-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, TG/oA1hhP/+jF6ZYPWo99Kh1lln/9fNG5XM3+7t8THYoCUUHeDqgVARhYjwCh6Lz 2DlmMAqQZjCUoOUKpypBDQ== 0000912057-94-002901.txt : 19940901 0000912057-94-002901.hdr.sgml : 19940901 ACCESSION NUMBER: 0000912057-94-002901 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19940831 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PACIFICARE HEALTH SYSTEMS INC CENTRAL INDEX KEY: 0000766456 STANDARD INDUSTRIAL CLASSIFICATION: 6324 IRS NUMBER: 330064895 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 033-55297 FILM NUMBER: 94547335 BUSINESS ADDRESS: STREET 1: 5995 PLAZA DR CITY: CYPRESS STATE: CA ZIP: 90630 BUSINESS PHONE: 7149521121 MAIL ADDRESS: STREET 1: 5995 PLAZA DRIVE CITY: CYPRESS STATE: CA ZIP: 90630 S-3 1 S-3 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 31, 1994 REGISTRATION NO. 33- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ PACIFICARE HEALTH SYSTEMS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 33-0064895 (STATE OF (I.R.S. EMPLOYER INCORPORATION) IDENTIFICATION NUMBER)
5995 PLAZA DRIVE CYPRESS, CALIFORNIA 90630-5028 (714) 952-1121 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------------ ALAN HOOPS PACIFICARE HEALTH SYSTEMS, INC. 5995 PLAZA DRIVE CYPRESS, CALIFORNIA 90630-5028 (714) 952-1121 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------------ IT IS REQUESTED THAT COPIES OF COMMUNICATIONS BE SENT TO: JOSEPH S. KONOWIECKI, ESQ. RICHARD A. GOLDBERG, ESQ. GENERAL COUNSEL AND SECRETARY SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN PACIFICARE HEALTH SYSTEMS, INC. 919 THIRD AVENUE 5995 PLAZA DRIVE NEW YORK, NEW YORK 10022 CYPRESS, CALIFORNIA 90630-5028 (212) 758-9500 (714) 952-1121
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. / / If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. / / ------------------------ CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED MAXIMUM MAXIMUM AGGREGATE AMOUNT OF TITLE OF SECURITIES AMOUNT TO OFFERING PRICE OFFERING REGISTRATION TO BE REGISTERED BE REGISTERED PER SHARE (1) PRICE (1) FEE Class B Common Stock, par value $0.01 per share.............. 750,000 $68.25 $51,187,500 $17,651 Registered Equity Purchase Contracts (2).................................... (2) (2) (2) (2)
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457 under the Securities Act of 1933, on the basis of the average of the high and low prices of the registrant's Class B Common Stock as reported on the NASDAQ National Market System on a date within five days of the filing prior to the filing hereof. (2) The shares of Class B Common Stock offered hereby will be purchased pursuant to the terms and conditions of registered equity purchase contracts. An indeterminate amount of such contracts are also hereby registered representing an interest in the Class B Common Stock. Pursuant to Rule 457(g) under the Securities Act of 1933, no additional fee is being paid. ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- PACIFICARE HEALTH SYSTEMS, INC. CROSS REFERENCE SHEET
FORM S-3 ITEM NO. AND CAPTION CAPTION OR LOCATION IN PROSPECTUS - ------------------------------------------------------------- -------------------------------------------------------- 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus................... Facing Sheet; Cross Reference Sheet; Outside Front Cover Page 2. Inside Front and Outside Back Cover Pages of Prospectus....................................... Inside Front Cover Page; Available Information; Outside Back Cover Page 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges........................ Prospectus Summary; Available Information 4. Use of Proceeds................................... Prospectus Summary; Use of Proceeds 5. Determination of Offering Price................... * 6. Dilution.......................................... * 7. Selling Security Holders.......................... * 8. Plan of Distribution.............................. Front Cover of Page; Plan of Distribution 9. Description of Securities to be Registered........ Front Cover Page; Prospectus Summary; Description of Securities 10. Interests of Named Experts and Counsel............ * 11. Material Changes.................................. Recent Developments 12. Incorporation of Certain Documents by Reference... Incorporation of Certain Documents by Reference 13. Disclosure of Commission Position on Indemnification for Securities Act Liabilities... * - ------------------------ * Not Applicable
Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state. 750,000 SHARES PACIFICARE HEALTH SYSTEMS, INC. CLASS B COMMON STOCK REGISTERED EQUITY PURCHASE CONTRACTS ---------------- The 750,000 shares (the "Shares") of non-voting Class B Common Stock, par value $0.01 per share (the "Class B Common Stock"), of PacifiCare Health Systems, Inc. (the "Company") are being offered by the Company to certain health care provider groups (the "Groups") in order to develop more strategic and long term alliances with such Groups. Each Group will be offered a specific number of Shares to be determined by the Company based upon the extent of each Group's alliance with the Company. See "Plan of Distribution." The Shares to be purchased hereunder (the "Contract Shares") by each Group may only be purchased pursuant to the terms and conditions of registered equity purchase contracts (each, a "Contract"). Each Contract obligates the Group that is a party thereto to purchase a specific amount of the Contract Shares over a five year period beginning on May 1, 1996 and on each May 1 thereafter through and including May 1, 2000 (each, a "Purchase Date"). Twenty percent of the Contract Shares will be purchased on each Purchase Date at a price per share (the "Purchase Price") equal to the last sale price of the Class B Common Stock as quoted on the NASDAQ National Market System on December 1, 1994. THE OBLIGATION TO PURCHASE THE CONTRACT SHARES WILL BE IRREVOCABLE EVEN IF ON ANY PURCHASE DATE THE MARKET PRICE OF THE CLASS B COMMON STOCK IS LESS THAN THE PURCHASE PRICE. Prior to the purchase of the Contract Shares, the Groups will not have any of the rights or privileges of a stockholder of the Company. ------------------------ The Class B Common Stock is quoted on the NASDAQ National Market System under the symbol PHSYB. On August 30, 1994, the last reported sale price of the Class B Common Stock was $68 per share. See "Price Range of Common Stock." ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. September , 1994 AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements, information statements and other information filed by the Company can be inspected and copied at the public reference facilities maintained by the Commission at the principal offices of the Commission, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549; and at the Commission's regional offices located at Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661-2511, and at Suite 1300, Seven World Trade Center, New York, New York 10048. Copies of such material can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Company has filed with the Commission a Registration Statement on Form S-3 (herein together with all amendments thereto called the "Registration Statement") under the Securities Act of 1933, as amended (the "Act"), with respect to the securities offered by this Prospectus. This Prospectus does not contain all the information set forth or incorporated by reference in the Registration Statement and the exhibits and schedules relating thereto, certain portions of which have been omitted as permitted by the rules and regulations of the Commission. For further information with respect to the Company and the securities offered by this Prospectus, reference is made to the Registration Statement and the exhibits and schedules thereto which are on file at the offices of the Commission and may be obtained upon payment of the fee prescribed by the Commission, or may be examined without charge at the offices of the Commission. Statements contained in this Prospectus as to the contents of any contract or other documents referred to are not necessarily complete, and are qualified in all respects by such reference. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents previously filed with the Commission are hereby incorporated by reference into this Prospectus: 1. The Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1993. 2. The Company's Quarterly Reports on Form 10-Q for the quarters ended December 31, 1993, March 31, 1994 and June 30, 1994. 3. The description of the Class B Common Stock of the Company contained in its Registration Statement on Form 8-A (File No. 0-14181), dated May 20, 1992. All documents subsequently filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination of this offering shall be deemed to be incorporated by reference in this Prospectus and to be a part of this Prospectus from the date of filing thereof. Any statement contained superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company hereby undertakes to provide without charge to each person, including any beneficial owner, to whom a copy of this Prospectus has been delivered, on the written or oral request of any such person, a copy of any or all of the documents referred to above which have been or may be incorporated in this Prospectus by reference (other than exhibits). Requests for such copies should be directed to: PacifiCare Health Systems, Inc., 5995 Plaza Drive, Cypress, California, 90630-5028, Attention: Investor Relations, telephone (714) 952-1121. The Company's principal executive offices are located at 5995 Plaza Drive, Cypress, California, 90630-5028, telephone (714) 952-1121. 2 PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION APPEARING IN THE DOCUMENTS INCORPORATED IN THIS PROSPECTUS BY REFERENCE. THE COMPANY The Company is one of the nation's leading managed health care organizations which arranges for the delivery of a comprehensive range of health care services, primarily through its health maintenance organization ("HMO") operations, for more than 1.2 million commercial, Medicare and Medicaid members. The Company serves the group employer market through seven wholly-owned HMOs located in California, Florida, Oklahoma, Oregon, Texas and Washington, which as of June 30, 1994 had a combined commercial membership of approximately 874,000 members. Since 1985, the Company has provided health care services to Medicare beneficiaries through its Secure Horizons-R- programs pursuant to capitated risk contracts with the Health Care Financing Administration ("HCFA"). Members in the Secure Horizons programs are enrolled on an individual basis, for which the Company receives a monthly fixed fee-per-member premium from HCFA, which is determined by regional demographic and cost factors. The Company believes that its Secure Horizons programs are attractive to Medicare beneficiaries because these programs provide a comprehensive package of benefits with coverage extending beyond that to which such members otherwise are entitled under Medicare, and because these programs substantially reduce the member's administrative responsibilities. The Company further believes that the Secure growing Medicare-risk programs in the United States. As of June 30, 1994, the Company had approximately 381,000 members enrolled in its government (Medicare and Medicaid) programs. The Company's commercial and government program members are provided some or all of the following health care services, including primary and specialty physician care, hospital care, laboratory and radiology services, prescription drugs, dental and vision care, skilled nursing care, physical therapy and psychological counseling. The Company also offers certain specialty products and services to group purchasers and to other managed care organizations and their beneficiaries, including Medicare risk management services, pharmacy benefit management, military health care management, coordination of managed care products for multi-region employers, health and life insurance, behavioral health, workers' compensation, dental and vision services and health promotion. The Company believes that its ability to provide a wide range of products and services through its commercial and government programs, together with its specialty managed care programs, will enable it to respond effectively to changes and needs in the health care marketplace. 3 THE OFFERING Class B Common Stock................ 750,000 shares Common Stock to be Outstanding Subsequent to Offering (1): Class A Common Stock.............. 12,225,333 shares Class B Common Stock.............. 16,019,578 shares Rights of Common Stock.............. The Class B Common Stock offered hereby has no voting rights, other than as required by Delaware law, and the Class A Common Stock has one vote per share. The Class B Common Stock and the Class A Common Stock have equal rights to cash dividends, if any, and upon liquidation. See "Dividend Policy" and "Description of Securities -- Capital Stock." Purchase Price...................... The Contract Shares shall be purchased at a price per share equal to the last sale price of the Class B Common Stock as quoted on the NASDAQ National Market System on December 1, 1994. Registered Equity Purchase Contract........................... Each Group will enter into a Contract which will require the Group to purchase 20 percent of the Contract Shares to be purchased by such Group on each EVEN IF ON ANY PURCHASE DATE THE MARKET PRICE OF THE CLASS B COMMON STOCK IS LESS THAN THE PURCHASE PRICE. Groups will not be permitted to purchase or pay for any of the Contract Shares prior to the Purchase Date for such Contract Shares. The Contracts may be terminated or payment of the total consideration due under any Contract may be accelerated at the Company's option upon the occurrence of certain events of default. Prior to the purchase of the Contract Shares, a Group will not have the status or rights of a stockholder of the Company. See "Description of Securities -- Registered Equity Purchase Contracts." Transferability of Contracts........ The Contracts will not be transferable. Upon purchase, however, the Shares will be freely transferable. Shares of Class B Common Stock...... Shares of Class B Common Stock have been reserved for issuance pursuant to the Contracts. Use of Proceeds..................... To increase working capital and for general corporate purposes. See "Use of Proceeds." NASDAQ Symbols: Class A Common Stock.............. PHSYA Class B Common Stock.............. PHSYB - ------------------------ (1) Based on the number of shares of the Class A and Class B Common Stock (together, the "Common Stock") outstanding as of August 15, 1994 and excluding 463,984 shares of the Class A Common Stock and 1,324,940 shares of the Class B Common Stock issuable upon the exercise of outstanding stock options, of which options to purchase 430,784 shares of the Class A Common Stock and 505,756 shares of the Class B Common Stock are currently exercisable.
