EXHIBIT 10.45

 

FORM OF EXECUTIVE RESTRICTED STOCK AGREEMENT

UNDER THE PACIFICARE HEALTH SYSTEMS, INC.

2005 EQUITY INCENTIVE PLAN

 

Pursuant to the terms of the Restricted Stock Grant Notice (the “Grant Notice”)
and this Executive Restricted Stock Agreement (collectively, this “Agreement”),
PacifiCare Health Systems, Inc., a Delaware corporation (“PacifiCare”), grants
to the executive employee identified in the Grant Notice (the “Employee”) shares
of PacifiCare’s Common Stock under the following terms and conditions:

 

WHEREAS, PacifiCare’s management has implemented a long-term incentive program
by granting shares of restricted stock to certain executive employees;

 

WHEREAS, the restricted stock to be used for this long-term incentive program
will be granted pursuant to the 2005 Equity Incentive Plan of PacifiCare (the
“Plan”), the terms of which are hereby incorporated by reference and made a part
of this Agreement;

 

WHEREAS, PacifiCare has determined that it would be to the advantage and best
interest of PacifiCare and its stockholders to grant the shares provided for
herein to the Employee as an inducement to remain in the service of PacifiCare
or its Subsidiaries and as an incentive for increased efforts during such
service; and

 

WHEREAS, the Employee has the title of Senior Vice President or above, or has a
salary grade of X15 or above, and PacifiCare has determined that it would be to
the advantage and best interest of PacifiCare and its stockholders to require
the Employee to defer the receipt of all of the shares pursuant to the
provisions of Article 4 of this Agreement.

 

NOW, THEREFORE, in consideration of the mutual covenants herein contained and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto do hereby agree as follows:

 

ARTICLE 1

 

DEFINITIONS

 

Capitalized terms not otherwise defined herein shall have the same meaning as
set forth in the Plan. Whenever the following capitalized terms are used in this
Agreement, they shall have the meaning specified below unless the context
clearly indicates to the contrary.

 

Section 1.1    Chief Financial Officer

 

“Chief Financial Officer” shall mean the Chief Financial Officer of PacifiCare.

 

1

--------------------------------------------------------------------------------

Section 1.2    Date of Grant

 

“Date of Grant” shall mean the date of grant of the Shares as set forth in the
Grant Notice.

 

Section 1.3    Director

 

“Director” shall mean a member of the Board of Directors of PacifiCare.

 

Section 1.4    Disability

 

“Disability” for purposes of this Agreement shall mean that an Employee is
(i) unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected to
result in death or can be expected to last for a continuous period of not less
than twelve (12) months, or (ii) by reason of any medically determinable
physical or mental impairment which can be expected to result in death or can be
expected to last for a continuous period of not less than twelve (12) months,
receiving income replacement benefits for a period of not less than three
(3) months under an accident and health plan covering employees of PacifiCare.

 

Section 1.5    Initial Election Period

 

“Initial Election Period” shall mean the 30-day period following the date an
Eligible Executive is first notified by the Committee that he or she is required
to defer receipt of the Shares pursuant to the provisions of Article 4 of this
Agreement.

 

Section 1.6    Key Employee

 

“Key Employee” shall mean for purposes of Article 4 of this Agreement, and in
accordance with Section 409A of the Code, a key employee as set forth below and
as defined in Section 416(i) of the Code, without regard to paragraph
(5) thereof, of a corporation any stock in which is publicly traded on an
established securities market or otherwise.

 

(a)    An officer of PacifiCare having an annual compensation greater than
$130,000, as adjusted at the same time and in the same manner as under
Section 415(d) of the Code, except that the base period shall be the calendar
quarter beginning July 1, 2001 (which amount is $135,000 for the Year beginning
January 1, 2005). Not more than fifty (50) employees or, if less, the greater of
three (3) employees or ten percent (10%) of the employees shall be considered as
officers for purposes of this subsection.

 

(b)    A five percent owner of PacifiCare.

 

(c)    A one percent owner of PacifiCare having an annual compensation from
PacifiCare of more than $150,000.

 

Whether an employee is a five percent owner or a one percent owner shall be
determined in accordance with Section 416(i)(1)(B) of the Code.

 

2

--------------------------------------------------------------------------------

Section 1.7    Payment Eligibility Date

 

“Payment Eligibility Date” shall mean the first day of the month following the
end of the calendar quarter in which the Employee has a Termination of Service
or dies.

 

Section 1.8    Pronouns

 

The masculine pronoun shall include the feminine and neuter, and the singular
the plural, where the context so indicates.

 

Section 1.9    Retirement

 

“Retirement” or “Retire” for purposes of Article 4 of this Agreement shall mean
the Employee’s Termination of Service which occurs after the sum of the
following two factors, counting partial periods and rounding up to the nearest
whole number, meet or exceed a total of fifty-five (55): (i) the Employee’s age
and (ii) the Employee’s number of Years of Service with PacifiCare and its
Subsidiaries.

 

Section 1.10    Secretary

 

“Secretary” shall mean the Secretary of PacifiCare.

