<PAGE>   1


                                                                   EXHIBIT 10.9


                                    AGREEMENT

                                 BY AND BETWEEN

                          MEDIGROUP OF NEW JERSEY, INC.

                                       AND

                  PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY, INC.

                           RELATING TO THE PURCHASE OF

                       THE HMO AND PPO OPERATIONS OF PHPNJ



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


                            DATED AS OF JUNE 26, 1997


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


<PAGE>   2



                                TABLE OF CONTENTS


<TABLE>
<S>                                                                                                                  <C>
ARTICLE 1.
         ASSIGNMENT AND TRANSFER..................................................................................   1
         Section 1.1       Assignment and Transfer................................................................   1
         Section 1.2       Excluded Liabilities...................................................................   2
         Section 1.3       Deposit................................................................................   2
         Section 1.4       Management Agreement...................................................................   3
         Section 1.6       Purchase Price Adjustment..............................................................   3
         Section 1.7       Closing................................................................................   3
         Section 1.8       Consents to Assignments................................................................   5
         Section 1.9       Payment of Premiums and Claims.........................................................   6
                                                                                                                     
ARTICLE 2.                                                                                                           
         REPRESENTATIONS AND WARRANTIES...........................................................................   6
         Section 2.1       Organization, Qualifications and Corporate Power and Business..........................   6
         Section 2.2       Validity...............................................................................   6
         Section 2.3       No Conflict............................................................................   6
         Section 2.4       Contracts..............................................................................   7
         Section 2.5       Tax Matters............................................................................   7
         Section 2.6       Litigation; Compliance with Law; Business Practices....................................   7
         Section 2.7       Other Agreements.......................................................................   8
         Section 2.8       Defaults...............................................................................   8
         Section 2.9       Transaction With Affiliates............................................................   8
         Section 2.10      Governmental Approvals.................................................................   8
         Section 2.11      Brokers................................................................................   9
         Section 2.12      Disclosure.............................................................................   9
                                                                                                                     
ARTICLE 3.                                                                                                           
         REPRESENTATIONS AND WARRANTIES OF THE PURCHASER, MEDIGROUP                                                  
         AND BCBSNJ...............................................................................................   9
         Section 3.1       Organization, Qualifications and Power and Business....................................   9
         Section 3.2       Validity...............................................................................   9
         Section 3.3       No Conflict............................................................................   9
         Section 3.4       Copies of Contracts...................................................................   10
         Section 3.5       Brokers...............................................................................   10
         Section 3.6       Management of the Business............................................................   10
         Section 3.7       Accuracy of the Seller's Representations..............................................   10
         Section 3.8       Disclosure............................................................................   10
                                                                                                                    
ARTICLE 4.                                                                                                          
         COVENANTS...............................................................................................   10
         Section 4.1       Conduct of Business...................................................................   10
</TABLE>


<PAGE>   3


<TABLE>
<S>                                                                                                                 <C>
         Section 4.2       Confidentiality.......................................................................   11
         Section 4.3       Best Efforts..........................................................................   12
         Section 4.4       Certain Notifications.................................................................   12
         Section 4.5       Supplemental Disclosure...............................................................   12
         Section 4.6       Cooperation...........................................................................   12
         Section 4.7       HMO Endorsement.......................................................................   12
         Section 4.8       Foundation Support/Recognition........................................................   12
         Section 4.9       Covenant Not to Compete; Use of Trade Name............................................   13
         Section 4.10      Board Appointments....................................................................   13
         Section 4.11      Certificate of Authority..............................................................   14
         Section 4.12      Non-Solicitation......................................................................   14
                                                                                                                    
ARTICLE 5.                                                                                                          
         CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS.........................................................   14
         Section 5.1       Representations and Warranties........................................................   14
         Section 5.2       Covenants and Obligations.............................................................   14
         Section 5.3       Consents..............................................................................   15
         Section 5.4       No Proceeding or Litigation...........................................................   15
         Section 5.5       Closing Deliveries....................................................................   15
                                                                                                                    
ARTICLE 6.                                                                                                          
         CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS............................................................   15
         Section 6.1       Representations and Warranties of the Purchaser.......................................   15
         Section 6.2       Covenants and Obligations of the Purchaser............................................   16
         Section 6.3       Consents..............................................................................   16
         Section 6.4       No Proceeding or Litigation...........................................................   16
         Section 6.5       Closing Deliveries....................................................................   16
                                                                                                                    
ARTICLE 7.                                                                                                          
         INDEMNIFICATION.........................................................................................   16
         Section 7.1       Indemnification by the Seller.........................................................   16
         Section 7.2       Indemnification by the Purchaser......................................................   17
         Section 7.3       General Indemnification Provisions....................................................   17
         Section 7.4       Limit on Indemnification..............................................................   18
                                                                                                                    
ARTICLE 8.                                                                                                          
         TERMINATION.............................................................................................   18
         Section 8.1       Termination of Agreement..............................................................   18
         Section 8.2       Procedure and Effect of Termination...................................................   19
                                                                                                                    
ARTICLE 9.                                                                                                          
         MISCELLANEOUS...........................................................................................   20
         Section 9.1       Expenses; Taxes.......................................................................   20
         Section 9.2       Consents..............................................................................   20
</TABLE>


                                       ii

<PAGE>   4


<TABLE>
<CAPTION>
<S>                                                                                                                <C>
         Section 9.3       Waiver................................................................................  20
         Section 9.4       Further Assurances....................................................................  20
         Section 9.5       Entire Agreement......................................................................  20
         Section 9.6       Amendment.............................................................................  20
         Section 9.7       Headings..............................................................................  20
         Section 9.8       Notices...............................................................................  20
         Section 9.9       Counterparts..........................................................................  21
         Section 9.10      Public Announcements..................................................................  22
         Section 9.11      Construction..........................................................................  22
         Section 9.12      Recitals..............................................................................  22
         Section 9.13      Severability..........................................................................  22
         Section 9.14      Assignment............................................................................  22
         Section 9.15      Governing Law.........................................................................  22
</TABLE>


EXHIBIT 1         Contracts
EXHIBIT 2         Management Services Agreement
EXHIBIT 3         Assignment and Assumption Agreement
SCHEDULE I        Disclosure Schedule


                                       iii

<PAGE>   5


                                    AGREEMENT


         THIS AGREEMENT (this "Agreement") is made as of the 26th day of June,
1997, by and between MEDIGROUP OF NEW JERSEY, INC., a New Jersey corporation
(the "Purchaser") , and PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY, INC., a New
Jersey corporation (the "Seller"). MEDIGROUP, INC., a New Jersey corporation
("Medigroup") and BLUE CROSS AND BLUE SHIELD OF NEW JERSEY, INC., a New Jersey
corporation ("BCBSNJ"), are parties to this Agreement for purposes of Sections
1.7(c), 4.6, 4.8, 4.9, 4.10, 6.1, 6.2, 6.5 and of Articles III, VII and IX
hereof.


                                    RECITALS

         The Seller is engaged in the business (the "Business") of operating a
statewide, physician-owned health maintenance organization in the State of New
Jersey known as the "Physician Healthcare Plan of New Jersey" (the "Plan"). The
Purchaser is a wholly owned subsidiary of Medigroup, which in turn is a wholly
owned subsidiary of BCBSNJ. The Purchaser operates a health maintenance
organization in the State of New Jersey known as "HMO Blue". On the terms and
subject to the conditions set forth in this Agreement, the Seller desires to
assign and transfer to the Purchaser, and the Purchaser desires to acquire and
assume from the Seller, all right, title and interest of the Seller in and to,
and all duties and obligations of the Seller arising after the Closing Date (as
defined below) with respect to, those group contracts and provider agreements
listed on Exhibit 1 attached hereto and made a part hereof (the "Contracts").

         NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:

                                   ARTICLE 1.
                             ASSIGNMENT AND TRANSFER

Section 1.1       Assignment and Transfer.

         (a)      Subject to Section 1.1(B) below and the other terms and
conditions contained herein, on the Closing Date, the Seller, for and in
consideration of the Purchase Price (as defined below) and the assumption and
performance by the Purchaser of the Seller's duties, obligations and liabilities
under the Contracts arising from and after the Closing Date, does hereby
irrevocably and unconditionally assign and transfer unto the Purchaser all of
the Seller's right, title and interest in and to each of the Contracts and all
the duties, obligations and liabilities of the Seller under or relating to the
Contracts to the extent accruing or arising on or after the Closing Date (but
not attributable to the period prior to the Closing Date); provided, that
nothing herein shall be construed as an assignment, transfer, sale, delegation,
setting over or assumption of any duty, obligation or liability


<PAGE>   6


of the Seller under or relating to the Contracts to the extent arising or
accruing (whether or not asserted or assessed) prior to the Closing Date.

