<PAGE>
As filed with the Securities and Exchange Commission on March __, 1998
Registration No. 333-________
------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------
PACIFICARE HEALTH SYSTEMS, INC.
(Exact name of issuer as specified in its charter)
----------------------------------------------------------------------------
Delaware 95-4591529
- -------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S Employer Identification
incorporation or organization) Number)
3120 Lake Center Drive, Santa Ana, California 92704
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
Amendment and Restatement of the PacifiCare Health Systems, Inc.
Savings and Profit-Sharing Plan
1997 Premium Priced Stock Option Plan
(Full titles of the Plans)
Alan R. Hoops
President and Chief Executive Officer
PacifiCare Health Systems, Inc.
3120 Lake Center Drive
Santa Ana, California 92704
(Name, address and telephone number, including area code, of agent for service)
- --------------------------------------------------------------------------------
Copies to:
Joseph S. Konowiecki, Esq. Michael R. Jacobson, Esq.
Konowiecki & Rank Cooley Godward LLP
633 West Fifth Street 5 Palo Alto Square
Suite 3500 3000 El Camino Real
Los Angeles, California 90071 Palo Alto, California 94306-2155
(213) 229-0990 (650) 843-5000
- --------------------------------------------------------------------------------
<PAGE>
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed Proposed
Title of Maximum Maximum Amount
Securities Amount Offering Aggregate of Regis-
to be to be Price Per Offering tration
Registered Registered Share Price Fee
- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Stock Options
and Class B
Common Stock,
par value
$0.01 per share (1) 1,200,000 $92.50 (2) $111,000,000 (2) $32,795
Stock Options
and Class B
Common Stock,
par value
$0.01 per share (1) 1,200,000 $114.00 (2) $136,800,000 (2) $40,356
Class B
Common Stock,
par value
$0.01 per share (3) (4) 1,500,000 $71.188 (5) $106,782,000 (5) $31,500.70
</TABLE>
- --------------------------------------------------------------------------------
(1) Options and underlying shares of Class B Common Stock issued under
1997 Premium Priced Stock Option Plan.
(2) Estimated solely for the purpose of calculating the registration fee.
Pursuant to Rule 457(h)(1), the offering price is based upon the
exercise price for shares subject to options under the 1997 Premium
Priced Stock Option Plan.
(3) Shares of Class B Common Stock offered under the Amendment and
Restatement of the PacifiCare Health Systems, Inc. Savings and Profit-
Sharing Plan (the "Savings Plan").
(4) Pursuant to Rule 416 under the Securities Act of 1933, as amended,
this registration statement also covers an indeterminate amount of
interests to be offered or sold pursuant to the Savings Plan.
(5) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(h)(1), on the basis of the average of the high
and low prices of the Registrant's Class B Common Stock as reported on
the Nasdaq National Market System on a date within five days of the
filing hereof with respect to the shares being registered.
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
<PAGE>
PART II
INFORMATION REQUIRED IN
THE REGISTRATION STATEMENT
Item 3. INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents which have been filed by PacifiCare Health Systems,
Inc., a Delaware corporation (the "Registrant"), with the Securities and
Exchange Commission are incorporated herein by reference:
(a) The Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 (the "Form 10-K"), which is the Registrant's latest
Annual Report on Form 10-K filed pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act") and which contains
audited financial statements for the Registrant's latest fiscal year for
which a Form 10-K was required to have been filed.
(b) The description of the Registrant's Class B Common Stock, which is
contained in a Registration Statement on Form 8-B, as filed on January 9,
1997, including any amendment or report filed for the purpose of updating
such description.
All reports and other documents subsequently filed by the Registrant
pursuant to Section 13, 14 and 15(d) of the Exchange Act, prior to the filing of
a post-effective amendment which indicates that all securities offered have been
sold or which deregisters all securities then remaining unsold, shall be deemed
to be incorporated by reference in this registration statement and to be a part
hereof from the time of filing of such documents.
Item 4. DESCRIPTION OF SECURITIES.
Not applicable.
Item 5. INTEREST OF NAMED EXPERTS AND COUNSEL.
Not applicable.
Item 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law, the
Registrant has broad powers to indemnify its directors and officers against
liabilities they may incur in such capacities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). The Registrant's
bylaws provide that the Registrant will indemnify its directors, officers,
employees or agents in a manner consistent with the provisions of the Delaware
General Corporation Law.
In addition, the Registrant's Certificate of Incorporation provides
that, pursuant to Delaware law, its directors shall not be liable for monetary
damages for breach of the directors' fiduciary duty of care to the Registrant
and its stockholders. This provision in the Certificate of Incorporation does
not eliminate the duty of care, and in appropriate circumstances equitable
remedies such as injunctive or other forms of non-monetary relief will remain
available under Delaware law. In addition, each director will continue to be
subject to liability for breach of the director's duty of loyalty to the
Registrant, for acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are unlawful under Delaware law. The
provision also does not affect a director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental laws.
The Registrant maintains a policy providing directors' and officers'
liability insurance, which insures directors and officers of the Registrant in
certain circumstances.
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Registrant
pursuant to the foregoing provisions, the Registrant has been informed that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
Item 7. EXEMPTION FROM REGISTRATION CLAIMED.
Not applicable.
Item 8. EXHIBITS.
The following exhibits are filed as part of this registration
statement:
4.01 Form of Specimen Certificate for Registrant's Class B Common
Stock (incorporated by reference to Exhibit 4.02 to the
Registrant's Form 8-K, dated February 21, 1997).
5.01 Opinion of Cooley Godward LLP.
23.01 Consent of Ernst & Young LLP.
23.02 Consent of Cooley Godward LLP (included in Exhibit 5.01).
24. Power of Attorney (appears on signature page).
99.01 Amendment and Restatement of the PacifiCare Health Systems,
Inc. Savings and Profit Sharing Plan.
99.02 Form of 1997 Premium Priced Stock Option Plan (incorporated
by reference to Exhibit 10.10 to the Registrant's Form 10-K
for year ended December 31, 1997).
Item 9. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes;
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such information
in the registration statement:
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (ii) do not apply if
the registration statement is on Form S-3, Form S-8 or Form F-3 and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(d) Pursuant to Item 8(b) of Form S-8, in lieu of an Internal Revenue
Service determination letter that the Plan, as amended and restated, is
qualified under Section 401 of the Internal Revenue Code of 1986, as amended,
the undersigned Registrant hereby undertakes to submit the Plan (as so amended
and restated) and any amendments thereto to the Internal Revenue Service in a
timely manner and to make all changes required by the Internal Revenue Service
to qualify the Plan.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-8 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Santa Ana, State of California, on
this 20th day of March, 1998.
PACIFICARE HEALTH SYSTEMS, INC.
/s/Alan R. Hoops
---------------------------------------------
By: Alan R. Hoops
Title: President and Chief Executive Officer
Pursuant to the requirements of the Act, the Administrator of the Amendment
and Restatement of the PacifiCare Health Systems, Inc. Savings and Profit
- -Sharing Plan has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Santa Ana,
State of California on this 20th day March, 1998.
AMENDMENT AND RESTATEMENT OF THE
PACIFICARE HEALTH SYSTEMS, INC. SAVINGS
AND PROFIT-SHARING PLAN
/s/ Alan R. Hoops
------------------------------------------------
By: Alan R. Hoops
Title: President and Chief Executive Officer
PacifiCare Health Systems, Inc.,
as Administrator
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that each of the undersigned whose signature
appears below constitutes and appoints Alan R. Hoops, Wayne B. Lowell and Joseph
S. Konowiecki and each of them (with full power of each of them to act alone),
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him and on his behalf, and in his name,
place and stead, in any all capacities to execute and sign any and all
amendments or post-effective amendments to this registration statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission granting unto said
attorneys-in fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in
fact and agents or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof and the Registrant hereby
confers like authority on its behalf.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Terry O. Hartshorn Chairman of the Board March 20, 1998
- --------------------------
Terry O. Hartshorn
/s/ Alan R. Hoops President and Chief March 20, 1998
- -------------------------- Executive Officer and
Alan R. Hoops Director (Principal Executive Officer)
/s/ Wayne B. Lowell Executive Vice President March 20, 1998
- -------------------------- and Chief Financial Officer
Wayne B. Lowell (Principal Financial Officer)
/s/ Mary C. Langsdorf Vice President and Corporate March 20, 1998
- -------------------------- Controller (Principal
Mary C. Langsdorf Accounting Officer)
/s/ Jack R. Anderson Director March 20, 1998
- --------------------------
Jack R. Anderson
/s/ Craig T. Beam Director March 20, 1998
- --------------------------
Craig T. Beam
/s/ Richard M. Burdge Director March 20, 1998
- --------------------------
Richard M. Burdge
<PAGE>
/s/ Bradley C. Call Director March 20, 1998
- --------------------------
Bradley C. Call
/s/ David R. Carpenter Director March 20, 1998
- --------------------------
David R. Carpenter
/s/ Gary L. Leary Director March 20, 1998
- --------------------------
Gary L. Leary
/s/ David A. Reed Director March 20, 1998
- --------------------------
David A. Reed
/s/ Warren E. Pinckert II Director March 20, 1998
- --------------------------
Warren E. Pinckert II
/s/ Lloyd E. Ross Director March 20, 1998
- --------------------------
Lloyd E. Ross
/s/ Jean Bixby Smith Director March 20, 1998
- --------------------------
Jean Bixby Smith
</TABLE>
<PAGE>
PACIFICARE HEALTH SYSTEMS, INC.
FORM S-8
REGISTRATION STATEMENT
EXHIBIT INDEX
Exhibit Number
- --------------
4.01 Form of Specimen Certificate for Registrant's Class B Common Stock
(incorporated by reference to Exhibit 4.02 to the Registrant's
Registration Statement on Form 8-K, dated February 21, 1997).
5.01 Opinion of Cooley Godward LLP.
23.01 Consent of Ernst & Young LLP.
23.02 Consent of Cooley Godward LLP (included in Exhibit 5.01).
24. Power of Attorney (appears on signature page).
99.01 Amendment and Restatement of the PacifiCare Health Systems, Inc. Savings
and Profit Sharing Plan.
99.02 Form of 1997 Premium Priced Stock Option Plan (incorporated by reference
to Exhibit 10.10 to the Registrant's Form 10-K for year ended December
31, 1997).
<PAGE>
[LETTERHEAD]
EXHIBIT 5.1
March 19, 1998
PacifiCare Health Systems, Inc.
3120 Lake Center Drive
Santa Ana, CA 92704
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by PacifiCare Health Systems, Inc. (the "Company") of a
Registration Statement on Form S-8 (the "Registration Statement") with the
Securities and Exchange Commission covering the offering of up to 2,400,000
shares of the Company's Class B Common Stock, $0.01 par value per share,
pursuant to the 1997 Premium Priced Stock Option Plan (the "Option Plan") and
1,500,000 shares of the Company's Class B Common Stock, $0.01 par value per
share (collectively with the shares being offered under the Option Plan, the
"Shares") pursuant to the Amendment and Restatement of the PacifiCare Health
Systems, Inc. Savings and Profit-Sharing Plan (the "Savings Plan" and with
the Option Plan, collectively the "Plans").
In connection with this opinion, we have examined the Registration Statement,
your Certificate of Incorporation and By-laws, as amended, the Plans and such
other documents, records, certificates, memoranda and other instruments as we
deem necessary as a basis for this opinion. We have assumed the genuineness
and authenticity of all documents submitted to us as originals, the
conformity to originals of all documents submitted to us as copies thereof,
and the due execution and delivery of all documents where due execution and
delivery are a prerequisite to the effectiveness thereof.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Shares, when sold and issued in accordance with the Plans,
the Registration Statement and related Prospectus, will be validly issued,
fully paid, and nonassessable (except as to shares issued pursuant to certain
deferred payment arrangements, which will be fully paid and nonassessable
when such deferred payments are made in full).
We consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
COOLEY GODWARD LLP
By: /s/ Michael R. Jacobson
-----------------------
Michael R. Jacobson
<PAGE>
Exhibit 23.01
CONSENT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Registration Statement
(Form S-8) and related Prospectus pertaining to the 1997 Premium Priced Stock
Option Plan and the related Prospectus pertaining to the Amendment and
Restatement of the PacifiCare Health Systems, Inc. Savings and Profit-Sharing
Plan of PacifiCare Health Systems, Inc. of our report dated February 24, 1998
with respect to the consolidated financial statements and schedule of PacifiCare
Health Systems, Inc., included in the Annual Report on Form 10-K for the year
ended December 31, 1997.
ERNST & YOUNG LLP
Los Angeles, California
March 13, 1998
<PAGE>
AMENDMENT AND RESTATEMENT OF
THE PACIFICARE HEALTH SYSTEMS, INC.
SAVINGS AND PROFIT-SHARING PLAN
<PAGE>
AMENDMENT AND RESTATEMENT OF
THE PACIFICARE HEALTH SYSTEMS, INC.
SAVINGS AND PROFIT-SHARING PLAN
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
PREAMBLE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Section 1.1. - General . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Section 1.2. - Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Section 1.3. - Active Participant. . . . . . . . . . . . . . . . . . . . . . .3
Section 1.4. - Administrator . . . . . . . . . . . . . . . . . . . . . . . . .3
Section 1.5. - Annual Addition . . . . . . . . . . . . . . . . . . . . . . . .3
Section 1.6. - Bargaining Unit . . . . . . . . . . . . . . . . . . . . . . . .4
Section 1.7. - Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . .4
Section 1.8. - Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Section 1.9. - Break in Service Year . . . . . . . . . . . . . . . . . . . . .5
Section 1.10. - Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Section 1.11. - Company; Company Affiliate. . . . . . . . . . . . . . . . . . .5
Section 1.12. - Company Stock . . . . . . . . . . . . . . . . . . . . . . . . .6
Section 1.13. - Company Stock Fund. . . . . . . . . . . . . . . . . . . . . . .6
Section 1.14. - Compensation. . . . . . . . . . . . . . . . . . . . . . . . . .6
Section 1.15. - Contribution Group. . . . . . . . . . . . . . . . . . . . . . .6
Section 1.16. - Contribution Percentage . . . . . . . . . . . . . . . . . . . .7
Section 1.17. - Deferral Percentage . . . . . . . . . . . . . . . . . . . . . .8
Section 1.18. - Deferred Compensation . . . . . . . . . . . . . . . . . . . . .9
Section 1.19. - Deferred Compensation Account . . . . . . . . . . . . . . . . .9
Section 1.20. - Direct Rollover . . . . . . . . . . . . . . . . . . . . . . . .9
Section 1.21. - Direct Rollover Distributee . . . . . . . . . . . . . . . . . .9
Section 1.22. - Disability Retirement . . . . . . . . . . . . . . . . . . . . .9
Section 1.23. - Disability Retirement Date. . . . . . . . . . . . . . . . . . .9
Section 1.24. - Discretionary Contributions Account . . . . . . . . . . . . . .9
Section 1.25. - Eligible Retirement Plan. . . . . . . . . . . . . . . . . . . .9
Section 1.26. - Eligible Rollover Distribution. . . . . . . . . . . . . . . . 10
Section 1.27. - Employee. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 1.28. - ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 1.29. - Hardship. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 1.30. - Highly Compensated Employee . . . . . . . . . . . . . . . . . 12
Section 1.31. - Hour of Service . . . . . . . . . . . . . . . . . . . . . . . 12
Section 1.32. - Investment Fund . . . . . . . . . . . . . . . . . . . . . . . 15
Section 1.33. - Leveling Method . . . . . . . . . . . . . . . . . . . . . . . 15
Section 1.34. - Matching Account. . . . . . . . . . . . . . . . . . . . . . . 16
Section 1.35. - Military Leave. . . . . . . . . . . . . . . . . . . . . . . . 16
Section 1.36. - Normal Retirement . . . . . . . . . . . . . . . . . . . . . . 17
i
<PAGE>
AMENDMENT AND RESTATEMENT OF
THE PACIFICARE HEALTH SYSTEMS, INC.
SAVINGS AND PROFIT-SHARING PLAN
TABLE OF CONTENTS
PAGE
Section 1.37. - Normal Retirement Date. . . . . . . . . . . . . . . . . . . . 17
Section 1.38. - Participant . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 1.39. - Payday. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 1.40. - Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 1.41. - Plan Representative . . . . . . . . . . . . . . . . . . . . . 17
Section 1.42. - Plan Year . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 1.43. - Rollover Account. . . . . . . . . . . . . . . . . . . . . . . 17
Section 1.44. - Rules of the Plan . . . . . . . . . . . . . . . . . . . . . . 18
Section 1.45. - Separation from the Service . . . . . . . . . . . . . . . . . 18
Section 1.46. - Service . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 1.47. - Spousal Consent . . . . . . . . . . . . . . . . . . . . . . . 18
Section 1.48. - Spouse; Surviving Spouse. . . . . . . . . . . . . . . . . . . 19
Section 1.49. - Statutory Compensation. . . . . . . . . . . . . . . . . . . . 19
Section 1.50. - Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 1.51. - Trust Agreement . . . . . . . . . . . . . . . . . . . . . . . 20
Section 1.52. - Trust Fund. . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 1.53. - Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 1.54. - Two Percent Contributions Account . . . . . . . . . . . . . . 20
Section 1.55. - Vested. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 1.56. - Years of Vesting Service. . . . . . . . . . . . . . . . . . . 20
ARTICLE II. ELIGIBILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2.1. - Requirements for Participation . . . . . . . . . . . . . . . . 20
Section 2.2. - Notice of Participation. . . . . . . . . . . . . . . . . . . . 21
Section 2.3. - Enrollment Form. . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.4. - Inactive Status. . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE III. PARTICIPANTS' DEFERRALS . . . . . . . . . . . . . . . . . . . . . . . 22
Section 3.1. - Deferral of Compensation . . . . . . . . . . . . . . . . . . . 22
Section 3.2. - Suspension of Deferral . . . . . . . . . . . . . . . . . . . . 22
Section 3.3. - Commencement, Resumption or Change of Deferred Compensation. . 22
Section 3.4. - Deposit in Trust . . . . . . . . . . . . . . . . . . . . . . . 23
Section 3.5. - Withdrawal from Deferred Compensation Account other than for
Hardship . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 3.6. - Hardship Withdrawal from Deferred Compensation Account . . . . 23
Section 3.7. - Other Withdrawals Prohibited . . . . . . . . . . . . . . . . . 25
Section 3.8. - Deferral Percentage Fail-Safe Provisions . . . . . . . . . . . 25
ii
<PAGE>
AMENDMENT AND RESTATEMENT OF
THE PACIFICARE HEALTH SYSTEMS, INC.
SAVINGS AND PROFIT-SHARING PLAN
TABLE OF CONTENTS
PAGE
ARTICLE IV. CONTRIBUTIONS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . 28
Section 4.1. - Determination of Annual Contribution . . . . . . . . . . . . . 28
Section 4.2. - Maximum Annual Contribution. . . . . . . . . . . . . . . . . . 29
Section 4.3. - Contribution Date. . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE V. PARTICIPATION IN COMPANY CONTRIBUTIONS AND FORFEITURES. . . . . . . . . 30
Section 5.1. - Deferred Compensation Account. . . . . . . . . . . . . . . . . 30
Section 5.2. - Two Percent Contributions; Matching Account;
Discretionary Contributions Account . . . . . . . . . . 30
Section 5.3. - Allocation of Company Contributions. . . . . . . . . . . . . . 30
Section 5.4. - Allocation of Forfeitures. . . . . . . . . . . . . . . . . . . 31
Section 5.5. - Contribution Percentage Fail-Safe Provisions . . . . . . . . . 32
ARTICLE VI. INVESTMENT OF ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 6.1. - Investment Options . . . . . . . . . . . . . . . . . . . . . . 33
Section 6.2. - Description of Investment Funds. . . . . . . . . . . . . . . . 34
Section 6.3. - Effect of Non-Election . . . . . . . . . . . . . . . . . . . . 34
Section 6.4. - Company Stock Fund . . . . . . . . . . . . . . . . . . . . . . 34
Section 6.5. - ERISA Section 404(c) Compliance. . . . . . . . . . . . . . . . 35
ARTICLE VII. VALUATION OF THE TRUST FUND AND ACCOUNTS. . . . . . . . . . . . . . . 37
Section 7.1. - Determination of Values of Investment Funds. . . . . . . . . . 37
Section 7.2. - Allocation of Investment Fund Values . . . . . . . . . . . . . 37
Section 7.3. - Applicability of Account Values. . . . . . . . . . . . . . . . 37
ARTICLE VIII. VESTING OF INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 8.1. - Vesting of Accounts. . . . . . . . . . . . . . . . . . . . . . 37
Section 8.2. - Additional Vesting of Accounts . . . . . . . . . . . . . . . . 38
ARTICLE IX. EMPLOYMENT AFTER NORMAL RETIREMENT DATE. . . . . . . . . . . . . . . . 38
Section 9.1. - Continuation of Employment . . . . . . . . . . . . . . . . . . 38
Section 9.2. - Continuation of Participation. . . . . . . . . . . . . . . . . 38
Section 9.3. - Mandatory In-Service Distributions . . . . . . . . . . . . . . 39
iii
<PAGE>
AMENDMENT AND RESTATEMENT OF
THE PACIFICARE HEALTH SYSTEMS, INC.
SAVINGS AND PROFIT-SHARING PLAN
TABLE OF CONTENTS
PAGE
Section 9.4. - Voluntary In-Service Distributions . . . . . . . . . . . . . . 39
ARTICLE X. BENEFITS UPON RETIREMENT. . . . . . . . . . . . . . . . . . . . . . . . 39
Section 10.1. - Normal or Disability Retirement . . . . . . . . . . . . . . . 39
Section 10.2. - Rights upon Normal or Disability Retirement . . . . . . . . . 39
Section 10.3. - Distribution of Accounts. . . . . . . . . . . . . . . . . . . 39
ARTICLE XI. BENEFITS UPON DEATH. . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 11.1. - Designation of Beneficiary. . . . . . . . . . . . . . . . . . 41
Section 11.2. - Distribution on Death . . . . . . . . . . . . . . . . . . . . 41
ARTICLE XII. BENEFITS UPON RESIGNATION OR DISCHARGE. . . . . . . . . . . . . . . . 42
Section 12.1. - Distributions on Resignation or Discharge . . . . . . . . . . 42
Section 12.2. - Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 12.3. - Restoration of Forfeitures. . . . . . . . . . . . . . . . . . 42
ARTICLE XIII. TOP-HEAVY PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 13.1. - Top-Heavy Determination . . . . . . . . . . . . . . . . . . . 43
Section 13.2. - Minimum Benefits. . . . . . . . . . . . . . . . . . . . . . . 45
Section 13.3. - Vesting . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 13.4. - Limitation on Benefits. . . . . . . . . . . . . . . . . . . . 47
ARTICLE XIV. ADMINISTRATIVE PROVISIONS . . . . . . . . . . . . . . . . . . . . . . 47
Section 14.1. - Duties and Powers of the Administrator. . . . . . . . . . . . 47
Section 14.2. - Administrative Committee. . . . . . . . . . . . . . . . . . . 48
Section 14.3. - Acceptance. . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 14.4. - Resignation . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 14.5. - Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 14.6. - Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 14.7. - Majority Rule . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 14.8. - Expenses of Administration. . . . . . . . . . . . . . . . . . 48
Section 14.9. - Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 14.10. - Statement to Participants. . . . . . . . . . . . . . . . . . 49
Section 14.11. - Inspection of Records. . . . . . . . . . . . . . . . . . . . 49
iv
<PAGE>
AMENDMENT AND RESTATEMENT OF
THE PACIFICARE HEALTH SYSTEMS, INC.
