-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ud+i6SyuWmVXzwZ1WCjVOItzULwMeNKJHLtem5YPZghIy0XYdr3qIug1RiaUxeUQ uHKeYKfNjE9IzTdyaYm3mw== 0001019687-00-000314.txt : 20000331 0001019687-00-000314.hdr.sgml : 20000331 ACCESSION NUMBER: 0001019687-00-000314 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FROZEN FOOD EXPRESS INDUSTRIES INC CENTRAL INDEX KEY: 0000039273 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 751301831 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-10006 FILM NUMBER: 584267 BUSINESS ADDRESS: STREET 1: 1145 EMPIRE CENTRAL PLACE CITY: DALLAS STATE: TX ZIP: 75247 BUSINESS PHONE: 2146308090 10-K 1 FROZEN FOOD EXPRESS INDUSTRIES, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO ________ COMMISSION FILE NUMBER 1-10006 FROZEN FOOD EXPRESS INDUSTRIES, INC. - -------------------------------------------------------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) TEXAS 75-1301831 - -------------------------------------------------------------------------------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 1145 EMPIRE CENTRAL PLACE, DALLAS, TEXAS 75247-4309 - -------------------------------------------------------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) Registrant's telephone number, including area code: (214) 630-8090 Securities registered pursuant to Section 12(b) of the Act: Common Stock $1.50 Par Value Nasdaq Stock Market - -------------------------------------------------------------------------------- TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED Securities registered pursuant to section 12(g) of the Act: None Indicate by check mark whether the registrant (l) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of March 9, 2000, 16,497,259 shares of the registrant's common stock, $l.50 par value, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE The sections "Outstanding Capital Stock; Principal Shareholders", "Nominees for Directors", "Executive Compensation", and "Transactions with Management" of the Proxy Statement for the Annual Meeting of Shareholders to be held April 27, 2000, are incorporated by reference into Part III of this Form 10-K. Portions of the Annual Report to Shareholders for the year ended December 31, 1999, are incorporated by reference into Parts I and II of this Form 10-K. PART I ITEM 1. BUSINESS. Frozen Food Express Industries, Inc. (the "Company" or "FFEX") is the largest full-service publicly-owned temperature-controlled trucking company in North America. References to the company herein, unless the context requires otherwise, include Frozen Food Express Industries, Inc., and its subsidiaries, all of which are wholly owned. In its 54 years of operation, 1999 was the first year the company experienced an unprofitable year. The company is also the only nationwide, full-service, temperature-controlled trucking company in the United States offering all of the following services: - FULL-TRUCKLOAD: A load, typically weighing between 20,000 and 40,000 pounds and usually from a single shipper, filling the trailer. Normally, a full-truckload has a single destination, although the company is also able to provide multiple deliveries. Management believes the company is one of the five largest temperature-controlled, full-truckload carriers in North America. - DEDICATED FLEETS: In providing certain full-truckload services, the Company enters into a contract with a customer to provide service involving the assignment of specific trucks and drivers to handle certain of the customer's transportation needs. Frequently the Company and customer anticipate that dedicated fleet logistics services will both lower the customer's transportation costs and improve the quality of service the customer receives. - LESS-THAN-TRUCKLOAD: A load, typically consisting of 18 to 30 shipments, each weighing as little as 50 pounds or as much as 20,000 pounds, from multiple shippers destined for various deliveries across the United States, Canada and Mexico. The company's temperature-controlled "LTL" operation is the largest in the United States and the only one offering regularly scheduled nationwide LTL service. The company is the only major LTL carrier which uses multi-compartment refrigerated trailers to carry goods requiring different temperatures on one trailer, enhancing customer service and operating efficiencies. - DISTRIBUTION: Distribution generally involves the delivery of cargo within a 50-to-75-mile radius of a company terminal. Full-truckload or large LTL loads are divided into smaller shipments at a terminal and delivered by distribution trucks to "end users," such as grocery stores, food brokers or drug stores, typically within a single metropolitan area. Following is a summary of certain financial and statistical data for the years ended December 31, 1995 through 1999 (LTL data also includes distribution shipments):
1999 1998 1997 1996 1995 --------- --------- --------- --------- --------- Revenue* Full-truckload $211,545 $206,098 $190,576 $195,458 $180,598 Less-than-truckload 99,357 100,015 95,522 92,496 87,783 Non-freight 61,247 43,819 30,470 23,474 23,964 -------- -------- -------- -------- -------- Total $372,149 $349,932 $316,568 $311,428 $292,345 ======== ======== ======== ======== ======== Operating ratio 104.1% 95.2% 95.2% 95.1% 94.7% Full-truckload Loaded miles* 157,248 155,045 143,902 145,785 135,469 Shipments* 165.0 166.0 156.9 158.1 142.9 Revenue per shipment $ 1,282 $ 1,242 $ 1,215 $ 1,236 $ 1,264 Loaded miles per load 953 934 917 922 948 Less-than-truckload Hundredweight* 8,075 8,502 8,537 8,652 8,296 Revenue per hundredweight $ 12.30 $ 11.76 $ 11.19 $ 10.69 $ 10.58 Shipments* 277.9 293.1 293.1 304.6 292.1 Revenue per shipment $ 358 $ 341 $ 326 $ 304 $ 301 * In thousands
The percent of total freight revenue contributed by full-truckload operations and by LTL operations during the past five years is summarized below: 2 Percent of Total Freight Revenue ---------------------------------------------------- 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Full-truckload 68% 67% 67% 68% 67% LTL and distribution 32 33 33 32 33 ---- ---- ---- ---- ---- Total 100% 100% 100% 100% 100% ==== ==== ==== ==== ==== The company offers nationwide "one call does all" services to about 7,000 customers, none of which accounted for more than 10% of total revenue during any of the past five years. Freight revenue from international activities was less than 5% of total freight revenue during each of the five years ending December 31, 1999. TEMPERATURE-SENSITIVE MARKET More than 80% of the cargo transported by the company is temperature-sensitive. Examples are meat, poultry, seafood, processed foods, candy and other confectioneries, dairy products, pharmaceuticals, medical supplies, fruits and vegetables, cosmetics, film and heat-sensitive aerospace manufacturing materials. The common and contract hauling of temperature-sensitive cargo is highly fragmented and comprised primarily of carriers generating less than $50 million in annual revenue. Industry publications report that only 12 temperature-controlled carriers generated $100 million or more of revenue in 1998. In addition, many major food companies, food distribution firms and grocery chains continue to transport a portion of their freight with their own fleets ("private carriage"). Large shippers are continuing to seek to lower their cost structures by reducing their private carriage capabilities and turning to common and contract carriers ("core carriers") for their transportation needs. As these core carriers continue to improve their service capabilities through such means as satellite communications systems and electronic data interchange, shippers are expected to reduce their private carriage fleets in favor of common or contract carriage. Management believes that the temperature-controlled private carriage segment accounts for more than 40% of the total temperature-controlled portion of the motor carrier industry. GROWTH STRATEGY The company has pursued a growth strategy that combines both internal growth and selected acquisitions. From the beginning of 1995 through 1999, the company-operated, full-truckload tractor fleet increased from about 1,060 units to 1,150 units. During the same period, the company has emphasized expansion of its fleet of independent contractor ("owner-operator") provided full-truckload tractors. As of December 31, 1999, the company's full-truckload fleet also included 475 tractors provided by owner-operators as compared to 407 at the beginning of 1995. From 1995 through 1999, revenue from full-truckload operations increased from 67% to 68% of total freight revenue. The management of a number of factors is critical to a trucking company's growth and profitability, including: - DRIVERS: Driver shortages and high turnover can reduce revenue and increase operating expenses through reduced operating efficiency and higher recruiting costs. Until 1999, operations were not significantly affected by driver shortages. During 1999, due to historically low unemployment, competition for skilled labor intensified. As a result, the company was unable to attract and retain a sufficient number of qualified drivers. The company maintains an active driver-recruiting program and bases its employee-driver incentive pay package on longevity, safety, fuel efficiency and other operational goals. In addition, the company has continued to intensify its recruitment of truck driving school graduates. These "student-drivers" train with an experienced instructor-driver by riding as "second driver" and are paid student-driver wages by the company. They are assigned a tractor only after they have been qualified to become single drivers. 3 - OWNER-OPERATORS: The company actively seeks to expand its fleet with equipment provided by owner-operators. The owner-operator provides the tractor and driver to pull the company's loaded trailer. The owner-operator pays the drivers' wages, fuel, equipment-related expenses and other transportation expenses and receives a portion of the revenue from each load. At the end of 1999, the company had contracts for 475 owner-operator tractors in its full-truckload divisions and 215 in its LTL operations. The percent of full-truckload and LTL revenue generated from shipments transported by owner-operators during each of the last five years is summarized below: Percent of Revenue from Shipments Transported by Owner-Operators ---------------------------------------------------- 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Full-truckload 25% 24% 26% 28% 24% Less-than-truckload 69% 69% 71% 71% 68% The company has traditionally relied on owner-operator-provided equipment to transport much of its customers' freight. As competition for employee-drivers has increased, other trucking companies have initiated or expanded owner-operator fleets. During 1998, the company became more aggressive in its solicitation for and retention of owner-operator-provided equipment. - FUEL: Per-gallon fuel costs paid by the company increased by approximately 10% during 1999 as compared to 1998. Such costs decreased by 15% in 1998 from 1997. Owner-operators are responsible for all costs associated with their equipment, including fuel. Therefore, the cost of such fuel is not a direct expense of the company. Fuel price fluctuations result from many external market factors that cannot be influenced or predicted by the company. In addition, each year several states increase fuel taxes. Recovery of future increases or realization of future decreases in fuel prices and fuel taxes, if any, will continue to depend upon competitive freight-market conditions. - RISK MANAGEMENT: Liability for accidents is a significant concern in the trucking industry. Exposure can be large and occurrences unpredictable. The cost and human impact of work-related injury claims are also significant concerns. To address these concerns, the company maintains a risk management program designed to minimize the frequency and severity of accidents and to manage insurance coverage and claims. As part of the program, the company carries insurance policies under which it retains liability for up to $750,000 on each property, casualty and general liability claim, substantially all individual work-related injury claims and $100,000 on each cargo claim. Because of this retained liability, a series of very serious traffic accidents, work-related injuries or unfavorable developments in or outcomes of existing claims could materially adversely affect the company's operating results. Claims and insurance expense can vary significantly from year to year. Reserves representing the company's estimate of ultimate claims outcomes are established based on the information available at the time of an incident. As additional information regarding the incident becomes available, any necessary adjustments are made to previously recorded amounts. The aggregate amount of open claims, some of which involve litigation, is significant. In the opinion of management, however, these claims can be resolved without a material adverse effect on the company's financial position or its results of operations. A major component of the company's risk management program is the enhancement of safety in its operations. The company's safety department conducts programs which include driver education and over-the-road observation. All drivers must meet or exceed specific guidelines relating to safety records, driving experience and personal standards, including a physical examination and mandatory drug testing. Drivers must also complete the company's training program, which includes tests for motor vehicle safety and over-the-road driving, and they must have a current Commercial Drivers License before being assigned a tractor. Student drivers undergo a more extensive training program as a second driver with an experienced instructor-driver. In accordance with federal regulations, the company conducts drug tests on all driver candidates and maintains a continuing program of random testing for use of such substances. Applicants who test positive for drugs are turned away and drivers who test positive for such substances are immediately disqualified from driving. 4 OPERATING STRATEGY The company's "one call does all" full-service capability, combined with the service-oriented corporate culture it gained from its many years as a successful LTL carrier, enables it to compete on the basis of service, rather than solely on price. Management also believes that major shippers will require increasing levels of service and that they will rely on their core carriers to provide transportation and logistics solutions, such as providing the shipper real-time information about the movement and condition of any shipment. During 1996, the company completed the conversion of its full-truckload fleets to the use of computer and satellite technology to enhance efficiency and customer service. The satellite-based communications system provides automatic hourly position updates of each full-truckload tractor and permits real-time communication between operations personnel and drivers. Dispatchers relay pick-up, delivery, weather, road and other information to the drivers while shipment status and other information are relayed by the drivers to the company's computers via the satellite. The company does not plan to alter the size of its company-operated, full-truckload fleet during 2000. Changes in the fleet will depend upon acquisitions, if any, of other motor carriers, developments in the nation's economy, demand for the company's services and the availability of qualified employee drivers. Continued emphasis will be placed on improving the operating efficiency and increasing the utilization of this fleet through enhanced driver training and retention and reducing the percentage of empty, non-revenue producing miles. - LESS-THAN-TRUCKLOAD: Temperature-controlled LTL trucking is service and capital intensive. LTL freight rates are higher than those for full-truckload and are based on mileage, weight, type of commodity, space required in the trailer and pick-up and delivery. Management believes that only one other refrigerated LTL motor carrier competes with the company on a nationwide basis. Temperature-controlled LTL trucking requires a system of terminals, capable of holding refrigerated and frozen products, located at strategic distribution points across the United States. The company has 15 such LTL terminals. Terminals are located in or near New York City, Philadelphia, Atlanta, Orlando, Memphis, Nashville, Cincinnati, Chicago, Kansas City, Dallas, Houston, Denver, Salt Lake City, Oakland and Los Angeles. Several of these LTL terminals also serve as full-truckload driver centers where company-operated, full-truckload fleets are based. Efficient information management is essential to a successful temperature-controlled LTL operation. On a typical day, the company's LTL system handles about 5,000 shipments - about 3,000 on the road, 1,000 being delivered and 1,000 being picked up. In 1999, the LTL operation handled about 278,000 individual shipments. - FULL-TRUCKLOAD: Temperature-controlled, full-truckload service requires a substantially lower capital investment for terminals and lower costs of shipment handling and information management than that of LTL. Pricing is based primarily on mileage, weight and type of commodity. At the end of 1999, the company's full-truckload tractor fleet consisted of 1,150 tractors owned or leased by the company and 475 tractors contracted to the company by owner-operators, making it one of the five largest temperature-controlled, full-truckload carriers in North America. The company provides a wide range of transportation and logistics services which include railroad-based intermodal long-haul transportation. In providing such service, the company contracts with railroads to transport loaded full-truckload trailers on railroad flat cars. During 1998, the company's ability to offer intermodal service was negatively impacted by the reduced capacity of railroad companies. During 1999, these constraints were somewhat alleviated and the company recommenced its efforts to provide intermodal service to its customers. Less than 5% of the company's domestic full-truckload shipments is transported in this manner. 5 By providing intermodal transportation services, the company is able to transport more loaded trailers (which require relatively lower capital investment) while engaging fewer tractors (which involve relatively higher capital investment). When the emphasis on intermodal transportation is renewed, it is probable that the company's trailer fleet will continue to expand more rapidly than its tractor fleet. Also contributing to the increase in the trailer-to-tractor ratio from 1.5:1 at January 1, 1995 to 1.74:1 at December 31, 1999 were continued expansion of dedicated fleet and short-haul, full-truckload services and, in general, the more rapid expansion of the company's full-truckload services in relation to its LTL service. Full-truckload services generally involve the utilization of more trailers to enable tractors to remain in service while idle trailers are being loaded and unloaded. During the fourth quarter of 1999, the company announced that a restructuring charge of $3.7 million, of which $2.9 million was related to anticipated payments to lessors for the cancellation of long-term trailer operating leases and associated costs to refurbish such trailers to be retired ahead of schedule. Success in the company's renewed efforts to provide intermodal service to its customers would cause the company to reevaluate the necessity of such early leased trailer retirements. Prior to 1999, the company conducted limited operations involving "dedicated fleets". In such an arrangement, the company contracts with a customer to provide service involving the assignment of specific trucks to handle transportation needs of its customers. Frequently the company and customer anticipate that dedicated fleet logistics services will both lower the customer's transportation costs and improve the quality of the service the customer receives. In late 1999, the company improved its capability to provide and expanded efforts to market such services. In addition to the LTL terminals, which also serve as full-truckload employee-driver centers, full-truckload activities are conducted from terminals in Fort Worth and Laredo, Texas. Laredo, located on the Texas-Mexico border, is a drop-off point for company trailers, which are picked up by a Mexican trucking company for movement into Mexico's interior. The company also maintains in various locations small centers for employee-driver recruitment. EQUIPMENT The company acquires premium company-operated tractors in order to help attract and retain qualified employee-drivers, promote safe operations, minimize maintenance and repair costs and assure dependable service to its customers. Management believes that the higher initial investment for its equipment is recovered through more efficient vehicle performance and improved resale value. The company has a three-year replacement policy for most of its full-truckload tractors. As a result, repair costs are partially recovered through efficient vehicle performance and manufacturers' warranties. The three-year replacement policy also enables the company to maximize its fuel efficiency by benefiting from technological improvements in both drivetrain efficiency and aerodynamics. REGULATION The company's interstate operations are subject to regulation by the United States Department of Transportation, which regulates driver qualifications, safety, equipment standards and insurance requirements. The company is also subject to regulation of various state regulatory agencies with respect to certain aspects of its operations. State regulations generally involve safety and the weight and dimensions of equipment. SEASONALITY The company's full-truckload operations are somewhat affected by seasonal changes. The early winter, late spring and summer growing seasons for fruits and vegetables in California and Texas typically create increased demand for trailers equipped to transport cargo requiring refrigeration. In addition, winter driving conditions can be hazardous and impair the company's operations from time to time in certain portions of the company's service areas. The company's LTL operations are also impacted by the seasonality of certain commodities. As a result, LTL shipment volume during the winter months is normally lower than other months. Shipping volumes of LTL freight are usually highest during July through October. 6 EMPLOYEES The number of company employees as of December 31, 1999 and 1998, was as follows: Dec. 31, 1999 Dec. 31, 1998 ------------- ------------- Freight Operations: Drivers and Trainees 1,450 1,537 Non-driver personnel Full time 758 746 Part time 150 164 ----- ----- Total Freight Operations 2,358 2,447 Non-freight Operations 283 187 ----- ----- Total 2,641 2,634 ===== ===== NON-FREIGHT SEGMENT The company is engaged in a non-freight business segment, which is a franchised dealer and repair facility for Wabash trailers and Carrier-Transicold brand truck and trailer refrigeration equipment. This dealer also provides refrigeration units and repair service for the company's trailers. The non-freight segment also sells used tractors and trailers and distributes motor vehicle air conditioning parts and remanufactures mechanical air conditioning and refrigeration components. OUTLOOK Statements contained herein which are not historical facts are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act ("PSLRA") of 1995. Certain statements contained herein including statements regarding the anticipated development and expansion of the company's business or the industry in which the company operates, the intent, belief or current expectations of the company, its directors or its officers, primarily with respect to the future operating performance of the company and other statements contained herein regarding matters that are not historical facts, are "forward-looking" statements (as such term is defined in the PSLRA of 1995). Because such statements involve risks and uncertainties, actual results may differ materially from those expressed or implied from such forward-looking statements. These risks and uncertainties include competition, weather conditions and the general economy; the availability and cost of labor; interest rates and the company's ability to negotiate favorably with lenders and lessors; the availability and cost of equipment, fuel and supplies; the impact of changes in the tax and regulatory environment in which the company operates, operational risks, insurance and risks associated with the technologies and systems used by the company. YEAR 2000 (Y2K) Neither the Company nor its significant suppliers nor customers experienced any significant malfunctions or errors in its operating or business systems when the date changed from 1999 to 2000. Based on operations since January 1, 2000, the Company does not expect any significant impact to its ongoing business as a result of the Y2k issue. The Company is not aware of any significant Y2k issues or problems that may have arisen for its significant customers and suppliers. 7 ITEM 2. PROPERTIES. At December 31, 1999, the company also maintained leased terminals or office facilities of 10,000 square feet or more in or near the following cities:
Approximate ----------- (O)wned or Segment Location Function Square Feet Acreage (L)eased Utilizing -------- -------- ----------- ------- -------- --------- Dallas, TX Corporate Office 34,000 1.7 O All Lancaster, TX Freight Operations 100,000 80.0 O Freight Ft. Worth, TX Freight Operations 34,000 7.0 O Freight Mesquite, TX Product Service & Sales 103,000 8.5 O Non-Freight Bridgeview, IL Freight Operations 37,000 5.0 O Freight Dundee, FL Freight Operations 35,000 15.0 O Freight Avenel, NJ Freight Operations 17,000 5.0 O Freight Doraville, GA Freight Operations 40,000 7.0 L Freight Commerce City, CA Freight Operations 35,000 4.0 L Freight Houston, TX Product Service & Sales 25,000 9.5 O Non-Freight Kansas City, MO Freight Operations 125,000 3.0 L Freight Downey, CA Freight Operations 40,000 6.0 L Freight Salt Lake City, UT Freight Operations 25,000 7.0 L Freight Dallas, TX Product Service & Sales 39,000 7.0 O Non-Freight Ft. Worth, TX Product Service & Sales 13,000 4.0 O Non-Freight Springdale, AR Product Service & Sales 12,000 3.5 L Non-Freight Pharr, TX Product Service & Sales 12,000 2.0 L Non-Freight El Paso, TX Product Service & Sales 14,000 1.5 L Non-Freight
Lease terms range from one month to twelve years. These terminals range in size from a small amount of office space to a terminal with office and dock facilities totaling approximately 44,000 square feet. The company expects that present facilities are sufficient to support its operations. The following table sets forth certain information regarding revenue equipment utilized by the company at December 31, 1999 and 1998:
Age in Years ---------------------------------------------------------- Tractors Less than 1 1 thru 3 4 or more Total - -------- ---------------- ----------------- ---------------- ---------------- 1999 1998 1999 1998 1999 1998 1999 1998 ----- ----- ----- ----- ----- ----- ----- ----- Company owned and leased 682 467 539 826 19 35 1,240 1,328 Owner-operator provided 126 67 271 222 293 383 690 672 ----- ----- ----- ----- ----- ----- ----- ----- Total 808 534 810 1,048 312 418 1,930 2,000 ===== ===== ===== ===== ===== ===== ===== ===== Age in Years ---------------------------------------------------------- Trailers Less than 1 1 thru 5 6 or more Total - -------- ---------------- ----------------- ---------------- ---------------- 1999 1998 1999 1998 1999 1998 1999 1998 ----- ----- ----- ----- ----- ----- ----- ----- Company owned and leased 477 706 2,670 2,024 188 210 3,335 2,940 Owner-operator provided -- -- 8 11 15 11 23 22 ----- ----- ----- ----- ----- ----- ----- ----- Total 477 706 2,678 2,035 203 221 3,358 2,962 ===== ===== ===== ===== ===== ===== ===== =====
Approximately 80% of the company's trailers are insulated and equipped with refrigeration units capable of providing the temperature control necessary to handle perishable freight. Trailers that are used primarily in LTL operations are equipped with movable partitions permitting the transportation of goods requiring maintenance of different temperatures. The company also operates a fleet of non-refrigerated trailers in its "dry freight" full-truckload operation. Company-operated trailers are primarily 102 inches wide. Full-truckload trailers used in dry freight operations are 53 feet long. Temperature controlled operations are conducted with both 48 and 53 foot refrigerated trailers. 8 The company's general policy is to replace its company-operated, heavy-duty tractors every three years. Company-operated, full-truckload trailers are usually retired after seven years of service. Occasionally, retired equipment is kept by the company for use in local delivery operations. ITEM 3. LEGAL PROCEEDINGS. The company is party to routine litigation incidental to its businesses, primarily involving claims for personal injury and property damage incurred in the transportation of freight. The aggregate amount of these claims is significant. The company maintains insurance programs and accrues for expected losses in amounts designed to cover liability resulting from personal injury and property damage claims. The company does not believe that adverse results in one or more of these pending cases would have a material effect on the financial condition of the company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of shareholders of the company during the fourth quarter of 1999. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS. The information regarding cash dividends, common stock price per share and common stock trading volume set forth under the caption "Quarterly Financial, Stock and Dividend Information" appearing on page 20 of the Annual Report to Shareholders for the year ended December 31, 1999, is incorporated by reference into this Report. ITEM 6. SELECTED FINANCIAL DATA. The information set forth under the caption "Ten-Year Statistics and Financial Data" appearing on pages 10 and 11 of the Annual Report to Shareholders for the year ended December 31, 1999, is incorporated by reference into this Report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information set forth under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing on pages 7 through 10 of the Annual Report to Shareholders for the year ended December 31, 1999, is incorporated by reference into this Report. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The information set forth under the caption "Quantitative and Qualitative Disclosure about Market Risk" on page 18 of the Annual Report to Shareholders for the year ended December 31, 1999 is incorporated by reference into this report. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. (a) The following Consolidated Financial Statements of Frozen Food Express Industries, Inc., and Report of Independent Public Accountants, with respect thereto set forth on pages 12 through 20 of the Annual Report to Shareholders for the year ended December 31, 1999, are incorporated by reference into this Report: Consolidated Statements of Income -- Years ended December 31, 1999, 1998, and 1997. Consolidated Balance Sheets -- As of December 31, 1999 and 1998. 9 Consolidated Statements of Cash Flows -- Years ended December 31, 1999, 1998 and 1997. Consolidated Statements of Shareholders' Equity -- Years ended December 31, 1999, 1998 and 1997. Notes to Consolidated Financial Statements. Report of Independent Public Accountants. Supplementary Information - Quarterly Financial Data (unaudited) ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. In accordance with General Instruction G to Form 10-K, the information required by Item 10 is incorporated herein by reference from the portion of the company's Proxy Statement for the Annual Meeting of Shareholders to be held April 27, 2000, appearing under the caption "Nominees for Directors". ITEM 11. EXECUTIVE COMPENSATION. In accordance with General Instruction G to Form 10-K, the information required by Item 11 is incorporated herein by reference from the portions of the company's Proxy Statement for the Annual Meeting of Shareholders to be held April 27, 2000 appearing under the captions "Executive Compensation" and "Transactions with Management". ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. In accordance with General Instruction G to Form 10-K, the information required by Item 12 is incorporated herein by reference from the portions of the company's Proxy Statement for the Annual Meeting of Shareholders to be held April 27, 2000, appearing under the captions "Outstanding Capital Stock; Principal Shareholders" and "Nominees for Directors". ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. In accordance with General Instruction G to Form 10-K, the information required by Item 13 is incorporated herein by reference from the portions of the company's Proxy Statement for the Annual Meeting of Shareholders to be held April 27, 2000, appearing under the captions "Nominees for Directors", "Transactions with Management" and "Executive Compensation". 10 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) 1. & 2. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES: The financial statements listed in the index to financial statements and financial statement schedules in Item 8 hereof are filed as part of this Annual Report on Form 10-K. Financial statement schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements and notes thereto. 3. EXHIBITS: 3.l Articles of Incorporation of the Registrant and all amendments to date (filed as Exhibit 3.1 to Registrant's annual report on Form 10-K for the fiscal year ended December, 31, 1993; SEC File 3.2 Number 1-10006 and incorporated herein by reference). Bylaws of the Registrant, as amended to date (filed as Exhibit 3.2 to Registrant's annual report on Form 10-K for the fiscal year ended December, 31, 1998; SEC File Number 1-10006 and incorporated herein by reference). 10.1 Frozen Food Express Industries, Inc., 1987 Non-Employee Director Stock Plan (filed as Exhibit 10.2 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991; SEC File Number 1-10006 and incorporated herein by reference). 10.2 Second Amended and Restated Credit Agreement among Wells Fargo Bank (Texas) National Association as agent for itself and other banks and FFE Transportation Services, Inc. as Borrower and certain of its affiliates. 10.3 Frozen Food Express Industries, Inc., 1992 Incentive and Nonstatutory Stock Option Plan (filed as Exhibit 4.3 to Registrant's Registration #33-48494 as filed with the Commission, and incorporated herein by reference). 10.4 Amendment No. 1 to Frozen Food Express Industries, Inc. 1992 Incentive and Nonstatutory Stock Option Plan (filed as Exhibit 4.4 to Registrant's Registration #333-38133 and incorporated herein by reference). 10.5 Amendment No. 2 to Frozen Food Express Industries, Inc. 1992 Incentive Stock Option Plan (filed as Exhibit 4.5 to Registrant's Registration #333-38133 and incorporated herein by reference). 10.6 Amendment No. 3 to Frozen Food Express Industries, Inc. 1992 Incentive and Nonstatutory Stock Option Plan (filed as Exhibit 4.6 to Registrant's Registration Statement #333-87913 and incorporated herein by reference). 10.7 FFE Transportation Services, Inc., 1994 Incentive Bonus Plan, as amended (filed as Exhibit 10.6 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994; SEC File Number 1-10006 and incorporated herein by reference). 10.8 FFE Transportation Services, Inc., 1999 Executive Bonus and Phantom Stock Plan. 10.9 Frozen Food Express Industries, Inc. 401(k) Savings Plan 11 10.10 Frozen Food Express Industries, Inc. Employee Stock Option Plan (filed as Exhibit 4.1 to Registrant's Registration #333-21831 as filed with the Commission, and incorporated herein by reference). 10.11 Amendment to the Frozen Food Express Industries, Inc. Employee Stock Option Plan (filed as Exhibit 4.4 to Registrant's Registration Statement #333-52701 and incorporated herein by reference). 10.12 FFE Transportation Services, Inc. 401(k) Wrap Plan (filed as Exhibit 10.13 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996; SEC File Number 1-10006 and incorporated herein by reference). 11.1 Computation of basic and diluted net income per share of common stock (incorporated by reference to Footnote 8 to the financial statements appearing in the Annual Report to Shareholders of the Registrant for the year ending December 31, 1999). 13.1 Annual Report to Shareholders of the Registrant for the year ended December 31, 1999. Except for those portions of such Annual Report to Shareholders expressly incorporated by reference into this Report, such Annual Report to Shareholders is furnished solely for the information of the Securities and Exchange Commission and shall not be deemed a "Filed" Document. 21.1 Subsidiaries of Frozen Food Express Industries, Inc. 23.1 Consent of Independent Public Accountants 25.1 A Power of Attorney is found on page 13 of this Report. 27.1 Financial Data Schedule for the fiscal year ending December 31, 1999. (b) REPORTS ON FORM 8-K: No reports on Form 8-K were filed by the company during the last quarter of the period covered by this Report. 12 INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ANNUAL REPORT TO SHAREHOLDERS --------------- Consolidated Statements of Income -- Years ended December 31, 1999, 1998 and 1997 12 Consolidated Balance Sheets -- December 31, 1999 and 1998 13 Consolidated Statements of Cash Flows -- Years ended December 31, 1999, 1998 and 1997 14 Consolidated Statements of Shareholders' Equity --Years ended December 31, 1999, 1998 and 1997 15 Notes to Consolidated Financial Statements 15 Report of Independent Public Accountants 20 Supplementary Information -- Quarterly financial data (unaudited)
Financial statement schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements and notes thereto. The financial statements listed in the above index, which are included in the Annual Report to Shareholders of Frozen Food Express Industries, Inc., for the year ended December 31, 1999, are hereby incorporated by reference, and are filed herewith as Exhibit 13.1. 13 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that each of the undersigned directors and officers of Frozen Food Express Industries, Inc., hereby appoints Stoney M. Stubbs, Jr., and F. Dixon McElwee, Jr. his true and lawful attorneys-in-fact and agents, for him and in his name, place and stead, in any and all capacities, with full power to act alone, to sign any and all amendments to this Annual Report on Form 10-K and to file each such amendment to the Report, with all exhibits thereto, and any and all other documents in connection therewith, with the Securities and Exchange Commission, hereby granting unto said attorneys-in-fact and agents full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents may lawfully do or cause to be done by virtue hereof. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FROZEN FOOD EXPRESS INDUSTRIES, INC. Date: March 29, 2000 By /s/ F. Dixon McElwee, Jr. ------------------------- --------------------------------------- F. Dixon McElwee, Jr. Senior Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Date: March 29, 2000 /s/ Stoney M. Stubbs, Jr. ------------------------- --------------------------------------- Stoney M. Stubbs, Jr., Chairman of the Board of Directors and President (Principal Executive Officer) Date: March 29, 2000 /s/ F. Dixon McElwee, Jr. ------------------------- --------------------------------------- F. Dixon McElwee, Jr., Senior Vice President and Director (Principal Financial and Accounting Officer) Date: March 29, 2000 /s/ Charles G. Robertson ------------------------- --------------------------------------- Charles G. Robertson Executive Vice President and Director Date: March 29, 2000 /s/ Edgar O. Weller ------------------------- --------------------------------------- Edgar O. Weller Vice Chairman of the Board of Directors Date: March 29, 2000 /s/ W. Mike Baggett ------------------------- --------------------------------------- W. Mike Baggett, Director Date: March 29, 2000 /s/ Brian R. Blackmarr ------------------------- --------------------------------------- Brian R. Blackmarr, Director Date: March 29, 2000 /s/ Leroy Hallman ------------------------- --------------------------------------- Leroy Hallman, Director Date: March 29, 2000 /s/ T. Michael O'Connor ------------------------- --------------------------------------- T. Michael O'Connor, Director 14 EX-10.2 2 SECOND AMENDMENT AND RESTATED CREDIT AGREEMENT SECOND AMENDED AND RESTATED CREDIT AGREEMENT AMONG WELLS FARGO BANK (TEXAS) NATIONAL ASSOCIATION, AS AGENT FOR ITSELF AND OTHER BANKS AND FFE TRANSPORTATION SERVICES, INC., AS BORROWER, AND CERTAIN OF ITS AFFILIATES MARCH 1, 2000 TABLE OF CONTENTS
PAGE ---- ARTICLE I DEFINITIONS.................................................................................6 ARTICLE II AMOUNTS AND TERMS OF CREDIT COMMITMENTS...................................................19 Section 2.1 Commitments...........................................................................19 Section 2.2 The Notes.............................................................................20 Section 2.3 Repayment of Loans....................................................................20 Section 2.4 Interest and Fees.....................................................................20 Section 2.5 Borrowing Procedure...................................................................23 Section 2.6 Optional Prepayments, Conversions and Continuations of Loans..........................23 Section 2.7 Mandatory Prepayments.................................................................23 Section 2.8 Minimum Amounts.......................................................................24 Section 2.9 Certain Notices.......................................................................24 Section 2.10 Use of Proceeds.......................................................................25 Section 2.11 Fees..................................................................................25 Section 2.12 Computations..........................................................................26 Section 2.13 Termination or Reduction of Commitments...............................................26 Section 2.14 Letters of Credit.....................................................................26 Section 2.15 Method of Payment.....................................................................29 Section 2.16 Pro Rata Treatment....................................................................30 Section 2.17 Sharing of Payments, Etc..............................................................30 Section 2.18 Non-Receipt of Funds by Agent.........................................................30 Section 2.19 Withholding Taxes.....................................................................31 Section 2.20 Withholding Tax Exemption.............................................................32 Section 2.21 Reinstatement of Obligations..........................................................32 Section 2.22 Additional Costs......................................................................32 Section 2.23 Limitation on Types of Loans..........................................................34 Section 2.24 Illegality............................................................................34 Section 2.25 Treatment of Affected Loans...........................................................35 Section 2.26 Compensation..........................................................................35 Section 2.27 Capital Adequacy......................................................................36 ARTICLE III CONDITIONS PRECEDENT.....................................................................36 Section 3.1 Conditions Precedent to Initial Loans and Letters of Credit...........................36 Section 3.2 Conditions of Subsequent Advances.....................................................38 Section 3.3 Effect of Request for any Subsequent Advance or Conversion or .......................... Continuation, or Request for Letter of Credit.........................................39 ARTICLE IV CERTAIN REPRESENTATIONS AND WARRANTIES....................................................40 Section 4.1 Corporate Existence and Authority; Names..............................................40 Section 4.2 Financial Statements..................................................................40 Section 4.3 Compliance with Laws and Documents; Existing Defaults.................................40 Section 4.4 Enforceability........................................................................41 Section 4.5 Payment of Taxes......................................................................41 Section 4.6 Plan Obligations......................................................................41 Section 4.7 Purpose of Advances and Letters of Credit.............................................42 Section 4.8 Ownership of the Companies............................................................42 Section 4.9 Existing Indebtedness.................................................................42 Section 4.10 Rights in Properties; Existing Liens..................................................42 2 Section 4.11 Material Agreements...................................................................42 Section 4.12 Environmental Matters.................................................................42 Section 4.13 Common Enterprise.....................................................................43 Section 4.14 Workers' Compensation.................................................................43 Section 4.15 Year 2000.............................................................................43 ARTICLE V CERTAIN COVENANTS OF THE COMPANIES.........................................................43 Section 5.1 Affirmative Covenants.................................................................43 Section 5.2 Negative Covenants....................................................................49 ARTICLE VI DEFAULT...................................................................................51 Section 6.1 Payment of Obligations................................................................51 Section 6.2 Covenants.............................................................................51 Section 6.3 Misrepresentation.....................................................................52 Section 6.4 Voluntary Debtor Relief...............................................................52 Section 6.5 Involuntary Debtor Relief.............................................................52 Section 6.6 Judgments.............................................................................52 Section 6.7 Attachment............................................................................53 Section 6.8 Acceleration of Other Debt............................................................53 Section 6.9 Other Agreements......................................................................53 ARTICLE VII REMEDIES.................................................................................53 Section 7.1 Acceleration..........................................................................53 Section 7.2 Loans and Letters of Credit...........................................................53 Section 7.3 Judgment..............................................................................53 Section 7.4 Rights................................................................................53 Section 7.5 Default with Respect to Base Rate Loans...............................................53 Section 7.6 Default with Respect to LIBOR Loans...................................................53 Section 7.7 Default with Respect to Letters of Credit.............................................54 Section 7.8 Automatic Acceleration Due to Certain Defaults........................................54 ARTICLE VIII THE AGENT...............................................................................54 Section 8.1 Appointment and Authorization; Administration; Duties.................................54 Section 8.2 Advances and Payments.................................................................55 Section 8.3 Sharing of Setoffs....................................................................56 Section 8.4 Distribution of Information...........................................................56 Section 8.5 Notice to Banks.......................................................................56 Section 8.6 Liability of Agent....................................................................56 Section 8.7 Reimbursement and Indemnification.....................................................57 Section 8.8 Rights of Agent.......................................................................58 Section 8.9 Independent Investigation and Credit Decision by Banks................................58 Section 8.10 Successor Agent.......................................................................58 ARTICLE IX MISCELLANEOUS.............................................................................59 Section 9.1 Performance by Agent and the Banks....................................................59 Section 9.2 Waivers...............................................................................59 Section 9.3 Cumulative Rights.....................................................................59 3 Section 9.4 Other Rights and Remedies.............................................................59 Section 9.5 Expenditures of Agent and Banks.......................................................60 Section 9.6 Form and Number of Documents..........................................................60 Section 9.7 Accounting Terms......................................................................60 Section 9.8 Money.................................................................................60 Section 9.9 Headings..............................................................................60 Section 9.10 Articles, Sections, Exhibits and Schedules............................................60 Section 9.11 Number and Gender of Words............................................................61 Section 9.12 Business Day..........................................................................61 Section 9.13 Notices...............................................................................61 Section 9.14 Parties Bound.........................................................................61 Section 9.15 Exceptions to Covenants...............................................................61 Section 9.16 Successors and Assigns................................................................62 Section 9.17 Effect of Investigations..............................................................63 Section 9.18 Governing Law.........................................................................63 Section 9.19 Maximum Interest Rate.................................................................64 Section 9.20 Invalid Provisions....................................................................65 Section 9.21 Entirety and Amendments...............................................................65 Section 9.22 Survival of Representations...........................................................65 Section 9.23 Setoff................................................................................66 Section 9.24 Multiple Counterparts.................................................................66 Section 9.25 Term of Agreement.....................................................................66 Section 9.26 NO ORAL AGREEMENTS....................................................................66 Section 9.27 Amendment and Restatement.............................................................66 Section 9.28 AGREEMENT FOR BINDING ARBITRATION.....................................................66
4 INDEX TO EXHIBITS AND SCHEDULES SCHEDULES --------- 1.1 Commitments 2.14 Letters of Credit 4.3 Litigation 4.9 Existing Indebtedness 4.11 Material Agreements EXHIBITS -------- A Borrowing Base Report B Notice of Advance C Revolving Credit Note D Swingline Note E Quarterly Report F New Entity Agreement G Assignment and Acceptance H Arbitration Agreement I Security Agreement 5 SECOND AMENDED AND RESTATED CREDIT AGREEMENT THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT is entered into as of March 1, 2000, among FFE TRANSPORTATION SERVICES, INC., a Delaware corporation ("Borrower"), FROZEN FOOD EXPRESS INDUSTRIES, INC., a Texas corporation ("Parent"), FFE, INC., a Delaware corporation ("FFE"), CONWELL CORPORATION, a Delaware corporation ("Conwell"), W & B REFRIGERATION SERVICE COMPANY, a Delaware corporation ("W&B"), LISA MOTOR LINES, INC., a Delaware corporation ("LML"), FROZEN FOOD EXPRESS, INC., a Texas corporation ("Express"), CONWELL CARTAGE, INC., a Texas corporation ("Cartage"), MIDDLETON TRANSPORTATION COMPANY, a Texas corporation ("Middleton"), COMPRESSORS PLUS, INC., a Texas corporation ("CPI"), AEL TRANSPORTS, INC., a Delaware corporation ("AEL"), FLEET NATIONAL BANK (formerly known as BANKBOSTON, N.A.) ("Fleet"), a national banking association, CHASE BANK OF TEXAS, NATIONAL ASSOCIATION (formerly known as TEXAS COMMERCE BANK, NATIONAL ASSOCIATION), a national banking association ("Chase"), WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION (formerly known as First Interstate Bank of Texas, N.A.), a national banking association, each other entity which may from time to time become party hereto as a lender hereunder or any successor or assignee thereof (collectively, other than the Companies, the "BANKS") and Wells Fargo as agent for the Banks (in such capacity, "AGENT") W I T N E S E T H: - - - - - - - - - WHEREAS, Borrower, Parent, FFE, Conwell, W & B, LML, Express, Cartage, Middleton, AEL, CPI, Fleet, Wells Fargo, Chase and Agent are parties to that certain Amended and Restated Credit Agreement dated as of December 30, 1992 (as it has been amended by that certain First Amendment to Amended and Restated Credit Agreement dated as of May 24, 1993, and that certain Second Amendment to Amended and Restated Credit Agreement dated December 31, 1999, "EXISTING AGREEMENT"); WHEREAS, the parties hereto desire to amend and restate the Existing Agreement; NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree that the Existing Agreement is amended and restated to read in its entirety as follows: ARTICLE I DEFINITIONS As used herein, meanings indicated the following terms shall have the meanings indicated: "ADDITIONAL COSTS" shall have the meaning set forth in SECTION 2.22(a). "ADJUSTMENT DATE" shall have the meaning set forth in SECTION 2.4(b)(iii). 6 "ADVANCE" means the disbursement of an amount or amounts loaned or to be loaned by any Bank to Borrower hereunder. "AFFILIATE" means, as to any Person, any other Person (a) that directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, such first Person, (b) that directly or indirectly beneficially owns or holds five percent or more of any class of voting capital stock of such first Person, or (c) five percent or more of the voting capital stock of which is directly or indirectly beneficially owned or held by such first Person. The term "control" means the possession, directly or indirectly, of the power to direct or cause direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise; provided, however, in no event shall Agent or any Bank be deemed an Affiliate of Borrower, Parent or any Subsidiaries. "AGENT" means Wells Fargo Bank (Texas), National Association in its capacity as administrative agent for the Banks under this Agreement, and its successors and assigns in such capacity. "AGREEMENT" means this Second Amended and Restated Credit Agreement, as it may be amended, renewed, extended, or restated from time to time. "APPLICABLE LENDING OFFICE" means for each Bank and each Type of Loan, the lending office of such Bank (or of an Affiliate of such Bank) designated for such Type of Loan below its name on the signature pages hereof (or, with respect to a Bank that becomes a party to this Agreement pursuant to an assignment made in accordance with SECTION 9.16, in the Assignment and Acceptance executed by it) or such other office of such Bank (or an Affiliate of such Bank) as such Bank may from time to time specify to Agent as the office by which its Loans of such Type are to be made and maintained. "APPLICABLE RATE" shall have the meaning set forth in SECTION 2.4(a). "ARTICLE(S)" shall have the meaning set forth in SECTION 9.10. "ASSIGNEE " shall have the meaning set forth in SECTION 9.16(b). "ASSIGNING BANK" shall have the meaning set forth in SECTION 9.16(b). "ASSIGNMENT AND ACCEPTANCE" means an Assignment and Acceptance in substantially the form of EXHIBIT G. "BANKS" means as defined in the introductory paragraph. "BASE RATE" means the rate of interest per annum then most recently established by Wells Fargo as its prime or base rate of interest (which rate may not be the lowest rate of interest charged by Wells Fargo, each change in the Base Rate to become effective, without notice to Borrower, as of the opening of 7 business on the effective date of each change in the Base Rate; provided, however, that, in the event Wells Fargo is no longer Agent hereunder for whatever reason, the aforesaid reference in this definition to Wells Fargo shall instead be deemed to mean and refer to such Bank as may from time to time be Agent hereunder, in such Bank's capacity as a Bank hereunder, or such other Bank as may from time to time be specified by the Banks in their discretion, which Base Rate shall be established by such Bank in accordance with its internal policies and procedures applicable from time to time. "BASE RATE LOAN" means a Loan that bears interest at the Base Rate. "BASE RATE MARGIN" shall have the meaning set forth in SECTION 2.4(b)(i). "BORROWER" shall mean FFE Transportation Services, Inc., a Delaware corporation. "BORROWING BASE" means the sum of (i) an amount equal to ninety percent (90%) of the Net Book Value of Vehicles that are not subject to any Lien other than Liens in favor of Agent and the Banks, plus (ii) eighty percent (80%) of the aggregate Eligible Accounts; all calculated in accordance with GAAP based upon consolidated financial information of Parent and the Subsidiaries. The Borrowing Base shall be determined by Agent from time to time in its good faith judgment. "BORROWING BASE REPORT" means a report prepared and executed by Borrower, substantially in the form of EXHIBIT A attached hereto appropriately completed, in form and substance satisfactory to Agent evidencing the calculation of the Borrowing Base. "BUSINESS DAY" means (a) any day on which commercial banks are not authorized or required to close in Dallas, Texas, or San Francisco, California, and (b) with respect to all Advances, payments, Conversions, Continuations, Interest Periods and notices in connection with LIBOR Loans, any day which is a Business Day described in clause (a) above and which is also a day on which dealings in Dollar deposits are carried out in the London interbank market. "CALCULATION PERIOD" shall have the meaning set forth in SECTION 2.4(b)(i). "CAPITAL EXPENDITURE" means any and all expenditures by a Person for (i) an asset which will be used in a year or years subsequent to the year in which the expenditure is made and which asset is properly classified in relevant financial statements of such Person as equipment, real property or improvements, fixed assets or a similar type of capitalized asset in accordance with GAAP, (ii) an asset relating to or acquired in connection with an acquired business, and (iii) any and all acquisition costs related to (i) and (ii) above. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, as the same may be amended from time to time. "CLOSING DATE" means March 1, 2000. 8 "CODE" means the Uniform Commercial Code of Texas or any such other jurisdiction, as applicable. "COLLATERAL" means any property or assets in which a security interest, pledge or other such interest has been or from time to time may be granted to Agent and the Banks to secure the Obligations. "COMMITMENT" means, with respect to each Bank, the obligation of such Bank, in accordance with this Agreement, to make or continue Loans and to make or participate in Letter of Credit Liabilities in an aggregate principal amount at any one time outstanding up to but not exceed the amount set forth opposite the name of such Bank on SCHEDULE 1.1 or, if such Bank is party to an Assignment and Acceptance, as set forth in the most recent Assignment and Acceptance of such Bank, and as the same may be increased or decreased pursuant to this Agreement or as otherwise set forth in this Agreement. "COMMITMENT FEE RATE" shall have the meaning set forth in SECTION 2.4(b)(iii). "COMPANIES" means Parent, Borrower and the Other Subsidiaries, and a "Company" means any of Parent, Borrower or an Other Subsidiary. "CONSOLIDATED TANGIBLE NET WORTH" means the total consolidated capital and surplus accounts of the Companies determined in accordance with GAAP; provided that, in the computation of the capital and surplus accounts, there shall not be included any value for Operating Rights and other intangible assets. "CONSOLIDATED TOTAL LIABILITIES" means, at any time, all liabilities that, in accordance with GAAP, should be classified as such on a consolidated balance sheet of the Companies. "CONTINUE", "CONTINUATION" and "CONTINUED" shall refer to the continuation pursuant to SECTION 2.6 of any LIBOR Loan as a LIBOR Loan from one Interest Period to the next Interest Period. "CONTRACT RATE" shall have the meaning set forth in SECTION 9.19(a). "CONVERT", "CONVERSION" and "CONVERTED" shall refer to a conversion pursuant to SECTION 2.1(b), Section 2.6, SECTION 2.22, or SECTION 2.24 of one Type of Loan into another Type of Loan. "CURRENT FINANCIALS" shall have the meaning set forth in SECTION 4.2. "DEBT COVERAGE RATIO" shall have the meaning set forth in SUBSECTION 5.1(k). "DEBTOR RELIEF LAWS" means any applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, insolvency, reorganization, or similar debtor relief laws affecting the rights of creditors generally from time to time in effect."DEFAULT" shall have the meaning set forth in Article VI. 9 "DEPOSIT" shall have the meaning set forth in SECTION 7.7. "DOLLARS" or $" have the meaning set forth in SECTION 9.8. "EBITDAR" shall have the meaning set forth in SECTION 5.1(f). "ELIGIBLE ACCOUNTS" means, as of any date, an amount equal to the aggregate net invoice or ledger amount owing on all trade accounts receivable of the Companies for goods sold or leased or services rendered, after deducting (without duplication): (i) each such account that is unpaid 90 days after the original invoice date thereof, (ii) all such accounts in which a Person (other than the Banks specifically as security for the Obligations) has a Lien, (iii) the amount of all discounts, allowances, rebates, credits and adjustments to such accounts, (iv) all contra accounts, setoffs, defenses or counterclaims asserted by or available to the Persons obligated on such accounts, provided, however, that with respect to freight claims which constitute a part of accrued claims liability, only the current or short-term portion thereof shall be so deducted, (v) all accounts with respect to which goods are placed on consignment, guaranteed sale or other terms by reason of which the payment by the account debtor may be conditional, (vi) the amount billed for or representing retainage, if any, until all prerequisites to the immediate payment of retainage have been satisfied, (vii) all such accounts owed by account debtors which are known to any officer of any Company, Agent or any Bank to be insolvent, (viii) all such accounts owing by Affiliates of a Company, (ix) all accounts in which the account debtor is not a resident of the United States unless such accounts are supported by a letter of credit issued by a bank acceptable to Agent or by foreign credit insurance issued by a Person acceptable to Agent (x) all accounts in which the account debtor is the United States or any department, agency or instrumentality of the United States, except to the extent acknowledgment of assignment to the Banks, specifically as security for the Obligations, of such account in compliance with the Federal Assignment of Claims Act and other applicable Law has been received by Agent, (xi) all accounts in which Agent, does not have a first priority, perfected Lien, and (xii) all accounts otherwise unacceptable to Agent or the Required Banks in its or their sole reasonable discretion. "ERISA" shall have the meaning set forth in SECTION 4.6. "EXHIBITS" shall have the meaning set forth in SECTION 9.10. "EXISTING INDEBTEDNESS" shall have the meaning set forth in SECTION 4.9. "FEDERAL FUNDS RATE" means, for any day, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published or quoted on the next succeeding Business Day by the Federal Reserve Bank of New York. "FEE LETTER " shall have the meaning set forth in SECTION 8.1(d). 