<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 1, 1994
REGISTRATION NO. 33-55297
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PACIFICARE HEALTH SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 33-0064895
(STATE OF (I.R.S. EMPLOYER
INCORPORATION) IDENTIFICATION
NUMBER)
</TABLE>
5995 PLAZA DRIVE
CYPRESS, CALIFORNIA 90630-5028
(714) 952-1121
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------------
ALAN HOOPS
PACIFICARE HEALTH SYSTEMS, INC.
5995 PLAZA DRIVE
CYPRESS, CALIFORNIA 90630-5028
(714) 952-1121
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------------
IT IS REQUESTED THAT COPIES OF COMMUNICATIONS BE SENT TO:
<TABLE>
<S> <C>
JOSEPH S. KONOWIECKI, ESQ. RICHARD A. GOLDBERG, ESQ.
GENERAL COUNSEL AND SECRETARY SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN
PACIFICARE HEALTH SYSTEMS, INC. 919 THIRD AVENUE
5995 PLAZA DRIVE NEW YORK, NEW YORK 10022
CYPRESS, CALIFORNIA 90630-5028 (212) 758-9500
(714) 952-1121
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PACIFICARE HEALTH SYSTEMS, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM S-3 ITEM NO. AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
- ------------------------------------------------------------- --------------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus................... Facing Sheet; Cross Reference Sheet; Outside Front Cover
Page
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Inside Front Cover Page; Available Information; Outside
Back Cover Page
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................ Prospectus Summary; Available Information
4. Use of Proceeds................................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price................... *
6. Dilution.......................................... *
7. Selling Security Holders.......................... *
8. Plan of Distribution.............................. Front Cover of Page; Plan of Distribution
9. Description of Securities to be Registered........ Front Cover Page; Prospectus Summary; Description of
Securities
10. Interests of Named Experts and Counsel............ *
11. Material Changes.................................. Recent Developments
12. Incorporation of Certain Documents by Reference... Incorporation of Certain Documents by Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... *
<FN>
- ------------------------
* Not Applicable
</TABLE>
<PAGE>
750,000 SHARES
PACIFICARE HEALTH SYSTEMS, INC.
CLASS B COMMON STOCK
REGISTERED EQUITY PURCHASE CONTRACTS
----------------
The 750,000 shares (the "Shares") of non-voting Class B Common Stock, par
value $0.01 per share (the "Class B Common Stock"), of PacifiCare Health
Systems, Inc. (the "Company") are being offered by the Company to certain health
care provider groups (the "Groups") in order to develop more strategic and long
term alliances with such Groups. Each Group will be offered a specific number of
Shares to be determined by the Company based upon the extent of each Group's
alliance with the Company. See "Plan of Distribution."
The Shares to be purchased hereunder (the "Contract Shares") by each Group
may only be purchased pursuant to the terms and conditions of registered equity
purchase contracts (each, a "Contract"). Each Contract obligates the Group that
is a party thereto to purchase a specific amount of the Contract Shares over a
five year period beginning on May 1, 1996 and on each May 1 thereafter through
and including May 1, 2000 (each, a "Purchase Date"). Twenty percent of the
Contract Shares will be purchased on each Purchase Date at a price per share
(the "Purchase Price") equal to the last sale price of the Class B Common Stock
as quoted on the NASDAQ National Market System on December 1, 1994. THE
OBLIGATION TO PURCHASE THE CONTRACT SHARES WILL BE IRREVOCABLE EVEN IF ON ANY
PURCHASE DATE THE MARKET PRICE OF THE CLASS B COMMON STOCK IS LESS THAN THE
PURCHASE PRICE. Prior to the purchase of the Contract Shares, the Groups will
not have any of the rights or privileges of a stockholder of the Company.
------------------------
The Class B Common Stock is quoted on the NASDAQ National Market System under
the symbol PHSYB. On August 31, 1994, the last reported sale price of the
Class B Common Stock was $68 3/4 per share. See
"Price Range of Common Stock."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
September 1, 1994
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements, information statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements, information statements and other information filed by
the Company can be inspected and copied at the public reference facilities
maintained by the Commission at the principal offices of the Commission, Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549; and at the Commission's
regional offices located at Suite 1400, Northwestern Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661-2511, and at Suite 1300, Seven World
Trade Center, New York, New York 10048. Copies of such material can be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates.
The Company has filed with the Commission a Registration Statement on Form
S-3 (herein together with all amendments thereto called the "Registration
Statement") under the Securities Act of 1933, as amended (the "Act"), with
respect to the securities offered by this Prospectus. This Prospectus does not
contain all the information set forth or incorporated by reference in the
Registration Statement and the exhibits and schedules relating thereto, certain
portions of which have been omitted as permitted by the rules and regulations of
the Commission. For further information with respect to the Company and the
securities offered by this Prospectus, reference is made to the Registration
Statement and the exhibits and schedules thereto which are on file at the
offices of the Commission and may be obtained upon payment of the fee prescribed
by the Commission, or may be examined without charge at the offices of the
Commission. Statements contained in this Prospectus as to the contents of any
contract or other documents referred to are not necessarily complete, and are
qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission are hereby
incorporated by reference into this Prospectus:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1993.
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
December 31, 1993, March 31, 1994 and June 30, 1994.
3. The description of the Class B Common Stock of the Company contained in
its Registration Statement on Form 8-A (File No. 0-14181), dated May 20,
1992.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the termination of this offering
shall be deemed to be incorporated by reference in this Prospectus and to be a
part of this Prospectus from the date of filing thereof. Any statement contained
in a document incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus has been
delivered, on the written or oral request of any such person, a copy of any or
all of the documents referred to above which have been or may be incorporated in
this Prospectus by reference (other than exhibits). Requests for such copies
should be directed to: PacifiCare Health Systems, Inc., 5995 Plaza Drive,
Cypress, California, 90630-5028, Attention: Investor Relations, telephone (714)
952-1121.
The Company's principal executive offices are located at 5995 Plaza Drive,
Cypress, California, 90630-5028, telephone (714) 952-1121.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION APPEARING IN THE DOCUMENTS INCORPORATED IN THIS PROSPECTUS BY
REFERENCE.
THE COMPANY
The Company is one of the nation's leading managed health care organizations
which arranges for the delivery of a comprehensive range of health care
services, primarily through its health maintenance organization ("HMO")
operations, for more than 1.2 million commercial, Medicare and Medicaid members.
The Company serves the group employer market through seven wholly-owned HMOs
located in California, Florida, Oklahoma, Oregon, Texas and Washington, which as
of June 30, 1994 had a combined commercial membership of approximately 874,000
members.
Since 1985, the Company has provided health care services to Medicare
beneficiaries through its Secure Horizons-R- programs pursuant to capitated risk
contracts with the Health Care Financing Administration ("HCFA"). Members in the
Secure Horizons programs are enrolled on an individual basis, for which the
Company receives a monthly fixed fee-per-member premium from HCFA, which is
determined by regional demographic and cost factors. The Company believes that
its Secure Horizons programs are attractive to Medicare beneficiaries because
these programs provide a comprehensive package of benefits with coverage
extending beyond that to which such members otherwise are entitled under
Medicare, and because these programs substantially reduce the member's
administrative responsibilities. The Company further believes that the Secure
Horizons programs, taken as a whole, are the largest and one of the fastest
growing Medicare-risk programs in the United States. As of June 30, 1994, the
Company had approximately 381,000 members enrolled in its government (Medicare
and Medicaid) programs.
The Company's commercial and government program members are provided some or
all of the following health care services, including primary and specialty
physician care, hospital care, laboratory and radiology services, prescription
drugs, dental and vision care, skilled nursing care, physical therapy and
psychological counseling. The Company also offers certain specialty products and
services to group purchasers and to other managed care organizations and their
beneficiaries, including Medicare risk management services, pharmacy benefit
management, military health care management, coordination of managed care
products for multi-region employers, health and life insurance, behavioral
health, workers' compensation, dental and vision services and health promotion.
