-----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, OjH5BFHnjhepYqVUocsleh0nTVZ2T3cJ/8S6NgbTx5Qyl/DHsOmIOqeP6XbWhFF0 Zsaj0+QMf0feVYKeIcBoqA== 0000899078-97-000062.txt : 19970329 0000899078-97-000062.hdr.sgml : 19970329 ACCESSION NUMBER: 0000899078-97-000062 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: EL CHICO RESTAURANTS INC CENTRAL INDEX KEY: 0000719961 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 750982250 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-12802 FILM NUMBER: 97566069 BUSINESS ADDRESS: STREET 1: 12200 STEMMONS FREEWAY STREET 2: STE 100 CITY: DALLAS STATE: TX ZIP: 75234 BUSINESS PHONE: 2142415500 MAIL ADDRESS: STREET 1: 12200 STEMMONS FREEWAY STREET 2: STE 100 CITY: DALLAS STATE: TX ZIP: 75234 FORMER COMPANY: FORMER CONFORMED NAME: SOUTHWEST CAFES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: EL CHICO CORP/TX DATE OF NAME CHANGE: 19910109 10-K 1 FORM 10-K 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 YEAR ENDED: DECEMBER 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 0-12802 EL CHICO RESTAURANTS, INC. (Exact name of registrant as specified in its charter) TEXAS 75-0982250 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 12200 STEMMONS, SUITE 100 DALLAS, TEXAS 75234 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (972) 241-5500 Securities Registered Pursuant to Section 12(b) of the Act: NONE Securities Registered Pursuant to Section 12(g) of the Act: COMMON STOCK, $.10 PAR VALUE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO The aggregate market value of the voting stock held by nonaffiliates of the registrant as of March 4, 1997 was $24,495,109. As of that date, there were 3,697,375 shares of the registrant's Common Stock, par value $.10, outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive Proxy Statement to be furnished to shareholders in connection with its Annual Meeting of Shareholders to be held on May 8, 1997, are incorporated by reference in Parts I and III of this Form 10-K. 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. [ ] PART I ITEM 1. BUSINESS. El Chico Restaurants, Inc. (generally referred to herein together with its predecessor and subsidiaries as the "Company" unless the context otherwise requires) was incorporated in Texas in 1957 as a successor to a restaurant business operated since 1940. The Company's primary business is operating and franchising full-service, family-style restaurants under the name "El Chico" that offer moderately priced, high quality, Mexican-style cuisine and alcoholic beverages. As of December 31, 1996, a total of 95 restaurants were in operation in Alabama, Arkansas, Florida, Georgia, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Oklahoma, South Carolina, Tennessee, and Texas, of which 67 were Company-operated and 28 were franchised. Included in the 67 Company-owned restaurants were one restaurant under the name "Casa Rosa Restaurante", and two restaurants under the name "Cantina Laredo." During 1996, the Company opened two Company-owned El Chico restaurants, one of which was a replacement store for a store closed earlier in the year, and converted two Company-owned El Chico restaurants to franchise stores. In addition, four Company-owned stores were closed, and three franchised stores closed, including one destroyed by fire that is expected to be reopened in 1997. The Company also is engaged in designing and supplying food-service equipment through its Pronto Design and Supply, Inc. subsidiary. EL CHICO RESTAURANTS In addition to offering Mexican-style cuisine, El Chico restaurants offer a limited number of non-Mexican and children's items. The Company continually evaluates and revises its menu to improve its products. The restaurants, which cater to families, are open daily for lunch and dinner and offer entrees that generally range from $3.99 to $10.99. Alcoholic beverages, which are served primarily with meals (as opposed to bar service), generated approximately 8 percent of all restaurant revenues for 1996. The average El Chico restaurant seats approximately 200 people, and the average restaurant size is approximately 5,700 square feet. The decor generally features painted stucco walls, complementary furnishings, and a bar area. The exterior of the freestanding restaurants reflects a style of Mexican architecture. The Company believes that periodic remodels are important to maintaining the competitiveness of its restaurants. During 1995 and 1996, the Company began to remodel the interiors and exteriors of certain new restaurants opened in 1993 and 1994, including retrofitting of full-service bars, as well as extensive upgrades of older restaurants. The Company anticipates continuing these remodeling programs in 1997 and thereafter. The Company makes centralized purchasing arrangements for the basic ingredients of its menu items in order to secure favorable prices and uniform quality specifications. The Company currently purchases most ingredients and supplies through a single distributor under a contract that may be terminated upon 12 months' written notice to its distributor. In the event that for any reason the Company's primary distributor ceases to meet the Company's needs, the Company does not anticipate that it would have significant difficulty in obtaining food items and supplies at competitive prices from other sources. The Company utilizes local advertising for individual restaurants and broadcast advertising where market penetration is efficient as well as public relations activities aimed at individual restaurants and entire markets. The Company's advertising campaigns emphasize freshness, quality food, good service and value. During 1996, the Company's expenditures for advertising were 2.8 percent of Company-owned restaurant revenues. -1- FRANCHISED RESTAURANTS Generally, the El Chico restaurants franchised by the Company operate for an initial term of 15 years, require an initial franchise fee of $35,000, a continuing royalty fee of 4 percent of the franchisee's gross revenues, and a marketing fee of 1 percent of such gross revenues. The Company exercises stringent qualification criteria in selecting its franchisees. Among the criteria for selection are the franchisee's financial strength, successful history of restaurant business management, and commitment to the Company's high standards of business conduct. The Company's franchisees are required to comply with the Company's standards and operating guidelines. The Company regularly reviews the performance of its franchisees to ensure such compliance. SPECIALTY RESTAURANTS As of December 31, 1996, the Company owned and operated two types of specialty restaurants consisting of two Cantina Laredo restaurants and one Casa Rosa Restaurante. The Company plans to open a third Cantina Laredo in fall 1997. NEW RESTAURANT CONSTRUCTION Management estimates that the cost of building, equipping, and opening a new freestanding El Chico restaurant will range from $1,425,000 to $2,350,000, including approximately $290,000 to $830,000 for land, approximately $600,000 to $760,000 for sitework, construction, and landscaping, and approximately $535,000 to $760,000 for equipment, furniture, and opening costs. The cost of developing new Company restaurants will vary, primarily because of varying costs of land, sitework, signage, pre-opening, and labor. During 1996, two Company-owned El Chico restaurants were opened. By the end of 1997, the Company expects to open two to four additional restaurants and remodel approximately ten El Chico restaurants. SERVICE MARKS The Company has obtained federal registration of the service mark "El Chico", the El Chico design, and other related service marks. The El Chico service mark is also currently registered in 9 states. These service marks are of material importance to the operation of the Company's business. The Company has also federally registered service marks for "Casa Rosa Restaurante" and "Cantina Laredo" as well as various other phrases related to its restaurants. EMPLOYEES As of December 31, 1996, the Company employed approximately 3,600 persons (including full-time and part-time personnel), of whom 3,500 were restaurant employees and 100 were restaurant supervision and corporate employees. Company restaurants employ an average of approximately 50 to 60 full-time or part-time employees. None of the Company's employees are covered by collective bargaining agreements, and the Company has never experienced a major work stoppage, strike, or labor dispute. The Company considers its employee relations to be good. -2- COMPETITION The restaurant business is highly competitive, and competition among restaurants serving Mexican cuisine is increasing. The Company believes that the principal competitive factors in its restaurant business are quality, value, service, atmosphere, and location. The Company's restaurants compete with many food service operations in the vicinity of each restaurant, including restaurants specializing in Mexican food. The Company believes that its competitive position in certain markets is enhanced by regional name recognition and by its moderately priced menu, quality food, and a comfortable, full-service, family-oriented dining atmosphere. Other companies, however, continue to open restaurants similar to the Company's restaurants, and certain of these competitors have greater resources than the Company. GOVERNMENTAL REGULATION The Company is subject to various federal, state, and local laws affecting its business. Many stringent and varied requirements of local governmental bodies with respect to zoning, land use, and environmental factors have increased and can be expected to continue to increase both the cost of and the time required for constructing new restaurants as well as the cost of operating Company restaurants. The Company's restaurants are subject to various health, sanitation, and safety standards and are also subject to state and local licensing and regulation with respect to the service of alcoholic beverages. The service of alcoholic beverages is material to the business of the Company. The failure to receive or retain, or a delay in obtaining, a liquor license in a particular location could adversely affect the Company's operations in that location. Liquor licenses must be renewed annually. The Company has not encountered any significant problems relating to alcoholic beverage licenses and permits to date. The Company may be subject in certain states to "dram-shop" statutes, which may establish liability for improper alcoholic beverage service. The Company carries liquor liability coverage as part of its existing comprehensive general liability insurance. The Company is also subject to state and federal labor laws. These include the Fair Labor Standards Act, which governs such matters as minimum wages, overtime, and other working conditions; the Immigration and Naturalization Act, which governs employee citizenship requirements; and the Americans with Disabilities Act, which governs non-discriminating employment practices and reasonable accommodations for disabled persons, both employees and customers. A significant portion of the Company's food service personnel are paid at rates related to the federal minimum wage; and, accordingly, increases in the minimum wage increase the Company's labor costs. The Company has managed cost increases from past minimum wage increases by adjusting prices, adding and deleting menu items, and changing plate presentations. The Company increased prices 1.5 percent to compensate for an increase in minimum wage effective October 1, 1996 and will increase prices, if necessary for an anticipated increase in minimum wage effective September 1, 1997. Minimum wage will increase from $4.75 an hour to $5.15 an hour. However, the ability to manage future increases depend on the size of the increases, their timing, and the competitive environment. In recent years many states have enacted laws regulating franchise operations. Much of this legislation requires detailed disclosure in the offer and sale of franchises and the registration of the franchisor with state administrative agencies. The Company is also subject to Federal Trade Commission regulations relating to disclosure requirements in the sale of franchises. Additionally, certain states have enacted, and others may enact, legislation governing the termination and non-renewal of franchises and other aspects of the franchise relationship that are intended to protect franchisees. The foregoing matters may result in some modifications in the Company's franchising activities and some delays or failures in enforcing certain of its rights and remedies under license and lease agreements. The laws applicable to franchise operations and relationships are developing rapidly, and the Company is unable to predict the -3- effect on its intended operations of additional requirements or restrictions that may be enacted or promulgated or of court decisions that may be adverse to franchisors. Effective September 1, 1991, the Company elected to become a non-subscriber of the Texas Workers' Compensation Act. Upon this election, excess liability insurance was acquired, and an employee benefit trust was established to provide for benefits in the event of injury. Indications are that this election has been favorable; however, the Texas Workers' Compensation Act has undergone certain favorable reforms, with further changes expected. Management reviews this election periodically. ITEM 2. PROPERTIES. As of December 31, 1996, the Company owned 20 of its restaurant locations and leased the remaining 47 restaurant locations. The leases have terms that expire between 1997 and 2010, excluding renewal options not yet exercised, and have an average remaining term of approximately eight years. The leases generally provide for rentals ranging from 3 percent to 6 percent of gross restaurant sales, with a stated minimum rental. Under substantially all of its leases, the Company is required to pay real estate taxes, insurance, and maintenance expenses. Construction is in process on a leased site in Round Rock, Texas with an April 1997 opening date. A lease has been executed for a location in Dallas, Texas for a new Cantina Laredo, with a fall 1997 anticipated opening date. Of the 67 restaurants operated by the Company as of December 31, 1996, 49 were freestanding buildings, nine were located in strip shopping centers, and nine were located in shopping malls. As of the same date, one of the Company's 28 franchised locations was leased by the Company and subleased to a franchisee, and 27 were directly leased or owned by the franchisees. As of March 4, 1997, the Company owned four tracts of raw land, which are located (i) adjacent to two open and operating Company-owned locations, (ii) adjacent to a former Company restaurant presently leased to a non-related business, and (iii) in a market where the Company has deferred indefinitely its plans for further development. As of the same date, the Company owned two parcels of real estate, one of which is leased to a non-related business. In addition, there are seven locations that are leased by the Company but not used in Company operations; two are subleased to non-related businesses, two are previously impaired Company-owned restaurants operated by franchisees, and three are closed restaurant sites for which the Company is in the process of locating subleases or other dispositions. During 1993, the Company purchased a 67,665 square foot office facility, where it had been leasing approximately 20,000 square feet of space. The Company continues to office in the facility and is leasing the majority of the remaining square footage to unrelated businesses. A 15,000 square foot warehouse is leased which houses restaurant equipment and is located in close proximity to the office facility. The Company also owns a tract of land consisting of approximately one acre and an 8,000 square foot building in Carrollton, Texas. This property is utilized primarily for the training of restaurant management and for test kitchen operations, with a portion leased to another party. ITEM 3. LEGAL PROCEEDINGS. Although the Company is a defendant in various lawsuits arising out of the ordinary course of its business, in the opinion of management, these lawsuits will not have a material adverse effect upon the Company's business or financial position. -4- ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of the Company's shareholders during the fourth quarter of the year ended December 31, 1996. EXECUTIVE OFFICERS OF THE REGISTRANT As of March 4, 1997, the executive officers of the Company were as follows: Name Age Position with Company Wallace A. Jones 45 President, Chief Executive Officer and Director Lawrence E. White 46 Executive Vice President and Chief Financial Officer Charles A. Coope 45 Senior Vice President, Franchising and Development Mark P. Lamm 39 Vice President, Operations Michael E. Sick 42 Vice President, Marketing Susan R. Holland 40 Vice President, Treasurer, Controller and Secretary The terms of office and biographical data with respect to Mr. Wallace A. Jones, as set forth under the heading "Election of Directors" in the definitive Proxy Statement regarding the Annual Meeting of Shareholders of the Company to be held on May 8, 1997, are incorporated herein by reference. Lawrence E. White joined the Company as Chief Financial Officer in May 1992. During the period from September 1994 to January 1995, Mr. White held the interim position of Chief Operating Officer in addition to his duties as Chief Financial Officer. From September 1989 to April 1992, Mr. White served as Senior Vice President and Treasurer of Metromedia Steakhouses, Inc., having responsibility for financial management of both Ponderosa Steakhouses and Bonanza Family Restaurants as well as a meat-processing and food-distribution subsidiary. From February 1987 to September 1989, Mr. White was employed by TGI Friday's, Inc., where he served as Director of Financial Planning and Analysis, and later served as Treasurer. Prior to Mr. White's tenure at TGI Friday's, he held financial positions at Lone Star Technologies, Inc., and at Ford Motor Company. Charles A. Cooper assumed his present position as Senior Vice President, Franchising and Development in November 1996. Previously, Mr. Cooper was Vice President, Development since February 1993. Mr. Cooper joined the Company in April 1991 as Director of Real Estate and in April 1992 assumed responsibilities as Director of Franchising and Development. From September 1988 to April 1991, Mr. Cooper served as Director of Marketing with S.W.S. Realty, Inc. From December 1977 to August 1988, Mr. Cooper served in various capacities including President of National Retail Properties Corporation, a subsidiary of Southland Investment Properties. -5- Mark P. Lamm assumed his present position as Vice President, Operations in November 1996. Mr. Lamm joined the Company in September 1984 as a general manager and since 1985 has served in various capacities as a multi-unit supervisor, his latest being Regional Vice President from January 1996 to November 1996, at which time he was promoted to Vice President, Operations. Michael E. Sick joined the Company as Vice President, Marketing in February 1995. From July 1994 until January 1995, Mr. Sick served as Vice President of Marketing for Pearle Vision. From November 1986 to July 1994, Mr. Sick was employed by Jack in the Box Restaurants, initially as Director- Field Marketing and Promotion and from April 1991 as Vice President-Field Marketing and Promotion. Susan R. Holland has been Vice President, Treasurer, Controller and Secretary since October 1996. Ms. Holland joined the Company as Controller in November 1985 and has served as Treasurer since August 1990. From December 1984 to November 1985, Ms. Holland was self-employed as a Certified Public Accountant. From August 1978 to December 1984, Ms. Holland was with Grant Thornton, with her last position being Audit Manager. -6- PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS. The Company's common stock is quoted on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") National Market System under the symbol "ELCH". The following table sets forth the high and low sale prices as reported on the NASDAQ National Market System for the periods indicated. High Low Calendar Year 1996 First Quarter $ 9.50 $ 7.63 Second Quarter $ 9.13 $ 7.00 Third Quarter $ 8.25 $ 7.13 Fourth Quarter $ 8.75 $ 6.88 Calendar Year 1995 First Quarter $ 11.75 $ 7.63 Second Quarter $ 9.88 $ 7.63 Third Quarter $ 12.63 $ 9.38 Fourth Quarter $ 12.13 $ 9.00 To date, the Company has not paid any cash dividends on shares of common stock. It is the general policy of the Company to retain earnings to support the Company's growth. On February 15, 1996, the Board of Directors authorized the repurchase of up to 409,000 shares of the Company's outstanding common stock from time to time in the open market. As of December 4, 1996, 409,000 shares had been purchased at an average price of $7.84, for a total purchase of $3,208,000. On December 29, 1994 the Board of Directors authorized the repurchase of up to 210,000 shares of the Company's outstanding common stock in the open market. As of March 15, 1995, 210,000 shares had been purchased at an average price of $10.35, for a total purchase of $2,173,975. As of March 4, 1997, the number of record holders of the Company's common stock was approximately 300, and the Company estimates that as of that date there were 1,100 beneficial owners of its stock. -7- ITEM 6. SELECTED FINANCIAL DATA. The following summary of selected financial data has been derived from the more detailed Consolidated Financial Statements and Notes thereto of the Company contained elsewhere in this report or previous reports.
YEAR YEAR YEAR YEAR TRANSITION FISCAL YEAR ENDED ENDED ENDED ENDED PERIOD ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 1, 1996 1995 1994 1993 1992 (2) 1992 (4) (In Thousands Except Per Share Amounts) INCOME STATEMENT INFORMATION: Revenues.............................$ 104,481 $ 104,618 $ 97,826 $ 88,465 $ 51,257 $ 90,818 =========== ============ =========== ============ =========== ============= Income (loss) before income taxes....$ (5,051)(1) $ 5,592 $ 5,581 $ 4,339 $ 2,912(3) $ (1,568)(5) =========== ============ =========== ============ =========== ============ Net earnings (loss)..................$ (3,062)(1) $ 3,958 $ 3,728 $ 2,713 $ 2,135(3) $ (969) =========== ============ =========== ============ =========== ============ Net earnings (loss) per share........$ (0.79) $ 0.98 $ 0.88 $ 0.64 $ 0.49 $ (0.22) =========== ============ =========== ============ =========== ============ BALANCE SHEET INFORMATION: Total assets.........................$ 47,527 $ 51,039 $ 43,964 $ 37,347 $ 31,730 $ 32,499 Long-term debt.......................$ 9,765 $ 8,435 $ 5,533 $ 3,303 $ 1,109 $ 1,215 Stockholders' equity.................$ 26,285 $ 32,497 $ 28,882 $ 24,844 $ 21,900 $ 22,679 (1) DURING 1996, THE COMPANY RECORDED A PRE-TAX SPECIAL CHARGE OF $9,421,000 TO PROVIDE FOR THE IMPAIRMENT AND EXIT PLANS OF SIX UNITS SLATED FOR CLOSING, THE IMPAIRMENT OF THE CARRYING VALUES OF THREE OTHER STORES THAT WILL CONTINUE OPERATING AS WELL AS A WRITE-DOWN OF CERTAIN OTHER ASSETS. IN ADDITION, THREE PARCELS OF REAL ESTATE WERE SOLD RESULTING IN PRE-TAX GAINS OF $1,203,000. EXCLUDING THE NON-RECURRING IMPAIRMENT CHARGE AND PROPERTY GAINS, NET EARNINGS FOR THE FULL YEAR WOULD HAVE BEEN $2,363,000, OR $0.61 PER SHARE. (2) ON NOVEMBER 6, 1992, THE COMPANY CHANGED ITS FISCAL YEAR FROM THE MONDAY NEAREST MAY 31 TO DECEMBER 31. (3) INCLUDES A TAX-FREE GAIN OF $847,000 ON DISPOSITION OF ONE OF THE COMPANY'S SPECIALTY RESTAURANTS. (4) FISCAL 1992 INCLUDES 53 WEEKS OF OPERATIONS. (5) DURING FISCAL 1992, THE COMPANY RECORDED A PRE-TAX SPECIAL CHARGE OF $3,977,000 TO PROVIDE FOR: WRITE-DOWNS OF UNDERPERFORMING RESTAURANTS AND OTHER PROPERTIES AND ASSETS, HIGHER THAN EXPECTED INSURANCE COSTS, AND COSTS ASSOCIATED WITH PERSONNEL CHANGES.
-8- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Forward-looking statements regarding management's present plans or expectations for new restaurant openings, remodels, other capital expenditures, the financing thereof, and disposition of impaired restaurants involve risks and uncertainties relative to return expectations and related allocation of resources, and changing economic or competitive conditions, as well as the negotiation of agreements with third parties, which could cause actual results to differ from present plans or expectations, and such differences could be material. Similarly, forward-looking statements regarding management's present expectations for operating results involve risks and uncertainties relative to these and other factors, such as advertising effectiveness and the ability to achieve cost reductions, which also would cause actual results to differ from present plans. Such differences could be material. Management does not expect to update such forward- looking statements continually as conditions change, and readers should consider that such statements speak only as to the date hereof. RESULTS OF OPERATIONS The Consolidated Statements of Operations reported herein represent results of operations for the years ended December 31, 1996, 1995, and 1994. The following table summarizes key results of operations:
YEAR YEAR YEAR ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1996 1995 1994 ---------------- ---------------- -------------- (Dollar Amounts in Thousands) Number of Company-owned restaurants.............. 67 72 65 Number of franchised restaurants................. 28 29 29 Weighted average annual sales per Company-owned restaurant....................... $ 1,494 $ 1,479 $ 1,600 Revenues from Company operations................. $ 104,481 $ 104,816 $ 97,826 Net sales from Company operations................ $ 101,698 $ 101,628 $ 94,901 Income (loss) before taxes....................... $ (5,051) $ 5,592 $ 5,581 Net (loss) income................................ $ (3,062) $ 3,958 $ 3,728 Profit margin.................................... (2.9%) 3.8% 3.8%
COMPARATIVE PERFORMANCE 1996 VS 1995 Net sales for Company-owned restaurants increased approximately $70,000 or 0.7 percent to $101,698,000 in 1996 from $101,628,000 in 1995. The average number of stores operating throughout 1996 versus 1995 increased and weighted average annual sales per Company-owned restaurant opened the full year increased 1.0 percent. These increases were offset by a decrease in same-store sales of 2.3 percent including a decrease in El Chico concept same-store sales of 2.8 percent. As of January 1, 1996, the Company adopted a new convention that added new stores to the same-store sales comparison in the quarter in which they reach their 18-month anniversary. During 1996, the Company opened two Company-owned El Chico restaurants, one of which was a replacement store for a store closed earlier in the year, and converted two Company-owned El Chico restaurants to franchise stores. In addition, four Company-owned stores were closed. -9- Franchise revenue decreased from $2,082,000 to $1,958,000 as a result of a decrease in the average number of stores operating throughout 1996 versus 1995 and a decrease in franchise same-store sales of 2.8 percent. During 1996, three franchise stores were closed including one closed temporarily due to fire, and two Company-owned stores were converted to franchise stores. The converted stores are operating under special franchise agreements under which payment of fees will not begin until certain sales objectives are achieved. Food costs increased from 25.4 percent of sales to 26.6 percent due to an increase in ingredient costs, primarily cheese and beef, and certain menu mix changes. These increases were partly offset by a decline in avocado cost. Labor costs increased from 33.1 percent of sales to 33.2 percent. Management compensation expense increased as a percentage of sales due to an increase in management base pay. This increase was partly offset by a decrease in hourly labor. During 1995, the Company eliminated the restaurant cashier position by changing to a server-banking system, and converted certain restaurant employees from minimum wage to tipped compensation. Minimum wage increased on October 1, 1996, but did not have a material effect on labor costs. Operating costs increased from 28.6 percent to 29.3 percent due to an increase in advertising and ongoing insurance expenses. These increases were partly offset by a decrease in preopening amortization and a one-time insurance class action settlement. Pronto Design and Supply, Inc. ("Pronto") is a wholly owned subsidiary in the business of designing food-service kitchens and supplying the related equipment. Equipment sales decreased from $908,000 in 1995 to $825,000 in 1996. The 1995 amount included sales to a new franchise restaurant. Equipment cost of sales as a percentage of sales remained basically stable at 84.8 percent versus 86.1 percent a year ago. General and administrative costs increased from $9,227,000 to $9,421,000 as a result of increased employee costs, an increase in the number of multi-unit restaurant supervisors and new training seminars for existing managers. These increases were partly offset by decreased professional fees. Interest expense increased from $602,000 to $686,000, primarily as a result of increased borrowings and interest rates. Interest income decreased from $78,000 to $75,000 due to a decline in average invested cash balances. The income tax provision reflects an increase in the FICA tip credit and higher state taxes. COMPARATIVE PERFORMANCE 1995 VS 1994 Net sales for Company-owned restaurants increased 7.1 percent to $101,628,000 in 1995 from $94,901,000 in 1994. The increase in sales is due to an increase in the average number of stores operating throughout 1995 versus 1994. Weighted average annual sales per Company-owned restaurant decreased 7.6 percent and same-store sales decreased 2.2 percent including a decrease in El Chico concept same-store sales of 2.5 percent. As a result of mix changes and certain menu price increases associated with a new menu introduction, the Company's check-average increased approximately 1.7 percent in 1995. During 1995, the Company used a same-store sales convention that reflected new stores beginning when they were opened for the full quarter of the prior year. Franchise revenue decreased from $2,093,000 to $2,082,000 as a result of a decrease in the average number of stores operating throughout 1995 versus 1994. This decrease was partly offset by an increase in franchise same-store sales of 0.7 percent. During 1995, the Company purchased an El Chico restaurant from a franchisee and opened one new franchise store. -10- Food costs decreased from 25.6 percent of sales to 25.4 percent due to a decrease in the cost of beef, avocados and beans. Labor costs remained unchanged at 33.1 percent of sales. Hourly labor cost decreased as a percentage of sales as a result of eliminating the restaurant cashier position by changing to a server-banking system, and from converting certain restaurant employees from minimum wage to tipped compensation. This decrease was offset by management compensation expense, which increased as a percentage of sales as a result of lower weighted average sales per restaurant. Operating costs increased from 28.3 percent of sales to 28.6 percent due to an increase in supplies, repair and maintenance and property taxes partly offset by decreased laundry and insurance costs. At the end of 1994, the Company converted from cloth napkins to paper napkins which resulted in reduced laundry costs, partly offset by an increase in supply costs. Pronto equipment sales increased from $832,000 to $908,000 primarily reflecting sales to a new franchise restaurant. Equipment cost of sales increased as a percentage of sales due to a decrease in vendor rebate income relative to sales. Vendor rebate income includes rebates on outside sales as well as rebates on equipment purchases for El Chico restaurants. General and administrative costs increased from $8,967,000 to $9,227,000 as a result of increased employee costs, an increase in the number of multi-unit restaurant supervisors and increased training wages. These increases were partly offset by decreased professional fees, incentive bonuses and travel. Interest expense increased from $146,000 to $602,000, primarily as a result of increased borrowings, partly offset by a decline in interest rates. Interest income decreased from $88,000 to $78,000 due to a decline in average invested cash balances. The income tax provision decreased as a percent of income before taxes due to an increase in the FICA tip credit and lower state taxes. RESTAURANT CLOSINGS During the second quarter of 1996 the Company incurred a special charge of $9.4 million to provide for the impairment and exit plans of six units slated for closing, the impairment of the carrying values of three other stores that will continue operating as well as a write-down of certain other assets. One of the six stores was an older store that was closed and replaced with a new prototype which opened during the third quarter of 1996. The Company entered into agreements with two separate existing franchisees to operate two of the impaired stores. The remaining three impaired stores were closed and are held for sale. The effect of the impairment during 1996, excluding the replaced store, reduced depreciation and amortization expense by $452,000. Management reviews each restaurant regularly to determine that expected undiscounted cash flows are adequate to recover the related investment. When expected cash flows are inadequate, the Company writes down the asset to its fair value. LIQUIDITY AND CAPITAL RESOURCES The Company has an unsecured credit facility with a $16,000,000 commitment comprised of a $15,000,000 revolving line of credit and a $1,000,000 letter of credit facility. The line of credit matures on December 31, 1997, and may be converted to a term loan, payable quarterly on a 10-year amortization schedule, and maturing on December 31, 1999. Both the line of credit and the term loan bear interest at the Company's option of prime rate or up to six-month LIBOR plus .75 percent. Both rates are subject to maintaining certain financial covenants, and interest is payable upon maturity of the LIBOR advances or quarterly for prime rate advances. Principally because of the special charge, the interest on the line of credit has been at LIBOR plus 1.75 percent and/or prime plus 0.50 percent since August 14, 1996 until -11- certain financial results are met. In addition, the Company has entered into an interest rate swap on a notional balance of $5 million, under which a fixed rate of 6.61 percent is paid against a floating rate equal to three-month LIBOR. A commitment fee of .25 percent is payable quarterly on any unused commitments. As of December 31, 1996, $9,730,000 was outstanding under the line of credit. The credit facility was obtained for the funding of the construction of new Company-owned restaurants, remodeling existing restaurants, and the purchase of the Company's headquarters facility during 1993 and has been used for repurchase of the Company's common stock subject to certain limitations. The Company plans to open two to four restaurants and remodel approximately ten El Chico restaurants and estimates capital expenditures during 1997 to be approximately $11,000,000, which will be funded by internal operations and the existing credit facility. Working capital decreased from a deficit of $4,696,000 at December 31, 1995 to a deficit of $5,670,000 at December 31, 1996, primarily as a result of a $1,638,000 reserve to provide for future rent and lease buyouts related to closed restaurants. Cash flows generated from operations of new and existing restaurants and borrowings were offset by capital expenditures and repurchase of common stock on the open market. During 1996, menu prices were increased approximately 1.5 percent as a result of an increase in minimum wage effective September 1, 1996. Additional menu price adjustments to the extent permitted by competition, changes in menu mix or increases in minimum wage may be required to offset increased costs. ACCOUNTING MATTERS During 1996, the Company adopted Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recovered and Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," which establishes financial accounting and reporting standards for stock-based employee compensation plans (See Footnote F and G to the Consolidated Financial Statements). At this time, there are no other accounting standards to be adopted which would have a material impact on the consolidated financial statements. ITEM 8. FINANCIAL STATEMENTS. The Financial Statements are set forth herein commencing on page F-1. -12- PART III ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY. The information set forth under the heading "Election of Directors" contained in the definitive Proxy Statement regarding the Annual Meeting of Shareholders of the Company to be held on May 8, 1997 (the "Definitive Proxy Statement") sets forth certain information with respect to the directors of the Company, some of whom are also executive officers, and is incorporated herein by reference. Certain information with respect to the remaining executive officers of the Company is set forth under the caption "Executive Officers" in Part I of this Report. ITEM 11. EXECUTIVE COMPENSATION. The information required by this item is incorporated by reference from the Definitive Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this item is incorporated by reference from the Definitive Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this item is incorporated by reference from the Definitive Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 10-K. (a) The following documents are being filed as part of this Annual Report on Form 10-K: 1. Financial Statements: The Financial Statements are listed in the Index to Consolidated Financial Statements on Page 16 of this Report. 2. Exhibits. -13- Exhibit No. Exhibit 3.1(1) Restated Articles of Incorporation of the Company, as amended. 3.2(2) Bylaws of the Company, as currently in effect. 4.1(3) Specimen certificate evidencing Common Stock. 4.1(4) Rights Agreement, dated February 9, 1995, by and between the Company and Society National Bank, as Rights Agent. 10.1(1) Description of Executive Short-Term Bonus Plan. (a) 10.2(3) Incentive Stock Option Plan. (a) 10.3(5) Amendment to Stock Option Plan (formerly the Incentive Stock Option Plan). (a) 10.4(6) Amendment No. 2 to Stock Option Plan. (a) 10.5(6) Amendment No. 3 to Stock Option Plan. (a) 10.6(5) Form of Stock Option Agreement, as amended--Stock Option Plan.(a) 10.7 Profit Sharing Plan and Trust Agreement. (a) 10.9(5) Lease dated May 15, 1985, between the Company, as lessee, and Frank Cuellar and Sons, Inc., as lessor, as corrected February 25, 1986, and amended July 18, 1986. 10.10 Distribution Service Agreement dated July 11, 1996, by and between The SYGMA Network and the Company. 10.11(7) Stock Option Plan for Non-employee Directors and Form of Stock Option Agreement. (a) 10.12(8) 1990 Long-Term Incentive Plan. (a) 10.14(9) 1992 Stock Option Plan. (a) 10.15(1) Employment Agreement with Wallace A. Jones dated November 10, 1994. (a) 10.16(10) Loan Agreement between El Chico Restaurants, Inc. and Texas Commerce Bank, National Association. 10.17(2) El Chico Restaurants, Inc. 1995 Stock Plan. (a) 10.18 El Chico Restaurants, Inc. Excess Savings Plan. (a) 11 Earnings Per Share Calculations. -14- Exhibit No. - Continued Exhibit 21 List of Subsidiaries. 23 Consent of KPMG Peat Marwick LLP. 27 Financial Data Schedule. - ---------------------- (1) Filed as an exhibit to the Company's annual report on Form 10-K for the year ended December 31, 1994, and incorporated herein by reference. (2) Filed as an exhibit to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 1996. (3) Filed as an exhibit to the Company's registration Statement on Form S-1 (No. 2-83955) effective June 30, 1983, and incorporated herein by reference. (4) Incorporated by reference from Exhibit 1 of the Company's Registration Statement on Form 8-A, filed by the Company with the Securities and Exchange Commission on February 21, 1995. (5) Filed as an exhibit to the Company's annual report on Form 10-K for the fiscal year ended May 29, 1987, and incorporated herein by reference. (6) Filed as an exhibit to the Company's annual report on Form 10-K for the fiscal year ended May 28, 1990, and incorporated herein by reference. (7) Filed as an exhibit to the Company's annual report on Form 10-K for the fiscal year ended May 30, 1988, and incorporated herein by reference. (8) Filed as an exhibit to the Company's annual report on Form 10-K for the fiscal year ended May 27, 1991, and incorporated herein by reference. (9) Filed as an exhibit to the Company's annual report on Form 10-K for the year ended December 31, 1993, and incorporated herein by reference. (10) Incorporated by reference from the Company's current report on Form 8-K filed on August 30, 1996. (a) Compensation plan, benefit plan or employment contract or arrangement. -15- El Chico Restaurants, Inc. and Subsidiaries INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Consolidated Financial Statements: Independent Auditors' Report F-1 Consolidated Balance Sheets at December 31, 1996 and 1995 F-2 Consolidated Statements of Operations for the years ended December 31, 1996, 1995, and 1994 F-3 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1996, 1995, and 1994 F-4 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995, and 1994 F-5 Notes to Consolidated Financial Statements F-6 All schedules have been omitted as the required information is not applicable, not required, or the information is included in the consolidated financial statements or notes thereto. -16- INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders El Chico Restaurants, Inc.: We have audited the consolidated financial statements of El Chico Restaurants, Inc. and subsidiaries as listed in the accompanying index. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of El Chico Restaurants, Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Dallas, Texas February 6, 1997 F-1 El Chico Restaurants, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (In Thousands of Dollars, Expect Par Value Amounts)
