Exhibit 10.1

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ASSET PURCHASE AGREEMENT

 

dated as of November 22, 2004

by and between

 

SHARP HEALTH PLAN

and

MOLINA HEALTHCARE OF CALIFORNIA

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ASSET PURCHASE AGREEMENT

          THIS ASSET PURCHASE AGREEMENT (this “Agreement”), dated as of November
22, 2004, is entered into by and between SHARP HEALTH PLAN, a California
non-profit public benefit corporation (“Sharp” or the “Seller”), and MOLINA
HEALTHCARE OF CALIFORNIA, a California corporation (“Molina” or the “Buyer”). 
Seller and Buyer are referred to herein individually as a “Party” and
collectively as the “Parties.”

RECITALS

          WHEREAS, Sharp is a non-profit Knox-Keene-licensed health maintenance
organization (“HMO”)  exempt from federal income tax as an organization
described in Section 501(c)(4) of the Internal Revenue Code of 1986, as amended,
with approximately 50,000 Medi-Cal enrollees in the San Diego Geographic Managed
Care Program (the “GMC Program”) and approximately 19,500 enrollees in the
Healthy Families Program (the “Healthy Families Program”);  

          WHEREAS, Molina is a for-profit Knox-Keene licensed HMO that arranges
for the delivery of health care services to persons in California eligible for
Medi-Cal and other programs for low-income families and individuals;

          WHEREAS, Sharp wishes to sell, and Molina wishes to acquire, the
contracts and provider network associated with the GMC Program and the Healthy
Families Program (collectively, the “GMC Contracts” and the “Healthy Families
Contracts,” respectively);

          WHEREAS, Sharp is willing to provide to Molina, pursuant to the terms
of a transition services agreement, certain transition services and assistance
related to the assets being sold under this Agreement;

          NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants, agreements, representations, and warranties contained herein, and for
other good and valuable consideration, the Seller and the Buyer hereby agree as
follows:

ARTICLE I

DEFINITIONS

          1.1 Definitions. When used in this Agreement, these terms shall have
these meanings:

          “Actions” means any action, claim, suit, litigation, proceeding,
arbitration action, audit, or investigation by or before any Governmental
Authority.

          “Affiliate” means, with respect to any specified Person, a Person
controlled by, under common control with, or controlling such Person.  For
purposes of this definition, “control” of a Person means the possession, direct
or indirect, of the power to (a) vote ten percent (10%) or more of the voting
securities of such Person, or (b) elect a majority of the governing body of such
Person.

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          “Asset Purchase” means the sale by the Seller and the purchase by the
Buyer of the Assets and the assumption of the Assumed Obligations by the Buyer
pursuant to this Agreement and the Assignment and Assumption Agreement.

          “Assets” means those assets and all of the rights accruing thereunder
after the Closing Date as more particularly described in Schedule 1(a) attached
hereto and incorporated herein by this reference. 

          “Assumed Obligations” means all of the obligations and liabilities
arising under the Assets, including, without limitation, medical service
obligations, relating to any event or period at or after 12:01 a.m., local time,
on the Closing Date, and excluding the Excluded Obligations.

          “Assignment and Assumption Agreement” means that agreement
substantially in the form attached hereto as Exhibit A, and subject to such
amendments as may be required in order to obtain the necessary Governmental
Authorizations, pursuant to which the Buyer agrees to assume the Assumed
Obligations on the Closing Date.

           “Business Day” means any day other than a Saturday or Sunday or any
other day on which commercial banks located in the State of California generally
are authorized to close for business other than the retail depository business.

          “Closing” means the closing of the sale, assignment, and purchase of
the Assets and the assumption of the Assumed Obligations by the Buyer effective
as of the Closing Date, in accordance with and subject to Article II and all of
the terms and conditions of this Agreement.

          “Closing Date” means the date on which the Closing becomes effective.

          “Code” shall mean the Internal Revenue Code of 1986, as amended.

          “Earn Out” shall mean the additional payment that may be made to the
Seller pursuant to Section 2.3 hereof.

          “Enrollees” means those beneficiaries enrolled in the GMC Program or
the Healthy Families Program and covered under the GMC Contract or the Healthy
Families Contract, respectively.

          “Excluded Assets” means all right and interest in any payments,
including, but not limited to, payments upon settlement or reconciliation of
accounts, retroactive coverage determinations, or amounts recoverable from a
provider or facility in connection with an eligibility determination, related to
the Assets and arising before 12:01 a.m. local time on the Closing Date, whether
known or unknown, asserted or unasserted, accrued or unaccrued.

          “Excluded Obligations” means any and all claims and/or claims payment
liability arising from health services arranged for or provided by the Seller
before 12:01 a.m. local time on the Closing Date in connection with the Assets,
including obligations for Pre-Closing Admissions extending beyond the Closing
Date up to $75,000 as provided in Section 2.5 hereof, or obligations that arise
out of acts or omissions of the Seller that occurred before the Closing Date.

          “Exhibits” means the exhibits attached hereto by Seller and Buyer
which form part of this Agreement.

          “GMC Contract” means that certain contract between the Seller and the
State of California regarding the GMC Program. 

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          “Governmental Authority” means the government of the United States of
America, the government of the State of California, or any political department,
agency, or subdivision thereof, and any entity, body, or authority exercising
executive, legislative, judicial, regulatory, or administrative functions of or
pertaining to government, including quasi-governmental entities established to
perform such functions, including, but not limited to, those Governmental
Authorities listed in Schedule 1(b) attached hereto and incorporated herein by
reference.

          “Governmental Authorizations” means the licenses, permits, consents,
approvals, and other authorizations required by law or any Governmental
Authority to be held by a Person for a particular purpose, including for the
purposes of transferring or acquiring the Assets or for service area expansion. 

          “Healthy Families Contract” means that certain contract between the
Seller and the State of California regarding the Healthy Families Program.

           “Laws” means all applicable federal, state, local, and other laws,
statutes, ordinances, rules, regulations, and judicial or administrative orders,
judgments, promulgations, and decisions.

          “Material Adverse Effect” means, with respect to either Party, any
change, effect, or circumstance that, individually or in the aggregate, is or is
reasonably likely to be materially adverse to the financial condition, results
of operations, or membership of such Party; provided, however, that the
following shall not be taken into account in determining whether there has been
or would be a Material Adverse Effect on or with respect to such Party: (a) any
change, effect, or circumstance relating to conditions affecting the economy of
any part of the world generally, or any change, effect, or circumstance relating
to conditions generally affecting the health care  industry, and, in either
case, not affecting such Party in a materially disproportionate manner, and (b)
any change, circumstance, or effect caused by the announcement or pendency of
the Asset Purchase. 

          “Person” means any individual, partnership, limited liability company,
corporation, estate, trust, unincorporated association, business, or other legal
entity, and any government or any governmental agency or political subdivision
thereof.

          “Pre-Closing Admissions” means all inpatient acute care hospital
admissions for an Enrollee occurring prior to 12:01 a.m. local time on the
Closing Date.  

          “Purchase Price” means an aggregate amount of Twenty-Five Million
Dollars ($25,000,000), subject to adjustment as provided in Section 2.2 below.

          “Reasonable Commercial Efforts” do not include the provision of any
consideration to any third party or the suffering of any economic detriment to a
Party’s ongoing operations for the procurement of any consent, authorization, or
approval required under this Agreement except for (i) the costs of gathering and
supplying data or other information or making any filings; (ii) fees and
expenses of counsel and consultants; and (iii) customary fees and charges of
Governmental Authorities and accreditation organizations.

          “Transaction Documents” means this Agreement, the Transition Services
Agreement, the Assignment and Assumption Agreement, and all other documents to
be executed by the Parties hereto in connection with the consummation of the
transactions contemplated hereby.

