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                                                                   EXHIBIT 10.02


                      SENIOR EXECUTIVE EMPLOYMENT AGREEMENT

     This EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
November 1, 2001, by and between PACIFICARE HEALTH SYSTEMS, INC., a Delaware
corporation (the "Company"), with its principal place of business located at
3120 Lake Center Drive, Santa Ana, California 92704 and BARY G. BAILEY
("Executive").

                                    RECITALS

     WHEREAS, the Company desires to continue Executive's employment in the
capacity of Executive Vice President and Chief Strategic Officer.

     WHEREAS, the Company and Executive are entering into this Agreement to
establish new terms and conditions of the employment relationship.

     NOW, THEREFORE, in consideration of the following covenants, conditions and
promises contained herein, and other good and valuable consideration, the
Company and Executive hereby agree as follows:

1.   EMPLOYMENT

     1.1  Executive's General Duties. The Company employs Executive and
Executive serves the Company in the capacity of Executive Vice President and
Chief Strategic Officer, having such usual and customary duties and authority as
an officer of similar capacity in a corporation of comparable size, holdings,
and business as that of the Company.

     Executive shall do and perform all services, acts, or things necessary or
advisable to manage and conduct the business of the Company and shall preside
over such other areas of corporate activity as specified from time to time by
the Board of Directors of the Company. During the term of this Agreement,
Executive shall perform such additional or different duties, and accept the
election or appointment to such other offices or positions as are mutually
agreed upon by Executive and the Company.

    1.2  Devotion of Executive. During the term of this Agreement, Executive
shall devote his entire productive time, ability, and attention to the business
of the Company. Executive shall use Executive's best efforts, skills, and
abilities to promote the general welfare and interests of the Company and to
preserve, maintain, and foster the Company's business and business relationships
with all persons and entities associated therewith, including, without
limitation, employer groups, medical service providers, shareholders,
affiliates, officers, employees, and banks and other financial institutions. The
Company shall give Executive a reasonable opportunity to perform Executive's
duties and shall neither expect Executive to devote more time, nor assign more
duties or functions to Executive, than are customary and reasonable for a person
in Executive's position.

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2.   TERM AND TERMINATION

     2.1  Term. The initial term of Executive's employment under this Agreement
shall be 36 months, commencing on the effective date of this Agreement. The
Company may extend this Agreement for a successive term by giving Executive
written notice at least 60 days prior to the expiration of the term.
Notwithstanding the foregoing, if a Change-of-Control occurs, as defined in
Section 5.1(c) of this Agreement, then the term of the Agreement shall be
extended for a period of 24 months from the effective date of the
Change-of-Control. Except as provided by Section 2.2(f), if the Company offers
Executive a new employment agreement but Executive does not accept the new
employment agreement, then Executive's continued employment with the Company
will be without the benefit of a written employment agreement, in which case
Executive's entitlement to severance benefits on termination shall be governed
by then-existing Company policies and practices.

     2.2  Termination. This Agreement, and Executive's employment with the
Company, shall be terminated upon the occurrence of any one of the following
events:

          a.   The death of the Executive.

          b.   Executive becomes incapacitated or disabled, which incapacity or
     disability prevents Executive from fully performing his duties to the
     Company 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 Executive's incapacity, decide in their reasonable judgments, that such
     incapacity will be of such continued duration as to prevent Executive from
     resuming the rendition of services to the Company for at least an
     additional six-month period. For purposes of this Agreement, Executive
     shall be deemed permanently disabled, and this Agreement terminated upon
     the date Executive receives written notice from the Company that such
     determination has been made.

          c.   Executive habitually neglects his duties to the Company or
     engages in gross misconduct during the term of this Agreement. For the
     purposes of this Agreement, "gross misconduct" shall mean Executive's
     misappropriation of funds; securities fraud; insider trading; unauthorized
     possession of corporate property; the sale, distribution, possession or use
     of a controlled substance; or conviction of any criminal offense (whether
     or not such criminal offense is committed in connection with Executive's
     duties hereunder or in the course of his employment with the Company). In
     such event, Executive's termination shall be effective immediately upon
     receipt of written notice from the Company.

          d.   Either party hereto may terminate this Agreement, with or without
     cause, upon 45 days prior written notice to the other party. Except for the
     circumstances described in Subsections (a), (b), (c), (e) and (f) of this
     Section 2.2, Executive's termination shall be effective 45 days after
     receipt of such written notice.