December 31, ------------------------------- 1996 1995 ------------ ------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 216 $ 266 Accounts receivable 1,154 979 Income tax receivable -- 66 Inventories 976 1,100 Prepaid expenses and other 1,330 1,346 Deferred income taxes (Note I) 824 71 ------------ ------------- Total current assets 4,500 3,828 PROPERTY AND EQUIPMENT, NET (Note B) 40,535 46,209 OTHER ASSETS AND DEFERRED COSTS 681 1,002 DEFERRED INCOME TAXES (Note I) 1,946 -- ------------ ------------- TOTAL ASSETS $47,662 $51,039 ============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES: Current maturities of long-term debt (Note D) $ 27 $ 25 Trade accounts payable 4,459 4,384 Accrued liabilities (Note C) 5,114 4,115 Income taxes payable 570 -- ------------ ------------- Total current liabilities 10,170 8,524 LONG-TERM DEBT, less current maturities (Note D) 9,765 8,435 OTHER LONG-TERM LIABILITIES 1,442 1,240 DEFERRED INCOME TAXES (Note I) -- 343 COMMITMENTS AND CONTINGENCIES (Note E) STOCKHOLDERS' EQUITY (Note F): Preferred stock - authorized 1,000,000 shares of $.10 par value; none issued -- -- Common stock - authorized 10,000,000 shares of $.10 par value; issued 4,750,142 and 4,746,975 shares in 1996 and 1995, respectively 475 475 Additional paid-in capital 15,925 15,895 Retained earnings 18,876 21,938 Unamortized value of restricted stock issued (37) (59) ------------ ------------- 35,239 38,249 Less treasury stock - at cost 1,057,760 and 651,744 shares in 1996 and 1995, respectively (8,954) (5,752) ------------ ------------- Total stockholders' equity 26,285 32,497 ------------ ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $47,662 $51,039 ============ =============
The accompanying notes are an integral part of these consolidated financial statements. F-2 El Chico Restaurants, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands of Dollars, Except per Share Amounts)
Year Ended December 31, --------------------------------------------------- 1996 1995 1994 --------------- ------------ ----------- Revenues: Sales from Company-owned restaurants $ 101,698 $ 101,628 $ 94,901 Equipment sales 825 908 832 Franchise revenues 1,958 2,082 2,093 104,481 104,618 97,826 --------------- --------------- --------------- Costs and expenses: Restaurant cost of sales - food and beverage 27,016 25,772 24,273 Restaurant cost of sales - labor 33,725 33,637 31,435 Restaurant operating expenses 29,794 29,084 26,881 Cost of equipment sales 700 782 590 General and administrative 9,468 9,227 8,967 Special Charge (Note G) 9,421 -- -- (Gain) loss on sale or disposition of assets (Note H) (1,203) -- 41 Interest expense 686 602 146 Interest income (75) (78) (88) --------------- --------------- --------------- 109,532 99,026 92,245 --------------- --------------- --------------- Income (loss) before income taxes (5,051) 5,592 5,581 Income tax provision (benefit) (Note I) (1,989) 1,634 1,853 --------------- --------------- --------------- NET EARNINGS (LOSS) $ (3,062) $ 3,958 $ 3,728 =============== =============== =============== Net earnings (loss) per common share $ (0.79) $ 0.98 $ 0.88 =============== =============== =============== Weighted average number of shares and share equivalents outstanding 3,892,461 4,046,489 4,260,292 =============== =============== ===============
The accompanying notes are an integral part of these consolidated financial statements. F-3 El Chico Restaurants, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (In Thousands of Dollars)
Unamortized Additional Value of Common Stock Paid-In Retained Restricted Treasury Shares Amount Capital Earnings Stock Issue Stock Total Balances at December 31, 1993 4,719,973 $472 $14,263 $14,252 $(67) $(4,076) $24,844 Net earnings -- -- -- 3,728 -- -- 3,728 Issuance of common stock under stock bonus plan, net -- -- 71 -- (57) (11) 3 Issuance of common stock pursuant to stock option plan 23,667 2 249 -- -- -- 251 Amortization of restricted stock issue -- -- -- -- 56 -- 56 --------- ----- -------- -------- ------ ------- -------- Balances at December 31, 1994 4,743,640 474 14,583 17,980 (68) (4,087) 28,882 Net earnings -- -- -- 3,958 -- -- 3,958 Purchase of treasury stock -- -- -- -- -- (2,174) (2,174) Issuance of common stock under stock bonus plan, net -- -- 52 -- (53) 9 8 Issuance of common stock pursuant to stock option plan 3,335 1 1,260 -- -- 500 1,761 Amortization of restricted stock issue -- -- -- -- 62 -- 62 --------- ----- -------- -------- ------ ------- -------- Balances at December 31, 1995 4,746,975 475 15,895 21,938 (59) (5,752) 32,497 Net loss -- -- -- (3,062) -- -- (3,062) Purchase of treasury stock -- -- -- -- -- (3,208) (3,208) Issuance of common stock under stock bonus plan, net -- -- 16 -- (40) 6 (18) Issuance of common stock pursuant to stock option plan 3,167 -- 14 -- -- -- 14 Amortization of restricted stock issue -- -- -- -- 62 -- 62 ------------ -------- ---------- ---------- ------------ ----------- ---------- Balances at December 31, 1996 4,750,142 $475 $15,925 $18,876 $(37) $(8,954) $26,285 ============ ======== ========== ========== ============ =========== ==========
The accompanying notes are an integral part of these consolidated financial statements. F-4 El Chico Restaurants, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of Dollars)
Year Ended December 31, --------------------------------------------- 1996 1995 1994 --------- --------- --------- Cash flows from operating activities: Net (loss) earnings $ (3,062) $ 3,958 $ 3,728 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Special Charge 9,421 -- -- Depreciation and amortization of property and equipment 5,315 5,107 4,831 Amortization of deferred costs 697 1,333 1,257 (Gain) loss on sale or disposition of assets (1,203) -- 41 Deferred income taxes (3,042) 23 419 Increase in accounts receivable (175) (127) (155) Decrease (increase) in income tax receivable 66 (66) 792 Decrease in inventories 124 89 120 Decrease (increase) in prepaid expenses and other 16 (103) (385) Increase in other assets and deferred costs (401) (1,242) (1,133) Increase (decrease) in trade accounts payable and accrued liabilities (822) 376 (353) Increase (decrease) in income taxes payable 570 (173) 173 Increase in other long-term liabilities 202 314 254 Other 238 412 125 Net cash provided by operating activities 7,944 9,901 9,714 ------------- ------------ ------------ Cash flows from investing activities: Proceeds from sale of property and equipment 1,445 -- 1,449 Purchases of property and equipment (7,595) (13,015) (13,784) Net cash used in investing activities (6,150) (13,015) (12,335) ------------- ------------ ------------ Cash flows from financing activities: Borrowings of long-term debt 1,355 2,925 2,250 Repayment of long-term debt (23) (20) (18) Purchase of treasury stock (3,208) (2,174) -- Proceeds from note receivable -- 245 -- Issuance of common stock 32 1,677 273 ------------- ------------ ------------ Net cash (used in) provided by financing activities (1,844) 2,653 2,505 ------------- ------------ ------------ NET DECREASE IN CASH (50) (461) (116) Cash and cash equivalents at beginning of year 266 727 843 ------------- ------------ ------------ Cash and cash equivalents at end of year $ 216 $ 266 $ 727 ============= ============ ============ Supplemental disclosures of cash flow information: Cash paid during the year for: Interest (net of amount capitalized) $ 593 $ 551 $ 99 ============= ============ ============ Income taxes $ 477 $ 1,911 $ 1,010 ============= ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-5 El Chico Restaurants, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1996, 1995, and 1994 NOTE A - SUMMARY OF ACCOUNTING POLICIES A summary of the significant accounting policies applied in the preparation of the accompanying consolidated financial statements follows: Principles of Consolidation The consolidated financial statements include the accounts of El Chico Restaurants, Inc. and its subsidiaries (the Company). All significant intercompany accounts and transactions have been eliminated. Cash Equivalents The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Inventories Inventories, which consist primarily of food products, are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. Property and Equipment Property and equipment are recorded at cost. Depreciation and amortization are provided in amounts sufficient to amortize the cost of depreciable assets to operations over their estimated service lives of three to 30 years. Leasehold improvements are amortized over the lives of the respective leases, including renewal periods when the Company intends to exercise renewal options, or the service lives of the improvements, whichever is shorter. The straight-line method of depreciation is followed for substantially all assets for financial reporting purposes, while accelerated methods are used for tax purposes. Interest is capitalized with the construction of new restaurants as part of the asset to which it relates. Interest capitalized during 1996, 1995 and 1994 was not material. Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of The Company adopted the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on January 1, 1996. This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the estimated fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or estimated fair value less costs to sell. F-6 El Chico Restaurants, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Preopening Costs Restaurant preopening costs, comprised primarily of the cost of hiring and training restaurant employees, are amortized over the initial twelve months of a restaurant's operations. Franchise Fee Revenue Franchise fee revenue is recognized when all material services or conditions relating to the sale have been substantially performed or satisfied by the Company, but no sooner than the commencement of operations by the franchisee. Franchise revenues for each period presented in the consolidated statement of operations relate substantially to royalties paid by franchisees. Income Taxes The Company accounts for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Earnings Per Common Share Earnings per common share are based on the weighted average number of shares and common share equivalents outstanding during each period determined using the treasury stock method. Primary common share equivalents are determined based on the average market price exceeding the exercise price of the stock options while fully diluted are determined based on the higher of the average or the ending market price exceeding the exercise price of the stock options. Stock Option Plan Prior to January 1, 1996, the Company accounted for its stock option plan in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. On January 1, 1996, the Company adopted SFAS No. 123, Accounting for Stock-Based Compensation, which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 has been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. F-7 El Chico Restaurants, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. NOTE B - PROPERTY AND EQUIPMENT Property and equipment consists of:
December 31, -------------------------------- 1996 1995 ------------ ------------ (In Thousands) Land $ 7,125 $ 7,732 Buildings and improvements 16,918 16,136 Leasehold improvements 24,230 27,878 Equipment, furniture and fixtures 18,777 17,871 Construction in progress 492 438 ------------ ------------ 67,542 70,055 Less accumulated depreciation and amortization (27,007) (23,846) ------------ ------------ $40,535 $46,209 ============ ============
NOTE C - ACCRUED LIABILITIES Accrued liabilities consist of:
December 31, -------------------------------- 1996 1995 ------------ ------------- (In Thousands) Compensation and related taxes $1,119 $1,689 Special charge 1,638 -- Taxes, other than income and payroll 979 838 Insurance claims and administration 607 750 Rent 232 353 Other 539 485 ------------ ------------- $5,114 $4,115 ============ =============
F-8 El Chico Restaurants, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE D - LONG-TERM DEBT Long-term debt consists of:
December 31, ------------------------------- 1996 1995 ------------ ------------- (In Thousands) Note payable to a bank under credit facility (see below) $9,730 $8,375 Other 62 85 ------------ ------------- 9,792 8,460 Less current maturities (27) (25) ------------ ------------- $9,765 $8,435 ============ =============
The Company has an unsecured credit facility with a $16,000,000 commitment comprised of a $15,000,000 revolving line of credit and a $1,000,000 letter of credit facility. The line of credit matures on December 31, 1997, and may be converted to a term loan, payable quarterly on a 10-year amortization schedule, and maturing on December 31, 1999, and accordingly has been classified as non-current in the accompanying balance sheet. Both the line of credit and the term loan bear interest at the Company's option of prime rate or up to six-month LIBOR plus .75 percent. Both rates are subject to maintaining certain financial covenants, and interest is payable upon maturity of the LIBOR advances or quarterly for prime rate advances. Principally because of the special charge, the interest on the line of credit has been at LIBOR plus 1.75 percent and/or prime plus 0.50 percent since August 14, 1996 until certain financial results are met. In addition, the Company has entered into an interest rate swap (not for trading purposes, but to manage well defined interest rate risks) on a notional balance of $5 million, under which a fixed rate of 6.61 percent is paid against a floating rate equal to three-month LIBOR. A commitment fee of .25 percent is payable quarterly on any unused commitments. As of December 31, 1996, the line of credit bore interest as follows: $5,000,000 8.34% LIBOR plus 1.75 percent plus 1.06 (SWAP) 4,000,000 7.28% LIBOR plus 1.75 percent 730,000 8.75% Prime plus 0.5 percent - ----------- $9,730,000 =========== Scheduled maturities of long-term debt as of December 31, 1996 are as follows (in thousands): Fiscal Year 1997 $ 27 1998 1,001 1999 8,764 $9,792 =========== F-9 El Chico Restaurants, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE E - COMMITMENTS AND CONTINGENCIES The Company leases land, buildings and equipment under noncancellable operating leases expiring at various dates through 2010. The following is a schedule of minimum rental payments under such leases (in thousands): 1997 3,622 1998 3,027 1999 2,748 2000 2,247 2001 1,890 Thereafter 6,288 $19,822 ============ Most land and building lease agreements provide for contingent rentals based on sales. Rental expense for all leases was as follows (in thousands): Year Ended December 31, --------------------------------------------------- 1996 1995 1994 ------------- ------------ ------------ Minimum rentals $3,487 $3,262 $2,805 Contingent rentals 368 510 645 $3,855 $3,772 $3,450 ============= ============ ============ The Company is a defendant in various lawsuits arising in the ordinary course of its business. The majority of these suits are covered by insurance. In the opinion of management, none of these lawsuits will have a material adverse effect, individually or in the aggregate, upon the Company's financial position or results of operations. F-10 El Chico Restaurants, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE F - STOCKHOLDERS' EQUITY On May 2, 1996, the shareholders approved the El Chico Restaurants, Inc. 1995 Stock Plan ("the 1995 Plan"), which replaced and canceled all previous shares and options available for grant and reserved 400,000 shares for future grant. As of December 31, 1996 there were 207,062 shares available for grant and options covering 366,609 were exercisable at prices ranging from $3.16 to $12.13. Transactions during 1996, 1995, and 1994 were as follows: Weighted Average Shares Exercise Price ------------ -------------- Options outstanding at December 31, 1993 825,670 $ 9.23 Granted 260,000 12.08 Exercised (23,667) 7.77 Forfeited (342,001) 9.62 ------------ -------------- Options outstanding at December 31, 1994 720,002 10.12 Granted 98,500 10.46 Exercised (170,001) 9.50 Forfeited (10,000) 11.00 Options outstanding at December 31, 1995 638,501 10.33 Granted 219,225 9.62 Exercised (3,167) 3.35 Forfeited (75,000) 9.99 Options outstanding at December 31, 1996 779,559 $ 10.19 ============ ============== The per share weighted-average fair value of stock options granted during 1996 and 1995 was $4.56 and $4.90 on the date of grant using the Black Scholes option-pricing model with the following weighted-average assumptions: risk-free interest rate of 6.5 percent, an expected life of 10 years, no expected dividend yield, volatility rate of 19 percent, and a forfeiture rate of 57.5 percent based upon historic data. The Company applies APB Opinion No. 25 in accounting for its Plan and, accordingly, no compensation cost has been recognized for its stock options in the financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its 1996 and 1995 stock options under SFAS No. 123, there would have been no material impact on the consolidated financial statements. The compensation cost for options granted prior to January 1, 1995 is not considered as it is not required under SFAS No. 123. F-11 El Chico Restaurants, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE F - STOCKHOLDERS' EQUITY - Continued In February 1995, the Company's Board of Directors adopted a Shareholder Rights Plan pursuant to which purchase rights (the "Rights") were issued to holders of its common stock at the rate of one Right for each share of common stock. The Rights will trade with the Company's common stock until exercisable. The Rights become exercisable ten days after any person or group acquires 20 percent or more of the Company's outstanding common stock or announces a tender offer for 30 percent or more of the Company's outstanding common stock. The Rights thereafter entitle the holder to purchase one one-thousandth of a share of Preferred Stock for $48.00, and, under certain circumstances, would be modified to entitle certain holders to purchase additional Common Stock of the Company having a market value of two times the $48.00 exercise price of the Right, or to purchase common stock of an acquiring company having a market value of two times the $48.00 exercise price of the Right. The Rights expire on December 31, 2004 and may be redeemed by the Company for one cent per Right under certain circumstances. NOTE G - SPECIAL CHARGE During the second quarter of 1996 the Company incurred a special charge of $9.4 million to provide for the impairment and exit plans of six units slated for closing, the impairment of the carrying values of three other stores that will continue operating as well as a write-down of certain other assets. One of the six stores is an older store that was closed and replaced with a new prototype which opened during the third quarter of 1996. The Company entered into agreements with two separate existing franchisees to operate two of the impaired stores. The remaining three impaired stores were closed and are held for sale. The effect of the impairment during 1996, excluding the replaced store, reduced depreciation and amortization expense by $452,000. Management reviews each restaurant regularly to determine that expected undiscounted cash flows are adequate to recover the related investment. When expected cash flows are inadequate, the Company writes down the asset to its recoverable value. NOTE H - SALE OR DISPOSITION OF ASSETS During 1996, the Company sold three parcels of real estate including two stores previously leased to two franchisees which were sold to those franchisees and the sale of a vacant, underdeveloped piece of land adjacent to a franchise store resulting in gains of $1,203,000. During 1994, asset values for two restaurants were written-down $220,000 as future operations were not expected to provide sufficient cash flow to recover the related investments. In addition, during 1994, the Company closed six restaurants. One restaurant was sold resulting in a gain of $439,000, one was closed at a loss of $202,000, one was closed with minimal costs and the remaining three closings were provided for in 1993. F-12 El Chico Restaurants, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE I - INCOME TAXES The provision for income taxes consists of the following (in thousands): Year Ended December 31, ------------------------------------------------------ 1996 1995 1994 -------------- -------------- -------------- Expense (Benefit) Federal: Current $934 $1,536 $1,258 Deferred (3,042) 23 419 State 119 75 176 ($1,989) $1,634 $1,853 ============== ============== ============== The types of temporary differences between the tax and financial reporting bases of assets and liabilities that give rise to the deferred income tax assets (liabilities) and their related tax effects are as follows (in thousands): December 31, --------------------------- 1996 1995 ---------- ----------- Deferred tax assets: Special charge (Note G) $3,026 $-- FICA tip credit 252 -- Insurance reserves 235 362 Deferred compensation 161 125 Provision for restaurant closings 65 65 Other 119 12 ---------- ----------- Total deferred tax assets 3,858 564 ---------- ----------- Deferred tax liabilities: Property and equipment (1,073) (747) Restaurant preopening costs (15) (89) ---------- ----------- Total deferred tax liabilities (1,088) (836) ---------- ----------- Net deferred tax asset (liability) $2,770 ($272) ========== =========== The Company believes that the deferred tax assets at December 31,1996 and 1995 will be realized based upon historical levels of income and through reversals of existing taxable temporary differences during the carryforward period. The Company's effective income tax rate differs from the expected federal statutory income tax rate as a result of the following:
Year Ended December 31, -------------------------------------------------------- 1996 1995 1994 ------------- ------------ ----------- Expected income tax provision (34.0%) 34.0% 34.0% State income taxes 1.7 0.5 3.3 FICA tip and TJTC tax credits (7.0) (5.9) (5.1) Other (0.1) 0.6 1.0 Income tax provision (39.4%) 29.2% 33.2% ============= ============ ===========
F-13 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: EL CHICO RESTAURANTS, INC. By: /s/ Wallace A. Jones ---------------------- Wallace A. Jones, President and Chief Executive Officer Date: March 26, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE - --------- ----- ---- /s/ Wallace A. Jones President and Chief Executive Officer March 26, 1997 - ------------------------- (Principal Executive Officer) Wallace A. Jones /s/ Lawrence E. White Executive Vice President and Chief March 26, 1997 - ------------------------- Financial Officer (Principal Financial Lawrence E. White and Accounting Officer) /s/ Grahame N. Clark, Jr. Director March 26, 1997 - ------------------------- Grahame N. Clark, Jr. /s/ Jack D. Knox Director March 26, 1997 - -------------------------- Jack D. Knox /s/ Joseph V. Mariner, Jr. Director March 26, 1997 - -------------------------- Joseph V. Mariner, Jr. /s/ Joseph S. Thomson Chairman of the Board March 26, 1997 - -------------------------- Joseph S. Thomson EX-10 2 EXHIBIT 10.7 THE EL CHICO SAVINGS PLAN CORPDAL:63487.1 14047-00001
TABLE OF CONTENTS ARTICLE I DEFINITIONS...................................................1 ARTICLE II TOP HEAVY AND ADMINISTRATION..........................................16 2.1 TOP HEAVY PLAN REQUIREMENTS...........................................................16 2.2 DETERMINATION OF TOP HEAVY STATUS.....................................................16 2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER...........................................19 2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY...............................................19 2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES.........................................20 2.6 POWERS AND DUTIES OF THE ADMINISTRATOR...............................................20 2.7 RECORDS AND REPORTS...................................................................21 2.8 APPOINTMENT OF ADVISERS...............................................................21 2.9 INFORMATION FROM EMPLOYER.............................................................21 2.10 PAYMENT OF EXPENSES...................................................................22 2.11 MAJORITY ACTIONS......................................................................22 2.12 CLAIMS PROCEDURE......................................................................22 2.13 CLAIMS REVIEW PROCEDURE...............................................................22 ARTICLE III ELIGIBILITY..................................................23 3.1 CONDITIONS OF ELIGIBILITY.............................................................23 3.2 APPLICATION FOR PARTICIPATION.........................................................23 3.3 EFFECTIVE DATE OF PARTICIPATION.......................................................23 3.4 DETERMINATION OF ELIGIBILITY..........................................................23 3.5 TERMINATION OF ELIGIBILITY............................................................24 3.6 OMISSION OF ELIGIBLE EMPLOYEE.........................................................24 3.7 INCLUSION OF INELIGIBLE EMPLOYEE......................................................24 3.8 ELECTION NOT TO PARTICIPATE...........................................................24 ARTICLE IV CONTRIBUTION AND ALLOCATION..........................................25 4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION..........................................................................25 4.2 PARTICIPANT'S SALARY REDUCTION ELECTION...............................................25 4.3 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION............................................29 4.4 ALLOCATION OF CONTRIBUTION AND EARNINGS...............................................29 4.5 ACTUAL DEFERRAL PERCENTAGE TESTS......................................................33 4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS........................................35 CORPDAL:63487.1 14047-00001 (ii) 4.7 ACTUAL CONTRIBUTION PERCENTAGE TESTS..................................................37 4.8 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS.................................................................................39 4.9 MAXIMUM ANNUAL ADDITIONS..............................................................41 4.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS.............................................44 4.11 TRANSFERS FROM QUALIFIED PLANS........................................................45 4.12 DIRECTED INVESTMENT ACCOUNT...........................................................47 ARTICLE V VALUATIONS...................................................47 5.1 VALUATION OF THE TRUST FUND...........................................................47 5.2 METHOD OF VALUATION...................................................................47 ARTICLE VI DETERMINATION AND DISTRIBUTION OF BENEFITS...................................48 6.1 DETERMINATION OF BENEFITS UPON RETIREMENT.............................................48 6.2 DETERMINATION OF BENEFITS UPON DEATH..................................................48 6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY......................................49 6.4 DETERMINATION OF BENEFITS UPON TERMINATION............................................49 6.5 DISTRIBUTION OF BENEFITS..............................................................51 6.6 DISTRIBUTION OF BENEFITS UPON DEATH...................................................53 6.7 TIME OF SEGREGATION OR DISTRIBUTION...................................................54 6.8 DISTRIBUTION FOR MINOR BENEFICIARY....................................................54 6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN........................................55 6.10 PRE-RETIREMENT DISTRIBUTION...........................................................55 6.11 ADVANCE DISTRIBUTION FOR HARDSHIP.....................................................55 6.12 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION.......................................57 ARTICLE VII TRUSTEE....................................................57 7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE.................................................57 7.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE...........................................57 7.3 OTHER POWERS OF THE TRUSTEE...........................................................58 7.4 LOANS TO PARTICIPANTS.................................................................60 7.5 DUTIES OF THE TRUSTEE REGARDING PAYMENTS..............................................62 7.6 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES.........................................62 7.7 ANNUAL REPORT OF THE TRUSTEE..........................................................62 7.8 AUDIT.................................................................................63 7.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE........................................63 7.10 TRANSFER OF INTEREST..................................................................64 7.11 DIRECT ROLLOVER.......................................................................64 CORPDAL:63487.1 14047-00001 (iii) ARTICLE VIII AMENDMENT, TERMINATION AND MERGERS.......................................65 8.1 AMENDMENT.............................................................................65 8.2 TERMINATION...........................................................................66 8.3 MERGER OR CONSOLIDATION...............................................................66 ARTICLE IX MISCELLANEOUS.................................................67 9.1 PARTICIPANT'S RIGHTS..................................................................67 9.2 ALIENATION............................................................................67 9.3 CONSTRUCTION OF PLAN..................................................................68 9.4 GENDER AND NUMBER.....................................................................68 9.5 LEGAL ACTION..........................................................................68 9.6 PROHIBITION AGAINST DIVERSION OF FUNDS................................................68 9.7 BONDING...............................................................................69 9.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE............................................69 9.9 INSURER'S PROTECTIVE CLAUSE...........................................................69 9.10 RECEIPT AND RELEASE FOR PAYMENTS......................................................69 9.11 ACTION BY THE EMPLOYER................................................................70 9.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY....................................70 9.13 HEADINGS..............................................................................70 9.14 APPROVAL BY INTERNAL REVENUE SERVICE..................................................70 9.15 UNIFORMITY............................................................................71 ARTICLE X PARTICIPATING EMPLOYERS............................................71 10.1 ADOPTION BY OTHER EMPLOYERS...........................................................71 10.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS...............................................71 10.3 DESIGNATION OF AGENT..................................................................72 10.4 EMPLOYEE TRANSFERS....................................................................72 10.5 PARTICIPATING EMPLOYER'S CONTRIBUTION.................................................72 10.6 AMENDMENT.............................................................................73 10.7 DISCONTINUANCE OF PARTICIPATION.......................................................73 10.8 ADMINISTRATOR'S AUTHORITY.............................................................73
CORPDAL:63487.1 14047-00001 (iv) THE EL CHICO SAVINGS PLAN THIS AGREEMENT, hereby made and entered into this 1st day of October, 1995, by and between El Chico Restaurants, Inc., El Chico Restaurants of Louisiana, Inc., El Chico Corporation of Oklahoma, Inc., El Chico Restaurant No. 20, Inc., Southwest Cafes of Tennessee, Inc., El Chico Corporation (Georgia), El Chico Corporation of Alabama, El Chico Corporation of Florida and Pronto Design & Supply, Inc. (herein collectively referred to as the "Employer") and Profit Sharing Plan Administration Committee (herein referred to as the "Trustee"). W I T N E S S E T H : WHEREAS, the Employer heretofore established a Profit Sharing Plan and Trust effective January 1, 1985, (hereinafter called the "Effective Date") known as the El Chico Savings Plan Para Su Futuro and which plan shall hereinafter be known as The El Chico Savings Plan (herein referred to as the "Plan") in recognition of the contribution made to its successful operation by its employees and for the exclusive benefit of its eligible employees; and WHEREAS, under the terms of the Plan, the Employer has the ability to amend the Plan, provided the Trustee joins in such amendment if the provisions of the Plan affecting the Trustee are amended; NOW, THEREFORE, effective October 1, 1995, except as otherwise provided, the Employer and the Trustee in accordance with the provisions of the Plan pertaining to amendments thereof, hereby amend the Plan in its entirety and restate the Plan to provide as follows: ARTICLE I DEFINITIONS 1.1 "Act" means the Employee Retirement Income Security Act of 1974, as it may be amended from time to time. 1.2 "Administrator" means the person or entity designated by the Employer pursuant to Section 2.4 to administer the Plan on behalf of the Employer. 1.3 "Affiliated Employer" means any corporation which is a member of a controlled group of corporations (as defined in Code Section 414(b)) which includes the Employer; any trade or business (whether or not incorporated) which is under common control (as defined in Code Section 414(c)) with the 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 the Employer; and any other entity required to be aggregated with the Employer pursuant to Regulations under Code Section 414(o). CORPDAL:63487.1 14047-00001 1 1.4 "Aggregate Account" means, with respect to each Participant, the value of all accounts maintained on behalf of a Participant, whether attributable to Employer or Employee contributions, subject to the provisions of Section 2.2. 1.5 "Anniversary Date" means December 31st. 1.6 "Beneficiary" means the person to whom the share of a deceased Participant's total account is payable, subject to the restrictions of Sections 6.2 and 6.6. 1.7 "Code" means the Internal Revenue Code of 1986, as amended or replaced from time to time. 1.8 "Compensation" with respect to any Participant means such Participant's wages as defined in Code Section 3401(a) and all other payments of compensation by the Employer (in the course of the Employer's trade or business) for a Plan Year for which the Employer is required to furnish the Participant a written statement under Code Sections 6041(d), 6051(a)(3) and 6052. Compensation must be determined without regard to any rules under Code Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)). For purposes of this Section, the determination of Compensation shall be made by: (a) including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or 457, and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. For a participant's initial year of participation, Compensation shall be recognized as of such Employee's effective date of participation pursuant to Section 3.3. Compensation in excess of $200,000 shall be disregarded. Such amount shall be adjusted as the same time and in such manner as permitted under Code Section 415(d), except that the dollar increase in effect on January 1 of any calendar year shall be effective for the Plan Year beginning with or within such calendar year and the first adjustment to the $200,000 limitation shall be effective on January 1, 1990. For any short Plan Year the Compensation limit shall be an amount equal to the Compensation limit for the calendar year in which the Plan Year begins multiplied by the ratio obtained by dividing the number of full months in the short Plan Year by twelve (12). In applying this limitation, the family group of a Highly Compensated Participant who is subject to the Family Member aggregation rules of Code Section 414(q)(6) because such Participant is either a "five percent owner" of the Employer or one of the ten (10) Highly Compensated Employees paid the greatest "415 Compensation" during the year, shall be treated as a single Participant, except that for this purpose Family Members shall include only the affected Participant's spouse and any lineal descendants who have not attained age nineteen (19) before the CORPDAL:63487.1 14047-00001 2 close of the year. If, as a result of the application of such rules the adjusted $200,000 limitation is exceeded, then the limitation shall be prorated among the affected Family Members in proportion to each such Family Member's Compensation prior to the application of limitation, or the limitation shall be adjusted in accordance with any other method permitted by Regulation. In addition to other applicable limitations set forth in the Plan, and notwithstanding any other provision of the Plan to the contrary, for Plan Years beginning on or after January 1, 1994, the annual Compensation of each Employee taken into account under the Plan shall not exceed the OBRA '93 annual compensation limit. The OBRA '93 annual compensation limit is $150,000, as adjusted by the Commissioner for increases in the cost of living in accordance with Code Section 401(a)(17)(B). The cost of living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which Compensation is determined (determination period) beginning in such calendar year. If a determination period consists of fewer than 12 months, the OBRA '93 annual compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12. For Plan Years beginning on or after January 1, 1994, any reference in this Plan to the limitation under Code Section 401(a)(17) shall mean the OBRA '93 annual compensation limit set forth in this provision. If Compensation for any prior determination period is taken into account in determining an Employee's benefits accruing in the current Plan Year, the Compensation for that prior determination period is subject to the OBRA '93 annual compensation limit in effect for that prior determination period. For this purpose, for determination periods beginning before the first day of the first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual compensation limit is $150,000. If, as a result of such rules, the maximum "annual addition" limit of Section 4.9(a) would be exceeded for one or more of the affected Family Members, the prorated Compensation of all affected Family Members shall be adjusted to avoid or reduce any excess. The prorated Compensation of any affected Family Member whose allocation would exceed the limit shall be adjusted downward to the level needed to provide an allocation equal to such limit. The prorated Compensation of affected Family Members are not affected by such limit shall then be adjusted upward on a pro rata basis not to exceed each such affected Family Member's Compensation as determined prior to application of the Family Member rule. The resulting allocation shall not exceed such individual's maximum "annual addition" limit. If, after these adjustments, an "excess amount" still results, such "excess amount" shall be disposed of in the manner described in Section 4.10(a) pro rata among all affected Family Members. For purposes of this Section, if the Plan is a plan described in Code Section 413(c) or 414(f) (a plan maintained by more than one Employer), the $200,000 limitation applies separately with respect to the Compensation of any Participant from each Employer maintaining the Plan. If, in connection with the adoption of this amendment and restatement, the definition of Compensation has been modified, then, for Plan Years prior to the Plan Year which includes the CORPDAL:63487.1 14047-00001 3 adoption date of this amendment and restatement, Compensation means compensation determined pursuant to the Plan then in effect. For Plan Years beginning prior to January 1, 1989, the $200,000 limit (without regard to Family Member aggregation) shall apply only for Top Heavy Plan Years and shall not be adjusted. 1.9 "Contract" or "Policy" means any life insurance policy, retirement income or annuity policy, or annuity contract (group or individual) issued pursuant to the terms of the Plan. 1.10 "Deferred Compensation" with respect to any Participant means the amount of the Participant's total Compensation which has been contributed to the Plan in accordance with the Participant's deferral election pursuant to Section 4.2 excluding any such amounts distributed as excess "annual additions" pursuant to Section 4.10(a). 