SAVINGS AND PROFIT-SHARING PLAN
TABLE OF CONTENTS
PAGE
Section 14.12. - Claims Procedure . . . . . . . . . . . . . . . . . . . . . . 50
Section 14.13. - Conflicting Claims . . . . . . . . . . . . . . . . . . . . . 51
Section 14.14. - Effect of Delay or Failure to Ascertain Amount
Distributable or to Locate Distributee . . . . . . . . . . . 51
Section 14.15. - Service of Process . . . . . . . . . . . . . . . . . . . . . 52
Section 14.16. - Limitations upon Powers of the Administrator . . . . . . . . 52
Section 14.17. - Effect of Administrator Action . . . . . . . . . . . . . . . 52
Section 14.18. - Contributions to Rollover Accounts . . . . . . . . . . . . . 52
Section 14.19. - Direct Rollovers . . . . . . . . . . . . . . . . . . . . . . 53
Section 14.20. - Withdrawals from Rollover Accounts . . . . . . . . . . . . . 53
Section 14.21. - Loans to Participants or Former Participants and
Beneficiaries. . . . . . . . . . . . . . . . . . . . . . . . 54
Section 14.22. - Assignments, etc., Prohibited; Distributions
Pursuant to Qualified Domestic Relations Orders. . . . . . . 56
Section 14.23. - Correction of Administrative Error; Special Contribution . . 57
ARTICLE XV. TERMINATION, DISCONTINUANCE AMENDMENT,
MERGER, ADOPTION OF PLAN. . . . . . . . . . . . . . . . . . . . . . . 57
Section 15.1. - Termination of Plan; Discontinuance of Contributions. . . . . 57
Section 15.2. - Amendment of Plan . . . . . . . . . . . . . . . . . . . . . . 58
Section 15.3. - Retroactive Effect of Plan Amendment. . . . . . . . . . . . . 58
Section 15.4. - Consolidation or Merger; Adoption of Plan by Other
Companies . . . . . . . . . . . . . . . . . . . . . . . . . . 58
ARTICLE XVI. MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . 59
Section 16.1. - Identification of Fiduciaries . . . . . . . . . . . . . . . . 59
Section 16.2. - Allocation of Fiduciary Responsibilities. . . . . . . . . . . 59
Section 16.3. - Limitation on Rights of Employees . . . . . . . . . . . . . . 60
Section 16.4. - Limitation on Annual Additions;
Treatment of Otherwise Excessive Allocations. . . . . . . . . 60
Section 16.5. - Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 16.6. - Trustee Actions during Tender Offer . . . . . . . . . . . . . 63
Section 16.7. - Qualified Military Service. . . . . . . . . . . . . . . . . . 65
Section 16.8. - Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 16.9. - Genders and Plurals . . . . . . . . . . . . . . . . . . . . . 65
Section 16.10. - Titles . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 16.11. - References . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 16.12. - Use of Trust Funds . . . . . . . . . . . . . . . . . . . . . 65
v
<PAGE>
AMENDMENT AND RESTATEMENT OF
THE PACIFICARE HEALTH SYSTEMS, INC.
SAVINGS AND PROFIT-SHARING PLAN
TABLE OF CONTENTS
PAGE
Exhibit A - List of Sponsoring Companies Effective as of February 19, 1998 . . . A-1
Exhibit B - Merger of The Health Plan of America
Employee Incentive Savings Plan. . . . . . . . . . . . . . . . . . . B-1
Exhibit C - Special Service Crediting and Eligibility Provisions
Relating to Certain Former Employees of Freedom Plan Inc.. . . . . . C-1
Exhibit D - Special Service Crediting and Eligibility Provisions
Relating to Certain Former Employees of Freedom Plan, Inc. . . . . . D-1
</TABLE>
vi
<PAGE>
AMENDMENT AND RESTATEMENT OF
THE PACIFICARE HEALTH SYSTEMS, INC.
SAVINGS AND PROFIT-SHARING PLAN
PacifiCare Operations, Inc., a Delaware corporation (formerly named
"PacifiCare Health Systems, Inc."), by resolution of its Board of Directors
adopted on March 18, 1985, adopted The PacifiCare Health Systems, Inc. Savings
and Profit-Sharing Plan (the "Plan") for the exclusive benefit of its eligible
Employees, effective as of June 1, 1985. The Plan has been amended on March 20,
1987, May 26, 1989, September 28, 1989, January 1, 1991, December 17, 1992,
November 13, 1993, March 2, 1994 and March 16, 1996.
Effective as of February 14, 1997, PacifiCare Operations, Inc. became
a wholly-owned subsidiary of PacifiCare Health Systems, Inc., a Delaware
corporation (formerly named "N-T Holdings, Inc."). Also, effective as of
February 14, 1997, FHP International Corporation became a wholly-owned
subsidiary of PacifiCare Health Systems, Inc.
FHP International Corporation and certain of its wholly-owned
subsidiaries adopted the Plan for the benefit of their eligible Employees,
effective as of January 1, 1998.
PacifiCare Health Systems, Inc. adopted the Plan for the benefit of
its eligible Employees, effective as of February 19, 1998. The Companies that
have adopted the Plan and that sponsor the Plan effective as of February 19,
1998 are listed on Exhibit A hereto.
In order to comply with amendments to the Internal Revenue Code as
amended by the Small Business Job Protection Act of 1996 and the Taxpayer Relief
Act of 1997 and make certain other changes, this Amendment and Restatement to
the Plan has been adopted by a resolution of the Board of Directors of the
PacifiCare Health Systems, Inc. on February 19, 1998, effective as of the date
thereof, except as otherwise provided in Exhibit D hereto. This Amendment and
Restatement to the Plan constitutes a complete amendment, restatement and
continuation of the Plan.
The purposes of the Plan are:
(1) To permit Participants to share in the Company's earnings.
(2) To stimulate and maintain among Participants a sense of
responsibility, cooperative effort and a sincere interest in the progress
and success of the Company.
(3) To increase the efficiency of Participants and to encourage them
to remain with the Company until retirement from active service.
(4) To provide security for Participants by establishing a plan under
which each Participant's share of Company contributions, his deferrals and
the earnings thereon will be invested and accumulated to create a fund to
benefit him in the event of his disability or other termination of
employment.
<PAGE>
The Plan is a profit-sharing plan which is intended to comply with the
provisions of Sections 401, 401(k), 402(a) and other applicable provisions of
the Internal Revenue Code of 1986, as amended, similar provisions of applicable
state law, the Employee Retirement Income Security Act of 1974 ("ERISA"), as
amended and Section 7(e)(4) of the Fair Labor Standards Act of 1938, as amended.
The Plan is an "eligible individual account plan," as defined in ERISA
Section 407(d)(3), and provides for the acquisition and holding of "qualifying
employer securities," as defined in ERISA Section 407(d)(5).
2
<PAGE>
ARTICLE I.
DEFINITIONS
SECTION 1.1. - GENERAL
Whenever any of the following terms is used in the Plan with the
first letter or letters capitalized, it shall have the meaning specified below
unless the context clearly indicates to the contrary.
SECTION 1.2. - ACCOUNTS
(a) "Account" or "Accounts" of a Participant or former
Participant shall mean, as the context indicates, any one or more of his
Deferred Compensation Account, his Rollover Account, his Matching Account, his
Two Percent Contributions Account and his Discretionary Contributions Account,
if any, in the Trust Fund established in accordance with Sections 5.1, 14.18,
5.2(b), 5.2(a) and 5.2(c), respectively.
(b) The provisions of Exhibit B hereto shall apply to the "HPA
Accounts" of a Participant or former Participant in the Trust Fund. The
"Accounts" of such a Participant or former Participant shall include his HPA
Accounts.
SECTION 1.3. - ACTIVE PARTICIPANT
"Active Participant" shall mean a Participant who is an Employee,
is not in a Bargaining Unit and is not in a position or classification
designated by the Administrator as excluded from eligibility to participate in
the Plan.
SECTION 1.4. - ADMINISTRATOR
"Administrator" shall mean PacifiCare Health Systems, Inc.,
acting through its Chief Executive Officer or his delegate, including the
Committee.
SECTION 1.5. - ANNUAL ADDITION
"Annual Addition" of a Participant for the Plan Year in question
shall mean the sum of
(a) Company contributions and forfeitures allocated to his
Two Percent Contributions Account, his Matching Account and his
Discretionary Contributions Account for that Plan Year,
(b) Company contributions and forfeitures allocated to his
Deferred Compensation Account for that Plan Year (excluding any excess
amounts determined under Code Section 402(g) which are distributed to him
pursuant to Section 16.4(b) not later than the April 15 following the
calendar year in which such excess amounts were deferred),
A-3
<PAGE>
(c) Company contributions and forfeitures allocated to his
accounts under all other qualified defined contribution plans, if any, of
the Company and any Company Affiliate for that Plan Year,
(d) His personal contributions under all other qualified
defined contribution plans, if any, of the Company and any Company
Affiliate for that Plan Year, and
(e) Except for purposes of Section 16.4(a)(i), the sum of
(i) Company contributions allocated after March 31,
1984 to an individual medical account as defined in Code Section
415(l)(1), if any, which is maintained under a qualified pension or
annuity plan, and
(ii) Company contributions paid or accrued for Plan
Years ending after December 31, 1985, if any, and allocated to the
separate account of a Key Employee (as defined in Section 13.1(b)(iv))
for the purpose of providing post-retirement medical benefits,
whether or not such allocations or contributions have been withdrawn or
distributed pursuant to Sections 3.5, 3.6, 3.8 or 5.5. In the event the Company
contributes an amount to a Participant's Accounts because of an erroneous
failure to allocate amounts in a prior Plan Year, the contribution shall not be
considered an Annual Addition with respect to the Participant for that
particular Plan Year, but shall be considered an Annual Addition for the Plan
Year to which it relates. If the amount so contributed in the particular Plan
Year takes into account actual investment gains attributable to the period
subsequent to the Plan Year to which the contribution relates, the portion of
the total contribution which consists of such gains shall not be considered as
an Annual Addition for any Plan Year.
SECTION 1.6. - BARGAINING UNIT
"Bargaining Unit" shall mean a bargaining unit covered by a
collective bargaining agreement with the Company
(a) if retirement benefits were the subject of good faith
bargaining with respect to such agreement, and
(b) if such agreement does not provide for the coverage under
the Plan of Employees in such unit.
SECTION 1.7. - BENEFICIARY
"Beneficiary" shall mean a person or trust properly designated by
a Participant or former Participant to receive benefits, or such Participant's
Spouse or heirs at law, as provided in Article XI (or Exhibit B hereto).
4
<PAGE>
SECTION 1.8. - BOARD
"Board" shall mean the Board of Directors of PacifiCare Health
Systems, Inc.
SECTION 1.9. - BREAK IN SERVICE YEAR
(a) Except as provided in subsection (b), "Break in Service
Year" of an Employee or former Employee shall mean the 365-day period
(i) which begins on the later of
a the date of his Separation from the Service, or
b the second anniversary of the first day of such
Employee's absence from work
1 by reason of pregnancy of the Employee,
2 by reason of the birth of a child of the
Employee,
3 by reason of the placement of a child with
the Employee in connection with the adoption of such child by the
Employee, or
4 for purposes of caring for such child for a
period beginning immediately following such birth or placement;
provided, however, the Employee furnishes to the Administrator (or its
delegate) such timely information as the Administrator (or its
delegate) may reasonably require to establish that the absence from
work is for a reason or purpose described above, and
(ii) during no part of which he was an Employee or employed
by a Company Affiliate.
(b) For purposes of Section 2.1(b)(ii), "Break in Service Year"
of an Employee or former Employee shall mean any Plan Year beginning on or after
the date of such Employee's first Hour of Service during which he did not have
more than 500 Hours of Service.
SECTION 1.10. - CODE
"Code" shall mean the Internal Revenue Code of 1986, as amended.
SECTION 1.11. - COMPANY; COMPANY AFFILIATE
(a) "Company" shall mean PacifiCare Health Systems, Inc., any
other company which subsequently adopts the Plan as a whole or as to any one or
more divisions, in accordance
5
<PAGE>
with Section 15.4(c), and any successor company which continues the Plan under
Section 15.4(a). The companies that have adopted the Plan and that sponsor the
Plan effective as of January 1, 1998 are listed on Exhibit A hereto.
(b) "Company Affiliate" shall mean any employer which, at the time of
reference, was, with the Company, a member of a controlled group of corporations
or trades or businesses under common control, or a member of an affiliated
service group, as determined under regulations issued by the Secretary of the
Treasury or his delegate under Code Sections 414(b), (c), (m) and 415(h) and any
other entity required to be aggregated with the Company pursuant to regulations
issued under Code Section 414(o).
SECTION 1.12. - COMPANY STOCK
"Company Stock" shall mean shares of Class B Common Stock, $0.01
par value, of PacifiCare Health Systems, Inc.
SECTION 1.13. - COMPANY STOCK FUND
"Company Stock Fund" shall mean the Investment Fund invested in
shares of Company Stock, cash and cash equivalents in accordance with Section
6.4.
SECTION 1.14. - COMPENSATION
(a) "Compensation" of a Participant for any Plan Year shall mean
his Statutory Compensation for such Plan Year, excluding all reimbursements or
other expense allowances, fringe benefits (cash and noncash), moving expenses,
deferred compensation, and welfare benefits (including severance benefits), but
in no event greater than $160,000 (adjusted for increases in the cost of living
described in Code Section 401(a)(17)); provided, that, if the Plan Year is less
than 12 months, such limit shall be reduced to an amount equal to such limit
multiplied by a fraction, the numerator representing the number of months in the
Plan Year and the denominator of which is 12.
(b) The Administrator may elect for any Plan Year and solely for
the purposes of Sections 1.16 and 1.17 to exclude from Compensation of
Participants that part thereof that is contributed pursuant to a salary
reduction agreement and is not includible in gross income under Code Section
125, 402(e)(3), 402(h) or 403(b).
SECTION 1.15. - CONTRIBUTION GROUP
(a) "Contribution Group" of a Participant for a Plan Year shall
mean the group comprised of the Participants who are employed on the last day of
such Plan Year by one or more of the companies, divisions, facilities or
operational units of the Company designated by the Administrator for purposes of
allocating contributions to such group of Participants under Sections 4.1(d) and
5.3(d); provided, however, that, in the event a Participant is transferred from
the Company to a Company Affiliate during a Plan Year and is employed by a
Company Affiliate on the last day of such Plan Year, such Participant shall be
considered employed by the last company, division, facility or operational unit
of the Company that employed such Participant on
6
<PAGE>
the last day of such Plan Year, for purposes of determining such Participant's
membership in a Contribution Group under this subsection (a) for such Plan Year.
(b) The Administrator shall designate the "Contribution Groups"
for any Plan Year not later than the first day of such Plan Year; provided,
however, that, in the event that the Administrator fails to designate one or
more "Contribution Groups" for any Plan Year, all Active Participants who are
employed on the last day of the Plan Year by the Company shall be treated as
members of a single "Contribution Group."
SECTION 1.16. - CONTRIBUTION PERCENTAGE
(a) "Contribution Percentage" for a Plan Year, with respect to
Participants who were Highly Compensated Employees for such Plan Year, shall
mean the average of the decimal numbers obtained, as to each Participant who was
a Highly Compensated Employee for such Plan Year, by dividing
(i) his allocations for such Plan Year described in
subsection (c), by
(ii) his Compensation for such Plan Year.
(b) "Contribution Percentage" for a Plan Year, with respect to
Participants who were not Highly Compensated Employees for such Plan Year, shall
mean, the average of the decimal numbers obtained, as to each Participant who
was not a Highly Compensated Employee for such Plan Year, by dividing
(i) his allocations for such Plan Year described in
subsection (c), by
(ii) his Compensation for such Plan Year.
(c) The allocations described in this subsection are
(i) allocations to his Matching Account under Section
5.3(b) (and employee contributions and employer matching contributions
under any other plans which are aggregated with the Plan under Code Section
401(m)(2)(B)),
(ii) allocations to his Deferred Compensation Account, to
the extent that the Administrator elects to take such allocations into
account under Section 5.5, and
(iii) allocations to his Two Percent Contributions
Account, to the extent the Administrator elects to take such allocations
into account under Section 5.5.
(d) For purposes of this Section, all plans required to be taken
into account under Code Section 401(m)(2)(B) shall be treated as a single plan.
This Section shall be applied separately with respect to each "plan" within the
meaning of Treas. Reg. Section 1.401(m)-1(f)(14).
7
<PAGE>
(e) The Administrator may elect to limit Compensation of a
Participant taken into account for purposes of subsection (a)(ii) and (b)(ii) to
amounts received by him while he is eligible to receive a contribution to his
Matching Account for the Plan Year; provided, however, that such determination
shall be applied uniformly to all Participants for the Plan Year in question.
SECTION 1.17. - DEFERRAL PERCENTAGE
(a) "Deferral Percentage" for a Plan Year, with respect to
Participants who were Highly Compensated Employees for such Plan Year, shall
mean the average of the decimal numbers obtained, as to each Participant who was
a Highly Compensated Employee for such Plan Year, by dividing
(i) the amount, if any, credited to his Deferred
Compensation Account for such Plan Year under the Plan and any other plans
which are aggregated with the Plan under Code Section 401(k)(3)(A)
(including any excess amounts described in Code Section 402(g), but
excluding any excess amounts distributed to him pursuant to Section
16.4(b)) (and, to the extent elected by the Administrator under Section
3.8(d), amounts credited to his Two Percent Contributions Account for that
Plan Year), by
(ii) his Compensation for such Plan Year.
(b) "Deferral Percentage" for a Plan Year, with respect to
Participants who were not Highly Compensated Employees for such Plan Year, shall
mean the average of the decimal numbers obtained, as to each Participant who was
not a Highly Compensated Employee for such Plan Year, by dividing
(i) the amount, if any, credited to his Deferred
Compensation Account for such Plan Year under the Plan and any other plans
which are aggregated with the Plan under Code Section 401(k)(3)(A)
(excluding any excess amounts distributed to him pursuant to Section
16.4(b)) (and, to the extent elected by the Administrator under Section
3.8(d), amounts credited to his Two Percent Contributions Account for that
Plan Year), by
(ii) his Compensation for such Plan Year.
(c) For purposes of this Section, all plans required to be taken
into account under Code Section 401(k)(3)(A)(ii) shall be treated as a single
plan. This Section shall be applied separately with respect to each "plan,"
within the meaning of Treas. Reg. Section 1.401(k)-1(g)(11).
(d) The Administrator may elect to limit Compensation of a
Participant taken into account for purposes of subsection (a)(ii) and (b)(ii) to
amounts received by him while he is eligible to defer Compensation for the Plan
Year; provided, however, that such determination shall be applied uniformly to
all Participants for the Plan Year in question.
8
<PAGE>
SECTION 1.18. - DEFERRED COMPENSATION
"Deferred Compensation" of a Participant shall mean an amount
contributed by the Company to the Plan for him under Section 4.1(a).
SECTION 1.19. - DEFERRED COMPENSATION ACCOUNT
"Deferred Compensation Account" of a Participant shall mean his
individual account in the Trust Fund established in accordance with Section 5.1.
SECTION 1.20. - DIRECT ROLLOVER
"Direct Rollover" shall mean a payment by the Plan to an Eligible
Retirement Plan designated by a Direct Rollover Distributee.
SECTION 1.21. - DIRECT ROLLOVER DISTRIBUTEE
"Direct Rollover Distributee" shall mean a Participant or former
Participant, Surviving Spouse of a Participant or former Participant, or a
Spouse or former Spouse of a Participant or former Participant who is an
alternate payee under a "qualified domestic relations order," as defined in Code
Section 414(p).
SECTION 1.22. - DISABILITY RETIREMENT
"Disability Retirement" of a Participant shall mean his
Separation from the Service authorized by the Administrator upon its finding,
based on competent medical evidence, that the Participant, as a result of mental
or physical disease or condition, will be permanently unable to discharge his
assigned duties.
SECTION 1.23. - DISABILITY RETIREMENT DATE
"Disability Retirement Date" of a Participant shall mean the date
(prior to his Normal Retirement Date) fixed by the Administrator for his
Disability Retirement.
SECTION 1.24. - DISCRETIONARY CONTRIBUTIONS ACCOUNT
"Discretionary Contributions Account" of a Participant shall mean
his individual account in the Trust Fund established in accordance with Section
5.2(c).
SECTION 1.25. - ELIGIBLE RETIREMENT PLAN
"Eligible Retirement Plan" shall mean an individual retirement
account (described in Code Section 408(a)), an individual retirement annuity
(described in Code Section 408(b)), an annuity plan (described in Code Section
403(a)), or a qualified trust (described in Code Section 401(a)), that will
accept a Direct Rollover Distributee's Eligible Rollover Distribution; provided,
however, that in the case of an Eligible Rollover Distribution to a Direct
Rollover Distributee who is a Surviving Spouse of a Participant or former
Participant, an "Eligible Retirement Plan" shall mean only an individual
retirement account or an individual retirement annuity.
9
<PAGE>
SECTION 1.26. - ELIGIBLE ROLLOVER DISTRIBUTION
(a) Except as provided in subsection (b),"Eligible Rollover
Distribution" shall mean any distribution of all or any portion of a
Participant's or former Participant's Accounts to a Direct Rollover Distributee.
(b) "Eligible Rollover Distribution" shall not mean any
distribution of all or a portion of a Participant's or former Participant's
Accounts
(i) 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 Direct Rollover Distributee or the joint lives (or joint
life expectancies) of the Direct Rollover Distributee and the Direct
Rollover Distributee's Beneficiary,
(ii) that is paid for a specified period of ten years or
more,
(iii) that is part of a series of distributions during a
calendar year to the extent that such distributions are expected to total
less than $200 or a total lump sum distribution which is equal to less than
$200, as described in Temp. Reg. Section 1.401(a)(31)-1T A-11,
(iv) to the extent such distribution is required under Code
Section 401(a)(9), or
(v) to the extent such distribution is not includable in
gross income (determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
SECTION 1.27. - EMPLOYEE
"Employee" shall mean any person who renders services to the
Company in the status of an employee as the term is defined in Code Section
3121(d). Except as provided in Subsection 1.30(b) and Section 1.31, "Employee"
shall not include leased employees treated as Employees of the Company pursuant
to Code Sections 414(n) and 414(o) or employees of a Company Affiliate (or
leased employees treated as employees of a Company Affiliate).
SECTION 1.28. - ERISA
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
SECTION 1.29. - HARDSHIP
(a) "Hardship" of a Participant as determined by the
Administrator in its discretion on the basis of all relevant facts and
circumstances and in accordance with the following nondiscriminatory and
objective standards, uniformly interpreted and consistently applied, and
10
<PAGE>
without regard to the existence of other resources which are reasonably
available to the Participant in question, shall mean any one or more of the
following:
(i) Unreimbursed expenses for medical care, described in
Code Section 213(d), previously incurred by him, his Spouse, or his
dependent (as described in Code Section 152), or necessary for him, his
Spouse or his dependent to obtain such medical care.
(ii) Costs directly related to the purchase (excluding
mortgage payments) of a principal residence for him.
(iii) Payment of tuition, related educational fees and
room and board expenses for the next 12 months of post-secondary education
for him, his Spouse, children, or his dependents (as so described).
(iv) Payments necessary to prevent his eviction from his
principal residence, or foreclosure on the mortgage of his principal
residence.
(v) Any other event identified by the Commissioner of Internal
Revenue in revenue rulings, notices and/or other documents of general
applicability for inclusion in the foregoing list.
(vi) Costs and expenses for any of the following which
constitute an immediate and heavy financial need of the Participant, if as
to him, it is a rare and unusual event:
a Funeral and/or burial of his Spouse, parent,
brother, sister, child, dependent (as defined in Code Section 152), or
member of his immediate household.
b The purchase or repair of a vehicle for his
transportation to and from work at the Company when no other method of
such transportation (including rental or lease of a vehicle) is
reasonably available.
c The payment of his taxes when necessary to avoid
penalties or seizure of his property.
d Withholding and/or payment of tax attributable to
his Hardship withdrawal.
e The satisfaction of a substantial judgment, award,
fine, levy, garnishment, or other liability assessed against or
incurred by him.
f An increase in the size of, or of living space in,
his principal residence, when reasonably necessary for the housing of
his immediate family and/or dependents (as defined in Code Section
152).
11
<PAGE>
g Repair or reconstruction of his principal
residence due to fire, flood, wind, earthquake, vandalism or other
casualty.
h Any other event of equal seriousness and financial
impact.
(b) A financial need shall not fail to qualify as immediate and heavy
merely because such need was reasonably foreseeable by the Participant or
voluntarily incurred by him.
SECTION 1.30. - HIGHLY COMPENSATED EMPLOYEE
(a) For any Plan Year, a "Highly Compensated Employee" shall mean any
Employee who
(i) in the previous Plan Year, or the current Plan Year, was a
5% owner of the Company (within the meaning of Code Section 414(q)(2)), or
(ii) in the previous Plan Year, had Statutory Compensation in
excess of $80,000 (adjusted as described in Code Section 414(q)(1)(B)), and
was in the group consisting of the top 20% of Employees (excluding for such
purpose such Employees described in Code Section 414(q)(5) as are excluded
under the Rules of the Plan) when ranked by Statutory Compensation for the
previous Plan Year.
For each Plan Year, the "top-paid group election" shall be applied for purposes
of the determination under this subsection (a).
(b) For purposes of this Section, "Employee" shall include leased
employees treated as Employees of the Company pursuant to Code Section 414(n) or
414(o) and shall include employees of a Company Affiliate treated as Employees,
but shall not include an Employee who is on a leave of absence throughout the
Plan Year, or an Employee who will not attain age 55 before the last day of such
Plan Year who receives Statutory Compensation for the Plan Year in an amount
less than 50% of such Employee's average annual Statutory Compensation for the
three consecutive calendar years preceding such Plan Year during which such
Employee received the greatest amount of Statutory Compensation (or the total
period of the Employee's employment by the Company or any Company Affiliate, if
less).
SECTION 1.31. - HOUR OF SERVICE
(a) Except as provided in subsection (b), "Hour of Service" of an
Employee (including a leased employee pursuant to Code Sections 414(n) and (o))
shall mean the following:
(i) Each hour for which he is paid or entitled to payment by the
Company or a Company Affiliate for the performance of services.
