10-K405
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FORM 10-K, U.S. HEALTHCARE, INC.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
-------------------- -------------------
COMMISSION FILE NUMBER 0-11531
U.S. HEALTHCARE, INC.
(Exact name of Registrant as specified in its charter)
Pennsylvania 23-2229683
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
980 Jolly Road, Blue Bell, Pennsylvania 19422
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 215-628-4800
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.005 Per Share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes. / X / No. / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. / X /
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of February 28, 1995 was $5,243,898,117, calculated by excluding
all shares held by executive officers, directors and 5% shareholders of the
Registrant without conceding that all such persons are "affiliates" of the
Registrant for purposes of the federal securities laws.
As of February 28, 1995 there were 145,587,040 shares of Common Stock
outstanding and 14,536,530 shares of Class B Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated herein by reference:
Parts II and IV - The Registrant's Annual Report to Shareholders for the
year ended December 31, 1994 ("1994 Annual Report to
Shareholders").
Part III - The Registrant's definitive Proxy Statement for its 1995
Annual Meeting of Shareholders, to be filed not later
than 120 days after the close of the fiscal year ("1995
Proxy Statement").
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PART I
ITEM 1: BUSINESS
THE HEALTH CARE INDUSTRY
Annual health care expenditures in the United States have grown from
approximately $27 billion in 1960, which represented approximately 5% of the
gross domestic product, to approximately $884 billion in 1993, which
represented approximately 14% of the gross domestic product. As a consequence,
employers, insurers and governmental authorities have been increasingly
focusing on alternative health care delivery systems such as health maintenance
organizations ("HMOs") that provide better controls on rising costs without
sacrificing quality. HMO enrollment in the United States has increased from
approximately three million members in 1970 to approximately 45 million at
January 1, 1994, served by 543 HMOs.
The goals of HMOs are to provide their members with access to quality health
care, while employing a business strategy and management systems designed to
encourage more cost-effective use of health care delivery systems. Such cost
containment strategies include providing access to primary physician care and
other services on a fixed, prepaid basis, monitoring hospital admissions and
length of stay, using a system of specialist referrals, using non hospital
based medical services, and emphasizing preventive care. To accomplish these
objectives, several basic HMO models have evolved: staff, group, network,
individual practice, and individual practice association. The key
distinguishing feature of each model is the relationship between the HMO and
the participating physicians. Under the staff model, the HMO employs the
physicians and uses capital to provide the facilities in which the physicians
see patients. The physicians receive a salary and often a bonus based on the
performance of the HMO. Under the group model, the HMO contracts with one large
multi-specialty medical group practice which typically receives a monthly fixed
fee for each HMO member (capitation), regardless of the medical services
provided to each member. The network model is predicated on an HMO contracting
with more than one physician group to provide services on a capitated fee
basis. Under an individual practice model, the HMO contracts with independent
physicians who are broadly dispersed throughout a community and who care for
patients in their own offices. The individual practice association (IPA) model
is similar to the individual practice model except the HMO contracts with an
organization (the IPA) that in turn contracts with the physicians. The HMOs
operated by U.S. Healthcare, Inc. (the "Company") most closely adhere to the
individual practice model. Unless the context otherwise requires, references
to the Company include its subsidiaries.
THE COMPANY'S MANAGED HEALTH CARE DELIVERY SYSTEM
The Company provides comprehensive managed health care services through HMOs
it owns and operates in Pennsylvania, New Jersey, New York, Delaware,
Connecticut, Massachusetts, New Hampshire, Maryland, Georgia, Virginia, Rhode
Island and the District of Columbia.
The services of the Company's HMOs are marketed primarily to employer groups
and are provided through networks of independent health care providers,
including selected primary care physicians who coordinate each person's
individual medical care. In addition to comprehensive primary physician care,
specialist care and hospital services, the Company makes available home health
care and other outpatient services as well as optional prescription drug,
vision care and dental plans. The Company has recruited independent primary
care physicians who use the Company's proprietary systems to monitor and
control medical costs while providing quality care. The Company has developed
prospective payment arrangements with these physicians in order to remove
traditional barriers to care. The Company encourages preventive care and the
use of alternative medical delivery services, and provides access to
comprehensive traditional health care services.
The Company contracts with providers to participate in its HMO service
network as it expands into new geographic areas or as it considers necessary to
serve its HMO membership. At December 31, 1994, the HMO service network
included approximately 7,800 primary care physicians, 26,800 specialists, 363
hospitals and 5,600 pharmacies.
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THE COMPANY'S HEALTH PLANS
The Company's health plans consist of HMO plans and indemnity-type plans
offered on a fully-insured and an employer-funded basis. Under fully-insured
health plans, the Company earns a premium and bears the risk for medical costs
incurred. Under employer-funded health plans, the Company earns a fee for
providing administrative services and the employer bears substantially all
risk for medical costs incurred. The Company's health plans served about
1,967,000 members as of December 31, 1994, an increase of 293,000 or 17.5% from
approximately 1,674,000 at December 31, 1993. The following table shows health
plan membership at December 31, 1994 and the increase in membership compared to
December 31, 1993 by plan type:
December 31, 1994 Increase
-------------------------------------------------------------------------------------
U.S. Healthcare-insured health plans:
HMO plans
Commercial 1,595,000 121,000
Medicare 38,000 13,000
Medicaid and other 57,000 36,000
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1,690,000 170,000
Indemnity plans - Commercial 6,000 5,000
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Total U.S. Healthcare-insured health plans 1,696,000 175,000
Employer-funded health plans 271,000 118,000
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Total health plans 1,967,000 293,000
========== ========
Under fully-insured HMO plans, members receive comprehensive medical
coverage in exchange for a fixed monthly premium. The Company offers HMO plans
with minimum out-of-pocket member expense and plans with lower premium rates and
higher copayments. When an individual enrolls in one of the Company's HMOs, he
or she selects a primary care physician from among the physicians who have
contracted with the Company. The primary care physicians are family
practitioners, general practitioners, internists or pediatricians who provide
necessary preventive and primary medical care and are generally responsible for
making referrals to specialists. Except in emergency situations, hospital care
generally requires a referral from the member's primary care physician and takes
place in hospitals that have contracts to serve the HMOs' members for an agreed
compensation. Members in employer-funded HMO plans receive coverage similar to
members in fully-insured HMO plans, but the employer assumes substantially all
risk for medical costs.
Commercial members join the Company's HMOs generally through employer
groups. See "Marketing" below. In many instances, employers offer employees a
choice of coverage by a managed care company or an indemnity health insurer.
Employees may select their desired health coverage during a designated period
(usually one month annually). New employees make their selections at the time
of employment. Employers generally pay all or part of the monthly charges and
make payroll deductions for any portion of the premium not provided as an
employee benefit.
In 1994, the Company introduced its Quality Point-of-Service Program(SM)
(QPOS)(SM), a joint offering of the Company's HMO and insurance subsidiaries.
Members can utilize comprehensive HMO benefits through participating providers
or go directly, without a referral, to any provider they choose, subject to,
among other things, certain deductibles and coinsurance. Membership in QPOS was
about 33,000 at December 31, 1994. These members are classified as U.S.
Healthcare-insured commercial HMO members in the preceding table.
In New York and New Jersey, the Company makes fully-insured commercial HMO
coverage available on a direct-pay basis to individual subscribers. At
December 31, 1994, about 8,000 members were enrolled in these programs.
The Company has annual contracts with the federal government in most of the
states in which the Company operates HMOs to provide fully-insured HMO
services to Medicare beneficiaries who choose to receive their health care
through HMOs. Under these contracts, the federal government agrees to pay the
Company for its services at a rate equal to 95% of the estimated average cost
for services per Medicare beneficiary that would have been incurred for
treatment of such beneficiaries outside of an HMO setting but in the same
geographic areas. Amounts payable under these contracts are subject to
periodic unilateral revision by the federal government. In addition to
payments from the federal government, some of the Company's Medicare HMO plan
options require a small premium to be paid by the member. At December 31,
1994, the Company served about 38,000 Medicare beneficiaries. Medicare plans
are
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marketed to eligible individuals and to employers as a less costly alternative
to traditional indemnity or supplemental Medicare coverages for their retirees.
The Company has contracts with certain state and local agencies in New York,
New Jersey and Massachusetts to provide fully-insured medical and health
benefits to certain persons eligible for Medicaid benefits in those states.
The Company's contracts are for periods of one to three years. At December 31,
1994, about 51,000 Medicaid beneficiaries were enrolled in the Company's HMO
plans.
The Company offers the Children's Health Insurance Program (CHIP) under
contract with the Commonwealth of Pennsylvania. CHIP is a fully-insured
comprehensive health care plan for children of low-income families who are not
covered by Medicaid. To broaden access to CHIP, in 1994, the Company
introduced CHIP Plus, a program whereby the Company pays all or a part of
premiums for certain children ineligible for fully state-funded coverage.
Also, under contract with the State of New Jersey, the Company offers
HealthStart Plus, a comprehensive fully-insured benefits program covering
pregnancy and infant care for eligible low-income residents. At December 31,
1994, about 6,000 members were enrolled in these programs.
The Company offers indemnity health insurance products to employers
located in the states in which it operates HMOs. These products are primarily
marketed to employers who want to offer the Company's HMOs but want to retain
an indemnity option for some employees. At December 31, 1994, the Company had
about 6,000 enrollees in its fully-insured indemnity plans.
COST CONTAINMENT
The Company has developed contractual arrangements with providers to combat
the high cost of medical services. These contractual arrangements cover the
majority of medical services. In the Company's managed health care delivery
system, the primary care physician plays an important role in practicing
preventive medicine and acts on behalf of the HMO member to provide access to
specialist physicians, hospitals, and other health care providers. These
primary care physicians contract with the Company to participate in a system
that has attracted an increasing number of people interested in cost-effective,
quality medical care; to influence more effectively health care planning; to
enjoy stable and timely remuneration; and to reduce bad debt experience,
billing and other paperwork. Participating physicians are primarily
independent practitioners who generally also have patients who are not members
of the Company's HMOs.
The Company generally compensates HMO primary care physicians pursuant to a
Quality Care Compensation System ("QCCS"). The system employs a monthly
capitation payment feature, but unlike most other HMOs, it incorporates quality
assessment, comprehensiveness of care, utilization and office status components
to adjust capitation payments to individual physician offices and to determine
the amount of additional periodic payments.
In addition to the prospective compensation arrangements with primary care
physicians, the Company has capitated payment arrangements for mental health,
diagnostic laboratory, radiology and diagnostic imaging services, podiatric
treatment and prescription drug dispensing. The Company has contracts with
specialist physicians at specified rates per visit or procedure. The Company
also has contracts that provide for all-inclusive per diem and per case
hospitalization rates, and fixed rates for ambulatory surgery and emergency
room services. The Company compensates certain contracted hospitals using the
Company's CapTainer(R) compensation methodology that takes into account the
attainment of agreed upon quality and cost containment goals to help determine
the final compensation paid to the hospitals. Under the CapTainer methodology,
hospitals are paid certain fees based on use of their facilities but can earn
financial incentives based on patient satisfaction and other performance
measurements. The Company also has contractual arrangements with certain
integrated health delivery systems under which the systems are compensated on a
prospective basis for medical services including primary, specialist and
hospital care.
In addition to its contractual arrangements, the Company uses other means to
deliver access to quality care in a cost-effective manner. Company employees
monitor hospital cases and assist participating physicians who wish to arrange
for medically appropriate but less costly alternatives. In addition, the
Company's HMOs require precertification of elective admissions and monitor the
length of hospital stays. Hospital admissions are reviewed by one of the
Company's medical directors or nurse reviewers. Participating physicians admit
their HMO patients to hospitals using referral procedures that direct the
hospital to the Company's patient management unit, which confirms the patient's
membership status while obtaining pertinent data. This unit also coordinates
related activities, including the subsequent transition to the home environment
and home care, if necessary. Case management assistance for complex or
"catastrophic" cases is provided by a special case unit.
The Company provides each primary care physician with a monthly report of
services and costs rendered to HMO members. This report contains cost and
utilization data, including hospital and specialist costs, which enables the
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physician to monitor hospital and specialist costs. The Company's information
systems also enable it to monitor enrollment, member eligibility, and the
historical use and cost of various services.
OTHER PRODUCTS AND SERVICES
The Company offers a workers compensation managed care program providing
medical and return-to-work management for employees with job-related injuries.
At December 31, 1994, the Company had contracts to provide workers compensation
managed care services for approximately 224,000 employees, compared to 100,000
employees at December 31, 1993.
The Company provides assistance to multi-state employers by coordinating
their relationships with other HMOs. Services include evaluation of the HMOs
in areas such as quality of care, efficiency and financial stability, as well
as enrollment and billing management.
The Company provides quality and outcome measurement and improvement
programs and healthcare data analysis systems for providers and purchasers of
health care.
The Company offers a number of supplemental benefit coverages to employers,
either as supplements to HMO plans or as stand-alone products. Such coverages
include dental plans, prescription drug plans, vision plans, employee
assistance programs and wellness programs.
QUALITY ASSESSMENT
The Company is an industry leader in developing and implementing
comprehensive quality assessment programs. The Company believes that providing
access to demonstrably high quality health care services is an essential
ingredient for success.
The Company's quality assessment program begins with the initial selection
of primary care physicians. Those who wish to participate in the Company's
HMOs must satisfy an extensive set of criteria. These criteria include
licensure, hospital admitting privileges, demonstrated proficiency, written
references, patient access, office standards, after-hours coverage and many
other factors. In addition, each physician must be approved by a Company
medical director who interviews the applicant and reviews selected medical
charts.
Participating primary care physicians are recertified annually.
Recertification covers many aspects of patient care, an analysis of member
grievances, the transfer and termination rate of HMO members from the practice,
on-site interviews, analysis of utilization patterns, extensive member surveys,
and drug prescription patterns. In addition, the Company's medical directors
review selected patient charts in participating physician offices for clarity
and conformity with accepted medical protocols.
Committees, each composed of a peer group of participating private
physicians, review primary care physician applicants and participants being
recertified. These committees recommend certification, recertification, or, if
appropriate, sanctions, which may include termination from participation in the
Company's HMOs. Regular reports of their determinations are made to each HMO's
Board of Directors.
The Company's member relations department deals directly with members
concerning their health care benefits. It also investigates grievances. On a
routine basis, survey questionnaires are sent to members regarding the quality
of care they receive. Physician committees and medical directors also review
issues related to the delivery of medical care.
Each participating primary care physician is obligated to carry direct
medical malpractice liability insurance in an amount no less than the greater
of the minimum amount required in the state in which the physician is licensed
or the Company's requirements. In addition, the Company carries contingent
medical malpractice professional liability insurance.
The Company has developed criteria and systems to measure the quality and
effectiveness of health care services provided in a variety of settings ranging
from physicians' offices to hospitals. These systems are used by the Company
in its quality assessment program.
MARKETING
The Company's marketing is conducted through a direct sales force of
approximately 600 sales representatives and marketing management personnel.
The marketing effort is supported by extensive market research and a
computerized
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database used to identify and grade prospects, and establish specific
enrollment goals by territory, employer groups and sales representatives.
Marketing efforts are also supported by an advertising program that includes
television, radio, billboards and print media.
The Company's 25 largest customers, including the Federal Employees Health
Benefits Plan, in the aggregate comprised 26% of the fully-insured HMO
membership at December 31, 1994. For the year ended December 31, 1994,
premiums billed to the federal government for the Federal Employees Health
Benefits Plan were approximately 9% of total premium revenue. The Company's
agreements with employer groups are generally for a term of 12 months and are
subject to annual renewal.
TRADEMARKS
The registered service mark U.S. Healthcare(R) is owned by the Company. The
Company considers U.S. Healthcare(R) and its other service marks, trademarks
and trade names important in the operation of its business. However, the
business of the Company is not dependent on any individual service mark,
trademark or trade name.
COMPETITION
Competition in the highly competitive health care industry has
intensified in recent years, primarily due to more aggressive marketing, a
proliferation of competing products from new and existing competitors and
increased quality and price sensitivity. Employer groups have increasingly
demanded new benefit options, including HMOs, point-of-service products and
preferred provider organizations (PPOs). In addition, some larger employers
have adopted self-funded health benefit plans, with plan administration provided
by a third party. The Company competes with Blue Cross and Blue Shield plans,
commercial insurers and other HMOs. Some of these organizations have greater
enrollment or financial resources than the Company. Management believes that
the most significant factors which distinguish competing health plans are
comprehensiveness of coverage, quality of care and service, cost (including both
premium and member out-of-pocket costs), product design, financial stability and
provider networks. The Company strives to be competitive in each of these
areas. The ability of the Company to increase the number of persons covered by
its health plans or to increase premiums is affected by competition in any
particular area and the desire and ability of employers to self-fund their
health benefit plans. Competition may also affect the availability to the
Company of the services of health care providers, including primary care
physicians and hospitals.
EMPLOYEES
At December 31, 1994, the Company had 4,268 full and part-time employees.
The Company believes that its relationship with its employees is good.
GOVERNMENT REGULATION
The federal government and the states in which the Company conducts its HMO
and other businesses have adopted laws and regulations that govern the business
activities of the Company to varying degrees. These laws and regulations may
restrict how the Company conducts its businesses and may result in additional
burdens and costs to the Company. Areas of governmental regulation include
licensure, premium rates, benefits, service area expansion, quality assurance
procedures, plan design, eligibility requirements, provider contracts and rates
of payment, underwriting, financial arrangements, financial condition
(including reserves) and corporate governance. Laws and regulations governing
the Company's businesses are subject to amendments and changing interpretations
in each jurisdiction.
There have been diverse legislative and regulatory initiatives at both
federal and state levels to address, among other aspects of the nation's health
care system, the continuing increases in health care costs and the lack of
health coverage for a significant segment of the population. Several bills
have been introduced in Congress to reform the nation's health care system.
These bills include elements such as guaranteed issue and renewability of
health insurance; subsidies for individuals who are uninsured or underinsured;
mandates on employers to provide health coverage for their employees; medical
savings accounts; mandatory or voluntary regional health alliances or
purchasing cooperatives; minimum or standardized health benefit packages;
limitations on premium rate increases and other price controls; mandatory
community rating of premiums; medical liability reforms; amendment of the
antitrust laws to benefit providers; mandatory or optional single-payer
systems for all or part of the population; and changes in federal tax, Medicare
and Medicaid laws and the Employee Retirement Income Security Act of 1974
("ERISA"). To varying
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degrees, many of the bills contemplate the involvement of state governments in
the regulation and implementation of federal health care reform legislation.
Recent legislation in certain of the states where the Company's HMOs
operate has included incentives to enroll individuals (including Medicare and
Medicaid beneficiaries) and small groups (including financial penalties if
defined enrollment targets are not achieved); restrictions on medical
underwriting; mandated offering of small group and individual coverage,
including specified plan designs; guaranteed policy renewability; mandated
continuous open enrollment for individuals and small groups; financial
assessments for the individual and small group markets intended to subsidize
eligible carriers (some or all of which assessments may or may not be reflected
in increased premium rates); and minimum medical loss ratios in certain lines
of businesses. Similar legislation is likely to be introduced and possibly
enacted in other states in which the Company does business. Other proposed
state laws and regulations include restrictions on the ability of managed care
entities to negotiate payment rates with providers, "any willing provider"
statutes that would require the Company's HMOs to accept all providers who
agree to meet the Company's terms, restrictions on the Company's discretion to
make benefit determinations, and mandated benefits.
The Company is unable to predict how existing federal or state laws and
regulations may be changed or interpreted, what additional laws or regulations
affecting its businesses may be enacted or proposed, when and which of the
proposed laws will be adopted and what effect the new laws and regulations will
have on its businesses.
Federally qualified HMOs, such as those operated by the Company, are
required to establish premium rates prospectively and without regard to actual
utilization of services, using one of three community rating methods. These
rates may vary from account to account to reflect projected family size and
contract mix, benefit levels, renewal date, and other factors. Under one of
these methods, "traditional community rating," an HMO establishes premium rates
based on its revenue requirements for its entire enrollment in a given
community. Under "community rating by class," an HMO establishes premium rates
based on its revenue requirements for broad classes of membership distinguished
by factors such as age and sex. Under "group specific community rating," an
HMO establishes premium rates based on the HMO's revenue requirements for
providing services to the group. New York, one of the principal states in
which the Company operates, generally permits HMOs to set premiums only in
accordance with the traditional community rating method. Several of the other
states in which the Company operates HMOs permit use of all three community
rating methods. State laws in most of the states in which the Company operates
HMOs require the filing with and approval by the state of HMO premium rates.
In addition to reviewing anticipated medical costs, some states also review
anticipated administrative costs, as part of the approval process. Future
results of the Company could be affected if the premium rates requested by the
Company are not approved or are adjusted downward (possibly to levels lower
than rates previously approved) by state regulators.
Most states, including those in which the Company now operates HMOs, require
HMOs to be licensed prior to commencing operations. If the Company establishes
an HMO in any state where it does not presently operate an HMO, it generally
has to seek licensure. The time necessary to obtain an HMO license varies from
state to state. Each HMO must file periodic financial and operating reports
with the states in which it does business. In addition, HMO operations are
subject to state examination and periodic license renewal.
The Company has three insurance subsidiaries, one domiciled in Minnesota and
licensed in 46 other states and the District of Columbia, one domiciled in New
York and one domiciled in Connecticut. The Company's insurance subsidiaries
are subject to regulation in each state in which licensed.
The Company is subject to federal and state regulations which require the
Company's subsidiaries to maintain certain levels of tangible net assets, as
defined, for use in their own operations. Some states also require prior
approval before funds are transferred to affiliates.
The provision of goods and services to certain employee health benefit plans
is subject to ERISA, a complex set of laws and regulations subject to
interpretation and enforcement by the Internal Revenue Service and the
Department of Labor. ERISA regulates certain aspects of the relationships
between the Company and employers who maintain employee benefit plans subject
to ERISA. Some of the administrative services and other activities of the
Company may also be subject to regulation under ERISA. In addition, some
states require licensure or registration of companies such as the Company's
subsidiary that provides third party claims administration services for benefit
plans.
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ITEM 2: PROPERTIES
The Company owns 42 acres of land in Blue Bell, Pennsylvania on which are
situated three office buildings having an aggregate 457,000 square feet. These
buildings house the Company's headquarters and most of the activities related
to the Company's Mid-Atlantic region. The Company also owns a 110,000 square
foot office building in Fairfield, New Jersey, which houses certain of the
activities related to the Company's Northeastern region, and a 65,000 square
foot warehouse near its headquarters. The Company leases an aggregate 300,000
square feet of office space in thirteen other facilities housing other regional
and branch offices and additional member relations and provider payments
personnel.
ITEM 3: LEGAL PROCEEDINGS
On October 12, 1993, the Company filed a petition with the New York State
Supreme Court seeking to stay and annul the Opinion and Decision of
Superintendent of Insurance of the State of New York dated September 30, 1993,
which would have reduced the premium rates for the Company's New York HMO for
the twelve month period beginning October 1, 1993 by a weighted average of 3.9%
from the rates in effect for the preceding twelve month period. On November 1,
1993, the Court held a hearing and ordered that a stay should be granted.
Accordingly, for New York HMO group contracts renewed or entered into during
the first quarter of 1994, the Company generally charged the premium rates in
effect during the third quarter of 1993. The Court entered a written Order and
Decision on July 8, 1994, implementing the November 1, 1993 oral decision on
the basis that the Superintendent violated the New York Insurance Law (by
reducing the Company's premium rates without giving the Company an opportunity
to oppose the reduction) and remanding the matter to the Superintendent for a
proper hearing. On August 4, 1994, the Superintendent filed a Notice of Appeal
with the Appellate Division; the appeal was dismissed on October 11, 1994. On
October 13, 1994, the Superintendent moved for permission to appeal to the
Appellate Division; this motion was denied on January 17, 1995. The
Superintendent did not appeal from the decisions of the Appellate Division and,
as of March 24, 1995, had not elected to schedule a hearing pursuant to the
July 8, 1994 Order and Decision. The portion of the litigation related to
rates for contracts entered into or renewed on or after April 1, 1994 through
September 30, 1994 was implicitly mooted by the Superintendent's Opinion and
Decision dated April 29, 1994, approving revised rates for such period, leaving
in dispute only that portion of the litigation related to rates for contracts
entered into or renewed during the first quarter of 1994.
The Company is involved in legal actions concerning benefit plan coverage
and other decisions by the Company and alleged medical malpractice by
participating providers. If found liable in such actions, which are vigorously
defended on several grounds including ERISA, the Company may bear financial
responsibility for adverse consequences. The Company is also involved in
certain other claims and legal actions arising in the ordinary course of
business. In the opinion of management, these claims and legal actions will
not have a material adverse effect on the Company's consolidated financial
position, results of operations or cash flows.
9
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of 1994.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of U.S. Healthcare, Inc. are as follows:
NAME AND AGE PRESENT POSITION (PRINCIPAL FUNCTION) WITH THE COMPANY
------------------------------------ -----------------------------------------------------------
Leonard Abramson (62) Principal executive officer
Costas C. Nicolaides (65) Principal financial officer
Michael J. Cardillo (52) Principal marketing officer
Joseph T. Sebastianelli (48) Principal medical administrative officer
James H. Dickerson (48) Senior financial officer
Timothy Nolan (39) Senior marketing officer
David F. Simon (41) Chief legal officer
The Company's executive officers are elected annually by the board following
the annual meeting of shareholders and serve until their successors are duly
elected and qualified.
Mr. Abramson has been the principal executive officer of the Company since
1982.
Mr. Nicolaides has been the principal financial officer since 1987.
Mr. Cardillo has been the principal marketing officer since 1989.
Mr. Sebastianelli has been the principal medical administrative officer of
the Company since 1994. From 1984 to 1994, Mr. Sebastianelli was the sole
proprietor of Sebastianelli Law Associates, Paoli, Pennsylvania.
Mr. Dickerson has been an executive officer of the Company (finance) since
1994. From 1983 to 1994, Mr. Dickerson held a number of positions at Bell
Atlantic Corp., including Vice President-Special Assignment, Vice
President-Finance and Controller, and Vice President-Treasurer.
Mr. Nolan has been an executive officer of the Company (marketing) since
1994 and held other marketing positions with the Company from 1985 to 1994.
Mr. Simon has been an executive officer of the Company (legal) since 1994
and the chief legal officer since 1990. From 1985 to 1990, Mr. Simon was a
partner at the law firm of Wolf Block Schorr and Solis-Cohen, Philadelphia,
Pennsylvania.
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PART II
Information for Items 5 through 8 of this Report is included in the
Company's 1994 Annual Report to Shareholders as indicated below, and is
incorporated herein by reference.
1994 ANNUAL
ITEM REPORT PAGE(S)
---- --------------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Price Range of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Supplementary Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . 33
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-35
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 19-30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
No change of accountants and/or disagreements on any matter of accounting principles or
financial statement disclosures have occurred within the last two years.
PART III
The information called for by Item 10, Directors and Executive Officers of
the Registrant (except for the information regarding executive officers called
for by Item 401 of Regulation S-K which is included in Part I hereof in
accordance with General Instruction G(3)); Item 11, Executive Compensation;
Item 12, Security Ownership of Certain Beneficial Owners and Management; and
Item 13, Certain Relationships and Related Transactions, is incorporated herein
by reference to the Registrant's definitive Proxy Statement for its Annual
Meeting of Shareholders, presently scheduled to be held on May 24, 1995, which
shall be filed with the Securities and Exchange Commission within 120 days from
the end of the Registrant's fiscal year.
11
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K
(a)1. Financial Statements
The following consolidated statements are included in the Company's
1994 Annual Report to Shareholders as indicated on the following table
and are incorporated herein by reference.
INDEX TO FINANCIAL STATEMENTS 1994 ANNUAL
REPORT PAGE(S)
--------------
Report of Ernst & Young LLP, independent auditors . . . . . . . . . . . . . . . . . . . . . 19
Consolidated balance sheets at December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . 20
Consolidated statements of income for each of the three years in the period ended
December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Consolidated statements of shareholders' equity for each of the three years
in the period ended December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . 22-23
Consolidated statements of cash flows for each of the three years in the period
ended December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Notes to consolidated financial statements . . . . . . . . . . . . . . . . . . . . . . . . . 25-30
2. Financial statement schedules
All schedules are omitted because they are not applicable, not
required, or because the required information is included in the
consolidated financial statements or notes thereto.
3. Exhibits required to be filed by Item 601 of Regulation S-K.
Exhibits required to be filed by Item 601 of Regulation S-K,
whether filed herewith or incorporated herein by reference, are listed
on the Index to Exhibits of this filing.
Executive Compensation Plans and Arrangements.
Management contracts and compensatory plans, contracts and
arrangements in which directors or executive officers participate,
whether filed herewith or incorporated herein by reference, are listed
on the Index to Exhibits of this filing as Exhibits 10.1, 10.2, 10.3,
10.4, 10.5, 10.6, 10.7, 10.11, 10.13, 10.15, 10.16, 10.17, 10.18,
10.19, 10.24, 10.28 and 10.29.
(b)1. Reports on Form 8-K
None were filed during the fourth quarter of 1994.
12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
by the undersigned thereunto duly authorized.
U.S. HEALTHCARE, INC.
By: /s/ LEONARD ABRAMSON
----------------------------
LEONARD ABRAMSON
PRINCIPAL EXECUTIVE OFFICER
Dated: March 24, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE (PRINCIPAL FUNCTION) DATE
--------- -------------------------- ----
/s/ LEONARD ABRAMSON Principal Executive Officer March 24, 1995
---------------------------------- and Director
LEONARD ABRAMSON
/s/ COSTAS C. NICOLAIDES Principal Financial Officer March 24, 1995
----------------------------------
COSTAS C. NICOLAIDES
/s/ THOMAS A. MASCI, JR. Principal Accounting Officer March 24, 1995
----------------------------------
THOMAS A. MASCI, JR.
/s/ BETSY Z. COHEN Director March 24, 1995
----------------------------------
BETSY Z. COHEN
Director
----------------------------------
JEROME S. GOODMAN
/s/ ALLEN MISHER, PH.D. Director March 24, 1995
----------------------------------
ALLEN MISHER, PH.D.
/s/ DAVID B. SOLL, M.D. Director March 24, 1995
----------------------------------
DAVID B. SOLL, M.D.
Director
----------------------------------
TIMOTHY T. WEGLICKI
13
INDEX TO EXHIBITS
Exhibit 3. Articles of incorporation and by-laws.
3.1 Articles of Incorporation (incorporated by reference to
Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1989).
3.2 By-laws (incorporated by reference to Exhibit 3.2 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990).
Exhibit 4. Specimen of common stock certificate.
4.1 Specimen of Common Stock Certificate (incorporated by
reference to Exhibit 4.1 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1989).
4.2 Specimen of Class B Stock Certificate (incorporated by
reference to Exhibit 4.2 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1989).
Exhibit 10. Material contracts.
10.1 Employment Agreement dated as of January 1, 1993 between U.S.
Healthcare, Inc. and Leonard Abramson (incorporated by
reference to Exhibit 10.1 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1992).
10.2 Employment Agreement dated as of January 1, 1993 between U.S.
Healthcare, Inc. and Costas Nicolaides (incorporated by
reference to Exhibit 10.2 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1992).
10.3 Employment Agreement dated as of January 1, 1993 between U.S.
Healthcare, Inc. and Michael Cardillo (incorporated by
reference to Exhibit 10.3 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1992).
10.4 Employment Agreement dated as of January 1, 1993 between U.S.
Healthcare, Inc. and Timothy Nolan.
10.5 Employment Agreement dated as of January 1, 1993 between U.S.
Healthcare, Inc. and David F. Simon.
10.6 Employment Agreement dated as of January 24, 1994 between U.S.
Healthcare, Inc. and Joseph T. Sebastianelli.
10.7 Employment Agreement dated as of February 4, 1994 between U.S.
Healthcare, Inc. and James H. Dickerson, Jr.
10.8 1982 Incentive Stock Option Plan (incorporated by reference to
Exhibit 10.13 to the Registrant's Registration Statement on
Form S-1, No. 2-81039).
10.9 Second Incentive Stock Option Plan (incorporated by reference
to Exhibit 10.21 to the Registrant's Registration Statement on
Form S-1, No. 2-84210).
10.10 Third Incentive Stock Option Plan (incorporated by reference
to Exhibit 10.3 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1987).
10.11 U.S. Healthcare, Inc. Incentive Plan (incorporated by
reference to Exhibit 10.8 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1992).
10.12 Form of Non-statutory Stock Option (incorporated by reference
to Exhibit 10.25 to the Registrant's Registration Statement on
Form S-1, No. 2-84210).
10.13 1987 Non-statutory Option Plan (incorporated by reference to
Exhibit 10.4 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1987).
10.14 1987 Special Non-statutory Stock Option Plan (incorporated by
reference to Exhibit 10.5 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1987).
10.15 Form of Stock Option Contract for Stock Options granted under
the U.S. Healthcare, Inc. Incentive Plan (incorporated by
reference to Exhibit 10.12 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1992).
14
10.16 Form of Restricted Stock Agreement for restricted stock
awarded under the U.S. Healthcare, Inc. Incentive Plan
(incorporated by reference to Exhibit 10.13 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992).
10.17 Form of Restricted Stock Bonus Agreement (incorporated by
reference to Exhibit 10.13 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1988).
10.18 Amended and Restated U.S. Healthcare, Inc. Savings Plan.
10.19 Amended and Restated Pension Plan for Employees of U.S.
Healthcare, Inc.
10.20 Form of Incentive Stock Option Agreement (incorporated by
reference to Exhibit 10.27 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1989).
10.21 Amendment No. 1 to 1982 Incentive Stock Option Plan
(incorporated by reference to Exhibit 10.28 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1989).
10.22 Amendment No. 1 to Second Incentive Stock Option Plan
(incorporated by reference to Exhibit 10.29 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1989).
10.23 Amendment No. 2 to Second Incentive Stock Option Plan
(incorporated by reference to Exhibit 10.30 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1989).
10.24 Amendment No. 1 to 1987 Non-statutory Stock Option Plan
(incorporated by reference to Exhibit 10.31 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1989).
10.25 Amendment No. 1 to Third Incentive Stock Option Plan
(incorporated by reference to Exhibit 10.30 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990).
10.26 Split Dollar Insurance Agreement dated February 1, 1990 by and
between Madlyn K. Abramson, Marcy A. Shoemaker (formerly Marcy
Abramson), Nancy Wolfson, Judith Abramson and David B. Soll,
and U.S. Healthcare, Inc., and the related Collateral
Assignment Agreement dated February 1, 1990 by and between
Madlyn K. Abramson, Marcy A. Shoemaker (formerly Marcy
Abramson), Nancy Wolfson, Judith Abramson and David B. Soll
and U.S. Healthcare, Inc. (incorporated by reference to
Exhibit 10.33 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1990).
10.27 Split Dollar Insurance Agreement Dated January 21, 1991 by and
between Marcy A. Shoemaker (formerly Marcy Abramson), Nancy
Wolfson, Judith Abramson, David B. Soll, Jerome Goodman and
Edward M. Glickman, and U.S. Healthcare, Inc., and the related
Collateral Assignment Agreement dated January 21, 1991 by and
between Marcy A. Shoemaker (formerly Marcy Abramson), Nancy
Wolfson, Judith Abramson, David B. Soll, Jerome Goodman and
Edward M. Glickman, and U.S. Healthcare, Inc. (incorporated by
reference to Exhibit 10.24 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1991).
10.28 Description of Deferred Compensation Plan (incorporated by
reference to Exhibit 10.26 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1992).
10.29 Description of Executive Incentive Compensation Plan
(incorporated by reference to Exhibit 10.27 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992).
Exhibit 11. Computation of Net Income Per Common and Common Equivalent
Share.
Exhibit 13. The 1994 Annual Report to Shareholders of U.S. Healthcare,
Inc. is not deemed filed as part of this report (with the
exception of the information incorporated by reference to
Items 5, 6, 7 and 8 of this Annual Form 10-K in the 1994 Annual
Report to Shareholders).
Exhibit 21. Subsidiaries of the Registrant.
Exhibit 23. Consent of Ernst & Young LLP, independent auditors.
Exhibit 27. Financial Data Schedule.
EX-10.4
2
EMPLOYMENT AGREEMENT OF TIMOTHY NOLAN
1
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of the 1st day of January, 1993, between U.S.
Healthcare, Inc. and Timothy Nolan (hereinafter "Employee"). As used herein,
"Employer" or "Company" means U.S. Healthcare, Inc., its subsidiaries and
related companies and, if any, their assignees.
1 . Term of Employment.
1.1 Employer hereby agrees to employ Employee as a
Company officer on the terms and conditions set forth herein. Employee hereby
accepts such employment upon such terms and conditions.
1.2 Such employment shall be for an initial term of sixty
(60) months, commencing as of January 1, 1993, and shall be automatically
extended for an additional term of sixty (60) months and thereafter from year
to year, except that upon the delivery by either Employer or Employee to the
other party of a written notice at least ninety (90) days prior to the
expiration of the initial 60-month term or a subsequent term, this Agreement
shall terminate on the last day of such term then in effect. As used herein,
the phrase "Employment Term" refers to the initial term and, if any, the
renewal terms.
2. Duties of Employee.
2.1 Employee shall perform all services, acts or other
things necessary to properly manage, conduct and carry out Employer's business,
and shall perform such functions and duties as are customarily performed by an
employee holding Employee's position and responsibilities and such additional
functions and duties as are directed by Employer.
2.2 Employee shall devote all of his or her entire
productive time, ability and attention to the Company's business while employed
by Employer. During such time Employee shall not engage in or render any
services of any nature to any other business entity whatsoever, whether or not
for compensation, without the written consent of Employer. Any change of
title, job duties, assignments or functions shall not constitute a breach of
this Agreement unless Employee's compensation is reduced other than in
accordance with this Agreement.
2.3 Employee shall be bound by and comply with all of the
terms and conditions of the Employer's Articles of Incorporation, By-laws,
Employee Handbook, Business Ethics Policy, security procedures, and all
personnel policies and procedures as they exist and as they may be changed or
replaced from time to time.
2.4 Employee shall accept and carry out all policies,
standards, regulations, instructions and directions that may from time to time
be established or given by the principal executive officer of the Company, the
Board of Directors of the Company, or their designees.
2
EMPLOYMENT AGREEMENT
2.5 Employee shall faithfully, industriously, and to the
best of his ability, experience and talents, perform all of the duties that may
be required of and from him to the reasonable satisfaction of Employer.
3. Compensation and Employee Benefits.
3.1 For each year of service during the Employment Term,
Employer agrees to pay Employee a base annual salary (the "Base Salary") of
$225,000.00, payable to Employee in accordance with Employer's payroll
procedures. The Base Salary may be increased during the Employment Term, at
Employer's sole discretion, based upon Employer's evaluation of Employee's
performance and other factors.