1.11 "Early Retirement Date": this Plan does not provide for a retirement date prior to Normal Retirement Date. 1.12 "Elective Contribution" means the Employer's contributions to the Plan of Deferred Compensation excluding any such amounts distributed as excess "annual additions" pursuant to Section 4.10(a). In addition, any Employer Qualified Non-Elective Contribution made pursuant to Section 4.6 shall be considered an Elective Contribution for purposes of the Plan. Any such contributions deemed to be Elective Contributions shall be subject to the requirements of Sections 4.2(b) and 4.2(c) and shall further be required to satisfy the discrimination requirements of Regulation 1.401(k)-1(b)(5), the provisions of which are specifically incorporated herein by reference. 1.13 "Eligible Employee" means any Employee. Employees whose employment is governed by the terms of a collective bargaining agreement between Employee representatives (within the meaning of Code Section 7701(a)(46)) and the Employer under which retirement benefits were the subject to good faith bargaining between the parties will not be eligible to participate in this Plan unless such agreement expressly provides for coverage in this Plan or two percent or more of the Employees of the Employer who are covered pursuant to that agreement are professionals as defined in Regulation 1.410(b)-9. Employees who are nonresident aliens (within the meaning of Code Section 7701(b)(1)(B)) and who receive no earned income (within the meaning of Code Section 911(d)(2)) from the Employer which constitutes income from sources within the United Stated (within the meaning of Code Section 861(a)(3)) shall not be eligible to participate in this Plan. Employees of Affiliated Employers shall not be eligible to participate in this Plan unless such Affiliated Employers have specifically adopted this Plan in writing. CORPDAL:63487.1 14047-00001 4 1.14 "Employee" means any person who is employed by the Employer or Affiliated Employer, but excludes any person who is an independent contractor. Employee shall include Leased Employees within the meaning of Code Sections 414(n)(2) and 414(o)(2) unless such Leased Employees are covered by a plan described in Code Section 414(n)(5) and such Leased Employees do not constitute more than 20% of the recipient's non-highly compensated work force. 1.15 "Employer" means El Chico Restaurants, Inc., El Chico Restaurants of Louisiana, Inc., El Chico Corporation of Oklahoma, Inc., El Chico Restaurant No. 20, Inc., Southwest Cafes of Tennessee, Inc., El Chico Corporation (Georgia), El Chico Corporation of Alabama, El Chico Corporation of Florida and Pronto Design & Supply, Inc., El Chico Service Company, Texas El Chico Restaurants, L.P., El Chico Restaurants of Kentucky, Inc. and El Chico Restaurants of Indiana, Inc. and any Participating Employer (as defined in Section 10.1) which shall adopt this Plan; any successor which shall maintain this Plan; and any predecessor which has maintained this Plan. The Employers are corporations with principal offices in the State of Texas. 1.16 "Excess Aggregate Contributions" means, with respect to any Plan Year, the excess of the aggregate amount of the Employer matching contributions made pursuant to Section 4.1(b) and any qualified non-elective contributions or elective deferrals taken into account pursuant to Section 4.7(c) on behalf of Highly Compensated Participants for such Plan Year, over the maximum amount of such contributions permitted under the limitations of Section 4.79(a). 1.17 "Excess Contribution" means, with respect to a Plan Year, the excess of Elective Contributions made on behalf of Highly Compensated Participants for the Plan Year over the maximum amount of such contributions permitted under Section 4.5(a). Excess Contributions shall be treated as an "annual addition" pursuant to Section 4.9(b). 1.18 "Excess Deferred Compensation" means, with respect to any taxable year of a Participant, the excess of the aggregate amount of such Participant's Deferred Compensation and the elective deferrals pursuant to Section 4.2(f) actually made on behalf of such Participant for such taxable year, over the dollar limitation provided for in Code Section 402(g), which is incorporated herein by reference. Excess Deferred Compensation shall be treated as an "annual addition" pursuant to Section 4.9(b) when contributed to the Plan unless distributed to the affected Participant not later than the first April 15th following the close of the Participant's taxable year. Additionally, for purposes of Sections 2.2 and 4.4(g), Excess Deferred Compensation shall continue to be treated as Employer contributions even if distributed pursuant to Section 4.2(f). However, Excess Deferred Compensation of Non-Highly Compensated Participants is not taken into account for purposes of Section 4.5(a) to the extent such Excess Deferred Compensation occurs pursuant to Section 4.2(d). 1.19 "Family Member" means, with respect to an affected Participant, such Participant's spouse and such Participant's lineal descendants and ascendants and their spouses, all as described in Code Section 414(q)(6)(B). CORPDAL:63487.1 14047-00001 5 1.20 "Fiduciary" means any person who (a) exercises any discretionary authority or discretionary control respecting management of the Plan or exercises any authority or control respecting management or disposition of its assets, (b) renders investment advice for a fee or other compensation, direct or indirect, with respect to any monies or other property of the Plan or has any authority or responsibility to do so, or (c) has any discretionary authority or discretionary responsibility in the administration of the Plan, including, but not limited to, the Trustee, the Employer and its representative body, and the Administrator. 1.21 "Fiscal Year" means the Employer's accounting year of 12 months commencing on January 1st of each year and ending the following December 31st. 1.22 "Forfeiture." Under this Plan, Participant accounts are 100% Vested at all times. Any amounts that may otherwise be forfeited under the Plan pursuant to Section 3.7 or 6.9 shall be used to reduce the contribution of the Employer. 1.23 "Former Participant" means a person who has been a Participant, but who has ceased to be a Participant for any reason. 1.24 "415 Compensation" with respect to any Participant means such Participant's wages as defined in Code Section 3401(a) and all other payments of compensation by the Employer (in the course of the Employer's trade or business) for a Plan Year for which the Employer is required to furnish the Participant a written statement under Code Sections 6041(d), 6051(a)(3) and 6052. "415 Compensation" must be determined without regard to any rules under Code Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)). If, in connection with the adoption of this amendment and restatement, the definition of "415 Compensation" has been modified, then, for Plan Years prior to the Plan Year which includes the adoption date of this amendment and restatement, "415 Compensation" means compensation determined pursuant to the Plan then in effect. 1.25 "414(s) Compensation" with respect to any Participant means such Participant's "415 Compensation" paid during a Plan Year. The amount of "414(s) Compensation" with respect to any Participant shall include "414(s) Compensation" for the entire twelve (12) month period ending on the last day of such Plan Year, except that "414(s) Compensation" shall only be recognized for that portion of the Plan Year during which an Employee was a Participant in the Plan. For purposes of this Section, the determination of "414(s) Compensation" shall be made by including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 402(c)(3),. 402(h)(1)(B), 403(b) or 457, and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. CORPDAL:63487.1 14047-00001 6 "414(s) Compensation" in excess of $200,000 shall be disregarded. Such amount shall be adjusted at the same time and in such manner as permitted under Code Section 415(d), except that the dollar increase in effect on January 1 of any calendar year shall be effective for the Plan Year beginning with or within such calendar year and the first adjustment to the $200,000 Limitation shall be effective on January 1, 1990. For any short Plan Year the "414(s) Compensation" limit shall be an amount equal to the "414(s) Compensation" Limit for the calendar year in which the Plan Year begins multiplied by the ratio obtained by dividing the number of full months in the short Plan Year by twelve (12). In applying this limitation, the family group of a Highly Compensated Participant who is subject to the Family Member aggregation rules of Code Section 414(q)(6) because such Participant is either a "five percent owner" of the Employer or one of the ten (10) Highly Compensated Employees paid the greatest "415 Compensation" during the year, shall be treated as a single Participant, except that for this purpose Family Members shall include only the affected Participant's spouse and any lineal descendants who have not attained age nineteen (19) before the close of the year. In addition to other applicable limitations set forth in the Plan, and notwithstanding any other provision of the Plan to the contrary, for Plan Years beginning on or after January 1, 1994, the annual Compensation of each Employee taken into account under the Plan shall not exceed the OBRA '93 annual compensation limit. The OBRA '93 annual compensation limit is $150,000, as adjusted by the Commissioner for increases in the cost of living in accordance with Code Section 401(a)(17)(B). The cost of living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which Compensation is determined (determination period) beginning in such calendar year. If a determination period consists of fewer than 12 months, the OBRA '93 annual compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12. For Plan Years beginning on or after January 1, 1994, any reference in this Plan to the Limitation under Code Section 401(a)(17) shall mean the OBRA '93 annual compensation limit set forth in this provision. If Compensation for any prior determination period is taken into account in determining an Employee's benefits accruing in the current Plan Year, the Compensation for that prior determination period is subject to the OBRA '93 annual compensation limit in effect for that prior determination period. For this purpose, for determination periods beginning before the first day of the first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual compensation limit is $150,000. If, in connection with the adoption of this amendment and restatement, the definition of "414(s) Compensation" has been modified, then, for Plan Years prior to the Plan Year which includes the adoption date of this amendment and restatement, "414(s) Compensation" means compensation determined pursuant to the Plan then in effect. CORPDAL:63487.1 14047-00001 7 1.26 "Highly Compensated Employee" means an Employee described in Code Section 414(q) and the Regulations thereunder, and generally means an Employee who performed services for the Employer during the "determination year" and is in one or more of the following groups: (a) Employees who at any time during the "determination year" or "look-back year" were "five percent owners" as defined in Section 1.32(c). (b) Employees who received "415 Compensation" during the "look-back year" from the Employer in excess of $75,000. (c) Employees who received "415 Compensation" during the "look-back year" from the Employer in excess of $50,000 and were in the Top Paid Group of Employees for the Plan Year. (d) Employees who during the "look-back year" were officers of the Employer (as that term is defined within the meaning of the Regulations under Code Section 416) and received "415 Compensation" during the "look-back year" from the Employer greater than 50 percent of the limit in effect under Code Section 415(b)(1)(A) for any such Plan Year. The number of officers shall be limited to the lesser of (i) 50 employees; or (ii) the greater of 3 employees or 10 percent of all employees. For the purpose of determining the number of officers, Employees described in Section 1.55(a), (b), (c) and (d) shall be excluded, but such Employees shall still be considered for the purpose of identifying the particular Employees who are officers. If the Employer does not have at least one officer whose annual "415 Compensation" is in excess of 50 percent of the Code Section 415(b)(1)(A) limit, then the highest paid officer of the Employer will be treated as a Highly Compensated Employee. (e) Employees who are in the group consisting of the 100 Employees paid the greatest "415 Compensation" during the determination year" and are also described in (b), (c) or (d) above when these paragraphs are modified to substitute "determination year" for "look-back year." The "determination year" shall be the Plan Year for which testing is being performed, and the "look-back year" shall be the immediately preceding twelve-month period. For purposes of this Section, the determination of "415 Compensation" shall be made by including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or 457, and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. Additionally, the dollar threshold amounts specified in (b) and (c) above shall be adjusted at such time and in such manner as is provided in Regulations. In the case of such an adjustment, the dollar limits which shall be applied are those for the calendar year in which the 'determination year" or "look-back year" begins. CORPDAL:63487.1 14047-00001 8 In determining who is a Highly Compensated Employee, Employees who are non-resident aliens and who received no earned income (within the meaning of Code Section 91 l(d)(2)) from the Employer constituting United States source income within the meaning of Code Section 861(a)(3) shall not be treated as Employees. Additionally, all Affiliated Employers shall be taken into account as a single employer and Leased Employees within the meaning of Code Sections 414(n)(2) and 414(o)(2) shall be considered Employees unless such Leased Employees are covered by a plan described in Code Section 414(n)(5) and are not covered in any qualified plan maintained by the Employer. The exclusion of Leased Employees for this purpose shall be applied on a uniform and consistent basis for all of the Employer's retirement plans. Highly Compensated Former Employees shall be treated as Highly Compensated Employees without regard to whether they performed services during the "determination year." 1.27 "Highly Compensated Former Employee" means a former Employee who had a separation year prior to the "determination year" and was a Highly Compensated Employee in the year of separation from service or in any "determination year" after attaining age 55. Notwithstanding the foregoing, an Employee who separated from service prior to 1987 will be treated as a Highly Compensated Former Employee only if during the separation year (or year preceding the separation year) or any year after the Employee attains age 55 (or the last year ending before the Employee's 55th birthday), the Employee either received "415 Compensation" in excess of $50,000 or was a "five percent owner." For purposes of this Section, "determination year," `415 Compensation" and "five percent owner" shall be determined in accordance with Section 1.26. Highly Compensated Former Employees shall be treated as Highly Compensated Employees. The method set forth in this Section for determining who is a "Highly Compensated Former Employee" shall be applied on a uniform and consistent basis for all purposes for which the Code Section 414(q) definition is applicable. 1.28 "Highly Compensated Participant" means any Highly Compensated Employee who is eligible to participate in the Plan. 1.29 "Hour of Service" means (1) each hour for which an Employee is directly or indirectly compensated or entitled to compensation by the Employer for the performance of duties during the applicable computation period; (2) each hour for which an Employee is directly or indirectly compensated or entitled to compensation by the Employer (irrespective of whether the employment relationship has terminated) for reasons other than performance of duties (such as vacation, holidays, sickness, jury duty, disability, lay-off, military duty or leave of absence) during the applicable computation period; (3) each hour for which back pay is awarded or agreed to by the Employer without regard to mitigation of damages. These hours will be credited to the Employee for the computation period or periods to which the award or agreement pertains rather than the computation period in which the award, agreement or payment is made. The same Hours of Service shall not be credited both under (1) or (2), as the case may be, and under (3). Notwithstanding the above, (i) no more than 501 Hours of Service are required to be credited to an Employee on account of any single continuous period during which the Employee performs no duties (whether or not such period occurs in a single computation period); CORPDAL:63487.1 14047-00001 9 (ii) an hour for which an Employee is directly or indirectly paid, or entitled to payment, on account of a period during which no duties are performed is not required to be credited to the Employee if such payment is made or due under a plan maintained solely for the purpose of complying with applicable worker's compensation, or unemployment compensation or disability insurance laws; and (iii) Hours of Service are not required to be credited for a payment which solely reimburses an Employee for medical or medically related expenses incurred by the Employee. For purposes of this Section, a payment shall be deemed to be made by or due from the Employer regardless of whether such payment is made by or due from the Employer directly, or indirectly through, among others, a trust fund, or insurer, to which the Employer contributes or pays premiums and regardless of whether contributions made or due to the trust fund, insurer, or other entity are for the benefit of particular Employees or are on behalf of a group of Employees in the aggregate. An Hour of Service must be counted for the purpose of determining a Year of Service, a year of participation for purposes of accrued benefits, a 1-Year Break in Service, and employment commencement date (or reemployment commencement date). In addition, Hours of Service will be credited for employment with other Affiliated Employers. The provisions of Department of Labor regulations 2530.200b-2(b) and (c) are incorporated herein by reference. 1.30 "Income" means the income or losses allocable to Excess Deferred Compensation which amount shall be allocated in the same manner as income or losses are allocated pursuant to Section 4.4(f). 1.31 "Investment Manager" means an entity that (a) has the power to manage, acquire, or dispose of Plan assets and (b) acknowledges fiduciary responsibility to the Plan in writing. Such entity must be a person, firm, or corporation registered as an investment adviser under the Investment Advisers Act of 1940, a bank, or an insurance company. 1.32 "Key Employee" means an Employee as defined in Code Section 416(i) and the Regulations thereunder. Generally, any Employee or former Employee (as well as each of his Beneficiaries) is considered a Key Employee if he, at any time during the Plan Year that contains the "Determination Date" or any of the preceding four (4) Plan Years, has been included in one of the following categories: (a) an officer of the Employer (as that term is defined within the meaning of the Regulations under Code Section 416) having annual "415 Compensation" greater than 50 percent of the amount in effect under Code Section 415(b)(1)(A) for any such Plan Year. (b) one of the ten employees having annual "415 Compensation" from the Employer for a Plan Year greater than the dollar limitation in effect under Code Section 415(c)(1)(A) for the calendar year in which such Plan Year ends and owning (or CORPDAL:63487.1 14047-00001 10 considered as owning within the meaning of Code Section 318) both more than one-half percent interest and the largest interests in the Employer. (c) a "five percent owner" of the Employer. "Five percent owner" means any person who owns (or is 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. In determining percentage ownership hereunder, employers that would otherwise be aggregated under Code Sections 414(b), (c), (m) and (o) shall be treated as separate employers. (d) a "one percent owner" of the Employer having an annual "415 Compensation" from the Employer of more than $150,000. "One percent owner" means any person who owns (or is 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. In determining percentage ownership hereunder, employers that would otherwise be aggregated under Code Sections 414(b), (c), (m) and (o) shall be treated as separate employers. However, in determining whether an individual has "415 Compensation" of more than $150,000, "415 Compensation" from each employer required to be aggregated under Code Sections 414(b), (c), (m) and (o) shall be taken into account. For purposes of this Section, the determination of "415 Compensation" shall be made by including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 402(e)(3), 402(h)(l)(B), 403(b) or 457, and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. 1.33 "Late Retirement Date" means the first day of the month coinciding with or next following a Participant's actual Retirement Date after having reached his Normal Retirement Date. 1.34 "Leased Employee" means any person (other than an Employee of the recipient) who pursuant to an agreement between the recipient and any other person ("leasing organization") has performed services for the recipient (or for the recipient and related persons determined in accordance with Code Section 414(n)(6)) on a substantially full time basis for a period of at least one year, and such services are of a type historically performed by employees in the business field of the recipient employer. Contributions or benefits provided a Leased Employee by the leasing organization which are attributable to services performed for the recipient employer shall be treated as provided by the recipient employer. A Leased Employee shall not be considered an Employee of the recipient: (a) if such employee is covered by a money purchase pension plan providing: CORPDAL:63487.1 14047-00001 11 (1) a non-integrated employer contribution rate of at least 10% of compensation, as defined in Code Section 415(c)(3), but including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or 457, and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. (2) immediate participation; and (3) full and immediate vesting; and (b) if Leased Employees do not constitute more than 20% of the recipient's non-highly compensated work force. 1.35 "Non-Elective Contribution" means the Employer's contributions to the Plan excluding, however, contributions made pursuant to the Participant's deferral election provided for in Section 4.2 and any Qualified Non-Elective Contribution. 1.36 "Non-Highly Compensated Participant" means any Participant who is neither a Highly Compensated Employee nor a Family Member. 1.37 "Non-Key Employee" means any Employee or former Employee (and his Beneficiaries) who is not a Key Employee. 1.38 "Normal Retirement Age" means the Participant's 65th birthday. A Participant shall become fully Vested in his Participant's Account upon attaining his Normal Retirement Age. 1.39 "Normal Retirement Date" means the first day of the month coinciding with or next following the Participant's Normal Retirement Age. 1.40 "1-Year Break in Service" means the applicable computation period during which an Employee has not completed more than 500 Hours of Service with the Employer. Further, solely for the purpose of determining whether a Participant has incurred a 1-Year Break in Service, Hours of Service shall be recognized for "authorized leaves of absence" and maternity and paternity leaves of absence." Years of Service and 1-Year Breaks in Service shall be measured on the same computation period. "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. A "maternity or paternity leave of absence" means, for Plan Years beginning after December 31, 1984, an absence from work for any period by reason of the Employee's pregnancy, birth of the Employee's child, placement of a child with the Employee in connection CORPDAL:63487.1 14047-00001 12 with the adoption of such child, or any absence for the purpose of caring for such child for a period immediately following such birth or placement. For this purpose, Hours of Service shall be credited for the computation period in which the absence from work begins, only if credit therefore is necessary to prevent the Employee from incurring a 1-Year 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 such absence, or, in any case in which the Administrator is unable to determine such 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 501. 1.41 "Participant" means any Eligible Employee who participates in the Plan as provided in Sections 3.2 and 3.3, and has not for any reason become ineligible to participate further in the Plan. 1.42 "Participant's Account" means the account established and maintained by the Administrator for each Participant with respect to his total interest in the Plan and Trust resulting from the Employer's Non-Elective Contributions. A separate accounting shall be maintained with respect to that portion of the Participant's Account attributable to Employer matching contributions made pursuant to Section 4.l(b) and Employer discretionary contributions made pursuant to Section 4.1(c). 1.43 "Participant's Combined Account" means the total aggregate amount of each Participant's Elective Account and Participant's Account. 1.44 "Participant's Elective Account" means the account established and maintained by the Administrator for each Participant with respect to his total interest in the Plan and Trust resulting from the Employer's Elective Contributions. A separate accounting shall be maintained with respect to that portion of the Participant's Elective Account attributable to Elective Contributions pursuant to Section 4.2 and any Employer Qualified Non-Elective Contributions. 1.45 "Plan" means this instrument, including all amendments thereto. 1.46 "Plan Year" means the Plan's accounting year of twelve (12) months commencing on January 1st of each year and ending the following December 31st. 1.47 "Qualified Non-Elective Contribution" means the Employer's contributions to the Plan that are made pursuant to Section 4.6. Such contributions shall be considered an Elective Contribution for the purposes of the Plan and used to satisfy the "Actual Deferral Percentage" tests. In addition, the Employer's contributions to the Plan that are made pursuant to Section 4.8(h) which are used to satisfy the "Actual Contribution Percentage" tests shall be considered Qualified Non-Elective Contributions and be subject to the provisions of Sections 4.2(b) and 4.2(c). CORPDAL:63487.1 14047-00001 13 1.48 "Regulation" means the Income Tax Regulations as promulgated by the Secretary of the Treasury or his delegate, and as amended from time to time. 1.49 "Retired Participant" means a person who has been a Participant, but who has become entitled to retirement benefits under the Plan. 1.50 "Retirement Date" means the date as of which a Participant retires for reasons other than Total and Permanent Disability, whether such retirement occurs on a Participant's Normal Retirement Date or Late Retirement Date (see Section 6.1). 1.51 "Super Top Heavy Plan" means a plan described in Section 2.2(b). 1.52 "Terminated Participant" means a person who has been a Participant, but whose employment has been terminated other than by death, Total and Permanent Disability or retirement. 1.53 "Top Heavy Plan" means a plan described in Section 2.2(a). 1.54 "Top Heavy Plan Year" means a Plan Year during which the Plan is a Top Heavy Plan. 1.55 "Top Paid Group" means the top 20 percent of Employees who performed services for the Employer during the applicable year, ranked according to the amount of "415 Compensation" (determined for this purpose in accordance with Section 1.26) received from the Employer during such year. All Affiliated Employers shall be taken into account as a single employer, and Leased Employees within the meaning of Code Sections 414(n)(2) and 414(o)(2) shall be considered Employees unless such Leased Employees are covered by a plan described in Code Section 414(n)(5) and are not covered in any qualified plan maintained by the Employer. Employees who are non-resident aliens and who received no earned income (within the meaning of Code Section 911(d)(2)) from the Employer constituting United States source income within the meaning of Code Section 861(a)(3) shall not be treated as Employees. Additionally, for the purpose of determining the number of active Employees in any year, the following additional Employees shall also be excluded; however, such Employees shall still be considered for the purpose of identifying the particular Employees in the Top Paid Group: (a) Employees with less than six (6) months of service; (b) Employees who normally work less than 17 1/2 hours per week; (c) Employees who normally work less than six (6) months during a year, and (d) Employees who have not yet attained age 21. In addition, if 90 percent or more of the Employees of the Employer are covered under agreements the Secretary of Labor finds to be collective bargaining agreements between CORPDAL:63487.1 14047-00001 14 Employee representatives and the Employer, and the Plan covers only Employees who are not covered under such agreements, then Employees covered by such agreements shall be excluded from both the total number of active Employees as well as from the identification of particular Employees in the Top Paid Group. The foregoing exclusions set forth in this Section shall be applied on a uniform and consistent basis for all purposes for which the Code Section 414(q) definition is applicable. 1.56 "Total and Permanent Disability" means a physical or mental condition of a Participant resulting from bodily injury, disease, or mental disorder which renders him incapable of continuing any gainful occupation and which condition constitutes total disability under the federal Social Security Acts. 1.57 "Trustee" means the person or entity named as trustee herein or in any separate trust forming a part of this Plan, and any successors. 1.58 "Trust Fund" means the assets of the Plan and Trust as the same shall exist from time to time. 1.59 "Vested" means the nonforfeitable portion of any account maintained on behalf of a Participant. 1.60 "Year of Service" means the computation period of twelve (12) consecutive months, herein set forth, during which an Employee has at least 1000 Hours of Service. For purposes of eligibility for participation, the initial computation period shall begin with the date on which the Employee first performs an Hour of Service. The participation computation period beginning after a 1-Year Break in Service shall be measured from the date on which an Employee again performs an Hour of Service. The participation computation period shall shift to the Plan Year which includes the anniversary of the date on which the Employee first performed an Hour of Service. An Employee who is credited with the required Hours of Service in both the initial computation period (or the computation period beginning after a 1-Year Break in Service) and the Plan Year which includes the anniversary of the date on which the Employee first performed an Hour of Service, shall be credited with two (2) Years of Service for purposes of eligibility to participate. For all other purposes, the computation period shall be the Plan Year. Notwithstanding the foregoing, for any short Plan Year, the determination of whether an Employee has completed a Year of Service shall be made in accordance with Department of Labor regulation 2530.203-2(c). Years of Service with any Affiliated Employer shall be recognized. CORPDAL:63487.1 14047-00001 15 ARTICLE II TOP HEAVY AND ADMINISTRATION 2.1 TOP HEAVY PLAN REQUIREMENTS For any Top Heavy Plan Year, the Plan shall provide the special vesting requirements of Code Section 416(b) pursuant to Section 6.4 of the Plan and the special minimum allocation requirements of Code Section 416(c) pursuant to Section 4.4 of the Plan. 2.2 DETERMINATION OF TOP HEAVY STATUS (a) This Plan shall be a Top Heavy Plan for any Plan Year in which, as of the Determination Date, (1) the Present Value of Accrued Benefits of Key Employees and (2) the sum of the Aggregate Accounts of Key Employees under this Plan and all plans of an Aggregation Group, exceeds sixty percent (60%) of the Present Value of Accrued Benefits and the Aggregate Accounts of all Key and Non-Key Employees under this Plan and all plans of an Aggregation Group. If any Participant is a Non-Key Employee for any Plan Year, but such Participant was a Key Employee for any prior Plan Year, such Participant's Present Value of Accrued Benefit and/or Aggregate Account balance shall not be taken into account for purposes of determining whether this Plan is a Top Heavy or Super Top Heavy Plan (or whether any Aggregation Group which includes this Plan is a Top Heavy Group). In addition, if a Participant or Former Participant has not performed any services for any Employer maintaining the Plan at any time during the five year period ending on the Determination Date, any accrued benefit for such Participant or Former Participant shall not be taken into account for the purposes of determining whether this Plan is a Top Heavy or Super Top Heavy Plan. (b) This Plan shall be a Super Top Heavy Plan for any Plan Year in which, as of the Determination Date, (1) the Present Value of Accrued Benefits of Key Employees and (2) the sum of the Aggregate Accounts of Key Employees under this Plan and all plans of an Aggregation Group, exceeds ninety percent (90%) of the Present Value of Accrued Benefits and the Aggregate Accounts of all Key and Non-Key Employees under this Plan and all plans of an Aggregation Group. (c) Aggregate Account: A Participant's Aggregate Account as of the Determination Date is the sum of: (1) his Participant's Combined Account balance as of the most recent valuation occurring within a twelve (12) month period ending on the Determination Date; (2) an adjustment for any contributions due as of the Determination Date. Such adjustment shall be the amount of any contributions actually made after the CORPDAL:63487.1 14047-00001 16 valuation date but due on or before the Determination Date, except for the first Plan Year when such adjustment shall also reflect the amount of any contributions made after the Determination Date that are allocated as of a date in that first Plan Year. (3) any Plan distributions made within the Plan Year that includes the Determination Date or within the four (4) preceding Plan Years. 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 such distributions are already included in the Participant's Aggregate Account balance as of the valuation date. Notwithstanding anything herein to the contrary, all distributions, including distributions made prior to January 1, 1984, and distributions under a terminated plan which if it had not been terminated would have been required to be included in an Aggregation Group, will be counted. Further, distributions from the Plan (including the cash value of life insurance policies) of a Participant's account balance because of death shall be treated as a distribution for the purposes of this paragraph. (4) any Employee contributions, whether voluntary or mandatory. However, amounts attributable to tax deductible qualified voluntary employee contributions shall not be considered to be a part of the Participant's Aggregate Account balance. (5) with respect to unrelated rollovers and plan-to-plan transfers (ones which are both initiated by the Employee and made from a plan maintained by one employer to a plan maintained by another employer), if this Plan provides the rollovers or plan-to-plan transfers, it shall always consider such rollovers or plan- to-plan transfers as a distribution for the purposes of this Section. If this Plan is the plan accepting such rollovers or plan-to-plan transfers, it shall not consider such rollovers or plan-to-plan transfers as part of the Participant's Aggregate Account balance. (6) with respect to related rollovers and plan-to-plan transfers (ones either not initiated by the Employee or made to a plan maintained by the same employer), if this Plan provides the rollover or plan-to-plan transfer, it shall not be counted as a distribution for purposes of this Section. If this Plan is the plan accepting such rollover or plan-to-plan transfer, it shall consider such rollover or plan-to-plan transfer as part of the Participant's Aggregate Account balance, irrespective of the date on which such rollover or plan-to-plan transfer is accepted. (7) For the purposes of determining whether two employers are to be treated as the same employer in (5) and (6) above, all employers aggregated under Code Section 414(b), (c), (m) and (o) are treated as the same employer. (d) "Aggregation Group" means either a Required Aggregation Group or a Permissive Aggregation Group as hereinafter determined. CORPDAL:63487.1 14047-00001 17 (1) Required Aggregation Group: In determining a Required Aggregation Group hereunder, each plan of the Employer in which a Key Employee is a participant in the Plan Year containing the Determination Date or any of the four preceding Plan Years, and 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, will be required to be aggregated. Such group shall be known as a Required Aggregation Group. 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. (2) Permissive Aggregation Group: The Employer may also include 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 the provisions of Code Sections 401(a)(4) and 410. Such group shall be known as a Permissive Aggregation Group. 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. (3) Only those plans of the Employer in which the Determination Dates fall within the same calendar year shall be aggregated in order to determine whether such plans are Top Heavy Plans. (4) An Aggregation Group shall include any terminated plan of the Employer if it was maintained within the last five (5) years ending on the Determination Date. (e) "Determination Date" means (a) the last day of the preceding Plan Year, or (b) in the case of the first Plan Year, the last day of such Plan Year. (f) Present Value of Accrued Benefit: In the case of a defined benefit plan, the Present Value of Accrued Benefit for a Participant other than a Key Employee, shall be as determined using the single accrual method used for all plans of the Employer and Affiliated Employers, or if no such single method exists, using a method which results in benefits accruing not more rapidly than the slowest accrual rate permitted under Code Section 41 l(b)(1)(C). The determination of the Present Value of Accrued Benefit shall be determined as of the most recent valuation date that falls within or ends with the 12- month period ending on the Determination Date except as provided in Code Section 416 CORPDAL:63487.1 14047-00001 18 and the Regulations thereunder for the first and second plan years of a defined benefit plan. (g) "Top Heavy Group" means an Aggregation Group in which, as of the Determination Date, the sum of: (1) the Present Value of Accrued Benefits of Key Employees under all defined benefit plans included in the group, and (2) 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. 2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER (a) The Employer shall be empowered to appoint and remove the Trustee and the Administrator from time to time as it deems necessary for the proper administration of the Plan to assure that the Plan is being operated for the exclusive benefit of the Participants and their Beneficiaries in accordance with the terms of the Plan, the Code, and the Act. (b) The Employer shall establish a "funding policy and method," i.e., it shall determine whether the Plan has a short run need for liquidity (e.g., to pay benefits) or whether liquidity is a long run goal and investment growth (and stability of same) is a more current need, or shall appoint a qualified person to do so. The Employer or its delegate shall communicate such needs and goals to the Trustee, who shall coordinate such Plan needs with its investment policy. The communication of such a "funding policy and method" shall not, however, constitute a directive to the Trustee as to investment of the Trust Funds. Such "funding policy and method" shall be consistent with the objectives of this Plan and with the requirements of Title I of the Act. (c) The Employer shall periodically review the performance of any Fiduciary or other person to whom duties have been delegated or allocated by it under the provisions of this Plan or pursuant to procedures established hereunder. This requirement may be satisfied by formal periodic review by the Employer or by a qualified person specifically designated by the Employer, through day-to-day conduct and evaluation, or through other appropriate ways. 2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY The Employer shall appoint one or more Administrators. Any person, including, but not limited to, the Employees of the Employer, shall be eligible to serve as an Administrator. Any person so appointed shall signify his acceptance by filing written acceptance with the CORPDAL:63487.1 14047-00001 19 Employer. An Administrator may resign by delivering his written resignation to the Employer or be removed by the Employer by delivery of written notice of removal, to take effect at a date specified therein, or upon delivery to the Administrator if no date is specified. The Employer, upon the resignation or removal of an Administrator, shall promptly designate in writing a successor to this position. If the Employer does not appoint an Administrator, the Employer will function as the Administrator. 