fair value in the ordinary course of business. No
event that would constitute an Event of Default has occurred and is continuing.

2.7.     NO UNDISCLOSED LIABILITIES.

               Except as set forth on Schedule 2.7, neither the Company nor any
of its Subsidiaries has any debt, obligation or liability (whether accrued,
absolute, contingent, liquidated or otherwise, or whether due or to become due)
including, without


                                      -6-

<PAGE>   12

limitation, unfunded past service liabilities under any pension, profit sharing
or similar plan, except liabilities disclosed in the Company SEC Reports,
liabilities incurred in the ordinary course of business since December 31, 1998,
and obligations under Material Agreements to which the Company or any of its
Subsidiaries are a party or agreements entered into by the Company or any of its
Subsidiaries, in the usual and ordinary course of business, other than debts,
obligations or liabilities which (individually or in the aggregate) would not
have a Material Adverse Effect.

2.8.     ABSENCE OF DEFAULTS, ETC.

               Neither the Company nor any of its Subsidiaries is in default
under or in violation of (and no event has occurred and no condition exists
which, upon notice or the passage of time (or both), would constitute a default
under) (i) its Restated Charter or Amended Bylaws, (ii) any Material Agreement
to which the Company or any Subsidiary is a party or by which their respective
properties may be bound or affected, or (iii) any order, writ, injunction or
decree of any court or any Federal, state, municipal or other domestic or
foreign governmental department, commission, board, bureau, agency or
instrumentality except, in the case of clause (ii), for defaults or violations
which would not have a Material Adverse Effect.

2.9.     MATERIAL CONTRACTS.

               A. All Material Agreements to which the Company or any of its
Subsidiaries is a party are set forth on Schedule 2.9 or have been filed as
exhibits to the Company SEC Reports. Each Material Agreement that is currently
in effect is valid, binding and enforceable against the Company or such
Subsidiary and, to the Company's knowledge, the other parties thereto, in
accordance with its terms, and in full force and effect on the date hereof.

               B. Schedule 2.9 is a list of all Senior Indebtedness as of the
date hereof.

2.10.    LITIGATION AND ORDERS.

               Except as set forth on Schedule 2.10 or as disclosed in the
Company SEC Reports, there is no action, suit, arbitration or other legal,
administrative or other governmental investigation, inquiry or proceeding
(whether federal, state, local or foreign) pending or, to the Company's
knowledge, threatened against the Company or any Subsidiary or any of their
respective properties, assets or businesses, except for actions, suits,
arbitrations, investigation, inquiries or proceedings that would not have a
Material Adverse Effect. To the Company's knowledge, there is no fact not known
to the Investors which might result in or form the basis for any such action,
suit, arbitration, investigation, inquiry or other proceeding which would have a
Material Adverse


                                      -7-

<PAGE>   13

Effect. Neither the Company nor any Subsidiary is subject to any Order which
would have a Material Adverse Effect.

2.11.    COMPLIANCE WITH LAW.

               A. The Company and each of its Subsidiaries are in compliance in
all material respects with, and are not in violation or default in any material
respect under, all federal, state and local laws, ordinances, government rules
and regulations applicable to their business operations, properties, or assets,
including without limitation laws or regulations relating to: occupational
health and safety; insurance companies; HMOs; third party administrators; the
provision or arrangement for the provision of health services; work place
safety; equal employment opportunity and race; and religious, sex and age
discrimination, except where the failure to comply, individually or in the
aggregate, would not have a Material Adverse Effect. No material expenditures,
to the Company's knowledge, are or will be required in order to cause the
current operations or properties of the Company or any of its Subsidiaries to
comply with any applicable laws, ordinances, governmental rules or regulations
at either Closing.

               B. The Company and each of its Subsidiaries have all licenses,
permits, franchises or other governmental authorizations ("APPROVALS") necessary
to the ownership of their property and to the operation of their respective
businesses, which if violated or not obtained would have a Material Adverse
Effect. Neither the Company nor any Subsidiary has finally been denied any
application for any such Approvals necessary for their property or for the
operation of their business. There is no action pending, or to the knowledge of
the Company, threatened by appropriate state or federal agencies having
jurisdiction thereof, to either revoke, withdraw, or suspend any such Approvals,
or which would materially affect such Approvals, or to terminate the
participation of any of the Company's Subsidiaries in Medicare, Medicaid, or
other government program, or any decision not to renew any such Approvals, which
action or decision not to renew would have a Material Adverse Effect.

               C. Except as set forth on Schedule 2.11, to the extent applicable
to them, the Company and its Subsidiaries have complied in all material respects
with all laws, rules, conditions of participation, and regulations governing all
Medicare, Medicaid, and any other arrangements with any Governmental Body and
have filed all returns, cost reports and other filings in any manner prescribed
thereby except where the failure to so comply, together with all other such
failures, would not have a Material Adverse Effect. All returns, cost reports
and other filings made by the Company and its Subsidiaries since January 1, 1997
to Medicare, Medicaid or any other Governmental Entity or third party payor are
true and complete except where the failure to be so true and complete,



                                      -8-
<PAGE>   14

together with all other such failures, would not have a Material Adverse Effect.

               D. In each state in which the Company or any of its Subsidiaries
operates HMOs, PPOs, point of service plans, insurance plans or other health
care plans, the Company and each of its Subsidiaries has filed copies of its (i)
standard employer and other individual and group subscriber agreements, (ii)
contracts with physicians, hospitals and other health care entities, and (iii)
contracts for management and administrative services with the applicable state
authorities to the extent required by law, including, but not limited to
contracts required to be filed with the state Departments of Insurance,
Departments of Health or the agencies responsible for each state's Medicaid
program. The Company and each of its Subsidiaries are not providing services
under any such agreements that have not been filed and approved by the state
regulatory authorities except where the failure to so file would not have a
Material Adverse Effect.

               E. The Company and each of its Subsidiaries has filed all
reports, filings and notices required to be filed with all applicable
Departments of Insurance, Departments of Health and HMO regulatory bodies since
January 1, 1995 except where the failure to so file would not have a Material
Adverse Effect (as such documents have since the time of their filing been
amended, the "DOI Reports"). As of their respective dates, the DOI Reports
complied in all material respects with the requirements of the laws, rules and
regulations applicable to such DOI Reports, and none of the DOI Reports
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the material statements
therein, in light of the circumstances under which they were made, not
misleading, except for such statements, if any, as have been modified by
subsequent filings prior to the date hereof.

               F. Neither the Company nor any of its Subsidiaries, nor the
officers, directors, employees or agents of the Company or any of its
Subsidiaries has received any written notice alleging that it has engaged in any
activities which are prohibited, or are cause for civil penalties or mandatory
or permissive exclusion from Medicare or Medicaid, under ss.ss. 1320a-7,
1320a-7a, 1320a-7b, or 1395nn of Title 42 of the United States Code, the federal
CHAMPUS statute, or the regulations promulgated pursuant to such statutes or
regulations or related state or local statutes or, to the Company's knowledge,
which are prohibited by any private accrediting organization from which the
Company or any of its Subsidiaries seeks accreditation which would have a
Material Adverse Effect.


                                      -9-
<PAGE>   15

2.12.    TAXES.

               The Company and its Subsidiaries have filed all material tax
returns in all jurisdictions in which such returns are required to have been
filed by them and have paid all taxes, assessments, fees and governmental
charges due and payable with respect to such returns to the extent the same have
become due and payable and before they have become delinquent, other than those
being contested in good faith and with respect to which the Company or a
Subsidiary, as the case may be, has set aside on its books adequate reserves in
conformity with GAAP.

2.13.    TITLE TO PROPERTIES.

               Except as disclosed in the Company SEC Reports or on Schedule
2.13, the Company and each Subsidiary has good and marketable title to their
respective real properties and own free and clear of any Liens their respective
other properties reflected in the consolidated balance sheet as at March 31,
1999, or acquired by the Company or such Subsidiary after said date (other than
properties and assets disposed of in the ordinary course of business), except
for such imperfections of title and encumbrances as would not be individually or
in the aggregate Material.

2.14.    COMPLIANCE WITH ERISA.

               A. Except as set forth on Schedule 2.14, the Company and each
ERISA Affiliate have operated and administered each Plan in compliance with all
applicable laws except for such instances of noncompliance as have not resulted
in and would not result in a Material Adverse Effect. Except as set forth on
Schedule 2.14, neither the Company nor any ERISA Affiliate has incurred any
liability pursuant to Title I or IV of ERISA or the penalty or excise tax
provisions of the Code relating to any Plan other than such liabilities as would
not be individually or in the aggregate Material, and to the Company's
knowledge, no event, transaction or condition has occurred or exists that could
reasonably be expected to result in the incurrence of any such liability by the
Company or any ERISA Affiliate, or in the imposition of any Lien on any of the
rights, properties or assets of the Company or any ERISA Affiliate, in either
case pursuant to Title I or IV of ERISA or to such penalty or excise tax
provisions or to Section 401(a)(29) or 412 of the Code, other than such
liabilities or Liens as would not be individually or in the aggregate Material.

               B. Except as set forth on Schedule 2.14, the Company and its
ERISA Affiliates have not incurred withdrawal liabilities under Section 4201 of
ERISA and are not subject to contingent withdrawal liabilities under section
4201 or 4204 of ERISA in respect of Multiemployer Plans that individually or in
the aggregate are Material.



                                      -10-
<PAGE>   16

2.15.    PRIVATE OFFERING.

               Neither the Company nor anyone acting on its behalf has offered
the Notes or any similar securities for sale to, or solicited any offer to buy
any of the same from, or otherwise approached or negotiated in respect thereof
with, any Person other than the Investors. Neither the Company nor anyone acting
on its behalf has taken, or will take, any action which would cause an exemption
from the registration requirements of Section 5 of the Securities Act to be
inapplicable to the issuance or sale of the Notes or the shares of Common Stock
issuable upon conversion of the Notes. Based upon the representations of the
Investors set forth in Section 3, the offer, issuance and sale of the Notes are
and will be exempt from the registration and prospectus delivery requirements of
the Securities Act, and have been registered or qualified (or are exempt from
registration and qualification) under the registration, permit or qualification
requirements of all applicable state securities laws.

2.16.    INVESTMENT COMPANY ACT AND HOLDING COMPANY STATUS, ETC.

               Neither the Company nor any Subsidiary is subject to regulation
under the Investment Company Act of 1940, as amended, the Public Utility Holding
Company Act of 1935, as amended, or the Federal Power Act, as amended.

2.17.    ENVIRONMENTAL MATTERS.

               A. The operations of the Company and its Subsidiaries comply with
all applicable Environmental Laws, except where the failure so to comply
individually and in the aggregate would not have a Material Adverse Effect.

               B. In addition and without limitation to the foregoing, except as
set forth on Schedule 2.17:

               (1) during the ownership or occupation by the Company or any
          Subsidiary, neither the Company nor any Subsidiary, nor any property
          or operations currently owned or leased by the Company or any
          Subsidiary, is subject to any Order from or agreement with any court,
          arbitrator or Governmental Body of competent jurisdiction or subject
          to any judicial or docketed administrative proceeding respecting (x)
          any Environmental Law or any other environmental or health or safety
          Requirement of Law, (y) any action required to clean up, remove, treat
          or in any other way address Contaminants in the environment or (z) any
          written claim under any Environmental Law arising from the release or
          threatened release of a Contaminant into the environment, which
          individually or in the aggregate would have a Material Adverse Effect;


                                      -11-

<PAGE>   17

               (2) all necessary authorizations, consents, permissions,
          licenses and agreements required by Environmental Laws (collectively
          "ENVIRONMENTAL CONSENTS") have been lawfully obtained by the Company
          and its Subsidiaries except Environmental Consents the failure of
          which to obtain would not have a Material Adverse Effect, and all
          Environmental Consents are valid and are in full force and effect;

              (3) to the Company's knowledge, the Company and its
          Subsidiaries have complied in all material respects with all
          conditions attaching to Environmental Consents and there are no
          circumstances which would render it impossible for the Company or any
          Subsidiary to comply with such conditions in the future;

              (4) neither the Company nor any Subsidiary has received any
          written notice, Order, correspondence or written communication from
          any Governmental Body concerning any Environmental Consent revoking,
          suspending, modifying or varying the same, or threatening to do so,
          and the Company does not know of any reason for any Environmental
          Consent to be revoked, suspended, modified or varied;

              (5) neither the Company nor any Subsidiary has received any
          written communication in any form from any Governmental Body
          concerning any violation of any Environmental Law; and the Company is
          not aware of any circumstances which would be reasonably expected to
          give rise to such a communication being received, or of any intention
          on the part of any competent authority to deliver any such
          communication;

              (6) to the Company's knowledge, no site owned or occupied by
          the Company or any Subsidiary has been used for the deposit of waste
          during the ownership or occupation of the Company or any Subsidiary
          except for such usage in accordance with Environmental Law or pursuant
          to all requisite material consents thereunder;

              (7) to the Company's knowledge, all Contaminants produced in
          the course of the businesses of the Company and its Subsidiaries have
          been lawfully disposed of; and

              (8) to the Company's knowledge, the Company and its
          Subsidiaries have at all times supplied to the competent authorities
          such information as is required by Environmental Laws, and all such
          information given was correct at the time such information was
          supplied.



                                      -12-
<PAGE>   18

2.18.    INSURANCE.

               The Company and its Subsidiaries and their respective properties
are insured in such amounts, against such losses and with such insurers as are
prudent when considered in light of the nature of the properties and businesses
of the Company and its Subsidiaries and customary in light of the Company's
exposure. No notice of any termination or threatened termination of any of such
policies has been received.

2.19.    REGISTRATION RIGHTS.

               Except as set forth in Schedule 2.19 and as contemplated by this
Agreement and the Registration Rights Agreement, no Person has the right to
cause the Company to effect the registration under the Securities Act of any
shares of Common Stock or any other securities (including securities evidencing
debt) of the Company.

2.20.    BROKERAGE.

               Except as set forth on Schedule 2.20, there are no claims for
brokerage commissions or finder's fees or similar compensation in connection
with the transactions contemplated by this Agreement based on any arrangement
made by or on behalf of the Company and the Company agrees to indemnify and hold
the Investors harmless against any costs or damages incurred as a result of any
such claim.

2.21.    TAKEOVER STATUTE; RIGHTS PLAN.

               None of the Investors is, as a result of its execution and
delivery of this Agreement, the performance of its obligations hereunder or the
acquisition of any Notes or shares of Common Stock contemplated by this
Agreement, an "interested shareholder" prohibited from entering into a business
combination with the Company or any subsidiary pursuant to Section 48-103-205 of
the Business Combination Act of the State of Tennessee or an "Acquiring Person"
within the meaning of the Rights Agreement. A "Distribution Date" (as defined in
the Rights Agreement) shall not be deemed to have occurred and the Rights (as
defined in the Rights Agreement) shall not separate from the Common Stock as a
result of any of the transactions contemplated hereby. No other Takeover Statute
is applicable to the transactions contemplated hereby.

2.22.    Y2K COMPLIANCE.

               Except as set forth in the Company SEC Reports, the Company has
established and is implementing an enterprise-wide program intended to provide
(x) that the change of the year from 1999 to the year 2000 would not have a
Material Adverse Effect and (y) that the impacts of such change on the material
vendors


                                      -13-

<PAGE>   19

and customers of the Company and the Subsidiaries would not have a Material
Adverse Effect.

3.       REPRESENTATIONS AND WARRANTIES OF THE INVESTORS.

               Each of the Investors represents and warrants to the Company as
follows:

3.1.     PURCHASE OF NOTES.

               It is acquiring the Notes for its own account for investment and
not with a view towards the resale, transfer or distribution thereof, nor with
any present intention of distributing the Notes, but subject, nevertheless, to
any requirement of law that the disposition of such Investor's property shall at
all times be within such Investor's control, and without prejudice to such
Investor's right at all times to sell or otherwise dispose of all or any part of
such securities under a registration under the Securities Act or under an
exemption from said registration available under the Securities Act.

3.2.     ORGANIZATION, QUALIFICATION, AUTHORIZATION.

               A. It is a validly existing limited partnership, duly organized
under the laws of its jurisdiction of organization.

               B. It has full power and legal right to execute and deliver this
Agreement and to perform its obligations hereunder.

               C. It has taken all partnership action necessary for the
authorization, execution, delivery, and performance of this Agreement and its
obligations hereunder. This Agreement is, and the Registration Rights Agreement
when executed and delivered by it will be, legal, valid and binding obligations
of such Investor enforceable against such Investor in accordance with their
respective terms, except as enforceability may be limited by bankruptcy,
insolvency or other similar laws relating to or affecting the enforcement of
creditors' rights generally and by general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law),
and except as enforceability of the indemnity provisions contained in the
Registration Rights Agreement may be limited by public policy considerations.

3.3.     ACCREDITED INVESTOR STATUS, ETC.

               A. It has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of its investment
in the Company as contemplated by this Agreement, and is able to bear the
economic risk of such investment for an indefinite period of time. It has been
furnished access to such information and documents as it has


                                      -14-

<PAGE>   20

requested and has been afforded an opportunity to ask questions of and receive
answers from representatives of the Company concerning the terms and conditions
of this Agreement and the purchase of the Notes and the shares of Common Stock
contemplated hereby.

               B. It is an "accredited investor" as defined under Regulation D
of the Securities Act.

3.4.     BROKERAGE.

               Except for BT Alex. Brown Incorporated (whose fees and expenses
will be paid by the Investors), there are no claims for brokerage commissions or
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement made by or on behalf of
the Investors and the Investors agree to indemnify and hold the Company harmless
against any costs or damages incurred as a result of any such claim.

4.       INVESTOR CLOSING CONDITIONS.

               The Investors obligation to purchase and pay for the Notes to be
purchased by them hereunder is subject to the satisfaction on or before the
Closing Date of the following conditions:

4.1.     REPRESENTATIONS AND WARRANTIES; NO DEFAULT.

               The representations and warranties contained in Section 2 shall
(except as expressly affected by the transactions contemplated hereby) be true
and correct in all material respects on and as of the Closing Date as if made on
and as of the Closing Date; the Company shall have performed in all material
respects all agreements to be performed by it under this Agreement on or before
the Closing Date; and there shall exist on the Closing Date no Default or Event
of Default.

