EXHIBIT 10.3


February 9, 1998



Mr. Marc M. Stein
94 Morning Dew Court
Old Bridge, NJ  08857

                               LETTER OF AGREEMENT


Dear Marc:

I am very  pleased that the  discussions  we had a few weeks ago resulted in our
jointly  agreeing  that you would  continue to be employed  as an  associate  of
Foundation Health Systems ("FHS"),  Northeast  Region.  You will be based in New
Jersey and remain in your current  position as Chief Financial  Officer of First
Option Health Plan of New Jersey, Inc. ("First Option") until at least March 31,
1999.  The potential of a longer term role for you in the FHS  Northeast  Region
will depend upon the development of the regional  management  structure over the
coming months.

I have outlined the components of our agreement for your review.

         1.  You will  continue  in your  current  position  as Chief  Financial
Officer,  First Option,  until at least March 31, 1999.  You will continue to be
paid your current  biweekly rate of $6,730.76,  less all deductions  required by
law until  that  date.  You will  report  to the FHS  Northeast  Regional  Chief
Financial Officer with a dotted line to the FHS New Jersey President.

         2. During your period of  employment,  the following  compensation  and
benefits will be in effect:

            A.      Your base salary will be $175,000 annually.

            B.      You  will  be  eligible  to  participate  in  the  1998  FHS
                    Management  Bonus Plan in accordance with your position with
                    the Company. You will also be eligible to participate in the
                    1999 FHS Management Bonus Plan on a prorated basis.

            C.      You will  receive  a  monthly  automobile  allowance  in the
                    amount of $500.00 which will be paid to you through the last
                    month that you receive severance.

            D.      Associate 401K Savings Plan.

            E.      Associate Stock Purchase Plan.



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            F.      You will be eligible to continue to participate  and vest in
                    the FHS Management Stock Option Plan in accordance with your
                    position with the Company.

            G.      Group medical,  vision, dental and pharmacy coverage for you
                    and  your  eligible  dependents  at  current  monthly  rates
                    applicable to First Option associates.

            H.      Short-term and long-term disability benefits.

            I.      Group Life Insurance in the amount of $200,000.

         3. If you  remain  employed  by FHS  until  March  31,  1999 or if your
employment is  terminated  for any reason other than "just cause" prior to March
31, 1999,  you will receive an additional  retention  bonus  equivalent to three
months of salary  which will be paid on March 31, 1999.  "Just cause"  includes,
acts of  dishonesty,  moral  turpitude,  conviction or  arraignment of a felony,
habitual drunkenness, or narcotic drug addiction.

         4. The following salary  continuation and severance  provisions will be
provided for you:

            A.      If FHS terminates  your employment for any reason other than
                    "just cause" prior to March 31, 1999,  FHS will  continue to
                    pay you at your current biweekly rate of $6,730.76, less all
                    deductions  required by law through September 30, 1999. Your
                    additional  retention  bonus will also be paid to you on the
                    date of termination.

            B.      On January 31, 1999,  FHS will inform you of the status of a
                    potential future role in the Company. If an offer is made to
                    you to continue employment with FHS, you will have the right
                    to either accept or reject the offer.  If you do not accept,
                    you will be  entitled to six (6) months  severance  starting
                    April  1,  1999  and  your  additional  retention  bonus  as
                    described in this agreement.  If you accept,  you will still
                    be  entitled  to  six  (6)  months   severance  if  you  are
                    terminated  in the future  for any  reason  other than "just
                    cause".

            C.      FHS will pay any unused  vacation pay,  less all  deductions
                    required by law.

            D.      You will  continue to vest in the 401K Plan until the end of
                    the month that your severance  payments end, but will not be
                    eligible  to  make  contributions  to  the  Plan  from  your
                    severance pay.

            E.      FHS further agrees to provide you with health benefits until
                    the end of the  month  that  your  severance  payments  end.
                    Thereafter,   you  will  be  eligible  for  COBRA  benefits.
                    Information regarding the election of COBRA coverage will be
                    forthcoming.

            F.      FHS will provide  outplacement  service to you in accordance
                    with your position in the Company.


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Marc, I look forward to our continued business relationship, and acknowledge the
challenges you faced this past year in reorganizing the finance department at
First Option. Both Brian Crary and I appreciate what you have accomplished, and
thank you for agreeing to remain in your current position, You are an integral
part of the process of putting the FHS Northeast Region together, and it is
critical that we continue to have your commitment and support.

Please indicate your acceptance of this agreement by signing below.

Sincerely,



/s/ Robert Natt                                         /s/ Marc M. Stein
------------------                                      ----------------------
Robert Natt                                             Marc M. Stein
President & CEO
Foundation Health Systems
Northeast Region