<PAGE>

                           PACIFICARE HEALTH SYSTEMS, INC.
                        STOCK UNIT DEFERRED COMPENSATION PLAN

     WHEREAS, PacifiCare Health Systems, Inc., (the "Company") desires to
establish a non-qualified stock unit deferred compensation plan to provide
supplemental retirement income benefits for a select group of management and
highly compensated employees through deferrals of salary and bonuses, effective
as of December 18, 1997;

     WHEREAS, it is believed that the adoption of this plan providing for
deferral of compensation at the election of each executive will be in the best
interests of the Company; and

     WHEREAS, the Company intends that this plan shall be maintained as a "top
hat" plan described in Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA:

     NOW, THEREFORE, it is hereby declared as follows:


                                      ARTICLE I
                                     DEFINITIONS

     Whenever the following words and phrases are used in this Plan, they shall
have the meanings specified below.


Section 1.1    "Beneficiary" or "Beneficiaries" for purposes of this Plan shall
have the meaning set forth in Section 4.5.

Section 1.2    "Board of Directors" or "Board" means the Board of Directors of
the Company.

Section 1.3    "Bonus" means any cash incentive compensation payable to a
Participant in addition to the Participant's Salary, other than the bonus paid
under the LTPIP, moving expenses, sign-on bonuses or bonuses paid in connection
with a promotion, prior to any reduction for any deferrals to a plan qualified
under Section 125 or Section 401 (k) of the Code.

Section 1.4    "Change of Control" shall have the meaning set forth in Section
4.3.

Section 1.5    "Class B Common Stock" means the Company's Class B Common Stock,
par value $0.01 per share.

Section 1.6    "Code" means the Internal Revenue Code of 1986, as amended from
time to time.


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Section 1.7    "Committee" means the Committee appointed by the Compensation
Committee to administer the Plan in accordance with Article III.

Section 1.8    "Company" means PacifiCare Health Systems, Inc., a Delaware
corporation, or any successor corporation.

Section 1.9    "Compensation Committee" shall mean the Compensation Committee of
the Board of Directors of the Company.

Section 1.10   "Disability."  A Participant shall be deemed to be incapacitated
or disabled, if such Participant's incapacity or disability prevents a
Participant from fully performing his or her duties to an Employer for a period
in excess of 90 days and, after such 90-day period, the Company and a physician,
duly licensed and qualified in the specialty of the Participant's incapacity or
disability, decide in their reasonable judgments, that such incapacity or
disability will be permanent or of such continued duration as to prevent a
Participant from resuming the rendition of services to the Employer for at least
an additional six-month period.

Section 1.11   "Eligible Employee" means any Employee of an Employer who the
Company has designated to be in executive salary grade of 15 or above, is a
member of the Company's Senior Council and is scheduled to work at least 32
hours per week.

Section 1.12   "Employee" shall mean any employee (as defined in accordance with
the Treasury Regulations and Revenue Rulings then applicable under Section 3401
(c) of the Code) of an Employer, whether such employee is so employed at the
time this Plan is adopted or becomes so employed subsequent to the adoption of
this Plan.

Section 1.13   "Employer" means the Company (or any successor by merger,
consolidation or purchase of substantially all of the Company's assets) and any
and all Subsidiaries of the Company.

Section 1.14   "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.

Section 1.15   "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.

Section 1.16   "LTPIP" means the Company's Long-Term Performance Incentive
Compensation Plan, as amended from time to time.

Section 1.17   "Participant" means for purposes of this Plan, any Eligible
Employee who satisfies the requirements of Section 2.1.


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Section 1.18   "Payment Eligibility Date" means the first day of the month
following the end of the calendar quarter in which a Participant terminates
employment for any reason with all Employers or dies.

Section 1.19   "Plan" means this Stock Unit Deferred Compensation Plan of
PacifiCare Health Systems, Inc., as may be amended from time to time.

Section 1.20   "Plan Year" means the 12 consecutive month period beginning on
January 1 and ending on December 31 of the same year.

