<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
PacificCare Health Systems, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------
<PAGE>
PACIFICARE HEALTH SYSTEMS, INC.
5995 PLAZA DRIVE
CYPRESS, CALIFORNIA 90630
(714) 952-1121
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MARCH 6, 1996
TO THE SHAREHOLDERS OF PACIFICARE HEALTH SYSTEMS, INC.:
The Annual Meeting of Shareholders of PacifiCare Health Systems, Inc., a
Delaware corporation (the "Company"), will be held at the offices of the
Company, 5995 Plaza Drive, Cypress, California on Wednesday, March 6, 1996 at
10:00 a.m., Pacific Standard Time (P.S.T.), to vote upon the following matters:
(1) To elect two Directors of the Company;
(2) To approve adoption of an amendment to the Company's Certificate of
Incorporation, as amended, to increase the total number of shares
which the Company shall have the authority to issue;
(3) To approve the Amended 1992 Non-Officer Directors Stock Option Plan of
PacifiCare Health Systems, Inc.; and
(4) To transact such other business as may properly come before the
meeting and any adjournment thereof.
The Proxy Statement is being mailed to the holders of both the Class A
Common Stock and Class B Common Stock. Only the holders of Class A Common Stock
are entitled to vote at the March 6, 1996 Annual Meeting of Shareholders and
will receive a Proxy Card. The Proxy Statement is being mailed to the holders
of the Class B Common Stock for informational purposes only.
The Board of Directors has fixed the close of business on January 8, 1996
as the record date. Holders of record of the Class A Common Stock, as of that
date, are entitled to vote at the meeting. The Company invites the holders of
both classes of stock to attend the meeting in person.
TO THE HOLDERS OF CLASS A COMMON STOCK: Your attention is directed to the
accompanying Proxy Statement and Proxy Card. The Company invites you to attend
the meeting in person but if you are unable to be present, you are requested to
check the appropriate boxes, sign, date and return the enclosed Proxy Card as
promptly as possible so that your shares may be represented.
By order of the Board of Directors
Terry O. Hartshorn
CHAIRMAN OF THE BOARD
Cypress, California
January 23, 1996
<PAGE>
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS OF
PACIFICARE HEALTH SYSTEMS, INC.
TO BE HELD ON MARCH 6, 1996
APPROXIMATE DATE OF MAILING PROXY STATEMENT
AND PROXY TO SHAREHOLDERS
JANUARY 29, 1996
PROXY SOLICITATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of PacifiCare -Registered Trademark- Health
Systems, Inc., a Delaware corporation (the "Company"), in the form of the
accompanying proxy card (the "Proxy Card"), to be used at the Annual Meeting of
Shareholders to be held on March 6, 1996 (the "Annual Meeting").
The Proxy Statement is being mailed to the holders of both the Class A
Common Shares, par value $0.01 per share, of the Company (the "Class A Common
Stock") and the Class B Common Shares, par value $0.01 per share, of the Company
(the "Class B Common Stock"). The Class A Common Stock together with the
Class B Common Stock shall hereinafter be referred to as the "Common Stock."
Only the holders of the Class A Common Stock are entitled to vote at the Annual
Meeting and will receive a Proxy Card. This Proxy Statement is being mailed to
the holders of the Class B Common Stock for informational purposes only.
TO THE HOLDERS OF CLASS A COMMON STOCK: It is important that your shares
of Class A Common Stock be represented at the Annual Meeting whether or not you
plan to attend. Accordingly, you are asked to sign and return the Proxy Card in
order to ensure that your shares of Class A Common Stock are voted. Shares
cannot be voted at the meeting unless the shareholder is represented by proxy or
is present in person.
The shares of Class A Common Stock represented by the proxy will be voted
in accordance with the specifications or other indications set forth on the
Proxy Card.
The shareholder appointing a proxy has the power to revoke the appointment
by a later appointment received by the Company, or by giving notice of
revocation to the Company in writing or in open meeting. Any vote taken prior
to a revocation is not affected by such revocation. A revocable appointment of
proxy is not revoked by the death or incompetency of the shareholder, unless,
before the vote is taken or the authority is otherwise exercised, written notice
of such death or incompetency is received by the Company from the executor or
administrator of the estate of such shareholder or from the fiduciary having
control of the shares in respect of which the proxy was appointed.
VOTING SECURITIES
On January 8, 1996, there were 12,358,508 shares of Class A Common Stock
of the Company issued and outstanding and entitled to vote. Only those
shareholders of record of the Class A Common Stock at the close of business
on January 8, 1996 will be entitled to vote at the Annual Meeting. Each
outstanding share of Class A Common Stock is entitled to one vote on all
matters properly brought before the meeting. A majority of outstanding
voting shares is required for adoption of the amendment to the Company's
certificate of incorporation; a majority of the oustanding shares voting is
sufficient for approval of the Amended Directors Stock Option Plan (as
defined herein); and except as described below with regard to cumulative
voting for Directors, a plurality of shares voting may elect all of the
Directors. Abstentions and broker non-votes are counted for purposes of
-1-
<PAGE>
determining the presence or absence of a quorum for the transaction of business
but shall neither be counted as affirmative nor negative votes.
In the election of Directors, a shareholder may cumulate his votes for one
or more nominees, but only if, prior to the voting (a) such nominee(s) or
nominee's name(s) have been placed in nomination, and (b) the shareholder has
given notice at the meeting of his intention to cumulate his votes. If any one
shareholder has given such notice, all shareholders may cumulate their votes for
the nominees. If the voting for Directors is conducted by cumulative voting,
each share of Class A Common Stock will be entitled to a number of votes equal
to the number of Directors to be elected, which votes may be cast for a single
nominee or may be distributed among two or more nominees in such proportions as
the shareholder deems appropriate. The nominees receiving the highest number of
affirmative votes shall be elected. If no such notice is given, there will be
no cumulative voting which means a plurality of shares voting may elect all of
the Directors. In the event of cumulative voting, the proxy solicited confers
discretionary authority on the proxies to cumulate votes so as to elect the
maximum number of nominees.
ELECTION OF DIRECTORS
(ITEM 1 ON PROXY CARD)
Pursuant to the Company's Certificate of Incorporation, as amended (the
"Certificate of Incorporation"), members of the Board of Directors are
divided into three classes: Class I, Class II and Class III. The terms of
the Directors in each of these three classes are staggered and Directors in
each of the three classes hold office for a three-year term until their
successors have been duly elected and qualified. The number of authorized
members of the Company's Board of Directors is 10.
There are two nominees to be elected as Directors at the Annual Meeting.
It is the intention of the person(s) named in the Proxy Card to vote the proxies
in favor of the election of Directors of the two nominees named below unless the
authority is withheld in accordance with the instructions on the Proxy Card.
Both nominees are presently Directors of the Company. In the event the nominees
named below refuse or are unable to serve as Directors (which is not
anticipated), the persons named as proxies reserve full discretion to vote for
any or all persons as may be nominated.
Gary L. Leary and Warren E. Pinckert II are standing for reelection as
Class II Directors at the Annual Meeting. If reelected, Messrs. Leary and
Pinckert will serve as Class II Directors for a three-year term which expires as
of the 1999 Annual Meeting.
Terry Hartshorn was reelected and Alan Hoops was elected as Class I
Directors at the 1994 Annual Meeting. Jean Bixby Smith was elected as a Class I
Director at the 1995 Annual Meeting to fill a vacancy for a Class I Director at
that time. Messrs. Hartshorn and Hoops and Ms. Smith are all currently serving
terms which expire as of the 1997 Annual Meeting.
David Carpenter, David Reed and Lloyd Ross were reelected as Class III
Directors at the 1995 Annual Meeting and are serving as Class III Directors for
a three-year term which expires as of the 1998 Annual Meeting.
Two vacancies on the Board of Directors currently exist. The Board of
Directors has not as yet identified candidates to fill these vacancies. Proxies
cannot be voted for a greater number of persons than the number of nominees.
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<PAGE>
The following sets forth, as of the date hereof, information concerning the
two nominees for election as Directors of the Company.
POSITION WITH COMPANY (OTHER THAN AS A
DIRECTOR DIRECTOR), IF ANY; PRESENT PRINCIPAL
NAME AND AGE SINCE OCCUPATION FOR PAST FIVE YEARS
- --------------------------------------------------------------------------------
Gary L. Leary, 60 1989 Executive Vice President of UniHealth*
(as defined herein) since April 1992,
General Counsel of UniHealth since 1988,
Director and member of the Executive
Committee of UniHealth since 1988, and
Secretary of UniHealth's board since
November 1994. Mr. Leary has served as
Corporate Counsel to UniHealth and its
predecessor since 1977.
Warren E. Pinckert II, 52 1985 President, Chief Executive Officer and a
Director of Cholestech Corporation, a
medical device manufacturing firm, since
June 1993. Mr. Pinckert served as
Executive Vice President, Operations
from 1991 to June 1993, Vice President
of Finance and Business Development from
1989 to 1991, and Secretary from 1989 to
June 1993 of Cholestech Corporation.
Mr. Pinckert is a member of the
Compensation, Executive and Special
Opportunities Committees and is Chairman
of the Audit/Finance Committee. Mr.
Pinckert is a certified public
accountant.
* UniHealth is the single largest holder of the Company's Class A Stock.
The Board of Directors has established: (i) the Executive Committee;
(ii) the Audit/Finance Committee; (iii) the Compensation Committee; and (iv)
the Nominating Committee. In June 1994, the Board of Directors established
the Executive Committee as a standing committee of the Board with the members
comprised solely of the Chairman of the Board, the President and Chief
Executive Officer of the Company and the chairman of each standing committee
of the Board, except for the Special Opportunities Committee. The members of
the Executive Committee currently are Messrs. Hartshorn, Hoops, Carpenter and
Pinckert. The Executive Committee has all of the powers and authority of the
Board of Directors in the management of the business and affairs of the
Company. The Executive Committee held 11 meetings during fiscal 1995. The
Audit/Finance Committee, comprised of Messrs. Pinckert, Reed and Ross, meets
with the Company's independent auditors, makes recommendations to the Board
of Directors concerning acceptance of the reports of such auditors and the
accounting policies and procedures of the Company and reviews financial plans
and operating results of the Company. The Audit/Finance Committee held five
meetings during fiscal 1995. The Compensation Committee, comprised of
Messrs. Carpenter, Pinckert and Ross, meets with management and makes
recommendations to the Board of Directors concerning officer and key employee
compensation and contributions to be made by the Company to the Company's
employee benefit and performance incentive plans. The Compensation Committee
met six times during fiscal 1995. The Compensation Committee has formed a
sub-committee (the "Sub-Committee") to deal with compensation issues affected
by Section 162(m) and the regulations promulgated thereunder ("Section
162(m)") of the Internal Revenue Code of 1986, as amended (the "Code").
Accordingly, the Sub-Committee also administers the Employee Plan (as defined
herein), the LTPIP (as defined herein) and the MICP (as defined herein). The
Sub-Committee is comprised of Messrs. Pinckert and Ross. The Nominating
Committee, comprised of Messrs. Carpenter, Hartshorn and Hoops, considers
candidates for the directorships of the Company which are, or become vacant,
and makes recommendations to the Board of Directors concerning the nomination
of such candidates. The Nominating Committee does not consider nominees
recommended by shareholders of the Company.
-3-
<PAGE>
During fiscal 1995, the Board of Directors held 11 meetings. No Director,
except for Mr. Carpenter, attended fewer than 75 percent of the aggregate of (a)
the total number of meetings of the Board of Directors, and (b) the total number
of meetings held by all Committees of the Board on which they served.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth the names of those shareholders known to the
Company to be the beneficial owners (as defined under the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) of more than five percent of the
Company's outstanding shares of Class A Common Stock as of December 31, 1995.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
TITLE OF CLASS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ----------------- ------------------------ -------------------- --------
<S> <C> <C> <C>
Class A Common UniHealth 5,910,000 47.9%
Stock 3400 Riverside Drive
Burbank, CA 91505
The Capital Group Companies, Inc. 1,252,600(1) 10.2%
333 South Hope Street
Los Angeles, CA 90071
</TABLE>
UniHealth, a California nonprofit public benefit corporation
("UniHealth"), is the parent corporation in a multi-state health care delivery
system consisting of seven nonprofit medical centers and various for-profit
health care companies, including one company in the health maintenance
organization business. UniHealth has stated its intent to maintain a
significant interest in the Company as its single largest holder of Class A
Common Stock.