 

Section 1.11    Section 409A Change of Control

 

“Section 409A Change of Control” shall mean a Change of Control (as defined in
the Plan) that also includes the occurrence of any of the following: (i) the
date that any one person or persons acting as a group acquires ownership of
PacifiCare stock constituting more than fifty percent (50%) of the total fair
market value or total voting power of PacifiCare; (ii) the date that any one
person or persons acting as a group acquires (or has acquired during the
12-month period ending on the date of the most recent acquisition by such person
or persons) ownership of the stock of PacifiCare possessing thirty-five percent
(35%) or more of the total voting power of the stock of PacifiCare; (iii) the
date that any one person or persons acting as a group acquires assets from
PacifiCare that have a total gross fair market value equal to or more than forty
percent (40%) of the total gross fair market value of all of the assets of
PacifiCare immediately prior to such acquisition; or (iv) the date that a
majority of members of PacifiCare’s Board of Directors is replaced during any
12-month period by directors whose appointment or election is not endorsed by a
majority of the members of the Board of Directors prior to the date of the
appointment or elections. The determination of whether an event constitutes a
Section 409A Change of Control shall be made in accordance with its definition
under Section 409A of the Code and its regulations and other guidance
thereunder.

 

Section 1.12    Shares

 

“Shares” shall mean the shares of Common Stock granted to the Employee under
this Agreement.

 

3

--------------------------------------------------------------------------------

Section 1.13    Subsidiary

 

“Subsidiary” shall mean any corporation in an unbroken chain of corporations
beginning with PacifiCare if each of the corporations other than the last
corporation in the unbroken chain then owns stock possessing 50 percent or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.

 

Section 1.14    Termination of Employment

 

“Termination of Employment” shall mean the time when the Employee ceases to be
an employee or consultant of PacifiCare or a Subsidiary, in either case, for any
reason, including, but not limited to, a termination by resignation, discharge,
death or retirement, but excluding terminations where there is a simultaneous
employment, engagement or appointment of the Employee as an employee, consultant
or a Director of PacifiCare or a Subsidiary. For purposes of the Plan and this
Agreement, if an entity ceases to be a Subsidiary of PacifiCare (a “Former
Subsidiary”), an employee of such Former Subsidiary who does not continue as an
employee or service provider in respect of PacifiCare or another Subsidiary
after such giving effect to such Former Subsidiary’s change in status shall be
deemed to have suffered a Termination of Employment. The Committee, in its
discretion, shall determine the effect of all other matters and questions
relating to Termination of Employment, including, but not limited to, the
question of whether particular leaves of absence constitute Terminations of
Employment, subject to the requirements of applicable laws.

 

Section 1.15    Termination of Service

 

“Termination of Service” for purposes of Article 4 of this Agreement shall mean
a Termination of Employment of the Employee that also qualifies as a “separation
from service” from PacifiCare and its Subsidiaries for purposes of Section 409A
of the Code.

 

Section 1.16    Year

 

“Year” shall mean the 12 consecutive month period beginning on January 1 and
ending on December 31 of the same year.

 

Section 1.17    Year of Service

 

“Year of Service” shall mean a 12 consecutive month uninterrupted period of
employment beginning on the Employee’s date of hire and anniversaries of such
date of hire.

 

ARTICLE 2

 

GRANT OF SHARES

 

Section 2.1    Grant of Shares

 

On the terms and conditions set forth in this Agreement, PacifiCare agrees to
grant to the Employee, and the Employee agrees to receive from PacifiCare, the
number of Shares set forth in the Grant Notice.

 

4

--------------------------------------------------------------------------------

Section 2.2    Consideration

 

The Employee is receiving the Shares in consideration of past services
previously rendered or future services to be rendered during the Employee’s
employment with PacifiCare, such that no payment is required from the Employee
for the Shares.

 

Section 2.3    Rights as a Stockholder

 

The Employee shall not have any rights as a stockholder until the Shares are
distributed to the Employee pursuant to the provisions of Article 4.

 

Section 2.4    No Retention Rights

 

Nothing in this Agreement or in the Plan shall confer upon the Employee a right
to continue in the employ of PacifiCare or any Subsidiary or shall interfere
with or restrict in any way the rights of PacifiCare and its Subsidiaries, which
are hereby expressly reserved, to discharge the Employee.

 

Section 2.5    Additional Shares or Substituted Securities

 

If any extraordinary dividend or other extraordinary distribution occurs in
respect of the Common Stock (whether in the form of cash, Common Stock, other
securities or other property), or any reclassification, recapitalization, stock
split (including a stock split in the form of a stock dividend), reverse stock
split, reorganization, merger, combination, consolidation, split-up, spin-off,
combination, repurchase or exchange of Common Stock or other securities of
PacifiCare, or any similar, unusual or extraordinary corporate transaction (or
event in respect of the Common Stock) or a sale of substantially all the assets
of PacifiCare occurs, proportionate adjustments shall be made to the Shares
(including the related Restricted Stock Units into which the Shares are
converted pursuant to the provisions of Article 4) by the Committee in
accordance with the provisions of Section 15 of the Plan.

 

ARTICLE 3

 

VESTING; RISKS OF FORFEITURE

 

Section 3.1    Risk of Forfeiture

 

The Shares shall initially be restricted Shares and shall be subject to a risk
of forfeiture that shall lapse over the Employee’s period of continuous service
with PacifiCare. Upon the Employee’s Termination of Employment for any reason,
except death or Disability, prior to the vesting of the Shares, such Employee
shall forfeit and lose all rights to any and all unvested Shares.

 

Section 3.2    Vesting of Shares

 

Subject to Sections 3.1 and 3.3, beneficial ownership of the Shares shall vest
and the risk of forfeiture shall lapse on the vesting date or dates set forth in
the Grant Notice applicable to the Shares (each, a “Vesting Date”).

 

5

--------------------------------------------------------------------------------

Section 3.3    Acceleration of Vesting

 

(a)    Notwithstanding anything to the contrary in Section 3.2 hereof or any
provisions in the Plan, the Employee acknowledges and agrees that instead of
such contrary provisions, beneficial ownership of all of the Shares shall vest
immediately upon the first to occur of the following events:

 

(i)    Employee’s death;

 

(ii)    Employee’s Disability; or

 

(iii)    The effective date of a Change of Control.

