TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
TABLE OF CONTENTS
ARTICLE I DEFINITIONS.............................................. 2
1.01 Accounts....................................................... 2
1.02 Affiliate...................................................... 2
1.03 Beneficiary.................................................... 2
1.04 Board.......................................................... 3
1.05 Code........................................................... 3
1.06 Committee...................................................... 3
1.07 Company........................................................ 3
1.08 Compensation................................................... 3
1.09 Distribution Date.............................................. 4
1.10 Effective Date................................................. 4
1.11 Eligible Employee.............................................. 4
1.12 Employer....................................................... 4
1.13 Employer Contribution.......................................... 4
1.14 ERISA.......................................................... 4
1.15 ESOP Fund...................................................... 5
1.16 ESOP Suspense Subfund.......................................... 5
1.17 Exempt Loan.................................................... 5
1.18 Financed Shares................................................ 5
1.19 Highly Compensated Employee.................................... 5
1.20 Hour of Service................................................ 5
1.21 Inactive Participant........................................... 6
1.22 Investment Fund................................................ 6
1.23 Limitation Year................................................ 6
1.24 Non-Highly Compensated Employee................................ 7
1.25 Normal Retirement Age.......................................... 7
1.26 Participant.................................................... 7
1.27 Period of Severance............................................ 7
1.28 Permanent and Total Disability................................. 8
1.29 Plan........................................................... 8
1.30 Plan Year...................................................... 8
1.31 Pretax Deferrals............................................... 8
1.32 Profit Sharing Contributions................................... 8
1.33 Rollover Contributions......................................... 8
1.34 Service........................................................ 9
1.35 Stock.......................................................... 10
1.36 Trust Fund..................................................... 10
1.37 Trustee........................................................ 10
1.38 Valuation Date................................................. 10
ARTICLE II ELIGIBILITY AND PARTICIPATION............................ 11
2.01 Participation in the Plan...................................... 11
2.02 Enrollment in the Plan......................................... 11
2.03 Reemployment................................................... 11
2.04 Employment After Normal Retirement Age......................... 12
2.05 Termination of Participation................................... 12
2.06 Inactive Participation and Transfers........................... 12
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ARTICLE III CONTRIBUTIONS............................................ 13
3.01 Contribution of Participant Deferrals.......................... 13
3.02 Limitation on Participant's Pretax Deferrals................... 14
3.03 Employer Matching Contributions................................ 16
3.04 Employer ESOP Contributions.................................... 16
3.05 Participant Contributions...................................... 16
3.06 Rollover Contributions......................................... 16
3.07 Limitation on Reversion of Contributions....................... 17
3.08 Limitation of Liability........................................ 17
3.09 Make-Up Contributions.......................................... 17
3.10 Employer Stock Bonus Contributions............................. 18
3.11 Employer Profit Sharing Contributions.......................... 18
ARTICLE IV PARTICIPANT'S ACCOUNT: ALLOCATIONS....................... 19
4.01 Participant Accounts........................................... 19
4.02 Allocation of Pretax Deferrals................................. 21
4.03 Allocation of Employer Matching Contributions.................. 21
4.04 Limitation on Allocation of Employer Matching Contributions.... 22
4.05 Allocation of Employer ESOP Contributions...................... 23
4.06 Allocation of Employer Stock Bonus Contributions............... 24
4.07 Allocation of Employer Profit Sharing Contributions............ 24
ARTICLE V ESOP SUSPENSE SUBFUND.................................... 26
5.01 Establishment of ESOP Suspense Subfund......................... 26
5.02 Release of Shares in ESOP Suspense Subfund..................... 26
5.03 Allocation of Shares Released From ESOP Suspense Subfund....... 27
ARTICLE VI ALLOCATION LIMITATIONS................................... 29
6.01 Basic Limitation on Annual Additions........................... 29
6.02 Participation in this Plan and a Defined Benefit Plan.......... 31
6.03 Reduction in Annual Additions and Elimination of Excess Amounts 31
ARTICLE VII INVESTMENTS: ALLOCATION OF GAINS AND LOSSES.............. 32
7.01 Investment of Accounts......................................... 32
7.02 Transfers of Existing Account Balances Between Investment Funds 33
7.03 Allocation of Investment Fund Gains and Losses................. 33
7.04 Purchase and Sale of Stock..................................... 34
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7.05 Rights, Warrants, or Options................................... 34
7.06 Participant Rights Concerning Stock............................ 35
7.07 Sale of Stock.................................................. 36
7.08 Tenders and Exchanges of Stock................................. 36
7.09 Valuation of Stock............................................. 39
7.10 Plan May Borrow to Buy Stock................................... 40
7.11 Use of Exempt Loan Proceeds.................................... 41
7.12 Allocation of Stock Dividends and Splits....................... 41
7.13 Reinvestment of Dividends...................................... 42
7.14 Allocation of Dividends other than Stock Dividends............. 42
7.15 Reserve Fund................................................... 43
7.16 Special Investment Election by Qualified Participants.......... 44
ARTICLE VIII WITHDRAWALS AND LOANS.................................... 46
8.01 Post Age 59-1/2 Withdrawals.................................... 46
8.02 Financial Hardship Withdrawals................................. 46
8.03 Withdrawals from Rollover Account.............................. 47
8.04 Amount and Payment of Withdrawals.............................. 48
8.05 Loans to Participants.......................................... 48
8.06 Debiting of Investment Funds................................... 50
ARTICLE IX RETIREMENT, DISABILITY AND DEATH BENEFITS................ 51
9.01 Retirement Benefits............................................ 51
9.02 Disability Benefits............................................ 51
9.03 Death Benefits................................................. 51
ARTICLE X TERMINATION BENEFITS AND VESTING REQUIREMENTS............ 52
10.01 Benefits Payable Upon Termination of Employment................ 52
10.02 Vesting Requirements........................................... 52
10.03 Effect of Termination of Employment; Period of Severance and
Reemployment................................................... 53
10.04 Forfeiture of Non-Vested Accounts.............................. 53
10.05 Disposition of Forfeitures..................................... 54
ARTICLE XI DISTRIBUTION OF BENEFITS................................. 55
11.01 Form of Benefits for Retirement and Other Termination.......... 55
11.02 Timing of Distributions........................................ 55
11.03 Rights, Options and Restrictions on Stock...................... 56
11.04 Special Distribution and Payment Requirements.................. 58
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ARTICLE XII COMMITTEE................................................ 60
12.01 Appointment of Committee....................................... 60
12.02 Manner of Action............................................... 60
12.03 Chairman, Secretary and Employment of Specialists.............. 60
12.04 Subcommittees.................................................. 60
12.05 Other Agents................................................... 60
12.06 Records........................................................ 61
12.07 Powers and Duties.............................................. 61
12.08 Interested Members............................................. 62
12.09 Indemnification................................................ 62
12.10 Conclusiveness of Action....................................... 62
12.11 Payment of Expenses............................................ 62
12.12 Claims Procedure............................................... 63
ARTICLE XIII AMENDMENT TO THE PLAN.................................... 65
13.01 Right to Amend................................................. 65
ARTICLE XIV TERMINATION OF THE PLAN.................................. 66
14.01 Right to Terminate............................................. 66
14.02 Corporate Reorganization....................................... 66
14.03 Plan Merger and Consolidation.................................. 66
ARTICLE XV TRUST AND THE TRUSTEE.................................... 67
15.01 Board to Select Trustee........................................ 67
ARTICLE XVI ADOPTION BY AFFILIATE.................................... 68
16.01 Affiliate Participation........................................ 68
16.02 Action Binding on Participating Affiliates..................... 68
16.03 Termination of Participation of Affiliate...................... 68
ARTICLE XVII TOP-HEAVY PROVISIONS..................................... 70
17.01 Definitions.................................................... 70
17.02 Determination of Top Heavy Status - Single Plan................ 72
17.03 Determination of Top Heavy Status - Multiple Plans............. 72
17.04 Effect of Top Heavy Status..................................... 73
ARTICLE XVIII MISCELLANEOUS............................................ 76
18.01 Voluntary Plan................................................. 76
18.02 Nonalienation of Benefits...................................... 76
18.03 Inability to Receive Benefits.................................. 76
18.04 Lost Participants.............................................. 77
18.05 Limitation of Rights........................................... 77
18.06 Absence of Guaranty............................................ 77
18.07 Invalid Provisions............................................. 77
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18.08 One Plan....................................................... 77
18.09 Governing Law.................................................. 78
ARTICLE XIX DIRECT ROLLOVERS......................................... 79
19.01 Direct Rollovers............................................... 79
19.02 Definitions.................................................... 79
ARTICLE XX EXECUTION................................................ 81
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INTRODUCTION
FHP International Corporation ("FHP") previously established the FHP
International Corporation Employee Stock Ownership Plan ("FHP Plan") for the
benefit of certain employees of FHP and certain of its Subsidiaries which
adopted the FHP Plan. Two of these subsidiaries were Talbert Medical Management
Corporation and Talbert Health Care Services Corporation (collectively and
together with Talbert Medical Management Holdings Corporation referred to herein
as "Talbert"). Effective on February 14, 1997, the FHP controlled group was
acquired by PacifiCare Health Systems, Inc. ("PacifiCare") and sponsorship of
the FHP Plan was assumed by PacifiCare in connection with that transaction.
Effective on or about April __, 1997, Talbert became a separate publicly traded
corporation. Talbert established this Plan for the benefit of certain of its
employees and the employees of corporations which are part of he same
"affiliated service group" (within the meaning of Code Section 414(m)) as
Talbert. Pursuant to the Employee Benefits and Compensation Allocation
Agreement between FHP and Talbert dated February 14, 1997, the assets and
liabilities of the FHP Plan attributable to employees of Talbert and various
affiliated entities were transferred to this Plan. This Plan shall be known as
the "Talbert Medical Management Holdings Corporation Employee Stock Ownership
Plan."
The Plan as amended and restated is intended to qualify under Code Section
401(a). It consists of four separate, but complimentary, parts which are
designed to satisfy the specific rules applicable to each part. The first part
is an employee stock ownership plan intended to qualify under Code Section
4975(e)(7), the second part is a cash or deferred arrangement intended to
qualify under Code Section 401(k), the third part is a profit sharing plan, and
the fourth part is a stock bonus feature which is separate from the part of the
Plan intended to qualify as an employee stock ownership plan.
The purpose of this Plan is to enable participating employees to share in the
growth and prosperity of the Company by providing them with a common stock
ownership interest in the Company, as well as to enable employees to accumulate
capital for retirement through a convenient method of regular savings in a
tax-efficient manner.
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ARTICLE I
DEFINITIONS
Whenever the following terms are used in this Plan with their first letters
capitalized, they have the meaning specified below. Additional words and phrases
used in the Plan are not defined in this Article I, but, for convenience, are
defined as they are introduced in the text. Unless the context indicates
otherwise, the masculine pronoun refers to a man or a woman. Words in the
singular include the plural, and vice versa, unless the context indicates
otherwise.
1.01 ACCOUNTS
"Accounts" means a Participant's Employer Contribution Account, Pretax
Deferral Account, Profit Sharing Contribution Account, Employer Stock
Bonus Account, Matching Contribution Account, TakeCare Account, and
Rollover Account. These Accounts are described in Section 4.01 of the
Plan.
1.02 AFFILIATE
"Affiliate" means the Company and each other entity which is controlled by
or under common control with the Company or is a member of the same
affiliated service group, within the meaning of Code Sections 414 and
1563. Any other organization which is permitted to treat Stock as
"employer securities" under Code Section 409(1) is also an Affiliate if it
adopts the Plan pursuant to Article XVI of the Plan.
1.03 BENEFICIARY
"Beneficiary" means the person or persons (who may be named contingently
or successively) designated by a Participant to receive his Accounts in
the event of his death. Each Participant may designate a Beneficiary on a
form prescribed by the Committee. The designation will be effective when
filed with the Committee, and will revoke all prior designations by the
same Participant. A married Participant who designates a Beneficiary
other than his spouse must obtain and submit to the Committee the spouse's
written, notarized consent to the designation of each such Beneficiary on
a form that discloses to the spouse the potential effect of such consent
the designation will not be valid until the Committee receives such
notarized consent. If no Beneficiary is designated at the time of the
Participant's death, or if no person so designated survives the
Participant, the Beneficiary will be the Participant's spouse, or if the
deceased Participant has no surviving spouse, his estate.
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1.04 BOARD
"Board" means the board of directors of Talbert Medical Management
Holdings Corporation.
1.05 CODE
"Code" means the Internal Revenue Code of 1986 as it currently exists and
includes any subsequent amendments.
1.06 COMMITTEE
"Committee" means the Committee described in Article XII.
1.07 COMPANY
"Company" means Talbert Medical Management Holdings Corporation.
1.08 COMPENSATION
"Compensation" means the total salary and wages paid for a Plan Year or
other specified period to a Participant by the Employer for services
rendered. It includes salary, wages, commission, tips, bonuses and
overtime compensation reportable on federal form W-2 or its equivalent and
amounts of salary reduction elected by the Participant in connection with
pretax deferrals under the Talbert Medical Management Holdings Corporation
Employee Stock Ownership Plan and/or a benefit plan sponsored by an
Affiliate and qualified under Code Section 125. It excludes (1) any
amount (other than the pretax deferrals described above) contributed by
the Employer to any pension plan or plan of deferred compensation, (2) any
amount, regardless if it is or becomes reportable on federal form W-2,
which is (i) paid by the Employer (other than the salary reduction
described above) for other fringe benefits, such as health and welfare,
hospitalization, group life insurance benefits, stock options or
perquisites, or (ii) paid by the Employer in lieu of the benefits
described in (i) above, such as a cash out of credits generated under a
plan qualified under Code Section 125, (3) any reimbursement for expenses
or allowances, including automobile allowances and moving allowances and
(4) any amount realized when a stock option is exercised at a price below
fair market value on the date of the exercise.
A Participant's annual Compensation in excess of $150,000 is disregarded
for all purposes under the Plan. Such dollar limit will be adjusted
pursuant to Code Section 401(a)(17).
Compensation will be recognized as of an employee's effective date of
participation pursuant to Section 2.01 and 2.02. Compensation for any
Plan Year shall be determined by counting
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Compensation for the payroll periods ending with or within such Plan Year.
1.09 DISTRIBUTION DATE
"Distribution Date" means the date as of which the vested portion of a
Participant's Accounts is distributed, as described in Section 9.01 (in
the case of Normal Retirement Age), Section 9.02 (in the case of Permanent
and Total Disability), Section 9.03 (in the case of death) and Section
10.01 (in the case of any other termination of employment).
1.10 EFFECTIVE DATE
"Effective Date" means the original effective date of the Plan, which is
________ __, 1997.
1.11 ELIGIBLE EMPLOYEE
"Eligible Employee" means any person who is employed by an Employer
provided he is not one of the following:
(a) a per diem, on-call, or temporary employee, or
(b) an employee whose terms of employment are covered by a collective
bargaining agreement between the Employer and employee
representatives where there is evidence retirement benefits were the
subject of good faith bargaining unless the bargaining agreement
expressly provides for participation in the Plan.
1.12 EMPLOYER
"Employer" means the Company and any Affiliate which adopts the Plan in
accordance with Article XVI.
1.13 EMPLOYER CONTRIBUTION
"Employer Contribution" means contributions to the Plan made by an
Employer pursuant to Sections 3.03, 3.04, 3.10 and 3.11. It includes the
Employer Matching Contribution described in Section 3.03, the Employer
ESOP Contribution described in Section 3.04, the Employer Stock Bonus
Contribution described in Section 3.10 and the Employer Profit Sharing
Contribution described in Section 3.11.
1.14 ERISA
"ERISA" means the Employee Retirement Income Security Act of 1974, as it
currently exists and includes any subsequent amendments.
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1.15 ESOP FUND
"ESOP Fund" means the portion of the Trust Fund consisting of assets
allocated to all Participants' ESOP Accounts, unallocated assets
representing contributions under Section 3.03 and unallocated assets
representing the proceeds of any Exempt Loan (the ESOP Suspense Subfund).
1.16 ESOP SUSPENSE SUBFUND
"ESOP Suspense Subfund" means the portion of the Trust Fund consisting of
unallocated assets representing the proceeds of any Exempt Loan. The ESOP
Suspense Subfund is part of the ESOP Fund.
1.17 EXEMPT LOAN
"Exempt Loan" means any loan (or other extension of credit) to the Plan or
Trust not prohibited by Code Section 4975(c). It includes a loan which
meets the requirements of Code Section 4975(d)(3) and related regulations
and the proceeds of which are used to finance the acquisition of stock
and/or refinance an Exempt Loan.
1.18 FINANCED SHARES
"Financed Shares" means shares of Stock acquired under the Plan with the
proceeds of an Exempt Loan.
1.19 HIGHLY COMPENSATED EMPLOYEE
"Highly Compensated Employee" means an individual described in Code
Section 414(q).
1.20 HOUR OF SERVICE
"Hour of Service" means:
(a) Each hour for which a person is directly or indirectly paid by, or
entitled to payment from an Affiliate for the performance of duties.
These hours are credited to the person in the computation period in
which the duties are performed.
(b) Each hour for which a person is directly or indirectly paid by, or
entitled to payment from an Affiliate on account of a period of time
during which no duties are performed (irrespective of whether the
employment relationship has terminated) due to vacation, holiday,
illness, incapacity (including disability), layoff, jury duty,
military duty or leave of absence. However, a person is not
entitled to credit for such hours if payment is made or due under a
plan maintained solely for
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the purpose of complying with applicable worker's compensation,
unemployment compensation or disability insurance laws, or if such
payment solely reimburses a person for his medical or medically
related expenses. No more than 501 hours are credited for any
single continuous period of time during which no duties are
performed.