          “Transition Services” means those transition services to be provided
by Seller to Buyer pursuant to the terms of a Transition Services Agreement to
be entered into between Seller and Buyer effective as of the Closing Date,
whereby Seller shall provide certain transition services and assistance to Buyer
as described in the Transition Services Agreement attached as Exhibit B hereto,
and subject to such amendments as may be required in order to obtain the
necessary Governmental Authorizations.

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ARTICLE II
SALE AND PURCHASE OF ASSETS

          2.1 Transfer of Assets.  At the Closing, on the terms and conditions
set forth in this Agreement, Seller shall sell, convey, assign, transfer, and
deliver without recourse (except as expressly provided herein) to the Buyer, and
the Buyer shall purchase and acquire from the Seller, the Assets, and the Buyer
shall also assume the Assumed Obligations.  Seller shall not transfer and shall
retain all rights to the Excluded Assets, and shall remain obligated with
respect to the Excluded Obligations.

          2.2 Purchase Price and Payment.

          (a) As payment for the Assets, on the Closing Date, the Seller shall
cause the Purchase Price to be paid to the Buyer and the Buyer shall assume the
Assumed Obligations.  Payment of the Purchase Price to the Buyer shall be made
by the Seller in lawful currency of the United States of America in immediately
available funds by wire transfer to the account of the Buyer, designated by the
Buyer in writing.  In the event the Closing Date is not a Business Day, the
Purchase Price shall be delivered on the first Business Day thereafter. 

          (b) The final adjusted Purchase Price for the Assets shall be
conditioned upon the aggregate monthly premium revenues under both the GMC
Contract and the Healthy Families Contract (the “Monthly Premium Revenues”),
consistently measured at all relevant periods.  If, as of the Closing Date,
there has been a material change in the Monthly Premium Revenues for the
calendar month immediately preceding the Closing Date (without giving effect to
any per Enrollee premium increases occurring between the baseline month and the
Closing Date), the Purchase Price shall be adjusted as provided herein.  For
purposes of this Section, a material change in Monthly Premium Revenues shall
mean an increase or a decrease greater than fifteen percent (15%) of the Monthly
Premium Revenues for the baseline month of August 2004, which baseline amount is
$6,248,388 (the “Baseline Revenue Amount”), or $937,258 (the “Material Change
Amount”).  All calculations in reference to the Baseline Revenue Amount
described in this Article II shall be proportionally adjusted to reflect that
August is a 31-day month, e.g., 30/31st of the Baseline Revenue Amount with
respect to revenues for the 30-day months April, June, etc. 

          (c) No later than forty-five (45) days following the Closing Date, the
Seller shall provide the Buyer with its monthly Remittance Advices (as defined
in Section 3.6 hereof) indicating the Monthly Premium Revenues for the calendar
month immediately preceding the Closing Date (the “Closing Date Revenue
Amount”).  The Buyer shall have ten (10) Business Days to review such Remittance
Advices.  In the event the Buyer does not object to the Closing Date Revenue
Amount as provided by the Seller within such ten (10) Business Day period, the
Buyer shall be deemed to have accepted the Closing Date Revenue Amount.  In the
event the Buyer objects to the Closing Date Revenue Amount within such ten (10)
Business Day period, the Buyer and the Seller shall negotiate in good faith to
resolve any such disputes within ten (10) Business Days.  In the event the Buyer
and the Seller cannot resolve such disputes within such ten (10) Business Day
period, the Closing Date Revenue Amount as provided by the Seller, together with
the objections submitted by the Buyer, shall be submitted to an independent
third party professional with recognized expertise and experience in
government-sponsored health programs as mutually agreed by the Parties for
determination of the Closing Date Revenue Amount, which determination shall be
made within twenty (20) Business Days and shall be final and binding on the
Parties.  The Buyer and the Seller shall each pay one half of the cost of any
such determination by such designated third party. 

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          (d) No adjustment to the final Purchase Price shall be made for any
difference between the Baseline Revenue Amount and the Closing Date Revenue
Amount that is less than or equal to the Material Change Amount.  In the event
the Closing Date Revenue Amount is less than the Baseline Revenue Amount by more
than the Material Change Amount, the Seller shall refund to the Buyer from the
previously paid Purchase Price, within three (3) Business Days after final
determination of the Closing Date Revenue Amount pursuant to Section 2.2(c)
above, an amount equal to the product obtained by multiplying the Purchase Price
amount by a fraction, the numerator of which shall be the difference between (i)
the Closing Date Revenue Amount, and (ii) the Baseline Revenue Amount less the
Material Change Amount, and the denominator of which shall be the Baseline
Revenue Amount less the Material Change Amount.  In the event the Closing Date
Revenue Amount exceeds the Baseline Revenue Amount by more than the Material
Change Amount, the Buyer shall pay to the Seller in addition to the previously
paid Purchase Price, within three (3) Business Days after final determination of
the Closing Date Revenue Amount pursuant to Section 2.2(c) above, an amount
equal to the product obtained by multiplying the Purchase Price amount by a
fraction, the numerator of which shall be the difference between (i) the Closing
Date Revenue Amount, and (ii) the Baseline Revenue Amount plus the Material
Change Amount, and the denominator of which shall be the Baseline Revenue Amount
plus the Material Change Amount.

          2.3 Earn-Out.

          (a) Independent of any amounts paid by Buyer to Seller under Section
2.2 hereof, the Parties intend to provide for the possible payment by the Buyer
of additional consideration to the Seller based on the financial performance of
the GMC Program and the Healthy Families Program as operated by the Buyer during
the 36 months following the Closing Date (the “Earn-Out”).

          (b) The Seller’s Earn-Out shall be based on the aggregate premium
revenues under both the GMC Contract and the Healthy Families Contract, less
aggregate medical expenses under the GMC Contract and the Healthy Families
Contract, each determined in a manner consistent with Buyer’s historical
ordinary course practices (the “Gross Margin Amount”).  The Gross Margin Amount
shall be measured over the twelve-month period immediately following the Closing
Date, and over the next two successive twelve-month periods (each such
twelve-month measuring period being referred to herein as an “Earn-Out
Period”). 

          (c) If the Gross Margin Amount during any Earn-Out Period is less than
$8,800,000, then the Buyer shall not pay the Seller any Earn-Out payment for
that Earn-Out Period.  If the Gross Margin Amount equals or exceeds $8,800,000
during the applicable Earn-Out Period, then the Buyer shall pay the Seller
fifteen percent (15%) of the Gross Margin Amount for such Earn-Out Period. 

          (d) In no event shall the aggregate Earn-Out payments paid by the
Buyer to the Seller exceed $3,500,000.  In the event the aggregate Earn-Out
payments to the Seller have equaled $3,500,000, or in the event that 36 months
have elapsed since the Closing Date, no further Earn-Out payments shall be made
by the Buyer to the Seller.   

          (e) Within 90 days of the end of each applicable Earn-Out Period, the
Buyer shall deliver to the Seller a written calculation of the Earn-Out payment,
if any, for the applicable Earn-Out Period, together with a check representing
the amount of the Earn-Out payment, if any.   The Buyer shall also give
reasonable access to the Seller and its accountants and financial consultants,
upon reasonable notice, to review the work papers and calculations used by the
Buyer in its determination of the Earn-Out payment, including but not limited to
review of historical and current incurred but not reported calculations.