 

(b)    By a resolution adopted after the Shares are granted, the Committee may
in its absolute discretion, on such terms and conditions as it may determine to
be appropriate and subject to Section 3.1, accelerate the time at which the
Shares or any portion thereof shall vest.

 

(c)    The Committee may make such determinations and adopt such rules and
conditions as it, in its absolute discretion, deems appropriate in connection
with a Change of Control and acceleration of vesting, including, without
limitation, provisions to ensure that any such acceleration shall be conditioned
upon the consummation of the contemplated corporate transaction. All such
determinations by the Committee shall be conclusive.

 

ARTICLE 4

 

MANDATORY DEFERRAL OF RECEIPT OF SHARES

 

Section 4.1    Mandatory Deferral of Shares

 

An Employee’s Shares are automatically deferred pursuant to the provisions of
this Article 4. The terms governing such mandatory deferral of the Shares as set
forth in this Article 4 is referred to herein as the “Deferral Program.”

 

Section 4.2    Terms of Deferral of the Shares

 

The Employee will be deemed to have elected to defer receipt of his or her
Shares pursuant to the provisions of this Deferral Program.

 

Section 4.3    Conversion of Shares into Restricted Stock Units

 

The Shares deferred will automatically be converted into an equal number of
restricted stock units (the “Restricted Stock Units”) on the Date of Grant. The
Restricted Stock Units will continue to be subject to the terms and conditions
of the Plan. The number of Restricted Stock Units shall be credited to an
account established under the Plan for the Employee (the “Restricted Stock Unit
Account”) in the name of the Employee. The Restricted Stock Units shall have the
same vesting schedule as the Shares as provided in Section 3.2 and shall be
subject to acceleration of vesting to the same extent as the Shares as provided
in Section 3.3. If the Restricted Stock Units do not vest, upon Termination of
Employment of the Employee, the

 

6

--------------------------------------------------------------------------------

unvested Restricted Stock Units will be surrendered to PacifiCare for
cancellation. The number of Restricted Stock Units established by deferrals of
the Shares shall remain constant over the deferral period, except as provided in
Section 2.6.

 

Section 4.4    Distribution Election.

 

(a)    Those individuals that have the title of Senior Vice President or above
or have a salary grade of X15 or above on the effective date of the Plan
(“Eligible Executives”) may make distribution elections with respect to any
Shares that may be granted to such individuals after such election and during
the 2005 Year by filing a written distribution election with the Committee no
later than 30 days following the effective date of the Plan.

 

(b)    For Years following 2005, Eligible Executives may file a written
distribution election with the Committee no later than December 31 of the
preceding Year that shall be applicable with respect to any Shares that may be
granted to the Eligible Executive in all following Years. Except as otherwise
provided in this Section 4.4, all distribution elections, once made, are
irrevocable.

 

(c)    Upon an individual being employed as an Eligible Executive or an employee
being promoted to a position where he or she is an Eligible Executive following
the effective date of the Plan, such individual may make distribution elections
for Shares to be granted to the Eligible Executive after such election and
during such Year by filing with the Committee a distribution election, on a form
provided by the Committee, no later than the last day of his or her Initial
Election Period. Such election shall only apply to Shares granted to the
Eligible Executive following the filing of the election. Distribution elections
made pursuant to this subsection (c) shall be irrevocable, except as otherwise
provided in this Section 4.4.

 

(d)    Any distribution election made under this Section 4.4 shall be
irrevocable and shall apply to any Shares that may be granted to the Eligible
Executive during subsequent Years until the Eligible Executive makes a new
election; provided, however, that a distribution election may not be changed for
the first Year with respect to which the Eligible Executive files a distribution
election after the election is filed. With respect to subsequent Years, a
distribution election may not be changed except as follows. An Eligible
Executive may make changes to his or her election, subject to the limitations
set forth in this Article 4, to change the distribution under a previous
election by filing with the Committee on forms provided by the Committee, a new
election on or before the December 31 preceding the Year for which the new
election is to apply. Such distribution election shall only apply with respect
to Shares granted in subsequent Years following the Year in which the new
election is filed.

 

(e)    If an Eligible Executive does not elect to file a distribution election
with respect to Shares granted during one or more Years, such Shares will be
paid in accordance with the Plan’s default form of distribution specified in
Section 4.7.

 

Section 4.5     Duration of Deferral Election.    Deferral elections for Shares
may be made in accordance with the procedures set forth in Section 4.6 for
distributions on a future Scheduled Payment Date while still employed, and/or as
specified in Section 4.7 with respect to the form of distribution that shall
apply upon a Termination of Service. However, with respect

 

7

--------------------------------------------------------------------------------

to Scheduled Payment Date distribution elections made in accordance with
Section 4.6, Eligible Executives may not defer receipt of the Shares for less
than a minimum of four (4) years from the Date of Grant of the Shares.
Additionally, for Eligible Executives with a title of Executive Vice President
or above, or a salary grade of X16, only up to one-half of the Shares may be
elected to be distributed pursuant to Section 4.6 on a Scheduled Payment Date
while still employed rather than upon a Termination of Service pursuant to
Section 4.7.

 

Section 4.6    Scheduled Payment Date Distributions.