In the case of a payment which is made or due on account of a period
during which a person performs no duties, and which results in
crediting of hours under this subsection (b), or in the case of an
award or agreement for back pay, to the extent that such award or
agreement is made with respect to a period described in this
subsection (b), the number of hours and the computation period in
which they are to be credited is determined according to Section
2530.200(b)-2(b) and (c) of Title 29 of the Code of Federal
Regulations.
(c) Each hour for which a person is entitled to back pay, regardless of
mitigation of damages, which has been either awarded or agreed to by
an Affiliate. These hours are credited to the person in the
computation period to which the award, agreement or payment
pertains. However, a person will not be credited with hours under
this subsection (c) if he received credit for the same hours under
subsections (a) or (b).
(d) Notwithstanding the above, an exempt employee will be credited with
90 Hours of Service for each bi-weekly pay period (or 95 Hours of
Service in the case of a semi-monthly pay period) during which he
would receive credit for at least one Hour of Service under
subsections (a) through (c) above. For purposes of this subsection
an exempt employee is defined under the Fair Labor Standards Act.
1.21 INACTIVE PARTICIPANT
"Inactive Participant" means a person who was a Participant but who is
transferred to and is in a position of employment in which he is no longer
an Eligible Employee.
1.22 INVESTMENT FUND
"Investment Fund" means the funds in which a Participant may invest his
Pretax Deferral, TakeCare, Profit Sharing Contribution and Rollover
Accounts according to Section 7.01.
1.23 LIMITATION YEAR
"Limitation Year" shall mean the twelve month period beginning on January
1 and ending on December 31; provided, however,
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that the initial Limitation Year shall be from _________ __, 1997 through
December 31, 1997.
1.24 NON-HIGHLY COMPENSATED EMPLOYEE
"Non-Highly Compensated Employee" means a person employed by an Affiliate
who is not a Highly Compensation Employee.
1.25 NORMAL RETIREMENT AGE
"Normal Retirement Age" means a Participant's 65th birthday.
1.26 PARTICIPANT
"Participant" means any Eligible Employee who is a Participant as provided
in Article II. Where appropriate to the context, it also includes an
Inactive Participant.
1.27 PERIOD OF SEVERANCE
"Period of Severance" means, for any person, an interruption in his
Service under the Plan. A Period of Severance begins on the date the
person no longer is credited with Service under the Plan and ends on the
date the person returns to active employment with an Affiliate. A person
whose employment with all Affiliates is terminated, or deemed terminated,
for any reason will incur:
(a) a one year Period of Severance if he fails to return to active
employment as an employee and render one or more Hours of Service
before the first annual anniversary of the date of such termination.
(b) a five year Period of Severance if he fails to return to active
employment as an employee and render one or more Hours of Service
before the fifth annual anniversary of the date of such termination.
For purposes of this Section, a person who is absent from employment for
maternity or paternity reasons will not be treated as having incurred a
one year Period of Severance until the second anniversary of such absence,
or a five year Period of Severance until the sixth anniversary of such
absence, or such earlier time permitted under applicable regulations.
Absence for maternity or paternity reasons means a person is absent
because:
(1) the person is pregnant,
(2) the person gave birth to a child;
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(3) an adopted child is placed with the person, or
(4) the person is caring for his natural or adopted child
immediately after the child is born or placed with the person.
The provisions of this paragraph will not apply unless the person provides
information to the Committee, within the time limits established by the
Committee, sufficient to establish that the absence is for maternity or
paternity reasons and the duration of the absence.
1.28 PERMANENT AND TOTAL DISABILITY
"Permanent and Total Disability" means a physical or mental condition
which renders a person unable to engage in any substantial gainful
activity for an Affiliate by reason of any medically determinable physical
or mental impairment which can bc expected to result in death or to be of
long-continued or indefinite duration. The Committee will determine,
based on whatever competent medical evidence it requires, whether a person
is Permanently and Totally Disabled.
1.29 PLAN
"Plan" means the Talbert Medical Management Holdings Corporation Employee
Stock Ownership Plan as described in this document and includes any
subsequent amendments.
1.30 PLAN YEAR
"Plan Year" means the twelve month period beginning January 1 and ending
the following December 31; provided, however, that the initial Plan Year
shall be a short Plan Year commencing on _______ __, 1997 and ending on
December 31, 1997.
1.31 PRETAX DEFERRALS
"Pretax Deferrals" means contributions to the Plan made by the Employer at
the election of a Participant in amounts equal to reductions in the
Participant's Compensation under Section 3.01.
1.32 PROFIT SHARING CONTRIBUTIONS
"Profit Sharing Contributions" means contributions to the Plan made by an
Employer pursuant to Section 3.11.
1.33 ROLLOVER CONTRIBUTIONS
"Rollover Contributions" means contributions to the Plan made by an
Eligible Employee pursuant to Section 3.06.
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1.34 SERVICE
"Service" means, with respect to any person, his period or periods of
employment with all Affiliates which are counted as Service according to
the following rules.
(a) Each person is credited with Service under the Plan for the period
or periods during which the person maintains an employment
relationship with any Affiliate. A person's employment relationship
is deemed to commence on the date the person first renders one Hour
of Service, and is deemed to continue during the following periods:
(i) Periods of leave of absence with or without pay granted to the
person by an Affiliate in a like and nondiscriminatory manner
for any purpose including, but not limited to, sickness,
accident or military leave. The person is not considered to
have terminated employment during such leave of absence
unless he fails to return to the employ of an Affiliate at or
prior to the expiration date of the leave. If he fails to so
return, he is deemed to have terminated as of the date the
leave began but he is given credit for Service through the
earlier of the first anniversary of the date his leave of
absence began or the date his employment terminates.
(ii) In case of a person who terminates employment and who is later
reemployed by an Affiliate before he incurs a one year Period
of Severance, the period between his date of termination and
date of reemployment.
(b) Except as provided in Subsection (c) all periods of a person's
Service, whether or not consecutive, are aggregated. Service is
measured in elapsed years and fractions of years whereby each twelve
complete calendar months constitutes one year, each complete
calendar month constitutes one-twelfth of a year and partial
calendar months which when aggregated equal thirty days constitute
one-twelfth of a year.
(c) In the case of a person who terminates employment before he becomes
a Participant and who is not reemployed before the date he incurs
the greater of:
(i) a five year Period of Severance, or
(ii) a Period of Severance greater than his service before the date
he terminated employment,
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his service before he terminated employment will be disregarded.
(d) Notwithstanding anything in this Plan to the contrary, Service that
was credited to a Participant under the terms of the FHP
International Corporation Employee Stock Ownership Plan shall be
counted as Service for all purposes under this Plan.
1.35 STOCK
"Stock" means the shares of stock issued by Talbert Medical Management
Holdings Corporation, which are readily tradable on an established
securities market. At the Company's discretion, stock may also include
other types of stock which qualify as "employer securities" under Code
Section 409(l).
1.36 TRUST FUND
"Trust Fund" means the Stock and other assets of the Plan held by the
Trustee and subject to the trust agreement described in Article XV. Trust
Fund includes, but is not limited to, the Investment Funds, the ESOP Fund,
and the ESOP Suspense Subfund.
1.37 TRUSTEE
"Trustee" means the person, persons, bank and/or other entity selected by
the Board to hold the Trust Fund according to Article XV.
1.38 VALUATION DATE
"Valuation Date" means March 31, June 30, September 30, and December 31,
of each Plan Year. Notwithstanding the preceding sentence, upon a
determination by the Committee, in its sole discretion, that more frequent
Valuation Dates are administratively feasible, Valuation Date also means
the last day of any other months selected by the Committee. Valuation
Date may also mean any date selected by the Committee in the event the
Committee, in its sole discretion, determines that events affecting the
market value of the Trust Fund require an interim Valuation Date.
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ARTICLE II
ELIGIBILITY AND PARTICIPATION
2.01 PARTICIPATION IN THE PLAN
(a) Each Eligible Employee will become a Participant on the first day of
the month coinciding with or immediately following the later of (i)
the date he attains age 21; (ii) the date he completes 12 months of
Service; or (iii) the date he becomes an Eligible Employee.
(b) Notwithstanding the foregoing, each Eligible Employee who was a
Participant in the FHP International Corporation Employee Stock
Ownership Plan as of _________, 1997 and whose Accounts were
transferred to this Plan pursuant to the Employee Benefits and
Compensation Allocation Agreement between the Company and FHP
International Corporation shall be immediately eligible to
participate in this Plan.
2.02 ENROLLMENT IN THE PLAN
If a Participant wishes to make Pretax Deferrals or a Rollover
Contribution, he must complete and file a form on which he designates a
Beneficiary. In addition, he must authorize his Employer to reduce his
Compensation by the amount of the deferrals pursuant to Section 3.01, if
applicable, and he must designate the allocation of his Pretax Deferrals
and/or his Rollover Contributions among the Investment Funds. The form
must be delivered to the Committee no less than 15 days before
participation is to begin. If a Participant declines to make Pretax
Deferrals when first eligible, he may elect to make such deferrals
beginning as of the first day of the first payroll period of any month
thereafter, provided he delivers a completed election form to the
Committee no less than 15 days before such payroll period.
2.03 REEMPLOYMENT
A Participant whose employment with all Affiliates terminated and who is
subsequently reemployed and becomes an Eligible Employee again, becomes a
Participant on the date he becomes an Eligible Employee again. He may not
begin Pretax Deferrals until the first day of the first payroll period of
any month that coincides with or next follows the date he again becomes an
Eligible Employee.
An employee who was not a Participant when his employment with all
Affiliates terminated and who is later reemployed by an Affiliate becomes
a Participant in the Plan pursuant to the provisions of Section 2.01.
Hours of Service before he
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terminated employment will be considered in determining his eligibility to
become a Participant.
2.04 EMPLOYMENT AFTER NORMAL RETIREMENT AGE
A Participant who continues employment as an Eligible Employee after his
Normal Retirement Age continues to be a Participant for all purposes of
the Plan.
2.05 TERMINATION OF PARTICIPATION
A Participant will cease to be a Participant on the date on which he or
his Beneficiary receives distribution of the entire vested portion of his
Accounts under the Plan due to his termination of employment, retirement,
death or Permanent and Total Disability.
2.06 INACTIVE PARTICIPATION AND TRANSFERS
A Participant who transfers to an employment status with an Affiliate in
which he is no longer an Eligible Employee becomes an Inactive
Participant. An Inactive Participant is not eligible to make Pretax
Deferrals from his Compensation earned after the date of his transfer.
Employer Contributions will not be allocated to his Accounts after the
date of his transfer.
If a Participant becomes an Inactive Participant, his Accounts will
continue to be held under the Plan until he becomes entitled to a
distribution under the provisions of Articles IX and X. An Inactive
Participant will continue to have the right to direct the investment of
his Accounts under the provisions of Article VII and to make withdrawals
under the provisions of Article VIII.
An employee who transfers to an employment status with an Affiliate in
which he is an Eligible Employee may become a Participant pursuant to
Section 2.01. He will not be eligible to make Pretax Deferrals from his
Compensation earned while he was not a Participant. Employer
Contributions to his Accounts will not be based on his Compensation earned
before the date he transferred and became a Participant.
12
ARTICLE III
CONTRIBUTIONS
3.01 CONTRIBUTION OF PARTICIPANT DEFERRALS
(a) PRETAX DEFERRALS.
Upon enrollment or reenrollment in the Plan, each Participant may
elect to make Pretax Deferrals from 1% to 10% in a fixed whole
percentage, from his Compensation. The Committee may modify the
above limit, or set initial or interim limits for Pretax Deferrals
for any Participant who is a Highly Compensated Employee, or any
class of Participants who are Highly Compensated Employees. Such
limits may include the suspension or reduction of Pretax Deferrals
above a specified dollar amount or percentage of Compensation. The
amount of Compensation otherwise payable to the Participant for each
payroll period while an election under this Section 3.01 is in
effect will be reduced by the amount of the Participant's Pretax
Deferrals. The Employer will make contributions to the Plan equal
to the amount deferred. Such contributions will be allocated to the
Participant's Pretax Deferral Account as of the last day of the
payroll period in which such amounts are deferred.
(b) CHANGE IN PERCENTAGE OR SUSPENSION OF DEFERRALS.
A Participant's Pretax Deferral percentage rate will remain in
effect, notwithstanding any change in his Compensation, until he
terminates employment or elects to change the percentage. A
Participant may elect to change his deferral percentage as of the
first day of any month provided the election is delivered to the
Committee on or before the last day of the month prior to the
effective date of the change.
A Participant may suspend his Pretax Deferrals at any time. The
suspension will be effective as soon as administratively possible
following receipt of an election form from the Participant. A
Participant may resume making Pretax Deferrals on the first day of
any month after the effective date of his election to suspend Pretax
Deferrals. To resume Pretax Deferrals the Participant must file an
new election form with the Committee on or before the last day of
the month prior to the effective date of the change.
(c) CALENDAR YEAR LIMITATION
Notwithstanding the provisions of subsections (a) and (b) above, if
a Participant's Pretax Deferral election in
13
effect during any calendar year would cause his Pretax Deferrals for
such year to exceed $7,000, his Pretax Deferrals will automatically
be suspended once they reach $7,000. The preceding $7,000 limit
will be adjusted each calendar year as permitted under Code Section
402(g)(5).
The Participant's Pretax Deferrals will automatically resume on the
following January 1. Unless the Participant elects to change his
Pretax Deferral percentage according to subsection (b) above, his
Pretax Deferrals will resume at the percentage rate in effect on the
date of the suspension.
If, for any reason, a Participant's total elective deferrals (within
the meaning of Code Section 402(g)(3)) to all his employers' plans
for any calendar year exceeds the applicable dollar limitation under
this subsection (c) for the calendar year, the Participant may elect
distribution of the excess. Such distribution will be made no later
than April 15 of the following calendar year, in an amount equal to
the portion of such excess which was contributed to this Plan.
(d) STATUS OF DEFERRAL CONTRIBUTIONS
Pretax Deferrals constitute Employer contributions under the Plan
and are intended to qualify as elective contributions under Code
Section 401(k).
3.02 LIMITATION ON PARTICIPANT'S PRETAX DEFERRALS
(a) Notwithstanding Section 3.01, the Pretax Deferral percentage rate
elected by one or more Participants under Section 3.01 will be
modified as provided in Subsection (c) of this Section 3.02 if the
requirements of Subsection (b) of this Section 3.02 are not
satisfied.
(b) For each Plan Year an "Actual Deferral Percentage" will be
determined for each Participant. Such percentage will be determined
by dividing the Participant's Pretax Deferrals allocated to his
Pretax Deferral Account during the Plan Year, if any, by his
Earnings as defined in Section 6.01(c), including salary reductions,
if any, elected by the Participant for the Plan Year under this Plan
and salary reductions, if any, elected under a Plan sponsored by the
Employer and qualified under Code Section 125. Notwithstanding the
preceding sentence, at the Committee's election Earnings may be
determined under an alterative definition as permitted in Treasury
Regulation Section 1.414(s)-1 and any subsequent rulings affecting
such regulation Section.
14
The average of the Actual Deferral Percentages for all Participants
who are Highly Compensated Employees for the Plan Year (the "High
Average"), when compared to the average of the Actual Deferral
Percentages for all Participants who are Non-Highly Compensated
Employees for the Plan Year (the "Low Average"), must meet one of
the following requirements:
(i) The High Average must be no greater than the Low Average times
one and twenty-five hundredths; or
(ii) The excess of the High Average over the Low Average must not
be greater than two percentage points and the High Average
must be no greater than the Low Average times two.
(c) If the Committee determines, in its discretion, that Participants'
Pretax Deferrals for a Plan Year will not meet one of the
requirements of Subsection (b), the Committee, in its discretion,
may suspend or reduce future Pretax Deferrals of certain
Participants who are Highly Compensated Employees to the extent
necessary to meet the requirements. The suspension or reduction of
Participants' future Pretax Deferrals will be accomplished by
reducing the Pretax Deferral percentage rate of Participants who are
Highly Compensated Employees in order of their Actual Deferral
Percentage Rates, beginning with the Participant with the highest
percentage rate and decreasing in descending order until one of the
requirements of Subsection (b) is met.
If Participants' Pretax Deferrals actually made for a Plan Year do
not meet one of the requirements of Subsection (b), the Committee
will determine, in its discretion, the amount of Pretax Deferrals of
certain Participants who are Highly Compensated Employees which must
be reduced in order to meet one of the requirements of Subsection
(b). The reduction in Participants' Pretax Deferrals will be
accomplished by reducing the Pretax Deferrals of the Highly
Compensated Employees with the highest actual Pretax Deferrals to
the extent required to enable the Plan to meet the limits in (b)
above or to cause the amount of such deferrals to equal the Pretax
Deferrals of the Highly Compensated Employee(s) with the next
highest actual Pretax Deferrals. The earnings attributable to
excess Pretax Deferrals will be determined in accordance with
Treasury Regulations.
The amount of the reduction attributable to each Participant (and
any income allocated to such reduction) will be distributed to the
Participant on or before the last day of the immediately following
Plan Year.