The Company believes that its ability to provide a wide range of products and
services through its commercial and government programs, together with its
specialty managed care programs, will enable it to respond effectively to
changes and needs in the health care marketplace.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Class B Common Stock................ 750,000 shares
Common Stock to be Outstanding
Subsequent to Offering (1):
Class A Common Stock.............. 12,225,333 shares
Class B Common Stock.............. 16,019,578 shares
Rights of Common Stock.............. The Class B Common Stock offered hereby has no voting
rights, other than as required by Delaware law, and
the Class A Common Stock has one vote per share. The
Class B Common Stock and the Class A Common Stock
have equal rights to cash dividends, if any, and upon
liquidation. See "Dividend Policy" and "Description
of Securities -- Capital Stock."
Purchase Price...................... The Contract Shares shall be purchased at a price per
share equal to the last sale price of the Class B
Common Stock as quoted on the NASDAQ National Market
System on December 1, 1994.
Registered Equity Purchase
Contract........................... Each Group will enter into a Contract which will
require the Group to purchase 20 percent of the
Contract Shares to be purchased by such Group on each
Purchase Date. THIS OBLIGATION WILL BE IRREVOCABLE
EVEN IF ON ANY PURCHASE DATE THE MARKET PRICE OF THE
CLASS B COMMON STOCK IS LESS THAN THE PURCHASE PRICE.
Groups will not be permitted to purchase or pay for
any of the Contract Shares prior to the Purchase Date
for such Contract Shares. The Contracts may be
terminated or payment of the total consideration due
under any Contract may be accelerated at the
Company's option upon the occurrence of certain
events of default. Prior to the purchase of the
Contract Shares, a Group will not have the status or
rights of a stockholder of the Company. See
"Description of Securities -- Registered Equity
Purchase Contracts."
Transferability of Contracts........ The Contracts will not be transferable. Upon
purchase, however, the Shares will be freely
transferable.
Shares of Class B Common Stock...... Shares of Class B Common Stock have been reserved for
issuance pursuant to the Contracts.
Use of Proceeds..................... To increase working capital and for general corporate
purposes. See "Use of Proceeds."
NASDAQ Symbols:
Class A Common Stock.............. PHSYA
Class B Common Stock.............. PHSYB
<FN>
- ------------------------
(1) Based on the number of shares of the Class A and Class B Common Stock
(together, the "Common Stock") outstanding as of August 15, 1994 and
excluding 463,984 shares of the Class A Common Stock and 1,324,940 shares
of the Class B Common Stock issuable upon the exercise of outstanding stock
options, of which options to purchase 430,784 shares of the Class A Common
Stock and 505,756 shares of the Class B Common Stock are currently
exercisable.
</TABLE>
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED SEPTEMBER 30, ENDED JUNE 30,
---------------------------------------------------------------- -------------------------------
PRO FORMA PRO FORMA
1989 1990 1991 1992 1993 1993(6) 1993 1994 1994(6)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED INCOME STATEMENT DATA:
Total operating revenue... $ 650,242 $ 975,849 $1,242,357 $1,686,314 $2,221,073 $2,410,605 $1,615,594 $2,112,431 $2,185,410
Operating income (1)...... 9,070 14,388 29,734 60,549 87,244 82,113 63,191 90,196 86,913
Income before income
taxes.................... 17,749 29,438 44,521 74,852 108,327 99,073 78,617 108,193 102,389
Net income................ 10,859 17,638 25,702 43,590 62,696 55,883 45,585 68,037 63,999
Earnings per share (2).... $ 0.48 $ 0.74 $ 1.10 $ 1.78 $ 2.25 $ 2.01 $ 1.64 $ 2.43 $ 2.29
Weighted average number of
shares of common stock
and equivalents
outstanding (2).......... 22,615 23,770 23,346 24,509 27,847 27,847 27,829 27,948 27,948
OPERATING STATISTICS (3):
Medical loss ratio (4).... 86.8% 86.7% 85.4% 83.2% 84.1% 83.8% 84.6% 83.5% 83.3%
Net pretax margin (5)..... 2.7% 3.0% 3.6% 4.4% 4.9% 4.1% 4.9% 5.1% 4.7%
Period-end commercial
membership............... 451 546 567 742 807 893 790 874 924
Period-end government
(Medicare and Medicaid)
membership............... 102 127 159 214 290 316 269 381 381
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total period-end HMO
membership............. 553 673 726 956 1,097 1,209 1,059 1,255 1,305
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
PRO
FORMA
SEPTEMBER 30, JUNE 30, JUNE 30,
1993 1994 1994(6)
------------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Working capital............................................................ $ 162,781 $ 208,057 $ 209,075
Total assets............................................................... $ 693,646 $ 877,873 $ 948,931
Long-term debt, excluding current maturities............................... $ 21,821 $ 43,958 $ 108,289
Shareholders' equity....................................................... $ 319,294 $ 390,169 $ 390,169
<FN>
- ------------------------------
(1) Certain reclassifications have been made to the 1989 through 1991 amounts
to conform to the 1992, 1993 and 1994 presentations.
(2) All share amounts and financial information presented in this Prospectus
(except as expressly indicated otherwise) have been adjusted to reflect the
reclassification of the Company's common stock (the "Prior Common Stock")
into Class A Common Stock and Class B Common Stock and the stock dividend
of Class B Common Stock (the "June 1992 Stock Dividend"), both of which
occurred in June 1992 (together, the "Recapitalization"). The June 1992
Stock Dividend had the same effect on the total number of shares of common
stock and equivalents outstanding as a two-for-one stock split. Income
before cumulative effect of a change in accounting principle for the nine
months ended June 30, 1994 was $62.4 million or $2.23 per share. The
cumulative effect on prior years of a change in accounting principle for
the nine months ended June 30, 1994 is $5.7 million or $0.20 per share.
(3) Medical loss ratio and net pretax margin reflect data for the fiscal years
and nine-month periods reported and membership statistics reflect data at
the end of each of such periods.
(4) Health care costs as a percentage of premium revenue.
(5) Income before income taxes and cumulative effect of a change in accounting
principle as a percentage of total operating revenue.
(6) The pro forma consolidated income statement data and balance sheet data
give effect to the acquisition by the Company of the Acquired Companies (as
defined under "Recent Developments -- Recent Acquisitions" below) in the
manner set forth under "Recent Developments -- Pro Forma Condensed
Consolidated Financial Statements (Unaudited)," including the related notes
contained therein. Pro forma period-end membership data is derived by
adding the membership of the Company and the Acquired Companies as of the
end of the reported period.
</TABLE>
5
<PAGE>
RECENT DEVELOPMENTS
HEALTH CARE REFORM
As a result of the continued escalation of health care costs and the
inability of many individuals to obtain health care insurance, numerous
proposals relating to health care reform have been, and additional proposals may
be introduced in the United States Congress and the legislatures of the states
in which the Company operates or may seek to operate. The Company cannot predict
what effect, if any, yet to be enacted health care legislation or proposals will
have on the Company if, and when, enacted. The Company believes that the current
political environment in which it operates will result in continued legislative
scrutiny of health care reform and may lead to additional legislative
initiatives. The Company is unable to predict the ultimate impact upon the
Company of any federal or state restructuring of the health care delivery or
health care financing systems, but such changes could have a material adverse
impact on the operations, financial condition and prospects of the Company.
RECENT ACQUISITIONS
During fiscal 1994, the Company acquired (the "1994 Acquisitions") the
following companies: (i) Freedom Plan, Inc. (acquired October 1, 1993); (ii)
California Dental Health Plan, Inc. and Dental Plan Administrators (acquired
November 1, 1993); (iii) Advantage Health Plans, Inc. (acquired January 1,
1994); and (iv) Preferred Health Resources, Inc. (acquired March 1, 1994).
In June 1994, PacifiCare of Florida, a subsidiary of the Company, entered
into an agreement to acquire (the "Pasteur Acquisition") all of the issued and
outstanding capital stock of Pasteur Health Plans, Inc. ("PHP"), Pasteur
Delivery Systems, Inc. ("PDS") and Interstate Medical Equipment, Inc. ("IME").
PHP, PDS and IME shall collectively be referred to herein as "Pasteur." The
Pasteur Acquisition, which is subject to among other things, various regulatory
approvals, is expected to close by the end of the Company's current fiscal year.