         (b)      From and after the Closing Date, the Purchaser acquires and
assumes each of the Contracts and agrees to satisfy, discharge and perform all
of the duties, obligations and liabilities of the Seller under or relating to
the Contracts to the extent accruing or arising on or after the Closing Date
(but not attributable to the period prior to the Closing Date).

         (c)      Notwithstanding anything herein to the contrary, the Seller
shall retain and is not hereby selling, assigning or otherwise transferring any
of the following assets and property:

                  (i)      cash on hand, cash equivalents, investments
(including stock, debt instruments, options and other instruments and
securities) and bank deposits;

                  (ii)     all accounts, premiums or other amounts due to the
Seller for the period up to and including the Closing Date;

                  (iii)    tax refunds, tax, insurance and other claims or
rights to recoveries and similar benefits of the Business and any prepaid items
with respect to the Business prior to the Closing Date; and

                  (iv)     all other assets of the Seller not included among the
Contracts.

Section 1.2 Excluded Liabilities. The Purchaser shall not be required to assume,
perform or otherwise discharge any liabilities or obligations arising out of,
relating to, or in connection with, any shareholder of the Seller or the
operation of the Business prior to the Closing Date (the "Excluded
Liabilities"), including, without limitation, any liability or obligation
arising prior to the Closing Date (a) under the Contracts or any agreements
other than the Contracts to which the Seller is a party or by which it is bound;
(b) for Federal, state or local income taxes, personal property, excise, sales
or franchise taxes relating to or arising out of the operation of the Business;
and (c) for incurred but not reported claims relating to or arising out of the
operation of the Business.

Section 1.3 Deposit. In consideration for the Seller entering in that certain
Letter of Intent dated June 11, 1997, with the Purchaser, Medigroup and BCBSNJ
(the "Letter of Intent"), the Purchaser has made a good faith deposit of
$500,000.00 (the "Deposit") with Mellon Bank, N.A., as escrow agent ("Mellon").
Subject to the terms of that certain Escrow Agreement among the Seller, the
Purchaser and Mellon dated June 13, 1997, the parties agree that (a) if the
shareholders of the Seller disapprove or the Regulatory Agencies (as defined
below) disapprove the transactions contemplated hereby, Mellon shall return the
Deposit with all interest thereon to the Purchaser; and (b) if the shareholders
of the Seller and the Regulatory Agencies approve the transactions contemplated
hereby, Mellon shall disburse the Deposit and all interest thereon to the
Seller, and the Purchaser shall be entitled to a credit in accordance with
Section 1.6 below.


                                        2


<PAGE>   7


Section 1.4 Management Agreement. Prior to or contemporaneously with the
approval by the Seller's Board of Directors of this Agreement for referral to
the Seller's shareholders for approval, the Seller and the Purchaser, as
manager, will enter into a Management Services Agreement (the "Management
Agreement") in the form of Exhibit 2 attached hereto and made a part hereof.
Pursuant to the terms of the Management Agreement, the Purchaser will provide
the Seller for the term set forth in the Management Agreement with all
management and administrative services necessary for the operation of the
Business, including, but not limited to, claims processing, member services,
enrollment, provider assistance, utilization management and financial services,
including accounting and reporting, for all product lines of the Seller;
provided, however, that such services shall not include any reporting to the
Securities Exchange Commission or any related Federal and state reporting
required under the securities laws of the United States or of the State of New
Jersey.

Section 1.5 Purchase Price; Payment. Subject to adjustment pursuant to Section
1.6 below, the purchase price (the "Purchase Price") for the assignment and
transfer of the Contracts shall be an amount equal to the sum of: (a) the
greater of One Million Dollars ($1,000,000.00) or Three Hundred Dollars
($300.00) per health maintenance organization member certified by the Purchaser,
as manager, to be enrolled in the Plan as of the Closing Date (the total of such
members being the "Certified Number"), payable to the Seller at the Closing (as
defined below) by wire transfer of immediately available funds to an account
designated by the Seller; and (b) Ten Dollars ($10.00) for each eligible Health
Care Payers Coalition ("HCPC") life to whom the services of the Purchaser are
available on the first anniversary of the Closing Date, payable to the Seller on
that date by wire transfer of immediately available funds to an account
designated by the Seller.

Section 1.6 Purchase Price Adjustment. The Purchaser shall be entitled to a
credit against the Purchase Price at Closing in a sum equal to the amount of the
Deposit actually received by the Seller. In addition, the Purchase Price may be
adjusted as follows: thirty (30) days after the Closing Date, the Seller, at its
sole cost, may verify, by independent audit, the number of health maintenance
organization members enrolled in the Plan as of the Closing Date and, if the
Seller has elected to verify such number by audit, shall notify the Purchaser of
such number in writing. If such number is higher than the Certified Number, the
Purchaser shall pay to the Seller an amount equal to Three Hundred Dollars
($300.00) per each additional member in the Plan. If such number is lower than
the Certified Number, the Seller shall rebate to the Purchaser from the Purchase
Price an amount equal to Three Hundred Dollars ($300.00) times such difference;
provided, however, that in no event will any such rebate reduce the Purchase
Price below $1,000,000.00. In each case, the applicable payment shall be made
within three (3) business days after such notice from the Seller.

Section 1.7 Closing.

        (a) Subject to the terms and conditions of this Agreement, the closing
on the assignment and transfer of the Contracts contemplated hereby (the
"Closing") shall take place on a date (the "Closing Date") within ten (10)
business days after the receipt of the Material Consents (as defined below) at
such time and place as the Seller and the Purchaser may mutually agree in
writing; provided, however, that, prior to the Closing, all of the conditions
set forth in Articles V and VI of


                                        3


<PAGE>   8


this Agreement shall have been satisfied or waived in writing by the party
entitled to claim the benefit thereof.

         (b)      At the Closing, the Seller shall deliver, or cause to be
delivered, to the Purchaser the following (collectively, the "Seller Closing
Deliveries"):

                  (i)   a copy of the resolutions of the Board of Directors of 
the Seller, certified by its Secretary, authorizing, subject to the approval of
the shareholders of the Seller, the execution, delivery and performance of this
Agreement and the other instruments and documents required to be executed and
delivered by it in connection herewith (collectively, the "Seller Related
Documents") and, subject to the approval of the Seller's shareholders,
authorizing the assignment and transfer contemplated hereby and thereby (the
"Transaction");

                  (ii)  a copy of the minutes of the meeting of the shareholders
of the Seller, certified by the Secretary of the Seller, authorizing the
execution, delivery and performance of this Agreement and the other Seller
Related Documents and the consummation of the Transaction;

                  (iii) evidence of all required governmental and regulatory
approvals, including, without limitation, any approvals (the "Material
Consents") of the Commissioner of Health and Senior Services and the
Commissioner of Banking and Insurance of the State of New Jersey (collectively,
the "Regulatory Agencies"), required in connection with: (A) the execution and
delivery of this Agreement and the other Seller Related Documents; (B) the
consummation of the Transaction; and (C) the assignment and transfer to the
Purchaser of the Contracts; in each case in form reasonably satisfactory to the
Purchaser (collectively, the "Regulatory Approvals");

                  (iv)  the assignment by the Seller to the Purchaser of all of
the Seller's right, title and interest in the Contracts, and the assumption by
the Purchaser of all of the Seller's liabilities arising after Closing under the
Contracts in accordance with the terms of an Assignment and Assumption Agreement
substantially in the form of Exhibit 3 attached hereto and made a part hereof;

                  (v)   the certificate referred to in Section 5.1 below; and

                  (vi)  copies of the Certificate of Incorporation and all
amendments thereto, as recorded, and the corporate by-laws and all amendments
thereto, of Seller, certified by its Secretary; and a good standing certificate
of the Seller dated no earlier than twenty (20) days prior to the Closing Date.