- -------------------------------
(1) Number of shares beneficially owned as of December 8, 1995 according to
a Schedule 13G filed with the Securities and Exchange Commission (the "SEC").
-4-
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the number of shares of the Company's Common
Stock, which are beneficially owned as of December 31, 1995, by: (1) each of
the Directors and nominees of the Company; (2) the Named Executive Officers (as
defined herein); and (3) all Executive Officers (as defined in Section 3b-7 of
the Exchange Act) and Directors of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP(1)
----------------------------------------------------------------------
CLASS A COMMON STOCK(2) CLASS B COMMON STOCK(3)
---------------------------------- ----------------------------------
NAME OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF CLASS NUMBER OF SHARES PERCENT OF CLASS
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Terry O. Hartshorn 212,000 1.7% 152,657 *
Alan R. Hoops 190,000 1.5% 187,130 1.0%
David R. Carpenter 6,900 * 9,900 *
Gary L. Leary 6,900 * 9,900 *
Warren E. Pinckert II 15,500 * 8,216 *
David A. Reed 300 * 1,700 *
Lloyd Ross 1,500 * 3,900 *
Jean Smith 230 * 425 *
Jeffrey Folick 4,000 * 45,000 *
Richard Lipeles 71,250 * 70,210 *
Wayne Lowell 18,800 * 26,272 *
Roger Taylor, M.D. 0 * 24,751 *
All Executive Officers and Directors
as a group (23 persons) 569,130 4.6% 657,116 3.5%
</TABLE>
- ------------------------------------
* Less than 1 percent of class.
(1) Information with respect to the beneficial ownership is based on
information furnished to the Company by each person in this table. Each
shareholder included in the table has sole voting and dispositive power with
respect to the shares of Common Stock shown to be beneficially owned by the
shareholder. Most of the shareholders included in this table reside in states
having community property laws under which the spouse of the shareholder, in
whose name the securities are registered, may be entitled to share in the
management of their community property, which may include the right to vote or
dispose of the shares of Common Stock.
(2) Includes stock options of Class A Common Stock exercisable within 60
days for the following named individuals and group, and number of shares: Mr.
Hartshorn, 89,000 shares; Mr. Hoops, 72,000 shares; Mr. Carpenter, 6,900 shares;
Mr. Leary, 6,900 shares; Mr. Pinckert, 15,184 shares; Mr. Reed, 0 shares; Mr.
Ross, 1,500 shares; Ms. Smith, 0 shares; Mr. Folick, 3,000 shares; Mr. Lipeles,
35,000 shares; Mr. Lowell, 14,500 shares; Dr. Taylor, 0 shares; and all
Executive Officers and Directors as a group (23 persons), 285,234 shares.
(3) Includes options of Class B Common Stock exercisable within 60 days for
the following named individuals and group, and number of shares: Mr. Hartshorn,
67,500 shares; Mr. Hoops, 94,250 shares; Mr. Carpenter, 9,900 shares; Mr. Leary,
9,900 shares; Mr. Pinckert, 7,900 shares; Mr. Reed, 1,500 shares; Mr. Ross,
3,900 shares; Ms. Smith, 0 shares; Mr. Folick, 41,750 shares; Mr. Lipeles,
44,400 shares; Mr. Lowell, 23,600 shares; Dr. Taylor, 23,916 shares; and all
Executive Officers and Directors as a group (23 persons), 439,316 shares.
-5-
<PAGE>
EXECUTIVE OFFICERS AND DIRECTORS OTHER THAN NOMINEES
The following table sets forth, as of the date hereof, information concerning
the Executive Officers and Directors other than nominees of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------------------------------------------------
<S> <C> <C>
Terry O. Hartshorn 50 Chairman of the Board
Alan R. Hoops 48 Director, President and Chief Executive
Officer
David R. Carpenter 56 Director
David A. Reed 62 Director
Lloyd Ross 54 Director
Jean Bixby Smith 57 Director
Jeffrey Folick 48 Executive Vice President and Chief
Operating Officer
Wayne Lowell 40 Executive Vice President, Chief
Administrative Officer
and Chief Financial Officer
Roger Taylor, M.D. 50 Executive Vice President and
Chief Medical Officer
Patrick Feyen 39 Regional Vice President of the
Southwest, President, PacifiCare of
Oklahoma, Inc. and President,
PacifiCare of Texas, Inc.
Mitchell Goodstein 44 Regional Vice President of the Southeast
and President, PacifiCare of Florida,
Inc.
Mary McWilliams 46 Regional Vice President of the
Northwest, President, PacifiCare of
Washington, Inc. and President,
PacifiCare of Oregon, Inc.
Jon Wampler 44 Regional Vice President of the West and
President, PacifiCare of California
Joseph S. Konowiecki 42 General Counsel and Secretary
Ronald Davis 36 Senior Vice President, Operations
Wanda Lee 54 Senior Vice President, Corporate Human
Resources
Fred Ryder 39 Senior Vice President and Corporate
Controller
Craig Schub 40 Senior Vice President, Government
Programs and President, Secure
Horizons USA, Inc.
James Williams 49 Senior Vice President and Chief
Information Officer
William Young 50 Senior Vice President, Corporate
Marketing
John Ninomiya 35 Vice President, Health Data Analysis
</TABLE>
Terry O. Hartshorn has been a Director of the Company since 1985. Mr.
Hartshorn has been Chairman of the Board of Directors of the Company and
President and Chief Executive Officer of UniHealth since April 1993. Mr.
Hartshorn served as President and Chief Executive Officer of the Company from
1976 to April 1993 and as Secretary and a director of the Company from 1977 to
1981. Mr. Hartshorn has served as a Director of Apria HealthCare Group Inc., a
provider of home health care products and services, since 1991, and also as a
Director of Emcare Holdings Inc., a provider of emergency department services,
since November 1994. Mr. Hartshorn is a member of the Executive and Nominating
Committees.
Alan R. Hoops has been a Director of the Company since 1994. Mr. Hoops has
been President and Chief Executive Officer of the Company since April 1993. Mr.
Hoops served as Executive Vice President and Chief Operating Officer of the
Company from 1986 to April 1993, as Secretary of the Company from 1982 to April
1993, as Senior Vice President of the Company from 1985 to 1986 and as Vice
President, Marketing and Planning of the Company from 1977 to 1985. Mr. Hoops
is a member of the Executive and Nominating Committees.
-6-
<PAGE>
David R. Carpenter has been a Director of the Company since 1989. Mr.
Carpenter has been self-employed since June 1, 1995. Mr. Carpenter served as
Executive Vice President of Transamerica Corporation from 1993 through 1995,
Group Vice President of Transamerica Corporation from 1990 through 1993,
Chairman from 1985 through 1995 and Chief Executive Officer from 1984 through
1995 of Transamerica Occidental Life Insurance Company. Mr. Carpenter has also
been Chairman of the Board of Directors of UniHealth since 1994, an Ex-Officio
Member of the Compensation Committee of UniHealth since 1994 and serves as
Chairman of its Executive and Nominating Committees and Governance Subcommittee.
Mr. Carpenter is Chairman of the Company's Compensation and Nominating
Committees and is a member of the Executive Committee. Mr. Carpenter has served
as a Director of H.F. Ahmanson & Company, parent of Home Savings of America,
since 1995.
David A. Reed has been a Director of the Company since 1992. Mr. Reed
currently is the President of DAR Consulting Group and serves as a special
advisor to the Health Care Practice Group of Deloitte & Touche LLP. Mr. Reed
served as President and Chief Executive Officer of St. Joseph Health System, a
nonprofit public benefit corporation, owning and operating hospitals and other
health care service entities, from 1990 through December 1994. Mr. Reed is a
former chairman and speaker of the House of Delegates of the American Hospital
Association. Mr. Reed is a member of the Audit and Special Opportunities
Committees.
Lloyd Ross has been a Director of the Company since 1985. Mr Ross has been
President and Chief Executive Officer of SMI Construction, Inc., a commercial
and industrial building company, since 1976. Mr. Ross is a member of the
Audit/Finance, Compensation and Special Opportunties Committees.
Jean Bixby Smith has been a Director of the Company since 1995. Ms. Smith
has been President of Bixby Land Company since January 1984 and President of
Alamitos Land Company since March 1991, both of which are engaged in the
development and management of commercial and industrial real estate. Ms. Smith
has also been a Director of UniHealth since 1988.
Jeffrey Folick has been an Executive Vice President and Chief Operating
Officer of the Company since December 1994. Between July 1992 and December
1994, Mr. Folick served in various capacities for the Company, including
Regional Vice President of the West, President of PacifiCare of California
("PCC") and Chief Operating Officer of PCC. Prior to joining PCC in July 1992,
Mr. Folick served as President of Secure Horizons from January 1991 to July 1992
and Vice President, Secure Horizons from December 1989 to December 1990.
Wayne Lowell has been Chief Administrative Officer of the Company since
December 1994, an Executive Vice President of the Company since April 1993 and
Chief Financial Officer of the Company since November 1986. Mr. Lowell served
as Senior Vice President of the Company from March 1992 to April 1993 and as
Treasurer of the Company from 1986 to April 1993. Mr. Lowell is a certified
public accountant.
Roger Taylor, M.D. has been Executive Vice President of the Company since
April 1993 and Chief Medical Officer of the Company since December 1992. Dr.
Taylor served as Senior Vice President of the Company from December 1992 to
April 1993. Prior to joining the Company, Dr. Taylor served as National Leader
for The Wyatt Company, a health care employee benefit consulting company, and as
a Senior Vice President of Equicor Inc., a general medical utilization review
company, prior to December 1990.
Patrick Feyen has been Regional Vice President of the Southwest, President
and Chief Executive Officer of PacifiCare of Oklahoma, Inc. ("PCOK") and
President and Chief Executive Officer of PacifiCare of Texas, Inc. ("PCTX")
since December 1994. Mr. Feyen served as Regional Vice President of the
Northwest from September 1994 to December 1994 and President and Chief Executive
Officer of PacifiCare of Oregon, Inc. ("PCOR") from 1993 to December 1994. Mr.
Feyen served as Vice President, Finance and Chief Financial Officer of PCOR from
1991 to 1993. Prior to joining PCOR, Mr. Feyen served as Vice President,
Finance and Controller from 1990 to 1992 and Senior Administrator, Operations
from 1989 to 1990 of Michigan Health Care Corporation, a provider of medical
care and mental health services in Detroit.
-7-
<PAGE>
Mitchell Goodstein has been Regional Vice President of the Southeast and
President of PacifiCare of Florida ("PCFL") since September 1995. Prior to
joining the Company, Mr Goodstein served as Chief Executive Officer of HMO
California, a licensed health care service plan, from June 1992 to August
1995. From July 1986 to June 1992, he was a principal of Tillinghast, a
Towers Perrin Company, which provides consulting services to managed care
entities.
Mary McWilliams has been Regional Vice President of the Northwest since
September 1994, President of PCOR since December 1994 and has been President and
Chief Executive Officer of PacifiCare of Washington, Inc. since January 1994.
Prior to joining the Company, Ms. McWilliams served as Chief Executive Officer
of the Sisters of Providence Health Plans, a federally qualified health
maintenance organization in Oregon, from 1984 to January 1994.
Jon Wampler has been Regional Vice President of the West and President of
PCC since December 1994. Mr. Wampler served as Regional Vice President of the
Southwest and President of PCOK from September 1994 to December 1994 and served
as President of PCTX from August 1990 to December 1994. Prior to joining the
Company, Mr. Wampler served as Executive Director of Humana Health Care Plan of
Colorado, Inc. from July 1988 to August 1990.
Joseph S. Konowiecki has been General Counsel of the Company since October
1989 and Secretary of the Company since April 1993. Mr. Konowiecki served as
Assistant Secretary from 1989 to April 1993. Mr. Konowiecki has been a partner
of Konowiecki & Rank, a law partnership including a professional corporation, or
its predecessor, since 1980 and has over seventeen years of practice in
business, corporate and health care law.
Ron Davis has been Senior Vice President, Corporate Operations since June
1995. Mr. Davis served as Senior Vice President, Operations of PCC from
January 1993 to June 1995 and Vice President, Operations of PCC from November
1991 to December 1992. From October 1989 to November 1991, Mr. Davis was Senior
Vice President, Operations and Controller of Health Plan of America, a federally
qualified health maintenance organization based in southern California, which
was merged into PCC in December 1991.