The 1994 Acquisitions and the Pasteur Acquisition shall together be referred to
herein as the "Acquisitions." The companies acquired or to be acquired through
the Acquisitions shall be referred to as the "Acquired Companies." The total
purchase price for the Acquisitions is expected to be approximately $103
million. See "-- Pro Forma Condensed Consolidated Financial Statements
(Unaudited)."
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The accompanying pro forma condensed consolidated financial statements have
been prepared by the Company based on certain pro forma adjustments to the
historical financial statements of the Company, which are incorporated in this
Prospectus by reference. The Company's historical financial statements have been
prepared in accordance with generally accepted accounting principles.
The pro forma adjustments presented are shown for comparative purposes only
and should not be considered to reflect the actual results of operations of the
combined companies had the Acquisitions taken place at the beginning of each pro
forma period. The pro forma information is not intended to be indicative of
results which may occur in the future. The Acquisitions have been or will be
accounted for as purchases and the operating results of each completed
acquisition are included in the consolidated financial statements from the date
of purchase. These unaudited pro forma statements should be read in conjunction
with the Company's financial statements and related notes, which are
incorporated in this Prospectus by reference.
The accompanying pro forma condensed consolidated balance sheet as of June
30, 1994 has been prepared to give pro forma effect to the Pasteur Acquisition
as if it had occurred on June 30, 1994. The accompanying pro forma condensed
consolidated statements of income for the nine months ended June 30, 1994 and
the year ended September 30, 1993, have been prepared to give pro forma effect
to the 1994 Acquisitions as if such acquisitions had occurred on October 1, 1993
and 1992, respectively. Such pro forma condensed consolidated statements of
income also give pro forma effect to the completion of the Pasteur Acquisition,
which is expected to close by the end of the Company's current fiscal year, as
if it had occurred at the beginning of each pro forma period.
6
<PAGE>
PACIFICARE HEALTH SYSTEMS, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
JUNE 30, 1994
ASSETS
<TABLE>
<CAPTION>
PRO
THE PRO FORMA FORMA
COMPANY PASTEUR ADJUSTMENTS RESULTS
-------- ------- ----------- --------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Current assets:
Cash and equivalents...................................... $57,988 $ 6,763 $64,751
Marketable securities..................................... 487,131 487,131
Receivables, net.......................................... 82,481 359 82,840
Prepaid expenses.......................................... 7,896 623 8,519
Deferred income taxes..................................... 15,894 15,894
-------- ------- ----------- --------
Total current assets.................................... 651,390 7,745 659,135
-------- ------- ----------- --------
Property, plant and equipment, net.......................... 91,876 4,414 96,290
Marketable securities -- restricted......................... 15,339 294 15,633
Goodwill and intangible assets.............................. 117,695 $58,078(a) 175,773
Other assets................................................ 1,573 527 2,100
-------- ------- ----------- --------
$877,873 $12,980 $58,078 $948,931
-------- ------- ----------- --------
-------- ------- ----------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Medical claims and benefits payable....................... $294,100 $ 1,937 $296,037
Accounts payable and accrued liabilities.................. 122,191 4,221 126,412
Unearned premium revenue.................................. 18,743 321 19,064
Long-term debt due within one year........................ 8,299 248 8,547
-------- ------- ----------- --------
Total current liabilities............................... 443,333 6,727 450,060
-------- ------- ----------- --------
Long-term debt due after one year........................... 43,958 4,331 60,000(a) 108,289
Minority interest........................................... 413 -- 413
Shareholders' equity:
Preferred shares..........................................
Class A common shares..................................... 122 8 (8)(a) 122
Class B common shares..................................... 153 153
Additional paid-in capital................................ 140,980 189 (189)(a) 140,980
Retained earnings......................................... 248,914 1,725 (1,725)(a) 248,914
-------- ------- ----------- --------
Total shareholders' equity.............................. 390,169 1,922 (1,922) 390,169
-------- ------- ----------- --------
$877,873 $12,980 $58,078 $948,931
-------- ------- ----------- --------
-------- ------- ----------- --------
</TABLE>
7
<PAGE>
PACIFICARE HEALTH SYSTEMS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
FOR THE NINE MONTHS ENDED JUNE 30, 1994
<TABLE>
<CAPTION>
THE ACQUIRED PRO FORMA PRO FORMA
COMPANY COMPANIES ADJUSTMENTS RESULTS
---------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue:
Premiums.................................................. $2,083,901 $ 69,121 $ (245)(b) $2,152,777
Other income.............................................. 28,530 4,394 (291)(c) 32,633
---------- ------------ ----------- ----------
Total operating revenue................................. 2,112,431 73,515 (536) 2,185,410
---------- ------------ ----------- ----------
Expenses:
Health care services...................................... 1,740,471 53,231 (205)(b) 1,793,497
Marketing, general and administrative..................... 279,293 16,155 5,669(d) 301,117
Amortization of intangibles............................... 2,471 31 1,381(e) 3,883
---------- ------------ ----------- ----------
Operating income............................................ 90,196 4,098 (7,381) 86,913
Interest income............................................. 19,432 5 (273)(f) 19,164
Interest expense............................................ (1,435 ) (363 ) (1,890)(g) (3,688)
---------- ------------ ----------- ----------
Income before income taxes and cumulative effect of a change
in accounting principle.................................... 108,193 3,740 (9,544) 102,389
Provision for income taxes.................................. 45,814 1,015 (2,781)(h) 44,048
---------- ------------ ----------- ----------
Income before cumulative effect of a change in accounting
principle.................................................. 62,379 2,725 (6,763) 58,341
Cumulative effect on prior years of a change in accounting
principle.................................................. 5,658 5,658
---------- ------------ ----------- ----------
Net income.................................................. $ 68,037 $ 2,725 $(6,763) $ 63,999
---------- ------------ ----------- ----------
---------- ------------ ----------- ----------
Weighted average common shares and equivalents outstanding
used to calculate earnings per share....................... 27,948 27,948 27,948 27,948
---------- ------------ ----------- ----------
Earnings per share:
Before cumulative effect of a change in accounting
principle................................................ $2.23 $0.10 $(0.24) $2.09
Cumulative effect on prior years of a change in accounting
principle................................................ 0.20 -- -- 0.20
---------- ------------ ----------- ----------
Earnings per share........................................ $2.43 $0.10 $(0.24) $2.29
---------- ------------ ----------- ----------
---------- ------------ ----------- ----------
</TABLE>
8
<PAGE>
PACIFICARE HEALTH SYSTEMS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
FOR THE YEAR ENDED SEPTEMBER 30, 1993
<TABLE>
<CAPTION>
THE ACQUIRED PRO FORMA PRO FORMA
COMPANY COMPANIES ADJUSTMENTS RESULTS
---------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue:
Premiums.................................................. $2,200,150 $183,365 $ (828)(b) $ 2,382,687
Other income.............................................. 20,923 10,373 (3,378)(c) 27,918
---------- ------------ ----------- -----------
Total operating revenue................................. 2,221,073 193,738 (4,206) 2,410,605
---------- ------------ ----------- -----------
Expenses:
Health care services...................................... 1,850,469 145,987 (696)(b) 1,995,760
Marketing, general and administrative..................... 279,865 41,701 4,490(d) 326,056
Amortization of intangibles............................... 3,495 322 2,859(e) 6,676
---------- ------------ ----------- -----------
Operating income............................................ 87,244 5,728 (10,859) 82,113
Interest income............................................. 23,459 162 (1,286)(f) 22,335
Interest expense............................................ (2,376 ) (479) (2,520)(g) (5,375)
---------- ------------ ----------- -----------
Income before income taxes.................................. 108,327 5,411 (14,665) 99,073
Provision for income taxes.................................. 45,631 1,765 (4,206)(h) 43,190
---------- ------------ ----------- -----------
Net income.................................................. $ 62,696 $ 3,646 $(10,459) $ 55,883
---------- ------------ ----------- -----------
---------- ------------ ----------- -----------
Weighted average common shares and equivalents outstanding
used to calculate earnings per share....................... 27,847 27,847 27,847 27,847
---------- ------------ ----------- -----------
Earnings per share.......................................... $2.25 $0.13 $(0.37) $2.01
---------- ------------ ----------- -----------
---------- ------------ ----------- -----------
<FN>
- ------------------------
</TABLE>
9
<PAGE>
PACIFICARE HEALTH SYSTEMS, INC,
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1994
YEAR ENDED SEPTEMBER 30, 1993
Pro forma Condensed Balance Sheet as of June 30, 1994:
(a) The purchase price of the Pasteur Acquisition is assumed to be funded
through borrowings under the Company's long-term line of credit. Under
purchase accounting, the assets and liabilities of Pasteur are required to
be adjusted to estimated fair values. For the purpose of preparing the pro
forma financial statements, the entire excess of the cost of the Company's
acquisition over the book value of Pasteur's net assets at the assumed date
of acquisition (June 30, 1994) has been allocated to goodwill. Pasteur's
assets will be adjusted to fair values as of the actual date of acquisition.