3.2 Employee may also receive bonuses, stock options and
other compensation, at Employer's sole discretion. Nothing in this Agreement
shall affect any existing or future written agreements which relate to such
other compensation. Employee shall be entitled to paid vacation and personal
days in accordance with Employer's then-current policies.
3.3 Employee shall be entitled to receive fringe benefits
such as pension plan, U.S. Healthcare HMO group health plan, short and long
term disability coverage, life insurance and 401(k) savings plan participation,
all as described in Employer's employee benefits plans, as they may from time
to time be revised, and such other fringe benefits as may be provided by
Employer at its sole discretion.
3.4 Employer may, at its election, cost and benefit,
insure Employee against accidental injury or death in such amounts as Employer
shall determine in its sole discretion, and Employee shall submit to such
physical examination and supply such information as may be required in
connection therewith.
3.5 Employee is authorized to incur reasonable expenses
for promoting and conducting the business of Employer in accordance with
Employer's then-current expense reimbursement policies and procedures.
Employer shall reimburse Employee for all such business expenses upon
presentation of reasonable documentation establishing the amount, date, place,
essential character and purpose of the expenditures, and such other information
reasonably required by Employer.
4. Termination of Employment.
4.1 Employer may, at its sole option, terminate this
Agreement and Employee's employment hereunder "for cause" or "for convenience."
4.2 If Employee is terminated "for cause" (as defined
below), this Agreement and Employee's employment hereunder shall immediately
terminate and Employee shall not be entitled to any payment or benefit
hereunder or any other compensation other than the portion of the applicable
Base Salary accrued to the date of termination. Termination "for cause" shall
mean the termination of Employee's employment by Employer prior to the
expiration of the Employment Term for one or more of the following reasons:
2
3
EMPLOYMENT AGREEMENT
4.2.1 Employee's willful or intentional neglect to perform
Employee's duties and responsibilities hereunder;
4.2.2 The commission by Employee of dishonesty, fraud,
material violation of the Employee Handbook, the Business Ethics Policy or any
other written Company rule or procedure, intentional violation of law or
governmental regulation, misappropriation of funds or property, or willful or
intentional misconduct;
4.2.3 Unprofessional or unethical conduct by Employee as
determined in a final adjudication of any board, institution, organization or
governmental agency having any privilege or right to pass upon the conduct of
Employee;
4.2.4 Intentional or willful conduct by Employee which is
detrimental to the reputation, character, business or standing of Employer; or
4.2.5 The continued breach by Employee of any of Employee's
obligations under this Agreement after notice and a reasonable opportunity to
correct the breach.
4.3 In the event that Employee becomes permanently
disabled or otherwise physically incapacitated and, in the reasonable judgment
of Employer, is unable to effectively discharge Employee's duties and functions
in accordance with this Agreement for a period of ninety (90) consecutive
calendar days or a total of one hundred and eighty (180) days during any twelve
(12) month period, Employer may, at its sole option, terminate this Agreement
and Employee's employment hereunder. In such event, Employee shall not be
entitled to any compensation or benefits other than such long term disability
benefits as Employer provides to similarly situated employees pursuant to its
then-current disability benefits plan.
4.4 This Agreement and Employee's employment hereunder
may be terminated by Employer "for convenience" at any time. Provided that
Employee has not breached and does not breach Employee's obligations under this
Agreement, including but not limited to Section 5 hereof, upon such termination
"for convenience" Employee shall receive a severance payment in an amount equal
to the greater of (a) Employee's then-current Base Salary and (b) the
then-current Base Salary for the balance of the current Employment Term. Such
payment shall be payable in installments over one (1) year in accordance with
Employer's regular payroll schedule. Such payment shall be in full
satisfaction of any and all payments or damages due (whether under any
agreement or law) to Employee on account of such termination. Employee
acknowledges that Employer's obligations under this provision constitute an
element of consideration for Employee's agreement to the terms hereof.
4.5 If Employee dies prior to the expiration of the
Employment Term, this Agreement shall immediately terminate and Employee's
estate shall receive an amount equal to Employee's then-current Base Salary.
4.6 This Agreement and Employee's employment hereunder
may be terminated by Employee, at any time, upon sixty (60) days prior written
notice, in which event Employee shall not be entitled to any payment or benefit
hereunder other than the portion of the then-current Base Salary accrued to the
date of termination.
3
4
EMPLOYMENT AGREEMENT
4.7 Any termination of employment or notice under this
Section 4 shall be in writing. Except as otherwise provided herein, all
compensation and benefits hereunder shall cease as of the date of termination
of employment.
4.8 This Agreement shall not be terminated by reason of
any merger or consolidation in which Employer is not the consolidated or
surviving corporation or by any transfer of all or substantially all of assets
of Employer. In the event of any such merger or consolidation or transfer of
assets, the surviving or resulting corporation or the transferee of Employer's
assets shall be bound by and shall have the benefit of the provisions of this
Agreement. In such event, Employer shall take all actions necessary to insure
that such surviving corporation or transferee is bound by the provisions of
this Agreement.
5. Proprietary Information and Non-Competition.
5.1 Employee recognizes and acknowledges that Employee's
performance of services for Employer will result in the disclosure to Employee
of, and Employee's access to, Employer's trade secrets, proprietary information
and confidential information, including but not limited to the following:
member information and data; information and lists related to customers and
prospective customers; employee identities and information; internal financial
data; information and pricing related to providers and prospective providers;
training materials; provider compensation methods and rates; quality assurance
methods, data and results; customer and member service systems and information;
procedures; plans; proposals; compilations; market and other strategies and
research; computer programs; databases; processes; premium and other pricing
information; any information that is material, competitively sensitive and not
generally known by the public; other information expressly designated by
Employer as proprietary or confidential; payment rates; methodologies; and
contracts. For the purposes of this Agreement, any and all of the foregoing
information shall be referred to herein as "Employer's proprietary
information." The parties agree that, as between them, each of the foregoing
items shall constitute Employer's proprietary information and special and
unique assets of Employer. In view of the foregoing, Employee agrees that:
5.1.1 During and after the Employment Term, Employee shall
hold Employer's proprietary information in the strictest confidence and shall
not directly or indirectly disclose or reveal any of Employer's proprietary
information to any third party, unless such use or disclosure is specifically
consented to in writing by Employer.
5.1.2 After the Employment Term, Employee shall not use any
of Employer's proprietary information, or place himself or herself in such a
situation as to make such use inevitable.
5.1.3 Employee covenants and agrees that during the
Employment Term and for a period of one (1) year thereafter or during any such
time as Employee is receiving severance payments hereunder, whichever is
longer, whether termination occurs voluntarily or involuntarily, or for cause
or convenience, Employee shall not, directly or indirectly, enter into or
engage in the ownership, management, operation, or control of, or act as an
employee of, or consultant, advisor, or contractor to any existing
4
5
EMPLOYMENT AGREEMENT
or proposed entity engaged or planning to be engaged in competition with or in
the same or similar business as Employer, if such entity (a) has an office
within a radius of one hundred (100) miles from any of Employer's offices; or
(b) operates a health maintenance organization, preferred provider
organization, managed care plan, third party administrator, workers
compensation program, health care quality assessment or improvement program,
patient survey or outcome program, health care data analysis program, or a
business which Employer entered into after the date hereof, in any geographic
area where Employer is authorized to operate a health maintenance organization
or in which it regularly conducts business.
5.1.4 Employee covenants and agrees that for a period of
one (1) year following the end of the Employment Term, or during any such time
as Employee is receiving severance payments, whichever is longer, whether
termination occurs voluntarily or involuntarily, or for cause or convenience,
Employee shall not directly or indirectly engage in the solicitation or
servicing of, or contracting with, any present, former or prospective Company
customer, member or employee or present, former or prospective contracted
provider of health care services to Employer or its members. Employee further
covenants and agrees not to solicit or aid in the solicitation of any such
customers, members, employees or providers on behalf of Employee or any other
person or entity during such period. If Employee is a medical director, this
paragraph 5.1.4 shall not apply to the clinical practice of medicine by such
Employee. This paragraph 5.1.4 shall not apply to the solicitation or
servicing of present, former or prospective customers (but not employees or
providers) on behalf of entities which do not directly or indirectly compete
with Employer.
5.1.5 During and for a period of two (2) years following
the end of the Employment Term, Employee will not, directly or indirectly, for
Employee or on behalf of any other person or entity: (a) induce or attempt to
induce any of Employer's personnel to do anything contrary to the best
interests of Employer; or (b) solicit, recruit, entice, or persuade any other
employee or contractor of Employer to leave the employment or service of
Employer.
5.2 Employee acknowledges that in the event his or her
employment with Employer terminates, Employee will still be able to earn a
livelihood without violating Section 5.1 hereof and that said section is a
material condition to employment with Employer.
5.3 Employee acknowledges that compliance with this
Agreement is necessary to protect the business and good will of Employer and
that any actual or prospective breach will irreparably cause damage to Employer
for which money damages may not be adequate. Employee therefore agrees that if
he or she breaches or attempts to breach this Agreement, Employer shall be
entitled to obtain temporary, preliminary and permanent equitable relief,
without bond, to prevent irreparable harm or injury, together with any and all
other remedies available under applicable law. The prevailing party shall be
entitled to reimbursement of the reasonable attorneys' fees and costs it
expends in any action to enforce this Agreement. Employee further agrees that
a temporary restraining order and preliminary injunction can be obtained
without personal service if Employee cannot be located at the last known
address provided to Employer.
5
6
EMPLOYMENT AGREEMENT
5.4 Employee acknowledges that he or she has been advised
by Employer to review this Agreement with Employee's counsel, and that Employee
has satisfied himself that the restrictive covenants set forth in this
Agreement are reasonable in all respects and that such restrictive covenants
are valid and enforceable.
5.5 The purpose of this Agreement, among other things,
is to protect Employer from unfair or inappropriate competition and to protect
Employer's proprietary information. The parties agree that if the scope of
enforcement of this Agreement is ever disputed, a court or other trier of fact
may modify and enforce it to the extent it determines is lawful and
appropriate.
5.6 Upon termination of this Agreement for any reason
whatsoever, Employee shall return to Employer all of Employer's proprietary
information, equipment, books, records, customer lists, catalogs, invoices,
correspondence, identification cards, computer programs, documentation,
memoranda, notes, records, drawings, manuals, passwords, documents and
information pertaining to Employer's business, and other property which was
acquired from or for Employer, including any property or documentation
developed by Employee in the course of his employment for Employer, as well as
all such documents acquired in the course of performing his or her duties. No
copies of the foregoing shall be retained by Employee.
6. General Provision.
6.1 Notices. Any notices to be given hereunder by either
party to the other may be effectuated either by personal delivery, in writing
or by mail, registered or certified, return receipt requested, postage prepaid.
Mailed notices shall be addressed to the parties at the addresses appearing
beneath their respective signatures below, but Employee may change his address
by providing written notice to Employer on an Employee Status Change Form.
6.2 Entire Agreement. This Agreement supersedes any and
all other agreements, either oral or in writing, between the parties hereto
relating to the subject matter hereof. This Agreement may not be altered,
modified, changed or amended except in a writing signed by both parties hereto.
Section 5 shall survive the termination of this Agreement.
6.3 Conflict Provisions. Any paragraph, sentence,
phrase, or other provision of this Employment Agreement which is in conflict
with any applicable statute, rule, or other law shall be deemed, if possible,
to be modified or altered to conform thereto or, if not possible, to be omitted
herefrom.
6.4 Non-Waiver. The failure or refusal of either party
to insist upon the strict performance of any provision of this Agreement, or to
exercise any right in any one or more instances or circumstances, shall not be
construed as a waiver or relinquishment of such provision or right, nor shall
such failure or refusal be deemed a custom or practice contrary to such
provision or right.
6.5 Severability. If any paragraph, term or provision of
this Agreement shall be held or determined to be unenforceable, the balance of
this
6
7
EMPLOYMENT AGREEMENT
Agreement shall, nevertheless, continue in full force and effect unaffected by
such holding or determination. The parties agree that it is their intention
and agreement that any paragraph, term or provision which is held or determined
to be unenforceable as written, shall be enforced and binding to the fullest
extent permitted by law as though such paragraph, term or provision had been
written in such a manner and to such an extent as to be enforceable under the
circumstances. Without limitation of the foregoing, with respect to any
restrictive covenant contained herein, if it is determined that any such
provision is excessive as to duration or scope, it is intended that it,
nonetheless, be enforced for such shorter duration or with such narrower scope
as will render it enforceable.
6.6 Nonassignment. Employee may not assign this
Agreement or delegate the performance of any of his or her duties hereunder.
The parties agree that Employer may, at its sole option, assign this Agreement
to any of its subsidiaries or related companies.
6.7 Governing Law. This Agreement shall be construed in
accordance with the laws of the Commonwealth of Pennsylvania. All claims and
controversies related to or stemming from this Agreement or Employee's
employment with Employer, except actions for equitable relief, shall be
submitted to binding arbitration by one arbitrator in Blue Bell, Pennsylvania
under the Commercial Arbitration Rules of the American Arbitration Association.
Judgment upon an award of the arbitrator may be entered and enforced in any
court having jurisdiction. Employee agrees that actions brought under this
Agreement for equitable relief shall be brought exclusively in the courts of
the Commonwealth of Pennsylvania, it being acknowledged that Employer is a
Pennsylvania corporation and that this Agreement will be executed by Employer
in said county. Employee hereby irrevocably consents to the personal
jurisdiction of the courts of the Commonwealth of Pennsylvania.
7. Nondisclosure. Employee shall not authorize,
intentionally cause or knowingly permit the disclosure of this Agreement, or
the terms hereof, to anyone other than the parties hereto and their respective
legal counsel, for any purpose, unless compelled by law to do so.
8. Addenda. The foregoing sections of the Agreement are
amended as follows:
8.1 Upon termination under Section 4.3 hereof (regarding
disability), Employee shall be released from Section 5.1.3 hereof (regarding
non-competition) provided Employee is not receiving any disability benefits or
severance payments from Employer.
8.2 Sections 5.1.4 and 5.1.5 shall be deemed waived in
the event a court having jurisdiction over the parties finds that Employer
terminated Employee's employment for convenience and thereafter breached its
obligations under Section 4.4 hereof regarding severance payments without
cause.
8.3 The parties understand and agree that the provisions of Section
7
8
EMPLOYMENT AGREEMENT
5.1.4 hereof apply only with respect to health care/health care
insurance/managed care industries and products.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
EMPLOYEE EMPLOYER
/s/ Timothy Nolan By: /s/ Costas C. Nicolaides
------------------ --------------------------
Print Name: Costas C. Nicolaides
-----------------------
Title: EVP, CFO
----------
Current Address: Address:
1 Perry Drive 980 Jolly Road
------------- P.O. Box 1109
Blue Bell, PA 19422
Cranbury NJ
-----------
8
EX-10.5
3
EMPLOYMENT AGREEMENT OF DAVID F. SIMON
1
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of the 1st day of January, 1993, between U.S.
Healthcare, Inc. and David F. Simon (hereinafter "Employee"). As used herein,
"Employer" or "Company" means U.S. Healthcare, Inc., its subsidiaries and
related companies and, if any, their assignees.
1 . Term of Employment.
1.1 Employer hereby agrees to employ Employee as a
Company officer on the terms and conditions set forth herein. Employee hereby
accepts such employment upon such terms and conditions.
1.2 Such employment shall be for an initial term of sixty
(60) months, commencing as of January 1, 1993, and shall be automatically
extended for an additional term of sixty (60) months and thereafter from year
to year, except that upon the delivery by either Employer or Employee to the
other party of a written notice at least ninety (90) days prior to the
expiration of the initial 60-month term or a subsequent term, this Agreement
shall terminate on the last day of such term then in effect. As used herein,
the phrase "Employment Term" refers to the initial term and, if any, the
renewal terms.
2. Duties of Employee.
2.1 Employee shall perform all services, acts or other
things necessary to properly manage, conduct and carry out Employer's business,
and shall perform such functions and duties as are customarily performed by an
employee holding Employee's position and responsibilities and such additional
functions and duties as are directed by Employer.
2.2 Employee shall devote all of his or her entire
productive time, ability and attention to the Company's business while employed
by Employer. During such time Employee shall not engage in or render any
services of any nature to any other business entity whatsoever, whether or not
for compensation, without the written consent of Employer. Any change of
title, job duties, assignments or functions shall not constitute a breach of
this Agreement unless Employee's compensation is reduced other than in
accordance with this Agreement.
2.3 Employee shall be bound by and comply with all of the
terms and conditions of the Employer's Articles of Incorporation, By-laws,
Employee Handbook, Business Ethics Policy, security procedures, and all
personnel policies and procedures as they exist and as they may be changed or
replaced from time to time.
2.4 Employee shall accept and carry out all policies,
standards, regulations, instructions and directions that may from time to time
be established or given by the principal executive officer of the Company, the
Board of Directors of the Company, or their designees.
2
EMPLOYMENT AGREEMENT
2.5 Employee shall faithfully, industriously, and to the
best of his ability, experience and talents, perform all of the duties that may
be required of and from him to the reasonable satisfaction of Employer.
3. Compensation and Employee Benefits.
3.1 For each year of service during the Employment Term,
Employer agrees to pay Employee a base annual salary (the "Base Salary") of
$305,000.00, payable to Employee in accordance with Employer's payroll
procedures. The Base Salary may be increased during the Employment Term, at
Employer's sole discretion, based upon Employer's evaluation of Employee's
performance and other factors.
3.2 Employee may also receive bonuses, stock options and
other compensation, at Employer's sole discretion. Nothing in this Agreement
shall affect any existing or future written agreements which relate to such
other compensation. Employee shall be entitled to paid vacation and personal
days in accordance with Employer's then-current policies.
3.3 Employee shall be entitled to receive fringe benefits
such as pension plan, U.S. Healthcare HMO group health plan, short and long
term disability coverage, life insurance and 401(k) savings plan participation,
all as described in Employer's employee benefits plans, as they may from time
to time be revised, and such other fringe benefits as may be provided by
Employer at its sole discretion.
3.4 Employer may, at its election, cost and benefit,
insure Employee against accidental injury or death in such amounts as Employer
shall determine in its sole discretion, and Employee shall submit to such
physical examination and supply such information as may be required in
connection therewith.
3.5 Employee is authorized to incur reasonable expenses
for promoting and conducting the business of Employer in accordance with
Employer's then-current expense reimbursement policies and procedures.
Employer shall reimburse Employee for all such business expenses upon
presentation of reasonable documentation establishing the amount, date, place,
essential character and purpose of the expenditures, and such other information
reasonably required by Employer.
4. Termination of Employment.
4.1 Employer may, at its sole option, terminate this
Agreement and Employee's employment hereunder "for cause" or "for convenience."
4.2 If Employee is terminated "for cause" (as defined
below), this Agreement and Employee's employment hereunder shall immediately
terminate and Employee shall not be entitled to any payment or benefit hereunder
or any other compensation other than the portion of the applicable Base Salary
accrued to the date of termination. Termination "for cause" shall mean the
termination of Employee's employment by Employer prior to the expiration of the
Employment Term for one or more of the following reasons:
2
3
EMPLOYMENT AGREEMENT
4.2.1 Employee's willful or intentional neglect to perform
Employee's duties and responsibilities hereunder;
4.2.2 The commission by Employee of dishonesty, fraud,
material violation of the Employee Handbook, the Business Ethics Policy or any
other written Company rule or procedure, intentional violation of law or
governmental regulation, misappropriation of funds or property, or willful or
intentional misconduct;
4.2.3 Unprofessional or unethical conduct by Employee as
determined in a final adjudication of any board, institution, organization or
governmental agency having any privilege or right to pass upon the conduct of
Employee;
4.2.4 Intentional or willful conduct by Employee which is
detrimental to the reputation, character, business or standing of Employer; or
4.2.5 The continued breach by Employee of any of Employee's
obligations under this Agreement after notice and a reasonable opportunity to
correct the breach.
4.3 In the event that Employee becomes permanently
disabled or otherwise physically incapacitated and, in the reasonable judgment
of Employer, is unable to effectively discharge Employee's duties and functions
in accordance with this Agreement for a period of ninety (90) consecutive
calendar days or a total of one hundred and eighty (180) days during any twelve
(12) month period, Employer may, at its sole option, terminate this Agreement
and Employee's employment hereunder. In such event, Employee shall not be
entitled to any compensation or benefits other than such long term disability
benefits as Employer provides to similarly situated employees pursuant to its
then-current disability benefits plan.
4.4 This Agreement and Employee's employment hereunder
may be terminated by Employer "for convenience" at any time. Provided that
Employee has not breached and does not breach Employee's obligations under this
Agreement, including but not limited to Section 5 hereof, upon such termination
"for convenience" Employee shall receive a severance payment in an amount equal
to the greater of (a) Employee's then-current Base Salary and (b) the
then-current Base Salary for the balance of the current Employment Term. Such
payment shall be payable in installments over one (1) year in accordance with
Employer's regular payroll schedule. Such payment shall be in full
satisfaction of any and all payments or damages due (whether under any
agreement or law) to Employee on account of such termination. Employee
acknowledges that Employer's obligations under this provision constitute an
element of consideration for Employee's agreement to the terms hereof.
4.5 If Employee dies prior to the expiration of the
Employment Term, this Agreement shall immediately terminate and Employee's
estate shall receive an amount equal to Employee's then-current Base Salary.
4.6 This Agreement and Employee's employment hereunder
may be terminated by Employee, at any time, upon sixty (60) days prior written
notice, in which event Employee shall not be entitled to any payment or benefit
hereunder other than the portion of the then-current Base Salary accrued to the
date of termination.
3
4
EMPLOYMENT AGREEMENT
4.7 Any termination of employment or notice under this
Section 4 shall be in writing. Except as otherwise provided herein, all
compensation and benefits hereunder shall cease as of the date of termination
of employment.
4.8 This Agreement shall not be terminated by reason of
any merger or consolidation in which Employer is not the consolidated or
surviving corporation or by any transfer of all or substantially all of assets
of Employer. In the event of any such merger or consolidation or transfer of
assets, the surviving or resulting corporation or the transferee of Employer's
assets shall be bound by and shall have the benefit of the provisions of this
Agreement. In such event, Employer shall take all actions necessary to insure
that such surviving corporation or transferee is bound by the provisions of
this Agreement.
5. Proprietary Information and Non-Competition.
5.1 Employee recognizes and acknowledges that Employee's
performance of services for Employer will result in the disclosure to Employee
of, and Employee's access to, Employer's trade secrets, proprietary information
and confidential information, including but not limited to the following:
member information and data; information and lists related to customers and
prospective customers; employee identities and information; internal financial
data; information and pricing related to providers and prospective providers;
training materials; provider compensation methods and rates; quality assurance
methods, data and results; customer and member service systems and information;
procedures; plans; proposals; compilations; market and other strategies and
research; computer programs; databases; processes; premium and other pricing
information; any information that is material, competitively sensitive and not
generally known by the public; other information expressly designated by
Employer as proprietary or confidential; payment rates; methodologies; and
contracts. For the purposes of this Agreement, any and all of the foregoing
information shall be referred to herein as "Employer's proprietary
information." The parties agree that, as between them, each of the foregoing
items shall constitute Employer's proprietary information and special and
unique assets of Employer. In view of the foregoing, Employee agrees that:
5.1.1 During and after the Employment Term, Employee shall
hold Employer's proprietary information in the strictest confidence and shall
not directly or indirectly disclose or reveal any of Employer's proprietary
information to any third party, unless such use or disclosure is specifically
consented to in writing by Employer.
5.1.2 After the Employment Term, Employee shall not use any
of Employer's proprietary information, or place himself or herself in such a
situation as to make such use inevitable.
5.1.3 Employee covenants and agrees that during the
Employment Term and for a period of one (1) year thereafter or during any such
time as Employee is receiving severance payments hereunder, whichever is
longer, whether termination occurs voluntarily or involuntarily, or for cause
or convenience, Employee shall not, directly or indirectly, enter into or
engage in the ownership, management, operation, or control of, or act as an
employee of, or consultant, advisor, or contractor to any existing
4
5
EMPLOYMENT AGREEMENT
or proposed entity engaged or planning to be engaged in competition with or in
the same or similar business as Employer, if such entity (a) has an office
within a radius of one hundred (100) miles from any of Employer's offices; or
(b) operates a health maintenance organization, preferred provider
organization, managed care plan, third party administrator, workers
compensation program, health care quality assessment or improvement program,
patient survey or outcome program, health care data analysis program, or a
business which Employer entered into after the date hereof, in any geographic
area where Employer is authorized to operate a health maintenance organization
or in which it regularly conducts business.
5.1.4 Employee covenants and agrees that for a period of
one (1) year following the end of the Employment Term, or during any such time
as Employee is receiving severance payments, whichever is longer, whether
termination occurs voluntarily or involuntarily, or for cause or convenience,
Employee shall not directly or indirectly engage in the solicitation or
servicing of, or contracting with, any present, former or prospective Company
customer, member or employee or present, former or prospective contracted
provider of health care services to Employer or its members. Employee further
covenants and agrees not to solicit or aid in the solicitation of any such
customers, members, employees or providers on behalf of Employee or any other
person or entity during such period. If Employee is a medical director, this
paragraph 5.1.4 shall not apply to the clinical practice of medicine by such
Employee. This paragraph 5.1.4 shall not apply to the solicitation or
servicing of present, former or prospective customers (but not employees or
providers) on behalf of entities which do not directly or indirectly compete
with Employer.
5.1.5 During and for a period of two (2) years following
the end of the Employment Term, Employee will not, directly or indirectly, for
Employee or on behalf of any other person or entity: (a) induce or attempt to
induce any of Employer's personnel to do anything contrary to the best
interests of Employer; or (b) solicit, recruit, entice, or persuade any other
employee or contractor of Employer to leave the employment or service of
Employer.
5.2 Employee acknowledges that in the event his or her
employment with Employer terminates, Employee will still be able to earn a
livelihood without violating Section 5.1 hereof and that said section is a
material condition to employment with Employer.
5.3 Employee acknowledges that compliance with this
Agreement is necessary to protect the business and good will of Employer and
that any actual or prospective breach will irreparably cause damage to Employer
for which money damages may not be adequate. Employee therefore agrees that if
he or she breaches or attempts to breach this Agreement, Employer shall be
entitled to obtain temporary, preliminary and permanent equitable relief,
without bond, to prevent irreparable harm or injury, together with any and all
other remedies available under applicable law. The prevailing party shall be
entitled to reimbursement of the reasonable attorneys' fees and costs it
expends in any action to enforce this Agreement. Employee further agrees that
a temporary restraining order and preliminary injunction can be obtained
without personal service if Employee cannot be located at the last known
address provided to Employer.
5
6
EMPLOYMENT AGREEMENT
5.4 Employee acknowledges that he or she has been advised
by Employer to review this Agreement with Employee's counsel, and that Employee
has satisfied himself that the restrictive covenants set forth in this
Agreement are reasonable in all respects and that such restrictive covenants
are valid and enforceable.
5.5 The purpose of this Agreement, among other things,
is to protect Employer from unfair or inappropriate competition and to protect
Employer's proprietary information. The parties agree that if the scope of
enforcement of this Agreement is ever disputed, a court or other trier of fact
may modify and enforce it to the extent it determines is lawful and
appropriate.
5.6 Upon termination of this Agreement for any reason
whatsoever, Employee shall return to Employer all of Employer's proprietary
information, equipment, books, records, customer lists, catalogs, invoices,
correspondence, identification cards, computer programs, documentation,
memoranda, notes, records, drawings, manuals, passwords, documents and
information pertaining to Employer's business, and other property which was
acquired from or for Employer, including any property or documentation
developed by Employee in the course of his employment for Employer, as well as
all such documents acquired in the course of performing his or her duties. No
copies of the foregoing shall be retained by Employee.
6. General Provision.
6.1 Notices. Any notices to be given hereunder by either
party to the other may be effectuated either by personal delivery, in writing
or by mail, registered or certified, return receipt requested, postage prepaid.
Mailed notices shall be addressed to the parties at the addresses appearing
beneath their respective signatures below, but Employee may change his address
by providing written notice to Employer on an Employee Status Change Form.
6.2 Entire Agreement. This Agreement supersedes any and
all other agreements, either oral or in writing, between the parties hereto
relating to the subject matter hereof. This Agreement may not be altered,
modified, changed or amended except in a writing signed by both parties hereto.
Section 5 shall survive the termination of this Agreement.
6.3 Conflict Provisions. Any paragraph, sentence,
phrase, or other provision of this Employment Agreement which is in conflict
with any applicable statute, rule, or other law shall be deemed, if possible,
to be modified or altered to conform thereto or, if not possible, to be omitted
herefrom.
6.4 Non-Waiver. The failure or refusal of either party
to insist upon the strict performance of any provision of this Agreement, or to
exercise any right in any one or more instances or circumstances, shall not be
construed as a waiver or relinquishment of such provision or right, nor shall
such failure or refusal be deemed a custom or practice contrary to such
provision or right.
6.5 Severability. If any paragraph, term or provision of
this Agreement shall be held or determined to be unenforceable, the balance of
this
6
7
EMPLOYMENT AGREEMENT
Agreement shall, nevertheless, continue in full force and effect unaffected by
such holding or determination. The parties agree that it is their intention
and agreement that any paragraph, term or provision which is held or determined
to be unenforceable as written, shall be enforced and binding to the fullest
extent permitted by law as though such paragraph, term or provision had been
written in such a manner and to such an extent as to be enforceable under the
circumstances. Without limitation of the foregoing, with respect to any
restrictive covenant contained herein, if it is determined that any such
provision is excessive as to duration or scope, it is intended that it,
nonetheless, be enforced for such shorter duration or with such narrower scope
as will render it enforceable.
6.6 Nonassignment. Employee may not assign this
Agreement or delegate the performance of any of his or her duties hereunder.
The parties agree that Employer may, at its sole option, assign this Agreement
to any of its subsidiaries or related companies.
6.7 Governing Law. This Agreement shall be construed in
accordance with the laws of the Commonwealth of Pennsylvania. All claims and
controversies related to or stemming from this Agreement or Employee's
employment with Employer, except actions for equitable relief, shall be
submitted to binding arbitration by one arbitrator in Blue Bell, Pennsylvania
under the Commercial Arbitration Rules of the American Arbitration Association.
Judgment upon an award of the arbitrator may be entered and enforced in any
court having jurisdiction. Employee agrees that actions brought under this
Agreement for equitable relief shall be brought exclusively in the courts of
the Commonwealth of Pennsylvania, it being acknowledged that Employer is a
Pennsylvania corporation and that this Agreement will be executed by Employer
in said county. Employee hereby irrevocably consents to the personal
jurisdiction of the courts of the Commonwealth of Pennsylvania.
7. Nondisclosure. Employee shall not authorize,
intentionally cause or knowingly permit the disclosure of this Agreement, or
the terms hereof, to anyone other than the parties hereto and their respective
legal counsel, for any purpose, unless compelled by law to do so.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
EMPLOYEE EMPLOYER
/s/ David F. Simon 2/10/93 By: /s/ Costas C. Nicolaides
--------------------------------------- ---------------------------
Print Name: Costas C. Nicolaides
----------------------
Title: CFO
----
Current Address: Address:
P.O. Box 551 980 Jolly Road
------------ P.O. Box 1109
Blue Bell, PA 19422
Gwynedd Valley, PA 19437
-------------------------
7
EX-10.6
4
EMPLOYMENT AGREEMENT OF JOSEPH T. SEBASTIANELLI
1
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of the 24th day of January, 1994, between U.S.
Healthcare, Inc. and JOSEPH T. SEBASTIANELLI (hereinafter "Employee"). As used
herein, "Employer" or "Company" means U.S. Healthcare, Inc., its subsidiaries
and related companies and, if any, their assignees.
1 . Term of Employment.
1.1 Employer hereby agrees to employ Employee as a
Company officer on the terms and conditions set forth herein. Employee hereby
accepts such employment upon such terms and conditions.
1.2 Such employment shall be for an initial term of
sixty (60) months, commencing on March 1, 1994, and shall thereafter be
automatically extended from year to year, except that upon the delivery by
either Employer or Employee to the other party of a written notice at least
ninety (90) days prior to the expiration of the initial 60-month term or a
subsequent twelve (12) month term, this Agreement shall terminate on the last
day of such term then in effect. As used herein, the phrase "Employment Term"
refers to the initial term and, if any, the renewal terms.
2. Duties of Employee.
2.1 Employee shall perform all services, acts or
other things necessary to properly manage, conduct and carry out Employer's
business, and shall perform such functions and duties as are customarily
performed by an employee holding Employee's position and responsibilities and
such additional functions and duties as are directed by Employer.
2.2 Employee shall devote all of Employee's
productive time, ability and attention to the Company's business while employed
by Employer, except that for a period of 90 days after commencing employment
hereunder Employee may devote a reasonable amount of time to the winding down
of his law practice. During such time Employee shall not engage in or render
any services of any nature to any other business entity whatsoever, whether or
not for compensation, without the written consent of Employer. Any reasonable
change of title, job duties, assignments or functions shall not constitute a
breach of this Agreement by Employer.
2.3 Employee shall be bound by and comply with all of
the terms and conditions of the Employer's Articles of Incorporation, By-laws,
Employee Handbook, Business Ethics Policy, security procedures, and all
personnel policies and procedures as they exist and as they may be changed or
replaced from time to time.
2.4 Employee shall accept and carry out all lawful
policies, standards, regulations, instructions and directions that may from
time to time be established or given by the principal executive officer of the
Company, the Board of Directors of the Company, or their designees.
2
2.5 Employee shall faithfully, industriously, and to
the best of his ability, experience and talents, perform all of the duties that
may be required of and from him to the reasonable satisfaction of Employer.
2.6 In accordance with U.S. Healthcare policy, this
Agreement is conditional upon satisfactory completion of a medical examination
and drug screening by a physician designated by the Company.
3. Compensation and Employee Benefits.
3.1 For each year of service during the Employment
Term, Employer agrees to pay Employee a base annual salary (the "Base Salary")
of $330,000 payable to Employee in accordance with Employer's payroll
procedures. The Base Salary may be increased during the Employment Term, at
Employer's sole discretion, based upon Employer's evaluation of Employee's
performance and other factors.
3.2 Employee may also receive bonuses, stock options
and other compensation, at Employer's sole discretion. Employee's minimum
annual bonus for 1994 shall be $165,000 payable in advance over the first year
of employment in equal installments. Employee shall be entitled to four (4)
weeks of paid vacation and five (5) personal days per year in accordance with
Employer's then-current policies.
3.3 Employee shall be entitled to receive deferred
compensation at 8% of Base Salary and other fringe benefits such as pension
plan, U.S. Healthcare HMO group health plan, short and long term disability
coverage, life insurance and 401(k) savings plan participation, all as
described in Employer's employee benefits plans, as they may from time to time
be revised, and such other fringe benefits as may be provided by Employer at
its sole discretion.
3.4 Employer may, at its election, cost and benefit,
insure Employee against accidental injury or death in such amounts as Employer
shall determine in its sole discretion, and Employee shall submit to such
physical examination and supply such information as may be required in
connection therewith.
3.5 Employee is authorized to incur reasonable
expenses for promoting and conducting the business of Employer in accordance
with Employer's then-current expense reimbursement policies and procedures.
Employer shall reimburse Employee for all such business expenses upon
presentation of reasonable documentation establishing the amount, date, place,
essential character and purpose of the expenditures, and such other information
reasonably required by Employer.
3.6 Employee shall be granted options to purchase
10,000 shares of U.S. Healthcare, Inc. Common Stock in accordance with and
under the terms, conditions and restrictions of the U.S. Healthcare, Inc.
Incentive Plan. Such options will be exercisable in equal installments over
five (5) years commencing on the first anniversary of Employee's employment
hereunder and will expire ten (10) years from date of grant unless earlier
terminated in accordance with said plan.
2
3
3.7 Employee shall be granted a restricted stock
bonus of 10,000 shares of U.S. Healthcare, Inc. Common Stock releasable to
Employee in equal installments over five (5) years commencing on the first
anniversary of Employee's employment hereunder in accordance with and under the
terms, conditions, and restrictions of the U.S. Healthcare, Inc. Incentive
Plan. Employee will have voting and dividend rights prior to release as
provided for and qualified by said Plan.
4. Termination of Employment.
4.1 Subject to this Section 4, Employer may, at its
sole option, terminate this Agreement and Employee's employment hereunder "for
cause" or "for convenience."
4.2 If Employee is terminated "for cause" (as defined
below), this Agreement and Employee's employment hereunder shall immediately
terminate and Employee shall not be entitled to any payment or benefit
hereunder or any other compensation other than the portion of the applicable
Base Salary accrued to the date of termination. Termination "for cause" shall
mean the termination of Employee's employment by Employer prior to the
expiration of the Employment Term (following notice to Employee, opportunity to
cure where curable, and failure to cure within thirty days of such notice) for
one or more of the following reasons:
4.2.1 Employee's willful or intentional neglect to
perform Employee's duties and responsibilities hereunder;
4.2.2 The commission by Employee of dishonesty, fraud,
material violation of the Employee Handbook, the Business Ethics Policy or any
other Company rule or procedure, intentional violation of law or governmental
regulation, misappropriation of funds or property, or willful or intentional
misconduct;
4.2.3 Unprofessional or unethical conduct by Employee
as determined in a final adjudication of any board, institution, organization
or governmental agency having any privilege or right to pass upon the conduct
of Employee;
4.2.4 Intentional or willful conduct by Employee which
is detrimental to the reputation, character, business or standing of Employer;
or
4.2.5 The breach by Employee of any of Employee's
obligations under this Agreement.
In the event of a final and unappealable judgment
entered by a court having jurisdiction that Employee's termination "for cause"
was inappropriate, such termination shall be deemed to have been "for
convenience" under Section 4.4 hereof.
4.3 In the event that Employee becomes permanently
disabled or otherwise physically incapacitated and, in the reasonable judgment
of Employer, is unable to effectively discharge Employee's duties and functions
in accordance with this
3
4
Agreement for a period of ninety (90) consecutive calendar days or a total of
one hundred and eighty (180) days during any twelve (12) month period, Employer
may, at its sole option, terminate this Agreement and Employee's employment
hereunder. In such event, Employee shall not be entitled to any compensation
or benefits other than such long term disability benefits as Employer provides
to similarly situated employees pursuant to its then-current disability
benefits plan.
4.4 This Agreement and Employee's employment
hereunder may be terminated by Employer "for convenience" at any time.
Provided that Employee has not breached and does not breach Employee's
obligations under this Agreement, including but not limited to Section 5
hereof, upon such termination "for convenience" Employee shall receive a
severance payment in an amount equal to Employee's then-current Base Salary,
or, in the event such termination occurs within two years of the date
employment commences hereunder, in an amount equal to two times Employee's
then-current Base Salary. Such payment shall be payable in installments over
one (1) year in accordance with Employer's regular payroll schedule. Such
payment shall be in full satisfaction of any and all payments or damages due
(whether under any agreement or law) to Employee on account of such
termination. Employee acknowledges that Employer's obligations under this
provision constitute an element of consideration for Employee's agreement to
the terms hereof.
