MICROSOFT CORPORATION
SAVINGS PLUS 401(k) PLAN
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ARTICLE I DEFINITIONS.................................................................................................. 2
1.1 BENEFICIARY.................................................................................................... 2
1.2 CODE........................................................................................................... 2
1.3 COMPENSATION................................................................................................... 2
1.4 EMPLOYEE....................................................................................................... 2
1.5 ELIGIBLE EMPLOYEE.............................................................................................. 2
1.6 EMPLOYER....................................................................................................... 5
1.7 ERISA.......................................................................................................... 6
1.8 PARTICIPANT.................................................................................................... 6
1.9 PLAN........................................................................................................... 6
1.10 PLAN ADMINISTRATOR............................................................................................. 6
1.11 PLAN YEAR...................................................................................................... 6
1.12 TRUST FUND..................................................................................................... 6
1.13 TRUSTEE........................................................................................................ 6
ARTICLE II ELIGIBILITY TO PARTICIPATE IN PLAN.......................................................................... 7
2.1 ELIGIBILITY AND ENTRY DATE..................................................................................... 7
2.2 REEMPLOYMENT................................................................................................... 7
2.3 ELECTION AGAINST PARTICIPATION................................................................................. 7
2.4 ENTRY DATES.................................................................................................... 7
ARTICLE III EMPLOYEE CONTRIBUTIONS..................................................................................... 8
3.1 ELECTION TO DEFER.............................................................................................. 8
3.2 DEFERRAL ELECTION DATES........................................................................................ 8
3.3 TERMINATING AN ELECTION TO DEFER............................................................................... 9
3.4 DISTRIBUTION OF EXCESS DEFERRALS............................................................................... 9
ARTICLE IV EMPLOYER MATCHING CONTRIBUTIONS AND FORFEITURES............................................................. 11
4.1 EMPLOYER MATCHING CONTRIBUTIONS................................................................................ 11
4.2 ALLOCATION OF FORFEITURES...................................................................................... 12
ARTICLE V VESTING - YEARS OF SERVICE................................................................................... 14
5.1 EMPLOYEE CONTRIBUTIONS......................................................................................... 14
5.2 EMPLOYER CONTRIBUTIONS......................................................................................... 14
5.3 YEARS OF SERVICE............................................................................................... 15
5.4 HOUR OF SERVICE................................................................................................ 16
5.5 PERIOD OF SEVERANCE............................................................................................ 16
5.6 FORFEITURES.................................................................................................... 16
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ARTICLE VI PARTICIPANTS' ACCOUNTS AND INVESTMENTS...................................................................... 18
6.1 INDIVIDUAL ACCOUNTS............................................................................................. 18
6.2 INVESTMENT FUNDS................................................................................................ 18
6.3 CHANGING ACCOUNT INVESTMENTS.................................................................................... 19
6.4 PROCEDURES...................................................................................................... 19
6.5 VALUATION OF ACCOUNTS........................................................................................... 19
ARTICLE VII PAYMENT OF ACCOUNT BALANCES UPON TERMINATION, DEATH, DISABILITY, QUALIFIED DOMESTIC RELATIONS ORDERS,
DIRECT ROLLOVERS, SALE OF TRADE OR BUSINESS................................................................ 21
7.1 TERMINATION OF EMPLOYMENT....................................................................................... 21
7.2 PAYMENT AT 59-1/2............................................................................................... 21
7.3 PAYMENT OF ACCOUNT BALANCES UPON DEATH.......................................................................... 22
7.4 PAYMENT OF ACCOUNT BALANCES UPON DISABILITY..................................................................... 23
7.5 EARLY RETIREMENT................................................................................................ 23
7.6 DISTRIBUTIONS UNDER QUALIFIED DOMESTIC RELATIONS ORDERS......................................................... 23
7.7 SALE OF TRADE OR BUSINESS....................................................................................... 25
7.8 NOTICE OF RIGHT TO DEFER PAYMENT................................................................................ 26
7.9 DIRECT ROLLOVER DISTRIBUTIONS................................................................................... 27
ARTICLE VIII HARDSHIP WITHDRAWALS...................................................................................... 29
ARTICLE IX LIMITATIONS ON EMPLOYEE AND EMPLOYER CONTRIBUTIONS.......................................................... 32
9.1 LIMITATIONS ON TOTAL CONTRIBUTIONS TO ACCOUNTS.................................................................. 32
9.2 AVERAGE ACTUAL DEFERRAL PERCENTAGE TESTS........................................................................ 32
9.3 ELECTIVE DEFERRALS OR QUALIFIED EMPLOYER DEFERRAL CONTRIBUTIONS UNDER TWO OR MORE PLANS OR ARRANGEMENTS......... 33
9.4 ELECTIVE DEFERRALS, QUALIFIED EMPLOYER DEFERRAL CONTRIBUTIONS, AND COMPENSATION OF FAMILY MEMBERS............... 33
9.5 ACTIONS AVAILABLE WHEN TESTS UNSATISFIED........................................................................ 34
9.6 DISTRIBUTION OF EXCESS CONTRIBUTIONS............................................................................ 34
9.7 AVERAGE CONTRIBUTIONS PERCENTAGE TESTS.......................................................................... 35
9.8 DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS.................................................................. 36
9.9 DEFINITIONS APPLICABLE TO DISCRIMINATION TESTS.................................................................. 36
ARTICLE X ROLLOVER CONTRIBUTIONS....................................................................................... 40
10.1 PERMITTED ROLLOVERS............................................................................................. 40
10.2 VESTING AND ACCOUNTING.......................................................................................... 40
10.3 DISTRIBUTION UPON TERMINATION................................................................................... 40
ARTICLE XI ADMINISTRATION.............................................................................................. 41
11.1 NAMED FIDUCIARY................................................................................................. 41
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11.2 PLAN ADMINISTRATOR.............................................................................................. 41
11.3 FACILITY OF PAYMENTS............................................................................................ 42
11.4 APPOINTMENT OF INVESTMENT MANAGER............................................................................... 42
11.5 INVESTMENT MANAGER AND TRUSTEE.................................................................................. 43
11.6 DELEGATION OF AUTHORITY AND DUTIES BY PLAN ADMINISTRATOR........................................................ 43
ARTICLE XII CLAIMS PROCEDURE........................................................................................... 45
12.1 DENIAL OF CLAIMS................................................................................................ 45
12.2 ARBITRATION..................................................................................................... 45
ARTICLE XIII NONALIENATION PROVISION................................................................................... 46
ARTICLE XIV TERMINATION................................................................................................ 47
14.1 PLAN TERMINATION................................................................................................ 47
14.2 NO REVERSION TO EMPLOYER -- ACCRUED RIGHTS NONFORFEITABLE....................................................... 47
14.3 DISTRIBUTION UPON TERMINATION OR DISCONTINUANCE OF CONTRIBUTIONS................................................ 47
ARTICLE XV MERGER OR CONSOLIDATION..................................................................................... 48
ARTICLE XVI AMENDMENTS................................................................................................. 49
ARTICLE XVII RIGHTS RESERVED........................................................................................... 50
ARTICLE XVIII TOP-HEAVY PROVISIONS..................................................................................... 51
ARTICLE XIX LOANS...................................................................................................... 52
ARTICLE XX ANNUITY DISTRIBUTIONS TO PARTICIPANTS AND BENEFICIARIES..................................................... 53
20.1 APPLICABILITY................................................................................................... 53
20.2 DEFINITIONS..................................................................................................... 53
20.3 DISTRIBUTION IN THE FORM OF A JOINT AND SURVIVOR ANNUITY........................................................ 54
20.4 DISTRIBUTION IN THE FORM OF A PRERETIREMENT SURVIVOR ANNUITY.................................................... 55
20.5 WAIVER ELECTION - QUALIFIED JOINT AND SURVIVOR ANNUITY.......................................................... 55
20.6 WAIVER ELECTION - PRERETIREMENT SURVIVOR ANNUITY................................................................ 56
20.7 NOTICE REQUIREMENTS............................................................................................. 56
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20.8 DISTRIBUTION OF ACCOUNTS OF LESS THAN $5,000.................................................................... 57
20.9 PROVISION OF ANNUITIES.......................................................................................... 57
ARTICLE XXI VOLUNTARY AFTER-TAX CONTRIBUTIONS.......................................................................... 58
21.1 ELECTION TO MAKE VOLUNTARY AFTER-TAX CONTRIBUTIONS.............................................................. 58
21.2 VESTING OF VOLUNTARY AFTER-TAX CONTRIBUTIONS.................................................................... 58
21.3 ESTABLISHMENT OF VOLUNTARY AFTER-TAX CONTRIBUTIONS ACCOUNTS..................................................... 58
21.4 LIMITATIONS ON VOLUNTARY AFTER-TAX CONTRIBUTIONS................................................................ 58
21.5 DEFINITION OF COMPENSATION...................................................................................... 59
21.6 PLAN TERMS APPLICABLE TO VOLUNTARY AFTER-TAX CONTRIBUTIONS...................................................... 59
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MICROSOFT CORPORATION
SAVINGS PLUS 401(k) PLAN
MICROSOFT CORPORATION has adopted the Microsoft Corporation Savings Plus
401(k) Plan effective January 1, 1987, for the exclusive benefit of its
employees. The Microsoft Corporation Savings Plus 401(k) Plan is restated by
this document to incorporate prior amendments since the last restatement,
effective March 25, 1999.
[Note: As explained in the preceding sentence, the last restatement of the
Plan was as of March 25, 1999. This document is an updated restatement, and
incorporates the amendments to the Plan that were adopted by Microsoft
Corporation between March 25, 1999 and July 1, 2000.]
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ARTICLE I
DEFINITIONS
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The following words shall have the following meanings unless the context
clearly indicates otherwise.
1.1 BENEFICIARY means a person designated by a participant, or by this
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Plan if there is no effective designation, to receive benefits payable under
this Plan in the event of the participant's death.
1.2 CODE means the Internal Revenue Code of 1986, as amended.
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1.3 COMPENSATION is defined and limited as set forth in Appendix I,
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attached hereto and incorporated herein.
1.4 EMPLOYEE means any common law employee of the employer who receives
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remuneration for personal services rendered to the employer, and any "leased
employee" as defined in Code (S) 414(n)(2). For purposes of this Section 1.4, a
"`leased employee' as defined in Code (S) 414(n)(2)" means any person who is not
an employee of the employer (as defined in Plan Section 1.6, "recipient") and
who provides services to such recipient if (i) such services are provided
pursuant to an agreement between the recipient and any other person ("leasing
organization"), (ii) such person has performed such services for the recipient
(or for the recipient and related persons) on a substantially full-time basis
for a period of at least 1 year, and (iii) such services are performed under
primary direction or control by the recipient. The definition in the preceding
sentence shall be interpreted by applying the definition of "leased employee"
under Code (S) 414(n)(2) and any Treasury Regulations thereunder.