Pro forma Condensed Income Statement for the nine months ended June 30, 1994 and
year ended September 30, 1993:
(b) This entry represents the reduction in premium revenue and health care
services expense related to employee health coverage provided by the Company
to the Acquired Companies.
(c) This entry represents the elimination of administrative fees paid by the
Company to certain Acquired Companies and recognized as other income by such
Acquired Companies prior to acquisition.
(d) The Company assumes that marketing, general and administrative expenses for
the nine months ended June 30, 1994 and year ended September 30, 1993
totaling approximately $6 million and $8 million, respectively, will be
incurred for the integration of acquisitions. These amounts are offset by
reductions in marketing, general and administrative expenses of $331,000 and
$3,510,000 related to footnotes (b) and (c) above for the nine months ended
June 30, 1994 and the year ended September 30, 1993, respectively.
(e) Under purchase accounting, the assets and liabilities of the Acquisitions
are required to be adjusted to estimated fair values. For the purpose of
preparing the pro forma financial statements, goodwill was determined based
on the excess of the purchase price over the fair values of net assets
acquired for completed acquisitions, and the excess of the purchase price
over book value of Pasteur's net assets at June 30, 1994. Pasteur's assets
will be adjusted to fair values as of the actual date of acquisition. This
entry represents the amortization of goodwill from the beginning of each pro
forma period through the acquisition date assuming straight-line
amortization over forty years as if the acquisitions were completed at
October 1, 1993 and 1992, respectively.
(f) This entry represents the reduction of interest income from the beginning of
each pro forma period through the acquisition date assuming cash payments of
$28 million and $32 million were made at October 1, 1993 and 1992,
respectively. The interest income is assumed to be earned at an average rate
of four percent.
(g) The Pasteur Acquisition is assumed to be funded using borrowings under the
Company's long-term line of credit at an interest rate of 4.20 percent. This
entry represents additional interest expense incurred for the nine months
ended June 30, 1994 and year ended September 30, 1993, as if the
Acquisitions were completed at October 1, 1993 and 1992, respectively.
(h) This entry represents the tax effect of the pro forma adjustment, excluding
goodwill amortization, at the statutory rate in effect during the nine
months ended June 30, 1994 and year ended September 30, 1993.
10
<PAGE>
USE OF PROCEEDS
The net proceeds of this offering will be used by the Company to increase
working capital and for general corporate purposes. Such purposes may include
the introduction of new products and services, increased investment in existing
operations and expansion of geographic markets, which may include states in
which the Company currently does not have a presence.
PRICE RANGE OF COMMON STOCK
The Class A and Class B Common Stock are traded on the over-the-counter
market and are listed on the NASDAQ National Market System under the symbols
PHSYA and PHSYB, respectively. The following tables set forth, for the indicated
periods, the high and low last reported sale prices per share of (i) the Prior
Common Stock and (ii) the Class A and Class B Common Stock after the
Recapitalization, as furnished by NASDAQ. All prices per share of Prior Common
Stock have been divided by two to reflect the June 1992 Stock Dividend, which
had the same effect on the total number of shares of common stock and
equivalents outstanding as a two-for-one stock split.
<TABLE>
<CAPTION>
PRIOR
COMMON STOCK
------------------
<S> <C> <C>
FISCAL PERIOD HIGH LOW
- -------------------------------------------------- ------- --------
1992
First Quarter................................... $20 $ 10 7/8
Second Quarter.................................. 31 18 3/4
Third Quarter (through June 4, 1992)............ 30 1/8 25 1/2
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK
----------------- -----------------
HIGH LOW HIGH LOW
------- ------- ------- -------
<S> <C> <C> <C> <C>
1992
Third Quarter (commencing June 5, 1992
through June 30, 1992)............... $30 3/4 $28 3/4 $29 1/2 $23 7/8
Fourth Quarter........................ 43 26 1/4 38 22 1/2
1993
First Quarter......................... 51 38 44 3/4 32 1/2
Second Quarter........................ 56 3/4 30 1/2 49 20 5/8
Third Quarter......................... 44 34 40 28 5/8
Fourth Quarter........................ 43 3/4 31 40 3/4 29 1/2
1994
First Quarter......................... 42 1/4 31 41 1/2 29 7/8
Second Quarter........................ 57 38 1/4 56 3/8 37 3/4
Third Quarter......................... 59 3/4 47 1/2 59 1/2 47 1/2
Fourth Quarter (Through August 31,
1994)............................... 72 47 70 46
</TABLE>
The last reported sale prices of the Class A and Class B Common Stock as
quoted on the NASDAQ National Market System on August 31, 1994 were $72 and
$68 3/4 per share, respectively. As of August 15, 1994, there were approximately
313 and 245 holders of record of the Class A and Class B Common Stock,
respectively. Based upon information available to it, the Company believes that
there are at least 25,000 beneficial holders in the aggregate of the Class A and
Class B Common Stock.
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock. The
Company currently anticipates that no cash dividends on its Common Stock will be
declared in the foreseeable future and that all of its earnings will be retained
for the development of the Company's business. Any future dividends would be
conditioned upon, among other things, future earnings, the financial condition
of the Company and regulatory requirements, which may limit the Company's
ability to pay dividends.
11
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of June 30, 1994.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Actual
---------------
Current maturities of long-term debt........................ $ 8,299
---------------
---------------
Long-term debt, excluding current maturities................ $ 43,958
---------------
Shareholders' equity:
Preferred shares, par value $1.00 per share; 10,000,000
authorized;
none issued............................................... --
Class A Common Shares, par value $0.01 per share; 30,000,000
shares
authorized; 12,216,333 shares issued (1).................. 122
Class B Common Shares, par value $0.01 per share; 60,000,000
shares
authorized; 15,241,657 shares issued (1).................. 153
Additional paid-in capital.................................. 140,980
Retained earnings........................................... 248,914
---------------
Total shareholders' equity................................ 390,169
---------------
Total capitalization.................................... $ 434,127
---------------
---------------
<FN>
- ------------------------
(1) Excludes 472,984 shares of Class A Common Stock and 1,303,061 shares of
Class B Common Stock issuable upon the exercise of outstanding stock
options as of June 30, 1994. See Note 1 on page 4 for information as of a
more recent date.
</TABLE>
12
<PAGE>
DESCRIPTION OF SECURITIES
REGISTERED EQUITY PURCHASE CONTRACTS
The description of the Contracts set forth below is qualified in its
entirety by reference to the form of Registered Equity Purchase Contract which
is an exhibit to the Registration Statement of which this Prospectus is a part.
MANDATORY PURCHASE
Each Contract obligates the Group which is a party thereto to purchase a
specific amount of the Contract Shares. (See "Plan of Distribution" for an
explanation of how the number of Shares offered to each Group will be
determined.) On May 1, 1996 and on each May 1 thereafter through and including
May 1, 2000 (each, a "Purchase Date"), a Group shall purchase 20 percent of its
Contract Shares (the "Purchase Date Shares"). The Purchase Date Shares shall be
purchased at a price per share (the "Purchase Price") equal to the last sale
price of the Class B Common Stock as quoted on the NASDAQ National Market System
on December 1, 1994. Each Contract requires the Group which is a party thereto
to purchase the Purchase Date Shares on each Purchase Date at the Purchase Price
even if the market price of the Class B Common Stock is less than the Purchase
Price on such Purchase Date. The Purchase Price may be subjected to adjustment
upon the occurrence of certain events. See "-- Anti-Dilution."