Wanda Lee has been Senior Vice President, Corporate Human Resources of the
Company since March 1993. From 1989 to March 1993, Ms. Lee was Vice President
of Human Resources of FHP, Inc., a southern California-based managed care
organization. Ms. Lee was Vice President, Human Resources and Administration of
Denny's Incorporated, a division of TW Services, from 1974 to 1989.
Fred V. Ryder has been Senior Vice President of the Company since November
1994 and Corporate Controller and Chief Accounting Officer since 1987. Mr.
Ryder served as Vice President from December 1990 to November 1994. Mr. Ryder
is a certified public accountant.
Craig Schub has been Senior Vice President, Government Programs since
December 1994 and President of Secure Horizons USA, Inc., since April 1993. Mr.
Schub served as Senior Vice President of PCC, Secure Horizons of California from
1992 to 1993, Vice President of PCC, Secure Horizons of Northern California from
1991 to 1992 and Director of Corporate Planning from 1990 to 1991. Prior to
joining the Company, Mr. Schub served as Director of Market Development and
Communications for the Travelers Health Network from 1988 to 1990.
James Williams has been Senior Vice President and Chief Information Officer
since June 1993. Prior to joining the Company, Mr. Williams served as Senior
Vice President, Information Services of Sanwa Bank California from August 1992
to May 1993 and Senior Vice President, Retail Systems Department of Security
Pacific Automation Company from May 1988 through August 1992.
William Young has been Senior Vice President, Corporate Marketing since
February 1994. Prior to joining the Company, Mr. Young served as Division
President of Blue Cross/Blue Shield from 1992 to 1994,
-8-
<PAGE>
as Vice President of Lincoln National Life Insurance Company from 1990 to 1992
and as President, MetLife HealthCare Network, southeast and Vice President of
marketing and sales from 1985 to 1990.
John Ninomiya has been Vice President, Health Data Analysis of the Company
since 1990. Mr. Ninomiya served as Director, Health Data Analysis of the
Company from 1988 to 1990 and has been employed with the Company in various
capacities since 1986.
Each Executive Officer of the Company is elected or appointed by the Board
of Directors of the Company and holds office until his successor is elected, or
until the earlier of his death, resignation or removal.
The information given in this Proxy Statement concerning the Directors is
based upon statements made or confirmed to the Company by or on behalf of such
Directors, except to the extent that such information appears in its records.
-9-
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth for the fiscal years ended September 30,
1995, 1994 and 1993, the compensation for services in all capacities to the
Company of those persons who were during the fiscal year ended September 30,
1995: (i) the chief executive officer; and (ii) the other four most highly
compensated executive officers of the Company (collectively, the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
---------------------------------------------------
Securities All Other
Name and Underlying LTPIP Compen-
Principal Position Year Salary Bonus(1) Options Payouts(2) sation(4)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Alan Hoops, 1995 $578,384 $350,000 30,000 $393,120 $85,059
President and CEO 1994 $442,803 $405,000 65,000 $334,200 $56,728
1993 $344,380 $300,000 15,000 $280,200 $17,178
Jeffrey Folick, 1995 $330,444 $269,121 90,000 $238,815 $69,413
Exec. Vice President 1994 $264,904 $165,000 94,000 $138,000 $36,156
and COO 1993 $209,487 $151,200 5,000 $110,400 $13,482
Richard Lipeles(3), 1995 $371,552 $127,995 0 $217,090 $46,436
Exec. Vice President 1994 $344,876 $229,425 38,800 $208,715 $42,981
1993 $290,362 $212,800 10,000 $176,282 $11,114
Wayne Lowell, 1995 $300,390 $144,900 50,000 $168,758 $37,137
Exec. Vice President 1994 $243,079 $162,925 37,000 $155,213 $31,729
CAO and CFO 1993 $212,194 $159,390 6,400 $138,880 $12,203
Roger Taylor, M.D., 1995 $299,864 $128,241 5,000 $129,092 $38,485
Exec. Vice President 1994 $268,896 $181,212 37,000 $132,084 $120,588(5)
and CMO 1993 $199,047 $130,002 50,000 $ 0 $174,597(6)
</TABLE>
(1) The amounts shown in this column include payments made pursuant to the
Amended Management Incentive Compensation Plan, as amended, of the Company (the
"MICP") and include amounts awarded and accrued during the fiscal year in which
they were earned but paid in the following fiscal year.
(2) Includes amounts awarded and accrued during the fiscal year in which
they were earned but paid in the following fiscal year. Please refer to "Long-
Term Performance Incentive Plan Awards in Last Fiscal Year."
In fiscal 1995, 1994 and 1993, 40 percent of the payments made under
the Amended Long-Term Performance Incentive Plan, as amended (the "LTPIP"),
were paid out in stock and 60 percent of the payments made under the LTPIP
were paid out in cash. For the Named Executive Officers the cash portion
equaled: $235,950, $200,553 and $168,120 for Mr. Hoops; $143,319, $82,846 and
$66,255 for Mr. Folick; $130,330, $125,288 and $105,679 for Mr. Lipeles;
$101,288, $93,165 and $83,328 for Mr. Lowell; and $77,538, $79,270 and $0 for
Dr. Taylor for fiscal 1995, 1994 and 1993, respectively. For the Named
Executive Officers, the stock portion equaled: 1,817, 2,113 and 2,767 shares
of Class B Common Stock for Mr. Hoops; 1,104, 872 and 1,090 shares of Class
B Common Stock for Mr. Folick; 1,003, 1,319 and 1,741 shares of Class B
Common Stock for Mr. Lipeles; 780, 981 and 1,372 shares of Class B Common
Stock for Mr. Lowell; 596, 835 and no shares of Class B Common Stock for Dr.
Taylor for fiscal 1995, 1994 and 1993, respectively. For
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<PAGE>
each Named Executive Officer, the shares of Class B Common Stock were valued at
$86.50 per share (the fair market value of the Class B Common Stock at the time
the payment was awarded) for payments made in fiscal 1995, at $63.25 per share
(the fair market value of the Class B Common Stock at the time the payment was
awarded) for payments made in fiscal 1994 and at $40.50 per share (the fair
market value of the Class B Common Stock at the time of payment) for payments
made in fiscal 1993.
(3) Mr. Lipeles resigned as an Executive Vice President of the Company
effective October 1, 1995. Mr. Lipeles is currently serving as a consultant to
the Company.
(4) Amounts in this column include contributions by the Company to the
PacifiCare Health Systems, Inc. Savings and Profit Sharing Plan (the "Profit
Sharing Plan"). All employees of the Company who have completed 12 months of
continuous service and have worked at least 1,000 hours are eligible to
participate in the Profit Sharing Plan. The Company contributed the following
amounts for each employee:
(a) An amount equal to two percent of their annual salary up to a
specified maximum amount. For the Named Executive Officers, this amount
equaled: $3,000, $3,000 and $4,717 for Mr. Hoops; $3,263, $5,484 and
$4,069 for Mr. Folick; $3,000, $3,424 and $4,292 for Mr. Lipeles; $3,557,
$4,564 and $3,152 for Mr. Lowell for fiscal 1995, 1994 and 1993,
respectively. For Dr. Taylor, this amount equaled $3,280 and $3,000 for
fiscal years 1995 and 1994, respectively. Dr. Taylor became eligible for
the Profit Sharing Plan in December 1993.
(b) An amount equal to one half of the compensation deferred by each
employee up to three percent of the employee's annual compensation up to a
specified amount. For the Named Executive Officers, this amount equaled:
$4,620, $4,500 and $4,497 for Mr. Hoops; $6,514, $4,096 and $3,750 for Mr.
Folick; $4,620, $4,500 and $2,268 for Mr. Lipeles; and $5,575, $4,500 and
$4,497 for Mr. Lowell for fiscal 1995, 1994 and 1993, respectively. This
amount equaled $5,055 for fiscal 1995 and $4,500 for 1994 for Dr. Taylor
who became eligible for the Profit Sharing Plan in December 1993.
(c) A discretionary amount, determined solely at the discretion of the
Board of Directors, from the Company's current or accumulated earnings
which is generally based upon a percentage of pretax income. This amount
equaled $4,771 and $4,440 for each of Messrs. Hoops, Folick, Lipeles and
Lowell and Dr. Taylor for fiscal 1995 and 1994, respectively; and $4,434
for each of Messrs. Hoops, Folick, Lipeles and Lowell for fiscal 1993.
(d) Includes amounts contributed by the Company pursuant to the Statutory
Restoration Plan of the Company (the "Statutory Restoration Plan"). For
the Named Executive Officers, this amount equaled: $32,824, $44,506 and
$3,410 for Mr. Hoops; $24,729, $21,854 and $1,108 for Mr. Folick; $33,395,
$30,335 and $0 for Mr. Lipeles; $22,691, $17,943 and $0 for Mr. Lowell; and
$24,511, $14,848 and $3,900 for Dr. Taylor for fiscal 1995, 1994 and 1993,
respectively. The Statutory Restoration Plan allows participants to defer
the portion of their pay that otherwise would be limited by the Company's
Profit Sharing Plan and to receive excess matching contributions, profit-
sharing contributions and discretionary contributions in the same
percentages as those provided by the Profit Sharing Plan. Senior Vice
Presidents and above are eligible to participate in the Statutory
Restoration Plan.
(e) An amount equal to premiums paid by the Company for term life
insurance for all employees. For the Named Executive Officers this amount
equaled: $822 for Messrs. Hoops and Dr. Taylor, $675 for Mr. Folick, $606
for Mr. Lipeles and $498 for Mr. Lowell. For Mr. Hoops and Mr. Folick, the
amount includes additional insurance premiums paid by the Company equal to
$38,979 and $29,419, respectively.
(5) Amount includes $88,200 paid as a sign-on bonus and $82,329 paid in
moving expenses to Dr. Taylor.
(6) Amount includes $97,952 paid in moving expenses to Dr. Taylor.
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth for the fiscal year ended September 30,
1995, the stock options granted to the Company's Named Executive Officers
pursuant to the Second Amended and Restated 1989 Stock Option Plan for Officers
and Key Employees of PacifiCare Health Systems, Inc., as amended (the "Employee
Plan").
<TABLE>
<CAPTION>
Individual Grants
% of Total
Options Potential Realizable Value
Number of Granted to Exercise at Assumed Annual Rates
Securities Employees or of Stock Price Appreciation
Underlying in Fiscal Base Price Expiration for Option Term
Name(1) Options(2) Year Per Share(3) Date 5% 10%
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Alan Hoops
Class B(4) 30,000 4.0% $65.75 12/22/04 $3,212,995 $ 5,116,157
Jeffrey Folick
Class B(4) 90,000 12.1% $66.75 12/21/04 $9,785,584 $15,581,908
Wayne Lowell
Class B(4) 50,000 6.7% $66.75 12/21/04 $5,436,436 $ 8,656,615
Roger Taylor
Class B(4) 5,000 0.7% $66.75 12/21/04 $ 543,644 $ 865,662
</TABLE>
<TABLE>
<CAPTION>
Change in total market value of Company at assumed annual rates
of stock price appreciation for 10 years(5) 5% 10%
- ---------------------------------------------------------------- ----------- --------------
<S> <C> <C>
Class A, 12,331,408 shares outstanding, $76.75 per share at 9/30/95 $595,208,24 $1,508,374,544
Class B, 18,551,028 shares outstanding, $76.00 per share at 9/30/95 $886,664,779 $2,246,982,636
</TABLE>
(1) Mr. Lipeles resigned as an Executive Vice President effective October
1, 1995. No stock options were granted to Mr. Lipeles in fiscal 1995.