         (c)      At the Closing, the Purchaser, Medigroup and BCBSNJ shall
deliver to the Seller all of the following (collectively, the "Purchaser Closing
Deliveries"):

                  (i)   the Purchase Price in the manner set forth above;

                  (ii)  copies of resolutions of the Boards of Directors of each
of the Purchaser, Medigroup and BCBSNJ, certified by their respective
secretaries or other authorized representatives,


                                        4


<PAGE>   9


authorizing the execution, delivery and performance of this Agreement and the
other instruments and documents required to be executed and delivered by any of
the Purchaser, Medigroup and BCBSNJ in connection herewith (collectively, the
"Purchaser Related Documents") and authorizing the consummation of the
Transaction;

                  (iii)  evidence of the appointment by BCBSNJ of two (2)
physicians selected by the Seller or the Foundation (as defined below) to
BCBSNJ's Medical Policy Committee and of one (1) physician selected by the
Seller or the Foundation to BCBSNJ's Professional Advisory Committee;

                  (iv)   evidence of the appointment by the Purchaser of two (2)
physicians selected by the Seller or the Foundation to the Purchaser's Quality
Improvement Committee and of two (2) physicians selected by the Seller or the
Foundation to such committee's subcommittees on Clinical Issues, Credentialing
and Grievance/Appeals;

                  (v)    evidence of the appointment by the Purchaser to its 
Panel of Independent Medical Examiners of two (2) physicians selected by the
Seller or the Foundation (meeting the Purchaser's applicable credentialing
requirements) for each specialty represented on such panel;

                  (vi)   evidence of the appointment by Medigroup's shareholder 
of one (1) physician selected from a slate of at least three (3) physicians
presented by the Seller or the Foundation to the Board of Directors of Medigroup
for a minimum term of three (3) years;

                  (vii)   the certificate referred to in Section 6.1 below;

                  (viii)  copies of the Certificate of Incorporation and all
amendments thereto, as recorded, and the corporate by-laws and all amendments
thereto, of each of the Purchaser, Medigroup and BCBSNJ, certified by their
respective Secretaries; and a good standing certificate of each of the
Purchaser, Medigroup and BCBSNJ dated no earlier than twenty (20) days prior to
the Closing Date;

                  (ix)    a certificate of the Purchaser, as manager, certifying
the number of health maintenance organization members enrolled in the Plan as of
the Closing Date; and

                  (x)     a proposal from the Purchaser regarding a product to 
be offered by Princeton Medical Management, LLC ("Princeton") that, in the
reasonable determination of the Purchaser and the Seller, is generally
consistent with the type of product intended to be offered by Princeton, or
which constitutes a satisfactory alternative product.

Section 1.8       Consents to Assignments. The Seller shall use its best efforts
to obtain the consent of Bayonne Hospital to the assignment to the Purchaser of
that certain Hospital Participation Agreement dated September 16, 1996, between
the Seller and Bayonne Hospital.


                                        5


<PAGE>   10


Section 1.9 Payment of Premiums and Claims. The Seller and the Purchaser agree
that to the extent the Purchaser receives from and after the Closing Date
premiums payable under any of the Contracts for the period prior to the Closing
Date, the Purchaser will promptly pay to the Seller all such premiums on a
weekly basis. To the extent the Purchaser properly pays from and after the
Closing Date any claims incurred prior to the Closing Date, the Seller shall
reimburse the Purchaser within one (1) business day after the Seller's receipt
of the Purchaser's invoice for such payments, provided said invoice contains
information on the claims comparable to the information contained on the HCFA
1500 form or UB-92 form, as applicable. The Purchaser shall submit its invoice
no more frequently than once weekly. The invoice shall be in such form and
detail as the Seller may reasonably require. All reimbursements by the Seller
pursuant to this Section shall be subject to subsequent audit and verification,
and for such purposes, the Purchaser agrees to provide the Seller and its
accountants, agents and representatives reasonable access during normal business
hours to the Purchaser's books and records relating to the payment of such
claims. This Section shall survive Closing.


                                   ARTICLE 2.
                         REPRESENTATIONS AND WARRANTIES
                                  OF THE SELLER

         The Seller hereby makes to the Purchaser the representations and
warranties set forth in this Article II. Exceptions to the representations and
warranties made in this Article II are as set forth in the Disclosure Schedule
attached hereto as Schedule I ("Schedule I").

Section 2.1 Organization, Qualifications and Corporate Power and Business. The
Seller is a corporation duly organized, validly existing and in good standing
under the laws of the State of New Jersey. The Seller has the corporate power
and authority to own and hold its properties in order to carry on the Business
as it is now being conducted and to execute, deliver and perform this Agreement
and the other Seller Related Documents.

Section 2.2 Validity. This Agreement and the other Seller Related Documents have
been duly executed and delivered by the Seller, and, assuming their due
execution and delivery by the Purchaser, Medigroup and BCBSNJ (as applicable),
constitute the legal, valid and binding obligations of the Seller, enforceable
in accordance with their respective terms, except to the extent such
enforceability may be limited by applicable laws affecting the enforcement of a
party's rights generally and by principles of equity regarding the availability
of remedies.

Section 2.3 No Conflict. The execution, delivery and performance by the Seller
of this Agreement and the other Seller Related Documents (a) do not violate any
provision of applicable laws, any order of any court or other agency of
government, the charter or by-laws of the Seller, or any provision of any
indenture, agreement or other instrument to which the Seller or any of its
properties or assets is bound, and (b) do not conflict with or constitute (with
due notice or lapse of time or both) a default that would allow the other party
to accelerate the obligations of the Seller due such party or otherwise exercise
rights against the Seller under any such indenture, agreement or


                                        6


<PAGE>   11


other instrument, or result in the creation or imposition of any lien, charge,
restriction, claim or encumbrance of any nature whatsoever upon any of the
properties or assets of the Seller, including, without limitation, the
Contracts.

Section 2.4 Contracts. Assuming the due execution and delivery of the Contracts
by the other parties thereto, the Contracts constitute the legal, valid and
binding obligations of the Seller, enforceable in accordance with their
respective terms, except to the extent such enforceability may be limited by
applicable laws affecting the enforcement of a party's rights generally and by
principles of equity regarding the availability of remedies. To the knowledge of
the Seller, the Contracts are in full force and effect, and except as set forth
in Schedule I hereto, neither the Seller nor any party thereto has provided
notice, nor does the Seller have any knowledge of any intent to provide notice,
or an election to exercise any rights to terminate any of the Contracts. Other
than the Contracts and except as set forth in Schedule I hereto, there are no
other agreements between the Seller and any insurance company, health
maintenance organization or other third party payor for medical services
rendered or to be rendered by the Seller to patients served thereby, whether
such agreement be in the form of a capitation plan or otherwise.

Section 2.5 Tax Matters.

         (a) The Seller has filed or will file when due all Federal, state, and
local income tax returns and reports in all requisite jurisdictions for all
years and periods ended on or before the Closing Date. For purposes of this
Agreement, "Taxes" means all income, capital gains, gross income, gross
receipts, transfer, value added, sales, use, service, ad valorem, franchise,
profits, capital stock, license, withholding, payroll, employment, social
security, unemployment compensation, utility, excise, production, severance,
stamp, occupation, premium, real or personal property, alternative minimum,
environmental, or windfall profit taxes, customs, duties, or other taxes, fees,
assessments, levies, imposts or charges of any kind whatsoever imposed by any
governmental authority (a "Taxing Authority") responsible for the imposition of
any such Tax, together with any interest and any penalties, additions to tax or
additional amounts imposed by any Taxing Authority.

         (b) There are no claims or investigations by any Taxing Authority
pending or, to the knowledge of the Seller, threatened against the Seller, and
the Seller has not received any notice of any threatened claims or
investigations by any Taxing Authority; and, with respect to any Tax return
filed by the Seller, there has been no waiver of any applicable statute of
limitations or extension of the time for the assessment of any Tax against the
Seller.

Section 2.6 Litigation; Compliance with Law; Business Practices.

         (a) There is no (i) action, suit, claim, proceeding or investigation
pending or, to the knowledge of the Seller, threatened against or affecting the
Business, at law or in equity, or before or by any Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, including malpractice claims; (ii)
arbitration proceeding involving the Business pending under any collective
bargaining agreement or otherwise;


                                        7


<PAGE>   12


or (iii) governmental inquiry pending or, to the knowledge of the Seller,
threatened against or affecting the Business (collectively, "Litigation
Matters"). Schedule I hereto contains a list of all Litigation Matters to which
the Seller has been a party as it relates to the Business during the two (2)
years immediately preceding the Closing. The Seller has not received any opinion
or memorandum or legal advice from legal counsel to the effect that it is
exposed, from a legal standpoint, to any liability or disadvantage that may have
a material adverse affect on the Business. The Seller is not in default with
respect to any order, writ, injunction or decree known to or served upon the
Seller of any court or of any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, as it relates to the Business.

         (b) The Seller (i) has complied in all material respects with all laws,
rules, regulations and orders that are applicable to the Business, and (ii) has
obtained all necessary permits, licenses and other authorizations required to
enable it to conduct the Business as it is now being conducted. There is no
existing law, rule, regulation or order, whether Federal or state or local, that
would prohibit or restrict the Seller from operating the Business as it is now
being operated.

Section 2.7 Other Agreements. The Seller is not a party to or otherwise bound by
any written or oral agreement or instrument or other restriction that
individually or in the aggregate will materially adversely affect the Business.

Section 2.8 Defaults. With respect to the Business, the Seller has performed all
the obligations required to be performed by it to date, has received no notice
of default and is not in default, in any respect (with due notice or lapse of
time or both) under any agreement now in effect, the result of which could
materially adversely affect the Business. The Seller has no present expectation
or intention of not fully performing all its obligations under each such
agreement in all respects, and the Seller does not have any knowledge of any
breach and has not received any written notice of any anticipated breach by the
other party to any agreement to which the Seller is a party and that pertains to
the Business.

