Document:

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THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN FORM AND
SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD
PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT.

                               GENERAL MAGIC, INC.

                        WARRANT TO PURCHASE COMMON STOCK

Warrant No.:  H-__                                    Number of Shares: ________
Date of Issuance:  _____________

     General Magic, Inc., a Delaware corporation (the "COMPANY"), hereby
certifies that, for Ten United States Dollars ($10.00) and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, ________________, the registered holder hereof or its permitted
assigns, is entitled, subject to the terms set forth below, to purchase from the
Company upon surrender of this Warrant, at any time or times on or after the
date hereof, but not after 11:59 P.M. Eastern Time on the Expiration Date (as
defined herein) a number of fully paid nonassessable shares of Common Stock (as
defined in Section 1(b)) of the Company equal to the product of (i) 0.50,
multiplied by (ii) the number of Preferred Shares purchased by the initial
holder of this Warrant on the Closing Date (as defined in the Securities
Purchase Agreement (as defined below)), multiplied by (iii) the quotient of (A)
$10,000 divided by (B) the Warrant Exercise Price (as defined in Section 1(b)
below) in effect on the date which is 11 trading days after the date the Company
files a Form 8-K pursuant to Section 4(i) of the Purchase Agreement (as defined
below) (the "WARRANT SHARES") at a purchase price per share equal to the Warrant
Exercise Price then in effect; provided, however, that in no event shall the
holder be entitled to exercise this Warrant for a number of Warrant Shares in
excess of that number of Warrant Shares which, upon giving effect to such
exercise, would cause the aggregate number of shares of Common Stock
beneficially owned by the holder and its affiliates to exceed 4.99% of the
outstanding shares of the Common Stock following such exercise. For purposes of
the foregoing proviso, the aggregate number of shares of Common Stock
beneficially owned by the holder and its affiliates shall include the number of
shares of Common Stock issuable upon exercise of this Warrant with respect to
which the determination of such proviso is being made, but shall exclude shares
of Common Stock which would be issuable upon (i) exercise of the

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remaining, unexercised Warrants beneficially owned by the holder and its
affiliates and (ii) exercise or conversion of the unexercised or unconverted
portion of any other securities of the Company beneficially owned by the holder
and its affiliates (including, without limitation, any convertible preferred
stock) subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially. Except as set forth in the preceding
sentence, for purposes of this paragraph, beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended. For purposes of this paragraph, in determining the number of
outstanding shares Common Stock a holder may rely on the number of outstanding
shares of Common Stock as reflected in (1) the Company's most recent Form 10-Q
or Form 10-K, as the case may be, (2) a more recent public announcement by the
Company or (3) any other notice by the Company or its transfer agent setting
forth the number of shares of Common Stock outstanding. For any reason at any
time, upon the written or oral request of any holder, the Company shall within
one (1) Business Day confirm orally and in writing to any such holder the number
of shares Common Stock outstanding as of the date of such request. In any case,
the number of outstanding shares of Common Stock shall be determined after
giving effect to conversions of Preferred Stock and exercises of Warrants (as
defined below) by such holder since the date as of which such number of
outstanding shares of Common Stock was reported.

     Section 1.

          (a)  Securities Purchase Agreement. This Warrant is one of the
warrants (the "PREFERRED SHARE WARRANTS") issued pursuant to Section 1 of that
certain Securities Purchase Agreement dated as of March 29, 2000, among the
Company and the Buyers referred to therein (the "PURCHASE AGREEMENT").

          (b)  Definitions. The following words and terms as used in this
Warrant shall have the following meanings:

               "APPROVED STOCK PLAN" shall mean any plan which has been approved
by the Board of Directors of the Company, pursuant to which the Company's
securities may be issued to any employee, officer, director or consultant for
services provided to the Company.

               "CERTIFICATE OF DESIGNATIONS" means the Certificate of
Designations, Preferences and Rights of the Preferred Shares.

               "CLOSING BID PRICE" means, for any security as of any date, the
last closing bid price for such security on the Nasdaq National Market
("NASDAQ") as reported by Bloomberg Financial Markets ("BLOOMBERG"), or, if
NASDAQ is not the principal trading market for such security, the last closing
bid price of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price of such security in the
over-the-counter

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market on the electronic bulletin board for such security as reported by
Bloomberg, or, if no closing bid price is reported for such security by
Bloomberg, the last closing trade price for such security as reported by
Bloomberg, or, if no last closing trade price is reported for such security by
Bloomberg, the average of the bid prices of any market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the
Closing Bid Price cannot be calculated for such security on such date on any of
the foregoing bases, the Closing Bid Price of such security on such date shall
be the fair market value as mutually determined by the Company and the holders
of the Preferred Shares. If the Company and the holders of the Preferred Shares
are unable to agree upon the fair market value of the Common Stock, then such
dispute shall be resolved pursuant to Section 2(a) of this Warrant with the term
"Closing Bid Price" being substituted for the term "Market Price." All such
determinations shall be appropriately adjusted for any stock dividend, stock
split or other similar transaction during such period.

               "COMMON STOCK" means (i) the Company's common stock, par value
$.001 per share, and (ii) any capital stock into which such Common Stock shall
have been changed or any capital stock resulting from a reclassification of such
Common Stock.

               "COMMON STOCK DEEMED OUTSTANDING" means, at any given time, the
number of shares of Common Stock actually outstanding at such time, plus the
number of shares of Common Stock deemed to be outstanding pursuant to Sections
8(b)(i) and 8(b)(ii) hereof regardless of whether the Options (as defined in
Section 8(b)(i)) or Convertible Securities (as defined in Section 8(b)(i)) are
actually exercisable or convertible at such time.

               "EXPIRATION DATE" means the date three (3) years from the
original date of this Warrant or, if such date falls on a Saturday, Sunday or
other day on which banks are required or authorized to be closed in the City of
New York or the State of New York (a "Holiday"), the next preceding date that is
not a Holiday.

