Exhibit 10.1

        PURCHASE AND SALE AGREEMENT

BY AND BETWEEN

SAFEGUARD HEALTH ENTERPRISES, INC.
Purchaser

and

HEALTH NET, INC.
Seller

DATED AS OF APRIL 7, 2003

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Table of Contents

ARTICLE I DEFINITIONS   1
 
 
Section 1.1
 
Certain Definitions
 
1     Section 1.2   Other Definitions   4
ARTICLE II THE TRANSACTIONS
 
6
 
 
Section 2.1
 
General
 
6     Section 2.2   Purchase and Sale of the Shares   6     Section 2.3  
Assumption and Indemnity Reinsurance Agreement   6     Section 2.4   HNL
Contracts   6     Section 2.5   Non-Assignable Contracts.   6     Section 2.6  
Books and Records   7     Section 2.7   Strategic Relationship   7     Section
2.8   Transition Services Agreement   7     Section 2.9   Network Access
Agreement   7     Section 2.10   Purchase Price   7     Section 2.11  
Distribution of Excess Tangible Net Equity   7     Section 2.12   Purchase Price
Allocation   8     Section 2.13   Closing   8     Section 2.14   Adjustment to
Purchase Price.   8     Section 2.15   Deliveries at the Closing by Seller   9  
  Section 2.16   Deliveries at the Closing by Purchaser   10
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER
 
10
 
 
Section 3.1
 
Organization of Seller
 
10     Section 3.2   Authorization, Validity and Enforceability   10     Section
3.3   No Violation or Breach   11     Section 3.4   Consents and Approvals   11
    Section 3.5   Organization and Qualification of the Company   11     Section
3.6   Organization and Qualification of HNL   11     Section 3.7  
Capitalization of the Company   12     Section 3.8   Title to the Shares   12  
  Section 3.9   Options or Other Rights   12     Section 3.10   Financial
Statements.   12     Section 3.11   No Material Adverse Change   13     Section
3.12   Permits   14     Section 3.13   Compliance with Law.   14     Section
3.14   Legal Proceedings   14     Section 3.15   Contracts.   14     Section
3.16   Employees.   16     Section 3.17   Employee Benefit Matters.   16    
Section 3.18   No Brokers   17     Section 3.19   Title to and Condition of
Properties   17     Section 3.20   Real Property Leases   17     Section 3.21  
Insurance   17     Section 3.22   Environmental Matters   17     Section 3.23  
Software   17     Section 3.24   Transactions With Affiliates   17     Section
3.25   Improper Payments   17              

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ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER
 
18
 
 
Section 4.1
 
Organization of Purchaser
 
18     Section 4.2   Authorization, Validity and Enforceability   18     Section
4.3   No Violation or Breach   18     Section 4.4   Consents and Approvals   18
    Section 4.5   Legal Proceedings   19     Section 4.6   Certain Governmental
Consents   19     Section 4.7   Investment Representation   19     Section 4.8  
No Brokers   19     Section 4.9   Investigation by Purchaser   19
ARTICLE V COVENANTS OF PURCHASER AND SELLER
 
20
 
 
Section 5.1
 
Conduct of Business
 
20     Section 5.2   Consents and Approvals.   21     Section 5.3   Cooperation
and Further Assurances   22     Section 5.4   Access to Information   22    
Section 5.5   Notice of Litigation and Requests.   22     Section 5.6   Notice
of Changes and Defaults   22     Section 5.7   Confidentiality.   23     Section
5.8   Publicity   23     Section 5.9   Distribution of Excess Tangible Net
Equity   24     Section 5.10   Transfer of HNL Contracts   24     Section 5.11  
Reinsurance Agreement   24     Section 5.12   Strategic Relationship Agreement  
24     Section 5.13   Transition Service Agreement   24     Section 5.14  
Network Access Agreement   24     Section 5.15   Termination of Contracts   24  
  Section 5.16   Employment Matters; Severance.   24     Section 5.17   Name
Change   25     Section 5.18   Sale of MediCal and Healthy Families Business  
25     Section 5.19   Interaffiliate Accounts   25     Section 5.20  
Non-Competition   26
ARTICLE VI CONDITIONS TO PURCHASER'S OBLIGATIONS
 
26
 
 
Section 6.1
 
Representations, Warranties and Covenants
 
26     Section 6.2   No Proceeding or Litigation   26     Section 6.3  
Corporate Action   26     Section 6.4   Consents and Approvals   27     Section
6.5   Resignation of Officers and Directors   27     Section 6.6   Transfer of
HNL Contracts   27     Section 6.7   Strategic Relationship Agreement   27    
Section 6.8   Transfer of Books and Records   27     Section 6.9   Reinsurance
Agreement   27     Section 6.10   Network Access Agreement   27     Section 6.11
  Transition Services Agreement.   27
ARTICLE VII CONDITIONS TO SELLER'S OBLIGATIONS
 
27
 
 
Section 7.1
 
Representations, Warranties and Covenants
 
27     Section 7.2   No Proceeding or Litigation   27     Section 7.3  
Corporate Action   28              

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    Section 7.4   Consents and Approvals   28     Section 7.5   Purchase Price  
28     Section 7.6   Strategic Relationship Agreement   28     Section 7.7  
Reinsurance Agreement   28     Section 7.8   Network Access Agreement   28    
Section 7.9   Transition Services Agreement.   28
ARTICLE VIII SURVIVAL, INDEMNIFICATION AND ARBITRATION
 
28
 
 
Section 8.1
 
Survival
 
28     Section 8.2   Indemnification   28     Section 8.3   Treatment of
Indemnity Payments.   29     Section 8.4   Mitigation of Loss   29     Section
8.5   Subrogation   29     Section 8.6   Tax Indemnification   30     Section
8.7   Exclusive Remedy   30     Section 8.8   Arbitration   31
ARTICLE IX TAX MATTERS
 
31
 
 
Section 9.1
 
Seller Indemnification
 
31     Section 9.2   Purchaser and the Company Indemnification   32     Section
9.3   Preparation of Tax Returns   32     Section 9.4   Refunds or Credits   32
    Section 9.5   Section 338(h)(10) Election.   32     Section 9.6   Mutual
Cooperation   33     Section 9.7   Contests   34     Section 9.8   Survival of
Obligations   34
ARTICLE X TERMINATION
 
34
 
 
Section 10.1
 
Termination
 
34     Section 10.2   Effect of Termination   34
ARTICLE XI MISCELLANEOUS
 
35
 
 
Section 11.1
 
Notices
 
35     Section 11.2   Fees and Expenses   36     Section 11.3   Entire
Agreement; Waivers and Amendments   36     Section 11.4   Assignment; Binding
Effect   36     Section 11.5   Severability   36     Section 11.6   Force
Majeure   36     Section 11.7   Governing Law   36     Section 11.8   Headings  
36     Section 11.9   Counterparts   36     Section 11.10   No Third Party
Beneficiaries   36

SCHEDULES

EXHIBIT A REINSURANCE AGREEMENT

EXHIBIT B STRATEGIC RELATIONSHIP AGREEMENT

EXHIBIT C NETWORK ACCESS AGREEMENT

EXHIBIT D SEVERANCE PLAN

EXHIBIT E HEALTH NET SEVERANCE POLICY

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PURCHASE AND SALE AGREEMENT

        This PURCHASE AND SALE AGREEMENT is made and entered into as of April 7,
2003, among SafeGuard Health Enterprises, Inc., a Delaware corporation, or its
Designee ("Purchaser") and Health Net, Inc., a Delaware corporation ("Seller").

W I T N E S S E T H:

        WHEREAS, Seller is the beneficial and record owner of 475 shares of
common stock, $.10 par value per share (the "Shares"), of Health Net Dental,
Inc., a California specialized health care service plan (the "Company"), which
Shares constitute all of the issued and outstanding capital stock of the
Company;

        WHEREAS, the Company provides prepaid dental HMO coverage for both
commercial and government members in California and administers dental PPO and
dental indemnity products underwritten by Health Net Life Insurance Company, a
wholly-owned subsidiary of Seller ("HNL"), in California, Oregon and Arizona;

        WHEREAS, Purchaser desires to purchase the Shares from Seller, and
Seller desires to sell the Shares to Purchaser, upon the terms and subject to
the conditions set forth herein;

        WHEREAS, Purchaser desires to purchase from HNL, and HNL desires to sell
to Purchaser or its Designee, all of the California, Arizona and Oregon dental
PPO and dental indemnity insurance business underwritten and/or controlled by
HNL, including all the group and individual dental insurance policies and
certificates, dental provider agreements and agent contracts comprising the
Dental Business Assets;

        WHEREAS, Seller and Purchaser agree that those dental PPO and dental
indemnity policies and the liabilities relating thereto shall be transferred by
HNL to SafeHealth Life Insurance Company, an Affiliate of Purchaser
("SafeHealth"), through an Assumption and Indemnity Reinsurance Agreement (the
"Reinsurance Agreement");

        WHEREAS, Purchaser and Seller desire to enter into a strategic
relationship agreement whereby each party will market the products of the other
party in California, Arizona and Oregon (the "Strategic Relationship
Agreement"); and

        WHEREAS, the transactions contemplated by this Agreement, the
Reinsurance Agreement, the Strategic Relationship Agreement, the Transition
Services Agreement and the Network Access Agreement constitute the
"Transactions."

        NOW, THEREFORE, in consideration of the promises set forth above and of
the representations, warranties, covenants and agreements contained herein,
Seller and Purchaser hereby agree as follows:

ARTICLE I
DEFINITIONS

        Section 1.1    Certain Definitions.    The following terms shall, when
used in this Agreement, have the following meanings:

        "Affiliate" means, with respect to any Person, any entity that directly
or indirectly through one or more intermediaries controls, is controlled by, or
is under common control with such Person. For purposes of this definition and
the definition of "Subsidiaries" below, "control" (or "controlled", "controlled
by" and "under common control with" as the context may require) of a Person
means the possession, direct or indirect, of the power to vote fifty percent
(50%) or more of the voting securities of such Person.

        "Books and Records" means the originals or copies of all books and
records (including computer generated or stored information) in the possession
or control of HNL, the Company or the Seller and relating primarily to and
necessary for the operation by Purchaser of the Dental Business, including

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lists of dental PPO and dental indemnity insureds of HNL, claims files,
information files and data related to the dental PPO and dental indemnity dental
insurance underwritten by HNL, communications, inventory of current forms,
business records, claim forms, sales records, underwriting records, financial
records, personnel records and compliance records, but excluding (i) personnel
records relating to Employees terminated by Seller as of the Closing Date to the
extent transfer of such personnel records is limited by applicable Law, (ii)
except to the extent expressly provided herein, information constituting
proprietary information, trade secrets, or know-how of Seller, HNL or their
Affiliates, including internal management reports but excluding such Books and
Records that are required by Purchaser to operate the Dental Business, and (iii)
any records that Seller or HNL is required by any applicable Law to retain.

        "Business Day" means any day except a Saturday, Sunday or a day on which
banks located in Los Angeles, California are required or are authorized by Law
or by executive order to close.

        "Closing Balance Sheet" means that balance sheet of the Company as of
the Closing Date prepared by Seller in accordance with SAP separately setting
forth the Excess Tangible Net Equity, the other assets, properties, liabilities
and stockholders equity of the Company as of the Closing Date.

        "Code" means the Internal Revenue Code of 1986 and the Treasury
Regulations promulgated thereunder, as in effect on the date hereof.

        "Dental Business" means (i) the pre-paid dental HMO coverage for both
commercial and government members in California provided by the Company, and
(ii) the dental PPO and dental indemnity insurance policies and certificates
underwritten by HNL and providing coverage to subscribers and their dependents
in California, Arizona and Oregon.

        "Dental Business Assets" means (i) the dental PPO and dental indemnity
insurance policies and certificates underwritten by HNL in California, Arizona
and Oregon, (ii) the Books and Records and (iii) the HNL Contracts.

        "Department" means the California Department of Managed Health Care.

        "Designee" means an Affiliate or Subsidiary of Purchaser approved by
Seller.

        "Effective Date" means effective date of the Reinsurance Agreement.

        "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.

        "GAAP" means generally accepted accounting principles consistently
applied throughout the specified period and in the comparable period in the
immediately preceding year.

        "Governmental Authority" means any government or political subdivision
thereof, whether federal, state or local, or any agency, commission, department
or other instrumentality of any such government or political subdivision.

        "Knowledge of Seller" means the actual knowledge of David W. Anderson,
Roupen Berberian, Ivan N. Berger, Douglas A. King, Susan Klarner, Juanell
Hefner, Gerald Nosewicz and Christopher P. Wing.

        "Knowledge of Purchaser" means the actual knowledge of James E. Buncher,
Dennis L. Gates and Ronald I. Brendzel.

        "Law" means all applicable laws, decisions, rules, regulations,
ordinances, codes, statutes, judgements, injunctions, orders, decrees, licenses,
permits, policies, administrative interpretations and other requirements of
Governmental Authorities.

        "Liabilities" means, with respect to any Person, any direct or indirect
indebtedness, liability, claim, loss, damage, deficiency or obligation required
to be set forth or otherwise disclosed on a financial statement of such Person
under GAAP or SAP, as appropriate.

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        "Lien" means any lien, pledge, mortgage, security interest, claim,
charge, lease, easement, option, right of first refusal or other limitation on
transfer, or other encumbrance or restriction.

        "Litigation" means any action, suit, claim or administrative or
arbitration proceeding.

        "Material Contract" means any written contract, agreement, arrangement,
instrument, bond, commitment, franchise, indemnity, indenture, lease, license,
or understanding (other than the Transaction Documents) to which the Company is
subject or which is a HNL Contract that (i) obligates the Company or HNL to pay
an amount in excess of $50,000 in any twelve-month period or $100,000 in any two
year period; (ii) provides for the extension of credit to an unaffiliated third
party in an amount greater than $50,000 (other than capitation payments made in
the ordinary course of business); (iii) provides for a guaranty by the Company
or HNL of obligations of others in excess of $50,000; (iv) constitutes an
employment agreement or personal service contract not terminable on less than
sixty (60) days' notice without penalty; or (v) expressly limits, in any
material respect, the ability of the Company or HNL to engage in any line of
business, compete with any person or expand the nature or geographic scope of
its business. Notwithstanding the foregoing, the term "Material Contract(s)"
does not include (i) agreements with dentists, dental service providers and
providers of dental supplies, or purchasers of dental coverage entered into by
the Company in the ordinary course of business, unless such contract includes a
provision for a minimum payment in excess of $50,000 in any twelve-month period
or $100,000 in any two year period.

        "Person" means any individual, corporation, partnership, limited
liability company, firm, joint venture, association, joint-stock company, trust,
unincorporated association, Governmental Authority or other entity or
organization.

        "Policy Liabilities" means those liabilities of HNL reinsured and
assumed by SafeHealth pursuant to the Reinsurance Agreement and as more
specifically defined by the Reinsurance Agreement.