STATUS OF HOLDER OF CONTRACT
Prior to the purchase of the Contract Shares, the Group will not as such be
a stockholder of the Company or have any rights or privileges of a stockholder.
However, for purposes of certain disclosure and reporting obligations imposed
pursuant to the Exchange Act, a Group may be deemed at certain times to
"beneficially own" all or some portion of the Contract Shares.
ANTI-DILUTION
Each Contract will provide that the Purchase Price and the number of shares
of Class B Common Stock that the Groups have the obligation to purchase will be
subject to adjustment if the Company: (i) pays a dividend or makes a
distribution on its Class B Common Stock in shares of its Class B Common Stock;
(ii) subdivides its outstanding shares of Class B Common Stock into a greater
number of shares; (iii) combines its outstanding shares of Class B Common Stock
into a smaller number of shares; (iv) makes a distribution on its Class B Common
Stock in shares of its capital stock other than Common Stock; (v) issues by
reclassification of its Class B Common Stock any shares of its capital stock; or
(vi) distributes to all holders of its Class B Common Stock any of its assets or
debt securities or any rights or warrants to purchase assets or securities of
the Company. No adjustment of the Purchase Price will be made until cumulative
adjustments amount to at least $0.25 per share.
RESTRICTIONS ON TRANSFER AND EXCHANGES
A Contract shall be the obligation of the Group and such obligation cannot
be sold, transferred or assigned. In the event of a merger, consolidation,
reorganization or other similar event where the Group is not the surviving
entity, the surviving entity shall not succeed to any of the Group's rights
under the Contract without the prior written consent of the Company. Subsequent
to purchase, the Purchase Date Shares will be fully transferable.
In case a Contract shall be mutilated, lost, stolen or destroyed, the
Company may, in its discretion, issue, in exchange and substitution for and upon
cancellation of the mutilated Contract or in lieu of and substitution for the
Contract so mutilated, lost, stolen or destroyed, a new Contract representing
the same aggregate purchase obligation. Such new Contract will be issued only
upon surrender of the mutilated Contract to the Company or receipt of evidence
satisfactory to the Company of such loss, theft or destruction of the Contract
and provision for indemnity, if requested.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company may, without the consent of the Groups, consolidate with, merge
into or transfer its assets substantially as an entirety to any corporation,
provided that the successor corporation assumes the Company's obligations under
the Contracts. If the Company undergoes a capital reorganization or a
13
<PAGE>
reclassification of its Class B Common Stock, including a capital reorganization
or a reclassification in connection with any consolidation or merger in which
the Company is the surviving corporation (other than a subdivision or
combination of outstanding shares of Class B Common Stock), or if the Company
consolidates with, or merges with or into any other corporation or sells the
properties and assets of the Company as, or substantially as, an entirety to any
other business organization, each Contract shall, after such capital
reorganization, reclassification, consolidation, merger or sale, represent the
obligation and the right to purchase the number of shares of stock or other
securities or property (including cash) to which the Contract Shares issuable
upon purchase thereof pursuant to the Contract would have been entitled upon
such capital reorganization, reclassification of the Class B Common Stock,
consolidation, merger or sale.
EVENTS OF DEFAULT
In the case of an Event of Default under clauses (i) through (v) below, the
Company shall at its option either terminate the Contract thereby relieving the
Company and the Group of all rights and obligations thereunder or accelerate the
payment of the Total Purchase Price (as defined below). In the case of an Event
of Default under clauses (vi) and (vii) below, the Company shall terminate the
Contract and the Company and the Group shall be relieved of all rights and
obligations under the Contract.
An Event of Default will consist of the following events: (i) termination of
the agreement between the Group and the Company whereby the Group agrees to
provide health care services (the "Provider Agreement"); (ii) failure by the
Group to maintain its strategic alliance with the Company or failure to meet its
performance goals under the strategic alliance; (iii) default in the payment of
the Purchase Date Price on any Purchase Date and continuance of such default for
a period of 15 days; (iv) entry of a decree or order by a court having
jurisdiction in the premises adjudging the Group a bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization, arrangement,
adjustment or composition of or in respect of the Group under the Federal
Bankruptcy Act or any other applicable federal or state law, or appointing a
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Group or of any substantial part of its property, or ordering
the winding up or liquidation of its affairs, and the continuance of any such
decree or order unstayed and in effect for a period of 60 consecutive days; (v)
institution by the Group of proceedings to be adjudicated a bankrupt or
insolvent, or the consent by the Group to the institution of bankruptcy or
insolvency proceedings against it, or the filing by the Group of a petition or
answer or consent seeking reorganization or relief in respect of it or its
property under the Federal Bankruptcy Act or any other applicable federal or
state law, or the consent by the Group to the filing of any such petition or to
the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or
other similar official) of the Group or of any substantial part of its property,
or the making by the Group of a general assignment for the benefit of creditors;
(vi) entry of a decree or order by a court having jurisdiction in the premises
adjudging the Company a bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustment or composition of or in
respect of the corporation under the Federal Bankruptcy Act or any other
applicable federal or state law, or appointing a receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) of the corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and the continuance of any such decree or order unstayed and in
effect for a period of 60 consecutive days; or (vii) institution by the Company
of proceedings to be adjudicated a bankrupt or insolvent, or the consent by the
Company to the institution of bankruptcy or insolvency proceedings against it,
or the filing by the Company of a petition or answer or consent seeking
reorganization or relief in respect of it or its property under the Federal
Bankruptcy Act or any other applicable federal or state law, or the consent by
the Company to the filing of any such petition or to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Company or of any substantial part of its property, or the
making by the Company of a general assignment for the benefit of creditors.
Termination of a Contract shall not affect any Contract Shares previously
purchased under the Contract.
The failure by a Group to purchase and pay for the Purchase Date Shares on a
Purchase Date is not compensable by any measure of damages which would be less
than payment of the total consideration due under a Contract (the "Total
Purchase Price"). In the event that an action is instituted or defended by the
Company in consequence of a default by the Group in the performance of a Group's
obligation to purchase
14
<PAGE>
and pay for the Contract Shares, the damages to be assessed against the Group
shall be the Total Purchase Price, plus interest at a rate equal to greater of
the prime rate plus two percent or the maximum legal rate from the date of
default, plus the costs of litigation. The Company may also seek any available
equitable remedy.
PAYMENT
The total consideration due on each Purchase Date (the "Purchase Date
Price") for the Purchase Date Shares on each Purchase Date shall be payable to
the Company in care of the Company's Treasurer at the offices of the Company in
lawful money of the United States of America by certified or official bank check
in Los Angeles Clearing House (same day) Funds payable to or upon the order of
the Company. The Company shall not be obligated to sell the Purchase Date Shares
or deliver any certificates representing the Purchase Date Shares unless it
shall have received payment in full of the Purchase Date Price for the Purchase
Date Shares on each Purchase Date. A Group will not have the ability to purchase
or pay for any of the Contract Shares prior to a Purchase Date or in any amount
other than the number of Shares equal to the Purchase Date Shares.
NO FRACTIONAL SHARES
The Company shall not issue or sell any fraction of a share, but in any case
where a Group would be entitled to receive a fraction of a share, the Company
shall, upon the purchase by the Group of the Purchase Date Shares, pay in cash
to the Group, in lieu of such fractional share, a sum equal to the same fraction
of the Purchase Price per share then applicable under the Contract.
CAPITAL STOCK
The authorized capital stock of the Company consists of 30 million shares of
Class A Common Stock, par value $0.01 per share, 60 million shares of Class B
Common Stock, par value $0.01 per share, and 10 million shares of Preferred
Stock, par value $1.00 per share (the "Preferred Stock"). As of August 15, 1994,
there were 12,225,333 shares of Class A Common Stock outstanding, 15,269,578
shares of Class B Common Stock outstanding and no shares of Preferred Stock
outstanding.