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          (f) If the Seller disputes the Buyer’s calculation of the Earn-Out
payment, the Seller shall so notify the Buyer in writing within ten days after
receipt of the written calculation referred to in this Section 2.3.  The Parties
shall then attempt to resolve such dispute regarding the Earn-Out payment within
ten days.  If the Parties are unable to resolve their dispute, the Parties shall
then submit the matter to a mutually agreed-upon accounting firm (“Accounting
Firm”), who shall calculate the Earn-Out payment as described above.  The
Accounting Firm shall submit its written calculation of the Earn-Out to the
Parties within 45 days.  If the Accounting Firm’s calculation shows the Earn-Out
payment to be equal to or less than the amount determined by the Buyer, then the
Seller shall pay the Accounting Firm’s fees and expenses.  If the Accounting
Firm’s calculation shows the Earn-Out payment to be greater than the amount
determined by the Buyer, then the Buyer shall pay the Accounting Firm’s fees and
expenses. 

          2.4 Assumption of Obligations.  At 12:01 a.m., local time, on the
Closing Date, the Buyer shall assume the Assumed Obligations.  Buyer agrees to
pay, perform, and discharge, as the case may be, when due any and all duties,
obligations, liabilities, and restrictions pertaining to the Assumed
Obligations  The Buyer shall not assume any Excluded Obligations and the Seller
will retain all responsibility and liability, monetary or otherwise, for any and
all Excluded Obligations.

          2.5 Pre-Closing Admissions.  Notwithstanding the fact that patient
Pre-Closing Admissions extend beyond the Closing Date, Seller shall remain
solely liable for claims payment liability for all Pre-Closing Admissions in a
total amount not to exceed $75,000.  Pre-Closing Admission claims payment
liability exceeding the aggregate $75,000 limitation and any and all other
liability for services provided after the date of discharge or transfer to
another facility shall be the sole responsibility of the Buyer.  The Seller
shall adjudicate benefits and claims and remit appropriate claim payments to
providers and facilities in accordance with Seller’s policies and procedures for
all Pre-Closing Admissions.  Seller will invoice the Buyer for any Pre-Closing
Admission claims payment liability in excess of the aggregate $75,000
limitation.  Buyer shall reimburse Seller within three (3) business days of
receipt of invoice.

          2.6 Purchase Price Allocation.  The Seller and the Buyer agree to
cooperate with each other in meeting the requirements of §1060 of the Internal
Revenue Code of 1986, as amended, and each agree to file Internal Revenue
Service Form 8594 in accordance with the allocation of the Purchase Price to the
Assets to be agreed upon by the Parties within ninety (90) days following the
Closing Date. 

          2.7 The Closing.  Subject to the terms and conditions of this
Agreement, the Closing shall take place on (a) the date on which the Buyer is
permitted pursuant to the required Governmental Authorizations to commence the
providing of its services to Enrollees under the GMC Contract and the Healthy
Families Contract; or (b) on such other date as the Seller and the Buyer shall
agree in writing.  Upon consummation, the effective time of the Closing shall be
deemed to have taken place at 12:01 a.m. on the Closing Date.

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ARTICLE III

REPRESENTATIONS AND WARRANTIES OF SELLER

          The Seller represents and warrants to Buyer that, except as
specifically noted in a Schedule hereto, as of the date of execution of this
Agreement:

          3.1 Organization, Standing, and Power.  Seller is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
California, has the requisite power and authority to own and operate its
properties and to carry on its business as now being conducted, except where the
failure to be so organized, existing, and in good standing or to have such power
and authority would not reasonably be expected to have a Material Adverse Effect
on Seller.

          3.2 Authority; No Conflicts.

          (a) Seller has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby.  The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Seller and the statutory members.  This
Agreement has been duly executed and delivered by Seller and constitutes a valid
and binding agreement of Seller, enforceable against it in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, and similar laws relating to or affecting creditors
generally or by general equity principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law) or by an
implied covenant of good faith and fair dealing.

          (b) The execution and delivery of this Agreement by Seller does not or
will not, as the case may be, and the consummation by Seller of the transactions
contemplated hereby, and the performance of its obligations hereunder will not
conflict with or result in any violation of, or constitute a default under any
provision of the articles of incorporation or bylaws of Seller, or, any loan or
credit agreement, security agreement, note, mortgage, bond, indenture, lease, 
or other agreement, obligation, instrument, permit, concession,  license,
judgment, order, decree, statute, law, ordinance, rule, or regulation applicable
to Seller or its properties or assets.

          3.3 No Violation of Law; Licenses, Permits, and Registrations.  The
Seller is not in violation of, and has not been given notice or been charged
with any violation of, any law, statute, order, rule, regulation, ordinance, or
judgment (including, without limitation, any applicable environmental law,
ordinance, or regulation) of any Governmental Authority, except where such
violation could not reasonably be expected to have a Material Adverse Affect on
the Assets.  As of the date of this Agreement, no investigation or review by any
Governmental Authority is pending or, to the Seller’s knowledge, threatened
involving the Seller, nor has any Governmental Authority indicated an intention
to conduct any such investigation or review.  The Seller has all permits,
licenses, approvals, and authorizations of, and registrations with and under,
all federal, state, local, and foreign laws, and from all applicable
Governmental Authorities, required thereby to carry on the GMC Program and
Healthy Families Program as currently conducted, except where the failure to
have any such permits, licenses, approvals, authorizations, or registrations
could not reasonably be expected to have a Material Adverse Affect on the
Assets.  The Seller is currently performing, and has previously performed, under
the GMC Contract and the Healthy Families Contract in compliance with the laws,
statutes, orders, rules, regulations, ordinances, and judgments of all federal,
state, local, and foreign governmental and regulatory bodies and authorities.

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          3.4 Approvals and Consents. Except for such approvals as may be
required by the Governmental Authorities on Schedule 1(b), no permit, consent,
approval, or authorization of, or declaration or notice to, or report of filing
with, any Governmental Authority is required in connection with the execution,
delivery, or performance by the Seller of this Agreement. 

          3.5 Litigation; Compliance with Laws.   With the exception of those
listed on Schedule 3.5, there are no Actions pending or, to Seller’s knowledge,
threatened, against or affecting Seller having, or which would reasonably be
expected to have, a Material Adverse Effect on the Assets, nor is there is any
judgment, decree, injunction, rule, or order of any Governmental Authority or
arbitrator outstanding against Seller having, or which would reasonably be
expected to have, a Material Adverse Effect on the Assets. 

          3.6 Remittance Advices.  The Seller has provided to the Buyer complete
and accurate copies of the program invoices, reports, worksheets, calculation
documents, and remittance advices provided to it by DHS, MRMIB, and/or DMHC
(collectively, the “Remittance Advices”) with respect to the Assets reflecting
monthly enrollment figures, capitation fees, and amounts paid to the Seller by
the State of California for each of the months of August 2003 through August
2004.  Such Remittance Advices are sufficient to establish for the Seller’s
purposes the aggregate monthly premium revenues received by the Seller under
both the GMC Contract and the Healthy Families Contract for the respective
periods indicated.  For the month ended August 31, 2004, the Seller’s aggregate
monthly premium revenues from the GMC Contracts and the Healthy Families
Contracts were $6,248,388.  The Remittance Advices fairly present the aggregate
revenues of the Seller for the GMC Contract and the Healthy Families Contract
for the respective periods indicated.  The Seller shall provide to the Buyer on
a monthly basis additional Remittance Advices with respect to the Assets as and
when they become available after the date of this Agreement and before the
Closing Date.

          3.7 Statement of Revenues and Expenses.  Seller has delivered to Buyer
its unaudited statements of revenue and expenses, and its statements of
underwriting income, for the month of August 2004, and for each quarter from the
quarter ended December 31 2002 through the quarter ended June 30, 2004
(collectively, the “Seller Financial Statements”).  The Seller Financial
Statements have been prepared on a consistent basis throughout the periods
presented and are consistent with each other.  The Seller Financial Statements
fairly and accurately present the revenues and expenses, and the underwriting
income, of the Seller as of the dates, and for the periods, indicated therein,
subject to normal year-end adjustments and the absence of footnotes.  Seller
maintains a system of internal accounting controls sufficient to provide
reasonable assurance that transactions are executed with management’s general or
specific authorizations, and transactions are recorded as necessary to permit
preparation of the Seller Financial Statements. 