               "MARKET PRICE" means, with respect to any security for any date,
the average of the Closing Bid Prices (as defined below) for such security
during the five consecutive trading days immediately preceding such date.

               "OTHER SECURITIES" means (i) those warrants, options or
convertible securities of the Company issued prior to, and outstanding on, the
date of issuance of this Warrant, (ii) the Preferred Shares (as defined below)
and (iii) the shares of Common Stock issued upon conversion of the Preferred
Shares.

               "PERSON" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.

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               "PREFERRED SHARES" means the shares of the Company's Series H
Convertible Preferred Stock issued pursuant to the Purchase Agreement.

               "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement dated March 29, 2000 among the Company and the Buyers named therein
entered into in connection with the Purchase Agreement.

               "SECURITIES ACT" means the Securities Act of 1933, as amended.

               "WARRANT" means this Warrant and all Warrants issued in exchange,
transfer or replacement of any thereof.

               "WARRANT EXERCISE PRICE" shall be equal to the greater of (i) 90%
of the average of the Closing Bid Prices of the Common Stock for the ten (10)
consecutive trading days beginning on and including the first trading day
following the date on which the Company files a Form 8-K with the Securities and
Exchange Commission pursuant to Section 4(i) of the Purchase Agreement and (ii)
$5.00 (subject to adjustment for stock splits, stock dividends, stock
combinations and other similar transactions), subject in each case to adjustment
as hereinafter provided.

          (c)  Other Definitional Provisions.

               (i)  Except as otherwise specified herein, all references herein
(A) to the Company shall be deemed to include the Company's successors and (B)
to any applicable law defined or referred to herein, shall be deemed references
to such applicable law as the same may have been or may be amended or
supplemented from time to time.

               (ii) When used in this Warrant, the words "HEREIN," "HEREOF," and
"HEREUNDER," and words of similar import, shall refer to this Warrant as a whole
and not to any provision of this Warrant, and the words "SECTION," "SCHEDULE,"
and "EXHIBIT" shall refer to Sections of, and Schedules and Exhibits to, this
Warrant unless otherwise specified.

               (iii) Whenever the context so requires, the neuter gender
includes the masculine or feminine, and the singular number includes the plural,
and vice versa.

     Section 2. Exercise of Warrant.

          (a)  Subject to the terms and conditions hereof, this Warrant may be
exercised by the holder hereof then registered on the books of the Company, in
whole or in part, at any time during normal business hours on any business day
on or after the opening of business on the date hereof and prior to 11:59 P.M.
Eastern Time on the Expiration Date by (i) delivery of a written notice, in the
form of the subscription notice attached as Exhibit A hereto (the "SUBSCRIPTION

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NOTICE"), of such holder's election to exercise this Warrant, which notice shall
specify the number of Warrant Shares to be purchased, (ii) payment to the
Company of an amount equal to the Warrant Exercise Price multiplied by the
number of Warrant Shares as to which the Warrant is being exercised (the
"AGGREGATE EXERCISE PRICE") in cash or by check or wire transfer of immediately
available funds, and (iii) the surrender of this Warrant, at the principal
office of the Company; provided, that if such Warrant Shares are to be issued in
any name other than that of the registered holder of this Warrant, such issuance
shall be deemed a transfer and the provisions of Section 7 shall be applicable.
In the event of any exercise of the rights represented by this Warrant in
compliance with this Section 2(a), a certificate or certificates for the Warrant
Shares so purchased, in such denominations as may be requested by the holder
hereof and registered in the name of, or as directed by, the holder, shall be
delivered at the Company's expense to, or as directed by, such holder as soon as
practicable after such rights shall have been so exercised, and in any event no
later than three business days after such exercise. In the case of a dispute as
to the determination of the Warrant Exercise Price of a security or the
arithmetic calculation of the Warrant Shares, the Company shall promptly issue
to the holder the number of shares of Common Stock that is not disputed and
shall submit the disputed determinations or arithmetic calculations to the
holder via facsimile within one (1) business day of receipt of the holder's
subscription notice. If the holder and the Company are unable to agree upon the
determination of the Warrant Exercise Price or arithmetic calculation of the
Warrant Shares within one (1) business day of such disputed determination or
arithmetic calculation being submitted to the holder, then the Company shall
immediately submit via facsimile (i) the disputed determination of the Warrant
Exercise Price to an independent, reputable investment banking firm or (ii) the
disputed arithmetic calculation of the Warrant Shares to its independent,
outside accountant. The Company shall cause the investment banking firm or the
accountant, as the case may be, to perform the determinations or calculations
and notify the Company and the holder of the results no later than two (2)
Business Days from the time it receives the disputed determinations or
calculations. Such investment banking firm's or accountant's determination or
calculation, as the case may be, shall be deemed conclusive absent manifest
error.

          (b)  Unless the rights represented by this Warrant shall have expired
or shall have been fully exercised, the Company shall, as soon as practicable
and in no event later than five (5) business days after any exercise and at its
own expense, issue a new Warrant identical in all respects to the Warrant
exercised except (i) it shall represent rights to purchase the number of Warrant
Shares purchasable immediately prior to such exercise under the Warrant
exercised, less the number of Warrant Shares with respect to which such Warrant
is exercised, and (ii) the holder thereof shall be deemed for all corporate
purposes to have become the holder of record of such Warrant Shares immediately
prior to the close of business on the date on which the Warrant is surrendered
and payment of the amount due in respect of such exercise and any applicable
taxes is made, irrespective of the date of delivery of certificates evidencing
such Warrant Shares, except that, if the date of such surrender and payment is a
date when the stock transfer books of the Company are properly closed, such
person shall be deemed to have become the holder of

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such Warrant Shares at the opening of business on the next succeeding date on
which the stock transfer books are open.

          (c)  No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but rather the number of shares of Common Stock issued
upon exercise of this Warrant shall be rounded down to the nearest whole number.