4.2.     INJUNCTION.

               There shall be no effective injunction, writ, preliminary
restraining order or any order of any nature issued by a court of competent
jurisdiction directing that the transactions provided for herein or any of them
not be consummated as herein provided.

4.3.     COUNSEL'S OPINION.

               Each of the Investors shall have received from the Company's
counsel, Waller Lansden Dortch & Davis, A Professional Limited Liability
Company, an opinion, dated the Closing Date, substantially in the form of
Exhibit B hereto.


                                      -15-

<PAGE>   21

4.4.     ADVERSE DEVELOPMENT.

               There shall have been no developments in the business of the
Company or any of its Subsidiaries which since the date of this Agreement have
had or are reasonably likely to have a Material Adverse Effect.

4.5.     ELECTION OF DIRECTORS.

               Two directors designated by the Investors in accordance with
Section 6.3 shall have been elected to the Board of Directors to serve as Class
1 and Class 3 directors, respectively, effective upon the Closing Date.

4.6.     CONSENTS AND APPROVALS.

               All consents, waivers, authorizations, licenses, permits,
certificates and approvals of any Person required in connection with the
execution, delivery and performance of this Agreement, including, without
limitation, the approval of each entity set forth on Schedule 2.4 hereto shall
have been duly obtained and shall be in full force and effect on the Closing
Date.

4.7.     SECRETARY'S CERTIFICATE.

               Each Investor shall have received a certificate, dated the
Closing Date, of the Secretary of the Company attaching (i) a true and complete
copy of the Restated Charter of the Company as filed with the Secretary of State
of the State of Tennessee, with all amendments thereto, (ii) true and complete
copies of the Company's Amended Bylaws in effect as of such date, (iii)
certificates of good standing of the appropriate officials of the jurisdictions
of incorporation of the Company and of each state in which the Company is
qualified to do business as a foreign corporation and (iv) resolutions of the
Board of Directors authorizing the execution and delivery of this Agreement and
the Transaction Documents and the transactions contemplated hereby and thereby,
the issuance of the Notes and the reservation for issuance of the shares of
Common Stock into which the Notes are initially convertible, and the election of
the directors as provided by Section 4.5.

4.8.     OFFICER'S CERTIFICATE.

               Each of the Investors shall have received a certificate, dated
the Closing Date, signed by each of the President and the Chief Financial
Officer of the Company, certifying that the conditions specified in the
foregoing Sections 4.1, 4.4, 4.5, and 4.6 hereof have been fulfilled.


                                      -16-

<PAGE>   22

4.9.     REGISTRATION RIGHTS AGREEMENT.

               A Registration Rights Agreement, substantially in the form of
Exhibit C attached hereto (the "REGISTRATION RIGHTS AGREEMENT"), shall have been
executed and delivered by the Company and shall be in full force and effect.

4.10.    AMENDMENTS TO BANK DEBT.

               The Bank Credit Agreement (as defined in the Existing Indenture)
shall have been amended to provide for the terms set forth on Schedule 4.10, and
otherwise on terms reasonably acceptable to the Company, and the Investors shall
have been furnished evidence reasonably acceptable to them of such amendments.

4.11.    APPROVAL OF PROCEEDINGS.

               All proceedings to be taken in connection with the transactions
contemplated by this Agreement, and all documents incident thereto, shall be
reasonably satisfactory in form and substance to the Investors and their special
counsel, Willkie Farr & Gallagher; and the Investors shall have received copies
of all documents or other evidence which they and Willkie Farr & Gallagher may
reasonably request in connection with such transactions and of all records of
corporate proceedings in connection therewith in form and substance reasonably
satisfactory to the Investors and Willkie Farr & Gallagher.

5.       COMPANY CLOSING CONDITIONS.

               The Company's obligation to issue and deliver the Notes to the
Investors is subject to the satisfaction on or before the Closing Date of the
following conditions:

5.1.     REPRESENTATIONS AND WARRANTIES.

               The representations and warranties contained in Section 3 shall
(except as expressly affected by the transactions contemplated hereby) be true
and correct in all material respects on and as of the Closing Date as if made on
and as of the Closing Date; and each of the Investors shall have performed in
all material respects all agreements to be performed by it under this Agreement
on or before the Closing Date.

5.2.     INJUNCTION.

               There shall be no effective injunction, writ, preliminary
restraining order or any order of any nature issued by a court of competent
jurisdiction directing that the transactions provided for herein or any of them
not be consummated as herein provided.


                                      -17-

<PAGE>   23

5.3.     CONSENTS AND APPROVALS.

               All consents, waivers, authorizations, licenses, permits,
certificates and approvals of any Person required in connection with the
execution, delivery and performance of this Agreement, including, without
limitation, the approval of each entity set forth on Schedule 2.4 hereto shall
have been duly obtained and shall be in full force and effect on the Closing
Date.

5.4.     INVESTORS' CERTIFICATE.

               The Company shall have received a certificate from each of the
Investors, dated the Closing Date, signed by a duly authorized representative of
such Investor, certifying that the conditions specified in the foregoing Section
5.1 hereof have been fulfilled.

5.5.     AMENDMENTS TO BANK DEBT.

               The Bank Credit Agreement (as defined in the Existing Indenture)
shall have been amended on terms reasonably acceptable to the Company.

6.       COVENANTS.

6.1.     RESALE OF SECURITIES.

               A. Each of the Investors severally covenants that it will not
sell or otherwise transfer the Securities except pursuant to an effective
registration under the Securities Act, or pursuant to Rule 144 under the
Securities Act, or in a transaction which complies with the provisions of
Section 6.7.

               B. Until such time as the Securities are sold pursuant to an
effective registration statement under the Securities Act or pursuant to Rule
144 under the Securities Act, the Securities will bear substantially the
following legend reflecting the foregoing restrictions on the transfer of such
securities:

          "The securities evidenced hereby have not been registered under
          the Securities Act of 1933, as amended (the "Securities Act"), or
          any state securities law, and may not be sold, transferred or
          otherwise disposed of except pursuant to an effective
          registration under the Act or in a transaction which, in the
          opinion of counsel reasonably acceptable to the Company, is
          exempt from such registration."


                                      -18-
<PAGE>   24

6.2.     COVENANTS PENDING CLOSING.

               From the date hereof through the Closing Date, the Company will
conduct and will cause its Subsidiaries to conduct their respective businesses
in the ordinary course, and will not, and will not permit any of its
Subsidiaries to, without the prior written consent of the Investors, take any
action which would result in any of the representations or warranties contained
in this Agreement not being true in all material respects at and as of the time
immediately after such action, or in any of the covenants contained in this
Agreement becoming incapable of performance in all material respects. The
Company will promptly advise the Investors of any action or event of which it
becomes aware which has the effect of making incorrect in any material respect
any of such representations or warranties or which has the effect of rendering
any of such covenants incapable of performance in any material respect.

6.3.     BOARD NOMINEES.

               For so long as the Notes are outstanding and owned by one or more
of the Investors, the Company will nominate and use its best efforts to elect
and to cause to remain as directors on the Board of Directors two individuals
designated by the Investors who are either (i) general partners of WP listed on
Schedule 6.3 or (ii) otherwise reasonably acceptable to the Company ("APPROVED
DESIGNEES"). For so long as the Investors, individually or in the aggregate, own
beneficially (within the meaning of Rule 13d-3 under the Exchange Act) at least
10.0% of the outstanding shares of Common Stock, the Company will nominate and
use its best efforts to elect and to cause to remain as directors on the Board
of Directors at least one individual designated by the Investors, who shall be
an Approved Designee; provided, however, that in the event the Investors,
individually or in the aggregate, own beneficially (within the meaning of Rule
13d-3 under the Exchange Act) more than 10% but less than 12.5% of the
outstanding shares of Common Stock, the Investors shall only be entitled to
designate an Approved Designee pursuant to this sentence if the Investors,
individually or in the aggregate, own at least 50% of the shares of Common Stock
beneficially owned (within the meaning of Rule 13d-3 under the Exchange Act) by
them on the date six months following the Closing Date. Any vacancy created by
the death, disability, retirement or removal of any such individual may be
filled by the Investors.

6.4.     USE OF PROCEEDS.

               The Company will use the proceeds of the issuance of the Notes to
repay existing debt, to repurchase shares of Common Stock and for general
corporate purposes; provided, however, that any repurchases of shares of Common
Stock hereunder (i) will be approved by the Board of Directors, (ii) will be
made in compliance with all applicable law, (iii) will be made within


                                      -19-
<PAGE>   25

twelve months of the Closing Date and (iv) will not exceed $27,500,000 in the
aggregate; and provided further that nothing herein shall prohibit, restrict or
otherwise limit the Company's ability to effect its $75,000,000 securities
repurchase program previously adopted by the Company as long as such securities
repurchase program is completed within 24 months of the Closing Date. Except as
set forth in the immediately preceding sentence, no part of the proceeds from
the sale of the Notes hereunder will be used, and no part of the proceeds of
such existing debt was used, directly or indirectly, for the purpose of buying
or carrying any margin stock within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System (12 CFR 221, as amended), or for the
purpose of buying or carrying or trading in any securities under such
circumstances as to involve the Company in a violation of Regulation X of said
Board (12 CFR 224) or to involve any broker or dealer in a violation of
Regulation T of said Board (12 CFR 220). As used in this Section 6.4, the terms
"MARGIN STOCK" and "PURPOSE OF BUYING OR CARRYING" shall have the meanings
assigned to them in the aforementioned Regulation U.

6.5.     STANDSTILL.

               A. Each of the Investors and Warburg, Pincus & Co., the sole
general partner of each of the Investors ("WP"), hereby agree that, for a period
of five years from the date of this Agreement, neither WP, the Investors nor any
Controlled Subsidiary or others with whom WP is acting in concert will, directly
or indirectly, and WP will not, for its own account, without the prior written
consent of the Board:

              (1) acquire or agree to acquire, publicly offer, or make any
          public proposal with respect to the possible acquisition of (A)
          beneficial ownership (within the meaning of Rule 13d-3 under the
          Exchange Act) of any securities of the Company in excess of the
          Maximum Amount, (B) any Company business or any substantial part of
          the Company's assets, or any subsidiary or division thereof or
          successor to the Company, or (C) any rights or options to acquire any
          of the foregoing from any Person;

              (2) make, or in any way participate, directly or indirectly,
          in any "solicitation" of "proxies" to vote (as such terms are used in
          the rules under the Exchange Act), or seek to advise or influence any
          person or entity with respect to the voting of any voting securities
          of the Company;

              (3) make any public announcement with respect to any
          transaction or proposed or contemplated transaction between the
          Company or any of its security holders and the Investors or WP,
          including, without limitation, any tender or exchange



                                      -20-
<PAGE>   26

          offer, merger or other business combination or acquisition of a
          material portion of the assets of the Company;

              (4) publicly propose or publicly disclose an intent to
          propose any form of business combination, acquisition, restructuring,
          recapitalization or other similar transaction relating to the Company;

              (5) enter into any discussions, negotiations, arrangements or
          understandings with any third party with respect to the Company in
          connection with any of matters referred to in clauses (1)-(4) above;

              (6) publicly disclose any intention, plan or arrangement
          inconsistent with the foregoing;

              (7) publicly request the Company, directly or indirectly, to
          amend or waive any provisions of this Section 6.5; or

              (8) take any action which would be reasonably likely to require
          the Company to make a public announcement regarding a possible
          transaction involving the Company.

               B. Each of the Investors and WP acknowledge that money damages
would not be sufficient remedy for any breach of this Agreement by it and that
in addition to all other remedies the Company shall be entitled to specific
performance and injunctive and other equitable relief as a remedy for any such
breach, and each of the Investors and WP further agree to waive any requirement
for the securing or posting of any bond in connection with such remedy.

               C. The letter from WP to the Company, dated March 8, 1999, shall
terminate and have no further force or effect following the Closing Date.

6.6.     ADDITIONAL PURCHASES OF COMMON STOCK.

               A. The Investors currently intend to acquire additional shares of
Common Stock in open-market purchases or otherwise ("PERMITTED ACQUISITIONS").
The actual timing and amount of such purchases will depend on the receipt of all
required regulatory approvals and prevailing market conditions at the time of
such purchases.

               B. The Company has agreed to permit the Investors to make the
Permitted Acquisitions provided that (i) the Permitted Acquisitions are made no
later than six (6) months after the Closing Date, (ii) the aggregate
consideration for such Permitted Acquisitions does not exceed $72,500,000
(excluding transaction costs and expenses and brokerage commissions) and (iii)
the number of shares of Common Stock acquired pursuant to this


                                      -21-
<PAGE>   27

Section 6.6 shall not exceed 15,000,000 (subject to appropriate adjustment for
any stock split or similar event).

6.7.     RESTRICTIONS ON TRANSFER.

               A. No Investor shall Transfer any of the Securities owned by it
unless the Investor desiring to make the Transfer (hereinafter referred to as
the "TRANSFEROR") shall have first made the offers to sell to the Company
contemplated by this Section 6.7, and such offers shall not have been accepted.

               B. Copies of the Transferor's offer shall be given to the Company
and shall consist of an offer to sell to the Company all of the Securities then
proposed to be transferred by the Transferor (the "SUBJECT SECURITIES") and the
proposed terms (including the price for the Subject Securities) of such Transfer
(a "SALE NOTICE").

               C. Within 10 Business Days after the receipt of the offer
described in Section 6.7B, the Company may, at its option, elect to purchase
all, but not less than all, of the Subject Securities. The Company shall
exercise such option by giving written notice thereof to the Transferor within
such 10-Business Day period (the "EXERCISE NOTICE"). The Exercise Notice shall
specify a date for the closing of the purchase which shall not be more than 30
days after the date of the giving of such Exercise Notice.

               D. The purchase price per share for the Subject Securities shall
be the price specified by the Transferor in the Sale Notice. If the offer of
Subject Shares under this Section 6.7 is for consideration other than cash or
cash plus deferred payments of cash, the Company shall pay the present value
cash equivalent of such other consideration. If the Transferor and the Company
cannot agree on the amount of such cash equivalent within 10 days after the
beginning of the 10-Business Day period referred to above, any of such parties
may, by three days' written notice to the other, initiate appraisal proceedings
under Section 6.7E for determination of such cash equivalent.

               E. If any party shall initiate an appraisal procedure to
determine the amount of the present value cash equivalent of any consideration
for Subject Securities under Section 6.7D, then the Transferor, on the one hand,
and the Company, on the other hand, shall each promptly appoint as an appraiser
an individual who shall be a member of a nationally-recognized investment
banking firm. Each appraiser shall, within 30 days of appointment, separately
investigate the value of the consideration for the Subject Securities as of the
proposed transfer date and shall submit a notice of an appraisal of that value
to each party. Each appraiser shall be instructed to determine such value
without regard to income tax consequences to the Transferor as a result of
receiving cash rather than other


                                      -22-

<PAGE>   28

consideration. If the appraised values of such consideration (the "EARLIER
APPRAISALS") vary by less than ten percent (10%), the average of the two
appraisals on a per share basis shall be controlling as the amount of the cash
equivalent. If the appraised values vary by more than ten percent (10%), the
appraisers, within 10 days of the submission of the last appraisal, shall
appoint a third appraiser who shall be member of a nationally recognized
investment banking firm. The third appraiser shall, within 30 days of his
appointment, appraise the value of the consideration for the Subject Securities
(without regard to the income tax consequences to the Transferor as a result of
receiving cash rather than other consideration) as of the proposed transfer date
and submit notice of his appraisal to each party. The value determined by the
third appraiser shall be controlling as the amount of the present value cash
equivalent unless the value is greater than the two Earlier Appraisals, in which
case the higher of the two Earlier Appraisals will control, and unless that
value is lower than the two Earlier Appraisals, in which case the lower of the
two Earlier Appraisals will control. If any party fails to appoint an appraiser
or if one of the two initial appraisers fails after appointment to submit his
appraisal within the required period, the appraisal submitted by the remaining
appraiser shall be controlling. The Transferor and the Company shall each bear
the cost of its respective appointed appraiser. The cost of the third appraisal
shall be shared one-half by the Transferor and one-half by the Company.

               F. The closing of the purchase shall take place at the office of
the Company or such other location as shall be mutually agreeable and the
purchase price, to the extent comprised of cash, shall be paid at the closing,
and cash equivalents and documents evidencing any deferred payments of cash
permitted pursuant to Section 6.7D above shall be delivered at the closing. At
the closing, the Transferor shall deliver to the Company the instruments or
certificates evidencing the Subject Securities to be conveyed, duly endorsed and
in negotiable form with all the requisite documentary stamps affixed thereto.

               G. If the offer to sell is not accepted by the Company, the
Transferor may make a bona fide Transfer to any Person in accordance with the
terms set forth in the Sale Notice, provided that (A) such Transfer shall be
made only in accordance with the terms therein stated and (B) if the transferee
would own beneficially (within the meaning of Rule 13d-3 under the Exchange Act)
more than 10% of the outstanding Common Stock, the transferee agrees, in
writing, to be bound by the provisions of Section 6.5 and this Section 6.7. If
the Transferor shall fail to make such Transfer within 180 days following the
expiration of the time hereinabove provided for the election by the Company,
such Subject Securities shall again become subject to all the restrictions of
this Section 6.7.


                                      -23-
<PAGE>   29

               H. The provisions of this Section 6.7 shall not apply to (i)
Transfers of Securities made after the seventh anniversary of the Closing Date,
(ii) Transfers of Securities by one Investor to an Affiliate of such Investor
(provided such Affiliate agrees in writing to be bound by the terms of this
Agreement), (iii) pro rata distributions of Securities by any Investors to its
partners by Investors, (iv) underwritten sales of Securities made pursuant to an
effective registration under the Securities Act, (v) sales of Securities made
pursuant to Rule 144 under the Securities Act, (vi) Transfers of Securities made
pursuant to a merger, consolidation or similar transaction approved by the Board
of Directors, or (vii) Transfers of Securities to any Person if, after giving
effect to such Transfer, such Person would not own beneficially (within the
meaning of Rule 13d-3 under the Exchange Act) more than 5% of the outstanding
Common Stock.

6.8.     REASONABLE EFFORTS; COOPERATION.

               Upon the terms and subject to the conditions hereof, each of the
parties hereto shall use all reasonable best efforts to obtain and furnish in a
timely manner all necessary waivers, consents and approvals and notices and to
effect all necessary notifications, registrations and filings (including,
without limitation, all necessary applications and notifications to any
insurance regulatory authority), and to use all reasonable efforts to take, or
cause to be taken, all other actions and to do, or cause to be done, all other
things necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement.