(ii) Each hour in or attributable to a period of time during
which he performs no duties (irrespective of whether he has had a
Separation from the Service) due to a vacation, holiday, illness,
incapacity (including disability), layoff, jury duty, military
12
<PAGE>
duty or a leave of absence for which he is so paid or so entitled to
payment by the Company or a Company Affiliate, whether direct or indirect;
provided, however, that
a no more than 501 Hours of Service shall be credited
under this paragraph to an Employee on account of any such period; and
b no such hours shall be credited to an Employee if
attributable to payments made or due under a plan maintained solely
for the purpose of complying with applicable workers' compensation,
unemployment compensation or disability insurance laws or to a payment
which solely reimburses the Employee for medical or medically related
expenses incurred by him.
(iii) Each hour for which he is entitled to back pay,
irrespective of mitigation of damages, whether awarded or agreed to by the
Company or a Company Affiliate.
(iv) Each hour while on unpaid leave pursuant to the Family and
Medical Leave Act of 1993 for which he would have been paid or entitled to
payment by the Company or a Company Affiliate had he been performing
services.
For purposes of this subsection, "Hours of Service" credited under paragraphs
(ii), (iii) and (iv) shall be calculated in accordance with 29 C.F.R. Section
2530.200b-2(b). Each Hour of Service shall be attributed to the computation
period in which it occurs except to the extent that the Company, in accordance
with 29 C.F.R. Section 2530.200b-2(c), credits such "Hour of Service" to another
computation period under a reasonable method consistently applied.
(b) If an Employee (including a leased employee pursuant to Code
Sections 414(n) and (o)) is employed in a regular, full-time classification or
position, and the employment of the Employee by the Company or a Company
Affiliate is exempt from the wage and hour requirements of the Fair Labor
Standards Act of 1938, as amended, during any semi-monthly payroll period and
such Employee is credited with one or more "Hours of Service" during such
semi-monthly payroll period pursuant to subsection (a), such Employee shall be
credited with 95 "Hours of Service" for such period in accordance with 29 C.F.R.
Section 2530.200b-3(e) in lieu of the "Hours of Service" that would otherwise
have been credited to such Employee for such period under subsection (a). In
the event of a semi-monthly period occurring in two computation periods, the
"Hours of Service" credited under this subsection shall be credited to the
computation periods in which the semi-monthly period commences in accordance
with 29 C.F.R. Section 2530.200b-3(e)(6). Notwithstanding the foregoing, in the
case of a payment to an Employee described in 29 C.F.R. Section
2530.200b-2(b)(2) (relating to payments not calculated on the basis of units of
time), such Employee shall be credited with the number of "Hours of Service"
determined under 29 C.F.R. Section 2530.200b-2(b)(2) and (3).
(c) (i) Solely for the purposes of Section 1.9(b), "Hour of Service"
of an Employee shall include each hour in or attributable to a Plan Year during
which the Employee performs no duties for the Company or a Company Affiliate
(irrespective of whether he has had a Separation from Service) due to an absence
from work
13
<PAGE>
a by reason of pregnancy of the Employee,
b by reason of the birth of a child of the Employee,
c by reason of the placement of a child with the
Employee in connection with the adoption of such child by the
Employee, or
d for purposes of caring for such child for a period
beginning immediately following such birth or placement,
subject, however, to the provisions of paragraphs (ii), (iii) or (iv) below.
(ii) The hours described in paragraph (i) are
a the Hours of Service which otherwise would normally
have been credited to the Employee but for such absence, or
b in any case in which the Plan is unable to determine
such hours, eight Hours of Service per day of such absence,
provided, however, that the total number of hours treated as Hours of
Service under paragraph (i) for any such reason or purpose shall not exceed
501.
(iii) The hours described in paragraph (ii) shall be treated
as Hours of Service under paragraph (i)
a only in the Plan Year in which the absence from work
for such reason or purpose begins if the Employee would be prevented
from incurring a Break in Service Year in such Plan Year solely
because of the provisions of paragraphs (i) and (ii), or
b in any other case, in the immediately following Plan
Year.
(iv) No credit for hours referred to in paragraphs (i), (ii) and
(iii) shall be given unless the Employee furnishes to the Administrator (or
its delegate) such timely information as the Administrator may reasonably
require to establish
a that the absence from work is for a reason or purpose
described in paragraph (i), and
b the number of days for which there was such an
absence.
(d) The Hours of Service of an Employee occurring prior to June 1,
1985 shall be determined by the Administrator from reasonably accessible records
by means of appropriate
14
<PAGE>
calculations and approximations or, if such records are insufficient to make an
appropriate determination, by reasonable estimation.
(e) The provisions of Exhibit C hereto shall apply in determining the
Hours of Service of a former employee of Freedom Plan Inc.
SECTION 1.32. - INVESTMENT FUND
"Investment Fund" shall mean one of the investment funds of the Trust
Fund which is authorized by the Administrator at the time of reference.
SECTION 1.33. - LEVELING METHOD
(a) For purposes of Section 3.8(e), the "Leveling Method" shall mean
the following method of allocating the total dollar amount of the excess
contributions (within the meaning of Treas. Reg. Section 1.401(k)-1(g)(7)) under
Section 3.8 for any Plan Year among the Participants who were Highly Compensated
Employees for such Plan Year. Under this method, the portion of the total
dollar amount of excess contributions allocated to each Participant who was a
Highly Compensated Employee for such Plan Year is determined by applying the
following steps:
(i) The dollar amount of the excess contributions for each
Participant who was a Highly Compensated Employee for the Plan Year shall
be determined in the manner described in Code Section 401(k)(8)(B) and
Treas. Reg. Section 1.401(k)-1(f)(2).
(ii) The total dollar amount of excess contributions shall be
determined by the sum of the amounts determined under paragraph (i) for the
Participants who were Highly Compensated Employees for such Plan Year. The
total dollar amount of excess contributions shall be allocated in
accordance with paragraphs (iii) and (iv).
(iii) The allocations described in Section 1.17(a)(i) for the
Participant who was a Highly Compensated Employee for the Plan Year with
the highest dollar amount of allocations described in Section 1.17(a)(i)
shall be reduced by the amount required to cause that Participant's
allocations described in Section 1.17(a)(i) to equal the dollar amount of
the allocations of the Participant who was a Highly Compensated Employee
for the Plan Year with the next highest dollar amount of allocations. The
amount of such reduction shall then be distributed to the Participant who
was a Highly Compensated Employee for the Plan Year with the highest dollar
amount of allocations. If a lesser reduction, when added to the dollar
amount already distributed under this paragraph (iii), if any, would equal
the total dollar amount of excess contributions determined under paragraph
(ii), the lesser reduction amount shall be distributed.
(iv) If the total dollar amount of excess contributions
distributed under paragraph (iii) is less than the total dollar amount of
excess contributions determined under paragraph (ii), paragraph (iii) shall
be repeated to the extent required.
15
<PAGE>
(b) For purposes of Section 5.5(d), the "Leveling Method" shall mean
the following method of allocating the total dollar amount of the excess
aggregate contributions (within the meaning of Treas. Reg. Section
1.401(m)-1(f)(8)) under Section 5.5 for any Plan Year among the Participants who
were Highly Compensated Employees for such Plan Year. Under this method, the
portion of the total dollar amount of the excess aggregate contributions
allocated to each Participant who was a Highly Compensated Employee for such
Plan Year is determined by applying the following steps:
(i) The dollar amount of the excess aggregate contributions for
each Participant who was a Highly Compensated Employee for the Plan Year
shall be determined in the manner described in Code Section 401(m)(6)(C)
and Treas. Reg. Section 1.401(m)-1(e)(2).
(ii) The total dollar amount of excess aggregate contributions
shall be determined by the sum of the amounts determined under paragraph
(i) for the Participants who were Highly Compensated Employees for such
Plan Year. The total dollar amount of excess aggregate contributions shall
be allocated in accordance with paragraphs (iii) and (iv).
(iii) The allocations described in Section 1.16(c) for the
Participant who was a Highly Compensated Employee for the Plan Year with
the highest dollar amount of allocations described in Section 1.16(c) shall
be reduced by the amount required to cause that Participant's allocations
described in Section 1.16(c) to equal the dollar amount of the allocations
of the Participant who was a Highly Compensated Employee for the Plan Year
with the next highest dollar amount of allocations. The amount of such
reduction shall then be distributed to the Participant who was a Highly
Compensated Employee for the Plan Year with the highest dollar amount of
allocations. If a lesser reduction, when added to the dollar amount
already distributed under this paragraph (iii), if any, would equal the
total dollar amount of excess aggregate contributions determined under
paragraph (ii), the lesser reduction amount shall be distributed.
(iv) If the total dollar amount of excess aggregate contributions
distributed under paragraph (iii) is less than the total dollar amount of
excess aggregate contributions determined under paragraph (ii), paragraph
(iii) shall be repeated to the extent required.
SECTION 1.34. - MATCHING ACCOUNT
"Matching Account" of a Participant shall mean his individual
account established in accordance with Section 5.2(b).
SECTION 1.35. - MILITARY LEAVE
Any Employee who leaves the Company or a Company Affiliate
directly to perform service in the Armed Forces of the United States or in the
United States Public Health Service under conditions entitling him to
reemployment rights, as provided in the laws of the
16
<PAGE>
United States, shall, solely for purposes of the Plan and irrespective of
whether he is compensated by the Company or a Company Affiliate during such
period of service, be on Military Leave. An Employee's Military Leave shall
expire if such Employee voluntarily resigns from the Company or such Company
Affiliate during such period of service or if he fails to make application for
reemployment within the period specified by such laws for the preservation of
his reemployment rights. For purposes of computing an Employee's Service, no
more than 365 days of Service shall be credited for any Military Leave.
SECTION 1.36. - NORMAL RETIREMENT
"Normal Retirement" of a Participant shall mean his Separation
from the Service upon his Normal Retirement Date, or after such date (except by
death) as permitted under Article X.
SECTION 1.37. - NORMAL RETIREMENT DATE
"Normal Retirement Date" of a Participant shall mean the first
day of the month coinciding with or next following his sixty-fifth birthday.
SECTION 1.38. - PARTICIPANT
"Participant" shall mean any person included in the Plan as
provided in Article II.
SECTION 1.39. - PAYDAY
"Payday" of a Participant shall mean the regular and recurring
established day for payment of Compensation to Employees in his classification
or position.
SECTION 1.40. - PLAN
"Plan" shall mean The PacifiCare Health Systems, Inc. Savings and
Profit-Sharing Plan.
SECTION 1.41. - PLAN REPRESENTATIVE
"Plan Representative" shall mean any person or persons designated
by the Administrator to function in accordance with the Rules of the Plan.
SECTION 1.42. - PLAN YEAR
"Plan Year" shall be the calendar, including all such years prior
to the adoption of the Plan.
SECTION 1.43. - ROLLOVER ACCOUNT
"Rollover Account" of a Participant shall mean his individual
account in the Trust Fund established in accordance with Section 14.18.
17
<PAGE>
SECTION 1.44. - RULES OF THE PLAN
"Rules of the Plan" shall mean the rules adopted by the
Administrator pursuant to Section 14.1(a)(ii) for the administration,
interpretation or application of the Plan.
SECTION 1.45. - SEPARATION FROM THE SERVICE
(a) "Separation from the Service" of an Employee shall mean his
resignation from or discharge by the Company or a Company Affiliate, or his
death, Normal or Disability Retirement but not his transfer among the Company
and Company Affiliates.
(b) A leave of absence or sick leave authorized by the Company
or a Company Affiliate in accordance with established policies, a vacation
period, a temporary layoff for lack of work or a Military Leave shall not
constitute a Separation from the Service; provided, however, that
(i) continuation upon a temporary layoff for lack of work
for a period in excess of three months shall be considered a discharge
effective as of the expiration of the third month of such period, and
(ii) failure to return to work upon expiration of any leave
of absence, sick leave, or vacation or within three days after recall from
a temporary layoff for lack of work, or before expiration of a Military
Leave shall be considered a resignation effective as of the date of
expiration of such leave of absence, sick leave, vacation, Military Leave
or the expiration of the third day after recall from such temporary layoff.
SECTION 1.46. - SERVICE
(a) "Service" of an Employee, expressed in days, shall mean the
period of elapsed time which, or the sum of such periods each of which, is
measured from
(i) his first Hour of Service, or his first Hour of Service
following a Break in Service Year, as the case may be, to
(ii) a the first day of his first subsequent Break in
Service Year, or
b the first day of the 12 month period immediately
preceding the first day of his first subsequent Break in Service Year
if the Break in Service Year occurs for the reasons described in
Section 1.9(a)(ii).
(b) The provisions of Exhibit C hereto shall apply in determining the
Service of a former employee of Freedom Plan Inc.
18
<PAGE>
SECTION 1.47. - SPOUSAL CONSENT
"Spousal Consent" to an election, designation or other action
of a Participant, shall mean the written consent thereto of the Spouse of the
Participant, witnessed by a Plan Representative or a notary public, which
acknowledges the effect of such election on the rights of the Spouse, and, in
the case of consent to a Beneficiary designation, with such designation not
being changeable without further Spousal Consent unless the prior Spousal
Consent expressly permits such changes without the necessity of further
Consent. Spousal Consent shall be deemed to have been obtained if it is
established to the satisfaction of the Plan Representative that it cannot
actually be obtained because there is no Spouse, or because the Spouse could
not be located, or because of such other circumstances as the Secretary of
the Treasury by regulation may prescribe. Any Spousal Consent shall be
effective only with respect to the Spouse in question.
SECTION 1.48. - SPOUSE; SURVIVING SPOUSE
"Spouse" or "Surviving Spouse" of a Participant or former
Participant shall mean the spouse to whom he was married on the date of his
death; provided, however, that to the extent required by a qualified domestic
relations order issued in accordance with Code Section 414(p), a former Spouse
shall be treated as a Surviving Spouse.
SECTION 1.49. - STATUTORY COMPENSATION
"Statutory Compensation" of a Participant for any Plan Year shall
mean his total taxable remuneration received from the Company and all Company
Affiliates in that Plan Year for services rendered as an Employee (including
those items not reported on Form W-2 as determined under Treas. Reg.
Section 1.415-2(d)(2)(iii)-(vi)), and including any elective deferrals as
defined in Code Section 402(g)(3) and any amounts not includable in gross income
by reason of Code Section 125 (cafeteria plan) or Code Section 457 (deferred
compensation plan of state and local governments and tax-exempt organizations),
and excluding
(a) Company and Company Affiliate contributions to a deferred
compensation plan (to the extent includable in the Participant's gross
income solely by reason of Code Section 415) or to a simplified employee
pension plan (to the extent deductible by the Participant) and any
distribution from a deferred compensation plan (other than an unfunded,
non-qualified plan),
(b) amounts realized from the exercise of a non-qualified stock
option or taxable by reason of restricted property becoming freely tradable
or free of a substantial risk of forfeiture, as described in Code Section
83,
(c) amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock option, and
(d) other amounts which receive special tax benefits such as
Company or Company Affiliate contributions toward the purchase of an
annuity contract described in Code Section 403(b) (whether or not
excludable from the Participant's gross income).
19
<PAGE>
SECTION 1.50. - TRUST
"Trust" shall mean the trust established pursuant to the Trust
Agreement.
SECTION 1.51. - TRUST AGREEMENT
"Trust Agreement" shall mean that certain Trust Agreement
Pursuant to The PacifiCare Health Systems, Inc. Savings and Profit-Sharing Plan,
providing for the investment and administration of the Trust Fund. By this
reference, the Trust Agreement is incorporated herein.
SECTION 1.52. - TRUST FUND
"Trust Fund" shall mean the fund established under the Trust
Agreement by contributions made by the Company and Participants pursuant to the
Plan and from which any distributions under the Plan are to be made. It shall
be composed of separate Investment Funds as permitted under the Rules of the
Plan.
SECTION 1.53. - TRUSTEE
"Trustee" shall mean the Trustee under the Trust Agreement.
SECTION 1.54. - TWO PERCENT CONTRIBUTIONS ACCOUNT
"Two Percent Contributions Account" of a Participant shall mean
his individual account in the Trust Fund established in accordance with Section
5.2(a). The "Two Percent Contributions Accounts" were previously named the
"Profit Sharing Accounts."
SECTION 1.55. - VESTED
"Vested," when used with reference to a Participant's Accounts,
shall mean non-forfeitable.
SECTION 1.56. - YEARS OF VESTING SERVICE
"Years of Vesting Service" of an Employee, measured in years and
determined as of the point in time in question, shall mean 1/365th of his days
of Service (ignoring any fraction in the result).
ARTICLE II.
ELIGIBILITY
SECTION 2.1. - REQUIREMENTS FOR PARTICIPATION
(a) Present Participants shall continue to participate in the
Plan.
(b) Except as provided in subsections (c) and (d), any other
person who on the first day of any calendar month
20
<PAGE>
(i) is an Employee,
(ii) has completed
a the 12-month period beginning on the date of his
first Hour of Service in which he had at least 1,000 Hours of Service,
or
b a Plan Year beginning on or after the date of his
first Hour of Service in which he had at least 1,000 Hours of Service,
(iii) is not employed in a Bargaining Unit, and
(iv) is not employed in a position or classification
designated by the Administrator as excluded from eligibility to participate
in the Plan,
shall become a Participant on such day.
(c) Any Participant whose participation terminates shall again
become a Participant effective as of his first subsequent Hour of Service as an
Employee in a position or classification which is not within a Bargaining Unit.
(d) A former Employee who was not an Employee on the first day
of the calendar month on which he first met all other eligibility requirements
shall become a Participant effective as of his first subsequent Hour of Service
as an Employee in a position or classification which is not within a Bargaining
Unit.
(e) The provisions of Exhibit C hereto shall apply in
determining the eligibility of a former employee of Freedom Plan Inc.
SECTION 2.2. - NOTICE OF PARTICIPATION
On or before the date on which an Employee becomes a Participant,
the Administrator shall give him written notice thereof.
SECTION 2.3. - ENROLLMENT FORM
The Administrator shall provide an enrollment form on which the
Participant should set forth
(a) his name, date of birth, name of Spouse and other such
relevant information,
(b) his consent that he, his successors in interest and assigns
and all persons claiming under him shall, to the extent consistent with
applicable law, be bound by the statements contained therein and the
provisions of the Plan and the Trust Agreement as they now exist and as
they may be amended from time to time, and
21
<PAGE>
(c) his statement as to whether he elects to defer Compensation
within the limits of Section 3.1, his selection of the amount of his
deferral within the limits of Section 3.1, and his authorization for the
Company to pay the same to the Trust Fund in accordance with Section 4.1.
SECTION 2.4. - INACTIVE STATUS
(a) A Participant who is transferred directly to a Company
Affiliate, or to a position or classification which is within a Bargaining Unit,
or a position or classification designated by the Administrator as excluded from
eligibility to participate, shall thereupon cease to be an Active Participant.
(b) If such a Participant is retransferred to a position or
classification with the Company that is not within a Bargaining Unit and that is
not designated by the Administrator as excluded from eligibility to participate
in the Plan, he shall thereupon again be an Active Participant.
ARTICLE III.
PARTICIPANTS' DEFERRALS
SECTION 3.1. - DEFERRAL OF COMPENSATION
Each Active Participant may elect, in accordance with the Rules
of the Plan, to defer for any Plan Year, the lesser of
(a) any whole number percentage, which is not less than 2% nor
more than 12% percent (or such other percentage or percentages as are
established by the Administrator), of his Compensation for each Payday
after his election hereunder in such Plan Year, and
(b) such amount as shall not cause the total of such deferrals
for any calendar year to exceed the excess of $10,000 (adjusted for
increases in the cost of living for such calendar year as described in Code
Section 402(g)(5)) over any amounts described in Code Section 402(g)(3) for
such calendar year and not deferred hereunder.
SECTION 3.2. - SUSPENSION OF DEFERRAL
An Active Participant may, upon such prior written notice to the
Administrator as is required under the Rules of the Plan, elect to suspend
deferral of his Compensation hereunder.
SECTION 3.3. - COMMENCEMENT, RESUMPTION OR CHANGE OF DEFERRED COMPENSATION
As permitted under the Rules of the Plan,
(a) an Active Participant in the Plan who previously declined to
defer a percentage of his Compensation may, upon such prior written notice
to the Administrator
22
<PAGE>
as is required under the Rules of the Plan, elect to commence deferral of
his Compensation under Section 3.1 within the limits thereof;
(b) after an Active Participant has suspended deferral of his
Compensation under Section 3.2, such Active Participant may, upon notice to
the Administrator, elect to resume deferral of his Compensation under
Section 3.1 within the limits thereof; and
(c) an Active Participant may, upon prior written notice to the
Administrator, elect to change his rate of deferral of his Compensation
within the limits of Section 3.1.
SECTION 3.4. - DEPOSIT IN TRUST
An Active Participant's deferrals shall be transmitted to the
Trustee in accordance with Sections 4.1(a) and 4.3(a)(i) and shall be invested
by the Trustee in accordance with Article VI.
SECTION 3.5. - WITHDRAWAL FROM DEFERRED COMPENSATION ACCOUNT OTHER THAN FOR
HARDSHIP
A Participant may make a lump sum withdrawal in cash from his
Deferred Compensation Account in the event of
(a) a deferral in excess of the limitation of Section 3.1(b), in
the amount of principal and interest (computed in a consistent and
reasonable manner in accordance with Section 7.1 and Code Section
401(a)(4)) allowed by Code Section 402(g)(2)(A)(ii),
(b) a deferral in excess of the limitation of Section 3.8, in
the amount of principal and interest allowed by Code Section 401(k)(8) (in
which case the Participant shall be deemed to notify the Administrator of
such excess amounts made to the Plan and any other plans of the Company or
a Company Affiliate),
(c) the circumstances specified in Code Section 401(k)(10), in
the amount of principal and interest allowed thereunder, and
(d) the circumstances specified in subsection 16.4(b).
SECTION 3.6. - HARDSHIP WITHDRAWAL FROM DEFERRED COMPENSATION ACCOUNT
A Participant may make a withdrawal in cash from his Deferred
Compensation Account on account of Hardship, subject to the following
requirements:
(a) A Participant's aggregate Hardship withdrawals shall not
exceed the lesser of
(i) the lesser of
a the amount by which
23
<PAGE>
1 the aggregate principal amount of his
Deferred Compensation Account, if any, together with income
allocable thereto credited as of December 31, 1988), exceeds
2 the unpaid amount due on his outstanding loan
or loans, if any under subsection (c)(i) or subsection (d)(iv),
and
b the amount which is necessary to satisfy the
Hardship (including any amounts necessary to pay any federal, state or
local income taxes or penalties reasonably anticipated to result from
the distribution), or
(ii) the amount which cannot be satisfied from other
resources which are reasonably available to the Participant.
(b) Unless the Participant elects that the conditions of
subsection (c) and (e) shall apply, the requirements of subsection (d) must be
satisfied.
(c) The conditions of this subsection are:
(i) the Participant shall obtain all distributions (other
than Hardship distributions), and all nontaxable loans currently available
under all plans maintained by the Company or any Company Affiliate;
(ii) the Participant shall not be permitted to make further
deferrals of Compensation under the Plan or any other plan (whether or not
qualified) maintained by the Company or any Company Affiliate for 12 months
thereafter; and
(iii) the sum of the Participant's deferrals of
Compensation under this Article (and other plans maintained by the Company
or any Company Affiliate) in his taxable year in which the Hardship
distribution is received and in his next taxable year shall not exceed
$10,000 (as adjusted for increases in the cost of living as described in
Code Section 402(g)(5)).
(d) To meet the requirements of this subsection the Participant
must certify to the Administrator in writing that the financial need in question
cannot be satisfied
(i) through reimbursement or compensation by insurance or
otherwise,
(ii) by reasonable liquidation of the assets of himself or
of those assets which he owns jointly or in common with his Spouse, a minor
child, or any other person (but not of property held for his Spouse or
child under an irrevocable trust or the Uniform Gifts to Minors Act),
(iii) by cessation of deferrals of Compensation under
this Article III, and all other plans (whether or not qualified) of the
Company and any Company Affiliate,
24
<PAGE>
(iv) by other distributions or nontaxable (at the time of
the loan) loans from plans maintained by the Company or any Company
Affiliate or by any other employer, or
(v) by borrowing from commercial sources on reasonable
commercial terms (in support of which certification the Administrator may
require the Participant to submit written evidence of at least two
applications for, and rejections of, loans from commercial sources),
and the Administrator reasonably relies on such certification and has no actual
knowledge to the contrary.
(e) The conditions of this subsection, if any, shall be those
prescribed by the Commissioner of Internal Revenue through the publication of
revenue rulings, notices, and/or other documents of general applicability, as an
alternate method under which a Hardship distribution will be deemed to be
necessary to satisfy an immediate and heavy financial need.