Section 2.9 Transaction With Affiliates. Except as set forth on Schedule I
hereto, no director, officer or stockholder of the Seller, or member of the
family of any such person, or any corporation, partnership, trust or other
entity in which any such person, or any member of the family of any such person,
has a substantial interest or is an officer, director, trustee, partner or
holder of more than 5% of the outstanding capital stock thereof or is presently
or contemplated to be a party to any transaction with the Seller relating to the
Business, including any contract, agreement or other arrangement providing for
the employment of, furnishing of services by, rental of real or personal
property from or otherwise requiring payments to any such person or firm.

Section 2.10 Governmental Approvals. Except for the Regulatory Approvals, no
registration or filing with, or consent or approval of or other action by, any
Federal, state or other governmental agency or instrumentality is or will be
necessary for the valid execution, delivery and performance by the Seller of
this Agreement or any of the other Seller Related Documents, or the conduct of
the Business in the manner in which the Business has been conducted.


                                        8


<PAGE>   13


Section 2.11 Brokers. Except with respect to the engagement of Shattuck Hammond
Partners, Inc. by the Seller, for which the Seller shall be solely responsible,
there exists no contract, arrangement or understanding between the Seller and a
broker, finder or similar agent with respect to the Transaction.

Section 2.12 Disclosure. This Agreement and the other Seller Related Documents,
contain no untrue statement of a material fact or omit to state a material fact
necessary to make the statements contained herein not misleading. None of the
written statements, documents, certificates or other written materials prepared
or supplied by the Seller with respect to the Transaction, when read together
and in light of the circumstances in which they were made, contain an untrue
statement of a material fact or omit to state a material fact necessary to make
the statements contained therein not misleading.


                                   ARTICLE 3.
         REPRESENTATIONS AND WARRANTIES OF THE PURCHASER, MEDIGROUP AND
                                     BCBSNJ

         Each of the Purchaser, Medigroup and BCBSNJ represents and warrants to
the Seller as follows:

Section 3.1 Organization, Qualifications and Power and Business. Each of the
Purchaser, Medigroup and BCBSNJ is a corporation duly organized, validly
existing and in good standing under the laws of the State of New Jersey. Each of
the Purchaser, Medigroup and BCBSNJ has the power and authority to own and hold
its properties and to carry on its business as it now being conducted and as
proposed to be conducted and to execute, deliver and perform this Agreement and
the other Purchaser Related Documents.

Section 3.2 Validity. This Agreement and the other Purchaser Related Documents
have been duly executed and delivered by Purchaser, Medigroup and/or BCBSNJ (as
applicable) and, assuming the due execution and delivery by the Seller,
constitute the legal, valid and binding obligations of the Purchaser, Medigroup
and BCBSNJ (as applicable), enforceable in accordance with their respective
terms, except to the extent such enforceability may be limited by applicable
laws affecting the enforcement of a party's rights generally and by principles
of equity regarding the availability of remedies.

Section 3.3 No Conflict. The execution, delivery and performance by the
Purchaser, Medigroup and BCBSNJ of this Agreement and the other Purchaser
Related Documents (a) do not violate any provision of applicable law, any order
of any court or other agency of government, the charters or by-laws of the
Purchaser, Medigroup and BCBSNJ, or any provision of any indenture, agreement or
other instrument to which any of the Purchaser, Medigroup and BCBSNJ or any of
its properties or assets is bound, and (b) do not conflict with or constitute
(with due notice or lapse of time or both) a default that would allow the other
party to accelerate the obligations of any of the Purchaser, Medigroup and
BCBSNJ due such party or otherwise exercise rights against any of the Purchaser,


                                        9


<PAGE>   14


Medigroup and BCBSNJ under any such indenture, agreement or other instrument, or
result in the creation or imposition of any lien, charge, restriction, claim or
encumbrance of any nature whatsoever upon any of the properties or assets of the
Purchaser, Medigroup or BCBSNJ.

Section 3.4 Copies of Contracts. The Purchaser acknowledges receipt of copies of
all of the Contracts (other than the physician participation agreements).

Section 3.5 Brokers. None of the Purchaser, Medigroup or BCBSNJ has any
contract, arrangement or understanding with any broker, finder or similar agent
with respect to the Transaction.

Section 3.6 Management of the Business. In its management of the Business
pursuant to the Management Agreement, the Purchaser, as manager, will not take
any action or fail to take any action that is likely to cause any of the
representations and warranties of the Seller set forth herein to become false or
misleading in any way. The Purchaser acknowledges the Seller's objective of
retaining as many health maintenance organization members as possible during the
term of the Management Agreement.

Section 3.7 Accuracy of the Seller's Representations. To the best knowledge of
the Purchaser, Medigroup and BCBSNJ, this Agreement contains no untrue statement
of a material fact and do not omit to state a material fact necessary to make
the statements contained herein not misleading.

Section 3.8 Disclosure. This Agreement and the other Purchaser Related Documents
contain no untrue statement of a material fact or omit to state a material fact
necessary to make the statements contained herein not misleading. None of the
written statements, documents, certificates or other written materials prepared
or supplied by the Purchaser, Medigroup or BCBSNJ with respect to the
Transaction, when read together and in light of the circumstances in which they
were made, contain an untrue statement of a material fact or omit to state a
material fact necessary to make the statements contained therein not misleading.


                                   ARTICLE 4.
                                    COVENANTS

Section 4.1  Conduct of Business.

         (a) Between the date hereof and the Closing Date, without the consent
of the Seller, the Purchaser, as manager, shall not, and the Seller shall not
itself nor cause the Purchaser, as manager, to:

             (i) conduct the Business other than in the ordinary course, except
 that the Seller may choose not to engage in active selling of its product
line;


                                       10


<PAGE>   15


                  (ii)  make any sale, assignment, transfer or other disposition
of any Contract or mortgage, pledge or otherwise create a security interest in
any of the Contracts;

                  (iii) modify, extend, renew or terminate any of the Contracts
(other than the routine renewals of the Contracts) or enter into any commitment
or agreement similar to the Contracts;

                  (iv)  fail to maintain the books, accounts and records of the 
Business on a basis consistent with past practice;

                  (v)   create, incur or assume any indebtedness (except for 
accounts payable in the ordinary course of business) for money borrowed in
connection with the operation of the Business;

                  (vi)   with respect to the Business, effect any transaction 
with any other entity or person, the terms of which are not commercially
reasonable or are other than on an arm's length basis;

                  (vii)  undertake any action or engage in any omission that 
shall impair or jeopardize the Seller's rights to any of the Contracts; or

                  (viii) enter into any agreement, commitment or arrangement
with respect to any of the actions prohibited by the foregoing.

         (b)      From the date hereof until the Closing Date, the Purchaser, as
manager, shall not, and the Seller shall not cause the Purchaser, as manager, to
take any action that would cause any of the representations and warranties made
in Article II hereof not to remain true and correct.

         (c)      From the date hereof until the Closing Date, the Seller shall
keep the Purchaser advised of any significant decisions concerning the Business.

         (d)      From the date hereof until the Closing Date, the Seller and
the Purchaser, as manager, shall take such steps in the ordinary course of
business as are reasonable to retain the Seller's existing relationships with
providers, subscribers and third party payors.

Section 4.2        Confidentiality. Except as required by law, no party hereto, 
nor their respective successors, assigns, affiliates, directors, officers,
representatives, agents or employees, shall disclose or use any confidential
information received hereunder or provided by any party to the other, except in
connection with the consummation of the Transaction. If this Agreement
terminates without the consummation of the Transaction, the parties shall (a)
hold in confidence and refrain from using all non-public information received in
connection with the Transaction; and (b) promptly return to the party supplying
such confidential information any confidential information, including, without
limitation, the Letter of Intent, and all copies in its possession or in the
possession of its representatives of such confidential information, or destroy
such information and certify its destruction in writing. If, pursuant to a court
or other legal order, any party, (the "Requested Party")


                                       11


<PAGE>   16


is requested or required (by oral questions, interrogatories, requests for
information or documents, subpoena, civil investigative demand or similar
process) to disclose any information supplied to it, its directors, officers,
employees, representatives or agents in the course of its dealings hereunder, on
the subject matter hereof, the parties agree that the Requested Party will
provide the other parties with prompt written notice of such request or
requirement so that the other parties may seek an appropriate protective order
and/or waive the Requested Party's compliance with the provisions of this
Agreement; but it is understood that the Requested Party will be obligated to,
and may comply with, requirements of law.

Section 4.3 Best Efforts. Each party hereto shall use its best efforts to
fulfill its conditions to Closing and otherwise to consummate the Transaction.

