PACIFICARE HEALTH SYSTEMS INC /DE/
EXHIBIT 10.07
<DOCUMENT>
<TYPE>EX-10.07
<SEQUENCE>3
<FILENAME>a70578ex10-07.txt
<DESCRIPTION>EXHIBIT 10.07
<TEXT>

<PAGE>   1

                                                                   EXHIBIT 10.07

                      SENIOR EXECUTIVE EMPLOYMENT AGREEMENT

        This EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as
of April 3, 2000, by and between PACIFICARE HEALTH SYSTEMS, INC., a Delaware
corporation (the "Company"), with its principal place of business located at
3120 Lake Center Drive, Santa Ana, California 92704 and Ronald Davis
("Executive"), residing at 8 Meadowgrass, Irvine, CA 92604.

                                    RECITALS

        WHEREAS, the Company desires to continue Executive's employment in the
capacity of Senior Vice President and Chief Accounting Officer.

        WHEREAS, the Company and Executive are entering into this Agreement to
establish new terms and conditions of the employment relationship.

        NOW, THEREFORE, in consideration of the following covenants, conditions
and promises contained herein, and other good and valuable consideration, the
Company and Executive hereby agree as follows:

1.      EMPLOYMENT

        1.1 Executive's General Duties. The Company employs Executive and
Executive serves the Company in the capacity of Senior Vice President and Chief
Accounting Officer, having such usual and customary duties and authority as an
officer of similar capacity in a corporation of comparable size, holdings, and
business as that of the Company.

        Executive shall do and perform all services, acts, or things necessary
or advisable to manage and conduct the business of the Company and shall preside
over such other areas of corporate activity as specified from time to time by
the Board of Directors of the Company. During the term of this Agreement,
Executive shall perform such additional or different duties, and accept the
election or appointment to such other offices or positions as are mutually
agreed upon by Executive and the Company.

        1.2 Devotion of Executive. During the term of this Agreement, Executive
shall devote his entire productive time, ability, and attention to the business
of the Company. Executive shall use Executive's best efforts, skills, and
abilities to promote the general welfare and interests of the Company and to
preserve, maintain, and foster the Company's business and business relationships
with all persons and entities associated therewith, including, without
limitation, employer groups, medical service providers, shareholders,
affiliates, officers, employees, and banks and other financial institutions. The
Company shall give Executive a reasonable opportunity to perform Executive's
duties and shall neither expect Executive to devote more time, nor assign more
duties or functions to Executive, than are customary and reasonable for a person
in Executive's position.


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2.      TERM AND TERMINATION

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

        2.2 Termination. This Agreement shall be terminated upon the occurrence
of any one of the following events:

            a. The death of the Executive.

            b. Executive becomes incapacitated or disabled, which incapacity or
        disability prevents Executive from fully performing his duties to the
        Company for a period in excess of 90 days and, after such 90-day period,
        the Company and a physician, duly licensed and qualified in the
        specialty of Executive's incapacity, decide in their reasonable
        judgments, that such incapacity will be of such continued duration as to
        prevent Executive from resuming the rendition of services to the Company
        for at least an additional six-month period. For purposes of this
        Agreement, Executive shall be deemed permanently disabled, and this
        Agreement terminated upon the date Executive receives written notice
        from the Company that such determination has been made.

            c. Executive habitually neglects his duties to the Company or
        engages in gross misconduct during the term of this Agreement. For the
        purposes of this Agreement, "gross misconduct" shall mean Executive's
        misappropriation of funds; securities fraud; insider trading;
        unauthorized possession of corporate property; the sale, distribution,
        possession or use of a controlled substance; or conviction of any
        criminal offense (whether or not such criminal offense is committed in
        connection with Executive's duties hereunder or in the course of his
        employment with the Company). In such event, Executive's termination
        shall be effective immediately upon receipt of written notice from the
        Company.

            d. Either party hereto may terminate this Agreement, with or without
        cause, upon 45 days prior written notice to the other party. Except for
        the circumstances described in Section 2.2(c) above, Executive's
        termination shall be effective 45 days after receipt of such written
        notice. Notwithstanding anything to the contrary in this Agreement,
        receipt of the written notice provided in this Section 2.2(d) shall
        deemed to have occurred two days from the date of the notice.


