-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JgbEi1TXr/UXB3+0gfcL0PreXeu5iZYUFW7AKmB9tJM6J94urRoy9Uj2d39pMzGA L7ICtdSr21aPe0yL3ioO8Q== 0001015402-03-004335.txt : 20031107 0001015402-03-004335.hdr.sgml : 20031107 20031106200735 ACCESSION NUMBER: 0001015402-03-004335 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20031101 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20031107 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SAFEGUARD HEALTH ENTERPRISES INC CENTRAL INDEX KEY: 0000727303 STANDARD INDUSTRIAL CLASSIFICATION: HOSPITAL & MEDICAL SERVICE PLANS [6324] IRS NUMBER: 521528581 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-12050 FILM NUMBER: 03983455 BUSINESS ADDRESS: STREET 1: 95 ENTERPRISE T CITY: ALISO VIEJO STATE: CA ZIP: 92656-2601 BUSINESS PHONE: 9494254110 8-K 1 doc1.txt ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 NOVEMBER 1, 2003 Date of Report (Date of earliest event reported) SAFEGUARD HEALTH ENTERPRISES, INC. (Exact name of registrant as specified in its charter) DELAWARE 0-12050 52-1528581 (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 95 ENTERPRISE, SUITE 100 ALISO VIEJO, CALIFORNIA 92656-2605 (Address of principal executive offices and zip code) (949) 425-4110 (Registrant's telephone number, including area code) (949) 425-4586 (Registrant's facsimile number, including area code) ================================================================================ ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS HEALTH NET DENTAL, INC. Effective as of the close of business on October 31, 2003, the Company acquired all of the outstanding capital stock of Health Net Dental, Inc. ("HND"), and certain PPO/indemnity dental business underwritten by Health Net Life Insurance Company ("HNL"), which is an affiliate of HND, for $10.4 million in cash and an agreement to provide private label dental HMO and PPO/indemnity products to be sold in the marketplace by subsidiaries of Health Net, Inc., the parent company of HND, for a period of at least five (5) years following the close of the transaction, subject to certain conditions. HND is licensed as a Specialized Health Care Service Plan by the California Department of Managed Health Care and provides dental Health Maintenance Organization ("HMO") benefits in the State of California. HND offers dental HMO benefits to large groups, mid-size groups, individuals, and through government sponsored contracts. HND currently provides benefits to approximately 450,000 members in California and the acquisition of HND increased the Company's California based dental membership to approximately 800,000. HND has established a network of approximately 3,000 dentists in the State of California. The network associated with the HNL business acquired in this transaction also include access to the HNL Preferred Provider Network of approximately 7,000 dentists in the State of California. HEALTH NET VISION, INC. Effective as of the close of business on October 31, 2003, the Company also acquired all of the outstanding capital stock of Health Net Vision, Inc. ("HNV"), an affiliate of HND, and certain PPO/indemnity vision business underwritten by HNL, for $4.4 million in cash. HNV is licensed as a Specialized Health Care Service Plan by the California Department of Managed Health Care and provides vision HMO benefits in the State of California. HNV offers vision HMO benefits to large groups, mid-size groups, and individuals. HNV currently provides benefits to approximately 130,000 members in California and the acquisition of HND increased the Company's California based vision membership to approximately 150,000. HNV has established a network of approximately 2,900 optometrists, ophthalmologists and opticians in the State of California. HNL has established a vision PPO network of approximately 3,300 licensed optometrists, ophthalmologists and opticians in California to provide vision PPO services to HNL enrollees. FINANCING OF THE TRANSACTIONS The acquisitions of HND and HNV and certain business assets of HNL were financed through the issuance of $19.0 million of unsecured convertible promissory notes to certain of its principal stockholders of the Company in October 2003. The proceeds from the convertible notes were used primarily to finance the acquisitions, to satisfy the increase in the Company's regulatory net worth requirements related to the PPO/indemnity dental and vision business that was acquired, and to provide working capital that may be required in connection with the integration of the acquired businesses into the Company's existing business operations and other corporate purposes. The convertible notes bear interest at six percent (6.0%) annually and are convertible into the Company's common stock at the rate of $1.75 per share, at the option of the holder. There are no principal payments due under the convertible notes prior to January 31, 2010, then principal payments are due beginning on January 31, 2010, and each three months thereafter through July 31, 2013, pursuant to a ten-year amortization schedule, and the remaining balance is payable in full on October 31, 2013. The convertible notes are payable in full upon a change in control of the Company, at the holder's option. The Company has the option of redeeming the convertible notes for 229% of face value during the first seven (7) years after the date of issuance, for 257% of face value during the eighth (8th) year after issuance, for 286% of face value during the ninth (9th) year after issuance, and for 323% of face value during the tenth (10th) year after issuance. The aggregate cost of the acquisitions was approximately $16.3 million, including estimated severance liabilities incurred by the Company related to employees of HND and HNV, and other acquisition expenses. QUALIFICATION OF THIS CURRENT REPORT ON FORM 8-K TO THE VARIOUS AGREEMENTS REFERRED TO HEREIN The description of the HND transaction contained in this filing is qualified in its entirety by reference to the provisions of the Purchase and Sale Agreement dated as of April 7, 2003, without exhibits, filed as Exhibit 10.43 to the Company's Current Report on Form 8-K dated as of April 7, 2003(1)(2); the Network Access Agreement dated as of April 7, 2003, filed as Exhibit 10.44 to the Company's Current Report on Form 8-K dated as of April 7, 2003(3); the Assumption and Indemnity Reinsurance Agreement dated as of April 7, 2003 filed as Exhibit 10.45 to the Company's Current Report on Form 8-K dated as of April 7, 2003(4); the Strategic Relationship Agreement dated as of April 7, 2003, filed without exhibits, filed as Exhibit 10.46 to the Company's Current Report on Form 8-K dated as of April 7, 2003(1)(5); the redacted Amended and Restated Strategic Relationship Agreement dated as of October 31, 2003, filed without exhibits as Exhibit 10.53 to this Current Report on Form 8-K (1)(6); the Amendment to the Purchase and Sale Agreement dated as of October 31, 2003 filed as Exhibit 10.54 to this Current Report on Form 8-K; and the Amendment to Assumption and Indemnity Reinsurance Agreement dated as of October 31, 2003 filed as Exhibit 10.55 to this Current Report on Form 8-K. The description of the HNV Transactions contained in this filing is qualified in its entirety by reference to the provisions of the Purchase and Sale Agreement dated as of June 30, 2003, without exhibits, filed as Exhibit 10.48 to the Company's Current Report on Form 8-K dated as of June 30, 2003(1)(7); the Assumption and Indemnity Reinsurance Agreement dated as of June 30, 2003 filed as Exhibit 10.49 to the Company's Current Report on Form 8-K dated as of June 30, 2003(8); the Network Access Agreement dated as of June 30, 2003, filed as Exhibit 10.50 to the Company's Current Report on Form 8-K dated as of June 30, 2003(9); the Administrative Services Agreement dated as of June 30, 2003, filed as Exhibit 10.51 to the Company's Current Report on Form 8-K dated as of June 30, 2003(10); the Amendment to the Purchase and Sale Agreement dated as of October 31, 2003 filed as Exhibit 10.56 to this Current Report on Form 8-K; and the Amendment to Assumption and Indemnity Reinsurance Agreement dated as of October 31, 2003 filed as Exhibit 10.57 to this Current Report on Form 8-K. A copy of the Form of Promissory Note issued by the Company in connection with the financing of the transactions described above is filed as Exhibit 10.58. A copy of the news release dated November 3, 2003, issued by the Registrant in connection with the completion of this transaction is filed as Exhibit 99.1 to this Current Report on Form 8-K. - ------------------------------- (1) Registrant agrees to furnish a supplemental copy of exhibits and schedules to the Stock Purchase Agreement to the Securities and Exchange Commission upon request. (2) Incorporated by reference herein and disclosed and filed as Exhibit 10.43 to the Company's Current Report on Form 8-K dated as of April 7, 2003. (3) Incorporated by reference herein and disclosed and filed as Exhibit 10.44 to the Company's Current Report on Form 8-K dated as of April 7, 2003. (4) Incorporated by reference herein and disclosed and filed as Exhibit 10.45 to the Company's Current Report on Form 8-K dated as of April 7, 2003. (5) Incorporated by reference herein and disclosed and filed as Exhibit 10.46 to the Company's Current Report on Form 8-K dated as of April 7, 2003. (6) Registrant agrees to furnish a full and complete copy of the redacted Amended and Restated Strategic Relationship Agreement dated as of October 31, 2003, filed as Exhibit 10.53, on a confidential basis to the Securities and Exchange Commission upon request. (7) Incorporated by reference herein and disclosed and filed as Exhibit 10.48 to the Company's Current Report on Form 8-K dated as of June 30, 2003. (8) Incorporated by reference herein and disclosed and filed as Exhibit 10.49 to the Company's Current Report on Form 8-K dated as of June 30, 2003. (9) Incorporated by reference herein and disclosed and filed as Exhibit 10.50 to the Company's Current Report on Form 8-K dated as of June 30, 2003. (10) Incorporated by reference herein and disclosed and filed as Exhibit 10.51 to the Company's Current Report on Form 8-K dated as of June 30, 2003. * * * (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.) ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (b) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED The financial statements required under Item 7(a) will be filed by amendment to this Current Report on Form 8-K not later than January 14, 2004. (c) PRO FORMA FINANCIAL INFORMATION The pro forma financial information required under Item 7(b) will be filed by amendment to this Current Report on Form 8-K not later than January 14, 2004. (d) EXHIBITS
EXHIBIT DESCRIPTION - ------- --------------------------------------------------------------------------- 10.43 Purchase and Sale Agreement dated as of April 7, 2003(1)(2) 10.44 Network Access Agreement dated as of April 7, 2003(3) 10.45 Assumption and Indemnity Reinsurance Agreement dated as of April 7, 2003(4) 10.46 Strategic Relationship Agreement dated as of April 7, 2003(1)(5) 10.53 Redacted Amended and Restated Strategic Relationship Agreement dated as of October 31, 2003(6) 10.54 Amendment to Purchase and Sale Agreement dated as of October 31, 2003 10.55 Amendment to Assumption and Indemnity Reinsurance Agreement dated as of October 31, 2003 10.48 Purchase and Sale Agreement dated as of June 30, 2003(1)(7) 10.49 Assumption and Indemnity Reinsurance Agreement dated as of June 30, 2003(8) 10.50 Network Access Agreement dated as of June 30, 2003(9) 10.51 Administrative Services Agreement dated as of June 30, 2003(10) 10.56 Amendment to Purchase and Sale Agreement dated as of October 31, 2003 10.57 Amendment to Assumption and Indemnity Reinsurance Agreement dated as of October 31, 2003 10.58 Form of Promissory Note 99.1 News release dated November 3, 2003.
- ------------------------------- (1) Registrant agrees to furnish a supplemental copy of exhibits and schedules to the Stock Purchase Agreement to the Securities and Exchange Commission upon request. (2) Incorporated by reference herein and disclosed and filed as Exhibit 10.43 to the Company's Current Report on Form 8-K dated as of April 7, 2003. (3) Incorporated by reference herein and disclosed and filed as Exhibit 10.44 to the Company's Current Report on Form 8-K dated as of April 7, 2003. (4) Incorporated by reference herein and disclosed and filed as Exhibit 10.45 to the Company's Current Report on Form 8-K dated as of April 7, 2003. (5) Incorporated by reference herein and disclosed and filed as Exhibit 10.46 to the Company's Current Report on Form 8-K dated as of April 7, 2003. (6) Registrant agrees to furnish a full and complete copy of the redacted Amended and Restated Strategic Relationship Agreement dated as of October 31, 2003, filed as Exhibit 10.53, on a confidential basis to the Securities and Exchange Commission upon request. (7) Incorporated by reference herein and disclosed and filed as Exhibit 10.48 to the Company's Current Report on Form 8-K dated as of June 30, 2003. (8) Incorporated by reference herein and disclosed and filed as Exhibit 10.49 to the Company's Current Report on Form 8-K dated as of June 30, 2003. (9) Incorporated by reference herein and disclosed and filed as Exhibit 10.50 to the Company's Current Report on Form 8-K dated as of June 30, 2003. (10) Incorporated by reference herein and disclosed and filed as Exhibit 10.51 to the Company's Current Report on Form 8-K dated as of June 30, 2003. * * * (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.) SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Current Report on Form 8-K to be signed on its behalf by the undersigned thereunto duly authorized in the city of Aliso Viejo, State of California on the 7th day of November 2003. SAFEGUARD HEALTH ENTERPRISES, INC. By: /s/ Dennis L. Gates --------------------------------------------------- DENNIS L. GATES Senior Vice President and Chief Financial Officer By: /s/ Ronald I. Brendzel --------------------------------------------------- RONALD I. BRENDZEL Senior Vice President and Secretary EX-10.53 3 doc2.txt AMENDED AND RESTATED STRATEGIC RELATIONSHIP AGREEMENT This Amended and Restated Strategic Relationship Agreement ("Agreement") is made and entered into this 31st day of October, 2003, by and among Health Net, Inc., a Delaware corporation ("HNI"), Health Net Life Insurance Company, a California domiciled life and disability insurance company ("HNL") (HNI and HNL are jointly referred to herein as "Health Net"), SafeGuard Health Enterprises, Inc., a Delaware corporation ("SFGD"), SafeHealth Life Insurance Company, a California domiciled life and health insurance company, SafeGuard Health Plans, Inc., a California specialized Knox-Keene Health Care Service Plan, Health Net Dental, Inc., a California specialized Knox-Keene Health Care Service Plan ("HND") and Health Net Vision, Inc. ("HNV") (SafeGuard Health Enterprises, Inc., SafeGuard Health Plans, Inc., SafeHealth Life Insurance Company, HNV and HND are jointly referred to herein as "SafeGuard"). RECITALS -------- WHEREAS, pursuant to the terms and subject to the conditions set forth in the Purchase and Sale Agreement by and between HNI and SFGD dated April 7, 2003, inter alia, SFGD agreed to purchase from HNI and HNI agreed to sell to SFGD, all the issued and outstanding stock of HND (the "Purchase and Sale Agreement"). WHEREAS, pursuant to the terms of the Purchase and Sale Agreement, HNI and SFGD agreed to enter into a strategic relationship agreement at the Closing to promote and facilitate the sale of Health Net Branded Products through the Health Net Marketing Force and the sale of Health Net Products through the SafeGuard Marketing Force. WHEREAS, HNI and SFGD are parties to a Strategic Relationship Agreement dated as of April 7, 2003 (the "Strategic Relationship Agreement"). WHEREAS, HNI and SFGD wish to amend and completely restate the Strategic Relationship Agreement and to supersede in its entirety the Strategic Relationship Agreement with this Amended and Restated Strategic Relationship Agreement. NOW THEREFORE, in consideration of the mutual agreements contained herein, the sufficiency of which is hereby acknowledged, and in consideration of the performance by the parties of their obligations under this Agreement, the parties agree as follows: ARTICLE I DEFINITIONS ----------- Capitalized terms used in this Agreement and not otherwise defined shall have the meanings given such terms in the Purchase and Sale Agreement. For purposes of this Agreement, the following terms shall have the meanings specified below (definitions are applicable to both the singular and the plural form of each term defined herein). "Aggregate Payment Amount" shall have the meaning set forth in Section 6.3. ------------------------ 1 "Ancillary SafeGuard Products" means dental HMO products, dental PPO and ------------------------------ dental indemnity products developed jointly by SafeGuard and Health Net with benefit designs and rate structures that differentiate such products from the SafeGuard Dental Products offered generally by SafeGuard in the Territory and which shall be sold exclusively by the Health Net Marketing Force only to Health Net Clients. "Benchmark Products" means those SafeGuard Dental Products that are ------------------- determined by the parties to be materially similar to the Health Net Branded Products as of the Effective Date and set forth on Schedule 5.1. ------------- "Branding" shall have the meaning set forth in Section 2.7. -------- "Bundled Product" means a Health Net Medical Product that also provides ---------------- coverage for dental services and dental products in a single policy or contract form that is issued and underwritten by a single Health Net Affiliate and under which the dental benefits are administered by HND. "Change of Control" means the acquisition, in a single transaction or in a ------------------ series of related transactions, by a person, an entity or a group of persons or entities acting in concert of fifty-one percent (51%) or more of the voting securities of a party, or fifty-one percent (51%) or more of the aggregate value of the assets of a party. "Contractholder" means an employer or individual in the Territory who or -------------- which executes an enrollment agreement with respect to any Product subject to this Agreement. "Copayment or Coinsurance" means the specific payment that a Subscriber is ------------------------- required to make to a provider at the time Covered Dental Services are provided and which the provider is required to collect. "Covered Dental Services" means those dental services or supplies to which ------------------------ a Subscriber is entitled pursuant to the terms of the Subscriber's Health Net Branded Product. "Dental Provider" means a dentist, dental health service provider, or a ---------------- dental product provider who or which is a party to a contract with any SafeGuard Affiliate to provide dental services or dental products to Subscribers enrolled in a Health Net Branded Product. "Dispute" shall have the meaning set forth in Section 9.1. ------- "Eligible Employee" means an employee who is eligible to enroll in a group ------------------ Product issued to a Contractholder. "Effective Date" means the Closing Date of the Purchase and Sale Agreement. -------------- "Existing Dental or Vision Products" shall have the meaning set forth in ------------------------------------- Section 5.8. "Health Care Costs" means the capitation and claims paid to Dental ------------------- Providers for Covered Dental Services. 2 "Health Net Branded Products" [REDACTED] --------------------------- "Health Net Clients" shall have the meaning set forth in Section 2.1. ------------------ "Health Net Dental Products" [REDACTED] ----------------------------- "Health Net Indemnities" shall have the meaning set forth in Section 8.1. ------------------------ "Health Net Marketing Force" [REDACTED] ----------------------------- "Health Net Mark-Up" [REDACTED] -------------------- "Health Net Products" means Medical Products, life insurance, vision and --------------------- behavior health HMO, PPO and indemnity products offered by Health Net Affiliates in the Territory. "HMO" means a commercial contract for health care services provided by --- Health Net Affiliates to Contractholders in the Territory utilizing a network of providers who or which are under direct or indirect contract with a Health Net Affiliate to provide health care services. "HMO" includes HMO plans with a "point-of-service" feature that permits Subscribers to seek medical services from providers outside the network of providers who or which are under direct or indirect contract with a Health Net Affiliate to provide health care services. "JAMS" shall have the meaning set forth in Section 9.2. ---- "Joint Health Net Subscribers" [REDACTED] ------------------------------- "Medical Necessity" means dental services or dental products that a prudent ----------------- dentist would provide to a patient for the purpose of preventing, diagnosing or treating an illness, injury, disease or its symptoms in a manner that is in accordance with accepted standards of dental practice and not provided primarily for the convenience of a Subscriber or a Dental Provider. "Medical Products" means (i) PPO and indemnity health insurance contracts ----------------- covering the cost of medical services or supplies of Subscribers, and (ii) medical HMO contacts. "Most Favored Nation Price" [REDACTED] ---------------------------- "Net Price" [REDACTED] ---------- "Network List" shall have the meaning set forth in Section 4.3. ------------- "Pooled Net Price" [REDACTED] ------------------ "Producer" means an insurance agent, broker or employee of either SafeGuard -------- or Health Net or any of their Affiliates authorized to market and sell the Products of a party in any state within the Territory. "Product" means any Health Net Product, Health Net Branded Product, ------- SafeGuard Dental Product or Ancillary Product offered for sale or sold pursuant to this Agreement. 