<PAGE>

                                                                  EXHIBIT 10(dd)

                              AMENDED AND RESTATED

                        PHYSICIANS HEALTH SERVICES, INC.

                             1995 STOCK OPTION PLAN

                                    ARTICLE I

                    PURPOSE OF STOCK OPTION PLAN; DEFINITIONS

Reference is hereby made to the Physicians Health Services 1995 Stock Option
Plan adopted by the Board of Directors on November 21, 1995. This Amended and
Restated 1995 Stock Option Agreement dated as of November 1, 1996 supersedes and
replaces the 1995 Stock Option Plan in its entirety.

 A.     Purpose. The purpose of the Physicians Health Services, Inc., 1995 Stock
        -------
        Option Plan is to provide an incentive, in the form of Incentive Stock
        Options and Non-Qualified Stock Options, to key employees of the
        Employer, who are in a position to contribute materially to the
        long-term success of the Employer, to increase their interest in the
        Employer's welfare, and to aid in attracting and retaining Employees of
        outstanding ability (terms defined below).

 2.     Definitions. Unless the context clearly indicates otherwise, the
        -----------
        following terms shall have the meanings set forth below:

        (1)  "BOARD" shall mean the Board of Directors of the Company.

        (2)  "CODE" shall mean the Internal Revenue Code of 1986, as it may be
             amended from time to time.

        (3)  "COMPENSATION COMMITTEE" shall mean a committee consisting of two
             or more directors who are not officers of, or otherwise employed
             by, PHS or any parent or subsidiary, and who do not posses an
             interest in any transaction for which disclosure would be required
             under Section 404(a) or (b) of Regulation S-K promulgated by the
             Securities and Exchange Commission, and do not receive
             compensation, directly or indirectly, in excess of $60,000 from PHS
             or any parent or subsidiary.

        (4)  "COMPANY" shall mean Physicians Health Services, Inc. and any
             successor thereto.

        (5)  "DIRECTORS" shall mean those members of the Board of Directors of
             the Company and its subsidiaries who are not Employees.

        (6)  "DISABILITY" shall mean a medically determinable physical or mental
             condition which causes an Employee to be unable to engage in any
             substantial gainful activity and which can be expected to result in
             death or to be of long-continued and indefinite duration.

        (7)  "EMPLOYEE" shall mean any common law employee, including officers
             of the Employer, including its subsidiaries, as determined in the
             Code and the Treasure Regulations thereunder.

        (8)  "EMPLOYER" shall mean Physicians Health Services, Inc., a Delaware
             corporation, and its subsidiaries.
<PAGE>

        (9)  "FAIR MARKET VALUE" shall mean the average daily public trading
             price on the applicable date or the fair market value of the Stock
             as determined by the Compensation Committee on the basis of a
             review of the facts and circumstances at the time.

        (10) "GRANTEE" shall mean an Employee granted a Stock Option under this
             Plan.

        (11) "INCENTIVE STOCK OPTION" shall mean an option granted pursuant to
             the Incentive Stock Option provisions as set forth in Article II of
             this Plan and in the form of Exhibit A attached hereto.
                                          ---------

        (12) "NON-QUALIFIED STOCK OPTION" shall mean an option granted pursuant
             to the Non-Qualified Stock Option provisions as set forth in
             Article III of this Plan and in the form of Exhibit B attached
                                                         ---------
             hereto.

        (13) "PLAN" shall mean the Amended and Restated Physicians Health
             Services, Inc. 1995 Stock Option Plan as set forth herein and as
             amended from time to time.

        (14) "STOCK" shall mean authorized but unissued shares of the Class A
             Common Stock of the Company or reacquired shares of the Company's
             Class A Common Stock.

        (15) "STOCK OPTION" shall mean an option granted pursuant to the Plan to
             purchase shares of Stock.

        (16) "TEN PERCENT STOCKHOLDER" shall mean an Employee who at the time a
             Stock Option is granted owns stock possessing more than ten percent
             (10%) of the total combined voting power of all stock of the
             Company or of its parent or subsidiary corporation.

 C.     Shares of Stock Subject to the Plan. Subject to the provisions of
        ------------------------------------
        Paragraph B of Part IV, the Stock which may be issued or transferred
        pursuant to Stock Options granted under the Plan and the Stock which is
        subject to outstanding but unexercised Stock Options under the Plan
        shall not exceed 800,000 shares in the aggregate. If a Stock Option
        shall expire and terminate for any reason, whole or in part, without
        being exercised, the number of shares of Stock as to which such expired
        or terminated Stock Option shall not have been exercised may again
        become available for the grant of Stock Options. There shall be no terms
        and conditions in a Stock Option which provide that the exercise of an
        Incentive Stock Option reduces the number of shares of Stock for which
        an outstanding Non-Qualified Stock Option may be exercised; and there
        shall be no terms and conditions in a Stock Option which provide that
        the exercise of a Non-Qualified Stock Option reduces the number of
        shares of Stock for which an outstanding Incentive Stock Option may be
        exercised.

 D.     Administration of the Plan. The Plan shall be administered by the
        --------------------------
        Compensation Committee. Subject to the express provisions of the Plan,
        the Compensation Committee shall have authority to interpret the Plan,
        to prescribe, amend and rescind rules and regulations relating to it, to
        determine the terms and provisions of Stock Option agreements, and to
        make all other determinations necessary or advisable for the
        administration of the Plan. Any controversy or claim arising out of or
        related to this Plan shall be determined unilaterally by and at the sole
        discretion of the Compensation Committee.