4.5 If Employee dies prior to the expiration of the
Employment Term, this Agreement shall immediately terminate and Employee's
estate shall receive an amount equal to Employee's then-current Base Salary.
4.6 This Agreement and Employee's employment
hereunder may be terminated by Employee, at any time, upon sixty (60) days
prior written notice, in which event Employee shall not be entitled to any
payment or benefit hereunder other than the portion of the then-current Base
Salary accrued to the date of termination.
4.7 Any termination of employment or notice under
this Section 4 shall be in writing. Except as otherwise provided herein, all
compensation and benefits hereunder shall cease as of the date of termination
of employment.
4.8 This Agreement shall not be terminated by reason
of any merger or consolidation in which Employer is not the consolidated or
surviving corporation or by any transfer of all or substantially all of assets
of Employer. In the event of any such merger or consolidation or transfer of
assets, the surviving or resulting corporation or the transferee of Employer's
assets shall be bound by and shall have the benefit of the provisions of this
Agreement. In such event, Employer shall take all actions necessary to insure
that such surviving corporation or transferee is bound by the provisions of
this Agreement.
5. Proprietary Information and Non-Competition.
5.1 Employee recognizes and acknowledges that Employee's
performance of services for Employer will result in the disclosure to Employee
of, and Employee's access to, Employer's trade secrets, proprietary information
and confidential information, including but not limited to the following:
member information
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and data; information and lists related to customers and prospective customers;
employee identities and information; internal financial data; information and
pricing related to providers and prospective providers; training materials;
provider compensation methods and rates; quality assurance methods, data and
results; customer and member service systems and information; procedures;
plans; proposals; compilations; market and other strategies and research;
information relating to prospective acquisitions or other transactions, or
acquisition strategies; computer programs; databases; processes; premium and
other pricing information; any information that is material, competitively
sensitive and not generally available to the public; other information
expressly designated by Employer as proprietary or confidential; payment rates
and methodologies; and contracts. For the purposes of this Agreement, any and
all of the foregoing information shall be referred to herein as "Employer's
proprietary information." The parties agree that, as between them, each of the
foregoing items shall constitute Employer's proprietary information and special
and unique assets of Employer. In view of the foregoing, Employee covenants
and agrees that:
5.1.1 During and after the Employment Term, Employee
shall hold Employer's proprietary information in the strictest confidence and
shall not directly or indirectly disclose or reveal any of Employer's
proprietary information to any third party, unless such disclosure is
specifically consented to in writing by Employer;
5.1.2.a After the Employment Term, Employee shall not use
any of Employer's proprietary information; and
5.1.2.b For a period of one year after the termination or
expiration of this Agreement or during any such time as Employee is receiving
severance payments, whichever is longer, Employee shall not place himself in a
situation as to make use of Employer's proprietary information inevitable.
5.1.3 Employee covenants and agrees that for a period
of one (1) year after termination or expiration of this Agreement or during any
such time as Employee is receiving severance payments hereunder, whichever is
longer, whether termination occurs voluntarily or involuntarily, or for cause
or convenience, Employee shall not, directly or indirectly, enter into or
engage in the ownership, management, operation, or control of, or act as an
employee of, or consultant, advisor, or contractor to any existing or proposed
HMO, health insurer, or other entity engaged or planning to be engaged in
competition with or in the same or similar business as Employer, if such entity
(a) has an office within a radius of one hundred (100) miles from any of
Employer's offices at which Employee materially participated in Employer's
business; or (b) operates (in any state where Employer regularly conducts
business) a (i) health maintenance organization, (ii) preferred provider
organization, (iii) managed care plan, (iv) third party administrator, (v)
workers compensation program, (vi) health care quality assessment or
improvement program, (vii) patient survey or outcome program, (viii) health
care data analysis program, or (ix) a health care related business which
Employer entered into after the date hereof.
5.1.4 Employee covenants and agrees that for a period
of one (1) year following the termination or expiration of this Agreement, or
during any such time
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as Employee is receiving severance payments, whichever is longer, whether
termination occurs voluntarily or involuntarily, or for cause or convenience,
Employee shall not directly or indirectly engage in the solicitation or
servicing of, or contracting with, any present, former or prospective Company
customer, member or employee or present, former or prospective contracted
provider of health care services to Employer or its members. Employee further
covenants and agrees not to solicit or aid in the solicitation of any such
customers, members, employees or providers on behalf of Employee or any other
person or entity during such period.
5.1.5 Nothing contained in Sections 5.1.3. or 5.1.4.
shall restrict Employee from engaging in the private practice of law provided
that Employee otherwise complies with his confidentiality and other obligations
under this Agreement and does not render legal or other services to any
existing or proposed entity or individual engaged or planning to be engaged in
competition with or in the same business as Employer.
5.1.6 During and for a period of two (2) years
following the termination or expiration of this Agreement, Employee shall not,
directly or indirectly, for Employee or on behalf of any other person or
entity: (a) induce or attempt to induce any of Employer's personnel to do
anything contrary to the best interests of Employer; or (b) solicit, recruit,
entice, or persuade any other employee or contractor of Employer to leave the
employment or service of Employer.
5.2 Employee acknowledges that in the event
Employee's employment with Employer terminates, Employee will still be able to
earn a livelihood without violating Section 5.1 hereof and that said section is
a material condition to employment with Employer.
5.3 Employee acknowledges that compliance with this
Agreement is necessary to protect the business and good will of Employer and
that any actual or prospective breach will irreparably cause damage to Employer
for which money damages may not be adequate. Employee therefore agrees that if
he or she breaches or attempts to breach this Agreement, Employer shall be
entitled to obtain temporary, preliminary and permanent equitable relief,
without bond, to prevent irreparable harm or injury, together with any and all
other remedies available under applicable law. The prevailing party shall be
entitled to reimbursement of the reasonable attorneys' fees and costs it
expends in any action to enforce this Agreement. Employee further agrees that
a temporary restraining order and preliminary injunction can be obtained
without personal service if Employee cannot be located at the last known
address provided to Employer.
5.4 Employee acknowledges that he is a licensed
attorney and has been advised by Employer to review this Agreement with
Employee's counsel, and that Employee has satisfied himself that the
restrictive covenants negotiated between the parties and set forth in this
Agreement are reasonable in all respects and that such restrictive covenants
are valid and enforceable.
5.5 The purpose of this Agreement, among other
things, is to protect Employer from unfair or inappropriate competition and to
protect Employer's
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proprietary information. The parties agree that if the scope of enforcement of
this Agreement is ever disputed, a court or other trier of fact may modify and
enforce it to the extent it determines is lawful and appropriate.
5.6 Upon termination of this Agreement for any reason
whatsoever, Employee shall return to Employer all of Employer's proprietary
information, equipment, books, records, customer lists, catalogs, invoices,
correspondence, identification cards, computer programs, documentation,
memoranda, notes, records, drawings, manuals, passwords, documents and
information pertaining to Employer's business, and other property which was
acquired from or for Employer, including any property or documentation
developed by Employee in the course of his employment for Employer, as well as
all such documents acquired in the course of performing his or her duties. No
copies of the foregoing shall be retained by Employee.
6. General Provision.
6.1 Notices. Any notices to be given hereunder by
either party to the other may be effectuated either by personal delivery, in
writing or by mail, registered or certified, return receipt requested, postage
prepaid. Mailed notices shall be addressed to the parties at the addresses
appearing beneath their respective signatures below, but Employee may change
his address by providing written notice to Employer on an Employee Status
Change Form.
6.2 Entire Agreement. This Agreement supersedes any
and all other agreements, either oral or in writing, between the parties hereto
relating to the subject matter hereof. This Agreement may not be altered,
modified, changed or amended except in a writing signed by both parties hereto.
Section 5 shall survive the termination of this Agreement.
6.3 Conflict Provisions. Any paragraph, sentence,
phrase, or other provision of this Employment Agreement which is in conflict
with any applicable statute, rule, or other law shall be deemed, if possible,
to be modified or altered to conform thereto or, if not possible, to be omitted
herefrom.
6.4 Non-Waiver. The failure or refusal of either
party to insist upon the strict performance of any provision of this Agreement,
or to exercise any right in any one or more instances or circumstances, shall
not be construed as a waiver or relinquishment of such provision or right, nor
shall such failure or refusal be deemed a custom or practice contrary to such
provision or right.
6.5 Severability. If any paragraph, term or
provision of this Agreement shall be held or determined to be unenforceable,
the balance of this Agreement shall, nevertheless, continue in full force and
effect unaffected by such holding or determination. The parties agree that it
is their intention and agreement that any paragraph, term or provision which is
held or determined to be unenforceable as written, shall be enforced and
binding to the fullest extent permitted by law as though such paragraph, term
or provision had been written in such a manner and to such an extent as to be
enforceable under the circumstances. Without limitation of the foregoing, with
respect to any restrictive covenant contained herein, if it is determined that
any such provision is excessive as to duration or scope, it is intended that
it,
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nonetheless, be enforced for such shorter duration or with such narrower scope
as will render it enforceable.
6.6 Nonassignment. Employee may not assign this
Agreement or delegate the performance of any of his or her duties hereunder.
The parties agree that Employer may, at its sole option, assign this Agreement
to any of its subsidiaries or related companies provided that U.S. Healthcare
guarantees performance by such subsidiary or related company under the terms of
this Agreement.
6.7 Governing Law. This Agreement shall be construed
in accordance with the laws of the Commonwealth of Pennsylvania. All claims
and controversies related to or stemming from this Agreement or Employee's
employment with Employer, except actions for equitable relief, shall be
submitted to binding arbitration in Blue Bell, Pennsylvania, by one arbitrator,
under the Commercial Arbitration Rules of the American Arbitration Association.
Judgment upon an award of the arbitrator may be entered and enforced in any
court having jurisdiction. All claims and actions brought under this Agreement
for equitable relief shall be brought exclusively in the courts of the
Commonwealth of Pennsylvania, it being acknowledged that Employer is a
Pennsylvania corporation and that this Agreement will be executed by Employer
in said county. Employee hereby irrevocably consents to the personal
jurisdiction of the courts of the Commonwealth of Pennsylvania.
7. Nondisclosure. Employee shall not authorize,
intentionally cause or knowingly permit the disclosure of this Agreement, or
the terms hereof, to anyone other than the parties hereto and their respective
legal counsel, for any purpose, unless compelled by law to do so.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
EMPLOYEE EMPLOYER
/s/ Joseph T. Sebastianelli By: /s/ David F. Simon
------------------------------- -----------------------------
Print Name: David F. Simon
-----------------------------
Title: Sr. V.P.
-----------------------------
Current Address: Address:
3 Jorrocks Lane 980 Jolly Road
------------------------------- P.O. Box 1109
Malvern, PA 19355 Blue Bell, PA 19422
-------------------------------
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EX-10.7
5
EMPLOYMENT AGREEMENT OF JAMES H. DICKERSON, JR.
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EMPLOYMENT AGREEMENT
AGREEMENT, dated as of the 4th day of February, 1994, between U.S.
Healthcare, Inc. and JAMES H. DICKERSON, JR. (hereinafter "Employee"). As
used herein, "Employer" or "Company" means U.S. Healthcare, Inc., its
subsidiaries and related companies and, if any, their assignees.
1 . Term of Employment.
1.1 Employer hereby agrees to employ Employee as a
Company officer on the terms and conditions set forth herein. Employee hereby
accepts such employment upon such terms and conditions.
1.2 Such employment shall be for an initial term of
sixty (60) months, commencing no later than March 1, 1994, and shall be
automatically extended for an additional term of sixty (60) months and
thereafter from year to year, except that upon the delivery by either Employer
or Employee to the other party of a written notice at least ninety (90) days
prior to the expiration of the initial 60-month term or a subsequent term, this
Agreement shall terminate on the last day of such term then in effect. As used
herein, the phrase "Employment Term" refers to the initial term and, if any,
the renewal terms.
2. Duties of Employee.
2.1 Employee shall faithfully, industriously, and to
the best of his ability, experience and talents, perform all services, acts or
other things necessary to properly and lawfully manage, conduct and carry out
Employer's business, and shall perform such functions and duties as are
customarily performed by an employee holding Employee's position and
responsibilities and such additional functions and duties as are directed by
Employer. Any reasonable change of title, job duties, assignments or functions
shall not constitute a breach of this Agreement by Employer.
2.2 Employee shall devote Employee's full business
time, ability and attention to the Company's business while employed by
Employer. During such time Employee shall not engage in or render any services
of any nature to any other business entity whatsoever, whether or not for
compensation, without the written consent of Employer. Nothing herein shall
prohibit Employee from ownership of less than 5% of the stock of a public
company or from managing Employee's own investments outside of business hours,
including acting as a limited partner or up to 5% owner of any business
enterprise not in competition with Employer so long as Employee's involvement
with such enterprise is that of investor and not as manager or director.
2.3 Employee shall be bound by and comply with all of
the lawful terms and conditions of the Employer's Articles of Incorporation,
By-laws, Employee Handbook, Business Ethics Policy, security procedures, and
all personnel policies and procedures as they exist and as they may be changed
or replaced from time to time.
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2.4 Employee shall accept and carry out all lawful
policies, standards, regulations, instructions and directions that may from
time to time be established or given by the principal executive officer of the
Company, the Board of Directors of the Company, or their designees.
2.5 In accordance with U.S. Healthcare policy, this
Agreement is conditional upon satisfactory completion of a medical examination
and drug screening by a physician designated by the Company.
3. Compensation and Employee Benefits.
3.1 For each year of service during the Employment
Term, Employer agrees to pay Employee a base annual salary (the "Base Salary")
of $325,000 payable to Employee in accordance with Employer's payroll
procedures. The Base Salary may be increased during the Employment Term, at
Employer's sole discretion, based upon Employer's evaluation of Employee's
performance and other factors.
3.2 Employee may also receive bonuses, stock options
and other compensation, at Employer's sole discretion, except the year-end
bonus for 1994 shall not be less than $100,000 provided Employee commences
employment under this Agreement March 1, 1994 and remains employed through
December 31, 1994. Employee shall be entitled to four (4) weeks of paid
vacation and five (5) personal days per year in accordance with Employer's
then-current policies.
3.3 Employee shall be entitled to receive deferred
compensation at 8% of Base Salary and other fringe benefits such as pension
plan, U.S. Healthcare HMO group health plan, short and long term disability
coverage, life insurance and 401(k) savings plan participation, all as
described in Employer's employee benefits plans, as they may from time to time
be revised, and such other fringe benefits as may be provided by Employer at
its sole discretion.
3.4 Employer may, at its election, cost and benefit,
insure Employee against accidental injury or death in such amounts as Employer
shall determine in its sole discretion, and Employee shall submit to such
physical examination and supply such information as may be reasonably required
in connection therewith.
3.5 Employee is authorized to incur reasonable
expenses for promoting and conducting the business of Employer in accordance
with Employer's then-current expense reimbursement policies and procedures.
Employer shall reimburse Employee for all such business expenses upon
presentation of reasonable documentation establishing the amount, date, place,
essential character and purpose of the expenditures, and such other information
reasonably required by Employer.
3.6 Employee shall be granted options to purchase
20,000 shares of U.S. Healthcare, Inc. Common Stock in accordance with and
under the terms, conditions and restrictions of the U.S. Healthcare, Inc.
Incentive Plan. Such options will be exercisable in equal installments over
five (5) years commencing on the first
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anniversary of Employee's employment hereunder and will expire ten (10) years
from date of grant unless earlier terminated in accordance with said plan.
3.7 Employee shall be granted a restricted stock
bonus of 15,000 shares of U.S. Healthcare, Inc. Common Stock releasable to
Employee in equal installments over five (5) years commencing on the first
anniversary of Employee's employment hereunder in accordance with and under the
terms, conditions, and restrictions of the U.S. Healthcare, Inc. Incentive
Plan. Employee will have voting and dividend rights prior to release as
provided for and qualified by said Plan.
4. Termination of Employment.
4.1 Employer may, at its sole option, terminate this
Agreement and Employee's employment hereunder "for cause" or "for convenience."
4.2 If Employee is terminated "for cause" (as defined
below), this Agreement and Employee's employment hereunder shall immediately
terminate and Employee shall not be entitled to any payment or benefit
hereunder or any other compensation other than the portion of the applicable
Base Salary accrued to the date of termination. The preceding sentence shall
not be construed to deprive Employee of any vested benefit to which Employee
may be entitled under any employee benefit plan maintained or contributed to by
Employer. Termination "for cause" shall mean the termination of Employee's
employment by Employer prior to the expiration of the Employment Term for one
or more of the following reasons:
4.2.1 Employee's willful or intentional neglect to
perform Employee's duties and responsibilities hereunder;
4.2.2 The commission by Employee of dishonesty, fraud,
material violation of the Employee Handbook, the Business Ethics Policy or any
other written Company rule or procedure, intentional violation of law or
governmental regulation, misappropriation of funds or property, or willful or
intentional misconduct;
4.2.3 Unprofessional or unethical conduct by Employee
as determined in a final adjudication of any board, institution, organization
or governmental agency having any privilege or right to pass upon the conduct
of Employee, provided such conduct has or could reasonably be expected to have
a materially detrimental effect on Employer, Employer's business or Employee's
ability to perform his duties;
4.2.4 Intentional or willful conduct by Employee which
is materially detrimental to the reputation, character, business or standing of
Employer; or
4.2.5 The continued breach by Employee of any of
Employee's material obligations under this Agreement after notice and a
reasonable opportunity to correct the breach.
4.3 In the event that Employee becomes permanently
disabled or otherwise physically incapacitated and, in the reasonable judgment
of Employer, is unable to effectively discharge Employee's duties and functions
in accordance with this
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Agreement for a period of ninety (90) consecutive calendar days or a total of
one hundred and eighty (180) days during any twelve (12) month period, Employer
may, at its sole option, terminate this Agreement and Employee's employment
hereunder. In such event, Employee shall not be entitled to any compensation
or benefits other than such long term disability benefits as Employer provides
to similarly situated employees pursuant to its then-current disability
benefits plan.
4.4 This Agreement and Employee's employment
hereunder may be terminated by Employer "for convenience" at any time.
Provided that Employee has not breached and does not breach Employee's
obligations under this Agreement, including but not limited to Section 5
hereof, upon such termination "for convenience" Employee shall receive a
severance payment in an amount equal to two years of Employee's Base Salary
then in effect plus $100,000 if this Agreement is terminated on or prior to the
third anniversary of Employee's employment hereunder or one year of Employee's
Base Salary then in effect if this Agreement is terminated after the third
anniversary of Employee's employment hereunder. Such payment shall be payable
in installments over one (1) year in accordance with Employer's regular payroll
schedule. Such payment shall be in full satisfaction of any and all payments
or damages due (whether under any agreement or law) to Employee on account of
such termination. Employee acknowledges that Employer's obligations under this
provision constitute an element of consideration for Employee's agreement to
the terms hereof.
4.5 If Employee dies prior to the expiration of the
Employment Term, this Agreement shall immediately terminate and Employee's
estate shall receive an amount equal to Employee's then-current Base Salary.
4.6 This Agreement and Employee's employment
hereunder may be terminated by Employee, at any time, upon sixty (60) days
prior written notice, in which event Employee shall not be entitled to any
payment or benefit hereunder other than the portion of the then-current Base
Salary accrued to the date of termination.
4.7 Any termination of employment or notice under
this Section 4 shall be in writing. Except as otherwise provided herein, all
compensation and benefits hereunder shall cease as of the date of termination
of employment.
4.8 This Agreement shall not be terminated by reason
of any merger or consolidation in which Employer is not the consolidated or
surviving corporation or by any transfer of all or substantially all of assets
of Employer. In the event of any such merger or consolidation or transfer of
assets, the surviving or resulting corporation or the transferee of Employer's
assets shall be bound by and shall have the benefit of the provisions of this
Agreement. In such event, Employer shall take all actions necessary to insure
that such surviving corporation or transferee is bound by the provisions of
this Agreement.
5. Proprietary Information and Non-Competition.
5.1 Employee recognizes and acknowledges that Employee's
performance of services for Employer will result in the disclosure to Employee
of, and Employee's access to, Employer's trade secrets, proprietary information
and confidential information, including but not limited to the following:
member information
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and data; information and lists related to customers and prospective customers;
employee identities and information; internal financial data; information and
pricing related to providers and prospective providers; training materials;
provider compensation methods and rates; quality assurance methods, data and
results; customer and member service systems and information; procedures;
plans; proposals; compilations; market and other strategies and research;
information relating to prospective acquisitions or other transactions, or
acquisition strategies; computer programs; databases; processes; premium and
other pricing information; any information that is material, competitively
sensitive and not generally known by the public; other information expressly
designated by Employer as proprietary or confidential; payment rates and
methodologies; and contracts. For the purposes of this Agreement, any and all
of the foregoing information shall be referred to herein as "Employer's
proprietary information." The parties agree that, as between them, each of the
foregoing items shall constitute Employer's proprietary information and special
and unique assets of Employer. In view of the foregoing, Employee covenants
and agrees that:
5.1.1 During and after the Employment Term, Employee
shall hold Employer's proprietary information in the strictest confidence and
shall not, except as necessary and appropriate in the performance of Employee's
duties for Employer, directly or indirectly disclose or reveal any of
Employer's proprietary information to any third party, unless such disclosure
is specifically consented to in writing by Employer; and
5.1.2 After the Employment Term, Employee shall not
make any use of or disclose any of Employer's proprietary information.
5.1.3 Employee covenants and agrees that during the
Employment Term and for a period of one (1) year thereafter or during any such
time as Employee is receiving severance payments hereunder, whichever is
longer, whether termination occurs voluntarily or involuntarily, or for cause
or convenience, Employee shall not, directly or indirectly, enter into or
engage in the ownership, management, operation, or control of, or act as an
employee of, or consultant, advisor, or contractor to any existing or proposed
HMO, health insurer or other entity engaged or planning to be engaged in
competition with or in the same or similar business as Employer, if such entity
(a) has an office within a radius of one hundred (100) miles from any of
Employer's offices; or (b) operates a health maintenance organization;
preferred provider organization; managed care plan; third party administrator;
workers compensation program; health care quality assessment or improvement
program; patient survey or outcome program; health care data analysis program;
or a health care related business which Employer enters into after the date
hereof, in any state in which Employer is authorized to operate a health
maintenance organization or it regularly conducts business.
5.1.4 Employee covenants and agrees that for a period
of one (1) year following the end of the Employment Term, or during any such
time as Employee is receiving severance payments, whichever is longer, whether
termination occurs voluntarily or involuntarily, or for cause or convenience,
Employee shall not directly or indirectly engage in the solicitation or
servicing of, or contracting with, any present, former or prospective Company
customer, member or employee or present, former or prospective contracted
provider of health care services to Employer or its members, in
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any respect that would be directly or indirectly in competition with Employer.
Employee further covenants and agrees not to solicit or aid in the solicitation
of any such customers, members, employees or providers on behalf of Employee or
any other person or entity during such period in any respect that would be
directly or indirectly in competition with Employer. Employee's providing of
financial or financial consulting services for organizations not directly in
competition with Employer and as to which Employee's knowledge of Employer's
proprietary information would not be helpful shall not be considered "in
competition with" Employer.
5.1.5 During and for a period of two (2) years
following the end of the Employment Term, Employee will not, directly or
indirectly, for Employee or on behalf of any other person or entity: (a) induce
or attempt to induce any of Employer's personnel to do anything that could
reasonably be expected to be detrimental to the best interests of Employer; or
(b) solicit, recruit, entice, or persuade any other employee or contractor of
Employer to leave the employment or service of Employer.
5.2 Employee acknowledges that in the event his or
her employment with Employer terminates, Employee will still be able to earn a
livelihood without violating Section 5.1 hereof and that said section is a
material condition to employment with Employer.
5.3 Employee acknowledges that compliance with this
Agreement is necessary to protect the business and good will of Employer and
that any actual or prospective breach will irreparably cause damage to Employer
for which money damages may not be adequate. Employee therefore agrees that if
he or she breaches or attempts to breach this Agreement, Employer shall be
entitled to obtain temporary, preliminary and permanent equitable relief,
without bond, to prevent irreparable harm or injury, together with any and all
other remedies available under applicable law. The prevailing party shall be
entitled to reimbursement of the reasonable attorneys' fees and costs it
expends in any action to enforce this Agreement. Employee further agrees that
a temporary restraining order and preliminary injunction can be obtained
without personal service if Employee cannot be located at the last known
address provided to Employer.
5.4 Employee acknowledges that he has reviewed this
Agreement with Employee's counsel, and that Employee has satisfied himself that
the restrictive covenants set forth in this Agreement are reasonable in all
respects and that such restrictive covenants are valid and enforceable.
5.5 The purpose of this Agreement, among other
things, is to protect Employer from unfair or inappropriate competition and to
protect Employer's proprietary information. The parties agree that if the
scope of enforcement of this Agreement is ever disputed, a court or other trier
of fact may modify and enforce it to the extent it determines is lawful and
appropriate.
5.6 Upon termination of this Agreement for any reason
whatsoever, Employee shall return to Employer all of Employer's proprietary
information, equipment, books, records, customer lists, catalogs, invoices,
correspondence, identification cards, computer programs, documentation,
memoranda, notes, records, drawings, manuals, passwords, documents and
information pertaining
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to Employer's business, and other property which was acquired from or for
Employer, including any property or documentation developed by Employee in the
course of his employment for Employer, as well as all such documents acquired
in the course of performing his or her duties. No copies of the foregoing
shall be retained by Employee.
6. General Provision.
6.1 Notices. Any notices to be given hereunder by
either party to the other may be effectuated either by personal delivery, in
writing or by mail, registered or certified, return receipt requested, postage
prepaid. Mailed notices shall be addressed to the parties at the addresses
appearing beneath their respective signatures below. Either party may notify
the other of a change of such address in writing, by personal delivery or by
mail, in accordance with the preceding sentence.
6.2 Entire Agreement. This Agreement supersedes any
and all other agreements, either oral or in writing, between the parties hereto
relating to the subject matter hereof. This Agreement may not be altered,
modified, changed or amended except in a writing signed by both parties hereto.
Section 5 shall survive the termination of this Agreement.
6.3 Conflict Provisions. Any paragraph, sentence,
phrase, or other provision of this Employment Agreement which is in conflict
with any applicable statute, rule, or other law shall be deemed, if possible,
to be modified or altered to conform thereto or, if not possible, to be omitted
herefrom.
6.4 Non-Waiver. The failure or refusal of either
party to insist upon the strict performance of any provision of this Agreement,
or to exercise any right in any one or more instances or circumstances, shall
not be construed as a waiver or relinquishment of such provision or right, nor
shall such failure or refusal be deemed a custom or practice contrary to such
provision or right.
6.5 Severability. If any paragraph, term or
provision of this Agreement shall be held or determined to be unenforceable,
the balance of this Agreement shall, nevertheless, continue in full force and
effect unaffected by such holding or determination. The parties agree that it
is their intention and agreement that any paragraph, term or provision which is
held or determined to be unenforceable as written, shall be enforced and
binding to the fullest extent permitted by law as though such paragraph, term
or provision had been written in such a manner and to such an extent as to be
enforceable under the circumstances. Without limitation of the foregoing, with
respect to any restrictive covenant contained herein, if it is determined that
any such provision is excessive as to duration or scope, it is intended that
it, nonetheless, be enforced for such shorter duration or with such narrower
scope as will render it enforceable.
6.6 Nonassignment. Employee may not assign this
Agreement or delegate the performance of any of his or her duties hereunder.
The parties agree that Employer may, at its sole option, assign this Agreement
to any of its subsidiaries or related companies provided that U.S. Healthcare
guarantees performance by such subsidiary or related company under the terms of
this Agreement and that Employee
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cannot be transferred to a principal work location more than 50 miles from
Montgomery County, PA without Employee's consent, which shall not be
unreasonably withheld.
6.7 Governing Law. This Agreement shall be construed
in accordance with the laws of the Commonwealth of Pennsylvania. All claims
and controversies related to or stemming from this Agreement or Employee's
employment with Employer, except actions for equitable relief, shall be
submitted to binding arbitration in Blue Bell, Pennsylvania, by a panel of
three arbitrators, under the Commercial Arbitration Rules of the American
Arbitration Association. Judgment upon an award of the arbitrator may be
entered and enforced in any court having jurisdiction. All claims and actions
brought under this Agreement for equitable relief shall be brought exclusively
in the courts of the Commonwealth of Pennsylvania, it being acknowledged that
Employer is a Pennsylvania corporation and that this Agreement will be executed
by Employer in said county. Employee hereby irrevocably consents to the
personal jurisdiction of the courts of the Commonwealth of Pennsylvania.
7. Nondisclosure. Employee shall not authorize,
intentionally cause or knowingly permit the disclosure of this Agreement, or
the terms hereof, to anyone other than the parties hereto and their respective
legal counsel, for any purpose other than to enforce the terms hereof in
arbitration or court, unless compelled by law to do so.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
EMPLOYEE EMPLOYER
/s/ James H. Dickerson, Jr. By: /s/ David F. Simon
---------------------------- --------------------
Print Name: David F. Simon
---------------
Title: SVP/CC
-------
Current Address: Address:
1532 Overlook Place 980 Jolly Road
------------------- P.O. Box 1109
Blue Bell, PA 19422
Malvern, PA 19355
------------------
8
EX-10.18
6
AMENDED AND RESTATED SAVINGS PLAN
1
U.S. HEALTHCARE, INC. SAVINGS PLAN
(Amended and Restated Effective January 1, 1992)
2
TABLE OF CONTENTS
Page
----
1. DEFINITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
----------
(a) "Accrued Benefit" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(b) "Administrative Committee" or "Committee" . . . . . . . . . . . . . . . . . . . . . . . 1
(c) "Administrator" or "Plan Administrator" . . . . . . . . . . . . . . . . . . . . . . . . 2
(d) "Annual Additions" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(e) "Board of Directors" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(f) "Break in Service" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(g) "Code" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(h) "Company" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(i) "Compensation" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(j) "Disability" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(k) "Employee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(l) "Entry Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(m) "ERISA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(n) "Fiduciary" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(o) "Fund" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(p) "Hour of Service" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(q) "Investment Category" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(r) "Investment Manager" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(s) "Matching Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(t) "Member" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(u) "Normal Retirement Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(v) "Participating Company" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(w) "Plan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(x) "Plan Year" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(y) "Related Entity" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(z) "Restatement Effective Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(aa) "Savings Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(bb) "Six Months of Service" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(cc) "Trust Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(dd) "Trustee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(ee) "U.S. Healthcare Stock" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(ff) "Valuation Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(gg) "Year of Service" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2. ADMINISTRATION OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
--------------------------
(a) ERISA Reporting and Disclosure by Administrator . . . . . . . . . . . . . . . . . . . . 12
(b) Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(c) Multiple Capacities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(d) Committee Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(e) Allocation of Fiduciary Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . 13
(f) Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(g) Fiduciary Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(h) Plan Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(i) Fiduciary Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(j) Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
i
3
Page
----
3. PARTICIPATION IN THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
-------------------------
(a) Initial Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(b) Measuring Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(c) Termination and Requalification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(d) Commencement of Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(e) Termination of Membership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4. MEMBER AND PARTICIPATING COMPANY CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 21
----------------------------------------------
(a) Salary Reduction Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(b) Salary Reduction Contribution Limitations . . . . . . . . . . . . . . . . . . . . . . . 22
(c) Savings Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(d) Participating Company Matching Contributions . . . . . . . . . . . . . . . . . . . . . . 23
(e) Compliance with Salary Reduction Contributions
Discrimination Tests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(f) Compliance with Participating Company Matching
Contributions Discrimination Tests . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(g) Matching Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(h) Highly Compensated Eligible Employee . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5. MAXIMUM CONTRIBUTIONS AND BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
----------------------------------
(a) Defined Contribution Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(b) Combined Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(c) Combined Limitation Computation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
(d) Definition of "Compensation" for Code Limitations . . . . . . . . . . . . . . . . . . . 41
6. ADMINISTRATION OF FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
-----------------------
(a) Investment Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
(b) U.S. Healthcare Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
(c) Member Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
(d) No Member Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
(e) Facilitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
(f) Valuations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
(g) Member's Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
(h) Bookkeeping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
7. BENEFICIARIES AND DEATH BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
--------------------------------
(a) Designation of Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
(b) Beneficiary Priority List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
8. BENEFITS FOR MEMBERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
--------------------
(a) Retirement Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
(b) Death Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
(c) Disability Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
(d) Termination of Employment Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
(e) Time of Forfeiture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
(f) Valuation of Accrued Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
9. DISTRIBUTION OF BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
------------------------
(a) Commencement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
(b) Benefit Form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
(c) Distributions in Kind . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
ii
4
Page
----
(d) Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
(e) Transfers to Other Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
10. IN-SERVICE DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
------------------------
(a) Hardship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
(b) Need . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
(c) Satisfaction of Need . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
(d) Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
(e) Age 59-1/2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
11. LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
-----
(a) Availability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
(b) Minimum Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
(c) Loans to Former Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
(d) Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
12. TITLE TO ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
---------------
13. AMENDMENT AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
-------------------------
(a) Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
(b) Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
(c) Conduct on Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
14. LIMITATION OF RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
--------------------
(a) Alienation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
(b) Qualified Domestic Relations Order Exception . . . . . . . . . . . . . . . . . . . . . . 71
(c) Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
15. MERGERS, CONSOLIDATIONS OR TRANSFERS OF PLAN ASSETS . . . . . . . . . . . . . . . . . . . . . . 73
---------------------------------------------------
16. PARTICIPATION BY RELATED ENTITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
---------------------------------
(a) Commencement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
(b) Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
(c) Single Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
(d) Delegation of Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
17. TOP-HEAVY REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
----------------------
(a) General Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
(b) Calculation of Top-Heavy Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
(c) Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
(d) Combined Benefit Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
(e) Vesting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
(f) Minimum Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
18. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
-------------
(a) Incapacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
(b) Reversions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
(c) Employee Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
(d) Law Governing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
(e) Pronouns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
(f) Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
iii
5
U.S. HEALTHCARE, INC. SAVINGS PLAN
(Amended and Restated Effective January 1, 1992)
U.S. HEALTHCARE, INC., a Pennsylvania corporation, adopted the
U.S. Healthcare, Inc. Savings Plan (the "Plan") effective November 26, 1984.
The Plan was subsequently amended and restated effective January 1, 1985 and
further amended by Amendments No. 1 and 2 thereto. The Plan was again amended
and restated effective January 1, 1989 and further amended by Amendment No. 1
thereto. The Company hereby amends and completely restates the Plan effective
January 1, 1992, subject to the subsequent condition that the Internal Revenue
Service issues a determination that the Plan as so amended and restated meets
all applicable requirements of section 401(a) of the Code (as defined in
subsection 1(g)), that employer contributions thereto remain deductible under
section 404 of the Code and that the trust fund maintained with respect thereto
remains tax exempt under section 501(a) of the Code.
1. DEFINITION
(a) "Accrued Benefit" shall mean on any date of
determination the value of a Member's share of the Fund.
(b) "Administrative Committee" or "Committee" shall mean
the individual or group of individuals designated pursuant
6
to subsection 2(b) to control and manage the operation and administration of
the Plan to the extent set forth herein.
(c) "Administrator" or "Plan Administrator" shall mean
the individual or group of individuals designated by the Board of Directors or
the Administrative Committee to discharge the statutory responsibilities of a
plan administrator under ERISA pursuant to subsection 2(a).
(d) "Annual Additions" shall mean the sum for any Plan
Year of (i) employer contributions, (ii) employee contributions, (iii)
forfeitures, and (iv) amounts described in sections 415(l)(1) and 419A(d)(2) of
the Code which are allocated to the account of a Member under the terms of a
plan subject to section 415 of the Code. "Annual Additions" shall include
excess contributions as defined in section 401(k)(8)(B) of the Code, excess
aggregate contributions as defined in section 401(m)(6)(B) of the Code,
regardless of whether such amounts are distributed or forfeited, but shall not
include excess deferrals as described in section 402(g) of the Code that are
distributed as provided in subsection 4(b)(i).
(e) "Board of Directors" shall mean the Board of
Directors of the Company.
(f) "Break in Service" shall mean any Plan Year in which
a Member completes less than three months of service; provided, however, that
if a Member completes more than 500 Hours of Service in such Plan Year, such
Plan Year shall not constitute a Break in Service.
2
7
(g) "Code" shall mean the Internal Revenue Code of 1986,
as amended, and the same as may be further amended from time to time.
(h) "Company" shall mean U.S. Healthcare, Inc., a
Pennsylvania corporation.
(i) "Compensation" shall mean the total taxable income
payable to an Employee for services by a Participating Company (including any
bonuses, overtime compensation and short-term disability payments), plus salary
reduction contributions under subsection 4(a) and salary deferrals under a plan
described in section 125 of the Code. "Compensation" shall not include
non-qualified deferred compensation, the value of fringe benefits or
perquisites, stock, stock options, or similar items. "Compensation" with
respect to any Member for any Plan Year commencing on a date prior to January
1, 1994 shall be limited to $200,000 (or an increased amount permitted in
accordance with a cost of living adjustment under section 415(d) of the Code),
and for any Plan Year commencing on or after January 1, 1994 shall be limited
to $150,000 (or an increased amount permitted in accordance with a cost of
living adjustment under section 415(d) of the Code).
(j) "Disability" shall mean a medically determinable
physical or mental impairment of a permanent nature which prevents a Member
from performing his customary employment duties without endangering his health.
Disability shall be determined
3
8
by the Committee in its absolute discretion on the basis of such medical
evidence as the Committee deems necessary or desirable.
(k) "Employee" shall mean each and every person employed
by a Participating Company or a Related Entity. The term "Employee" shall also
include a person who is a "leased employee" (within the meaning of section
414(n)(2) of the Code) with respect to a Participating Company or a Related
Entity except that no person who is a "leased employee" shall be eligible to
participate in this Plan or be deemed an "Employee" for purposes of eligibility
to participate.
(l) "Entry Date" shall mean the first day of each
calendar quarter of the Plan Year.
(m) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended, and the same as may be further amended from
time to time.
(n) "Fiduciary" shall mean a person who, with respect to
the Plan, (i) exercises any discretionary authority or discretionary control
respecting management of the Plan or exercises any authority or control with
respect to management or disposition of the Plan's assets, (ii) renders
investment advice for a fee or other compensation, direct or indirect, with
respect to any monies or other property of the Plan, or has any authority or
responsibility to do so, or (iii) has any discretionary authority or
discretionary responsibility in the administration of the Plan.
4
9
(o) "Fund" shall mean the assets of the Plan. All
Investment Categories shall be part of the Fund.
(p) "Hour of Service"
(i) General Rule. "Hour of Service" shall mean
each hour (A) for which an Employee is directly or indirectly paid, or entitled
to payment, by a Participating Company or a Related Entity for the performance
of duties or (B) for which back pay, irrespective of mitigation of damages, has
been either awarded or agreed to by a Participating Company or a Related
Entity. These hours shall be credited to the Employee for the period or
periods in which the duties were performed or to which the award or agreement
pertains irrespective of when payment is made. The same hours shall not be
credited under both (A) and (B) above.