        "Purchaser Material Adverse Effect" means any material adverse change
in, or material adverse effect on, the business, financial condition or
operations of Purchaser and its Subsidiaries, taken as a whole; provided,
however, that the effects of changes that are generally applicable to (i) the
industries or markets in which Purchaser and its Subsidiaries operate; (ii) the
United States economy or local economy in which the Purchaser operates; or (iii)
the United States securities markets shall be excluded from the determination of
Purchaser Material Adverse Effect; and provided, further, that any adverse
effect on Purchaser and its Subsidiaries resulting from the execution of this
Agreement and the Transactions contemplated hereby shall also be excluded from
the determination of Purchaser Material Adverse Effect.

        "SAP" means statutory accounting principles prescribed or permitted by
the Department consistently applied throughout the specified period and in the
comparable period in the immediately preceding year in connection with the
preparation of the Financial Statements of the Company.

        "Seller Material Adverse Effect" means any material adverse change in,
or material adverse effect on, the business, financial conditions or operations
of the Company or the HNL Dental Business, taken as a whole; provided, however,
that the effects of changes that are generally applicable to (i) the industries
or markets in which Seller, the HNL Dental Business or Company operate; (ii) the
United States economy or local economy in which Seller, the HNL Dental Business
or the Company operate; or (iii) the United States securities markets shall be
excluded from the determination of Seller Material Adverse Effect; and provided,
further, that any adverse effect on Seller, the HNL Dental Business or the
Company resulting from the execution of this Agreement, the transactions
contemplated hereby, any facts or circumstances primarily related to Purchaser,
or changes in the business, financial conditions or operations of Seller, the
HNL Dental Business or the Company resulting from the continuation of an
existing trend shall also be excluded from the determination of Seller Material
Adverse Effect.

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        "Statutory Tangible Net Equity" means the minimum Tangible Net Equity
required of the Company by Title 28, section 1300.76 of the California Code of
Regulations.

        "Subsidiaries" means, with respect to any Person, each entity controlled
by such Person. For purposes of this definition, "controlled" has the meaning
specified in the definition of "Affiliate."

        "Tangible Net Equity" means the actual tangible net equity of the
Company calculated in accordance with Title 28, section 1300.76 of the
California Code of Regulations.

        "Tax" means any federal, state, county, local, foreign or other tax
(including, without limitation, income taxes, premium taxes, excise taxes, sales
taxes, use taxes, gross receipts taxes, franchise taxes, ad valorem taxes,
severance taxes, capital levy taxes, transfer taxes, withholding, employment and
payroll-related taxes, property taxes and import duties), and includes interest,
additions to tax assessments, fines and penalties with respect thereto.

        "Tax Returns" means any report, return, statement, or other written
information required to be supplied to a taxing authority in connection with
Taxes.

        "Transaction Documents" means this Agreement, the Assumption and
Indemnity Reinsurance Agreement, the Strategic Relationship Agreement, the
Transition Services Agreement, the Network Access Agreement, and each other
agreement and document required to be executed and delivered in connection with
this Agreement, the Assumption and Indemnity Agreement, the Strategic
Relationship Agreement, the Transition Services Agreement and the Network Access
Agreement.

        "WARN" means the Worker Adjustment and Retraining Notification Act (29
U.S.C. ! 2101 et seq.)

        Section 1.2    Other Definitions.    The following terms shall, when
used in this Agreement, have the meanings ascribed to such terms in the Sections
set forth below:

Term

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  Section

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  338 Elections   9.5 (a)
Additional States
 
5.20
 
Allocation
 
9.5
(b)
ASO
 
3.15
(g)
Balance Sheet Accountants
 
2.14
 
Closing
 
2.13
 
Closing Date
 
2.13
 
Company
 
Recitals
 
Competitor
 
5.20
 
Dispute
 
8.8
 
Employees
 
3.16
 
Employee Plans
 
3.17
 
Excess Tangible Net Equity
 
2.11
 
FHC Lease
 
5.15
 
Final Balance Sheet
 
2.14
 
Financial Statements
 
3.10
         

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HNL
 
Recitals
 
HNL Contracts
 
2.4
 
HNL Financial Information
 
3.10
(e)
Indemnifiable Loss
 
8.3
 
Indemnified Party
 
8.2
 
Indemnifying Party
 
8.2
 
Indemnitee
 
8.3
 
Indemnity Payment
 
8.3
 
JAMS
 
8.8
(a)
Multi-Business Company
 
5.20
 
Network Access Agreement
 
2.9
 
Optional Termination Date
 
10.1
 
Permit(s)
 
3.12
 
Proposed Adjustment Notice
 
2.14
 
Purchase Price
 
2.10
 
Purchaser
 
Preamble
 
Reinsurance Agreement
 
Recitals
 
Retained Employees
 
5.16
 
SafeHealth
 
Recitals
 
Securities Act
 
4.7
 
Seller
 
Preamble
 
Seller Entity
 
5.20
 
Shares
 
Recitals
 
Software
 
3.23
 
Strategic Relationship Agreement
 
Recitals
 
Survival Period
 
8.1
 
Transactions
 
Recitals
 
Transition Services Agreement
 
2.8
 

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ARTICLE II
THE TRANSACTIONS

        Section 2.1    General.    Subject to the terms, provisions and
conditions of this Agreement, on the Closing Date, Seller shall, or shall cause
the appropriate Seller Subsidiary to, (i) sell, convey, transfer, assign,
deliver or otherwise transfer to Purchaser or its Designee, and Purchaser or its
Designee shall acquire from Seller, or the appropriate Seller Subsidiary, the
Dental Business Assets and the Shares, and (ii) enter into the Transactions with
the Purchaser or its Designee. The designation of a Designee by Purchaser shall
not affect any liability of Purchaser hereunder, and except as Seller may
otherwise agree in writing, Purchaser shall be liable for all obligations of any
Designee under this Agreement and the other Transaction Documents. The material
assets and properties owned or leased by the Company are set forth in Schedule
2.1.

        Section 2.2    Purchase and Sale of the Shares.    Upon the terms and
subject to the conditions set forth in this Agreement, on the Closing Date,
Seller shall sell, transfer, assign and deliver to Purchaser, and Purchaser
shall purchase and acquire the Shares from Seller.

        Section 2.3    Assumption and Indemnity Reinsurance Agreement.    On the
Closing Date, Seller shall cause HNL and Purchaser shall cause SafeHealth to
enter into the Reinsurance Agreement attached hereto as Exhibit A, whereby
effective on the Effective Date, HNL shall cede to SafeHealth, and SafeHealth
shall reinsure and assume the Policy Liabilities.

        Section 2.4    HNL Contracts.    On the Closing Date, except as provided
in Section 2.5, Seller shall cause HNL to transfer and assign to Purchaser, or
its Designee, all of HNL's right, title and interest in its agreements with
providers of dental services and dental supplies, producers and other contracts
or agreements set forth on Schedule 2.4 which contracts represent all of the
dental provider agreements of HNL relating to the Dental Business in California,
Oregon and Arizona, and the producers as of December 31, 2002 to whom or which
HNL paid commission in connection with the sale of dental PPO or dental
indemnity insurance products (collectively, the "HNL Contracts"); and Purchaser
or its Designee shall assume the liabilities of HNL under the HNL Contracts,
provided, however, that neither Purchaser nor any Purchaser Designee shall
assume (x) any obligation to pay any amounts (whether or not due at Closing)
arising under the HNL Contracts prior to the Closing, or (y) any liability
attributable to a failure by HNL to comply with its obligations under the HNL
Contracts prior to the Closing Date. Any such assignment and transfer shall be
evidenced by an assignment and assumption agreement or such other agreement as
the parties reasonably determine is necessary or appropriate.

        Section 2.5    Non-Assignable Contracts.    

        (a)   Notwithstanding anything to the contrary in this Agreement, to the
extent that any HNL Contract would be subject to termination or restriction or
is not capable of being assigned, transferred or sublicensed without the consent
or waiver of the other party thereto or any third party (which consent or waiver
has not been obtained), or if such assignment, transfer or sublicense would
constitute a breach thereof or a violation of any Law, this Agreement and the
other Transaction Agreements shall not constitute an assignment, transfer,
sublease or sublicense thereof.

        (b)   Seller agrees to use commercially reasonable efforts prior to the
Closing to obtain consents and waivers and to attempt to eliminate any
impediments to an assignment of any HNL Contract referred to above and to obtain
any other consents and waivers necessary to assign and transfer the HNL
Contracts to Purchaser or Purchaser's Designee at the Closing.

        (c)   To the extent that any HNL Contract cannot be transferred, then
Seller and Purchaser or its Designee shall enter into such commercially
reasonable arrangements (including subcontracting if permitted) to provide to
the parties the economic (taking into account Tax costs and benefits) and

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operational equivalent, to the extent permitted, of obtaining such consent or
waivers necessary to assign and transfer the HNL Contracts.

        Section 2.6    Books and Records.    On the Closing Date, Seller shall
sell, convey, assign, deliver or otherwise transfer to Purchaser or its Designee
the Books and Records, provided that Seller may retain copies of any such Books
and Records as Seller or HNL may reasonably determine are necessary or desirable
to conduct their businesses. Nothing in this Section 2.6 shall require Seller or
HNL to transfer to Purchaser or its Designee any Books and Records that Seller
or HNL is required by any applicable Law to retain and such Books and Records
shall remain the property of Seller or HNL to the extent required by such Law.
Seller shall allow and Seller shall cause HNL to allow Purchaser or its Designee
reasonable access to, and the right at Purchaser's written request and at its
own expense to make and retain copies of, any Books and Records described in the
preceding sentence, on and after the Closing Date.

        Section 2.7    Strategic Relationship.    On the date hereof, Seller and
Purchaser or its Designee shall enter into the Strategic Relationship Agreement,
substantially in the form attached hereto as Exhibit B, effective as of the
Closing Date, pursuant to which the parties will, among other things, market and
sell the dental products of Purchaser through Seller's sales distribution
channels and Seller's medical products and ancillary products through
Purchaser's sale distribution channels.

        Section 2.8    Transition Services Agreement.    Seller and Purchaser
shall negotiate in good faith the terms of a transition service agreement (the
"Transition Service Agreement"), pursuant to which Seller or its designees shall
agree to provide or arrange for the provision of certain administrative and
support functions on or after the Closing Date, including but not limited to,
accounting and information systems support, reasonably necessary or appropriate
for the proper management and administration of the Dental Business at
commercially reasonable pricing, and Purchaser shall cause the Company or its
Designee to provide certain administrative and support functions at commercially
reasonable pricing on or after the Closing Date necessary to support Seller's
vision business.

        Section 2.9    Network Access Agreement.    On the date hereof, Seller
and Purchaser shall cause their respective Affiliates to enter into a network
access agreement substantially in the form attached hereto as Exhibit C (the
"Network Access Agreement"), effective as of the Closing Date, pursuant to which
Seller shall use its commercially reasonable efforts to provide Purchaser and
the Company continued access after the Closing to the dentists and other
ancillary providers of dental related services with a contract with HNL to
provide such services in the event such contracts by their terms cannot be
assigned by HNL to Purchaser.

        Section 2.10    Purchase Price.    As consideration for the
Transactions, Purchaser shall pay to Seller on the Closing Date, an amount equal
to (i) nine million US Dollars ($9,000,000) in cash or by wire transfer of
immediately available funds to such account as Seller shall designate at least
two (2) Business Days prior to the Closing, plus (ii) if a positive number, an
amount equal to the Excess Tangible Net Equity of the Company on the Closing
Date (the "Purchase Price"). In addition, at Closing, Seller shall deliver to
Purchaser the Closing Balance Sheet. The Purchase Price shall be subject to
adjustment as provided in Section 2.14.

        Section 2.11    Distribution of Excess Tangible Net Equity.    Prior to
Closing, Seller shall cause the Company to request from the Department
permission to reduce the Tangible Net Equity of the Company to an amount equal
to the Statutory Tangible Net Equity. The difference, if any, between the
Tangible Net Equity of the Company and the Statutory Tangible Net Equity of the
Company as of the date the Tangible Net Equity is determined shall be referred
to herein as the "Excess Tangible Net Equity." Upon approval of the Department,
Seller shall cause the Company to dividend or otherwise distribute to Seller,
that portion of the Excess Tangible Net Equity authorized by the Department.

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        Section 2.12    Purchase Price Allocation.    The parties agree that the
Purchase Price shall be allocated among the Transactions in accordance with the
allocation set forth in Schedule 2.12. The parties shall file such forms as are
necessary or appropriate with the Internal Revenue Service in accordance with
the Code reflecting such allocation. All Tax Returns filed and positions taken
with respect to the allocation of the Purchase Price by the Company and
Purchaser shall be on a basis consistent with the allocation agreed upon by the
parties in Schedule 2.12.

        Section 2.13    Closing.    Subject to the satisfaction or waiver of all
of the conditions precedent to closing set forth in Articles VI and VII hereof,
the closing of the Transactions (the "Closing") shall take place at the offices
of Health Net, Inc., 21650 Oxnard Street, Woodland Hills, California 91367 at
12:00 p.m., local time, on or before September 30, 2003, or such other time,
date or location as Purchaser and Seller may mutually agree upon (the "Closing
Date").

        Section 2.14    Adjustment to Purchase Price.    

        (a)   Not more than 180 days following the Closing Date, Purchaser shall
deliver to Seller a balance sheet of the Company as of the Closing Date (the
"Final Balance Sheet") which shall be prepared in accordance with SAP utilizing
the same methodologies and procedures used to prepare the Closing Balance Sheet.
The Final Balance Sheet shall provide a categorization of the assets and
liabilities comprising the Excess Tangible Net Equity of the Company and the
other assets and liabilities of the Company as of the Closing Date. At the same
time Purchaser delivers the Final Balance Sheet to Seller, Purchaser shall also
deliver to Seller a statement setting forth in reasonable detail the calculation
of the Excess Tangible Net Equity and the other assets and liabilities of the
Company used to prepare the Final Balance Sheet.

        (b)   Seller shall be afforded the opportunity to review the Final
Balance Sheet and shall be provided full access to the books, records and other
relevant documents containing information on which the Final Balance Sheet is
based, including but not limited to, work papers, reserve schedules and
actuarial reports, as well as access to the accountants of Purchaser responsible
for the preparation of the Final Balance Sheet. The Final Balance Sheet shall
become final and binding on the parties on the sixtieth (60th) day following the
date such Final Balance Sheet is delivered to Seller by Purchaser, unless (i)
Seller delivers to Purchaser during such sixty (60) day period a notice
identifying proposed adjustment(s) to the Final Balance Sheet and explaining the
reasons therefor (a "Proposed Adjustment Notice"), in which event such matter
shall be handled as set forth in paragraph (c) below, or (ii) Seller, in
connection with its review of the Final Balance Sheet, does not receive all
documents and materials and/or access to or cooperation from Purchaser or its
outside accountants that are reasonably requested, in which event said period
for delivering a Proposed Adjustment Notice shall be extended until the
twentieth (20th) day following the date on which Seller receives all such
documents, materials, access and cooperation. Any Dispute regarding the adequacy
of the documents and materials provided by Purchaser to Seller shall be resolved
by the Balance Sheet Accountants as provided in paragraph (c) below.