          3.8 Good Title to and Use of Assets.  The Seller has good and
marketable title to the Assets.  The Assets are being utilized by the Seller in
conformity with all applicable federal, local, and state health care related and
imposed rules, regulations, laws, statutes, and permits applicable to the
Assets, except where failure to so conform would not have a Material Adverse
Effect on the Assets.  Seller has not created nor suffered to exist any pledge
of, security interest in, or encumbrance on, any of the Assets or any current or
future revenues resulting from the Assets.

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          3.9 Individual and Physician Agreements.  As of the execution of this
Agreement, the Seller has in effect standard physician agreements with licensed
physicians in the GMC Program and the Healthy Families Program, the form of
which agreements have been provided or will be provided to the Buyer as soon as
practicable.  The Seller has not received or given notice of any default or
claimed or purported or alleged default or state of facts which, with notice or
lapse of time or both, would constitute a default on the part of any party in
the performance or payment of any obligation to be performed or paid by any
party under any such agreement. 

          3.10 IPA/PHO/Medical Groups and Hospital Services Agreements.  The
Seller has provided or will provide to the Buyer as soon as practicable true and
complete copies of all agreements or arrangements with all individual practice
associations (“IPAs”), physician hospital organizations (“PHOs”), provider
service organizations (“PSOs”), medical groups, or other physician groups or
networks or hospitals, healthcare systems, and other healthcare institutions. 
There is no default or state of facts which, with notice or lapse of time or
both, would constitute a default on the part of the Seller in the performance of
any obligation related to the Assets which is to be performed or paid by any
party under any such agreement.  The Seller has not received or given notice of
any default or claimed or purported or alleged default or state of facts which,
with notice or lapse of time or both, would constitute a default on the part of
any party in the performance or payment of any obligation related to the Assets
to be performed or paid by any party under any such agreement.

          3.11 Accreditation.  The Seller has delivered or shall deliver to the
Buyer true, correct, and complete copies of: (i) the 2003 CAHPS Survey for the
Assets, and (ii) the 2003 HEDIS data for the Assets.  The Seller shall also
provide the Buyer with the 2004 CAHPS Survey and the 2004 HEDIS data for the
Assets when they are available.    

          3.12 True and Complete Copies.  The Seller has made available for
inspection by the Buyer true and complete originals or copies of the Assets.

          3.13 No Vote Required.  No vote or other action of the members of
Seller is required by law, Seller’s articles of incorporation or bylaws or
otherwise that has not been obtained in order for the Seller to consummate the
Asset Purchase and the transactions contemplated hereby and perform its
obligations hereunder.

          3.14 Disclosure.  None of the information and documents provided to
the Buyer during the Buyer’s due diligence investigations prior to execution of
this Agreement is false or misleading in any material respect.

          3.15 Survival of Representations and Warranties.  The representations
and warranties of the Seller contained herein shall survive for a period of one
(1) year following the Closing Date.

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ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF BUYER

          The Buyer represents and warrants to the Seller that, except as
specifically noted in a Schedule hereto, as of the date of execution of this
Agreement:

          4.1 Organization, Standing, and Power.  The Buyer is a corporation
duly organized, validly existing, and in good standing under the laws of  the
State of California, has the requisite power and authority to own and operate
its properties and to carry on its business as now being conducted, except where
the failure to be so organized, existing, and in good standing or to have such
power and authority would not reasonably be expected to have a Material Adverse
Effect on Buyer, and is duly qualified and in good standing to do business in
California.

          4.2 Authority; No Conflicts.

          (a) Buyer has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby.  The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Buyer. This Agreement has been duly executed and
delivered by Buyer and constitutes a valid and binding agreement of Buyer,
enforceable against it in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and similar laws relating to or affecting creditors generally or by
general equity principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law) or by an implied covenant of
good faith and fair dealing.

          (b) The execution and delivery of this Agreement by Buyer does not or
will not, as the case may be, and the consummation by Buyer of the Asset
Purchase and the other transactions contemplated hereby will not, conflict with,
or result in any Violation pursuant to: (A) any provision of the articles of
incorporation or bylaws of Buyer, or (B) except as would not reasonably be
expected to have a Material Adverse Effect on Buyer, subject to obtaining or
making the consents and filings referred to in paragraph (c) below, any loan or
credit agreement, note, mortgage, bond, indenture, lease, benefit plan or other
agreement, obligation, instrument, permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Buyer, or its properties or assets.

          (c) No consent of or filing with any Governmental Authority is
required by or with respect to Buyer in connection with the execution and
delivery of this Agreement by Buyer or the consummation of the Asset Purchase
and the other transactions contemplated hereby, except for those required under
or in relation to, DHS, DMHC, MRMIB, and HSD.

          4.3 Litigation; Compliance with Laws.  Except as disclosed in the
Buyer Disclosure Schedule, there is no suit, action, investigation, or
proceeding pending or, to Buyer’s knowledge, threatened against, or affecting
the Buyer having, or which would reasonably be expected to have, a Material
Adverse Effect on the Buyer, nor is there any judgment, decree, injunction,
rule, or order of any Governmental Authority or arbitrator outstanding against
the Buyer having, or which would reasonably be expected to have, a Material
Adverse Effect on the Buyer.

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          4.4 No Vote Required.  No vote or other action of the stockholders of
the Buyer is required by law, the Buyer’s articles of incorporation or bylaws or
otherwise in order for the Buyer to consummate the Asset Purchase and the
transactions contemplated hereby.

          4.5 Approvals and Consents. Except for such approvals as may be
required by DHS, DMHC, MRMIB, and HSD, if and as required by law, no permit,
consent, or filing with any Governmental Authority is required in connection
with the execution, delivery, or performance by the Buyer of this Agreement. 
The execution, delivery, and performance by the Buyer of this Agreement does not
conflict with, accelerate any amount owed under, result in termination of,
result in any breach or violation of any other terms, conditions or provisions
of, constitute a default under or result in the creation of any lien upon, any
of the Buyer’s assets under any charter document, contract, or instrument.

          4.6 Availability of Funds. The Buyer has cash, or the ability to
obtain cash by means of credit facilities with financially responsible third
parties, in an amount sufficient to enable it to perform all of its obligations
hereunder, including, without limitation, payment of the Purchase Price and
additional payment pursuant to the Earn Out to the Seller.

          4.7 Survival of Representations and Warranties.  The representations
and warranties of the Buyer contained herein shall survive for a period of one
(1) year following the Closing Date.

ARTICLE V

CONDUCT OF SELLER PENDING CLOSING

          Prior to the Closing Date hereunder or the earlier termination of this
Agreement, except to the extent that the Buyer shall otherwise consent in
writing, the Seller shall:

          (a) conduct its business activities related to the Assets in the
ordinary course and consistent with the past practice of the Seller;

          (b) not sell, dispose of, or encumber any Assets, or enter into or
terminate any contract, agreement, commitment, or arrangement with respect to
any of the Assets, except in the ordinary course and consistent with the past
practice of the Seller; and 

          (c) preserve intact the Assets and the goodwill associated therewith,
and its relationships with Enrollees, providers, vendors, and others having
material business relationships with the Assets.

