-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D2JP7l/VVBGP6xkVWSEraRZmU72InTyKUJNMZK7x0BbSY41vrW2Kkfzrp3hDYOmi vGFyosd5sZ2rkp/Cm9dMCA== 0000902595-97-000123.txt : 19970423 0000902595-97-000123.hdr.sgml : 19970423 ACCESSION NUMBER: 0000902595-97-000123 CONFORMED SUBMISSION TYPE: S-8 PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19970422 EFFECTIVENESS DATE: 19970422 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TALBERT MEDICAL MANAGEMENT HOLDINGS CORP CENTRAL INDEX KEY: 0001027131 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SPECIALTY OUTPATIENT FACILITIES, NEC [8093] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-8 SEC ACT: 1933 Act SEC FILE NUMBER: 333-25581 FILM NUMBER: 97584654 BUSINESS ADDRESS: STREET 1: 3540 HOWARD WAY CITY: COSTA MESA STATE: CA ZIP: 92626-1417 BUSINESS PHONE: 7144364800 S-8 1 REGISTRATION STATEMENT As filed with the Securities and Exchange Commission on April 22, 1997. Registration No. 333-___________ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ___________________ FORM S-8 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ___________________ TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION (Exact name of registrant as specified in its charter) ___________________ Delaware 33-0730363 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3540 Howard Way Costa Mesa, California 92626-1417 (714) 436-4800 (Address of principal executive offices) ___________________ THE FHP INTERNATIONAL CORPORATION 401(K) SAVINGS PLAN THE FHP INTERNATIONAL CORPORATION PAYSOP (Full title of the plans) Jack D. Massimino Talbert Medical Management Holdings Corporation 3540 Howard Way Costa Mesa, California 92626-1417 (Name and address of agent for service) Telephone number, including area code, of agent for service: (714) 436-4800 ___________________ CALCULATION OF REGISTRATION FEE Proposed Proposed maximum maximum Title of Amount offering aggregate Amount of securities to be price offering registration to be registered registered per unit price fee Common Stock, 140,000<1>,<2> $21.50<3> $3,010,000<3> $913<3> $0.01 par value shares Rights to Purchase 140,000 - - - Common Stock rights Interests in the Plans - - - - ___________ <1> This Registration Statement covers, in addition to the number of shares of Common Stock and Rights stated above, other rights to purchase or acquire the shares of Common Stock and Rights covered by the Prospectus and, pursuant to Rule 416(c) under the Securities Act of 1933, an indeterminate number of shares, Rights and interests in The FHP International Corporation 401(k) Savings Plan and The FHP International Corporation PAYSOP which by reason of certain events specified in the plans may become subject to the plans. <2> This Registration Statement also includes rights in respect of such Common Stock pursuant to the Stockholder Rights Agreement between the Company and American Stock Transfer & Trust Company. <3> Calculated pursuant to Rule 457(h). The Exhibit Index for this Registration Statement is at page S-5.
PART I INFORMATION REQUIRED IN THE SECTION 10(a) PROSPECTUS The documents containing the information specified in Part I of Form S-8 (plan information and registrant information) will be sent or given to optionees as specified by Rule 428(b)(1) of the Securities Act of 1933, as amended (the "Securities Act"). Such documents need not be filed with the Securities and Exchange Commission (the "Commission") either as part of this Registration Statement or as prospectuses or prospectus supplements pursuant to Rule 424 of the Securities Act. These documents, which include the statement of availability required by Item 2 of Form S-8, and the documents incorporated by reference in this Registration Statement pursuant to Item 3 of Form S-8 (Part II hereof), taken together, constitute a prospectus that meets the requirements of Section 10(a) of the Securities Act. PART II INFORMATION REQUIRED IN THE REGISTRATION STATEMENT ITEM 3. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed with the Commission by Talbert Medical Management Holdings Corporation (the "Company") and The FHP International Corporation 401(k) Savings Plan (formerly known as the FHP International Corporation Employee Stock Ownership Plan, herein referred to as the "Savings Plan" and of which the FHP International Corporation PAYSOP (the "PAYSOP") was a part until the spin off of the PAYSOP from the Savings Plan was effected by the acquisition transaction of FHP International Corporation ("FHP") and PacifiCare Health Systems, Inc. ("PacifiCare")) are incorporated herein by reference: (a) The Company's Prospectus dated April 21, 1997 filed with the Commission pursuant to Rule 424(b) under the Securities Act on December 12, 1996, as amended, which contains audited financial statements for the Company's fiscal year ended December 31, 1996; (b) Annual Report on Form 11-K for the FHP International Corporation Employee Stock Ownership Plan (as the prior version of the Savings Plan and the PAYSOP) for the fiscal year ended December 31, 1995; and (c) The description of the Company's Common Stock and Rights to acquire Common Stock contained in its Registration Statement on Form 8-A, filed with the Commission on April 21, 1997. All documents subsequently filed by the Company, the Savings Plan, or the PAYSOP pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), prior to the filing of a post- effective amendment which indicates that all securities offered hereby have been sold or which deregisters all securities then remaining unsold shall be deemed to be incorporated by reference into the prospectus and to be a part hereof from the date of filing of such documents. Any statement contained herein or in a document, all or a portion of which is incorporated or deemed to be incorporated by reference herein, shall be deemed to be modified or superseded for purposes of this Registration Statement to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or amended, to constitute a part of this Registration Statement. ITEM 4. DESCRIPTION OF SECURITIES The Company's Common Stock and Rights to acquire Common Stock are registered pursuant to Section 12 of the Exchange Act, and, therefore, the description of the securities is omitted. ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL Not Applicable. ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Company's Certificate of Incorporation contains a provision eliminating or limiting director liability for monetary damages arising from a breach of fiduciary duty as a director, except for liability of a director (i) for any breach of such director's duty of loyalty to the Company or its stockholders; (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; (iii) under the Delaware statutory provision making directors personally liable, under a negligence standard, for unlawful dividends or unlawful stock purchases or redemptions; or (iv) for any transaction from which the director derived an improper personal benefit. As a result of this provision, the ability of the Company or a stockholder thereof to successfully prosecute an action against a director for a breach of his or her duty of care is limited. However, the provision does not affect the availability of equitable remedies such as an injunction or rescission based upon a director's breach of his duty of care. In addition, the Certificate of Incorporation and the Company's Bylaws provide for mandatory indemnification rights, subject to limited exceptions, to any person who by reason of the fact that he or she is a director or officer of the Company, is involved in a legal proceeding of any nature if he or she acted in good faith and in a manner he or she reasonably believed to be in and not opposed to the best interests of the Company. If such legal proceeding is brought by or in the right of the Company, no indemnification will be made if the person is adjudged to be liable for negligence or misconduct in the performance of his duty to the Company, unless a court finds such person to be entitled to indemnity despite adjudication of liability. Such indemnification rights include reimbursement for expenses incurred by such director or officer in advance of the final disposition of such proceeding in accordance with the applicable provisions of Delaware General Corporation Law. ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED Not applicable. ITEM 8. EXHIBITS See the attached Exhibit Index on page S-5. The FHP International Corporation Employee Stock Ownership Plan (as the prior version of the Savings Plan and the PAYSOP) was submitted to the IRS on June 11, 1993. The IRS issued a favorable determination letter dated March 10, 1994. The undersigned registrant hereby undertakes to cause the Savings Plan and the PAYSOP, as amended, as well as any subsequent amendments to the IRS in a timely manner and will cause all changes required by the IRS to be made in order to qualify the Savings Plan and the PAYSOP. 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; (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; and (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 (a)(1)(ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act that are incorporated by reference in the Registration Statement; (2) That, for the purpose of determining any liability under the Securities Act, each such post- effective amendment shall be deemed to be a new regis- tration 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; and (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 purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) 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. (h) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described in Item 6 above, or otherwise, the registrant has been advised that in the opinion of the 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. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, 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 Costa Mesa, State of California, on April 9, 1997. By: /s/ Jack D. Massimino Jack D. Massimino Its: President, Chief Executive Officer and Director POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints Jack D. Massimino and Walter R. Stone and each of them, his true and lawful attorney-in-fact and agent, with full powers of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including 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 attorney-in-fact and agent, each acting alone, full power and authority to do and perform each and every act and thing requisite and 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 attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Jack D. Massimino President, Chief Executive April 9, 1997 Jack D. Massimino Officer (Principal Executive Officer) and Director /s/ Walter R. Stone Vice President, Finance and April 9, 1997 Walter R. Stone Treasurer (Principal Financial and Accounting Officer) /s/ Jack R. Anderson Director April 17, 1997 Jack R. Anderson /s/Richard M. Burdge, Sr. Director April 10, 1997 Richard M. Burdge, Sr. /s/ Jeffrey M. Folick Director April 9, 1997 Jeffrey M. Folick /s/ Warner Heineman Director April 9, 1997 Warner Heineman Director April _, 1997 Van B. Honeycutt /s/ Alan R. Hoops Director April 9, 1997 Alan R. Hoops /s/ Robert W. Jamplis Director April 9, 1997 Robert W. Jamplis, M.D. /s/ Robert C. Maxson Director April 9, 1997 Robert C. Maxson Director April _, 1997 Westcott W. Price III
THE SAVINGS PLAN. Pursuant to the requirements of the Securities Act of 1933, The FHP International Corporation 401(k) Savings Plan has duly caused this Registration Statement on Form S-8 to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Cypress, State of California, on April 9, 1997. THE FHP INTERNATIONAL CORPORATION 401(K) SAVINGS PLAN By: The FHP International Corporation 401(k) Savings Plan Committee By: /s/ Coy Baugh Coy Baugh By: /s/ Judy Ehrenreich Judy Ehrenreich By: /s/ Jeffrey Kuehn Jeffrey Kuehn By: /s/ Wanda Lee Wanda Lee THE PAYSOP. Pursuant to the requirements of the Securities Act of 1933, The FHP International Corporation PAYSOP has duly caused this Registration Statement on Form S-8 to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Cypress, State of California, on April 9, 1997. THE FHP INTERNATIONAL CORPORATION PAYSOP By: The FHP International Corporation PAYSOP Committee By: /s/ Coy Baugh Coy Baugh By: /s/ Judy Ehrenreich Judy Ehrenreich By: /s/ Jeffrey Kuehn Jeffrey Kuehn By: /s/ Wanda Lee Wanda Lee EXHIBIT INDEX Exhibit Sequentially Number Description Numbered Page 4.1 1993 Amendment to the FHP International Corporation Employee Stock Ownership Plan (amending and restating the FHP International Corporation Employee Stock Ownership Plan in its entirety). 4.2 1994-1 Amendment to the FHP International Corporation Employee Stock Ownership Plan. 4.3 1994-2 Amendment to the FHP International Corporation Employee Stock Ownership Plan. 4.4 1995-1 Amendment to the FHP International Corporation Employee Stock Ownership Plan. 4.5 1996-1 Amendment to the FHP International Corporation Employee Stock Ownership Plan. 4.6 Resolutions of the Board of Directors of FHP International Corporation (amending the FHP International Corporation Employee Stock Ownership Plan, establishing The FHP International Corporation PAYSOP and renaming the remainder of the FHP International Corporation Employee Stock Ownership Plan as "The FHP International Corporation 401(k) Savings Plan"). 4.7 Resolutions of the Board of Directors of FHP International Corporation (amending The FHP International Corporation 401(k) Savings Plan and The FHP International Corporation PAYSOP). 4.8 Form of Specimen Certificate for registrant's Common Stock. 4.9 Form of Specimen Certificate for Subscription Agreement representing rights to purchase shares of registrant's Common Stock. 5. Opinion of Company Counsel (opinion re legality). 23.1 Consent of Deloitte & Touche LLP, as Independent Public Accountants. 23.2 Consent of Deloitte & Touche LLP, as Independent Public Accountants. 23.3 Consent of Company Counsel (included in Exhibit 5). 24. Power of Attorney (included in this Registration Statement under "Signatures"). EX-4 2 EXHIBIT 4.1 EXHIBIT 4.1 1993 AMENDMENT TO THE FHP INTERNATIONAL CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN (AMENDING AND RESTATING THE FHP INTERNATIONAL CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN IN ITS ENTIRETY) FHP INTERNATIONAL CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN AMENDED AND RESTATED JUNE 7, 1993 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . 2 1.01 ACCOUNTS . . . . . . . . . . . . . . . . . . . 2 1.02 AFFILIATE. . . . . . . . . . . . . . . . . . . 2 1.03 BENEFICIARY. . . . . . . . . . . . . . . . . . 2 1.04 BOARD. . . . . . . . . . . . . . . . . . . . . 2 1.05 CODE . . . . . . . . . . . . . . . . . . . . . 3 1.06 COMMITTEE. . . . . . . . . . . . . . . . . . . 3 1.07 COMPANY. . . . . . . . . . . . . . . . . . . . 3 1.08 COMPENSATION . . . . . . . . . . . . . . . . . 3 1.09 DISTRIBUTION DATE. . . . . . . . . . . . . . . 4 1.10 EFFECTIVE DATE . . . . . . . . . . . . . . . . 4 1.11 ELIGIBLE EMPLOYEE. . . . . . . . . . . . . . . 4 1.12 EMPLOYER . . . . . . . . . . . . . . . . . . . 4 1.13 EMPLOYER CONTRIBUTION. . . . . . . . . . . . . 4 1.14 ERISA. . . . . . . . . . . . . . . . . . . . . 4 1.15 ESOP FUND. . . . . . . . . . . . . . . . . . . 4 1.16 ESOP SUSPENSE SUBFUND. . . . . . . . . . . . . 5 1.17 EXEMPT LOAN. . . . . . . . . . . . . . . . . . 5 1.18 FINANCED SHARES. . . . . . . . . . . . . . . . 5 1.19 HIGHLY COMPENSATED EMPLOYEE. . . . . . . . . . 5 1.20 HOUR OF SERVICE. . . . . . . . . . . . . . . . 5 1.21 INACTIVE PARTICIPANT . . . . . . . . . . . . . 6 1.22 INVESTMENT FUND. . . . . . . . . . . . . . . . 6 1.23 LIMITATION YEAR. . . . . . . . . . . . . . . . 6 1.24 NON-HIGHLY COMPENSATED EMPLOYEE. . . . . . . . 6 1.25 NORMAL RETIREMENT AGE. . . . . . . . . . . . . 7 1.26 PARTICIPANT. . . . . . . . . . . . . . . . . . 7 1.27 PAYSOP FUND. . . . . . . . . . . . . . . . . . 7 1.28 PERIOD OF SEVERANCE. . . . . . . . . . . . . . 7 1.29 PERMANENT AND TOTAL DISABILITY . . . . . . . . 8 1.30 PLAN . . . . . . . . . . . . . . . . . . . . . 8 1.31 PLAN YEAR. . . . . . . . . . . . . . . . . . . 8 1.32 PRETAX DEFERRALS . . . . . . . . . . . . . . . 8 1.33 ROLLOVER CONTRIBUTIONS . . . . . . . . . . . . 8 1.34 SERVICE. . . . . . . . . . . . . . . . . . . . 9 1.35 STOCK. . . . . . . . . . . . . . . . . . . . . 10 1.36 TRUST FUND . . . . . . . . . . . . . . . . . . 10 1.37 TRUSTEE. . . . . . . . . . . . . . . . . . . . 10 1.38 VALUATION DATE . . . . . . . . . . . . . . . . 10 ARTICLE II ELIGIBILITY AND PARTICIPATION . . . . . . . . . . 11 2.01 PARTICIPATION IN THE PLAN. . . . . . . . . . . 11 2.02 ENROLLMENT IN THE PLAN . . . . . . . . . . . . 12 2.03 REEMPLOYMENT . . . . . . . . . . . . . . . . . 12 2.04 EMPLOYMENT AFTER NORMAL RETIREMENT AGE . . . . 12 2.05 TERMINATION OF PARTICIPATION . . . . . . . . . 12 2.06 INACTIVE PARTICIPATION AND TRANSFERS . . . . . 12 ARTICLE III CONTRIBUTIONS . . . . . . . . . . . . . . . . . . 14 3.01 CONTRIBUTION OF PARTICIPANT DEFERRALS. . . . . 14 3.02 LIMITATION ON PARTICIPANT'S PRETAX DEFERRALS. . . . . . . . . . . . . . . . . . . 15 3.03 EMPLOYER MATCHING CONTRIBUTIONS. . . . . . . . 17 3.04 EMPLOYER ESOP CONTRIBUTIONS. . . . . . . . . . 17 3.05 PARTICIPANT CONTRIBUTIONS. . . . . . . . . . . 17 3.06 ROLLOVER CONTRIBUTIONS . . . . . . . . . . . . 17 3.07 LIMITATION ON REVERSION OF CONTRIBUTIONS . . . 17 3.08 LIMITATION OF LIABILITY. . . . . . . . . . . . 18 3.09 MAKE-UP CONTRIBUTIONS. . . . . . . . . . . . . 18 ARTICLE IV PARTICIPANT'S ACCOUNT: ALLOCATIONS. . . . . . . . 19 4.01 PARTICIPANT ACCOUNTS . . . . . . . . . . . . . 19 4.02 ALLOCATION OF PRETAX DEFERRALS . . . . . . . . 20 4.03 ALLOCATION OF EMPLOYER MATCHING CONTRIBUTIONS. . . . . . . . . . . . . . . . . 20 4.04 LIMITATION ON ALLOCATION OF EMPLOYER MATCHING CONTRIBUTIONS . . . . . . . . . . . . 21 4.05 ALLOCATION OF EMPLOYER ESOP CONTRIBUTIONS. . . . . . . . . . . . . . . . . 22 ARTICLE V ESOP SUSPENSE SUBFUND . . . . . . . . . . . . . . 24 5.01 ESTABLISHMENT OF ESOP SUSPENSE SUBFUND . . . . 24 5.02 RELEASE OF SHARES IN ESOP SUSPENSE SUBFUND. . . . . . . . . . . . . . . . . . . . 24 5.03 ALLOCATION OF SHARES RELEASED FROM ESOP SUSPENSE SUBFUND . . . . . . . . . . . . . . . 25 ARTICLE VI ALLOCATION LIMITATIONS . . . . . . . . . . . . 27 6.01 BASIC LIMITATION ON ANNUAL ADDITIONS . . . . . 27 6.02 PARTICIPATION IN THIS PLAN AND A DEFINED BENEFIT PLAN . . . . . . . . . . . . . . . . . 29 6.03 REDUCTION IN ANNUAL ADDITIONS AND ELIMINATION OF EXCESS AMOUNTS. . . . . . . . . 29 ARTICLE VII INVESTMENTS: ALLOCATION OF GAINS AND LOSSES. . . . . . . . . . . . . . . . . . . . . . 30 7.01 INVESTMENT OF ACCOUNTS . . . . . . . . . . . . 30 7.02 TRANSFERS OF EXISTING ACCOUNT BALANCES BETWEEN INVESTMENT FUNDS . . . . . . . . . . . 31 7.03 ALLOCATION OF INVESTMENT FUND GAINS AND LOSSES . . . . . . . . . . . . . . . . . . . . 31 7.04 PURCHASE AND SALE OF STOCK . . . . . . . . . . 32 7.05 RIGHTS, WARRANTS, OR OPTIONS . . . . . . . . . 32 7.06 PARTICIPANT RIGHTS CONCERNING STOCK. . . . . . 33 7.07 SALE OF STOCK. . . . . . . . . . . . . . . . . 34 7.08 TENDERS AND EXCHANGES OF STOCK . . . . . . . . 34 7.09 VALUATION OF STOCK . . . . . . . . . . . . . . 37 7.10 PLAN MAY BORROW TO BUY STOCK . . . . . . . . . 37 7.11 USE OF EXEMPT LOAN PROCEEDS. . . . . . . . . . 38 7.12 ALLOCATION OF STOCK DIVIDENDS AND SPLITS . . . 39 7.13 REINVESTMENT OF DIVIDENDS. . . . . . . . . . . 39 7.14 ALLOCATION OF DIVIDENDS OTHER THAN STOCK DIVIDENDS. . . . . . . . . . . . . . . . . . . 40 7.15 RESERVE FUND . . . . . . . . . . . . . . . . . 40 7.16 SPECIAL INVESTMENT ELECTION BY QUALIFIED PARTICIPANTS . . . . . . . . . . . . . . . . . 42 ARTICLE VIII WITHDRAWALS AND LOANS . . . . . . . . . . . . . . 43 8.01 POST AGE 59-1/2 WITHDRAWALS. . . . . . . . . . 43 8.02 FINANCIAL HARDSHIP WITHDRAWALS . . . . . . . . 43 8.03 WITHDRAWALS FROM ROLLOVER ACCOUNT. . . . . . . 44 8.04 AMOUNT AND PAYMENT OF WITHDRAWALS. . . . . . . 44 8.05 LOANS TO PARTICIPANTS. . . . . . . . . . . . . 45 8.06 DEBITING OF INVESTMENT FUNDS . . . . . . . . . 46 ARTICLE IX RETIREMENT, DISABILITY AND DEATH BENEFITS. . . . . . . . . . . . . . . . . . . . . 48 9.01 RETIREMENT BENEFITS. . . . . . . . . . . . . . 48 9.02 DISABILITY BENEFITS. . . . . . . . . . . . . . 48 9.03 DEATH BENEFITS . . . . . . . . . . . . . . . . 48 ARTICLE X TERMINATION BENEFITS AND VESTING REQUIREMENTS. . . . . . . . . . . . . . . . . . . 49 10.01 BENEFIT PAYABLE . . . . . . . . . . . . . . . . . 49 10.02 VESTING REQUIREMENTS . . . . . . . . . . . . . . 49 10.03 EFFECT OF TERMINATION OF EMPLOYMENT; PERIOD OF SEVERANCE AND REEMPLOYMENT. . . . . . . . . . . . 50 10.04 DISPOSITION OF FORFEITURES. . . . . . . . . . . . 50 ARTICLE XI DISTRIBUTION OF BENEFITS. . . . . . . . . . . . . 52 11.01 FORM OF BENEFITS FOR RETIREMENT AND OTHER TERMINATION . . . . . . . . . . . . . . . . . . . 52 11.02 TIMING OF DISTRIBUTIONS . . . . . . . . . . . . . 52 11.03 RIGHTS, OPTIONS AND RESTRICTIONS ON STOCK . . . . 53 11.04 SPECIAL DISTRIBUTION AND PAYMENT REQUIREMENTS . . 54 ARTICLE XII COMMITTEE . . . . . . . . . . . . . . . . . . . . 56 12.01 APPOINTMENT OF COMMITTEE. . . . . . . . . . . . . 56 12.02 MANNER OF ACTION. . . . . . . . . . . . . . . . . 56 12.03 CHAIRMAN, SECRETARY AND EMPLOYMENT OF SPECIALISTS . . . . . . . . . . . . . . . . . . . 56 12.04 SUBCOMMITTEES . . . . . . . . . . . . . . . . . . 56 12.05 OTHER AGENTS. . . . . . . . . . . . . . . . . . . 56 12.06 RECORDS . . . . . . . . . . . . . . . . . . . . . 57 12.07 POWERS AND DUTIES . . . . . . . . . . . . . . . . 57 12.08 INTERESTED MEMBERS. . . . . . . . . . . . . . . . 58 12.09 INDEMNIFICATION . . . . . . . . . . . . . . . . . 58 12.10 CONCLUSIVENESS OF ACTION. . . . . . . . . . . . . 58 12.11 PAYMENT OF EXPENSES . . . . . . . . . . . . . . . 58 12.12 CLAIMS PROCEDURE. . . . . . . . . . . . . . . . . 59 ARTICLE XIII AMENDMENT TO THE PLAN . . . . . . . . . . . . . . 61 13.01 RIGHT TO AMEND. . . . . . . . . . . . . . . . . . 61 ARTICLE XIV TERMINATION OF THE PLAN . . . . . . . . . . . . . 62 14.01 RIGHT TO TERMINATE. . . . . . . . . . . . . . . . 62 14.02 CORPORATE REORGANIZATION. . . . . . . . . . . . . 62 14.03 PLAN MERGER AND CONSOLIDATION . . . . . . . . . . 62 ARTICLE XV TRUST AND THE TRUSTEE . . . . . . . . . . . . . . 63 15.01 BOARD TO SELECT TRUSTEE . . . . . . . . . . . . . 63 ARTICLE XVI ADOPTION BY AFFILIATE . . . . . . . . . . . . . . 64 16.01 AFFILIATE PARTICIPATION . . . . . . . . . . . . . 64 16.02 ACTION BINDING ON PARTICIPATING AFFILIATES. . . . 64 16.03 TERMINATION OF PARTICIPATION OF AFFILIATE . . . . 64 ARTICLE XVII TOP-HEAVY PROVISIONS . . . . . . . . . . . . . . 66 17.01 DEFINITIONS . . . . . . . . . . . . . . . . . . . 66 17.02 DETERMINATION OF TOP HEAVY STATUS - SINGLE PLAN. . . . . . . . . . . . . . . . . . . . . . . 68 17.03 DETERMINATION OF TOP HEAVY STATUS - MULTIPLE PLANS . . . . . . . . . . . . . . . . . . . . . . 68 17.04 EFFECT OF TOP HEAVY STATUS. . . . . . . . . . . . 69 ARTICLE XVIII MISCELLANEOUS. . . . . . . . . . . . . . . . . 72 18.01 VOLUNTARY PLAN. . . . . . . . . . . . . . . . . . 72 18.02 NONALIENATION OF BENEFITS . . . . . . . . . . . . 72 18.03 INABILITY TO RECEIVE BENEFITS . . . . . . . . . . 72 18.04 LOST PARTICIPANTS . . . . . . . . . . . . . . . . 73 18.05 LIMITATION OF RIGHTS. . . . . . . . . . . . . . . 73 18.06 ABSENCE OF GUARANTY . . . . . . . . . . . . . . . 73 18.07 INVALID PROVISIONS. . . . . . . . . . . . . . . . 73 18.08 ONE PLAN. . . . . . . . . . . . . . . . . . . . . 73 18.09 GOVERNING LAW . . . . . . . . . . . . . . . . . . 73 ARTICLE XIX DIRECT ROLLOVERS. . . . . . . . . . . . . . . . . 75 19.01 DIRECT ROLLOVERS. . . . . . . . . . . . . . . . . 75 19.02 DEFINITIONS . . . . . . . . . . . . . . . . . . . 75 INTRODUCTION FHP International Corporation and its wholly owned subsidiary, FHP, Inc. previously established the FHP Corporation Employee Stock Ownership Plan, hereinafter referred to as the "Plan", effective June 6, 1986, for the benefit of the employees of their respective subsidiaries. Effective July 1, 1987, the FHP Corporation Tax Savings Plan was merged into this Plan and the resulting Plan was renamed the FHP International Corporation Employee Stock Ownership Plan. Also effective July 1, 1987, the Plan was amended and restated to incorporate the provisions of the merged plans and to make various plan design changes. That restatement was intended to be a continuation of the FHP Corporation Employee Stock Ownership Plan as originally effective June 6, 1986. Effective July 1, 1990, the Plan was amended and restated in its entirety in order to incorporate several amendments adopted since the last restatement and to incorporate several design changes. This amendment and restatement incorporates Amendment Number One to the Plan as restated effective July 1, 1990, and makes certain other miscellaneous changes to the Plan. The Plan as amended and restated is intended to qualify under Code Section 401(a). It consists of three separate, but complimentary, parts which are designed to satisfy the specific rules applicable to each part. The first part is an employee stock ownership plan intended to qualify under Code Section 4975(e)(7), the second part is a cash or deferred arrangement intended to qualify under Code Section 401(k) and the third part is a payroll based tax credit employee stock ownership plan intended to qualify under Code Sections 41 and 409. No additional employer contributions were or will be allocated to the third part as of any date after December 31, 1986. The purpose of this Plan is to enable participating employees to share in the growth and prosperity of the Company by providing them with a common stock ownership interest in FHP International Corporation, as well as to enable employees to accumulate capital for retirement through a convenient method of regular savings in a tax-efficient manner. ARTICLE I DEFINITIONS Whenever the following terms are used in this Plan with their first letters capitalized, they have the meaning specified below. Additional words and phrases used in the Plan are not defined in this Article I, but, for convenience, are defined as they are introduced in the text. Unless the context indicates otherwise, the masculine pronoun refers to a man or a woman. Words in the singular include the plural, and vice versa, unless the context indicates otherwise. 1.01 ACCOUNTS "Accounts" means a Participant's Employer Contribution Account, his PAYSOP Account, his Pretax Deferral Account and his Rollover Account. These Accounts are described in Section 4.01 of the Plan. 1.02 AFFILIATE "Affiliate" means the Company and each other entity which is controlled by or under common control with the Company or is a member of the same affiliated service group, within the meaning of Code Sections 414 and 1563. Any other organization which is permitted to treat Stock as "employer securities" under Code Section 409(1) is also an Affiliate if it adopts the Plan pursuant to Article XVI of the Plan. 1.03 BENEFICIARY "Beneficiary" means the person or persons (who may be named contingently or successively) designated by a Participant to receive his Accounts in the event of his death. Each Participant may designate a Beneficiary on a form prescribed by the Committee. The designation will be effective when filed with the Committee, and will revoke all prior designations by the same Participant. A married Participant who designates a Beneficiary other than his spouse must obtain and submit to the Committee the spouse's written, notarized consent to the designation of each such Beneficiary on a form that discloses to the spouse the potential effect of such consent the designation will not be valid until the Committee receives such notarized consent. If no Beneficiary is designated at the time of the Participant's death, or if no person so designated survives the Participant, the Beneficiary will be the Participant's spouse, or if the deceased Participant has no surviving spouse, his estate. 1.04 BOARD "Board" means the board of directors of FHP, Inc. 1.05 CODE "Code" means the Internal Revenue Code of 1986 as it currently exists and includes any subsequent amendments. 1.06 COMMITTEE "Committee" means the Committee described in Article XII. 1.07 COMPANY "Company" means FHP, Inc. 1.08 COMPENSATION "Compensation" means the total salary and wages paid for a Plan Year or other specified period to a Participant by the Employer for services rendered. It includes salary, wages, commission, tips, bonuses and overtime compensation reportable on federal form W-2 or its equivalent and amounts of salary reduction elected by the Participant in connection with pretax deferrals under the FHP International Corporation Employee Stock Ownership Plan and/or a benefit plan sponsored by an Affiliate and qualified under Code Section 125. It excludes (1) any amount (other than the pretax deferrals described above) contributed by the Employer to any pension plan or plan of deferred compensation, (2) any amount, regardless if it is or becomes reportable on federal form W-2, which is (i) paid by the Employer (other than the salary reduction described above) for other fringe benefits, such as health and welfare, hospitalization, group life insurance benefits, stock options or perquisites, or (ii) paid by the Employer in lieu of the benefits described in (i) above, such as a cash out of credits generated under a plan qualified under Code Section 125, (3) any reimbursement for expenses or allowances, including automobile allowances and moving allowances and (4) any amount realized when a stock option is exercised at a price below fair market value on the date of the exercise. A Participant's annual Compensation in excess of two hundred thousand dollars is disregarded for all purposes under the Plan. Such dollar limit will be adjusted each year pursuant to Code Section 401(a)(17). This paragraph is effective July 1, 1989. Compensation will be recognized as of an employee's effective date of participation pursuant to Section 2.01 and 2.02. Compensation for any Plan Year shall be determined by counting Compensation for the payroll periods ending with or within such Plan Year. 1.09 DISTRIBUTION DATE "Distribution Date" means the date as of which the vested portion of a Participant's Accounts is distributed, as described in Section 9.01 (in the case of Normal Retirement Age), Section 9.02 (in the case of Permanent and Total Disability), Section 9.03 (in the case of death) and Section 10.01 (in the case of any other termination of employment). 1.10 EFFECTIVE DATE "Effective Date" means the original effective date of the Plan, which is June 6, 1986. 1.11 ELIGIBLE EMPLOYEE "Eligible Employee" means any person who is employed by an Employer provided he is not one of the following: (a) a per diem, on-call, or temporary employee, or (b) an employee whose terms of employment are covered by a collective bargaining agreement between the Employer and employee representatives where there is evidence retirement benefits were the subject of good faith bargaining unless the bargaining agreement expressly provides for participation in the Plan. 1.12 EMPLOYER "Employer" means the Company and any Affiliate which adopts the Plan in accordance with Article XVI. 1.13 EMPLOYER CONTRIBUTION "Employer Contribution" means contributions to the Plan made by an Employer pursuant to Sections 3.03 and 3.04. It includes the Employer Matching Contribution described in Section 3.03 and the Employer ESOP Contribution described in Section 3.04. 1.14 ERISA "ERISA" means the Employee Retirement Income Security Act of 1974, as it currently exists and includes any subsequent amendments. 1.15 ESOP FUND "ESOP Fund" means the portion of the Trust Fund consisting of assets allocated to all Participants' ESOP Accounts, unallocated assets representing contributions under Section 3.03 and unallocated assets representing the proceeds of any Exempt Loan (the ESOP Suspense Subfund). 