Section 1.21   "Retirement" or "Retire", for purposes of this Plan, mean
termination of a Participant's employment from all Employers, which occurs after
the sum of the following two factors meet or exceed fifty-five (55):  (i) the
Participant's age and (ii) the Participant's number of years of service with all
Employers.

Section 1.22   "Salary" shall mean the Participant's Salary prior to any
reduction for deferrals to a plan qualified under Section 125 or Section 401 (k)
of the Code.

Section 1.23   "Stock Unit" means a unit representing the right to receive a
share of Class B Common Stock in accordance with the terms of this Plan.

Section 1.24   "Stock Unit Account" is the cumulative number of Stock Units
assigned to a Participant in accordance with Section 2.2.

Section 1.25   "Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company 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.


                                      ARTICLE II
                               DEFERRAL OF COMPENSATION

SECTION 2.1    ELIGIBILITY.

     a.        The Company's Chief Executive Officer (the "CEO") may elect to
defer (on a pre-tax basis) all, or a portion, of his or her Salary to be paid
during a Plan Year by filing an election to participate in this Plan on a form
provided by the Committee and filed with the Committee no later than December 15
of the preceding Plan Year.  The election form filed by the CEO shall signify
the CEO's acceptance of the terms of this Plan and the portion of Salary that he
elects to defer.  Notwithstanding the foregoing, the Committee may, in its sole
and absolute discretion, permit the Chief Executive Officer to file an
application on or after December 15 if, in its judgment, his or her failure to
do so prior to said date was due to reasonable cause, but in no event


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<PAGE>

may such application be filed after December 31.  All elections, once made, are
irrevocable.

     b.        The Compensation Committee shall determine at least 60 days prior
to the beginning of each Plan Year, the Eligible Employees, including the CEO,
who may defer all or a portion of Bonus pursuant to the provisions of this Plan
for the next Plan Year.  The Committee shall notify each Eligible Employee of
his or her eligibility to participate in this Plan at least 30 days prior to the
time he or she must file an application for participation.  The CEO and any
Eligible Employee must file a written application with the Committee no later
than December 15 of the preceding Plan Year to participate in this Plan for the
next succeeding Plan Year.  Notwithstanding the foregoing, the Committee may, in
its sole and absolute discretion, permit an Eligible Employee to file an
application on or after December 15 if, in its judgment, his or her failure to
do so prior to said date was due to reasonable cause, but in no event may such
application be filed after December 31.  All elections, once made, are
irrevocable.

SECTION 2.2    STOCK ACCOUNT.

     a.        Any amount of Salary deferred by the CEO pursuant to Section 2.1
(a)  shall be converted into Stock Units of the Company's Class B Common Stock.
The number of shares of Class B Common Stock into which the deferred amount
shall be converted shall equal the amount of Salary deferred by the CEO
multiplied by a risk premium (the "Risk Premium") determined by the Compensation
Committee at least 45 days prior to the beginning of the next Plan Year, divided
by the closing price of the Class B Common Stock as quoted on Nasdaq on a date
selected by the Committee.  The Stock Units deferred pursuant to this provision
shall be credited to a bookkeeping account established for this purpose (the
"Stock Unit Account") in the name of the CEO.  The number of Stock Units
established by deferrals of Salary under this Plan shall remain constant over
the deferral period, except as provided in Section 4.4.

     b.        Any amount of Bonus deferred pursuant to this Section 2.2 by any
Participant shall be converted into Stock Units of the Company's Class B Common
Stock.  The number of shares of Class B Common Stock into which the deferred
amount shall be converted shall equal the amount of Bonus deferred multiplied by
the Risk Premium divided by the closing price of the Class B Common Stock as
quoted on Nasdaq on a date selected by the Committee.  The Stock Units deferred
pursuant to this provision shall be credited to the Stock Unit Account in the
name of each Participant.  The number of Stock Units established by deferrals of
Bonus and Salary under this Plan shall remain constant over the deferral period,
except as provided in Section 4.4.

     c.        No fractional shares shall be deferred under this Plan.
Accordingly, if the conversion of Salary and/or a Bonus into Stock Units results
in fractional shares, such unit shall be rounded up to the next highest round
number.


