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                                                                   EXHIBIT 10.05

                      SENIOR EXECUTIVE EMPLOYMENT AGREEMENT

        This EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as
of March 31, 2004 (the "Effective Date"), by and between PACIFICARE HEALTH
SYSTEMS, INC., a Delaware corporation (the "Company"), with its principal place
of business located at 5995 Plaza Drive, Cypress, California 90630, and
Katherine F. Feeny ("Executive").

                                    RECITALS

        WHEREAS, the Company desires to employ Executive in the capacity of
Executive Vice President, Senior Solutions.

        WHEREAS, the Company and Executive are entering into this Agreement to
establish the 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 will employ Executive and
Executive will serve the Company in the capacity of Executive Vice President,
Senior Solutions, 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 or Chief Executive Officer 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 her 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, stockholders,
affiliates, officers, employees, and banks and other financial institutions. The
Company shall give Executive a

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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.

2.      TERM AND TERMINATION

        2.1 Term. The initial term of Executive's employment under this
Agreement shall be 12 months, commencing on the Effective Date. The Company may
extend the term of this Agreement for a successive term of 12 months or more by
giving Executive written notice at least 45 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 end 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 at
the end of the term of this 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. In the event that at the end of
the term of this Agreement, the Company neither extends the term of the
Agreement nor offers Executive a new employment agreement, then the Company
shall have been deemed to have given 45 days written notice pursuant to Section
2.2(d) of this Agreement and Executive's employment with the Company shall
terminate pursuant to Section 2.2(d) of this Agreement.

        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 her 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 her 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; fraud; insider trading; unauthorized
        possession of corporate property; the sale, distribution, possession or
        use of a controlled substance; conviction of any criminal offense
        (whether or not such criminal offense is committed in connection with
        Executive's duties hereunder or in the

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        course of her employment with the Company); or Executive's action, or
        failure to commit an act, involving the Company which amounts to willful
        misconduct, wanton misconduct or gross negligence and which is
        materially and demonstrably harmful to 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.

            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 her 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 establishes duties materially inconsistent with those described in
        Section 1.1, reduces Executive's salary by more than 10 percent below
        the salary in effect at the end of the term of this Agreement or does
        not contain severance provisions comparable to those in this Agreement.

3.      COMPENSATION DURING THE TERM OF THIS AGREEMENT

        3.1 Base Salary. As long as Executive satisfactorily performs all of the
obligations under this Agreement, the Company shall pay Executive an annual base
salary during the term of this Agreement, payable in equal installments on the
Company's regular payroll dates. As of this date, Executive's annual base salary
has been set at $425,000. 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 her base salary and other compensation, including any bonus,
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 eligible 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 (including the Company's Supplemental Executive Retirement
Plan), and paid time off 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,

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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 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 her
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 eligible to participate in
either the Company's 1996 Management Incentive Compensation Plan or 2003
Management Incentive Compensation Plan, as applicable, or any replacement plan,
and as such plans may be further amended, modified, or terminated, from time to
time (the "MICP"), in accordance with the terms and conditions set forth herein
and therein.

        3.6 Equity-Based Plans. Executive shall be eligible to participate in
the applicable equity-based compensation plans for officers and key employees of
PacifiCare Health Systems, Inc., as may be amended modified or replaced, from
time to time, in accordance with the terms and conditions set forth herein and
therein including eligibility for both stock options and restricted share
awards.

        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, Senior
Solutions of the Company or in any other capacity to which Executive may be
appointed or elected.

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;

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            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 for Officers and Key Employees, the 2000 Employee Plan and any
        other 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 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 the 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 2 times Executive's then current annual salary
        under Section 3.1;

            b. An amount equal to 2 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 2 times the

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        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 granted
        under the Stock Option Plans at a time when Executive was at the salary
        grade level of X15 or higher, or held the title of Senior Vice President
        or higher, in accordance with their terms within one year of the
        effective date of such termination;

            d. Continuation of Executive's and her 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;

            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" means
        any company offering managed care and other health insurance products,
        including specialty managed care products and services, including
        without limitation, managed care organizations, health maintenance
        organizations, competitive medical plans, preferred provider
        organizations, provider sponsored organizations ("PSO"), health
        insurance companies, pharmacy benefit management companies, behavioral
        health companies, and dental and vision benefit plans. Executive agrees
        to provide immediate notice to the Company upon receipt of any gross

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        earnings received by Executive from a competitor of the Company.
        Quarterly, Executive shall provide the Company a certificate certifying
        as to her employment status and if employed, the name and business of
        her current employer;

            i. If Executive is rehired by the 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-of-Control either (1) Executive is involuntarily terminated,
        except as provided in Section 5.1(b), or (2) Executive voluntarily
        terminates her 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 3
            times Executive's then annual base salary; (ii) an amount equal to 3
            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) an
            amount equal to 36 months of Executive's automobile allowance. If
            Executive has been employed by the Company 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 3 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 shall
            receive an amount equal to 3 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.