Section 4.4 Certain Notifications. At all times prior to the Closing, each party
hereto shall, as promptly as reasonably practicable, notify the other in writing
of the occurrence of any event as to which it obtains knowledge that is
reasonably likely to result in the failure of a condition precedent to Closing
contained in Article V or Article VI below. The party receiving such notice
shall have the right, but not the obligation, for a period of three (3) business
days, to attempt to cure the anticipated failure of the condition precedent. The
Seller and the Purchaser, as manager, promptly shall notify the other of the
occurrence of a material adverse change in the Business or of any termination,
non-renewal or material alteration of any Contract.

Section 4.5 Supplemental Disclosure. Each of the parties hereto shall have the
continuing obligation to promptly supplement or amend this Agreement with
respect to any matter hereafter arising or discovered that, if existing or known
at the date of this Agreement, would have been required to be set forth or
described herein; provided, however, that for the purpose of the rights and
obligations of the parties hereunder, any such supplemental or amended
disclosure shall not be deemed to have been disclosed as of the date of this
Agreement unless so agreed to in writing by the party making the disclosure,
and, accordingly, shall have no effect on the liabilities or obligations of the
parties under this Agreement.

Section 4.6 Cooperation. The parties agree to cooperate fully with one another
to effect the transfer of the Contracts, to meet with the Regulatory Agencies to
facilitate the consummation of the Transaction and to prepare and file all
necessary filings promptly to obtain the Material Consents and to respond as
otherwise requested by the Regulatory Agencies. No party shall meet separately
with any of the Regulatory Agencies regarding the Transaction unless required to
do so by the Regulatory Agencies or agreed to by the other party.

Section 4.7 HMO Endorsement. The Seller agrees to explore with the Purchaser a
mutually acceptable form of endorsement by the Seller of the Purchaser for the
period of time after Closing that the Seller maintains its Certificate of
Authority in the State of New Jersey.

Section 4.8 Foundation Support/Recognition. The Purchaser, Medigroup and BCBSNJ
acknowledge and agree that the Seller may establish a successor entity, which
may be a private tax-exempt foundation under Section 509(a) of the Code (the
"Foundation") to, among other things,


                                       12


<PAGE>   17


carry on the Seller's mission of advancing the interest of physician-directed
medical services and to select the physicians for the board, committees and
medical panels described in Section 4.10 below if the Seller itself does not
make that selection. If so requested by the Purchaser, marketing and promotional
materials for Foundation programs that are financially supported by the
Purchaser, Medigroup and/or BCBSNJ would carry the notation that the program is
"sponsored in part by HMO Blue", Medigroup or BCBSNJ. The Purchaser, Medigroup
and BCBSNJ acknowledge and agree that a private foundation such as the
Foundation may not endorse a for-profit operation.

Section 4.9  Covenant Not to Compete; Use of Trade Name. For no additional
consideration, for a period of one (1) year after the Closing Date, neither the
Seller nor any entity in which the Seller is a majority owner (an "Affiliate")
will, directly or indirectly, engage in the business of providing or arranging
for the provision of managed health care insurance (including HMO, PPO, POS and
ASO arrangements) in the State of New Jersey. In addition, for a period of five
(5) years following the surrender of the Seller's Certificate of Authority to
the State of New Jersey, the Seller and its Affiliates will not use any name,
trade name, trademark, brand name or service mark, including, without
limitation, "Physician Healthcare Plan of New Jersey," that is confusingly
similar to those used by the Seller or its Affiliates as of the Closing Date.
Notwithstanding this, the Purchaser, Medigroup and BCBSNJ acknowledge and agree
that the use by the Foundation of any name, trade name, trademark, brand name or
service mark, including, without limitation, "Physician Healthcare Plan of New
Jersey," that is similar to those used by the Seller or its Affiliates as of the
Closing Date shall not be a violation of this Section.

Section 4.10 Board Appointments. This Section shall survive Closing.

         (a) Prior to or effective with Closing, BCBSNJ shall appoint two (2)
physicians selected by the Seller or the Foundation to BCBSNJ's Medical Policy
Committee and one (1) physician selected by the Seller or the Foundation to
BCBSNJ's Professional Advisory Committee. BCBSNJ agrees that the Seller and/or
the Foundation shall be entitled to this physician representation on said
committees (or any successor committees) for at least five (5) years.

         (b) Prior to or effective with Closing, the Purchaser shall appoint two
(2) physicians selected by the Seller or the Foundation to the Purchaser's
Quality Improvement Committee and two (2) physicians selected by the Seller or
the Foundation to such committee's subcommittees on Clinical Issues,
Credentialing and Grievance/Appeals. The Purchaser agrees that the Seller and/or
the Foundation shall be entitled to this physician representation on said
committee and subcommittees (or any successor committees or subcommittees) for
at least five (5) years.

         (c) Prior to or effective with Closing, the Purchaser shall appoint to
its Panel of Independent Medical Examiners two (2) physicians selected by the
Seller or the Foundation (meeting the Purchaser's applicable credentialing
requirements) for each specialty represented on such panel. The Purchaser agrees
that the Seller and/or the Foundation shall be entitled to this physician
representation on said panel (or any successor panels) for at least five (5)
years.


                                       13


<PAGE>   18


         (d) Prior to or effective with Closing, Medigroup agrees that its
shareholder shall elect one (1) physician selected from a slate of at least
three (3) physicians presented by the Seller or the Foundation to the Board of
Directors of Medigroup for a minimum term of three (3) years.

Section 4.11 Certificate of Authority. After Closing, the Seller shall surrender
its health maintenance organization Certificate of Authority to the State of New
Jersey in accordance with applicable regulatory requirements.

Section 4.12 Non-Solicitation. From the date of this Agreement until the Closing
Date, the Seller shall not, directly or indirectly, through any officer,
director, employee, representative, advisor, agent or otherwise, (a) solicit or
initiate, directly or indirectly, or encourage the submission of inquiries,
proposals or offers from any other potential buyer relating to the disposition
of the Contracts; or (b) respond to any person indicating an interest in
purchasing the Contracts by participating in any discussions or negotiations
regarding, or furnish to any person any information with respect to, the
disposition of the Contracts. If the Seller is presented with an unsolicited
offer to purchase its HMO and PPO operations on terms the Board of Directors of
the Seller considers more favorable than the terms set forth herein, the Seller
shall provide the Purchaser with a right of first opportunity to purchase these
operations on terms equivalent to or better than the terms set forth in the
unsolicited offer. The Purchaser shall exercise its right of first opportunity
within five (5) business days of written notice thereof, or its right shall
automatically expire.


                                   ARTICLE 5.
                 CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS

         Unless waived in writing by the Purchaser in its sole discretion, the
obligations of the Purchaser hereunder shall be subject to the fulfillment,
prior to or at the Closing, of each of the following conditions precedent:

Section 5.1 Representations and Warranties. Each of the representations and
warranties contained in Article II hereof shall be true and accurate in all
respects as of the date of this Agreement and shall be true and accurate in all
respects as of the Closing Date as if made on the Closing Date (except for any
representation or warranty expressly stated to have been made or given as of a
specified date, which, at the Closing Date, shall be true and correct in all
respects as of the date expressly stated and except for any breach after the
date of this Agreement that has been caused by the Purchaser, as manager, in its
management of the Business). This Section shall be deemed satisfied
notwithstanding that some of the agreements comprising the Contracts are not
renewed in the ordinary course of business. The Seller shall have delivered to
the Purchaser a certificate of its Chairman of the Board certifying the
fulfillment of the conditions set forth in this Section 5.1 and in Sections 5.2
and 5.3 below, and a certificate of the Secretary of the Seller, as to the
incumbency of such officer executing the certificate.

Section 5.2 Covenants and Obligations. All of the covenants and obligations that
the Seller is required to perform or to comply with pursuant to the terms of
this Agreement and pursuant to each


                                       14


<PAGE>   19


of the other Seller Related Documents at or prior to Closing shall have been
duly performed or complied with by the Seller in all material respects prior to
the Closing Date.

Section 5.3       Consents. All Regulatory Approvals shall have been obtained, 
and the Seller shall have obtained the consent and approval of its Board of
Directors and shareholders to this Agreement, the other Seller Related Documents
and the Transaction.

Section 5.4       No Proceeding or Litigation.

                  (a) No preliminary or permanent injunction or other order
shall have been issued by any court of competent jurisdiction, whether Federal,
state or foreign, or by any governmental or regulatory body, whether Federal,
state or foreign, nor shall any statute, rule, regulation or executive order be
promulgated or enacted by any governmental authority, whether Federal, state or
foreign, that prevents the consummation of the Transaction.

