Document:

Exhibit 10.6

                    STOCK SUBSCRIPTION AND PURCHASE AGREEMENT

      THIS STOCK  SUBSCRIPTION AND PURCHASE AGREEMENT (this "Agreement") is made
this 11th day of  October,  1995 by and among  Long  Island  Physician  Holdings
Corporation,  a New York  corporation  having an address  for the conduct of its
business at 275 Broadhollow Road, Melville,  New York 11747 ("LIPHC"),  Catholic
Healthcare Network of Long Island,  Inc., a New York not-for-profit  corporation
having an address for the conduct of its  business at Good  Samaritan  Hospital,
1000 Montauk Highway, West Islip, New York 11795 (CHNLI"),  and MDLI Healthcare,
Inc., a New York  corporation  having its principal place of business located at
275 Broadhollow Road, Melville, New York 11747 ("MDLI").

                               W I T N E S S E T H

      WHEREAS,  LIPHC and CHNLI have entered into a letter  agreement dated June
27, 1995 relating to the formation of MDLI; and

      WHEREAS,  LIPHC has caused a certificate of  incorporation  for MDLI to be
filed with the New York Department of State; and

      WHEREAS, in connection with the qualification process, LIPHC has caused to
be filed with the New York State  Department  of Health  (the  "Department")  on
behalf  of MDLI,  an  Application  for  Certification  as a  Health  Maintenance
Organization  under  Article  44 of the New York  State  Public  Health  Law (an
"HMO"), which application is currently pending before the Department;

      NOW, THEREFORE, in consideration of the representations,  warranties,  and
agreements  herein  made and on the terms and subject to the  conditions  herein
contained, the Parties hereby agree as follows:

      1. Certain Definitions. As used herein, the following terms shall have the
following meanings:

            "Amended By-laws" shall mean the amended By-laws of MDLI in the form
of Exhibit 1 (a) to this Agreement.

            "Application  for  Authority"  shall  mean  MDLI's  Application  for
Authority submitted to the Department for licensing as an HMO.

            "Certificate  of  Amendment"  shall  mean  an  amendment  to  MDLI's
Certificate of Incorporation in the form of Exhibit 1(b) to this Agreement.

            "CHNLI Hospitals" shall mean Good Samaritan Hospital Medical Center,
St. Charles  Hospital and  Rehabilitation  Center,  Mercy Medical Center and St.
Francis Hospital.

            "Service Area" shall mean the geographic  area,  defined by counties
or other  geographic  subdivisions,  identified in the Application for Authority
and any subsequent expansion of such area, as approved by the Department.

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            "Shareholders  Agreement" shall mean a Shareholders  Agreement among
LIPHC, MDLI and CHNLI in the form of Exhibit l(c) to this Agreement.

            "total  reimbursement  arrangement" shall mean global  reimbursement
for hospital and physician services.

      2. Subscription for MDLI Common Stock.

      2.1 On the terms and subject to the  conditions  of this  Agreement,  MDLI
will issue and sell 300 shares of its Class B Common Stock,  par value $.001 per
share (the "Shares"),  to CHNLI, and CHNLI will purchase the Shares,  at a price
of $10,000 per Share (the "Purchase  Price") and for other  consideration as set
forth in this Agreement.

      2.2 The  Purchase  Price shall be paid by official  bank check  payable to
MDLI Healthcare, Inc. on the date set for each purchase; provided, however, that
there, shall be a grace period for the closing and payment of the Purchase Price
of five (5) business days from the date set for the closing.

      3. Closings.

      3.1 CHNLI shall purchase the Shares from MDLI at four closings as follows:

            (a) On October  _,  1995,  CHNLI  shall  purchase  100 Shares for an
aggregate Purchase Price of $1,000,000 (the "Initial Closing");

            (b) On the later to occur of (i)  January 1, 1996,  or (ii) the date
upon which the Department has granted MDLI a license to operate as an HMO, CHNLI
shall purchase 100 shares for an aggregate Purchase Price of $1,000,000;

            (c) On July 1, 1996, CHNLI shall purchase 50 Shares for an aggregate
Purchase Price of $500,000;

            (d) On  January  1,  1997,  CHNLI  shall  purchase  50 Shares for an
aggregate   Purchase   Price  of  $500,000   (closings  (b)  through  (d)  being
individually  a  "Subsequent   Closing,"  and   collectively   the   "Subsequent
Closings").

      3.2 The  Initial  Closing  will take  place at 10:00 AM local  time at the
offices of MDLI, and each  Subsequent  Closing will take place at 10:00 AM local
time at the offices of MDLI.

      3.3 If,  at any time  subsequent  to the  Initial  Closing  and prior to a
Subsequent Closing, (i) MDLI is required by the New York Department of Insurance
to increase its reserve funds, or (ii) MDLI faces a shortage of working capital,
then MDLI may accelerate  the date of any or all  Subsequent  Closings by giving
written  notice (the  "Acceleration  Notice") to CHNLI at least 90 days prior to
the  date to  which  the  Subsequent  Closing  or  Subsequent  Closings  will be
accelerated.  The  Acceleration  Notice shall  indicate the amount of additional
reserve funds or working capital  required,  whether such  acceleration  results
from a requirement to increase

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MDLI's  reserves or a shortage of working  capital,  the  Subsequent  Closing or
Subsequent  Closings  to be  accelerated,  and the date to which any  Subsequent
Closing shall be accelerated.

      4. Conditions.

      4.1 The  obligation of CHNLI to purchase and pay for the Shares is subject
to  the  satisfaction  on  or  before  the  Initial  Closing  of  the  following
condition's (any of which may be waived by CHNLI in its sole discretion):

            (a) each of the  representations  and  warranties  of MDLI and LIPHC
shall be true and correct in all material respects as of the date of the Initial
Closing as though made as of such time and MDLI and LIPHC  shall have  performed
in all material  respects each and every  covenant  contained in this  Agreement
required to be performed by them at the time of the closing, and MDLI shall have
delivered to CHNLI a certificate signed by an appropriate officer of MDLI in the
form attached hereto as Exhibit 4.1(a);

            (b) the  Certificate of Amendment shall have been duly authorized by
all necessary  corporate  action of MDLI and fixed by the Department of State of
the  State of New York and,  except as  consented  to by CHNLI in  writing,  the
Certificate  of  Incorporation  of MDLI shall not  otherwise  have been amended,
modified or supplemented in any respect;

            (c) the  Amended  By-laws  shall  have been duly  authorized  by all
necessary  corporate  action of MDLI and,  except  as  consented  to by CHNLI in
writing, shall not have been amended, modified or supplemented in any respect;

            (d) the Shareholders Agreement shall have been executed by LIPHC and
MDLI and delivered to CHNLI;

            (e) CHNLI  shall have  received  from  counsel to LIPHC an  opinion,
dated the date of the closing,  substantially  in the form of Exhibit  4.1(e) to
this Agreement; and

            (f) all corporate and other  proceedings  taken by LIPHC and MDLI in
connection with the transactions  contemplated hereby and all documents incident
thereto shall be reasonably  satisfactory in form and substance to CHNLI and its
counsel, and CHNLI shall have received all such certified or other copies of all
such documents as CHNLI shall reasonably have requested.