10 "FINAL MATURITY DATE " means the Revolving Credit Commitment Termination Date. "FINANCIAL STATEMENTS" includes, but is not necessarily limited to, balance sheets, profit and loss statements, reconciliations of capital and surplus, statements of cash flows prepared on a consolidated basis, and the footnotes thereto. "FINANCING LEASE" means any lease of property which shall, in accordance with GAAP, be capitalized on a balance sheet of a Company. "FIXED CHARGE COVERAGE RATIO" shall have the meaning set forth in SECTION 5.1(f). "FIXED CHARGES" shall have the meaning set forth in SECTION 5.1(f). "FUNDED DEBT" shall have the meaning set forth in SECTION 5.1(k). "GAAP" means generally accepted accounting principles, applied on a consistent basis, set forth in authoritative pronouncements issued by the American Institute of Certified Public Accounts, the Financial Accounting Standards Board, the Securities and Exchange Commission, the International Accounting Standards Committee, and any other comparable governing body, which are applicable in the circumstances as of the date in question, and the requisite that such principles are applied on a consistent basis means that the accounting principles observed in a current period are comparable in all material respects to those applied in a preceding period. FFE TRANSPORTATION SERVICES, INC., ET AL. "GOVERNMENTAL REQUIREMENT" means any Law, statute, code, ordinance, order, rule, regulation, judgment, decree, injunction, franchise, permit, certificate, license, authorization or other directive or requirement of any federal, state, county, municipal, parish, or other Tribunal or any department, commission, board, court, agency or any other instrumentality of any of them. "GROUP MEMBER" means any Person which is a member with any Company in an "affiliated service group" as defined in SECTION 414(m) of the IRC, a "controlled group of corporations" as defined in SECTION 1563 of the IRC, or any "trades or businesses . . . which are under common control" as defined by SECTION 414(c) of the IRC. "GUARANTY AGREEMENT" means a guaranty agreement, in form and substance satisfactory to the Banks, pursuant to which a Company (other than Borrower) guarantees prompt payment and performance of the Obligations, and "Guaranty Agreements" means all of such agreements. "HAZARDOUS MATERIALS" means "hazardous substances," "hazardous waste" or "hazardous constituents" in CERCLA, RCRA or any other federal, state or local environmental statute or regulation. "HIGHEST LAWFUL RATE" means, with respect to any Bank, the maximum non-usurious interest rate, if any, that any time or from time to time may be contracted for, taken, reserved, charged or received with respect to the particular Obligations as to which such rate is to be determined, payable to 11 such Bank pursuant to this Agreement or any other Loan Paper, under Laws applicable to such Bank which are presently in effect or, to the extent allowed by law, under such applicable Laws which may hereafter be in effect and which allow a higher maximum non-usurious interest rate than applicable Laws now allow. The Highest Lawful Rate shall be calculated in a manner that takes into account any and all fees, payments and other charges in respect of the Loan Papers that constitute interest under applicable Law. Each change in any interest rate provided for herein based upon the Highest Lawful Rate resulting from a change in the Highest Lawful Rate shall take effect without notice to Borrower or any other Person at the time of such change in the Highest Lawful Rate. For purposes of determining the Highest Lawful Rate under Texas law, the applicable rate ceiling shall be the indicated rate ceiling described in, and computed in accordance with, Sections 303.003, 303.008, and 303.009 of the Texas Finance Code, as amended and in effect from time to time, or any successor or replacement statute; PROVIDED, HOWEVER, that, to the extent permitted by applicable Law, Agent shall have the right to change the applicable rate ceiling from time to time in accordance with applicable Law. "INDEBTEDNESS" means the unpaid balance of, or aggregate potential obligations on, all indebtedness for borrowed money, all liabilities for the deferred payment of the purchase price of property, and all other obligations and liabilities for the deferred payment of money, including, but not limited to, guaranties, obligations evidenced by promissory notes, chattel paper, Financing Leases or other contractual obligations (provided that, with respect to the Companies, such other contractual obligations not specifically described above are included in the definition of Consolidated Total Liabilities). "INITIAL COST" means: (i) in the case of a new Vehicle, the bona fide price which, the purchaser actually pays to the dealer or manufacturer, including trade-in allowance, plus the sum of the following amounts, if any, actually paid by the purchaser which are not included in the price paid to the dealer or manufacturer: (A) dealer's delivery and handling charges; (B) the cost of any original equipment which may be added; (C) excise tax on the Vehicle; (D) any sale and use taxes; (E) freight charges; and (F) other expenses required to effect delivery of the Vehicle to the purchaser; less the sum of: (G) all discounts obtained by the purchaser and (H) the amount, if any, by which the trade-in allowance exceeds the Net Book Value of the Vehicle traded in; and (ii) in the case of a used Vehicle acquired by a Company, an amount equal to the fair market value of such Vehicle or an amount acceptable to Agent. "INTEREST PERIOD" means, with respect to any LIBOR Loan, a period commencing: (i) on any date upon which, pursuant to a Notice of Activity or otherwise pursuant to the provisions of this Agreement, the principal amount of such LIBOR Loan begins to accrue interest at the LIBOR Rate, or (ii) on the last day of the immediately preceding Interest Period, in the case of a Continuation to a successive Interest Period, and ending one (1), two (2), three (3) or six (6) months thereafter as Borrower shall elect in accordance with the provisions of SECTION 2.2; provided, that: (A) any Interest Period which would otherwise end on a day which is not a LIBOR Business Day shall be extended to the next succeeding LIBOR Business Day, unless such LIBOR Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding LIBOR Business Day; (B) any Interest Period which begins on the last LIBOR Business Day of a calendar month (or a day for which there is no 12 numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (A) above, end on the last LIBOR Business Day of the appropriate subsequent calendar month, and (C) any Interest Period that would otherwise end after the Revolving Credit Commitment Termination Date shall end on the Revolving Credit Commitment Termination Date. "IRC" shall mean the Internal Revenue Code of 1986, as amended. "ISSUING BANK" shall mean, with respect to any Letter of Credit, the Bank that has issued or agreed to issue such Letter of Credit. "LAWS" means any and all applicable laws, statutes, ordinances, rules, regulations, orders, writs, injunctions, and/or decrees of the United States, any state or commonwealth, any territory or possession, any foreign country, or any Tribunal. "LETTER OF CREDIT" shall have the meaning assigned to such term in SECTION 2.14. "LETTER OF CREDIT LIABILITIES" means, at any time, the aggregate undrawn face amounts of all outstanding Letters of Credit and all Reimbursement Obligations. "LIBOR BUSINESS DAY" shall mean a day on which dealings in Dollars are carried out in the London Inter-Bank Eurocurrency market. "LIBOR LOAN" means a Loan that bears interest at the LIBOR Rate. "LIBOR RATE" as applied to any LIBOR Loan made by any Bank hereunder, shall mean the quotient of (i) the rate per annum (rounded upwards, if necessary, to the nearest 1/16th of 1%) offered to Wells Fargo Bank, National Association at approximately 11:00 a.m. London time (or as soon thereafter as practicable) two Business Days prior to the first day of such Interest Period by leading banks in the London interbank market of U.S. Dollar deposits in immediately available funds having a term comparable to such Interest Period and in an amount comparable to the principal amount of the LIBOR Loan applicable to Wells Fargo to which such Interest Period relates divided by (ii) the remainder of (A) 1.00 minus (B) the LIBOR Reserve Percentage applicable to such LIBOR Loan. The determination by Agent of the LIBOR Rate shall, in the absence of manifest error, be conclusive. "LIBOR RATE MARGIN" shall have the meaning as set forth in SECTION 2.4(b)(ii). "LIBOR RESERVE PERCENTAGE" shall mean, with respect to each Interest Period, a percentage (expressed as a decimal) equal to the daily average during such Interest Period of the percentages in effect on each day of such Interest Period, as prescribed by the Board of Governors of the Federal Reserve System (or any successor), for determining reserve requirements applicable to "eurocurrency liabilities" pursuant to Regulation D or any other then applicable regulation of the Board of Governors (or any successor) which prescribes reserve requirements applicable to "eurocurrency liabilities," as presently defined in Regulation D, or any eurocurrency funding. Without limiting the effect of the 13 foregoing, the LIBOR Reserve Percentage shall reflect any other reserves required to be maintained by such member banks by reason of any change in laws against any category of liabilities which includes deposits by reference to which the LIBOR Rate is to be determined or any category of extensions of credit or other assets which include LIBOR Loans. "LIEN" means any security interest, mortgage, pledge, lien, claim, charge, encumbrance, title retention agreement, lessor's interest under a Financing Lease or analogous instrument, in, of or on any of the Companies' property (or any other Person's property if the context so requires). "LITIGATION" means any proceeding, claim, lawsuit and/or investigation conducted or threatened by or before any Tribunal, including, but not limited to, proceedings, claims, lawsuits and/or investigations under or pursuant to any environmental, occupational safety and health, antitrust, unfair competition, securities, taxation or other Law, or under or pursuant to any contract, agreement or other instrument. "LOANS" shall have the meaning assigned to such term in SECTION 2.1 and shall include all Swingline Advances. "LOAN PAPERS" means this Agreement, the Notes, the Guaranty Agreements and any and all certificates, mortgages, deeds of trust, security agreements and other documents and agreements executed and/or delivered in connection with the making of Loans or the issuing of Letters of Credit or otherwise pursuant to the terms of this Agreement and any future amendments and supplements thereto and restatements thereof. "MARGIN REGULATIONS" means Regulations T, U and X of the Board of Governors of the Federal Reserve System, as in effect from time to time. "MARGIN STOCK" means "margin stock" as defined in Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. "MATERIAL ADVERSE EFFECT" means any effect which might reasonably be expected to be material and adverse to the financial condition or business operations of any of the Companies. "NET BOOK VALUE" with respect to each Vehicle, means the Initial Cost of such Vehicle to a Company, depreciated on a straight-line basis with an amortization period not exceeding thirty-six (36) months for passenger cars, eighty-five (85) months for tractors, eighty-five (85) months for trailers, eighty-five (85) months for refrigeration units, or forty-eight (48) months for all other Vehicles, and a salvage value not exceeding twenty percent (20%) of Initial Cost for all Vehicles, but the term "Net Book Value" shall not include the value of any Vehicle which is no longer owned by a Company or which has been (i) destroyed, confiscated by a governmental authority, converted, or lost, or (ii) restricted from use, attached by legal process, or immobilized due to lack of repair for a period of forty-five (45) consecutive calendar days. 14 "NET INCOME" means, for any period and any Person, the sum of the following calculated without duplication: (a) such Person's consolidated net income (or loss) determined in conformity with GAAP; MINUS (b) nonrecurring, extraordinary gains, including, without limitation, any nonrecurring death benefits under life insurance policies. "NEW ENTITY" shall have the meaning set forth in SECTION 9.14. "NONBUSINESS DAY" shall have the meaning set forth in SECTION 9.12. "NOTES" means the Swingline Note and the Revolving Credit Notes. "NOTICE OF LOAN ACTIVITY" means the written notice given by Borrower to Agent of a Advance, Conversion, Continuation or issuance of a Letter of Credit, which shall be substantially in the form of Exhibit B attached. "OBLIGATIONS" means all present and future obligations and liabilities, and all renewals and extensions thereof, or any part thereof, of Borrower or any other Company to Agent and/or any one or more of the Banks and created or evidenced by or existing or arising out of or pursuant to this Agreement, the Revolving Credit Notes, the Swingline Note or any one or more of the other Loan Papers (including, without limitation, the Principal Obligation, the Reimbursement Obligation arising pursuant to any Letters' of Credit, and all other indebtedness, obligations, fees and liabilities arising pursuant to this Agreement, or otherwise) and all interest accruing thereon and costs, expenses and attorneys' fees incurred in the enforcement or collection thereof, regardless of whether such obligations and liabilities are direct, indirect, fixed, contingent, liquidated, unliquidated, joint, several, or joint and several, including, but not limited to, the obligations and liabilities arising pursuant to any of the Loan Papers, and all renewals and extensions thereof, or any part thereof, and all present and future amendments thereto. "OPERATING RIGHTS" means the operating rights, franchises, certificates, authorizations, permits and licenses of Borrower and the other Companies. "OTHER SUBSIDIARY" means any Person of which an aggregate of 50% or more of the issued and outstanding voting stock, or 50% or more of the equity interests, at the time at which any determination is being made, is owned of record or beneficially, directly or indirectly, by any Company. "OUTSTANDING REVOLVING CREDIT" means, at any particular time, the sum of (a) the aggregate outstanding principal amount of the Loans (including Swingline Advances), PLUS (b) all Letter of Credit Liabilities. "PARENT" means Frozen Food Express Industries, Inc., a Texas corporation. "PERMITTED INVESTMENTS" means investments in (i) indebtedness, evidenced by notes maturing not more than one hundred eighty (180) days after the date of issue, issued or guaranteed by the federal government of the United States of America, or any agency thereof, (ii) certificates of deposit, maturing not more than one hundred eighty (180) days after the date of issue, issued by commercial banking institutions, each of which is a member of the Federal Reserve System and which has combined capital and surplus and undivided profits 15 of not less than $100,000,000.00, or any other financial institution if the amount on deposit is fully insured by The Federal Deposit Insurance Corporation, (iii) commercial paper, maturing not more than one hundred eighty (180) days after the date of issue, issued by a corporation (other than an affiliate of the Companies) with a rating of "P-1" (or its then equivalent) according to Moody's Investors Service, Inc., "A-l" (or its then equivalent) according to Standard & Poor's Corporation or "F-l" (or its then equivalent) according to Fitch's Investors Service, Inc., or issued by any Bank with a rating of "P-3" (or its then equivalent) according to Moody's Investors Service Inc., or "A-3" (or its then equivalent) according to Standard & Poor's Corporation, (iv) money market funds that invest only in securities which mature within one (1) year after the date of purchase and which have ratings meeting the standard of (iii) above, or (v) securities issued or guaranteed by an agency of the United States of America. "PERMITTED LIENS" means with respect to any asset or property (or any interest therein), a. Liens (if any) securing the Notes in favor of Agent and/or the Banks; b. The following, if the validity and amount thereof are being contested in good faith and by appropriate legal proceedings and so long as (i) levy and execution thereon have been stayed and continue to be stayed, (ii) they do not in the aggregate materially detract from or threaten the value of the asset or property, or materially impair the use thereof in the operation of any Company's business, and (iii) a reserve therefor, if appropriate, has been established in accordance with GAAP: claims and Liens for taxes due and payable; claims and Liens upon and defects of title to real and personal property, including any attachment of personal or real property or other legal process prior to adjudication of a dispute on the merits; claims and Liens of mechanics, materialmen, warehousemen, landlords or carriers, or similar Liens; and adverse judgments on appeal; c. Liens for taxes not past due; d. Mechanics', materialmen's, warehousemen's, landlords' or carriers' Liens for services or materials for which payment is not past due; e. Liens in favor of the lessor on the assets being leased under any operating lease or Financing Lease; f. Encumbrances consisting of minor easements, zoning restrictions, or other restrictions on the use of real property that do not (individually or in the aggregate) materially affect the value of the assets encumbered thereby or materially impair the ability of Borrower or the other Companies to use such assets in their respective businesses, and none of which is violated in any material respect by existing or proposed structures or land use; g. Liens resulting from good faith deposits to secure payments of workmen's compensation or other social security programs or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, and contracts (other than for payment of borrowed money); and 16 h. Liens evidenced by that certain financing statement numbered 96-00107040 filed with the State of Texas against W&B. "PERSON" means any individual, firm, corporation, association, partnership, joint venture, trust, other entity or Tribunal. "PLAN" means all (present, prior (including terminated and transferred) and future) plans, programs agreements, arrangements and methods of contribution or compensation providing any remuneration or benefits other than current cash compensation to any current or former employee of any Company or any other Group Member or to any other Person who provides services to any Company or any other Group Member whether or not subject to ERISA; and includes, but is not limited to, pension, retirement, profit sharing, stock bonus, nonqualified deferred compensation, disability, medical, dental, workers compensation, health insurance, life insurance, incentive plans, vacation benefits and fringe benefits. "POTENTIAL DEFAULT" means the occurrence of an event or condition that with notice or lapse of time would become a Default. "PRINCIPAL OBLIGATION" means, as of the date of any determination thereof, the aggregate unpaid principal balance of all Loans (including Swingline Advances) and Reimbursement Obligations made by any Bank up to the time in question. "PRO RATA SHARE" means, with respect to each Bank and from time to time, an amount equal to the quotient obtained by dividing such Bank's Commitment by the aggregate amount of the Commitments or, if all the Commitments are terminated, the quotient obtained by dividing such Bank's outstanding Loans by the aggregate outstanding Loans of all Banks. "QUARTERLY REPORT" shall have the meaning set forth in SUBSECTION 5.1(a). "RCRA" means the Resource Conservation and Recovery Act of 1976, as amended by the Used Oil Recycling Act of 1980, the Solid Waste Disposal Act Amendments of 1980, and the Hazardous and Solid Waste Amendments of 1984, as the same may be amended from time to time. "REGULATORY CHANGE" means, with respect to any Bank, any change after the Closing Date in any U.S. federal or state, or any foreign, Laws or regulations or the adoption or making after such date of any interpretations, directives or requests applying to a class of lenders including such Bank of or under any U.S. federal or state, or any foreign, Laws or regulations (whether or not having the force of law) by any Tribunal charged with the interpretation or administration thereof. "REIMBURSEMENT OBLIGATION" shall have the meaning assigned to such term in SECTION 2.14(d). 17 "REPORTABLE EVENT" has the meaning assigned to that term in Title IV of ERISA. "REQUIRED BANKS" means, as of the date of any determination thereof, any two or more of the Banks, that hold, in the aggregate, sixty-six and one-half of one percent (66.5%) or more of the sum of the Principal Obligation then outstanding PLUS the aggregate face amount of the Letters of Credit then outstanding, or, if no Principal Obligation or Letter of Credit is then outstanding, any two or more of the Banks, that hold, in the aggregate, sixty-six and one-half of one percent (66.5%) or more of the Commitments. For purposes of this definition, the effects of rounding to the nearest cent shall not be taken into account. "REVOLVING CREDIT COMMITMENT TERMINATION DATE" shall mean June 1, 2000, or such earlier date upon which the obligation of the Banks to make Loans is terminated pursuant to the terms of this Agreement. "REVOLVING CREDIT NOTES" shall have the meaning set forth in SUBSECTION 2.2, and "REVOLVING CREDIT NOTE" shall mean any of such promissory notes. "SCHEDULES" shall have the same meaning set forth in SECTION 9.10. "SECTION(S)" shall have the meaning set forth in SECTION 9.10. "SECURITY AGREEMENTS" means (a) security agreements, pledge agreements and other agreements, documents or instruments executed by the Borrower, Parent or any Subsidiary dated the Closing Date (or such other date as any such Person may execute such Security Agreement), (b) any such agreement, document or instrument at any time executed pursuant to SECTION 5.1(a) hereof, evidencing or creating a Lien as security for the Obligations and in form and substance reasonably satisfactory to Agent, and (c) any and all amendments, modifications, supplements, renewals, extensions, restatements or replacements thereof. "SUBSIDIARIES" means FFE, Borrower, Conwell, W & B, LML, Express, Cartage, Middleton, AEL and CPI, and shall also mean and include any New Entity which has executed and delivered a Guaranty Agreement and letter as provided in SECTION 9.14 and has not been released or otherwise discharged from its obligations thereunder. "SWINGLINE ADVANCE" means as defined in SECTION 2.1(a). "SWINGLINE LENDER" means Wells Fargo Bank (Texas), National Association in its capacity as the lender of Swingline Advances, and any successor or assignee in such capacity. "SWINGLINE NOTE" has the meaning set forth in SECTION 2.2, and any amendments, modifications or restatements thereto. "TAXES" means any and all present and future taxes, levies, imposts, deductions, withholdings, assessments, fees or other charges from time to time or at any time imposed by any Laws or by any Tribunal (excluding taxation of the income of the Banks). 18 "TRIBUNAL" means any state, commonwealth, federal, foreign, territorial, or other court or governmental department, commission, board, bureau, agency or instrumentality. "TYPE" means any type of Loan (i.e., Base Rate Loan or LIBOR Loan). "VEHICLES" means all trucks, tractors, trailers, buses, passenger cars, and other similar units, and all other automotive vehicles, related equipment and accessories, refrigeration units, tires and tubes in which Parent, Borrower or any Subsidiary now or hereafter owns an interest, but shall not include any such trucks, tractors, trailers, buses, cars, other similar units, vehicles, equipment, accessories, refrigeration units, tires or tubes (i) that are leased to any Company by any Person other than another Company or (ii) that are "inventory" as such term is defined in Chapter or Article 9 of the Code . ARTICLE II AMOUNTS AND TERMS OF CREDIT COMMITMENTS Section 2.1 Commitments. Section COMMITMENTS. (a) LOANS. Subject to the terms and conditions of this Agreement (including, without limitation, SECTION 2.13), each Bank severally agrees to make one or more revolving credit loans to Borrower from time to time from and including the Closing Date to but excluding the Revolving Credit Commitment Termination Date in an aggregate principal amount outstanding not to exceed the positive remainder of (i) the amount of such Bank's Commitment as then in effect, MINUS (ii) such Bank's Pro Rata Share of the Letter of Credit Liabilities then outstanding (such revolving credit loans referred to in this SECTION 2.1(a) now or hereafter made by the Banks to Borrower from and including and after the Closing Date and all Revolving Credit Loans [as defined in the Existing Agreement] outstanding under the Existing Agreement as of the Closing Date are hereinafter collectively called the "LOANS"); PROVIDED, HOWEVER, that the Outstanding Revolving Credit shall not at any time exceed the Borrowing Base then most recently determined. Subject to the foregoing limitations and the other terms and conditions of this Agreement, Borrower may borrow, repay and reborrow the Loans hereunder prior to the Revolving Credit Commitment Termination Date. The Borrowing Base shall be determined in good faith by Agent each calendar quarter in connection with the delivery of the Borrowing Base Report to be delivered in accordance with SECTION 5.1(l), subject to Agent's right to redetermine the Borrowing Base in accordance with the immediately succeeding sentence. In addition, the Borrowing Base may be redetermined at any time and from time to time by Agent in good faith upon the occurrence and during the continuation of a Potential Default. Notwithstanding anything to the contrary contained in this Agreement, Borrower may from time to time request, and Swingline Lender may at its discretion from time to time advance (but shall in no event be obligated to advance), Loans which are to be funded solely by Agent (the "SWINGLINE ADVANCES"); PROVIDED, HOWEVER, that (A) the aggregate principal amount of the Swingline Advances outstanding at any time shall not exceed $3,000,000 and the aggregate principal amount of the Loans outstanding at any time (inclusive of the Swingline Advances) shall not exceed the Commitments, (B) all Swingline Advances shall be and shall remain as Base Rate Loans, and (C) Swingline Lender shall give each Bank written notice of the aggregate 19 outstanding principal amount of the Swingline Advances upon the written request of any Bank (but no more often than once every calendar quarter). Furthermore, upon one Business Day's prior written notice given by the Agent to the other Banks at any time and from time to time (including, without limitation, at any time following the occurrence of a Potential Default) and, in any event and without the necessity of any such notice, on the Business Day immediately preceding the Revolving Credit Commitment Termination Date, each Bank (including, without limitation, Swingline Lender) severally agrees, notwithstanding anything to the contrary contained in this Agreement, the existence of any Potential Default or the inability or failure of Borrower or any of the Subsidiaries to satisfy any condition precedent to funding any of the Loans contained in SECTIONS 3.1 and 3.2 (which conditions precedent shall not apply to this sentence), to make a Loan, in the form of a Base Rate Loan, in an amount equal to its Pro Rata Share of the aggregate principal amount of the Swingline Advances then outstanding, and the proceeds of such Loans shall be promptly applied by Agent as a repayment of the aggregate principal amount of the Swingline Advances then outstanding. (b) CONTINUATION AND CONVERSION OF LOANS. Subject to the terms of this Agreement, Borrower may borrow the Loans as Base Rate Loans or LIBOR Loans and Borrower may Continue LIBOR Loans or Convert Loans of one Type into Loans of the other Type; PROVIDED, however, that Swingline Advances shall be borrowed as Base Rate Loans and may not be converted to LIBOR Loans at any time. (c) LENDING OFFICES. Loans of each Type made by each Bank shall be made and maintained at such Bank's Applicable Lending Office for Loans of such Type. Section 2.2 THE NOTES. The Loans made by each Bank shall be evidenced by a single promissory note (each a "REVOLVING CREDIT NOTE") of Borrower in substantially the form of EXHIBIT C hereto, dated the Closing Date, payable to the order of such Bank in a principal amount equal to its Commitment as originally in effect, and otherwise duly completed; PROVIDED, however, that the Swingline Advances made by Swingline Lender shall be evidenced by a single promissory note (the "SWINGLINE NOTE") of Borrower in substantially the form of EXHIBIT D hereto, dated the Closing Date, payable to the order of Swingline Lender in a principal amount equal to $3,000,000, and otherwise duly completed. Each Bank is hereby authorized by Borrower to endorse on the schedule (or a continuation thereof) attached to each Note of such Bank, to the extent applicable, the date, amount and Type of and the Interest Period (if applicable) for each Loan made by such Bank to Borrower and the amount of each payment or prepayment of principal of such Loan received by such Bank, provided that any failure by such Bank to make any such endorsement shall not affect the obligations of Borrower, Parent or any other Subsidiary under such Note or this Agreement in respect of such Loan. Section 2.3 REPAYMENT OF LOANS. Borrower shall pay the outstanding principal amount on all Loans, including Swingline Advances, on the Revolving Credit Commitment Termination Date. If any payment of principal becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day and interest shall be payable at the then applicable rate during such extension. Section 2.4 Interest and Fees. 20 (a) INTEREST RATE. Borrower shall pay to the Agent for the account of each Bank interest on the unpaid principal amount of each Loan made by such Bank for the period commencing on the date of such Loan to but excluding the date such Loan is due, at a fluctuating rate per annum equal to the Applicable Rate. The term "APPLICABLE RATE" means (i) with respect to Base Rate Loans outstanding from day to day, the lesser of (A) the Highest Lawful Rate or (B) the Base Rate PLUS the Base Rate Margin and (ii) with respect to LIBOR Loans outstanding from day to day, the lesser of (A) the Highest Lawful Rate or (B) the LIBOR Rate PLUS the LIBOR Rate Margin. (b) DETERMINATIONS OF MARGINS AND FEES. The margins identified in SECTION 2.4(a) and the fees payable under SECTION 2.11 shall be defined and determined as follows: (i) "BASE RATE MARGIN" shall mean (i) during the period commencing on the Closing Date and ending on but not including the first Adjustment Date (as defined below), one-half of one percent (0.50%) per annum and (ii) during each period from and including one Adjustment Date to but excluding the next Adjustment Date (herein a "CALCULATION PERIOD"), the percent per annum set forth in the table below under the heading "BASE RATE MARGIN" and opposite the Funded Debt to EBITDAR Ratio which corresponds to the Funded Debt to EBITDAR Ratio set forth in, and as calculated in accordance with, the applicable Quarterly Report. (ii) "LIBOR RATE MARGIN" shall mean (i) during the period commencing on the Closing Date and ending on but not including the first Adjustment Date, one and three-fourths of one percent (1.75%) per annum and (ii) during each Calculation Period, the percent per annum set forth in the table below under the heading "LIBOR RATE MARGIN" and opposite the Funded Debt to EBITDAR Ratio which corresponds to the Funded Debt to EBITDAR Ratio set forth in, and as calculated in accordance with, the applicable Quarterly Report. (iii) "COMMITMENT FEE RATE" shall mean (i) during the period commencing on the Closing Date and ending on but not including the first Adjustment Date, seven-twentieths of one percent (0.35%) per annum and (ii) during each Calculation Period, the percent per annum set forth in the table below under the heading "COMMITMENT FEE RATE" and opposite the Funded Debt to EBITDAR Ratio which corresponds to the Funded Debt to EBITDAR Ratio set forth in, and as calculated in accordance with, the applicable Quarterly Report
=============================================================================================== LIBOR Rate Commitment Funded Debt to EBITDAR Base Rate Margin Margin Fee Rate =============================================================================================== Greater than or equal to 3.00 0.75% 2.00% 0.40% ----------------------------------------------------------------------------------------------- Greater than or equal to 2.50 but less than 3.00 0.50% 1.75% 0.35% ----------------------------------------------------------------------------------------------- Greater than or equal to 2.00 but less than 2.50 0.25% 1.50% 0.25% ----------------------------------------------------------------------------------------------- Greater than or equal to 1.50 but less than 2.00 0.00% 1.25% 0.25% ----------------------------------------------------------------------------------------------- Less than 1.50 0.00% 1.00% 0.20% ===============================================================================================
21 Upon delivery of each Quarterly Report pursuant to this Agreement, commencing with such Quarterly Report delivered as of the period ending on December 31, 1999, the LIBOR Rate Margin (for Interest Periods commencing after the applicable Adjustment Date), the Base Rate Margin and the Commitment Fee Rate shall automatically be adjusted in accordance with the Funded Debt to EBITDAR Ratio set forth therein and the table set forth above, such automatic adjustment to take effect as of the first Business Day after the receipt by the Agent of the related Quarterly Report (each such Business Day when such margins or fees change pursuant to this sentence or the next following sentence, herein an "ADJUSTMENT DATE"). If Parent fails to deliver such Quarterly Report which so sets forth the Funded Debt to EBITDAR Ratio within the period of time required by this Agreement or if a Default exists and the Agent provides notice to Parent: (i) the LIBOR Rate Margin (for Interest Periods commencing after the applicable Adjustment Date) shall automatically be adjusted to two percent (2.0%) per annum; (ii) the Base Rate Margin shall automatically be adjusted to three-fourths of one percent (0.75%); and (iii) the Commitment Fee Rate shall automatically be adjusted to two-fifths of one percent (0.40%), such automatic adjustments to take effect as of the first Business Day after the last day on which Parent was required to deliver the applicable Quarterly Report in accordance with this Agreement or, in the case of a Default, on the date the written notice is given to Parent and to remain in effect until subsequently adjusted in accordance herewith upon the delivery of such Quarterly Report or, in the case of a Default, when such Default has been cured to the satisfaction of the Agent or waived by the Required Banks. (c) COMPUTATION OF INTEREST AND FEES. Interest based on the Base Rate and, the LIBOR Rate and all fees shall be calculated on the basis of actual days elapsed, but computed as if each calendar quarter consisted of 90 days and each calendar year consisted of 360 days, subject to limitations of the Highest Lawful Rate. Each determination by Agent of the Base Rate and/or the LIBOR Rate shall, in the absence of manifest error, be conclusive and binding. (d) RECAPTURE OF INTEREST LOST AS A RESULT OF INTEREST LIMITATIONS. If at any time the rate of interest applicable to any Loan exceeds the Highest Lawful Rate, the rate of interest which such Loan bears shall be limited to the Highest Lawful Rate, but, notwithstanding any subsequent reductions in the Applicable Rate, the rate of interest which such Loan bears shall not thereafter be reduced below the Highest Lawful Rate until such time as the total amount of interest accrued on such Loan equals the amount of interest which would have accrued if the Applicable Rate had at all times been in effect. (e) PAYMENT DATES. Accrued interest on the Loans shall be due and payable in arrears as follows: (i) in the case of Base Rate Loans, on the last day of each fiscal quarter and on the Final Maturity Date; and (ii) in the case of LIBOR Loans, on the last day of the Interest Period with respect thereto, and, in the case of a LIBOR Loan having a Interest Period of six (6) months, on the day in the third succeeding calendar month numerically corresponding to the commencement date of such Interest Period (or, if no numerically corresponding date exists, on the last Business Day of such third succeeding calendar month) and on the Final Maturity Date. 22 (iii) If any payment of interest becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended on the next succeeding Business Day and interest shall be payable at the then Applicable Rate during such extension. Notwithstanding anything to the contrary contained herein, upon and during the continuance of an Default, any principal hereunder and overdue interest on the Loan, shall bear interest, payable on demand, for each day from and including the date payment thereof was due to, but excluding, the date of actual payment, at a rate per annum equal to the Highest Lawful Rate. Section 2.5 BORROWING PROCEDURE. (a) Borrower shall give Agent notice of each borrowing of Loans hereunder in accordance with SECTION 2.9. Not later than 12:00 noon (Dallas, Texas time) on the date specified for each Advance hereunder, each Bank will make available the amount of the Loan to be made by it on such date to Agent, at the Applicable Lending Office of Agent, in immediately available funds, for the account of Borrower. The amount so received by Agent shall, subject to the terms and conditions of this Agreement, be made available to Borrower promptly by wire transfer of immediately available funds to a deposit account maintained by Borrower and reasonably acceptable to Agent; (b) SWINGLINE ADVANCES. The procedure for requesting and repaying Swingline Advances, and certain other terms relating to Swingline Advances, are set forth in that certain Wells Fargo Bank (Texas), National Association Application and Agreement for Cash Management Services executed by Borrower as of February 10, 1999, as amended, restated, renewed or otherwise modified from time to time (the "SWEEP AGREEMENT"), the terms of which are incorporated herein and, to the extent such terms irreconcilably conflict with this Agreement, the terms of this Agreement shall control. Section 2.6 OPTIONAL PREPAYMENTS, CONVERSIONS AND CONTINUATIONS OF LOANS. Subject to SECTION 2.7, Borrower shall have the right from time to time to prepay the principal of the Loans, to Convert all or part of a Loan of one Type into a Loan of another Type or to Continue LIBOR Loans; PROVIDED that: (a) Borrower shall give Agent notice of each such prepayment, Conversion or Continuation as provided in SECTION 2.9, (b) LIBOR Loans may only be Converted on the last day of the Interest Period, (c) except for Conversions of LIBOR Loans into Base Rate Loans, no Conversions or Continuations shall be made while a Potential Default or Default has occurred and is continuing, and (d) Swingline Advances may not be Converted into LIBOR Loans. Section 2.7 Mandatory Prepayments. 23 (a) LOANS. If at any time the Outstanding Revolving Credit exceeds an amount equal to the lesser of the Commitments then in effect or the Borrowing Base then most recently determined or redetermined, within one Business Day after the occurrence thereof Borrower shall pay to Agent the amount of such excess as a prepayment of the Loans. (b) VEHICLE SALES. Borrower shall also prepay the outstanding Loans in accordance with the terms of SUBSECTION 5.1(q). (c) APPLICATION OF MANDATORY PREPAYMENTS. Any prepayments hereunder shall first be applied to any outstanding Swingline Advances and shall then be applied to the remaining Loans as set forth in SECTION 2.17. Section 2.8 MINIMUM AMOUNTS. Except for Conversions pursuant to SECTIONS 2.22 and 2.24, each Advance and each Conversion of principal of the Loans shall be in an amount at least equal to (a) $3,000,000 or an integral multiple of $1,000,000 in excess thereof with respect to LIBOR Loans or (b) $1,000,000 or an integral multiple of $100,000 in excess thereof with respect to Base Rate Loans other than Swingline Advances (Advances, prepayments or Conversions of or into Loans of different Types or, in the case of LIBOR Loans, having different Interest Periods at the same time hereunder shall be deemed separate Advances, prepayments and Conversions for purposes of the foregoing, one for each Type or Interest Period). Furthermore, all optional prepayments of principal of the Loans (other than Swingline Advances) shall be in an amount equal to $3,000,000 or an integral multiple of $1,000,000 in excess thereof. Section 2.9 CERTAIN NOTICES. Notices by Borrower to Agent of terminations or reductions of Commitments, of Advances, Conversions, Continuations and prepayments of Loans and of the duration of Interest Periods shall be irrevocable and shall be effective only if received by Agent not later than 12:00 noon (Dallas, Texas time) on the Business Day prior to the date of the relevant termination, reduction, Advance, Conversion, Continuation or prepayment or the first day of such Interest Period specified below: ---------------------------------------------------------------------- Number of Notice Business Days Prior ---------------------------------------------------------------------- Terminations or Reductions of Commitments 5 ---------------------------------------------------------------------- Borrowings of Loans as Base Rate Loans 1 ---------------------------------------------------------------------- Borrowings of Loans as LIBOR Loans 3 ---------------------------------------------------------------------- Conversions or Continuations of Loans 3 ---------------------------------------------------------------------- Prepayments of Loans which are Base Rate Loans 1 ---------------------------------------------------------------------- Prepayments of Loans which are LIBOR Loans 3 ---------------------------------------------------------------------- Each such notice of termination or reduction shall specify the amount of the Commitments to be terminated or reduced. Each such notice of Advance, Conversion, Continuation or prepayment shall specify the Loans to be borrowed, Converted, Continued or prepaid and the amount (subject to SECTION 2.8 hereof) and Type of the Loans to be borrowed, Converted, Continued or prepaid (and, in the case of a Conversion, the Type of Loans to result from such Conversion), the date of Advance, Conversion, Continuation or prepayment (which shall be a Business Day) and whether such Loan is to be a Swingline Advance. Notices of Advances, Conversions, Continuations or prepayments shall be in the form of EXHIBIT B hereto, appropriately completed as applicable. Each such notice of the 24 duration of an Interest Period shall specify the Loans to which such Interest Period is to relate. Agent shall promptly notify the Banks of the contents of each such notice. In the event that Borrower fails to select the Type of Loan, or the duration of any Interest Period for any LIBOR Loan, within the time period and otherwise as provided in this SECTION 2.9, such Loan (if outstanding as LIBOR Loan) will be automatically Converted into a Base Rate Loan on the last day of the preceding Interest Period for such Loan or (if outstanding as a Base Rate Loan) will remain as, or (if not then outstanding) will be made as, a Base Rate Loan. Borrower may not borrow any LIBOR Loans, Convert any Loans into LIBOR Loans or Continue any Loans as LIBOR Loans if the interest rate for such LIBOR Loans would exceed the Highest Lawful Rate. Section 2.10 Use of Proceeds. (a) Borrower agrees with Agent and the Banks that (i) the proceeds of the Loans to be made on and after the Closing Date shall be used by Borrower, Parent and the Subsidiaries for working capital and general corporate purposes and (ii) the Letters of Credit requested to be issued pursuant to this Agreement shall be used for insurance and contract performance by Borrower, Parent and the Subsidiaries and for other purposes approved by Agent. (b) None of the proceeds of any Loan have been or will be used to acquire any security in any transaction that is subject to Section 13 or 14 of the Securities Exchange Act of 1934, as amended, or to purchase or carry any margin stock (within the meaning of Regulations T, U or X of the Board of Governors of the Federal Reserve System). Section 2.11 FEES. Borrower agrees to pay the following fees in connection with the each Bank's commitment to make Loans and Issuing Bank's commitment to issue Letters of Credit: (a) A Letter of Credit fee is payable to the Agent for the account of the Banks in accordance with their respective Pro Rata Shares, for the term of each Letter of Credit at the applicable LIBOR Rate Margin per annum of the aggregate undrawn amount of such Letter of Credit. The fee for each Letter of Credit issued hereunder shall be payable on or before the issuance of such Letter of Credit and on each anniversary of the issuance of such Letter of Credit; and (b) An issuance fee is payable to Agent for the account of the Issuing Bank for the term of each Letter of Credit in an amount equal to three-twentieths of one percent (0.15%) per annum of the aggregate face amount of each Letter of Credit outstanding from time to time, which fee is payable upon issuance of each Letter of Credit and on each anniversary of the issuance of such Letter of Credit; (c) Upon any amendment or modification of a Letter of Credit, a Letter of Credit amendment fee shall be paid to the Issuing Bank, for its own account, as determined pursuant to the Issuing Bank's customary procedures; 25 (d) A commitment fee shall be paid to Agent, for the account of each Bank, on the daily average of the unused or unfunded amount of such Bank's Commitment, for the period from and including the Closing Date to and including the Revolving Credit Commitment Termination Date, at a rate equal to the applicable Commitment Fee Rate per annum based on a 360 day year and the actual number of days elapsed, which accrued commitment fees shall be payable in arrears on the last day of each fiscal quarter of Parent and on the Revolving Credit Commitment Termination Date. Any and all Swingline Advances outstanding from time to time shall be wholly excluded, and shall not count as used or funded amounts, for purposes of determining the unused or unfunded amount of each Bank's Commitment. Section 2.12 COMPUTATIONS. Interest and fees payable by Borrower hereunder and under the other Loan Papers on all Loans shall be computed on the basis of a year of 360 days and the actual number of days elapsed (including the first day but excluding the last day) occurring in the period for which payable unless, in the case of interest, such calculation would result in a usurious rate, in which case interest shall be calculated on the basis of a year of 365 or 366 days, as the case may be. Section 2.13 TERMINATION OR REDUCTION OF COMMITMENTS. (a) Notwithstanding anything to the contrary contained in this Agreement, the Commitments shall automatically terminate at 8:00 a.m. (Dallas, Texas time) on the Revolving Credit Commitment Termination Date. (b) Borrower shall have the right to terminate or reduce in part the unused portion of the Commitments at any time and from time to time, PROVIDED that (i) it shall give notice of each such termination or reduction as provided in SECTION 2.9 and (ii) each partial reduction shall be in an aggregate amount at least equal to $5,000,000 or an integral multiple of $100,000 in excess thereof. The Commitments may not be reinstated after they have been terminated or increased after they have been reduced. Section 2.14 LETTERS OF CREDIT. (a) Subject to the terms and conditions of this Agreement, Borrower may utilize the Commitments by requesting that the Issuing Bank issue standby Letters of Credit (each a "LETTER OF CREDIT"); PROVIDED, that no Letter of Credit shall be issued if, after giving effect to the issuance thereof, the Outstanding Revolving Credit would exceed the Borrowing Base then most recently determined. Upon the date of issue of each Letter of Credit, the Issuing Bank shall be deemed, without further action by any party hereto, to have sold to each Bank, and each Bank shall be deemed, without further action by any party hereto, to have purchased from the Issuing Bank, a participation to the extent of such Bank's Pro Rata Share of the Commitments. (b) Borrower shall give the Issuing Bank (with a copy to Agent) at least three (3) Business Days prior notice (effective upon receipt and irrevocable unless appropriately revoked sufficiently prior to issuance of the Letter of Credit) specifying the date of each Letter of Credit and the nature of the transactions to be supported thereby. Upon receipt of such notice and confirmation by the Issuing Bank with Agent that such Letter of Credit may be 26 issued in compliance with this Agreement, the Issuing Bank shall promptly notify Agent of the contents thereof and of each such Bank's Pro Rata Share of the amount of the proposed Letter of Credit, and Agent shall promptly thereupon notify the Bank's of such information. In addition, the Issuing Bank shall promptly deliver to the Agent a photocopy of such Letter of Credit. Each Letter of Credit shall have an expiration date that does not exceed one year from the date of issuance (unless specifically consented to by Agent and the Issuing Bank) and that does not extend beyond the Revolving Credit Commitment Termination Date, shall be payable in Dollars, shall support a transaction entered into in the ordinary course of business of Borrower, Parent or a Subsidiary, shall be satisfactory in form and substance to the Issuing Bank, and shall be issued pursuant to such agreements, documents and instruments as the Issuing Bank may reasonably require, none of which shall be inconsistent with this Agreement (and to the extent they irreconcilably conflict with this Agreement, the terms of this Agreement shall control). Each Letter of Credit shall (i) provide for the payment of drafts presented for, on or thereunder by the beneficiary in accordance with the terms thereof, when such drafts are accompanied by the documents (if any) described in the Letter of Credit and (ii) to the extent not inconsistent with the terms hereof, be subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500 (together with any subsequent revision thereof approved by a Congress of the International Chamber of Commerce and adhered to by the Issuing Bank, the "UCP"), and shall, as to matters not governed by the UCP, be governed by, and construed and interpreted in accordance with, the Laws of the State of Texas. (c) Upon receipt from any Letter of Credit beneficiary of any demand for payment or other drawing under such Letter of Credit, the Issuing Bank shall promptly notify Borrower and each Bank as to the amount to be paid as a result of such demand or drawing and the respective payment date. If at any time the Issuing Bank shall make a payment to a beneficiary of a Letter of Credit pursuant to a drawing under such Letter of Credit, each Bank will pay to the Issuing Bank, immediately upon the Issuing Bank's demand at any time commencing after such payment until reimbursement therefor in full by Borrower, an amount equal to such Bank's Pro Rata Share of such payment, together with interest on such amount for each day from the date of such payment to the date of payment by such Bank of such amount at a rate of interest per annum equal to the Federal Funds Rate. (d) Borrower shall be irrevocably and unconditionally obligated to immediately reimburse the Issuing Bank for any amounts paid by the Issuing Bank upon any drawing under any Letter of Credit, without presentment, demand, protest or other formalities of any kind (each such reimbursement obligation, herein a "REIMBURSEMENT OBLIGATION"). The Issuing Bank will pay to each Bank such Bank's Pro Rata Share of all amounts received from or on behalf of Borrower for application in payment, in whole or in part, of the Reimbursement Obligation in respect of any Letter of Credit, but only to the extent such Bank has made payment to the Issuing Bank in respect of such Letter of Credit pursuant to SUBSECTION (c) above. Outstanding Reimbursement Obligations shall bear interest at the Highest Lawful Rate and such interest shall be payable on demand. 27 (e) The Reimbursement Obligations of Borrower under this Agreement and the other Loan Papers shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement and the other Loan Papers under all circumstances whatsoever, including, without limitation, the following circumstances: (i) Any lack of validity or enforceability of any Letter of Credit or any other Loan Papers; (ii) Any amendment or waiver of or any consent to departure from any Loan Papers; (iii) The existence of any claim, setoff, counterclaim, defense or other right which Borrower or any other Person may have at any time against any beneficiary of any Letter of Credit, Agent, the Issuing Bank, the Banks or any other Person, whether in connection with this Agreement or any other Loan Papers or any unrelated transaction; (iv) Any statement, draft or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect whatsoever; (v) Payment by the Issuing Bank under any Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit, PROVIDED, that such payment shall not have constituted gross negligence or willful misconduct of the Issuing Bank; and (vi) Any other circumstance whatsoever, whether or not similar to any of the foregoing, provided that such other circumstance or event shall not have been the result of the gross negligence or willful misconduct of the Issuing Bank. Section 2.15 (f) Borrower assumes all risks of the acts or omissions of any beneficiary of any Letter of Credit with respect to its use of such Letter of Credit. Neither Agent, the Issuing Bank, the Banks nor any of their respective officers or directors shall have any responsibility or liability to Borrower or any other Person for: (a) the failure of any draft to bear any reference or adequate reference to any Letter of Credit, or the failure of any documents to accompany any draft at negotiation, or the failure of any Person to surrender or to take up any Letter of Credit or to send documents apart from drafts as required by the terms of any Letter of Credit, or the failure of any Person to note the amount of any instrument on any Letter of Credit, (b) errors, omissions, interruptions or delays in transmission or delivery of any messages, (c) the validity, sufficiency or genuineness of any draft or other document, or any endorsement(s) thereon, even if any such draft, document or endorsement should in fact prove to be in any and all respects invalid, insufficient, fraudulent or forged or any statement therein is untrue or inaccurate in any respect, (d) the payment by the Issuing Bank to the beneficiary of any Letter of Credit against presentation of any draft or other document that does not comply with the terms of the Letter of Credit, or (e) any other circumstance whatsoever 28 in making or failing to make any payment under a Letter of Credit; PROVIDED, HOWEVER, that, notwithstanding the foregoing, Borrower shall have a claim against the Issuing Bank, and the Issuing Bank shall be liable to Borrower, to the extent of any direct, but not indirect or consequential, damages suffered by Borrower which Borrower proves in a final nonappealable judgment were caused by (i) the Issuing Bank's willful misconduct or gross negligence in determining whether documents presented under any Letter of Credit complied with the terms thereof or (ii) the Issuing Bank's willful failure to pay under any Letter of Credit after presentation to it of documents strictly complying with the terms and conditions of such Letter of Credit. The Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary. (g) All letters of credit issued pursuant to the Existing Agreement and outstanding on the Closing Date, and all letters of credit issued by Chase in favor of Borrower or another Company and outstanding as of the Closing Date, all of which are listed on SCHEDULE 2.14, shall be deemed to be Letters of Credit issued pursuant to this Agreement. Section 2.16 METHOD OF PAYMENT. All payments of principal, interest, fees and other amounts to be made by Borrower, Parent or any Subsidiary under this Agreement or any other Loan Paper shall be made via wire transfer of funds to Agent c/o Wells Fargo Bank, NA, San Francisco, California, ABA # 1210-00248, for Account No.1234567890, Payee Name Syndic/WFBCORP/Money Bags Customer; Reference: Money Bags Customer, for the account of each Bank's Applicable Lending Office in Dollars and in immediately available funds, without setoff, deduction or counterclaim, not later than 12:00 noon (Dallas, Texas time) on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day). Borrower or such other Person shall, at the time of making each such payment, specify to Agent the sums payable by such Person under this Agreement or the other Loan Document to which each such payment is to be applied (and in the event that such Person fails to so specify, or if an Default has occurred and is continuing or if a Potential Default would exist after the making of such payment, Agent may apply such payment to such Person's Loans, Reimbursement Obligations and other Obligations in such order and manner as Agent may elect, subject to SECTION 2.16). Upon the occurrence and during the continuation of a Default, all proceeds of any Collateral and all other funds of Borrower, Parent or any Subsidiary in the possession of Agent or any Bank may be applied by Agent to the Obligations in such order and manner as Agent may elect, subject to the provisions of SECTION 2.16. Notwithstanding the foregoing, if a Default has occurred and is continuing, Agent and the Banks agree among themselves that all such payments, proceeds and funds, shall be applied (or, in the case of Letter of Credit Liabilities consisting of the undrawn face amount of Letters of Credit, held by Agent as cash collateral for application against) pro rata to the Outstanding Revolving Credit. Each payment received by Agent under this Agreement or any other Loan Paper for the account of the Bank shall be paid promptly to such Bank, in immediately available funds, for the account of such Bank's Applicable Lending Office. Whenever any payment under this Agreement or any other Loan Paper shall be stated to be due on a day that is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of the payment of interest and commitment fee, as the case may be. 29 Section 2.17 PRO RATA TREATMENT. Except to the extent otherwise provided in this Agreement: (a) each Loan (other than Swingline Advances) shall be made by the Banks under SECTION 2.1, each payment of commitment fees under SECTION 2.11 shall be made for the account of the Banks, and each termination or reduction of the Commitments under SECTION 2.13 shall be applied to the appropriate Commitments of the applicable Banks, pro rata according to the respective unused Commitments; (b) the making, Conversion and Continuation of Loans of a particular Type (other than Conversions provided for by SECTION 2.25) shall be made pro rata among the Banks holding Loans of such Type according to the amounts of their respective appropriate Commitments; (c) each payment and prepayment by Borrower of principal of or interest on Loans of a particular Type shall be made to Agent for the account of the Banks holding Loans of such Type pro rata in accordance with the respective unpaid principal amounts of such Loans held by such Banks; (d) Interest Periods for Loans of a particular Type shall be allocated among the Banks holding Loans of such Type pro rata according to the respective principal amounts held by such Banks; and (e) the Banks (other than the Issuing Bank) shall purchase participations in the Letters of Credit pro rata in accordance with their respective Pro Rata Share. Section 2.18 SHARING OF PAYMENTS, ETC. If a Bank shall obtain payment of any principal of or interest on any of the Obligations due to such Bank hereunder through the exercise of any right of setoff, banker's lien, counterclaim or similar right, or otherwise, it shall promptly purchase from the other Banks participations in the Obligations held by the other Banks in such amounts, and make such adjustments from time to time, as shall be equitable to the end that all Banks shall share pro rata in accordance with the unpaid principal and interest on the Obligations then due to each of them. To such end, all Banks shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if all or any portion of such excess payment is thereafter rescinded or must otherwise be restored. Each of Borrower, Parent and the Subsidiaries agrees, to the fullest extent it may effectively do so under applicable Law, that any Bank so purchasing a participation in the Obligations by the other Banks may exercise all rights of setoff, banker's lien, counterclaim or similar rights with respect to such participation as fully as if such Bank were a direct holder of Obligations in the amount of such participation. Nothing contained herein shall require any Bank to exercise any such right or shall affect the right of any Bank to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness, liability or obligation of Borrower, Parent or any of the Subsidiaries. Section 2.19 NON-RECEIPT OF FUNDS BY AGENT. Unless Agent shall have been notified by a Bank or Borrower ("Payor") prior to the date on which such Bank is to make payment to Agent of the proceeds of a Loan to be made by it hereunder or Borrower is to make a payment to Agent for the account of one or more of Banks, as the case may be (such payment being herein called the "REQUIRED PAYMENT"), which notice shall be effective upon receipt, that Payor does not intend to make the Required Payment to Agent, Agent may assume that the Required Payment has been made and may, in reliance upon such assumption (but shall not be required to), make the amount thereof available to the intended recipient on such date and, if Payor has not in fact made the Required Payment to Agent, the recipient of such payment shall, on demand, pay to Agent the amount made available to it together with interest thereon in respect of the period commencing on the date such amount was so made available by Agent until the date Agent recovers such amount at a rate per annum equal to the Federal Funds Rate for such period. 30 Section 2.20 WITHHOLDING TAXES. (a) All payments by Borrower of principal of and interest on the Loans and the Letter of Credit Liabilities and of all fees and other amounts payable under the Loan Papers shall be made free and clear of, and without deduction by reason of, any present or future taxes, levies, duties, imposts, assessments or other charges levied or imposed by any Tribunal (other than any taxes imposed on the taxable income of Agent or any Bank or any lending office of Agent or such Bank by any jurisdiction in which Agent or such Bank or any such lending office is located). If any such taxes, levies, duties, imposts, assessments or other charges are so levied or imposed, Borrower will (i) make additional payments in such amounts so that every net payment of principal of and interest on the Loans and the Letter of Credit Liabilities and of all other amounts payable by it under the Loan Papers, after withholding or deduction for or on account of any such present or future taxes, levies, duties, imposts, assessments or other charges (including any tax imposed on or measured by taxable income of a Bank attributable to payments made to or on behalf of a Bank pursuant to this SECTION 2.19 and any penalties or interest attributable to such payments), will not be less than the amount provided for herein or therein absent such withholding or deduction (PROVIDED that Borrower shall not have any obligation to pay such additional amounts to any Bank to the extent that such taxes, levies, duties, imposts, assessments or other charges are levied or imposed by reason of the failure of such Bank to comply with the provisions of SECTION 2.20), (ii) make such withholding or deduction and (iii) remit the full amount deducted or withheld to the relevant Tribunal in accordance with applicable Law. Without limiting the generality of the foregoing, Borrower will, upon written request of any Bank, reimburse each such Bank for the amount of (A) such taxes, levies, duties, imports, assessments or other charges so levied or imposed by any Tribunal and paid by such Bank as a result of payments made by Borrower under or with respect to the Loans other than such taxes, levies, duties, imports, assessments and other charges previously withheld or deducted by Borrower which have previously resulted in the payment of the required additional amount to Bank, and (B) such taxes, levies, duties, assessments and other charges so levied or imposed with respect to any Bank reimbursement under the foregoing CLAUSE (A), so that the net amount received by such Bank (net of payments made under or with respect to the Loans and the Letter of Credit Liabilities) after such reimbursement will not be less than the net amount such Bank would have received if such taxes, levies, duties, assessments and other charges on such reimbursement had not been levied or imposed. Borrower shall furnish promptly to Agent for distribution to each affected Bank, as the case may be, upon request of such Bank, official receipts evidencing any such payment, withholding or reduction. (b) Borrower will indemnify Agent and each Bank (without duplication) against, and reimburse Agent and each Bank for, all present and future taxes, levies, duties, imposts, assessments or other charges (including interest and penalties) levied or collected (whether or not legally or correctly imposed, assessed, levied or collected), excluding, however, any taxes imposed on the overall taxable income of Agent or such Bank or any lending office of Agent or such Bank by any jurisdiction in which Agent or such Bank or any such lending office is located, on or in respect of this Agreement, any of the Loan Papers or the Obligations or any portion thereof ("REIMBURSABLE TAXES"). Any such indemnification shall be on an after-tax basis, taking into account any such reimbursable taxes imposed on the amounts paid as indemnity. 31 (c) If and to the extent actually known by such Bank, each Bank will use reasonable efforts to notify Borrower and Agent, in a reasonably prompt fashion after such assignment is made, of any assignment of the Commitment or the Loans by such Bank to an Eligible Assignee which is subject to a withholding tax that will impose any payment obligation upon Borrower pursuant to this SECTION 2.19. Each Bank will use reasonable efforts to notify Borrower and Agent of any amounts to be paid by Borrower pursuant to this SECTION 2.19 in a reasonably prompt fashion after such Bank becomes aware of the circumstances which require the payment of such amounts by Borrower. Section 2.21 WITHHOLDING TAX EXEMPTION. Each Bank that is not incorporated or otherwise formed under the Laws of the U.S. or a state thereof agrees that it will, prior to or on or about the Closing Date or the date upon which it becomes a party to this Agreement, deliver to Borrower and Agent two duly completed copies of U.S. Internal Revenue Service Form 1001, 4224 or W-8, as appropriate, certifying in any case that such Bank is entitled to receive payments from Borrower under any Loan Paper without deduction or withholding of any U.S. federal income taxes. Each Bank which so delivers a Form 1001, 4224 or W-8 further undertakes to deliver to Borrower and Agent two additional copies of such form (or a successor form) on or before the date such form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent form so delivered by it, and such amendments thereto or extensions or renewals thereof as may be reasonably requested by Borrower or Agent, in each case certifying that such Bank is entitled to receive payments from Borrower under any Loan Paper without deduction or withholding of any U.S. federal income taxes, unless an event (including without limitation any change in treaty, Law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Bank from duly completing and delivering any such form with respect to it and such Bank advises Borrower and Agent that it is not capable of receiving such payments without any deduction or withholding of U.S. federal income tax. Section 2.22 REINSTATEMENT OF OBLIGATIONS. REINSTATEMENT OF OBLIGATIONS. Notwithstanding anything to the contrary contained in this Agreement or any other Loan Paper, if the payment of any amount of principal of or interest with respect to the Loans, the Reimbursement Obligations or any other amount of the Obligations, or any portion thereof, is rescinded, voided or must otherwise be refunded by Agent, any Bank or Issuing Bank upon the insolvency, bankruptcy or reorganization of Borrower or any of the Subsidiaries or otherwise for any reason whatsoever, then each of (a) the Obligations, (b) the Loan Papers (including, without limitation, this Agreement, the Notes, the Guaranty Agreements and the Security Agreement), (c) the indebtedness, liabilities and obligations of Borrower, Parent and the Subsidiaries under the Loan Papers, and (d) all Liens for the benefit of Agent and the Banks created under or evidenced by the Loan Papers, will be automatically reinstated and become automatically effective and in full force and effect, all to the extent that and as though such payment so rescinded, voided or otherwise refunded had never been made. Section 2.24 ADDITIONAL COSTS. 32 (a) Borrower shall pay directly to each Bank from time to time, within ten days after the request of such Bank, the costs incurred by such Bank which such Bank reasonably determines are attributable to its making or maintaining of any LIBOR Loans or its obligation to make any of such Loans, or any reduction in any amount receivable by such Bank hereunder in respect of any such Loans or obligations (such increases in costs and reductions in amounts receivable being herein called "ADDITIONAL COSTS"), resulting from any Regulatory Change occurring after the Closing Date which: (i) changes the basis of taxation of any amounts payable to such Bank under this Agreement or its Notes in respect of any of such Loans (other than income taxes and franchise taxes attributable to net income of such Bank or its Applicable Lending Office for any of such Loans by the jurisdiction in which such Bank has its principal office or such Applicable Lending Office); (ii) imposes or modifies any reserve, special deposit, minimum capital, capital ratio or similar requirement relating to any extensions of credit or other assets of, or any deposits with or other liabilities or commitments of, such Bank (including any of such Loans or any deposits referred to in the definition of "LIBOR Rate" in SECTION 1.1 hereof, but excluding the LIBOR Reserve Percentage to the extent it is included in the calculation of the LIBOR Rate); or (iii) imposes any other condition affecting this Agreement or the Notes or any of such extensions of credit or liabilities or commitments. Each applicable Bank will notify Borrower (with a copy to Agent) of any event occurring after the Closing Date which will entitle such Bank to compensation pursuant to this SECTION 2.22(a) as promptly as practicable after it obtains knowledge thereof and determines to request such compensation, and (if so requested by Borrower) will, if and to the extent that it is reasonably feasible for such Bank to do so given administrative and other considerations, designate a different Applicable Lending Office for the LIBOR Loans of such Bank if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the reasonable opinion of such Bank, violate any Law, rule or regulation or be in any way disadvantageous to such Bank. Each applicable Bank will furnish Borrower with a certificate setting forth the basis and the amount of each request of such Bank for compensation under this SECTION 2.22(a). If any Bank requests compensation from Borrower under this SECTION 2.22(a), Borrower may, by notice to such Bank (with a copy to Agent), suspend the obligation of such Bank to make or Continue making, or Convert Base Rate Loans into, LIBOR Loans until the Regulatory Change giving rise to such request ceases to be in effect (in which case the provisions of SECTION 2.25 hereof shall be applicable). (b) Without limiting the effect of the foregoing provisions of this SECTION 2.22, in the event that, by reason of any Regulatory Change, any Bank either (i) incurs Additional Costs based on or measured by the excess above a specified level of the amount of a category of deposits or other liabilities of such Bank which includes deposits by reference to which the interest rate on 33 LIBOR Loans is determined as provided in this Agreement or a category of extensions of credit or other assets of such Bank which includes LIBOR Loans or (ii) becomes subject to restrictions on the amount of such a category of liabilities or assets which it may hold, then, if such Bank so elects by notice to Borrower (with a copy to Agent), the obligation of such Bank to make or Continue making, or Convert Base Rate Loans into, LIBOR Loans hereunder shall be suspended until such Regulatory Change ceases to be in effect (in which case the provisions of SECTION 2.25 hereof shall be applicable). (c) Determinations and allocations by any Bank for purposes of this SECTION 2.22 of the effect of any Regulatory Change on its costs of maintaining its obligation to make Loans or issue Letters of Credit or of making or maintaining Loans or issuing Letters of Credit or on amounts receivable by it in respect of Loans or Letters of Credit, and of the additional amounts required to compensate such Bank in respect of any Additional Costs, shall be conclusive in the absence of manifest error, provided that such determinations and allocations are made on a reasonable basis. Section 2.25 LIMITATION ON TYPES OF LOANS. Anything herein to the contrary notwithstanding, if with respect to any LIBOR Loans for any Interest Period therefor: (a) Agent determines (which determination shall be made reasonably and in good faith and shall be conclusive absent manifest error) that quotations of interest rates for the relevant deposits referred to in the definition of "LIBOR Rate" in SECTION 1.1 hereof are not being provided in the relative amounts or for the relative maturities for purposes of determining the rate of interest for such Loans as provided in this Agreement; or (b) any Bank determines (which determination shall be in good faith and shall be conclusive absent manifest error) and notifies Agent that the relevant rates of interest referred to in the definition of "LIBOR Rate" in SECTION 1.1 hereof on the basis of which the rate of interest for such Loans for such Interest Period is to be determined do not accurately reflect the cost to such Bank of making or maintaining such Loans for such Interest Period; then Agent shall give Borrower prompt notice thereof and, so long as such condition remains in effect, such Bank shall be under no obligation to make LIBOR Loans or to Convert Base Rate Loans into LIBOR Loans and Borrower shall, on the last day(s) of the then current Interest Period(s) for the outstanding LIBOR Loans, either prepay such Loans or Convert such Loans into Base Rate Loans in accordance with the terms of this Agreement. Section 2.26 ILLEGALITY. Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Bank or its Applicable Lending Office to (a) honor its obligation to make LIBOR Loans or (b) maintain LIBOR Loans, then such Bank shall promptly notify Borrower thereof (with a copy to Agent) and such Bank's obligation to make or maintain LIBOR Loans and to Convert Base Rate Loans into LIBOR Loans hereunder shall be suspended until such time as such Bank may again make and maintain LIBOR Loans (in which case the provisions of SECTION 2.25 hereof shall be applicable). 34 Section 2.27 TREATMENT OF AFFECTED LOANS. If the obligation of any Bank to make or Continue, or to Convert Base Rate Loans into, LIBOR Loans is suspended pursuant to SECTION 2.22 or 2.24 hereof, such Bank's LIBOR Loans shall be automatically Converted into Base Rate Loans on the last day(s) of the then current Interest Period(s) for the LIBOR Loans (or, in the case of a Conversion required by SECTION 2.22(b) or 2.24 hereof, on such earlier date as such Bank may specify to Borrower (with a copy to Agent) and, unless and until such Bank gives notice as provided below that the circumstances specified in SECTION 2.22 or 2.24 hereof which gave rise to such Conversion no longer exist: (a) To the extent that such Bank's LIBOR Loans have been so Converted, all payments and prepayments of principal which would otherwise be applied to such Bank's LIBOR Loans shall be applied instead to its Base Rate Loans; and (b) All Loans which would otherwise be made or Continued by such Bank as LIBOR Loans shall be made as or Converted into Base Rate Loans and all Loans of such Bank which would otherwise be Converted into LIBOR Loans shall be Converted instead into (or shall remain as) Base Rate Loans. If such Bank gives notice to Borrower (with a copy to Agent) that the circumstances specified in SECTION 2.22 or 2.24 hereof which gave rise to the Conversion of such Bank's LIBOR Loans pursuant to this SECTION 2.25 no longer exist (which such Bank agrees to do promptly upon such circumstances ceasing to exist) at a time when LIBOR Loans are outstanding, such Bank's Base Rate Loans shall be automatically Converted, on the first day(s) of the next succeeding Interest Period(s) for such outstanding LIBOR Loans, to the extent necessary so that, after giving effect thereto, all Loans held by Banks holding LIBOR Loans and by such Bank are held pro rata (as to principal amounts, Types and Interest Periods) in accordance with their respective Commitment. Section 2.28 COMPENSATION. Borrower shall pay to Agent for the account of each Bank, promptly upon the request of such Bank through Agent, such amount or amounts as shall be sufficient (in the reasonable opinion of such Bank) to compensate it for any loss, cost or expense incurred by it as a result of: (a) any payment, prepayment or Conversion of a LIBOR Loan for any reason (including, without limitation, the acceleration of the outstanding Loans pursuant to this Agreement) on a date other than the last day of an Interest Period for such Loan; or (b) any failure by Borrower for any reason (including, without limitation, the failure of any conditions precedent specified in ARTICLE 3 to be satisfied) to borrow, Convert or prepay a LIBOR Loan on the date for such Advance, Conversion or prepayment specified in the relevant notice of Advance, prepayment or Conversion under this Agreement. The loss (as opposed to cost or expense) to be compensated under CLAUSE (a) of this SECTION 2.26 shall not exceed an amount equal to the excess, if any, of (i) the amount of interest which otherwise would have accrued on the principal amount so paid, prepaid or Converted to the last day of the Interest Period at the applicable rate for such LIBOR Loan over (ii) the cost to the applicable Bank of the interest component of such LIBOR Loan which otherwise would have accrued. 