                  (b) No suit, action, claim, proceeding or investigation before
any court, arbitrator or administrative, governmental or regulatory body,
whether Federal, state or foreign, shall have been commenced and be pending
against the Seller or any of its affiliates, officers or directors seeking to
prevent the assignment and transfer of the Contracts or asserting that the
assignment and transfer of the Contracts would be illegal.

Section 5.5       Closing Deliveries. On or before the Closing Date, each of the
Seller Closing Deliveries shall have been delivered to the Purchaser, and the
Purchaser and its counsel shall be reasonably satisfied with the form and
substance thereof.


                                   ARTICLE 6.
                  CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS

         Unless waived in writing by the Seller, in its sole discretion, the
obligations of the Seller hereunder shall be subject to the fulfillment, prior
to or at the Closing, of each of the following conditions precedent:

Section 6.1       Representations and Warranties of the Purchaser. Each of the
representations and warranties of the Purchaser, Medigroup and BCBSNJ contained
in Article III above shall be true and accurate in all respects as of the date
of this Agreement and shall be true and accurate in all respects as of the
Closing Date as if made on the Closing Date (except for any representation or
warranty expressly stated to have been made or given as of a specified date,
which, at the Closing Date, shall be true and correct in all respects as of the
date expressly stated). Each of the Purchaser, Medigroup and BCBSNJ shall have
delivered to the Seller a certificate of its president or any vice president
certifying the fulfillment of the conditions set forth in this Section 6.1 and
in Sections 6.2 and 6.3 below, and a certificate of the Secretary of each of the
Purchaser, Medigroup and BCBSNJ as to the incumbency of such officer executing
the certificate.


                                       15


<PAGE>   20


Section 6.2       Covenants and Obligations of the Purchaser. All of the 
covenants and obligations that any of the Purchaser, Medigroup and BCBSNJ is
required to perform or to comply with pursuant to the terms of this Agreement
and each of the other Purchaser Related Documents at or prior to Closing shall
have been duly performed or complied with by such party in all material respects
prior to the Closing Date.

Section 6.3       Consents. All Regulatory Approvals shall have been obtained, 
and the Purchaser, Medigroup and BCBSNJ shall have obtained the consent and
approval of the Boards of Directors of each of the Purchaser, Medigroup and
BCBSNJ to this Agreement, the other Purchaser Related Documents and the
Transaction.

Section 6.4       No Proceeding or Litigation.

                  (a) No preliminary or permanent injunction or other order
shall have been issued by any court of competent jurisdiction, whether Federal,
state or foreign, or by any governmental or regulatory body, whether Federal,
state or foreign, nor shall any statute, rule, regulation or executive order be
promulgated or enacted by any governmental authority, whether Federal, state or
foreign, that prevents the consummation of the Transaction.

                  (b) No suit, action, claim, proceeding or investigation before
any court, arbitrator or administrative, governmental or regulatory body,
whether Federal, state or foreign, shall have been commenced and be pending
against any of the Purchaser, Medigroup and BCBSNJ or any of their affiliates,
officers or directors seeking to prevent the assignment and transfer of the
Contracts or asserting that the assignment and transfer of the Contracts would
be illegal.

Section 6.5       Closing Deliveries. On or before the Closing Date, the 
Purchaser, Medigroup and BCBSNJ shall have delivered to the Seller each of the
Purchaser Closing Deliveries, and the Seller and its counsel shall be reasonably
satisfied with the form and substance thereof.


                                   ARTICLE 7.
                                 INDEMNIFICATION

Section 7.1       Indemnification by the Seller.

         Except as otherwise limited by this Article VII, the Seller shall
indemnify, defend and hold harmless the Purchaser and its officers, directors,
employees, agents, successors and assigns (collectively, the "Purchaser
Indemnified Parties") from and against any and all liabilities, losses, damages,
claims, costs and expenses, interest, awards, judgments and penalties
(including, without limitation, reasonable attorneys' fees and expenses)
actually suffered or incurred by any of the Purchaser Indemnified Parties
(hereinafter, a "Purchaser Loss") arising out of or resulting from any of the
following:


                                       16


<PAGE>   21


         (a) the breach by the Seller of any representation or warranty
contained herein or in any document delivered hereunder at the Closing (except
to the extent such breach has been caused by the Purchaser, as manager, in its
management of the Business);

         (b) the breach by the Seller of any covenant or agreement contained
herein or in any document delivered hereunder at the Closing (except to the
extent such breach has been caused by the Purchaser, as manager, in its
management of the Business); or

         (c) the failure of the Seller to pay or otherwise discharge any
liability or obligation incurred by it in connection with the Contracts or the
Business prior to the Closing Date (except to the extent such failure has been
caused by the Purchaser, as manager, in its management of the Business).

Section 7.2  Indemnification by the Purchaser. Except as otherwise limited by
this Article VII, the Purchaser shall indemnify, defend and hold harmless the
Seller and its officers, directors, independent contractors, agents, successors
and assigns (the "Seller Indemnified Parties") from and against any and all
liabilities, losses, damages, claims, costs and expenses, interest, awards,
judgments and penalties (including, without limitation, reasonable legal costs
and expenses) actually suffered or incurred by any of the Seller Indemnified
Parties (hereinafter, a "Seller Loss") arising out of or resulting from any of
the following:

         (a) the breach by any of the Purchaser, Medigroup and BCBSNJ of any
representation or warranty contained herein or in any document delivered
hereunder at the Closing;

         (b) the breach by any of the Purchaser, Medigroup and BCBSNJ of any
covenant or agreement contained herein or in any document delivered hereunder at
the Closing; or

         (c) the failure of any of the Purchaser, Medigroup and BCBSNJ to pay or
otherwise discharge any liability or obligation incurred by such party in
connection with the Contracts or the Business from and after the Closing Date
(except for the Excluded Liabilities).

Section 7.3  General Indemnification Provisions.

         (a) For the purposes of this Section, the term "Indemnitee" shall refer
to the Purchaser Indemnified Parties or the Seller Indemnified Parties, as
applicable, entitled, or claiming to be entitled, to be indemnified, pursuant to
the provisions of Section 7.1 or 7.2 hereof, as the case may be; the term
"Indemnitor" shall refer to the person or persons having the obligation to
indemnify pursuant to such provisions; and "Losses" shall refer to the "Seller
Losses" or the "Purchaser Losses," as the case may be.

         (b) An Indemnitee shall give written notice (a "Notice of Claim") to
the Indemnitor within ten (10) business days after the Indemnitee has knowledge
of any claim (including a Third Party Claim, as defined below) that an
Indemnitee has determined has given or could give rise to a right of
indemnification under this Agreement. No failure to give such Notice of Claim
shall affect


                                       17


<PAGE>   22


the indemnification obligations of the Indemnitor hereunder, except to the
extent Indemnitor can demonstrate such failure materially prejudiced
Indemnitor's ability to successfully defend the matter giving rise to the claim.
The Notice of Claim shall state the nature of the claim, the amount of the
Losses, if known, and the method of computation thereof, all with reasonable
particularity and containing a reference to the provisions of this Agreement in
respect of which such right of indemnification is claimed or arises.

         (c) The obligations and liabilities of an Indemnitor under this Article
VII with respect to Losses arising from claims of any third party that are
subject to the indemnification provisions provided for in this Article VII
("Third Party Claims") shall be governed by and contingent upon the following
additional terms and conditions: the Indemnitee at the time it gives a Notice of
Claim to the Indemnitor of the Third Party Claim shall advise the Indemnitor
that it shall be permitted, at its option, to assume and control the defense of
such Third Party Claim at its expense and through counsel of its choice if it
gives prompt notice of its intention to do so to the Indemnitee and confirms
that the Third Party Claim is one with respect to which the Indemnitor is
obligated to indemnify. In the event the Indemnitor exercises its right to
undertake the defense against any such Third Party Claim as provided above, the
Indemnitee shall cooperate with the Indemnitor in such defense and make
available to the Indemnitor all witnesses, pertinent records, materials and
information in its possession or under its control relating thereto as is
reasonably required by the Indemnitor. Similarly, in the event the Indemnitee
is, directly or indirectly, conducting the defense against any such Third Party
Claim, the Indemnitor shall cooperate with the Indemnitee in such defense and
make available to it all such witnesses, records, materials and information in
its possession or under its control relating thereto as is reasonably required
by the Indemnitee. Except for the settlement of a Third Party Claim that
involves the payment of money only and for which the Indemnitee is totally
indemnified by the Indemnitor, no Third Party Claim may be settled by the
Indemnitor without the written consent of the Indemnitee, which consent shall
not be unreasonably withheld. Similarly, no Third Party Claim may be settled by
the Indemnitee without the written consent of the Indemnitor, which consent
shall not be unreasonably withheld.

