MICROSOFT CORPORATION
SAVINGS PLUS 401(k) PLAN
TABLE OF CONTENTS
Page
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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.]
1
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,
------------
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
2
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;
3
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;
4
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.
5
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
-----------
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
---------
ending December 31.
1.12 TRUST FUND means the assets of the trust established and maintained
----------
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.
6
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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7
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
8
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
9
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.
10
ARTICLE IV
EMPLOYER MATCHING CONTRIBUTIONS AND FORFEITURES
-----------------------------------------------
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
11
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
12
(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
--------------------------
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
---------------- ----------------- --------------------
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
14
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.
15
5.4 HOUR OF SERVICE. An hour of service means each hour for which an
---------------
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,
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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
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
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
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
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
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
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
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
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
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
(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
(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
(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
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
(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
(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
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
(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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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 salary deferral contributions. In
addition, the general provisions of the Plan found in Article XI Administration,
Article XII Claims Procedure, Article XIII Nonalienation Provision, Article XIV
Termination, Article XV Merger or Consolidation, Article XVI Amendments, Article
XVII Rights Reserved,
59
Article XVIII Top-Heavy Provisions and similar articles or appendices shall
apply to the voluntary after-tax contributions to the Plan.
60
APPENDIX I
DEFINITION OF COMPENSATION
Section 1.3
I.1.3.A. Compensation:
------------
Compensation means an employee's wages, salaries, fees for professional
services, and other amounts received (without regard to whether or not an amount
is paid in cash) for personal services actually rendered in the course of
employment with the employer maintaining the plan to the extent that the amounts
are includible in gross income (including, but not limited to, bonuses,
commissions, and overtime pay). Compensation includes the employee's elective
salary reduction contributions not includible in gross income under Code (S) 125
(cafeteria plans) or (S) 402(e)(3) (401(k) plans); and compensation includes
foreign earned income (as defined in Code (S) 911(b)), whether or not excludable
from gross income under Code (S) 911. Compensation shall not include:
(a) (even if includible in gross income) reimbursements or other
expense allowances, fringe benefits (cash and noncash), moving expenses,
deferred compensation, welfare benefits, and bonuses and expense allowances
which are not based upon the participant's performance as an employee (examples
of non-performance based compensation include signing, relocation, press, and
patent bonuses, tax and foreign currency equalization payments, and anniversary
stock awards);
(b) employer contributions to a simplified employee pension
described in Code (S) 408(k), distributions from a plan of deferred compensation
(regardless of whether such amounts are includible in the gross income of the
employee when distributed);
I-1
(c) amounts realized from the exercise of a nonqualified stock
option, or when restricted stock (or property) held by an employee either
becomes freely transferable or is no longer subject to a substantial risk of
forfeiture;
(d) amounts realized by the employee from the sale, exchange or
other disposition of stock acquired under a qualified stock option; and
(e) other amounts which receive special tax benefits, such as
premiums for group-term life insurance.
I.1.3.B. Compensation for Employees of Controlled Group
----------------------------------------------
In the case of an employee of an employer which is a member of a controlled
group of corporations (as defined in Code (S) 414(b) as modified by Code (S)
415(h)), the term "compensation" for such employee includes compensation from
all employers that are members of the group, regardless of whether the
employee's particular employer has a qualified plan. This rule is also
applicable to an employee of two or more trades or businesses (whether or not
incorporated) that are under common control (as defined in Code (S) 414(c) as
modified by Code (S) 415(h)), to an employee of two or more members of an
affiliated service group as defined in Code (S) 414(m), and to an employee of
two or more members of any group of employers who must be aggregated and treated
as one employer pursuant to Code (S) 414(o).
I.1.3.C. Limitations on Compensation
---------------------------
(a) In addition to the applicable limitations set forth in the
Plan, and notwithstanding any other provisions of the Plan to the contrary the
annual compensation of each employee taken into account under the Plan shall not
exceed the OBRA '93 annual compensation limit. The OBRA '93 annual compensation
limit is $150,000, as adjusted by the Commissioner for increases in the cost of
living in accordance with Code (S) 401(a)(17)(B) (e.g., $160,000 in
I-2
1997). The cost-of-living adjustment in effect for a calendar year applies to
any period, not exceeding 12 months, over which compensation is determined (the
"determination period") beginning in such calendar year. If a determination
period consists of fewer than 12 months, the OBRA '93 annual compensation limit
will be multiplied by a fraction, the numerator of which is the number of months
in the determination period, and the denominator of which is 12.
Any reference in this Plan to the limitation under Code (S) 401(a)(17)
shall mean the OBRA '93 annual compensation limit set forth in this provision.
For purposes of determining the maximum dollar amount referred to in this
provision, the compensation of any participant who is either a 5% owner (as
defined in Code (S) 416(i)) or one of the ten most highly paid highly
compensated employees during the Plan year shall be aggregated with: (i) the
compensation of any lineal descendant who has not attained the age of 19, and
(ii) the compensation of a participant who is his or her spouse.
I-3
APPENDIX II
Sections 1.6, 2.1 and 5.2
EMPLOYERS MAINTAINING THE PLAN
Employer Effective Date
------------------------------------------- --------------------------
Microsoft Corporation January 1, 1987
Technology Resources Management Corporation November 23, 1992
Vermeer Technologies, Inc. April 1, 1996 - March 13, 1998
Microsoft Licensing, Inc. August 1, 1997
WebTV Networks, Inc. January 1, 1998
Hotmail Corporation April 1, 1998
Microsoft - Health, LLC September 21, 1998
MSNBC Interactive News L.L.C. January 1, 1999
Expedia, Inc. November 1 - December 31, 1999
Visio Corporation March 1, 2000
EMPLOYEES' PREPARTICIPATION SERVICE WITH THESE COMPANIES
IS COUNTED FOR ELIGIBILITY AND VESTING
Company Effective Date Credit is Granted
------------------------------------------- --------------------------------
Microsoft Corporation January 1, 1987
Technology Resources Management Corporation November 23, 1992
Fox Software, Inc. July 1, 1992
SOFTIMAGE, Inc. June 27, 1994
Bauer Group, Inc. July 1, 1989
Forethought, Inc. August 1, 1987
Altamira Software Corporation September 16, 1994
NextBase, Ltd. October 31, 1994
Automap, Inc. October 31, 1994
One Tree Software, Inc. November 10, 1994
Natural Language Inc. February 22, 1995
Network Managers Ltd. August 28, 1995
II-1
Company Effective Date Credit is Granted
---------------------------------------------------- --------------------------------
Blue Ribbon SoundWorks October 13, 1995
Netwise October 28, 1995
Bruce Artwick Organization December 1, 1995
Vermeer Technologies, Inc. January 12, 1996
(Note: service credit is as described in Appendix
V)
Colusa Software, Inc. February 9, 1996
Aspect Software Engineering, Inc. March 22, 1996
Aha! software corp. March 27, 1996
EXOS, Inc. April 12, 1996
EShop Inc. June 20, 1996
(Note: service credit is as described in Appendix
V)
ResNova Software, Inc. November 14, 1996
Panorama Software Systems Ltd. January 2, 1997
EMPLOYEES' PREPARTICIPATION SERVICE WITH THESE COMPANIES
IS COUNTED FOR VESTING
Company Effective Date Credit is Granted
---------------------------------------------------- ---------------------------------
NetCarta Corporation January 31, 1997
Interse` Corporation February 25, 1997
Dimension X May 13, 1997
Cooper & Peters, Inc. June 11, 1997
LinkAge Software (1997) Inc. June 27, 1997
(and its predecessor, LinkAge Software Inc.)
VXtreme, Inc. July 31, 1997
WebTV Networks, Inc. August 1, 1997
(Note: service credit is as described in Appendix
V)
Hotmail Corporation December 30, 1997
Firefly Network, Inc. April 15, 1998
The Mesa Group, Inc. April 24, 1998
Valence Research August 7, 1998
II-2
Company Effective Date Credit is Granted
---------------------------------------------------- --------------------------------
LinkExchange Inc. November 4, 1998
Virtual World Entertainment Group, Inc. January 11, 1999
FASA Interactive Technology, Inc. January 11, 1999
Compare Net, Inc. March 4, 1999
Access Software Incorporated April 29, 1999
Jump Networks, Inc. April 30, 1999
Intrinsa Corporation June 29, 1999
Entropic Research Laboratory, Inc. November 4, 1999
Visio Corporation January 7, 2000
In order to receive preparticipation service credit for service with any of
the foregoing companies except Microsoft Corporation ("Microsoft"), Technology
Resources Management Corporation ("TRMC"), Vermeer Technologies, Inc. ("VTI")
and eShop Inc. (each of the foregoing is hereinafter referred to as a "Former
Employer"), the employee must be employed by Microsoft, TRMC, VTI or a company
which is affiliated (within the meaning of Code Sections 414(b), (c), (m) or
(o)) with Microsoft, TRMC or VTI, in connection with Microsoft's (or its
affiliate's) acquisition of or merger with such Former Employer (or a trade or
business thereof). Any employee who has previously worked for one of the Former
Employers and whose employment with Microsoft, TRMC, VTI or one of its
affiliates is not connected with Microsoft's (or its affiliate's) acquisition of
or merger with such Former Employer (or a trade or business thereof) will not
receive credit for his or her prior service with the Former Employer.
Preparticipation service credit is counted for eligibility and vesting
purposes for an employee's service with the following companies despite the fact
that neither Microsoft nor an affiliate of Microsoft acquired or merged with
such company (or a trade or business thereof). Notwithstanding the foregoing,
service with the following companies will only be counted for
II-3
those employees who are employed with Microsoft (or an affiliate of Microsoft)
on the effective date set forth below on which service credit is granted for
service with such company.
EMPLOYEES' PREPARTICIPATION SERVICE WITH THESE COMPANIES
IS COUNTED FOR ELIGIBILITY AND VESTING
(NOTE: These Companies were not Acquired)
Company Effective Date Credit is Granted
-------------------------------------- ------------------------------------
Charles View Software, Inc. June 1, 1996
Prior service with MSNBC Interactive News L.L.C. and, for employees of MSNBC
Interactive News L.L.C., service with National Broadcast Company, shall also be
counted towards vesting. See Appendix V.G. regarding calculation of such
vesting service credit.