 

(a)    An Eligible Executive may elect to have Shares deferred during a given
calendar year paid on a specified future date while still employed (the
“Scheduled Payment Date”). This election shall apply to the Shares granted
during the Year specified by the Eligible Executive on his or her distribution
election form. An Eligible Executive may elect different Scheduled Payment Dates
for Shares deferred for different Years. The Scheduled Payment Date shall be set
forth on the Eligible Executive’s distribution election form for such Year. Any
Shares that the Eligible Executive elects to be paid on a Scheduled Payment Date
shall be paid upon the later of (i) the Scheduled Payment Date, or (ii) the date
the Shares vest.

 

(b)    A distribution pursuant to this Section 4.6 of less than the Eligible
Executive’s entire interest in the Restricted Stock Unit Account shall be made
pro rata from his or her Restricted Stock Unit Account. All early distributions
pursuant to this Section 4.6 shall be made in either: (i) a lump sum payment;
(ii) annual installments over a period of three years; or (iii) annual
installments over a period of five years. Notwithstanding the foregoing, if the
value of the Restricted Stock Unit Account balance to be distributed on the
Scheduled Payment Date is $50,000 or less as of the Scheduled Payment Date, then
such balance will be distributed in the form of a single lump sum payment on the
Scheduled Payment Date.

 

(c)    Notwithstanding anything to the contrary in this subsection, if an
Eligible Executive has a Termination of Service for any reason prior to the date
on which a payment is scheduled to be made pursuant to this Section 4.6, the
Eligible Executive’s entire Restricted Stock Unit Account balance will be paid
pursuant to the provisions of Section 4.7.

 

Section 4.7    Termination of Service Distributions.

 

(a)    If the Employee has a Termination of Service on or after Retirement or as
a result of a Disability, except as specified in Section 4.7(c) with respect to
Key Employees, the aggregate amount of the vested Restricted Stock Units
credited to the Restricted Stock Unit Account (the “Vested Amount”) shall be
paid to the Employee in the form of distribution method selected by the Employee
on his or her distribution election form applicable to such deferrals. If the
Employee does not select a form of distribution method on a distribution
election form with respect to all or a part of the Vested Amount, except as
specified in Section 4.7(c) with respect to Key Employees, such portion of the
Vested Amount shall be paid to the Employee in the form of substantially equal
annual installments over five years beginning on a date as soon as
administratively possible from his or her Payment Eligibility Date.

 

Notwithstanding anything to the contrary in this subsection, if the value of the
Vested Amount is $50,000 or less as of the Payment Eligibility Date then the
entire Vested Amount

 

8

--------------------------------------------------------------------------------

contained in the Restricted Stock Unit Account will be distributed in the form
of a single lump sum payment as soon as administratively possible from the
Employee’s Payment Eligibility Date.

 

(b)    If the Employee has a Termination of Service prior to Retirement for
reasons other than Disability, except as specified in Section 4.7(c) with
respect to Key Employees, the Vested Amount shall be paid to the Employee (and
after his or her death to his or her Beneficiary) in a lump sum as soon as
administratively possible from the Employee’s Payment Eligibility Date.

 

(c)    Notwithstanding anything to the contrary set forth herein, distributions
to a Key Employee as a result of Termination of Service, including Termination
of Service on or after Retirement, whether the distribution is made in the form
of a lump sum or installments, shall not be made or the payments may not begin
before the date which is six (6) months following the date of the Termination of
Service, or, if earlier, the date of death or Disability of the Key Employee.

 

Section 4.8    Distributions of Restricted Stock Unit Account Upon a
Section 409A Change of Control.

 

(a)    If a Section 409A Change of Control occurs, the balance of the Restricted
Stock Unit Account of the Employee will be paid to the Employee (or Beneficiary)
in a lump sum as soon as administratively possible after such Section 409A
Change of Control.

 

(b)    Following a Section 409A Change in Control, no changes in this Agreement,
the Plan, or in any documents evidencing an election to defer compensation, and
no adjustments, determinations or other exercises of discretion by the Committee
or PacifiCare’s Board of Directors that were made subsequent to the Section 409A
Change in Control and that would have the effect of diminishing the Employee’s
rights or payments under this Agreement or this Section 4.7, or of causing the
Employee to recognize income (for federal income tax purposes) with respect to
the Employee’s Restricted Stock Unit Account prior to the actual distribution to
the Employee of such Restricted Stock Unit Account, shall be effective.

 

Section 4.9    Form of Distribution.

 

Upon the occurrence of any event giving rise to a distribution, the Shares shall
be distributed in shares of Common Stock equal to the number of Restricted Stock
Units of Common Stock converted on the date of deferral of the Shares as
determined by Section 4.3 which have vested pursuant to the original vesting
schedule for the Shares. Such Shares shall be distributed as provided in
Sections 4.6, 4.7, 4.8 and 4.10.

 

Section 4.10    Unforeseeable Emergency Withdrawals.

 

(a)    The Committee may, pursuant to rules adopted by it and applied in a
uniform manner to similarly situated executive employees, accelerate the date of
distribution of all or any portion of the Employee’s Restricted Stock Unit
Account, because of an unforeseeable emergency.

 

9

--------------------------------------------------------------------------------

(b)    Unforeseeable emergency means a severe financial hardship to the Employee
resulting from an illness or accident of the Employee, the Employee’s spouse, or
a dependent (as described in Section 152(a) of the Code) of the Employee, loss
of the Employee’s property due to casualty, or other similar extraordinary and
unforeseeable circumstances arising as a result of events beyond the control of
the Employee. Determinations of unforeseeable emergency shall be made in a
manner consistent with its definition as provided in Section 409A of the Code
and its regulations and other guidance thereunder.