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               2. The right to exercise any and all unexercised stock options
            granted under the Equity-Based 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. In addition, all
            restricted shares granted to Executive under the Equity-Based Plans
            shall fully vest as of the date of termination.

               3. If any payments, distributions or benefits that Executive
            receives under this Section 5 ("Payment") would constitute a
            "parachute payment" within the meaning of Section 280G of the
            Internal Revenue Code of 1986 (the "Code") and would be subject to
            the excise tax imposed by Section 4999 of the Code or any interest
            or penalties payable with respect to such excise tax (such excise
            tax, together with any such interest and penalties, hereinafter
            referred to as the "Excise Tax"), then Executive shall be paid an
            additional payment (the "Gross-Up Payment") in an amount that shall
            fund the payment by Executive of any Excise Tax on the Payment as
            well as all income and employment taxes imposed on the Gross-Up
            Payment, any Excise Tax imposed on the Gross-Up Payment and any
            interest or penalties imposed with respect to income and employment
            taxes imposed on the Gross-Up Payment.

               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 she 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. The acquisition by any Person (as hereinafter defined) of
            Beneficial Ownership (as hereinafter defined) of 20% or more of the
            outstanding voting securities entitled to vote generally in the
            election of directors of the Company (the "Outstanding Company
            Stock"), 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) a Non-Qualifying Business
            Combination (as hereinafter defined); or

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               2. Individuals who, as of December 17, 2003 or such subsequent
            date as the Board may determine from time to time to be applicable
            for this Change-of-Control definition (the "Base 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 Base Date whose election, or nomination for
            election by the Company's stockholders, 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, the Persons who had Beneficial
            Ownership of the Outstanding Company Stock 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 the combined voting power of the
            then outstanding securities entitled to vote generally in the
            election of directors 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 (a Business Combination
            that satisfies this exception shall be deemed to be a
            "Non-Qualifying Business Combination"); or

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

               5. The consummation of any other transaction involving a
            significant issuance of the Company's securities, a change in the
            composition of the Board or other material event that the Board
            determines to be a Change-of-Control for purposes of this Section.

        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

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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 her 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 and of a diminished
            nature from 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 her 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.

               5. Without Executive's express prior written consent, Executive
            experiences an elimination or reduction of any employee benefit,
            business expense

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            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.

               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

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name, address, telephone 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 that derives independent value from not
being generally known, 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 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 (collectively
referred to as "Inventions"). 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

                                     - 12 -
<PAGE>

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 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. During the term of this Agreement and for 24 months
following termination of Executive's employment for any reason, Executive
acknowledges and agrees that Executive will not solicit or participate in or
assist in any way in the solicitation of any employees of the Company. For
purposes of this provision, "solicitation" means directly or indirectly
influencing or attempting to influence employees of the 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.

                                     - 13 -
<PAGE>

        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.

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 addresses as either party may designate to the other in
accordance with this Article 7:

        If to the Company:    PacifiCare Health Systems, Inc.
                              5995 Plaza Drive
                              Cypress, California 90630
                              Attn:   Chief Executive Officer

        If to Executive:      Katherine F. Feeny
                              25 Sparrowhawk
                              Irvine, CA 92612

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, and on
Executive's continued compliance with Section 6. Executive must execute the
standard severance agreement and release within 45 days of being provided with
the document to sign or the severance agreement offer will expire.

        8.2 Assignability. This Agreement shall inure to the benefit of, and
shall be binding

                                     - 14 -
<PAGE>

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 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 her Agreement with the
Company, as long as such service does not interrupt Executive in the performance
of her duties as the full-time Executive Vice President, Senior Solutions 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: /s/ HOWARD G. PHANSTIEL
                                               ---------------------------------
                                                   Howard G. Phanstiel
                                                   Chairman of the Board and
                                                   Chief Executive Officer

Executive:                                     /s/ KATHERINE F. FEENY
                                               ---------------------------------
                                                   Katherine F. Feeny

                                     - 16 -<PAGE>
                                                                   EXHIBIT 10.12

                         PACIFICARE HEALTH SYSTEMS, INC.