35 Section 2.29 CAPITAL ADEQUACY. If, after the Closing Date, any Bank shall have determined that the adoption or implementation of any applicable Law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any central bank or other Tribunal charged with the interpretation or administration thereof, or compliance by such Bank (or its parent) with any guideline, request or directive regarding capital adequacy (whether or not having the force of law) of any central bank or other Tribunal, has or would have the effect of reducing the rate of return on such Bank's (or its parent's) capital as a consequence of its obligations hereunder or the transactions contemplated hereby to a level below that which such Bank (or its parent) could have achieved but for such adoption, implementation, change or compliance (taking into consideration such Bank's policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, within ten Business Days after demand by such Bank (with a copy to Agent), Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank (or its parent) for such reduction. A certificate of such Bank claiming compensation under this SECTION 2.27 and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive absent manifest error, PROVIDED that the determination thereof is made on a reasonable basis. In determining such amount or amounts, such Bank may use any reasonable averaging and attribution methods. ARTICLE III CONDITIONS PRECEDENT Section 3.1 CONDITIONS PRECEDENT TO INITIAL LOANS AND LETTERS OF CREDIT. The obligation of the Banks to make the initial Loans (including Swingline Advances) and to issue the initial Letter of Credit shall be subject to the fulfillment of the following conditions precedent on or before the Closing Date in a manner satisfactory to the Banks: (a) Each Bank shall have received the following: (i) A copy of resolutions approving this Agreement and authorizing the transactions contemplated in this Agreement and the other Loan Papers, duly adopted by the Board of Directors of each of the Companies, accompanied by a certificate of the President and Secretary of the respective Company, dated the date hereof, that such copy is a true and correct copy of resolutions duly adopted at a meeting (which may be held if permitted by applicable Law and, if required by such Law, by the Bylaws of the respective Company, by conference telephone or similar communications equipment by means of which all persons participating in a meeting can hear each other) of, or by the unanimous written consent of (if permitted by applicable Law and, if required by such Law, by the Bylaws of the respective Company),the Board of Directors of the respective Company, and that such resolutions have not been amended, modified, repealed, or revoked in any respect, and are in full force and effect as of the date hereof. 36 (ii) A certificate of incumbency of all officers of Borrower and each Company who will be authorized to execute or attest this Agreement or any document delivered pursuant hereto on behalf of Borrower or such Company, dated the date hereof, executed by the President and the Secretary of Borrower or such Company. (iii) The articles of incorporation of Borrower and each Company certified by the Secretary of State of the state of its incorporation and dated a current date. (iv) The bylaws of Borrower and each Company certified by its President and Secretary. (v) Certificates of the appropriate government officials of the state of incorporation of Borrower and each Company as to its existence and, to the extent applicable, good standing and certificates of the appropriate government officials of each state in which Borrower and each Company is required to qualify to do business and where failure to so qualify could reasonably be expected to have a Material Adverse Effect, as to such Person's qualification to do business and good standing in such state, all dated a current date. (vi) Its Revolving Credit Note and, with respect to Agent, its Swingline Note, each duly executed by Borrower. (vii) A Guaranty Agreement (or ratification thereof, if applicable), in form and substance satisfactory to the Banks, appropriately executed and delivered by each of the Companies other than Borrower. (viii) The Security Agreement in substantially the form of EXHIBIT I and executed by the Borrower and each Company; Code, tax and judgment Lien search reports listing all documentation on file against Borrower and each Company in each jurisdiction in which such entity has its principal place of business or when Collateral is or will be located; and executed documentation as the Agent may deem necessary to perfect or protect its Liens, including, without limitation: (i) financing statements under the Code and other applicable documentation under the Laws of any jurisdiction with respect to the perfection of Liens; (ii) lien subordinations from the landlords of the locations of each entity containing such access agreements and subordinations as Agent may require; and (iii) waivers, subordinations or acknowledgments from all other third parties who have possession or control of any Collateral. (ix) Duly executed UCC-3 termination statements, mortgage releases and such other documentation as shall be necessary to terminate or release all existing Liens on the assets of Borrower or the Companies other than those Permitted Liens. (x) Certificates of insurance summarizing the insurance policies of the Borrower and the Companies required by this Agreement and reflecting Agent as additional insured under such policies and as loss payee with respect to all policies covering Collateral. 37 (xi) An opinion of counsel for Borrower and the Companies, substantially in form and substance acceptable to the Banks and their counsel, covering favorably such matters relating or incident to the transactions contemplated by this Agreement and the other Loan Papers as the Banks may request. (xii) The fees due on the Closing Date as described in the Fee Letter. (xiii) Such other documents as Agent or any Bank may reasonably request. (b) The representations and warranties contained in ARTICLE IV of this Agreement shall be true and correct in all material respects on and as of such date with the same effect as if made on and as of such date. (c) No Default or Potential Default, shall be in existence on such date or after giving effect to such initial Loans or Letter of Credit. (d) All corporate and legal proceedings and all documents required to be completed and executed by the provisions of, and all instruments to be executed in connection with the transactions contemplated by, this Agreement and any related agreements shall be satisfactory in form and substance to Agent and the Banks, and Agent and the Banks shall have received all information and copies of all documents, including records of corporate proceedings, required by this Agreement and any related agreements to be executed or which Agent or any Bank may reasonably have requested in connection therewith, such documents, where appropriate, to be certified by proper corporate or governmental authorities. (e) No legal proceeding shall be pending or threatened against Borrower or any other Company by or before any, Tribunal which could reasonably be expected to have a Material Adverse Effect. (f) The consummation of such Loans or issuance of such Letter of Credit shall not violate any applicable provision of any Law. (g) The existing revolving loan facility between Borrower and Wells Fargo, individually, in the maximum principal amount of $1,000,000 shall have been terminated. Section 3.2 CONDITIONS OF SUBSEQUENT ADVANCES. The obligation of the Banks to make any Advance or Continuation or Conversion requested to be made by it prior to the Revolving Credit Commitment Termination Date, or issue any Letter of Credit, shall be subject to the fulfillment of each of each following conditions precedent on or before the date of such Advance, Continuation, Conversion or issuance of Letter of Credit in a manner satisfactory to Agent, the Issuing Bank, the Swingline Lender and the Banks, as applicable: (a) Agent and such Bank shall have received the notice regarding such Advance in compliance with this Agreement or, in the case of any Conversion or Continuation, Agent and such Bank shall either have received the notice regarding such activity in compliance with this Agreement or Agent and such Bank shall have received notice regarding such Letter of Credit pursuant to this Agreement. 38 (b) The representations and warranties contained in ARTICLE IV of this Agreement shall be true and correct in all material respects when made and as of the date of such Advance, Continuation, Conversion or Letter of Credit, as the case may be, with the same effect as if made on and as of such date. (c) No Default or Potential Default, shall be in existence on the date of any Advance, Conversion, Continuation or Letter of Credit, or after giving effect to such Advance, Conversion, Continuation or Letter of Credit. (d) With regard to a Letter of Credit (i) Agent shall have received payment of the fees as provided in SECTION 2.11; (ii) the Issuing Bank shall have received an application and agreement for issuance of letter of credit, promissory note and/or reimbursement agreement relating to such Letter of Credit duly executed by Borrower with respect thereto, on the Issuing Bank's standard form; and (iii) the form and substance of the Letter of Credit shall be reasonably satisfactory to the Issuing Bank. (e) All corporate and legal proceedings and all documents required to be completed and executed by the provisions of, and all instruments to be executed in connection with the transactions contemplated by, this Agreement and any other Loan Paper shall be satisfactory in form and substance to Agent and the Banks and shall remain valid and effective and shall not have been revoked or attempted to be revoked and Agent and the Banks shall have received all information and copies of all documents, including records of corporate proceedings, required by this Agreement and any related agreements to be executed or which Agent or any Bank may reasonably have requested in connection therewith, such documents, where appropriate, to be certified by proper corporate or governmental authorities. (f) No legal proceeding shall be pending or threatened against Borrower or any other Company by or before any Tribunal which could reasonably be expected to have a Material Adverse Effect. (g) The consummation of such Advance, Conversion or Continuation or issuance of such Letter of Credit shall not violate any applicable provisions of any Law. (h) Any Bank's obligations to make any Advance or issue any Letter of Credit hereunder shall not have been terminated pursuant to any provision of this Agreement. (i) There shall not have occurred any event or series of events that has had or is likely to have a Material Adverse Effect on the financial performance or business activities of Parent or any Subsidiary. Section 3.3 EFFECT OF REQUEST FOR ANY SUBSEQUENT ADVANCE OR CONVERSION OR CONTINUATION, OR REQUEST FOR LETTER OF CREDIT. Each notice requesting an Advance, each notice requesting a Conversion or Continuation, and each request for issuance of a Letter of Credit, shall be deemed to be a representation and warranty that the matters set forth in SUBSECTIONS 3.2(b) and (c) and in ARTICLE IV are true and correct as of the date of the requested Advance, Conversion, Continuation or Letter of Credit. 39 Section 3.4 LANDLORD LIEN WAIVERS. Borrower and each Company covenants that it will use its best efforts to obtain lien waivers from each of the landlords of the property where any Collateral is located within sixty (60) days after the Closing Date. ARTICLE IV CERTAIN REPRESENTATIONS AND WARRANTIES Borrower and each other Company jointly and severally represent and warrant to Agent and the Banks that: Section 4.1 CORPORATE EXISTENCE AND AUTHORITY; NAMES. Each Company (i) is a corporation duly organized, validly existing, and in good standing under the Laws of its State of incorporation (ii) is duly qualified to transact business as a foreign corporation in each jurisdiction where the nature and extent of its business and properties require the same, and (iii) possesses all requisite authority, power, licenses, permits, and franchises to conduct its business and execute, deliver, and comply with the terms of the Loan Papers, which have been duly authorized and approved by all necessary corporate action and for which no approval or consent of any Tribunal is required. Section 4.2 FINANCIAL STATEMENTS. The consolidated Financial Statements of Parent as of September 30, 1999, and the Quarterly Reports (the "CURRENT FINANCIALS") heretofore furnished to the Banks, were prepared in accordance with GAAP and fairly present the consolidated financial conditions and the results of operations of the Companies as of, and for the portion of the fiscal year ending on, such dates. There were no material liabilities, direct or indirect, fixed or contingent, of the Companies as of the date of the Current Financials which are not reflected therein or in the notes thereto. Except for transactions directly related to, or specifically contemplated by, this Agreement and transactions heretofore disclosed in writing to the Banks, there have been no material adverse changes in the respective financial conditions of the Companies from those shown in the Current Financials between such date and the date hereof, nor has any Company incurred any material liability, direct or indirect, fixed, or contingent, except for the Existing Indebtedness. Section 4.3 COMPLIANCE WITH LAWS AND DOCUMENTS; EXISTING DEFAULTS. None of the Companies is, nor will the execution, delivery and the performance of and compliance with the terms of the Loan Papers cause any of the Companies to be: (i) in violation of any Laws or the Certificates or Articles of Incorporation or Bylaws of any of the Companies in any respect which could have any effect whatsoever upon the validity, performance or enforceability of any of the terms of the Loan Papers or which could reasonably be expected to have a Material Adverse Effect; or (ii) in default (nor has any event occurred which, with notice or lapse of time or both, could constitute a default) under any material agreement (including the Existing Agreement) or instrument to which any Company is a party or under which any Company or any of its property is bound. Except as set forth on SCHEDULE 4.3 attached hereto (Known Litigation Schedule), none of the Companies is involved in, nor is any Company aware of the threat of, any Litigation where the maximum aggregate potential loss to the Borrower, the Parent and the Companies is greater than $250,000; none of the Litigation described on the Known Litigation Schedule could reasonably be expected to have a Material Adverse Effect; and, except as set forth on the Known Litigation Schedule, there are no outstanding or unpaid judgments against any of the Companies. 40 Section 4.4 ENFORCEABILITY. The execution, delivery and performance of the Loan Papers to which each of the Companies is a party have been duly authorized by resolutions of the board of directors of such Company. The Loan Papers have been duly and validly executed and delivered by each of the Companies that is a party thereto and constitute the legal, valid and binding obligations of the Companies, enforceable against the Companies in accordance with their respective terms, except as limited by bankruptcy, insolvency or other Laws of general application relating to the enforcement of creditors' rights and general principles of equity. Section 4.5 PAYMENT OF TAXES. Borrower and the other Companies have filed all federal, state and other tax returns and reports required to be filed, and have paid all Taxes required by them to the extent that such Taxes have become due (except to the extent that the same are being contested in good faith by appropriate proceedings diligently prosecuted and as to which adequate reserves have been set aside in conformity with GAAP). Section 4.6 PLAN OBLIGATIONS. Except for the Frozen Food Express Industries, Inc. Employees Health Benefit Plan ("HEALTH PLAN") and the Conwell Voluntary Employee Injury Benefit Plan dated effective as of June 1, 1995 (the "INJURY BENEFIT PLAN") which are not so summarized, the Frozen Food Express Industries, Inc. Notice of Annual Meeting of Shareholders to be held April 22, 1999 (the "PROXY STATEMENT") contains a full and accurate listing and summary of the provisions of all Plans which are being currently maintained, established or contributed to by any Company or any other Group Member. Without limiting the generality of the foregoing, no Company or other Group Member has maintained, established or contributed to (i) an "employee pension benefit plan" as defined in SECTION 3(2) of the Employee Retirement Income Security Act of 1974, as amended, and the regulations and rulings thereunder ("ERISA") which is subject to the provisions of Title IV of ERISA, or (ii) a "multiemployer plan" as such term is defined in SECTION 4001 of ERISA. No Company has provided, or agreed to provide, benefits under the Health Plan to any former employee or dependent of such employee for periods subsequent to the severance of such employee's employment, other than as specifically required under SECTION 4980B of the IRC. There has been no Reportable Event or prohibited transaction (within the meaning of SECTION 486 of ERISA and SECTION 4975 of the IRC) with respect to any Plan, all contributions to any Plan have been made in cash or stock and, there have been no loans or other extensions of credit, except loans to participants in Plans, which loans are and have been in compliance with section 408 of ERISA. Conwell, W&B, Cartage, Borrower and LML have adopted, and all participating employees are covered by, the Injury Benefit Plan. The Injury Benefit Plan is an "Employee Welfare Benefit Plan" as defined in SECTION 3(l) of ERISA. All provisions of the Injury Benefit Plan are governed by ERISA. 41 Section 4.7 PURPOSE OF ADVANCES AND LETTERS OF CREDIT. The proceeds of the Advances hereunder will be used for working capital purposes of the Companies, to pay Reimbursement Obligations, for Capital Expenditures permitted by SECTION 5.2(h) and for other general corporate purposes. None of the proceeds of the Loans will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any Margin Stock and none of such proceeds will be used in violation of applicable Law (including, without limitation, the Margin Regulations). The Letters of Credit will be issued in the ordinary course of the Companies' businesses, primarily in connection with insurance claims made. Section 4.8 OWNERSHIP OF THE COMPANIES. (i) Parent owns all of the issued and outstanding capital stock of FFE, Express, Cartage and Middleton (ii) FFE owns all of the issued and outstanding stock of Borrower, Conwell, W&B, AEL and Lisa, (iii) W&B owns all of the issued and outstanding capital stock of CPI, and (iv) except as provided in this SECTION 4.8, none of the Companies has any Other Subsidiary. Section 4.9 EXISTING INDEBTEDNESS. Except as fully described in SCHEDULE 4.9 attached hereto (the "EXISTING INDEBTEDNESS"), none of the Companies is directly, indirectly or contingently obligated with respect to any Indebtedness for borrowed money. Section 4.10 RIGHTS IN PROPERTIES; EXISTING LIENS. Each of the Companies has good indefeasible title to or valid leasehold interests in its properties and assets, real and personal, including the properties, assets and leasehold interests reflected in the financial statements described in SECTION 4.2 , and none of such properties or assets is subject to a Lien other than Permitted Liens . Section 4.11 MATERIAL AGREEMENTS. Attached hereto as SCHEDULE 4.11 is a description of all material agreements to which any Company is a party or its assets may be bound or affected. Section 4.12 Environmental Matters. (a) Each of the Companies is in compliance in all material respects with all federal, state and local Laws and regulations now applicable to its business and operations or which (to its knowledge) will be applicable thereto relating to pollution control and environmental contamination, including, but not limited to, all Laws and regulations governing the generation, use, collection, treatment, storage, transportation, recovery, removal, discharge or disposal of Hazardous Materials. (b) To the best of each Company's knowledge, there are no presently outstanding allegations that any Company is now or at any time prior hereto was in material violation of such Laws and regulations; there are no material administrative or judicial proceedings presently pending against any Company pursuant to such Laws or regulations; and there is no material claim presently outstanding against any Company which was asserted pursuant to such Laws or regulations. 42 (c) There are no facts or circumstances known to any Company that could form the basis for the assertion of any material claim against any Company relating to environmental matters, including, but not limited to, any claim arising from past or present environmental practices asserted under CERCLA, RCRA or any other federal, state or local environmental statute. Section 4.13 COMMON ENTERPRISE. Each Company expects to derive benefit from this Agreement, both on its separate capacity and as a member of an affiliated and integrated corporate group. Section 4.14 WORKERS' COMPENSATION. Neither Borrower nor any of the other Companies are subscribers to the Texas Workers' Compensation Act. Borrower and each other Company has taken all reasonable precautions that may be necessary or appropriate to minimize the risk of loss associated with claims that would otherwise be covered by the Texas Workers' Compensation Act. Such precautions include, as appropriate and in consideration of the nature of each employee's duties, without limitation, (i) the implementation of safety programs, employee training programs, drug screening of employees and pre-employment physicals, and (ii) the purchasing of insurance with substantial and reasonable adequate coverage available for such risks. Section 4.15 YEAR 2000. Any reprogramming required to permit the proper functioning, in and following the year 2000 of (i) Parent's and the Subsidiaries' computer systems and (ii) equipment containing embedded microchips (including systems and equipment supplied by other or with which Parent's or the Subsidiaries' systems interface) and the testing of all such systems and equipment, as so reprogrammed, has been completed. The computer and management information systems of Parent and the Subsidiaries are and, with ordinary course upgrading and maintenance, will continue for the term of this Agreement to be, sufficient to permit Parent and the Subsidiaries to conduct their respective businesses without Material Adverse Effects. ARTICLE V CERTAIN COVENANTS OF THE COMPANIES Section 5.1 AFFIRMATIVE COVENANTS. Until the Obligations have been paid and performed in full and the obligation of the Banks to make Loans or issue Letters of Credit have been irrevocably terminated, the Companies shall: (a) QUARTERLY REPORT. On or before forty-five (45) days after the end of the first, second and third calendar quarters, and on or before ninety (90) days after the fourth calendar quarter, deliver to each Bank a Quarterly Report (herein so called), in the form of EXHIBIT E attached hereto with the blanks completed accurately to reflect the facts for the immediately preceding calendar quarter, signed by the chief financial officer or Vice President of Finance of Borrower. (b) FINANCIAL STATEMENTS. Deliver to each Bank, as soon as practicable, (i) and in any event within ninety (90) days after the end of each fiscal year of Parent, complete and detailed Financial Statements (prepared on a consolidated basis), including balance sheet, operating statement, 43 reconciliation of earned surplus and such supporting schedules as any Bank may request, accompanied by the certificate of a firm of independent public accountants acceptable to the Banks that such statements have been prepared in accordance with GAAP and fairly present the consolidated financial condition of the Companies during the fiscal year just ended, and that during the course of their audit of the Companies, nothing came to their attention that caused them to believe the Companies were not in compliance with the terms of SUBSECTIONS 5.1(f), 5.1(k), 5.2(a) and 5.2(f), (ii) and in any event within forty-five (45) days after the end of such calendar quarter, consolidated balance sheets of the Companies as of the close of such quarter, consolidated operating statements of the Companies for the part of the fiscal year ended at the close of such quarter and a reconciliation of earned surplus for the Companies during such quarter, accompanied by the certificate of the chief financial officer or Vice President of Finance of Borrower that such statements are true and correct, were prepared in accordance with GAAP and fairly present the consolidated financial conditions and results of operations of the Companies, and (iii) after a request by any Bank, such other information pertaining to the Companies and their affairs as such Bank shall from time to time request in writing. (c) INSURANCE. Maintain, and cause each other Company to maintain, insurance with such insurance companies, in such amounts, and covering such risks as shall be satisfactory to the Banks, with loss payable to the Banks; deliver to the Banks certificates evidencing such insurance and, within ninety (90) days after the close of each fiscal year of Borrower, a report certified by the chief financial officer or Vice President of Finance of Borrower describing all insurance of the Companies in force as of the close of the fiscal year just ended; and cause all fire and casualty insurance policies on Vehicles and real estate, to which Liens in favor of the Banks have attached, to be made payable to the Companies and the Banks, as their interests may appear, and in such event deliver certificates evidencing such insurance to the Banks. (d) TAXES. Pay and discharge, and cause each other Company to pay and discharge, before delinquent, all Taxes assessed upon any Company or any of the assets of any Company, or any part thereof; provided, however, that any Company may defer the payment of any Taxes (i) which are being diligently contested in good faith by appropriate proceedings, and (ii) for which reserves deemed adequate by the Banks have been set aside to the satisfaction of the Banks for the payment thereof; and further provided, that, if and to the extent any such contested Taxes are finally adjudicated to be valid, Borrower or a Company will promptly discharge them and for such purpose may use the reserve related thereto. (e) OPERATING RIGHTS, ETC. Maintain and preserve, and cause each other Company to maintain and preserve, its Operating Rights, licenses, franchises, certificates, corporate qualification and good standing in all appropriate states and other appropriate authorities necessary to carry on its businesses, as an interstate and intrastate motor carrier or otherwise, in all states in which it does business. (f) FIXED CHARGE COVERAGE RATIO. As of the last day of each fiscal quarter during the period set forth in the table below, maintain a Fixed Charge Coverage Ratio at all times equal to or greater than the rate set forth opposite the applicable fiscal quarter ending date on the table below. "FIXED CHARGE COVERAGE RATIO" shall mean, as of the date of any determination thereof for the twelve (12) month period ending as of the date of any determination, the ratio of (i) the amount of the Companies' consolidated EBITDAR to (ii) the amount of 44 the Companies' consolidated Fixed Charges; all as determined in conformity with GAAP. "EBITDAR" means, for any period and any Person the total of the following, each calculated without duplication, for such Person on a consolidated basis for such period: (a) Net Income; PLUS (b) any provision for (or less any benefit from) income or franchise taxes included in determining Net Income; PLUS (c) interest expense deducted in determining Net Income; PLUS (d) amortization and depreciation expense deducted in determining Net Income; PLUS (e) lease and rental expenses paid under operating leases or rental agreements intended to produce income and deducted in determining Net Income; PLUS (f) for calculations that include the fiscal quarter ending December 31, 1999, $17,498,554; MINUS (g) any dividends or redemptions of capital stock paid in cash during such period. "FIXED CHARGES" means all interest expenses, the amount of lease and rental expenses associated with all operating leases and rental agreements that are not cancelable within the immediately subsequent 12-month period, taxes actually paid, the portion of long-term debt actually paid and lease expenses under capitalized leases. ======================================================================== Minimum Fixed Charge Fiscal Quarter Ending Coverage Ratio ======================================================================== From the Closing Date through and including June 30, 2000 1.15 to 1.00 ------------------------------------------------------------------------ From July 1, 2000, and thereafter 1.25 to 1.00 ======================================================================== (g) INFORMATION AND OTHER DOCUMENTS, NEW ENTITIES. Except as otherwise may be provided in SECTION 9.14, cause each New Entity to execute and deliver to Agent a Guaranty Agreement and an agreement in the form of EXHIBIT F attached hereto with the blanks completed accurately; and a Security Agreement in substantially the form of EXHIBIT I hereto, and deliver, and cause each Company to deliver, to the Banks such information (not otherwise required to be furnished herein) respecting the business affairs, assets, and liabilities of any of the Companies, and such opinions, certifications and documents, in addition to those herein mentioned, as any Bank may reasonably request, and allow, and cause each other Company to allow, the Banks or their agents to inspect any of the records and properties of any Company, from time to time, during reasonable business hours. (h) PAYMENT OF DEBTS. Pay and discharge, and cause each other Company to pay and discharge, when due all debts, liabilities and obligations of Borrower and each other Company; provided that the covenant contained in this subsection is solely for the benefit of the Banks and their successors and assigns; and provided further that neither Borrower nor any other Company shall be required to pay any such debt, liability or obligation if the validity thereof is being diligently contested in good faith and reserves deemed adequate by the Banks have been recorded therefor in accordance with GAAP. (i) MAINTENANCE OF EXISTENCE, ASSETS. Maintain, and cause each other Company to maintain, its corporate and legal existence, and keep, and cause each other Company to keep, all assets in good repair, working order and condition, and from time to time make all necessary and proper repairs, renewals, replacements, additions, betterments and improvements thereto, to the end that the business of Borrower and each other Company may be properly, efficiently and advantageously conducted at all times in accordance with sound and prudent standards of business management. 45 (j) EXPENSES. (i) Pay all reasonable expenses which the Banks incur in connection with (A) the negotiation and preparation of this Agreement, the Loan Papers and any security agreement, deed of trust or mortgage or other agreement or document contemplated hereby, (B) any Default, (C) the repossession, storage, or sale of Vehicles or real estate, (D) the collection of the accounts, (E) the enforcement by Agent or any Bank of its rights against the accounts or any other Collateral, (F) the collection of the Obligations and (G) the enforcement of obligations of the Companies hereunder, including, but not limited to, court costs and reasonable fees to the attorneys for Agent and the Banks for providing legal services in connection therewith; provided, however, that Borrower shall be obligated to pay only the fees and expenses of Agent's counsel in connection with the negotiation and preparation of this Agreement and the other Loan Papers. (ii) WHETHER OR NOT ANY LOAN IS EVER FUNDED, INDEMNIFY AGENT AND THE BANKS AND HOLD AGENT AND THE BANKS HARMLESS FROM AND AGAINST ANY AND ALL LIABILITIES, LOSSES, DAMAGES, COSTS AND EXPENSES OF ANY KIND (INCLUDING, WITHOUT LIMITATION, EXPENSES OF LITIGATION, COURT COSTS AND THE REASONABLE FEES AND DISBURSEMENTS OF COUNSEL FOR AGENT AND THE BANKS (OR OF ANY OTHER PERSON ENGAGED BY AGENT OR ANY BANK) IN CONNECTION WITH ANY INVESTIGATIVE, ADMINISTRATIVE OR JUDICIAL PROCEEDING, WHETHER OR NOT AGENT OR ANY BANK SHALL BE DESIGNATED A PARTY THERETO) WHICH MAY BE INCURRED BY AGENT OR ANY BANK, RELATING TO OR ARISING OUT OF THIS AGREEMENT OR THE OTHER LOAN PAPERS OR ANY ACTUAL OR PROPOSED USE OF PROCEEDS OF THE LOANS HEREUNDER; PROVIDED, THAT, AGENT AND THE BANKS SHALL NOT HAVE THE RIGHT TO BE INDEMNIFIED HEREUNDER FOR THEIR OWN OR THEIR REPRESENTATIVE'S OR AGENT'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS DETERMINED BY A COURT OF COMPETENT JURISDICTION. IT IS THE EXPRESS INTENTION OF THE PARTIES HERETO THAT THE INDEMNITY PROVIDED FOR HEREIN IS INTENDED TO AND SHALL INDEMNIFY AND PROTECT AGENT AND THE BANKS FROM THE CONSEQUENCES OF THEIR OWN NEGLIGENCE (AS OPPOSED TO GROSS NEGLIGENCE OR WILLFUL MISCONDUCT), WHETHER OR NOT THAT NEGLIGENCE IS THE SOLE OR CONCURRING CAUSE OF ANY LIABILITY, LOSS, DAMAGE, COST OR EXPENSE OF ANY KIND. (iii) Any amount to be paid under this Subsection to Agent or any Bank shall be a demand obligation owing by Borrower and if not paid within fifteen (15) days of demand by Agent or such Bank thereof shall bear interest from the date of expenditure by Agent or such Bank until paid at the Highest Lawful Rate. (iv) The obligations of Borrower under this Subsection shall survive payment of the Obligations and assignment of any right hereunder. 46 (k) DEBT COVERAGE RATIO. Maintain a Debt Coverage Ratio equal to or less than the ratio set forth opposite the applicable fiscal quarter ending date in the table below. As of the last day at each fiscal quarter during the periods set forth in the table below, "DEBT COVERAGE RATIO" is defined to mean, as of the date of any determination thereof, the ratio of (i) Funded Debt as of such measurement date to (ii) EBITDAR for the twelve (12) month period then ending, all as determined in conformity with GAAP. "FUNDED DEBT" means as to any Person at any time (without duplication) (a) all obligations of such person for borrowed money, including, without limitation, any notes payable to the seller in connection with any acquisition and the Loans; (b) all obligations of such Person evidenced by bonds, notes, debentures, or other similar instruments; (c) the aggregate minimum amount of all lease or rental payments to be paid under operating leases or rental agreements that are not cancelable; (d) all capitalized lease obligations of such Person; (e) all obligations of others, which such Person has guaranteed or given surety for or for which such Person has otherwise personally secured or indemnified such others; (f) all obligations secured by a Lien existing on property owned by such Person, whether or not the obligations secured thereby have been assumed by such Person or are non-recourse to the credit of such Person; (g) all reimbursement obligations of such Person (whether contingent or otherwise) in respect of letters of credit, bankers' acceptances, surety or other bonds and similar instruments (including the Reimbursement Obligations). ========================================================================= Maximum Debt Fiscal Quarter Ending Coverage Ratio ========================================================================= From the Closing Date through and including June 30, 2000 3.25 to 1.00 ------------------------------------------------------------------------- From July 1, 2000, and thereafter 3.00 to 1.00 ========================================================================= (l) BORROWING BASE REPORTS. Deliver to each Bank, concurrently with the delivery of the Financial Statements under SUBSECTION 5.1(a) and the Financial Statements under SUBSECTION 5.1(b), a Borrowing Base Report dated as of the end of the immediately preceding calendar quarter. (m) ERISA. Immediately upon becoming aware of the occurrence of any event or condition which has the result that any of the representations or warranties contained in SECTION 4.6, if made on and again as of any date on or after the date of this Agreement, cease to be true, Borrower shall give the Banks a written notice specifying (i) the nature of such events or condition, (ii) what action Borrower and the other Companies are taking or propose to take with respect thereto, and (iii) when known, any action taken by the Internal Revenue Service or the Department of Labor with respect thereto. With respect to any Plan maintained or adopted by any Company, such Company will at all times make prompt payments of contributions required to be made to meet the minimum funding standards of ERISA. (n) LAWS. Each Company will comply with the provisions of any and all Laws, and with the provisions of all agreements, documents and instruments material to its business and operations, and maintain its ability to perform its obligations under all such agreements, documents and instruments. 47 (o) WORKERS' COMPENSATION. Any Company that is or becomes a nonsubscriber to the Texas Workers' Compensation Act shall take all reasonable precautions that may be necessary or appropriate from time to time to minimize the risk of loss to Borrower and the other Companies associated with claims that would otherwise be covered by the Texas Workers' Compensation Act if such, Company had continued to Subscribe to such Act. Such precautions shall include, without limitation, (i) the implementation of safety programs, employee training programs, drug screening of employee and pre-employment physical (unless prohibits by law), (ii) the purchasing of insurance with substantial and reasonably adequate coverage available for such risks and (iii) the maintenance of a welfare benefit plan, identical or similar to the Injury Benefit Plan, that is governed by ERISA in all respects. (p) PROJECTIONS. As soon as available and in any event before December 1 of each fiscal year of Parent, Borrower will deliver (i) a forecasted consolidated balance sheet and statements of income and cash flow of Parent and the Subsidiaries on a quarterly basis, including the assumptions utilized in the preparation of such projections (in narrative form) for the two (2) forthcoming fiscal years and a proforma projection of Parent's compliance with the financial covenants in this Agreement for the same period. (q) FURTHER ASSURANCES AND COLLATERAL MATTERS. (i) The Parent will, and will cause each other Company to execute and deliver such further documentation and take such further action as may be requested by the Agent to carry out the provisions and purposes of the loan Papers and to create, preserve, protect and perfect the Liens of Agent for the benefit of itself and the Banks in the Collateral. (ii) At any time and from time to time upon the written request of any Bank, within 15 days after such request, Parent shall and shall cause each of the Subsidiaries to, grant a Lien to the Banks in all or any part of (A) the Vehicles and (B) to the extent permitted under applicable laws, the Operating Rights of Parent and the Subsidiaries, upon such terms as may be acceptable to the Banks, and will execute and deliver, and will cause the Subsidiaries to execute and deliver, to Agent and the Banks such documents, in form and substance satisfactory to Agent and its counsel and the Banks, as may be necessary or appropriate to evidence and provide for the same, including, without limitation, assignments of, and security agreements granting security interests in, all right, title and interest of Parent and each Subsidiary in all of the foregoing. Any Bank making any such request for Collateral shall promptly deliver a copy of such written request to Agent and the other Banks. (iii) Upon written request from Borrower, Agent shall, from time to time, take all steps necessary to release the Lien in favor of Agent and the Banks against any one or more Vehicles; PROVIDED, Agent shall not be obligated to release any such Lien unless (A) the Vehicle being released from the Lien is being sold or otherwise disposed in the ordinary course of business and for fair market value; (B) after giving effect to the Lien release, the outstanding amount of the Obligations will not be greater than the product of eighty-five percent (85%) multiplied by the aggregate Net Book Value of all the remaining Vehicles in which Agent has a first-priority, fully perfected Lien; and (C) immediately upon consummation of the sale or other disposal of the Vehicle on which the Lien was released, Borrower shall prepay the Loans in an amount equal to the Net Book Value of such Vehicle. 48 (r) ACCOUNTS RECEIVABLE REPORT. As soon as available, and in any event within twenty (20) days after the end of each month a summary accounts receivable aging report for Borrower showing all accounts receivable of Borrower that are 1-30, 31-60, 61-90, and over 90 days past the invoice date. Section 5.2 NEGATIVE COVENANTS. Until the Obligations have been paid and performed in full and the obligation of the Banks to make Loans and to issue Letters of Credit have been irrevocably terminated, none of the Companies shall, directly or indirectly, without the prior written consent of the Banks: (a) MINIMUM TANGIBLE NET WORTH. Permit, as of the last day of any fiscal quarter, Parent's Consolidated Tangible Net Worth to be less than the sum of (i) $80,000,000, PLUS (ii) eighty-five percent (85%) of its positive, consolidated net income for each fiscal quarter after December 31, 1999 (I.E., any negative net income for a fiscal quarter shall not reduce the minimum Consolidated Tangible Net Worth), PLUS (iii) one hundred percent (100%) of the net proceeds from any issuances of equity securities by Parent or other contributions to the capital or equity of Parent. (b) TRANSFER OF OPERATING RIGHTS. Create, incur, grant, assume or suffer to exist any Lien on, nor sell, transfer or otherwise dispose of, any present or future Operating Rights of any Company, including but not limited to franchises, certificates, authorizations, permits and licenses. (c) LOANS, INVESTMENTS, AND MERGERS. Make any loan to or investment in, nor purchase stock or other securities of, nor merge or consolidate with, nor purchase all or substantially all of the assets of, any Person other than Borrower or another Company, except (i) mergers, consolidations, and acquisitions after which Borrower or another Company is the surviving and controlling entity and no Default or Potential Default exists, (ii) secured loans to owner-operators who have independent contractor service agreements with Borrower or any other Company, (iii) loans to the Employee Stock Ownership Plan and Trust for Employees of Borrower not at any one time in excess of $5,000,000 in the aggregate; (iv) loans, other than the foregoing, not at any one time in excess of $1,000,000 in the aggregate, (v) Permitted Investments and (vi) other investments from time to time in an amount outstanding at any time less than or equal to $100,000. (d) CONTINGENT LIABILITIES. Assume, guarantee, purchase, agree to purchase or suffer to exist any other liability, direct or indirect, for the payment of any obligation for borrowed money or other similar Indebtedness, except to Bank, of any Person, other than Borrower or another Company, in an aggregate amount in excess of $5,000,000 at any time outstanding. (e) DIVIDENDS AND DISTRIBUTIONS. Declare, order, pay, make or set apart any sum for (a) any dividend or other distribution, direct or indirect, on account of any shares of any class of stock of Parent or any other Company now or hereafter outstanding; (b) any redemption, conversion, exchange, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of stock of Parent or any other Company now or hereafter outstanding; or (c) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of stock of Parent or any other Company now or hereafter outstanding except: 49 (i) The Parent and each other Company may from time to time redeem its stock that was issued pursuant to the terms of employee stock option plans offered by each such Company, respectively, on or before the Closing Date; PROVIDED that the maximum amount of such redeemed stock shall be an amount equal to or less than 1% of the capital stock of the Parent or such Subsidiary, as applicable, as of the Closing Date. (ii) In addition to the redemptions permitted under clause (i) above, the Parent may from time to time redeem its stock, PROVIDED that the aggregate maximum amount of the redemption price for such stock shall not be greater than the proceeds of death benefits received by Parent under life insurance policies. (iii) If no Default or Potential Default exists, Parent may declare and pay cash dividends from time to time if on the date each such dividend is declared Borrower delivers to Agent computations showing (A) that the Debt Coverage Ratio of Parent and its consolidated subsidiaries as of the date such dividends are declared is, after giving effect to such dividends, equal to or less than 2.5 to 1.00; (B) that the Debt Coverage Ratio of Parent and its consolidated Subsidiaries determined pro forma as of the date of the most recently delivered Quarterly Report as if such dividend had already been declared and paid is equal to or less than 2.5 to 1.00; and (C) that Parent and each other Company would otherwise be in compliance with all other financial covenants contained in this Agreement if such financial covenants were measured as of the date such dividend is paid and after giving effect to such dividend. (iv) The Companies may make, declare or pay dividends and make other distributions with respect to their capital stock to the extent necessary to permit the Borrower to pay the Obligations and to pay expenses and taxes incurred in the ordinary course of business. (v) Borrower and any other Company may declare and pay dividends on their common stock payable solely in shares of common stock. (f) INDEBTEDNESS. Assume, create or suffer to exist any Indebtedness except (i) Indebtedness owed to the Banks pursuant to this Agreement, (ii) additional Indebtedness not for borrowed money incurred in the ordinary course of business constituting trade payables and accrued liabilities, including, without limitation, accrued Taxes and payroll obligations, (iii) Existing Indebtedness, and (iv) additional Indebtedness for borrowed money incurred in the ordinary course of business not to exceed at any time $1,000,000 in aggregate amount with respect to all Companies. (g) SALES OF ASSETS. Be a party to any sale, transfer, or other disposition of all or any substantial part of Borrower's or any other Company's property, assets or business, and in any event will not sell, transfer or otherwise dispose of any of Parent's interest in the Subsidiaries (including, without limitation, any of the stock of the Subsidiaries). 50 (h) CAPITAL EXPENDITURES. Permit the aggregate amount of all Capital Expenditures made by the Companies, during any, twelve (12) month period (net of the proceeds of the sale or exchange of any fixed assets), to exceed $25,000,000. (i) NEGATIVE PLEDGE. Borrower and each of the other Companies will not create, assume or suffer to exist any Lien on any asset or property (or any interest therein) now owned or hereafter acquired by Borrower or any other Company, except: (i) any Lien existing pursuant to any order of attachment, distraint or similar legal process arising in connection with court proceedings so long as the execution or other enforcement thereof is effectively stayed and the claims secured thereby are being contested in good faith by appropriate proceedings, and (ii) Permitted Liens. (j) TRANSACTIONS WITH AFFILIATES. The Companies will not enter into any transaction with any Affiliate except in the ordinary course and pursuant to the reasonable requirements of their businesses and upon fair and reasonable terms no less favorable to the Companies than would result in a comparable arm's length transaction with a Person who is not an Affiliate; PROVIDED, however, that the Companies may enter into lease agreements, as lessee, with Affiliates for tractors or trailers with lease payments less than or equal to the aggregate amount of $200,000 per month. (k) ERISA. No Company or other Group Member will (i) establish, maintain or participate in any way in a Plan that is subject to the provisions of Title IV of ERISA, or (ii) provide benefits under any health plan to former employees in excess of those provided on the date hereof, without the prior written consent of the Banks. ARTICLE VI DEFAULT As used herein, the term "DEFAULT" means the occurrence of any one or more of the following events: Section 6.1 PAYMENT OF OBLIGATIONS. The failure of Borrower to pay to Agent or any Bank, as required, when due the Principal Obligation, or interest thereon, or any part thereof, or any Reimbursement Obligation, and such failure continues for a period of ten (10) days after the due date. Section 6.2 COVENANTS. (a) A breach of any of the covenants in SUBSECTIONS 5.1(e), 5.1(f), 5.1(i), 5.1(k) or SECTION 5.2. (b) The failure of Borrower or any other Company to punctually and properly observe, keep and perform each of its covenants and agreements in SUBSECTIONS 5.1(d) and 5.1(h), and such failure continues for a period of ten (10) days after the discovery of the breach by a Company or after notice from any Bank. 51 (c) The failure of Borrower or any other Company to observe, keep and perform each of its covenants and agreements in SUBSECTIONS 5.1(a), 5.1(b), 5.1(c), 5.1(g) or 5.1(l), and such failure continues for a period of ten (10) days after Agent notifies Borrower of the breach. (d) The failure of Borrower or any other Company punctually and properly to observe, keep and perform each of its covenants and agreements (other than the covenants to pay the Principal Obligation, and interest thereon, the commitment fee, the Reimbursement Obligations, and the covenants specified in SUBSECTIONS 6.2(a), 6.2(b), and 6.2(c)) contained herein or in the other Loan Papers, and such failure continues for a period of thirty (30) days after Agent notifies Borrower of the breach. Section 6.3 MISREPRESENTATION. The discovery by Agent or any Bank that any statement, representation or warranty in this Agreement, any other Loan Paper or in any writing ever delivered to Agent or any Bank pursuant to the provisions hereof, is false, misleading, or erroneous in any material respect, and the reason giving rise to such situation is not corrected to the satisfaction of the Banks within thirty (30) days after notice thereof has been given by Agent to Borrower. Section 6.4 VOLUNTARY DEBTOR RELIEF. Borrower or any other Company shall (i) have entered voluntarily against it an order for relief under any Debtor Relief Laws, (ii) execute an assignment for the benefit of creditors, or (iii) not pay, or admit in writing its inability to pay, its debts generally as they become due, or (iv) apply for or consent to the appointment of a receiver, trustee, custodian or liquidator of it, or of all or a substantial part of its assets, or (v) file a voluntary petition in bankruptcy or a petition or answer seeking reorganization or an arrangement with creditors or seeking to take advantage of, or any other relief under, any Debtor Relief Laws, or (vi) file an answer admitting the material allegations of, or consenting to, or default in, a petition filed against it in any Debtor Relief Laws proceeding, or (vii) institute or voluntarily be or become a party to any other judicial proceedings intended to effect a discharge of its debts, in whole or in part, or a postponement of the maturity or the collection thereof, or a suspension of any of the remedial rights of Bank granted in this Agreement or under any Law. Section 6.5 INVOLUNTARY DEBTOR RELIEF. An order, judgment or decree shall be entered by any court of competent jurisdiction approving a petition seeking reorganization of Borrower or any other Company, or appointing a receiver, trustee, custodian or liquidator of Borrower or any other Company, or of all or any substantial part of the assets of Borrower or any other Company, and such order, judgment or decree is not appealed from within the time allowed by Law, with a stay of proceedings or supersedeas, or, if appealed from in the manner aforesaid, when such order, judgment or decree becomes final, and in any event, if and when such reorganization, receivership, trusteeship, custodianship or liquidation proceedings shall have been in force for sixty (60) days. Section 6.6 JUDGMENTS. Any of the Companies fails to pay any money judgment against it at least ten (10) days prior to the date on which any of the assets of any of the Companies may be lawfully sold to satisfy such judgment. 52 Section 6.7 ATTACHMENT. The failure to have discharged within a period of thirty (30) days after the commencement thereof any attachment, sequestration or similar proceedings against any of the assets of Borrower or any other Company. Section 6.8 DEFAULT OF OTHER DEBT. The default under any promissory note or other evidence of Indebtedness in an amount equal to or greater than $500,000 executed by Borrower or any other Company, or the default by any obligee under any Indebtedness or any other obligation in an amount equal to or greater than $500,000 under any credit or other agreement under which Borrower or any other Company is an obligor. Section 6.9 OTHER AGREEMENTS. The occurrence of any event which would constitute, or with notice or lapse of time or both could constitute, a default under any chattel mortgage, assignment, security agreement, deed of trust, mortgage or other agreement delivered to Agent or any Bank. ARTICLE VII REMEDIES If a Default occurs and is continuing, Agent may, at its election, and, at the request of the Required Banks, Agent shall do any one or more of the following: Section 7.1 ACCELERATION. Declare the entire unpaid balance of the Obligations and all other Indebtedness of any one or more of Borrower or the other Companies to the Banks, or any part thereof, immediately due and payable, whereupon it shall be due and payable. Section 7.2 LOANS AND LETTERS OF CREDIT. Refuse to make additional Loans (including Swingline Advances) or issue additional Letters of Credit, and thereafter the Banks shall have no obligation whatsoever to make additional Loans or issue additional Letters of Credit. If any Bank or the Issuing Bank refuses to make additional Loans or issue additional Letters of Credit, all duties and obligations of Borrower and the other Companies, and all rights and powers of Agent and the Banks, under this Agreement shall continue in full force and effect until the full and final payment and performance of the Obligations. Section 7.3 JUDGMENT. Reduce any claim to judgment. Section 7.4 RIGHTS. Exercise any and all rights and remedies which Agent, the Issuing Bank or any Bank may have under any Loan Paper, at Law, or in equity, or otherwise. Section 7.5 DEFAULT WITH RESPECT TO BASE RATE LOANS. If a Default under the Agreement shall occur and the same shall have been declared by Agent, then Borrower shall immediately prepay the outstanding Base Rate Loans and all interest accrued thereon if and to the extent the same is then due and payable. Section 7.6 DEFAULT WITH RESPECT TO LIBOR LOANS. If a Default under this Agreement shall occur and the same shall have been declared by Agent, then Borrower shall immediately prepay the outstanding LIBOR Loans and all interest accrued thereon and all losses and expenses in connection with such prepayment pursuant to SECTION 2.26 if and to the extent the same is then due and payable. 53 Section 7.7 DEFAULT WITH RESPECT TO LETTERS OF CREDIT. If a Default under the Agreement shall occur and the same shall have been declared by Agent, then, upon the request of Agent, Borrower shall be required to deposit immediately with Agent, in immediately available funds, an amount equal to (i) the aggregate amount of all then outstanding Letters of Credit; plus (ii) the aggregate amount of all other sums due and payable under any of the Loan Papers regarding the Letters of Credit (the "DEPOSIT"), Borrower's obligation to pay the Deposit to be absolute and unconditional, the Deposit to be deposited in a special interest bearing account with Agent to ensure reimbursement of any drawings under such Letters of Credit and payment of all other amounts due and payable under any of the Loan Papers regarding the Letters of Credit. Section 7.8 AUTOMATIC ACCELERATION DUE TO CERTAIN DEFAULTS. Notwithstanding anything to the contrary contained herein, if a Default referred to in SECTION 6.4 or SECTION 6.5 occurs and is continuing, then the entire unpaid balance of the Obligations and all other Indebtedness of any one or more of Borrower or the other Companies to the Banks shall immediately, and concurrently with the occurrence of such Default, become due and payable in full without any further action or notification of any kind required of Agent or any of the Banks, including, without limitation, presentment, demand, protest or notice of protest, dishonor, intention to accelerate or acceleration, all of which are expressly hereby waived by Borrower and the other Companies. ARTICLE VIII THE AGENT Section 8.1 APPOINTMENT AND AUTHORIZATION; ADMINISTRATION; DUTIES. (a) The general administration of the Loan Papers and any other documents contemplated by this Agreement shall be by Wells Fargo or its designees, and each Bank hereby appoints Wells Fargo as its agent hereunder and under the other Loan Papers with such powers as are specifically delegated to the Agent by the terms of the Loan Papers, together with such other powers as we reasonably incidental thereto. Agent shall not be required to take any action with respect to any Default except as may be expressly provided in ARTICLE VI or as may be directed by the Required Banks. In the event the Required Banks so direct Agent to take any action hereunder, Agent agrees to commence taking such action within a reasonable period of time and to diligently pursue such action or to submit its resignation pursuant to SECTION 8.10. Except as otherwise provided herein or otherwise agreed to by the Banks and Agent, each of the Banks hereby irrevocably authorizes Agent, at its discretion, to take or refrain from taking such actions as Agent on its behalf and to exercise or refrain from exercising such powers under the Loan Papers and any other documents contemplated by this Agreement as are delegated by the terms hereof or thereof, as appropriate, together with all powers reasonably incidental thereto. Notwithstanding the foregoing or any term or provision of this Agreement, Agent shall have no duties or responsibilities except as expressly set forth in this Agreement or the other Loan Papers. 54 (b) Each Bank irrevocably appoints and authorizes Agent to hold the Collateral (if any) and enforce the Liens (if any) granted to the Banks as security for the Obligations and to take such action as Agent on its behalf and to exercise such powers under this Agreement and the other Loan Papers as are delegated to Agent by the terms hereof or thereof, together with all such powers as are reasonably incidental thereto, provided, however, that, as between and among the Banks, Agent will not prosecute, settle or compromise any claim against Borrower or any other Company or release or institute enforcement or foreclosure proceedings against any Collateral or guaranty securing the Obligations, except with the consent of the Required Banks. Without limiting the generality of the foregoing, each Bank authorizes Agent to (i) enter into any Loan Papers securing payment of the Obligations in the capacity of agent for and on behalf of the Banks and (ii) to administer all of the Collateral and to enforce the interests of the Banks therein in accordance with the Loan Papers. Any action for enforcement of the interests of the Banks under the Loan Papers shall be taken either as Agent for the Banks or directly in the respective names of the Banks, as counsel to Agent may at the time advise. Subject to SECTION 9.21, the Banks consent and agree that any action taken by Agent or with the consent or at the direction of the Required Banks as provided herein shall be taken for and on behalf of all Banks, including those who may not have so consented or directed, in order to protect or enforce the Liens securing the Obligations; provided that any Bank may direct Agent not to act for or on its behalf in any such proceeding if such Bank executes in favor of Agent a release of its rights to share in the benefits of any such action and a release of its legal and beneficial interest in the Lien created by the Loan Papers on the Collateral which is the subject of such action. Each Bank, Borrower and the other Companies agree that Agent is not a fiduciary for the Banks or for Borrower or any other Company but simply is acting in the capacity described herein to alleviate administrative burdens for all parties hereto and that Agent has no duties or responsibilities to the Banks, Borrower or any other Company except those expressly set forth herein. (c) The Banks hereby authorize Agent (in its sole discretion) (i) to appoint sub-agents (including any Bank) to be the holders of record of any Lien to be granted to Agent (for its benefit and the benefit of the Banks) or the Banks or to hold on behalf of Agent any Collateral or instruments relating thereto; and (ii) so long as a Default shall not have occurred and be continuing, to release a Lien granted to it (for its benefit and the benefit of the Banks) on any asset sold or otherwise disposed of in accordance with the terms hereof. (d) AGENT FEE. Borrower shall pay to Agent the fees provided in that certain letter agreement dated January 26, 2000, between Agent and Borrower (the "Fee Letter"). Section 8.2 ADVANCES AND PAYMENTS. On the date of each Advance, Agent shall be authorized, but not obligated, to advance, for the account of each of the Banks making such Advance, the amount of the Advance to be made by it in accordance with its Commitment hereunder if and to the extent that such Bank does not make such amount timely available to Agent for advance to Borrower pursuant to this Agreement. Each of the Banks agrees to immediately reimburse Agent in immediately available funds for any amount so advanced on its behalf by Agent. If any such reimbursement is not made in immediately available funds on the same day on which Agent shall have made any such amount available on behalf of any Bank, such Bank shall pay interest to Agent at a rate per annum equal to Agent's cost of obtaining overnight funds in the Dallas Federal Funds market. All amounts to be paid to any of the Banks by Agent shall be credited to the Banks, forthwith after collection by Agent, in immediately available funds either by wire transfer or deposit in such Bank's account with Agent, or as such Bank and the Agent shall from time to time agree. 55 Section 8.3 SHARING OF SETOFFS. Each of the Banks agrees that if it shall, through the exercise of a right of banker's lien, setoff or counterclaim against Borrower or any other Company, including, but not limited to, a secured claim under the Bankruptcy Code or other security interest arising with respect to or in lieu of such secured claim and received by such Bank under any applicable bankruptcy, insolvency or other similar Law, or otherwise obtain payment in respect of any obligation owing to such Bank as a result of which the unpaid portion of its Loans is proportionately less than the unpaid portion of the Loans of other Banks (based upon the respective Commitment of the Banks), (i) it shall promptly purchase at par (and shall be deemed to have thereupon purchased) from such other Banks a participation in the Loans of such other Banks, so that the aggregate unpaid principal amount of each of the Banks' Loans shall be in the same proportion to the aggregate unpaid principal amount of all Loans then outstanding as the principal of its Loans prior to the obtaining of such payment was to the principal amount of all Loans outstanding prior to the obtaining of such payment, (ii) it shall pay interest calculated at the Federal Funds Rate to such other Banks on the amount purchased from the date it received such payment until the date of the purchase of such participation; and (iii) such other adjustments shall be made from time to time as shall be equitable to ensure that the Banks share such payment PRO RATA. Notwithstanding anything to the contrary contained herein, if a Bank shall obtain payment under any circumstances contemplated herein while any Obligations shall remain outstanding, such Bank shall promptly turn over such payment to Agent for distribution to the Banks on account of the Obligations as provided herein. Borrower and the Companies expressly consent to the foregoing arrangements and agree that any Bank or Banks holding (or deemed to be holding) a participation in any of the Loans or other Obligations may exercise any and all rights of banker's lien, setoff or counterclaim with respect to any and all monies owing by Borrower or any other Company to such Bank. Section 8.4 DISTRIBUTION OF INFORMATION. Agent will forward to all of the Banks copies of all financial statements and reports of a material nature furnished to it hereunder by Borrower or any Company other than those which are by the terms hereof to be distributed by Borrower or any such Company directly to the Banks. Section 8.5 NOTICE TO BANKS. Upon receipt by Agent from Borrower of any communication calling for an action on the part of the Banks (including, without limitation, a Notice of Loan Activity), or upon notice to Agent of any Default, Agent will in turn promptly give notice to the Banks in writing of the nature of such communication or of the Default, as the case may be. Section 8.6 LIABILITY OF AGENT. (a) Agent, when acting on behalf of the Banks, may execute any of its duties under this Agreement by or through its officers, directors, employees, attorneys or agents. All such officers, directors, employees, attorneys and agents, when exercising the rights or performing the duties of Agent, shall be deemed to be included in the term "Agent." Neither Agent nor its officers, directors, employees, attorneys or agents shall be liable to the Banks or any of them for any action taken or omitted to be taken in good faith, or be responsible to the Banks or to any of 56 them for the consequences of any oversight or error of judgment, or for any loss, unless the same shall happen through its gross negligence or willful misconduct. Agent and its officers, directors, employees, attorneys and agents shall in no event be liable to the Banks or to any of them for any action taken or omitted to be taken by it pursuant to instructions received by it from any of the Banks or in reliance upon the advice of counsel selected by it. Without limiting the foregoing, neither Agent nor any of its officers, directors, employees, attorneys or agents shall be responsible to any of the Banks for the due execution, validity, genuineness, effectiveness, sufficiency or enforceability of, or for any statement, warranty or representation in, or for the perfection of any Lien contemplated by, this Agreement or any other Loan Paper, or shall be required to ascertain or to make any inquiry concerning the performance or observance by Borrower or any Company of any of the terms, conditions, covenants or agreements of this Agreement or any other Loan Paper. (b) Neither Agent nor any of its officers, directors, employees, attorneys or agents shall have any responsibility to Borrower or any other Company on account of the failure or delay in performance or breach by any of the Banks, Borrower or any other Company of any of their respective obligations under this Agreement or any other Loan Paper. (c) Agent, as agent hereunder, shall be entitled to rely on any communication, instrument or document reasonably believed by it to be genuine or correct and to have been signed or sent by a person or persons believed by it to the proper person or persons, and it shall be entitled to rely on advice of legal counsel, independent public accountants and other professional advisers and experts selected by it. Section 8.7 REIMBURSEMENT AND INDEMNIFICATION. EACH OF THE BANKS AGREES (I) TO REIMBURSE AGENT, IN ACCORDANCE WITH SUCH BANK'S PRO RATA SHARE, FOR (A) EXPENSES, (B) INTERNAL CHARGES APPROVED BY THE REQUIRED BANKS OR (C) FEES INCURRED FOR THE BENEFIT OF THE BANKS UNDER THE LOAN PAPERS, INCLUDING COUNSEL FEES AND COMPENSATION OF AGENTS AND EMPLOYEES PAID FOR SERVICES RENDERED ON BEHALF OF THE BANKS, AND ANY OTHER EXPENSE INCURRED IN CONNECTION WITH THE PREPARATION, EXECUTION, ADMINISTRATION, MONITORING OR ENFORCEMENT THEREOF, (II) TO INDEMNIFY AND HOLD HARMLESS AGENT AND ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS OR AGENTS, ON DEMAND, FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST IT OR ANY OF THEM IN ANY WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN PAPER OR ANY ACTION TAKEN OR OMITTED BY IT OR ANY OF THEM UNDER THIS AGREEMENT OR ANY OTHER LOAN PAPER (EXCEPT SUCH AS SHALL RESULT FROM THEIR GROSS NEGLIGENCE OR WILLFUL MISCONDUCT) TO THE EXTENT NOT REIMBURSED BY BORROWER OR THE OTHER COMPANIES AND (III) THAT AGENT MAY OFFSET DISTRIBUTIONS OF PRINCIPAL, INTEREST AND FEES DUE TO A BANK BY THE AMOUNT OF UNREIMBURSED AMOUNTS DUE AND OWING IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION 9.7 IF SUCH BANK HAS NOT REIMBURSED OR INDEMNIFIED AGENT UPON A WRITTEN REQUEST BY AGENT FOR SUCH REIMBURSEMENT OR INDEMNIFICATION. 57 Section 8.8 RIGHTS OF AGENT. It is understood and agreed that Agent shall have the same rights, powers and obligations hereunder (including the right to give such instructions) as the other Banks and may exercise such rights and powers, as well as its rights and powers under other agreements and instruments to which it is or may be party, and engage in other transactions with Borrower or any other Company, as though it were not the Agent under this Agreement. Section 8.9 INDEPENDENT INVESTIGATION AND CREDIT DECISION BY BANKS. Each Bank acknowledges and agrees that it has decided to enter into this Agreement and to make extensions of credit hereunder based on its own analysis of (i) the transactions contemplated hereby, (ii) the creditworthiness of Borrower and the other Companies, (iii) this Agreement and the other Loan Papers and (iv) the business, legal and other issues relating thereto, and further acknowledges and agrees that Agent shall bear no responsibility therefor. Each Bank acknowledges and agrees that it will, independently and without reliance upon Agent or any other Bank, continue to make its own credit decisions and other decisions regarding the taking or not taking of any action under this Agreement or the other Loan Papers. Section 8.10 SUCCESSOR AGENT. Agent may resign at any time by giving at least two (2) Business Days' prior notice thereof to the Banks and Borrower. Agent may be removed at any time by the Required Banks upon at least thirty (30) days' prior notice by the Required Banks to Agent, Borrower and the Banks but only (i) for cause consisting of Agent's gross negligence or willful misconduct or (ii) following a declaration of the insolvency of Agent or the appointment of a receiver of Agent by appropriate federal or state regulators and if and only if, as a result thereof, Agent fails and, in the reasonable opinion of Borrower, Agent is not, within thirty (30) days thereafter, acquired by another financial institution that may reasonably be expected to adequately and properly perform the duties and obligations of Agent hereunder. Upon any such resignation or removal, the Required Banks shall have the right to appoint a successor Agent from among the Banks. If no successor Agent shall have been so appointed by the Required Banks and shall have accepted such appointment, within sixty (60) days after the retiring Agent's giving of notice of resignation, the retiring Agent may, on behalf of the Banks but with the consent of the Required Banks, which consent shall not be unreasonably withheld, appoint a successor Agent, which shall be either a Bank, or a commercial bank reasonably acceptable to Borrower organized under the Laws of the United States of America or of the State of Texas. If no such successor Agent is appointed due to a proposed successor Agent's reasonable unacceptability to Borrower or due to the failure of the Required Banks to consent to such proposed successor Agent, then Agent shall appoint a successor Agent from among the Banks after consulting with Borrower and the Banks, which successor Agent shall be obligated to accept such appointment. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Agent's resignation hereunder as Agent, the provisions of this ARTICLE VIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. 