6.9.     FINANCIAL AND BUSINESS INFORMATION.

               From and after the date hereof, the Company shall deliver to the
Investors so long as the Investors, individually or in the aggregate,
beneficially own (within the meaning of Rule 13d-3 under the Exchange Act) at
least 15% of the outstanding shares of Common Stock:

               (1) Monthly and Quarterly Statements - as soon as practicable,
          and in any event within 30 days after the close of each month of each
          fiscal year of the Company other than at the end of a fiscal quarter
          of the Company in the case of monthly statements and 45 days after the
          close of each of the first three fiscal quarters of each fiscal year
          of the Company in the case of quarterly statements, a consolidated
          balance sheet, statement of income and statement of cash flows of the
          Company and any Subsidiaries as at the close of such month or quarter
          and covering operations for such month or quarter, as the case may be,
          and the portion of the Company's fiscal year ending on the last day of
          such month or quarter, all in reasonable detail and prepared in
          accordance with GAAP, subject to audit and year-end adjustments,
          setting forth in each case in comparative form



                                      -24-

<PAGE>   30

          the figures for the comparable period of the previous fiscal year.

               (2) Annual Statements - as soon as practicable after the end of
          each fiscal year of the Company, and in any event within 90 days
          thereafter, duplicate copies of:

                    (a) consolidated and consolidating balance sheets of the
               Company and any Subsidiaries at the end of such year; and

                    (b) consolidated and consolidating statements of income,
               shareholders' equity and cash flows of the Company and any
               Subsidiaries for such year, setting forth in each case in
               comparative form the figures for the previous fiscal year, all in
               reasonable detail and accompanied by an opinion thereon of a "Big
               5" public accounting firm selected by the Company, which opinion
               shall state that such financial statements fairly present the
               financial position of the Company and any Subsidiaries on a
               consolidated basis and have been prepared in accordance with GAAP
               (except for changes in application in which such accountants
               concur) and that the examination of such accountants in
               connection with such financial statements has been made in
               accordance with generally accepted auditing standards, and
               accordingly included such tests of the accounting records and
               such other auditing procedures as were considered necessary in
               the circumstances.

                    (c) Annual Budget - no later than 30 days before the end of
               each fiscal year of the Company, an annual budget for the Company
               in a form consistent with the Company's past practice.

                    (d) Audit Reports - promptly upon receipt thereof, one copy
               of each other financial report and internal control letter
               submitted to the Company by independent accountants in connection
               with any annual, interim or special audit made by them of the
               books of the Company.

                    (e) Other Reports - promptly upon their becoming available,
               one copy of each financial statement, report, notice or proxy
               statement sent by the Company to shareholders generally, of each
               financial statement, report, notice or proxy statement sent by
               the Company or any of its Subsidiaries to the Commission or any
               successor agency, if applicable, of each regular or periodic
               report and any registration statement, prospectus or written
               communication (other than transmittal letters) in respect thereof
               filed by the Company or any Subsidiary with, or received by such
               Person in connection therewith from, any domestic or


                                      -25-
<PAGE>   31

               foreign securities exchange, the Commission or any successor
               agency or any foreign regulatory authority performing functions
               similar to the Commission, of any press release issued by the
               Company or any Subsidiary, and of any material of any nature
               whatsoever prepared by the Commission or any successor agency
               thereto or any state blue sky or securities law commission which
               relates to or affects in any way the Company or any Subsidiary.

               (3) Requested Information - with reasonable promptness, the
          Company shall furnish the Investors with such other data and
          information as from time to time may be reasonably requested.

               (4) Compliance Certificate - concurrently with each delivery
          of financial statements or reports required to be furnished pursuant
          to (1) and (2) above, a certificate of a Senior Financial Officer
          stating that, based upon such examination or investigation and review
          of this Agreement as in the opinion of the signer is necessary to
          enable the signer to express an informed opinion with respect thereto,
          no Default or Event of Default has occurred during such period, or, if
          any Default or Event of Default shall have occurred, specifying all of
          the same and the nature and period of existence thereof and what
          action the Company has taken, is taking or proposes to take with
          respect thereto.

6.10.    INSPECTION.

               As long as the Investors, individually or in the aggregate,
beneficially own (within the meaning of Rule 13d-3 under the Exchange Act) at
least 15% of the outstanding shares of Common Stock, the Company shall permit
the Investors and their representatives and agents to visit and inspect any of
the properties of the Company and its Subsidiaries, to examine all its books of
account, records, reports and other papers not contractually required of the
Company to be confidential or secret, to make copies and extracts therefrom, and
to discuss its affairs, finances and accounts with its officers, directors, key
employees and independent public accountants or any of them (and by this
provision the Company authorizes said accountants to discuss with the Investors
and their representatives and agents the finances and affairs of the Company and
any Subsidiaries), all at such reasonable times and as often as may be
reasonably requested.

6.11.    CONFIDENTIALITY.

               As to so much of the information and other material furnished
under or in connection with this Agreement (whether furnished before, on or
after the date hereof) as constitutes or contains confidential business,
financial or other information of


                                      -26-

<PAGE>   32

the Company or any Subsidiary, each of the Investors covenants for itself and
its directors, officers and partners that neither it nor its officers,
directors, partners, employees, counsel, accountants and other representatives
will disclose such information to Persons other than their respective authorized
employees, counsel, accountants, shareholders, partners, limited partners and
other authorized representatives; provided, however, that each Investor may
disclose or deliver any information or other material disclosed to or received
by it should such Investor be advised by its counsel that such disclosure or
delivery is required by law, regulation or judicial or administrative order but
only after so much prior written notice as is reasonably practicable under the
circumstances to the Company that it proposes to make such disclosures. In the
event of any termination of this Agreement prior to either Closing Date, each
Investor shall return to the Company all confidential material previously
furnished to such Investor or its officers, directors, partners, employees,
counsel, accountants and other representatives in connection with this
transaction. The obligations set forth in this Section 6.11 shall survive the
termination of this Agreement and shall remain in effect until the information
and other material furnished under or in connection with this Agreement becomes
generally available to the public other than through a violation of the terms of
this Agreement or two years from the date of this Agreement, whichever occurs
first. The previously executed Confidentiality Agreement between the Company and
E.M. Warburg, Pincus & Co., LLC shall terminate as of the Closing Date.

6.12.    TAKEOVER STATUTE.

               If any Takeover Statute shall become applicable to the
transactions contemplated hereby, the Company shall grant such approvals and
take such actions as are necessary so that the transactions contemplated hereby,
including without limitation the transactions contemplated by Section 6.6 or the
conversion of the Notes, may be consummated as promptly as practicable on the
terms contemplated hereby and otherwise act to eliminate or minimize the effects
of such statute or regulation on the transactions contemplated hereby. If any
takeover statute of any state other than the State of Tennessee shall become
applicable to the transactions contemplated hereby, the Company shall use its
reasonable efforts to grant such approvals and take such actions as are
necessary so that the transactions contemplated hereby, including without
limitation the transactions contemplated by Section 6.6 or the conversion of the
Notes, may be consummated as promptly as practicable on the terms contemplated
hereby and otherwise act to eliminate or minimize the effects of such statute or
regulation on the transactions contemplated hereby.


                                      -27-

<PAGE>   33

6.13.    RIGHTS AGREEMENT INAPPLICABLE.

               If the transactions contemplated hereby, including without
limitation the transactions contemplated by Section 6.6 or the conversion of any
of the Notes, would (a) result in the occurrence of a "Distribution Date" under
the Rights Agreement, (b) cause any Investor to become an "Acquiring Person" as
defined in the Rights Agreement or (c) otherwise cause the exercise of any
"Right" issued pursuant to the Rights Agreement or the issuance or exercise of
any "Rights Certificate" under the Rights Agreement, the Company will promptly
cause the Rights Agreement to be duly amended to prevent any such
characterization.

6.14.    HART-SCOTT FILINGS.

               At the request of any of the Investors, the Company will promptly
prepare and file, or cause to be prepared and filed, any notification or
response to any request for additional information required to be filed under
the HSR Act with respect to the conversion of the Notes.

6.15.    CONDUCT OF BUSINESS; NEGATIVE COVENANTS.

               For as long as the Notes are outstanding, unless the prior
written consent of the Investors shall have been obtained:

               A. The Company will continue to engage in business of the same
general type as now conducted by it, and preserve, renew and keep in full force
and effect its corporate existence and take all reasonable action to maintain
all rights, privileges, licenses and franchises necessary or desirable in the
normal conduct of its business.

               B. The Company and its Subsidiaries will comply in all material
respects with all applicable laws, rules, regulations and orders except where
the failure to comply would not have a Material Adverse Effect.

               C. The Company will maintain insurance with responsible and
reputable insurance companies or associations in such amounts and covering such
risks as is usually carried by companies of similar size and credit standing
engaged in similar business and owning similar properties, provided that such
insurance is and remains available to the Company at commercially reasonable
rates.

               D. The Company will keep proper books of record and account, in
which full and correct entries shall be made of all financial transactions and
the assets and business of the Company and its Subsidiaries in accordance with
GAAP.

               E. The Company will not, and will not permit any Subsidiary to,
directly or indirectly, (i) declare or pay any



                                      -28-
<PAGE>   34

dividend or make any distribution on or in respect of, or make any distribution
to the holders of, Capital Stock of the Company, (ii) purchase, redeem or
otherwise acquire or retire for value any Capital Stock of the Company, other
than purchases of Common Stock made in accordance with the provisions of Section
6.4, or (iii) declare or pay any dividend or make any distribution on or in
respect of, or make any distribution to holders of, Capital Stock of any
Subsidiary (other than with respect to any such Capital Stock held by the
Company or any Wholly Owned Subsidiary) or purchase, redeem or otherwise acquire
or retire for value any Capital Stock of any Subsidiary (other than such Capital
Stock held by the Company or any Wholly Owned Subsidiary).

7.       TERMS OF NOTES; PREPAYMENTS OF NOTES; PURCHASE OF NOTES.

7.1.     GENERAL TERMS OF NOTES.

               A. The form of Note is attached hereto as Exhibit A. The
aggregate Principal Amount at Final Maturity of the Notes to be issued hereunder
is $404,451,562.

               B. The aggregate Principal Amount at Final Maturity of the Notes
shall be payable on the Final Maturity Date unless earlier repaid or converted
in accordance with this Agreement.

               C. The Notes shall be issued at an Issue Price of $315.24 per
$1,000 Principal Amount at Final Maturity. There shall be no periodic payments
of interest on the Notes. The calculation of the accrual of Original Issue
Discount in the period during which each Note remains outstanding shall be on an
annual basis using a 360-day year composed of twelve 30-day months, and such
accrual shall commence on the Closing Date. In the event of the maturity,
conversion, purchase by the Company at the option of a Holder or redemption of a
Note, Original Issue Discount, if any, shall cease to accrue on such Note, under
the terms and subject to the conditions of this Agreement and the Notes.

               D. All amounts payable in connection with the Notes shall be
denominated and payable in the lawful currency of the United States.

               E. The Notes shall be payable and may be presented for
conversion, registration of transfer and exchange, without service charge, at
the principal executive office of the Company.

7.2.     OPTIONAL REDEMPTION BY THE COMPANY.

               A. Right to Redeem. The Company, at its option, may redeem the
Notes in accordance with the provisions of paragraphs 5 and 7 of the Notes. If
the Company elects to redeem Notes pursuant to paragraph 5 of the Notes, it
shall notify the Holders


                                      -29-

<PAGE>   35

in writing of the Redemption Date, the Principal Amount at Final Maturity of
Notes to be redeemed and the Redemption Price.

               B. Selection of Notes to be Redeemed. If any Note selected for
partial redemption is thereafter surrendered for conversion in part before
termination of the conversion right with respect to the portion of the Note so
selected, the converted portion of such Note shall be deemed (so far as may be),
solely for purposes of determining the aggregate Principal Amount at Final
Maturity of Notes to be redeemed by the Company, to be the portion selected for
redemption. Notes which have been converted during a selection of Notes to be
redeemed may be treated by the Company as outstanding for the purpose of such
selection. Nothing in this Section 7.2B shall affect the right of any Holder to
convert any Note pursuant to Sections 7.6, 7.7 and 7.8 before the termination of
the conversion right with respect thereto.

               C. Notice of Redemption. At least 30 days but not more than 60
days before a Redemption Date, the Company shall mail or cause to be mailed a
notice of redemption by first-class mail to each Holder of Notes to be redeemed
at such Holder's address as it appears on the Note Register.

        The notice shall identify the Notes to be redeemed and shall state:

               (a) the Redemption Date;

               (b) the Redemption Price;

               (c) the then current Conversion Rate;

               (d) that Notes called for redemption must be presented and
surrendered to the Company to collect the Redemption Price;

               (e) that the Notes called for redemption may be converted at any
time before the close of business on the Redemption Date;

               (f) that Holders who wish to convert Notes must satisfy the
requirements in paragraph 9 of the Notes;

               (g) that, unless the Company defaults in making the payment of
the Redemption Price on the Redemption Date, the only remaining right of the
Holder shall be to receive payment of the Redemption Price upon presentation and
surrender to the Company of the Notes;

               (h) if fewer than all the outstanding Notes are to be redeemed,
the certificate number and Principal Amounts at Final Maturity of the particular
Notes to be redeemed; and



                                      -30-
<PAGE>   36

               (i) that Original Issue Discount on Notes called for redemption
shall immediately cease to accrue on and after the Redemption Date; and

               D. Effect of Notice of Redemption. Once notice of redemption is
mailed, Notes called for redemption become due and payable on the Redemption
Date and at the Redemption Price stated in the notice, except for Notes that are
converted in accordance with the provisions of Sections 7.6, 7.7 or 7.8. Upon
presentation and surrender to the Company, Notes called for redemption shall be
paid at the Redemption Price.

               E. Sinking Fund. There shall be no sinking fund provided for the
Notes.

7.3.     REPURCHASE AT OPTION OF THE HOLDER UPON A CHANGE IN CONTROL.

               A. If a Change in Control shall occur at any time prior to the
Final Maturity Date, each Holder of Notes shall have the right, at such Holder's
option, to require the Company to purchase such Holder's Notes on the date (the
"CHANGE IN CONTROL PURCHASE DATE") (or if such date is not a Business Day, the
next succeeding Business Day) that is 35 days after the date of the Change in
Control. The Notes shall be repurchased in integral multiples of $l,000 of
Principal Amount at Final Maturity. The Company shall purchase such Notes for
cash at a price (the "CHANGE IN CONTROL PURCHASE PRICE") equal to the Issue
Price plus accrued Original Issue Discount to the Change in Control Purchase
Date. No Notes may be repurchased at the option of the Holders due to a Change
in Control if there has occurred and is continuing an Event of Default (other
than a default in the payment of the Change in Control Purchase Price with
respect to such Notes).

               B. The Company shall mail to all Holders a notice (a "COMPANY
CHANGE IN CONTROL NOTICE") of the occurrence of a Change in Control and of the
repurchase right arising as a result thereof on or before the tenth day after
the occurrence of such Change in Control.

               C. For a Note to be so repurchased at the option of the Holder,
the Company must receive such Note with the form entitled "Change in Control
Purchase Notice" on the reverse thereof duly completed, together with such Note
duly endorsed for transfer, on or before the Change in Control Purchase Date.
All questions as to the validity, eligibility (including time of receipt) and
acceptance of any Note for redemption shall be determined by the Company, whose
determination shall be final and binding.


                                      -31-

<PAGE>   37

7.4.     PURCHASE OF NOTES AT THE OPTION OF THE HOLDER.

               A. General. On the tenth anniversary of the Closing Date (the
"PURCHASE DATE"), at the purchase price specified in paragraph 6 of the Notes
(the "PURCHASE PRICE"), a Holder of Notes shall have the option to require the
Company to purchase any outstanding Notes held by such Holder, upon:

               (1) delivery to the Company by the Holder of a written notice of
          purchase (a "PURCHASE NOTICE") at any time from the opening of
          business on the date that is 20 Business Days prior to the Purchase
          Date until the close of business on the Business Day prior to such
          Purchase Date, stating:

               (a) the certificate numbers of the Notes which the Holder shall
          deliver to be purchased;

               (b) the portion of the Principal Amount at Final Maturity of the
          Notes which the Holder shall deliver to be purchased, which portion
          must be $1,000 in Principal Amount at Final Maturity or a multiple
          thereof;

               (c) that such Notes shall be purchased pursuant to the terms and
          conditions specified in paragraph 6 of the Notes and in this
          Agreement; and

               (d) if the Company elects, pursuant to a Company Notice, to pay
          the Purchase Price to be paid as of such Purchase Date, in whole or in
          part, in Common Stock but such portion of the Purchase Price shall
          ultimately be payable to such Holder in cash because any of the
          conditions to the payment of the Purchase Price in Common Stock are
          not satisfied prior to or on the Purchase Date, as set forth in
          Section 7.4D, whether such Holder elects (x) to withdraw such Purchase
          Notice as to some or all of the Notes to which such Purchase Notice
          relates (stating the Principal Amount at Final Maturity and
          certificate numbers of the Notes as to which such withdrawal shall
          relate), or (y) to receive cash in respect of the entire Purchase
          Price for all Notes (or portions thereof) to which such Purchase
          Notice relates; and

               (2) delivery or book-entry transfer of such Notes to the Company
          prior to, on or after the Purchase Date (together with all necessary
          endorsements) at the offices of the Company, such delivery or transfer
          being a condition to receipt by the Holder of the Purchase Price
          therefor; provided, however, that such Purchase Price shall be so paid
          pursuant to this Section 7.4 only if the Note so delivered or
          transferred to the Company shall conform in all respects to the
          description thereof in the related Purchase Notice. All questions as
          to the validity, eligibility (including time of receipt) and
          acceptance of any Note for repurchase



                                      -32-
<PAGE>   38

          shall be determined by the Company, whose determination shall be final
          and binding.