(f) A Participant whose Compensation deferrals have been
suspended under subsection (c) nevertheless shall be included in determinations
under Sections 1.16 and 1.17 if he would otherwise be so included.
(g) Hardship withdrawals may not be made more frequently than at
12 month intervals.
SECTION 3.7. - OTHER WITHDRAWALS PROHIBITED
Except as provided in Sections 3.5, 3.6, 3.8, 5.5, 9.3 and 9.4,
no distribution shall be made to any Participant from his Accounts prior to his
Separation from the Service.
SECTION 3.8. - DEFERRAL PERCENTAGE FAIL-SAFE PROVISIONS
(a) For each Plan Year, the Deferral Percentage for such Plan
Year with respect to Participants who were Highly Compensated Employees for such
Plan Year, shall be
(i) not more than 125% of, or
(ii) not more than two percentage points higher than, and
not more than twice,
the Deferral Percentage for the previous Plan Year with respect to Participants
who were not Highly Compensated Employees for such previous Plan Year under
Section 1.17(b) (determined using the definition of "Highly Compensated
Employee" in effect for such previous Plan Year). To the extent necessary to
achieve such result (and notwithstanding Sections 4.1(a) and 5.3) as of the end
of each Plan Year, the Administrator shall take or cause to be taken one or more
of the actions listed in subsection (d).
25
<PAGE>
(b) Except as provided in subsection (c), the limitations set
forth in subsection (a)(ii) and Section 5.5(a)(ii) shall not both be utilized
for any Plan Year.
(c) The limitation of subsection (b) shall not apply
(i) if after the application of subsection (d) and Section
5.5(b) (but only to the extent necessary to meet the requirements of
Section 3.8(a)(ii) or Section 5.5(a)(ii), as applicable) and before the
application of paragraph (ii), the sum of the Deferral Percentage and the
Contribution Percentage for the Plan Year with respect to Participants who
were Highly Compensated Employees for the Plan Year does not exceed the sum
of the Deferral Percentage and the Contribution Percentage for the previous
Plan Year with respect to Participants who were not Highly Compensated
Employees for the previous Plan Year by more than two percentage points, or
(ii) if
a the limitation of paragraph (i) is exceeded, and
b the sum of the Deferral Percentage and the
Contribution Percentage for the Plan Year with respect to the
Participants who were Highly Compensated Employees for such Plan Year
does not exceed the greater of
1 the sum of
A 125% of the greater of the Deferral
Percentage, or the Contribution Percentage, for the previous
Plan Year with respect to Participants who were not Highly
Compensated Employees for such previous Plan Year, and
B that percentage which is not more than
two percentage points higher than, and not more than twice
the lesser of the Deferral Percentage, or the Contribution
Percentage, for the previous Plan Year with respect to
Participants who were not Highly Compensated Participants
for such previous Plan Year, or
2 the sum of
A 125% of the lesser of the Deferral
Percentage, or the Contribution Percentage, for the previous
Plan Year with respect to the Participants who were not
Highly Compensated Employees for such previous Plan Year,
and
B that percentage which is not more than
two percentage points higher than, and not more than twice
the greater of the Deferral Percentage, or the Contribution
Percentage, for the previous Plan Year with respect to the
Participants who were not Highly Compensated Employees for
such previous Plan Year.
26
<PAGE>
(d) In order to achieve the result described in subsections
(a), (b) and (c), the following actions shall be taken, as provided under Code
Section 401(k), the Treasury Regulations thereunder and the Rules of the Plan,
in the order selected by the Administrator and to the extent necessary:
(i) The Administrator shall make the election provided in
Section 1.14(b).
(ii) To the extent permitted by Code Sections 401(a)(4) and
401(k) and the Treasury Regulations thereunder, allocations to Two Percent
Contributions Accounts shall be taken into account for purposes of
calculating the Deferral Percentages.
(iii) To the extent permitted by Code Sections 401(a)(4)
and 401(k) and the Treasury Regulations thereunder, amounts otherwise to be
credited under Sections 5.3(d) to Discretionary Contributions Accounts for
such Plan Year shall be credited instead to the Two Percent Contributions
Accounts of the Participants in question.
(iv) To the extent permitted by Code Sections 401(a)(4) and
401(k) and the Treasury Regulations thereunder, the Company may make an
additional contribution to the Two Percent Contributions Accounts of
certain Participants which contribution shall be allocated to Participants
in inverse order of Compensation received in the Plan Year in question
(lowest compensated Participant receiving the first allocation) with each
Participant who receives an allocation receiving the maximum allocation
permitted by Code Section 415 before any Participant with greater
Compensation receives any allocation, until such contribution is fully
allocated; provided, however, that, in the event the Administrator makes
the election described in Section 1.17(d) for the Plan year, such
additional contribution shall be allocated to Participants in inverse order
of the portion of each Participant's Compensation received in the Plan Year
in question while he is eligible to defer Compensation for the Plan Year.
(e) To the extent that the result described in subsection (a),
(b) or (c) is not achieved for a Plan Year, prior to the end of the following
Plan Year, the total dollar amount of excess contributions, within the meaning
of Treas. Reg. Section 1.401(k)-1(g)(7) (and any income thereon earned to the
date of distribution computed in a consistent and reasonable manner in
accordance with Section 7.2) for Participants who were Highly Compensated
Employees for the Plan Year shall be allocated according to the Leveling Method
among the Participants who were Highly Compensated Employees for the Plan Year,
and shall be distributed to such Participants. The amount of any distributions
under this subsection (e) with respect to a Participant for a Plan Year shall be
reduced by any distributions made pursuant to Section 3.5(a) previously
distributed to such Participant for his taxable year ending with or within such
Plan Year. The amount of any distributions under Section 3.5(a) for any taxable
year of a Participant shall be reduced by amounts distributed to such
Participant pursuant to this subsection (e) for the Plan Year beginning with or
within such taxable year.
(f) To the extent the total amount of excess contributions,
within the meaning of Treas. Reg. Section 1.401(k)-1(g)(7) (and any income
thereon) for any Plan Year is distributed
27
<PAGE>
in accordance with subsection (e), the Plan shall be treated as satisfying the
requirements of subsection (a) for such Plan Year, and the requirements of
subsection (b) and (c) shall be applied by assuming that the Deferral Percentage
for such Plan Year with respect to the Participants who were Highly Compensated
Employees for such Plan Year equals the largest amount permitted under
subsection (a) for such Plan Year. To the extent that the total dollar amount
of excess aggregate contributions, within the meaning of Treas. Reg. Section
1.401(m)-1(f)(8) (and any income thereon) for the Plan Year is distributed in
accordance with Section 5.5(d), the requirements of subsection (b) and (c) and
Section 5.5(c) shall be applied by assuming that the Contribution Percentage for
the Plan Year with respect to the Participants who were Highly Compensated
Employees for such Plan Year equals the largest amount permitted under Section
5.5(a).
ARTICLE IV.
CONTRIBUTIONS OF THE COMPANY
SECTION 4.1. - DETERMINATION OF ANNUAL CONTRIBUTION
(a) Subject to Section 16.4, for each Payday, the Company shall
contribute to the Plan for each Active Participant an amount for his Deferred
Compensation Account which is the amount of Deferred Compensation elected by
such Active Participant under Section 3.1 or 3.3.
(b) Subject to Section 16.4, for each Payday, the Company shall
contribute to the Plan for the Matching Account of each Active Participant who
deferred Compensation on such Payday an amount which is equal to the lesser of
(i) 50% of his Deferred Compensation for the Payday, or
(ii) 3% of his Compensation for the Payday.
(c) Subject to Section 16.4, for each Payday, the Company shall
contribute to the Plan for the Two Percent Contributions Account of each Active
Participant an amount which is equal to 2% of his Compensation payable on such
Payday.
(d) Subject to Section 16.4, for each Plan Year, the Company
shall contribute to the Plan for each Contribution Group as to which the Company
so elects an additional discretionary amount to be allocated among the
Discretionary Contributions Accounts of the Participants who are members of such
Contribution Group.
(e) Subject to Section 16.4, for each Plan Year, the Company
shall contribute to the Plan for the Matching Account of each Participant who
deferred Compensation during such Plan Year, an amount, if any, which is equal
to the excess of
(i) the lesser of 50% of his total Deferred Compensation
for the Plan Year, and 3% of his Compensation which is received in such
Plan Year while he is an Active Participant, over
28
<PAGE>
(ii) the total amount contributed by the Company to his
Matching Account during the Plan Year pursuant to Section 4.1(b).
(f) Company contributions shall be reduced by forfeitures
occurring during such Plan Year under Section 11.2(a)(iii), 12.2 and 13.8(b).
SECTION 4.2. - MAXIMUM ANNUAL CONTRIBUTION
Except for contributions described in Section 14.23, the
Company's contribution for any Plan Year shall not exceed the maximum amount
deductible by the Company for such Plan Year under Code Section 404(a)(3)(A)
and, in any event, shall be less than that amount which would initially result
in an Annual Addition of any Participant which exceeds the maximum permissible
amount under Section 16.4.
SECTION 4.3. - CONTRIBUTION DATE
(a) The Company's contributions
(i) under Section 4.1(a) shall be made as of the earliest
date on which such contributions can reasonably be segregated from the
general assets of the Company but not later than the 15th business day of
the calendar month following the calendar month in which the Deferred
Compensation is withheld by the Company under Section 3.1 or 3.3,
(ii) under Sections 4.1(b) and (c) shall be made not later
than the 15th business day of the calendar month following the calendar
month in which the Payday to which such contribution relates occurs,
(iii) except as provided in Section 5.3(b), under
Sections 4.1(d) and (e) shall be made on or before the date upon which the
Company's federal income tax return is due (including extensions thereof)
for its taxable year coinciding with the Plan Year in question
and shall be transmitted to the Trustee and held in the Trust Fund.
(b) If the Company makes a contribution after the end of the
Plan Year for which the contribution is made
(i) the Company shall notify the Trustee in writing that
the contribution is made for such Plan Year,
(ii) the Company shall claim such payment as a deduction on
its federal income tax return for its taxable year coinciding with such
Plan Year, and
(iii) the Administrator and the Trustee shall treat the
payment as a contribution by the Company to the Trust actually made on the
last day of such taxable year.
29
<PAGE>
(c) To the extent permitted by Code Section 404(a)(6) and other
applicable law, the Company may treat any contributions under Sections 4.1(a),
(b), (c), (d) and (e) which are made with respect to a Plan Year but after the
completion of the Company's fiscal year which ends within such Plan Year, as if
made as of the last day of such fiscal year, for tax purposes. In such event,
the Plan shall treat such contribution in the same manner as it would have been
treated had it actually been received by the Plan on the last day of such fiscal
year.
ARTICLE V.
PARTICIPATION IN COMPANY CONTRIBUTIONS AND FORFEITURES
SECTION 5.1. - DEFERRED COMPENSATION ACCOUNT
The Administrator shall maintain a Deferred Compensation Account
for each Participant to which shall be credited the amounts determined under
Section 4.1(a), debited amounts withdrawn or distributed under Section 3.5, 3.6,
3.8, 9.3 and 9.4 and Articles X, XI and XII and to which shall be debited or
credited the amounts determined under Sections 7.2 and 16.4.
SECTION 5.2. - TWO PERCENT CONTRIBUTIONS; MATCHING ACCOUNT;
DISCRETIONARY CONTRIBUTIONS ACCOUNT
(a) The Administrator shall maintain a Two Percent Contributions
Account for each Participant to which shall be credited the amounts determined
under Section 4.1(c) and the amounts allocated thereto under Sections 3.8 and
5.5, debited amounts withdrawn or distributed under Section 9.3, and 9.4 and
Articles X, XI and XII and to which shall be debited or credited amounts
determined under Sections 7.2 and 16.4.
(b) The Administrator shall maintain a Matching Account for each
Participant to which shall be credited the amounts determined under Sections
4.1(b) and (e), debited amounts withdrawn or distributed under Section 9.3, and
9.4 and Articles X, XI and XII and to which shall be debited or credited the
amounts determined under Sections 7.2 and 16.4.
(c) The Administrator shall maintain a Discretionary
Contributions Account for each Participant to which shall be credited the
amounts determined under Section 4.1(d), debited amounts withdrawn or
distributed under Sections 3.8 and 5.5 and Articles X, XI and XII and to which
shall be debited or credited the amounts determined under Sections 7.2 and 16.4.
SECTION 5.3. - ALLOCATION OF COMPANY CONTRIBUTIONS
(a) Except as provided in Section 16.4(a), Company contributions
under Section 4.1(a) shall be allocated as provided therein.
(b) Except as provided in Section 16.4(a), Company contributions
under Sections 4.1(b) and (e) shall be allocated as provided therein.
30
<PAGE>
(c) Except as provided in Section 16.4(a), Company contributions
under Section 4.1(c) shall be allocated as provided therein.
(d) (i) For each Contribution Group, Participants who are
members of such Contribution Group and who are Employees or employed by a
Company Affiliate on the last day of the Plan Year in question shall share in
the Company's contribution to the Plan with respect to such Contribution Group
under Section 4.1(d) for such Plan Year in proportion to the portion of their
Compensation which is received in such Plan Year while Active Participants and
which is not in excess of the amount determined in paragraph (ii). The amount
so allocated to each Participant shall then be credited to his Discretionary
Contributions Account.
(ii) The dollar amount with respect to a Plan Year
determined under this paragraph shall equal
a $75,000, multiplied by
b the factor determined by dividing the maximum
elective deferrals excludable from an individual's income for the
taxable year coincident with such Plan Year, determined in accordance
with Code Section 402(g), by $9,240, rounded to the nearest $1,000.
(e) For each Plan Year, the contributions under Sections 4.1(c)
and (d) shall satisfy the requirements of Code Section 401(a)(4) and Treas. Reg.
Section 1.401(a)(4)-2. In order to achieve such result (and notwithstanding
Section 4.1 and subsection (d)), and subject to Section 16.4, the Administrator
shall, to the extent permitted by Code Sections 401(a)(4) and 411, reduce the
amounts that would otherwise be credited in accordance with subsection (d) to
the Discretionary Contributions Accounts of Participants who are Highly
Compensated Employees for such Plan Year and credit such amounts to the
Discretionary Contributions Accounts of Participants who are not Highly
Compensated Employees for such Plan Year. Such reductions shall be made in
order of the allocation rates, as determined under Treas. Reg. Section
1.401(a)(4)-2(c)(2), of the Participants who are Highly Compensated Employees
for such Plan Year beginning with the greatest allocation rate. The total
amount of such reductions shall be allocated among Participants who are not
Highly Compensated Employees for such Plan Year and who are Employees on the
last day of the Plan Year in question in proportion to the portion of their
Compensation which is received in such Plan Year while Active Participants and
which is not in excess of the amount determined under paragraph (d)(ii).
SECTION 5.4. - ALLOCATION OF FORFEITURES
Amounts forfeited in any Plan Year under Sections 11.2(a)(iii),
12.2 and 14.14 shall be applied under Section 4.1 to reduce the Company's
contribution for such Plan Year and shall be allocated under Section 5.3 as if
part of such contribution for such Plan Year.
31
<PAGE>
SECTION 5.5. - CONTRIBUTION PERCENTAGE FAIL-SAFE PROVISIONS
(a) For each Plan Year, the Contribution Percentage for such
Plan Year with respect to Participants who were Highly Compensated Employees for
such Plan Year, shall be
(i) not more than 125% of, or
(ii) to the extent allowed by regulations under Code Section
401(m)(9), not more than two percentage points higher than, and not more
than twice,
the Contribution Percentage for the previous Plan Year with respect to
Participants who were not Highly Compensated Employees for such previous Plan
Year (using the definition of "Highly Compensated Employee" in effect during
such previous Plan Year).
(b) In order to achieve the result described in subsections (a)
and (c) (and notwithstanding Sections 4.1 and 5.3, as of the end of each Plan
Year, the Administrator shall take or cause to be taken any of the following
actions, as provided under Code Section 401(m) and the Treasury Regulations
thereunder and the Rules of the Plan, in the order selected by the
Administrator, (but after application of Section 3.8) and to the extent
necessary:
(i) The Administrator shall make the election provided in
Section 1.14(b).
(ii) To the extent permitted by Code Sections 401(a)(4) and
401(m) and the Treasury Regulations thereunder, allocations to Deferred
Compensation Accounts shall be taken into account for purposes of
calculating the Contribution Percentages.
(iii) To the extent permitted by Code Sections 401(a)(4)
and 401(m) and the Treasury Regulations thereunder, allocations to Two
Percent Contributions Accounts shall be taken into account for purposes of
calculating the Contribution Percentages.
(iv) To the extent permitted by Code Sections 401(a)(4) and
401(m) and the Treasury Regulations thereunder, amounts otherwise to be
credited under Section 5.3(d) to Discretionary Contributions Accounts for
such Plan Year shall be credited instead to Two Percent Contributions
Accounts of Participants.
(v) To the extent permitted by Code Sections 401(a)(4) and
401(m) and the Treasury Regulations thereunder, amounts that would
otherwise have been credited in accordance with Section 5.3(e) to Matching
Accounts for such Plan Year shall instead be allocated in
disproportionately higher amounts to Participants who are not Highly
Compensated Employees and in disproportionately lower amounts to
Participants who are Highly Compensated Employees using the same aggregate
dollar amounts that would otherwise have been allocated to Matching
Accounts pursuant to Section 5.3(e).
(vi) To the extent permitted by Code Sections 401(a)(4) and
401(m) and the Treasury Regulations thereunder, the Company may make an
additional
32
<PAGE>
contribution to the Two Percent Contributions Accounts of certain
Participants which contribution shall be allocated to Participants in
inverse order of Compensation received in the Plan Year in question (lowest
compensated Participant receiving the first allocation) with each
Participant who receives an allocation receiving the maximum allocation
permitted by Code Section 415 before any Participant with greater
Compensation receives any allocation, until such contribution is fully
allocated; provided, however, that in the event the Administrator makes the
election described in Section 1.16(e) for the Plan Year, such additional
contribution shall be allocated to Participants in inverse order of the
portion of each Participant's Compensation received in the Plan Year in
question while he is eligible to receive a contribution to his Matching
Account for the Plan Year.
(c) If the limitation set forth in Section 3.8(a)(ii) is
utilized for any Plan Year, the limitation of subsection (a)(ii) shall not also
be used for such Plan Year, and vice versa, except as provided in Section
3.8(c).
(d) To the extent that the result described in subsection (a) or
(c) is not achieved for a Plan Year, prior to the end of the following Plan
Year, the total dollar amount of excess aggregate contributions, within the
meaning of Treas. Reg. Section 1.401(m)-1(f)(8) (and any income thereon earned
to the date of distribution or forfeiture computed in a consistent and
reasonable manner in accordance with Section 7.2) for Participants who were
Highly Compensated Employees for the Plan Year shall be allocated according to
the Leveling Method among the Participants who were Highly Compensated Employees
for the Plan Year. To the extent Vested (and in conformity with Treas. Reg.
Section 1.401(m)-1(e)(4)), this amount shall then be distributed to such
Participants and, to the extent not Vested, shall be forfeited and reapplied
under Section 5.4.
(e) To the extent that the total dollar amount of excess
aggregate contributions, within the meaning of Treas. Reg. Section
1.401(m)-1(f)(8) (and any income thereon) for the Plan Year is distributed in
accordance with subsection (d), the Plan shall be treated as satisfying the
requirements of subsection (a) for such Plan Year.
ARTICLE VI.
INVESTMENT OF ACCOUNTS
SECTION 6.1. - INVESTMENT OPTIONS
(a) The Administrator may establish one or more Investment Funds
under the Plan. The Administrator shall designate the registered investment
company or other investment fund in which the assets of an Investment Fund shall
be invested, or shall appoint the investment manager or managers responsible for
managing the assets of an Investment Fund. If the Administrator appoints an
investment manager or managers responsible for managing an Investment Fund, the
Administrator shall designate the investment objectives and policies of such
Investment Fund.
33
<PAGE>
(b) As permitted under the Rules of the Plan and upon such prior
written notice to the Administrator as is required under the Rules of the Plan,
a Participant may elect
(i) effective upon becoming a Participant and as of the
dates set forth in the Rules of the Plan, to have contributions for such
Plan Year to his Accounts held and invested entirely in any one or more
Investment Funds in such proportions as are permitted under the Rules of
the Plan, or to change any prior such election, and/or
(ii) effective only as of the dates set forth in the Rules
of the Plan, to have his Accounts as then stated, held and invested under
any Investment Fund or Funds available under paragraph (i) (which option
shall be the same option elected for current contributions to his Accounts
under paragraph (i)) or to change any prior such election.
(c) As permitted under the Rules of the Plan and upon such prior
written notice to the Administrator as is required under the Rules of the Plan,
a Beneficiary may elect to have his Accounts held and invested under any
Investment Fund or Funds available under subsection (b)(ii) or to change any
such prior such election.
(d) Any such election under subsection (b)(i) or subsection (c)
shall remain in effect until revoked or modified by the Participant or
Beneficiary, as applicable. In case Accounts are invested in more than one
Investment Fund, changes in proportions due to investment results shall not
require any transfer of values between Investment Funds unless the Participant
or Beneficiary so elects under subsection (b)(ii) or subsection (c), as
applicable.
(e) Purchases and sales of assets in the Investment Funds as
required under this Section shall be made within a reasonable time after the
election made in subsection (b) or subsection (c), and Participants' or
Beneficiaries' Accounts shall be adjusted to reflect amounts actually realized
or paid in such transactions.
SECTION 6.2. - DESCRIPTION OF INVESTMENT FUNDS
In making any investment election under Section 6.1, a
Participant (or a Beneficiary of a deceased Participant) shall acknowledge
receipt from the Administrator of a description of the Investment Funds and the
investment objectives thereof.
SECTION 6.3. - EFFECT OF NON-ELECTION
If a Participant (or Beneficiary of a deceased Participant) fails
or declines to make an election under Section 6.1, the Participant's (or
Beneficiary's) Accounts shall be held in one or more Investment Funds as
directed by the Administrator.
SECTION 6.4. - COMPANY STOCK FUND
(a) The Administrator shall establish the Company Stock Fund as
an Investment Fund under the Plan. The Company Stock Fund shall be invested
primarily in shares of Company Stock (except that, as directed by the
Administrator, the Company Stock Fund may be invested in cash and cash
equivalents, and rights, warrants and options issued with respect to
34
<PAGE>
Company Stock (to the extent permitted by the Code and ERISA)). Dividends paid
on shares of Company Stock held in the Company Stock Fund, if any, shall be
reinvested and used to purchase additional shares of Company Stock.
(b) The assets of the Company Stock Fund shall be valued in
accordance with Article VII. The Administrator shall determine the manner in
which the interests of the Accounts of Participants and Beneficiaries in the
Company Stock Fund shall be denominated.
(c) In the event any rights, warrants or options are issued with
respect to Company Stock in the Company Stock Fund, as directed by the
Administrator
(i) the Trustee shall exercise such rights, warrants or
options received on Company Stock in the Company Stock Fund to acquire
whole and fractional shares of Company Stock to the extent of the amount of
cash or cash equivalents in the Company Stock Fund.
(ii) any rights, warrants, or options on Company Stock which
cannot be exercised for lack of cash may, as directed by the Administrator,
be sold by the Trustee.
SECTION 6.5. - ERISA SECTION 404(C) COMPLIANCE
(a) The Administrator may administer the Plan and the procedures
relating to the Investment Funds in accordance with the fiduciary relief
provisions of ERISA Section 404(c) and 29 C.F.R. Section 2550.404c-1. In that
event, the Administrator shall designate three or more Investment Funds that
provide an opportunity for a Participant or a Beneficiary of a deceased
Participant to exercise control over the assets in such Participant's or
Beneficiary's Accounts, and shall provide each such Participant or Beneficiary
an opportunity to chose, from a broad range of investment alternatives, the
manner in which some or all of the assets in such Participant's or Beneficiary's
Accounts are invested. To the extent provided under ERISA and the regulations
thereunder, such a Participant or Beneficiary shall not be deemed to be a
fiduciary by reason of his or her exercise of such control, and no person who is
otherwise a fiduciary (including the Administrator, the members of the Committee
or the Company) shall be liable for any loss, or by reason of any breach, which
results from such exercise of such control.
(b) In the event that the Administrator elects to administer the
Plan and the procedures relating to the Investment Funds in accordance with 29
C.F.R. Section 2550.404c-1:
(i) The Administrator (or its delegate) shall provide each
Participant or Beneficiary of a deceased Participant with the opportunity
to obtain sufficient information to make informed decisions with regard to
the Investment Funds, and the incidents of ownership appurtenant to the
investment of his or her Accounts in such Investment Funds.
(ii) The Administrator (or such person as the Administrator
shall designate) shall provide to each Participant or Beneficiary the
information with regard to each Investment Fund described in 29 C.F.R.
Section 2550.404c-1(b)(2)(B)(1).