   FORM OF RESTRICTED STOCK GRANT NOTICE AND RESTRICTED STOCK GRANT AGREEMENT
                        UNDER THE 1996 STOCK OPTION PLAN
                         FOR OFFICERS AND KEY EMPLOYEES

PACIFICARE HEALTH SYSTEMS, INC. ("PacifiCare"), pursuant to its 1996 Stock
Option Plan for Officers and Key Employees (the "Plan"), hereby awards to the
Employee as a restricted stock award the number of shares of PacifiCare's Common
Stock set forth below (the "Shares"). This Award is subject to all of the terms
and conditions as set forth in this Restricted Stock Grant Notice (this "Grant
Notice") and in the Restricted Stock Grant Agreement (and any attachments
thereto) and the Plan, each of which is incorporated herein in its entirety.

Employee:                              __________________________________
Date of Grant:                         __________________________________
Vesting Commencement Date:             __________________________________
Number of Shares:                      __________________________________

VESTING SCHEDULE:  The Shares shall vest in periodic installments as follows:

o    1/3rd of the Shares shall vest on the second anniversary of the Date of
     Grant,

o    1/3rd of the Shares shall vest on the third anniversary of the Date of
     Grant, and

o    1/3rd of the Shares shall vest on the fourth anniversary of the Date of
     Grant.

ADDITIONAL TERMS/ACKNOWLEDGEMENTS: The undersigned Employee acknowledges receipt
of, and understands and agrees to, this Grant Notice, the Restricted Stock Grant
Agreement and the Plan. The Employee further acknowledges that as of the Date of
Grant, this Grant Notice, the Restricted Stock Grant Agreement (and attachments
thereto) and the Plan set forth the entire understanding between the Employee
and PacifiCare regarding the grant of restricted stock pursuant to this Grant
Notice:

        IN WITNESS WHEREOF, this Grant Notice has been executed and delivered by
the parties hereto.

                                          PACIFICARE HEALTH SYSTEMS, INC.

                                          By:
                                             -----------------------------------

---------------------------------------
Employee

---------------------------------------
        Address

Social Security Number:

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

                                       1.
<PAGE>

ATTACHMENT: Restricted Stock Grant Agreement

                                       2.
<PAGE>

                        PACIFICARE HEALTH SYSTEMS, INC.
                        RESTRICTED STOCK GRANT AGREEMENT
        UNDER THE 1996 STOCK OPTION PLAN FOR OFFICERS AND KEY EMPLOYEES

        Pursuant to the terms of the Restricted Stock Grant Notice (the "Grant
Notice") and this Restricted Stock Agreement (collectively, this "Agreement"),
PacifiCare Health Systems, Inc., a Delaware corporation ("PacifiCare"), grants
to the individual identified in the Grant Notice (the "Employee") shares of
PacifiCare's Common Stock under the following terms and conditions:

        a. PacifiCare's management has implemented a long-term incentive program
by granting shares of restricted stock to certain employees;

        b. The restricted stock to be used for this long-term incentive will be
granted pursuant to the 1996 Stock Option Plan for Officers and Key Employees,
the terms of which are hereby incorporated by reference and made a part of this
Agreement;

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

        d. Any capitalized terms used throughout this Agreement, which are not
defined elsewhere herein, shall have the meanings ascribed to them in Section 1
of this Agreement.

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

                                    ARTICLE I
                                   DEFINITIONS

Section 1.1 - Chief Financial Officer

        "Chief Financial Officer" shall mean the Chief Financial Officer of
PacifiCare.

Section 1.2 - Code

        "Code" shall mean the Internal Revenue Code of 1986, as amended.

Section 1.3 - Committee

        "Committee" shall mean the Compensation Committee of PacifiCare's Board
of Directors.

Section 1.4 - Common Stock

        "Common Stock" shall mean the Common Stock, par value $.01 per share, of
PacifiCare.

Section 1.5 - Date of Grant

        "Date of Grant" shall mean the date set forth in the Grant Notice.

                                       3.
<PAGE>

Section 1.6 - Plan

        "Plan" shall mean the 1996 Stock Option Plan for Officers and Key
Employees.

Section 1.7 - President

        "President" shall mean the President of PacifiCare.

Section 1.8 - Pronouns

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

Section 1.9 - Shares

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

Section 1.10 - Stock Unit Plan

        "Stock Unit Plan" shall mean the Third Amended and Restated Stock Unit
Deferred Compensation Plan, as amended.