ARTICLE VI

CLOSING CONDITIONS

          6.1 Conditions to Each Party’s Obligation to Effect the Asset
Purchase.  The obligation of each Party hereto to complete the Asset Purchase
shall be subject to the fulfillment and satisfaction on or prior to the Closing
Date of the following conditions, except that, to the extent permitted by
applicable law, such conditions may be waived in writing by the joint action of
the Parties hereto:

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          (a) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction, or other order issued by any court
of competent jurisdiction or any other Governmental Authorities, or other legal
or regulatory restraint or prohibition preventing the consummation of the Asset
Purchase, shall be or remain in effect, nor shall there be any action taken, or
any law, statute, rule, regulation, decree, or order been enacted, adopted,
entered, enforced, or deemed applicable to the Asset Purchase, which remains in
effect and which makes the consummation of the Asset Purchase illegal.

          (b) Governmental Authorizations and Consents. Any required
Governmental Authorizations to transfer the Assets and provide services to
Enrollees under the GMC Contract and the Healthy Families Contract, and for
service area expansion into San Diego County, shall have been obtained.  The
Seller and the Buyer shall have obtained from each Governmental Authority or
other Person all approvals, waivers, consents, and permits, necessary for
consummation of the Asset Purchase and the transactions contemplated hereby.

          (c) Legal Proceedings. There shall not be pending any Action by any
Governmental Authority or other Person: (i) challenging or seeking to restrain
or prohibit the consummation of the Asset Purchase; (ii) relating to the Asset
Purchase and seeking to obtain from the Seller, the Buyer, or their Affiliates,
any damages or other relief that would be material to any of the Seller or the
Buyer or their Affiliates; (iii) which would materially and adversely affect the
right of Buyer to own the Assets or to operate the Assets following the Closing;
(iv) seeking to compel the Seller or the Buyer or any of their Affiliates to
dispose of or hold separate any Assets, (v) which is reasonably likely to have a
Material Adverse Effect on the Assets or (vi) which is reasonably likely to
enjoin, restrain, or prohibit any integration of any operations of the Assets
with those of the Buyer.

          6.2 Conditions to Obligation of the Seller to Effect the Asset
Purchase.  The obligation of the Seller to effect the Asset Purchase and the
transactions contemplated under this Agreement shall be further subject to the
satisfaction and fulfillment, at or prior to the Closing, of each of the
following conditions, any of which may be waived in writing by the Seller:

          (a) Compliance With Agreements and Covenants.  The Buyer shall have
performed and complied in all material respects with all of its covenants,
obligations, and agreements contained in this Agreement to be performed and
complied with on or prior to the Closing Date.

          (b) Representations and Warranties. The representations and warranties
of the Buyer contained herein (i) shall be true and correct in all material
respects, on and as of the date of this Agreement, and (ii) shall also be true
and correct, on and as of the Closing Date with the same force and effect as
though made on and as of the Closing Date (except for those representations and
warranties limited by materiality or the existence of a Material Adverse Effect,
which shall be true and correct in all respects).

          (c) Closing Certificate.  The Seller shall have received a certificate
of the President or an Executive Vice President of the Buyer, dated the Closing
Date, certifying that the conditions set forth in Sections 6.2(a) and 6.2(b)
have been satisfied; and the Seller shall also have received a certificate of
the Secretary of the Buyer, dated the Closing Date, certifying as to the Buyer’s
Articles, Bylaws, and the resolutions duly adopted by the Buyer’s Board of
Directors regarding the Asset Purchase.

          (d) Payment of Purchase Price.  The Buyer shall have delivered
immediately available funds in the amount of the Purchase Price to the Seller in
accordance with Section 2.2 hereof.

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          (e) Other Closing Documents.  Each other Transaction Document shall
have been executed and delivered by Buyer and be in full force and effect as of
the Closing Date, including the Transition Services Agreement and the Assignment
and Assumption Agreement.

          6.3 Conditions to Obligation of the Buyer to Effect the Asset
Purchase.  The obligations of the Buyer to effect the Asset Purchase and the
transactions contemplated under this Agreement shall be further subject to the
satisfaction and fulfillment, at or prior to the Closing, of each of the
following conditions, any of which may be waived in writing by the Buyer:

          (a) Compliance With Agreements and Covenants.  The Seller shall have
performed and complied in all material respects with all of covenants,
obligations, and agreements contained in this Agreement to be performed and
complied with on or prior to the Closing Date.

          (b) Representations and Warranties. The representations and warranties
of the Seller contained herein (i) shall be true and correct in all material
respects, on and as of the date of this Agreement, and (ii) shall also be true
and correct, on and as of the Closing Date with the same force and effect as
though made on and as of the Closing Date (except for those representations and
warranties limited by materiality or the existence of a Material Adverse Effect,
which shall be true and correct in all respects).

          (c) Closing Certificate.  The Buyer shall have received a certificate
of the President or an Executive Vice President of the Seller, dated the Closing
Date, certifying that the conditions set forth in Sections 6.3(a) and 6.3(b)
have been satisfied; and the Buyer shall also have received a certificate of the
Secretary of the Seller, dated the Closing Date, certifying as to the Seller’s
Articles, Bylaws, and the resolutions duly adopted by the Seller’s Board of
Directors regarding the Asset Purchase.

          (d) Transfer Documents.  The Buyer shall have received: (i)
assignments of the GMC Contract and the Healthy Families Contract, (ii)
assignments and/or consents to assign the provider agreements in mutually
agreeable form necessary as determined by DHS, DMHC, MRMIB, and HSD, to transfer
the Assets and provide services to Enrollees under the GMC Contract and the
Healthy Families Contract, and for service area expansion into San Diego County,
(iii) executed copies of the Amendments to the Seller’s agreements with both
Sharp HealthCare and Children’s Hospital & Health Center; and (iv) such other
documents and instruments for the transfer of the Assets to the Buyer as shall
be reasonably requested by the Buyer and its counsel in order to effect and
consummate the Asset Purchase and the transactions contemplated hereby, in each
case in form and substance reasonably satisfactory to the Buyer and its counsel.

          (e) No Material Adverse Effect.  No Material Adverse Effect shall have
occurred with respect to the Assets.

          (f) Other Closing Documents.  Each other Transaction Document shall
have been executed and delivered by the Seller and be in full force and effect
as of the Closing Date, including the Transition Services Agreement and the
Assignment and Assumption Agreement.

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ARTICLE VII

ADDITIONAL AGREEMENTS

          7.1 All Reasonable Efforts; Agreement to Cooperate.  Subject to the
terms and conditions herein provided each of the Parties hereto shall use all
Reasonable Commercial Efforts to take, or cause to be taken, all action and to
do, or cause to be done, all things necessary, proper, or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including using its Reasonable
Commercial Efforts  to obtain all necessary or appropriate waivers, consents, or
permits of third parties required in order to preserve material contractual
relationships of the Buyer and the Seller, to transition the Enrollees to the
Buyer, and to lift any injunction or other legal bar to the Asset Purchase (and,
in such case, to proceed with the Asset Purchase as expeditiously as possible). 
Buyer and the Seller shall cooperate and promptly prepare, file, and diligently
pursue any applications, filings, or approvals with or from DHS, DMHC, MRMIB,
and HSD required for transfer of the Assets, including, without limitation,
approval for Buyer’s service area expansion into San Diego County.

          7.2 Access to Information.

          (a) Subject to applicable law, the Seller and its counsel shall use
their reasonable best efforts to ensure that the Buyer and its advisors shall
have reasonable access during normal business hours to the Assets for the
purposes of consummating the Asset Purchase and effectuating the transition
services, including, but not limited to, access to such information as is
specified in Exhibit A to the Transition Services Agreement.  The Seller and its
counsel shall also use their reasonable best efforts to permit the Buyer on
prior notice to contact any key contracting parties under the GMC Contract, the
Healthy Families Contract, or any provider agreements to be transferred and
assigned as part of the Assets. 

          (b) The Parties hereto acknowledge that Buyer and the Seller have
previously executed a Confidentiality Agreement, dated as of March 9, 2004 (the
“Confidentiality Agreement”), which shall continue in full force and effect in
accordance with its terms except as expressly modified by this Agreement.