(ii) Paid Absences. An Employee shall also be
credited with one Hour of Service for each hour for which the Employee is
directly or indirectly paid, or entitled to payment, by a Participating Company
or a Related Entity on account of a period of time during which no duties are
performed due to vacation, holiday, illness, incapacity, disability, layoff,
jury duty or authorized leave of absence for a period not exceeding one year
for any reason in accordance with a uniform policy established by the
Committee; provided, however, that not more than 501 Hours of Service shall be
credited to an Employee under this subsection 1(p)(ii) on account of any
single, continuous period during which the Employee performs no duties and
provided,
5
10
further, that no credit shall be given if payment (A) is made or due under a
plan maintained solely for the purpose of complying with applicable workmen's
compensation, unemployment compensation or disability insurance laws or (B) is
made solely to reimburse an Employee for medical or medically related expenses
incurred by the Employee.
(iii) Maternity/Paternity. An Employee shall also
be credited with one Hour of Service for purposes of determining whether he has
incurred a Break in Service for each hour that otherwise would normally have
been credited to the Employee but during which such Employee is absent from
work for any period (A) by reason of the Employee's pregnancy, (B) by reason of
the birth of the Employee's child, (C) by reason of the placement of a child
with such Employee in connection with an adoption of such child by the Employee
or (D) for purposes of caring for a child for a period beginning immediately
following birth or placement, provided that an Employee shall be credited with
no more than 501 Hours of Service on account of any single continuous period of
absence by reason of any such pregnancy, birth, or placement, and provided
further that Hours of Service credited to an individual on account of such a
period of absence shall be credited only for the Plan Year in which such
absence begins if an Employee would otherwise fail to be credited with 501 or
more Hours of Service in such Plan Year or, in any other case, in the
immediately following Plan Year.
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(iv) Military. An Employee shall also be credited
with one Hour of Service for each hour during which the Employee is absent on
active duty in the military service of the United States under leave of absence
granted by a Participating Company or a Related Entity or when required by law,
provided he returns to employment with a Participating Company or a Related
Entity within 90 days after his release from active duty or within such longer
period during which his right to reemployment is protected by law.
(v) Miscellaneous. For purposes of this
subsection 1(p), the regulations issued by the Secretary of Labor at 29 CFR
Section 2530.200b-2(b) and (c) are incorporated by reference. Nothing herein
shall be construed as denying an Employee credit for an "Hour of Service" if
credit is required by separate federal law.
(vi) Equivalencies. If, for Plan purposes, an
Employee's records are kept on other than an hourly basis as described above,
the Committee, according to uniform rules applicable to a class of Employees,
may apply the following equivalencies for purposes of crediting Hours of
Service:
Credit Granted to Individual if
Basis Upon Which Individual Earns One or More
Records are Maintained Hours of Service During Period
---------------------- ------------------------------
Shift Actual hours for full shift
Day 10 Hours of Service
Week 45 Hours of Service
Semi-monthly Payroll Period 95 Hours of Service
Months of Employment 190 Hours of Service
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(q) "Investment Category" shall mean any separate
investment fund which is made available under the terms of the Plan.
(r) "Investment Manager" shall mean any Fiduciary (other
than a Trustee) who:
(i) has the power to manage, acquire, or dispose
of any asset of the Plan:
(ii) is:
(A) registered as an investment adviser
under the Investment Advisers Act of 1940;
(B) a bank, as defined in that Act; or
(C) an insurance company qualified to
perform services described in subsection 1(r)(i) above under the laws of more
than one state; and
(iii) has acknowledged in writing that he is a
Fiduciary with respect to the Plan.
(s) "Matching Account" shall mean the portion of the
Member's Accrued Benefit derived from Participating Company contributions under
subsection 4(d) hereof.
(t) "Member" shall mean each and every Employee of a
Participating Company who satisfies the requirements for participation under
Section 3 hereof and who elects that amounts be withheld from his Compensation
under subsection 4(a) and each other person who has an Accrued Benefit held
under the Plan.
(u) "Normal Retirement Date" shall mean the date on which
a Member attains age 65.
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(v) "Participating Company" shall mean each Related
Entity with respect to the Company which adopts this Plan pursuant to Section
16. The term shall also include the Company, unless the context otherwise
requires.
(w) "Plan" shall mean the U.S. Healthcare, Inc. Savings
Plan as amended and restated and set forth herein effective January 1, 1992,
and the same as may be amended from time to time.
(x) "Plan Year" shall mean the consecutive twelve-month
period commencing on January 1st and ending on December 31st.
(y) "Related Entity" shall mean (i) all corporations
which are members with a Participating Company in a controlled group of
corporations within the meaning of section 1563(a) of the Code, determined
without regard to sections 1563(a)(4) and (e)(3)(C) of the Code, (ii) all
trades or businesses (whether or not incorporated) which are under common
control with a Participating Company as determined by regulations promulgated
under section 414(c) of the Code, (iii) all trades or businesses which are
members of an affiliated service group with a Participating Company within the
meaning of section 414(m) of the Code, and (iv) any entity required to be
aggregated with the Company under regulations prescribed under section 414(o)
of the Code (to the extent provided in such regulations); provided, however,
that for purposes of Section 5 the definition shall be modified to substitute
the phrase "more than 50%" for the phrase
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"at least 80%" each place it appears in section 1563(a)(1) of the Code.
Furthermore, for purposes of crediting Hours of Service for eligibility to
participate and vesting, service performed as a "leased employee", within the
meaning of section 414(n) of the Code, of a Participating Company or a Related
Entity shall be treated as Hours of Service performed for such Participating
Company or Related Entity. An entity is a Related Entity only during those
periods in which it is included in a category described in this subsection.
(z) "Restatement Effective Date" shall mean January 1,
1992.
(aa) "Savings Account" shall mean the portion of the
Member's Accrued Benefit derived from contributions made under subsection 4(a)
hereof.
(bb) "Six Months of Service" shall mean a consecutive
six-month computation period specified in the Plan in which an Employee is
employed by a Participating Company or a Related Entity.
(cc) "Trust Agreement" shall mean the agreement or
agreements between the Company and a Trustee under which all or a portion of
the Fund is held.
(dd) "Trustee" shall mean such person, persons, or
corporate fiduciary designated pursuant to subsection 6(a) to manage and
control all or a portion of the Fund pursuant to the terms of the Plan and a
Trust Agreement.
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(ee) "U.S. Healthcare Stock" shall mean U.S. Healthcare,
Inc. common stock, par value $0.005 per share.
(ff) "Valuation Date" shall mean the last day of each
calendar quarter in the Plan Year and each interim date on which the Committee
determines that a valuation shall be made.
(gg) "Year of Service" shall mean a consecutive
twelve-month computation period specified in the Plan in which an Employee is
credited with 1,000 Hours of Service or more.
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2. ADMINISTRATION OF THE PLAN
(a) ERISA Reporting and Disclosure by Administrator. The
Administrator shall file all reports and distribute to Members and
beneficiaries reports and other information required under ERISA or the Code.
(b) Committee. The Company, through its Board of
Directors, may designate an Administrative Committee which shall have the
authority to control and manage the operation and administration of the Plan.
If the Company designates an Administrative Committee, the powers and duties of
the Committee under the Plan shall be exercised by the Committee; otherwise,
such duties and powers shall be exercised by the Company. If the Committee
consists of more than two members, it shall act by majority vote. The
Committee may (i) delegate all or a portion of the responsibilities of
controlling and managing the operation and administration of the Plan to one or
more persons and (ii) appoint agents, investment advisers, counsel, or other
representatives to render advice with regard to any of its responsibilities
under the Plan. The Board of Directors may remove, with or without cause, the
Committee or any Committee member. The Committee may remove, with or without
cause, any delegate or adviser designated by it.
(c) Multiple Capacities. Any person may serve in more
than one fiduciary capacity.
(d) Committee Powers. The responsibility to control and
manage the operation and administration of the Plan shall
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include, but shall not be limited to, the performance of the following acts:
(i) the filing of all reports required of the
Plan, other than those which are the responsibility of the Administrator,
(ii) the distribution to Members and beneficiaries
of all reports and other information required of the Plan, other than reports
and information required to be distributed by the Administrator,
(iii) the keeping of complete records of the
administration of the Plan,
(iv) the promulgation of rules and regulations for
the administration of the Plan consistent with the terms and provisions of the
Plan, and
(v) the interpretation of the Plan, including the
determination of any questions of fact arising under the Plan and the making of
all decisions required by the Plan; provided that the Committee shall have
discretionary authority to interpret the Plan, determine questions of fact
arising under the Plan, and make all decisions required by the Plan, including
the resolution of disputed claims arising under the Plan in accordance with the
provisions of the Plan.
(e) Allocation of Fiduciary Responsibility. The Board of
Directors, the Administrator, the Committee, and the Trustee possess certain
specified powers, duties, responsibilities, and obligations under the Plan and
the Trust Agreement. It is
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intended under this Plan and the Trust Agreement that each be responsible
solely for the proper exercise of its own functions and that each not be
responsible for any act or failure to act of another, unless otherwise
responsible as a breach of its fiduciary duty or for breach of duty by another
Fiduciary under ERISA's rules of co-fiduciary responsibility. In general:
(i) the Board of Directors is responsible for
appointing and removing the Administrator, the Committee, and the Trustee and
for amending the Plan and the Trust Agreement;
(ii) the Committee is responsible for administering
the Plan, for adopting such rules and regulations as in the opinion of the
Committee are necessary or advisable to implement and administer the Plan and
to transact its business, and for providing a procedure for carrying out a
funding policy and method consistent with the objectives of the Plan and the
requirements of Title I of ERISA;
(iii) the Administrator is responsible for
discharging the statutory duties of a plan administrator under ERISA and the
Code;
(iv) the Trustee and the Investment Manager (if any)
are responsible for the management and control of the portion of the Fund over
which they have control to the extent provided in the Trust Agreement; and
(v) the Fiduciary appointing an Investment
Manager is responsible for the appointment and retention of the Investment
Manager.
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(f) Claims. If, pursuant to the rules, regulations, or
other interpretations of the Plan, the Committee denies the claim of a Member
or beneficiary for benefits under the Plan, the Committee shall provide written
notice, within 90 days after receipt of the claim, setting forth in a manner
calculated to be understood by the claimant:
(i) the specific reasons for such denial;
(ii) the specific reference to the Plan provisions
on which the denial is based;
(iii) a description of any additional material or
information necessary to perfect the claim and an explanation of why such
material or information is needed; and
(iv) an explanation of the Plan's claim review
procedure and the time limitations of this subsection applicable thereto.
A Member or beneficiary whose claim for benefits has been denied may request
review by the Committee of the denied claim by notifying the Committee in
writing within 60 days after receipt of the notification of claim denial. As
part of said review procedure, the claimant or his authorized representative
may review pertinent documents and submit issues and comments to the Committee
in writing. The Committee shall render its decision to the claimant in writing
in a manner calculated to be understood by the claimant not later than 60 days
after receipt of the request for review, unless special circumstances require
an extension of time, in which case a decision shall be rendered as
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20
soon after the sixty-day period as possible, but not later than 120 days after
receipt of the request for review. The decision on review shall state the
specific reasons therefor and the specific Plan references on which it is
based.
(g) Fiduciary Compensation. The Administrator or a
Committee member, delegate, or adviser who already receives full-time pay from
a Participating Company or a Related Entity shall serve without compensation
for his services as such, but he shall be reimbursed pursuant to the last
sentence of this subsection for any reasonable expenses incurred by him in the
administration of the Plan. The Administrator or a Committee member, delegate,
or adviser who is not already receiving full-time pay from a Participating
Company may be paid such reasonable compensation as shall be agreed upon.
(h) Plan Expenses. All expenses of administration of the
Plan shall be paid out of the Fund unless paid by the Company. Brokerage
commissions, transfer taxes, and similar expenses shall be added to the cost or
deducted from the sales price of the investments to which they relate unless
paid by the Company.
(i) Fiduciary Insurance. If the Committee so directs,
the Plan shall purchase insurance to cover the Plan from liability or loss
occurring by reason of the act or omission of a Fiduciary provided such
insurance permits recourse by the insurer against the Fiduciary in the case of
a breach of duty by such Fiduciary.
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(j) Indemnification. The Company shall indemnify and
hold harmless to the maximum extent permitted by its by-laws each Fiduciary
who is an Employee or who is an officer or director of any Participating
Company or any Related Entity from any claims, damage, loss, or expense,
including litigation expenses and attorneys fees, resulting from such person's
service as a Fiduciary of the Plan; provided the claim, damage, loss, or
expense does not result from the Fiduciary's gross negligence or intentional
misconduct.
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3. PARTICIPATION IN THE PLAN
(a) Initial Eligibility. Each and every Employee of a
Participating Company who was participating in the Plan on the day before the
Restatement Effective Date shall remain eligible to participate in the Plan.
Each and every other Employee of a Participating Company shall be eligible and
shall qualify to participate in the Plan on the Entry Date following the date
such Employee both attain age 21 and completes Six Months of Service, provided
he is then employed by a Participating Company. Notwithstanding the foregoing
provisions of this subsection,
(i) no Employee whose terms and conditions of
employment are determined by a collective bargaining agreement between employee
representatives and a Participating Company shall be eligible to participate
unless such collective bargaining agreement provides to the contrary, in which
case such Employee shall be eligible to participate upon compliance with such
provisions for eligibility and participation as such agreement shall provide;
and
(ii) no Employee who has selected, or in the future
selects, a union shall become ineligible during the period between his
selection of the union and the execution of the first collective bargaining
agreement which covers him.
(b) Measuring Service. For purposes of measuring service
to satisfy the eligibility provisions of subsection 3(a), the Six Months of
Service computation period for an Employee shall begin with the date on which
the Employee first is credited
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with an Hour of Service and end on the date six months thereafter.
(c) Termination and Requalification.
(i) An Employee who was eligible to participate
in the Plan under subsection 3(a), who subsequently ceases to be an Employee
and is later reemployed as an Employee, shall again be eligible to participate
in the Plan as of the date on which he first again completes an Hour of Service
after being re-employed as an Employee; provided, however, if such Employee has
had a Break in Service prior to being so re-employed, he shall again be so
eligible to participate in the Plan only if (1) he had any nonforfeitable
interest in his Accrued Benefit as of the date he first ceased to be an
Employee, or (2) his consecutive Breaks in Service prior to being so
re-employed are less than five.
(ii) If an individual is not an Employee on the date
on which he would have otherwise been eligible to participate in the Plan under
subsection (a), he shall again be eligible to participate in the Plan as of the
date on which he first again completes an Hour of Service after being
re-employed as an Employee; provided, however, if he has had a Break in Service
prior to being so re-employed, he shall be so eligible to participate in the
Plan only if he (1) he had any nonforfeitable interest in his Accrued Benefit
as of the date he first ceased to be an Employee, or (2) his consecutive Breaks
in Service prior to being so re-employed are less than five.
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(d) Commencement of Participation. An Employee who
satisfies all the requirements for eligibility under subsection 3(a) shall
become a Member on the Entry Date following his timely election authorizing
amounts be withheld from his Compensation and be credited to his Savings
Account under the Plan.
(e) Termination of Membership. An Employee who becomes a
Member shall remain a Member as long as he has an Accrued Benefit held under
the Plan.
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4. MEMBER AND PARTICIPATING COMPANY CONTRIBUTIONS
(a) Salary Reduction Contributions. Each Employee who
becomes eligible to participate under subsection 3(a) may contribute any even
multiple of 1.0% of his Compensation, as he shall elect in writing on a form
prescribed by the Committee, but not more than 16% of his Compensation for any
portion of a Plan Year during which his election under this section is in
effect. The election to contribute may be effective as of any Entry Date. The
Member's contribution shall be accomplished by reducing his Compensation by the
percentage elected for each full payroll period that the election is in effect,
beginning with the full pay period during which his election becomes effective;
provided, however, that a Member may elect that any portion of a bonus or other
special cash remuneration that has not yet been paid as of the date of the
Member's election be contributed to the Plan subject to the overall limitation
of 16% of Compensation for a Plan Year. For purposes of the Code, a Member's
contribution shall be deemed to be made by the Member's employer. A Member may
elect to reduce or increase his contributions effective as of any Entry Date or
to terminate his contributions at any time. If a Member elects to terminate
his contributions completely, he shall be prohibited from authorizing any
further contribution on his behalf under this subsection until the Entry Date
which is at least six months from the date such Member terminates his
contributions. All elections under this subsection shall be made in writing on
a form prescribed therefor and be subject to timely
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delivery to the Committee. Contributions made by Participating Companies under
this subsection shall be allocated to the Savings Accounts of the Members from
whose Compensation the contributions were withheld in an amount equal to the
amount withheld.
(b) Salary Reduction Contribution Limitations.
Contributions under subsection 4(a) shall be limited as provided below:
(i) Exclusion Limit. The maximum amount of
contribution which any Member may make in any calendar year under subsection
4(a) is $8,728 (or such increased annual amount resulting from a cost of living
adjustment pursuant to sections 402(g)(5) and 415(d)(1) of the Code), reduced
by the amount of elective deferrals by such Member under all other plans,
contracts, or arrangements of any Participating Company or Related Entity. If
the contribution under subsection 4(a) for a Member for any calendar year
exceeds $8,728 (or such increased annual amount resulting from an adjustment
described above), the Committee shall direct the Trustee to distribute the
excess amount (plus any income and minus any loss allocable to such amount) to
the Member not later than the April 15th following the close of such calendar
year. If (A) a Member participates in another plan which includes a qualified
cash or deferred arrangement, (B) such Member contributes in the aggregate more
than the exclusion limit under this Plan and the corresponding provisions of
the other plan and (C) the Member notifies the Committee not later than the
March 1st following the close of
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such calendar year of the portion of the excess the Member has allocated to
this Plan, then the Committee may direct the Trustee to distribute to the
Member not later than April 15th following the close of such calendar year the
excess amount (plus any income and minus any loss allocable to such amount)
which the Member allocated to this Plan.
(ii) Discrimination Test Limits. The Committee may
limit the maximum amount of contribution for Members who are "highly
compensated employees" (within the meaning of section 414(q) of the Code) to
the extent it determines that such limitation is necessary to keep the Plan in
compliance with section 401(a)(4) or section 401(k)(3) of the Code. Any
limitation shall be effective for all payroll periods following the
announcement of the limitation.
(iii) Payment Date. The Participating Companies
shall pay over to the Fund all contributions required under subsection 4(a) as
soon as practicable, but in no event later than 90 days after the date on which
such contributions were received or withheld from the Member's Compensation.
(c) Savings Account. Each Member's salary reduction
contributions, as adjusted for investment gain or loss and income or expense,
constitute such Member's Savings Account. A Member shall at all times have a
nonforfeitable interest in the portion of his Accrued Benefit derived from his
Savings Account.
(d) Participating Company Matching Contributions.
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(i) Amount. Each Participating Company shall
contribute with respect to each Member employed by it an amount equal to
one-third of the Member's salary reduction contribution, subject to an
aggregate limitation for each Plan Year of 2% of the Member's Compensation for
that Plan Year. Such contributions shall be allocated to the Matching Accounts
of the Members with respect to whom they are made.
(ii) Forfeitures. Amounts in the Matching Accounts
of Members which have been forfeited pursuant to the provisions of subsections
8(d) and 8(e) hereof on or before the last day of a Plan Year shall be applied
to reduce required Participating Company contributions for the Plan Year.
(iii) U.S. Healthcare Stock. The Company may
satisfy the obligation to make matching contributions by the direct issuance to
the Trustee of U.S. Healthcare Stock with a value equal to the required
matching contribution determined by valuing the contributed U.S. Healthcare
Stock as the lesser of (A) the closing price of such Stock on the NASDAQ Stock
Market on the trading day immediately preceding the date as of which the
contribution is to be made or (B) the average of the closing prices of such
Stock on the NASDAQ Stock Market for the 20 consecutive trading days
immediately preceding the date as of which the contribution is made.
(iv) Payment Date. The Participating Companies
shall pay over to the Fund all contributions required under this subsection no
later than the due date, including extension,s for
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29
filing the Participating Companies' federal income tax returns for the
taxable year ended coincident with or immediately following the end of the Plan
Year with respect to which such contributions are to be made.
(e) Compliance with Salary Reduction Contributions
Discrimination Tests.
(i) Rule. In no event shall the "average actual
deferral percentage" (as defined below) for Members who are "highly compensated
employees" (as defined in subsection 4(h)) for any Plan Year bear a
relationship to the "average actual deferral percentage" for Members who are
not "highly compensated employees" which does not satisfy either subsection
4(e)(i)(A) or (B) below.
(A) The requirement shall be satisfied
for a Plan Year if the "average actual deferral percentage" for the group of
Members who are "highly compensated employees" that are eligible to make
contributions under subsection 4(a) for any portion of the Plan Year is not
more than the "average actual deferral percentage" of all others who are
eligible to make contributions under subsection 4(a) for any portion of the
Plan Year multiplied by 1.25.
(B) The requirement shall be satisfied
for a Plan Year if (1) the excess of the "average actual deferral percentage"
for the Members who are "highly compensated employees" for the Plan Year that
are eligible to make contributions under subsection 4(a) for any portion of the
Plan
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30
Year over the "average actual deferral percentage" of all others who are
eligible to make contributions for any portion of the Plan Year is not more
than two percentage points and (2) the "average actual deferral percentage" for
Members who are "highly compensated employees" is not more than the "average
actual deferral percentage" of all others eligible to make contributions under
subsection 4(a) for any portion of the Plan Year multiplied by two.
(ii) Refund. If the relationship of the "average
actual deferral percentages" does not satisfy subsection 4(e)(i) for any Plan
Year, then the Committee shall direct the Trustee to distribute the "excess
contribution" (as defined below) for such Plan Year (plus any income and minus
any loss allocable thereto) not later than the end of the Plan Year following
the close of the Plan Year to the "highly compensated employees" on the basis
of the respective portions of the "excess contribution" attributable to each,
as determined under this subsection. The "excess contribution" for any Plan
Year is the excess of the aggregate amount of Participating Company
contributions paid over to the Fund pursuant to subsection 4(a) on behalf of
"highly compensated employees" for such Plan Year over the maximum amount of
such contributions permitted for "highly compensated employees" under
subsection 4(e)(i). The portion of the "excess contribution" attributable to a
"highly compensated employee" is determined by reducing contributions made on
behalf of "highly compensated employees" in order of "actual deferral
percentages"
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for each such employee, beginning with the highest of such percentages, until
the "excess contribution" is eliminated. Any refund made in accordance with
this subsection to a Member shall be drawn from his Savings Account. If the
refund to a "highly compensated employee" of his salary reduction contributions
pursuant to this paragraph causes Participating Company contributions made on
his behalf under subsection 4(d) for the Plan Year to exceed one-third of his
remaining salary reduction contributions for the Plan Year (taking into
account only such salary reduction contributions as do not exceed six percent
(6%) of his Compensation), the Participating Company contributions in excess of
one-third of his salary reduction contributions for the Plan Year (taking into
account only such salary reduction contributions as do not exceed six percent
(6%) of his Compensation) that were not distributed to him shall be forfeited
and used to offset future Participating Company contributions under subsection
4(d).
(iii) Additional Definitions. For purposes of this
subsection 4(e), the term "Member" shall mean each Employee eligible to make
contributions under subsection 4(a) at any time during a Plan Year, whether or
not such Employee actually does so. The "average actual deferral percentage"
for a specific group of Members for a Plan Year shall be the average of the
"actual deferral percentage" for each Member in the group for such Plan Year.
The "actual deferral percentage" for a particular Member for a Plan Year shall
be the ratio of the amount of Participating Company contributions paid over to
the
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Fund pursuant to subsection 4(a) for such Member to the Member's
"compensation" for such Plan Year. For this purpose, "compensation" means
compensation as defined in section 414(s) of the Code as determined by the
Committee and applied on a uniform and consistent basis to all Members,
provided that, in the sole discretion of the Committee, "compensation" may
include:
(A) salary reduction contributions under
subsection 4(a) and other amounts excluded from gross income under section 125,
402(a)(8), 402(h) or 403(b) of the Code; and
(B) compensation deferred under an
eligible deferred compensation plan within the meaning of section 457(b) of the
Code; and
(C) employee contributions described in
section 414(h)(2) of the Code that are picked up by the employing unit and thus
are treated as employer contributions.
For the purpose of this subsection 4(e), the Company may elect
to consider only compensation as defined above for that portion of the Plan
Year during which the Employee was a Member, provided that this election is
applied uniformly to all Members for the Plan Year.
(iv) Aggregation of Contributions. The "deferral
percentage" for any Member who is a "highly compensated employee" for the Plan
Year and who is eligible to make contributions excludable from income under
section 401(k) of the Code to any plan maintained by a Participating Company or
a Related Entity shall be determined as if all contributions were made under
this Plan.
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(v) Aggregation of Plans. In the event that this
Plan satisfies the requirements of section 410(b) of the Code for any
Participating Company only if aggregated with one or more other plans with
respect to such Participating Company, or if one or more other plans satisfy the
requirements of section 410(b) of the Code only if aggregated with this Plan,
then subsection 4(e)(i) shall be applied by determining the "deferral
percentages" of Members as if all such plans were a single plan.
(vi) Special Rule. For purposes of determining the
"actual deferral percentage" of a Member who is a "highly compensated
employee," the contributions allocable to such Member pursuant to subsection
4(a) and "compensation" of such Member shall include the contributions
allocable to "family members" pursuant to subsection 4(a) and "compensation" of
"family members." "Family members," with respect to "highly compensated
employees," shall be disregarded as separate employees in determining the
"average actual deferral percentage" both for Members who are non-highly
compensated employees and for Members who are "highly compensated employees."
For the purpose of this subsection, a "family member" shall mean an individual
described in section 414(q)(6)(B) of the Code.
(f) Compliance with Participating Company Matching
Contributions Discrimination Tests.
(i) Rule. In no event shall the "average
contribution percentage" (as defined below) for Members who are "highly
compensated employees" (as defined in subsection 4(h)) for any Plan Year bear a
relationship to the "average
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34
contribution percentage" for Members who are not "highly compensated
employees" which does not satisfy either subsection 4(f)(i)(A) or (B) below.
(A) The requirement shall be satisfied
for a Plan Year if the "average contribution percentage" for the group of
Members who are "highly compensated employees" that are eligible to make
contributions under subsection 4(a) for any portion of the Plan Year is not
more than the "average contribution percentage" of all others who are eligible
to make contributions under subsection 4(a) for any portion of the Plan Year
multiplied by 1.25.
(B) The requirement shall be satisfied
for a Plan Year if (1) the excess of the "average contribution percentage" for
the Members who are "highly compensated employees" for the Plan Year that are
eligible to make contributions under subsection 4(a) for any portion of the
Plan Year over the "average contribution percentage" of all others who are
eligible to make contributions for any portion of the Plan Year is not more
than two percentage points (or such lower amount as may be required by
applicable regulations under the Code) and (2) the "average contribution
percentage" for Members who are "highly compensated employees" is not more than
the "average contribution percentage" of all others eligible to make
contributions under subsection 4(a) for any portion of the Plan Year multiplied
by two.
(ii) Refund. If the relationship of the "average
contribution percentages" does not satisfy subsection 4(f)(i) for
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35
any Plan Year, then the Committee shall direct the Trustee to distribute the
"excess aggregate contribution" (as defined below) for such Plan Year (plus any
income and minus any loss allocable thereto) not later than the end of the Plan
Year following the close of the Plan Year to the "highly compensated employees"
on the basis of the respective portions of the "excess aggregate contribution"
attributable to each, as determined under this subsection. The "excess
aggregate contribution" for any Plan Year is the excess of the aggregate amount
of Participating Company contributions allocated on a matching basis pursuant
to subsection 4(d) on behalf of "highly compensated employees" for such Plan
Year over the maximum amount of such contributions which could be allocated to
such "highly compensated employees" under subsection 4(f)(i). The portion of
the "excess aggregate contribution" attributable to a "highly compensated
employee" is determined by reducing Participating Company contributions
allocated to such "highly compensated employees" in order of "contribution
percentages" for each such employee, beginning with the highest of such
percentages, until the "excess aggregate contribution" is eliminated. Any
refund made to a Member in accordance with this subsection shall be drawn from
his Matching Account. Notwithstanding the foregoing, if a Member does not have
a 100% nonforfeitable right to his Matching Account under subsection 8(d)(ii),
the forfeitable portion of any amount withdrawn from his Matching Account shall
be forfeited and the vested portion shall be distributed to the Member.
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(iii) Allocation of Forfeitures. Any amounts
forfeited by "highly compensated employees" under this subsection shall be
applied to reduce Participating Company contributions made pursuant to
subsection 4(d). Notwithstanding the foregoing, no forfeiture arising under
this subsection shall be allocated to the account of any "highly compensated
employee."
(iv) Additional Definitions. For purposes of this
subsection 4(f), the term "Member" shall mean each Employee eligible to make
contributions under subsection 4(a) at any time during a Plan Year, whether or
not such Employee actually does so. The "average contribution percentage" for
a specific group of Members for a Plan Year shall be the average of the
"contribution percentage" for each Member in the group for such Plan Year. The
"contribution percentage" for a particular Member for a Plan Year shall be the
ratio of the amount of Participating Company contributions paid over to the
Fund and allocated to a Member pursuant to subsection 4(d) (including, at the
election of the Committee, any portion of the Member's salary reduction
contributions under subsection 4(a) for the Plan Year or elective deferrals
under any other qualified retirement plan maintained by a Participating Company
or any Related Entity that may be disregarded without causing this Plan or such
other qualified retirement plan to fail to satisfy the requirements of section
401(k)(3) of the Code and the regulations issued thereunder) to the Member's
"compensation" for such Plan Year. For this purpose, "compensation" means
compensation as defined in
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section 414(s) of the Code as determined by the Committee and applied on a
uniform and consistent basis to all Members, provided that, in the sole
discretion of the Committee, "compensation" may include:
(A) salary reduction contributions under
subsection 4(a) and other amounts excluded from gross income under section 125,
402(a)(8), 402(h) or 403(b) of the Code; and
(B) compensation deferred under an
eligible deferred compensation plan within the meaning of section 457(b) of the
Code; and
(C) employee contributions described in
section 414(h)(2) of the Code that are picked up by the employing unit and thus
are treated as employer contributions.
For the purpose of this subsection 4(f), the Company may elect
to consider only compensation as defined above for that portion of the Plan
Year during which the Employee was a Member, provided that this election is
applied uniformly to all Members for the Plan Year.
(v) Aggregation of Contributions. The
"contribution percentage" for any Member who is a "highly compensated employee"
for the Plan Year and who is eligible to make after-tax contributions to any
plan subject to section 415 of the Code or to have Participating Company
matching contributions within the meaning of section 401(m)(4)(A) of the Code
allocated to his account under two or more plans described in section 401(a) of
the Code shall be determined as if the total
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of such Member contributions and Participating Company matching contributions
was made under this Plan and each other plan.
(vi) Aggregation of Plans. In the event that this
Plan satisfies the requirements of section 410(b) of the Code for any
Participating Company only if aggregated with one or more other plans with
respect to such Participating Company, or if one or more other plans satisfy
the requirements of section 410(b) of the Code only if aggregated with this
Plan, then subsection 4(f)(i) shall be applied by determining the "contribution
percentages" of Members as if all such plans were a single plan.
(vii) Special Rule. For purposes of determining the
"contribution percentage" of a Member who is a "highly compensated employee,"
the contributions allocable to such Member pursuant to subsection 4(d) and
"compensation" of such Member shall include the contributions allocable to
"family members" pursuant to subsection 4(d) and "compensation" of "family
members." "Family members," with respect to "highly compensated employees,"
shall be disregarded as separate employees in determining the "contribution
percentage" both for Members who are non-highly compensated employees and for
Members who are "highly compensated employees." For the purpose of this
subsection, a "family member" shall mean an individual described in section
414(q)(6)(B) of the Code.
(g) Matching Account. The Participating Company
contributions made with respect to a Member under subsection
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4(d), as adjusted for investment gain or loss and income or expense, constitute
such Member's Matching Account. A Member shall have a nonforfeitable interest
in the portion of his Accrued Benefit derived from his Matching Account to the
extent provided under Section 8.
(h) Highly Compensated Eligible Employee:
(i) Subject to subsections (ii) and (iii), a
highly compensated employee means an Employee who:
(A) is a five-percent owner, as defined
in section 416(i) of the Code;
(B) received more than $93,518 (as
adjusted yearly in accordance with the Code) in compensation (as defined in
Code section 414(q)(7)) from the Company or a Related Entity;
(C) received more than $62,345 (as
adjusted yearly in accordance with the Code) in compensation (as defined in
Code section 414(q)(7)) from the Company or a Related Entity and was among the
top 20% of Employees of the Company and all Related Entities ranked by
compensation (as defined in Code section 414(q)(7)) (excluding Employees
described in section 414(q)(8) of the Code to the extent (1) permitted under
the Code and regulations thereunder and (2) elected by the Committee, for
purposes of identifying the number of Employees in the top 20%); or
(D) is among the 50 officers of the
Company or a Related Entity (or, if lesser, the greater of 3 or 10% of all
Employees, excluding Employees described in section 414(q)(8)
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of the Code, to the extent (A) permitted under the Code and regulations
thereunder and (B) elected by the Committee for purposes of identifying the top
20%) and received compensation (as defined in Code section 414(q)(7)) of more
than $56,110.50 (as adjusted yearly in accordance with the Code); provided,
however, that, if no officer has satisfied the compensation requirement
described above during either the current Plan Year or the immediately
preceding Plan Year, the highest paid officer for such year shall be treated as
a highly compensated employee.
(ii) The Company may treat as highly compensated
employees either:
(A) those Employees who meet the
criteria in Subsection (h)(i) during either the current Plan Year or the
immediately preceding Plan Year, provided however, that an Employee, other than
a five-percent owner, who was not a highly compensated employee in the
preceding Plan Year is a highly compensated employee for the current Plan Year
only if he is among the top 100 Employees of the Company and Related Entities
ranked by compensation for the current Plan Year, or
(B) those Employees who meet the
criteria in subsection (h)(i) of this definition during the current Plan Year
only, without regard to the preceding Plan Year.
(iii) If an Employee is, during the current Plan
Year or the immediately preceding Plan Year, a family member of either a 5
percent owner who is an Employee or a former Employee or a highly compensated
employee who is one of the 10 most highly
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compensated Employees ranked by compensation during such year, then the family
member and the 5 percent owner or highly compensated employee shall be treated
as a single highly compensated employee, and the compensation and elective
deferrals, employee contributions and employer matching contributions of such
family member and 5 percent owner or highly compensated employee shall be
aggregated in determining the "actual deferral percentage" and "contribution
percentage" of such "single" highly compensated employee. For purposes of this
definition, "family member" shall include the spouse, lineal ascendants and
descendants of the Employee or former Employee and the spouse of such lineal
ascendants and descendants.
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5. MAXIMUM CONTRIBUTIONS AND BENEFITS
(a) Defined Contribution Limitation. Notwithstanding
anything in this Plan to the contrary, in no event shall the amount allocable
to a Member from contributions to the Fund with respect to any Plan Year cause
the Annual Additions allocated to any Member under this Plan plus the Annual
Additions allocated to such Member under any other plan maintained by a
Participating Company or a Related Entity to exceed for any Plan Year the
lesser of (i) $30,000 (or, if greater, one-fourth of the dollar limitation in
effect under subsection 415(b)(1)(A) of the Code for such Plan Year) or (ii)
25% of such Member's compensation (as defined in subsection 5(d)) for such Plan
Year. If the amount otherwise allocable to a Member would exceed the amount
described in the preceding sentence as a result of the reallocation of
forfeitures, a reasonable error in estimating the Member's compensation, a
reasonable error in determining the amount of salary reduction contributions
under subsection 4(a) that may be made with respect to a Member under the
limits of this Section, or such other circumstances as permitted by law, the
Committee shall determine which portion, if any, of such excess amount is
attributable to the Member's salary reduction contributions and/or
Participating Company contributions under subsection 4(d), and shall take the
following appropriate steps to correct such violation:
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(i) Excess salary reduction contributions under
subsection 4(a) and earnings thereon shall be paid to the Member as soon as is
administratively feasible.
(ii) (A) While the Member remains covered by
the Plan, his excess Participating Company contributions under subsection 4(d)
shall be held in a suspense account (which shall share in investment gains and
losses of the Fund) by the Trustee until the following Plan Year (or any
succeeding Plan Years), at which time such amounts shall be allocated to the
Member's Account before any Participating Company contributions under
subsection 4(d) are made on his behalf for such Plan Year; and
(B) When the Member ceases to be covered
by the Plan, his excess Participating Company contributions, along with
earnings thereon, held in the suspense account shall be allocated in the
following Plan Year (or any succeeding Plan Years) to the Accounts of other
Members.
(b) Combined Limitation. In addition to the limitation
of subsection 5(a), if a Participating Company or a Related Entity maintains or
maintained a defined benefit plan and the amount required to be contributed to
the Fund with respect to any Plan Year would cause the aggregate amount
allocated to any Member under all defined contribution plans maintained by any
participating Company or Related Entity to exceed the maximum allocation as
determined in subsection 5(c), then such amount required to be contributed with
respect to such Member shall be reduced by the amount of such excess to
determine the actual
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amount of the contribution with respect to such Member for such Plan Year.
Notwithstanding the foregoing, if an excess amount is contributed with respect
to any Member, then the excess allocation shall be reallocated or held in a
suspense account in accordance with subsection 5(a).
(c) Combined Limitation Computation. The maximum
allocation is the amount of Annual Additions which may be allocated to a
Member's benefit without permitting the sum of the defined benefit plan
fraction (as hereinafter defined) and the defined contribution plan fraction
(as hereinafter defined) to exceed 1.0 for any Plan Year. The defined benefit
plan fraction applicable to a Member for any Plan Year is a fraction, the
numerator of which is the projected annual benefit of the Member under the plan
determined as of the close of the Plan Year and the denominator of which is the
lesser of (i) the product of 1.25 multiplied by the maximum then permitted
dollar amount of straight life annuity payable under the defined benefit plan
maximum benefit provisions of the Code as a benefit commencing at the Member's
social security retirement age and (ii) the product of 1.4 multiplied by the
maximum permitted amount of straight life annuity, based on the Member's
compensation, payable under the defined benefit plan maximum benefit provisions
of the Code as a benefit commencing at the Member's social security retirement
age. For purposes of this subsection 5(c), a Member's projected annual benefit
is equal to the annual benefit, expressed in the form of a straight life
annuity, to which the
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Member would be entitled under the terms of the defined benefit plan based on
the assumptions that (i) the Member will continue employment until reaching his
social security retirement age under the plan (or current age, if later) at a
rate of compensation equal to that for the Plan Year under consideration and
(ii) all other relevant factors used to determine benefits under the plan for
the Plan Year under consideration will remain constant for future Plan Years.