4 SUMMARY FINANCIAL INFORMATION
NINE MONTHS YEARS ENDED SEPTEMBER 30, ENDED JUNE 30, ---------------------------------------------------------------- ------------------------------- 1989 1990 1991 1992 1993 1993(6) 1993 1994 1994(6) --------- --------- --------- --------- --------- --------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED INCOME STATEMENT DATA: Total operating revenue... $ 650,242 $ 975,849 $1,242,357 $1,686,314 $2,221,073 $2,410,605 $1,615,594 $2,112,431 $2,185,410 Operating income (1)...... 9,070 14,388 29,734 60,549 87,244 82,113 63,191 90,196 86,913 Income before income taxes.................... 17,749 29,438 44,521 74,852 108,327 99,073 78,617 108,193 102,389 Net income................ 10,859 17,638 25,702 43,590 62,696 55,883 45,585 68,037 63,999 Earnings per share (2).... $ 0.48 $ 0.74 $ 1.10 $ 1.78 $ 2.25 $ 2.01 $ 1.64 $ 2.43 $ 2.29 Weighted average number of shares of common stock and equivalents outstanding (2).......... 22,615 23,770 23,346 24,509 27,847 27,847 27,829 27,948 27,948 OPERATING STATISTICS (3): Medical loss ratio (4).... 86.8% 86.7% 85.4% 83.2% 84.1% 83.8% 84.6% 83.5% 83.3% Net pretax margin (5)..... 2.7% 3.0% 3.6% 4.4% 4.9% 4.1% 4.9% 5.1% 4.7% Period-end commercial membership............... 451 546 567 742 807 893 790 874 924 Period-end government (Medicare and Medicaid) membership............... 102 127 159 214 290 316 269 381 381 --------- --------- --------- --------- --------- --------- --------- --------- --------- Total period-end HMO membership............. 553 673 726 956 1,097 1,209 1,059 1,255 1,305 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
PRO FORMA SEPTEMBER 30, JUNE 30, JUNE 30, ------------- --------- --------- (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA: Working capital............................................................ $ 162,781 $ 208,057 $ 209,075 Total assets............................................................... $ 693,646 $ 877,873 $ 948,931 Long-term debt, excluding current maturities............................... $ 21,821 $ 43,958 $ 108,289 Shareholders' equity....................................................... $ 319,294 $ 390,169 $ 390,169 - ------------------------------ (1) Certain reclassifications have been made to the 1989 through 1991 amounts to conform to the 1992, 1993 and 1994 presentations. (2) All share amounts and financial information presented in this Prospectus (except as expressly indicated otherwise) have been adjusted to reflect the reclassification of the Company's common stock (the "Prior Common Stock") into Class A Common Stock and Class B Common Stock and the stock dividend of Class B Common Stock (the "June 1992 Stock Dividend"), both of which occurred in June 1992 (together, the "Recapitalization"). The June 1992 Stock Dividend had the same effect on the total number of shares of common stock and equivalents outstanding as a two-for-one stock split. Income before cumulative effect of a change in accounting principle for the nine months ended June 30, 1994 was $62.4 million or $2.23 per share. The cumulative effect on prior years of a change in accounting principle for the nine months ended June 30, 1994 is $5.7 million or $0.20 per share. (3) Medical loss ratio and net pretax margin reflect data for the fiscal years and nine-month periods reported and membership statistics reflect data at the end of each of such periods. (4) Health care costs as a percentage of premium revenue. (5) Income before income taxes and cumulative effect of a change in accounting principle as a percentage of total operating revenue. (6) The pro forma consolidated income statement data and balance sheet data give effect to the acquisition by the Company of the Acquired Companies (as defined under "Recent Developments -- Recent Acquisitions" below) in the manner set forth under "Recent Developments -- Pro Forma Condensed Consolidated Financial Statements (Unaudited)," including the related notes contained therein. Pro forma period-end membership data is derived by adding the membership of the Company and the Acquired Companies as of the
5 RECENT DEVELOPMENTS HEALTH CARE REFORM As a result of the continued escalation of health care costs and the inability of many individuals to obtain health care insurance, numerous proposals relating to health care reform have been, and additional proposals may be introduced in the United States Congress and the legislatures of the states in which the Company operates or may seek to operate. The Company cannot predict what effect, if any, yet to be enacted health care legislation or proposals will have on the Company if, and when, enacted. The Company believes that the current political environment in which it operates will result in continued legislative scrutiny of health care reform and may lead to additional legislative initiatives. The Company is unable to predict the ultimate impact upon the Company of any federal or state restructuring of the health care delivery or health care financing systems, but such changes could have a material adverse impact on the operations, financial condition and prospects of the Company. RECENT ACQUISITIONS During fiscal 1994, the Company acquired (the "1994 Acquisitions") the following companies: (i) Freedom Plan, Inc. (acquired October 1, 1993); (ii) California Dental Health Plan, Inc. and Dental Plan Administrators (acquired November 1, 1993); (iii) Advantage Health Plans, Inc. (acquired January 1, 1994); and (iv) Preferred Health Resources, Inc. (acquired March 1, 1994). In June 1994, PacifiCare of Florida, a subsidiary of the Company, entered into an agreement to acquire (the "Pasteur Acquisition") all of the issued and outstanding capital stock of Pasteur Health Plans, Inc. ("PHP"), Pasteur Delivery Systems, Inc. ("PDS") and Interstate Medical Equipment, Inc. ("IME"). PHP, PDS and IME shall collectively be referred to herein as "Pasteur." The Pasteur Acquisition, which is subject to among other things, various regulatory approvals, is expected to close by the end of the Company's current fiscal year. The 1994 Acquisitions and the Pasteur Acquisition shall together be referred to herein as the "Acquisitions." The companies acquired or to be acquired through the Acquisitions shall be referred to as the "Acquired Companies." The total purchase price for the Acquisitions is expected to be approximately $103 million. See "-- Pro Forma Condensed Consolidated Financial Statements (Unaudited)." PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The accompanying pro forma condensed consolidated financial statements have been prepared by the Company based on certain pro forma adjustments to the historical financial statements of the Company, which are incorporated in this prepared in accordance with generally accepted accounting principles. The pro forma adjustments presented are shown for comparative purposes only and should not be considered to reflect the actual results of operations of the combined companies had the Acquisitions taken place at the beginning of each pro forma period. The pro forma information is not intended to be indicative of results which may occur in the future. The Acquisitions have been or will be accounted for as purchases and the operating results of each completed acquisition are included in the consolidated financial statements from the date of purchase. These unaudited pro forma statements should be read in conjunction with the Company's financial statements and related notes, which are incorporated in this Prospectus by reference. The accompanying pro forma condensed consolidated balance sheet as of June 30, 1994 has been prepared to give pro forma effect to the Pasteur Acquisition as if it had occurred on June 30, 1994. The accompanying pro forma condensed consolidated statements of income for the nine months ended June 30, 1994 and the year ended September 30, 1993, have been prepared to give pro forma effect to the 1994 Acquisitions as if such acquisitions had occurred on October 1, 1993 and 1992, respectively. Such pro forma condensed consolidated statements of income also give pro forma effect to the completion of the Pasteur Acquisition, which is expected to close by the end of the Company's current fiscal year, as if it had occurred at the beginning of each pro forma period. 6 PACIFICARE HEALTH SYSTEMS, INC. PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) JUNE 30, 1994 ASSETS
PRO THE PRO FORMA FORMA COMPANY PASTEUR ADJUSTMENTS RESULTS -------- ------- ----------- -------- (IN THOUSANDS) Current assets: Cash and equivalents...................................... $57,988 $ 6,763 $64,751 Marketable securities..................................... 487,131 487,131 Receivables, net.......................................... 82,481 359 82,840 Deferred income taxes..................................... 15,894 15,894 -------- ------- ----------- -------- Total current assets.................................... 651,390 7,745 659,135 -------- ------- ----------- -------- Property, plant and equipment, net.......................... 91,876 4,414 96,290 Marketable securities -- restricted......................... 15,339 294 15,633 Goodwill and intangible assets.............................. 117,695 $58,078(a) 175,773 Other assets................................................ 1,573 527 2,100 -------- ------- ----------- -------- $877,873 $12,980 $58,078 $948,931 -------- ------- ----------- -------- -------- ------- ----------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Medical claims and benefits payable....................... $294,100 $ 1,937 $296,037 Accounts payable and accrued liabilities.................. 122,191 4,221 126,412 Unearned premium revenue.................................. 18,743 321 19,064 Long-term debt due within one year........................ 8,299 248 8,547 -------- ------- ----------- -------- Total current liabilities............................... 443,333 6,727 450,060 -------- ------- ----------- -------- Long-term debt due after one year........................... 43,958 4,331 60,000(a) 108,289 Minority interest........................................... 413 -- 413 Shareholders' equity: Preferred shares.......................................... Class A common shares..................................... 122 8 (8)(a) 122 Class B common shares..................................... 153 153 Additional paid-in capital................................ 140,980 189 (189)(a) 140,980 Retained earnings......................................... 248,914 1,725 (1,725)(a) 248,914 -------- ------- ----------- -------- -------- ------- ----------- -------- $877,873 $12,980 $58,078 $948,931 -------- ------- ----------- -------- -------- ------- ----------- --------
7 PACIFICARE HEALTH SYSTEMS, INC. PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) FOR THE NINE MONTHS ENDED JUNE 30, 1994