          (c) Subject to compliance with applicable law, from the date hereof
until the Closing, each of the Seller and the Buyer shall confer on a regular
and frequent basis with one or more representatives of the other Party to
discuss and report material operational matters of the Seller and the general
status of ongoing operations and other matters related to the Assets and the
Asset Purchase.

          (d) No information or knowledge obtained in any investigation pursuant
to this Section 7.2 shall affect or be deemed to modify any representation or
warranty contained herein or the conditions to the obligations of the Parties to
consummate the transactions contemplated hereby.  Either Party may supplement or
amend its disclosure schedule to reflect information obtained pursuant to this
Section 7.2; provided, however, that, if the disclosure pursuant to such
supplement or amendment would constitute a basis pursuant to Section 6.2(b) or
Section 6.3(b), as the case may be, under which the Seller or the Buyer would
have the right to not consummate the Asset Purchase and the transactions
contemplated hereby, then the Seller or the Buyer, as the case may be, may
terminate this Agreement prior to the Closing. Notwithstanding any other
provision hereof, if the Closing occurs, any such supplement or amendment of a
Party’s disclosure schedule will be effective to cure and correct for all
purposes any breach of any representation, warranty, or covenant which would
have existed by reason of a Party’s not having made such supplement or
amendment.

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          7. 3 Trading Prohibitions.  The Seller and Buyer hereby acknowledge
that as a result of disclosures by the Parties contemplated under this
Agreement, the Parties and their Affiliates may, from time to time, have
material, non-public information concerning the other Parties and other
Persons.  Each of the Seller and the Buyer confirms that it and its Affiliates
are aware and it has advised its representatives that (a) the United States
securities laws may prohibit a Person who has material, non-public information
from purchasing or selling securities of any company to which such information
relates, and (b) material non-public information shall not be communicated to
any other Person except as permitted herein.

          7.4 Public Statements.  Except as may be required by applicable law or
any listing agreement with a national securities exchange, the Parties shall
consult with each other prior to issuing any press release or any written public
statement with respect to this Agreement or the transactions contemplated hereby
and shall not issue any such press release or written public statement prior to
such consultation.  With respect to any disclosures required by applicable law
or any listing agreement with a national securities exchange, the Parties agree
to use reasonable efforts to consult with one another about the substance of any
such required disclosure.

          7.5 Hiring of Certain Employees.  In accordance with its own hiring
practices and needs, Buyer agrees to offer and subsequently employ, as Buyer
deems necessary in its sole discretion, certain of the Seller’s employees (the
“Hired Employees”), provided that Buyer shall have no liability for termination,
severance benefits, disability payments, worker’s compensation benefits, or any
other payments on account of or relating to the employment of any Hired
Employees with respect to any period before the Closing Date.  Prior to Closing,
Buyer and its Affiliates will review their operations and hiring needs and
determine the employees of the Seller to whom Buyer and its Affiliates intend to
offer employment, if any.  Buyer shall deliver to the Seller a list of the Hired
Employees on or before the Closing Date.

          7.6 Notification of Certain Matters.  Each of the Seller and Buyer
agrees to give prompt notice to the other such Party of, and to use Reasonable
Commercial Efforts to remedy (a) the occurrence or failure to occur of any event
which occurrence or failure to occur would reasonably be expected to cause any
of the representations or warranties of the Seller or Buyer, as the case may be,
in this Agreement to be untrue or inaccurate at the Closing, and (b) any failure
on the part of the Seller or Buyer, as the case may be, to comply with or
satisfy any covenant, agreement or condition to be complied with or satisfied
thereby hereunder; provided, however, that the delivery of any notice pursuant
to this Section 7.6 shall not limit or otherwise affect the remedies available
hereunder to the Party receiving such notice.

          7.7 Transfer Taxes.  The Seller and the Buyer shall cooperate in the
preparation, execution, and filing of all returns, questionnaires, applications,
or other documents regarding any property transfer or gains, sales, use, value
added, stock transfer, and stamp taxes, any transfer, recording, registration,
and other fees or any similar taxes that become payable in connection with the
transactions contemplated by this Agreement that are required or permitted to be
filed on or before the Closing. Each Party shall pay any such taxes or fees
imposed on it by any taxing authority (and any penalties and interest with
respect to such taxes and fees) that become payable in connection with the
transactions contemplated by this Agreement.

          7.8 Post-Closing Information Accessibility.  Upon prior reasonable
notice and at reasonable times, the Parties shall be allowed access to any
records of the other Party relating to the Seller or the Assets in connection
with any Action, to meet any other legal obligation and for matters relating to
accreditations or regulatory compliance.

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          7.9 Exclusivity.  The Seller will not, and will use all Reasonable
Commercial Efforts  to cause its Affiliates not to, solicit, initiate, or
encourage the submission of any proposal or offer from any Person relating to
the acquisition any of the Assets, or participate in any discussions or
negotiations regarding, furnish any information with respect to, assist or
participate in, or facilitate in any other manner any effort or attempt by any
Person to do or seek any of the foregoing.  In addition, as of the date of this
Agreement the Seller shall terminate discussions with any third parties with
respect to the foregoing. 

          7.10 Financial Statements.  The Seller hereby agrees, upon the request
of Buyer, to cooperate with Buyer, and to cause their respective accountants and
other agents and representatives to cooperate with Buyer, and to use their best
efforts to assist Buyer in its preparation of financial statements for the
Assets for periods prior to the Closing Date and in Buyer’s efforts to obtain or
prepare such other financial information as may be required by Buyer to fully
comply with the requirements of Regulation S-X promulgated by the Securities and
Exchange Commission.

          7.11 Covenant Not To Compete.   Except as consented to in writing by
the Buyer, the Seller agrees that it will not, for a period of three years
following the Closing Date, directly or indirectly, alone or as a partner or
joint venturer, engage in, finance, or provide financial assistance with respect
to, any business activity relating to the provision of Medi-Cal HMO insurance
services or Healthy Families HMO insurance services in San Diego County. 

ARTICLE VIII

TERMINATION

          8.1 Termination by Mutual Consent.  This Agreement may be terminated
and the Asset Purchase may be abandoned at any time prior to the Closing by the
mutual written agreement of the Parties hereto.

          8.2 Termination by the Seller and the Buyer.  This Agreement may be
terminated and the Asset Purchase may be abandoned by either the Seller or the
Buyer if (a) the Asset Purchase shall not have been consummated by June 2, 2005
(the “Termination Date”); provided, that the terminating Party shall not have
breached its obligations under this Agreement in any manner that shall have
proximately contributed to the failure to consummate the Asset Purchase by the
Termination Date; or (b) a United States federal or state court of competent
jurisdiction or United States federal or state governmental, regulatory, or
administrative agency or commission shall have issued an order, decree, or
ruling or taken any other action permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement and such order,
decree, ruling, or other action shall have become final and non-appealable
(provided that the Party seeking to terminate this Agreement pursuant to clause
(b) above shall have used all reasonable efforts to remove such order, decree,
or ruling).

          8.3 Termination by Buyer.  This Agreement may be terminated and the
Asset Purchase may be abandoned at any time prior to the Closing by action of
the Buyer’s Board if (a) there has been a breach by the Seller of any material
representation, warranty, or covenant contained in this Agreement which breach
has not been cured within 30 days following notice of the breach from Buyer to
the Seller, or (b) a Material Adverse Effect has occurred with respect to  the
Assets.

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          8.4 Termination by the Seller.  This Agreement may be terminated and
the Asset Purchase may be abandoned at any time prior to the Closing by action
of the Seller’s Board if there has been a breach by Buyer of any material
representation, warranty, or covenant contained in this Agreement which breach
has not been cured within 30 days following notice of the breach from the Seller
to Buyer.