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          e.   Upon the expiration of the term of this Agreement, the Company
     neither extends the Agreement pursuant to Section 2.1 nor offers Executive
     a new employment agreement.

          f.   Executive voluntarily terminates his employment, upon written
     notice to the Company, to be effective at the end of the term of this
     Agreement, after the Company offers Executive a new employment agreement
     that either establishes duties materially inconsistent with those described
     in Section 1.1 or reduces Executive's salary by more than 10 percent below
     the salary in effect at the end of the term of this Agreement.

3.   COMPENSATION DURING THE TERM OF THIS AGREEMENT

     3.1  Base Salary. As long as Executive satisfactorily performs all of his
obligations under this Agreement, the Company shall pay Executive an annual base
salary, payable in equal installments on the Company's regular payroll dates. As
of this date, Executive's annual base salary has been set at $550,000. On an
annual basis, the Company shall review Executive's salary, but shall be under no
obligation to increase Executive's salary. Executive authorizes the Company to
take such deductions and withholdings from his salary as are required by law,
directed by Executive, or as reasonably directed by the Company for its
employees, which deductions shall include, without limitation, withholding for
federal and state income taxes and social security.

     3.2  Benefits. Executive shall be entitled to fully participate in all of
the employee benefit plans and programs available to other high-level executives
of the Company, including, without limitation, health, dental, and life
insurance coverage for Executive and Executive's dependents, pension and profit
sharing programs, and vacation and sick leave benefits, the Amended and Restated
PacifiCare Health Systems, Inc. Savings and Profit-Sharing Plan, and the trust
agreement implemented pursuant thereto, adopted as of July 1999, the Company's
Statutory Restoration Plan and the Company's Deferred Compensation Plan. The
Company shall have the right to change, amend, modify, or terminate any existing
benefit plan or program, or to change any insurance company or modify any
insurance policy adopted incident to such existing benefit plan and program.

     3.3  Automobile Allowance. The Company shall provide Executive with an
$850.00 (eight hundred fifty dollar) per month automobile allowance. The Company
shall furnish Executive with a cellular telephone. Executive shall provide and
maintain automobile insurance for Executive's car including collision,
comprehensive liability, personal and property damage, and uninsured and
underinsured motorist coverage in amounts customarily obtained to cover such
contingencies in the State of California. Executive shall provide proof of such
coverage to the Company upon the Company's request.

     3.4  Reimbursement of Expenses. The Company shall pay for or reimburse
Executive for all reasonable travel, entertainment, and other business expenses
incurred or paid for by Executive in connection with the performance of his
services under this Agreement. The Company shall not be obligated to make any
such reimbursement unless Executive presents corresponding

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expense statements or vouchers and such other supporting information as the
Company may from time to time reasonably request. The Company reserves the right
to place subsequent limitations or restrictions on business expenses to be
incurred or reimbursed.

     3.5  Annual Incentive Plan. Executive shall be entitled to participate
fully in the Company's 1996 Management Incentive Compensation Plan, as amended,
or any replacement plan (the "MICP"), and as may be further amended, modified,
or terminated, from time to time, in accordance with the terms and conditions
set forth herein and therein.

     3.6  Stock Option Plans. Executive shall be entitled to participate in
the applicable Stock Option Plans for Officers and Key Employees of PacifiCare
Health Systems, Inc., as amended, and as may be further amended modified or
replaced, from time to time, in accordance with the terms and conditions set
forth herein and therein.

     3.7  Insurance. During the term of this Agreement, the Company shall
insure Executive under its general liability insurance for all conduct committed
in good faith while acting in the capacity of Executive Vice President and Chief
Strategic Officer of the Company or in any other capacity to which Executive may
be appointed or elected.

     3.8  Loan. Executive has received a loan from the Company in the amount
of $540,000 (the "Loan"). Interest on the full amount of the Loan has been
determined based on the Internal Revenue Service mandated rate. The entire
principal amount of the Loan and any accrued interest will be forgiven in its
entirety if Executive remains continuously employed with the Company through the
third anniversary of the commencement of Executive's employment with the
Company. If Executive terminates employment with the Company prior to the third
anniversary of the commencement of his employment, then except as otherwise
provided herein, Executive shall be responsible for repaying the Loan or a
portion thereof on the following basis:

          a.   If Executive's employment with the Company terminates prior to
     the first anniversary of the commencement of his employment, Executive will
     be required to repay the full amount of the Loan plus accrued interest at
     the applicable rate.