        (c)   If a Proposed Adjustment Notice is delivered within the period set
forth above, then Seller and Purchaser shall negotiate in good faith to attempt
to resolve any Dispute with respect to any proposed adjustments contained in the
Proposed Adjustment Notice. If Seller and Purchaser cannot resolve such Dispute
within ten (10) Business Days commencing on the date of delivery of the Proposed
Adjustment Notice, then either Purchaser or Seller may recommend a firm of
independent certified public accountants of nationally recognized standing that
is not providing services to either Purchaser, Seller or their Affiliates to
review the disputed calculation, and whose determination shall be binding upon
the parties. The firm of independent certified public accounts retained to make
a determination with respect to any disputed calculation shall be designated by
agreement between Seller and Purchaser (the "Balance Sheet Accountants");
provided, however, if the parties fail to agree, the

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Balance Sheet Accountants shall be PriceWaterhouseCoopers. If
PriceWaterhouseCoopers acts as the Balance Sheet Accountants, no principal of
PriceWaterhouseCoopers with a pre-existing professional or familial relationship
with either of the parties or any of their respective officers or directors may
be utilized. In making its determination with respect to whether any adjustments
to the Final Balance Sheet are appropriate, the Balance Sheet Accountants shall
evaluate those items or amounts in the disputed calculation to which Seller has
objected and shall determine whether such items have been prepared in accordance
with the terms of this Agreement and any applicable accounting principles. The
fees and expenses of the Balance Sheet Accountants, if any, shall be borne
pro-rata by Seller and Purchaser, based upon the difference between their
respective calculations and the final calculations of the Balance Sheet
Accountants.

        (d)   After all disputes with respect to the Final Balance Sheet have
been resolved pursuant to the procedures set forth in this Section 2.14, (i) if
the amount of the Excess Tangible Net Equity on the Final Balance Sheet exceeds
the Excess Tangible Net Equity on the Closing Balance Sheet, then Purchaser
shall pay to Seller cash equal to the difference between the Excess Tangible Net
Equity on the Final Balance Sheet and the Excess Tangible Net Equity on the
Closing Balance Sheet; and (ii) if the Excess Tangible Net Equity on the Final
Balance Sheet is less than the Excess Tangible Net Equity on the Closing Balance
Sheet, Seller shall pay to Purchaser cash equal to the amount of the difference
between the Excess Tangible Net Equity on the Final Balance Sheet and the Excess
Tangible Net Equity on the Closing Balance Sheet.

        (e)   Purchaser shall not compromise or settle any claim or account
receivable of the Company for less than the full value assigned to such claim or
account receivable on the Closing Balance Sheet in exchange for any direct or
indirect benefit prior to final resolution of all Disputes respecting the
Purchase Price without the prior written consent of Seller.

        Section 2.15    Deliveries at the Closing by Seller.    At the Closing,
Seller shall deliver or cause to be delivered to Purchaser:

        (a)   a stock certificate or certificates representing the Shares,
accompanied by duly executed stock powers, in a form reasonably satisfactory to
Purchaser;

        (b)   written assignments of the HNL Contracts, as applicable;

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        (c)   a receipt for the Purchase Price;

        (d)   the opinions, certificates and other documents required to be
delivered by Seller to Purchaser at the Closing pursuant to this Agreement;

        (e)   the Books and Records and such seals and stock certificates of the
Company in the control of Seller as Purchaser shall reasonably request;

        (f)    the Closing Balance Sheet;

        (g)   the Reinsurance Agreement, duly executed by HNL;

        (h)   the Strategic Relationship Agreement, duly executed by Seller;

        (i)    the Network Access Agreement, duly executed by HNL; and

        (j)    the Transition Services Agreement duly executed by Seller.

        Section 2.16    Deliveries at the Closing by Purchaser.    At the
Closing, Purchaser shall deliver or cause to be delivered to Seller:

        (a)   the Purchase Price in cash or by wire transfer of immediately
available funds to such account or accounts as Seller shall instruct Purchaser
in writing at least two (2) Business Days prior to the Closing Date;

        (b)   a receipt for the Shares;

        (c)   the opinions, certificates and other documents required to be
delivered by Purchaser to Seller at the Closing pursuant to this Agreement;

        (d)   the Reinsurance Agreement, duly executed by SafeHealth;

        (e)   the Strategic Relationship Agreement, duly executed by Purchaser
or its Designee;

        (f)    the Network Access Agreement, duly executed by Purchaser or its
Designee; and

        (g)   the Transition Services Agreement, duly executed by Purchaser.

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER

        Seller hereby represents and warrants to Purchaser as follows:

        Section 3.1    Organization of Seller.    Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to own the Shares
and to conduct its business as it is presently being conducted except where
failure to be so organized, existing and in good standing or to have such power
and authority would not have a Seller Material Adverse Effect.

        Section 3.2    Authorization, Validity and Enforceability.    Seller,
and its respective Affiliates that are parties to any of the Transaction
Documents, have the corporate power and authority to execute, deliver and
perform their obligations under the Transaction Documents to which they are
parties. Seller, or its respective Affiliates that are parties to any of the
Transaction Documents, have taken all necessary corporate action to authorize
the execution, delivery and performance of the Transaction Documents to which
they are parties and the consummation of the transactions contemplated thereby.
The Transaction Documents to which Seller, or its respective Affiliates, are
parties have been duly executed and delivered by Seller, or its respective
Affiliate, and assuming due and valid authorization, execution and delivery
thereof by all other parties thereto, constitute the legal, valid and binding
obligations of Seller, or its respective Affiliate, enforceable against Seller,
or its respective Affiliate, in accordance with their respective terms, except
as such enforcement may be limited by applicable

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bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
rights of creditors and by general principles of equity regardless of whether
enforcement is sought in a proceeding at law or in equity.

        Section 3.3    No Violation or Breach.    Except as set forth in
Schedule 3.3 hereto, Seller's execution, delivery and performance of this
Agreement and the other Transaction Documents to which it is party, and the
consummation by Seller of the transactions contemplated hereby and thereby in
accordance with the terms and conditions hereof and thereof, do not and will not
conflict with, constitute a violation or breach of, constitute a default or give
rise to any right of termination or acceleration of any right or obligation of
Seller, HNL, solely with respect to the Dental Business, or the Company, or
result in the creation or imposition of any Lien upon the property of Seller,
the Company or the Dental Business of HNL by reason of the terms of (a) the
Certificate of Incorporation or By-laws of Seller, HNL or the Company, (b) any
contract, agreement, lease, indenture or other instrument to which Seller, HNL
or the Company is a party or by or to which Seller or its assets or properties,
or the Company or its assets or properties, or the Dental Business Assets of HNL
may be bound or subject, or (c) to the Knowledge of Seller, any order, judgment,
injunction, award or decree of any court, arbitrator or Governmental Authority
or any statute, law or regulation applicable to Seller, the Company or the
Dental Business of HNL, except for such violations, breaches or defaults which
would (A) not have a Seller Material Adverse Effect or (B) become applicable as
a result of the business or activities in which Purchaser is or proposes to be
engaged or as a result of any acts or omissions by, or the status of any facts
pertaining to, Purchaser.

        Section 3.4    Consents and Approvals.    Except as set forth in
Schedule 3.4 hereto, no consent, approval, authorization or order of,
registration or filing with, or notice to, any Governmental Authority or any
other Person is necessary to be obtained, made or given by Seller, HNL or the
Company in connection with the execution, delivery and performance by Seller,
HNL and the Company of this Agreement or any other Transaction Document to which
Seller, HNL or the Company is party or for the consummation by Seller, HNL or
the Company of the transactions contemplated hereby or thereby except for such
filings, registrations, notifications, authorizations, consents or approvals the
failure of which to obtain would (A) not have a Seller Material Adverse Effect
and would not materially adversely affect the ability of Seller, HNL or the
Company to consummate the transactions contemplated by this Agreement and the
Transaction Documents or (B) become applicable as a result of the business or
activities in which Purchaser is or proposes to be engaged or as a result of any
acts or omissions by, or the status of any facts pertaining to, Purchaser.

        Section 3.5    Organization and Qualification of the Company.    The
Company is a California corporation operating as a specialized health care
service plan duly organized, validly existing and in good standing under the
laws of the State of California. The Company has all requisite corporate power
and authority to own its assets and to conduct its business as such assets and
business are presently owned and conducted except where the failure to have such
power and authority, either individually or in the aggregate, would not have a
Seller Material Adverse Effect. Except as set forth in Schedule 3.5 hereto, on
the date of this Agreement, the Company is duly licensed or qualified to do
business and is in good standing in each jurisdiction in which the operation of
its business or the properties owned by it make such licensing or qualification
necessary or desirable except where failure to be licensed as qualified to do
business, and to be in good standing would not have a Seller Material Adverse
Effect. The Company does not have any Subsidiaries.

        Section 3.6    Organization and Qualification of HNL.    HNL is a
California corporation operating as a life and disability insurance company duly
organized, validly existing and in good standing under the laws of the State of
California. HNL has all requisite corporate power and authority to own the
Dental Business Assets owned by it and to conduct its Dental Business as such
assets and business are presently owned and conducted except where the failure
to have such power and authority, either individually or in the aggregate, would
not have a Seller Material Adverse Effect. Except as set forth in

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Schedule 3.6 hereto, on the date of this Agreement, HNL is duly licensed or
qualified to do business and is in good standing in Arizona and Oregon to
operate its Dental Business and own the Dental Business Assets owned by it,
except where failure to be licensed or qualified to do business, and to be in
good standing would not have a Seller Material Adverse Effect.

        Section 3.7    Capitalization of the Company.    As of the date hereof,
the Company's authorized capital stock consists of 1,000 shares of common stock,
$.10 par value per share, of which 475 have been issued and are outstanding.
Seller is the record and beneficial owner of the Shares which constitute all of
the issued and outstanding capital stock of the Company. The Shares are duly
authorized, validly issued, fully paid and non-assessable, and are free of any
contractual or statutory preemptive rights.

        Section 3.8    Title to the Shares.    Upon delivery of the certificate
or certificates representing the Shares in accordance with this Agreement,
Purchaser will acquire good and marketable title to the Shares, free and clear
of any Liens (except for any Liens arising from acts of Purchaser or any of its
Affiliates or representatives), subject to the restrictions on transferability
imposed by applicable federal and state securities Law.

        Section 3.9    Options or Other Rights.    Except for this Agreement,
there is no (a) outstanding right, subscription, warrant, call, unsatisfied
preemptive right, option or other contract or agreement of any kind to purchase
or otherwise to receive from the Company or Seller or any Affiliate thereof any
outstanding, authorized but unissued, unauthorized or treasury shares of common
stock or any other security of the Company, (b) outstanding security of any kind
of the Company other than the Shares, or (c) outstanding contract or other
agreement to purchase, redeem or otherwise acquire any outstanding shares of
common stock or any other security of the Company.

        Section 3.10    Financial Statements.    

        (a)   Seller has heretofore made available to Purchaser true and
complete copies of the annual statutory financial statements and audited
statutory financial statements of the Company for the calendar years ending
December 31, 2000, December 31, 2001, and unaudited statutory financial
statements for the four quarters of calendar year 2002 in each case filed with
the Department (the "Financial Statements"). The Financial Statements, at the
time such Financial Statements were prepared, present fairly, in all material
respects, the statutory financial condition of the Company as of the dates
thereof and the statutory results of operations for each of the periods ended at
such dates in each case in accordance with SAP.

        (b)   Except as disclosed on Schedule 3.10(b) hereto and except (a) for
liabilities and obligations incurred in the ordinary course of business after
December 31, 2002, (b) for liabilities and obligations disclosed in or covered
by the audited statutory financial statement of the Company as of December 31,
2002, and (c) for liabilities and obligations incurred in connection with the
transactions contemplated hereby or otherwise as contemplated by this Agreement,
since December 31, 2002, the Company has not incurred any liabilities or
obligations that would be required to be reflected or reserved against in a
balance sheet of the Company, prepared in accordance with SAP as applied in
preparing the unaudited consolidated balance sheet of the Company, as included
in the Financial Statements. Seller has made available to Purchaser copies of
all material disclosed on Schedule 3.10(b).

        (c)   To the Knowledge of Seller, all accounts receivable, notes
receivable and other receivables of the Company, whether or not reflected in the
Financial Statements, arise out of transactions in the ordinary course of
business. Aged accounts receivable reports of the Company dated as of December
31, 2002 are attached as Schedule 3.10(c). Except as reflected in the aged
accounts receivable reports and to the extent of the accrued reserve, if any, to
the Knowledge of Seller, none of such accounts receivable have been disputed or
denied or is uncollectible for any reasons or subject to any legitimate offsets
of any kind.

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        (d)   To the Knowledge of Seller, the accounts payable and accrued
expenses reflected on the Financial Statements, except those to be reflected on
the Closing Balance Sheet, reflect all material amounts owed by the Company in
respect of trade accounts due and other payables required by SAP to be
identified on such Company Financial Statement. To the Knowledge of Seller, no
account payable or accrued expenses of the Company is past due or otherwise in
default in any material respect by the Company.

        (e)   Schedule 3.10 (e) sets forth the 2002 consolidated year to date
financial information for the HNL Dental Business (the "HNL Financial
Information"). The HNL Financial Information, at the time such HNL Financial
Information was prepared, presents fairly, in all material respects, the
unaudited results of operation of the HNL Dental Business as of the dates
thereof.

        Section 3.11    No Material Adverse Change.    Since December 31, 2002,
except as (i) contemplated hereby or relating to the Transactions contemplated
hereby (ii) disclosed on Schedule 3.11 hereto, or (iii) disclosed in the
Financial Statements:

        (a)   the Company and the Dental Business of HNL have not suffered any
change constituting a Seller Material Adverse Effect;

        (b)   the Company has not agreed to the attaching, placing or granting
of, or the agreement to attach, place or grant, any Lien on any asset of the
Company, or any agreement relating to or contemplating any of the foregoing not
in the ordinary course of business, and HNL has not agreed to the attaching,
placing or granting of, or the agreement to attach, place or grant, any Lien on
any of the HNL Dental Business Assets, or any agreement relating to or
contemplating any of the foregoing not in the ordinary course of business;

        (c)   the Company has not sold or transferred assets of the Company
worth in excess of $50,000 in the aggregate, excluding the disposition of
damaged or obsolete equipment in the ordinary course of business;

        (d)   HNL has not sold or transferred any of the Dental Business Assets
of HNL worth in excess of $50,000 in the aggregate;

        (e)   the Company and HNL, solely with respect to HNL's Dental Business,
have not made any material change in its accounting systems, policies or
practices;

        (f)    the Company and HNL, solely with respect to HNL's Dental
Business, have not entered into or terminated any contract or any other
commitment, contract, agreement, or transaction (including, without limitation,
any material borrowing or capital expenditure or sale or other disposition of
any material assets), in excess of $50,000 outside the ordinary course of
business;

        (g)   the Company has not authorized any redemption, repurchase, or
other acquisition of, or redeemed, repurchased or acquired, any of its capital
stock;

        (h)   the Company has not authorized any issuance of or issued any of
its capital stock or securities convertible into or rights to acquire any such
capital stock;

        (i)    the Company has not suffered any default or breach in any
material respect under any Material Contract or Permit that is material to the
Dental Business, and HNL, solely with respect to HNL's Dental Business, has not
suffered any default or breach in any material respect under any Material
Contract or any Permit that is material to HNL's Dental Business;

        (j)    the Company has not authorized any material change to (i)
increase Employee compensation levels, (ii) change the manner in which Employees
are compensated, (iii) increased supplemental, fringe, or health and welfare
benefits provided to any employees, or (iv) paid any bonuses to Employees or
officers of the Company; and

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        (k)   the Company and HNL have not made any agreements or commitments by
the Company or HNL, respectively, to do any of the foregoing.