THE ACQUIRED PRO FORMA PRO FORMA COMPANY COMPANIES ADJUSTMENTS RESULTS ---------- ------------ ----------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenue: Premiums.................................................. $2,083,901 $ 69,121 $ (245)(b) $2,152,777 Other income.............................................. 28,530 4,394 (291)(c) 32,633 ---------- ------------ ----------- ---------- Total operating revenue................................. 2,112,431 73,515 (536) 2,185,410 ---------- ------------ ----------- ---------- Expenses: Health care services...................................... 1,740,471 53,231 (205)(b) 1,793,497 Marketing, general and administrative..................... 279,293 16,155 5,669(d) 301,117 Amortization of intangibles............................... 2,471 31 1,381(e) 3,883 ---------- ------------ ----------- ---------- Operating income............................................ 90,196 4,098 (7,381) 86,913 Interest income............................................. 19,432 5 (273)(f) 19,164 Interest expense............................................ (1,435 ) (363 ) (1,890)(g) (3,688) ---------- ------------ ----------- ---------- Income before income taxes and cumulative effect of a change in accounting principle.................................... 108,193 3,740 (9,544) 102,389 ---------- ------------ ----------- ---------- Income before cumulative effect of a change in accounting principle.................................................. 62,379 2,725 (6,763) 58,341 Cumulative effect on prior years of a change in accounting principle.................................................. 5,658 5,658 ---------- ------------ ----------- ---------- Net income.................................................. $ 68,037 $ 2,725 $(6,763) $ 63,999 ---------- ------------ ----------- ---------- ---------- ------------ ----------- ---------- Weighted average common shares and equivalents outstanding used to calculate earnings per share....................... 27,948 27,948 27,948 27,948 ---------- ------------ ----------- ---------- Earnings per share: Before cumulative effect of a change in accounting principle................................................ $2.23 $0.10 $(0.24) $2.09 Cumulative effect on prior years of a change in accounting principle................................................ 0.20 -- -- 0.20 ---------- ------------ ----------- ---------- Earnings per share........................................ $2.43 $0.10 $(0.24) $2.29 ---------- ------------ ----------- ---------- ---------- ------------ ----------- ----------
8 PACIFICARE HEALTH SYSTEMS, INC. PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) FOR THE YEAR ENDED SEPTEMBER 30, 1993
THE ACQUIRED PRO FORMA PRO FORMA COMPANY COMPANIES ADJUSTMENTS RESULTS ---------- ------------ ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenue: Other income.............................................. 20,923 10,373 (3,378)(c) 27,918 ---------- ------------ ----------- ----------- Total operating revenue................................. 2,221,073 193,738 (4,206) 2,410,605 ---------- ------------ ----------- ----------- Expenses: Health care services...................................... 1,850,469 145,987 (696)(b) 1,995,760 Marketing, general and administrative..................... 279,865 41,701 4,490(d) 326,056 Amortization of intangibles............................... 3,495 322 2,859(e) 6,676 ---------- ------------ ----------- ----------- Operating income............................................ 87,244 5,728 (10,859) 82,113 Interest income............................................. 23,459 162 (1,286)(f) 22,335 Interest expense............................................ (2,376 ) (479) (2,520)(g) (5,375) ---------- ------------ ----------- ----------- Income before income taxes.................................. 108,327 5,411 (14,665) 99,073 Provision for income taxes.................................. 45,631 1,765 (4,206)(h) 43,190 ---------- ------------ ----------- ----------- Net income.................................................. $ 62,696 $ 3,646 $(10,459) $ 55,883 ---------- ------------ ----------- ----------- ---------- ------------ ----------- ----------- Weighted average common shares and equivalents outstanding used to calculate earnings per share....................... 27,847 27,847 27,847 27,847 ---------- ------------ ----------- ----------- Earnings per share.......................................... $2.25 $0.13 $(0.37) $2.01 ---------- ------------ ----------- ----------- ---------- ------------ ----------- ----------- - ------------------------
9 PACIFICARE HEALTH SYSTEMS, INC, NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED SEPTEMBER 30, 1993 Pro forma Condensed Balance Sheet as of June 30, 1994: (a) The purchase price of the Pasteur Acquisition is assumed to be funded through borrowings under the Company's long-term line of credit. Under purchase accounting, the assets and liabilities of Pasteur are required to be adjusted to estimated fair values. For the purpose of preparing the pro forma financial statements, the entire excess of the cost of the Company's acquisition over the book value of Pasteur's net assets at the assumed date of acquisition (June 30, 1994) has been allocated to goodwill. Pasteur's assets will be adjusted to fair values as of the actual date of acquisition. Pro forma Condensed Income Statement for the nine months ended June 30, 1994 and year ended September 30, 1993: (b) This entry represents the reduction in premium revenue and health care services expense related to employee health coverage provided by the Company to the Acquired Companies. (c) This entry represents the elimination of administrative fees paid by the Company to certain Acquired Companies and recognized as other income by such Acquired Companies prior to acquisition. (d) The Company assumes that marketing, general and administrative expenses for the nine months ended June 30, 1994 and year ended September 30, 1993 totaling approximately $6 million and $8 million, respectively, will be incurred for the integration of acquisitions. These amounts are offset by reductions in marketing, general and administrative expenses of $331,000 and $3,510,000 related to footnotes (b) and (c) above for the nine months ended June 30, 1994 and the year ended September 30, 1993, respectively. (e) Under purchase accounting, the assets and liabilities of the Acquisitions are required to be adjusted to estimated fair values. For the purpose of preparing the pro forma financial statements, goodwill was determined based on the excess of the purchase price over the fair values of net assets acquired for completed acquisitions, and the excess of the purchase price over book value of Pasteur's net assets at June 30, 1994. Pasteur's assets will be adjusted to fair values as of the actual date of acquisition. This entry represents the amortization of goodwill from the beginning of each pro forma period through the acquisition date assuming straight-line amortization over forty years as if the acquisitions were completed at October 1, 1993 and 1992, respectively. (f) This entry represents the reduction of interest income from the beginning of each pro forma period through the acquisition date assuming cash payments of $28 million and $32 million were made at October 1, 1993 and 1992, of four percent. (g) The Pasteur Acquisition is assumed to be funded using borrowings under the Company's long-term line of credit at an interest rate of 4.20 percent. This entry represents additional interest expense incurred for the nine months ended June 30, 1994 and year ended September 30, 1993, as if the Acquisitions were completed at October 1, 1993 and 1992, respectively. (h) This entry represents the tax effect of the pro forma adjustment, excluding goodwill amortization, at the statutory rate in effect during the nine months ended June 30, 1994 and year ended September 30, 1993. 10 USE OF PROCEEDS The net proceeds of this offering will be used by the Company to increase working capital and for general corporate purposes. Such purposes may include the introduction of new products and services, increased investment in existing operations and expansion of geographic markets, which may include states in which the Company currently does not have a presence. PRICE RANGE OF COMMON STOCK The Class A and Class B Common Stock are traded on the over-the-counter market and are listed on the NASDAQ National Market System under the symbols PHSYA and PHSYB, respectively. The following tables set forth, for the indicated periods, the high and low last reported sale prices per share of (i) the Prior Common Stock and (ii) the Class A and Class B Common Stock after the Recapitalization, as furnished by NASDAQ. All prices per share of Prior Common Stock have been divided by two to reflect the June 1992 Stock Dividend, which had the same effect on the total number of shares of common stock and equivalents outstanding as a two-for-one stock split.
PRIOR COMMON STOCK ------------------ FISCAL PERIOD HIGH LOW - -------------------------------------------------- ------- -------- 1992 First Quarter................................... $20 $ 10 7/8 Second Quarter.................................. 31 18 3/4 Third Quarter (through June 4, 1992)............ 30 1/8 25 1/2
CLASS A CLASS B COMMON STOCK COMMON STOCK ----------------- ----------------- HIGH LOW HIGH LOW 1992 Third Quarter (commencing June 5, 1992 through June 30, 1992)............... $30 3/4 $28 3/4 $29 1/2 $23 7/8 Fourth Quarter........................ 43 26 1/4 38 22 1/2 1993 First Quarter......................... 51 38 44 3/4 32 1/2 Second Quarter........................ 56 3/4 30 1/2 49 20 5/8 Third Quarter......................... 44 34 40 28 5/8 Fourth Quarter........................ 43 3/4 31 40 3/4 29 1/2 1994 First Quarter......................... 42 1/4 31 41 1/2 29 7/8 Second Quarter........................ 57 38 1/4 56 3/8 37 3/4 Third Quarter......................... 59 3/4 47 1/2 59 1/2 47 1/2 Fourth Quarter (Through August 30, 1994)............................... 71 1/2 47 70 46
The last reported sale prices of the Class A and Class B Common Stock as quoted on the NASDAQ National Market System on August 30, 1994 were $71 1/2 and $68 per share, respectively. As of August 15, 1994, there were approximately 313 and 245 holders of record of the Class A and Class B Common Stock, respectively. Based upon information available to it, the Company believes that there are at least 25,000 beneficial holders in the aggregate of the Class A and Class B Common Stock. DIVIDEND POLICY The Company has never paid any cash dividends on its Common Stock. The Company currently anticipates that no cash dividends on its Common Stock will be declared in the foreseeable future and that all of its earnings will be retained for the development of the Company's business. Any future dividends would be conditioned upon, among other things, future earnings, the financial condition of the Company and regulatory requirements, which may limit the Company's ability to pay dividends. 11 CAPITALIZATION The following table sets forth the consolidated capitalization of the Company as of June 30, 1994.
(IN THOUSANDS) Actual --------------- Current maturities of long-term debt........................ $ 8,299 --------------- --------------- Long-term debt, excluding current maturities................ $ 43,958 Shareholders' equity: Preferred shares, par value $1.00 per share; 10,000,000 authorized; none issued............................................... -- Class A Common Shares, par value $0.01 per share; 30,000,000 shares authorized; 12,216,333 shares issued (1).................. 122 Class B Common Shares, par value $0.01 per share; 60,000,000 shares authorized; 15,241,657 shares issued (1).................. 153 Additional paid-in capital.................................. 140,980 Retained earnings........................................... 248,914 --------------- Total shareholders' equity................................ 390,169 --------------- Total capitalization.................................... $ 434,127 --------------- --------------- - ------------------------ (1) Excludes 472,984 shares of Class A Common Stock and 1,303,061 shares of Class B Common Stock issuable upon the exercise of outstanding stock options as of June 30, 1994. See Note 1 on page 4 for information as of a more recent date.