 

(c)    Payment of any amount with respect to which a Employee has filed a
request under this Section 4.10 shall be made as soon as practicable after
approval of such request by the Committee, but shall be limited to the amount
necessary to satisfy the unforeseeable emergency. Distributions made pursuant to
this Section 4.10 shall be without penalty.

 

Section 4.11    Acceleration of Payments.

 

Payments made under this Article 4 may be accelerated only upon the occurrence
of an event specified in this Section 4.11.

 

(a)    A payment may be accelerated if such payment is made to an alternate
payee pursuant to and following the receipt and qualification of a domestic
relations order as defined in Section 414(p) of the Code.

 

(b)    Payment may be accelerated as may be necessary to comply with a
certificate of divestiture as defined in Section 1043(b)(2) of the Code.

 

(c)    A payment may be accelerated if the amount of the payment is not greater
than Fifty Thousand Dollars ($50,000), or such lesser amount as is permitted
under Section 409A of the Code and its regulations and other guidance
thereunder, and at the time the payment is made, the amount constitutes the
Employee’s entire interest under the Restricted Stock Unit Account and the
amount is distributed in the form of a lump sum.

 

(d)    A payment may be accelerated to the extent required to pay the Federal
Insurance Contributions Act tax imposed under Sections 3101 and 3121(v)(2) of
the Code with respect to compensation deferred under the Plan (the “FICA
Amount”). Additionally, a payment may be accelerated to pay the income tax on
wages imposed under Section 3401 of the Code on the FICA Amount and to pay the
additional income tax at source on wages attributable to the pyramiding
Section 3401 wages and taxes. The total payment under this subsection (d) may
not exceed the aggregate of the FICA Amount and the income tax withholding
related to the FICA Amount.

 

Section 4.12    No Discretionary Distributions.

 

Except as expressly provided in this Article 4, the Committee shall not exercise
discretion with respect to timing or form of distributions of Shares deferred
pursuant to this Article 4, but shall make distributions at the time specified
in this Article 4 and in the form elected by the Employee. If the Employee has
not elected a form of distribution, then payments shall be made in the default
form of distribution specified in this Article 4.

 

10

--------------------------------------------------------------------------------

Section 4.13    Claims Procedures.

 

The claims procedures set forth on Appendix A attached hereto shall apply for
all benefits payable under the Deferral Program except for Disability benefits.
The claims procedures applicable to Disability benefits are set forth on
Appendix B attached hereto. The Committee is the “Administrator” of the claims
procedures.

 

Section 4.14    Termination of Eligible Executive Status.

 

The Committee may determine that the Employee is no longer an Eligible
Executive. If the Committee makes such determination, then the Committee also
shall determine if such former Eligible Executive’s deferred Shares shall be
(i) paid to the Employee as soon as administratively feasible to the extent such
payment would meet the requirements of Section 4.11(c), or (ii) held and paid in
accordance with the terms of this Article 4. Once the Employee is determined by
the Committee to no longer be an Eligible Executive, he or she may not make any
changes to his or her deferral election.

 

Section 4.15    Compliance with Section 409A of the Code.

 

The provisions of this Article 4 are intended to comply with the requirements of
Section 409A of the Code and regulations and other guidance thereunder. The
Committee shall interpret the provisions of this Article 4 in a manner
consistent with the requirements of Section 409A of the Code and regulations and
other guidance thereunder. To the extent one or more provisions of this Article
4 do not comply with Section 409A of the Code, such provision shall be
automatically and immediately voided and shall be amended as soon as
administratively feasible and shall be administered to so comply.

 

ARTICLE 5

 

MISCELLANEOUS

 

Section 5.1    Shares Granted Under The Plan

 

The Shares will be granted under the Plan, and will be governed by the terms of
the Plan.

 

Section 5.2    Administration

 

The Committee shall have the power to interpret the Plan and this Agreement and
to adopt such rules for the administration, interpretation and application of
the Plan as are consistent therewith and to interpret, amend or revoke any such
rules. All actions taken and all interpretations and determinations made by the
Committee in good faith shall be final and binding upon the Employee, PacifiCare
and all other interested persons. No member of the Committee shall be personally
liable for any action, determination or interpretation made in good faith with
respect to the Plan, this Agreement or the Shares.

 

11

--------------------------------------------------------------------------------

Section 5.3    Shares Not Transferable

 

Prior to the applicable Vesting Date, none of the Shares or the Restricted Stock
Unit Account, nor any interest or right therein or part thereof, may be
transferred, alienated, pledged, encumbered, assigned or otherwise disposed of
by the Employee, whether such disposition be voluntary or involuntary or by
operation of law by judgment, levy, attachment, garnishment or any other legal
or equitable proceedings (including bankruptcy) and any attempted disposition
thereof shall be null and void and of no effect; provided, however, that this
Section 5.3 shall not prevent transfers by will, by qualified domestic relations
order or by the applicable laws of descent and distribution.

 

Section 5.4    Notices

 

Any notice to be given under the terms of this Agreement to PacifiCare shall be
addressed to PacifiCare in care of its President or Chief Financial Officer and
any notice to be given to the Employee shall be addressed to him at the address
given beneath his signature hereto. By a notice given pursuant to this
Section 5.4, either party may hereafter designate a different address for
notices to be given to him. Any notice which is required to be given to the
Employee shall, if the Employee is then deceased, be given to the Employee’s
personal representative if such representative has previously informed
PacifiCare of his status and address by written notice under this Section 5.4.
Any notice shall have been deemed duly given when enclosed in a properly sealed
envelope or wrapper addressed as aforesaid, deposited (with postage prepaid) in
a post office or branch post office regularly maintained by the United States
Postal Service.