        Section 3.12    Permits.    Except as listed on Schedule 3.12, the
Company has the lawful authority and all governmental authorizations,
certificates of authority, licenses or permits necessary for or required to
conduct its business operations as presently conducted as a Knox-Keene
Specialized Health Care Service Plan and HNL has the lawful authority and all
governmental authorizations, certificates of authority, licenses or permits
necessary to conduct its Dental Business as presently conducted (collectively,
the "Permits"). As of the date of this Agreement, there are no pending or, to
the Knowledge of Seller, threatened legal, administrative, arbitration, or other
proceedings of any kind nor any pending or, to the Knowledge of Seller,
threatened governmental investigations by any Governmental Authority or by any
public or private group, with respect to revocation, cancellation, suspension or
nonrenewal of any Permit, or which assert or allege any material violation of,
or non-compliance with, any governmental requirements or which would have a
Seller Material Adverse Effect.

        Section 3.13    Compliance with Law    .

        (a)   Except as listed on Schedule 3.13, to the Knowledge of Seller, the
Company has made all material filings with Governmental Authorities in all
states in which the Company operates, required for the conduct of its business
operations as such are presently conducted, and HNL has made all material
filings with Governmental Authorities required for the conduct of the Dental
Business in all states in which HNL operates the Dental Business. Except as
listed on Schedule 3.13, the Company currently satisfies in all material
respects the requirements under the regulations of the Department for its
operation as a Specialized Knox-Keene Health Care Service Plan, and HNL
currently satisfies in all material respects the requirements for the operation
of the Dental Business under the regulations of the California Department of
Insurance and the other states in which HNL operates the Dental Business, except
where the Company's and HNL's failure to satisfy any requirement would not,
individually or in the aggregate, have a Seller Material Adverse Effect.

        (b)   There are no judgments, consent decrees, or injunctions of any
court, or Governmental Authority by which the Company or HNL are bound or to
which the Company and/or HNL's Dental Business is subject, except such
judgments, decrees or injunctions which would not have a Seller Material Adverse
Effect. To the Knowledge of Seller, except as set forth on Schedule 3.13, the
Company and HNL, solely with respect to HNL's Dental Business, are not subject
to and have not received any request for information, notice, demand letter,
administrative inquiry or formal or informal complaint or claim from any
Governmental Authority. Except as set forth on Schedule 3.13, the Company's and
HNL's operation of the Dental Business as presently conducted, do not violate or
fail to comply in any material respect with any applicable Law, except those
which would not have a Seller Material Adverse Effect, and, to the Knowledge of
Seller, the Company and HNL have not received any notices alleging any such
violation or non-compliance.

        Section 3.14    Legal Proceedings.    Except as set forth on Schedule
3.14 hereto, there is no pending or, to the Knowledge of Seller, threatened
Litigation, against or involving the Company or the Dental Business of HNL.

        Section 3.15    Contracts.    

        (a)   Seller has delivered or made available to Purchaser, copies of all
the Material Contracts in effect on the date of this Agreement. Except as set
forth on Schedule 3.15(a), to the Knowledge of Seller, the Company is not in
violation or in breach of, or default under any Material Contract. To the
Knowledge of Seller, (i) the Company has not received any written notice of
cancellation with respect to any Material Contract or been advised that the
other party thereto intends to cancel any such agreement; (ii) there are no
outstanding disputes under any Material Contract; (iii) each such contract is
with an unrelated third party entered into on an arms-length basis in the
ordinary course of business,

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(iv) there are no verbal amendments, modifications or other understandings
relating to such contracts that are legally binding on the parties thereto; and
(v) there are no obligations that have accrued to refund all or any portion of
the fees that have been paid under any Material Contract. To the Knowledge of
Seller, except as set forth on Schedule 3.15(a), the Company is not party to a
provider or broker agreement that contains pricing terms materially different
from the dental provider agreements referred to in Section 3.15(b), the dental
service provider agreements referred to in Section 3.15(c) or the broker
agreements referred to in Section 3.15(i).

        (b)   Dentist Provider Contracts. Seller has made available to Purchaser
copies of all representative forms of dentist provider contracts to which the
Company and HNL were a party as of December 31, 2002. As of December 31, 2002,
the Company was party to approximately 3,027 dentist provider contracts and HNL
was party to approximately 6,974 dentist provider contracts. Attached hereto as
Schedule 3.15(b) is a list of all dentist providers who or which were a party to
a dentist provider contract with the Company as of December 31, 2002.

        (c)   Dental Service Provider Contracts. As of December 31, 2002, the
Company was not a party to any dental service provider contracts (other than
dentist provider contracts) and HNL was not a party to any dental service
provider contracts (other than dentist provider contracts).

        (d)   Group Contracts. Seller has made available to Purchaser copies of
all representative forms employer group agreements with 200 or more
employees/subscribers to which the Company or HNL in connection with the Dental
Business were a party as of December 31, 2002. As of December 31, 2002, the
Company was a party to approximately 59 employer group agreements with 200 or
more subscribers, and HNL in connection with the Dental Business was party to
approximately 16 employer group agreements with 200 or more subscribers.

        (e)   Individual Subscriber Contracts. Seller has made available to
Purchaser copies of all representative forms of all individual subscriber
agreements to which the Company or HNL with respect to the Dental Business were
a party as of December 31, 2002. As of December 31, 2002, the Company was a
party to approximately 11,168 individual subscriber agreements, and HNL in
connection with the Dental Business was a party to approximately 414 individual
subscriber agreements.

        (f)    Management Contracts. Schedule 3.15(f) lists all management
services agreements, marketing, administrative services and third-party
administrator contracts to which the Company or HNL in connection with its
Dental Business were a party as of December 31, 2002. Copies of all such
contracts have been made available to Purchaser.

        (g)   ASO Contracts. As of December 31, 2002, the Company was not a
party to any ASO contracts and HNL in connection with its Dental Business was
not a party to any ASO contracts.

        (h)   Commission Agreements. Schedule 3.15(h) lists all the contracts
with other entities to which the Company or HNL in connection with its Dental
Business were a party and by which the Company or HNL in connection with its
Dental Business received commission or fee income as of December 31, 2002.
Copies of all such contracts have been made available to Purchaser.

        (i)    Producer Agreements. Seller has made available to Purchaser
copies of all representative forms of contracts with brokers or agents with whom
or which the Company or HNL in connection with the Dental Business were a party
as of December 31, 2002. As of December 31, 2002, the Company paid commission in
connection with the sale of dental HMO products to approximately 1096 producers,
and HNL paid commission in connection with the sale of dental PPO and dental
indemnity insurance products to approximately 343 producers. Attached hereto as
Schedule 3.15(i) is a list of all producers paid a commission by the Company in
connection with the sale of its dental HMO products as of December 31, 2002.

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        Section 3.16    Employees.    

        (a)   Schedule 3.16(a) hereto lists (i) all employees of the Company and
all persons employed by the Company or Health Net Vision, Inc., an Affiliate of
the Company, on the date hereof that support or service the Dental Business
("Employees"), (ii) their job titles, (iii) annual rates of compensation, (iv)
accrued vacation and personal days as of the most recent regular payroll date
immediately preceding December 31, 2002, (v) other fringe benefits, if any, (vi)
a description of any severance arrangements, if any, and (vii) the amounts
payable with respect to such accrued vacation and personal days as of the most
recent payroll date immediately preceding December 31, 2002 and the rate at
which such vacation and personal days will accrue after the date of this
Agreement.

        (b)   Except as shown on Schedule 3.16(b), the Company is not bound by
any written contract of employment or any consulting or similar agreement with
any Employee of the Company and, subject to applicable Law, all oral employment
contracts are terminable at will. A copy of all such employment, consulting or
similar agreements have been made available to Purchaser.

        (c)   Except as set forth in Schedule 3.16(c), the Company is not a
party to any employment or other agreement with an Employee of the Company,
whether written or oral, pursuant to which the Company has agreed to make a loan
to, or guarantee any loan of, any Employee of the Company, or relating to any
bonus, deferred compensation, severance pay or similar plan, agreement,
arrangement or understanding.

        (d)   Except as specified in the written agreements identified in
Schedule 3.16(d), the Company is not bound, and following the Closing will not
be bound, by any express or implied contract or agreement to employ, directly or
as a consultant or otherwise, any person for any specific period of time or
until any specific age.

        (e)   Except as listed on Schedule 3.16(e), to the Knowledge of Seller,
no "leased employees" within the meaning of Section 414(n)(2) of the Code or
independent contractors work, on average, more than ten hours per week for the
Company, or as of the date of this Agreement have worked for the Company for
more than six months, except for providers who or which contracted with the
Company to provide dental services or dental supplies to subscribers in
connection with the Dental Business.

        Section 3.17    Employee Benefit Matters.    

        (a)   Schedule 3.17 includes a correct and complete list of, and Seller
has made available to Purchaser true and correct copies of material employee
benefit plans maintained for the benefit of employees or former employees of the
Company or dependents or beneficiaries of any employee or former employee of the
Company, whether or not subject to ERISA (the "Employee Plans").

        (b)   Each Employee Plan has been operated and administered in all
material respects in accordance with its terms and applicable Law, including
without limitation ERISA and the Code, except where the failure to administer
the Employee Plan would not reasonably be expected to have a Seller Material
Adverse Effect.

        Section 3.18    No Brokers.    Except as set forth on Schedule 3.18, no
broker, finder or investment banker has been retained or engaged on behalf of
Seller or the Company or is entitled to any brokerage, finder's or other fee,
commission or compensation from Seller or the Company in connection with the
transactions contemplated by this Agreement. Seller shall pay any brokerage,
finder's or other fee, commission or compensation owing to any broker, finder or
investment banker retained or engaged on behalf of Seller or the Company, and
Seller shall indemnify and hold Purchaser harmless for any such fees, commission
or compensation.

        Section 3.19    Title to and Condition of Properties.    Except as set
forth on Schedule 3.19, the Company has good and marketable title, or valid and
effective leasehold rights in the case of leased property, to all of the assets
reflected on the Financial Statements, and all personal property owned or

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leased by it or used by it in the conduct of its business are used in such a
manner as to create the appearance or reasonable expectation that the same is
owned or leased by it, free and clear of all Liens. HNL has good and marketable
title to all of the Dental Business Assets owned by it and such Dental Business
Assets are used by HNL in the conduct of the Dental Business of HNL in such a
manner as to create the appearance or reasonable expectation that the same is
owned by it, free and clear of all Liens. To the Knowledge of Seller, there is
no potential action or assertion of rights by any party, governmental or other,
and no proceedings with respect thereto have been instituted of which Seller,
the Company or HNL has notice, that have a Seller Material Adverse Effect. To
the Knowledge of Seller, the Company has not received any notices of default or
other violations from any landlord or lessor regarding any properties leased by
the Company which, either individually or in the aggregate, is reasonably likely
to have a Seller Material Adverse Effect. None of the assets owned, leased or
used by the Company in the operation of its business, or by HNL in operation of
its Dental Business, violates or fails to comply in any material respect with
any applicable Law and the Company and HNL have not received any notice of an
alleged violation thereof except such alleged violations that would not have a
Seller Material Adverse Effect.

        Section 3.20    Real Property Leases.    The Company is not a party to
any real property leases.

        Section 3.21    Insurance.    Schedule 3.21 lists all insurance policies
and coverages maintained by or for the Company, including but not limited to,
real and personal property insurance, comprehensive liability insurance,
automobile liability insurance, workers' compensation insurance, stop loss
insurance, reinsurance, medical malpractice insurance and professional liability
insurance. Schedule 3.21 lists all stop loss or reinsurance policies and
coverages maintained by or for HNL with respect to the Dental Business. Except
as reflected on Schedule 3.21, all such insurance shall remain in full force and
effect after the Closing.

        Section 3.22    Environmental Matters.    To the Knowledge of Seller,
the Company has not received any notice from any Governmental Authority or
private person or entity advising it that the Company, its assets or its
business operations, is or has been in violation of any environmental law or any
applicable environmental permit or that the Company is responsible (or
potentially responsible) for the cleanup of any pollutants, contaminants,
hazardous or toxic wastes, substances or materials. To the Knowledge of Seller,
the Company is not the subject of federal, state, local or private litigation or
proceedings involving a demand for damages or other potential liability with
respect to violations of environmental laws except such litigation or proceeding
which would not have a Seller Material Adverse Effect.

        Section 3.23    Software.    Schedule 3.23 sets forth a true and
complete list of all software programs and other information technology owned
directly by the Company or licensed directly by the Company (the "Software").
Except for the Software, the Company shall not, as of the Closing Date, own or
otherwise have the right to use by license or otherwise, any software programs,
technologies, information systems or other information technology used by the
Company.

        Section 3.24    Transactions With Affiliates.    Except as disclosed on
Schedule 3.24, to the Knowledge of Seller, other than dental benefits provided
by the Company or HNL, there are no loans, leases, agreements, contracts or
other transactions between the Company and any Affiliate of the Company.

        Section 3.25    Improper Payments.    Except as listed on Schedule 3.25,
to the Knowledge of Seller, neither the Company nor HNL, with respect to the HNL
Dental Business, nor any stockholder, director, officer, employee or agent of
the Company or HNL has made any improper bribes, kickbacks or other payments to,
or received any such payments from, customers, vendors, suppliers or other
persons contracting with the Company or HNL, with respect to the HNL Dental
Business, and has not proposed or offered to make or receive any such payments.

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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER

        Purchaser represents and warrants to Seller as follows:

        Section 4.1    Organization of Purchaser.    Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to own,
lease and operate its assets and properties and to conduct its business as
presently being conducted except where failure to be so organized, existing, and
in good standing or to have such power and authority would not have a Purchaser
Material Adverse Effect.

        Section 4.2    Authorization, Validity and Enforceability.    Purchaser,
and its respective Affiliates that are parties to any of the Transaction
Documents, have the corporate power and authority to execute, deliver and
perform their obligations under the Transaction Documents to which they are
parties. Purchaser, or its Affiliates that are parties to any of the Transaction
Documents, have taken all necessary corporate action to authorize the execution,
delivery and performance of the Transaction Documents to which they are parties
and the consummation of the transactions contemplated thereby. The Transaction
Documents to which Purchaser, or its Affiliates, are parties have been duly
executed and delivered by Purchaser, or its Affiliate, and, assuming due and
valid authorization, execution, and delivery by all of the other parties thereto
constitute the legal, valid and binding obligations of Purchaser, or its
Affiliate, enforceable against Purchaser, or its Affiliate, in accordance with
their respective terms, except as such enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
rights of creditors generally and by general principles of equity regardless of
whether enforcement is sought in a proceeding at law or in equity.