1.5 ELIGIBLE EMPLOYEE means a regular employee of the employer who
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satisfies the eligibility requirements of section 2.1. For purposes of this
Plan, a "regular employee" of the
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employer is an employee who is in an approved headcount "regular" employment
position with the employer and on the employer's U.S. payroll. An approved
headcount "regular" employment position is one that is (1) authorized in writing
during the annual or out-of-cycle budgeting process as a "regular" employment
position and approved by an officer of Microsoft (or by a Regional Director for
positions in subsidiaries of Microsoft) and (2) reflected on the official human
resources database of Microsoft or one of its subsidiaries as a "regular"
employment position (e.g., "hourly regular" or "salaried regular"). For example,
a worker who is reflected on the human resources database as "contingent" or an
"agency temp" is not in an approved headcount "regular" employment position even
though the contingent or agency temp position was authorized as part of
Microsoft's budgeting process. An employee is on an employer's U.S. payroll if
the employee is paid from a payroll department of the employer where such
payroll department is located within the United States of America, and the
employer withholds U.S. employment taxes (e.g., income tax, FICA) from the
employee's pay. Under no circumstances are the payroll departments of the
employer's foreign branches and subsidiaries treated as U.S. payroll departments
of the employer for purposes of this Plan.
Notwithstanding the foregoing, the following persons are not eligible employees
and are not eligible to participate in this Plan even if they meet the
definition of regular employee of the employer:
a. interns and visiting researchers;
b. cooperatives;
c. apprentices;
d. nonresident aliens with no U.S. source income;
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e. employees covered by a collective bargaining agreement resulting
from negotiations in which retirement benefits were the subject
of good faith bargaining and participation in this Plan was not
provided for;
f. leased employees. For purposes of this Section 1.5(f), a leased
employee includes any person who provides services to the
employer (as defined in Plan Section 1.6, which in the rest of
this Section 1.5 may also be referred to as "recipient" or
"recipient employer") pursuant to an agreement between such
recipient and any other person ("leasing organization"),
regardless of (i) the length of time the person has performed
such services for the recipient (or for the recipient and related
persons), (ii) whether or not the person is an employee of the
recipient, (iii) whether or not the person has performed such
services for the recipient (or for the recipient and related
persons) on a part-time or full-time basis, and (iv) whether or
not the person performed services under the primary direction or
control by the recipient. This definition of leased employee
includes, without limitation, "leased employees" as defined in
Code (S) 414(n)(2) and any Treasury Regulations thereunder.
g. temporary workers engaged through or employed by temporary or
leasing agencies, irrespective of the length of time that the
workers perform or are expected to perform services at or for the
recipient employer, and even if the workers are, or may be
reclassified by the courts, the Internal Revenue Service ("IRS")
or the U.S. Department of Labor ("DOL") as, employees of the
recipient employer;
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h. temporary employees of the employer. For purposes of this Plan, a
temporary employee of the employer is an employee of the employer
who is hired by the employer to work on a specific project or
series of projects which in the aggregate is not expected to
exceed six (6) months; and
i. workers who hold themselves out to the recipient employer as
being independent contractors, or as being employed by another
company while providing services to the recipient employer, even
if the workers are, or may be reclassified by the courts, the IRS
or the DOL as, employees of the recipient employer.
1.6 EMPLOYER means MICROSOFT CORPORATION and any subsidiary or affiliate
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of Microsoft Corporation which, with MICROSOFT CORPORATION's approval, elects to
adopt the Plan for its employees. Employers maintaining the Plan are listed in
Appendix II, attached hereto and incorporated herein. No participating employers
(other than Microsoft Corporation and its delegates) shall have discretionary
authority over the Plan, including, without limitation, the authority to amend
the Plan and appoint fiduciaries. The Plan Administrator (and his or her
delegates) has discretionary authority under the Plan as provided elsewhere in
this Plan. For purposes of applying to this Plan Code (S)(S) 401, 410, 411, 414,
415 and 416, which sections relate to tax-qualified plans generally, to minimum
participation standards, to minimum vesting standards, to compensation, to
limitations on benefits and contributions, and to top-heavy requirements under
qualified retirement plans, all employees of businesses under common control, as
defined in Code (S)(S) 414(b) and (c), employees of affiliated service groups
under Code (S) 414(m), and employees of any group of employers who must be
aggregated and treated as one employer pursuant to Code (S) 414(o), shall be
considered to be employed by the employer.
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1.7 ERISA means the Employee Retirement Income Security Act of 1974, as
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amended.
1.8 PARTICIPANT means an employee who meets the eligibility requirements
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of Article II and who has entered the Plan. An employee shall be considered a
participant as long as one or more accounts are maintained under this Plan on
his or her behalf.
1.9 PLAN means the MICROSOFT CORPORATION SAVINGS PLUS 401(k) PLAN.
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1.10 PLAN ADMINISTRATOR means the 401(k) Administrative Committee, which
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shall consist of the following three positions at Microsoft Corporation:
Vice President, Human Resources
Deputy Chief Financial Officer
Tax and Audit Vice President
Any references in this Plan to the Plan Administrator as "he", "she", "him" or
"her" or references to "his" or "her" with respect to the Plan Administrator
shall be deemed to refer to the 401(k) Administrative Committee or a member of
the 401(k) Administrative Committee, as appropriate under the circumstances.
1.11 PLAN YEAR means the twelve month period beginning January 1 and
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ending December 31.
1.12 TRUST FUND means the assets of the trust established and maintained
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according to the provisions of this Plan.
1.13 TRUSTEE means any individual, life insurance company, bank or trust
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company or a combination of the foregoing, which the employer has designated to
manage and invest the assets of the Plan.
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ARTICLE II
ELIGIBILITY TO PARTICIPATE IN PLAN
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2.1 ELIGIBILITY AND ENTRY DATE. Each eligible employee who is 18 years of
--------------------------
age or older shall be eligible to participate in this Plan except as provided in
this Article II. The eligible employee shall be eligible to elect to defer a
percentage of his or her compensation on the first entry date occurring after
the date the eligibility requirements (e.g., meeting the definition of an
eligible employee in Section 1.5 and being at least 18 years of age) are met.
The participant's salary deferrals shall commence with the payroll period
beginning on the first day of the month that falls after the participant has
properly completed and submitted an enrollment application and such application
has been processed by the Plan Administrator and the employer's payroll
department. It may take several days after an employee becomes an eligible
employee before the employee will be able to enroll in the Plan. The Plan
Administrator shall establish the enrollment procedures (e.g., require on-line
enrollment) from time to time in its sole discretion.
2.2 REEMPLOYMENT. If a former plan participant is reemployed as an
------------
eligible employee, that person shall immediately renew participation in the plan
as of his or her date of rehire.
2.3 ELECTION AGAINST PARTICIPATION. Any eligible employee may elect not
------------------------------
to participate in the Plan at any time for any reason in writing signed by the
eligible employee, a copy of which is delivered to the employer.
2.4 ENTRY DATES. Plan entry dates shall be the first day of each month.
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ARTICLE III
EMPLOYEE CONTRIBUTIONS
----------------------
3.1 ELECTION TO DEFER. Each participant may elect, in the manner provided
-----------------
by the Plan Administrator, to contribute from 1% to 15% of each of his or her
compensation payments to a salary deferral account under the Plan, except that
the aggregate of such contributions shall not for the plan year exceed the
annual limitation on elective deferrals under Code (S) 402(g) in any taxable
year, which limitation is increased as permitted by Internal Revenue Service
publication to reflect cost-of-living adjustments ($9,500 for 1997). The
employer may, from time to time, change the percentage of salary that may be
deferred. Except as authorized by the Plan Administrator, all such contributions
shall be by payroll reduction. Contributions shall be transferred to the trust
fund on the earliest date by which they can reasonably be segregated from the
employer's general assets, but in no event later than the 15th business day of
the month following the month in which the employer receives or withholds the
employee contributions. For purposes of determining the amount which may be
deferred, only compensation earned while the participant is an eligible employee
and making salary deferral contributions to the plan shall be considered. A
participant may not defer more than 15% of any paycheck or other compensation
payment. The 15% maximum limit on deferrals is applied per pay period not to the
participant's annual compensation nor his or her total compensation earned while
making salary deferral contributions to the Plan.
3.2 DEFERRAL ELECTION DATES. Upon reemployment, an employee may elect to
-----------------------
contribute as of the day he or she is eligible to enter the Plan. All other
employees or participants, including employees entering the plan initially, may
elect to contribute effective as of the first day of the month that falls after
the employee or participant has properly completed
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and submitted an enrollment application and such application has been processed
by the Plan Administrator and the employer's payroll department. It may take
several days after an employee becomes an eligible employee before the employee
will be able to enroll in the Plan. The Plan Administrator shall establish the
enrollment procedures (e.g., require on-line enrollment) from time to time in
its sole discretion. Participants may change their contribution percentage
effective as of the first day of any month subsequent to the date they request
the change, provided, however, that the first month in which the change may
apply shall not be earlier than the first month in which the change to the
participant's payroll withholding can reasonably be made. An election to
contribute may be made on any date prior to the effective date of the election,
in the manner provided by the Plan Administrator.
3.3 TERMINATING AN ELECTION TO DEFER. A participant may terminate an
--------------------------------
election to contribute as of the first day of any month, provided notice of
termination has been given by the fifteenth day of the previous month in the
manner provided by the Plan Administrator. If an employee terminates an
election to contribute, he or she must wait until the next entry date before
being eligible again to elect to contribute to the Plan.
3.4 DISTRIBUTION OF EXCESS DEFERRALS. Notwithstanding any other provision
--------------------------------
of the Plan, excess deferrals (amounts in excess of the annual limitation on
elective deferrals under Code (S) 402(g), as increased by a cost of living
factor) and income allocable thereto may be distributed no later than April 15
to participants who claim for the preceding calendar year such excess deferrals
under two or more plans or to participants who have such excess deferrals under
this Plan. A participant may allocate excess deferrals to this Plan by
submitting to the Plan Administrator no later than March 1 a statement
specifying the excess deferral amount for the preceding calendar year and
stating that, if such amount is not
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distributed, such excess deferral, when added to amounts deferred under other
plans, exceeds the applicable annual limit. The excess deferrals distributed to
a participant with respect to a calendar year shall be adjusted for income and,
if there is a loss allocable to the excess deferral, shall in no event be less
than the lesser of the participant's account under the Plan or the participant's
elective deferrals for the calendar year.