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<PAGE>

SECTION 2.3    DISTRIBUTION OF DEFERRED COMPENSATION.

    (a)        In the case of a Participant who terminates employment with all
Employers on or after Retirement or who terminates as a result of death or a
Disability, the aggregate amount credited to the Stock Unit Account (the
"Distributable Amount")  shall be paid to the Participant (and after his death
to his or her Beneficiary) in the form of substantially equal quarterly
installments over five years beginning within 30 days from his or her Payment
Eligibility Date.  Notwithstanding the foregoing, a Participant described in the
preceding sentence may elect one of the following optional forms of distribution
provided that his or her election is filed with the Committee at least one year
prior to his or her termination of employment with all Employers:

               (i)  a lump sum of the Distributable Amount payable within 30
          days from the Participant's Payment Eligibility Date; or

               (ii) substantially equal quarterly installments over three years
          beginning within 30 days from the Participant's Payment Eligibility
          Date.

For all purposes under this Plan, a Participant shall not be considered
terminated from employment with all Employers if the Participant remains
employed by an entity that is an Employer.  However, if the Employee is employed
by an Employer and such Employer ceases to be an Employer as a result of a sale
or other corporate reorganization, such sale or other corporate reorganization
shall be treated as termination of employment with all Employers unless
immediately following such event and without any break in employment the
Participant remains employed by an Employer.

     (b)       In the case of a Participant who terminates employment with all
Employers prior to Retirement for reasons other than a Disability, the
Distributable Amount shall be paid to the Participant in a lump sum on the
Participant's Payment Eligibility Date.

     (c)       A Participant who has not terminated employment with all
Employers may change his or her form of payment applicable to the portion of the
Stock Unit Account balance attributable to one or more Plan Years to one of the
payment forms permitted by this Plan at least one year prior to the payment date
to be deferred.  The Participant's payment election with respect to a given Plan
Year may not be changed after payment of that portion of the Stock Unit Account
balance has been made or has begun.


SECTION 2.4    SCHEDULED EARLY DISTRIBUTIONS.

     Participants may elect to have Salary and/or Bonus deferred during a given
Plan Year be paid on a future date while still employed, provided the payment
date (the "Scheduled Payment Date") is at least two years from the last day of
such Plan Year.


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<PAGE>

This election shall apply to the compensation deferred for the Plan Year
specified by the Participant on his or her payment election.  A Participant may
elect a different Payment Date for compensation deferred for each Plan Year.  In
addition, Scheduled Payment Dates elected pursuant to this Section 2.4 may be
deferred by at least one year, by filing with the Committee written notice at
least one year prior to the Scheduled Payment Date.  A Participant may elect to
defer a Scheduled Payment Date selected by this Section 2.4 once every two
years.  A distribution pursuant to this Section 2.4 of less than the
Participant's entire interest in the Stock Unit Account shall be made pro rata
from his or her Stock Unit Accounts.  All early distributions pursuant to this
Section 2.4 shall be made in a lump sum payment.  Notwithstanding the foregoing,
if a Participant terminates employment with the all Employers for any reason
prior to the date on which a payment is scheduled to be made pursuant to this
Section 2.4, the Participant's entire Stock Unit Account balance will be paid
pursuant to the provisions of Section 2.3.

SECTION 2.5    DISTRIBUTIONS UPON A CHANGE OF CONTROL.

     a.        If a Change of Control occurs, the Stock Unit Account balance of
each Participant will be paid to the Participant (or Beneficiary) in a lump sum
within 30 days after such Change of Control.

     b.        Following a Change in Control, no changes in the Plan, or in any
documents evidencing an election to defer compensation, and no adjustments,
determinations or other exercises of discretion by the Compensation Committee,
the Committee or the Company's board of directors that were made subsequent to
the Change in Control and that would have the effect of diminishing a
Participant's rights or payments under this Plan or this Section 2.5, or of
causing a Participant to recognize income (for federal income tax purposes) with
respect to a Participant's Stock Unit Account prior to the actual distribution
to a Participant of such Stock Unit Account, shall be effective.