COMMON STOCK
The description of the Common Stock set forth below is qualified in its
entirety by reference to the Company's Registration Statement on Form 8-A (File
No. 0-14181), dated May 20, 1992, incorporated in this Prospectus by reference.
VOTING. Actions submitted to a vote of stockholders will generally be voted
on only by holders of Class A Common Stock. Except as provided below under the
Certificate of Incorporation of the Company and the Delaware General Corporation
Law, only the affirmative vote of the holders of a majority of the outstanding
shares of Class A Common Stock entitled to vote will be required to amend the
Certificate of Incorporation, to authorize additional shares of Class A Common
Stock, to approve any merger or consolidation of the Company with or into any
other corporation or to approve the dissolution of the Company. The holders of
Class A Common Stock will elect the entire Board of Directors. In addition, as
permitted under the Delaware General Corporation Law, the Certificate of
Incorporation provides that the number of authorized shares of the Class B
Common Stock may be increased or decreased (but not below the number of shares
then outstanding) by the affirmative vote of the holders of a majority of the
Class A Common Stock.
Under the Delaware General Corporation Law, holders of Class B Common Stock
will be entitled to vote as a class on any merger or consolidation of the
Company which involves an amendment to the Company's Certificate of
Incorporation if the amendment would have an adverse effect on the rights of the
Class B Common Stock, and on proposals to change the par value of the Class B
Common Stock or to alter or change the powers, preferences or special rights of
the shares of Class B Common Stock, including the Class B Protection feature
described below, which may affect them adversely.
DIVIDENDS AND OTHER DISTRIBUTIONS. Holders of the Class A Common Stock and
Class B Common Stock are entitled to equal per share cash dividends, and, except
as provided below, dividends paid in stock or
15
<PAGE>
property of the Company, when, as and if such dividends may be declared by the
Board of Directors and paid out of assets legally available therefor. Stock
dividends and stock splits would be declared and paid to holders of any class of
Common Stock only if such stock dividends and stock splits were declared and
paid to holders of all classes of Common Stock on an equal per share basis and
may be made: (i) in shares of Class B Common Stock to the holders of Class A
Common Stock and to the holders of Class B Common Stock; (ii) in shares of Class
A Common Stock to the holders of Class A Common Stock and in shares of Class B
Common Stock to the holders of Class B Common Stock; or (iii) in any other
authorized class or series of capital stock to the holders of both classes of
Common Stock. In the past, the Company has effected stock splits through stock
dividends on its outstanding Prior Common Stock to reduce the price of the stock
to levels which the Company believed made the stock more attractive. The Company
may issue stock dividends in the future for similar reasons. Upon the
liquidation, dissolution or winding up of the affairs of the Company, each share
of Class A Common Stock and each share of the Class B Common Stock would receive
the remaining net assets of the Company on an equal basis.
MERGERS OR CONSOLIDATIONS. Each holder of Class B Common Stock will be
entitled to receive the same per share consideration as the per share
consideration, if any, received by any holder of the Class A Common Stock in a
merger or consolidation of the Company (whether or not the Company is the
surviving corporation).
CLASS B PROTECTION. If any person or group acquires beneficial ownership of
10 percent or more of the then issued and outstanding shares of Class A Common
Stock after the effective date of the amendment to the Company's Certificate of
Incorporation which reclassified the Prior Common Stock into Class A Common
Stock and Class B Common Stock (the "Reclassification Amendment") (excluding the
number of shares beneficially owned by such person or group before the effective
time of the Reclassification Amendment and other than upon issuance or sale by
the Company, by operation of law, by will or the laws of descent and
distribution, by gift or by foreclosure of a bona fide loan), and such person or
group (a "Significant Shareholder") does not then own an equal or greater
percentage of all outstanding shares of Class B Common Stock acquired after the
June 1992 Stock Dividend record date (the "Dividend Date"), such Significant
Shareholder must within a 90-day period beginning the day after becoming a
Significant Shareholder, make a public tender offer to acquire additional shares
of Class B Common Stock (a "Class B Protection Transaction"). The 10 percent
ownership threshold for the Class A Common Stock which triggers a Class B
Protection Transaction may not be waived by the Board of Directors nor may the
Board of Directors amend this threshold in the Certificate of Incorporation
without shareholder approval. For purposes of this provision, "beneficial
ownership" and "group" have the meanings of such terms as used in Rule 13d-1
promulgated under the Exchange Act.
In a Class B Protection Transaction, the Significant Shareholder must offer
to acquire from the holders of the Class B Common Stock that number of shares of
additional Class B Common Stock (the "Additional Shares") determined by (i)
multiplying the percentage of outstanding Class A Common Stock owned by such
Significant Shareholder which were acquired after the effective date of the
Reclassification Amendment, by the total number of shares of Class B Common
Stock outstanding on the date such person or group became a Significant
Shareholder, and (ii) subtracting therefrom the total number of shares of Class
B Common Stock owned by such Significant Shareholder on such date and acquired
after the Dividend Date by such Significant Shareholder. The Significant
Shareholder must acquire all shares validly tendered or, if the number of shares
tendered exceeds the number determined pursuant to such formula, a pro rata
amount from each tendering holder.
The offer price for any shares required to be purchased by the Significant
Shareholder pursuant to this provision is the greater of (i) the highest price
per share paid by the Significant Shareholder for any share of Class A Common
Stock in the six-month period ending on the date such person or group became a
Significant Shareholder or (ii) the highest price of a share of the Class A
Common Stock or Class B Common Stock on the NASDAQ National Market System (or
such other quotation system or securities exchange constituting the principal
trading market for either class of Common Stock) on the date such person or
group became a Significant Shareholder or (iii) the highest bid price for a
share of Class A Common Stock or
16
<PAGE>
Class B Common Stock on the NASDAQ National Market System (or such other
quotation system or securities exchange constituting the principal trading
market for either class of Common Stock) on the date preceding the date the
Significant Shareholder engages in a Class B Protection Transaction.
A Class B Protection Transaction would also be required of any Significant
Shareholder that acquires the next highest integral multiple of five percent
(e.g., 15%, 20%, 25%, etc.) of the outstanding Class A Common Stock after the
effective date of the Reclassification Amendment (other than upon original
issuance by the Company, by operation of law, by will or the laws of descent and
distribution, by gift, or by foreclosure of a bona fide loan), and such
Significant Shareholder does not own an equal or greater percentage of all
outstanding shares of Class B Common Stock acquired after the Dividend Date.
Such Significant Shareholder would be required to offer to buy that number of
Additional Shares prescribed by the formula set forth above, even if a previous
offer resulted in fewer shares of Class B Common Stock being tendered than such
previous offer included. The Class B Protection feature does not restrict the
sale of the Class B Common Stock. Accordingly, compliance with the Class B
Protection feature will be determined only at the time Class A Common Stock is
acquired.
The requirement to engage in a Class B Protection Transaction is satisfied
by making the requisite offer and purchasing validly tendered shares, even if
the number of shares tendered is less than the number of shares included in the
required offer. The penalty applicable to any Significant Shareholder that fails
to make an offer required, or to purchase shares validly tendered (after
proration, if any), would be to suspend automatically the voting rights of the
shares of Class A Common Stock owned by such Significant Shareholder until
consummation of an offer as required or until divestiture of the shares of Class
A Common Stock that triggered the offer requirement. Neither the Class B
Protection Transaction requirement nor the related penalty applies to any
increase in percentage ownership of Class A Common Stock resulting solely from a
change in the total amount of Class A Common Stock outstanding.