          8.5 Effect of Termination and Abandonment.  In the event of
termination of this Agreement and the abandonment of the Asset Purchase pursuant
to this Article VIII, no party hereto (or any of its directors or officers)
shall have any liability or further obligation to any party to this Agreement,
except that nothing herein will relieve any party from liability for any
material breach of this Agreement.

ARTICLE IX
INDEMNIFICATION

          9.1 Indemnification by the Parties.

          (a) Indemnification by the Seller.  Subject to Section 9.2 below, the
Seller shall indemnify and hold the Buyer and its representatives (the “Buyer
Indemnified Parties”) harmless from and against any and all liabilities,
damages, losses, claims, demands, costs, or expenses (including interest,
penalties, reasonable attorneys’ fees and expenses, court costs and fees of
expert witnesses) (all of the foregoing hereinafter collectively referred to as
the “Claims”) which the Buyer Indemnified Parties shall suffer or incur as a
result of any action by a third party connected with or arising out of:

 

          (i) the Excluded Obligations;

 

 

 

          (ii) any breach of any representation or warranty of the Seller
hereunder or in any document delivered by the Seller in connection herewith; 

 

 

 

          (iii) any breach or default in any covenant made by the Seller
hereunder or in any document delivered by the Seller in connection herewith; and

 

 

 

          (iv) any claim by any Person for brokerage or finder’s fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by any such Person with the Seller or any of its
Affiliates in connection with the Asset Purchase.

          (b) Indemnification by Buyer.  Buyer shall indemnify and hold harmless
the Seller and its representatives (the “the Seller Indemnified Parties”) from
and against any and all Claims which the Seller Indemnified Parties shall suffer
or incur as a result of any action by a third party connected with or arising
out of:

 

          (i) the Assumed Obligations;

 

 

 

          (ii) any breach of any representation or warranty of the Buyer
hereunder or in any document delivered by the Buyer in connection herewith; and

 

 

 

          (iii) any breach or default in any covenant made by Buyer hereunder or
in any document delivered by Buyer in connection herewith.

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          (iv) any claim by any Person for brokerage or finder’s fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by any such Person with the Buyer or any of its
Affiliates in connection with the Asset Purchase.

          9.2 Procedure for Indemnification Claims – Third Party Claims. 

          (a) Promptly after receipt by a Person entitled to indemnification
under Section 9.1 (the “Indemnitee”) of notice of the commencement of any Action
against it, such Indemnitee will, if a claim is to be made against a party
obligated to indemnify under such Section (the “Indemnitor”), give notice to the
Indemnitor of the commencement of such Action, but the failure to notify the
Indemnitor will not relieve the Indemnitor of any liability that it may have to
any Indemnitee, except to the extent that the Indemnitor demonstrates that the
defense of such Action is materially prejudiced by the Indemnitee’s failure to
give such notice.

          (b) If any Action is brought against an Indemnitee and it gives notice
to the Indemnitor of the commencement of the Action, the Indemnitor will be
entitled to participate in such Action and, to the extent that it wishes (unless
(i) the Indemnitor is also a party to such Action and the Indemnitee determines
in good faith that joint representation would be inappropriate, or (ii) the
Indemnitor fails to provide reasonable assurance to the Indemnitee of its
financial capacity to defend such Action and provide indemnification with
respect to such Action) to assume the defense of such Action with counsel
satisfactory to the Indemnitee and, after notice from the Indemnitor to the
Indemnitee of its election to assume the defense of such Action, the Indemnitor
will not, as long as it diligently conducts such defense, be liable to the
Indemnitee under this Article X for any fees or other counsel or any other
expenses with respect to the defense of such Action, in each case subsequently
incurred by the Indemnitee in connection with the defense of such Action, other
than reasonable costs of investigation.  If the Indemnitor assumes the defense
of an Action, (i) it will be conclusively established for purposes of this
Agreement that the claims made in that Action are within the scope of and
subject to indemnification; (ii) no compromise or settlement of such claims may
be effected by the Indemnitor without the Indemnitee’s consent unless (1) there
is no finding or admission of any violation of any Law or order of any
Governmental Authority or any violation of the rights of any Person and no
effect on any other claims that may be made against the Indemnitee, and (2) the
sole relief provided is monetary damages that are paid in full by the
Indemnitor; and (iii) the Indemnitor will have no liability with respect to any
compromise or settlement of such claims effected without its consent.  If notice
is given to the Indemnitee of its election to assume the defense of such Action,
the Indemnitor will be bound by any determination made in such Action or any
compromise or settlement effected by the Indemnitee. 

          (c) Notwithstanding the foregoing, if an Indemnitee determines in good
faith that there is a reasonable probability that an Action may adversely affect
it or its Affiliates other than as a result of monetary damages for which it
would be entitled to indemnification under this Agreement, the Indemnitee may,
by notice to the Indemnitor, assume the exclusive right to defend, compromise,
or settle such Action, but the Indemnitor will not be bound by any determination
of an Action so defended or any compromise or settlement effected without its
consent (which may not be unreasonably withheld). 

          (d) Indemnitor hereby consents to the non-exclusive jurisdiction of
any court in which an Action is brought against any Indemnified Person for
purposes of any claim that as Indemnified Person may have under this Agreement
with respect to such Action or the matters alleged therein, and agree that
process may be served on them with respect to such a claim anywhere in the
world.

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          9.3 Waiver.  The waiver of any condition based on the accuracy of any
representation or warranty, or on the performance of or compliance with any
covenant or obligation, will not affect the right to indemnification,
reimbursement, or other remedy based on such representation, warranty, covenant,
or obligation.

          9.4 Limitations on Liability.  Notwithstanding the foregoing, the
Seller shall not be obligated to indemnify the Buyer under Section 9.1(a)(ii) or
9.1(a)(iii) and the Buyer shall not be obligated to indemnify the Seller under
Section 9.1(b)(ii) or 9.1(b)(iii) unless and until the aggregate amount of the
applicable Indemnitee’s Claims exceed $100,000.

ARTICLE X

DISPUTE RESOLUTION

          10.1 Dispute Resolution.  The Parties to this Agreement desire to
settle any and all disputes or concerns that arise out of this Agreement, or the
breach thereof, in as expeditious and non-confrontational manner as possible.  
Before invoking litigation, the Parties shall first participate in mediation of
any dispute arising under this Agreement (whether in contract, tort or both).
Therefore, the parties agree to the following dispute resolution procedures:

          (a) Step I - Informal Discussion.  Should any dispute arise, the
complaining Party shall first attempt to arrange for an informal discussion with
the other to come to a mutually agreeable resolution. 

          (b) Step II - Mediation.  Should the dispute fail to be resolved by
Step I, the Parties shall submit the dispute to mediation in accordance with the
Commercial Mediation Rules of the American Arbitration Association (“AAA”). 
Each Party shall pay one-half of the mediation fees charged by the AAA.

          If a Party has participated in the mediation and is dissatisfied with
an outcome, that Party may litigate the dispute and shall not be compelled to
proceed with arbitration by the other Party.  In any litigation by which one
Party either seeks to enforce its rights under this Agreement or seeks a
declaration of any rights or obligations under this Agreement, the prevailing
Party shall be awarded reasonable attorney fees, together with any costs and
expenses, to resolve the dispute and to enforce the final judgment.