1.16 ESOP SUSPENSE SUBFUND "ESOP Suspense Subfund" means the portion of the Trust Fund consisting of unallocated assets representing the proceeds of any Exempt Loan. The ESOP Suspense Subfund is part of the ESOP Fund. 1.17 EXEMPT LOAN "Exempt Loan" means any loan (or other extension of credit) to the Plan or Trust not prohibited by Code Section 4975(c). It includes a loan which meets the requirements of Code Section 4975(d)(3) and related regulations and the proceeds of which are used to finance the acquisition of stock and/or refinance an Exempt Loan. 1.18 FINANCED SHARES "Financed Shares" means shares of Stock acquired under the Plan with the proceeds of an Exempt Loan. 1.19 HIGHLY COMPENSATED EMPLOYEE "Highly Compensated Employee" means an individual described in Code Section 414(q). 1.20 HOUR OF SERVICE "Hour of Service" means: (a) Each hour for which a person is directly or indirectly paid by, or entitled to payment from an Affiliate for the performance of duties. These hours are credited to the person in the computation period in which the duties are performed. (b) Each hour for which a person is directly or indirectly paid by, or entitled to payment from an Affiliate on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence. However, a person is not entitled to credit for such hours if payment is made or due under a plan maintained solely for the purpose of complying with applicable worker's compensation, unemployment compensation or disability insurance laws, or if such payment solely reimburses a person for his medical or medically related expenses. No more than 501 hours are credited for any single continuous period of time during which no duties are performed. In the case of a payment which is made or due on account of a period during which a person performs no duties, and which results in crediting of hours under this subsection (b), or in the case of an award or agreement for back pay, to the extent that such award or agreement is made with respect to a period described in this subsection (b), the number of hours and the computation period in which they are to be credited is determined according to Section 2530.200(b)-2(b) and (c) of Title 29 of the Code of Federal Regulations. (c) Each hour for which a person is entitled to back pay, regardless of mitigation of damages, which has been either awarded or agreed to by an Affiliate. These hours are credited to the person in the computation period to which the award, agreement or payment pertains. However, a person will not be credited with hours under this subsection (c) if he received credit for the same hours under subsections (a) or (b). (d) Notwithstanding the above, an exempt employee will be credited with 90 Hours of Service for each bi-weekly pay period (or 95 Hours of Service in the case of a semi-monthly pay period) during which he would receive credit for at least one Hour of Service under subsections (a) through (c) above. For purposes of this subsection an exempt employee is defined under the Fair Labor Standards Act. 1.21 INACTIVE PARTICIPANT "Inactive Participant" means a person who was a Participant but who is transferred to and is in a position of employment in which he is no longer an Eligible Employee. 1.22 INVESTMENT FUND "Investment Fund" means the funds in which a Participant may invest his Pretax Deferral and Rollover Accounts according to Section 7.01. 1.23 LIMITATION YEAR "Limitation Year" means the twelve month period beginning July 1 and ending the following June 30, as that term is used in Section 6.01. 1.24 NON-HIGHLY COMPENSATED EMPLOYEE "Non-Highly Compensated Employee" means a person employed by an Affiliate who is not a Highly Compensation Employee. 1.25 NORMAL RETIREMENT AGE "Normal Retirement Age" means a Participant's 65th birthday. This Section is effective September 7, 1989. 1.26 PARTICIPANT "Participant" means any Eligible Employee who is a Participant as provided in Article II. Where appropriate to the context, it also includes an Inactive Participant. 1.27 PAYSOP FUND "PAYSOP Fund" means any Eligible Employee who is a Participant as provided in Article II. Where appropriate to the context, it also includes an Inactive Participant. 1.28 PERIOD OF SEVERANCE "Period of Severance" means, for any person, an interruption in his Service under the Plan. A Period of Severance begins on the date the person no longer is credited with Service under the Plan and ends on the date the person returns to active employment with an Affiliate. A person whose employment with all Affiliates is terminated, or deemed terminated, for any reason will incur: (a) a one year Period of Severance if he fails to return to active employment as an employee and render one or more Hours of Service before the first annual anniversary of the date of such termination. (b) a five year Period of Severance if he fails to return to active employment as an employee and render one or more Hours of Service before the fifth annual anniversary of the date of such termination. For purposes of this Section, a person who is absent from employment for maternity or paternity reasons will not be treated as having incurred a one year Period of Severance until the second anniversary of such absence, or a five year Period of Severance until the sixth anniversary of such absence, or such earlier time permitted under applicable regulations. Absence for maternity or paternity reasons means a person is absent because: (1) the person is pregnant, (2) the person gave birth to a child; (3) an adopted child is placed with the person, or (4) the person is caring for his natural or adopted child immediately after the child is born or placed with the person. The provisions of this paragraph will not apply unless the person provides information to the Committee, within the time limits established by the Committee, sufficient to establish that the absence is for maternity or paternity reasons and the duration of the absence. 1.29 PERMANENT AND TOTAL DISABILITY "Permanent and Total Disability" means a physical or mental condition which renders a person unable to engage in any substantial gainful activity for an Affiliate by reason of any medically determinable physical or mental impairment which can bc expected to result in death or to be of long-continued or indefinite duration. The Committee will determine, based on whatever competent medical evidence it requires, whether a person is Permanently and Totally Disabled. 1.30 PLAN "Plan" means the FHP International Corporation Employee Stock Ownership Plan as described in this document and includes any subsequent amendments. Before July 1, 1987, the Plan was named the FHP Corporation Employee Stock Ownership Plan. 1.31 PLAN YEAR "Plan Year" means the twelve month period beginning July 1 and ending the following June 30. The Company or the Committee may treat the initial Plan Year as including the entire period beginning July 1, 1985 and ending June 30, 1986 for any purpose under the Plan, notwithstanding the fact that the Plan's Effective Date occurred after July 1, 1985. 1.32 PRETAX DEFERRALS "Pretax Deferrals" means contributions to the Plan made by the Employer at the election of a Participant in amounts equal to reductions in the Participant's Compensation under Section 3.01. 1.33 ROLLOVER CONTRIBUTIONS "Rollover Contributions" means contributions to the Plan made by an Eligible Employee pursuant to Section 3.06. 1.34 SERVICE "Service" means, with respect to any person, his period or periods of employment with all Affiliates which are counted as Service according to the following rules. (a) Each person is credited with Service under the Plan for the period or periods during which the person maintains an employment relationship with any Affiliate. A person's employment relationship is deemed to commence on the date the person first renders one Hour of Service, and is deemed to continue during the following periods: (i) Periods of leave of absence with or without pay granted to the person by an Affiliate in a like and nondiscriminatory manner for any purpose including, but not limited to, sickness, accident or military leave. The person is not considered to have terminated employment during such leave of absence unless he fails to return to the employ of an Affiliate at or prior to the expiration date of the leave. If he fails to so return, he is deemed to have terminated as of the date the leave began but he is given credit for Service through the earlier of the first anniversary of the date his leave of absence began or the date his employment terminates. (ii) In case of a person who terminates employment and who is later reemployed by an Affiliate before he incurs a one year Period of Severance, the period between his date of termination and date of reemployment. (b) Except as provided in Subsection (c) all periods of a person's Service, whether or not consecutive, are aggregated. Service is measured in elapsed years and fractions of years whereby each twelve complete calendar months constitutes one year, each complete calendar month constitutes one-twelfth of a year and partial calendar months which when aggregated equal thirty days constitute one-twelfth of a year. (c) In the case of a person who terminates employment before he becomes a Participant and who is not reemployed before the date he incurs the greater of: (i) a five year Period of Severance (as described in Section 1.28(b)), or (ii) a Period of Severance greater than his service before the date he terminated employment, his service before he terminated employment will be disregarded. For individuals who were previously employed by Charter Community Hospital, Inc. and who became Eligible Employees prior to May 31, 1993 as a result of the Company entering into employment relationships with such individuals, Service will include such an individual's service with Charter Community Hospital, Inc. prior to becoming an employee of the Company for purposes of determining the vested percentage of such individual under Section 10.02 of the Plan. Service with Charter Community Hospital, Inc. will not be included for any other purpose under the Plan. 1.35 STOCK "Stock" means shares of common stock issued by the Company's parent, FHP International Corporation, which are readily tradable on an established securities market. At the Company's discretion, stock may also include other types of stock which qualify as "employer securities" under Code Section 409(1). 1.36 TRUST FUND "Trust Fund" means the Stock and other assets of the Plan held by the Trustee and subject to the trust agreement described in Article XV. Trust Fund includes, but is not limited to, the Investment Funds, the ESOP Fund, the ESOP Suspense Subfund, and the PAYSOP Fund. 1.37 TRUSTEE "Trustee" means the person, persons, bank and/or other entity selected by the Board to hold the Trust Fund according to Article XV. 1.38 VALUATION DATE "Valuation Date" means September 30, December 31, March 31, and June 30 of each Plan Year. Notwithstanding the preceding sentence, upon a determination by the Committee, in its sole discretion, that more frequent Valuation Dates are administratively feasible, Valuation Date also means the last day of any other months selected by the Committee. Valuation Date may also mean any date selected by the Committee in the event the Committee, in its sole discretion, determines that events affecting the market value of the Trust Fund require an interim Valuation Date. ARTICLE II ELIGIBILITY AND PARTICIPATION 2.01 PARTICIPATION IN THE PLAN (a) EMPLOYEES HIRED ON OR AFTER JANUARY 1, 1993. Each Eligible Employee hired on or after January 1, 1993 will become a Participant on the first day of the month coinciding with or immediately following the later of (i) the date he attains age 21; (ii) the date he completes 12 months of Service; or (iii) the date he becomes an Eligible Employee. (b) EMPLOYEES HIRED ON OR BEFORE DECEMBER 31, 1992. An Eligible Employee hired on or before December 31, 1992 may become a Participant upon satisfaction of the requirements set forth in Section 2.01(a). Furthermore, such an Eligible Employee will become a Participant, even if prior to the satisfaction of the requirements set forth in Section 2.01(a), on the January 1 or July 1 that coincides with or next follows the later of (i) the date he attains age 21; (ii) the later of the date he first completes 1,000 Hours of Service during an Eligibility Period (as defined below) or the date he completes 6 months of Service; or (iii) the date he becomes an Eligible Employee. "Eligibility Period" means the 12-month period beginning on the date an employee first completes an Hour of Service. If an employee fails to complete 1,000 Hours of Service during such 12-month period, Eligibility Period means any Plan Year, beginning with the Plan Year which begins immediately following the date he first completes an Hour of Service. The 1,000 Hours of Service requirement under subsection 2.01(b)(ii) is met on the date the Eligible Employee actually has accrued 1,000 Hours of Service under the Plan. (c) OTHER ELIGIBILITY RULES. Each Eligible Employee who was a Participant on June 30, 1990 remained a Participant when the Plan was restated effective July 1, 1990. Each Eligible Employee who was an employee in the FHP Corporation Tax Savings Plan on June 30, 1987 but not a Participant in this Plan on June 30, 1987, became a Participant in this Plan on July 1, 1987, for the sole purpose of continuing his Pretax Deferrals. He did not become a Participant for any purpose not related to Pretax Deferrals until he otherwise became a Participant under the generally applicable provisions of Section 2.01. 2.02 ENROLLMENT IN THE PLAN If a Participant wishes to make Pretax Deferrals or a Rollover Contribution, he must complete and file a form on which he designates a Beneficiary. In addition, he must authorize his Employer to reduce his Compensation by the amount of the deferrals pursuant to Section 3.01, if applicable, and he must designate the allocation of his Pretax Deferrals and/or his Rollover Contributions among the Investment Funds. The form must be delivered to the Committee no less than fifteen days before participation is to begin. If a Participant declines to make Pretax Deferrals when first eligible, he may elect to make such deferrals beginning as of the first day of the first payroll period of any month thereafter, provided he delivers a completed election form to the Committee no less than 15 days before such payroll period. 2.03 REEMPLOYMENT A Participant whose employment with all Affiliates terminated and who is subsequently reemployed and becomes an Eligible Employee again, becomes a Participant on the date he becomes an Eligible Employee again. He may not begin Pretax Deferrals until the first day of the first payroll period of any month that coincides with or next follows the date he again becomes an Eligible Employee. An employee who was not a Participant when his employment with all Affiliates terminated and who is later reemployed by an Affiliate becomes a Participant in the Plan pursuant to the provisions of Section 2.01. Hours of Service before he terminated employment will be considered in determining his eligibility to become a Participant. 2.04 EMPLOYMENT AFTER NORMAL RETIREMENT AGE A Participant who continues employment as an Eligible Employee after his Normal Retirement Age continues to be a Participant for all purposes of the Plan. 2.05 TERMINATION OF PARTICIPATION A Participant will cease to be a Participant on the date on which he or his Beneficiary receives distribution of the entire vested portion of his Accounts under the Plan due to his termination of employment, retirement, death or Permanent and Total Disability. 2.06 INACTIVE PARTICIPATION AND TRANSFERS A Participant who transfers to an employment status with an Affiliate in which he is no longer an Eligible Employee becomes an Inactive Participant. An Inactive Participant is not eligible to make Pretax Deferrals from his Compensation earned after the date of his transfer. Employer Contributions will not be allocated to his ESOP Account after the date of his transfer. If a Participant becomes an Inactive Participant, his Accounts will continue to be held under the Plan until he becomes entitled to a distribution under the provisions of Articles IX and X. An Inactive Participant will continue to have the right to direct the investment of his Accounts under the provisions of Article VII and to make withdrawals under the provisions of Article VIII. An employee who transfers to an employment status with an Affiliate in which he is an Eligible Employee may become a Participant pursuant to Section 2.01. He will not be eligible to make Pretax Deferrals from his Compensation earned while he was not a Participant. Employer Contributions to his Employer Contribution Account will not be based on his Compensation earned before the date he transferred and became a Participant. ARTICLE III CONTRIBUTIONS 3.01 CONTRIBUTION OF PARTICIPANT DEFERRALS (a) PRETAX DEFERRALS. Upon enrollment or reenrollment in the Plan, each Participant may elect to make Pretax Deferrals from 1% to 10% in a fixed whole percentage, from his Compensation. The Committee may modify the above limit, or set initial or interim limits for Pretax Deferrals for any Participant who is a Highly Compensated Employee, or any class of Participants who are Highly Compensated Employees. Such limits may include the suspension or reduction of Pretax Deferrals above a specified dollar amount or percentage of Compensation. The amount of Compensation otherwise payable to the Participant for each payroll period while an election under this Section 3.01 is in effect will be reduced by the amount of the Participant's Pretax Deferrals. The Employer will make contributions to the Plan equal to the amount deferred. Such contributions will be allocated to the Participant's Pretax Deferral Account as of the last day of the payroll period in which such amounts are deferred. (b) CHANGE IN PERCENTAGE OR SUSPENSION OF DEFERRALS. A Participant's Pretax Deferral percentage rate will remain in effect, notwithstanding any change in his Compensation, until he terminates employment or elects to change the percentage. A Participant may elect to change his deferral percentage as of any January 1, April 1, July 1 or October 1, provided the election is delivered to the Committee no less than 15 days before the effective date of the change. A Participant may suspend his Pretax Deferrals at any time. The suspension will be effective as soon as administratively possible following receipt of an election form from the Participant. A Participant may resume making Pretax Deferrals on any January 1, April 1, July 1 or October 1 after the effective date of his election to suspend Pretax Deferrals. To resume Pre-tax Deferrals the Participant must file an new election form with the Committee at least 15 days before the election will be effective. (c) CALENDAR YEAR LIMITATION Notwithstanding the provisions of subsections (a) and (b) above, if a Participant's Pretax Deferral election in effect during any calendar year would cause his Pretax Deferrals for such year to exceed $7,000, his Pretax Deferrals will automatically be suspended once they reach $7,000. The Participant's Pretax Deferrals will automatically resume on the following January 1. Unless the Participant elects to change his Pretax Deferral percentage according to subsection (b) above, his Pretax Deferrals will resume at the percentage rate in effect on the date of the suspension. The preceding $7,000 limit will be adjusted each calendar year, beginning with the 1988 calendar year, as permitted under Code Section 402(g)(5). If, for any reason, a Participant's total elective deferrals (within the meaning of Code Section 402(g)(3)) to all his employers' plans for any calendar year exceeds the applicable dollar limitation under this subsection (c) for the calendar year, the Participant may elect distribution of the excess. Such distribution will be made no later than April 15 of the following calendar year, in an amount equal to the portion of such excess which was contributed to this Plan. (d) STATUS OF DEFERRAL CONTRIBUTIONS Pretax Deferrals constitute Employer contributions under the Plan and are intended to qualify as elective contributions under Code Section 401(k). 3.02 LIMITATION ON PARTICIPANT'S PRETAX DEFERRALS (a) Notwithstanding Section 3.01, the Pretax Deferral percentage rate elected by one or more Participants under Section 3.01 will be modified as provided in Subsection (c) of this Section 3.02 if the requirements of Subsection (b) of this Section 3.02 are not satisfied. (b) For each Plan Year an "Actual Deferral Percentage" will be determined for each Participant. Such percentage will be determined by dividing the Participant's Pretax Deferrals allocated to his Pretax Deferral Account during the Plan Year, if any, by his Earnings as defined in Section 6.01(c), including salary reductions, if any, elected by the Participant for the Plan Year under this Plan and salary reductions, if any, elected under a Plan sponsored by the Employer and qualified under Code Section 125. Notwithstanding the preceding sentence, at the Committee's election Earnings may be determined under an alterative definition as permitted in Treasury Regulation Section 1.414(s)-1 and any subsequent rulings affecting such regulation Section. The average of the Actual Deferral Percentages for all Participants who are Highly Compensated Employees for the Plan Year (the "High Average"), when compared to the average of the Actual Deferral Percentages for all Participants who are Non-Highly Compensated Employees for the Plan Year (the "Low Average"), must meet one of the following requirements: (i) The High Average must be no greater than the Low Average times one and twenty-five hundredths; or (ii) The excess of the High Average over the Low Average must not be greater than two percentage points and the High Average must be no greater than the Low Average times two. (c) If the Committee determines, in its discretion, that Participants' Pretax Deferrals for a Plan Year will not meet one of the requirements of Subsection (b), the Committee, in its discretion, may suspend or reduce future Pretax Deferrals of certain Participants who are Highly Compensated Employees to the extent necessary to meet the requirements. The suspension or reduction of Participants' future Pretax Deferrals will be accomplished by reducing the Pretax Deferral percentage rate of Participants who are Highly Compensated Employees in order of their Actual Deferral Percentage Rates, beginning with the Participant with the highest percentage rate and decreasing in descending order until one of the requirements of Subsection (b) is met. If Participants' Pretax Deferrals actually made for a Plan Year do not meet one of the requirements of Subsection (b), the Committee will determine, in its discretion, the amount of Pretax Deferrals of certain Participants who are Highly Compensated Employees which must be reduced in order to meet one of the requirements of Subsection (b). The reduction in Participants' Pretax Deferrals will be accomplished by reducing the actual Pretax Deferrals of Participants who are Highly Compensated Employees in order of their Actual Deferral Percentage rates, beginning with the Participant with the highest percentage rate and decreasing actual Pretax Deferrals in descending order until one of the requirements of Subsection (b) is met. The amount of the reduction attributable to each Participant (and any income allocated to such reduction) will be distributed to the Participant on or before the last day of the immediately following Plan Year. (d) The Committee's determination under Subsection (c) will be made in a reasonable, consistent, and nondiscriminatory manner. The Committee will not be liable to any Participant (or his Beneficiary, if applicable) for any losses caused by inaccurately estimating the amount of any Participant's Pretax Deferrals or the earnings attributable to such Pretax Deferrals. (e) This Section 3.02 will be applied after taking into account any reductions in, or repayments of, Pretax Deferrals required by Sections 3.01, 5.01, and 17.05. 3.03 EMPLOYER MATCHING CONTRIBUTIONS The amount of Employer Matching Contributions, if any, for each Plan Year will be determined by the Board in its sole discretion. The Employer Matching Contributions may be made in cash and/or shares, as determined by the Board in its sole discretion. 3.04 EMPLOYER ESOP CONTRIBUTIONS The amount of Employer ESOP Contributions, if any, for each Plan Year will be determined by the Board in its sole discretion. The Employer ESOP Contributions may be made in cash and/or shares, as determined by the Board in its sole discretion. 3.05 PARTICIPANT CONTRIBUTIONS On and after July 1, 1987, no Participant is required or permitted to make contributions other than Pretax Deferrals or Rollover Contributions. 3.06 ROLLOVER CONTRIBUTIONS Subject to the Committee's approval, an Eligible Employee may make a Rollover Contribution to the Plan which does not exceed the maximum amount of rollover contribution he is then permitted under Code Section 402(a)(5). The contribution must be in cash and must meet all the applicable rollover requirements under Code Section 402(a)(5). The Committee will establish uniform and nondiscriminatory procedures for the treatment of Rollover Contributions. An Eligible Employee's Rollover Contribution is credited to his Rollover Account. He is at all times one hundred percent vested in the value of his Rollover Account. He may direct the investment of his Rollover Contribution, and redirect the investment of his Rollover Account according to Article VII. If an Eligible Employee is not a Participant according to Section 2.01, his Rollover Account is his sole interest in the Plan. Effective January 1, 1993, Rollover Contributions must satisfy all applicable rollover requirements of Code Section 402(c)(4). 3.07 LIMITATION ON REVERSION OF CONTRIBUTIONS Except as provided in subsections (a), (b) and (c) below, contributions made under the Plan are held for the exclusive benefit of Participants and their Beneficiaries and may not revert to the Employer. (a) A contribution which is made by a mistake of fact, may be returned to the Employer within one year after it is contributed to the Plan. (b) All employer contributions to the Plan are conditioned on their deductibility under Code Section 404. To the extent the deduction is disallowed, the amount disallowed may be returned to the Employer within one year after the disallowance. (c) All contributions to the Plan are conditioned on the Plan's qualification under Code Sections 401(a), 409 and 4975(c)(7). If the Plan does not so qualify, any contributions may be returned to the Employer within one year after the qualification is denied. 3.08 LIMITATION OF LIABILITY Each payment to the Trust Fund pursuant to Section 3.01(a) equal to the amount of a Participant's Pretax Deferral is in complete discharge of the financial obligations of the Employer under the Plan with respect to the Participant's corresponding reduction in Compensation. 3.09 MAKE-UP CONTRIBUTIONS In addition to other Employer Contributions described in Section 3.03 and 3.04, an Employer may make special make-up contributions to the Plan, if necessary. A make-up contribution will be necessary if there are insufficient forfeitures under the Plan to restore a Participant's Employer Contributions Account pursuant to Section 10.03, if a Participant or Beneficiary's Accounts must be reinstated pursuant to Section 18.04, or if a mistake or omission in the allocation of contributions is discovered and cannot be corrected by revising prior allocations. ARTICLE IV PARTICIPANT'S ACCOUNT: ALLOCATIONS 4.01 PARTICIPANT ACCOUNTS The Committee will maintain the following Accounts for each Participant: (a) An EMPLOYER CONTRIBUTION ACCOUNT which is: (i) credited with the Participant's share of the Employer Matching Contributions and Employer ESOP Contributions; (ii) adjusted for investment results and expenses; and (iii) charged with distributions. (b) A PAYSOP ACCOUNT which is: (i) credited with the Participant's share of PAYSOP contributions made under this Plan for the period ending December 31, 1986; (ii) adjusted for investment results and expenses: and (iii) charged with distributions. (c) A PRETAX DEFERRAL ACCOUNT which is: (i) credited with the Participant's Pretax Deferrals made under this Plan on and after July 1, 1987; (ii) credited with his Pretax Deferral Account transferred to this Plan from the FHP Corporation Tax Savings Plan as of July 1, 1987; (iii) adjusted for investment results and expenses: and (iv) charged with withdrawals and distributions. (d) A ROLLOVER ACCOUNT which is: (i) credited with the Participant's Rollover Contributions made to this Plan on and after July 1, 1987; (ii) credited with his Rollover Account transferred to this Plan from the FHP Corporation Tax Savings Plan as of July 1, 1987; (iii) adjustment for investment results and expenses; and (iv) charged with withdrawals and distributions. 4.02 ALLOCATION OF PRETAX DEFERRALS Employer contributions which result from a Participant's Pretax Deferrals pursuant to Section 3.01 will be allocated to the Participant's Pretax Deferral Account. An allocation will occur as of the last day of each payroll period during which the Participant has Pretax Deferrals withheld from his Compensation. The amount of the allocation will equal the amount of the Participant's Pretax Deferrals withheld during such payroll period. 4.03 ALLOCATION OF EMPLOYER MATCHING CONTRIBUTIONS (a) The Employer Matching Contributions for each Plan Year are allocated as of the last day of the Plan Year to the Employer Contributions Account of each person who was a Participant during the Plan Year, provided the Participant: (i) is employed as an Eligible Employee on the last day of the Plan Year; or (ii) terminated employment during the Plan Year on or after attaining Normal Retirement Age as defined in Section 1.25; or (iii) died during the Plan Year; or (iv) became Permanently and Totally Disabled during the Plan Year. (b) Each Participant who meets the requirements of Subsection (a) above is allocated a portion of the Employer Matching Contributions. His portion of the Employer Matching Contributions equal twenty-five percent of the amount of his Pretax Deferrals for the Plan Year which: (i) he directed to be invested in FHP International Corporation stock and which remain so invested on the last day of the Plan Year; and (ii) do not exceed six percent of his Compensation for the Plan Year. (c) No more than five hundred dollars in Employer Matching Contributions will be allocated to a Participant's Employer Contribution Account in any Plan Year. Any Employers Matching Contributions remaining after this allocation process will be added to the Employer ESOP Contribution for the Plan Year and allocated among all Participants as provided in Section 4.05. (d) If the Employer Matching Contribution available for a Plan Year is not sufficient to allocate the amounts described in Subsection (b), each Participant will be allocated a prorata share of the available Employer Matching Contribution. The prorata share will be determined by multiplying his contribution determined under Subsection (b) (without considering the limitation in Subsection (c)) by a fraction where the numerator is the available Employer Matching Contribution and the denominator is the Employer Matching Contribution necessary in order to allocate all the amounts described in Subsection (b) (without considering the limitation in Subsection (c)). (e) If any portion of the Employer Matching Contributions is contributed in shares, the allocation of such portion to Participants' Employer Contributions Accounts will be made in shares and fractions of shares to the nearest thousandth of a share. 