15
(d) The Committee's determination under Subsection (c) will be made in a
reasonable, consistent, and nondiscriminatory manner. The Committee
will not be liable to any Participant (or his Beneficiary, if
applicable) for any losses caused by inaccurately estimating the
amount of any Participant's Pretax Deferrals or the earnings
attributable to such Pretax Deferrals.
(e) This Section 3.02 will be applied after taking into account any
reductions in, or repayments of, Pretax Deferrals required by
Sections 3.01, 5.01, and 17.05.
3.03 EMPLOYER MATCHING CONTRIBUTIONS
The amount of Employer Matching Contributions, if any, for each Plan Year
will be determined by the Board in its sole discretion. The Employer
Matching Contributions may be made in cash and/or shares, as determined by
the Board in its sole discretion.
3.04 EMPLOYER ESOP CONTRIBUTIONS
The amount of Employer ESOP Contributions, if any, for each Plan Year will
be determined by the Board in its sole discretion. The Employer ESOP
Contributions may be made in cash and/or shares, as determined by the
Board in its sole discretion.
3.05 PARTICIPANT CONTRIBUTIONS
No Participant is required or permitted to make contributions other than
Pretax Deferrals or Rollover Contributions.
3.06 ROLLOVER CONTRIBUTIONS
Subject to the Committee's approval, an Eligible Employee may make a
Rollover Contribution to the Plan which does not exceed the maximum amount
of rollover contribution he is then permitted under Code Section
402(c)(2). The contribution must be in cash and must meet all the
applicable rollover requirements under Code Section 402(c). The Committee
will establish uniform and nondiscriminatory procedures for the treatment
of Rollover Contributions.
An Eligible Employee's Rollover Contribution is credited to his Rollover
Account. He is at all times one hundred percent vested in the value of
his Rollover Account. He may direct the investment of his Rollover
Contribution, and redirect the investment of his Rollover Account
according to Article VII. If an Eligible Employee is not a Participant
according to Section 2.01, his Rollover Account is his sole interest in
the
16
Plan. Rollover Contributions must satisfy all applicable rollover
requirements of Code Section 402(c)(4).
3.07 LIMITATION ON REVERSION OF CONTRIBUTIONS
Except as provided in subsections (a), (b) and (c) below, contributions
made under the Plan are held for the exclusive benefit of Participants and
their Beneficiaries and may not revert to the Employer.
(a) A contribution which is made by a mistake of fact, may be returned
to the Employer within one year after it is contributed to the Plan.
(b) All employer contributions to the Plan are conditioned on their
deductibility under Code Section 404. To the extent the deduction
is disallowed, the amount disallowed may be returned to the Employer
within one year after the disallowance.
(c) All contributions to the Plan are conditioned on the Plan's
qualification under Code Sections 401(a), 409 and 4975(e)(7). If
the Plan does not so qualify, any contributions may be returned to
the Employer within one year after the qualification is denied.
3.08 LIMITATION OF LIABILITY
Each payment to the Trust Fund pursuant to Section 3.01(a) equal to the
amount of a Participant's Pretax Deferral is in complete discharge of the
financial obligations of the Employer under the Plan with respect to the
Participant's corresponding reduction in Compensation.
3.09 MAKE-UP CONTRIBUTIONS
In addition to other Employer Contributions described in Section 3.03,
3.04, 3.10 and 3.11 an Employer may make special make-up contributions to
the Plan, if necessary. A make-up contribution will be necessary if there
are insufficient forfeitures under the Plan to restore a Participant's
Employer Contribution Account, Employer Stock Bonus Account, or Profit
Sharing Contribution Account pursuant to Section 10.04, if a Participant
or Beneficiary's Accounts must be reinstated pursuant to Section 18.04, or
if a mistake or omission in the allocation of contributions is discovered
and cannot be corrected by revising prior allocations.
17
3.10 EMPLOYER STOCK BONUS CONTRIBUTIONS
The amount of Employer Stock Bonus Contributions, if any, for each Plan
Year will be determined by the Board in its sole discretion. The Employer
Stock Bonus Contributions may be made in cash and/or shares of Stock, as
determined by the Board in its sole discretion.
3.11 EMPLOYER PROFIT SHARING CONTRIBUTIONS
The amount of Employer Profit Sharing Contributions, if any, for each Plan
Year will be determined by the Board in its sole discretion. The Profit
Sharing Contributions may be made in cash and/or shares of Stock, as
determined by the Board in its sole discretion.
18
ARTICLE IV
PARTICIPANT'S ACCOUNT: ALLOCATIONS
4.01 PARTICIPANT ACCOUNTS
The Committee will maintain the following Accounts for each Participant:
(a) An EMPLOYER CONTRIBUTION ACCOUNT which is:
(i) credited with the Participant's share of Employer ESOP
Contributions made under this Plan;
(ii) credited with the Participant's Employer Contribution Account
transferred to this Plan from the FHP International
Corporation Employee Stock Ownership Plan;
(iii) adjusted for investment results and expenses; and
(iv) charged with distributions.
(b) A PRETAX DEFERRAL ACCOUNT which is:
(i) credited with the Participant's Pretax Deferrals made under
this Plan;
(ii) credited with the Participant's Pretax Deferral Account
transferred to this Plan from the FHP International
Corporation Employee Stock Ownership Plan;
(iii) adjusted for investment results and expenses; and
(iv) charged with withdrawals and distributions.
(c) An EMPLOYER STOCK BONUS ACCOUNT which is:
(i) credited with the Participant's share of Employer Stock Bonus
Contributions;
(ii) credited with the Participant's Employer Stock Bonus Account
transferred to this Plan from the FHP International
Corporation Employee Stock Ownership Plan;
(iii) adjusted for investment results and expenses; and
(iv) charged with distributions.
19
(d) A MATCHING CONTRIBUTION ACCOUNT which is:
(i) credited with the Participant's share of Employer Matching
Contributions made under this Plan;
(ii) credited with the Participant's New Matching Contribution
Account transferred to this Plan from the FHP International
Corporation Employee Stock Ownership Plan;
(iii) adjusted for investment results and expenses; and
(iv) charged with distributions.
(e) A PROFIT SHARING CONTRIBUTION ACCOUNT which is:
(i) credited with the Participant's share of Profit Sharing
Contributions made under this Plan;
(ii) credited with the Participant's Profit Sharing Account
transferred to this Plan from the FHP International
Corporation Employee Stock Ownership Plan;
(iii) adjusted for investment results and expenses; and
(iv) charged with withdrawals and distributions.
(f) A TAKECARE ACCOUNT which is:
(i) credited with the Participant's TakeCare Account transferred
to this Plan from the FHP International Corporation Employee
Stock Ownership Plan;
(ii) adjusted for investment results and expenses; and
(iii) charged with distributions.
(g) A ROLLOVER ACCOUNT which is:
(i) credited with the Participant's Rollover Contributions made to
this Plan;
(ii) credited with the Participant's Rollover Account transferred
to this Plan from the FHP International Corporation Employee
Stock Ownership Plan;
(iii) adjusted for investment results and expenses; and
(iv) charged with withdrawals and distributions.
20
4.02 ALLOCATION OF PRETAX DEFERRALS
Employer contributions which result from a Participant's Pretax Deferrals
pursuant to Section 3.01 will be allocated to the Participant's Pretax
Deferral Account. An allocation will occur as of the last day of each
payroll period during which the Participant has Pretax Deferrals withheld
from his Compensation. The amount of the allocation will equal the amount
of the Participant's Pretax Deferrals withheld during such payroll period.
4.03 ALLOCATION OF EMPLOYER MATCHING CONTRIBUTIONS
(a) Employer Matching Contributions are allocated as of the last day of
the Plan Year to the Matching Contribution Account of each person
who was a Participant during the Plan Year, provided the
Participant:
(i) is employed as an Eligible Employee on the last day of the
Plan Year; or
(ii) terminated employment during the Plan Year on or after
attaining Normal Retirement Age; or
(iii) died during the Plan Year; or
(iv) became Permanently and Totally Disabled during the Plan Year.
(b) Each Participant who meets the requirements of Subsection (a) above
is allocated a portion of the Employer Matching Contributions for a
Plan Year as follows:
(i) if the Participant has completed less than five years of
Service as of the last day of such Plan Year, the
Participant's portion of the Employer Matching Contributions
for such Plan Year shall equal 50% of the amount of his Pretax
Deferrals for the Plan Year which do not exceed six percent of
his Compensation for the Plan Year; or
(ii) if the Participant has completed at least five Years of
Service as of the last day of such Plan Year, the
Participant's portion of the Employer Matching Contributions
for such Plan Year shall equal 100% of the amount of his
Pretax Deferrals for the Plan Year which do not exceed six
percent of his Compensation for the Plan Year.
(c) If the Employer Matching Contribution available for a Plan Year is
not sufficient to allocate the amounts described in Subsection (b),
each Participant will be allocated a pro rata share of the available
Employer
21
Matching Contribution. The pro rata share will be determined by
multiplying his contribution determined under Subsection (b)
(without considering the limitation in Subsection (c)) by a fraction
where the numerator is the available Employer Matching Contribution
and the denominator is the Employer Matching Contribution necessary
in order to allocate all the amounts described in Subsection (b)
(without considering the limitation in Subsection (c)).
(d) If any portion of the Employer Matching Contribution is contributed
in shares, the allocation of such portion to Participants' Matching
Contribution Accounts will be made in shares and fractions of shares
to the nearest thousandth of a share.
4.04 LIMITATION ON ALLOCATION OF EMPLOYER MATCHING CONTRIBUTIONS
(a) Notwithstanding Section 3.03, the Employer Matching Contribution
allocated to one or more Participants under Section 4.03(b)(i) will
be modified as provided in Subsection (c) of this Section 4.04 if
the requirements of Subsection (b) of this Section 4.04 are not
satisfied.
(b) For each Plan Year an "Actual Contribution Percentage" will be
determined for each Participant. Such percentage will be determined
by dividing the Employer Matching Contributions allocated to the
Participant's Matching Contribution Account during the Plan Year, if
any, by his Earnings as defined in Section 6.01(c), including salary
reductions, if any, elected by the Participant for the Plan Year
under this Plan and salary reduction, if any, elected under a plan
sponsored by the Employer and qualified under Code Section 125.
The average of the Actual Contribution Percentages for all
Participants who are Highly Compensated Employees for the Plan Year
(the "High Average"), when compared to the average of the Actual
Contribution Percentages for all Participants who are Non-Highly
Compensated Employees for the Plan Year (the "Low Average"), must
meet one of the following requirements:
(i) The High Average must be no greater than the Low Average times
one and twenty-five hundredths; or
(ii) The excess of the High Average over the Low Average must not
bc greater than two percentage points and the High Average
must be no greater than the Low Average times two.
(c) If the Committee determines, in its discretion, that allocations of
Employer Matching Contributions to
22
Participants' Matching Contribution Accounts for a Plan Year do not
meet one of the requirements of Subsection (b), the Committee will
determine, in its discretion, the amount of Employer Matching
Contributions of certain Participants who are Highly Compensated
Employees which must be reduced in order to meet one of the
requirements of Subsection (b). The reduction will be accomplished
by reducing the allocations to Participants who are Highly
Compensated Employees beginning with the Highly Compensation
Employee(s) with the highest amount of Employer Matching
Contributions to the extent required to enable the Plan to meet the
limits in (b) above or to cause the amount of such Matching
Contributions to equal the Matching Contributions of the Highly
Compensated Employee(s) with the next highest amount of Matching
Contributions. [The reduced amounts will be added to the Employer
Stock Bonus Contribution for the Plan Year and allocated among all
Participants as provided in Section 4.06.]
(d) The Committee's determination under Subsection (c) will be made in a
reasonable, consistent, and nondiscriminatory manner. The Committee
will not bc liable to any Participant (or his Beneficiary, if
applicable) for any losses caused by inaccurately estimating the
amount of any Employer Matching Contributions.
4.05 ALLOCATION OF EMPLOYER ESOP CONTRIBUTIONS
(a) The Employer ESOP Contributions for each Plan Year are allocated as
of the last day of the Plan Year to the Employer Contribution
Account of each Participant, provided the Participant is not a
physician-employee of the Employer and:
(i) is employed as an Eligible Employee by the Company or one of
its subsidiaries which is part of the same controlled group of
corporations (within the meaning of Code Section 414(b)) on
the last day of the Plan Year; or
(ii) terminated employment with the Company or one of its
subsidiaries which is part of the same controlled group of
corporations (within the meaning of Code Section 414(b))
during the Plan Year on or after attaining age 65 or by reason
of death; or
(iii) become Permanently and Totally Disabled during the Plan Year
while employed by the Company or one of its subsidiaries which
is part of the same controlled group of corporations (within
the
23
meaning of Code Section 414(b)) on the last day of the Plan
Year.
(b) Each Participant who meets the requirements of Subsection (a) above
is allocated a portion of the Employer ESOP Contributions equal to
the total Employer ESOP Contributions for the Plan Year times the
ratio of his Compensation for the Plan Year to the total of all such
Participants' Compensation for the Plan Year.
(c) If any portion of the Employer ESOP Contribution is contributed in
shares, the allocation of such portion to Participants' Employer
Contribution Accounts will be made in shares and fractions of shares
to the nearest thousandth of a share.
4.06 ALLOCATION OF EMPLOYER STOCK BONUS CONTRIBUTIONS
(a) The Employer Stock Bonus Contributions for each Plan Year are
allocated as of the last day of the Plan Year to the Employer Stock
Bonus Account of each Participant, provided the Participant is not a
physician-employee of the Employer and:
(i) is employed as an Eligible Employee on the last day of the
Plan Year; or
(ii) terminated employment during the Plan Year on or after
attaining age 65; or
(iii) died while employed during the Plan Year; or
(iv) became Permanently and Totally Disabled during the Plan Year.
(b) Each Participant who meets the requirements of Subsection (a) above
is allocated a portion of the Employer Stock Bonus Contributions
equal to the total Employer Stock Bonus Contributions for the Plan
Year times the ratio of his Compensation for the Plan Year to the
total of all such Participants' Compensation for the Plan Year.
(c) If any portion of the Employer Stock Bonus Contributions is
contributed in shares, the allocation of such portion to
Participants' Employer Stock Bonus Accounts will be made in shares
and fractions of shares to the nearest thousandth of a share.
4.07 ALLOCATION OF EMPLOYER PROFIT SHARING CONTRIBUTIONS
(a) The Employer Profit Sharing Contributions for each Plan Year are
allocated as of the last day of the Plan Year to the Profit Sharing
Account of [each Participant,]
24
provided the Participant [is not a physician-employee of the
Employer] and:
(i) is employed as an Eligible Employee on the last day of the
Plan Year; or
(ii) terminated employment during the Plan Year on or after
attaining age 65; or
(iii) died while employed during the Plan Year; or
(iv) became Permanently and Totally Disabled during the Plan Year.
(b) Each Participant who meets the requirements of Subsection (a) above
is allocated a portion of the Profit Sharing Contributions equal to
the total Profit Sharing Contributions for the Plan Year times the
ratio of his Compensation for the Plan Year to the total of all such
Participants' Compensation for the Plan Year.
25
ARTICLE V
ESOP SUSPENSE SUBFUND
5.01 ESTABLISHMENT OF ESOP SUSPENSE SUBFUND
Financed Shares acquired by the ESOP Fund with the proceeds of an Exempt
Loan are held in an ESOP Suspense Subfund. Some or all of the Employer
ESOP Contributions may be applied to repay any outstanding Exempt Loan.
5.02 RELEASE OF SHARES IN ESOP SUSPENSE SUBFUND
Financed Shares are released from the ESOP Suspense Subfund periodically
as the Exempt Loan is repaid. The number of Financed Shares released is
determined as follows:
(a) GENERAL RULE - For each Plan Year until the Exempt Loan is repaid,
the number of Financed Shares released from the ESOP Suspense
Subfund equals the number of unreleased Financed Shares immediately
before the release for the current Plan Year multiplied by a
fraction. The numerator of the fraction is the amount of principal
and interest paid on the Exempt Loan for the Plan Year. The
denominator of the fraction is the sum of the numerator plus the
total payments of principal and interest on that Exempt Loan
projected to be paid for all future Plan Years during the duration
of the Exempt Loan. However, if the Exempt Loan is repaid with the
proceeds of a subsequent Exempt Loan (a "Substitute Loan"), the
repayment shall not release all the Financed Shares in the ESOP
Suspense Subfund. Instead, the Financed Shares will be released on
the basis of payments of principal and interest on the Substitute
Loan.
(b) SPECIAL RULE - The Committee may elect at the time an Exempt Loan
is incurred, or the provisions of the Exempt Loan may provide, that
the number of Financed Shares released from the ESOP Suspense
Subfund is to be determined solely with reference to principal
payments on the Exempt Loan. This method may be used only if:
(i) the Exempt Loan provides for annual payments of principal and
interest at a cumulative rate that is not less rapid at any
time than level annual payments for ten years;
(ii) no more than an amount that would be determined to be interest
under standard loan amortization tables is disregarded, and
26
(iii) the entire duration of the Exempt Loan repayment period does
not exceed ten years, even if the Exempt Loan is renewed,
extended or refinanced.
(c) The provisions under this Section 5.02 for the release of Financed
Shares are to be applied and construed in a manner consistent with
Section 54.4975-7(b)(8) of Title 26 of the Code of Federal
Regulations.