II-4
APPENDIX III
CODE (S) 401(k) LIMITATIONS OF COMPENSATION DEFERRALS AND CODE (S) 401(m)
LIMITATIONS ON COMPENSATION DEFERRALS
III.9.5.A. Definition of Highly Compensated Employee.
-----------------------------------------
"Highly compensated employee" shall mean:
(a) Any employee who performs services for the employer during the
"determination year" and who, during the "determination year" (1) was a 5% owner
of the employer; (2) received compensation from the employer in excess of
$75,000 (as adjusted for increases in cost of living as reported in IRS
publications); (3) received compensation from the employer in excess of $50,000
(as adjusted for increases in cost of living as reported in IRS publications)
and was a member of the "top-paid group" for such year; or (4) was an officer of
the employer and received compensation during such year that is greater than 50%
of the dollar limitation in effect under Code (S) 415(c)(1(A);
(b) Any employee who separated from service (or was deemed to have
separated) prior to the determination year, and met the description in (a) above
for either the separation year or any determination year ending on or after the
employee's 55th birthday.
(c) If no officer of the employer has compensation in excess of 50%
of the dollar limitation in effect under Code (S) 415(b)(1)(A) during a
determination year, the highest paid officer for such year shall be treated as a
highly compensated employee.
(d) If an employee is, during a determination year, a "family
member" of either a 5% owner who is an employee or of a highly compensated
employee in the group consisting of the 10 most highly compensated employees
ranked on the basis of compensation paid by the employer during such year, then
the family member and 5% owner or top-ten highly
III-1
compensated employee shall be treated as a single employee, and their
compensation and contributions or benefits under this Plan shall be aggregated.
Except as otherwise provided under Code (S) 401(a)(17), "family member" includes
the spouse, lineal ascendants and descendants of the employee or former
employee, and the spouses of such lineal ascendants and descendants.
(e) The "determination year" shall be the plan year for which
compliance is being tested, and the "look-back year" shall be the calendar year
ending at the end of the determination year (see the calendar year calculation
election pursuant to Temporary Treasury Regulation 1.414(q)-IT, Q&A-14(b)).
Because the look-back year is the same as the determination year, the look-back
year shall be referred to herein as the determination year.
(f) The "top-paid group" for a determination year shall consist of
the top 20% of employees ranked on the basis of compensation received during the
year excluding employees described in Code (S) 414(q)(8) and Treasury
regulations thereunder. The number of employees treated as officers shall be
limited to 50 (or, if less, the greater of 3 employees or 10% of the employees).
For purposes of this definition of "highly compensated employee", "compensation"
means compensation within the meaning of Code (S) 415(c)(3), but including
elective or salary reduction contributions to a cafeteria plan, cash or deferred
arrangement, or tax-sheltered annuity.
(g) Notwithstanding the foregoing, for any year that the requirements
set forth in Code Section 414(q)(12) and any regulations thereunder are
satisfied, (a)(2) above shall be applied by substituting "$50,000" for
"$75,000", and (a)(3) above shall not apply.
III-2
III.9.5.B. Code (S) 401(k) Limitations on Compensation Deferrals.
-----------------------------------------------------
(a) The Plan Administrator will estimate as soon as practicable
before the close of the plan year and at such other times as the Plan
Administrator in its discretion determines, the extent, if any, to which any
participant or class of participants will have to reduce contributions under
this Plan.
(b) For each plan year, an actual deferral percentage will be
determined for each participant equal to the ratio of the total amount of the
participant's salary deferrals under section 3.1 for the plan year divided by
the participant's compensation in the plan year. In the case of family members
treated as a single highly compensated employee under the definition of "highly
compensated employee", in accordance with the family aggregation rules of Code
(S) 414(q)(6), the actual deferral percentage shall be the greater of the (1)
the actual deferral percentage determined by combining the compensation
deferrals and compensation of all eligible family members who are highly
compensated employees without regard to family aggregation, and (2) the actual
deferral percentage determined by combining the salary deferrals and
compensation of all eligible family members. Except to the extent taken into
account in the preceding sentence, the deferrals and compensation of such family
members shall be disregarded for purposes of this section. Except as otherwise
provided in this paragraph (b), with respect to participants who have made no
salary deferrals under this plan, such actual deferral percentage will be zero.
(c) The average of the actual deferral percentages for highly
compensated employees ("high average") when compared with the average of the
actual deferral percentages for non-highly compensated employees ("low average")
must meet one of the following requirements:
III-3
(1) The high average is no greater than 1.25 times the low
average; or
(2) The high average is no greater than two times the low
average and the high average is no greater than the low average plus two
percentage points.
(d) If, pursuant to the estimates by the Plan Administrator under (a)
and (b) above, a participant or class of participants is not eligible for salary
deferral treatment for any or all of the amounts deferred, then the Plan
Administrator may elect, at its discretion, to pursue any of the following
courses of action or any combination thereof:
(1) Excess salary deferrals, and any earnings attributable
thereto through the date of distribution, may be returned to the employer
employing the participant, solely for the purpose of enabling the employer to
withhold any federal, state, or local taxes due on such amounts. The employer
will pay all remaining amounts to the participant within the 2-1/2 month period
following the close of the plan year to which the excess salary deferrals relate
to the extent feasible. but in all events no later than 12 months after the
close of such plan year.
(2) The Plan Administrator may authorize a suspension or
reduction of salary deferrals.
(3) The company, in its discretion, may make a contribution to
the Plan, which will be allocated as a fixed dollar amount among the accounts of
non-highly compensated employees who have met the requirements of section 2.1
(e) The amount of the excess salary deferrals will be determined by
the Plan Administrator by reducing the actual deferral percentage of the highly
compensated employee(s) with the highest actual deferral percentage to the
extent required to enable the plan to meet the limits in (c) above or to cause
the actual deferral percentage of such employee(s) to equal the actual deferral
percentage of the highly compensated employee(s) with the next-highest actual
III-4
deferral percentage. The process in the preceding sentence shall be repeated
until the Plan satisfies the limits in (c) above. In the case of family members
subject to the family aggregation rules of Code (S) 414(q)(6), excess salary
deferrals will be allocated among family members in proportion to the salary
deferrals of each family member that have been combined under section
III.9.5.B.(b) above. Where the actual deferral percentage is determined under
section III.9.5.B.(b)(1) above, however, excess salary deferrals will be
allocated first among the eligible highly compensated employee family members in
proportion to the salary deferrals of each such highly compensated employee
family member until the actual deferral percentage of the eligible highly
compensated employee family members has been reduced to the actual deferral
percentage of the eligible non-highly compensated employee family members. If
reduction of the actual deferral percentage below that of the eligible non-
highly compensated employee family members is required under section
III.9.5.B.(b)(1) to enable the plan to meet the limits in section III.9.5.B.(c)
above, such further reduction shall take into account the salary deferrals of
all eligible family members and shall be allocated among all such family members
in proportion to their salary deferrals. The earnings attributable to excess
salary deferrals will be determined in accordance with Treasury Regulations.
(f) In the discretion of the Plan Administrator, the tests described
in this section may be applied by aggregating the Plan with any other defined
contribution plans permitted under the Code.
III.9.5.C. Code (S) 401(m) Limitations on Employer Matching Contributions.
--------------------------------------------------------------
(a) For each plan year, a contribution percentage will be determined
for each participant equal to the ratio of the total amount of the participant's
employer matching contributions under section 4.1 for the plan year divided by
the participant's compensation for the
III-5
plan year. Any employer matching contributions or employer contributions treated
as salary deferrals under section III.9.5.B.(b) shall not be used to satisfy the
requirements of this Section III.9.5.B.(a), except as otherwise permitted by the
Code or Treasury Regulations. In the case of family members treated as a single
highly compensated employee under the definition of "highly compensated
employee" in accordance with the family aggregation rules of Code (S) 414(q)(6),
the contribution percentage shall be the greater of (1) the contribution
percentage determined by combining the employer matching contributions and
compensation of all eligible family members who are highly compensated employees
without regard to family aggregation, and (2) the actual contribution percentage
determined by combining the employer matching contributions and compensation of
all eligible family members. Except to the extent taken into account in the
preceding sentence, the employer matching contributions, compensation and all
amounts treated as employer matching contributions of such family members shall
be disregarded for purposes of this section III.9.5.C. Except as otherwise
provided in this Section III.9.5.C.(b), with respect to participants and for
whom there were no employer matching contributions under this plan, such
contribution percentage will be zero.
(b) The average of the contribution percentages for highly
compensated employees ("high average") when compared with the average of the
contribution percentages for non-highly compensated employees ("low average")
does not exceed the greater of:
(1) 1.25 times the low average; or
(2) The lesser of two times the low average, or the low average
plus two percentage points.
(c) If the contribution percentage for any plan year for highly
compensated employees exceeds the limits established in (b), the excess
contributions for such plan year (and
III-6
the earnings attributable to such excess contributions through the date of
distribution) shall be distributed to the highly compensated employees so that
the contribution percentage of the highly compensated employee(s) with the
highest contribution percentage is reduced to the extent required to enable the
plan to meet the limits in (b) above or to cause the contribution percentage of
such employee(s) to equal the contribution percentage of the highly compensated
employee(s) with the next-highest contribution percentage. The process in the
preceding sentence shall be repeated until the plan satisfies the limits in (b)
above. In the case of family members subject to the family aggregation rules of
Code (S) 414(q)(6), excess contributions will be allocated among family members
in proportion to the employer matching contributions of each family member that
have been combined under section III.9.5.C.(a) above. Where the contribution
percentage is determined under section III.9.5.C.(a)(1) above, however, excess
employer matching contributions will be allocated first among the eligible
highly compensated employee family members in proportion to the employer
matching contributions of each such highly compensated employee family member
until the contribution percentage of the eligible highly compensated employee
family members has been reduced to the contribution percentage of the eligible
non-highly compensated employee family members. If reduction of the contribution
percentage below that of the eligible non-highly compensated employee family
members is required under section III.9.5.C.(a)(1) to enable the plan to meet
the limits in section A.3(b) above, such further reduction shall take into
account the employer matching contributions of all eligible family members in
proportion to their employer matching contributions. The earnings attributable
to excess contributions will be determined in accordance with Treasury
Regulations.