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ARTICLE IV
EMPLOYER MATCHING CONTRIBUTIONS AND FORFEITURES
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4.1 EMPLOYER MATCHING CONTRIBUTIONS. The employer shall contribute funds
-------------------------------
to the Plan, from its current or retained profits, and use forfeitures to match
a portion of each of a participant's salary deferral contributions. The employer
contribution shall match 50% of each of a participant's salary deferral
contributions up to six percent of the participant's compensation for the pay
period for which the participant's salary deferral is made, for a maximum
employer matching contribution of three percent of the compensation paid to the
participant for such pay period. The matching contribution shall be allocated to
the participant's employer contribution account. The employer may from time to
time change the amount of the employer matching contribution, provided any
decrease in the matching contribution formula must be effective only for
matching elective deferrals after the date of change. Total employer
contributions for any plan year shall not exceed the maximum amount which is
deductible by the employer for federal income tax purposes. The employer
contribution shall be transferred to the trust fund at such times as the
employer determines, but such contributions shall in no event be transferred to
the trust fund later than the time prescribed by law for the employer to obtain
a federal income tax deduction for the plan year for which the contribution is
made. Employer contributions shall be credited to participants' employer
contribution accounts as of the date of receipt by the plan. For purposes of
determining the amount of matching contributions a participant will receive,
only compensation earned while the participant is an eligible employee and
making salary deferral contributions to the Plan shall be considered. The 3%
limit on employer matching contributions is applied to each paycheck given or
other compensation payment made to the participant. The 3% limit on matching
contributions is applied per pay
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period, and not to the participant's annual compensation nor his or her total
compensation earned while making salary deferral contributions to the Plan.
Notwithstanding the foregoing, any participant whose salary deferrals cease
because the Code Section 402(g) limit is reached, and not because the
Participant terminated his or her election to defer, shall have his or her
compensation earned after the Code Section 402(g) limit was reached considered
when determining the maximum amount of matching contributions to be allocated to
his or her account. Matching contributions will continue to be made to such
participant's account until the match equals the lesser of 50% of his or her
deferrals or 3% of the participant's compensation earned while the participant's
salary deferral election was in effect (including compensation earned after
deferrals reached the applicable 402(g) limit). The amount of the matching
contributions made for pay periods occurring after the participant's salary
deferral amount reached the 402(g) limit shall be calculated by multiplying the
lesser of (i) 3% or (ii) one half of the participant's salary deferral election
which was in effect when the 402(g) limit was reached, by his or her
compensation for each pay period occurring after the limit was reached.
4.2 ALLOCATION OF FORFEITURES. As of the end of each plan year,
-------------------------
forfeitures which have become available for allocation during such year because
of the completion of benefit distributions to terminated participants or
terminated participants' completion of a one-year period of severance pursuant
to Section 5.6 shall be used first to restore previously forfeited amounts to
the employer contribution accounts of former employees who are reemployed before
sustaining five consecutive one-year periods of severance. Any remaining
forfeiture amounts shall be used to reduce the employer matching contribution
for the subsequent plan year. While this Plan is a multiple employer plan (as
described in Code (S)413(c)), forfeitures with respect to employees who
terminate employment with one employer (as defined in Treasury Regulation
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(S)1.413-2(a)(2)) shall be used first to restore previously forfeited amounts to
the employer contribution accounts of former employees of such employer who are
reemployed before sustaining five consecutive one-year periods of severance.
Any remaining amounts from such forfeitures shall be used to reduce the employer
matching contribution for the employees of such employer for the subsequent plan
year and, if any forfeitures remain after the employer matching contributions
for that employer are made for such plan year, such remaining forfeitures shall
be used to reduce the employer matching contributions of other employers in the
Plan.
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ARTICLE V
VESTING - YEARS OF SERVICE
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5.1 EMPLOYEE CONTRIBUTIONS. Each participant shall be 100% vested in all
----------------------
amounts in his or her salary deferral account.
5.2 EMPLOYER CONTRIBUTIONS. A participant whose employment is terminated
----------------------
on or after reaching age 65, whose employment is terminated because of a total
and permanent disability, or who dies while employed, shall be 100% vested in
all amounts in his or her employer contribution account. All other participants
who terminate shall be entitled to the vested percentage of their employer
contribution account determined in accordance with the following schedule:
Years of Service Vested Percentage Forfeited Percentage
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Less than 2 0% 100%
2 or more years 100% 0%
In computing years of service, all of an employee's years of service shall be
taken into account, except that if an employee has five or more consecutive one-
year periods of severance, years of service after such period of severance shall
not be taken into account for purposes of determining the nonforfeitable
percentage of the employee's accrued benefit derived from employer contributions
which accrued before the period of severance. Preparticipation service with
certain companies as set forth in Appendix II, attached hereto and incorporated
herein, shall be counted toward vesting.
Effective July 8, 1997, an employee who (i) first becomes employed by
Microsoft Corporation ("Microsoft") or one of its affiliates (within the meaning
of Code Sections 414(b), (c), (m) or (o)) on or after July 8, 1997, and (ii) was
previously employed by a company (or a trade or business thereof, hereinafter
"Former Employer") which was acquired by or merged with
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Microsoft (or an affiliate of Microsoft), shall receive credit for his or her
period of service with such Former Employer towards satisfying the vesting
service requirements of this Plan, provided, however, that the credit shall only
be given to those employees whose employment with Microsoft or one of its
affiliates is connected with Microsoft's (or its affiliate's) acquisition of or
merger with such Former Employer. This vesting service credit shall be granted
effective as of the effective date of the closure of the acquisition of the
Former Employer by, or the merger of the Former Employer with, Microsoft (or its
affiliate). For informational purposes, the list of Former Employers for which
vesting service credit is granted after July 8, 1997 shall be added to Appendix
II from time to time, but pursuant to this Section 5.2, the grant of such
service credit shall be effective regardless of whether or when the name of the
Former Employer is added to Appendix II. In the event a plan of the Former
Employer is merged into this Plan, any service credit shall be as specified in
Appendix V hereto. Notwithstanding the foregoing, no vesting service credit
shall be granted under this paragraph for service with any Former Employer to
the extent that this Plan is amended, prior to the closure of the acquisition of
or merger with such Former Employer, to expressly deny service credit with
respect to service with such Former Employer. Notwithstanding the foregoing,
each participant with a positive employer contribution account balance in the
Plan on or after March 2, 2000 shall be 100% vested in all amounts that are in
his or her employer contribution account on or after March 2, 2000.
5.3 YEARS OF SERVICE. An employee's years of service at any date shall
----------------
equal the number of years, including fractional portions of years, which have
elapsed between the date the employee first performed an hour of service, or
first performed an hour of service upon reemployment, and the date a period of
severance begins. If a period of severance is less than twelve months, the
period of severance shall be included in determining years of service.
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5.4 HOUR OF SERVICE. An hour of service means each hour for which an
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employee is paid or entitled to payment for the performance of duties for the
employer.
5.5 PERIOD OF SEVERANCE. A period of severance is a period which begins
-------------------
on the earlier of (i) the date the employee quits, is discharged, retires, dies;
or (ii) the first anniversary of the date the employee is absent from service
for any other reason, such as disability leave, vacation, or leave of absence;
and which ends when the employee performs an hour of service upon reemployment.
However, if an employee is absent from employment for maternity or paternity
reasons, the period of severance shall begin on the second anniversary of the
first date of such absence. The period between the first and second
anniversaries of the first date of absence from work is neither a year or
fractional year of service, nor a period of severance. An absence for maternity
or paternity reasons includes an absence because of the following: pregnancy of
the individual, birth of a child of the individual, placement of a child with
the individual in connection with the adoption of such child by such individual
or caring for such child for a period beginning immediately following such birth
or placement.
5.6 FORFEITURES. If, prior to incurring a one-year period of severance,
-----------
a participant who is zero percent vested in his or her employer contribution
account receives a distribution of his or her entire vested interest in the Plan
(e.g., salary deferrals, rollovers) on or due to his or her termination of
participation in the Plan, the participant's entire employer contribution
account shall be forfeited as of the date of such distribution. If a terminated
participant who is zero percent vested in his or her employer contribution
account does not receive a distribution of his or her entire vested interest in
the Plan prior to incurring a one-year period of severance, his or her entire
employer contribution account shall be forfeited as of a date chosen by the Plan
Administrator which is on or after the date the participant completes a one-
16
<PAGE>
year period of severance. Forfeited amounts shall be transferred to a separate
forfeiture suspense account and made available for allocation as set forth in
Article IV. If a terminated participant whose employer contribution account has
been forfeited due to either the receipt of a distribution or the occurrence of
a one-year period of severance is reemployed before sustaining five consecutive
one-year periods of severance, any amount forfeited shall be restored to his or
her employer contribution account, unadjusted by any gains or losses. If a
reemployed participant's forfeiture was due to receipt of a distribution, the
participant shall have neither the right nor obligation to repay the distributed
amount to the Plan. Restorations of accounts shall be funded first from
forfeitures held in the suspense account, and if such forfeiture amounts in the
suspense account are not sufficient to restore the accounts, then from
additional Company contributions. While this Plan is a multiple employer plan,
the employer with the primary responsibility to make any Company contributions
that are required to restore a rehired employee's account shall be the employer
from which the employee terminated prior to being rehired. Upon the complete
termination of the Plan, any terminated participant who, prior to the Plan's
date of termination, had not (i) incurred five consecutive one-year periods of
severance, nor (ii) received a distribution of his or her entire vested interest
in the Plan, shall have any amount which was forfeited due to the prior
occurrence of a one-year period of severance restored, unadjusted by any gains
or losses, and such restored amount shall be nonforfeitable.
17
<PAGE>
ARTICLE VI
PARTICIPANTS' ACCOUNTS AND INVESTMENTS
--------------------------------------
6.1 INDIVIDUAL ACCOUNTS. The trustee shall maintain records to show
-------------------
the interest in the Plan of each participant and former participant. Such
records shall be in the form of individual accounts. When appropriate, a
participant shall have two accounts, a salary deferral account and an employer
contribution account. The maintenance of individual accounts is only for
accounting purposes, and a segregation of the assets of the trust fund to each
account shall not be required. Notwithstanding the foregoing, to the extent
provided in a written loan policy, a loan made to a participant will be treated
as a participant direction of investment. The participant alone shares in any
principal and interest paid on the loan, and he or she alone bears any expense
or loss incurred in connection with the loan. The Trustee will reflect the
participant's loan on his or her account. Distributions and withdrawals made
from an account shall be charged to the account as of the date paid. Each
participant and former participant shall be advised from time to time, but at
least once a year, as to the status of his or her account or accounts.