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3.      COMPENSATION DURING THE TERM OF THIS AGREEMENT

        3.1 Base Salary. As long as Executive satisfactorily performs all of his
obligations under this Agreement, the Company shall pay Executive an annual base
salary, as determined by the Compensation Committee of the Board of Directors,
payable in equal installments on the Company's regular payroll dates. As of this
date, Executive's annual base salary has been set at $330,000.32 (three hundred
thirty thousand dollars and thirty-two cents). On an annual basis, the Company's
Compensation Committee shall review Executive's salary, but shall be under no
obligation to increase Executive's salary. Executive authorizes the Company to
take such deductions and withholdings from his salary as are required by law,
directed by Executive, or as reasonably directed by the Company for its
employees, which deductions shall include, without limitation, withholding for
federal and state income taxes and social security.

        3.2 Benefits. Executive shall be entitled to fully participate in all of
the employee benefit plans and programs available to other high-level executives
of the Company, including, without limitation, health, dental, and life
insurance benefits for Executive and Executive's dependents, pension and profit
sharing programs, and vacation and sick leave benefits. However, the terms of
this Agreement shall not restrict the Company's right to change, amend, modify,
or terminate any existing benefit plan or program, or to change any insurance
company or modify any insurance policy adopted incident to such existing benefit
plan and program.

         3.3 Automobile Allowance. The Company shall provide Executive with a
$750 (seven hundred and fifty dollars) per month automobile allowance. The
Company shall furnish Executive with a cellular telephone. Executive shall
provide and maintain automobile insurance for Executive's car including
collision, comprehensive liability, personal and property damage, and uninsured
and underinsured motorist coverage in amounts customarily obtained to cover such
contingencies in the State of California. Executive shall provide proof of such
coverage to the Company upon the Company's request.

        3.4 Reimbursement of Expenses. The Company shall pay for or reimburse
Executive for all reasonable travel, entertainment, and other business expenses
incurred or paid for by Executive in connection with the performance of his
services under this Agreement. The Company shall not be obligated to make any
such reimbursement unless Executive presents corresponding expense statements or
vouchers and such other supporting information as the Company may from time to
time reasonably request. The Company reserves the right to place subsequent
limitations or restrictions on business expenses to be incurred or reimbursed.

        3.5 Annual Incentive Plan. Executive shall be entitled to participate
fully in the Company's 1996 Management Incentive Compensation Plan, as amended
(the "MICP"), and as may be further amended, modified, or replaced, from time to
time, in accordance with the terms and conditions set forth herein and therein.


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        3.6 Stock Option Plans. Executive shall be entitled to participate in
the 1996 Stock Option Plan for Officers and Key Employees of PacifiCare Health
Systems, Inc., as amended (the "1996 Stock Option Plan"), and as may be further
amended modified or replaced, from time to time, in accordance with the terms
and conditions set forth herein and therein.

        3.7 Insurance. During the term of this Agreement, the Company shall
insure Executive under its general liability insurance for all conduct committed
in good faith while acting in the capacity of Senior Vice President and Chief
Accounting Officer of the Company or in any other capacity to which Executive
may be appointed or elected.

        3.8 Savings and Profit Sharing Plan. As part of the compensation for
services rendered under this Agreement, Executive shall be entitled to
participate in the Amended and Restated PacifiCare Health Systems, Inc. Savings
and Profit-Sharing Plan, and the trust agreement implemented pursuant thereto,
adopted as of July 1999, as amended, and as may be further amended, modified, or
replaced, from time to time in accordance with the terms and conditions set
forth therein.

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

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

4.      COMPENSATION FOLLOWING TERMINATION

        4.1 Death. In the event that this Agreement is terminated by reason of
Executive's death, Executive's estate or legal representative shall be entitled
to receive the following:

            a. Payment of benefits under the life insurance policy purchased by
        the Company on Executive's behalf, if any;

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


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

            d. Executive's legal representative shall be permitted to exercise
        any vested and unexercised options granted under the 1996 Stock Option
        Plan and any other existing stock option plans of the Company
        (collectively, the "Stock Option Plans") in accordance with their terms
        for a period of one year following Executive's death.