          b.   If Executive remains continuously employed through the first
     anniversary of the commencement of his employment, then one-third (1/3) of
     the principal amount of the Loan plus accrued interest thereon will be
     forgiven by the Company on that date. If Executive's employment with the
     Company terminates after the first anniversary, but prior to the second
     anniversary, Executive will be required to repay two-thirds (2/3) of the
     principal amount of the Loan plus accrued interest thereon at the
     applicable rate on the amount to be repaid.

          c.   If Executive remains continuously employed through the second
     anniversary of the commencement of his employment, then two-thirds (2/3) of
     the principal amount of the Loan plus accrued interest thereon will be
     forgiven by the Company on that date. If Executive's employment with the
     Company terminates after the second anniversary, but prior to the third
     anniversary, Executive will be required to repay one-third (1/3) of the

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     principal amount of the Loan plus accrued interest thereon at the
     applicable rate on the amount to be repaid.

          d.   If Executive remains continuously employed through the third
     anniversary of the commencement of his employment, then the entire
     principal amount of the Loan plus accrued interest thereon will be forgiven
     by the Company on that date.

          e.   Executive shall be responsible for any taxes incurred by him
     resulting from the forgiveness of any portion of the Loan or accrued
     interest.

4.   COMPENSATION FOLLOWING TERMINATION OF EMPLOYMENT PURSUANT TO SECTION 2.2

     4.1  Death. In the event that this Agreement is terminated by reason of
Executive's death, Executive's estate or legal representative shall be entitled
to receive the following:

          a.   Payment of benefits under the life insurance policy purchased by
the Company on Executive's behalf, if any;

          b.   Payments of benefits under the MICP set forth in Section 3.5 in
accordance with the terms of the MICP plan document;

          c.   Executive's legal representative shall be permitted to exercise
any vested and unexercised options granted under the 1996 Stock Option Plan and
any other existing stock option plans of the Company (collectively, the "Stock
Option Plans") in accordance with their terms for a period of one year following
Executive's death.

     4.2  Disability. In the event that Executive is terminated because of
incapacity or disability, the Company shall provide Executive with the
following:

          a.   Payment of benefits under the disability insurance policy
     maintained by the Company on Executive's behalf, if any;

          b.   Payment of benefits under the MICP set forth in Section 3.5 in
     accordance with the terms of the MICP plan document;

          c.   The right to exercise any vested and unexercised options under
     the Stock Option Plans in accordance with the terms stated therein;

          d.   Payment of the automobile allowance as provided under Section 3.3
     for a period of 18 months following the effective date of such termination.

     4.3  Neglect, Misconduct or Voluntary Termination. In the event this
Agreement is terminated because of Executive's habitual neglect or gross
misconduct pursuant to Section 2.2(c) or because of Executive's voluntary
termination (except for resignation pursuant to Section 2.2(f)), the

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Company shall be relieved from any and all further or future obligations to
compensate Executive; provided, however, that Executive shall be able to
exercise any vested and unexercised awards under the Stock Option Plans in
accordance with the terms set forth therein.

     4.4  Discharge by Company Pursuant to Section 2.2(d) or 2.2(e). In the
event that the Company terminates Executive pursuant to Section 2.2(d) or 2.2(e)
under circumstances other than a Change-of-Control (as defined herein) and for
any reason other than Executive's incapacity or disability or neglect/misconduct
as described in Sections 2.2(b) and 2.2(c), respectively, then Executive shall
be entitled to the following compensation:

          a.   An amount equal to two times Executive's then current annual
     salary under Section 3.1;

          b.   An amount equal to two times the average of the last two MICP
     bonuses paid to Executive. If Executive has been employed by the Company
     for more than one, but less than two years, then the MICP bonus severance
     payment shall equal two times the average of the MICP bonus paid to
     Executive for the prior year and the target for Executive for the current
     year. If Executive has been employed by the Company for less than one year,
     Executive will not receive any bonus severance payment. For purposes of
     this Section 4.4(b), the word "paid" shall include $0.00 for any year in
     which Executive was eligible for, but was not paid, an MICP bonus;

          c.   The right to exercise any vested and unexercised options under
     the Stock Option Plans in accordance with their terms within one year of
     the effective date of such termination;

          d.   Continuation of Executive's and his dependents' medical, dental
     and vision benefits for a period of 24 months following the effective date
     of such termination;

          e.   An amount equal to 24 months of Executive's automobile allowance;

          f.   The Company shall provide to Executive outplacement services to
     assist Executive in securing a position comparable to the one from which
     Executive was terminated. The Company shall be obligated to provide those
     outplacement services which are customarily provided by companies of
     similar size and holdings as those of the Company to executives with
     comparable responsibility and longevity as Executive and for reasonable
     cost as approved by the Company. The Company's provision of such
     outplacement services shall not limit, restrict, or reduce, in any manner,
     any and all other compensation to which Executive is entitled hereunder;

          g.   Executive shall receive, or have paid, the amounts of severance
     compensation provided in clauses (a), (b) and (e) above in equal
     installments over a period of 24 months. Payments will be made either in
     biweekly installments on the Company's regular paydays or as currently
     being paid to Executive;