58 ARTICLE IX MISCELLANEOUS Section 9.1 PERFORMANCE BY AGENT AND THE BANKS. Should any covenant, duty or agreement of Borrower or any other Company fail to be performed in accordance with the terms of the Loan Papers, Agent or any Bank may, at its option, perform, or attempt to perform, such covenant, duty or agreement on behalf of any of the Companies. In such event, Borrower shall, at the request of Agent, promptly pay any amount expended by Agent or any such Bank in such performance or attempted performance to Agent, at Agent's principal office, together with interest thereon at the Highest Lawful Rate from the date of such expenditure by Agent or any such Bank until paid; provided that neither Agent nor any Bank assumes or shall ever, except by its express written consent, have any liability for the performance of any duties or obligations of Borrower or any of the Companies hereunder, or under or in connection with all or any part of the Collateral. Also in such event, Agent shall use its reasonable efforts to promptly notify Borrower of Borrower's or any other Company's failure to so perform, but Agent's failure to do so shall not result in any liability to it hereunder or affect the rights of Agent or any Bank under this SECTION 9.1. Section 9.2 WAIVERS. The acceptance by Agent or any Bank at any time and from time to time of part payment on the Obligations shall not be deemed to be a waiver of any Default then existing. No waiver by Agent or any Bank of any Default shall be deemed to be a waiver of any other then existing or subsequent Default. No delay or omission by Agent or any Bank in exercising any Right under the Loan Papers shall impair such Right, or be construed as a waiver thereof or any acquiescence therein, nor shall any single or partial exercise thereof, or the exercise of any other Right, preclude other or further exercise thereof, or the exercise of any other Right under the Loan Papers or otherwise. Section 9.3 CUMULATIVE RIGHTS. All rights hereunder shall be cumulative and in addition to all other rights granted to Agent or any Bank at Law, or in equity, or otherwise, and may be exercised from time to time, and as often as may be deemed expedient by Agent or any Bank, whether or not the Obligations are due and payable and whether or not Agent or any Bank has taken other action in connection with the Loan Papers. Section 9.4 OTHER RIGHTS AND REMEDIES. Agent and any Bank may, as between or among it and Borrower or any other Company, at any time and from time to time, at its discretion and with or without valuable consideration, allow substitution or withdrawal of Collateral without impairing or diminishing the obligations of Borrower and the other Companies under the Loan Papers. The exercise by Agent or any Bank of any right or remedy conferred on it by any collateral agreement, mortgage, deed of trust, chattel mortgage, assignment or other security instrument shall be wholly discretionary with it, and the exercise or failure to exercise any such right or remedy shall in no way impair or diminish the obligation of Borrower and the other Companies under the Loan Papers. Neither Agent nor any Bank shall be liable for failure to use diligence in the collection of the Obligations or in preserving the liability of any Person liable on the Obligations, and Borrower and each other Company hereby waive notice of nonpayment and diligence in bringing suits against any Person liable on the Obligations, or any part thereof. Borrower and each other Company 59 agree that Agent or any Bank, in its discretion as between or among it and Borrower or any other Company, may: (i) bring suit against Borrower and the other Companies jointly and severally or against any one or more of them; (ii) compound or settle with any one or more of Borrower and the other Companies for such consideration as it may deem proper; and (iii) release one or more of Borrower and the other Companies from liability under all or any part of the Obligations, and that no such action shall impair the rights of Agent or any Bank to collect the Obligations (or any part thereof) from Borrower or any other Company not so sued, compounded or settled with, or released. Section 9.5 EXPENDITURES OF AGENT AND BANKS. Any sums spent by Agent or any Bank pursuant to the exercise of any right provided herein shall become part of the Obligations and shall bear interest at the Highest Lawful Rate from the date spent until the date repaid by Borrower. Section 9.6 FORM AND NUMBER OF DOCUMENTS. Each opinion, certificate, resolution, deed of trust, mortgage, chattel mortgage, security agreement, assignment, lease, agreement, document, instrument or other writing or evidence to be furnished Agent or any Bank under any provision of this Agreement must be in form and substance and in such number of counterparts as may be satisfactory to Agent and its counsel and the Banks. Section 9.7 ACCOUNTING TERMS. All accounting and financial terms used herein, and the compliance with each covenant contained herein which relates to accounting or financial matters, shall be determined in accordance with GAAP, except to the extent that a deviation therefrom is expressly stated herein. Section 9.8 MONEY. Unless stipulated otherwise, all references herein to "DOLLARS," "$," "MONEY," "PAYMENTS," or other similar financial or monetary terms, are references to currency of the United States of America. Section 9.9 HEADINGS. The table of contents, headings, captions and arrangements used in any of the Loan Papers are, unless specified otherwise, for convenience only and shall not be deemed to limit, amplify or modify the terms of the Loan Papers, nor affect the meaning thereof. Section 9.10 ARTICLES, SECTIONS, EXHIBITS AND SCHEDULES. All references to "Article," "Articles," "Section," "Sections," "Subsection" or "Subsections" contained herein are, unless specifically indicated otherwise, references to articles, sections and subsections of this Agreement. All references to "Exhibits" and "Schedules" contained herein are references to exhibits or schedules, as the case may be, attached hereto, all of which are made a part hereof for all purposes, the same as if set forth herein verbatim, it being understood that if any exhibit or schedule attached hereto, which is to be executed and delivered, contains blanks, the same shall be completed correctly and in accordance with the terms and provisions contained and as contemplated herein prior to or at the time of the execution and delivery thereof. 60 Section 9.11 NUMBER AND GENDER OF WORDS. Whenever herein the singular number is used, the same shall include the plural where appropriate, and words of any gender shall include each other gender where appropriate. Section 9.12 BUSINESS DAY. As used herein, the expression (a) "NONBUSINESS DAY" means each day upon which commercial banks in the State of Texas are authorized by Law to remain closed, and (b) "BUSINESS DAY" means every day which is not a Nonbusiness Day. In any case, except as may otherwise be expressly provided herein to the contrary, where a payment of principal or interest on the Obligations is due on a Nonbusiness Day, Borrower shall be entitled to delay such payment until the next succeeding Business Day, but interest shall continue to accrue until the payment is, in fact, made. Section 9.13 NOTICES. All notices, requests and other communications to any party hereunder and under the other Loan Papers (except as may be expressly stated to the contrary therein) shall be in writing and shall be given to such party at its address set forth on the signature pages hereof or such other address as such party may hereafter specify for the purpose of notice to the other party. Each such notice, request or other communication shall be effective (i) if given by mail, forty-eight (48) hours after such communication is deposited in the mail with first class postage prepaid, addressed as aforesaid or (ii) if given by any other means, when delivered at the address specified in this Section; provided that any communications to Agent or any Bank shall not be deemed effective until actually received by it. Section 9.14 PARTIES BOUND. This Agreement shall be binding upon, and inure to the benefit of, Agent, the Banks, Borrower and the other Companies and their respective successors and assigns; provided that Borrower and the other Companies may not assign their rights or obligations under this Agreement without the prior written consent of Agent and the Banks. Each corporation, firm or other entity in which Borrower or any other Company hereafter acquires or otherwise owns a direct or indirect controlling interest (a "NEW ENTITY") shall automatically (unless otherwise agreed or determined unilaterally by Agent and the Banks in writing) be and become a "subsidiary," as that term is used in this Agreement, for all purposes, contemporaneously with such acquisition. Borrower shall promptly, and in any event within ten (10) days, after such acquisition, cause each New Entity to execute and deliver to Agent a Guaranty Agreement and a letter in the form of EXHIBIT F (Agreement of New Entity Exhibit) attached hereto. Borrower may thereafter request the Agent to release such New Entity from this Agreement, but each such release shall be wholly discretionary with Agent and the Banks. If Agent does, however, grant any such release or does not require such New Entity to execute and deliver the aforesaid documents, such New Entity shall thereafter, for the purposes of this Agreement, be treated as though it were not a Subsidiary hereunder and not affiliated in any manner whatsoever with Borrower or any other Company (except as may relate to such New Entity's status as an "Affiliate" hereunder), except to the extent specifically stated in such release or other agreement of Agent. Section 9.15 EXCEPTIONS TO COVENANTS. The Companies shall not be deemed to be permitted to take any action or fail to take any action which is permitted or not prohibited by any of the covenants contained herein if such action or omission would result in the breach of any other covenant contained herein or in the other Loan Papers. 61 Section 9.16 SUCCESSORS AND ASSIGNS. (a) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Neither Borrower nor any Company may assign or transfer any of its rights or obligations hereunder without the prior written consent of the Agent and all of the Banks. Any Bank may sell participations to one or more banks or other institutions in or to all or a portion of its rights and obligations under the Loan Papers (including, without limitation, all or a portion of its Commitment, the Loans owing to it and its interest in the Letters of Credit which it has made or in which it has a participating interest); provided, however, that (i) such Bank's obligations under the Loan Papers (including, without limitation, its Commitment) shall remain unchanged, (ii) such Bank shall remain solely responsible to Borrower for the performance of such obligations, (iii) such Bank shall remain the holder of its Notes and owner of its participation or other interests in Letter of Credit Liabilities for all purposes of any Loan Paper, (iv) Borrower shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under the Loan Papers, and (v) such Bank shall not sell a participation that conveys to the participant the right to vote or give or withhold consents under any Loan Papers, other than the right to vote upon or consent to (1) any increase of such Bank's Commitment, (2) any reduction of the principal amount of, or interest to be paid on, the Loans or other Obligations of such Bank, (3) any reduction of any commitment fee, letter of credit fee, or other amount payable to such Bank under any Loan Paper, or (4) any postponement of any date for the payment of any amount payable in respect of the Loans or other Obligations of such Bank. (b) Any Bank (the "Assigning Bank") may at any time assign to one or more commercial banks, savings and loan association, savings bank, finance company, insurance company, pension fund, mutual fund, or other financial institution (whether a corporation, partnership, or other entity) (herein an "Eligible Assignee") all, or a proportionate part of all, of its rights and obligations under the Loan Papers (including, without limitation, its obligations under Section 2.1 and its Loans and participation interests) (each an "Assignee"); provided, however, that (i) each such assignment shall be of a consistent, and not a varying, percentage of all of the Assigning Bank's rights and obligations under the Loan Papers, (ii) except in the case of an assignment of all of a Bank's rights and obligations under the Loan Papers, the amount of the Commitment of the assigning Bank being assigned pursuant to each assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than Five Million Dollars ($5,000,000), (iii) the parties to each such assignment shall execute and deliver to the Agent for its acceptance and recording in the Register (as defined below), an Assignment and Acceptance, together with the Notes subject to such assignment, and a processing and recordation fee of Three Thousand Dollars ($3,000) payable by the assignor or assignee (and not any Borrower); and (iv) Parent and Agent must consent to such assignment, which consent shall not be unreasonably withheld, with such consents to be evidenced by the Parent's and the Agent's execution of the Assignment and Acceptance. Upon such execution, delivery, acceptance, and recording, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least five (5) Business Days after the execution thereof, or, if so specified in such Assignment and Acceptance, the date of acceptance thereof by Agent, (x) the 62 Assignee thereunder shall be a party hereto as a "Bank" and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Bank hereunder and under the Loan Papers and (y) the Assigning Bank shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under the Loan Papers (and, in the case of an Assignment and Acceptance covering all or the remaining portion of a Bank's rights and obligations under the Loan Papers, such Bank shall cease to be a party thereto). (c) Agent shall maintain a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Banks and the Commitments of, and principal amount of the Loans owing to and Letters of Credit participated in by, each Bank from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and Borrower, Agent, and the Banks may treat each Person whose name is recorded in the Register as a Bank hereunder for all purposes under the Loan Papers. The Register shall be available for inspection by Parent or any Bank at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of an Assignment and Acceptance executed by an Assigning Bank and Assignee representing that it is an Eligible Assignee, together with any Notes subject to such assignment, Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of EXHIBIT G hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register, and (iii) give prompt written notice thereof to Parent. Within five (5) Business Days after its receipt of such notice Borrower, at their expense, shall execute and deliver to Agent in exchange for the surrendered Notes (including the Swingline Note, (if applicable) new Revolving Credit Notes to the order of such Eligible Assignee in an amount equal to the Commitment assumed by it pursuant to such Assignment and Acceptance and, if the Assigning Bank has retained a Commitment, a Revolving Credit Note to the order of the Assigning Bank in an amount equal to the Commitment retained by it hereunder (each such promissory note shall constitute a "Revolving Credit Note" for purposes of the Loan Papers). Such new Revolving Credit Notes shall be in an aggregate principal amount of the surrendered Revolving Credit Note, shall be dated the effective date of such Assignment and Acceptance, and shall otherwise be in substantially the form of EXHIBIT C hereto. (e) Any Bank may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section, disclose to the assignee or participant or proposed assignee or participant, any information relating to Borrower and the Companies furnished to such Bank by or on behalf of such Company. Section 9.17 EFFECT OF INVESTIGATIONS. All covenants, agreements, undertakings, representations and warranties made in any of the Loan Papers shall survive all closings under the Loan Papers and, except as otherwise indicated, shall not be affected by any investigation made by any party. 63 Section 9.18 GOVERNING LAW. THE LOAN PAPERS ARE BEING EXECUTED AND DELIVERED, AND ARE INTENDED TO BE PERFORMED, IN THE STATE OF TEXAS, AND THE LAWS OF SUCH STATE SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF THE LOAN PAPERS, EXCEPT TO THE EXTENT OTHERWISE SPECIFIED IN ANY OF THE LOAN PAPERS. CHAPTER 346 OF THE TEXAS FINANCE CODE SHALL NOT APPLY TO THE REVOLVING CREDIT LOANS. Section 9.19 MAXIMUM INTEREST RATE. (a) No interest rate specified in this Agreement or any other Loan Paper shall at any time exceed the Highest Lawful Rate. If at any time the interest rate (the "CONTRACT RATE") for any Obligation shall exceed the Highest Lawful Rate, thereby causing the interest accruing on such Obligation to be limited to the Highest Lawful Rate, then any subsequent reduction in the Contract Rate for such Obligation shall not reduce the rate of interest on such Obligation below the Highest Lawful Rate until the aggregate amount of interest accrued on such Obligation equals the aggregate amount of interest which would have accrued on such Obligation if the Contract Rate for such Obligation had at all times been in effect. (b) Notwithstanding anything to the contrary contained in this Agreement or the other Loan Papers, none of the terms and provisions of this Agreement or the other Loan Papers shall ever be construed to create a contract or obligation to pay interest at a rate in excess of the Highest Lawful Rate; and neither any Agent nor any Bank shall ever charge, receive, take, collect, reserve or apply, as interest on the Obligations, any amount in excess of the Highest Lawful Rate. The parties hereto agree that any interest, charge, fee, expense or other obligation provided for in this Agreement or in the other Loan Papers which constitutes interest under applicable Law shall be, IPSO FACTO and under any and all circumstances, limited or reduced to an amount equal to the lesser of (i) the amount of such interest, charge, fee, expense or other obligation that would be payable in the absence of this SECTION 9.19(b) or (ii) an amount, which when added to all other interest payable under this Agreement and the other Loan Papers, equals the Highest Lawful Rate. If, notwithstanding the foregoing, any Agent or any Bank ever contracts for, charges, receives, takes, collects, reserves or applies as interest any amount in excess of the Highest Lawful Rate, such amount which would be deemed excessive interest shall be deemed a partial payment or prepayment of principal of the Obligations and treated hereunder as such; and if the Obligations, or applicable portions thereof, are paid in full, any remaining excess shall promptly be paid to the Borrower, Parent or Subsidiary (as appropriate). In determining whether the interest paid or payable, under any specific contingency, exceeds the Highest Lawful Rate, the parties hereto shall, to the maximum extent permitted by applicable Law, (i) characterize any nonprincipal payment as an expense, fee or premium rather than as interest, (ii) exclude voluntary prepayments and the effects thereof, and (iii) amortize, prorate, allocate and spread in equal or unequal parts the total amount of interest throughout the entire contemplated term of the Obligations, or applicable portions thereof, so that the interest rate does not exceed the Highest Lawful Rate at any time during the term of the Obligations; PROVIDED THAT, if the unpaid principal balance is paid and performed in full prior to the end of the full contemplated term thereof, and if the interest received for the actual period of existence thereof exceeds the Highest Lawful Rate, the Agent and/or the Banks, as appropriate, shall refund to the applicable Person the amount of such excess and, in such event, the Agent and the Banks shall not be subject to any penalties provided by any Laws for contracting for, charging, receiving, taking, collecting, reserving or applying interest in excess of the Highest Lawful Rate. 64 (c) Pursuant to Article 15.10(b) of Chapter 15, Subtitle 79, Revised Civil Statutes of Texas 1925, as amended, each of the Borrower, the Parent and the Subsidiaries agrees that such Chapter 15 (which regulates certain revolving credit loan accounts and revolving tri-party accounts) shall not govern or in any manner apply to the Obligations. Section 9.20 INVALID PROVISIONS. If any provision of any of the Loan Papers is held to be illegal, invalid or unenforceable under present or future Laws effective during the term thereof, such provision shall be fully severable; the appropriate Loan Papers shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part thereof; and the remaining provisions thereof shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance therefrom. Furthermore, in lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as a part of such Loan Papers a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable. Section 9.21 ENTIRETY AND AMENDMENTS. This Agreement embodies the entire agreement between or among the parties relating to the subject matter hereof, supersedes all prior term sheets, discussions, agreements and understandings, if any, relating to the subject matter hereof, and, except as provided below, neither this Agreement nor any provision hereof or of any of the Loan Papers may be waived, amended or modified except by an agreement in writing executed jointly by any authorized officer of each Company and each of the Required Banks, and the same may be supplemented only by documents delivered or to be delivered in accordance with the express terms hereof, PROVIDED HOWEVER, that, without the prior written consent of each of the Banks, no such agreement shall (i) amend, or in any manner change the manner of calculation of, the Borrowing Base; (ii) change the principal amount of, or extend the maturity of or any date for the payment of any principal of or interest on any Loan or Letter of Credit, or waive or excuse any such payment or any part thereof, or change the rate of interest on any Loan or Letter of Credit (other than any such change in the rate of interest resulting from a change in the Base Rate in accordance with the definition of such term), (iii) change or amend the Commitment or obligations of any Bank, the provisions of this Section, or the definition of the "Required Banks", (iv) waive any condition precedent to the making of any Loan or the issuance of any Letter of Credit, (v) release any Guaranty Agreement or any Collateral securing any of the Obligations, (vi) change any fee payable to Agent or any Bank, or (vii) increase the Commitments; PROVIDED, FURTHER, that no such agreement shall amend, modify or otherwise affect the rights or duties of Agent hereunder without the prior written consent of Agent. Each Bank and each holder of a Note shall be bound by any waiver, amendment or modification authorized by this Section regardless of whether its Note shall have been marked to make reference thereto, and any consent by any Bank or holder of a Note pursuant to this Section shall bind any person subsequently acquiring a Note from it, whether or not such Note shall have been so marked. Section 9.22 SURVIVAL OF REPRESENTATIONS. All representations and warranties of Borrower and the other Companies contained in this Agreement shall survive the making of the Loans, Advances and Letters of Credit herein contemplated. 65 Section 9.23 SETOFF. In addition to, and without limitation of, any rights of Agent and the Banks under applicable Law, if Borrower or any other Company becomes insolvent or any Default occurs, Agent and the Banks may apply any and all money or property held for or owed to any of the Companies against the portion of the Obligations owed hereunder. Section 9.24 MULTIPLE COUNTERPARTS. This Agreement may be executed in a number of identical counterparts, each of which, for all purposes, is to be deemed an original and all of which constitute, collectively, one agreement; however, in making proof of this Agreement, it shall not be necessary to produce or account for more than one such counterpart. Section 9.25 TERM OF AGREEMENT. This Agreement shall continue until the Notes and all other Obligations shall have each been paid and performed in full and until all other liabilities and obligations of Borrower and the other Companies under this Agreement and the other Loan Papers shall have been fully satisfied and the Banks shall have no further obligation to make Loans or issue Letters of Credit hereunder. Section 9.26 NO ORAL AGREEMENTS. THIS AGREEMENT, TOGETHER WITH THE OTHER LOAN PAPERS AS WRITTEN, REPRESENT THE FINAL AGREEMENTS AMONG AGENT, THE BANKS, BORROWER AND THE OTHER COMPANIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN OR AMONG AGENT AND BORROWER OR ANY OTHER COMPANY, OR BETWEEN OR AMONG ANY BANK AND BORROWER OR ANY OTHER COMPANY. Section 9.27 AMENDMENT AND RESTATEMENT. This Agreement shall constitute an amendment and restatement of, but not an extinguishment of the Obligations (as defined in the Existing Agreement) outstanding under, the Existing Agreement. Section 9.28 AGREEMENT FOR BINDING ARBITRATION. The parties agree to be bound by the terms and provisions of the Arbitration Program, a copy of which is attached hereto as EXHIBIT H, and which is incorporated by reference herein and is acknowledged as received by the parties pursuant to which any and all disputes shall be resolved by mandatory binding arbitration upon the request of any party. 66 EXECUTED as of the day and year first herein stated. WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION Individually and as Agent By: /s/ Craig Scheef --------------------------- Name: Craig Scheef Title: Vice President P.O. Box 650291 3rd Floor, Fountain Place 1445 Ross Avenue Dallas, Texas 75202 (Street Address) 75265-0291 (P. 0. Address) Fax: (214) 969-0370 APPLICABLE LENDING OFFICE: ------------------------- 201 3rd Street, 8th Floor San Francisco, CA 67 CHASE BANK OF TEXAS, NATIONAL ASSOCIATION By: /s/ Bruce R. Bradford -------------------------------- Name: Bruce R. Bradford ------------------------------ Title: Vice President ----------------------------- ADDRESS FOR NOTICES AND APPLICABLE LENDING OFFICE: ------------------------------------------- P.O. Box 660197 5th Floor, Texas Commerce Tower 2200 Ross Avenue Dallas, Texas 75201 (Street Address) 75266-0197 (P. 0. Address) Fax:_______________________ FLEET NATIONAL BANK By: /s/ Katherine Brand -------------------------------- Name: Katherine Brand Title: Vice President ADDRESS FOR NOTICES AND APPLICABLE LENDING OFFICE: ------------------------------------------- 100 Federal Street 1-15-3 Boston, MA 02110 69 FFE TRANSPORTATION SERVICES, INC. By: /s/ Thomas G. Yetter -------------------------------- Name: Thomas G. Yetter ------------------------------ Title: Vice President - Finance ----------------------------- 1145 Empire Central Place Dallas, Texas 75247 FROZEN FOOD EXPRESS INDUSTRIES, INC. By: /s/ Thomas G. Yetter -------------------------------- Name: Thomas G. Yetter ------------------------------ Title: Treasurer ----------------------------- 1145 Empire Central Place Dallas, Texas 75247 FFE, INC. By: /s/ Thomas G. Yetter -------------------------------- Name: Thomas G. Yetter ------------------------------ Title: Vice President ----------------------------- 1145 Empire Central Place Dallas, Texas 75247 CONWELL CORPORATION By: /s/ Thomas G. Yetter -------------------------------- Name: Thomas G. Yetter ------------------------------ Title: Vice President ----------------------------- 1145 Empire Central Place Dallas, Texas 75247 70 W & B REFRIGERATION SERVICE COMPANY By: /s/ F. Dixon McElwee Jr. -------------------------------- Name: F. Dixon McElwee Jr. ------------------------------ Title: Senior Vice President ----------------------------- 1145 Empire Central Place Dallas, Texas 75247 LISA MOTOR LINES, INC. By: /s/ Leonard W. Bartholomew -------------------------------- Name: Leonard W. Bartholomew ------------------------------ Title: Secretary ----------------------------- 1145 Empire Central Place Dallas, Texas 75247 FROZEN FOOD EXPRESS, INC. By: /s/ F. Dixon McElwee Jr. -------------------------------- Name: F. Dixon McElwee Jr. ------------------------------ Title: Senior Vice President ----------------------------- 1145 Empire Central Place Dallas, Texas 75247 CONWELL CARTAGE, INC. By: /s/ Leonard W. Bartholomew -------------------------------- Name: Leonard W. Bartholomew ------------------------------ Title: Secretary ----------------------------- 1145 Empire Central Place Dallas, Texas 75247 71 MIDDLETON TRANSPORTATION COMPANY By: /s/ F. Dixon McElwee Jr. -------------------------------- Name: F. Dixon McElwee Jr. ------------------------------ Title: Senior Vice President ----------------------------- 1145 Empire Central Place Dallas, Texas 75247 COMPRESSORS PLUS, INC. By: /s/ Leonard W. Bartholomew -------------------------------- Name: Leonard W. Bartholomew ------------------------------ Title: Secretary ----------------------------- 1145 Empire Central Place Dallas, Texas 75247 72 EX-10.8 3 1999 EXECUTIVE BONUS AND PHANTOM STOCK PLAN FFE TRANSPORTATION SERVICES, INC. 1999 EXECUTIVE BONUS AND PHANTOM STOCK PLAN This Executive Bonus and Phantom Stock Plan (hereafter this "Plan"), dated as of January 1, 1999 (the "Effective Date"), by FFE Transportation Services, Inc., a Delaware corporation ("FFE") which is a wholly-owned subsidiary of FFE, Inc. ("Inc."), a Delaware corporation which is a wholly-owned subsidiary of Frozen Food Express Industries, Inc. ("Industries"), a Texas corporation, for the benefit of certain officers of FFE. PURPOSE ------- FFE has established this Plan for the benefit of specified officers of FFE in order to enhance the benefits to the covered officers, allow the officers to share in the growth of FFE through the appreciation in the value of the common stock of Industries, and to provide the officers with greater incentive to promote the growth of Industries' shareholder value. The purpose of the Plan is to align the financial interests of key officers of FFE with those of Industries' shareholders through the use of awards, payable in cash and units tied to the value of the common stock of Industries, upon the attainment of predetermined performance goals. TERMS ----- 1. DEFINITIONS. For the purposes of this Plan, the following terms shall have the meanings set forth below: (a) The term "Allocated Phantom Shares" shall mean all Phantom Shares allocated by FFE to the Participants as herein provided. (b) The term "Committee" shall mean a committee of the Board of Directors of Industries, which shall consist of not less than two persons who are "Non-Employee Directors" as defined in Rule 16b-3(b)(3) under the Securities Exchange Act of 1934 and who meet such additional criteria as the Board of Directors of Industries shall determine so that any incentive bonuses paid pursuant to this Plan shall be exempt from the limitation set forth in Section 162(m) of the Internal Revenue Code of 1986, as amended. (c) The term "Compensation" shall mean a Participant's base compensation (as determined by the Committee) for the specified period and shall exclude any non-recurring compensation such as bonus payments. (d) The term "Disability" shall mean any condition which causes the Participant to fail to devote his full time and reasonable best efforts to the performance of his duties and responsibilities for a period of in excess of ninety (90) consecutive days. (e) The term "Election Period" shall mean the period of November 15 to November 30 inclusive for each year. (f) The term "Fair Market Value" shall mean such amount as the Board of Directors of Industries, in its sole discretion, shall determine; provided, however, that if there is a public market for the securities, the Fair Market Value shall be the closing sales price of the securities per share or unit, as the case may be, as reported in the Wall Street Journal (or, if not so reported, as otherwise reported by the National Association of Securities Dealers Automated Quotation System) as of the date in question or, in the event the securities are listed on a stock exchange, the Fair Market Value shall be the closing sales price of the securities per share or unit, as the case may be, on such exchange, as reported in the Wall Street Journal, as of the date in question. (g) The term "Operating Ratio" shall mean with respect to any particular Participant, the ratio of Industries', or one or more of its operating entities' or groups', as set forth on Exhibit A attached to this Plan, operating expenses to operating revenues for the applicable fiscal year, as adjusted by the Committee for such specific items, if any, that the Committee in its sole discretion deems appropriate. (h) The term "Participant" shall mean each officer of FFE, including without limitation any officer of Industries that is an officer of FFE, whose name is set forth on Exhibit A. (i) The term "Participant's Allocated Phantom Shares" shall mean the Allocated Phantom Shares allocated by FFE to a specific Participant's account as provided in this Plan. (j) The term "Participant's Relative Percentage" shall mean at any point in time the fraction, expressed as a percentage, in which the numerator is the number of the Participant's Allocated Phantom Shares at such time and the denominator is the sum of the total number of shares of issued and outstanding Stock at such point in time plus the total number of Allocated Phantom Shares at such point in time. (k) The term "Phantom Share" shall mean a unit the value of which is tied to the value of a share of Stock which will carry with it certain rights and benefits as described more particularly herein but which will not entitle the holder thereof either to equity rights in FFE, Inc. or Industries or to any type of voting rights in FFE, Inc. or Industries. (1) The term "Reorganization" shall mean any capital reorganization of Industries, other than pursuant to a transaction provided for in Section 4 below, or the consolidation or merger of Industries with or into another corporation (other than a consolidation or merger in which Industries is the continuing corporation and which does not result in any reclassification of the outstanding shares of Stock or the conversion of such outstanding shares of Stock into shares of other stock or other securities or property), or the sale of the property of Industries as an entirety or substantially as an entirety. (m) The term "Triggering Event" shall mean any one of the following: (i) The termination of the Participant's employment. (ii) The death of the Participant or the Participant becoming subject to a Disability. (iii) The close of a calendar year for those Phantom Shares held for one year or longer, unless the Participant has made a written election to defer within the Election Period. (iv) A Change in Control (as defined in Treasury regulations promulgated under Internal Revenue Code Section 280G) with respect to Industries. (n) The term "Stock" shall mean the common stock of Industries and shall not include any Phantom Shares. 2. DETERMINATION OF BONUS. With respect to each fiscal year commencing with fiscal year 1999, each Participant shall be entitled to an incentive bonus ("Bonus") calculated pursuant to a formula determined on the basis of such Participant's Operating Ratio targets and specified percentages of such Participant's Compensation, if the Committee certifies that the applicable target has been obtained. The targets and percentages for all Participants are shown on Exhibit A attached to this Plan. On or before the last day of any fiscal year, the Committee may, in its sole discretion, redetermine who will be a Participant (provided that such person must be an officer of FFE) for the subsequent fiscal year and the Operating Ratio targets and percentages to be used to calculate the Participants' Bonuses for the subsequent fiscal year by amending Exhibit A attached to this Plan. 3. PAYMENT OF BONUS AND PHANTOM SHARES. (a) Each Participant's Bonus for any fiscal year shall be paid by FFE to such Participant as soon as practicable after the consolidated financial statements of Industries for such fiscal year have been prepared. 2 (b) In addition to the payment of any Bonus to a Participant, FFE shall allocate, for the benefit of each Participant, Phantom Shares. The number of Phantom Shares shall be equal to 50% of the amount of the Participant's Bonus for that fiscal year divided by the applicable Phantom Share Value. The applicable Phantom Share Value shall mean the amount that is the lower of (i) the Fair Market Value of a share of Stock as of the last business day of the fiscal year immediately preceding the fiscal year for which the Participant's Bonus was awarded and (ii) the average of the Fair Market Values of a share of Stock as of the last business day of each calendar month of the fiscal year for which the Participant's Bonus was awarded. (c) Each Phantom Share shall be allocated to a Participant as of the last business day of the fiscal year for which the Participant's Bonus was awarded and shall be allocated to his individual Participant account and held and maintained by FFE as an Allocated Phantom Share for the benefit of the Participant. (d) If the specified bonus percentage for a Participant's Operating Ratio for any fiscal year is a negative number, no award for that fiscal year will be made. Rather, the Committee shall have the option to reduce each Participant's Compensation for the next calendar year, or for such other period as the Committee may determine, by such percentage. 4. ADJUSTMENT TO NUMBER OF PHANTOM SHARES. (a) For the purpose of this Plan, the number of the Participant's Allocated Phantom Shares shall be the number of Phantom Shares held and maintained by FFE for such Participant as provided in Section 3 above, as said number may be adjusted from time to time in accordance with the provisions of this Section 4. (b) In case Industries shall (i) declare a dividend or make a distribution on the outstanding shares of Stock in additional shares of Stock, (ii) subdivide or reclassify the outstanding shares of Stock into a greater number of shares of Stock, or (iii) combine or reclassify the outstanding shares of Stock into a lesser number of shares of Stock, the number of the Participant's Allocated Phantom Shares shall be adjusted immediately after the record date for such dividend or distribution or the effective date of such subdivision, combination, or reclassification, so that such number is increased or decreased by multiplying such number as it existed immediately before such record date or effective date by a fraction, the numerator of which shall be the number of shares of Stock outstanding immediately after such dividend, distribution, subdivision, combination, or reclassification, and the denominator of which shall be the number of shares of Stock outstanding immediately before such dividend, distribution, subdivision, combination, or reclassification. (c) In case Industries shall issue rights or warrants to all holders of Stock entitling them to subscribe for or purchase shares of Stock at a price per share less than the Fair Market Value of a share of Stock as of the date of the issuance of such rights or warrants, the number of the Participant's Allocated Phantom Shares shall be increased by an amount equal to the Participant's Relative Percentage of the total number of Bonus Shares (hereafter defined) that would be acquired upon exercise of such rights or warrants. For the purposes hereof, Bonus Shares shall mean the total number of shares of Stock that would be acquired upon exercise of such rights or warrants less the number of shares of Stock that could have been purchased for the amount expended in exercise of such rights or warrants if such shares of Stock were purchased at a price per share equal to the Fair Market Value of a share of Stock as of the date of the issuance of such rights or warrants. (d) In case Industries shall sell or issue shares of Stock, other types of equity securities, or rights, options, warrants, or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Stock or other types of equity securities in any transaction other than those described above in this Section 4, the Participant shall not have any right by virtue of this Plan to purchase or acquire any such shares of Stock or other types of equity securities, or any such rights, options, warrants, or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Stock or other types of equity securities, and such sale or issuance shall not result in any adjustment in the number of the Participant's Allocated Phantom Shares, notwithstanding that as a result of such sale or issuance such Participant's Relative Percentage may then or thereafter be reduced. (e) In case Industries shall fix a record date for the payment of a cash dividend to all holders of shares of Stock, then, if the Operating Ratio applicable to such Participant for the fiscal year which includes such record date is less than 96 percent, the number of the Participant's Allocated Phantom Shares shall be increased as of the end of such fiscal year by an amount equal to the quotient of (a) the product of the number of such Participant's Allocated Phantom Shares on such record date and the amount of such dividend payable on one share of Stock and (b) the Fair Market Value of a share of Stock on such record date. 3 (f) If the Operating Ratio applicable to such Participant for the fiscal year ended December 31, 1999 is less than 96 percent and the Committee certifies thereto, the number of the Participant's Allocated Phantom Shares shall be increased as of the end of such fiscal year by the amount set forth opposite the name of such Participant on Exhibit B attached to this Plan. 5. PAYMENT OF PHANTOM SHARE VALUE. (a) In the event of the occurrence of a Triggering Event described in clause (i), (iii), or (iv) of Subsection 1(m) above (an "Optional Triggering Event"), FFE shall, unless the Participant elects in writing prior to December 1 of the year in which the Optional Triggering Event occurs for those Optional Triggering Events described in clause (iii) and the 30th day after the date on which the Optional Triggering Event occurs for those Optional Triggering Events described in clauses (i) and (iv), pay to the Participant, within thirty (30) days following the close of the calendar year in which the Optional Triggering Event occurs, the product of the greater of (i) the Fair Market Value of a share of Stock as of the last business day of the calendar year in which such Triggering Event occurs and (ii) the average of the Fair Market Values of a share of Stock as of the first and last business days of the calendar year in which such Triggering Event occurs multiplied by the number of such Participant's Allocated Phantom Shares (or, in the case of a Triggering Event specified in clause (iii) of Subsection 1(m), such lesser number of the Participant's Allocated Phantom Shares as the Participant did not elect to defer in writing within the Election Period). In the event of the occurrence of a Triggering Event described in clause (ii) of Subsection 1(m) above (a "Mandatory Triggering Event"), FFE shall, within thirty (30) days following the close of the calendar year in which the Mandatory Triggering Event occurs, terminate all rights of the Participant under this Plan by paying to the Participant the product of the greater of (i) the Fair Market Value of a share of Stock as of the last business day of the calendar year in which such Triggering Event occurs and (ii) the average of the Fair Market Values of a share of Stock as of the first and last business days of the calendar year in which such Triggering Event occurs multiplied by the number of such Participant's Allocated Phantom Shares. In any event, such payment shall be made in a single lump sum, and, except as contemplated by Subsection 5(b) below, all rights of the Participant with respect to the Phantom Shares for which he received payment pursuant to this Subsection 5(a) shall terminate. (b) In the event that Industries consummates a Reorganization within six (6) months after the date that the Participant elects to be paid or FFE becomes obligated (other than due to the death of the Participant or the Participant becoming subject to a Disability) to pay the Participant for some or all of such Participant's Allocated Phantom Shares in accordance with Subsection 5(a) above, and as a result of such Reorganization all holders of Stock receive cash for each share of Stock held immediately prior to consummation of the Reorganization in excess of the amount which FFE is obligated to pay to the Participant for the Participant's Allocated Phantom Shares pursuant to Subsection 5(a) above, then the amount payable to the Participant pursuant to Subsection 5(a) above shall be increased by an amount equal to the product of such excess and the number of such Participant's Allocated Phantom Shares (or such lesser number as the Participant did not elect to defer in accordance with Subsection 5(a)), and such increase shall be paid to the Participant. (c) If the Operating Ratio applicable to a Participant for the fiscal year ending December 31, 1999 is less than 96 percent and the Committee certifies thereto, then such Participant will be entitled to receive a special unit ("Special Unit"). The Special Unit will entitle the holder thereof to receive an amount payable by FFE to such Participant (simultaneously with any payment under the FFE Transportation Services Inc. Executive Bonus and Phantom Stock Plan dated as of January 1, 1994 (the "Old Plan") in respect of a Phantom Share ("Old Plan Phantom Share") previously issued under the Old Plan to such Participant) equal to the difference between the amount that would have been paid by FFE for an Allocated Phantom Share pursuant to this Plan and the amount paid by FFE to the Participant for such Old Plan Phantom Share under the Old Plan. 6. NON-TRANSFERABILITY. Neither the Phantom Shares, the Special Units nor any rights and benefits granted in this Plan may be transferred, assigned, pledged, or hypothecated in any manner, by operation of law or otherwise, other than by will or by the laws of descent or distribution or pursuant to a qualified domestic relations order as defined by the Internal Revenue Code of 1986, as amended ("Internal Revenue Code"), or Title I of the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder, and shall not be subject to execution, attachment, or similar process. 4 7. NO FIDUCIARY RELATIONSHIP. The Boards of Directors and the officers of FFE, Industries and Inc. shall have no duty to manage or operate in order to maximize the benefits granted to the Participants hereunder, but rather shall have full discretionary power to make all management and operational decisions based on their determination of their respective best interest. This Plan shall not be construed to create a fiduciary relationship between such Boards or the officers of FFE, Industries or Inc. and the Participant. 8. GOVERNING LAW. This Plan shall be governed by and construed in accordance with the laws of the State of Texas. 9. NO EMPLOYMENT GUARANTEE. Nothing in this Plan shall be construed as an employment contract or a guarantee of continued employment. The rights of any Participant shall only be those as are expressly set forth in this Plan. 10. ADMINISTRATION. The Committee shall administer this Plan and shall have the authority, in its sole and absolute discretion, (a) to adopt, amend and rescind administrative and interpretative rules and regulations relating to the Plan, (b) to determine the Participants and the terms under which they may participate in this Plan, (c) to make all other determinations, perform all other acts, and exercise all other powers and authority necessary or advisable for administering the Plan, including the delegation of those ministerial acts and responsibilities as the Committee deems appropriate. 11. TAXES. FFE shall be entitled to deduct from amounts payable hereunder any sums required by federal, state, or local tax law to be withheld with respect to such payments. 12. MAXIMUM NUMBER OF PHANTOM SHARES. Notwithstanding any provision of this Plan to the contrary, no Phantom Share or Special Unit may be allocated to any Participant if, as a result of such allocation, the aggregate number of Allocated Phantom Shares and Special Units exceeds (and FFE shall have no obligation to allocate Phantom Shares or Special Units to a Participant if such allocation would cause such number to exceed) a number representing five percent of the total outstanding shares of Stock at the time in question. 13. AMENDMENT. In addition to the amendments to this Plan contemplated by Section 2, the Board of Directors may amend or terminate this Plan in its sole discretion. 14. GENERAL CREDITOR STATUS. The Participants shall, in no event, be regarded as standing in any position, if at all, other than as a general creditor of FFE with respect to any rights derived from the existence of this Plan and shall receive only FFE's unfunded and unsecured promise to pay benefits under this Plan. 15. CAPTIONS. The captions in this Plan are inserted for convenience of reference only and in no way define, describe or limit the scope or intent of this Plan or any of the provisions hereof. 16. SEVERABILITY. If any provision of this Plan is held to be illegal, invalid or unenforceable under present or future laws, such provision shall be fully severable and shall not invalidate the remaining provisions of this Plan, and the remaining provisions of this Plan shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Plan. 17. COSTS. All expenses and costs incurred in connection with the operation of this Plan shall be borne by FFE. 5 EX-10.9 4 401K SAVING PLAN FROZEN FOOD EXPRESS INDUSTRIES, INC. 401(K) SAVINGS PLAN ARTICLE ONE ----------- PURPOSE SECTION 1.1. INTRODUCTION. Frozen Food Express Industries, Inc., a Texas corporation, (hereinafter referred to as "Employer") previously established the Savings Plan for Employees of Frozen Food Express (the "Prior Plan") as a 401(k) Profit Sharing Plan for the exclusive benefit of its eligible Employees and their Beneficiaries. FFE Transportation Services, Inc. and Conwell Corporation previously established the FFE Transportation Services, Inc. Employee Stock Ownership Plan (the "FFE Transportation Services ESOP") and the Conwell Corporation Employee Stock Ownership Plan (the "Conwell ESOP"), respectively, for the exclusive benefit of their eligible Employees and their Beneficiaries. Pursuant to that certain Plan Merger Agreement effective December 31, 1999, the Prior Plan is hereby restated as the Frozen Food Express Industries, Inc. 401(k) Savings Plan (the "Plan") and incorporates the FFE Transportation Services ESOP and the Conwell ESOP accounts as ESOP Accounts. As restated, the Plan is intended to be qualified under Sections 401(a), 401(k), and 4975(e)(7) of the Internal Revenue Code of 1986, as amended (the "Code"), and Section 407(d)(6) of the Employee Retirement Income Security Act ("ERISA") and applicable regulations thereunder. The restated Plan is generally effective January 1, 2000, except as otherwise provided herein. The Plan consists of the Plan document herein and the separate Trust Agreement. SECTION 1.2. PURPOSE. The purpose of the Plan is to reward eligible Employees for their loyal and faithful service, to share with such Employees a portion of the Employers' profits, to help such Employees accumulate funds for their retirement, and to provide funds for such Employees or their Beneficiaries in the event of death or disability. The benefits provided by the Plan will be paid from the Trust and will be in addition to the benefits eligible Employees are entitled to receive under any other programs of the Employer and/or from the federal Social Security Act. The Plan and the Trust are established and shall be maintained for the exclusive benefit of the eligible Employees and their Beneficiaries. SECTION 1.3. LIMITATION. The provisions of this Plan, as amended and restated, shall apply solely to an Employee who terminates employment with the Employer on or after the restated Effective Date of this Plan. If an Employee terminates employment with the Employer prior to the restated Effective Date, that Employee shall be entitled to benefits under the terms of the Prior Plan, the FFE Transportation Services ESOP, or the Conwell ESOP, as applicable. * * * * * * * 1 ARTICLE TWO ----------- DEFINITIONS When used herein, the following words and phrases shall have the respective meanings set forth below, unless the context clearly indicates otherwise: SECTION 2.1. ACCOUNTING DATE means the last business day of each calendar quarter of any Plan Year. SECTION 2.2. ACCOUNTS means the value of all of the accounts maintained by the Committee for a particular Participant, including his Discretionary Employer Contribution Account, Matching Employer Contribution Account, Rollover Account, Savings Account, W & B Plan Rollover Account, ESOP Transfer Account, and ESOP Rollover Account. SECTION 2.3. ADMINISTRATOR means the Committee designated by the Employer unless the Employer designates another person to hold the position of Administrator by written Employer action. SECTION 2.4. AFFILIATE means any company, other than an Employer, included within a "controlled group of corporations" defined by Code Section 1563(a) determined without regard to Code Sections 1563(a)(4) and (e)(3)(C) and Code Section 409(l)(4), which contains an Employer. SECTION 2.5. ALTERNATE PAYEE means any spouse, former spouse, child, or other dependent of a Participant who is recognized by a domestic relations order as having a right to receive all, or a portion of, the benefits payable under the Plan with respect to such Participant. SECTION 2.6. BENEFICIARY means a person or entity, either in an individual or fiduciary capacity, designated by a Participant or Former Participant pursuant to Article 8 to receive any benefit payable under this Plan upon the death of such Participant or Former Participant. SECTION 2.7. BREAK IN SERVICE. (a) A Break in Service, for purposes of eligibility, means a Period of Severance of at least twelve (12) consecutive months. A Period of Severance means a continuous period of time during which an Employee is not employed by the Employer. Such period shall begin on the date the Employee retires, quits, is discharged, or dies, or, if earlier, the twelve (12) month anniversary of the date on which the Employee was otherwise first absent from work. (b) A Break in Service, for purposes of vesting, means a Period of Severance of at least twelve (12) consecutive months. A Period of Severance means a continuous period of time during which an Employee is not employed by the Employer. Such period shall begin on the date the Employee retires, quits, is discharged, or dies, or, if earlier, the twelve (12) month anniversary of the date on which the Employee was otherwise first absent from work. 2 (c) An Employee shall receive credit for purposes of determining whether he has incurred a Break in Service under subsection (a) or (b) above for the aggregate of all time period(s) commencing with the first day such Employee completes an Hour of Service, the Employment Commencement Date, (including such day following reemployment) and ending on the date a Break in Service begins. An Employee shall also receive credit for any Period of Severance of less than twelve (12) consecutive months. Fractional periods of a year shall be expressed in terms of days. (d) Further, solely for the purpose of determining whether a Participant has incurred a Break in Service under (a) or (b) above, Hours of Service shall be recognized for "authorized leaves of absence" and "maternity and paternity leaves of absence." (i) An "authorized leave of absence" means an unpaid temporary cessation from active employment with the Employer pursuant to an established nondiscriminatory policy, whether occasioned by illness, military service or any other reason if: (A) a person is absent on a leave of absence with the prior consent of his Employer, which consent shall be granted under uniform rules applied to all Employees on a nondiscriminatory basis, but only if such person is an Employee immediately prior to the commencement of such period of authorized absence and resumes employment with an Employer not later than the first working day following the expiration of such period of authorized absence; (B) a person is a member of the Armed Forces of the United States and his reemployment rights are guaranteed by law, but only if such person is an Employee immediately prior to becoming a member of such Armed Forces and resumes employment with an Employer within the period during which his reemployment rights are guaranteed by law; or (C) a person who is at any time an Employee who is employed by an entity which is not an Employer but whose employees are deemed, under Code Section 414, to be employed, together with all Employees, by a common entity, including a period or periods of such employment prior to or after any particular time such person is an Employee. (ii) A "maternity or paternity leave of absence" means an absence from work for any period because of the Employee's pregnancy, birth of the Employee's child, placement of a child with the Employee relating to the adoption of the child, or any absence for the purpose of caring for the child for a period immediately following the birth or placement. For purposes of a maternity and paternity leave of absence, Hours of Service shall be credited for the Computation Period in which the absence from work begins, only if the credit is necessary to prevent the Employee from incurring a Break in Service, or, in any other case, in the immediately following Computation Period. The Hours of Service credited for a "maternity or paternity leave of absence" shall be those which would normally have been credited but for the absence, or, in any case in which the Administrator is unable to determine the hours normally credited, eight (8) Hours of Service per day. The total Hours of Service required to be credited for a "maternity or paternity leave of absence" shall not exceed five hundred one (501) hours. 3 (e) Notwithstanding the foregoing, no credit will be given for such absences from work unless the Employee furnishes to the Committee such timely information as it may reasonably require to establish that the absence from work is for the reason(s) referred to above and the number of days for which there was such an absence. SECTION 2.8. CODE means the Internal Revenue Code of 1986, as amended from time to time. SECTION 2.9. COMMITTEE means the Savings Plan Committee appointed pursuant to Article 17 to administer the Plan. SECTION 2.10. COMPANY means Frozen Food Express Industries, Inc., a corporation organized under the laws of the State of Texas. SECTION 2.11. COMPANY STOCK (a) Company Stock means those unrestricted shares of voting common stock issued by the Company and any common or preferred stock issued by the Employer or by an Affiliate which constitute Employer Securities under Code Sections 409(l) and 4975(e)(8). (b) Qualifying Company Stock means: (i) Common stock issued by the Employer (or by a corporation which is a member of the same controlled group) which is readily tradable on an established securities market; or (ii) If there is no common stock which meets the requirements of (i) above, then common stock issued by the Employer (or by a corporation which is a member of the same controlled group) having a combination of voting power and dividend rights equal to or in excess of: (A) that class of common stock of the Employer (or any other such corporation) having the greatest voting power; and (B) that class of common stock of the Employer (or of any other such corporation) having the greatest dividend rights; or (iii) Noncallable preferred stock, if such stock is convertible at any time into stock which meets the requirements of (i) or (ii) (whichever is applicable) and if such conversion is at a conversion price that is reasonable. A preferred stock will be considered noncallable if after the call there will be a reasonable opportunity for a conversion which meets the requirements of the preceding sentence in accordance with applicable Treasury regulations. 4 Notwithstanding the foregoing, references in the Plan to Company Stock shall mean Qualifying Company Stock as defined in this subsection (b). SECTION 2.12. COMPENSATION. (a) Compensation, pursuant to the safe harbor definition of Treasury Regulation Section 1.415-2(d)(10), means wages, salaries, and 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 includable in gross income including, but not limited to, commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, bonuses, fringe benefits, and reimbursements or other expense allowances under a nonaccountable plan described in Treasury Regulation Section 1.62-2(c), plus, effective for Plan Years beginning on or after January 1, 1998, any amounts excluded from income pursuant to Code Sections 125 and 401(k), and excluding the following: (i) contributions by the Employer to any qualified deferred compensation plan (to the extent not includable in the Participant's gross income) or simplified employee pension defined in Code Section 408(k) (to the extent not includable in the Participant's gross income) (other than, effective for Plan Years beginning on or after January 1, 1998, amounts contributed pursuant to Code Section 401(k)); (ii) distributions from any plan of deferred compensation; (iii) amounts realized from the exercise of any nonqualified stock option, or, in the case of restricted stock, when such stock becomes freely transferable or is no longer subject to a substantial risk of forfeiture; (iv) amounts realized from the sale, exchange, or other disposition of stock acquired under a qualified stock option; and (v) other amounts which receive special tax benefits such as premiums paid by the Employer (to the extent not includable in the Participant's gross income) under group term life insurance, contributions by the Employer to an annuity under Code Section 403(b) (to the extent not includable in the Participant's gross income), and any other amounts received under any Employer sponsored fringe benefit plan (to the extent not includable in the Participant's gross income). (b) Compensation for any Limitation Year includes compensation received by an Employee in that Limitation Year from an Employer prior to the Employee becoming a Participant in the Plan. 5 (c) Notwithstanding the foregoing, Compensation taken into account for determining all benefits provided under the Plan for any determination period shall not exceed $150,000, or such larger amount the Secretary of the Treasury may prescribe for the relevant year. If the period for determining compensation used in calculating an Employee's allocation for a determination period is a short Plan Year, the Compensation limit is an amount equal to the otherwise applicable Compensation limit multiplied by a fraction, the numerator of which is the number of months in the short Plan Year and the denominator of which is twelve (12). If Compensation for any prior determination period is taken into account in determining an Employee's allocations or benefits for the current determination period, the Compensation for such prior year is subject to the applicable Compensation limit in effect for that prior year. (d) For purposes of determining whether the Plan discriminates in favor of Highly Compensated Employees, Compensation means Compensation defined in this Section 2.12, except any exclusions from Compensation other than the exclusions described in clauses (a)(i), (ii), (iii), (iv), and (v) do not apply. The Employer also may elect to use an alternate nondiscriminatory definition, under Code Section 414(s) and the applicable Treasury regulations. In determining Compensation under this paragraph, the Employer may elect to include all Savings Contributions made by the Employer on behalf of the Employees. The Employer's election to include Savings Contributions must be consistent and uniform for Employees and all plans of the Employer for any particular Plan Year. The Employer may make this election to include Savings Contributions for nondiscrimination testing purposes, whether or not this Section includes Savings Contributions in the general Compensation definition of the Plan. (e) Notwithstanding the foregoing, Compensation for any Self-Employed Individual means earned income. SECTION 2.13. CURRENT MARKET VALUE means the Current Market Value of each asset included in the Trust Assets on any particular date, which shall be that amount determined by the Trustee on a basis uniformly applied which, in the Trustee's opinion, fairly reflects the fair market value of such asset on such date. SECTION 2.14. DISABILITY means a physical or mental condition which, in the opinion of the Committee, totally and presumably permanently prevents a Participant or Former Participant from satisfactorily performing substantially the same duties assigned to him by his Employer (which includes for purposes of this Section 2.14 an employing entity described in Section 2.42 at the time such condition develops, or if such Participant or Former Participant is on an authorized leave of absence (other than an authorized leave of absence referred to in Section 2.7(d)(i)) or any other leave of absence approved by his Employer when such condition develops, substantially the same duties assigned to him by his Employer immediately prior to the commencement of such period of authorized or approved absence or such other duties which the Employer makes available to the Participant and for which the Participant is qualified by reason of his training, education, or experience. A determination that Disability exists shall be based upon competent medical evidence satisfactory to the Committee. The date any person's Disability occurs shall be deemed to be the date such condition is determined to exist by the Committee. 6 SECTION 2.15. DISCRETIONARY EMPLOYER CONTRIBUTION means any contribution to the Plan made by an Employer for the Plan Year and allocated to a Participant's Discretionary Employer Contribution Account. SECTION 2.16. DISCRETIONARY EMPLOYER CONTRIBUTION ACCOUNT means the account or record maintained or caused to be maintained by the Trustee showing the composition and value of the individual interest of a particular Participant, Former Participant or Beneficiary in the Trust Assets attributable to Discretionary Employer Contributions, if any. SECTION 2.17. EARLY RETIREMENT means the date the Participant attains age 55 and completes ten (10) Years of Service SECTION 2.18. EARLY RETIREMENT DATE means the first day next following the date the Participant attains Early Retirement Age and which immediately follows the last day on which the Participant is an Employee, or, if later, the last day of the Participant's authorized leave of absence, if any. SECTION 2.19. EFFECTIVE DATE. The original Effective Date of this Plan is October 1, 1987. The Effective Date of this Plan as restated is January 1, 2000, except as otherwise provided herein. SECTION 2.20. EMPLOYEE. (a) Employee means any individual currently employed by the Employer maintaining the Plan or of any other Employer required to be aggregated with the Employer under Code Sections 414(b), (c), (m) or (o). (b) The Plan does not treat any Leased Employee as an Employee of the Employer. A Leased Employee is an individual, who otherwise is not an Employee of the Employer, who, pursuant to a leasing agreement between the Employer and any other person, has performed services for the Employer (or for the Employer and any persons related to the Employer within the meaning of Code Section 144(a)(3)) on a substantially full time basis for at least one (1) year and who performs services under the primary direction and control of the Employer. (c) Notwithstanding the preceding, the term "Employee" shall not include any individual who is designated as an "Independent Contractor" by the Employer, even if the status of such individual subsequently is changed from that of an Independent Contractor to that of an employee as a result of administrative or legal proceedings. SECTION 2.21. EMPLOYER CONTRIBUTIONS means the Matching Employer Contributions, Discretionary Employer Contributions and Incentive Contributions made by the Employer pursuant to Section 4.2. SECTION 2.22. EMPLOYER means FROZEN FOOD EXPRESS INDUSTRIES, INC., FFE TRANSPORTATION SERVICES, INC., CONWELL CORPORATION, W & B REFRIGERATION SERVICE COMPANY, INC., LISA MOTOR LINES, INC., GLOBAL REFRIGERANT MANAGEMENT, INC., or any other Affiliate who, with the written consent of the Plan Sponsor, adopts this Plan on the effective date of its election to participate. 7 SECTION 2.23. EMPLOYMENT COMMENCEMENT DATE means the first day for which an Employee is to be credited with an Hour of Service. SECTION 2.24. ENTRANCE DATE means the first business day of the month following an Employee's completion of ninety (90) days of employment. SECTION 2.25. ERISA means the Employee Retirement Income Security Act of 1974, as amended from time to time. SECTION 2.26. ESOP ACCOUNTS means the ESOP Transfer Accounts and ESOP Rollover Accounts maintained under this Plan. SECTION 2.27. ESOP ROLLOVER ACCOUNT means the account(s) or record(s) maintained or caused to be maintained by the Plan Administrator showing the composition and value of the individual interest of a particular Participant, Former Participant, or Beneficiary in the Trust Assets attributable to Rollover Contributions to the FFE Transportation Services ESOP and/or the Conwell ESOP contributed to the Trust pursuant to that certain Plan Merger Agreement effective December 31, 1999. SECTION 2.28. ESOP TRANSFER ACCOUNT means the account(s) or record(s) maintained or caused to be maintained by the Plan Administrator showing the composition and value of the individual interest of a particular Participant, Former Participant, or Beneficiary in the Trust Assets attributable to the Participant's or Former Participant's Employer Securities Account and Employer Investment Account under the FFE Transportation Services ESOP or Conwell ESOP contributed to the Trust pursuant to that certain Plan Merger Agreement effective December 31, 1999. SECTION 2.29. FORMER PARTICIPANT means a Participant who is no longer participating in the Plan but who has a vested account balance which has not been paid in full. SECTION 2.30. HIGHLY COMPENSATED EMPLOYEE means any Participant or Former Participant who is a Highly Compensated Employee, defined in Code Section 414(q). Generally, any Participant or Former Participant is considered a Highly Compensated Employee if the Participant or Former Participant: (a) was at any time during the Plan Year or during the preceding Plan Year a Five Percent Owner as defined in Section 12.2(g)(iii); or (b) for the preceding Plan Year (i) had Compensation from the Employer in excess of $80,000, as adjusted by the Secretary of the Treasury for the relevant year and (ii) was in the top-paid group during the preceding Plan Year. (c) An Employee is in the top-paid group of Employees for any Plan Year if such Employee is in the group consisting of the top twenty percent (20%) of the Employees when ranked on the basis of Compensation paid during the Plan Year. However, solely for determining the total number of active Employees for a year, the following Employees are disregarded: 8 (i) The Employees described in this subsection (i) are excluded on the basis of age or Service: (A) Employees who have not completed six (6) months of Service by the end of the year. (An Employee's Service in the immediately preceding year is added to the Employee's Service in the current year to determine whether the exclusion applies in the current year.); (B) Employees who normally work less than 17 1/2 hours per week. (This determination is made independently for each year. Weeks during which the Employee did not work are not considered. An Employee who works less than 17 1/2 hours a week for fifty percent (50%) or more of the total weeks worked by the Employee during the year is deemed to normally work less than 17 1/2 hours per week under this rule.); (ii) Employees who are included in a unit of employees covered by an agreement that the Secretary of Labor finds to be a collective bargaining agreement between Employee representatives and the Employer which satisfies Code Section 7701(a)(46) and Temporary Treasury Regulation Section 301.7701-17T are included in determining the number of Employees in the top-paid group unless the following exception applies. If ninety percent (90%) or more of the Employees of the Employer are covered under collective bargaining agreements that the Secretary of Labor finds to be collective bargaining agreements between Employee representatives and the Employer, which agreements satisfy Code Section 7701(a)(46) and Temporary Treasury Regulation Section 301.7701-17T, and the Plan covers only Employees who are not covered under the agreements, then the Employees who are covered under the agreements are (A) not counted in determining the number of noncollective bargaining employees who will be included in the top-paid group in testing the Plan; and (B) not included in the top-paid group in testing the Plan. The Committee must make the determination of who is a Highly Compensated Employee consistent with Code Section 414(q) and regulations issued under that Code Section. The Employer may make a calendar year election to determine the Highly Compensated Employees for the preceding Plan Year, as prescribed by Treasury regulations. A calendar year election must apply to all plans and arrangements of the Employer. For purposes of this Section, Compensation means Compensation defined in Section 2.12, and including deferrals under (a) Code Section 402(a)(8) relating to a Code Section 401(k) arrangement; (b) Code Section 125 relating to a cafeteria plan; (c) Code Section 403(b) relating to a tax sheltered annuity plan; (d) Code Section 408(h) relating to a simplified employee pension; and (e) effective January 1, 1998, Code Section 402(k) relating to a simple retirement account. Compensation from each Related Employer shall be taken into account. 