          (d)  If the Company shall fail for any reason or for no reason to
issue to the holder on a timely basis as described in this Section 2, a
certificate for the number of shares of Common Stock to which the holder is
entitled upon the holder's exercise of this Warrant or a new Warrant for the
number of shares of Common Stock to which such holder is entitled pursuant to
Section 2(b) hereof, the Company, in addition to any other remedies under this
Warrant or the Purchase Agreement or otherwise available to such holder,
including any indemnification under Section 8 of the Purchase Agreement, shall
pay as additional damages in cash to such holder on each date after the fifth
business day following receipt by the Company of the exercise notice that such
exercise is not timely effected in an amount equal to 0.5% of the product of (A)
the sum of the number of shares of Common Stock not issued to the holder on a
timely basis and to which the holder is entitled and, in the event the Company
has failed to timely deliver a new Warrant, the number of shares represented by
the portion of this Warrant which is not being exercised, as the case may be,
and (B) the average of the Closing Bid Prices for the three (3) consecutive
trading days immediately preceding the last possible date which the Company
could have issued such Common Stock to the holder without violating this Section
2.

          (e)  Notwithstanding anything contained herein to the contrary, the
holder of this Warrant may, at its election exercised in its sole discretion,
exercise this Warrant in whole or in part and, in lieu of making the cash
payment otherwise contemplated to be made to the Company upon such exercise in
payment of the Aggregate Exercise Price, elect instead to receive upon such
exercise the "Net Number" of shares of Common Stock determined according to the
following formula:

          Net Number = (A x B) - (A x C)
                       -----------------
                               B

          For purposes of the foregoing formula:

               A =  the total number shares with respect to which this Warrant
                    is then being exercised.

               B =  the last reported sale price (as reported by Bloomberg) of
                    the Common Stock on the date immediately preceding the date
                    of the Subscription Notice.

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               C =  the Warrant Exercise Price then in effect at the time of
                    such exercise.

     Section 3. Covenants as to Common Stock. The Company hereby covenants and
agrees as follows:

          (a)  This Warrant is, and any Warrants issued in substitution for or
replacement of this Warrant will upon issuance be, duly authorized and validly
issued.

          (b)  All Warrant Shares which may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be validly issued, fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issue thereof.

          (c)  During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized and
reserved at least 100% of the number of shares of Common Stock needed to provide
for the exercise of the rights then represented by this Warrant and the par
value of said shares will at all times be less than or equal to the applicable
Warrant Exercise Price.

          (d)  The Company shall promptly secure the listing of the shares of
Common Stock issuable upon exercise of this Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance upon
exercise of this Warrant) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all shares of Common Stock from
time to time issuable upon the exercise of this Warrant; and the Company shall
so list on each national securities exchange or automated quotation system, as
the case may be, and shall maintain such listing of, any other shares of capital
stock of the Company issuable upon the exercise of this Warrant if and so long
as any shares of the same class shall be listed on such national securities
exchange or automated quotation system.

          (e)  The Company will not, by amendment of its charter or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed by it
hereunder, but will at all times in good faith assist in the carrying out of all
the provisions of this Warrant and in the taking of all such action as may
reasonably be requested by the holder of this Warrant in order to protect the
exercise privilege of the holder of this Warrant against dilution or other
impairment, consistent with the tenor and purpose of this Warrant. No impairment
of the designations, preferences and rights of the Preferred Shares contained in
the Certificate of Designations or any waiver thereof which has an adverse
effect on the rights granted hereunder shall be given effect until the Company
has taken appropriate action (satisfactory to the holders of Preferred Share
Warrants representing a majority of the shares of Common Stock issuable upon the
exercise of such Preferred Share Warrants then

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outstanding) to avoid such adverse effect with respect to this Warrant. Without
limiting the generality of the foregoing, the Company (i) will not increase the
par value of any shares of Common Stock receivable upon the exercise of this
Warrant above the Warrant Exercise Price then in effect, and (ii) will take all
such actions as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock
upon the exercise of this Warrant.

          (f)  This Warrant will be binding upon any entity succeeding to the
Company by merger, consolidation or acquisition of all or substantially all of
the Company's assets.

     Section 4. Taxes. The Company shall pay any and all taxes which may be
imposed upon it, other than income and franchise taxes of the holder of this
Warrant, with respect to the issuance and delivery of Warrant Shares upon
exercise of this Warrant.

     Section 5. Warrant Holder Not Deemed a Stockholder. Except as otherwise
specifically provided herein, no holder, as such, of this Warrant shall be
entitled to vote or receive dividends or be deemed the holder of shares of the
Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings, receive dividends or subscription rights, or otherwise, prior to the
issuance to the holder of this Warrant of the Warrant Shares which he or she is
then entitled to receive upon the due exercise of this Warrant. In addition,
nothing contained in this Warrant shall be construed as imposing any liabilities
on such holder to purchase any securities or as a stockholder of the Company,
whether such liabilities are asserted by the Company or by creditors of the
Company. Notwithstanding this Section 5, the Company will provide the holder of
this Warrant with copies of the same notices and other information given to the
stockholders of the Company generally, contemporaneously with the giving thereof
to the stockholders.

     Section 6. Representations of Holder. The holder of this Warrant, by the
acceptance hereof, represents that it is acquiring this Warrant and the Warrant
Shares for its own account for investment and not with a view to, or for sale in
connection with, any distribution hereof or of any of the shares of Common Stock
or other securities issuable upon the exercise thereof, and not with any present
intention of distributing any of the same. The holder of this Warrant further
represents, by acceptance hereof, that, as of this date, such holder is an
"ACCREDITED INVESTOR" as such term is defined in Rule 501(a) of Regulation D
promulgated by the Securities and Exchange Commission under the Securities Act
(an "ACCREDITED INVESTOR"). Upon exercise of this Warrant, the holder shall, if
requested by the Company, confirm in writing, in a form satisfactory to the
Company, that the Warrant Shares so purchased are being acquired solely for the
holder's own account and not as a nominee for any other party and not with a
view toward distribution or resale other than pursuant to an effective
registration statement or an exemption under the

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Securities Act and that such holder is an Accredited Investor. Notwithstanding
the foregoing, by making the representations herein, the holder does not agree
to hold the Warrant or the Warrant Shares for any minimum or other specified
term and reserves the right to dispose of the Warrant and the Warrant Shares at
any time in accordance with or pursuant to a registration statement or an
exemption under the Securities Act. If such holder cannot make such
representations because they would be factually incorrect, it shall be a
condition to such holder's exercise of the Warrant that the Company receive such
other representations as the Company considers reasonably necessary to assure
the Company that the issuance of its securities upon exercise of the Warrant
shall not violate any United States or state securities laws.