      4.2 The  obligation  of MDLI to  issue  and sell  the  Shares  to CHNLI is
subject to the  satisfaction  on or before the Initial  Closing of the following
conditions  (any of  which  may be  waived  by  MDLI  or  LIPHC  in  their  sole
discretion):

            (a) each of the representations and warranties of CHNLI made in this
Agreement  shall be true and correct in all material  respects as of the date of
the  Initial  Closing  as though  made as of such  time,  and CHNLI  shall  have
performed in all material  respects  each and every  covenant  contained in this
Agreement  required to be performed by CHNLI at the time of the Initial Closing,
and  CHNLI  shall  have  delivered  to MDLI and  LIPHC a  certificate  signed by
appropriate officer of CHNLI in the form attached hereto as Exhibit 4.2(a);

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            (b) The Shareholders Agreement shall have been executed by CHNLI and
delivered to LIPHC and MDLI;

            (c) MDLI  and  LIPHC  shall  have  received  from  counsel  to CHNLI
opinions,  dated the date of the Initial  Closing,  substantially in the form of
Exhibit 4.2(c) to this Agreement; and,

            (d) all corporate and other proceedings taken by CHNLI in connection
with the  transactions  contemplated  hereby and all documents  incident thereto
shall be  reasonably  satisfactory  in form and  substance to MDLI and LIPHC and
their  counsel,  and MDLI and LIPHC shall have  received  all such  certified or
other  copies of all such  documents  as MDLI and LIPHC  shall  have  reasonably
requested.

      5. Representations and Warranties of MDLI to CHNLI.

      MDLI hereby represents and warrants to CHNLI as follows:

      5.1 Corporate  Organization  and  Authority.  MDLI is a  corporation  duly
organized,  validly existing and in good standing under the laws of the State of
New York.  MDLI is duly qualified and in good standing as a foreign  corporation
in all  other  jurisdictions  in which  the  character  of its  business  or the
location of its properties make such qualification  necessary,  except where the
failure  to be so  qualified  would not have a  material  adverse  effect on the
condition  (financial or otherwise),  net worth or results of operations of MDLI
taken as a whole.

      5.2  Authorization  by MDLI.  All action on the part of MDLI, its officers
and directors for the authorization,  execution, delivery and performance of all
obligations  of MDLI under this  Agreement and the  Shareholders  Agreement have
been taken by MDLI, its officers  and/or  directors,  and this Agreement and the
Shareholders  Agreement,  when  executed  and  delivered,  and  assuming the due
execution and delivery hereof by CHNLI and LIPHC, shall constitute legally valid
and binding  obligations of MDLI,  enforceable  against MDLI in accordance  with
their  terms,  except  as such  enforcement  may be  subject  to or  limited  by
applicable federal and state bankruptcy, insolvency, reorganization, moratorium,
fraudulent  conveyance or other laws or court decisions relating to or affecting
the rights of creditors generally, in law or in equity.

      5.3  Conflicting  Provisions.  MDLI  is not a  party  to any  contract  or
agreement  or  subject  to any  charter  or other  corporate  restriction  which
materially  and  adversely   affects  the  business,   properties  or  condition
(financial  or  other) of MDLI.  Subject  to  approval  of the  Application  for
Certification,  neither the  execution  and delivery of this  Agreement  and the
issuance of the Shares nor compliance  with the terms and  provisions  hereof or
the  Certificate  of Amendment  will  conflict with or result in a breach of the
terms,  conditions or provisions of, or result in any violation of, or give rise
to a right of termination,  cancellation or acceleration of any obligation or to
a loss of a material  benefit under, the Certificate of Incorporation or By-laws
of MDLI or (i) any  agreement  to which it is a party or by which it is bound or
(ii) any order,  judgement,  decree, statute, law, rule or regulation applicable
to MDLI or any of its assets.

      5.4 Capitalization. The authorized capital stock of MDLI consists of 9,000
shares of Common Stock, par value $.001 per share,  comprised of 6,000 shares of
Class A Common

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Stock,  par value  $.001  per  share,  of which  600 have been duly and  validly
issued,  are fully  paid and  nonassessable  and are owned  beneficially  and of
record by LIPHC,  and 3,000 shares of Class B Common Stock,  par value $.001 per
share,  of which no shares  are  currently  outstanding.  MDLI does not have any
equity  interest in or own any,  equity  securities of any  corporation or other
entity,  whether  directly or  indirectly.  Except for the Shares,  there are no
shares of capital stock or other equity  securities of MDLI  outstanding,  there
are no options,  warrants,  calls,  rights,  commitments  or  agreements  of any
character  to which MDLI is a party or by which it is bound  obligating  MDLI to
issue,  deliver or sell,  or cause to be issued,  delivered or sold,  additional
shares of capital  stock or obligating  MDLI to grant,  extend or enter into any
such option, warrant, call, right, commitment or agreement.

      5.5 Assets of MDLI on the Initial  Closing  Date.  On the Initial  Closing
date, MDLI shall have received  $6,000,000 in payment for the 600 Class A shares
of MDLI common stock issued to LIPHC.  On the Initial  Closing date,  except for
this  Agreement,  and that certain  Management  Services  Agreement by and among
NextStage  Healthcare  Management,  Inc., MDLI, LIPHC and CHNLI (the "Management
Agreement"),  MDLI  shall  not  have  any  material  commitments,   obligations,
liabilities or debts.

      5.6 Status of Shares. The Shares, when sold and delivered by MDLI pursuant
to this Agreement will be duly authorized by MDLI,  validly  issued,  fully paid
and nonassessable.

      5.7  Litigation;   Compliance   with  Law.  There  is  no  suit,   action,
investigation or proceeding  pending,  or, to the knowledge of MDLI,  threatened
against MDLI or its officers or directors  which  questions the validity of this
Agreement,  the  Shareholders  Agreement,  the  Certificate  of Amendment or the
Shares or any action to be taken  hereto or thereto.  There is no suit,  action,
investigation  or proceeding  pending or, to the  knowledge of MDLI,  threatened
against MDLI or any of its directors or officers which, if adversely determined,
would have, nor is there any judgment, decree, injunction,  rule or order of any
governmental  entity  or  arbitrator  outstanding  against  MDLI  or  any of its
officers or directors having,  or insofar as reasonably can be foreseen,  in the
future would have, a material  adverse  effect on the  business,  properties  or
condition (financial or other) of MDLI.

      5.8 Actions Prior to the Initial  Closing.  Except as contemplated by this
Agreement,  and in preparation  of the  Application  for  Authority,  including,
without  limitation the  negotiation  and approval of the Management  Agreement,
MDLI has not taken any action or carried on any  business  prior to the  initial
Closing.

      5.9 No Brokers or Finders.  MDLI has not retained any  investment  banker,
broker  or finder  in  connection  with the  transactions  contemplated  by this
Agreement, and no investment banker, broker or finder is owed a fee by MDLI as a
result of the transactions contemplated by this Agreement.

      6. Representations and Warranties of LIPHC to CHNLI.

      LIPHC hereby represents and warrants to CHNLI as follows;

      6.1 Corporate  Organization  and  Authority.  LIPHC is a corporation  duly
organized, validly existing, authorized to exercise all of its corporate powers,
rights and

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privileges,  and in good standing  under the laws of the State of New York,  and
has full corporate  power and authority to own and operate its properties and to
carry on its business as now conducted and as proposed to be conducted. LIPHC is
duly  qualified  and in good  standing  as a  foreign  corporation  in all other
jurisdictions  in which the  character  of its  business or the  location of its
properties make such qualification necessary,  except where the failure to be so
qualified would not have a material  adverse effect on the condition  (financial
or otherwise), net worth or results of operations of LIPHC taken as a whole.

      6.2  Authorization by LIPHC. All action on the part of LIPHC, its officers
and directors for the authorization,  execution, delivery and performance of all
obligations  of LIPHC under this Agreement and the  Shareholders  Agreement have
been taken by LIPHC, its officers and/or  directors,  and this Agreement and the
Shareholders  Agreement,  when  executed  and  delivered,  and  assuming the due
execution and delivery hereof by CHNLI and MDLI, shall constitute  legally valid
and binding  obligations of LIPHC,  enforceable against LIPHC in accordance with
their  terms,  except  as such  enforcement  may be  subject  to or  limited  by
applicable federal and state bankruptcy, insolvency, reorganization, moratorium,
fraudulent  conveyance or other laws or court decisions relating to or affecting
the rights of creditors generally, in law or in equity.