SECTION 2.6.   FORM OF DISTRIBUTION

     Upon the occurrence of any event giving rise to a distribution, amounts
deferred under this Plan shall be distributed in shares of Class B Common Stock
equal to the number of Stock Units of Class B Common Stock converted on the date
of deferral as determined by Article II.  Such shares shall be distributed as
provided in Sections 2.3, 2.4, 2.5 and 2.7.

SECTION 2.7    FINANCIAL HARDSHIP WITHDRAWALS.

     The Committee may, pursuant to rules adopted by it and applied in a uniform
manner, accelerate the date of distribution of all or any portion of a
Participant's Stock Unit Account, because of a financial hardship.  A financial
hardship means an unforeseeable, severe financial emergency resulting from (a) a
sudden and unexpected


                                          6
<PAGE>

illness or accident of the Participant or his or her dependent (as defined in
Section 152(a) of the Code); (b) loss of the Participant's property due to
casualty; or (c) other similar extraordinary and unforeseeable circumstances
arising out of event beyond the control of the Participant, which may not be
relieved through other available resources of the Participant, as determined by
the Committee in accordance with uniform rules adopted by it.  Payment of any
amount with respect to which a Participant has filed a request under this
Section 2.7 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
financial hardship.  Distributions made pursuant to this Section 2.7 shall be
without penalty.

SECTION 2.8    ROLLOVERS

     Participants of any existing CEO Stock Unit Deferred Compensation Plan
administered by the Company, who have a positive account balance in such plan as
of December 31, 1997 and who are employed by an Employer as of December 31, 1997
shall have such positive account balance transferred to and added to a Stock
Unit Account under this Plan.  Participant's account balances transferred to
this Plan pursuant to this Section 3.8 shall be governed by the terms and
conditions of this Plan, shall be referred to as the "Existing PHS Rollover
Amount" and shall be credited to such Participant's Stock Unit Account as of
December 31, 1997.


                                     ARTICLE III
                                    ADMINISTRATION

SECTION 3.1    COMMITTEE.

     A number of individuals shall be appointed by, and serve at the pleasure
of, the Compensation Committee as a committee to administer the Plan (the
"Committee"). The number of members comprising the Committee shall be determined
by the Compensation Committee, which may from time to time vary the number of
members. A member of the Committee may resign by delivering a written notice of
resignation to the Compensation Committee.  The Compensation Committee may
remove any member by delivering a certified copy of its resolution of removal to
such member.  Vacancies in the membership of the Committee shall be filled
promptly by the Compensation Committee.

SECTION 3.2    COMMITTEE ACTION.

     The Committee shall act at meetings by affirmative vote of a majority of
the members of the Committee. Any action permitted to be taken at a meeting may
be taken without a meeting if, prior to such action, a written consent to the
action is signed by all members of the Committee and such written consent is
filed with the minutes of the proceedings of the Committee. A member of the
Committee shall not vote or act upon any matter, which relates solely to himself
or herself as a Participant. The Chairman or


                                          7
<PAGE>

any other member or members of the Committee designated by the Chairman may
execute any certificate or other written direction on behalf of the Committee.

SECTION 3.3    POWERS AND DUTIES OF THE COMMITTEE.

     a.        The Committee, on behalf of the Participants and their
Beneficiaries, shall enforce the Plan in accordance with its terms, shall be the
"Plan Administrator" charged with the general administration of the Plan, and
shall have all discretionary authority and powers necessary to accomplish its
purposes, including, but not by way of limitation, the following:

               i.   To construe and interpret the terms and provisions of this
     Plan;

               ii.  To compute and certify to the amount and kind of benefits
     payable to Participants and their Beneficiaries;

               iii. To maintain all records that may be necessary for the
     administration of the Plan;

               iv.  To provide for the disclosure of all information and the
     filing or provision of all reports and statements to Participants,
     Beneficiaries or governmental agencies as shall be required by law;

               v.   To make and publish such rules for the regulation of this
     Plan, and procedures for the administration of this Plan, as are not
     inconsistent with the terms hereof; and

               vi.  To appoint a plan administrator or any other agent, and to
     delegate to them such powers and duties in connection with the
     administration of this Plan as the Committee may from time to time
     prescribe.