12 DESCRIPTION OF SECURITIES REGISTERED EQUITY PURCHASE CONTRACTS The description of the Contracts set forth below is qualified in its entirety by reference to the form of Registered Equity Purchase Contract which is an exhibit to the Registration Statement of which this Prospectus is a part. MANDATORY PURCHASE Each Contract obligates the Group which is a party thereto to purchase a specific amount of the Contract Shares. (See "Plan of Distribution" for an explanation of how the number of Shares offered to each Group will be determined.) On May 1, 1996 and on each May 1 thereafter through and including May 1, 2000 (each, a "Purchase Date"), a Group shall purchase 20 percent of its Contract Shares (the "Purchase Date Shares"). The Purchase Date Shares shall be purchased at a price per share (the "Purchase Price") equal to the last sale price of the Class B Common Stock as quoted on the NASDAQ National Market System on December 1, 1994. Each Contract requires the Group which is a party thereto to purchase the Purchase Date Shares on each Purchase Date at the Purchase Price even if the market price of the Class B Common Stock is less than the Purchase Price on such Purchase Date. The Purchase Price may be subjected to adjustment upon the occurrence of certain events. See "-- Anti-Dilution." STATUS OF HOLDER OF CONTRACT a stockholder of the Company or have any rights or privileges of a stockholder. However, for purposes of certain disclosure and reporting obligations imposed pursuant to the Exchange Act, a Group may be deemed at certain times to "beneficially own" all or some portion of the Contract Shares. ANTI-DILUTION Each Contract will provide that the Purchase Price and the number of shares of Class B Common Stock that the Groups have the obligation to purchase will be subject to adjustment if the Company: (i) pays a dividend or makes a distribution on its Class B Common Stock in shares of its Class B Common Stock; (ii) subdivides its outstanding shares of Class B Common Stock into a greater number of shares; (iii) combines its outstanding shares of Class B Common Stock into a smaller number of shares; (iv) makes a distribution on its Class B Common Stock in shares of its capital stock other than Common Stock; (v) issues by reclassification of its Class B Common Stock any shares of its capital stock; or (vi) distributes to all holders of its Class B Common Stock any of its assets or debt securities or any rights or warrants to purchase assets or securities of the Company. No adjustment of the Purchase Price will be made until cumulative adjustments amount to at least $0.25 per share. RESTRICTIONS ON TRANSFER AND EXCHANGES A Contract shall be the obligation of the Group and such obligation cannot be sold, transferred or assigned. In the event of a merger, consolidation, reorganization or other similar event where the Group is not the surviving entity, the surviving entity shall not succeed to any of the Group's rights under the Contract without the prior written consent of the Company. Subsequent to purchase, the Purchase Date Shares will be fully transferable. In case a Contract shall be mutilated, lost, stolen or destroyed, the Company may, in its discretion, issue, in exchange and substitution for and upon cancellation of the mutilated Contract or in lieu of and substitution for the Contract so mutilated, lost, stolen or destroyed, a new Contract representing the same aggregate purchase obligation. Such new Contract will be issued only upon surrender of the mutilated Contract to the Company or receipt of evidence satisfactory to the Company of such loss, theft or destruction of the Contract and provision for indemnity, if requested. CONSOLIDATION, MERGER AND SALE OF ASSETS The Company may, without the consent of the Groups, consolidate with, merge into or transfer its assets substantially as an entirety to any corporation, provided that the successor corporation assumes the Company's obligations under the Contracts. If the Company undergoes a capital reorganization or a 13 or a reclassification in connection with any consolidation or merger in which the Company is the surviving corporation (other than a subdivision or combination of outstanding shares of Class B Common Stock), or if the Company consolidates with, or merges with or into any other corporation or sells the properties and assets of the Company as, or substantially as, an entirety to any other business organization, each Contract shall, after such capital reorganization, reclassification, consolidation, merger or sale, represent the obligation and the right to purchase the number of shares of stock or other securities or property (including cash) to which the Contract Shares issuable upon purchase thereof pursuant to the Contract would have been entitled upon such capital reorganization, reclassification of the Class B Common Stock, consolidation, merger or sale. EVENTS OF DEFAULT In the case of an Event of Default under clauses (i) through (v) below, the Company shall at its option either terminate the Contract thereby relieving the Company and the Group of all rights and obligations thereunder or accelerate the payment of the Total Purchase Price (as defined below). In the case of an Event of Default under clauses (vi) and (vii) below, the Company shall terminate the Contract and the Company and the Group shall be relieved of all rights and obligations under the Contract. An Event of Default will consist of the following events: (i) termination of the agreement between the Group and the Company whereby the Group agrees to provide health care services (the "Provider Agreement"); (ii) failure by the Group to maintain its strategic alliance with the Company or failure to meet its performance goals under the strategic alliance; (iii) default in the payment of the Purchase Date Price on any Purchase Date and continuance of such default for a period of 15 days; (iv) entry of a decree or order by a court having jurisdiction in the premises adjudging the Group a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Group under the Federal Bankruptcy Act or any other applicable federal or state law, or appointing a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Group or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; (v) institution by the Group of proceedings to be adjudicated a bankrupt or insolvent, or the consent by the Group to the institution of bankruptcy or insolvency proceedings against it, or the filing by the Group of a petition or property under the Federal Bankruptcy Act or any other applicable federal or state law, or the consent by the Group to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Group or of any substantial part of its property, or the making by the Group of a general assignment for the benefit of creditors; (vi) entry of a decree or order by a court having jurisdiction in the premises adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the corporation under the Federal Bankruptcy Act or any other applicable federal or state law, or appointing a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the corporation or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; or (vii) institution by the Company of proceedings to be adjudicated a bankrupt or insolvent, or the consent by the Company to the institution of bankruptcy or insolvency proceedings against it, or the filing by the Company of a petition or answer or consent seeking reorganization or relief in respect of it or its property under the Federal Bankruptcy Act or any other applicable federal or state law, or the consent by the Company to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or of any substantial part of its property, or the making by the Company of a general assignment for the benefit of creditors. Termination of a Contract shall not affect any Contract Shares previously purchased under the Contract. The failure by a Group to purchase and pay for the Purchase Date Shares on a Purchase Date is not compensable by any measure of damages which would be less than payment of the total consideration due under a Contract (the "Total Purchase Price"). In the event that an action is instituted or defended by the Company in consequence of a default by the Group in the performance of a Group's obligation to purchase 14 and pay for the Contract Shares, the damages to be assessed against the Group shall be the Total Purchase Price, plus interest at a rate equal to greater of the prime rate plus two percent or the maximum legal rate from the date of default, plus the costs of litigation. The Company may also seek any available equitable remedy. PAYMENT The total consideration due on each Purchase Date (the "Purchase Date the Company in care of the Company's Treasurer at the offices of the Company in lawful money of the United States of America by certified or official bank check in Los Angeles Clearing House (same day) Funds payable to or upon the order of the Company. The Company shall not be obligated to sell the Purchase Date Shares or deliver any certificates representing the Purchase Date Shares unless it shall have received payment in full of the Purchase Date Price for the Purchase Date Shares on each Purchase Date. A Group will not have the ability to purchase or pay for any of the Contract Shares prior to a Purchase Date or in any amount other than the number of Shares equal to the Purchase Date Shares. NO FRACTIONAL SHARES The Company shall not issue or sell any fraction of a share, but in any case where a Group would be entitled to receive a fraction of a share, the Company shall, upon the purchase by the Group of the Purchase Date Shares, pay in cash to the Group, in lieu of such fractional share, a sum equal to the same fraction of the Purchase Price per share then applicable under the Contract. CAPITAL STOCK The authorized capital stock of the Company consists of 30 million shares of Class A Common Stock, par value $0.01 per share, 60 million shares of Class B Common Stock, par value $0.01 per share, and 10 million shares of Preferred Stock, par value $1.00 per share (the "Preferred Stock"). As of August 15, 1994, there were 12,225,333 shares of Class A Common Stock outstanding, 15,269,578 shares of Class B Common Stock outstanding and no shares of Preferred Stock outstanding. COMMON STOCK The description of the Common Stock set forth below is qualified in its entirety by reference to the Company's Registration Statement on Form 8-A (File No. 0-14181), dated May 20, 1992, incorporated in this Prospectus by reference. VOTING. Actions submitted to a vote of stockholders will generally be voted on only by holders of Class A Common Stock. Except as provided below under the Certificate of Incorporation of the Company and the Delaware General Corporation Law, only the affirmative vote of the holders of a majority of the outstanding shares of Class A Common Stock entitled to vote will be required to amend the Certificate of Incorporation, to authorize additional shares of Class A Common Stock, to approve any merger or consolidation of the Company with or into any other corporation or to approve the dissolution of the Company. The holders of Class A Common Stock will elect the entire Board of Directors. In addition, as permitted under the Delaware General Corporation Law, the Certificate of Incorporation provides that the number of authorized shares of the Class B Common Stock may be increased or decreased (but not below the number of shares Class A Common Stock. Under the Delaware General Corporation Law, holders of Class B Common Stock will be entitled to vote as a class on any merger or consolidation of the Company which involves an amendment to the Company's Certificate of Incorporation if the amendment would have an adverse effect on the rights of the Class B Common Stock, and on proposals to change the par value of the Class B Common Stock or to alter or change the powers, preferences or special rights of the shares of Class B Common Stock, including the Class B Protection feature described below, which may affect them adversely. DIVIDENDS AND OTHER DISTRIBUTIONS. Holders of the Class A Common Stock and Class B Common Stock are entitled to equal per share cash dividends, and, except as provided below, dividends paid in stock or 15 property of the Company, when, as and if such dividends may be declared by the Board of Directors and paid out of assets legally available therefor. Stock dividends and stock splits would be declared and paid to holders of any class of Common Stock only if such stock dividends and stock splits were declared and paid to holders of all classes of Common Stock on an equal per share basis and may be made: (i) in shares of Class B Common Stock to the holders of Class A Common Stock and to the holders of Class B Common Stock; (ii) in shares of Class A Common Stock to the holders of Class A Common Stock and in shares of Class B Common Stock to the holders of Class B Common Stock; or (iii) in any other authorized class or series of capital stock to the holders of both classes of Common Stock. In the past, the Company has effected stock splits through stock dividends on its outstanding Prior Common Stock to reduce the price of the stock to levels which the Company believed made the stock more attractive. The Company may issue stock dividends in the future for similar reasons. Upon the liquidation, dissolution or winding up of the affairs of the Company, each share of Class A Common Stock and each share of the Class B Common Stock would receive the remaining net assets of the Company on an equal basis. MERGERS OR CONSOLIDATIONS. Each holder of Class B Common Stock will be entitled to receive the same per share consideration as the per share consideration, if any, received by any holder of the Class A Common Stock in a merger or consolidation of the Company (whether or not the Company is the surviving corporation). CLASS B PROTECTION. If any person or group acquires beneficial ownership of 10 percent or more of the then issued and outstanding shares of Class A Common Stock after the effective date of the amendment to the Company's Certificate of Incorporation which reclassified the Prior Common Stock into Class A