3 "SafeGuard Clients" means existing and prospective individual and group ------------------ accounts with SafeGuard Dental Products or SafeGuard vision products in the Territory. "SafeGuard Dental Products" means the dental HMO products offered in the --------------------------- Territory by SafeGuard Health Plans, Inc., and the dental PPO and dental indemnity products offered in the Territory by SafeHealth Life Insurance Company. For purposes of this Agreement, Health Net Branded Products and dental HMO Products provided by HND prior to the Effective Date that remain in-force after the Effective Date shall be considered SafeGuard Dental Products. "SafeGuard Indemnities" shall have the meaning set forth in Section 8.2. ---------------------- "SafeGuard Compensation Amount" [REDACTED] ------------------------------- "Supplemental Compensation Amount" means that dollar amount calculated in ---------------------------------- the manner described in Section 5.5. "Subscriber" means the persons including, but not limited to, Eligible ---------- Employees, who meet the eligibility requirements for a Product and who have enrolled in such Product. "Territory" means Arizona, Oregon and California for dental PPO and dental --------- indemnity Products and California for dental HMO Products. "Term" means that period of time commencing on the Effective Date and ---- ending on the termination date of this Agreement. ARTICLE II MARKETING AND SALES ------------------- Section 2.1. Marketing and Sale of the Health Net Branded Products ---------------------------------------------------------- to Health Net Clients. Subject to the terms, conditions and limitations of this - --------------------- Agreement, Health Net shall have the right to utilize the Health Net Marketing Force to (i) offer and sell Health Net Branded Products to existing and prospective[REDACTED}in the Territory (jointly referred to as "Health Net Clients") when the Health Net Marketing Force has or is offering to sell a Health Net Medical Product to such Health Net Clients. Section 2.2. Development of Ancillary Dental Products. SafeGuard and ----------------------------------------- Health Net shall develop jointly Ancillary SafeGuard Products that Health Net reasonably determines would provide a marketing opportunity for the Health Net Marketing Force in the Territory. Any Ancillary SafeGuard Products developed jointly by Health Net and SafeGuard shall be offered exclusively by the Health Net Marketing Force only as Health Net Branded Products to Health Net Clients in the Territory, and SafeGuard shall not offer or sell in the Territory any SafeGuard Dental Product substantially similar to an Ancillary SafeGuard Product without the prior written consent of Health Net. Section 2.3. Obligation to Provide Health Net Branded Products. ------------------------------------------------------- SafeGuard shall take all actions or cause to be done all things necessary, proper or appropriate to make the Health Net Branded Products available for sale by the Health Net Marketing Force to Health Net Clients in the Territory, including but not limited to, making or causing to be made all form and rate 4 filings with Governmental Authorities necessary to offer the Health Net Branded Products in the Territory. Commencing on the Effective Date and as necessary during the Term, Health Net shall provide SafeGuard all information necessary for SafeGuard to seek and maintain approvals from applicable Governmental Authorities of the rates for the Health Net Branded Products that the Health Net Marketing Force intends to offer to Health Net Clients. Section 2.4. Exclusive Agreement. -------------------- (a) [REDACTED] (b) [REDACTED] (c) Health Net shall have the option to expand the exclusive strategic relationship described in this Agreement to additional states in which SafeGuard is appropriately licensed to offer the Health Net Branded Products, provided that SafeGuard has no prior commitments in such additional states that would conflict with the obligations of SafeGuard under this Agreement. SafeGuard shall provide notice to Health Net of its intent to enter into an exclusive strategic relationship in any state outside the Territory that would be substantially similar to its relationship with Health Net described in this Agreement. Health Net shall have twenty (20) calendar days from the date of the SafeGuard notice to exercise its option to expand its exclusive strategic relationship with SafeGuard into the states identified in the SafeGuard notice, provided, however, Health Net shall not have the option to exercise its option - -------- ------- to expand this strategic relationship in either Texas or Florida unless Health Net has at least [REDACTED] Subscribers enrolled in its Medical Products in the relevant state at the time Health Net exercises its option to expand this strategic relationship to such state. Section 2.5. Identification of Health Net Branded Products. Subject to ---------------------------------------------- the requirements and limitations of Section 2.8 of this Agreement and all applicable Law, the Health Net Branded Products shall be marketed under the collective designation "Health Net Dental." Each Health Net Branded Product shall be assigned a specific trade name agreed to by Health Net and SafeGuard. Notwithstanding the foregoing, the Health Net Branded Products shall be marketed in a way that is not deceptive or misleading and that clearly indicates that the benefits provided under Health Net Branded Products are obligations of SafeGuard Health Plans, Inc., HND or SafeHealth Life Insurance Company, as appropriate, and in a way that does not suggest that such benefits are obligations of any Health Net Affiliate. Section 2.6. Marketing and Sale of Health Net Products by SafeGuard. --------------------------------------------------------- Subject to the terms and conditions of this Agreement, the SafeGuard Marketing Force shall have the right to market Health Net Products to SafeGuard Clients. Section 2.7. Marketing Materials. Each party shall bear the cost of -------------------- its own marketing and promotional efforts, including but not limited to, the development and production of any marketing and collateral materials used to promote or market their respective Products or the Health Net Branded Products. Any marketing and collateral materials developed by a party to promote or market Products pursuant to this Agreement shall be approved by the other party prior to use. 5 Section 2.8. Branding. Neither SafeGuard or Health Net shall make use -------- of the other party's trade marks, service marks, trade names or logos, including domain names, electric or written content or other materials, descriptions or representations of any kind that mentions the other party or its Affiliates, or refers to any Products or services of the other party (collectively referred to as "Branding") without obtaining the prior written consent of such other party. SafeGuard and Health Net shall use commercially reasonable efforts to provide the other party with such consent to utilize their respective Branding where reasonably necessary for the other party to perform its duties and exercise its rights under this Agreement and any such consent granted to utilize a party's Branding shall constitute a non-exclusive, revocable license that is limited to use of the Branding of the party in the Territory consistent with this Agreement. Section 2.9. Training. Health Net and SafeGuard shall develop jointly -------- programs or prepare materials to train all necessary Health Net and SafeGuard personnel and the respective Marketing Forces of the parties regarding the marketing and administration of the Products. ARTICLE III UNDERWRITING, RATES AND ADMINISTRATION -------------------------------------- Section 3.1. Authority Regarding Products. ---------------------------- (a) Except as provided herein, nothing in this Agreement confers or is intended to confer on a party any authority with respect to the Products of the other parties, including but not limited to (i) underwriting criteria; (ii) pricing; (ii) participation requirements; (iii) minimum employer contributions; (iv) approval of applications; or (v) the authority to issue policies, contracts or any other documents conferring coverage under a Product of another party. Except as otherwise provided herein, each party reserves the right, in its sole discretion, to amend, change or abolish coverage forms, premium rates or fees, underwriting guidelines, eligibility criteria and other internal rules and regulations with respect to its own Products upon sixty (60) days advanced written notice to the other parties hereto. (b) Subject to any limitations imposed by applicable Law, the respective Marketing Forces of Health Net and SafeGuard shall be permitted to obligate the other parties to provide coverage to the Clients of the respective Marketing Forces under the Products offered for sale pursuant to this Agreement if such Clients meet the eligibility and underwriting criteria established by the party providing the Product. In the event a Client does not meet the eligibility and underwriting criteria established by the party providing the Product, the Marketing Force of the other parties shall not have the authority to obligate the party providing the Product to provide coverage to such a Client without the prior consent of the party providing the Product. Except as provided in this Section 3.1(b), each party retains the exclusive right, exercisable without permission from the other parties, to accept or reject any application or enrollment request, or to cancel the coverage with respect to their respective Products. Notwithstanding the foregoing, neither Health Net nor SafeGuard shall impose any limitations or criteria with respect to a Product offered for sale pursuant to this Agreement that is more restrictive than the limitations and criteria applicable generally to the Products offered for sale by the party in the Territory. 6 Section 3.2. Product Administration. ----------------------- (a) Except as specifically provided herein, each party shall be responsible for the design and implementation of all administrative services and procedures with respect to its respective Products, including without limitation, enrollment, applications, setting the Net Price, underwriting, reporting, coverage determinations, claims, grievances, correspondence and communication with eligible and covered persons, employers, Contractholders, Subscribers, providers and Governmental Authorities, compliance, record keeping, eligibility verification, and providing any notices required by applicable Law, provided, however, the parties shall attempt to coordinate enrollment, - -------- ------- underwriting and the application process to the extent possible and permitted by Law under the circumstances. (b) To the extent permitted by applicable Law, the parties may elect to coordinate the provision of one or more administrative services to minimize duplication of resources and to promote greater profitability of the Products. The fees payable for such services, if any, shall be separately negotiated by the parties. Section 3.3. Enrollment. [REDACTED] ---------- Section 3.4. Enrollment Materials. Health Net and SafeGuard shall each -------------------- be responsible for the preparation and distribution of Product booklets, certificates, provider directories, identification cards, and all other materials relating to their respective Products. All enrollment agreements, forms and other materials, including Subscriber handbooks and identification cards used for Contractholders and Subscribers shall be either Health Net's or SafeGuard's existing approved forms, as appropriate, modified as necessary to reflect the terms of this Agreement and the administrative requirements of Health Net and SafeGuard, respectively. All such materials shall specify the Health Net Affiliate that is the underwriter of the Health Net Products, and the SafeGuard Affiliate that is the underwriter of the SafeGuard Products, including but not limited to, the Health Net Branded Products. Neither Health Net nor SafeGuard shall use enrollment materials utilizing the name of the other party, without the other party's written approval. Section 3.5. Enrollment Reports. Health Net and SafeGuard shall ------------------- prepare enrollment reports not less frequently than monthly showing all Products sold, renewed or terminated pursuant to this Agreement, identifying individuals who are enrolled in each Product and such other enrollment information required by either party to perform its duties with respect to such Products. Such reports shall be made by Health Net and SafeGuard on a periodic and timely basis within five (5) Business Days following the end of the month in which the transactions or other matters occurred, and shall be transmitted electronically in a form reasonably acceptable to the receiving party. Health Net and SafeGuard shall each prepare periodic reconciliations of the enrollment information in their possession. Section 3.6. Claims Administration for Health Net Branded Products. -------------------------------------------------------- (a) SafeGuard shall be solely responsible for the payment of all claims submitted by Dental Providers and Subscribers related to Covered Dental Services provided to Subscribers, excluding applicable Copayment and Coinsurance amounts. SafeGuard shall at all 7 times retain full responsibility for determining compensability and for payment or non-payment of claims under the Health Net Branded Products. (b) SafeGuard shall receive, review, process or deny all claims for Covered Dental Services provided to Subscribers in accordance with the applicable Health Net Branded Products and applicable Law. SafeGuard shall notify Subscribers in writing of any claims denied for lack of coverage under the applicable Health Net Branded Product by providing a statement of the reasons for the denial and advising the Subscriber of the available grievance procedures as required by applicable Law. SafeGuard shall administer coordination of benefits for claims submitted for Covered Dental Services. Section 3.7. Claims Administration for Health Net Products. -------------------------------------------------- (a) Health Net shall be solely responsible for the payment of all claims submitted by providers and Subscribers related to services provided to Subscribers under Health Net Products, excluding applicable Copayment and Coinsurance amounts. Health Net shall at all times retain full responsibility for determining compensability and for payment or non-payment of claims from providers under any Health Net Products. (b) Health Net shall receive, review, process or deny all claims for services or supplies provided to Subscribers in accordance with the applicable Health Net Products and applicable Law. Health Net shall notify Subscribers in writing of any claims denied for lack of coverage under the applicable Health Net Product by providing a statement of the reasons for the denial and advising the Subscriber of the available grievance procedures as required by applicable Law. Health Net shall administer coordination of benefits for claims submitted under the applicable Health Net Product. Section 3.8. Books and Records. Health Net and SafeGuard shall each ------------------- keep and maintain true and complete records of all transactions pursuant to this Agreement. SafeGuard and Health Net shall permit the other party reasonable access during normal business hours to its records related to this Agreement for inspection and copying by the other party or its authorized representatives, or by a legally authorized and properly identified Governmental Authority. Health Net and SafeGuard shall furnish the other party, upon its written request, all reasonably required information in the party's possession regarding any and all matters, transactions or activities pertaining to the Products of the other party including information required for financial reporting purposes, at such times and in such formats as mutually agreed upon by the parties. Section 3.9. Web Site Support. ---------------- (a) Health Net and SafeGuard shall develop jointly (i) individual web pages to appear on their respective web sites that provide the information and functionality mutually determined by Health Net and SafeGuard to be necessary or desirable to provide Subscriber support for the Health Net Branded Products, and (ii) hyperlinks between the Health Net hosted web site (http://www.healthnet.com) and the SafeGuard hosted web site ------------------------ (http://www.safeguard.net) mutually agreeable to Health Net and SafeGuard. ------------------------ SafeGuard shall provide the same level of Subscriber functionality on the SafeGuard web site to support the 8 Health Net Branded Products that it provides to support any other dental benefit program. Notwithstanding the foregoing, each party shall have sole responsibility for providing, hosting and maintaining, at its expense, their respective web sites. (b) Subject to the limitations contained in Section 2.8, each party shall have sole control over the "look and feel" of their respective web sites, including but not limited to, the placement of any hyperlinks and the use of any banners and frames. Each party shall have exclusive control over the posting of any web page and hyperlinks on their respective web sites. Section 3.10. Performance Standards. Commencing April 1, 2004 and ---------------------- thereafter during the Term, SafeGuard shall comply with the performance standards set forth in Schedule 3.10. In the event SafeGuard fails to comply with any of the performance standards, SafeGuard shall pay to Health Net the amount(s) corresponding to such failure(s) set forth in Schedule 3.10. SafeGuard shall pay Health Net any amounts due within twenty (20) Business Days following the end of the relevant measuring period. SafeGuard and Health Net shall use their best efforts to report all measurements related to the performance standards accurately and completely. Unless indicated otherwise, the measurement period shall be calendar year. SafeGuard shall report quarterly to Health Net all measurements related to the performance standards. ARTICLE IV MANAGED CARE SERVICES AND PRODUCTS ---------------------------------- Section 4.1. Dental Provider Network. SafeGuard shall make available ------------------------ to Subscribers under the Health Net Branded Products the network of licensed Dental Providers SafeGuard generally makes available to SafeGuard Subscribers in the Territory and such Dental Provider network shall at all times be sufficient to make Covered Dental Services readily available and accessible to each Subscriber under the Health Net Branded Products. SafeGuard shall maintain a documented system for monitoring and evaluating accessibility to Covered Dental Services by Subscribers, including a system for addressing assessability problems that may develop. SafeGuard shall use commercially reasonable efforts to maintain and enforce all provisions of its contracts with Dental Providers. Section 4.2. Network Management. ------------------- (a) Except as otherwise provided in the Network Access Agreement by and between Health Net Life Insurance Company and SafeHealth Life Insurance Company dated April 7, 2003, (i) all terms and conditions of provider contracts, including all compensation arrangements and/or negotiated fees, shall be the sole responsibility of the party contracting with the providers, and (ii) provider network recruitment and management, credentialing protocols, quality assurance, utilization management, case management, and other managed care services with respect to each party's Products shall be designed, managed and performed by the party providing the Product for which such services are to be performed. Each party may recommend to any other party additions to or deletions from such other party's provider networks, provided, however, that the decision -------- ------- to include or exclude any provider shall be the decision solely of the party responsible for making the network of providers available. 