2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES If more than one person is appointed as Administrator, the responsibilities of each Administrator may be specified by the Employer and accepted in writing by each Administrator. In the event that no such delegation is made by the Employer, the Administrators may allocate the responsibilities among themselves, in which event the Administrators shall notify the Employer and the Trustee in writing of such action and specify the responsibilities of each Administrator. The Trustee thereafter shall accept and rely upon any documents executed by the appropriate Administrator until such time as the Employer or the Administrators file with the Trustee a written revocation of such designation. 2.6 POWERS AND DUTIES OF THE ADMINISTRATOR The primary responsibility of the Administrator is to administer the Plan for the exclusive benefit of the Participants and their Beneficiaries, subject to the specific terms of the Plan. The Administrator shall administer the Plan in accordance with its terms and shall have the power and discretion to construe the terms of the Plan and to determine all questions arising in connection with the administration, interpretation, and application of the Plan. Any such determination by the Administrator shall be conclusive and binding upon all persons. The Administrator may establish procedures, correct any defect, supply any information, or reconcile any inconsistency in such manner and to such extent as shall be deemed necessary or advisable to carry out the purpose of the Plan; provided, however, that any procedure, discretionary act, interpretation or construction shall be done in a nondiscriminatory manner based upon uniform principles consistently applied and shall be consistent with the intent that the Plan shall continue to be deemed a qualified plan under the terms of Code Section 401(a), and shall comply with the terms of the Act and all regulations issued pursuant thereto. The Administrator shall have all powers necessary or appropriate to accomplish his duties under this Plan. The Administrator shall be charged with the duties of the general administration of the Plan, including, but not limited to, the following: (a) the discretion to determine all questions relating to the eligibility of Employees to participate or remain a Participant hereunder and to receive benefits under the Plan; (b) to compute, certify, and direct the Trustee with respect to the amount and the kind of benefits to which any Participant shall be entitled hereunder; CORPDAL:63487.1 14047-00001 20 (c) to authorize and direct the Trustee with respect to all non-discretionary or otherwise directed disbursements from the Trust; (d) to maintain all necessary records for the administration of the Plan; (e) to interpret the provisions of the Plan and to make and publish such rules for regulation of the Plan as are consistent with the terms hereof; (f) to determine the size and type of any Contract to be purchased from any insurer, and to designate the insurer from which such Contract shall be purchased; (g) to compute and certify to the Employer and to the Trustee from time to time the sums of money necessary or desirable to be contributed to the Plan; (h) to consult with the Employer and the Trustee regarding the short and long-term liquidity needs of the Plan in order that the Trustee can exercise any investment discretion in a manner designed to accomplish specific objectives; (i) to prepare and implement a procedure to notify Eligible Employees that they may elect to have a portion of their Compensation deferred or paid to them in cash; (j) to assist any Participant regarding his rights, benefits, or elections available under the Plan. 2.7 RECORDS AND REPORTS The Administrator shall keep a record of all actions taken and shall keep all other books of account, records, and other data that may be necessary for proper administration of the Plan and shall be responsible for supplying all information and reports to the Internal Revenue Service, Department of Labor, Participants, Beneficiaries and others as required by law. 2.8 APPOINTMENT OF ADVISERS The Administrator, or the Trustee with the consent of the Administrator, may appoint counsel, specialists, advisers, and other persons as the Administrator or the Trustee deems necessary or desirable in connection with the administration of this Plan. 2.9 INFORMATION FROM EMPLOYER To enable the Administrator to perform his functions, the Employer shall supply full and timely information to the Administrator on all matters relating to the Compensation of all Participants, their Hours of Service, their Years of Service, their retirement, death, disability, or termination of employment, and such other pertinent facts as the Administrator may require; and the Administrator shall advise the Trustee of such of the foregoing facts as may be pertinent to the CORPDAL:63487.1 14047-00001 21 Trustee's duties under the Plan, The Administrator may rely upon such information as is supplied by the Employer and shall have no duty or responsibility to verify such information. 2.10 PAYMENT OF EXPENSES All expenses of administration may be paid out of the Trust Fund unless paid by the Employer. Such expenses shall include any expenses incident to the functioning of the Administrator, including, but not limited to, fees of accountants, counsel, and other specialists and their agents, and other costs of administering the Plan. Until paid, the expenses shall constitute a liability of the Trust Fund. However, the Employer may reimburse the Trust Fund for any administration expense incurred. 2.11 MAJORITY ACTIONS Except where there has been an allocation and delegation of administrative authority pursuant to Section 2.5, if there shall be more than one Administrator, they shall act by a majority of their number, but may authorize one or more of them to sign all papers on their behalf 2.12 CLAIMS PROCEDURE Claims for benefits under the Plan may be filed in writing with the Administrator. Written notice of the disposition of a claim shall be furnished to the claimant within 90 days after the application is filed. In the event the claim is denied, the reasons for the denial shall be specifically set forth in the notice in language calculated to be understood by the claimant, pertinent provisions of the Plan shall be cited, and, where appropriate, an explanation as to how the claimant can perfect the claim will be provided. In addition, the claimant shall be furnished with an explanation of the Plan's claims review procedure. 2.13 CLAIMS REVIEW PROCEDURE Any Employee, former Employee, or Beneficiary of either, who has been denied a benefit by a decision of the Administrator pursuant to Section 2.12 shall be entitled to request the Administrator to give further consideration to his claim by filing with the Administrator (on a form which may be obtained from the Administrator) a request for a hearing. Such request, together with a written statement of the reasons why the claimant believes its claim should be allowed, shall be filed with the Administrator no later than 60 days after receipt of the written notification provided for in Section 2.12. The Administrator shall then conduct a hearing within the next 60 days, at which the claimant may be represented by an attorney or any other representative of his choosing and at which the claimant shall have an opportunity to submit written and oral evidence and arguments in support of his claim. At the hearing (or prior thereto upon 5 business days written notice to the Administrator) the claimant or his representative shall have an opportunity to review all documents in the possession of the Administrator which are pertinent to the claim at issue and its disallowance. Either the claimant or the Administrator may cause a court reporter to attend the hearing and record the proceedings. In such event, a complete written transcript of the proceedings shall be furnished to both parties by the court reporter. The CORPDAL:63487.1 14047-00001 22 full expense of any such court reporter and such transcripts shall be borne by the party causing the court reporter to attend the hearing. A final decision as to the allowance of the claim shall be made by the Administrator within 60 days of receipt of the appeal (unless there has been an extension of 60 days due to special circumstances, provided the delay and the special circumstances occasioning it are communicated to the claimant within the 60 day period). Such communication shall be written in a manner calculated to be understood by the claimant and shall include specific reasons for the decision and specific references to the pertinent Plan provisions on which the decision is based. ARTICLE III ELIGIBILITY 3.1 CONDITIONS OF ELIGIBILITY Any Eligible Employee who has completed one (1) Year of Service and has attained age 21 shall be eligible to participate hereunder as of the date he has satisfied such requirements. However, any Employee who was a Participant in the Plan prior to the effective date of this amendment and restatement shall continue to participate in the Plan. The Employer shall give each prospective Eligible Employee written notice of his eligibility to participate in the Plan prior to the close of the Plan Year in which he first becomes an Eligible Employee. 3.2 APPLICATION FOR PARTICIPATION In order to become a Participant hereunder, each Eligible Employee shall make application to the Employer for participation in the Plan and agree to the terms hereof. Upon the acceptance of any benefits under this Plan, such Employee shall automatically be deemed to have made application and shall be bound by the terms and conditions of the Plan and all amendments hereto. 3.3 EFFECTIVE DATE OF PARTICIPATION An Eligible Employee shall become a Participant effective as of the first day of the month coinciding with or next following the date on which such Employee met the eligibility requirements of Section 3.1, provided said Employee was still employed as of such date (or if not employed on such date, as of the date of rehire if a 1-Year Break in Service has not occurred). In the event an Employee who is not a member of an eligible class of Employees becomes a member of an eligible class, such Employee will participate immediately if such Employee has satisfied the minimum age and service requirements and would have otherwise previously become a Participant. 3.4 DETERMINATION OF ELIGIBILITY The Administrator shall determine the eligibility of each Employee for participation in the Plan based upon information furnished by the Employer. Such determination shall be CORPDAL:63487.1 14047-00001 23 conclusive and binding upon all persons, as long as the same is made pursuant to the Plan and the Act. Such determination shall be subject to review per Section 2.13. 3.5 TERMINATION OF ELIGIBILITY (a) In the event a Participant shall go from a classification of an Eligible Employee to an ineligible Employee, such Former Participant shall continue to vest in his interest in the Plan for each Year of Service completed while a noneligible Employee, until such time as his Participant's Account shall be forfeited or distributed pursuant to the terms of the Plan. Additionally, his interest in the Plan shall continue to share in the earnings of the Trust Fund. (b) In the event a Participant is no longer a member of an eligible class of Employees and becomes ineligible to participate but has not incurred a 1-Year Break in Service, such Employee will participate immediately upon returning to an eligible class of Employees. If such Participant incurs a 1-Year Break in Service, eligibility will be determined under the break in service rules of the Plan. 3.6 OMISSION OF ELIGIBLE EMPLOYEE If, in any Plan Year, any Employee who should be included as a Participant in the Plan is erroneously omitted and discovery of such omission is not made until after a contribution by his Employer for the year has been made, the Employer shall make a subsequent contribution with respect to the omitted Employee in the amount which the said Employer would have contributed with respect to him had he not been omitted. Such contribution shall be made regardless of whether or not it is deductible in whole or in part in any taxable year under applicable provisions of the Code. 3.7 INCLUSION OF INELIGIBLE EMPLOYEE If, in any Plan Year, any person who should not have been included as a Participant in the Plan is erroneously included and discovery of such incorrect inclusion is not made until after a contribution for the year has been made, the Employer shall not be entitled to recover the contribution made with respect to the ineligible person regardless of whether or not a deduction is allowable with respect to such contribution. In such event, the amount contributed with respect to the ineligible person shall constitute a Forfeiture (except for Deferred Compensation which shall be distributed to the ineligible person) for the Plan Year in which the discovery is made. 3.8 ELECTION NOT TO PARTICIPATE An Employee may, subject to the approval of the Employer, elect voluntarily not to participate in the Plan. The election not to participate must be communicated to the Employer, in writing, at least thirty (30) days before the beginning of a Plan Year. CORPDAL:63487.1 14047-00001 24 ARTICLE IV CONTRIBUTION AND ALLOCATION 4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION For each Plan Year, the Employer shall contribute to the Plan: (a) The amount of the total salary reduction elections of all Participants made pursuant to Section 4.2(a), which amount shall be deemed an Employer's Elective Contribution. (b) On behalf of each Participant who is eligible to share in matching contributions for the Plan Year, a matching contribution equal to 20% of each such Participant's Deferred Compensation plus a discretionary percentage of each such Participant's Deferred Compensation, the exact percentage to be determined each year by the Employer, which amount shall be deemed an Employer's Non-Elective Contribution. Except, however, in applying the matching percentage specified above, only salary reductions up to 3% of Compensation shall be considered. (c) A discretionary amount, which amount shall be deemed an Employer's Non-Elective Contribution. (d) Notwithstanding the foregoing, however, the Employer's contributions for any Plan Year shall not exceed the maximum amount allowable as a deduction to the Employer under the provisions of Code Section 404. All contributions by the Employer shall be made in cash or in such property as is acceptable to the Trustee. (e) Except, however, to the extent necessary to provide the top heavy minimum allocations, the Employer shall make a contribution even if it exceeds the amount which is deductible under Code Section 404. 4.2 PARTICIPANT'S SALARY REDUCTION ELECTION (a) Each Participant may elect to defer from 1% to 20% of his Compensation which would have been received in the Plan Year, but for the deferral election. A deferral election (or modification of an earlier election) may not be made with respect to Compensation which is currently available on or before the date the Participant executed such election. The amount by which Compensation is reduced shall be that Participant's Deferred Compensation and be treated as an Employer Elective Contribution and allocated to that Participant's Elective Account. CORPDAL:63487.1 14047-00001 25 (b) The balance in each Participant's Elective Account shall be fully Vested at all times and shall not be subject to Forfeiture for any reason. (c) Amounts held in the Participant's Elective Account may not be distributable earlier than: (1) a Participant's termination of employment, Total and Permanent Disability, or death; (2) a Participant's attainment of age 59 1/2; (3) the termination of the Plan without the establishment or existence of a "successor plan," as that term is described in Regulation 1.401(k)-1(d)(3); (4) the date of disposition by the Employer to an entity that is not an Affiliated Employer of substantially all of the assets (within the meaning of Code Section 409(d)(2)) used in a trade or business of such corporation if such corporation continues to maintain this Plan after the disposition with respect to a Participant who continues employment with the corporation acquiring such assets; (5) the date of disposition by the Employer or an Affiliated Employer who maintains the Plan of its interest in a subsidiary (within the meaning of Code Section 409(d)(3)) to an entity which is not an Affiliated Employer but only with respect to a Participant who continues employment with such subsidiary; or (6) the proven financial hardship of a Participant, subject to the limitations of Section 6.11. (d) For each Plan Year beginning after December 31, 1987, a Participant's Deferred Compensation made under this Plan and all other plans, contracts or arrangements of the Employer maintaining this Plan shall not exceed, during any taxable year of the Participant, the limitation imposed by Code Section 402(g), as in effect at the beginning of such taxable year. If such dollar limitation is exceeded, a Participant will be deemed to have notified the Administrator of such excess amount which shall be distributed in a manner consistent with Section 4.2(f). The dollar limitation shall be adjusted annually pursuant to the method provided in Code Section 415(d) in accordance with Regulations. (e) In the event a Participant has received a hardship distribution from his Participant's Elective Account pursuant to Section 6.11 or pursuant to Regulation 1.401(k)-1(d)(2)(iv)(B) from any other plan maintained by the Employer, then such Participant shall not be permitted to elect to have Deferred Compensation contributed to the Plan on his behalf for a period of twelve (12) months following the receipt of the distribution. Furthermore, the dollar Limitation under Code Section 402(g) shall be reduced, with respect to the Participant's taxable year following the taxable year in which CORPDAL:63487.1 14047-00001 26 the hardship distribution was made, by the amount of such Participant's Deferred Compensation, if any, pursuant to this Plan (and any other plan maintained by the Employer) for the taxable year of the hardship distribution. (f) If a Participant's Deferred Compensation under this Plan together with any elective deferrals (as defined in Regulation 1.402(g)-l(b)) under another qualified cash or deferred arrangement (as defined in Code Section 401(k)), a simplified employee pension (as defined in Code Section 408(k)), a salary reduction arrangement (within the meaning of Code Section 3121(a)(5)(D)), a deferred compensation plan under Code Section 457, or a trust described in Code Section 501(c)(18) cumulatively exceed the limitation imposed by Code Section 402(g) (as adjusted annually in accordance with the method provided in Code Section 415(d) pursuant to Regulations) for such Participant's taxable year, the Participant may, not later than March 1 following the close of the Participant's taxable year, notify the Administrator in writing of such excess and request that its Deferred Compensation under this Plan be reduced by an amount specified by the Participant. In such event, the Administrator may direct the Trustee to distribute such excess amount (and any Income allocable to such excess amount) to the Participant not later than the first April 15th following the close of the Participant's taxable year. Distributions in accordance with this paragraph may be made for any taxable year of the Participant which begins after December 31, 1986. Any distribution of less than the entire amount of Excess Deferred Compensation and Income shall be treated as a pro rata distribution of Excess Deferred Compensation and Income. The amount distributed shall not exceed the Participant's Deferred Compensation under the Plan for the taxable year. Any distribution on or before the last day of the Participant's taxable year must satisfy each of the following conditions: (1) the distribution must be made after the date on which the Plan received the Excess Deferred Compensation; (2) the Participant, shall designate the distribution as Excess Deferred Compensation; and (3) the Plan must designate the distribution as a distribution of Excess Deferred Compensation. Any distribution made pursuant to this Section 4.2(f) shall be made first from unmatched Deferred Compensation and, thereafter, simultaneously from Deferred Compensation which is matched and matching contributions which relate to such Deferred Compensation. However, any such matching contributions which are not Vested shall be forfeited in lieu of being distributed. (g) Notwithstanding Section 4.2(f) above, a Participant's Excess Deferred Compensation shall be reduced, but not below zero, by any distribution of Excess Contributions pursuant to Section 4.6(a) for the Plan Year beginning with or within the taxable year of the Participant. CORPDAL:63487.1 14047-00001 27 (h) At Normal Retirement Date, or such other date when the Participant shall be entitled to receive benefits, the fair market value of the Participant's Elective Account shall be used to provide additional benefits to the Participant or his Beneficiary. (i) All amounts allocated to a Participant's Elective Account may be treated as a Directed Investment Account pursuant to Section 4.12. (j) Employer Elective Contributions made pursuant to this Section may be segregated into a separate account for each Participant in a federally insured savings account, certificate of deposit in a bank or savings and loan association, money market certificate, or other short-term debt security acceptable to the Trustee until such time as the allocations pursuant to Section 4.4 have been made. (k) The Employer and the Administrator shall implement the salary reduction elections provided for herein in accordance with the following: (1) A Participant may commence making elective deferrals to the Plan only after first satisfying the eligibility and participation requirements specified in Article III. However, the Participant must make its initial salary deferral election within a reasonable time, not to exceed thirty (30) days, after entering the Plan pursuant to Section 3.3. If the Participant fails to make an initial salary deferral election within such time, then such Participant may thereafter make an election in accordance with the rules governing modifications. The Participant shall make such an election by entering into a written salary reduction agreement with the Employer and filing such agreement with the Administrator. Such election shall initially be effective beginning with the pay period following the acceptance of the salary reduction agreement by the Administrator, shall not have retroactive effect and shall remain in force until revoked. (2) A Participant may modify a prior election during the Plan Year and concurrently make a new election by filing a written notice with the Administrator within a reasonable time before the pay period for which such modification is to be effective. However, modifications to a salary deferral election shall only be permitted quarterly, during election periods established by the Administrator prior to the first day of each Plan Year quarter. Any modification shall not have retroactive effect and shall remain in force until revoked. (3) A Participant may elect to prospectively revoke his salary reduction agreement in its entirety at any time during the Plan Year by providing the Administrator with thirty (30) days written notice of such revocation (or upon such shorter notice period as may be acceptable to the Administrator). Such revocation shall become effective as of the beginning of the first pay period coincident with or next following the expiration of the notice period. Furthermore, the termination of the Participant's employment, or the cessation of participation for any reason, shall be deemed to revoke any salary reduction agreement then in effect, effective CORPDAL:63487.1 14047-00001 28 immediately following the close of the pay period within which such termination or cessation occurs. 4.3 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION The Employer shall generally pay to the Trustee its contribution to the Plan for each Plan Year within the time prescribed by law, including extensions of time, for the filing of the Employer's federal income tax return for the Fiscal Year. However, Employer Elective Contributions accumulated through payroll deductions shall be paid to the Trustee as of the earliest date on which such contributions can reasonably be segregated from the Employer's general assets, but in any event within ninety (90) days from the date on which such amounts would otherwise have been payable to the Participant in cash. The provisions of Department of Labor regulations 2510.3-102 are incorporated herein by reference. Furthermore, any additional Employer contributions which are allocable to the Participant's Elective Account for a Plan Year shall be paid to the Plan no later than the twelve-month period immediately following the close of such Plan Year. 4.4 ALLOCATION OF CONTRIBUTION AND EARNINGS (a) The Administrator shall establish and maintain an account in the name of each Participant to which the Administrator shall credit as of each Anniversary Date all amounts allocated to each such Participant as set forth herein. (b) The Employer shall provide the Administrator with all information required by the Administrator to make a proper allocation of the Employer's contributions for each Plan Year. Within a reasonable period of time after the date of receipt by the Administrator of such information, the Administrator shall allocate such contribution as follows: (1) With respect to the Employer's Elective Contribution made pursuant to Section 4.1(a), to each Participant's Elective Account in an amount equal to each such Participant's Deferred Compensation for the year. (2) With respect to the Employer's Non-Elective Contribution made pursuant to Section 4.1(b), to each Participant's Account in accordance with Section 4.1(b). Only Participants who are actively employed on the last day of the Plan Year shall be eligible to share in the matching contribution for the year. (3) With respect to the Employer's Non-Elective Contribution made pursuant to Section 4.1(c), to each Participant's Account in the same proportion that each such Participant's Compensation for the year bears to the total Compensation of all Participants for such year. CORPDAL:63487.1 14047-00001 29 Only Participants who are actively employed on the last day of the Plan Year shall be eligible to share in the discretionary contribution for the year. (c) For any Top Heavy Plan Year, Non-Key Employees not otherwise eligible to share in the allocation of contributions as provided above, shall receive the minimum allocation provided for in Section 4.4(g) if eligible pursuant to the provisions of Section 4.4(i). (d) Notwithstanding the foregoing, Participants who are not actively employed on the last day of the Plan Year due to Total and Permanent Disability or death shall share in the allocation of contributions for that Plan Year. (e) Participants who are not actively employed on the last day of the Plan Year due to Retirement (Normal or Late) shall share in the allocation of contributions for that Plan Year only if otherwise eligible in accordance with this Section. (f) As of each Anniversary Date or other valuation date, before allocation of one-half of the Employer contributions for the entire Plan Year, any earnings or losses (net appreciation or net depreciation) of the Trust Fund shall be allocated in the same proportion that each Participant's and Former Participant's nonsegregated accounts bear to the total of all Participants' and Former Participants' nonsegregated accounts as of such date. Participants' transfers from other qualified plans deposited in the general Trust Fund shall share in any earnings and losses (net appreciation or net depreciation) of the Trust Fund in the same manner provided above. Each segregated account maintained on behalf of a Participant shall be credited or charged with its separate earnings and losses. (g) Minimum Allocations Required for Top Heavy Plan Years: Notwithstanding the foregoing, for any Top Heavy Plan Year, the sum of the Employer's contributions allocated to the Participant's Combined Account of each Non-Key Employee shall be equal to at least three percent (3%) of such Non-Key Employee's "415 Compensation" (reduced by contributions and forfeitures, if any, allocated to each Non-Key Employee in any defined contribution plan included with this plan in a Required Aggregation Group). However, if (1) the sum of the Employer's contributions allocated to the Participant's Combined Account of each Key Employee for such Top Heavy Plan Year is less than three percent (3%) of each Key Employee's "415 Compensation" and (2) this Plan is not required to be included in an Aggregation Group to enable a defined benefit plan to meet the requirements of Code Section 401(a)(4) or 410, the sum of the Employer's contributions allocated to the Participant's Combined Account of each Non-Key Employee shall be equal to the largest percentage allocated to the Participant's Combined Account of any Key Employee. However, in determining whether a Non-Key Employee has received the required minimum allocation, such Non-Key Employee's Deferred Compensation and matching contributions needed to satisfy the "Actual Contribution Percentage" tests pursuant to Section 4.7(a) shall not be taken into account. CORPDAL:63487.1 14047-00001 30 However, no such minimum allocation shall be required in this Plan for any Non-Key Employee who participates in another defined contribution plan subject to Code Section 412 providing such benefits included with this Plan in a Required Aggregation Group. (h) For purposes of the minimum allocations set forth above, the percentage allocated to the Participant's Combined Account of any Key Employee shall be equal to the ratio of the sum of the Employer's contributions allocated on behalf of such Key Employee divided by the "415 Compensation" for such Key Employee. (i) For any Top Heavy Plan Year, the minimum allocations set forth above shall be allocated to the Participant's Combined Account of all Non-Key Employees who are Participants and who are employed by the Employer on the last day of the Plan Year, including Non-Key Employees who have (1) failed to complete a Year of Service; and (2) declined to make mandatory contributions (if required) or, in the case of a cash or deferred arrangement, elective contributions to the Plan. (j) For the purposes of this Section, "415 Compensation" shall be limited to $200,000. Such amount shall be adjusted at the same time and in the same manner as permitted under Code Section 415(d), except that the dollar increase in effect on January 1 of any calendar year shall be effective for the Plan Year beginning with or within such calendar year and the first adjustment to the $200,000 limitation shall be effective on January 1, 1990. For any short Plan Year the "415 Compensation" limit shall be an amount equal to the "415 Compensation" limit for the calendar year in which the Plan Year begins multiplied by the ratio obtained by dividing the number of full months in the short Plan Year by twelve (12). However, for Plan Years beginning prior to January 1, 1989, the $200,000 limit shall apply only for Top Heavy Plan Years and shall not be adjusted. In addition to other applicable limitations set forth in the Plan, and notwithstanding any other provision of the Plan to the contrary, for Plan Years beginning on or after January 1, 1994, the annual Compensation of each Employee taken into account under the Plan shall not exceed the OBRA '93 annual compensation limit. The OBRA '93 annual compensation limit is $150,000, as adjusted by the Commissioner for increases in the cost of living in accordance with Code Section 401(a)(17)(B). The cost of living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which Compensation is determined (determination period) beginning in such calendar year. If a determination period consists of fewer than 12 months, the OBRA '93 annual compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12. For Plan Years beginning on or after January 1, 1994, any reference in this Plan to the limitation under Code Section 401(a)(17) shall mean the OBRA '93 annual compensation limit set forth in this provision. CORPDAL:63487.1 14047-00001 31 If Compensation for any prior determination period is taken into account in determining an Employee's benefits accruing in the current Plan Year, the Compensation for that prior determination period is subject to the OBRA '93 annual compensation limit in effect for that prior determination period. For this purpose, for determination periods beginning before the first day of the first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual compensation Limit is $150,000. (k) Notwithstanding anything herein to the contrary, Participants who terminated employment for any reason during the Plan Year shall share in the salary reduction contributions made by the Employer for the year of termination without regard to the Hours of Service credited. (l) If a Former Participant is reemployed after five (5) consecutive 1-Year Breaks in Service, then separate accounts shall be maintained as follows: (1) one account for nonforfeitable benefits attributable to pre-break service; and (2) one account representing his status in the Plan attributable to post-break service. (m) Notwithstanding anything to the contrary, for Plan Years beginning after December 31, 1989, if this is a Plan that would otherwise fail to meet the requirements of Code Sections 401(a)(26), 410(b)(1) or 410(b)(2)(A)(i) and the Regulations thereunder because Employer contributions would not be allocated to a sufficient number or percentage of Participants for a Plan Year, then the following rules shall apply: (1) The group of Participants eligible to share in the Employer's contribution for the Plan Year shall be expanded to include the minimum number of Participants who would not otherwise be eligible as are necessary to satisfy the applicable test specified above. The specific Participants who shall become eligible under the terms of this paragraph shall be those who are actively employed on the last day of the Plan Year and, when compared to similarly situated Participants, have completed the greatest number of Hours of Service in the Plan Year. (2) If after application of paragraph (1) above, the applicable test is still not satisfied, then the group of Participants eligible to share in the Employer's contribution for the Plan Year shall be further expanded to include the minimum number of Participants who are 'not actively employed on the last day of the Plan Year as are necessary to satisfy the applicable test. The specific Participants who shall become eligible to share shall be those Participants, when compared to similarly situated Participants, who have completed the greatest number of Hours of Service in the Plan Year before terminating employment. (3) Nothing in this Section shall permit the reduction of a Participant's accrued benefit. Therefore any amounts that have previously been allocated to Participants CORPDAL:63487.1 14047-00001 32 may not be reallocated to satisfy these requirements. In such event, the Employer shall make an additional contribution equal to the amount such affected Participants would have received had they been included in the allocations, even if it exceeds the amount which would be deductible under Code Section 404. Any adjustment to the allocations pursuant to this paragraph shall be considered a retroactive amendment adopted by the last day of the Plan Year. 4.5 ACTUAL DEFERRAL PERCENTAGE TESTS (a) Maximum Annual Allocation: For each Plan Year beginning after December 31, 1986, the annual allocation derived from Employer Elective Contributions to a Participant's Elective Account shall satisfy one of the following tests: (1) The "Actual Deferral Percentage" for the Highly Compensated Participant group shall not be more than the "Actual Deferral Percentage" of the Non-Highly Compensated Participant group multiplied by 1.25, or (2) The excess of the "Actual Deferral Percentage" for the Highly Compensated Participant group over the "Actual Deferral Percentage" for the Non-Highly Compensated Participant group shall not be more than two percentage points. Additionally, the "Actual Deferral Percentage" for the Highly Compensated Participant group shall not exceed the "Actual Deferral Percentage" for the Non- Highly Compensated Participant group multiplied by 2. The provisions of Code Section 401(k)(3) and Regulation 1.401(k)-l(b) are incorporated herein by reference. However, for Plan Years beginning after December 31, 1988, in order to prevent the multiple use of the alternative method described in (2) above and in Code Section 401(m)(9)(A), any Highly Compensated Participant eligible to make elective deferrals pursuant to Section 4.2 and to make Employee contributions or to receive matching contributions under this Plan or under any other plan maintained by the Employer or an Affiliated Employer shall have his actual contribution ratio reduced pursuant to Regulation 1.401(m)-2, the provisions of which are incorporated herein by reference. (b) For the purposes of this Section "Actual Deferral Percentage" means, with respect to the Highly Compensated Participant group and Non-Highly Compensated Participant group for a Plan Year, the average of the ratios, calculated separately for each Participant in such group, of the amount of Employer Elective Contributions allocated to each Participant's Elective Account for such Plan Year, to such Participant's "414(s) Compensation" for such Plan Year. The actual deferral ratio for each Participant and the "Actual Deferral Percentage" for each group shall be calculated to the nearest one-hundredth of one percent for Plan Years beginning after December 31, 1988. Employer Elective Contributions allocated to each Non-Highly Compensated Participant's Elective CORPDAL:63487.1 14047-00001 33 Account shaft be reduced by Excess Deferred Compensation to the extent such excess amounts are made under this Plan or any other plan maintained by the Employer. (c) For the purpose of determining the actual deferral ratio of a Highly Compensated Employee who is subject to the Family Member aggregation rules of Code Section 414(q)(6) because such Participant is either a "five percent owner" of the Employer or one of the ten (10) Highly Compensated Employees paid the greatest "415 Compensation" during the year, the following shall apply: (1) The combined actual deferral ratio for the family group (which shall be treated as one Highly Compensated Participant) shall be determined by aggregating Employer Elective Contributions and "414(s) Compensation" of all eligible Family Members (including Highly Compensated Participants). However, in applying the $200,000 limit to "414(s) Compensation," for Plan Years beginning after December 31, 1988, Family Members shall include only the affected Employee's spouse and any lineal descendants who have not attained age 19 before the close of the Plan Year. Notwithstanding the foregoing, with respect to Plan Years beginning prior to January 1, 1990, compliance with the Regulations then in effect shall be deemed to be compliance with this paragraph. (2) The Employer Elective Contributions and "414(s) Compensation" of all Family Members shall be disregarded for purposes of determining the "Actual Deferral Percentage" of the Non-Highly Compensated Participant group except to the extent taken into account in paragraph (1) above. (3) If a Participant is required to be aggregated as a member of more than one family group in a plan, all Participants who are members of those family groups that include the Participant are aggregated as one family group in accordance with paragraphs (1) and (2) above. (d) For the purposes of Sections 4.5(a) and 4.6, a Highly Compensated Participant and a Non-Highly Compensated Participant shall include any Employee eligible to make a deferral election pursuant to Section 4.2, whether or not such deferral election was made or suspended pursuant to Section 4.2. (e) For the purposes of this Section and Code Sections 401(a)(4), 410(b) and 401(k), if two or more plans which include cash or deferred arrangements are considered one plan for the purposes of Code Section 401(a)(4) or 410(b) (other than Code Section 410(b)(2)(A)(ii) as in effect for Plan Years beginning after December 31, 1988), the cash or deferred arrangements included in such plans shall be treated as one arrangement. In addition, two or more cash or deferred arrangements may be considered as a single arrangement for purposes of determining whether or not such arrangements satisfy Code Sections 401(a)(4), 410(b) and 401(k). In such a case, the cash or deferred arrangements included in such plans and the plans including such arrangements shall be treated as one arrangement and as one plan for purposes of this Section and Code Sections 401(a)(4), CORPDAL:63487.1 14047-00001 34 410(b) and 401(k). Plans may be aggregated under this paragraph (e) for Plan Years beginning after December 31, 1989 only if they have the same plan year. Notwithstanding the above, for Plan Years beginning after December 31, 1988, an employee stock ownership plan described in Code Section 4975(e)(7) or 409 may not be combined with this Plan for purposes of determining whether the employee stock ownership plan or this Plan satisfies this Section and Code Sections 401(a)(4), 410(b) and 401(k). (f) For the purposes of this Section, if a Highly Compensated Participant is a Participant under two or more cash or deferred arrangements (other than a cash or deferred arrangement which is part of an employee stock ownership plan as defined in Code Section 4975(e)(7) or 409 for Plan Years beginning after December 31, 1988) of the Employer or an Affiliated Employer, all such cash or deferred arrangements shall be treated as one cash or deferred arrangement for the purpose of determining the actual deferral ratio with respect to such Highly Compensated Participant. However, for Plan Years beginning after December 31, 1988, if the cash or deferred arrangements have different plan years, this paragraph shall be applied by treating all cash or deferred arrangements ending with or within the same calendar year as a single arrangement. 