 

Section 5.5    Withholding

 

The Employee hereby authorizes any required withholding from, at PacifiCare’s
election, the Shares, payroll and any other amounts payable to Employee and
otherwise agrees to make adequate provision for any sums required to satisfy the
federal, state, local and foreign tax withholding obligations of PacifiCare, if
any, which arise in connection with the vesting or issuance of the Shares.
Unless the tax withholding obligations of PacifiCare are satisfied, PacifiCare
shall have no obligation to issue the Shares.

 

The Employee may satisfy any federal, state or local tax withholding obligation
relating to the vesting or issuance of any Shares by any of the following means
(in addition to PacifiCare’s right to withhold from any compensation paid to the
Employee by PacifiCare) or by a combination of such means: (i) tendering a cash
payment; (ii) authorizing PacifiCare to withhold shares of Common Stock from
shares of Common Stock distributed to the Employee pursuant to Article 4, having
a fair market value, determined as of the date of withholding, not in excess of
the amount of such tax obligation; (iii) delivering to PacifiCare owned and
unencumbered shares of Common Stock having a fair market value, determined as of
the date of delivery, not in excess of such tax obligation; or (iv) pursuant to
the provisions of Section 4.11(d). A share withholding election shall be deemed
made when written notice of such election, signed by the Employee, has been
delivered or transmitted to the Secretary or Chief Financial Officer of
PacifiCare at its then principal office. Delivery of such notice shall
constitute an irrevocable election to have shares withheld.

 

12

--------------------------------------------------------------------------------

Section 5.6    Titles

 

Titles are provided herein for convenience only and are not to serve as a basis
for interpretation or construction of this Agreement.

 

Section 5.7    Inconsistency between Agreement and Plan

 

In the event of any inconsistency between the provisions of this Agreement and
the Plan, the provisions of the Plan shall govern.

 

Section 5.8    Choice of Law

 

This Agreement shall be construed and enforced in accordance with the laws of
the State of Delaware.

 

13

--------------------------------------------------------------------------------

APPENDIX A

NON-DISABILITY CLAIMS PROCEDURES

 

The following claims procedures shall apply for all benefits payable under the
Deferral Program except for Disability benefits. The claims procedures
applicable to Disability benefits are set forth on Appendix B attached hereto.

 

(a)    Any application for benefits, inquiries about the Deferral Program or
inquiries about present or future rights under the Deferral Program must be
submitted to the Administrator in writing by an applicant (or his or her
authorized representative).

 

(b)    In the event that any application for benefits is denied in whole or in
part, the Administrator must provide the applicant with written or electronic
notice of the denial of the application, and of the applicant’s right to review
the denial. Any electronic notice will comply with the regulations of the U.S.
Department of Labor. The notice of denial will be set forth in a manner designed
to be understood by the applicant and will include the following:

 

(i)    the specific reason or reasons for the denial;

 

(ii)    references to the specific Deferral Program and/or Plan provisions upon
which the denial is based;

 

(iii)    a description of any additional information or material that the
Administrator needs to complete the review and an explanation of why such
information or material is necessary; and

 

(iv)    an explanation of the Deferral Program’s review procedures and the time
limits applicable to such procedures, including a statement of the applicant’s
right to bring a civil action under Section 502(a) of ERISA following a denial
on review of the claim, as described below.

 

This notice of denial will be given to the applicant within a reasonable period
of time, but not later than ninety (90) days after the Administrator receives
the application, unless special circumstances require an extension of time; in
which case the Administrator has up to an additional ninety (90) days for
processing the application. If an extension of time for processing is required,
written notice of the extension will be furnished to the applicant before the
end of the initial ninety (90) day period.

 

This notice of extension will describe the special circumstances necessitating
the additional time and the date by which the Administrator is to render its
decision on the application.

 

(c)    Any person (or that person’s representative) for whom an application for
benefits is denied, in whole or in part, may appeal the denial by submitting a
request for a review to the Administrator within sixty (60) days after the
application is denied. A request for a review shall be in writing and shall be
addressed to the Administrator.

 

1

--------------------------------------------------------------------------------

A request for review must set forth all of the grounds on which it is based, all
facts in support of the request and any other matters that the applicant feels
are pertinent. The applicant (or his or her representative) shall have the
opportunity to submit (or the Administrator may require the applicant to submit)
written comments, documents, records and other information relating to his or
her claim. The applicant (or his or her representative) shall be provided, upon
request and free of charge, reasonable access to, and copies of, all documents,
records and other information relevant to his or her claim. The review shall
take into account all comments, documents, records and other information
submitted by the applicant (or his or her representative) relating to the claim,
without regard to whether such information was submitted or considered in the
initial benefit determination.

 

(d)    The Administrator will act on each request for review within a reasonable
period of time, but not later than sixty (60) days after receipt of the request,
unless special circumstances require an extension of time (not to exceed an
additional sixty (60) days), for processing the request for a review. If an
extension for review is required, written notice of the extension will be
furnished to the applicant within the initial sixty (60) day period. This notice
of extension will describe the special circumstances necessitating the
additional time and the date by which the Administrator is to render its
decision on the review. If the extension of review is due to the applicant’s
failure to submit information necessary to decide a claim, the period for making
the decision on review shall be tolled from the date on which the notification
of the extension is sent to the application until the date on which the
applicant responds to the request for additional information.