III-7
(d) The tests of sections III.9.5.B.(c) and III.9.5.C.(b) shall be
met in accordance with the prohibition against the multiple use of the
alternative limitation under Code (S) 401(m)(9).
III-8
APPENDIX IV
IV.18.A. TOP-HEAVY DEFINITIONS. The definitions relating to top-heavy
---------------------
plan provisions are as follows:
(a) Key Employee shall mean any employee or former employee (and the
------------
beneficiaries of such employee) who, in the plan year containing the
determination date, or any of the four preceding plan years is:
(i) An officer of the employer having an annual compensation
from the employer greater than 50 percent of the amount in effect under Code (S)
415(b)(1)(A) for any such plan year. Not more than fifty employees (or, if
fewer, the greater of three employees or ten percent of the employees),
including those employees included under subparagraph (ii), (iii) and (iv)
below, shall be considered as officers for purposes of this subparagraph.
(ii) One of the ten employees having an annual compensation
from the employer of more than the amount in effect under Code (S) 415(c)(1)(A)
in the plan year and owning (or considered as owning within the meaning of Code
(S) 318) the largest interests in the employer.
(iii) A five-percent owner of the employer.
(iv) A one-percent owner of the employer having an annual
compensation (within the meaning of Code (S) 414(q)(7)) from the employer of
more than $150,000 for a plan year.
Whether an employee is a five-percent owner or a one-percent owner shall be
determined in accordance with Code (S) 416(i). If any individual has not
performed services for the employer at any time during the five-year period
ending on the determination date, any accrued benefit for such individual shall
not be taken into account.
IV-1
(b) Top-Heavy Plan shall mean that this Plan is considered top-heavy
--------------
for any plan year if any of the following conditions exists:
(i) If the top-heavy ratio for this Plan exceeds 60% and this
Plan is not part of any required aggregation group or permissive aggregation
group of plans.
(ii) If this Plan is a part of a required aggregation group of
plans but not part of a permissive aggregation group and the top-heavy ratio for
the group of plans exceeds 60%.
(iii) If this Plan is a part of a required aggregation group and
part of a permissive aggregation group of plans and the top-heavy ratio for the
permissive aggregation group exceeds 60%.
(c) Top-Heavy Ratios shall mean the ratios calculated as follows:
----------------
(i) If the employer maintains one or more defined contribution
plans (including any simplified employee pension plan) and the employer has not
maintained any defined benefit plan which during the 5-year period ending on the
determination date(s) has or has had accrued benefits, the top-heavy ratio for
this Plan alone or for the required or permissive aggregation group as
appropriate is a fraction, the numerator of which is the sum of the account
balances of all key employees as of the determination date(s) (including any
part of any account balance distributed in the 5-year period ending on the
determination date(s)), and the denominator of which is the sum of all account
balances (including any part of any account balance distributed in the 5-year
period ending on the determination date(s)), both computed in accordance with
Code (S) 416 and the regulations thereunder. Both the numerator and denominator
of the top-heavy ratio are adjusted to reflect any contribution not actually
made as
IV-2
of the determination date, but which is required to be taken into account on
that date under Code (S) 416 and the regulations thereunder.
(ii) If the employer maintains one or more defined contribution
plans (including any simplified employee pension plan) and the employer
maintains or has maintained one or more defined benefit plans which during the
5-year period ending on the determination date(s) has or has had any accrued
benefits, the top-heavy ratio for any required or permissive aggregation group
as appropriate is a fraction, the numerator of which is the sum of account
balances under the aggregated defined contribution plan or plans for all key
employees, determined in accordance with (i) above, and the present value of
accrued benefits under the aggregated defined benefit plan or plans for all key
employees as of the determination date(s), and the denominator of which is the
sum of the account balances under the aggregated defined contribution plan or
plans for all participants, determined in accordance with (i) above, and the
present value of accrued benefits under the defined benefit plan or plans for
all participants as of the determination date(s), all determined in accordance
with Code (S) 416 and the regulations thereunder. The accrued benefits under a
defined benefit plan in both the numerator and denominator of the top-heavy
ratio are adjusted for any distribution of an accrued benefit made in the five-
year period ending on the determination date.
(iii) For purposes of (i) and (ii) above the value of account
balances and the present value of accrued benefits will be determined as of the
most recent valuation date that falls within or ends with the 12-month period
ending on the determination date, except as provided in Code (S) 416 and the
regulations thereunder for the first and second plan years of a defined benefit
plan. The account balances and accrued benefits of a participant (1) who is not
a key employee but who was a key employee in a prior year, or (2) who has not
been credited with
IV-3
at least one hour of service with any employer maintaining the Plan at any time
during the 5-year period ending on the determination date will be disregarded.
The calculation of the top-heavy ratio, and the extent to which distributions,
rollovers, and transfers are taken into account will be made in accordance with
Code (S) 416 and the regulations thereunder. Deductible employee contributions
will not be taken into account for purposes of computing the top-heavy ratio.
When aggregating plans the value of account balances and accrued benefits will
be calculated with reference to the determination dates that fall within the
same calendar year.
(d) Permissive Aggregation Group shall mean the required aggregation
----------------------------
group of plans plus any other plan or plans of the employer which, when
considered as a group with the required aggregation group, would continue to
satisfy the requirements of Code (S)(S) 401(a) (4) and 410.
(e) Required Aggregation Group shall mean each qualified plan of the
--------------------------
employer in which at least one key employee participates or participated at any
time during the determination period (regardless of whether the plan has
terminated), and any other qualified plan of the employer which enables such a
plan to ,meet the requirements of Code (S) 401(a)(4) or (S) 410.
(f) Determination Date shall mean for any plan year subsequent to the
------------------
first plan year, the last day of the preceding plan year; for the first plan
year of the Plan, the last day of that year.
(g) Valuation Date shall mean the date as of which account balances
---------
or accrued benefits are valued for purposes of calculating the top-heavy ratio.
(h) Present value shall be based only on the interest and mortality
-------
rates specified in the adoption agreement.
IV-4
IV.18.B. MINIMUM ALLOCATION.
------------------
The employer contributions and forfeitures allocated on behalf of any
participant employed on the last day of the plan year, who is not a key
employee, shall not be less than the lesser of three percent of such
participant's compensation or in the case where the employer has no defined
benefit plan which designates this plan to satisfy Code (S) 401, the largest
percentage of employer contributions and forfeitures, as a percentage of the
first $160,000 (or the adjusted limitation under Code (S) 401(a)(17)) of the key
employee's compensation, allocated on behalf of any key employee for that year.
If the highest rate allocated to a key employee for a year in which the Plan is
top heavy is less than 3%, amounts contributed as a result of a salary deferral
agreement shall be included in determining contributions made on behalf of key
employees. The minimum allocation is determined without regard to any Social
Security contribution. This minimum allocation shall be made even though, under
other plan provisions, the participant would not otherwise be entitled to
receive an allocation, or would have received a lesser allocation for the year
because of (1) the participant's failure to complete 1,000 hours of service (or
any equivalent provided in the Plan), or (2) the participant's failure to make
mandatory employee contributions to the Plan, or (3) compensation less than a
stated amount. An allocation under this section shall not be made if the
participant is covered under any other plan or plans of the employer and the
minimum allocation or benefit requirement applicable to top-heavy plans will be
met in the other plan or plans. The definition of compensation in section 1.3 of
the Plan shall be the definition for determining minimum allocations under this
section. This definition shall be used for all top-heavy purposes, including
determining whether an employee is a key employee.
IV-5
APPENDIX V
SPECIAL PROVISIONS FOR ACCOUNTS OR PARTICIPANTS TRANSFERRED
FROM OTHER PLANS IN CONNECTION WITH PLAN
MERGERS OR TRUST-TO-TRUST TRANSFERS
A. Former Accounts and Participants of the Vermeer Technologies 401(k) Plan
1. History of Corporate Merger. On January 12, 1996, Vermeer
---------------------------
Technologies, Inc. merged with a wholly-owned subsidiary of Microsoft
Corporation, and the merged entity remained a wholly-owned subsidiary of
Microsoft. On February 21, 1996 the name of the subsidiary (i.e., the merged
entity) was changed from Vermeer Technologies, Inc. to Microsoft Web Authoring
Product Unit, Inc. ("MWAPUI"). On March 26, 1996 the name of the subsidiary was
changed back to Vermeer Technologies, Inc. ("VTI"). At the time of the merger,
VTI was the plan sponsor of the Vermeer Technologies 401(k) Plan ("V-Plan").
After the merger, VTI employees continued to actively participate in the V-Plan.
2. Plan Merger. Effective April 1, 1996, the V-Plan is merged into the
-----------
Microsoft Corporation Savings Plus 401(k) Plan ("Plan"), and this plan document
for the plan, as amended previously and by this Amendment, is the surviving plan
document.
Only employee 401(k) salary deferrals and rollovers have been contributed
to the V-Plan; no employer matching or discretionary profit sharing
contributions have ever been made to the V-Plan. The only accounts which
participants have in the V-Plan are 401(k) salary deferral and rollover accounts
("V-Accounts"), both of which are and always have been nonforfeitable. The V-
Accounts are transferred to the Plan without alteration and shall be kept
separate from other accounts held in the Plan by former V-Plan participants. The
V-Accounts shall only contain amounts transferred from the V-Plan, and shall
always be kept separate from the salary deferral,
V-1
matching and rollover accounts that former V-Plan participants have after April
1, 1996. However, each former V-Plan participant's V-Plan salary deferral and
rollover account (if any) may be consolidated into one V-Account at the Plan
Administrator's discretion if the accounts have identical rights, features,
conditions, and limits.
3. Eligibility. The age 18 minimum age requirement set forth in Plan
-----------
Section 2.1 shall not apply to any person who was ever employed by MWAPUI or VTI
on or before April 1, 1996. Every employee of VTI who on April 1, 1996 is an
eligible employee (as defined in Section 1.5 of the Plan) shall immediately
begin active participation in the Plan without having to satisfy the age 18
minimum age requirement set forth in Plan Section 2.1. Any participant in the V-
Plan on April 1, 1996 who is not an eligible employee as defined in Plan Section
1.5 shall be an inactive participant in the Plan and shall actively participate
in the Plan only if and when they become an eligible employee. Any person who is
employed by VTI on April 1, 1996 but is neither a participant in the V-Plan nor
an eligible employee as defined in Plan Section 1.5 shall become a participant
in the Plan if and when they become an eligible employee. Any person employed by
VTI after April 1, 1996 who was not employed by VTI or MWAPUI at any time on or
before April 1, 1996 shall be required to satisfy all of the eligibility
conditions of Plan Sections 1.5 and 2.1, including the age 18 minimum age
requirement.