     Section 7. Ownership and Transfer.

          (a)  The Company shall maintain at its principal executive offices (or
such other office or agency of the Company as it may designate by notice to the
holder hereof), a register for this Warrant, in which the Company shall record
the name and address of the person in whose name this Warrant has been issued,
as well as the name and address of each transferee. The Company may treat the
person in whose name any Warrant is registered on the register as the owner and
holder thereof for all purposes, notwithstanding any notice to the contrary, but
in all events recognizing any transfers made in accordance with the terms of
this Warrant.

          (b)  This Warrant and the rights granted to the holder hereof are
transferable to other holders of Preferred Stock Warrants or affiliates or
associates of the holder hereof, without the written consent of the Company, and
to other Persons, with the consent of the Company, which consent shall not be
unreasonably withheld, in whole or in part, upon surrender of this Warrant,
together with a properly executed warrant power in the form of Exhibit B
attached hereto; provided, however, that any transfer or assignment shall be
subject to the conditions set forth in Section 7(c) below, and such transferee
shall confirm in writing the representations set forth in Section 6 and shall
agree to be bound by the terms of this Warrant.

          (c)  The holder of this Warrant understands that this Warrant has not
been, and is not expected to be, registered under the Securities Act or any
state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (a) subsequently registered thereunder, or (b) such holder
shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company, to the effect that the
securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration; provided that (i)
any sale of such securities made in reliance on Rule 144 promulgated under the
Securities Act may be made only in accordance with the terms of said Rule and
further, if said Rule is not applicable, any resale of such securities under
circumstances in which the seller (or the person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the Securities
Act) may require compliance with some other exemption under the Securities Act
or the rules and regulations of the Securities and Exchange Commission
thereunder; and (ii) neither the Company nor any other person is under

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any obligation to register the Preferred Share Warrants under the Securities Act
or any state securities laws or to comply with the terms and conditions of any
exemption thereunder.

          (d)  The Company is obligated to register the Warrant Shares for
resale under the Securities Act pursuant to the Registration Rights Agreement
and the initial holder of this Warrant (and certain assignees thereof) is
entitled to the registration rights in respect of the Warrant Shares as set
forth in the Registration Rights Agreement.

     Section 8. Adjustment of Warrant Exercise Price and Number of Shares. In
order to prevent dilution of the rights granted under this Warrant, the Warrant
Exercise Price and the number of shares of Common Stock issuable upon exercise
of this Warrant shall be adjusted from time to time as follows:

          (a)  Adjustment of Warrant Exercise Price and Number of Shares upon
Issuance of Common Stock. If and whenever on or after the date of issuance of
this Warrant, the Company issues or sells, or is deemed to have issued or sold,
any shares of Common Stock (other than the shares of Common Stock deemed to have
been issued by the Company in connection with an Approved Stock Plan or upon
exercise or conversion of the Other Securities) for a consideration per share
less than a price (the "APPLICABLE PRICE") equal to the Warrant Exercise Price
in effect immediately prior to such issuance or sale, then immediately after
such issue or sale the Warrant Exercise Price then in effect shall be reduced to
an amount equal to the product of (x) the Warrant Exercise Price in effect
immediately prior to such issue or sale and (y) the quotient determined by
dividing (1) the sum of (I) the product of the Applicable Price and the number
of shares of Common Stock Deemed Outstanding immediately prior to such issue or
sale, and (II) the consideration, if any, received by the Company upon such
issue or sale, by (2) the product of (I) the Applicable Price and (II) the
number of shares of Common Stock Deemed Outstanding immediately after such issue
or sale. Upon each such adjustment of the Warrant Exercise Price hereunder, the
number of shares of Common Stock acquirable upon exercise of this Warrant shall
be adjusted to the number of shares determined by multiplying the Warrant
Exercise Price in effect immediately prior to such adjustment by the number of
shares of Common Stock acquirable upon exercise of this Warrant immediately
prior to such adjustment and dividing the product thereof by the Warrant
Exercise Price resulting from such adjustment.

          (b)  Effect on Warrant Exercise Price of Certain Events. For purposes
of determining the adjusted Warrant Exercise Price under Section 8(a), the
following shall be applicable:

               (i)  Issuance of Options. If the Company in any manner grants any
rights or options to subscribe for or to purchase Common Stock (other than
pursuant to an Approved Stock Plan or Other Securities) or any stock or other
securities convertible into or exchangeable for, directly or indirectly, Common
Stock (such rights or options being herein called "OPTIONS" and such convertible
or exchangeable stock or securities being herein called