 

(e)    The Administrator will give prompt, written or electronic notice of its
decision to the applicant. Any electronic notice will comply with the
regulations of the U.S. Department of Labor. In the event that the Administrator
confirms the denial of the application for benefits in whole or in part, the
notice will set forth, in a manner calculated to be understood by the applicant,
the following:

 

(i)    the specific reason or reasons for the denial;

 

(ii)    references to the specific Deferral Program and/or Plan provisions upon
which the denial is based;

 

(iii)    a statement that the applicant is entitled to receive, upon request and
free of charge, reasonable access to, and copies of, all documents, records and
other information relevant to his or her claim; and

 

(iv)    a statement of the applicant’s right to bring a civil action under
Section 502(a) of ERISA.

 

(f)    The Administrator will establish rules and procedures, consistent with
the Deferral Program and with ERISA, as necessary and appropriate in carrying
out its responsibilities in reviewing benefit claims. The Administrator may
require an applicant who wishes to submit additional information in connection
with an appeal from the denial of benefits to do so at the applicant’s own
expense.

 

2

--------------------------------------------------------------------------------

(g)    No legal action for benefits under the Deferral Program may be brought
until the applicant (i) has submitted a written application for benefits in
accordance with the procedures described above, (ii) has been notified by the
Administrator that the application is denied, (iii) has filed a written request
for a review of the application in accordance with the appeal procedure
described above, and (iv) has been notified in writing that the Administrator
has denied the appeal.

 

3

--------------------------------------------------------------------------------

APPENDIX B

DISABILITY CLAIMS PROCEDURES

 

The following claim procedures shall apply only for Disability benefits payable
under the Deferral Program. An Authorized Representative may act on the
Claimant’s behalf in pursuing a benefit claim or appeal of an Adverse Benefit
Determination.

 

  1. Definitions.

 

A.     “Adverse Benefit Determination” means any of the following:

 

(i)    a denial, reduction, or termination of a benefit by the Deferral Program,
or a failure of the Deferral Program to provide or make payment (in whole or in
part) for a benefit; and

 

(ii)    a denial, reduction, or termination of a benefit by the Deferral
Program, or a failure of the Deferral Program to provide or make payment (in
whole or in part) for a benefit resulting from the application of any
utilization review.

 

B.    “Authorized Representative” means an individual who is authorized to
represent a Claimant with respect to any claims or appeals filed pursuant to
these procedures. Whether an individual is an Authorized Representative will be
determined by the Administrator in accordance with reasonable procedures
established by the Administrator.

 

C.    “Claimant” means the Employee or his or her beneficiary who has submitted
a claim for benefits in accordance with these claims procedures.

 

D.    “Disability Claim” means a claim for benefits under the Deferral Program
for which the Claimant must show disability and the Administrator must find make
a determination of disability in order for the Claimant to receive benefits.

 

E.    “Health Care Professional” means a physician or other health care
professional who is licensed, accredited, or certified to perform specified
health services consistent with applicable state law.

 

F.    “Relevant Records” means any document, record, or other information that:

 

(i)    the Administrator relied upon in making a benefit determination for the
Claimant’s claim;

 

(ii)    was submitted, considered, or generated in the course of making the
benefit determination for a claim, without regard to whether such document,
record, or other information was relied upon in making the benefit
determination;

 

1

--------------------------------------------------------------------------------

(iii)    demonstrates compliance with the administrative processes and
safeguards required pursuant to Department of Labor Regulations in making the
benefit determination for a claim; or

 

(iv)    constitutes a statement of policy or guidance with respect to the
Deferral Program concerning the denied treatment option or benefit for a
Claimant’s diagnosis, without regard to whether such advice or statement was
relied upon in making the benefit determination.

 

2.    Claims Procedure–Disability Claims.    In the case of a Disability Claim,
the Administrator will notify the Claimant of the Deferral Program’s Adverse
Benefit Determination within a reasonable time, but not later than forty-five
(45) days after the Deferral Program receives the claim. The Administrator may
extend this period for up to thirty (30) days, provided that the Administrator
both (i) determines that such an extension is necessary due to matters beyond
the control of the Deferral Program, and (ii) notifies the Claimant, prior to
the expiration of the initial forty-five (45) day period, of the circumstances
requiring the extension of time and the date by which the Administrator expects
to make a decision.

 

If, prior to the end of the first thirty (30) day extension period, the
Administrator determines that, due to matters beyond the control of the
Administrator, a decision cannot be rendered within the first thirty (30) day
extension period, the period for making a determination may be extended for an
additional thirty (30) days. Such additional extension is permitted only if
(i) the Administrator notifies the Claimant, prior to the end of the first
thirty (30) day extension, of the circumstances requiring the second thirty
(30) day extension and (ii) the Administrator notifies the Claimant of the date
the Administrator expects to render the decision.

 

Any notice of extension will explain the standards on which the Claimant’s
entitlement to a benefit is based, the unresolved issues that prevent a decision
on the claim, and the additional information needed to resolve these issues. A
Claimant will be given at least forty-five (45) days to provide the requested
information.

 

3.    Calculating Time Periods For Claims Procedure.    The time within which a
benefit determination is required to be made will begin at the time a claim is
filed in accordance with these procedures, without regard to whether all the
information necessary to make a benefit determination accompanies the filing. In
the event that the time within which a benefit determination is required to be
made is extended due to the Claimant’s failure to submit information necessary
to decide a claim, the period for making the benefit determination will be
suspended from the date on which the Administrator sends the notification of
extension to the Claimant until the date on which the Claimant responds to the
request for additional information.

 

4.    Notice of Benefit Determination.    The Administrator will provide the
Claimant with written or electronic notification of any Adverse Benefit
Determination. If the notice of an Adverse Benefit Determination is provided
electronically, such notice will comply with the standards imposed by the
Department of Labor Regulations.