               If a Holder, in such Holder's Purchase Notice (and in any written
notice of withdrawal of a portion of a Holder's Notes previously submitted for
purchase pursuant to a Purchase Notice, the portion that remains subject to the
Purchase Notice), fails to indicate such Holder's choice with respect to the
election set forth in clause (d) of Section 7.4A(1), such Holder shall be deemed
to have elected to receive cash in respect of all Notes subject to such Purchase
Notice in the circumstances set forth in such clause (d).

               The Company shall purchase from the Holder thereof, pursuant to
this Section 7.4, a portion of a Note if the Principal Amount at Final Maturity
of such portion is $1,000 or a multiple of $1,000. Provisions of this Agreement
that apply to the purchase of all of a Note also apply to the purchase of such
portion of such Note.

               Any purchase by the Company contemplated pursuant to the
provisions of this Section 7.4 shall be consummated by the delivery of the
consideration to be received by the Holder promptly following the later of the
Purchase Date, the Deferred Purchase Date (if applicable) and the time of
delivery of the Note.

               Notwithstanding anything herein to the contrary, any Holder
delivering to the Company the Purchase Notice contemplated by this Section 7.4A
shall have the right at any time prior to the close of business on the Purchase
Date (or the Deferred Purchase Date, if applicable) to withdraw such Purchase
Notice (in whole or in part) by delivery of a written notice of withdrawal to
the Company in accordance with Section 7.5A.

               B. Company's Right to Elect Manner of Payment of Purchase Price.
The Company may elect to pay the Purchase Price in respect of the Notes to be
purchased pursuant to Section 7.5A as of the Purchase Date, in cash or Common
Stock, or in any combination of cash and Common Stock, subject to the conditions
set forth in Sections 7.4C and 7.4D. The Company shall designate, in the Company
Notice delivered pursuant to Section 7.4E, whether the Company shall purchase
the Notes for cash or Common Stock, or, if a combination thereof, the
percentages of the Purchase Price of Notes in respect of which it shall pay in
cash and/or Common Stock; provided that the Company shall pay cash for
fractional interests in Common Stock. For purposes of determining the existence
of potential fractional interests, all Notes subject to purchase by the Company
held by a Holder shall be considered together (no matter how many separate
certificates are to be presented). Each Holder whose Notes are purchased
pursuant to this Section 7.4 shall receive the same percentage of cash and/or
Common Stock in payment of the Purchase Price for such Notes, except (a) as
provided in Section 7.4D with regard to



                                      -33-
<PAGE>   39

the payment of cash in lieu of fractional interests in Common Stock and (b) in
the event that the Company is unable to purchase the Notes of a Holder or
Holders for Common Stock because any necessary qualifications or registrations
of the Common Stock under applicable federal or state securities laws cannot be
obtained, the Company may purchase the Notes of such Holder or Holders for cash.
Once the Company has given its Company Notice to Holders, the Company may not
change its election with respect to the consideration (or components or
percentages of components thereof) to be paid except pursuant to this Section
7.4B or Section 7.4D.

               C. Purchase with Cash. At the option of the Company, the Purchase
Price of Note in respect of which a Purchase Notice pursuant to Section 7.4A has
been given, or a specified percentage thereof, may be paid by the Company with
cash equal to the aggregate Purchase Price, or such specified percentage
thereof, as the case may be, of such Notes. No Notes may be purchased at the
option of the Holders with cash if there has occurred and is continuing an Event
of Default (other than a default in the payment of the Purchase Price with
respect to such Notes).

               D. Payment by Issuance of Common Stock. At the option of the
Company, the Purchase Price of Notes in respect of which a Purchase Notice
pursuant to Section 7.4A has been given, or a specified percentage thereof, may
be paid by the Company by the issuance of a number of shares of Common Stock
equal to the quotient obtained by dividing (a) the amount of cash to which the
Holders would have been entitled had the Company elected to pay all or such
specified percentage, as the case may be, of the Purchase Price of such Notes in
cash by (b) the Market Price of a share of Common Stock on the date specified by
the Company pursuant to Section 7.4E(1)(a), subject to the next succeeding
paragraph.

               The Company shall not issue a fractional share of Common Stock in
payment of the Purchase Price. Instead the Company shall pay cash for the
current market value of the fractional share. The current market value of a
fraction of a share shall be determined by multiplying the Market Price by such
fraction and rounding the product to the nearest whole cent. It is understood
that if a Holder elects to have more than one Note purchased, the number of
shares of Common Stock shall be based on the aggregate amount of Notes to be
purchased.

               The Company's right to exercise its election to purchase the
Notes pursuant to Section 7.4 through the issuance of shares of Common Stock
shall be conditioned upon:

               (1) the Company having given timely written notice in accordance
          with Section 7.4E to the Holders of its election to purchase all or a
          specified percentage of the Notes with Common Stock as provided
          herein;


                                      -34-
<PAGE>   40

               (2) (i) the registration of the shares of Common Stock to be
          issued in respect of the payment of the specified percentage of the
          Purchase Price under the Securities Act or (ii) the issuance of the
          shares of Common Stock in a transaction which is exempt from the
          registration requirements of the Securities Act and which will not
          result in such shares of Common Stock being deemed "restricted
          securities" under the Securities Act or otherwise;

               (3) any necessary qualification or registration under applicable
          state securities laws or the availability of an exemption from such
          qualification and registration; and

               (4) the receipt by the Holders of an Officers' Certificate in the
          form attached as Exhibit D and an opinion of outside counsel to the
          Company each stating that (i) the terms of the issuance of the Common
          Stock are in conformity with this Agreement and (ii) the shares of
          Common Stock to be issued by the Company in payment of the specified
          percentage of the Purchase Price in respect of Notes have been duly
          authorized and, when issued and delivered pursuant to the terms of
          this Agreement in payment of the specified percentage of the Purchase
          Price in respect of Notes, shall be validly issued, fully paid and
          nonassessable, and, in the case of such Officers' Certificate, stating
          that conditions (1), (2) and (3) above have been satisfied and, in the
          case of such opinion of counsel, stating that conditions (2) and (3)
          above have been satisfied.

               Such Officers' Certificate shall also set forth the number of
shares of Common Stock to be issued for each $1,000 Principal Amount at Final
Maturity of Notes and the Sale Price of a share of Common Stock on each Trading
Day during the period during which the Market Price is calculated. The Company
may elect to pay the Purchase Price (or any portion thereof) in Common Stock
only if the information necessary to calculate the Market Price is reported in a
daily newspaper of national circulation. If any of the conditions set forth in
this Section 7.4D are not satisfied with respect to a Holder or Holders prior to
or on the Purchase Date and the Company elected to purchase the Notes to be
purchased as of such Purchase Date pursuant to this Section 7.4 through the
issuance of shares of Common Stock, the Company shall pay the entire Purchase
Price in respect of such Notes of such Holder or Holders in cash.

               Upon determination of the actual number of shares of Common Stock
which the Holder of each $1,000 Principal Amount at Final Maturity of the Notes
shall receive, the Company shall provide written notice of such determination to
the Holders.

               E. Notice of Election. The Company's notices of election to
purchase with cash or Common Stock, or any combination thereof (each a "COMPANY
NOTICE"), shall be sent to



                                      -35-
<PAGE>   41


the Holders at their addresses shown in the Note Register not less than 20
Business Days and not more than 40 Business Days prior to the Purchase Date (the
"COMPANY NOTICE DATE"). Such Company Notices shall state the manner of payment
elected and shall contain the following information:

               (1) In the event the Company has elected to pay a Purchase Price
          (or a specified percentage thereof) with Common Stock, the Company
          Notice shall:

               (a) state that each Holder shall receive Common Stock with a
          Market Price determined as of the fifth Trading Day before the Company
          Notice Date equal to such specified percentage of the Purchase Price
          of the Notes held by such Holder (except any cash amount to be paid in
          lieu of fractional share); and

               (b) set forth the method of calculating the Market Price.

               (2) In any case, each Company Notice shall include a form of
          Purchase Notice to be completed by a Holder and shall state:

               (a) the Purchase Price and Conversion Rate;

               (b) that Notes as to which a Purchase Notice has been given may
          be converted only if the applicable Purchase Notice has been withdrawn
          in accordance with the terms of this Agreement;

               (c) that Notes must be surrendered to the Company to collect
          payment;

               (d) that the Purchase Price for any Note as to which a Purchase
          Notice has been given and not withdrawn shall be paid promptly
          following the later of the Purchase Date and the time of surrender of
          such Note, provided, however, that in the event the Company elects to
          purchase Notes with cash, the Company may defer payment for a period
          of up to 90 days following the Purchase Date (the date on which such
          deferred payment is made is herein referred to as the "DEFERRED
          PURCHASE DATE"), in which case Original Issue Discount shall continue
          to accrue through the Deferred Purchase Date;

               (e) the procedures the Holder must follow under Section 7.4;

               (f) briefly, the conversion rights of the Notes; and

               (g) the procedures for withdrawing a Purchase Notice (including,
          without limitation, for a conditional withdrawal pursuant to the terms
          of Section 7.4A(1)(d)).



                                      -36-
<PAGE>   42

               F. Covenants of the Company. All shares of Common Stock delivered
upon conversion or purchase of the Notes shall be newly issued shares or
treasury shares, shall be fully paid and nonassessable and shall be free from
preemptive rights and free of any Lien or adverse claim.

               The Company shall cause to have listed or quoted all such shares
of Common Stock on each United States national securities exchange or over-the
counter or other domestic market on which the Common Stock is then listed or
quoted.

               G. Procedure Upon Purchase. Payment of the Purchase Price for the
Notes to be purchased pursuant to this Section 7.4 shall be made as soon as
practicable following the later of the Purchase Date (or the Deferred Purchase
Date, if applicable) or the delivery of such Note. If the Company is delivering
Common Stock, the Company shall deliver to each Holder entitled to receive
Common Stock a certificate for the number of full shares of Common Stock, as
applicable, issuable in payment of such Purchase Price and cash in lieu of any
fractional interests. The Person in whose name the certificate for Common Stock
is registered shall be treated as a holder of record following the Purchase
Date. Subject to Section 7.4D, no payment or adjustment shall be made for
dividends on the Common Stock the Record Date for which occurred on or prior to
the Purchase Date. On the Business Day following the Purchase Date (or the
Deferred Purchase Date, if applicable), such Note shall cease to be outstanding
and Original Issue Discount on such Note shall cease to accrue, whether or not
such Note is delivered to the Company, and all other rights of the Holder shall
terminate (other than the right to receive the Purchase Price upon delivery or
transfer of the Note), unless the Company shall default in the payment of the
Purchase Price in accordance with the terms of this Section 7.4.

               H. Taxes. If a Holder of a Note is paid in Common Stock, the
Company shall pay any documentary, stamp or similar issue or transfer tax due on
such issue of shares of Common Stock. However, the Holder shall pay any such tax
which is due because the Holder requests the shares of Common Stock to be issued
in a name other than the Holder's name. The Company may refuse to deliver the
certificates representing the Common Stock being issued in a name other than the
Holder's name until the Company receives a sum sufficient to pay any tax which
shall be due because the shares of Common Stock are to be issued in a name other
than the Holder's name. Nothing herein shall preclude any income tax withholding
required by law or regulations.



                                      -37-
<PAGE>   43

7.5.        FURTHER CONDITIONS FOR PURCHASE AT THE OPTION OF HOLDERS UPON A
            CHANGE IN CONTROL AND PURCHASE OF NOTES AT THE OPTION OF THE
            HOLDER.

               A. Effect of Purchase Notice or Change in Control Purchase
Notice. Upon receipt by the Company of the Purchase Notice or Change in Control
Purchase Notice specified in Section 7.4A or Section 7.3C, as applicable, the
Holder of the Note in respect of which such Purchase Notice or Change in Control
Purchase Notice, as the case may be, was given shall (unless such Purchase
Notice or Change in Control Purchase Notice is withdrawn as specified in the
following two paragraphs) thereafter be entitled to receive solely the Purchase
Price or Change in Control Purchase Price, as the case may be, with respect to
such Note. Such Purchase Price or Change in Control Purchase Price shall be paid
to such Holder promptly following the later of (x) the Purchase Date, the
Deferred Purchase Date or the Change in Control Purchase Date, as the case may
be, with respect to such Note (provided the conditions in Section 7.4A or
Section 7.3C, as applicable, have been satisfied) and (y) the time of delivery
of such Note to the Company by the Holder thereof in the manner required by
Section 7.4A or Section 7.3C, as applicable. Notes in respect of which a
Purchase Notice or Change in Control Purchase Notice, as the case may be, has
been given by the Holder thereof may not be converted for shares of Common Stock
on or after the date of the delivery of such Purchase Notice (or Change in
Control Purchase Notice, as the case may be), unless such Purchase Notice (or
Change in Control Purchase Notice, as the case may be) has first been validly
withdrawn as specified in the following two paragraphs.

               A Purchase Notice or Change in Control Purchase Notice, as the
case may be, may be withdrawn by means of a written notice of withdrawal
delivered to the Company at any time prior to the close of business on the
Purchase Date (or the Deferred Purchase Date, if applicable) or the Change in
Control Purchase Date, as the case may be, to which it relates specifying:

               (1) the certificate number of the Note in respect of which such
          notice of withdrawal is being submitted,

               (2) the Principal Amount at Final Maturity of the Note with
          respect to which such notice of withdrawal is being submitted, and

               (3) the Principal Amount at Final Maturity, if any, of such Note
          which remains subject to the original Purchase Notice or Company
          Change in Control Notice, as the case may be, and which has been or
          shall be delivered for purchase by the Company.

               A written notice of withdrawal of a Purchase Notice may be in the
form of (i) a conditional withdrawal contained in a



                                      -38-
<PAGE>   44

Purchase Notice pursuant to the terms of Section 7.4A(1)(d) or (ii) a
conditional withdrawal containing the information set forth in Section
7.4A(1)(d) and the preceding paragraph and contained in a written notice of
withdrawal delivered to the Company as set forth in the preceding paragraph.

               There shall be no purchase of any Notes pursuant to Section 7.4
(other than through the issuance of Common Stock in payment of the Purchase
Price, including cash in lieu of any fractional shares) or redemption pursuant
to Section 7.3 if there has occurred prior to, on or after, as the case may be,
the giving, by the Holders of such Notes, of the required Purchase Notice (or
Change in Control Purchase Notice, as the case may be) and is continuing an
Event of Default (other than a default in the payment of the Purchase Price or
Change in Control Purchase Price, as the case may be, with respect to such
Notes).

               B. Notes Purchased in Part. Any Note that is to be purchased only
in part shall be surrendered at the office of the Company (with, if the Company
so requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company duly executed by, the Holder thereof or such
Holder's attorney duly authorized in writing) and the Company shall execute and
deliver to the Holder of such Note, without service charge, a new Note or Notes,
of any authorized denomination as requested by such Holder in aggregate
Principal Amount at Final Maturity equal to, and in exchange for, the portion of
the Principal Amount at Final Maturity of the Note so surrendered which is not
purchased or redeemed.

7.6.     CONVERSION OF NOTES.

               A. Right to Convert. A Holder of a Note may convert such Note for
Common Stock at any time during the period stated in paragraph 9 of the Notes.
The number of shares of Common Stock issuable upon conversion of a Note per
$1,000 of Principal Amount at Final Maturity (the "CONVERSION RATE") shall be
that set forth in paragraph 9 in the Notes, subject to adjustment as herein set
forth.

               A Holder may convert a portion of the Principal Amount at Final
Maturity of a Note if the portion is $1,000 or a multiple of $1,000. Provisions
of this Agreement that apply to conversion of all of a Note also apply to
conversion of a portion of a Note.

               B. Conversion Procedures. To convert a Note a Holder must satisfy
the requirements in paragraph 9 of the Notes. The date on which the Holder of
Notes satisfies all those requirements is the conversion date (the "CONVERSION
DATE"). As soon as practicable, but in no event later than the seventh Business
Day, after the Conversion Date the Company shall deliver to the Holder a
certificate for the number of full shares of


                                      -39-
<PAGE>   45

Common Stock issuable upon the conversion and cash in lieu of any fractional
share determined pursuant to Section 7.6C. The Person in whose name the
certificate is registered shall be treated as a shareholder of record on and
after the Conversion Date; provided, however, that no surrender of a Note on any
date when the stock transfer books of the Company shall be closed shall be
effective to constitute the Person or Persons entitled to receive the shares of
Common Stock upon such conversion as the record holder or holders of such shares
of Common Stock on such date, but such surrender shall be effective to
constitute the Person or Persons entitled to receive such shares of Common Stock
as the record holder or holders thereof for all purposes at the close of
business on the next succeeding day on which such stock transfer books are open;
such conversion shall be at the Conversion Rate in effect on the date that such
Note shall have been surrendered for conversion, as if the stock transfer books
of the Company had not been closed. Upon conversion of a Note, such Person shall
no longer be a Holder of such Note.

               No payment or adjustment shall be made for dividends on or other
distributions with respect to any Voting Stock except as provided in Section
7.7. On conversion of a Note, that portion of accrued Original Issue Discount
attributable to the period from the Issue Date of the Note to the Conversion
Date with respect to the converted Note shall not be canceled, extinguished or
forfeited, but rather shall be deemed to be paid in full to the Holder thereof
through delivery of the Common Stock (together with the cash payment, if any, in
lieu of fractional shares) in exchange for the Note being converted pursuant to
the provisions hereof.

               If a Holder converts more than one Note at the same time, the
number of shares of Common Stock issuable upon the conversion shall be based on
the total Principal Amount at Final Maturity of the Notes converted.

               Upon surrender of a Note that is converted in part, the Company
shall execute and deliver to the Holder a new Note in an authorized denomination
equal in Principal Amount at Final Maturity to the unconverted portion of the
Note surrendered.

               If the last day on which a Note may be converted is not a
Business Day, the Note may be surrendered on the next succeeding Business Day.

               C. Cash Payments in Lieu of Fractional Shares. The Company shall
not issue a fractional share of Common Stock upon conversion of a Note. Instead
the Company shall deliver cash for the current market value of the fractional
share. The current market value of a fractional share shall be determined to the
nearest 1/10,000th of a share by multiplying the Market Price of a full share of
Common Stock by the fractional amount and rounding the product to the nearest
whole cent.