      6.3  Litigation;   Compliance   with  Law.  There  is  no  suit,   action,
investigation or proceeding pending,  or, to the knowledge of LIPHC,  threatened
against LIPHC or its officers or directors  which questions the validity of this
Agreement  or the  Shareholders  Agreement  or any action to be taken  hereto or
thereto.  There is no suit,  action,  investigation or proceeding pending or, to
the  knowledge of LIPHC,  threatened  against  LIPHC or any of its  directors or
officers which, if adversely determined,  would have, nor is there any judgment,
decree,  injunction,  rule or order of any  governmental  entity  or  arbitrator
outstanding against LIPHC or any of its officers or directors having, or insofar
as  reasonably  can be foreseen,  in the future  would have, a material  adverse
effect on the business, properties or condition (financial or other) of LIPHC.

      6.4 No Brokers or Finders.  LIPHC has not retained any investment  banker,
broker  or finder  in  connection  with the  transactions  contemplated  by this
Agreement,  and no investment banker, broker or finder is owed a fee by LIPHC as
a result of the transactions contemplated by this Agreement.

      6.5  Investment  in MDLI.  On or prior to the Initial  Closing,  LIPHC has
purchased  600  shares  of  Class A Common  Stock  of MDLI  and has  contributed
$6,000,000 to the capital of MDLI in payment therefor.

      6.6 Nature of LIPHC.  LIPHC is a New York corporation  whose  shareholders
are New York State-licensed healthcare practitioners.  Shareholders in LIPHC are
not precluded by the  Certificate  of  Incorporation,  By-laws or rules of LIPHC
from  contracting  to provide  professional  services to any health  maintenance
organization,  independent  practice  association  or  facility  licensed  under
Article 28 of the New York Public Health Law.

      7. Representations and Warranties of CHNLI to LIPHC and MDLI.

      CHNLI hereby represents and warrants to LIPHC and MDLI as follows:

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      7.1  Corporate  Organization  and  Authority.  CHNLI  is a  not-for-profit
corporation duly organized, validly existing,  authorized to exercise all of its
corporate powers, rights and privileges,  and in good standing under the laws of
the State of New York,  and has full  corporate  power and  authority to own and
operate its  properties  and to carry on its  business as now  conducted  and as
proposed to be  conducted.  CHNLI is duly  qualified  and in  goodstanding  as a
foreign  corporation  in all other  jurisdictions  in which the character of its
business or the location of its properties  make such  qualification  necessary,
except  where the failure to be so qualified  would not have a material  adverse
effect on the  condition  (financial  or  otherwise),  net worth or  results  of
operations of CHNLI taken as a whole.

      7.2  Authorization.  All  action on the part of  CHNLI,  it  officers  and
trustees  for the  authorization,  execution,  delivery and  performance  of all
obligations  of CHNLI under this Agreement and the  Shareholders  Agreement have
been taken by CHNLI,  its officers and/or  trustees,  and this Agreement and the
Shareholders Agreement,  when executed and delivered,  and the due execution and
delivery  hereof by LIPHC and  MDLI,  shall  constitute  the  legally  valid and
binding  obligation of CHNLI,  enforceable  against CHNLI in accordance with its
terms,  except as such  enforcement  may be subject to or limited by  applicable
federal and state bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other laws or court decisions  relating to or affecting the rights
of creditors generally, in law or in equity.

      7.3  Investment  Representation.  The  Shares  to  be  acquired  by  CHNLI
hereunder will be acquired for investment purposes only for CHNLI's own account,
and not with a view to the  public  resale or  distribution  thereof  within the
meaning of the Securities Act of 1933, as amended (the "Securities  Act"), other
than  for  any  resale  or   distribution   conducted  in  compliance  with  the
registration  and prospectus  delivery  requirements  thereof,  and CHNLI has no
present  intention  of selling,  granting  any  participation  in, or  otherwise
disposing of the same. CHNLI  understands and acknowledges  that the offering of
the MDLI Common Stock pursuant to this  Agreement  will not be registered  under
the  Securities  Act on the grounds  that the  offering  and sale of  securities
contemplated by this Agreement are exempt from registration  pursuant to Section
3(b) or Section 4(2) of the Securities  Act, and that MDLI's  reliance upon such
exemption  is  predicated  upon  CHNLI's   representations  set  forth  in  this
Agreement.  CHNLI  (i) or  CHNLI  and its  advisors,  have  such  knowledge  and
experience in financial and business  matters as to be capable of evaluating the
merits  and risks of its  prospective  investment  in the  Shares;  (ii) has the
ability to bear the economic risks of its prospective  investment;  and (iii) is
able, without materially impairing its financial  condition,  to hold the Shares
for an indefinite period of time.

      7.4 No Brokers or Finders.  CHNLI has not retained any investment  banker,
broker  or finder  in  connection  with the  transactions  contemplated  by this
Agreement,  and no investment banker, broker or finder is owed a fee by CHNLI as
a result of the transactions contemplated by this Agreement.

      8. Covenants.  Except as otherwise provided in Section 9 hereof,  MDLI and
LIPHC,  on the one hand, and CHNLI,  on the other hand,  hereby  covenant to and
agree with one or another as follows:

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      8.1 MDLI Board and Committee Representation.

            (a) As soon as practicable, but in any event not later than the date
when MDLI is licensed as an HMO,  LIPHC shall cause MDLI to establish a Board of
Directors consisting of eighteen (18) members,  comprised of the following:  (i)
ten (10) members  elected by the holders of the Class A Common Stock (the "Class
A  Directors");  (ii) four (4)  members  elected  by the  holders of the Class B
Common Stock (the "Class B  Directors");  and (iii) four (4) members  elected by
the holders of both the Class A Common Stock and the Class B Common  Stock,  all
of whom,  within one year after the date MDLI is  licensed  as an HMO,  shall be
representatives of enrollees of the health maintenance  organization operated by
the Company (each, an "Enrollee Representative," and collectively, the "Enrollee
Representatives").

            (b) The MDLI board of directors, by resolution adopted by a majority
of the entire board,  shall designate from among its members a Finance Committee
which shall be  comprised  of three (3) Class B Directors  and three (3) Class A
Directors (each of whom shall be a physician),  a Hospital  Selection  Committee
which shall be  comprised  of three (3) Class B Directors  and three (3) Class A
Directors (each of whom shall be a physician),  and a Medical Delivery Committee
comprised of four (4) Class B Directors,  and ten (10) Class A Directors,  (four
(4) of whom  shall  be  Primary  Care  Physicians,  four  (4) of whom  shall  be
Specialty Care Physicians, one (1) of whom shall be a Dental Healthcare Provider
and one (1) of whom shall be a Behavioral Healthcare Provider).

      8.2 Adoption of  Certificate  of  Amendment  and Amended  By-laws.  To the
extent  permitted by the Department in connection  with the licensing of MDLI as
an HMO,  prior to the  Initial  Closing,  MDLI shall  cause the  Certificate  of
Amendment to be filed by the  Secretary  of State of the State of New York,  and
the Amended  By-laws to be adopted and  maintained  as the  official  By-laws of
MDLI, until such documents are amended in accordance with their terms.

      8.3 Application for Authority. MDLI and LIPHC shall use their best efforts
to cause the Department to approve the Application  for Authority.  CHNLI agrees
to use it best  efforts  to  assist  MDLI  and  LIPHC,  and to cause  the  CHNLI
Hospitals to assist MDLI and CHNLI in the efforts made by MDLI and LIPHC to have
the Application for Authority approved by the Department.