        Section 4.3    No Violation or Breach.    Except as set forth in
Schedule 4.3, Purchaser's and Purchaser's Affiliates' execution, delivery and
performance of this Agreement and the other Transaction Documents to which
Purchaser or its Affiliate is party, and the consummation by Purchaser and its
Affiliates of the transactions contemplated hereby and thereby in accordance
with the terms and conditions hereof and thereof, do not and will not conflict
with, constitute a violation or breach of, constitute a default or give rise to
any right of termination or acceleration of any right or obligation of Purchaser
or any of its Affiliates under, or result in the creation or imposition of any
Lien upon the property of Purchaser by reason of the terms of (a) the
Certificate of Incorporation or By-laws of Purchaser or any of its Affiliates,
(b) any contract, agreement, lease, indenture or other instrument to which
Purchaser or any of its Affiliates is a party or by or to which Purchaser's or
any of its Affiliate's assets or properties may be bound or subject, or (c) to
the Knowledge of Purchaser, any order, judgment, injunction, award or decree of
any court, arbitrator or Governmental Authority or any Law applicable to
Purchaser or any of its Affiliates except for such violations, breaches or
defaults which would (A) not have a Purchaser Material Adverse Effect or (B)
become applicable as a result of business activities in which Seller is or
proposes to be engaged or as a result of any acts or omissions by, or the status
of any facts pertaining to, Seller.

        Section 4.4    Consents and Approvals.    Except as set forth in
Schedule 4.4 hereto, no consent, approval, authorization or order of,
registration or filing with, or notice to, any Governmental Authority or any
other Person is necessary to be obtained, made or given by Purchaser or any of
its Affiliates in connection with the execution, delivery and performance by
Purchaser of this Agreement or the other Transaction Documents to which
Purchaser or any of its Affiliates is party or for the consummation by Purchaser
or any of its Affiliates of the transactions contemplated hereby or thereby
except for such filings, registrations, notifications, authorizations, consents
or approvals the failure of which to obtain would (A) not have a Purchaser
Material Adverse Effect and would not materially adversely affect the ability of
Purchaser to consummate the transactions contemplated by this Agreement and the
Transaction Documents or (B) become applicable as a result of the business or

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activities in which Seller is or proposes to be engaged or as a result of any
acts or omissions by, or the status of any facts pertaining to, Seller.

        Section 4.5    Legal Proceedings.    Except as set forth in Schedule 4.5
hereto, Purchaser is not bound by or subject to any order, judgment, injunction,
award or decree of any court, Governmental Authority or arbitration tribunal
which, either individually or in the aggregate, is reasonably likely to have a
Purchaser Material Adverse Effect. Except as set forth in Schedule 4.5, there is
no pending or, to the Knowledge of Purchaser, threatened Litigation against or
involving Purchaser or any Affiliate that is a party to a Transaction Document
which, either individually or in the aggregate, is reasonably likely to have a
Purchaser Material Adverse Effect.

        Section 4.6    Certain Governmental Consents.    As of the date hereof,
to the Knowledge of Purchaser, there is no reason to believe that any Person,
judicial authority, or Governmental Authority whose authorization, consent, or
approval of the transactions contemplated by this Agreement or any other
Transaction Document to which it or any of its Affiliates is party is required
to be obtained will not give such authorization, approval, or consent based
solely on facts and circumstances relating to Purchaser, any of its Affiliates
or the past operations of Purchaser or any Affiliate of Purchaser.

        Section 4.7    Investment Representation.    Purchaser has such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of its investment in the Shares. Purchaser has
been given the opportunity to examine all documents provided by, conduct due
diligence and ask questions of, and to receive answers from, Seller and the
Company and their representatives concerning the terms and conditions of an
investment in the Shares; provided, however, that the representations and
warranties made by Seller pursuant to Article III, shall be unaffected by any
such examination, due diligence or any information which may have been
discovered by Purchaser as a result thereof. Purchaser is purchasing the Shares
for its own account for investment purposes only and without a view to the
public distribution or resale thereof or of any interest therein. Purchaser
acknowledges that the offering and sale of the Shares as contemplated by this
Agreement are intended to be exempt from registration under the Securities Act
of 1933, as amended (the "Securities Act"), pursuant to Section 4(1) of the
Securities Act, and may not be resold by Purchaser except pursuant to an
effective registration statement under the Securities Act or an exemption from
registration thereunder and pursuant to registration or qualification (or
exemption therefrom) under applicable state securities laws.

        Section 4.8    No Brokers.    No broker, finder or investment banker has
been retained or engaged on behalf of Purchaser or is entitled to any brokerage,
finder's or other fee, commission or compensation from Purchaser in connection
with the transactions contemplated by this Agreement.

        Section 4.9    Investigation by Purchaser.    In entering into this
Agreement, Purchaser:

        (a)   acknowledges that, except for the specific representations and
warranties of Seller contained in Article III hereof, none of Seller, the
Company, HNL, or any of their respective directors, officers, employees,
Affiliates, controlling persons, agents, advisors or representatives, makes or
shall be deemed to have made any representation or warranty, either express or
implied, as to the accuracy or completeness of any of the information
(including, without limitation, any reserve estimates, projections, forecasts,
budgets or other forward-looking information) provided or otherwise made
available to Purchaser or any of its directors, officers, employees, Affiliates,
controlling persons, agents, advisors or representatives (including, without
limitation, in any management presentations, supplemental information or other
materials or information with respect to any of the above). With respect to any
such reserve estimate, projection or forecast delivered by or on behalf of
Seller to Purchaser, except for the representations and warranties of Seller in
Article III, Purchaser acknowledges that: (A) there are uncertainties inherent
in attempting to make such projections and forecasts or reserve calculations;
(B) it is familiar with such uncertainties; (C) it is taking full responsibility
for making its own evaluation of the adequacy and accuracy of all such
projections and

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forecasts or reserve calculations so furnished to it; (D) it is not acting in
reliance on any such projection or forecast or reserve calculation so furnished
to it; and (E) except for proposed Final Balance Sheet adjustments consistent
with the procedure set forth in Section 2.14, it shall have no claim against any
such Person with respect to any such projection or forecast or reserve
calculation; and

        (b)   agrees, to the fullest extent permitted by Law, that Seller and
its directors, officers, employees, Affiliates, controlling persons, agents,
advisors or representatives shall not have any liability or responsibility
whatsoever to Purchaser or any of its directors, officers, employees,
Affiliates, controlling persons, agents, advisors or representatives on any
basis (including, without limitation, in contract or tort, under federal or
state securities laws or otherwise) based upon any information provided or
otherwise made available, or statements made, (or omissions to so provide, make
available or state), to Purchaser or any of its directors, officers, employees,
Affiliates, controlling persons, agents, advisors or representatives, including,
without limitation, in respect of the specific written representations and
warranties of Seller set forth in Article III hereof, except as and only to the
extent expressly set forth in this Agreement with respect to such
representations and warranties and subject to the limitations and restrictions
contained in this Agreement; provided, however, that nothing contained in this
Section 4.9(b) shall limit liability for the specific written representations
and warranties of Seller set forth in Article III hereof.

ARTICLE V
COVENANTS OF PURCHASER AND SELLER

        Purchaser and Seller hereby covenant and agree as follows:

        Section 5.1    Conduct of Business.    From and after the date hereof
and prior to the Closing Date, except as otherwise required or contemplated
hereunder, disclosed on Schedule 5.1, hereto or as consented to in writing by
Purchaser, Seller shall use its reasonable best efforts to:

        (a)   cause the Company and HNL to carry on the Dental Business in the
ordinary course and substantially in the same manner as heretofore carried on;

        (b)   cause the Company to use its reasonable best efforts to preserve
its assets and cause HNL to use its reasonable best efforts to preserve the
Dental Business Assets;

        (c)   cause the Company not to enter into any contract or agreement and
cause HNL not to enter into any contract or agreement relating to the Dental
Business, other than (i) such contracts or agreements that are entered into in
the ordinary course of business consistent with past practice; and (ii) any such
contract or agreement not entered into in the ordinary course of business
consistent with past practice and pursuant to which the Company or HNL receives
or is reasonably expected to receive payments, or makes or is reasonably
expected to make payments of less than $50,000 per calendar year;

        (d)   cause the Company and HNL, solely with respect to the HNL Dental
Business, not to make without prior written notice to Purchaser (i) any material
change, except in the ordinary course of business, in its assets (including, but
not limited to, any change in the composition of such assets so as to materially
alter the proportion of cash thereof) or liabilities, or (ii) any commitment for
any capital expenditures including, without limitation, replacements of
equipment in the ordinary course of business, involving, in the aggregate, more
than $50,000;

        (e)   cause the Company and Health Net Vision, Inc. not to (i) make any
increase in the compensation payable or to become payable to any of the
Employees of the Company or Health Net Vision, Inc. (including any bonus or
incentive payment or arrangement), other than normal yearly salary increases and
scheduled increases under presently existing compensation plans, and currently
anticipated bonuses pursuant to existing bonus arrangements; or (ii) make,
amend, or enter into any written employment or consulting contract with any
Employee or independent consultant or any bonus, stock option, profit sharing,
pension, retirement or other similar payment or arrangement other than in the
ordinary course of business;

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        (f)    cause the Company not to enter into any agreement for the
purchase of capital stock of any other entity;

        (g)   cause the Company not to carry on any negotiations with other
parties relating to the acquisition of capital stock or any material assets of
the Company or merge or consolidate with or into any entity or sell or otherwise
dispose of, or purchase, any material assets or properties (other than sales of
obsolete inventory or equipment and purchases of items of inventory or equipment
in replacement therefor, in the ordinary course of business consistent with past
business practice) or enter into any agreement in respect of such merger,
consolidation, purchases, sales, and dispositions;

        (h)   cause HNL not to carry on any negotiations or enter any agreement
with other parties relating to the sale of any of HNL's Dental Business Assets;

        (i)    cause the Company not to enter into or engage in any material
transaction with any officer, director, shareholder or Affiliate of the Company
except for the payment of salaries in the ordinary course of business;

        (j)    cancel, surrender or let lapse any insurance or reinsurance
policies issued to the Company or to HNL, solely as such policies relate to
HNL's Dental Business;

        (k)   not permit the Company, except in the ordinary course of business,
to (i) create, incur or assume any indebtedness for borrowed money;
(ii) mortgage, pledge or otherwise encumber or subject to any Lien any of its
properties or assets; or (iii) create or assume any other indebtedness;

        (l)    not permit the Company to issue any shares of capital stock of
any class or grant any warrants, options or rights to subscribe for any shares
of capital stock of any class or securities convertible into or exchangeable
for, or which otherwise confer on the holder any right to acquire, any shares of
capital stock of any class;

        (m)  inform Purchaser regarding all discussions, correspondence or
negotiations relating to any existing or proposed new group dental HMO, dental
PPO or dental indemnity contracts of the Company or HNL involving 1,000 or more
subscribers;

        (n)   not modify, amend or renew any group dental HMO, dental PPO or
dental indemnity contract of the Company or HNL involving 1,000 or more
subscribers without the prior written consent of Purchaser, which consent shall
not be unreasonably withheld or delayed other than in the ordinary course of
business;

        (o)   advise Purchaser promptly in writing of any material adverse
change in the financial condition of the Company or HNL's Dental Business; and

        (p)   cause the Company and HNL to use reasonable efforts not to take
any action that would prevent compliance with any of the conditions in
Article VI of this Agreement.

        Section 5.2    Consents and Approvals.    

        (a)   Within thirty (30) days of the date hereof, the parties hereto
shall file with the appropriate Governmental Authority any applications, notices
or other documents necessary to obtain any authorizations, consents or approvals
that are required to be obtained, made or given to consummate the Transactions
contemplated hereby and each of the parties shall use their reasonable best
efforts to obtain any such necessary authorization, consent, approval from such
Governmental Authority as is required to be obtained, made or given by such
party to consummate the Transactions contemplated by this Agreement.

        (b)   The parties hereto shall cooperate and coordinate with each other,
and Seller shall cause the Company and HNL to cooperate with Purchaser, in
seeking to obtain any necessary authorization, consent, approval or other action
of any judicial authority or Governmental Authority as is required to

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be obtained by such other party to consummate the Transactions contemplated by
this Agreement and the parties shall provide, and Seller shall cause the Company
and HNL to provide, such information and communications to such judicial
authorities and Governmental Authorities as may be required by such judicial
authorities and Governmental Authorities in connection therewith or as the other
party may reasonably request in connection therewith.

        Section 5.3    Cooperation and Further Assurances.    Subject to the
terms and conditions hereof, each of the parties hereto covenants and agrees to
use its reasonable best efforts to take, or cause to be taken, all actions or
do, or cause to be done, all things necessary, proper or appropriate to
consummate and make effective the transactions contemplated hereby and to cause
the fulfillment of the parties' obligations hereunder and to satisfy the
conditions set forth in Articles VI and VII, to the extent within its control.

        Section 5.4    Access to Information.    Prior to the Closing Date,
subject to Section 5.7 hereof, Seller shall make available and allow Purchaser
and its authorized representatives, at Purchaser's expense, to have reasonable
access to the Company's books, records, contracts, facilities and personnel and
to HNL's books, records, contracts, facilities and personnel relating solely to
the Dental Business, and to personnel of Seller having knowledge of the Company
or the Dental Business of HNL, for inspection, examination or verification. Any
such access or examination shall be conducted upon reasonable prior notice and
under reasonable circumstances during normal business hours and shall not
unreasonably interfere with the operations and activities of Seller, HNL or the
Company. Seller shall cause its employees and representatives, and those of the
Company and HNL, to cooperate in good faith with Purchaser and its
representatives in connection with any such access and examination, provided,
however, that nothing herein shall require Seller, HNL or the Company to
disclose any information to Purchaser if such disclosure would violate
applicable Law or the provisions of any confidentiality agreement to which
Seller, HNL or the Company or any of their Affiliates is a party. If information
requested by Purchaser is withheld pursuant to this Section 5.4 and not
disclosed by Seller, HNL or Company, Seller, HNL or the Company, as appropriate,
shall notify Purchaser that certain requested information shall not be disclosed
and provide a general description of the type of information withheld and the
basis for nondisclosure. Unless otherwise required by Law and until the Closing
Date, Purchaser shall hold any such information which is nonpublic in confidence
in accordance with Section 5.7 of this Agreement.

        Section 5.5    Notice of Litigation and Requests.    

        (a)   From the date hereof through the Closing Date, Seller shall
promptly notify Purchaser of any Litigation of the type required to be disclosed
in Section 3.14 hereof that is commenced or, to the Knowledge of Seller,
threatened against the Company, or against any property or asset of the Company,
or against any officer or director of the Company with respect to the affairs of
the Company, or with respect to the Dental Business of HNL, and of any request
for additional information or documentary materials by any Governmental
Authority, in connection with the transactions contemplated hereby.

        (b)   From the date hereof through the Closing Date, Purchaser shall
promptly notify Seller of any Litigation of the type required to be described in
Section 4.5 hereof that is commenced or to the Knowledge of Purchaser,
threatened against Purchaser, or against any property or asset of Purchaser, or
against any officer or director of Purchaser with respect to the affairs of
Purchaser, or against any Affiliate of Purchaser that is party to a Transaction
Document and of any request for additional information or documentary materials
by any Governmental Authority, in connection with the transactions contemplated
hereby.