5.03 ALLOCATION OF SHARES RELEASED FROM ESOP SUSPENSE SUBFUND
Shares of Stock released from the ESOP Suspense Subfund for a Plan Year
are held in the ESOP Fund on an unallocated basis until allocated by the
Committee. Shares of Stock released in connection with a payment on an
Exempt Loan from Employer ESOP Contributions are allocated as described in
Subsection (a). Shares of Stock released in connection with a payment on
an Exempt Loan from cash dividends on Stock are allocated as described in
Subsection (b).
(a) A Participant who received an allocation of Employer ESOP
Contributions for the Plan Year will receive an allocation of Stock
as of the last day of the Plan Year equal to:
(i) the total shares released in connection with all payments on
an Exempt Loan during the Plan Year from Employer ESOP
Contributions, times
(ii) the ratio of his allocation of Employer ESOP Contributions for
the Plan Year to the total Employer Contributions for the Plan
Year. Stock will be allocated in shares and fractions of
shares to the nearest thousandth of a share.
At the time of such allocation of shares of Stock, the Participant's
Employer Contribution Account will be debited with its share of the
Trust's cash payments on the Exempt Loan.
(b) A Participant who received an allocation of Cash Dividends in his
Employer Contribution Account on a Valuation Date will receive an
allocation of Stock on the Valuation Date equal to:
(i) the total shares released in connection with all payments on
an Exempt Loan during the period since the immediately
preceding Valuation Date to the current Valuation Date from
Cash Dividends received on Stock held in the ESOP Fund, times
(ii) the ratio of shares in the Participant's Employer Contribution
Account on the immediately preceding
27
Valuation Date to the total shares of all Participants'
Employer Contribution Accounts on the immediately preceding
Valuation Date (disregarding shares distributed to
Participants as of such Valuation Date.)
At the time of such allocation of shares of Stock, the Participant's
Employer Contribution Account will be debited with its share of the
Trust's cash payment on the Exempt Loan.
(c) All Stock in the ESOP Fund as of the last day of the Plan Year,
other than Stock held in the ESOP Suspense Subfund, must be
allocated to Employer Contribution Accounts as of such day. All
shares allocated under this Section 5.03 will be allocated to the
nearest thousandth of a share.
28
ARTICLE VI
ALLOCATION LIMITATIONS
6.01 BASIC LIMITATION ON ANNUAL ADDITIONS
(a) Notwithstanding any other provisions of the Plan and subject to the
provisions of Subsections (b), (c) and (d) below, the amount of
Annual Additions, as defined below, allocated to a Participant for
any Limitation Year will not exceed the lesser of:
(i) $30,000; or
(ii) twenty-five percent of the Participant's Earnings (as defined
below) for the Limitation Year.
The dollar limitation referred to in Subsection (a)(i) above is
adjusted as of January 1 of each Plan Year pursuant to Code Section
415. The adjusted amount applies for the Limitation Year which ends
within that Plan Year.
(b) For purposes of this Article VI a Participant's Annual Additions
means the amount of:
(i) Employer and Affiliate contributions,
(ii) Participant contributions,
(iii) forfeitures, and
(iv) contributions for post retirement medical benefits, to the
extent required by Code Section 415(e) or 419A(d)(2),
allocated to his Accounts under this Plan and his accounts under all
other defined contribution plans (as defined in Code Section 414(i))
adopted by an Affiliate.
Notwithstanding the above paragraph, if no more than one-third of
the total Employer Contributions for the Plan Year which are
deductible under Code Section 404(a)(9) are allocated to the
Accounts of Participants who are Highly Compensated Employees during
the Plan Year, then any Employer Contributions which are used by the
Trust to pay interest on an Exempt Loan, and any Financed Shares
which are allocated as forfeitures, are not included as Annual
Additions. The Employer Contributions must be used to pay such
interest not later than the due date including extensions, for
filing the Employer's Federal income tax return for the Plan Year.
29
(c) For purposes of this Article VI, a Participant's Earnings means his
earned income, wages, salaries, commissions and bonuses received
from all Affiliates. It excludes the following:
(i) Contributions by an Affiliate to a plan of deferred
compensation which are not included in the Participant's gross
income for the taxable year in which contributed, or any
distribution from a plan of deferred compensation;
(ii) Amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or property) held by the
Participant either becomes freely transferable or is no longer
subject to a substantial risk of forfeiture;
(iii) Amounts realized from the sale, exchange or other disposition
of stock acquired under a qualified stock option; and
(iv) Other amounts which received special tax benefits, including
Pretax Deferrals under this Plan and salary reduction under
any other tax qualified program.
Earnings for any Limitation Year are the amount actually paid or
includable in gross income during such year. A Participant's annual
Earnings in excess of $150,000 are disregarded for all purposes
under the Plan. Such dollar limit will be adjusted each year
pursuant to Code Section 415(d).
(d) Under certain circumstances, the dollar limitation described in
Subsection (a)(i) above for a Limitation Year may be increased. The
increase occurs only if not more than one-third of the total
Employer Contributions for the Plan Year are allocated to the
Accounts of Participants who are Highly Compensated Employees during
the Plan Year. The amount of the increase will be the lesser of:
(i) the dollar amount otherwise applicable for the Plan Year; or
(ii) the amount of Employer Contributions allocated to
Participants' Employer Contribution Accounts as of each
Valuation Date during the Plan Year that ends in the
Limitation Year representing Stock which is:
(A) contributed to the Trust for that Plan Year;
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(B) purchased not later than sixty days after the due date
(including extensions) for filing the Employer's Federal
income tax return for that Plan Year from Employer
Contributions which were made in cash; or
(C) released from the ESOP Suspense Subfund as a result of
payments on an Exempt Loan for that Plan Year.
6.02 PARTICIPATION IN THIS PLAN AND A DEFINED BENEFIT PLAN
If a Participant is or has been a participant in a qualified defined
benefit plan (as defined in Code Section 414(j) maintained by an
Affiliate, the sum of the Participant's defined benefit plan fraction and
defined contribution plan fraction (as defined in Code Section 415(e)) for
any year will not exceed one. In calculating the defined contribution
plan fraction, the Committee may, at its discretion, make the election
described in Code Section 415(e)(6).
6.03 REDUCTION IN ANNUAL ADDITIONS AND ELIMINATION OF EXCESS AMOUNTS
If the limitations described in Section 6.01 and 6.02 would otherwise be
exceeded for a Participant for a Limitation Year, the excess will be
eliminated as follows:
(a) First, amounts attributable to the Participant's Pretax Deferrals
will be reduced. The amount of the reduction will be returned to
the Participant as cash compensation and will be subject to all
federal, state, municipal, and/or county taxes, and other deductions
which apply to cash compensation;
(b) Second, the provisions of any other plans established by an
Affiliate which have caused the limits to be exceeded for the
Participant will be applied. The provisions of a defined benefit
plan will be applied before the provisions of a defined contribution
plan.
(c) Third, the excess allocations of Employer Matching Contributions and
if necessary Employer ESOP Contributions, Employer Stock Bonus
Contributions and Employer Profit Sharing Contributions will be
removed from the Participant's Matching Contribution Account,
Employer Contribution Account, Employer Stock Bonus Contribution
Account and Profit Sharing Contribution Account, respectively, and
will be reallocated to other Participants' Matching Contribution
Account, Employer Contribution Account, Employer Stock Bonus
Contribution Account and Profit Sharing Contribution Account, as
applicable.
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ARTICLE VII
INVESTMENTS: ALLOCATION OF GAINS AND LOSSES
7.01 INVESTMENT OF ACCOUNTS
Each Participant's Accounts are invested in the Trust Fund. The
Participant's Employer Contribution Account and Employer Stock Bonus
Account are invested primarily in Stock. Except as provided in Section
7.16, the Participant has no right to direct the investments of such
Accounts. Each Participant has the right to direct the investment of his
existing and future Pretax Deferrals Account, Matching Contribution
Account, Profit Sharing Contribution Account, TakeCare Account, and his
Rollover Account in any of the Plan's Investment Funds. Any investment
direction by the Participant with respect to his existing and future
Pretax Deferrals Account shall be applied in the same manner to the
investment of his Matching Contribution Account and his TakeCare Account.
The Committee will select the Investment Funds available under the Plan.
Participants who are physician-employees of an Employer shall not be
permitted to direct the investment of their Accounts into the Company
Stock Fund.
Upon enrollment, reenrollment, and as of the first day of any month, the
Participant may designate the Investment Fund(s) in which his existing and
future Pretax Deferrals and Employer Matching Contributions and Employer
Profit Sharing Contributions, if any, are invested. A Rollover
Contribution must be accompanied by a written notice to the Committee
designating the Investment Funds in which the contribution will be
invested. The Committee will establish uniform nondiscriminatory rules
regarding the designation of Investment Funds.
This Plan is intended to constitute a plan described in Section 404(c) of
ERISA, and the regulations thereunder. As a result, with respect to
elections described in this Plan and any other exercise of control by a
Participant or his or her Beneficiary over assets in the Participant's
Accounts, such Participant or Beneficiary shall be solely responsible for
such actions and neither the Trustee, the Committee, the Company, nor any
other person or entity which is otherwise a fiduciary shall be liable for
any loss or liability which results from such Participant's or
Beneficiary's exercise of control.
The Committee shall provide to each Participant or his or her Beneficiary
the information described in Section 2550.404c-1(b)(2)(i)(B)(1) of the
Department of Labor Regulations. Upon request by a Participant or his or
her Beneficiary, the Committee shall provide the information described in
Section
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2550.404c-1(b)(2)(i)(B)(2) of the Department of Labor Regulations.
With respect to Stock held in a Participant's Pretax Deferrals Account,
Matching Contribution Account, TakeCare Account, Profit Sharing
Contribution Account and Rollover Account, the Committee shall take such
actions and establish such procedures as it deems necessary to ensure the
confidentiality of information relating to the purchase, sale, and holding
of such Stock, and the exercise of voting, tender and similar rights with
respect to Stock by a Participant or his or her Beneficiary.
The Committee may take such other actions or implement such other
procedures as it deems necessary or desirable in order that the Plan
comply with Section 404(c) of ERISA.
7.02 TRANSFERS OF EXISTING ACCOUNT BALANCES BETWEEN INVESTMENT FUNDS
Each Participant has the right as of the first day of any month to have
all or part of his Pretax Deferrals Account, Matching Contribution
Account, Profit Sharing Contribution Account, TakeCare Account and
Rollover Account transferred between the Investment Funds. Such transfers
may be made on a total basis or may be applied separately to each Account.
The Committee will establish uniform and nondiscriminatory rules regarding
the transfer of assets between Investment Funds.
7.03 ALLOCATION OF INVESTMENT FUND GAINS AND LOSSES
As of each Valuation Date, the Committee will determine the net investment
gain or loss, after adjustment for applicable expenses, if any, of each
Investment Fund since the immediately preceding Valuation Date.
The net investment gain or loss of each such Investment Fund will be
apportioned to each Participant's Accounts. The apportionment will be in
the same proportions as the following for the Participant bears to the
total of the following for all Participants:
(a) The balance of the Participant's Account which was held in such
Investment Fund as of the immediately preceding Valuation Date;
(b) One-half of the Participant's Pretax Deferrals, if any, allocated to
the Account since the immediately preceding Valuation Date which
were directed by the Participant to be invested in such Investment
Fund;
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(c) One-half of the Participant's loan repayments, if any, made to the
Account since the immediately preceding Valuation Date which were
directed by the Participant to be invested in such Investment Funds;
(d) One-half of the Participant's Rollover Contribution, if any, made to
the Account since the immediately preceding Valuation Date which was
directed by the Participant to be invested in such Investment Funds;
(e) An adjustment to reflect any transfers, to or from the portion of
the Account invested in such Investment Fund, which were made
effective after the allocation of gains or losses as of the
immediately preceding Valuation Date; and
(f) A reduction for any withdrawals, distributions or loan proceeds paid
from the portion of the Account invested in such Investment Fund and
paid after the allocation of gains or losses as of the immediately
preceding Valuation Date.
All withdrawals, distributions and loan proceeds which are paid as of a
Valuation Date shall be paid after the allocation of net investment gain
or loss applicable to such Valuation Date has been apportioned pursuant to
this Section. The amounts paid out will not share in the allocation of
net investment gain or loss in the subsequent Valuation Date.
7.04 PURCHASE AND SALE OF STOCK
The Trustee may acquire Stock in the open market or from the Company or
any other person, including a party in interest, provided that no
commission shall be paid in connection with the Trustee's acquisition from
a party in interest. Neither the Employer, nor the Committee, nor any
Trustee shall have any responsibility or duty to time any transaction
involving Stock in order to anticipate market conditions or changes in
Stock value, nor shall any such person have any responsibility or duty to
sell Stock held in the Trust Fund in order to maximize return or minimize
loss.
7.05 RIGHTS, WARRANTS, OR OPTIONS
Subject to the provisions applicable to nonvoting rights pursuant to
Section 7.08 hereof, stock rights (including warrants and options) issued
with respect to Stock shall, unless otherwise directed by the Committee,
be exercised by the Trustee on behalf of Participants to the extent that
cash is available. Rights which cannot be exercised because of the lack
of cash shall, unless otherwise directed by the Committee, be sold and the
proceeds shall be invested in Stock.
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7.06 PARTICIPANT RIGHTS CONCERNING STOCK
(a) PARTICIPANTS' RIGHT TO INSTRUCT VOTING. All voting rights on
Stock held in the Plan shall be exercised by the Trustee as and to
the extent directed by the Participants acting in their capacity as
"Named Fiduciaries" (as defined in ERISA section 402) with respect
to allocated and unallocated shares in accordance with the following
provisions:
(1) Timely Receipt of Instructions Required. As soon as
practicable before each annual or special shareholders'
meeting of Talbert Medical Management Holdings Corporation,
the Trustee shall furnish to each Participant a copy of the
proxy solicitation materials sent generally to shareholders,
together with a form requesting confidential directions on how
Stock allocated to such Participant's Accounts and a
proportionate share of any unallocated shares (including
fractional shares to 1/1000th of a share) are to be voted.
The Company and the Committee will cooperate with the Trustee
to ensure that Participants receive the requisite information
in a timely manner. Upon timely receipt of such voting
directions, the Trustee (after combining votes of fractional
shares to give effect to the greatest extent to Participants'
directions) shall vote the shares as directed. The voting
directions received by the Trustee from Participants or
Beneficiaries shall be held by the Trustee in strict
confidence and shall not be divulged or released to any
person, except as may be necessary to facilitate the
tabulation of such voting directions.
(2) VOTING OF ALLOCATED SHARES. Each Participant shall be
entitled to direct the voting of Stock (including fractional
shares to 1/1000th of a share) allocated to his Accounts.
With respect to all corporate matters submitted to
shareholders, Stock allocated to the Accounts of Participants
shall be voted in accordance with the directions of such
Participants, as Named Fiduciaries, as given to the Trustee.
With respect to Stock allocated to the Accounts of a deceased
Participant, such Participant's Beneficiary, as Named
Fiduciary, shall be entitled to direct the voting with respect
to such allocated shares as if such Beneficiary were the
Participant. Any allocated shares of Stock with respect to
which no directions are received shall be voted by the Trustee
in the same manner as provided in subsection (3) below for
unallocated shares.
35
(3) VOTING OF UNALLOCATED SHARES. Each Participant shall, as a
Named Fiduciary, also be entitled to direct the Trustee to
vote a portion of the unallocated shares of Stock with respect
to all corporate matters submitted to shareholders. Such
direction shall apply to a number of votes equal to the total
number of votes attributable to unallocated Stock multiplied
by a fraction, the numerator of which is the number of votes
attributable to Stock allocated to the Participant's Accounts,
and the denominator of which is the total number of votes
attributable to Stock allocated to the Accounts of
Participants who have provided directions to the Trustee under
this Section. Fractional shares shall be rounded to the
nearest 1/1000th of a share.
7.07 SALE OF STOCK
Subject to the rights of Participants in a tender offer as described in
Section 7.08, the Committee may direct the Trustee to sell shares of Stock
to any person, including Talbert Medical Management Holdings Corporation
or the Company, provided that any sale to Talbert Medical Management
Holdings Corporation or any other "disqualified person" within the meaning
of Code section 4975 or "party in interest" within the meaning of ERISA
section 3(14) is made at a price which is not less than adequate
consideration as defined in ERISA section 3(18) and that no commission is
charged with respect to the sale. If the Trustee is unable to make
payments of principal or interest on an Exempt Loan when due, the
Committee may direct the Trustee, unless prohibited by the Code or ERISA,
to sell any shares of Stock not yet released from the ESOP Suspense
Subfund and to apply the proceeds to such Exempt Loan payment, or to
obtain another Exempt Loan in an amount sufficient to make such payment.