35
<PAGE>
(iii) The Administrator (or such person as the
Administrator shall designate) shall provide to each Participant or
Beneficiary, either directly or upon request, the information regarding the
Investment Funds described in 29 C.F.R. Section 2550.404c-1(b)(2)(B)(2).
(iv) The Administrator shall provide each Participant or
Beneficiary with an explanation that the Plan is intended to constitute a
plan described in ERISA Section 404(c) and that the fiduciaries of the Plan
may be relieved of liability for any losses which are the direct and
necessary result of investment directions given by such Participant or
Beneficiary.
(c) In addition, in the event that the Administrator elects to
administer the Plan and the procedures relating to the Investment Funds in
accordance with 29 C.F.R. Section 2550.404c-1 with respect to the Company Stock
Fund:
(i) The Administrator shall provide that each Participant
or Beneficiary of a deceased Participant shall have the opportunity to
exercise the voting, tender and similar rights with respect to the shares
of Company Stock in the Company Stock Fund allocated to such Participant's
or Beneficiary's Accounts.
(ii) The Administrator shall maintain all information
relating to the interests of the Accounts of Participants and Beneficiaries
in the Company Stock Fund, including the acquisition, holding and
disposition of such interests, the purchase, holding, and sale of Company
Stock in the Company Stock Fund, and the exercise of voting, tender and
similar rights with respect to shares of Company Stock in the Company Stock
Fund by Participants and Beneficiaries, in accordance with procedures which
are designed to safeguard the confidentiality of such information, except
to the extent necessary to comply with Federal laws or state laws not
preempted by ERISA. The Administrator shall be responsible for ensuring
that these procedures are sufficient to safeguard the confidentiality of
such information, that such procedures are being followed, and that the
independent fiduciary required by paragraph (iii) is appointed.
(iii) The Administrator shall appoint an independent
fiduciary to carry out activities of the Company Stock Fund relating to any
situations in which the Administrator determines involve potential for
undue employer influence upon Participants (and Beneficiaries) with regard
to the direct or indirect exercise of shareholder rights. Such independent
fiduciary shall not be affiliated with the Company or any Company
Affiliate.
36
<PAGE>
ARTICLE VII.
VALUATION OF THE TRUST FUND AND ACCOUNTS
SECTION 7.1. - DETERMINATION OF VALUES OF INVESTMENT FUNDS
As of the end of the Plan Year and such other dates as the
Administrator may select, the Trustee shall determine the fair market value of
each Investment Fund in compliance with the principles of Section 3(26) of ERISA
and regulations issued pursuant thereto, based upon information reasonably
available to it including data from, but not limited to, newspapers and
financial publications of general circulation, statistical and valuation
services, records of securities exchanges, appraisals by qualified persons,
transactions and bona fide offers in assets of the type in question and other
information customarily used in the valuation of property for purposes of the
Code. With respect to securities for which there is a generally recognized
market, the published selling prices on or nearest to such valuation date shall
establish the fair market value of such security. Fair market value so
determined shall be conclusive for all purposes of the Plan and Trust.
SECTION 7.2. - ALLOCATION OF INVESTMENT FUND VALUES
The difference between the total value of each Investment Fund,
as determined under Section 7.1, and the total of the Accounts therein, shall be
allocated by the Administrator among such Accounts in proportion to their
respective average stated values during the period since the last allocation of
values hereunder, as determined under the Rules of the Plan, such values and
determinations being made without taking into account Company contributions
under Sections 4.1(a), (b), (c), (d) and (e) attributable to the period under
Section 7.2, ending on such valuation date; provided, however, that gains and
losses shall not be allocated with respect to amounts being held in suspense
under Section 16.4(b).
SECTION 7.3. - APPLICABILITY OF ACCOUNT VALUES
The value of an Account, as determined as of a given date under
this Article, plus any amounts subsequently credited thereto under Sections 3.8,
5.3, 5.5, 7.1 and 16.4 and less any amounts withdrawn or distributed under
Sections 3.5, 3.6, 9.3 and 9.4 and Articles X, XI and XII and Exhibit A or
transferred to suspense under Section 16.4(b), shall remain the value thereof
for all purposes of the Plan and the Trust until revalued hereunder.
ARTICLE VIII.
VESTING OF INTERESTS
SECTION 8.1. - VESTING OF ACCOUNTS
(a) Each Participant's interest in his Rollover Account, his Two
Percent Contributions Account, and his Deferred Compensation Account shall be
Vested at all times.
37
<PAGE>
(b) Except as provided in Sections 8.2 and 13.3, the Vested
portion of a Participant's Matching Account and Discretionary Contributions
Account shall be the percentage of such Accounts shown on the following tables:
<TABLE>
<CAPTION>
Years of Vesting Vested
Service Percentage
---------------- -------------
<S> <C>
1 10%
2 20%
3 30%
4 40%
5 60%
6 80%
7 (or more) 100%.
</TABLE>
SECTION 8.2. - ADDITIONAL VESTING OF ACCOUNTS
The interest of a Participant in his Matching Account and his
Discretionary Contributions Account shall become fully Vested upon the earliest
to occur of
(a) his death,
(b) his sixty-fifth birthday,
(c) his Disability Retirement Date, or
(d) the termination or discontinuation of the Plan under
Section 15.1,
if he is then an affected Employee or employed by a Company Affiliate.
ARTICLE IX.
EMPLOYMENT AFTER NORMAL RETIREMENT DATE
SECTION 9.1. - CONTINUATION OF EMPLOYMENT
(a) A Participant may, subject to subsection (b) and Section
16.3, remain in the employ of the Company or a Company Affiliate after attaining
his Normal Retirement Date.
(b) Notwithstanding subsection (a), the Company reserves the
right to require a Participant to retire in accordance with the Age
Discrimination in Employment Act of 1967, as amended, and other applicable law.
SECTION 9.2. - CONTINUATION OF PARTICIPATION
A Participant retained in the employ of the Company after his
Normal Retirement Date under Section 9.1 shall continue as an Active Participant
herein.
38
<PAGE>
SECTION 9.3. - MANDATORY IN-SERVICE DISTRIBUTIONS
A Participant who is a 5% owner (as defined in Code Section 416)
of the Company or a Company Affiliate with respect to the Plan Year ending in
the calendar year in which the Participant attains age 70 1/2 shall receive or
commence the receipt of the entire amount credited to his Accounts (other than
his HPA Accounts) in accordance with Section 10.3 on the April 1 following the
end of the calendar year in which he attains age 70 1/2.
SECTION 9.4. - VOLUNTARY IN-SERVICE DISTRIBUTIONS
A Participant may receive or commence the receipt of the entire
amount credited to his Accounts (other than his HPA Accounts) in accordance with
Section 10.3 on the April 1 following the end of the calendar year in which he
attains age 70 1/2, or such later date as such Participant shall elect.
ARTICLE X.
BENEFITS UPON RETIREMENT
SECTION 10.1. - NORMAL OR DISABILITY RETIREMENT
Subject to the provisions of Section 9.1, a Participant shall
retire upon his Normal or Disability Retirement Date.
SECTION 10.2. - RIGHTS UPON NORMAL OR DISABILITY RETIREMENT
Upon a Participant's Normal or Disability Retirement, he shall be
entitled to receive the entire amount credited to his Accounts (other than his
HPA Accounts) in accordance with Section 10.3.
SECTION 10.3. - DISTRIBUTION OF ACCOUNTS
(a) If the entire amount credited to a Participant's Accounts
does not exceed $5,000 (and did not exceed such amount at the time of a prior
withdrawal or distribution under the Plan), such Participant shall receive the
amount credited to his Accounts (other than his HPA Accounts) in one lump sum
distribution in cash.
(b) If the entire amount credited to a Participant's Accounts
exceeds $5,000 (or exceeded such amount at the time of a prior withdrawal or
distribution under the Plan, such Participant may elect to receive the amount
credited to his Accounts (other than his HPA Accounts) under one of the
following options:
(i) Payment of such amount in one lump sum distribution in
cash.
(ii) Payment of such amount directly from the Trust Fund (as
adjusted for gains and losses), in uniform annual or more frequent
installments of at least $100 (as to which the Participant (or his Spouse,
if applicable) may elect whether the recalculation
39
<PAGE>
rule of Code Section 401(a)(9)(D) shall apply and provided, however, that
the first installment may be larger than the remaining installments) to
such Participant over a period not longer than the joint and last survivor
expectancy of him and his Spouse, if any, reasonably determined from the
expected return multiples prescribed in Treas. Reg. Section 1.72-9, or, if
he is not married, over a period not longer than the lesser of the joint
and last survivor expectancy of him and his Beneficiary, reasonably
determined from the expected return multiples prescribed in Reg. Section
1.72-9, or the period determined under Prop. Reg. Section 1.401(a)(9)-2 A-4
which satisfies the minimum distribution incidental benefit requirement of
Code Section 401(a)(9)(G),
provided, however, if such Participant fails to make such an election, his
Accounts (other than his HPA Accounts) shall be distributed as provided in
paragraph (i). Notwithstanding a prior election by a Participant to receive
installments as provided in paragraph (ii), if the Administrator determines,
after consultation with such Participant, that good cause has been shown, the
Administrator may increase the amount of any or all of the remaining
installments payable under such paragraph.
(c) At any time before distribution under subsection (b) is made
or commences, the Participant may elect to defer such distribution until such
later date as he shall then or subsequently specify; provided, however,
(i) such date shall be no later than the date referred to
in subsection (d)(ii) or (d)(iii), and
(ii) if no such date is specified, such amount shall be
distributed in one lump sum on the date specified in subsection (d)(ii) or
(d)(iii).
(d) Distribution under subsection (a) or (b) shall be made or
commence not later than the earliest to occur of
(i) 60 days after the end of the Plan Year in which such
Normal Retirement or Disability Retirement occurs, or
(ii) if the Participant is not a 5% owner (as defined in
Code Section 416) of the Company or a Company Affiliate with respect to the
Plan Year ending in the calendar year in which he attains age 70 1/2, the
later of
a the April 1 following the calendar year in which
his Separation from the Service occurs, or
b the April 1 following the calendar year in which
he attains age 70 1/2,
(iii) if the Participant is a 5% owner (as defined in
Code Section 416) of the Company or a Company Affiliate with respect to the
Plan Year ending in the calendar year in which he attains age 70 1/2, the
April 1 following the calendar year in which he attains age 70 1/2.
40
<PAGE>
(e) The Participant shall specify a plan of distribution under
which more than 50% of the amount of his Accounts (other than his HPA Accounts)
(as adjusted for gains or losses under Section 7.2) will be distributed to him
within his life expectancy and in a manner which satisfies the incidental death
benefit provisions (including the minimum distribution incidental benefit
requirement) of Code Section 401(a)(9)(G), Treas. Reg. Section 1.401-1(b)(1) and
Prop. Reg. Section 1.401(a)(9)-2 (or any successor thereto).
ARTICLE XI.
BENEFITS UPON DEATH
SECTION 11.1. - DESIGNATION OF BENEFICIARY
(a) Each Participant or former Participant shall have the right
to designate, revoke and redesignate Beneficiaries hereunder and to direct
payment of the Vested amount credited to his Accounts (other than his HPA
Accounts) to such Beneficiaries.
(b) Designation, revocation and redesignation of Beneficiaries
must be made in writing in accordance with the Rules of the Plan on a form
provided by the Administrator and shall be effective upon delivery to the
Administrator.
(c) A married Participant may not designate any Beneficiary
other than his Spouse without obtaining Spousal Consent thereto. Such consent
shall only apply to the Beneficiary or Beneficiaries so designated.
SECTION 11.2. - DISTRIBUTION ON DEATH
(a) Upon the death of a Participant or former Participant, the
Vested amount credited to his Accounts (other than his HPA Accounts) (as
determined under Section 8.2) shall be paid in one lump sum distribution in cash
not later than the first anniversary of the Participant's death to his then
Surviving Spouse, if any, except to the extent, if any, to which such Surviving
Spouse has consented under Section 11.1(c) to the designation of other
Beneficiaries, and otherwise to the person or persons of highest priority who
survive him by at least 30 days determined as follows:
(i) First, to his then surviving highest priority
Beneficiary or Beneficiaries, if any.
(ii) Second, to his then surviving heirs at law, if any, as
determined in the reasonable judgment of the Administrator under the laws
governing succession to personal property of the last jurisdiction in which
the Participant was a resident.
(iii) Third, to the Plan to be applied to reduce the
Company's contributions under Section 4.1.
(b) Members of a class shall cease to be entitled to benefits
upon the earlier of the Administrator's determination that no members of such
class exist or the Administrator's
41
<PAGE>
failure to locate any members of such class, after making reasonable efforts
to do so, within one year after the members of that class became entitled to
benefits hereunder had members existed.
ARTICLE XII.
BENEFITS UPON RESIGNATION OR DISCHARGE
SECTION 12.1. - DISTRIBUTIONS ON RESIGNATION OR DISCHARGE
A Participant who has a Separation from the Service due to
resignation or discharge shall receive,
(a) if the Vested amount credited to his Accounts does not
exceed $5,000 (and did not exceed such amount at the time of a prior
withdrawal or distribution under the Plan), the Vested amount credited to
his Accounts (other than his HPA Accounts) in one lump sum distribution in
cash not later than six months after the end of the Plan Year in which such
Separation from the Service occurs, or, if earlier, within 60 days after
the end of the Plan Year in which his sixty-fifth birthday occurs, or
(b) if the Vested amount credited to his Accounts exceeds $5,000
(or exceeded such amount at the time of a prior withdrawal or distribution
under the Plan), the Vested amount credited to his Accounts (other than his
HPA Accounts) in one lump sum distribution in cash payable on such date as
he shall at any time elect in writing in accordance with Code Section
411(a)(11) and the Rules of the Plan, but not earlier than the earliest
date described in subsection (a) and not later than the April 1 following
the calendar year of his attainment of age 70 1/2.
SECTION 12.2. - FORFEITURES
(a) If a Participant has a Separation from the Service due to
resignation or discharge, the portion of his Matching Account or his
Discretionary Contributions Account which is not Vested shall thereupon be
forfeited upon the earlier of his receipt of his distribution under this Article
or his completion of five consecutive Break in Service Years. Pending
application under Section 5.4, forfeitures shall be held in suspense and shall
not be commingled with amounts held in suspense under Section 16.4.
(b) If a Participant has a Separation from the Service prior to
becoming Vested in any portion of his Accounts, a distribution shall be deemed
to have occurred concurrently with a forfeiture of his Accounts under subsection
(a).
SECTION 12.3. - RESTORATION OF FORFEITURES
If a Participant whose Matching Account or Discretionary
Contributions Account has not then fully Vested
(a) has a Separation from the Service,
42
<PAGE>
(b) suffers a forfeiture under Section 12.2 of the portion of
such Accounts which is not Vested,
(c) again becomes an Employee or employed by a Company Affiliate
before he has five consecutive Break in Service Years, and
(d) repays to the Plan the full amount, if any, distributed to
him from his Accounts before the end of five consecutive Break in Service
Years commencing after his distribution, or, if earlier, the fifth
anniversary of his reemployment,
then the amounts forfeited under Section 12.2 by such Participant shall be
restored to his Matching Account or Discretionary Contributions Account, as the
case may be, applying forfeitures pending application, Company contributions and
unallocated earnings and gains of the Trust Fund, in that order, as necessary.
ARTICLE XIII.
TOP-HEAVY PROVISIONS
SECTION 13.1. - TOP-HEAVY DETERMINATION
(a) Solely in the event that the Plan ever becomes Top-Heavy, as
defined herein, the provisions of this Article shall apply.
(b) Solely for the purposes of this Article, the following
definitions shall be used:
(i) "Aggregation Group" shall mean
a each plan of the Company or a Company Affiliate in
which a Key Employee is a Participant (including any such plan which
has been terminated if such plan was maintained by the Company or
Company Affiliate within the last five years ending on the
Determination Date for the Plan Year in question), and
b each other plan of the Company or a Company
Affiliate which enables any plan described in paragraph A to meet the
requirements of Code Section 401(a)(4) or 410.
(ii) "Determination Date" shall mean, with respect to any
Plan Year, the last day of the preceding Plan Year, or in the case of the
first Plan Year, the last day of such Plan Year.
(iii) "Controlled Group Employee" shall mean any person
who renders services to the Company or a Company Affiliate in the status of
an employee as the term is defined in Code Section 3121(d).
43
<PAGE>
(iv) "Key Employee" shall mean a Controlled Group Employee,
a former Controlled Group Employee or the Beneficiary of a former
Controlled Group Employee, if, in the Plan Year containing the
Determination Date or in any of the four preceding Plan Years, such
Controlled Group Employee or former Controlled Group Employee is or was
a an officer of the Company or a Company Affiliate
whose Statutory Compensation for the Plan Year in question exceeds 50%
of the amount in effect under Code Section 415(b)(1)(A) (not more than
50 Controlled Group Employees or, if less, the greater of three
Controlled Group Employees or ten percent of the Controlled Group
Employees shall be treated as officers),
b one of the ten Controlled Group Employees owning
(or considered as owning within the meaning of Code Section 318) both
the largest interest in the Company or a Company Affiliate and more
than one-half of 1% interest therein and whose Statutory Compensation
for the Plan Year in question equals or exceeds the amount in effect
under Code Section 415(c)(1)(A); provided, however, if two Controlled
Group Employees have the same interest in the Company or a Company
Affiliate, the Controlled Group Employee with the greater Statutory
Compensation for such Plan Year shall be treated as having the larger
interest,
c a 5% owner (within the meaning of Code Section
416(i)(1)(B) and (C)) of the Company or a Company Affiliate or a 1%
owner (within the meaning of Code Section 416(i)(1)(B) and (C)) of the
Company or a Company Affiliate whose Statutory Compensation for the
Plan Year in question exceeds $150,000.
(v) "Non-Key Employee" shall mean any Controlled Group
Employee who is not a Key Employee.
(vi) The Plan shall be Top-Heavy if, as of any Determination
Date, the aggregate of the Accounts of Key Employees under all plans in the
Aggregation Group (or under this Plan and such other plans as the Company
elects to take into account under Code Section 416(g)(2)(A)(ii)) exceeds
60% of the aggregate of the Accounts for all Key Employees and Non-Key
Employees. In making this calculation as of a Determination Date,
a each Account balance as of the most recent
valuation date occurring within the Plan Year which includes the
Determination Date shall be determined,
b an adjustment for contributions due as of the
Determination Date shall be determined,
44
<PAGE>
c the Account balance of any Controlled Group
Employee or former Controlled Group Employee shall be increased by the
aggregate distributions made during the five-year period ending on the
Determination Date with respect to such Controlled Group Employee or
former Controlled Group Employee,
d the Account balance of
1 any Non-Key Employee who was a Key Employee
for any prior Plan Year, and
2 any former Controlled Group Employee who
performed no services for the Company or a Company Affiliate
during the five-year period ending on the Determination Date
shall be ignored, and
e if there have been any rollovers to or from any
Account, the balance of such Account shall be adjusted, as required by
Code Section 416(g)(4)(A).
Notwithstanding the foregoing, this Plan shall be Top-Heavy if, as of any
Determination Date, it is required by Code Section 416(g) to be included in
an Aggregation Group which is determined to be a Top-Heavy Group.
(vii) "Top-Heavy Group" shall mean any Aggregation Group
if, as of the Determination Date, the sum of
a the present value of the cumulative accrued
benefits for all Key Employees under all defined benefit plans in such
Aggregation Group, and
b the aggregate of the accounts of all Key Employees
under all defined contribution plans in such Aggregation Group
exceeds 60% of a similar sum determined for all Key Employees and Non-Key
Employees.
(viii) "Statutory Compensation" shall have the meaning
set forth in Section 1.50.
SECTION 13.2. - MINIMUM BENEFITS
(a) For any Plan Year in which the Plan is Top-Heavy, the
allocation to the Profit-Sharing Account, Matching Account or Discretionary
Contributions Account of any Employee who is a Non-Key Employee at the end of
such Plan Year and is entitled to an allocation to such Accounts under Sections
5.3 or 5.5 shall not be less than that determined under subsection (b).
45
<PAGE>
(b) The allocation determined under this subsection shall be a
percentage of the Statutory Compensation of such Non-Key Employee which is not
less than the lesser of
(i) 3%, or
(ii) that percentage reflecting the ratio of
a the allocations to the Employee's Two Percent
Contributions Account, Matching Account and Discretionary
Contributions Account to
b Statutory Compensation (not in excess of the limit
in effect under Code Section 401(a)(17) as adjusted for increases in
the cost of living)
for the Key Employee with respect to whom such ratio is highest for such
Plan Year.
SECTION 13.3. - VESTING
(a) For any Plan Year in which the Plan is Top-Heavy, the Vested
percentage of the Matching Account or Discretionary Contributions Account of
each Participant who completes an Hour of Service in such Plan Year shall be the
percentage of such Account shown on the following table:
<TABLE>
<CAPTION>
Years of Vesting Vested
Service Percentage
---------------- ----------
<S> <C>
1 10%
2 20%
3 40%
4 60%
5 80%
6 (or more) 100%.
</TABLE>
(b) The Vested percentage of a Participant's Matching Account or
Discretionary Contributions Account shall be not less than the Vested percentage
determined as of the last day of the last Plan Year in which the Plan was not
Top-Heavy.
(c) For any Plan Year in which the Plan is not Top-Heavy which
follows one or more Plan Years for which the Plan has been Top-Heavy, Article
VIII shall again become applicable as an amendment to the Plan; thus, each
Participant who has had his Vested percentage computed under subsection (a) and
who has completed at least three Years of Vesting Service shall be permitted to
elect to have his Vested percentage computed in accordance with subsection (a)
for such Plan Year and any subsequent Plan Year in which the Plan is no longer
Top-Heavy. Such Participant may make such election within an election period
beginning no later than the first day of the first Plan Year in which the Plan
is no longer Top-Heavy and ending no later than the later of
46
<PAGE>
(i) the sixtieth day of such Plan Year, or
(ii) a date which is 60 days after the day the Participant
is issued written notice of his right to make such election by the
Administrator.
SECTION 13.4. - LIMITATION ON BENEFITS
For any Plan Year in which the Plan is Top-Heavy,
(a) the denominator of both the defined benefit plan fraction
and the defined contribution plan fraction set forth in Code Sections
415(e)(2)(B) and 415(e)(3)(B), respectively, shall be adjusted by
substituting 1.0 for 1.25, and
(b) the numerator of the "transition fraction" described in Code
Section 415(e)(6)(B)(i) shall be calculated by substituting $41,500 for
$51,875,
but only to the extent required by Code Section 416(h).
ARTICLE XIV.
ADMINISTRATIVE PROVISIONS
SECTION 14.1. - DUTIES AND POWERS OF THE ADMINISTRATOR
(a) The Administrator shall administer the Plan in accordance
with the Plan and ERISA and shall have full discretionary power and authority:
(i) To engage actuaries, attorneys, accountants,
appraisers, brokers, consultants, administrators, physicians or other firms
or persons and (with its officers, directors and Employees) to rely upon
the reports, advice, opinions or valuations of any such persons except as
required by law;
(ii) To adopt Rules of the Plan that are not inconsistent
with the Plan or applicable law and to amend or revoke any such rules;
(iii) To construe the Plan and the Rules of the Plan;
(iv) To determine questions of eligibility and vesting of
Participants;
(v) To determine entitlement to allocations of
contributions and forfeitures and to distributions of Participants, former
Participants, Beneficiaries, and all other persons;
(vi) To make findings of fact as necessary to make any
determinations and decisions in the exercise of such discretionary power
and authority;
(vii) To appoint claims and review officials to conduct
claims procedures as provided in Section 14.12; and
47
<PAGE>
(viii) To delegate any power or duty to any firm or
person engaged under paragraph (i) or to any other person or persons.
(b) Every finding, decision, and determination made by the
Administrator shall, to the full extent permitted by law, be final and binding
upon all parties, except to the extent found by a court of competent
jurisdiction to constitute an abuse of discretion.
SECTION 14.2. - ADMINISTRATIVE COMMITTEE
The Administrator may, but need not, appoint an administrative
committee consisting of two or more members appointed by and holding office
during the Administrator's pleasure, to function as specified under Section 1.4.
SECTION 14.3. - ACCEPTANCE
Committee members shall take office effective upon execution of
a written acceptance of appointment, copies of which shall be filed with the
Administrator.
SECTION 14.4. - RESIGNATION
Committee members may resign at any time by delivering written
notice to the Administrator.
SECTION 14.5. - VACANCIES
Vacancies on the Committee shall be filled by the
Administrator's pleasure. If at any time there should be no members of the
Committee in office, the Administrator shall resume his full responsibilities as
Administrator.
SECTION 14.6. - OFFICERS
The Committee shall appoint a Chairman and a Secretary who shall
hold office during the pleasure of the Committee and shall have and perform such
powers and duties as the Committee shall prescribe.
SECTION 14.7. - MAJORITY RULE
The Committee shall act by a majority of its members in office;
provided, however, that it may appoint any of its members, or a non-member, to
act on behalf of the Committee on matters arising in the ordinary course of
administration. No member of the Committee shall vote on any matter in which he
is personally interested except on matters applying to Participants generally.