        Section 5.6    Notice of Changes and Defaults.    From the date hereof
through the Closing Date, (i) Seller shall promptly notify Purchaser of the
occurrence or the non-occurrence of any event, condition or circumstance, or the
discovery of an inaccuracy, omission or mistake, of which it becomes

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aware during such period that would have a Seller Material Adverse Effect, and
(ii) Purchaser shall promptly notify Seller of the occurrence or the
non-occurrence of any event, condition or circumstance, or the discovery of any
inaccuracy, omission or mistake, of which it becomes aware during such period
that would have a Purchaser Material Adverse Effect.

        Section 5.7    Confidentiality.    

        (a)   From the date hereof through the Closing Date, Purchaser, its
Affiliates and their respective representatives shall keep all non-public
information with respect to Seller, the Company, HNL and their Affiliates
provided to it by Seller or any of its representatives in connection with the
transactions contemplated hereby strictly confidential, and shall not disclose
any of the same without obtaining Seller's prior written consent, unless
otherwise required by applicable Law or Governmental Authority. In the event
that this Agreement is terminated, Purchaser and its Affiliates shall return to
Seller all non-public documents, and copies thereof, provided to Purchaser or
its Affiliates by Seller or any of its representatives, and shall otherwise
continue to comply with the foregoing provisions of this Section 5.7. From and
after the Closing Date, Purchaser and its Affiliates and their respective
representatives shall keep, and Purchaser shall cause the Company and its
representatives to keep, all non-public information with respect to Seller, its
Affiliates other than the Company, and the pre-Closing business and operations
of the Company and HNL provided to it by Seller, the Company, HNL or any of
their representatives strictly confidential, and shall not disclose any of the
same without obtaining Seller's prior written consent unless otherwise required
by applicable Law or Governmental Authority. Before any disclosure of
information, Purchaser shall give reasonable prior notice to Seller of the
intended disclosure and, if requested by Seller, shall use reasonable efforts to
obtain a protective order or similar protection for Seller, HNL and the Company.

        (b)   Seller and its representatives shall keep all non-public
information with respect to Purchaser and its Affiliates provided to it by
Purchaser or any of its representatives in connection with the transactions
contemplated hereby strictly confidential, and shall not disclose any of the
same without obtaining Purchaser's prior written consent unless otherwise
required by applicable Law or Governmental Authority. Before any disclosure of
information, Seller shall give reasonable prior notice to Purchaser of the
intended disclosure and, if requested by Purchaser, shall use reasonable efforts
to obtain a protective order or similar protection for Purchaser. In the event
that this Agreement is terminated, Seller shall return to Purchaser all
non-public documents, and copies thereof, provided to Seller by Purchaser or any
of its representatives.

        Section 5.8    Publicity.    Except as may be required under applicable
Law or stock exchange rules, from the date hereof through the Closing Date, each
of the parties hereto shall use its best efforts to prevent, and shall cause its
Affiliates and all representatives to not engage in, encourage or support any
publicity, announcement or disclosure of any kind or form in connection with
this Agreement or the transactions contemplated hereby, unless the parties
hereto agree in advance on the form, timing and content of any such publicity,
announcement or disclosure, whether to the financial community, Governmental
Authorities or members of the public. If any such announcement or disclosure is
required by applicable Law or stock exchange rules, the party required to make
such disclosure shall use its reasonable best efforts to provide the other party
with prior notice of the required disclosure. Notwithstanding the foregoing,
Seller acknowledges that Purchaser will be required to disclose and generally
describe this Agreement and the Transactions contemplated by this Agreement in
public filings with the Securities and Exchange Commission. Purchaser shall
share drafts of any filings Purchaser is required to make with the Securities
and Exchange Commission prior to making such filings and Purchaser shall
incorporate any revisions to such filings reasonably requested by Seller which
are provided to Purchaser by Seller within ten (10) days after receipt by Seller
of a proposed draft of such filing. The parties shall jointly prepare and issue
a press release regarding the Transactions, in such form as is mutually
agreeable to the parties.

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        Section 5.9    Distribution of Excess Tangible Net Equity.    At or
prior to the Closing, subject to receipt of all necessary regulatory approvals
therefor, Seller shall cause the Company to dividend or otherwise distribute
that portion of the Excess Tangible Net Equity authorized by the Department.

        Section 5.10    Transfer of HNL Contracts.    At the Closing, subject to
receipt of necessary regulatory approvals therefor, if any, and subject to the
limitations of Section 2.5 hereof, Seller shall cause HNL to transfer and assign
to Purchaser, or its Designee, all of HNL's right, title and interest in the HNL
Contracts; and Purchaser or its Designee shall assume the liabilities of HNL
under the HNL Contracts provided, however, that neither Purchaser nor any
Purchaser Designee shall assume (x) any obligation to pay any amounts (whether
or not due at Closing) arising under the HNL Contracts prior to the Closing, or
(y) any liability attributable to a failure by HNL to comply with the foregoing
prior to the Closing Date. Any such assignment and transfer shall be evidenced
by an assignment and assumption agreement or such other agreement as the parties
reasonably determine is necessary or appropriate.

        Section 5.11    Reinsurance Agreement.    Seller and Purchaser shall
cause their respective Affiliates to enter into, effective as of the Closing
Date, the Reinsurance Agreement.

        Section 5.12    Strategic Relationship Agreement.    Seller and
Purchaser or its Designee shall enter into, effective as of the Closing Date,
the Strategic Relationship Agreement.

        Section 5.13    Transition Service Agreement.    Seller and Purchaser
shall negotiate in good faith and enter into on or after the Closing, the
Transition Service Agreement.

        Section 5.14    Network Access Agreement.    Seller and Purchaser shall
cause their respective Affiliates to enter into, effective as of the Closing
Date, the Network Access Agreement.

        Section 5.15    Termination of Contracts.    Except for any
(i) inter-Affiliate contracts necessary to administer the Dental Business on or
after the Closing Date, (ii) any contract under which the Company is obligated
to provide, arrange for the provision of, or indemnify for the costs of dental
services and supplies of the employees of Seller and its Affiliates and
(iii) the arrangement related to that certain real property lease dated April 9,
1997 by and between Foundation Health Corporation and The Irvine Company (the
"FHC Lease"), all contracts between the Company and any Affiliate of the Company
shall be terminated effective as of the Closing Date. Seller and Purchaser agree
to use their commercially reasonable efforts and exercise good faith to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary and proper to settle expeditiously any obligations arising from any
inter-Affiliate contract terminated as required by this Section 5.15. With
respect to the FHC Lease, Seller shall make available for use by the Company
until May 31, 2004, the 49,920 rentable square feet ("RSF") subject to the FHC
Lease, and the Company shall pay rent to Seller for the use of such space at a
base rent of $1.40 per RSF per month and a common area charge of $.33 per RSF
per month. The Company shall have the right to terminate its occupancy of the of
the space subject to the FHC Lease upon sixty (60) days notice to Seller and
payment of one month's base rent.

        Section 5.16    Employment Matters; Severance.    

        (a)   Purchaser may, but is not required by this Agreement, to offer
continued employment to the Employees after the Closing Date. Purchaser shall
pay all costs associated with any such continued employment, including all
salary, benefits, relocation expenses, and other compensation to Employees
accruing from and after the Closing Date. Schedule 5.16 contains a summary of
the benefit plans and arrangements Purchaser intends to provide Employees
retained after the Closing. Not later than ninety (90) days prior to the Closing
Date, Purchaser shall provide Seller with a list of those Employees it intends
to retain after the Closing (the "Retained Employees") and the list of Retained
Employees may be amended by Purchaser prior to Closing unless any proposed
amendment would result in any cost, liability or prejudice to Seller or any
Employee. Purchaser shall offer or cause the Company to offer Retained Employees
cash compensation for a period of six (6) months after the Closing equivalent to

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their most recent base compensation immediately preceding the Closing Date,
provided, however, Purchaser shall have the right to negotiate with individual
Retained Employees for the purpose of offering such Retained Employees
alternative positions with cash compensation appropriate for such positions
which may be less than their most recent base compensation immediately preceding
the Closing Date. On or prior to the Closing Date, Seller may terminate or
transfer any Employee other than the Retained Employees. Seller and Purchaser
shall pay severance to those Employees so terminated and any Retained Employee
terminated by Purchaser after the Closing in accordance with the severance
methodology set forth as Exhibit D hereto, provided, however, to the extent a
"Group One" Employee (as that term is defined in Exhibit D hereto) is retained
as an employee by Seller or any Affiliate of Seller instead of terminated by
Seller, the Vision Severance Credit shall be reduced by that percentage of each
such retained Group One Employee's time spent on vision business as set forth on
Schedule 3.16(a) multiplied by the total severance obligations attributable to
each such Employee as of the Closing Date. Any Employee terminated pursuant to
this Section 5.16 shall be provided severance (i) according to Seller's
severance policy set forth as Exhibit E hereto, if such Employee is terminated
at Closing or within the six (6) month period following the Closing; or
(ii) according to Purchaser's then current severance policy, if such Employee is
terminated after expiration of such six (6) month period. Calculation of all
employee benefits provided to Retained Employees by Purchaser, including but not
limited to, severance for any Retained Employee terminated by Purchaser after
the expiration of the six (6) month period shall include credit for such
Retained Employee's time as an employee of the Company.

        (b)   Seller shall provide any notice required by WARN resulting from
the termination of Employees prior to the Closing Date, and Purchaser shall
provide any notice required by WARN resulting from the termination of any
Retained Employees.

        Section 5.17    Name Change.    Except in accordance with the terms of
the Strategic Relationship Agreement, Purchaser shall cease using any and all
trade names, trademarks, logos and trade dress belonging to Seller or its
Affiliates, including, without limitation, those containing the words "Health
Net" "Health Net Dental," "Health Net Life" or any other name, term or
identification that suggests, simulates or is confusing due to its similarity to
any of the foregoing, in its literature, inventory, products, labels packaging,
supplies or other materials relating to the Company as soon as practicable, but
in any event, subject to any applicable approval by Governmental Authorities,
within one hundred and twenty (120) days after the Closing Date. Unless
otherwise provided in the Strategic Relationship Agreement, after one hundred
and twenty (120) days, any inventory of Company supplies utilized by Purchaser
shall be relabeled (by sticker or other reasonable method) with Purchaser's own
trade name and trade marks. Insofar as the Company's name is used in the
Company's outstanding agreements, Purchaser and the Company shall be entitled to
use the names set forth therein to the extent necessary to enforce fully the
provisions of those agreements until the termination or renewal of those
agreements in the ordinary course.

        Section 5.18    Sale of MediCal and Healthy Families Business.    If
within one (1) year of the Closing Date, Purchaser enters into one or more
definitive agreements to sell or otherwise transfer the Company's MediCal or
Healthy Families business to an unaffiliated entity or entities, Purchaser shall
pay Seller upon the consummation of such transaction(s) one-third (1/3) of the
gross consideration received by Purchaser in connection with any such
transactions.

        Section 5.19    Interaffiliate Accounts.    The parties acknowledge that
all interaffiliate accounts of the Company may not be settled as of the Closing
and that any post-Closing settlements of interaffiliate accounts shall be
settled within sixty (60) days after the Closing, provided that any further
adjustments required thereafter shall be taken into account in the preparation
of the Final Balance Sheet. Purchaser agrees to cooperate as necessary to settle
any such interaffiliate accounts.

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        Section 5.20    Non-Competition.    Except as provided below, during the
sixty (60) months immediately following the Closing Date, Seller agrees that
neither it nor any of its Affiliates (a "Seller Entity") shall, without the
prior written consent of the Purchaser:

        (a)   directly or indirectly acquire a majority interest (whether by
merger, consolidation, purchase of stock or assets, or otherwise) of any
Competitor (as defined below); or

        (b)   engage, directly or indirectly, in the dental HMO, dental PPO or
dental indemnity insurance business in California, Arizona and Oregon, and to
the extent Seller exercises its option to extend the Strategic Relationship
Agreement to additional states, engage directly or indirectly in the dental HMO,
dental PPO or dental indemnity insurance business in any such additional states
(the "Additional States").

        For purposes of this Section, a "Competitor" shall mean an entity that
derives 25% or more of its gross revenue during the calendar year next preceding
the date of determination, from the dental HMO, dental PPO or dental indemnity
insurance business in California, Arizona, Oregon, or if relevant, any
Additional States. Notwithstanding the foregoing, the restrictions contained in
this Section 5.20 shall not prohibit the acquisition by a Seller Entity of
ownership of an entity that offers or operates a dental HMO, dental PPO or
dental indemnity insurance business in the states of California, Arizona or
Oregon, or if relevant, any Additional States and is part of an organization
with multiple businesses (a "Multi-Business Company"), whether the ownership by
a Seller Entity results from the consummation of a transaction in which the
Multi-Business Company is either acquired by a Seller Entity or in which the
Multi-Business Company acquires a Seller Entity, or by merger or consolidation;
provided that the dental HMO, dental PPO and dental indemnity insurance business
of the Multi-Business Company does not account for more than thirty (30%)
percent of the annual gross revenues of the combined operations of the
Multi-Business Company and the Seller Entity.

        The restrictions contained in this Section 5.20 shall have no further
force or effect in the event the Strategic Relationship Agreement is terminated
based upon a breach thereof by Purchaser.

ARTICLE VI
CONDITIONS TO PURCHASER'S OBLIGATIONS

        The obligation of Purchaser to purchase the Shares at the Closing is
subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions:

        Section 6.1    Representations, Warranties and Covenants.    All of the
representations and warranties of Seller contained in this Agreement shall be
true and correct in all material respects on and as of the Closing Date with the
same force and effect as though made on and as of the Closing Date, except that
any such representation and warranty that is given as of a particular date and
relates solely to a particular date or period shall be true as of such date or
period, and Seller shall have performed and complied in all material respects
with all covenants and agreements required by this Agreement to be performed or
complied with by Seller on or prior to the Closing Date. Seller shall have
delivered to Purchaser a certificate dated the Closing Date and signed by an
executive officer of Seller to the foregoing effect.

        Section 6.2    No Proceeding or Litigation.    No injunction, order,
decree or other relief having the force of law shall have been issued by any
judicial authority or Governmental Authority and be in effect, restraining,
prohibiting, modifying or preventing the consummation of the transactions
contemplated hereby. No action, suit or proceeding shall have been instituted
and be continuing by any Governmental Authority or any other Person to restrain,
modify or prevent the consummation of the transactions contemplated hereby.

        Section 6.3    Corporate Action.    Seller shall have delivered to
Purchaser a copy of the resolutions duly adopted by the Board of Directors of
Seller authorizing the execution and delivery of this

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Agreement and the performance of the transactions contemplated hereby by Seller,
certified by the Secretary or an Assistant Secretary of Seller.

        Section 6.4    Consents and Approvals.    All approvals, authorizations,
consents and other actions required to be obtained from, and all filings and
notices required to be made with or given to, any judicial authority or
Governmental Authority in connection with the transactions contemplated by this
Agreement shall have been obtained, made or given, as the case may be, and shall
be in full force and effect (without any term, condition or restriction
reasonably unacceptable to Purchaser), and any waiting period required by
applicable Law or any Governmental Authority shall have expired or been earlier
terminated. Purchaser shall have been furnished with appropriate evidence,
reasonably satisfactory to it and its counsel, of the granting of such
approvals, authorizations, consents and other actions, the making of such
filings and the giving of such notices.