7.08 TENDERS AND EXCHANGES OF STOCK
(a) PARTICIPANTS' RIGHT TO INSTRUCT TENDER. All tender or exchange
decisions with respect to Stock held in the Plan shall be made by
the Participants acting in their capacity as Named Fiduciaries with
respect to both allocated and unallocated shares in accordance with
the following provisions:
(1) TIMELY RECEIPT OF INSTRUCTIONS REQUIRED. In the event an
offer is received by the Trustee (including a tender offer for
Stock subject to Section 14(d)(1) of the Securities Exchange
Act of 1934 ("Exchange Act") or subject to Rule 13e-4
promulgated under the Exchange Act, as those provisions may
from time to time be amended) to
36
sell or exchange any Stock held by the Trust, the Trustee
shall advise each Participant who has Stock allocated to his
Accounts in writing of the terms of the offer as soon as
practicable and shall furnish each Participant with a form by
which he may direct the Trustee confidentially whether to
tender or exchange shares of Stock allocated to his Accounts
and a proportionate share of any unallocated shares (including
fractional shares to 1/1000th of a share). The materials
furnished to each Participant shall include such related
documents as are prepared by any person and provided to the
shareholders of Talbert Medical Management Holdings
Corporation pursuant to the Exchange Act. The Committee and
the Trustee may also provide Participants with such other
materials concerning the offer as the Trustee or the Committee
in its discretion determines to be appropriate; provided,
however, that prior to any distribution of materials by the
Committee, the Trustee shall be furnished with sufficient
numbers of complete copies of all such materials. The Company
and the Committee will cooperate with the Trustee to ensure
that Participants receive the requisite information in a
timely manner. Upon timely receipt of such tender directions,
the Trustee (after combining fractional shares to give effect
to the greatest extent to Participants' directions) shall
tender the shares as directed.
(2) ALLOCATED SHARES. The Trustee shall tender or not tender
shares of Stock allocated to the Accounts of any Participant
(including fractional shares to 1/1000th of a share) as and to
the extent instructed by the Participant as a Named Fiduciary.
With respect to Stock allocated to the Accounts of a deceased
Participant, such Participant's Beneficiary, as a Named
Fiduciary, shall be entitled to direct the Trustee whether to
tender such shares as if such Beneficiary were the
Participant. The instructions received by the Trustee from
Participants or Beneficiaries shall be held by the Trustee in
strict confidence and shall not be divulged or released to any
person, including directors, officers of employees of Talbert
Medical Management Holdings Corporation or the Company, except
as otherwise required by law. Any allocated shares of Stock
with respect to which no directions are received shall be
treated in the same manner as provided in subsection (3) below
for unallocated shares.
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(3) UNALLOCATED SHARES. Each Participant shall, as a Named
Fiduciary, also be entitled to direct the Trustee with respect
to the tender of a portion of the unallocated shares of Stock.
Such direction shall apply to such number of unallocated
shares multiplied by a fraction, the numerator of which is the
number of shares of Stock allocated to the Participant's
Accounts, and the denominator of which is the total number of
shares of Stock allocated to the Accounts of Participants who
have provided directions to the Trustee under this Section.
Fractional shares shall be rounded to the nearest 1/1000th of
a share.
(4) WITHDRAWAL OF TENDER. In the event, under the terms of a
tender offer or otherwise, any Stock tendered for sale or
exchange may be withdrawn from such offer, the Trustee shall
follow any instructions respecting the withdrawal of such
Stock from such offer in the same manner and the same
proportion as shall be timely received by the Trustee from
the Participants, as Named Fiduciaries, entitled under this
Section 7.08 to give instructions regarding the sale or
exchange of such shares.
(5) RIGHT TO TENDER ON PRO RATA BASIS. In the event the Trustee
receives an offer to tender for sale or exchange less than all
of the Stock held by the Trust (allocated and unallocated),
each Participant who has been allocated Stock subject to such
offer shall be entitled to direct the Trustee as provided in
Sections 7.08(a)(1), (2) and (3). Shares will be tendered
first from the Accounts of Participants who timely instruct
the Trustee to tender and then, to the extent additional
shares are directed to be tendered, from unallocated shares of
Stock and then from allocated shares of Stock for which no
direction is received.
(6) SIMULTANEOUS TENDER OFFERS. In the event an offer is
received by the Trustee and instructions are solicited from
Participants pursuant to Section 7.08(a) regarding such offer,
and prior to the termination of such offer a second offer is
received by the Trustee for the Stock subject to the first
offer, the Trustee shall use its best efforts under the
circumstances to solicit instructions from the Participants
(i) with respect to shares tendered for sale or exchange
pursuant to the first offer, whether to withdraw such shares,
if possible, and, if withdrawn, whether to tender such shares
for sale or exchange pursuant to the
38
second offer and (ii) with respect to shares not tendered for
sale or exchange pursuant to the first offer, whether to
tender such shares for sale or exchange pursuant to the second
offer. The Trustee shall follow all such instructions
received in a timely manner from Participants in the same
manner and in the same proportion as provided in this Section
7.08(a). With respect to any such subsequent offer for Stock
subject to an earlier offer (including successive offers from
one or more existing offerors), the Trustee shall act in the
manner as described in the above provisions of this Section
7.08.
(b) TENDER IS NOT A WITHDRAWAL. A Participant's instruction to the
Trustee to tender for sale or exchange shares of Stock will not be
deemed a withdrawal or suspension from the Plan or a forfeiture of
any portion of the Participant's interest in the Plan. Funds
received in exchange for tendered shares will be credited to the
Accounts of Participants whose shares were tendered and will be used
by the Trustee to reinvest in Stock, if available, and if not, in
such other investments as permitted under the trust agreement
established under Article XV.
(c) TRUSTEE TO TAKE ALL NECESSARY ACTION. The Trustee shall take all
steps necessary, including appointment of a corporate trustee and/or
an outside independent administrator, to the extent such action,
after consultation with the Committee, is deemed necessary to
maintain confidentiality of the Participants' responses or to
discharge adequately its fiduciary obligations.
(d) TRUSTEE MAY OPT FOR NO PARTICIPATION IN SELF TENDER. Subject to
the provisions of the trust agreement, in the event Talbert Medical
Management Holdings Corporation initiates an offer described in
Section 7.08(a)(1), Talbert Medical Management Holdings Corporation
or the Committee may direct the Trustee not to tender for sale or
exchange any Stock in such offer. In such event, the foregoing
provisions of this Section 7.08 shall have no effect, and the
Trustee shall not tender for sale or exchange any Stock (allocated
or unallocated) in such offer.
7.09 VALUATION OF STOCK
When it becomes necessary to value Stock held by the Plan, the value shall
be the current fair market value of the Stock, determined in accordance
with applicable legal requirements. If the Stock is publicly traded, its
fair market value shall, except as otherwise required by the standards
applicable to
39
prudent fiduciaries, be based on the most recent closing price in such
public trading, as reported in THE WALL STREET JOURNAL or such other
publication of general circulation as may be designated by the Committee.
If the Stock cannot be so valued on the basis of its closing price in
recent public trading, its fair market value shall be determined by the
Trustee in good faith based on all relevant factors for determining the
fair market value of securities, including an independent appraisal by a
person who customarily makes such appraisals and who meets requirements
similar to the requirements of Treasury Regulations promulgated under Code
Section 170(a)(1), if such an appraisal of the fair market value of the
Stock as of the relevant date has been obtained. In the case of a
transaction between the Plan and an Employer or another party in interest,
the fair market value of the Stock must be determined as of the date of
the transaction rather than as of some other Valuation Date occurring
before or after the transaction. In other cases, the fair market value of
the Stock shall be determined as of the most recent Valuation Date.
7.10 PLAN MAY BORROW TO BUY STOCK
The Company may direct the Trustee to incur debt obligations in order to
finance or refinance the acquisition of Stock for the Trust Fund. Any
such direction must specify all of the terms and conditions of an Exempt
Loan and any other documents which are to be executed in connection with
the Exempt Loan. The Trustee will have no responsibility to determine
whether the debt obligation is an Exempt Loan. The Trustee will have no
authority to modify the terms, conditions, or documents of an Exempt Loan
and will only be responsible for executing the documents on behalf of the
Plan.
Any Exempt Loan will be incurred only if it is primarily for the benefit
of the Participants and their Beneficiaries. The Exempt Loan must not
require the use of Plan assets other than those described in this Section
7.10. The Exempt Loan must be at least as favorable to the Plan as the
terms of a comparable loan resulting from an arm's length negotiation
between independent parties.
The Trustee will not be responsible or liable for inquiring into the
purpose of an Exempt Loan nor will it be responsible for determining the
various limitations described in this document are met.
All Exempt Loans must bear a reasonable rate of interest and must be for a
specific term. Such loans may not be payable at the demand of any person,
except in the case of default. Loan repayment will be made by the Trustee
at the direction of the Company. The payments must not exceed the amount
of Employer
40
Contributions in the current or prior Plan Years and the earnings on such
contributions.
Any Exempt Loan must be without recourse to the Plan. In the event of
default on an Exempt Loan, the value of Trust assets which may be
transferred in satisfaction of the loan will not exceed the amount of the
default. The Trust assets which may be pledged as collateral for an
Exempt Loan are limited to the Stock acquired with the proceeds of the
loan or a prior loan which is repaid with the proceeds of the Exempt Loan.
In addition, the only Trust assets a lender may have any rights to are:
(a) the collateral given for the loan; (b) cash contributions made to the
Plan for the ultimate purpose of making loan payments; and (c) earnings
attributable to the collateral or to cash contributions. With respect to
Stock purchased with the proceeds of an Exempt Loan, the protections
stated in Sections 7.11 and 11.03 are non-terminable, notwithstanding the
fact that the Exempt Loan is repaid or the Plan ceases to be an employee
stock ownership plan.
7.11 USE OF EXEMPT LOAN PROCEEDS
The proceeds of an Exempt Loan must be used within a reasonable time after
receipt by the Plan only for any or all of the following purposes:
(a) to acquire Stock;
(b) to repay an Exempt Loan;
(c) to repay a prior Exempt Loan in a transaction creating a Substitute
Loan, as described in Section 5.02(a).
Except as provided in Section 11.04 or as otherwise required by applicable
law, no Stock acquired with the proceeds of an Exempt Loan may be subject
to a put, call, or other option or buy-sell or similar arrangement while
held by and when distributed from the Plan. This provision continues to
be apply to Stock even if the Plan ceases to be an employee stock
ownership plan under Section 4975(e)(7) of the Code.
7.12 ALLOCATION OF STOCK DIVIDENDS AND SPLITS
(a) Stock received by the Trust as a result of a Stock split or Stock
dividend on Stock held in Participant's Employer Contribution
Account, Matching Contribution Account, Employer Stock Bonus Account
and Profit Sharing Contribution Account, as applicable, will be
allocated as of the Valuation Date coincident with or following the
date of such split or dividend, to each Participant who has an
Employer Contribution Account, Matching Contribution Account,
Employer Stock Bonus Account and/or Profit Sharing Contribution
Account, as applicable on
41
such date. The amount allocated will bear substantially the same
proportion to the total number of shares received as the number of
shares in such Account of the Participant immediately before the
allocation bears to the total number of shares allocated to such
Accounts of all Participants immediately before the allocation. The
shares will be allocated to the nearest one thousandth of a share.
(b) Stock received by the Trust as a result of a Stock split or Stock
dividend on Stock held in Participant's Pretax Deferral Account,
TakeCare Account and Rollover Account will be allocated as of the
Valuation Date coincident with or following the date of such split
or dividend, to each Participant who has a Pretax Deferral, TakeCare
Account and/or Rollover Account, as applicable. The amount
allocated will bear substantially the same proportion to the total
number of shares received as the number of shares in such Account
bears to the total number of shares allocated to such Accounts of
all Participants immediately before the allocation. The shares will
be allocated to the nearest one thousandth of a share.
(c) Stock received by the Trust as a result of a Stock dividend on Stock
held in the ESOP Suspense Subfund shall be governed by Section 7.13.
7.13 REINVESTMENT OF DIVIDENDS
Upon direction of the Committee, (a) cash dividends may be reinvested as
soon as practicable by the Trustee in shares of Stock for Participant's
Accounts, (b) stock dividends may be allocated to Participant's Accounts,
or (c), if cash or stock dividends are paid on shares held in the ESOP
Suspense Subfund they may be applied to retire an Exempt Loan. Cash
dividends may be reinvested in Stock purchased as provided in Section 7.04
or purchased from the Accounts of Participants who receive cash
distributions. Notwithstanding the foregoing, upon the direction of the
Committee, the trustee may use cash or stock dividends on stock held in
the ESOP Fund to add to the Reserve Fund. At the direction of the
Committee, stock dividends may be sold and the proceeds used for the
purposes set forth above.
7.14 ALLOCATION OF DIVIDENDS OTHER THAN STOCK DIVIDENDS
At the direction of the Committee, dividends in cash or in property other
than Stock which are actually received by the Trust during a Plan Year may
be applied by the Trustee to the purchase of Stock, as provided in Section
7.13. Dividends in property other than Stock which are received by the
Trustee in respect of Stock held by the Trust shall, to the extent
42
practicable, be sold or exchanged for the ultimate purpose of acquiring
additional Stock.
Stock released from the ESOP Suspense subfund due to the use of dividends
to make payments on an Exempt Loan will be allocated pursuant to Section
5.03(b).
Stock purchased by the Trustee for the Trust out of dividends and out of
the proceeds of rights or warrants sold (or exercised, to the extent of
the bargain element if such exercise is made with Employer Contributions)
will be allocated, as of the Valuation Date coincident with or following
the date such shares were purchased, to the Account of each Participant
who has an Account on such Valuation Date.
(a) Stock purchased with dividends on Stock held in Participants'
Employer Contribution Accounts, Matching Contribution Accounts,
Employer Stock Bonus Accounts and Profit Sharing Contribution
Accounts will be allocated to each Participant's Employer
Contribution Account, New Matching Contribution Account, Employer
Stock Bonus Account and Profit Sharing Contribution Account.
(b) Stock purchased with dividends on Stock held in Participants' Pretax
Deferral Accounts, TakeCare Accounts and Rollover Accounts will be
allocated to each Participant's Pretax Deferral Account, TakeCare
Account and Rollover Account.
Shares allocated to an Account under subsections (a) or (b) above
will be allocated in an amount which bears substantially the same
proportion to the total number of shares purchased as the ratio that
the number of shares in such Account on the Valuation Date
immediately preceding such purchase bears to the total number of
shares that were allocated to such Accounts of all Participants on
such preceding Valuation Date (disregarding the shares that were
distributed to Participants as of such preceding Valuation Date).
Shares allocated under this Section will be allocated to the nearest
one thousandth of a share.
7.15 RESERVE FUND
The portion of the ESOP Fund not invested in Stock is referred to as the
Reserve Fund. The Reserve Fund will normally be held in cash and
short-term, liquid assets except to the extent that special circumstances,
such as the lack of a market for assets received in kind, prevent the
conversion of assets to such form. The Reserve Fund will also be limited
to the amount needed to meet current requirements of the Plan to make cash
distributions provided under Article XI, to pay
43
expenses to the extent permissible under Section 12.11, and to exercise
rights under Section 7.05. In the case of cash distributions, the Reserve
Fund may be used to make purchases of Stock from the Accounts of the
Participants receiving such distributions. As the Company and the Trustee
shall agree, the amount to be maintained in such cash Reserve Fund shall
be determined by the Company and communicated to the Trustee in writing.
As of each Valuation Date, the Committee will determine the net gain or
loss, after adjustment for applicable expenses, if any, in the Reserve
Fund since the immediately preceding Valuation Date. The net gain or loss
of the Reserve Fund will be apportioned to each Participant's Employer
Contribution Account. The apportionment will be in the same proportion as
the following for the Participant bears to the total of the following for
all Participants:
(a) The balance of the Participant's Employer Contribution Account as of
the immediately preceding Valuation Date, determined after
allocation as of such Valuation Date of Employer Contributions and
the net gain or loss of the Reserve Fund;
(b) A reduction to reflect any transfers from the Participant's Employer
Contribution Account, pursuant to Section 7.16, which were made
effective after the allocation of net gain or loss of the Reserve
Fund as of the immediately preceding Valuation Date; and
(c) A reduction for any distributions paid from the Employer
Contribution Account after the allocation of net gain or loss of the
Reserve Fund as of the immediately preceding Valuation Date.
The result of this allocation of net gain or loss of the Reserve
Fund may be expressed in dollars and cents, or shares and fractional
shares of Stock having the same value as such dollars and cents on
the date as of which the allocation is made. However, conversion to
full and fractional shares of Stock will be made only to the extent
necessary to reflect anticipated purchases from the Reserve Fund of
Stock allocated to the Accounts of Participants who are to receive
cash distributions as of the Valuation Date in question.
7.16 SPECIAL INVESTMENT ELECTION BY QUALIFIED PARTICIPANTS
(a) Each Participant who has attained age fifty-five and has been a
Participant for at least ten years may direct the investment of a
portion of the value of his Employer Contribution Account into the
Investment Funds described in Section 7.01.
44
(b) Investment direction is available during the ninety day period
following the last day of each of the five Plan Years immediately
following the Plan Year in which the Participant first meets both of
the eligibility requirements of Subsection (a) above.
(c) The portion of the Participant's Employer Contribution Account
subject to his direction is twenty-five percent of the value of such
Account as of the last day of the Plan Year to which the direction
applies. The twenty-five percent limit is reduced to reflect any
investment directions pursuant to this Section 7.16 in a previous
Plan Year. In the last period during which a Participant may direct
investments pursuant to this Section 7.16, the limit on the amount
of such Account which are subject to his direction will be increased
to fifty percent.
(d) A Participant's investment direction under this Section 7.16 must be
provided to the Committee in writing within the applicable ninety
day period. The investment direction must specify the portion of
the Participant's Employer Contribution Account, which will be
invested in the Investment Funds, in a fixed whole percent, and the
Investment Funds in which such portion will be invested. The
investment direction will be effective no later than one hundred
eighty days after the last day of the Plan Year to which the
direction applies.