Common number of shares beneficially owned by such person or group before the effective time of the Reclassification Amendment and other than upon issuance or sale by the Company, by operation of law, by will or the laws of descent and distribution, by gift or by foreclosure of a bona fide loan), and such person or group (a "Significant Shareholder") does not then own an equal or greater percentage of all outstanding shares of Class B Common Stock acquired after the June 1992 Stock Dividend record date (the "Dividend Date"), such Significant Shareholder must within a 90-day period beginning the day after becoming a Significant Shareholder, make a public tender offer to acquire additional shares of Class B Common Stock (a "Class B Protection Transaction"). The 10 percent ownership threshold for the Class A Common Stock which triggers a Class B Protection Transaction may not be waived by the Board of Directors nor may the Board of Directors amend this threshold in the Certificate of Incorporation without shareholder approval. For purposes of this provision, "beneficial ownership" and "group" have the meanings of such terms as used in Rule 13d-1 promulgated under the Exchange Act. In a Class B Protection Transaction, the Significant Shareholder must offer to acquire from the holders of the Class B Common Stock that number of shares of additional Class B Common Stock (the "Additional Shares") determined by (i) multiplying the percentage of outstanding Class A Common Stock owned by such Significant Shareholder which were acquired after the effective date of the Reclassification Amendment, by the total number of shares of Class B Common Stock outstanding on the date such person or group became a Significant Shareholder, and (ii) subtracting therefrom the total number of shares of Class B Common Stock owned by such Significant Shareholder on such date and acquired after the Dividend Date by such Significant Shareholder. The Significant Shareholder must acquire all shares validly tendered or, if the number of shares tendered exceeds the number determined pursuant to such formula, a pro rata amount from each tendering holder. The offer price for any shares required to be purchased by the Significant Shareholder pursuant to this provision is the greater of (i) the highest price per share paid by the Significant Shareholder for any share of Class A Common Stock in the six-month period ending on the date such person or group became a Significant Shareholder or (ii) the highest price of a share of the Class A Common Stock or Class B Common Stock on the NASDAQ National Market System (or such other quotation system or securities exchange constituting the principal trading market for either class of Common Stock) on the date such person or share of Class A Common Stock or 16 Class B Common Stock on the NASDAQ National Market System (or such other quotation system or securities exchange constituting the principal trading market for either class of Common Stock) on the date preceding the date the Significant Shareholder engages in a Class B Protection Transaction. A Class B Protection Transaction would also be required of any Significant Shareholder that acquires the next highest integral multiple of five percent (e.g., 15%, 20%, 25%, etc.) of the outstanding Class A Common Stock after the effective date of the Reclassification Amendment (other than upon original issuance by the Company, by operation of law, by will or the laws of descent and distribution, by gift, or by foreclosure of a bona fide loan), and such Significant Shareholder does not own an equal or greater percentage of all outstanding shares of Class B Common Stock acquired after the Dividend Date. Such Significant Shareholder would be required to offer to buy that number of Additional Shares prescribed by the formula set forth above, even if a previous offer resulted in fewer shares of Class B Common Stock being tendered than such previous offer included. The Class B Protection feature does not restrict the sale of the Class B Common Stock. Accordingly, compliance with the Class B Protection feature will be determined only at the time Class A Common Stock is acquired. The requirement to engage in a Class B Protection Transaction is satisfied by making the requisite offer and purchasing validly tendered shares, even if the number of shares tendered is less than the number of shares included in the required offer. The penalty applicable to any Significant Shareholder that fails to make an offer required, or to purchase shares validly tendered (after proration, if any), would be to suspend automatically the voting rights of the shares of Class A Common Stock owned by such Significant Shareholder until consummation of an offer as required or until divestiture of the shares of Class A Common Stock that triggered the offer requirement. Neither the Class B Protection Transaction requirement nor the related penalty applies to any increase in percentage ownership of Class A Common Stock resulting solely from a change in the total amount of Class A Common Stock outstanding. CONVERTIBILITY. Neither the Class A Common Stock nor the Class B Common Stock is convertible into another class of Common Stock or any other security of the Company, except that (i) the Class B Common Stock will automatically convert into Class A Common Stock on a share-for-share basis if at any time the number of currently authorized and issued shares of Class A Common Stock, not including outstanding Class A Common Stock and Class B Common Stock together, or (ii) the Class B Common Stock could be converted into Class A Common Stock on a share-for-share basis by the Board of Directors if, as a result of the existence of the Class B Common Stock, either class of Common Stock becomes excluded from trading on all principal national securities exchanges and also is excluded from quotation on NASDAQ and any comparable national quotation system then in use. In making the determination for (ii) above, the Board may conclusively rely on any information or documentation available to it, including filings made with the Commission, any stock exchange, the National Association of Securities Dealers, Inc. or any other governmental or regulatory agencies or any written instrument purporting to be authentic. Upon such conversion, the voting interests of the holders of Class A Common Stock would be diluted. In addition, to the extent that the Class A Common Stock has a market price which is higher than the Class B Common Stock market price immediately prior to such conversion, such conversion may have the effect of decreasing the market price of the Class A Common Stock. In the event of any such conversion of the Class B Common Stock, certificates which formerly represented outstanding shares of Class B Common Stock will thereafter be deemed to represent a like number of shares of Class A Common Stock and all shares of Common Stock authorized by the Certificate of Incorporation will be deemed to be shares of Class A Common Stock. PREEMPTIVE RIGHTS. The Class A and Class B Common Stock do not carry any preemptive rights enabling a holder to subscribe for or receive shares of any class of stock of the Company or any other securities convertible into shares of any class of stock of the Company. 17 PREFERRED STOCK The terms of the Preferred Stock, or any series thereof, may be determined from time to time by the Board of Directors. Such shares may be convertible into shares of Common Stock and may have a rank superior to the Common Stock in payment of dividends, liquidation rights, voting and other rights, preferences and privileges. Shares of Preferred Stock may be issued from time to time by authorization of the Board of Directors of the Company without the vote of holders of the Common Stock. The Company has no present plans to issue any Preferred Stock. PLAN OF DISTRIBUTION The Company will offer the right to enter into the Contracts directly to certain Groups which currently contract with the Company to provide a defined range of health care services. The Shares are being offered to the Groups in order to develop more strategic and long term alliances with such Groups. Each Company based upon the extent of each Group's alliance with the Company. Through this offering, the Company is trying to distinguish itself in the marketplace by forming strategic alliances with Groups who can assist the Company in its desire to continuously improve health care services in terms of quality, efficiency and cost-effectiveness. The Company intends to offer the right to enter into the Contracts to approximately 50 Groups. Upon agreeing to purchase the Shares, each Group will enter into a Contract whereby it will be irrevocably obligated to purchase the Contract Shares. See "Description of the Securities -- Equity Purchase Contracts." Sales of the Shares will be conducted by employees of the Company and no commissions will be paid in connection with the offer and sale of the Shares. LEGAL MATTERS The validity of the Class B Common Stock and the Contracts offered hereby will be passed upon for the Company by Shereff, Friedman, Hoffman & Goodman, New York, New York. EXPERTS The Consolidated Financial Statements of the Company included in the Company's Annual Report (Form 10-K) for the year ended September 30, 1993, have been audited by Ernst & Young, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. 18 - ------------------------------------------------ ------------------------------------------------ - ------------------------------------------------ ------------------------------------------------ NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. TABLE OF CONTENTS
PAGE ----- Prospectus Summary............................. 3 Recent Developments............................ 6 Use of Proceeds................................ 11 Price Range of Common Stock.................... 11 Dividend Policy................................ 11 Capitalization................................. 12 Description of Securities...................... 13 Plan of Distribution........................... 18 Legal Matters.................................. 18 Experts........................................ 18
PACIFICARE HEALTH SYSTEMS, INC. 750,000 SHARES CLASS B COMMON STOCK REGISTERED EQUITY PURCHASE CONTRACTS ------------------- PROSPECTUS ------------------- , 1994 - ------------------------------------------------ ------------------------------------------------ - ------------------------------------------------ ------------------------------------------------ PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION Securities and Exchange Commission Registration Fee............... $ 17,651 NASDAQ Fee........................................................ 15,000 Printing and Engraving............................................ 50,000 Legal Fees and Expenses (other than Blue Sky)..................... 80,000 Blue Sky Fees and Expenses........................................ 5,000 Accounting Fees and Expenses...................................... 12,000 Transfer Agent Fees............................................... 1,500 Miscellaneous..................................................... 1,849 --------- Total......................................................... $ 183,000 --------- ---------
All of the above items except the registration fee and the NASDAQ fee are estimated. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the General Corporation Law of the State of Delaware (the "DGCL"). Among other things, the DGCL permits indemnification of a director, officer, employee or agent in civil, criminal, administrative or investigative actions, suits or proceedings (other than an action by or in the right of the corporation) to which such person is a party or is threatened to be made a party by reason of the fact of such relationship with the corporation or the fact that such person is or was serving in a similar capacity with another entity at the request of the corporation against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, if he had no reasonable cause to believe his conduct was unlawful. Indemnification in a suit by or in the right of the corporation is permitted if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, but no indemnification may be made in such suit to any person adjudged to be liable to the corporation unless and only to the extent that the Delaware Court of Chancery or the court in which the action was brought determines that despite the adjudication of liability, such person is, under all circumstances, fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. Under the DGCL, to the extent that a director, officer, employee or agent is successful, on the merits or otherwise, in the defense of any action, suit or proceeding or any claim, issue or matter therein (whether or not the suit is brought by or in the right of the corporation), he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him. In all cases in which indemnification is permitted (unless ordered by a court), it may be made by the corporation only as authorized in the specific case upon a determination that the applicable standard of conduct has been met by the party to be indemnified. The determination must be made by a majority vote of a quorum consisting of the directors who were not parties to the action or, if such a quorum is not obtainable, or even if obtainable, if a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or by the stockholders. The statute authorizes the corporation to pay expenses incurred by an officer or director in advance of a final disposition of a proceeding upon receipt of an undertaking, by or on behalf of the person to whom the advance was not entitled to indemnification. The DGCL provides that indemnification and advances of expenses permitted thereunder are not to be exclusive of any rights to which those seeking indemnification or advancement of expenses may be entitled under any by-law, agreement, vote of stockholders or disinterested directors, or otherwise. The DGCL also authorizes the corporation to purchase and maintain liability insurance on behalf of its directors, officers, employees and agents regardless of