ARTICLE XI

GENERAL PROVISIONS

          11.1 Notices.  All notices and other communications hereunder shall be
in writing and shall be deemed provided to a Party hereto if delivered
personally, mailed by registered or certified mail (return receipt requested) or
sent via facsimile to such Party at the address therefore as follows (or at such
other address for such Party as shall be specified by similar such notice):

 

If to the Seller to:

 

 

 

Sharp Health Plan
4305 University Ave. Ste. 200
San Diego, CA 92105

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Attention:  Chief Executive Officer
Fax:  (619) 228-2444

 

 

 

with copies to:

 

 

 

Sharp HealthCare
8695 Spectrum Center Blvd.
San Diego, CA  92123
Attention:  Legal Affairs
Fax:  (858) 499-4065

 

 

 

Children’s Hospital and Health Center
3020 Children’s Way, MC 5052
San Diego, CA  92123
Attention:  General Counsel
Fax:  (858) 966-8531

 

 

 

If to the Buyer, to:

 

 

 

Molina Healthcare of California
One Golden Shore Drive
Long Beach, CA  90802
Attention: John C. Molina, Esq.
Fax: (562) 495-7770

 

 

 

with a copy to:

 

 

 

Molina Healthcare, Inc.
2277 Fair Oaks Blvd., Suite 440
Sacramento, CA  95825
Attn:  Mark L. Andrews, Esq.
Fax:  (916) 646 4572

          11.2 Interpretation.  The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.

          11.3 Rules of Construction.  The Parties hereto agree that they have
been represented by counsel during the negotiation, preparation, and execution
of this Agreement, and therefore waive the application of any law, regulation,
holding, or rule of construction providing that ambiguities in an agreement or
other document will be construed against the Party drafting such agreement or
document. 

          11.4 Entire Agreement.  This Agreement, the Transition Services
Agreement, and the Assignment and Assumption Agreement (including the documents
and instruments referred to herein and the Exhibits and Schedules attached
hereto) constitute the entire agreement, and supersedes all other prior
agreements and understandings (both written and oral), among the Parties, or any
of them, with respect to the subject matter hereof.  This Agreement shall not be
assigned by operation of law or otherwise. 

          11.5 Governing Law.  THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO
CONTRACTS EXECUTED AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE.

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          11.6 Waiver of Jury Trial.  EACH PARTY HERETO HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE ACTIONS OF THE PARTIES HERETO IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.

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

          11.8 Severability.  Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction.  If any provision of
this Agreement is deemed unenforceable, such provision shall be deemed to be
reformed and modified to the minimum amount required to make such provision
enforceable.

          11.9 Equitable Relief.  The Parties hereto agree that the remedies at
law for any breach of the terms of this Agreement may be inadequate. 
Accordingly, the Parties hereto consent and agree that an injunction may be
issued to restrain any breach or alleged breach of such provisions.  The Parties
hereto agree that terms of this Agreement shall be enforceable by a decree of
specific performance.  Any such remedies shall be cumulative and not exclusive
and shall be in addition to any other remedies which the Parties may have at law
or in equity.

          11.10 Expenses.  Buyer and the Seller shall each pay their own costs
and expenses relating to this Agreement, the negotiations leading up to this
Agreement, and the performance of this Agreement.

          11.11 Assignment.  Prior to the Closing, neither Party may assign or
delegate any rights or obligations set forth in this Agreement without the prior
written consent of the other Party; provided, that Buyer shall have the right to
assign its rights and delegate its obligations, without relieving itself of any
obligations hereunder, to one or more Affiliates which shall take title to the
Assets.  This Agreement shall be binding upon the Parties hereto and their
respective successors and permitted assigns.

          11.12 Prorations.  In the event that the Seller is required, under the
terms of any GMC Contract or Healthy Families Contract, to make any payment
prior to the Closing Date that applies, in whole or in part, to a period
following the Closing Date, the Parties shall prorate such expense as of the
Closing Date and Buyer shall reimburse the Seller at  the same time that it
delivers the Purchase Price for the portion of such expense relating to the
period on or after the Closing Date. In the event that, as of the Closing Date,
the Seller has been paid premiums or other payments under GMC Contract or
Healthy Families Contract that relate in whole or part to the period following
the Closing Date, the Parties shall prorate such payments as of the Closing Date
and the Seller shall pay Buyer at the same time that Buyer pays Seller the
Purchase Price for the portion of any such payments relating to the period on or
after the Closing Date.  The prorations shall be based on the number of days
elapsed during the relevant period.

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          11.13 No Third Party Beneficiaries.  This Agreement is for the sole
benefit of the Buyer and the Seller and is not for the benefit of any third
party.  Nothing contained in this Agreement is intended to relieve or discharge
the obligations or liability of any third party to the Seller or Buyer, nor
shall this Agreement give any third party any right of subrogation or action
over or against the Seller or Buyer.

          11.14 Further Assurances and Records.  From time to time after the
Closing Date, Buyer or the Seller, at the request of the other and without
further consideration, shall sign and deliver or cause to be signed and
delivered such other instruments of transfer and take such other actions as
reasonably may be requested by the other in order further to effectuate the
consummation of the Asset Purchase.  In addition, Buyer and the Seller
acknowledge that there may be occasions in the future when a Party or Affiliates
of a Party will need access to certain documentation of the other in order to
prepare financial statements, tax returns or other reports to third parties, or
in order to facilitate audits or legal proceedings, comply with laws or
Governmental Authorizations or otherwise conduct its affairs in a proper
manner.  Accordingly, Buyer and the Seller shall exercise their respective best
efforts to achieve the purposes of this Section.

          11.15 Effective Date. This Agreement shall become effective
immediately upon signing.

          11.16 Amendments and Waivers.  No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing signed by the Buyer
and the Seller.  No waiver by any Party of any provision of this Agreement or
any default, misrepresentation, or breach of warranty or covenant hereunder,
whether intentional or not, shall be valid unless the same shall be in writing
and signed by the Party making such waiver nor shall such waiver be deemed to
extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.

SIGNATURES ON NEXT PAGE

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          IN WITNESS WHEREOF, the Buyer and the Seller have caused this
Agreement to be signed as of the date that appears in its first paragraph.

 

SHARP HEALTH PLAN

 

 

 

 

 

/s/ Kathlyn Mead

 

By: Kathlyn Mead

 

Title:  President and Chief Executive Officer

 

 

 

MOLINA HEALTHCARE OF CALIFORNIA

 

 

 

 

 

/s/ Joann Zarza-Garrido

 

By:  Joann Zarza-Garrido

 

Title:  President and Chief Executive Officer

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SCHEDULE 1(A)

LIST OF ASSETS

          (a) All of the Seller’s rights under both the GMC Contract and the
Healthy Families Contract.

          (b) Seller’s current GMC Program and Healthy Families Program Enrollee
lists and mailing lists; medical, claim, and utilization management records of
GMC Program and Healthy Families Program Enrollees who receive services from the
Seller to the extent reasonably necessary to transfer the care of such Enrollees
to the Buyer at Closing; and the books, records, information, and documents of
the Seller reasonably related and necessary to the administration of the GMC
Contracts and the Healthy Families Contracts after the Closing.

          (c) The provider contracts necessary, as determined by the California
Department of Health Services, the California Department of Managed Health Care,
the California Managed Risk Medical Insurance Board, and Healthy San Diego, to
provide services to GMC Program and Healthy Families Program Enrollees after the
Closing (if MHC has not entered into its own agreements with these providers on
or before the Closing Date). 

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SCHEDULE 1(b)

GOVERNMENTAL AUTHORITIES

          The California Department of Health Services (“DHS”)

          The California Department of Managed Health Care (“DMHC”)

          The California Managed Risk Medical Insurance Board (“MRMIB”)

          Healthy San Diego (“HSD”)

          California Office of the Attorney General (“AG”)

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EXHIBIT A

ASSIGNMENT AND ASSUMPTION AGREEMENT

 

[intentionally omitted]

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EXHIBIT B

TRANSITION SERVICES AGREEMENT

 

[intentionally omitted]

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