(2) Only non-qualified stock options ("NQSOs") were granted in fiscal 1995
pursuant to the Employee Plan. No incentive stock options or stock appreciation
rights were granted in fiscal 1995. The date of grant for the NQSOs was
December 20, 1994, except for Mr. Hoops whose date of grant was December 21,
1994. NQSOs which have been held for six months and which are not already
exercisable and not expired shall upon a "Change of Control" automatically
become exercisable. A Change of Control is defined as the occurrence of any of
the following: (i) a business combination effectuated through the merger or
consolidation of the Company with or into another entity where the Company is
not the Surviving Organization (as defined herein); (ii) any business
combination effectuated through the merger or consolidation of the Company with
or into another entity where the Company is the Surviving Organization and such
business combination occurred with an entity whose market capitalization prior
to the transaction was greater than 50 percent of the Company's market
capitalization prior to the transaction; (iii) the sale in a transaction or
series of transactions of all or substantially all of the Company's assets; (iv)
any "person" or "group" (within the meaning of Sections 13(d)and 14(d) of the
Exchange Act) other than UniHealth, acquires beneficial ownership (within the
meaning of Rule 13d-3 of the Exchange Act), directly or indirectly, of 20
percent or more of the voting common stock of the Company and the beneficial
ownership of the voting common stock of the Company owned by UniHealth at that
date is less than or equal to the beneficial ownership interest of voting
securities attributable to such other person or group; (v) a dissolution or
liquidation of the Company; or (vi) the Company ceases to be subject to
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<PAGE>
the reporting requirements of the Exchange Act as a result of a "going private
transaction" (within the meaning of the Exchange Act). For purposes hereof,
"Surviving Organization" shall mean any entity where the majority of the members
of such entity's board of directors are persons who were members of the
Company's board of directors prior to the merger, consolidation or other
business combination and the senior management of the surviving entity includes
all of the individuals who were the Company's executive management (the
Company's chief executive officer and those individuals who report directly to
the Company's chief executive officer) prior to the merger, consolidation or
other business combination and such individuals are in at least comparable
positions with such entity.
(3) The exercise price may be paid in cash, in shares of Common Stock
valued at fair market value on the date of exercise or pursuant to a cashless
exercise procedure under which the optionee provides irrevocable instructions to
a brokerage firm to sell the purchased shares and to remit to the Company, out
of the sale proceeds, an amount equal to the exercise price plus all applicable
withholding taxes.
(4) The NQSOs granted to the Named Executive Officers become exercisable
in four cumulative installments of 25 percent of the shares on the first
anniversary of the date of grant and in subsequent installments of 25 percent on
each anniversary of the date of grant.
(5) The dollar amounts in this table are the result of calculations at the
five and 10 percent rates used to determine the potential realizable value of
the stock options in the above table and therefore are not intended to forecast
possible future appreciation, if any, of the Company's stock prices. No
assurances can be given that the stock prices will appreciate at these rates or
experience any appreciation at all.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of options during fiscal 1995 and
unexercised options held as of the end of fiscal 1995.
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Unexercised Options In-the-Money Options
Shares at FY-End(#) at FY-End($)
Acquired ----------------------------------------------------
on Value Exer- Unexer- Exer- Unexer-
Name Exercise Realized cisable cisable cisable cisable
<S> <C> <C> <C> <C> <C> <C>
Alan Hoops
Class A 0 $ 0 72,000 0 $5,099,000 $ 0
Class B 30,000 $1,966,313 76,750 96,250 $4,893,750 $2,678,125
Jeffrey Folick
Class A 1,000 $ 67,375 2,000 1,000 $ 127,875 $ 59,500
Class B 2,250 $ 105,000 19,250 171,500 $ 594,688 $3,216,187
Richard Lipeles
Class A 15,000 $ 939,875 35,000 0 $2,420,625 $ 0
Class B 10,000 $ 623,750 38,450 40,350 $2,341,225 $1,444,925
Wayne Lowell
Class A 4,500 $ 253,125 13,000 1,500 $ 894,375 $ 89,250
Class B 23,100 $1,180,150 5,000 88,700 $ 343,625 $1,879,225
Roger Taylor
Class A 0 $ 0 0 0 $ 0 $ 0
Class B 0 $ 0 3,000 89,000 $ 106,500 $3,153,250
</TABLE>
-13-
<PAGE>
LONG-TERM PERFORMANCE INCENTIVE PLAN
AWARDS IN LAST FISCAL YEAR
The following table sets forth the LTPIP Awards for the fiscal year ended
September 30, 1995 for the Company's Named Executive Officers:
<TABLE>
<CAPTION>
Estimated Future Payouts Under Non-Stock
Price-Based Plans(1)
Performance or ------------------------------------------
Other Period
Until Maturation
Name(2) or Payout Threshold Target Maximum
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alan Hoops January 1998 $0 $285,488 $570,975
Jeffrey Folick January 1998 $0 $176,533 $353,066
Wayne Lowell January 1998 $0 $115,850 $231,700
Roger Taylor, M.D. January 1998 $0 $ 81,374 $162,748
- --------------------------------------------------------------------------------------------
</TABLE>
(1) Incentive compensation under the LTPIP is based on the achievement of
performance objectives established by the Sub-Committee and approved by the
shareholders of the Company, measured over a three year performance period. The
performance objective for this performance period is based on increases in
earnings per share. Prior to the commencement of services for this performance
period, the Sub-Committee established, in writing, minimum targets for earnings
per share which must be achieved, maximum targets above which no additional
awards will be earned and the formula for computing each participant's award if
such target is achieved. Payouts under the LTPIP are based on the average
three-year annual base salary for the calendar year of the Named Executive
Officer for the performance cycle with certain assumptions regarding increases
in base salary per calendar year over the performance cycle being made. Please
refer to the "Summary Compensation Table" for payouts under the LTPIP for fiscal
1995. Payments made under the LTPIP will be made in a cash portion and a stock
portion. It is anticipated that the cash portion will equal 60 percent of the
LTPIP award and the stock portion will equal 40 percent of the LTPIP award. The
stock portion will be valued at the fair market value of the stock at the time
the LTPIP award is made.
(2) Mr. Lipeles resigned as an Executive Vice President effective October 1,
1995. No LTPIP Awards were established for Mr. Lipeles.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with the Named Executive
Officers. Each agreement continues until the death, disability, misconduct or
written notice of termination by either the Company or the Named Executive
Officer. The agreements provide that each Named Executive Officer is entitled
to his base salary, participation in all employee benefit programs,
reimbursement for business expenses and participation in the MICP, LTPIP and the
Employee Plan of the Company. The agreements also contain provisions that
entitle each of the Named Executive Officers to receive severance benefits which
are payable if the officer's employment with the Company is terminated for
various reasons, including death, disability and termination following a change
of ownership or control of the Company. Under the employment agreements for Mr.
Hoops and Mr. Folick, a change of ownership or control would result from: (i)
any merger, consolidation or sale such that any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act)
acquires beneficial ownership, within the meaning of Rule 13d-3 of the Exchange
Act, of 20 percent or more of the voting common stock of the Company and the
ownership interest of the voting common stock owned by UniHealth is less than or
equal to the ownership interest of the voting common stock of such individual,
entity or group; (ii) any transaction in which the Company sells substantially
all of its material assets; (iii) a dissolution or liquidation of the Company;
or (iv) the Company becomes a non-publicly held company. Under Mr. Lowell's
employment agreement, a change of ownership or control would result from any
merger, consolidation or sale of the Company, which reduces the voting interest
of UniHealth below
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<PAGE>
51 percent, any transaction in which the Company sells substantially all of its
material assets or the Company becoming non-publicly held.
In the event one of the above officers is terminated by the Company (other
than for incapacity, disability, habitual neglect or gross misconduct) within 24
months of a change in ownership or control, the employment agreements provide
for payment of base salary and certain benefits for 36 months in the case of Mr.
Hoops, 24 months in the case of Mr. Folick, and 12 months in the case of Mr.
Lowell, and payment of benefits under the Company's MICP and the LTPIP which
will be deemed to have accrued to the termination date. Dr. Taylor will receive
severance benefits for 24 months under his employment agreement for any
termination without cause, including a significant reduction in position or
responsibilities, his terms of employment or relocation outside of Orange
County, California and payment of the benefits under the Company's MICP and
LTPIP which will be deemed to have accrued and vesting of certain of his stock
options. The contingent liability for severance payments that the Company would
be required to make under the employment agreements (excluding amounts which may
be payable under incentive plans and the value of certain benefits) would be
$1,750,204 to Mr. Hoops, $814,401 to Mr. Folick, $307,201 to Mr. Lowell and
$604,421 to Dr. Taylor.
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
PREVIOUS OR FUTURE FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, THAT MIGHT INCORPORATE FUTURE
FILINGS, INCLUDING THIS PROXY STATEMENT, IN WHOLE OR IN PART, THE FOLLOWING
REPORT AND THE PERFORMANCE GRAPH SHALL NOT BE INCORPORATED BY REFERENCE INTO ANY
SUCH FILINGS.
REPORT OF THE COMPENSATION COMMITTEE
The compensation policies of PacifiCare Health Systems, Inc. (the "Company)
are structured to link the compensation of the executive officers of the Company
with enhanced shareholder value. Through the establishment of short- and long-
term incentive plans, the Company seeks to align the financial interests of the
executive officers with those of its shareholders. This linkage is evidenced by
shareholder returns that have exceeded the peer group performance reported in
this proxy on a one, three, and five-year interval.
EXECUTIVE COMPENSATION PHILOSOPHY
In designing its compensation programs, the Company follows the belief that
compensation should seek to reflect the value created for shareholders while
supporting the business strategies and long-range plans of the Company and the
markets the Company serves. In doing so, the compensation programs reflect the
following themes:
A compensation program that stresses the Company's financial
performance and individual performance.
An annual incentive plan, which generates a portion of compensation
based on the achievement of specific performance goals, with superior
performance resulting in total annual cash compensation at approximately
the 75th percentile of competitive levels of companies with a similar
business structure, size, and marketplace orientation.
A long-term incentive plan that is designed to reward and retain
executive officers over the long-term and is linked to earnings per share.
The Compensation Committee (the "Committee") met six times during fiscal
1995 to review and set the compensation of the executive officers of the Company
consistent with the foregoing philosophy. The Committee retains the services of
consulting firms which provide independent expertise on executive compensation
matters to advise it on trends and issues related to the Company's executive
compensation program.
-15-
<PAGE>
EXECUTIVE COMPENSATION COMPONENTS
The Company's executive compensation program is based on four components,
each of which is intended to serve the overall compensation philosophy.
BASE SALARY. Base salary is intended to be set at a level equal to
approximately the 50th percentile of amounts paid to executive officers of
companies with a similar business structure, size, and marketplace orientation.
The Committee surveys health care, service-oriented and general industry
companies to provide target salaries for the Company's executive officers, which
are then adjusted based on an individual's responsibilities. Salaries of
executive officers in excess of $150,000 are reviewed by the Committee at least
on an annual basis.
ANNUAL INCENTIVE COMPENSATION. Under the Amended Management Incentive
Compensation Plan, as amended (the "MICP"), annual incentive awards are granted
upon the achievement by the executive officers of performance objectives
established by the sub-committee of the Committee (the "Sub-Committee") and
approved by the shareholders of the Company at the March 1, 1995 Annual
Shareholders' Meeting (the "1995 Shareholders' Meeting"). The performance
objective for fiscal 1995 was growth in earnings per share ("EPS") and was
stated in terms of minimum, target and maximum goals. The Sub-Committee also
established and the shareholders approved a targeted range for general and
administrative costs as a percentage of revenue to adjust awards under the MICP
(the "G&A Percentage of Revenue Measure"). If the G&A Percentage of Revenue
Measure at the end of fiscal 1995 exceeded the targeted range, awards under the
MICP would be reduced by a specified percentage. If the G&A Percentage of
Revenue Measure at the end of fiscal 1995 equaled the targeted range, no
adjustment would be made to awards under the MICP. If the G&A Percentage of
Revenue Measure at the end of fiscal 1995 was lower than the targeted range,
awards under the MICP would be increased by a specified percentage. MICP
bonuses for fiscal 1995 were increased by the G&A Percentage of Revenue Measure.
Business unit specific financial measures, in addition to EPS and the G&A
Percentage of Revenue Measure, were established for some executive officers
under the MICP. Achievement of each goal corresponds to an award equal to a
specified percentage of an executive officer's salary as determined at the
beginning of each fiscal year.
LONG-TERM PERFORMANCE INCENTIVE PLAN. The Company provides a long-term
performance incentive plan (the "LTPIP") that is aligned to the long-term
performance of the Company by aiming to maximize shareholder return. The LTPIP
opportunity is measured against the achievement of financial criteria
established by the Sub-Committee for each three-year period and approved by the
shareholders of the Company at the 1995 Shareholders' Meeting. A new
performance period of three years starts each year, so that after participating
in the LTPIP for three years, an executive officer is participating in three
separate plans at the same time. The performance objective for the 1994 through
1996 and the 1995 through 1997 performance cycles is an increase in EPS and is
stated in terms of minimum, target, and maximum goals. The financial measures
for the 1993-1995 cycle were average return on equity (weighted 80 percent) and
total revenue growth of non-core business (weighted 20 percent), which were
stated in terms of minimum, target and maximum goals. Achievement of each goal
corresponds to an award equal to a specified percentage of an executive
officer's salary as determined at the beginning of each performance period.