whether the corporation would have the statutory power to indemnify such persons against the liabilities insured. II-1 The By-Laws of the Company (the "By-Laws") provide, in effect, that, to the extent and under the circumstances described above, the Company shall indemnify any person who was or is a party or is threatened to be made a party to any action, suit or proceeding of the type described above by reason of the fact that he is or was a director, officer, employee or agent of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. The By-Laws also permit the Company to purchase insurance on behalf of such persons against any liability whether or not the Company would have power to indemnify him against such liability pursuant to the By-Laws. The By-Laws further provide that the termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that such person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. In addition, indemnification provided by the By-Laws is deemed not to be exclusive of any other rights to which those indemnified may be entitled, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person. The Certificate of Incorporation of the Company (the "Certificate") provides that no director shall be personally liable to the Company or any stockholder for monetary damages for breach of fiduciary duty as a director, except for any matter in respect of which such director shall be liable under Section 174 of the DGCL or any amendment thereto or successor provision thereto or shall be liable by reason that, in addition to any and all other requirements for such stockholders, (ii) shall not have acted in good faith or, in failing to act, shall not have acted in good faith, (iii) shall have acted in a manner involving intentional misconduct or a knowing violation of law or, in failing to act, shall have acted in a manner involving intentional misconduct or a knowing violation of law, or (iv) shall have derived an improper personal benefit. The Certificate further provides that no amendment or repeal of the rights herein referenced, nor the adoption of any provision of the Certificate inconsistent therewith, shall eliminate or reduce the effect of such rights in respect of any matter occurring or any cause of action, suit or claim that, but for the existence of such rights, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. The Company maintains a directors, officers and trustees liability and company reimbursement insurance policy which, among other things, provides for (i) payment on behalf of any of the Company's past, present or future directors, officers, trustees, employees, volunteers or any members of the Company's staff, faculty or any duly constituted committee of the Insured Entity (as defined in the policy) and other Insured Persons (as defined in the policy), against loss (as defined in the policy) stemming from actual or alleged acts or omissions committed by Insured Persons in their capacity as such, or while serving as director or trustee of any non-profit entities at the express written direction of the Insured Entity, and (ii) payment on behalf of the Insured Entity against such loss for which the Insured Entity has paid as indemnification to or on behalf of the Insured Person. The policy does not cover loss from claims made against Insured Persons arising from, among other things, specified categories of misconduct, including a claim against an Insured Person brought about or contributed to in fact (1) by any dishonest or fraudulent act or omission or any willful violation of any statute, rule of law or by any Insured (defined to include the Insured Entity and any Insured Person) or (2) by any Insured gaining any profit, remuneration or advantage to which such Insured was not entitled. So long as the Company meets the securities ownership and other tests set forth in Section 2115 of the California Corporations Code, Section 317 of such Code provides that all corporations have the power to indemnify any person who was or is a party to any proceeding (other than an action by or in the right of the corporation to procure a judgment in its favor) by reason of the fact that such person is or was an agent of the corporation, against expenses, judgments, fines, settlements, and other amounts actually and reasonably incurred in manner the person reasonably believed to be in the best interests of the corporation and, in the case of a criminal proceeding, had no reasonable cause to believe the conduct of the person was unlawful," and against expenses actually and reasonably incurred by such person in connection with the defense or settlement of any such action "if II-2 the person acted in good faith, in a manner the person believed to be in the best interests of the corporation and its shareholders." Except in cases where the agent being indemnified has been successful on the merits in defense of any proceeding referred to, indemnification is proper only if it is determined that the agent has met the applicable standards quoted above by (1) majority vote of a quorum consisting of directors who are or were not parties to such proceeding, or, if such a quorum of directors is not obtainable, by independent legal counsel in a written opinion, (2) approval of the voting shareholders of the corporation, with the shares owned by the indemnified persons not being entitled to vote, or (3) the approval of the court in which such proceedings is, or was, pending. ITEM 16. EXHIBITS (A) EXHIBITS 4.1 Form of Registered Equity Purchase Contract. 4.2 Form of Class B Common Stock Certificate (incorporated by reference to Registration Statement on Form 8-A (File No. 0-14181), dated May 20, 1992). 5.1 Opinion of Shereff, Friedman, Hoffman & Goodman.* 23.1 Consent of Ernst & Young. 23.2 Consent of Shereff, Friedman, Hoffman & Goodman (included in Exhibit 5.1). 24.1 Power of Attorney (appears on signature page). - ------------------------ * To be filed by amendment
ITEM 17. UNDERTAKINGS The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Cypress, State of California, on this 30th day of August, 1994. PACIFICARE HEALTH SYSTEMS, INC. By: __________/s/_ALAN HOOPS__________ Alan Hoops President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENT, that each of the undersigned whose signature appears below constitutes and appoints Alan R. Hoops and Wayne B. Lowell, and each of them (with full power of each of them to act alone), his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him and on his behalf, and in his name, place and stead, in any and all capacities to execute and sign any and all amendments or post-effective amendments to this registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof and the registrant hereby confers like authority on its behalf. REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE - --------------------------------------------- ---------------------------------------------- ------------------ /s/ TERRY HARTSHORN ------------------------------------ Chairman of the Board August 30, 1994 Terry Hartshorn /s/ ALAN HOOPS ------------------------------------ President and Chief Executive Officer August 30, 1994 Alan Hoops (Principal Executive Officer) /s/ WAYNE B. LOWELL Executive Vice President and ------------------------------------ Chief Financial Officer August 30, 1994 Wayne B. Lowell (Principal Financial Officer) /s/ FRED V. RYDER ------------------------------------ Vice President and Corporate Controller August 30, 1994 Fred V. Ryder (Principal Accounting Officer)
II-4
SIGNATURE TITLE DATE - --------------------------------------------- ---------------------------------------------- ------------------ /s/ ERIC BENVENISTE ------------------------------------ Director August 30, 1994 Eric Benveniste /s/ DAVID R. CARPENTER ------------------------------------ Director August 30, 1994 David R. Carpenter ------------------------------------ Director , 1994 Gary L. Leary /s/ DAVID A. REED ------------------------------------ Director August 30, 1994 David A. Reed /s/ WARREN E. PINCKERT II ------------------------------------ Director August 30, 1994 Warren E. Pinckert II /s/ LLOYD ROSS ------------------------------------ Director August 30, 1994 Lloyd Ross ------------------------------------ Director , 1994 Dennis Strum II-5 EXHIBIT INDEX
SEQUENTIALLY EXHIBIT NO. DESCRIPTION NUMBERED PAGE - ------------ ----------------------------------------------------------------------------------- -------------- 4.1 Form of Registered Equity Purchase Contract........................................ 4.2 Form of Class B Common Stock Certificate (incorporated by reference to Registration Statement on Form 8-A (File No. 0-14181), dated May 20, 1992)........................................... 5.1 Opinion of Shereff, Friedman, Hoffman & Goodman.* 23.1 Consent of Ernst & Young........................................................... 23.2 Consent of Shereff, Friedman, Hoffman & Goodman (included in Exhibit 5.1)......................................................... 24.1 Power of Attorney (appears on signature page)......................................
- ------------------------ * To be filed by amendment. EX-4.1 2 FORM OF REGISTERED EQUITY PURCH. CONT. EXHIBIT 4.1 FORM OF REGISTERED EQUITY PURCHASE CONTRACT THIS REGISTERED EQUITY PURCHASE CONTRACT MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED. THIS REGISTERED EQUITY PURCHASE CONTRACT REPRESENTS THE IRREVOCABLE OBLIGATION OF THE OBLIGOR (AS DEFINED HEREIN). DATE: Purchase Obligation: ________ Shares Pursuant to the terms and conditions contained in this Registered Equity Purchase Contract, dated as of __________, 1994 (the "Contract"), between _______ (the "Obligor") and PacifiCare Health Systems, Inc. (the "Company"), the Obligor hereby irrevocably agrees to purchase and the Company agrees to sell ___________ shares (the "Contract Shares") of the Class B Common Stock (as defined herein). ARTICLE I DEFINITIONS SECTION 1 - DEFINITIONS. As used in this Contract, the following terms shall have the following meanings: CLASS A COMMON STOCK. The term "Class A Common Stock" shall mean the Class A Common Stock, par value $0.01 per share, of the Company. CLASS B COMMON STOCK. The term "Class B Common Stock" shall mean the non- voting Class B Common Stock, par value $0.01 per share, of the Company. COMMON STOCK. The term "Common Stock" shall mean the Class A Common Stock and the Class B Common Stock of the Company. Delaware corporation. CONTRACT. The term "Contract" shall mean this Registered Equity Purchase Contract, dated _________________, 1994. CONTRACT SHARES. The term "Contract Shares" shall mean the number of shares of Class B Common Stock set forth in the first paragraph hereof to be purchased by the Obligor pursuant to the terms and conditions of this Contract. -1- CURRENT MARKET PRICE. The "Current Market Price" of a share of the Company's Common Stock on the date such determination is made shall mean the last sale price for the stock on such date as quoted on the NASDAQ National Market System, or, if shares of such stock were not traded on such date, then on the next preceding trading day during which a sale occurred. EVENT OF DEFAULT. The term "Event of Default" shall have the meaning set forth in Section 7.1. EVENT OF DEFAULT NOTICE. The term "Event of Default Notice" shall mean the notice provided to the Obligor pursuant to Section 7.3 hereof. NASDAQ. The term "NASDAQ" shall mean the National Association of Securities Dealers Inc. Automated Quotation System. NOTICE TO PURCHASE. The term "Notice to Purchase" shall mean the notice provided by the Obligor to the Company of its purchase of the Purchase Date Shares on a Purchase Date in the form attached hereto as Exhibit A. OBLIGOR. The term "Obligor" shall have the meaning set forth in the first paragraph hereof. PRICING NOTICE. The term "Pricing Notice" shall mean the notice provided to the Obligor by the Company pursuant to Section 3.1(d) hereof. PRIME RATE. The term "Prime Rate" shall mean with respect to any day for which the interest rate is to be determined the arithmetic mean of the prime rates quoted on the basis of the actual number of days in the year divided by 360 as of the close of business on such interest determination date by three major money center banks in The City of New York, as selected by the Company. PROVIDER AGREEMENT. The term "Provider Agreement" shall mean that certain agreement between the Obligor and the Company, dated _______, 1994, including the Strategic Alliance Amendment, whereby the Obligor agrees, among other things, to provide a defined range of health care services. PURCHASE DATE. The term "Purchase Date" shall have the meaning set forth in Section 3.1(b). PURCHASE DATE PRICE. The term "Purchase Date Price" shall have the meaning set forth in Section 3.2(b). PURCHASE DATE SHARES. The term "Purchase Date Shares" shall have the meaning set forth in Section 3.1(b). PURCHASE PRICE. The term "Purchase Price" shall have the meaning set forth in Section 3.1(b). STRATEGIC ALLIANCE AMENDMENT. The term "Strategic Alliance Amendment" shall mean the amendment to the Provider Agreement whereby the Obligor agrees to enter conditions and performance goals that Obligor must satisfy in order to maintain such strategic alliance. TREASURER. The term "Treasurer" shall mean the Company's Treasurer or any officer of the Company acting in such capacity. TRANSFER AGENT AND REGISTRAR. The term "Transfer Agent and Registrar" shall mean First Interstate Bank of California, the transfer agent and registrar of the Common Stock, or any successor transfer agent of the Company. -2- TOTAL PURCHASE PRICE. The term "Total Purchase Price" shall have the meaning set forth in Section 3.1(a). ARTICLE II ISSUANCE, EXECUTION AND DELIVERY OF REGISTERED EQUITY PURCHASE CONTRACT SECTION 2.1 - EXECUTION AND DELIVERY OF REGISTERED EQUITY PURCHASE CONTRACT. a. This Contract, when issued, shall be in registered form only. The aggregate purchase obligation under this Contract shall be the amount of Shares stated on the first page hereof. This Contract may have such letters, numbers or other marks of identification or designation and such legends or endorsements printed, lithographed