        Section 6.5    Resignation of Officers and Directors.    Seller shall
have caused the officers and directors of the Company to have tendered to the
Company their resignations as officers and directors of the Company, effective
as of the Closing Date.

        Section 6.6    Transfer of HNL Contracts.    Subject to the limitations
contained in Section 2.5, Seller shall have caused HNL to assign or otherwise
transfer the HNL Contracts to Purchaser, or its Designee.

        Section 6.7    Strategic Relationship Agreement.    Seller and
Purchaser, or its Designee, shall have entered into the Strategic Relationship
Agreement.

        Section 6.8    Transfer of Books and Records.    HNL and Seller shall
transfer to Purchaser or its Designee the Books and Records.

        Section 6.9    Reinsurance Agreement.    HNL and SafeHealth shall have
entered into the Reinsurance Agreement.

        Section 6.10    Network Access Agreement.    Seller and Purchaser shall
have entered into the Network Access Agreement.

        Section 6.11    Transition Services Agreement.    The Seller and
Purchaser shall have entered into the Transition Services Agreement.

ARTICLE VII
CONDITIONS TO SELLER'S OBLIGATIONS

        The obligation of Seller to sell the Shares to Purchaser at the Closing
is subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions:

        Section 7.1    Representations, Warranties and Covenants.    All of the
representations and warranties of Purchaser contained in this Agreement shall be
true and correct in all material respects on and as of the Closing Date with the
same force and effect as though made on and as of the Closing Date, and
Purchaser shall have performed and complied in all material respects with all
covenants and agreements required by this Agreement to be performed or complied
with by Purchaser on or prior to the Closing Date. Purchaser shall have
delivered to Seller a certificate dated the Closing Date and signed by an
executive officer of Purchaser to the foregoing effect.

        Section 7.2    No Proceeding or Litigation.    No injunction, order,
decree or other relief having the force of law shall have been issued by any
judicial authority or Governmental Authority and be in effect, restraining,
prohibiting, modifying or preventing the consummation of the transactions
contemplated hereby. No action, suit or proceeding shall have been instituted
and be continuing by any Governmental Authority or any other Person to restrain,
modify or prevent the consummation of the transactions contemplated hereby.

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        Section 7.3    Corporate Action.    Purchaser shall have delivered to
Seller a copy of the resolutions duly adopted by the Board of Directors of
Purchaser authorizing the execution and delivery of this Agreement and the
performance of the transactions contemplated hereby by Purchaser, certified by
the Secretary or an Assistant Secretary of Purchaser.

        Section 7.4    Consents and Approvals.    All approvals, authorizations,
consents and other actions required to be obtained from, and all filings and
notices required to be made with or given to, any judicial authority or
Governmental Authority in connection with the transactions contemplated by this
Agreement shall have been obtained, made or given, as the case may be, and shall
be in full force and effect (without any term, condition or restriction
reasonably unacceptable to Seller), and any waiting period required by
applicable Law or any Governmental Authority shall have expired or been earlier
terminated. Seller shall have been furnished with appropriate evidence,
reasonably satisfactory to it and its counsel, of the granting of such
approvals, authorizations, consents and other actions, the making of such
filings and the giving of such notices.

        Section 7.5    Purchase Price.    Seller shall have received the
Purchase Price in the manner specified in Section 2.8.

        Section 7.6    Strategic Relationship Agreement.    Seller and
Purchaser, or its Designee, shall have entered into the Strategic Relationship
Agreement.

        Section 7.7    Reinsurance Agreement.    HNL and SafeHealth shall have
entered into the Reinsurance Agreement.

        Section 7.8    Network Access Agreement.    Seller and Purchaser shall
have entered into the Network Access Agreement.

        Section 7.9    Transition Services Agreement.    Seller and Purchaser
shall have entered into the Transition Services Agreement.

ARTICLE VIII
SURVIVAL, INDEMNIFICATION AND ARBITRATION

        Section 8.1    Survival.    The representations and warranties of the
parties contained herein, or in any Schedule hereto or certificate delivered as
provided hereunder, shall survive until the second annual anniversary of the
Closing Date (the "Survival Period"); provided, however, that the
representations and warranties made in Section 9.1 shall survive for the period
set forth in Section 9.7.

        Section 8.2    Indemnification.    Seller hereby agrees to indemnify
Purchaser against and to hold Purchaser harmless from any damages, liabilities,
losses or costs (including, without limitation, reasonable attorneys' fees and
expenses) (i) arising out of or due to any inaccuracy in any representation or
breach of any warranty of Seller contained herein (or in any Schedule hereto or
certificate delivered as provided hereunder) or in any other Transaction
Document to which it is party, or the breach or nonfulfillment of any covenant,
agreement or other obligation of Seller under this Agreement or any other
Transaction Document to which it is party, provided, however, that Seller shall
have no liability to Purchaser as a result of the breach of any representation
or warranty to the extent that Purchaser had actual knowledge that such
representation or warranty was incorrect or untrue prior to the Closing Date,
and (ii) arising out of or due to any Litigation pending or hereafter instituted
respecting actions or omissions by the Company occurring prior to the Closing
Date, including but not limited to, any matters set forth in Schedule 3.14. Any
provision or reserve for damages, liabilities, losses or costs relating to any
Litigation pending or threatened against the Company included on Financial
Statements of the Company shall be reversed prior to the Closing.

        (a)   Purchaser hereby agrees to indemnify Seller against and to hold
Seller harmless from any damages, liabilities, losses or costs (including,
without limitation, reasonable attorneys' fees and

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expenses) arising out of or resulting directly or indirectly from any inaccuracy
in any representation or breach of any warranty of Purchaser contained herein
(or in any Schedule hereto or certificate delivered as provided hereunder) or in
any other Transaction Document to which it is party or the breach or
nonfulfillment of any covenant, agreement or other obligation of Purchaser under
this Agreement or any other Transaction Document to which it is party, provided,
however, that Purchaser shall have no liability to Seller as a result of the
breach of any representation or warranty to the extent that Seller had actual
knowledge that such representation or warranty was incorrect or untrue prior to
the Closing Date.

        (b)   The right of any party hereto to indemnification shall be limited
to claims asserted in writing delivered by such party to the other party hereto
during the Survival Period. The indemnification to which either party hereto is
entitled from the other party hereto pursuant to this Section 8.2 shall become
effective only after the amount of such liability suffered or incurred by the
party entitled to indemnification exceeds in the aggregate $250,000 and such
liability shall be limited to those amounts in excess thereof. In any event, the
maximum indemnification amount to which either party hereto is entitled from the
other party hereto pursuant to this Section 8.2 shall not exceed $5,000,000.

        (c)   Any dispute with respect to any amounts owed by Seller to
Purchaser or by Purchaser to Seller under this indemnification provision shall
be subject to arbitration as provided in Section 8.8 hereunder.

        (d)   The party seeking indemnification under this Section (the
"Indemnified Party") agrees to give prompt notice to the party against whom
indemnity is sought (the "Indemnifying Party") of the assertion of any claim, or
the commencement of any claim, suit, action or arbitration in respect of which
indemnity may be sought under this Section. The Indemnifying Party may, and at
the request of the Indemnified Party shall, participate in and control the
defense of any such claim, suit, action or arbitration proceeding at its own
expense. The Indemnifying Party shall not be liable under this Section for any
settlement effected without its consent (which shall not be unreasonably
withheld or delayed) of any claim, suit, action or proceeding in respect of
which indemnity may be sought hereunder.

        Section 8.3    Treatment of Indemnity Payments.    

        (a)   The parties agree that any payment made under Section 8.2 hereof
will be treated by Seller and/or Purchaser on their Tax Returns as an adjustment
to the Purchase Price. The amount which an Indemnifying Party is required to pay
to, for or on behalf of the other party (hereinafter referred to as an
"Indemnitee") pursuant to this Article VIII shall be adjusted (including,
without limitation, retroactively) (i) by any insurance proceeds actually
recovered by or on behalf of such Indemnitee in reduction of the related
indemnifiable loss (the "Indemnifiable Loss") and (ii) to take account of any
Tax benefit realized as a result of any Indemnifiable Loss. Amounts required to
be paid, as so reduced, are hereinafter sometimes called an "Indemnity Payment."
If an Indemnitee has received or has had paid on its behalf an Indemnity Payment
for an Indemnifiable Loss and subsequently receives insurance proceeds for such
an Indemnifiable Loss, or realizes any Tax benefit as a result of such
Indemnifiable Loss, then the Indemnitee shall (i) promptly notify the
Indemnifying Party of the amount and nature of such proceeds and benefits and
(ii) pay to the Indemnifying Party the amount of such insurance proceeds or Tax
benefits or, if lesser, the amount of the Indemnity Payment.

        Section 8.4    Mitigation of Loss.    Each Indemnitee is obligated to
use reasonable efforts to mitigate the amount of any Loss for which it is
entitled to seek indemnification hereunder, and the Indemnifying Party shall not
be required to make any payment to an Indemnitee in respect of such Loss to the
extent such Indemnitee failed to comply with the foregoing obligation.

        Section 8.5    Subrogation.    Upon making any Indemnity Payment, the
Indemnifying Party will, to the extent of such payment, be subrogated to all
rights of the Indemnitee against any third party in respect of the Loss to which
the payment relate; provided, however, that until the Indemnitee recovers

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full payment of its Loss, any and all claims of the Indemnifying Party against
any such third party on account of such payment are hereby made expressly
subordinated and subjected in right of payment of the Indemnitee's rights
against such third party. Without limiting the generality of any other provision
hereof, each such Indemnitee and Indemnifying Party will duly execute upon
request all instruments reasonably necessary to evidence and perfect the above
described subrogation and subordination rights.

        Section 8.6    Tax Indemnification.    Notwithstanding anything in this
Article VIII to the contrary, the rights and obligations of the parties with
respect to indemnification (and all limitations applicable to such
indemnification) for any and all representations, warranties, covenants, and
other agreements set forth in Article IX shall be governed solely by the
indemnification provisions of Article IX.

        Section 8.7    Exclusive Remedy.    Following the Closing, the
indemnities provided for in this Article VIII shall be the sole and exclusive
remedies of the parties and their respective officers, directors, employees,
Affiliates, agents, representatives, successors and assigns for any breach of or
inaccuracy in any representation or warranty or any breach, nonfulfillment or
default in the performance of any of the covenants or agreements contained in
this Agreement (but not any such covenants or agreements to the extent they are
by their terms to be performed after the Closing Date). The parties shall not be
entitled to a rescission of this Agreement or to any further indemnification
rights or claims of any nature whatsoever in respect thereof (whether by
contract, common law, statute, law, regulation or otherwise, including, without
limitation, under the Racketeer Influence and Corrupt Organizations Act of 1970,
as amended), all of which the parties hereby waive, provided, however, nothing
herein is intended to waive any claims for intentional fraud.

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        Section 8.8    Arbitration.    In the event of any dispute between the
parties hereto relating to, arising out of, or in connection with any provision
of this Agreement or any other Transaction Document (hereinafter a "Dispute"),
the parties to this Agreement and their representatives, designees, successors
and assigns agree that any such Dispute shall be settled by binding arbitration
to take place in Orange County, California; provided, however, that nothing
herein shall preclude the parties from seeking equitable judicial relief pending
arbitration, including but not limited to injunctive or other provisional
relief. The parties agree that this agreement to arbitrate shall survive any
termination of this Agreement or any other Transaction Document.

        (a)   Any arbitration hereunder shall be conducted by a single
arbitrator chosen from the panel of arbitrators of the Judicial Arbitration &
Mediation Services ("JAMS") with experience and expertise in the dental HMO or
dental indemnity insurance business. If a JAMS arbitrator with specific
experience in the dental HMO or dental indemnity insurance business is not
available, the arbitrator must have general experience in the health insurance
industry. Within ten (10) days of notice of a Dispute from Seller to Purchaser
or notice from Purchaser to Seller, the Seller and Purchaser shall use their
best efforts to choose a mutually agreeable arbitrator. If the Purchaser and the
Seller cannot agree on an arbitrator, the arbitrator shall promptly be selected
by JAMS.

        (b)   The party submitting a Dispute to arbitration hereunder shall
present its case to the arbitrator and the other party hereto in written form
within twenty (20) days after the appointment of the arbitrator. The other party
hereto shall then have twenty (20) days to submit a written response to the
arbitrator and the original party who submitted the Dispute to arbitration.
After timely receipt of each party's case, the arbitrator shall have twenty
(20) days to render his or her decision.

        (c)   The arbitrator is relieved from judicial formalities and, in
addition to considering the rules of law, the limitations contained in this
Agreement and the customs and practices of the health care industry, shall make
his or her award with a view to effectuating the intent of this Agreement. The
decision of the arbitrator shall be final and binding upon the parties, and
judgment may be entered thereon in a court of competent jurisdiction. Each party
shall bear its own cost of arbitration, and the costs of the arbitrator shall be
shared equally among each party to a Dispute.

ARTICLE IX
TAX MATTERS

        Section 9.1    Seller Indemnification.    Seller shall be liable for,
and shall indemnify and hold Purchaser harmless against, all Taxes of the
Company payable for any taxable year or taxable period ending on or before the
Closing Date, but only to the extent such Taxes exceed the amount of Taxes that
have been reserved for in the Financial Statements, and any premium taxes
arising on account of any premium with respect to the HNL Dental Business
allocable to coverage prior to the Closing Date. To appropriately apportion any
income Taxes relating to any taxable year beginning before (and ending after)
the Closing Date, the parties shall apportion such income Taxes to the taxable
period ending on or before the Closing Date by a closing of the Company's books
consistent with its past practice for reporting items, except that
(i) exemptions, allowances or deductions that are calculated on a time basis,
such as the deduction for depreciation, shall be apportioned on a time basis and
(ii) all Taxes relating to actions outside the ordinary course of business,
occurring after the Closing shall be apportioned to the period ending after the
Closing Date and all Taxes relating to actions outside the ordinary course of
business, occurring prior to the Closing shall be apportioned to the period
ending on the Closing Date. To appropriately apportion any non-income Taxes
relating to any taxable year beginning before (and ending after) the Closing
Date, the parties shall apportion such non-income Taxes to the taxable period
ending on or before the Closing Date as follows: (x) ad valorem Taxes
(including, without limitation, real and personal property taxes) shall be
accrued on a daily basis over the period for which such Taxes are levied, or if
it cannot be determined over the period such Taxes are

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being levied, over the fiscal period of the relevant taxing authority, in each
case irrespective of the lien or assessment date of such Taxes, (y) all Taxes
relating to actions outside the ordinary course of business occurring after the
Closing shall be apportioned to the period ending after the Closing Date and
(z) franchise and other privilege Taxes not measured by income shall be accrued
on a daily basis over the period to which the privilege relates.

        Section 9.2    Purchaser and the Company Indemnification.    Purchaser
and the Company shall be liable for, and shall indemnify and hold Seller and any
of its Affiliates harmless against, any and all Taxes imposed on the Company
relating or apportioned to any taxable year or portion thereof ending after the
Closing Date including, without limitation, all Taxes relating to actions
outside the ordinary course of business occurring after the Closing, on the
Closing Date.