4. Vesting and Vesting Service Credit. Participants are 100% vested in
----------------------------------
their V-Accounts which are transferred to the Plan effective April 1, 1996. For
purposes of determining their vested percentage in their employer matching
contribution account in this Plan, participants shall be credited with the whole
years of vesting service credited to them under the V-Plan as of December 31,
1995. Beginning with the 1996 plan year (commencing January 1, 1996), the
participant shall begin to earn vesting service credit under the elapsed time
method as
V-2
set forth in Article V of the Plan. In addition, if a participant worked at
least 1,000 hours between January 1, 1996 and March 31, 1996, the participant
shall be credited with one year of service for 1996 even if they do not work
every day in 1996. Notwithstanding anything in this Subsection 4 to the
contrary, a participant who is described in the previous sentence shall not
begin to earn credit under the elapsed time method of Article V until the 1997
plan year (commencing January 1, 1997).
5. Special Provisions Applicable to the V-Accounts. The following special
-----------------------------------------------
provisions apply only to the V-Accounts. With respect to the V-Accounts, the
following special provisions shall supersede any other provisions of this Plan
which are inconsistent with the following provisions.
6. Form of Benefit Payments. The participant may elect to have his or her
------------------------
V-Accounts distributed in a single lump sum payment or in installments, and in
cash or in kind. If the participant elects an in-kind distribution, the
participant's interest in the investments of his or her V-Accounts shall be
distributed in-kind. For example, if a participant's V-Account were invested 50%
in the Microsoft Stock Fund and 50% in the Magellan Fund and the participant
requested an in-kind distribution, the participant would receive half of her
account in the form of Microsoft stock and the other half of her account in
units of interest in the Magellan mutual fund (less any applicable tax
withholding). Participants may elect to have their V-Accounts distributed in
installments over a period not to exceed the participant's life expectancy or
the joint life expectancies of the participant and the participant's designated
beneficiary. The participant may elect to have the installments paid monthly,
quarterly, semi-annually or annually. If at the time of distribution to a
participant or beneficiary the participant's total vested account balance in the
Plan (including V-Accounts and other accounts) does not exceed $5,000 (and never
exceeded
V-3
$5,000 at the time of a prior distribution), then the V-Account balance will be
distributed in an immediate lump sum and installment payments will not be a
payment option.
7. Timing of Benefit Payments. Upon a participant's termination of
--------------------------
employment for reasons other than death, the participant's V-Account shall be
distributed as soon as possible after the account is valued. The distribution
shall be in cash or in kind, as elected by the participant. If a participant's
total vested account balance in the Plan (including V-Accounts and other
accounts) exceeds $5,000 at the time of distribution (or ever exceeded $5,000 at
the time of a prior distribution), then the participant may elect to delay
receipt or commencement of his or her V-Account until any date on or before the
date the participant reaches age 70 1/2. Any delayed distribution must comply
with the requirements of Code Section 401(a)(9) and the regulations thereunder
(including without limitation the incidental death benefit requirements). If the
participant with total vested plan account balance in excess of $5,000 does not
select a distribution date, the participant's V-Account shall be distributed as
soon as practicable after the participant reaches age 65 or terminates
employment, whichever occurs last.
The timing of the distribution of the V-Account upon a participant's death
shall depend upon whether the participant died before or after the commencement
of his or her benefit payments, and whether the participant was survived by a
beneficiary who was designated by the participant. If a participant dies prior
to the commencement of the distribution of his or her V-Account and is survived
by a designated beneficiary who is not his or her spouse, the distribution must
be made by December 31 of the calendar year in which the fifth anniversary of
the participant's death occurs unless the beneficiary elects to have installment
payments commence by the end of the first calendar year after the participant's
death. If the designated beneficiary is the participant's spouse, then the same
distribution rules described in the previous sentence apply,
V-4
except that the spouse may elect to delay distribution or commencement of
installment payments until the end of the calendar year in which the participant
would have attained age 70 1/2. Notwithstanding the foregoing, if the
participant dies before benefit payments from the Plan have commenced to the
participant and his or her vested account balance in the Plan does not exceed
$5,000 (and have never exceeded $5,000 at the time of a prior distribution),
distribution to the beneficiary shall be made in an immediate lump sum payment
in cash or in kind, as elected by the beneficiary. If the participant dies
before benefit payments have commenced, the participant's total vested account
balance in the Plan (including V-Accounts and other accounts) exceeds $5,000 (or
exceeded $5,000 at the time of a prior distribution), and the death beneficiary
is not a designated beneficiary, distribution of the participant's V-Account
balance will be made in a lump sum or installment payments (e.g., installment
payments over four years) as elected by the beneficiary provided, however, that
the total V-Account balance must be distributed no later than December 31 of the
calendar year in which the fifth anniversary of the participant's death occurs.
If the participant died while he was receiving installment payments of his
V-Account, the remaining portion of the V-Account shall be distributed at least
as rapidly as under the length and frequency of installment payments which the
participant had selected.
Distributions to beneficiaries may be made in cash or in kind, at the
election of the beneficiary.
Notwithstanding the foregoing, upon the death or termination of employment
of a participant with a vested total account balance in the Plan in excess of
$5,000, neither the participant nor his or her surviving spouse death
beneficiary may delay distribution beyond the date the participant attains (or
would have attained) age 65. Any references to age 70 1/2 in this
V-5
Subsection 7 shall be replaced with a reference to age 65. This paragraph shall
not be effective unless and until the Plan receives a favorable determination
letter from the Internal Revenue Service stating that this Amendment will not
adversely affect the tax-qualified status of the Plan.
8. Plan Loans. Any loans to a participant which are outstanding on April
----------
1, 1996 shall be transferred in kind along with the rest of the participant's
V-Accounts. A participant with such a loan outstanding shall have all of the
rights and be subject to all of the conditions of his or her loan as set forth
in his or her V-Plan loan documents.
B. Former Accounts and Participants of the eShop Inc. 401(k) Savings Plan
1. History of Corporate Merger. On June 20, 1996, eShop Inc. was merged
---------------------------
into Microsoft Corporation, with Microsoft Corporation being the surviving
corporation. After the corporate merger, certain former employees of eShop Inc.
became employees of Microsoft Corporation. As a result of the corporate merger,
Microsoft Corporation became the plan sponsor and administrator of the eShop
Inc. 401(k) Savings Plan ("E-Plan"), a tax-qualified profit sharing plan which
has a 401(k) feature. Although the E-Plan provides for discretionary employer
contributions (e.g., profit sharing and matching contributions), only employee
salary deferral contributions and rollover contributions have been made to the
E-Plan. The E-Plan was frozen as of June 20, 1996, and former eShop Inc.
employees stopped making salary deferral contributions to the E-Plan effective
June 20, 1996. The former eShop Inc. employees will begin making salary deferral
contributions to the Microsoft Corporation Savings Plus Plan ("Plan") effective
August 1, 1996.
2. Plan Merger. Effective November 1, 1996, the E-Plan is merged into the
-----------
Plan, and this plan document for the Plan, as amended previously and by this
Amendment, is the surviving plan document. Although the E-Plan provides for
discretionary employer
V-6
contributions (e.g., profit sharing and matching contributions), only employee
salary deferral contributions and rollover contributions have been made to the
E-Plan; no employer matching or discretionary profit sharing contributions have
ever been made to the E-Plan. The only accounts ("E-Accounts") which
participants have in the E-Plan are a 401(k) salary deferral account ("Deferral
E-Account") and a rollover contribution account ("Rollover E-Account")
containing amounts which the participant had rolled into the E-Plan from another
plan or IRA. The E-Accounts are and always have been nonforfeitable. The E-
Accounts are transferred to the Plan without alteration. The Rollover E-Account
shall only contain amounts transferred from the E-Plan and shall always be kept
separate from the salary deferral, matching and rollover accounts that former E-
Plan participants have in this Plan after August 1, 1996. The Deferral E-Account
shall be merged with the former E-Plan participant's new salary deferral account
in the Plan which will hold deferrals which are made from salary earned on or
after August 1, 1996.
3. Eligibility. The age 18 minimum age requirement set forth in Plan
-----------
Section 2.1 shall not apply to any person who was ever employed by eShop Inc.
(previously known as Ink Development Corporation). Every former employee of
eShop Inc. or Ink Development Corporation who on or after August 1, 1996 is an
eligible employee (as defined in Section 1.5 of the Plan) shall immediately
begin active participation in the Plan without having to satisfy the age 18
minimum age requirement set forth in Plan Section 2.1. Any participant in the E-
Plan on November 1, 1996 who is not an eligible employee as defined in Plan
Section 1.5 shall be an inactive participant in the Plan and shall actively
participate in the Plan only if and when they become an eligible employee. Any
person who is employed on November 1, 1996 but is neither a participant in the
E-Plan nor an eligible employee as defined in Plan Section 1.5 shall become a
participant in the Plan if and when they become an eligible employee.
V-7
4. Vesting and Vesting Service Credit. Participants are 100% vested in
----------------------------------
their E-Accounts which are transferred to the Plan effective November 1, 1996.
For purposes of determining their vested percentage in their employer matching
contribution account in this Plan, participants shall be credited with the whole
years of vesting service credited to them under the E-Plan as of December 31,
1995. Beginning with the 1996 plan year (commencing January 1, 1996), the
participant shall begin to earn vesting service credit under the elapsed time
method as set forth in Article V of the Plan. In addition, if a participant
worked at least 1,000 hours between January 1, 1996 and October 31, 1996, the
participant shall be credited with one year of service for 1996 even if they do
not work every day in 1996. Notwithstanding anything in this Subsection 4 to the
contrary, a participant who is described in the previous sentence shall not
begin to earn credit under the elapsed time method of Article V until the 1997
plan year (commencing January 1, 1997).