or engraved thereon as the officers of the Company executing the same may approve (the execution thereof to be conclusive evidence of such approval) and as are not inconsistent with the provisions of this Contract, or as may be required to comply with any law or with any rule or regulation made pursuant thereto, or to conform to usage. b. This Contract shall be signed on behalf of the Company by its President or any Vice President, and attested by its Secretary or any Assistant Secretary. ARTICLE III PURCHASE OF SHARES SECTION 3.1 - MANDATORY PURCHASE OBLIGATION. a. Pursuant to the terms and conditions stated herein, the Obligor hereby agrees to purchase from the Company and the Company agrees to sell to the Obligor the Contract Shares for total consideration due hereunder equal to the number of Contract Shares to be purchased by the Obligor hereunder multiplied by the Purchase Price (the "Total Purchase Price"). b. On May 1, 1996, and on each May 1 thereafter through and including May 1, 2000 (each, a "Purchase Date"), the Obligor shall purchase ______ shares (the "Purchase Date Shares"). Each installment of Purchase Date Shares shall equal 20 percent of the Contract Shares. The Purchase Date Shares shall be purchased at a purchase price per share (the "Purchase Price") equal to the Current Market Price of the Class B Common Stock on December 1, 1994. The Purchase Price shall be adjusted from time to time upon the occurrence of any of the events set forth in Section 6.1. c. The Obligor understands that by entering into this Contract it has a -3- purchase the Contract Shares pursuant to the terms and conditions contained herein and that the Company shall have full recourse for the Total Purchase Price against Obligor, if Obligor does not purchase the Contract Shares pursuant to the terms and conditions contained herein. d. Within 20 days of December 1, 1994, the Company shall provide to the Obligor a notice (the "Pricing Notice") setting forth the Purchase Price, the number of shares which will constitute the Purchase Date Shares, and the Purchase Date Price. SECTION 3.2 - PAYMENT OF PURCHASE DATE PRICE. a. On each Purchase Date, the Obligor shall tender to the Treasurer at the offices of the Company a Notice to Purchase duly completed and signed with the Purchase Date Price. b. The total consideration due on each Purchase Date (the "Purchase Date Price") for the Purchase Date Shares on each Purchase Date shall be payable to the Company in care of the Treasurer at the offices of the Company in lawful money of the United States of America by certified or official bank check in Los Angeles Clearing House (same day) Funds payable to or upon the order of the Company. The Company shall not be obligated to sell the Purchase Date Shares or deliver any certificates representing the Purchase Date Shares unless it shall have received payment in full of the Purchase Date Price for the Purchase Date Shares on each Purchase Date in the manner set forth herein. c. The Obligor will not have the ability to purchase or pay for any of the Contract Shares prior to a Purchase Date or in any amount other than the number of shares equal to the Purchase Date Shares. SECTION 3.3 - ISSUANCE OF SHARES. Upon receipt of payment in full of the Purchase Date Price for the Purchase Date Shares, and subject to the provisions of Section 3.4, the Company shall cause the Transfer Agent and Registrar to issue in such name or names as such Obligor may designate, a certificate for the Purchase Date Shares. Such certificate shall be deemed to have been issued and any person so designated to be named therein shall be deemed to have become a holder of record of such Purchase Date Shares as of the date payment in full for such Purchase Date Shares shall have been made. SECTION 3.4 - CHARGES AND TAXES. The Company will pay all documentary stamp taxes attributable to the initial issuance and delivery of the Purchase Date Shares upon the purchase thereof. The Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in any exchange of, or substitution for, or any issuance of certificates for the Purchase Date Shares in a name other than that of the registered Obligor, and the Company shall not be required to issue or deliver such certificates unless to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. -4- ARTICLE IV OTHER PROVISIONS RELATING TO RIGHTS OF OBLIGOR SECTION 4.1 - NO RIGHTS AS STOCKHOLDER. Prior to the purchase of any installment of the Contract Shares, the Obligor shall neither be entitled to vote or receive dividends or be deemed the holder of such Contract Shares for any purpose, nor shall anything contained in this Contract be construed to confer upon the Obligor any of the rights or privileges of a stockholder of the Company, including without limitation, any right to vote (when applicable), give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, consolidation, merger, sale of assets or otherwise), receive notice of meetings or other action affecting stockholders (except for notices provided for in Section 6.3 hereof), receive dividends or subscription rights, or otherwise. The Obligor shall not, upon the purchase of Purchase Date Shares, be entitled to any dividends that may have been paid with respect to such Purchase Date Shares prior to the Purchase Date thereof or with respect to any record date that is a date prior to the Purchase Date. This Contract shall be deemed to be an executory contract for purposes of Section 365(e)(2) of Title 11 of the United States Code. ARTICLE V TRANSFERS AND EXCHANGES SECTION 5.1 - RESTRICTION ON TRANSFER. This Contract shall be the obligation of the registered Obligor and such obligation cannot be sold, transferred or assigned. In the event of a merger, consolidation, reorganization or other similar event where the Obligor is not the surviving entity, the surviving entity shall not succeed to any of Obligor's rights under this Contract without the prior written consent of the Company. SECTION 5.2 - MUTILATED OR MISSING REGISTERED EQUITY PURCHASE CONTRACTS. In case this Contract shall be mutilated, lost, stolen or destroyed, the Company, may, in its discretion, issue, in exchange and substitution for and upon cancellation of this mutilated Contract or in lieu of and substitution for this Contract so mutilated, lost, stolen or destroyed, a new Contract representing the same aggregate purchase obligation. Such new Contract will be issued only upon surrender of this mutilated Contract to the Company or receipt of evidence satisfactory to the Company of such loss, theft or destruction of this Contract and provision for indemnity, if requested, also satisfactory to it. The Obligor shall also comply with such other reasonable charges as the Company may prescribe. SECTION 5.3 - REGISTERED OBLIGOR. The Company may treat the Obligor hereunder as the absolute holder of any rights granted to Obligor hereunder and the absolute Obligor hereunder for all purposes (notwithstanding any notation of ownership or other writing hereon made by anyone), and the Company shall not be affected by any notice to the contrary. ARTICLE VI ADJUSTMENT OF PURCHASE PRICE SECTION 6.1 - ADJUSTMENTS. a. If the Company: 1. pays a dividend or makes a distribution on its Class B Common Stock in shares of its Class B Common Stock; 2. subdivides its outstanding shares of Class B Common Stock into a greater number of shares; 3. combines its outstanding shares of Class B Common Stock into a smaller number of shares; 4. makes a distribution on its Class B Common Stock in shares of its capital stock other than Common Stock; 5. issues by reclassification of its Class B Common Stock any shares of its capital stock; or 6. distributes to all holders of its Class B Common Stock any of its assets or debt securities or any rights or warrants to purchase assets or securities of the Company, then the Company shall make an appropriate and equitable adjustment to the Contract Shares, and any corresponding adjustment to the Purchase Price, to the effect that after the event precipitating such adjustment, the Obligor's proportionate interest shall be maintained as before the occurrence of such event. The adjustment shall become effective immediately after the record date in the case of a dividend or distribution and immediately after the effective date in the case of a subdivision, combination or reclassification. To the extent that such distribution is not so made, the Purchase Price shall be readjusted to the Purchase Price which would then be in effect if such record date had not been fixed. All calculations under this paragraph (a) shall be made to the nearest one-tenth of a share. b. No adjustment of the Purchase Price hereunder shall be required unless such adjustment would require an increase or decrease in such Purchase Price of at least $0.25 thereof; -6- provided, however, that any adjustments which by reason of this paragraph (b) are not required to be made shall be carried forward cumulatively and taken into account in any subsequent adjustment. c. No upward adjustment in the Purchase Price will be made except in the event of a reverse stock split or a combination of shares of Class B Common Stock into a smaller number of shares. No adjustment need be made for rights to purchase Class B Common Stock pursuant to a Company plan for reinvestment of value or no par value of the Class B Common Stock. d. In case of any capital reorganization of the Company or any reclassification of the Class B Common Stock, including a capital reorganization or a reclassification in connection with any consolidation or merger in which the Company is the surviving corporation (other than a subdivision or combination of outstanding shares of Class B Common Stock), or in case of the consolidation of the Company with or the merger of the Company with or into any other corporation (other than a consolidation or merger in which the Company is the surviving corporation) or of the sale of the properties and assets of the Company as, or substantially as, an entirety to any other business organization, this Contract shall, after such capital reorganization, reclassification, consolidation, merger or sale and upon the terms and conditions specified in this Contract, represent the obligation and the right to purchase the number of shares of stock or other securities or property (including cash) to which the Contract Shares issuable upon purchase thereof pursuant to this Contract would have been entitled (including the right to make any election with respect to the receipt of such shares of stock or other securities or property to which such Contract Shares would have been entitled) upon such capital reorganization, reclassification of the Class B Common Stock, consolidation, merger or sale if such purchase had taken place immediately prior thereto; and in any case, if necessary, the provisions set forth in this Section 6.1 with respect to the rights and interests thereafter of the Obligor shall be appropriately adjusted so as to be applicable, as nearly as may reasonably be, to any shares of stock or other securities or property thereafter deliverable on any Purchase Date. e. The Company may make such reduction in the Purchase Price, in addition to those required by paragraph (a) of this Section 6.1, as it considers to be advisable in order that any event treated for federal income tax purposes as a dividend of stock or stock rights shall not be taxable to the recipient. SECTION 6.2 - NO FRACTIONAL SHARES. Notwithstanding, anything contained herein to the contrary, the Company shall not be required to issue or sell any fraction of a share pursuant hereto, but in any case where the Obligor would, except for the provisions of this Section 6.2, be entitled to receive a fraction of a share, the Company shall, upon the purchase by the Obligor -7- of the Purchase Date Shares, pay in cash to such Obligor, in lieu of such fractional share, a sum equal to the same fraction of the Purchase Price per share then applicable under this Contract. SECTION 6.3 - NOTICE OF CERTAIN CORPORATE ACTIONS. If: a. the Company takes any action that would require an adjustment in the b. there is a dissolution or liquidation of the Company; then the Company shall cause to be mailed to the Obligor at its address contained in this Contract, by first-class mail, postage prepaid, at least 10 days prior to the applicable record date hereinafter specified, a notice stating: (i) the record date for such dividend or distribution; (ii) the date on which such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up is expected to become effective; and (iii) the date as of which it is expected that holders of the Class B Common Stock of record shall be entitled to exchange their shares of Class B Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up. Failure to mail the notice or any defect in it shall not affect the validity of the transaction. SECTION 6.4 - NOTICE OF ADJUSTMENTS. Whenever the Purchase Price is adjusted, the Company shall cause to be mailed to the Obligor at its registered address by first-class mail, postage prepaid, a notice stating that the Purchase Price and the number of Purchase Date Shares purchasable or, if applicable the type of securities, have been adjusted and setting forth the adjusted Purchase Date Price and the adjusted number of Purchase Date Shares issuable at the adjusted Purchase Price, as determined in good faith by the Company's board of directors. Determinations made by the Company's board of directors under this Section 6.4 shall be reflected in a resolution adopted by the board of directors and shall be final and binding upon the Company and the Obligor. SECTION 6.5 - NO CHANGES IN FORM. This Contract need not be changed because of any change in the Purchase Price or in the number of Contract Shares purchasable pursuant hereto. ARTICLE VII EVENTS OF DEFAULT SECTION 7.1 - EVENTS OF DEFAULT. Each of the following events shall be an "Event of Default:" -8- a. Termination of the Provider Agreement; b. Failure by Obligor to maintain its strategic alliance with the Company as provided in the Strategic Alliance Amendment or failure to meet its performance goals under the