 E.     Amendment or Termination. The Board may, at any time, alter, amend,
        ------------------------
        suspend, discontinue, or terminate this Plan; provided, however, that
        such action shall not adversely affect the right of Grantees to Stock
        Options previously granted.
<PAGE>

F.      Effective Date and Duration of the Plan. The Plan shall become effective
        ---------------------------------------
        upon its approval by the Board. This Plan shall terminate ten years from
        the date the Plan becomes effective, and no Stock Option may be granted
        under the Plan thereafter, but such termination shall not affect any
        Stock Option theretofore granted.

                                   ARTICLE II

                        INCENTIVE STOCK OPTION PROVISION

A.      Granting of Incentive Stock Options.
        -----------------------------------

        (1)  Incentive Stock Options shall be available for grant under the Plan
             only in the event that a majority of the stockholders of the
             Company approve the adoption of the Plan.

        (2)  Only key Employees of the Employer shall be eligible to receive
             Incentive Stock Options under the Plan. Directors of the Company
             who are not also Employees shall not be eligible for Incentive
             Stock Options.

        (3)  The purchase price of each share of Stock subject to an Incentive
             Stock Option shall not be less than 100% of the Fair Market Value
             of a share of the Stock on the date the Incentive Stock Option is
             granted; provided, however, that the purchase price of each share
             of Stock subject to an Incentive Stock Option granted to a Ten
             Percent Stockholder shall not be less that 110% of the Fair Market
             Value of a share of the Stock on the date the Incentive Stock
             Option is granted.

        (4)  No Incentive Stock Option shall be exercisable more than ten years
             from the date the Incentive Stock Option was granted; provided,
             however, that an Incentive Stock Option granted to a Ten Percent
             Stockholder shall not be exercisable more than five years from the
             date the Incentive Stock Option was granted.

        (5)  The Compenstion Committee shall determine and designate from time
             to time those Employees who are to be granted Incentive Stock
             Options and specify the number of shares subject to each Incentive
             Stock Option and such other terms, including vesting requirements
             and the minimum number of options exercisable at a time.

        (6)  Notwithstanding any other provisions hereof, the aggregate Fair
             Market Value (determined at the time the option is granted) of the
             Stock with respect to which Incentive Stock Options are exercisable
             for the first time by the Employee during any calendar year (under
             all such plans of the Grantee's employer corporation and its parent
             and subsidiary corporations) shall not exceed $100,000.

        (7)  The Compensation Committee, in its sole discretion, shall determine
             whether any particular Incentive Stock Option shall become
             exercisable in one or more installments, specify the installment
             dates, and, within the limitations herein provided, determine the
             total period during which the Incentive Stock Option is
             exercisable. Further, the Compensation Committee may make such
             other provisions as may appear generally acceptable or desirable to
             the Compensation Committee or necessary to qualify its grants under
             the provisions of Section 422 of the Code.
<PAGE>

        (8)  The Compensation Committee may grant at any time new Incentive
             Stock Options to an Employee who has previously received Incentive
             Stock Options or other options whether such prior Incentive Stock
             Options or other options are still outstanding, have previously
             been exercised in whole or in part, or are canceled in connection
             with the issuance of new Incentive Stock Options. The purchase
             price of the new Incentive Stock Option may be established by the
             Compensation Committee without regard to the existing Incentive
             Stock Options or other options.

B.      Exercise of Incentive Stock Options.
        -----------------------------------

        (1)  The option price of an Incentive Stock Option shall be payable on
             exercise of the option (i) in cash or by check, bank draft or
             postal express money order, (ii) by promissory note, (iii) by the
             surrender of Stock or Class B Common Stock then owned by the
             Grantee, provided that the stock surrendered by the Grantee has
             been owned by the Grantee for at least six (6) months, or (iv) a
             combination of clauses (i), (ii) or (iii). Shares of Stock or Class
             B Common Stock so surrendered in accordance with clause (iii) or
             (IV) shall be valued at the Fair Market Value thereof on the date
             of exercise, surrender of such Stock or Class B Common Stock to be
             evidenced by delivery of the certificate(s) representing such
             shares in such manner, and endorsed in such form, or accompanied by
             stock powers endorsed in such form, as the Compensation Committee
             may determine.

C.      Termination of Employment.
        -------------------------

        (1)  If a Grantee's employment is terminated (other than by Disability
             or death) the terms of any then outstanding Incentive Stock Option
             held by the Grantee shall extend for a period ending on the earlier
             of the date on which such option would otherwise expire or three
             months after such termination of employment, and such option shall
             be exercisable to the extent it was exercisable as of the date of
             termination of employment.

        (2)  If a Grantee's employment is terminated by reason of Disability,
             the term of any then outstanding Incentive Stock Option held by the
             Grantee shall extend for a period ending on the earlier of the date
             on which such option would otherwise expire or twelve months after
             the Grantee's last date of employment, and such option shall be
             exercisable to the extent it was exercisable as of such last date
             of employment.

        (3)  If a Grantee's employment is terminated by death, the
             representative of his estate or beneficiaries thereof to whom the
             option has been transferred shall have the right during the
             three-month period following his death to exercise any then
             outstanding Incentive Stock Options in whole or in part. If a
             Grantee dies within three months after his retirement without
             having fully exercised any then outstanding Incentive Stock
             Options, the representative of his estate or beneficiaries thereof
             to whom the option has been transferred shall have the right during
             such three-month period to exercise such options in whole or in
             part. The number of shares of Stock in respect of which an
             Incentive Stock Option may be exercised after a Grantee's death
             shall be the number of shares in respect of which such option could
             be exercised as of the date of the Grantee's death or retirement,
             whichever occurs first. In no event may the period for exercising
             an Incentive Stock Option extend beyond the date on which such
             option would otherwise expire.