5. Special Provision Applicable to the Rollover E-Account. A participant
------------------------------------------------------
may elect to withdraw from the Rollover E-Account once during each plan year,
any amount up to 100% of the value of the Rollover E-Account. The participant
shall notify the plan administrator of his election to make a withdrawal under
this Section. The distribution will be made as soon as reasonably practicable
after such notice is given.
6. Plan Loans. Any loans from the E-Plan to an E-Plan participant which
----------
are outstanding on November 1, 1996 shall be transferred to the Plan in kind as
an asset allocated to the participant's E-Accounts. A participant with such a
loan outstanding shall have all of the rights and be subject to all of the
conditions of his or her loan as set forth in his or her E-Plan loan documents.
V-8
C. Former Accounts and Participants of Dimension X 401(k) Plan
1. History of Corporate Merger. On May 14, 1997, Dimension X was merged
---------------------------
with DX Acquisition Inc., a wholly-owned subsidiary of Microsoft Corporation,
with Dimension X being the surviving corporation and becoming a wholly-owned
subsidiary of Microsoft Corporation. Over several months after the corporate
merger, the employees of Dimension X became employees of Microsoft Corporation.
At the time of the merger with DX Acquisition Inc., Dimension X was the sponsor
of the Dimension X 401(k) Plan ("D-Plan"). The plan remained in existence after
Dimension X was merged into the DX Acquisition Inc.
2. Plan Merger. Effective January 1, 1998, the D-Plan is merged into the
-----------
Plan, and the plan document for the Plan, as amended previously and by this
amendment, is the surviving plan document.
The D-Plan contains employee salary deferral contributions, and employer
discretionary matching contributions. No employee after-tax contributions were
made, nor were any employer discretionary contributions made. As of January 1,
1998, there were no roll-over accounts maintained in the D-Plan. The salary
deferral contributions have always been nonforfeitable. The employer matching
contributions are 100% vested pursuant to the amendment to the Dimension X
401(k) Plan effective April 1, 1997. The employer matching D-accounts and the
salary deferral D-accounts are transferred to the Plan without alteration. At
the discretion of the Plan Administrator, these D-accounts may be consolidated
with other accounts made to the Plan by former D-Plan participants after the
date of the plan merger.
3. Eligibility. Any participant in the Dimension X 401(k) Plan on May 14,
-----------
1997 who on January 1, 1998 is an eligible employee (as defined in Section 1.5
of the Plan) and who has not previously entered the Plan shall begin active
participation in the Plan on January 1,
V-9
1998, the date of the merger of the plans. Such participant shall not be
required to satisfy the age 18 minimum age requirement set forth in Plan Section
1.5 nor be required to be employed through an entry date. A participant for
these purposes shall include a person who maintained an account balance in the
Dimension X 401(k) Plan or who was eligible to make deferrals under the
Dimension X 401(k) Plan.
4. Vesting and Vesting Service Credit. Participants are 100% vested in
----------------------------------
their D-accounts which are transferred to the Plan effective January 1, 1998.
For purposes of determining their vested percentage in their employer matching
contribution account in this Plan (i.e., matching contributions made by
Microsoft Corporation after January 1, 1998), participants shall be credited
with the whole years of service credited to them under the D-Plan as of their
last computation date prior to January 1, 1998. For the period of time from the
last computation date prior to January 1, 1998 until the next computation date
following January 1, 1998, the participant shall be credited with the greater
of: (1) the period of service that would be credited to the employee under the
elapsed time method as set forth in Article V of the Plan for his service during
the 12 month period following the participant's last computation date which is
prior to January 1, 1998; or (2) a year of service if the participant worked at
least 1,000 hours between his/her last computation date before January 1, 1998
and January 1, 1998. For these purposes, a computation date shall be the
anniversary date of a participant's first date of employment with Dimension X.
Beginning on the last day of the period described in (1) or (2) of the third
sentence of this subsection 4, whichever is applicable, a participant shall earn
vesting credit under the elapsed time method set forth in Article V of the Plan.
5. Special Provisions Applicable. There are no special provisions
-----------------------------
applicable to D-accounts.
V-10
6. Plan Loans. Any loans from the D-Plan to a D-Plan participant which
----------
are outstanding on January 1, 1998 shall be transferred to the Plan in kind as
an asset allocated to the participant's D-Plan account. A participant with such
a loan outstanding shall have all of the rights and be subject to all of the
conditions of his or her loan as set forth in his or her D-Plan loan documents.
D. Former Accounts and Participants of VXtreme, Inc. 401(k) Retirement Plan
1. History of Corporate Merger. On July 30, 1997, VXtreme, Inc.
---------------------------
("VXtreme") was merged with Microsoft Investments Washington Parent, Inc., a
wholly owned subsidiary of Microsoft Corporation with VXtreme being the
surviving corporation and becoming a wholly-owned subsidiary of Microsoft
Corporation. At the time of the merger, VXtreme sponsored a profit sharing plan
with a 401(k) component, the VXtreme, Inc. 401(k) Retirement Plan ("VX-Plan").
Although the VX-Plan continued in existence after the corporate merger, most of
the employees of VXtreme after the merger became employees of Microsoft
Corporation.
2. Plan Merger. Effective January 1, 1998, the VX-Plan is merged into the
-----------
Plan, and the plan document for the Plan, as amended previously and by this
amendment, is the surviving plan document.
The VX-Plan contains only salary deferral contributions, and roll-over
contributions ("VX-Accounts"). The VX-Plan does not provide for employer
contributions nor employee after-tax contributions, nor has it ever provided for
such contributions in the past. The salary deferral contributions and the roll-
over contributions to the VX-Plan have always been nonforfeitable. The salary
deferral VX-Accounts and the roll-over VX-Accounts are transferred to the Plan
without alteration. The salary deferral VX-Accounts and the roll-over VX-
Accounts shall be consolidated with each other (hereinafter collectively
referred to as VX-Accounts),
V-11
however, they will be kept separate from any contributions made to the Plan by
or on behalf of former VX-Plan participants after January 1, 1998.
3. Eligibility. Any employee of VXtreme on January 1, 1998 who is an
-----------
eligible employee (as defined in Section 1.5 of the Plan) shall begin active
participation in the Plan on January 1, 1998, the date of the merger of the
plans. Any participant of the VX-Plan on January 1, 1998 who is not an eligible
employee as defined in Plan Section 1.5 (e.g., an intern) shall be an inactive
participant in the Plan and shall actively participate in the Plan only if and
when they become an eligible employee as defined in Plan section 1.5. Such
former participant in the VX-Plan shall not be required to be employed through
an entry date before he/she can become a participant under the Plan. Any person
employed by VXtreme after January 1, 1998 who was not employed by VXtreme at any
time on or before January 1, 1998 shall be required to satisfy all of the
eligibility conditions of Plan Sections 1.5 and 2.1, and must be employed
through an entry date before he/she will become a participant under the Plan.
4. Vesting and Vesting Service Credit. Participants are 100% vested in
----------------------------------
their VX-Accounts which are transferred to the Plan effective January 1, 1998.
For purposes of determining their vested percentage in their employer matching
contribution account in this Plan (i.e., matching contributions made by
Microsoft Corporation after January 1, 1998), participants shall be credited
with vesting service under the elapsed time method as set forth in Article V of
the Plan for their service at VXtreme.
5. Special Provisions Applicable. The following special provisions apply
-----------------------------
only to the VX-Accounts. With respect to the VX-Accounts, the following special
provisions shall supersede any other provisions of this Plan which are
inconsistent with the following provisions. However, to the extent the Plan is
amended subsequent to this amendment in a way which gives
V-12
participants greater benefits or additional options not provided in this
section, participants with a VX-Account shall be eligible for those additional
benefits or options without violating this section.
6. Form of Benefit Payments. Unless the participant makes an election
------------------------
otherwise, the participant (or beneficiary) shall receive the distribution of
his or her VX-Account in the form of a lump-sum. The participant may however,
elect to receive distributions from his or her VX-Account in the form of an
annuity. There are five different annuity options that a participant may
choose. These are: (1) a straight life annuity; (2) a single life annuity with
a certain period of 5, 10, or 15 years; (3) a single life annuity with an
installment refund; (4) a joint and survivor annuity with an installment refund
and survivor percentages of 50, 66 and 2/3, or 100; or (5) a fixed period
annuity for any period of whole months which is not less than 60 and does not
exceed the joint life expectancies of the participant and the named beneficiary.
If a participant chooses a life annuity form of distribution, the provisions of
Article XX of the Plan shall apply. If at the time of distribution to a
participant or beneficiary the participant's total vested account balance in the
Plan (including VX-Account and other accounts) does not exceed $5,000 (and never
exceeded $5,000 at the time of a prior distribution), the VX-Account balance
will be distributed in an immediate lump-sum cash payment.
7. Plan Loans. Any loans from the VX-Plan to a VX-Plan participant which
----------
are outstanding on January 1, 1998 shall be transferred to the Plan in kind as
an asset allocated to the participant's VX-Plan account. A participant with such
a loan outstanding shall have all of the rights and be subject to all of the
conditions of his or her loan as set forth in his or her VX-Plan loan documents.
If a participant in the VX-Plan requests a loan after January 1, 1998 of a
portion
V-13
of his or her VX-Account, spousal consent will not be required unless the
participant has selected a life annuity form of distribution with respect to his
or her VX-Account balance.
E. Former Accounts and Participants of WebTV 401(k) Plan
1. History of Corporate Merger. On August 1, 1997, Microsoft Corporation
---------------------------
purchased a controlling interest in WebTV Networks, Inc. ("WebTV"). Through a
recapitalization, WebTV became a controlled subsidiary of Microsoft Corporation.
WebTV remained in existence after the recapitalization and WebTV employees
continued to be employed by WebTV. At the time of the recapitalization, WebTV
sponsored the WebTV 401(k) Plan (the "W-Plan"). The W-Plan continued in
existence after the recapitalization of WebTV and employees of WebTV continued
to participate in the W-Plan.
2. Plan Merger. Effective March 1, 1998, the W-Plan is merged into the
-----------
Plan, and the plan document for the Plan, as amended previously and by this
amendment, is the surviving plan document.