4.04 LIMITATION ON ALLOCATION OF EMPLOYER MATCHING CONTRIBUTIONS (a) Notwithstanding Section 3.03, the Employer Matching Contribution allocated to one or more Participants under Section 4.03(b)(i) will be modified as provided in Subsection (c) of this Section 4.04 if the requirements of Subsection (b) of this Section 4.04 are not satisfied. (b) For each Plan Year an "Actual Contribution Percentage" will be determined for each Participant. Such percentage will be determined by dividing the Employer Matching Contributions allocated to the Participant's Employer Contribution Account during the Plan Year, if any, by his Earnings as defined in Section 6.01(c), including salary reductions, if any, elected by the Participant for the Plan Year under this Plan and salary reduction, if any, elected under a plan sponsored by the Employer and qualified under Code Section 125. The average of the Actual Contribution Percentages for all Participants who are Highly Compensated Employees for the Plan Year (the "High Average"), when compared to the average of the Actual Contribution Percentages for all Participants who are Non-Highly Compensated Employees for the Plan Year (the "Low Average"), must meet one of the following requirements: (i) The High Average must be no greater than the Low Average times one and twenty-five hundredths; or (ii) The excess of the High Average over the Low Average must not be greater than two percentage points and the High Average must be no greater than the Low Average times two. (c) If the Committee determines, in its discretion, that allocations of Employer Matching Contributions to Participants' Employer Contribution Accounts for a Plan Year do not meet one of the requirements of Subsection (b), the Committee will determine, in its discretion, the amount of Employer Matching Contributions of certain Participants who are Highly Compensated Employees which must be reduced in order to meet one of the requirements of Subsection (b). The reduction will be accomplished by reducing the allocations to Participants who are Highly Compensated Employees in order of their Actual Contribution Percentage rates, beginning with the Participant with the highest percentage rate and decreasing in descending order until one of the requirements of Subsection (b) is met. The reduced amounts will be added to the Employer ESOP Contribution for the Plan Year and allocated among all Participants as provided in Section 4.05. (d) The Committee's determination under Subsection (c) will be made in a reasonable, consistent, and nondiscriminatory manner. The Committee will not bc liable to any Participant (or his Beneficiary, if applicable) for any losses caused by inaccurately estimating the amount of any Employer Matching Contributions. (e) For the Plan Year ending in June 30, 1989, each Participant's Actual Contribution Percentage will be determined by dividing the Employer Matching Contributions, if any, and the Employee After-Tax Contributions, under the FHP Money Purchase Pension Plan, if any, allocated to his accounts during the Plan Year by the applicable amount described above. 4.05 ALLOCATION OF EMPLOYER ESOP CONTRIBUTIONS (a) The Employer ESOP Contributions for each Plan Year are allocated as of the last day of the Plan Year to the Employer Contribution Account of each Participant, provided the Participant: (i) is employed as an Eligible Employee on the last day of the Plan Year; or (ii) terminated employment during the Plan Year on or after attaining age 65; or (iii) died during the Plan Year; or (iv) became Permanently and Totally Disabled during the Plan Year. (b) Each Participant who meets the requirements of Subsection (a) above is allocated a portion of the Employer ESOP Contributions equal to the total Employer ESOP Contributions for the Plan Year times the ratio of his Compensation for the Plan Year to the total of all such Participants' Compensation for the Plan Year. Notwithstanding any other provisions of the Plan, for each Participant who commenced participation in the Plan on January 1, 1989, his Employer ESOP Contributions, if any, allocated to his Employer Contribution Account for the Plan Year ending June 30, 1990 shall be reduced, but not to less than zero, by the amount of Employer ESOP Contributions allocated to such Account as of June 30, 1989 which were attributable to his Compensation earned before January 1, 1989. (c) If any portion of the Employer ESOP Contributions is contributed in shares, the allocation of such portion to Participants' Employer Contributions Accounts will be made in shares and fractions of shares to the nearest thousandth of a share. ARTICLE V ESOP SUSPENSE SUBFUND 5.01 ESTABLISHMENT OF ESOP SUSPENSE SUBFUND Financed Shares acquired by the ESOP Fund with the proceeds of an Exempt Loan are held in an ESOP Suspense Subfund. Some or all of the Employer Matching Contributions and Employer ESOP Contributions may be applied to repay any outstanding Exempt Loan. 5.02 RELEASE OF SHARES IN ESOP SUSPENSE SUBFUND Financed Shares are released from the ESOP Suspense Subfund periodically as the Exempt Loan is repaid. The number of Financed Shares released is determined as follows: (a) GENERAL RULE - For each Plan Year until the Exempt Loan is repaid, the number of Financed Shares released from the ESOP Suspense Subfund equals the number of unreleased Financed Shares immediately before the release for the current Plan Year multiplied by a fraction. The numerator of the fraction is the amount of principal and interest paid on the Exempt Loan for the Plan Year. The denominator of the fraction is the sum of the numerator plus the total payments of principal and interest on that Exempt Loan projected to be paid for all future Plan Years during the duration of the Exempt Loan. However, if the Exempt Loan is repaid with the proceeds of a subsequent Exempt Loan (a "Substitute Loan"), the repayment won't release all the Financed Shares in the ESOP Suspense Subfund. Instead, the Financed Shares will be released on the basis of payments of principal and interest on the Substitute Loan. (b) SPECIAL RULE - The Committee may elect at the time an Exempt Loan is incurred, or the provisions of the Exempt Loan may provide, that the number of Financed Shares released from the ESOP Suspense Subfund is to be determined solely with reference to principal payments on the Exempt Loan. This method may be used only if: (i) the Exempt Loan provides for annual payments of principal and interest at a cumulative rate that is not less rapid at any time than level annual payments for ten years; (ii) no more than an amount that would be determined to be interest under standard loan amortization tables is disregarded, and (iii) the entire duration of the Exempt Loan repayment period does not exceed ten years, even if the Exempt Loan is renewed, extended or refinanced. (c) The provisions under this Section 5.02 for the release of Financed Shares are to be applied and construed in a manner consistent with Section 54.4975-7(b)(8) of Title 26 of the Code of Federal Regulations. 5.03 ALLOCATION OF SHARES RELEASED FROM ESOP SUSPENSE SUBFUND Shares of Stock released from the ESOP Suspense Subfund for a Plan Year are held in the ESOP Fund on an unallocated basis until allocated by the Committee. Shares of Stock released in connection with a payment on Exempt Loan from Employer Contributions arc allocated as described in Subsection (a). Shares of Stock released in connection with a payment on an Exempt Loan from cash dividends on Stock are allocated as described in Subsection (b). (a) A Participant who received an allocation of Employer Contributions for the Plan Year will receive an allocation of Stock as of the last day of the Plan Year equal to: (i) the total shares released in connection with all payments on an Exempt Loan during the Plan Year from Employer Contributions, times (ii) the ratio of his allocation of Employer Contributions for the Plan Year to the total Employer Contributions for the Plan Year. Stock will be allocated in shares and fractions of shares to the nearest thousandth of a share. At the time of such allocation of shares of Stock, the Participant's ESOP Account will be debited with its share of the Trust's cash payments on the Exempt Loan. (b) A Participant who received an allocation of Cash Dividends in his Employer Contribution Account on a Valuation Date will receive an allocation of Stock on the Valuation Date equal to: (i) the total shares released in connection with all payments on an Exempt Loan during the period since the immediately preceding Valuation Date to the current Valuation Date from Cash Dividends received on Stock held in the ESOP Fund, times (ii) the ratio of shares in the Participant's Employer Contributions Account on the immediately preceding Valuation Date to the total shares of all Participants' Employer Contribution Accounts on the immediately preceding Valuation Date (disregarding shares distributed to Participants as of such Valuation Date.) At the time of such allocation of shares of Stock, the Participant's Employer Contribution Account will be debited with its share of the Trust's cash payment on the Exempt Loan. (c) All Stock in the ESOP Fund as of the last day of the Plan Year, other than Stock held in the ESOP Suspense Subfund, must be Contributions Accounts as of such day. All shares allocated under this Section 5.03 will be allocated to the nearest thousandth of a share. ARTICLE VI ALLOCATION LIMITATIONS 6.01 BASIC LIMITATION ON ANNUAL ADDITIONS (a) Notwithstanding any other provisions of the Plan and subject to the provisions of Subsections (b), (c) and (d) below, the amount of Annual Additions, as defined below, allocated to a Participant for any Limitation Year, as defined in Section 1.23, will not exceed the lesser of: (i) $30,000; or (ii) twenty-five percent of the Participant's Earnings (as defined below) for the Limitation Year. The dollar limitation referred to in Subsection (a)(i) above is adjusted as of January 1 of each Plan Year pursuant to Code Section 415. The adjusted amount applies for the Limitation Year which ends within that Plan Year. (b) For purposes of this Article VI a Participant's Annual Additions means the amount of: (i) Employer and Affiliate contributions, (ii) Participant contributions, (iii) forfeitures, and (iv) contributions for post retirement medical benefits, to the extent required by Code Section 415(e) or 419A(d)(2), allocated to his Accounts under this Plan and his accounts under all other defined contribution plans (as defined in Code Section 414(i)) adopted by an Affiliate. Notwithstanding the above paragraph, if no more than one-third of the total Employer Contributions for the Plan Year which are deductible under Code Section 404(a)(9) are allocated to the Accounts of Participants who are Highly Compensated Employees during the Plan Year, then any Employer Contributions which are used by the Trust to pay interest on an Exempt Loan, and any Financed Shares which are allocated as forfeitures, are not included as Annual Additions. The Employer Contributions must be used to pay such interest not later than the due date including extensions, for filing the Employer's Federal income tax return for the Plan Year. (c) For purposes of this Article VI, a Participant's Earnings means his earned income, wages, salaries, commissions and bonuses received from all Affiliates. It excludes the following: (i) Contributions by an Affiliate to a plan of deferred compensation which are not included in the Participant's gross income for the taxable year in which contributed, or any distribution from a plan of deferred compensation; (ii) Amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or property) held by the Participant either becomes freely transferable or is no longer subject to a substantial risk of forfeiture; (iii) Amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and (iv) Other amounts which received special tax benefits, including Pretax Deferrals under this Plan and salary reduction under any other tax qualified program. Earnings for any Limitation Year are the amount actually paid or includable in gross income during such year. A Participant's annual Earnings in excess of two hundred thousand dollars are disregarded for all purposes under the Plan. Such dollar limit will be adjusted each year pursuant to Code Section 401(a)(17). This dollar limit is effective July 1, 1989. (d) Under certain circumstances, the dollar limitation described in Subsection (a)(i) above for a Limitation Year may be increased. The increase occurs only if not more than one-third of the total Employer Contributions for the Plan Year are allocated to the Accounts of Participants who are Highly Compensated Employees during the Plan Year. The amount of the increase will be the lesser of: (i) the dollar amount otherwise applicable for the Plan Year; or (ii) the amount of Employer Contributions allocated to Participants' Employer Contribution Accounts as of each Valuation Date during the Plan Year that ends in the Limitation Year representing Stock which is: (A) contributed to the Trust for that Plan Year; (B) purchased not later than sixty days after the due date (including extensions) for filing the Employer's Federal that Plan Year from Employer Contributions which were made in cash; or (C) released from the ESOP Suspense Subfund as a result of payments on an Exempt Loan for that Plan Year. 6.02 PARTICIPATION IN THIS PLAN AND A DEFINED BENEFIT PLAN If a Participant is or has been a participant in a qualified defined benefit plan (as defined in Code Section 4140) maintained by an Affiliate, the sum of the Participant's defined benefit plan fraction and defined contribution plan fraction (as defined in Code Section 415(e) for any year will not exceed one. In calculating the defined contribution plan fraction, the Committee may, at its discretion, make the election described in Code Section 415(e)(6). 6.03 REDUCTION IN ANNUAL ADDITIONS AND ELIMINATION OF EXCESS AMOUNTS If the limitations described in Section 6.01 and 6.02 would otherwise be exceeded for a Participant for a Limitation Year, the excess will be eliminated as follows: (a) First, amounts attributable to the Participant's employee after-tax contributions under the FHP Money Purchase Pension Plan will be returned to the Participant, pursuant to the applicable provisions of such plan. (b) Second, amounts attributable to the Participant's Pretax Deferrals will be reduced. The amount of the reduction will be returned to the Participant as cash compensation and will be subject to all federal, state, municipal, and/or county taxes, and other deductions which apply to cash compensation; (c) Third, the provisions of any other plans established by an Affiliate which have caused the limits to be exceeded for the Participant will be applied. The provisions of a defined benefit plan will be applied before the provisions of a defined contribution plan. (d) Fourth, the excess allocations of Employer Matching Contributions and if necessary Employer ESOP Contributions will be removed from the Participant's Employer Contribution Account and will be reallocated to other Participants' Employer Contribution Accounts. The reallocation will be allocated on a basis proportional to Compensation, as provided in Section 4.05. However, if the reallocation of the excess amounts causes the limitations of Sections 6.01 and 6.02 to be exceeded for all other Plan Participants for the Limitation Year, then the remaining excess amounts will be held unallocated in a suspense account. If a suspense account exists at any time during a Limitation Year, other than the Limitation Year described in the preceding sentence, all amounts in the suspense account must be allocated to Participants' Accounts (subject to the limitations of Code Section 415) before any Employer Contributions which are Annual Additions may be made to the Plan for that Limitation Year. ARTICLE VII INVESTMENTS: ALLOCATION OF GAINS AND LOSSES 7.01 INVESTMENT OF ACCOUNTS Each Participant's Accounts are invested in the Trust Fund. The Participant's Employer Contribution Account and PAYSOP Account are invested primarily in Stock. Except as provided in Section 7.16, the Participant has no right to direct the investments of such Accounts. Each Participant has the right to direct the investment of his Pretax Deferrals Account and Rollover Account in any of the Plan's Investment Funds. The Committee will select the Investment Funds available under the Plan. Upon enrollment, reenrollment, and as of any January 1, April 1, July 1, and October 1, the Participant may designate the Investment Fund(s) in which his future Pretax Deferrals, if any, are invested. A Rollover Contribution must be accompanied by a written notice to the Committee designating the Investment Funds in which the contribution will be invested. The Committee will establish uniform nondiscriminatory rules regarding the designation of Investment Funds. This Plan is intended to constitute a plan described in Section 404(c) of ERISA, and the regulations thereunder. As a result, with respect to elections described in this Plan and any other exercise of control by a Participant or his or her Beneficiary over assets in the Participant's Accounts, such Participant or Beneficiary shall be solely responsible for such actions and neither the Trustee, the Committee, the Company, nor any other person or entity which is otherwise a fiduciary shall be liable for any loss or liability which results from such Participant's or Beneficiary's exercise of control. The Committee shall provide to each Participant or his or her Beneficiary the information described in Section 2550.404c-1(b)(2)(i)(B)(1) of the Department of Labor Regulations. Upon request by a Participant or his or her Beneficiary, the Committee shall provide the information described in Section 2550.404c-1(b)(2)(i)(B)(2) of the Department of Labor Regulations. With respect to Stock held in a Participant's Pretax Deferrals Account and Rollover Account, the Committee shall take such actions and establish such procedures as it deems necessary to ensure the confidentiality of information relating to the purchase, sale, and holding of such Stock, and the exercise of voting, tender and similar rights with respect to Stock by a Participant or his or her Beneficiary. Notwithstanding the foregoing, such information may be disclosed to the extent necessary to comply with applicable state and federal laws. In the event of a tender or exchange offer with respect to the Company, or in the event of a contested election with respect to the Board, the Company shall, at its own expense, appoint an independent fiduciary to carry out the Committee's administrative functions with respect to such Stock. Such independent fiduciary shall not be an "affiliate" of the Company as such term is defined in Section 2550.404c-1(e)(3) of the Department of Labor Regulations. To the extent that ERISA Section 404(c) applies to a Participant's or Beneficiary's exercise of control concerning Stock, the Participant or Beneficiary shall not, notwithstanding Sections 7.06 and 7.08, be considered a "Named Fiduciary" (as defined in ERISA Section 402) with respect to such Stock. The Committee may take such other actions or implement such other procedures as it deems necessary or desirable in order that the Plan comply with Section 404(c) of ERISA. 7.02 TRANSFERS OF EXISTING ACCOUNT BALANCES BETWEEN INVESTMENT FUNDS Each Participant has the right as of any January 1, April 1, July 1, or October 1 to have all or part of his Pretax Deferral Account and Rollover Account transferred between the Investment Funds. Such transfers may be made on a total basis or may be applied separately to each Account. The Committee will establish uniform and nondiscriminatory rules regarding the transfer of assets between Investment Funds. 7.03 ALLOCATION OF INVESTMENT FUND GAINS AND LOSSES As of each Valuation Date, the Committee will determine the net investment gain or loss, after adjustment for applicable expenses, if any, of each Investment Fund since the immediately preceding Valuation Date. The net investment gain or loss of each such Investment Fund will be apportioned to each Participant's Accounts. The apportionment will be in the same proportions as the following for the Participant bears to the total of the following for all Participants: (a) The balance of the Participant's Account which was held in such Investment Fund as of the immediately preceding Valuation Date; (b) One-half of the Participant's Pretax Deferrals, if any, allocated to the Account since the immediately preceding Valuation Date which were directed by the Participant to be invested in such Investment Fund; (c) One-half of the Participant's loan repayments, if any, made to the Account since the immediately preceding Valuation Date which were directed by the Participant to be invested in such Investment Funds; (d) One-half of the Participant's Rollover Contribution, if any, made to the Account since the immediately preceding Valuation Date which was directed by the Participant to be invested in such Investment Funds; (e) An adjustment to reflect any transfers, to or from the portion of the Account invested in such Investment Fund, which were made effective after the allocation of gains or losses as of the immediately preceding Valuation Date; and (f) A reduction for any withdrawals, distributions or loan proceeds paid from the portion of the Account invested in such Investment Fund and paid after the allocation of gains or losses as of the immediately preceding Valuation Date. All withdrawals, distributions and loan proceeds which are paid as of a Valuation Date shall be paid after the allocation of net investment gain or loss applicable to such Valuation Date has been apportioned pursuant to this Section. The amounts paid out will not share in the allocation of net investment gain or loss in the subsequent Valuation Date. 7.04 PURCHASE AND SALE OF STOCK The Trustee may acquire Stock in the open market or from the Company or any other person, including a party in interest, provided that no commission shall be paid in connection with the Trustee's acquisition from a party in interest. Neither the Employer, nor the Committee, nor any Trustee shall have any responsibility or duty to time any transaction involving Stock in order to anticipate market conditions or changes in Stock value, nor shall any such person have any responsibility or duty to sell Stock held in the Trust Fund in order to maximize return or minimize loss. 7.05 RIGHTS, WARRANTS, OR OPTIONS Subject to the provisions applicable to nonvoting rights pursuant to Section 7.08 hereof, stock rights (including warrants and options) issued with respect to Stock shall, unless otherwise directed by the Committee, be exercised by the Trustee on behalf of Participants to the extent that cash is available. Rights which cannot be exercised because of the lack of cash shall, unless otherwise directed by the Committee, be sold and the proceeds shall be invested in Stock. 7.06 PARTICIPANT RIGHTS CONCERNING STOCK (a) PARTICIPANTS' RIGHT TO INSTRUCT VOTING. Effective September 7, 1989, all voting rights on Stock held in the Plan shall be exercised by the Trustee as and to the extent directed by the Participants acting in their capacity as "Named Fiduciaries" (as defined in ERISA section 402) with respect to allocated and unallocated shares in accordance with the following provisions: (1) Timely Receipt of Instructions Required. As soon as practicable before each annual or special shareholders' meeting of FHP International Corporation, the Trustee shall furnish to each Participant a copy of the proxy solicitation materials sent generally to shareholders, together with a form requesting confidential directions on how Stock allocated to such Participant's Accounts and a proportionate share of any unallocated shares (including fractional shares to 1/1000th of a share) are to be voted. The Company and the Committee will cooperate with the Trustee to ensure that Participants receive the requisite information in a timely manner. Upon timely receipt of such voting directions, the Trustee (after combining votes of fractional shares to give effect to the greatest extent to Participants' directions) shall vote the shares as directed. The voting directions received by the Trustee from Participants or Beneficiaries shall be held by the Trustee in strict confidence and shall not be divulged or released to any person, except as may be necessary to facilitate the tabulation of such voting directions. (2) VOTING OF ALLOCATED SHARES. Each Participant shall be entitled to direct the voting of Stock (including fractional shares to 1/1000th of a share) allocated to his Accounts. With respect to all corporate matters submitted to shareholders, Stock allocated to the Accounts of Participants shall be voted in accordance with the directions of such Participants, as Named Fiduciaries, as to the Trustee. With respect to Stock allocated to a deceased Participant, such Participant's Beneficiary, as Named Fiduciary, shall be entitled to direct the voting with respect to such allocated shares as if such Beneficiary were the Participant. Any allocated shares of Stock with respect to which no directions are received shall be voted by the Trustee in the same manner as provided in subsection (3) below for unallocated shares. (3) VOTING OF UNALLOCATED SHARES. Each Participant shall, as a Named Fiduciary, also be entitled to direct the Trustee to vote a portion of the unallocated shares of Stock with respect to all corporate matters submitted to shareholders. Such direction shall apply to a number of votes equal to the total number of votes attributable to unallocated Stock multiplied by a fraction, the numerator of which is the number of votes attributable to Stock allocated to the Participant's Accounts, and the denominator of which is the total number of votes attributable to Stock allocated to the Accounts of Participants who have provided directions to the Trustee under this Section. Fractional shares shall be rounded to the nearest 1/1000th of a share. 7.07 SALE OF STOCK Subject to the rights of Participants in a tender offer as described in Section 7.08, the Committee may direct the Trustee to sell shares of Stock to any person, including FHP International Corporation or the Company, provided that any sale to FHP International Corporation or the Company or any other "disqualified person" within the meaning of Code section 4975 or "party in interest" within the meaning of ERISA section 3(14) is made at a price which is not less than adequate consideration as defined in ERISA section 3(18) and that no commission is charged with respect to the sale. If the Trustee is unable to make payments of principal or interest on an Exempt Loan when due, the Committee may direct the Trustee, unless prohibited by the Code or ERISA, to sell any shares of Stock not yet released from the ESOP Suspense Subfund and to apply the proceeds to such Exempt Loan payment, or to obtain another Exempt Loan in an amount sufficient to make such payment. This Section is effective September 7, 1989. 7.08 TENDERS AND EXCHANGES OF STOCK (a) PARTICIPANTS' RIGHT TO INSTRUCT TENDER. Effective September 7, 1989, all tender or exchange decisions with respect to Stock held in the Plan shall be made by the Participants acting in their capacity as Named Fiduciaries with respect to both allocated and unallocated shares in accordance with the following provisions: (1) TIMELY RECEIPT OF INSTRUCTIONS REQUIRED. In the event an offer is received by the Trustee (including a tender offer for Stock subject to Section 14(d)(1) of the Securities Exchange Act of 1934 ("Exchange Act") or subject to Rule 13e-4 promulgated under the Exchange Act, as those provisions may from time to time be amended) to sell or exchange any Stock held by the Trust, the Trustee shall advise each Participant who has Stock allocated to his Accounts in writing of the terms of the offer as soon as practicable and shall furnish each Participant with a form by which he may direct the Trustee confidentially whether to tender or exchange shares of Stock allocated to his Accounts and a proportionate share of any unallocated shares (including fractional shares to 1/1000th of a share). The materials furnished to each Participant shall include such related documents as are prepared by any person and provided to the shareholders of FHP International Corporation pursuant to the Exchange Act. The Committee and the Trustee may also provide Participants with such other materials concerning the offer as the Trustee or the Committee in its discretion determines to be appropriate; provided, however, that prior to any distribution of materials by the Committee, the Trustee shall be furnished with sufficient numbers of complete copies of all such materials. The Company and the Committee will cooperate with the Trustee to ensure that Participants receive the requisite information in a timely manner. Upon timely receipt of such tender directions, the Trustee (after combining fractional shares to give effect to the greatest extent to Participants' directions) shall tender the shares as directed. (2) ALLOCATED SHARES. The Trustee shall tender or not tender shares of Stock allocated to the Accounts of any Participant (including fractional shares to 1/1000th of a share) as and to the extent instructed by the Participant as a Named Fiduciary. With respect to Stock allocated to the Accounts of a deceased Participant, such Participant's Beneficiary, as a Named Fiduciary, shall be entitled to direct the Trustee whether to tender such shares as if such Beneficiary were the Participant. The instructions received by the Trustee from Participants or Beneficiaries shall be held by the Trustee in strict confidence and shall not be divulged or released to any person, including directors, officers of employees of FHP International Corporation or the Company, except as otherwise required by law. Any allocated shares of Stock with respect to which no directions are received shall be treated in the same manner as provided in subsection (3) below for unallocated shares. (3) UNALLOCATED SHARES. Each Participant shall, as a Named Fiduciary, also be entitled to direct the Trustee with respect to the tender of a portion of the unallocated shares of Stock. Such direction shall apply to such number of unallocated shares multiplied by a fraction, the numerator of which is the number of shares of Stock allocated to the Participant's Accounts, and the denominator of which is the total number of shares of Stock allocated to the Accounts of Participants who have provided directions to the Trustee under this Section. Fractional shares shall be rounded to the nearest 1/1000th of a share. (4) WITHDRAWAL OF TENDER. In the event, under the terms of a tender offer or otherwise, any Stock tendered for sale or exchange may be withdrawn from such offer, the Trustee shall follow any instructions respecting the withdrawal of such Stock from such offer in the same manner and the same proportion as shall be timely received by the Trustee from the Participants, as Named Fiduciaries, entitled under this Section 7.08 to give instructions regarding the sale or exchange of such shares. (5) RIGHT TO TENDER ON PRO RATA BASIS. In the event the Trustee receives an offer to tender for sale or exchange less than all of the Stock held by the Trust (allocated and unallocated), each Participant who has been allocated Stock subject to such offer shall be entitled to direct the Trustee as provided in Sections 7.08(a)(1), (2) and (3). Shares will be tendered first from the Accounts of Participants who timely instruct the Trustee to tender and then, to the extent additional shares are directed to be tendered, from unallocated shares of Stock and then from allocated shares of Stock for which no direction is received. (6) SIMULTANEOUS TENDER OFFERS. In the event an offer is received by the Trustee and instructions are solicited from Participants pursuant to Section 7.08(a) regarding such offer, and prior to the termination of such offer a second offer is received by the Trustee for the Stock subject to the first offer, the Trustee shall use its best efforts under the circumstances to solicit instructions from the Participants (i) with respect to shares tendered for sale or exchange pursuant to the first offer, whether to withdraw such shares, if possible, and, if withdrawn, whether to tender such shares for sale or exchange pursuant to the second offer and (ii) with respect to shares not tendered for sale or exchange pursuant to the first offer, whether to tender such shares for sale or exchange pursuant to the second offer. The Trustee shall follow all such instructions received in a timely manner from Participants in the same manner and in the same proportion as provided in this Section 7.08(a). With respect to any such subsequent offer for Stock subject to an earlier offer (including successive offers from one or more existing offerors), the Trustee shall act in the manner as described in the above provisions of this Section 7.08. (b) TENDER IS NOT A WITHDRAWAL. A Participant's instruction to the Trustee to tender for sale or exchange shares of Stock will not be deemed a withdrawal or suspension from the Plan or a forfeiture of any portion of the Participant's interest in the Plan. Funds received in exchange for tendered shares will be credited to the Accounts of Participants whose shares were tendered and will be used by the Trustee to reinvest in Stock, if available, and if not, in such other investments as permitted under the trust agreement established under Article XV. (c) TRUSTEE TO TAKE ALL NECESSARY ACTION. The Trustee shall take all steps necessary, including appointment of a corporate trustee and/or an outside independent administrator, to the extent such action, after consultation with the Committee, is deemed necessary to maintain confidentiality of the Participants' responses or to discharge adequately its fiduciary obligations. (d) TRUSTEE MAY OPT FOR NO PARTICIPATION IN SELF TENDER. Subject to the provisions of the trust agreement, in the event FHP International Corporation or the Company initiates an offer described in Section 7.08(a)(1), FHP International Corporation, the Company or the Committee may direct the Trustee not to tender for sale or exchange any Stock in such offer. In such event, the foregoing provisions of this Section 7.08 shall have no effect, and the Trustee shall not tender for sale or exchange any Stock (allocated or unallocated) in such offer. 