        (4)  The Board may grant a leave of absence to any Grantee for purposes
             of continuing such Grantee's employment with the Employer.
<PAGE>

                                   ARTICLE III

                      NON-QUALIFIED STOCK OPTION PROVISIONS

A.      Granting of Non-Qualified Stock Options.
        ---------------------------------------

        (1)  Only key Employees of the Employer and Directors shall be eligible
             to receive Non-Qualified Stock Options under the Plan.

        (2)  The Compensation Committee shall determine and designate from time
             to time those Employees who are to be granted Non-Qualified Stock
             Options and the amount subject to each Non-Qualified Stock Option.

        (3)  The Compensation Committee may grant at any time new Non-Qualified
             Stock Options to an Employee who has previously received
             Non-Qualified Stock Options or other options, whether such prior
             Non-Qualified Stock Options or other options are still outstanding,
             have previously been exercised in whole or in part, or are canceled
             in connection with the issuance of new Non-Qualified Stock Options.

        (4)  When granting a Non-Qualified Stock Option, the Compensation
             Committee shall determine the purchase price of the Stock subject
             thereto. Such price may be less that 100% of the Fair Market Value
             of such stock on the date the Non-Qualified Stock Option is
             granted.

        (5)  The Compensation Committee, in its sole discretion, shall determine
             whether any particular Non-Qualified Stock Option shall become
             exercisable in one or more installments, specify the installment
             dates, and, within the limitations herein provided, determine the
             total period during which the Non-Qualified Stock Option is
             exercisable. Further, the Compensation Committee may make such
             other provisions as may appear generally acceptable or desirable to
             the Compensation Committee.

        (6)  No Non-Qualified Stock Option shall be exercisable more than ten
             years from the date such option is granted.

B.      Exercise of Stock Options.
        -------------------------

        (1)  The option price of a Non-Qualified Stock Option shall be payable
             on exercise of the option (i) in cash or by check, bank draft or
             postal or express money order, (ii) by promissory note, (iii) by
             the surrender of Class B Common Stock or Stock then owned by the
             Grantee provided that the Stock surrendered has been held by for at
             least six months, or (iv) by a combination of clauses (i), (ii) and
             (iii). Shares of Class B Common Stock or Stock so surrendered in
             accordance with clause (iii) or (iv) shall be valued at the Fair
             Market Value thereof on the date of exercise, surrender of such to
             be evidenced by delivery of the certificate(s) representing such
             shares in such manner, and endorsed in such form, or accompanied by
             stock powers endorsed in such form, as the Compensation Committee
             may determine.

C.      Termination of Employment.
        -------------------------

        (1)  If a Grantee's employment is terminated (other than by Disability
             or death), the terms of any then outstanding Non-Qualified Stock
             Option held by the Grantee shall extend for a period ending on the
             earlier of the date on which such option would otherwise expire or
             three months after such termination of employment and such option
             shall be exercisable to the extent it was exercisable as of the
             date of termination of employment.
<PAGE>

        (2)  If a Grantor's employment is terminated by reason of Disability,
             the term of any then outstanding Non-Qualified Stock Option held by
             the Grantee shall extend for a period ending on the earlier of the
             date on which such option would otherwise expire or twelve months
             after the Grantee's last date of employment, and such option shall
             be exercisable to the extent it was exercisable as of such last
             date of employment.

        (3)  If a Grantee's employment is terminated by death, the
             representative of his estate or beneficiaries thereof to whom the
             option has been transferred shall have the right during the
             three-month or less period following his death to exercise any then
             outstanding Non-Qualified Stock Options in whole or in part. If a
             Grantee dies within three months after his retirement without
             having fully exercised any then outstanding Non-Qualified Stock
             Options, the representative of his estate or beneficiaries thereof
             to whom the option has been transferred shall have the right during
             such three month period to exercise such options in whole or in
             part. The number of shares of Stock in respect of which a
             Non-Qualified Stock Option may be exercised after a Grantee's death
             shall be the number of shares of Stock in respect of which such
             option could be exercised as of the date of the Grantee's death or
             retirement, whichever first occurs. In no event may the period for
             exercising a Non-Qualified Stock Option extend beyond the date on
             which such option would otherwise expire.

        (4)  The Board may grant a leave of absence to any Grantee for purposes
             of continuing such Grantee's employment with the Employer.

                                   ARTICLE IV

                               GENERAL PROVISIONS

 A.     Substitution of Options. In the event of a corporate merger or
        -----------------------
        consolidation, or the acquisition by the Employer of property or stock
        of an acquired corporation or any reorganization or other transaction
        qualifying under Section 425 of the Code, the Compensation Committee
        may, in accordance with the provisions of that Section, substitute
        options under this Plan for options under the plan of the acquired
        corporation provided (i) the excess of the aggregate fair market value
        of the shares subject to option immediately after the substitution over
        the aggregate option price of such shares is not more than the similar
        excess immediately before such substitution and (ii) the new option does
        not give the Employee additional benefits, including any extension of
        the exercise period.

B.      Accelerated Vesting of Options. Notwithstanding anything herein to the
        ------------------------------
        contrary, in the event of a corporate merger or consolidation of the
        Employer with another entity, or acquisition of all or substantially all
        of the property or stock of the Employer, or any other reorganization or
        other transaction (a "Change of Control"), all then outstanding Stock
        Options shall be immediately exercisable as of the date immediately
        preceding such Change of Control.