9 SECTION 2.31. HOURS OF SERVICE. (a) Hours of Service shall be credited for periods during which an Employee is either: (i) directly or indirectly paid, or entitled to payment, by an Employer or an entity described in Section 2.42 for the performance of duties in his capacity as an Employee of such Employer or entity; (ii) directly or indirectly paid or entitled to payment, by an Employer or an entity described in Section 2.42 on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or any other leave of absence approved by such Employer or entity; (iii) entitled to back pay, irrespective of mitigation of damages, which is either awarded or agreed to by an Employer or an entity described in Section 2.42; or (iv) on an authorized leave of absence. (b) An Employee shall not receive credit for the same Hours of Service under more than one paragraph of this Section 2.31(a); (c) An Employee shall also receive credit for any additional Hours of Service required by applicable federal law (other than ERISA) to be credited to him, the nature and extent of such credit to be determined under such law. (d) (i) (A) Except as provided in subparagraph (B) of this Subsection 2.31(d)(i), Hours of Service under Subsection 2.31(a)(i) shall be computed by crediting an Employee with 190 Hours of Service for each month such Employee is entitled to be credited with one Hour of Service under Subsection 2.31(a)(i). (B) If an Employee is a part-time Employee, such Employee shall receive credit for Hours of Service equal to the actual number of hours worked by such Employee, as determined from the appropriate payroll records. (ii) Hours of Service under Subsection 2.31(a)(ii) shall be determined pursuant to the rules set forth in paragraphs (b) and (c) of Section 2530.200b-2 of the United States Department of Labor Regulations, which rules are hereby incorporated and made a part of this Plan by reference. 10 (iii) Except for part-time Employees, Hours of Service under Subsection 2.31(a)(iv) shall be credited on the basis of 190 hours for each complete calendar month of a person's authorized leave of absence, but no such Hours of Service shall be credited for any month for which an Employee receives credit for Hours of Service under Subsection 2.31(a)(i) or (ii). (iv) For purposes of this Section an Employee works "part-time" if he normally is employed for less than twenty (20) hours per week or less than six (6) months per Plan Year. (e) The terms defined in this Section 2.31 shall include Hours of Service rendered by an Employee prior to the Effective Date for an Employer or a member of a controlled group of corporations including an Employer. SECTION 2.32. INCENTIVE CONTRIBUTIONS means any contribution to the Plan made by FFE Transportation Services, Inc. pursuant to the 1994 Incentive Bonus Plan and allocated to a Participant's Savings Account. All Employer Contributions under Section 4.2(b)(ii) are Incentive Contributions. SECTION 2.33. MATCHING EMPLOYER CONTRIBUTION means any contribution to the Plan made by an Employer for the Plan Year and allocated to a Participant's Matching Employer Contribution Account by reason of the Participant's Savings Contributions. All Employer Contributions under Section 4.2(a) are Matching Employer Contributions. SECTION 2.34. MATCHING EMPLOYER CONTRIBUTION ACCOUNT means the account or record maintained or caused to be maintained by the Trustee showing the composition and value of the individual interest of a particular Participant, Former Participant or Beneficiary in the Trust Assets attributable to Matching Employer Contributions and Special Employer Contributions, if any. SECTION 2.35. NAMED FIDUCIARY means one or more fiduciaries named in this Agreement who jointly and severally shall have authority to control or manage the operation and administration of the Plan. Frozen Food Express Industries, Inc. shall be the Named Fiduciary unless it designates another person by written Employer action. SECTION 2.36. NONFORFEITABLE means a vested interest attained by a Participant or Beneficiary in that part of the Participant's benefit under the Plan arising from the Participant's Service, which claim is unconditional and legally enforceable against the Plan. SECTION 2.37. NON-HIGHLY COMPENSATED EMPLOYEE. An Employee who is not a Highly Compensated Employee. SECTION 2.38. NORMAL RETIREMENT AGE. The 65th birthday of a Participant or Former Participant. SECTION 2.39. NORMAL RETIREMENT DATE means, for each Participant, the first day next following the date the Participant attains Normal Retirement Age and which immediately follows the last day on which the Participant is an Employee, or, if later, the last day of the Participant's authorized leave of absence, if any. 11 SECTION 2.40. OWNER-EMPLOYEE means a sole proprietor or a partner who owns more than ten percent (10%) of either the capital interest or profits interest in an unincorporated Employer and who receives income from such unincorporated Employer for personal services. SECTION 2.41. PARTICIPANT means an Employee of the Employer who has met the eligibility requirements of this Plan and who has been enrolled as a Participant in this Plan pursuant to Article 3. SECTION 2.42. PARTICIPATING EMPLOYER means any Related Employer that may elect to adopt this Plan pursuant to Article 14. SECTION 2.43. PARTICIPATION means any period commencing on the date the Employee becomes a Participant and ending on the date on which the Employee incurs a Severance from Service. SECTION 2.44. PLAN means the Frozen Food Express Industries, Inc. 401(k) Savings Plan, as restated herein. SECTION 2.45. PLAN SPONSOR means Frozen Food Express Industries, Inc. SECTION 2.46. PLAN YEAR. The annual period beginning on January 1 and ending on December 31. SECTION 2.47. PRIOR PLAN means the Savings Plan for the Employees of Frozen Food Express, as in effect prior to the Effective Date. SECTION 2.48. RE-EMPLOYMENT COMMENCEMENT DATE. The first date on which an Employee is credited with an Hour of Service upon his return to employment with an Employer after he has Separated from Service. SECTION 2.49. RELATED EMPLOYER. A related group of employers is a controlled group of corporations (defined in Code Section 414(b)), trades or businesses (whether or not incorporated) which are under common control (defined in Code Section 414(c)) or an affiliated service group (defined in Code Section 414(m) or in Code Section 414(o)). If the Employer is a member of a related group, the term "Employer" includes the related group members for purposes of crediting Hours of Service, determining Years of Service and Breaks in Service under Articles 2 and 6, applying the participation test of Code Section 401(a)(26) and the coverage test of Code Section 410(b), applying the limitations on allocations in Article 5, applying the top-heavy rules and the minimum allocation requirements of Article 12, the definitions of Employee, Highly Compensated Employee, Compensation and Leased Employee, and for any other purpose required by the applicable Code Section or by a Plan provision. However, an Employer may contribute to the Plan only by being a signatory to a Participation Agreement to the Plan. If one or more of the Employer's related group members become Participating Employers by executing a Participation Agreement to the Plan, the term "Employer" includes the participating related group members for all purposes of the Plan, and Administrator means the Employer that is the signatory to the Plan. For Plan allocation purposes, Compensation does not include Compensation received from a Related Employer that is not participating in this Plan. 12 SECTION 2.50. RETIREMENT. A Participant's or Former Participant's being Separated from Service on or after his Normal Retirement Date. Retirement shall be considered as commencing on that day which occurs on or after a Participant or Former Participant had reached Normal Retirement Date and which immediately follows (i) the last day of which such Participant or Former Participant is an Employee or, if later, (ii) the last day of an authorized leave of absence or any other leave of absence approved by such Participant's or Former Participant's Employer. SECTION 2.51. ROLLOVER ACCOUNT. The account(s) or record(s) maintained or caused to be maintained by the Trustee showing the composition and value of the individual interest of a particular Participant, Former Participant or Beneficiary in the Trust Assets attributable to each contribution of a Rollover Amount (as defined in Section 4.5) or a direct trustee-to-trustee transfer of assets to the Trust from a qualified plan or Code Section 403(b) annuity on behalf of a Participant. SECTION 2.52. SAVINGS ACCOUNT. The account or record maintained or caused to be maintained by the Trustee showing the composition and value of the individual interest of a particular Participant, Former Participant or Beneficiary in the Trust Assets attributable to Savings Contributions elected by Participants, Incentive Contributions, Qualified Non-Elective Contributions and Qualified Matching Contributions. SECTION 2.53. SAVINGS CONTRIBUTIONS means Employer contributions to the Plan made pursuant to Participants' elections under Section 4.1. SECTION 2.54. SELF-EMPLOYED INDIVIDUAL means, regarding an unincorporated business, an individual described in Code Section 401(c)(1). A Self-Employed Individual shall be treated as an Employee if the individual has an ownership interest in either the capital or profits interest of an unincorporated Employer and receives income from the Employer for personal services. SECTION 2.55. SEPARATION FROM SERVICE occurs whenever a person ceases to be an Employee of the Employer and is no longer being credited with Hours of Service. SECTION 2.56. SERVICE means any period of time the Employee is in the employ of the Employer. Service in all cases includes periods during which the Employee is on an "authorized leave of absence" or a "maternity or paternity leave of absence" defined in Section 2.7(d) relating to a Break in Service. Leaves of absence also shall include periods of absence in connection with military service during which the Employee's re-employment rights are legally protected. Except for absence by reason of military service, leaves of absence shall be for a maximum period of two (2) years. Leaves of absence shall be granted on a uniform and nondiscriminatory basis. If the Employer maintains the plan of a Predecessor Employer, Service shall include service for the Predecessor Employer. To the extent it may be required under applicable Treasury regulations under Code Section 414, Service shall include all service for any Predecessor Employer. 13 For purposes of determining vesting of a Participant's ESOP Transfer Account, the Participant will be credited with the greater of (i) his service as determined in accordance with the elapsed time method described in the Plan, or (ii) the Years of Service credited to such Participant as of December 31, 1999, under the FFE Transportation Services ESOP and/or the Conwell ESOP, plus the number of Years of Service credited under this Plan from and after January 1, 2000 (using the elapsed time method from such date forward). SECTION 2.57. SHAREHOLDER-EMPLOYEE means a Participant who owns more than five percent (5%) of the Employer's outstanding capital stock during any year in which the Employer elected to be taxed as a Small Business Corporation under Code Section 1362(a) and who receives income from the Employer for personal services. SECTION 2.58. SEPARATED FROM SERVICE. A person is Separated from Service when he is no longer an Employee. SECTION 2.59. SPECIAL EMPLOYER CONTRIBUTIONS means the Special Employer Contributions made by the Employers pursuant to the terms of the Prior Plan. SECTION 2.60. SPOUSE means the spouse to whom a Participant or Former Participant is married on the date the Participant or Former Participant becomes entitled to benefit payments under the Plan, or if such entitlement has not occurred, the spouse to whom the Participant or Former Participant was married on the date of his death; provided, however, that the Participant or Former Participant had been married to such spouse for at least one year ending on the date the Participant becomes entitled to benefit payments or the date of the Participant's or Former Participant's death. SECTION 2.61. TRUST means the trust created by the Trust Agreement between Frozen Food Express Industries, Inc. and the Trustee. SECTION 2.62. TRUST AGREEMENT means the agreement, entered into by Frozen Food Express Industries, Inc. and the Trustee, or any successor Trustee, establishing the Trust and specifying the duties of the Trustee. SECTION 2.63. TRUST FUND means all assets of any kind and nature from time to time held by the Trustee or its agent under the Trust Agreement without distinction between income and principal. This Plan contemplates a single Trust for all Employers participating under the Frozen Food Express Industries, Inc. 401(k) Savings Plan. However, the Trustee will maintain separate records of account to reflect properly each Participant's Account Balance from each Participating Employer. SECTION 2.64. TRUSTEE means at any particular time, the then acting Trustee or, collectively, if there is more than one, the then acting Trustees of the Trust. SECTION 2.65. VALUATION DATE means any business day on which the Nasdaq National Market is open. 14 SECTION 2.66. VESTED PERCENTAGE means that percentage of a Participant's Discretionary Employer Contribution Account, Matching Employer Contribution Account, W & B Plan Rollover Account, and ESOP Transfer Account, if any, in which the Participant's rights are nonforfeitable and fully vested, which percentage is determined by reference to the vesting schedule set forth in Section 6.2. SECTION 2.67. W & B PLAN ROLLOVER ACCOUNT means the account(s) or record(s) maintained or caused to be maintained by the Plan Administrator showing the composition and value of the individual interest of a particular Participant, Former Participant, or Beneficiary in the Trust assets attributable to the direct trustee-to-trustee transfers of assets to the Trust from the W & B Refrigeration Service Co., Inc. Employees' Profit Sharing Plan and Trust. SECTION 2.68. YEAR OF SERVICE. (a) For purposes of eligibility, a Year of Service means the twelve (12) consecutive month period commencing on an Employee's Employment Commencement Date and ending on the anniversary of the Employee's Employment Commencement Date. If an Employee fails to complete a Year of Service on the first anniversary of the Employment Commencement Date, the Employee shall be deemed to complete a Year of Service upon the completion of twelve (12) months of Service. An Employee shall receive credit for the aggregate of all time periods commencing with the first day the Employee is entitled to credit for an Hour of Service, including the Re-Employment Commencement Date, and ending on the date a Break in Service begins. An Employee also shall receive credit for any Period of Severance of less than twelve (12) consecutive months. Fractional periods of a year shall be expressed in terms of months, with credit for a month of service being given for each thirty (30) days of Elapsed Time. (b) For purposes of vesting, and subject to Section 6.3, a Year of Service means twelve (12) months of Service. For purposes of determining an Employee's Years of Service for vesting purposes, an Employee shall receive credit for the aggregate of all time periods commencing on an Employee's Employment Commencement Date, including the Re-Employment Commencement Date, and ending on the date a Break in Service begins. An Employee also shall receive credit for any Period of Severance of less than twelve (12) consecutive months. Fractional periods of a year shall be expressed in terms of months, with credit for a month of service being given for each thirty (30) days of Elapsed Time. In computing an Employee's Years of Service, the following rules shall apply: (i) For an Employee who terminates employment and is subsequently re-employed after incurring a Break in Service, Service prior to the Break in Service shall not be taken into account until the Employee has completed a Year of Service after re-employment. (ii) For a Participant who terminates employment and who subsequently is re-employed after incurring five (5) consecutive Breaks in Service, Years of Service after the Break in Service shall not be taken into account for purposes of determining the Nonforfeitable percentage of an Employee's Account Balance derived from Employer Contributions which accrued before the Break in Service. 15 (iii) For a Participant who terminates employment without any vested right to his Discretionary Employer Contribution Account or Matching Employer Contribution Account and who is re-employed after a Break in Service, Service before the Break in Service shall not be taken into account if the number of consecutive Breaks in Service equals or exceeds the greater of (A) five (5), or (B) the aggregate number of Years of Service before the Break in Service. (iv) Years of Service, for purposes of vesting, shall include all Years of Service of the Employee with any Predecessor Employer. (v) Years of Service with the Employer before a Participant enters the Plan shall be considered for purposes of vesting. (vi) If the Employer is a member of a group of Related Employers, then Year of Service for purposes of vesting shall include Service with any Related Employer. (vii) For purposes of determining Years of Service for vesting, the following definitions shall apply: (A) Employment Commencement Date means the date on which an Employee is first entitled to credit for an Hour of Service. (B) Period of Severance means the period of time commencing on the Severance from Service Date and ending on the date on which the Employee again performs an Hour of Service for the Employer. (C) Re-Employment Commencement Date means the first date, following a Period of Severance which is not required to be considered under the Service rules, on which the Employee performs an Hour of Service for the Employer. (D) Severance from Service Date means the date on which occurs the earlier of: (i) the date on which an Employee quits, retires, is discharged or dies; or (ii) the first anniversary of the first date of a period in which an Employee remains absent from Service, with or without pay, with the Employer for any other reason, such as vacation, holiday, sickness, disability, leave of absence or layoff. (c) For purposes of vesting, an Employee's years of service with W & B Refrigeration Service Co., Inc. shall be counted as Years of Service under this Plan to the extent that such service was counted as years of service under the W & B Refrigeration Service Co., Inc. Employees' Profit Sharing Plan and Trust. (d) For purposes of determining vesting of a Participant's ESOP Transfer Account, the Service crediting provisions of Section 2.56 of the Plan shall apply. 16 (e) The terms defined in this Section 2.68 shall include Years of Service performed by an Employee prior to the Effective Date. * * * * * * 17 ARTICLE THREE ------------- ELIGIBILITY AND PARTICIPATION SECTION 3.1. ELIGIBILITY. (a) Any Employee included under the provisions of the Prior Plan, the FFE Transportation Services ESOP, or the Conwell ESOP as of December 31, 1999 shall continue to participate in accordance with the provisions of this Plan. (b) Any other Employee shall become a Participant as of the Entrance Date following the date on which he completes ninety (90) days of employment. (c) An Employee who has not satisfied the requirements of Section 3.1(b) above and is entitled to receive an allocation of Incentive Contributions under the FFE Transportation Services, Inc. 1994 Incentive Bonus Plan shall become a Participant in the Plan as of the Entrance Date immediately following his completion of one day of employment; provided, however, that such participation shall be limited to his ability to receive an allocation of Incentive Contributions under Section 4.2(b)(ii) and shall not cause him to be eligible to receive an allocation of any other contributions to the Plan. SECTION 3.2. ELIGIBILITY FOLLOWING SEPARATION FROM SERVICE. If an Employee who has satisfied the eligibility requirements of Section 3.1 has Separated from Service and later returns to Service with an Employer, he shall become a Participant on his Re-Employment Commencement Date; provided, however, that any Employee who Separated from Service at a time when he had no Vested Percentage and who has incurred five consecutive Breaks-in-Service before his Re-Employment Commencement Date, must meet the eligibility requirements of Section 3.1 anew before he will become or again become a Participant. SECTION 3.3. PARTICIPATION DURING LEAVE OF ABSENCE. During an authorized leave of absence or any other leave of absence approved by a Participant's or Former Participant's Employer: (a) The Participant's Accounts shall share in the allocation of net earnings, net losses, taxes (if any) and expenses of the Trust during such period; and (b) In the case of an authorized leave of absence under Section 2.7, the Participant's interest in his Discretionary Employer Contribution Account, Matching Employer Contribution Account, and ESOP Transfer Account shall continue to vest, as provided in Article 6, until he is Separated from Service. In the case of any other authorized leave of absence or any other leave of absence approved by his Employer, his interest in his Discretionary Employer Contribution Account, Matching Employer Contribution Account and ESOP Transfer Account shall continue to vest, as provided in Article 6, but only if he resumes employment with an Employer not later than the first working day following the expiration of the period of such leave. If such employment is not so resumed, the date he is Separated from Service for purposes of such vesting shall be deemed to be the last day of employment prior to the commencement of such authorized or approved absence and such Participant or Former Participant shall not receive credit for any Hours of Service under Section 2.31(a)(ii) after such last day. 18 SECTION 3.4. NOTIFICATION OF ELIGIBILITY AND COMMENCEMENT OF PARTICIPATION. As soon as administratively feasible prior to each Entrance Date, the Employers shall furnish the Committee with a list of all Employees who become eligible or re-eligible to participate in the Plan as of that Entrance Date. The Committee shall promptly notify each such Employee of his prospective participation and provide each such Employee with such explanation of the Plan as the Committee may provide for that purpose, together with such forms as the Committee may prescribe for elections to participate in the Plan. Such forms shall include elections for (1) Savings Contributions (via payroll deduction); (2) investment direction of a Participant's accounts and (3) Beneficiary designation. Each Employee shall be eligible to have Savings Contributions made on his behalf as of the Entrance Date concurrent with or next following the date on which he (1) becomes a Participant in accordance with Plan Section 3.1, and (2) has signed and returned all election forms as required by the Employer. If the Employee has not submitted all election forms as of the Entrance Date concurrent with or next following the date on which he becomes a Participant, the Employee shall be eligible to have Savings Contributions made on his behalf as of the payroll period concurrent with or next following the date the Employee submits such election forms. * * * * * * * 19 ARTICLE FOUR ------------ CONTRIBUTIONS SECTION 4.1. SAVINGS CONTRIBUTIONS (a) Subject to the provisions of Sections 4.1(d) and (f), each Participant may elect that an amount, in any whole percentage of his Compensation, not to exceed twenty percent (20%) of his Compensation, be withheld from his Compensation and contributed by his Employer to the Trust. The Plan Administrator may permit a Participant to make an election under this Section through any written, electronic or telephonic means authorized by the Committee. Such contributions shall be known as Savings Contributions. (b) A Participant who does not have an election to have Savings Contributions made on his behalf in effect, or any Participant who would like to amend his election, may make such election or amend such election, effective as of the next following payroll period by filing an election with the Plan Administrator within a reasonable time prior to commencement of such payroll period. The Plan Administrator may permit a participant to make an election under this Section through any written, electronic or telephonic means authorized by the Committee. Any such election or amendment of an election shall be effective only with respect to Compensation payable after the Plan Administrator receives such election. (c) Savings Contributions shall be effected by payroll deductions for each pay period of the electing Participant commencing after the effective date of his election and shall be paid over to the Trustee no later than the fifteenth (15th) business day of the month following the month of such payroll deduction. (d) No Employee shall be permitted to have Savings Contributions made under this Plan during any Plan Year which exceed the statutory dollar limitation under Code Section 402(g) for the taxable year of the Participant, as adjusted annually by the Secretary of the Treasury ($10,000 for 1999). In computing this limitation, a Participant shall include any Elective Deferrals under other retirement arrangements. For this purpose, "Elective Deferrals" means, for any taxable year, the sum of: (i) any Employer contribution under a qualified cash or deferred arrangement defined in Code Section 401(k), to the extent not includable in gross income for the taxable year under Code Section 402(e)(3), determined without regard to the dollar limitation under Code Section 402(g); (ii) any Employer contribution under a simplified employee pension as defined in Code Section 408(k)(6), pursuant to a salary reduction agreement; (iii) any Employer contribution toward the purchase of a tax sheltered annuity contract as defined in Code Section 403(b), pursuant to a salary reduction agreement; and 20 (iv) effective January 1, 1998, any Employer contribution under a SIMPLE Plan pursuant to Code Section 408(p)(2) If the statutory dollar limitation under Code Section 402(g) is exceeded, the Committee shall direct the Trustee to distribute the Excess Elective Deferrals (defined below), and any income or loss allocable to such Excess Elective Deferrals, to the Participant not later than the first April 15 following the close of the Participant's taxable year. The amount of Excess Elective Deferrals to be distributed to an Employee for a taxable year will be reduced by Excess Contributions previously distributed or recharacterized for the Plan Year beginning in the taxable year of the Employee. The term "Excess Elective Deferrals" means those Elective Deferrals that are includable in a Participant's gross income under Code Section 402(g) to the extent the Participant's Elective Deferrals for a taxable year exceed the dollar limitation under Code Section 402(g). Excess Elective Deferrals under this Plan shall be treated as Annual Additions under the Plan, unless such amounts are distributed no later than the first April 15 following the close of the Participant's taxable year. If a Participant is also a Participant in (i) another qualified cash or deferred arrangement defined in Code Section 401(k); (ii) a simplified employee pension defined in Code Section 408(k); (iii) a salary reduction arrangement pursuant to which an employer purchases a tax sheltered annuity contract defined in Code Section 403(b) or (iv) a SIMPLE Plan defined in Code Section 408(p), and the Elective Deferrals made under the other arrangement(s) and this Plan cumulatively exceed the amount of the dollar limitation under Code Section 402(g) in effect on January 1 of each calendar year, as adjusted annually by the Secretary of the Treasury ($10,000 for 1999), then the Participant may, not later than March 1 following the close of the Participant's taxable year, notify the Administrator in writing of the excess and request that the Participant's Savings Contributions under this Plan be reduced by an amount specified by the Participant. The specified amount then shall be distributed in the same manner as provided in the preceding paragraph. A Participant is deemed to notify the Administrator of any Excess Elective Deferrals that arise by taking into account only those Elective Deferrals made to this Plan and any other plans of this Employer. (e) LIMITATIONS ON SAVINGS CONTRIBUTIONS. (i) ACTUAL DEFERRAL PERCENTAGE TEST. The annual allocation derived from Savings Contributions to a Participant's Savings Account shall satisfy one of the following tests: (A) The Average Actual Deferral Percentage for Participants who are Eligible Highly Compensated Employees for the Plan Year shall not exceed the Average Actual Deferral Percentage for Participants who are Eligible Non-Highly Compensated Employees for the current Plan Year multiplied by 1.25; or 21 (B) The Average Actual Deferral Percentage for Participants who are Eligible Highly Compensated Employees for the Plan Year shall not exceed the Average Actual Deferral Percentage for Participants who are Eligible Non-Highly Compensated Employees for the current Plan Year multiplied by two (2); provided that the Average Actual Deferral Percentage for Participants who are Eligible Highly Compensated Employees for the Plan Year does not exceed the Average Actual Deferral Percentage for Participants who are Eligible Non-Highly Compensated Employees for the current Plan Year by more than two (2) percentage points or the amount as may be prescribed in applicable Treasury regulations to prevent the multiple use of this alternative limitation for any Highly Compensated Employee. (ii) DEFINITIONS. For the purposes of this Section, the following definitions shall apply: (A) ACTUAL DEFERRAL PERCENTAGE means the ratio, expressed as a percentage, of (i) the amount of Savings Contributions actually paid to the Trust Fund on behalf of the Eligible Participant for the Plan Year to (ii) the Eligible Participant's Compensation for the Plan Year, whether or not the Employee was a Participant for the entire Plan Year. Savings Contributions on behalf of any Participant shall include: (i) any Savings Contributions, (including Excess Elective Deferrals of Highly Compensated Employees), but excluding (1) Excess Elective Deferrals of Non-Highly Compensated Employees that arise solely from Savings Contributions made under this plan or plans of this Employer, and (2) Savings Contributions that are taken into account in the Contribution Percentage Test (provided the Actual Deferral Percentage Test is satisfied both with and without exclusion of these Savings Contributions); and (ii) at the election of the Employer, Qualified Non-Elective Contributions and Qualified Matching Contributions. A Savings Contribution will be taken into account under the Actual Deferral Percentage Test for a Plan Year only if it relates to compensation that either would have been received by the Employee in the Plan Year, but for the deferral election, or is attributable to services performed by the Employee in the Plan Year and would have been received by the Employee within two and one-half (2-1/2) months after the close of the Plan Year, but for the deferral election. To compute Actual Deferral Percentages, an Employee who would be a Participant but for the failure to make Savings Contributions shall be treated as a Participant on whose behalf no Savings Contributions are made. (B) AVERAGE ACTUAL DEFERRAL PERCENTAGE means the average, expressed as a percentage, of the Actual Deferral Percentages of the Eligible Participants in a group. (C) Eligible Participant means any Employee of the Employer who is directly or indirectly eligible under the Plan to have Savings Contributions (or Qualified Non-Elective Contributions or Qualified Matching Contributions, or both, if treated as Savings Contributions for the Actual Deferral Percentage Test) allocated 22 to his or her Savings Account for all or any portion of the Plan Year. Eligible Participant includes an Employee whose eligibility to make Savings Contributions has been suspended because of an election (other than certain one-time elections) not to participate, a distribution, or a loan; and an Employee who cannot defer because of Code Section 415 limitations. (D) QUALIFIED NON-ELECTIVE CONTRIBUTIONS means Employer Contributions, other than Savings Contributions and Matching Contributions, allocated to Participants' accounts which are 100% Nonforfeitable at all times and which are subject to the distribution restrictions described in Section 4.1(g). Employer Contributions are not 100% nonforfeitable at all times if the Employee has a 100% nonforfeitable interest because of Years of Service taken into account under a vesting schedule. Any Employer Contributions allocated to a Participant's Savings Account under the Plan automatically satisfy the definition of Qualified Non-Elective Contributions. (E) QUALIFIED MATCHING CONTRIBUTIONS means Matching Employer Contributions allocated to Participants' accounts which are 100% nonforfeitable at all times and which are subject to the distribution restrictions described in Section 4.1(g). Matching Contributions are not 100% nonforfeitable at all times if the Employee has a 100% nonforfeitable interest because of Years of Service taken into account under a vesting schedule. Any Matching Contributions allocated to a Participant's Savings Account under the Plan automatically satisfy the definition of Qualified Matching Contributions. (iii) SPECIAL RULES. (A) For purposes of this Section, the Actual Deferral Percentage for any Participant who is a Highly Compensated Employee for the Plan Year who is eligible to have Savings Contributions (or Qualified Non-Elective Contributions or Qualified Matching Contributions, or both, if treated as Savings Contributions for the Actual Deferral Percentage Test) allocated to his or her account under two (2) or more plans or arrangements described in Code Section 401(k) that are maintained by the Employer or a Related Employer shall be determined as if all Savings Contributions (and, if applicable, Qualified Non-Elective Contributions or Qualified Matching Contribution, or both) were made under a single arrangement. If a Highly Compensated Employee participates in two (2) or more cash or deferred arrangements that have different plan years, all cash or deferred arrangements ending with or within the same calendar year shall be treated as a single arrangement. Notwithstanding the foregoing, certain plans shall be treated as separate if mandatorily disaggregated under applicable Treasury regulations pursuant to Code Section 401(k). 23 (B) If this Plan satisfies the requirements of Code Sections 401(k), 401(a)(4) or 410(b) only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of the Code Sections only if aggregated with this Plan, then this Section shall be applied by determining the Actual Deferral Percentage of Employees as if all such plans were a single plan. Plans may be aggregated to satisfy Code Section 401(k) only if they have the same Plan Year. (C) To determine the Actual Deferral Percentage Test, Savings Contributions, Qualified Non-Elective Contributions, and Qualified Matching Contributions must be made before the last day of the twelve (12) month period immediately following the Plan Year to which contributions relate. (D) The Employer shall maintain records sufficient to demonstrate satisfaction of the Actual Deferral Percentage Test and the amount of Qualified Non-Elective Contributions or Qualified Matching Contributions, or both, used in the test. (E) The determination and treatment of the Actual Deferral Percentage amounts of any Participant shall satisfy other requirements prescribed by applicable Treasury regulations. (iv) FAIL-SAFE PROVISIONS. If the initial allocations of the Savings Contributions do not satisfy one of the tests set forth in paragraph (i) of this Subsection, the Administrator shall adjust the accounts of the Participants pursuant to one (1) or more of the following options: (A) DISTRIBUTION OF EXCESS CONTRIBUTIONS. If the Committee determines that the initial allocations of the Savings Contributions do not satisfy one of the Actual Deferral Percentage Tests set forth in paragraph (i) of this Subsection, the Administrator must distribute the Excess Contributions, as adjusted for allocable income, during the next Plan Year. However, the Employer will incur an excise tax equal to 10% of the amount of Excess Contributions for a Plan Year not distributed to the appropriate Highly Compensated Employees during the first 2-1/2 months of the next Plan Year. The Excess Contributions are the amount of Savings Contributions made at the election of the Highly Compensated Employees which causes the Plan to fail to satisfy the Actual Deferral Percentage Test. The Administrator shall make distributions to each Highly Compensated Employee of his or her respective share of the Excess Contributions pursuant to the following steps: (1) The Administrator shall calculate total Excess Contributions for the Highly Compensated Employees. (2) The Administrator shall calculate the total dollar amount by which the Excess Contributions for the Highly Compensated Employees must be reduced in order to satisfy the Average Deferral Percentage Test. 24 (3) The Administrator shall calculate the total dollar amount of the Excess Contributions for each Highly Compensated Employee. (4) The Administrator shall reduce the Excess Contributions of the Highly Compensated Employee(s) with the highest dollar amount of Excess Contributions by refunding such contributions to such Highly Compensated Employee(s) in the amount required to cause the dollar amount of such Highly Compensated Employee(s)' Savings Contributions to equal the dollar amount of the Savings Contributions of the Highly Compensated Employee(s) with the next highest dollar amount of Savings Contributions. (5) If the total dollar amount distributed pursuant to Step (4) above is less than the total dollar amount of Excess Contributions, Step (4) shall be applied to the Highly Compensated Employee(s) with the next highest dollar amount of Excess Contributions until the total amount of distributed Excess Contributions equals the total dollar amount calculated in Step (2). (6) When calculating the amount of a distribution under Step (4), if a lesser reduction, when added to any amounts already distributed under this Section, would equal the total amount of distributions necessary to permit the Plan to satisfy the requirements of paragraph (i) of this Subsection, the lesser amount shall be distributed from the Plan. (B) ALLOCABLE INCOME. To determine the amount of the corrective distribution required under this Section, the Administrator must calculate the allocable income for the Plan Year in which the Excess Contributions arose. The income allocable to Excess Contributions is equal to the sum of the allocable gain or loss for the Plan Year. (1) METHOD OF ALLOCATING INCOME. The Administrator may use any reasonable method for computing the income allocable to Excess Contributions, provided that the method does not violate Code Section 401(a)(4), is used consistently for all Participants and for all corrective distributions under the Plan for the Plan Year, and is used by the Plan for allocating income to Participants' Accounts. 25 (2) ALTERNATIVE METHOD OF ALLOCATING INCOME. A Plan may allocate income to Excess Contributions by multiplying the income for the Plan Year allocable to Savings Contributions and amounts treated as Savings Contributions by a fraction. The numerator of the fraction is the Excess Contributions for the Employee for the Plan Year. The denominator of the fraction is equal to the sum of: (a) The total account balance of the Employee attributable to Savings Contributions and amounts treated as Savings Contributions as of the beginning of the Plan Year; plus (b) The Employee's Savings Contributions, and amounts treated as Savings Contributions for the Plan Year. (C) RECHARACTERIZATION OF MATCHING CONTRIBUTIONS. A portion of the Employer's Matching Contribution shall be deemed a Savings Contribution for purposes of paragraph (i) of this Subsection and for vesting and withdrawal purposes. The portion shall be equal to an amount necessary to satisfy one of the tests set forth in paragraph (i) of this Subsection, taking into account the Administrator's action under any option herein and shall be reallocated to the Savings Account. Reallocation of the Employer's Matching Contribution shall be made on behalf of Participants who are Non-Highly Compensated Employees. (D) QUALIFIED NON-ELECTIVE AND QUALIFIED MATCHING CONTRIBUTIONS. The Employer shall make Qualified Non-Elective Contributions or Qualified Matching Contributions on behalf of Participants who are Non-Highly Compensated Employees in an amount sufficient to satisfy one of the tests set forth in paragraph (i) of this Subsection, taking into account the Administrator's action under any option herein. These contributions shall be made in the minimum amount of dollars required to satisfy the requirements of paragraph (i) of this Subsection and shall be allocated first to the lowest-paid such Participant, subject to Section 5.6, and then to the next lowest-paid Participant, subject to Section 5.6, and thereafter in like manner in ascending order until the limitations of paragraph (i) are met. Such additional contributions shall be fully vested and subject to the distribution restrictions of Section 4.1(g) hereof, and must be made prior to the last day of the twelve month period immediately following the Year to which they relate. The Qualified Non-Elective and Qualified Matching Contributions may be treated as Savings Contributions provided that each of the following requirements, to the extent applicable, is satisfied: (1) The amount of Employer Contributions, including those Qualified Non-Elective Contributions treated as Savings Contributions for purposes of the Actual Deferral Percentage Test, satisfies the requirements of Code Section 401(a)(4). 26 (2) The amount of Employer Contributions, excluding those Qualified Non-Elective Contributions treated as Savings Contributions for purposes of the Actual Deferral Percentage Test and those Qualified Non-Elective Contributions treated as Matching Contributions under Treasury Regulations Section 1.401(m)-1(b)(5) for purposes of the Average Contribution Percentage Test, satisfies the requirements of Code Section 401(a)(4). (3) The Matching Contributions, including those Qualified Matching Contributions treated as Savings Contributions for purposes of the Actual Deferral Percentage Test, satisfy the requirements of Code Section 401(a)(4). (4) The Matching Contributions, excluding those Qualified Matching Contributions treated as Savings Contributions for purposes of the Actual Deferral Percentage Test, satisfy the requirements of Code Section 401(a)(4). (5) The Qualified Non-Elective Contributions and Qualified Matching Contributions satisfy the requirements of Treasury Regulations Section 1.401(k)-1(b)(4)(i) for the Plan Year as if the contributions were Savings Contributions. (6) The plan that includes the cash or deferred arrangement and the plan or plans to which the Qualified Non-Elective Contributions and Qualified Matching Contributions are made could be aggregated for purposes of Code Section 410(b). (f) WRAP-PLAN PROVISIONS. Savings Contributions elected by Participants who are Highly Compensated Employees may be prospectively limited by the Committee without the Participant's consent if necessary to meet the limits of Section 4.1(e). Any Participant in this Plan who is both a Highly Compensated Employee and a Participant for the Plan Year in the FFE Transportation Services, Inc. 401(k) Wrap Plan ("Highly Compensated Wrap Plan Participant") may not elect to have Savings Contributions made on his behalf by payroll deductions under this Plan during such Plan Year. In lieu of Savings Contributions effected by payroll deductions on behalf of any Highly Compensated Wrap Plan Participant, as soon as administratively feasible after the end of a Plan Year, but in no event later than 2-1/2 months following the end of that Plan Year, the Committee shall permit the transfer to the Plan of all the Nonqualified Savings Contributions credited to the Nonqualified Savings Account of each Highly Compensated Wrap Plan Participant in the FFE Transportation Services Inc, 401(k) Wrap Plan, but in no event shall an amount be transferred that would cause this Plan to exceed the limitations of Code Section 401(k)(3) set forth in Plan Section 4.1(e) for such Plan Year. In determining the permitted transfer amounts, the Employers may authorize a Qualified Non-Elective Contribution or Qualified Matching Contribution to be made for such year, and allocated as provided in Section 4.1(e)(iv)(C). 27 (g) RESTRICTIONS ON DISTRIBUTIONS. Subject to the following limitations, amounts held in the Participant's Savings Account may not be distributable prior to the earliest of: (i) separation from Service, total and permanent disability or death; (ii) attainment of age fifty-nine and one-half (59-1/2) years; (iii) Plan termination without establishment of another defined contribution plan, other than an employee stock ownership plan (as defined in Code Sections 4975(e) or 409) or a simplified employee pension plan as defined in Code Section 408(k); (iv) disposition by a corporation to an unrelated corporation of substantially all of the assets (within the meaning of Code Section 409(d)(2)) used in a trade or business of the corporation, if the corporation continues to maintain this Plan after the disposition, but only with respect to Employees who continue employment with the corporation acquiring the assets; (v) disposition by a corporation to an unrelated entity of the corporation's interest in a subsidiary (within the meaning of Code Section 409(d)(3)) if the corporation continues to maintain this Plan, but only with respect to Employees who continue employment with the subsidiary; or (vi) proven financial hardship, subject to the limitations set forth in Article 10. All distributions that may be made pursuant to one or more of the foregoing distributable events are subject to the spousal and Participant consent requirements, if applicable, of Code Sections 401(a)(11) and 417. In addition, distributions that are triggered by one of the preceding events enumerated as (iii), (iv), (v), or (vi) must be made in a lump sum distribution. SECTION 4.2. EMPLOYER CONTRIBUTIONS. (a) MATCHING EMPLOYER CONTRIBUTIONS. In addition to the total amount of Savings Contributions elected for each month pursuant to Section 4.1, but subject to the limits of Section 4.2(c), each Employer shall, as a Matching Employer Contribution to the Plan, pay to the Trustee for each calendar quarter an amount equal to 100% of each Participant's Savings Contributions for each payroll period pursuant to Section 4.1 hereof which does not exceed four percent (4%) of his Compensation for such payroll period. (b) QUALIFIED NON-ELECTIVE CONTRIBUTIONS AND QUALIFIED MATCHING CONTRIBUTIONS. 28 (i) GENERAL. The Employer may, in its discretion, make Qualified Non-Elective Contributions and/or Qualified Matching Contributions to the Plan from time to time. Any Qualified Non-Elective Contributions made pursuant to this Section 4.2(b)(i) shall be treated as a Savings Contribution for purposes of Section 4.1(e)(i) and shall be allocated as provided in Section 4.1(e)(iv)(C). Any Qualified Matching Contributions made pursuant to this Section shall be treated as a Matching Employer Contribution for purposes of Section 4.2(c)(i) and shall be allocated as provided in Section 4.2(c)(iv)(C). (ii) INCENTIVE CONTRIBUTIONS. FFE Transportation Services, Inc. shall make Qualified Non-Elective Contributions to the Plan as provided pursuant to the terms of the FFE Transportation Services, Inc. 1994 Incentive Bonus Plan. Contributions under this Section 4.2(b)(ii) shall be treated as Savings Contributions for purposes of Plan Section 4.1(e)(i) and shall be contributed to the Plan on an annual basis. (c) LIMITATIONS ON MATCHING EMPLOYER CONTRIBUTIONS. (i) AVERAGE CONTRIBUTION PERCENTAGE TEST. The annual allocation derived from Matching Contributions and Qualified Matching Contributions to a Participant's Individual Account shall satisfy one of the following tests: (A) The Average Contribution Percentage for Participants who are Eligible Highly Compensated Employees for the Plan Year shall not exceed the Average Contribution Percentage for Participants who are Eligible Non-Highly Compensated Employees for the current Plan Year multiplied by 1.25; or (B) The Average Contribution Percentage for Participants who are Eligible Highly Compensated Employees for the Plan Year shall not exceed the Average Contribution Percentage for Participants who are Eligible Non-Highly Compensated Employees for the current Plan Year multiplied by two (2); provided that the Average Contribution Percentage for Participants who are Eligible Highly Compensated Employees for the Plan Year does not exceed the Average Contribution Percentage for Participants who are Eligible Non-Highly Compensated Employees for the current Plan Year by more than two (2) percentage points or the amount prescribed in applicable Treasury regulations to prevent the multiple use of this alternative limitation for any Highly Compensated Employee. (ii) DEFINITIONS. (A) AGGREGATE LIMIT means the greater of (1) or (2), described as follows: (1) The sum of: (a) 1.25 multiplied by the greater of the Actual Deferral Percentage or the Average Contribution Percentage for Participants who are Eligible Non-Highly Compensated Employees, and 29 (b) Two (2) percentage points plus the lesser of Actual Deferral Percentage or the Average Contribution Percentage of Participants who are Eligible Non-Highly Compensated Employees. (In no event shall this amount exceed twice the lesser of the Actual Deferral Percentage or Average Contribution Percentage of Participants who are Eligible Non-Highly Compensated Employees). (2) The sum of: (a) 1.25 multiplied by the lesser of the Actual Deferral Percentage or the Average Contribution Percentage of Participants who are Eligible Non-Highly Compensated Employees, and (b) Two (2) percentage points plus the greater of Actual Deferral Percentage or the Average Contribution Percentage of Participants who are Eligible Non-Highly Compensated Employees. (In no event shall this amount exceed twice the greater of the Actual Deferral Percentage or Average Contribution Percentage of Participants who are Eligible Non-Highly Compensated Employees). (B) AVERAGE CONTRIBUTION PERCENTAGE means the average, expressed as a percentage, of the Contribution Percentages of the Eligible Participants in a group. (C) CONTRIBUTION PERCENTAGE means the ratio, expressed as a percentage, of the sum of the Matching Contributions and Qualified Matching Contributions, if any, under the Plan on behalf of the Eligible Participant for the Plan Year to the Eligible Participant's Compensation for the Plan Year. (D) CONTRIBUTION PERCENTAGE AMOUNTS means the sum of the Matching Contributions and Qualified Matching Contributions, to the extent not taken into account for purposes of the Actual Deferral Percentage Test, made under the Plan on behalf of the Participant for the Plan Year. Contribution Percentage Amounts shall include Forfeitures of Excess Aggregate Contributions or Matching Contributions allocated to the Participant's Account that shall be taken into account in the year in which the Forfeiture is allocated. Notwithstanding the foregoing, Contribution Percentage Amounts shall not include Matching Contributions that are forfeited either to correct Excess Aggregate Contributions or because the contributions to which they relate are Excess Deferrals, Excess Contributions, or Excess Aggregate Contributions. The Employer may include Qualified Non-Elective Contributions in the Contribution Percentage Amounts. The Employer also may elect to use Savings Contributions in the Contribution Percentage Amount if the Actual Deferral Percentage Test is met before the Savings Contributions are used in the Average Contribution Percentage Test and continues to be met following the exclusion of those Savings Contributions that are used to meet the Average Contribution Percentage Test. In the case of an Eligible Participant who makes no Savings Contributions and receives no Matching Contributions, the Contribution Percentage Amount shall be zero. 30 (E) ELIGIBLE PARTICIPANT means any Employee who is eligible to make a Savings Contribution, if the Employer takes the contributions into account in calculating the Contribution Percentage, or to receive a Matching Contribution, including Forfeitures, or a Qualified Matching Contribution. (F) MATCHING CONTRIBUTION means an Employer Contribution made to this or any other defined contribution plan on behalf of a Participant on account of a Savings Contribution made by the Participant, or on account of a Participant's election to defer a portion of his or her Compensation under a plan maintained by the Employer. (G) QUALIFIED NON-ELECTIVE CONTRIBUTIONS means Employer Contributions, other than Savings Contributions and Matching Contributions, allocated to Participants' accounts which are 100% nonforfeitable at all times and which are subject to the distribution restrictions described in Section 4.1(g). Employer Contributions are not 100% nonforfeitable at all times if the Employee has a 100% nonforfeitable interest because of Years of Service taken into account under a vesting schedule. Any Employer Contributions allocated to a Participant's Savings Account under the Plan automatically satisfy the definition of Qualified Non-Elective Contributions. (H) QUALIFIED MATCHING CONTRIBUTIONS means Matching Employer Contributions allocated to Participants' accounts which are 100% nonforfeitable at all times and which are subject to the distribution restrictions described in Section 4.1(g). Matching Contributions are not 100% nonforfeitable at all times if the Employee has a 100% nonforfeitable interest because of Years of Service taken into account under a vesting schedule. Any Matching Contributions allocated to a Participant's Savings Account under the Plan automatically satisfy the definition of Qualified Matching Contributions. (iii) SPECIAL RULES (A) MULTIPLE USE. If one or more Highly Compensated Employees participate in both a cash or deferred arrangement subject to Code Section 401(k) and a plan maintained by the Employer subject to Code Section 401(m) and the sum of the Actual Deferral Percentage and Average Contribution Percentage of those 31 Highly Compensated Employees subject to either or both tests exceeds the Aggregate Limit, then the Average Contribution Percentage of those Highly Compensated Employees who also participate in a cash or deferred arrangement will be reduced in the manner described in Section 4.1(e) so that the limit is not exceeded. The amount by which each Highly Compensated Employee's Contribution Percentage Amount is reduced shall be treated as an Excess Aggregate Contribution. The Actual Deferral Percentage and Average Contribution Percentage of the Highly Compensated Employees are determined after: (1) use of Qualified Non-Elective Contributions and Qualified Matching Contributions to meet the Actual Deferral Percentage Test; (2) use of Qualified Non-Elective Contributions and Elective Contributions to meet the Actual Deferral Percentage Test; (3) any corrective distribution or forfeiture of Excess Deferrals, Excess Contributions or Excess Aggregate Contributions; and (4) after any recharacterization of Excess Contributions required without regard to multiple use of the alternative limitation; and are deemed to be the maximum permitted under such tests for the Plan Year. Multiple use occurs if the Actual Deferral Percentage and Average Contribution Percentage of the Highly Compensated Employees exceeds the Aggregate Limit. For purposes of this Section, the "Aggregate Limit" is the greater of: (1) the sum of (i) 1.25 times the greater of the relevant actual deferral percentage or the relevant actual contribution percentage, and (ii) two percentage points plus the lesser of the relevant actual deferral percentage or the relevant actual contribution percentage; provided, however, that this amount may not exceed twice the lesser of the relevant actual deferral percentage or the relevant actual contribution percentage; or (2) the sum of (i) 1.25 times the lesser of the relevant actual deferral percentage or the relevant actual contribution percentage, and (ii) two percentage points plus the greater of the relevant actual deferral percentage or the relevant actual contribution percentage; provided, however, that this amount may not exceed twice the greater of the relevant actual deferral percentage or the relevant actual contribution percentage. 32 For purposes of the preceding sentence, the "relevant" actual deferral percentage and actual contribution percentage is the actual deferral percentage and actual contribution percentage of the Non-Highly Compensated Employees. (B) For purposes of this Section, the Contribution Percentage for any Participant who is an Eligible Highly Compensated Employee for the Plan Year who is eligible to have Contribution Percentage Amounts allocated under two (2) or more plans described in Code Section 401(a) or arrangements described in Code Section 401(k) that are maintained by the Employer or a Related Employer shall be determined as if the total of the Contribution Percentage Amounts were made under each plan. If a Highly Compensated Employee participates in two (2) or more cash or deferred arrangements that have different plan years, all cash or deferred arrangements ending with or within the same calendar year shall be treated as a single arrangement. Notwithstanding the foregoing, certain plans shall be treated as separate if mandatorily disaggregated under regulations pursuant to Code Section 401(m). (C) If this Plan satisfies the requirements of Code Sections 401(m), 401(a)(4) or 410(b) only if aggregated with one (1) or more other plans, or if one (1) or more other plans satisfy the requirements of the Code Sections only if aggregated with this Plan, then this Section shall be applied by determining the Contribution Percentages of Eligible Participants as if all such plans were a single plan. (D) The Employer shall maintain records sufficient to demonstrate satisfaction of the Average Contribution Percentage Test. (E) The determination and treatment of the Contribution Percentage of any Participant shall satisfy other requirements prescribed by applicable Treasury regulations. (iv) FAIL SAFE PROVISIONS. If the initial allocations of the Matching Employer Contributions do not satisfy one of the tests set forth in paragraph (i) of this Section, the Administrator shall adjust the accounts of the Participants pursuant to one (1) or more of the following options: (A) DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS. The Administrator will determine Excess Aggregate Contributions after determining Excess Elective Deferrals under Section 4.1(d) and Excess Contributions under Section 4.1(e). If the Administrator determines that the Plan fails to satisfy the Average Contribution Percentage Test for a Plan Year, it must distribute the Excess Aggregate Contributions, as adjusted for allocable income, during the next Plan Year. However, the Employer will 33 incur an excise tax equal to 10% of the amount of Excess Aggregate Contributions for a Plan Year not distributed to the appropriate Highly Compensated Employees during the first 2-1/2 months of the next Plan Year. The Excess Aggregate Contributions are the amount of aggregate contributions allocated on behalf of the Highly Compensated Employees which causes the Plan to fail to satisfy the Average Contribution Percentage Test. The Administrator shall make distributions to each Highly Compensated Employee of his or her respective share of the Excess Aggregate Contributions in accordance with the following steps: (1) The Administrator shall calculate total Excess Aggregate Contributions for the Highly Compensated Employees. (2) The Administrator shall calculate the total dollar amount by which the Excess Aggregate Contributions for the Highly Compensated Employees must be reduced in order to satisfy the Average Contribution Percentage Test. (3) The Administrator shall calculate the total dollar amount of the Excess Aggregate Contributions for each Highly Compensated Employee. (4) The Administrator shall reduce the Excess Aggregate Contributions of the Highly Compensated Employee(s) with the highest dollar amount of Excess Aggregate Contributions by refunding such contributions to such Highly Compensated Employee(s) in the amount required to cause the dollar amount of such Highly Compensated Employee(s)' Matching Employer Contributions to equal the dollar amount of the Matching Employer Contributions of the Highly Compensated Employee(s) with the next highest dollar amount of such contributions. (5) If the total dollar amount distributed pursuant to Step (4) above is less than the total dollar amount of Excess Aggregate Contributions, Step (4) shall be applied to the Highly Compensated Employee(s) with the next highest dollar amount of Excess Aggregate Contributions until the total amount of distributed Excess Aggregate Contributions equals the total dollar amount calculated in Step (2). (6) When calculating the amount of a distribution under Step (4), if a lesser reduction, when added to any amounts already distributed under this Section, would equal the total amount of distributions necessary to permit the Plan to satisfy the requirements of Section 4.2(c)(i), the lesser amount shall be distributed from the Plan. 34 (B) ALLOCABLE INCOME. To determine the amount of the corrective distribution required under this Section, the Administrator must calculate the allocable income for the Plan Year in which the Excess Aggregate Contributions arose. The income allocable to Excess Aggregate Contributions is equal to the sum of the allocable gain or loss for the Plan Year. (1) METHOD OF ALLOCATING INCOME. The Administrator may use any reasonable method for computing the income allocable to Excess Aggregate Contributions, provided that the method does not violate Code Section 401(a)(4), is used consistently for all Participants and for all corrective distributions under the Plan for the Plan Year, and is used by the Plan for allocating income to Participants' Accounts. (2) ALTERNATIVE METHOD OF ALLOCATING INCOME. A Plan may allocate income to Excess Aggregate Contributions by multiplying the income for the Plan Year allocable to Matching Contributions and amounts treated as Matching Contributions by a fraction. The numerator of the fraction is the Excess Aggregate Contributions for the Employee for the Plan Year. The denominator of the fraction is equal to the sum of: (a) The total account balance of the Employee attributable to Matching Contributions and amounts treated as Matching Contributions as of the beginning of the Plan Year; plus (b) The Matching Contributions and amounts treated as Matching Contributions for the Plan Year. (C) CHARACTERIZATION OF EXCESS AGGREGATE CONTRIBUTIONS. The Administrator will treat a Highly Compensated Employee's allocable share of Excess Aggregate Contributions in the following priority: (i) first as attributable to his or her Matching Contributions allocable with respect to Excess Contributions determined under the Actual Deferral Percentage Test described in Section 4.1(e); (ii) then on a pro rata basis to Matching Contributions and to the Savings Contributions relating to those Matching Contributions which the Administrator has included in the Average Contribution Percentage Test; (iii) then on a pro rata basis to Savings Contributions which are mandatory contributions, if any, and to the Matching Contributions allocated on the basis of those mandatory contributions; and (iv) last to Qualified Non-Elective Contributions used in the Average Contribution Percentage Test. To the extent the Highly Compensated Employee's Excess Aggregate Contributions are attributable to Matching Contributions, and he or she is not 100% vested in the Account Balance attributable to Matching Contributions, the Administrator will distribute only the vested portion and forfeit the nonvested portion. The vested portion of the Highly Compensated Employee's Excess Aggregate Contributions attributable to Matching Employer Contributions is the total amount of the Excess Aggregate Contributions (as adjusted for allocable income) multiplied by his or her vested percentage (determined as of the last day of the Plan Year for which the Employer made the Matching Contribution). 35 (D) QUALIFIED NON-ELECTIVE AND QUALIFIED MATCHING CONTRIBUTIONS. The Employer shall make Qualified Non-Elective Contributions or Qualified Matching Contributions that, in combination with Matching Contributions, satisfy one of the tests set forth in paragraph (i) of this Subsection, taking into account the Administrator's action under any option herein. Any such contribution shall be treated as a Participant Savings Contribution and shall be allocated to the Account of each Participant. The total of these contributions shall be at least equal to the amount necessary to satisfy the requirements of paragraph (i) of this Subsection and shall be allocated first to the lowest-paid such Participant, subject to Section 5.6, and then to the next lowest-paid Participant, subject to Section 5.6, and thereafter in like manner in ascending order until the limitations of paragraph (i) are met. Such additional contributions shall be fully vested and subject to the distribution restrictions of Section 4.1(g) hereof, and must be made prior to the last day of the twelve month period immediately following the Year to which they relate. The Qualified Non-Elective and Qualified Matching Contributions may be treated as Matching Contributions provided that each of the following requirements, to the extent applicable, is satisfied: (1) The amount of Employer Contributions, including those Qualified Non-Elective and Qualified Matching Contributions treated as Matching Contributions for purposes of the Average Contribution Percentage Test, satisfies the requirements of Code Section 401(a)(4). (2) The amount of Employer Contributions, excluding those Qualified Non-Elective Contributions and Qualified Matching treated as Matching Contributions for purposes of the Average Contribution Percentage Test and those Qualified Non-Elective Contributions treated as Elective and Qualified Matching Contributions under Treasury Regulations Section 1.401(k)-1(b)(5) for purposes of the Actual Deferral Percentage Test, satisfies the requirements of Code Section 401(a)(4). (3) The Savings Contributions, including those treated as Qualified Matching Contributions for purposes of the Average Contribution Percentage Test, satisfy the requirements of Code Section 401(k)(3) for the Plan Year. 36 (4) The Qualified Non-Elective and Qualified Matching Contributions are allocated to the Employee under the Plan as of a date within the Plan Year, and the Savings Contributions satisfy the requirements of Treasury Regulations Section 1.401(k)-1(b)(4)(i) for the Plan Year. (5) The plan that takes Qualified Non-Elective Contributions and Qualified Matching Contributions into account in determining whether Savings and Matching Contributions satisfy the requirements of Code Section 401(m)(2)(A), and the plans to which the Qualified Non-Elective Contributions and Qualified Matching Contributions are made, are or could be aggregated for purposes of Code Section 410(b). (E) FORFEITURE OF NON-VESTED MATCHING EMPLOYER CONTRIBUTIONS. Matching Employer Contributions that are not vested may be forfeited to correct Excess Aggregate Contributions. Notwithstanding the foregoing sentence, Excess Aggregate Contributions for a Plan Year may not remain unallocated or be allocated to a suspense account for allocation to one or more Employees in any future year. Forfeitures of Matching Contributions to correct Excess Aggregate Contributions shall be applied to reduce the Employers' Matching Employer Contributions for the Plan Year in which the excess arose. (d) Notwithstanding the foregoing provisions of this Section 4.2 the Employer Contribution specified therein shall be limited by and in no event shall exceed the following limits: (i) The total amount deductible by such Employer under Code Section 404; or (ii) The maximum amount that may be allocated to a particular Participant's Accounts under the annual additions limit of Section 5.6 (and, if applicable, Article 12). SECTION 4.3. DISCRETIONARY EMPLOYER CONTRIBUTIONS. For each Plan Year, the amount of the Discretionary Employer Contribution to the Trust Fund will equal the amount, if any, the Employer may from time to time determine and authorize. Although the Employer may contribute to this Plan whether or not it has net profits, the Employer intends the Plan to be a profit sharing plan, including a qualified cash or deferred arrangement, and an employee stock ownership plan, for all purposes of the Code. The Employer shall not authorize contributions at such times or in such amounts that the Plan in operation discriminates in favor of Highly Compensated Employees. Notwithstanding the foregoing, the Discretionary Employer Contribution for any Plan Year shall not exceed the maximum amount allowable as a deduction to the Employer under Code Section 404. The Discretionary Employer Contributions shall be allocated to the Participants' Discretionary Employer Contribution Accounts under the formula provided in Section 5.4. SECTION 4.4. PAYMENT OF EMPLOYER CONTRIBUTIONS. 