Section 7.4  Limit on Indemnification. The aggregate amount of all Purchaser
Losses subject to indemnification under this Article VII shall not exceed the
portion of the Purchase Price described in Section 1.5(A) above, subject to any
adjustment pursuant to Section 1.6 hereof.


                                   ARTICLE 8.
                                   TERMINATION

Section 8.1  Termination of Agreement.

         This Agreement may be terminated at any time prior to the Closing:

         (a) by written consent of the Purchaser and the Seller;


                                       18


<PAGE>   23


         (b) subject to Section 4.4 hereof, by the Seller, if it becomes clear
that there is a condition precedent to Closing set forth in Article VI hereof
that cannot be satisfied;

         (c) subject to Section 4.4 hereof, by the Purchaser, if it becomes
clear that there is a condition precedent to Closing set forth in Article V
hereof that cannot be satisfied;

         (d) by the Seller, if a default by the Purchaser, as manager, occurs
under the Management Agreement, and in the event of such termination by the
Seller under this Section 8.1(d), Mellon shall disburse the entire Deposit and
all interest thereon to the Seller;

         (e) by the Purchaser, if a default by the Seller occurs under the
Management Agreement, and in the event of such termination by the Purchaser
under this Section 8.1(e), Mellon shall disburse the entire Deposit and all
interest thereon to the Purchaser;

         (f) by the Purchaser, upon written notice, if twelve (12) or more
months have elapsed since the date of this Agreement and the shareholders of the
Seller have not approved this Agreement prior to said notice; and in the event
of such termination by the Purchaser under this Section 8.1(f), Mellon shall
disburse $250,000 of the Deposit to the Purchaser and the remainder of the
Deposit and all interest thereon to the Seller;

         (g) by the Purchaser, upon ninety (90) days advance written notice, if
twelve (12) or more months have elapsed since the date of this Agreement and the
shareholders of the Seller have approved this Agreement prior to said notice but
the Regulatory Agencies' approvals have not yet been secured; provided, however,
the Purchaser and the Seller shall utilize best efforts to secure said
Regulatory Agencies' approvals during the ninety (90) day-period between the
Purchaser notice and the effective date of termination hereunder. If this
Agreement is terminated under this Section 8.1(g), Mellon shall disburse the
entire Deposit and all interest thereon to the Seller; and

         (h) by the Seller, upon written notice, if twelve (12) months or more
have elapsed since the date of this Agreement; and in the event of such
termination by the Seller under this Section 8.1(h), Mellon shall disburse the
entire Deposit and all interest thereon to the Purchaser.

Section 8.2  Procedure and Effect of Termination. In the event of termination of
this Agreement by any party permitted to terminate this Agreement pursuant to
Section 8.1 hereof, written notice thereof shall forthwith be given to the other
parties hereto specifying the provision hereof pursuant to which such
termination is made, and this Agreement shall forthwith become void and of no
further force and effect, and there shall be no liability on the part of the
parties hereto (or their respective officers, directors or affiliates), except
as set forth in Sections 1.3, 4.2, 9.1 and 9.10 hereof and except that nothing
herein shall relieve either party from liability for any willful breach hereof.


                                       19


<PAGE>   24


                                   ARTICLE 9.
                                  MISCELLANEOUS

Section 9.1 Expenses; Taxes. All costs and expenses, including, without
limitation, fees and disbursements of counsel, financial advisors and
accountants, incurred in connection with this Agreement, the Management
Agreement and the Transaction shall be paid by the party incurring such costs
and expenses, whether or not the Closing shall have occurred. The Purchaser, on
the date of Closing, or, if due thereafter, promptly when due, shall pay all
excise, sales, value added, use, registration, stamp, transfer and similar
taxes, levies, charges, and fees incurred in connection with this Agreement and
the Transaction (other than income taxes due and payable by the Seller).

Section 9.2 Consents. Whenever this Agreement requires a consent by or on behalf
of any party hereto, such consent shall be given in writing in a manner
consistent with the requirements for a waiver of compliance as set forth in
Section 9.3 below.

Section 9.3 Waiver. Except as otherwise provided in this Agreement, any failure
of the parties to comply with any provision hereof may be waived by the party
entitled to the benefit thereof only by a written instrument signed by the party
granting such waiver, but such waiver or failure to insist upon strict
compliance with such provision shall not operate as a waiver of or estoppel with
respect to, any subsequent or other failure.

Section 9.4 Further Assurances. Each of the parties hereto agrees that, from and
after the Closing, upon the reasonable request of any other party hereto and
without further consideration, such party will execute and deliver to such other
party such documents and further assurances and will take such other actions
(without cost to such party) as such other party may reasonably request in order
to carry out the purpose and intention of this Agreement.

Section 9.5 Entire Agreement. This Agreement, the Exhibits and the Schedules and
the other writings referred to herein or delivered pursuant hereto that form a
part hereof contain the entire understanding of the parties with respect to the
subject matter hereof. This Agreement supersedes all prior agreements.

Section 9.6 Amendment. This Agreement may be amended, modified, or superseded
only by an instrument signed by each of the parties hereto or, in the case of a
waiver, by or on behalf of the party waiving compliance.

Section 9.7 Headings. The Article and Section headings contained in this
Agreement are for reference purposes only and will not affect in any way the
meaning or interpretation of this Agreement.

Section 9.8 Notices. All notices, claims, certificates, requests, demands and
other communications hereunder will be in writing and will be deemed to have
been duly given if personally delivered or on the date of receipt indicated on
the return receipt if delivered or mailed (registered or certified mail, postage
prepaid, return receipt requested) as follows:


                                       20


<PAGE>   25


         (a)      If to the Seller:

                  Physician Healthcare Plan of New Jersey, Inc.
                  Princeton Pike Corporate Center
                  1009 Lenox Drive
                  Lawrenceville, New Jersey   08648
                  Attn: Chairman of the Board

                  with a copy to:

                  Ober, Kaler, Grimes & Shriver
                  A Professional Corporation
                  120 East Baltimore Street
                  Baltimore, Maryland   21202-1643
                  Attention: Carol M. McCarthy, Esquire

         (b)      If to the Purchaser:

                  Medigroup of New Jersey, Inc.
                  3 Penn Plaza East
                  Newark, New Jersey   07105-2200
                  Attn: Christy W. Bell

         (c)      If to Medigroup:

                  Medigroup, Inc.
                  3 Penn Plaza East
                  Newark, New Jersey   07105-2200
                  Attn: Christy W. Bell

         (d)      If to BCBSNJ:

                  Blue Cross/Blue Shield of New Jersey, Inc.
                  3 Penn Plaza East
                  Newark, New Jersey   07105-2200
                  Attn: Robert J. Pures

or to such other address as the person to whom notice is to be given may have
previously furnished to the other in writing in the manner set forth above.

Section 9.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when executed shall be deemed to be an original but
all of which, when taken together, shall constitute one and the same agreement.


                                       21


<PAGE>   26


Section 9.10 Public Announcements. The parties may issue press releases that are
approved by the Seller and BCBSNJ (acting on its own behalf and on behalf of the
Purchaser and Medigroup) upon the occurrence of the following events: the
approval by the Board of Directors of the Seller of this Agreement for referral
to the Seller's shareholders and upon the Closing. No other press releases,
announcements, marketing/promotional materials or other publicity regarding the
Transaction or this Agreement may be made, issued or distributed prior to the
Closing, without the express written consent of all the parties, including
consent as to content; provided, however, that nothing in this Agreement shall
prevent a party hereto from making any disclosure in connection with the
Transaction to such party's shareholders or to the extent required by law so
long as prior notice of such disclosure is given to the other party. The Seller
agrees that in any communications permitted by this Section the Purchaser may
describe the Transaction as "a purchase of the HMO and PPO operations of
Physician Healthcare Plan of New Jersey, the statewide HMO endorsed by the
Medical Society of the State of New Jersey." Any other description referencing
both the Seller and endorsement of any kind must be approved in form and
substance by the Seller.

Section 9.11 Construction. This Agreement and the other Seller Related Documents
and the other Purchaser Related Documents have been negotiated by the parties
and their respective legal counsel, and legal or equitable principles that might
require the construction of this Agreement or the other Seller Related Documents
or the other Purchaser Related Documents or any provision hereof or thereof
against the party drafting such agreements will not apply in any construction or
interpretation of this Agreement or the other Seller Related Documents or the
other Purchaser Related Documents.

Section 9.12 Recitals. The Recitals hereto are specifically incorporated herein
by reference and made a part of this Agreement as if they appeared in the body
hereof.

Section 9.13 Severability. Any provision of this Agreement that is invalid or
unenforceable shall be ineffective to the extent of such invalidity or
unenforceability and shall not affect in any way the remaining provisions
hereof.

Section 9.14 Assignment. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of, the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations herein shall be assigned by any party
hereto without the prior written consent of the other parties.