C.      Adjustment Provision.
        --------------------

        (1) If the shares of Stock outstanding are changed in number or class by
        reason of a split-up, merger, consolidation, reorganization,
        reclassification, recapitalization, or any capital adjustment, including
        stock dividend, or if any distribution is made to the holders of common
        stock other than a cash dividend, then

             (i)  the aggregate number and class of shares or other securities
                  that may be issued or transferred pursuant to Paragraph C of
                  Article I,
<PAGE>

             (ii) the number and class of shares or other securities which are
                  issuable under outstanding Stock Options, and

             (iii)the purchase price to be paid per share under outstanding
                  Stock Options shall be adjusted as provided hereinafter.

        (2)  Adjustment under this Paragraph B shall be made in an equitable
             manner by the Compensation Committee, whose determination as to
             what adjustments shall be made, and the extent thereof, shall be
             final, binding, and conclusive.

D.      General.
        -------

        (1)  Each Stock Option shall be evidenced by a written instrument
             containing such terms and conditions, not inconsistent with this
             Plan, as the Board shall approve.

        (2)  The granting of a Stock Option in any year shall not give the
             Grantee any right to similar grants in future years or any right to
             be retained in the employ of the Employer, and all Employees shall
             remain subject to discharge to the same extent as if the Plan were
             not in effect.

        (3)  No employee, and no beneficiary or other person claiming under or
             through him, shall have any right, title or interest by reason of
             any Stock Option to any particular assets of the Employer, or any
             shares of Stock allocated or reserved for the purposes of the Plan
             or subject to any Stock Option except as set forth herein. The
             Employer shall not be required to establish any fund or make any
             other segregation of assets to assure the payment of any Stock
             Option.

        (4)  No right under the Plan shall be subject to anticipation, sale,
             assignment, pledge, encumbrance, or charge except by will or the
             laws of descent and distribution, and a Stock Option shall be
             exercisable during the Grantee's lifetime only by the Grantee.

        (5)  Notwithstanding any other provision of this Plan or agreements made
             pursuant thereto, the Company's obligation to issue or deliver any
             certificate or certificates for shares of Stock under a Stock
             Option, and the transferability of Stock acquired by exercise of a
             Stock Option, shall be subject to all of the following conditions:

             (i)  Any registration or other qualification of such shares under
                  any state or federal law or regulation, or the maintaining in
                  effect of any such registration or other qualification which
                  the Board shall, in its absolute discretion upon the advice of
                  counsel, deem necessary or advisable;

             (ii) The obtaining of any other consent, approval, or permit from
                  any state or federal government agency which the Board shall,
                  in its absolute discretion upon the advice of counsel,
                  determine to be necessary or advisable; and

             (iii)Each stock certificate issued pursuant to a Stock Option shall
                  bear the following legend:

                  "The transferability of this certificate and the shares of
                  Stock represented hereby are subject to restrictions, terms
                  and conditions contained in the Physicians Health Services,
                  Inc. 1995 Stock Option Plan, and an Agreement between the
                  registered owner of such Stock and Physicians Health Services,
                  Inc. A copy of the Plan and Agreement are on file in the
                  office of the Secretary of Physicians Health Services, Inc."
<PAGE>

        (6)  All payments to Grantees or to their legal representatives shall be
             subject to any applicable tax, community property, or other
             statutes or regulations of the United States or of any state having
             jurisdiction thereof. The Grantee may be required to pay to the
             Employer the amount of any withhold taxes which the Employer is
             required to withhold with respect to a Stock Option or its
             exercise. In the event that such payment is not made when due, the
             Employer shall have the right to deduct, to the extent permitted by
             law, from any payment of any kind otherwise due to such person all
             or part of the amount required to be withheld.

        (7)  In the case of a grant of a Stock Option to any Employee of a
             subsidiary of the Company, the Company may, if the Compensation
             Committee so directs, issue or transfer the shares, if any, covered
             by the Stock Option to the subsidiary, for such lawful
             consideration as the Compensation Committee may specify, upon the
             condition or understanding that the subsidiary will transfer the
             shares to the Employee in accordance with the terms of the Stock
             Option specified by the Compensation Committee pursuant to the
             provisions of the Plan. For purposes of this Section, a subsidiary
             shall mean any subsidiary corporation of the Company as defined in
             Section 425 of the Code.

        (8)  A Grantee entitled to Stock as a result of the exercise of an
             option shall not be deemed for any purpose to be, or have rights
             as, a stockholder of the Employer by virtue of such exercise,
             except to the extent a stock certificate is issued therefor and
             then only from the date such certificate is issued. No adjustments
             shall be made for dividends or distributions or other rights for
             which the record date is prior to the date such stock certificate
             is issued. The Employer shall issue any stock certificates required
             to be issued in connection with the exercise of a Stock Option with
             reasonable promptness after such exercise.

        (9)  The grant or exercise of Stock Options granted under the Plan shall
             be subject to, and shall in all respects comply with, applicable
             Delaware corporate law relating to such grant or exercise.

Adopted by the Board of Directors:  November 21, 1995

Amended as of November 1, 1996
<PAGE>

                                                                       EXHIBIT A
                                                                       ---------

                        PHYSICIANS HEALTH SERVICES, INC.

                      1995 INCENTIVE STOCK OPTION AGREEMENT

        Agreement made this _______ day of _________ between Physicians Health
Services, Inc. a corporation organized under the laws of the State of Delaware
(hereinafter called the "Corporation") and ___________________ (hereinafter
called the "Grantee").