45
ARTICLE VIII
WITHDRAWALS AND LOANS
8.01 POST AGE 59-1/2 WITHDRAWALS
A Participant who has attained age 59-1/2 may withdraw up to one hundred
percent of the value of his Pretax Deferral Account and TakeCare Account,
determined as of the most recent Valuation Date (a) which precedes the
date the withdrawal request is received by the Committee on a written form
prescribed by the Committee, and (b) for which the allocation process
described in Section 7.03 has been completed. A Participant may not
withdraw from his Employer Contribution Account, Matching Contribution
Account, Profit Sharing Contribution Account or Employer Stock Bonus
Account except as provided in Articles IX, X, and XI.
8.02 FINANCIAL HARDSHIP WITHDRAWALS
A Participant who has a financial hardship may withdraw up to one hundred
percent of the value of his Pretax Deferral Account and TakeCare Account,
determined as of the most recent Valuation Date (a) which precedes the
date the withdrawal request is received by the Committee on a written form
prescribed by the Committee, and (b) for which the allocation process
described in Section 7.03 has been completed.
(a) A withdrawal must be on account of a hardship. A withdrawal will be
deemed to be on account of a hardship if:
(i) The distribution is for the purpose of:
(A) paying medical expenses described in Code Section 213(d)
incurred by the Participant, his spouse or his
dependents;
(B) purchasing the Participant's principal residence
(excluding mortgage payments);
(C) paying tuition for the next semester or quarter of
post-secondary education for the Participant, his spouse
or his dependents;
(D) preventing the Participant's eviction from his principal
residence or foreclosure on the mortgage on the
Participant's principal residence; or
(E) any other purpose specified by the Internal Revenue
Service as a deemed immediate and heavy financial need;
and
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(ii) All of the following are satisfied:
(A) the distribution is not in excess of the amount of the
financial need;
(B) the Participant has obtained all distributions, other
than hardship withdrawals, and all nontaxable loans
under the Plan or any other plan maintained by an
Affiliate;
(C) the Participant does not make Pretax Deferrals to this
Plan or any other plan maintained by an Affiliate for at
least twelve months after he receives the hardship
distribution; and
(D) the Participant's Pretax Deferrals made in the calendar
year immediately following the calendar year in which
the withdrawal occurs do not exceed the limitation of
Code Section 402(g) (as adjusted) for such calendar
year, less the Participant's Pretax Deferrals made in
the calendar year in which the withdrawal was received.
The Committee will determine whether the Participant has met
the requirements of Subsections (i) and (ii) above.
(iii) The amount to be withdrawn may not exceed the smaller of (A)
the total value, determined under this Section 8.02, of the
sum of the Participant's Pretax Deferral Account and TakeCare
Account or (B) the amount necessary to meet the Participant's
financial hardship.
A Participant may not withdraw any earnings credited to his
Pretax Deferral Account and TakeCare Account on and after
January 1, 1989.
8.03 WITHDRAWALS FROM ROLLOVER ACCOUNT
At any time a Participant may withdraw up to one hundred percent of the
value of his Rollover Account, determined as of the most recent Valuation
Date (a) which precedes the date the withdrawal request is received by the
Committee on a written form prescribed by the Committee, and (b) for which
the allocation process described in Section 7.03 has been completed.
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8.04 AMOUNT AND PAYMENT OF WITHDRAWALS
Application for a withdrawal shall be made on such forms as the Committee
prescribes. Payment will be made to the Participant as soon as
administratively possible following the date the Committee receives and
approves the withdrawal request from the Participant. The amount of such
withdrawal shall be taken from the Participant's Account(s) at such time
and paid to the Participant in a single sum. A Participant may not make
more than two withdrawals under the Plan in any Plan Year. No withdrawal
under this Article VIII shall cause forfeiture of any interests of the
Participant in the Plan.
8.05 LOANS TO PARTICIPANTS
A Participant who is actively employed by an Affiliate may borrow from his
Pretax Deferral Account, TakeCare Account and Rollover Account in
accordance with the terms and conditions for loans established by the
Committee. Such terms and conditions include, but are not limited to, the
following:
(a) A Participant may have no more than one loan from this Plan
outstanding at any time.
(b) The Participant must apply for the loan, sign a note payable to the
Trustee in the proper amount on a form prescribed by the Committee,
and authorize payroll deductions for payment of interest and
principal, all in accordance with procedures adopted by the
Committee.
Any loan processing fees (charged by a person other than the
Employer) shall be deducted from the principal amount available to
the Participant.
(c) The period of repayment for any loan shall be arrived at by mutual
agreement between the Committee and the Participant. However, the
period of repayment, including any extensions resulting from the
consolidation of a loan into a subsequent loan, shall not extend
beyond the earlier of five years or the date such Participant
terminates employment with the Employer. The five year limit shall
not apply to any portion of the loan used to acquire the
Participant's principal place of residence.
(d) The amount of the loan must be at least $1,000, but may not exceed
the lesser of.
(i) $50,000 reduced by (A) the Participant's current outstanding
loan balance under all plans qualified under Code Section
401(a) and maintained by an Affiliate, and (B) the excess of
the Participant's highest outstanding loan balance under such
plans during the twelve months preceding the date of the
48
loan over the Participant's current outstanding loan balance
under such plans; or
(ii) 50% of the vested portion of the Participant's Pretax Deferral
Account, TakeCare Account and Rollover Account under this Plan
valued on the Applicable Valuation Date immediately before the
date the request for a loan is received. "Applicable
Valuation Date" means the most recent Valuation Date (A) which
precedes the date the loan request is received by the
Committee on a written form prescribed by the Committee, and
(B) for which the allocation process described in Section 7.03
has been completed.
(e) All loans shall bear an interest rate equal to two percentage points
above the published prime lending rate of Bank of America N.T.& S.A
on the last business day of the month preceding the month in which
the request for a loan is received, provided, however, that no loan
shall bear a rate of interest which exceeds the maximum rate
permitted by law. The interest rate so determined shall be fixed
for the term of the loan.
(f) The Committee shall establish a loan account for the Participant,
and shall credit the loan account with an amount equal to the
principal amount of the loan granted. The principal amount shall be
withdrawn from Investment Funds according to rules established by
the Committee. Each repayment of principal on the loan received by
the Trustee from the Participant shall reduce the balance credited
to the loan account and each payment of principal and interest shall
increase pro-rata the amount invested in each Investment Fund
according to rules established by the Committee.
(g) Repayment shall be accomplished through regular payroll deductions.
The Committee may restrict loan amounts if withholdings of principal
and interest would exceed twenty percent of Compensation in each
payroll period. A Participant shall be entitled to prepay, without
penalty, the total accrued interest and outstanding principal amount
of the loan. Such prepayment may be made by increasing the amount
of his payroll deductions or by any other means.
(h) If a Participant terminates employment with all Affiliates, incurs a
Permanent and Total Disability or undergoes bankruptcy prior to his
repayment of the total principal and interest on a note held by his
loan account, the note in the Participant's Account shall be
cancelled and the unpaid principal balance deemed distributed to him
by the Trust Fund.
49
(i) The foregoing provisions of this Section 8.05 notwithstanding, the
Committee reserves the right to stop granting loans to Participants
at any time.
(j) This subsection (j) applies only to Participants who (i) were
employed by FHP Fountain Valley Hospital ("FHP Hospital") on or
before January 13, 1996, (ii) had an outstanding loan under the Plan
as of January 13, 1996 and (iii) became employed by Orange Coast
Memorial Hospital on January 14, 1996. A participant who satisfies
the requirements of the preceding sentence is referred to herein as
a "Qualified Participant." Notwithstanding anything else contained
herein to the contrary, Qualified Participants may repay loans under
this Plan by payroll deduction in accordance with paragraph (g) of
this Section 8.05 except that Orange Coast Memorial Hospital shall
remit such payroll deductions to the Trustee. The repayment period
with respect to a loan subject to this Section 8.05(j) shall be the
same as the original repayment period of such loan, provided that
such period of repayment, including any extensions resulting from
the consolidation of a loan into a subsequent loan, shall not extend
beyond five years from the original date of the loan. This five
year limit shall not apply to any portion of the loan used to
acquire the Participant's principal residence.
8.06 DEBITING OF INVESTMENT FUNDS
If a Participant elects to withdraw less than the total value of any
Account, or elects to borrow less than the total value of any Account, and
the Account is invested in more than one Investment Fund, the withdrawal
or loan will be made from each of the Investment Funds according to rules
established by the Committee.
50
ARTICLE IX
RETIREMENT, DISABILITY AND DEATH BENEFITS
9.01 RETIREMENT BENEFITS
The retirement benefit payable under the Plan in the case of a Participant
whose employment with all Affiliates terminates on or after he attains
Normal Retirement Age is one hundred percent of the value of his Accounts
on his Distribution Date. The Participant's Distribution Date is the
Valuation Date coincident with or immediately following the date the
terminated Participant's request for a distribution on a written form
prescribed by the Committee is received by the Committee.
9.02 DISABILITY BENEFITS
The disability benefit payable under the Plan in the case of a Participant
whose employment with all Affiliates terminates because he is Permanently
and Totally Disabled is one hundred percent of the value of his Accounts
on his Distribution Date. The Participant's Distribution Date is the
Valuation Date coinciding with or immediately following the date the
Permanently and Totally Disabled Participant's request for a distribution
on a written form prescribed by the Committee is received by the
Committee.
9.03 DEATH BENEFITS
The death benefit payable to a Beneficiary under the Plan in the case of a
Participant whose employment with an Affiliate terminates due to his death
(or who dies after termination of employment under Sections 9.01 and 9.02,
but before his Distribution Date under such Sections) is one hundred
percent of the value of his Accounts on the Distribution Date. The
Distribution Date with respect to such Participant is the Valuation Date
coincident with or immediately following the date the request for a
distribution by the deceased Participant's Beneficiary (or if no
Beneficiary has been designated, the representative of his estate) is
received by the Committee on a written form prescribed by the Committee.
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ARTICLE X
TERMINATION BENEFITS AND VESTING REQUIREMENTS
10.01 BENEFITS PAYABLE UPON TERMINATION OF EMPLOYMENT
The benefit payable under the Plan in the case of a Participant whose
employment with all Affiliates terminates for any reason other than
because he became Permanently and Totally Disabled, died, or retired on or
after his Normal Retirement Age is the vested portion (determined pursuant
to Section 10.02) of the value of his Accounts on his Distribution Date.
The Participant's Distribution Date is the Valuation Date coincident with
or immediately following the date the terminated Participant's request for
a distribution on a written form prescribed by the Committee is received
by the Committee.
10.02 VESTING REQUIREMENTS
(a) The vested portion of a Participant's Pretax Deferral Account,
TakeCare Account, and Rollover Account is always one hundred
percent.
(b) The vested portion of a Participant's Employer Contribution Account,
Matching Contribution Account, Employer Stock Bonus Account and
Profit Sharing Contribution Account is based on his Service as of
the date his employment terminates, as follows:
(i) With respect to a Participant who was hired before July 1,
1990:
YEARS OF SERVICE VESTED PORTION
----------------- --------------
Less than 1 year 0%
1 but less than 2 10%
2 but less than 3 20%
3 but less than 4 30%
4 but less than 5 40%
5 or more years 100%
(ii) With respect to a Participant who was first hired on or after
July 1, 1990:
YEARS OF SERVICE VESTED PORTION
----------------- --------------
Less than 5 year 0%
5 or more years 100%
52
(iii) Year of Vesting Service shall mean a Plan Year during which an
Employee is credited with at least 1,000 Hours of Service with
the Company or an Affiliate.
(c) Notwithstanding the provisions of Subsection (b) above, when a
Participant reaches his Normal Retirement Age while employer by the
Company or an Affiliate, his vested portion in his Accounts shall be
one hundred percent.
10.03 EFFECT OF TERMINATION OF EMPLOYMENT; PERIOD OF SEVERANCE AND REEMPLOYMENT
If a Participant incurs a one year Period of Severance before he has a
vested interest in his Employer Contribution Account, Matching
Contribution Account, Profit Sharing Contribution Account and Employer
Stock Account, under this Article 10, in determining his Years of Vesting
Service under this Section 10.03, all Years of Vesting Service earned
before the one year Period of Severance shall be forfeited if the
consecutive number of one year Periods of Severance equal or exceeds the
greater of five or the Years of Vesting Service earned before the one year
Period of Severance.
10.04 FORFEITURE OF NON-VESTED ACCOUNTS
When a Participant ceases to participate and receives distribution of his
Employer Contribution Account, Matching Contribution Account, Profit
Sharing Contribution Account and Employer Stock Bonus Account, such
portion of his Employer Contribution Account, Matching Contribution
Account, Profit Sharing Contribution Account and Employer Stock Bonus
Account as of the coinciding or next following Valuation Date that is not
vested shall be forfeited and allocated in the manner provided in Section
10.05 as of such Valuation Date. For purposes of the preceding sentence,
a Participant who ceases to participate in the Plan and whose
nonforfeitable percentage in his Employer Contribution Account, Matching
Contribution Account, Profit Sharing Contribution Account and Employer
Stock Bonus Account is zero, shall be deemed to have received a complete
distribution of the nonforfeitable portion of such Accounts. If a former
Participant who has suffered a forfeiture on account of his termination of
participation in accordance with this subsection is reemployed as an
employee by the Company or an Affiliate before incurring five consecutive
one year Periods of Severance, and repays to the Plan all money
distributed from his Employer Contribution Account, Matching Contribution
Account, Profit Sharing Contribution Account and Employer Stock Bonus
Account prior to 60 months after such reemployment, any amounts so
forfeited (unadjusted for any increase or decrease in the value of the
Trust Fund subsequent to the Valuation Date on which the forfeiture
occurred) shall be reinstated to the Participant's
53
Employer Contribution Account, Matching Contribution Account, Profit
Sharing Contribution Account and Employer Stock Bonus Account within a
reasonable time after such payment. Such reinstatement occurs to the
extent such forfeitures are attributable to contributions by the same
Company or an Affiliate and earnings on such contributions; provided,
however, if such forfeitures are not sufficient to provide such
reinstatement, the reinstatement shall be made for the current year's
contribution by that Company or Affiliate to the Plan.
10.05 DISPOSITION OF FORFEITURES
All amounts forfeited under any provisions of this Plan are first applied
to reinstate forfeited amounts of other Participants pursuant to Section
10.03. Any remaining forfeitures are used to reduce the Employer
Contributions required pursuant to Sections 3.03, 3.04, 3.10 and 3.11 for
the Plan Year in which they are forfeited. Forfeitures are first charged
against the portion of a Participant's Employer Contribution Account,
Matching Contribution Account, Employer Stock Bonus Account and Profit
Sharing Contribution Account not invested in Stock, with any balance
charged against the remainder of his Employer Contribution Account,
Matching Contribution Account, Employer Stock Bonus Account and Profit
Sharing Contribution Account at the fair market value of Stock. Financed
Shares are forfeited only after all other amounts in a Participant's
Accounts have been forfeited.
54
ARTICLE XI
DISTRIBUTION OF BENEFITS
11.01 FORM OF BENEFITS FOR RETIREMENT AND OTHER TERMINATION
Amounts distributable pursuant to Articles IX and X are distributed, at
the Participant's or, if applicable, Beneficiary's election, in one of the
following forms:
(a) A single sum payment in cash of the value of his benefit as of his
Distribution Date; or
(b) A single sum distribution consisting of the whole shares of Stock
held in his Accounts as of his Distribution Date and a single sum
payment in each of the value of the remaining portion of his benefit
as of his Distribution Date.
A Participant's or Beneficiary's election may not be changed or revoked
following his Distribution Date.
Notwithstanding the preceding, to avoid the elimination of an optional
form of benefit in connection with the merger of the TakeCare Savings and
Retirement Plan into the FHP International Corporation Employee Stock
Ownership Plan, amounts credited to a Participant's TakeCare Account which
are distributable pursuant to Articles IX and X may, at the Participant's
or, if applicable, Beneficiary's election, be distributed in (i) a single
cash lump sum, (ii) installments in cash over a period of years determined
by the Participant, or (iii) a combination of a partial lump sum in cash
and installments in cash over a period of years determined by the
Participant.
11.02 TIMING OF DISTRIBUTIONS
(a) Notwithstanding the provisions of Articles IX and X, if a
Participant's employment terminates for any reason and the value of
the vested portion of his Accounts on the Valuation Date coinciding
with or immediately following the date he terminates employment does
not exceed $3,500, his Distribution Date is the Valuation Date
coinciding with or immediately following the date he terminates
employment. Except as provided in Section 11.04, if a Participant
who is otherwise entitled to elect a Distribution Date does not make
an election in the manner established by the Committee, his
Distribution Date is the Valuation Date coinciding with or
immediately following the date he reaches age sixty-five.
(b) Distributions under the Plan pursuant to Articles IX, X and XI are
made as soon as practicable following the
55
applicable Distribution Date but in no event later than sixty days
after the end of the Plan Year in which the Participant reaches age
sixty-five, reaches the tenth anniversary of the date he began
participation in the Plan, or terminates employment, whichever is
latest.
Notwithstanding anything to the contrary contained herein, the
distribution options under the Plan shall comply with Section
401(a)(9) of the Code and regulations promulgated thereunder, which
are hereby incorporated by this reference as a part of the Plan.