The W-Plan contains only employee salary deferral contributions, and roll-
over contributions ("W-Accounts"). No employee after-tax, employer matching, or
employer discretionary contributions were ever made to the W-Plan. The salary
deferral contributions and the roll-over contributions to the W-Plan have always
been nonforfeitable. The salary deferral W-Accounts and the roll-over W-Accounts
are transferred to the Plan without alteration. The salary deferral W-Accounts
and the roll-over W-Accounts shall be consolidated with each other, however,
they will be kept separate from any contributions made to the Plan by or on
behalf of former W-Plan participants after March 1, 1998.
3. Eligibility. Any employee of WebTV on March 1, 1998 who is an eligible
-----------
employee (as defined in Section 1.5 of the Plan) and who has not previously
entered the Plan
V-14
shall begin active participation in the Plan on March 1, 1998, the date of the
merger of the plans. Any participant of the W-Plan on March 1, 1998 who is not
an eligible employee as defined in Plan Section 1.5 (e.g., an intern) shall be
an inactive participant in the Plan and shall actively participate in the Plan
only if and when they become an eligible employee as defined in Plan section
1.5. Such former participant in the W-Plan shall not be required to be employed
through an entry date before he/she can become a participant in the Plan. Any
person employed by WebTV after March 1, 1998 who was not employed by WebTV at
any time on or before March 1, 1998 shall be required to satisfy all of the
eligibility conditions of Plan Sections 1.5 and 2.1, and must be employed
through an entry date before he/she will become a participant under the Plan.
4. Vesting and Vesting Service Credit. Participants are 100% vested in
----------------------------------
their W-Accounts which are transferred to the Plan effective March 1, 1998. For
purposes of determining their vested percentage in their employer matching
contribution account in this Plan (i.e., matching contributions made after March
1, 1998), participants shall be credited with the whole years of service
credited to them under the W-Plan as of March 31, 1997. For the 12-month period
of time commencing on April 1, 1997, the participant shall be credited with the
greater of: (1) the period of service that would be credited to the employee
under the elapsed time method as set forth in Article V of the Plan for his
service during the 12 month period ending March 31, 1998; or (2) a year of
service if the participant worked at least 1,000 hours between April 1, 1997 and
March 1, 1998 even if they did not work every day during this period. Beginning
March 31, 1998, participants shall earn vesting credit under the elapsed time
method set forth in Article V of the Plan.
V-15
5. Special Provisions Applicable. The following special provisions apply
-----------------------------
only to the W-Accounts. With respect to the W-Accounts, the following special
provisions shall supersede any other provisions of this Plan which are
inconsistent with the following provisions. However, to the extent the Plan is
amended subsequent to this amendment in a way which gives participants greater
benefits or additional options not provided in this section, participants with a
W-Account shall be eligible for those additional benefits or options without
violating this section.
6. Form of Benefit Payments. The participant may elect to have his or her
------------------------
W-Account distributed in a single lump sum payment or in installments, in cash
or in kind or in a combination of both. Participants may elect to have their W-
Accounts distributed in substantially equal installments over a period which is
no longer than the participant's life expectancy or the joint life expectancy of
the participant and the participant's designated beneficiary. If at the time of
distribution to a participant or beneficiary the participant's total vested
account balance in the Plan (including the W-Account and other accounts) does
not exceed $5,000 (and never exceeded $5,000 at the time of a prior
distribution), then the W-Account balance will be distributed in an immediate
lump sum payment, in cash or in kind or a combination of both, as elected by the
participant or beneficiary.
7. Plan Loans. Any loans from the W-Plan to a W-Plan participant which
----------
are outstanding on March 1, 1998 shall be transferred to the Plan in kind as an
asset allocated to the participant's W-Plan account. A participant with such a
loan outstanding shall have all of the rights and be subject to all of the
conditions of his or her loan as set forth in his or her W-Plan loan documents.
V-16
F. Former Accounts and Participants of Hotmail Corporation 401(k) Plan
1. History of Corporate Merger. On December 30, 1997 Hotmail Corporation
---------------------------
was merged with Micro HM Inc., a wholly-owned subsidiary of Microsoft
Corporation, with Hotmail Corporation being the surviving corporation and
becoming a wholly-owned subsidiary of Microsoft Corporation. At the time of the
merger with Micro HM Inc., Hotmail Corporation was the sponsor of the Hotmail
Corporation 401(k) Plan ("H-Plan"). The plan remained in existence after Hotmail
Corporation was merged into Micro HM Inc.
2. Plan Merger. Effective April 1, 1998, the H-Plan is merged into the
-----------
Plan, and the plan document for the Plan, as amended previously and by this
amendment, is the surviving plan document.
The H-Plan contains employee salary deferral contributions and rollover
contributions only ("H-Accounts"). No employee after-tax contributions were
made, nor were any employer matching or discretionary contributions made. The
salary deferral accounts and the rollover accounts have always been
nonforfeitable. The salary deferral accounts and the rollover accounts are
transferred to the Plan without alteration. At the discretion of the Plan
Administrator, these H-Accounts (the salary deferral accounts and the rollover
accounts) may be consolidated with each other, however, they will be kept
separate from any contributions made to the Plan by or on behalf of former H-
Plan participants after April 1, 1998.
3. Eligibility. Any employee of Hotmail Corporation who on April 1, 1998
-----------
is a participant in the Hotmail Corporation 401(k) Plan and is an eligible
employee (as defined in Section 1.5 of the Plan) shall begin active
participation in the Plan on April 1, 1998, the date of the merger of the plans.
Such participant shall not be required to be employed through an entry date as
set forth in Plan Section 2.4. A participant for these purposes shall include a
person who
V-17
maintained an account balance in the Hotmail Corporation 401(k) Plan or who was
eligible to make deferrals under the Hotmail Corporation 401(k) Plan. Any
participant of the H-Plan on April 1, 1998 who is not an eligible employee as
defined in Plan Section 1.5 (e.g., an intern) shall be an inactive participant
in the Plan and shall actively participate in the Plan only if and when they
become an eligible employee as defined in Plan Section 1.5. Such former
participant in the H-Plan shall not be required to be employed through an entry
date before he/she can become a participant in the Plan. Any person employed by
Hotmail Corporation after April 1, 1998 who was not employed by Hotmail
Corporation at any time on or before April 1, 1998 shall be required to satisfy
all of the eligibility conditions of Plan Sections 1.5 and 2.1, and must be
employed through an entry date before he/she will become a participant under the
Plan.
4. Vesting and Vesting Service Credit. Participants are 100% vested in
----------------------------------
their H-Accounts which are transferred to the Plan effective April 1, 1998. For
purposes of determining their vested percentage in their employer matching
contribution account in this Plan (i.e., matching contributions made by
Microsoft Corporation after April 1, 1998), participants shall be credited with
vesting service under the elapsed time method as set forth in Article V of the
Plan for their service at Hotmail Corporation. The H-Plan did not calculate
vesting service because all contributions were 100% vested when made.
5. Special Provisions Applicable. The following special provisions apply
-----------------------------
only to the H-Accounts. With respect to the H-Accounts, the following special
provisions shall supersede any other provisions of this plan which are
inconsistent with the following provisions. However, to the extent the Plan is
amended subsequent to this amendment in a way which gives participants greater
benefits or additional options not provided in this section, participants with
V-18
an H-Account shall be eligible for those additional benefits or options without
violating this section.
6. Form of Benefit Payments. Unless the participant makes an election
------------------------
otherwise, the participant (or beneficiary) shall receive the distribution of
his or her H-Account in the form of a lump-sum, either in cash or in kind or in
a combination of both. The participant may, however, elect to receive
distributions from his or her H-Accounts in the form of installments payable in
cash or in kind, or part in cash and part in kind over a period not in excess of
that required to comply with Code (S)401(a)(9). If at the time of distribution
to the participant or beneficiary the participant's total vested account balance
in the Plan (including H-Accounts and all other accounts) does not exceed $5,000
(and never exceeded $5,000 at the time of a prior distribution), then the H-
Account balance will be distributed in an immediate lump sum payment, in cash or
in kind or a combination of both, as elected by the participant or beneficiary.
7. Plan Loans. Any loans from the H-Plan to an H-Plan participant which
----------
are outstanding on April 1, 1998 shall be transferred to the Plan in kind as an
asset allocated to the participant's H-Plan account. A participant with such a
loan outstanding shall have all of the rights and be subject to all of the
conditions of his or her loan as set forth in his or her H-Plan loan documents.
G. Former Accounts and Participants of MSNBC Interactive News 401(k) Plan
1. History of Establishment of MSNBC Interactive News L.L.C. MSNBC
--------------------------------------------------------
Interactive News L.L.C. was established in 1996 as a joint venture between
Microsoft Corporation (and certain of its affiliates) and National Broadcast
Company (and certain of its affiliates). MSNBC Interactive News L.L.C. sponsors
the MSNBC Interactive News 401(k) Plan
V-19
("MSNBC Plan"), and such plan provides service credit for vesting purposes to
former employees of National Broadcast Company.
2. Plan Merger. Effective January 1, 1999, the MSNBC Plan is merged into
-----------
the Plan, and the plan document for the Plan, as amended previously and by this
amendment, is the surviving plan document.
The MSNBC Plan contains employee salary deferral contributions, employer
matching contributions, employee after-tax contributions, and rollover
contributions ("MSNBC-Accounts"). The MSNBC-Accounts are hereby made 100%
vested, and are transferred without alteration and shall be kept separate from
the other Plan accounts. However, the Plan Administrator may, in his
discretion, combine certain portions of the MSNBC-Accounts with the other Plan
accounts (e.g., MSNBC salary deferrals with Plan salary deferrals, MSNBC after-
tax contributions with Plan after-tax contributions) to the extent such
combinations comply with the terms of the Plan and applicable laws. Except to
the extent permitted by tax regulations (including Treasury Regulation
(S)1.411(d)-4), amounts transferred from the MSNBC Plan that are attributable to
elective contributions (as defined in Treasury Regulation (S)1.401(k)-1(g)(3)),
including amounts treated as elective contributions, shall be subject to the
distribution limitations provided for in Treasury Regulation (S)1.401(k)-1(d).