        4.2 Disability. In the event that Executive is terminated because of
incapacity or disability, the Company shall provide Executive with the
following:

            a. Payment of benefits under the disability insurance policy
        maintained by the Company on Executive's behalf, if any;

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

            c. The right to exercise any vested and unexercised options under
        the Stock Option Plans in accordance with the terms stated therein;

            d. Payment of the automobile allowance as provided under Section 3.3
        for a period of 18 months following the effective date of such
        termination; and

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

        4.3 Neglect, Misconduct or Voluntary Termination. In the event this
Agreement is terminated because of Executive's habitual neglect or gross
misconduct pursuant to Section 2.2(c) or because of Executive's voluntary
termination, the Company shall be relieved from any and all further or future
obligations to compensate Executive; provided, however, that Executive shall be
able to exercise any vested and unexercised awards under the Stock Option Plans
in accordance with the terms set forth therein.

        4.4 Discharge. In the event that the Company terminates Executive under
circumstances other than a Change-of-Control (as defined herein) and for any
reason other than Executive's incapacity or disability or neglect/misconduct as
described in Sections 2.2(b) and 2.2(c), respectively, or voluntary termination
then Executive shall be entitled to the following compensation:

            a. An amount equal to one and one-half of Executive's then current
        annual salary under Section 3.1;

            b. An amount equal to one and one-half times Executive's average
        MICP bonus. If Executive has been employed by the Company for more than
        one, but less than two years, then the MICP bonus severance payment
        shall equal the average of the Executive's MICP award for the prior year
        and the target for Executive for the current year. If Executive has been
        employed by the Company for less than one year, Executive will not
        receive any bonus severance payment;


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            c. The right to exercise any vested and unexercised options under
        the Stock Option Plans in accordance with their terms within one year of
        the effective date of such termination;

            d. Continuation of Executive' and his/her dependents' medical,
        dental and vision benefits for a period of 18 months following the
        effective date of such termination;

            e. An amount equal to 18 months of Executive's automobile allowance;

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

            g. The Company shall provide to Executive outplacement services to
        Executive to assist Executive in securing a position comparable to the
        one from which Executive was terminated. The Company shall be obligated
        to provide those outplacement services which are customarily provided by
        companies of similar size and holdings as those of the Company to
        executives with comparable responsibility and longevity as Executive and
        for reasonable cost as approved by the Company. The Company's provision
        of such outplacement services shall not limit, restrict, or reduce, in
        any manner, any and all other compensation to which Executive is
        entitled hereunder;

            h. Executive shall receive, or have paid, the amounts of severance
        compensation provided in clauses (a), (b), (d) and (e) above in equal
        installments over a period of 18 months. Payments will be made either in
        biweekly installments on the Company's regular paydays or as currently
        being paid to Executive;

            i. Notwithstanding the foregoing, in the event Executive engages in
        employment, whether as an employee, consultant or contractor with a
        competitor of the Company during the 18 month period in which
        Executive's salary continues pursuant to this Section 4.4, the severance
        compensation available to Executive under this Section 4.4 shall be
        reduced by the amount of any and all gross earnings Executive earns
        while engaged in employment with any such competitor or competitors. For
        the purposes of this Section 4.4, a "competitor of the Company" shall
        include, without limitation, managed care organizations, including a
        health maintenance organization, competitive medical plan, preferred
        provider organization, provider sponsored organization ("PSO"), or
        health or life insurance company which owns a managed care organization,
        plan or program. Executive agrees to provide immediate notice to Company
        upon receipt of any gross earnings received by Executive from a
        competitor of Company. Quarterly, Executive shall provide the Company a
        certificate certifying as to his/her employment status and if employed,
        the name and business of his/her current employer;


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

            k. If Executive dies while receiving the salary continuation benefit
        as provided in this Section 4.4, Executive's estate will receive a lump
        sum payment of the remaining salary continuation benefit.