7.09 VALUATION OF STOCK When it becomes necessary to value Stock held by the Plan, the value shall be the current fair market value of the Stock, determined in accordance with applicable legal requirements. If the Stock is publicly traded, its fair market value shall, except as otherwise required by the standards applicable to prudent fiduciaries, be based on the most recent closing price in such public trading, as reported IN THE WALL STREET JOURNAL or such other publication of general circulation as may be designated by the Committee. If the Stock cannot be so valued on the basis of its closing price in recent public trading, its fair market value shall be determined by the Trustee in good faith based on all relevant factors for determining the fair market value of securities, including an independent appraisal by a person who customarily makes such appraisals, if such an appraisal of the fair market value of the Stock as of the relevant date has been obtained. In the case of a transaction between the Plan and an Employer or another party in interest, the fair market value of the Stock must be determined as of the date of the transaction rather than as of some other Valuation Date occurring before or after the transaction. In other cases, the fair market value of the Stock shall be determined as of the most recent Valuation Date. 7.10 PLAN MAY BORROW TO BUY STOCK The Company may direct the Trustee to incur debt obligations in order to finance or refinance the acquisition of Stock for the Trust Fund. Any such direction must specify all of the terms and conditions of an Exempt Loan and any other documents which are to be executed in connection with the Exempt Loan. The Trustee will have no responsibility to determine whether the debt obligation is an Exempt Loan. The Trustee will have no authority to modify the terms, conditions, or documents of an Exempt Loan and will only be responsible for executing the documents on behalf of the Plan. Any Exempt Loan will be incurred only if it is primarily for the benefit of the Participants and their Beneficiaries. The Exempt Loan must not require the use of Plan assets other than those described in this Section 7.10. The Exempt Loan must be at least as favorable to the Plan as the terms of a comparable loan resulting from an arm's length negotiation between independent parties. The Trustee will not be responsible or liable for inquiring into the purpose of an Exempt Loan nor will it be responsible for determining the various limitations described in this document are met. All Exempt Loans must bear a reasonable rate of interest and must be for a specific term. Such loans may not be payable at the demand of any person, except in the case of default. Loan repayment will be made by the Trustee at the direction of the Company. The payments must not exceed the amount of Employer Contributions in the current or prior Plan Years and the earnings on such contributions. Any Exempt Loan must be without recourse to the Plan. In the event of default on an Exempt Loan, the value of Trust assets which may be transferred in satisfaction of the loan will not exceed the amount of the default. The Trust assets which may be pledged as collateral for an Exempt Loan are limited to the Stock acquired with the proceeds of the loan or a prior loan which is repaid with the proceeds of the Exempt Loan. In addition, the only Trust assets a lender may have any rights to are: (a) the collateral given for the loan; (b) cash contributions made to the Plan for the ultimate purpose of making loan payments; and (c) earnings attributable to the collateral or to cash contributions. With respect to Stock purchased with the proceeds of an Exempt Loan, the protections stated in Sections 7.11 and 11.03 are non-terminable, notwithstanding the fact that the Exempt Loan is repaid or the Plan ceases to be an employee stock ownership plan. 7.11 USE OF EXEMPT LOAN PROCEEDS The proceeds of an Exempt Loan must be used within a reasonable time after receipt by the Plan only for any or all of the following purposes: (a) to acquire Stock; (b) to repay an Exempt Loan; (c) to repay a prior Exempt Loan in a transaction creating a Substitute Loan, as described in Section 5.02(a). Except as provided in Section 11.04 or as otherwise required by applicable law, no Stock acquired with the proceeds of an Exempt Loan may be subject to a put, call, or other option or buy-sell or similar arrangement while held by and when distributed from the Plan. This provision continues to be apply to Stock even if the Plan ceases to be an employee stock ownership plan under Section 4975(e)(7) of the Code or if the PAYSOP portion of the Plan ceases to be a tax credit employee stock ownership plan under Code Section 409. 7.12 ALLOCATION OF STOCK DIVIDENDS AND SPLITS (a) Stock received by the Trust as a result of a Stock split or Stock dividend on Stock held in Participant's Employer Contribution Accounts will be allocated as of the Valuation Date coincident with or following the date of such split or dividend, to each Participant who has an Employer Contribution Account on such date. The amount allocated will bear substantially the same proportion to the total number of shares received as the number of shares in the Participant's Employer Contribution Account immediately before the allocation bears to the total number of shares allocated to such Accounts of all Participants immediately before the allocation. The shares will be allocated to the nearest one thousandth of a share. (b) Stock received by the Trust as a result of a Stock split or Stock dividend on Stock held in Participant's Pretax Deferral Accounts and Rollover Accounts will be allocated as of the Valuation Date coincident with or following the date of such split or dividend, to each Participant who has a Pretax Deferral and/or Rollover Account. The amount allocated will bear substantially the same proportion to the total number of shares received as the number of shares in the Participant's Pretax Deferral Account and/or Rollover Account bears to the total number of shares allocated to such Accounts of all Participants immediately before the allocation. The shares will be allocated to the nearest one thousandth of a share. (c) Stock received by the Trust as a result of a Stock dividend on Stock held in the ESOP Suspense Subfund shall be governed by Section 7.13. 7.13 REINVESTMENT OF DIVIDENDS Upon direction of the Committee, (a) cash dividends may be reinvested as soon as practicable by the Trustee in shares of Stock for Participant's Accounts, (b) stock dividends may be allocated to Participant's Accounts, or (c), if cash or stock dividends are paid on shares held in the ESOP Suspense Subfund they may be applied to retire an Exempt Loan. Cash dividends may be reinvested in Stock purchased as provided in Section 7.04 or purchased from the Accounts of Participants who receive cash distributions. Notwithstanding the foregoing, upon the direction of the Committee, the trustee may use cash or stock dividends on stock held in the ESOP Fund to add to the Reserve Fund. At the direction of the Committee, stock dividends may be sold and the proceeds used for the purposes set forth above. 7.14 ALLOCATION OF DIVIDENDS OTHER THAN STOCK DIVIDENDS At the direction of the Committee, dividends in cash or in property other than Stock which are actually received by the Trust during a Plan Year may be applied by the Trustee to the purchase of Stock, as provided in Section 7.13. Dividends in property other than Stock which are received by the Trustee in respect of Stock held by the Trust shall, to the extent practicable, be sold or exchanged for the ultimate purpose of acquiring additional Stock. Stock released from the ESOP Suspense subfund due to the use of dividends to make payments on an Exempt Loan will be allocated pursuant to Section 5.03(b). Stock purchased by the Trustee for the Trust out of dividends and out of the proceeds of rights or warrants sold (or exercised, to the extent of the bargain element if such exercise is made with Employer Contributions) will be allocated, as of the Valuation Date coincident with or following the date such shares were purchased, to the Account of each Participant who has an Account on such Valuation Date. (a) Stock purchased with dividends on Stock held in Participants' Employer Contribution Accounts will be allocated to each Participant's Employer Contribution Account. (b) Stock purchased with dividends on Stock held in Participants' PAYSOP Accounts will be allocated to each Participant's PAYSOP Account. (c) Stock purchased with dividends on Stock held in Participants' Pretax Deferral Accounts and Rollover Accounts will be allocated to each Participant's Pretax Deferral Account and Rollover Account. Shares allocated to an Account under subsections (a), (b) or (c) above will be allocated in an amount which bears substantially the same proportion to the total number of shares purchased as the ratio that the number of shares in such Account on the Valuation Date immediately preceding such purchase bears to the total number of shares that were allocated to such Accounts of all Participants on such preceding Valuation Date (disregarding the shares that were distributed to Participants as of such preceding Valuation Date). Shares allocated under this Section will be allocated to the nearest one thousandth of a share. 7.15 RESERVE FUND The portion of the ESOP Fund not invested in Stock is referred to as the Reserve Fund. The Reserve Fund will normally be held in cash and short-term, liquid assets except to the extent that special circumstances, such as the lack of a market for assets received in kind, prevent the conversion of assets to such form. The Reserve Fund will also be limited to the amount needed to meet current requirements of the Plan to make cash distributions provided under Article XI, to pay expenses to the extent permissible under Section 12.11, and to exercise rights under Section 7.05. In the case of cash distributions, the Reserve Fund may be used to make purchases of Stock from the Accounts of the Participants receiving such distributions. As the Company and the Trustee shall agree, the amount to be maintained in such cash Reserve Fund shall be determined by the Company and communicated to the Trustee in writing. As of each Valuation Date, the Committee will determine the net gain or loss, after adjustment for applicable expenses, if any, in the Reserve Fund since the immediately preceding Valuation Date. The net gain or loss of the Reserve Fund will be apportioned to each Participant's Employer Contribution Account. The apportionment will be in the same proportion as the following for the Participant bears to the total of the following for all Participants: (a) The balance of the Participant's Employer Contribution Account as of the immediately preceding Valuation Date, determined after allocation as of such Valuation Date of Employer Contributions and the net gain or loss of the Reserve Fund; (b) A reduction to reflect any transfers from the Participant's Employer Contribution Account, pursuant to Section 7.16, which were made effective after the allocation of net gain or loss of the Reserve Fund as of the immediately preceding Valuation Date; and (c) A reduction for any distributions paid from the Employer Contribution Account after the allocation of net gain or loss of the Reserve Fund as of the immediately preceding Valuation Date. The result of this allocation of net gain or loss of the Reserve Fund may be expressed in dollars and cents, or shares and fractional shares of Stock having the same value as such dollars and cents on the date as of which the allocation is made. However, conversion to full and fractional shares of Stock will be made only to the extent necessary to reflect anticipated purchases from the Reserve Fund of Stock allocated to the Accounts of Participants who are to receive cash distributions as of the Valuation Date in question. 7.16 SPECIAL INVESTMENT ELECTION BY QUALIFIED PARTICIPANTS (a) Each Participant who has attained age fifty-five and has been a Participant for at least ten years may direct the investment of a portion of the value of his Employer Contribution Account and PAYSOP Account into the Investment Funds described in Section 7.01. (b) Investment direction is available during the ninety day period following the last day of each of the five Plan Years immediately following the Plan Year in which the Participant first meets both of the eligibility requirements of Subsection (a) above. (c) The portion of the Participant's Employer Contribution Account and PAYSOP Account subject to his direction is twenty-five percent of the value of such Accounts as of the last day of the Plan Year to which the direction applies. The twenty-five percent limit is reduced to reflect any investment directions pursuant to this Section 7.16 in a previous Plan Year. In the last period during which a Participant may direct investments pursuant to this Section 7.16, the limit on the amount of such Accounts which are subject to his direction will be increased to fifty percent. (d) A Participant's investment direction under this Section 7.16 must be provided to the Committee in writing within the applicable ninety day period. The investment direction must specify the portion of the Participant's Employer Contribution Account and/or PAYSOP Account, which will be invested in the Investment Funds, in a fixed whole percent, and the Investment Funds in which such portion will be invested. The investment direction will be effective no later than one hundred eighty days after the last day of the Plan Year to which the direction applies. ARTICLE VIII WITHDRAWALS AND LOANS 8.01 POST AGE 59-1/2 WITHDRAWALS A Participant who has attained age 59-1/2 may withdraw up to one hundred percent of the value of his Pretax Deferral Account, determined as of the most recent Valuation Date (a) which precedes the date the withdrawal request is received by the Committee on a written form prescribed by the Committee, and (b) for which the allocation process described in Section 7.03 has been completed. A Participant may not withdraw from his Employer Contribution Account or PAYSOP Account except as provided in Articles IX, X, and XI. 8.02 FINANCIAL HARDSHIP WITHDRAWALS A Participant who has a financial hardship may withdraw up to one hundred percent of the value of his Pretax Deferral Account, determined as of the most recent Valuation Date (a) which precedes the date the withdrawal request is received by the Committee on a written form prescribed by the Committee, and (b) for which the allocation process described in Section 7.03 has been completed. (a) A withdrawal must be on account of a hardship. Effective April 1, 1989, a withdrawal will be deemed to be on account of a hardship if: (i) The distribution is for the purpose of: (A) paying medical expenses described in Code Section 213(d) incurred by the Participant, his spouse or his dependents; (B) purchasing the Participant's principal residence (excluding mortgage payments); (C) paying tuition for the next semester or quarter of post-secondary education for the Participant, his spouse or his dependents; (D) preventing the Participant's eviction from his principal residence or foreclosure on the mortgage on the Participant's principal residence; or (E) any other purpose specified by the Internal Revenue Service as a deemed immediate and heavy financial need; and (ii) All of the following are satisfied: (A) the distribution is not in excess of the amount of the financial need; (B) the Participant has obtained all distributions, other than hardship withdrawals, and all nontaxable loans under the Plan or any other plan maintained by an Affiliate; (C) the Participant does not make Pretax Deferrals to this Plan or any other plan maintained by an Affiliate for at least twelve months after he receives the hardship distribution; and (D) the Participant's Pretax Deferrals made in the calendar year immediately following the calendar year in which the withdrawal occurs do not exceed the limitation of Code Section 402(g) (as adjusted) for such calendar year, less the Participant's Pretax Deferrals made in the calendar year in which the withdrawal was received. The Committee will determine whether the Participant has met the requirements of Subsections (i) and (ii) above. (iii) The amount to be withdrawn may not exceed the smaller of the total value, determined under this Section 8.02, of the Participant's Pretax Deferral Account and the amount necessary to meet the Participant's financial hardship. Effective January 1, 1989, a Participant may not withdraw any earnings credited to his Pretax Deferral Account on and after such date. 8.03 WITHDRAWALS FROM ROLLOVER ACCOUNT At any time a Participant may withdraw up to one hundred percent of the value of his Rollover Account, determined as of the most recent Valuation Date (a) which precedes the date the withdrawal request is received by the Committee on a written form prescribed by the Committee, and (b) for which the allocation process described in Section 7.03 has been completed. 8.04 AMOUNT AND PAYMENT OF WITHDRAWALS Application for a withdrawal shall be made on such forms as the Committee prescribes. Payment will be made to the Participant as soon as administratively possible following the date the Committee receives and approves the withdrawal request from the Participant. The amount of such withdrawal shall be taken from the Participant's Account(s) at such time and paid to the Participant in a single sum. A Participant may not make more than two withdrawals under the Plan in any Plan Year. No withdrawal under this Article VIII shall cause forfeiture of any interests of the Participant in the Plan. 8.05 LOANS TO PARTICIPANTS A Participant who is actively employed by an Affiliate may borrow from his Pretax Deferral Account and Rollover Account in accordance with the terms and conditions for loans established by the Committee. Such terms and conditions include, but are not limited to, the following: (a) A Participant may have no more than one loan from this Plan outstanding at any time. (b) The Participant must apply for the loan, sign a note payable to the Trustee in the proper amount on a form prescribed by the Committee, and authorize payroll deductions for payment of interest and principal, all in accordance with procedures adopted by the Committee. Any loan processing fees (charged by a person other than the Employer) shall be deducted from the principal amount available to the Participant. (c) The period of repayment for any loan shall be arrived at by mutual agreement between the Committee and the Participant. However, the period of repayment, including any extensions resulting from the consolidation of a loan into a subsequent loan, shall not extend beyond the earlier of five years or the date such Participant terminates employment with the Employer. The five year limit shall not apply to any portion of the loan used to acquire the Participant's principal place of residence. (d) The amount of the loan must be at least $1,000, but may not exceed the lesser of. (i) $50,000 reduced by (A) the Participant's current outstanding loan balance under all plans qualified under Code Section 401(a) and maintained by an Affiliate, and (B) the excess of the Participant's highest outstanding loan balance under such plans during the twelve months preceding the date of the loan over the Participant's current outstanding loan balance under such plans; or (ii) 50% of the vested portion of the Participant's Pretax Deferred Account under this Plan valued on the Applicable Valuation Date immediately before the date the request for a loan is received. "Applicable Valuation Date" means the most recent Valuation Date (A) which precedes the date the loan request is received by the Committee on a written form prescribed by the Committee, and (B) for which the allocation process described in Section 7.03 has been completed. (e) All loans shall bear an interest rate equal to two percentage points above the published prime lending rate of Bank of America N.T.& S.A on the last business day of the month preceding the month in which the request for a loan is received, provided, however, that no loan shall bear a rate of interest which exceeds the maximum rate permitted by law. The interest rate so determined shall be fixed for the term of the loan. (f) The Committee shall establish a loan account for the Participant, and shall credit the loan account with an amount equal to the principal amount of the loan granted. The principal amount shall be withdrawn from Investment Funds according to rules established by the Committee. Each repayment of principal on the loan received by the Trustee from the Participant shall reduce the balance credited to the loan account and each payment of principal and interest shall increase pro-rata the amount invested in each Investment Fund according to rules established by the Committee. (g) Repayment shall be accomplished through regular payroll deductions. The Committee may restrict loan amounts if withholdings of principal and interest would exceed twenty percent of Compensation in each payroll period. A Participant shall be entitled to prepay, without penalty, the total accrued interest and outstanding principal amount of the loan. Such prepayment may be made by increasing the amount of his payroll deductions or by any other means. (h) If a Participant terminates employment with all Affiliates, incurs a Permanent and Total Disability or undergoes bankruptcy prior to his repayment of the total principal and interest on a note held by his loan account, the note in the Participant's Account shall be cancelled and the unpaid principal balance deemed distributed to him by the Trust Fund. (i) The foregoing provisions of this Section 8.05 notwithstanding, the Committee reserves the right to stop granting loans to Participants at any time. 8.06 DEBITING OF INVESTMENT FUNDS If a Participant elects to withdraw less than the total value of any Account, or elects to borrow less than the total value of any Account, and the Account is invested in more than one Investment Fund, the withdrawal or loan will be made from each of the Investment Funds according to rules established by the Committee. ARTICLE IX RETIREMENT, DISABILITY AND DEATH BENEFITS 9.01 RETIREMENT BENEFITS The retirement benefit payable under the Plan in the case of a Participant whose employment with all Affiliates terminates on or after he attains Normal Retirement Age is one hundred percent of the value of his Accounts on his Distribution Date. The Participant's Distribution Date is the Valuation Date coincident with or immediately following the date the terminated Participant's request for a distribution on a written form prescribed by the Committee is received by the Committee. 9.02 DISABILITY BENEFITS The disability benefit payable under the Plan in the case of a Participant whose employment with all Affiliates terminates because he is Permanently and Totally Disabled is one hundred percent of the value of his Accounts on his Distribution Date. The Participant's Distribution Date is the Valuation Date coinciding with or immediately following the date the Permanently and Totally Disabled Participant's request for a distribution on a written form prescribed by the Committee is received by the Committee. 9.03 DEATH BENEFITS The death benefit payable to a Beneficiary under the Plan in the case of a Participant whose employment with an Affiliate terminates due to his death (or who dies after termination of employment under Sections 9.01 and 9.02, but before his Distribution Date under such Sections) is one hundred percent of the value of his Accounts on the Distribution Date. The Distribution Date with respect to such Participant is the Valuation Date coincident with or immediately following the date the request for a distribution by the deceased Participant's Beneficiary (or if no Beneficiary has been designated, the representative of his estate) is received by the Committee on a written form prescribed by the Committee. ARTICLE X TERMINATION BENEFITS AND VESTING REQUIREMENTS 10.01 BENEFIT PAYABLE The benefit payable under the Plan in the case of a Participant whose employment with all Affiliates terminates for any reason other than because he became Permanently and Totally Disabled, died, or retired on or after his Normal Retirement Age is the vested portion (determined pursuant to Section 10.02) of the value of his Accounts on his Distribution Date. The Participant's Distribution Date is the Valuation Date coincident with or immediately following the date the terminated Participant's request for a distribution on a written form prescribed by the Committee is received by the Committee. 10.02 VESTING REQUIREMENTS (a) The vested portion of a Participant's PAYSOP Account, Pretax Deferral Account, and Rollover Account is always one hundred percent. (b) The vested portion of a Participant's Employer contribution Account is based on his Service as of the date his employment terminates, as follows: (i) With respect to a Participant who terminates employment on or after July 1, 1989 and before July 1, 1990: Years of Service Vested Portion ---------------- -------------- Less than 1 year 0% 1 but less than 2 10% 2 but less than 3 20% 3 but less than 4 30% 4 but less than 5 40% 5 but less than 6 60% 6 but less than 7 80% 7 or more years 100% (ii) With respect to a Participant who terminates employment on or after July 1, 1990 and who was hired before July 1, 1990: Years of Service Vested Portion ---------------- -------------- Less than 1 year 0% 1 but less than 2 10% 2 but less than 3 20% 3 but less than 4 30% 4 but less than 5 40% 5 or more years 100% (iii) With respect to a Participant who terminates employment after July 1, 1990 and who was first hired on or after July 1, 1990: Years of Service Vested Portion ---------------- -------------- Less than 5 years 0% 5 or more years 100% (c) Notwithstanding the provisions of Subsection (b) above, when a Participant reaches his Normal Retirement Age, (as defined in Section 1.25) his vested portion in his Accounts is always one hundred percent. 10.03 EFFECT OF TERMINATION OF EMPLOYMENT; PERIOD OF SEVERANCE AND REEMPLOYMENT (a) If a Participant terminates employment when he is not one hundred percent vested in his Employer Contribution Account, the non-vested portion of his Employer Contribution Account is forfeited on the date of termination. If the Participant is reemployed before the date on which he incurs a five year Period of Severance, the portion of his Employer Contribution Account which was forfeited is reinstated as of the date he is reemployed. If the Participant later terminates employment before he is one hundred percent vested in his Employer Contribution Account, the vested portion of such Account will not be determined under Section 10.02(b). Instead, such vested portion will be determined by multiplying the appropriate vested portion from Section 10.02(b) times the sum of (i) plus (ii) and then subtracting (ii) from the result. For this purpose: (i) is the value of (and/or the number of shares in) the Participant's Employer Contribution Account as of the Valuation Date coinciding with or immediately following his most recent termination of employment; and (ii) is the amount (and/or the number of shares) previously distributed to the Participant due to his prior termination of employment. (b) If a Participant terminates employment when he is not one hundred percent vested in his Employer Contribution Account and is reemployed after incurring a five year Period of Severance, the portion of his Employer Contribution Account that was forfeited as a result of his termination of employment will not be reinstated. 