                                      -40-
<PAGE>   46

               D. Taxes on Conversion. If a Holder converts a Note, the Company
shall pay any documentary, stamp or similar issue or transfer tax due on the
issue of shares of Common Stock upon the conversion. However, the Holder shall
pay any such tax which is due because the Holder requests the shares to be
issued in a name other than the Holder's name. The Company may refuse to deliver
the certificates representing the Common Stock being issued in a name other than
the Holder's name until the Company receives a sum sufficient to pay any tax
which shall be due because the shares are to be issued in a name other than the
Holder's name. Nothing herein shall preclude any tax withholding required by law
or regulations.

               E. Company to Provide Stock. The Company shall, prior to issuance
of any Notes hereunder, and from time to time as may be necessary, reserve out
of its authorized but unissued Common Stock a sufficient number of shares of
Common Stock to permit the conversion of the Notes.

               All shares of Common Stock delivered upon conversion of the Notes
shall be newly issued shares or treasury shares, shall be duly and validly
issued and fully paid and nonassessable and shall be free from preemptive rights
and free of any Lien or adverse claim.

               The Company shall endeavor promptly to comply with all federal
and state securities laws regulating the order and delivery of shares of Common
Stock upon the conversion of Notes, if any, and shall cause to have listed or
quoted all such shares of Common Stock on each United States national securities
exchange or over-the counter or other domestic market on which the Common Stock
is then listed or quoted.

7.7.     ADJUSTMENTS TO CONVERSION RATE.

               The Conversion Rate shall be adjusted from time to time by the
Company as follows:

               A. In case the Company shall (a) pay a dividend, or make a
distribution, in shares of its Voting Stock, on its Voting Stock, (b) subdivide
its outstanding Voting Stock into a greater number of shares, or (c) combine its
outstanding Voting Stock into a smaller number of shares, the Conversion Rate in
effect immediately prior thereto shall be adjusted so that the holder of any
Note thereafter surrendered for conversion shall be entitled to receive the
number of shares of Common Stock of the Company which such holder would have
owned or have been entitled to receive after the happening of any of the events
described above had such Note been converted immediately prior to the happening
of such event. If any dividend or distribution of the type described in clause
(a) above is not so paid or made, the Conversion Rate shall again be adjusted to
the Conversion Rate which would then be in effect if such dividend or
distribution



                                      -41-
<PAGE>   47

had not been declared. An adjustment made pursuant to this Section
7.7 shall become effective immediately after the Record Date in the case of a
dividend and shall become effective immediately after the effective date in the
case of subdivision or combination.

               B. In order to prevent dilution of the right granted hereunder,
the Conversion Rate shall be subject to adjustment from time to time in
accordance with this Section 7.7. For purposes of this Section 7.7, the term
"NUMBER OF COMMON SHARES DEEMED OUTSTANDING" at any given time shall mean the
sum of (x) the number of shares of Common Stock outstanding at such time, and
(y) the number of shares of the Common Stock deemed to be outstanding under
Sections 7.7B(1) to (7), inclusive, at such time.

               Except as provided in Section 7.7A, 7.7C, 7.7D or 7.7E, if and
whenever on or after either Closing Date, the Company shall issue or sell, or
shall in accordance with Sections 7.7B(1) to (7), inclusive, be deemed to have
issued or sold any shares of its Common Stock for a consideration per share less
than the average Market Price for the 10 Trading Days immediately preceding such
issuance or sale, then forthwith upon such issue or sale (the "TRIGGERING
TRANSACTION"), the Conversion Rate shall, subject to Section 7.7B(1) to (7), be
adjusted so that the same shall equal the Conversion Rate determined by
multiplying the Conversion Rate in effect immediately prior to the Triggering
Transaction by a fraction, the numerator of which shall be the sum of (x) the
Number of Shares Deemed Outstanding immediately prior to such Triggering
Transaction plus (y) the number of additional shares of Common Stock offered or
sold and the denominator of which shall be the sum of (x) the Number of Shares
Deemed Outstanding immediately prior to such Triggering Transaction plus (y) the
number of shares of Common Stock which the aggregate consideration received by
the Company upon such Triggering Transaction would purchase at the Market Price
immediately preceding such Triggering Transaction.

               For purposes of determining the adjusted Conversion Rate under
this Section 7.7, the following subsections (1) to (7), inclusive, shall be
applicable:

                    (1) In case the Company at any time shall in any manner
               grant (whether directly or by assumption in a merger or
               otherwise) any rights to subscribe for or to purchase, or any
               options for the purchase of, Common Stock or any stock or other
               securities convertible into or exchangeable for Common Stock
               (such rights or options being herein called "OPTIONS" and such
               convertible or exchangeable stock or securities being herein
               called "CONVERTIBLE SECURITIES"), whether or not such Options or
               the right to convert or exchange any such Convertible Securities
               are immediately exercisable


                                      -42-

<PAGE>   48

               and the price per share for which the Common Stock is issuable
               upon exercise, conversion or exchange (determined by dividing (x)
               the total amount, if any, received or receivable by the Company
               as consideration for the granting of such Options, plus the
               aggregate amount of additional consideration payable to the
               Company upon the exercise of all such Options, plus, in the case
               of such Options which relate to Convertible Securities, the
               aggregate amount of additional consideration, if any, payable
               upon the issue or sale of such Convertible Securities and upon
               the conversion or exchange thereof, by (y) the total maximum
               number of shares of Common Stock issuable upon the exercise of
               such Options or the conversion or exchange of such Convertible
               Securities) shall be less than the Market Price in effect
               immediately prior to the time of the granting of such Option,
               then the total maximum amount of Common Stock issuable upon the
               exercise of such Options or in the case of Options for
               Convertible Securities, upon the conversion or exchange of such
               Convertible Securities, shall (as of the date of granting of such
               Options) be deemed to be outstanding and to have been issued and
               sold by the Company for such price per share. No adjustment of
               the Conversion Price shall be made upon the actual issue of such
               shares of Common Stock or such Convertible Securities upon the
               exercise of such Options, except as otherwise provided in
               subparagraph (3) below.

                    (2) In case the Company at any time shall in any manner
               issue (whether directly or by assumption in a merger or
               otherwise) or sell any Convertible Securities, whether or not the
               rights to exchange or convert thereunder are immediately
               exercisable, and the price per share for which Common Stock is
               issuable upon such conversion or exchange (determined by dividing
               (x) the total amount received or receivable by the Company as
               consideration for the issue or sale of such Convertible
               Securities, plus the aggregate amount of additional
               consideration, if any, payable to the Company upon the conversion
               or exchange thereof, by (y) the total maximum number of shares of
               Common Stock issuable upon the conversion or exchange of all such
               Convertible Securities) shall be less than the Market Price in
               effect immediately prior to the time of such issue or sale, then
               the total maximum number of shares of Common Stock issuable upon
               conversion or exchange of all such Convertible Securities shall
               (as of the date of the issue or sale of such Convertible
               Securities) be deemed to be outstanding and to have been issued
               and sold by the Company for such price per share. No adjustment
               of the Conversion Price shall be made upon the actual issue of
               such Common Stock upon exercise of the rights to exchange or
               convert under such


                                      -43-
<PAGE>   49

               Convertible Securities, except as otherwise provided in
               subparagraph (3) below.

                    (3) If the purchase price provided for in any Options
               referred to in subparagraph (1), the additional consideration, if
               any, payable upon the conversion or exchange of any Convertible
               Securities referred to in subparagraphs (1) or (2), or the rate
               at which any Convertible Securities referred to in subparagraph
               (1) or (2) are convertible into or exchangeable for Common Stock
               shall change at any time (other than under or by reason of
               provisions designed to protect against dilution of the type set
               forth in this Section 7.7), the Conversion Rate in effect at the
               time of such change shall forthwith be readjusted to the
               Conversion Rate that would have been in effect at such time had
               such Options or Convertible Securities still outstanding provided
               for such changed purchase price, additional consideration or
               conversion rate, as the case may be, at the time initially
               granted, issued or sold. If the purchase price provided for in
               any Option referred to in subparagraph (1) or the rate at which
               any Convertible Securities referred to in subparagraphs (1) or
               (2) are convertible into or exchangeable for Common Stock, shall
               be reduced at any time under or by reason of provisions with
               respect thereto designed to protect against dilution, then in
               case of the delivery of Common Stock upon the exercise of any
               such Option or upon conversion or exchange of any such
               Convertible Security, the Conversion Rate then in effect
               hereunder shall forthwith be adjusted to such respective amount
               as would have been obtained had such Option or Convertible
               Security never been issued as to such Common Stock and had
               adjustments been made upon the issuance of the shares of Common
               Stock delivered as aforesaid, but only if as a result of such
               adjustment the Conversion Rate then in effect hereunder is hereby
               reduced.

                    (4) On the expiration of any Option or the termination of
               any right to convert or exchange any Convertible Securities, the
               Conversion Rate then in effect hereunder shall forthwith be
               increased to the Conversion Rate which would have been in effect
               at the time of such expiration or termination had such Option or
               Convertible Securities, to the extent outstanding immediately
               prior to such expiration or termination, never been issued.

                    (5) In case any Options shall be issued in connection with
               the issue or sale of other securities of the Company, together
               comprising one integral transaction in which no specific
               consideration is allocated to such Options by the parties
               thereto, such


                                      -44-
<PAGE>   50

               Options shall be deemed to have been issued without
               consideration.

                    (6) In case any shares of Common Stock, Options or
               Convertible Securities shall be issued or sold or deemed to have
               been issued or sold for cash, the consideration received therefor
               shall be deemed to be the amount received by the Company
               therefor. In case any shares of Common Stock, Options or
               Convertible Securities shall be issued or sold for a
               consideration other than cash, the amount of the consideration
               other than cash received by the Company shall be the fair value
               of such consideration as determined in good faith by the Board of
               Directors. In case any shares of Common Stock, Options or
               Convertible Securities shall be issued in connection with any
               merger in which the Company is the surviving corporation, the
               amount of consideration therefor shall be deemed to be the fair
               value of such portion of the net assets and business of the
               non-surviving corporation as shall be attributed by the Board of
               Directors in good faith to such Common Stock, Options or
               Convertible Securities, as the case may be as determined in good
               faith by the Board of Directors.

                    (7) The number of shares of Common Stock outstanding at any
               given time shall not include shares owned or held by or for the
               account of the Company, and the disposition of any shares so
               owned or held shall be considered an issue or sale of Common
               Stock for the purpose of this Section 7.7.

               C. In case the Company shall, by dividend or otherwise,
distribute to all holders of any class or series of its Voting Stock (excluding
any distribution in connection with the liquidation, dissolution or winding up
of the Company, whether voluntary or involuntary) any shares of any class of
capital stock of the Company (other than Voting Stock) or evidences of its
indebtedness or assets (other than cash) or rights or warrants to subscribe for
or purchase any of its Notes (excluding those referred to in Section 7.7B
hereof) (any of the foregoing hereinafter in this Section 7.7C called the
"DISTRIBUTED SECURITIES"), then, the Conversion Rate shall be adjusted so that
the same shall equal the Conversion Rate determined by multiplying the
Conversion Rate in effect immediately prior to the date of such distribution by
a fraction of which the numerator shall be the Market Price of the Common Stock
on the Record Date mentioned below, and the denominator shall be the Market
Price of the Common Stock on such Record Date less the fair market value on such
Record Date (as determined by the Board of Directors of the Company, whose
determination shall be conclusive) of the Distributed Securities so distributed
applicable to one share of Voting Stock. Such adjustment shall



                                      -45-
<PAGE>   51

become effective immediately after the Record Date for the determination of
shareholders entitled to receive such distribution. Notwithstanding the
foregoing, in the event the then fair market value (as so determined) of the
portion of the Distributed Securities so distributed applicable to one share of
Voting Stock is equal to or greater than the Market Price of the Common Stock on
the Record Date, in lieu of the foregoing adjustment, adequate provision shall
be made so that each Holder shall have the right to receive upon conversion the
amount of Distributed Securities such Holder would have received had such Holder
converted each Note on such Record Date. In the event that such distribution is
not so paid or made, the Conversion Rate shall again be adjusted to the
Conversion Rate which would then be in effect if such distribution had not been
declared.

               Notwithstanding the foregoing provisions of this Section 7.7C, no
adjustment shall be made thereunder for any distribution of Distributed
Securities if the Company makes proper provision so that each Holder of a Note
who converts such Note (or any portion thereof) after the Record Date for such
distribution shall be entitled to receive upon such conversion, in addition to
the shares of Common Stock issuable upon such conversion, the amount and kind of
Distributed Securities that such Holder would have been entitled to receive if
such Holder had, immediately prior to such Record Date, converted such Note for
Common Stock; provided that, with respect to any Distributed Securities that are
convertible, exchangeable or exercisable, the foregoing provision shall only
apply to the extent (and so long as) the Distributed Securities receivable upon
conversion of such Note would be convertible, exchangeable or exercisable, as
applicable, without any loss of rights or privileges for a period of at least 60
days following conversion of such Note.

               D. In case the Company shall, by dividend or otherwise,
distribute to all holders of any class of its Voting Stock cash (excluding any
cash that is distributed upon a merger or consolidation to which Section 7.8F
applies or as part of a distribution referred to in Section 7.7C) in an
aggregate amount that, combined together with (i) the aggregate amount of any
other such distributions to all holders of any class of its Voting Stock made
exclusively in cash within the 12 months preceding the date of payment of such
distribution, and in respect of which no adjustment pursuant to this Section
7.7D has been made, and (ii) the aggregate of any cash plus the fair market
value (as determined by the Board of Directors, whose determination shall be
conclusive and described in a resolution of the Board of Directors) of
consideration payable in respect of any tender offer by the Company for all or
any portion of any class of its Voting Stock concluded within the 12 months
preceding the date of payment of such distribution, and in respect of which no
adjustment pursuant to Section 7.7E has been made, exceeds 10% of the product of
the Market Price of the Common Stock on the Record Date with respect to such
distribution and the number of shares of Voting Stock outstanding on such



                                      -46-
<PAGE>   52

date, then, and in each such case, immediately after the close of business on
such date, the Conversion Rate shall be increased so that the same shall equal
the Conversion Rate determined by multiplying the Conversion Rate in effect
immediately prior to the record date by a fraction of which the numerator shall
be such Market Price of the Common Stock and the denominator shall be the Market
Price of the Common Stock on such Record Date less the amount of cash so
distributed (and not excluded as provided above) applicable to one share of
Voting Stock, such increase to be effective immediately prior to the opening of
business on the day following such Record Date; provided, however, that, if the
portion of the cash so distributed applicable to one share of Voting Stock is
equal to or greater than the Market Price of the Common Stock on such Record
Date, in lieu of the foregoing adjustment, adequate provision shall be made so
that each Holder shall have the right to receive upon conversion the amount of
cash such Holder would have received had such Holder converted such Note
immediately prior to such Record Date. If such dividend or distribution is not
so paid or made, the Conversion Rate shall again be adjusted to be the
Conversion Rate which would then be in effect if such dividend or distribution
had not been declared. If any adjustment is required to be made as set forth in
this Section 7.7D as a result of a distribution that is a quarterly dividend,
such adjustment shall be based upon the amount by which such distribution
exceeds the amount of the quarterly cash dividend permitted to be excluded
pursuant hereto. If an adjustment is required to be made as set forth in this
Section 7.7D above as a result of a distribution that is not a quarterly
dividend, such adjustment shall be based upon the full amount of the
distribution.

               E. In case a tender offer made by the Company or any of its
subsidiaries for all or any portion of any class of its Voting Stock expires and
such tender offer (as amended upon the expiration thereof) requires the payment
to shareholders (based on the acceptance (up to any maximum specified in the
terms of the tender offer) of Purchased Shares) of an aggregate consideration
having a fair market value (as determined by the Board of Directors, whose
determination shall be conclusive and described in a resolution of the Board of
Directors) that, combined together with (a) the aggregate of the cash plus the
fair market value (as determined by the Board of Directors, whose determination
shall be conclusive and described in a resolution of the Board of Directors), as
of the expiration of such tender offer, of consideration payable in respect of
any other tender offers, by the Company or any of its subsidiaries for all or
any portion of any class of its Voting Stock expiring within the 12 months
preceding the expiration of such tender offer and in respect of which no
adjustment pursuant to this Section 7.7E has been made, and (b) the aggregate
amount of any distributions to all holders of the Voting Stock made exclusively
in cash within 12 months preceding the expiration of such tender offer and in
respect of which no adjustment pursuant to Section 7.7D has been made, exceeds
10% of the product of the Market Price of the



                                      -47-
<PAGE>   53

Common Stock as of the last time (the "EXPIRATION TIME") tenders could have been
made pursuant to such tender offer (as it may be amended) and the number of
shares of Voting Stock outstanding (including any tendered shares) at the
Expiration Time, then, and in each such case, immediately prior to the opening
of business on the day after the date of the Expiration Time, the Conversion
Rate shall be increased so that the same shall equal the Conversion Rate
determined by multiplying the Conversion Rate in effect immediately prior to the
Expiration Time by a fraction of which the numerator shall be the product of the
number of shares of Voting Stock outstanding (less any Purchased Shares) on the
Expiration Time and the Market Price of the Common Stock on the Trading Day next
succeeding the Expiration Time and the denominator shall be (x) the number of
shares of Voting Stock outstanding (including any tendered or exchanged shares)
on the Expiration Time multiplied by the Market Price of the Common Stock on the
Trading Day next succeeding the Expiration Time less (y) the fair market value
(determined as aforesaid) of the aggregate consideration payable to shareholders
based on the acceptance (up to an maximum specified in the terms of the tender
or exchanged offer) of all shares validly tendered or exchanged and not
withdrawn as of the Expiration Time (the shares deemed so accepted, up to any
such maximum, being referred to as the "PURCHASED SHARES"), such increase to
become effective immediately prior to the opening of business on the day
following the Expiration Time. If the Company is obligated to purchase shares
pursuant to any such tender offer, but the Company is permanently prevented by
applicable law from effecting any such purchases or all such purchases are
rescinded, the Conversion Rate shall again be adjusted to be the Conversion Rate
which would then be in effect if such tender offer had not been made.