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"CONVERTIBLE SECURITIES") and the price per share for which Common Stock is
issuable upon the exercise of such Options or upon conversion or exchange of
such Convertible Securities is less than the Applicable Price, then the total
maximum number of shares of Common Stock issuable upon the exercise of such
Options or upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Options shall be
deemed to be outstanding and to have been issued and sold by the Company for
such price per share. For purposes of this Section 8(b)(i), the "price per share
for which Common Stock is issuable upon exercise of such Options or upon
conversion or exchange of such Convertible Securities" is determined by dividing
(A) the total amount, if any, received or receivable by the Company as
consideration for the granting of such Options, plus the minimum aggregate
amount of additional consideration payable to the Company upon the exercise of
all such Options, plus in the case of such Options which relate to Convertible
Securities, the minimum aggregate amount of additional consideration, if any,
payable to the Company upon the issuance or sale of such Convertible Securities
and the conversion or exchange thereof, by (B) the total maximum number of
shares of Common Stock issuable upon exercise of such Options or upon the
conversion or exchange of all such Convertible Securities issuable upon the
exercise of such Options. No further adjustment of the Warrant Exercise Price
shall be made upon the actual issuance of such Common Stock or of such
Convertible Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange of such Convertible
Securities. Upon the expiration of any such Options which shall not have been
exercised, the Warrant Exercise Price computed upon the original issue thereof,
and any subsequent adjustments based thereon, shall, upon such expiration, be
recomputed as if: (i) in the case of Options for Common Stock, the only shares
of Common Stock issued were shares of Common Stock, if any, actually issued upon
the exercise of such Options and the consideration received therefor was the
consideration actually received by the Company for the issue of all such
Options, whether or not exercised, plus the consideration actually received by
the Company upon such exercise, and (ii) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Company for the shares of Common Stock deemed to
have been then issued was the consideration actually received by the Company for
the issue of all such Options, whether or not exercised, plus the consideration
deemed to have been received by the Company upon the issue of the Convertible
Securities with respect to which such Options were actually exercised.

               (ii) Issuance of Convertible Securities. If the Company in any
manner issues or sells any Convertible Securities and the price per share for
which Common Stock is issuable upon such conversion or exchange is less than the
Applicable Price, then the maximum number of shares of Common Stock issuable
upon conversion or exchange of such Convertible Securities shall be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For the purposes of this Section 8(b)(ii), the "price per share for which
Common Stock is issuable upon such conversion or exchange" is determined by
dividing (A) the total amount received or receivable by the Company as
consideration for the issue or sale of such

                                       11
<PAGE>   12

Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or exchange
thereof, by (B) the total maximum number of shares of Common Stock issuable upon
the conversion or exchange of all such Convertible Securities. No further
adjustment of the Warrant Exercise Price shall be made upon the actual issuance
of such Common Stock upon conversion or exchange of such Convertible Securities,
and if any such issue or sale of such Convertible Securities is made upon
exercise of any Options for which adjustment of the Warrant Exercise Price had
been or is to be made pursuant to other provisions of this Section 8(b), no
further adjustment of the Warrant Exercise Price shall be made by reason of such
issuance or sale. Upon the expiration of any rights of conversion or exchange
under such Convertible Securities which shall not have been exercised, the
Warrant Exercise Price computed upon the original issue thereof, and any
subsequent adjustments based thereon, shall, upon such expiration, be recomputed
as if the only shares of Common Stock issued were shares of Common Stock, if
any, actually issued upon the conversion or exchange of such Convertible
Securities and the consideration received therefor was the consideration
actually received by the Company for the issue of all such Convertible
Securities which were actually converted or exchanged, plus the additional
consideration, if any, actually received by the Company upon such conversion or
exchange.

               (iii) Change in Option Price or Rate of Conversion. If the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issuance, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable for Common Stock change at any time, the Warrant Exercise Price
in effect at the time of such change shall be readjusted to the Warrant Exercise
Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold and the number of shares of Common
Stock acquirable hereunder shall be correspondingly readjusted; provided that no
adjustment shall be made if such adjustment would result in an increase of the
Warrant Exercise Price then in effect.

          (c)  Effect on Warrant Exercise Price of Certain Events. For purposes
of determining the adjusted Warrant Exercise Price under Sections 8(a) and 8(b),
the following shall be applicable:

               (i)  Calculation of Consideration Received. If any Common Stock,
Options or Convertible Securities are issued or sold or deemed to have been
issued or sold for cash, the consideration received therefor will be deemed to
be the net amount received by the Company therefor. In case any Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of the consideration other than cash received by the
Company will be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Company will be the Market Price of such securities on the date
of receipt. In case any Common Stock,

                                       12
<PAGE>   13

Options or Convertible Securities are issued to the owners of the non-surviving
entity in connection with any merger in which the Company is the surviving
entity the amount of consideration therefor will be deemed to be the fair value
of such portion of the net assets and business of the non-surviving entity as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair value of any consideration other than cash or securities
will be determined jointly by the Company and the holders of Warrants
representing a majority of the shares of Common Stock issuable upon exercise of
such Warrants then outstanding. If such parties are unable to reach agreement
within ten (10) days after the occurrence of an event requiring valuation (the
"VALUATION EVENT"), the fair value of such consideration will be determined
within five (5) Business Days of the tenth day following the Valuation Event by
an independent, reputable appraiser selected by the Company. The determination
of such appraiser shall be binding upon all parties absent manifest error.

               (ii) Integrated Transactions. In case any Option is issued in
connection with the issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the Options will be deemed to
have been issued for a consideration of $.01.

               (iii) Treasury Shares. The number of shares of Common Stock
outstanding at any given time does not include shares owned or held by or for
the account of the Company, and the disposition of any shares so owned or held
will be considered an issue or sale of Common Stock.

               (iv) Record Date. If the Company takes a record of the holders of
Common Stock for the purpose of entitling them (1) to receive a dividend or
other distribution payable in Common Stock, Options or Convertible Securities or
(2) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date will be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.

          (d)  Adjustment of Warrant Exercise Price upon Subdivision or
Combination of Common Stock. If the Company at any time after the date of
issuance of this Warrant subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Warrant Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced and
the number of shares of Common Stock obtainable upon exercise of this Warrant
will be proportionately increased. If the Company at any time after the date of
issuance of this Warrant combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Warrant Exercise Price in effect immediately prior
to such combination will be proportionately increased and the

                                       13
<PAGE>   14

number of shares of Common Stock obtainable upon exercise of this Warrant will
be proportionately decreased.