SECTION 3.4    CONSTRUCTION AND INTERPRETATION.

     The Committee shall have full discretion to construe and interpret the
terms and provisions of this Plan, which interpretation or construction shall be
final and binding on all parties, including but not limited to the Company and
any Participant or Beneficiary.  The Committee shall administer such terms and
provisions in a uniform and nondiscriminatory manner and in full accordance with
any and all laws applicable to the Plan.


                                          8
<PAGE>

SECTION 3.5    INFORMATION.

     To enable the Committee to perform its functions, the Employers shall
supply full and timely information to the Committee on all matters relating to
the Compensation of all Participants, their death or other cause of termination,
and such other pertinent facts as the Committee may require.

SECTION 3.6    COMPENSATION, EXPENSES AND INDEMNITY.

     a.        The members of the Committee shall serve without compensation for
their services hereunder.

     b.        The Committee is authorized at the expense of the Company to
employ such legal counsel as it may deem advisable to assist in the performance
of its duties hereunder. Expenses and fees in connection with the administration
of the Plan shall be paid by the Company.

     c.        To the extent permitted by applicable state law, the Company
shall indemnify and hold harmless the Committee and each member thereof, the
Board of Directors, Compensation Committee and any delegate of the Committee who
is an employee of the Company against any and all expenses, liabilities and
claims, including legal fees to defend against such liabilities and claims
arising out of their discharge in good faith of responsibilities under or
incident to this Plan, other than expenses and liabilities arising out of bad
faith or willful misconduct. This indemnity shall not preclude such further
indemnities as may be available under insurance purchased by the Company or
provided by the Company under any bylaw, agreement or otherwise, as such
indemnities are permitted under state law.

SECTION 3.7    QUARTERLY STATEMENTS.

     Under procedures established by the Committee, a Participant shall receive
a statement with respect to such Participant's Stock Unit Accounts on a
quarterly basis as of each March 31, June 30, September 30 and December 31.

SECTION 3.8    CLAIM PROCEDURES.

     a.        Claim.  A person who believes that he or she is being denied a
benefit to which he or she is entitled under this Plan (hereinafter referred to
as "Claimant") may file a written request for such benefit with the Plan
Administrator, setting forth his or her claim.

     b.        Claim Decision.  Upon receipt of a claim, the Plan Administrator
shall advise the Claimant that a reply will be forthcoming within 90 days and
shall, in fact, deliver such reply within such period. The Plan Administrator
may, however, extend the reply period for an additional 90 days for special
circumstances.  If the claim is


                                          9
<PAGE>

denied in whole or in part, the Plan Administrator shall inform the Claimant in
writing, using language calculated to be understood by the Claimant, setting
forth: (A) the specified reason or reasons for such denial; (B) the specific
reference to pertinent provisions of this Plan on which such denial is based;
(C) a description of any additional material or information necessary for the
Claimant to perfect his or her claim and an explanation why such material or
such information is necessary; (D) appropriate information as to the steps to be
taken if the Claimant wishes to submit the claim for review; and (E) the time
limits for requesting a review under subsection 3.9(c).

     c.        Request for Review.  Within 60 days after the receipt by the
Claimant of the written opinion described above, the Claimant may request in
writing that the Committee review the determination of the Plan Administrator.
The Claimant or his or her duly authorized representative may, but need not,
review the pertinent documents and submit issues and comments in writing for
consideration by the Committee. If the Claimant does not request a review within
such 60 day period, he or she shall be barred and estopped from challenging the
Plan Administrator's determination.

     d.        Review of Decision.  Within 60 days after the Committee's receipt
of a request for review, after considering all materials presented by the
Claimant, the Committee will inform the Participant in writing, in a manner
calculated to be understood by the Claimant, of its decision, setting forth the
specific reasons for the decision and containing specific references to the
pertinent provisions of this Agreement on which the decision is based. If
special circumstances require that the 60 day time period be extended, the
Committee will so notify the Claimant and will render the decision as soon as
possible, but no later than 120 days after receipt of the request for review.