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          h.   Notwithstanding the foregoing, in the event Executive engages in
     employment, whether as an employee, consultant or contractor with a
     competitor of the Company during the 24 month period in which Executive's
     salary continues pursuant to this Section 4.4, the severance compensation
     available to Executive under this Section 4.4 shall be reduced by the
     amount of any and all gross earnings Executive earns while engaged in
     employment with any such competitor or competitors. For the purposes of
     this Section 4.4, a "competitor of the Company" shall include, without
     limitation, managed care organizations, including a health maintenance
     organization, competitive medical plan, preferred provider organization,
     provider sponsored organization ("PSO"), or health or life insurance
     company which owns a managed care organization, plan or program. Executive
     agrees to provide immediate notice to Company upon receipt of any gross
     earnings received by Executive from a competitor of Company. Quarterly,
     Executive shall provide the Company a certificate certifying as to his/her
     employment status and if employed, the name and business of his/her current
     employer;

          i.   If Executive is rehired by Company, payments of severance
     compensation provided for in this Section 4.4 shall cease; and

          j.   If Executive dies while receiving the salary continuation benefit
     as provided in this Section 4.4, Executive's estate will receive a lump sum
     payment of the remaining salary continuation benefit.

     4.5  Resignation by Executive Pursuant to Section 2.2(f). In the event
that Executive resigns pursuant to Section 2.2(f), then Executive shall be
entitled to the compensation provided by Section 4.4 of this Agreement.

5.   COMPENSATION FOLLOWING TERMINATION OF EMPLOYMENT AS A RESULT OF A
     CHANGE-OF-CONTROL


     5.1  Termination of Employment or Resignation for Good Cause

          a.   Executive's Rights. In the event that, during the term of this
     Agreement, the Company undergoes a Change-of-Control, (as that term is
     defined below) and if within 24 months after the consummation of such
     change either (1) Executive is involuntarily terminated, except as provided
     in Section 5.1(b), or (2) Executive voluntarily terminates his employment
     for "good cause" as defined in Section 5.1(d), then Executive shall be
     entitled to the following compensation:

               1.   A lump sum payment consisting of: (i) an amount equal to
          three times Executive's then annual salary; (ii) an amount equal to
          three times the average of the last two MICP bonuses paid to
          Executive; (iii) a prorated bonus based on target opportunity for the
          year in which the Change-of-Control occurs; (iv) an amount equal to
          the equivalent of the cost of 36 months of COBRA benefits; and (v)

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          an amount equal to 36 months of Executive's automobile allowance. If
          Executive has been employed for more than one, but less than two
          years, then the amount attributable to the MICP bonus portion set
          forth in clause (ii) above shall equal three times the average of the
          MICP bonus paid to Executive for the prior year and the target for
          Executive for the current year. If Executive has been employed for
          less than one year, Executive shall receive an amount equal to three
          times target bonus for the current year. For purposes of this Section
          5.1(a)(1), the word "paid" shall include $0.00 for any year in which
          Executive was eligible for, but was not paid, an MICP bonus.

               2.   The right to exercise any and all unexercised stock options
          granted under the Stock Option Plans in accordance with their terms,
          as if all such unexercised stock options were fully vested, within one
          year of the effective date of such termination;

               3.   A payment to Executive to compensate for any excise penalty
          or other associated taxes resulting from severance payments exceeding
          the cap imposed by Internal Revenue Code Section 280(G);

               4.   The Company shall provide to Executive the outplacement
          services described in Section 4.4(f).

          b.   Limitation of Benefits. In the event that Executive is terminated
     within 24 months after a Change-of-Control of the Company, and such
     termination results from either Executive's death, incapacity or disability
     or habitual neglect or gross misconduct, then, notwithstanding anything in
     this Article 5 to the contrary, Executive shall receive only that
     compensation, if any, to which he is entitled to under Sections 4.1, 4.2
     and 4.3, respectively.