9 (b) Each contract between SafeGuard and a Dental Provider shall require the Dental Providers to (i) provide Covered Dental Services to Subscribers of the Health Net Branded Products in the same manner and with the same availability as offered to other patients or customers and with the skill, care and expertise that are usual and customary for licensed professionals providing Covered Dental Services; (ii) not differentiate or discriminate in the treatment of any Subscriber because of race, color, creed, national origin, ancestry, religion, gender, marital status, sexual orientation, age, disability health status or type of illness or condition, or source of payment; (iii) agree that in the event SafeGuard fails to pay the applicable Dental Provider, the Subscriber shall not be liable to the Dental Provider for any sums owed by SafeGuard; (iv) maintain in force adequate professional liability insurance in limits sufficient to protect the Subscriber and Health Net; and (v) otherwise comply with applicable Law. Nothing contained herein is intended to require a Dental Provider to provide a service he or she is not duly licensed to perform, does not usually and customarily perform, or in the professional judgment of the Dental Provider declines to perform. (c) SafeGuard shall require contractually that Dental Providers and their employees, contractors, and agents shall confidentially maintain accurate and complete Subscriber records in compliance with applicable Law and in a manner that will ensure timely access by Subscribers and Health Net to the records pertaining to such Subscribers in compliance with applicable Law relating to privacy of medical information. (d) Neither party shall be required to disclose to the other party its proprietary information, including without limitation, information with respect to utilization review, case management, procedure specific protocols, provider profiling, credentialing criteria, software systems or any other information which that party, in its sole discretion, designates as proprietary. If a party elects to disclose any such proprietary information, such information shall be deemed Confidential Information subject to the limitations of Section 10.15. Section 4.3. Network List. -------------- (a) Within ten (10) days of the Effective Date, SafeGuard shall deliver to Health Net a list of Dental Providers (the "Network List") in an Excel spreadsheet format that is accurate as of the end of the calendar month preceding delivery of the Network List. The Network List shall contain information regarding each Dental Provider including name, billing address, facility office address, and telephone number. On a monthly basis thereafter, SafeGuard shall deliver to Health Net updates of all information contained in the Network List and any additional information in SafeGuard's possession reasonably necessary for Health Net to monitor and maintain an accurate database of Dental Providers, including but not limited to, all information required by this Section 4.3 for all Dental Providers added to the Network List and the identity of all terminated Dental Providers. (b) Health Net may provide to Subscribers in provider directories or otherwise the information regarding Dental Providers contained in the Network List and may use such information as otherwise necessary to carry out the terms of this Agreement. Health Net shall not otherwise use the names, symbols, trademarks or service marks of Dental Providers without the prior written consent of SafeGuard and the relevant Dental Providers. 10 (c) SafeGuard shall, at its expense, maintain and provide a locator service of Dental Providers and provide such data to Health Net in a mutually agreeable electronic format so that Subscribers may access the locator service by accessing the Health Net web site (http://www.healthnet.com). ------------------------ Subscribers may also access such locator services through a toll-free number which SafeGuard shall maintain at its expense. Section 4.4. Credentialing. SafeGuard shall re-credential the HMO ------------- Dental Providers at least every thirty-six (36) months utilizing the credentialing standards of the National Committee of Quality Assurance Standards for Accreditation of Managed Care Organizations and SafeGuard shall re-credential PPO Dental Providers utilizing SafeGuard's PPO Dental Provider credentialing criteria as of the Effective Date and as amended thereafter. If Health Net has a reasonable basis to request that a Dental Provider be excluded from the network of Dental Providers available to provide Covered Dental Services to Subscribers, upon the request of Health Net, SafeGuard shall either exclude such Dental Provider from the network of Dental Providers available to provide Covered Dental Services to Subscribers, or terminate the contract of such Dental Provider in accordance with its terms. Subject to any applicable confidentiality requirements, Health Net and its authorized representatives shall have the right, upon prior written notice, at all reasonable times during normal business hours, to inspect, review and make copies at Health Net's expense of all books and records of SafeGuard reasonably related to the credentialing of Dental Providers. Section 4.5. Quality of Service. SafeGuard shall monitor the quality ------------------- of Covered Dental Services provided to Subscribers by the Dental Providers through a quality management program consistent with the prevailing practices and procedures of SafeGuard as of the Effective Date. In the event the standard or quality of care or service furnished by a Dental Provider is found to be unacceptable under such program, SafeGuard shall use best efforts to notify Health Net promptly and either (i) use commercially reasonable efforts to ensure that such Dental Provider corrects the specified deficiency, or (ii) terminate the contract of such Dental Provider in accordance with its terms. Section 4.6. Notice of Adverse Action. SafeGuard shall notify Health ------------------------- Net in writing promptly after receiving any actual or constructive notice of any investigation by a Governmental Authority, complaint or adverse action against any Dental Provider, including without limitation (i) any action against a Dental Provider's state license, accreditation, or certification, or (ii) any event or circumstance which reasonably could be expected to interfere materially with, modify, or alter the performance of any Dental Provider's duties or obligations to Subscribers enrolled in a Health Net Branded Product. Section 4.7. Communication with Dental Providers. SafeGuard shall -------------------------------------- maintain an adequate administrative system, prepare internal administrative manuals and forms and communicate or arrange to communicate information about Covered Dental Services, rules, policies and procedures to Dental Providers to support the provision of Covered Dental Services to Subscribers pursuant to this Agreement, and to provide confirmation to Dental Providers of the eligibility of Subscribers, to answer questions regarding Covered Dental Services, and to advise Dental Providers of applicable Copayments and Coinsurance under the Subscriber's Health Net Branded Products. 11 Section 4.8. Grievances. ---------- (a) SafeGuard shall within ten (10) Business Days provide notice to Health Net of all routine inquiries by Subscribers and Dental Providers relating to a Health Net Branded Product which SafeGuard is unable to resolve directly with the Dental Provider and/or Subscriber, together with any relevant materials and a written synopsis of all exchanges with the Subscriber and/or Dental Provider. (b) SafeGuard shall have the authority to determine whether any Covered Dental Service proposed or rendered to a Subscriber is Medically Necessary subject to the Subscriber's and the Dental Provider's appeal rights under applicable Law. All denials of services regarding Medical Necessity, Subscriber appeals of denied services, and grievances involving clinical issues shall be referred immediately to Health Net for review. (c) Health Net shall use its commercially reasonable efforts to assist SafeGuard to resolve any grievance, appeal and non-routine inquiries relating to a Health Net Branded Product. If a grievance of a Subscriber is resolved in favor of the Subscriber, SafeGuard shall take all necessary steps to correct the Subscriber's grievance at no cost to Health Net and only that cost, if any, to the Subscriber set forth in the applicable Health Net Branded Product. Health Net may advocate to SafeGuard or a Dental Provider on behalf of the Subscriber for the provision of Covered Dental Services. ARTICLE V PRODUCT PRICING, COMPENSATIONAND EXPENSES ----------------------------------------- Section 5.1. Determination of Benchmark Products. Set forth on -------------------------------------- Schedule 5.1 is a list of those Health Net Dental Products that Health Net and SafeGuard have jointly determined as of the Effective Date are materially similar to comparable SafeGuard Dental Products (the "Benchmark Products"). If, as of the Effective Date, there is no Health Net Dental Product materially similar to an existing SafeGuard Dental Product, at the request of Health Net, SafeGuard shall develop a Health Net Branded Product substantially similar to such SafeGuard Dental Product. On and after the Effective Date, the "Health Net Advantage" suite of dental HMO Products offered by HND shall be made available to the Health Net Marketing Force and such Health Net Advantage products shall be Health Net Branded Products. As SafeGuard develops new Dental Products, Health Net shall have the option to request SafeGuard to develop an identical Health Net Branded Product. Any Health Net Branded Product created by SafeGuard at the request of Health Net pursuant to this Section 5.1 shall be considered a Benchmark Product. Section 5.2. Pricing of Benchmark Products. [REDACTED] -------------------------------- Section 5.3. Pricing of Health Net Branded Products for Individual, --------------------------------------------------------- Small and Mid-Market Groups. - ------------------------------ (a) [REDACTED] (b) [REDACTED] 12 Section 5.4. Pricing of Large Group and Government Clients. [REDACTED] --------------------------------------------- Section 5.5. Replacement of Health Net Dental Products. ---------------------------------------------- (a) The Joint Health Net Subscribers with in-force Health Net Dental Products as of October 1, 2003 are set forth in Schedule 5.5. Except for ------------ Bundled Products and "Health Net Advantage" dental HMO products, Health Net shall use commercially reasonably efforts to replace with a Health Net Branded Product any Health Net Dental Product of a Joint Health Net Subscriber set forth in Schedule 5.5. SafeGuard shall be entitled to receive each month a ------------- Supplemental Compensation Amount calculated by multiplying the applicable Supplemental Compensation percentages set forth below by the Pooled Net Price and then multiplying such product by the number of Joint Health Net Subscribers set forth in Schedule 5.5 whose Health Net Dental Product is replaced by a ------------- Health Net Branded Product after the Effective Date and who are enrolled in a Health Net Branded Product in the relevant month as follows:
- -------------------- ------------------------- ----------------------- Dental HMO SafeGuard Dental PPO/Indemnity Supplemental Compensation SafeGuard Supplemental Period Compensation - -------------------- ------------------------- ----------------------- Year 1 after Closing [REDACTED] [REDACTED] - -------------------- ------------------------- ----------------------- Year 2 after Closing [REDACTED] [REDACTED] - -------------------- ------------------------- ----------------------- Year 3 after Closing [REDACTED] [REDACTED] - -------------------- ------------------------- ----------------------- Year 4 after Closing [REDACTED] [REDACTED] - -------------------- ------------------------- ----------------------- Year 5 after Closing [REDACTED] [REDACTED] - -------------------- ------------------------- ----------------------- Thereafter [REDACTED] [REDACTED] - -------------------- ------------------------- -----------------------
(b) For those Joint Health Net Subscribers set forth on Schedule -------- 5.5 whose Health Net Dental Products are not converted to a Health Net Branded - --- Product after the Effective Date, all revenue attributable to the Health Net Dental Product less Producer commissions shall be included in the Aggregate Payment Amount paid to SafeGuard pursuant to Section 6.3, provided, however, -------- ------- "Health Net Advantage Products" underwritten by HND and providing coverage to the Joint Health Net Subscribers on Schedule 5.5 after the Effective Date shall ------------ be considered Health Net Branded Products and SafeGuard shall receive the SafeGuard Compensation Amount for such "Health Net Advantage" Products that remain in effect after the Effective Date. (c) Except for Bundled Products in force as of the Effective Date, Health Net shall use commercially reasonable efforts to replace the Health Net Dental Products with Health Net Branded Products for any Joint Health Net Subscriber of Health Net Health Plans of Oregon, Inc. who or which also purchased a Health Net Medical Product prior to the Effective Date. Health Net shall use commercially reasonable efforts to effect such replacement upon the first renewal date of the Health Net Dental Products following the Effective Date, but in no event later than December 31, 2004. The Health Net Marketing Force shall be authorized to sell the 13 Health Net Branded Products to Subscribers of Health Net Health Plan of Oregon, Inc. at prices to be determined by Health Net in its sole discretion consistent with the SafeGuard rates filed with or rates approved by Governmental Authorities in Oregon for such Health Net Branded Products. Any Subscriber of Health Net Health Plans of Oregon, Inc. who or which purchased only a Health Net Dental Product shall be offered a Health Net Branded Product upon the first renewal date of such Health Net Dental Products. (d) Except for Bundled Products in force as of the Effective Date, Health Net shall use commercially reasonable efforts to replace the Health Net Dental Products with Health Net Branded Products for any Joint Health Net Subscriber of Health Net of Arizona, Inc. or Health Net Life Insurance Company residing in Arizona upon the first renewal date of such Joint Health Net Subscribers' Health Net Dental Products following the Effective Date. The Health Net Marketing Force shall be authorized to sell the Health Net Branded Products to Arizona Joint Health Net Subscribers at prices to be determined by Health Net in its sole discretion consistent with the SafeGuard rates filed with or rates approved by Governmental Authorities in Arizona for such Health Net Branded Products. (e) Any Health Net Dental Product purchased prior to the Effective Date by a Subscriber of Health Net of California, Inc. in conjunction with a "Seniority Plus" plan shall be considered a Health Net Branded Product as of the Effective Date and SafeGuard shall be entitled to receive the SafeGuard Compensation Amount with respect to such Health Net Branded Products commencing as of the Effective Date. (f) Health Net shall provide notice to all Joint Health Net Subscribers at least ninety (90) days prior to the renewal date of their Health Net Dental Product informing such Joint Health Net Subscribers of their opportunity to renew their Health Net Dental Product or replace their expiring Health Net Dental Product with a Health Net Branded Product. SafeGuard shall provide a similar notice to Subscribers of HND enrolled in a Health Net Dental HMO Product as of the Effective Date. The notice to be provided pursuant to this subsection (f) shall describe fully all proposed plan changes, rate and administrative changes, including details with respect the involvement of SafeGuard pursuant to this Agreement. Joint Health Net Subscribers residing in the Territory enrolled in a Health Net Dental Product as of the Effective Date shall have the option to renew their expiring Health Net Dental Product or replace their expiring Health Net Dental Product with a Health Net Branded Product. SafeGuard shall be entitled to receive the Supplemental Compensation Amount with respect to any Health Net Branded Product that replaces a Health Net Dental Product of a Joint Health Net Subscriber. Subsection 5.5(b) shall govern any Health Net Dental Product renewed by a Joint Heath Net Subscriber pursuant to this subsection (f). (g) The Bundled Products shall remain in force until cancelled or nonrenewed in conformity with applicable Law. After the Effective Date, HND shall continue to administer the dental benefit under any Bundled Product pursuant to subcapitation or administrative service agreements between HND and any Health Net Affiliate in effect as of the Effective Date. The parties agree to negotiate in good faith to prepare and execute agreements within thirty (30) days after the Effective Date for HND to administer the dental benefit under any Bundled Product and such agreements shall replace the subcapitation and administrative service agreements between HND and any Health Net Affiliate in effect as of the Effective Date. At the time such 14 replacement agreements are executed, the subcapitation or administrative service agreements between HND and any Health Net Affiliate in effect as of the Effective Date shall be terminated. The compensation Health Net shall pay to SafeGuard with respect to the administration of the Bundled Products is set forth on Schedule 5.5(g). ---------------- Section 5.6. Presentation of Benchmark Products. [REDACTED] ------------------------------------- Section 5.7. Compensation to SafeGuard for Sale of Health Net Products. --------------------------------------------------------- [REDACTED] Section 5.8. Transitional Provisions. ------------------------ (a) Until March 1, 2004, the Health Net Marketing Force shall have the right to market and sell in the Territory the Health Net Dental Products and Health Net vision Products offered by HNV, HND and HNL as of the Effective Date and such dental and vision Products shall be underwritten and administered by HND, HNV or SafeHealth as appropriate (the "Existing Dental and Vision Products"). The Health Net Marketing Force may continue to offer and sell the Existing Dental and Vision Products to Health Net Clients in the Territory at the rates utilized by HNV, HND and HNL for such Products as of the Effective Date. SafeGuard shall provide the Existing Dental and Vision Products to Health Net Clients at the rates utilized by HNV, HND and HNL for such Products as of the Effective Date regardless of the enrollment date for such Existing Dental and Vision Products. During the period that the Health Net Marketing Force offers and sells the Existing Dental and Vision Products, SafeGuard shall not be required to provide any Existing Dental and Vision Products at the Most Favored Nation Price. (b) On or before January 1, 2004, SafeGuard shall provide to Health Net information with respect to the Health Net Branded Products, including but not limited to, Net Price information that will be applicable to quotes for such Health Net Branded Products on and after March 1, 2004. After the Health Net Branded Products are made available to the Health Net Marketing Force for sale to Health Net Clients in the Territory, the right of the Health Net Marketing Force to offer or sell any Existing Dental or Vision Products shall terminate. ARTICLE VI BILLING AND COLLECTION OF PREMIUMS; PAYMENT OF COMMISSIONS ---------------------------------------------------------- Section 6.1. Billing and Collection of Premiums. -------------------------------------- (a) Except as provided in subsection (c), Health Net shall bill and collect premium and contract fees for all Health Net Branded Products sold by the Health Net Marketing Force to a Health Net Client. Health Net shall bill and collect all premium and contract fees attributable to Health Net Products sold to SafeGuard Clients by the SafeGuard Marketing Force. (b) Health Net shall notify SafeGuard if Health Net determines that an individual or group who or which purchased a Health Net Branded Product is ineligible for any reason including, but not limited to, failure to pay premiums or contract fees. Any adjustments to the eligible Subscribers and the resulting SafeGuard Compensation Amount shall be subject to the standard retroactivity adjustment policy of SafeGuard at the time of the adjustment. 