3. Eligibility. Any employee of the MSNBC Interactive News L.L.C. who on
-----------
December 31, 1998 is a participant in the MSNBC Plan and who on January 1 or 2,
1999 is an eligible employee (as defined in Section 1.5 of the Plan) shall begin
active participation in the Plan on January 1, 1999. A participant for these
purposes shall include a person who maintained an account balance in the MSNBC
Plan or who was eligible to make deferrals under the MSNBC Plan. Any participant
of the MSNBC Plan who on January 1 or 2, 1999 is not an eligible
V-20
employee as defined in Plan Section 1.5 (e.g., a temporary employee, an intern)
shall be an inactive participant in the Plan and shall actively participate in
the Plan only if and when they become an eligible employee as defined in Plan
Section 1.5. Such former participant in the MSNBC Plan shall not be required to
be employed through an entry date before he/she can become a participant in the
Plan. Any person employed by the MSNBC Interactive News L.L.C. after January 2,
1999, who was not employed by MSNBC Interactive News L.L.C. at any time on or
before January 2, 1999 shall be required to satisfy all of the eligibility
conditions of Plan Sections 1.5 and 2.1, and must be employed through an entry
date before he/she will become eligible to participate in the Plan.
4. Vesting and Vesting Service Credit. Participants in the MSNBC Plan on
----------------------------------
December 31, 1998 are 100% vested in their MSNBC-Accounts that are transferred
to the Plan effective January 1, 1999, and are 100% vested in their employer
matching contribution accounts in the Plan going forward. For purposes of
determining the vested percentage in the employer matching contribution account
in this Plan (i.e., matching contributions made by MSNBC after January 1, 1999)
for employees who are not participants in the MSNBC Plan on December 31, 1998
(e.g., those hired by MSNBC Interactive News L.L.C. after December 31, 1998),
such employees shall be credited with vesting service under the elapsed time
method as set forth in Article V of the Plan for their service at MSNBC
Interactive News L.L.C. and, for employees of MSNBC Interactive News L.L.C.,
service with National Broadcast Company. Service with National Broadcast
Company shall not be counted for those employed by Microsoft Corporation or
other affiliates thereof unless the employee worked for MSNBC Interactive News
L.L.C. between working for National Broadcast Company and Microsoft Corporation
or its affiliates.
5. Special Provisions Applicable. There are no special provisions
-----------------------------
applicable to the MSNBC-Accounts.
V-21
H. Former Accounts and Participants of Virtual World Entertainment Group, Inc.
Employees 401(k) Plan
1. History of Corporate Merger. On January 11, 1999, Virtual World
---------------------------
Entertainment Group, Inc. ("VWEG") was merged with a wholly-owned subsidiary of
Microsoft Corporation, and VWEG was the surviving corporation. FASA Interactive
Technology, Inc. ("FASA") remained a wholly-owned subsidiary of VWEG. Since the
corporate merger, neither VWEG nor FASA have had any employees. At the time of
the merger, VWEG was the sponsor of the Virtual World Entertainment Group, Inc.
Employees 401(k) Plan ("VWEG Plan"), and FASA was a participating employer in
the VWEG Plan. The VWEG Plan remained in existence after the corporate merger.
2. Plan Merger and Asset Transfer. Effective July 1, 1999, the VWEG-Plan
------------------------------
is merged into the Plan, and the plan document for the Plan, as amended
previously and by this amendment, is the surviving plan document. Upon the Plan
Administrator's receipt of satisfactory evidence that (i) Virtual World
Entertainment, LLC ("VWE") has established a defined contribution plan that is
tax-qualified under Code Section 401(a), (ii) VWE wants its plan to receive a
plan-to-plan transfer, and (iii) VWE's plan has been drafted to receive a plan-
to-plan transfer in compliance with Code Sections 414(l) and 411(d)(6) and the
treasury regulations thereunder, any assets and liabilities with respect to the
VWEG-Accounts of persons currently employed by VWE shall be transferred to VWE's
plan.
The VWEG-Plan contains employee salary deferral contributions, employer
matching contributions and rollover contributions only ("VWEG-Accounts").
Employee after-tax contributions were not permitted. The salary deferral
accounts and the rollover accounts have always been nonforfeitable. The employer
matching account has been subject to a vesting
V-22
schedule. Effective July 1, 1999, all assets in the Plan as of such date are
hereby made 100% vested. The salary deferral and employer match accounts are
transferred to the Plan without alteration. At the discretion of the Plan
Administrator, these VWEG-Accounts (the salary deferral and match accounts) may
be consolidated with the respective Microsoft salary deferral and match
accounts. The rollover accounts shall be kept in a separate acquisition rollover
account.
3. Eligibility. Any participant of the VWEG-Plan on July 1, 1999 who is not
-----------
an eligible employee as defined in Plan Section 1.5 (e.g., an intern) shall be
an inactive participant in the Plan and shall actively participate in the Plan
only if and when they become an eligible employee as defined in Plan Section
1.5. Such former participant in the VWEG-Plan shall not be required to be
employed through an entry date before he/she can become a participant in the
Plan.
4. Vesting. Participants are 100% vested in their VWEG-Accounts which are
-------
transferred to the Plan effective July 1, 1999. In addition, Participants with
such VWEG-Accounts shall be 100% vested in future employer matching
contributions made to this Plan (the Microsoft Plan).
5. Special Provisions Applicable. The following special provision applies
-----------------------------
only to the rollover accounts in the VWEG Plan that are transferred to this Plan
as part of the VWEG-Accounts. A Participant may request an inservice withdrawal
(i.e., withdrawal while still employed) from such rollover accounts once per
Plan Year. This special withdrawal provision shall not apply to rollovers made
to the Plan after July 1, 1999.
6. Plan Loans. Any loans from the VWEG-Plan to a VWEG-Plan participant which
----------
are outstanding on July 1, 1999 shall be transferred to the Plan in kind as an
asset allocated to the
V-23
participant's VWEG-Plan account. A participant with such a loan outstanding
shall have all of the rights and be subject to all of the conditions of his or
her loan as set forth in his or her VWEG-Plan loan documents.
I. Former Accounts and Participants of Compare Net 401(k) Plan
1. History of Corporate Merger. On March 4, 1999, Compare Net, Inc. was
---------------------------
merged with MS-Jupiter, Inc., a wholly-owned subsidiary of Microsoft
Corporation, with Compare Net, Inc. being the surviving corporation and becoming
a wholly-owned subsidiary of Microsoft Corporation. At the time of the merger
with MS-Jupiter, Inc., Compare Net, Inc. was the sponsor of the Compare Net
401(k) Plan ("CN-Plan"). The plan remained in existence after Compare Net, Inc.
was merged with MS-Jupiter, Inc.
2. Plan Merger. Effective September 1, 1999, the CN-Plan is merged
-----------
into the Plan, and the plan document for the Plan, as amended previously and by
this amendment, is the surviving plan document. The Plan consists only of
employee pre-tax deferrals, and rollovers made from prior plans or IRAs ("CN-
Accounts"). The CN-Accounts are transferred to the Plan without alteration and
shall be kept separate from other accounts held in the Plan by former CN-Plan
participants. No discretionary employer contributions were made. Because any
prior rollovers are subject to immediate withdrawal, they will be kept in a
separate acquisition rollover account from the employee pre-tax deferrals.
3. Eligibility. All former employees of Compare Net, Inc. were
-----------
terminated from Compare Net, Inc. prior to July 1, 1999. Those employed by
Microsoft Corporation as an eligible employee (as defined in Section 1.5 of the
Plan) prior to July 1, 1999 entered the Plan on July 1, 1999. Any former
participant in the CN-Plan who is not an eligible employee (as defined in
Section 1.5 of the Plan) shall enter the Plan immediately upon becoming an
eligible employee,
V-24
and shall not be required to be employed through an entry date before he/she
will become a participant under the Plan.
4. Vesting and Vesting Service Credit. Participants are 100% vested in
----------------------------------
their CN-Accounts which are transferred from the CN-Plan effective September 1,
1999. For purposes of determining their vested percentage in their employer
matching contribution account in this Plan (i.e., matching contributions made by
Microsoft Corporation after July 1, 1999), participants shall be credited with
vesting service under the elapsed time method as set forth in Article V of the
Plan for their service at Compare Net, Inc.
5. Special Provisions Applicable. The following special provisions apply
-----------------------------
only to the CN-Accounts. With respect to the CN-Accounts, the following special
provisions shall supersede any other provisions of this Plan which are
inconsistent with the following provisions. For example, in-kind distributions
of Microsoft stock are permitted on lump sum distributions to the extent a CN-
Account is invested in Microsoft stock at the time of the distribution, because
such distributions are permitted with respect to other Plan accounts and would
not be inconsistent with the following special provisions. In addition, to the
extent the Plan is amended subsequent to this amendment in a way which gives
participants greater benefits or additional options not provided in this
section, participants with a CN-Account shall be eligible for those additional
benefits or options without violating this section.
6. Form of Benefit Payments. Unless the participant makes an election
------------------------
otherwise, the participant (or beneficiary) shall receive the distribution of
his or her CN-Account in the form of a cash lump sum. Participants with vested
account balances in excess of $5,000 may elect to receive their distribution in
the form of monthly cash installments over a period certain which
V-25
may not exceed the life expectancy of the participant or the joint life
expectancy of the participant and his or her designated beneficiary.
7. Inservice Withdrawals of Prior Rollovers. Participants who rolled
----------------------------------------
amounts into the CN-Plan from another plan or IRA may withdraw such amounts and
the earnings thereon at any time.
8. Plan Loans. Any loans from the CN-Plan to a CN-Plan participant
----------
which are outstanding on September 1, 1999 shall be transferred to the Plan in
kind as an asset allocated to the participant's CN-Account. A participant with
such a loan outstanding shall have all of the rights and be subject to all of
the conditions of his or her loan as set forth in his or her CN-Plan loan
documents.
J. Former Accounts and Participants of Visio Corporation
1. History of Corporate Merger. On January 7, 2000, Visio Corporation
---------------------------
became a wholly-owned subsidiary of Microsoft Corporation as a result of a
merger between Visio Corporation and a subsidiary of Microsoft Corporation. At
the time of the merger with the subsidiary of Microsoft Corporation, Visio
Corporation was the sponsor of the Visio 401(k) Plan ("VC-Plan"). The VC-Plan
was frozen as of February 1, 2000, and Visio employees stopped making salary
deferral contributions to the VC-Plan effective February 1, 2000. The Visio
employees will be eligible to enter the Microsoft Savings Plus 401(k) Plan
("Plan") effective March 1, 2000.