4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS In the event that the initial allocations of the Employer's Elective Contributions made pursuant to Section 4.4 do not satisfy one of the tests set forth in Section 4.5(a) for Plan Years beginning after December 31, 1986, the Administrator shall adjust Excess Contributions pursuant to the options set forth below: (a) On or before the fifteenth day of the third month following the end of each Plan Year, the Highly Compensated Participant having the highest actual deferral ratio shall have his portion of Excess Contributions distributed to him until one of the tests set forth in Section 4.5(a) is satisfied, or until his actual deferral ratio equals the actual deferral ratio of the Highly Compensated Participant having the second highest actual deferral ratio. This process shall continue until one of the tests set forth in Section 4.5(a) is satisfied. For each Highly Compensated Participant, the amount of Excess Contributions is equal to the Elective Contributions on behalf of such Highly Compensated Participant (determined prior to the application of this paragraph) minus the amount determined by multiplying the Highly Compensated Participant's actual deferral ratio (determined after application of this paragraph) by his "414(s) Compensation." However, in determining the amount of Excess Contributions to be distributed with respect to an affected Highly Compensated Participant as determined herein, such amount shall be reduced by any Excess Deferred Compensation previously distributed to such affected Highly Compensated Participant for his taxable year ending with or within such Plan Year. (1) With respect to the distribution of Excess Contributions pursuant to (a) above, such distribution: CORPDAL:63487.1 14047-00001 35 (i) may be postponed but not later than the close of the Plan Year following the Plan Year to which they are allocable; (ii) shall be made fast from unmatched Deferred Compensation and, thereafter, simultaneously from Deferred Compensation which is matched and matching contributions which relate to such Deferred Compensation. However, any such matching contributions which are not Vested shall be forfeited in lieu of being distributed; (iii) shall be adjusted for Income; and (iv) shall be designated by the Employer as a distribution of Excess Contributions (and Income). (2) Any distribution of less than the entire amount of Excess Contributions shall be treated as a pro rata. distribution of Excess Contributions and Income. (3) The determination and correction of Excess Contributions of a Highly Compensated Participant whose actual deferral ratio is determined under the family aggregation rules shall be accomplished by reducing the actual deferral ratio as required herein, and the Excess Contributions for the family unit shall then be allocated among the Family Members in proportion to the Elective Contributions of each Family Member that were combined to determine the group actual deferral ratio. Notwithstanding the foregoing, with respect to Plan Years beginning prior to January 1, 1990, compliance with the Regulations then in effect shall be deemed to be compliance with this paragraph. (b) Within twelve (12) months after the end of the Plan Year, the Employer may make a special Qualified Non-Elective Contribution on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy one of the tests set forth in Section 4.5(a). Such contribution shall be allocated to the Participant's Elective Account of each Non-Highly Compensated Participant in the same proportion that each Non-Highly Compensated Participant's Compensation for the year bears to the total Compensation of all Non-Highly Compensated Participants. (c) If during a Plan Year the projected aggregate amount of Elective Contributions to be allocated to all Highly Compensated Participants under this Plan would, by virtue of the tests set forth in Section 4.5(a), cause the Plan to fail such tests, then the Administrator may automatically reduce proportionately or in the order provided in Section 4.6(a) each affected Highly Compensated Participant's deferral election made pursuant to Section 4.2 by an amount necessary to satisfy one of the tests set forth in Section 4.5(a). CORPDAL:63487.1 14047-00001 36 4.7 ACTUAL CONTRIBUTION PERCENTAGE TESTS (a) The "Actual Contribution Percentage" for Plan Years beginning after December 31, 1986 for the Highly Compensated Participant group shall not exceed the greater of: (1) 125 percent of such percentage for the Non-Highly Compensated Participant group; or (2) the lesser of 200 percent of such percentage for the Non-Highly Compensated Participant group, or such percentage for the Non-Highly Compensated Participant group plus 2 percentage points. However, for Plan Years beginning after December 31, 1988, to prevent the multiple use of the alternative method described in this paragraph and Code Section 401(m)(9)(A), any highly Compensated Participant eligible to make elective deferrals pursuant to Section 4.2 or any other cash or deferred arrangement maintained by the Employer or an Affiliated Employer and to make Employee contributions or to receive matching contributions under this Plan or under any other plan maintained by the Employer or an Affiliated Employer shall have his actual contribution ratio reduced pursuant to Regulation 1.401(m)-2. The provisions of Code Section 401(m) and Regulations 1.401(m)-1(b) and 1.401(m)-2 are incorporated herein by reference. (b) For the purposes of this Section and Section 4.8,. "Actual Contribution Percentage" for a Plan Year means, with respect, to the Highly Compensated Participant group and Non-Highly Compensated Participant group, the average of the ratios (calculated separately for each Participant in each group) of: (1) the sum of Employer matching contributions made pursuant to Section 4.1(b) on behalf of each such Participant for such Plan Year; to (2) the Participant's "414(s)Compensation" for such Plan Year. (c) For purposes of determining the "Actual Contribution Percentage" and the amount of Excess Aggregate Contributions pursuant to Section 4.8(d), only Employer matching contributions (excluding Employer matching contributions forfeited or distributed pursuant to Sections 4.2(f) and 4.6(a)(1)) contributed to the Plan prior to the end of the succeeding Plan Year shall be considered. In addition, the Administrator may elect to take into account, with respect to Employees eligible to have Employer matching contributions pursuant to Section 4.l(b) allocated to their accounts, elective deferrals (as defined in Regulation 1.402(g)-1(b)) and qualified non-elective contributions (as defined in Code Section 401(m)(4)(C)) contributed to any plan maintained by the Employer. Such elective deferrals and qualified non-elective contributions shall be treated as Employer matching contributions subject to Regulation 1.401(m)-1(b)(5) which is incorporated herein by reference. However, for Plan Years beginning after December 31, 1988, the Plan Year CORPDAL:63487.1 14047-00001 37 must be the same as the plan year of the plan to which the elective deferrals and the qualified non-elective contributions are made. (d) For the purpose of determining the actual contribution ratio of a Highly Compensated Employee who is subject to the Family Member aggregation rules of Code Section 414(q)(6) because such Employee is either a "five percent owner" of the Employer or one of the ten (10) Highly Compensated Employees paid the greatest "415 Compensation" during the year, the following shall apply: (1) The combined actual contribution ratio for the family group (which shall be treated as one Highly Compensated Participant) shall be determined by aggregating Employer matching contributions made pursuant to Section 4.1(b) and "414(s) Compensation" of all eligible Family Members (including Highly Compensated Participants). However, in applying the $200,000 limit to "414(s) Compensation" for Plan Years beginning after December 31, 1988, Family Members shall include only the affected Employee's spouse and any lineal descendants who have not attained age 19 before the close of the Plan Year. Notwithstanding the foregoing, with respect to Plan Years beginning prior to January 1, 1990, compliance with the Regulations then in effect shall be deemed to be compliance with this paragraph. (2) The Employer matching contributions made pursuant to Section 4.1(b) and "414(s) Compensation" of all Family Members shall be disregarded for purposes of determining the "Actual Contribution Percentage" of the Non-Highly Compensated Participant group except to the extent taken into account in paragraph (1) above. (3) If a Participant is required to be aggregated as a member of more than one family group in a plan, all Participants who are members of those family groups that include the Participant are aggregated as one family group in accordance with paragraphs (1) and (2) above. (e) For purposes of this Section and Code Sections 401(a)(4), 410(b) and 401(m), if two or more plans of the Employer to which matching contributions, Employee contributions, or both, are made are treated as one plan for purposes of Code Sections 401(a)(4) or 410(b) (other than the average benefits test under Code Section 410(b)(2)(A)(ii) as in effect for Plan Years beginning after December 31, 1988), such plans shall be treated as one plan. In addition, two or more plans of the Employer to which matching contributions, Employee contributions, or both, are made may be considered as a single plan for purposes of determining whether or not such plans satisfy Code Sections 401(a)(4), 410(b) and 401(m). In such a case, the aggregated plans must satisfy this Section and Code Sections 401(a)(4), 410(b) and 401(m) as though such aggregated plans were a single plan. Plans may be aggregated under this paragraph (e) for Plan Years beginning after December 31, 1988, only if they have the same plan year. CORPDAL:63487.1 14047-00001 38 Notwithstanding the above, for Plan Years beginning after December 31, 1988, an employee stock ownership plan described in Code Section 4975(e)(7) or 409 may not be aggregated with this Plan for purposes of determining whether the employee stock ownership plan or this Plan satisfies this Section and Code Sections 401(a)(4), 410(b) and 401(m). (f) If a Highly Compensated Participant is a Participant under two or more plans (other than an employee stock ownership plan as defined in Code Section 4975(e)(7) or 409 for Plan Years beginning after December 31, 1988) which are maintained by the Employer or an Affiliated Employer to which matching contributions, Employee contributions, or both, are made, all such contributions on behalf of such Highly Compensated Participant shall be aggregated for purposes of determining such Highly Compensated Participant's actual contribution ratio. However, for Plan Years beginning after December 31, 1988, if the plans have different plan years, this paragraph shall be applied by treating all plans ending with or within the same calendar year as a single plan. (g) For purposes of Sections 4.7(a) and 4.8, a Highly Compensated Participant and Non-Highly Compensated Participant shall include any Employee eligible to have Employer matching contributions pursuant to Section 4.1(b) (whether or not a deferral election was made or suspended pursuant to Section 4.2(e)) allocated to his account for the Plan Year. 4.8 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS (a) In the event that, for Plan Years beginning after December 31, 1986, the "Actual Contribution Percentage" for the Highly Compensated Participant group exceeds the "Actual Contribution Percentage" for the Non-Highly Compensated Participant group pursuant to Section 4.7(a), the Administrator (on or before the fifteenth day of the third month following the end of the Plan Year, but in no event later than the close of the following Plan Year) shall direct the Trustee to distribute to the Highly Compensated Participant having the highest actual contribution ratio, his Vested portion of Excess Aggregate Contributions (and Income allocable to such contributions) and, if forfeitable, forfeit such non-Vested Excess Aggregate Contributions attributable to Employer matching contributions (and Income allocable to such forfeitures) until either one of the tests set forth in Section 4.7(a) is satisfied, or until his actual contribution ratio equals the actual contribution ratio of the Highly Compensated Participant having the second highest actual contribution ratio. This process shall continue until one of the tests set forth in Section 4.7(a) is satisfied. (b) Any distribution and/or forfeiture of less than the entire amount of Excess Aggregate Contributions (and Income) shall be treated as a pro rata distribution and/or forfeiture of Excess Aggregate Contributions and Income. Distribution of Excess Aggregate Contributions shall be designated by the Employer as a distribution of Excess Aggregate Contributions (and Income). Forfeitures of Excess Aggregate Contributions shall be treated in accordance with Section 4.4. CORPDAL:63487.1 14047-00001 39 (c) Excess Aggregate Contributions, including forfeited matching contributions, shall be treated as Employer contributions for purposes of Code Sections 404 and 415 even if distributed from the Plan. Forfeited matching contributions that are reallocated to Participants' Accounts for the Plan Year in which the forfeiture occurs shall be treated as an "annual addition" pursuant to Section 4.9(b) for the Participants to whose Accounts they are reallocated and for the Participants from whose Accounts they are forfeited. (d) For each highly Compensated Participant, the amount of Excess Aggregate Contributions is equal to the Employer matching contributions made pursuant to Section 4.1(b) and any qualified non-elective contributions or elective deferrals taken into account pursuant to Section 4.7(c) on behalf of the Highly Compensated Participant (determined prior to the application of this paragraph) minus the amount determined by multiplying the Highly Compensated Participant's actual contribution ratio (determined after application of this paragraph) by his "414(s) Compensation." The actual contribution ratio must be rounded to the nearest one-hundredth of one percent for Plan Years beginning after December 31, 1988. In no case shall the amount of Excess Aggregate Contribution with respect to any Highly Compensated Participant exceed the amount of Employer matching contributions made pursuant to Section 4.1(b) and any qualified nonelective contributions or elective deferrals taken into account pursuant to Section 4.7(c) on behalf of such Highly Compensated Participant for such Plan Year. (e) The determination of the amount of Excess Aggregate Contributions with respect to any Plan Year shall be made after first determining the Excess Contributions, if any, to be treated as voluntary Employee contributions due to recharacterization for the plan year of any other qualified cash or deferred arrangement (as defined in Code Section 401(k)) maintained by the Employer that ends with or within the Plan Year. (f) If the determination and correction of Excess Aggregate Contributions of a Highly Compensated Participant whose actual contribution ratio is determined under the family aggregation rules, then the actual contribution ratio shall be reduced and the Excess Aggregate Contributions for the family unit shall be allocated among the Family Members in proportion to the sum of Employer matching contributions made pursuant to Section 4.1(b) and any qualified non-elective contributions or elective deferrals taken into account pursuant to Section 4.7(c) of each Family Member that were combined to determine the group actual contribution ratio. Notwithstanding the foregoing, with respect to Plan Years beginning prior to January 1, 1990, compliance with the Regulations then in effect shall be deemed to be compliance with this paragraph. (g) If during a Plan Year the projected aggregate amount of Employer matching contributions to be allocated to all Highly Compensated Participants under this Plan would, by virtue of the tests set forth in Section 4.7(a), cause the Plan to fail such tests, then the Administrator may automatically reduce proportionately or in the order provided in CORPDAL:63487.1 14047-00001 40 Section 4.8(a) each affected Highly Compensated Participant's projected share of such contributions by an amount necessary to satisfy one of the tests set forth in Section 4.7(a). (h) Notwithstanding the above, within twelve (12) months after the end of the Plan Year, the Employer may make a special Qualified Non-Elective Contribution on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy one of the tests set forth in Section 4.7(a). Such contribution shall be allocated to the Participant's Elective Account of each Non-Highly Compensated Participant in the same proportion that each Non-Highly Compensated Participant's Compensation for the year bears to the total Compensation of all Non-Highly Compensated Participants. A separate accounting shall be maintained for the purpose of excluding such contributions from the "Actual Deferral Percentage" tests pursuant to Section 4.5(a). 4.9 MAXIMUM ANNUAL ADDITIONS (a) Notwithstanding the foregoing, the maximum "annual additions" credited to a Participant's accounts for any "limitation year" shall equal the lesser of: (1) $30,000 (or, if greater, one-fourth of the dollar limitation in effect under Code Section 415(b)(1)(A)) or (2) twenty-five percent (25%) of the Participant's "415 Compensation" for such "limitation year." For any short "limitation year," the dollar limitation in (1) above shall be reduced by a fraction, the numerator of which is the number of full months in the short "limitation year" and the denominator of which is twelve (12). (b) For purposes of applying the limitations of Code Section 415, if annual additions" means the sum credited to a Participant's accounts for any "limitation year" of (1) Employer contributions, (2) Employee contributions for "limitation years" beginning after December 31, 1986, (3) forfeitures, (4) amounts allocated, after March 31, 1984, to an individual medical account, as defined in Code Section 415(l)(2) which is part of a pension or annuity plan maintained by the Employer and (5) amounts derived from contributions paid or accrued after December 31, 1985, in taxable years ending after such 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 plan (as defined in Code Section 419(e)) maintained by the Employer. Except, however, the "415 Compensation" percentage limitation referred to in paragraph (a)(2) above shall not apply to: (1) 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," or (2) any amount otherwise treated as an "annual addition" under Code Section 415(l)(1). (c) For purposes of applying the limitations of Code Section 415, the transfer of funds from one qualified plan to another is not an "annual addition." In addition, the following are not Employee contributions for the purposes of Section 4.9(b)(2): (1) rollover contributions (as defined in Code Sections 402(a)(5), 403(a)(4),403(b)(8) and 408(d)(3)); (2) repayments of loans made to a Participant from the Plan; (3) repayments CORPDAL:63487.1 14047-00001 41 of distributions received by an Employee pursuant to Code Section 411(a)(7)(B) (cash- outs); (4) repayments of distributions received by an Employee pursuant to Code Section 411(a)(3)(D) (mandatory contributions); and (5) Employee contributions to a simplified employee pension excludable from gross income under Code Section 408(k)(6). (d) For purposes of applying the limitations of Code Section 415, the "limitation year" shall be the Plan Year. (e) The dollar limitation under Code Section 415(b)(1)(A) stated in paragraph (a)(1) above shall be adjusted annually as provided in Code Section 415(d) pursuant to the Regulations. The adjusted limitation is effective as of January 1st of each calendar year and is applicable to "limitation years" ending with or within that calendar year. (f) For the purpose of this Section, all qualified defined benefit plans (whether terminated or not) ever maintained by the Employer shall be treated as one defined benefit plan, and all qualified defined contribution plans (whether terminated or not) ever maintained by the Employer shall be treated as one defined contribution plan. (g) For the purpose of this Section, if the Employer is a member of a controlled group of corporations, trades or businesses under common control (as defined by Code Section 1563(a) or Code Section 414(b) and (c) as modified by Code Section 415(h)), is a member of an affiliated service group (as defined by Code Section 414(m)), or is a member of a group of entities required to be aggregated pursuant to Regulations under Code Section 414(o), all Employees of such Employers shall be considered to be employed by a single Employer. (h) For the purpose of this Section, if this Plan is a Code Section 413(c) plan, all Employers of a Participant who maintain this Plan will be considered to be a single Employer. (i) (1) If a Participant participates in more than one defined contribution plan maintained by the Employer which have different Anniversary Dates, the maximum "annual additions" under this Plan shall equal the maximum "annual additions" for the "limitation year" minus any "annual additions" previously credited to such Participant's accounts during the "limitation year." (2) If a Participant participates in both a defined contribution plan subject to Code Section 412 and a defined contribution plan not subject to Code Section 412 maintained by the Employer which have the same Anniversary Date, "annual additions" will be credited to the Participant's accounts under the defined contribution plan subject to Code Section 412 prior to crediting "annual additions" to the Participant's accounts under the defined contribution plan not subject to Code Section 412. (3) If a Participant participates in more than one defined contribution plan not subject to Code Section 412 maintained by the Employer which have the same CORPDAL:63487.1 14047-00001 42 Anniversary Date, the maximum "annual additions" under this Plan shall equal the product of (A) the maximum "annual additions" for the "limitation year" minus any annual additions" previously credited under subparagraphs (1) or (2) above, multiplied by (B) a fraction (i) the numerator of which is the "annual additions" which would be credited to such Participant's accounts under this Plan without regard to the limitations of Code Section 415 and (ii) the denominator of which is such "annual additions" for all plans described in this subparagraph. (j) If an Employee is (or has been) a Participant in one or more defined benefit plans and one or more defined contribution plans maintained by the Employer, the sum of the defined benefit plan fraction and the defined contribution plan fraction for any "limitation year" may not exceed 1.0. (k) The defined benefit plan fraction for any "limitation year" is a fraction, the numerator of which is the sum of the Participant's projected annual benefits under all the, defined benefit plans (whether or not terminated) maintained by the Employer, and the denominator of which is the lesser of 125 percent of the dollar limitation determined for the "limitation year" under Code Sections 415(b) and (d) or 140 percent of the highest average compensation, including any adjustments under Code Section 415(b). Notwithstanding the above, if the Participant was a Participant as of the first day of the first "limitation year" beginning after December 31, 1986, in one or more defined benefit plans maintained by the Employer which were in existence on May 6, 1986, the denominator of this fraction win not be less than 125 percent of the sum of the annual benefits under such plans which the Participant had accrued as of the close of the last "limitation year" beginning before January 1, 1987, disregarding any changes in the terms and conditions of the plan after May 5, 1986. The preceding sentence applies only if the defined benefit plans individually and in the aggregate satisfied the requirements of Code Section 415 for all "limitation years" beginning before January 1, 1987. (l) The defined contribution plan fraction. for any "limitation year" is a fraction, the numerator of which is the sum of the annual additions to the Participant's Account under all the defined contribution plans (whether or not terminated) maintained by the Employer for the current and all prior "limitation years" (including the annual additions attributable to the Participant's nondeductible Employee contributions to all defined benefit plans, whether or not terminated, maintained by the Employer, and the annual additions attributable to all welfare benefit funds, as defined in Code Section 419(e), and individual medical accounts, as defined in Code Section 415(l)(2), maintained by the Employer), and the denominator of which is the sum of the maximum aggregate amounts for the current and all prior "limitation years" of service with the Employer (regardless of whether a defined contribution plan was maintained by the Employer). The maximum aggregate amount in any "limitation year" is the lesser of 125 percent of the dollar limitation determined under Code Sections 415(b) and (d) In effect under Code Section 415(c)(1)(A) or 35 percent of the Participant's Compensation for such year. CORPDAL:63487.1 14047-00001 43 If the Employee was a Participant as of the end of the first day of the first "limitation year" beginning after December 31, 1986, in one or more defined contribution plans maintained by the Employer which were in existence on May 6, 1986, the numerator of this fraction will be adjusted if the sum of this fraction and the defined benefit fraction would otherwise exceed 1.0 under the terms of this Plan. Under the adjustment, an amount equal to the product of (1) the excess of the sum of the fractions over 1.0 times (2) the denominator of this fraction, will be permanently subtracted from the numerator of this fraction The adjustment is calculated using the fractions as they would be computed as of the end of the last "limitation year" beginning before January 1, 1987, and disregarding any changes in the terms and conditions of the Plan made after May 5, 1986, but using the Code Section 415 limitation applicable to the first "Limitation year" beginning on or after January 1, 1987. The annual addition for any "limitation year" beginning on or before January 1, 1987 shall not be recomputed to treat all Employee contributions as annual additions. (m) Notwithstanding the foregoing, for any "limitation year" in which the Plan is a Top Heavy Plan, 100 percent shall be substituted for 125 percent in Sections 4.9(k) and 4.9(l) unless the extra minimum allocation is being provided pursuant to Section 4.4. However, for any "limitation year" in which the Plan is a Super Top Heavy Plan, 100 percent shall be substituted for 125 percent in any event. (n) Notwithstanding anything contained in this Section to the contrary, the limitations, adjustments and other requirements prescribed in this Section shall at all times comply with the provisions of Code Section 415 and the Regulations thereunder, the terms of which are specifically incorporated herein by reference. 4.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS (a) If, as a result of a reasonable error in estimating a Participant's Compensation, a reasonable error in determining the amount of elective deferrals (within the meaning of Code Section 402(g)(3)) that may be made with respect to any Participant under the limits of Section 4.9 or other facts and circumstances to which Regulation 1.415-6(b)(6) shall be applicable, the of annual additions" under this Plan would cause the maximum "annual additions" to be exceeded for any Participant, the Administrator shall (1) distribute any elective deferrals (within the meaning of Code Section 402(g)(3)) or return any voluntary Employee contributions credited for the "limitation year" to the extent that the return would reduce the "excess amount" in the Participant's accounts (2) hold any "excess amount" remaining after the return of any elective deferrals or voluntary Employee contributions in a "Section 415 suspense account" (3) use the "Section 415 suspense account" in the next "limitation year" (and succeeding "limitation years" if necessary) to reduce Employer contributions for that Participant if that Participant is covered by the Plan as of the end of the "limitation year," or if the Participant is not so covered, allocate and reallocate the "Section 415 suspense account" in the next "limitation year" (and succeeding "limitation years" if necessary) to all Participants in the Plan before any Employer or Employee contributions which would constitute "annual additions" are made to the Plan CORPDAL:63487.1 14047-00001 44 for such "limitation year" (4) reduce Employer contributions to the Plan for such "limitation year" by the amount of the "Section 415 suspense account" allocated and reallocated during such "limitation year." (b) For purposes of this Article, "excess amount" for any Participant for a "limitation year" shall mean the excess, if any, of (1) the "annual additions" which would be credited to his account under the terms of the Plan without regard to the limitations of Code Section 415 over (2) the maximum "annual additions" determined pursuant to Section 4.9. (c) For purposes of this. Section, "Section 415 suspense account" shall mean an unallocated account equal to the sum of "excess amounts" for all Participants in the Plan during the "limitation year." The "Section 415 suspense account" shall not share in any earnings or losses of the Trust Fund. 4.11 TRANSFERS FROM QUALIFIED PLANS (a) With the consent of the Administrator, amounts may be transferred from other qualified plans by Employees, provided that the trust from which such funds are transferred permits the transfer to be made and the transfer will not jeopardize the tax exempt status of the Plan or Trust or create adverse tax consequences for the Employer. The amounts transferred shall be set up in a separate account herein referred to as a "Participant's Rollover Account." Such account shall be fully Vested at all times and shall not be subject to Forfeiture for any reason. (b) Amounts in a Participant's Rollover Account shall be held by the Trustee pursuant to the provisions of this Plan and may not be withdrawn by, or distributed to the Participant, in whole or in part, except as provided in paragraphs (c) and (d) of this Section. (c) Except as permitted by Regulations (including Regulation 1.411(d)-4), amounts attributable to elective contributions (as defined in Regulation 1.401(k)-1(g)(3)), including amounts treated as elective contributions, which are transferred from another qualified plan in a plan-to-plan transfer shall be subject to the distribution limitations provided for in Regulation 1.401(k)-1(d). (d) At Normal Retirement Date, or such other date when the Participant or his Beneficiary shall be entitled to receive benefits, the fair market value of the Participant's Rollover Account shall be used to provide additional benefits to the Participant or his Beneficiary. Any distributions of amounts held in a Participant's Rollover Account shall be made in a manner which is consistent with and satisfies the provisions of Section 6.5, including, but not limited to, all notice and consent requirements of Code Section 411(a)(11) and the Regulations thereunder. Furthermore, such amounts shall be considered as part of a Participant's benefit in determining whether an involuntary cash-out of benefits without Participant consent may be made. CORPDAL:63487.1 14047-00001 45 (e) The Administrator may direct that employee transfers made after a valuation date be segregated into a separate account for each Participant in a federally insured savings account, certificate of deposit in a bank or savings and loan association, money market certificate, or other short term debt security acceptable to the Trustee until such time as the allocations pursuant to this Plan have been made, at which time they may remain segregated or be invested as part of the general Trust Fund, to be determined by the Administrator. (f) All amounts allocated to a Participant's Rollover Account may be treated as a Directed Investment Account pursuant to Section 4.12. (g) For purposes of this Section, the term "qualified plan" shall mean any tax qualified plan under Code Section 401(a). The term to amounts transferred from other qualified plans" shall mean: (i) amounts transferred to this Plan directly from another qualified plan; (ii) distributions from another qualified plan which are eligible rollover distributions and which are either transferred by the Employee to this Plan within sixty (60) days following his receipt thereof or are transferred pursuant to a direct rollover, (iii) amounts transferred to this Plan from a conduit individual retirement account provided that the conduit individual retirement account has no assets other than assets which (A) were previously distributed to the Employee by another qualified plan as a lump-sum distribution (B) were eligible for tax-free rollover to a qualified plan and (C) were deposited in such conduit individual retirement account within sixty (60) days of receipt thereof and other than earnings on said assets; and (iv) amounts distributed to the Employee from a conduit individual retirement account meeting the requirements of clause (iii) above, and transferred by the Employee to this Plan within sixty (60) days of his receipt thereof from such conduit individual retirement account. (h) Prior to accepting any transfers to which this Section applies, the Administrator may require the Employee to establish that the amounts to be transferred to this Plan meet the requirements of this Section and may also require the Employee to provide an opinion of counsel satisfactory to the Employer that the amounts to be transferred meet the requirements of this Section. (i) This Plan shall not accept any direct or indirect transfers (as that term is defined and interpreted under Code Section 401(a)(11) and the Regulations thereunder) from a defined benefit plan, money purchase plan (including a target benefit plan), stock bonus or profit sharing plan which would otherwise have provided for a life annuity form of payment to the Participant. (j) Notwithstanding anything herein to the contrary, a transfer directly to this Plan from another qualified plan (or a transaction having the effect of such a transfer) shall only be permitted if it will not result in the elimination or reduction of any "Section 411(d)(6) protected benefit" as described in Section 8.1. CORPDAL:63487.1 14047-00001 46 4.12 DIRECTED INVESTMENT ACCOUNT (a) The Administrator, in his sole discretion, may determine, that all Participants be permitted to direct the Trustee as to the investment of all or a portion of the interest in any one or more of their individual account balances. If such authorization is given, Participants may, subject to a procedure established by the Administrator and applied in a uniform nondiscriminatory manner, direct the Trustee in writing to invest any portion of their account in specific assets, specific funds or other investments permitted under the Plan and the directed investment procedure. That portion of the account of any Participant so directing will thereupon be considered a Directed Investment Account, which shall not share in Trust Fund earnings. (b) A separate Directed Investment Account shall be established for each Participant who has directed an investment Transfers between the Participant's regular account and his Directed Investment Account shall be charged and credited as the case may be to each account. The Directed Investment Account shall not share in Trust Fund earnings, but it shall be charged or credited as appropriate with the net earnings, gains, losses and expenses as well as any appreciation or depreciation in market value during each Plan Year attributable to such account. ARTICLE V VALUATIONS 5.1 VALUATION OF THE TRUST FUND The Administrator shall direct the Trustee, as of each Anniversary Date, and at such other date or dates deemed necessary by the Administrator, herein called "valuation date," to determine the net worth of the assets comprising the Trust Fund as it exists on the to valuation date." In determining such net worth, the Trustee shall value the assets comprising the Trust Fund at their fair market value as of the "valuation date" and shall deduct all expenses for which the Trustee has not yet obtained reimbursement from the Employer or the Trust Fund. 5.2 METHOD OF VALUATION In determining the fair market value of securities held in the Trust Fund which are listed on a registered stock exchange, the Administrator shall direct the Trustee to value the same at the prices they were last traded on such exchange preceding the close of business on the "valuation date." If such securities were not traded on the "valuation date," or if the exchange on which they are traded was not open for business on the "valuation date," then the securities shall be valued at the prices at which they were last traded prior to the of valuation date," Any unlisted security held in the Trust Fund shall be valued at its bid price next preceding the close of business on the "valuation date," which bid price shall be obtained from a registered broker or an investment banker. In determining the fair market value of assets other than securities for which trading or bid prices can be obtained, the Trustee may appraise such assets itself, or in its CORPDAL:63487.1 14047-00001 47 discretion, employ one or more appraisers for that purpose and rely on the values established by such appraiser or appraisers. ARTICLE VI DETERMINATION AND DISTRIBUTION OF BENEFITS 6.1 DETERMINATION OF BENEFITS UPON RETIREMENT Every Participant may terminate his employment with the Employer and retire for the purposes hereof on its Normal Retirement Date. However, a Participant may postpone the termination of his employment with the Employer to a later date, in which event the participation of such Participant in the Plan, including the right to receive allocations pursuant to Section 4.4, shall continue until his Late Retirement Date. Upon a Participant's Retirement Date or attainment of his Normal Retirement Date without termination of employment with the Employer, or as soon thereafter as is practicable, the Trustee shall distribute all amounts credited to such Participant's Combined Account in accordance with Section 6.5. 