37 (a) Matching Employer Contributions shall be paid to the Trustee as soon as administratively feasible following the payroll period to which they relate. Notwithstanding the preceding sentence, Employer Contributions shall be paid to the Trustee no later than the date prescribed by law for filing such Employer's federal income tax return for its taxable year ending with or within the Plan Year for which such contribution is made, including extensions which have been granted for the filing of such tax return. The Trustee shall hold all such Employer Contributions subject to the provisions of the Plan and Trust Agreement, and no part of such contributions shall be used for, or diverted to, any purpose other than those specified in the Plan and Trust Agreement. (b) Notwithstanding anything to the contrary contained herein, an Employer Contribution for a Plan Year may be returned to the Employer to the extent that the amount of such contribution exceeds the amount that such Employer would have contributed for such Plan Year but for (i) a good faith mistake of fact made in determining the amount of such contribution or (ii) a good faith mistake in determining that the contribution made would be deductible under Code Section 404. The return of a portion of an Employer Contribution shall be subject to the following conditions: (i) earnings attributable to the amount to be returned may not be distributed to the Employer but losses attributable thereto must reduce the amount to be returned; (ii) the amount to be returned shall be limited so as to avoid reducing the balance in the Participant's Discretionary Employer Contribution Account and Matching Employer Contribution Account to less than the balance which would have been in such account if the amount attributable to such mistake had not been contributed; (iii) the return of an amount attributable to a mistake of fact may only be made within one year after such amount was paid to the Trustee; and (iv) the return of an amount attributable to a mistake in determining such deductibility may only be made within one year after the disallowance of such deduction. Except as provided in the preceding sentence, an appropriate adjustment shall be made in the Participant's Discretionary Employer Contribution Account and Matching Employer Contribution Account, if any, to reflect the return of a portion of an Employer Contribution. SECTION 4.5. ROLLOVER CONTRIBUTIONS. (a) Upon approval by the Committee, an Employee who has received an eligible rollover distribution, as defined in Code Section 402(c)(4) may contribute such eligible rollover distribution to a Rollover Account under the Plan. An Employee may also transfer to a Rollover Account under the Plan (upon Committee approval) an eligible rollover distribution from an individual retirement account or from an individual retirement annuity, but only if such distribution or proceeds qualify for tax-free rollovers under Code Section 408(d)(3)(A)(ii). In addition, the Plan will accept (upon Committee approval) direct trustee-to-trustee transfers from another qualified plan or a Code Section 403(b) annuity and will account for such transfers separately from any other Rollover Account. Notwithstanding the foregoing, in no event shall an eligible rollover distribution be contributed to an ESOP Account under the Plan. 38 (b) Any contribution under this Section 4.5 shall be treated as the contribution of a "Rollover Amount" and, except in the case of trustee-to-trustee transfers, shall be subject to the following requirements and conditions: (i) The Employee must transfer the Rollover Amount or cause to be transferred such amount to the Committee for delivery to the Trustee or, if the Committee directs, to the Trustee, in time for the Trustee to receive such amount on or before the 60th day after the day on which such amount was received by the Employee. (ii) The Employee must furnish such evidence as the Committee may require that such Rollover Amount includes all of (and does not include anything other than) the amount required to be transferred by Code Section 402(c)(4) or 408(d)(3)(A)(ii), as appropriate. (c) The Committee shall not deliver or cause the delivery of any Rollover Amount to the Trustee prior to its receipt of such evidence as may be required by it pursuant to Section 4.5(b) and, except in the case of trustee-to-trustee transfers, shall not deliver or cause the delivery of any Rollover Amount to the Trustee if such Rollover Amount would not be received by the Trustee on or before the 60th day after the day on which such amount was received by the Employee who wishes to transfer such amount to the Plan. (d) An Employee shall be eligible to transfer amounts to a Rollover Account pursuant to this Section 4.5 notwithstanding the provisions of Article 3 hereof. (e) An Employee who establishes and maintains a Rollover Account or Accounts shall be deemed to be a Participant under the Plan notwithstanding the provisions of Article 3, but no such Employee shall be entitled to share in any Employer Contributions or elect Savings Contributions unless he is otherwise participating under Article 3. (f) Fees and expenses of the Trustee attributable to the maintenance of Rollover Accounts shall be paid as provided in Section 16.7. (g) Articles 6, 8, and 11 shall govern the time and method of payment from an Employee's Rollover Accounts. SECTION 4.6. SPECIAL RULES UNDER USERRA. Effective as of December 12, 1994, notwithstanding any provision of this Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Code Section 414(u). * * * * * * * 39 ARTICLE FIVE ------------ ALLOCATIONS SECTION 5.1. ACCOUNTS. The Committee shall maintain or cause to be maintained adequate records to disclose the interest in the Trust of each Participant, Former Participant, and Beneficiary. Such records shall be in the form of individual accounts, and credits and charges shall be made to such accounts in the manner herein described. When appropriate, a Participant shall have, as separate accounts, a Matching Employer Contribution Account, a Discretionary Employer Contribution Account, a Rollover Account, a Savings Account, a W & B Plan Rollover Account, an ESOP Transfer Account, and an ESOP Rollover Account. The maintenance of separate accounts is only for accounting purposes, and a segregation of the Trust Assets to each account shall not be required. Each Account shall reflect its allocable share of income, loss, appreciation, and depreciation of the Trust Assets. Distributions made from an Account shall be charged to such Account as of the Valuation Date on which the distribution is made. SECTION 5.2. ALLOCATION OF INCOME AND EXPENSE. (a) Except as otherwise provided in Section 7.3(a), income of the Trust Assets shall be allocated as of each Valuation Date to the Accounts that generated such income. (b) Except as otherwise provided by Sections 7.3(b) and 16.7, expenses paid from the Trust Assets and not reimbursed by an Employer shall be allocated as of each Valuation Date to the Accounts of Participants, Former Participants and Beneficiaries who had undistributed balances in their Accounts on such last preceding Valuation Date in proportion to the balances in such Accounts on such date, but after first reducing each such account balance by any distributions from the account since such last preceding Valuation Date. (c) Dividends Credited to ESOP Accounts. Upon instruction from the Committee, the Trustee shall distribute to each Participant with an ESOP Account, in cash, all or a portion of the dividends paid to the Plan with respect to Company Stock held by the Plan and allocated to ESOP Accounts, within ninety (90) days after the close of the Plan Year in which such dividends are paid. The dividends, if distributed in accordance with this Section, shall be paid out as if each Participant directly owned the numbers of shares of Company Stock allocated to the Participant's ESOP Accounts (including fractional shares so allocated), as of the Accounting Date corresponding with, or if none, next following the record date for such dividend declaration. Such dividend payments shall not be considered to be distributions under the Plan. SECTION 5.3. ALLOCATION OF SAVINGS CONTRIBUTIONS. Savings Contributions elected by a Participant during any calendar month shall be credited and allocated to his Savings Account no later than the last day of the following calendar month. 40 SECTION 5.4. ALLOCATION OF EMPLOYER CONTRIBUTIONS. (a) MATCHING EMPLOYER CONTRIBUTIONS. Each Participant who is a Participant during a payroll period is entitled to share in the Matching Employer Contribution for such payroll period. Subject to Section 5.6, the Committee shall instruct the Trustee to allocate the portion of the Matching Employer Contribution for each payroll period to the Matching Employer Contribution Account of each Participant or Former Participant for whom Savings Contributions were made during such payroll period pursuant to Section 4.2(a). (b) DISCRETIONARY EMPLOYER CONTRIBUTIONS. Each Participant who is employed on the last business day of the Plan Year is entitled to share in the allocation of Discretionary Employer Contributions, if any, for such Plan Year. The Committee shall allocate the Discretionary Employer Contributions, if any, to each eligible Participant's Discretionary Employer Contribution Account in the same ratio that each Participant's Annual Compensation for the Plan Year bears to the total Annual Compensation of all Participants for such Plan Year. Notwithstanding the preceding, a Former Participant who would have been a Participant on the last business day of the Plan Year but for his death, Disability, Early Retirement, or Retirement during the Plan Year shall be entitled to share in the allocation of the Discretionary Contributions, if any, for such Plan Year. (c) QUALIFIED NON-ELECTIVE CONTRIBUTIONS AND QUALIFIED MATCHING CONTRIBUTIONS. Each Participant who is a Non-Highly Compensated Employee and who is a Participant on the last business day of the Plan Year and each Former Participant who is a Non-Highly Compensated Employee and who would have been a Participant on the last business day of the Plan Year but for his death, Disability, Early Retirement, or Retirement during the Plan Year, is entitled to share in the allocation of Qualified Non-Elective Contributions and/or Qualified Matching Contributions, if any, for such Plan Year. Such contributions shall be allocated pursuant to the provisions of Section 4.2(b)(i). (d) INCENTIVE CONTRIBUTIONS. Each Participant who is entitled to receive an allocation of Incentive Contributions under the terms of the FFE Transportation Services, Inc. 1994 Incentive Bonus Plan (the "Incentive Plan") shall receive an allocation of such amounts under this Plan. The Committee shall allocate the Incentive Contributions, if any, to each eligible Participant's Savings Account in the manner provided by the terms of the Incentive Plan. SECTION 5.5. FORFEITURES. Amounts forfeited pursuant to Sections 5.6 or 6.3 shall be used to pay Plan expenses in the Plan Year in which they are forfeited. To the extent such Forfeitures exceed Plan expenses in such Plan Year, they shall be used to reduce the Matching Employer Contributions to the Plan under Section 4.2(a) during the subsequent Plan Year, unless the Employer directs that such Forfeitures are to be used to reduce the Matching Employer Contributions to the Plan under Section 4.2(a) during the Plan Year in which they are forfeited. 41 SECTION 5.6. MAXIMUM ADDITIONS. (a) DEFINED CONTRIBUTION PLAN LIMITS. The amount of Annual Additions that the Committee may allocate under this Plan on a Participant's behalf for a Limitation Year may not exceed the Maximum Permissible Amount. If the amount the Employer otherwise would contribute to the Participant's Account would cause the Annual Additions for the Limitation Year to exceed the Maximum Permissible Amount, the Employer will reduce the amount of its contribution so the Annual Additions for the Limitation Year will equal the Maximum Permissible Amount. If an allocation of Employer Contributions pursuant to Section 5.4 would result in an Excess Amount (other than an Excess Amount resulting from the circumstances described in Section 5.6(c)) to the Participant's Account, the Committee will reallocate the Excess Amount to the remaining Participants who are eligible for an allocation of Employer Contributions for the Plan Year in which the Limitation Year ends. The Committee will make this reallocation on the basis of the allocation method under the Plan as if the Participant whose Individual Account otherwise would receive the Excess Amount is not eligible for an allocation of Employer Contributions. (b) ESTIMATION. Prior to the determination of the Participant's actual Compensation for a Limitation Year, the Committee may determine the Maximum Permissible Amount on the basis of the Participant's estimated Compensation defined in Section 5.6(e) for the Limitation Year. The Committee must make this determination on a reasonable and uniform basis for all Participants similarly situated. The Committee must reduce any Employer Contributions (including any allocation of Forfeitures) based on estimated Compensation by any Excess Amounts carried over from prior years. As soon as administratively feasible after the end of the Limitation Year, the Committee will determine the Maximum Permissible Amount for the Limitation Year based on the Participant's actual Compensation for the Limitation Year. (c) DISPOSITION OF EXCESS AMOUNT. If, pursuant to Section 5.6(b) or because of an allocation of Forfeitures, there is an Excess Amount attributable to a Participant for a Limitation Year, then the Committee will dispose of the Excess Amount as follows: (i) The Committee shall return any nondeductible Participant voluntary after tax contributions to the Participant to the extent that the return would reduce the Excess Amount. (ii) If, after the application of clause (i) an Excess Amount still exists, and the Plan covers the Participant at the end of the Limitation Year, then the Committee will use the Excess Amounts to reduce future Employer Contributions (including any allocation of Forfeitures) under the Plan for the next Limitation Year and for each succeeding Limitation Year, as is necessary, for the Participant. The Participant may elect to limit Compensation for allocation purposes to the extent necessary to reduce the allocation for the Limitation Year to the Maximum Permissible Amount and eliminate the Excess Amount. 42 (iii) If, after the application of clause (i) an Excess Amount still exists and the Plan does not cover the Participant at the end of the Limitation Year, then the Committee shall hold the Excess Amount in a suspense account and use the Excess Amount to reduce Employer Contributions on behalf of remaining Participants and shall allocate and reallocate to the Individual Accounts of remaining Participants in succeeding Limitation Years to the extent permissible under the foregoing limitations, prior to any further Annual Additions to the Plan. If the Plan should be terminated or contributions should be completely discontinued, the funds in the suspense account will be allocated to the extent not prohibited by Code Section 415. Any suspense account shall not be adjusted for investment gains or losses of the Trust Fund. (iv) The Committee will not distribute any Excess Amount(s) to Participants or to Former Participants. (v) Notwithstanding the first sentence and the foregoing paragraphs (i), (ii), (iii), and (iv), the Committee may distribute Elective Deferrals (within the meaning of Code Section 402(g)(3)) or return voluntary or mandatory Employee Contributions, to the extent the distribution or return would reduce the excess amounts in the Participant's account. (d) MULTIPLE DEFINED CONTRIBUTION PLAN LIMITS. If the Employer maintains any other qualified defined contribution plan, the amount of the Annual Addition which may be allocated to a Participant's Individual Account in this Plan shall not exceed the Maximum Permissible Amount, reduced by the amount of Annual Additions to such Participant's accounts for the same Limitation Year in the other plan(s). The Excess Amount attributed to this Plan equals the product of: (i) the total Excess Amount allocated as of such date (including any amount the Committee would have allocated but for the limitations of Code Section 415), multiplied by (ii) the ratio of: (A) the amount allocated to the Participant as of such date under this Plan, divided by (B) the total amount allocated as of such date under all qualified defined contribution plans (determined without regard to the limitations of Code Section 415). (e) DEFINITIONS. For purposes of the limitations of Code Section 415 set forth in this Section, the following definitions shall apply: (i) ANNUAL ADDITIONS means the sum of the following amounts allocated on behalf of a Participant for a Limitation Year: (A) all Employer Contributions; 43 (B) all Forfeitures; (C) all Employee Contributions; (D) excess contributions described in Code Section 401(k) and excess aggregate contributions described in Code Section 401(m), irrespective of whether the Plan distributes or forfeits such Excess Amounts, and excess deferrals described in Code Section 402(g), unless the excess deferrals are distributed no later than the first April 15 following the close of the Participant's taxable year; (E) Excess Amounts reapplied to reduce Employer Contributions under this Section 5.6; (F) amounts allocated after March 31, 1984 to an individual medical account, as defined in Code Section 415(l)(2), included as part of a pension or annuity plan maintained by the Employer; (G) contributions paid or accrued after December 31, 1985, in taxable years ending after that date, which are attributable to post-retirement medical benefits allocated to the separate account of a Key Employee as defined in Code Section 419A(d)(3), under a welfare benefit fund, as described in Code Section 419(e), maintained by the Employer; and (H) allocations under a simplified employee pension plan. (ii) COMPENSATION means the total amount of salary, wages, commissions, bonuses and overtime, paid or otherwise includable in the gross income of a Participant during the Limitation Year plus, effective January 1, 1998, any amounts excluded from income pursuant to Code Sections 125 and 401(k), but excluding: (A) Employer contributions to any deferred compensation plan (to the extent the contributions are not included in the Participant's gross income for the taxable year in which contributed) or simplified employee pension under Code Section 408(k) (to the extent the contributions are excludable from the Participant's gross income) (effective January 1, 1998, other than any amounts excluded from income pursuant to Code Section 401(k)); (B) distributions from any plan of deferred compensation, whether or not such amounts are includable in the gross income of the Employees when distributed; (C) amounts realized from the exercise of any nonqualified stock option, or when restricted stock becomes freely transferable or is no longer subject to a substantial risk of forfeiture; 44 (D) amounts realized from the sale, exchange, or other disposition of stock acquired under a qualified stock option described in Part II, Subchapter D, Chapter 1 of the Code; (E) premiums paid by the Employer for group term life insurance (to the extent the premiums are not includable in the Participant's gross income); contributions by the Employer to an annuity under Code Section 403(b) (to the extent not includable in the Participant's gross income); and any other amounts received under any Employer sponsored fringe benefit plan (to the extent not includable in the Participant's gross income); (F) any contribution for medical benefits, within the meaning of Code Section 419A(f)(2), after separation from Service which is otherwise treated as an Annual Addition; and (G) any amount otherwise treated as an Annual Addition under Code Section 415(l)(1). (iii) AVERAGE COMPENSATION means the average compensation during a Participant's highest three (3) consecutive Years of Service, which period is the three (3) consecutive calendar years (or the actual number of consecutive years of employment for those Employees who are employed for less than three (3) consecutive years with the Employer) during which the Participant had the greatest aggregate compensation from the Employer (iv) Notwithstanding the foregoing, in the case of a Participant (i) who is permanently and totally disabled (as provided in Code Section 415(c)(3)(C)), (ii) who is not a Highly Compensated Employee, and (iii) with respect to whom the Employer elects to have this subparagraph apply, the term Compensation shall mean the Compensation the Participant would have received for the Plan Year if the Participant had been paid at the rate of Compensation paid immediately before becoming permanently and totally disabled. This subparagraph (iv) shall apply only if contributions made with respect to amounts treated as Compensation under this subparagraph (iv) are nonforfeitable when made. (v) EMPLOYER means the Employer that adopts this Plan. All Related Employers shall be considered a single Employer for purposes of applying the limitations of this Section. (vi) EXCESS AMOUNT means the excess of the Participant's Annual Additions for the Limitation Year over the Maximum Permissible Amount, less administrative charges allocable to such Excess Amount. (vii) LIMITATION YEAR means the Limitation Year specified in the Plan or, if none is specified, the calendar year. (viii) MAXIMUM PERMISSIBLE AMOUNT means the lesser of: 45 (A) the Defined Contribution Dollar Limitation, or (B) twenty-five percent (25%) of the Participant's Compensation, within the meaning of Code Section 415(c)(3) for a Limitation Year with respect to any Participant. For purposes of this subsection the term "Defined Contribution Dollar Limitation" means $30,000 or, if greater, twenty-five percent (25%) of the Defined Benefit Dollar Limitation set forth in Code Section 415(b)(1)(A) as in effect for the Limitation Year. (ix) PROJECTED ANNUAL BENEFIT means the benefit of the Participant payable annually in the form of a straight life annuity (with no ancillary benefits) under the terms of a defined benefit plan to which employees do not contribute and under which no rollover contributions are made, assuming that the Participant continues employment until Normal Retirement Age (or current age, if later), compensation continues at the same rate as in effect in the Limitation Year under consideration until the date of Normal Retirement Age, and all other relevant factors used to determine benefits under the defined benefit plan remain constant as of the current Limitation Year for all future Limitation Years. SECTION 5.7. NOTIFICATION TO PARTICIPANTS. At least once annually the Committee shall advise each Participant or Former Participant of the then composition and value of his Accounts. * * * * * * * 46 ARTICLE SIX ----------- VESTING SECTION 6.1. RETIREMENT, DEATH, OR DISABILITY. If a Participant ceases to be an Employee due to the Participant's Retirement, Early Retirement, death, or Disability, such Participant, Former Participant, or the Beneficiary, as the case may be, shall be fully vested in and entitled to the total amount credited to each of his Accounts. SECTION 6.2. SEPARATED FROM SERVICE If a Participant or Former Participant is Separated from Service for any reason other than Retirement, Early Retirement, death, or Disability, such Participant or Former Participant, or the Beneficiary, as the case may be, shall be entitled to the sum of the following: (a) The total amount credited to the Participant's Savings Account, Rollover Account, and ESOP Rollover Account , if any; and (b) The Vested Percentage at the date he is Separated from Service, of the total amount credited to the Participant's Matching Employer Contribution Account, Discretionary Employer Contribution Account, W & B Plan Rollover Account, and ESOP Transfer Account, if any. The Vested Percentage shall be determined in accordance with the following schedule: Nonforfeitable Years of Service Percentage Less than 3 years 0% At least 3 but less than 4 years 20% At least 4 but less than 5 years 40% At least 5 but less than 6 years 60% At least 6 but less than 7 years 80% At least 7 or more years 100% (c) Notwithstanding the foregoing vesting schedule, for any Plan Year in which the Plan is a Top-Heavy Plan, the following vesting schedule shall apply: Nonforfeitable Years of Service Percentage Less than 2 years 0% At least 2 but less than 3 years 20% At least 3 but less than 4 years 40% At least 4 but less than 5 years 60% At least 5 but less than 6 years 80% At least 6 or more years 100% 47 (d) If, in any subsequent Plan Year, the Plan ceases to be a Top-Heavy Plan, the vesting schedule in paragraph (c) shall continue to apply unless the Employer elects, in writing, to revert to the vesting schedule set forth in paragraph (b). Any reversion shall be treated as a plan amendment and shall be subject to the restrictions of Section 15.1 and this paragraph. No such amendment shall be effective unless, in the event it changes the Plan's applicable vesting schedule (determined in accordance with regulations under Code Section 411), each Participant's nonforfeitable percentage of his accounts (determined as of the later of the date such amendment is adopted or becomes effective) is not less than such percentage computed under this Section 6.2 without regard to such amendment and unless, in such event, each Participant having not less than 3 Years of Service, is permitted to elect (pursuant to regulations under Code Section 411) to have his nonforfeitable percentage computed under the Plan without regard to such amendment. (e) If the Trustee pays any amount outstanding to the credit of a Participant in the Participant's Discretionary Employer Account, Matching Employer Account, or W & B Plan Rollover Account while the Participant is not fully vested in such account(s), other than a Cashout Distribution defined in Section 6.3(c), and prior to the date on which the Participant shall incur five (5) consecutive one year Breaks in Service, his or her vested and undistributed Discretionary Employer Account, Matching Employer Account, and W & B Plan Rollover Account shall be determined at any time prior to and including the date on which the Participant shall incur five (5) consecutive one year Breaks in Service under the following formula: X = P(AB + (RxD)) - (RxD). For this formula, the variables represent the following factors: X is the value of the vested portion of the Participant's account; P is the Participant's Nonforfeitable percentage at the relevant time; AB is the account balance of the Participant's account at the relevant time; D is the amount of the distribution; and R is the ratio of the Participant's account balance at the relevant time to the Participant's account balance after the distribution. (f) Notwithstanding the foregoing, a Participant's Vested Percentage in his W & B Plan Rollover Account and ESOP Accounts, if any, shall never be less than his vested percentage in the assets transferred to such Account at the time such assets were transferred to the Plan from the W & B Refrigeration Service Co., Inc. Employees' Profit-Sharing Plan and Trust, the FFE Transportation Services ESOP, or the Conwell ESOP, respectively. SECTION 6.3. COMPUTATION OF YEARS OF SERVICE FOR VESTING. 48 (a) GENERAL. For purposes of computing a Participant's or Former Participant's Vested Percentage of his Discretionary Employer Contribution Account, Matching Employer Contribution Account, and ESOP Transfer Account, each Participant or Former Participant shall be credited with all Years of Service to which he is entitled pursuant to Section 2.68, other than Years of Service not counted under Sections 6.3(b) and (c) below. (b) RE-EMPLOYMENT AFTER A BREAK IN SERVICE. In determining a Participant's Years of Service for vesting purposes upon a Participant's re-employment with an Employer after a Break in Service, the following rules shall apply: (i) If the Participant was not entitled to any Vested Percentage prior to his Break-in-Service, he shall be credited with pre-break Years of Service only if the number of consecutive years of Break-in-Service are less than five. If any Years of Service are not required to be taken into account by reason of the above sentence, such Years of Service shall not be taken into account in applying this paragraph (i) to a subsequent period of Break-in-Service. (ii) If the Participant was entitled to a Vested Percentage prior to his Break-in-Service, or if he meets the requirements of paragraph (i) above, then his pre-break Years of Service shall be taken into account in determining his Vested Percentage of his Discretionary Employer Contribution Account and his Matching Employer Contribution Account immediately upon his re-employment commencement date. (c) FORFEITURES. When a Participant has Separated from Service, his Matching Employer Contribution, Discretionary Employer Contribution, and ESOP Transfer Accounts shall be divided into two portions, one representing the vested portion, and the other representing the forfeiture portion, of such accounts. Such accounts shall continue to receive income allocations pursuant to Section 5.2 until distributed in full. A Participant shall forfeit the forfeiture portion of his Matching Employer Contribution, Discretionary Employer Contribution, and ESOP Transfer Accounts on the earlier of the date on which the Participant incurs five (5) consecutive one year Breaks-in-Service or the date on which the Participant receives a Cashout Distribution. A "Cashout Distribution" means a lump sum distribution pursuant to Article 11 that occurs concurrently with or at any time subsequent to the date on which the Participant separates from Service. For purposes of this Section, a Participant who separates from Service without a nonforfeitable percentage in the Participant's Matching Employer Contribution, Discretionary Employer Contribution, and ESOP Transfer Accounts shall be deemed to have received a distribution of such Accounts on the date of separation from Service, or if the Participant is entitled to an allocation of Matching Employer Contributions for the Plan Year in which he separates from Service, on the last day of that Plan Year. The amount forfeited under this Section shall remain in the Trust Fund and shall be allocated as provided in Section 5.5. (d) BENEFIT ACCRUALS AND REPAYMENTS: 49 (i) Notwithstanding Subsection (b) above, for purposes of determining a Participant's Vested Percentage under the Plan, the Plan will disregard service performed by the Participant with respect to which he has received a distribution if the present value of his entire Vested Percentage of such distribution was not more than $5,000. This paragraph (i) shall apply, however, only if such distribution was made on termination of the Participant's participation in the Plan. (ii) For purposes of determining a Participant's Vested Percentage under the Plan, the Plan will not disregard service as provided in paragraph (d)(i) above if the Participant repays the full amount of the distribution described in such paragraph (d)(i). Upon such repayment, the Participant's account balance prior to the distribution will be restored (unadjusted by any gains or losses between the time of distribution and the time of repayment) and his Vested Percentage will be recomputed by taking into account service so disregarded. This paragraph (ii) shall apply, however, only in the case of a Participant who -- (A) resumes employment before the date on which he would have incurred five (5) consecutive Breaks-in-Service; and (B) repays the full amount of such distribution before the date on which he would have incurred five (5) consecutive Breaks-in-Service. The Employer will make a special restoration contribution to the Plan in order to restore any account balances hereunder. For purposes of Plan Section 5.6 and Code Section 415(c), the repayment by the Participant and the restoration will not be treated as "annual additions." SECTION 6.4. DETERMINATION OF AMOUNT. (a) For purposes of Sections 6.1, 6.2 and 6.3, the amount credited to the Accounts of a Participant or Former Participant shall be determined as of the Valuation Date next preceding the date such Accounts are distributed, and the distribution from the Plan of such amount shall be made or shall commence as soon thereafter as practicable in the manner determined under Article 11. (b) If, on the Valuation Date referred to in Section 6.4(a), the amount credited to the Account in question does not include the allocation, if any, to which such Account is entitled under Article 5 for the months which include and/or follow such Valuation Date, then the particular Participant's or Former Participant's vested portion, determined under Section 6.1, 6.2 and 6.3, as appropriate, of such allocation shall be distributed in the manner provided under Section 11.1(d) as soon as practicable after such allocation is made. * * * * * * * 50 ARTICLE SEVEN ------------- INVESTMENT OF TRUST ASSETS SECTION 7.1. APPOINTMENT OF TRUSTEE. The Board of Directors of the Company shall determine the number of Trustees, shall appoint such Trustees, and may at any time and from time to time increase or decrease the number of Trustees. The Board of Directors of the Company may remove any Trustee at any time and appoint a successor Trustee or Trustees or reduce the number of Trustees (but not to less than one). The Trustee or Trustees shall have such rights, powers and duties as shall from time to time be specified in or determined pursuant to the Trust Agreement. The Trust Agreement shall form a part of the Plan, and the Trust Assets shall be administered in accordance with the terms of the Plan and the Trust Agreement. SECTION 7.2. INVESTMENT OF ACCOUNTS. (a) PARTICIPANT DIRECTION OF INVESTMENT. Except as provided in Section 7.2(c)(i) (regarding the Restricted Company Stock Fund), the following Accounts shall be known as Participant-Directed Accounts and shall be invested and reinvested by the Trustee in accordance with Participant direction, as provided herein: Discretionary Employer Contribution Accounts, Matching Employer Contribution Accounts, Savings Accounts, and W & B Plan Rollover Accounts. (i) Each Participant, in his written application for participation or through such other means as may be authorized by the Plan Administrator, if any, shall direct the Committee and the Trustee as to which Investment Fund(s) he wishes to utilize and the percentage of his Participant-Directed Accounts he wishes to have invested in each fund. The Participant shall make a separate investment election for his Rollover Account, if any, and his W & B Plan Rollover Account, if any. The Participant's direction shall include the percentage of his Accounts to be invested in each such Investment Fund; provided, however, that all investments shall be made in whole percentages. Such election shall be expressed in terms of the percentage amount of the Accounts, other than amounts invested in the Restricted Company Stock Fund, to be allocated to each Investment Fund. (ii) A Participant may change his designation of the manner for investment of such Participant's Participant-Directed Accounts, other than amounts held in the Restricted Company Stock Fund, or current contributions made on behalf of or by the Participant, or both, to any other manner permitted hereunder. This change may be made in writing to the Committee or through such other means as may be authorized by the Plan Administrator, if any. A change shall be applicable as soon as administratively feasible following its delivery to the Committee. In order to comply with applicable federal or state securities laws, the Committee may establish such rules with respect to the change of investment designation by participants as it shall deem necessary or advisable to prevent possible violations of such laws. 51 (iii) To the extent a Participant fails to direct the investment of all or any portion of his Participant-Directed Accounts, the Committee shall direct the Trustee to invest such Participant-Directed Accounts in one of the Investment Funds available for the Participants to choose among consisting of money market short-term investments with a high level of liquidity. (iv) The Plan Administrator may permit a Participant to make an election under this Section 7.2 through any electronic or telephonic means authorized by the Committee. (b) INVESTMENT FUNDS. The Plan Committee will select the "Investment Funds" available under the Plan in accordance with a separate written Investment Policy. The Committee shall select and maintain such Investment Funds in accordance with the Committee's written Investment Policy. Such Investment Funds shall be communicated to Participants in writing. All Participant-Directed Accounts shall be allocated by the Committee to the Investment Funds specified in the separate written Investment Policy. Dividends, interest and other distributions shall be reinvested in the same Investment Fund from which they are received. Except as provided in paragraph (c) and (d) below, the assets of each Investment Fund shall be invested exclusively in shares of the registered investment company designated by the Committee, provided that such shares constitute securities described in ERISA Section 401(b)(1). Amounts in any such Investment Fund in amounts estimated by the Trustee to be needed for cash withdrawals, or in amounts too small to be reasonably invested, or in amounts which the Trustee deems to be in the best interest of the Participants, may be retained by the Trustee in cash or invested temporarily. There shall be at least five Investment Funds for the Participants to choose between, not including the Unrestricted Company Stock Fund and the Restricted Company Stock Fund. The Committee may, from time to time and in its sole discretion, increase or decrease the number and type of the Investment Fund(s) available for the Participants to choose among; provided, however, that the Committee shall not decrease the number of Investment Funds to fewer than five. (c) COMPANY STOCK FUNDS. The Trustee shall maintain a Restricted Company Stock Fund and an Unrestricted Company Stock Fund (collectively, the "Company Stock Funds") under this Plan. The Company Stock Funds shall be invested solely in Company Stock. The Trustee is explicitly authorized to acquire and hold shares of Company Stock in the Company Stock Funds. Any and all investments, reinvestments, or purchases shall be made at prices not in excess of the fair market value of the Company Stock prevailing at the time of such purchase or investment. (i) RESTRICTED COMPANY STOCK FUND. All amounts invested in Company Stock that were subject to investment restrictions pursuant to the terms of the Prior Plan shall be invested and reinvested by the Trustee in the Restricted Company Stock Fund. Each Participant's investment in the Restricted Company Stock Fund shall be equal to the portion of his Participant-Directed Accounts that were invested in the Company Stock Fund under the Prior Plan. Participants shall have no right to direct investment of any amounts held in the Restricted Company Stock Fund. 52 During each Diversification Period, the Trustee shall transfer a portion of each Participant's investment in the Restricted Company Stock Fund to the Unrestricted Company Stock Fund as follows: (A) The transfer shall be made as of the first day of the calendar month immediately following the calendar month that includes the anniversary of a Participant's Employment Commencement Date. (B) The amount transferred shall be equal to the Participant's investment in the Unrestricted Company Stock Fund times a fraction, the numerator of which shall be one and the denominator of which shall be equal to (i) for the Diversification Period beginning July 1, 1999, four, (ii) for the Diversification Period beginning July 1, 2000, three, (iii) for the Diversification Period beginning July 1, 2001, two, and (iv) for the Diversification Period beginning July 1, 2002, one. For purposes of this Section, the term "Diversification Period" shall mean the twelve month period beginning each July 1st and ending each June 30th. (ii) UNRESTRICTED COMPANY STOCK FUND. Any amounts invested in shares of Company Stock on or after the Effective Date, any amounts invested in Company Stock that were not subject to investment restrictions pursuant to the terms of the Prior Plan, and any amounts transferred from the Restricted Company Stock Fund, shall be invested and reinvested by the Trustee in the Unrestricted Company Stock Fund. Each Participant shall be permitted to direct the Trustee to cause his Participant-Directed Accounts to purchase or sell shares of Company Stock held in the Unrestricted Company Stock Fund at any time. Any transfer of funds within a Participant-Directed Account from the Unrestricted Company Stock Fund to any other Investment Fund, will require that the Company Stock allocated to such Account be sold for its then market value and the sales proceeds transferred to the other Investment Fund (which will remain allocated to that same Account). The Trustee may sell shares of Company Stock to private purchasers (including an Employer) or in the open market; provided, however, that a sale to a private purchaser shall be made for no less than the market price then prevailing. Any transfer of funds within a Participant-Directed Account from another Investment Fund to the Unrestricted Company Stock Fund will require that the transferred funds be used to purchase shares of Company Stock (such stock to be allocated to the same Account from which the fund transfer was made). (d) ESOP ACCOUNTS. The ESOP Accounts shall be invested and reinvested by the Trustee in accordance with Article 13. SECTION 7.3. INCOME AND EXPENSES. 53 (a) Except as provided in Section 5.2, the dividends, capital gains distributions, and other earnings received on any share of Company Stock or an Investment Fund that is specifically credited to a Participant's or Former Participant's separate Account under the Plan shall be allocated to such separate Account and immediately reinvested, to the extent practicable, in additional shares of Company Stock or shares of such Investment Fund. (b) Except as otherwise provided in Sections 5.5 and 16.7, fees charged by the Trustee and other expenses of operating the Trust shall be paid by the Employers or, in the absence of such payments (which are not obligatory), out of the general Trust assets and charged to the separate Accounts of all Participants and Former Participants under the Plan in the ratio that the fair market value of each such Account bears to the total fair market value of all separate Accounts; provided, however, that such amounts shall be adjusted to reflect any revenue sharing payments received from an Investment Fund. However, notwithstanding the above, any brokerage fees, commissions, taxes and other costs incurred by the Trust (and not reimbursed by the Employers) with respect to the purchase, sale, or distribution of Company Stock pursuant to an inter-fund transfer in connection with an in-service withdrawal or a distribution made at the direction of a Participant, Former Participant, or Beneficiary pursuant to Section 10.1 or 11.1(a) or (b), shall be charged to and paid by such Participant's, Former Participant's, or Beneficiary's separate Accounts. SECTION 7.4. COMPANY STOCK. (a) ACQUISITION OF STOCK BY TRUSTEE. The Trustee shall acquire shares of Company Stock pursuant to Participants' elections under Section 7.2 from private sources (including an Employer) or the open market, at not more than the market price then prevailing. All shares of Company Stock shall be carried by the Trustee at the actual cost thereof, including taxes, brokerage fees and commissions, if any, incident to the purchase, if the shares of Company Stock were purchased, or shall be carried by the Trustee at their value at the time of contribution to the Plan, if contributed in kind to the Plan by the Employer, determined by the average of the closing prices of such stock for the twenty (20) consecutive trading days immediately preceding their contribution to the Plan. (b) STOCK RIGHTS, STOCK SPLITS, AND STOCK DIVIDENDS. No Participant, Former Participant or Beneficiary shall have any right of request, direction, or demand upon the Committee or the Trustee to exercise in his behalf rights or privileges to acquire, convert into, or exchange for Company Stock or other securities. The Trustee, in its sole discretion, may exercise or sell any such rights or privileges. The separate Accounts shall be appropriately credited if such rights are exercised or sold. Company Stock received by the Trustee by reason of a stock split, stock dividend or recapitalization shall be appropriately allocated to the separate Accounts of the affected Participant, Former Participant, or Beneficiary. 54 (c) VOTING OF COMPANY STOCK. At each annual meeting and special meeting of the stockholders of the Company, the Committee shall direct the Trustee how to vote the shares of Company Stock held in Participant-Directed Accounts. Company Stock held in ESOP Accounts shall be voted in accordance with Section 13.6(c). SECTION 7.5. EXCLUSIVE BENEFIT. The Plan and the Trust are established and shall be maintained for the exclusive benefit of the Participants, Former Participants and their Beneficiaries. Subject to the exceptions expressly set forth in the Plan or the Trust Agreement, no part of the Trust Assets may ever revert to an Employer or be used for or diverted to purposes other than the exclusive benefit of the Participants, Former Participants and Beneficiaries. SECTION 7.6. VALUATION. The value of each Account shall be determined as of each Valuation Date, on the basis of the fair market value of the assets allocated to each such Account, as appraised by the Trustee. (a) As of each Valuation Date, the Committee shall determine the fair market value of each Investment Fund being administered by the Trustee. With respect to each such Investment Fund, the Committee shall determine (a) the change in value between the current Valuation Date and the then last preceding Valuation Date, (b) the net gain or loss resulting from expenses paid (including fees and expenses, if any, which are to be charged to such Investment Fund) and (c) realized and unrealized gains and losses. Contributions and rollovers received by the Plan shall be credited to a Participant's Accounts as of the Valuation Date that such amounts are invested in an Investment Fund and shall not be considered in allocating gains and losses to the Participant's Accounts on such Valuation Date. The transfer of funds to or from an Investment Fund pursuant to Section 7.2 and 7.3 and payments, distributions and withdrawals from an Investment Fund to provide benefits under the Plan for Participants or Beneficiaries shall not be deemed to be gains, expenses or losses of an Investment Fund. As of each Valuation Date, the Committee shall allocate the net gain or loss of each Investment Fund on the Valuation Date to the Accounts of Participants participating in such Investment Fund on such Valuation Date. (b) The reasonable and equitable decision of the Committee as to the value of each Investment Fund, and of any Account as of each Valuation Date shall be conclusive and binding upon all persons having any interest, direct or indirect, in the Investment Funds or in any Account. * * * * * * * 55 ARTICLE EIGHT ------------- BENEFICIARY SECTION 8.1. DESIGNATION OF BENEFICIARY. Each Participant or Former Participant may, from time to time, designate any person or persons (who may be designated contingently or successively and who may be an entity or a natural person), either individually or in a fiduciary capacity, the Beneficiary or Beneficiaries to whom his Plan benefits are to be paid if he dies before receipt of all such benefits. However, a married Participant or a married Former Participant may not select a Beneficiary other than his Spouse unless the Spouse consents to such selection in writing, and the Spouse's consent acknowledges the effect of such selection and is witnessed by a Plan representative or a notary public. Each Beneficiary designation shall be in the form prescribed by the Committee and will be effective only when filed with the Committee during the Participant's or Former Participant's lifetime. Each Beneficiary designation filed with the Committee will cancel all Beneficiary designations previously filed with the Committee. SECTION 8.2. NO BENEFICIARY. If any Participant or Former Participant fails to designate a Beneficiary in the manner provided above, or if the Beneficiary designated by a Participant, or Former Participant dies before him and the Participant or Former Participant fails to designate a new Beneficiary, or if the Beneficiary designated by a deceased Participant or Former Participant dies before complete distribution of the deceased Participant's or Former Participant's benefit, the Committee shall direct the Trustee to distribute such Participant's or Former Participant's benefits (or the balance thereof) to one or more of the following, as determined by the Committee in its sole discretion: (a) To the surviving spouse of such Participant or Former Participant; (b) To any one or more or all of the next of kin of such Participant or Former Participant, and in such proportions, as the Committee shall determine; or (c) To the estate of the last to die of such Participant or Former Participant and his Beneficiary or Beneficiaries; or (d) To such recipient as may be required by applicable law. SECTION 8.3. MANDATORY DISTRIBUTION OF DEATH BENEFITS. The Committee may not direct the Trustee to distribute the Participant's Nonforfeitable Account Balance to the Beneficiary or Designated Beneficiary, under a method of payment which, as of the Required Beginning Date, does not satisfy the minimum distribution requirements under Code Section 401(a)(9) and the applicable Treasury regulations. (a) LIMITS ON DISTRIBUTION PERIODS. (i) If the Participant or Former Participant dies after distribution has commenced, the Trustee shall continue to distribute the remaining portion of the Participant's or Former Participant's Nonforfeitable Account Balance at least as rapidly as under the method of distribution used prior to the Participant's death. 56 (ii) If the Participant or Former Participant dies before distribution commences, the Trustee shall complete distribution of the Participant's or Former Participant's Nonforfeitable Account Balance by December 31 of the calendar year containing the fifth (5th) anniversary of the Participant's or Former Participant's death, except to the extent that the Designated Beneficiary elects to receive distributions under paragraphs (A) or (B) below: (A) If any portion of the Participant's or Former Participant's Nonforfeitable Account Balance is payable to a Designated Beneficiary, the Designated Beneficiary may elect distributions over the life or over a period certain not greater than the life expectancy of the Designated Beneficiary commencing on or before December 31 of the calendar year immediately following the calendar year in which the Participant or Former Participant died; (B) If the Designated Beneficiary is the Participant's Surviving Spouse, the date distributions must begin under paragraph (A) above shall not be earlier than the later of: (1) December 31 of the calendar year immediately following the calendar year in which the Participant or Former Participant died; and (2) December 31 of the calendar year in which the Participant or Former Participant would have attained age seventy and one-half (70-1/2) years. If the Participant has not made an election pursuant to this Section by the time of death, the Designated Beneficiary must elect the method of distribution no later than the earlier of: (1) December 31 of the calendar year in which distributions must begin under this Section; or (2) December 31 of the calendar year which contains the fifth (5th) anniversary of the date of death of the Participant or Former Participant. If the Participant has no Designated Beneficiary, or if the Designated Beneficiary does not elect a method of distribution, distribution of the Nonforfeitable Account Balance of the Participant or Former Participant must be completed by December 31 of the calendar year containing the fifth (5th) anniversary of death. (C) If the Surviving Spouse is the Beneficiary of any portion of a deceased Participant's or Former Participant's benefits under the Plan, the Surviving Spouse shall be permitted to direct that this distribution of benefits commence at a reasonable time following the death of the Participant or Former Participant under applicable Treasury regulations. (D) If the Surviving Spouse dies after the Participant or Former Participant, but before payments to the Spouse begin, the preceding provisions of this Section, with the exception of paragraph (B), shall be applied as if the Surviving Spouse had been the Participant. (b) MINIMUM DISTRIBUTION AMOUNTS. If the Trustee will distribute a Participant's or Former Participant's Nonforfeitable Account Balance in accordance with the Designated Beneficiary's life expectancy, the minimum distribution for a calendar year equals the Participant's Nonforfeitable Account Balance as of the latest Valuation Date preceding the beginning of the calendar year divided by the Designated Beneficiary's life expectancy. 57 For purposes of this Section, payments will be calculated by using the expected return multiples specified in Tables V and VI of Treasury Regulations Section 1.72-9. Except as the Surviving Spouse may otherwise elect in Section 8.3(d)(i) below, the life expectancy of a Surviving Spouse shall be recalculated annually; however, in the case of any other Designated Beneficiary, life expectancy will be calculated when the first payment commences without further recalculation. For purposes of this Section, any amount paid to a child of the Participant or Former Participant will be treated as if it had been paid to the Surviving Spouse, if the amount becomes payable to the Surviving Spouse when the child reaches the age of majority. (c) COMMENCEMENT OF BENEFITS. (i) GENERAL RULE. For the purposes of this Section, distribution of a Participant's or Former Participant's Nonforfeitable Account Balance is considered to begin on the Participant's or Former Participant's Required Beginning Date or, if Section 8.3(a)(ii)(D) applies, the date distribution is required to begin to the Surviving Spouse pursuant to Section 8.3(a)(ii)(A). If distribution in the form of an annuity irrevocably commences before the Required Beginning Date, the date distribution is considered to begin is the date distribution actually commences. (ii) REQUIRED BEGINNING DATE. A Participant's (or Former Participant's) "Required Beginning Date" shall be as follows: (A) For a Participant who is a Five Percent Owner, the Required Beginning Date shall commence on the first day of April following the later of: (1) the calendar year in which the Participant attains age seventy and one-half (70-1/2) years; or (2) the earlier of the calendar year with or within which ends the Plan Year in which the Participant becomes a Five Percent Owner, or the calendar year in which the Participant retires. (B) For a Participant who is not a Five Percent Owner, the Required Beginning Date is the first day of April of the calendar year immediately following the later of: (1) the calendar year in which the Participant attains age seventy and one-half (70-1/2); or (2) the calendar year in which the Participant terminates employment with the Employer. 58 A Participant is treated as a "Five Percent Owner" for purposes of this Section if the Participant is a Five Percent Owner as defined in Section 12.2(g)(iii) and Code Section 416(i) (determined under Code Section 416 but without regard to whether the Plan is Top-Heavy) at any time during the Plan Year ending with or within the calendar year in which the owner attains age sixty-six and one-half (66-1/2) years or any subsequent Plan Year. Once distributions have begun to a Five Percent Owner under this Section, they must continue to be distributed, even if the Participant ceases to be a Five Percent Owner in a subsequent year. (d) DEFINITIONS. (i) APPLICABLE LIFE EXPECTANCY means the life expectancy calculated using the attained age of the Participant (or the Designated Beneficiary) as of the Participant's (or the Designated Beneficiary's) birthday in the applicable calendar year reduced by one for each calendar year which has elapsed since the date life expectancy was first calculated. If the Designated Beneficiary is the Spouse of the Participant, such Spouse may make an irrevocable election to recalculate his or her life expectancy, prior to the Participant's Required Beginning Date. If life expectancy is being recalculated, the Applicable Life Expectancy shall be the life expectancy as recalculated. The applicable calendar year shall be the first Distribution Calendar Year and, if life expectancy is being recalculated, the succeeding calendar year. (ii) DESIGNATED BENEFICIARY means the individual who is designated as the Beneficiary under the Plan under Code Section 401(a)(9) and the applicable Treasury regulations. (iii) DISTRIBUTION CALENDAR YEAR means a calendar year for which a minimum distribution is required. For distributions beginning before the Participant's death, the first Distribution Calendar Year is the calendar year immediately preceding the calendar year which contains the Participant's Required Beginning Date. For distributions beginning after the Participant's death, the first Distribution Calendar Year is the calendar year in which distributions are required to begin pursuant to this Section. (iv) PARTICIPANT'S NONFORFEITABLE ACCOUNT BALANCE means the Account Balance as of the last Valuation Date in the calendar year immediately preceding the Distribution Calendar Year (Valuation Calendar Year), increased by the amount of any Contributions or Forfeitures allocated to the Account Balance as of the dates in the Valuation Calendar Year after the Valuation Date and decreased by distributions made in the Valuation Calendar Year after the Valuation Date. If any portion of the minimum distribution for the first Distribution Calendar Year is made in the second Distribution Calendar Year on or before the Required Beginning Date, the amount of the minimum distribution made in the second Distribution Calendar Year shall be treated as if it had been made in the immediately preceding Distribution Calendar Year. 59 ARTICLE NINE ------------ NOTICES SECTION 9.1. NOTICE TO TRUSTEE. As soon as practicable after a Participant, Former Participant or Beneficiary becomes entitled to benefits in accordance with Article 6, the Committee shall give written notice to the Trustee, which notice shall include the following information and directions: (a) The name and address of the Participant, Former Participant, or Beneficiary. (b) The percentage or amount to which the Participant, Former Participant, or Beneficiary is entitled under Article 6. (c) The time, manner and amount of payments to be made pursuant to Article 11. SECTION 9.2. SUBSEQUENT NOTICES. At any time and from time to time after giving the notice provided for in Section 9.1, the Committee may modify such original notice or any subsequent notice by means of a further written notice or notices to the Trustee, but any action taken or payments made by the Trustee pursuant to the original notice and prior to the receipt of a subsequent notice shall not be affected by such subsequent notice. SECTION 9.3. COPY TO PARTICIPANT. A copy of each notice provided for in Sections 9.1 and 9.2 shall be mailed by the Committee to the Participant or Former Participant or to each Beneficiary involved, as the case may be, but if, for any reason, such copy is not sent or received, that fact shall not affect the validity of any notice to the Trustee nor the validity of any action taken or payment made pursuant thereto. SECTION 9.4. RELIANCE UPON NOTICE. Upon receipt of any notice as provided in this Article 9, the Trustee shall promptly take whatever action and make whatever payments are called for therein. * * * * * * * 60 ARTICLE TEN ----------- IN-SERVICE WITHDRAWALS AND LOANS TO PARTICIPANTS SECTION 10.1. WITHDRAWALS FROM ACCOUNTS. (a) SAVINGS ACCOUNTS. (i) HARDSHIP DISTRIBUTIONS. Distribution of Savings Contributions (and any earnings credited to a Participant's Account as of the end of the last Plan Year ending before July 1, 1989), Incentive Contributions, Qualified Non-Elective Contributions, and Qualified Matching Contributions made pursuant to a Participant's Savings Contributions, including any shares of Company Stock held in the Restricted Company Stock Fund, may be made to a Participant in the event of hardship. For the purposes of this Section, a hardship distribution is defined pursuant to the safe harbor definition of Treasury Regulation Section 1.401(k)-1(d)(2)(iv) and means a distribution necessary to satisfy an immediate and heavy financial need of an Employee who lacks other available resources. (A) A distribution will be considered to satisfy an immediate and heavy need of an Employee if the distribution is for: (1) expenses incurred for or necessary to obtain medical care, described in Code Section 213(d), of the Employee, the Employee's spouse, children, or dependents; (2) costs directly related to the purchase, excluding mortgage payments, of a principal residence for the Employee; (3) payment of tuition and related educational fees for the next twelve (12) months of post-secondary education for the Employee, the Employee's Spouse, children or dependents; or (4) payment necessary to prevent the eviction of the Employee from, or a foreclosure on the mortgage of, the Employee's principal residence. (B) A distribution will be considered necessary to satisfy an immediate and heavy financial need of an Employee who lacks other available resources only if: (1) the Employee has obtained all distributions, other than hardship distributions, and all nontaxable loans under all plans maintained by the Employer; and (2) the distribution is not in excess of the amount of an immediate and heavy financial need, including amounts necessary to pay any federal, state or local income taxes or penalties reasonably anticipated to result from the distribution. 61 (C) In addition to the conditions above: (1) each plan maintained by the Employer or a legally enforceable arrangement provides that the Savings Contributions will be suspended for twelve (12) months after the receipt of the hardship distribution; and (2) each plan maintained by the Employer or a legally enforceable arrangement prohibits the Employee from making Elective Deferrals for the Employee's taxable year immediately following the taxable year of the hardship distribution in excess of the applicable limit under Code Section 402(g) for such taxable year less the amount of such Employee's Elective Deferrals for the taxable year of the hardship distribution. (3) any hardship withdrawal to a Participant made pursuant to this Section shall be increased by an amount equal to the lesser of: (a) all federal, state, and local income taxes and associated penalties (including, if applicable, the additional income tax described in Code Section 72(t) imposed with respect to such hardship withdrawal); or (b) the amount, if any, in such Participant's Savings Account in excess of such hardship withdrawal. (ii) UPON ATTAINMENT OF AGE 59-1/2. A Participant may elect to receive a lump-sum distribution of the amount in his Savings Account at any time after such Participant attains age fifty-nine and one-half (59-1/2); provided, however, that such distribution shall not include any shares of Company Stock held in the Restricted Company Stock Fund. (b) MATCHING EMPLOYER CONTRIBUTION ACCOUNTS AND DISCRETIONARY EMPLOYER CONTRIBUTION ACCOUNTS. (i) PRIOR TO ATTAINMENT OF AGE 59-1/2. A Participant may not receive a distribution from his Matching Employer Contribution Account or his Discretionary Employer Contribution Account prior to his attainment of age fifty-nine and one-half (59-1/2). (ii) AFTER ATTAINMENT OF AGE 59-1/2. A Participant may elect to receive a lump-sum distribution of the vested amount in his Matching Employer Contribution Account and/or his Discretionary Employer Contribution Account at any time after such Participant attains age fifty-nine and one-half (59-1/2); provided, however, that such distribution shall not include any shares of Company Stock held in the Restricted Company Stock Fund. 62 (c) ROLLOVER ACCOUNTS. A Participant may receive an in-service distribution from his Rollover Account at any time. A Participant may not receive an in-service distribution from his W & B Plan Rollover Account. (d) ESOP ACCOUNTS. (i) HARDSHIP DISTRIBUTIONS. A Participant may not receive a hardship distribution from his ESOP Accounts. (ii) IN-SERVICE DISTRIBUTIONS. A Participant may not receive an in-service distribution from his ESOP Accounts. (e) SECTION 16 INSIDERS. Notwithstanding the preceding, if the Participant requesting a withdrawal from the Company Stock Funds is an executive officer, director or 10% shareholder of the Company (a "Section 16 Insider"), then any such withdrawal from the Company Stock Funds shall be paid by a distribution in kind of Company Stock, and cash may be distributed only to the extent that the distribution is made pursuant to an election made at least six (6) months following the date of the most recent election, with respect to any employee benefit plan of the Company, that effected an opposite way "discretionary transaction," qualifying for exemption under the requirements for an exempt "discretionary transaction," as that term is defined in Rule 16b-3, issued by the Securities and Exchange Commission under Section 16 of the Securities Exchange Act of 1934. The Committee shall give such directions to the Trustee as shall be appropriate to effectuate the distribution in accordance with the terms hereof of the amount being withdrawn. Such withdrawals described in Section 10.2(b) below shall be debited to the Participant's Savings Account, and the Committee shall charge the sum of such debits to the Company Stock Funds and/or other investment fund(s) within such Savings Account in such manner as the Participant designates in writing; provided, however, if the Participant fails to make such a written designation, the Committee shall charge the sum of such debits to the investment fund to be determined by the Committee. SECTION 10.2. LOANS TO PARTICIPANTS. The Committee may authorize a loan to the Participants and to any Former Participant who is a "party-in-interest" (as defined in ERISA Section 3(14)) who makes application therefor, of amounts credited to the Participant's Accounts, including any shares of Company Stock held in the Restricted Company Stock Fund. Provided, however, that no portion of the Annuity-Restricted Account (as defined in Section 11.2) or the ESOP Accounts shall be available for a loan. Loans shall not be available to any person who is not a party-in-interest as defined in ERISA Section 3(14). Each such loan shall be subject to the following provisions: (a) A Participant must apply for each loan either in writing on an application form provided by the Committee or through such other means as may be authorized by the Committee. As a condition to the making of the loan, the Participant shall agree to pay the loan set-up and annual loan administration fees associated with the extension of the loan from his Account (unless paid directly by the Participant). 