 

2

--------------------------------------------------------------------------------

Any notice of Adverse Benefit Determination will set forth, in a manner
calculated to be understood by the Claimant:

 

A.    the specific reason or reasons for the Adverse Benefit Determination;

 

B.    references to the specific Deferral Program and/or Plan provisions on
which the Adverse Benefit Determination is based;

 

C.    a description of any additional material or information necessary for the
Claimant to perfect the claim and an explanation of why such material or
information is necessary;

 

D.    a description of the Deferral Program’s review procedures and the time
limits applicable to such procedures, including a statement of the Claimant’s
right to bring a civil action under Section 502(a) of ERISA following an Adverse
Benefit Determination on review; and

 

E.    if an internal rule, guideline, protocol, or other similar criterion was
relied upon in making the Adverse Benefit Determination, either (i) the specific
rule, guideline, protocol, or other similar criterion, or (ii) a statement that
such a rule, guideline, protocol, or other similar criterion was relied upon in
making the Adverse Benefit Determination and that a copy of such rule,
guideline, protocol, or other criterion will be provided free of charge to the
Claimant upon request.

 

5.    Review Procedure.    If the Claimant receives an Adverse Benefit
Determination, the Claimant may appeal the Adverse Benefit Determination within
one hundred eighty (180) days after the Claimant’s receipt of the notice of
Adverse Benefit Determination. The Claimant must make any appeal in writing. The
appeal must be addressed to the Review Panel of the Administrator.

 

During the one hundred eighty (180) day period, the Claimant may:

 

A.    submit written comments, documents, records, and other information
relating to the claim for benefits; and

 

B.    request and receive, free of charge, reasonable access to, and copies of,
all Relevant Records.

 

The Review Panel shall consist of one or more individuals who are neither the
individuals who made the initial Adverse Benefit Determination, nor the
subordinate of any of such individuals. The review of the Claimant’s appeal will
not give deference to the initial Adverse Benefit Determination. The review will
take into account all comments, documents, records, and other information that
the Claimant submits relating to the claim, without regard to whether such
information was submitted or considered in the initial benefit determination.

 

In deciding the appeal of an Adverse Benefit Determination that is based in
whole or in part on a medical judgment, the Review Panel will consult with a
health care professional who has appropriate training and experience in the
field of medicine involved in the medical

 

3

--------------------------------------------------------------------------------

judgment. Such health care professional must be an individual who is neither the
individual who was consulted in connection with the initial Adverse Benefit
Determination, nor the subordinate of such individual.

 

The Review Panel will provide the Claimant with the identification of medical or
vocational experts whose advice was obtained on behalf of the Deferral Program
in connection with the Claimant’s Adverse Benefit Determination, without regard
to whether the advice was relied upon in making the benefit determination.

 

6.    Timing of Notice of Benefit Determination on Review.    In the case of a
Disability Claim, the Administrator will notify the Claimant of the Deferral
Program’s benefit determination on review within a reasonable period, but not
later than forty-five (45) days after the Administrator receives the Claimant’s
request for review of an Adverse Benefit Determination. The Administrator may
extend this period for up to an additional forty-five (45) days if the
Administrator determines that special circumstances exist, such as the need to
hold a hearing.

 

If the Administrator determines that an extension is required, the Administrator
will provide the Claimant written notice of the extension before the end of the
initial forty-five (45) day period. The extension notice will describe the
special circumstances requiring the extension and the date by which the
Administrator expects to make a decision on the Claimant’s appeal.

 

7.    Calculating Time Periods for Review Procedure.    The period of time
within which a benefit determination on review is required to be made shall
begin at the time an appeal is filed in accordance with subsection (e), without
regard to whether all the information necessary to make a benefit determination
on review accompanies the filing.

 

8.    Notice of Benefit Determination on Review.    The Administrator will
provide the Claimant with written or electronic notification of the Deferral
Program’s benefit determination on review. Any electronic notification shall
comply with the Department of Labor Regulations.

 

In the case of an Adverse Benefit Determination, the notification will set
forth, in a manner calculated to be understood by the Claimant:

 

A.    the specific reason or reasons for the Adverse Benefit Determination;

 

B.    reference to the specific Deferral Program and/or Plan provisions on which
the benefit determination is based;

 

C.    a statement that the Claimant is entitled to receive, upon request and
free of charge, reasonable access to, and copies of, all Relevant Records;

 

D.    a statement of the Claimant’s right to bring an action under
Section 502(a) of ERISA;

 

E.    if an internal rule, guideline, protocol, or other similar criterion was
relied upon in making the Adverse Benefit Determination, either the specific
rule, guideline, protocol,

 

4

--------------------------------------------------------------------------------

or other similar criterion, or a statement that such rule, guideline, protocol,
or other similar criterion was relied upon in making the Adverse Benefit
Determination and that a copy of the rule, guideline, protocol, or other similar
criterion will be provided free of charge to the Claimant upon request; and

 

F.    the following statement: “You and your plan may have other voluntary
alternative dispute resolution options, such as mediation. One way to find out
what may be available is to contact the local U.S. Department of Labor Office
and your State insurance regulatory agency.”

 

9.    Administration.    The Administrator will establish rules and procedures,
consistent with the Deferral Program and the ERISA, as necessary and appropriate
in carrying out its responsibilities on reviewing benefit claims.

 

10.    Right to Bring Action.    No legal action for benefits under the Deferral
Program may be brought until the Claimant (i) has submitted a written
application for benefits in accordance with the procedures described above,
(ii) has been notified by the Administrator that the application is denied,
(iii) has filed a written request for review of the application in accordance
with the appeal procedure described above, and (iv) has been notified in writing
that the Administrator has denied the appeal.

 

5