          (e)  Reorganization, Reclassification, Consolidation, Merger or Sale.
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Company's assets to another Person (as
defined below) or other transaction which is effected in such a way that holders
of Common Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in exchange for
Common Stock is referred to herein as "ORGANIC CHANGE." Prior to the
consummation of any Organic Change, the Company will make appropriate provision
(in form and substance reasonably satisfactory to the holders of the Preferred
Share Warrants representing a majority of the shares of Common Stock issuable
upon exercise of such Preferred Share Warrants then outstanding) to insure that
each of the holders of the Preferred Share Warrants will thereafter have the
right to acquire and receive in lieu of or in addition to (as the case may be)
the shares of Common Stock immediately theretofore acquirable and receivable
upon the exercise of such holder's Preferred Share Warrants, such shares of
stock, securities or assets as may be issued or payable in the Organic Change
with respect to or in exchange for the number of shares of Common Stock
immediately theretofore acquirable and receivable upon the exercise of such
holder's Preferred Share Warrants had such Organic Change not taken place
(without taking into account any limitations or restrictions on exercise). In
any such case, the Company will make appropriate provision (in form and
substance reasonably satisfactory to the holders of the Preferred Share Warrants
representing a majority of the shares of Common Stock issuable upon exercise of
such Preferred Share Warrants then outstanding) with respect to such holders'
rights and interests to insure that the provisions of this Section 8 and Section
9 will thereafter be applicable to the Preferred Share Warrants. The Company
will not effect any such consolidation, merger or sale, unless prior to the
consummation thereof, the successor entity (if other than the Company) resulting
from consolidation or merger or the entity purchasing such assets and, if an
entity different from the successor entity, the entity whose capital stock or
assets the holders of Common Stock are entitled to receive as a result of such
Organic Change, assumes, by written instrument (in form and substance reasonably
satisfactory to the holders of Preferred Share Warrants representing a majority
of shares of Common Stock issuable upon exercise of the Preferred Share Warrants
then outstanding), the obligation to deliver to each holder of Preferred Share
Warrants such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holder may be entitled to acquire.

          (f)  Distribution of Assets. If the Company shall declare or make any
distribution of its assets (or rights to acquire its assets) to holders of
Common Stock as a partial liquidating dividend, by way or return of capital or
otherwise (including any dividend or distribution to the Company's stockholders
of cash or shares (or rights to acquire shares) of capital stock of a
subsidiary) (a "DISTRIBUTION"), at any time after the issuance of this Warrant,
then the holder of this Warrant shall be entitled upon exercise of this Warrant
for the purchase of any or all of the shares of Common Stock subject hereto,
after the record date for determining

                                       14
<PAGE>   15

shareholders entitled to receive such Distribution, to receive the amount of
such assets (or rights) which would have been payable to the holder had such
holder been the holder of such shares of Common Stock on the record date for
determination of stockholders entitled to such Distribution.

          (g)  Adjustment of Warrant Exercise Price for Registration Statement
Failures. If (i) any Registration Statement (as defined in the Registration
Rights Agreement) covering the resale of the shares of Common Stock issuable
upon exercise of the Warrant required to be declared effective by the SEC on or
before the Scheduled Effective Date (as defined in the Registration Rights
Agreement) is not declared effective by the Scheduled Effective Date or (ii)
after the Registration Statement has been declared effective by the SEC, sales
cannot be made (other than on any days during any Allowable Grace Period (as
defined in the Registration Rights Agreement)) pursuant to the Registration
Statement (whether because of a failure to keep the Registration Statement
effective, to disclose such information as is necessary for sales to be made
pursuant to the Registration Statement, to register sufficient shares of Common
Stock or otherwise) (such number of days being collectively referred to as the
"REGISTRATION STATEMENT DEFAULT DAYS"), then, as partial relief for the damages
to the holder by reason of any of the foregoing events (which remedy shall not
be exclusive of any other remedies available at law or in equity), the Warrant
Exercise Price in effect at such time shall be reduced by an amount equal to the
product of (a) the Warrant Exercise Price in effect as of the Issuance Date and
as adjusted subsequent to the Issuance Date in accordance with this Warrant and
(b) 0.00067 and (c) the sum of the Registration Statement Default Days.

          (h)  Certain Events. If any event occurs of the type contemplated by
the provisions of this Section 8 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's Board of Directors will make an appropriate adjustment in the Warrant
Exercise Price and the number of shares of Common Stock obtainable upon exercise
of this Warrant so as to protect the rights of the holders of the Preferred
Share Warrants; provided that no such adjustment will increase the Warrant
Exercise Price or decrease the number of shares of Common Stock obtainable as
otherwise determined pursuant to this Section 8.

          (i)  Notices.

               (i)  Immediately upon any adjustment of the Warrant Exercise
Price, the Company will give written notice thereof to the holder of this
Warrant, setting forth in reasonable detail and certifying the calculation of
such adjustment.

               (ii) The Company will give written notice to the holder of this
Warrant at least 10 days prior to the date on which the Company closes its books
or takes a record (A) with respect to any dividend or distribution upon the
Common Stock, (B) with respect to any pro rata subscription offer to holders of
Common Stock or (C) for determining rights to vote with

                                       15
<PAGE>   16

respect to any Organic Change, dissolution or liquidation and in no event shall
such notice be provided to such holder prior to such information being made
known to the public.

               (iii) The Company will also give written notice to the holder of
this Warrant at least 10 days prior to the date on which any Organic Change,
dissolution or liquidation will take place and in no event shall such notice be
provided to such holder prior to such information being made known to the
public.

     Section 9. Purchase Rights. In addition to any adjustments pursuant to
Section 8 above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of Common Stock (the
"PURCHASE RIGHTS"), then the holder of this Warrant will be entitled to acquire,
upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights
which such holder could have acquired if such holder had held the number of
shares of Common Stock acquirable upon complete exercise of this Warrant
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.

     Section 10. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant
is lost, stolen, mutilated or destroyed, the Company shall, on receipt of an
indemnification undertaking, issue a new Warrant of like denomination and tenor
as the Warrant so lost, stolen, mutilated or destroyed.