5.      COMPENSATION FOLLOWING TERMINATION OF EMPLOYMENT AS A RESULT OF A CHANGE
        OF CONTROL

        5.1 Termination of Employment or Resignation for Good Cause

            a. Executive's Rights. In the event that, during the term of this
        Agreement, the Company undergoes a Change of Control, (as that term is
        defined below) and if within 24 months after the consummation of such
        change either (1) Executive is involuntarily terminated, except as
        provided in Section 5.1(b), or (2) Executive voluntarily terminates his
        employment for "good cause" as defined in Section 5.1(d), then Executive
        shall be entitled to the following compensation:

                1. A lump sum payment consisting of: (i) an amount equal to two
            times Executive's then annual salary; (ii) an amount equal to two
            times Executive's average MICP bonus award for the last two years;
            (iii) a prorated bonus based on target opportunity for the year in
            which the Change-of-Control occurs; (iv) an amount equal to the
            equivalent of the cost of 24 months of COBRA benefits; and (v) an
            amount equal to 24 months of Executive's automobile allowance. If
            Executive has been employed for more than one, but less than two
            years, then the amount attributable to the MICP bonus portion set
            forth in clause (ii) above shall equal the average of Executive's
            MICP bonus for the prior year and the target for Executive for the
            current year. If Executive has been employed for less than one year,
            Executive shall receive an amount equal to two times target bonus
            for the current year.

                2. The right to exercise any and all unexercised stock options
            granted under the Stock Option Plans in accordance with their terms,
            as if all such unexercised stock options were fully vested, within
            one year of the effective date of such termination;

                3. A payment to executive to compensate for any excise penalty
            or other associated taxes resulting from severance payments
            exceeding the cap imposed by Internal Revenue Code Section 280(G);

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

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

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


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            b. Limitation of Benefits. In the event that Executive is terminated
        within 24 months after a Change of Control of the Company, and such
        termination results from either Executive's death, incapacity or
        disability or habitual neglect or gross misconduct, then,
        notwithstanding anything in this Section 5 to the contrary, Executive
        shall receive only that compensation, if any, to which he is entitled to
        under Sections 4.1, 4.2 and 4.3, respectively.

            c. Change of Control. As used in this Section 5, the term "Change of
        Control" means and refers to:

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

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

                3. a dissolution or liquidation of the Company;

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

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

            d. Good Cause. As used in this Agreement "good cause" for Executive
        to terminate his employment shall be deemed to exist if Executive
        voluntarily terminates his employment within 24 months of a Change of
        Control for any of the following reasons:

                1. Without Executive's express prior written consent, Executive
            is assigned duties materially inconsistent with Executive's
            position, duties, responsibilities, or status with the Company which
            substantially varies from that which existed immediately prior to
            such change of ownership or control;


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                2. Without Executive's express prior written consent, Executive
            experiences a change in his reporting level, titles, or business
            location (or more than 50 miles from his current business location
            or residence whichever is closer to the new business location) which
            substantially varies from that which existed immediately prior to
            the Change of Control; except that if Executive is not located at
            the Company's corporate headquarters in California, a relocation to
            the Company's corporate headquarters in California shall not be
            deemed a substantial variation, unless Executive's reporting level
            or title is also substantially varied.

                3. Without Executive's express prior written consent, Executive
            is removed from any position held immediately prior to the change of
            ownership or control, or if Executive fails to obtain reelection to
            any position held immediately prior to the change of ownership or
            control, which removal or failure to reelect is not directly related
            to Executive's incapacity or disability, habitual neglect, gross
            misconduct or death;

                4. Without Executive's express prior written consent, Executive
            experiences a reduction in salary of more than 10 percent below that
            which existed immediately prior to the change of ownership or
            control.

                5. Without Executive's express prior written consent, Executive
            experiences an elimination or reduction of any employee benefit,
            business expense reimbursement or allotment, incentive bonus
            program, or any other manner or form of compensation available to
            Executive immediately prior to the Change of Control and such change
            is not otherwise applied to others in the Company with Executive's
            position or title;

                6. The Company fails to obtain from any successor, before the
            succession takes place, a written commitment obligating the
            successor to perform this Agreement in accordance with all of its
            terms and conditions; or

                7. The Company or any successor thereto purports to terminate
            Executive pursuant to Section 4.4 without first giving Executive
            prior written notice thereof that specifies the facts and
            circumstances, in reasonable detail, serving as the basis for
            Executive's termination.