The defined contribution plan fraction applicable to a Member for any Plan Year
is a fraction, the numerator of which is the sum of the Annual Additions for
all Plan Years allocated to the Member as of the close of the Plan Year and the
denominator of which is the sum of the lesser, separately determined for each
Plan Year of the Member's employment with a Participating Company or Related
Entity of (i) the product of 1.25 multiplied by the maximum dollar amount of
Annual Additions which could have been allocated to the Member under the Code
for such Plan Year and (ii) the product of 1.4 multiplied by the maximum
amount, based on the Member's compensation, of Annual Additions which could
have been allocated to the Member for such Plan Year. To the extent
administratively feasible, the limitation of this subsection shall be applied
to the Member's benefit payable from the defined benefit plan prior to
reduction of the Member's Annual Additions under this Plan.
(d) Definition of "Compensation" for Code Limitations.
For purposes of the limitations on the allocation of Annual Additions to a
Member and maximum benefits under a defined
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benefit plan as provided for in this Section 5, "compensation" for a Plan Year
shall mean the sum of amounts paid by a Participating Company or a Related
Entity to the Member with respect to personal services rendered by the Member
during the Plan Year plus (i) amounts received by the Member (A) through
accident or health insurance or under an accident or health plan maintained or
contributed to by a Participating Company or a Related Entity and which are
includable in the gross income of the Member, (B) through a plan contributed to
by a Participating Company or a Related Entity providing payments in lieu of
wages on account of a Member's permanent and total disability, or (C) as a
moving expense allowance paid by a Participating Company or a Related Entity
and which are not deductible by the Member for federal income tax purposes;
(ii) the value of a non-statutory stock option granted by a Participating
Company or a Related Entity to the Member to the extent included in the
Member's gross income for the taxable year in which it was granted; and (iii)
the value of property transferred by a Participating Company or a Related
Entity to the Member which is includable in the Member's gross income due to an
election by the Member under section 83(b) of the Code. "Compensation" shall
not include (i) contributions made by a Participating Company or a Related
Entity to a deferred compensation plan which, without regard to section 415 of
the Code, are not includable in the Member's gross income for the taxable year
in which contributed, (ii) Participating Company or Related Entity
contributions made on behalf of a Member to a
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simplified employee pension plan to the extent they are deductible by the
Member under section 219(b)(7) of the Code, (iii) distributions from a deferred
compensation plan (except from an unfunded nonqualified plan when includable in
gross income), (iv) amounts realized from the exercise of a nonqualified stock
option, or when restricted stock (or property) held by a Member either becomes
freely transferable or is no longer subject to a substantial risk of
forfeiture, (v) amounts realized from the sale, exchange, or other disposition
of stock acquired under a qualified or incentive stock option, and (vi) other
amounts which receive special benefits, such as premiums for group term life
insurance (to the extent excludable from gross income) or Participating Company
or Related Entity contributions towards the purchase of an annuity contract
described in section 403(b) of the Code.
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6. ADMINISTRATION OF FUNDS
(a) Investment Control. The management and control of
the assets of the Plan shall be vested in the Trustee designated from time to
time by the Company through its Board of Directors; provided, however, that the
Company through its Board of Directors may appoint one or more Investment
Managers to manage, acquire, or dispose of any assets of the Plan. The
Committee shall instruct the Trustee or an Investment Manager to establish
Investment Categories for selection by the Members and may at any time add to
or delete from the Investment Categories.
(b) U.S. Healthcare Stock. The Committee shall establish
an Investment Category consisting solely of U.S. Healthcare Stock. All cash
dividends or other cash distributions with respect thereto shall be applied to
purchase additional U.S. Healthcare Stock. All distributions made in shares
of U.S. Bioscience, Inc. common stock shall be sold by the Trustee in market
transactions and the proceeds thereof shall be applied to purchase additional
U.S. Healthcare Stock. All Participating Company contributions shall be
applied to purchase U.S. Healthcare Stock (unless the contribution is made
directly in U.S. Healthcare Stock) for the benefit of Members to whom such
contributions are allocated. The Trustee may acquire U.S. Healthcare Stock from
any source, including the public market, in private transactions, from the
Company's treasury shares, or from authorized but unissued shares. Shares of
U.S. Healthcare Stock acquired by the Trustee on the open market shall be
purchased in
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accordance with applicable provisions of the Trust Agreement. A Member may
elect in accordance with subsection 6(c) that all or a portion of his Savings
Account be applied to purchase U.S. Healthcare Stock.
(c) Member Elections.
(i) Salary Reduction Contributions and Savings
Account. In accordance with rules established by the Trustee and approved by
the Committee and subject to subsection 6(b), each Member shall have the right
to designate the Investment Category or Categories in which new contributions
allocated to such Member under subsection 4(a) and prior balances in his
Savings Account are invested. Any designation or change in designation of
Investment Category shall be made in accordance with procedures established by
the Trustee and approved by the Committee, which procedures may include
utilization of the Trustee's system for permitting a Member to make individual
elections by direct telephone communication with a representative of the
Trustee. Any election of Investment Category by any Member shall, on its
effective date, cancel any prior election.
(ii) Matching Contributions and Matching Account.
Members shall not have the right to designate the Investment Category or
Categories in which amounts credited to Matching Accounts are invested. A
Member's Matching Account shall be invested primarily in U.S. Healthcare Stock.
(iii) U.S. Healthcare Stock. The Trustee, with the
consent of the Committee, shall establish four quarterly
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dates for the purchase and sale of U.S. Healthcare Stock and elections,
procedures, and deadlines for Members to authorize transactions in U.S.
Healthcare Stock held in their Savings Accounts as of such dates. Purchase and
sale transactions shall be completed as soon as administratively practicable
after the established date. Cash dividends or other cash distributions paid
with respect to U.S. Healthcare Stock, and the proceeds from the sale of U.S.
Bioscience, Inc. common stock received as a distribution with respect to U.S.
Healthcare Stock, shall be held temporarily in cash or cash equivalents and
applied as of the next date established under this subsection 6(c)(iii) to
purchase additional U.S. Healthcare Stock.
(iv) Limitations. The right to elect Investment
Categories as set forth herein shall be the sole and exclusive investment power
granted to Members. The Committee may limit the right of a Member (A) to
increase or decrease his contributions to a particular Investment Category, (B)
to transfer amounts to or from a particular Investment Category, or (C) to
transfer amounts between particular Investment Categories, if such limitation
is required under the terms of the Trust Agreement or the rules establishing an
Investment Category. In accordance with subsection 2(d), the Committee may
promulgate separate accounting and administrative rules to facilitate the
establishment or maintenance of an Investment Category.
(d) No Member Election. If a Member does not make a
written election of Investment Category, the Committee shall
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direct that all amounts allocated to such Member be invested in the Investment
Category which, in the opinion of the Committee, best protects principal.
(e) Facilitation. Notwithstanding any instruction from
any Member for investment of funds in an Investment Category as provided for
herein, the Trustee shall have the right to hold uninvested or invested in a
short-term investment fund any amounts intended for investment or reinvestment
until such time as investment may be made in accordance with subsection 6(b) or
6(c) and the Trust Agreement.
(f) Valuations. The Fund and each Investment Category
shall be valued at fair market value as of each Valuation Date.
(g) Member's Accounts. The Trustee shall maintain
records which include a separate valuation for each Member's interest in each
Investment Category of the Fund.
(h) Bookkeeping. The Committee shall direct that
separate bookkeeping accounts be maintained to reflect each Member's Savings
Account and Matching Account.
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7. BENEFICIARIES AND DEATH BENEFITS
(a) Designation of Beneficiary. Each Member shall have
the right to designate one or more beneficiaries and contingent beneficiaries
to receive any benefit to which such Member may be entitled hereunder in the
event of the death of the Member prior to the complete distribution of such
benefit by filing a written designation with the Committee on the form
prescribed by the Committee. Such Member may thereafter designate a different
beneficiary at any time by filing a new written designation with the Committee.
Any written designation shall become effective only upon its receipt by the
Committee. A Member who does not establish to the satisfaction of the
Committee that he has no spouse may not designate someone other than his spouse
to be his beneficiary unless:
(i) (A) such spouse (or the spouse's legal
guardian if the spouse is legally incompetent) executes a written instrument
whereby such spouse consents not to receive such benefit and consents either:
(1) to the specific beneficiary or
beneficiaries designated by the Member; or
(2) to the Member's right to
designate any beneficiary without further consent by the spouse;
(B) such instrument acknowledges the
effect of the designation to which the spouse's consent is being given; and
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(C) such instrument is witnessed by a
Plan representative or notary public;
(ii) the Member:
(A) establishes to the satisfaction of
the Committee that his spouse cannot be located; or
(B) furnishes a court order to the
Committee establishing that the Member is legally separated or has been
abandoned (within the meaning of local law), unless a qualified domestic
relations order pertaining to such Member provides that the spouse's consent
must be obtained; or
(iii) the spouse has previously given consent in
accordance with this subsection and consented to the Member's right to
designate any beneficiary without further consent by the spouse.
The consent of a spouse in accordance with this subsection
shall not be effective with respect to other spouses of the Member prior to the
date on which the Member's first benefit payment under this Plan is due, and a
designation to which paragraph (ii) above applies shall become void if the
circumstances causing the consent of the spouse not to be required no longer
exist prior to the date on which the Member's first benefit payment under this
Plan is due. If the beneficiary designated pursuant to this subsection dies on
or before the commencement of distribution of benefits and the Member fails to
make a new designation, then his beneficiary shall be determined pursuant to
subsection 7(b).
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Notwithstanding the above, to the extent provided in a qualified domestic
relations order (within the meaning of section 414(p) of the Code) the former
spouse of the Member may be treated as the spouse of the Member for purposes of
this subsection and the current spouse will not be treated as the Member's
spouse for such purposes.
(b) Beneficiary Priority List. If (i) a Member omits or
fails to designate a beneficiary, (ii) no designated beneficiary survives the
Member or (iii) the Committee determines that the Member's beneficiary
designation is invalid for any reason, then the death benefits shall be paid to
the Member's surviving spouse, or if the Member is not survived by his spouse,
then to the Member's estate. If the Member's designated beneficiary dies after
the Member but before distribution of benefits, then the death benefits shall
be paid to the beneficiary's estate.
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8. BENEFITS FOR MEMBERS
The following are the only post-employment benefits provided
by the Plan:
(a) Retirement Benefit.
(i) Valuation. Each Member shall be entitled to
a retirement benefit equal to 100% of the Member's Accrued Benefit as of the
date of distribution. A Member's Accrued Benefit shall become nonforfeitable
upon his attaining his Normal Retirement Date.
(ii) Late Retirement. A Member who continues
employment beyond his Normal Retirement Date shall continue to participate in
the Plan.
(b) Death Benefit.
(i) Valuation. In the event of the death of a
Member before actual retirement, 100% of the Member's Accrued Benefit on the
date of distribution shall constitute his death benefit and shall be
distributed pursuant to Sections 7 and 9 (A) to his designated beneficiary or
(B) if no designation of beneficiary is then in effect, to the beneficiary
determined pursuant to subsection 7(b).
(ii) Survivor Benefits. In the event of the death
of a Member who is no longer in the employ of a Participating Company before
distribution of his Accrued Benefit has been made to him, 100% of such Member's
Accrued Benefit shall constitute his death benefit and shall be distributed (A)
to his designated beneficiary or (B) if no designation of beneficiary is
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then in effect, to the beneficiary determined pursuant to subsection 7(b).
(c) Disability Benefit. In the event a Member suffers a
Disability before actual retirement, 100% of the Member's Accrued Benefit on
the date of distribution shall constitute his Disability benefit.
(d) Termination of Employment Benefit.
(i) Valuation. In the event a Member terminates
employment with all Participating Companies and all Related Entities other than
by reason of retirement on or after his Normal Retirement Date, Disability, or
death, the Member shall be entitled to receive a benefit equal to 100% of his
Accrued Benefit derived from his Savings Account and the nonforfeitable portion
(as determined under the vesting schedule at subsection 8(d)(ii)) of the
Member's Matching Account on the date of distribution.
(ii) Vesting Schedule. The nonforfeitable portion
of a Member's Accrued Benefit derived from his Matching Account is determined
from the table below.
NONFORFEITABLE
YEARS OF SERVICE PERCENTAGE
---------------- ----------
Less than 3 years 0%
3 years or more 100%
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(iii) Crediting Service. For purposes of subsection
8(d)(ii), the crediting of Years of Service shall be subject to the following
rules:
(A) The computation period for counting
Hours of Service shall be the Plan Year.
(B) If an Employee who has never become
a Member has five consecutive Breaks in Service, Years of Service prior to such
Breaks in Service shall not be credited for any purpose.
(e) Time of Forfeiture. The nonvested portion of the
Accrued Benefit of a Member shall be forfeited on the following date, whichever
is applicable.
(i) If the Member has received a distribution of
the entire nonforfeitable portion of his Accrued Benefit on account of
termination of employment, the forfeiture shall occur on the date the Member
receives such distribution, provided that if the Member returns to employment
with the Participating Company or any Related Entity before incurring five
consecutive Breaks in Service, and if the Member repays the full amount of such
distribution (without any adjustment for gains or losses on such amount
subsequent to the distribution) within five years of the date on which he
returns to employment with the Participating Company or any Related Entity, the
Participating Company shall restore the amount forfeited (without any
adjustment for gains or losses on such amount subsequent to the forfeiture) to
the Participant's Accrued Benefit, so that the Participant's Accrued
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Benefit shall equal the sum of the amount distributed and the amount forfeited.
The amount restored shall come first from forfeitures occurring in the Plan
Year of repayment and second from Participating Company contributions.
(ii) If the Member did not receive a distribution
of the entire nonforfeitable portion of his Accrued Benefit on account of
termination of employment, the nonforfeitable portion shall be permanently
forfeited on the last day of the Plan Year in which the Member incurs his fifth
consecutive Break in Service. If the nonforfeitable portion is temporarily
forfeited on the date the Member terminates employment and if the Member is
reemployed before incurring five consecutive Breaks in Service, the
Participating Company shall restore the amount temporarily forfeited plus or
minus any gains and/or losses with which such amount would have been credited
had it not been temporarily forfeited. The amount restored shall come first
from forfeitures occurring in the Plan Year of repayment and second from
Participating Company contributions.
(f) Valuation of Accrued Benefit. For purposes of
subsections 8(a)(i), 8(b)(i), 8(c), and 8(d)(i), the value of a Member's
Accrued Benefit subject to distribution shall be determined based on the value
of the Investment Categories comprising the Member's Accrued Benefit as of the
date on which the Trustee receives notice from the Committee that benefits are
to be distributed to the Member.
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9. DISTRIBUTION OF BENEFITS
(a) Commencement. The payment of vested and retirement
benefits shall commence as soon after the Member's termination of employment as
is administratively feasible, except as provided below.
(i) Termination of Employment Benefits. If the
Member's Accrued Benefit exceeds $3,500, distribution of benefits payable under
subsection 8(d) shall not commence unless the Member consents to such
distribution in writing. If the Member does not consent to the distribution,
his Accrued Benefit shall be retained in the Fund. Distribution shall commence
as of the first to occur of the Member's request for distribution or death
(provided the Committee receives notice of the Member's death); provided
however, that in no event shall distribution commence later than what would
have been the Member's Normal Retirement Date. The Committee shall notify each
Member who is subject to this subsection of his right to defer distribution.
Such notice shall be furnished not less than 30 days nor more than 90 days
prior to the date of any distribution that occurs prior to the earlier of his
death or his Normal Retirement Date except that such notice may be furnished
less than 30 days prior to the date of distribution if (A) the Committee
informs the Member that the Member has the right for a period of at least 30
days after receiving such notice to consider whether to elect a distribution,
and (B) the Member, after receiving such notice, affirmatively elects a
distribution.
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(ii) Retirement or Death Benefit Deferral Option. A
Member or beneficiary eligible to receive benefits under subsections 8(a)-(c)
may defer receipt of the same, subject to the limitations of subsections
9(a)(iii) and (iv).
(iii) Limitation. In no event, other than with the
written consent of the Member, shall the payment of benefits commence later
than the 60th day after the close of the Plan Year in which the latest of the
following occurs:
(A) The Member's Normal Retirement Date;
(B) The Member's termination of
employment; or
(C) The tenth anniversary of the year in
which the Member commenced participation in the Plan. Furthermore,
notwithstanding subsection 9(a)(i), distribution of benefits must commence on
or before the April 1st of the calendar year following the calendar year in
which the Member attains age 70-1/2; provided, however, if a Member (l)
attained age 70-1/2 before January l, 1988 and (2) such Member was not a 5%
owner (as defined in section 416 of the Code) at any time during the five Plan
Years ending in the calendar year in which he attained age 70-1/2, then
distribution of benefits must commence no later than the April 1st of the
calendar year following the later of (1) the calendar year in which the Member
attains age 70-1/2 or (2) the calendar year in which the Member retires.
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(iv) Death Benefits. The payment of death benefits
under the Plan shall be made in one lump sum at such time on or before December
31 of the calendar year which contains the fifth anniversary of the Member's
date of death as the Member's beneficiary shall request.
(b) Benefit Form. All benefits shall be distributed in
one lump sum.
(c) Distributions in Kind. If a portion of a Member's
Accrued Benefit is invested in an Investment Category holding U.S. Healthcare
Stock, the Member may direct that the portion of his Accrued Benefit so held be
distributed to him in kind, except that the value of a fractional share shall
be distributed in cash.
(d) Withholding. All distributions under the Plan are
subject to federal, state and local tax withholding as required by applicable
law as in effect from time to time.
(e) Transfers to Other Plans.
(i) Effective January 1, 1993, except to the
extent otherwise provided by section 401(a)(31) of the Code and regulations
thereunder, if a Member entitled to receive a distribution from the Plan
pursuant to this section, or a Member's former spouse entitled to receive a
distribution pursuant to a qualified domestic relations order, directs the
Committee to have the Trustee transfer the amount to be distributed directly
to:
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(A) an individual retirement account
described in section 408(a) of the Code,
(B) an individual retirement annuity
described in section 408(b) of the Code (other than an endowment contract),
(C) a qualified retirement plan
described in section 401(a) of the Code, the terms of which permit the
acceptance of rollover contributions, or
(D) an annuity plan described in section
403(a) of the Code,
the amount to be distributed shall be so transferred.
(ii) If a Member's surviving spouse is entitled to
receive a distribution from the Plan under section 7, and such spouse directs
the Committee to have the Trustee transfer the amount to be distributed
directly to:
(A) an individual retirement account
described in section 408(a) of the Code, or
(B) an individual retirement annuity
described in section 408(b) of the Code (other than an endowment contract),
the amount to be distributed shall be so transferred.
(iii) In directing the Committee to have such
amounts transferred, the Member, spouse or former spouse must specify, on a
form and in a manner prescribed by the Committee, the name of the plan to which
the Member, spouse or former spouse
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wishes to have the amount transferred and such other information as may be
requested by the Committee.
(iv) Subsections (i) and (ii) shall not apply to the
following distributions:
(A) that portion of any distribution
after the Member's required beginning date described in section 9(a)(iii) that
is required to be distributed to the Member by the minimum distribution rules
of section 401(a)(9) of the Code,
(B) any distribution which is one of a
series of substantially equal payments over either a period that exceeds 10
years, or a period equal to the life expectancy of the Member or the joint life
expectancy of the Member and his beneficiary, or
(C) such other distributions as may be
exempted by applicable statute or regulation from the requirements of section
401(a)(31) of the Code.
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10. IN-SERVICE DISTRIBUTIONS
(a) Hardship. A Member shall have the right to request
an in-service distribution from his Savings Account on account of hardship. A
distribution is on account of hardship only if the distribution both (i) is
made on account of an immediate and heavy financial need of the Member and (ii)
is necessary to satisfy such financial need.
(b) Need. A distribution shall be deemed to be made on
account of an immediate and heavy financial need of the Member if the
distribution is on account of (i) expenses for medical care described in
section 213(d) of the Code and incurred by the Member, the Member's spouse, or
any dependent of the Member (as defined in section 152 of the Code) or
necessary for such individuals to obtain such medical care; (ii) costs directly
related to the purchase (excluding mortgage payments) of a principal residence
for the Member; (iii) payment of tuition and related educational fees for the
next twelve months of post-secondary education for the Member, the Member's
spouse, child, or any dependent of the Member (as defined in section 152 of the
Code); (iv) the need to prevent the eviction of the Member from his principal
residence or foreclosure on the mortgage of the Member's principal residence;
or (v) such other reason as the Commissioner of Internal Revenue specifies as a
deemed immediate and heavy financial need through the publication of
regulations, revenue rulings, notices, or other documents of general
applicability.
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(c) Satisfaction of Need. A distribution will be deemed
to be necessary to satisfy an immediate and heavy financial need of a Member
only if all of the requirements or conditions set forth below are satisfied or
agreed to by the Member, as appropriate.
(i) The distribution is not in excess of the
amount of the immediate and heavy financial need of the Member, including any
amounts necessary to pay any federal, state or local income taxes or penalties
reasonably anticipated to result from the withdrawal.
(ii) The Member has obtained all distributions,
other than hardship distributions, and all non-taxable loans currently
available under all plans subject to section 415 of the Code maintained by any
Participating Company or any Related Entity.
(iii) The Member's salary reduction contributions
under this Plan and each other plan subject to section 415 of the Code
maintained by a Participating Company or a Related Entity in which the Member
participates are suspended for twelve full calendar months after receipt of the
distribution.
(iv) The Member does not make salary reduction
contributions under this Plan or elective deferrals under any other qualified
retirement plan maintained by a Participating Company or a Related Entity for
the year immediately following the taxable year of the hardship distribution in
excess of the applicable limit under section 402(g) of the Code for such next
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taxable year reduced by the amount of the Member's salary reduction
contributions for the taxable year of the hardship distribution.
(d) Limitation. Distributions on account of hardship
shall be limited to the sum of (i) the Member's salary reduction contributions
under subsection 4(a) and (ii) income allocable to such salary reduction
contributions credited to the Member's Savings Account as of December 31, 1988.
(e) Age 59-1/2. A Member who has attained age 59-1/2
shall have the right to withdraw all or a portion of his Savings Account.
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11. LOANS
(a) Availability. Upon the written application of a
Member on a form provided by the Committee, the Committee shall direct that a
bona fide cash loan be made from the nonforfeitable portion of a Member's
Savings Account and Matching Account (collectively, "Accounts"), in accordance
with the requirements of this Section 11. Except as provided in subsection
11(c), no loan shall be made to a Member who is not employed by a Participating
Company or a Related Entity on the date the loan would otherwise be disbursed.
All loans shall be subject to the requirements of this Section 11 and such
other rules which the Committee shall from time to time prescribe on a uniform
and nondiscriminatory basis. Eligibility for loans and the rules with respect
to loans shall be uniformly applied, taking into account the applicant's
creditworthiness and the nature of the security for the loan.
(b) Minimum Requirements. Loans shall be subject to the
following terms and conditions:
(i) Principal Amount. The principal amount of a
loan to a Member shall not be less than $1,000, and shall not exceed the lesser
of (A) $50,000, reduced by the highest outstanding balance of loans to the
Member from the Plan during the one-year period ending on the day before the
date on which such loan was made or (B) 50% of the Member's nonforfeitable
Accrued Benefit on the date on which the loan is made.
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(ii) Maximum Term. The term of any loan shall not
exceed five years. Except as provided in subsection 11(c), if a Member's
employment with all Participating Companies and Related Entities terminates for
any reason, the loan shall then become due and payable.
(iii) Interest Rate. The interest rate shall be the
rate charged by commercial lenders for comparable loans on the date the loan
request is approved, as determined by the Committee.
(iv) Repayment. The loan shall be repaid over its
term in substantially equal installment payments corresponding to the Member's
payroll period. As a condition precedent to approval of the loan, the Member
shall be required to authorize payroll withholding in the amount of each
installment, or post suitable collateral in an amount up to 110% of the
principal amount borrowed. Full or partial prepayments of principal and
interest may be made without penalty.
(v) Collateral. The loan shall be secured by not
more than 50% of the Member's vested Accrued Benefit to the extent of the
principal amount of the loan plus accrued interest. The Committee, according
to a uniform rule, may require a Member to post additional collateral to secure
a loan.
(vi) Default. If a Member fails to make payment on
a loan when due and such failure continues for 60 days thereafter, the
Committee shall declare the loan to be in default, in which case the entire
unpaid balance shall become due
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and payable. The Trustee may pursue collection of the debt by any means
generally available to a creditor where a promissory note is in default. If
the entire amount due is not paid by the Member within 30 days following the
declaration of default, the Committee shall determine how much, if any, of the
Member's Accrued Benefit pledged as security can be immediately distributed
under the terms of the Plan. To the extent such amounts are immediately
distributable, the Trustee shall enforce its security interest by reducing the
Member's Accrued Benefit by the amounts due and by amounts withheld for the
payment of taxes payable in connection with such reduction. If any portion of
the amount due is not satisfied by such distribution, the Committee shall
notify the Trustee when additional amounts of the Member's Accrued Benefit
become distributable, and the Trustee shall continue to enforce its security
interest by reducing the Member's Accrued Benefit until the outstanding
indebtedness is satisfied.
(vii) Distribution of Accrued Benefit. If the
nonforfeitable portion of a Member's Accrued Benefit is to be distributed prior
to the Member's payment of all principal and accrued interest due on any loan
to such Member, the distribution shall include as an offset the amount of
unpaid principal and interest due on the loan and the note shall be
distributed.
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(viii) Notes. All loans shall be evidenced by a
note containing such terms and conditions as the Committee shall require.
(ix) Multiple Loans. A Member shall be permitted
only one outstanding loan at any time.
(c) Loans to Former Employees. A Member who is a
"party-in-interest" to the Plan (as defined in Section 3(14) of ERISA)
(hereinafter, a "Party-in-interest"), but who is not an employee of any
Participating Company, may apply for a loan, and a borrowing Member who is a
Party-in-interest who terminates employment before the loan is fully repaid may
continue to repay such loan, provided that in each such case, the loan shall be
subject to the requirements of subsection 11(b), except that the terms of the
loan respecting term, interest rate, and collateral may be adjusted by the
Committee to reflect the terms and conditions then prevailing that apply to a
commercial loan of similar duration and risk.
(d) Accounting. The Accounts of a Member who receives a
loan shall be reduced by the amount of the loan, and the Investment Categories
in which such Member's Accounts are invested shall be liquidated in accordance
with a procedure established by the Committee. The principal amount of any
loan shall be treated as a separate Investment Category of the borrowing
Member. All payments of principal and interest with respect to such loan shall
be credited to the borrowing Member's Accounts, and shall be reinvested within
a reasonable time
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following the date of repayment in accordance with the Member's current
election which applies to contributions made under subsection 4(a).
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12. TITLE TO ASSETS
No person or entity shall have any legal or equitable right or
interest in the contributions made by any Participating Company, or otherwise
received into the Fund, or in any assets of the Fund, except as expressly
provided in the Plan.
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13. AMENDMENT AND TERMINATION
(a) Amendment. The Company reserves the right to amend
the Plan at any time, in any manner, by action of the Committee. No amendment
shall be effective unless the Plan as so amended shall be for the exclusive
benefit of the Members and their beneficiaries, and no amendment shall operate
to deprive any Member of any rights or benefits accrued to him under the Plan
prior to such amendment.
(b) Termination. The Company reserves the absolute right
to terminate the Plan at any time in whole or in part or discontinue
contributions, for any reason, by action of its Board of Directors. Any such
termination, partial termination, or discontinuance of contributions shall be
effected only upon condition that such action is taken as shall render it
impossible for any part of the corpus of the Fund or the income therefrom to be
used for, or diverted to, purposes other than the exclusive benefit of the
Members and their beneficiaries.
(c) Conduct on Termination. If the Plan is to be
terminated at any time, the Company shall give written notice to the Trustee
which shall thereupon revalue the assets of the Fund and, after discharging any
obligations of the Plan, determine the accounts of the Members as of the date
of termination, partial termination, or discontinuance of contributions. Upon
termination, partial termination, or discontinuance of contributions, the
Accrued Benefits of Members affected thereby shall become fully vested and
shall not thereafter be subject to
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forfeiture in whole or in part. The Committee shall instruct the Trustee to
pay over to each affected Member his Accrued Benefit.
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14. LIMITATION OF RIGHTS
(a) Alienation. None of the payments, benefits, or
rights of any Member shall be subject to any claim of any creditor of such
Member and, in particular, to the fullest extent permitted by law, shall be
free from attachment, garnishment, trustee's process, or any other legal or
equitable process available to any creditor of such Member. No Member shall
have the right to alienate, anticipate, commute, pledge, encumber, or assign
any of the benefits or payments which he may expect to receive, contingently or
otherwise, under this Plan, except the right to designate a beneficiary or
beneficiaries as hereinabove provided. For purposes of this subsection,
neither a loan made to a Member nor the pledging of the Member's Accrued
Benefit as security therefor, both pursuant to Section 11, shall be treated as
an assignment or alienation.
(b) Qualified Domestic Relations Order Exception.
Subsection 14(a) shall not apply to the creation, assignment, or recognition of
a right to any benefit payable with respect to a Member under a qualified
domestic relations order within the meaning of section 414(p) of the Code.
(c) Employment. Neither the establishment of the Plan,
nor any modification thereof, nor the creation of any fund, trust, or account,
nor the payment of any benefit shall be construed as giving any Member or
Employee, or any person whomsoever, any legal or equitable right against any
Participating Company, the Trustee, or the Committee, unless such
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right shall be specifically provided for in the Trust Agreement or the Plan or
conferred by affirmative action of the Committee or the Company in accordance
with the terms and provisions of the Plan or as giving any Member or Employee
the right to be retained in the employ of any Participating Company. All
Members and other Employees shall remain subject to discharge to the same
extent as if the Plan had never been adopted.
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15. MERGERS, CONSOLIDATIONS OR TRANSFERS OF PLAN ASSETS
In the case of any Plan merger or Plan consolidation with, or
transfer of assets or liabilities of the Plan to, any other plan, each Member
in the Plan must be entitled to receive a benefit immediately after the merger,
consolidation, or transfer (if the Plan were then to terminate) which is equal
to or greater than the benefit he would have been entitled to receive
immediately before the merger, consolidation, or transfer (if the Plan had been
terminated).
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16. PARTICIPATION BY RELATED ENTITIES
(a) Commencement. Any entity which is a Related Entity
with respect to the Company may, with the permission of the Board of Directors,
elect to adopt this Plan and the accompanying Trust Agreement.
(b) Termination. The Company may, by action of the Board
of Directors, determine at any time that any such Participating Company shall
withdraw and establish a separate plan and fund. The withdrawal shall be
effected by a duly executed instrument delivered to the Trustee instructing it
to segregate the assets of the Fund allocable to the Employees of such
Participating Company and pay them over to the separate fund.
(c) Single Plan. The Plan shall at all times be
administered and interpreted as a single plan for the benefit of the Employees
of all Participating Companies.
(d) Delegation of Authority. Each Participating Company,
by adopting the Plan, acknowledges that the Company has the right to amend the
Plan and the Trust Agreement.
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17. TOP-HEAVY REQUIREMENTS
(a) General Rule. For any Plan Year in which the Plan is
a top-heavy plan or included in a top-heavy group as determined under
subsection 17(b), the special requirements of this Section shall apply.
(b) Calculation of Top-Heavy Status. The Plan shall be a
top-heavy plan (if it is not included in an "aggregation group") or a plan
included in a top-heavy group (if it is included in an "aggregation group")
with respect to any Plan Year if the sum as of the "determination date" of the
"cumulative accounts" of "key employees" for the Plan Year exceeds 60% of a
similar sum determined for all "employees," excluding "employees" who were "key
employees" in prior Plan Years only.
(c) Definitions. For purposes of this Section 17, the
following definitions shall apply to be interpreted in accordance with the
provisions of section 416 of the Code and the regulations thereunder.
(i) "Aggregation Group" shall mean the plans of
each Participating Company or Related Entity included below within the
following categories:
(A) each such plan in which a "key
employee" is a participant including a terminated plan in which a "key
employee" was a participant within the five years ending on the "determination
date";
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(B) each other such plan which enables
any plan in subsection (A) above to meet the requirements of section 401(a)(4)
or 410 of the Code; and
(C) each other plan not required to be
included in the "aggregation group" which the Company elects to include in the
"aggregation group" in accordance with the "permissive aggregation group" rules
of the Code if such group would continue to meet the requirements of sections
401(a) and 410 of the Code with such plan being taken into account.
(ii) "Cumulative Account" for any "employee" shall
mean the sum of the amount of his accounts under this Plan plus all defined
contribution plans included in the "aggregation group" (if any) as of the most
recent valuation date for each such plan within a twelve-month period ending on
the "determination date," increased by any contributions due after such
valuation date and before the "determination date" plus the present value of
his accrued benefit under all defined benefit pension plans included in the
"aggregation group" (if any) as of the "determination date." For a defined
benefit plan, the present value of the accrued benefit as of any particular
"determination date" shall be the amount determined under (A) the method, if
any, that uniformly applies for accrual purposes under all plans maintained by
the Participating Companies and all Related Entities, or (B) if there is no
such method, as if such benefit accrued not more rapidly than under the slowest
accrual rate permitted under the fractional accrual rule of section
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411(b)(l)(C) of the Code, as of the most recent valuation date for the defined
benefit plan, under actuarial equivalent factors specified therein, which is
within a twelve-month period ending on the "determination date." For this
purpose, the valuation date shall be the date for computing plan costs for
purposes of determining the minimum funding requirement under section 412 of
the Code. "Cumulative accounts" of "employees" who have not performed services
for any Participating Company or Related Entity for the five-year period ending
on the "determination date" shall be disregarded. An "employee's" "cumulative
account" shall be increased by the aggregate distributions during the five-year
period ending on the "determination date" made with respect to him under any
plan in the aggregation group. Rollovers and direct plan-to-plan transfers to
this Plan or to a plan in the "aggregation group" shall be included in an
"employee's" "cumulative account" unless the transfer is initiated by the
"employee" and made from a plan maintained by an employer which is not a
Participating Company or Related Entity.
(iii) "Determination Date" shall mean with respect
to any Plan Year the last day of the preceding Plan Year.
(iv) "Employee" shall mean any person (including a
beneficiary thereof) who has or had an accrued benefit held under this Plan or
a plan in the "aggregation group" including this Plan at any time during the
current or any one of the four preceding Plan Years. Any "employee" other than
a "key employee"
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described in subsection 17(c)(v) shall be considered a "non-key employee" for
purposes of this Section 17.
(v) "Key Employee" shall mean any "employee" or
former "employee" (including a beneficiary thereof) who is, at any time during
the Plan Year, or was, during any one of the four preceding Plan Years, any one
or more of the following:
(A) an officer of a Participating
Company or Related Entity whose compensation (as defined in subsection 5(d))
exceeds 150% of the dollar limitation in effect under section 415(c)(l)(A) of
the Code, unless 50 other such officers (or, if lesser, a number of such
officers equal to the greater of three or 10% of the "employees") have higher
annual compensation;
(B) one of the ten persons employed by a
Participating Company or Related Entity having annual compensation greater than
the limitation in effect under section 415(c)(l)(A) of the Code, and owning (or
considered as owning within the meaning of section 318 of the Code) the largest
interests in all Participating Companies or Related Entities. For purposes of
this subsection (B), if two "employees" have the same interest, the one with
the greater compensation shall be treated as owning the larger interest;
(C) any person owning (or considered as
owning within the meaning of section 318 of the Code) more than 5% of the
outstanding stock of all Participating Companies or Related Entities or stock
possessing more than 5% of the total combined voting power of such stock;
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(D) a person who would be described in
subsection (C) above if 1% were substituted for 5% each place the same appears
in subsection (C) above, and who has annual compensation of more than $150,000.
For purposes of determining ownership under this subsection, section
318(a)(2)(C) of the Code shall be applied by substituting 5% for 50%.
(d) Combined Benefit Limitation. For purposes of the
calculation of the combined limitation of subsection 5(c), "1.0" shall be
substituted for "1.25" each place the same appears in that subsection.
(e) Vesting. The schedule set forth below shall be
substituted for the schedule contained in subsection 8(d)(ii) to the extent it
provides for more rapid vesting.
NONFORFEITABLE
YEARS OF SERVICE PERCENTAGE
---------------- ----------
Less than 2 years 0%
2 years but less than 3 years 20%
3 years but less than 4 years 40%
4 years but less than 5 years 60%
5 years but less than 6 years 80%
6 years or more 100%
The schedule above shall apply to all benefits accrued as of the date the
schedule becomes effective and all benefits accrued for Plan Years thereafter
to which this Section applies. If the Plan ceases to be top-heavy, no benefit
which became nonforfeitable
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under the schedule above shall become forfeitable. For Members with three
Years of Service or more, the schedule shall continue to apply to future
accruals to the extent it provides for more rapid vesting.
(f) Minimum Contribution. Minimum Participating Company
contributions for a Member who is not a "key employee" shall be required in an
amount equal to the lesser of 3% of compensation (as defined in subsection
5(d)) or the highest percentage of such compensation limited to $200,000 (or an
increased amount resulting from a cost of living adjustment under section
415(d) of the Code) contributed for any "key employee" under Section 4. For
purposes of this subsection, employer social security contributions shall be
disregarded. Each "non-key employee" of a Participating Company who has not
separated from service at the end of the Plan Year and who has satisfied the
eligibility requirements of subsection 3(a) shall receive any minimum
contribution provided under this Section 17 without regard to (i) whether he is
credited with 1,000 Hours of Service in the Plan Year, (ii) earnings level for
the Plan Year, or (iii) whether he elects to make contributions under
subsection 4(a). If an "employee" participates in both this Plan and another
defined contribution plan maintained by a Participating Company or a Related
Entity, the minimum benefit shall be provided under the other plan.
Furthermore, if an "employee" participates in both this Plan and a defined
benefit plan
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maintained by a Participating Company or a Related Entity, the minimum benefit
shall be provided under the defined benefit plan.
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18. MISCELLANEOUS
(a) Incapacity. If the Committee determines that a
person entitled to receive any benefit payment is under a legal disability or
is incapacitated in any way so as to be unable to manage his financial affairs,
the Committee may make payments to such person for his benefit, or apply the
payments for the benefit of such person in such manner as the Committee
considers advisable. Any payment of a benefit in accordance with the
provisions of this subsection shall be a complete discharge of any liability to
make such payment.
(b) Reversions. In no event, except as provided herein,
shall the Trustee return to a Participating Company any amount contributed by
it to the Plan.
(i) Mistake of Fact. In the case of a
contribution made by a good faith mistake of fact, the Trustee shall return the
erroneous portion of the contribution, without increase for investment
earnings, but with decrease for investment losses, if any, within one year
after payment of the contribution to the Fund.