Strategic Alliance Amendment; c. Default in the payment of the Purchase Date Price on any Purchase Date and continuance of such default for a period of 15 days; d. The entry of a decree or order by a court having jurisdiction in the premises adjudging the Obligor a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Obligor under the Federal Bankruptcy Act or any other trustee, sequestrator (or other similar official) of the Obligor or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; e. The institution by the Obligor of proceedings to be adjudicated a bankrupt or insolvent, or the consent by the Obligor to the institution of bankruptcy or insolvency proceedings against it, or the filing by the Obligor of a petition or answer or consent seeking reorganization or relief in respect of it or its property under the Federal Bankruptcy Act or any other applicable federal or state law, or the consent by the Obligor to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Obligor or of any substantial part of its property, or the making by the Obligor of a general assignment for the benefit of creditors; f. The entry of a decree or order by a court having jurisdiction in the premises adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the corporation under the Federal Bankruptcy Act or any other applicable federal or state law, or appointing a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the corporation or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; or g. The institution by the Company of proceedings to be adjudicated a bankrupt or insolvent, or the consent by the Company to the institution of bankruptcy or insolvency proceedings against it, or the filing by the Company of a petition or answer or consent seeking reorganization or relief in respect of it or its property under the Federal Bankruptcy Act or any other applicable federal or state law, or the consent by the -9- Company to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or of any substantial part of its property, or the making by the Company of a general assignment for the benefit of creditors. If one or more Event of Default under clauses (a) through (e) shall occur, the Company shall at its option either terminate this Contract thereby relieving the Company and the Obligor of all rights and obligations hereunder or declare the Total Purchase Price to be due and owing. If one or more Event of Default under clauses (f) or (g) shall occur, this Contract shall terminate and the Company SECTION 7.2 - EFFECT OF AN EVENT OF DEFAULT ON A PURCHASE DATE. If a Purchase Date occurs simultaneously with an Event of Default (and in the case of an Event of Default under Section 7.1(a) through (e), the Company elects to terminate this Contract), the Company shall be relieved of its obligation to sell the Purchase Date Shares to the Obligor and shall return to the Obligor with the Event of Default Notice any funds paid to the Company in connection with such purchase. SECTION 7.3 - NOTICE OF EVENT OF DEFAULT. Notice of any Event of Default under this Contract (the "Event of Default Notice") shall be given to the Obligor no more than 15 days subsequent to the Company having knowledge of such an Event of Default. The Event of Default Notice shall state the Event of Default which has occurred and whether the Company is terminating this Contract or is accelerating payment of the Total Purchase Price. SECTION 7.4 - PAYMENT DEFAULT BY OBLIGOR. The failure by the Obligor to purchase and pay for the Purchase Date Shares on a Purchase Date is not compensable by any measure of damages which would be less than payment of the Total Purchase Price. Accordingly, the Obligor concurs that in the event that an action is instituted or defended by the Company in consequence of a default by the Obligor in the performance of Obligor's obligation to purchase and pay for the Contract Shares, the damages to be assessed against the Obligor shall be the Total Purchase Price, plus interest at a rate equal to the greater of the Prime Rate plus two percent or the maximum legal rate from the date of default, plus the costs of litigation (including all costs of attorneys and other professionals required) in pursuit of such litigation by or on behalf of the Company. The Obligor consents to the institution of an action for specific performance, or such other equitable remedy as may be available in the jurisdiction in which such litigation may occur, to enforce the Obligor's obligation to purchase and pay for the Contract Shares. -10- ARTICLE VIII REPRESENTATIONS AND WARRANTIES OF OBLIGOR The Obligor represents and warrants to the Company as follows: SECTION 8.1 - CORPORATE ORGANIZATION. Obligor is a corporation duly organized, validly existing and in good standing under the laws of the state in which it is incorporated. SECTION 8.2 - AUTHORIZATION. Obligor has the full power and authority to enter into this Contract and to carry out the transactions contemplated hereby. This Contract has been duly executed on behalf of the Obligor and constitutes the legal, valid and binding obligation of the Obligor, enforceable against Obligor in accordance with its terms. SECTION 8.3 - NO CONFLICTS. The execution, delivery and performance of material modification, with or without notice or lapse of time, of: (i) any provision of the articles of incorporation or bylaws of Obligor, each as currently in effect, (ii) the terms of any contract, agreement, obligation, commitment, license, indenture, mortgage, deed of trust, loan or credit agreement or any other agreement or instrument to which Obligor is a party or any of its assets are bound or the creation of any lien, charge or encumbrance of any nature upon any of the properties or assets of Obligor. The execution, delivery and performance of this Contract by Obligor will not violate any judgment, decree, statute, rule or regulation of any federal, state or local government or agency having jurisdiction over Obligor or its assets. ARTICLE IX REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to the Obligor as follows: SECTION 9.1 - CORPORATE ORGANIZATION. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. SECTION 9.2 - AUTHORIZATION. The Company has the full power and authority to enter into this Contract and to carry out the transactions contemplated hereby. This Contract has been duly executed on behalf of the Company and constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. SECTION 9.3 - NO CONFLICTS. Except where the effect is not likely to have a material adverse effect on the properties, assets, operations, business or financial condition of the Company and its subsidiaries taken as a whole, the execution, delivery and performance of this Contract will not conflict with, or, result in any default or in any material modification, with or without notice or lapse of time, of: (i) any provision of the certificate of incorporation or bylaws of the Company, each as currently in effect: (ii) the terms of any contract, agreement, obligation, commitment, license, indenture, mortgage, deed of trust, loan or credit agreement or any other agreement or instrument to which the Company is a party or any of its assets are bound or the creation of any lien, charge or encumbrance of any nature upon any of the properties or assets of the Company. The execution, delivery and performance of this Contract by the Company will not violate any judgment, decree, statute, rule or regulation of any federal, state or local government or agency having jurisdiction over the Company or its assets. -11- ARTICLE X MISCELLANEOUS SECTION 10.1 - AUTHORIZED SHARES. The Company shall at all times have authorized and reserved for issuance, free from preemptive rights, a number of Contract Shares and will make available to the Transfer Agent and Registrar a sufficient number of certificates therefor. The Company covenants that all the Contract Shares issued pursuant to and in accordance with the provisions of this Contract will, when issued, be fully paid and nonassessable by the Company. SECTION 10.2 - PERSONS HAVING RIGHTS UNDER CONTRACT. Nothing in this Contract expressed or implied and nothing that may be inferred from any of the provisions hereof is intended, or shall be construed, to confer upon, or give to, any person or entity other than the Company and its successors and the Obligor under this Contract any right, remedy or claim under or by reason of this Contract or of any covenant, condition, stipulation, promise or agreement hereof; and all covenants, conditions stipulations, promises and agreements contained in this Contract shall be for the sole and exclusive benefit of the Company and its successors and of the Obligor under this Contract. SECTION 10.3 - HEADINGS. The descriptive headings of the several Articles and Sections of this Contract are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. SECTION 10.4 - COUNTERPARTS. This Contract may be executed in any number of counterparts, each of which so executed shall be deemed to be an original; but such counterparts shall together constitute but one and the same instrument. SECTION 10.5 - NOTICES. All notices or other communications required or permitted to be made hereunder shall be given in writing and sent by either personal delivery, overnight delivery, or United States registered or certified mail, return receipt requested, all of which shall be properly addressed with postal or delivery charges prepaid, to the parties at their respective addresses set forth below, or to such other addresses as either party may designate to the other in accordance with this Section 10.5: -12- If to the Company: PacifiCare Health Systems, Inc. 5995 Plaza Drive Cypress, California 90630 Attn: Treasurer If to Obligor: _________________________________ _________________________________ ______________, California _____ All notices sent by personal delivery shall be deemed given when actually received. All notices sent by overnight delivery shall be deemed given on the next business day. All other notices sent via United States mail shall be deemed given no later than four business days after mailing. SECTION 10.6 - ENTIRE CONTRACT. This Contract is a fully integrated document and contains any and all promises, covenants, and agreements between contemporaneous, discussions, negotiations, representations, warranties, covenants, conditions, and agreements, whether written or oral, between the parties hereto. SECTION 10.7 - SEVERABILITY. In the event any one or more of the provisions of this Contract shall be rendered by a court of competent jurisdiction to be invalid, illegal, or unenforceable, in any respect, such invalidity, illegality, or unenforceability shall not affect or impair the remainder of this Contract which shall remain in full force and effect and enforced accordingly. SECTION 10.8 - AMENDMENT. This Contract shall not be changed, amended, or modified, nor shall any performance or condition hereunder be waived, in whole or in part, except by written instrument signed by the party against whom enforcement or waiver is sought. The waiver of any breach of any term or condition of this Contract shall not be deemed to constitute the waiver of any other or subsequent breach of the same or any other term or condition of this Contract. SECTION 10.9 - GOVERNING LAW AND JURISDICTION. This Contract and the rights and obligations of the parties hereunder are to be governed and construed in accordance with the internal laws of the State of California, except for the conflicts of law principles thereof. Any and all suits, legal actions or proceedings against any party hereto arising out of this Contract shall be brought in any federal or state court sitting in Los Angeles County and each party hereby submits to and accepts the exclusive jurisdiction of such courts for the purpose of such suits, legal action or proceedings. Each party hereto hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any such court and hereby further waives any claim that any suit, legal action or proceeding brought in any such court has been brought in an inconvenient forum. -13- IN WITNESS WHEREOF, the parties hereto have executed this Contract as of the date first written above. The Company: PACIFICARE HEALTH SYSTEMS, INC., a Delaware corporation -------------------------------- By: Its: --------------------------------- By: Its: Obligor: -------------------------------- -14- EXHIBIT A NOTICE TO PURCHASE (To be executed by Obligor to purchase Shares on a Purchase Date) To the Company: The undersigned Obligor: 1. Hereby notifies you of the purchase of __________ shares of Class B (the "Shares") at the purchase price of $_________; 2. Makes payment in full for the number of Shares so purchased by payment of the amount set forth above in lawful money of the United States of America by certified or official bank check in Los Angeles Clearing House (same day) funds payable to or upon the order of the Company; and 3. Represents that none of the events specified in Section 7.1 (a) or (b) of the Contract has occurred. Please issue the certificate for the Shares in the name of, and pay any cash for any fractional share to: -------------------------------------- Print or type name -------------------------------------- Social Security or other identifying number -------------------------------------- Street Address -------------------------------------- City State Zip Code Dated: ------------ -------------------------- Signature A-1 EX-23.1 3 CONSENT OF ERNST & YOUNG EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Registration Statement (Form S-3) and related Prospectus of PacifiCare Health Systems, Inc. for the registration of 750,000 shares of its Class B Common Stock and to the incorporation by reference therein of our report dated November 13, 1993, except as to Notes 1 and 13, as to which the date is December 13, 1993, with respect to the consolidated financial statements and schedules of PacifiCare Health Systems, Inc. included in its Annual Report (Form 10-K) for the year ended September 30, 1993, filed with the Securities and Exchange Commission. ERNST & YOUNG Los Angeles, California August 30, 1994 -----END PRIVACY-ENHANCED MESSAGE-----