                                      ARTICLE IV
                                    MISCELLANEOUS

SECTION 4.1    UNSECURED GENERAL CREDITOR.

     Participants and their Beneficiaries, heirs, successors, and assigns shall
have no legal or equitable rights, claims, or interest in any specific property
or assets of any Employer.  Any and all of the assets of each Employer shall be,
and remain, the general unpledged, unrestricted assets of such Employer.  Each
Employer's obligation under this Plan shall be merely that of an unfunded and
unsecured promise of such Employer to pay money in the future, and the rights of
the Participants and Beneficiaries shall be no greater than those of unsecured
general creditors. It is the intention of the Company that this Plan (and the
Trust described in Article VI) be unfunded for purposes of the Code and for
purposes of Title I of ERISA.


                                          10
<PAGE>

SECTION 4.2    RESTRICTION AGAINST ASSIGNMENT.

     The Employers shall pay all amounts payable hereunder only to the person or
persons designated by this Plan and not to any other person or corporation. No
part of a Participant's Account shall be liable for the debts, contracts, or
engagements of any Participant, his or her Beneficiary, or successors in
interest, nor shall a Participant's Account be subject to execution by levy,
attachment, or garnishment or by any other legal or equitable proceeding, nor
shall any such person have any right to alienate, anticipate, sell, transfer,
commute, pledge, encumber, or assign any benefits or payments hereunder in any
manner whatsoever. If any Participant, Beneficiary or successor in interest is
adjudicated bankrupt or purports to anticipate, alienate, sell, transfer,
commute, assign, pledge, encumber or charge any distribution or payment from the
Plan, voluntarily or involuntarily, the Committee, in its discretion, may cancel
such distribution or payment (or any part thereof) to or for the benefit of such
Participant, Beneficiary or successor in interest in such manner as the
Committee shall direct.

SECTION 4.3    CHANGE OF CONTROL.

     For purposes of this Plan, "Change of Control" means the occurrence of any
of the following:  (i) a business combination effectuated through the merger or
consolidation of the Company with or into another entity where the Company is
not the Surviving Organization; (ii) any business combination effectuated
through the merger or consolidation of the Company with or into another entity
where the Company is the Surviving Organization, and such business combination
occurred with an entity whose market capitalization prior to the transaction was
greater than 50 percent of the Company's market capitalization prior to the
transaction; (iii) the sale in a transaction or series of transactions of all or
substantially all of the Company's assets; (iv) any "person" or "group" (within
the meaning of Sections 13(d) and 14(d) of the Exchange Act) other than
UniHealth, a California non-profit public benefit corporation ("UniHealth"),
acquires beneficial ownership (within the meaning of Rule 13d-3 of the Exchange
Act), directly or indirectly, of 20 percent or more of the voting common stock
of the Company and the beneficial ownership of the voting common stock of the
Company owned by UniHealth at that date is less than or equal to the beneficial
ownership interest of voting securities attributable to such other person or
group; (v) a dissolution or liquidation of the Company; or (vi) the Company
ceases to be subject to the reporting requirements of the Exchange Act as a
result of a "going private transaction" (within the meaning of the Exchange
Act).  For purposes hereof, "Surviving Organization" shall mean any entity where
the majority of the members of such entity's board of directors are persons who
were members of the Company's board of directors prior to the merger,
consolidation or other business combination and the senior management of the
surviving entity includes all of the individuals who were the Company's
executive management (the Company's chief executive officer and those
individuals who report directly to the Company's chief executive officer) prior
to the merger, consolidation or other business combination and such individuals
are in at least


                                          11
<PAGE>

comparable positions with such entity.  The Committee may make such
determinations and interpretations and adopt such rules and conditions as it, in
its absolute discretion, deems appropriate in connection with a Change in
Control.  All such determinations and interpretations by the Committee shall be
conclusive.