Sixty percent of the payments under the LTPIP are made in the form of cash and
40 percent are in the form of Company stock.
STOCK OPTIONS. Executive officers are eligible to receive periodic grants
of non-qualified stock options, incentive stock options, stock payments (in lieu
of cash compensation payments other than base salary) and stock appreciation
rights (collectively, the "Awards") pursuant to the Second Amended and Restated
1989 Stock Option Plan for Officers and Key Employees of PacifiCare Health
Systems, Inc. (the "Employee Plan"). The Awards are intended to retain and
motivate executive officers to improve long-term stock performance. Awards are
granted at the fair market value of the underlying common stock at the date of
grant. Stock options, generally, vest in installments over multiple years. To
date, only non-qualified stock options have been granted pursuant to the
Employee Plan. Prior to granting Awards, the Sub-Committee considers previous
grants and
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<PAGE>
stock ownership levels of executive officers and grants of stock options by
competitors to their executive officers to ensure that Awards are consistent
with competitive practices.
1995 ACTIONS
In fiscal 1995, the Committee reviewed and re-approved its charter and the
Company's executive compensation philosophy.
During 1995, the Committee, along with its consultants, reviewed and
approved the comparative industry compensation data, to be used by the Committee
for performance and compensation comparisons. The Committee has emphasized that
use of comparative compensation data should be periodically reviewed and updated
consistent with the Company's growth and strategic business plans.
Also in 1995, the Sub-Committee and the Company's shareholders approved the
performance objectives for the MICP and the LTPIP described above. EPS has been
adopted as a performance objective for both the MICP and the LTPIP as the
Company believes that for the managed care industry EPS is a strong indicator of
shareholder value.
The Sub-Committee also adopted resolutions and amended the Employee Plan to
provide for the automatic acceleration of vesting of all options held for longer
than six months previously granted or options to be granted in the future upon a
Change of Control. See "Option Grants in Last Fiscal Year, Footnote 2" for a
definition of Change of Control.
The Sub-Committee and the Board of Directors also adopted an amended 1992
Non-Officer Directors Stock Option Plan (the "Amended Directors Plan"). The
Amended Directors Plan is described in a separate section of this proxy
statement. See "The Proposals-Approval of the Amended 1992 Non-Officer
Directors Stock Option Plan."
POLICY ON DEDUCTIBILITY OF COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder ("Section 162(m)") limits the tax
deduction to $1 million for compensation paid to the Company's most highly
compensated executive officers, unless certain requirements are met. The
Committee has established a Sub-Committee of the Compensation Committee (the
"Sub-Committee") to deal with compensation issues affected by Section 162(m).
In response to the requirements of Section 162(m), the Sub-Committee
administers the Employee Plan, the MICP and the LTPIP and has obtained
shareholder approval for each of these plans. The Sub-Committee believes
that the Company is in compliance with Section 162(m) and it is the intent of
the Sub-Committee to continue to comply with the requirements of Section
162(m) unless the Sub-Committee feels that required changes would not be in
the best interest of the Company or its shareholders.
CEO COMPENSATION
Alan Hoops, the President and Chief Executive Officer of the Company,
received an annual base salary of $450,000 in calendar year 1994. Consistent
with the philosophy of the Committee to set annual base salaries of executive
officers at approximately the 50th percentile of companies of similar size,
organization and marketplace orientation, the Committee and its consultants
conducted a survey of salaries of chief executive officers of health care,
service-oriented and general industry companies comparable to the Company. As
a result of this survey and as a result of a merit adjustment to reflect the
overall growth of the Company, Mr. Hoops' salary was increased by the Committee
to $575,000 for calendar year 1995.
Mr. Hoops earned $350,000 in MICP compensation for fiscal 1995 performance,
the target incentive award under the 1994 MICP, for EPS specified in the 1994
MICP as increased by the G&A Revenue Percentage Measure.
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<PAGE>
For the 1993-1995 LTPIP performance cycle, Mr. Hoops earned $393,120 in
LTPIP compensation of which 40 percent was paid in the form of the Company's
stock and 60 percent was paid in cash. Mr. Hoops received the maximum LTPIP
award for average return on equity (weighted 80 percent) and total revenue
growth of non-core business (weighted 20 percent).
Mr. Hoops received non-qualified stock options to purchase 30,000 shares of
the Company's Class B Common Stock at $65.75 per share (the fair market value of
the stock at the time of grant). The options vest 25 percent per year following
the first year of grant.
The foregoing report has been furnished by:
David R. Carpenter, Chairman
Warren E. Pinckert II
Lloyd Ross
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<PAGE>
PERFORMANCE GRAPH
The following graph demonstrates the performance of the cumulative total
return to the shareholders of the Company's Class A Common Stock during the
previous five years in comparison to the cumulative total return on the Standard
& Poor's Health Care Composite Index and the Standard & Poor's 500 Stock Index.
Comparison of Five Year Cumulative Total Return
PacifiCare Health Systems, Inc.,
S&P Health Care Composite Index and S&P 500 Index
<TABLE>
<CAPTION>
Return Return Return Return Return
1991 1992 1993 1994 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Pacificare Health Systems-Class A $184.75 $267.79 $256.78 $536.83 $444.03
S&P Health Care-Comp Index $131.17 $145.66 $164.60 $170.67 $221.43
S&P 500 Index $147.61 $141.48 $121.89 $147.31 $211.21
</TABLE>
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<PAGE>
COMPENSATION OF DIRECTORS
CASH COMPENSATION
Pursuant to the PacifiCare Health Systems, Inc. Amended Non-Employee
Director Compensation and Retirement Plan (the "Compensation and Retirement
Plan"), directors who are not full-time employees of the Company or UniHealth
receive, as compensation for their services, an annual retainer of $20,000,
$1,000 for each Board of Directors meeting attended and $1,000 for each Board
Committee meeting attended not to exceed $2,000 per day on any day in which
multiple Board and/or committee meetings are attended, except for the
Chairman of the Board and Chairmen of Committees who receive an additional 50
percent of the amount paid for attendance at meetings for each Board
Committee meeting attended, not to exceed $3,000 per day on any day in which
multiple Board and/or committee meetings are attended. Terry Hartshorn, the
Chairman of the Board of Directors, receives an annual base salary of
$132,250 as compensation for his services. Mr. Hartshorn also receives
benefits under the Company's benefit plans, including the MICP and the LTPIP,
similar to those which other executive officers of the Company are entitled.
In the event Mr. Hartshorn is terminated by the Company (other than for
incapacity, disability, habitual neglect or gross misconduct) within 24
months of a change in ownership or control, his employment agreement provides
for payment of his base salary, certain benefits and payment of benefits
under the Company's MICP and LTPIP for a period equal to the longer of the
remaining term of his employment agreement or 24 months following the
effective date of termination. The Chairman of the Board and the Company's
Directors are all entitled to reimbursement of expenses incurred in attending
Board of Directors and Board Committee meetings.
RETIREMENT BENEFITS
Retirement Benefits are also provided under the Compensation and Retirement
Plan. Upon retirement, each Director, who is not a full-time employee of the
Company or UniHealth, shall receive an annual amount equal to the average annual
retainer for the preceding three-year period for the number of years of service
accumulated by such Director at the time of retirement, provided five years of
service as a Director have been completed. In the event of a Change of Control,
any Retirement Benefits which such Director has accumulated under the
Compensation and Retirement Plan, whether or not the Director meets the
eligibility provisions for retirement benefits, shall immediately vest and be
payable at the present value of such amount upon the effective date of a Change
of Control.
STOCK OPTION PLAN
THE DIRECTORS PLAN
In fiscal 1995, eligible Directors were granted NQSOs pursuant to the 1992
Non-Officer Directors Stock Option Plan of PacifiCare Health Systems, Inc. (the
"Directors Plan"). Non-officer Directors of the Company, who were not eligible
to receive awards under the Employee Plan, were eligible to receive NQSOs under
the Directors Plan. The Company's Class B Common Stock are the shares of stock
subject to the Directors Plan and no more than 140,000 shares of Class B Common
Stock are subject to NQSOs granted under the Directors Plan. If a NQSO granted
under the Directors Plan expires or is terminated or canceled, the shares of
Class B Common Stock subject to NQSOs shall be added to the shares of Class B
Common Stock otherwise available for issuance pursuant to NQSOs granted under
the Directors Plan. The Directors Plan provides for adjustments in the number
and kind of shares subject to said plan, and to outstanding NQSOs in the event
of a reorganization, merger, consolidation, recapitalization, reclassification,
stock split, stock dividend or combination of shares, extraordinary cash or non-
cash dividends declared on outstanding shares of Class B Common Stock or other
similar transactions. The Board of Directors has adopted the Amended 1992 Non-
Officer Directors Stock Option Plan (the "Amended Directors Plan") and is
submitting it at the Annual Meeting for shareholder approval. A description of
the Amended Directors Plan is contained in a separate section of this Proxy
Statement. See "The Proposals-Approval of the Amended 1992 Non-Officer
Directors Stock Option Plan." In addition, a copy of the Amended Directors Plan
is attached hereto as Exhibit B. Options granted pursuant to the Amended
Directors Plan are subject to the approval of the Amended Directors Plan by the
Company's shareholders.
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<PAGE>
Five Directors of the Company were eligible to participate in the Directors
Plan during fiscal 1995. Eligible Directors are automatically granted NQSOs to
purchase 2,000 shares of Class B Common Stock on December 31 of each year;
provided that, during the twelve month period preceding December 31, the
optionee Director served on the Board of Directors and was not eligible to
receive awards under the Employee Plan. All NQSOs granted pursuant to the
Directors Plan are subject to the terms of the Directors Plan.
The per share exercise price of the shares of Class B Common Stock subject
to any NQSO granted under the Directors Plan is 100 percent of the fair market
value of the shares on the date of grant. NQSOs granted under the Directors
Plan vest in four cumulative installments of 25 percent of the shares of Class B
Common Stock covered by each NQSO beginning on the first anniversary of the date
of the grant.
NQSOs granted under the Directors Plan may not be exercised after the
earlier of: (i) the expiration of ten years and one day from the date the NQSO
was granted; (ii) the expiration of eight months from the time the optionee
voluntarily or involuntarily ceases to serve as a Director of the Company; (iii)
the expiration of one year from the date Optionee ceases to serve as a Director
of the Company by reason of disability or death; or (iv) on the effective date
of (a) the liquidation or dissolution of the Company, or (b) a change of control
event.
Messrs. Carpenter, Leary, Pinckert, Reed and Ross were each automatically
granted NQSOs to purchase 2,000 shares of Class B Common Stock pursuant to the
Directors Plan during fiscal 1995.
CERTAIN TRANSACTIONS
The Company and its subsidiaries purchased health care services from
hospitals owned and managed by UniHealth totaling $70.6 million for the fiscal
year ended September 30, 1995. Under the terms of a management arrangement with
UniHealth, the Company paid $0.7 million for management fees, payroll processing
services and other services in the fiscal year ended September 30, 1995. At
September 30, 1995, $0.3 million was payable to UniHealth.
UniHealth purchased health care coverage from the Company and its
subsidiaries in the amount of $12.0 million for the fiscal year ended September
30, 1995. Amounts receivable from UniHealth were $0.9 million at September 30,
1995.
Joseph S. Konowiecki, the Secretary and General Counsel of the Company, is
the sole shareholder of Joseph S. Konowiecki, a Professional Corporation, a
California professional corporation, which is a partner of the law firm of
Konowiecki & Rank. The Company purchased legal services from Konowiecki & Rank
in the amount of $3.2 million for the fiscal year ended September 30, 1995. The
amount payable to Konowiecki & Rank at September 30, 1995 was $0.2 million.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's Officers and
Directors, and persons who own more than 10 percent of a registered class of the
Company's equity securities to file reports of ownership on Forms 3, 4 and 5
with the SEC. Officers, Directors and greater than 10 percent shareholders are
required by SEC regulation to furnish the Company with copies of all Forms 3, 4
and 5 they file.