SECTION 14.8. - EXPENSES OF ADMINISTRATION
(a) The Company shall pay or reimburse the Administrator,
Committee members and each Employee functioning under Section 14.1(a) or person
serving on an
48
<PAGE>
investment committee established in accordance with the Trust Agreement for all
expenses (including reasonable attorneys' fees) properly incurred by him in the
administration of the Plan.
(b) The Company shall indemnify and hold each such
Committee member, Employee and investment committee member harmless from all
claims, liabilities and costs (including reasonable attorneys' fees) arising out
of the good faith performance of his functions hereunder.
(c) The Company may obtain and provide for any such Committee
member, Employee and investment committee member described in subsection (a), at
the Company's expense, liability insurance against liabilities imposed on him by
law.
(d) Legal fees incurred in the preparation and amendment of
documents shall be paid by the Company.
(e) Expenses referred to in subsections (a), (b) and (d) not
paid by the Company shall be paid from the Trust Fund to the extent permitted by
law.
(f) Except as provided in subsection (a), fees and expenses of
persons rendering services to the Plan shall not be paid or reimbursed by the
Company except as agreed upon by the Company.
SECTION 14.9. - PAYMENTS
In the event any amount becomes payable under the Plan to a
minor or a person who, in the sole judgment of the Administrator, is considered
by reason of physical or mental condition to be unable to give a valid receipt
therefor, the Administrator may direct that such payment be made to any person
found by the Administrator, in its sole judgment, to have assumed the care of
such minor or other person. Any payment made pursuant to such determination
shall constitute a full release and discharge of the Trustee, the Administrator
and the Company and their officers, directors, employees, owners, agents and
representatives.
SECTION 14.10. - STATEMENT TO PARTICIPANTS
Within 180 days after the end of each Plan Year, the
Administrator shall furnish to each Participant a statement setting forth the
value of his Accounts and the Vested percentage thereof and such other
information as the Administrator shall deem advisable to furnish.
SECTION 14.11. - INSPECTION OF RECORDS
Copies of the Plan and any other documents and records which a
Participant is entitled by law to inspect shall be open to inspection by such
Participant or such Participant's duly authorized representatives at any
reasonable business hour at the principal office of the Company, any Company
work site at which at least 50 Employees regularly perform services and such
other locations as the Secretary of Labor may require.
49
<PAGE>
SECTION 14.12. - CLAIMS PROCEDURE
(a) A claim by a Participant, former Participant, Beneficiary or
any other person shall be presented to the claims official appointed by the
Administrator in writing within the maximum time permitted by law or under the
regulations promulgated by the Secretary of Labor or his delegate pertaining to
claims procedures.
(b) The claims official shall, within a reasonable time,
consider the claim and shall issue his determination thereon in writing.
(c) If the claim is granted, the appropriate distribution or
payment shall be made from the Trust Fund or by the Company.
(d) If the claim is wholly or partially denied, the claims
official shall, within 90 days (or such longer period as may be reasonably
necessary), provide the claimant with written notice of such denial, setting
forth, in a manner calculated to be understood by the claimant
(i) the specific reason or reasons for such denial,
(ii) specific references to pertinent Plan provisions on
which the denial is based,
(iii) a description of any additional material or
information necessary for the claimant to perfect the claim and an
explanation of why such material or information is necessary, and
(iv) an explanation of the Plan's claim review procedure.
(e) The Administrator shall provide each claimant with a
reasonable opportunity to appeal the claims official's denial of a claim to a
review official (appointed by the Administrator in writing) for a full and fair
review. The claimant or his duly authorized representative
(i) may request a review upon written application to the
review official (which shall be filed with it),
(ii) may review pertinent documents, and
(iii) may submit issues and comments in writing.
(f) The review official may establish such time limits within
which a claimant may request review of a denied claim as are reasonable in
relation to the nature of the benefit which is the subject of the claim and to
other attendant circumstances but which, in no event, shall be less than 60 days
after receipt by the claimant of written notice of denial of his claim.
(g) The decision by the review official upon review of a claim
shall be made not later than 60 days after his receipt of the request for
review, unless special circumstances
50
<PAGE>
require an extension of time for processing, in which case a decision shall be
rendered as soon as possible, but not later than 120 days after receipt of such
request for review.
(h) The decision on review shall be in writing and shall include
specific reasons for the decision written in a manner calculated to be
understood by the claimant with specific references to the pertinent Plan
provisions on which the decision is based.
(i) The claims official and the review official shall have full
discretionary power and authority to construe the Plan and the Rules of the
Plan, to determine questions of eligibility, vesting and entitlements and to
make findings of fact as under Section 14.1 and, to the extent permitted by law,
the decision of the claims official (if no review is properly requested) or the
decision of the review official on review, as the case may be, shall be final
and binding on all parties except to the extent found by a court of competent
jurisdiction to constitute an abuse of discretion.
SECTION 14.13. - CONFLICTING CLAIMS
If the Administrator is confronted with conflicting claims
concerning a Participant's Accounts, the Administrator may interplead the
claimants in an action at law, or in an arbitration conducted in accordance with
the rules of the American Arbitration Association, as the Administrator shall
elect in its sole discretion, and in either case, the attorneys' fees, expenses
and costs reasonably incurred by the Administrator in such proceeding shall be
paid from the Participant's Accounts.
SECTION 14.14. - EFFECT OF DELAY OR FAILURE TO ASCERTAIN
AMOUNT DISTRIBUTABLE OR TO LOCATE DISTRIBUTEE
(a) If an amount payable under Article X, XI or XII (or Exhibit
B) cannot be ascertained or the person to whom it is payable has not been
ascertained or located within the stated time limits and reasonable efforts to
do so have been made, then distribution shall be made not later than 60 days
after such amount is determined or such person is ascertained or located, or as
prescribed in subsection (b).
(b) If, within one year after a Participant has a Separation
from the Service (or such later date as the Administrator determines), the
Administrator, in the exercise of due diligence, has failed to locate him (or if
such Separation from the Service is by reason of his death, has failed to locate
the person entitled to his Vested Accounts under Section 11.2 (or Exhibit B)),
his entire distributable interest in the Plan shall be forfeited and applied to
reduce the Company's contributions under Section 5.4; provided, however, that if
the Participant (or in the case of his death, the person entitled thereto under
Section 11.2 (or Exhibit B)) makes proper claim therefor under Section 14.12,
the amount so forfeited shall be restored to the Participant's Accounts applying
forfeitures pending application, Company contributions and unallocated earnings
and gains of the Trust Fund, in that order, as necessary.
51
<PAGE>
SECTION 14.15. - SERVICE OF PROCESS
The Secretary of the PacifiCare Health Systems, Inc. is hereby
designated as agent of the Plan for the service of legal process.
SECTION 14.16. - LIMITATIONS UPON POWERS OF THE ADMINISTRATOR
The Plan shall not be operated so as to discriminate in favor of
Participants who are Highly Compensated Employees. The Plan shall be uniformly
and consistently interpreted and applied with regard to all Participants in
similar circumstances. The Plan shall be administered, interpreted and applied
fairly and equitably and in accordance with the specified purposes of the Plan.
SECTION 14.17. - EFFECT OF ADMINISTRATOR ACTION
Except as provided in Section 14.12, all actions taken and all
determinations made by the Administrator in good faith shall be final and
binding upon all Participants, the Trustee and any person interested in the Plan
or Trust Fund.
SECTION 14.18. - CONTRIBUTIONS TO ROLLOVER ACCOUNTS
(a) A Participant, or an Employee who is not in a Bargaining
Unit and is not employed in a position or classification designated by the
Administrator as excluded from eligibility to participate in the Plan, may make
a contribution to his Rollover Account if such contribution meets the
requirements of this Section and is in accordance with the Rules of the Plan.
(b) Such contribution will meet the requirements of this Section
if
(i) it is made by the Participant or Employee to the Trust
in cash in a lump sum not later than two months after his admission or
readmission to the Plan, and
(ii) the amount contributed by the Participant or Employee
consists of all or a portion of
a an "eligible rollover distribution," as defined in
Code Section 402(c)(4) from
1 a qualified trust, described in Code Section
401(a), or
2 an annuity plan, described in Code Section
403(a), or
b a tax-free rollover distribution from an
individual retirement account or an individual retirement annuity
which in turn consisted entirely of an "eligible rollover
distribution," as defined in Code Section 402(c)(4), from a
52
<PAGE>
qualified trust, described in Code Section 401(a), or an annuity plan,
described in Code Section 403(a), together with any earnings thereon,
and which otherwise meets the requirements of Code Section 408(d)(3).
(c) In addition, such contribution shall meet the requirements
of this Section if
(i) the contribution is made within 60 days following the
day on which the Participant or Employee received the distribution from a
qualified trust, annuity plan or individual retirement account or annuity,
(ii) such distribution was in the form of cash, and
(iii) if such distribution constituted an "eligible
rollover distribution" within the meaning of Code Section 402(c)(4), no
part of the contribution consists of employee contributions.
(d) The Administrator may require the Participant or Employee to
supply information sufficient to determine if his contribution meets the
requirements of this Section. If the Administrator determines that such
contribution does not meet the requirements of this Section, the contribution
shall not be permitted.
(e) If the Administrator accepts a contribution pursuant to this
Section and later determines that it was improper to do so, in whole or in part,
the Plan shall refund the necessary amount to the Participant or Employee.
(f) An Employee who makes a contribution to his Rollover Account
prior to becoming a Participant shall be treated as a Participant prior to
satisfying the requirements of Section 2.1 but only with respect the amounts
credited to his Rollover Account.
SECTION 14.19. - DIRECT ROLLOVERS
Notwithstanding any provision of the Plan to the contrary, a
Direct Rollover Distributee may elect, at the time and in the manner prescribed
by the Administrator under the Rules of the Plan, to have all or any portion of
an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan
designated by the Direct Rollover Distributee in a Direct Rollover.
SECTION 14.20. - WITHDRAWALS FROM ROLLOVER ACCOUNTS
(a) A Participant may elect to make a withdrawal of all or any
portion of the amount credited to his Rollover Account under the following
conditions:
(i) such withdrawal is made on account of Hardship.
(ii) such Participant has not made a contribution to his
Rollover Account pursuant to Section 14.18 within two years of the date of
such withdrawal, or
53
<PAGE>
(iii) such Participant has been an Active Participant
for not less than five years.
Any such withdrawal shall be made in one lump sum distribution in cash and shall
be elected in writing in accordance with the Rules of the Plan.
(b) A Participant's withdrawal under paragraph (a)(i) shall be
subject to the following requirements:
(i) such Participant's aggregate Hardship withdrawals under
this Section shall not exceed the lesser of
a the amount which is necessary to satisfy the
Hardship, or
b the amount which cannot be satisfied from other
resources which are reasonably available to the Participant, and
(ii) the Participant shall certify to the Administrator in
writing that the financial need in question cannot be satisfied
a through reimbursement or compensation by insurance
or otherwise,
b by reasonable liquidation of assets of himself or
of those assets which he owns jointly or in common with his Spouse, a
minor child, or any other person (but not of property held for his
Spouse or child under an irrevocable trust or the Uniform Gifts to
Minors Act),
c by cessation of deferrals under Article III,
d by other distributions (other than Hardship
withdrawals under Section 3.6) or nontaxable (at the time of the loan)
loans from plans maintained by the Company or any other employer, or
e by borrowing from commercial sources on reasonably
commercial terms (in support of which certification the Administrator
may require the Participant to submit written evidence of at least two
applications for, and rejections of, loans from commercial sources),
and the Administrator reasonably relies on such certification.
SECTION 14.21. - LOANS TO PARTICIPANTS OR FORMER PARTICIPANTS AND BENEFICIARIES
(a) A Participant, former Participant or Beneficiary of a
deceased Participant ("Borrower") may borrow against his Accounts with the
approval of the Administrator in accordance with the provisions of
subsection (b).
54
<PAGE>
(b) The Administrator shall establish by Rules of the Plan
the requirements for loans and conditions therefor. Such Rules of the Plan
shall be consistent with the following requirements:
(i) The Borrower must be a "party in interest" within the
meaning of ERISA Section 3(14) on the date the loan is made.
(ii) Loans shall not be made available to an individual who
is an owner-employee (as defined in Code Section 401(c)(3)) of the Company
or a Company Affiliate or a shareholder-employee (as defined in Code
Section 1379(d)) of the Company or a Company Affiliate or a member of the
family (as defined in Code Section 267(c)(4)) of an owner-employee or
shareholder-employee.
(iii) Loans shall be permitted under this Section only
on account of Hardship.
(iv) The minimum amount which a Borrower may borrow at any
one time under this Section is $1,000.
(v) The maximum amount which a Borrower may borrow under
this Section shall be an amount which, when added to the outstanding
balance of all other loans from the Plan and from other qualified plans of
the Company or a Company Affiliate, does not exceed the lesser of
a $50,000 reduced by the excess (if any) of
1 the highest outstanding balance of loans from
the Plan during the one year period ending on the day before the
date on which the loan is made, over
2 the outstanding balance of loans from the
Plan on the date on which such loan was made; or
b 50% of his Vested interest in his Accounts.
(vi) If the Borrower is married and amounts are credited to
the Borrower's Dormant Accounts, the Borrower shall obtain Spousal Consent
to the loan.
(vii) Loans shall not be made to a Borrower under this
Section more frequently than at 12-month intervals.
(viii) Loans must be available to all Borrowers on a
reasonably equivalent basis.
(ix) The Vested percentage of a Borrower's Accounts which
is made available for borrowing shall not be higher for Participants or
former Participants who are Highly Compensated Employees, officers or
shareholders than for other Borrowers.
55
<PAGE>
(x) Such loans shall be made upon promissory notes
providing for substantially level amortization (with regular payments by
payroll deduction each Payday for a Participant or by direct payments if
the Participant does not have a sufficient paycheck on any Payday). A
former Participant shall make arrangements for regular direct payments on
such loans with the Administrator as provided in the Rules of the Plan.
(xi) Each such loan shall be secured by the lesser of the
amount of the loan or half of the Vested interest in the Borrower's
Accounts, including any such portion of a Borrower's Accounts which is
credited to, or becomes vested, after the date of the loan, as determined
by the Administrator. For purposes of the Plan, the distributable balance
of such Accounts shall be reduced by the unpaid balance of the loan or
loans secured by such Accounts, in the manner determined by the
Administrator.
(xii) Each loan under this Section shall bear a
reasonable interest rate, which shall be commensurate with the interest
rates charged by persons in the business of lending money for loans which
would be made under similar circumstances. The Administrator may adopt a
national or regional rate of interest for this purpose.
(xiii) Each loan under this Section shall be repaid
within five years, unless the loan is used to acquire any dwelling unit
which within a reasonable time is to be used as the principal residence of
the Borrower.
(xiv) The promissory note on any such loan shall be an
investment of the affected Accounts of the Borrower receiving such loan and
not an investment of the Trust Fund generally.
SECTION 14.22. - ASSIGNMENTS, ETC., PROHIBITED; DISTRIBUTIONS
PURSUANT TO QUALIFIED DOMESTIC RELATIONS ORDERS
(a) Except as provided in subsection (b), no part of the Trust
Fund shall be liable for the debts, contracts or engagements of any Participant,
his Beneficiaries or successors in interest, or be taken in execution by levy,
attachment or garnishment or by any other legal or equitable proceeding, while
in the hands of the Trustee, nor shall any such person have any right to
alienate, anticipate, commute, pledge, encumber or assign any benefits or
payments hereunder in any manner whatsoever, except to designate a Beneficiary
as provided in the Plan.
(b) Notwithstanding subsection (a) or any other provision of the
Plan to the contrary, upon receipt by the Administrator of a domestic relations
order, as defined in Code Section 414(p), which, but for the time of required
payment to the alternate payee, would be a qualified domestic relations order as
defined in Code Section 414(p), the amount awarded to the alternate payee shall
promptly be paid in the manner specified in such order; provided, however, that
no such distribution shall be made prior to the Participant's Separation from
the Service if such distribution could adversely affect the qualified status of
the Plan.
56
<PAGE>
SECTION 14.23. - CORRECTION OF ADMINISTRATIVE ERROR; SPECIAL CONTRIBUTION
Notwithstanding any other provision of the Plan to the contrary,
the Administrator shall take any and all appropriate actions to correct errors
in the administration of the Plan, including, without limitation, errors in the
allocation of contributions, forfeitures, and income, expenses, gains and losses
to the Accounts of the Participants or Beneficiaries under the Plan. Such
corrective actions may include debiting or crediting a Participant's or
Beneficiary's Accounts or allocating special contributions made by the Company
to the Plan for purposes of correcting any failure to make contributions on a
timely basis or properly allocate contributions, forfeitures, or income,
expenses, gains and losses. The Administrator shall determine the amount of any
such special contributions required to be made by the Company, which may be made
in such approximate amounts as the Administrator, acting in its sole discretion,
shall determine. In no event shall any corrective action taken by the
Administrator under this Section reduce any Participant's or Beneficiary's
accrued benefit in violation of Section 411(d)(6) of the Code and the Treasury
Regulations thereunder.
ARTICLE XV.
TERMINATION, DISCONTINUANCE
AMENDMENT, MERGER, ADOPTION OF PLAN
SECTION 15.1. - TERMINATION OF PLAN; DISCONTINUANCE OF CONTRIBUTIONS
(a) The Plan is intended as a permanent program but the Board
shall have the right at any time to declare the Plan terminated completely as to
the Company or as to any division, facility or other operational unit thereof.
Discharge or layoff of Employees of the Company or any unit thereof without such
a declaration shall not result in a termination or partial termination of the
Plan except to the extent required by law. In the event of any termination or
partial termination:
(i) An allocation of amounts being held under Section
16.4(b) shall be made in accordance with Section 16.4(c).
(ii) For each Participant who is then an Employee or
employed by a Company Affiliate with respect to whom the Plan is terminated
or partially terminated, the interest in his Matching Account or
Discretionary Contributions Account shall become fully Vested.
(iii) The Administrator shall direct the Trustee to
liquidate the necessary portion of the Trust Fund and distribute it, less,
to the extent permitted by law, a proportionate share of the expenses of
termination, to the persons entitled thereto in proportion to their
Accounts.
(iv) Such distributions shall be made in the manner
prescribed by Section 12.1(a), assuming for such purpose that each person
entitled to a distribution
57
<PAGE>
under the Plan is a Participant who has had a Separation from the Service
due to resignation or discharge on the date of termination.
(b) The Board shall have the right at any time to discontinue
contributions to the Plan completely as to the Company or as to any division,
facility or other operational unit thereof. Failure of the Company to make one
or more substantial contributions to the Plan for any period of three
consecutive Plan Years in each of which the Company realized substantial current
earnings, as shown on its financial reports, shall automatically become a
complete discontinuance of contributions at the end of the third such
consecutive Plan Year. In the event of complete discontinuance of contributions
to the Plan, the Plan and Trust shall otherwise remain in full force and effect
except that all Matching Accounts and Discretionary Contributions Accounts shall
thereupon become fully Vested.
SECTION 15.2. - AMENDMENT OF PLAN
As limited in Section 15.3 of the Plan and the Trust Agreement,
complete or partial amendments or modifications to the Plan (including
retroactive amendments to meet governmental requirements or prerequisites for
tax qualification) may be made from time to time by the Board; provided,
however, that no amendment shall decrease the Vested percentage any Participant
has in his Accounts or his accrued benefit.
SECTION 15.3. - RETROACTIVE EFFECT OF PLAN AMENDMENT
(a) No Plan amendment, including this amendment, unless it
expressly provides otherwise, shall be applied retroactively to increase the
Vested percentage of a Participant whose Separation from the Service preceded
the date such amendment became effective unless and until he again becomes a
Participant and additional contributions are allocated to him.
(b) No Plan amendment, unless it expressly provides otherwise,
shall be applied retroactively to increase the amount of service credited to any
person for purposes of Plan participation, vesting or any other Plan purpose
with respect to his participation or employment before the date such amendment
became effective.
(c) Except as provided in subsections (a) and (b), all rights
under the Plan shall be determined under the terms of the Plan as in effect at
the time the determination is made.
SECTION 15.4. - CONSOLIDATION OR MERGER; ADOPTION OF PLAN BY OTHER COMPANIES
(a) In the event of the consolidation or merger of the Company
with or into any other business entity, or the sale by the Company or its owner
of its assets, the successor may continue the Plan by adopting the same by
resolution of its board of directors or agreement of its partners or proprietor
and, if deemed appropriate, by executing a proper supplemental agreement to the
Trust Agreement with the Trustee. If, within 90 days from the effective date of
such consolidation, merger or sale of assets, such new corporation, partnership
or proprietorship does not adopt the Plan, the Plan shall be terminated in
accordance with Section 15.1.
58
<PAGE>
(b) The Plan shall not be merged or consolidated with any other
plan, nor shall its assets or liabilities be transferred to any other plan,
unless each Participant in this Plan would have immediately after the merger,
consolidation or transfer (if the plan in question were then terminated)
accounts which are equal to or greater in amount than his corresponding Accounts
under this Plan had the Plan been terminated immediately before the merger,
consolidation or transfer.
(c) Any Company Affiliate may, with the approval of the Board,
adopt the Plan as a whole company or as to any one or more divisions effective
as of the first day of any Plan Year by resolution of its own board of directors
or agreement of its partners. Such Company Affiliate shall give written notice
of such adoption to the Administrator and to the Trustee by its duly authorized
officers.
ARTICLE XVI.
MISCELLANEOUS PROVISIONS
SECTION 16.1. - IDENTIFICATION OF FIDUCIARIES
(a) The Administrator (with respect to control and management of
Plan assets and in general) and the Trustee shall be named fiduciaries within
the meaning of ERISA and, as permitted or required by law, shall have exclusive
authority and discretion to control and manage the operation and administration
of the Plan within the limits set forth in the Trust Agreement, subject to
proper delegation.
(b) Such named fiduciaries and every person who exercises any
discretionary authority or discretionary control respecting management of the
Trust Fund or Plan, or exercises any authority or control respecting the
management or disposition of the assets of the Trust Fund or Plan, or renders
investment advice for compensation, direct or indirect, with respect to any
moneys or other property of the Trust Fund or Plan or has authority or
responsibility to do so, or has any discretionary authority or discretionary
responsibility in the administration of the Plan, and any person designated by a
named fiduciary to carry out fiduciary responsibilities under the Plan, shall be
a fiduciary and, as such, shall be subject to provisions of the Plan, the Trust
Agreement, ERISA and other applicable laws governing fiduciaries. Any person
may act in more than one fiduciary capacity.
SECTION 16.2. - ALLOCATION OF FIDUCIARY RESPONSIBILITIES
(a) Fiduciary responsibilities under the Plan are allocated as
follows:
(i) The sole power and discretion to manage and control the
Plan's assets including, but not limited to, the power to acquire and
dispose of Plan assets, is allocated to the Trustee, except to the extent
that another fiduciary is appointed in accordance with the Trust Agreement
with the power to control or manage (including the power to acquire and
dispose of) assets of the Plan.
59
<PAGE>
(ii) The sole duties, responsibilities and powers allocated
to the Board shall be those expressly retained under Sections 15.1, 15.2
and 15.3.
(iii) The sole duties, responsibilities and powers
allocated to the Company shall be those expressly retained under the Plan
or the Trust Agreement.
(iv) All fiduciary responsibilities not allocated to the
Trustee, the Board, the Company or any investment manager are hereby
allocated to the Administrator, subject to delegation in accordance with
Section 14.1(a)(viii).
(b) Fiduciary responsibilities under the Plan (other than the
power to manage or control the Plan's assets) may be reallocated among those
fiduciaries identified as named fiduciaries in Section 16.1 by amending the Plan
in the manner prescribed in Section 15.2, followed by such fiduciaries'
acceptance of, or operation under, such amended Plan.
SECTION 16.3. - LIMITATION ON RIGHTS OF EMPLOYEES
The Plan is strictly a voluntary undertaking on the part of the
Company and shall not constitute a contract between the Company and any
Employee, or consideration for, or an inducement or condition of, the employment
of an Employee. Except as otherwise required by law, nothing contained in the
Plan shall give any Employee the right to be retained in the service of the
Company or to interfere with or restrict the right of the Company, which is
hereby expressly reserved, to discharge or retire any Employee at any time,
without notice and with or without cause. Except as otherwise required by law,
inclusion under the Plan will not give any Employee any right or claim to any
benefit hereunder except to the extent such right has specifically become fixed
under the terms of the Plan and there are funds available therefor in the hands
of the Trustee. The doctrine of substantial performance shall have no
application to Employees or Participants. Each condition and provision,
including numerical items, has been carefully considered and constitutes the
minimum limit on performance which will give rise to the applicable right.