63 (b) The amount of any loan, when added to the outstanding balance of all other loans to the Participant or Former Participant under this Plan shall not exceed the lesser of: (i) $50,000, reduced by the excess (if any) of (i) the highest outstanding balance of loans to the Participant or Former Participant from the Plan and all related plans during the one year period ending on the day before the date the loan is made, over (ii) the outstanding balance of loans to the Participant or Former Participant from the Plan and all related plans on the date the loan is made; and (ii) 50% of the amount in which the Participant would have a vested interest in the event his Separation from Service was to occur on the date the loan is made. For purposes of this Section, a related plan is any "qualified employer plan", as defined in Code Section 72(p)(3), sponsored by the Employers or any related employer, determined according to Code Section 72(p)(2)(C). (c) Each loan shall be evidenced by a promissory note payable to the order of the Plan. Each loan shall be adequately secured as determined by the Committee. A loan shall be considered adequately secured if the amount of the loan at the date the loan is granted does not exceed one-half of the amount in which the Participant would have a vested interest in the event of his Separation from Service. (d) Each loan shall bear an interest rate equal to the "prime lending rate" published in the Wall Street Journal plus one percent (1%) at the time such loan is requested. (e) Each such loan shall provide for the repayment of principal and accrued interest in substantially level amortized payments payable not less frequently than quarterly through payroll deduction payments. (f) Each loan shall extend for a stated period determined by agreement of the Participant and the Committee, not exceeding five years. The limitation in the preceding sentence shall not apply to any loan designated by the Committee as a home loan. For purposes of this Section 10.2, a "home loan" is a loan used to acquire any dwelling unit that within a reasonable time is to be used as the principal residence of the Participant. A home loan shall not exceed ten (10) years. (g) If a loan to a Participant is outstanding on the date a distribution is to be made from the Plan with respect to a portion of the Participant's Accounts represented by the loan, the balance of the loan, or a portion thereof equal to the amount to be distributed, if less, shall on such date become due and payable; provided that if the Participant is a party-in-interest (as defined in ERISA Section 3(14)), such loan shall not 64 become due and payable if renegotiated on terms acceptable to the Committee. The portion of the loan due and payable shall be satisfied by offsetting such amount against the amount to be distributed to the Participant. Alternatively, the Committee may in its discretion direct that the portion of the Participant's Accounts equal to the outstanding loan balance be distributed in kind by distribution of the Participant's note. (h) If a loan to a Participant is outstanding at the time of the Participant's death, and if the Participant's executor or administrator does not repay the loan, the note shall be distributed in kind to the Participant's Beneficiary. Effective for all loans made after January 1, 1999, a loan shall be accelerated and immediately due in full upon a Participant's termination of employment. (i) If a Participant fails to pay interest or principal on an outstanding loan when due, his Account from which the loan was made shall, at the direction of the Committee, be reduced by the unpaid amount if a withdrawal would be permitted from said Account pursuant to Article 6. The Participant shall be treated as having received such a distribution and shall receive credit under the promissory note for the delinquent payment accordingly. If the Committee does not take such action, the Committee shall take whatever steps (including legal action) it deems necessary to collect the unpaid amount. (j) In accordance with the foregoing standards and requirements, loans shall be available to all Participants on a reasonably equivalent basis. A Participant shall only be entitled to have two (2) loans in effect at the same time. Each loan must be in a minimum amount of $1,000. (k) All loans shall be governed by such rules and regulations as the Committee may adopt which rules and regulations are hereby incorporated by reference. The Committee shall cause to be furnished to any Participant receiving a loan any information required to be furnished pursuant to the Federal Truth in Lending Act, if applicable, or pursuant to any other applicable law. (l) The portion of a Participant's Accounts represented by the outstanding loan principal shall be segregated and shall not share in the income or losses of the Plan. In lieu of sharing in such income or losses, the Participant's Accounts shall be credited with all interest paid by the Participant on the loan. The Trustee may charge to the Participant's Accounts any expenses attributable to the loan. (m) The investment funds held for a Participant's Accounts shall be liquidated to provide cash equal to the loan principal on a pro rata basis. (n) Effective as of December 12, 1994, loan repayments will be suspended under this Plan, as permitted under Code Section 414(u)(4), on behalf of those Participants who are on an authorized leave of absence pursuant to qualified military service. * * * * * * * 65 ARTICLE ELEVEN -------------- METHODS OF PAYMENT SECTION 11.1. PARTICIPANT ELECTION (a) TIMING OF DISTRIBUTIONS. (i) Subject to the provisions of this Article 11, upon the Retirement or Disability of a Participant, or the death of a Participant or Former Participant, distribution of amounts to which a Participant, Former Participant or Beneficiary became entitled pursuant to Section 6.1 of the Plan shall commence as soon as administratively practicable following the event which caused entitlement to a distribution, and shall be completed as soon as administratively practicable following the end of the Plan Year in which the Participant or Former Participant Retired, became Disabled or died. (ii) Subject to the provisions of this Article 11, upon the Separation from Service of a Participant, distribution of amounts to which a Participant becomes entitled pursuant to Sections 6.2 and 6.3(c) of the Plan shall be completed as soon as administratively practicable following the event which caused entitlement to a distribution. (b) ESOP ACCOUNT DISTRIBUTIONS. (i) Notwithstanding the provisions of Section 11.1(a)(ii), if the Participant Separates from Service for any reason other than Retirement, Death or Disability and is not reemployed by the Employer at the end of the first Plan Year following the Plan Year of the Separation from Service, the Participant may elect to have distribution of the vested percentage of his ESOP Accounts made on or after the date that is one year after the close of the first Plan Year following the Plan Year in which the Participant Separated from Service by completing a distribution request form and submitting it to the Committee; in the absence of such an election, distribution of the vested percentage of the Participant's ESOP Accounts will begin during the sixty (60) day period following the end of the Plan Year in which the Participant reaches Normal Retirement Age. If the Participant is reemployed by the Employer by the end of the first Plan Year, distribution under the Plan will be governed by whichever part of this Article thereafter becomes applicable. The Committee shall combine the Nonforfeitable percentage of the ESOP Transfer Account of a Participant determined under Section 6.2 with the Participant's ESOP Rollover Account into one Account, and the Trustee shall make payments to the Participant pursuant to Article 11. (ii) Notwithstanding any contrary provision, unless other Plan distribution provisions require earlier distribution of the Participant's ESOP Accounts, if the Participant and, if applicable pursuant to Code Sections 401(a)(11) and 417, with the consent of the 66 Participant's spouse, elects, the Committee shall direct the Trustee to commence distribution of the Participant's Account Balance attributable to Company Stock acquired after December 31, 1986 in the Participant's ESOP Accounts no later than one (1) year after the close of the Plan Year in which the Participant Separates from Service because of attainment of Normal Retirement Age, Disability, or death. This distribution requirement is subject to the form of distribution requirements of this Article 11. (iii) Notwithstanding any contrary provision, unless other Plan distribution provisions require earlier distribution of the Participant's ESOP Accounts, if the Participant and, if applicable pursuant to Code Sections 401(a)(11) and 417, with the consent of the Participant's spouse, elects, the Committee shall direct the Trustee to commence distribution of the Participant's Account Balance attributable to Company Stock acquired after December 31, 1986 in the Participant's ESOP Accounts no later than one (1) year after the close of the Plan Year which is the fifth (5th) Plan Year following the Plan Year in which the Participant Separates from Service for any reason other than attainment of Normal Retirement Age, death or disability. This distribution requirement is subject to the form of distribution requirements of this Article. If the Participant resumes employment with the Employer on or before the last day of the fifth (5th) Plan Year following the Plan Year of the Participant's Separation from Service, the distribution provisions of this paragraph will not apply until the Participant again may separate from Service for any reason other than attainment of Normal Retirement Age, death or disability. (c) FORM OF DISTRIBUTION. (i) PARTICIPANT-DIRECTED ACCOUNTS. Except as provided in Section 11.2, distributions under this Plan shall be made in a lump sum. A Participant shall elect whether his lump sum distribution shall be made in cash or as a combination of Company Stock (and cash in lieu of fractional shares) from any Account balances invested in the Company Stock Funds and cash from any Account balances invested in the other Investment Fund(s). (ii) ESOP ACCOUNTS. Distributions from a Participant's ESOP Accounts shall be made in a lump sum and shall be in the form of whole shares of Company Stock. The value of any fractional shares shall be distributed in cash. If Company Stock is not readily tradable on an established market, the recipient shall receive a put option as described in Section 13.2. A Participant entitled to a distribution from his ESOP Accounts shall have the right to demand that all such distributions be made in Qualifying Company Stock or in cash for fractional shares. (d) An amount to which a Participant, Former Participant or Beneficiary is entitled pursuant to Section 6.4(b) shall be paid in cash to such Participant, Former Participant or Beneficiary as soon as administratively practicable after the determination of such amount or, if later, the date a payment is made to such Participant, Former Participant or Beneficiary under Section 11.1(a) or (b); provided, however, that if the total value of his vested interest in his Accounts is less than or equals $5,000 he shall be entitled to receive a distribution of the portion of such Accounts which was invested in Company Stock at the time the Participant became entitled thereto, in cash or shares of Company Stock, with the value of any fractional shares to be paid in cash. 67 (e) Notwithstanding anything to the contrary herein contained, unless a Participant or Former Participant has attained age sixty-five (65), if the value of the vested interest in his Accounts exceeds $5,000, no distribution may be made to such Participant or Former Participant without his express written consent. (f) Notwithstanding anything to the contrary herein contained, a Participant's benefits will in all events be paid in a lump sum as soon as practicable following the end of the Plan Year in which such Participant terminates employment if the total value of his vested interest in all Accounts is less than or equals $5,000. Unless affirmatively elected otherwise, such distribution shall be made in cash and in whole shares of Company Stock for all ESOP Accounts and any other account balances invested in the Company Stock Funds. SECTION 11.2. JOINT AND SURVIVOR ANNUITY. (a) Notwithstanding any provision of the Plan to the contrary, if any portion of a Participant's Rollover Account, W & B Plan Rollover Account, or ESOP Rollover Account represents a transfer of assets, directly or indirectly, from a defined benefit plan, or from a defined contribution plan that is either subject to the funding standards of Code Section 412 or otherwise subject to the requirements of Code Section 401(a)(11)(A), such portion (referred to in this Article 11 as the "Annuity-Restricted Account") shall, if the Participant does not die before the Annuity Starting Date, be distributed in the form of a qualified joint and survivor annuity in the absence of a qualified waiver under Section 11.3, or except as otherwise provided in Section 6.3(c). For purposes of this paragraph, Annuity Starting Date means the first day of the first period for which an amount is payable as an annuity, or, in the case of the benefit not payable in the form of an annuity, the first day on which all events have occurred which entitled the Participant to such benefit. The qualified joint and survivor annuity shall be purchased with the total amount (as determined under Article 11) credited to the Participant's Annuity-Restricted Account subject to this Section 11.2. (b) Notwithstanding any provision of the Plan to the contrary, in the case of any Participant who dies before distribution of his benefits under the Plan has commenced, a qualified preretirement survivor annuity shall be payable from the Annuity-Restricted Account (as determined under Article 11) to the Spouse of the Participant in the absence of a qualified waiver under Section 11.3, or except as otherwise provided in Section 6.3(c). SECTION 11.3. JOINT AND SURVIVOR ANNUITY REQUIREMENTS. (a) This Plan is a profit sharing plan and the provisions of this Section 11.3 apply only to a Participant described in Section 11.2 and this Section. The provisions of this Section 11.3 do not apply to any Participant in the Plan except: 68 (i) a Participant described in Section 11.2; (ii) a Participant for whom the Plan is a direct or indirect transferee from a plan subject to the survivor annuity requirements of Code Sections 401(a)(11) and 417 and the Plan received the transfer after December 31, 1984, unless the transfer is an Elective Transfer; (iii) a Participant who elects a life annuity distribution (if the Plan is required to provide a life annuity distribution option); or (iv) a Participant whose benefits under a defined benefit plan maintained by the Employer are offset by benefits provided under this Plan. If the provisions of this Section apply to any Participant, the provisions of this Section shall apply to all vested benefits of the Participant, whether the Participant became vested in the benefit before or after death, which are payable under the Plan, including any proceeds from Contracts owned by the Plan. (b) QUALIFIED JOINT AND SURVIVOR ANNUITY. Unless an optional form of benefit is selected pursuant to a Qualified Election within the ninety (90) day period ending on the Annuity Starting Date, a married Participant's Nonforfeitable Account Balance will be paid in the normal form of a Qualified Joint and Survivor Annuity, defined in Section 11.3(d)(vi), and an unmarried Participant's Nonforfeitable Account Balance will be paid in the normal form of an immediate life annuity. The Participant may elect to have the annuity distributed upon attainment of the Earliest Retirement Age under the Plan. A Participant shall be considered vested even if the Participant is only vested in Employee Contributions. For purposes of satisfying the Qualified Joint and Survivor Annuity requirements, Account Balances shall mean benefits derived from both Employee and Employer Contributions. (c) QUALIFIED PRERETIREMENT SURVIVOR ANNUITY. Unless an optional form of benefit has been selected within the Election Period pursuant to a Qualified Election, if a Participant dies before the Annuity Starting Date, then the Participant's Nonforfeitable Account Balance shall be applied toward the purchase of a Qualified Preretirement Survivor Annuity, defined in Section 11.3(d)(vii). The Surviving Spouse may elect to commence payment of the Qualified Preretirement Survivor Annuity within a reasonable period after the Participant's death. For purposes of this Section 11.3(c), the amount of the Qualified Preretirement Survivor Annuity attributable to Employee Contributions shall not be an amount in excess of the ratio of Employee and Employer Contributions. In determining the value of the Qualified Preretirement Survivor Annuity, any portion of a Participant's Individual Account which is pledged as collateral to secure payment of a Plan Participant loan shall be included in the Nonforfeitable Account Balance. (d) DEFINITIONS. (i) ANNUITY STARTING DATE means the first day of the first period for which an amount is paid as an annuity or any other form. 69 (ii) ELECTION PERIOD means the period that begins on the first day of the Plan Year in which the Participant attains age thirty-five (35) years and ends on the date of the Participant's death. If a Participant separates from Service prior to the first day of the Plan Year in which the Participant attains age thirty-five (35) years, for the Account Balance as of the date of separation, the Election Period shall begin on the date of separation. A Participant who will not yet attain age thirty-five (35) years as of the end of any current Plan Year may make a Special Qualified Election to waive the Qualified Preretirement Survivor Annuity for the period beginning on the date of the election and ending on the first day of the Plan Year in which the Participant will attain age thirty-five (35) years. The election shall not be valid unless the Participant receives a written explanation of the Qualified Preretirement Survivor Annuity in such terms as are comparable to the explanation required under Section 11.3(e)(i). Qualified Preretirement Survivor Annuity coverage will be automatically reinstated as of the first day of the Plan Year in which the Participant attains age thirty-five (35) years. Any new waiver on or after the date shall be subject to the full requirements of this Article. (iii) EARLIEST RETIREMENT AGE means the earliest date on which, under the Plan, the Participant could elect to receive retirement benefits. (iv) NONFORFEITABLE ACCOUNT BALANCE means the aggregate value of the Participant's Nonforfeitable Account Balance derived from Employer and Employee Contributions, including rollovers, whether vested before or upon death, including the proceeds of Contracts, if any, on the Participant's life. The provisions of this Article shall apply to a Participant who is vested in amounts attributable to Employer Contributions, Employee Contributions, or both, at the time of death or distribution. (v) QUALIFIED ELECTION means a waiver of a Qualified Joint and Survivor Annuity or a Qualified Preretirement Survivor Annuity. Any waiver of a Qualified Joint and Survivor Annuity or a Qualified Preretirement Survivor Annuity shall not be effective unless: (A) the Participant's Spouse to whom the Survivor Annuity or Preretirement Survivor Annuity is payable consents in writing to the waiver election; (B) the election designates a specific Beneficiary, including any class of Beneficiaries or any contingent Beneficiaries; (C) the Spouse is the Participant's sole primary Beneficiary, the Spouse consents to the Participant's Beneficiary designation or consents to any change in the Participant's Beneficiary designation without any further spousal consent; (D) the Spouse's consent acknowledges the effect of the election; and 70 (E) the Spouse's consent is witnessed by a Plan representative or notary public. (F) Additionally, a Participant's waiver of the Qualified Joint and Survivor Annuity shall not be effective unless the election designates a form of benefit payment and the Spouse consents to the form of payment designated by the Participant or consents to any change in that designated form of payment without any further spousal consent. Notwithstanding this consent requirement, if the Participant establishes to the satisfaction of a Plan representative that written consent may not be obtained because there is no Spouse, or the Spouse cannot be located, a waiver will be deemed a Qualified Election. If the Spouse is legally incompetent to give consent, the Spouse's legal guardian, even if the guardian is the Participant, may give consent. Also, if the Participant is legally separated or the Participant has been abandoned (within the meaning of local law) and the Participant has a court order to such effect, spousal consent is not required unless a Qualified Domestic Relations Order described in Code Section 414(p) provides otherwise. Any consent obtained under this provision, or establishment that the consent of a Spouse may not be obtained, shall be effective only with respect to the Spouse who signs the consent, or in the event of a deemed Qualified Election, the designated spouse. A consent that permits designations by the Participant without any requirement of further consent by the Spouse must acknowledge that the Spouse has the right to limit consent to a specific Beneficiary, and a specific form of benefit where applicable, and that the Spouse voluntarily elects to relinquish either or both of the rights. A revocation of a prior waiver may be made by a Participant without the consent of the Spouse at any time before the commencement of benefits. The number of revocations shall not be limited. No consent obtained under this provision shall be valid unless the Participant has received notice as provided in Section 11.3(e). After the Participant's death, a Beneficiary may change the optional form of survivor benefit as permitted by the Plan. (vi) QUALIFIED JOINT AND SURVIVOR ANNUITY means, in the case of a married Participant who does not die before the Annuity Starting Date, an immediate annuity for the life of the Participant with a Survivor Annuity for the life of the Spouse which is equal to fifty percent (50%) of the amount of the annuity which is payable during the joint lives of the Participant and the Spouse and which is the amount of benefit which can be purchased with the Participant's Nonforfeitable Account Balance. In the case of an unmarried Participant who does not die before the Annuity Starting Date, the Qualified Joint and Survivor Annuity requirement means an annuity for the life of the Participant which is the amount of benefit which can be purchased with the Participant's Nonforfeitable Account Balance. 71 (vii) QUALIFIED PRERETIREMENT SURVIVOR ANNUITY means an annuity for the life of the Participant's Spouse, the payments under which shall be equal to the amount of benefit which can be purchased with the Nonforfeitable Account Balance of the Participant. The Participant's Surviving Spouse will receive the same benefit that would be payable if the Participant had retired with an immediate Qualified Joint and Survivor Annuity on the day before the Participant's date of death. (viii) SPOUSE, SURVIVING SPOUSE means the Spouse or Surviving Spouse of the Participant, provided that a former spouse will be treated as the 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 described in Code Section 414(p). (e) NOTICE REQUIREMENTS. (i) For a Qualified Joint and Survivor Annuity described in Section 11.3(d)(vi), the Administrator shall provide, no less than thirty (30) days and no more than ninety (90) days prior to the Annuity Starting Date, to each Participant a written explanation of: (A) the terms and conditions of a Qualified Joint and Survivor Annuity; (B) the Participant's right to make and the effect of an election to waive the Qualified Joint and Survivor Annuity form of benefit; (C) the rights of a Participant's Spouse; and (D) the right to make, and the effect of, a revocation of a previous election to waive the Qualified Joint and Survivor Annuity. (ii) For a Qualified Preretirement Survivor Annuity described in Section 11.3(d)(vii), the Administrator shall provide, within the applicable notice period for the Participant, to each Participant a written explanation of the Qualified Preretirement Survivor Annuity in such terms and in such manner comparable to the explanation provided for meeting the requirements of Section 11.3(e)(i) applicable to a Qualified Joint and Survivor Annuity. The applicable notice period for the waiver of the Qualified Preretirement Survivor Annuity is whichever of the following periods ends last: (A) the period beginning with the first day of the Plan Year in which the Participant attains age thirty-two (32) years and ending with the close of the Plan Year preceding the Plan Year in which the Participant attains age thirty-five (35) years; (B) a reasonable period ending after the individual becomes a Participant; 72 (C) a reasonable period ending after Section 11.3(e)(iii) ceases to apply to the Participant; or (D) a reasonable period ending after this Article first applies to the Participant. Notwithstanding the foregoing, notice must be provided within a reasonable period ending after separation from Service in the case of a Participant who separates from Service before attaining age thirty-five (35) years. For purposes of applying the preceding paragraph, a reasonable period ending after the events described in (B), (C) and (D) is the end of the two (2) year period beginning one (1) year prior to the date the applicable event occurs and ending one (1) year after that date. In the case of a Participant who separates from Service before the Plan Year in which the Participant attains age thirty-five (35) years, notice shall be provided within the two (2) year period beginning one (1) year prior to separation and ending one (1) year after separation. If the Participant thereafter returns to employment with the Employer, the applicable period for the Participant shall be redetermined. If a Participant enters the Plan after the first day of the Plan Year in which the Participant attained age thirty-two (32) years, the Administrator shall provide notice no later than the close of the second Plan Year succeeding the entry of the Participant in the Plan. (iii) Notwithstanding the other requirements of this Section 11.3(e), the respective notices prescribed by this Section shall be given to a Participant even if the Plan fully subsidizes the costs of a Qualified Joint and Survivor Annuity or Qualified Preretirement Survivor Annuity. For purposes of this Section 11.3(e), a plan fully subsidizes the costs of a benefit if under the plan the failure to waive the benefit by a Participant would not result in a decrease in any plan benefit with respect to the Participant and would not result in increased contributions from the Participant. Notwithstanding the foregoing, the Committee may provide the written explanation described above to the Participant after his benefit commencement date. The Participant (and his Spouse, if applicable) may waive the 30-day election period if the distribution of the elected form of benefit commences more than seven (7) days after the Committee provides the Participant (and his Spouse, if applicable) the written explanation. SECTION 11.4. NOTICE AND EXPLANATION TO PARTICIPANTS. The Committee shall provide each Participant who has an Annuity-Restricted Account within a reasonable period of time prior to the commencement of benefits under the Plan a written explanation setting forth the provisions of Section 11.3. 73 SECTION 11.5. DIRECT ROLLOVER OPTIONAL FORM OF BENEFIT. (a) DIRECT ROLLOVER. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee's election under this Section, 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 specified by the distributee in a direct rollover. (b) DEFINITIONS. (i) ELIGIBLE ROLLOVER DISTRIBUTION. An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Code Section 401(a)(9); and the portion of any distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to Employer Securities). (ii) ELIGIBLE RETIREMENT PLAN. An eligible retirement plan is an individual retirement account described in Code Section 408(a), an individual retirement annuity described in Code Section 408(b), an annuity plan described in Code Section 403(a), or a qualified trust described in Code Section 501(a), 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. (iii) 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 Section 414(p), are distributees with regard to the interest of the Spouse or former Spouse. (iv) DIRECT ROLLOVER. A direct rollover is a payment by the plan to the eligible retirement plan specified by the distributee. SECTION 11.6. ELECTION TO DEFER RECEIPT OF BENEFITS. Notwithstanding the foregoing, a Participant who leaves the employment of the Employer before his or her Normal Retirement Date or Early Retirement Date may elect to leave his or her Nonforfeitable Account Balance under the management of the Trustee until Normal Retirement Date or Early Retirement Date. The Trustee shall invest and reinvest and shall credit and charge the Individual Account with its proportionate share of gains and losses of the Trust Fund pursuant to Article 5 until the Nonforfeitable Account Balance is paid out to the Former Participant under this Article. Any election made under this Section shall be irrevocable and shall be made no later than fourteen (14) days before the electing Participant becomes entitled to receive his or her Nonforfeitable Account Balance in the Plan. Notwithstanding the foregoing, a Participant who has elected to leave his or her Nonforfeitable Account Balance under the management of the Trustee may later elect to have the Account Balance transferred to any pension or profit sharing plan maintained by another Employer in which the Participant has, at the time of the later election, become a Participant under the transferee plan. 74 SECTION 11.7. ELECTION OF FORM OF PAYMENT OF BENEFITS. (a) The Participant, Former Participant, or Beneficiary shall elect the form or forms of payment of benefits permitted in Sections 11.1 and 11.5 which the Committee and Trustee shall implement. Not earlier than ninety (90) days, but not later than thirty (30) days, before the Participant's Annuity Starting Date, the Committee must provide a benefit notice to a Participant who is eligible to make an election under this Section. The Participant's Annuity Starting Date means the first day of the first period for which an amount is paid as an annuity or any other form. The benefit notice must explain the optional forms of benefit in the Plan, including the material features and relative values of those options, and the Participant's right to defer distribution until he or she attains the later of Normal Retirement Age or age 62. (b) If a distribution is one to which Code Sections 401(a)(11) and 417 do not apply, such distribution may commence less than thirty (30) days after the notice required under Treasury Regulations Section 1.411(a)-11(c) given, provided that: (i) the Plan Administrator clearly informs the Participant that he or she has a right to a period of at least thirty (30) days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and (ii) the Participant, after receiving the notice, affirmatively elects a distribution. (c) If a Participant, Former Participant, or Beneficiary makes an election prescribed by this Section, the Committee will direct the Trustee to distribute the Participant's Nonforfeitable Account Balance pursuant to that election. Any election under this Section is subject to the mandatory distribution requirements of Sections 11.8 and 8.3 and the survivor annuity requirements of Sections 11.2 and 11.3, if applicable. The Participant, Former Participant or Beneficiary must make an election under this Section by filing an election form with the Committee at any time before the Trustee otherwise would commence to pay a Participant's Account Balance under the applicable requirements of Articles 6, 8 and 11. SECTION 11.8. LIMIT ON COMMENCEMENT OF DISTRIBUTION. (a) Unless both the Employer and the Participant or Former Participant agree otherwise, the payment of benefits to which a Participant, Former Participant or Beneficiary is entitled shall in no event commence later than the latest of the following dates: 75 (i) the 60th day after the close of the Plan Year in which such Participant or Former Participant attains his Normal Retirement Date; (ii) the 60th day after the close of the Plan Year in which occurs the date 10 years after the date such Participant or Former Participant first commenced participation in the Plan; or (iii) the 60th day after the close of the Plan Year in which such Participant or Former Participant terminates his employment with all Employers. (b) If payment does not commence earlier under Section 11.7(a), the payment of benefits to which a Participant, Former Participant or Beneficiary is entitled will be distributed or commence to be distributed to him not later than his Required Beginning Date. (c) The Committee may not direct the Trustee to distribute the Participant's Nonforfeitable Account Balance, nor may the Participant elect to make the Trustee distribute the Nonforfeitable Account Balance, under a method of payment which, as of the Required Beginning Date, does not satisfy the minimum distribution requirements under Code Section 401(a)(9) and the applicable Treasury Regulations. All distributions required under this Article shall be determined and made under Code Section 401(a)(9) and applicable Treasury Regulations, including the minimum distribution incidental benefit requirements of Treasury Regulation Section 1.401(a)(9)-2. A mandatory distribution at the Participant's Required Beginning Date will be in one lump sum unless the provisions of Section 11.2 or Section 8.3 apply. As of the first Distribution Calendar Year, distributions may only be made in one of the optional forms of benefit permitted by Sections 11.1, 11.2, and 11.5 hereof. (d) Defined terms used in this Section 11.8 and not defined in this Article or in Article 2 are defined in Section 8.3(c)(ii) and (d). SECTION 11.9. MINORITY OR DISABILITY. During the minority or disability of any person entitled to receive benefits hereunder, the Committee may direct the Trustee to make payments thereof to the guardian or other legal representative authorized under applicable law to receive property on behalf of such person. If permitted under applicable law, the Committee may direct such payments to be made directly to such person, to such person's spouse, to a relative of such person or to any individual or institution having custody of such person. If such applicable law does not permit payment of benefits to be made as provided above in this Section 11.9, then such payments shall be made in such manner, at such time, and to such person or entity as may be required or permitted under such applicable law. Except as may otherwise be provided by applicable law: (i) neither the Committee nor the Trustee shall be required to see to the application of any payments made under this Section 11.9; and (ii) the receipt of the payee shall be conclusive as to all interested parties. SECTION 11.10. UNCLAIMED BENEFIT. If at, after, or during the time when a benefit hereunder is payable to any Participant, Former Participant or Beneficiary, the Committee, upon request of the Trustee, or at its own instance, mails by registered or certified mail to such Participant, Former Participant or 76 Beneficiary at his last known address, a written demand for his then address, or for satisfactory evidence of his continued life, or both, and if such Participant, Former Participant, or Beneficiary shall fail to furnish the same to the Committee within two years from the mailing of such demand, then, unless otherwise required by applicable law, the Committee may, in its sole discretion, determine that such Participant, Former Participant or Beneficiary has forfeited his right to such benefit and may declare such benefit, or any unpaid portion thereof, terminated as if the death of the Participant, Former Participant or Beneficiary (with no surviving Beneficiary) had occurred on the date of the last payment made thereon or on the date such Participant, Former Participant or Beneficiary first became entitled to receive benefit payments, whichever is later. All such forfeitures shall be used to reduce future Employer Contributions, shall at all times remain Trust Assets, and in no event shall they escheat to any governmental unit under any escheat law. If such applicable law does not permit this disposition of unclaimed benefits then such unclaimed benefits shall be administered in such manner as may be required or permitted under such applicable law. * * * * * * * 77 ARTICLE TWELVE -------------- TOP HEAVY PROVISIONS SECTION 12.1. APPLICATION. This Article shall apply for any Plan Year beginning with the first Plan Year in which the Plan is determined to be top-heavy. SECTION 12.2. TOP-HEAVY PLAN STATUS/SUPER TOP-HEAVY PLAN STATUS. This Plan shall be a Top-Heavy Plan in any Plan Year in which, as of the Determination Date, (a) the Present Value of Accrued Benefits of Key Employees, or (b) the sum of the Aggregate Accounts of Key Employees of any plan of an Aggregation Group, exceeds sixty percent (60%) of the Present Value of Accrued Benefits or Aggregate Accounts of all Participants under this Plan and any plan of an Aggregation Group. If any Participant is a Non-Key Employee for any Plan Year, but the Participant was a Key Employee for any prior Plan Year, the Participant's Aggregate Account balance shall not be taken into account in determining whether this Plan is a Top-Heavy Plan (or whether any Aggregation Group which includes this Plan is a Top-Heavy Group) as further defined in Code Section 416(g) and the applicable Treasury regulations. This Plan shall be a Super Top-Heavy Plan for any Plan Year in which, as of the Determination Date, (a) the Present Value of Accrued Benefits of Key Employees, or (b) the sum of the Aggregate Accounts of Key Employees of any plan of an Aggregation Group, exceeds ninety percent (90%) of the Present Value of Accrued Benefits and the Aggregate Accounts of all Participants under this Plan and any plan of an Aggregation Group. If any Participant is a Non-Key Employee for any Plan Year, but the Participant was a Key Employee for any prior Plan Year, the Participant's Aggregate Account balance shall not be taken into account in determining whether this Plan is a Super Top-Heavy Plan (or whether any Aggregation Group which includes this Plan is a Top-Heavy Group) as further defined in Code Section 416(g) and the applicable Treasury regulations. For purposes of determining Top-Heavy and Super Top-Heavy status, the following definitions shall apply: (a) AGGREGATE ACCOUNT means, as of the Determination Date, the sum of: (i) the account balances of the Savings Account, Discretionary Employer Contribution Account, Matching Employer Contribution Account and ESOP Transfer Account as of the most recent Valuation Date occurring within a twelve (12) month period ending on the Determination Date; (ii) the contributions that would be allocated as of a date not later than the Determination Date, even though those amounts are not yet made or required to be made; 78 (iii) any plan distributions made during the Determination Period (However, in the case of distributions made after the Valuation Date and prior to the Determination Date, such distributions are not included as distributions for Top-Heavy purposes to the extent that the distributions are already included in the Participant's Aggregate Account balance as of the Valuation Date.); and (iv) any Employee contributions, whether voluntary or mandatory (However, amounts attributable to Participant Deductible Voluntary Contributions shall not be considered to be a part of the Participant's Aggregate Account balance.). (v) Regarding unrelated rollovers and plan-to-plan transfers (those which are (A) initiated by the Employee and (B) made from a plan maintained by one employer to a plan maintained by another employer), if this Plan provides for rollovers or plan-to-plan transfers, an unrelated rollover or plan-to-plan transfer shall be considered as a distribution for purposes of this Section. If this Plan is the plan accepting an unrelated rollover or plan-to-plan transfer, an unrelated rollover or plan-to-plan transfer accepted after December 31, 1983 shall not be considered as part of the Participant's Aggregate Account balance. However, unrelated rollovers or plan-to-plan transfers accepted prior to January 1, 1984 shall be considered as part of the Participant's Aggregate Account balance. (vi) Regarding related rollovers and plan-to-plan transfers (those either (A) not initiated by the Employee or (B) made to a plan maintained by the same Employer), if this Plan provides for rollovers or plan-to-plan transfers, a related rollover or plan-to-plan transfer shall be considered as a distribution for purposes of this Section. If this Plan is the plan accepting a related rollover or plan-to-plan transfer, a related rollover or plan-to-plan transfer shall be considered as part of the Participant's Aggregate Account balance, irrespective of the date on which the related rollover or plan-to-plan transfer is accepted. (b) AGGREGATION GROUP means either a Required Aggregation Group or a Permissive Aggregation Group as hereinafter determined. (i) Required Aggregation Group means the group of plans composed of (A) each plan of the Employer in which a Key Employee is a Participant or participated at any time during the Determination Period, regardless of whether the plan has terminated; and (B) each other plan of the Employer which enables any plan in which a Key Employee participates to meet the requirements of Code Sections 401(a)(4) or 410, which shall be aggregated. In the case of a Required Aggregation Group, each plan in the group will be considered a Top-Heavy Plan if the Required Aggregation Group is a Top-Heavy Group. No plan in the Required Aggregation Group will be considered a Top-Heavy Plan if the Required Aggregation Group is not a Top-Heavy Group. (ii) Permissive Aggregation Group means the Required Aggregation Group plus any other plan not required to be included in the Required Aggregation Group, provided the resulting group, taken as a whole, would continue to satisfy Code Sections 401(a)(4) and 410. 79 In the case of a Permissive Aggregation Group, only a plan that is part of the Required Aggregation Group will be considered a Top-Heavy Plan if the Permissive Aggregation Group is a Top-Heavy Group. No plan in the Permissive Aggregation Group will be considered a Top-Heavy Plan if the Permissive Aggregation Group is not a Top-Heavy Group. (iii) Only those plans of the Employer in which the Determination Dates fall within the same calendar year shall be aggregated to determine whether the plans are Top-Heavy Plans. (c) DETERMINATION DATE means for any Plan Year (i) the last day of the preceding Plan Year, or (ii) in the case of the first Plan Year of the Plan, the last day of the first Plan Year. (d) DETERMINATION PERIOD means the five (5) year period ending on the Determination Date. (e) EMPLOYER means the Employer that adopts this Plan. Related Employers shall be considered a single Employer for purposes of applying the limitations of these top-heavy rules. (f) EXCLUDED EMPLOYEES means any Employee who has not performed any Service for the Employer during the five (5) year period ending on the Determination Date. Excluded Employees shall be excluded for purposes of a Top-Heavy determination. (g) KEY EMPLOYEE means any Employee or Former Employee, or Beneficiary of the Employee, who, for any Plan Year in the Determination Period is: (i) An officer of the Employer having Compensation from the Employer and any Related Employer greater than fifty percent (50%) of the amount in effect under Code Section 415(b)(1)(A); (ii) One of the ten (10) Employees having Compensation from the Employer and any Related Employer of more than the limitation in effect under Code Section 415(c)(1)(A) and owning (or considered as owning within the meaning of Code Section 318) the largest interests in the Employer; (iii) A Five Percent Owner of the Employer (Five Percent Owner means any person owning, or considered as owning within the meaning of Code Section 318, more than five percent (5%) of the outstanding stock of the Employer or stock possessing more than five percent (5%) of the total combined voting power of all stock of the Employer; or in the case of an unincorporated business, any person who owns more than five percent (5%) of the capital or profits interest in the Employer.); or 80 (iv) A One Percent Owner of the Employer having Compensation from the Employer of more than $150,000 (One Percent Owner means any person having Compensation from the Employer and any Related Employer in excess of $150,000 and owning, or considered as owning within the meaning of Code Section 318, more than one percent (1%) of the outstanding stock of the Employer or stock possessing more than one percent (1%) of the total combined voting power of all stock of the Employer; or in the case of an unincorporated business, any person who owns more than one percent (1%) of the capital or profits interest in the Employer.). (v) Notwithstanding the foregoing, Key Employee shall have the meaning set forth in Code Section 416(i), as amended. (vi) For purposes of determining whether an Employee or Former Employee is an officer under this subsection (g), an officer of the Employer shall have the meaning set forth in the regulations under Code Section 416(i). (vii) For purposes of this Section, Compensation means Compensation determined under Section 2.30 for the definition of a Highly Compensated Employee. (viii) For purposes of determining ownership hereunder, employers that would otherwise be aggregated as Related Employers shall be treated as separate employers. (h) NON-KEY EMPLOYEE means any Employee or Former Employee, or Beneficiary of the Employee, who is not a Key Employee. (i) PRESENT VALUE OF ACCRUED BENEFIT. Solely for the purpose of determining if the Plan, or any other plan included in a Required Aggregation Group of which this Plan is a part, is a Top-Heavy Plan, the Accrued Benefit of a Non-Key Employee shall be determined under (i) the method, if any, that uniformly applies for accrual purposes under all plans maintained by the Related Employers, or (ii) if there is no uniform method, in accordance with the slowest accrual rate permitted under the fractional accrual method described in Code Section 411(b)(1)(C). To calculate the Present Value of Accrued Benefits from a defined benefit plan, the Committee will use the actuarial assumptions for interest and mortality only, prescribed by the defined benefit plan(s) to value benefits for Top-Heavy purposes. If an aggregated plan does not have a Valuation Date coinciding with the Determination Date, the Committee must value the Accrued Benefits in the aggregated plan as of the most recent Valuation Date falling within the twelve (12) month period ending on the Determination Date, except as Code Section 416 and applicable Treasury regulations require for the first and second plan year of a defined benefit plan. The Committee will determine whether a plan is Top-Heavy by referring to Determination Dates that fall within the same calendar year. (j) TOP-HEAVY GROUP means an Aggregation Group in which, as of the Determination Date, the sum of: (i) the Present Value of Accrued Benefits of Key Employees under all defined benefit plans included in the group; and 81 (ii) the Aggregate Accounts of Key Employees under all defined contribution plans included in the group exceeds sixty percent (60%) of a similar sum determined for all Participants. (k) Valuation Date means the Determination Date defined above. SECTION 12.3. TOP-HEAVY MINIMUM ALLOCATION. (a) MINIMUM ALLOCATION. Notwithstanding the foregoing, for any Plan Year in which the Plan is determined to be Top-Heavy, the amount of Employer Non-Elective Contributions and Forfeitures allocated to the Individual Account of each Non-Key Employee shall be equal to the lesser of three percent (3%) of each Non-Key Employee's Compensation or the highest contribution rate for the Plan Year made on behalf of any Key Employee. However, if a defined benefit plan maintained by the Employer which benefits a Key Employee depends on this Plan to satisfy the nondiscrimination rules of Code Section 401(a)(4) or the coverage rules of Code Section 410 (or another plan benefiting the Key Employee so depends on the defined benefit plan), the top heavy minimum allocation is three percent (3%) of the Non-Key Employee's Compensation regardless of the contribution rate for the Key Employee. (b) COMPENSATION. For purposes of this Section, Compensation means Compensation defined in Section 2.12 except (i) Compensation does not include Elective Contributions, and (ii) any exclusions from Compensation (other than the exclusion of Elective Contributions and the exclusions described in clauses (i) through (v) of Section 2.12(a)) do not apply. Notwithstanding the definition of Compensation in Section 2.12, the period preceding a Participant's Entry Date shall be included in determining the minimum top-heavy allocation provided by this Section. (c) CONTRIBUTION RATE. For purposes of this Section, a Participant's contribution rate is the sum of Employer Contributions (not including Employer Contributions to Social Security) and Forfeitures allocated to the Participant's Account for the Plan Year divided by his or her Compensation for the entire Plan Year. To determine a Participant's contribution rate, the Committee must treat all qualified top-heavy defined contribution plans maintained by the Employer (or by any Related Employers described in Section 2.49) as a single plan. For purposes of this Section, the following rules apply: (i) Savings Contributions on behalf of Key Employees are taken into account in determining the minimum required contribution under Code Section 416(c)(2). However, Savings Contributions on behalf of Employees other than Key Employees may not be treated as Employer Contributions for the minimum contribution or benefit requirement of Code Section 416. 82 (ii) Matching Employer Contributions allocated to Key Employees are treated as Employer Contributions for determining the minimum contribution or benefit under Code Section 416. However, if a plan utilizes Matching Contributions allocated to Employees other than Key Employees as Employee Contributions or Elective Contributions to satisfy the minimum contribution requirement, the Matching Contributions are not treated as Matching Contributions for applying the requirements of Code Section 401(k) and 401(m). (iii) Qualified Non-Elective Contributions described in Code Section 401(m)(4)(C) may be treated as Employer Contributions for the minimum contribution or benefit requirement of Code Section 416. (d) PARTICIPANT ENTITLED TO TOP-HEAVY MINIMUM ALLOCATION. The minimum allocation under this Section shall be provided to each Non-Key Employee who is a Participant and is employed by the Employer on the last day of the Plan Year, whether or not the Participant has been credited with one thousand (1,000) Hours of Service for the Plan Year. The minimum allocation under this Section shall not be provided to any Participant who was not employed by the Employer on the last day of the Plan Year. The provisions of this Section shall not apply to any Participant to the extent the Participant is covered under any other plan or plans of the Employer under which the minimum allocation or benefit requirements under Code Section 416(c)(1) or (c)(2) are met for the Participant. (e) COMPLIANCE. The Plan will satisfy the top-heavy minimum allocation under this Section. The Committee first will allocate the Employer Contributions (and Participant Forfeitures, if any) for the Plan Year pursuant to the allocation formula under Sections 5.4 and 5.6. The Employer then will contribute an additional amount for the Individual Account of any Participant entitled under this Section to a top-heavy minimum allocation and whose contribution rate for the Plan Year, under this Plan and any other plan aggregated under this Section, is less than the top-heavy minimum allocation. The additional amount is the amount necessary to increase the Participant's contribution rate to the top-heavy minimum allocation. The Committee will allocate the additional contribution to the Account of the Participant on whose behalf the Employer makes the contribution. SECTION 12.4. AMENDMENTS. If the Plan is determined to be top-heavy, the vesting schedule in Section 6.2(c) shall continue to apply notwithstanding a determination in a later Plan Year that the Plan is no longer top-heavy unless the Company shall amend the Plan to provide otherwise. No such amendment shall be effective unless, in the event it changes the Plan's applicable vesting schedule (determined in accordance with regulations under Code Section 411), each Participant's nonforfeitable percentage of his Accounts (determined as of the later of the date such amendment is adopted or becomes effective) is not less than such percentage computed under Section 6.2(c) without regard to such amendment and unless, in such event, each Participant having not less than three (3) Years of Service is permitted to elect (pursuant to regulations under Code Section 411) to have his nonforfeitable percentage computed under the Plan without regard to such amendment * * * * * * * 83 ARTICLE THIRTEEN ---------------- REPURCHASE OF COMPANY STOCK; NONTERMINABLE PROTECTIONS AND RIGHTS SECTION 13.1. EMPLOYEE STOCK OWNERSHIP PLAN. The ESOP Accounts in the Plan are specifically designated an "employee stock ownership plan" within the meaning of Code Section 4975(e)(7), ERISA Section 407(d)(6), and applicable regulations thereunder. This Article applies solely to the Company Stock held in ESOP Accounts. SECTION 13.2. PUT OPTION. A share of Company Stock shall be subject to a put option if it is not publicly traded, or if it is subject to a trading limitation, when distributed. The Employer shall issue a put option to each Participant or Former Participant receiving a distribution of Company Stock from the Plan required under the conditions described in the foregoing sentence, in accordance with the terms set forth in this Section: (a) EXERCISE OF OPTION. The put option shall be exercisable only by a Participant or Beneficiary; by a donee of the Participant or Beneficiary; or by a person, including an estate or its distributees, to whom such Company Stock has passed because of the death of the Participant. (b) RIGHTS UNDER PUT OPTION. The put option shall give to the eligible holder the right to put such shares to the Employer. Under no circumstances may it bind the Plan or Trust, but it may grant the Plan or Trust an option to assume the rights and obligations of the Employer at the time it is exercised; if it is known, at the time such stock is acquired, that Federal or state law will be violated if the Employer honors such put option, it must permit the stock subject thereto to be put, in a manner consistent with such law, to a third party (e.g., an affiliate or a shareholder of the Employer other than the Plan or the Trust) that has substantial net worth at the time such debt is incurred and whose net worth is reasonably expected to remain substantial. (c) PERIOD OF OPTION. (i) The put option must be exercisable at least during a sixty (60) day period following the date of distribution from the Trust to the Participant or Beneficiary and for an additional sixty (60) day period during the Plan Year immediately following the Plan Year in which the first option period ends; (ii) In the case of Company Stock that is publicly traded without limitation when distributed by the Trust but ceases to be so traded within the same Plan Year as the distribution, the Employer shall notify each holder of such stock in writing on or before the tenth day after such stock ceased to be so traded that for at least a sixty (60) day period during such Plan Year, and for an additional sixty (60) day period during the following Plan Year, such stock is subject to a put option. Such notice must inform such holders of the terms of such put option, which shall satisfy the requirements of this Section; 84 (iii) The period during which it is exercisable shall not include any time when a distributee is unable to exercise it because the party bound by it is prohibited from honoring it by applicable Federal or state law; (iv) The put option shall be exercisable by the holder notifying the Employer in writing that it is being exercised; and (v) The price at which it is exercisable shall be the fair market value of the stock then prevailing, determined as of the most recent Accounting Date; provided, however, that such value shall be determined as of the date the put is honored if the holder of such put is a "disqualified person" (as defined under Section 4975 of the Code). (d) OPTION RIGHTS NOT AFFECTED BY AMENDMENT. The rights provided to Participants under this Article shall be non-terminable and no amendment to this Plan shall affect these rights except such amendments to this Article as may be required to assure the continuing qualification of the Plan under the Code. SECTION 13.3. PAYMENT OF PURCHASE PRICE. If a Participant or Former Participant exercises a put option pursuant to Section 13.2, the purchaser may make payment by delivery of a note with payments commencing not more than thirty (30) days after the exercise of the put option. The payment obligation will be satisfied by the delivery of said note, which must meet the following requirements: (a) the note must bear a reasonable rate of interest determined at Closing; (b) the purchaser must provide adequate security for the note; (c) the note must provide for equal annual installments not to exceed five (5) years, with interest payable with each installment, the first installment due and payable thirty (30) days after the exercise of the Put Option; (d) the note must provide for acceleration upon thirty (30) days' default of the payment on interest or principal; and (e) the note must grant to the maker the right to prepay the note in whole or in part at any time or times without penalty; provided, however, the purchaser must not have the right to make any prepayment during the calendar year or fiscal year of the Participant (Beneficiary) in which Closing occurs. Payment under a put option may not be restricted by the provisions of a loan or any other arrangement, including the terms of the Company's articles of incorporation, unless so required by applicable state law. SECTION 13.4. NOTICE. A person has given notice under this Section when the person deposits the notice in the United States mail, first class, postage prepaid, addressed to the person entitled to the Notice at the address currently listed for the person in the Committee records. Any person affected by this Section has the obligation to inform the Committee of any change of address. 85 SECTION 13.5. NONTERMINABLE PROTECTIONS AND RIGHTS. Except as provided in this Article, no Company Stock may be subject to a put, call, or other option, or buy-sell or similar arrangement when held by and when distributed from an ESOP Account, whether or not the Plan then qualifies as an employee stock ownership plan. The protections and rights granted in this Article and in Section 11.1 pursuant to Code Section 409(o) attributable to stock acquired after December 31, 1986, are nonterminable and shall continue to exist under the terms of this Plan with regard to Company Stock that is held in an ESOP Account or by any Participant or other person for whose benefit such protections and rights have been created. Neither the failure of the Plan to qualify as an employee stock ownership plan, nor an amendment of the Plan shall cause a termination of such protections and rights. SECTION 13.6. INVESTMENT IN COMPANY STOCK. (a) TYPE OF COMPANY STOCK. The Trustee shall invest ESOP Accounts primarily in Qualifying Company Stock to the extent practicable and may invest one hundred percent (100%) of the ESOP Accounts in Company Stock. The Company Stock may be Treasury Stock which has been purchased by the Employer; stock which has been authorized, but never issued by the Employer; Company Stock traded on a public market; or Company Stock owned by shareholders of the Employer. (b) PURCHASE PRICE. For the purchase of Company Stock, from the Parent or any Employer or from a shareholder of the Parent or any Employer, the Trustee shall not pay more than fair market value as determined by the current market price of the Company Stock, if there is a market, and if there is not a market for the stock, then as determined by an independent appraisal. All valuations of Company Stock which is not readily tradable on an established securities market, with respect to activities carried on by the Plan, must be made by an independent appraiser meeting requirements similar to requirements of the Regulations prescribed under Code Section 170A-1. For the purchase of Company Stock from a Disqualified Person, the value of the Company Stock must be determined as of the date of the transaction. For any other purchase, the value shall be based on a current valuation. Notwithstanding the preceding provisions of this Section, the Trustee may purchase Company Stock at a price lower than that determined in accordance with the preceding provisions of this Section 13.6(b) from any source whatsoever. If a public market is made for the Company Stock, the purchase price shall be the average of the closing prices on the OTC for the last three days for which such prices are quoted in the Wall Street Journal preceding the purchase. (c) VOTING RIGHTS. (i) Each Participant shall be entitled to direct the Trustee as to the manner in which voting rights with respect to shares of Company Stock allocated to such Participant's ESOP Accounts shall be exercised. 86 (ii) In order to implement the voting rights granted in this Section, the Plan Administrator shall furnish the Trustee and Participants who have an ESOP Account with a notice or information statement which complies with both the law and the Plan Sponsor's charter and bylaws applicable to security holders in general. Allocated shares of Company Stock with respect to which timely voting instructions have not been received shall be voted by the Trustee on each matter in the same proportion as shares with respect to which such instructions have been received on such matter. (d) TENDER OFFER (i) Notwithstanding any other provisions of the Plan or Trust, the provisions of this Section shall govern the tendering of shares of Company Stock held in ESOP Accounts. Upon commencement of a tender offer for any securities held in ESOP Accounts that are Company Stock, the Plan Administrator shall notify each Participant of such tender offer, utilize its best efforts to timely distribute or cause to be distributed to the Participants such information as is distributed to shareholders of the Employer in connection with such tender offer, and shall provide a means by which the Participant can instruct the Trustee whether or not to tender the Company Stock allocated to such Participant's ESOP Accounts. The Plan Administrator shall provide the Trustee with a copy of any materials provided to Participants. Each Participant shall have the right to instruct the Trustee as to the manner in which the Trustee is to respond to the tender offer for any or all of the Company Stock allocated to such Participant's ESOP Accounts. The Trustee shall respond to the tender offer with respect to the Company Stock as instructed by the Participant. Allocated shares of Company Stock with respect to which timely tender instructions have not been received shall be tendered by the Trustee in the same proportion as shares with respect to which such instructions have been received. (ii) A Participant who has directed the Trustee to tender shares of Company Stock allocated to such Participant's ESOP Accounts may, at any time, prior to the tender offer withdrawal date, instruct the Trustee to withdraw, and the Trustee shall withdraw such shares of Company Stock from the tender offer prior to the withdrawal deadline. A Participant shall not be limited as to the number of instructions to tender or withdraw which he may give to the Trustee. (iii) The Trustee shall credit the proceeds, received in exchange for the tendered Company Stock allocated to the ESOP Account of each Participant who instructed the Trustee to so tender, to that Participant's respective ESOP Account. The Trustee shall exercise its best efforts to invest the proceeds from such tender, whether cash or securities, in conformity with the requirements of Code Section 4975. (e) SHAREHOLDER AGREEMENTS. The Trustee may enter into agreements with shareholders to purchase shares of Company Stock under which the Trustee is granted an option to purchase all or a portion of the shares of Company Stock owned by the shareholders on the death of the shareholder or shareholders. To provide for the funding of the purchase of shares of Company Stock, the Trustee may apply for and pay premiums on contracts of life insurance on the life of such shareholder for the benefit of the Trust Fund as a whole, provided, however, that the Trustee may not enter into any agreement which would obligate the Plan and Trust to purchase Company Stock from a particular shareholder at an indefinite time determined upon the happening of an event such as death of the shareholder. 87 SECTION 13.7. PARTIAL DIVERSIFICATION OF INVESTMENT. (a) For purposes of this Section, the following definitions apply: (i) "Qualified Participant" means any Employee who has completed at least ten (10) years of participation under the Plan and has attained age fifty-five (55) years. (ii) "Qualified Election Period" means the six (6) Plan Year Period beginning with the Plan Year in which the Participant becomes a Qualified Participant. (iii) "Diversification Election Interval" means the span of ninety (90) days after the close of each Plan Year within a Qualified Participant's Qualified Election Period. (b) A Qualified Participant may elect within the Diversification Election Interval during his Qualified Election Period to direct the Trustee on the investment of: (a) not more than twenty-five percent (25%) of the Qualified Participant's ESOP Account Balance (excluding accumulated employee contributions) at the end of the Plan Year, reduced by amounts previously diversified, during the first five (5) years of his Qualified Election Period; and (b) not more than fifty percent (50%) of the Qualified Participant's ESOP Account Balance (excluding accumulated employee contributions) at the end of the Plan Year, reduced by amounts previously diversified, during the sixth (6th) year of his Qualified Election Period. The Trustee shall complete diversification of a Qualified Participant's investment in accordance with a Qualified Participant's Election no later than ninety (90) days after the close of the Diversification Election Interval. The Trustee shall satisfy this requirement: (a) by distributing to the Participant an amount equal to the amount for which the Participant elected diversification; or (b) by substituting for the amount of the Company Stock for which the Participant elected diversification an equivalent amount of participant-directed investments in other Investment Funds offered in the Plan pursuant to Article Seven. * * * * * * * 88 ARTICLE FOURTEEN ---------------- ADOPTION BY OTHER ORGANIZATIONS SECTION 14.1. PROCEDURE FOR ADOPTION. Any corporation or other organization with employees, now in existence or hereafter formed or acquired, which is not already an Employer under the Plan and which is otherwise legally eligible, may, in the future, with the consent and approval of the Company and the Trustee by resolution or decision of its own board or governing authority, adopt the Plan and the Trust, for all or any classification of persons in its employment, and thereby, from and after the effective date specified in such resolution or decision, become an Employer. The adoption resolution or decision may contain such specified changes and variations in the terms and provisions of the Plan or the Trust Agreement as may be acceptable to the Company and the Trustee. The adoption resolution or decision shall become, as to such adopting organization and its Employees, a part of the Plan and the Trust Agreement. It shall not be necessary for the adopting organization to sign or execute the Plan or the Trust Agreement. The effective date of the Plan for any such adopting organization shall be that stated in the resolution or decision of adoption, and from and after such effective date such adopting organization shall assume all the rights, obligations, and liabilities of an Employer under the Plan and the Trust Agreement, and shall be included within the meaning of the term Employer. The administrative powers and control of the Company, as provided in the Plan and the Trust Agreement, including the right of amendment and of appointment and removal of the Committee, the Trustee, and their successors, shall be the sole right of the Company and shall not be diminished by reason of the participation of any such adopting organization. Any participating Employer may withdraw from the Plan and the Trust at any time without affecting other Employers not withdrawing, by complying with the provisions of the Plan and the Trust Agreement. Separate records shall be kept as to each Employer and its Employees. * * * * * * * 89 ARTICLE FIFTEEN --------------- AMENDMENT AND TERMINATION OF PLAN SECTION 15.1. AMENDMENT OF THE PLAN. The Company may, without the consent of any other party, make from time to time any amendment or amendments to the Plan which do not operate retroactively to reduce or divest the then vested interest in any Discretionary Employer Contribution Account, Matching Employer Contribution Account, W & B Plan Rollover Account, or ESOP Transfer Account or to reduce or divest any benefit then payable hereunder. Each such amendment shall be in writing, signed by a duly authorized officer of the Company and shall become effective as of the date specified therein. In addition, no such amendment shall (i) reduce the vested percentage of any Participant with respect to Employer contributions made either before or after the effective date of the amendment; (ii) eliminate or reduce an early retirement benefit or a retirement-type subsidy or eliminate an optional form of benefit with respect to benefits attributable to service before the amendment; or (iii) restrict the availability of an "alternative form of benefit" to a certain select group or classification of Participants or Beneficiaries which favor the "prohibited group," or restrict or deny a Participant through the withholding of consent or the exercise of discretion by some person or persons other than the Participant (and, where relevant, his Spouse) of an alternative form of benefit. For purposes of this Section 15.1, Plan provisions will be considered to favor the prohibited group if the group of Employees to whom the benefit is available does not satisfy either the 70% test of Code Section 410(b)(1)(A) or the nondiscriminatory classification test of Code Section 410(b)(1)(B). For purposes of this Section 15.1, an alternative form of benefit encompasses the different forms of benefit payment available under the Plan which provide that (a) a Participant's benefits under the Plan may be paid in more than one form, or (b) payment of a particular form of benefits may commence at some time earlier or later than the normal date for the commencement of such benefit. Whenever Participating Employers have elected to adopt this Plan, amendment of this Plan by the Plan Sponsor shall be effective upon the written action of the Plan Sponsor. Each Participating Employer shall be deemed to have authorized irrevocably the Plan Sponsor or any person(s) duly authorized by resolution of the Board of Directors of the Plan Sponsor, to amend and modify this Plan in any manner it deems necessary or desirable, retroactively or prospectively, subject to the provisions of this Article. SECTION 15.2. RIGHT TO TERMINATE. An Employer may at any time terminate the Plan with respect to its Employees, pursuant to resolution or decision of the Board of Directors or other governing authority of such terminating Employer. Upon termination with respect to an Employer, the Committee shall direct the Trustee to distribute the share of the Trust Assets allocable to the Employees of such Employer, as provided in Section 15.4. If the Plan is terminated with respect to fewer than all Employers, the Plan shall continue in effect for Employees of the remaining Employers. SECTION 15.3. CONSOLIDATION OR MERGER. Upon an Employer's liquidation, dissolution, bankruptcy, or insolvency, or upon its sale, consolidation or merger to or with another organization that is not an employer hereunder, in which such Employer is not the surviving company, the Plan will terminate insofar as that Employer is concerned unless the successor to that Employer 90 assumes the duties and responsibilities of such Employer by adopting the Plan and Trust, by combining the Plan and Trust with an existing plan and trust of such successor with the consent and agreement of that Employer, or by the establishment of a separate plan and trust to which the Trust Assets held on behalf of the Employees of such Employer shall be transferred with the consent and agreement of that Employer. If the successor to an Employer is itself an Employer, such successor shall succeed to all the rights and duties under the Plan and Trust of the Employers involved. SECTION 15.4. LIQUIDATION OF TRUST FUND UPON TERMINATION. (a) Upon a complete or partial termination of the Plan with respect to any Employer, the Discretionary Employer Contribution Accounts, Matching Employer Contribution Accounts, W & B Plan Rollover Accounts, and ESOP Transfer Accounts, if any, of the Participants, Former Participants and Beneficiaries affected thereby shall become fully vested and nonforfeitable, and, subject to the restrictions of Section 15.4(b) below, the proportionate interests of such Participants, Former Participants and Beneficiaries in the Trust Assets, as determined by the Committee, shall be distributed as soon as practicable after provision is made for the expenses of administration, termination and liquidation. Distributions due to termination of the Plan will be made in accordance with the methods of distribution provided for in the Plan. (b) However, notwithstanding anything to the contrary above, a Participant's Accounts shall not be distributed before the first to occur of the following events: (i) Retirement; (ii) Death; (iii) Disability; (iv) Separation from Service; (v) attainment of age 59-1/2; (vi) with respect to a Participant's Savings Account only, incurring of a hardship (as defined in Section 10.1); (vii) the termination of the Plan, provided that neither the Employer nor an Affiliated Employer maintains a successor plan; (viii) the sale, to an entity that is not an Affiliated Employer, of substantially all of the assets used by the Employer in the trade or business in which the Participant is employed; or (ix) the sale, to an entity that is not an Affiliated Employer, of an incorporated Affiliated Employer's interest in a subsidiary in which the Participant is employed. 