6.2 INVESTMENT FUNDS. The trust fund shall consist of the following
----------------
investment funds: common stock funds, bond funds, income funds, money market
funds, the Microsoft Corporation stock fund, and any other funds or investment
vehicles selected by the employer, including without limitation participant
directed brokerage accounts. The employer may change the investment funds from
time to time. Each participant and former participant shall direct the trustee
as to what portion of his or her accounts shall be deposited in each fund (or,
in the case of a Participant loan pursuant to Article XIX, what portion of his
or her account shall be loaned). If a participant or former participant wishes
to utilize more than one investment fund, he or she shall designate the
percentage of his or her account balances to be invested in each fund, and the
18
<PAGE>
percentages designated shall be in 1% increments. The trust fund may hold
qualified employer securities and qualified employer real estate in any amount.
The Plan is intended to constitute a plan described in ERISA (S) 404(c), and the
fiduciaries of the Plan may be relieved in accordance with ERISA (S) 404(c) of
liability for any losses which are the direct and necessary result of investment
instructions given by a participant or former participant.
6.3 CHANGING ACCOUNT INVESTMENTS. Up to six times in any plan year, a
----------------------------
participant may change his or her direction as to the funds into which his or
her account will be invested. The Plan Administrator may change the number of
times that changes may be made, and the procedures for making changes in
investment elections, at any time and from time to time.
6.4 PROCEDURES. The Plan Administrator shall adopt such rules and
----------
procedures as it deems advisable with respect to the direction of Plan
investments by participants, including without limitation the procedure for
allocating and charging fees, expenses or other charges connected with certain
investment funds to the accounts of those participants who choose to invest in
such funds. Any such rules and procedures shall be applied in a
nondiscriminatory manner.
6.5 VALUATION OF ACCOUNTS. As often as directed by the employer, the
---------------------
trustee shall value the trust fund assets at fair market value and the Plan
Administrator shall adjust the net credit balances in the accounts of
participants and former participants, upward or downward, to reflect the
allocation to the participant's or former participant's account of investment
earnings, gains and losses, expenses paid out of the trust fund, and
contributions made and allocated to and distributions and withdrawals from the
participant's or former participant's account. In addition, as of the end of
the fiscal quarter of each plan year and at such
19
<PAGE>
other times as the Plan Administrator shall reasonably determine, the Plan
Administrator shall adjust the net credit balances in the accounts of
participants and former participants in the trust fund, upward or downward, pro
rata, so that the aggregate of such net credit balances will equal the net worth
of each investment fund of the trust fund, using fair market values as
determined by the trustee and after such net worth for the appropriate
investment fund has been reduced by any expenses (to the extent not paid
directly by the employer), withdrawals, distributions and transfers chargeable
to that investment fund which have been incurred but not yet paid. All
determinations made by the trustee with respect to fair market values and net
worth shall be made in accordance with generally accepted principles of trust
accounting, and such determinations when so made by the trustee shall be
conclusive and binding upon all persons having an interest under the Plan.
20
<PAGE>
ARTICLE VII
PAYMENT OF ACCOUNT BALANCES UPON TERMINATION, DEATH, DISABILITY,
----------------------------------------------------------------
QUALIFIED DOMESTIC RELATIONS ORDERS,
------------------------------------
SALE OF TRADE OR BUSINESS
-------------------------
7.1 TERMINATION OF EMPLOYMENT. Upon termination of employment for any
-------------------------
reason other than death or disability, the participant shall elect to receive
his or her balances upon termination or upon reaching age 65, or on any date
between termination and age 65 at the participant's election, except that if the
value of the participant's accounts does not exceed $5,000 (and did not exceed
$5,000 at the time of any prior distribution), payment shall be made as soon as
practicable after termination. Account balances shall be valued as of the most
recent valuation date prior to date of payment and shall be paid in a single
cash payment, except that the participant or former participant may elect to
receive any or all of the shares allocated to him or her in the Microsoft
Corporation stock fund. Account balances shall be distributed no later than 60
days after the latest of (i) the plan year in which the participant terminates
or (ii) the plan year in which the participant reaches age 65. Notwithstanding
the foregoing, a person's entire interest must be distributed, or must begin to
be distributed, no later than the first day of April following the calendar year
in which the participant reaches age 70-1/2. Furthermore, benefit payments will
not be made to a participant who has a vested account balance greater than
$5,000, prior to the participant attaining age 70 1/2 unless and until the
participant files a proper claim for benefits with the Plan Administrator.
7.2 PAYMENT AT 59-1/2. A participant may elect to receive a distribution
-----------------
of all or a portion of his or her vested account balance or balances under this
Plan upon or after reaching age 59-1/2. Payment shall be made in a single cash
payment, except that the participant may
21
<PAGE>
elect to receive any or all of the shares allocated to him or her in the
Microsoft Corporation stock fund.
7.3 PAYMENT OF ACCOUNT BALANCES UPON DEATH. If a participant dies while
--------------------------------------
employed, his or her employer contribution account shall be 100% vested. Each
participant shall designate a beneficiary or beneficiaries to receive all
amounts credited to his or her accounts in the event of the participant's death.
The accounts shall be valued as of the most recent valuation date prior to
payment and shall be paid to the designated beneficiary or beneficiaries as soon
as feasible after the death. Payment shall be made in a single cash payment,
except that the beneficiary or beneficiaries may elect to receive any or all of
the shares allocated to him or her in the Microsoft Corporation stock fund.
Notwithstanding the foregoing, if the deceased participant's vested account
balance exceeds $5,000 and the designated beneficiary is the participant's
spouse, the spouse may elect to delay distribution of the lump sum amount until
any date on or before the date the Participant would have been age 65. If the
deceased participant's vested account balance exceeds $5,000 and the beneficiary
is a designated beneficiary who is not the participant's spouse, the beneficiary
may elect to delay distribution of the lump sum amount until any date on or
before the end of the calendar year in which the fifth anniversary of the
participant's date of death occurs. Beneficiaries who are not designated
beneficiaries may not delay distribution of the death benefit. If a participant
is married, the participant may not designate a beneficiary other than his or
her spouse without the spouse's written consent which has been witnessed by a
plan representative or a notary public. If a participant fails to designate a
beneficiary, or the participant has no surviving beneficiary, the amounts
payable to a married participant shall be distributed to his or her spouse and
the benefits of a single participant shall be distributed to his or her estate.
22
<PAGE>
7.4 PAYMENT OF ACCOUNT BALANCES UPON DISABILITY. If a participant's
-------------------------------------------
employment is terminated prior to retirement because of a total and permanent
disability, the employer contribution account shall be 100% vested and payment
of the participant's account balances shall be made as soon as practicable. A
participant shall be deemed to be totally and permanently disabled if the
participant meets the definition of having a total disability under the
employer-provided long-term disability plan. The participant's accounts shall be
valued as of the most recent valuation date prior to payment and shall be paid
in a single cash payment within sixty (60) days after the disability has been
established under this section, except that the participant may elect to receive
any or all of the shares allocated to him or her in the Microsoft Corporation
stock fund. Notwithstanding the foregoing, if the value of the disabled
participant's accounts exceeds $5,000 (or exceeded $5,000 at the time of a prior
distribution), the participant may elect to delay receipt of the balance of his
or her accounts until reaching age 65. Notwithstanding the foregoing, benefit
payments will not be made to a participant who has a vested account balance
greater then $5,000, prior to the participant attaining age 70 1/2 unless and
until the participant files a proper claim for benefits.
7.5 EARLY RETIREMENT. Upon reaching age 55, a participant may elect early
----------------
retirement and terminate employment. Each such participant shall receive the
value of his or her salary deferral account and the vested portion of his or her
employer contribution account, which shall be paid in the time and manner
described in Section 7.1.
7.6 DISTRIBUTIONS UNDER QUALIFIED DOMESTIC RELATIONS ORDERS. Distribution
-------------------------------------------------------
to an alternate payee under a qualified domestic relations order as defined in
Code (S) 414(p) may be made at any time, including prior to the participant's
attainment of earliest retirement age if the court order specifies distribution
at an earlier time or permits an agreement
23
<PAGE>
between the Plan and the alternate payee to authorize an earlier distribution
and the alternate payee consents to the distribution.
7.6.1 Qualified Status of Order. The Plan Administrator shall
-------------------------
establish reasonable procedures to determine the qualified status of a domestic
relations order. Upon receiving a domestic relations order, the Plan
Administrator shall promptly notify the participant and any alternate payee
named in the order in writing of the receipt of the order and the Plan's
procedures for determining the qualified status of the order. Within a
reasonable period of time after receiving the domestic relations order, the Plan
Administrator shall determine the qualified status of the order and shall notify
the participant and each alternate payee in writing of its determination. The
Plan Administrator shall provide notice under this paragraph by mailing to the
individual's address specified in the domestic relations order, or in a manner
consistent with Department of Labor regulations.
7.6.2 Amounts Payable During Determination Process. If any portion of
--------------------------------------------
the participant's nonforfeitable accrued benefit is payable during the period
the Plan Administrator is making its determination of the qualified status of
the domestic relations order, the Trustee shall make a separate accounting of
the amounts payable. If the Plan Administrator determines the order is a
qualified domestic relations order within 18 months of the date amounts first
are payable following receipt of the order, the amounts shall be payable in
accordance with the order. If the Plan Administrator does not make its
determination of the qualified status of the order within the 18 month
determination period, the amounts shall be payable in the manner in which they
would be distributed if the order did not exist. The order shall be applied
prospectively if the Plan Administrator determines after the 18 month period
that the order is a qualified domestic relations order.
24
<PAGE>
7.6.3 Investment of Amounts Payable. To the extent it is not
-----------------------------
inconsistent with the provisions of the qualified domestic relations order, any
partitioned funds payable to the alternate payee(s) may be invested in a
segregated subaccount and may be invested in fixed income investments or, at the
direction of the alternate payee(s), in any investment funds available to
participants. If an order specifies that the alternate payee is entitled to any
portion of the account of a participant who has an outstanding Plan loan, the
loan will continue to be held in the participant's account and will not be
transferred to an account for the alternate payee. A segregated subaccount
shall remain a part of the Trust, but it alone shall share in any income it
earns, and it alone shall bear any expense or loss it incurs. The Trustee shall
make any payments or distributions to the alternate payee(s) by separate benefit
checks or other separate distribution.