      8.4 Development and Maintenance of Hospital Network.

            (a) The  parties  agree to seek and to use  their  best  efforts  to
obtain Department  approval for an independent  practice  association formed by,
affiliated  with, or designated by CHNLI (the  "Hospital  IPA"),  which shall be
responsible for contracting with hospital  providers to provide services to MDLI
members within the Service Area, as outlined  below,  subject to compliance with
all applicable laws. In the event that such Hospital IPA is not approved,  CHNLI
shall be responsible for developing the network of hospitals which will contract
with MDLI, according to the principles set forth below.

            (b)  CHNLI or, if  approved,  the  Hospital  IPA shall  develop  the
hospital  network  based  upon  assessment  of the  need  to  provide  the  most
marketable  array  of   geographically-accessible   in-patient  and  out-patient
services  to the MDLI member  population.

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CHNLI  further  agrees that it or, if  approved,  the  Hospital IPA will seek to
develop the  hospital  network  from  hospitals in the Service Area that provide
MDLI  members  convenient  geographic  access to necessary  services  (including
specialized  services) and that maintain  affiliations  with MDLI  participating
healthcare   providers.   In  furtherance  of  these  objectives,   the  parties
contemplate  that CHNLI or, if approved,  the Hospital IPA shall seek to develop
the hospital network from at least the following hospitals: the CHNLI Hospitals,
Long Island Jewish Medical Center,  North Shore University  Hospital,  Glen Cove
Community Hospital,  Central General Hospital,  Huntington Hospital,  St. John's
Hospital,  Mather, Central Suffolk/Eastern Long  Island/Southampton,  Brookhaven
Hospital  and the  University  Hospital at Stony Brook (for  tertiary  services,
only). It is further  contemplated and agreed by the parties hereto that certain
specific  additional services shall be obtained from other hospitals pursuant to
contractual  arrangements  with such hospitals for these specific  services.  If
approved,  the Hospital IPA shall,  in its  discretion  and subject to the above
criteria,  propose to MDLI the network of hospitals which will contract with the
Hospital  IPA  as  participating  providers,   subject  to  MDLI's  approval  or
disapproval  of such  network;  provided  that  MDLI  shall  not  add or  delete
individual hospitals as providers contracting with the Hospital IPA, without the
concurrence  of CHNLI and the Hospital IPA. If the Hospital IPA is not approved,
CHNLI shall,  in its  discretion and subject to the above  criteria,  propose to
MDLI the network of hospitals  which will  contract  with MDLI as  participating
providers,  subject to MDLI's approval or disapproval of such network;  provided
that MDLI shall not add or delete individual hospitals as providers  contracting
with it without the concurrence of CHNLI. If the Hospital IPA is approved,  MDLI
shall negotiate the rates to be paid to participating hospitals, subject to such
guidelines as may be contained in the risk-sharing  arrangement between MDLI and
the Hospital IPA, and compliance with all applicable laws.

            (c) The parties  hereto  acknowledge  that Good  Samaritan  Hospital
Medical  Center,  which is one of the CHNLI  Hospitals,  is a party to a Consent
Decree/Final  Judgment  with the U.S.  Department  of Justice in U.S. v. Classic
Care Network Inc.,  and that  pursuant to that Final  Judgment,  Good  Samaritan
Hospital Medical Center is required to give notice of certain  activities to the
Justice  Department.  The parties  acknowledge  that the Justice  Department may
review the MDLI hospital  network and  relationships  with respect to compliance
with the antitrust laws and may make  recommendations  with respect thereto, and
the parties agree to comply with any such  recommendations.  The parties  hereto
further  acknowledge  that the Department may, from time to time,  review MDLI's
hospital network, and make recommendations thereto, and the parties hereto agree
to comply with any Department requirements.

      8.5 Risk Sharing Arrangement.

            (a) MDLI  shall,  pursuant  to a budget  duly  adopted by its Board,
allocate  the  premium  dollars   received  from  Members  between  amounts  for
administrative  expenses  and reserves on the one hand and amounts to be used to
pay for all types of medical  expenses  on the other hand.  Of the total  amount
MDLI allocates to pay for medical  expenses each year, MDLI shall allocate funds
("Percentage of Medical Expense") between a Hospital Pool, a Physician Pool, and
a Carve-Out Pool in accordance with Schedule 8.5 attached  hereto.  MDLI further
agrees  to  allocate  the  Hospital  Pool  between  two  sub-pools,  one for all
in-patient  stays  attributable to psychiatric,  alcohol and/or  substance abuse
stays  ("Behavioral  Health  Hospital  Pool") and one for all other  in-patient,
emergency room,  ambulatory  surgery,  and home health

                                       9
<PAGE>

stays  ("Med-Surg  Hospital  Pool") in accordance with Schedule 8.5. MDLI agrees
that the Percentage of Medical Expense and the Utilization  Targets set forth in
Schedule 8.5 with respect to the Hospital Pool and each of its  sub-pools  shall
be the  minimum  amount it shall  allocate to each of these  pools,  and that it
shall fund these pools, at a minimum, according to these amounts.

            (b) The Hospital  IPA, if approved,  shall be entitled to 1/3 of any
surplus  in each  of the  Hospital  Sub-pools  (i.e.,  in  each of the  Med-Surg
Hospital Pool and the Behavioral  Health  Hospital  Pool).  The Hospital IPA, if
approved,  shall be responsible  for 1/3 of any deficit in excess of 110% of the
total  deficit in the combined  Hospital  Pool (i.e.  combining the two Hospital
Sub-pools  and  calculating  any  deficit  in the  combined  Sub-pools).  If the
Hospital  IPA is not  approved,  each  CHNLI  Hospital  may  elect,  in its sole
discretion,  to enter into a  risk-sharing  arrangement  with MDLI in which such
CHNLI  Hospital would bear 1/3 of the risk of any surplus and 1/3 of the risk of
any deficit in excess of 110% of the total deficit in the Combined Hospital Pool
in its LDU,  and,  for any LDU in which a CHNLI  Hospital has not agreed to bear
risk,  MDLI shall  bear the same  proportion  of risk of any  surplus or deficit
which the Hospital IPA, if approved, would have borne.

            (c) The  parties  agree  that  LIPHC or a  DOH-approved  independent
practice  association  formed by LIPHC or the physicians who sign  participating
provider agreements with a DOH-approved  independent practice association formed
by LIPHC shall bear the  remainder  of the risk of any deficit or surplus in the
Hospital  Pool in  accordance  with the  terms  of  Schedule  8.5 as more  fully
explained below:

                  (i) With respect to the  Med-Surg  Hospital  Pool,  MDLI shall
divide the Service  Area into a series of local  delivery  units (each such unit
within the Service Area, an "LDU").  Each LDU will be its own economic unit, and
the method for funding the Med-Surg  Hospital  Pool in each LDU shall be uniform
and shall be in accordance with Schedule 8.5. MDLI participating physicians and'
other   participating   practitioners   who  participate  with  Island  Practice
Association,  I.P.A.,  Inc.  ("Island  IPA")  will  each  select  an LDU  (which
selection may be based upon  traditional  referral  patterns,  as well as office
location). The Island IPA participating practitioners who have selected the same
LDU and have entered into  participating  provider  agreement  agreeing to share
risks  within their LDU shall be known as "LDU  Physicians,"  and shall agree to
share risk within  their LDU as set forth in Schedule  8.5.  MDLI and LIPHC each
agree that  either MDLI or Island IPA shall  enter into  participating  provider
contracts with each LDU Physician which will obligate each such physician to the
risk-sharing  arrangement  set forth in this Section 8.5 and which shall entitle
MDLI or Island IPA to deduct from any funds owed or to be paid to such physician
for rendering professional services the amount of any deficit to be allocated to
such physician pursuant to this section. The LDU Physicians and Island IPA shall
be responsible  for all deficits  experienced by the LDU  Physician's LDU in the
Med-Surg  Hospital Pool,  except as set forth in Section  8.5(b).  Downside risk
will be minimized by MDLI being  responsible  for in-patient  costs in excess of
$50,000 for each patient whose annual in-patient hospital costs are in excess of
$50,000  per  year.  The  cost of high  risk  cases  (i.e.,  organ  transplants,
extensive burns,  HIV) shall be borne by all  Nassau/Suffolk  County LDUs either
through  reinsurance  or other  stop-loss  mechanisms  funded  by MDLI.  The LDU
Physicians  within each LDU shall be entitled to 2/3 of any surplus generated in
the Med-Surg Hospital Pool within their LDU.