        WHEREAS, the Corporation desires to provide the Grantee with an
opportunity to acquire or increase his proprietary interest in the business of
the Corporation and, through stock ownership, to possess an increased personal
interest in its continued success and progress;

        NOW THEREFORE, in consideration of the premises, the mutual covenants
hereinafter set forth, and other good and valuable consideration, the
Corporation and the Grantee agree as follows:

        1. Award of Option. The Corporation hereby awards to the Grantee, as a
           ---------------
matter of separate inducement and agreement, and not in lieu of salary or any
other compensation for services, an option to purchase an aggregate of ______
shares of the Corporation's Class A Common Stock pursuant to the Incentive Stock
Option provisions contained in Article II of the Plan, on the terms and
conditions hereinafter set forth, at the purchase price of $_______ per share
(such shares, number of shares and purchase price being subject to adjustment as
provided in Paragraph A of Article IV of the Plan).

        2. Terms of Plan. The Plan, a copy of which is attached hereto, is
           -------------
incorporated herein by reference and is made part of this Agreement as if fully
set forth herein. This Agreement is subject to, and the Corporation and the
Grantee agree to be bound by, all of the terms and conditions of the Plan as the
Plan exists at the time of this Agreement's execution. The Plan shall control in
the event there is any express conflict between the Plan and the terms hereof,
and on such matters that are not expressly covered in this Agreement. Subsequent
amendments of the Plan shall not adversely affect the Grantee's rights under
this Agreement.

        3. Exercise of Option. The Stock Option granted pursuant to this
           ------------------
Agreement is exercisable in accordance with the vesting schedule approved by the
Compensation Committee, as set forth below.

        Installments, if applicable, shall be cumulative, but each exercise must
encompass at lease one installment of _____ shares, whichever is less. In the
event the Grantee's exercise includes a fractional share, the Corporation will
not be required to issue a fractional share but will pay the Grantee in Cash the
value of such fraction. All unexercised rights shall lapse and forever terminate
after the expiration of ten years from the date of this Agreement, provided,
however, that all unexercised rights granted to ten percent stockholders shall
lapse and forever terminate after the expiration of five years from the date of
this Agreement.

        4. Termination of Employment. If the Grantee's employment is terminated
           -------------------------
(other than by Disability or death) the terms of any then outstanding Incentive
Stock Option held by the Grantee shall extend for a period ending on the earlier
of the date on which such option would otherwise expire or three
<PAGE>

months after such termination of employment, and such option shall be
exercisable to the extent it was exercisable as of the Grantee's last date of
employment.

If a Grantee's employment is terminated by reason of Disability, the term of any
then outstanding Incentive Stock Option held by the Grantee shall extend for a
period ending on the earlier of the date on which such option would otherwise
expire or twelve months after the Grantee's last date of employment, and such
option shall be exercisable to the extent it was exercisable as of the Grantee's
last date of employment.

If a Grantee's employment is terminated by death, the representative of his
estate or beneficiaries thereof to whom the option has been transferred shall
have the right, during the period ending on the earlier of the date on which
such option would otherwise expire or three months after such termination of
employment, or exercise such options in whole or in part. If a Grantee dies
without having fully exercised any then outstanding Incentive Stock Options, the
representative of his estate of beneficiaries thereof to whom the option has
been transferred shall have the right to exercise such options in whole or in
part during the then existing exercise period. The number of shares of Stock in
respect of which an Incentive Stock Option may be exercised after a Grantee's
death shall be the number of shares in respect of which such option could be
exercised as of the Grantee's last date of employment.

        5. Manner of Exercise. Full payment for the shares of Stock purchased
           ------------------
shall be made at the time of any exercise of this Agreement. The purchase price
shall be payable to the Corporation either (i) in cash or by check, bank draft,
or postal or express money order, (ii) by promissory note, (iii) through the
delivery of shares of Class A or Class B Common Stock then owned by the Grantee
having a Fair Market Value on the date of exercise equal to the full purchase
price, provided that the shares so delivered have been owned by the Grantee for
at least six (6) months, or (iv) by a combination of (i), (ii) or (iii) above;
provided, however, that no fractional share shall be accepted by the Corporation
in partial payment of the purchase price of any Stock, and the value of any such
fractional interest shall be paid to the Corporation in the manner specified in
(i) above.

Subject to the terms and conditions hereof, the options shall be exercisable by
notice to the Corporation on the form provided by the Corporation, a copy of
which is attached hereto. In the event that the options are being exercised by
any person or persons other than the Grantee, the notice shall be accompanied by
proof, satisfactory to the Corporation, of the right of such person or persons
to exercise any right under this Agreement.

        6. Rights of Grantee. The grant of an option in any year shall give such
           -----------------
Grantee neither any right to similar grants in future years nor any right to be
retained in the employ of the Corporation or any of its subsidiaries, such
employment being terminable to the same extent as if the Plan and this Agreement
were not in effect.

Neither the Grantee nor any other person legally entitled to exercise any rights
under this Agreement shall be entitled to any of the rights or privileges of a
stockholder of the Corporation with respect to any shares which may be issuable
upon any exercise pursuant to this Agreement, unless and until a certificate or
certificates representing such shares shall have been actually issued and
delivered to the Grantee or such person.

        7. Non-Transferability of Option. Except as otherwise provided herein,
           -----------------------------
an option and the rights and privileges conferred hereby may not be transferred,
assigned pledged or hypothecated in any way, other than by will or the laws of
descent and distribution, and an option shall be exercisable during the
Grantee's lifetime only by the Grantee or his conservator.

        8. Taxes and Withholding. All payments to Grantee or to his legal
           ---------------------
representative shall be subject to any applicable tax, community property, or
other statutes or regulations of the United States or of any state having
jurisdiction thereof. The Grantee may be required to pay to the Corporation the
amount of any withholding taxes which the Corporation is required to withhold
with respect to a Stock option or its
<PAGE>

exercise. In the event that such payment is not made when due, the Corporation
shall have the right to deduct, to the extent permitted by law, from any payment
of any kind otherwise due to such person all or part of the amount required to
be withheld.