7.7 SALE OF TRADE OR BUSINESS. Distributions may also be made in the event
--------------------------
of termination of the Plan, or any part thereof, as described in Code (S)
401(k)(a)(A)(i) and the regulations thereunder, or a disposition of the assets
of a trade or business or the stock of a subsidiary with respect to employees
who continue employment with the acquiring corporation or subsidiary as
described in Code (S) 401(k)(10)(A)(ii) and (iii) and the regulations
thereunder. In no event may amounts attributable to 401(k) elective deferrals be
distributed earlier than upon one of the following events:
(a) Retirement, death, disability or separation from service (see
Code (S) 401(k)(10)(A)(i));
(b) Termination of this Plan without establishment of a successor
plan (see Code (S) 401(k)(10)(A)(i));
(c) The employee's attainment of age 59-1/2;
25
<PAGE>
(d) The sale or other disposition by a corporation to an unrelated
corporation, which does not maintain this Plan, of substantially all of the
assets used in a trade or business, but only with respect to employees who
continue employment with the acquiring corporation (see Code (S)
401(k)(10)(A)(ii));
(e) The sale or other disposition by a corporation of its interest in
a subsidiary to any unrelated entity which does not maintain this Plan, but only
with respect to employees who continue employment with the subsidiary (see Code
(S) 401(k)(10)(A)(iii)).
7.8 NOTICE OF RIGHT TO DEFER PAYMENT. A participant whose total account
---------------------------------
balances exceed (or have exceeded at the time of a prior distribution) $5,000
shall be given an explanation of the optional forms of benefit available, and of
his or her right to defer receipt of distribution. If a participant fails to
consent to an immediate distribution, it shall be deemed an election to defer
the commencement of payment of any benefit. However, any election to defer the
receipt of benefits shall not apply with respect to distributions which are
required under Code (S) 401(a)(9). Notice of the rights specified under this
Section 7.8 shall be provided no less than 30 days and no more than 90 days
before the "Annuity Starting Date." The "Annuity Starting Date" is the first day
on which all events have occurred which entitle the participant to receive a
distribution (e.g., termination of employment, consent to distribution).
Distribution may commence less than 30 days after the notice required under
Section 1.411(a)-11(c) of the Income Tax Regulations is given if:
(A) the plan administrator clearly informs the participant that the
participant has a right to a period of at least 30 days after receiving the
notice to consider the decision of whether or not to elect a distribution (and,
if applicable, a particular distribution option), and
26
<PAGE>
(B) the participant, after receiving the notice, affirmatively elects
a distribution.
Written consent of the participant to the distribution must not be made before
the participant receives the notice and must not be made more than 90 days
before the Annuity Starting Date. No consent shall be valid if a significant
detriment is imposed under the plan on any participant who does not consent to
the distribution. Consent to an immediate distribution is not required after
the participant has reached age 65 or has died.
7.9 DIRECT ROLLOVER DISTRIBUTIONS. Notwithstanding any provision of the
-----------------------------
Plan to the contrary and subject to the following limitations, a distributee may
elect, at the time and in the manner prescribed by the Plan Administrator, to
have any portion of an eligible rollover distribution paid directly to an
eligible retirement plan. Direct rollovers may not be divided among several
plans. A participant may elect to receive a distribution partly as a direct
rollover and partly in a direct payment to the participant only if the direct
rollover amount equals or exceeds $500.
The following definitions shall apply to this section 7.9:
(a) Eligible Rollover Distribution. An eligible rollover distribution
------------------------------
is any distribution of all or any portion of the balance to the credit of the
distributee, except that an eligible rollover distribution does not include:
(i) any distribution that is one of a series of substantially
equal periodic payments (not less frequently than annually) made for the life
(or life expectancy) of the distributee or the joint lives (or joint life
expectancies) of the distributee and the distributee's designated beneficiary,
or for a specified period of ten years or more;
27
<PAGE>
(ii) any mandatory minimum distribution at age 70 1/2 under Code
(S) 401(a)(9); and
(iii) the portion of any distribution that is not includible in
gross income (determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
(b) Eligible Retirement Plan. An eligible retirement plan is an
------------------------
individual retirement account described in Code (S) 408(a), an individual
retirement annuity described in Code (S) 408(b) (other than an endowment
contract), an annuity plan described in Code (S) 403(a), or a qualified trust
described in Code (S) 401(a) of a defined contribution plan, that accepts the
distributee's eligible rollover distribution. However, in the case of an
eligible rollover distribution to the surviving spouse, an eligible retirement
plan is an individual retirement account or individual retirement annuity.
(c) Distributee. A distributee includes an employee or former
-----------
employee. In addition, the employee's or former employee's surviving spouse and
the employee's or former employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in Code (S) 414(p),
are distributees with regard to the interest of the spouse or former spouse.
28
<PAGE>
ARTICLE VIII
HARDSHIP WITHDRAWALS
--------------------
If a participant has a financial hardship, the participant may withdraw so
much of the following amount as is necessary to meet the hardship:
(a) his or her salary deferral contributions plus net investment gains and
earnings on such deferrals as of December 31, 1988, plus
(b) his or her salary deferral contributions made after December 31, 1988,
minus
(c) any prior withdrawals, distributions, assignments via qualified
domestic relations orders, expenses and net investment losses made or
incurred with respect to the amounts described in (a) or (b) above.
The salary deferral contributions will be valued as of the valuation date
on or immediately before the withdrawal. Hardship withdrawals may not be
made from net investment gains and earnings which have accrued after
December 31, 1988 on salary deferral contributions. Notwithstanding the
foregoing, a participant who has an outstanding loan from the Plan (or must
take such a loan prior to the hardship distribution pursuant to this
Article VIII) may not take a hardship distribution in an amount which
exceeds 40% of his or her vested account balance.
A hardship withdrawal shall be available for any of the following
reasons:
(a) Medical expenses incurred by the participant, the participant's
spouse, or any dependents of the participant or expenses necessary for
those persons to obtain medical care;
(b) Purchase (excluding mortgage payments) of a principal residence for
the participant;
29
<PAGE>
(c) Payment of tuition, related educational fees, and room and board
expenses, for the next 12 months of post-secondary education for the
participant, his or her spouse, children or dependents;
(d) Preventing the eviction of the participant from his or her principal
residence or foreclosure on the mortgage of the participant's
principal residence; or
(e) Need due to critical financial emergencies, defined as circumstances
of sufficient severity that a participant is confronted by present or
impending financial ruin. The need shall be based on the
participant's net worth statement, which shall form an objective
criterion for determining hardship.
A participant who receives a hardship distribution
(a) shall not receive a distribution in excess of the participant's
immediate and heavy financial need;
(b) shall, prior to the distribution, have exercised all vested stock
options and received all other distributions and loans available under
all plans maintained by the employer;
(c) shall not make elective contributions or have nonelective participant
contributions made to this Plan or any other retirement plan, stock
purchase plan, stock option or similar plan of the employer, until the
first January 1 or July 1 following the one-year anniversary of the
date the hardship distribution is made; and
(d) shall not make contributions to any plan of the employer, including
this Plan, for his or her tax year immediately following the tax year
in which the hardship distribution was received, in excess of (i) the
annual limit applicable under Code (S) 402(g) ($9,500 for 1997), as
increased by a cost of living factor, minus
30
<PAGE>
(ii) the amount of participant contributions in the tax year of the
hardship distribution.
Hardship withdrawals may not be taken from a Participant's employer contribution
account, rollover account, or acquisition rollover account. Amounts transferred
from the plans of other employers pursuant to a plan merger (e.g., see Appendix
V to this Plan) or plan-to-plan transfer of plan assets may in some cases by
held in the acquisition rollover account, and therefore be unavailable for
hardship withdrawals.
31
<PAGE>
ARTICLE IX
LIMITATIONS ON EMPLOYEE AND EMPLOYER CONTRIBUTIONS
--------------------------------------------------
9.1 LIMITATIONS ON TOTAL CONTRIBUTIONS TO ACCOUNTS. Notwithstanding
----------------------------------------------
anything in this Plan to the contrary, the total of employee and employer
contributions and forfeitures allocated to a participant's accounts under this
and any other employer sponsored defined contribution plan for any year shall
not exceed the applicable limits described in Code (S) 415 (e.g., the lesser of
(i) 25% of the participant's compensation (as defined in Section 9.9), or (ii)
$30,000). Effective March 31, 1988, the year used to determine the limits on
annual additions shall be the calendar year. If such additions exceed the
limitation, the Plan shall distribute to the participant the participant's
elective deferrals to this Plan (within the meaning of Code (S) 402(g)(3)) and
any gains attributable thereto to the extent that the distribution would reduce
the excess amounts in the participant's account (see Treasury Regulations (S)
1.415-6(b)(6)(iv)). Any remaining excess annual additions to the participant's
account for the year shall be used to reduce future employer contributions
pursuant to Treasury Regulation (S) 1.415-6(b)(6)(ii).
9.2 AVERAGE ACTUAL DEFERRAL PERCENTAGE TESTS. With respect to participant
----------------------------------------
contributions in a plan year, the actual deferral percentage shall satisfy one
of the tests described in (a) or (b) below. (Definitions of words used in the
tests are given in Section 9.9.)
(a) The average actual deferral percentage for eligible participants
who are highly compensated employees for the plan year shall not exceed the
average actual deferral percentage for eligible participants who are non-highly
compensated employees for the plan year multiplied by 1.25;
32
<PAGE>
(b) the average actual deferral percentage for eligible participants
who are highly compensated employees for the plan year shall not exceed the
average actual deferral percentage for eligible participants who are non-highly
compensated employees for the plan year multiplied by 2, provided that the
average actual deferral percentage for eligible participants who are highly
compensated employees does not exceed the average actual deferral percentage for
eligible participants who are non-highly compensated employees by more than two
(2) percentage points or such lesser amount as the Secretary of the Treasury
shall prescribe to prevent the multiple use of this alternative limitation with
respect to any highly compensated employee.
9.3 ELECTIVE DEFERRALS OR QUALIFIED EMPLOYER DEFERRAL CONTRIBUTIONS UNDER
---------------------------------------------------------------------
TWO OR MORE PLANS OR ARRANGEMENTS. The actual deferral percentage for any
---------------------------------
eligible participant who is a highly compensated employee for the plan year and
who is eligible to have elective deferrals or qualified employer deferral
contributions allocated to his account under two or more plans or arrangements
described in Code (S) 401(k) that are maintained by the employer or an
affiliated employer shall be determined as if all such elective deferrals and
qualified employer deferral contributions were made under a single arrangement.