6.2 DETERMINATION OF BENEFITS UPON DEATH (a) Upon the death of a Participant before his Retirement Date or other termination of his employment, all amounts credited to such Participant's Combined Account shall become fully Vested. The Administrator shall direct the Trustee, in accordance with the provisions of Sections 6.6 and 6.7, to distribute the value of the deceased Participant's accounts to the Participant's Beneficiary. (b) Upon the death of a Former Participant, the Administrator shall direct the Trustee, in accordance with the provisions of Sections 6.6 and 6.7, to distribute any remaining Vested amounts credited to the accounts of a deceased Former Participant to such Former Participant's Beneficiary. (c) Any security interest held by the Plan by reason of an outstanding loan to the Participant or Former Participant shall be taken into account in determining the amount of the death benefit. (d) The Administrator may require such proper proof of death and such evidence of the right of any person to receive payment of the value of the account of a deceased Participant or Former Participant as the Administrator may deem desirable. The Administrator's determination of death and of the right of any person to receive payment shall be conclusive. (e) The Beneficiary of the death benefit payable pursuant to this Section shall be the Participant's spouse. Except, however, the Participant may designate a Beneficiary other than his spouse if: (1) the spouse has waived the right to be the Participant's Beneficiary, or CORPDAL:63487.1 14047-00001 48 (2) the Participant is legally separated or has been abandoned (within the meaning of local law) and the Participant has a court order to such effect (and there is no "qualified domestic relations order" as defined in Code Section 414(p) which provides otherwise), or (3) the Participant has no spouse, or (4) the spouse cannot be located. In such event, the designation of a Beneficiary shall be made on a form satisfactory to the Administrator. A Participant may at any time revoke his designation of a Beneficiary or change his Beneficiary by filing written notice of such revocation or change with the Administrator. However, the Participant's spouse must again consent in writing to any change in Beneficiary unless the original consent acknowledged that the spouse had the right to limit consent only to a specific Beneficiary and that the spouse voluntarily elected to relinquish such right. In the event no valid designation of Beneficiary exists at the time of the Participant's death, the death benefit shall be payable to his estate. (f) Any consent by the Participant's spouse to waive any rights to the death benefit must be in writing, must acknowledge the effect of such waiver, and be witnessed by a Plan representative or a notary public. Further, the spouse's consent must be irrevocable and must acknowledge the specific nonspouse Beneficiary. 6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY In the event of a Participant's Total and Permanent Disability prior to his Retirement Date or other termination of his employment, all amounts credited to such Participant's Combined Account shall become fully Vested. In the event of a Participant's Total and Permanent Disability, the Trustee, in accordance with the provisions of Sections 6.5 and 6.7, shall distribute to such Participant all amounts credited to such Participant's Combined Account as though he had retired. 6.4 DETERMINATION OF BENEFITS UPON TERMINATION (a) On or before the Anniversary Date coinciding with or subsequent to the termination of a Participant's employment for any reason other than death, Total and Permanent Disability or retirement, the Administrator may direct the Trustee to segregate the amount of the Vested portion of such Terminated Participant's Combined Account and invest the aggregate amount thereof in a separate, federally insured savings account, certificate of deposit, common or collective trust fund of a bank or a deferred annuity. In the event the Vested portion of a Participant's Combined Account is not segregated, the amount shall remain in a separate account for the Terminated Participant and share in CORPDAL:63487.1 14047-00001 49 allocations pursuant to Section 4.4 until such time as a distribution is made to the Terminated Participant. Distribution of the funds due to a Terminated Participant shall be made on the occurrence of an event which would result in the distribution had the Terminated Participant remained in the employ of the Employer (upon the Participant's death, Total and Permanent Disability or Normal Retirement). However, at the election of the Participant, the Administrator shall direct the Trustee to cause the entire Vested portion of the Terminated Participant's Combined Account to be payable to such Terminated Participant. Any distribution under this paragraph shall be made in a mariner which is consistent with and satisfies the provisions of Section 6.5, including, but not limited to, all notice and consent requirements of Code Section 411(a)(11) and the Regulations thereunder. If the value of a Terminated Participant's Vested benefit derived from Employer and Employee contributions does not exceed $3,500 and has never exceeded $3,500 at the time of any prior distribution, the Administrator shall direct the Trustee to cause the entire Vested benefit to be paid to such Participant in a single lump sum. (b) A Participant shall become fully Vested in his Participant's Account immediately upon entry into the Plan. (c) The computation of a Participant's nonforfeitable percentage of his interest in the Plan shall not be reduced as the result of any direct or indirect amendment to this Plan. For this purpose, the Plan shall be treated as having been amended if the Plan provides for an automatic change in vesting due to a change in top heavy status. In the event that the Plan is amended to change or modify any vesting schedule, a Participant with at least three (3) Years of Service as of the expiration date of the election period may elect to have his nonforfeitable percentage computed under the Plan without regard to such amendment. If a Participant fails to make such election, then such Participant shall be subject to the new vesting schedule. The Participant's election period shall commence on the adoption date of the amendment and shall end 60 days after the latest of: (1) the adoption date of the amendment, (2) the effective date of the amendment, or (3) the date the Participant receives written notice of the amendment from the Employer or Administrator. (d) (1) If any Former Participant shall be reemployed by the Employer before a 1-Year Break in Service occurs, he shall continue to participate in the Plan in the same manner as if such termination had not occurred. CORPDAL:63487.1 14047-00001 50 (2) If a Former Participant completes one (1) Year of Service for eligibility purposes following his reemployment with the Employer, he shall participate in the Plan retroactively from his date of reemployment. (3) If a Former Participant completes a Year of Service (a 1-Year Break in Service previously occurred, but employment had not terminated), he shall participate in the Plan retroactively from the first day of the Plan Year during which he completes one (1) Year of Service. 6.5 DISTRIBUTION OF BENEFITS (a) The Administrator, pursuant to the election of the Participant, shall direct the Trustee to distribute to a Participant or his Beneficiary any amount to which he is entitled under the Plan in one or more of the following methods: (1) One lump-sum payment in cash; (2) Payments over a period certain in monthly, quarterly, semiannual, or annual cash installments. In order to provide such installment payments, the Administrator may (A) segregate the aggregate amount thereof in a separate, federally insured savings account, certificate of deposit in a bank or savings and loan association, money market certificate or other liquid short-term security or (B) purchase a nontransferable annuity contract for a term certain (with no life contingencies) providing for such payment. The period over which such payment is to be made shall not extend beyond the Participant's life expectancy (or the life expectancy of the Participant and his designated Beneficiary). (b) Any distribution to a Participant who has a benefit which exceeds, or has ever exceeded, $3,500 at the time of any prior distribution shall require such Participant's consent if such distribution commences prior to the later of his Normal Retirement Age or age 62. With regard to this required consent: (1) The Participant must be informed of his right to defer receipt of the distribution. If a Participant fails to consent, it shall be deemed an election to defer the commencement of payment of any benefit. However, any election to defer the receipt of benefits shall not apply with respect to distributions which are required under Section 6.5(c). (2) Notice of the rights specified under this paragraph shall be provided no less than 30 days and no more than 90 days before the first day on which all events have occurred which entitle the Participant to such benefit. (3) Written consent of the Participant to the distribution must not be made before the Participant receives the notice and must not be made more than 90 days CORPDAL:63487.1 14047-00001 51 before the first day on which all events have occurred which entitle the Participant to such benefit. (4) No consent shall be valid if a significant detriment is imposed under the Plan on any Participant who does not consent to the distribution. If a distribution is one to which Code Sections 401(a)(11) and 417 do not apply, such distribution may commence less than 30 days after the notice required under Regulation 1.411 (a)-11 (c) is given, provided that: (1) the Administrator clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and (2) the Participant, after receiving the notice, affirmatively elects a distribution. (c) Notwithstanding any provision in the Plan to the contrary, the distribution of a Participant's benefits shall be made in accordance with the following requirements and shall otherwise comply with Code Section 401(a)(9) and the Regulations thereunder (including Regulation 1.401(a)(9)(2), the provisions of which are incorporated herein by reference: (1) A Participant's benefits shall be distributed to him not later than April 1st of the calendar year following the later of (i) the calendar year in which the Participant attains age 70 1/2 or (ii) the calendar year in which the Participant retires, provided, however, that this clause (ii) shall not apply in the case of a Participant who is a "five (5) percent owner" at any time during the five (5) Plan Year period ending in the calendar year in which he attains age 70 1/2 or, in the case of a Participant who becomes a "five (5) percent owner" during any subsequent Plan Year, clause (H) shall no longer apply and the required beginning date shall be the April 1st of the calendar year following the calendar year in which such subsequent Plan Year ends. Alternatively, distributions to a Participant must begin no later than the applicable April 1st as determined under the preceding sentence and must be made over a period certain measured by the Life expectancy of the Participant (or the life expectancies of the Participant and His designated Beneficiary) in accordance with Regulations. Notwithstanding the foregoing, clause (ii) above shall not apply to any Participant unless the Participant had attained age 70 1/2 before January 1, 1988 and was not a "five (5) percent owner" at any time during the Plan Year ending with or within the calendar year in which the Participant attained age 66 1/2 or any subsequent Plan Year. (2) Distributions to a Participant and his Beneficiaries shall only be made in accordance with the incidental death benefit requirements of Code Section 401(a)(9)(G) and the Regulations thereunder. Additionally, for calendar years beginning before 1989, distributions may also be made under an alternative method which provides that the then present value of the CORPDAL:63487.1 14047-00001 52 payments to be made over the period of the Participant's life expectancy exceeds fifty percent (50%) of the then present value of the total payments to be made to the Participant and his Beneficiaries. (d) All annuity Contracts under this Plan shall be non-transferable when distributed. Furthermore, the terms of any annuity Contract purchased and distributed to a Participant or spouse shall comply with all of the requirements of the Plan. 6.6 DISTRIBUTION OF BENEFITS UPON DEATH (a) (1) The death benefit payable pursuant to Section 6.2 shall be paid to the Participant's Beneficiary within a reasonable time after the Participant's death by either of the following methods, as elected by the Participant (or if no election has been made prior to the Participant's death, by his Beneficiary) subject, however, to the rules specified in Section 6.6(b): (i) One lump-sum payment in cash; (ii) Payment in monthly, quarterly, semi-annual, or annual cash installments over a period to be determined by the Participant or his Beneficiary. After periodic installments commence, the Beneficiary shall have the right to direct the Trustee to reduce the period over which such periodic installments shall be made, and the Trustee shall adjust the cash amount of such periodic installments accordingly. (2) In the event the death benefit payable pursuant to Section 6.2 is payable in installments, then, upon the death of the Participant, the Administrator may direct the Trustee to segregate the death benefit into a separate account, and the Trustee shelf invest such segregated account separately, and the funds accumulated in such account shall be used for the payment of the installments. (b) Notwithstanding any provision in the Plan to the contrary, distributions upon the death of a Participant shall be made in accordance with the following requirements and shall otherwise comply with Code Section 401(a)(9) and the Regulations thereunder. If it is determined pursuant to Regulations that the distribution of a Participant's interest has begun and the Participant dies before his entire interest has been distributed to him, the remaining portion of such interest shall be distributed at least as rapidly as under the method of distribution selected pursuant to Section 6.5 as of its date of death. If a Participant dies before he has begun to receive any distributions of its interest under the Plan or before distributions are deemed to have begun pursuant to Regulations, then his death benefit shall be distributed to his Beneficiaries by December 31st of the calendar year in which the fifth anniversary of his date of death occurs. However, the 5-year distribution requirement of the preceding paragraph shall not apply to any portion of the deceased Participant's interest which is payable to or CORPDAL:63487.1 14047-00001 53 for the benefit of a designated Beneficiary. In such event, such portion may, at the election of the Participant (or the Participant's designated Beneficiary), be distributed over a period not extending beyond the life expectancy of such designated Beneficiary provided such distribution begins not later than December 31st of the calendar year immediately following the calendar year in which the Participant died. However, in the event the Participant's spouse (determined as of the date of the Participant's death) is his Beneficiary, the requirement that distributions commence within one year of a Participant's death shall not apply. In lieu thereof, distributions must commence on or before the later of: (1) December 31st of the calendar year immediately following the calendar year in which the Participant died; or (2) December 31st of the calendar year in which the Participant would have attained age 70 1/2. If the surviving spouse dies before distributions to such spouse begin, then the 5-year distribution requirement of this Section shall apply as if the spouse was the Participant. (c) For purposes of Section 6.6(b), the election by a designated Beneficiary to be excepted from the 5-year distribution requirement must be made no later than December 31st of the calendar year following the calendar year of the Participant's death. Except, however, with respect to a designated Beneficiary who is the Participant's surviving spouse, the election must be made by the earlier of: (1) December 31st of the calendar year immediately following the calendar year in which the Participant died or, if later, the calendar year in which the Participant would have attained age 70 1/2; or (2) December 31st of the calendar year which contains the fifth anniversary of the date of the Participant's death. An election by a designated Beneficiary must be in writing and shall be irrevocable as of the last day of the election period stated herein. In the absence of an election by the Participant or a designated Beneficiary, the 5-year distribution requirement shall apply. 6.7 TIME OF SEGREGATION OR DISTRIBUTION Except as limited by Sections 6.5 and 6.6, whenever the Trustee is to make a distribution or to commence a series of payments on or as of an Anniversary Date, the distribution or series of payments may be made or begun on such date or as soon thereafter as is practicable. However, unless a Former Participant elects in writing to defer the receipt of benefits (such election may not result in a death benefit that is more than incidental), the payment of benefits shall begin not later than the 60th day after the close of the Plan Year in which the latest of the following events occurs: (a) the date on which the Participant attains the earlier of age 65 or the Normal Retirement Age specified herein; (b) the 10th anniversary of the year in which the Participant commenced participation in the Plan, or (c) the date the Participant terminates his service with the Employer. 6.8 DISTRIBUTION FOR MINOR BENEFICIARY In the event a distribution is to be made to a minor, then the Administrator may direct that such distribution be paid to the legal guardian, or if none, to a parent of such Beneficiary or a responsible adult with whom the Beneficiary maintains his residence, or to the custodian for such Beneficiary under the Uniform Gift to Minors Act or Gift to Minors Act, if CORPDAL:63487.1 14047-00001 54 such is permitted by the laws of the state in which said Beneficiary resides. Such a payment to the legal guardian, custodian or parent of a minor Beneficiary shall fully discharge the Trustee, Employer, and Plan from further liability on account thereof 6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN In the event that all, or any portion, of the distribution payable to a Participant or his Beneficiary hereunder shall, at the later of the Participant's attainment of age 62 or his Normal Retirement Age, remain unpaid solely by reason of the inability of the Administrator, after sending a registered letter, return receipt requested, to the last known address, and after further diligent effort, to ascertain the whereabouts of such Participant or his Beneficiary, the amount so distributable shall be treated as a Forfeiture pursuant to the Plan. In the event a Participant or Beneficiary is located subsequent to his benefit being reallocated, such benefit shall be restored. 6.10 PRE-RETIREMENT DISTRIBUTION At such time as a Participant shall have attained the age of 59 1/2 years, the Administrator, at the election of the Participant, shall direct the Trustee to distribute all or a portion of the amount then credited to the accounts maintained on behalf of the Participant. In the event that the Administrator makes such a distribution, the Participant shall continue to be eligible to participate in the Plan on the same basis as any other Employee. Any distribution made pursuant to this Section shall be made in a manner consistent with Section 6.5, including, but not limited to, all notice and consent requirements of Code Section 411(a)(11) and the Regulations thereunder. Notwithstanding the above, pre-retirement distributions from a Participant's Elective Account shall not be permitted prior to the Participant attaining age 59 1/2 except as otherwise permitted under the terms of the Plan. 6.11 ADVANCE DISTRIBUTION FOR HARDSHIP (a) The Administrator, at the election of the Participant, shall direct the Trustee to distribute to any Participant in any one Plan Year up to the lesser of 100% of his Participant's Elective Account valued as of the last Anniversary Date or other valuation date or the amount necessary to satisfy the immediate and heavy financial need of the Participant. Any distribution made pursuant to this Section shall be deemed to be made as of the first day of the Plan Year or, if later, the valuation date immediately preceding the date of distribution, and the Participant's Elective Account shall be reduced accordingly. Withdrawal under this Section shall be authorized only if the distribution is on account of. (1) Expenses for medical care described in Code Section 213(d) previously incurred by the Participant, his spouse, or any of his dependents (as defined in Code Section 152) or necessary for these persons to obtain medical care; CORPDAL:63487.1 14047-00001 55 (2) The costs directly related to the purchase of a principal residence for the Participant (excluding mortgage payments); (3) Payment of tuition and related educational fees for the next twelve (12) months of post-secondary education for the Participant, his spouse, children, or dependents; or (4) Payments necessary to prevent the eviction of the Participant from his principal residence or foreclosure on the mortgage of the Participant's principal residence. (b) No distribution shall be made pursuant to this Section unless the Administrator, based upon the Participant's representation and such other facts as are known to the Administrator, determines that all of the following conditions are satisfied: (1) The distribution is not in excess of the amount of the immediate and heavy financial need of the Participant. The amount of the immediate and heavy financial need may include any amounts necessary to pay any federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution; (2) The Participant has obtained all distributions, other than hardship distributions, and all nontaxable (at the time of the loan) loans currently available under all plans maintained by the Employer; (3) The Plan, and all other plans maintained by the Employer, provide that the Participant's elective deferrals and voluntary Employee contributions will be suspended for at least twelve (12) months after receipt of the hardship distribution or, the Participant, pursuant to a legally enforceable agreement, will suspend His elective deferrals and voluntary Employee contributions to the Plan and all other plans maintained by the Employer for at least twelve (12) months after receipt of the hardship distribution; and (4) The Plan, and all other plans maintained by the Employer, provide that the Participant may not make elective deferrals for the Participant'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 next taxable year less the amount of such Participant's elective deferrals for the taxable year of the hardship distribution. (c) Notwithstanding the above, for Plan Years beginning after December 31, 1988, distributions from the Participant's Elective Account pursuant to this Section shall be limited, as of the date of distribution, to the Participant's Elective Account as of the end of the last Plan Year ending before July 1, 1989, plus the total Participant's Deferred Compensation after such date, reduced by the amount of any previous distributions pursuant to this Section and Section 6.10. CORPDAL:63487.1 14047-00001 56 (d) Any distribution made pursuant to this Section shall be made in a manner which is consistent with and satisfies the provisions of Section 6.5, including, but not limited to, all notice and consent requirements of Code Section 411(a)(11) and the Regulations thereunder. 6.12 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION All rights and benefits, including elections, provided to a Participant in this Plan shall be subject to the rights afforded to any "alternate payee" under a "qualified domestic relations order." Furthermore, a distribution to an "alternate payee" shall be permitted if such distribution is authorized by a "qualified domestic relations order," even if the affected Participant has not separated from service and has not reached the "earliest retirement age" under the Plan. For the purposes of this Section, "alternate payee," "qualified domestic relations order" and "earliest retirement age" shall have the meaning set forth under Code Section 414(p). ARTICLE VII TRUSTEE 7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE The Trustee shall have the following categories of responsibilities: (a) Consistent with the "funding policy and method" determined by the Employer, to invest, manage, and control the Plan assets subject, however, to the direction of an Investment Manager if the Trustee should appoint such manager as to all or a portion of the assets of the Plan; (b) At the direction of the Administrator, to pay benefits required under the Plan to be paid to Participants, or, in the event of their death, to their Beneficiaries; (c) To maintain records of receipts and disbursements and furnish to the Employer and/or Administrator for each Plan Year a written annual report per Section 7.7; and (d) If there shall be more than one Trustee, they shall act by a majority of their number, but may authorize one or more of them to sign papers on their behalf. 7.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE (a) The Trustee shall invest and reinvest the Trust Fund to keep the Trust Fund invested without distinction between principal and income and in such securities or property, real or personal, wherever situated, as the Trustee shall deem advisable, including, but not limited to, stocks, common or preferred, bonds and other evidences of indebtedness or ownership, and real estate or any interest therein. The Trustee shall at all CORPDAL:63487.1 14047-00001 57 times in making investments of the Trust Fund consider, among other factors, the short and long-term financial needs of the Plan on the basis of information furnished by the Employer. In making such investments, the Trustee shall not be restricted to securities or other property of the character expressly authorized by the applicable law for trust investments; however, the Trustee shall give due regard to any limitations imposed by the Code or the Act so that at all times the Plan may qualify as a qualified Profit Sharing Plan and Trust. (b) The Trustee may employ a bank or trust company pursuant to the terms of its usual and customary bank agency agreement, under which the duties of such bank or trust company shall be of a custodial, clerical and record-keeping nature. 7.3 OTHER POWERS OF THE TRUSTEE The Trustee, in addition to all powers and authorities under common law, statutory authority, including the Act, and other provisions of the Plan, shall have the following powers and authorities, to be exercised in the Trustee's sole discretion: (a) To purchase, or subscribe for, any securities or other property and to retain the same. In conjunction with the purchase of securities, margin accounts may be opened and maintained; (b) To sell, exchange, convey, transfer, grant options to purchase, or otherwise dispose of any securities or other property held by the Trustee, by private contract or at public auction. No person dealing with the Trustee shall be bound to see to the application of the purchase money or to inquire into the validity, expediency, or propriety of any such sale or other disposition, with or without advertisement; (c) To vote upon any stocks, bonds, or other securities; to give general or special proxies or powers of attorney with or without power of substitution; to exercise any conversion privileges, subscription rights or other options, and to make any payments incidental thereto; to oppose, or to consent to, or otherwise participate in, corporate reorganizations or other changes affecting corporate securities, and to delegate discretionary powers, and to pay any assessments or charges in connection therewith; and generally to exercise any of the powers of an owner with respect to stocks, bonds, securities, or other property; (d) To cause any securities or other property to be registered in the Trustee's own name or in the name of one or more of the Trustee's nominees, and to hold any investments in bearer form, but the books and records of the Trustee shall at all times show that all such investments are part of the Trust Fund; (e) To borrow or raise money for the purposes of the Plan in such amount, and upon such terms and conditions, as the Trustee shall deem advisable; and for any sum so borrowed, to issue a promissory note as the Trustee, and to secure the repayment thereof CORPDAL:63487.1 14047-00001 58 by pledging all, or any part, of the Trust Fund; and no person lending money to the Trustee shall be bound to see to the application of the money lent or to inquire into the validity, expediency, or propriety of any borrowing; (f) To keep such portion of the Trust Fund in cash or cash balances as the Trustee may, from time to time, deem to be in the best interests of the Plan, without liability for interest thereon; (g) To accept and retain for such time as the Trustee may deem advisable any securities or other property received or acquired as Trustee hereunder, whether or not such securities or other property would normally be purchased as investments hereunder; (h) To make, execute, acknowledge, and deliver any and all documents of transfer and conveyance and any and all other instruments that may be necessary or appropriate to carry out the powers herein granted; (i) To settle, compromise, or submit to arbitration any claims, debts, or damages due or owing to or from the Plan, to commence or defend suits or legal or administrative proceedings, and to represent the Plan in all suits and legal and administrative proceedings; (j) To employ suitable agents and counsel and to pay their reasonable expenses and compensation, and such agent or counsel may or may not be agent or counsel for the Employer; (k) To apply for and procure from responsible insurance companies, to be selected by the Administrator, as an investment of the Trust Fund such annuity, or other Contracts (on the life of any Participant) as the Administrator shall deem proper, to exercise, at any time or from time to time, whatever rights and privileges may be granted under such annuity, or other Contracts; to collect, receive, and settle for the proceeds of all such annuity or other Contracts as and when entitled to do so under the provisions thereof; (l) To invest funds of the Trust in time deposits or savings accounts bearing a reasonable rate of interest in the Trustee's bank; (m) To invest in Treasury Bills and other forms of United States government obligations; (n) To invest in shares of investment companies registered under the Investment Company Act of 1940; (o) To sell, purchase and acquire put or call options if the options are traded on and purchased through a national securities exchange registered under the Securities CORPDAL:63487.1 14047-00001 59 Exchange Act of 1934, as amended, or, if the options are not traded on a national securities exchange, are guaranteed by a member firm of the New York Stock Exchange; (p) To deposit monies in federally insured savings accounts or certificates of deposit in banks or savings and loan associations; (q) To pool all or any of the Trust Fund, from time to time, with assets belonging to any other qualified employee pension benefit trust created by the Employer or an affiliated company of the Employer, and to commingle such assets and make joint or common investments and carry joint accounts on behalf of this Plan and such other trust or trusts, allocating undivided shares or interests in such investments or accounts or any pooled assets of the two or more trusts in accordance with their respective interests; (r) To do all such acts and exercise all such rights and privileges, although not specifically mentioned herein, as the Trustee may deem necessary to carry out the purposes of the Plan. (s) Directed Investment Account. The powers granted to the Trustee shall be exercised in the sole fiduciary discretion of the Trustee. However, if Participants are so empowered by the Administrator, each Participant may direct the Trustee to separate and keep separate all or a portion of his account, and further each Participant is authorized and empowered, in his sole and absolute discretion, to give directions to the Trustee pursuant to the procedure established by the Administrator and in such form as the Trustee may require concerning the investment of the Participant's Directed Investment Account. The Trustee shall comply as promptly as practicable with directions given by the Participant hereunder. The Trustee may refuse to comply with any direction from the Participant in the event the Trustee, in its sole and absolute discretion, deems such directions improper by virtue of applicable law. The Trustee shall not be responsible or liable for any loss or expense which may result from the Trustee's refusal or failure to comply with any directions from the Participant. Any costs and expenses related to compliance with the Participant's directions shall be borne by the Participant's Directed Investment Account. 7.4 LOANS TO PARTICIPANTS (a) The Trustee may, in the Trustee's discretion, make loans to Participants and Beneficiaries under the following circumstances: (1) loans shall be made available to all Participants and Beneficiaries on a reasonably equivalent basis; (2) loans shall not be made available to Highly Compensated Employees in an amount greater than the amount made available to other Participants and Beneficiaries; (3) loans shall bear a reasonable rate of interest; (4) loans shall be adequately secured; and (5) shall provide for repayment over a reasonable period of time. (b) Loans made pursuant to this Section (when added to the outstanding balance of all other loans made by the Plan to the Participant) shall be limited to the lesser of: CORPDAL:63487.1 14047-00001 60 (1) $50,000 reduced by the excess (if any) of the highest outstanding balance of loans from the Plan to the Participant during the one year period ending on the day before the date on which such loan is made, over the outstanding balance of loans from the Plan to the Participant on the date on which such loan was made, or (2) one-half (1/2) of the present value of the non-forfeitable accrued benefit of the Participant under the Plan. For purposes of this limit, all plans of the Employer shall be one plan. Additionally, with respect to any loan made prior to January 1, 1987, the $50,000 limit specified in (1) above shall be unreduced. (c) Loans shall provide for level amortization with payments to be made not less frequently than quarterly over a period not to exceed five (5) years. However, loans used to acquire any dwelling unit which, within a reasonable time, is to be used (determined at the time the loan is made) as a principal residence of the Participant shall provide for periodic repayment over a reasonable period of time that may exceed five (5) years. Notwithstanding the foregoing, loans made prior to January 1, 1987 which are used to acquire, construct, reconstruct or substantially rehabilitate any dwelling unit which, within a reasonable period of time is to be used (determined at the time the loan is made) as a principal residence of the Participant or a member of his family (within the meaning of Code Section 267(c)(4)) may provide for periodic repayment over a reasonable period of time that may exceed five (5) years. Additionally, loans made prior to January 1, 1987, may provide for periodic payments which are made less frequently than quarterly and which do not necessarily result in level amortization. (d) Any loans granted or renewed on or after the last day of the first Plan Year beginning after December 31, 1988 shall be made pursuant to a Participant loan program. Such loan program shall be established in writing and must include, but need not be limited to, the following: (1) the identity of the person or positions authorized to administer the Participant loan program; (2) a procedure for applying for loans; (3) the basis on which loans will be approved or denied; (4) limitations, if any, on the types and amounts of loans offered; (5) the procedure under the program for determining a reasonable rate of interest; (6) the types of collateral which may secure a Participant loan; and CORPDAL:63487.1 14047-00001 61 (7) the events constituting default and the steps that will be taken to preserve Plan assets. Such Participant loan program shall be contained in a separate written document which, when properly executed, is hereby incorporated by reference and made a part of the Plan. Furthermore, such Participant loan program may be modified or amended in writing from time to time without the necessity of amending this Section. 7.5 DUTIES OF THE TRUSTEE REGARDING PAYMENTS At the direction of the Administrator, the Trustee shall, from time to time, in accordance with the terms of the Plan, make payments out of the Trust Fund. The Trustee shall not be responsible in any way for the application of such payments. 7.6 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES The Trustee shall be paid such reasonable compensation as shall from time to time be agreed upon in writing by the Employer and the Trustee. An individual serving as Trustee who already receives full-time pay from the Employer shall not receive compensation from the Plan. In addition, the Trustee shall be reimbursed for any reasonable expenses, including reasonable counsel fees incurred by it as Trustee. Such compensation and expenses shall be paid from the Trust Fund unless paid or advanced by the Employer. All taxes of any kind and all kinds whatsoever that may be levied or assessed under existing or future laws upon, or in respect of, the Trust Fund or the income thereof, shall be paid from the Trust Fund. 7.7 ANNUAL REPORT OF THE TRUSTEE Within a reasonable period of time after the later of the Anniversary Date or receipt of the Employer's contribution for each Plan Year, the Trustee shall furnish to the Employer and Administrator a written statement of account with respect to the Plan Year for which such contribution was made setting forth: (a) the net income, or loss, of the Trust Fund; (b) the gains, or losses, realized by the Trust Fund upon sales or other disposition of the assets; (c) the increase, or decrease, in the value of the Trust Fund; (d) all payments and distributions made from the Trust Fund; and (e) such further information as the Trustee and/or Administrator deems appropriate. The Employer, forthwith upon its receipt of each such statement of account, shall acknowledge receipt thereof in writing and advise the Trustee and/or Administrator CORPDAL:63487.1 14047-00001 62 of its approval or disapproval thereof. Failure by the Employer to disapprove any such statement of account within thirty (30) days after its receipt thereof shall be deemed an approval thereof. The approval by the Employer of any statement of account shall be binding as to all matters embraced therein, as between the Employer and the Trustee to the same extent as if the account of the Trustee had been settled by judgment or decree in an action for a judicial settlement of its account in a court of competent jurisdiction in which the Trustee, the Employer and all persons having or claiming an interest in the Plan were parties; provided, however, that nothing herein contained shall deprive the Trustee of its right to have its accounts judicially settled if the Trustee so desires. 7.8 AUDIT (a) If an audit of the Plan's records shall be required by the Act and the regulations thereunder for any Plan Year, the Administrator shall direct the Trustee to engage on behalf of all Participants an independent qualified public accountant for that purpose. Such accountant shall, after an audit of the books and records of the Plan in accordance with generally accepted auditing standards, within a reasonable period after the close of the Plan Year, furnish to the Administrator and the Trustee a report of his audit setting forth his opinion as to whether any statements, schedules or lists that are required by Act Section 103 or the Secretary of Labor to be filed with the Plan's annual report, are presented fairly in conformity with generally accepted accounting principles applied consistently. All auditing and accounting fees shall be an expense of and may, at the election of the Administrator, be paid from the Trust Fund. (b) If some or all of the information necessary to enable the Administrator to comply with Act Section 103 is maintained by a bank, insurance company, or similar institution, regulated and supervised and subject to periodic examination by a state or federal agency, it shall transmit and certify the accuracy of that information to the Administrator as provided in Act Section 103(b) within one hundred twenty (120) days after the end of the Plan Year or by such other date as may be prescribed under regulations of the Secretary of Labor. 7.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE (a) The Trustee may resign at any time by delivering to the Employer, at least thirty (30) days before its effective date, a written notice of his resignation. (b) The Employer may remove the Trustee by mailing by registered or certified mail, addressed to such Trustee at his last known address, at least thirty (30) days before its effective date, a written notice of his removal. (c) Upon the death, resignation, incapacity, or removal of any Trustee, a successor may be appointed by the Employer, and such successor, upon accepting such appointment in writing and delivering same to the Employer, shall, without further act, become vested with all the estate, rights, powers, discretions, and duties of his predecessor CORPDAL:63487.1 14047-00001 63 with like respect as if he were originally named as a Trustee herein. Until such a successor is appointed, the remaining Trustee or Trustees shall have full authority to act under the terms of the Plan. (d) The Employer may designate one or more successors prior to the death, resignation, incapacity, or removal of a Trustee. In the event a successor is so designated by the Employer and accepts such designation, the successor shall, without further act, become vested with all the estate, rights, powers, discretions, and duties of his predecessor with the like effect as if he were originally named as Trustee herein immediately upon the death, resignation, incapacity, or removal of his predecessor. (e) Whenever any Trustee hereunder ceases to serve as such, he shall furnish to the Employer and Administrator a written statement of account with respect to the portion of the Plan Year during which he served as Trustee. This statement shall be either (i) included as part of the annual statement of account for the Plan Year required under Section 7.7 or (ii) set forth in a special statement. Any such special statement of account should be rendered to the Employer no later than the due date of the annual statement of account for the Plan Year. The procedures set forth in Section 7.7 for the approval by the Employer of annual statements of account shall apply to any special statement of account rendered hereunder and approval by the Employer of any such special statement in the manner provided in Section 7.7 shall have the same effect upon the statement as the Employer's approval of an annual statement of account. No successor to the Trustee shall have any duty or responsibility to investigate the acts or transactions of any predecessor who has rendered all statements of account required by Section 7.7 and this subparagraph. 