2. Plan Merger. Effective July 1, 2000, the VC-Plan is merged into the
-----------
Plan and this plan document for the Plan, as amended previously and by this
Amendment, is the surviving plan document.
V-26
The VC-Plan contains employee salary deferral contributions, employer
matching contributions, and rollover contributions ("VC-Accounts"). Employee
after-tax contributions were not permitted and discretionary employer
contributions were never made. The salary deferral accounts and the rollover
accounts have always been nonforfeitable. The employer matching account has
been subject to a vesting schedule. Effective February 1, 2000, all accounts in
the VC-Plan as of such date were made 100% vested. The salary deferral and
employer match accounts are transferred to the Plan without alteration. The
rollover accounts containing rollovers that were made to the VC-Plan shall be
kept in a separate acquisition rollover account ("Rollover VC-Account").
3. Eligibility. Any participant of the VC-Plan on July 1, 2000, who is
-----------
not an eligible employee as defined in Plan Section 1.5 (e.g., an intern) shall
be an inactive participant in the Plan and shall actively participate in the
Plan only if and when they become an eligible employee as defined in Plan
Section 1.5. Such former participant in the VC-Plan shall renew active
participation in the Plan immediately upon becoming an eligible employee as
defined in Plan Section 1.5 and attaining age 18. Any person employed by Visio
Corporation after July 1, 2000 who was not a participant in the VC-Plan on or
before July 1, 2000 shall be required to satisfy all of the eligibility
conditions of Plan Section 1.5 and 2.1, and must be employed through an entry
date before he/she will become a participant under the Plan.
4. Vesting and Vesting Service Credit. Participants are 100% vested in
----------------------------------
their VC-Accounts which are transferred to the Plan. For purposes of determining
their vested percentage in their employer matching contribution account in this
Plan (e.g., matching contributions made by Microsoft Corporation after March 1,
2000), participants shall be credited with vesting service under the elapsed
time method as set forth in Article V of the Plan for their service at Visio
V-27
Corporation. Notwithstanding the preceding sentence, employees who are employed
by Visio Corporation on any date between March 1, 2000 and July 1, 2000
(inclusive) and who enter the Plan as participants between March 1, 2000 and
July 1, 2000 (inclusive) shall be 100% vested in their employer matching
contribution accounts in the Plan.
5. Special Provisions Applicable. The following special provisions apply
-----------------------------
only to the VC-Accounts. With respect to the VC-Accounts, the following special
provisions shall supersede any other provisions of this plan which are
inconsistent with the following provisions. However, to the extent the Plan is
amended subsequent to this amendment in a way which gives participants greater
benefits or additional options not provided in this section, participants with a
VC-Account shall be eligible for those additional benefits or options without
violating this section.
6. Rollover VC-Account. A participant may elect to withdraw from the
-------------------
Rollover VC-Account at any time, any amount up to 100% of the value of the
Rollover VC-Account. The participant shall notify the plan administrator of his
election to make a withdrawal under this Section. The distribution will be made
as soon as reasonably practicable after such notice is given.
7. Form of Benefit Payments. The participant may elect to have his or
------------------------
her VC-Accounts distributed in a single lump sum payment, in cash or in kind.
8. Plan Loans. All loans from the VC-Plan to a VC-Plan participant
----------
which are outstanding on July 1, 2000 shall be transferred to the Plan in kind
as an asset allocated to the participant's VC-Plan account. A participant with
such a loan outstanding shall have all of the rights and be subject to all of
the conditions of his or her loan as set forth in his or her VC-Plan loan
documents.
V-28
K. Former Accounts and Participants of Entropic Research Laboratory, Inc.
Savings and Investment Plan
1. History of Corporate Merger. On November 4, 1999, Entropic Research
---------------------------
Laboratory, Inc. ("Entropic") became a wholly-owned subsidiary of Microsoft
Corporation as a result of a merger between Entropic and a subsidiary of
Microsoft Corporation. At the time of the merger with the subsidiary of
Microsoft Corporation, Entropic was the sponsor of the Entropic Research
Laboratory, Inc. Savings & Investment Plan ("ERL-Plan"). Participants in the
ERL-Plan who became Microsoft employees on or before March 1, 2000 will be
eligible to enter the Microsoft Savings Plus 401(k) Plan ("Plan") effective
March 1, 2000.
2. Plan Merger. Effective March 1, 2000, the ERL-Plan is merged into the
-----------
Plan and this plan document for the Plan, as amended previously and by this
Amendment, is the surviving plan document.
The ERL-Plan contains employee salary deferral contributions and rollover
contributions ("ERL-Accounts"). Employee after-tax contributions were not
permitted and discretionary employer contributions were never made. The salary
deferral accounts and the rollover accounts have always been nonforfeitable.
The salary deferral accounts are transferred to the Plan without alteration. The
rollover accounts containing rollovers that were made to the ERL-Plan shall be
kept in a separate acquisition rollover account ("Rollover ERL-Account").
3. Eligibility. Any participant of the ERL-Plan on March 1, 2000, who
-----------
is not an eligible employee as defined in Plan Section 1.5 (e.g., an intern)
shall be an inactive participant in the Plan and shall actively participate in
the Plan only if and when they become an eligible employee as defined in Plan
Section 1.5. Such former participant in the ERL-Plan shall renew active
V-29
participation in the Plan immediately upon becoming an eligible employee as
defined in Plan Section 1.5 and attaining age 18.
4. Vesting and Vesting Service Credit. Participants are 100% vested in
----------------------------------
their ERL-Accounts which are transferred to the Plan. For purposes of
determining their vested percentage in their employer matching contribution
account in this Plan (e.g., matching contributions made by Microsoft
Corporation), participants shall be credited with vesting service under the
elapsed time method as set forth in Article V of the Plan for their service at
Entropic.
5. Special Provisions Applicable. The following special provisions apply
-----------------------------
only to the ERL-Accounts. With respect to the ERL-Accounts, the following
special provisions shall supersede any other provisions of this Plan which are
inconsistent with the following provisions. However, to the extent the Plan is
amended subsequent to this amendment in a way which gives participants greater
benefits or additional options not provided in this section, participants with a
ERL-Account shall be eligible for those additional benefits or options without
violating this section.
6. Rollover ERL-Account. A participant may elect to withdraw from the
--------------------
Rollover ERL-Account as of a valuation date following such election, any amount
up to 100% of the value of the Rollover ERL-Account as of such valuation date.
The participant shall notify the plan administrator of his election to make a
withdrawal under this Section. The distribution will be made as soon as
reasonably practicable after such notice is given.
7. Form of Benefit Payments. The participant may elect to have his or
------------------------
her ERL-Accounts distributed in a single lump sum payment, in cash or in kind or
in a combination of both. Participants may also elect to have their ERL-Accounts
distributed in installments payable in cash or in kind, or in a combination of
both over a period not to exceed the participant's life
V-30
expectancy or the joint life expectancy of the participant and spouse. If at the
time of distribution to a participant or beneficiary the participant's total
vested account balance in the Plan (including ERL-Accounts and other accounts)
does not exceed $5,000 (and never exceeded $5,000 at the time of a prior
distribution), then the ERL-Account balance will be distributed in an immediate
lump sum payment, in cash or in kind or in a combination of both, as elected by
the participant or beneficiary, and installment payments will not be a payment
option.
8. Timing of Death Benefit Payments. Upon a participant's death, the
--------------------------------
distribution of the participant's ERL-Account shall be made or commence at the
times specified in Section 7.3 of the Plan. The distribution shall be in cash
or in kind, or in a combination of both, or in installments payable in cash or
in kind, or in a combination of both over a period not to exceed the
participant's life expectancy or the joint life expectancy of the participant
and spouse, as elected by the participant or beneficiary. Notwithstanding the
foregoing, if the participant's total vested account balance in the Plan
(including ERL-Accounts and other accounts) does not exceed $5,000, distribution
to the beneficiary shall be made in an immediate lump sum payment in cash or in
kind, or in a combination of both, as elected by the beneficiary.
If a participant dies prior to the commencement of the distribution of his
or her ERL-Account and is survived by a designated beneficiary who is not his or
her spouse, the distribution must be made by December 31 of the calendar year in
which the fifth anniversary of the participant's death occurs unless the
beneficiary elects to have installment payments commence by the end of the first
calendar year after the participant's death. If the designated beneficiary is
the participant's spouse, the spouse may elect to delay distribution or
commencement of installment payments until the end of the calendar year in which
the participant would have attained age 65. If the participant dies prior to
commencement of the distribution of his or her
V-31
ERL-Account and is not survived by a designated beneficiary, distribution shall
be made in an immediate lump sum payment in cash or in kind, or in a combination
of both, as elected by the beneficiary.
If the participant died while he was receiving installment payments of his
ERL-Account, the remaining portion of the ERL-Account shall be distributed at
least as rapidly as under the length and frequency of installment payments which
the participant had selected.
9. Plan Loans. All loans from the ERL-Plan to a ERL-Plan participant
----------
which are outstanding on March 1, 2000 shall be transferred to the Plan in kind
as an asset allocated to the participant's ERL-Plan account. A participant with
such a loan outstanding shall have all of the rights and be subject to all of
the conditions of his or her loan as set forth in his or her ERL-Plan loan
documents.
V-32
APPENDIX VI
Section 2.5
EARLY ENTRY FOR CERTAIN EMPLOYEES OF ACQUIRED COMPANIES
Any eligible employee who immediately following one of the relevant acquisition
dates listed below was employed by Microsoft Corporation (or any company which
is affiliated with Microsoft, within the meaning of Code Sections 414(b), (c),
(m), or (o)), and on the date immediately preceding the relevant acquisition
date was employed by the relevant company listed below, shall enter the Plan on
the later of (i) the relevant entry dates listed below, or (ii) the first
payroll period immediately after becoming an eligible employee and attaining age
18.
------------------------------------------------------------------------------------------------
Company Acquisition Date Plan Entry Date
------- ---------------- ---------------
------------------------------------------------------------------------------------------------
NetCarta Corporation January 31, 1997 March 1, 1997
------------------------------------------------------------------------------------------------
Interse' Corporation February 25, 1997 April 1, 1997
------------------------------------------------------------------------------------------------
Visio Corporation January 7, 2000 March 1, 2000
------------------------------------------------------------------------------------------------
VI-1