        9. Premature Disposition of Shares. If the Grantee or Grantee's estate
           -------------------------------
sells or otherwise disposes of any shares acquired upon exercise of this option
within one year from the date of shares involved were acquired or two years from
the date of this Agreement, the Grantee (or such person exercising this option)
agrees that the Grantee or the Grantee's estate will deliver a written report to
the Secretary of the Corporation within 30 days following the sale or other
disposition, which report shall set forth the date of sale or other disposition
of said shares and the net proceeds of such sale or disposition.

        10. Notices. Each notice relating to this Agreement shall be in writing
            -------
and delivered in person or by registered mail to the Corporation at its office,
120 Hawley Lane, Trumbull, Connecticut, 06611 to the attention of the Chief
Financial Officer. All notices to the Grantee or other person or persons then
entitled to exercise any right pursuant to this Agreement shall be delivered to
the Grantee or such other person or persons at the Grantee's address specified
below or at such other address as the Grantee or such other person may specify
in writing to the Corporation by a notice delivered in accordance with this
paragraph.

        11. Restriction on Shares. The Corporation's obligation to issue or
            ---------------------
deliver any certificate for shares of Stock under this option, and the
transferability of shares acquired by the exercise of this option, shall be
subject to all of the following conditions:

        (a)  Any registration or other qualification of such shares under any
             state or federal law or regulation, or the maintaining in effect of
             any such registration or other qualification which the Corporation
             shall in its absolute discretion upon the advice of counsel, deem
             necessary or advisable; and

        (b)  The obtaining of any other consent, approval, or permit from any
             state or federal governmental agency which the Corporation shall,
             in its absolute discretion upon the advice of counsel, determine to
             be necessary or advisable.

        (c)  Each stock certificate issued pursuant to exercise of this option
             shall bear the following legend:

             "The transferability of this certificate and the shares of Stock
             represented hereby are subject to restrictions, terms and
             conditions contained in the Amended and Restated Physicians Health
             Services, Inc. 1995 Stock Option Plan, and an Agreement between the
             registered owner of such Stock and Physicians Health Services, Inc.
             A copy of the Plan and Agreement are on file in the office of the
             Secretary of Physicians Health Services, Inc."

        12. Miscellaneous. This Agreement comprises the whole agreement between
            -------------
the parties hereto. It may not be modified or terminated orally, and it shall be
deemed to be a Connecticut contract, subject to construction and enforcement in
accordance with the laws of Connecticut.

This Agreement shall inure to the benefit of and be binding upon each successor
of the Corporation and to the extent specifically provided herein and in the
Plan, inure to the benefit of and shall be binding upon the Grantee's heirs,
legal representatives, and successors.
<PAGE>

        IN WITNESS WHEREOF, this Agreement is executed by the Grantee and by the
Corporation through its duly authorized officer or officers as of the day and
year first above written.

                                       PHYSICIANS HEALTH SERVICES, INC.



                                       By
                                         -------------------------------



                                       ---------------------------------
                                       (Grantee)



                                       ---------------------------------
                                       (Address)



                                       ---------------------------------
                                       (Social Security No.)
<PAGE>

LETTER OF STOCK OPTION EXERCISE

                                        Dated______

Physicians Health Services, Inc.
120 Hawley Lane
Trumbull, CT  06611

Attention:  Chief Financial Officer

Gentlemen:

        I wish to purchase the following shares of Common Stock pursuant to the
option granted to me on _________________________ under the Physicians Health
Services, Inc. 1995 Stock Option Plan:

        Incentive Stock Option Shares:                 __________
        Non Qualified Stock Option Shares:             __________
        Total Shares being exercised:                  __________

The purchase price for these shares is $_____ per share. My check payable to
Physicians Health Services, Inc. in the amounts of $_______ in payment of the
purchase price is enclosed.* Please issue the stock certificate(s) for these
shares in my name as follows:

        **Name



        Address

        Social Security Number

                                            Sincerely yours,

                                            Signature

                                            Office Telephone
                                            Home Telephone

*       If stock is used in payment, please contact ________________'s office at
        (203)_________

**      If you wish to have the shares issued in your name and that of another
        person jointly, we suggest that the following form be used: "(Your name)
        and (name of other person), as joint tenants with right of
        survivorship."
<PAGE>

LETTER OF STOCK OPTION GRANT







                                            ______________ 1994

(Grantee)





Dear _________

I am pleased to confirm that you have been awarded an Incentive Stock Option
under the Physicians Health Services, Inc. 1995 Stock Option Plan. Enclosed are
two copies of an Incentive Stock Option Agreement, which have been signed by
Physicians Health Services, Inc. Please sign both copies and return one to me in
the enclosed envelope.

Also enclosed are copies of the Physicians Health Services, Inc. 1995 Stock
Option Plan and the form to be used based upon exercise of any part of the
option.

The option covers shares of Class A Common Stock of Physicians Health Services,
Inc. and becomes exercisable in installments over the next _____ years, provided
you remain in the employment of Physicians Health Services, Inc. In addition,
the shares covered by this option have not been registered under state or
federal securities laws. Accordingly, under these laws, until such time as an
effective registration statement is filed or an exemption becomes available with
respect to these shares, there are prohibitions upon the exercise of this option
and the later sale of any shares purchased under this option. These prohibitions
stem from the securities laws and will be discussed with you at a later date.

Meanwhile, we wish to forward the copies of the option agreement to you at this
time.

                                   Sincerely,




                                   Regina M. Campbell
                                   Senior Vice President of Legal Affairs
                                   and Human Resources
<PAGE>

                                                                       EXHIBIT B
                                                                       ---------

                        PHYSICIANS HEALTH SERVICES, INC.