(ii) Deductibility. To the extent deduction of any
contribution determined by the Company in good faith to be deductible is
disallowed, the Trustee shall return that portion of the contribution, without
increase for investment earnings but with decrease for investment losses, if
any, for which deduction has been disallowed within one year after the
disallowance of the deduction. All contributions under the Plan are
specifically
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conditioned upon their deductibility by the Participating Company for federal
income tax purposes.
(iii) Limitation. No return of contribution shall
be made under this subsection which adversely affects the Plan's qualified
status under regulations, rulings, or other published positions of the Internal
Revenue Service or reduces a Member's Accrued Benefit below the amount it would
have been had such contribution not been made.
(iv) Limitations. This subsection shall not
preclude refunds made in accordance with subsections 4(b)(i), 4(e)(ii), or
4(f)(ii).
(c) Employee Data. The Committee or the Trustee may
require that each Employee provide such data as it deems necessary upon his
becoming a Member in the Plan. Each Employee, upon becoming a Member, shall be
deemed to have approved of and to have acquiesced in each and every provision
of the Plan for himself, his personal representatives, distributees, legatees,
assigns, and beneficiaries.
(d) Law Governing. This Plan shall be construed,
administered, and applied in a manner consistent with the laws of the
Commonwealth of Pennsylvania where those laws are not superseded by ERISA.
(e) Pronouns. The use of the masculine pronoun shall be
extended to include the feminine gender wherever appropriate.
(f) Interpretation. The Plan is a profit sharing plan
including a qualified, tax exempt trust under sections 401(a) and
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501(a) of the Code and a qualified cash or deferred arrangement under section
401(k)(2) of the Code. The Plan shall be interpreted in a manner consistent
with its satisfaction of all requirements of the Code applicable to such a
plan.
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IN WITNESS WHEREOF, and as evidence of the adoption of this
Plan by the Company, it has caused the same to be signed by its officers
thereunto duly authorized, and its corporate seal to be affixed thereto, this
9th day of December, 1994.
U.S. HEALTHCARE, INC.
/s/ David F. Simon
----------------------------
By: David F. Simon
Title: Senior Vice President
85
EX-10.19
7
AMENDED AND RESTATED PENSION PLAN
1
PENSION PLAN FOR EMPLOYEES OF
U.S. HEALTHCARE, INC.
(AMENDED AND RESTATED EFFECTIVE JANUARY 1, 1989)
(As amended through December 31, 1994)
2
TABLE OF CONTENTS
Section Page
------- ----
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(a) "Accrued Benefit" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(b) "Active Member" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(c) "Administrative Committee" or "Committee" . . . . . . . . . . . . . . . . . . . 3
(d) "Administrator" or "Plan Administrator" . . . . . . . . . . . . . . . . . . . . 3
(e) "Annual Additions" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(f) "Board of Directors" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(g) "Break in Service" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(h) "Code" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(i) "Company" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(j) "Compensation" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(k) "Disability" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(l) "Employee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(m) "ERISA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(n) "Fiduciary" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(o) "Fund" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(p) "Group Annuity Policy" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(q) "Hour of Service" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(r) "Insurance Company" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(s) "Investment Manager" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(t) "Leased Employee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(v) "Member" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(w) "Normal Retirement Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(x) "Participating Company" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(y) "Plan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(z) "Plan Year" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(aa) "Related Entity" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(bb) "Restatement Effective Date" . . . . . . . . . . . . . . . . . . . . . . . . . 12
(cc) "Six Months of Service" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(dd) "Social Security Taxable Wage Base" . . . . . . . . . . . . . . . . . . . . . . 13
(ee) "Trust Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(ff) "Trustee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(gg) "Valuation Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(hh) "Year of Service" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2. ADMINISTRATION OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(a) ERISA Reporting and Disclosure by Administrator. . . . . . . . . . . . . . . . 14
(b) Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(c) Multiple Capacities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(d) Committee Powers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(e) Allocation of Fiduciary Responsibility. . . . . . . . . . . . . . . . . . . . . 16
(f) Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
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(g) Fiduciary Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(h) Plan Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(i) Fiduciary Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(j) Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3. PARTICIPATION IN THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(a) Initial Eligibility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(b) Commencement of Participation. . . . . . . . . . . . . . . . . . . . . . . . . 21
(c) Termination and Requalification. . . . . . . . . . . . . . . . . . . . . . . . 21
(d) Termination of Membership. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4. PARTICIPATING COMPANY AND MEMBER CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . 23
(a) Participating Company Contributions. . . . . . . . . . . . . . . . . . . . . . 23
(b) Forfeitures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(c) Allocation of Contributions. . . . . . . . . . . . . . . . . . . . . . . . . . 24
(d) Member Contributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(e) Deductibility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5. MAXIMUM CONTRIBUTION AND BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(a) Defined Contribution Limitation. . . . . . . . . . . . . . . . . . . . . . . . 25
(b) Combined Limitation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(c) Combined Limitation Computation. . . . . . . . . . . . . . . . . . . . . . . . 27
(d) Definition of "Compensation" for Code
Limitations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6. ADMINISTRATION OF FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(a) Investment Control. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(b) Participant-Directed Investment . . . . . . . . . . . . . . . . . . . . . . . . 31
(c) Funding Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(d) Valuations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(e) Allocation of Gain or Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(f) Appointment of Investment Manager. . . . . . . . . . . . . . . . . . . . . . . 33
7. BENEFICIARIES AND DEATH BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(a) Designation of Beneficiary. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(b) Spousal Consent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(c) Election Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(d) Written Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(e) Beneficiary Priority List. . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8. BENEFITS FOR MEMBERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(a) Retirement Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(b) Death Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(c) Disability Benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
(d) Termination of Employment Benefit . . . . . . . . . . . . . . . . . . . . . . . 40
(e) Time of Forfeiture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
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9. DISTRIBUTION OF BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
(a) Commencement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
(b) Benefit Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
(c) Deferred Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
(d) Annuities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
(e) Required Annuity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
(f) Lump Sum Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
(g) Compliance with Code Requirements. . . . . . . . . . . . . . . . . . . . . . . 51
(h) Withholding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
(i) Withdrawals of Member Contributions. . . . . . . . . . . . . . . . . . . . . . 52
(j) Transfers to Other Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
10. PARTICIPATION BY RELATED ENTITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
(a) Commencement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
(b) Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
(c) Single Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
(d) Delegation of Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
11. TITLE TO ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
12. AMENDMENT AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
(a) Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
(b) Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
(c) Conduct on Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
13. LIMITATION OF RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
(a) Alienation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
(b) Qualified Domestic Relations Order Exception. . . . . . . . . . . . . . . . . . 59
(c) Employment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
14. MERGERS, CONSOLIDATIONS OR TRANSFERS OF PLAN
ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
15. TOP-HEAVY REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
(a) General Rule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
(b) Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
(c) Maximum Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
(d) Combined Benefit Limitation. . . . . . . . . . . . . . . . . . . . . . . . . . 66
(e) Vesting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
(f) Minimum Contribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
16. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
(a) Incapacity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
(b) Reversions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
(c) Employee Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
(d) Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
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(e) Law Governing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
(f) Pronouns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
SCHEDULE A
INCIDENTAL DEATH BENEFIT TABLES . . . . . . . . . . . . . . . . . . . . . . . 1
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PENSION PLAN FOR EMPLOYEES OF
U.S. HEALTHCARE, INC.
(Amended and Restated Effective January 1, 1989)
The Health Maintenance Organization of Pennsylvania, a
subsidiary of United States Health Care Systems, Inc., adopted the Pension Plan
for Employees of the Health Maintenance Organization of Pennsylvania, effective
January 1, 1977. Effective January 1, 1984, the Pension Plan for Employees of
the Health Maintenance Organization of Pennsylvania was adopted by United
States Health Care Systems, Inc., and was renamed the Pension Plan for
Employees of United States Health Care Systems, Inc. Effective January 1,
1985, the Pension Plan for Employees of United States Health Care Systems, Inc.
was amended and restated in its entirety. Effective January 1, 1987, the name
of United States Health Care Systems, Inc. was changed to U.S. Healthcare, Inc.
(the "Company"), and the Pension Plan for Employees of United States Health
Care Systems, Inc. was renamed the Pension Plan for Employees of U.S.
Healthcare Inc. (the "Plan"). Effective January 1, 1989, the Plan was amended
and restated in its entirety.
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The Company hereby amends and restates the Plan, again
effective January 1, 1989, subject to receipt of an Internal Revenue Service
determination that the Plan continues to meet all applicable requirements of
section 401(a) of the Code (as defined in subsection 1(h)) and that employer
contributions thereto remain deductible under section 404 of the Code.
However, the provisions contained in sections 5 and 15(a) of the Plan shall be
effective as of January 1, 1987. In addition, those provisions of the Plan in
effect prior to January 1, 1989 shall continue to be applicable to all persons
who retired or otherwise terminated their service with the Company prior to
January 1, 1989.
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8
1. DEFINITIONS
(a) "Accrued Benefit" shall mean on any date of
determination the value of a Member's share of the Fund, consisting of
Participating Company contributions, Member contributions made prior to January
1, 1987, and earnings thereon.
(b) "Active Member" shall mean a Member who is an Employee.
(c) "Administrative Committee" or "Committee" shall mean
the individual or group of individuals designated pursuant to subsection 2(b)
to control and manage the operation and administration of the Plan to the
extent set forth herein.
(d) "Administrator" or "Plan Administrator" shall mean a
plan administrator under ERISA. The Company shall be the "Administrator"
unless the Board of Directors designates one or more individuals to serve as
such.
(e) "Annual Additions" shall mean the sum for any Plan
Year of (i) employer contributions, (ii) employee contributions, (iii)
forfeitures and (iv) amounts described in sections 415(l)(1) and 419A(d)(2) of
the Code which are allocated to the account of a Member under the terms of a
plan subject to section 415 of the Code. "Annual Additions" shall include
excess contributions as defined in section 401(k)(8)(B) of the Code, excess
aggregate contributions as defined in section 401(m)(6)(B) of the Code,
regardless of whether such amounts are distributed
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9
or forfeited, but shall not include not excess deferrals as described in
section 402(g) of the Code that are distributed to avoid a violation of section
402(g) of the Code.
(f) "Board of Directors" shall mean the Board of Directors
of the Company.
(g) "Break in Service" shall mean any Plan Year in which a
Member completes less than three months of service; provided, however, that if
a Member completes more than 500 Hours of Service in such Plan Year, such Plan
Year shall not constitute a Break in Service. Notwithstanding the foregoing,
an Employee shall not incur a "Break in Service" during an authorized leave of
absence for sickness, disability or any other reason according to a uniform
rule if he returns to the employ of a Participating Company at the expiration
of such leave of absence.
(h) "Code" shall mean the Internal Revenue Code of 1986,
as amended, and as the same may be further amended from time to time.
(i) "Company" shall mean U.S. Healthcare, Inc., a
Pennsylvania corporation.
(j) "Compensation" shall mean the total taxable income
payable to an Employee for services by a Participating Company (including any
bonuses, overtime compensation and short-term disability payments), plus salary
reduction contributions under the U.S. Healthcare, Inc. Savings Plan and salary
deferrals under a plan described in section 125 of the Code. "Compensation"
4
10
shall not include non-qualified deferred compensation, the value of fringe
benefits or perquisites, stock, stock options, or similar items. "Compensation"
with respect to any Plan Year ending before January 1, 1994 shall be limited to
$200,000 (or an increased amount resulting from a cost of living adjustment
under subsection 415(d) of the Code). "Compensation" with respect to any Plan
Year ending on or after January 1, 1994 shall be limited to $150,000 (or an
increased amount resulting from a cost of living adjustment under subsection
415(d) of the Code). In determining the "Compensation" of an Employee for
purposes of this limitation, the aggregation rules of section 414(q)(6) of the
Code shall apply to any Employee who is a member of a family of a highly
compensated employee as defined in section 414(q) of the Code in the group
consisting of the 10 employees paid the highest compensation. However, in
applying these rules the term "family" shall include only the spouse of the
Employee and any living descendants of the Employee who had not yet attained
age 19 before the close of the Plan Year. If as a result of the application of
such rules the adjusted $200,000 or $150,000 limitation is exceeded, then the
limitation shall be prorated among the affected individuals in proportion to
each such individual's compensation as determined under this subsection (i)
prior to the application of this limitation.
(k) "Disability" shall mean a medically determinable
physical or mental impairment of a permanent nature which
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11
prevents a Member from performing, on a full-time basis, his customary
employment duties without endangering his health. Disability shall be
determined by the Committee, in its absolute discretion, on the basis of such
medical evidence as the Committee deems necessary or desirable.
(l) "Employee" shall mean each and every person employed
by a Participating Company or a Related Entity and any Leased Employee deemed
to be an Employee as provided in section 414(n) or (o) of the Code.
(m) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended, and as the same may be further amended from
time to time.
(n) "Fiduciary" shall mean a person who, with respect to
the Plan, (i) exercises any discretionary authority or discretionary control
respecting management of the Plan or exercises any authority or control with
respect to management or disposition of the Plan's assets, (ii) renders
investment advice for a fee or other compensation, direct or indirect, with
respect to any monies or other property of the Plan, or has any authority or
responsibility to do so, or (iii) has any discretionary authority or
discretionary responsibility in the administration of the Plan.
(o) "Fund" shall mean the assets of the Plan.
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12
(p) "Group Annuity Policy" shall mean any group annuity
policy or policies issued by an Insurance Company to the Company for purposes
of funding the Plan.
(q) "Hour of Service"
(i) General Rule. "Hour of Service" shall mean
each hour (A) for which an Employee is directly or indirectly paid, or entitled
to payment, by a Participating Company or a Related Entity for the performance
of duties or (B) for which back pay, irrespective of mitigation of damages, has
been either awarded or agreed to by a Participating Company or a Related
Entity. These hours shall be credited to the Employee for the period or
periods in which the duties were performed or to which the award or agreement
pertains irrespective of when payment is made. The same hours shall not be
credited under both (A) and (B) above. Furthermore, for purposes of crediting
Hours of Service for eligibility to participate and vesting, service performed
as a leased employee, within the meaning of section 414(n) of the Code, of a
participating Company or a Related Entity shall be treated as service performed
for the Participating Company or Related Entity. An entity is a Related Entity
only during those periods in which it is included in a category described in
this subsection.
(ii) Paid Absences. An Employee shall also be
credited with one Hour of Service for each hour for which the Employee is
directly or indirectly paid, or entitled to payment,
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13
by a Participating Company or a Related Entity on account of a period during
which no duties are performed due to vacation, holiday, illness, incapacity,
disability, layoff, jury duty or authorized leave of absence for a period not
exceeding one year for any reason in accordance with a uniform policy
established by the Committee; provided, however, not more than 501 Hours of
Service shall be credited to an Employee under this sentence on account of any
single, continuous period during which the Employee performs no duties; and,
provided further, that no credit shall be given if payment (A) 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 (B) is made solely to reimburse an Employee for medical or medically related
expenses incurred by the Employee.
(iii) Maternity/Paternity. For purposes of
subsection 1(g), an Employee shall also be credited with one Hour of Service
for each hour that otherwise would normally have been credited to the Employee
but during which such Employee is absent from work for any period (A) by reason
of the Employee's pregnancy, (B) by reason of the birth of the Employee's
child, (C) by reason of the placement of a child with such Employee in
connection with an adoption of such child by such Employee or (D) for purposes
of caring for a child for a period beginning immediately following birth or
placement; provided that an Employee shall be credited with no more than 501
Hours of Service
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14
on account of any single continuous period of absence by reason of any such
pregnancy, birth or placement; and, provided further, that Hours of Service
credited to an individual on account of such a period of absence shall be
credited only for the Break in Service computation period in which such absence
begins if an Employee would otherwise fail to be credited with 501 or more
Hours of Service in such computation period or, in any other case, in the
immediately following computation period.
(iv) Military. An Employee shall also be credited
with one Hour of Service for each hour during which the Employee is absent on
active duty in the military service of the United States under leave of absence
granted by a Participating Company or a Related Entity or when required by law,
provided he returns to employment with the Participating Company or a Related
Entity within 90 days after his release from active duty or within such longer
period during which his right to reemployment is protected by law.
(v) Miscellaneous. For purposes of this
subsection 1(q), the regulations issued by the Secretary of Labor at 29 CFR
Section 2530.200b - 2(b) and (c) are incorporated by reference. Nothing
herein shall be construed as denying an Employee credit for an Hour of Service
if credit is required by separate federal law.
(vi) Equivalencies. If, for Plan purposes, an
Employee's records are kept on other than an hourly basis as
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15
described above, the Committee, according to uniform rules applicable to a
class of Employees, may apply the following equivalencies for purposes of
crediting Hours of Service:
Credit Granted to Individual If
Basis Upon Which Individual Earns One or More
Records are Maintained Hours of Service During Period
---------------------- ------------------------------
Shift Actual hours for full shift
Day 10 Hours of Service
Week 45 Hours of Service
Semi-monthly Payroll Period 95 Hours of Service
Months of Employment 190 Hours of Service
(r) "Insurance Company" shall mean any legal reserve life
insurance company with which funds are deposited pursuant to a Group Annuity
Policy to provide benefits under the Plan.
(s) "Investment Manager" shall mean any Fiduciary who:
(i) has the power to manage, acquire, or dispose
of any asset of the Plan:
(ii) is:
(A) registered as an investment adviser
under the Investment Advisers Act of 1940;
(B) a bank, as defined in that Act; or
(C) an insurance company qualified to
perform services described in subsection 1(r)(i) above under the laws of more
than one state; and
(iii) has acknowledged in writing that it is a
Fiduciary with respect to the Plan.
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(t) "Leased Employee" shall mean those individuals
described in section 414(n)(2) of the Code employed by a Participating Company
or a Related Entity; provided, however, if such individual employees constitute
20% or less of such non-highly compensated work force of the Company or a
Related Entity, then the term "Leased Employees" means only those individuals
who are not covered by a plan described in section 414(n)(5) of the Code.
(v) "Member" shall mean each and every Employee of a
Participating Company who satisfies the requirements for participation under
section 3 hereof and each other person who has an Accrued Benefit held under
the Plan.
(w) "Normal Retirement Date" shall mean the date on which
a Member attains age 65.
(x) "Participating Company" shall mean the Company and
each Related Entity with respect to the Company which adopts this Plan pursuant
to section 10.
(y) "Plan" shall mean the Pension Plan for Employees of
U.S. Healthcare, Inc., a money purchase pension plan, as amended and restated
and as set forth herein effective January 1, 1989, and as the same may be
further amended from the to time.
(z) "Plan Year" shall mean the consecutive twelve-month
period commencing on January 1st and ending on the following December 31st.
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(aa) "Related Entity" shall mean (i) all corporations
which are members with a Participating Company in a controlled group of
corporations within the meaning of section 1563(a) of the Code, determined
without regard to sections 1563(a)(4) and (e)(3)(C) of the Code, (ii) all
trades or businesses (whether or not incorporated) which are under common
control with a participating Company as determined by regulations promulgated
under section 414(c) of the Code, (iii) all trades or businesses which are
members of an affiliated service group with a Participating Company within the
meaning of section 414(m) of the Code and (iv) any entity required to be
aggregated with a Participating Company by regulations under section 414(o) of
the Code (to the extent provided in such regulations); provided, however, for
purposes of section 5, the definition shall be modified to substitute the
phrase "more than 50%" for the phrase "at least 80%" each place it appears in
section 1563(a)(1) of the Code.
(bb) "Restatement Effective Date" shall mean January 1,
1989. This amended and restated plan incorporates all amendments through
December 31, 1994.
(cc) "Six Months of Service" shall mean a consecutive
six-month computation period specified in the Plan in which an Employee is
employed by a Participating Company or a Related Entity.
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(dd) "Social Security Taxable Wage Base" shall mean the
contribution and benefit base applicable on the first day of the Plan Year
under the system of old age, survivors and disability insurance established
under Title II of the Social Security Act and the Federal Insurance
Contribution Act.
(ee) "Trust Agreement" shall mean any agreement and
declaration of trust executed under this Plan.
(ff) "Trustee" shall mean the corporate trustee or one or
more individuals collectively appointed and acting under the Trust Agreement.
(gg) "Valuation Date" shall mean the last day of each
calendar month in the Plan Year and each interim date on which the
Administrative Committee determines that a valuation shall be made.
(hh) "Year of Service" shall mean a consecutive
twelve-month computation period specified in the Plan in which an Employee is
credited with 1,000 Hours of Service or more.
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2. ADMINISTRATION OF THE PLAN
(a) ERISA Reporting and Disclosure by Administrator. The
Administrator shall file all reports and distribute to Members and
beneficiaries reports and other information required under ERISA or the Code.
(b) Committee. The Company, through its Board of
Directors, may designate an Administrative Committee which shall have the
authority to control and manage the operation and administration of the Plan.
If the Company designates an Administrative Committee, the powers and duties of
the Committee under the Plan shall be exercised by the Committee; otherwise
such duties and powers shall be exercised by the Company. If the Committee
consists of more than two members, it shall act by majority vote. The
Committee may (i) delegate all or a portion of the responsibilities of
controlling and managing the operation and administration of the Plan to one or
more persons and (ii) appoint agents, investment advisers, counsel, or other
representatives to render advice with regard to any of its responsibilities
under the Plan. The Board of Directors may remove, with or without cause, the
Committee or any Committee member. The Committee may remove, with or without
cause, any delegate or adviser designated by it.
(c) Multiple Capacities. Any person may serve in more
than one fiduciary capacity.
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(d) Committee Powers. The responsibility to control and
manage the operation and administration of the Plan shall include, but shall
not be limited to, the performance of the following acts:
(i) the filing of all reports required of the
Plan, other than those which are the responsibility of the Administrator;
(ii) the distribution to Members and beneficiaries
of all reports and other information required of the Plan, other than reports
and information required to be distributed by the Administrator;
(iii) the keeping of complete records of the
administration of the Plan;
(iv) the promulgation of rules and regulations for
the administration of the Plan consistent with the terms and provisions of the
Plan and the Group Annuity Policy; and
(v) the interpretation of the Plan including the
determination of any questions of fact arising under the Plan and the making of
all decisions required by the Plan.
The Committee's interpretation of the Plan and any actions and decisions taken
in good faith by the Committee based on its interpretation shall be final and
conclusive. The Committee may correct any defect, or supply any omission, or
reconcile any inconsistency in the Plan in such manner and to such extent as
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21
shall be expedient to carry the Plan into effect and shall be the sole judge of
such expediency.
(e) Allocation of Fiduciary Responsibility. The Board of
Directors, the Administrator and the Committee possess certain specified
powers, duties, responsibilities and obligations under the Plan. It is
intended under this Plan that each be responsible solely for the proper
exercise of its own functions and that each not be responsible for any act or
failure to act of another, unless otherwise responsible as a breach of its
fiduciary duty or for breach of duty by another Fiduciary under ERISA's rules
of cofiduciary responsibility. In general:
(i) the Board of Directors is responsible for
appointing and removing the Administrator and the Committee and for terminating
the Plan;
(ii) the Committee is responsible for amending and
administering the Plan, for adopting such rules and regulations as in the
opinion of the Committee are necessary or advisable to implement and administer
the Plan and to transact its business, for selecting an Insurance Company to
issue a Group Annuity Policy with respect to the Plan, and selecting a Trustee
to manage and control a portion of the Fund in accordance with the Trust
Agreement, and for providing a procedure for carrying out a funding policy and
method consistent with the objectives of the Plan and the requirements of Title
I of ERISA;
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(iii) the Administrator is responsible for
discharging the statutory duties of a plan administrator under ERISA and the
Code; and
(iv) an Insurance Company issuing a Group Annuity
Policy and/or a Trustee is responsible for the management and control of the
portion of the Fund over which it has control to the extent provided in the
Group Annuity Policy or the Trust Agreement.
(f) Claims. If, pursuant to the rules, regulations or
other interpretations of the Plan, the Committee denies the claim of a Member
or beneficiary for benefits under the Plan, the Committee shall provide written
notice, within 90 days after receipt of the claim, setting forth in a manner
calculated to be understood by the claimant:
(i) the specific reasons for such denial;
(ii) the specific reference to the Plan provisions
on which the denial is based;
(iii) a description of any additional material or
information necessary to perfect the claim and an explanation of why such
material or information is needed; and
(iv) an explanation of the Plan's claim review
procedure and the time limitations of this subsection applicable thereto. If
special circumstances require an extension of time for processing the claim,
such extension shall be granted, not to exceed 90 days. No extension shall be
allowed, however, unless
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within the initial 90 day period the claimant is sent a notice of extension
indicating that special circumstances requiring the extension and specifying
the date by which the Committee expects to render its final decision. A Member
or beneficiary whose claim for benefit has been denied may request review by
the Committee of the denied claim by notifying the Committee in writing within
60 days after receipt of the notification of claim denial. As part of said
review procedure, the claimant or his authorized representative may review
pertinent documents and submit issues and comments to the Committee in writing.
The Committee shall render its decision to the claimant in writing in a manner
calculated to be understood by the claimant not later than 60 days after
receipt of the request for review, unless special circumstances require an
extension of time, in which case decision shall be rendered as soon after the
sixty-day period as possible, but not later than 120 days after receipt of the
request for review. The decision on review shall state the specific reasons
therefor and the specific Plan references on which it is based.
(g) Fiduciary Compensation. A Committee member,
delegate, or adviser who already receives full-time pay from a Participating
Company or a Related Entity shall serve without compensation for his services
as such, but he shall be reimbursed pursuant to subsection 2(h) for any
reasonable expenses incurred by him in the administration of the Plan. A
Committee member,
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delegate, or adviser who is not already receiving full-time pay from a
Participating Company may be paid such reasonable compensation as shall be
agreed upon.
(h) Plan Expenses. All expenses of administration of the
Plan shall be paid out of the Fund unless paid by a Participating Company.
(i) Fiduciary Insurance. If the Committee so directs,
the Plan shall purchase insurance to cover the Plan from liability or loss
occurring by reason of the act or omission of a Fiduciary, provided such
insurance permits recourse by the insurer against the Fiduciary in the case of
a breach of a fiduciary obligation by such Fiduciary.
(j) Indemnification. The Company shall indemnify and
hold harmless to the maximum extent permitted by its by-laws each Fiduciary
who is an Employee or who is an officer or director of any Participating
Company or any Related Entity from any claim, damage, loss or expense,
including litigation expenses and attorneys' fees, resulting from such person's
service as a Fiduciary of the Plan; provided the claim, damage, loss or expense
does not result from the Fiduciary's gross negligence or intentional
misconduct.
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3. PARTICIPATION IN THE PLAN
(a) Initial Eligibility. Each and every Employee who was
participating in the Plan on the day before the Restatement Effective Date
shall remain an Active Member. Each and every other Employee of a
Participating Company shall become an Active Member on the first day of the
Plan Year coincident with or next following the date on which he both completes
Six Months of Service and attains age 20-1/2, provided he is then employed by a
Participating Company. Notwithstanding the foregoing provisions of this
subsection,
(i) no Employee whose terms and conditions of
employment are determined by a collective bargaining agreement between employee
representatives and a Participating Company shall be eligible to participate
unless such collective bargaining agreement provides to the contrary, in which
case such Employee shall be eligible to participate upon compliance with such
provisions for eligibility and participation as such agreement shall provide;
(ii) no Employee who has selected, or in the
future selects, a union shall become ineligible during the period between his
selection of the union and the execution of the first collective bargaining
agreement which covers him; and
(iii) no Leased Employee shall be eligible to
participate in the Plan unless the participation of such Leased
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26
Employee in the Plan is required so that the Plan meets the requirements of
section 414(n)(3) of the Code.
(b) Commencement of Participation. An Employee shall
become an Active Member as of the first day of the Plan Year next following the
date on which he satisfies all applicable requirements and conditions of
subsection 3(a).
(c) Termination and Requalification.
(i) An Employee who has become a Member under
subsection 3(a), who subsequently ceases to be an Employee and is later
reemployed as an Employee shall again become an Active Member as of the date on
which he first again completes an Hour of Service after being re-employed as an
Employee; provided, however, if such Employee has had a Break in Service prior
to being so re-employed this sentence shall apply only if he (1) had any
nonforfeitable interest in his Accrued Benefit as of the date he ceased to be
an Employee or (2) his consecutive Breaks in Service prior to being so
re-employed are less than five.
(ii) If an individual is not an Employee on the
date on which he would have otherwise become an Active Member under subsection
(a), he shall become an Active Member as of the date on which he first again
completes an Hour of Service after becoming re-employed as an Employee;
provided, however, if he has had a Break in Service prior to being so
re-employed, he shall become an Active Member immediately only if (1) he had
any nonforfeitable interest in his Accrued Benefit as of the date he
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27
first ceased to be an Employee or (2) his consecutive Breaks in Service prior
to being so employed are less than five.
(d) Termination of Membership. An Employee who becomes
an Active Member shall remain an Active Member as long as he is an Employee,
and shall remain a Member as long as he has an Accrued Benefit held under the
Plan.
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4. PARTICIPATING COMPANY AND MEMBER CONTRIBUTIONS
(a) Participating Company Contributions. For each Plan
Year each Participating Company shall contribute to the Fund, subject to the
limits of Section 5, with respect to each Active Member who is credited with at
least 1,000 Hours of Service during such Plan Year, an amount equal to the sum
of 8% of such Active Member's Compensation plus the greater of (i) 5.7% or (ii)
the percentage equal to the portion of the rate of tax under section 3111(a) of
the Code (in effect as of the beginning of the Plan Year) which is attributable
to old-age insurance, of such Active Member's Compensation in excess of the
Social Security Taxable Wage Base. The aggregate required contribution shall
be reduced by forfeitures for the Plan Year, which shall be applied as part of
the contribution. The contribution so determined shall be allocated as
provided in subsection 4(c). The contribution shall be paid on or before the
later of the date (including any extensions thereof) on which the Company is
required (i) to file its federal income tax return for its taxable year ended
concurrent with the Plan Year or (ii) to pay such contribution to satisfy the
minimum funding standards of the Code.
(b) Forfeitures. Accrued Benefits which have been
forfeited during the Plan Year pursuant to the provisions of subsections 8(d)
and 8(e) hereof shall be applied to decrease contributions required under
subsection 4(a).
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(c) Allocation of Contributions. As of the last day of
the Plan Year, the contribution (including forfeitures applied to reduce the
required contribution) for such Plan Year shall be allocated to the Accrued
Benefits of Active Members in accordance with the amount contributed with
respect to each such Active Member under subsection 4(a).
(d) Member Contributions. No Member contributions shall
be made to the Plan.
(e) Deductibility. All Participating Company
contributions are expressly conditioned on deductibility under the Code.
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5. MAXIMUM CONTRIBUTION AND BENEFITS
(a) Defined Contribution Limitation. Notwithstanding
anything in this Plan to the contrary, in no event shall the amount allocable
to a Member from contributions to the Fund with respect to any Plan Year cause
the Annual Additions allocated to any Member under this Plan plus the amount
allocated to such Member (excluding earnings) under any other defined
contribution plan maintained by a Participating Company or a Related Entity to
exceed for any Plan Year the lesser of (i) $30,000 (or, if greater, one-fourth
of the dollar limitation in effect under subsection 415(b)(1)(A) of the Code
for such Plan Year) or (ii) 25% of such Member's compensation (as defined in
subsection 5(d)) for such Plan Year. If the amount otherwise allocable to a
Member would exceed the amount described in the preceding sentence as a result
of the reallocation of forfeitures, a reasonable error in estimating the
Member's compensation, or such other circumstances as permitted by law, such
amount allocated to such Member shall be reduced, after application of the
corresponding limitation of any other defined contribution plan, by the amount
of such excess to determine the actual amount of the contribution allocable to
such Member with respect to such Plan Year.
(i) While the Member remains covered by the Plan,
his excess contributions shall be held in a suspense account (which shall share
in investment gains and losses of the Fund) by
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the Trustee or the Insurance Company until the following Plan Year (or any
succeeding Plan Years), at which time such amounts shall be allocated to the
Member's Account before any contributions are made on his behalf for such Plan
Year; and
(ii) When the Member ceases to be covered by the
Plan, his excess contributions, along with earnings thereon, held in the
suspense account shall be allocated in the following Plan Year (or any
succeeding Plan Years) to the Accounts of other Members.
(b) Combined Limitation. In addition to the limitation
of subsection 5(a), if a Participating Company or a Related Entity maintains or
maintained a defined benefit plan and the amount contributed to the Fund with
respect to any Plan Year would cause the aggregate amount allocated to any
Member under all defined contribution plans maintained by a Participating
Company or a Related Entity to exceed the maximum allocation as determined in
subsection 5(c), then the allocation with respect to such Member shall be
reduced by the amount of such excess. The excess allocation shall be
reallocated or held in a suspense account in accordance with subsection 5(a).
To the extent feasible, the limitation of this subsection shall be applied to
the Member's benefit payable from the defined benefit plan prior to reduction
of the Annual Additions allocable to the Member under this Plan.
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(c) Combined Limitation Computation. The maximum
allocation is the amount of Annual Additions which may be allocated to a
Member's benefit without permitting the sum of the defined benefit plan
fraction (as hereinafter defined) and the defined contribution plan fraction
(as hereinafter defined) from exceeding 1.0 for any Plan Year. The defined
benefit plan fraction applicable to a Member for any Plan Year is a fraction,
the numerator of which is the projected annual benefit of the Member under the
plan determined as of the close of the Plan Year and the denominator of which
is the lesser of (i) the product of 1.25 multiplied by the maximum then
permitted dollar amount of straight life annuity payable under the define
benefit plan maximum benefit provisions of the Code as a benefit commencing at
the Member's normal retirement age or (ii) the product of 1.4 multiplied by
100% of the Member's average compensation for the three consecutive years of
participation in such defined benefit plan during which he received the
greatest aggregate compensation from the Employer. For purposes of this
subsection 5(c), a Member's projected annual benefit is equal to the annual
benefit, expressed in the form of a straight life annuity, to which the Member
would be entitled under the terms of the defined benefit plan based on the
assumptions that (i) the Member will continue employment until reaching his
normal retirement age (or current age, if later) at a rate of compensation
equal to that for the Plan Year under consideration and (ii) all other relevant
factors
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used to determine benefits under the plan for the Plan Year under consideration
will remain constant for future Plan Years. The defined contribution plan
fraction applicable to a Member for any Plan Year is a fraction, the numerator
of which is the sum of the Annual Additions for all Plan Years allocated to the
Member as of the close of the Plan Year and the denominator of which is the sum
of the lesser, separately determined for each Plan Year of the Member's
employment with a Participating Company or Related Entity, of (i) the product
of 1.25 multiplied by the maximum dollar amount of Annual Additions which could
have been allocated to the Member under the Code for such Plan Year or (ii) the
product of 1.4 multiplied by the maximum amount, based on the Member's
compensation, of Annual Additions which could have been allocated to the Member
for such Plan Year.
(d) Definition of "Compensation" for Code Limitations.
For purposes of the limitations on the allocation of Annual Additions to a
Member and maximum benefits under a defined benefit plan as provided for in
this section 5, "compensation" for a Plan Year shall mean the sum of amounts
paid by a Participating Company or a Related Entity to the Member with respect
to personal services rendered by the Member during the Plan Year plus (i)
amounts received by the Member (A) through accident or health insurance or
under an accident or health plan maintained or contributed to by a
Participating Company or a Related Entity and which are includable in the gross
income of
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the Member, (B) through a plan contributed to by a Participating Company or a
Related Entity providing payments in lieu of wages on account of a Member's
permanent and total disability, or (C) as a moving expense allowance paid by a
Participating Company or a Related Entity and which are not deductible by the
Member for federal income tax purposes; (ii) the value of a non-statutory stock
option granted by a Participating Company or a Related Entity to the Member to
the extent included in the Member's gross income for the taxable year in which
it was granted; and (iii) the value of property transferred by a Participating
Company or a Related Entity to the Member which is includable in the Member's
gross income due to an election by the Member under section 83(b) of the Code.
"Compensation" shall not include (i) contributions made by a Participating
Company to a deferred compensation plan to the extent that, before application
of the limitations of section 415 of the Code to that plan, such contributions
are not includable in the Member's gross income for the taxable year in which
contributed, (ii) Participating Company contributions made on behalf of a
Member to a simplified employee pension plan to the extent they are deductible
by the Member under section 219(b) of the Code, (iii) distributions from a
deferred compensation plan (except from an unfunded nonqualified plan when
includable in gross income), (iv) amounts realized from the exercise of a
nonqualified stock option, or when restricted stock (or property) held by a
Member either becomes freely transferable or is no
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longer subject to a substantial risk of forfeiture, (v) amounts realized from
the sale, exchange or other disposition of stock acquired under a qualified or
incentive stock option, and (vi) other amounts which receive special tax
benefits, such as premiums for group term life insurance (to the extent
excludable from gross income) or Participating Company contributions towards
the purchase of an annuity contract described in section 403(b) of the Code.
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6. ADMINISTRATION OF FUNDS
(a) Investment Control. The management and control of
the assets of the Plan shall be vested in the Insurance Company and/or Trustee
under a Group Annuity Policy and/or a Trust Agreement, respectively, in
accordance with the terms thereof, except as provided in subsection (b).
(b) Participant-Directed Investment.
(i) Effective as of December 31, 1992, the Insurance
Company and/or Trustee shall invest contributions paid to it and income thereon
in such investment funds as each Member may select in accordance with this
subsection. Such investments acquired in the manner prescribed by the Plan
shall be held by or for the Trustee.
(ii) A Member shall select one or more of the
investment funds in which the portion of his Accrued Benefit held by the
Trustee shall be invested, and the percentage thereof that shall be invested in
each investment fund selected. A Member may amend such selection, effective as
of such dates determined by the Committee or the Trustee, by giving prior
notice to the Committee or the Trustee. Such amendments will be subject to the
other requirements of this Subsection.
(iii) By prior notice to the Committee or the
Trustee, a Member may transfer, effective as of such dates determined by the
Committee or the Trustee, such portion of the value of his interest in any
investment fund offered by the
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Trustee to another investment fund offered by the Trustee, as may be permitted
by the Committee and the Trustee.
(iv) Any designation or change in designation of
investment fund shall be made in accordance with uniform procedures established
by the Trustee and approved by the Committee.
(v) The amounts contributed by all Members to each
investment fund offered by the Trustee shall be commingled for investment
purposes.
(vi) Notwithstanding anything in this section to the
contrary, the Trustee may hold assets of the Fund and make distributions
therefrom in the form of cash without liability for interest, if for
administrative purposes it becomes necessary or practical to do so.
(c) Funding Policy. The Plan shall be funded through a
Group Annuity Policy and/or a Trust Agreement. Any investment or other
decisions reserved to the Company or the Insurance Company under a Group
Annuity Policy or the Trustee under a Trust Agreement shall be made by the
Committee.
(d) Valuations. The Fund shall be valued at fair market
value as of each Valuation Date in accordance with valuation techniques
applicable to each Group Annuity Policy and/or a Trust Agreement.