          c.   Change-of-Control. As used in this Article 5, the term
     "Change-of-Control" means and refers to:

               1.   The acquisition by any Person (as hereinafter defined) of
          Beneficial Ownership (as hereinafter defined) of 20% or more of either
          the then outstanding Stock (the "Outstanding Company Stock") or the
          combined voting power of the then outstanding voting securities of the
          Company entitled to vote generally in the election of directors (the
          "Outstanding Company Voting Securities"), provided that, for purposes
          of this subsection (1), the following acquisitions shall not
          constitute a Change of Control: (I) any acquisition by the Company,
          (II) any acquisition by any employee benefit plan (or related trust)
          sponsored or maintained by the Company or any Person that controls, is
          controlled by or is under common control with, the Company or (III)
          any acquisition by any Person pursuant to a transaction which complies
          with clauses (I), (II) and (III) of subsection (3) of this definition;
          or

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               2.   Individuals who, as of the Effective Date, constitute the
          Board (the "Incumbent Board") cease for any reason to constitute at
          least a majority of the Board, provided that, for purposes of this
          subsection (2), any individual who becomes a director subsequent to
          the Effective Date whose election, or nomination for election by the
          Company's shareholders, was approved by a vote of at least a majority
          of the directors then comprising the Incumbent Board shall be
          considered as though such individual were a member of the Incumbent
          Board, excluding, however, any such individual who initially assumes
          office as a result of an actual or threatened election contest with
          respect to the election or removal of directors or other actual or
          threatened solicitation of proxies or consents by or on behalf of a
          Person other than the Board; or

               3.   Consummation of a reorganization, merger or consolidation or
          sale or other disposition of all or substantially all of the assets of
          the Company or the acquisition of assets or stock of another
          corporation (a "Business Combination"), in each case, unless,
          following such Business Combination, (I) the Persons who had
          Beneficial Ownership, respectively, of the Outstanding Company Stock
          and Outstanding Company Voting Securities immediately prior to such
          Business Combination have Beneficial Ownership immediately following
          the consummation of such Business Combination, directly or indirectly,
          of more than 50% of, respectively, the then outstanding common shares
          and the combined voting power of the then outstanding voting
          securities entitled to vote generally in the election of directors, as
          the case may be, of the corporation resulting or surviving from such
          Business Combination (including, without limitation, a corporation
          which as a result of such transaction owns the Company or all or
          substantially all of the Company's assets either directly or through
          one or more subsidiaries) in substantially the same proportions as
          their ownership immediately prior to such Business Combination of the
          Outstanding Company Stock and Outstanding Company Voting Securities,
          as the case may be, (II) no Person (excluding any entity resulting
          from such Business Combination or any employee benefit plan (or
          related trust) of the Company or such entity resulting from such
          Business Combination) has Beneficially Ownership, directly or
          indirectly, of 20% or more of, respectively, the then outstanding
          common shares of the entity resulting from such Business Combination
          or the combined voting power of the then outstanding voting securities
          of such entity, except to the extent that such ownership existed in
          respect of the Company prior to such Business Combination and (III) at
          least a majority of the members of the board of directors or similar
          body of the entity resulting from such Business Combination were
          members of the Incumbent Board at the time of the execution of the
          initial agreement, or of the action of the Board of Directors,
          providing for such Business Combination; or

               4.   Approval by the shareholders of the Company of a complete
          liquidation or dissolution of the Company.

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          Notwithstanding the foregoing provisions of this definition, unless
     otherwise determined by the Board, no Change of Control shall be deemed to
     have occurred if (I) Executive is a member of a group that first announces
     a proposal which, if successful, would result in a Change of Control and
     which proposal (including any modifications thereof) is ultimately
     successful, or (II) Executive acquires a two percent (2%) or more equity
     interest in the entity which ultimately acquires the Company pursuant to
     the transaction described in clause (I), above.