        5.2 Resignation for Other Than Good Cause After a Change of Control. In
the event that the Company undergoes a Change-of-Control and Executive remains
with the Company for 12 months following the effective date of the
Change-of-Control, Executive will be given a 30-day "window period" in which to
elect to voluntarily terminate Executive's employment for reasons other than
good cause. Should Executive choose to terminate Executive's employment within
the 30-day "window period," then Executive shall be entitled to the following
compensation:

            a. One-half the lump sum payment referred to in Section 5.1(a)(1).

            b. The right to exercise all vested and unexercised stock options
        granted under the Stock Option Plans in accordance with their terms
        within one year of the effective date of such termination.

            c. Outplacement services as defined in Section 4.4(g).


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6.      NOTICES

        All notices or other communications required or permitted to be made
hereunder shall be given in writing and sent by either personal delivery,
overnight delivery, or United States registered or certified mail, return
receipt requested, all of which shall be properly addressed with postal or
delivery charges prepaid, to the parties at their respective addresses set forth
below, or to such other addresses as either party may designate to the other in
accordance with this Section 5:

        If to the Company:   PacifiCare Health Systems, Inc.
                             3120 Lake Center Drive
                             Santa Ana, California 92704
                             Attn: President and Chief Executive Officer

        If to Executive:     Ronald Davis
                             8 Meadowgrass
                             Irvine, CA 92604

All notices sent by personal delivery shall be deemed given when actually
received. All notices sent by overnight delivery shall be deemed received on the
next business day. All other notices sent via United States mail shall be deemed
received no later than two business days after mailing. Any notice given by any
method not expressly authorized herein, shall nevertheless be effective if
actually received, and shall be deemed given upon actual receipt.

7.      GENERAL PROVISIONS

        7.1 Severance Agreement. Any payments of compensation made pursuant to
Sections 4 and 5, except for the cash compensation related to the Premium Priced
Options set forth in Section 3.10, are contingent on Executive executing the
Company's standard severance agreement, including a general release of the
Company, its owners, partners, stockholders, directors, officers, employees,
independent contractors, agents, attorneys, representatives, predecessors,
successors and assigns, parents, subsidiaries, affiliated entities and related
entities.


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<PAGE>   11

         7.2 Assignability. This Agreement shall inure to the benefit of, and
shall be binding upon the heirs, executors, administrators, successors, and
legal representatives of Executive and shall inure to the benefit of, and be
binding upon the Company and its successors and assigns. Executive shall not
assign, delegate, subdelegate, transfer, pledge, encumber, hypothecate, or
otherwise dispose of this Agreement, or any rights, obligations, or duties
hereunder, and any such attempted delegation or disposition shall be null and
void and without any force or effect; provided, however, that nothing contained
herein shall prevent Executive from designating beneficiaries for insurance,
death or retirement benefits.

        7.3 Entire Agreement. This Agreement is a fully integrated document and
contains any and all promises, covenants, and agreements between the parties
hereto with respect to Executive's employment. This Agreement supersedes any and
all other, prior or contemporaneous, discussions, negotiations, representations,
warranties, covenants, conditions, and agreements, whether written or oral,
between the parties hereto. Except as expressed herein, the parties have not
exchanged any other representations, warranties, inducements, promises, or
agreements respecting Executive's employment with the Company.

        7.4 Severability. In the event any one or more of the provisions of this
Agreement shall be rendered by a court of competent jurisdiction to be invalid,
illegal, or unenforceable, in any respect, such invalidity, illegality, or
unenforceability shall not affect or impair the remainder of this Agreement
which shall remain in full force and effect and enforced accordingly, unless a
party demonstrates by a preponderance of the evidence that the invalidated
provision was an essential economic term of this Agreement.

        7.5 Amendment. This Agreement shall not be changed, amended, or
modified, nor shall any performance or condition hereunder be waived, in whole
or in part, except by written instrument signed by the party against whom
enforcement or waiver is sought. The waiver of any breach of any term or
condition of this Agreement shall not be deemed to constitute the waiver of any
other or subsequent breach of the same or any other term or condition of this
Agreement.

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

        IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.


The Company:                                    PACIFICARE HEALTH SYSTEMS, INC.,
                                                a Delaware corporation


                                                --------------------------------
                                                By: Alan R. Hoops
                                                Title: President and
                                                       Chief Executive Officer


Executive:
                                                --------------------------------
                                                Ronald Davis



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