9.4 ELECTIVE DEFERRALS, QUALIFIED EMPLOYER DEFERRAL CONTRIBUTIONS, AND
------------------------------------------------------------------
COMPENSATION OF FAMILY MEMBERS. For purposes of determining the actual deferral
------------------------------
percentage of a participant who is a highly compensated employee subject to the
family aggregation rules of Code (S) 414(q)(6), the elective deferrals,
qualified employer deferral contributions and compensation of such participant
shall include the elective deferrals, qualified employer deferral contributions
and compensation of family
33
<PAGE>
members, and such family members shall be disregarded in determining the actual
deferral percentage for participants who are non-highly compensated employees.
The determination and treatment of the elective deferrals, qualified
nonelective contributions and actual deferral percentage of any participant
shall satisfy such other requirements as may be prescribed by the Secretary of
the Treasury.
9.5 ACTIONS AVAILABLE WHEN TESTS UNSATISFIED. In the event that the Plan
----------------------------------------
Administrator shall at any time have reasonable cause to conclude that neither
of the tests will be satisfied for a plan year, then the Plan Administrator
shall take such actions as the Plan Administrator deems necessary in accordance
with Appendix III, attached hereto and incorporated herein.
9.6 DISTRIBUTION OF EXCESS CONTRIBUTIONS. Excess contributions and income
------------------------------------
allocable thereto shall be distributed no later than the last day of each plan
year to participants on whose behalf such excess contributions were made for the
preceding plan year. "Excess contributions" shall mean the difference between
the participant contributions made by highly compensated employees and the
maximum amount of allowable participant contributions for those employees. The
income allocable to excess contributions shall be determined by multiplying
income allocable to the participant's elective deferrals and qualified employer
deferral contributions for the plan year by a fraction, the numerator of which
is the excess contribution on behalf of the participant for the preceding plan
year and the denominator of which is the sum of the participant's account
balances attributable to elective deferrals and qualified employer deferral
contributions on the last day of the preceding plan year. The excess
contributions which would otherwise be distributed to the participant shall be
adjusted for income; shall be reduced, in accordance with regulations, by the
amount of excess deferrals
34
<PAGE>
distributed to the participant; shall, if there is a loss allocable to the
excess contributions, in no event be less than the lesser of the participant's
account under the Plan or the participant's elective deferrals and qualified
employer deferral contributions for the plan year. Amounts distributed under
this section shall be treated as distributions from the participant's elective
deferral account and shall be treated as distributed from the participant's
qualified employer deferral contribution account only to the extent such excess
contributions exceed the balance in the participant's elective deferral account.
9.7 AVERAGE CONTRIBUTIONS PERCENTAGE TESTS. With respect to participant
--------------------------------------
contributions and employer matching contributions, the average contribution
percentage shall satisfy one of the tests described in, (a) or (b) below
(definitions of words used in the tests are given in Section 9.9).
(a) The average contribution percentage for eligible participants who
are highly compensated employees for the plan year shall not exceed the average
contribution percentage for eligible participants who are non-highly compensated
employees for the plan year multiplied by 1.25;
(b) the average contribution percentage for eligible participants who
are highly compensated employees for the plan year shall not exceed the average
contribution percentage for eligible participants who are non-highly compensated
employees for the plan year multiplied by 2, provided that the average
contribution percentage for eligible participants who are highly compensated
employees does not exceed the average contribution percentage for eligible
participants who are non-highly compensated employees by more than two (2)
percentage points or such lesser amount as the Secretary of the Treasury shall
prescribe to
35
<PAGE>
prevent the multiple use of this alternative limitation with respect to any
highly compensated employee.
9.8 DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS. Excess aggregate
----------------------------------------------
contributions and income allocable thereto shall be distributed no later than
the last day of each plan year to participants to whose accounts employee
contributions or matching contributions were allocated for the preceding plan
year. "Excess aggregate contributions" shall mean the amount described in Code
(S) 401(m)(6)(B). The income allocable to excess aggregate contributions shall
be determined by multiplying the income allocable to the participant's employee
contributions and matching employer contributions for the plan year by a
fraction, the numerator of which is the excess aggregate contributions on behalf
of the participant of the preceding plan year and the denominator of which is
the sum of the participant's account balances attributable to employee
contributions and matching employer contributions on the last day of the
preceding plan year. The excess aggregate contributions to be distributed to a
participant shall be adjusted for income, and, if there is a loss allocable to
the excess aggregate contribution, shall in no event be less than the lesser of
the participant's account under the Plan or the participant's employee
contributions and matching contributions for the plan year. Excess aggregate
contributions shall be distributed from the participant's matching contribution
account in proportion to the participant's employee contributions and matching
contributions for the plan year.
9.9 DEFINITIONS APPLICABLE TO DISCRIMINATION TESTS. For purposes of this
----------------------------------------------
Article, the following definitions shall be used:
36
<PAGE>
Actual deferral percentage shall mean the ratio (expressed as a percentage)
--------------------------
of effective deferrals and qualified employer deferral contributions on behalf
of the eligible participant for the plan year to the eligible participant's
compensation for the plan year.
Average actual deferral percentage shall mean the average (expressed as a
----------------------------------
percentage) of the actual deferral percentages of the eligible participants in a
group.
Compensation shall mean wages within the meaning of Code (S) 3401(a) and
------------
all other payments of compensation to an employee by his employer (in the course
of the employer's trade or business) for which the employer is required to
furnish the employee a written statement under Code (S)(S) 6041(d), 6051(a)(3),
and 6052. Compensation excludes amounts paid or reimbursed by the employer for
moving expenses incurred by an employee, but only to the extent that at the time
of the payment it is reasonable to believe that these amounts are deductible by
the employee under Code (S) 217. Compensation shall be determined without regard
to any rules under Code (S) 3401(a) that limit the remuneration included in
wages based on the nature or location of the employment or the services
performed (such as the exception for agricultural labor in Code (S) 3401(a)(2)).
For purposes of performing the average actual deferral percentage test and the
average contributions percentage test, the annual compensation of each employee
taken into account shall not exceed the limitation under Code (S) 401(a)(17),
which is the OBRA '93 annual compensation limit. The OBRA '93 annual
compensation limit is $150,000 ($160,000 in 1997), as adjusted by the
Commissioner for increases in the cost of living in accordance with Code (S)
401(a)(17)(B). In addition, in performing the average actual deferral percentage
test and the average contributions percentage test for any year, Microsoft
Corporation may elect to include in the definition of compensation for all
employees the elective contributions that are made by the
37
<PAGE>
employer on behalf of its employees that are not includible in gross income
under Code (S) 125 (cafeteria plan) or Code (S) 402(e)(3) (cash or deferred
arrangement).
Elective deferrals shall mean contributions made to the Plan during the
------------------
plan year by the employer, at the election of the participant, in lieu of cash
compensation and shall include contributions made pursuant to a salary reduction
agreement.
Eligible participant shall mean any employee of the employer who is
--------------------
otherwise authorized under the terms of the Plan to have elective deferrals or
qualified employer deferral contributions allocated to his or her account for
the plan year.
Family Member shall mean an individual described in Code (S) 414(q)(6)(B).
-------------
Highly Compensated Employee shall mean an individual described in Code (S)
---------------------------
414(q).
Inactive Participant shall mean any employee or former employee who has
--------------------
ceased to be an eligible employee and on whose behalf an account is maintained
under the Plan.
Matching contribution shall mean any contribution to the Plan made by the
---------------------
employer for the plan year and allocated to a participant's account by reason of
the participant's employee contributions or elective deferrals.
Non-highly compensated employee shall mean an employee of the employer who
-------------------------------
is neither a highly compensated employee nor a family member.
Participant shall mean any employee of the employer who has met the
-----------
eligibility and participation requirements of the Plan.
Qualified employer deferral contributions shall mean qualified nonelective
-----------------------------------------
contributions taken into account under the terms of the Plan in determining the
actual deferral percentage.
Qualified nonelective contributions shall mean contributions (other than
-----------------------------------
matching contributions) made by the employer and allocated to participants'
accounts that the participant
38
<PAGE>
may not elect to receive in cash until distributed from the Plan; that are 100
percent vested and nonforfeitable when made; and that are not distributable
under the terms of the Plan to participants or their beneficiaries except in
events upon which elective deferrals may be distributed as described in Section
7.7(a) through (e) of this Plan.
39
<PAGE>
ARTICLE X
ROLLOVER CONTRIBUTIONS
----------------------
10.1 PERMITTED ROLLOVERS. Subject to terms and conditions established by
-------------------
the Plan Administrator, an employee, whether or not a participant, may transfer
rollover or direct rollover amounts to the trust from other eligible retirement
plans as permitted under, and pursuant to the provisions of, Code (S)(S) 402(c)
and 401(a)(31), respectively. The Plan Administrator shall require written
certification that the contribution qualifies under Code (S)(S) 402(c) or
401(a)(31), respectively.
10.2 VESTING AND ACCOUNTING. Rollover contributions and earnings shall be
----------------------
100% vested and shall be accounted for separately in a rollover account. All
rollover contributions shall be invested and reinvested along with the assets of
the Plan and treated in all respects as other assets of the Plan.
10.3 DISTRIBUTION UPON TERMINATION. The rollover account shall be
-----------------------------
distributed at the same time and in the same manner as the employee's other
accounts. If an employee terminates with no other amounts payable from this
Plan, the rollover account shall be valued as of the valuation date coinciding
with or preceding the date of termination and shall be paid in a single sum
within 60 days after the end of the plan year.
40
<PAGE>
ARTICLE XI
ADMINISTRATION
--------------
11.1 NAMED FIDUCIARY. The employer and the Plan Administrator are named
---------------
fiduciaries for purposes of ERISA. The Plan Administrator is the named fiduciary
with the authority to control and manage the operation and administration of the
Plan, and is the "administrator" of the Plan within the meaning of ERISA Section
3(16)(A).