          For purposes of this definition, "Person" means an individual,
     partnership, joint venture corporation, trust, unincorporated organization,
     government (or agency or political subdivision thereof), group (within the
     meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) or any other
     entity, and "Beneficial Ownership" means beneficial ownership within the
     meaning of Rule 13d-3 promulgated under the Exchange Act.

          d.   Good Cause. As used in this Agreement "good cause" for Executive
     to terminate his employment shall be deemed to exist if Executive
     voluntarily terminates employment within 24 months of a Change-of-Control
     for any of the following reasons:

               1.   Without Executive's express prior written consent, Executive
          is assigned duties materially inconsistent with Executive's position,
          duties, responsibilities, or status with the Company which
          substantially varies from that which existed immediately prior to such
          Change-of-Control;

               2.   Without Executive's express prior written consent, Executive
          experiences a change in his reporting level, titles, or business
          location (of more than 50 miles from Executive's current business
          location or residence whichever is closer to the new business
          location) which substantially varies from that which existed
          immediately prior to the Change-of-Control; except that if Executive
          is not located at the Company's corporate headquarters in California,
          a relocation to the Company's corporate headquarters in California
          shall not be deemed a substantial variation, unless Executive's
          reporting level or title is also substantially varied;

               3.   Without Executive's express prior written consent, Executive
          is removed from any position held immediately prior to the
          Change-of-Control, or if Executive fails to obtain reelection to any
          position held immediately prior to the Change-of-Control, which
          removal or failure to reelect is not directly related to Executive's
          incapacity or disability, habitual neglect, gross misconduct or death;

               4.   Without Executive's express prior written consent, Executive
          experiences a reduction in salary of more than 10 percent below that
          which existed immediately prior to the Change-of-Control;

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               5.   Without Executive's express prior written consent, Executive
          experiences an elimination or reduction of any employee benefit,
          business expense reimbursement or allotment, incentive bonus program,
          or any other manner or form of compensation available to Executive
          immediately prior to the Change-of-Control and such change is not
          otherwise applied to others in the Company with Executive's position
          or title;

               6.   The Company fails to obtain from any successor, before the
          succession takes place, a written commitment obligating the successor
          to perform this Agreement in accordance with all of its terms and
          conditions; or

               7.   The Company or any successor thereto purports to terminate
          Executive pursuant to Section 4.4 without first giving Executive prior
          written notice thereof that specifies the facts and circumstances, in
          reasonable detail, serving as the basis for Executive's termination.

     5.2  Resignation for Other Than Good Cause After a Change-of-Control. In
the event that the Company undergoes a Change-of-Control and Executive remains
with the Company for 12 months following the effective date of the
Change-of-Control, Executive will be given a 30-day "window period" in which to
elect to voluntarily terminate Executive's employment for reasons other than
good cause. Should Executive choose to terminate Executive's employment within
the 30-day "window period," then Executive shall be entitled to the following
compensation:

          a.   One-half the lump sum payment referred to in Section 5.1(a)(1).

          b.   The right to exercise all vested and unexercised stock options
     granted under the Stock Option Plans in accordance with their terms within
     one year of the effective date of such termination.

          c.   Outplacement services as defined in Section 4.4(f).

6.   CONFIDENTIALITY AND OWNERSHIP OF PROPRIETARY INFORMATION

     6.1  Confidential Information. Executive acknowledges that, during the
course of Executive's employment with the Company or with any subsidiary or
affiliate of the Company, Executive will have access to certain confidential
information in the form of know-how, trade secrets, or proprietary information
of the Company or its subsidiaries or affiliates ("Confidential Information")
and that such Confidential Information will be acquired in confidence and as a
fiduciary of the Company or its subsidiaries or affiliates. For the purposes of
this Agreement, Confidential Information shall include, without limitation,
member health data and medical records and any other protected healthcare
information, any and all cost and expense data, marketing and customer data,
sales manuals, underwriting guidelines, case management policies and procedures,
utilization review and quality assurance policies and procedures, provider
manuals, individual and group subscriber information (including, the name,
address, telephone

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number, or contact person for an individual or group subscriber), subscriber
group manuals, processes, designs, devices, compilations of information,
operational techniques operating manuals, symbols, service marks, logos,
customer and vendor lists (including, without limitation, lists of subscribers,
subscriber groups, clients, brokers, and providers contracting with the Company
or any subsidiary or affiliate of the Company), business information, marketing
programs, plans, and strategies, research and development plans, contracts and
licenses, licensing techniques and practices, advertising and promotional
materials, financial information and strategies, computer software and other
computer-related materials, copyrightable material, security controls, including
computer system passwords, and other legally protected information owned by or
used in the respective businesses of the Company or its subsidiaries or
affiliates which are confidential or proprietary in nature and may include
confidential or proprietary information received from third parties. In addition
to the foregoing, Confidential Information also includes any information which
is not generally known to the public, or within the market or trade in which the
Company competes, and the physical embodiments of such information in any
tangible form, whether written or machine-readable in nature, or any information
which is marked or designated as "Confidential" or "Proprietary."