15 (c) In the event Health Net lacks the systems necessary to bill and collect the premium and contract fees for Health Net Branded Products as of the Effective Date, SafeGuard shall bill and collect the premium and contract fees for all Health Net Branded Products until such time as Health Net has developed the systems necessary to bill and collect such premium and contract fees. Until such time as Health Net has the capacity to bill and collect the premium and contract fees for the Health Net Branded Products sold by the Health Net Marketing Force and the premium and contract fee billing and collection function has been transferred to Health Net, SafeGuard shall retain the entire amount of premium and contract fees billed and collected by SafeGuard relating the Health Net Branded Products sold by the Health Net Marketing Force. Health Net shall endeavor to develop the systems necessary to bill and collect the premium and contract fees for all Health Net Branded Products no later than December 31, 2004. (d) During the period that SafeGuard bills and collects the premium and contract fees for all Health Net Branded Products pursuant to subsection (c), SafeGuard shall be responsible for the payment of all commissions owing to Producers, other than Producers who are employees of any Health Net Affiliate, resulting from the sale of the Health Net Branded Products. During such period, Health Net shall be obligated to pay any commissions attributable to the Health Net Branded Products owing to Producers who are employees of any Health Net Affiliate and SafeGuard shall pay Health Net by the twentieth (20th) day of each month cash equal to [REDACTED] of the premium and contract fees billed by SafeGuard in the prior month and attributable to the dental and vision HMO Health Net Branded Products and [REDACTED] of the premium and contract fees billed by SafeGuard in the prior month and attributable to the Health Net Branded PPO and indemnity Products. Health Net may utilize such amounts to pay commissions attributable to the Health Net Branded Products owing to Producers who are employees of any Health Net Affiliate. (e) After Health Net develops the capacity to bill and collect premium and contract fees for the Health Net Branded Products sold by the Health Net Marketing Force, SafeGuard and Health Net shall cooperate and coordinate the transfer of the premium and contract fee billing and collection function to Health Net. After the Health Net Branded Product premium and contract fee billing and collection function has been transferred to Health Net, Health Net shall pay SafeGuard the SafeGuard Compensation Amount and the Supplemental Compensation Amount for all in force Health Net Branded Products sold by the Health Net Marketing Force pursuant to this Agreement and Health Net shall thereafter be responsible for the payment of all commissions owing to Producers resulting from the sale of Health Net Branded Products. Section 6.2. Commissions. ----------- (a) Except as provided in Section 6.1(d), Health Net shall make payment of all commissions (i) owing to members of the Health Net Marketing Force to the extent that such commissions become due as a result of the sale of Health Net Medical Products or Health Net Branded Products pursuant to this Agreement, and (ii) owing to SafeGuard to the extent such commissions become due as a result of the sale of Health Net Medical Products to SafeGuard Clients by a member of the SafeGuard Marketing Force. SafeGuard shall make payment of all commissions to members of the SafeGuard Marketing Force to the extent such commissions become due as a result of the sale of Health Net Medical Products to SafeGuard Clients. In the 16 event Health Net pays SafeGuard commissions owing to members of the SafeGuard Marketing Force resulting from the sale of Health Net Medical Products and SafeGuard fails to pay such commission to the appropriate members of the SafeGuard Marketing Force, SafeGuard shall defend, indemnify and hold Health Net harmless against any claim for commissions by any member of the SafeGuard Marketing Force resulting from the sale of Health Net Medical Products. (b) Each party shall be responsible for ensuring that each member of its respective Marketing Force is appropriately licensed and appointed, as necessary, to sell the Products and to receive commissions. The parties shall not authorize any person or entity to solicit sales of Products pursuant to this Agreement in any state unless such person or entity is properly licensed in that state. All payments of commissions to members of the marketing forces of the respective parties shall comply with applicable Law. Section 6.3. Health Net Payments to SafeGuard. ------------------------------------ (a) Except as provided in Section 6.1(c), on or before the twentieth (20th) day of each month, Health Net shall pay to SafeGuard the sum of the (i) the SafeGuard Compensation Amount; (ii) the Supplemental Compensation Amount; and (iii) any amounts due SafeGuard pursuant to Section 5.5(b) attributable to Subscribers who are enrolled in Health Net Branded Products as of the first (1st) day of each such month (including any Subscribers retroactively added or deleted pursuant to the SafeGuard retroactivity adjustment policy) as set forth in the enrollment report provided to SafeGuard by Health Net pursuant to Section 3.5 (the "Aggregate Payment Amount"). Subject to SafeGuard's retroactivity adjustment policy, if a Subscriber is included as an eligible Subscriber on a monthly enrollment report, Health Net shall pay SafeGuard the applicable SafeGuard Compensation Amount or Supplemental Compensation Amount for such Subscriber for the entire month regardless of such Subscriber's actual date of enrollment. (b) Health Net shall pay SafeGuard the Aggregate Payment Amount by issuing one check to SafeGuard in an amount equal to the Aggregate Payment Amount together with remittance information sufficient for SafeGuard to determine the amount of premium tax owing by SafeGuard in each state within the Territory resulting from the aggregate premium or contract fees charged to Health Net Clients for the Health Net Branded Products in each such month. The SafeGuard Compensation Amount plus any Supplemental Compensation Amount shall be the sole compensation payable by Health Net to SafeGuard in connection with the Health Net Branded Products sold by the Health Net Marketing Force pursuant to this Agreement. (c) SafeGuard, shall have the right to audit each Aggregate Payment Amount for up to six (6) months after each such monthly Aggregate Payment Amount is made by Health Net. In the event SafeGuard determines that an Aggregate Payment Amount was incorrect, SafeGuard shall present the information to Health Net for payment or refund of the corrected amount. If Health Net agrees that any such Aggregate Payment Amount was incorrect, either Health Net shall make the corrected payment amount to SafeGuard within ten (10) Business Days after receiving the information from SafeGuard, or SafeGuard shall refund to or credit Health Net with the amount of any overpayment. If Health Net 17 disagrees with the determination of SafeGuard, it shall present information to SafeGuard within ten (10) Business Days after receipt of the information from SafeGuard detailing why it disagrees with the information provided. The parties shall use good faith efforts to resolve any Dispute. If any such Dispute is not capable of informal resolution, such Dispute shall be resolved pursuant to the provisions of Article IX. Section 6.4. Accounting and Reporting. Health Net and SafeGuard shall ------------------------ each prepare and supply the other party with any accounting reports and reports of activities with respect to the Products and sales activities pursuant to this Agreement reasonably requested by the other party. SafeGuard shall provide Health Net a quarterly report that sets forth all rates for each group size and Benchmark Product quoted by SafeGuard in the Territory. In addition to the report regarding the rates for SafeGuard Dental Products distributed by SafeGuard in the Territory, the initial reports to be prepared by the parties are set forth in Schedule 6.4. ARTICLE VII TERM AND TERMINATION -------------------- Section 7.1. Term. This Agreement shall become effective on the ---- Effective Date and shall continue in effect for sixty (60) months unless terminated pursuant to the terms of this Article VII. Unless this Agreement has been terminated pursuant to the terms of this Article VII, Health Net shall have the option to extend this Agreement on the same terms and conditions for an additional sixty (60) months by providing written notice to SafeGuard not less than one hundred and eighty (180) days prior to the expiration of the initial sixty (60) months. Section 7.2. Termination on Mutual Consent. This Agreement may be -------------------------------- terminated at any time by mutual agreement of Health Net and SafeGuard in writing. Section 7.3. Termination for Cause. Either SafeGuard or Health Net may --------------------- terminate this Agreement for cause by providing the other party written notice of its intention to terminate upon the occurrence of any of the following: (a) If a party fails to remit any amounts due under this Agreement within twenty-five (25) days of the date such amount is due and payable. (b) If a party breaches a material term, covenant or condition of this Agreement and fails to cure such breach within thirty (30) days of receiving written notice of such breach from the non-breaching party. The written notice of such breach shall make specific reference to the action causing breach. If the breaching party fails to cure its breach to the reasonable satisfaction of the non-breaching party during the thirty (30) day cure period, this Agreement shall terminate at the option of the non-breaching party. In the event such cure cannot reasonably be completed within such thirty (30) day period, then commencement of such cure within such thirty (30) days and its diligent prosecution to completion shall, subject to the party's other rights to terminate the Agreement, extend the period to cure the breach for an additional period reasonably necessary to complete the cure. (c) If a party engages in fraudulent, illegal or grossly negligent conduct with respect to its duties and obligations under this Agreement, the other party shall have the right to terminate this Agreement, upon delivery of written notice of such termination to the defaulting 18 party, which shall be effective upon receipt, without prejudice to any other rights or remedies available to the non-defaulting party by reason of the defaulting party's conduct. (d) If a party becomes unable to perform its obligations under this Agreement or its Products because of financial impairment or loss of authority to act under Law, or by action of any Governmental Authority, the other party shall have the right to terminate this Agreement immediately. (e) In the event of a Change of Control of either SFGD or HNI, either SFGD or HNI shall have the right to terminate this Agreement effective as of the effective date of the Change of Control. (f) If the parties fail to reach the membership acquisition targets for a state other than California set forth in Schedule 7.3, SafeGuard ------------ and Health Net shall each have the right to terminate this Agreement with respect to any such state and enter into an agreement with a third party substantially similar to this Agreement with respect to such state and the exclusivity provisions of Section 2.3 (a) and (b) with respect to such state shall have no further force and effect. If the parties fail to reach the membership acquisition target for California specified in Schedule 7.3, either ------------ SafeGuard or Health Net shall have the right to terminate this Agreement in its entirety upon ninety (90) days written notice to the other party. (g) If SFGD or a SFGD Subsidiary acquires ownership, merges or consolidates with an entity that operates a health insurance business that provides Medical Products in the Territory, or ownership of SFGD is acquired by an entity that operates a health insurance business that provides Medical Products in the Territory, either HNI or SFGD shall have the right to terminate this Agreement upon reasonable notice to the other party. (h) If HNI or a HNI Subsidiary acquires ownership, merges or consolidates with an entity that operates a dental HMO, dental PPO or dental indemnity insurance business that provides dental HMO, dental PPO or dental indemnity insurance in the Territory, or ownership of HNI is acquired by an entity that operates a dental HMO, dental PPO or dental indemnity insurance business in the Territory, either HNI or SFGD shall have the right to terminate this Agreement upon reasonable notice to the other party. (i) If SafeGuard fails to meet the performance standards set forth in Schedule 3.10 for two consecutive calendar quarters in a manner that -------------- would result in the imposition of a performance penalty on SafeGuard equal to or greater than [REDACTED] of the aggregate annual SafeGuard Compensation Amount and Supplemental Compensation Amount if such failure continued for an entire calendar year and SafeGuard fails to cure such failure within thirty (30) days of receiving notice of such failure from Health Net, Health Net shall have the right to terminate this Agreement on ninety (90) days notice to SafeGuard. Section 7.4. Post-Termination Rights and Responsibilities. Termination -------------------------------------------- of this Agreement shall not terminate rights and obligations of the parties which by their nature extend beyond the term. Termination of this Agreement for any reason shall not release any party from any liability which has already accrued to another party at the time of termination. In the event this Agreement is terminated, the parties shall continue to perform all customary and 19 necessary services regarding their respective Products in accordance with the provisions of this Agreement until all such Products have been completely canceled, transitioned, nonrenewed, or otherwise terminated and all claims and payments relating thereto have been paid or discharged. ARTICLE VIII INDEMNIFICATION --------------- Section 8.1. Indemnification by SafeGuard. SafeGuard shall defend, ------------------------------ indemnify and hold harmless Health Net and its directors, officers, employees, shareholders, Affiliates and Subsidiaries ("Health Net Indemnities") from and against any and all loss, claim, damage, liability, or action in respect hereof which is caused by or results from the malfeasance, negligence, action or inaction of SafeGuard or a breach of its duties and obligations under this Agreement. If any claim, demand, action, suit, or proceeding is made or brought against any of the Health Net Indemnities with respect to matters that are the subject of this indemnity, SafeGuard shall assume the defense thereof with counsel reasonably satisfactory to the Health Net Indemnities and shall pay all costs of such defense. Section 8.2. Indemnification by Health Net. Health Net shall defend, ------------------------------ indemnify and hold harmless SafeGuard and its directors, officers, employees, shareholders, Affiliates and Subsidiaries ("SafeGuard Indemnities") from and against any and all loss, claim, damage, liability, or action in respect hereof which is caused by or results from the malfeasance, negligence, action or inaction of Health Net or a breach of its duties and obligations under this Agreement. If any claim, demand, action, suit, or proceeding is made or brought against any of the SafeGuard Indemnities with respect to matters that are the subject of this indemnity, Health Net shall assume the defense thereof with counsel reasonably satisfactory to the SafeGuard Indemnities and shall pay all costs of such defense. Section 8.3. Liability under SafeGuard's Products. Health Net is not a ------------------------------------ guarantor, insurer, or reinsurer of, or joint venturer with, SafeGuard, and Health Net shall have no risk of loss for, nor provide any indemnification to SafeGuard, any Contractholder or Subscriber, any provider or any other person with respect to any SafeGuard Product or Covered Dental Service. SafeGuard shall indemnify Health Net for all liabilities, losses, suits, damages, costs and expenses (including reasonable fees of Health Net's attorneys, and other expenses of litigation), net of recoveries from third parties, arising in connection with a SafeGuard Product, including action or failure to act by SafeGuard, or its employees or agents. Section 8.4. Liability under Health Net Products. SafeGuard is not a ------------------------------------ guarantor, insurer, or reinsurer of, or joint venturer with, Health Net and SafeGuard shall have no risk of loss, nor provide any indemnification to Health Net, any Contractholder or Subscriber, any provider or any other person with respect to a Health Net Product. Health Net shall indemnify SafeGuard for all liabilities, losses, suits, damages, costs and expenses (including reasonable fees of SafeGuard's attorneys, and other expenses of litigation), net of recoveries from third parties, arising in connection with a Health Net Product, including action or failure to act by Health Net, or its employees or agents. Section 8.5. Survival of Article. This Article VIII shall survive the ------------------- termination of this Agreement. 20 ARTICLE IX ARBITRATION ----------- Section 9.1. 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 (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. Section 9.2. Selection of Arbitrator. 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 Health Net to SafeGuard or notice from SafeGuard to Health Net, SafeGuard and Health Net shall use their best efforts to choose a mutually agreeable arbitrator. If Health Net and SafeGuard cannot agree on an arbitrator, the arbitrator shall promptly be selected by JAMS. Section 9.3. Procedures. 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. Section 9.4. Applicable Law. 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. Section 9.5. Expenses. 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. Section 9.6. Survival of Article. This Article IX shall survive --------------------- termination of this Agreement. ARTICLE X MISCELLANEOUS ------------- Section 10.1. Misunderstandings and Oversights. If any delay, ---------------------------------- omission, error or failure to perform any act required by this Agreement is unintentional and caused by misunderstanding or oversight, the parties shall adjust the situation to what it would have been had the misunderstanding or oversight not occurred. The party that first discovers such oversight or 21 incorrect act as a result of the misunderstanding will notify the other party in writing promptly upon discovery of the misunderstanding or oversight. The parties shall act to correct the error, omission or oversight within thirty (30) days of notification of the problem. This Section 10.1 shall not be construed as a waiver by either party of its right to enforce strictly the terms of this Agreement. Section 10.2. 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 further the intent of the parties hereto. Section 10.3. Performance by Affiliates. The parties acknowledge that ------------------------- certain obligations required to be performed may, by their nature, require specific legal authority to perform or will be more effectively performed by the parties' Affiliates. The parties will, to the extent required in order for their respective Affiliates to perform the obligations of the respective parties under this Agreement, cause their respective Affiliates to perform such obligations hereunder as if such Affiliates were themselves parties hereto. In connection with the performance of such obligations, the parties' respective Affiliates shall be subject to the terms and conditions of this Agreement as if such Affiliates were themselves parties hereto. Section 10.4. Regulatory Approval. Performance of the obligations of -------------------- any party under this Agreement shall be subject to the receipt of any necessary regulatory approvals under the applicable Law and practices of Governmental Authorities in the Territory. Health Net and SafeGuard shall cooperate in attempting to obtain expeditiously any necessary regulatory approvals from Governmental Authorities. Each party will bear its own expenses in obtaining such approvals. Section 10.5. Compliance with Laws. Each party shall, in the ---------------------- performance of their obligations set forth in this Agreement, comply with all applicable Law and the rules and regulations of all Governmental Authorities with jurisdiction over the parties and each party shall maintain all licenses or certificates necessary or appropriate for the performance of the functions set forth in this Agreement. Each party shall conform its actions under this Agreement to any orders concerning the activities covered by this Agreement by Governmental Authorities having jurisdiction over the parties' Products, business affairs and operations. Each party shall take all actions and make all filing, applications and provide all notices required by applicable Law to maintain their respective Products in compliance in all material respects with existing and future applicable Law. Each party shall promptly notify the other parties of any complaint, inquiry or lawsuit by any Governmental Authority relating to the Products or to this Agreement. Section 10.6. Audits. Each party shall have the right, upon reasonable ------ notice to the other party, and at the requesting party's expense, to audit the books and records of the other parties relating to this Agreement during regular business hours at the premises of the audited party where such records are normally maintained, including but not limited to, verifying that SafeGuard is providing Health Net Clients rates that do not exceed the Most Favored Nation Price. The audited party shall reasonably cooperate in any such audit. Health Net shall be entitled to recover from SafeGuard any damages suffered by Health Net resulting from the 22 failure of SafeGuard to provide Health Net Clients rates that do not exceed the Most Favored Nation Price. Section 10.7. 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 10.8. Successors and Assigns; Binding Effect. This Agreement --------------------------------------- shall not be assigned by Health Net or SafeGuard without the prior written approval of the other party. The provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective permitted successors and assigns. Section 10.9. Entire Agreement; Amendment. This Amended and Restated ---------------------------- Strategic Relationship Agreement constitutes the entire agreement between the parties with respect to the subject matter described herein, and supersedes any previous written or oral agreements, including but not limited to, the Strategic Relationship Agreement. This Agreement shall be amended only by written agreement signed by a duly authorized officer of each of Health Net and SafeGuard, and any change to this Agreement shall be null and void unless made by such written agreement; provided, however, that where, under insurance, health or other applicable Law, the approval of any such amendment to this Agreement by one or more Governmental Authority is required, the amendment shall not take effect unless and until all such necessary approvals have been obtained and received by both Health Net and SafeGuard. In the event that any such approval is required, Health Net and SafeGuard shall each take all necessary actions in order to obtain such approval. Section 10.10. Waivers. The waiver by either of the parties of the ------- other party's prompt and complete performance, or breach or violation, of any provisions of this Agreement and related documents shall not operate or be construed as a waiver of any subsequent breach or violation, and the waiver by any of the parties to exercise any right or remedy which it may possess hereunder shall not operate or be construed as a bar to the exercise of such right or remedy by such party upon the occurrence of any subsequent breach or violation. Section 10.11. Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the Law of the state of California, without giving effect to the principles of conflicts of laws thereof. Section 10.12. Severability. In the event any section or provision of ------------ this Agreement or related documents is found to be void and unenforceable by a court of competent jurisdiction, the remaining sections and provisions of this Agreement or related documents shall nevertheless be binding upon the parties with the same force and effect as though the void or unenforceable part had not been severed or deleted. 23 Section 10.13. Notices. Any notice or other communication required or ------- permitted hereunder shall be in writing and shall be delivered 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 SafeGuard 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 Health Net to: Health Net, Inc. Attn: General Counsel 21650 Oxnard Street Woodland Hills, California 91367 Tel: (818) 676-7601 Fax: (818) 676-7503 24 with a copy to: Kenneth B. Schnoll Sonnenschein Nath & Rosenthal, L.L.P. 685 Market Street San Francisco, CA 94105 Tel: (415) 882-0210 Fax: (415) 543-5472 Section 10.14. Notice of Legal Proceedings. If any party receives a ----------------------------- notice of the commencement of any legal proceedings involving another party's Products or actions pursuant to this Agreement, any communication from any Governmental Authority, or any person identifying a complaint by a Contractholder or Subscriber (other than a routine inquiry not involving a communication from a Governmental Authority or the suggestion of any legal action), the party receiving such notice shall immediately advise the other parties of such notice and shall thereafter forward promptly to the other parties any correspondence or information pertaining to any such legal proceeding or communication. Section 10.15. Confidentiality. --------------- (a) Neither Health Net nor SafeGuard shall disclose any proprietary or confidential information of the other party to a third party without the express written consent of the other party to this Agreement. For purposes of this Agreement, "proprietary and confidential" information will include, without limitation, all internal business practices and business records, information concerning products and pricing, contracts, computer hardware and software or business methods in any form whatsoever, peer review, quality assurance and grievance procedures, any aspect of utilization review programs, provider fee schedules, reimbursement schedules or discounts, and advertising or marketing information, but not including information otherwise available to the public. Neither Health Net nor SafeGuard shall use any proprietary and confidential information of the other party for its own benefit. Upon termination of this Agreement, each party will immediately return to the other parties any confidential information, except confidential information necessary for the continued administration of any Product. (b) The parties shall maintain the confidentiality of any personal information, including health information, pertaining to Subscribers including, without limitation, files, records, reports, and other information prepared and maintained in connection with this Agreement, in accordance with all applicable Law. (c) Each party shall obtain any necessary consent or authorization from Subscribers with respect to the release to the other party of any non-public personal information, including health information, relating to such Subscribers, by means of general or specific releases, as appropriate. Each party shall notify the other if it becomes aware that proper releases have not been obtained. (d) To the extent that either of the parties performs functions, activities, or services for, or on behalf of, the other party to this Agreement involving the use or disclosure of 25 Protected Health Information, as that term is defined in 45 CFR 164.501, the parties shall comply with the Business Associate Addendum set forth in Schedule -------- 10.15 hereto. - ----- Section 10.16. Press Releases. No public statement or press release --------------- regarding the existence of this Agreement shall be made by either party without obtaining the prior written consent of the other party, except as required by applicable Law. Section 10.17. Relationship of Parties. The parties to this Agreement ----------------------- are and shall remain independent contractors. None of the parties is the employee or agent of any other party, except as set forth herein, and none of the parties has an express or implied right to bind any other party. The parties do not intend to form a joint venture, partnership, or to be governed by Law relating to any relationship other than that of independent contractors. None of the parties is authorized to modify, alter or waive the terms of any Product issued by another party. Section 10.18. No Third Party Rights. This Agreement has been made for --------------------- the benefit of the parties hereto and respective successors and permitted assigns and nothing in this Agreement is intended to confer any rights or remedies under or by reason of this Agreement on any other person other than the parties to it and their respective successors and permitted assigns. Nothing in this Agreement is intended to relieve or discharge the obligations or liability of any third person to any party to this Agreement. Section 10.19. Expenses. Except as otherwise provided herein, each -------- party shall be responsible for the expenses it incurs in connection with this Agreement. Section 10.20. Headings and Schedules. Headings used herein are not ------------------------ part of this Agreement. Any Schedules or Exhibits attached hereto are incorporated by this reference and made a part of this Agreement. Section 10.21. Counterparts. This Agreement may be executed ------------ simultaneously in any number of counterparts, each of which will be deemed an original, but all of which will constitute one and the same agreement. [BALANCE OF PAGE INTENTIONALLY LEFT BLANK] 26 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the date first above written. HEALTH NET, INC. By: /s/ B. Curtis Westen ----------------------------------- Name: B. Curtis Westen Title: Senior Vice President, General Counsel and Secretary HEALTH NET LIFE INSURANCE COMPANY By: /s/ Douglas King ----------------------------------- Name: Douglas King Title: President SAFEGUARD HEALTH ENTERPRISES, INC. By: /s/ Ronald I. Brendzel ----------------------------------- Name: Ronald I. Brendzel Title: Senior Vice President, General Counsel and Secretary 27 SAFEHEALTH LIFE INSURANCE COMPANY By: /s/ Ronald I. Brendzel ----------------------------------- Name: Ronald I. Brendzel Title: Senior Vice President, General Counsel and Secretary HEALTH NET DENTAL, INC. By: /s/ Ronald I. Brendzel ----------------------------------- Name: Ronald I. Brendzel Title: Senior Vice President, General Counsel and Secretary HEALTH NET VISION, INC. By: /s/ Ronald I. Brendzel ----------------------------------- Name: Ronald I. Brendzel Title: Senior Vice President, General Counsel and Secretary 28 SCHEDULE 3.10 PERFORMANCE GUARANTEES [REDACTED] 29 SCHEDULE 5.1 BENCHMARK PLANS [REDACTED] 30 SCHEDULE 5.5 JOINT HEALTH NET SUBSCRIBERS [REDACTED] 31 SCHEDULE 5.5(g) COMPENSATION TO SAFEGUARD FOR BUNDLED PRODUCTS [REDACTED] 32 SCHEDULE 6.4 INITIAL REPORTING REQUIREMENTS 1. GROUPS SOLD REPORTS SafeGuard shall provide Health Net with a quarterly report that sets forth Health Net Branded Product groups sold, effective dates, group name, city, state, Subscriber, dependents, group code, and product type. The Group Sold Report shall be provided by SafeGuard to Health Net no later than the 3rd week after calendar quarter end. 2. UTILIZATION REPORTS SafeGuard shall provide Health Net with quarterly reports of utilization by product type. Report format to be mutually agreed upon and shall be provided to Health Net no later than the 3rd week after calendar quarter end. 3. CLAIM ACTIVITY REPORTS SafeGuard shall provide Health Net with a quarterly aggregate data file of claim activity relating to the Health Net Branded Products for Arizona, Oregon and California in a form and with information sufficient to enable Health Net to provide real time ability to provide for group requested experience data. The Claim Activity Report shall be provided to Health Net no later than the 3rd week following each calendar quarter end. 4. COMPETITIVE ANALYSIS REPORTS SafeGuard may provide Health Net an annual network comparison by competitor, by zip code and by county for the states of Arizona, Oregon, and California. The Competitive Analysis Report shall be provided by SafeGuard, if at all, during the 3rd quarter of each year with the first report to be provided by December 1, 2003. 5. CALL CENTER REPORTS SafeGuard to provide a unique 1-800 customer service number for Health Net Branded Products. Health Net members shall be placed into a Health Net dedicated call queue specific to Health Net's Branded Product membership. Call statistics will be tracked and reported for such call queue and shall meet Health Net's customer service requirements for average speed of answer and abandonment rates. Total call volume will be tracked by the dedicated 1-800 number and dedicated call queue. 6. NETWORK REPORTS SafeGuard shall provide Health Net with quarterly reports indicating network retention, additions, and terminations (with and without cause) and the reasons for the termination any provider in Oregon, Arizona, and California. The Network Reports shall be provided to 33 Health Net no later than the third week following the end of each quarter. The first Network Report shall be provided during the 3rd week of April 2004. 7. CLAIMS PROCESSING REPORT SafeGuard shall provide Health Net quarterly claims report for Health Net Branded Product membership, which includes Health Net claims inventory, and average days to process and pay Health Net claims. The Claim Processing Report shall be provided no later than the 3rd week after the end of each calendar quarter. 8. SATISFACTION SURVEY REPORTS A. SafeGuard shall provide Health Net with annual Health Net membership satisfaction surveys. The first Satisfaction Survey Report shall be provided during the first quarter of 2005. B. SafeGuard shall share existing annual SafeGuard panel satisfaction surveys results. The first annual panel satisfaction survey report shall be provided sixty (60) days from completion of survey. 34 SCHEDULE 7.3 MEMBERSHIP ACQUISITION TARGETS [REDACTED] 35 SCHEDULE 10.15 BUSINESS ASSOCIATE ADDENDUM This Business Associate Addendum (the "Addendum") supplements and is made a part of the Amended and Restated Strategic Relationship Agreement by and among Health Net, Inc., Health Net Life Insurance Company, SafeGuard Health Enterprises, Inc., SafeHealth Life Insurance Company, SafeGuard Health Plans, Inc., Health Net Vision, Inc. and Health Net Dental, Inc. (the "Agreement"), and is effective as of the Effective Date of the Agreement. RECITALS A. The parties may disclose certain information to each other pursuant to the terms of the Agreement, some of which may constitute Protected Health Information, as defined below. B. The parties intend to protect the privacy and provide for the security of Protected Health Information in compliance with the Health Insurance Portability and Accountability Act of 1996, Public law No. 104-191 ("HIPAA") and the regulations promulgated thereunder by the U.S. Department of Health and Human Services (the "HIPAA Regulations") and other applicable laws. C. The purpose of this Addendum is to satisfy certain standards and requirements of HIPAA and the HIPAA Regulations, including, but not limited to, 45 CFR 164.502(e) and 45 CFR 164.504(e). In consideration of the mutual promises below and the exchange of information pursuant to the Agreement and this Addendum, the parties agree as follows: 1. Definitions. (a) "Business Associate" means the party performing functions, activities, or services for, or on behalf of, a Covered Entity pursuant to the Agreement involving the use or disclosure of Protected Health Information. (b) "Covered Entity" means the party for whom, or on whose behalf, functions, activities, or services are performed pursuant to the Agreement involving the use or disclosure of Protected Health Information. (c) "Privacy Rule" means the Standards for Privacy of Individually Identifiable Health Information at 45 CFR part 160 and part 164, subparts A and E. (d) "Protected Health Information" has the same meaning as the term "protected health information" in 45 CFR 164.501, limited to the information created or received by Business Associate from or on behalf of Covered Entity. (e) Capitalized terms used but not otherwise defined in this Addendum have the same meaning as those terms in the Privacy Rule. 36 2. Obligations and Activities of Business Associate. (a) Business Associate shall not use or disclose Protected Health Information other than as permitted or required by this Addendum or as Required By Law. (b) Business Associate shall use appropriate safeguards to prevent use or disclosure of the Protected Health Information other than as provided for by the Agreement and this Addendum. (c) Business Associate agrees to mitigate, to the extent practicable, any harmful effect that is known to Business Associate of a use or disclosure of Protected Health Information by Business Associate in violation of the requirements of this Addendum. (d) Business Associate shall report to Covered Entity any use or disclosure of the Protected Health Information not provided for by this Addendum of which it becomes aware. (e) Business Associate shall ensure that any agent, including a subcontractor, to whom it provides Protected Health Information received from, or created or received by Business Associate on behalf of, Covered Entity agrees to the same restrictions and conditions that apply through this Addendum to Business Associate with respect to such information. (f) Business Associate shall provide access, at the request of Covered Entity, and in the time and manner designated by Covered Entity, to Protected Health Information in a Designated Record Set, to Covered Entity or, as directed by Covered Entity, to an Individual in order to meet the requirements under 45 CFR 164.524 (g) Business Associate agrees to make any amendment(s) to Protected Health Information in a Designated Record Set that the Covered Entity directs or agrees to pursuant to 45 CFR 164.526 at the request of Covered Entity or an Individual, and in the time and manner designated by Covered Entity. (h) Business Associate agrees to make its internal practices, books, and records, including policies and procedures, relating to the use and disclosure of Protected Health Information received from, or created or received by Business Associate on behalf of, Covered Entity available to the Secretary, in a time and manner designated by the Secretary, for purposes of the Secretary determining Covered Entity's compliance with the Privacy Rule. (i) Business Associate agrees to document such disclosures of Protected Health Information and information related to such disclosures as would be required for Covered Entity to respond to a request by an Individual for an accounting of disclosures of Protected Health Information in accordance with 45 CFR 164.528. (j) Business Associate agrees to provide to Covered Entity, in the time and manner designated by Covered Entity, information collected in accordance with Section (2)(i) of this Addendum, to permit Covered Entity to respond to a request by an Individual for an accounting of disclosures of Protected Health Information in accordance with 45 CFR 164.528. 37 3. Permitted Uses and Disclosures by Business Associate General Use and Disclosure Provisions. Except as otherwise limited in this Addendum, Business Associate may use or disclose Protected Health Information to perform functions, activities, or services for, or on behalf of, Covered Entity as specified in the Agreement, provided that such use or disclosure would not violate the Privacy Rule if done by Covered Entity. 4. Specific Use and Disclosure Provisions. (a) Except as otherwise limited in this Addendum, Business Associate may use Protected Health Information for the proper management and administration of Business Associate or to carry out the legal responsibilities of Business Associate. (b) Except as otherwise limited in this Addendum, Business Associate may disclose Protected Health Information for the proper management and administration of Business Associate, provided that disclosures are Required By Law, or Business Associate obtains reasonable assurances from the person to whom the information is disclosed that it will remain confidential and used or further disclosed only as Required By Law or for the purpose for which it was disclosed to the person (which purpose shall be consistent with the limitations imposed by this Addendum) and the person notifies the Business Associate of any instances of which it is aware in which the confidentiality of the information has been breached. (c) Except as otherwise limited in this Addendum, Business Associate may use Protected Health Information to provide Data Aggregation services to Covered Entity as permitted by 42 CFR 164.504(e)(2)(i)(B). (d) Business Associate may use Protected Health Information to report violations of law to appropriate Federal and State authorities, consistent with 45 CFR 164.502(j)(1). 5. Obligations of Covered Entity Provisions for Covered Entity To Inform Business Associate of Privacy Practices and Restrictions. (a) Covered Entity shall notify Business Associate of any limitation in its notice of privacy practices in accordance with 45 CFR 164.520, to the extent that such limitation may affect Business Associate's use or disclosure of Protected Health Information. (b) Covered Entity shall notify Business Associate of any changes in, or revocation of, permission by an Individual to use or disclose Protected Health Information, to the extent that such changes may affect Business Associate's use or disclosure of Protected Health Information. (c) Covered Entity shall notify Business Associate of any restriction on the use or disclosure of Protected Health Information that Covered Entity has agreed to in accordance with 45 CFR 164.522, to the extent that such restriction may affect Business Associate's use or disclosure of Protected Health Information. (d) Covered Entity shall not request Business Associate to use or disclose Protected Health Information in any manner that would not be permissible under the Privacy Rule if done by Covered Entity, except as permitted by Sections 4(b) and 4(c) of this Addendum. 38 6. Term and Termination. (a) This Addendum shall be effective as of the Effective Date of the Agreement, and shall terminate when all of the Protected Health Information provided by Covered Entity to Business Associate, or created or received by Business Associate on behalf of Covered Entity, is destroyed or returned to Covered Entity, or, if it is infeasible to return or destroy Protected Health Information, protections are extended to such information, in accordance with the termination provisions in this Section. (b) Upon Covered Entity's knowledge of a material breach of this Addendum by Business Associate, Covered Entity shall either: (i) provide an opportunity for Business Associate to cure the breach or end the violation and terminate this Addendum, and the provision for performance of functions, activities, or services for, or on behalf of Covered Entity under the Agreement, if Business Associate does not cure the breach or end the violation within the time specified by Covered Entity; (ii) immediately terminate this Addendum, and the provision for performance of functions, activities, or services for, or on behalf of Covered Entity under the Agreement, if Business Associate has breached a material term of this Addendum and cure is not possible; or (iii) if neither termination nor cure is feasible, report the violation to the Secretary. (c) Effect of Termination. (i) Except as provided in paragraph (ii) of this section, upon termination of this Addendum, for any reason, Business Associate shall return or destroy all Protected Health Information received from Covered Entity, or created or received by Business Associate on behalf of Covered Entity, and shall retain no copies of the Protected Health Information. This provision shall apply to Protected Health Information that is in the possession of subcontractors or agents of Business Associate. (ii) In the event that Business Associate determines that returning or destroying the Protected Health Information is infeasible, Business Associate shall provide to Covered Entity notification of the conditions that make return or destruction infeasible. Upon mutual agreement that return or destruction of Protected Health Information is infeasible, Business Associate shall extend the protections of this Addendum to such Protected Health Information and limit further uses and disclosures of such Protected Health Information to those purposes that make the return or destruction infeasible, for so long as Business Associate maintains such Protected Health Information. 7. Miscellaneous. (a) Regulatory References. A reference in this Addendum to a section in the ---------------------- Privacy Rule means the section as in effect or as amended. (b) Amendment. The Parties agree to take such action as is necessary to amend --------- this Addendum from time to time as is necessary for Covered Entity to comply with the requirements of the Privacy Rule and the HIPAA. (c) Survival. The respective rights and obligations of Business Associate under -------- Section 6(c) of this Addendum shall survive the termination of this Addendum. 