7.10 TRANSFER OF INTEREST Notwithstanding any other provision contained in this Plan, the Trustee at the direction of the Administrator shall transfer the Vested interest, if any, of such Participant in his account to another trust forming part of a pension, profit sharing or stock bonus plan maintained by such Participant's new employer and represented by said employer in writing as meeting the requirements of Code Section 401(a), provided that tile trust to which such transfers are made permits the transfer to be made. 7.11 DIRECT ROLLOVER (a) This Section applies to distributions made on or after January 1, 1993. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee's election under this Section, a distributes 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 distributes in a direct rollover. (b) For purposes of this Section the following definitions shall apply: CORPDAL:63487.1 14047-00001 64 (1) An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributes, 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 distributes or the joint lives (or joint life expectancies) of the distributes 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 includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). (2) 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 401(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. (3) A distributes 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. (4) A direct rollover is a payment by the plan to the eligible retirement plan specified by the distributee. ARTICLE VIII AMENDMENT, TERMINATION AND MERGERS 8.1 AMENDMENT (a) The Employer shall have the right at any time to amend the Plan, subject to the limitations of this Section. Any such amendment shall be adopted by formal action of the Employer's board of directors and executed by an officer authorized to act on behalf of the Employer. However, any amendment which affects the rights, duties or responsibilities of the Trustee and Administrator may only be made with the Trustee's and Administrator's written consent. Any such amendment shall become effective as provided therein upon its execution. The Trustee shall not be required to execute any such amendment unless the Trust provisions contained herein are a part of the Plan and the amendment affects the duties of the Trustee hereunder. (b) No amendment to the Plan shall be effective if it authorizes or permits any part of the Trust Fund (other than such part as is required to pay taxes and administration CORPDAL:63487.1 14047-00001 65 expenses) to be used for or diverted to any purpose other than for the exclusive benefit of the Participants or their Beneficiaries or estates; or causes any reduction in the amount credited to the account of any Participant; or causes or permits any portion of the Trust Fund to revert to or become property of the Employer. (c) Except as permitted by Regulations, no Plan amendment or transaction having the effect of a Plan amendment (such as a merger, plan transfer or similar transaction) shall be effective to the extent it eliminates or reduces any "Section 411(d)(6) protected benefit" or adds or modifies conditions relating to "Section 411(d)(6) protected benefits" the result of which is a further restriction on such benefit unless such protected benefits are preserved with respect to benefits accrued as of the later of the adoption date or effective date of the amendment. "Section 411(d)(6) protected benefits" are benefits described in Code Section 411(d)(6)(A), early retirement benefits and retirement-type subsidies, and optional forms of benefit. 8.2 TERMINATION (a) The Employer shall have the right at any time to terminate the Plan by delivering to the Trustee and Administrator written notice of such termination. Upon any full or partial termination, all amounts credited to the affected Participants' Combined Accounts shall become 100% Vested as provided in Section 6.4 and shall not thereafter be subject to forfeiture, and all unallocated amounts shall be allocated to the accounts of all Participants in accordance with the provisions hereof. (b) Upon the full termination of the Plan, the Employer shall direct the distribution of the assets of the Trust Fund to Participants in a manner which is consistent with and satisfies the provisions of Section 6.5. Distributions to a Participant shall be made in cash or through the purchase of irrevocable nontransferable deferred commitments from an insurer. Except as permitted by Regulations, the termination of the Plan shall not result in the reduction of "Section 411(d)(6) protected benefits" in accordance with Section 8.1(c). 8.3 MERGER OR CONSOLIDATION This Plan and Trust may be merged or consolidated with, or its assets and/or liabilities may be transferred to any other plan and trust only if the benefits which would be received by a Participant of this Plan, in the event of a termination of the plan immediately after such transfer, merger or consolidation, are at least equal to the benefits the Participant would have received if the Plan had terminated immediately before the transfer, merger or consolidation, and such transfer, merger or consolidation does not otherwise result in the elimination or reduction of any "Section 411(d)(6) protected benefits" in accordance with Section 8.1(c). CORPDAL:63487.1 14047-00001 66 ARTICLE IX MISCELLANEOUS 9.1 PARTICIPANT'S RIGHTS This Plan shall not be deemed to constitute a contract between the Employer and any Participant or to be a consideration or an inducement for the employment of any Participant or Employee. Nothing contained in this Plan shall be deemed to give any Participant or Employee the right to be retained in the service of the Employer or to interfere with the right of the Employer to discharge any Participant or Employee at any time regardless of the effect which such discharge shall have upon him as a Participant of this Plan. 9.2 ALIENATION (a) Subject to the exceptions provided below, no benefit which shall be payable out of the Trust Fund to any person (including a Participant or his Beneficiary) shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the same shall be void; and no such benefit shall in any manner be liable for, or subject to, the debts, contracts, Liabilities, engagements, or torts of any such person, nor shall it be subject to attachment or legal process for or against such person, and the same shall not be recognized by the Trustee, except to such extent as may be required by law. (b) This provision shall not apply to the extent a Participant or Beneficiary is indebted to the Plan, as a result of a loan from the Plan. At the time a distribution is to be made to or for a Participant's or Beneficiary's benefit, such proportion of the amount distributed as shall equal such loan indebtedness shall be paid by the Trustee to the Trustee or the Administrator, at the direction of the Administrator, to apply against or discharge such loan indebtedness. Prior to making a payment, however, the Participant or Beneficiary must be given written notice by the Administrator that such loan indebtedness is to be so paid in whole or part from his Participant's Combined Account. If the Participant or Beneficiary does not agree that the loan indebtedness is a valid claim against his Vested Participant's Combined Account, he shall be entitled to a review of the validity of the claim in accordance with procedures provided in Sections 2.12 and 2.13. (c) This provision shall not apply to a "qualified domestic relations order" defined in Code Section 414(p), and those other domestic relations orders permitted to be so treated by the Administrator under the provisions of the Retirement Equity Act of 1984. The Administrator shall establish a written procedure to determine the qualified status of domestic relations orders and to administer distributions under such qualified orders. Further, to the extent provided under a "qualified domestic relations order," a former spouse of a Participant shall be treated as the spouse or surviving spouse for all purposes under the Plan. CORPDAL:63487.1 14047-00001 67 9.3 CONSTRUCTION OF PLAN This Plan and Trust shall be construed and enforced according to the Act and the laws of the State of Texas, other than its laws respecting choice of law, to the extent not preempted by the Act. 9.4 GENDER AND NUMBER Wherever any words are used herein in the masculine, feminine or neuter gender, they shall be construed as though they were also used in another gender in all cases where they would so apply, and whenever any words are used herein in the singular or plural form, they shall be construed as though they were also used in the other form in all cases where they would so apply. 9.5 LEGAL ACTION In the event any claim, suit, or proceeding is brought regarding the Trust and/or Plan established hereunder to which the Trustee or the Administrator may be a party, and such claim, suit, or proceeding is resolved in favor of the Trustee or Administrator, they shall be entitled to be reimbursed from the Trust Fund for any and all costs, attorney's fees, and other expenses pertaining thereto incurred by them for which they shall have become liable. 9.6 PROHIBITION AGAINST DIVERSION OF FUNDS (a) Except as provided below and otherwise specifically permitted by law, it shall be impossible by operation of the Plan or of the Trust, by termination of either, by power of revocation or amendment, by the happening of any contingency, by collateral arrangement or by any other means, for any part of the corpus or income of any trust fund maintained pursuant to the Plan or any funds contributed thereto to be used for, or diverted to, purposes other than the exclusive benefit of Participants, Retired Participants, or their Beneficiaries. (b) In the event the Employer shall make an excessive contribution under a mistake of fact pursuant to Act Section 403(c)(2)(A), the Employer may demand repayment of such excessive contribution at any time within one (1) year following the time of payment and the Trustees shall return such amount to the Employer within the one (1) year period. Earnings of the Plan attributable to the excess contributions may not be returned to the Employer but any losses attributable thereto must reduce the amount so returned. 9.7 BONDING Every Fiduciary, except a bank or an insurance company, unless exempted by the Act and regulations thereunder, shall be bonded in an amount not less than 10% of the amount of CORPDAL:63487.1 14047-00001 68 the funds such Fiduciary handles; provided, however, that the minimum bond shall be $1,000 and the maximum bond, $500,000. The amount of funds handled shall be determined at the beginning of each Plan Year by the amount of funds handled by such person, group, or class to be covered and their predecessors, if any, during the preceding Plan Year, or if there is no preceding Plan Year, then by the amount of the funds to be handled during the then current year. The bond shall provide protection to the Plan against any loss by reason of acts of fraud or dishonesty by the Fiduciary alone or in connivance with others. The surety shall be a corporate surety company (as such term is used in Act Section 412(a)(2)), and the bond shall be in a form approved by the Secretary of Labor. Notwithstanding anything in the Plan to the contrary, the cost of such bonds shall be an expense of and may, at the election of the Administrator, be paid from the Trust Fund or by the Employer. 9.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE Neither the Employer nor the Trustee, nor their successors, shall be responsible for the validity of any Contract issued hereunder or for the failure on the part of the insurer to make payments provided by any such Contract, or for the action of any person which may delay payment or render a Contract null and void or unenforceable in whole or in part. 9.9 INSURER'S PROTECTIVE CLAUSE Any insurer who shall issue Contracts hereunder shall not have any responsibility for the validity of this Plan or for the tax or legal aspects of this Plan. The insurer shall be protected and held harmless in acting in accordance with any written direction of the Trustee, and shall have no duty to see to the application of any funds paid to the Trustee, nor be required to question any actions directed by the Trustee. Regardless of any provision of this Plan, the insurer shall not be required to take or permit any action or allow any benefit or privilege contrary to the terms of any Contract which it issues hereunder, or the rules of the insurer. 9.10 RECEIPT AND RELEASE FOR PAYMENTS Any payment to any Participant, his legal representative, Beneficiary, or to any guardian or committee appointed for such Participant or Beneficiary in accordance with the provisions of the Plan, shall, to the extent thereof, be in full satisfaction of all claims hereunder against the Trustee and the Employer, either of whom may require such Participant, legal representative, Beneficiary, guardian or committee, as a condition precedent to such payment, to execute a receipt and release thereof in such form as shall be determined by the Trustee or Employer. 9.11 ACTION BY THE EMPLOYER Whenever the Employer under the terms of the Plan is permitted or required to do or perform any act or matter or thing, it shall be done and performed by a person duly authorized by its legally constituted authority. CORPDAL:63487.1 14047-00001 69 9.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY The "named Fiduciaries" of this Plan are (1) the Employer, (2) the Administrator and (3) the Trustee. The named Fiduciaries shall have only those specific powers, duties, responsibilities, and obligations as are specifically given them under the Plan. In general, the Employer shall have the sole responsibility for making the contributions provided for under Section 4.1; and shall have the sole authority to appoint and remove the Trustee and the Administrator, to formulate the Plan's "funding policy and method"; and to amend or terminate, in whole or in part, the Plan. The Administrator shall have the sole responsibility for the administration of the Plan, which responsibility is specifically described in the Plan. The Trustee shall have the sole responsibility of management of the assets held under the Trust, except those assets, the management of which has been assigned to an Investment Manager, who shall be solely responsible for the management of the assets assigned to it, all as specifically provided in the Plan. Each named Fiduciary warrants that any directions given, information furnished, or action taken by it shall be in accordance with the provisions of the Plan, authorizing or providing for such direction, information or action. Furthermore, each named Fiduciary may rely upon any such direction, information or action of another named Fiduciary as being proper under the Plan, and is not required under the Plan to inquire into the propriety of any such direction, information or action. It is intended under the Plan that each named Fiduciary shall be responsible for the proper exercise of its own powers, duties, responsibilities and obligations under the Plan. No named Fiduciary shall guarantee the Trust Fund in any manner against investment loss or depreciation in asset value. Any person or group may serve in more than one Fiduciary capacity. In the furtherance of their responsibilities hereunder, the "named Fiduciaries" shall be empowered to interpret the Plan and Trust and to resolve ambiguities, inconsistencies and omissions, which findings shall be binding, final and conclusive. 9.13 HEADINGS The headings and subheadings of this Plan have been inserted for convenience of reference and are to be ignored in any construction of the provisions hereof. 9.14 APPROVAL BY INTERNAL REVENUE SERVICE (a) Notwithstanding anything herein to the contrary, contributions to this Plan are conditioned upon the initial qualification of the Plan under Code Section 401. If the Plan receives an adverse determination with respect to its initial qualification, then the Plan may return such contributions to the Employer within one year after such determination, provided the application for the determination is made by the time prescribed by law for filing the Employer's return for the taxable year in which the Plan was adopted, or such later date as the Secretary of the Treasury may prescribe. (b) Notwithstanding any provisions to the contrary, except Sections 3.6, 3.7, and 4.1(e), any contribution by the Employer to the Trust Fund is conditioned upon the deductibility of the contribution by the Employer under the Code and, to the extent any CORPDAL:63487.1 14047-00001 70 such deduction is disallowed, the Employer may, within one (1) year following the disallowance of the deduction, demand repayment of such disallowed contribution and the Trustee shall return such contribution within one (1) year following the disallowance. Earnings of the Plan attributable to the excess contribution may not be returned to the Employer, but any losses attributable thereto must reduce the amount so returned. 9.15 UNIFORMITY All provisions of this Plan shall be interpreted and applied in a uniform, nondiscriminatory manner. In the event of any conflict between the terms of this Plan and any Contract purchased hereunder, the Plan provisions shall control. ARTICLE X PARTICIPATING EMPLOYERS 10.1 ADOPTION BY OTHER EMPLOYERS Notwithstanding anything herein to the contrary, with the consent of the Employer and Trustee, any other corporation or entity, whether an affiliate or subsidiary or not, may adopt this Plan and all of the provisions hereof, and participate herein and be known as a Participating Employer, by a properly executed document evidencing said intent and will of such Participating Employer. 10.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS (a) Each such Participating Employer shall be required to use the same Trustee as provided in this Plan. (b) The Trustee may, but shall not be required to, commingle, hold and invest as one Trust Fund all contributions made by Participating Employers, as well as all increments thereof. However, the assets of the Plan shall, on an ongoing basis, be available to pay benefits to all Participants and Beneficiaries under the Plan without regard to the Employer or Participating Employer who contributed such assets. (c) The transfer of any Participant from or to an Employer participating in this Plan, whether he be an Employee of the Employer or a Participating Employer, shall not affect such Participant's rights under the Plan, and all amounts credited to such Participant's Combined Account as well as his accumulated service time with the transferor or predecessor, and his length of participation in the Plan, shall continue to his credit. (d) All rights and values forfeited by termination of employment shall inure only to the benefit of the Participants of the Employer or Participating Employer by which the forfeiting Participant was employed, except if the Forfeiture is for an Employee whose Employer is an Affiliated Employer, then said Forfeiture shall inure to the benefit of the Participants of those Employers who are Affiliated Employers. Should an Employee of CORPDAL:63487.1 14047-00001 71 one ("First") Employer be transferred to an associated ("Second") Employer which is an Affiliated Employer, such transfer shall not cause his account balance (generated while an Employee of "First" Employer) in any manner, or by any amount to be forfeited. Such Employee's Participant Combined Account balance for all purposes of the Plan, including length of service, shall be considered as though he had always been employed by the "Second" Employer and as such had received contributions, forfeitures, earnings or losses, and appreciation or depreciation in value of assets totaling the amount so transferred. (e) Any expenses of the Trust which are to be paid by the Employer or borne by the Trust Fund shall be paid by each Participating Employer in the same proportion that the total amount standing to the credit of all Participants employed by such Employer bears to the total standing to the credit of all Participants. 10.3 DESIGNATION OF AGENT Each Participating Employer shall be deemed to be a party to this Plan; provided, however, that with respect to all of its relations with the Trustee and Administrator for the purpose of this Plan, each Participating Employer shall be deemed to have designated irrevocably the Employer as its agent. Unless the context of the Plan clearly indicates the contrary, the word "Employer" shall be deemed to include each Participating Employer as related to its adoption of the Plan. 10.4 EMPLOYEE TRANSFERS It is anticipated that an Employee may be transferred between Participating Employers, and in the event of any such transfer, the Employee involved shall carry with him his accumulated service and eligibility. No such transfer shall effect a termination of employment hereunder, and the Participating Employer to which the Employee is transferred shall thereupon become obligated hereunder with respect to such Employee in the same manner as was the Participating Employer from whom the Employee was transferred. 10.5 PARTICIPATING EMPLOYER'S CONTRIBUTION Any contribution subject to allocation during each Plan Year shall be allocated only among those Participants of the Employer or Participating Employer making the contribution, except if the contribution is made by an Affiliated Employer, in which event such contribution shall be allocated among all Participants of all Participating Employers who are Affiliated Employers in accordance with the provisions of this Plan. On the basis of the information furnished by the Administrator, the Trustee shall keep separate books and records concerning the affairs of each Participating Employer hereunder and as to the accounts and credits of the Employees of each Participating Employer. The Trustee may, but need not, register Contracts so as to evidence that a particular Participating Employer is the interested Employer hereunder, but in the event of an Employee transfer from one Participating Employer to another, the employing Employer shall immediately notify the Trustee thereof. CORPDAL:63487.1 14047-00001 72 10.6 AMENDMENT Amendment of this Plan by the Employer at any time when there shall be a Participating Employer hereunder shall only be by the written action of each and every Participating Employer and with the consent of the Trustee where such consent is necessary in accordance with the terms of this Plan. 10.7 DISCONTINUANCE OF PARTICIPATION Any Participating Employer shall be permitted to discontinue or revoke its participation in the Plan. At the time of any such discontinuance or revocation, satisfactory evidence thereof and of any applicable conditions imposed shall be delivered to the Trustee. The Trustee shall thereafter transfer, deliver and assign Contracts and other Trust Fund assets allocable to the Participants of such Participating Employer to such new Trustee as shall have been designated by such Participating Employer, in the event that it has established a separate pension plan for its Employees, provided however, that no such transfer shall be made if the result is the elimination or reduction of any "Section 411(d)(6) protected benefits" in accordance with Section 8.1(c). If no successor is designated, the Trustee shall retain such assets for the Employees of said Participating Employer pursuant to the provisions of Article VII hereof in no such event shall any part of the corpus or income of the Trust as it relates to such Participating Employer be used for or diverted to purposes other than for the exclusive benefit of the Employees of such Participating Employer. 10.8 ADMINISTRATOR'S AUTHORITY The Administrator shall have authority to make any and all necessary rules or regulations, binding upon all Participating Employers and all Participants, to effectuate the purpose of this Article. CORPDAL:63487.1 14047-00001 73 El Chico Corporation (Georgia) By/s/Susan R. Holland ------------------------------- EMPLOYER El Chico Corporation of Alabama By/s/Susan R. Holland ------------------------------- EMPLOYER El Chico Corporation of Florida By/s/Susan R. Holland ------------------------------- EMPLOYER Pronto Design & Supply, Inc. By/s/Lawrence E. White ------------------------------- EMPLOYER CORPDAL:63487.1 14047-00001 74 TRUSTEE Profit Sharing Plan Administration Committee /s/Lawrence E. White ------------------------------- Lawrence E. White /s/Susan R. Holland ------------------------------- Susan R. Holland /s/Alice M. Kain ------------------------------- Alice M. Kain /s/John A. Cuellar ------------------------------- John A. Cuellar CORPDAL:63487.1 14047-00001 75 EX-10 3 EXHIBIT 10.10 SYGMA/EL CHICO RESTAURANTS, INC. DISTRIBUTION SERVICE AGREEMENT I. RECITALS A. El Chico Restaurants, Incorporated (hereinafter "El Chico") is the owner, operator and manager of El Chico, Casa Rosa and Cantina Laredo restaurants; B. El Chico desires to designate The SYGMA Network, Inc., a wholly-owned subsidiary of SYSCO Corporation, (hereinafter "SYGMA") as its primary distributor for products to all of its restaurants; C. SYGMA is a firm which will carry and distribute products required by El Chico restaurants; D. SYGMA desire to perform the function of purchasing, warehousing, and distributing of products for El Chico restaurants. II. BASIC AGREEMENT A. El Chico agrees to purchase from SYGMA and SYGMA agrees to purchase, warehouse, and distribute for and to sell, to El Chico the complete needs of El Chico's restaurants for all products ("Products") used in its restaurant operations including but not limited to fresh dairy products, meat products, other frozen and refrigerated items, including avocado pulp, canned and dry goods, beverages, paper and disposables, chemical and janitorial products, and other non-food products requiring frequent replacement. The only products to be exceptions from SYGMA distribution are produce, coffee, gas products, beer, wine and other liquor. SYGMA shall not sell or distribute any proprietary El Chico products to other SYGMA customers without prior consent by El Chico. B. Those concept restaurants owned by El Chico, but operating under other trade names, have the right to purchase products from SYGMA under the same terms and conditions as specified in the Agreement, but they are not obligated to do so. Similarly, SYGMA is obligated to provide service to those restaurants only from its regular inventory. III. PRODUCT DESIGNATION A. Product Selection - El Chico may designate the brands and/or suppliers of Products it prefers to have SYGMA supply. El Chico reserves the right to select all Product CORPDAL:63523.1 14047-00001 1 suppliers and to negotiate price and terms with all suppliers of Products and all freight service suppliers. B. Inventory Management - SYGMA shall use reasonable, good-faith effort to utilize proper inventory management to assure a continuous supply of Products while minimizing the risk of inventory obsolescence. SYGMA will provide El Chico with a quarterly status report of slow-moving or close-coded Products. Within two weeks of receipt of the quarterly status report of slow-moving or close-coded products, El Chico and SYGMA agree to review all products whose risk of obsolescence is apparent. Joint resolutions to assign and reduce obsolete inventory exposure will be initiated. El Chico will communicate with SYGMA regarding anticipated menu or Product mix changes to help avoid obsolete inventory issues and will assist SYGMA in removal or disposition of slow-moving and close-coded Products. If SYGMA purchases a Product in reasonable anticipation of sale to El Chico and the use of such Product by all or any of the Restaurants is discontinued by El Chico or the volume of purchases of a Product declines substantially to the point where El Chico and SYGMA agree the risk of obsolescence is apparent, El Chico will either: 1) assume financial responsibility for the cost to return any unsold inventory of such product to the supplier; unless the inventory obsolescence or a portion thereof was caused by SYGMA in which case SYGMA will be responsible for the cost of any unsold inventory of such products; or 2) designate a specific restaurant or restaurants to purchase and use the subject product inventory within a reasonable period of time; or 3) implement other disposal alternatives, to be mutually determined; or 4) if such Product is not sold or otherwise disposed of in accordance with this paragraph IIIB, El Chico shall within 30 days, pay SYGMA the Cost herein defined of any unsold inventory of such product. SYGMA will make such Product available for pick up by El Chico or its designee. Notwithstanding, anything to the contrary in this Agreement, El Chico will not be responsible for SYGMA orders of discontinued product after El Chico has given SYGMA written notice of discontinuance of such product. SYGMA will use reasonable good faith efforts to cancel or return vendor product on order or in transit to reduce El Chico liability. IV. SERVICE A. On order and delivery schedules determined by SYGMA and agreed upon by El Chico, SYGMA will make two deliveries per week to new or existing El Chico Restaurants in the dark grey shaded area depicted in Exhibit 1. SYGMA will make one delivery per week to new or existing El Chico Restaurants in the light grey shaded area depicted in Exhibit 1. CORPDAL:63523.1 14047-00001 2 B. SYGMA will also provide regular distribution service, special distribution service or expanded delivery frequency to future Restaurants El Chico may own or franchise outside the once per week or twice per week boundaries of this Agreement as depicted in Exhibit 1 but at an additional charge for all incremental round-trip mileage CORPDAL:63523.1 14047-00001 3 or other additional costs due to extraordinary routing SYGMA may incur from its closest customer to the new Restaurants. The rate per mile will be negotiated in good faith between both parties. C. Delivery may be scheduled seven days per week during the following times: 11:00 p.m. - 11:00 a.m. 1:30 p.m. - 5:00 p.m. During the meal windows of 11:00 a.m. to 1:30 p.m. and 5:00 p.m. to 11:00 p.m., there should be no SYGMA trucks on the lot so as not to conflict with customer traffic. D. For those El Chico Restaurants receiving more than one delivery per week, it is understood that El Chico Restaurant managers will reasonably balance the orders to within a 10% weekly variance from the weekly average order, such that all deliveries consist of approximately the same number of cases (excluding holiday weeks). For those restaurants not achieving this variance requirement, El Chico Restaurant management and SYGMA will work in good faith to reduce variances in excess of 10%. If after 30 days following notification of such variance, a Restaurant has not reasonably balanced at least three of the next four weeks' orders, SYGMA shall have the option to add a $50.00 drop charge to subsequent orders that are not reasonably balanced, until such time as the Restaurant is reasonably balancing at least 75% of their orders. E. SYGMA delivery drivers will bring all products into all El Chico Restaurants where it is possible to roll a two-wheel cart. Further, where it is possible to roll a two-wheel cart, the SYGMA delivery drivers will separate the order to the Restaurants' freezer, cooler, and storeroom. V. PRICING A. SYGMA will price all products to El Chico on the basis of the following pricing formula: All Meat Products, including $0.10 per pound over cost Ground Beef, Seafood and Poultry All Cheese products $0.10 per pound over cost CORPDAL:63523.1 14047-00001 4 Avocado Pulp $1.75 mark-up over cost All other Fresh Produce 16% gross margin on selling price Soft Drink Syrups Coca-Cola and Dr. Pepper National Account Pricing Chile Con Carne Concentrate $0.1425 per pound over cost Proprietary Products 12.5% gross margin on selling price All other food products 12.5% gross margin on selling price including Fresh Dairy Canned and Dry Goods 12% gross margin on selling price Ecolab Products National Account Pricing Equipment/Smallwares 12% gross margin on selling price All other Non-Food Products 16% gross margin on selling price CORPDAL:63523.1 14047-00001 5 SYGMA and El Chico agree to monitor gross margins with the goal of achieving an overall 9.5% gross margin on selling price prior to any discount or rebates in Sections V.D., V.E. and VIII. If in any period of three consecutive months, the overall gross margin on selling price exceeds 9.6% or is below 9.4%, both parties agree that pricing will be adjusted on mutually agreed upon categories with the goal of achieving a 9.5% overall gross margin on selling price. B. Definition of Cost - The price to El Chico for all products sold under this Distribution Service Agreement will be calculated on the basis of cost. Cost is defined as the cost of the product as shown on the invoice to SYGMA plus applicable freight. The invoice used to determine cost will be the invoice issued to SYGMA by the vendor or by the Merchandising Services Department of SYSCO Corporation. Cost is not reduced by cash discounts for prompt payment available to SYGMA. Promotional allowances reflected on invoices to SYGMA will be passed along as a temporary reduction in cost for the term of the promotion. Applicable freight, in those cases where the invoice cost to SYSCO is not a delivered cost, means that a reasonable freight charge for delivering products to SYGMA has been added. Freight charges may include common or contract charges by the product vendor or a carrier, or charges billed by Alfmark, SYSCO Corporation's freight management service, or charges for shipments back hauled via SYGMA truck. CORPDAL:63523.1 14047-00001 6 Applicable freight for any product will not exceed the rate charged by reputable carriers operating in the same market with the same type of freight service. SYGMA and SYSCO Corporation perform value-added services for suppliers of SYSCO brand and other products over and above procurement activities typically provided. These value-added services include regional and national marketing, freight management, consolidated warehousing, quality assurance and performance based product marketing. SYGMA and SYSCO Corporation may be reimbursed for the costs of providing these services and may also be compensated for these services and consider this compensation to be earned income, but such reimbursements and compensation shall not reduce SYGMA's invoice cost for the related product. Receipt of such cost recovery or earned income for such services does not diminish SYGMA's commitment to provide competitive prices to its customers. Notwithstanding such cost recovery or earned income for such services, (i) promotional allowances reflected on invoices to SYGMA will continue to reduce SYGMA's cost and (ii) SYGMA's cost will continue to reflect volume bracket pricing discounts made available to SYGMA by vendors, and (iii) SYGMA represents that its margins used to calculate prices under this agreement reflect promotional allowances or volume discounts realized by SYGMA through SYSCO purchasing programs. C. Pricing assumes that SYGMA investment in inventory will average 14 days of sales. No one item is assumed to be purchased in excess of three weeks inventory with the exception of smallwares. The parties will mutually agree upon order quantities for new items. In those cases where SYGMA is requested to purchase in quantities exceeding three weeks, except for smallwares, El Chico will compensate SYGMA for any additional costs incurred in carrying the additional inventory. D. A SYGMA item selection rebate will be paid on a quarterly basis on all items purchased from a mutually agreed upon list of products for which SYGMA has discretion to choose the source. To qualify, El Chico must be purchasing a full line of products and must be remitting payment within the stated terms. Mutually agreed upon dry items 0.75% Mutually agreed upon frozen or refrigerated items 1.5% E. All SYSCO branded items qualify for a 1% rebate paid quarterly. To qualify, El Chico must be purchasing a full line of products and must be remitting payment within the stated terms. F. All restaurants will be served from SYGMA-Dallas. CORPDAL:63523.1 14047-00001 7 G. El Chico agrees to require its restaurants to purchase a full line of all products previously identified in Section II, Paragraph A. VI. AUDIT AND FINANCIAL REPORTING A. El Chico's authorized representative shall have the right at all reasonable times to examine SYGMA's product cost records and invoices. El Chico will provide reasonable notice of its intent to conduct any such examination and shall conduct such examination so as to not unreasonably interfere with SYGMA's operations. B. SYGMA will deliver to El Chico quarterly reports of SYSCO Corporation's financial position. C. El Chico will deliver to SYGMA quarterly reports of its financial position and any other public reports filed (i.e., 10-K's, etc.). VII. REPORTING SYGMA will provide El Chico with regular product pricing reports, product usage reports, and other managerial information reports similar to those SYGMA currently provides its other chain restaurant customers. VIII. PAYMENT TERMS El Chico will remit weekly to SYGMA's Dallas lockbox. El Chico will mail the remittance in sufficient time to allow SYGMA's receipt at the lockbox. every Wednesday, and the remittance will pay for all SYGMA invoices from the week ended two Saturdays prior, thereby effectively resulting in 14-day payment terms. SYGMA will ensure that El Chico receives by Wednesday of every week a complete register of invoices and credits, by Restaurants, detailing all such transactions for the week ended the prior Saturday. SYGMA offers El Chico the flexibility to remit on a 7 day, or cash equivalent basis and receive an early-payment discount, provided that the payment for a particular week's shipments (Sunday through Saturday) is received at SYGMA's designated bank by: A. The first Wednesday after shipment week a rebate for one quarter of one percent (0.25%) of the invoice amount early payment allowance for net 7 day payment determined as follows: (S M T W TH F S) (shipment week) 7 days S M T W TH F S ^ ^ Receipt of payment CORPDAL:63523.1 14047-00001 8 B. The second Wednesday after a shipment week provided cash collateral equal to two weeks' worth of purchases is on deposit with SYGMA, a rebate for one half of one percent (0.5%) early payment allowance for cash equivalent payment. (S M T W TH F S) (shipment week) Net 0 days S M T W TH F S S M T W TH F S ^ ^ Receipt of payment IX. FRANCHISEE PARTICIPATION SYGMA will extend service and pricing to any El Chico franchisees equal to that offered to El Chico as specified in this agreement, provided those franchisees perform their obligations equal to those required of El Chico, as specified in this Agreement. At SYGMA's ' election, El Chico franchisees will provide to SYGMA either standby irrevocable letters of credit or personal guarantees supported by acceptable personal financial statements. In no case shall El Chico be responsible for the debts of its franchisees. It is SYGMA's responsibility to establish an independent good faith relationship with all franchisees. El Chico will formally designate to SYGMA the extent of all franchisee participation in El Chico product contracts. SYGMA reserves the right to grant less liberal payment terms to any franchisee whose financial condition does not warrant it. X. INDEMNIFICATION AGAINST FRANCHISEES El Chico is a franchisor and permits distribution under this Distribution Service Agreement to franchisees of El Chico. If for any reason El Chico terminates this Distribution Service Agreement and directs SYGMA to cease distribution or sales of proprietary items bearing trademarks or trade dress owned by El Chico to one or more of such franchisees, El Chico will defend, indemnify and hold SYGMA harmless from and against any and all losses, damages or claims by terminated franchisees which may arise from SYGMA ceasing further sales to such franchisees under this Distribution Service Agreement. XI. CONFIDENTIAL INFORMATION It is understood that SYGMA may be privy, in the course of performing its role as El Chico's exclusive distributor, to certain information as to product ingredients, specifications, and restaurant volumes which are confidential to El Chico. It is understood that El Chico may be privy, in the course of the parties' relationship hereunder, including, without limitation, in the course of conducting examinations the parties' relationship hereunder, including, certain confidential financial information of SYGMA. A. This Confidential Information is and shall remain the sole, exclusive and valuable property of the