Section 9.15 Governing Law. This Agreement shall be governed by, and construed
and enforced in accordance with, the internal laws of the State of New Jersey
without regard to its provisions concerning conflicts or choice of law.


                            [SIGNATURES ON NEXT PAGE]


                                       22

<PAGE>   27


         IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties as of the date first written above.

WITNESS/ATTEST:          MEDIGROUP OF NEW JERSEY, INC.


/s/ Lynn E. Marinelli    By:/s/ Donna M. Celestini
                            ----------------------
                               Donna M. Celestini
                               Executive Vice President


WITNESS/ATTEST:          MEDIGROUP, INC.

/s/ Lynn E. Marinelli
                         By:/s/ Christy W. Bell
                               -------------------
                               Christy W. Bell
                               President and Chief Operating Officer


WITNESS/ATTEST:          BLUE CROSS AND BLUE SHIELD OF NEW
                         JERSEY, INC.
/s/ Lynn E. Marinelli

                         By:/s/ Christy W. Bell
                            -------------------
                              Christy W. Bell
                              Senior Vice President - Health Industry Services


WITNESS/ATTEST:          PHYSICIAN HEALTHCARE PLAN OF NEW
                          JERSEY, INC.


                         By:/s/ Joseph D. Billoti
                            ---------------------------
                               Joseph D. Billoti, M.D.
                               Chairman of the Board


                                       23


<PAGE>   28


                                                                       EXHIBIT 1

                                    CONTRACTS



Seller's HMO and PPO group account contracts listed on Exhibit A hereto.

Seller's agreements with the primary care physicians listed on Exhibit B hereto;
provided, however, that if a physician fails to meet Medigroup's credentialing
requirements, said physician's provider agreement with Seller shall be excluded
from the Contracts.

Seller's agreements with the specialty care physicians listed on Exhibit C
hereto; provided, however, that if a physician fails to meet Medigroup's
credentialing requirements, said physician's provider agreement with Seller
shall be excluded from the Contracts.

The PPO agreements, ancillary provider service agreements and hospital
participation agreements listed on Exhibit D hereto.


<PAGE>   29


                                                                       EXHIBIT 2

                          MANAGEMENT SERVICES AGREEMENT


<PAGE>   30


                                                                       EXHIBIT 3

                       ASSIGNMENT AND ASSUMPTION AGREEMENT


         THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Assignment") is made as
of the day of , 1997, by and between PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY,
INC., a New Jersey corporation (the "Assignor"), and MEDIGROUP OF NEW JERSEY,
INC., a New Jersey corporation (the "Assignee").


                                    RECITALS

         A. The Assignor has entered into the various contracts set forth on
Exhibit A attached hereto and made a part hereof (collectively, the
"Contracts").

         B. The Assignor has agreed to assign and transfer to the Assignee all
of its right, title and interest in and to the Contracts pursuant to the terms
of that certain Agreement dated as of June ____, 1997, by and between the
Assignor and the Assignee (the "Agreement").

         C. The Assignee desires to take an assignment of all of the Assignor's
right, title and interest in and to each of the Contracts and to assume all of
the Assignor's duties, obligations and liabilities thereunder.

         NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Assignor and the Assignee agree as follows:

         1. Assignment. The Assignor, for and in consideration of the payment of
the Purchase Price (as defined in the Agreement) and the assumption and
performance by the Assignee of the Assignor's duties, obligations and
liabilities under the Contracts on and after the date hereof, does hereby
irrevocably and unconditionally assign and transfer unto the Assignee all of the
Assignor's right, title and interest in and to each of the Contracts and all the
duties, obligations and liabilities of the Assignor under or relating to the
Contracts to the extent accruing or arising on or after the date hereof (but not
attributable to the period prior to the date hereof); provided, that nothing
herein shall be construed as an assignment, transfer, sale, delegation, setting
over or assumption of any duty, obligation or liability of the Assignor under or
relating to the Contracts to the extent arising or accruing (whether or not
asserted or assessed) prior to the date hereof. The Assignor shall indemnify and
hold harmless the Assignee from and against any and all claims, actions, causes
of action, damages, obligations, expenses (including, without limitation,
attorneys' fees and expenses) and liabilities (collectively, the "Claims")
arising out of or in connection with the Assignor's failure to perform its
obligations hereunder.


<PAGE>   31


         2.       Performance of Contracts. From and after the date hereof, the
Assignee assumes each of the Contracts and agrees to satisfy, discharge and
perform all of the Assignor's duties, obligations and liabilities under or
relating to the Contracts to the extent accruing or arising on or after the date
hereof (but not attributable to the period prior to the date hereof). The
Assignee acknowledges that it has examined all of the Contracts and understands
their terms and conditions. The Assignee shall indemnify and hold harmless the
Assignor from and against any and all Claims arising out of or in connection
with the Assignee's failure to perform its obligations hereunder.

         3.       Representation and Warranty. The Assignor and the Assignee
each represents and warrants to the other that this Assignment is its valid,
legal and binding obligation, enforceable against it in accordance with its
terms, and that it has the power and authority to enter into this Assignment.

         4.       Miscellaneous.

                  (a) This Assignment and the Agreement contain the entire
agreement between the Assignor and the Assignee regarding the subject matter
hereof. The headings in this Assignment are for convenience only and shall not
limit or otherwise affect any of the terms hereof.

                  (b) No modification or waiver of any of the provisions of this
Assignment shall be effective until and unless it is in writing and signed by
the Assignor and the Assignee, and any such waiver shall be effective only in
the specific instance and for the specific purpose for which it is given. This
Assignment may be executed in any number of counterparts, all of which when
taken together shall constitute but a single instrument.

                  (c) All of the terms of this Assignment shall survive the
execution and delivery of this Assignment and the performance of the duties,
obligations and liabilities of the Assignee under this Assignment and the
Contracts.

                  (d) In the event that any provision of this Assignment is for
any reason held to be invalid, illegal or unenforceable, in whole or in part or
in any respect, then such provision only shall be deemed null and void and shall
not affect any other provision hereof, and the remaining provisions shall remain
operative and in full force and effect.

                  (e) This Assignment shall be construed in accordance with, and
governed by, the laws of the State of New Jersey (excluding the conflict of laws
principles of such State) and shall be binding upon and inure to the benefit of
the Assignor and the Assignee and their respective successors and assigns.


                                        2


<PAGE>   32


         IN WITNESS WHEREOF, the parties hereto have caused this Assignment to
be duly executed as of the date first above written.

ATTEST/WITNESS:                        PHYSICIAN HEALTHCARE PLAN OF
                                       NEW JERSEY, INC.


                                       By:_________________________________
                                       Name:
                                       Title:


ATTEST/WITNESS:                        MEDIGROUP OF NEW JERSEY, INC.


                                       By:_________________________________
                                       Name:
                                       Title:


                                        3


<PAGE>   33


                                                                      SCHEDULE I

                               DISCLOSURE SCHEDULE


Section 2.4

The Provider Letter of Agreement between the Seller and SmithKline Beecham
Clinical Laboratories effective on July 1, 1995, has been terminated effective
August 19, 1997.

The Letter of Intent between the Seller and the Somerset Medical Center
effective on September 1, 1995, expired pursuant to its terms on August 31,
1996, but the parties are still operating under it.

The Letter of Intent between the Seller and Memorial Hospital of Burlington
County effective on Spetember 18, 1995, has not been executed by the Seller, but
the parties are operating under it.

The Seller is a party to that certain Operating Agreement of Princeton Medical
Management, L.L.C. dated as of December 20, 1996, between the Medical Center at
Princeton Physician-Hospital Organization, Inc. and the Seller.

The Seller is a party to that certain Agreement dated as of December 16, 1996,
between Princeton Medical Management, L.L.C. and the Seller, with respect to the
Princeton Preferred Health Plan.

The Seller is a party to a Reinsurance Treaty No. 96 40 043 effective January 1,
1996, between the Seller and Sun Life Assurance Company of Canada.

The Seller is a party to a Specific Excess HMO Reinsurance Agreement dated
December 4, 1995, between the Seller and Sun Life Assurance Company of Canada.

Section 2.6

The Seller is subject to a complaint captioned Prisco S. DeFronzo, M.D. v.
Physician Health Plan of New Jersey, Inc., filed with the Superior Court of New
Jersey, Union County:Law Division, Docket UNN-L-2035 97, on April 10, 1997,
pursuant to which Dr. DeFronzo demands the return of his stock purchase price in
the amount of $5,500.

At the direction of the Department of Banking and Insurance, the Seller is
required to file monthly statements of the condition and affairs of the Seller
with the Department.

Section 2.9

The Seller is a party to that certain Agreement dated March 13, 1997, between
Henry D. Rosin, M.D. and the Seller, with respect to certain compensation.