               F. In the event the litigation referred to in Schedule 7.7 (the
"SUBJECT LITIGATION") is settled by the Company or a final judgment is entered
against the Company or the Company otherwise is liable to make payments (whether
pursuant to indemnification arrangements or otherwise), which payments shall
include fees and expenses payable by the Company, in an amount in excess of $30
million on a pre-tax basis (the "ADJUSTMENT THRESHOLD"), without regard to
insurance coverage which may be available to the Company (a "SPECIAL ADJUSTMENT
EVENT"), then the Conversion Rate then in effect shall be further adjusted
pursuant to this Section 7.7F. Upon the occurrence of a Special Adjustment
Event, the Conversion Rate shall be adjusted to the Conversion Rate obtained by
dividing $315.24 by the New Factor. For purposes hereof, the "NEW FACTOR" shall
be equal to the difference between (x) the quotient obtained by dividing $315.24
by the Conversion Rate in effect immediately prior to the Special Adjustment
Event and (y) the Adjustment Factor. For purposes hereof, the "Adjustment
Factor" shall equal $0.0111 for each $1 million in after-tax costs or expense
payable by the Company in connection with the Special Adjustment Event in excess
of the


                                      -48-
<PAGE>   54

Adjustment Threshold, plus $0.006568 for every 1,000,000 shares of Common Stock
acquired by the Investors pursuant to Section 6.6 within six months of the
Closing Date (with adjustments to the Adjustment Factor by linear interpolation
for amounts greater or less than $1 million or 1,000,000, as the case may be).

               G. For purposes of this Section 7.7, the number of shares of
Voting Stock at any time outstanding shall not include shares held in the
treasury of the Company but shall include shares issuable in respect of scrip
certificates issued in lieu of fractions of shares of Voting Stock. The Company
shall not pay any dividend or make any distribution on shares of Voting Stock
held in the treasury of the Company.

               H. The provisions of this Section 7.7 shall not apply to any
Common Stock issued, issuable or deemed outstanding under Sections 7.7B(1) to
(7) inclusive: (i) to any person pursuant to any stock option, stock purchase or
similar plan or arrangement for the benefit of employees, consultants or
directors of the Company or its Subsidiaries in effect on the Closing Dates or
thereafter adopted by the Board of Directors (or physicians or providers
contracting with the Company or any of its Subsidiaries), (ii) pursuant to
options, warrants and conversion rights in existence on the Closing Dates, (iii)
on conversion of a Note or (iv) in connection with underwritten public offerings
for cash pursuant to a registration statement filed under the Securities Act
relating to Common Stock, Options or Convertible Securities.

7.8.     MISCELLANEOUS PROVISIONS RELATING TO CONVERSION.

               A. When Adjustment May be Deferred. No adjustment in the
Conversion Rate need be made unless the adjustment would require an increase or
decrease of at least 1% in the Conversion Rate then in effect provided that any
adjustment that would otherwise be required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under
Sections 7.6, 7.7 and 7.8 shall be made to the nearest cent or to the nearest
1/10,000th of a share, as the case may be.

               B. When No Adjustment Required. No adjustment need be made for
rights to purchase Voting Stock pursuant to a Company plan for reinvestment of
dividends or interest. No adjustment need be made for a change in the par value
or no par value of the Voting Stock. To the extent the Notes become convertible
into cash, assets, property or Notes (other than capital stock of the Company),
no adjustment need be made thereafter as to the cash, assets, property or such
Notes. Interest shall not accrue on the cash.

               C. Notice of Adjustment. Whenever the Conversion Rate is
adjusted, the Company shall promptly mail to Holders a



                                      -49-
<PAGE>   55

notice of the adjustment. The certificate shall, absent manifest error, be
conclusive evidence that the adjustment is correct.

               D. Voluntary Increase. The Company may make such increases in the
Conversion Rate, in addition to those required by Section 7.7, as the Board of
Directors considers to be advisable to avoid or diminish any income tax to
holders of Voting Stock or rights to purchase Voting Stock resulting from any
dividend or distribution of stock (or rights to acquire stock) or from any event
treated as such for income tax purposes. Whenever the Conversion Rate is so
increased, the Company shall mail to Holders a notice of such increase.

               E. Notice to Holders Prior to Certain Actions. In case:

               (1) the Company shall declare a dividend (or any other
          distribution) on its Voting Stock that would require an adjustment in
          the Conversion Rate pursuant to Section 7.7;

               (2) the Company shall authorize the granting to all or
          substantially all the Holders of its Voting Stock of rights or
          warrants to subscribe for or purchase any share of any class or any
          other rights or warrants;

               (3) of any reclassification or reorganization of the Voting Stock
          of the Company (other than a subdivision or combination of its
          outstanding Voting Stock, or a change in par value, or from par value
          to no par value, or from no par value to par value), or of any
          consolidation or merger to which the Company is a party and for which
          approval of any shareholders of the Company is required, or of the
          sale or transfer of all or substantially all of the assets of the
          Company; or

               (4) of the voluntary or involuntary dissolution, liquidation or
          winding-up of the Company,

the Company shall cause to be mailed to each Holder of Notes at his address
appearing on the Note Register, as promptly as possible but in any event at
least 15 days prior to the applicable date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution or rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Voting Stock of record to be entitled
to such dividend, distribution, or rights or warrants are to be determined, or
(y) the date on which such reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding-up is expected to become effective
or occur, and the date as of which it is expected that holders of Voting Stock
of record shall be entitled to exchange their Voting Stock for securities or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer, dissolution, liquidation or winding-up. Failure to



                                      -50-
<PAGE>   56

give such notice, or any defect therein, shall not affect the legality or
validity of such dividend, distribution, reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding-up.

               F. Effect of Reclassification, Consolidation, Merger or Sale. If
any of the following events occur, namely (a) any reclassification or change of
outstanding shares of Voting Stock (other than a change in par value, or from
par value to no par value, or from no par value to par value, or as a result of
a subdivision or combination), (b) any consolidation, merger or combination of
the Company with another corporation as a result of which holders of Voting
Stock shall be entitled to receive stock, Notes or other property or assets
(including cash) with respect to or in exchange for such Voting Stock, or (c)
any sale or conveyance of the properties and assets of the Company as, or
substantially as, an entirety to any other corporation as a result of which
holders of Voting Stock shall be entitled to receive stock, Notes or other
property or assets (including cash) with respect to or in exchange for such
Voting Stock, then the Company or the successor or purchasing corporation, as
the case may be, shall make adequate provision so that each Note shall be
convertible into the kind and amount of shares of stock and other Notes or
property or assets (including cash) receivable upon such reclassification,
change, consolidation, merger, combination, sale or conveyance by a holder of a
number of shares of Voting Stock issuable upon conversion of such Notes
immediately prior to such reclassification, change, consolidation, merger,
combination, sale or conveyance. Such adequate provision shall include an
undertaking on the part of the Company, the surviving corporation or the
purchaser, as the case may be, to make adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Section 7.8F.

               The above provisions of this Section shall similarly apply to
successive reclassifications, changes, consolidations, mergers, combinations,
sales and conveyances.

               If this Section 7.8F applies to any event or occurrence, Section
7.7 shall not apply.

               G. Simultaneous Adjustments. In the event that Sections 7.6, 7.7
or 7.8 require adjustments to the Conversion Rate under more than one of
Sections 7.7A, 7.7B, 7.7C or 7.7D, and the Record Dates for the distributions
giving rise to such adjustments shall occur on the same date, then such
adjustments shall be made by applying, first, the provisions of Section 7.7C,
second, the provisions of Section 7.7D, third, the provisions of Section 7.7A,
and fourth, the provisions of Section 7.7B.

               H. Successive Adjustments. After an adjustment to the Conversion
Rate under Sections 7.6, 7.7 or 7.8, any subsequent event requiring an
adjustment under Sections 7.6, 7.7



                                      -51-
<PAGE>   57

or 7.8 shall cause an adjustment to the Conversion Rate as so adjusted.

               I. General Considerations. Whenever successive adjustments to the
Conversion Rate are called for pursuant to Sections 7.6, 7.7 or 7.8, such
adjustments shall be made to the Market Price as may be necessary or appropriate
to effectuate the intent of Sections 7.6, 7.7 or 7.8 and to avoid unjust or
inequitable results as determined in good faith by the Board of Directors.

8.       DEFINITIONS.

8.1.     DEFINITIONS.

               Except as otherwise specified or as the context may otherwise
require, the following terms shall have the respective meanings set forth below
whenever used in this Agreement and shall include the singular as well as the
plural:

               "AFFILIATE" of any specified Person means any other Person which
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such Person. Notwithstanding the
foregoing, in no event shall the Investors or any of their Affiliates or any
other holder of any Notes be deemed to be an Affiliate of the Company solely by
reason of the ownership of the Notes or the shares of Common Stock acquired upon
the conversion of the Notes.

               "BOARD OF DIRECTORS" means the Board of Directors of the Company
or any committee of directors lawfully exercising the relevant powers of said
Board or Directors.

               "BUSINESS DAY" means any day other than a Saturday or Sunday or a
day on which commercial banks are required or authorized by law to be closed in
New York, New York.

               "CAPITAL STOCK" means, with respect to any corporation, any and
all shares, interests, rights to purchase, warrants, options, participations or
other equivalents of or interests (however designated) in stock issued by that
corporation.

               "CHANGE IN CONTROL" means such time as

               (i) a "person" or "group" (within the meaning of Sections 13(d)
          and 14(d)(2) of the Exchange Act), other than any of the Investors or
          a "group" which includes any of the Investors, (A) becomes the
          "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act)
          of more than 50% of the total then outstanding voting power of the
          Voting Stock of the Company or (B) has the right or the ability by
          voting


                                      -52-

<PAGE>   58

          right, contract or otherwise to elect or designate for election a
          majority of the entire Board of Directors;

               (ii) (A) the Company consolidates with or merges into any other
          Person or conveys, transfers, sells or leases all or substantially all
          of its assets as an entirety to any Person or (B) any Person merges
          into the Company, in either event pursuant to a transaction in which
          Voting Stock of the Company representing more than 50% of the total
          voting power of the Company outstanding immediately prior to the
          effectiveness thereof is reclassified or changed into or exchanged for
          cash, securities or other property; provided that any consolidation,
          merger, conveyance, transfer, sale or lease between the Company and
          any of its Subsidiaries (including without limitation the
          reincorporation of the Company in another jurisdiction) shall be
          excluded from the operation of this clause (ii); or

               (iii) during any period of two consecutive years, individuals who
          at the beginning of such period constituted the Board of Directors
          (together with any new directors whose election by such Board of
          Directors, or whose nomination for election by the shareholders of the
          Company, as the case may be, was approved by a vote of 66 2/3% of the
          directors then still in office who were either directors at the
          beginning of such period or whose election or nomination for election
          was previously so approved) cease for any reason to constitute a
          majority of the Board of Directors then in office.

               "CHANGE IN CONTROL PURCHASE DATE" has the meaning specified in
Section 7.3A.

               "CHANGE IN CONTROL PURCHASE NOTICE" has the meaning specified in
Section 7.3C.

               "CHANGE IN CONTROL PURCHASE PRICE" has the meaning specified in
Section 7.3A.

               "CLOSING DATE" has the meaning specified in Section 1.2.

               "CLOSING PRICE" on any Trading Day with respect to the per share
price of the Common Stock means the last reported sales price regular way or, in
case no such reported sale takes place on such Trading Day, (i) the reported
closing bid price regular way on the Nasdaq Stock Market's National Market if
the Common Stock is listed or admitted to trading on such National Market, or
(ii) if the Common Stock is not listed or admitted to trading on the Nasdaq
Stock Market's National Market, the average of the reported closing bid and
asked prices regular way on the principal national securities exchange on which
the Common Stock is listed or admitted to trading or, if not listed or admitted
to


                                      -53-
<PAGE>   59

trading on any national securities exchange, the closing bid price in the
over-the-counter market as furnished by any New York Stock Exchange member firm
that is selected from time to time by the Company for that purpose and is
reasonably acceptable to the Majority Holders.

               "CODE" means the Internal Revenue Code of 1986, as amended.

               "COMMISSION" means the Securities and Exchange Commission and any
successor agency of the United States federal government having similar powers.

               "COMMON STOCK" has the meaning specified in Section 2.2.

               "COMPANY CHANGE IN CONTROL NOTICE" has the meaning specified in
Section 7.3B.

               "COMPANY NOTICE" has the meaning specified in Section 7.4E.

               "COMPANY SEC REPORTS" means the meaning specified in Section 2.5.

               "CONTAMINANT" means any waste, pollutant, hazardous substance,
toxic substance, hazardous waste, special or toxic waste, petroleum or
petroleum-derived substance or waste, or any constituent of any such substance
or waste regulated under any Environmental Law.

               "CONTROL" when used with respect to any specified Person means
the power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.

               "CONTROLLED SUBSIDIARY" means any entity as to which WP or the
Investors, individually or in the aggregate, are the beneficial owner of 50% or
more of the voting securities or as to which WP or the Investors, individually
or in the aggregate, have the right to appoint a majority of the directors or
persons exercising similar authority.

               "CONVERSION RATE" has the meaning specified in Section 7.6A.

               "CONVERTIBLE SECURITIES" has the meaning specified in Section
7.7B.


                                      -54-
<PAGE>   60

               "DEFAULT" means an event which, with the lapse of time and/or the
giving of notice, would constitute an Event of Default.

               "DEFERRED PURCHASE DATE" has the meaning specified in Section
7.4E(2)(d).

               "ENVIRONMENTAL LAWS" means any and all Federal, state, local, and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to pollution and the protection of the
environment, or the release of any materials into the environment, including but
not limited to those related to hazardous substances or wastes, air emissions
and discharges to waste or public systems.

               "ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the rules and regulations promulgated
thereunder from time to time in effect.

               "ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that is treated as a single employer together with the Company
under section 414 of the Code.

               "EVENT OF DEFAULT" has the meaning specified in Section 9.1.

               "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time.

               "EXISTING CONVERTIBLE DEBENTURES" means the Company's 4.5%
Convertible Subordinated Debentures due 2003 issued under the Existing
Indenture.

               "EXISTING INDENTURE" means the indenture, dated as of February
15, 1996, between the Company and First American National Bank, relating to the
Existing Convertible Debentures, as the same may be amended or modified from
time to time.

               "FINAL MATURITY" or "FINAL MATURITY DATE" means the fifteenth
anniversary of the Closing Date.

               "GAAP" means generally accepted accounting principles from time
to time in the United States.

               "GOVERNMENTAL BODY" means any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign.


                                      -55-
<PAGE>   61

               "HOLDER" means any Person in whose name the Notes are registered
from time to time on the books and records of the Company.

               "HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the rules and regulations promulgated thereunder.

               "ISSUE PRICE" of any Note means, in connection with the original
issuance of such Note, the initial issue price at which the Note is issued as
set forth on the face of the Note.

               "KNOWLEDGE OF THE COMPANY" OR "COMPANY'S KNOWLEDGE" means the
best knowledge of each of the following individuals: John K. Crawford, Thompson
S. Dent, N. Carolyn Forehand, Joseph C. Hutts, Derril W. Reeves, Fred W. Ewing,
Oliver V. Rogers, Glen N. Marconcini, Herbert A. Fritch and W. Carl Whitmer.

               "LIEN" means any mortgage, pledge, encumbrance, security
interest, conditional sale or other title retention agreement or other similar
lien or encumbrance.

               "MAJORITY HOLDERS" means the holder or holders of at least a
majority of the aggregate unpaid principal amount of the Notes at the time
outstanding.

               "MARKET PRICE" means the average of the daily Sale Prices of the
Common Stock for the 10 Trading Days period ending on (if the third Business Day
prior to the applicable date in question is a Trading Day or, if not, then on
the last Trading Day prior to) the third Business Day prior to the applicable
date in question, appropriately adjusted to take into account the occurrence
during the period commencing on the first of such Trading Days during such 10
Trading Day period and ending on such date in question any event that would
result in an adjustment of the Conversion Rate with respect to the Common Stock.

               "MATERIAL" means material in relation to the business,
operations, affairs, financial condition, assets, properties, or prospects of
the Company and its Subsidiaries taken as a whole.

               "MATERIAL AGREEMENTS" mean any indenture, mortgage, deed of
trust, bank loan or credit agreement, or any other "material contract" of the
Company (as such term is defined in Regulation 601(b)(10) of Regulation S-K of
the Commission).

               "MATERIAL ADVERSE EFFECT" means any change in or effect on that
is materially adverse to (A) the business, operations, properties, condition
(financial or other), prospects, assets or liabilities of the Company and its
Subsidiaries taken as a whole (including any change in any Requirement of Law
applicable to the business of the Company or its Subsidiaries), (B) the ability
of


                                      -56-
<PAGE>   62

the Company to perform its obligations under this Agreement and the other
Transaction Documents or (C) the legality, validity or enforceability of this
Agreement or the other Transaction Documents, excluding any changes and effects
resulting from changes in economic or political conditions or changes and
effects previously disclosed in the Company SEC Reports or in the Schedules
hereto.

               "MAXIMUM AMOUNT" means the sum of (i) the number of shares of
Common Stock beneficially owned by the Investors as of the date of this
Agreement (before giving effect to the transactions contemplated hereby), (ii)
the number of shares of Common Stock issuable from time to time upon conversion
of the Notes and (iii) during a period of six months from the Closing Date, the
number of shares of Common Stock that the Investors may purchase in accordance
with the provisions of Section 6.6.

               "MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer
plan" (as such term is defined in section 4001(a)(3) of ERISA).

               "NON-PAYMENT EVENT OF DEFAULT" means a default on the Senior
Indebtedness of which the Company has received notice (other than a Payment
Event of Default) that occurs and is continuing and that permits the holders of
Senior Indebtedness to accelerate the maturity of such Senior Indebtedness.

               "NOTES" has the meaning specified in Section 1.1.

               "NOTE REGISTER" has the meaning specified in Section 11.

               "OFFICER'S CERTIFICATE" means a certificate of a Senior Financial
Officer or of any other officer of the Company whose responsibilities extend to
the subject matter of such certificate.

               "OPTIONS" has the meaning specified in Section 7.7B.

               "ORDER" means any written order, writ, injunction, decree,
judgment, award, penalty, determination, direction or demand.

               "ORIGINAL ISSUE DISCOUNT" of any Note means the difference
between the Issue Price and the Principal Amount at Final Maturity of the Note
as set forth on the face of the Note.

               "PAYMENT EVENT OF DEFAULT" means a default in the payment of
principal of (or premium, if any), or interest on Senior Indebtedness beyond any
applicable grace period with respect thereto.