11.2 PLAN ADMINISTRATOR. The Plan Administrator may from time to time
------------------
employ agents to aid in the administration of the Plan. The Plan Administrator
shall have the sole power and discretion to interpret and construe the
provisions of this Plan and to determine all questions, including both
interpretive and factual questions arising in connection with the
administration, interpretation and application of the Plan, and shall supply any
omission or reconcile any inconsistency in the Plan. The Plan Administrator's
authority includes, without limitation, the sole authority to interpret and
construe the Plan and determine a participant's eligibility to participate in
the Plan and to receive benefits, and amount of benefits, if any. Any such
action shall be final and conclusive upon all persons. The Plan Administrator
shall decide any disputes which may arise under this Plan relative to the rights
of employees, past and present, and their beneficiaries. Further, the Plan
Administrator shall adopt such rules as it deems necessary, and give
instructions and directions to the trustee as necessary and, in general, shall
direct the administration of the Plan. The Plan Administrator's authority
includes, but is not limited to, the following:
a. to compute, certify, and direct the trustee with respect to the
amount and the kind of benefits to which any participant shall be
entitled hereunder;
41
<PAGE>
b. to authorize and direct the trustee with respect to all
nondiscretionary or otherwise directed disbursements from the
trust;
c. to compute and certify to the employer and to the trustee from
time to time the sums of money necessary or desirable to be
contributed to the Plan;
d. to consult with the employer and the trustee regarding the short
and long-term liquidity needs of the Plan in order that the
trustee can exercise any investment discretion in a manner
designed to accomplish specific objectives; and
e. to prepare and implement a procedure to notify eligible employees
that they may elect to have a portion of their compensation
deferred or paid to them in cash.
11.3 FACILITY OF PAYMENTS. Whenever, in the Plan Administrator's opinion,
--------------------
a person who is entitled to receive any payment of a benefit or installment
thereof is under a legal disability or is incapacitated in any way so as to be
unable to manage his or her financial affairs, the Plan Administrator may direct
the trustee to make payments to such person or to the participant's legal
representative or to a relative or friend of the participant for his or her
benefit. Any payment of a benefit or installment thereof made in accordance with
the provisions of this section shall be a complete discharge of any liability
for the making of such payment under this Plan.
11.4 APPOINTMENT OF INVESTMENT MANAGER. The employer shall have the
---------------------------------
authority described in ERISA (S) 402(c)(3) to appoint one or more investment
managers and contract with each for management of any part of the trust fund for
a reasonable fee. Selection and retention of an investment manager shall be in
the trustee's discretion. Each investment
42
<PAGE>
manager shall have the power to manage, acquire, and dispose of the part of the
trust fund designated by the employer. The investment manager shall have no
responsibility for plan operation or administration.
11.5 INVESTMENT MANAGER AND TRUSTEE. If an investment manager is
------------------------------
appointed:
(a) The trustee shall segregate the trust fund or any part thereof
into one or more investment accounts. The trustee shall appoint an investment
manager for each account and designate the part of the trust fund to be managed
by each investment manager.
(b) The trustee may terminate at any time the authority of an
investment manager to manage an account. In such event or upon resignation of an
investment manager, the trustee may appoint a successor investment manager for
the account.
(c) Each investment manager to whom any fiduciary responsibility
with respect to the Plan or the trust funds allocated is delegated, shall
discharge such responsibility in accordance with the standards set forth in
ERISA 404(a) and shall acknowledge such responsibility in writing.
11.6 DELEGATION OF AUTHORITY AND DUTIES BY PLAN ADMINISTRATOR. The 401(k)
--------------------------------------------------------
Administrative Committee may allocate to a specific 401(k) Administrative
Committee member or members the authority and duty to carry out some or all of
the Plan Administrator's fiduciary responsibilities under the Plan. In addition,
the 401(k) Administrative Committee (or a 401(k) Administrative Committee member
who has been allocated authority and duties pursuant to the preceding sentence)
may designate one or more persons, positions, committees or entities either
within or outside of Microsoft Corporation to carry out some or all of the Plan
Administrator's fiduciary responsibilities under the Plan. Any
43
<PAGE>
such designee and any 401(k) Administrative Committee member who has been
allocated authority shall have the same authority and discretion as would the
401(k) Administrative Committee in performing the delegated or allocated
responsibilities. The 401(k) Administrative Committee's allocation or delegation
described in this Section 11.6 may include, without limitation, its fiduciary
authority and duties under Articles XI and XII, including authority, power and
discretion that is assigned solely to the Plan Administrator. The Plan
Administrator's allocation or delegation may be made either orally or in
writing, and shall be effective only after the person receiving the allocation
or delegation agrees to accept the authority and duties allocated or delegated.
44
<PAGE>
ARTICLE XII
CLAIMS PROCEDURE
----------------
12.1 DENIAL OF CLAIMS. Any denial of a claim for benefits under the trust
----------------
by a participant or beneficiary shall be stated in writing and delivered or
mailed to the participant or beneficiary. Such notice shall set forth the
specific reasons for the denial in a manner that may be understood without legal
or actuarial counsel. Any denial of a claim may be appealed to the Plan
Administrator by sending to the Plan Administrator a written request for review
within 90 days after receiving notice of denial. The Plan Administrator shall
give the applicant an opportunity to review pertinent documents in preparing the
applicant's request for review. The request shall set forth all grounds on which
it is based, supporting facts and other matters which the applicant deems
pertinent. The Plan Administrator may require the applicant to submit such
additional facts, documents or other material as it deems necessary or advisable
in making its review and shall act upon such request within 60 days after the
receipt thereof, unless special circumstances require further time. If the Plan
Administrator confirms the denial in whole or in part, the Plan Administrator
shall notify the applicant, setting forth in a manner calculated to be
understood by the applicant, specific reasons for denial and specific references
to Plan provisions on which the decision was based.
12.2 ARBITRATION. Any controversy or claim arising out of or relating to
-----------
this Plan, which is asserted by any person as an employee, former employee,
participant, or beneficiary, shall be settled by arbitration in accordance with
the Commercial Rules of the American Arbitration Association. Judgment upon the
award rendered by the arbitrator shall be entered in a court having jurisdiction
thereof. All such arbitration cases shall be heard by an attorney licensed in
the jurisdiction where the arbitration hearing is to occur.
45
<PAGE>
ARTICLE XIII
NONALIENATION PROVISION
-----------------------
No participant shall have the right or power to alienate, anticipate,
commute, pledge, encumber, or assign any of the funds allocated to the
participant under the terms of this Plan, and such funds shall not be subject to
seizure by any creditor of the participant under any writ or proceedings at law
or in equity; provided, that the terms of this Article shall not prohibit the
creation, assignment or recognition of a right to any benefit payable with
respect to a participant if such creation, assignment or recognition of a right
is made under a qualified domestic relations order defined under Code (S)
414(p).
46
<PAGE>
ARTICLE XIV
TERMINATION
-----------
14.1 PLAN TERMINATION. The employer shall have the right to terminate the
----------------
Plan at any time as to its employees by action of its board of directors or by
action of any committee or officer to whom such board of directors has delegated
the right to terminate the Plan. In addition, Microsoft Corporation reserves the
right to terminate the Plan in its entirety at any time by action of the Board
of Directors of Microsoft Corporation or by action of any committee or officer
to whom the Board of Directors has delegated such authority to terminate the
Plan, and the Plan shall terminate in its entirety unless Microsoft Corporation
permits employers wishing to continue the Plan as to their respective employees
to arrange a spin-off of Plan assets attributable to accounts of their
employees.
14.2 NO REVERSION TO EMPLOYER -- ACCRUED RIGHTS NONFORFEITABLE. No
---------------------------------------------------------
termination shall have the effect of vesting in the employer any part of the
principal or income of the plan funds. In the case of a termination, partial
termination, or complete discontinuance of contributions, the rights of all
affected employees accrued to the date of such termination or partial
termination, to the extent funded as of such date, shall be nonforfeitable. See
Section 5.6 of this Plan for the treatment of certain forfeitures upon complete
termination of the Plan.
14.3 DISTRIBUTION UPON TERMINATION OR DISCONTINUANCE OF CONTRIBUTIONS.
----------------------------------------------------------------
Upon termination of the Plan or a complete discontinuance of contributions to
the Plan the interests of all participants shall fully vest and distribution
shall be made to each participant in the form and manner determined by the Plan
Administrator and as permitted by the Code and ERISA. See Section 7.7 of this
Plan.
47
<PAGE>
ARTICLE XV
MERGER OR CONSOLIDATION
-----------------------
In the case of any merger or consolidation with, or transfer of, assets or
liabilities to any other retirement Plan, the termination benefits of
participants, former participants and beneficiaries immediately subsequent to
the merger, consolidation or transfer shall be equal to or greater than the
termination benefits immediately prior to such merger, consolidation, or
transfer. In the case of any plan which has merged into this Plan or any assets
and liabilities which have been transferred to this Plan from another plan, see
Appendix V (as added pursuant to this amendment) of this Plan for (i) special
provisions which apply to any accounts which were transferred to this Plan or
established in connection with such transfer or merger and (ii) special
provisions which apply to participants who formerly participated in the
transferor or nonsurviving plan.
48
<PAGE>
ARTICLE XVI
AMENDMENTS
----------
Microsoft Corporation reserves the right, from time to time, to make any
amendment or amendments to this Plan by resolution of its Board of Directors, or
by action of any committee, person(s) or job position(s) to whom the Board of
Directors has delegated authority to amend the Plan, which amendment or
amendments shall not cause any part of the plan funds to be used for, or
directed to, any purposes other than the exclusive benefit of participants,
former participants or their beneficiaries, nor shall any such amendment reduce
the amount of accrued benefit of any participant or beneficiary within the
meaning of Code (S) 411(d)(6) except to the extent permitted by Code (S)
411(d)(6) or the Treasury Regulations thereunder.
49
<PAGE>
ARTICLE XVII
RIGHTS RESERVED
---------------
The establishment of the Plan as evidenced hereby or as hereafter modified,
the creation of any funds or accounts or the payment of any benefit hereunder
shall not be construed as giving any participant, or any other person, any legal
or equitable right against the employer, the trustee, or the Plan Administrator,
unless the same shall be specifically provided for in this document or conferred
by affirmative action of the employer in accordance with the terms and
provisions of this Plan or as giving any employee or participant the right to be
retained in the service of the employer. All employees shall remain subject to
discharge by the employer to the same extent as if this Plan had never been
executed.
50
<PAGE>
ARTICLE XVIII
TOP-HEAVY PROVISIONS
--------------------
If the Plan is top-heavy in any plan year, the provisions of Appendix IV,
attached hereto and incorporated herein, shall supersede any conflicting
provisions in the Plan.
51
<PAGE>
ARTICLE XIX
LOANS
-----
A participant may borrow from his or her account in accordance with a non-
discriminatory written loan policy, which is incorporated herein by reference.
52
<PAGE>
ARTICLE XX
ANNUITY DISTRIBUTIONS TO PARTICIPANTS AND BENEFICIARIES
-------------------------------------------------------
20.1 APPLICABILITY. The provisions of this Article XX shall apply only to
-------------
the participants who (1) had accounts transferred to this Plan from a plan which
provided the option of receiving distributions in the form of an annuity (as
shown in Appendix V), and (2) have chosen to receive their distribution upon
death, disability, or termination of employment in the form of a life annuity.