Accordingly, unless otherwise permitted by law, the entire interest
of each Participant shall be distributed by April 1 of the calendar
year following the calendar year in which the Participant reaches
age 70-1/2. However, effective January 1, 1997 and only with
respect to a Participant who is not a five percent (5%) owner of the
Company or an Affiliate at any time during Plan Year ending in the
calendar year in which he or she attains age 70-1/2, and except as
otherwise provided by law, such a Participant is not required to
receive a distribution of his or her interest until the April 1 of
the calendar year following the calendar year in which he or she
retires. Except as provided by law, a Participant who reached age
70-1/2 before January 1, 1988 and who was not a five percent owner
of the Company at any time during the Plan Year ending with or
within the calendar year in which the Participant attains age 66-1/2
or thereafter, is not required to receive distribution of his
interest until he separates from service.
(c) If a Participant terminates employment before his Normal Retirement
Age and elects pursuant to Section 10.01(c) to have his Distribution
Date be the Valuation Date coinciding with or immediately following
the date he reaches age 65, he shall continue to be allowed to
direct the investment of his Pretax Deferral Account, TakeCare
Account, Matching Contribution Account, Profit Sharing Contribution
Account and Rollover Account according to the terms of this Plan
until such Accounts are distributed or forfeited.
11.03 RIGHTS, OPTIONS AND RESTRICTIONS ON STOCK
(a) If Stock is distributed from the Plan at a time when it is not
readily tradable on an established public market, then the
provisions of this Section apply.
(b) Any shares of Stock distributed by the Trust are subject to a "right
of first refusal". The right of first refusal must provide that,
before any subsequent transfer, the shares must first be offered for
purchase in writing to the Company, and then to the Trust, at the
56
then fair market value. A bona fide written offer from an
independent prospective buyer is deemed to be the fair market value
of the Stock for this purpose. The Company and the Committee (on
behalf of the Trust) have a total of fourteen days to exercise the
right of first refusal on the same terms offered by a prospective
buyer. The Company may require that a Participant entitled to a
distribution of Stock execute an appropriate stock transfer
agreement (evidencing the right of first refusal) before receiving a
certificate for Stock.
(c) The Company will issue a "put option" to any Participant who
receives a distribution of Stock. The put option must permit the
Participant to sell the distributed Stock to the Company at any time
during two option periods, at the fair market value of the shares.
The first put option period is for at least sixty days beginning on
the date of distribution. The second put option period is for at
least sixty days beginning after the new determination of the fair
market value of Stock by the Committee (and notice to the
Participant) in the following Plan Year. The put option must
provide that if the Participant exercises the put option, the
Company, or the Plan if the Plan so elects, will repurchase the
Stock as follows:
(i) If the distribution is a total distribution, payment of the
fair market value of a Participant's Employer Contribution
Account and Employer Stock Bonus Account will be made in five
substantially equal annual payments. The first installment
will be paid not later than thirty days after the Participant
exercises the put option. The Plan will pay a reasonable rate
of interest and provide adequate security on amounts not paid
after thirty days.
(ii) If the distribution is not a total distribution, the Plan will
pay the Participant an amount equal to the fair market value
of the Stock repurchased no later than thirty days after the
Participant exercises the put option.
(d) The rights and protections with regard to Stock acquired with the
proceeds of an exempt loan, including the provisions of this Section
11.03, are not terminable should the exempt loan be paid or the Plan
cease to qualify as an Employee Stock Ownership Plan under Code
Section 4975.
57
11.04 SPECIAL DISTRIBUTION AND PAYMENT REQUIREMENTS
(a) Notwithstanding any other provision of the Plan, other than the
provision requiring the Participant's consent to a distribution in
excess of $3,500, a Participant may elect to have his Employer
Contribution Account and Employer Stock Bonus Account distributed as
follows:
(i) If the Participant terminates employment after attaining his
Normal Retirement Age, or on account of his death, or
Permanent and Total Disability, the distribution of such
portion of the Participant's Employer Contribution Account and
Employer Stock Bonus Account will begin not later than one
year after the close of the Plan Year in which such event
occurs unless the Participant elects otherwise under other
provisions of this Plan.
(ii) If the Participant separates from service for any reason other
than those described in clause (i) above, and is not
reemployed by the Employer at the end of the fifth Plan Year
following the Plan Year in which he terminates employment,
distribution of such portion of the Participant's Employer
Contribution Account and Employer Stock Bonus Account will
begin not later than one year after the close of the fifth
Plan Year following the Plan Year in which the Participant
terminates employment unless the Participant elects otherwise
under other provisions of this Plan.
(iii) If the Participant terminates employment for any reason other
than those described in clause (i) above, and is reemployed by
the Employer as of the last day of the fifth Plan Year
following the Plan Year in which he terminates employment,
distribution to the Participant, prior to any subsequent
separation from service, shall be in accordance with terms of
the Plan other than this Section 11.04.
For purposes of this Section 11.04, Stock shall not include
any Stock acquired with the proceeds of an Exempt Loan until
the close of the Plan Year in which such loan is repaid in
full.
(b) Distributions required under this Section 11.04 shall be made in
substantially equal annual payments over a period of five years
unless the Participant otherwise elects under provisions of this
Plan other than this Section 11.04. In no event shall such
distribution period exceed the period permitted under Code Section
401(a)(9).
58
(c) The portion of a Participant's Employer Contribution Account
attributable to Stock which was acquired by the Plan after December
31, 1986, shall be determined by multiplying the number of shares of
such Stock held in the Employer Contribution Account by a fraction,
the numerator of which is the number of shares acquired by the Plan
after December 31, 1986 and allocated to Participants' Employer
Contribution Accounts (not to exceed the number of shares held by
the Plan on that date of distribution) and the denominator of which
is the total number of such shares held by the Plan at the date of
the distribution.
(d) Notwithstanding anything else contained herein, if a distribution is
one to which Sections 401(a)(11) and 417 of the Code do not apply,
such distribution may commence less than 30 days after the notice
required under Treasury Regulation Section 1.411(a)-11(c) is given,
provided that:
(i) the Committee clearly informs the Participant that the
Participant has a right to a period of at least 30 days after
receiving the notice to consider the decision of whether or
not to elect a distribution (and, if applicable, a particular
distribution option), and
(ii) the Participant, after receiving the notice, affirmatively
elects a distribution.
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ARTICLE XII
COMMITTEE
12.01 APPOINTMENT OF COMMITTEE
A Committee consisting of at least three members will be appointed by the
Board to administer the Plan on behalf of the Company. A vacancy on the
Committee which results from death, resignation or otherwise, will be
filled from time to time by appointment of a new Committee member by the
Board, and a member of the Committee may be removed at any time at the
discretion of the Board.
12.02 MANNER OF ACTION
A majority of the members of the Committee at the time in office will
constitute a quorum for the transaction of business. All resolutions
adopted, and other actions taken by the Committee at any meeting will be
by the vote of a majority of those present at the meeting. Upon the
unanimous written consent of the members at the time in office, action of
the Committee may bc taken without a meeting.
12.03 CHAIRMAN, SECRETARY AND EMPLOYMENT OF SPECIALISTS
The Company may appoint a Chairman of the Committee. The Committee will
elect a Secretary who may, but need not, be a member of the Committee.
They may authorize one or more of their number or any agent to execute or
deliver any instrument or instruments on their behalf, and may employ such
counsel, auditors, and other specialists and such clerical, medical,
actuarial and other services as they may require in carrying out the
provisions of the Plan.
12.04 SUBCOMMITTEES
The Committee may appoint one or more subcommittees and delegate such of
its power and duties as it deems desirable to any such subcommittee, in
which case every reference in the Plan made to the Committee is deemed to
mean or include the subcommittees as to matters within their jurisdiction.
The members of any subcommittee will consist of such officers or other
employees of the Company and such other persons as the Committee may
appoint.
12.05 OTHER AGENTS
The Committee may also appoint one or more persons or agents to aid it in
carrying out its duties as Plan Administrator and Named Fiduciary, as
defined in ERISA, and delegate such of its power and duties as it deems
desirable to such persons or agents.
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12.06 RECORDS
All resolutions, proceedings, acts and determinations of the Committee
shall be recorded by the Secretary thereof or under his supervision, and
all such records, together with such documents and instruments as may be
necessary for the administration of the Plan, shall be preserved in the
custody of the Secretary.
12.07 POWERS AND DUTIES
(a) The Committee has full power to administer the Plan and to construe
and apply all of its provisions on behalf of the Company. The
Company is the Plan Administrator. The Company is the Named
Fiduciary within the meaning of ERISA Section 402(a). The Company
and Committee may delegate to any other person or organizations any
of its powers and duties with respect to the operation of this Plan.
The Committee's powers and duties, unless properly delegated,
include, but are not limited to:
(i) Deciding questions relating to eligibility, continuity of
Service and amount of benefits;
(ii) Deciding disputes which may arise with regard to the rights of
employees, Participants and their legal representatives or
Beneficiaries under the terms of the Plan. Such decisions by
the Committee shall be deemed final in each case;
(iii) Obtaining such information from the Employer with respect to
employees as shall be necessary to determine the rights and
benefits of such employees under the Plan. The Committee may
rely conclusively upon such information furnished by the
Employer;
(iv) Compiling and maintaining all records necessary for the Plan;
(v) Furnishing the Employer, upon request, such reports with
respect to the administration of the Plan as are reasonable
and appropriate;
(vi) Authorizing the Trustee to make payment of all benefits as
they become payable under the Plan;
(vii) Engaging such legal, administrative, actuarial, investment,
accounting, consulting and other professional services as the
Committee deems proper;
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(viii) Adopting rules and regulations for the administration of the
Plan not inconsistent with the Plan;
(ix) Doing and performing such other actions as may be provided for
in other parts of this Plan; and
(x) Allocating Stock to such appropriate Accounts as the Committee
determines.
12.08 INTERESTED MEMBERS
No Committee member shall participate in any action of the Committee on a
matter in which such member has a specialized individual interest as a
Participant in the Plan. Such matters shall be determined by a majority
of the remainder of the members of the Committee.
12.09 INDEMNIFICATION
The Company shall and does by the following items indemnity and hold the
members of the Committee and each of them, harmless from the effects and
consequences of their acts, omissions and conduct in their official
capacities, except to the extent that the effects and consequences thereof
shall result from their own willful misconduct, breach of good faith or
gross negligence in the performance of their duties. The Company shall
have the right, but not the obligation, to conduct the defense of such
members in any proceeding to which this Section applies. The foregoing
right of indemnification shall not be exclusive of other rights to which
each such member may be entitled as a matter of law or by other indemnity
coverage provided by the Company.
The Company's obligations under this Section may be satisfied through
purchase of a policy or policies of insurance providing equivalent
protection.
12.10 CONCLUSIVENESS OF ACTION
Any action on matters within the discretion of the Committee shall be
conclusive, final and binding upon all Participants of the Plan and upon
all persons claiming any rights hereunder including Beneficiaries.
12.11 PAYMENT OF EXPENSES
The members of the Committee shall serve without compensation for services
as such. However, the Company may reimburse such members for all
necessary and proper expenses incurred in carrying out their duties under
the Plan. The compensation or fees of accountants, counsel, employee
benefit consultants, and other specialists and any other costs of
administering the
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Plan or Trust, unless paid directly by the Company are paid from the Trust
Fund and will be charged against Participants' Accounts.
Investment costs and taxes that are paid from the Trust Fund are paid as
follows. Brokerage commissions, transfer taxes, and other charges and
expenses in connection with the purchase and sale of securities are added
to the cost of such securities, as the case may be. There will be no
commission on transactions with the Company or any other party in interest
involving Stock. Taxes, if any, applicable to the Trust Fund which are
payable by the Trustee will be charged against Participants' Accounts,
other than any excise tax payable directly by the Trustee pursuant to
Section 4975 of the Code.
12.12 CLAIMS PROCEDURE
Benefits are provided from this Plan through procedures initiated by the
Committee, and the Participant need not file a claim. However, if a
Participant or Beneficiary believes he is entitled to a benefit, or a
benefit different from the one he receives, then the Participant or
Beneficiary may file a claim for the benefit by writing a letter to the
Committee.
If any claim for benefits under the Plan is wholly or partially denied,
the claimant will be given a written notice of the denial within ninety
days after the claim is received. However, if special circumstances
require an extension of time, and written notice of the extension is
furnished to the claimant, he will be given a written notice of the denial
within one hundred and eighty days after the claim is received. Notice of
the denial will state the following information:
(a) The specific reason or reasons for the denial;
(b) Specific reference to pertinent Plan provisions on which denial is
based;
(c) A description of any additional material or information necessary
for the claimant to perfect the claim and an explanation of why the
material or information is necessary;
(d) An explanation that a full and fair review by the Committee of the
decision denying the claim may be requested by the claimant or his
authorized representative by filing with the Company, within sixty
days after the claimant receives the denial, a written request for
review; and
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(e) If a request for review is filed, the claimant or his authorized
representative may review pertinent documents and submit issues and
comments in writing within the same sixty day period specified in
paragraph (d) above.
The decision of the Committee upon review will be made by the Committee's
delegate, will be made promptly, and not later than sixty days after the
Committee's receipt of the request for review. However, if special
circumstances require an extension of time for processing, the claimant
will be so notified and a decision will be rendered as soon as possible,
but not later than one hundred and twenty days after receipt of the
request for review. If the claim is denied, wholly or in part, the
claimant will be given a copy of the decision promptly. The decision will
be in writing and will include specific reasons for the denial, specific
references to the pertinent Plan provisions on which the denial is based
and will be written in a manner calculated to be understood by the
claimant.
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ARTICLE XIII
AMENDMENT TO THE PLAN
13.01 RIGHT TO AMEND
The Board, or the Committee if authorized by the Board, has the right to
amend the Plan at any time and, from time to time, to any extent that it
deems advisable. No amendment will increase the duties or
responsibilities of the Trustee without the Trustees written consent. No
amendment may be made to this Plan which attempts to transfer any part of
the corpus or income of the Trust Fund for purposes other than the
exclusive benefit of Participants and their Beneficiaries. No amendment
may deprive any Participant or Beneficiary of any benefits to which he is
entitled under the Plan with respect to contributions previously made to
the Plan. No amendment may eliminate or reduce an early retirement
benefit or eliminate an optional form of distribution.
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ARTICLE XIV
TERMINATION OF THE PLAN
14.01 RIGHT TO TERMINATE
The Board has the right to terminate the Plan in whole or in part at any
time. In the event of a termination, partial termination or complete
discontinuation of contributions, each affected Participant will become
one hundred percent vested in the value of all his Accounts.
14.02 CORPORATE REORGANIZATION
In the event the Company is dissolved or liquidated or shall by
appropriate legal proceedings be adjudged bankrupt, or in the event
judicial proceedings of any kind result in the involuntary dissolution of
the Company, the Plan shall be terminated. The merger, consolidation or
reorganization of the Company, or the sale of the Company or of all or
substantially all of its assets or stock, shall not terminate the Plan if
there is delivery to the Company, by its successor or by the purchaser of
all or substantially all of its stock or assets, a written instrument
requesting that it bc substituted for the Company and agreeing to perform
all the provisions hereof which the Company is required to perform
hereunder. Upon the receipt of said instrument, with the approval of the
Company, the successor or the purchaser shall be substituted for the
Company herein, and the Company shall be relieved and released from all
obligations of any kind, character or description herein or in any trust
agreement.
14.03 PLAN MERGER AND CONSOLIDATION
In the event that the Plan and Trust Fund merges or consolidates with, or
transfers its assets or liabilities to, any other qualified plan of
deferred compensation, no Participant herein shall, solely on account of
such merger, consolidation or transfer, have an account balance on the day
following such event which is less than his account balance on the day
preceding such event. For the purpose of this Section, a Participant's
account balance shall be calculated based upon the assumption that a plan
termination and distribution of assets occurred on each of the
above-mentioned days. In no event will this provision be construed to
require full vesting upon a merger, consolidation, or transfer of assets
unless the Plan is subsequently partially or wholly terminated or
contributions are completely discontinued.
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ARTICLE XV
TRUST AND THE TRUSTEE
15.01 BOARD TO SELECT TRUSTEE
The Board will select a Trustee to hold and invest the Trust Fund in
accordance with the terms of a trust agreement and/or other contract. The
Trustee must be an individual or individuals, a bank or trust company
incorporated under the laws of the United States or of any state and
qualified to operate as a trustee, a legal reserve life insurance company,
or a combination of such entities. The Board may, from time to time,
change the Trustee then serving under the trust agreement and/or other
contract to another Trustee or elect to terminate the trust and/or other
contract and hold the Plan assets in any other method acceptable under
ERISA.
Any trust agreement and/or other contract are designated as and constitute
a part of the Plan. Any rights which a person has under this Plan are
subject to all of the terms and provisions of the trust agreement and/or
other contract.
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ARTICLE XVI
ADOPTION BY AFFILIATE
16.01 AFFILIATE PARTICIPATION
An Affiliate may become a party to the Plan and Trust Agreement by
adopting the Plan for the benefit of any specified group of its Employees,
effective as of the date specified in such adoption:
(a) By filing with the Company a certified copy of a resolution of its
board of directors to that effect, and/or such other instruments as
the Company may require; and
(b) By the Company's filing with the then Trustee a copy of such
resolution, together with a certified copy of resolutions of the
Board approving such adoption.
The Company may require an adopting Affiliate to execute an instrument of
adoption in such form as is acceptable to the Company. Except as provided
below, an Employee of an Affiliate shall earn Service only with respect to
periods for which his employer is an Affiliate. Notwithstanding the
above, to the extent explicitly provided by the Company in a stock or
asset acquisition, merger or other similar transaction, an Employee of a
Affiliate shall earn Service with respect to periods of employment with
such Affiliate prior to the time it became an Affiliate.