Section 1.11 - Subsidiary

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

Section 1.12 - Termination of Employment

        "Termination of Employment" shall mean (a) the time when the Employee
ceases to be an employee or officer of PacifiCare or a Subsidiary for any
reason, including, but not limited to, a termination by resignation, discharge,
death or retirement, or if the Employee is a consultant, the time when the
Employee is no longer retained by PacifiCare or any Subsidiary of PacifiCare in
any capacity whatsoever, but excluding terminations where there is a
simultaneous re-employment or re-appointment of the Employee as an employee or
officer by PacifiCare or a Subsidiary, or (b) with respect to an Employee who is
an employee or officer of a Subsidiary, the time when such Subsidiary ceases to
be a Subsidiary of PacifiCare. The Committee, in its absolute discretion, shall
have the power to determine the effect of all matters and questions relating to
Termination of Employment, including, but not limited to, the question of
whether a Termination of Employment resulted from a discharge for good cause,
and whether particular leaves of absence constitute Terminations of Employment.

                                   ARTICLE II
                                 GRANT OF SHARES

Section 2.1 - Grant of Shares

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

                                       4.
<PAGE>

Section 2.2 - Consideration

The Employee is receiving the Shares in consideration of past services rendered
during the Employee's employment with PacifiCare, so no payment is required from
the Employee for the Shares; provided however, that if the Employee is receiving
the Shares in connection with the Employee's initial employment, the Employee
shall pay PacifiCare an amount equal to the aggregate par value of the Shares.

Section 2.3 - Rights as a Stockholder

        Unless the receipt of the Shares is deferred pursuant to Article IV,
upon the Date of Grant, the Employee shall have all rights as a stockholder of
PacifiCare, including without limitation the right to vote the Shares. If the
Shares do not vest and are forfeited, the Employee will lose any and all rights
as a stockholder with respect to the forfeited Shares.

Section 2.4 - Escrow

        Upon the Date of Grant, the certificates for the Shares not deferred
pursuant to Article IV (the "Non-Deferred Shares") shall be deposited in escrow
with PacifiCare or an agent acting on behalf of PacifiCare to be held in
accordance with the provisions of this Agreement. Any new, substituted or
additional securities or other property described in Section 2.6 below shall
immediately be delivered to PacifiCare or its agent to be held in escrow until
vesting of the Non-Deferred Shares. All regular cash dividends, if any, on the
Non-Deferred Shares (or other securities at the time held in escrow) shall be
paid directly to the Employee and shall not be held in escrow. The Non-Deferred
Shares shall be released from escrow to the Employee within thirty (30) days
upon vesting of the Non-Deferred Shares as provided in Section 3.2 of this
Agreement, together with any other assets or securities held in escrow
hereunder. If the Non-Deferred Shares do not vest as provided herein, the
Non-Deferred Shares shall be surrendered to PacifiCare for cancellation.

Section 2.5 - No Retention Rights

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

Section 2.6 - Additional Shares or Substituted Securities

        In the event that the outstanding shares of Common Stock are hereafter
changed into or exchanged for a different number or kind of shares or other
securities of PacifiCare, or of another corporation, by reason of
reorganization, merger, consolidation, recapitalization, reclassification, stock
split, stock dividend or combination of shares, or in the event of extraordinary
cash or non-cash dividends being declared with respect to the outstanding shares
of Common Stock or other similar transactions, proportionate adjustments shall
be made to the Shares by the Committee.

                                  ARTICLE III
                          VESTING; RISKS OF FORFEITURE

Section 3.1 - Risk of Forfeiture

        The Shares shall initially be restricted Shares and shall be subject to
the risk of forfeiture. Upon an Employee's Termination of Employment for any
reason, except death or Disability, prior to the vesting of the Shares, such
Employee shall lose all rights to any and all unvested Shares.

Section 3.2 - Vesting of Shares

        Subject to Sections 3.1 and 3.3, beneficial ownership of the Shares
shall vest on the date or dates set forth in the Grant Notice (each, a "Vesting
Date").

                                       5.
<PAGE>

Section 3.3 - Acceleration of Vesting

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

              (i)   Employee's death;

             (ii)   Employee's Disability (as defined in Section 3.3(b) below);
                    or

            (iii)   The effective date of a "Change of Control" (as defined
                    below in Section 3.3(c) ).