                                      -57-
<PAGE>   63

               "PERMITTED ACQUISITIONS" has the meaning specified in Section
6.6A.

               "PERSON" or "PERSON" means and includes an individual, a
partnership, a joint venture, a corporation, a limited liability company, a
trust, an association, a joint-stock company, an unincorporated organization and
a Governmental Body.

               "PLAN" means an "employee benefit plan" (as defined in section
3(3) of ERISA) that is or, within the preceding five years, has been established
or maintained, or to which contributions are or, within the preceding five
years, have been made or required to be made, by the Company or any ERISA
Affiliate or with respect to which the Company or any ERISA Affiliate may have
any liability.

               "PRINCIPAL", "PRINCIPAL AMOUNT" or "PRINCIPAL" of any Note, means
the principal of the security, including any accrued Original Issue Discount on
the Note.

               "PURCHASE DATE" has the meaning specified in Section 7.4A.

               "PURCHASE NOTICE" has the meaning specified in Section 7.4A.

               "PURCHASE PRICE" has the meaning specified in Section 7.4A.

               "RECORD DATE" means, with respect to any dividend, distribution
or other transaction or event in which the holders of Voting Stock have the
right to receive any cash, securities or other property or in which the Voting
Stock (or other applicable security) is exchanged for or converted into any
combination of cash, securities or other property, the date fixed for
determination of shareholders entitled to receive such cash, securities or other
property (whether such date is fixed by the Board of Directors or by statute,
contract or otherwise).

               "REDEMPTION DATE" means the date fixed for such redemption by or
pursuant to this Agreement.

               "REDEMPTION PRICE" means the price at which the Notes are to be
redeemed pursuant to this Agreement.

               "REGISTRATION RIGHTS AGREEMENT" has the meaning specified in
Section 4.9.

               "REQUIREMENT OF LAW" means, as to any Person, each law, rule or
regulation, including Environmental Laws and ERISA, or Order, decree or other
determination of an arbitrator or a court



                                      -58-
<PAGE>   64

or other Governmental Body applicable to or binding upon such Person or any of
its property or to which such Person or any of its property is subject.

               "RIGHTS AGREEMENT" means the Rights Agreement, dated as of
February 18, 1994, between the Company and First Union National Bank of North
Carolina, as rights agent.

               "SALE PRICE" of the Common Stock on any date means the average of
the high and low per share sale price (or if no sale prices are reported, the
average of the bid and ask prices or, if more than one in either case, the
average of the average bid and average ask prices) on such date as reported in
the composite transactions reported on the principal United States securities
exchange on which the Common Stock is listed or, if the Common Stock is not
listed on a United States national or regional stock exchange, as reported by
the National Association of Securities Dealers Automated Quotation System.

               "SECURITIES" means the Notes or the shares of Common Stock
issuable upon conversion of the Notes.

               "SECURITIES ACT" means the Securities Act of 1933, as amended.

               "SENIOR FINANCIAL OFFICER" means the chief financial officer,
principal accounting officer, treasurer or controller of the Company.

               "SENIOR INDEBTEDNESS" means (a) the principal of and premium, if
any, and interest (including, without limitation, any interest accruing
subsequent to the filing of a petition or other action concerning bankruptcy or
other similar proceedings, whether or not constituting an allowed claim in any
such proceedings) on the following, whether presently outstanding or hereafter
incurred or created: all indebtedness or obligations of the Company for money
borrowed (other than that evidenced by the Notes) or assets acquired and which
is evidenced by a note, bond, debenture or similar instrument (including a
purchase money mortgage) given in connection with the acquisition of any
property or assets (other than inventory or other similar property acquired in
the ordinary course of business) including securities, (b) all obligations
constituting Bank Debt (as defined in the Existing Indenture)(including without
limitation principal, interest, fees and expenses); (c) all obligations of the
Company: (i) for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction, (ii) under interest rate
swaps, caps, collars, options and similar arrangements, and (iii) under any
foreign exchange contact, currency swap agreement, futures contract, currency
option contract, or other foreign currency hedge; (d) all obligations for the
payment of money relating to a


                                      -59-

<PAGE>   65

capitalized lease obligation; (e) any liabilities of others described in the
preceding clauses (a), (b), (c) and (d) which the Company has guaranteed or
which are otherwise its legal liability; and (f) renewals, extensions,
refundings, restructurings, amendments and modifications of any such
indebtedness or guarantee. Notwithstanding anything to the contrary in this
Agreement or the Notes, "SENIOR INDEBTEDNESS" shall not include (v) the Existing
Convertible Debentures, (w) subordinated indebtedness previously issued in
connection with clinic acquisitions, (x) future clinic acquisition subordinated
indebtedness of the Company, provided that such subordinated indebtedness by its
terms or the terms of the instrument creating or evidencing it expressly
provides that such subordinated indebtedness shall not be senior in right of
payment to the Securities, (y) any indebtedness of the Company to a Subsidiary
except to the extent any such indebtedness is pledged by such Subsidiary as
security for any Bank Debt, or (z) any indebtedness or guarantee of the Company
which by its terms or the terms of the instrument creating or evidencing it is
not superior in right of payment to the Notes. The Notes will rank pari passu
with the Existing Subordinated Debentures and any subordinated indebtedness of
the Company previously issued in connection with clinic acquisitions.

               "SIGNIFICANT SUBSIDIARY" has the meaning specified in Regulation
1-02(w) of Regulation S-X of the Commission.

               "SUBJECT SECURITIES" has the meaning specified in Section 6.7B.

               "SUBSIDIARY" of any Person means any corporation or other entity
a majority of the total combined voting power of all classes of Voting Stock of
which shall, at the time as of which any determination is being made, be owned
by such Person and/or one or more of its Subsidiaries. Except as otherwise
expressly indicated herein, references to Subsidiaries shall mean Subsidiaries
of the Company.

               "TAKEOVER STATUTE" shall mean any corporate takeover provision
under laws of the State of Tennessee except any health maintenance organization
or insurance change of control statute.

               "TRADING DAY" means each Monday, Tuesday, Wednesday, Thursday and
Friday, other than any day on which securities are not traded on the applicable
securities exchange or in the applicable securities market.

               "TRANSACTION DOCUMENTS" means this Agreement, the Notes and the
Registration Rights Agreement.

               "TRANSFER" means any sale, transfer or other disposition.



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<PAGE>   66

               "TRANSFEROR" has the meaning specified in Section 6.7A.

               "VOTING STOCK" means, with respect to any Person, any shares of
stock or other equity interests of any class or classes of such Person whose
holders are entitled under ordinary circumstances (irrespective of whether at
the time stock or other equity interests of any other class or classes shall
have or might have voting power by reason of the happening of any contingency)
to vote for the election of a majority of the directors, managers, trustees or
other governing body of such Person.

               "WHOLLY OWNED SUBSIDIARY" means a Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by the Company
or another Wholly Owned Subsidiary.

               "WP" has the meaning specified in Section 6.5.

8.2.     ACCOUNTING TERMS.

               All accounting terms used herein which are not expressly defined
in this Agreement have the meanings respectively given to them in accordance
with GAAP. Except as otherwise specifically provided herein, all computations
made pursuant to this Agreement shall be made in accordance with GAAP and all
balance sheets and other financial statements with respect thereto shall be
prepared in accordance with GAAP consistently applied. Except as otherwise
expressly provided, any consolidated financial statement or financial
computation shall be done in accordance with GAAP; and, if at the time that any
such statement or computation is required to be made the Company shall not have
any Subsidiary, such terms shall mean a financial statement or a financial
computation, as the case may be, with respect to the Company only.

9.       EVENTS OF DEFAULT; REMEDIES.

9.1.     EVENTS OF DEFAULT; ACCELERATION OF MATURITY AND RESCISSION.

               If any of the following Events of Default (each an "EVENT OF
DEFAULT") shall occur and be continuing for any reason whatsoever (and whether
such occurrence shall be voluntary or involuntary or come about or be effected
by operation of law or otherwise):

               A. a default by the Company in the payment of the Principal
(including accrued Original Issue Discount), Redemption Price, Purchase Price,
or Change in Control Purchase Price due with respect to the Notes;


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<PAGE>   67

               B. a default by the Company or any Subsidiary with respect to its
obligation to pay indebtedness for borrowed money (other than indebtedness which
is non-recourse to the Company or the Subsidiary), which default shall have
resulted in the acceleration of, or be a failure to pay at final maturity,
indebtedness aggregating more than $10 million;

               C. a material failure to perform any other covenant or warranty
of the Company herein or in the Notes, which continues for 30 days after written
notice from any Holder;

               D. final judgments or orders are rendered against the Company or
any of its Subsidiaries which require the payment by the Company or any of its
Subsidiaries of an amount (to the extent not covered by insurance) in excess of
$10 million and such judgments or orders remain unstayed or unsatisfied for more
than 60 days and are not being contested in good faith by appropriate
proceedings; or

               E. the Company shall (1) apply for or consent to the appointment
of, or the taking of possession by, a receiver, custodian, trustee or liquidator
of itself or of all or a substantial part of its property, (2) admit in writing
its inability to pay its debts as such debts become due, (3) make a general
assignment for the benefit of its creditors, (4) commence a voluntary case under
any law relating to bankruptcy, insolvency or reorganization, (5) file a
petition seeking to take advantage of any other law providing for the relief of
debtors, or (6) fail to controvert in a timely or appropriate manner (but within
30 days in any event), or acquiesce in writing to, any petition filed against it
in an involuntary case under any law relating to bankruptcy, insolvency or
reorganization; or

               F. a proceeding or case shall be commenced against the Company,
without the application or consent of the Company in any court of competent
jurisdiction seeking (1) its liquidation, reorganization, dissolution or winding
up, or composition or readjustment of its debts, (2) the appointment of a
trustee, receiver, custodian, liquidator, encumbrancer or the like of it or of
all or any substantial part of its assets or (3) similar relief in respect of it
under any law providing for the relief of debtors, and such proceeding or case
shall continue undismissed, or unstayed and in effect, for a period of 60 days;
or an order for relief shall be entered in an involuntary case under any law
relating to bankruptcy, insolvency or reorganization against the Company;

then (i) upon the occurrence of any Event of Default described in Subsection E
or F, the unpaid principal amount of all Notes, together with the interest
accrued thereon, shall automatically become immediately due and payable, without
presentment, demand, protest or other requirements of any kind, all of which are
hereby expressly waived by the Company, or (ii) upon the occurrence and during
the continuance of any other Event of


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<PAGE>   68

Default, the holders of at least 25% of the Principal Amount of the Notes at the
time may, by written notice to the Company, declare the Principal Amount of all
Notes to be, and the same shall forthwith become, due and payable, together with
the interest accrued thereon, without presentment, further demand, protest or
other requirements of any kind, all of which are hereby expressly waived by the
Company.

                  The provisions of this Section 9.1 are subject, however, to
the condition that if, at any time after any Note shall have become declared due
and payable, the Company shall pay all arrears of interest on the Notes and all
payments on account of the principal of and premium (if any) on the Notes which
shall have become due otherwise than by acceleration (with interest on such
principal, premium (if any) and, to the extent permitted by law, on overdue
payments of interest, at the respective rates specified in the Notes with
respect to overdue payments) and an additional amount sufficient to reimburse
the holders of the Notes for the reasonable costs and expenses incurred in
connection with any such declaration, and all Events of Default (other than
nonpayment of principal of, premium, if any, and accrued interest on Notes due
and payable solely by virtue of acceleration) shall be remedied or waived, then,
and in every such case, the Majority Holders, by written notice to the Company,
may rescind and annul any such acceleration of Notes and its consequences; but
no such action shall affect any subsequent Default or Event of Default or impair
any right consequent thereon.

9.2.     SUITS FOR ENFORCEMENT.

               If any Event of Default shall have occurred and be continuing,
the holder of any of the Notes may proceed to protect and enforce its rights,
either by suit in equity or by action at law, or both, whether for the specific
performance of any covenant or agreement contained in this Agreement or in the
other Transaction Documents or in aid of the exercise of any power granted in
this Agreement or in the other Transaction Documents, or the holder of any Note
may proceed to enforce the payment of all sums due upon such Note or to enforce
any other legal or equitable right of the holder of such Note.

               The Company covenants that, if default shall be made in the
making of any payment due under any Note or in the performance or observance of
any agreement contained in this Agreement or the other Transaction Documents,
the Company will pay to each holder of Notes such further amounts, to the extent
lawful, as shall be sufficient to pay all costs and expenses of collection or of
otherwise enforcing such holder's rights under this Agreement or the other
Transaction Documents, including counsel fees.


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<PAGE>   69

9.3.     REMEDIES CUMULATIVE.

               No remedy herein conferred upon you or the holder of any Note is
intended to be exclusive of any other remedy and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise.

9.4.     REMEDIES NOT WAIVED.

               No course of dealing between the Company and you or the holder of
any Note and no delay or failure in exercising any rights hereunder or under any
other Transaction Document in respect of such Note shall operate as a waiver of
any of your rights or the rights of any holder of such Note.

10.      SUBORDINATION OF NOTES.

10.1.    SECURITIES SUBORDINATED TO SENIOR INDEBTEDNESS.

               A. The Company covenants and agrees, and each Investor likewise
covenants and agrees, that all Notes shall be issued subject to the provisions
of this Section 10; and each Holder, whether upon original issue or upon
transfer or assignment thereof, accepts and agrees to be bound by such
provisions.

               B. The payment of the Principal Amount and the premium, if any,
on all Notes issued hereunder shall, to the extent and in the manner hereinafter
set forth, be subordinated and subject in right of payment to the indefeasible
prior payment in full, in cash, of all Senior Indebtedness, whether outstanding
at the date of this Agreement or thereafter created, incurred, assumed or
guaranteed.

10.2.    NOTES SUBORDINATED TO PRIOR PAYMENT OF ALL SENIOR INDEBTEDNESS ON
         DISSOLUTION, LIQUIDATION, REORGANIZATION, ETC., OF THE COMPANY.

               Upon any payment or distribution of the assets of the Company of
any kind or character, whether in cash, property or securities (including any
collateral at any time securing the Notes), to creditors upon any dissolution,
winding-up, total or partial liquidation, or reorganization of the Company
(whether voluntary or involuntary, or in bankruptcy, insolvency, reorganization,
liquidation, receivership proceedings, or upon an assignment for the benefit of
creditors, or any other marshalling of the assets and liabilities of the
Company, or otherwise), then in such event:



                                      -64-
<PAGE>   70

               (a) all Senior Indebtedness (including principal thereof,
interest thereon and fees and expenses relating thereto) shall first be paid in
full, in cash, or have provision made for such payment in a manner reasonably
satisfactory to the holders of Senior Indebtedness, before any payment is made
on account of the Principal Amount or premium, if any, of the Notes;

               (b) any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities (other than
securities of the Company as reorganized or readjusted, or securities of the
Company or any other company, trust or corporation provided for by a plan of
reorganization or readjustment, junior, or the payment of which is otherwise
subordinate, at least to the extent provided in this Section 10, with respect to
the Notes, to the payment of all Senior Indebtedness at the time outstanding and
to the payment of all securities issued in exchange therefor to the holders of
the Senior Indebtedness at the time outstanding), to which the Holders would be
entitled except for the provisions of this Section 10, including any such
payment or distribution which may be payable or deliverable by reason of the
payment of another debt of the Company being subordinated to the payment of the
Notes, shall be paid or delivered by any debtor, custodian or other person
making such payment or distribution, directly to the holders of the Senior
Indebtedness or their representative or representatives, or to the trustee or
trustees under any indenture pursuant to which any instruments evidencing any of
such Senior Indebtedness may have been issued, ratably according to the
aggregate amounts remaining unpaid on account of the principal of, interest on
and fees and expenses relating to the Senior Indebtedness held or represented by
each for application to payment of all Senior Indebtedness on a pro rata basis
according to the outstanding amount of Senior Indebtedness (including interest,
fees and expenses), to the extent necessary to pay all Senior Indebtedness in
full, in cash, after giving effect to any concurrent payment or distribution, or
provision therefor, to the holders of such Senior Indebtedness; and

               (c) in the event that, notwithstanding the foregoing provisions
of this Section 10, any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities (other than
securities of the Company as reorganized or readjusted, or securities of the
Company or any other company, trust or corporation provided for by a plan of
reorganization or readjustment, junior, or the payment of which is otherwise
subordinate, at least to the extent provided for in this Section 10, with
respect to the Notes, to the payment in full, in cash, of all Senior
Indebtedness at the time outstanding and to the payment of all securities issued
in exchange therefor to the holders of Senior Indebtedness at the time
outstanding), shall be received by the Holders before all Senior Indebtedness is
paid in full, in cash, or provision made for their payment in a manner
reasonably satisfactory to the holders of Senior Indebtedness, such payment or
distribution (subject to the


                                      -65-
<PAGE>   71

provisions of Sections 10.6 and 10.7) shall be held in trust for the benefit of,
and shall be immediately paid or delivered to the holders of Senior Indebtedness
remaining unpaid or unprovided for, or their representative or representatives,
or to the trustee or trustees under any indenture pursuant to which any
instruments evidencing any of such Senior Indebtedness may have been issued,
ratably according to the aggregate amounts remaining unpaid on account of the
principal of, interest on and fees and expenses relating to the Senior
Indebtedness held or represented by each, for application to the payment of all
Senior Indebtedness remaining unpaid on a pro rata basis according to the
outstanding amount of Senior Indebtedness (including interest, fees and
expenses), to the extent necessary to pay all Senior Indebtedness in full, in
cash, after giving effect to any concurrent payment or distribution, or
provision therefor, to the holders of such Senior Indebtedness.

10.3.    HOLDERS OF NOTES TO BE SUBROGATED TO RIGHT OF HOLDERS OF
         SENIOR INDEBTEDNESS.

               Subject to the prior payment in full, in cash, of all Senior
Indebtedness then due, the Holders shall be subrogated to the rights of the
holders of Senior Indebtedness to receive payments or distributions of assets of
the Company applicable to the Senior Indebtedness until the Principal Amount of
the Notes shall be paid in full, and for purposes of such subrogation, no
payments or distributions to the holders of Senior Indebtedness of assets,
whether in cash, property or securities, distributable to the holders of Senior
Indebtedness under the provisions hereof to which the Holders would be entitled
except for the provisions of this Section 10, and no payment pursuant to the
provisions of this Section 10 to the holders of Senior Indebtedness by the
Holders shall, as among the Company, its creditors other than the holders of
Senior Indebtedness, and the Holders, be deemed to be a payment by the Company
to or on account of Senior Indebtedness, it being understood that the provisions
of this Section 10 are, and are intended, solely for the purpose of defining the
relative rights of the Holders, on the one hand, and the holders of Senior
Indebtedness, on the other hand.