Based solely on the Company's review of the copies of such forms it has
received and written representations from certain reporting persons that they
were not required to file Forms 5 for specified fiscal years, the Company
believes that all of its Executive Officers, Directors and greater than 10
percent beneficial owners complied with all filing requirements applicable to
them with respect to transactions during fiscal 1995, except for Patrick Feyen,
Jeffrey Folick, Mitchell Goodstein, Mary McWilliams and Jon Wampler, who did not
file their initial reports on a timely basis, Lloyd Ross and Wayne Lowell who
each did not file a report for one transaction on a timely basis and UniHealth
which did not file one report for eight transactions on a timely basis.
-21-
<PAGE>
THE PROPOSALS
APPROVAL OF THE ADOPTION OF AN AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION
(ITEM 2 ON PROXY CARD)
The Board of Directors of the Company proposes that the shareholders
approve the Amendment (as defined below) to the Certificate of Incorporation.
The following is a summary of the material provisions of the Amendment; it
should, however, be read in conjunction with, and is qualified in its entirety
by reference to, the complete text of the Amendment which is attached hereto as
Exhibit A.
DESCRIPTION OF THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION
At the Annual Meeting, the holders of Class A Common Stock of the Company
are being asked to consider and act upon a proposal to approve an amendment (the
"Amendment") to Article IV of the Company's Certificate of Incorporation which
will increase the total number of shares of stock which the Company shall have
authority to issue to 220,000,000. If the Amendment is adopted the total number
of shares of Class A Common Stock which the Company will be authorized to issue
will be 100,000,000, the total number of shares of Class B Common Stock which
the Company will be authorized to issue will be 100,000,000 and the total number
of shares of preferred stock (the "Preferred Stock") will be 20,000,000. If
the Amendment is approved at the Annual Meeting, the Board of Directors will
have the ability to issue shares of the Class A Common Stock, the Class B Common
Stock or the Preferred Stock without any additional shareholder action. The
Preferred Stock, when issued, will have such terms, including among other
things, dividends, conversion and preferences, as the Board of Directors
determines.
The Board of Directors believes that it is desirable to have the additional
authorized shares of Common Stock available for possible future financing and
acquisition transactions and other general corporate purposes. Having such
additional authorized shares of Common Stock available for issuance in the
future will give the Company greater flexibility and may allow such shares to be
issued without the expense and delay of a special shareholders' meeting. The
issuance of shares of Class A Common Stock or Preferred Stock (with voting
rights) could enable the Board of Directors to render more difficult or
discourage an attempt to obtain control of the Company by means of a merger,
tender offer or other business combination transaction directed at the Company
by, among other things, placing shares of Class A Common Stock or Preferred
Stock (with voting rights) with investors who might align themselves with the
Board of Directors or issuing new shares of Common Stock or Preferred Stock
(with or without voting rights) to dilute stock ownership of a person or entity
seeking control of the Company. The Company has not identified any specific
transaction for which the shares of Common or Preferred Stock to be
authorized hereunder would be issued.
Approval of a majority of the outstanding Class A Common Stock is required
to approve the Amendment. Such approval is sufficient to affect the amendment
under both Delaware law and the Company's Certificate of Incorporation.
If the Amendment is adopted by the holders of the Class A Common Stock
pursuant to the foregoing requirements, the Board of Directors' intent is to
prepare and file a Certificate of Amendment of Incorporation with the Secretary
of State of the State of Delaware, amending the Certificate of Incorporation in
accordance with the Amendment. The Amendment will be effective immediately upon
acceptance of filing by the Secretary of State of the State of Delaware.
Although the Board of Directors presently intends to file the Amendment if it is
approved by the holders of the Class A Common Stock, the Board of Directors
reserves the right to abandon the Amendment and not file such Certificate of
Amendment even if the Amendment is approved by a majority of the holders of
Class A Common Stock. Although the Board of Directors does not anticipate
exercising its right to abandon the Amendment nor does it contemplate any
specific events which would trigger the abandonment of the Amendment, the Board
will defer or abandon the Amendment, if in its business
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<PAGE>
judgment, conditions affecting the Company are such as to make the filing of the
Amendment no longer in the best interest of the Company or its shareholders.
-23-
<PAGE>
APPROVAL OF THE AMENDED
1992 NON-OFFICER DIRECTORS STOCK OPTION PLAN
(ITEM 3 ON PROXY CARD)
The Board of Directors proposes that the shareholders approve the Amended
1992 Non-Officer Directors Stock Option Plan of PacifiCare Health Systems, Inc.,
(the "Amended Directors Plan"). The following is a summary of the material
provision of the Directors Plan; it should, however, be read in conjunction
with, and is qualified in its entirety by reference to, the complete text of the
Amended Directors Plan which is attached hereto as Exhibit B.
DESCRIPTION OF THE DIRECTORS PLAN
Under the Directors Plan, which was approved by the shareholders at the
1992 Special Meeting of Shareholders, Non-officer Directors of the Company who
are not eligible to receive Awards under the Employee Plan are automatically
granted NQSOs to purchase 2,000 shares of Class B Common Stock on December 31 of
each year; provided that, during the twelve preceding months, the Director
served on the Board of Directors and was not eligible to receive awards under
the Employee Plan. As of the date hereof, six Directors are eligible to
participate in the Directors Plan. No more than 140,000 shares of Class B
Common Stock are available for NQSOs under the Directors Plan.
The per share exercise price of the shares of Class B Common Stock subject
to any NQSO granted under the Directors Plan is 100 percent of the fair market
value of the shares on the date of grant. NQSOs granted under the Directors
Plan vest in four cumulative installments of 25 percent of the shares of Class B
Common Stock covered by each NQSO beginning on the first anniversary of the date
of the grant.
NQSOs granted under the Directors Plan may not be exercised after the
earlier of: (i) the expiration of ten years and one day from the date the NQSO
was granted; (ii) the expiration of eight months from the time the optionee
voluntarily or involuntarily ceases to serve as a Director of the Company; (iii)
the expiration of one year from the date Optionee ceases to serve as a Director
of the Company by reason of disability or death; or (iv) on the effective date
of (a) liquidation or dissolution of the Company, or (b) a change of control
event. The Amended Directors Plan, if adopted, will modify the effect on NQSOs
granted under the Directors Plan of a liquidation or dissolution or a change of
control of the Company.
During fiscal 1995, Messrs. Carpenter, Leary, Pinckert, Reed and Ross were
each granted NQSOs to purchase 2,000 shares of Class B Common Stock. The
aggregate market value of the Class B Common Stock underlying outstanding NQSOs
is $3,617,600.
REASON FOR PROPOSAL
The Board of Directors has approved the Amended Directors Plan. Among
other changes, the Amended Directors Plan would provide for an automatic and
immediate acceleration of the vesting of all NQSOs granted under the Amended
Directors Plan upon the occurrence of a change of control of the Company (as
defined below), as long as the NQSOs have been held for at least six months.
The Directors Plan, as currently in effect, provides for the expiration of the
NQSOs upon a change of control, liquidation or dissolution of the Company. The
Amended Directors Plan would provide Non-officer Directors with the security
and assurance of knowing that they will be able to realize the full potential
value of their NQSOs in the event of a Change of Control. In addition, the
Amended Directors Plan would promote the best interests of the Company by
enhancing the Company's ability to attract and retain the services of
experienced and knowledgeable non-officer directors and providing additional
incentives for such directors to continue working for the best interests of the
Company and its stockholders even in case of a pending change of control. The
Amended Directors Plan is being submitted to the shareholders for approval at
the Annual Meeting in order to retain its exemption from Section 16(b) of
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<PAGE>
the Exchange Act. Any NQSOs granted under the Amended Directors Plan, prior to
shareholder approval of the Amended Directors Plan, will be subject to
shareholder approval of the Amended Directors Plan. If shareholder approval is
not obtained, the NQSOs granted under the Amended Directors Plan will be
governed by the terms of the Directors Plan.
In order to make the terms of the NQSOs, which have previously been granted
under the Directors Plan, consistent with the NQSOs to be granted under the
Amended Directors Plan, the Board of Directors has adopted resolutions which
provide for the automatic and immediate acceleration of the vesting of all NQSOs
previously granted under the Directors Plan upon the occurrence of a Change of
Control of the Company, as long as the NQSOs have been held for at least six
months. The Company is seeking approval from those Directors who hold such
NQSOs for the modification of the NQSOs.
DESCRIPTION OF THE AMENDED PLAN
The Amended Directors Plan amends Section 8 of the Directors Plan and adds
Section 9 to provide that upon the Change of Control, any NQSO issued under the
Amended Directors Plan which has been held by an optionee for at least six
months shall become exercisable immediately upon the effective date of a Change
of Control. Change of Control is defined as any of the following events: (i) a
business combination effectuated through the merger or consolidation of the
Company with or into another entity where the Company is not the Surviving
Organization; (ii) any business combination effectuated through the merger or
consolidation of the Company with or into another entity where the Company is
the Surviving Organization and such business combination occurred with an entity
whose market capitalization prior to the transaction was greater than 50 percent
of the Company's market capitalization prior to the transaction; (iii) the sale
in a transaction or series of transactions of all or substantially all of the
Company's assets; (iv) any "person" or "group" (within the meaning of Sections
13(d)and 14(d) of the Exchange Act) other than UniHealth, acquires beneficial
ownership (within the meaning of Rule 13d-3 of the Exchange Act), directly or
indirectly, of 20 percent or more of the voting common stock of the Company and
the beneficial ownership of the voting common stock of the Company owned by
UniHealth at that date is less than or equal to the beneficial ownership
interest of voting securities attributable to such other person or group; (v) a
dissolution or liquidation of the Company; or (vi) the Company ceases to be
subject to the reporting requirements of the Act as a result of a "going private
transaction" (within the meaning of the Exchange Act). For purposes hereof,
"Surviving Organization" shall mean any entity where the majority of the members
of such entity's board of directors are persons who were members of the
Company's board of directors prior to the merger, consolidation or other
business combination and the senior management of the surviving entity includes
all of the individuals who were the Company's executive management (the
Company's chief executive officer and those individuals who report directly to
the Company's chief executive officer) prior to the merger, consolidation or
other business combination and such individuals are in at least comparable
positions with such entity. Except as described in this paragraph, the Amended
Directors Plan is substantially the same as the Directors Plan.
FEDERAL INCOME TAX CONSEQUENCES
There will be no federal income tax consequences to either a Director or
the Company on the grant of a NQSO. On the exercise of a NQSO, the Director
will have taxable ordinary income equal to the excess of the fair market value
of the shares of Class B Common Stock received on the exercise date over the
option price of the shares. The Company will be entitled to a tax deduction in
an amount equal to such excess, provided the Company complies with applicable
reporting rules. Any ordinary income realized by the Directors upon exercise of
a NQSO will increase his tax basis in the Class B Common Stock thereby
acquired. Upon the sale of the Class B Common Stock acquired by exercise of a
NQSO, a Director will realize long-term or short-term capital gain or loss
depending upon his holding period for such stock.
A Director who surrenders shares of Common Stock in payment of the exercise
price of a NQSO will not recognize gain or loss on his surrender of such shares,
but will recognize ordinary income on the exercise of the NQSO as described
above. Of the shares received in such an exchange, that number of shares equal
to the number of shares surrendered will have the same tax basis and capital
gains holding period as the shares
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<PAGE>
surrendered. The balance of the shares received will have a tax basis equal to
their fair market value on the date of exercise and the capital gains holding
period will begin on the date of exercise.
If the Company delivers cash (in lieu of fractional shares) or shares of
Common Stock to a Director pursuant to a cashless exercise program, the Director
will recognize ordinary income equal to the cash paid and the fair market value
as of the date of exercise of any shares delivered to him. An amount equal to
any such ordinary income will be deductible by the Company, provided it complies
with applicable reporting requirements.
RELATIONSHIP OF CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors selects the independent certified public accountants
for the Company each year. Ernst & Young LLP has acted in this capacity since
1984 and is expected to continue for the current fiscal year.
In connection with its audit functions, Ernst & Young LLP audited the
Company's consolidated financial statements for the fiscal years ended September
30, 1993, 1994 and 1995.
Representatives of Ernst & Young LLP are expected to attend the Annual
Meeting, may make a statement if they so desire, and will be available to
respond to appropriate questions. If possible, such questions should be
submitted in writing to the Company, at least 10 days prior to the Annual
Meeting, at 5995 Plaza Drive, Cypress, CA 90630, Attention: Mr. Wayne Lowell,
Chief Financial Officer.