     6.2  Ownership of Inventions. Executive agrees to assign and does hereby
assign to the Company any and all ideas, designs, know-how, programs,
improvements, inventions, discoveries and literary creations (collectively
referred to as "Inventions") which Executive alone or with others may conceive
or make, and which (a) are made wholly or partially with the Company's assets or
confidential or trade secret information; or (b) are developed wholly or
partially on the Company's time; or (c) relate at the time of conception or
reduction to practice to the Company's business, including actual or
demonstrably anticipated research or development of the Company; or (d) result
from Executive's work for the Company. Such Inventions are and shall be the
property of the Company and shall be deemed to be part of the Company's
business, whether or not any applications for patents, trademarks or copyrights
are filed thereon. Further, all such Inventions shall constitute Confidential
Information. Executive shall not claim to own any Inventions relating to the
business of the Company. Executive agrees that, upon request of the Company,
Executive shall execute any and all papers and do all other lawful acts that may
be required by the Company in order to make applications for Letters Patent, of
the United States and of any and all other countries, on such Inventions, or
that may be required to vest ownership of such applications, patents and
copyrights in the Company, or that may be required to prosecute or obtain such
patents, or to maintain, preserve or enforce the rights of the Company in such
Inventions, patents and copyrights. Except as otherwise prohibited by law
(including but not limited to California Labor Code section 2870), and except
for Inventions made prior to commencement of Executive's employment with the
Company, in addition to the above assignment of Inventions to the Company,
without further consideration, Executive hereby fully, forever, and irrevocably
assigns, transfers, and conveys to the Company: (i) all patents, patent
applications, copyrights, mask works, trade secrets, and other intellectual
property rights in any Invention; and (ii) any and all "Moral Rights" (as
defined below) which Executive may have in, to, or with respect to any
Invention. For purposes of this Agreement, "Moral Rights" shall mean any rights
to claim authorship of an Invention, to object to or prevent the modification of
any Invention, or to withdraw from circulation or control the publication or
distribution of any

                                      -12-
<PAGE>

Invention, and any similar right, existing under judicial or statutory law of
any country in the world, or under any treaty, regardless of whether or not such
right is denominated or generally referred to as a "moral right." Executive will
promptly disclose any Inventions to the Company whether developed or created
alone or jointly with others.

     6.3  Confidentiality Covenant. Executive acknowledges and agrees that
maintaining the confidentiality of all of the Confidential Information is
integral to the value of the Company and is vital to the successful operations
of the Company and its subsidiaries and affiliates. In view of the foregoing,
Executive agrees to maintain the confidentiality of all Confidential Information
and to not disclose, divulge, exploit, or use, in any manner whatsoever, the
Confidential Information for Executive's own benefit or the benefit of another
person. Executive will additionally take all reasonable precautions to prevent
the inadvertent or accidental exposure of the Confidential Information.
Executive shall not remove any Confidential Information from the Company's
premises or make copies of any of such information except for the benefit of the
Company and in furtherance of Executive's duties as an employee of the Company.
Upon Executive's termination of employment with the Company, Executive shall not
remove from the Company's premises any materials containing any Confidential
Information, and will promptly return to the Company any material which contain
Confidential Information which are in Executive's possession or control.

     6.4  No Solicitation. Executive acknowledges and agrees that Executive will
not solicit or participate in or assist in any way in the solicitation of any
employees of Company. For purposes of this provision, "solicitation" means
directly or indirectly influencing or attempting to influence employees of
Company to become employed with any person, partnership, firm, corporation or
other entity.

     6.5  Equitable Relief. Executive acknowledges and agrees that it would be
difficult to measure the damage to the Company (or any subsidiary or affiliate,
as the case may be) from any breach of Executive's obligations under this
Article 6, that injury to the Company (or to any subsidiary or affiliate, as the
case may be) from any such breach would be impossible to calculate, and that
money damages would therefore be an inadequate remedy for any such breach.
Therefore, Executive acknowledges and agrees that the Company, in addition to
any of its other rights or remedies, shall be entitled to seek injunctive or
other equitable relief without bond or other security in the event of an actual
or threatened breach of this Agreement. The obligations of Executive and the
rights and remedies of the Company under this Agreement are cumulative and in
addition to, and not in lieu of, any obligations, rights, or remedies created by
applicable patent, copyright, or other laws, including the statutory and common
laws governing unfair competition, misappropriation or theft of trade secrets,
proprietary rights, or confidential information generally.