                                       10
<PAGE>

                  (ii) With  respect to the  Behavioral  Health  Hospital  Pool,
certain MDLI participating physicians and other participating  practitioners who
participate with the Island Behavioral Health Association I.P.A.  ("IBHA") shall
be responsible  for all deficits  experienced by the Behavioral  Health Hospital
Pool,  except  as set  forth  above in  Section  8.5(b).  Downside  risk will be
minimized by MDLI being  responsible for in-patient  behavioral  health hospital
costs in excess of $50,000 for each patient whose annual  in-patient  behavioral
health  hospital  costs are in excess of $50,000  per year.  MDLI and LIPHC each
agree that either MDLI or IBHA shall enter into participating provider contracts
with each physician which will obligate each such physician to the  risk-sharing
arrangement set forth in this Section 8.5 and which shall entitle MDLI, or IBHA,
to deduct  from any funds  owed or to be paid to such  physician  for  rendering
professional  services  the  amount  of any  deficit  to be  allocated  to  such
physician pursuant to this section. IBHA shall be entitled to 2/3 of any surplus
generated in the Behavioral Health Hospital Pool.

            (d) There  shall be no  allocation  of  surplus  or  deficit  to the
Hospital IPA, if approved,  or to a CHNLI Hospital or to MDLI from the Physician
Pool or the Carve-Out  Pool,  including no allocation of surplus or deficit from
the provision of dental or chiropractic services.

            (e) MDLI agrees to be responsible for costs in excess of $10,000 per
year for each patient  whose annual costs for services  covered by the Physician
Pool exceed $10,000 per year.

      8.6 Management Contracts.

            (a) The  parties  hereto  agree  that in the  event  any  management
services are needed by the IPA if approved,  such IPA shall contract Management,
Inc.,  a Delaware  corporation  affiliated  with LIPHC and CHNLI  ("NextStage");
provided  that such  services are provided by NextStage on terms and  conditions
that are  competitive  with other  management  services  providers.  The parties
hereto agree and acknowledge that certain terms and conditions of any management
agreement,  including,  without  limitation,  management  fees,  are governed by
regulations  promulgated  by the  Department,  and  that  the  final  terms  and
conditions of any management  agreement  shall be subject to review and comments
by the Department.

            (b) In  addition  to any  management  agreement  between  the IPA if
approved,  and  NextStage,  MDLI shall  enter into an  agreement  with LIPHC and
CHNLI.  Pursuant to the terms of this  agreement,  LIPHC and CHNLI shall perform
various specified duties and provide consulting services to MDLI in exchange for
a fee equal to one percent  (1%) of MDLI  premium  revenues,  once a  break-even
point has been  achieved  by MDLI.  The fee  payable by MSLI shall be  allocated
between LIPHC and CHNLI at a ratio of  two-thirds-to-one-third  (2/3:  1/3). For
purposes of the foregoing, "break-even" with respect to MDLI shall mean the date
on which MDLI has 50,000 HMO enrollees.

      8.7 Exclusivity.

            (a)  CHNLI  Hospitals  shall  be  engaged  by MDLI as the  exclusive
in-patient  provider of available  services within each CHNLI  Hospital's  local
service  area.  The parties  hereto agree and  acknowledge  that the list of the
CHNLI  Hospitals  attached  hereto as Schedule

                                       11
<PAGE>

8.7(a)  identifies all services  available at the respective CHNLI Hospitals for
which such hospital shall be the exclusive provider of such in-patient  services
for MDLI. Schedule 8.7(a)also defines each CHNLI Hospital's local service area.

            (b) In  addition  to being  the  exclusive  in-patient  provider  of
available  services,  Mercy Medical  Center and St.  Charles  Hospital  shall be
engaged by MDLI as the exclusive providers of in-patient rehabilitation services
for MDLI  members  residing  within  Nassau  and  Suffolk  Counties,  New  York,
respectively;  provided  that  the  total  reimbursement  arrangement  for  such
in-patient  rehabilitation  services  compares  favorably  with  Mercy's  or St.
Charles' total  reimbursement  arrangement for comparable  services with any HMO
certified pursuant to New York State law. This exclusive  provision is dependent
upon an  adequate  number  of  appropriately  qualified  Mercy  and St.  Charles
physicians  agreeing to be MDLI  participating  providers  who can provide  such
services.

            (c) St. Francis Hospital shall be engaged as the exclusive  contract
provider of tertiary cardiac services for Nassau and Suffolk Counties,  New York
(except where  performed by other CHNLI  Hospitals),  including  PTCA's and open
heart  surgery,  for MDLI members,  provided that St.  Francis  provides  timely
access to MDLI members and the total reimbursement arrangement for such services
compares  favorably  with  St.  Francis'  total  reimbursement  arrangement  for
comparable  services with any HMO certified pursuant to New York State law. With
respect to  electrophysiology  services  (EPS),  this exclusive  provision shall
apply only when a  participating  hospital does not perform said  service.  This
exclusive  provision  is  dependent  upon an  adequate  number of  appropriately
qualified St. Francis'  physicians  agreeing to be MDLI participating  providers
who can provide such services.

            (d) The  parties  hereto  agree  that  entities  owned,  managed  or
otherwise  affiliated  with either  CHNLI (such as  Catholic  Charities  and the
Nursing Sisters Home visiting Services) or LIPHC that provide ancillary services
shall be engaged by MDLI as the exclusive  providers of the respective  services
provided by such entities in the Service  Area,  provided that such services are
provided on as competitive terms and conditions, including price and quality, to
MDLI and its enrollees/subscribers as they could receive from other providers of
such care.

            (e) With the  exception  of St.  Francis,  CHNLI  shall use its best
efforts to cause each CHNLI Hospital to extend privileges on a full or qualified
basis,  to all MDLI  providers who seek to have  privileges at such hospital and
otherwise qualify and meet the standards  maintained by such CHNLI Hospital.  In
accordance with applicable  by-laws and medical staff  regulations of each CHNLI
Hospital,  CHNLI  Hospitals  shall use their  best  efforts  to grant  admitting
privileges  to MDLI  providers  that,  with  respect to the  coverage  and other
obligations  of the MDLI  provider,  allow for some  reduction or elimination of
such  obligations  where  the  MDLI  provider   maintains  his  or  her  primary
affiliation with another  hospital and where the number of patients  admitted by
such provider to the CHNLI hospital is not large enough to warrant requiring the
provider to satisfy all of the otherwise applicable obligations.

            (f) The parties hereto agree that Schedule  8.7(f)  attached  hereto
identifies: (1) all Article 28 and Article 36 services available from respective
CHNLI Hospitals for which such hospitals shall be the exclusive provider of such
services in the  respective  local  services area for the CHNLI Hospital and (2)
all other  out-patient  services for which CHNLI  Hospitals  shall be

                                       12
<PAGE>

either the exclusive  provider of a preferred provider in the respective service
area of such hospital, as noted in the attached Schedule 8.7(f).