10.04 DISPOSITION OF FORFEITURES All amounts forfeited under any provisions of this Plan are first applied to reinstate forfeited amounts of other Participants pursuant to Section 10.03(a). Any remaining forfeitures are used to reduce the Employer Contributions required pursuant to Sections 3.03 and 3.04 for the Plan Year in which they arc forfeited. Forfeitures are first charged against the portion of a Participant's Employer Contribution Account not invested in Stock, with any balance charged against the remainder of his Employer Contribution Account (at the fair market value of Stock). Financed Shares are forfeited only after all other amounts in a Participant's Accounts have been forfeited. ARTICLE XI DISTRIBUTION OF BENEFITS 11.01 FORM OF BENEFITS FOR RETIREMENT AND OTHER TERMINATION Amounts distributable pursuant to Articles IX and X are distributed, at the Participant's or, if applicable, Beneficiary's election, in one of the following forms: (a) A single sum payment in cash of the value of his benefit as of his Distribution Date; or (b) A single sum distribution consisting of the whole shares of Stock held in his Accounts as of his Distribution Date and a single sum payment in each of the value of the remaining portion of his benefit as of his Distribution Date. A Participant's or Beneficiary's election may not be changed or revoked following his Distribution Date. 11.02 TIMING OF DISTRIBUTIONS (a) Notwithstanding the provisions of Articles IX and X, if a Participant's employment terminates for any reason and the value of the vested portion of his Accounts on the Valuation Date coinciding with or immediately following the date he terminates employment does not exceed $3,500, his Distribution Date is the Valuation Date coinciding with or immediately following the date he terminates employment. Except as provided in Section 11.04, if a Participant who is otherwise entitled to elect a Distribution Date does not make an election in the manner established by the Committee, his Distribution Date is the Valuation Date coinciding with or immediately following the date he reaches age sixty-five. (b) Distributions under the Plan pursuant to Articles IX, X and XI are made as soon as practicable following the applicable Distribution Date but in no event later than sixty days after the end of the Plan Year in which the Participant reaches age sixty-five, reaches the tenth anniversary of the date he began participation in the Plan, or terminates employment, whichever is latest. With respect to a Participant who attained age seventy and one-half before January 1, 1988, his entire interest in this Plan will be distributed by the April 1 following the later of the calendar year in which the Participant attains age 70-1/2 or the calendar year in which he retires. In addition, the entire interest of a Participant in this Plan who attains age seventy and one-half after December 31, 1987 will be distributed not later than April 1 following the later of the calendar year in which the Participant attains age seventy and one-half or December 31, 1989. After a Participant's entire interest under the Plan has been distributed under the preceding sentences, his Account balances under the Plan as of the last day of each Plan Year thereafter will be distributed to him as soon as practicable after such Plan Year. Effective for payments made on or after January 1, 1993 to Participants who have attained age 70-1/2, the Participant shall be allowed to elect that the minimum amount required to be distributed under Code Section 401(a)(9) be distributed in lieu of the distribution of his entire interest as described above. (c) If a Participant terminates employment before his Normal Retirement Age and elects pursuant to Section 10.01(c) to have his Distribution Date be the Valuation Date coinciding with or immediately following the date he reaches age 65, he shall continue to be allowed to direct the investment of his Pre-tax Deferral Account and Rollover Account according to the terms of this Plan until such Accounts are distributed or forfeited. (d) No shares of Stock allocated to a Participant's PAYSOP Account may be distributed to the Participant before the end of the eighty-fourth month beginning after the Valuation Date as of which such shares of Stock were allocated to his PAYSOP Account. This restriction will not apply if the distribution is: (i) due to the Participant's retirement, Permanent and Total Disability, death or other termination of employment with all Affiliates; (ii) due to a corporate reorganization described in Code Section 409(d)(2) and (3); (iii) due to Plan termination; or (iv) a distribution of cash dividends. 11.03 RIGHTS, OPTIONS AND RESTRICTIONS ON STOCK (a) If Stock is distributed from the Plan at a time when it is not readily tradable on an established public market, then the provisions of this Section apply. (b) Any shares of Stock distributed by the Trust are subject to a "right of first refusal". The right of first refusal must provide that, before any subsequent transfer, the shares must first be offered for purchase in writing to the Company, and then to the Trust, at the then fair market value. A bona fide written offer from an independent prospective buyer is deemed to be the fair market value of the Stock for this purpose. The Company and the Committee (on behalf of the Trust) have a total of fourteen days to exercise the right of first refusal on the same terms offered by a prospective buyer. The Company may require that a Participant entitled to a distribution of Stock execute an appropriate stock transfer agreement (evidencing the right of first refusal) before receiving a certificate for Stock. (c) The Company will issue a "put option" to any Participant who receives a distribution of Stock. The put option must permit the Participant to sell the distributed Stock to the Company at any time during two option periods, at the fair market value of the shares. The first put option period is for at least sixty days beginning on the date of distribution. The second put option period is for at least sixty days beginning after the new determination of the fair market value of Stock by the Committee (and notice to the Participant) in the following Plan Year. The put option must provide that if the Participant exercises the put option, the Company, or the Plan if the Plan so elects, will repurchase the Stock as follows: (i) If the distribution is a total distribution, payment of the fair market value of a Participant's Employer Contribution Account and PAYSOP Account will be made in five substantially equal annual payments. The first installment will be paid not later than thirty days after the Participant exercises the put option. The Plan will pay a reasonable rate of interest and provide adequate security on amounts not paid after thirty days. (ii) If the distribution is not a total distribution, the Plan will pay the Participant an amount equal to the fair market value of the Stock repurchased no later than thirty days after the Participant exercises the put option. (d) The rights and protections with regard to Stock acquired with the proceeds of an exempt loan, including the provisions of this Section 11.03, are not terminable should the exempt loan be paid or the Plan cease to qualify as an Employee Stock Ownership Plan under Code Section 4975. 11.04 SPECIAL DISTRIBUTION AND PAYMENT REQUIREMENTS (a) Notwithstanding any other provision of the Plan, other than the provision requiring the Participant's consent to a distribution in excess of $3,500, a Participant may elect to have his Employer Contribution Account and PAYSOP Account distributed as follows: (i) If the Participant terminates employment after attaining his Normal Retirement Age, or on account of his death, or Permanent and Total Disability, the distribution of such portion of the Participant's Employer Contribution Account and PAYSOP Account will begin not later than one year after the close of the Plan Year in which such event occurs unless the Participant elects otherwise under other provisions of this Plan. (ii) If the Participant separates from service for any reason other than those described in clause (i) above, and is not reemployed by the Employer at the end of the fifth Plan Year following the Plan Year in which he terminates employment, distribution of such portion of the Participant's Employer Contribution Account and PAYSOP Account will begin not later than one year after the close of the fifth Plan Year following the Plan Year in which the Participant terminates employment unless the Participant elects otherwise under other provisions of this Plan. (iii) If the Participant terminates employment for any reason other than those described in clause (i) above, and is reemployed by the Employer as of the last day of the fifth Plan Year following the Plan Year in which he terminates employment, distribution to the Participant, prior to any subsequent separation from service, shall be in accordance with terms of the Plan other than this Section 11.04. For purposes of this Section 11.04, Stock shall not include any Stock acquired with the proceeds of an Exempt Loan until the close of the Plan Year in which such loan is repaid in full. (b) Distributions required under this Section 11.04 shall be made in substantially equal annual payments over a period of five years unless the Participant otherwise elects under provisions of this Plan other than this Section 11.04. In no event shall such distribution period exceed the period permitted under Code Section 401(a)(9). (c) The portion of a Participant's Employer Contribution Account and PAYSOP Account attributable to Stock which was acquired by the Plan after December 31, 1986, shall be determined by multiplying the number of shares of such Stock held in the Employer Contribution Account and PAYSOP Account by a fraction, the numerator of which is the number of shares acquired by the Plan after December 31, 1986 and allocated to Participants' Employer Contribution Accounts and PAYSOP Accounts (not to exceed the number of shares held by the Plan on that date of distribution) and the denominator of which is the total number of such shares held by the Plan at the date of the distribution. ARTICLE XII COMMITTEE 12.01 APPOINTMENT OF COMMITTEE A Committee consisting of at least three members will be appointed by the Board to administer the Plan on behalf of the Company. A vacancy on the Committee which results from death, resignation or otherwise, will be filled from time to time by appointment of a new Committee member by the Board, and a member of the Committee may be removed at any time at the discretion of the Board. 12.02 MANNER OF ACTION A majority of the members of the Committee at the time in office will constitute a quorum for the transaction of business. All resolutions adopted, and other actions taken by the Committee at any meeting will be by the vote of a majority of those present at the meeting. Upon the unanimous written consent of the members at the time in office, action of the Committee may bc taken without a meeting. 12.03 CHAIRMAN, SECRETARY AND EMPLOYMENT OF SPECIALISTS The Company may appoint a Chairman of the Committee. The Committee will elect a Secretary who may, but need not, be a member of the Committee. They may authorize one or more of their number or any agent to execute or deliver any instrument or instruments on their behalf, and may employ such counsel, auditors, and other specialists and such clerical, medical, actuarial and other services as they may require in carrying out the provisions of the Plan. 12.04 SUBCOMMITTEES The Committee may appoint one or more subcommittees and delegate such of its power and duties as it deems desirable to any such subcommittee, in which case every reference in the Plan made to the Committee is deemed to mean or include the subcommittees as to matters within their jurisdiction. The members of any subcommittee will consist of such officers or other employees of the Company and such other persons as the Committee may appoint. 12.05 OTHER AGENTS The Committee may also appoint one or more persons or agents to aid it in carrying out its duties as Plan Administrator and Named Fiduciary, as defined in ERISA, and delegate such of its power and duties as it deems desirable to such persons or agents. 12.06 RECORDS All resolutions, proceedings, acts and determinations of the Committee shall be recorded by the Secretary thereof or under his supervision, and all such records, together with such documents and instruments as may be necessary for the administration of the Plan, shall be preserved in the custody of the Secretary. 12.07 POWERS AND DUTIES (a) The Committee has full power to administer the Plan and to construe and apply all of its provisions on behalf of the Company. The Company is the Plan Administrator. The Company is the Named Fiduciary within the meaning of ERISA Section 402(a). The Company and Committee may delegate to any other person or organizations any of its powers and duties with respect to the operation of this Plan. The Committee's powers and duties, unless properly delegated, include, but are not limited to: (i) Deciding questions relating to eligibility, continuity of Service and amount of benefits; (ii) Deciding disputes which may arise with regard to the rights of employees, Participants and their legal representatives or Beneficiaries under the terms of the Plan. Such decisions by the Committee shall be deemed final in each case; (iii) Obtaining such information from the Employer with respect to employees as shall be necessary to determine the rights and benefits of such employees under the Plan. The Committee may rely conclusively upon such information furnished by the Employer; (iv) Compiling and maintaining all records necessary for the Plan; (v) Furnishing the Employer, upon request, such reports with respect to the administration of the Plan as are reasonable and appropriate; (vi) Authorizing the Trustee to make payment of all benefits as they become payable under the Plan; (vii) Engaging such legal, administrative, actuarial, investment, accounting, consulting and other professional services as the Committee deems proper; (viii) Adopting rules and regulations for the administration of the Plan not inconsistent with the Plan; (ix) Doing and performing such other actions as may be provided for in other parts of this Plan; and (x) Allocating Stock to such appropriate Accounts as the Committee determines. 12.08 INTERESTED MEMBERS No Committee member shall participate in any action of the Committee on a matter in which such member has a specialized individual interest as a Participant in the Plan. Such matters shall be determined by a majority of the remainder of the members of the Committee. 12.09 INDEMNIFICATION The Company shall and does by the following items indemnity and hold the members of the Committee and each of them, harmless from the effects and consequences of their acts, omissions and conduct in their official capacities, except to the extent that the effects and consequences thereof shall result from their own willful misconduct, breach of good faith or gross negligence in the performance of their duties. The Company shall have the right, but not the obligation, to conduct the defense of such members in any proceeding to which this Section applies. The foregoing right of indemnification shall not be exclusive of other rights to which each such member may be entitled as a matter of law or by other indemnity coverage provided by the Company. The Company's obligations under this Section may be satisfied through purchase of a policy or policies of insurance providing equivalent protection. 12.10 CONCLUSIVENESS OF ACTION Any action on matters within the discretion of the Committee shall be conclusive, final and binding upon all Participants of the Plan and upon all persons claiming any rights hereunder including Beneficiaries. 12.11 PAYMENT OF EXPENSES The members of the Committee shall serve without compensation for services as such. However, the Company may reimburse such members for all necessary and proper expenses incurred in carrying out their duties under the Plan. The compensation or fees of accountants, counsel, employee benefit consultants, and other specialists and any other costs of administering the Plan or Trust, unless paid directly by the Company are paid from the Trust Fund and will be charged against Participants' Accounts. Investment costs and taxes that are paid from the Trust Fund are paid as follows. Brokerage commissions, transfer taxes, and other charges and expenses in connection with the purchase and sale of securities are added to the cost of such securities, as the case may be. There will be no commission on transactions with the Company or any other party in interest involving Stock. Taxes, if any, applicable to the Trust Fund which are payable by the Trustee will be charged against Participants' Accounts, other than any excise tax payable directly by the Trustee pursuant to Section 4975 of the Code. 12.12 CLAIMS PROCEDURE Benefits are provided from this Plan through procedures initiated by the Committee, and the Participant need not file a claim. However, if a Participant or Beneficiary believes he is entitled to a benefit, or a benefit different from the one he receives, then the Participant or Beneficiary may file a claim for the benefit by writing a letter to the Committee. If any claim for benefits under the Plan is wholly or partially denied, the claimant will be given a written notice of the denial within ninety days after the claim is received. However, if special circumstances require an extension of time, and written notice of the extension is furnished to the claimant, he will be given a written notice of the denial within one hundred and eighty days after the claim is received. Notice of the denial will state the following information: (a) The specific reason or reasons for the denial; (b) Specific reference to pertinent Plan provisions on which denial is based; (c) A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why the material or information is necessary; (d) An explanation that a full and fair review by the Committee of the decision denying the claim may be requested by the claimant or his authorized representative by filing with the Company, within sixty days after the claimant receives the denial, a written request for review; and (e) If a request for review is filed, the claimant or his authorized representative may review pertinent documents and submit issues and comments in writing within the same sixty day period specified in paragraph (d) above. The decision of the Committee upon review will be made by the Committee's delegate, will be made promptly, and not later than sixty days after the Committee's receipt of the request for review. However, if special circumstances require an extension of time for processing, the claimant will be so notified and a decision will be rendered as soon as possible, but not later than one hundred and twenty days after receipt of the request for review. If the claim is denied, wholly or in part, the claimant will be given a copy of the decision promptly. The decision will be in writing and will include specific reasons for the denial, specific references to the pertinent Plan provisions on which the denial is based and will be written in a manner calculated to be understood by the claimant. ARTICLE XIII AMENDMENT TO THE PLAN 13.01 RIGHT TO AMEND The Board, or the Committee if authorized by the Board, has the right to amend the Plan at any time and, from time to time, to any extent that IT deems advisable. No amendment will increase the duties or responsibilities of the Trustee without the Trustees written consent. No amendment may be made to this Plan which attempts to transfer any part of the corpus or income of the Trust Fund for purposes other than the exclusive benefit of Participants and their Beneficiaries. No amendment may deprive any Participant or Beneficiary of any benefits to which he is entitled under the Plan with respect to contributions previously made to the Plan. No amendment may eliminate or reduce an early retirement benefit or eliminate an optional form of distribution. ARTICLE XIV TERMINATION OF THE PLAN 14.01 RIGHT TO TERMINATE The Board has the right to terminate the Plan in whole or in part at any time. In the event of a termination, partial termination or complete discontinuation of contributions, each affected Participant will become one hundred percent vested in the value of all his Accounts. 14.02 CORPORATE REORGANIZATION In the event the Company is dissolved or liquidated or shall by appropriate legal proceedings be adjudged bankrupt, or in the event judicial proceedings of any kind result in the involuntary dissolution of the Company, the Plan shall be terminated. The merger, consolidation or reorganization of the Company, or the sale of the Company or of all or substantially all of its assets or stock, shall not terminate the Plan if there is delivery to the Company, by its successor or by the purchaser of all or substantially all of its stock or assets, a written instrument requesting that it bc substituted for the Company and agreeing to perform all the provisions hereof which the Company is required to perform hereunder. Upon the receipt of said instrument, with the approval of the Company, the successor or the purchaser shall be substituted for the Company herein, and the Company shall be relieved and released from all obligations of any kind, character or description herein or in any trust agreement. 14.03 PLAN MERGER AND CONSOLIDATION In the event that the Plan and Trust Fund merges or consolidates with, or transfers its assets or liabilities to, any other qualified plan of deferred compensation, no Participant herein shall, solely on account of such merger, consolidation or transfer, have an account balance on the day following such event which is less than his account balance on the day preceding such event. For the purpose of this Section, a Participant's account balance shall be calculated based upon the assumption that a plan termination and distribution of assets occurred on each of the above-mentioned days. In no event will this provision be construed to require full vesting upon a merger, consolidation, or transfer of assets unless the Plan is subsequently partially or wholly terminated or contributions are completely discontinued. ARTICLE XV TRUST AND THE TRUSTEE 15.01 BOARD TO SELECT TRUSTEE The Board will select a Trustee to hold and invest the Trust Fund in accordance with the terms of a trust agreement and/or other contract. The Trustee must be an individual or individuals, a bank or trust company incorporated under the laws of the United States or of any state and qualified to operate as a trustee, a legal reserve life insurance company, or a combination of such entities. The Board may, from time to time, change the Trustee then serving under the trust agreement and/or other contract to another Trustee or elect to terminate the trust and/or other contract and hold the Plan assets in any other method acceptable under ERISA. Any trust agreement and/or other contract are designated as and constitute a part of the Plan. Any rights which a person has under this Plan are subject to all of the terms and provisions of the trust agreement and/or other contract. ARTICLE XVI ADOPTION BY AFFILIATE 16.01 AFFILIATE PARTICIPATION An Affiliate may become a party to the Plan and Trust Agreement by adopting the Plan for the benefit of any specified group of its Employees, effective as of the date specified in such adoption: (a) By filing with the Company a certified copy of a resolution of its board of directors to that effect, and/or such other instruments as the Company may require; and (b) By the Company's filing with the then Trustee a copy of such resolution, together with a certified copy of resolutions of the Board approving such adoption. The Company may require an adopting Affiliate to execute an instrument of adoption in such form as is acceptable to the Company. Except as provided below, an Employee of an Affiliate shall earn Service only with respect to periods for which his employer is an Affiliate. Notwithstanding the above, to the extent explicitly provided by the Company in a stock or asset acquisition, merger or other similar transaction, an Employee of a Affiliate shall earn Service with respect to periods of employment with such Affiliate prior to the time it became an Affiliate. 16.02 ACTION BINDING ON PARTICIPATING AFFILIATES As long as the Company is party to the Plan and the Trust Agreement it shall be empowered to act thereunder for any Employer in all matters respecting the Committee and the Trustee and the designation of Affiliates, and any action taken by the Company with respect thereto shall automatically include and be binding upon any Employer which is a party to the Plan. 16.03 TERMINATION OF PARTICIPATION OF AFFILIATE The Company reserves the right, in its sole discretion and at any time, to terminate the participation in this Plan of any or all Affiliates. Such termination shall be effective immediately upon notice of such termination from the Company to the Trustee and the Affiliate being terminated. In event of such termination, this Plan shall not terminate, but the portion of the Plan attributable to the Affiliate shall become a separate Plan, and the Company shall inform the Trustee of the portion of the Trust Fund that is then attributable to the participation of such terminated Affiliate. Such portion shall as soon thereafter as is administratively feasible be set apart by the Trustee as a separate Trust which shall be part of the separate Plan of such terminated Affiliate. Thereafter the administration, control, and operation of the Plan with respect to such terminated Affiliate shall be on a separate basis (with the Affiliate assuming the functions assigned to the Company hereunder) in accordance with the terms hereof, or as such terms may be amended by appropriate action of such terminated Affiliate in accordance with the provisions of Article XIII. ARTICLE XVII TOP-HEAVY PROVISIONS 17.01 DEFINITIONS Wherever used in this Article XVII, the following words and phrases have the meaning specified below: (a) "Accumulated Account" means the total value of an employee's Accounts as of the Valuation Date which coincides with or immediately precedes the Determination Date. Accumulated Accounts includes: (i) amounts attributable to employee contributions (other than deductible employee contributions), (ii) amounts rolled over or transferred directly from a plan sponsored by an unrelated employer (within the meaning of Code Section 414(b), (c) or (m)), but only if received by the Plan before January 1, 1984. (iii) amounts rolled over or transferred directly from a plan sponsored by a related employer (within the meaning of Code Section 414(b), (c) or (m)), without regard to when received by the Plan, and (iv) distributions to the employee during the Plan Year which includes the Determination Date and the four immediately preceding Plan Years, unless already reflected in the employee's Accounts. The preceding sentence shall also apply to distributions under a terminated plan which, if it had not been terminated would have been required to be included in the Aggregation Group. Accumulated Accounts will not include any distribution rolled over or transferred directly to a related employer (within the meaning of Code Section 414(b), (c) or (m)). With respect to a Nonkey Employee who was Key Employee with respect to a plan in a prior year, Accumulated Accounts will not include any of the employee's Accounts. Accumulated Accounts will not include the Accounts of an employee who has not performed any service for the Employer during the five year period ending on the Determination Date. However, if the employee again performs services his Accounts will be included. (b) "Determination Date" means in any Plan Year the last day of the immediately preceding Plan Year. (c) "Key Employee" means at any given time an employee, a deceased employee, or the beneficiary of a deceased employee who during the current Plan Year or any of the four immediately preceding Plan Years is: (i) an officer of an Employer with annual earnings from the Employer (in the officer year) greater than 150% of the maximum dollar limit under Code Section 415(c)(1)(a) in effect for the calendar year in which the Plan Year ends. In any Plan Year, officer will not include more than the lesser of: (A) fifty employees, or (B) the greater of three employees or ten percent of the greatest number of employees the Employer had during the current Plan Year or any of the four immediately preceding Plan Years. Such limited number of officers will be selected from the group of all persons otherwise considered officers under this paragraph (i) in the current Plan Year or four immediately preceding Plan Years, selecting only those who had the highest annual earnings in such five year period; (ii) an employee who owns, during the Plan Year containing the Determination Date or any of the four preceding Plan Years, at least a one-half percent interest in the Employer, unless at least ten other employees own, during the Plan Year containing the Determination Date or any of the four immediately preceding Plan Years, a greater percent interest than such employee. However, an employee will not be considered an owner under this paragraph (ii) unless his annual earnings from the Employer for the Plan Year of ownership are greater than the maximum dollar amount under Code Section 415(c)(1)(A) in effect for the calendar year in which such Plan Year ends. An employee's ownership interest during a Plan Year is his greatest ownership interest at anytime during the Plan Year. If two employees have the same ownership interest, the employee with the greater earnings in the Plan Year of such ownership will be deemed to have the greater ownership interest; (iii) an employee who owns at least five percent of an Employer; or (iv) an employee who owns at least one percent of an Employer and has annual earnings from the Employer of more than $150,000. For purposes of determining the number of officers of the Employer, all employees of organizations required to be aggregated under Code Section 414(b), (c) and (m) will be considered employees of the Employer. For purposes of determining earnings from the Employer, all earnings, as stated on Form W-2 for the calendar year ending within the Plan Year, from all organizations required to be aggregated under Code Section 414(b), (c) and (m) will be treated as earned from the Employer. For purposes of determining ownership interest, each entity that would otherwise be aggregated under Code Section 414(b), (c) and (m) will be treated as a separate Employer. Ownership includes any interest constructively owned under the applicable provisions of the Code. Employee will not include any employee or beneficiary of an employee who did not have earnings from an Employer during the five year period ending on the Determination Date. (d) "Nonkey Employee" means at any given time an employee who is not a Key Employee. 17.02 DETERMINATION OF TOP HEAVY STATUS - SINGLE PLAN If this Plan is the only retirement plan qualified under Code Section 401(a) maintained by an Affiliate, the rules of this Section 17.02 will apply to determine if this Plan is Top Heavy. The Plan will be Top Heavy during a Plan Year if as of the Determination Date in such Plan Year the value of the Accumulated Accounts under the Plan of all Key Employees exceeds sixty percent of the value of Accumulated Accounts under the Plan of all employees. 17.03 DETERMINATION OF TOP HEAVY STATUS - MULTIPLE PLANS (a) If an Affiliate maintains more than one retirement plan qualified under Code Section 401(a), the rules of this Section 17.03 will apply to determine if this Plan is Top Heavy. This Plan will be Top Heavy during a Plan Year if the Plan is required to be in the Aggregation Group on the Plan's Determination Date for such Plan Year and the Aggregation Group is Top Heavy. The Aggregation Group is Top Heavy if the value of the Accumulated Accounts for all Key Employees of all the plans in the group exceeds sixty percent of the value of the Accumulated Accounts for all employees of all the plans in the group. The Accumulated Accounts of each plan will be determined separately as of each plan's Determination Date and then aggregated by calendar year. If a plan in the Aggregation Group is a defined benefit plan (as defined in Code Section 414(j), for purposes of this subsection (a) value of the Accumulated Accounts means the present value of benefits as defined under the top heavy provisions of such plan. (b) The Aggregation Group consists of all the Affiliate's retirement plans qualified under Code Section 401(a) which are either required or permitted to be in the Aggregation Group. A plan is required to be in the Aggregation Group if during the Plan Year containing the Determination Date or any of the four preceding Plan Years: (1) the Plan has at least one Key Employee, or (2) the Plan is required to be aggregated with a plan with at least one Key Employee so that the later plan meets the requirements of Code Sections 401(a)(4) or 410. A plan, which has been formally terminated, has ceased crediting service for benefit accruals and vesting, and has been or is distributing all plan assets to participants or their beneficiaries as soon as administratively feasible, is required to be in the Aggregation Group if it was maintained during the Plan Year containing the Determination Date or any of the four preceding Plan Years and it would, but for the fact that it terminated, be required to be in the Aggregation Group pursuant to the preceding sentence. A plan is permitted to be in the Aggregation Group if it is not required to be in the Aggregation Group, provided including it does not prevent the Aggregation Group as a whole from meeting the requirements of Code Sections 402(a)(4) and 410. 