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<PAGE>
OTHER MATTERS TO COME BEFORE THE ANNUAL MEETING
At the time this Proxy Statement was published, the Board of Directors knew
of no other matters constituting a proper subject for action by the shareholders
which would be presented at the Annual Meeting. However, if any other business
should come before the meeting for shareholder action, the persons acting under
proxies in the enclosed Proxy Card will vote thereon in accordance with their
best judgment.
SHAREHOLDERS PROPOSALS
Shareholders desiring to submit proposals for consideration by the
shareholders at the 1997 Annual Meeting of Shareholders are advised that their
proposals must be received by the Company no later than September 30, 1996 in
order to be eligible for inclusion in the Company's Proxy Statement and form of
proxy relating to that meeting.
COST OF SOLICITATION
The cost of soliciting proxies in the accompanying form will be borne by
the Company. In addition to solicitations by mail, directors, officers and
regular employees of the Company may solicit proxies in person or by telephone.
No compensation, other than their regular compensation, will be paid to them for
such solicitation. The Company may reimburse banks, brokers, nominees and other
fiduciaries for postage and reasonable clerical expenses incurred by them in
forwarding the proxy material to principals.
NOTE: UPON WRITTEN REQUEST OF ANY SHAREHOLDER ENTITLED TO RECEIVE THIS
PROXY STATEMENT, THE COMPANY WILL PROVIDE, WITHOUT CHARGE, A COPY OF ITS ANNUAL
REPORT ON FORM 10-K AS FILED WITH THE SEC. ANY SUCH REQUEST SHOULD BE ADDRESSED
TO THE COMPANY AT 5995 PLAZA DRIVE, CYPRESS, CALIFORNIA 90630, ATTENTION:
INVESTOR RELATIONS DEPARTMENT. THE REQUEST MUST INCLUDE REPRESENTATION BY THE
SHAREHOLDER THAT, AS OF JANUARY 8, 1995, SAID SHAREHOLDER WAS A SHAREHOLDER OF
THE COMPANY ON SUCH DATE.
By order of the Board of Directors
Joseph S. Konowiecki
SECRETARY
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<PAGE>
EXHIBIT A
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
PACIFICARE HEALTH SYSTEMS, INC.,
A DELAWARE CORPORATION
PACIFICARE HEALTH SYSTEMS, INC., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, does
hereby certify:
FIRST: That the Board of Directors of PacifiCare Health Systems, Inc., at
a duly held meeting adopted a resolution setting forth a proposed amendment to
the Certificate of Incorporation. The resolution setting forth the proposed
amendment is as follows:
RESOLVED, that the Board of Directors deems it advisable and in the best
interests of the Company that paragraph "A" of Article IV of the Certificate of
Incorporation be amended and restated to read in its entirety as follows:
"PacifiCare Health Systems, Inc. ("Corporation") is authorized to issue
three classes of shares of stock to be designated, respectively, "Class A
Common Shares," "Class B Common Shares" and "Preferred Shares." The total
number of shares of stock which the Corporation shall have authority to
issue is two hundred twenty million (220,000,000). The total number of
Class A Common Shares which the Corporation shall have authority to issue
is one hundred million (100,000,000), and the par value of each such Class
A Common Share shall be one cent ($0.01). The total number of Class B
Common Shares which the Corporation shall have authority to issue is one
hundred million (100,000,000), and the par value of each such Class B
Common Share shall be one cent ($0.01). The total number of Preferred
Shares which the Corporation shall have the authority to issue is twenty
million (20,000,000), and the par value of each such Preferred Share shall
be one dollar ($1.00)."
SECOND: That the required number of stockholders of the Corporation have
duly approved and adopted the foregoing amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, PacifiCare Health Systems, Inc. has caused this
certificate to be signed by Alan R. Hoops, its president, and attested by Joseph
S. Konowiecki, its secretary, this ______ day of _______, 199_.
PACIFICARE HEALTH SYSTEMS, INC.
____________________________________
Alan R. Hoops, President
ATTEST:
__________________________________
Joseph S. Konowiecki, Secretary
A-1
<PAGE>
EXHIBIT B
AMENDED 1992 NON-OFFICER DIRECTORS
STOCK OPTION PLAN
OF
PACIFICARE HEALTH SYSTEMS, INC.
1. PURPOSE. The Amended 1992 Non-Officer Directors Stock Option Plan
(the "Plan") of PacifiCare Health Systems, Inc., a Delaware corporation (the
"Company"), is intended to promote the best interests of the Company and its
stockholders by strengthening the Company's ability to attract and retain the
services of experienced and knowledgeable non-officer directors and to provide
additional incentive for such directors to continue to work for the best
interests of the Company and its stockholders. The options granted hereunder
are not intended to qualify under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), as Incentive Stock Options.
2. AMOUNT AND SOURCE OF STOCK. The shares of stock subject to options
shall be shares of the Company's Class B Common Stock, par value $0.01 per share
(the "Shares"). The total number of Shares which may be the subject of options
granted pursuant to the Plan shall be limited so that the total number of Shares
issued upon the exercise of options granted under the Plan shall not exceed
140,000, subject to adjustment as provided in paragraph 11 of the Plan. In the
event that any option granted hereunder expires or is terminated or canceled
prior to its exercise in full for any reason, the Shares subject to such option
shall be added to the Shares otherwise available for issuance pursuant to the
exercise of options under the Plan.
3. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by a committee of the Board of
Directors of the Company (the "Board") comprised of two or more members of the
Board, selected by the Board (the "Committee"). It shall be the duty of the
Committee to conduct the general administration of the Plan in accordance with
its provisions. The Committee shall have the power to interpret the Plan and
the respective option agreements 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. The Committee shall have no
authority with respect to the selection from among the eligible individuals to
whom options are to be granted (any such individual being hereinafter referred
to as the "optionee" or the "holder") or the number or maximum number of Shares
subject to any option that is granted to an eligible individual. The selection
of optionees and the number of Shares subject to each option shall be determined
in accordance with paragraph 4 of the Plan.
(b) The Committee shall act by a majority of its members in office.
The Committee may act either by vote at a meeting or by a memorandum or other
written instrument signed by a majority of the Committee.
(c) Members of the Committee shall not receive compensation for their
services as members but all expenses and liabilities they incur in connection
with the administration of the Plan shall be borne by the Company. The
Committee may, with the approval of the Board, employ attorneys, consultants,
accountants, appraisers, brokers or other persons. The Committee, the Company
and its Officers and Directors shall be entitled to rely upon the advice,
opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee in good faith shall be
final and binding upon all optionees, the Company 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 options and all members of the Committee shall be fully protected by the
Company in respect to any such action, determination or interpretation.
4. ELIGIBILITY. All non-officer directors of the Company, who are not
eligible to receive options under the Second Amended and Restated 1989 Stock
Option Plan for Officers and Key Employees of the Company, as amended (the
"1989 Plan"), shall be eligible to receive options hereunder (the "Eligible
B-1
<PAGE>
Directors"). The Committee shall, subject to the applicable limits of the Plan,
automatically grant each Eligible Director annually options to purchase 2,000
Shares on the 31st day of December in each calendar year (the "Date of Grant")
commencing December 31, 1992; provided that the optionee shall not have been
eligible to receive options under the 1989 Plan for all or any part of the
preceding 12-month period and shall have served on the Board the entire
preceding 12-month period. If additional Eligible Directors are hereafter
appointed to the Board, the Committee shall, subject to the applicable limits of
the Plan, automatically grant each such person an annual option to purchase
2,000 Shares on the 31st day of December in each calendar year (the "Date of
Grant") commencing with the first December 31st following the date on which such
director was appointed; so long as the director is then eligible for the
granting of options pursuant to this Plan and has not been eligible to receive
options under the 1989 Plan for all of the preceding 12-month period, and, such
director shall have served on the Board the entire preceding 12-month period.
If the number of Shares which may be the subject of options under the Plan is
not sufficient to make all automatic grants required to be made pursuant to the
Plan on the applicable date, the number of Shares subject to the options granted
to each director shall be reduced on a pro rata basis.
5. OPTION PRICE. The exercise price for the Shares purchasable under any
option granted hereunder shall be an amount equal to 100 percent of the fair
market value of the Shares subject to option under the Plan on the Date of
Grant. For purposes of the Plan, the "fair market value" of the Shares on a
given date shall be based upon: (i) the closing price per share of the Shares
on the principal exchange on which the Shares are then trading, if any, on such
date, or, if the Shares were not traded on such date, then on the next preceding
trading day during which a sale occurred; or (ii) if the Shares are not traded
on an exchange but are quoted on the National Association of Securities Dealers
Automatic Quotation System ("Nasdaq") or a successor quotation system, (1) the
last sales price (if the Shares are then listed as a National Market Issue under
the NASD National Market System) or (2) the mean between the closing
representative bid and asked prices (in all other cases) for the Shares on such
date as reported by Nasdaq or such successor quotation system; or (iii) if the
Shares are not publicly traded on an exchange and not quoted on Nasdaq or a
successor quotation system, the mean between the closing bid and asked prices
for the Shares on such date as determined in good faith by the Committee; or
(iv) if the Shares are not publicly traded, the fair market value established by
the Committee acting in good faith.
6. TERMS AND CONDITIONS OF OPTIONS; VESTING.
(a) Subject to paragraphs 6(b), (c) and (d), and paragraphs 8, 9 and
15, each option granted on the Date of Grant shall become exercisable in four
cumulative installments as follows:
(i) The first installment shall consist of 25 percent of the Shares
covered by the option and shall become exercisable on the first anniversary
of the Date of Grant.
(ii) The second installment shall consist of 25 percent of the Shares
covered by the option and shall become exercisable on the second anniversary
of the Date of Grant.
(iii) The third installment shall consist of 25 percent of the Shares
covered by the option and shall become exercisable on the third anniversary
of the Date of Grant.
(iv) The fourth installment shall consist of all remaining Shares
covered by the option and shall become exercisable on the fourth anniversary
of the Date of Grant.
(b) No portion of an option which is unexercisable at Termination of
Directorship (as defined in paragraph 8) shall thereafter be exercisable.
(c) The installments provided for in this paragraph 6 are cumulative.
Each such installment which becomes exercisable pursuant to paragraph 6(a) shall
remain exercisable until such installment becomes unexercisable under paragraph
8.
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(d) Subject to paragraph 15, the grant of options by the Committee
shall be effective as of the Grant Date; provided, however, that no option
granted hereunder shall be exercisable unless and until the holder shall enter
into an individual option agreement with the Company that shall set forth the
terms and conditions of such option. Each such agreement shall expressly
incorporate by reference the provisions of this Plan (a copy of which shall be
made available for inspection by the optionee during normal business hours at
the principal office of the Company) and shall state that in the event of any
inconsistency between the provisions hereof and the provisions of such
agreement, the provisions of this Plan shall govern.
7. EXERCISE OF OPTIONS.
(a) During the lifetime of the optionee, only he, his guardian or
legal representative may exercise an option granted to him, or any portion
thereof. After the death of the optionee, any exercisable portion of an option
may, prior to the time when such option becomes unexercisable under paragraph 8,
be exercised by his personal representative or by any person empowered to do so
under the deceased optionee's will or under the applicable laws of descent and
distribution.
(b) At any time and from time to time prior to when any exercisable
option or exercisable portion thereof becomes unexercisable under paragraph 8,
such option or portion thereof may be exercised in whole or in part; provided,
however, that the Company shall not be required to issue fractional shares and
the number of shares for which an option may be partially exercised shall be not
less than 100 shares.