SECTION 16.4. - LIMITATION ON ANNUAL ADDITIONS; TREATMENT OF OTHERWISE EXCESSIVE
ALLOCATIONS
(a) In any Plan Year (which shall be the Plan's "limitation
year" within the meaning of Treas. Reg. Section 1.415-2(b)), the Annual Addition
of a Participant shall not exceed the least of
(i) 25% of such Participant's Statutory Compensation for
such Plan Year,
(ii) $30,000 (or, if greater, one-quarter of the dollar
limitation in effect under Code Section 415(b)(1)(A)), or
(iii) the maximum allowed under Code Section 415
(utilizing the adjustments to the "defined contribution fraction" allowed
by Section 1106(i)(4) of the Tax Reform Act of 1986 and Code Section
415(e)).
60
<PAGE>
(b) If the Annual Addition of a Participant would exceed the
limits of subsection (a) as a result of an allocation of forfeitures, a
reasonable error in estimating a Participant's Statutory Compensation or under
other limited facts and circumstances found justifiable by the Commissioner of
Internal Revenue, it shall be reduced until it comes within such limits. Such
reduction shall be accomplished by debiting the necessary amount from
(i) his allocation of Company contributions for such Plan
Year to his Matching Account and his Discretionary Contributions Account,
and
(ii) his allocation of Company contributions for such Plan
Year to his Profit-Sharing Account, and
(iii) his allocation of Company contributions for such
Plan Year to his Deferred Compensation Account,
in such order. To the extent allowed by Section 403 of ERISA, such amounts
shall be returned to the Company and recontributed for the applicable Account of
the Participant in the first Plan Year in which allowed under subsection (a), or
otherwise held in suspense hereunder and applied to the applicable Account of
the Participant in the first Plan Year in which allowed under subsection (a).
The balance, if any, of such reduction shall be allocated to the Matching
Accounts and Discretionary Contributions Accounts of persons who are Active
Participants at the end of the Plan Year in proportion to their Compensation
received while Active Participants in such Plan Year. If any Participant's
Annual Addition would, due to such special allocation, exceed the limit of
subsection (a), the excess shall be reallocated by a second special allocation,
and so on as necessary to allocate such amounts within the limits of subsection
(a). Any amounts which cannot be so allocated because of the limitations of
subsection (a), shall be held in suspense and shall be allocated and reallocated
in succeeding Plan Years, in the order of time, prior to the allocation of any
Company or personal contributions.
(c) In the event the Plan is terminated while excess amounts are
then held in suspense under subsection (b), such excess amounts shall be
allocated and reallocated as provided in subsection (b), as of the day before
the date of the termination as if such day were the last day of such Plan Year.
Any amounts which cannot then be so allocated because of the limits of
subsection (a) shall revert to the Company, as provided in the Trust Agreement.
SECTION 16.5. - VOTING RIGHTS
Except as otherwise required by ERISA, the Code and regulations
promulgated thereunder, all voting rights on shares of Company Stock in the
Company Stock Fund held by the Trust shall be exercised by the Trustee in
accordance with instructions from the Participants or Beneficiaries acting in
their capacities as named fiduciaries with respect to the shares of Company
Stock allocated to their Accounts (or attributable to the interests of their
Accounts in the Company Stock Fund), or the Committee, in accordance with the
following provisions of this Section:
61
<PAGE>
(a) All voting rights on shares of Company Stock in the
Company Stock Fund held by the Trust shall be exercised by the Trustee only
as directed by the Participants or Beneficiaries acting in their capacities
as named fiduciaries with respect to shares of Company Stock allocated to
their Accounts (or attributable to the interests of their Accounts in the
Company Stock Fund) in accordance with the following provisions of
subsections (b) and (c) below. If interests in the Company Stock Fund are
not denominated in shares of Company Stock, the number of the shares of
Company Stock held in the Company Stock Fund that represents the
proportionate interest of a Participant's or Beneficiary's Accounts in the
Company Stock Fund shall be attributed to such Participant's or
Beneficiary's Accounts for purposes of this Section.
(b) As soon as practicable before each annual or special
shareholders' meeting of the Company at which shares of Company Stock in
the Company Stock Fund are entitled to vote, the Trustee shall furnish to
each Participant (and each Beneficiary of a deceased Participant) a copy of
the proxy solicitation material sent generally to shareholders, together
with a form requesting confidential instructions on how the shares of
Company Stock allocated (or attributable) to such Participant's or
Beneficiary's Accounts (including fractional shares to 1/1000th of a share)
are to be voted. The Company shall cooperate with the Trustee to ensure
that Participants and Beneficiaries receive the requisite information in a
timely manner. The materials furnished to the Participants and
Beneficiaries shall include a notice from the Trustee explaining each
Participant's or Beneficiary's right to instruct the Trustee with respect
to the voting of the shares of Company Stock allocated (or attributable) to
the Participant's or Beneficiary's Accounts. Upon timely receipt of such
instructions, the Trustee (after combining votes of fractional shares to
give effect to the greatest extent to Participants' and Beneficiaries'
instructions) shall vote the shares as instructed. If voting instructions
for shares of Company Stock allocated (or attributable) to the Accounts of
any Participant or Beneficiary are not timely received by the Trustee for a
particular shareholders' meeting, such shares shall not be voted in
accordance with the instructions but shall be voted as provided in
subsection (c) below. The instructions received by the Trustee from
Participants and Beneficiaries shall be held by the Trustee in strict
confidence and shall not be divulged or released to any person including
directors, officers or employees of the Company, or of any other company,
except as otherwise required by law.
(c) All shares of Company Stock allocated (or
attributable) to the Accounts of Participants and Beneficiaries shall be
voted only in accordance with the directions of such Participants and
Beneficiaries as named fiduciaries as given to the Trustee. Each
Participant shall be entitled to direct the voting shares of Company
Stock (including fractional shares to 1/1000th of a share) allocated (or
attributable) to his Accounts. With respect to shares of Company Stock
allocated (or attributable) 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. If, however, voting instructions for
shares of Company Stock allocated (or attributable) to the Participant's
or Beneficiary's Accounts are not timely received by the Trustee for a
particular shareholders' meeting, such shares shall be voted by the
Trustee as directed by the Committee.
62
<PAGE>
SECTION 16.6. - TRUSTEE ACTIONS DURING TENDER OFFER
In the event of any transaction involving an offer to purchase
shares of Company Stock in the Company Stock Fund, with respect to which there
has been filed with the Securities and Exchange Commission ("SEC") a Tender
Offer Statement pursuant to Section 14(d)(1) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or an Issuer Tender Offer Statement
pursuant to Section 13(e)(1) of the Exchange Act (or any successor to either of
them) or any other similar transaction (such transaction referred to herein as a
"Tender Offer" and the date of filing with the SEC referred to herein as the
"Filing Date"), paragraphs (a) through (i) shall apply.
(a) The Company shall promptly, and at its own expense,
engage the services of an Outside Independent Plan Administrator ("OIPA")
experienced in administration of like plans. The OIPA shall, on a standby
basis, perform those functions (and only those functions) which are set
forth in paragraphs (b), (c) and (f) and which are necessary to preserve
the strict confidentiality of (i) the instructions received from
Participants (and Beneficiaries of deceased Participants) by the Trustee
and (ii) any other information which would reveal whether or not shares of
Company Stock allocated to the Accounts of individual Participants or
Beneficiaries have or have not been tendered. If interests in the Company
Stock Fund are not denominated in shares of Company Stock, the number of
the shares of Company Stock held in the Company Stock Fund that represents
the proportionate interest of a Participant's or Beneficiary's Accounts in
the Company Stock Fund shall be attributed to such Participant's or
Beneficiary's Accounts for purposes of this Section.
(b) The fiduciary with the power to make investment decisions
shall direct the investment of the proceeds of the sale of any shares of
Company Stock pursuant to the Tender Offer. These proceeds shall not be
reinvested in Company Stock except as to Accounts of Participants and
Beneficiaries who so elect, acting through the OIPA.
(c) (i) The Trustee shall seek confidential written
instructions from each Participant or Beneficiary of a deceased
Participant as to whether the shares of Company Stock allocated (or
attributable) to the Participant's or Beneficiary's Accounts should be
tendered pursuant to the Tender Offer.
(ii) The Trustee shall distribute to each such Participant
(or Beneficiary) copies of all relevant material filed with the SEC
with respect to the Tender Offer. The filing party shall pay the
reasonable expenses of the Trustee in connection therewith. The
Trustee shall have the power to require that payment for such
distributions of materials be made in advance.
(iii) The identities of the Participants and
Beneficiaries and the amount of Company Stock allocated (or
attributable) to their Accounts, shall be determined from the list of
Participants and Beneficiaries delivered to the Trustee by the
Administrator or, if an OIPA has previously been appointed under this
Section and if the Administrator does not have such information
because of the
63
<PAGE>
confidentiality rules contained herein, by that OIPA. The
Administrator or OIPA, as applicable, shall take all such reasonable
steps as may be necessary to provide the Trustee with information
which is as current as possible.
(d) Each Participant or Beneficiary shall be entitled to instruct the
Trustee, with respect to the shares of Company Stock allocated (or
attributable) to his Accounts, either
(i) to tender all or some portion of such shares of Company
Stock, or
(ii) not to tender any shares of such Company Stock,
and the Trustee shall follow such instructions.
(e) The Trustee shall make such follow-up efforts, through additional
mailings, bulletins to be posted in areas where notices to Participants are
normally posted by the Company and otherwise, as he finds to be reasonable
under the time constraints and other circumstances at hand, to obtain
instructions from Participants and Beneficiaries not otherwise responding
to the Trustee's request for instructions. The shares of Company Stock
allocated (or attributable) to the Accounts of any Participant or
Beneficiary not responding to such request for instructions shall be
tendered or not tendered in the manner directed by the Administrator.
(f) If some but less than all of the shares of the Company Stock
allocated (or attributable) to Accounts is tendered and sold or exchanged
by the Trustee, the OIPA shall thereafter perform all functions with
respect to all Accounts as constituted on or after the Filing Date.
Records and administration for all contributions after the Filing Date
shall be maintained by the Administrator unless that duty has also been
delegated to the OIPA.
(g) At such time as events (E.G., termination of the Plan or
placement of all Plan assets in investments other than Company Stock) occur
which obviate the need for the OIPA in order to preserve confidentiality,
the services of the OIPA may be terminated.
(h) The Trustee's functions under this Section are and shall be
solely custodial and ministerial. The Trustee shall have no powers or
duties with respect to a Tender Offer except as expressly set forth herein
and specifically shall have no power or duty
(i) to manage or to control the assets of the Plan in
connection with any Tender Offer (except as provided in this
Section),
(ii) to evaluate any Tender Offer,
(iii) to advise any Participant or Beneficiary as to the
fairness or other features of a Tender Offer,
(iv) to determine whether to tender or vote any shares of
Company Stock held under the Plan, or
64
<PAGE>
(v) to monitor or police the activities of the tendering entity
or the Company in promoting or resisting any Tender Offer; provided,
however, that if the Trustee becomes aware of any such activity which
reasonably appears to the Trustee to be coercive or misleading in any
material way to Participants, the Trustee shall promptly demand that
the offending party take appropriate corrective action, and the
Trustee shall, in the event of refusal or failure of such party to
take such corrective action as the Trustee reasonably finds
appropriate, communicate with Participants as to the matter;
provided, however, that the Trustee shall have the power to discharge his
duties under Title I of ERISA and to physically tender or vote the shares
in the event of a Tender Offer.
SECTION 16.7. - QUALIFIED MILITARY SERVICE
Notwithstanding any provision of the Plan to the contrary,
benefits and service credits with respect to qualified military service shall be
provided in accordance with Code Section 414(u).
SECTION 16.8. - GOVERNING LAW
The Plan and Trust shall be interpreted, administered and
enforced in accordance with the Code and ERISA, and the rights of Participants,
former Participants, Beneficiaries and all other persons shall be determined in
accordance therewith; provided, however, that, to the extent that state law is
applicable, the laws of the state of residence of the Participant in question,
or if none, the state in which the principal office of the Administrator is
located shall apply.
SECTION 16.9. - GENDERS AND PLURALS
Where the context so indicates, the masculine pronoun shall
include the feminine pronoun and the singular shall include the plural.
SECTION 16.10. - TITLES
Titles are provided herein for convenience only and are not to
serve as a basis for interpretation or construction of the Plan or Trust
Agreement.
SECTION 16.11. - REFERENCES
Unless the context clearly indicates to the contrary, a
reference to a statute, regulation or document shall be construed as referring
to any subsequently amended, enacted, adopted or executed statute, regulation or
document.
SECTION 16.12. - USE OF TRUST FUNDS
Under no circumstances shall any contributions to the Trust or
any part of the Trust Fund be recoverable by the Company from the Trustee or
from any Participant or former Participant, his Beneficiaries or any other
person, or be used for or diverted to purposes other
65
<PAGE>
than for the exclusive purposes of providing benefits to Participants and their
Beneficiaries; provided, however, that
(a) upon termination of the Plan or complete discontinuance
of contributions thereto, any unallocated Company contributions or
forfeitures being held in suspense because of the limitations of Section
415 of the Internal Revenue Code shall revert to the Company;
(b) the contribution of the Company for any Plan Year is
hereby conditioned upon its being deductible by the Company for its fiscal
year in which such contribution was made and, to the extent disallowed as a
deduction under Code Section 404, such contribution shall be returned by
the Trustee to the Company within one year after the final disallowance of
the deduction by the Internal Revenue Service or the courts; and
(c) contribution by the Company or a Participant by a
mistake of fact shall be returned to the Company or to the Participant in
question within one year after payment of the contribution was made.
Executed at _____________, California this ____ day of ______________,
1998.
PACIFICARE HEALTH SYSTEMS, INC.
By
-----------------------------
Title
-------------------------
66
<PAGE>
EXHIBIT A
AMENDMENT AND RESTATEMENT TO
THE PACIFICARE HEALTH SYSTEMS, INC.
SAVINGS AND PROFIT-SHARING PLAN
LIST OF SPONSORING COMPANIES
EFFECTIVE AS OF FEBRUARY 19, 1998
This Exhibit A lists each Company that has adopted the Plan and that
sponsors the Plan effective as of February 19, 1998.
PacifiCare Health Systems, Inc.
California Dental Health Plan
Covantage, Inc.
CRM Insurance Services, Inc.
Dental Plan Administrators
FHP Administrators
FHP Financial Corporation
FHP International Corporation
FHP of Colorado, Inc.
FHP of Tennessee, Inc.
FHP Reinsurance Limited
Great States Administrators, Inc.
Great States Insurance Company
Health Maintenance Life, Inc.
Oregon Health Management Company
PacifiCare Administrative Services, Inc.
PacifiCare Behavioral Health of California, Inc.
PacifiCare Behavioral Health, Inc.
PacifiCare Benefit Administrators, Inc.
PacifiCare Credentialing, Inc.
PacifiCare Dental of Colorado, Inc.
PacifiCare Health Option, Inc.
PacifiCare Health Plan Administrators, Inc.
PacifiCare Life and Health Insurance Company
PacifiCare Life Assurance Company
PacifiCare Life Insurance Company
PacifiCare Military Health Systems, Inc.
PacifiCare of Arizona, Inc.
PacifiCare of California
PacifiCare of Nevada, Inc.
PacifiCare of Ohio, Inc.
A-1
<PAGE>
EXHIBIT A
AMENDMENT AND RESTATEMENT TO
THE PACIFICARE HEALTH SYSTEMS, INC.
SAVINGS AND PROFIT-SHARING PLAN
LIST OF SPONSORING COMPANIES
EFFECTIVE AS OF FEBRUARY 19, 1998
PacifiCare of Oklahoma, Inc.
PacifiCare of Oregon, Inc.
PacifiCare of Texas, Inc.
PacifiCare of Utah, Inc.
PacifiCare of Washington, Inc.
PacifiCare Operations, Inc.
PacifiCare Pharmacy Centers, Inc.
PacifiCare Ventures, Inc.
PacifiCare Wellness Company
PacifiClinic Company
PC-CWD Vista Associates
Providers Protective Insurance Company
Secure Horizons USA, Inc.
TakeCare Insurance Company
B-2
<PAGE>
EXHIBIT B
AMENDMENT AND RESTATEMENT TO
THE PACIFICARE HEALTH SYSTEMS, INC.
SAVINGS AND PROFIT-SHARING PLAN
MERGER OF THE HEALTH PLAN OF AMERICA
EMPLOYEE INCENTIVE SAVINGS PLAN
This Exhibit B contains additional provisions of the Plan relating to
the merger of The Health Plan of America Employee Incentive Savings Plan (the
"HPA Plan") into the Plan, effective as of October 1, 1992. Specifically, the
Exhibit B contains provisions relating to the HPA Accounts of Participants and
former Participants in the Plan who were participants in the HPA Plan and who
became Participants in the Plan effective as of October 1, 1992. (The HPA
Accounts were previously referred to as the "Dormant Accounts.")
ARTICLE I
DEFINITIONS
Unless the context clearly indicates to the contrary, the terms used
herein with the first letter or letters capitalized shall have the meaning
specified below, or, if no definition is provided below, such terms shall have
the meaning specified in Article I of the Plan.
SECTION B1.1 - HPA ACCOUNTS
"HPA Accounts" of a Participant shall mean his HPA Elective
Contribution Account, if any, his HPA Employer Contribution Account, if any, his
HPA Rollover Account, if any, and his HPA Voluntary Contribution Account, if
any, in the Trust Fund established in accordance with Sections B3.1, B3.2, B3.3
and B3.4, respectively.
SECTION B1.2 - HPA ELECTIVE CONTRIBUTION ACCOUNT
"HPA Elective Contribution Account" of a Participant shall mean
is individual account in the Trust Fund established in accordance with Section
B3.l.
SECTION B1.3 - HPA EMPLOYER CONTRIBUTION ACCOUNT
"HPA Employer Contribution Account" of a Participant shall mean
his individual account in the Trust Fund established in accordance with Section
B3.2.
SECTION B1.4 - HPA ROLLOVER ACCOUNT
"HPA Rollover Account" of a Participant shall mean his individual
account in the Trust Fund established in accordance with Section B3.3.
B-1
<PAGE>
SECTION B1.5 - HPA VOLUNTARY CONTRIBUTION ACCOUNT
"HPA Voluntary Contribution Account" of a Participant shall mean
his individual account in the Trust Fund established in accordance with Section
B3.4.
SECTION B1.6 - EARLY RETIREMENT
"Early Retirement" of a Participant shall mean his Separation
from the Service upon his Early Retirement Date.
SECTION B1.7 - EARLY RETIREMENT DATE
"Early Retirement Date" of a Participant shall mean the first day
of any month coinciding with or next following his fifty-fifth birthday and his
completion of five Years of Vesting Service; provided, however, that, for
purposes of this Section, a Participant's Years of Vesting Service shall include
such Participant's years of "Service" (as defined under the HPA Plan),
determined as of September 30, 1992.
SECTION B1.8 - ELECTION PERIOD
"Election Period" means:
(a) in the case of an election under Section B6.3(d) to waive
the Joint and Survivor Annuity, the period beginning 90 days before the
Participant's Early, Normal or Disability Retirement Date, whichever may apply,
and ending on the later of
(i) the Participant's Early, Normal or Disability
Retirement Date, whichever may apply, or
(ii) the sixtieth day after the mailing or personal delivery
to him of information he has requested under Section B6.3(b)(ii).
(b) in the case of an election under Section B7.1(b)(ii) to
waive the qualified preretirement survivor annuity,
(i) by a former Participant who has had a Separation from
the Service, the period which begins on the date of his Separation from the
Service and ends on the date of his death, or
(ii) otherwise, the period which begins on the first day of
the Plan Year in which the Participant attains age 35 and ends on the date
of his death.
(c) in the case of an election under Section B8.1(d) to waive
the Joint and Survivor Annuity, the period beginning on the date of his
Separation from the Service and ending on the latest of
(i) the date 90 days thereafter,
B-2
<PAGE>
(ii) the date 90 days before payments in the form of a
Joint and Survivor Annuity commence, or
(iii) the sixtieth day after the mailing or personal
delivery to him of information he has requested under Section B8.1(b)(ii).
SECTION B1.9 - GROUP ANNUITY CONTRACT
"Group Annuity Contract" shall mean Aetna Life Insurance Company
Group Annuity Contract DC-13949, as in effect on October 1, 1992, a copy of
which is attached as Appendix 1 to this Exhibit B.
SECTION B1.10 - HPA PLAN PARTICIPANT
"HPA Plan Participant" shall mean a Participant or former
Participant in the Plan who was a participant in the HPA Plan and who became a
Participant in the Plan effective as of October 1, 1992.
SECTION B1.11 - JOINT AND SURVIVOR ANNUITY
"Joint and Survivor Annuity" shall mean an annuity for the life
of the Participant with a survivor annuity for the life of his or her Surviving
Spouse which is not less than one half of, nor greater than, the amount of the
annuity which is payable during the joint lives of the Participant and his or
her Surviving Spouse, and which is the actuarial equivalent of an annuity for
the life of the Participant. Unless a Participant elects otherwise, the
Participant's Joint and Survivor Annuity shall provide for a survivor benefit
equal to 50% of the amount of the annuity which is payable during the joint
lives of the Participant and his or her Surviving Spouse.
ARTICLE II
WITHDRAWALS
SECTION B2.1 - HARDSHIP WITHDRAWALS FROM HPA ELECTIVE CONTRIBUTION ACCOUNTS
A Participant may make a withdrawal in cash from his HPA Elective
Contribution Account on account of Hardship, subject to the following
requirements:
(a) A Participant's aggregate Hardship withdrawals shall not
exceed the lesser of
(i) the lesser of
a the amount by which
1 the aggregate principal amount of his HPA
Elective Contribution Account, if any, together with income
allocable thereto credited as of December 31, 1988), exceeds
B-3
<PAGE>
2 the unpaid amount due on his outstanding loan
or loans, if any under subsection (c)(i) or subsection (d)(iv),
and
b the amount which is necessary to satisfy the
Hardship (including any amounts necessary to pay any federal, state or
local income taxes or penalties reasonably anticipated to result from
the distribution), or
(ii) the amount which cannot be satisfied from other
resources which are reasonably available to the Participant.
(b) Unless the Participant elects that the conditions of
subsection (c) and (e) shall apply, the requirements of subsection (d) must be
satisfied.
(c) The conditions of this subsection are:
(i) the Participant shall obtain all distributions (other
than Hardship distributions), and all nontaxable loans currently available
under all plans maintained by the Company or any Company Affiliate;
(ii) the Participant shall not be permitted to make further
deferrals of Compensation under the Plan or any other plan (whether or not
qualified) maintained by the Company or any Company Affiliate for 12 months
thereafter; and
(iii) the sum of the Participant's deferrals of
Compensation under this Article (and other plans maintained by the Company
or any Company Affiliate) in his taxable year in which the Hardship
distribution is received and in his next taxable year shall not exceed
$10,000 (as adjusted for increases in the cost of living as described in
Code Section 402(g)(5)).
(d) To meet the requirements of this subsection the Participant
must certify to the Administrator in writing that the financial need in question
cannot be satisfied
(i) through reimbursement or compensation by insurance or
otherwise,
(ii) by reasonable liquidation of the assets of himself or
of those assets which he owns jointly or in common with his spouse, a minor
child, or any other person (but not of property held for his spouse or
child under an irrevocable trust or the Uniform Gifts to Minors Act),
(iii) by cessation of deferrals of Compensation under
this Article III, and all other plans (whether or not qualified) of the
Company and any Company Affiliate,
(iv) by other distributions or nontaxable (at the time of
the loan) loans from plans maintained by the Company or any Company
Affiliate or by any other employer, or
B-4
<PAGE>
(v) by borrowing from commercial sources on reasonable
commercial terms (in support of which certification the Administrator may
require the Participant to submit written evidence of at least two
applications for, and rejections of, loans from commercial sources),
and the Administrator reasonably relies on such certification and has no
actual knowledge to the contrary.
(e) The conditions of this subsection, if any, shall be those
prescribed by the Commissioner of Internal Revenue through the publication of
revenue rulings, notices, and/or other documents of general applicability, as an
alternate method under which a Hardship distribution will be deemed to be
necessary to satisfy an immediate and heavy financial need.
(f) A Participant whose Compensation deferrals have been
suspended under subsection (c) nevertheless shall be included in determinations
under Sections 1.16 and 1.17 if he would otherwise be so included.
(g) Hardship withdrawals may not be made more frequently than at
12 month intervals.
SECTION B2.2 - WITHDRAWALS FROM HPA ELECTIVE CONTRIBUTION ACCOUNTS AFTER AGE
59 1/2
A Participant who has attained age 59 1/2 may make a lump sum
withdrawal in cash from his HPA Elective Contribution Account from time to time,
as permitted under the Rules of the Plan.
SECTION B2.3 - WITHDRAWALS FROM DORMANT EMPLOYER CONTRIBUTION ACCOUNTS
A Participant who has a Hardship may make a lump sum withdrawal
in cash from his HPA Employer Contribution Account, as permitted under the Rules
of the Plan.