17.04 EFFECT OF TOP HEAVY STATUS If the Plan is Top Heavy for any Plan Year, the requirements of this Section 17.04 apply during such Plan Year, superseding all other Plan provisions inconsistent with its terms. (a) MINIMUM VESTING The vested portion of a Participant who has completed one Hour of Service in any Plan Year in which the Plan is Top Heavy is determined under the schedule designated below in this Section 17.04(a) or the applicable schedules in Section 10.02, whichever is more favorable to the Participant: SERVICE VESTED PORTION ------- -------------- less than 2 years 0% 2 but less than 3 years 20% 3 but less than 4 years 40% 4 but less than 5 years 60% 5 but less than 6 years 80% 6 or more years 100% In each Plan Year in which the Plan is not Top Heavy, which occurs immediately after a Plan Year in which the Plan is Top Heavy, an employee who is participating in the Plan during the Election Period has the right to elect to continue to be subject to the vesting schedule in this subparagraph (a). The Election Period begins on the date the Plan is determined not to be Top Heavy and ends on the later of sixty days after the Plan is determined not to be Top Heavy or sixty days after the employee is given written notice that the Plan is no longer Top Heavy. (b) MINIMUM CONTRIBUTION On the last day of any Plan Year in which the Plan is Top Heavy an Employer Contribution will be allocated to the appropriate Account of each employee who is eligible to participate in the Plan pursuant to Section 2.01 on such date. The amount of such contribution, when aggregated with all other contributions allocated to the Participant's Pretax Deferral Account and Employer Contribution Account and his employer contribution account under the FHP Money Purchase Pension Plan during the Plan Year must equal the lesser of- (i) Three percent of the Participant's earnings, as stated on Form W-2 for the calendar year ending within such Plan Year, or (ii) A percent of the Participant's earnings, as defined in subsection (1) above, equal to the percentage at which contributions (including Pretax Deferrals) are allocated pursuant to Sections 4.02, 4.03, and 4.05 (or required to be allocated) for the Plan Year for the Key Employee for whom such percentage is the highest for the year. The Employer will make an additional contribution to the Plan sufficient to make the allocation described above. This Subsection (b) applies without regard to contributions or benefits under Social Security or any other Federal or State law. (c) ADJUSTMENT TO LIMITATION ON ANNUAL ADDITIONS (i) If an Affiliate also maintains a qualified defined benefit plan (as defined in Code Section 414(j) the denominator of both the defined benefit plan fraction and defined contribution plan fraction, as described in Code Section 415(e), for the Limitation Year ending in such Plan Year will be adjusted by substituting one for one and twenty-five one hundredths in each place the figure occurs. (ii) The adjustments referred to in paragraph (i) are not required if: (A) the Plan would not be Top Heavy if ninety percent were substituted for sixty percent in Sections 17.02 and 17.03, and (B) Subsection (b)(i) above is adjusted by substituting four percent for three percent where the figure occurs. (iii) The adjustments referred to in paragraph (i) above do not apply to any Participant as long as no Employer Contributions, forfeitures, salary deferrals or nondeductible voluntary contributions are allocated to such Participant's Accounts and the Participant does not accrue any benefits under the defined benefit plan. ARTICLE XVIII MISCELLANEOUS 18.01 VOLUNTARY PLAN The Plan is purely voluntary on the part of the Company and Employer and neither the establishment of the Plan nor any amendment thereof, nor the creation of any fund or account, nor the payment of any benefits shall be construed as giving any person a legal or equitable right as against the Company, an Employer, the Trustee or the Committee unless the same shall be specifically provided for in this Plan or conferred by affirmative action of the Committee or the Company in accordance with the terms and provisions of this Plan. Nor shall such actions be construed as giving any Employee or Participant the right to be retained in the service of the Employer. All Employees and/or Participants shall remain subject to discharge to the same extent as though this Plan had not been established. 18.02 NONALIENATION OF BENEFITS Participants and their Beneficiaries shall be entitled to all the benefits specifically set out under the terms of the Plan, but neither said benefits nor any of the property rights therein shall be assignable or distributable to any creditor or other claimant of such Participant. A Participant shall not have the right to anticipate, assign, pledge, accelerate or in any way dispose of or encumber any of the monies or benefits or other property which may be payable or become payable to such Participant or his Beneficiary. The preceding sentence shall also apply to the creation, assignment, or recognition of a right to any benefit payable with respect to Participant pursuant to a domestic relations order, unless such order is determined to be a qualified domestic relations order, as defined in Code Section 414(p). 18.03 INABILITY TO RECEIVE BENEFITS If the Committee receives evidence that (a) a person entitled to receive any payment under the Plan is physically or mentally incompetent to receive payment and to give a valid release therefor, and (b) another person or an institution is then maintaining or has custody of such person, and no guardian, committee or other representative of the estate of such person has been duly appointed by a court of competent jurisdiction, such payment may be made to such other person or institution referred to in (b) above. The release to such other person or institution shall be a valid and complete discharge for the payment. 18.04 LOST PARTICIPANTS If the Committee is unable within two years after a distribution becomes due, and after reasonable and diligent effort, to locate a Participant or Beneficiary who is entitled to payment under the Plan, the payment due such person shall become a forfeiture; provided, however, that if the Participant or Beneficiary later files a claim for his benefit it shall be reinstated. Notification by certified or registered mail to the last known address of the Participant or Beneficiary shall be deemed a reasonable and diligent effort to locate such person. 18.05 LIMITATION OF RIGHTS Nothing in the Plan expressed or implied is intended or shall be construed to confer upon or give to any person, firm or association other than the Company, an Employer, the Participant and their successors in interest any right, remedy or claim under or by reason of this Plan. 18.06 ABSENCE OF GUARANTY Each Participant (and his Beneficiary) assumes all risk connected with any decreased in the market value of any assets held under the Plan. Neither the Company nor the Employer in any way guarantees the Trust Fund from loss or depreciation, or the payment of any amount that may be or become due to any person from the Trust Fund. The Trust Fund shall be the sole source of distributions to be made under this Plan. 18.07 INVALID PROVISIONS In case any provision of this Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts of this Plan, but this Plan shall be construed and enforced as if said illegal and invalid provisions had never been inserted herein. 18.08 ONE PLAN This Plan may be executed in any number of counterparts, each of which shall be deemed an original and said counterparts shall constitute but one and the same instrument and may be sufficiently evidenced by any one counterpart. 18.09 GOVERNING LAW The Plan shall be governed by and construed in accordance with the Federal laws governing employee benefit plans qualified under the Code and in accordance with the laws of the State of California where such laws are not preempted by the aforementioned federal laws. ARTICLE XIX DIRECT ROLLOVERS 19.01 DIRECT ROLLOVERS This Article applies to distributions made on or after January 1, 1993. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee's election under this Article, a distributee may elect, at the time and in the manner prescribed by the Committee, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover. 19.02 DEFINITIONS (a) Eligible rollover distribution: An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; and the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). (b) Eligible retirement plan: An eligible retirement plan is an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, or a qualified plan described in Section 401(a) of the Code, that accepts the distributee's eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity. (c) Distributee: A distributee includes an employee or former employee. In addition, the employee's or former employee's surviving spouse and the employee's or former employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are distributees with regard to the interest of the spouse or former spouse. (d) Direct rollover: A direct rollover is a payment by the Plan to the eligible retirement plan specified by the distributee. IN WITNESS WHEREOF, this Restated Plan is adopted as of June 7, 1993. FHP INTERNATIONAL CORPORATION By: /S/ Jack D. Massimino Title: Executive Vice President Date: 6/9/93 FHP, INC. By: /s/ Jack D. Massimino Title: Executive Vice President Date: 6/9/93 EX-4 3 EXHIBIT 4.2 EXHIBIT 4.2 1994-1 AMENDMENT TO THE FHP INTERNATIONAL CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN AMENDMENT 1994-1 FHP International Corporation Employee Stock Ownership Plan WHEREAS, FHP International Corporation and FHP, Inc. (collectively, the "Companies") maintain the FHP International Corporation Employee Stock Ownership Plan (the "Plan"); and WHEREAS, the Plan has applied to the Internal Revenue Service for a determination letter regarding the tax-qualified status of the Plan; and WHEREAS, the Internal Revenue Service has requested that certain technical corrections be made to the Plan in connection with its application for a determination letter; and WHEREAS, it is also necessary to amend the Plan to comply with the reduction to the limitation on compensation under Section 401(a)(17) of the Internal Revenue Code of 1986, as amended; NOW, THEREFORE, BE IT RESOLVED, the Plan is hereby amended, effective July 1, 1989 (except as otherwise stated below), as follows: 1. The second paragraph of Section 1.08 of the Plan is amended to read as follows: "A Participant's annual Compensation in excess of $200,000 is disregarded for all purposes under the Plan. Such dollar limit will be adjusted each year pursuant to Code Section 401(a)(17). For purposes of the $200,000 limitation, the Compensation of any Participant who is either a 5% owner (as defined in Section 416(i)(1) of the Code), or one of the ten most highly paid Highly Compensated Employees during the Plan Year ("First Participant") shall be aggregated with the Compensation of any Participant who has not attained age 19 and is a lineal descendant of the First Participant and any Participant who is the spouse of the First Participant. In any case in which such aggregation would produce Compensation in excess of the $200,000 limitation, the amount of the First Participant's Compensation that is considered under the Plan shall be reduced until the $200,000 limitation is met. This paragraph is effective July 1, 1989." 2. Effective July 1, 1994, Section 1.08 of the Plan is amended by adding the following paragraph at the end thereof: "Notwithstanding the foregoing, for Plan Years beginning on or after January 1, 1994, the $200,000 limit referred to above shall be reduced to $150,000 adjusted in accordance with Section 401(a)(17)(B) of the Code. For purposes of applying the $150,000 limit, the rules set forth in the preceding paragraphs shall continue to apply, except that "$150,000" shall replace "$200,000" each place it appears. The $150,000 limit shall be adjusted in increments of $10,000." 3. The third sentence of Section 7.09 of the Plan is amended to read as follows: "If the Stock cannot be so valued on the basis of its closing price in recent public trading, its fair market value shall be determined by the Trustee in good faith based on all relevant factors for determining the fair market value of securities, including an independent appraisal by a person who customarily makes such appraisals and who meets requirements similar to the requirements of Treasury Regulations promulgated under Code Section 170(a)(1), if such an appraisal of the fair market value of the Stock as of the relevant date has been obtained." 4. Effective January 1, 1994, Section 11.04 of the Plan is amended by adding the following subsection at the end thereof to read as follows: "(d) Notwithstanding anything else contained herein, if a distribution is one to which Sections 401(a)(11) and 417 of the Code do not apply, such distribution may commence less than 30 days after the notice required under Treasury Regulation Section 1.411(a)-11(c) is given, provided that: (i) the Committee clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and (ii) the Participant, after receiving the notice, affirmatively elects a distribution." 5. Clauses (i) and (ii) of subsection 17.01(c) of the Plan are amended to read as follows: "(i) an officer of an Employer with annual earnings from the Employer greater than 50% of the maximum dollar limit under Code Section 415(b)(1)(A) in effect for the calendar year in which the Plan Year ends. In any Plan Year, officer will not include more than the lesser of: (A) fifty employees, or (B) the greater of three employees or ten percent of the greatest number of employees the Employer had during the current Plan Year or any of the four immediately preceding Plan Years. Such limited number of officers will be selected from the group of all persons otherwise considered officers under this paragraph (i) in the current Plan Year or four immediately preceding Plan Years, selecting only those who had the highest annual earnings in such five year period; (ii) an employee who is one of the ten employees of the Employer having annual compensation from such Employer of more than the limitation in effect under Section 415(c)(1)(A) of the Code and owning (or considered as owning within the meaning of Section 318 of the Code) both more than a 1/2% interest and the largest interests in such Employer. An employee's ownership interest during a Plan Year is his greatest ownership interest at anytime during the Plan Year. If two employees have the same ownership interest, the employee with the greater earnings in the Plan Year of such ownership will be deemed to have the greater ownership interest." IN WITNESS WHEREOF, the Companies have caused their duly authorized officers to execute this Amendment 1994-1 to the Plan on this 1st day of June, 1994. FHP, INC. By: /s/ Mark B. Hacken Its: President and Chief Executive Officer FHP INTERNATIONAL CORPORATION By: /s/ Mark B. Hacken Its: President and Chief Executive Officer EX-4 4 EXHIBIT 4.3 EXHIBIT 4.3 1994-2 AMENDMENT TO THE FHP INTERNATIONAL CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN AMENDMENT 1994-2 FHP International Corporation Employee Stock Ownership Plan WHEREAS, FHP International Corporation and FHP, Inc. (collectively, the "Companies") maintain the FHP International Corporation Employee Stock Ownership Plan (the "Plan"); and WHEREAS, the Companies have the right to amend the Plan in accordance with Section 13.01 of the Plan; and WHEREAS, the Companies desire to amend the Plan in order to (i) combine each Participant's PAYSOP Account under the Plan with his Employer Contribution Account under the Plan, (ii) change the plan year under the Plan from the twelve month period ending June 30 to the twelve month period ending December 31, (iii) change the Plan's definition of "Company" to mean FHP International Corporation, and (iv) make certain changes to the Plan's provisions regarding direct rollover distributions. NOW, THEREFORE, the Plan is hereby amended, effective July 1, 1994, except as otherwise provided below, as follows: 1. The definition of "Accounts" contained in Section 1.01 of the Plan is amended to read as follows: "1.01 ACCOUNTS 'Accounts' means a Participant's Employer Contribution Account, his PAYSOP Account, his Pretax Deferral Account and his Rollover Account. Effective July 1, 1994, "Accounts" means a Participant's Employer Contribution Account, his Pretax Deferral Account and his Rollover Account. These Accounts are described in Section 4.01 of the Plan." 2. Effective January 1, 1995, the definition of "Company" contained in Section 1.07 is amended to read as follows: "1.07 COMPANY 'Company' means FHP International Corporation." 3. The definition of "Plan Year" contained in Section 1.31 of the Plan is hereby amended to read as follows: "1.31 PLAN YEAR 'Plan Year' means the twelve month period beginning July 1 and ending the following June 30. Notwithstanding the preceding, effective July 1, 1994, 'Plan Year' shall mean (i) for plan years beginning prior to July 1, 1994, each consecutive twelve month period commencing on July 1 and ending the following June 30, (ii) the period beginning on July 1, 1994 and ending on December 31, 1994, and (iii) commencing on January 1, 1995, each consecutive twelve month period ending on December 31." 4. Effective January 1, 1995, the first sentence of the definition of "Stock" contained in Section 1.35 is amended to read as follows: "'Stock' means the shares of stock issued by FHP International Corporation, which are readily tradable on an established securities market." 5. Subsections 4.01(a) and (b) of the Plan are amended to read as follows: "(a) An EMPLOYER CONTRIBUTION ACCOUNT which is: (i) credited with the Participant's share of the Employer Matching Contributions and Employer ESOP Contributions; (ii) credited with the balance of his PAYSOP Account transferred to this Account as of July 1, 1994; (iii) adjusted for investment results and expenses; and (iv) charged with distributions. (b) A PAYSOP ACCOUNT which is: (i) credited with the Participant's share of PAYSOP contributions made under this Plan for the period ending December 31, 1986; (ii) adjusted for investment results and expenses; and (iii) charged with distributions. Notwithstanding clauses (i), (ii) and (iii) above, effective as of July 1, 1994, each Participant's PAYSOP Account shall be transferred to his Employer Contribution Account and the Committee shall no longer maintain a separate PAYSOP Account on behalf of each Participant." 6. Section 10.02(a) of the Plan is amended to read as follows: "(a) The vested portion of a Participant's Pretax Deferral Account, Rollover Account and the portion of his Employer Contribution Account attributable to his former PAYSOP Account is always one hundred percent." 7. Section 11.02(d) is amended by adding a new sentence at the end thereof to read as follows: "Effective July 1, 1994, the above described limitations shall apply to the portion of a Participant's Employer Contribution Account attributable to his former PAYSOP Account." 8. Effective January 1, 1993, Section 19.01 is amended to read as follows: "19.01 - DIRECT ROLLOVERS. This Article applies to distributions made on or after January 1, 1993. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee's election under this Article, if a Distributee will receive an Eligible Rollover Distribution of at least $200, the Distributee may elect, at the time and in the manner prescribed by the Committee, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover; provided, however, that a Distributee may not elect to have an Eligible Rollover Distribution of less than $500 paid directly to an Eligible Retirement Plan unless the Distributee elects to have his or her entire Eligible Rollover Distribution paid directly to the Eligible Retirement Plan." IN WITNESS WHEREOF, the Companies have caused their duly authorized officers to execute this Amendment 1994-2 to the Plan on this 9th day of December, 1994. FHP, INC. By: /s/ Mark B. Hacken Its: President and CEO FHP INTERNATIONAL CORPORATION By: /s/ Mark B. Hacken Its: President and CEO EX-4 5 EXHIBIT 4.4 EXHIBIT 4.4 1995-1 AMENDMENT TO THE FHP INTERNATIONAL CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN AMENDMENT 1995-1 FHP INTERNATIONAL CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN WHEREAS, FHP International Corporation ("FHP") and its subsidiary, FHP, Inc. have established and maintained the FHP International Corporation Employee Stock Ownership Plan ("Plan"); and WHEREAS, the Board of Directors of FHP has authorized the Committee under the Plan to adopt certain amendments to the Plan; and WHEREAS, the Committee has determined that it is within its authority to adopt the amendment set forth below. NOW, THEREFORE, the Plan is hereby amended as follows, effective for the Plan Year ending December 31, 1995: Section 4.05(b) is amended by adding the following to the end of the section: "The allocation of the Employer ESOP Contribution for the Plan Year ended December 31, 1995 shall be determined as follows: First, for calculation purposes only, and the amount of the forfeitures allocated for the plan year ended December 31, 1995 under the Take Care Savings and Retirement Plan to the amount of the Employer ESOP Contribution. Such total shall be referred to as the "Gross Allocation Amount". Second, tentatively allocate percentage of the Gross Allocation Amount to the Account of each participant. The amount to be tentatively allocated to a Participant shall be the total Gross Allocation Amount times the ratio of the Participant's Compensation for the Plan Year to the total of all such Participants' Compensation for the Plan Year. Third, reduce the Gross Allocation Amount allocated to each Participant by the amount of forfeitures allocated to the Participant (if any) under the Take Care Savings and Retirement Plan for the plan year ended December 31, 1995. The remaining amounts shall be allocated to the Participants' Accounts under this Plan as the Employer ESOP Contribution." IN WITNESS WHEREOF, this Amendment 1995-1 is hereby adopted this 21st day of December, 1995 by the Administrative Committee of the FHP International Corporation Employee Stock Ownership Plan. Dated: December 21, 1995 __/s/ Burke F. Gumbiner__ By: Burke F. Gumbiner Chairman, Administrative Committee IN WITNESS WHEREOF, the Companies have caused their duly authorized officers to execute this Amendment 1994-2 to the Plan on this 9th day of December, 1994. FHP, INC. By: __/s/ Mark B. Hacken__ Its: President and CEO FHP INTERNATIONAL CORPORATION By:__/s/ Mark B. Hacken__ Its: President and CEO EX-4 6 EXHIBIT 4.5 EXHIBIT 4.5 1996-1 AMENDMENT TO THE FHP INTERNATIONAL CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN AMENDMENT 1996-1 FHP INTERNATIONAL CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN WHEREAS, FHP International Corporation (the "Company") maintains the FHP International Corporation Employee Stock Ownership Plan (the "Plan"); and WHEREAS, the Company has the right to amend the Plan in accordance with Section 13.01 of the Plan; and WHEREAS, the Company desires to amend the Plan in order to (i) merge the TakeCare Savings and Retirement Plan into the Plan, (ii) add an employer stock bonus contribution feature to the Plan which is separate from the Plan's existing ESOP feature, (iii) modify the Plan's matching contribution formula, (iv) decouple the Plan's matching contribution feature from its leveraged ESOP feature, (v) prohibit employees of certain professional medical and dental corporations which are "Affiliates" (as defined in Section 1.02 of the Plan) from being eligible to receive an allocation under the Plan's ESOP feature, (vi) allow participants to elect to change the rate of their 401(k) deferrals and to switch the investment funds in which their accounts are invested on a monthly basis, and (vii) make certain other clarifying and conforming changes to the Plan. NOW, THEREFORE, the Plan is hereby amended, effective January 1, 1996, except as otherwise provided below, as follows: 1. The Introduction to the Plan is amended by adding the following at the end thereof: "Effective January 1, 1996, the TakeCare Savings and Retirement Plan was merged into this Plan, with this Plan the survivor of such merger. In addition, effective as of January 1, 1996, this Plan was amended to add an employer stock bonus contribution feature (within the meaning of Treasury Regulation Section 1.401-1(b)(1)(iii)) which is separate from the existing part of the Plan intended to qualify as an employee stock ownership plan under Code Section 4975(e)(7)." 2. Section 1.01 of the Plan is amended to read as follows: "1.01 ACCOUNTS 'Accounts' means a Participant's Employer Contribution Account, Pretax Deferral Account, Employer Stock Bonus Account, New Matching Contributions Account, TakeCare Account, and Rollover Account. These Accounts are described in Section 4.01 of the Plan." 3. Section 1.13 of the Plan is amended to read as follows: "1.13 EMPLOYER CONTRIBUTION 'Employer Contribution' means contributions to the Plan made by an Employer pursuant to Sections 3.03, 3.04 and 3.10. It includes the Employer Matching Contribution described in Section 3.03, the Employer ESOF Contribution described in Section 3.04, and the Employer Stock Bonus Contribution described in Section 3.10." 4. Section 1.23 of the Plan is amended, effective January 1, 1995, to read as follows: "1.23 LIMITATION YEAR 'Limitation Year' shall mean effective January l, 1995, the 12-month period beginning on January 1 and ending on December 31. Consistent with the foregoing, the period from July 1, 1994 through December 31, 1994 shall be a "limitation period" (within the meaning of Treasury Regulation Section 1.415-2(b)(4)) with respect to the Plan." 5. Section 1.38 of the Plan is amended, effective January 1, 1995, to read as follows: "1.38 VALUATION DATE 'Valuation Date' means the last day of each month. Valuation Date may also mean any date selected by the Committee in the event the Committee, in its sole discretion, determines that events affecting the market value of the Trust Fund require an interim Valuation Date." 6. Section 3.01(b) of the Plan is amended to read as follows: "(b) CHANGE IN PERCENTAGE OR SUSPENSION OF DEFERRALS. A Participant's Pretax Deferral percentage rate will remain in effect, notwithstanding any change in his Compensation, until he terminates employment or elects to change the percentage. A Participant may elect to change his deferral percentage as of the first day of any month provided the election is delivered to the Committee on or before the last day of the month prior to the effective date of the change. A Participant may suspend his Pretax Deferrals at any time. The suspension will be effective as soon as administratively possible following receipt of an election form from the Participant. A Participant may resume making Pretax Deferrals on the first day of any month after the effective date of his election to suspend Pretax Deferrals. To resume Pretax Deferrals the Participant must make an election on or before the last day of the month prior to the effective date of the change." 7. Article III of the Plan is amended to add a new Section 3.10 at the end thereof as follows: "3.1 EMPLOYER STOCK BONUS CONTRIBUTIONS The amount of Employer Stock Bonus Contributions, if any, for each Plan Year will be determined by the Board in its sole discretion. The Employer Stock Bonus Contributions may be made in cash and/or shares of Stock, as determined by the Board in its sole discretion." 8. Section 4.01 of the Plan is amended in its entirety to read as follows: "4.01 PARTICIPANT ACCOUNTS The Committee will maintain the following Accounts for each Participant: (a) An EMPLOYER CONTRIBUTION ACCOUNT which is: (i) credited with the Participant's share of Employer Matching Contributions made under this Plan before January 1, 1996 and Employer ESOP Contributions; (ii) credited with the balance of his PAYSOP Account transferred to this Account as of July 1, 1994; (iii) adjusted for investment results and expenses; and (iv) charged with distributions. (b) A PRETAX DEFERRAL ACCOUNT which is: (i) credited with the Participant's Pretax Deferrals made under this Plan on and after July 1, 1987; (ii) credited with his Pretax Deferral Account transferred to this Plan from the FHP Corporation Tax Savings Plan as of July 1, 1987; (iii) adjusted for investment results and expenses; and (iv) charged with withdrawals and distributions. (c) An EMPLOYER STOCK BONUS ACCOUNT which is: (i) credited with the Participant's share of Employer Stock Bonus Contributions; (ii) adjusted for investment results and expenses; and (iii) charged with distributions. (d) A NEW MATCHING CONTRIBUTIONS ACCOUNT which is: (i) credited with the Participant's share of Employer Matching Contributions made under this Plan on or after January 1, 1996; (ii) adjusted for investment results and expenses; and (iii) charged with distributions. (e) A TAKECARE ACCOUNT which is: (i) credited with the Participant's Salary Deferral Account, Matching Contribution Account, Qualified Nonelective Contribution Account and Rollover Account transferred to this Plan from the TakeCare Savings and Retirement Plan as of January 1, 1996; (ii) adjusted for investment results and expenses; and (iii) charged, with distributions. (f) A ROLLOVER ACCOUNT which is: (i) credited with the Participant's Rollover Contributions made to this Plan on and after July 1, 1987; (ii) credited with his Rollover Account transferred to this Plan from the FHP Corporation Tax Savings Plan as of July 1, 1987; (iii) adjustment for investment results and expenses; and (iv) charged with withdrawals and distributions." 9. The first paragraph of Section 4.03(a) of the Plan is amended to read as follows: "(a) The Employer Matching Contributions for each Plan Year beginning on or after January 1, 1996 are allocated as of the last day of the Plan Year to the New Matching Contribution Account of each person who was a Participant during the Plan Year, provided the Participant:" 10. Subsections 4.03(b) and 4.03(c) of the Plan are amended to read as follows: "(b) Each Participant who meets the requirements of Subsection (a) above is allocated a portion of the Employer Matching Contributions for a Plan Year as follows: (i) if the Participant has completed less than five years of Service as of the last day of such Plan Year, the Participant's portion of the Employer Matching Contributions for such Plan Year shall equal 50% of the amount of his Pretax Deferrals for the Plan Year which do not exceed six percent of his Compensation for the Plan Year; or (ii) if the Participant has completed at least five Years of Service as of the last day of such Plan Year, the Participant's portion of the Employer Matching Contributions for such Plan Year shall equal 100% of the amount of his Pretax Deferrals for the Plan Year which do not exceed six percent of his Compensation for the Plan Year. (c) (Reserved.) 11. Subsections 4.04(c) is amended to read as follows: "(c) If the Committee determines, in its discretion, that allocations of Employer Matching Contributions to Participants' New Matching Contributions Accounts for a Plan Year do not meet one of the requirements of Subsection (b), the Committee will determine, in its discretion, the amount of Employer Matching Contributions of certain Participants who are Highly Compensated Employees which must be reduced in order to meet one of the requirements of Subsection (b). The reduction will be accomplished by reducing the allocations to Participants who are Highly Compensated Employees in order of their Actual Contribution Percentage rates, beginning with the Participant with the highest percentage rate and decreasing in descending order until one of the requirements of Subsection (b) is met. The reduced amounts will be added to the Employer Stock Bonus Contribution for the Plan Year and allocated among all Participants as provided in Section 4.06." 