            (g) For the purposes of the foregoing,  "exclusive  provider"  shall
mean that,  for the  applicable  geographic  area or treatment  specified,  MDLI
participating  physicians  shall be  required  to refer  and/or  admit  patients
requiring  hospital-based  care to the appropriate CHNLI Hospital,  except where
the referral or the admission of the patient to another  participating  hospital
is justified by documented  market-related factors (including factors related to
the market for purchasing HMO services,  such as employer  requirements),  sound
medical judgment, or justifiable concerns for  patient-subscriber  satisfaction.
It is further agreed by the parties hereto that referral  patterns and practices
subject to these provisions shall be the subject of ongoing review by MDLI. MDLI
will  implement  a  precertification  program to  monitor  this  provision.  For
purposes  of the  foregoing,  "preferred  provider"  shall  mean that MDLI shall
contract  with each CHNLI  Hospital  to  provide  the  specified  service in its
service area,  but that MDLI may also  contract with other  providers to provide
such service.

      8.8 Future Expansion.  The parties hereto agree and acknowledge that it is
the intent of MDLI to expand its Service Area to include  other  counties in New
York  State  under the name of MDNY  Healthcare,  Inc.  (the  application  for a
certificate  of  authority  to  operate  an HMO  currently  pending  before  the
Department relates to Nassau and Suffolk Counties, only). In furtherance of this
intended  expansion,  the  parties  recognize  that there may be some  degree of
dilution  of  their  initial  equity  positions  and  the  corporate  governance
associated with such equity positions,  and agree to negotiate in good faith all
future  expansion plans and  strategies,  and to effect those  transactions,  if
necessary,  that may result in dilution  and/or other  changes in the  corporate
governance  of MDLI. It is the further  intent of the parties  hereto that LIPHC
shall be  responsible  for  establishing  the physician  and ancillary  provider
networks,  and CHNLI or an entity formed by,  affiliated  with, or designated by
CHNLI  shall  be  responsible,   if  CHNLI  or  such  entity  elects,   for  the
establishment of the hospital network, including the sale of ownership interests
in such network, if appropriate, in any expanded MDLI Service Area. In the event
CHNLI or an entity formed by,  affiliated  with, or designated by CHNLI can not,
or elects not to,  establish a hospital  network in such  expanded  Service Area
within the time  allotted  for such  establishment  by MDLI,  MDLI shall  assume
responsibility  for establishing the hospital network.  CHNLI shall use its best
efforts to assist  LIPHC and MDLI if and when a  decision  is made to expand the
Service Area of MDLI beyond Nassau and Suffolk Counties, New York.

      8.9 Other Terms and Conditions.

            (a) LIPHC shall grant to CHNLI the  opportunity to  participate  (on
terms and conditions to be agreed upon, however, in no event less favorable than
terms and  conditions  available  from an  unaffiliated  third party) in any new
venture  proposed to be entered into by LIPHC to the extent LIPHC seeks or plans
to seek equity participants who are outside investors,  and CHNLI shall grant to
LIPHC the opportunity to participate (on terms and conditions to be agreed upon,
however, in no event less favorable than terms and conditions  available from an
unaffiliated third party) in any new, non-Article 28-related venture proposed to
be  established  by  CHNLI to the  extent  CHNLI  seeks or plans to seek  equity
participants who are outside investors.

                                       13
<PAGE>

            (b) LIPHC hereby  agrees not to acquire,  establish or invest in, in
any Service Area in which CHNLI  Hospital  operates,  any facility  regulated by
Article 28 of the New York Public  Health Law or any HMO regulated by Article 44
of the New York Public  Health Law,  without  the  approval of CHNLI;  provided,
however that this  agreement  by LIPHC is not meant to preclude  any  individual
investor  in LIPHC  from  acquiring,  establishing  or  investing  in any entity
regulated  under  Article 28 or Article 44 of the New York Public  Health Law or
from contracting to provide health care services to such regulated entities.

            (c) At  CHNLI's  request,  LIPHC  shall  cause MDLI to  establish  a
private label  medicaid/indigent  and a Medicare insurance program that identify
the  Diocese  of  Rockville  Centre as the  sponsor.  In  consideration  for the
establishment  of each such  program,  MDLI  participating  physicians  shall be
offered  the  right to  participate  in each  program  at  reimbursement  levels
comparable with Medicare  reimbursement levels, with appropriate  incentives and
disincentives.  The parties  hereto  further agree that such program shall enter
into an  agreement  with each of LIPHC and CHNLI,  pursuant  to which  LIPHC and
CHNLI shall perform various specified duties and provide consulting  services to
the program in exchange for a fee equal to one percent  (1%) of program  premium
revenue.  The fee payable by the program  shall be allocated  between  LIPHC and
CHNLI at a ratio of two-thirds to one-third (2/3 1/3).

            (d) CHNLI shall cause each CHNLI  Hospital to  cooperate  fully with
LIPHC,  MDLI or any  practice  associations  with respect to  credentialing  any
physician  on staff at a CHNLI  Hospital  who has applied to be a  participating
provider in MDLI, and shall facilitate, to the extent reasonably necessary, such
credentialing  process  by  making  available  any and  all  records  and  other
information in the possession of such CHNLI Hospital  regarding such physicians.
This obligation shall be an on-going obligation of CHNLI and CHNLI Hospitals.

            (e) The Diocese of Rockville  Centre and its sponsored  hospital and
health care entities shall offer,  on terms and conditions at least as favorable
to the  employee  as other  comparable  plans  being  offered by the  Diocese of
Rockville  Centre and its  sponsored  hospital  and health care  entities,  MDLI
health insurance  through the Diocesan Health Plan ("DHP"),  where DHP is acting
in a group purchasing capacity, to all of its employees no later than the end of
the first quarter of 1996 if MDLI has been  certified to operate an HMO prior to
that date, or as soon  thereafter  as is  practicable.  In connection  with such
offering,  MDLI shall agree to  establish  a  commercial  product,  on terms and
conditions  substantially  similar  to its  other  commercial  health  insurance
policies, that identifies the DHP, as well as MDLI, as the product's sponsors.

            (f) Any other  hospital or health  care entity  invited to secure an
equity ownership interest in MDLI (through CHNLI affiliation or otherwise) shall
offer,  on terms and  conditions  at least as favorable to the employee as other
comparable  plans being  offered by such entity,  MDLI  coverage to all eligible
employees of such member-hospitals no later than the end of the first quarter of
1996, or as soon thereafter as practicable.

            (g)  MDLI  shall  not  offer  medical   services  that  are  morally
objectionable  to the Diocese of Rockville  Centre as part of its basic  benefit
plan,  but only as a rider to ensure that CHNLI  Hospitals  shall not derive any
economic  benefit from the sale of such  coverage or from the  provision of such
services.  The parties  hereto agree that all necessary  steps shall be taken to
ensure that this provision is fully effectuated.

                                       14
<PAGE>

            (h) MDLI has adopted the operating  philosophy set forth on Schedule
8.9(h) hereto as its operating philosophy, and MDLI will conduct its business in
accordance therewith.

      8.10  HMO  Network.   MDLI  shall  assure  that  primary  care  physicians
(including   obstetricians  and   gynecologists)   shall  consist  of  at  least
twenty-eight   percent  (28%)  of  its  total   physician   network   (excluding
psychiatrists  and  podiatrists)  as such  network  shall  be  submitted  to the
Department in connection with the Application for Certification.