        (b) For purposes of this Section 3.3, "Disability" shall mean a
medically determinable physical or mental impairment which has lasted or can be
expected to last for a continuous period of not less than 12 months and which
renders the Employee substantially unable to function as an officer or employee
of PacifiCare or a Subsidiary.

        (c) Notwithstanding anything to the contrary contained in Section 8.2 of
the Plan or any other provision thereof, the Employee acknowledges and agrees
that instead of such contrary provisions, for purposes of this Section 3.3, the
term "Change of Control" shall mean the occurrence of any of the following:

            (i) the acquisition by any Person (as hereinafter defined) of
Beneficial Ownership (as hereinafter defined) of 20% or more of the outstanding
common stock of PacifiCare (the "Outstanding PacifiCare Stock"), provided that,
for purposes of this Subsection 3.3(c)(i), the following acquisitions shall not
constitute a Change of Control: (I) any acquisition by PacifiCare, (II) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by PacifiCare or any Person that controls, is controlled by or is
under common control with, PacifiCare or (III) a Non-Qualifying Business
Combination (as hereinafter defined); or

            (ii) individuals who, as of December 17, 2003 or such subsequent
date as the Board may determine from time to time to be applicable for this
Change of Control definition (the "Base 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 3.3(c)(ii), any individual
who becomes a director subsequent to the Base Date whose election, or nomination
for election by PacifiCare's stockholders, 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

            (iii) consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of
PacifiCare or the acquisition of assets or stock of another corporation (a
"Business Combination"), in each case, unless, following such Business
Combination, the Persons who had Beneficial Ownership of the Outstanding
PacifiCare Stock 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 the combined voting power of the
then outstanding securities entitled to vote generally in the election of
directors of the corporation resulting or surviving from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns PacifiCare or all or substantially all of PacifiCare'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 PacifiCare Stock (a Business Combination that
satisfies this exception shall be deemed to be a "Non-Qualifying Business
Combination"); or

                                       6.
<PAGE>

            (iv) approval by the stockholders of PacifiCare of a complete
liquidation or dissolution of PacifiCare; or

            (v) the consummation of any other transaction involving a
significant issuance of PacifiCare's securities, a change in the composition of
the Board or other material event that the Board determines to be a Change of
Control for purposes of this section.

        Notwithstanding the foregoing provisions of this definition, unless
otherwise determined by the Board, no Change of Control shall be deemed to have
occurred if (1) the Employee 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 (2)
the Employee acquires a two percent (2%) or more equity interest in the entity
which ultimately acquires PacifiCare pursuant to the transaction described in
clause (1), 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 Securities Exchange Act of 1934, as amended.

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

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

                                   ARTICLE IV
                          DEFERRAL OF RECEIPT OF SHARES

Section 4.1 - Eligibility

        Only those employees who have the title of Vice President or above or
who have a salary grade of X14 or above are eligible to defer the receipt of
their Shares.

Section 4.2 - Deferral of the Shares

        Under the terms of the Stock Unit Plan, any employee who has the title
of Vice President or who has a salary grade of X14 may elect to defer receipt of
all or a portion of his or her Shares and any employee who has the title of
Senior Vice President or above or who has a salary grade of X15 or above is
required to defer receipt of all of his or her Shares.

Section 4.3 - Conversion of Shares into Stock Units

        Upon the deferral of receipt of all or a portion of the Shares, the
Shares deferred will be converted into an equal number of restricted stock units
(the "Restricted Stock Units"). Upon conversion of the Shares into Restricted
Stock Units, the Restricted Stock Units will be subject to the terms and
conditions of the Stock Unit Plan. The number of Restricted Stock Units shall be
credited to an account established under the Stock Unit Plan for Employee. The
Stock Units shall have the same vesting schedule as the Shares as provided in
Section 3.2. If the Stock Units do not vest, the unvested Stock Units will be
surrendered to PacifiCare for cancellation pursuant to the terms of the Stock
Unit Plan.

                                       7.
<PAGE>

                                   ARTICLE V
                                  MISCELLANEOUS

Section 5.1 - Shares Granted Under The Plan

        The Shares will be granted under the Plan and the Non-Deferred Shares
will be governed by the terms of the Plan.

Section 5.2 - Administration

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

Section 5.3 - Non-Deferred Shares Not Transferable

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

Section 5.4 - Notices

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

Section 5.5 - Withholding

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

Section 5.6 - Titles

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

                                       8.
<PAGE>

Section 5.7 - Inconsistency between Agreement and Plan

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

Section 5.8 - Choice of Law

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

                                       9.

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