39 (d) Interpretation. The provisions of this Addendum shall prevail over any -------------- provisions in the Agreement that may conflict with or appear inconsistent with any provision of this Addendum. Any ambiguity in this Addendum shall be resolved to permit Covered Entity to comply with the Privacy Rule. 40 EX-10.54 4 doc3.txt AMENDMENT TO PURCHASE AND SALE AGREEMENT This Amendment to Purchase and Sale Agreement is made and entered into as of October 31, 2003 by and between SafeGuard Health Enterprises, Inc., a Delaware corporation ("Purchaser") and Health Net, Inc., a Delaware corporation ("Seller"). WHEREAS, the parties to this Amendment to Purchase and Sale Agreement entered into a Purchase and Sale Agreement dated as of April 7, 2003 (the "Purchase and Sale Agreement") pursuant to which Purchaser agreed, inter alia, to purchase from Seller all of the outstanding Shares of Health Net Dental, Inc. and Seller agreed, inter alia, to sell all the issued and outstanding Shares of Health Net Dental, Inc. to Purchaser; WHEREAS, the parties desire to amend the Purchase and Sale Agreement. Defined terms used herein and not otherwise defined shall have the same meaning as in the Purchase and Sale Agreement. NOW, THEREFORE, the parties agree as follows: Section 5.16 of the Purchase and Sale Agreement is amended to read in its entirety as follows: Section 5.16 Employment Matters; Severance. ------------------------------- (a) Purchaser shall offer to hire or cause an Affiliate of Purchaser to continue to employ as of the Closing Date each Employee listed on Schedule -------- 3.16(a) who is actively employed by the Company or Health Net Vision, Inc., an - ------- Affiliate of the Company, as of the Closing Date. Purchaser shall pay all costs associated with the continued employment of any Employee, 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 shall provide Employees retained after the Closing. (b) Prior to the Closing Date, Purchaser shall provide Seller with (i) a list of those Employees it intends to retain after the Closing on an interim basis to provide transitional services to Purchaser or the Company (the "Interim Employees"); (ii) a list of Employees Purchaser intends to retain for an indefinite period after the Closing (the "Retained Employees"); and (iii) a list of Employees the Purchaser intends to terminate immediately after the Closing Date ("Terminated Employees") (the list of Interim Employees, the list of Retained Employees and the list of Terminated Employees are jointly referred to herein as the "Employee Lists"). The Employee Lists 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. (c) Purchaser shall offer or cause the Company to offer (i) Retained Employees cash compensation for a period of six (6) months after the Closing equivalent to their most recent base compensation immediately preceding the Closing Date, and (ii) Interim Employees and Terminated Employees cash compensation for the period of their employment by Purchaser or the Company equivalent to their most recent base compensation immediately preceding the Closing Date, provided, however, Purchaser shall have the right to negotiate -------- ------- with individual Retained Employees and Interim Employees for the purpose of offering such Retained Employees and Interim 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. (d) Purchaser or an Affiliate of Purchaser may terminate any Employee after the Closing Date, provided, however, neither Purchaser or any Affiliate of -------- ------- Purchaser shall terminate any Employees until each Employee becomes an employee of Purchaser or any Affiliate of Purchaser such that each Employee qualifies for the benefit plans and arrangements of Purchaser specified in Schedule 5.16. Any ------------- Retained and Terminated Employee terminated by Purchaser or an Affiliate of Purchaser pursuant to this Section 5.16 shall be provided severance by Purchaser (i) according to Seller's severance policy set forth as Exhibit E hereto, if any --------- such Retained or Terminated 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 any such Retained or Terminated Employee is terminated after expiration of such six (6) month period. Each Interim Employee shall be provided severance by Purchaser according to Seller's severance policy set forth as Exhibit E regardless of when such Interim Employees are terminated --------- by Purchaser or any Affiliate of Purchaser. If, however, an Interim Employee accepts a permanent position with the Purchaser or any Affiliate of the Purchaser, such Employee shall be provided severance by Purchaser as a Retained Employee. Any Interim Employee that declines to accept a comparable position for an indefinite term with the Purchaser or an Affiliate of Purchaser shall be deemed to have resigned and no severance shall be due any such Employee. Calculation of all employee benefits provided to Employees by Purchaser, including but not limited to, severance for any Terminated Employee and severance for Retained Employee and Interim Employee terminated by Purchaser or any Affiliate of Purchaser shall include credit for such Employee's time of service as an employee of the Company or any Affiliate of the Company. Exhibit ------- D hereto is deleted in its entirety. - - (e) Subject to the terms and conditions of Article VIII hereof, Purchaser shall indemnify and hold harmless Seller and its Affiliates from any and all liabilities and obligations arising from or in connection with any claim for severance or other benefits resulting from the termination of any Employee after the Closing Date. (f) 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 Employees after the Closing Date. Section 9.5 of the Purchase and Sale Agreement is amended to read as follows: 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 -2- 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 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 (the "Additional Tax Reimbursement") (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; and (iii) the amount if any of any additional Taxes, both state and federal, owed by Seller as a result of the receipt of the Additional Tax Reimbursement. 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. -3- (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). (i) In the event Purchaser and Seller consummate the sale of Gem Insurance Company, a Utah domiciled insurer and an indirect Subsidiary of the Seller, from Gem Holdings, Inc. to Purchaser or its Designee, the Purchaser shall have no obligation to pay to Seller any additional Tax that is attributable to the 338 Elections that is in excess of the amount described in clause (i) of subsection (c) hereof. Section 11.11 is added to the Purchase and Sale Agreement to read in its entirety as follows: Section 11.11 Access to Records After Closing. Seller and its ----------------------------------- representatives shall have reasonable access to all of the Books and Records after the Closing Date to the extent that such access may reasonably be required by Seller in connection with matters relating to or affected by the operations of the Company or HNL prior to the Closing Date. Such access shall be afforded by Purchaser upon receipt of reasonable advance notice and during normal business hours. Seller shall be solely responsible for any costs or expenses incurred by it pursuant to this Section 11.11. If Purchaser or the Company shall desire to dispose of any of the Books and Records, Purchaser shall, prior to such disposition, provide Seller a reasonable opportunity, at Seller's expense, to segregate and remove such Books and Records as Seller may select. Except as otherwise expressly amended herein, all terms and conditions of the Purchase and Sale Agreement shall remain in full force and effect. This Amendment to Purchase and Sale Agreement may be executed in counterparts. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -4- IN WITNESS WHEREOF, the parties have executed this Amendment to Purchase and Sale Agreement as of the date first set forth above. HEALTH NET, INC. By: /s/ B. Curtis Westen ------------------------------------------- Name: B. Curtis Westen Title: Senior Vice President, General Counsel and Secretary SAFEGUARD HEALTH ENTERPRISES, INC. By: /s/ Ronald I. Brendzel ------------------------------------------- Name: Ronald I. Brendzel Title: Senior Vice President, General Counsel and Secretary -5- EX-10.55 5 doc4.txt AMENDMENT TO ASSUMPTION AND INDEMNITY REINSURANCE AGREEMENT This Amendment to Assumption and Indemnity Reinsurance Agreement (this "Amendment") is made as of October 31, 2003, by and between Health Net Life Insurance Company, a California domiciled life and disability insurance company (the "Company"), and SafeHealth Life Insurance Company, a California domiciled life and disability insurance company ("Reinsurer"). WHEREAS, the Company and Reinsurer entered into an Assumption and Indemnity Reinsurance Agreement dated as of April 7, 2003 (the "Reinsurance Agreement") pursuant to which the Company shall transfer to Reinsurer at the Effective Time assets equal to the value of certain of the Company's reserves as part of the consideration due thereunder; WHEREAS, as of the Effective Time the Company will have accurate data reflecting the balance of its reserves relating to the Dental Policies subject to the Reinsurance Agreement only as of September 30, 2003 and the parties desire to amend the Reinsurance Agreement to provide a mechanism to adjust, if necessary, the reserves transferred from the Company to the Reinsurer to reflect the value of the reserves relating to the Dental Policies subject to the Reinsurance Agreement as of the Effective Time; and WHEREAS, the parties desire to amend the Reinsurance Agreement to clarify the definition of "Dental Policies" therein. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Capitalized terms used in this Amendment and not otherwise defined shall have the meanings given such terms in the Reinsurance Agreement. 2. Section 6.08 is added to Article VI of the Reinsurance Agreement to read in its entirety as follows: Section 6.08. Final Reserves. The value of the assets transferred to --------------- Reinsurer pursuant to Sections 5.03(i) and 5.04(i) (the "Transferred Reserves") on the Effective Time shall be calculated based upon the financial accounting records of the Company as of September 30, 2003. Within one hundred and eighty (180) days after the Effective Time, the Company shall calculate the reserves described in Sections 5.03(i) and 5.04(i) based upon the financial accounting records of the Company as of the Effective Time (the "Final Reserves"), and (i) if the value the Final Reserves exceeds the value of the Transferred Reserves, then the Company shall pay to Reinsurer in cash the difference between Transferred Reserves and the Final Reserves, and (ii) if the value of the Final Reserves is less than the value of the Transferred Reserves, then Reinsurer shall pay to the Company in cash the difference between the Transferred Reserves and the Final Reserves. 3. The definition of "Dental Policies" in Article I of the Reinsurance Agreement is amended to read as follows: "Dental Policies" means all policies or other agreements (including all ---------------- supplements, endorsements, riders and ancillary agreements in connection therewith) with individuals, employers or other group sponsors that obligate the Company to provide, arrange for the provision of, or indemnify for the cost of dental care services and dental supplies as specified therein, which policies or other agreements (i) are in effect as of the Effective Time or (ii) become effective after the Effective Time, including through (A) the reinstatement of lapsed policies pursuant to provisions therein or of applicable law, or (B) the issuance or renewal thereof by the Company after the Effective Time to honor quotes outstanding as of May 1, 2004, or to satisfy renewal rights of individuals, employers or other group sponsors under contractual provisions or applicable law, or (C) modifications agreed to by the Reinsurer on behalf of the Company pursuant to the authority granted to the Reinsurer under Section 7.01 of this Agreement, provided, however, Dental Policies shall not include (i) any -------- ------- policy or other agreements (including all supplements, endorsements, riders and ancillary agreements in connection therewith) with individuals, employers or other group sponsors that obligate the Company to provide, arrange for the provision of, or indemnify for the cost of dental care services and dental supplies as a Medicare + Choice Preferred Provider Organization pursuant to Contract Number P01239 by and between the Company and the Centers for Medicare and Medicaid Services, and (ii) any policy or other contract form with individuals, employers or other group sponsors that obligates the Company to provide, arrange for the provision of, or indemnify for the cost of dental care services and dental supplies and medical services and medical supplies in a single policy or contract form issued by the Company. 4. Except as expressly amended hereby, the Reinsurance Agreement shall remain in full force and effect. To the extent of any inconsistencies between the Reinsurance Agreement and this Amendment, the terms of this Amendment shall supersede the Reinsurance Agreement. 5. This Amendment may be executed in counterparts. IN WITNESS WHEREOF, the parties have signed this Amendment as of the date first written above. /s/ Douglas King /s/ Ronald I. Brendzel --------------------------------- -------------------------------------- Health Net Life Insurance Company SafeHealth Life Insurance Company By: Douglas King By: Ronald I. Brendzel President Senior Vice President, General Counsel and Secretary -2- EX-10.56 6 doc5.txt AMENDMENT TO PURCHASE AND SALE AGREEMENT This Amendment to Purchase and Sale Agreement is made and entered into as of October 31, 2003 by and between SafeGuard Health Enterprises, Inc., a Delaware corporation ("Purchaser") and Health Net, Inc., a Delaware corporation ("Seller"). WHEREAS, the parties to this Amendment to Purchase and Sale Agreement entered into a Purchase and Sale Agreement dated as of June 30, 2003 (the "Purchase and Sale Agreement") pursuant to which Purchaser agreed, inter alia, to purchase from Seller all of the outstanding Shares of Health Net Vision, Inc. and Seller agreed, inter alia, to sell all the issued and outstanding Shares of Health Net Vision, Inc. to Purchaser; WHEREAS, the parties desire to amend the Purchase and Sale Agreement. Defined terms used herein and not otherwise defined shall have the same meaning as in the Purchase and Sale Agreement. NOW, THEREFORE, the parties agree as follows: Section 2.15 of the Purchase and Sale Agreement is amended to read in its entirety as follows: Section 2.15 Purchase Price Allocation. If the Purchaser elects to make -------------------------- the 338 Elections pursuant to Section 9.5, the parties agree that the Purchase Price shall be allocated among the Transactions in accordance with the allocation agreed upon by Purchaser and Seller. If a Purchase Price allocation is developed, Purchaser and Seller 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 an allocation of the Purchase Price by the Seller and Purchaser shall be on a basis consistent with any allocation agreed upon by the parties. Section 5.19 of the Purchase and Sale Agreement is amended to read in its entirety as follows: Section 5.19 Employment Matters; Severance. ------------------------------- (a) Purchaser shall offer or cause an Affiliate of Purchaser to offer to hire as of the Closing Date each Employee listed on Schedule 3.16(a) who is ---------------- actively employed by the Company or Health Net Vision, Inc., an Affiliate of the Company, as of the Closing Date. Purchaser shall pay all costs associated with the continued employment of any Employee, including all salary, benefits, relocation expenses, and other compensation to Employees accruing from and after the Closing Date. Schedule 5.19 contains a summary of the benefit plans and -------------- arrangements Purchaser intends to provide Employees retained after the Closing. (b) Prior to the Closing Date, Purchaser shall provide Seller with (i) a list of those Employees it intends to retain after the Closing on an interim basis to provide transitional services to Purchaser or the Company (the "Interim Employees"); (ii) a list of Employees Purchaser intends to retain for an indefinite period after the Closing (the "Retained Employees"); and (iii) a list of Employees the Purchaser intends to terminate immediately after the Closing Date ("Terminated Employees") (the list of Interim Employees, the list of Retained Employees and the list of Terminated Employees are jointly referred to herein as the "Employee Lists"). The Employee Lists 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. (c) Purchaser shall offer or cause the Company to offer (i) Retained Employees cash compensation for a period of six (6) months after the Closing equivalent to their most recent base compensation immediately preceding the Closing Date, and (ii) Interim Employees and Terminated Employees cash compensation for the period of their employment by Purchaser or the Company equivalent to their most recent base compensation immediately preceding the Closing Date, provided, however, Purchaser shall have the right to negotiate -------- ------- with individual Retained Employees and Interim Employees for the purpose of offering such Retained Employees and Interim 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. (d) Purchaser or an Affiliate of Purchaser may terminate any Employee after the Closing Date, provided, however, neither Purchaser or any Affiliate of -------- ------- Purchaser shall terminate any Employees until each Employee becomes an employee of Purchaser or any Affiliate of Purchaser such that each Employee qualifies for the benefit plans and arrangements of Purchaser specified in Schedule 5.16. Any ------------- Retained and Terminated Employee terminated by Purchaser or an Affiliate of Purchaser pursuant to this Section 5.16 shall be provided severance by Purchaser (i) according to Seller's severance policy set forth as Exhibit E hereto, if any --------- such Retained or Terminated 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 any such Retained or Terminated Employee is terminated after expiration of such six (6) month period. Each Interim Employee shall be provided severance by Purchaser according to Seller's severance policy set forth as Exhibit E regardless of when such Interim Employees are terminated --------- by Purchaser or any Affiliate of Purchaser. If, however, an Interim Employee accepts a permanent position with the Purchaser or any Affiliate of the Purchaser, such Employee shall be provided severance by Purchaser as a Retained Employee. Any Interim Employee that declines to accept a comparable position for an indefinite term with the Purchaser or an Affiliate of Purchaser shall be deemed to have resigned and no severance shall be due any such Employee. Calculation of all employee benefits provided to Employees by Purchaser, including but not limited to, severance for any Terminated Employee and severance for Retained Employee and Interim Employee terminated by Purchaser or any Affiliate of Purchaser shall include credit for such Employee's time of service as an employee of the Company or any Affiliate of the Company. Exhibit ------- D hereto is deleted in its entirety. - - (e) Subject to the terms and conditions of Article VIII hereof, Purchaser shall indemnify and hold harmless Seller and its Affiliates from any and all liabilities and obligations arising from or in connection with any claim for severance or other benefits resulting from the termination of any Employee after the Closing Date. (f) 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 Employees after the Closing Date. -2- Section 11.11 is added to the Purchase and Sale Agreement to read in its entirety as follows: Section 11.11 Access to Records After Closing. Seller and its ----------------------------------- representatives shall have reasonable access to all of the Books and Records after the Closing Date to the extent that such access may reasonably be required by Seller in connection with matters relating to or affected by the operations of the Company or HNL prior to the Closing Date. Such access shall be afforded by Purchaser upon receipt of reasonable advance notice and during normal business hours. Seller shall be solely responsible for any costs or expenses incurred by it pursuant to this Section 11.11. If Purchaser or the Company shall desire to dispose of any of the Books and Records, Purchaser shall, prior to such disposition, provide Seller a reasonable opportunity, at Seller's expense, to segregate and remove such Books and Records as Seller may select. Except as otherwise expressly amended herein, all terms and conditions of the Purchase and Sale Agreement shall remain in full force and effect. This Amendment to Purchase and Sale Agreement may be executed in counterparts. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -3- IN WITNESS WHEREOF, the parties have executed this Amendment to Purchase and Sale Agreement as of the date first set forth above. HEALTH NET, INC. By: /s/ B. Curtis Westen ------------------------------------- Name: B. Curtis Westen Title: Senior Vice President, General Counsel and Secretary SAFEGUARD HEALTH ENTERPRISES, INC. By: /s/ Ronald I. Brendzel ------------------------------------- Name: Ronald I. Brendzel Title: Senior Vice President, General Counsel and Secretary -4- EX-10.57 7 doc6.txt AMENDMENT TO ASSUMPTION AND INDEMNITY REINSURANCE AGREEMENT This Amendment to Assumption and Indemnity Reinsurance Agreement (this "Amendment") is made as of October 31, 2003, by and between Health Net Life Insurance Company, a California domiciled life and disability insurance company (the "Company"), and SafeHealth Life Insurance Company, a California domiciled life and disability insurance company ("Reinsurer"). WHEREAS, the Company and Reinsurer entered into an Assumption and Indemnity Reinsurance Agreement dated as of June 30, 2003 (the "Reinsurance Agreement") pursuant to which the Company shall transfer to Reinsurer at the Effective Time assets equal to the value of certain of the Company's reserves as part of the consideration due thereunder; WHEREAS, as of the Effective Time the Company will have accurate data reflecting the balance of its reserves relating to the Vision Policies subject to the Reinsurance Agreement only as of September 30, 2003 and the parties desire to amend the Reinsurance Agreement to provide a mechanism to adjust, if necessary, the reserves transferred from the Company to the Reinsurer to reflect the value of the reserves relating to the Vision Policies subject to the Reinsurance Agreement as of the Effective Time; and WHEREAS, the parties desire to amend the Reinsurance Agreement to clarify the definition of "Vision Policies" therein. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Capitalized terms used in this Amendment and not otherwise defined shall have the meanings given such terms in the Reinsurance Agreement. 2. Section 6.08 is added to Article VI of the Reinsurance Agreement to read in its entirety as follows: Section 6.08. Final Reserves. The value of the assets transferred to --------------- Reinsurer pursuant to Sections 5.03(i) and 5.04(i) (the "Transferred Reserves") on the Effective Time shall be calculated based upon the financial accounting records of the Company as of September 30, 2003. Within one hundred and eighty (180) days after the Effective Time, the Company shall calculate the reserves described in Sections 5.03(i) and 5.04(i) based upon the financial accounting records of the Company as of the Effective Time (the "Final Reserves"), and (i) if the value the Final Reserves exceeds the value of the Transferred Reserves, then the Company shall pay to Reinsurer in cash the difference between Transferred Reserves and the Final Reserves, and (ii) if the value of the Final Reserves is less than the value of the Transferred Reserves, then Reinsurer shall pay to the Company in cash the difference between the Transferred Reserves and the Final Reserves. 3. The definition of "Vision Policies" in Article I of the Reinsurance Agreement is amended to read as follows: "Vision Policies" means all policies or other agreements (including all ---------------- supplements, endorsements, riders and ancillary agreements in connection therewith) with individuals, employers or other group sponsors resident or with their principal place of business in California that obligate the Company to provide, arrange for the provision of, or indemnify for the cost of vision care services and vision supplies as specified therein, which policies or other agreements (i) are in effect as of the Effective Time or (ii) become effective after the Effective Time, including through (A) the reinstatement of lapsed policies pursuant to provisions therein or of applicable Law, or (B) the issuance or renewal thereof by the Company after the Effective Time to honor quotes outstanding as of January 1, 2004, or to satisfy renewal rights of individuals, employers or other group sponsors under contractual provisions or applicable Law, or (C) modifications agreed to by the Reinsurer on behalf of the Company pursuant to the authority granted to the Reinsurer under Section 7.01 of this Agreement, provided, however, Vision Policies shall not include (i) any -------- ------- policy or other agreements (including all supplements, endorsements, riders and ancillary agreements in connection therewith) with individuals, employers or other group sponsors that obligate the Company to provide, arrange for the provision of, or indemnify for the cost of vision care services and vision supplies pursuant to any Government Sponsored Contracts, or any policy or other agreements (including all supplements, endorsements, riders and ancillary agreements in connection therewith) with individuals, employers or other group sponsors that obligate the Company to provide, arrange for the provision of, or indemnify for the cost of vision care services and vision supplies to employees of the Company or any Affiliate of the Company, and (ii) any policy or other contract form with individuals, employers or other group sponsors that obligates the Company to provide, arrange for the provision of, or indemnify for the cost of vision care services and vision supplies in a single policy or contract form issued by the Company. 4. Except as amended hereby, the Reinsurance Agreement shall remain in full force and effect. To the extent of any inconsistencies between the Reinsurance Agreement and this Amendment, the terms of this Amendment shall supersede the Reinsurance Agreement. 5. This Amendment may be executed in counterparts. IN WITNESS WHEREOF, the parties have signed this Amendment as of the date first written above. /s/ Douglas King /s/ Ronald I. Brendzel - --------------------------------- -------------------------------------- Health Net Life Insurance Company SafeHealth Life Insurance Company By: Douglas King By: Ronald I. Brendzel President Senior Vice President, General Counsel and Secretary -2- EX-10.58 8 doc7.txt THE NOTE REPRESENTED BY THIS CERTIFICATE AND THE COMMON STOCK UNDERLYING SUCH NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF (a) AN EFFECTIVE REGISTRATION STATEMENT FOR THE NOTE AND/OR COMMON STOCK UNDER THE SECURITIES ACT OF 1933 OR (b) AN OPINION REASONABLY SATISFACTORY TO SAFEGUARD HEALTH ENTERPRISES, INC. FROM COUNSEL FOR SAFEGUARD HEALTH ENTERPRISES, INC. OR FROM COUNSEL FOR THE PROPOSED TRANSFEROR REASONABLY SATISFACTORY TO SAFEGUARD HEALTH ENTERPRISES, INC. TO THE EFFECT THAT THE TRANSFER MAY BE EFFECTED WITHOUT SUCH REGISTRATION. SAFEGUARD HEALTH ENTERPRISES, INC. SIX PERCENT (6%) CONVERTIBLE NOTE OCTOBER 30, 2003 NOTE NO. ___ $______________ SAFEGUARD HEALTH ENTERPRISES, INC., a Delaware corporation (the "Company"), for value received, hereby promises to pay to the order of ________________________________ ("Holder") or the registered assigns of the Holder, the sum of ____________________________________________________ ($__________), together with interest on the unpaid principal balance hereof. The following is a statement of the rights of the Holder of this Note and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees: 1. Definitions. As used in this Note, the following terms, unless the ----------- context otherwise requires, have the following meanings: (a) "Common Stock" means the Common Stock, $0.01 par value per share, of the Company. (b) "Company" includes any corporation which shall succeed to or assume the obligations of the Company under this Note. (c) "Holder," when the context refers to a holder of this Note, shall mean any person who shall at the time be the registered holder of this Note. (d) "Change of Control" shall mean (i) the merger, statutory share exchange, or consolidation of the Company with or into another entity, or any corporate reorganization in which the shareholders of the Company immediately prior to such transaction do not hold more than fifty percent (50%) or more of the voting securities of the continuing or surviving entity, (ii) any transaction or series of transactions by the Company in which in excess of fifty percent (50%) of the voting power of the outstanding securities of the Company is transferred or (iii) a sale of all or substantially all of the assets of the Company. 1 (e) "Note" shall mean this Note and "Notes" shall mean all the 6% Convertible Notes of the Company issued the same date as this Note. 2. Interest. -------- (a) Interest Rate. The unpaid principal balance of this Note shall -------------- bear interest at a rate equal to six percent (6%) per annum from the date hereof until paid in full. (b) Payment of Principal and Interest. Interest shall accrue from the ---------------------------------- date the funds are advanced to the Company. Payments of interest only shall be due and payable quarterly on each March 31, June 30, September 30 and December 31, commencing December 31, 2003 and ending on September 30, 2009. Payments of principal and interest shall be due and payable quarterly on each March 31, June 30, September 30, and December 31, commencing December 31, 2009 and ending on June 30, 2013, based upon a ten (10) year amortization schedule, as set forth in EXHIBIT A attached hereto. Accrued interest and the remaining principal balance shall be due and payable on September 30, 2013. (c) Interest After Maturity. All past due principal of, and accrued ------------------------- interest on, this Note shall bear interest from maturity (whether stated, by acceleration or otherwise) until paid at the rate of eighteen percent (18%) per annum. 3. (Intentionally Omitted.) 4. Voluntary Prepayment. The Company shall have the right to prepay, --------------------- in whole only, this Note at any time to any of the persons and/or entities as set forth in EXHIBIT B attached hereto and incorporated by reference herein, at any time and from time to time without premium or penalty; provided that the Company must give the Holder not less than twenty (20) days prior written notice of any proposed prepayment and the date on which such prepayment will be made. The prepayment amount shall be based upon the following multiples of the face value of the Note, as follows: PERIOD PERCENTAGE AMOUNT ------ ----------------- (i) From October 1, 2003 through September 30, 2010 229% (ii) From October 1, 2010 through September 30, 2011 257% (iii) From October 1, 2011 through September 30, 2012 286% (iv) From October 1, 2012 through September 30, 2013 323% 5. Mandatory Prepayment. --------------------- (a) Upon Liquidation of the Company. In the event of any voluntary or -------------------------------- involuntary liquidation, dissolution or winding up of the Company, prior and in preference to any distribution of any of the assets or surplus funds of the Company to the holders of capital stock of the Company by reason of their ownership thereof, all outstanding principal and unpaid accrued interest on this Note shall be immediately due and payable. 2 (b) Upon Change of Control. In the event of a Change of Control of the ---------------------- Company, all outstanding principal and unpaid accrued interest on this Note shall be immediately due and payable, at the option of the holder. (c) Upon Event of Default. Upon the occurrence of an Event of Default, --------------------- the maturity of this Note may be accelerated as provided in Section 6 hereof. 6. Events of Default. ------------------- (a) The failure to pay this Note or any installment hereunder, whether principal or interest, as it becomes due shall constitute an Event of Default and shall, at the election of the Holder, without demand, presentment, notice of nonpayment, protest, notice of protest, notice of intent to accelerate, notice of acceleration and all other notices and further actions of any kind, all of which are hereby waived by the Company, mature the principal of this Note and all interest then accrued, and the same shall at once become due and payable in full. (b) The commencement of a voluntary bankruptcy case by the Company or the consent by the Company to the entry of an order for relief against it in any voluntary bankruptcy case or the consent by the Company to the appointment of a receiver or other custodian of all or substantially all its assets shall constitute an Event of Default and, upon the occurrence of such Event of Default, the entire principal balance of and accrued interest on this Note shall be immediately due and payable in full without demand, presentment, notice of nonpayment, protest, notice of protest, notice of intent to accelerate, notice of acceleration and all other notices, all of which are hereby expressly waived by the Company. 7. Conversion. ---------- (a) The holder of this Note has the right at the holder's option, at any time prior to payment in full of the principal balance of this Note, to convert the principal balance of this Note, in whole or in part, into fully paid and nonassessable shares of Common Stock of the Company (the "Common Stock"). The number of shares of Common Stock into which this Note may be converted ("Conversion Shares") shall be determined by dividing the outstanding principal balance hereof to be converted by the Conversion Price (defined below) in effect at the time of conversion. The initial conversion price shall be one dollar seventy-five cents ($1.75) per share of Common Stock (as adjusted as hereinafter provided, the "Conversion Price"). (b) The Company shall pay all interest on the principal amount of this Note surrendered for conversion accrued to the date of conversion. (c) In order to convert this Note, the holder shall surrender this Note at the office of the Company and shall give written notice by mail, postage prepaid, to the Company of the election to convert this Note pursuant hereto and shall state therein the principal amount hereof to be converted and the name or names in which the certificate or certificates for the shares of Common Stock are to be issued. The Company shall, as soon as practicable thereafter, issue and deliver to the holder a certificate or certificates for the number of shares of Common Stock to which the holder shall be entitled upon which conversion. The conversion shall be deemed to have been made immediately prior to the close of business on the date of the surrender of the Note. The person or persons entitled to receive the shares of Common Stock issuable upon such 3 conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. 8. Adjustments. ----------- (a) The Conversion Price and the number of shares of Common Stock issuable upon the conversion of this Note shall be subject to adjustment from time to time as follows: (i) Except as hereinafter provided, in case the Company shall at any time after the date hereof issue or sell any shares of Common Stock (including shares held in the Company's treasury) for a consideration per share less than the Conversion Price (or, if an Adjusted Conversion Price shall be in effect by reason of a previous adjustment under this Section 8 as provided below, then less than such Adjusted Conversion Price), then and in each such case the holder of this Note, upon the conversion hereof, shall be entitled to receive, in lieu of the shares of Common Stock theretofore receivable upon the conversion of this Note, a number of shares of Common Stock determined by dividing the outstanding principal balance hereof to be converted by an Adjusted Conversion Price to be computed as provided below in this Paragraph 8(a)(i). Such Adjusted Conversion Price shall be computed (to the nearest cent; a half cent or more being considered a full cent) by dividing: (1) the sum of (x) the result obtained by multiplying the number of shares of Common Stock of the Company outstanding immediately prior to such issue or sale by the Conversion Price (or, if an Adjusted Conversion Price shall be in effect by reason of a previous adjustment under this Paragraph 8(a)(i), by such Adjusted Conversion Price) in effect immediately prior to such issue or sale, and (y) the consideration, if any, received by the Company upon such issue or sale; by (2) the number of shares of Common Stock of the Company outstanding immediately after such issue or sale. For the purposes of the foregoing calculation, all shares of Common Stock of the Company issuable upon conversion of all then outstanding convertible securities (including the Notes) and upon exercise of all then outstanding options, warrants or other rights to acquire Common Stock shall be deemed outstanding but only to the extent and only if the Market Value of the Common Stock of the Company on such date is in excess of the conversion price of such convertible securities then in effect or the exercise price of such options, warrants or other rights then in effect, respectively. "Market Value" for the purposes hereof shall mean the average of the closing prices of the Common Stock for sales on all national securities exchanges on which the Common Stock may at the time be listed, or, if there shall have been no sales on any such exchange on any such day, the average of the bid and asked prices at the end of such day, or, if the Common Stock shall not be so listed, the average of the high and low bid and asked prices on such day in the over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization, in each such case averaged over a period of ten (10) consecutive business days prior to the day as of which "Market Value" is being determined; provided that if the Common Stock is listed on any domestic exchange the term "business days" as used in this sentence shall mean business days on which such exchange is open for trading. If at any time the Common Stock is not listed on any national securities exchange or quoted in the over-the-counter market, the "Market 4 Value" shall be deemed to be the higher of (i) the book value thereof, as determined by any firm of independent public accountants of recognized standing selected by the Board of Directors of the Corporation, as at the last day of any month ending within sixty (60) days preceding the date as of which the determination is to be made, or (ii) the fair value thereof determined in good faith by the Board of Directors of the Corporation as of a date which is within fifteen (15) days of the date as of which the determination is to be made. No adjustment of the Conversion Price, or Adjusted Conversion Price if in effect, however, shall be made in an amount less than five cents ($.05) per share, but any such lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which together with any adjustments so carried forward shall amount to five cents ($.05) per share or more. No adjustment of the Conversion Price or the number of shares of Common Stock issuable upon the conversion of this Note shall be made as a result of the conversion into shares of the Company's Common Stock of any note issued by the Company prior to the date of this Note where the conversion price of the previously issued note is less than the Conversion Price of this Note, any Common Stock issued as a result of the Company's Stock Option Plan, or any Common Stock issued pursuant to the Company's 401(k) Plan. (ii) In case of the issuance or sale of shares of Common Stock for a consideration part or all of which shall be cash, the amount of cash consideration therefore shall be deemed to be the amount of cash received by the Company for such shares (or, if shares of Common Stock are offered by the Company for subscription, the subscription price, or, if shares of Common Stock shall be sold to underwriters or dealers for public offering without a subscription offering, the initial public offering price) without deducting therefrom any compensation paid or discount allowed in the sale, underwriting or purchase thereof by underwriters or dealers or others performing similar services or any expenses incurred in connection therewith. (iii) In case of the issuance or sale (otherwise than as a dividend or other distribution on or subdivision of any stock of the Company or on conversion or exchange of other securities of the Company) of shares of Common Stock for a consideration part or all of which shall be other than cash, the amount of the consideration therefore other than cash shall be deemed to be the value of such consideration, as determined in good faith by the Board of Directors of the Company, at or about, but as of, the date of the adoption of the resolution authorizing such issuance for a consideration other than cash of such Common Stock immediately prior to the close of business on the date fixed for the determination of security holders entitled to receive such Common Stock. (iv) Shares of Common Stock issuable by way of dividend or other distribution on or subdivision of any stock of the Company shall be deemed to have been issued immediately after the opening of business on the date following the date fixed for the 5 determination of stockholders entitled to receive such dividend or other distribution or subdivision. (b) Except as hereinafter provided, in case the Company shall at any time after the date hereof issue options or rights to subscribe for shares of Common Stock (including shares held in the Company's treasury), or issue any securities convertible into or exchangeable for shares of Common Stock, for an exercise or conversion price per share less than the Conversion Price in effect immediately prior to the issuance of such options or rights or convertible or exchangeable securities, or without consideration, the Conversion Price in effect immediately prior to the issuance of such options or rights or securities shall be increased or reduced to a price determined by making a computation in accordance with the provisions of Paragraph 8(a)(i), provided that: (i) the aggregate maximum number of shares of Common Stock deliverable under such options or rights shall be considered to have been delivered at the time such options or rights were issued, and for a consideration equal to the purchase price per share of Common Stock provided for in such options or rights, plus the consideration (determined in the same manner as consideration received on the issue or sale of Common Stock), if any, received by the Company for such options or rights; (ii) the aggregate maximum number of shares of Common Stock deliverable upon conversion of or exchange for any such securities shall be considered to have been delivered at the time of issuance of such securities, and for a consideration equal to the consideration (determined in the same manner as consideration received on the issue or sale of Common Stock) received by the Company for such securities, plus the consideration, if any, to be received by the Company upon the exchange or conversion thereof; and (iii) on the expiration of such options or rights, or the termination of such right to convert or exchange, if none or only part of such options or rights have been exercised, the Conversion Price shall forthwith be readjusted to such Conversion Price as would have been obtained had the adjustments made upon the issuance of such options, rights or convertible or exchangeable securities been made upon the basis of the delivery of only the number of shares of Common Stock actually delivered upon the exercise of such options or rights or upon conversion or exchange of such securities. (c) In the event the Company shall issue additional shares of Common Stock in a stock dividend, stock distribution or subdivision, the Conversion Price in effect immediately prior to such stock dividend, stock distribution or subdivision shall, concurrently with the effectiveness of such stock dividend, stock distribution or subdivision, be proportionately decreased. (d) In the event the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, the Conversion Price in effective immediately prior to such combination or consolidation shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased. 6 (e) Notwithstanding anything contained herein to the contrary, no adjustment of the Conversion Price shall be made: (i) In connection with the issuance or sale of Common Stock upon the exercise of options or rights or upon the conversion or exchange of convertible or exchangeable securities in any case where the adjustment was made upon the issuance of such options, rights, or convertible or exchangeable securities by reason of the provisions of this Paragraph 8(b)(ii). (ii) In connection with grants to employees, directors, consultants or others with similar relationships with the Company or its subsidiaries of options to purchase, at a price equal to or in excess of fair market value as determined by the Board of Directors of the Company at the time of grant, shares of Common Stock of the Company. (iii) In connection with any issuance or sale of Common Stock to officers, directors or employees of, or consultants to, the Company pursuant to a grant or plan approved by the Board of Directors of the Company. In connection with any acquisition of assets, securities, or a business or any exchange of securities to acquire all or part of any business, provided that such acquisition or exchange has been approved by the Board of Directors of the Company, except for any circumstance that occurs as a result of those certain Promissory Notes previously granted by the Company to Nicholas M Kavouklis and Jack R. Anderson. (iv) In connection with the issuance of Common Stock or other securities upon conversion of this Note or any of the Notes. (vi) As a result of the conversion into shares of the Company's Common Stock of any note issued by the Company prior to the date of this Note where the conversion price of the previously issued note is less than the Conversion Price of this Note. (f) If any capital reorganization or reclassification of the capital stock of the Company (other than a change in par value, or from par value to no par value, or as a result of the subdivision or combination), or consolidation or merger of the Company with another corporation (other than a consolidation or merger in which the Company is the continuing corporation and which does not result in any reclassification of the outstanding Common Stock), or the sale of all or substantially all of its assets to another corporation shall be effective, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, lawful and adequate provision shall be made whereby the holder hereof shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions specified in this Note and in lieu of the shares of Common Stock and other capital stock (if any) of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock and other capital stock (if any) equal to the number of shares of such Common Stock and other capital stock (if any) immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby had such reorganization, reclassification, consolidation, merger or sale not taken place, 7 and in any such case appropriate provisions shall be made with respect to the rights and interest of the holders of this Note to the end that the provisions hereof shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon exercise hereof. The Company shall not effect any such consolidation, merger or sale, unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Company) resulting from such consolidation or merger of the corporation purchasing such assets shall assume by written instrument the obligation to deliver to such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to purchase and the other obligations under this Note. The adjustments provided for in this Paragraph 8(f) shall apply with respect to each such change occurring while this Note is outstanding. (g) In case at any time: (i) The Company shall declare any dividend upon its Common Stock payable otherwise than in cash or in Common Stock of the Company or payable otherwise than out of consolidated net income for a twelve-month period ending not earlier than ninety (90) days prior to the date of payment of such dividend; or (ii) The Company shall offer for subscription to the holders of its Common Stock any additional shares of stock of any class or any other securities convertible into shares of stock or any rights to subscribe thereto other than the sale of any additional shares of Common Stock contemplated under the Agreement; or (iii) There shall be any capital reorganization or reclassification of the capital stock of the Company, or a sale of all or substantially all of the assets of the Company, or a consolidation or merger of the Company with another corporation (other than a merger with a subsidiary in which merger the Company is the continuing corporation and which does not result in any reclassification), or change of the then outstanding shares of Common Stock or other capital stock issuable upon conversion of this Note (other than a change in par value, or from par value or as a result of subdivision or combination); or (iv) There shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company. then, in any one or more of said cases, the Company shall cause to be mailed to each of the registered holders of the Notes at the earliest practicable time (and, in any event, not less than twenty (20) days before any record date or other date set for definitive action), written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights or such reorganization, reclassification, sale, consolidation, merger, dissolution, or liquidation shall take place, as the case may be. Such notice shall also set forth such facts as shall indicate the effect of such action (to the extent such effect may be known at the date of such notice) on the Conversion Price and the kind and amount of the shares of stock and other securities and properly deliverable upon exercise of the Notes. Such notice shall also specify the date as of which the holders of the Common Stock of record shall participate in said dividend, distribution or subscription rights or shall be entitled to exchange their Common Stock for securities or other property deliverable upon such 8 reorganization, reclassification, sale, consolidation, merger, dissolution, liquidation, winding up or conversion, as the case may be (on which date, in the event of voluntary or involuntary dissolution, or liquidation of the Company, the right to exercise the Notes shall terminate). 9. No Fractional Shares. The Company shall not be required to issue ---------------------- certificates representing fractional shares of Common Stock, but will make a payment in cash based on the fair market value of one share of Common Stock on the date of Conversion for any fractional share. 10. Reservation of Shares. All shares which may be issued upon the ----------------------- conversion of this Note shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable and free from all preemptive rights of any stockholder and all taxes, liens and charges with respect to the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue). During the Conversion Period within which the conversion rights represented by this Note may be converted, the Company will at all times have authorized, and reserved, a sufficient number of shares of its Common Stock to provide for the conversion of this Note, and will at its expense expeditiously upon each such reservation of shares procure the listing of such shares (subject to issuance or notice of issuance) to the extent required on all stock exchanges or automated quotation systems, if any, on which the Common Stock is then listed. 11. Delivery of Stock Certificates. As promptly as practicable after -------------------------------- the conversion of this Note, the Company at its expense will issue and deliver to the holder of this Note a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion and, if applicable, a new Note evidencing the principal amount hereof not so converted. 12. No Voting Rights. This Note shall not confer any voting rights on ----------------- the Holder. 13. Cumulative Rights. No delay on the part of the holder of this Note ----------------- in the exercise of any power or right under this Note, or under any document or instrument executed in connection herewith, shall operate as a waiver thereof, nor shall a single or partial exercise of any other power or right. Enforcement by the holder of this Note of any security for the payment hereof shall not constitute any election by it of remedies so as to preclude the exercise of any other remedy available to it. 14. Waiver. Except as provided in this Note, the Company and each ------ surety, endorser, guarantor, and other party now or ever liable for the payment of any sum of money payable on this Note, jointly and severally, waive demand, presentment, protest, notice of intention to accelerate, notice of acceleration, notice of protest, and any and all lack of diligence or delay in collection or the filing of suit hereon which may occur, and agree that their liability on this Note shall not be affected by any renewal or extension in the time of payment hereof, by any indulgences, or by any release or change in any security for the payment of this Note, and hereby consent to any and all renewals, extensions, indulgences, releases, or changes, regardless of the number of such renewals, extensions, indulgences, releases, or changes. 15. Attorneys' Fees and Costs. In the event an Event of Default shall -------------------------- occur, and in the event that thereafter this Note is placed in the hands of an attorney for collection, or in the 9 event this Note is collected in whole or in part through legal proceedings of any nature, then and in any such case the Company promises to pay all costs of collection, including, but not limited to, reasonable attorneys' fees incurred by the holder hereof on account of such collection, whether or not suit is filed. 16. Notices. All notices, claims, demands and other communications ------- hereunder shall be in writing and shall be deemed given upon (a) confirmation of receipt of a facsimile transmission, (b) confirmed delivery by a standard overnight carrier (c) when delivered by hand or (d) the expiration of five (5) business days after the day when mailed by registered or certified mail (postpaid prepaid, return receipt requested), addressed to the respective parties at the following addresses (or such other address for party as shall be specified by like notice): (a) if to the registered holder of a Note at the address of such holder as shown on the books of the Company; or (b) if to the Company, at: SafeGuard Health Enterprises, Inc. 95 Enterprise, Suite 100 Aliso Viejo, CA 92656-2605 Attn: President and Chief Executive Officer with a copy to: SafeGuard Health Enterprises, Inc. 95 Enterprise, Suite 100 Aliso Viejo, CA 92656-2605 Attn: Senior Vice President and General Counsel 17. Transferability. The Note evidenced hereby may not be pledged, --------------- sold, assigned or transferred except upon satisfaction of the conditions specified in the legend on the face of this certificate. However, this Note shall be binding upon any successors or assigns of the Company. 18. Treatment of Note. To the extent permitted by generally accepted ------------------- accounting principles, the Company will treat, account and report this Note as debt and not equity for accounting purposes and with respect to any returns filed with federal, state or local tax authorities. 19. Headings; References. All headings used herein are used for --------------------- convenience only and shall not be used to construe or interpret this Note. Except where otherwise indicated, all references herein to Sections refer to Sections hereof. 20. Successors and Assigns. All of the covenants, stipulations, ------------------------ promises, and agreements in this Note by or on behalf of the Company shall bind its successors and assigns, whether so expressed or not; provided, however, that the Company may not, without the prior written consent of the Holder hereof, assign any rights, duties, or obligations under this Note. Any assignment in violation of the foregoing shall be null and void. 10 21. Governing Law. This Note shall be governed by the laws of the -------------- State of Delaware, and the laws of such state (other than conflicts of laws principles) shall govern the construction, validity, enforcement, and interpretation hereof, except to the extent federal laws otherwise govern the validity, construction, enforcement, and interpretation hereof. 22. Maximum Interest Rate. Regardless of any provision contained ----------------------- herein, or in any other document executed in connection herewith, the holder hereof shall never be entitled to receive, collect, or apply, as interest hereon, any amount in excess of the maximum rate of interest permitted to be charged from time to time by applicable law, and in the event the holder hereof ever receives, collects, or applies, as interest, any such excess, such amount which would be excessive interest shall be deemed a partial prepayment of the principal hereof and treated hereunder as such; and, if the principal hereof is paid in full, any remaining excess shall forthwith be paid to Company. In determining whether or not the interest paid or payable, under any specified contingency, exceeds the highest lawful rate, Company and the holder hereof shall, to the maximum extent permitted under applicable law, (a) characterize any nonprincipal payment as an expense, fee, or premium rather than as interest, (b) exclude voluntary prepayments and the effects thereof, and (c) spread the total amount of interest throughout the entire contemplated term hereof; provided that if the indebtedness evidenced hereby is paid and performed in full prior to the end of the full contemplated term thereof, and if the interest received for the actual period of existence thereof exceeds the maximum lawful rate, the holder hereof shall refund to Company the amount of such excess or credit the amount of such excess against the principal hereof, and in such event, the holder hereof shall not be subject to any penalties provided by any laws for contracting for, charging, or receiving interest in excess of the maximum lawful rate. 23. Payments. Each payment of the principal of or accrued interest on -------- this Note shall be due and payable in lawful money of the United States of America, at the address of Holder as shown on the books of the Company, in funds which are or will be available for immediate use by Holder at such office at or before 1:00 p.m., New York time on the day each payment thereof is due. In any case where a payment of principal or interest hereon is due on a nonbusiness Day, the Company shall be entitled to delay such payment until the next succeeding business day, but interest shall continue to accrue until the payment is, in fact, made. IN WITNESS WHEREOF, the Company has caused this Note to be issued as of the date set forth above. SAFEGUARD HEALTH ENTERPRISES, INC., a Delaware corporation By: SAMPLE By: SAMPLE ------------------------------- -------------------------------------- DENNIS L. GATES RONALD I. BRENDZEL Senior Vice President and Chief Senior Vice President and Secretary Financial Officer Name of Holder: ___________________________ Address of Holder: ___________________________ ___________________________ ___________________________ 11 ELECTION TO CONVERT To SafeGuard Health Enterprises, Inc. The undersigned owner of the accompanying Note hereby irrevocably exercises the option to convert to shares of Common Stock in accordance with the terms of such Note, and directs that the shares issuable and deliverable upon such conversion be issued in the name of and delivered to the undersigned. Dated:_____________________ COMPLETE FOR REGISTRATION OF SHARES OF COMMON STOCK ON THE STOCK TRANSFER RECORDS MAINTAINED BY THE COMPANY: ________________________________________________________________________________ Name of Note Holder Name(s) of Person(s) in which Common Stock Certificate(s) are to be registered: ________________________________________________________________________________ Address: ________________________ ________________________ ________________________ ________________________________________________________________________________ Taxpayer Identification Number Principal Portion to be converted (if less than all) $_______________ Shares of Common Stock to be Issued _______________ shares 12 EXHIBIT A --------- PRINCIPAL AND INTEREST AMORTIZATION SCHEDULE -------------------------------------------- AMORTIZATION SCHEDULE FOR PRINCIPAL PAYMENTS ORIGINAL PRINCIPAL BALANCE ANNUAL INTEREST RATE 6.0% PAYMENT QUARTERLY PAYMENTS ----------------------- PRINCIPAL DATE INTEREST PRINCIPAL TOTAL BALANCE - -------- -------- --------- ----- ------- 12/31/09 3/31/10 6/30/10 9/30/10 12/31/10 3/31/11 6/30/11 9/30/11 12/31/11 3/31/12 6/30/12 9/30/12 12/31/12 3/31/13 6/30/13 9/30/13 13 EXHIBIT B --------- NAME OF NOTEHOLDERS ------------------- Name of Note Holder: Amount of Notes: - -------------------- ---------------- 14 EX-99.1 9 doc8.txt 95 Enterprise, Suite 100 [GRAPHIC OMITTED] Aliso Viejo, California 92656-2605 SAFEGUARD 949.425.4300 DENTAL & VISION CONTACT: James E. Buncher President and Chief Executive Officer (949) 425-4300 SAFEGUARD HEALTH ENTERPRISES COMPLETES ACQUISITION OF HEALTH NET DENTAL AND VISION ALISO VIEJO, CALIFORNIA (NOVEMBER 3, 2003) - SafeGuard Health Enterprises, Inc. (OTC Bulletin Board: SFGD) today announced that it has completed its previously announced purchase of the dental and vision benefits subsidiaries of Health Net, Inc. (NYSE:HNT). Specific terms of the transactions were not disclosed. The Health Net Dental and Vision brand name will be retained by Health Net, Inc., which will continue to market dental products through its Health Net medical sales representatives. These private label dental products will be underwritten and administered by SafeGuard. As a result of these transactions, SafeGuard has become one of the largest managed dental and vision benefits providers in California. SafeGuard now has more than 900,000 dental and vision members in California and more than 1.4 million members nationwide, with annual revenues exceeding $150 million. James E. Buncher, president and chief executive officer of SafeGuard Health Enterprises, Inc., said, "We are pleased to have completed these transactions and are excited about our continuing relationship with Health Net. In addition to a larger membership base and a greater number of providers, we also now have an established vision network in California and the capability to directly administer vision benefit products. Existing contracts and benefit plans acquired from Health Net Dental and Vision will remain unchanged, but we expect SafeGuard and Health Net members, employer groups, brokers and providers to all eventually share in the benefits resulting from these transactions." SafeGuard Health Enterprises, Inc. is committed to the dental and vision business, with nearly 30 years experience. The Company provides dental HMO, PPO, indemnity and ASO products as well as vision benefit plans to approximately 1.4 million members primarily in California, Florida and Texas. For more information, visit SafeGuard's web site at www.safeguard.net. ----------------- SafeGuard notes that statements contained in this news release that are not based on historical facts are forward-looking statements, and as such, are subject to uncertainties and risks that could cause actual results to differ materially from those projected or implied by such statements. These risks, contingencies and uncertainties, many of which are beyond SafeGuard's control, include those risk factors that are set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2002, the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 2003 and June 30, 2003, and the Company's Current Reports on Form 8-K, all on file with the U.S. Securities and Exchange Commission. -END- -----END PRIVACY-ENHANCED MESSAGE-----