10.4.    OBLIGATIONS OF THE COMPANY UNCONDITIONAL.

               Nothing contained in this Section 10 or elsewhere in this
Agreement or in any Note is intended to or shall impair, as among the Company,
its creditors other than the holders of Senior Indebtedness, and the Holders,
the obligation of the Company, which is absolute and unconditional, to pay to
the Holders the Principal Amount on the Notes, as and when the same shall become
due and payable in accordance with the terms of the Notes, or to affect the
relative rights of the Holders and other creditors of the Company other than the
holders of Senior Indebtedness, nor shall anything herein or therein prevent any
Holder from exercising all remedies otherwise permitted by applicable law


                                      -66-
<PAGE>   72

upon the happening of an Event of Default under this Agreement, subject to the
rights, if any, under this Section 10 of the holders of Senior Indebtedness in
respect of assets, whether in cash, property or securities, of the Company
received upon the exercise of any such remedy.

10.5.    COMPANY NOT TO MAKE PAYMENT WITH RESPECT TO NOTES IN
         CERTAIN CIRCUMSTANCES.

               A. Upon the occurrence of a Payment Event of Default, unless and
until the amount of such Senior Indebtedness then due shall have been paid in
full, in cash, or provision made therefor in a manner reasonably satisfactory to
the holders of such Senior Indebtedness, or such default shall have been cured
or waived or shall have ceased to exist, the Company shall not pay principal of
premium, if any, or interest on the Notes and shall not repurchase, redeem or
otherwise retire any Notes (collectively, "PAY THE SECURITIES").

               B. Unless Section 10.2 shall be applicable, upon (i) the
occurrence of a Non-Payment Event of Default and (ii) receipt by the Company
from the representative of the holders of Senior Indebtedness to which the
Non-payment Event of Default applies of written notice of such occurrence, then
the Company shall not Pay the Securities for a period (the "PAYMENT BLOCKAGE
PERIOD") commencing on the earlier of the date of receipt by the Company of such
notice from such representative and ending on the earlier of (subject to any
blockage of payments that may then be in effect under Section 10.5A) (x) the
date 180 days after such date, (y) the date such Non-Payment Event of Default
shall have been cured or waived in writing or shall have ceased to exist or such
Senior Indebtedness shall have been discharged, or (z) the date such Payment
Blockage Period shall have been terminated by written notice to the Company from
the representative of the holders of the Senior Indebtedness initiating such
Payment Blockage Period, after which, in case of clause (x), (y) or (z), as the
case may be, the Company shall resume making any and all required payments.
Notwithstanding any other provision of this Agreement, only one Payment Blockage
Period may be commenced within any consecutive 365-day period, and no event of
default with respect to any Senior Indebtedness which existed or was continuing
on the date of the commencement of any Payment Blockage Period with respect to
the Senior Indebtedness the holders of which initiated such Payment Blockage
Period shall be, or can be made, the basis for the commencement of a second
Payment Blockage Period whether or not within a period of 365 consecutive days
unless such event of default shall have been cured or waived for a period of not
less than 90 consecutive days. In no event will a Payment Blockage Period extend
beyond 179 days.

               C. In the event that, notwithstanding the foregoing provisions of
this Section 10.5, any payment on account of



                                      -67-
<PAGE>   73

Principal Amount on the Notes shall be made by or on behalf of the Company and
received by any Holder after the happening of a default under any Senior
Indebtedness, then, unless and until the amount of such Senior Indebtedness then
due shall have been paid in full in cash, or provision made therefor or such
default shall have been cured or waived, such payment (subject, in each case, to
the provisions of Sections 10.6 and 10.7) shall be held in trust for the benefit
of, and shall be immediately paid over to, the holders of Senior Indebtedness or
their representative or representatives or the trustee of trustees under any
indenture under which any instruments evidencing any of the Senior Indebtedness
may have been issued, ratably according to the aggregate amounts remaining
unpaid on account of the principal of and interest on the Senior Indebtedness
held or represented by each, for application to the payment of all Senior
Indebtedness remaining unpaid to the extent necessary to pay all Senior
Indebtedness in accordance with its terms, after giving effect to any concurrent
payment or distribution to or for the benefit of the holders of Senior
Indebtedness.

10.6.    SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF COMPANY
         OR HOLDERS OF SENIOR INDEBTEDNESS.

               No right of any present or future holders of any Senior
Indebtedness to enforce subordination, as herein provided, shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Company or by any act or failure to act, in good faith, by any such holder,
or by any non-compliance by the Company with the terms, provisions and covenants
of this Agreement, regardless or any knowledge thereof which any such holder may
modify or amend the terms of such Senior Indebtedness or any security therefor
and release, sell or exchange such security and otherwise deal freely with the
Company, all without affecting the liabilities and obligations of the parties to
this Agreement or the Holders. No provision in any amendment to this Agreement
which affects the superior position of the holders of the Senior Indebtedness
shall be effective against the holders of the Senior Indebtedness unless the
holders of such Senior Indebtedness (required pursuant to the terms of such
Senior Indebtedness to give such consent) have consented thereto.

10.7.    SECTION 10 NOT TO PREVENT EVENTS OF DEFAULT.

               The failure to make a payment on account of Principal Amount on
the Notes by reason of any provision in this Section 10 shall not be construed
as preventing the occurrence of any Event of Default under Section 9.




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<PAGE>   74

11.      REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; RESTRICTIVE LEGENDS
         TRANSFER RESTRICTIONS.

               The Company will keep at the Company's principal office, or at
such other office or agency in the United States as the Company may from time to
time designate in writing to the holders of the Notes, a register (the "NOTE
REGISTER") in which, subject to such reasonable regulations as it may prescribe,
but at its expense (other than transfer taxes, if any), it will provide for the
registration and transfer of Notes.

               Whenever a Note shall be surrendered either at such office of the
Company or at the place of payment named in such Note, for transfer or exchange,
within 5 Business Days thereafter the Company will execute and deliver in
exchange therefor a new Note or Notes, as may be requested by such holder, in
the aggregate unpaid principal amount as the series and unpaid principal amount
of the Note so surrendered. Each such new Note shall be payable to such Person
as such holder may request. Each Note presented or surrendered for registration
of transfer or exchange shall be duly endorsed or accompanied by a written
instrument of transfer duly executed by the registered holder of such Note or
such holder's attorney duly authorized in writing. Any Note issued in exchange
for any other Note or upon transfer thereof shall carry the rights to unpaid
interest and interest to accrue which were carried by the Note so exchanged or
transferred, and neither gain nor loss of interest shall result from any such
transfer or exchange. Any transfer tax relating to such transaction shall be
paid by the holder requesting the exchange.

               The Company and any agent of the Company may deem and treat the
Person in whose name any Note is registered as the owner and holder of such Note
for the purpose of receiving payment of the principal of and premium, if any,
and interest on such Note and for all other purposes whatsoever, whether or not
such Note be overdue and the Company shall not be affected by notice to the
contrary.

               The certificates evidencing the Notes and any shares of Common
Stock issuable upon conversion of the Notes shall bear at the time of issuance a
legend in substantially the following form:

               "This security has not been registered under the Securities Act
               of 1933, as amended, or applicable state securities laws, and
               this security may not be sold, transferred or otherwise disposed
               of in the absence of such registration or an exemption therefrom
               under said Act and laws and the respective rules and regulations
               thereunder. The transferability of this security is also subject
               to restrictions contained in a Securities


                                      -69-
<PAGE>   75

               Purchase Agreement which agreement the Company will furnish to
               the holder of this security upon request."

12.      LOST, ETC., NOTES.

               Upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of any Note, and (in case of
loss, theft or destruction) of indemnity reeasonably satisfactory to it, and
upon surrender and cancellation of such Note, if mutilated, within five Business
Days thereafter the Company will deliver in lieu of such Note a new Note in a
like unpaid principal amount, dated as of the date to which interest has been
paid thereon or dated the date of the lost, stolen, destroyed or mutilated Note
if no interest shall have been paid thereon. The Company acknowledges that each
Investors unsecured agreement of indemnity shall be deemed satisfactory to the
Company.

13.      AMENDMENT AND WAIVER.

               A. Any provision of this Agreement or the other Transaction
Documents may, with the consent of the Company, be amended or waived (either
generally or in a particular instance and either retroactively or
prospectively), by one or more substantially concurrent written instruments
signed by the Majority Holders, provided that

               (1) no such amendment or waiver shall

                   (a) change the rate or time of payment of interest on any of
               the Notes, change the number or the method of calculating the
               number of shares of Common Stock that may be purchased upon
               conversion of any Note or the Conversion Rate in respect of such
               Common Stock, without the consent of the Holder of each Note so
               affected,

                   (b) modify any of the provisions of this Agreement with
               respect to the payment or prepayment or purchase of Notes, or
               change the percentage of the principal amount of the Notes the
               holders of which are required with respect to any such amendment
               or to effectuate any such waiver, or to accelerate any Note or
               Notes, without the consent of the holders of all of the Notes
               then outstanding, and

               (2) no such waiver shall extend to or affect any obligation not
         expressly waived or impair any right consequent thereon.

               B. Any amendment or waiver pursuant to Section 13A above shall
apply equally to all of the Holders of the Notes and shall be binding upon them,
upon each future holder of any such


                                      -70-
<PAGE>   76

Note and upon the Company, in each case whether or not a notation thereof shall
have been placed on any Note.

               C. For purposes of determining whether the Holders of outstanding
Notes of the requisite percentage of unpaid principal amount at any time have
taken any action authorized by this Section or otherwise by this Agreement, any
Notes owned by the Company, any Subsidiary or any Affiliate of the Company shall
be deemed not outstanding.

14.      TERMINATION.

               A. This Agreement may be terminated by (i) mutual consent of the
parties, (ii) the Investors, if any of the conditions set forth in Section 4
become incapable of being satisfied or (iii) by the Company, if any of the
conditions set forth in Section 5 become incapable of being satisfied.

               B. In the event of any termination of this Agreement, this
Agreement shall forthwith become void and there shall be no liability on the
part of the Investors or the Company, except that nothing herein shall relieve
any party from liability for the breach of this Agreement, other than as
provided in Section 14C.

               C. If this Agreement is terminated by the Investors pursuant to
Section 14A, as a result of the condition set forth in Section 4.1 being
incapable of being satisfied due to a breach by the Company of a representation
or warranty made as of the date of this Agreement, the Company shall, within
five Business Days of the date of such termination, pay the Investors $5,000,000
(the "TERMINATION FEE"), which payment shall be payable by wire transfer to an
account specified by the Investors. Upon such payment by the Company, the
Investors shall have no further rights or claims against the Company arising out
of any breach of such representation or warranty, it being understood that the
Termination Fee is intended to be the sole and exclusive remedy available to the
Investors for such breach. The Termination Fee is intended to compensate the
Investors for their estimated fees and expenses incurred in connection with the
transactions contemplated hereby and shall not be construed or interpreted to be
a penalty.

15.      PAYMENTS.

               Notwithstanding anything to the contrary in this Agreement or the
Transaction Documents, so long as any Investor shall be the holder of any Note,
the Company shall pay all amounts which become due and payable on such Note by
wire or electronic funds transfer of immediately available funds to each
Investor at it address set forth in Schedule I on the date any such amounts
become due, or at such other place in the United States and in such other manner
as each Investor may designate by



                                      -71-
<PAGE>   77

notice to the Company, without presentation or surrender of such Note.

16.      CERTAIN TAXES.

               The Company agrees to pay all stamp, documentary or similar taxes
which may be payable in respect of the execution and delivery of this Agreement
or the other Transaction Documents (but not the transfer of any Note) or of any
amendment of, or waiver or consent under or with respect to, this Agreement or
any of the other Transaction Documents and will save the Investors and all
subsequent Holders harmless against any loss or liability resulting from
nonpayment or delay in payment of any such tax. The obligations of the Company
under this Section 16 shall survive the payment or conversion of the Notes.

17.      MISCELLANEOUS.

17.1.    EXPENSES.

               Each of the parties hereto shall pay its own expenses in
connection with the transactions contemplated hereby, including the fees and
disbursements of counsel.

17.2.    RELIANCE ON AND SURVIVAL OF REPRESENTATIONS.

               All agreements, representations and warranties of the Company or
any Subsidiary contained herein and in any certificates or other instruments
delivered pursuant to this Agreement shall (A) be deemed to have been relied
upon by you, notwithstanding any investigation heretofore or hereafter made by
you or on your behalf, and (B) shall survive the execution and delivery of this
Agreement and the delivery of the Notes to you, and shall continue in effect so
long as any Note is outstanding and thereafter as provided herein.

17.3.    SUCCESSORS AND ASSIGNS.

               This Agreement shall bind and inure to the benefit of and be
enforceable by the Company and its permitted successors and assigns hereunder
and the Investors and their permitted successors and assigns.

17.4.    COMMUNICATIONS.

               Except as otherwise specifically provided herein, all notices and
other communications provided for in this Agreement shall be in writing and
shall be sent by confirmed facsimile transmission (hard copy to be sent by
overnight mail on the date of such transmission) or delivered by hand or sent by
a reputable overnight courier service prepaid (with confirmation of receipt)


                                      -72-

<PAGE>   78

               A. if to the Company, at the address set forth at the beginning
          of this Agreement, to the attention of its General Counsel, or at such
          other address as the Company may hereafter designate by notice to you
          and to each other Holder at the time outstanding,

               B. if to an Investor, at its address as set forth in Schedule I
          or at such other address as it may hereafter designate by notice to
          the Company, or

               C. if to any other Holder, at the address of such Holder as it
          appears on the Note Register.

               Any notice or other communication herein provided to be given to
the Holders shall be deemed to have been duly given if sent as aforesaid to each
of the registered holders of the Notes at the time outstanding at the address
for such purpose of such holder as it appears on Schedule I or the Note
Register, as the case may be.

17.5.    CONSENT TO JURISDICTION; SERVICE OF PROCESS; WAIVER OF JURY TRIAL.

               A. The Company irrevocably submits to the non-exclusive in
personam jurisdiction of any New York State or federal court sitting in the
Borough of Manhattan, The City of New York, over any suit, action or proceeding
arising out of or relating to this Agreement or the other Transaction Documents.
To the fullest extent permitted by applicable law, the Company irrevocably
waives and agrees not to assert, by way of motion, as a defense or otherwise,
any claim that it is not subject to the in personam jurisdiction of any such
court, any objection that it may now or hereafter have to the laying of the
venue of any such suit, action or proceeding brought in any such court and any
claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum.

               B. The Company consents to process being served in any suit,
action or proceeding of the nature referred to in Subsection A above by mailing
a copy thereof by registered or certified mail, postage prepaid, return receipt
requested, to the Company at its address specified in Section 17.4 or at such
other address of which you shall then have been notified pursuant to said
Section. The Company agrees that such service upon receipt (1) shall be deemed
in every respect effective service of process upon it in any such suit, action
or proceeding and (2) shall, to the fullest extent permitted by applicable law,
be taken and held to be valid personal service upon and personal delivery to the
Company. Notices hereunder shall be conclusively presumed received as evidenced
by a delivery receipt furnished by the United States Postal Service or any
reputable commercial delivery service.


                                      -73-
<PAGE>   79

               C. Nothing in this Section 17.5 shall affect the right of any
holder of Notes to serve process in any manner permitted by law, or limit any
right that the holders of any of the Notes may have to bring proceedings against
the Company in the courts of any appropriate jurisdiction or to enforce in any
lawful manner a judgment obtained in one jurisdiction in any other jurisdiction.

               D. THE COMPANY WAIVES TRIAL BY JURY IN ANY ACTION BROUGHT ON OR
WITH RESPECT TO THIS AGREEMENT, THE NOTES OR ANY OTHER DOCUMENT EXECUTED IN
CONNECTION HEREWITH OR THEREWITH.

17.6.    INDEMNIFICATION.

               The Company agrees, to the fullest extent permitted by applicable
law, to indemnify, exonerate and hold you and each of your officers, directors,
employees and agents (collectively the "INDEMNITEES" and individually an
"INDEMNITEE") free and harmless from and against any and all actions, causes of
action, suits, losses, liabilities and damages, and expenses in connection
therewith, including without limitation reasonable counsel fees and
disbursements (collectively the "INDEMNIFIED LIABILITIES") incurred by the
Indemnitees or any of them as a result of, or arising out of, or relating to,
any breach of any representation or warranty of the Company contained herein.
The obligations of the Company under this Section 17.6 shall survive payment or
conversion of the Notes.

17.7.    GOVERNING LAW.

               This Agreement and the Notes shall be governed by and construed
in accordance with the laws of the State of New York.

17.8.    HEADINGS.

               The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect any of the terms hereof.

17.9.    COUNTERPARTS.

               This Agreement may be executed in two or more counterparts, each
of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.



                                      -74-
<PAGE>   80


               If you are in agreement with the foregoing, please sign the form
of acceptance in the space below provided, whereupon this Agreement shall become
a binding agreement between each of the Investors and the Company.

                                       Very truly yours,

                                       PHYCOR, INC.

                                       By /s/ Joseph C. Hutts
                                          ----------------------------------
                                          Title:

The foregoing Agreement is
hereby accepted as of the
date first above written:

WARBURG, PINCUS EQUITY PARTNERS, L.P.

By: Warburg, Pincus & Co.,
      General Partner


By: /s/ Joel Ackerman
   --------------------------

WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS I, C.V.

By: Warburg, Pincus & Co.,
      General Partner


By: /s/ Joel Ackerman
   --------------------------

WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS II, C.V.

By: Warburg, Pincus & Co.,
      General Partner


By: /s/ Joel Ackerman
   --------------------------

WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS III, C.V.

By: Warburg, Pincus & Co.,
      General Partner


By: /s/ Joel Ackerman
   --------------------------



For purposes of Section 6.5 only:

WARBURG, PINCUS & CO.


By: /s/ Joel Ackerman
   --------------------------



                                      -75-