(c) An exercisable option, or any exercisable portion thereof, may be
exercised solely by delivery to the Secretary or Chief Financial Officer of the
Company or their respective offices of all of the following prior to the time
when such option or such portion becomes unexercisable under the Plan:
(i) Notice in writing signed by the optionee or other person then
entitled to exercise such option or portion, stating that such option or
portion is exercised, such notice complying with all applicable rules
established by the Committee;
(ii) (A) Full payment (in cash or by check) for the shares with
respect to which such option or portion is hereby exercised;
(B) With the consent of the Committee, shares of any class of the
Company's stock owned by the optionee duly endorsed for transfer to the
Company with a fair market value (as determinable under paragraph 5) on
the date of delivery equal to the aggregate option price of the Shares
with respect to which such option or portion is thereby exercised (which
shares shall be owned by the optionee for more than six months at the time
they are delivered);
(C) With the consent of the Committee, any other form of cashless
exercise permitted under paragraph 7(d) hereof; or
(D) Any combination of the consideration provided in the foregoing
subsections (A), (B) and (C);
(iii) Such representations and documents as the Committee, in its
absolute discretion, deems necessary or advisable to effect compliance with
all applicable provisions of the Securities Act of 1933, as amended, and any
other federal or state securities laws or regulations. The Committee may, in
its absolute discretion, also take whatever additional actions it deems
appropriate to effect such compliance including, without limitation, placing
legends on share certificates and issuing stop transfer orders to transfer
agents and registrars; and
(iv) In the event that the option or portion thereof shall be
exercised by any person or persons other than the optionee, appropriate proof
of the right of such person or persons to exercise the option or portion
thereof.
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(d) The Company, in its sole discretion, may establish procedures
whereby an optionee, to the extent permitted by and subject to the requirements
of Rule 16b-3 under the Securities Exchange Act of 1934 (the "Exchange Act"),
Regulation T issued by the Board of Governors of the Federal Reserve System
pursuant to the Exchange Act, federal income tax laws, and other federal, state
and local tax and securities laws, can exercise an option or a portion thereof
without making a direct payment of the option price to the Company. If the
Company so elects to establish a cashless exercise program, the Company shall
determine, in its sole discretion and from time to time, such administrative
procedures and policies as it deems appropriate provided such procedures and
policies are consistent with those of any cashless exercise program established
pursuant to the 1989 Plan. Such procedures and policies shall be binding on any
optionee wishing to utilize the cashless exercise program.
8. EXPIRATION OF OPTIONS. No option may be exercised to any extent by
anyone after the first to occur of the following events:
(a) The expiration of 10 years and one day from the date the option
was granted; or
(b) The expiration of eight months from the time the optionee shall
voluntarily or involuntarily cease to continue to serve as a director of the
Company (a "Termination of Directorship"), unless such Termination of
Directorship results from his death or disability; or
(c) The expiration of one year from the date of the optionee's
Termination of Directorship by reason of his disability; or
(d) The expiration of one year from the date of optionee's death.
For purposes of this paragraph 8, "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 a
director substantially unable to function as a director of the Company. Nothing
contained herein or in any option agreement shall be construed to confer on any
optionee any right to continue as a director of the Company.
9. ACCELERATION OF VESTING UPON A CHANGE OF CONTROL. Notwithstanding
anything to the contrary in Section 8 and/or any vesting provisions of any
option, any option which has been held for at least six months shall become
exercisable immediately upon the effective date of a "Change of Control." As
used in this Section 9, the term "Change of Control" shall mean the occurrence
of any of the following: (i) a business combination effectuated through the
merger or consolidation of the Company with or into another entity where the
Company is not the Surviving Organization; (ii) any business combination
effectuated through the merger or consolidation of the Company with or into
another entity where the Company is the Surviving Organization and such business
combination occurred with an entity whose market capitalization prior to the
transaction was greater than 50 percent of the Company's market capitalization
prior to the transaction; (iii) the sale in a transaction or series of
transactions of all or substantially all of the Company's assets; (iv) any
"person" or "group" (within the meaning of Sections 13(d) and 14(d) of the
Exchange Act) other than UniHealth, a California nonprofit public benefit
corporation ("UniHealth"), acquires beneficial ownership (within the meaning of
Rule 13d-3 of the Exchange Act), directly or indirectly, of 20 percent or more
of the voting common stock of the Company and the beneficial ownership of the
voting common stock of the Company owned by UniHealth at that date is less than
or equal to the beneficial ownership interest of voting securities attributable
to such other person or group; (v) a dissolution or liquidation of the Company;
or (vi) the Company ceases to be subject to the reporting requirements of the
Exchange Act as a result of a "going private transaction" (within the meaning of
the Exchange Act). For purposes hereof, "Surviving Organization" shall mean any
entity where the majority of the members of such entity's board of directors are
persons who were members of the Company's board of directors prior to the
merger, consolidation or other business combination and the senior management of
the surviving entity includes all of the individuals who were the Company's
executive management (the Company's chief executive officer and those
individuals who report directly to the
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Company's chief executive officer) prior to the merger, consolidation or other
business combination and such individuals are in at least comparable positions
with such entity. The Committee may make such determinations and
interpretations and adopt such rules and conditions as it, in its absolute
discretion, deems appropriate in connection with a Change in Control and
acceleration of exercisability. All such determinations and interpretations by
the Committee shall be conclusive. Each optionee shall receive at least 10
days' notice prior to the effective date of the Change of Control that their
options will be exercisable upon the effective date of the Change of Control and
the officers of the Company shall make adequate provisions to permit all
optionees to exercise their options as of the effective date of the Change of
Control.
10. NON-TRANSFERABILITY OF OPTIONS. No option or interest or right
therein or part thereof shall be liable for the debts, contracts or engagements
of the optionee or his successors in interest or shall be subject to disposition
by transfer, alienation, anticipation, pledge, encumbrance, assignment or any
other means whether such disposition be voluntary or involuntary or by operation
of law or 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 nothing
in this paragraph 10 shall prevent transfers by will or by the applicable laws
of descent and distribution.
11. ADJUSTMENTS UPON CERTAIN EVENTS.
(a) In the event that the outstanding shares of Class B Common Stock
of the Company are hereafter changed into or exchanged for a different number or
kind of shares or other securities of the Company, 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 Class B Common Stock or other similar
transactions, proportionate adjustments shall be made by the Committee in the
number and kind of shares for the purchase of which options may be granted
(including adjustments of the limitation on the maximum number and kind of
shares which may be issued on exercise of options), which adjustments shall be
consistent with comparable adjustments made pursuant to the corresponding
provision in the 1989 Plan.
(b) In the event that the outstanding shares of Class B Common Stock
of the Company are hereafter changed into or exchanged for a different number or
kind of shares or other securities of the Company, 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 Class B Common Stock or other similar
transactions, the Committee shall make proportionate adjustments in the number
and kind of shares as to which all outstanding options, or portions thereof then
unexercised, shall be exercisable, to the end that after such event the
optionee's proportionate interest shall be maintained as before the occurrence
of such event. Such adjustments shall be consistent with comparable adjustments
made pursuant to the corresponding provision in the 1989 Plan. Such adjustment
in an outstanding option shall be made without change in the total price
applicable to the option or the unexercised portion of the option (except for
any change in the aggregate price resulting from rounding-off of share
quantities or prices) and with any necessary corresponding adjustment in option
price per share. Any such adjustment made by the Committee shall be final and
binding upon all optionees, the Company and all other interested persons.
12. GENERAL RESTRICTIONS.
(a) The Shares issuable and deliverable upon the exercise of any
option, or any portion thereof, may be either previously authorized but unissued
Shares or issued Shares which have then been reacquired by the Company. The
Company shall not be required to issue or deliver any certificate or
certificates for Shares purchased upon the exercise of any option or portion
thereof prior to fulfillment of all of the following conditions:
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(i) The admission of such Shares to listing on all stock
exchanges on which such class of stock is then listed;
(ii) The completion of any registration or other qualification of
such Shares under any state or federal law or under the rulings or
regulations of the Securities and Exchange Commission or any other
governmental regulatory body, which the Committee shall, in its absolute
discretion, deem necessary or advisable;
(iii) The obtaining of any approval or other clearance from
any state or federal governmental agency which the Committee shall, in its
absolute discretion, determine to be necessary or advisable;
(iv) The payment to the Company of all amounts which it is
required to withhold under federal, state or local law in connection with
the exercise of the option; and
(v) The lapse of such reasonable period of time following the
exercise of the option as the Committee may establish from time to time for
reasons of administrative convenience.
(b) The holders of options shall not be, nor have any of the rights
or privileges of, stockholders of the Company in respect of any Shares
receivable upon the exercise of any part of an option unless and until
certificates representing Shares have been issued by the Company to such
holders.
13. WITHHOLDING TAX LIABILITY.
(a) A holder of an option granted hereunder may elect to deliver
Shares to the Company or have the Company withhold shares otherwise issuable
upon the exercise of an option in order to satisfy federal, state and local
withholding tax liability (a "share withholding election"), provided: (i) the
Board or, if so designated, the Committee, shall not have revoked its advance
approval of the holder's share withholding election; and (ii) the share
withholding election is made on or prior to the date on which the amount of
withholding tax liability is determined (the "Tax Date"). Notwithstanding
the foregoing, a holder whose transactions in Common Stock are subject to
Section 16(b) of the Act may make a share withholding election only if the
following additional conditions are met: (i) the withholding is made at
least six months after the date of the grant of the option; and (ii) either
(x) the share withholding election is irrevocably made at least six months in
advance of the withholding, or (y) the share withholding election and the
share withholding take place during the period beginning on the third
business day following the date of release of the Company's quarterly or
annual financial results and ending on the twelfth business day following
such date.
(b) A share withholding election shall be deemed made when written
notice of such election, signed by the holder, has been delivered or transmitted
by registered or certified mail to the Secretary or Chief Financial Officer of
the Company at its then principal office. Delivery of said notice shall
constitute an irrevocable election to have Shares withheld.
(c) Upon exercise of an option by a holder, the Company shall
transfer the total number of Shares subject to the option to the holder on the
date of exercise, less any Shares the holder elects to withhold.
14. AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN. The Plan may be
wholly or partially amended or otherwise modified, suspended or terminated at
any time or from time to time by the Board; provided that: (i) the Board may
not amend or modify the Plan more than once in any six month period other
than to comport with changes in the Code, the Employee Retirement Income
Security Act, or the rules promulgated thereunder; and (ii) no amendment
without the approval of the stockholders of the Company shall be made if
stockholder approval would be required under Section 422 of the Code, Rule
16b-3 under the Exchange Act or any other law or rule of any governmental
authority, stock exchange or other self-regulatory organization to which the
Company is subject. Neither the amendment, suspension nor termination of the
Plan
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shall, without the consent of the holder of the option, alter or impair any
rights or obligations under any option theretofore granted. No option may be
granted during any period of suspension nor after termination of the Plan, and
in no event may any option be granted under this Plan after the expiration of 10
years from the date the Plan is approved by the Company's stockholders under
paragraph 15.
15. APPROVAL OF PLAN BY STOCKHOLDERS. This Plan will be submitted for the
approval of the Company's stockholders within 12 months after the date of the
Board's initial adoption of the Plan. Options may be granted prior to such
stockholder approval; provided, however, that such options shall not be
exercisable prior to the time when the Plan is approved by the stockholders;
provided, further, that if such approval has not been obtained at the end of
said 12-month period, all options previously granted under the Plan shall
thereupon be cancelled and become null and void.
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<PAGE>
PROXY CARD
PACIFICARE HEALTH SYSTEMS, INC.
THIS PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned holder of Class A Common Stock acknowledges receipt of a
copy of the Annual Report and the Proxy Statement, dated January 23, 1996,
and, revoking any proxy heretofore given, hereby constitutes and appoints
Messrs. Terry Hartshorn and Alan Hoops, and each of them, as proxies, each of
them with the power to appoint his substitute, and hereby authorizes each of
them to represent and to vote, cumulatively or otherwise as designated below,
all the shares of Class A Common Stock held of record by the undersigned on
January 8, 1996, at the Annual Meeting of Shareholders to be held on March 6,
1996 or any adjournment thereof.
1. ELECTION OF DIRECTORS ____ FOR the nominees listed ____ WITHHOLD AUTHORITY
(except as indicated to to vote for ALL
the contrary) below
Gary L. Leary Warren E. Pinckert II
(Instruction: To withhold authority to vote for any nominee, write the
nominee's name in the space provided below.)
2. APPROVAL OF THE AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION
______ FOR ______ AGAINST
3. APPROVAL OF THE AMENDED 1992 NON-OFFICER DIRECTORS STOCK OPTION PLAN
______ FOR _______ AGAINST
4. The proxies are authorized to vote in their discretion upon such other
business as may properly come before the meeting.
5. If you plan to attend the Annual Meeting, please check here: _________.
Please sign exactly as your name appears on the proxy. When shares are held
by joint tenants, both must sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
___________________________________
Signature
___________________________________
Signature (if held jointly)
DATED: , 1996
PLEASE MARK, SIGN, DATE AND RETURN PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