                    1995 NON-QUALIFIED STOCK OPTION AGREEMENT

        Agreement made this ______ day of ___________, _____ between Physicians
Health Services, Inc., a corporation organized under the laws of the State of
Delaware (hereinafter called the "Corporation" and _____________ (herein after
called the "Grantee").

        WHEREAS, the Corporation desires to provide the Grantee with an
opportunity to acquire or increase his proprietary interest in the business of
the Corporation and, through stock ownership, to possess an increased personal
interest in its continued success and progress;

        NOW, THEREFORE, in consideration of the premises, the mutual covenants
hereinafter set forth, and other good and valuable consideration, the
Corporation and the Grantee agree as follows:

        1. Award of Option. The Corporation hereby awards to the Grantee, as a
           ---------------
matter of separate inducement and agreement, and not in lieu of salary or any
other compensation for services, an option or purchase an aggregate of _____
shares of the Corporation's Class A Common Stock pursuant to the Non-Qualified
Stock Option provisions contained in Article III of the Plan, on the terms and
conditions hereinafter set forth, at the purchase price of $17.00 per share
(such shares, number of shares and purchase price being subject to adjustment as
provided in Paragraph A of Article IV of the Plan).

        2. Terms of the Plan. The Plan, a copy of which is attached hereto, is
           -----------------
incorporated herein by reference and is made part of this Agreement as if fully
set forth herein. This Agreement is subject to, and the Corporation and the
Grantee agree to be bound by, all of the terms and conditions of the Plan as the
Plan exists at the time of this Agreement's execution. The Plan shall control in
the event there is any express conflict between the Plan and the terms hereof,
and on such matters that are not expressly covered in this Agreement. Subsequent
amendments of the Plan shall not adversely affect the Grantee's rights under
this Agreement.

        3. Exercise of Option. The Stock Options granted pursuant to this
           ------------------
Agreement are exercisable in accordance with the vesting schedule approved by
the Compensation Committee, as set forth below.

        Installments, if applicable, shall be cumulative, but each exercise must
encompass at least one installment of 100 shares, whichever is less. In the
event the Grantee's exercise includes a fractional share, the Corporation will
not be required to issue a fractional share but will pay the Grantee in Cash the
value of such fraction. All unexercised rights shall lapse and forever terminate
after the expiration of ten years from the date of this Agreement.

        4. Termination of Employment. If the Grantee's employment is terminated
           -------------------------
(other than by Disability or death), the terms of any then outstanding
Non-Qualified Stock Option held by the Grantee shall extend for a period ending
on the earlier of the date on which such option would otherwise expire or three
months after such termination of employment, and such option shall be
exercisable to the extent it was exercisable as of the Grantee's last date of
employment.

If the Grantee's employment with the Corporation is terminated by reason of
Disability, the term of any then outstanding Non-Qualified Stock Option held by
the Grantee shall extend for a period ending on the earlier of the date on which
such option would otherwise expire or twelve months after such termination of
employment, and such option shall be exercisable to the extent it was
exercisable as of the Grantee's last date of employment.
<PAGE>

If a Grantee's employment is terminated by reason of death, the representative
of his estate or beneficiaries thereof to whom the option has been transferred
shall have the right, during the period ending on the earlier of the date on
which such option would otherwise expire or three months after such termination
of employment, to exercise any then outstanding Non-Qualified Stock Options in
whole or in part. If a Grantee dies without having fully exercised any then
outstanding Non-Qualified Stock Options, the representative of his estate or
beneficiaries thereof to whom the option has been transferred shall have the
right to exercise such options in whole or in part. The number of shares of
Stock in respect of which a Non-Qualified Stock Option may be exercised after a
Grantee's death shall be the number of shares of Stock in respect of which such
option could be exercised as of the Grantee's last date of employment.

        5. Manner of Exercise. Full payment for the shares of Stock purchased
           ------------------
shall be made at the time of any exercise of this Agreement. The purchase price
shall be payable to the Corporation either (i) in cash or by check, bank draft,
or postal or express money order, (ii) by promissory note, (iii) through the
delivery of shares of Class A or Class B Common Stock then owned by the Grantee
having a Fair Market Value on the date of exercise equal to the full purchase
price, provided that the shares so delivered have been owned by the Grantee for
at least six (6) months, or (iv) by a combination of (i), (ii) or (iii) above;
provided, however, that no fractional share shall be accepted by the Corporation
in partial payment of the purchase price of any Stock but the value of any such
fractional interest shall be paid to the Corporation in the manner specified in
(i) above.

Subject to the terms and conditions hereof, the options shall be exercisable by
notice to the Corporation on the form provided by the Corporation, a copy of
which is attached hereto. In the event that the options are being exercised by
any person or persons other than the Grantee, the notice shall be accompanied by
proof, satisfactory to the Corporation, of the right of such person or persons
to exercise any right under this Agreement.

        6. Rights of Grantee. The grant of an option in any year shall give such
           -----------------
Grantee neither any right to similar grants in future years nor any right to be
retained in the employ of the Corporation or any of its subsidiaries, such
employment being terminable to the same extent as if the Plan and this Agreement
were not in effect.

Neither the Grantee nor any other person legally entitled to exercise any rights
under this Agreement shall be entitled to any of the rights or privileges of a
stockholder of the Corporation with respect to any shares which may be issuable
upon any exercise pursuant to this Agreement, unless and until a certificate or
certificates representing such shares shall have been actually issued and
delivered to the Grantee or such person.

        7. Non-Transferability of Option. Except as otherwise provided herein,
           -----------------------------
an option and the rights and privileges conferred hereby may not be transferred,
assigned, pledged or hypothecated in any way, other than by will or the laws of
descent and distribution, and an option shall be exercisable during the
Grantee's lifetime only by the Grantee or his conservator.