     6.6  Survival of Obligations. Executive's obligations under this Article 6
shall survive the termination of Executive's employment regardless of the manner
of such termination and shall be binding upon Executive's heirs, executors,
administrators and legal representatives.

                                      -13-
<PAGE>

7.   NOTICES

          All notices or other communications required or permitted to be made
     hereunder shall be given in writing and sent by either personal delivery,
     overnight delivery, or United States registered or certified mail, return
     receipt requested, all of which shall be properly addressed with postal or
     delivery charges prepaid, to the parties at their respective addresses set
     forth below, or to such other address as either party may designate to the
     other in accordance with this Article 7:

     If to the Company:   PacifiCare Health Systems, Inc.
                          3120 Lake Center Drive
                          Santa Ana, California 92704
                          Attn: President and
                          Chief Executive Officer

     If to Executive:     Bary G. Bailey
                          P.O. Box 7217
                          Rancho Santa Fe, CA 92067

All notices sent by personal delivery shall be deemed given when actually
received. All notices sent by overnight delivery shall be deemed received on the
next business day. All other notices sent via United States mail shall be deemed
received no later than two business days after mailing. Any notice given by any
method not expressly authorized herein, shall nevertheless be effective if
actually received, and shall be deemed given upon actual receipt.

8.   GENERAL PROVISIONS

     8.1  Severance Agreement. Any payments of compensation made pursuant to
Articles 4 and 5 are contingent on Executive executing the Company's standard
severance agreement, including a general release of the Company, its owners,
partners, stockholders, directors, officers, employees, independent contractors,
agents, attorneys, representatives, predecessors, successors and assigns,
parents, subsidiaries, affiliated entities and related entities.

     8.2  Assignability. This Agreement shall inure to the benefit of, and shall
be binding upon the heirs, executors, administrators, successors, and legal
representatives of Executive and shall inure to the benefit of, and be binding
upon the Company and its successors and assigns. Executive shall not assign,
delegate, subdelegate, transfer, pledge, encumber, hypothecate, or otherwise
dispose of this Agreement, or any rights, obligations, or duties hereunder, and
any such attempted delegation or disposition shall be null and void and without
any force or effect; provided, however, that nothing contained herein shall
prevent Executive from designating beneficiaries for insurance, death or
retirement benefits.

     8.3  Entire Agreement. This Agreement is a fully integrated document and
contains any and all promises, covenants, and agreements between the parties
hereto with respect to Executive's

                                      -14-
<PAGE>

employment. This Agreement supersedes any and all other, prior or
contemporaneous, discussions, negotiations, representations, warranties,
covenants, conditions, and agreements, whether written or oral, between the
parties hereto. Except as expressed herein, the parties have not exchanged any
other representations, warranties, inducements, promises, or agreements
respecting Executive's employment with the Company.

     8.4  Severability. In the event any one or more of the provisions of this
Agreement shall be rendered by a court of competent jurisdiction to be invalid,
illegal, or unenforceable, in any respect, such invalidity, illegality, or
unenforceability shall not affect or impair the remainder of this Agreement
which shall remain in full force and effect and enforced accordingly, unless a
party demonstrates by a preponderance of the evidence that the invalidated
provision was an essential economic term of this Agreement.

     8.5  Amendment. This Agreement shall not be changed, amended, or modified,
nor shall any performance or condition hereunder be waived, in whole or in part,
except by written instrument signed by the party against whom enforcement or
waiver is sought. The waiver of any breach of any term or condition of this
Agreement shall not be deemed to constitute the waiver of any other or
subsequent breach of the same or any other term or condition of this Agreement.

     8.6  Governing Law. This Agreement shall be governed by, enforced under,
and construed in accordance with the laws of the State of California.

     8.7  Membership on Boards. Executive, with the permission and knowledge of
the Company's Chief Executive Officer, may serve on the Board of Directors of
other companies and institutions during the course of his Agreement with the
Company, as long as such service does not interrupt Executive in the performance
of his duties as the full-time Executive Vice President and Chief Strategic
Officer of the Company or other then-current position with the Company.

                                      -15-
<PAGE>

          IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
     of the date first written above.


The Company:                            PACIFICARE HEALTH SYSTEMS, INC.,
                                        a Delaware corporation

                                        By:
                                            ------------------------------------
                                               Howard G. Phanstiel
                                               President and
                                               Chief Executive Officer


Executive:                              ----------------------------------------
                                               Bary G. Bailey

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