12. Subsection 4.05(a) of the Plan is amended to read as follows: "(a) The Employer ESOP Contributions for each Plan Year are allocated as of the last day of the Plan Year to the Employer Contribution Account of each Participant, provided the Participant: (i) is employed as an Eligible Employee by the Company or one of its subsidiaries which is part of the same controlled group of corporations (within the meaning of Code Section 414(b)) on the last day of the Plan Year; or (ii) terminated employment with the Company or one of its subsidiaries which is part of the same controlled group of corporations (within the meaning of Code Section 414(b)) during the Plan Year on or after attaining ape 65 or by reason of death; or (iii) become Permanently and Totally Disabled during the Plan Year while employed by the Company or one of its subsidiaries which is part of the same controlled group of corporations (within the meaning of Code Section 414(b)) on the last day of the Plan Year." 13. Article IV of the Plan is amended by adding a new Section 4.06 at the end thereof to read as follows: "4.06 ALLOCATION OF EMPLOYER STOCK BONUS CONTRIBUTIONS (a) The Employer Stock Bonus Contributions for each Plan Year are allocated as of the last day of the Plan Year to the Employer Stock Bonus Account of each Participant, provided the Participant: (i) is employed as an Eligible Employee on the last day of the Plan Year; or (ii) terminated employment during the Plan Year on or after attaining age 65; or (iii) died while employed during the Plan Year; or (iv) became Permanently and Totally Disabled during the Plan Year. (b) Each Participant who meets the requirements of Subsection (a) above is allocated a portion of the Employer Stock Bonus Contributions equal to the total Employer Stock Bonus Contributions for the Plan Year times the ratio of his Compensation for the Plan Year to the total of all such Participants' Compensation for the Plan Year. (c) If any portion of the Employer Stock Bonus Contributions is contributed in shares, the allocation of such portion to Participants' Employer Stock Bonus Accounts will be made in shares and fractions of shares to the nearest thousandth of a share." 14. Section 5.01 of the Plan is amended to read as follows: "5.01 ESTABLISHMENT OF ESOP SUSPENSE SUBFUND Financed Shares acquired by the ESOP Fund with the proceeds of an Exempt Loan are held in an ESOP Suspense Subfund. Some or all of the Employer ESOP Contributions may be applied to repay any outstanding Exempt Loan." 15. The first paragraph of Section 5.03 as well as Subsection 5.03(a) of the Plan are amended to read as follows: "Shares of Stock released from the ESOP Suspense Subfund for a Plan Year are held in the ESOP Fund on an unallocated basis until allocated by the Committee. Shares of Stock released in connection with a payment on an Exempt Loan from Employer ESOP Contributions are allocated as described in Subsection (a). Shares of Stock released in connection with a payment on an Exempt Loan from cash dividends on Stock are allocated as described in Subsection (b). (a) A Participant who received an allocation of Employer ESOP Contributions for the Plan Year will receive an allocation of Stock as of the last day of the Plan Year equal to: (i) the total shares released in connection with all payments on an Exempt Loan during the Plan Year from Employer ESOP Contributions, times (ii) the ratio of his allocation of Employer ESOP Contributions for the Plan Year to the total Employer Contributions for the Plan Year. Stock will be allocated in shares and fractions of shares to the nearest thousandth of a share. At the time of such allocation of shares of Stock, the Participant's Employer Contributions Account will be debited with its share of the Trust's cash payments on the Exempt Loan." 16. The first sentence of Section 6.03(d) of the Plan is amended to read as follows: "Fourth, the excess allocations of Employer Matching Contributions and if necessary Employer ESOP Contributions and Employer Stock Bonus Contributions will be removed from the Participant's New Matching Contributions Account, Employer Contribution Account and Employer Stock Bonus Contribution Account, respectively, and will be reallocated to other Participants' New Matching Contributions Account, Employer Contribution Account and Employer Stock Bonus Contribution Account, as applicable." 17. The first two paragraphs of Section 7.01 of the Plan are amended to read as follows: "Each Participant's Accounts are invested in the Trust Fund. The Participant's Employer Contribution Account and Employer Stock Bonus Account are invested primarily in Stock. Except as provided in Section 7.16, the Participant has no right to direct the investments of such Accounts. Each Participant has the right to direct the investment of his existing and future Pretax Deferrals Account and New Matching Contributions Account, his TakeCare Account, and his Rollover Account in any of the Plan's Investment Funds. Any investment direction by the Participant with respect to his existing and future Pretax Deferrals Account shall be applied in the same manner to the investment of his New Matching Contributions Account, TakeCare Account, and Rollover Account. The Committee will select the Investment Funds available under the Plan. Upon enrollment, reenrollment, and as of the first day of any month, the Participant may designate the Investment Fund(s) in which his existing and future Pretax Deferrals and Employer Matching Contributions, if any, are invested. A Rollover Contribution must be accompanied by a written notice to the Committee designating the Investment Funds in which the contribution will be invested. The Committee will establish uniform nondiscriminatory rules regarding the designation of Investment Funds." 18. The first sentence of the fifth paragraph of Section 7.01 of the Plan is amended to read as follows: "With respect to Stock held in a Participant's Pretax Deferrals Account, New Matching Contributions Account, TakeCare Account and Rollover Account, the Committee shall take such actions and establish such procedures as it deems necessary to ensure the confidentiality of information relating to the purchase, sale, and holding of such Stock, and the exercise of voting, tender and similar rights with respect to Stock by a Participant or his or her Beneficiary." 19. The first sentence of Section 7.02 of the Plan is amended to read as follows: "Each Participant has the right as of the first day of any month to have all or part of his Pretax Deferrals Account, New Matching Contributions Account, TakeCare Account and Rollover Account transferred between the Investment Funds." 20. Subsections 7.12(a) and 7.12(b) are amended to read as follows: "(a) Stock received by the Trust as a result of a Stock split or Stock dividend on Stock held in Participant's Employer Contribution Account, New Matching Contributions Account, and Employer Stock Bonus Account, as applicable, will be allocated as of the Valuation Date coincident with or following the date of such split or dividend, to each Participant who has an Employer Contribution account, New Matching Contributions Account and/or Employer Stock Bonus allocated will bear substantially the same proportion to the total number of shares received as the number of shares in such Account of the Participants immediately before the allocation. The shares will be allocated to the nearest one thousandth of a share. (b) Stock received by the Trust as a result of a Stock split or Stock dividend on Stock held in Participant's Pretax Deferral Account, TakeCare Account and Rollover coincident with or following the date of such split or dividend, to each Participant who has a Pretax Deferral, TakeCare Account and/or Rollover Account, as applicable. The amount allocated will bear substantially the same proportion to the total number of shares received as the number of shares in such Account bears to the total number of shares allocated to such Accounts of all Participants immediately before the allocation. The shares will be allocated to the nearest one thousandth of a share." 21. Subsections 7.14(a) and 7.14(c) are amended to read as follows: "(a) Stock purchased with dividends on Stock held in Participants' Employer Contributions Accounts and Employer Stock Bonus Accounts will be allocated to each Participant's Employer Contributions Account, New Matching Contributions Account and Employer Stock Bonus Account." "(c) Stock purchased with dividends on Stock held in Participants' Pretax Deferral Accounts, TakeCare Accounts and Rollover Accounts will be allocated to each Participant's Pretax Deferral Account, TakeCare Account and Rollover Account." 22. Section 8.01 of the Plan is amended to read as follows: "8.01 POST AGE 59-1/2 WITHDRAWALS A Participant who has attained age 59-1/2 may withdraw up to one hundred percent of the value of his Pretax Deferral Account, the TakeCare Account and the Rollover Account, determined as of the most recent Valuation Date (a) which precedes the date the withdrawal request is received by the Committee on a written form prescribed by the Committee, and (b) for which the allocation process described in Section 7.03 has been completed. A Participant may not withdraw from his Employer Contribution Account, New Matching Contributions Account or Employer Stock Bonus Account except as provided in Articles IX, X, and XI." 23. The first sentence of Section 8.02 of the Plan is amended to read as follows: "A Participant who has a financial hardship may withdraw up to one hundred percent of the value of his Pretax Deferral Account, TakeCare Account and Rollover Account, determined as of the most recent Valuation Date (a) which precedes the date the withdrawal request is received by the Committee on a written form prescribed by the Committee, and (b) for which the allocation process described in Section 7.03 has been completed." 24. Subsection 8.02(a)(iii) of the Plan is amended to read as follows: "(iii) The amount to be withdrawn may not exceed the smaller of (A) the total value, determined under this Section 8.02, of the sum of the Participant's Pretax Deferral Account, TakeCare Account and Rollover Account or (B) the amount necessary to meet the Participant's financial hardship. Effective January 1, 1989, a Participant may not withdraw any earnings credited to his Pretax Deferral Account and TakeCare Account on and after such date." 25. The first sentence of Section 8.05 of the Plan is amended to read as follows: "A Participant who is actively employed by an Affiliate may borrow from his Pretax Deferral Account, TakeCare Account and Rollover Account in accordance with the terms and conditions for loans established by the Committee." 26. The first sentence of Subsection 8.05(d)(ii) is amended to read as follows: "50% of the vested portion of the Participant's Pretax Deferral Account, TakeCare Account and Rollover Account under this Plan valued on the Applicable Valuation Date immediately before the date the request for a loan is received." 27. Subsection 8.05 is amended by adding the following subsection (j) to the end thereof: "(j) This subsection (j) is effective as of January 13, 1996 and applies only to Participants who (i) were employed by FHP Fountain Valley Hospital ("FHP Hospital") on or before January 13, 1996, (ii) had an outstanding loan under the Plan as of January 13, 1996 and (iii) became employed by Orange Coast Memorial Hospital on January 14, 1996. A participant who satisfies the requirements of the preceding sentence is referred to herein as a "Qualified Participant." Notwithstanding anything else contained herein to the contrary, Qualified Participants may repay loans under this Plan by payroll deduction in accordance with paragraph (g) of this Section 8.05 except that Orange Coast Memorial Hospital shall remit such payroll deductions to the Trustee. The repayment period with respect to a loan subject to this Section 8.05(j) shall be the same as the original repayment period of such loan, provided that such period of repayment, including any extensions resulting from the consolidation of a loan into a subsequent loan, shall not extend beyond five years from the original date of the loan. This five year limit shall not apply to any portion of the loan used to acquire the Participant's principal residence." 28. Subsection 10.02(a) of the Plan is amended to read as follows: "(a) The vested portion of a Participant's Pretax Deferral Account, TakeCare Account, Rollover Account and the portion of his Employer Contribution Account attributable to his former PAYSOP Account is always one hundred percent." 29. The text of Subsection 10.02(b) preceding the first colon appearing therein is amended to read as follows: "The vested portion of a Participant's Employer Contribution Account, New Matching Contributions Account and Employer Stock Bonus Account is based on his Service as of the date his employment terminates, as follows:" 30. Section 10.03 of the Plan is amended to read as follows: "10.03 EFFECT OF TERMINATION OF EMPLOYMENT: PERIOD OF SEVERANCE AND REEMPLOYMENT (a) If a Participant terminates employment when he is not one hundred percent vested in his Employer Contribution Account, New Matching Contributions Account and Employer Stock Bonus Account, the non-vested portion of his Employer Contribution Account, New Matching Contributions Account and Employer Stock Bonus Account, is forfeited on the date of termination. A Participant who ceases to participate in the Plan and whose nonforfeitable percentage in his Employer Contribution Account, New Matching Contributions Account and Employer Stock Bonus Account is zero, shall be deemed to have received a complete distribution of the nonforfeitable portion of his Employer Contributions Account, New Matching Contributions Account and Employer Stock Bonus Account. If the Participant is reemployed before the date on which he incurs a five year Period of Severance, the portion of his Employer Contribution Account, New Matching Contributions Account and Employer Stock Bonus Account, which was forfeited is reinstated as of the date he is reemployed. If the Participant later terminates Employment before he is one hundred percent vested in his Employer Contribution Account, New Matching Contributions Account and Employer Stock Bonus Account, the vested portion of such Accounts will not be determined under Section 10.02(b). Instead, such vested portion will be determined by multiplying the appropriate vested portion from Section 10.02(b) times the sum of (i) plus (ii) and then subtracting (ii) from the result. For this purpose: (i) is the value of (and/or the number of shares in) the Participant's Employer Contribution Account, New Matching Contributions Account and Employer Stock Bonus Account, as of the Valuation Date coinciding with or immediately following his most recent termination of employment; and (ii) is the amount (and/or the number of shares) previously distributed to the Participant due to his prior termination of employment. (b) If a Participant terminates employment when he is not one hundred percent vested in his Employer Contribution Account, New Matching Contributions Account and Employer Stock Bonus Account, and is reemployed after incurring a five year Period of Severance, the portion of his Employer Contribution Account, New Matching Contributions Account and Employer Stock Bonus Account that was forfeited as a result of his termination of employment will not be reinstated." 31. Section 10.04 of the Plan is amended to read as follows: "10.04 DISPOSITION OF FORFEITURES All amounts forfeited under any provisions of this Plan are first applied to reinstate forfeited amounts of other Participants pursuant to Section 10.03(a). Any remaining forfeitures are used to reduce the Employer Contributions required pursuant to Sections 3.03, 3.04 and 3.10 for the Plan Year in which they are forfeited. Forfeitures are first charged against the portion of a Participant's Employer Contribution Account, New Matching Contributions Account and Employer Stock Bonus Account not invested in Stock, with any balance charged against the remainder of his Employer Contribution Account, New Matching Contributions Account and Employer Stock Bonus Account at the fair market value of Stock. Financed Shares are forfeited only after all other amounts in a Participant's Accounts have been forfeited." 32. Section 11.01 of the Plan is amended by adding the following at the end thereof: "Notwithstanding the preceding, to avoid the elimination of an optional form of benefit in connection with the merger of the TakeCare Savings and Retirement Plan into this Plan, amounts credited to a Participant's TakeCare Account which are distributable pursuant to Articles IX and X may, at the Participant's or, if applicable, Beneficiary's election, be distributed in (i) a single cash lump sum, (ii) installments in cash over a period of years determined by the Participant, or (iii) a combination of a partial lump sum in cash and installments in cash over a period of years determined by the Participant." 33. Subsection 11.02(c) of the Plan is amended to read as follows: "(c) If a Participant terminates employment before his Normal Retirement Age and elects pursuant to Section 10.01(c) to have his Distribution Date be the Valuation Date coinciding with or immediately following the date he reaches age 65, he shall continue to be allowed to direct the investment of his Pretax Deferral Account, TakeCare Account, New Matching Contributions Account and Rollover Account according to the terms of this Plan until such Accounts are distributed or forfeited." 34. The first sentence of Subsection 11.03(c)(i) is amended to read as follows: "If the distribution is a total distribution, payment of the fair market value of a Participant's Employer Contribution Account and Employer Stock Bonus Account will be made in five substantially equal annual payments." 35. The text of Subsection 11.04(a) preceding the first colon appearing therein as well as Subsections 11.04(a)(i) and 11.04(a)(ii) of the Plan are amended to read as follows: "(a) Notwithstanding any other provision of the Plan, other than the provision requiring the Participant's consent to a distribution in excess of $3,500, a Participant may elect to have his Employer Contribution Account and Employer Stock Bonus Account distributed as follows: (i) If the Participant terminates employment after attaining his Normal Retirement Age, or on account of his death, or Permanent and Total Disability, the distribution of such portion of the Participant's Employer Contribution Account and Employer Stock Bonus Account will begin not later than one year after the close of the Plan Year in which such event occurs unless the Participant elects otherwise under other provisions of this Plan. (ii) If the Participant separates from service for any reason other than those described in clause (i) above, and is not reemployed by the Employer at the end of the fifth Plan Year following the Plan Year in which he terminates employment, distribution of such portion of the Participant's Employer Contribution Account and Employer Stock Bonus Account will begin not later than one year after the close of the fifth Plan Year following the Plan Year in which the Participant terminates employment unless the Participant elects otherwise under other provisions of this Plan." IN WITNESS WHEREOF, the Company has caused its duly authorized officer to execute this Amendment 1996-1 to the Plan. FHP INTERNATIONAL CORPORATION By: __/s/ Burke F. Gumbiner__ Its: SVP EX-4 7 EXHIBIT 4.6 EXHIBIT 4.6 RESOLUTIONS DULY ADOPTED BY THE BOARD OF DIRECTORS OF FHP INTERNATIONAL CORPORATION (THE "COMPANY") ON FEBRUARY 14, 1997 EMPLOYEE STOCK OWNERSHIP PLAN WHEREAS, the Company and certain employers affiliated with the Company maintain the FHP International Corporation Employee Stock Ownership Plan (the "ESOP"); WHEREAS, the ESOP consists of three separate, but complimentary parts, each of which is designated to satisfy the specific provisions of the Internal Revenue Code of 1986, as amended (the "Code"), applicable to such part; WHEREAS, the first part is an employee stock ownership plan intended to qualify under Code Sections 401 and 4975(c)(7); WHEREAS, the second part is a stock bonus plan intended to qualify under Code Section 401, which includes a "cash or deferred arrangement" intended to qualify under Code Section 401(k); WHEREAS, the third part is a payroll-based tax credit employee stock ownership plan intended to qualify under Code Sections 41, 401, 409 and 4975(e)(7), and contributions to the third part were discontinued as of December 31, 1986; WHEREAS, the assets of the ESOP are invested, in part, in shares of FHP International Corporation Common Stock, $.05 par value ("FHP Common Stock"); WHEREAS, in accordance with the Reorganization Agreement, Tree Acquisition Corp. will merge into the Company effective as of the Closing, and the Company will be the surviving corporation following such merger; WHEREAS, upon the Closing, the ESOP will receive cash, shares of N-T Holdings Class A Common Stock, $.01 par value ("N-T Holdings A Common Stock"), shares of N-T Holdings Class B Common Stock, $.01 par value ("N-T Holdings B Common Stock"), and rights to purchase Talbert Medical Management Holdings Corporation Common Stock ("Talbert Rights"), in exchange for the shares of FHP Common Stock held by the ESOP; WHEREAS, upon the Closing, the Company will become a wholly- owned subsidiary of N-T Holdings, and shares of FHP Common Stock will cease to be readily tradable; WHEREAS, the Company finds it desirable to "spin off" the third part of the ESOP upon the Closing; WHEREAS, the Company also finds it desirable to amend the plan established by such "spinoff" to eliminate the right to receive distributions in shares of FHP Common Stock, and to eliminate the right to invest in shares of FHP Common Stock, following the Closing; WHEREAS, the Company also finds it desirable to terminate the plan established by such "spinoff"; WHEREAS, the Company also finds it desirable to continue the first and second parts of the ESOP as a profit sharing plan following the Closing; and WHEREAS, the Company also finds it desirable to amend the ESOP to eliminate the right to receive distributions in shares of FHP Common Stock, and to eliminate the right to invest in shares of FHP Common Stock, following the Closing. "SPIN-OFF" AMENDMENT AND TERMINATION OF THE PAYSOP WHEREAS, the third part of the ESOP consists of the "PAYSOP" Subaccounts" in the "Employer Contribution Accounts" in the ESOP. WHEREAS, under the terms of the ESOP applicable to the "PAYSOP" Subaccounts, the "PAYSOP Subaccounts" will be invested primarily in shares of FHP Common Stock prior to the Closing; WHEREAS, under the terms of the ESOP applicable to the "PAYSOP" Subaccounts," a participant or beneficiary may receive a withdrawal or distribution in a single sum consisting of the whole shares of "Stock" held in his or her "PAYSOP Subaccounts" as of his or her "Distribution Date"; WHEREAS, under the terms of the ESOP applicable to the "PAYSOP" Subaccounts," "Stock" is defined as shares of FHP Common Stock which are readily tradable on an established securities market; WHEREAS, the right to receive a withdrawal or distribution in whole shares of FHP Common Stock held in the "PAYSOP Subaccounts" is an "optional form of benefit" under Code Section 411(d)(6), Treas. Reg. Section 1.411(d)-4 and Section 204(g) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"); WHEREAS, immediately prior to the Closing, the "PAYSOP" Subaccounts in the ESOP will be subject to Code Section 409(h); WHEREAS, upon the Closing, shares of FHP Common Stock will cease to be readily available, and will no longer be held in the "PAYSOP Subaccounts" in the ESOP, and WHEREAS, the right to receive a withdrawal or distribution of whole shares of FHP Common Stock may be eliminated in accordance with Code Section 411(d)(6)(C), Treas. Reg. Section 1.411(d)-4 A-2(d)(1)(iv) and ERISA Section 204(g)(3). NOW THEREFORE, BE IT RESOLVED, that, effective upon the Closing, the payroll-based tax credit employee stock ownership plan that consists of the "PAYSOP Subaccounts" in the "Employer Contribution Accounts" in the ESOP be, and the same hereby is, "spun off" into a separate plan (the "PAYSOP"). RESOLVED FURTHER, that such "Spinoff" shall satisfy the requirements of Code Sections 401(a)(12) and 414(1), Treas. Reg. section 1.414(1)-1 and ERISA Section 208. RESOLVED FURTHER, that, effective upon the Closing, the name of the PAYSOP shall the "The FHP International Corporation PAYSOP". RESOLVED FURTHER, that, effective upon the Closing, Coy Baugh, Wanda Lee, Judy Ehrenreich and Jeffrey Kuehn be, and hereby are, appointed members of the "Committee" under the PAYSOP responsible for the administration of the PAYSOP. RESOLVED FURTHER that Wells Fargo Bank, N.A. be, and hereby is, appointed as the trustee of the trust established pursuant to the PAYSOP. RESOLVED FURTHER, that the officers of the Company be, and each hereby is, authorized and directed to file Form 5310-As with respect to such "spinoff", notifying the Commission of the Internal Revenue of such "spinoff", to the extent required by the Code. RESOLVED FURTHER, that, effective upon the Closing and immediately following such "spinoff," the PAYSOP be, and hereby is, amended to eliminate the right of a participant or beneficiary to invest such participant's or beneficiary's "PAYSOP Subaccount" in shares of FHP Common Stock. RESOLVED FURTHER, that, effective upon the Closing and such immediately following "spinoff," the PAYSOP be, and hereby is, amended to eliminate the right of a participant or beneficiary to receive withdrawals and distributions of such participant's or beneficiary's "PAYSOP Subaccount" in whole shares of FHP Common Stock. RESOLVED FURTHER, that the officers of the Company be, and each hereby is, authorized and directed to notify the participants in the PAYSOP of the elimination of the right to invest in shares of FHP Common Stock, and the elimination of the right to receive withdrawals and distributions of whole shares of FHP Common Stock. RESOLVED FURTHER, that said officers be, and each hereby is, authorized and directed to prepare and execute a plan document setting forth the terms of the PAYSOP, as established by such "spinoff". RESOLVED FURTHER, that the PAYSOP be, and hereby is, terminated effective upon the Closing and immediately following such "spinoff." RESOLVED FURTHER, that the distributions of the "PAYSOP Subaccounts" upon the termination of the PAYSOP shall be made as soon as administratively feasible following the termination of the PAYSOP and the issuance of a favorable determination letter by the Commissioner of Internal Revenue relative to the PAYSOP and the termination of the PAYSOP. RESOLVED FURTHER, that a participant or beneficiary shall have the right to receive the distribution of such participant's or beneficiary's "PAYSOP Subaccounts" in the form of the cash, shares of N-T Holdings A Common Stock, shares of N-T Holdings B Common Stock and Talbert Rights received in exchange for the shares of FHP Common Stock held by the PAYSOP on the Closing, in accordance with Code Section 409(h). RESOLVED FURTHER, that the officers of the Company be, and each hereby is, authorized and directed to notify the participants in the PAYSOP of the termination of the PAYSOP. RESOLVED FURTHER, that said officers be, and each hereby is, authorized and directed to request a favorable determination from the Commission of Internal Revenue relative to the PAYSOP holding that the PAYSOP, as amended, and the trust established pursuant thereto are qualified and tax-exempt under the applicable provisions of the Code, and that the termination of the PAYSOP will not adversely affect the qualified and tax-exempt status of the PAYSOP and such trust. RESOLVED FURTHER, that said officers be, and each hereby is, authorized and directed to prepare and execute any further documents necessary in conjunction with obtaining the approval of the PAYSOP and the trust established pursuant to the PAYSOP from the Commission of the Internal Revenue as qualified and tax- exempt, including any amendments which may be required as a condition of said rulings. RESOLVED FURTHER, that said officers be, and each hereby is, authorized and directed to prepare and execute any further documents and take any further actions as may be necessary to carry out the purposes of these resolutions. CONVERSION OF THE ESOP TO A PROFIT SHARING PLAN WHEREAS, the first part of the ESOP consists of the "Pre- 1/1/96 Employer Matching Contributions Subaccounts" and "Employer ESOP Contributions Subaccounts" in the "Employer Contributions Accounts" in the ESOP. WHEREAS, the second part of the ESOP consists of the "Pretax Deferral Accounts," "Rollover Accounts" "TakeCare Accounts" "Employer Stock Bonus Accounts" and the "New Matching Contributions Accounts" in the ESOP; WHEREAS, the first and second parts of the ESOP shall constitute the ESOP following the "spinoff" of the PAYSOP; and WHEREAS, the Company intends to continue the ESOP following the Closing. NOW THEREFORE, BE IT RESOLVED, that, effective upon the Closing and following the "spinoff" of the PAYSOP, the ESOP be, and hereby is, converted to a profit sharing plan intended to qualify under Code Section 401, which includes a "cash or deferred arrangement" that is intended to qualify under Code Section 404(k) (the "401(k) Plan"). RESOLVED FURTHER, that, effective upon the Closing and the conversion of the ESOP to the 401(k) Plan, the name of the 401(k) shall be changed to "The FHP International Corporation 401(k) Savings Plan." RESOLVED FURTHER, that, effective upon the conversion of the ESOP to the 401(k) Plan, the 401(k) Plan be, and hereby is, amended to eliminate those provisions contained in the ESOP prior to such conversion that were necessary in order for the ESOP to qualify as a stock bonus plan or an employee stock ownership plan. RESOLVED FURTHER, that the officers of the Company be, and each hereby is, authorized and directed to notify the participants in the 401(k) Plan of the conversion of the ESOP to a profit sharing plan and the terms of the 401(k) Plan. RESOLVED FURTHER, that said officers be, and each hereby is, authorized and directed to prepare and execute an amendment and restatement of the 401(k) Plan setting forth the terms of the 401(k) Plan, as so amended. RESOLVED FURTHER, that said officers be, and each hereby is, authorized and directed to prepare and execute any further documents and take any further actions as may be necessary to carry out the purposes of these resolutions. AMENDMENT OF THE 401(K) PLAN WHEREAS, immediately prior to the Closing, all or a portion of the "Accounts" in the ESOP will be invested in shares of FHP Common Stock; WHEREAS, under the terms of the ESOP, a participant or beneficiary is entitled to invest all or a portion of the "Accounts" in the ESOP in shares of the FHP Common Stock; WHEREAS, under the terms of the ESOP, a participant or beneficiary may receive a withdrawal or distribution in a single sum consisting of the whole shares of "Stock" held in his or her "Accounts" as of his or her "Distribution Date", WHEREAS, under the terms of the ESOP, "Stock" is defined as shares of FHP Common Stock which are readily tradable on an established securities market; WHEREAS, the right to receive a withdrawal or distribution in whole shares of FHP Common Stock held in the "Accounts" is an "optional form of benefit" under Code Section 411(d)(6), Treas. Reg. Section 1.411(d)-4 and ERISA Section 204(g), RESOLVED FURTHER, that, upon the Closing and the conversion of the ESOP to the 401(k) Plan, the 401(k) Plan be, and hereby is, amended to eliminate the right of a participant or beneficiary to receive distributions of such participant's or beneficiary's "Accounts" in whole shares of FHP Common Stock. WHEREAS, the right to receive a withdrawal or distribution of whole shares of FHP Common Stock may be eliminated in accordance with Code Section 411(d)(6)(C), Treas. Reg. Section 1.411(d)-4A-2(d)(1)(iv) and ERISA Section 204(g)(3). NOW, THEREFORE BE IT RESOLVED, that, effective upon the Closing and the conversion of the ESOP to the 401(k) Plan, the 401(k) Plan be, and hereby is, amended to eliminate the right of a participant or beneficiary to invest such