      8.11 Indemnity by MDLI and LIPHC.  MDLI and LIPHC will  indemnify,  defend
and hold harmless CHNLI and its successors and assigns, from and against any and
all claims, judgments, damages, losses, costs and expenses (including reasonable
attorneys'  fees) arising out of relating to any of the following  matters:  (i)
the inaccuracy of any  representation or warranty  contained in Sections 5 and 6
hereof; and (ii) the breach of any covenant,  agreement or obligation of MDLI or
LIPHC contained in this Agreement.

      8.12 Indemnity by CHNLI.  CHNLI will  indemnify,  defend and hold harmless
MDLI and LIPHC and their  successors  and assigns,  from and against any and all
claims,  judgments,  damages,  losses, costs and expenses (including  reasonable
attorneys'  fees) arising out of relating to any of the following  matters:  (i)
the inaccuracy of any  representation or warranty contained in Section 7 hereof;
and (ii) the breach of any covenant,  agreement or obligation of CHNLI contained
in this Agreement.

      9.  Forfeiture.  The  parties  hereto  agree  that if CHNLI  (a)  fails to
subscribe  for and  purchase  the  appropriate  number of Shares as set forth in
Section 2 hereof, (b) fails to remit the appropriate payments in connection with
such  subscriptions as set forth in Section 3 hereof,  or (c) otherwise fails to
purchase any of the Shares pursuant to this Agreement,  then, upon such failure,
this Agreement  shall  terminate and all of the covenants and agreements made by
LIPHC and MDLI in Section 8 hereof shall terminate and be of no further force or
effect,  and  CHNLI's  rights as a  shareholder  of MDLI shall be limited to the
powers  ordinarily  vested in a shareholder of a New York  corporation.  Without
limiting the  foregoing,  in the event CHNLI fails,  at any time, to comply with
and perform its obligations  under Sections 2 and/or 3 hereof,  CHNLI shall: (a)
not be  entitled  to nominate  the board  members or have such  members or other
representatives  participate  in board or  advisory  committees  pursuant to the
Shareholders Agreement; (b) not be entitled to enforce or otherwise exercise any
of  the  supermajority   voting  rights  accorded  CHNLI  in  the  Amendment  to
Certificate or Amended By-laws;  (c) not be entitled to continue the development
and  maintenance  of the hospital  network  servicing MDLI members in Nassau and
Suffolk  Counties,  New York, or in any expanded  service  area,  except for the
maintenance of any hospital network  then-existing within such areas; (d) not be
entitled to enforce the provisions of Section 8.5 of this Agreement;  (e) not be
retained by MDLI for the provision of any  management  services  pursuant to the
agreement  referenced in Section 8.6(b),  and such  agreement,  at least as such
relates to CHNLI, shall be terminated immediately; (f) not be granted any of the
rights to exclusivity provided by Section 8.7 hereof; and (g) not be entitled to
participate in any future  expansions of MDLI as provided by Section 8.8 hereof.
CHNLI  agrees  to take  all  actions  necessary  or  advisable,  in the sole and
complete  discretion of LIPHC or MDLI, to effectuate the foregoing  termination,
including the due execution and delivery of any and all  documents,  instruments
or certificates, and voting any shares of Common Stock held by CHNLI at the time

                                       15
<PAGE>

in favor of any and all matters relating to the forfeiture of any and all rights
vested in CHNLI arising out of the covenants and other  agreements made by LIPHC
in Section 8 hereof.

      10. Miscellaneous.

      10.1 Entire Agreement;  Successors and Assigns. This Agreement constitutes
the entire  agreement  between the parties  with  respect to the subject  matter
hereof,  and any previous or contemporaneous  agreement,  including all prior or
contemporaneous  correspondence and negotiations,  between MDLI, LIPHC and CHNLI
regarding the subject matter of this Agreement are superseded by this Agreement.
Subject to the exceptions specified in this Agreement,  the terms and conditions
of  this  Agreement  will  inure  to the  benefit  of and be  binding  upon  the
respective successors and permitted assigns of the parties hereto.

      10.2 Survival of Representations  and Warranties.  All representations and
warranties  and  agreements  made  by the  parties  in  this  Agreement  and all
statements  contained  in  any  certificate  or  document  delivered  at  or  in
connection  with the Initial Closing shall survive the execution and delivery of
this Agreement or such  certificate or other document,  the sale and purchase of
the Shares and any disposition thereof.

      10.3 Expenses.  LIPHC and CHNLI will each bear their  respective legal and
other  expenses  in  connection  with  the  transactions  contemplated  by  this
Agreement;  provided,  that in the event the  purchase of the MDLI Common  Stock
pursuant hereto does not occur for any reason, LIPHC shall be entitled to retain
that amount of the One Hundred Fifty Thousand Dollar ($150,000) deposit given by
CHNLI  to  LIPHC  in  connection  with  the  actions  contemplated  hereby  (the
"Deposit")  equal to fifty  percent (50%) of the legal fees incurred by LIPHC in
connection with the transactions  contemplated  hereby;  and provided,  further,
that in no respect is the  foregoing  intended to be or intended to be construed
as  liquidated  or  other  agreed-upon  damages  for the  non-occurrence  of the
purchase  by CHNLI of MDLI  Common  Stock  contemplated  hereby,  but rather the
foregoing is intended  only as an  agreement  between the parties to share legal
expenses  incurred in  connection  herewith in the event CHNLI does not purchase
the Shares.

      10.4 Department  Review.  The parties hereto further  acknowledge that the
transactions  contemplated hereunder are subject to review and approval, in some
instances  by certain  regulatory  agencies  of New York  State,  including  the
Department,  and agree that, to the extent required by such regulatory agencies,
the parties  hereto  shall use their best efforts to  structure  and  effectuate
transactions  that reflect the agreement of the parties  contained herein to the
extent permissible in light of such requirements; provided, however, that in the
event the  transaction  contemplated  by the parties hereby cannot be reasonably
consummated as a result of such requirements, and LIPHC shall return the Deposit
less an amount equal to fifty  percent (50%) of the legal fees incurred by LIPHC
in connection with the transaction  contemplated hereby by and between LIPHC and
CHNLI.

      10.5  Governing  Law.  This  Agreement and the  transactions  contemplated
hereby  shall be governed by and  construed in  accordance  with the laws of the
State of New York, without regard to the principles of conflicts of laws.

                                       16
<PAGE>

      10.6 Headings.  The headings and captions  contained in this Agreement are
for convenience only and will not be themselves  determine the interpretation of
this Agreement.

      10.7 Notices.  Any notice required or permitted hereunder will be given in
writing  and  will  be  conclusively  deemed  effectively  given  upon  personal
delivery,  or three  (3) days  after  deposit  in the  United  States  Mail,  by
registered or certified  mail,  postage  prepaid,  addressed to the  appropriate
party at its respective  address as shown in the preamble to this Agreement,  or
to such other  address as MDLI,  LIPHC or CHNLI may  designate by ten(10)  days'
written prior notice to the other party hereto.

      10.8  Amendment  of  Agreement.  Any  provision of this  Agreement  may be
amended only by a written instrument signed by the parties hereto.

      10.9 Waiver.  No waiver of any kind under this  Agreement  shall be deemed
effective  unless  contained in a writing  signed by the party charged with such
waiver, and no waiver of any right arising from any breach or failure to perform
will be deemed to be a waiver or authorization of any other breach or failure to
perform or of any other rights arising under this Agreement.

      10.10 Invalid or Void  Provisions.  If any provision of this  Agreement is
deemed invalid,  illegal,  or unenforceable in any jurisdiction,  such provision
will be deemed  amended to the extent  necessary to conform to applicable law so
as to be valid,  legal and enforceable in such  jurisdiction,  and the validity,
legality and  enforceability  of such provision will not be affected or impaired
thereby in any other  jurisdiction;  if such provision cannot be amended without
altering  materially  the intention of the parties,  it will be stricken and the
remainder of this Agreement will be in full force and effect.