This Article XX applies only to those accounts described in Appendix V that were
transferred from the prior plan in a plan merger, plan-to-plan asset transfer or
other transfer for which the annuity distribution option is required by law to
be preserved with respect to the transferred accounts. Thus, for example, this
Article XX does not apply to regular rollovers.
20.2 DEFINITIONS.
------------
(a) ANNUITY STARTING DATE means the first day of the first period for
---------------------
which an amount is paid as an annuity.
(b) ELECTION PERIOD means the period beginning on the first day of the
---------------
plan year in which a participant attains 35 and ending on the date of the
participant's death. If a participant separates from service before the first
day of the plan year in which he reaches age 35, the election period with
respect to his or her account balance as of the date of separation shall begin
on the date of separation. A participant who will not attain age 35 as of the
end of a plan year may make a valid waiver election to waive the qualified
preretirement survivor annuity for the period beginning on the date of the
election and ending on first day of the plan year in which the participant will
attain age 35. Qualified preretirement survivor annuity coverage will be
53
<PAGE>
automatically reinstated as of the first day of the plan year in which a
participant attains age 35. Any new waiver on or after that date shall be
subject to the full requirements of this Article XX.
(c) QUALIFIED JOINT AND SURVIVOR ANNUITY means an immediate annuity
------------------------------------
purchasable with the participant's vested account balance which provides a life
annuity for the participant and a survivor annuity payable for the remaining
life of the participant's surviving spouse equal to at least 50% and not more
than 100% of the amount of the annuity payable during the life of the
participant.
(d) PRERETIREMENT SURVIVOR ANNUITY means an annuity which is purchasable
------------------------------
with 100% of the participant's vested account balance (as determined on the date
of the participant's death) and which is payable for the life of the
participant's surviving spouse.
(e) SPOUSE means the current spouse or surviving spouse of a participant
------
except that a former spouse will be treated as a spouse or surviving spouse (and
a current spouse will not be treated as the spouse or surviving spouse) to the
extent provided under a qualified domestic relations order.
20.3 DISTRIBUTION IN THE FORM OF A JOINT AND SURVIVOR ANNUITY.
--------------------------------------------------------
A participant who is married shall receive his or her vested account balance in
the form of a joint and survivor annuity unless the participant completes a
valid waiver election within the 90-day period ending on the annuity starting
date. The participant's waiver election will not be required to meet the spousal
consent requirements if: (1) the participant does not have a spouse; (2) the
Plan is unable to locate the participant's spouse; (3) the participant is
legally separated or has been abandoned (within the meaning of state law) and
the participant has a court order to that effect; or (4) other circumstances
exist under which the Secretary of the Treasury will excuse the
54
<PAGE>
consent requirement. If the participant's spouse is legally incompetent to give
consent, the spouse's legal guardian (even if the legal guardian is the
participant) may give consent.
20.4 DISTRIBUTION IN THE FORM OF A PRERETIREMENT SURVIVOR ANNUITY. If a
------------------------------------------------------------
married participant dies prior to his or her annuity starting date, the
participant's surviving spouse shall receive a portion of the participant's
vested account balance in the form of a preretirement survivor annuity, unless
the participant had a valid waiver election in effect, or unless the participant
and his or her spouse were not married through a one year period ending on the
date of the participant's death.
20.5 WAIVER ELECTION - QUALIFIED JOINT AND SURVIVOR ANNUITY.
------------------------------------------------------
During the 90-day period prior to the participant's annuity starting date, a
participant may waive the requirement to receive his or her benefit under the
Plan in the form of a joint and survivor annuity. In order to waive the
election, the participant must have received a written explanation of the terms
and conditions of the qualified joint and survivor annuity as described in
Section 20.7.
A married participant's waiver election shall not be valid unless the
participant's spouse: (1) has consented in writing to the election waiver and a
notary public or the plan administrator (or his or her representative) witnesses
the spouse's consent; (2) the spouse consents to the alternate form of payment
designated by the participant or to any change in the designated form of
payment; and (3) unless the spouse is the participant's sole beneficiary, the
spouse consents to the participant's beneficiary designation or to any change in
the participant's beneficiary designation.
55
<PAGE>
20.6 WAIVER ELECTION - PRERETIREMENT SURVIVOR ANNUITY. A participant's
------------------------------------------------
waiver election of the preretirement survivor annuity is not valid unless: (1)
the participant makes the waiver election during the election period as defined
in this section; and (2) the participant's spouse (to whom the preretirement
survivor annuity is payable) satisfies the consent requirements described in
Section 20.5, except that the spouse need not consent to the form of benefit
payable to the designated beneficiary. The spouse's consent to the waiver of the
preretirement survivor annuity is irrevocable, unless the participant revokes
the waiver election. A waiver election described in this paragraph is not valid
unless made after the participant has received the written explanation described
in Section 20.7.
20.7 NOTICE REQUIREMENTS. In the case of a qualified joint and survivor
-------------------
annuity, no less than 30 days and no more than 90 days before a participant's
annuity starting date the plan administrator shall provide to the participant a
written explanation of: (1) the terms and conditions of a qualified joint and
survivor annuity; (2) the participant's right to make, and the effect of, an
election to waive the qualified joint and survivor annuity form of benefit; (3)
the rights of the participant's spouse; and (4) the right to make, and the
effect of, a revocation of a previous election to waive the qualified joint and
survivor annuity. The Plan may provide the written explanation described above
after the annuity starting date, provided that the distribution begins at least
30 days after the date on which such explanation is provided. Notwithstanding
the foregoing, the Plan may permit a participant to elect to waive the
requirement that the written explanation be provided at least 30 days before the
annuity starting date. Such a waiver is allowed only if the distribution
commences more than 7 days after the written explanation is provided.
56
<PAGE>
In the case of a qualified preretirement annuity, the plan administrator
shall provide to the participant a written explanation of the qualified
preretirement survivor annuity, in terms and manner comparable to the
requirements applicable to the explanation of a qualified joint and survivor
annuity as described in the preceding paragraph. The explanation shall be
provided by the latest of the following periods: (1) the period beginning with
the first day of the plan year in which the participant attains age 32 and
ending with the close of the plan year preceding the plan year in which the
participant attains age 35; (2) a reasonable period ending after an individual
becomes a participant; or (3) a reasonable period ending after this Article XX
first applies to the participant. Notwithstanding the foregoing, in the case of
a participant who separates from service before attaining age 35, notice must be
provided within a reasonable time ending after his separation from service.
A reasonable period of time shall be the end of a two-year period beginning
one year before the date the applicable event occurs, and ending one year after
that date. In the case of a participant who separates from service before the
plan year in which he reaches age 35, notice shall be provided within the two-
year period beginning one year before the separation and ending one year after
the separation. If such a participant thereafter returns to employment with the
employer, the applicable period for the participant shall be redetermined.
20.8 DISTRIBUTION OF ACCOUNTS OF LESS THAN $5,000. Notwithstanding any
--------------------------------------------
provision of this Article XX to the contrary, if a participant's vested account
balance does not exceed $5,000 on the date of distribution (and has never
exceeded $5,000 at the time of a prior distribution), the participant's benefit
shall be distributed in the form of a lump sum.
20.9 PROVISION OF ANNUITIES. All annuities provided under this Plan
----------------------
shall be purchased from an insurance company selected by Microsoft Corporation.
57
<PAGE>
ARTICLE XXI
VOLUNTARY AFTER-TAX CONTRIBUTIONS
---------------------------------
21.1 ELECTION TO MAKE VOLUNTARY AFTER-TAX CONTRIBUTIONS. In the same
--------------------------------------------------
manner as described in Article III for employee salary deferrals, a participant
may elect to contribute on an after-tax basis from 1% to 7% of each of his or
her compensation payments to an employee after-tax contribution account under
the Plan, provided, however, that the contributions shall be subject to the
limitations of Code (S)415 (as described in Section 9.1 of the Plan) and Code
(S)401(m) (as described in Section 9.7 and Appendix III.9.5.C. of the Plan).
21.2 VESTING OF VOLUNTARY AFTER-TAX CONTRIBUTIONS. A participant's
--------------------------------------------
voluntary after-tax contributions made to the Plan in accordance with Section
21.1 shall be fully vested at all times.
21.3 ESTABLISHMENT OF VOLUNTARY AFTER-TAX CONTRIBUTIONS ACCOUNTS. For
-----------------------------------------------------------
participants who elect to make a contribution under this Article XXI, the
employer shall establish a separate account for the participant. These accounts
shall be labeled employee after-tax contribution accounts.
21.4 LIMITATIONS ON VOLUNTARY AFTER-TAX CONTRIBUTIONS. A participant's
------------------------------------------------
voluntary after-tax contributions shall be subject to the limitations on total
account contributions under Section 9.1 of the Plan. If a participant who has
made voluntary after-tax contributions during the plan year exceeds the
limitation under Section 9.1, the after-tax contributions shall be distributed
to the participant before any distribution from the participant's salary
deferral account is made.
A participant's voluntary after-tax contributions shall also be subject to
the average contributions percentage test as described in Section 9.7 and
Appendix III.9.5.C. of the Plan. For
58
<PAGE>
purposes of such test and calculating a participant's contribution percentage,
an employee's voluntary after-tax contributions shall be added to the employer
matching contributions, the sum of which shall then be divided by the
participant's compensation. If a participant who has made voluntary after-tax
contributions during the plan year exceeds the limitations under Section 9.7 and
Appendix III.9.5.C. of the Plan, the after-tax contributions shall be
distributed to the participant before any distribution from the participant's
employer contribution account is made.
21.5 DEFINITION OF COMPENSATION. Any employee voluntary after-tax
--------------------------
contributions made by a participant during the plan year shall be included in
the definition of compensation in Appendix I of the Plan.
21.6 PLAN TERMS APPLICABLE TO VOLUNTARY AFTER-TAX CONTRIBUTIONS. The
----------------------------------------------------------
provisions of Article III applicable to the method of making an election to
contribute a portion of compensation, the provisions of Article VI regarding
participant's accounts and investments, the provisions of Article VII regarding
the payment of account balances upon termination, age 59 1/2 , death,
disability, qualified domestic relations orders, or the sale of the trade or
business, the provisions of Article VIII regarding hardship distributions, and
the provisions of Article XIX (which incorporates by reference the loan policy
of the Plan) and the loan policy shall all apply to participant voluntary after-
tax contributions. For purposes of these sections, except to the extent
provided otherwise under this Article, voluntary after-tax contributions shall
be treated in the same manner as participant s