participant's or beneficiary's "Accounts" in shares of FHP Common Stock. RESOLVED FURTHER, that, upon the Closing and the conversion of the ESOP to the 401(k) Plan, the 401(k) Plan be, and hereby is, amended to eliminate the right of a participant or beneficiary to receive distributions of such participant's or beneficiary's "Accounts" in whole shares of FHP Common Stock. RESOLVED FURTHER, that, upon the Closing and the conversion of the ESOP to the 401(k) Plan, the 401(k) Plan be, and hereby is, amended to provide that all withdrawals and distributions to participants and beneficiaries shall be made in the form of cash. RESOLVED FURTHER, that the officers of the Company be, and each hereby is, authorized and directed to notify the participants in the 401(k) Plan of the elimination of the right to invest in shares of FHP Common Stock, and the elimination of the right to receive withdrawals and distributions of whole shares of FHP Common Stock. RESOLVED FURTHER, that the amendment and restatement of the 401(k) Plan to be prepared and executed by the officers of the Company shall reflect the elimination of such rights. RESOLVED FURTHER, that the officers of the Company be, and each hereby is, authorized and directed to request a favorable determination from the Commissioner of the Internal Revenue relative to the 401(k) Plan holding that the 401(k) Plan and the trust established pursuant thereto are qualified and tax-exempt under the applicable provisions of the Code. RESOLVED FURTHER, that the officers of the Company be, and each hereby is, authorized and directed to prepare and execute any further documents necessary in conjunction with obtaining the approval of the 401(k) Plan and the trust established pursuant thereto from the Commission of the Internal Revenue as qualified and tax-exempt, including any amendments which may be required as a condition of said rulings. RESOLVED FURTHER, that the officers of the Company be, and each hereby is, authorized and directed to prepare and execute any further documents and to take any further actions as may be necessary to carry out the purposes of these resolutions. APPOINTMENT OF 401(K) PLAN COMMITTEE WHEREAS, the "Committee" under the 401(k) Plan is responsible for the administration of the 401(k) Plan, and WHEREAS, the Company finds it desirable to remove the present members of the "Committee" and to appoint new members of the "Committee." NOW THEREFORE BE IT RESOLVED, that, effective upon the Closing and the conversion of the ESOP to the 401(k) Plan, the members of the "Committee" under the 401(k) Plan be, and hereby is, removed. RESOLVED FURTHER, that, effective upon the Closing and the conversion of the ESOP to the 401(k) Plan, Coy Baugh, Wanda Lee, Judy Ehrenreich and Jeffrey Kuehn be, and hereby are, appointed members of the "Committee" under the 401(k) Plan. RESOLVED FURTHER, that officers of the Company be, and each hereby is, authorized and directed to prepare and execute any documents and to take any actions as may be necessary to carry out the purposes of these resolutions. FHP MONEY PURCHASE PENSION PLAN WHEREAS, the Company and certain employers affiliated with the Company maintain the FHP Money Purchase Pension Plan; WHEREAS, the Pension Plan is a money purchase pension plan intended to qualify under Code Section 401; WHEREAS, the "Committee", under the Pension Plan is responsible for the administration of the Pension Plan; and WHEREAS, the Company finds it desirable to remove the present members of the "Committee" and to appoint new members of the "Committee". NOW, THEREFORE, BE IT RESOLVED, that, effective upon the Closing, the members of the "Committee" under the Pension Plan be, and hereby is, removed. RESOLVED FURTHER, that, effective upon the Closing, Coy Baugh, Wanda Lee, Judy Ehrenreich and Jeffrey Kuehn be, and hereby are, appointed members of the Committee under the Pension Plan. RESOLVED FURTHER, that officers of the Company be, and each hereby is, authorized and directed to prepare and execute any documents and to take any actions as may be necessary to carry out the purposes of these resolutions. I, Joseph S. Konowiecki, certify that I am the duly elected Secretary of the Company and that, as such, I do hereby further certify that the resolutions set forth above are a true and correct representation of resolutions duly adopted by the Board of Directors of FHP International Corporation on February 14, 1997 and that said resolutions have not been amended, modified or rescinded and remain in full force and effect on the date hereof. Dated: April 15, 1997 /s/ Joseph S. Konowiecki Joseph S. Konowiecki Secretary EX-4 8 EXHIBIT 4.7 EXHIBIT 4.7 RESOLUTIONS OF THE BOARD OF DIRECTORS OF FHP INTERNATIONAL CORPORATION (the "Company") FHP International Corporation 401(k) Plan and PAYSOP WHEREAS, the Company and certain other employers previously maintained the FHP International Corporation Employee Stock Ownership Plan (the "ESOP"); WHEREAS, in accordance with the Amended and Restated Agreement and Plan of Reorganization, dated as of November 11, 1996 (the "Reorganization Agreement"), by and among N-T Holdings, Inc. ("PacifiCare Holdings"), PacifiCare Health Systems, Inc., Neptune Merger Corp., the Company and Tree Acquisition Corp. ("Tree"), Tree merged into the Company effective as of the effective time of the mergers (the "Closing"), and the Company survived such merger; WHEREAS, upon the Closing, the ESOP received cash, shares of PacifiCare Holdings Class A Common Stock, par value $.01 per share ("PacifiCare Holdings Class A Common Stock"), and shares of Holdings Class B Common Stock, par value $.01 per share ("PacifiCare Holdings Class B Common Stock"), and following the Closing, will receive rights to purchase Talbert Medical Management Holdings Corporation ("Talbert") Common Stock, $.01 par value ("Talbert Rights") in exchange for the shares of FHP International Corporation Common Stock, $.05 par value, held by the ESOP; WHEREAS, upon the Closing, the name of PacifiCare Holdings was changed to "PacifiCare Health Systems, Inc."; WHEREAS, upon the Closing, The FHP International Corporation PAYSOP (the "PAYSOP") was established by a "spinoff" from the ESOP; and WHEREAS, upon the Closing, the ESOP was converted to a profit sharing plan (the "401(k) Plan") and renamed "The FHP International Corporation 401(k) Savings Plan". Amendment of the PAYSOP WHEREAS, the PAYSOP holds shares of PacifiCare Holdings Class A Common Stock and shares of PacifiCare Holdings Class B Common Stock, and will hold Talbert Rights and shares of Talbert Common Stock, $.01 par value ("Talbert Common Stock"); and WHEREAS, certain participants in the PAYSOP will be able to direct Wells Fargo Bank, N.A., the trustee of the PAYSOP, with respect to the exercise or sale of the Talbert Rights credited to their accounts under the PAYSOP. RESOLVED, that, effective upon the Closing, the PAYSOP is hereby amended to provide that the PAYSOP may hold shares of PacifiCare Holdings Class A Common Stock, shares of PacifiCare Holdings Class B Common Stock, Talbert Rights and shares of Talbert Common Stock. RESOLVED, FURTHER, that, effective upon the issuance of the Talbert Rights to the PAYSOP, the PAYSOP is hereby amended to provide that a participant in the PAYSOP shall be provided the opportunity to direct the exercise or sale of some or all of the Talbert Rights credited to such participant's account under the PAYSOP in accordance with the procedures specified by the Committee responsible for the administration of the PAYSOP; provided, however, that a physician in a position to make referrals to Talbert Health Services Corporation shall not be provided the opportunity to direct the exercise of the Talbert Rights credited to such participant's account under the PAYSOP, and the Talbert Rights credited to such participant's account under the PAYSOP shall be sold by the PAYSOP if the Talbert Rights have value at the time of the sale. RESOLVED, FURTHER, that, effective upon the issuance of the Talbert Rights to the PAYSOP, the PAYSOP is hereby amended to provide that, except as otherwise provided below, a participant in the PAYSOP entitled to direct the exercise or sale of the Talbert Rights credited to such participant's account under the PAYSOP may make such direction in accordance with the PAYSOP's telephonic procedure not later than 1:00 p.m. Pacific Time on May 13, 1997, and that, in the case of a participant who fails to make a timely direction in accordance with such telephonic procedure, the Talbert Rights credited to such participant's account shall be sold by the PAYSOP if the Talbert Rights have value at the time of the sale. RESOLVED, FURTHER, that, effective upon the issuance of the Talbert Rights to the PAYSOP, the PAYSOP is hereby amended to provide that a participant in the PAYSOP who is resident in Guam and is entitled to direct the exercise or sale of the Talbert Rights credited to such participant's account under the PAYSOP may make such direction in accordance with the PAYSOP's written direction procedure, provided such written direction is received by the Human Resources Department not later than May 8, 1997, and that, in the case of such a participant who fails to make a timely written direction in accordance with such procedure, the Talbert Rights credited to such participant's account shall be sold by the PAYSOP if the Talbert Rights have value at the time of the sale. RESOLVED, FURTHER, that, effective upon the issuance of the Talbert Rights to the PAYSOP, the PAYSOP is hereby amended to provide that in the case of a participant who directs the exercise of some or all of the Talbert Rights credited to such participant's account under the PAYSOP, the other investments credited to such participant's account (other than the investments in PacifiCare Holdings Class A Common Stock and PacifiCare Holdings Class B Common Stock) shall be liquidated proportionately to the extent necessary to provide the exercise price with respect to the Talbert Rights to be exercised, and, in the event all of such investments are liquidated, the investments in PacifiCare Holdings Class A Common Stock and PacifiCare Holdings Class B Common Stock shall be liquidated to the extent necessary to provide such exercise price. RESOLVED, FURTHER, that, effective upon the issuance of the Talbert Rights to the PAYSOP, the PAYSOP is hereby amended to provide that the Talbert Rights to be sold by the PAYSOP shall be sold during the five trading days beginning on May 14, 1997 and ending on May 20, 1997 if the Talbert Rights have value at the time of the sale, and each Talbert Right sold shall be treated as having been sold for the average sale price (net of selling expenses) of the Talbert Rights sold by the PAYSOP and the 401(k) Plan. RESOLVED, FURTHER, that, effective upon the issuance of the Talbert Rights to the PAYSOP, the PAYSOP is hereby amended to provide that the proceeds from the sale of the Talbert Rights credited to a participant's account under the PAYSOP shall be credited to such participant's account and shall be invested in the American Express Trust Income Fund I under the PAYSOP. RESOLVED, FURTHER, that, effective upon the issuance of the Talbert Rights to the PAYSOP, the PAYSOP is hereby amended to provide that the Talbert Rights held as unallocated forfeitures under the PAYSOP shall be sold by the PAYSOP if the Talbert Rights have value at the time of the sale. RESOLVED, FURTHER, that the Company's officers be, and each hereby is, authorized and directed to execute any documents and to take any actions as may be necessary to carry out the purposes of these resolutions. Amendment of 401(k) Plan WHEREAS, the 401(k) Plan holds shares of PacifiCare Holdings Class A Common Stock and shares of PacifiCare Holdings Class B Common Stock, and will hold Talbert Rights and shares of Talbert Common Stock; and WHEREAS, certain participants in the 401(k) Plan will be able to direct Wells Fargo Bank, N.A., the trustee of the 401(k) Plan, with respect to the exercise or sale of the Talbert Rights credited to their accounts under the 401(k) Plan. RESOLVED, that, effective upon the Closing, the 401(k) Plan is hereby amended to provide that the 401(k) Plan may hold shares of PacifiCare Holdings Class A Common Stock, shares of PacifiCare Holdings Class B Common Stock, Talbert Rights and shares of Talbert Common Stock. RESOLVED, FURTHER, that, effective upon the issuance of the Talbert Rights to the 401(k) Plan, the 401(k) Plan is hereby amended to provide that a participant in the 401(k) Plan shall be provided the opportunity to direct the exercise or sale of some or all of the Talbert Rights credited to such participant's account under the 401(k) Plan in accordance with the procedures specified by the Committee responsible for the administration of the 401(k) Plan; provided, however, that, a physician in a position to make referrals to Talbert Health Services Corporation shall not be provided the opportunity to direct the exercise of the Talbert Rights credited to such participant's account under the 401(k) Plan, and the Talbert Rights credited to such participant's account under the 401(k) Plan shall be sold by the 401(k) Plan if the Talbert Rights have value at the time of the sale. RESOLVED, FURTHER, that, effective upon the issuance of the Talbert Rights to the 401(k) Plan, the 401(k) Plan is hereby amended to provide that, except as otherwise provided below, a participant in the 401(k) Plan entitled to direct the exercise or sale of the Talbert Rights credited to such participant's account under the 401(k) Plan may make such direction in accordance with the 401(k) Plan's telephonic procedure not later than 1:00 p.m. Pacific Daylight Time on May 13, 1997, and that, in the case of a participant who fails to make a timely direction in accordance with such telephonic procedure, the Talbert Rights credited to such participant's account shall be sold by the 401(k) Plan if the Talbert Rights have value at the time of the sale. RESOLVED, FURTHER, that, effective upon the issuance of the Talbert Rights to the 401(k) Plan, the 401(k) Plan is hereby amended to provide that a participant in the 401(k) Plan who is resident in Guam and is entitled to direct the exercise or sale of the Talbert Rights credited to such participant's account under the 401(k) Plan may make such direction in accordance with the 401(k) Plan's written direction procedure, provided such written direction is received by the Human Resources Department not later than May 8, 1997, and that, in the case of such a participant who fails to make a timely written direction in accordance with such procedure, the Talbert Rights credited to such participant's account shall be sold by the 401(k) Plan if the Talbert Rights have value at the time of the sale. RESOLVED, FURTHER, that, effective upon the issuance of the Talbert Rights to the 401(k) Plan, the 401(k) Plan is hereby amended to provide that in the case of a participant who directs the exercise of some or all of the Talbert Rights credited to such participant's account under the 401(k) Plan, the other investments credited to such participant's account (other than the investments in PacifiCare Holdings Class A Common Stock and PacifiCare Holdings Class B Common Stock) shall be liquidated proportionately to the extent necessary to provide the exercise price with respect to the Talbert Rights to be exercised and, in the event all of such investments are liquidated, the investments in PacifiCare Holdings Class A Common Stock and PacifiCare Holdings Class B Common Stock shall be liquidated to the extent necessary to provide such exercise price. RESOLVED, FURTHER, that, effective upon the issuance of the Talbert Rights to the 401(k) Plan, the 401(k) Plan is hereby amended to provide that the Talbert Rights to be sold by the 401(k) Plan shall be sold during the five trading days beginning on May 14, 1997 and ending on May 20, 1997 if the Talbert Rights have value at the time of the sale, and each Talbert Right sold shall be treated as having been sold for the average sale price (net of selling expenses) of the Talbert Rights sold by the 401(k) Plan and the 401(k) Plan. RESOLVED, FURTHER, that, effective upon the issuance of the Talbert Rights to the 401(k) Plan, the 401(k) Plan is hereby amended to provide that the proceeds from the sale of the Talbert Rights credited to a participant's account under the 401(k) Plan shall be credited to such participant's account and shall be invested in accordance with such participant's existing investment directions applicable to new contributions, and if there are no such directions, in the American Express Trust Income Fund I under the 401(k) Plan if the Talbert Rights have value at the time of the sale. RESOLVED, FURTHER, that, effective upon the issuance of the Talbert Rights to the 401(k) Plan, the 401(k) Plan is hereby amended to provide that the Talbert Rights held as unallocated forfeitures under the 401(k) Plan shall be sold by the 401(k) Plan if the Talbert Rights have value at the time of the sale. RESOLVED FURTHER, that the Board of Directors hereby authorizes the Company's executive officers, to do or cause to be done, any acts or things, to make, execute, and deliver, or to cause to be made, executed, and delivered any agreements, assignments, documents, instruments, applications, regulatory filings or undertakings, certificates or payments, in the name and on behalf of the Company as such officers, in their discretion, deem necessary, appropriate, or advisable to effectuate or carry out the purposes and intent of the foregoing resolutions and any and all transactions contemplated thereby. RESOLVED, FURTHER, that the resolutions adopted by this unanimous written consent shall be effective as of February 14, 1997. IN WITNESS WHEREOF, the undersigned have executed this Unanimous Written Consent and this Unanimous Written Consent shall have the same effect as actions taken at a duly held meeting. /s/ Alan Hoops Alan Hoops /s/ Wayne Lowell Wayne Lowell /s/ Joseph Konowiecki Joseph Konowiecki EX-4 9 EXHIBIT 4.8 EXHIBIT 4.8 Form of Specimen Certificate for registrant's Common Stock. COMMON STOCK COMMON STOCK TM TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION INCORPORATED UNDER THE LAWS OF SEE REVERSE FOR THE STATE OF DELAWARE CERTAIN DEFINITIONS CUSIP 874121 10 6 THIS CERTIFIES THAT is the record holder of FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.01 PAR VALUE, OF TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Dated: SECRETARY PRESIDENT [SEAL] COUNTERSIGNED AND REGISTERED: AMERICAN STOCK TRANSFER & TRUST COMPANY TRANSFER AGENT AND REGISTRAR BY AUTHORIZED SIGNATURE The Corporation shall furnish without charge to each stockholder who so requests a statement of the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock of the Corporation or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Such requests shall be made to the Corporation's Secretary at the principal office of the Corporation. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ...... Custodian .... TEN ENT -- as tenants by the entireties (Cust) (Minor) JT TEN -- as joint tenants with right of under Uniform Gifts to Minors survivorship and not as tenants Act.................. in common (State) UNIF TRF MIN ACT -- ..... Custodian (until age...) (Cust) .......... under Uniform Transfers (Minor) to Minors Act ........... (State)
Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, ________________________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ---------------------------------- - --------------------------------------------------------------- (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) _____________________________________________________ Shares of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint ____________________________________________________ Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated _____________________________________ X_________________________________ X_________________________________ NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. Signature(s) Guaranteed By _______________________________________ THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. EX-4 10 EXHIBIT 4.9 EXHIBIT 4.9 Form of Specimen Certificate for Subscription Agreement representing rights to purchase shares of registrant's Common Stock. TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION SUBSCRIPTION CERTIFICATE REPRESENTING RIGHTS TO PURCHASE SHARES OF COMMON STOCK, $.01 PAR VALUE, OF TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION ("COMMON STOCK"). VOID IF NOT VALIDLY EXERCISED BEFORE 5:00 P.M. EASTERN STANDARD TIME ON MAY 20, 1997. THIS SUBSCRIPTION CERTIFICATE IS TRANSFERABLE AND MAY BE COMBINED OR DIVIDED (BUT ONLY INTO CERTIFICATES EVIDENCING A WHOLE NUMBER OF RIGHTS) AT THE OFFICE OF THE SUBSCRIPTION AGENT. CONTROL NUMBER THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE COMPANY'S PROSPECTUS DATED APRIL 21, 1997 (THE "PROSPECTUS") AND ARE INCORPORATED HEREIN BY REFERENCE. CAPITALIZED TERMS NOT OTHERWISE DEFINED HEREIN HAVE THE MEANINGS ASSIGNED TO THEM IN THE PROSPECTUS. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM AMERICAN STOCK TRANSFER & TRUST COMPANY, THE SUBSCRIPTION AGENT. REGISTERED OWNER: [SPECIMEN] SUBSCRIPTION CERTIFICATE FOR SHARES SUBSCRIPTION PRICE: U.S. $21.50 PER SHARE CUSIP 874121 11 4 The registered owner whose name is inserted hereon, or assigns, is entitled to subscribe for shares of Common Stock upon the terms and subject to the conditions set forth in the Prospectus and instructions relating thereto. The Rights represented by this Subscription Certificate may be exercised by duly completing Form 1; may be transferred, assigned, exercised or sold through a bank or broker by completing Form 2; and may be sold through the Subscription Agent by duly completing Form 3. Special delivery instructions may be specified by completing Form 4. THE RIGHTS EVIDENCED BY THIS SUBSCRIPTION CERTIFICATE MAY NOT BE EXERCISED, TRANSFERRED, ASSIGNED OR SOLD UNLESS THE REVERSE SIDE HEREOF IS SIGNED, WITH A SIGNATURE GUARANTEE, IF APPLICABLE, AND THE APPROPRIATE FORM IS COMPLETED. Date: SECRETARY [SEAL] PRESIDENT COUNTERSIGNED AND REGISTERED: AMERICAN STOCK TRANSFER & TRUST COMPANY SUBSCRIPTION AGENT BY AUTHORIZED SIGNATURE TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION RIGHTS HOLDERS SHOULD BE AWARE THAT IF THEY CHOOSE TO EXERCISE OR TRANSFER LESS THAN ALL OF THE RIGHTS EVIDENCED HEREBY, THEY MAY NOT RECEIVE A NEW SUBSCRIPTION CERTIFICATE IN SUFFICIENT TIME TO EXERCISE THE REMAINING RIGHTS EVIDENCED THEREBY. FORM 1 - EXERCISE AND SUBSCRIPTION. The undersigned hereby irrevocably exercises one or more Rights to subscribe for shares of Common Stock as indicated below, on the terms and subject to the conditions specified in the Prospectus, receipt of which is hereby acknowledged. Rights may only be exercised in whole numbers. (a) Number of shares subscribed for pursuant to the Basic Subscription Privilege (one Right needed to subscribe for each full share): (b) Number of shares subscribed for pursuant to the Additional Subscription Privilege: (c) Total Subscription Price (total number of shares subscribed for pursuant to both the Basic Subscription Privilege and the Additional Subscription Privilege - times the Subscription Price of $21.50): If the amount enclosed or transmitted is not sufficient to pay the Subscription Price for all shares that are stated to be subscribed for, or if the number of shares being subscribed for is not specified, the number of shares subscribed for will be assumed to be the maximum number of whole shares that could be subscribed for upon payment of such amount. If the number of shares to be subscribed for pursuant to the Additional Subscription Privilege is not specified and the amount enclosed or transmitted exceeds the Subscription Price for all shares represented by this Subscription Certificate (the "Subscription Excess"), the person subscribing pursuant hereto shall be deemed to have exercised the Additional Subscription Privilege to purchase, to the extent available, that number of whole shares of Common Stock equal to the quotient obtained by dividing the Subscription Excess by $21.50. Any amount remaining after such division shall be returned to the subscriber without interest or deduction. METHOD OF PAYMENT (CHECK ONE) / / CHECK, BANK DRAFT OR MONEY ORDER PAYABLE TO AMERICAN STOCK TRANSFER & TRUST COMPANY, AS SUBSCRIPTION AGENT. / / WIRE TRANSFER DIRECT TO AMERICAN STOCK TRANSFER & TRUST COMPANY, ACCOUNT NO. 323053793, ABA NO. 021 000 121. (d) If the number of Rights being exercised pursuant to the Basic Subscription Privilege is less than all of the Rights represented by this Subscription Certificate (check only one): / / DELIVER TO ME A NEW SUBSCRIPTION CERTIFICATE EVIDENCING THE REMAINING RIGHTS TO WHICH I AM ENTITLED. / / DELIVER A NEW SUBSCRIPTION CERTIFICATE EVIDENCING THE REMAINING RIGHTS IN ACCORDANCE WITH MY FORM 2 INSTRUCTIONS (which include any required signature guarantees). / / SELL THE REMAINING UNEXERCISED RIGHTS IN ACCORDANCE WITH MY FORM 3 INSTRUCTIONS. Any request to sell shares in accordance with Form 3 instructions must be received by the Subscription Agent by 11:00 a.m., Eastern Daylight Time, 3 business days prior to the Expiration Date. / / CHECK HERE IF RIGHTS ARE BEING EXERCISED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY DELIVERED TO THE SUBSCRIPTION AGENT PRIOR TO THE DATE HEREOF AND COMPLETE THE FOLLOWING: Name(s) of Registered Owner(s) Window Ticket Number (if any) Date of Execution of Notice of Guaranteed Delivery Name of Institution that Guaranteed Delivery FORM 2 - TO TRANSFER YOUR SUBSCRIPTION CERTIFICATE OR SOME OR ALL OF YOUR RIGHTS OR TO EXERCISE OR SELL RIGHTS THROUGH YOUR BANK OR BROKER: For value received __________________ Rights represented by this Subscription Certificate are hereby assigned to (please print name and address and Social Security No. or Taxpayer ID No. of transferee in full): Name: Address: _____________________________________________ PROVIDE GUARANTEE _____________________________________________ OF SIGNATURE(S) ____________________________________________ BELOW IF TRANSFEREE IS NOT A BANK OR BROKER Social Security or Taxpayer ID No.: / / FORM 3 - CHECK HERE TO SELL YOUR UNEXERCISED RIGHTS THROUGH SUBSCRIPTION AGENT: Check box if the undersigned hereby authorizes the Subscription Agent to sell any Rights represented by this Subscription Certificate but not exercised hereby and to deliver to the undersigned a check for the net proceeds. / / FORM 4 - DELIVERY INSTRUCTIONS: Name and/or address for mailing any stock, new Subscription Certificate or cash payment if other than shown on the reverse hereof: Name: _________________________________________ PROVIDE GUARANTEE Address: _____________________________________ OF SIGNATURE(S) _______________________________________________ BELOW _______________________________________________ (Including Zip Code) - ----------------------------------------------------------------- IMPORTANT RIGHTS HOLDER SIGN HERE AND, IF RIGHTS ARE BEING SOLD OR EXERCISED, COMPLETE SUBSTITUTE FORM W-9 __________________________________________________________ __________________________________________________________ signature(s) of Holder(s) Dated: ___________________________________________________ Must be signed by the registered holder(s) exactly as name(s) appear(s) on the Subscription Certificate. If signature by trustee(s), executor(s), administrator(s), guardian(s), attorney(s)-in-fact, officer(s) of a corporation or another acting in a fiduciary or representative capacity, please provide the following information. See instructions for Forms 1-3. Name(s) __________________________________________________ ___________________________________________________________ (Please Print) Capacity _________________________________________________ Address _________________________________________________ ___________________________________________________________ (including zip code) Area Code and Telephone Number: _______________________________________ (Home) __________________________________________________________ (Business) Tax Identification or Social Security No. _____________________________________ (Complete Substitute Form W-9) GUARANTEE OF SIGNATURE(S) See instructions for Forms 2 and 4 Authorized Signature __________________________________ Name: ____________________________________________________ Title: ___________________________________________________ Name of Firm: ___________________________________________ Address: ________________________________________________ Area Code and Telephone Number: _________________________ Dated: ___________________________________________________ THE RIGHTS EVIDENCED BY THIS CERTIFICATE EXPIRE AT 5:00 P.M. EASTERN DAYLIGHT TIME ON MAY 20, 1997. EX-5 11 EXHIBIT 5 [O'MELVENY & MYERS LETTERHEAD] April 21st 1 9 9 7 253,682-025 NB1-305590.V1 Talbert Medical Management Holdings Corporation 3540 Howard Way Costa Mesa, California 92626-1417 Re: Registration on Form S-8 of Talbert Medical Management Holdings Corporation (the "Company") Ladies and Gentlemen: In connection with the preparation of the Form S-8 Registration Statement (the "Registration Statement") to be submitted by the Company to the Securities and Exchange Commission in connection with the registration under the Securities Act of 1933, as amended, of 140,000 shares of Common Stock, par value $0.01 per share, of the Company (the "Shares"), interests in the Plans, and additional rights to acquire Shares (together with the Shares and interests in the Plans, the "Securities"), to be issued pursuant to The FHP International Corporation 401(k) Savings Plan and The FHP International Corporation PAYSOP (together, formerly known as the FHP International Corporation Employee Stock Ownership Plan and referred to herein as the "Plans"), you have requested our opinion as to whether the Securities have been duly authorized by all necessary corporate action on the part of the Company and, when issued in accordance with such authorization, the provisions of the Plans and relevant agreements duly authorized by and in accordance with the terms of the Plans, the Securities will be validly issued, fully paid and nonassessable. We have examined (i) the proceedings heretofore taken and to be taken in connection with the authorization of the Plans and the Securities to be issued pursuant to and in accordance with the Plans, (ii) the documents constituting the Plans, as amended, and (iii) such other matters of fact and law as we have deemed relevant. Based on the foregoing, it is our opinion that the Securities have been duly authorized by all necessary corporate action on the part of the Company and, when issued in accordance with such authorization, the provisions of the Plans and relevant agreements duly authorized by and in accordance with the terms of the Plans, the Securities will be validly issued, fully paid and nonassessable. We consent to the use of this opinion as an exhibit to the Registration Statement. Respectfully submitted, /S/ O'Melveny & Myers O'MELVENY & MYERS LLP EX-23 12 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Registration Statement of Talbert Medical Management Holdings Corporation on Form S-8 of our report dated April 4, 1997 appearing in Registration Statement No. 333-17679 of Talbert Medical Management Holdings Corporation on Form S-1 for the year ended December 31, 1996. /S/ Deloitte & Touche LLP Costa Mesa, California April 18, 1997 EX-23 13 EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Registration Statement of Talbert Medical Management Holdings Corporation on Form S-8 of our report dated April 10, 1996 appearing in the Annual Report on Form 11-K of the FHP International Corporation Employee Stock Ownership Plan (predecessor entity to the FHP International Corporation 401(k) Savings Plan and The FHP International Corporation PAYSOP, collectively) for the year ended December 31, 1995. /S/ Deloitte & Touche LLP Costa Mesa, California April 18, 1997 -----END PRIVACY-ENHANCED MESSAGE-----