     Section 11. Notice. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Warrant must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) upon receipt, when delivered by a
delivery service, in each case properly addressed to the party to receive the
same. The addresses and facsimile numbers for such communications shall be:

               If to the Company:

                           General Magic, Inc.
                           420 N. Mary Avenue
                           Sunnyvale, California 94086
                           Telephone:       (408) 774-4000
                           Facsimile:       (408) 774-4033
                           Attention:       President

                                       16
<PAGE>   17

               With copy to:

                           Gibson, Dunn & Crutcher LLP
                           2029 Century Park East
                           40th Floor
                           Los Angeles, California 90067
                           Telephone:       (310) 557-8041
                           Facsimile:       (310) 552-7018
                           Attention:       Russell C. Hansen, Esq.

               If to a holder of this Warrant, to it at the address set forth
               below such holder's name in the Schedule of Buyers attached to
               the Securities Purchase Agreement dated as of March 29, 2000
               among the Company and the investors listed in such Schedule of
               Buyers or to the last address specified by the holder hereof in
               writing to the Company.

Each party shall provide five days' prior written notice to the other party of
any change in address or facsimile number.

     Section 12. Miscellaneous. Except as otherwise provided herein, this
Warrant and any term hereof may be changed, waived, discharged, or terminated
only by an instrument in writing signed by the party or holder hereof against
which enforcement of such change, waiver, discharge or termination is sought.
The headings in this Warrant are for convenience of reference only and shall not
limit or otherwise affect the meaning hereof. This Warrant shall be governed by
and interpreted under the laws of the State of New York.

     Section 13. Date. The date of this Warrant is April 20, 2000. This Warrant,
in all events, shall be wholly void and of no effect after the close of business
on the Expiration Date, except that notwithstanding any other provisions hereof,
the provisions of Section 7 shall continue in full force and effect after such
date as to any Warrant Shares or other securities issued upon the exercise of
this Warrant.

                                       GENERAL MAGIC, INC.

                                       By:
                                          --------------------------------------
                                       Name:
                                            ------------------------------------
                                       Title:
                                             -----------------------------------

                                       17
<PAGE>   18

                              EXHIBIT A TO WARRANT

                           FORM OF SUBSCRIPTION NOTICE

        TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT

                               GENERAL MAGIC, INC.

     The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("WARRANT SHARES") of General
Magic, Inc., a Delaware corporation (the "COMPANY"), evidenced by the attached
Warrant (the "WARRANT"). Capitalized terms used herein and not otherwise defined
shall have the respective meanings set forth in the Warrant.

     1.   Form of Warrant Exercise Price. The Holder intends that payment of the
Warrant Exercise Price shall be made as:

          ____________     a "Cash  Exercise"  with  respect to  _______________
                           Warrant  Shares;

                           and/or

          ____________     a "Cashless  Exercise" with respect to  _____________
                           Warrant Shares (to the extent permitted by the terms
                           of the Warrant).

     2.   Payment of Warrant Exercise Price. In the event that the holder has
elected a Cash Exercise with respect to some or all of the Warrant Shares to be
issued pursuant hereto, the holder shall pay the sum of $___________________ to
the Company in accordance with the terms of the Warrant.

     3.   Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.

Date:               ,
      --------------  -----

---------------------------------
   Name of Registered Holder

By:
    -----------------------------
    Name:
    Title:

<PAGE>   19

                              EXHIBIT B TO WARRANT

                              FORM OF WARRANT POWER

FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
________________, Federal Identification No. __________, a warrant to purchase
____________ shares of the capital stock of General Magic, Inc., a Delaware
corporation, represented by warrant certificate no. _____, standing in the name
of the undersigned on the books of said corporation. The undersigned does hereby
irrevocably constitute and appoint ______________, attorney to transfer the
warrants of said corporation, with full power of substitution in the premises.

Dated:              ,
       -------------  ----

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

                                       By:
                                          ---------------------------------
                                       Its:
                                           --------------------------------<PAGE>   1

                                                                    EXHIBIT 10.1

                      SENIOR EXECUTIVE EMPLOYMENT AGREEMENT

     This EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
April 3, 2000, 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 Bradford Bowlus
("Executive"), residing at 3 Ocean Ridge, Newport Coast, CA 92657.

                                    RECITALS

     WHEREAS, the Company desires to continue Executive's employment in the
capacity of President and CEO, Health Plans.

     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 President and CEO, Health Plans, 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,

                                      -1-
<PAGE>   2

nor assign more duties or functions to Executive, than are customary and
reasonable for a person in Executive's position.

2.   TERM AND TERMINATION

     2.1 Term. The term of Executive's employment under this Agreement shall
continue unless terminated as provided in Section 2.2.

     2.2 Termination. This Agreement 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 Section 2.2(c) above, Executive's termination
     shall be effective 45 days after receipt of such written notice.
     Notwithstanding anything to the contrary in this Agreement, receipt of the
     written notice provided in this Section 2.2(d) shall deemed to have
     occurred two days from the date of the notice.

                                      -2-
<PAGE>   3

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, as determined by the Compensation Committee of the Board of Directors,
payable in equal installments on the Company's regular payroll dates. As of this
date, Executive's annual base salary has been set at $600,000.96 (six hundred
thousand dollars and ninety-six cents). On an annual basis, the Company's
Compensation Committee 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 benefits for Executive and Executive's dependents, pension and profit
sharing programs, and vacation and sick leave benefits. However, the terms of
this Agreement shall not restrict the Company's 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 a
$750.00 (seven hundred and fifty dollars) 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 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 (the
"MICP"), 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.

     3.6 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

                                      -3-
<PAGE>   4

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 President and CEO, Health Plans, of
the Company or in any other capacity to which Executive may be appointed or
elected.

     3.8 Savings and Profit Sharing Plan. As part of the compensation for
services rendered under this Agreement, Executive shall be entitled to
participate in 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, as amended, and as may be further amended, modified, or
replaced, from time to time in accordance with the terms and conditions set
forth therein.

     3.9 Non-Qualified Deferred Compensation Plans. Executive shall be entitled
to participate in any non-qualified deferred compensation plan established by
the Company, including, without limitation, the Company's Statutory Restoration
Plan, Deferred Compensation Plan, and such other plans as may be applicable, as
such plans may be amended, modified or replaced, from time to time, in
accordance with the terms set forth herein and therein.