SECTION 4.4    CHANGE IN COMPANY SHARES.

     If the outstanding shares of Class B Common Stock are hereafter changed
into or exchanged for a different number or kind of shares or other securities
of the Company, or of another company, by reason of reorganization, merger,
consolidation, recapitalization, reclassification, stock split, stock dividend
or combination of shares, or if the Company distributes a cash or non-cash
dividend to holders of Class B Common Stock or engages in another similar
transaction, the Compensation Committee shall make an appropriate and equitable
adjustment in the number and kind of units credited to the Stock Unit Account.
Any such adjustment made by the Compensation Committee shall be final and
binding upon the a Participant, the Company and all other interested persons.

SECTION 4.5    BENEFICIARY.

     For purposes of this Plan, "Beneficiary" or "Beneficiaries" mean the person
or persons, including a trustee, personal representative or other fiduciary,
last designated in writing by a Participant in accordance with procedures
established by the Committee to receive the benefits specified hereunder in the
event of the Participant's death.  No beneficiary designation shall become
effective until it is filed with the Committee.  If there is no such designation
or if there is no surviving designated Beneficiary, then the Participant's
surviving spouse shall be the Beneficiary.  If there is no surviving spouse to
receive any benefits payable in accordance with the preceding sentence, the
participant's estate shall be the Beneficiary.  In the event any amount is
payable under the Plan to a minor, payment shall not be made to the minor, but
instead be paid (a) to that person's living parent(s) to act as custodian, (b)
if that person's parents are then divorced, and one parent is the sole custodial
parent, to such custodial parent, or (c) if no parent of that person is then
living, to a custodian selected by the Committee to hold the funds for the minor
under the Uniform Transfers or Gifts to Minors Act in effect in the jurisdiction
in which the minor resides.  If no parent is living and the Committee decides
not to select another custodian to hold the funds for the minor, then payment
shall be made to the duly appointed and currently acting guardian of the estate
for the minor or, if no guardian of the estate for the minor is duly appointed
and currently acting within 60 days after the date the amount becomes payable,
payment shall be deposited with the court having jurisdiction over the estate of
the minor.

SECTION 4.6    WITHHOLDING.

     There shall be deducted from each payment made under the Plan or any other
compensation payable to the Participant (or Beneficiary) all taxes which are
required to


                                          12
<PAGE>

be withheld by the Company in respect to such payment or this Plan. The Company
shall have the right to reduce any payment (or compensation) by the amount of
cash sufficient to provide the amount of said taxes.

SECTION 4.7    AMENDMENT, MODIFICATION, SUSPENSION OR TERMINATION.

     The Compensation Committee may amend, modify, suspend or terminate this
Plan in whole or in part, except that no amendment, modification, suspension or
termination shall have any retroactive effect to reduce any amounts allocated to
a Participant's Stock Account.  In the event that this Plan is terminated, the
amounts allocated to a Participant's Stock Account shall be distributed to the
Participant or, in the event of his or her death, his or her Beneficiary in a
lump sum within 30 days following the date of termination.

SECTION 4.8    GOVERNING LAW.

     This Plan shall be construed, governed and administered in accordance with
the laws of the United States and, to the extent not preempted by such law, by
the laws of the State of California.

SECTION 4.9    RECEIPT OR RELEASE.

     Any payment to a Participant or the Participant's Beneficiary in accordance
with the provisions of the Plan shall to the extent thereof, be in full
satisfaction of all claims for benefits under this Plan against the Committee
and the Company. The Committee may require such Participant or Beneficiary, as a
condition precedent to such payment, to execute a receipt and release to such
effect.

SECTION 4.10   EFFECTIVE DATE.

     This Plan shall be effective as of December 18, 1997.

     IN WITNESS WHEREOF, this Plan is adopted as of December 18, 1997.

                              PACIFICARE HEALTH SYSTEMS, INC.


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