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

                                       17
<PAGE>

      IN WITNESS  WHEREOF,  the  undersigned  have executed and  delivered  this
Agreement as of the day and year first abovewritten.

CATHOLIC HEALTHCARE NETWORK               LONG ISLAND PHYSICIAN
OF LONG ISLAND, INC.                      HOLDINGS CORPORATION

By:    /S/ Rev. Msgr. Alan J. Placa       By:    /S/ David J. Weissberg, M.D.
       -------------------------------           -------------------------------
Name:  Rev. Msgr. Alan J. Placa           Name:  David J. Weissberg, M.D.
Title: Board Chair                        Title: President

MDLI HEALTHCARE, INC.

By:    /S/ Salvatore Caravella, M.D.
       -------------------------------
Name:  Salvatore Caravella, M.D.
Title: President

Exhibits:
  1(a)          Amended By-laws of MDLI
  1(b)          Certificate of Amendment of Certificate of Incorporation of MDLI
  1(c)          Shareholders Agreement among LIPHC, CHNLI and MDLI
  4.1(a)(i)     MDLI Officer's Certificate
  4.1(a)(ii)    LIPHC Officer's Certificate
  4.1(e)        Opinion of Counsel to LIPHC
  4.2(a)        CHNLI Officer's Certificate
  4.2(c)        Opinion of Counsel to CHNLI

Schedules:
  8.5           Risk Sharing Arrangement
  8.7(a)        Services available at CHNLI Hospitals
  8.7(f)        Out-patient services available at CHNLI Hospitals
  8.9(h)        Operating philosophyExhibit 10.7

                           SECTION 1307 LOAN AGREEMENT

      THIS AGREEMENT,  made and entered into as of the ___ day of July, 1998, by
and between LIPH, LLC, a limited liability company duly created,  organized, and
existing under and by virtue of the Laws of the State of New York and having its
principal office at One Huntington  Quadrangle,  Suite 4C01, Melville, New York,
11747  (hereinafter  referred to as  "Lender"),  and MDNY  HEALTHCARE,  INC.,  a
corporation  duly created,  organized,  and existing  under and by virtue of the
Laws of the State of New York and having its principal  office at One Huntington
Quadrangle,  Suite 4C01,  Melville,  New York 11747 (hereinafter  referred to as
"Borrower").

                              W I T N E S S E T H:

      WHEREAS,  Borrower desires to borrow the sum of $1.0 million and Lender is
willing to lend said sum to Borrower upon the terms,  provisions  and conditions
hereinafter set forth; and

      WHEREAS,  the  Insurance  Law  of the  State  of New  York,  Section  1307
(Contingent liability for borrowings) provides that a domestic insurer or health
maintenance  organization may, without pledging any of its assets,  borrow funds
pursuant  to said  Section  1307  upon the  approval  of the  Superintendent  of
Insurance of the State of New York.

      NOW  THEREFORE,  in  consideration  of the premiums and for other good and
valuable  consideration,  and intending to be legally  bound hereby,  Lender and
Borrower agree as follows:

      1. Upon approval of this Agreement by the  Superintendent  of Insurance of
the State of New York,  Pursuant to Section 1307 of the New York  Insurance Law,
Lender  agrees to lend to Borrower,  and Borrower  agrees to borrow from Lender,
the sum of ONE MILLION DOLLAWS  ($1,000,000) (THE "Loan").  Upon receipt of such
approval, Lender shall promptly disburse the full amount of the Loan to Borrower
in good and immediately available funds.

      2.  Interest  shall  accrue on the  principal  amount of the Loan at a per
annum rate equal to the Prime Rate (as  defined in this  Section 2) in effect on
the date hereof,  adjusted as

<PAGE>

of each  Interest  Payment Date (as defined  below in Section 3), until the Loan
has been  repaid  in full.  "Prime  Rate"  means the rate of  interest  publicly
announced by Citibank  N.A.,  New York, New York, or any successor to such bank,
as its prime  rate from time to time.  Notwithstanding  the  foregoing,  the per
annum  rate of  interest  on the Loan  shall at no time  exceed  that  rate then
permitted pursuant to the provisions of Section 5-501 of the General Obligations
Law of the  State of New York and as  further  defined  in  Section  14-a of the
Regulations of the Department of Banking of the State of New York, as amended.

      3. Accrued  interest on the principal  amount of the Loan shall be due and
payable to Lender on the first day of each calendar quarter, commencing with the
calendar  quarter  beginning  on October 1, 1998  (each,  an  "Interest  Payment
Date"), and the principal amount of the Loan shall be repaid to Lender in a lump
sum of July 1, 1999; provided,  however, that in no event shall any principal or
interest  payment in respect of the Loan be made except in  accordance  with the
provisions of Sections 4 and 6 hereof; and provided, further, that no default in
respect of the Loan shall have  occurred  or be deemed to have  occurred  if any
principal  or interest  payment  that would  otherwise be due and payable is not
made by reason of the provision of Sections 4 and 6 hereof.

      4. Notwithstanding anything to the contrary contained herein, repayment of
the  principal  of, and payment of accrued  interest  on, the Loan shall only be
made out of free and  divisible  surplus of the Borrower and all such amounts to
be paid or repaid will be subject to the prior approval of the Superintendent of
Insurance of the State of New York.

      5. The Loan made pursuant to this  Agreement  shall not form a part of the
Borrower's legal liabilities and shall not be a basis of any setoff,  but, until
repaid,  all statements  published or filed with the Superintendent of Insurance
of the State of New York by Borrower  shall  show,  as a footnote  thereto,  the
amount thereof then remaining unpaid.

      6. In the  event of the  liquidation  of the  Borrower,  repayment  of any
outstanding  principal balance of the Loan and payment of any accrued and unpaid
interest then due and owing shall be paid to Lender out of any assets  remaining
after the payment of all policy  obligations  and all other  liabilities  of the
Borrower but before distribution of assets to shareholders.

                                       2
<PAGE>

      7. All payments of principal  and interest  payable by Borrower in respect
of the Loan shall be made to Lender at its offices at One Huntington Quadrangle,
Suite 4C01,  Melville,  New York 11747,  or as  otherwise  directed by Lender in
writing.  All interest  payments shall be computed on the basis of a year of 365
days,  in each case for the actual  days  elapsed  (including  the first day but
excluding the last)  occurring in the period for which such interest is payable.
All  payments  in respect of the Loan shall be made in such coin or  currency of
the  United  States  as at the time of  payment  shall be legal  tender  for the
payment of public and private debts.

      8. This  Agreement,  and all of the  comments and  conditions  hereinabove
contained, shall be binding upon and inure to the benefit of Lender and Borrower
and their respective successors,  or assigns, and on request of Lender, Borrower
shall furnish to Lender such note, loan  certificate,  or other evidence of this
indebtedness, as Lender may request.

      9.  This  Agreement,  and  the  rights  and  obligations  of  the  parties
hereunder,  shall  be  construed  in  accordance  with,  and  governed  by,  the
provisions of Section 1307 of the New York Insurance Law.

                                       3
<PAGE>

      IN WITNESS  WHEREOF,  the parties  hereto have caused these premiums to be
executed by their proper corporation officers as of the day and year first above
written.

BORROWER:

ATTEST:

/s/                                    By: /s/
________________________________           ________________________________
    Secretary                                  President
                                               Board of Director MDNY

LENDER:

ATTEST:

/s/                                    By: /s/
________________________________           ________________________________
    Secretary                                  President
    Treasurer, LIPH

                                       4

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