        8. Taxes and Withholding. All payments to a Grantee or to his legal
           ---------------------
representative shall be subject to any applicable tax, community property, or
other statutes or regulations of the United States or of any state having
jurisdiction thereof. The Grantee may be required to pay to the Corporation the
amount of any withholding taxes which the Corporation is required to withhold
with respect to a Stock Option or its exercise. In the event that such payment
is not made when due, the Corporation shall have the right to deduct, to the
extent permitted by law, from any payment of any kind otherwise due to such
person all or part of the amount required to be withheld.

        9. Notices. Each notice relating to this Agreement shall be in writing
           -------
and delivered in person or by registered mail to the Corporation at its office,
120 Hawley Lane, Trumbull, Connecticut 06611, to the attention of the Chief
Financial Officer. All notices to the Grantee or other person or persons then
entitled to exercise any right pursuant to this Agreement shall be delivered to
the Grantee or such other
<PAGE>

person or persons at the Grantee's address specified below or at such other
address as the Grantee or such other person may specify in writing to the
Corporation by a notice delivered in accordance with this paragraph.

        10. Restriction on Shares. The Corporation's obligation to issue or
           ----------------------
deliver any certificate or certificates for shares of Stock under this option,
and the transferability of shares acquired by the exercise of this option, shall
be subject to all of the following conditions:

        (a)  Any registration or other qualification of such shares under any
             state or federal law or regulation, or the maintaining in effect of
             any such registration or other qualification which the Corporation
             shall, in its absolute discretion upon the advice of counsel, deem
             necessary or advisable; and

        (b)  The obtaining of any other consent, approval, or permit from any
             state or federal governmental agency which the Corporation shall,
             in its absolute discretion upon the advice of counsel, determine to
             be necessary to advisable.

        (c)  Each stock certificate issued pursuant to exercise of this option
             shall bear the following legend:

             "The transferability of this certificate and the share of stock
             represented hereby are subject to restrictions, terms and
             conditions contained in the Amended and Restated Physicians Health
             Services, Inc. 1995 Stock Option Plan, and an Agreement between the
             registered owner of such Stock and Physicians Health Services, Inc.
             A copy of the Plan and Agreement are on file in the office of the
             Secretary of Physicians Health Services, Inc."

        11. Miscellaneous. This Agreement comprises the whole agreement between
            -------------
the parties hereto. It may not be modified or terminated orally, and it shall be
deemed to be a Connecticut contract, subject to construction and enforcement in
accordance with the laws of Connecticut.

This Agreement shall inure to the benefit of and be binding upon each successor
of the Corporation and to the extent specifically provided herein and in the
Plan inure to the benefit of and shall be binding upon the Grantee's heirs,
legal representatives, and successors.
<PAGE>

        IN WITNESS WHEREOF, this Agreement is executed by the Grantee and by the
Corporation through its duly authorized officer or officers as of the day and
year first above written.

                                       PHYSICIANS HEALTH SERVICES, INC.



                                       By
                                         -------------------------------



                                       ---------------------------------
                                       (Grantee)



                                       ---------------------------------
                                       (Address)



                                       ---------------------------------
                                       (Social Security No.)
<PAGE>

                         LETTER OF STOCK OPTION EXERCISE

                                            Dated_______________

Physicians Health Services, Inc.
120 Hawley Lane
Trumbull, CT  06611

Attention:  Chief Financial Officer

Gentlemen:

        I wish to purchase the following shares of Common Stock pursuant to the
option granted to me on ________________, _____ under the Physicians Health
Services, Inc. 1995 Stock Option Plan:

        Incentive Stock Option shares:               ___________
        Non-Qualified Stock Option shares:           ___________
        Total shares being exercised:                ___________

The purchase price for these shares is $______ per share. My check payable to
Physicians Health Services, Inc. in the amount of $______ in payment of the
purchase price is enclosed.* Please issue the stock certificate(s) for these
shares in my name as follows:

        **Name

        Address

        Social Security Number

                                            Sincerely yours,



                                            Signature

*       If stock is issued in payment, please contact _______'s office at (203)
        ________.

**      If you wish to have the shares issued in your name and that of another
        person jointly, we suggest that the following form be used: "(Your name)
        and (name of other person), as joint tenants with the right of
        survivorship."
<PAGE>

                          LETTER OF STOCK OPTION GRANT







                                            ________________ 1995

(Grantee)



Dear___________

I am pleased to confirm that you have been awarded a Non-Qualified Stock Option
under the Physicians Health Services, Inc. 1995 Stock Option Plan. Enclosed are
two copies of a Non-Qualified Stock Option Plan Agreement, which have been
signed by Physicians Health Services, Inc. Please sign both copies and return
one to me in the enclosed envelope.

Also enclosed are copies of the Physicians Health Services, Inc. 1995 Stock
Option Plan and the form to be used upon exercise of any part of the option.

The option covers shares of Class A Common Stock of Physicians Health Services,
Inc. and becomes exercisable in installments over the next ______ years,
provided you remain in the employment of Physicians Health Services, Inc. In
addition, the shares covered by this option have not been registered under state
or federal securities laws. Accordingly, under these laws, until such time as an
effective registration statement is filed or an exemption becomes available with
respect to these shares, there are prohibitions upon the exercise of this option
and the later sale of any shares purchased under this option. These prohibitions
stem from the securities laws and will be discussed with you at a later date.

Meanwhile, we wish to forward the copies of the option agreement to you at this
time.

Sincerely,

Physicians Health Services, Inc.



By: ___________
      Its