CONVERTIBILITY. Neither the Class A Common Stock nor the Class B Common
Stock is convertible into another class of Common Stock or any other security of
the Company, except that (i) the Class B Common Stock will automatically convert
into Class A Common Stock on a share-for-share basis if at any time the number
of currently authorized and issued shares of Class A Common Stock, not including
treasury shares, is less than 10 percent of the aggregate number of shares of
outstanding Class A Common Stock and Class B Common Stock together, or (ii) the
Class B Common Stock could be converted into Class A Common Stock on a
share-for-share basis by the Board of Directors if, as a result of the existence
of the Class B Common Stock, either class of Common Stock becomes excluded from
trading on all principal national securities exchanges and also is excluded from
quotation on NASDAQ and any comparable national quotation system then in use. In
making the determination for (ii) above, the Board may conclusively rely on any
information or documentation available to it, including filings made with the
Commission, any stock exchange, the National Association of Securities Dealers,
Inc. or any other governmental or regulatory agencies or any written instrument
purporting to be authentic. Upon such conversion, the voting interests of the
holders of Class A Common Stock would be diluted. In addition, to the extent
that the Class A Common Stock has a market price which is higher than the Class
B Common Stock market price immediately prior to such conversion, such
conversion may have the effect of decreasing the market price of the Class A
Common Stock.
In the event of any such conversion of the Class B Common Stock,
certificates which formerly represented outstanding shares of Class B Common
Stock will thereafter be deemed to represent a like number of shares of Class A
Common Stock and all shares of Common Stock authorized by the Certificate of
Incorporation will be deemed to be shares of Class A Common Stock.
PREEMPTIVE RIGHTS. The Class A and Class B Common Stock do not carry any
preemptive rights enabling a holder to subscribe for or receive shares of any
class of stock of the Company or any other securities convertible into shares of
any class of stock of the Company.
17
<PAGE>
PREFERRED STOCK
The terms of the Preferred Stock, or any series thereof, may be determined
from time to time by the Board of Directors. Such shares may be convertible into
shares of Common Stock and may have a rank superior to the Common Stock in
payment of dividends, liquidation rights, voting and other rights, preferences
and privileges. Shares of Preferred Stock may be issued from time to time by
authorization of the Board of Directors of the Company without the vote of
holders of the Common Stock. The Company has no present plans to issue any
Preferred Stock.
PLAN OF DISTRIBUTION
The Company will offer the right to enter into the Contracts directly to
certain Groups which currently contract with the Company to provide a defined
range of health care services. The Shares are being offered to the Groups in
order to develop more strategic and long term alliances with such Groups. Each
Group will be offered a specific number of Shares to be determined by the
Company based upon the extent of each Group's alliance with the Company. Through
this offering, the Company is trying to distinguish itself in the marketplace by
forming strategic alliances with Groups who can assist the Company in its desire
to continuously improve health care services in terms of quality, efficiency and
cost-effectiveness. The Company intends to offer the right to enter into the
Contracts to approximately 50 Groups. Upon agreeing to purchase the Shares, each
Group will enter into a Contract whereby it will be irrevocably obligated to
purchase the Contract Shares. See "Description of the Securities -- Equity
Purchase Contracts." Sales of the Shares will be conducted by employees of the
Company and no commissions will be paid in connection with the offer and sale of
the Shares.
LEGAL MATTERS
The validity of the Class B Common Stock and the Contracts offered hereby
will be passed upon for the Company by Shereff, Friedman, Hoffman & Goodman, New
York, New York.
EXPERTS
The Consolidated Financial Statements of the Company included in the
Company's Annual Report (Form 10-K) for the year ended September 30, 1993, have
been audited by Ernst & Young, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
18
<PAGE>
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Recent Developments............................ 6
Use of Proceeds................................ 11
Price Range of Common Stock.................... 11
Dividend Policy................................ 11
Capitalization................................. 12
Description of Securities...................... 13
Plan of Distribution........................... 18
Legal Matters.................................. 18
Experts........................................ 18
</TABLE>
PACIFICARE HEALTH
SYSTEMS, INC.
750,000 SHARES
CLASS B COMMON STOCK
REGISTERED EQUITY PURCHASE CONTRACTS
-------------------
PROSPECTUS
-------------------
SEPTEMBER 1, 1994
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee............... $ 17,651
NASDAQ Fee........................................................ 15,000
Printing and Engraving............................................ 50,000
Legal Fees and Expenses (other than Blue Sky)..................... 80,000
Blue Sky Fees and Expenses........................................ 5,000
Accounting Fees and Expenses...................................... 12,000
Transfer Agent Fees............................................... 1,500
Miscellaneous..................................................... 1,849
---------
Total......................................................... $ 183,000
---------
---------
</TABLE>
All of the above items except the registration fee and the NASDAQ fee are
estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The indemnification of officers and directors of the Company is governed by
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL"). Among other things, the DGCL permits indemnification of a director,
officer, employee or agent in civil, criminal, administrative or investigative
actions, suits or proceedings (other than an action by or in the right of the
corporation) to which such person is a party or is threatened to be made a party
by reason of the fact of such relationship with the corporation or the fact that
such person is or was serving in a similar capacity with another entity at the
request of the corporation against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him if such person acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, if he had no reasonable cause to
believe his conduct was unlawful. Indemnification in a suit by or in the right
of the corporation is permitted if such person acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation, but no indemnification may be made in such suit to any person
adjudged to be liable to the corporation unless and only to the extent that the
Delaware Court of Chancery or the court in which the action was brought
determines that despite the adjudication of liability, such person is, under all
circumstances, fairly and reasonably entitled to indemnity for such expenses
which such court shall deem proper. Under the DGCL, to the extent that a
director, officer, employee or agent is successful, on the merits or otherwise,
in the defense of any action, suit or proceeding or any claim, issue or matter
therein (whether or not the suit is brought by or in the right of the
corporation), he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him. In all cases in which
indemnification is permitted (unless ordered by a court), it may be made by the
corporation only as authorized in the specific case upon a determination that
the applicable standard of conduct has been met by the party to be indemnified.
The determination must be made by a majority vote of a quorum consisting of the
directors who were not parties to the action or, if such a quorum is not
obtainable, or even if obtainable, if a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or by the
stockholders. The statute authorizes the corporation to pay expenses incurred by
an officer or director in advance of a final disposition of a proceeding upon
receipt of an undertaking, by or on behalf of the person to whom the advance
will be made, to repay the advance if it shall ultimately be determined that he
was not entitled to indemnification. The DGCL provides that indemnification and
advances of expenses permitted thereunder are not to be exclusive of any rights
to which those seeking indemnification or advancement of expenses may be
entitled under any by-law, agreement, vote of stockholders or disinterested
directors, or otherwise. The DGCL also authorizes the corporation to purchase
and maintain liability insurance on behalf of its directors, officers, employees
and agents regardless of whether the corporation would have the statutory power
to indemnify such persons against the liabilities insured.
II-1
<PAGE>
The By-Laws of the Company (the "By-Laws") provide, in effect, that, to the
extent and under the circumstances described above, the Company shall indemnify
any person who was or is a party or is threatened to be made a party to any
action, suit or proceeding of the type described above by reason of the fact
that he is or was a director, officer, employee or agent of the Company or is or
was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise. The By-Laws also permit the Company to purchase insurance on behalf
of such persons against any liability whether or not the Company would have
power to indemnify him against such liability pursuant to the By-Laws. The
By-Laws further provide that the termination of any action, suit or proceeding
by judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that such person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful. In addition, indemnification provided by the By-Laws is deemed not
to be exclusive of any other rights to which those indemnified may be entitled,
both as to action in his official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such person.
The Certificate of Incorporation of the Company (the "Certificate") provides
that no director shall be personally liable to the Company or any stockholder
for monetary damages for breach of fiduciary duty as a director, except for any
matter in respect of which such director shall be liable under Section 174 of
the DGCL or any amendment thereto or successor provision thereto or shall be
liable by reason that, in addition to any and all other requirements for such
liability, he (i) shall have breached his duty of loyalty to the Company or its
stockholders, (ii) shall not have acted in good faith or, in failing to act,
shall not have acted in good faith, (iii) shall have acted in a manner involving
intentional misconduct or a knowing violation of law or, in failing to act,
shall have acted in a manner involving intentional misconduct or a knowing
violation of law, or (iv) shall have derived an improper personal benefit. The
Certificate further provides that no amendment or repeal of the rights herein
referenced, nor the adoption of any provision of the Certificate inconsistent
therewith, shall eliminate or reduce the effect of such rights in respect of any
matter occurring or any cause of action, suit or claim that, but for the
existence of such rights, would accrue or arise, prior to such amendment, repeal
or adoption of an inconsistent provision.