16.02 ACTION BINDING ON PARTICIPATING AFFILIATES
As long as the Company is party to the Plan and the Trust Agreement it
shall be empowered to act thereunder for any Employer in all matters
respecting the Committee and the Trustee and the designation of
Affiliates, and any action taken by the Company with respect thereto shall
automatically include and be binding upon any Employer which is a party to
the Plan.
16.03 TERMINATION OF PARTICIPATION OF AFFILIATE
The Company reserves the right, in its sole discretion and at any time, to
terminate the participation in this Plan of any or all Affiliates. Such
termination shall be effective immediately upon notice of such termination
from the Company to the Trustee and the Affiliate being terminated. In
event of such termination, this Plan shall not terminate, but the portion
of the Plan attributable to the Affiliate shall become a separate Plan,
and the Company shall inform the Trustee of the portion of the Trust Fund
that is then attributable to the participation of such terminated
Affiliate. Such portion
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shall as soon thereafter as is administratively feasible be set apart by
the Trustee as a separate Trust which shall be part of the separate Plan
of such terminated Affiliate. Thereafter the administration, control, and
operation of the Plan with respect to such terminated Affiliate shall be
on a separate basis (with the Affiliate assuming the functions assigned to
the Company hereunder) in accordance with the terms hereof, or as such
terms may be amended by appropriate action of such terminated Affiliate in
accordance with the provisions of Article XIII.
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ARTICLE XVII
TOP-HEAVY PROVISIONS
17.01 DEFINITIONS
Wherever used in this Article XVII, the following words and phrases have
the meaning specified below:
(a) "Accumulated Account" means the total value of an employee's
Accounts as of the Valuation Date which coincides with or
immediately precedes the Determination Date. Accumulated Accounts
includes:
(i) amounts attributable to employee contributions (other than
deductible employee contributions),
(ii) amounts rolled over or transferred directly from a plan
sponsored by an unrelated employer (within the meaning of Code
Section 414(b), (c) or (m)), but only if received by the Plan
before January 1, 1984.
(iii) amounts rolled over or transferred directly from a plan
sponsored by a related employer (within the meaning of Code
Section 414(b), (c) or (m)), without regard to when received
by the Plan, and
(iv) distributions to the employee during the Plan Year which
includes the Determination Date and the four immediately
preceding Plan Years, unless already reflected in the
employee's Accounts. The preceding sentence shall also apply
to distributions under a terminated plan which, if it had not
been terminated would have been required to be included in the
Aggregation Group.
Accumulated Accounts will not include any distribution rolled over
or transferred directly to a related employer (within the meaning of
Code Section 414(b), (c) or (m)). With respect to a Nonkey Employee
who was Key Employee with respect to a plan in a prior year,
Accumulated Accounts will not include any of the employee's
Accounts.
Accumulated Accounts will not include the Accounts of an employee
who has not performed any service for the Employer during the five
year period ending on the Determination Date. However, if the
employee again performs services his Accounts will be included.
(b) "Determination Date" means in any Plan Year the last day of the
immediately preceding Plan Year.
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(c) "Key Employee" means at any given time an employee, a deceased
employee, or the beneficiary of a deceased employee who during the
current Plan Year or any of the four immediately preceding Plan
Years is:
(i) an officer of an Employer with annual earnings from the
Employer greater than 50% of the maximum dollar limit under
Code Section 415(b)(1)(A) in effect for the calendar year in
which the Plan Year ends. In any Plan Year, officer will not
include more than the lesser of:
(A) fifty employees, or
(B) the greater of three employees or ten percent of the
greatest number of employees the Employer had during the
current Plan Year or any of the four immediately
preceding Plan Years.
Such limited number of officers will be selected from
the group of all persons otherwise considered officers
under this paragraph (i) in the current Plan Year or
four immediately preceding Plan Years, selecting only
those who had the highest annual earnings in such five
year period;
(ii) an employee who is one of the ten employees of the Employer
having annual compensation from such Employer of more than the
limitation in effect under Section 415(c)(1)(A) of the Code
and owning (or considered as owning within the meaning of
Section 318 of the Code) both more than a 1/2% interest and
the largest interests in such Employer. An employee's
ownership interest during a Plan Year is his greatest
ownership interest at anytime during the Plan Year. If two
employees have the same ownership interest, the employee with
the greater earnings in the Plan Year of such ownership will
be deemed to have the greater ownership interest.
(iii) an employee who owns at least five percent of an Employer; or
(iv) an employee who owns at least one percent of an Employer and
has annual earnings from the Employer of more than $150,000.
For purposes of determining the number of officers of the Employer,
all employees of organizations required to be aggregated under Code
Section 414(b), (c) and (m) will be
71
considered employees of the Employer. For purposes of determining
earnings from the Employer, all earnings, as stated on Form W-2 for
the calendar year ending within the Plan Year, from all
organizations required to be aggregated under Code Section 414(b),
(c) and (m) will be treated as earned from the Employer. For
purposes of determining ownership interest, each entity that would
otherwise be aggregated under Code Section 414(b), (c) and (m) will
be treated as a separate Employer. Ownership includes any interest
constructively owned under the applicable provisions of the Code.
Employee will not include any employee or beneficiary of an employee
who did not have earnings from an Employer during the five year
period ending on the Determination Date.
(d) "Nonkey Employee" means at any given time an employee who is not a
Key Employee.
17.02 DETERMINATION OF TOP HEAVY STATUS - SINGLE PLAN
If this Plan is the only retirement plan qualified under Code Section
401(a) maintained by an Affiliate, the rules of this Section 17.02 will
apply to determine if this Plan is Top Heavy. The Plan will be Top Heavy
during a Plan Year if as of the Determination Date in such Plan Year the
value of the Accumulated Accounts under the Plan of all Key Employees
exceeds sixty percent of the value of Accumulated Accounts under the Plan
of all employees.
17.03 DETERMINATION OF TOP HEAVY STATUS - MULTIPLE PLANS
(a) If an Affiliate maintains more than one retirement plan qualified
under Code Section 401(a), the rules of this Section 17.03 will
apply to determine if this Plan is Top Heavy.
This Plan will be Top Heavy during a Plan Year if the Plan is
required to be in the Aggregation Group on the Plan's Determination
Date for such Plan Year and the Aggregation Group is Top Heavy.
The Aggregation Group is Top Heavy if the value of the Accumulated
Accounts for all Key Employees of all the plans in the group exceeds
sixty percent of the value of the Accumulated Accounts for all
employees of all the plans in the group. The Accumulated Accounts
of each plan will be determined separately as of each plan's
Determination Date and then aggregated by calendar year. If a plan
in the Aggregation Group is a defined benefit plan (as defined in
Code Section 414(j), for purposes of this subsection (a) value of
the Accumulated Accounts
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means the present value of benefits as defined under the top heavy
provisions of such plan.
(b) The Aggregation Group consists of all the Affiliate's retirement
plans qualified under Code Section 401(a) which are either required
or permitted to be in the Aggregation Group.
A plan is required to be in the Aggregation Group if during the Plan
Year containing the Determination Date or any of the four preceding
Plan Years:
(1) the Plan has at least one Key Employee, or
(2) the Plan is required to be aggregated with a plan with at
least one Key Employee so that the later plan meets the
requirements of Code Sections 401(a)(4) or 410.
A plan, which has been formally terminated, has ceased crediting
service for benefit accruals and vesting, and has been or is
distributing all plan assets to participants or their beneficiaries
as soon as administratively feasible, is required to be in the
Aggregation Group if it was maintained during the Plan Year
containing the Determination Date or any of the four preceding Plan
Years and it would, but for the fact that it terminated, bc required
to be in the Aggregation Group pursuant to the preceding sentence.
A plan is permitted to be in the Aggregation Group if it is not
required to be in the Aggregation Group, provided including it does
not prevent the Aggregation Group as a whole from meeting the
requirements of Code Sections 402(a)(4) and 410.
17.04 EFFECT OF TOP HEAVY STATUS
If the Plan is Top Heavy for any Plan Year, the requirements of this
Section 17.04 apply during such Plan Year, superseding all other Plan
provisions inconsistent with its terms.
(a) MINIMUM VESTING
The vested portion of a Participant who has completed one Hour of
Service in any Plan Year in which the Plan is Top Heavy is
determined under the schedule designated below in this Section
17.04(a) or the applicable schedules in Section 10.02, whichever is
more favorable to the Participant:
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SERVICE VESTED PORTION
less than 2 years 0%
2 but less than 3 years 20%
3 but less than 4 years 40%
4 but less than 5 years 60%
5 but less than 6 years 80%
6 or more years 100%
In each Plan Year in which the Plan is not Top Heavy, which occurs
immediately after a Plan Year in which the Plan is Top Heavy, an
employee who is participating in the Plan during the Election Period
has the right to elect to continue to be subject to the vesting
schedule in this subparagraph (a). The Election Period begins on
the date the Plan is determined not to be Top Heavy and ends on the
later of sixty days after the Plan is determined not to be Top Heavy
or sixty days after the employee is given written notice that the
Plan is no longer Top Heavy.
(b) MINIMUM CONTRIBUTION
On the last day of any Plan Year in which the Plan is Top Heavy an
Employer Contribution will be allocated to the appropriate Account
of each employee who is eligible to participate in the Plan pursuant
to Section 2.01 on such date. The amount of such contribution, when
aggregated with all other contributions allocated to the
Participant's Pretax Deferral Account and Employer Contribution
Account and his employer contribution account under the Talbert
Medical Management Holdings Money Purchase Pension Plan during the
Plan Year must equal the lesser of-
(i) Three percent of the Participant's earnings, as stated on Form
W-2 for the calendar year ending within such Plan Year, or
(ii) A percent of the Participant's earnings, as defined in
subsection (1) above, equal to the percentage at which
contributions (including Pretax Deferrals) are allocated
pursuant to Sections 4.02, 4.03, and 4.05 (or required to be
allocated) for the Plan Year for the Key Employee for whom
such percentage is the highest for the year.
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The Employer will make an additional contribution to the Plan
sufficient to make the allocation described above.
This Subsection (b) applies without regard to contributions or
benefits under Social Security or any other Federal or State law.
(c) ADJUSTMENT TO LIMITATION ON ANNUAL ADDITIONS
(i) If an Affiliate also maintains a qualified defined benefit
plan (as defined in Code Section 414(j) the denominator of
both the defined benefit plan fraction and defined
contribution plan fraction, as described in Code Section
415(e), for the Limitation Year ending in such Plan Year will
be adjusted by substituting one for one and twenty-five one
hundredths in each place the figure occurs.
(ii) The adjustments referred to in paragraph (i) are not required
if:
(A) the Plan would not be Top Heavy if ninety percent were
substituted for sixty percent in Sections 17.02 and
17.03, and
(B) Subsection (b)(i) above is adjusted by substituting four
percent for three percent where the figure occurs.
(iii) The adjustments referred to in paragraph (i) above do not
apply to any Participant as long as no Employer Contributions,
forfeitures, salary deferrals or nondeductible voluntary
contributions are allocated to such Participant's Accounts and
the Participant does not accrue any benefits under the defined
benefit plan.
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ARTICLE XVIII
MISCELLANEOUS
18.01 VOLUNTARY PLAN
The Plan is purely voluntary on the part of the Company and Employer and
neither the establishment of the Plan nor any amendment thereof, nor the
creation of any fund or account, nor the payment of any benefits shall be
construed as giving any person a legal or equitable right as against the
Company, an Employer, the Trustee or the Committee unless the same shall
be specifically provided for in this Plan or conferred by affirmative
action of the Committee or the Company in accordance with the terms and
provisions of this Plan. Nor shall such actions be construed as giving
any Employee or Participant the right to be retained in the service of the
Employer. All Employees and/or Participants shall remain subject to
discharge to the same extent as though this Plan had not been established.
18.02 NONALIENATION OF BENEFITS
Participants and their Beneficiaries shall be entitled to all the benefits
specifically set out under the terms of the Plan, but neither said
benefits nor any of the property rights therein shall be assignable or
distributable to any creditor or other claimant of such Participant. A
Participant shall not have the right to anticipate, assign, pledge,
accelerate or in any way dispose of or encumber any of the monies or
benefits or other property which may be payable or become payable to such
Participant or his Beneficiary. The preceding sentence shall also apply
to the creation, assignment, or recognition of a right to any benefit
payable with respect to Participant pursuant to a domestic relations
order, unless such order is determined to be a qualified domestic
relations order, as defined in Code Section 414(p). Consistent with the
preceding sentence, payments to an alternate payee pursuant to a qualified
domestic relations order may be made prior to the time the Participant
attains "earliest retirement age" (as defined in Section 414(p)(4)(B) of
the Internal Revenue Code).
18.03 INABILITY TO RECEIVE BENEFITS
If the Committee receives evidence that (a) a person entitled to receive
any payment under the Plan is physically or mentally incompetent to
receive payment and to give a valid release therefor, and (b) another
person or an institution is then maintaining or has custody of such
person, and no guardian, committee or other representative of the estate
of such person has been duly appointed by a court of competent
jurisdiction, such payment may be made to such other person or institution
referred to in (b) above. The release to such
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other person or institution shall be a valid and complete discharge for
the payment.
18.04 LOST PARTICIPANTS
If the Committee is unable within two years after a distribution becomes
due, and after reasonable and diligent effort, to locate a Participant or
Beneficiary who is entitled to payment under the Plan, the payment due
such person shall become a forfeiture; provided, however, that if the
Participant or Beneficiary later files a claim for his benefit it shall be
reinstated. Notification by certified or registered mail to the last
known address of the Participant or Beneficiary shall be deemed a
reasonable and diligent effort to locate such person.
18.05 LIMITATION OF RIGHTS
Nothing in the Plan expressed or implied is intended or shall be construed
to confer upon or give to any person, firm or association other than the
Company, an Employer, the Participant and their successors in interest any
right, remedy or claim under or by reason of this Plan.
18.06 ABSENCE OF GUARANTY
Each Participant (and his Beneficiary) assumes all risk connected with any
decreased in the market value of any assets held under the Plan. Neither
the Company nor the Employer in any way guarantees the Trust Fund from
loss or depreciation, or the payment of any amount that may be or become
due to any person from the Trust Fund. The Trust Fund shall be the sole
source of distributions to be made under this Plan.
18.07 INVALID PROVISIONS
In case any provision of this Plan shall be held illegal or invalid for
any reason, said illegality or invalidity shall not affect the remaining
parts of this Plan, but this Plan shall be construed and enforced as if
said illegal and invalid provisions had never been inserted herein.
18.08 ONE PLAN
This Plan may be executed in any number of counterparts, each of which
shall be deemed an original and said counterparts shall constitute but one
and the same instrument and may be sufficiently evidenced by any one
counterpart.
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18.09 GOVERNING LAW
The Plan shall be governed by and construed in accordance with the Federal
laws governing employee benefit plans qualified under the Code and in
accordance with the laws of the State of California where such laws are
not preempted by the aforementioned federal laws.
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ARTICLE XIX
DIRECT ROLLOVERS
19.01 DIRECT ROLLOVERS
Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a Distributee's election under this Article, if a
Distributee will receive an Eligible Rollover Distribution of at least
$200, the Distributee may elect, at the time and in the manner prescribed
by the Committee, to have any portion of an Eligible Rollover Distribution
paid directly to an Eligible Retirement Plan specified by the Distributee
in a Direct Rollover; provided, however, that a Distributee may not elect
to have an Eligible Rollover Distribution of less than $500 paid directly
to an Eligible Retirement Plan unless the Distributee elects to have his
or her entire Eligible Rollover Distribution paid directly to the Eligible
Retirement Plan.
19.02 DEFINITIONS
(a) Eligible rollover distribution: An eligible rollover distribution
is any distribution of all or any portion of the balance to the
credit of the distributee, except that an eligible rollover
distribution does not include: any distribution that is one of a
series of substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the
distributee or the joint lives (or joint life expectancies) of the
distributee and the distributee's designated beneficiary, or for a
specified period of ten years or more; any distribution to the
extent such distribution is required under Section 401(a)(9) of the
Code; and the portion of any distribution that is not includable in
gross income (determined without regard to the exclusion for net
unrealized appreciation with respect to employer securities).
(b) Eligible retirement plan: An eligible retirement plan is an
individual retirement account described in Section 408(a) of the
Code, an individual retirement annuity described in Section 408(b)
of the Code, an annuity plan described in Section 403(a) of the
Code, or a qualified plan described in Section 401(a) of the Code,
that accepts the distributee's eligible rollover distribution.
However, in the case of an eligible rollover distribution to the
surviving spouse, an eligible retirement plan is an individual
retirement account or individual retirement annuity.
(c) Distributee: A distributee includes an employee or former employee.
In addition, the employee's or former
79
employee's surviving spouse and the employee's or former employee's
spouse or former spouse who is the alternate payee under a qualified
domestic relations order, as defined in Section 414(p) of the Code,
are distributees with regard to the interest of the spouse or former
spouse.
(d) Direct rollover: A direct rollover is a payment by the Plan to the
eligible retirement plan specified by the distributee.
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ARTICLE XX
EXECUTION
IN WITNESS WHEREOF, the Company has caused its duly authorized
officer to execute this Plan on this _____ day of ___________, 1997.
TALBERT MEDICAL MANAGEMENT HOLDINGS
CORPORATION
By:
------------------------------
Its:
------------------------------
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