(e) Allocation of Gain or Loss. Any increase or decrease
in the market value of the Fund since the preceding
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Valuation Date, as computed pursuant to subsection 6(c), and all income
collected, and expenses paid and realized profits and losses shall be added to
or deducted from the Accrued Benefit of each Member in the ratio that each
Member's Accrued Benefit at the prior Valuation Date bears to the total of all
such Accrued Benefits.
(f) Appointment of Investment Manager. The Company may
in its discretion appoint an Investment Manager to manage and control any
portion of the assets of the Plan.
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7. BENEFICIARIES AND DEATH BENEFITS
(a) Designation of Beneficiary. Each Member shall have
the right to designate one or more beneficiaries and contingent beneficiaries
to receive any benefit to which such Member may be entitled hereunder in the
event of the death of the Member prior to the complete distribution of such
benefit by filing a written designation with the Committee on the form
prescribed by the Committee. Such Member may thereafter designate a different
beneficiary at any time by filing a new written designation with the Committee.
Notwithstanding the foregoing, if a married Member designates a beneficiary
other than his spouse and his spouse does not consent to such designation in
writing in the manner prescribed in subsection 7(b), then the Member's spouse
and the Member's designated beneficiary shall each receive a benefit based on
50% of the Member's Accrued Benefit.
(b) Spousal Consent.
(i) A Member may elect to waive the spouse's
benefit described in subsection (a) and in Article 9, subsection (b)(ii)(C) and
elect to have his entire nonforfeitable interest in his Accrued Benefit paid in
a single sum or installments pursuant to Article 9, subsections (b)(ii)(A) and
(B) to a beneficiary or beneficiaries that may or may not include his spouse.
Any such election shall not be valid if the value of the
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40
nonforfeitable portion of the Member's Accrued Benefit exceeds $3,500 unless:
(A) the Member's spouse (or the spouse's
legal guardian if the spouse is legally incompetent) executes a written
instrument whereby such spouse consents not to receive the spouse's benefit
described in Article 9, subsection (b)(ii)(C), and, if applicable, consents
either to the specific beneficiary or beneficiaries designated by the Member or
to the Member's right to designate any beneficiary or beneficiaries without
further consent by the spouse; provided further that such instrument
acknowledges the effect of the election to which the spouse's consent is being
given and is witnessed by a member of the Committee or a notary public;
(B) the Member (1) establishes to the
satisfaction of the Committee that he has no spouse or his spouse cannot be
located, or (2) furnishes a court order to the Committee establishing that the
Member is legally separated or has been abandoned (within the meaning of local
law), unless a qualified domestic relations order pertaining to such Member
provides that the spouse's consent must be obtained; or
(C) the spouse has previously given
consent in accordance with this subsection and consented to the Member's right
to designate any beneficiary without further consent by the spouse.
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(ii) A spouse's consent given in accordance with
subsection (b)(i) shall be irrevocable by the spouse with respect to the
beneficiary then designated by the Member unless the Member makes a new
beneficiary designation. The consent of a spouse in accordance with subsection
(b)(i) shall not be effective with respect to other spouses of the Member prior
to the Member's benefit commencement date. Notwithstanding the foregoing, to
the extent provided in a qualified domestic relations order (within the meaning
of section 414(p) of the Code) the former spouse of the Member shall be treated
as the spouse of the Member for purposes of this subsection and the current
spouse of the Member shall not be treated as the Member's spouse for such
purposes.
(c) Election Period.
(i) The election under subsection (b)(i) may be
made at any time prior to the earlier of the date of the Member's death or his
benefit commencement date. In the case of a Member who makes such an election
prior to the first day of the Plan Year in which he attains Age 35, such
election shall become invalid as of such date, and in order to waive the
spouse's benefit under subsection (b)(i), the Member must make a second
election in accordance with subsection (b)(i) on or after such date.
(ii) An election to which paragraph (B) of
subsection (b)(i) applies shall become void if the circumstances
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42
causing the consent of the spouse not to be required no longer exist prior to
the Member's benefit commencement date.
(iii) Any written designation shall become
effective only upon its receipt by the Committee.
(iv) If the beneficiary designated pursuant to
subsections (a) and (b) should die on or before distribution of benefits and
the Member fails to make a new designation, then his beneficiary shall be
determined pursuant to subsection 7(e).
(d) Written Notice. With respect to the spouse's benefit
described in subsection (a) and paragraph (C) of subsection 9(b)(ii), the
Committee shall provide to each Member a written explanation of:
(i) the terms and conditions of such spouse's
benefit;
(ii) the Member's and the spouse's rights to waive
such benefit and the effect of such waiver;
(iii) the rights of the Member's spouse with
respect to the Member's waiver of such benefit; and
(iv) the Member's right to revoke a waiver of such
benefit and the effect of such revocation.
The written explanation described in this subsection (d) shall be provided once
during the three-year period that begins on the first day of the Plan Year in
which the Member becomes eligible to participate in the Plan, and once during
the three-year period that begins on the first day of the Plan Year in which
the Member
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attains Age 32 and ends with the close of the Plan Year preceding the Plan Year
in which the Member attains Age 35. In the case of an individual who first
becomes a Member after he has attained Age 35, such written notice shall be
provided no later than one year after the date the individual first becomes a
Member. With regard to a Member who ceases employment before attaining Age 35,
such written notice shall be provided no earlier than one year before, and no
later than one year after, the date the Member ceases employment.
(e) Beneficiary Priority List. If (i) a Member omits or
fails to designate a beneficiary, (ii) no designated beneficiary survives the
Member or (iii) the Committee determines that the Member's beneficiary
designation is invalid for any reason, then the death benefits shall be paid to
the Member's surviving spouse, or if the Member is not survived by his spouse,
then to the Member's estate. If the Member's designated beneficiary dies after
the Member but before distribution of benefits, then the death benefits shall
be paid to the beneficiary's estate.
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8. BENEFITS FOR MEMBERS
The following are the only benefits provided by the Plan:
(a) Retirement Benefit
(i) Valuation. Each Active Member who retires on
or after his Normal Retirement Date shall be entitled to a retirement benefit
equal to 100% of the Member's Accrued Benefit as of the Valuation Date
coincident with or preceding distribution on or after his Normal Retirement
Date, plus any amounts contributed to his Accrued Benefit and minus any amounts
deducted from his Accrued Benefit since such Valuation Date.
(ii) Late Retirement. A Member who continues
employment beyond his Normal Retirement Date shall continue to participate in
the Plan and be an Active Member. His Accrued Benefit shall become
nonforfeitable upon his attaining his Normal Retirement Date.
(b) Death Benefit
(i) Valuation. In the event of the death of an
Active Member before actual retirement, 100% of the Member's Accrued Benefit on
the Valuation Date coincident with or preceding distribution after his death,
plus any amounts contributed to his Accrued Benefit and minus any amounts
deducted from his Accrued Benefit since such Valuation Date, shall be paid,
pursuant to sections 7 and 9, (A) to his designated beneficiary or (B) if no
designation of beneficiary is then in
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effect, to the beneficiary determined pursuant to subsection 7(b).
(ii) Survivor Benefits. In the event of the death
of a retired Member before complete distribution of his Accrued Benefit has
been made to him, 100% of the undistributed balance of his vested Accrued
Benefit, if any, shall constitute his death benefit and shall be distributed,
pursuant to sections 7 and 9, (A) to his designated beneficiary or (B) if no
designation of beneficiary is then in effect, to the beneficiary determined
pursuant to subsection 7(b).
(c) Disability Benefit. In the event an Active Member
suffers a Disability before actual retirement, 100% of the Member's Accrued
Benefit on the Valuation Date coincident with or preceding distribution after
his termination of employment due to Disability, plus any amounts contributed
to his Accrued Benefit and minus any amounts deducted from his Accrued Benefit
since such Valuation Date, shall constitute his Disability benefit.
(d) Termination of Employment Benefit
(i) Valuation. In the event a Member separates
from service with all Participating Companies and all Related Entities other
than by reason of retirement on or after his Normal Retirement Date, Disability
or death, the Member shall be entitled to receive a benefit equal to the
nonforfeitable portion (as determined under the vesting schedule at subsection
8(d)(ii)) of the Member's Accrued Benefit on the Valuation Date coincident
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with or immediately preceding distribution under subsection 9(a), plus any
amounts contributed to his Accrued Benefit and minus any amounts deducted from
his Accrued Benefit since such Valuation Date.
(ii) Vesting Schedule. The nonforfeitable portion
of a Member's Accrued Benefit is determined according to the following chart:
NONFORFEITABLE
YEARS OF SERVICE PERCENTAGE
---------------- --------------
Less than 3 years 0%
3 years or more 100%
(iii) Crediting Service. For purposes of
subsection 8(d), the crediting of Years of Service shall be subject to the
following rules:
(A) The computation period for determining
Years of Service or a Break in Service shall be the Plan Year.
(B) For purposes of subsection 8(d), a
Member shall receive credit for all Years of Service; provided, however, if a
Member has five consecutive Breaks in Service and no nonforfeitable interest,
then Years of Service prior to such Breaks in Service shall not be credited for
any purpose.
(e) Time of Forfeiture. The nonvested portion of the
Accrued Benefit of a Member shall be forfeited on the last day of the Plan Year
in which the Member terminates employment with the Company. Forfeitures (and
any earnings thereon) shall be applied
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to offset future required Participating Company contributions. In the event
the Member again becomes an Employee prior to incurring five Breaks in Service,
the forfeited amount of the Member's Accrued Benefit shall be restored without
earnings.
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9. DISTRIBUTION OF BENEFITS
(a) Commencement. The payment of benefits to a Member
shall commence as soon after the Member's termination of employment as is
administratively feasible, except as provided below.
(i) Consent Requirements. If the Member's
nonforfeitable Accrued Benefit exceeds $3,500, (A) distribution of benefits
shall not commence unless the Member consents to such distribution in writing
and (B) if a Member is married, then distribution shall be subject to
subsection 9(e). If the Member does not consent to distribution, then his
Accrued Benefit shall be retained in the Fund until his Normal Retirement Date,
at which time distribution of benefits shall commence. The Committee shall
provide written notice to each Member who terminates employment prior to his
Normal Retirement Date of the Member's right to defer distribution of benefits
until his attainment of his Normal Retirement Date. Such notice shall be
provided not less than 30 days nor more than 90 days before the date of any
distribution that occurs prior to the earlier of the Member's death or his
Normal Retirement Date, except that such notice may be furnished less than 30
days prior to the date of distribution if (A) the Committee or its designee
informs the Member that the Member has the right for a period of at least 30
days after receiving such notice to consider whether to elect a distribution
and the mode in which he desires such distribution
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to be made, (B) the Member, after receiving such notice, affirmatively elects a
distribution, and (C) the Member elects a mode of distribution that is a single
sum.
(ii) Cashouts. If the Member's nonforfeitable
Accrued Benefit is $3,500 or less, distribution shall be made in one lump sum
as soon after the Member's termination of employment as is administratively
feasible. If the value of a Member's nonforfeitable Accrued Benefit is zero,
the Member shall be deemed to have received a distribution of his entire
nonforfeitable Accrued Benefit upon the Member's termination of employment.
(iii) Deferral Limitation. Notwithstanding
subsection 9(a)(i), in no event shall the payment of benefits commence later
than the sixtieth day after the close of the Plan Year in which the later of
the following occurs:
(A) the Member's Normal Retirement Date;
or
(B) the Member's termination of
employment.
Furthermore, notwithstanding subsection 9(a)(iii)(B) or (C), distribution of a
Member's benefits must commence on or before his required beginning date. A
Member's required beginning date shall be the April 1st of the calendar year
following the calendar year in which the Member attains age 70-1/2; provided,
however, if a Member (1) attained age 70-1/2 before January 1, 1988 and (2)
such Member was not a 5% owner (as defined in section 416 of the Code) at any
time during the five Plan Years
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ending in the calendar year in which he attained age 70-1/2, then commencement
of distribution of benefits may be postponed until the April 1st of the
calendar year following the later of (1) the calendar year in which the Member
attains age 70-1/2 or (2) the calendar year in which the Member retires.
(iv) Death Benefits. The payment of death
benefits under the Plan shall commence at such time as the Member's beneficiary
shall request, subject to the limitations of subsection 9(b)(ii).
(b) Benefit Forms
(i) Retirement and Termination Benefits. Vested,
Disability and retirement benefits not subject to lump sum cashout under
subsection 9(a)(ii) shall be distributed as the Member shall elect, subject to
subsections 9(e) and 9(g), in accordance with uniform rules established by the
Committee, from the alternatives below:
(A) a straight life annuity for the
Member's life;
(B) a joint and survivor annuity with
the Member's spouse as contingent annuitant under which the monthly amount
payable to the Member's spouse is at least 50% but not more than 100% of the
monthly amount payable during the joint lifetime of the Member and his spouse;
(C) any other form of annuity available
under the Group Annuity Policy which is payable over the lifetime
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of the Member or the joint lifetime of the Member and a designated individual;
(D) a lump sum payment; or
(E) any combination of the foregoing.
If the Member elects a joint and survivor annuity under subsection 9(b)(i)(C),
with a contingent annuitant who is not the Member's spouse, the percentage
payable to the Member's contingent annuitant may not exceed the percentage set
forth in Table I of Schedule A. If the Member elects any annuity with a period
certain feature, the amount of the period remaining as of the year in which the
Member attains or will attain age 70 1/2 may not exceed the number of years set
forth in Table II of Schedule A.
(ii) Death Benefits. Death benefits shall be
distributed in one lump sum within five years of the Member's date of death;
provided, however,
(A) if payment of benefits commenced
before the Member's date of death, benefits shall be paid in accordance with
the method of distribution then in effect or in such other form as the
beneficiary elects provided payment is at least as rapid as under the method of
distribution in effect on the Member's date of death;
(B) if any portion of the Member's
Accrued Benefit is payable to or for the benefit of a designated beneficiary
such portion may be distributed over a period of time
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not exceeding the life expectancy of such beneficiary, provided distribution
begins not later than one year after the date of the Member's death or such
later date as applicable regulations under the Code may permit; or
(C) if the designated beneficiary
referred to in subsection 9(b)(ii)(B) is the Member's surviving spouse, (1) the
date on which the distribution is required to begin shall not be earlier than
the date on which the Member would have attained his Normal Retirement Date,
(2) the benefit amount will be used to purchase a straight life annuity for the
spouse's life unless the spouse elects another form of benefit permitted under
the Plan and (3) if the surviving spouses should die before distribution to
such spouse begins, this subsection 9(b)(ii) shall apply as if the surviving
spouse were the Member.
(c) Deferred Payments. If the payment of benefits is to
be deferred, the net value of the benefit determined in accordance with the
provisions of section 8 shall be retained in the Fund subject to the
administrative provisions of the Plan.
(d) Annuities. If benefits are to be paid in a form of
annuity under subsection 9(b)(i)(A), (B), (C) or (E), then the Committee shall
direct that the Member's Accrued Benefit be applied to provide an appropriate
nontransferable annuity contract reflecting the benefit election.
(e) Required Annuity.
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(i) Married Member. If a Member is married on
the date on which benefit payments are to commence and his Accrued Benefit
exceeds $3,500, benefits will be distributed in the form described under
subsection 9(b)(i)(B) unless the Member, with the written consent of his spouse
given in the manner prescribed below, elects an alternate form of settlement.
A Member may elect to receive an alternate form of settlement only if:
(A) his spouse (or the spouse's legal
guardian if the spouse is legally incompetent) executes a written instrument
whereby such spouse consents not to receive the joint and survivor annuity
described in subsection 9(b)(i)(B), consents to the specific optional mode
elected by the Member or to the Member's right to choose any optional mode
without any further consent by the spouse, and such instrument acknowledges the
effect of the election to which the spouse's consent is being given and is
witnessed by a member of the Committee or a notary public; or
(B) the Member (1) establishes to the
satisfaction of the Committee that his spouse cannot be located; or (2)
furnishes a court order to the Committee establishing that the Member is
legally separated or has been abandoned (within the meaning of local law),
unless a qualified domestic relations order pertaining to such Member provides
that the spouse's consent must be obtained; or
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(C) the spouse has previously given
consent in accordance with this subsection and consented to the Member's right
to choose any optional mode and to designate any beneficiary without further
consent by the spouse.
The consent of a spouse in accordance with this subsection (e)(i) shall not be
effective with respect to other spouses of the Member prior to the Member's
benefit commencement date, and an election to which paragraph (B) of this
subsection (e)(i) applies shall become void if the circumstances causing the
consent of the spouse not to be required no longer exist prior to the Member's
benefit commencement date. The consent of the Member and his spouse must be
obtained not more than 90 days before the date distribution commences.
(ii) Written Notice. The Committee or its
designee shall furnish to such Member a written notification of the
availability of the election hereunder not more than 90 days nor less than 30
days before the Member's anticipated benefit commencement date, or if a Member
notifies the Committee or its designee of his intent to terminate employment
less than 90 days before the proposed benefit commencement date, as soon after
the Member notifies the Committee or its designee as is administratively
feasible. The notification shall explain:
(A) the terms and conditions of each
optional mode of payment, including information explaining the relative values
of each mode of benefit, in accordance with
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applicable governmental regulations under section 401(a)(11) of the Code;
(B) the Member's right to elect an
optional mode of payment and the effect of such an election;
(C) the rights of the Member's spouse
with respect to the Member's election of certain optional modes of payment; and
(D) the Member's right to revoke an
election to receive an optional mode of payment and the effect of such
revocation.
(iii) Election Period.
(A) The Member may, within a period of
90 days after receipt of the written notification or such longer period as the
Committee may uniformly make available, complete the election. If a Member
requests additional information within 60 days after receipt of the
notification of election, the minimum election period shall be extended an
additional 60 days following this receipt of such additional information.
(B) The Member may revoke an election
not to take the joint and survivor annuity described in subsection 9(b)(i)(B)
or choose again to take such annuity at any time or any number of times within
the applicable election period. Such revocation shall not void any
prospectively effective consent given by his spouse in connection with the
revoked election.
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(C) If a Member's spouse or other
designated beneficiary dies before the Member's benefit commencement date, but
after an election of a joint and survivor annuity has been made hereunder, the
election shall be automatically revoked. Any annuity contracts purchased as
directed by the Committee to provide a joint and survivor annuity shall so
provide.
(ii) Single Member. If a Member is not married on
the date on which benefits are to commence and his nonforfeitable Accrued
Benefit exceeds $3,500, benefits will be distributed in the form described
under subsection 9(b)(i)(A) unless the Member elects an alternate form of
settlement.
(f) Lump Sum Distributions. Benefits distributed in one
lump sum shall be adjusted under subsection 6(d) on the Valuation Date
coincident with or last preceding distribution.
(g) Compliance with Code Requirements. All forms of
benefit distributions and required benefit commencement dates shall be subject
to and in compliance with section 401(a)(9) of the Code and the regulations
thereunder, including the minimum distribution incidental benefit requirement.
The provisions of section 401(a)(9) of the Code and the regulations thereunder
shall override any provision of the Plan inconsistent therewith.
(h) Withholding. All distributions under the Plan are
subject to federal, state and local tax withholding as required by applicable
law as in effect from time to time.
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(i) Withdrawals of Member Contributions. A Member may
withdraw amounts attributable to Member contributions made under the Plan as in
effect prior to January 1, 1989, as of the last day of any calendar month by
filing a written request with the Plan Administrator at least 30 days before
the proposed withdrawal date. Any withdrawal with respect to assets held under
any Group Annuity Policy or Trust Agreement shall be subject to such
restrictions as may be contained under the terms of the Group Annuity Policy or
Trust Agreement with respect to the withdrawal of funds thereunder.
(j) Transfers to Other Plans.
(i) Effective January 1, 1993, except to the extent
otherwise provided by section 401(a)(31) of the Code and regulations
thereunder, if a Member entitled to receive a distribution from the Plan
pursuant to this section, or a Member's former spouse entitled to receive a
distribution pursuant to a qualified domestic relations order, who has selected
a form of benefit pursuant to this section 9, directs the Committee or its
designee to have the Insurance Company and/or Trustee transfer the amount to be
distributed directly to:
(A) an individual retirement account
described in section 408(a) of the Code,
(B) an individual retirement annuity
described in section 408(b) of the Code (other than an endowment contract),
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(C) a qualified retirement plan described in
section 401(a) of the Code, the terms of which permit the acceptance of
rollover contributions, or
(D) an annuity plan described in section
403(a),
the amount to be distributed shall be so transferred.
(ii) In addition, if a Member's surviving spouse is
entitled to receive a distribution from the Plan under section 7, and such
spouse directs the Committee to have the Insurance Company and/or Trustee
transfer the amount to be distributed directly to:
(A) an individual retirement account
described in section 408(a) of the Code, or
(B) an individual retirement annuity
described in section 408(b) of the Code (other than an endowment contract),
the amount to be distributed shall be so transferred.
(iii) The Member, spouse or former spouse must
specify the name of the plan to which the Member, spouse or former spouse
wishes to have the amount transferred, plus such other information as may be
requested by the Committee, on a form and in a manner prescribed by the
Committee.
(iv) Subsections (i) and (ii) shall not apply to the
following distributions:
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(A) any distribution of Member contributions,
(B) that portion of any distribution after
the Member's required beginning date described in section 9(a)(iii) that is
required to be distributed to the Member by the minimum distribution rules of
section 401(a)(9) of the Code,
(C) any distribution which is one of a
series of substantially equal payments over either a period that exceeds 10
years, or a period equal to the life expectancy of the Member or the joint life
expectancy of the Member and his beneficiary, or
(D) such other distributions as may be
exempted by applicable statute or regulation from the requirements of section
401(a)(31) of the Code.
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10. PARTICIPATION BY RELATED ENTITIES
(a) Commencement. Any entity which is a Related Entity
with respect to the Company may, with the permission of the Board of Directors,
elect to adopt this Plan.
(b) Termination. The Company may, by action of the Board
of Directors, determine at any time that any such Participating Company shall
withdraw and establish a separate plan and fund. The withdrawal shall be
effected by a duly executed instrument delivered to the Insurance Company
and/or Trustee instructing it to segregate the assets of the Fund allocable to
the Employees of such Participating Company and pay them over to the separate
fund.
(c) Single Plan. The Plan shall at all times be
administered and interpreted as a single plan for the benefit of the Employees
of all Participating Companies.
(d) Delegation of Authority. Each Participating Company,
by adopting the Plan, acknowledges that the Company has the right to amend the
Plan, the Group Annuity Policy and the Trust Agreement.
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11. TITLE TO ASSETS
No person or entity shall have any legal or equitable right or
interest in the contributions made by the Participating Companies, or otherwise
received into the Fund, or in any assets of the Fund, except as expressly
provided in the Plan.
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12. AMENDMENT AND TERMINATION
(a) Amendment. The Company reserves the right to amend
the Plan at any time, in any manner, by action of the Committee. No amendment
shall be effective unless the Plan as so amended shall be for the exclusive
benefit of the Members and their beneficiaries, and no amendment shall operate
to deprive any Member of any rights or benefits accrued to him under the Plan
prior to such amendment.
(b) Termination. The Company reserves the absolute right
to terminate the Plan in whole or in part or discontinue contributions, for any
reason, by action of its Board of Directors. Any such termination, partial
termination or discontinuance of contributions shall be effected only upon
condition that such action is taken as shall render it impossible for any part
of the corpus of the Fund or the income therefrom to be used for, or diverted
to, purposes other than the exclusive benefit of the Members and their
beneficiaries.
(c) Conduct on Termination. If the Plan is to be
terminated at any time, the Company shall give written notice to the Trustee
and the Insurance Company, which shall thereupon revalue the assets of the Fund
and, after discharging any obligations of the Plan, determine the Accrued
Benefits of the Members as of the date of termination or partial termination.
Upon termination or partial termination the Accrued Benefits of Members
affected thereby shall become fully vested and shall not
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thereafter be subject to forfeiture in whole or in part. The Committee shall
instruct the Trustee and the Insurance Company to pay over to each affected
Member his Accrued Benefit.
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13. LIMITATION OF RIGHTS
(a) Alienation. None of the payments, benefits or rights
of any Member shall be subject to any claim of any creditor of such Member and,
in particular, to the fullest extent permitted by law, shall be free from
attachment, garnishment, trustee's process, or any other legal or equitable
process available to any creditor of such Member. No Member shall have the
right to alienate, anticipate, commute, pledge, encumber or assign any of the
benefits or payments which he may expect to receive, contingently or otherwise,
under this Plan, except the right to designate a beneficiary or beneficiaries
as hereinabove provided.
(b) Qualified Domestic Relations Order Exception.
Subsection 13(a) shall not apply to the creation, assignment or recognition of
a right to any benefit payable with respect to a Member under a qualified
domestic relations order within the meaning of section 414(p) of the Code.
Notwithstanding sections 8 and 9, distributions to an alternate payee pursuant
to a qualified domestic relations order shall be made as soon as the
Administrator approves the order as administratively feasible provided
distribution is permitted under applicable provisions of the Code and the terms
of the order.
(c) Employment. Neither the establishment of the Plan,
nor any modification thereof, nor the creation of any fund, trust or account,
nor the payment of any benefit shall be
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construed as giving any Member or Employee, or any person whomsoever, any legal
or equitable right against the Company, any Participating Company or the
Committee, unless such right shall be specifically provided for in the Plan or
conferred by affirmative action of the Committee or the Company in accordance
with the terms and provisions of the Plan or as giving any Member or Employee
the right to be retained in the employ of any Participating Company. All
Members and other Employees shall remain subject to discharge to the same
extent as if the Plan had never been adopted.
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14. MERGERS, CONSOLIDATIONS OR TRANSFERS OF PLAN
ASSETS
In the case of any Plan merger or Plan consolidation with, or
transfer of assets or liabilities of the Plan to, any other plan, each Member
in the Plan must be entitled to receive a benefit immediately after the merger,
consolidation, or transfer (if the Plan were then to terminate) which is equal
to or greater than the benefit he would have been entitled to receive
immediately before the merger, consolidation, or transfer (if the Plan had been
terminated).
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15. TOP-HEAVY REQUIREMENTS
(a) General Rule. For any Plan Year in which the Plan is
a top-heavy plan or included in a top-heavy group as determined under this
section, the special requirements of this section shall apply. The Plan shall
be a top-heavy plan (if it is not included in an "aggregation group") or a plan
included in a top-heavy group (if it is included in an "aggregation group")
with respect to any Plan Year if the sum as of the "determination date" of the
"cumulative accounts" of "key employees" for the Plan Year exceeds 60% of a
similar sum determined for all "employees", excluding "employees" who were "key
employees" in prior Plan Years only.
(b) Definitions. For purposes of this section, the
following definitions shall apply to be interpreted in accordance with the
provisions of section 416 of the Code and the regulations thereunder.
(i) "Aggregation Group" shall mean the plans of a
Participating Company or a Related Entity included below:
(A) each such plan in which a "key
employee" is a participant including a terminated plan in which a "key
employee" is a participant within the five years ending on the "determination
date";
(B) each other such plan which enables
any plan in subsection (A) above to meet the requirements of section 401(a)(4)
or 410 of the Code; and
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(C) each other plan not required to be
included in the "aggregation group" which the Company elects to include in the
"aggregation group" in accordance with the "permissive aggregation group" rules
of the Code if such group would meet the requirements of sections 401(a)(4) and
410 of the Code with such plan being taken into account.
(ii) "Cumulative Account" for any "employee" shall
mean the sum of the amount of his accounts under this Plan plus all defined
contribution plans included in the "aggregation group" (if any) as of the most
recent valuation date for each such plan within a twelve-month period ending on
the "determination date", increased by any contributions due after such
valuation date and before the "determination date" plus the present value of
his accrued benefit under all defined benefit pension plans included in the
"aggregation group" (if any) as of the "determination date". For a defined
benefit plan, the present value of the accrued benefit as of any particular
"determination date" shall be the amount determined under (A) the method, if
any, that uniformly applies for accrual purposes under all plans maintained by
a Participating Company, or (B) if there is no such method, as if such benefit
accrued not more rapidly than under the slowest accrual rate permitted under
the fractional accrual rule of section 411(b)(1)(C) of the Code, as of the most
recent valuation date for the defined benefit plan, under actuarial equivalent
factors specified therein, which is
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within a twelve-month period ending on the "determination date". For this
purpose, the valuation date shall be the date for computing plan costs for
purposes of determining the minimum funding requirement under section 412 of
the Code. "Cumulative accounts" of "employees" who have not performed services
for a Participating Company or a Related Entity for the five-year period ending
on the "determination date" shall be disregarded. An "employee's" "cumulative
account" shall be increased by the aggregate distributions during the five-year
period ending on the "determination date" made with respect to him under any
plan in the "aggregation group". Rollovers and direct plan-to-plan transfers
to this Plan or to a plan in the "aggregation group" shall be included in the
"cumulative account" unless the transfer is initiated by the "employee" and
made from a plan maintained by an employer which is not a Participating Company
or a Related Entity.
(iii) "Determination Date" shall mean with respect
to any Plan Year the last day of the preceding Plan Year.
(iv) "Employee" shall mean any person (including a
beneficiary thereof) who has or had an accrued benefit held under this Plan or
a plan in the "aggregation group" including this Plan at any time during the
current or four preceding Plan Years. Any "employee" other than a "key
employee" described in subsection 15(b)(v) shall be considered a "non-key
employee" for purposes of this section 15.
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(v) "Key Employee" shall mean any "employee" or
former "employee" (including a beneficiary thereof) who is, at any time during
the Plan Year, or was, during any one of the four preceding Plan Years any one
or more of the following:
(A) an officer of a Participating
Company or a Related Entity whose compensation (as defined in subsection 5(d))
exceeds 150% of the dollar limitation in effect under section 415(c)(1)(A) of
the Code, unless 50 other such officers (or, if lesser, a number of such
officers equal to the greater of three or 10% of the "employees") have higher
annual compensation;
(B) one of the ten persons employed by a
Participating Company or a Related Entity both having annual compensation (as
defined in subsection 5(d)) greater 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) the largest interests (but at least more
than a 0.5% interest) in a Participating Company or any Related Entity. For
purposes of this subsection (B), if two "employees" have the same interest, the
one with the greater compensation shall be treated as owning the larger
interest;
(C) any person owning (or considered as
owning within the meaning of section 318 of the Code) more than 5% of the
outstanding stock of a Participating Company or a Related Entity or stock
possessing more than 5% of the total combined voting power of such stock;
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(D) a person who would be described in
subsection (C) above if 1% were substituted for 5% each place the same appears
in subsection (C) above, and who has annual compensation of more than $150,000.
For purposes of determining ownership under this subsection, section
318(a)(2)(C) of the Code shall be applied by substituting 5% for 50%.
(c) Maximum Compensation. Compensation, as defined in
subsection 1(j), in excess of $200,000 shall not be taken into account under
the Plan for Plan Years beginning prior to January 1, 1989.
(d) Combined Benefit Limitation. For purposes of the
calculation of the combined limitation of subsection 5(c), "1.0" shall be
substituted for "1.25" each place the same appears in that subsection.
(e) Vesting. The schedule set forth in subsection
8(d)(ii) shall continue to apply to the Accrued Benefits of Members.
(f) Minimum Contribution. Minimum Participating Company
contributions for a Member who is not a "key employee" shall be required in an
amount equal to the lesser of 3% of compensation (as defined in subsection
5(d)) or the highest percentage of such compensation limited to $200,000 (or an
increased amount resulting from a cost of living adjustment under section
415(d) of the Code) contributed for any "key employee".
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For purposes of this subsection, employer social security contributions shall
be disregarded. Each "non-key employee" of the Company who has not separated
from service at the end of the Plan Year and who has satisfied the eligibility
requirements of subsection 3(a) shall receive any minimum contribution provided
under this section 15 without regard to (i) whether he is credited with 1,000
Hours of Service in the Plan Year or (ii) earnings level for the Plan Year.
Furthermore, if an "employee" participates in both this Plan and a defined
benefit plan maintained by a Participating Company or a Related Entity, the
minimum benefit shall be provided under the defined benefit plan. If an
"employee" participates in the Plan and another defined contribution plan
maintained by a Participating Company or a Related Entity, the minimum benefit
shall be provided under this Plan. Furthermore, if an "employee" participates
both in this Plan and a defined benefit plan maintained by a Participating
Company or a Related Entity, the minimum benefit shall be provided under the
defined benefit plan.
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16. MISCELLANEOUS
(a) Incapacity. If the Committee determines that a
person entitled to receive any benefit payment is under a legal disability or
is incapacitated in any way so as to be unable to manage his financial affairs,
the Committee may make payments to such person for his benefit, or apply the
payments for the benefit of such person in such manner as the Committee
considers advisable. Any payment of a benefit in accordance with the
provisions of this subsection shall be a complete discharge of any liability to
make such payment.
(b) Reversions. In no event, except as provided in this
subsection, shall any amount contributed to the Plan by a Participating Company
be returned to it.
(i) Mistake of Fact. In the case of a
contribution made by a good faith mistake of fact, the erroneous portion of the
contribution, without increase for investment earnings, but with decrease for
investment losses, if any, shall be returned to the Participating Company
making such erroneous contribution provided such return is made within one year
after payment of the contribution to the Fund.
(ii) Deductibility. To the extent deduction of
any contribution determined by the Company in good faith to be deductible is
disallowed, the Trustee and the Insurance Company shall return that portion of
the contribution, without increase for investment earnings but with decrease
for investment losses,
68
74
if any, for which deduction has been disallowed within one year after the
disallowance of the deduction. All contributions under the Plan are
specifically conditioned upon their deductibility by the Participating Company
for federal income tax purposes.
(iii) Limitation. No return of contribution shall
be made under this subsection which adversely affects the Plan's qualified
status under regulations, rulings or other published positions of the Internal
Revenue Service or reduces a Member's Accrued Benefit below the amount it would
have been had such contribution not been made.
(c) Employee Data. The Committee may require that each
Employee provide such data as it deems necessary upon his becoming a Member in
the Plan. Each Employee, upon becoming a Member, shall be deemed to have
approved of and to have acquiesced in each and every provision of the Plan for
himself; his personal representatives, distributees, legatees, assigns, and
beneficiaries.
(d) Interpretation. The Plan is a money purchase pension
plan including a qualified, tax exempt trust under sections 401(a) and 501(a)
of the Code. The Plan shall be interpreted in a manner consistent with its
satisfaction of all requirements of the Code applicable to such a plan.
(e) Law Governing. This Plan shall be construed,
administered and applied in a manner consistent with the law of
69
75
the Commonwealth of Pennsylvania except to the extent such law is superseded by
ERISA.
(f) Pronouns. The use of the masculine pronoun shall be
extended to include the feminine gender wherever appropriate.
IN WITNESS WHEREOF, and as evidence of the adoption of this
Plan by the Company, it has caused the same to be signed by its officers
thereunto duly authorized, and its corporate seal to be affixed thereto, this
29th day of December, 1994.
U.S. HEALTHCARE, INC.
/s/ David F. Simon
------------------------------
By: David F. Simon
Title: Senior Vice President
70
76
SCHEDULE A
INCIDENTAL DEATH BENEFIT TABLES
TABLE I
Excess of age of Member
over age of contingent Applicable
annuitant percentage
----------------------- ----------
10 years or less.....................100%
11................................... 96%
12................................... 93%
13................................... 90%
14................................... 87%
15................................... 84%
16................................... 82%
17................................... 79%
18................................... 77%
19................................... 75%
20................................... 73%
21................................... 72%
22................................... 70%
23................................... 68%
24................................... 67%
25................................... 66%
26................................... 64%
27................................... 63%
28................................... 62%
29................................... 61%
30................................... 60%
31................................... 59%
32................................... 59%
33................................... 58%
34................................... 57%
35................................... 56%
36................................... 56%
37................................... 55%
38................................... 55%
39................................... 54%
40................................... 54%
41................................... 53%
42................................... 53%
43................................... 53%
44 and greater....................... 52%
Sch. A-1
77
TABLE II
Age of Member in
calendar year
Member attains
age 70 1/2 Maximum years remaining
--------------------- -----------------------
70...................................26.2
71...................................25.3
72...................................24.4
73...................................23.5
74...................................22.7
75...................................21.8
76...................................20.9
77...................................20.1
78...................................19.2
79...................................18.4
80...................................17.6
81...................................16.8
82...................................16.0
83...................................15.3
84...................................14.5
85...................................13.8
86...................................13.1
87...................................12.4
88...................................11.8
89...................................11.1
90...................................10.5
91................................... 9.9
92................................... 9.4
93................................... 8.8
94................................... 8.3
95................................... 7.8
96................................... 7.3
97................................... 6.9
98................................... 6.5
99................................... 6.1
100................................... 5.7
101................................... 5.3
102................................... 5.0
103................................... 4.7
104................................... 4.4
105................................... 4.1
106................................... 3.8
107................................... 3.6
108................................... 3.4
109................................... 3.2
110................................... 2.8
Sch. A-2
78
111................................... 2.6
112................................... 2.4
113................................... 2.0
114................................... 2.0
115 and older......................... 1.8
Sch. A-3
EX-11
8
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
1
EXHIBIT 11
U.S. HEALTHCARE, INC.
COMPUTATION OF NET INCOME PER COMMON
AND COMMON EQUIVALENT SHARE*
YEARS ENDED DECEMBER 31
------------------------------------------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) 1994 1993 1992
---------------------------------------------------------------- --------- --------- -------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . $391,119 $299,675 $200,046
======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
Shares outstanding at beginning of period . . . . . . . . . . 146,718 145,172 142,575
Effect of purchase of treasury stock . . . . . . . . . . . . (1,725) (167) --
Effect of conversion of Class B stock . . . . . . . . . . . . 520 1,070 6
Effect of exercise of stock options . . . . . . . . . . . . . 233 679 1,706
Effect of restricted stock awarded (canceled), net . . . . . 302 24 (27)
WEIGHTED AVERAGE NUMBER OF COMMON EQUIVALENT SHARES:
Additional equivalent shares issuable from conversion of
Class B stock . . . . . . . . . . . . . . . . . . . . . . 14,537 15,057 16,127
Additional equivalent shares issuable from assumed exercise of
stock options . . . . . . . . . . . . . . . . . . . . . . 1,061 819 2,014
-------- -------- --------
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING - PRIMARY BASIS . . . . . . . . . . . 161,646 162,654 162,401
-------- -------- --------
Incremental additional equivalent shares from
application of the fully diluted computation . . . . . . 58 144 213
-------- -------- --------
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING - FULLY DILUTED BASIS . . . . . . . . 161,704 162,798 162,614
======== ======== ========
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE:
Primary and fully diluted . . . . . . . . . . . . . . . . $2.42 $1.84 $1.23
======== ======== ========
* After giving effect to 3 for 2 stock splits paid on March 29, 1994 and
September 28, 1992.
EX-13
9
THE 1994 ANNUAL REPORT TO SHAREHOLDERS
1
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
U.S. Healthcare, Inc.