The Company maintains a directors, officers and trustees liability and
company reimbursement insurance policy which, among other things, provides for
(i) payment on behalf of any of the Company's past, present or future directors,
officers, trustees, employees, volunteers or any members of the Company's staff,
faculty or any duly constituted committee of the Insured Entity (as defined in
the policy) and other Insured Persons (as defined in the policy), against loss
(as defined in the policy) stemming from actual or alleged acts or omissions
committed by Insured Persons in their capacity as such, or while serving as
director or trustee of any non-profit entities at the express written direction
of the Insured Entity, and (ii) payment on behalf of the Insured Entity against
such loss for which the Insured Entity has paid as indemnification to or on
behalf of the Insured Person. The policy does not cover loss from claims made
against Insured Persons arising from, among other things, specified categories
of misconduct, including a claim against an Insured Person brought about or
contributed to in fact (1) by any dishonest or fraudulent act or omission or any
willful violation of any statute, rule of law or by any Insured (defined to
include the Insured Entity and any Insured Person) or (2) by any Insured gaining
any profit, remuneration or advantage to which such Insured was not entitled.
So long as the Company meets the securities ownership and other tests set
forth in Section 2115 of the California Corporations Code, Section 317 of such
Code provides that all corporations have the power to indemnify any person who
was or is a party to any proceeding (other than an action by or in the right of
the corporation to procure a judgment in its favor) by reason of the fact that
such person is or was an agent of the corporation, against expenses, judgments,
fines, settlements, and other amounts actually and reasonably incurred in
connection with such proceeding "if that person acted in good faith and in a
manner the person reasonably believed to be in the best interests of the
corporation and, in the case of a criminal proceeding, had no reasonable cause
to believe the conduct of the person was unlawful," and against expenses
actually and reasonably incurred by such person in connection with the defense
or settlement of any such action "if
II-2
<PAGE>
the person acted in good faith, in a manner the person believed to be in the
best interests of the corporation and its shareholders." Except in cases where
the agent being indemnified has been successful on the merits in defense of any
proceeding referred to, indemnification is proper only if it is determined that
the agent has met the applicable standards quoted above by (1) majority vote of
a quorum consisting of directors who are or were not parties to such proceeding,
or, if such a quorum of directors is not obtainable, by independent legal
counsel in a written opinion, (2) approval of the voting shareholders of the
corporation, with the shares owned by the indemnified persons not being entitled
to vote, or (3) the approval of the court in which such proceedings is, or was,
pending.
ITEM 16. EXHIBITS
(A) EXHIBITS
<TABLE>
<S> <C>
4.1 Form of Registered Equity Purchase Contract.*
4.2 Form of Class B Common Stock Certificate (incorporated by reference to
Registration Statement on Form 8-A (File No. 0-14181), dated May 20, 1992).
5.1 Opinion of Shereff, Friedman, Hoffman & Goodman.
23.1 Consent of Ernst & Young.*
23.2 Consent of Shereff, Friedman, Hoffman & Goodman (included in Exhibit 5.1).
24.1 Power of Attorney (appears on signature page).*
<FN>
- ------------------------
* Previously filed
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of
Cypress, State of California, on this 1st day of September, 1994.
PACIFICARE HEALTH SYSTEMS, INC.
By: ________/s/_ALAN R. HOOPS_________
Alan R. Hoops
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------------------------------- ---------------------
<C> <S> <C>
*
------------------------------------ Chairman of the Board September 1, 1994
Terry Hartshorn
/s/ ALAN R. HOOPS
------------------------------------ President and Chief Executive Officer September 1, 1994
Alan R. Hoops (Principal Executive Officer)
* Executive Vice President and
------------------------------------ Chief Financial Officer September 1, 1994
Wayne B. Lowell (Principal Financial Officer)
*
------------------------------------ Vice President and Corporate Controller September 1, 1994
Fred V. Ryder (Principal Accounting Officer)
*
------------------------------------ Director September 1, 1994
Eric Benveniste
*
------------------------------------ Director September 1, 1994
David R. Carpenter
------------------------------------ Director , 1994
Gary L. Leary
*
------------------------------------ Director September 1, 1994
David A. Reed
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------------------------------- ---------------------
<C> <S> <C>
*
------------------------------------ Director September 1, 1994
Warren E. Pinckert II
*
------------------------------------ Director September 1, 1994
Lloyd Ross
------------------------------------ Director , 1994
Dennis Strum
*By /s/ALAN R. HOOPS
Alan R. Hoops
Attorney-in-fact
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO. DESCRIPTION NUMBERED PAGE
- ------------ ----------------------------------------------------------------------------------- --------------
<S> <C> <C>
4.1 Form of Registered Equity Purchase Contract.*......................................
4.2 Form of Class B Common Stock Certificate (incorporated
by reference to Registration Statement on Form 8-A
(File No. 0-14181), dated May 20, 1992)...........................................
5.1 Opinion of Shereff, Friedman, Hoffman & Goodman.
23.1 Consent of Ernst & Young.*.........................................................
23.2 Consent of Shereff, Friedman, Hoffman & Goodman
(included in Exhibit 5.1).........................................................
24.1 Power of Attorney (appears on signature page).*....................................
</TABLE>
- ------------------------
* Previously filed
<PAGE>
EXHIBIT 5.1
(212) 891-9221
September 1, 1994
PacifiCare Health Systems, Inc.
5995 Plaza Drive
Cypress, California 90630
Dear Sirs:
PacifiCare Health Systems, Inc., a Delaware corporation (the "Company"),
has transmitted for filing with the Securities and Exchange Commission
a Registration Statement on Form S-3 under the Securities Act of 1933, as
amended, registration number 33-55297 (the "Registration Statement"),
relating to the offer and sale of up to 750,000 shares (the "Shares")
of the Company's Class B common stock, par value $.01 per share (the "Class B
Common Stock"), which will be sold by the Company to certain health care
provider groups. This opinion is an exhibit to the Registration Statement.
We have acted as special securities counsel to the Company in connection
with certain matters, and in such capacity we are familiar with the various
corporate and other proceedings relating to the proposed offer and sale of
the Shares as contemplated by the Registration Statement. We have examined
copies (in each case signed, certified or otherwise proved to our satisfaction
to be genuine) of the Company's Certificate of Incorporation, its By-Laws
as presently in effect, minutes and other instruments evidencing actions taken
by its directors and stockholders, the Registration Statement and exhibits
thereto and such other documents and instruments relating to the Company
and the proposed offering as we have deemed necessary under the circumstances.
Insofar as this opinion relates to securities to be issued in the future,
we have assumed that all applicable laws, rules and regulations in effect at
the time of such issuance are the same laws, rules and regulations in
effect as of the date thereof.
We note that we are members of the Bar of the State of New York and
that we are not admitted to the Bar of the State of Delaware. To the extent
that the opinion expressed herein involves the law of the State of Delaware,
our opinion is based solely upon our reading of the General Corporation
Law of the State of Delaware as reported by Prentice Hall Legal and Financial
Services.
Based on the foregoing, and subject to and in reliance on the accuracy
and completeness of the information relevant thereto provided to us, it is
our opinion that the Shares have been duly authorized, and (subject to
the effectiveness of the Registration Statement and compliance with applicable
<PAGE>
PacifiCare Health Systems, Inc.
September , 1994
Page 2
state securities laws) when issued and delivered against payment therefor in
accordance with the terms set forth in the Registration Statement, will be
legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and as an exhibit to any filing made by the
Company under the securities or "Blue Sky" laws of any state and to the
reference to this firm under the heading "Legal Matters" in the Registration
Statement.
This opinion is furnished to you as of the date hereof and we undertake
no obligation to advise you of any change in any matters herein, whether
legal or factual, after the date hereof. This opinion is furnished to
you in connection with the filing of the Registration Statement, and is not
to be used, circulated, quoted or otherwise relied upon for any other
purposes, except as expressly provided in the preceding paragraph.
Very truly yours,
SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN
RAG:SMZ:ESW