        Section 9.3    Preparation of Tax Returns.    Seller shall prepare and
file, or cause to be filed, all Tax Returns (including amended Tax Returns)
relating to the Company for any Tax period ending on or prior to the Closing
Date. Purchaser shall prepare and file, or cause to be filed, all other Tax
Returns relating to the Company.

        Section 9.4    Refunds or Credits.    Purchaser or the Company shall
promptly pay to Seller any refunds or credits (including interest paid by the
IRS thereon) relating to Taxes for which Seller may be liable under Section 9.1
hereof except to the extent such refund or credit is included as an asset on the
Closing Balance Sheet and used to calculate the Excess Tangible Net Equity. If
Purchaser or Company receives a refund from the IRS relating to Taxes for which
Seller may be liable under Section 9.1 hereof and fails to pay such refund to
Seller within thirty (30) days of receipt, Purchaser shall pay interest on such
refund at the rate of one-percent (1%) until such amount is paid to Seller. For
purposes of this Section 9.4, the terms "refund" and "credit" shall include a
reduction in Taxes and the use of an overpayment of Taxes as an audit or other
Tax offset. Receipt of a refund shall occur upon the filing of a Tax Return or
an adjustment thereto using such reduction, overpayment or offset, or upon the
receipt of cash. Upon the request of Seller, Purchaser shall prepare and file,
or cause to be prepared and filed, all claims for refunds relating to such
Taxes; provided, however, that Purchaser shall not be required to file such
claims for refund to the extent such claims for refund would have a Purchaser
Material Adverse Effect in future periods or to the extent the claims for refund
relate to a carryback of an item. Purchaser shall be entitled to all other
refunds and credits of Taxes; provided, however, that Purchaser will not allow
the amendment of any Tax Return relating to any Taxes for a period (or portion
thereof) ending on or prior to the Closing Date or the carryback of an item to a
period ending prior to Closing without Seller's consent.

        Section 9.5    Section 338(h)(10) Election.    

        (a)   Purchaser shall have the right, but not the obligation, to require
Seller upon written request delivered to Seller within one hundred and eighty
(180) days after the Closing Date, to join with Purchaser in making the
elections provided for in section 338(g) and section 338(h)(10) of the Code (the
"338 Elections"). If Purchaser exercises its right to make the 338 Elections,
Purchaser and Seller shall also make such other similar elections as may be
necessary for state and local income tax purposes provided that such elections
achieve substantially the same results to Purchaser, Seller and the Company as
the 338 Elections achieve for federal income tax purposes and, for purposes of
this Agreement, the term "338 Elections" shall be deemed to include any such
state and local income tax elections. Purchaser and Seller shall comply fully
with all filings and other requirements necessary to effectuate the 338
Elections on a timely basis and agree to cooperate in good faith with each other
in the preparation and timely filing of all Tax Returns required to be filed in
connection with the making of the 338 Elections, including the exchange of
information and the joint preparation and filing of Form 8023 (including related
schedules).

        (b)   The fair market value, "aggregate deemed sales price," and
"adjusted grossed-up basis" (as those terms are defined in the Treasury
Regulations promulgated under section 338 of the Code) of

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each asset of the Company shall be determined in accordance with the allocation
(the "Allocation") mutually agreed upon, in writing, by Purchaser and Seller.
Purchaser and Seller shall (i) assist each other in the preparation of the
Allocation; (ii) agree to act in accordance with the Allocation in the
preparation and filing of all Tax Returns and in the course of any tax audits,
appeals, or litigation relating thereto; and (iii) each notify the other as soon
as reasonably practicable of any audit adjustment or proposed audit adjustment
by any taxing authority that affects or may affect the Allocation.

        (c)   If Purchaser and Seller make the 338 Elections, the Tax
attributable to the gain realized by the Company on the deemed sale of its
assets pursuant to the 338 Elections shall be allocated and paid (i) by Seller,
to the extent of the amount of Tax that, if the 338 Elections had not been made,
would have been imposed on the gain realized by Seller on the sale of the Shares
pursuant to this Agreement, and (ii) by Purchaser, to the extent of the
remaining portion of such Tax. Any Tax imposed upon Seller that is attributable
to the 338 Elections and that is in excess of the amount described in clause (i)
of the immediately preceding sentence shall be paid by Purchaser to Seller at
least five (5) Business Days prior to the due date for payment of such Tax.

        (d)   For purposes of Section 9.5(c), the "amount of the Tax that, if
the 338 Elections had not been made, would have been imposed on the gain
realized by Seller on the sale of the Shares pursuant to this Agreement" shall
be the excess of (i) the aggregate amount of Tax that would have been imposed on
Seller (or the consolidated, combined, or unitary group of which Seller is a
member) for the taxable period that includes the Closing Date if the 338
Elections had not been made over (ii) the aggregate amount of Tax that would
have been imposed on Seller (or the consolidated, combined, or unitary group of
which Seller is a member) for such taxable period if the 338 Elections had not
been made and Seller recognized no gain on the sale of the Shares. Within sixty
(60) days following the Closing Date, Seller shall provide Purchaser a
calculation of such excess, showing all information necessary to the
computation, and which shall include a schedule that sets forth the
determination (including any and all adjustments made pursuant to the federal
consolidated tax return rules as provided in sections 1502 and 1503 of the Code
and the Treasury Regulations promulgated pursuant to such sections) of Seller's
adjusted tax basis in the Shares as of the Closing Date.

        (e)   The Tax described in Sections 9.5(c) and 9.5(d) shall be increased
or decreased, as the case may be, by any adjustments to such Tax that occur
after the Closing Date.

        (f)    Each party shall use its best efforts to minimize the amount of
any Tax allocable to the other pursuant to Section 9.5(c).

        (g)   Notwithstanding anything in this Article IX to the contrary, if
Purchaser and Seller make the 338 Elections, Purchaser shall pay or cause to be
paid all Tax allocable to Purchaser pursuant to Section 9.2(c).

        Section 9.6    Mutual Cooperation.    As soon as practicable, but in any
event within fifteen (15) days after either Seller's or Purchaser's request, as
the case may be, Purchaser shall deliver to Seller or Seller shall deliver to
Purchaser, as the case may be, such information and other data relating to the
Tax Returns and Taxes of the Company and shall provide such other assistance as
may reasonably be requested, to cause the completion and filing of all Tax
Returns or to respond to audits by any taxing authorities with respect to any
Tax Returns or taxable periods or to otherwise enable Seller, Purchaser or the
Company to satisfy their accounting or Tax requirements. For a period of five
years from and after the Closing, Purchaser and Seller shall, and shall cause
their Affiliates to, maintain and make available to the other party, on such
other party's reasonable request, copies of any and all information, books and
records referred to in this Section 9.6. After such five-year period, Purchaser
or Seller may dispose of such information, books and records, provided that
prior to such disposition, Purchaser or Seller shall give the other party the
opportunity to take possessions of such information, books and records.

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        Section 9.7    Contests.    Whenever any taxing authority asserts a
claim, makes an assessment or otherwise disputes the amount of Taxes for which
Seller is or may be liable under this Agreement, Purchaser shall, if informed of
such an assertion, promptly inform Seller within five (5) Business Days, and
Seller shall have the right to control any resulting proceedings and to
determine whether and when to settle any such claim, assessment or dispute to
the extent such proceedings or determinations affect the amount of Taxes for
which Seller may be liable under the Agreement. If Purchaser fails to provide
such notice and such failure shall prejudice Seller's ability to defend such
assessment, then Seller's obligation under Section 9.1 shall be null and void
with regard to such assessment. Whenever any taxing authority asserts a claim,
makes an assessment or otherwise disputes the amount of Taxes for which
Purchaser is liable under this Agreement, Purchaser shall have the right to
control any resulting proceedings and to determine whether and when to settle
any such claim, assessment or dispute, except to the extent such proceedings
affect the amount of Taxes for which Seller may be liable under this Agreement.

        Section 9.8    Survival of Obligations.    The obligations of the
parties set forth in this Article IX shall be unconditional and absolute, and
shall remain in effect until 30 days after the expiration of the applicable
statute of limitations.

ARTICLE X
TERMINATION

        Section 10.1    Termination.    This Agreement may be terminated at any
time prior to the Closing Date:

        (a)   by mutual agreement of the parties hereto in writing;

        (b)   at the election of either party hereto if any of the conditions to
its obligation to consummate the transactions contemplated hereby have not been
fulfilled as of June 30, 2003 (the "Optional Termination Date"), provided,
however, that in the event the Closing of the transactions contemplated hereby
has not occurred prior to the Optional Termination Date solely because of the
failure to obtain consents, approvals, permits or authorizations as required by
the conditions set forth in Sections 6.4 or 7.4, despite the responsible party
using its commercially reasonable efforts to obtain such consents, approvals
permits or authorizations, the Optional Termination Date will automatically be
amended to be September 30, 2003; or

        (c)   at the election of Seller if Purchaser has failed to provide
reasonably satisfactory written evidence of the availability of, or commitment
for, sufficient funds in an aggregate amount of not less than the anticipated
Purchase Price, as may be adjusted pursuant to Section 2.4 hereof, plus all
contemplated fees and expenses expected to be incurred by Purchaser related to
the Transactions contemplated by this Agreement within fifteen (15) days of the
date of this Agreement.

        Section 10.2    Effect of Termination.    If this Agreement is
terminated pursuant to Section 10.1, this Agreement shall thereafter become void
and of no force and effect, and neither party hereto shall have any liability to
the other party hereto in respect of this Agreement, except that Sections 5.9
(Confidentiality), Section 8.8 (Arbitration) and 11.2 (Fees and Expenses), and
this Article X shall survive any such termination.

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ARTICLE XI
MISCELLANEOUS

        Section 11.1    Notices.    Any notice or other communication required
or permitted hereunder shall be in writing and shall be delivered by hand by
certified process server, certified or registered mail (postage prepaid and
return receipt requested), by a nationally recognized overnight courier service
(appropriately marked for overnight delivery) or by facsimile (with request for
immediate confirmation of receipt in a manner customary for communications of
such respective type). Notices shall be effective upon receipt and shall be
addressed as follows:

        (a)   if to Purchaser to:

SafeGuard Health Enterprises, Inc.
95 Enterprise, Suite 100
Aliso Viejo, California 92656
Attn.: James E. Buncher
President and Chief Executive Officer
Tel: (949) 425-4100
Fax: (949) 425-4101

with a copy to:

Ronald I. Brendzel
Senior Vice President and General Counsel
SafeGuard Health Enterprises, Inc.
95 Enterprise, Suite 100
Aliso Viejo, California 92656
Tel: (949) 425-4110
Fax: (949) 425-4586

and

David K. Meyercord
Strasburger and Price, LLP
901 Main Street, Ste. 4300
Dallas, Texas 75202-3794
Tel: (214) 651-4525
Fax: (214) 659-4023

        (b)   if to Seller to:

Health Net, Inc.
Att: General Counsel
21650 Oxnard Street
Woodland Hills, California 91367
Tel: (818) 676-7601
Fax: (818) 676-7503

with a copy to:

Kenneth B. Schnoll
Sonnenschein Nath & Rosenthal
685 Market Street
San Francisco, CA 94105
Tel: (415) 882-0210
Fax: (415) 543-5472

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or to such other respective addresses as Seller or Purchaser shall designate to
the other by notice in writing, provided that notice of a change of address
shall be effective only upon receipt.

        Section 11.2    Fees and Expenses.    Except as otherwise provided
herein, each of the parties to this Agreement shall pay its respective fees and
expenses (including, without limitation, the fees and expenses of any investment
bankers, counsel, actuaries, accountants or other representatives) incurred in
connection with this Agreement and the transactions contemplated hereby, whether
or not such transactions are consummated.

        Section 11.3    Entire Agreement; Waivers and Amendments.    This
Agreement (including the Exhibits and the Schedules hereto) and the other
Transaction Documents contain the entire understanding of the parties with
respect to the subject matter hereof and thereof and supersede all prior
agreements written or oral, with respect hereto and thereto. This Agreement and
the other Transaction Documents may be amended or modified, and the terms hereof
and thereof may be waived, only by a writing signed by parties hereto or
thereto, as the case may be, or, in the case of a waiver, by the party waiving
compliance.

        Section 11.4    Assignment; Binding Effect.    This Agreement and the
other Transaction Documents may not be assigned or delegated, in whole or in
part, by any party hereto or thereto without the prior written consent of the
other hereto or thereto, which consent shall not be unreasonably withheld. This
Agreement and the other Transaction Documents shall be binding upon and inure to
the benefit of the parties hereto and thereto and their respective permitted
successors and assigns.

        Section 11.5    Severability.    In the event that any provision of this
Agreement or any other Transaction Document shall be declared invalid or
unenforceable by a court of competent jurisdiction, such provision, to the
extent declared invalid or unenforceable, shall not affect the validity or
enforceability of the other provisions of this Agreement or any other
Transaction Document, as the case may be. In the event that any such provision
shall be declared unenforceable due to its scope, breadth or duration, then it
shall be modified to the scope, breadth or duration permitted by law or judicial
authority and shall continue to be fully enforceable as so modified.

        Section 11.6    Force Majeure.    No party hereto shall be liable for
any delay or failure in the performance of any obligation under this Agreement
or for any loss or damage (including indirect or consequential damage) to the
extent that such nonperformance, delay, loss or damage results from any
contingency which is beyond the control of such party, provided such contingency
is not caused by the fault or negligence of such party. A contingency for
purposes of this Agreement shall be acts of God, fires, floods, earthquakes,
explosions, storms, wars, hostilities, acts of terrorism, blockades, public
disorders, quarantines, restrictions, embargoes, strikes or other labor
disturbances, and compliance with any Law, order or control of, or insistence of
any Governmental Authority or military authority.

        Section 11.7    Governing Law.    This Agreement and the other
Transaction Documents shall be governed by and construed in accordance with the
internal laws of the State of California, without giving effect to the
principles of conflicts of law thereof.

        Section 11.8    Headings.    The Article and Section headings in this
Agreement and the other Transaction Documents are inserted for convenience of
reference only, and shall not affect the interpretation of this Agreement or the
other Transaction Documents.

        Section 11.9    Counterparts.    This Agreement and any of the other
Transaction Documents may be executed in counterparts, each of which shall be
deemed an original and both of which shall together constitute one fully
executed agreement.

        Section 11.10    No Third Party Beneficiaries.    Nothing in this
Agreement or in any other Transaction Document is intended to give any Person,
other than the parties to the Transaction Documents, their successors, and
permitted assigns, any legal or equitable right or remedy hereunder or
thereunder, or in respect to any provision hereof or thereof.

[Balance of Page Intentionally Left Blank]

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        IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed on its behalf as of the date first above written.

    SAFEGUARD HEALTH ENTERPRISES, INC.
        Purchaser
 
 
By:
/s/  JAMES E. BUNCHER      

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Name: James E. Buncher
Title: President and Chief Executive Officer
 
 
By:
/s/  RONALD I. BRENDZEL      

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Name: Ronald I. Brendzel
Title: Senior Vice President and Secretary
 
 
HEALTH NET, INC.
        Seller
 
 
By:
/s/  B. CURTIS WESTEN      

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Name: B. Curtis Westen
Title: Senior Vice President, General Counsel and Secretary

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