We have audited the accompanying consolidated balance sheets of U.S.
Healthcare, Inc. as of December 31, 1994 and 1993, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of U.S.
Healthcare, Inc. at December 31, 1994 and 1993, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for marketable securities as of December 31,
1993.
/s/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
February 3, 1995
19
2
CONSOLIDATED BALANCE SHEETS
December 31
-----------------------------
(amounts in thousands except per share data) 1994 1993
==============================================================================================================
ASSETS
Current assets:
Cash and cash equivalents $ 123,814 $ 96,339
Marketable securities 1,009,244 953,694
Receivables 103,465 98,294
Other 38,453 17,807
-----------------------------
Total current assets 1,274,976 1,166,134
Property and equipment, less accumulated depreciation 127,562 124,231
Marketable securities 33,405 37,592
Other long-term assets 27,944 15,696
-----------------------------
Total assets $1,463,887 $1,343,653
=============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Medical costs payable $ 378,321 $ 418,898
Unearned premiums 32,283 27,524
Accounts payable and accrued liabilities 84,747 44,596
Income taxes payable 46,525 67,242
-----------------------------
Total current liabilities 541,876 558,260
Long-term liabilities 16,338 15,666
-----------------------------
Total liabilities 558,214 573,926
-----------------------------
Shareholders' equity:
Common stock, $.005 par value - 275,000 shares
authorized; 148,307 and 146,951 shares
issued in 1994 and 1993 741 735
Class B stock, $.005 par value - 50,000 shares
authorized; 14,537 and 15,057 shares
issued and outstanding in 1994 and 1993 73 75
Additional paid-in capital 157,275 130,482
Retained earnings 899,072 622,815
Net unrealized gains (losses) on marketable securities,
less applicable income taxes (27,203) 23,301
Common stock held in treasury - at cost; 2,821 and 233 shares
in 1994 and 1993 (105,892) (5,996)
Unearned portion of restricted common stock (18,393) (1,685)
-----------------------------
Shareholders' equity 905,673 769,727
-----------------------------
Total liabilities and shareholders' equity $1,463,887 $1,343,653
=============================
See accompanying notes.
20
3
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31
--------------------------------------------
(amounts in thousands except per share data) 1994 1993 1992
===================================================================================================================================
REVENUE:
Premiums $2,876,512 $2,559,708 $2,116,563
Investment income, including net realized gains and losses 65,214 65,315 60,139
Other, principally administrative services fees 32,770 20,212 12,522
-------------------------------------------
2,974,496 2,645,235 2,189,224
EXPENSES:
Medical costs 1,994,780 1,861,985 1,631,317
Administrative, marketing and other operating costs 322,372 279,586 227,770
-------------------------------------------
2,317,152 2,141,571 1,859,087
-------------------------------------------
Income before income taxes 657,344 503,664 330,137
Provision for income taxes 266,225 203,989 130,091
-------------------------------------------
NET INCOME $ 391,119 $ 299,675 $ 200,046
===========================================
NET INCOME PER COMMON AND COMMON EQUIVALENT
SHARE - PRIMARY AND FULLY DILUTED $2.42 $1.84 $1.23
===========================================
Weighted average number of common and
common equivalent shares outstanding:
Primary 161,646 162,654 162,401
Fully diluted 161,704 162,798 162,614
See accompanying notes.
21
4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common stock Class B stock
-------------------------- ---------------------------
Number Number
(amounts in thousands except per share data) of shares Par value of shares Par value
======================================================================================================================
BALANCE AT DECEMBER 31, 1991 73,686 $368 7,170 $36
Exercise of stock options and related tax benefits 1,223 6 -- --
Earned portion of restricted common stock -- -- -- --
Restricted common stock canceled -- -- -- --
Conversion of Class B stock to common stock 3 -- (3) --
Dividend of U.S. Bioscience common stock -- -- -- --
Retirement of treasury stock (10,331) (51) -- --
Cash dividends paid:
$.2733 per common share -- -- -- --
$.2460 per Class B share -- -- -- --
Net income -- -- -- --
Shares distributed under a 3 for 2 stock split 32,200 161 3,584 18
------------------------------------------------------------
BALANCE AT DECEMBER 31, 1992 96,781 484 10,751 54
Exercise of stock options and related tax benefits 453 2 -- --
Net unrealized gains on marketable securities,
less applicable income taxes -- -- -- --
Restricted common stock awarded 30 -- -- --
Earned portion of restricted common stock -- -- -- --
Restricted common stock canceled (10) -- -- --
Conversion of Class B stock to common stock 713 4 (713) (4)
Purchase of treasury stock -- -- -- --
Cash dividends paid:
$.3867 per common share -- -- -- --
$.3480 per Class B share -- -- -- --
Net income -- -- -- --
Shares distributed under a 3 for 2 stock split 48,984 245 5,019 25
------------------------------------------------------------
BALANCE AT DECEMBER 31, 1993 146,951 735 15,057 75
Exercise of stock options and related tax benefits 402 2 -- --
Net unrealized (losses) on marketable securities,
less applicable income taxes -- -- -- --
Restricted common stock awarded 458 2 -- --
Earned portion of restricted common stock -- -- -- --
Restricted common stock canceled (24) -- -- --
Conversion of Class B stock to common stock 520 2 (520) (2)
Purchase of treasury stock -- -- -- --
Cash dividends paid:
$.7233 per common share -- -- -- --
$.6510 per Class B share -- -- -- --
Net income -- -- -- --
------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 148,307 $741 14,537 $73
============================================================
See accompanying notes.
22
5
Common stock Unearned portion of
Net unrealized held in treasury restricted common stock
Additional gains (losses) -------------------------- --------------------------------
paid-in Retained on marketable Number Number Shareholders'
capital earnings securities of shares Cost of shares Amount equity
====================================================================================================================================
$136,101 $ 303,454 -- (10,319) $ (91,292) (129) $ (1,773) $ 346,894
20,318 -- -- -- -- -- -- 20,324
-- -- -- -- -- 54 413 413
(311) -- -- (12) (84) 12 395 --
-- -- -- -- -- -- -- --
(19,101) -- -- -- -- -- -- (19,101)
(16,322) (75,003) -- 10,331 91,376 -- -- --
-- (39,518) -- -- -- -- -- (39,518)
-- (3,968) -- -- -- -- -- (3,968)
-- 200,046 -- -- -- -- -- 200,046
(179) -- -- -- -- (40) -- --
------------------------------------------------------------------------------------------------------------------------------------
120,506 385,011 -- -- -- (103) (965) 505,090
8,993 -- -- -- -- -- -- 8,995
-- -- $ 23,301 -- -- -- -- 23,301
1,276 -- -- -- -- (30) (1,276) --
-- -- -- -- -- 57 533 533
(23) -- -- -- -- 10 23 --
-- -- -- -- -- -- -- --
-- -- -- (155) (5,996) -- -- (5,996)
-- (56,490) -- -- -- -- -- (56,490)
-- (5,381) -- -- -- -- -- (5,381)
-- 299,675 -- -- -- -- -- 299,675
(270) -- -- (78) -- (33) -- --
------------------------------------------------------------------------------------------------------------------------------------
130,482 622,815 23,301 (233) (5,996) (99) (1,685) 769,727
8,146 -- -- -- -- -- -- 8,148
-- -- (50,504) -- -- -- -- (50,504)
19,300 -- -- -- -- (458) (19,302) --
-- -- -- -- -- 64 1,941 1,941
(653) -- -- -- -- 24 653 --
-- -- -- -- -- -- -- --
-- -- -- (2,588) (99,896) -- -- (99,896)
-- (105,157) -- -- -- -- -- (105,157)
-- (9,705) -- -- -- -- -- (9,705)
-- 391,119 -- -- -- -- -- 391,119
------------------------------------------------------------------------------------------------------------------------------------
$157,275 $ 899,072 $(27,203) (2,821) $(105,892) (469) $(18,393) $ 905,673
====================================================================================================================================
23
6
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31
---------------------------------------------
(amounts in thousands) 1994 1993 1992
====================================================================================================================================
OPERATING ACTIVITIES:
Net income $ 391,119 $ 299,675 $ 200,046
Adjustments to reconcile net income to cash flow
from operating activities:
Depreciation and amortization 27,763 21,786 17,412
Net realized (gains) losses on sales of marketable securities 2,461 (10,769) (13,134)
Other non-cash (credits) charges, net 3,267 (1,885) 246
Changes in operating assets and liabilities:
Receivables (5,171) (15,277) (10,913)
Medical costs payable (40,577) 35,651 47,047
Accounts payable and accrued liabilities 40,151 12,610 3,497
Income taxes payable (2,327) 29,763 24,997
Other, net 692 10,603 (85)
---------------------------------------------
Cash flow from operating activities 417,378 382,157 269,113
---------------------------------------------
INVESTING ACTIVITIES:
Purchase of marketable securities (1,161,082) (1,604,199) (1,854,375)
Purchase of property and equipment, net (27,219) (40,871) (43,050)
Proceeds from maturities or sales of marketable securities 1,024,618 1,299,363 1,770,082
Other (16,122) (7,614) (4,845)
---------------------------------------------
Cash flow from investing activities (179,805) (353,321) (132,188)
---------------------------------------------
FINANCING ACTIVITIES:
Proceeds from exercise of stock options 4,660 3,804 6,638
Purchase of treasury stock (99,896) (5,996) --
Cash dividends paid (114,862) (61,871) (43,486)
Income taxes paid related to dividend of
U.S. Bioscience shares -- -- (19,101)
---------------------------------------------
Cash flow from financing activities (210,098) (64,063) (55,949)
---------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 27,475 (35,227) 80,976
Cash and cash equivalents at beginning of year 96,339 131,566 50,590
---------------------------------------------
Cash and cash equivalents at end of year $ 123,814 $ 96,339 $ 131,566
=============================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid, net of state income tax refunds $ 270,476 $ 176,904 $ 125,691
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Income tax benefits related to exercise of stock options $ 3,488 $ 5,191 $ 13,686
See accompanying notes.
24
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation-- The consolidated financial statements include the
accounts of U.S. Healthcare, Inc. and its subsidiaries (the Company), all of
which are wholly-owned except for one which is not a health maintenance
organization (HMO). All significant intercompany transactions have been
eliminated in consolidation.
Cash and Cash Equivalents-- The Company classifies with cash all highly liquid
instruments which mature within three months from the date of purchase. The
carrying amounts of cash and cash equivalents reported in the accompanying
consolidated balance sheets approximate fair value.
Marketable Securities-- The Company adopted Statement of Financial Accounting
Standards Number 115 (FAS 115) - "Accounting for Certain Investments in Debt
and Equity Securities" as of December 31, 1993. Under FAS 115, the Company
determines the appropriate classification of debt securities at the time of
purchase and reevaluates such classification as of each balance sheet date. As
of December 31, 1994 and 1993, all securities are classified as available for
sale. Such securities are carried at fair value and cumulative net unrealized
gains or losses, less applicable income taxes, are recorded as a separate
component of shareholders' equity. Realized gains and losses and unrealized
losses judged to be other than temporary are included in net income. Fair
values of marketable securities are based on quoted market prices, where
available. If quoted market prices are not available, fair values are based on
market prices of comparable instruments. The cost of securities sold is based
on the specific identification method.
The adoption of FAS 115 had no effect on net income but, as of December 31,
1993, increased marketable securities by $38,204,000, representing net
unrealized gains, and shareholders' equity by $23,301,000 (net unrealized gains
less deferred income taxes of $14,903,000).
Marketable securities restricted in accordance with certain federal and state
requirements relating principally to HMOs are classified as non-current assets.
The Company determined that other marketable securities held as of December 31,
1994 and 1993 were available for use in current operations and, accordingly,
classified such securities as current assets without regard to the securities'
contractual maturity dates.
Property and Equipment-- Property and equipment, stated at cost, are depreciated
on the straight-line method over their estimated useful lives for financial
reporting purposes and under accelerated methods for income tax purposes.
Revenue-- Premium revenue for prepaid health care is recognized as income in the
month in which the enrollees are entitled to health care services.
Administrative services fees are recognized as income as services are rendered.
Medical Costs-- Medical costs consist principally of medical claims and
capitation costs. Medical claims include estimates of payments to be made on
claims reported as of the balance sheet date and estimates of health care
services rendered but not reported to the Company as of the balance sheet date.
Such estimates include the cost of services which will continue to be rendered
after the balance sheet date if the Company is obligated to pay for such
services in accordance with contract provisions or regulatory requirements.
Medical claims payable are estimated periodically and any resulting adjustments
are included in current operations. Capitation costs represent monthly fees to
participating physicians and other medical providers as retainers for providing
continuing medical care.
Income Taxes-- Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. Such
temporary differences include depreciation and amortization, allowance for
doubtful accounts, accrued compensated absences, deferred compensation and net
unrealized gains or losses on marketable securities.
25
8
Retirement Plans-- The Company has a defined contribution pension plan covering
substantially all of its employees, subject to certain age and service
requirements. The Company's contribution for each eligible employee is a
percentage of the employee's compensation, as defined. The Company also has an
employee savings plan (401(k)) available to all its employees, subject to
certain age and service requirements. The Company matches 33 1/3% of the
employee contribution, up to a maximum of 2% of the employee's annual
compensation. The Company funds pension and savings plan costs accrued. In
1993, the Company established a retiree health benefit plan covering
substantially all its employees, subject to certain age and service
requirements, except for certain "key employees," as defined in the plan.
Company contributions, which are at the Company's sole discretion, are paid to
a voluntary employees' beneficiary association (VEBA) trust. Any such
contributions to the VEBA trust are allocated and credited to separate accounts
established for each eligible employee and for each employee's eligible spouse.
Funds accumulated in these separate accounts are used to fund all or a portion
of the premiums for health care benefit coverage for eligible retired employees
and their eligible spouses. When funds in these separate accounts are
exhausted, neither the Company nor the VEBA trust have any obligation to make
any further contributions or payments.
Net Income Per Common and Common Equivalent Share-- Primary and fully diluted
net income per common and common equivalent share are based upon the applicable
weighted average number of common and common equivalent (Class B stock and
stock options) shares outstanding during the year, after giving effect to the
stock splits explained in Note 7.
2. MARKETABLE SECURITIES
The following is a summary of marketable securities as of December 31, 1994 and
1993:
Gross Gross Estimated
Amortized unrealized unrealized fair
(amounts in thousands) cost gains losses value
===============================================================================================================
December 31, 1994
Certificates of deposit $ 5,460 -- -- $ 5,460
U.S. Government obligations 962,493 $ 237 $(40,863) 921,867
Municipal tax-exempt bonds 117,632 505 (4,315) 113,822
Other 1,500 -- -- 1,500
-----------------------------------------------------------
$1,087,085 $ 742 $(45,178) $1,042,649
===========================================================
Classified as current $1,050,932 $ 718 $(42,406) $1,009,244
Classified as non-current 36,153 24 (2,772) 33,405
-----------------------------------------------------------
$1,087,085 $ 742 $(45,178) $1,042,649
===========================================================
December 31, 1993
Certificates of deposit $ 9,420 -- -- $ 9,420
U.S. Government obligations 861,624 $38,576 $ (5,011) 895,189
Municipal tax-exempt bonds 80,538 4,645 (6) 85,177
Other 1,500 -- -- 1,500
-----------------------------------------------------------
$ 953,082 $43,221 $ (5,017) $ 991,286
===========================================================
Classified as current $ 917,680 $40,906 $ (4,892) $ 953,694
Classified as non-current 35,402 2,315 (125) 37,592
-----------------------------------------------------------
$ 953,082 $43,221 $ (5,017) $ 991,286
===========================================================
26
9
The contractual maturities of marketable securities as of December 31, 1994
were as follows:
Estimated
Amortized fair
(amounts in thousands) cost value
=============================================================================================================================
Due in one year or less $ 24,545 $ 24,481
Due after one year through five years 872,315 837,047
Due after five years through ten years 148,730 141,606
Due after ten years 41,495 39,515
---------------------------
$1,087,085 $1,042,649
===========================
During the year ended December 31, 1994 proceeds from sales and maturities of
available for sale securities were $1,024,618,000, resulting in gross realized
gains and losses of $13,890,000 and $16,351,000, respectively.
3. RECEIVABLES
Receivables consist of the following:
December 31
---------------------------
(amounts in thousands) 1994 1993
===============================================================================================================================
Premiums (net of allowance for doubtful accounts of $12,910 in 1994
and $12,141 in 1993) $ 83,711 $78,157
Interest 16,441 16,486
Other 3,313 3,651
------------------------
$103,465 $98,294
========================
For the years ended December 31, 1994, 1993 and 1992, premiums billed to the
federal government, excluding premiums for Medicare beneficiaries, represented
9%, 10% and 11%, respectively, of premium revenue.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
December 31
-------------------------
(amounts in thousands) 1994 1993
=============================================================================================================================
Land $ 5,888 $ 5,835
Buildings 55,297 51,494
Furniture and equipment 101,877 78,993
Aircraft 37,881 37,881
-------------------------
200,943 174,203
Less accumulated depreciation 73,381 49,972
-------------------------
$127,562 $124,231
=========================
Depreciation expense for 1994, 1993 and 1992 was $23,888,000, $18,699,000 and
$14,989,000, respectively.
27
10
5. INCOME TAXES
The provision for income taxes consists of the following:
Years ended December 31
---------------------------------------
(amounts in thousands) 1994 1993 1992
==============================================================================================================================
Current provision:
Federal $211,206 $165,657 $108,107
State 55,404 41,892 23,672
------------------------------------------
266,610 207,549 131,779
Deferred (benefit):
Federal (307) (3,055) (1,070)
State (78) (505) (618)
------------------------------------------
(385) (3,560) (1,688)
------------------------------------------
$266,225 $203,989 $130,091
==========================================
A reconciliation between the federal statutory income tax rates and the
Company's effective income tax rates is as follows:
Years ended December 31
--------------------------------------
(percentage of income before income taxes) 1994 1993 1992
===============================================================================================================================
Federal statutory income tax rates 35.0% 35.0% 34.0%
Income tax rates are affected by:
State income taxes 5.4% 5.3% 4.6%
Other, net 0.1% 0.2% 0.8%
--------------------------------------
Effective income tax rates 40.5% 40.5% 39.4%
======================================
6. COMMITMENTS AND CONTINGENCIES
The Company has employment contracts with certain management personnel expiring
at various dates through 1999. Annual minimum payments under these contracts,
subject to employee compliance with the terms of the agreements, are as
follows:
1995 - $16,232,000
1996 - $ 8,603,000
1997 - $ 7,350,000
1998 - $ 354,000
1999 - $ 275,000
The Company leases certain office space under noncancelable operating leases.
Annual minimum payments under these leases are as follows:
1995 - $4,172,000
1996 - $4,044,000
1997 - $3,639,000
1998 - $2,438,000
1999 - $1,733,000
Thereafter - $2,466,000
Rental costs in 1994, 1993 and 1992 were $3,543,000, $3,848,000 and $2,803,000,
respectively.
The Company is involved in certain claims and legal actions arising in the
ordinary course of business, including legal actions concerning benefit plan
coverage and other determinations by the Company and alleged medical
malpractice by participating providers. In the opinion of management, these
claims and legal actions will not have a material adverse effect on the
Company's consolidated financial position, results of operations or cash flows.
28
11
7. SHAREHOLDERS' EQUITY
On September 11, 1992 and February 22, 1994, the Board of Directors declared 3
for 2 stock splits on common and Class B stock effected in the form of 50%
stock dividends paid on September 28, 1992 and March 29, 1994, respectively.
The effects of the 1994 stock split have been reflected in shareholders' equity
as of December 31, 1993 as if the stock split had occurred as of that date.
Amounts shown as cash dividends paid per common and Class B share for all
periods presented reflect the effects of these stock splits.
On August 10, 1992, the Company distributed to its shareholders, in the form of
a dividend, approximately 6.7 million shares of U.S. Bioscience, Inc. common
stock representing U.S. Healthcare's remaining holdings in this former
affiliate. The distribution had no effect on U.S. Healthcare's net income but
reduced shareholders' equity by $19,101,000, representing applicable income
taxes computed at the rate of 34% of the aggregate fair market value (based on
$8.4375 per share), as of August 10, 1992, of the shares distributed.
Class B stock is convertible into common stock on a share for share basis and
is entitled to receive cash dividends in an amount not to exceed 90% of cash
dividends paid on common stock. Voting rights are one vote per share for common
stock and fifty votes per share for Class B stock.
The Company is authorized to issue 50,000,000 shares of preferred stock with no
par value. No shares were issued as of December 31, 1994 and 1993.
The Company has incentive stock plans that provide for grants of stock options
and restricted stock awards. Recipients of stock options include employees,
members of the Board of Directors and certain physicians who contract with the
Company. Generally, the option price is not less than the market value of the
stock when the options are granted. Options granted under the plans are
generally exercisable commencing one year from the date of grant in increments
ranging from 20% to 33 1/3% a year. Continued affiliation with the Company is a
condition of vesting and exercise. Restricted stock awards of common stock are
granted to selected employees and certain physicians who contract with the
Company, subject to forfeiture if affiliation with the Company terminates or
violations of other terms of the awards occur prior to the end of the
prescribed restriction period. Shares are granted without payment to the
Company. Recipients have all of the rights of shareholders except that the
shares are deposited with the Company and cannot be disposed of until the
restrictions have lapsed. The approximate fair value (as of the award date) of
shares awarded is accrued, and charged to expense ratably as the restrictions
are lifted and the shares released to the recipients.
Information concerning options outstanding for the two most recent years, after
giving effect to the stock splits described above, is as follows:
Number of shares under option
----------------------------------------------- Option price
(amounts in thousands except per share data) Incentive Non-Statutory Total per share
========================================================================================================================
Outstanding at December 31, 1992 1,943 231 2,174 $ 1.48 - 32.43
Granted 990 398 1,388 $ 6.50 - 32.45
Exercised (588) (92) (680) $ 1.48 - 27.83
Canceled (92) (27) (119) $ 1.55 - 28.64
------------------------------------------------
Outstanding at December 31, 1993 2,253 510 2,763 $ 1.55 - 32.45
Granted 386 483 869 $37.09 - 46.09
Exercised (383) (26) (409) $ 1.55 - 29.73
Canceled (81) (39) (120) $13.67 - 37.98
------------------------------------------------
Outstanding at December 31, 1994 2,175 928 3,103 $ 1.55 - 46.09
================================================
Exercisable at December 31, 1994 679 124 803
================================================
At December 31, 1994 and 1993, 28,018,000 and 28,443,000 shares, respectively,
of common stock were reserved for issuance under the plans discussed, after
giving effect to the stock splits described above.
29
12
8. CONTRACTUAL ARRANGEMENTS WITH MEDICAL CARE PROVIDERS
The Company generally compensates primary care physicians through prospective
compensation arrangements which incorporate quality assessment standards and
the cost of care as factors used to adjust monthly capitation payments to
individual physician offices and to determine the amount of additional periodic
payments. In addition, the Company has prospective compensation arrangements
for mental health care, diagnostic laboratory services, radiology and
diagnostic imaging services, podiatric treatment and prescription drug
dispensing. The Company also has contracts that provide for all-inclusive per
diem and per case hospitalization rates and fixed rates for ambulatory surgery,
emergency room services and specialist services. The Company has also entered
into quality based compensation arrangements with certain hospitals for
inpatient care, as well as agreements with certain integrated health delivery
systems under which the systems are compensated on a prospective basis for
medical services, including primary, specialist and hospital care. The
arrangements described above cover the majority of medical services.
9. PENSION AND RETIREE HEALTH BENEFITS PLAN COSTS
Pension costs in 1994, 1993, and 1992 were $8,772,000, $7,161,000 and
$7,016,000, respectively. Retiree health benefit plan costs in 1994 and 1993
were $3,800,000 and $5,500,000, respectively.
10. ADVERTISING COSTS
Advertising costs in 1994, 1993, and 1992 were $37,129,000, $28,435,000 and
$19,056,000, respectively.
30
13
PRICE RANGE OF COMMON STOCK
The common stock of the Company is traded on The Nasdaq Stock Market under the
symbol USHC. The following table sets forth for the indicated periods the high
and low prices of the common stock as reported by Nasdaq. All quotations
reflect the effects of the stock splits explained in Note 7 of Notes to
Consolidated Financial Statements and have been rounded to the nearest
one-eighth.
1994 1993
-------------------- --------------------
High Low High Low
======================================================================================================================
First Quarter 45 1/2 36 5/8 38 5/8 26 3/8
Second Quarter 47 1/2 35 34 5/8 25 3/8
Third Quarter 47 1/4 33 3/4 34 5/8 27 1/2
Fourth Quarter 49 38 39 5/8 28 1/2
On February 10, 1995, there were 3,069 and 23 shareholders of record of common
and Class B stock, respectively. The Class B stock cannot be traded but is
convertible into common stock on a share for share basis.
DIVIDENDS
The Company began paying regular quarterly cash dividends during the second
quarter of 1985. The table below sets forth the cash dividends per share paid
during 1994 and 1993, after giving effect to the stock splits explained in Note
7 of Notes to Consolidated Financial Statements.
1994 1993
--------------------------------- ----------------------------------
Common stock Class B stock Common stock Class B stock
------------------ -------------- ---------------- -----------------
First Quarter $.1333 $.1200 $.0866 $.0780
Second Quarter .1700 .1530 .0867 .0780
Third Quarter .2100 .1890 .1067 .0960
Fourth Quarter .2100 .1890 .1067 .0960
------------------ -------------- ---------------- -----------------
Total for year $.7233 $.6510 $.3867 $.3480
================== ============== ================ =================
Future dividends will be declared and paid at the discretion of the Company's
Board of Directors and will depend upon, among other things, future earnings,
capital requirements and the general financial condition of the Company. Cash
dividends on the Class B stock may be paid only when dividends on the common
stock are declared and paid. Cash dividends on a share of Class B stock cannot
exceed 90% of the cash dividends on a share of common stock.
31
14
SELECTED FINANCIAL DATA
This data should be read in conjunction with the accompanying financial
statements and related notes thereto and Management's Discussion and Analysis
of Financial Condition and Results of Operations included elsewhere in this
report.
Years ended December 31
-----------------------------------------------------------------------
(amounts in thousands except per share data) 1994 1993 1992 1991 1990
============================================================================================================================
INCOME STATEMENT DATA:
REVENUE:
Premiums $2,876,512 $2,559,708 $2,116,563 $1,659,667 $1,287,205
Investment income, including net
realized gains and losses 65,214 65,315 60,139 44,101 33,164
Other, principally administrative
services fees 32,770 20,212 12,522 4,733 9,669
------------------------------------------------------------------------
2,974,496 2,645,235 2,189,224 1,708,501 1,330,038
EXPENSES:
Medical costs 1,994,780 1,861,985 1,631,317 1,279,960 1,062,669
Administrative, marketing and other
operating costs 322,372 279,586 227,770 182,723 146,524
------------------------------------------------------------------------
2,317,152 2,141,571 1,859,087 1,462,683 1,209,193
------------------------------------------------------------------------
Income from operations 657,344 503,664 330,137 245,818 120,845
Other income -- -- -- 1,485 3,219
------------------------------------------------------------------------
Income before income taxes 657,344 503,664 330,137 247,303 124,064
Provision for income taxes 266,225 203,989 130,091 96,203 46,544
------------------------------------------------------------------------
NET INCOME $ 391,119 $ 299,675 $ 200,046 $ 151,100 $ 77,520
========================================================================
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE:(a)
PRIMARY $2.42 $1.84 $1.23 $.93 $.48
FULLY DILUTED $2.42 $1.84 $1.23 $.92 $.48
Weighted average number of common and
common equivalent shares outstanding:(a)
Primary 161,646 162,654 162,401 162,968 161,072
Fully diluted 161,704 162,798 162,614 163,397 162,473
Cash dividends paid per common share(a) $.7233 $.3867 $.2733 $.1600 $.1022
Cash dividends paid per Class B share(a) $.6510 $.3480 $.2460 $.1440 $.0920
Medical costs as a percentage of premiums 69.3% 72.7% 77.1% 77.1% 82.6%
BALANCE SHEET DATA:
Total assets(b) $1,463,887 $1,343,653 $ 981,094 $ 758,218 $ 613,466
Total liabilities(b) 558,214 573,926 476,004 411,324 379,929
Shareholders' equity(b) 905,673 769,727 505,090 346,894 233,537
(a) After giving effect to the stock splits explained in Note 7 of Notes to
Consolidated Financial Statements.
(b) After giving effect to a change in the method of accounting for marketable
securities as of December 31, 1993 explained in Note 1 of Notes to
Consolidated Financial Statements.
32
15
SUPPLEMENTARY FINANCIAL INFORMATION
The following table contains certain selected quarterly unaudited financial
data for 1994 and 1993.
First Second Third Fourth
(amounts in thousands except per share data) Quarter Quarter Quarter Quarter Total
==================================================================================================================================
1994
Revenue $715,946 $726,852 $754,820 $776,878 $2,974,496
Income before income taxes 150,149 156,754 170,346 180,095 657,344
Net income 89,339 93,268 101,361 107,151 391,119
Net income per common and common
equivalent share - primary and
fully diluted* $.55 $.58 $.63 $.67 $2.42
1993
Revenue $640,706 $650,221 $674,194 $680,114 $2,645,235
Income before income taxes 104,166 111,051 135,132 153,315 503,664
Net income 63,021 67,183 78,254 91,217 299,675
Net income per common and common
equivalent share - primary and
fully diluted* $.39 $.41 $.48 $.56 $1.84
* After giving effect to the stock splits explained in Note 7 of Notes to
Consolidated Financial Statements.
33
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
Substantially all of the Company's revenues are generated from premiums
received for health care coverage provided to its members. These premiums
represent approximately 97% of the Company's total revenues for each of the
years ended December 31, 1994, 1993 and 1992. The Company's operating expenses
are primarily medical costs consisting principally of medical claims and
capitation costs.
The Company's results of operations depend in large part on accurately
predicting and effectively managing medical costs and other operating expenses.
A number of factors, including competition, changes in health care practices,
changes in federal or state laws and regulations, inflation, provider contract
changes, new technologies, government imposed surcharges, taxes or assessments,
reductions in provider payments by governmental payors (such reductions may
cause providers to seek higher payments from private payors), major epidemics,
disasters and numerous other factors affecting the delivery and cost of health
care, may in the future affect the Company's ability to control its medical
costs and other operating expenses. Governmental action (including downward
adjustments to premium rates requested by the Company, which adjusted rates
could be lower than premium rates then in effect) or business conditions
(including competition and the other factors described above) could result in
premium revenues not increasing to offset increases in medical costs and other
operating expenses. Once set, premiums are generally fixed for one year periods
and, accordingly, unanticipated costs during such periods cannot be recovered
through higher premiums.
Proposals have been made at the federal and state government levels related to
the health care system. The Company is unable to predict or evaluate the
content of any legislation that may be enacted, when any such legislation will
be implemented, or the effect of such legislation on the Company's business.
OPERATIONS
1994 Compared to 1993
Premiums and other revenue (principally administrative services fees) increased
$329,362,000 or 13%. Principal factors for the increase are a 12% growth in
U.S. Healthcare-insured health plan membership (175,000 additional members) and
higher premium rates. The average premium for U.S. Healthcare-insured
non-Medicare plans, which at December 31, 1994 had about 1,658,000 members,
increased 1% to approximately $139 per member per month. The average premium
for the Medicare plans, which at December 31, 1994 had about 38,000 members,
decreased 2% to approximately $457 per member per month. At December 31, 1994,
the Company also had about 271,000 members in employer-funded health plans.
The following tables show total premiums earned in 1994 and the increase in
premiums compared to 1993 by plan type and region.*
1994
(amounts in thousands) Premiums Increase
==============================================================================================
PREMIUMS BY PLAN TYPE:
Commercial plans $2,635,621 $233,190
Medicare plans 178,405 43,581
Medicaid and other plans 62,486 40,033
------------------------
$2,876,512 $316,804
========================
PREMIUMS BY REGION:
Mid-Atlantic $1,662,935 $128,637
Northeastern 1,157,426 168,516
Southern 56,151 19,651
------------------------
$2,876,512 $316,804
========================
* The Company's HMOs are grouped into three regions: the Mid-Atlantic region,
consisting of Pennsylvania and Southern New Jersey; the Northeastern
region, consisting of Central and Northern New Jersey, New York, Connecticut,
Massachusetts and New Hampshire; and the Southern region, consisting of
Delaware, Maryland, the District of Columbia and Georgia.
34
17
Investment income was virtually unchanged from 1993, because realized net
losses on sales of marketable securities and a decrease in the yield on
investments combined to offset earnings from higher investment portfolio
balances.
Medical costs increased $132,795,000 or 7% over 1993, primarily due to a 12%
growth in U.S. Healthcare-insured membership, partly offset by lower costs per
member.
Administrative, marketing and other operating costs increased $42,786,000 or
15% over 1993. Personnel costs contributed the largest increase as a result of
higher salaries, an increase in the number of employees necessitated, in part,
by higher business volume and changes in product mix, and increased marketing
capability.
1993 Compared to 1992
Premiums and other revenue (principally administrative services fees) increased
$450,835,000 or 21%. Principal factors for the increase are an 8% growth in
U.S. Healthcare-insured health plan membership (116,000 additional members) and
higher premium rates. The average premium for U.S. Healthcare-insured
non-Medicare plans, which at December 31, 1993 had about 1,496,000 members,
increased 10% to approximately $137 per member per month. The average premium
for the Medicare plans, which at December 31, 1993 had about 25,000 members,
increased 12% to approximately $467 per member per month. At December 31, 1993,
the Company also had about 153,000 members in employer-funded health plans.
The following tables show total premiums earned in 1993 and the increase in
premiums compared to 1992 by plan type and region.
1993
(amounts in thousands) Premiums Increase
==============================================================================================
PREMIUMS BY PLAN TYPE:
Commercial plans $2,402,431 $391,468
Medicare plans 134,824 31,020
Medicaid and other plans 22,453 20,657
------------------------
$2,559,708 $443,145
========================
PREMIUMS BY REGION:
Mid-Atlantic $1,534,298 $170,680
Northeastern 988,910 259,728
Southern 36,500 12,737
------------------------
$2,559,708 $443,145
========================
Investment income increased $5,176,000 or 9% over 1992, primarily due to higher
investment portfolio balances, partly offset by decreases in yields on
investments and net realized gains on sales of marketable securities.
Medical costs increased $230,668,000 or 14% over 1992, principally due to an 8%
growth in U.S. Healthcare-insured health plan membership and higher costs per
member.
Administrative, marketing and other operating costs increased $51,816,000 or
23% over 1992. Personnel costs contributed the largest increase as a result of
higher salaries and an increase in the number of employees necessitated, in
part, by higher business volume and changes in product mix.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements have been met from cash flows generated by
operating activities. In 1994, net cash flows from such activities were
$417,378,000. The Company believes that its existing financial resources are
sufficient to meet its liquidity needs.
The Company is subject to federal and state regulations which require the
Company's subsidiaries to maintain certain levels of tangible net assets, as
defined, for use in their own operations. Some states also require prior
approval before funds are transferred to affiliates.
35
EX-21
10
SUBSIDIARIES OF THE REGISTRANT
1
EXHIBIT 21
U.S. HEALTHCARE, INC.
SUBSIDIARIES
STATE OF
INCORPORATION
-------------
United States Health Care Systems of Pennsylvania, Inc.,
d/b/a The Health Maintenance Organization of Pennsylvania and also U.S. Healthcare . Pennsylvania
Health Maintenance Organization of New Jersey, Inc. also d/b/a U.S. Healthcare . . . . New Jersey
U.S. Healthcare, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . New York
U.S. Healthcare, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
U.S. Healthcare, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Connecticut
U.S. Healthcare, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Massachusetts
U.S. Healthcare, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Maryland
U.S. Healthcare, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Virginia
U.S. Healthcare of New Hampshire, Inc. . . . . . . . . . . . . . . . . . . . . . . . . New Hampshire
U.S. Healthcare of Georgia, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . Georgia
Advent HMO Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . North Dakota
U.S. Healthcare Dental Plan, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . Pennsylvania
U.S. Healthcare Dental Plan, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . New Jersey
U.S. Healthcare Dental Plan, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
U.S. Health Insurance Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . New York
U.S. Health Insurance Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Connecticut
Corporate Health Insurance Company . . . . . . . . . . . . . . . . . . . . . . . . . . Minnesota
United States Home Health Care Systems, Inc. . . . . . . . . . . . . . . . . . . . . . Pennsylvania
United States Physicians Care Systems, Inc. . . . . . . . . . . . . . . . . . . . . . . Pennsylvania
U.S. Healthcare Properties, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . Pennsylvania
U.S. Healthcare Financial Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . Delaware
Primary Investments, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Primary Holdings, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
U.S. Health Aviation Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pennsylvania
Advent Financial Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
U.S. Healthcare Advantage, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Advent Investments, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Independent Investments, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Corporate Health Administrators, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . Pennsylvania
Managed Care Coordinators, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
U.S. Mental Health Systems, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . Pennsylvania
U.S. Quality Algorithms, Inc. d/b/a USQA . . . . . . . . . . . . . . . . . . . . . . . Pennsylvania
Workers Comp Advantage, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pennsylvania
Healthcare Data Interchange Corporation . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Orion Computer Systems, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pennsylvania
Criterion Communications, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
USHC Management Services Corporation . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
EX-23
11
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
1
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of U.S. Healthcare, Inc. of our report dated February 3, 1995, included in the
1994 Annual Report to Shareholders of U.S. Healthcare, Inc.
We consent to the incorporation by reference in the Registration
Statements of U.S. Healthcare, Inc. pertaining to the 1982 Incentive Stock
Option Plan and the Second Incentive Stock Option Plan (Form S-8 No. 2-91754);
the U.S. Healthcare, Inc. Savings Plan (Form S-8 No. 33-36049); the Second
Incentive Stock Option Plan, the Third Incentive Stock Option Plan and the 1987
Non-Statutory Option Plan (Form S-8 No. 33-26157); the U.S. Healthcare, Inc.
Incentive Plan (Form S-8 No. 33-80632); and the registration of shares of U.S.
Healthcare, Inc. common stock under various non-statutory stock option grants
and for the registration of 187,073 shares (as adjusted to reflect subsequent
stock splits) of U.S. Healthcare, Inc. common stock (Form S-3 No. 33-14653) of
our report dated February 3, 1995, with respect to the consolidated financial
statements incorporated by reference in the Annual Report (Form 10-K) for the
year ended December 31, 1994.
/s/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
March 24, 1995
EX-27
12
FINANCIAL DATA SCHEDULE
5
1,000
YEAR
DEC-31-1994
DEC-31-1994
123,814
1,009,244
96,621
12,910
0
1,274,976
200,943
73,381
1,463,887
541,876
0
741
0
0
904,932
1,463,887
0
2,974,496
0
2,317,152
0
0
0
657,344
266,225
391,119
0
0
0
391,119
2.42
2.42