91 For purposes of this Section 15.4(b), the term "Affiliated Employer" shall mean the Employers and any corporation which is a member of a controlled group of corporations (as defined in Code Section 414(b)) which includes an Employer; any trade or business (whether or not incorporated) which is under common control (as defined in Code Section 414(c)) with an Employer; any organization (whether or not incorporated) which is a member of an affiliated service group (as defined in Code Section 414(m)) which includes an Employer; and any other entity required to be aggregated with an Employer pursuant to regulations under Code Section 414(o). SECTION 15.5. PERMANENT DISCONTINUANCE OF CONTRIBUTIONS. Upon a permanent discontinuance of contributions with respect to any Employer, the Discretionary Employer Contribution Accounts, Matching Employer Contribution Accounts, W & B Plan Rollover Accounts, and ESOP Transfer Accounts shall become fully vested and nonforfeitable and, unless such Employer provides by appropriate resolution that the Plan and Trust will continue for the purpose of holding, investing, and distributing Trust Assets pursuant to other provisions of the Plan and Trust Agreement, the proportionate interest of the Participants, Former Participants and Beneficiaries of such Employer in the Trust Assets, as determined by the Committee, shall be distributed (subject to the restrictions of Section 15.4(b)) as soon as practicable after provision is made for the expenses of administration, termination and liquidation. SECTION 15.6. CONSOLIDATION OR MERGER OF PLAN. In the event that the Plan is merged or consolidated with any other plan, or in the event that any assets or liabilities of the Plan are transferred to any other plan, the benefit any Participant, Former Participant or Beneficiary under the Plan would be entitled to receive if such other plan were terminated immediately after such merger, consolidation, or transfer shall be equal to or greater than the benefit such Participant, Former Participant or Beneficiary would be entitled to receive if the Plan terminated immediately before such merger, consolidation, or transfer. * * * * * * * 92 ARTICLE SIXTEEN --------------- GENERAL PROVISIONS SECTION 16.1. NON-GUARANTEE OF EMPLOYMENT. Nothing contained in the Plan or Trust Agreement shall be construed as a contract of employment between any person and an Employer, as a right of any person to be continued in the employment of an Employer (or such entity), or as a limitation of the right of an Employer (or such entity) to discharge any person, with or without cause. SECTION 16.2. MANNER OF PAYMENT. Subject to the provisions of Sections 11.7 and 11.8, wherever and whenever it is herein provided for payments or distributions to be made, said payments or distributions shall be made directly into the hands of the Participant, Former Participant, Beneficiary, or their respective administrators, executors, or guardians, as the case may be. Deposit to the credit of any such person in any bank or trust company selected by such person shall be deemed to be payment into his hands. SECTION 16.3. NONALIENATION OF BENEFITS. Except as otherwise provided below in this Section 16.3, interests of Participants, Former Participants and Beneficiaries under the Plan and benefits payable under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, disposition, garnishment, execution, or levy of any kind, either voluntary or involuntary, including any liability for alimony or other payments for property settlement or support of a Spouse or former Spouse, or for any other relative of the Participant, Former Participant or Beneficiary, but excluding devolution by death or mental incompetency, prior to actually being received by the person entitled to the benefits under the terms of the Plan; any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any right to benefits payable hereunder shall be void; the Trust Assets shall not in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements or torts of any person entitled to benefits hereunder. Notwithstanding anything to the contrary above, however, if the Committee determines that a domestic relations order is a "qualified domestic relations order" as defined in Section 206(d)(3) of ERISA, benefits shall be payable in accordance with the applicable requirements of any such order and in accordance with the requirements of Section 206(d)(3) of ERISA. To the extent of any conflict between the terms of any such order and the terms of ERISA Section 206(d)(3), the latter shall control in all respects. To the extent provided in an order, an "alternate payee," as described in Code Section 414(p), may elect to receive an immediate distribution of such payee's benefits from this Plan. Such a distribution may be received from any Account, as applicable. Nothing contained in this Plan shall prevent the Trustee from complying with a judgment or settlement entered into on or after August 3, 1997 which requires the Trustee to reduce a Participant's benefits under the Plan by an amount that the Participant is ordered or required to pay to the Plan if each of the following criteria are satisfied: (a) the order or requirement must arise: (i) under a judgment or conviction for a crime involving the Plan; 93 (ii) under a civil judgment (including a consent order or decree) entered by a court in an action brought in connection with an actual or alleged violation of Part 4 of Title I of ERISA; or (iii) under a settlement agreement with either the Secretary of Labor or the Pension Benefit Guaranty Corporation and the Participant in connection with an actual or alleged violation of Part 4 of title I of ERISA by a fiduciary or any other person. (b) The decree, judgment, order or settlement must expressly provide for the offset of all or part of the amount ordered or required to be paid to the Plan against the Participant's benefits under the Plan. (c) In addition, if the joint and survivor annuity requirements of Code Section 401(a)(11) apply with respect to distributions from the Plan to the Participant and the Participant has a spouse at the time at which the offset is to be made, then one of the following three conditions must be satisfied: (i) Such spouse has consented in writing to such offset and such consent is witnessed by a notary public or representative of the Plan (or it is established to the satisfaction of a Plan representative that such consent may not be obtained by reason of circumstances described in Code Section 417(a)(2)(B)), or an election to waive the right of the spouse to either a qualified joint and survivor annuity or a qualified preretirement survivor annuity is in effect in accordance with the requirements of Code Section 417(a); (ii) Such spouse is ordered or required in such judgment, order, decree, or settlement to pay an amount to the Plan in connection with a violation of part 4 of subtitle B of title I of ERISA; or (iii) In such judgment, order, decree, or settlement, such spouse retains the right to receive the survivor annuity under a qualified joint and survivor annuity provided pursuant to section 401(a)(11)(A)(i) and under a qualified preretirement survivor annuity provided pursuant to Code Section 401(a)(11)(A)(ii), determined in accordance with Code Section 401(a)(13)(D). SECTION 16.4. TITLES FOR CONVENIENCE ONLY. Titles of the Articles, Sections and Subsections hereof are for convenience only and shall not be considered in construing the Plan. SECTION 16.5. GOVERNING LAW. Except as may otherwise be required by applicable federal law, the Plan and each of its provisions shall be construed and their validity determined by the laws of the State of Texas. SECTION 16.6. CONTRIBUTIONS CONTINGENT UPON APPROVAL. Any contribution to the Trust Fund associated with this Plan is conditioned on initial qualification of the Plan under Code Section 401(a) and of the exemption of the Trust created under the Plan under Code Section 501(a). If the Commissioner of the Internal Revenue Service, upon the Employer's request for initial approval of this Plan 94 and Trust, determines that the Plan is not qualified or the Trust is not exempt, then the Trustee may return to each Employer, within one (1) year after the date of final disposition of the request for initial approval, any contribution made by the Employers, and any increment attributable to the contribution. The Plan and Trust shall then terminate and all rights of Participants, Former Participants and Beneficiaries with respect to such Employers' contributions shall cease. SECTION 16.7. PAYMENT OF EXPENSES. Except as otherwise specifically provided herein, all expenses incident to the administration, termination, or protection of the Plan and Trust, including but not limited to, actuarial, legal, accounting, and Trustee fees, may be paid by the Company, which may require reimbursement from the other Employers for their pro rata shares, or if not paid by the Company (which payment is not obligatory), shall be paid by the Trustee from the Trust Assets, but no amount paid pursuant to Section 17.9 or Subsection 16.9(d) shall be paid, directly or indirectly, from the Trust Assets. Notwithstanding the preceding, the expenses incident to maintaining an Account for a Former Participant shall be charged to such Former Participant's Account. SECTION 16.8. RIGHTS TO TRUST ASSETS. No Participant, Former Participant or Beneficiary shall have any right to, or interest in, any Trust Assets upon termination of his employment or otherwise, except as provided from time to time under the Plan, and then only to the extent of the benefits payable to such Participant, Former Participant or Beneficiary out of the Trust Assets. All payments of benefits as provided for in the Plan shall be made solely out of the Trust Assets and, except as may otherwise be provided by applicable law, neither the boards of Directors of the Employers, the Employers, the Trustee, nor the Committee shall be liable therefor in any manner. SECTION 16.9. DISCLAIMER OF LIABILITY. Except as otherwise provided herein or under Sections 404 through 409 of ERISA (to the extent applicable): (a) Neither the Board of Directors of the Employers, the Employers, the Trustee, nor the Committee guarantees the Trust Assets or other Assets of the Plan in any manner against loss or depreciation, and they shall not be liable for any act or failure to act which is made in good faith pursuant to the provisions of the Plan and Trust Agreement. (b) The Board of Directors of the Employers and the Employers shall not be responsible for any act or failure to act of the Committee of the Trustee. (c) The Committee shall not be responsible for any act or failure to act of the Board of Directors of the Employers, the Employers, or the Trustee. (d) Each Employer shall indemnify each member of its Board of Directors against any liability or losses sustained by such member by reason of any act or failure to act relating to the Plan or Trust in his capacity as such member if such act or failure to act is in good faith and does not constitute willful misconduct. Such indemnification shall include attorney's fees and other costs and expenses reasonably incurred by such member in defense of any action brought against him by reason of any such act or failure to act. 95 SECTION 16.10. PERSONS MAY SERVE IN MORE THAN ONE CAPACITY. A person may serve both as a member or secretary of the Committee and as a Trustee hereunder. A person serving as a member of the Board of Directors or as an officer of an Employer may serve as a member or secretary of the Committee or as a Trustee, or both, hereunder. SECTION 16.11. CONSTRUCTION. The masculine gender, where appearing in the Plan, shall be deemed to include the feminine gender, unless the context clearly indicates to the contrary. The words "herein," "hereof," "hereunder" and other similar compounds of the word "here" shall mean and refer to the entire Plan, not to any particular provision, section, or subsection, and words used in the singular or the plural may be construed as though in the plural or singular where they would so apply. SECTION 16.12. COUNTERPARTS. The Plan may be executed in any number of counterparts, each of which shall be considered an original, and only one such counterpart need be produced. SECTION 16.13. NO INVOLUNTARY RETIREMENT BECAUSE OF AGE. Notwithstanding the provisions hereof defining Normal Retirement Date and Retirement, nor any other provision hereof, nothing contained in the Plan or Trust Agreement shall be construed to require or permit the involuntary retirement of any Employee solely because of age. SECTION 16.14. MISTAKE OF FACT. Notwithstanding any contrary provision in this Agreement, if a contribution is made by an Employer by a mistake of fact, the contribution may be returned to the Employer within one (1) year after the payment of the contribution. The amount of the mistaken contribution is equal to the excess of (a) the amount contributed over (b) the amount that would have been contributed had there not occurred a mistake of fact. Earnings attributable to mistaken contributions may not be returned to the Employer, but losses attributable thereto shall reduce the amount to be returned. SECTION 16.15. DISALLOWANCE OF DEDUCTION. Notwithstanding any contrary provision in this Agreement, any contributions by an Employer to the Plan and Trust are conditioned on the deductibility of the contribution by the Employer under the Code. To the extent any deduction is disallowed, the Employer, within one (1) year following a final determination of the disallowance, whether by agreement with the Internal Revenue Service or by final decision in a court of competent jurisdiction, may demand repayment of the disallowed contribution, and the Trustee shall return the contribution within one (1) year following the disallowance. Earnings attributable to excess contributions may not be returned to the Employer, but losses attributable thereto shall reduce the amount to be returned. * * * * * * * 96 ARTICLE SEVENTEEN ----------------- PLAN ADMINISTRATION SECTION 17.1. COMMITTEE. The Plan shall be administered by the Savings Plan Committee. The Committee shall consist of not less than three nor more then seven members. Each member shall be appointed, and may at any time be removed, by the Board of Directors of the Company, and the Board of Directors of the Company shall designate the chairman of the Committee. Any vacancy on the Committee resulting from resignation, death, removal by the Board of Directors of the Company, or otherwise, shall be filled by the Board of Directors of the Company. The chief executive officer of the Company may appoint a person to fill any vacancy during the period prior to action by the Board of Directors filling such vacancy. All usual and reasonable expenses of the Committee shall be paid as provided in Section 16.7. The members of the Committee shall not receive compensation from the Plan or the Trust with respect to their services in administering the Plan. SECTION 17.2. CLAIMS PROCEDURE. (a) The Committee shall make all determinations as to the right of any person to a benefit. Any denial by the Committee of a claim for benefits under the Plan by a Participant, Former Participant or Beneficiary shall be stated in writing and delivered or mailed to the Participant, Former Participant or Beneficiary. Such notice of denial shall to the best of the Committee's ability, be written to be understood without legal or actuarial counsel or other specialized knowledge or advice, and shall: (i) set forth the reasons for such denial; (ii) specify the pertinent provisions of the Plan on which such denial is based; (iii) describe any additional material or information necessary for perfection of such claim and explain why such material or information is necessary; and (iv) explain the claims review procedure established by the Committee under the Plan. (b) In the case of any Participant, Former Participant or Beneficiary whose claim for benefits under the Plan has been denied, such Participant, Former Participant or Beneficiary, or his duly authorized representative, may: (i) request a review of such denial by written application mailed or delivered to the Committee by the 60th day after receipt of such denial; and (ii) within such reasonable times as may be prescribed in the claims review procedure established by the Committee, (A) review pertinent documents; and 97 (B) submit issues and comments in writing. (c) The Committee shall provide a full and fair review of any request submitted under Section 17.2(b). In connection with such review, the Committee may request an opinion from an Employer's counsel and shall be fully protected by the Company and such Employer from any liability resulting from good faith reliance on such opinion. SECTION 17.3. POWERS AND DUTIES OF THE COMMITTEE. The Committee shall have such powers and duties as may be necessary to discharge its duties hereunder, including, but not by way of limitation, the following powers and duties: (a) To administer the Plan; (b) To construe and interpret the Plan, decide all questions of eligibility and determine the amount, manner and time of payment of any benefits hereunder; (c) To review the performance of the Trustee and to report thereon to the Board of Directors of the Company; (d) To prescribe and establish (i) procedures to be followed and forms to be used by Employees, Participants, Former Participants or Beneficiaries for commencing or resuming participation in the Plan and for applying for benefits from the Plan and (ii) such additional procedures and forms for reviewing denials of claims for benefits as the Committee deems advisable which are not inconsistent with the provisions of the Plan or applicable law, but if any procedure or form is prescribed by the Plan or by applicable law, such procedure or form shall be used for the purpose prescribed; (e) To receive from the Employers and from Employees, Participants, Former Participants and Beneficiaries such information as shall be necessary for the proper administration of the Plan; (f) To prepare and distribute, in such manner as required by applicable law, information explaining the Plan; (g) To prepare such reports with respect to the Plan as are required by applicable law and such other reports as are reasonable and appropriate and requested by the Employers; (h) To appoint or employ such agents or employees as it deems advisable, including legal counsel, accountants, and actuaries, as needed for the discharge of its duties; (i) To allocate in writing any of its rights, powers, or duties hereunder to a particular member or members of the Committee; in the event of any such allocation, the exercise of right or power, or the discharge of a duty has been allocated shall be deemed to be an act of the Committee; and 98 (j) To designate persons who are not members of the Committee to exercise any of the foregoing powers, to carry out any of the foregoing duties, or to authorize benefit payments under Section 17.2. SECTION 17.4. LIMITATION ON POWERS. The Committee shall have no power to add to, subtract from, or modify any of the terms of the Plan, or to waive or fail to apply any requirements of eligibility for benefits under the Plan. SECTION 17.5. LIMITATION ON DUTIES. Except as elsewhere provided herein, the Committee shall have no power to manage or responsibility for managing the investing (including selection, acquiring, retaining, or disposing) of the Trust Assets. SECTION 17.6. RULES AND DECISIONS. The Committee may adopt such rules as it deems necessary, desirable, or appropriate. All rules and decisions of the Committee shall be uniformly and consistently applied to all Employees, Participants, Former Participants, and Beneficiaries in similar circumstances. Any rule or decision which is not inconsistent with the provisions of the Plan shall be conclusive and binding upon all persons affected by it, and, except as otherwise provided by applicable law or herein, there shall be no appeal from any decision by the Committee which is within its authority. When making a determination or calculation, the Committee shall be entitled to rely upon information furnished by an Employer, the legal counsel of an Employer, or an accountant or actuary of the Plan. When making any decision hereunder, the Committee may consult with any Participant, Former Participant, or Beneficiary affected thereby and may, if appropriate, take such Participant's, Former Participant's, or Beneficiary's preference into account, but the Committee shall not be required to consult with or follow the preference of any Participant, Former Participant, or Beneficiary in the making of any decision hereunder unless it is expressly required to do so by other provisions hereof or by applicable law. SECTION 17.7. COMMITTEE PROCEDURES. The Committee may act at a meeting or in writing without a meeting. The Committee shall appoint a secretary, who may or may not be a Committee member, and advise the Trustee of such action in writing. The secretary shall keep a record of all meetings and forward all necessary communications to the Employers or the Trustee. The Committee may adopt such bylaws and regulations as it deems desirable for the conduct of its affairs. All decisions of the Committee shall be made by the vote of a majority of the total number of members at the time serving on the Committee including actions in writing taken without a meeting. SECTION 17.8. LIABILITY OF COMMITTEE. Except as may otherwise be required by applicable law, no member of the Committee shall be liable for any act or omission of his own or of any agent or employee appointed or employed by the Committee, unless such act or omission is the result of his own willful misconduct or bad faith. The Company shall indemnify each such member against any liability or loss sustained by him by reason of any act or failure to act in his capacity as such member if such act or failure to act is in good faith and does not constitute willful misconduct. Such indemnification shall include attorney's fees and other costs and expenses reasonably incurred by such member in defense of any action brought against him by reason of any such act or failure to act. 99 SECTION 17.9. BONDING. The secretary and members of the Committee and any persons designated under Subsection 17.3(j) shall serve without bond except as otherwise required by applicable law or by the Company. The premium on any bond required of the secretary or members of the Committee shall be paid as provided in Section 16.7. IN WITNESS WHEREOF, FROZEN FOOD EXPRESS INDUSTRIES, INC. has caused this Plan to be executed by its duly appointed officers on this 24 day of March, 2000. FROZEN FOOD EXPRESS INDUSTRIES, INC. By: /S/ STONEY M. STUBBS, JR. ------------------------- Stoney M. Stubbs, Jr. President ATTEST: /S/ LEONARD W. BARTHOLOMEW Leonard W. Bartholomew Secretary EX-13.1 5 ANNUAL REPORT MANAGEMENT'S DISCUSSION ================================================================================ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Revenue (including revenue from non-freight activities) increased by 6.3% in 1999 to $372,149,000. For 1998, revenue totaled $349,932,000 and was 10.5% above 1997 revenue of $316,568,000. Freight revenue rose by 1.5% during 1999 and 7.0% in 1998. During 1999, the company incurred a net loss of $12,130,000 as compared to net income of $9,979,000 and $9,664,000 during 1998 and 1997, respectively. During the fourth quarter of 1999 FFEX announced a plan to restructure certain of its operations. The plan includes closing terminals, eliminating about 150 non-driver employee positions and the early disposition of certain trailers previously scheduled for retirement in 2001 and 2002. In connection with the plan, during 1999's fourth quarter FFEX recorded estimated restructuring expenses of $3.7 million which included $0.9 million for severance payments and $2.8 million for expenses associated with the early termination of trailer leases and the abandonment of a leased facility. The $3.7 million is classified as restructuring expense on the company's 1999 Consolidated Statement of Income. It is anticipated that these estimated amounts will be paid during 2000. During 1999, the company's plans to expand its fleet of full-truckload tractors were not met. In anticipation of success in meeting those plans, the company had previously expanded its fleet of 53-foot trailers. As a result, during the fourth quarter of 1999, the company had a surplus of trailers relative to tractors. During the fourth quarter of 1999, the company also recorded certain expenses associated with impairment of long-lived assets (see "Year 2000"). At the end of 1999, the company's full-truckload fleet numbered approximately 1,620 trucks, as compared to about 1,670 at the end of 1998. Primarily due to the reduced number of trucks, the number of full-truckload shipments fell by 0.6% during 1999 as compared to a 5.8% increase during 1998. During the fourth quarter of 1999, the company purchased the operating assets of a small refrigerated less than truckload (LTL) competitor. The company anticipates the traffic patterns of the combined LTL operations will provide moderate incremental freight revenue with nominal incremental associated costs. LTL revenue posted an increase of 4.7% in 1998 but fell by 0.7% in 1999. Revenue per hundredweight and revenue per shipment increased by 4.6% and 5.0%, respectively, in 1999. The number of LTL shipments declined by 5.2% during 1999. The company does not plan to add trucks to its company-operated, full-truckload fleet during 2000. The number of trucks in this fleet increased by approximately 100 during 1998 and declined by almost 90 to approximately 1,150 during 1999. Continued emphasis will be placed on improving the operating efficiency and increasing the utilization of this fleet through enhanced driver training and retention, by reducing the percentage of non-revenue-producing miles, and by extending the average loaded miles per shipment and through expansion of dedicated fleet operations. Prior to 1998, limited operations involving dedicated fleets were conducted. In such an arrangement, the company contracts to provide service involving the assignment of specific trucks to handle transportation needs of its customers. Frequently the company and customer anticipate that dedicated fleet logistics services will both lower the customer's transportation costs and improve the quality of the service the customer receives. In late 1998, the company improved its capability to provide and expanded its efforts to market such services. By December 31, 1999, 10% of the company-operated, full truckload fleet was engaged in dedicated fleet operations. The operation of the company's full-truckload fleet is facilitated by satellite technology that enhances efficiency and customer service. Position updates of each tractor are provided by the system and real-time communication between operations personnel and drivers are facilitated. During 1999, the company experienced difficulty in attracting qualified employee-drivers. Throughout 1997 and 1998, the company did not experience significant shortages of employee-drivers, although excessive turnover continued. Prior to 1999, it was not unusual for 20 to 40 trucks to be idle due to a shortage of drivers. During 1999, as many as 100 trucks were out of service from time to time due to lack of drivers. This shortage was a prime factor in reducing the size of the company-operated fleet. This situation, which has been typical in the industry, can increase costs of employee-driver compensation, training and recruiting. Significant resources are continually devoted to recruiting and retaining qualified employee-drivers and to improving their job satisfaction. ================================================================================ 7 MANAGEMENT'S DISCUSSION ================================================================================ As a part of its recruiting and training program, the company partners with driver training schools. The company pre-qualifies candidates and assists in funding their education, contingent upon successful and continuing employment as a driver for the company. Bonuses are earned by employee-drivers meeting certain fuel economy, productivity, safety, tenure and quality of service goals. Employee-drivers, as well as all other qualified employees, participate in stock option, 401(k), group health and other benefit programs. Recovery of future cost increases, if any, associated with driver turnover and compensation will depend upon competitive freight-market conditions. Changes in the percentage of freight revenue generated from full-truckload versus LTL shipments, as well as in the mix of company-provided versus owner-operator-provided equipment and in the mix of leased versus owned equipment, contribute to variations in related operating and interest expenses. Throughout the three years ended December 31, 1999, the company has seen moderate success in receiving rate increases from its customers. Costs, particularly associated with employee-driver payroll and equipment operation, have risen at a pace faster than have the rates charged by the company. The company expects to intensify its efforts to gain rate increases in order to offset such rising costs. Results of operations during 1999 were impacted by several events which occurred during the latter half of the year. These include adverse claims experience for work-related injuries and employee health insurance. Such costs are included in salaries, wages and related expenses which aggregated, as a percent of freight revenue, 28.7%, 26.9% and 25.5% for 1999, 1998 and 1997, respectively. The majority of the 1998 increase resulted from increased wages paid to employee-drivers. Of 1999's $6.7 million increase in salaries, wages and related expenses, 35% was related to driver wages and 30% was due to increased non-driver wages. The remainder was due principally to increased work-related claims and health insurance expenses. Throughout 1998 and 1997, the company capitalized the salaries paid to certain employees who were directly contributing to the development of a new management information system (MIS), which was implemented during mid-1999. Subsequent to the implementation, these salaries were expensed as incurred. The company has traditionally relied on owner-operator provided equipment to transport much of its customers' freight. As competition for employee-drivers has increased, other trucking companies have initiated or expanded owner-operator fleets. The number of trucks provided by owner-operators rose by about 20 during 1999, and by about 45 during 1998. Beginning in mid-1998, the company intensified its solicitation for and retention of owner-operator provided equipment. Due to a decline in the number of such trucks during 1997's first half that was not reversed until 1998's second half, the percentage of total full-truckload revenue from such equipment declined during 1998. As a result of these fluctuations in the quantity and revenue contribution of such equipment, the percent of freight revenue absorbed by purchased transportation declined from 23.1% in 1997 to 21.9% in 1998 and then rose to 22.6% in 1999. The company is considering programs designed to further expand its fleet of owner-operator trucks during 2000. Of 1999's $5,538,000 increase in supplies and expenses, 58% was the result of increased expenditures for fuel and fuel taxes. Another 15% was due to increased expenses associated with revenue equipment repairs and maintenance. Sudden and dramatic fuel price volatility can impact the company's profitability. A number of factors tend to diminish the impact of such volatility. Owner-operators are responsible for all costs associated with their equipment, including fuel. Therefore, the cost of such fuel is not a direct expense of the company. With regard to fuel expenses for company-operated equipment, the company attempts to mitigate the impact of fluctuating fuel costs by purchasing more fuel-efficient tractors and aggressively managing fuel purchasing. Also, certain rates charged by the company for its services are adjustable by reference to fuel prices. Relatively high or low fuel prices can result in upward or downward adjustment of freight rates, further mitigating the impact of such volatility on the company's profits. Such fluctuations result from many external market factors that cannot be influenced or predicted by the company. In addition, each year several states increase fuel taxes. Recovery of future increases or realization of future decreases in fuel prices and fuel taxes, if any, will continue to depend upon competitive freight-market conditions. The total of revenue equipment rent and depreciation expense increased to 12.4% of freight revenue in 1999 from 11.4% for 1998 and 11.2% for 1997. These increases were due in part to the increased use of leasing to finance the company's fleet. Equipment rental includes a component of interest-related expense that is classified as non-operating expense when the company incurs debt to acquire equipment. Equipment rent and depreciation also are affected by the replacement of less expensive (three year old) company-operated tractors and (seven year old) trailers with more expensive new equipment. Depreciation expense associated with the new MIS was also a component of the 1999 increase. ================================================================================ 8 MANAGEMENT'S DISCUSSION ================================================================================ Claims and insurance expense, as a percent of freight revenue, was 6.0% in 1999, 4.0% in 1998 and 4.1% in 1997. Claims against the company for highway accidents are the primary component of claims and insurance expense. These expenses tend to vary with miles traveled and with changes in the mix of full-truckload versus LTL operations. Insurance premiums do not significantly contribute to costs, partially because the company carries large deductibles under its policies of liability insurance. Claims and insurance costs on a per-mile basis declined by 3% during 1998 but rose by 49% during 1999. The 1999 increase was due primarily to adverse claims experience, particularly during the fourth quarter. Such expenses vary significantly from year to year. Reserves representing the company's estimate of ultimate claims outcomes are established based on information available at the time of an incident. As additional information becomes available, previously recorded amounts may be revised. The amount of open claims, some of which involve litigation, is significant. In the opinion of management, these claims can be resolved without a material adverse effect on the company's financial position or its results of operations. Gains on the disposition of equipment fell from $1,149,000 in 1997 to $840,000 in 1998 and to $594,000 in 1999. The amount of such gains depends primarily upon conditions in the market for used equipment. Miscellaneous expenses rose by $3.5 million during 1999, almost 90% of which was due to increased provisions for uncollectable accounts receivable. Accounts receivable, net, a main component of working capital, increased by 49% between 1997 and 1999, as compared to an 18% increase in revenue. Before offset of allowances for doubtful accounts, the 1997 through 1999 increase was 60%. Much of the increase occurred during the last 6 months of 1999. This was partially a result of delays in the company's collection cycle. During 1999, the company completed a computer systems conversion. Following this conversion, the company experienced problems regarding the presentation of invoices to some of its customers, contributing to increased past-due receivables. During the fourth quarter of 1999, an analysis resulted in an increased estimate of such receivables that may not ultimately be collected. The company also has a non-freight segment engaged in the sale and service of refrigeration equipment and of trailers used in freight transportation. Revenue from these operations was $61,247,000 in 1999, $43,819,000 during 1998 and $30,470,000 during 1997. Operating profits from this segment of $992,000, $1,862,000 and $1,076,000 were posted for 1999, 1998 and 1997, respectively. Revenue continued to expand throughout the three-year period. However, increased competition in the used transportation marketplace has narrowed margins and increased selling and administrative expenses. During the fourth quarter of 1999, the non-freight segment also recorded a reserve for potentially obsolete inventory, estimated warranty claims and uncollectable accounts of approximately $625,000. For 1999, the company incurred a loss from operations of $15,235,000 as compared to income from operations of $16,753,000 and $15,060,000 for 1998 and 1997, respectively. For 1999, 1998 and 1997, interest and other expense was $4,019,000, $1,038,000 and $1,244,000, respectively. Increased interest costs associated with borrowed funds and reduced interest income contributed to this increase (See "Liquidity and Capital Resources"). Interest and other expenses were also impacted during 1999 by a company-owned life insurance ("COLI") program and other life insurance programs and investments. The company's 1999 loss before benefit from income taxes was $19,254,000. Pre-tax income was $15,715,000 and $13,816,000 for 1998 and 1997, respectively. The effective income tax rate was 37.0% of pre-tax income for 1999, as compared to 36.5% for 1998 and 30.1% for 1997. Prior to 1998, fluctuations in effective income tax rates were primarily attributable to the presence of non-taxable income from COLI. Offsetting this non-taxable income were tax-deductible interest costs associated with the program. The combination of non-taxable COLI income and this tax-deductible interest expense negatively impacted pre-tax income from 1994 through 1997. The effect was to reduce income taxes through the deductibility of such interest costs. Due to legislation enacted during 1996 that limited the deductibility of COLI-related interest expense, a phase-out of COLI was implemented during 1998. Tax savings from related interest costs were reduced resulting in increased effective tax rates. LIQUIDITY AND CAPITAL RESOURCES During 1999, cash used in operating activities was $2.6 million as compared to cash provided by operations of $13.9 million and $28.5 million for 1998 and 1997, respectively. These fluctuations have resulted from declines in overall profitability coupled with fluctuating working capital. (See "Results of Operations".) ================================================================================ 9 MANAGEMENT'S DISCUSSION ================================================================================ Expenditures for property and equipment totaled $28.3 million in 1999, $27.7 million during 1998 and $14.7 million during 1997. In addition, the company financed, through operating leases, the acquisition of revenue equipment valued at approximately $40 million in 1999, $28 million during 1998 and $27 million during 1997. From 1992 until the end of 1999, the company had in place a $50 million unsecured revolving credit facility. Interest rates were at prime or below, and no commitment fee was payable. The 1992 agreement imposed certain financial limitations on the company regarding interest coverage, financial leverage and dividend payments. During the fourth quarter of 1999, the company informed the banks that it expected to be in violation of certain of these limitations as of December 31, 1999. Accordingly, the 1992 agreement was amended to exclude those limitations that the company expected to violate. The amendment also increased the interest rates payable under the agreement and set a March 1, 2000 expiration date. During January and February 2000, the company and the same three banks as were involved in the 1992 agreement successfully negotiated (pending final documentation agreeable to all parties) a proposed new credit agreement. The proposed new agreement provided for loans to be secured by the company's accounts receivable and inventories. Interest rates and other fees payable to the banks were increased under the proposed new agreement which contained a pricing "grid" where increased levels of profitability and cash flow on reduced levels of indebtedness would reduce such interest rates and other fees. The proposed agreement restricted payments of cash dividends, repurchases of company stock and the amount of capital expenditures. The term of the proposed agreement was two years. The proposed agreement was between the company and three banks, each of whom had participated in the 1992 agreement since its inception. Closing was scheduled for March 1, 2000. On February 28, 2000 one of the banks announced its unwillingness to commit to the proposed two-year term, and limited its participation to 90 days. Accordingly, the term of the proposed agreement was shortened to expire on June 1, 2000. The other terms and conditions of the proposed agreement were substantially unchanged and closing of the proposed agreement occurred on March 1, 2000. Based upon discussions with the remaining two banks and other advisors, the company expects to obtain a suitable replacement facility prior to June 1, 2000. There can be no assurance, however, that such a facility will be in place by June 1, 2000. Accordingly, the company is considering alternative strategies which would accommodate the company's financial requirements beyond June 1, 2000. Because the credit agreement is set to expire on June 1, 2000, the amount borrowed as of December 31, 1999 has been reflected on the company's balance sheet as a current liability. The amended 1992 agreement and the agreement that replaced it are also used to support letters of credit issued in connection with the company's insurance and risk management programs. At the end of 1999, approximately $18.5 million was available under the credit line. In connection with its restructuring efforts, the company does not expect to add tractors or trailers to its company-operated fleet during 2000. Approximately 350 three-year old tractors, presently scheduled for retirement during 2000, are expected to be replaced. These expenditures will be financed with internally generated funds, borrowings under available credit agreements and leasing. Subject to the successful negotiation of a replacement credit facility, management believes these sources of capital will be sufficient to finance the company's operations. YEAR 2000 ("Y2K") Neither the Company nor its significant suppliers nor customers experienced significant malfunctions or errors in its operating or business systems when the date changed from 1999 to 2000. Based on operations since January 1, 2000, the Company does not expect any significant impact to its ongoing business as a result of the Y2k issue. The Company expended approximately $10 million through December 31, 1999, on a systems conversion project that totally replaced a non-Y2k compliant mainframe system with a Y2k compliant system. These efforts included replacing outdated, non-compliant hardware and software as well as remediating other Y2k problems. In connection with its effort to prepare for the Y2k switchover, the company concluded a five-year systems development effort during 1999. Subsequent to the conversion to the new MIS, the company commenced a review of the functions it provided. The review, which was completed during the fourth quarter of 1999 revealed numerous features of the system which the company no longer intends to utilize. Those features have been abandoned. Of the approximately $10.0 million which was expended to develop the new MIS, approximately $2.7 million was allocated to the abandoned portion of the MIS. Such amount is reflected on the company's 1999 Consolidated Statement of Income as "impairment of long-lived assets". ================================================================================ 10 TEN-YEAR STATISTICS AND FINANCIAL DATA 1999 1998 1997 1996 - --------------------------------------------------------------------- -------------- -------------- -------------- -------------- (unaudited and in thousands, except ratio, rate, equipment and per-share amounts)
SUMMARY OF OPERATIONS Revenue 372,149 349,932 316,568 311,428 Operating expenses 387,384 333,179 301,508 296,283 Net (loss) income (12,130) 9,979 9,664 8,533 Pre-tax margin (5.2)% 4.5% 4.4% 3.8% After-tax return on equity (13.4)% 10.4% 10.9% 10.7% Net (loss) income per common share, diluted (.74) .59 .57 .51 FINANCIAL DATA Working capital 12,054 39,353 44,979 34,162 Current ratio 1.2 2.2 2.4 2.1 Cash (used in) provided by operations (2,559) 13,877 28,460 10,800 Capital expenditures, net 23,917 22,236 7,955 7,191 Short and long-term debt 26,500 -- -- -- Shareholders' equity 83,121 98,277 93,077 83,953 Debt-to-equity ratio .3 -- -- -- COMMON STOCK Average shares outstanding, diluted 16,352 17,039 17,056 16,838 Book value per share 5.09 5.96 5.53 5.04 Market value per share High 8.500 10.500 10.250 13.875 Low 3.250 5.688 8.375 7.875 Cash dividends per share .09 .12 .12 .12 REVENUE Full-truckload 211,545 206,098 190,576 195,458 Less-than-truckload 99,357 100,015 95,522 92,496 TL/LTL % revenue contribution 57/27 59/29 60/30 63/30 EQUIPMENT IN SERVICE AT YEAREND Tractors Company operated 1,240 1,328 1,220 1,202 Provided by owner-operators 690 672 628 703 Total 1,930 2,000 1,848 1,905 Trailers Company operated 3,335 2,940 2,784 2,998 Provided by owner-operators 23 22 23 20 Total 3,358 2,962 2,807 3,018 FULL-TRUCKLOAD Revenue 211,545 206,098 190,576 195,458 Loaded miles 157,248 155,045 143,902 145,785 Shipments 165.0 166.0 156.9 158.1 Revenue per shipment 1,282 1,242 1,215 1,236 Loaded miles per load 953 934 917 922 Revenue per loaded mile 1.35 1.33 1.32 1.34 Shipments per business day 655 659 623 627 Revenue per business day 839 817 756 776 LESS-THAN-TRUCKLOAD Revenue 99,357 100,015 95,522 92,496 Hundredweight 8,075 8,502 8,537 8,652 Shipments 277.9 293.1 293.1 304.6 Revenue per hundredweight 12.30 11.76 11.19 10.69 Revenue per shipment 358 341 326 304 Revenue per business day 394 397 379 367 Pounds per shipment 2,906 2,901 2,913 2,840 - --------------------------------------------------------------------- -------------- -------------- -------------- --------------
12
1995 1994 1993 1992 1991 1990 -------------- -------------- -------------- -------------- -------------- -------------- 292,345 274,620 227,389 194,888 176,995 160,171 276,961 255,484 211,999 183,179 167,033 152,370 9,253 11,874 9,441 7,144 5,202 3,618 4.5% 6.5% 6.3% 5.8% 4.8% 3.6% 13.3% 20.4% 20.1% 18.6% 16.0% 12.6% .56 .72 .58 .45 .34 .25 25,024 25,623 20,823 16,949 15,612 13,085 1.7 1.8 1.8 1.8 2.1 1.9 24,180 20,025 17,482 16,395 14,968 9,022 8,383 8,160 18,453 18,375 (2,423) 16,285 -- 9,000 17,000 12,000 5,000 19,200 75,021 64,288 51,983 41,799 35,059 30,005 -- .1 .3 .3 .1 .6 16,519 16,451 16,276 15,910 15,249 14,519 4.59 4.03 3.31 2.72 2.42 2.11 13.900 15.000 15.000 11.475 4.088 2.700 8.500 11.000 7.275 3.938 1.800 1.838 .12 .096 .096 .079 .06 .06 180,598 163,988 129,549 109,178 103,582 90,043 87,783 88,328 80,965 72,864 65,068 64,589 62/30 60/32 57/36 56/37 59/37 56/40 1,149 1,099 945 800 737 739 667 505 457 432 421 386 1,816 1,604 1,402 1,232 1,158 1,125 2,770 2,406 2,027 1,609 1,475 1,419 27 21 32 24 28 38 2,797 2,427 2,059 1,633 1,503 1,457 180,598 163,988 129,549 109,178 103,582 90,043 135,469 121,106 97,753 83,247 80,663 69,800 142.9 128.1 106.6 92.9 85.5 75.8 1,264 1,280 1,215 1,175 1,211 1,188 948 945 917 896 943 921 1.33 1.35 1.33 1.31 1.28 1.29 567 508 423 367 339 301 717 651 514 431 411 357 87,783 88,328 80,965 72,864 65,068 64,589 8,296 8,670 8,116 6,848 6,211 6,314 292.1 305.2 292.0 253.3 231.3 241.7 10.58 10.19 9.98 10.64 10.48 10.23 301 289 277 288 281 267 348 351 321 288 258 256 2,840 2,841 2,779 2,704 2,685 2,612 -------------- -------------- -------------- -------------- -------------- --------------
13 CONSOLIDATED STATEMENTS OF INCOME - ------------------------------------------------------------------------------------------------------------ Frozen Food Express Industries, Inc. and Subsidiaries December 31, 1999, 1998, and 1997 (in thousands, except per-share amounts)
1999 1998 1997 - ------------------------------------------------------------------------------------------------------------ Revenue Freight revenue $ 310,902 $ 306,113 $ 286,098 Non-freight revenue 61,247 43,819 30,470 ------------------------------------------ 372,149 349,932 316,568 ------------------------------------------ Costs and expenses Freight operating expenses Salaries, wages and related expenses 89,174 82,479 72,989 Purchased transportation 70,353 67,124 65,988 Supplies and expenses 88,430 82,892 78,854 Revenue equipment rent 26,949 25,578 22,349 Depreciation 11,752 9,381 9,643 Communications and utilities 3,949 4,321 3,294 Claims and insurance 18,577 12,207 11,634 Operating taxes and licenses 5,488 4,908 4,857 Gain on disposition of equipment (594) (840) (1,149) Miscellaneous expense 6,674 3,172 3,655 Impairment of long-lived assets 2,656 -- -- Restructuring expense 3,721 -- -- ------------------------------------------ 327,129 291,222 272,114 Non-freight costs and operating expenses 60,255 41,957 29,394 ------------------------------------------ 387,384 333,179 301,508 ------------------------------------------ (Loss) income from operations (15,235) 16,753 15,060 Interest and other expense 4,019 1,038 1,244 ------------------------------------------ (Loss) income before income tax (19,254) 15,715 13,816 (Benefit from) provision for income tax (7,124) 5,736 4,152 ------------------------------------------ Net (loss) income $ (12,130) $ 9,979 $ 9,664 =========================================== Net (loss) income per share of common stock Basic $ (.74) $ .59 $ .58 Diluted $ (.74) $ .59 $ .57 =========================================== See accompanying notes. - -------------------------------------------------------------------------------------------------------------
14 CONSOLIDATED BALANCE SHEETS - ---------------------------------------------------------------------------------------------------------- Frozen Food Express Industries, Inc. and Subsidiaries December 31, 1999 and 1998 (in thousands)
1999 1998 - ---------------------------------------------------------------------------------------------------------- ASSETS Current assets Cash and cash equivalents $ 1,613 $ 6,023 Accounts receivable, net 52,312 43,802 Inventories 17,719 12,575 Tires on equipment in use 5,036 5,276 Deferred federal income tax 289 -- Other current assets 3,978 3,259 ------------------------------ Total current assets 80,947 70,935 Property and equipment, net 73,640 64,405 Other assets 15,496 14,340 ------------------------------ $ 170,083 $ 149,680 ============================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 24,797 $ 17,153 Accrued claims 6,631 3,801 Accrued payroll 5,890 5,759 Federal income tax payable -- 1,104 Deferred federal income tax -- 212 Short-term debt 26,500 -- Accrued liabilities 5,075 3,553 ------------------------------ Total current liabilities 68,893 31,582 Deferred federal income tax 2,795 8,418 Accrued claims and liabilities 15,274 11,403 Commitments and contingencies -- -- ------------------------------ Total liabilities and deferred credits 86,962 51,403 ------------------------------ Shareholders' equity Common stock, 17,281 shares issued 25,921 25,921 Additional paid-in capital 5,056 5,323 Retained earnings 59,399 73,001 ------------------------------ 90,376 104,245 Less - Treasury stock, at cost 7,255 5,968 ------------------------------ Total shareholders' equity 83,121 98,277 ------------------------------ $ 170,083 $ 149,680 ============================== See accompanying notes. - ----------------------------------------------------------------------------------------------------------
15 CONSOLIDATED STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------------------------------------------------------------- Frozen Food Express Industries, Inc. and Subsidiaries December 31, 1999, 1998 and 1997 (in thousands)
1999 1998 1997 - --------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities Net (loss) income $ (12,130) $ 9,979 $ 9,664 Non-cash items involved in net income Depreciation and amortization 13,564 10,854 10,331 Provision for losses on accounts receivable 5,296 2,285 1,964 Deferred federal income tax (6,124) 997 1,079 Gain on disposition of equipment (594) (840) (1,149) Impairment of long-lived assets 2,656 -- -- Restructuring expense 3,721 -- -- Non-cash contribution to employee benefit plans -- 1,370 1,631 Change in assets and liabilities Accounts receivable (13,359) (10,817) 2,508 Inventories (5,144) (1,967) (2,168) Tires on equipment in use 240 (501) 742 Other current assets (719) (85) 2,313 Accounts payable 6,505 4,553 (1,384) Accrued claims and liabilities 5,377 (2,773) 1,993 Accrued payroll (744) 517 292 Federal income tax payable (1,104) 305 644 --------------------------------------- Net cash (used in) provided by operating activities (2,559) 13,877 28,460 --------------------------------------- Cash flows from investing activities Expenditures for equipment (28,294) (27,722) (14,656) Proceeds from sale of equipment 4,377 5,486 6,701 Other (1,408) (2,787) (1,686) --------------------------------------- Net cash used in investing activities (25,325) (25,023) (9,641) --------------------------------------- Cash flows from financing activities Borrowings under revolving credit agreement 72,500 2,000 19,000 Payments against revolving credit agreement (46,000) (2,000) (19,000) Dividends paid (1,472) (2,016) (2,012) Proceeds from sale of treasury stock 198 1,546 1,513 Purchases of treasury stock (1,752) (5,679) (1,672) --------------------------------------- Net cash provided by (used in) by financing activities 23,474 (6,149) (2,171) --------------------------------------- Net (decrease) increase in cash and cash equivalents (4,410) (17,295) 16,648 Cash and cash equivalents at beginning of year 6,023 23,318 6,670 --------------------------------------- Cash and cash equivalents at end of year $ 1,613 $ 6,023 $ 23,318 ======================================= See accompanying notes. - -------------------------------------------------------------------------------------------------------------------------
16 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------------------------------ Frozen Food Express Industries, Inc. and Subsidiaries December 31, 1999
Shares of Par Value of Additional Shares of Cost of Total Common Common Paid-In Retained Treasury Treasury Shareholders' Stock Issued Stock Capital Earnings Stock Stock Equity - -------------------------------------- --------------------------------------------------------------------------------------------- At December 31, 1996 17,281 $ 25,921 $ 3,462 $ 57,386 639 $ 2,816 $ 83,953 Net income -- -- -- 9,664 -- -- 9,664 Cash dividends paid -- -- -- (2,012) -- -- (2,012) Treasury stock reacquired -- -- -- -- 183 1,686 (1,686) Treasury stock reissued -- -- 1,377 -- (304) (1,475) 2,852 Exercise of stock options -- -- (60) -- (73) (366) 306 --------------------------------------------------------------------------------------------- At December 31, 1997 17,281 25,921 4,779 65,038 445 2,661 93,077 Net income -- -- -- 9,979 -- -- 9,979 Cash dividends paid -- -- -- (2,016) -- -- (2,016) Treasury stock reacquired -- -- -- -- 694 5,679 (5,679) Treasury stock reissued -- -- 673 -- (250) (1,645) 2,318 Exercise of stock options -- -- (129) -- (107) (727) 598 --------------------------------------------------------------------------------------------- At December 31, 1998 17,281 25,921 5,323 73,001 782 5,968 98,277 Net loss -- -- -- (12,130) -- -- (12,130) Cash dividends paid -- -- -- (1,472) -- -- (1,472) Treasury stock reacquired -- -- -- -- 239 1,752 (1,752) Exercise of stock options -- -- (267) -- (61) (465) 198 --------------------------------------------------------------------------------------------- At December 31, 1999 17,281 $ 25,921 $ 5,056 $ 59,399 960 $ 7,255 $ 83,121 ============================================================================================= See accompanying notes. - ------------------------------------------------------------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION -- Frozen Food Express Industries, Inc., a Texas corporation, and its subsidiaries, all of which are wholly-owned (collectively, "FFEX"), are primarily engaged in motor carrier transportation of perishable commodities, providing service for full-truckload and less-than-truckload shipments throughout North America. The consolidated financial statements include FFEX. All significant intercompany balances and transactions have been eliminated in consolidation. ACCOUNTING ESTIMATES -- The preparation of financial statements in conformity with generally accepted accounting principles requires estimates and assumptions that affect the value of assets, liabilities, revenue and expenses. Estimates and assumptions also influence the disclosure of contingent assets and liabilities. Actual outcomes may vary from these estimates and assumptions. CASH EQUIVALENTS -- FFEX considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. - -------------------------------------------------------------------------------- 17 ACCOUNTS RECEIVABLE -- FFEX extends trade credit to customers primarily located in the United States. Accounts receivable from customers are stated net of allowances for doubtful accounts of $8,392,000 and $3,246,000 as of December 31, 1999 and 1998, respectively. INVENTORIES -- Inventories are valued at the lower of cost (principally weighted average cost or specific identification method) or market. FREIGHT REVENUE AND EXPENSE RECOGNITION -- Freight revenue and associated direct operating expenses are recognized on the date the freight is picked up from the shipper. INCOME TAXES -- Deferred income taxes are provided for temporary differences between the tax basis of assets and liabilities and their financial reporting amounts. Deferred taxes are recorded based upon statutory tax rates anticipated to be in effect when temporary differences are expected to reverse. LONG-LIVED ASSETS -- FFEX periodically evaluates whether the remaining useful life of long-lived assets may require revision or whether the remaining unamortized balance is recoverable. When factors indicate that an asset should be evaluated for possible impairment, FFEX uses an estimate of the asset's discounted cash flow in evaluating its recoverable value. Included in other non-current assets are costs associated with life insurance policies and related investments owned by FFEX. 2. PROPERTY AND EQUIPMENT Property and equipment is carried at historical cost and consists of the following (in thousands): December 31, Estimated ------------------------ Useful Life 1999 1998 (Years) ------------------------------------------------------------------------ Land $ 4,845 $ 3,273 - Buildings and improvements 15,599 14,971 20 - 30 Revenue equipment 64,046 55,822 3 - 7 Service equipment 16,642 14,887 2 - 20 Computer, software and related equipment 18,292 19,425 3 - 12 ----------------------------- 119,424 108,378 Less accumulated depreciation 45,784 43,973 ----------------------------- $ 73,640 $ 64,405 ========================================= 3. SHORT-TERM DEBT, SUBSEQUENT EVENT As of December 31, 1999, FFEX had a $50 million unsecured line of credit pursuant to a revolving credit agreement with three commercial banks. The agreement was amended in December 1999. The amendment revised certain convenants and was structured to accommodate FFEX's 1999 operating results and to set a March 1, 2000 expiration. As amended, the agreement was terminable by any party upon sixty days' notice, with repayment due over 4 years commencing 13 months following termination. Interest was due quarterly at the prime rate of one of the banks. Alternately, FFEX may elect to borrow for specified periods of time at fixed interest rates which are based on the London Interbank Offered Rate in effect at the time of a fixed rate borrowing. At December 31, 1999, $26.5 million was borrowed against this facility. On March 1, 2000, FFEX entered into an amended and restated agreement. The new facility, which is secured by liens against FFEX's inventory and trade accounts receivable, is with the same banks as the credit agreement it replaced. The new agreement also contains a pricing "grid" where increased levels of profitability and cash flows or reduced levels of indebtedness can reduce the rates of interest expense incurred by FFEX. The agreement restricts payments of cash dividends, repurchase of FFEX stock and the amount of capital expenditures. The amount which FFEX may borrow under the new facility may not exceed the lesser of $50 million, as adjusted for letters of credit and other debt as defined in the new agreement, or a multiple of a measure of cashflow as described in the new agreement. The amended and restated credit agreement matures on June 1, 2000 and contains no provision to enable FFEX to convert the amount then borrowed into a term loan, as was the case pursuant to the facility which expired on March 1, 2000. At December 31, 1999, approximately $18.5 million was available under the agreement. Total interest payments under the credit line during 1999, 1998 and 1997 were $1,341,000, $5,000 and $149,000, respectively. The weighted average interest rate incurred by the company during 1999 was 6.1%. - -------------------------------------------------------------------------------- 18 4. COMMITMENTS AND CONTINGENCIES FFEX leases real estate and equipment. The aggregate future minimum rentals under non-cancelable operating leases at December 31, 1999, are (in thousands): Third Related Parties Parties Total ----------------------------------------------------- 2000 $ 21,302 $ 1,539 $ 22,841 2001 17,011 1,057 18,068 2002 10,811 515 11,326 2003 6,667 -- 6,667 2004 4,785 -- 4,785 After 2004 4,370 -- 4,370 --------------------------------------- Total $ 64,946 $ 3,111 $ 68,057 ======================================= Leases with related parties involve tractors leased from certain officers of FFEX under three year non-cancelable operating leases. Rentals are determined by reference to amounts paid by FFEX to unaffiliated third-party lessors. For 1999, 1998 and 1997, payments under these leases were approximately $1,414,000, $1,389,000, and $1,191,000, respectively. At December 31, 1999, FFEX had purchase commitments of approximately $26.3 million for the purchase of revenue equipment during 2000. FFEX has accrued for costs related to public liability, cargo and work-related injury claims. When an incident occurs, FFEX records a reserve for the incident's estimated outcome. As additional information becomes available, adjustments are made. Such liabilities represent all such reserves and FFEX's estimate for incidents which may have been incurred but not reported. In the opinion of management, any additional costs incurred over amounts incurred to resolve these claims will not materially deviate from the aggregate amounts accrued. At December 31, 1999, FFEX had established approximately $5 million of irrevocable letters of credit in favor of insurance companies and pursuant to certain insurance agreements. The letters of credit may be drawn upon in the event of default for failure to pay claims. 5. FINANCING AND INVESTING ACTIVITIES NOT AFFECTING CASH During 1998 and 1997, FFEX funded contributions to its Employee Savings Plan and one of its Employee Stock Ownership Plans and Trusts (ESOPs) by transferring 140,194 and 179,998 shares, respectively, of treasury stock to the trustees of the plans. No shares were contributed in 1999. The fair market value of the shares, at the time of the contributions, was approximately $1,370,000 and $1,631,000 for 1998 and 1997, respectively. As of December 31, 1999, accounts payable included $1,100,000 for the purchase of equipment delivered during 1999. As of December 31, 1999 and 1998, accounts receivable included $735,000 and $794,000, respectively, from the sale of equipment retired and sold during 1999 and 1998. 6. SAVINGS PLAN FFEX sponsors a 401(k) Savings Plan (the Plan) for its employees. Contributions by FFEX to the Plan are determined by reference to voluntary contributions made by each employee. Additional contributions are made at the discretion of the Board of Directors. FFEX contributions are made in cash. For 1999, 1998 and 1997, total contributions to the Plan were approximately $1,481,000, $1,653,000 and $1,631,000, respectively. - -------------------------------------------------------------------------------- 19 7. INCOME TAXES Total federal income taxes paid by FFEX were $5,150,000 and $832,000 for 1998 and 1997, respectively. No such taxes were paid during 1999. The following presents the changes in the primary components of the net deferred tax liability (in thousands): Deferred December 31, (Provision) December 31, 1998 Benefit 1999 ------------------------------------------------------------------------- Deferred Tax Assets: Accrued claims $ 4,947 $ 832 $ 5,779 Net operating loss -- 5,934 5,934 Allowance for bad debts 1,049 696 1,745 --------------------------------------- 5,996 7,462 13,458 --------------------------------------- Deferred Tax Liabilities: Prepaid expense (2,498) (403) (2,901) Fixed assets (11,686) 699 (10,987) Other (442) (1,634) (2,076) --------------------------------------- (14,626) (1,338) (15,964) --------------------------------------- $ (8,630) $ 6,124 $ (2,506) ======================================= The (benefit from) provision for income tax consists of the following (in thousands): 1999 1998 1997 ------------------------------------------------------------------------- Taxes currently payable Federal $(1,104) $ 4,264 $ 2,531 State 104 475 542 Deferred federal taxes (6,124) 997 1,079 --------------------------------------- $(7,124) $ 5,736 $ 4,152 ======================================= The differences between the statutory federal income tax rate and FFEX's effective income tax rate are as follows: 1999 1998 1997 ------------------------------------------------------------------------- Statutory federal income tax rate 35.0% 34.5% 34.3% Company-owned life insurance -- -- (3.5) State income taxes and other 2.0 2.0 (0.7) ------------------------------------- 37.0% 36.5% 30.1% ===================================== 8. NET INCOME OR LOSS PER SHARE OF COMMON STOCK Basic Earnings Per Share ("EPS") is computed by dividing net income or loss by the weighted average number of shares of common stock outstanding during the year. Diluted EPS is determined by dividing net income by the weighted average shares outstanding assuming the exercise of all dilutive items (using the treasury stock method). The table below sets forth information regarding weighted average basic and diluted shares (in thousands): 1999 1998 1997 ----------------------------------------------------------------- Basic Shares 16,352 16,789 16,767 Common Stock Equivalents -- 250 289 ------------------------------------- Diluted Shares 16,352 17,039 17,056 ===================================== All common stock equivalents result from dilutive stock options. For 1998 and 1997, the percentage of stock options excluded from common stock equivalents due to exercise prices in excess of average market prices was 52% and 43%, respectively. For 1999, approximately 81,000 common stock equivalent shares were excluded because their impact would have been anti-dilutive. 9. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK As of December 31, 1999, long-term debt was $26.5 million, which approximated fair market value. No short-term debt was present. Also, as of December 31, 1999, FFEX held no material market risk sensitive instruments (for trading as well as non-trading purposes) which would involve significant foreign currency exchange rate risk, commodity price risk or other relevant market risks, such as equity price risk. Accordingly, the potential loss to FFEX in future earnings, fair values or cash flows of market risk sensitive investments resulting from changes in interest rates, foreign currency exchange rates, commodity prices and other relevant market rates or prices is not significant. - -------------------------------------------------------------------------------- 20 10. SHAREHOLDERS' EQUITY As of December 31, 1999, 1998 and 1997, there were authorized 40 million shares of FFEX's $1.50 par value common stock. Stock options were granted pursuant to stock option plans adopted in 1996, 1994, 1993, 1987 and 1982. The plans provide that options for shares of FFEX common stock may be granted to officers and employees of FFEX at the fair market value on the date of grant and to non-employee directors of FFEX at the greater of $1.00 or 50% of the market value at date of grant. All options expire 10 years from the date of grant. Options may be granted for 10 years following plan adoption. The table below sets forth summarized information regarding stock options (in thousands, except per-share amounts): 1999 1998 1997 - ------------------------------------------ -------------------------------- Options outstanding at Beginning of Year 3,217 2,329 1,363 Cancelled (570) (704) (268) Granted 592 1,700 1,307 Exercised (57) (108) (73) -------------------------------- Options outstanding at Year-End 3,182 3,217 2,329 ================================ Exercisable options 1,402 1,045 1,031 Options available for future grants 2,045 1,761 1,262 Average price of options Cancelled during year $8.66 $8.66 $8.69 Granted during year $7.70 $8.48 $8.87 Exercised during year $3.13 $5.20 $4.17 Outstanding at yearend $8.55 $8.03 $8.61 ================================ FFEX applies APB Opinion 25 and related interpretations in accounting for its plans. Accordingly, no expense has been recognized for stock option grants to employees. Had such expense been determined based on the options' estimated fair value at the grant dates for awards under those plans consistent with the method of SFAS No. 123 "Accounting For Stock-owned Compensation", FFEX's net loss would have increased to $13.3 million or ($0.81 per share, diluted) for 1999. FFEX's net income would have been reduced to $9,167,000 ($0.54 per share, diluted) for 1998, and $8,784,000 ($.52 per share, diluted) for 1997. The expense that has been charged against income for grants to non-employee directors was $35,000, $56,000 and $42,000 for 1999, 1998 and 1997, respectively. Pro forma information regarding net income and earnings per share has been determined as if FFEX had accounted for its employee stock options under the fair value method. For purposes of pro forma disclosures, the estimated fair value of the options is recognized over the options' vesting period. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for 1999, 1998 and 1997: 1999 1998 1997 - -------------------------------------------- ---------------------------------- Risk-free interest rate 4.71% 5.27% 6.25% Dividend yield 1.50% 1.46% 1.36% Volatility factor .700 .365 .368 Weighted average expected life (years) 6.2 5.8 6.0 ================================== The Black-Scholes option valuation model uses highly subjective assumptions and was developed for use in estimating the value of traded options that have no restrictions on vesting or transferring. FFEX's stock options have such restrictions. Therefore, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options. - -------------------------------------------------------------------------------- 21 The range of unexercised option prices at December 31, 1999 is as follows: Quantity of Options (in thousands) Priced Between --------------------- --------------------- 143 $1.00 - $5.00 941 $5.01 - $8.00 2,098 $8.01 - $12.40 ----- 3,182 =========================================== FFEX has authorized the repurchase of up to one million shares of Company stock in the open market of which 297,000 shares had been repurchased as of December 31, 1999. Pursuant to this and previous authorizations, approximately $1,679,000 was expended to acquire approximately 239,000 shares during 1999. 11. RESTRUCTURING EXPENSE During the fourth quarter of 1999, FFEX announced a restructuring plan. The plan calls for the closure of certain terminals, elimination of approximately 150 non-driver employee positions and early disposition of certain 48' trailers previously scheduled for retirement in 2001 and 2002. In connection with the plan, during 1999's fourth quarter, FFEX recorded estimated restructuring expenses of $3.7 million which included $875,000 for severance payments and $2.8 million for early termination of certain operating leases and expenses associated with abandonment of a leased facility. All of the $3.7 million is classified as "restructuring expense" on the accompanying FFEX 1999 Consolidated Statement of Income. Estimated severance payments are included as accrued payroll on the accompanying FFEX 1999 Consolidated Balance Sheet. The remainder of the restructuring expense estimate was reflected on the accompanying Consolidated Balance Sheet as accrued liabilities. 12. IMPAIRMENT OF LONG-LIVED ASSETS During the first half of 1999, FFEX converted to a management information system that had been in development for several years. Consistent with AICPA Statement of Position No. 98-1, FFEX capitalized as a long-lived asset the direct costs associated with the development effort. During the fourth quarter 1999, FFEX determined that certain components of the system, including links to the legacy system that is no longer in use and certain modules of the new system were impaired. In accordance with SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets" associated costs of $2.7 million were charged to expense during the fourth quarter 1999. 13. OPERATING SEGMENTS The operations of FFEX consist of two reportable segments as defined by SFAS No. 131 "Disclosures About Segments of an Enterprise and Related Information". The larger segment consists of FFEX's motor carrier operation. Such operations are conducted in a number of divisions and subsidiaries and are similar in nature. FFEX has elected to report all motor carrier operations as one reportable segment. The smaller segment consists of FFEX's non-freight operations which are engaged primarily in the sale and service of refrigeration equipment and of trailers used in freight transportation. - -------------------------------------------------------------------------------- 22 Financial information for each reportable segment for each of the 3 years ended December 31, 1999 is as follows (in millions): 1999 1998 1997 - ------------------------------------- -------------------------------------- Freight Operations Total Revenue $ 310.9 $ 306.1 $ 286.1 Restructuring Expense 3.7 -- -- Operating (Loss) Income (16.2) 14.9 14.0 Total Assets 156.5 140.3 136.8 Non-Freight Operations Total Revenue $ 74.7 $ 56.6 $ 36.9 Restructuring Expense -- -- -- Operating (Loss) Income 1.0 1.9 1.1 Total Assets 33.2 23.0 17.1 Intercompany Eliminations Revenue $ 13.5 $ 12.8 $ 6.4 Restructuring Expense -- -- -- Operating (Loss) Income -- -- -- Total Assets 19.6 13.6 11.2 Consolidated Revenue $ 372.1 $ 349.9 $ 316.6 Restructuring Expense 3.7 -- -- Operating (Loss) Income (15.2) 16.8 15.1 Total Assets 170.1 149.7 142.7 ====================================== Intercompany eliminations of revenue relate to transfers at cost of inventory such as trailers and refrigeration units from the non-freight segment for use by the freight segment. - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To Frozen Food Express Industries, Inc.: We have audited the accompanying consolidated balance sheets of Frozen Food Express Industries, Inc. and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of FFEX's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Frozen Food Express Industries, Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles. Dallas, Texas /S/ ARTHUR ANDERSEN LLP March 1, 2000 23 QUARTERLY FINANCIAL, STOCK AND DIVIDEND INFORMATION - ------------------------------------------------------------------------------------------------------------------------------------ (Unaudited) (in thousands, except per-share amounts)
First Second Third Fourth Quarter Quarter Quarter Quarter Year - ------------------------------------------------------------------------------------------------------------------------------------ 1999 Revenue $88,257 $96,818 $97,171 $89,903 $372,149 Income (loss) from operations 2,435 2,576 (830) (19,416) (15,235) Net (loss) income 1,263 1,317 (1,166) (13,544) (12,130) Net (loss) income per share of common stock Basic .08 .08 (.07) (.83) (.74) Diluted .08 .08 (.07) (.83) (.74) Cash dividends per share .03 .03 .03 -- .09 Common stock price per share High 8.500 7.625 7.625 6.250 8.500 Low 6.000 5.813 4.875 3.250 3.250 Common stock trading volume 1,250 1,560 1,733 2,045 6,588 - ------------------------------------------------------------------------------------------------------------------------------------ 1998 Revenue $77,511 $89,416 $93,527 $89,478 $349,932 Income from operations 2,157 5,117 4,846 4,633 16,753 Net income 1,395 3,038 2,850 2,696 9,979 Net income per share of common stock Basic .08 .18 .17 .16 .59 Diluted .08 .18 .17 .16 .59 Cash dividends per share .03 .03 .03 .03 .12 Common stock price per share High 10.375 10.500 10.000 9.750 10.500 Low 8.375 9.250 5.625 6.625 5.625 Common stock trading volume 1,379 2,005 2,955 2,237 8,576 ==================================================================================================================================== As of March 2, 2000, FFEX had approximately 5,000 beneficial shareholders, including participants in FFEX's retirement plans. - ------------------------------------------------------------------------------------------------------------------------------------ 24
EX-21.1 6 SUBSIDIARIES OF FROZEN FOOD EXPRESS INDUSTRIES EXHIBIT 21.1 SUBSIDIARIES OF FROZEN FOOD EXPRESS INDUSTRIES, INC. Jurisdiction of NAME OF SUBSIDIARY INCORPORATION ------------------ ------------- FFE Transportation Services, Inc. Delaware W & B Refrigeration Service Company Delaware Conwell Corporation Delaware Lisa Motor Lines, Inc. Delaware Compressors Plus, Inc. Texas Compressors Plus, Inc. * Delaware FFE. Inc. Texas Conwell Cartage, Inc. * Texas Frozen Food Express, Inc. * Texas Middleton Transportation Company * Texas Each subsidiary does business under its corporate name. * Inactive EX-23.1 7 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K into the Company's previously filed registration statements on Form S-8 (Nos. 333-87915, 333-87913, 333-52701, 333-38133, 333-21831, 033-59465, 033-59461). /S/ Arthur Andersen LLP Dallas, Texas, March 29, 2000 EX-27 8 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS OF FROZEN FOOD EXPRESS INDUSTRIES, INC. AND SUBSIDIARIES AS OF DECEMBER 31, 1999, AND THE CONSOLIDATED STATEMENTS OF INCOME, CASH FLOWS AND STOCKHOLDERS' EQUITY FOR THE YEAR ENDED DECEMBER 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 US DOLLARS YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 1 1,613 0 60,704 8,392 17,719 80,947 119,424 45,784 170,083 68,893 0 0 0 25,921 57,200 170,083 61,247 372,149 0 387,384 4,019 5,296 4,019 (19,254) (7,124) (12,130) 0 0 0 (12,130) (0.74) (0.74)
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