SECTION B2.4 - WITHDRAWALS FROM HPA VOLUNTARY CONTRIBUTION ACCOUNTS
A Participant may make a lump sum withdrawal in cash from his HPA
Voluntary Contribution Account, as permitted under the Rules of the Plan.
ARTICLE III
HPA ACCOUNTS
SECTION B3.1 - HPA ELECTIVE CONTRIBUTION ACCOUNT
The Administrator shall maintain for each Participant or former
Participant who is a HPA Plan Participant a HPA Employee Contribution Account to
which shall be credited the amount, determined by the Administrator, transferred
from such Participant's "Elective Contribution Account" under the HPA Plan to
the Plan. No contributions shall be made under the Plan to a Participant's HPA
Elective Contribution Account.
B-5
<PAGE>
SECTION B3.2 - HPA EMPLOYER CONTRIBUTION ACCOUNT
The Administrator shall maintain for each Participant or former
Participant who is a HPA Plan Participant a HPA Employer Contribution Account to
which shall be credited the amount, determined by the Administrator, transferred
from such Participant's "Employer Contribution Account" under the HPA Plan to
the Plan. No contributions shall be made under the Plan to a Participant's HPA
Employer Contribution Account.
SECTION B3.3 - HPA ROLLOVER ACCOUNT
The Administrator shall maintain for each Participant or former
Participant who is a HPA Plan Participant a HPA Rollover Account to which shall
be credited the amount, determined by the Administrator, transferred from such
Participant's "Rollover Account" under the HPA Plan to the Plan. No
contributions shall be made under the Plan to a Participant's HPA Rollover
Account.
SECTION B3.4 - HPA VOLUNTARY CONTRIBUTION ACCOUNT
The Administrator shall maintain for each Participant or former
Participant who is a HPA Plan Participant a HPA Voluntary Contribution Account
to which shall be credited the amount, determined by the Administrator,
transferred from such Participant's "Voluntary Contribution Account" under the
HPA Plan to the Plan. No contribution shall be made under the Plan to a
Participant's HPA Voluntary Contribution Account.
ARTICLE IV
VESTING OF HPA ACCOUNTS
Each Participant's interest in his HPA Accounts shall be fully
Vested at all times.
ARTICLE V
IN-SERVICE DISTRIBUTIONS
SECTION B5.1 - MANDATORY IN-SERVICE DISTRIBUTIONS
A Participant who is a 5% owner (as defined in Code Section 416)
of the Company or a Company Affiliate with respect to the Plan Year ending in
the calendar year in which the Participant attains age 70 1/2 shall receive or
commence the receipt of the entire amount credited to his HPA Accounts in
accordance with Section B6.3 on the April 1 following the end of the calendar
year in which he attains age 70 1/2.
SECTION B5.2 - VOLUNTARY IN-SERVICE DISTRIBUTIONS
A Participant may receive or commence the receipt of the entire
amount credited to his HPA Accounts in accordance with Section B6.3 on the April
1 following the end of the calendar year in which he attains age 70 1/2, or such
later date as such Participant shall elect.
B-6
<PAGE>
ARTICLE VI
BENEFITS UPON RETIREMENT
SECTION B6.1 - NORMAL OR DISABILITY RETIREMENT
Subject to the provisions of Section 10.1, a Participant shall
retire upon his Normal or Disability Retirement Date.
SECTION B6.2 - RIGHTS UPON EARLY, NORMAL OR DISABILITY RETIREMENT
Upon a Participant's Early, Normal or Disability Retirement, he
shall be entitled to receive the entire amount credited to his HPA Accounts in
accordance with Section B6.3.
SECTION B6.3 - DISTRIBUTION OF HPA ACCOUNTS UPON RETIREMENT
(a) Subject to subsections (d) and (e), on a Participant's
Early, Normal or Disability Retirement, the amount credited to his HPA Accounts
shall be applied to purchase
(i) if he is married, a Joint and Survivor Annuity, or
(ii) if he is not married, a life annuity for his benefit.
Distribution of a Participant's HPA Accounts in the form of a Joint and Survivor
Annuity shall require the Participant's consent if such distribution commences
prior to his Normal Retirement Date.
(b) Not less than 30 days, and not more than 90 days, prior to
his Early, Normal or Disability Retirement Date, whichever applies, each
Participant who may be affected by this Section shall be furnished, by mail or
personal delivery (and consistent with such regulations as the Secretary may
prescribe), with
(i) a written explanation of the terms and conditions of
the Joint and Survivor Annuity, including
a the right of the Participant to make, and the
effect of, an election under subsection (d) to waive the Joint and Survivor
Annuity,
b the relative financial effect on his HPA Accounts
of an election under subsection (d),
c the right of the Participant's Spouse under
subsection (d), and
d the right of the Participant under subsection (d)
to revoke an election made under subsection (d) and the effect
thereof, and
B-7
<PAGE>
(ii) a statement that the Administrator will furnish the
Participant upon his first written request within 60 days after the mailing
or personal delivery to him of the notice required under this subsection, a
detailed statement as to the financial effect upon his HPA Accounts of
making an election under subsection (d).
(c) Notwithstanding subsection (b), if the Participant, after
having received the written explanation described in paragraph (b)(i),
affirmatively elects a form of distribution under subsection (e) with Spousal
Consent (if necessary), the distribution under subsection (e) may commence less
than 30 days after the written explanation described in paragraph (b)(i) was
provided to the Participant, provided the following requirements are met:
(i) the Administrator provides information to the
Participant clearly indicating that the Participant has the right to at
least 30 days to consider whether to waive the automatic form of
distribution under subsection (a) and consent to a form of distribution
other than the automatic form of distribution,
(ii) the Participant is permitted to revoke an affirmative
distribution election at least until the date of commencement of the
distribution, or, if later, at any time prior to the expiration of the
7-day period that begins the day after the explanation described in
paragraph (b)(i) is provided to the Participant,
(iii) the date of commencement of the distribution of
the Participant's HPA Accounts is after the date the explanation described
in paragraph (b)(i) is provided to the Participant, and
(iv) the distribution of the Participant's HPA Accounts in
accordance with the affirmative election does not commence before the
expiration of the 7-day period that begins after the explanation described
in paragraph (b)(i) is provided to the Participant.
(d) The items furnished under subsection (b) shall be written in
non-technical language with the financial effects referred to being given in
terms of dollars per monthly payment. Such information shall be delivered
personally to the Participant or mailed to him (first class mail, postage
prepaid) within 30 days after receipt by the Administrator of such written
request.
(e) Notwithstanding subsection (a), and subject to subsection
(e), if a Participant described in subsection (a) elects during the applicable
Election Period, with Spousal Consent, to waive such annuity in accordance with
the Rules of the Plan, such Participant may elect to receive the amount credited
to his HPA Accounts under one of the following options:
(i) one lump sum payment in cash, or
(ii) payment in any other form as was available under the
Group Annuity Contract.
B-8
<PAGE>
Any such election may be revoked or made again at any time during the applicable
Election Period.
(f) Notwithstanding subsections (a) and (e), if the entire
amount credited to a Participant's Accounts does not exceed $5,000 (and did not
exceed such amount under a prior withdrawal or distribution under the Plan),
such Participant shall receive the amount credited to his HPA Accounts in cash
in one lump sum in accordance with paragraph (e)(i).
(g) Distribution under subsection (a), (e) or (f) shall be made
or commence not later than the earliest to occur of
(i) 60 days after the end of the Plan Year in which such
Early, Normal or Disability Retirement occurs, or
(ii) if the Participant is not a 5% owner (as defined in
Code Section 416) of the Company or a Company Affiliate with respect to the
Plan Year ending in the calendar year in which he attains age 70 1/2, the
later of
a the April 1 following the calendar year in which
his Separation from the Service occurs, or
b the April 1 following the calendar year in which
he attains age 70 1/2,
(iii) if the Participant is a 5% owner (as defined in
Code Section 416) of the Company or a Company Affiliate with respect to the
Plan Year ending in the calendar year in which he attains age 70 1/2, the
April 1 following the calendar year in which he attains age 70 1/2.
(h) At any time before a distribution under subsection (a) or
(e) is made or commences, the Participant may elect in accordance with the Rules
of the Plan to defer such distribution until such later date as he shall then or
subsequently specify; provided, however,
(i) such date shall be no later than the date referred to
in subsection (g)(ii) or (g)(iii), and
(ii) if no such date is specified, such amount shall be
distributed in one lump sum on the date specified in subsection (g)(ii) or
(g)(iii).
(i) The Participant shall specify a plan of distribution under
which more than 50% of the amount of his HPA Accounts (as adjusted for gains or
losses under Section 7.2) will be distributed to him within his life expectancy
and in a manner which satisfies the incidental death benefit provisions
(including the minimum distribution incidental benefit requirement) of Code
Section 401(a)(9)(G), Treas. Reg. Section 1.401-1(b)(1) and Prop. Reg. Section
1.401(a)(9)-2 (or any successor thereto).
B-9
<PAGE>
ARTICLE VII
BENEFITS UPON DEATH
SECTION B7.1 - DISTRIBUTION OF HPA ACCOUNTS UPON DEATH
(a) Subject to subsection (b), if a Participant or former
Participant dies before any distribution of his HPA Accounts has been made or
commenced under Section B6.3, B8.1 or B8.2 and was married on the date of his
death, 50% of the amount credited to his HPA Accounts shall be applied to
purchase a qualified preretirement survivor annuity for the life of his
Surviving Spouse which shall commence on a date specified by the Spouse which is
not later than the later of
(i) the first anniversary of the Participant's death, or
(ii) the date on which the Participant would have attained
age 70 1/2,
and the remainder of such amount shall be paid, as described in Section B7.2, to
the person or persons entitled thereto under subsection (d).
(b) Notwithstanding subsection (a),
(i) if the amount credited to such Participant's Accounts
does not equal more than $10,000 (and did not exceed such amount at the
time of a prior withdrawal or distribution under the Plan),
(ii) if such Participant when more than 35 years of age, or
such former Participant elected to waive such qualified preretirement
survivor annuity during the applicable Election Period in accordance with
the Rules of Plan and Spousal Consent was obtained thereto, or
(iii) if such Spouse, after the Participant's death,
elects in accordance with the Rules of the Plan to waive the qualified
preretirement survivor annuity to which such Spouse is otherwise entitled,
50% (or such lesser percentage as such Spouse may consent to or elect) of the
amount credited to the Participant's HPA Accounts shall be paid to the Surviving
Spouse in one lump sum, not later than the first anniversary of the
Participant's death, and the remainder of such amount shall be paid, as
described in Section B7.2, to the person or persons entitled thereto under
subsection (d). Any election under paragraph (b) may be revoked or made again
at any time during the applicable Election Period.
(c) (i) Upon the death of a Participant or former Participant
who was not married on the date of his death, the amount credited to his
HPA Accounts shall be paid, as described in Section B7.2, to the person or
persons entitled thereto under subsection (d).
B-10
<PAGE>
(ii) Upon the death of a Participant or former Participant
who has not yet received the entirety of the distribution of his HPA
Accounts under Section B6.3(d) or B8.1(d), any remaining balance of his
distribution of his HPA Accounts shall be paid, as described in Section
B7.2, to the person or persons entitled thereto under subsection (d).
(d) Amounts payable under subsections (b) and (c) shall be paid
to the person or persons of highest priority who survives the Participant by at
least 30 days determined as follows:
(i) First, to his then surviving highest priority
Beneficiary or Beneficiaries, if any.
(ii) Second, to his then Surviving Spouse, if any.
(iii) Third, to his then surviving heirs at law, if any,
as determined in the reasonable judgment of the Administrator under the
laws governing succession to personal property of the last jurisdiction in
which the Participant was a resident.
(iv) Fourth, to the Plan to be applied to reduce the
Company contributions under Section 5.4.
(e) Members of a class shall cease to be entitled to benefits
upon the earlier of the Administrator's determination that no members of such
class exist or the Administrator's failure to locate any members of such class,
after making reasonable efforts to do so, within one year after the members of
that class became entitled to benefits hereunder had members existed.
SECTION B7.2 - PAYMENTS TO BENEFICIARIES
(a) Subject to Section B7.1, each Participant or former
Participant shall have the right to designate, revoke and redesignate
Beneficiaries hereunder and to direct payment of the Vested amount credited to
his HPA Accounts to such Beneficiaries. Designation, revocation and
redesignation of Beneficiaries must be made in writing in accordance with the
Rules of the Plan on a form provided by the Administrator and shall be effective
upon delivery to the Administrator.
(b) Amounts payable to any Beneficiary (or any other person
entitled thereto under Section A7.1(d)) shall be paid in one lump sum not later
than the first anniversary of the Participant's death.
(c) If payment has commenced prior to the Participant's death,
payment of the Participant's Dormant Accounts shall be made in such a manner
that the remaining interest is distributed at least as rapidly as under the
method being used as of the date of the Participant's death.
B-11
<PAGE>
SECTION B7.3 - EXPLANATION OF QUALIFIED PRERETIREMENT SURVIVOR ANNUITY
The Administrator shall provide a written explanation of the
qualified preretirement survivor annuity (as defined in Code Section 417(c)):
(a) to a Participant who is a Participant on his thirty-second
birthday, within the three Plan Year period commencing with the Plan Year
in which his thirty-second birthday occurs;
(b) to a Participant who becomes a Participant after his
thirty-second birthday, within the three Plan Year period commencing with
the Plan Year in which he becomes a Participant; and
(c) to a former Participant who has a Separation from the
Service prior to his thirty-second birthday, within one year of his
Separation from the Service,
or such longer period as is allowed under Code Section 417(a)(3).
ARTICLE VIII
BENEFITS UPON RESIGNATION OR DISCHARGE
SECTION B8.1 - DISTRIBUTIONS ON RESIGNATION OR DISCHARGE
(a) Subject to subsection (d) and Section B8.2(e), if a
Participant's Separation from the Service is due to resignation or discharge,
the amount credited to his HPA Accounts shall be applied to purchase
(i) if he is married, a Joint and Survivor Annuity, or
(ii) if he is not married, a life annuity for his benefit,
commencing, in either case, on a date not earlier than the Participant's
fifty-fifth birthday, and not later than the April 1 following the calendar year
of his attainment of age 70 1/2, as the Participant (and his Spouse, if any)
shall specify in accordance with Rules of the Plan.
(b) Not less than 30 days, and not more than 90 days, prior to
the later of his fifty-fifth birthday or the date he begins participation in the
Plan, each Participant who may be affected by this Section shall be furnished,
by mail or personal delivery (and consistent with such regulations as the
actuary may prescribe), with
(i) a written explanation of the terms and conditions of
the Joint and Survivor Annuity, including
a the right of the Participant to make, and the
effect of, an election under subsection (d) to waive the Joint and
Survivor Annuity,
B-12
<PAGE>
b the relative financial effect on his HPA Accounts
of an election under subsection (d),
c the right of the Participant's Spouse under
subsection (d), and
d the right of the Participant under subsection (d)
to revoke an election made under subsection (d) and the effect
thereof, and
(ii) a statement that the Administrator will furnish the
Participant upon his first written request within 60 days after the mailing
or personal delivery to him of the notice required under this subsection, a
detailed statement as to the financial effect upon his HPA Accounts of
making an election under subsection (d).
(c) Notwithstanding subsection (b), if the Participant, after
having received the written explanation described in paragraph (b)(i),
affirmatively elects a form of distribution under subsection (e) with Spousal
Consent (if necessary), the distribution under subsection (e) may commence less
than 30 days after the written explanation described in paragraph (b)(i) was
provided to the Participant, provided the following requirements are met:
(i) the Administrator provides information to the
Participant clearly indicating that the Participant has the right to at
least 30 days to consider whether to waive the automatic form of
distribution under subsection (a) and consent to a form of distribution
other than the automatic form of distribution,
(ii) the Participant is permitted to revoke an affirmative
distribution election at least until the date of commencement of the
distribution, or, if later, at any time prior to the expiration of the
7-day period that begins the day after the explanation described in
paragraph (b)(i) is provided to the Participant,
(iii) the date of commencement of the distribution of
the Participant's HPA Accounts is after the date the explanation described
in paragraph (b)(i) is provided to the Participant, and
(iv) the distribution of the Participant's HPA Accounts in
accordance with the affirmative election does not commence before the
expiration of the 7-day period that begins after the explanation described
in paragraph (b)(i) is provided to the Participant.
(d) The items furnished under subsection (b) shall be written in
non-technical language, with the financial effects referred to being given in
terms of dollars per monthly payment. Such information shall be delivered
personally to the Participant or mailed to him (first class mail, postage
prepaid) within 30 days after receipt by the Administrator of such written
request.
(e) Notwithstanding subsection (a), and subject to Section B8.2,
if a Participant described in subsection (a) elects during the applicable
Election Period, with Spousal
B-13
<PAGE>
Consent, to waive such annuity in accordance with the Rules of the Plan, such
Participant may elect to receive the amount credited to his HPA Accounts under
one of the following options:
(i) one lump sum payment in cash, or
(ii) payment in any other form as was available under the
Group Annuity Contract.
Such amount shall be payable on a date which he shall elect in writing in
accordance with Code Section 411(a)(11), but not later than the April 1
following the calendar year of his attainment of age 70 1/2. Any such election
may be revoked or made again at any time during the applicable Election Period.
SECTION B8.2 - CERTAIN LUMP SUM DISTRIBUTIONS
Notwithstanding Sections B8.1(a) and (e), of the amount credited
to a Participant's Accounts does not exceed $5,000 (and did not exceed such
amount at the time of a prior withdrawal or distribution under the Plan), such
Participant shall receive the amount credited to his HPA Accounts in cash in one
lump sum as soon as practicable, but not later than the earlier of
(a) six months after the end of the Plan Year in which such
Separation from the Service occurs or
(b) 60 days after the end of the Plan Year in which his Normal
Retirement Date occurs.
B-14
<PAGE>
EXHIBIT C
AMENDMENT AND RESTATEMENT OF
THE PACIFICARE HEALTH SYSTEMS, INC.
SAVINGS AND PROFIT-SHARING PLAN
SPECIAL SERVICE CREDITING AND ELIGIBILITY
PROVISIONS RELATING TO CERTAIN
FORMER EMPLOYEES OF FREEDOM PLAN INC.
This Exhibit B contains additional provisions of the Plan
relating to former employees of Freedom Plan Inc. who became employees of
PacifiCare of California, Inc. on October 1, 1993.
SECTION C1.1 - HOURS OF SERVICE
The "Hours of Service" of an Employee who is a former employee of
Freedom Plan Inc. and who became an employee of PacifiCare of California, Inc.
on October 1, 1993 shall include the Hours of Service that would have been
credited to such Employee prior to October 1, 1993, determined as if Freedom
Plan Inc. were a Company Affiliate during such period. The "Hours of Service"
of an Employee credited under this Section shall be determined by the
Administrator from reasonably accessible records (including such records as are
provided by Freedom Plan Inc.) by means of appropriate calculations and
approximations or, if such records are insufficient to make an appropriate
determination, by reasonable estimation.
SECTION C1.2 - SERVICE
The "Service" of an Employee who is a former employee of Freedom
Plan Inc. and who became an employee of PacifiCare of California, Inc. on
October 1, 1993 shall include the days of Service that would have been credited
to such Employee prior to October 1, 1993, determined as if Freedom Plan Inc.
were a Company Affiliate during such period. The days of "Service" of an
Employee credited under the prior sentence shall be determined by the
Administrator of the Plan from reasonably accessible records (including such
records as are provided by Freedom Plan Inc.) by means of appropriate
calculations and approximations or, if such records are insufficient to make an
appropriate determination, by reasonable estimation.
SECTION C1.3 - ELIGIBILITY
Any Employee who is a former employee of Freedom Plan Inc. and
who became an employee of PacifiCare of California on October 1, 1993 shall
become a Participant on the day on which such Employee satisfies the
requirements of paragraphs 2.1(b)(i), (ii), (iii) and (iv).
C-1
<PAGE>
EXHIBIT D
AMENDMENT AND RESTATEMENT OF
THE PACIFICARE HEALTH SYSTEMS, INC.
SAVINGS AND PROFIT-SHARING PLAN
SPECIAL EFFECTIVE DATES FOR CERTAIN PROVISIONS OF THE
AMENDMENT AND RESTATEMENT OF THE PACIFICARE HEALTH SYSTEMS, INC.
SAVINGS AND PROFIT-SHARING PLAN
----------------------------------------------------------------
This Exhibit D sets forth the special effective dates that apply to
certain provisions of the Amendment and Restatement of The PacifiCare Health
Systems, Inc. Savings and Profit-Sharing Plan (the "Plan").
1. ADOPTION BY PACIFICARE HEALTH SYSTEMS, INC. PacifiCare Health
Systems, Inc. (formerly named "N-T Holdings, Inc.") adopted the Plan, effective
as of February 19, 1998. The Board of Directors of PacifiCare Health Systems,
Inc. assumed all of the authority, powers and responsibilities of the Board of
Directors of PacifiCare Operations, Inc., effective as of February 19, 1998.
Accordingly, the references to PacifiCare Health Systems, Inc. in Sections 1.8
and 1.11(a) of the Plan shall be effective as of February 19, 1998.
2. COMPANY STOCK FUND. The new investment fund that is intended to
invest primarily in shares of PacifiCare Health Systems, Inc. Class B Common
Stock, $0.01 par value, was established effective as of February 6, 1998.
Accordingly, the references in the preamble of the Plan to the acquisition and
holding of "qualifying employer securities," as defined in ERISA Section
407(d)(5), and Sections 1.12, 1.13, 6.4, 6.5, 16.5 and 16.6 of the Plan shall be
effective as of February 6, 1998.
3. ELIMINATION OF FAMILY AGGREGATION. The family aggregation
provisions applicable to the definition of "Compensation" are eliminated
effective as of January 1, 1997. Accordingly, Section 1.14 of the Plan shall be
effective as of January 1, 1997. The incorporation of the definition of
"Statutory Compensation" into the definition of "Compensation" shall be
effective as of January 1, 1997, notwithstanding paragraph 6.
4. "HIGHLY COMPENSATED EMPLOYEE" DEFINITION. The definition of
"Highly Compensated Employee" in Section 1.30 of the Plan shall be effective as
of January 1, 1997.
5. ADP/ACP TESTING. The provisions of the Plan relating to the
"actual deferral percentage" test and "actual contribution percentage" test
under Code Sections 401(k) and 401(m) and the Treasury Regulation thereunder
shall be effective as of January 1, 1997. Accordingly, Sections 1.33, 3.8 and
5.5 of the Plan shall be effective as of January 1, 1997.
6. "STATUTORY COMPENSATION" DEFINITION. The definition of
"Statutory Compensation" in Section 1.49 of the Plan shall be effective for
"limitation years," within the meaning of Code Section 415, beginning on or
after January 1, 1998. Accordingly, Section 1.49 of the Plan shall be effective
as of January 1, 1998.
D-1
<PAGE>
EXHIBIT D
AMENDMENT AND RESTATEMENT OF
THE PACIFICARE HEALTH SYSTEMS, INC.
SAVINGS AND PROFIT-SHARING PLAN
SPECIAL EFFECTIVE DATES FOR CERTAIN PROVISIONS OF THE
AMENDMENT AND RESTATEMENT OF THE PACIFICARE HEALTH SYSTEMS, INC.
SAVINGS AND PROFIT-SHARING PLAN
----------------------------------------------------------------
7. DEFERRAL LIMITATION. The limitation on elective contributions
under Code Section 402(g), as indexed to the 1998 calendar year, is $10,000.
Accordingly, the references to "$10,000" in Sections 3.1(b) and 3.6(c)(iii) of
the Plan shall be effective as of January 1, 1998.
8. AGE 70 1/2 MINIMUM DISTRIBUTIONS. The minimum distribution
requirements applicable to a Participant who has attained age 70 1/2, as amended
by the Small Business Job Protection Act of 1996, are effective for taxable
years beginning on or after January 1, 1997. Accordingly, Sections 9.3, 9.4 and
10.3 of the Plan, and Sections B5.1, B5.2 and B6.3(g) of Exhibit B of the Plan,
shall be effective as of January 1, 1997.
9. INVOLUNTARY DISTRIBUTIONS. The Taxpayer Relief Act of 1997
increased the dollar threshold on involuntary distributions to $5,000 effective
for Plan Years beginning on or after August 5, 1997. Accordingly, the
references to "$5,000" in Sections 10.3 and 12.1 of the Plan and in Sections
B6.3 and B8.2 of Exhibit B of the Plan, and the reference to "$10,000" in
Section B7.1(b)(i) of Exhibit B of the Plan, shall be effective as of January 1,
1998.
10. MILITARY SERVICE. The provisions of the Uniformed Services
Employment and Reemployment Rights Act of 1994, which were incorporated in Code
Section 414(u) by the Small Business Job Protection Act of 1996, are effective
as of December 12, 1994. Accordingly, Section 16.7 of the Plan shall be
effective as of December 12, 1994.
D-2