     3.10 Premium Priced Options Cash Consideration. Upon a Change of Control
(as defined herein), the options (the "Premium Priced Options") granted under
the Amended 1997 Premium Priced Stock Option Plan, Executive will receive, if
the "Adjusted Change of Control Consideration" (as defined below) is equal to,
or in excess of the exercise price of any of the Premium Priced Options, an
amount in cash equal to the excess of the Adjusted Change of Control
Consideration, over the exercise price of each Premium Priced Option, adjusted
to reflect any excise taxation incurred by Executive resulting from such
payment. No additional compensation will be paid to Executive if the per share
consideration for a Change of Control transaction is equal to or greater than
$115.00. As used in this Section 3.10, the term "Adjusted Change of Control
Consideration" means and refers to the per share consideration to be received by
each holder of the Company's Common Stock upon consummation of a transaction
effecting a Change of Control times one hundred and ten percent (110%).

4.   COMPENSATION FOLLOWING TERMINATION

     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, in the amount of $1,125,000;

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

                                      -4-
<PAGE>   5

         c. Payment of any other bonus amounts or benefits to which Executive
     may be entitled under any of the Company's benefit plans; and

         d. 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 24 months following the effective date of such termination;
     and

         e. Payment of any other bonus amounts or benefits to which Executive
     may be entitled under any of the Company's benefit plans.

     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, the 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. In the event that the Company terminates Executive 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, or voluntary termination
then Executive shall be entitled to the following compensation:

         a. An amount equal to three times of Executive's then current annual
     salary under Section 3.1, which shall not be less than the amount of base
     salary as of the date of this Agreement;

         b. An amount equal to three times Executive's average MICP bonus. If
     Executive has been employed by the Company for more than one, but less than
     two years,

                                      -5-
<PAGE>   6

     then the MICP bonus severance payment shall equal the average of the
     Executive's MICP award for the prior year and the target for Executive for
     the current year. Whenever the average MICP bonus is determined by
     utilizing prior years' performance, it shall be based upon the current
     year's weighting. If Executive has been employed by the Company for less
     than one year, Executive will not receive any bonus severance payment;

         c. Continued vesting of his options under the Stock Option Plans in
     accordance with their terms for a period of one year from the effective
     date of such termination, and the ability to exercise any vested and
     unexercised options under the Stock Option Plans in accordance with their
     terms within two years of the effective date of such termination;

         d. Continuation of Executive' and his/her dependents' medical, dental
     and vision benefits for a period of 36 months following the effective date
     of such termination;

         e. An amount equal to 36 months of Executive's automobile allowance;

         f. Any other bonus amounts or benefits to which the Executive may be
     entitled under any of the Company's benefit plans;

         g. The Company shall provide to Executive outplacement services to
     Executive 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;

         h. Executive shall receive, or have paid, the amounts of severance
     compensation provided in clauses (a), (b), (d) and (e) above in 36 equal
     monthly installments over a period of 36 months. Payments will be made
     either in biweekly installments on the Company's regular paydays or as
     currently being paid to Executive;

         i. 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 36 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

                                      -6-
<PAGE>   7

     Company a certificate certifying as to his/her employment status and if
     employed, the name and business of his/her current employer;

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

         k. 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.

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 Executive's average MICP bonus award for the last two years;
         (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) 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 the average of Executive's MICP bonus 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.

            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);

                                      -7-
<PAGE>   8

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

            5. The cash compensation related to the Premium Priced Options
         described in Section 3.10; and

            6. Any other bonus amounts or benefits to which Executive may be
         entitled under any of the Company's benefit plans.

         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 Section 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 Section 5, the term "Change of
     Control" means and refers to:

            1. Any merger, consolidation, or sale of the Company such that any
         individual, entity or group (within the meaning of Section 13(d)(3) or
         14(d)(2) of the Securities Exchange Act of 1934, as amended (the
         "Exchange Act")) acquires beneficial ownership, within the meaning of
         Rule 13d-3 of the Exchange Act, of 20 percent or more of the voting
         common stock of the Company;

            2. Any transaction in which the Company sells substantially all of
         its material assets;

            3. A dissolution or liquidation of the Company;

            4. The Company becomes a non-publicly held company; or

            5. Any change in the composition of the Company's Board of Directors
         during an 18-month period such that the individuals who at the
         beginning of such 18-month period were directors of the Company shall
         cease for any reason (other than death, disability or retirement) to
         constitute a majority of the Board of Directors of the Company.

         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 his 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,

                                      -8-
<PAGE>   9

         responsibilities, or status with the Company which substantially
         varies from that which existed immediately prior to such change of
         ownership or control;

            2. Without Executive's express prior written consent, Executive
         experiences a change in his reporting level, titles, or business
         location (or more than 50 miles from his 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
         ownership or control, or if Executive fails to obtain reelection to any
         position held immediately prior to the change of ownership or 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 ownership or control.

            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:

                                      -9-
<PAGE>   10

         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(g).

6.   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 addresses as either party may designate to the other in
accordance with this Section 5:

   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:        Bradford Bowlus
                           3 Ocean Ridge
                           Newport Coast, CA
                           92657

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.

7.   GENERAL PROVISIONS

     7.1 Severance Agreement. Any payments of compensation made pursuant to
Sections 4 and 5, except for the cash compensation related to the Premium Priced
Options set forth in Section 3.10, 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.

                                      -10-
<PAGE>   11

     7.2 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.

     7.3 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 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.

     7.4 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.

     7.5 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.

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

                                      -11-
<PAGE>   12

     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

                                        /s/ ALAN R. HOOPS
                                        --------------------------------
                                        By:    Alan R. Hoops
                                        Title: President and
                                               Chief Executive Officer

                                        /s/ BRADFORD BOWLUS
Executive:                              --------------------------------
                                        Bradford Bowlus

                                      -12-

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