disclosing party (the "Discloser"), and the receiving party (the "Recipient") shall acquire no right, title or interest therein. Unless the Recipient can CORPDAL:63523.1 14047-00001 9 prove that such Confidential Information came to the Recipient's attention or was in the public domain prior to the Discloser having disclosed such Confidential Information, directly or indirectly, to the Recipient, the Recipient covenants and agrees that it shall hold in confidence all Confidential Information and shall not, without the Discloser's prior written consent, use Confidential Information which may come to its attention, or authorize or permit the use of, any Confidential Information (except as may be required by applicable law or as may be necessary for SYGMA to act as El Chico's exclusive distributor) or disclose or otherwise make available, directly or indirectly, any Confidential Information to any person (except to such employees or agents of the Recipient or SYSCO Corporation as must have access to such information in order to permit SYGMA to act or attempt to act as El Chico's exclusive distributor). The Recipient's obligations hereunder, with respect to the Confidential Information, shall continue for so long as this Agreement remains in effect and following the termination hereof . The Recipient's obligations hereunder with respect to any particular Confidential Information shall in any event cease at such time as such part of the Confidential Information is or becomes a part of the public domain through publication or communication by others, through no fault of the Recipient. The Recipient shall take all such other steps reasonably necessary to ensure that the Confidential Information is not disclosed by any of the Recipient's officers, directors, employees, or agents to any other person or entity. B. The Recipient covenants that it will not copy or reproduce in whole or in part, any of the Confidential Information, and upon termination of this Agreement for any reason whatsoever, the Recipient will promptly deliver to the Discloser's all documents, data, records, and other written Confidential Information. C. The Recipient acknowledges that, irrespective of other causes for terminations specified elsewhere in this Agreement, the Recipient's breach of protection of the Discloser's Confidential Information shall constitute sufficient cause of termination of this Agreement at any time with ninety days written notice. XII. CONTINUATION In the event that either El Chico or SYGMA should sell its stock or assets to another entity or be merged into another entity, this contract shall remain in full force and effect. XIII. SPECIAL PRODUCT INDEMNIFICATION SYGMA's policy is that all suppliers provide indemnity agreements and insurance coverage for products purchased by SYGMA. In order to protect SYGMA when stocks proprietary/special order items at El Chico's request and the vendor of such items will not provide a reasonable indemnity and/or insurance coverage, El Chico will defend, Indemnify and hold harmless SYGMA and its employees, officers and directors from all actions, claims and proceedings, and any judgments, damages and expenses resulting therefrom, brought by any person or entity for injury, illness and/or death or for damage to property in either case CORPDAL:63523.1 14047-00001 10 arising out of the delivery, sale, resale, use or consumption of' any proprietary/special order item except to the extent such claims are caused by the negligence of SYGMA, its agents or employees. XIV. FORCE MAJEURE If SYGMA is unable to perform its obligations under this agreement by reason of labor disputes, strikes, fire, flood, accident, weather, civil disturbances, war, acts of God, failure of sources of supply, and like causes, El Chico may secure its requirements from other sources for such periods of time as are reasonable under the circumstances. XV. NOTICES All notices required or permitted to be given hereunder shall be in writing and sent by United States registered or certified mail, postage prepaid, return receipt requested or (b) reputable express delivery service, such as Federal Express, Express Mail, DHL or UPS, addressed to the parties as follows: to El Chico Restaurants, Inc., 12200 Stemmons Freeway, Dallas, Texas 75234, Attention: Larry White and to The SYGMA Network, Inc., 7125 West Jefferson Avenue, Suite 400, Lakewood, Colorado 80235, Attention: Jerry J. Eggebrecht. All notices shall be effective on receipt. XVI. WARRANTY SYGMA hereby expressly warrants that all goods furnished hereunder shall conform to applicable specifications, brands, samples or other rendered descriptions, that they shall be unadulterated and of high quality and they shall be merchantable and fit for the purpose for which they are intended. XVII. TERM OF AGREEMENT This Agreement will be remain in effect for a minimum three-year term beginning June 30, 1996. This Agreement terminates and supersedes all prior agreements of the parties, whether written or oral. XVIII. TERMINATION A. After the initial three-year term of this Agreement, this Agreement can be terminated by either party with written notice one year in advance of termination. B. El Chico has the right to terminate this Agreement upon the following circumstances: 1. If El Chico has information and knowledge that SYGMA or SYSCO Corporation has significant financial problems and will have difficulty meeting the terms of this Agreement, or CORPDAL:63523.1 14047-00001 11 2. If SYGMA has significantly breached the terms of this Agreement and has failed to cure such breach within 30 days following written notice thereof. C. SYGMA has the right to terminate this Agreement upon the following circumstances: 1. If SYGMA has information and knowledge that El Chico has significant financial problems and will have difficulty meeting the payment terms of this Agreement, or 2. If El Chico has significantly breached the terms of this Agreement and has failed to cure such breach within 30 days following written notice thereof, with respect to non-monetary breaches, or within one week following written notice thereof, with respect to monetary breaches. D. Upon termination, El Chico agrees to purchase, at SYGMA's invoice cost plus freight to SYGMA's distribution centers, all products in SYGMA's inventory which SYGMA has purchased for distribution to El Chico. El Chico also agrees to absorb all freight costs, if any, associated with removing such inventory from the SYGMA distribution centers. XIX. GOVERNING LAW This Agreement shall be governed and construed in accordance with the laws of Texas. Accepted this day of , 19 . ------------- --------------------------- ---- EL CHICO RESTAURANTS, INC. /s/Lawrence E. White - -------------------- Lawrence E. White Executive Vice President and Chief Financial Officer THE SYGMA NETWORK, INC. /s/Jerry J. Eggebrecht - ---------------------- Jerry J. Eggebrecht President CORPDAL:63523.1 14047-00001 12 EXHIBIT I El Chico Service Area [GRAPHIC OMITTED] Twice a week delivery Once a week delivery Twice/Week Delivery Area --------------------------- The Northern boundary to be Interstate 70 (1-70), extending East and West between the boundaries of the Central Standard Time Zone (CST). From the juncture of I-70 at each boundary of the CST, extending South to the Gulf of Mexico on the East and US.-Mexico border on the West. The southern boundary is the natural boundaries formed by the U.S.-Mexico border and/or the Gulf of Mexico. Once/Week-Delivery Area ----------------------------- On the East, Interstate 25 (1-25) extending North from, El Paso, TX to Denver, CO. On the North, Interstate 80 (I-80) extending East to Cleveland, OH. On the East, Interstate 77 (1-77) extending South to Columbia, S.C. From Columbia, Interstate 20 (1-20) west to U.S. Highway I (U.S. 1) at Augusta, GA; and South on U.S. 1 to the juncture of U.S. 1 and U.S. 84. U. S. 84 extending West to the Eastern boundary of the CST and from there, South to the Gulf of Mexico. The Southern boundary is formed by the natural boundaries referred to in the twice per week delivery area. CORPDAL:63523.1 14047-00001 13 SYGMA/ EL CHICO FRANCHISEE PARTICIPATION AGREEMENT I, the undersigned, by signature hereon, agree to all terms and conditions of the Distribution Service Agreement (attached) (the Agreement) by and between The SYGMA Network, Inc., (hereinafter "SYGMA") and El Chico Restaurants, Inc. (hereinafter "El Chico") with respect to purchases of Products (as defined in the Agreement) from SYGMA as if Franchisee were El Chico as such term is used in the Agreement. - ---------------------------- ------------------------------ Entity Name Number of Restaurants - ---------------------------- Signed by - ---------------------------- Title - ---------------------------- Date CORPDAL:63523.1 14047-00001 14 EX-10 4 EXHIBIT 10.18 EL CHICO RESTAURANTS, INC. EXCESS SAVINGS PLAN W I T N E S S E T H: WHEREAS, EL CHICO RESTAURANTS, INC. (the "Company") desires to adopt the EL CHICO RESTAURANTS, INC. EXCESS SAVINGS PLAN effective as of January 1, 1994, for the benefit of its eligible, highly compensated employees. NOW, THEREFORE, the EL CHICO RESTAURANTS, INC. EXCESS SAVINGS PLAN shall be and is hereby adopted effective as of January 1, 1994, to read as follows: CORPDAL:63526.1 14047-00001 1 DEFINITIONS AND CONSTRUCTION 1.01 Definitions. Where the following words and phrases appear in this Plan, they shall have the respective meanings set forth below, unless their context clearly indicates to the contrary: (1) Accounts: A Participant's Savings Account. This Account may be divided into subaccounts as appropriate. (2) Act: The "Employee Retirement Income Security Act of 1974", as amended from time to time. (3) Authorized Leave of Absence: Any absence authorized by the Company under the Company's standard personnel practices, provided that all persons under similar circumstances must be treated alike in the granting of such Authorized Leaves of Absence. (4) Benefit Disbursement Date: With respect to each Participant, the date the first payment is made under this Plan to provide a benefit for such Participant or his beneficiary. In general, this date shall occur within thirty (30) days after the Participant's death, certified disability or other severance from employment. (5) Code: The Internal Revenue Code of 1986, as amended. (6) Commencement Date: The date on which an employee first performs an Hour of Service. (7) Committee: The administrative committee appointed by the directors to administer the Plan. (8) Company: El Chico Restaurants, Inc., a Texas corporation whose corporate offices are located in Dallas, Texas. (9) Compensation: The total of all wages and other amounts paid by the Company or any Employing Company (in the course of its business) to or for the benefit of an employee for services rendered or labor performed which is required to be reported on the employee's Form W-2, excluding, however, amounts paid or reimbursed by the company or employing Company for moving expenses incurred by the Employee (but only to the extent it is reasonable to believe at the time of the payment that the moving expenses will be deductible under Section 217 of the Code), and without regard to any rules that limit the amount to be included in wages based on the nature or location of the service performed. Notwithstanding the foregoing, for purposes of Sections 1.01(11) and 4.01, a Participant's Compensation shall include amounts which he could have received in cash in lieu of a Savings Deferral under this Plan and any salary deferral or elective contributions under any code Section 401(k) or cafeteria plan. (10) Directors: The Board of Directors of the Company. CORPDAL:63526.1 14047-00001 2 (11) Eligible Employee: Any Salaried Employee: (i) whose annual rate of Compensation as determined on his commencement Date, is in excess of the Fifty Thousand dollar ($50,000) amount set forth in section 414(q) (1)(C) of the Code as adjusted from time to time by the Secretary of the Treasury; or (ii) who, for any year after 1992 and immediately before the year for which eligibility for participation is being determined, earned Compensation in excess of the Fifty Thousand dollar ($50,000) amount set forth in section 414(q)(1)(C) of the Code, as adjusted from time to time by the Secretary of the Treasury. (12) Employee: Any individual employed by the Company, or by any other employing Company. (13) Employing Company: The Company and any other corporation, association, partnership or proprietorship which adopts this Plan in accordance with the consent of the Company shall be called an "Employing Company". Such Employing Company shall be identified in Appendix A hereto. (14) Enrollment Form: That form provided by the Committee pursuant to which the Participant authorizes the Company to reduce his future Compensation in the form of Savings Deferrals. (15) Hours of Service: See Section 3.01(a) herein. (16) Participant: Any employee who has met the eligibility requirements for participation in this Plan as set forth in Article III herein and has elected to participate by filing a properly executed Enrollment Form. (17) Plan: El Chico Restaurants, Inc. Excess Savings Plan, which is a nonqualified, unfunded plan of deferred compensation, as it may be amended from time to time. (18) Plan Quarter: Any three (3 consecutive month period commencing on January 1, April 1, July 1 or October 1 of any Plan Year. (19) Plan Year: Any twelve (12) consecutive month period commencing upon January 1 of each year. (20) Salaried Employee: An Employee who is listed in the Company's books and paid on a salaried basis. (21) Savings Account: An individual bookkeeping account for each Participant to which is credited the Savings Deferrals made by such Participant and to which is credited or debited such Account's allocation of net income or net loss determined on the basis of the performance of the fund, or funds, in which such account is considered to be invested. This account will include both Savings Deferrals by participants and any discretionary company matching contribution made pursuant to Section 4.02 hereof. CORPDAL:63526.1 14047-00001 3 (22) Savings Deferrals: Deferrals made under the Plan by a Participant in accordance with the Participant's elections to defer Compensation under the Plan's deferral arrangement as described in Section 4.01. (23) Taxable Year: The annual accounting period adopted by the Company for federal income tax purposes. (24) Trust Agreement: Any agreement entered into between the Company and a Trustee establishing a trust to hold and invest some or all of the contributions made under the Plan and from which the benefits may be distributed. Any such agreement must be a model trust agreement as approved by the Internal revenue Service in Rev. Proc. 92-64 or its successor. (25) Trust Fund: Any funds and properties held pursuant to the provisions of the Trust Agreement for the use and benefit of the Participants and their beneficiaries, or the creditors of the Company in the event of the Company's insolvency, together with all income, profits and increments thereto. (26) Trustee: The trustee or trustees qualified and acting under the Trust Agreement that may, at any time, form part of this Plan. (27) Valuation Date: The last day of any calendar month (or the next preceding business day if such date falls on a weekend or holiday), and such other date(s) as the Committee may designate from time to time. 1.02 Number and Gender. Wherever appropriate herein, words used in the singular shall be considered to include the plural and the plural to include the singular. The masculine gender, where appearing in this Plan, shall be deemed to include the feminine gender. 1.03 Headings. The headings of Articles and Sections herein are included solely for convenience and if there is any conflict between such headings and the text of the Plan, the text shall control. II. ADMINISTRATION 2.01 Appointment of Committee. The general administration of the Plan shall be vested in the Committee which shall be appointed by the directors and shall consist of three (3) or more persons. Any individual, whether or not an Employee, is eligible to become a member of the Committee. Each member of the Committee shall, before entering upon the performance of his duties, qualify by signing a consent to serve as a member of the Committee under and pursuant to the Plan and by filing such consent with the records of the Committee. CORPDAL:63526.1 14047-00001 4 2.02 Term, Vacancies, Resignation and Removal. Each member of the Committee shall serve for a term of one (1) year and thereafter until his successor is appointed. The directors may, in their discretion, reappoint a member of the Committee for a subsequent term or terms. If at any time and for any reason there is a vacancy on the Committee, the Directors shall appoint a substitute member to fill such vacancy for the remainder of the then current one (1) year term. At any time during his term of office, a member of the Committee may resign by giving written notice to the directors and the Committee, such resignation to become effective upon receipt by the Company. At any time during his term of office, and for any reason, a member of the Committee may be removed by the directors. 2.03 Officers, Records and Procedures. The Committee may select officers and may appoint a secretary who need not be a member of the Committee. The Committee shall keep appropriate records of its proceedings and the administration of the Plan and shall make available for examination during business hours to any Participant or beneficiary of a deceased participant such records as pertain to that individual's interest in the Plan. The Committee shall designate the person or persons who shall be authorized to sign for the Committee and, upon such designation, the signature of such person or persons shall bind the Committee. 2.04 Meetings. The Committee shall hold meetings upon such notice and at such time and places as it may from time to time determine. Notice to a member shall not be required if waived in writing by that member. A majority of the members of the Committee duly appointed shall constitute a quorum for the transaction of business. All resolutions or other actions taken by the Committee at any meeting where a quorum is present shall be by vote of a majority of those present at such meeting and entitled to vote. Resolutions may be adopted or other action taken without a meeting upon written consent signed by all of the members of the Committee. 2.05 Self-Interest of Participants. No member of the Committee shall have any right to vote or decide upon any matter relating solely to himself under the Plan or to vote in any case in which his individual right to claim any benefit under the Plan is particularly involved. In any case in which a Committee member is so disqualified to act, and the remaining members cannot disagree, the directors shall decide the matter in which such Committee member is disqualified. 2.06 Claims Review. Upon retirement, death or other severance of employment, a Participant, his beneficiary or representative shall make application to the Committee requesting payment of benefits due him and the manner of payment. The Committee shall accept, reject or modify such request and shall no later than sixty (60) days after receipt of the claim notify the Participant, beneficiary or representative in writing, setting forth the response of the Committee and, in the case of a denial or modification, the Committee shall: (a) state the specific reason or reasons for the denial or modification; (b) provide specific reference to pertinent Plan provisions on which the denial or modification is based; CORPDAL:63526.1 14047-00001 5 (c) provide a description of any additional material or information necessary for the Participant, his beneficiary or representative to perfect the claim and an explanation of why such material or information is necessary; and (d) explain the Plan's claim review procedure as contained herein. In the event the request is denied or modified, and the participant, beneficiary or representative desires to have such denial or modification reviewed, he must, within sixty (60) days following receipt of the notice of such denial or modification, submit a written request for review by the Committee of its initial decision. Within sixty (60) days following such request for review (unless special circumstances, such as the need to hold a hearing, if necessary, requires an extension of time for processing, in which case upon notice to the claimant before the expiration of such sixty (60) day period, such period shall be extended to one hundred twenty (120) days) the Committee shall, after providing a full and fair hearing, render its final decision in writing to the Participant, beneficiary or representative stating specific reasons for such decision. 2.07 Compensation, Bonding and Expenses of Committee Members. The members of the Committee shall not receive compensation with respect to their services for the Committee. To the extent required by applicable law, or required by the Company, members of the Committee shall furnish bond or security for the performance of their duties hereunder. Any expenses properly incurred by the Committee incident to the administration, termination, or protection of the Plan and Trust, including the cost of furnishing any bond or security, shall be paid as provided in Section 10.01. 2.08 Committee Powers and Duties. The Committee shall supervise the administration and enforcement of the Plan according to the terms and provisions hereof and shall have all powers necessary to accomplish these purposes, including, but not by way of limitation, the right, power, authority and duty: (a) to make rules, regulations and bylaws for the administration of the Plan which are not inconsistent with the terms and provisions hereof, provided such rules, regulations and bylaws are evidenced in writing and copies thereof are delivered to the Trustee and to the Company; (b) to construe all terms, provisions, conditions and limitations of the Plan, and in all such cases, the construction necessary for the Plan to qualify under the applicable provisions of the Code shall control; (c) to correct any defect or supply any omission or reconcile any inconsistency that may appear in the Plan, in such manner and to such extent as it shall deem expedient to carry the Plan into effect for the greatest benefit of all interested parties; (d) to employ and compensate such accountants, attorneys, investment advisors and other agents and employees as the Committee may deem necessary or advisable in the proper and efficient administration of the Plan; CORPDAL:63526.1 14047-00001 6 (e) to determine all questions relating to eligibility; (f) to determine the amount, manner and time of payment of any benefits hereunder and to prescribe procedures to be followed by distributees in obtaining benefits; (g) to make a determination as to the right of any person to a benefit under the Plan; and (i) to receive and review reports from the Trustee as to the financial condition of the Trust Fund, including its receipts and disbursements. Every interpretation, choice, determination or other exercise, by the Committee of its discretion, whether such discretion is either expressly or by implication authorized in this Plan, shall be conclusive and binding on all parties directly or indirectly affected without restriction, however, on the right of the Committee in its sole and absolute discretion to reconsider and redetermine such actions. 2.09 Investment Power. Notwithstanding anything to the contrary contained herein, in addition to the power to appoint an investment manager, the Committee shall have the power to direct the Trustee as to any investments which otherwise are to be made in the Trustee's discretion; provided, however, that should the Committee exercise this power, the Trustee shall be relieved of liability with respect to investments to the extent permitted by law. 2.10 Company to Supply Information. The Company shall supply full and timely information to the Committee relating to the compensation of all Participants, their ages, their retirement, death or other cause for termination of employment and such other pertinent facts as the Committee may require. The Company shall advise the Trustee of such of the foregoing facts as are deemed necessary for the Trustee to carry out the Trustee's duties under the Plan. When making a determination in connection with the Plan, the Committee shall be entitled to rely upon the aforesaid information furnished by the Company. 2.11 Company to Indemnify Committee. To the extent permitted by law, the Company shall indemnify any member of the Committee, and any other person who performs services to the Plan on an uncompensated basis, and hold him harmless against any and all liabilities, losses, costs and expenses (including legal fees and expenses) of whatsoever kind and nature which may be imposed on or incurred by or asserted against him at any time by reason of his services to the Plan if he did not act dishonestly or otherwise in willful violation of the law under which such liability, cost or expense arises. This indemnity shall not preclude such other indemnities as may be available under insurance purchased by the Company or under any bylaw, agreement, action of shareholders or disinterested directors or otherwise, to the extent permitted by law. Payments of any indemnity, expenses or fees under this Section shall be made solely from assets of the Company and not, directly or indirectly, from trust funds. CORPDAL:63526.1 14047-00001 7 III. PARTICIPATION 3.01(a) Eligibility. Any Eligible Employee shall be entitled to become a Participant commencing with the first pay period beginning on or after the first day of the immediately following Plan Year provided such Eligible Employee is at least 21 years of age and has completed one (1) Year of Service. A "Year of Service" is defined as each Plan Year in which the Employee is credited with one thousand (1,000) Hours of Service. An "Hour of Service" is defined as each hour for which the Employee is paid or entitled to payment by the Company, an Employing Company or any related employer under the Code. Hours of Service shall be determined on the basis of months worked; an Employee shall be credited with one hundred ninety (190) Hours of Service for a month if such Employee would be credited with at least one (1) Hour of Service during that month. Any Eligible Employee who was a Participant prior to a termination of his employment shall be eligible to become a Participant immediately upon his reemployment (or, if later attaining status) as an Eligible Employee. Participation in the Plan is voluntary. Any Eligible Employee entitled to become a Participant may do so upon the date on which he first becomes so entitled by executing and filing with the Committee, prior to such date, the Enrollment Form prescribed by the Committee. Any Eligible Employee who does not become a Participant upon the date on which he first becomes entitled may become a Participant with the first pay period beginning on or after the first day of any subsequent Plan Year by executing and filing such Enrollment Form prior to the first day of such Plan Year. 3.01(b) Effect of Change in Compensation. If a Participant's Compensation in a subsequent year drops below the dollar limitation referred to in Section 1.01(12)(ii), such Participant shall no longer be considered eligible to participate (since he is no longer an Eligible Employee) for the next Plan Year or any subsequent Plan Year until he again becomes an Eligible Employee. Upon becoming an Eligible Employee in a Plan Year, the participant may again make an election to participate commencing with the first pay period beginning on or after the first day of the next following Plan Year. CORPDAL:63526.1 14047-00001 8 IV. DEFERRED COMPENSATION 4.01 Savings Deferrals. (a) An eligible Participant may elect to defer from four percent (4%) to one hundred percent (100%) of Compensation to be credited to his Savings Account under the Plan. Compensation for a Plan Year not so deferred by such election or by any other applicable deferral election [e.g., Section 125 of the Code] shall be received by such Participant in cash. A Participant's initial election to defer an amount of his Compensation pursuant to this Section 4.01 shall be made by properly executing an Enrollment Form. The reduction in a Participant's Compensation for a Plan Year pursuant to his election under an enrollment Form shall be effected by Compensation reductions as of each payroll period within such Plan Year. (b) An eligible Participant's Enrollment Form shall be effective as to Compensation earned on and after the first pay period commencing on or after the first day of the first Plan Year after it is executed. An Enrollment Form, once executed, shall remain in force and effect for all periods following the date of its execution until modified or terminated or until such Participant terminates his employment. A Participant who has elected to defer a portion of his Compensation may change his deferral election percentage within the percentage limits set forth in Subsection (a) above, effective as of the first pay period commencing on or after the first day of any future Plan Year, by executing a New Enrollment Form prior to the first day of such Plan Year. (c) An eligible Participant may cancel his enrollment Form, effective as of the first pay period commencing on or after the first day of any future Plan Year, by executing the form prescribed by the Committee for such purpose prior to the beginning of such future Plan Year. An eligible Participant who so cancels his Enrollment Form may resume active participation in the Plan, effective as of the first pay period commencing on or after the first day of any subsequent Plan Year, by executing a new Enrollment Form prior to the first day of such subsequent Plan Year. 4.02 Employer Contributions. The Company and any Employing Company may, in its sole and absolute discretion, credit discretionary company matching contributions under the Plan after the end of each Plan Year in such amounts and percentages of Savings Deferrals of eligible Participants for the Plan Year as determined by the Company and any Employing Company at that time. Any discretionary company matching contributions shall be credited to each eligible Participant's Savings Account in accordance with the matching scheme set forth by the Company or an Employing Company. CORPDAL:63526.1 14047-00001 9 4.03 Payments to Trustee. Amounts credited under the Plan may only be contributed directly to the Trust Fund at any time. On or about the date of any such contribution, the Committee shall be informed as to the amount of such contribution. CORPDAL:63526.1 14047-00001 10 V. ALLOCATIONS, ADJUSTMENTS AND WITHDRAWALS IN ACCOUNT VALUES OF FUNDS 5.01 Allocation of Deferrals. (a) Savings Deferrals made by a Participant pursuant to Section 4.01 shall be credited to such Participant's Savings Account as of the last day of the pay period in which they are deferred. (b) Each Participant's Accounts shall be divided into subaccounts to reflect such Participant's investment designation in a particular fund option(s) pursuant to Section 5.03, his distribution designation made on the enrollment Form or Forms, or for any other good administrative purpose. 5.02 Valuation of Accounts and Adjustment for Earnings and Losses. (a) A Participant's Accounts shall be adjusted as of each applicable Valuation Date to reflect the earnings and/or losses that would have resulted if those Accounts had been invested in accordance with the Participant's selection of the mutual fund options described in Section 5.03. All Accounts and subaccounts shall be valued at fair market value as of the Valuation Date. (b) If a Participant's employment is terminated for any reason or he is no longer eligible to participate in this Plan, such participant's Savings Account under this Plan shall continue to receive periodic adjustments pursuant to this Section; provided, however, that the value of such Account as of the date of the preceding Valuation Date shall reduced by the amount of any payments made therefrom since the date of such preceding valuation. 5.03 Investment Options. (a) Subject to any limitations in Section 5 of the Trust Agreement, a Participant may designate how much of his Savings Deferrals and Savings Account shall be considered to be invested in each fund option. Subject to Subsection (c) below, a Participant may designate all of his Savings Deferrals to any one fund option or any combination of fund options so long as the percentage designated to any one fund option is a specified whole percentage of his Savings Deferrals of Savings Account. No other type of designation will be permitted. (b) Subject to any limitation in Section 5 of the Trust Agreement, a Participant may change his option designation for his future Savings Deferrals, at any time, effective as of the first day of the first pay period beginning in the next Plan Quarter and/or his designation for his existing Savings Account balances, effective as of the first day of CORPDAL:63526.1 14047-00001 11 the next Plan Quarter, by instruction through a telephone access system made before the beginning of such Plan Quarter. Any and all changes in options shall be in whole percentages of his Savings Deferrals or his Savings Account balance. 5.04 Withdrawals. (a) A Participant who has an unforeseeable emergency, as determined by the Committee, may withdraw from his Savings Account an amount not to exceed the lesser of: (i) the then value of his Savings Account as of the Valuation Date coincident with or immediately preceding the withdrawal, or (ii) the lesser amount determined by the Committee under the standards set forth herein, as being available for withdrawal pursuant to this Section. For purposes of this Section, "unforeseeable emergency" means an unanticipated emergency that is caused by an event beyond the control of the Participant and that would result in severe financial hardship to the Participant if early withdrawal were not permitted. A withdrawal based upon unforeseeable emergency pursuant to this section shall not exceed the amount required to meet the immediate financial need created by the unforeseeable emergency (including the amount required to pay taxes due on the withdrawal) and not reasonably available from other resources of the Participant. The determination of the existence of a Participant's unforeseeable emergency and the amount required to be distributed to meet the need created by the unforeseeable emergency shall be made by the Committee. (b) A Participant may elect to withdraw the full value of his or her Savings Account by making an election in accordance with any uniform procedure prescribed by the Committee and in effect from time to time, any such election must be made two (2) years before the date the withdrawal is to be made and is irrevocable once made. Commencing as of the beginning of the Plan quarter after the withdrawal is received, the Participant's right to make any Salary Deferrals under the Plan shall be suspended for two (2) complete years. CORPDAL:63526.1 14047-00001 12 VI. SEVERANCE BENEFITS 6.01 Severance Benefit. Each Participant whose employment is terminated for any reason other than certified disability or death shall be paid a benefit equal in value to the value of his savings Account (inclusive of any Savings Deferrals credited after a Valuation Date), as of the Valuation Date coincident with or immediately preceding his Benefit Disbursement Date. A Participant shall at all times have a 100% fully vested nonforfeitable interest in his Savings Account. 6.02 Termination of Employment. The following shall not constitute a termination of employment for purposes of distribution of benefits under the Plan: (a) An Authorized Leave of Absence, provided, however, that failure to return to the employ of the Company upon the expiration of such authorized Leave of Absence shall constitute a termination as of the date of such expiration; or (b) Transfer to employment with any Employing Company. 6.03 Sale of Assets. Notwithstanding any other provision of the Plan to the contrary, in the event that either the Company or other Employing Company sells substantially all of its assets used by in its trade or business, an Employee who continues employment with the entity acquiring such assets shall be considered to have severed employment and shall be entitled to receive a distribution in an amount equal in value to the value of his Account determined as of the Valuation Date coincident with or immediately preceding his Benefit Disbursement Date. CORPDAL:63526.1 14047-00001 13 VII. DISABILITY BENEFITS 7.01 Disability Determined. Upon written request by the Participant or upon the Committee's own initiative, the Committee shall determine whether a participant has become unable to perform the duties of his position due to a physical or mental disability and shall so notify such Participant within sixty (60) days thereafter. A Participant shall be considered disabled if such disability is so certified by the Committee and, unless waived by the Committee as unnecessary, supported by a written medical opinion that such participant will be incapable of performing his job for physical or mental reasons. 7.02 Disability Benefits. In the event of the disability of a Participant, as of the Committee's certification thereof, such Participant and shall be paid a benefit equal in value to the value of his Account as of the Valuation Date coincident with or immediately preceding his Benefit Disbursement Date. CORPDAL:63526.1 14047-00001 14 VIII. DEATH BENEFITS 8.01 Death Benefits. Upon the death of a Participant, the Participant's beneficiary shall be entitled to a benefit equal in value to the value of the Participant's Savings Account as of the Valuation Date coincident with or immediately preceding his Benefit Disbursement Date. 8.02 Designation of Beneficiaries. (a) Each Participant shall have the unrestricted right to designate the beneficiary or beneficiaries to receive payment of his benefit. Each such designation shall be made by executing a "Beneficiary Designation Form" and filing same with the Committee. Any such designation may be changed at any time by execution of a new designation in accordance with this Section. Notwithstanding the foregoing, if a Participant who is married on the date of his death designates other than his surviving spouse as his beneficiary, such designation shall not be effective unless: (i) such spouse has consented thereto in writing, and such consent acknowledges the effect of such designation and is witnessed by a Plan representative (other than the Participant) or a notary public; or (ii) such consent may not be obtained because such spouse cannot be located or because of other circumstances described by applicable Treasury regulations. (b) If no such designation is on file with the Committee, at the time of the death of the Participant or such designation is not effective for any reason as determined by the Committee, then the designated beneficiary or beneficiaries to receive such benefit shall be as follows: (1) If a Participant leaves a surviving spouse, his benefit shall be paid to such surviving spouse; (2) If a Participant leaves no surviving spouse, his benefit shall be paid to such Participant's executor or administrator. 8.03 Benefits Payable to Minors or Other Persons with Limited Financial Responsibility. If any amount is payable under this Plan either to a minor or to any beneficiary who appears to have limited or restricted financial responsibility, the Committee shall have the sole and absolute right to either pay such benefits to such person or to pay such benefits to a custodial parent or guardian or guardian ad litem of such minor or other person or to the trustee of a Medicare support trust for such person, or to such other person or persons as the committee shall determine. The Committee shall have the right but not the duty to delay payments under this Plan until the committee's receipt of a court order designating the person to whom such payments shall be made, the cost of which shall be born by the beneficiary or guardian and not the Plan. CORPDAL:63526.1 14047-00001 15 IX. TIME AND MANNER OF PAYMENT OF BENEFITS 9.01 Form of Benefits for Participants. For all purposes of the Plan, benefits shall be paid in a lump sum in cash. 9.02 Death Benefits. For purposes of article VIII, the death benefit for a deceased Participant shall be paid to his designated beneficiary in a lump sum in cash. CORPDAL:63526.1 14047-00001 16 X. ADMINISTRATION OF FUNDS 10.01 Payment of Expenses. All expenses incident to the administration of the Plan and any related Trust may be paid by the company and, if not paid by the Company, shall be paid by the Trustee from the Trust Fund and, until paid, shall constitute a claim against the Trust Fund which is paramount to the claims of Participants and beneficiaries. 10.02 Trust Fund Property. All income, profits, recoveries, contributions, and any and all moneys, securities and properties of any kind at any time received or held by the Trustee hereunder shall be held for investment purposes in accordance with this Plan. The Committee shall maintain accounts in the name of each Participant, but the maintenance of an account designated as the account of a Participant shall not mean that such participant shall have a greater or lesser interest than that due him by operation of the Plan and shall not be considered as segregating any funds or property from any other funds or property contained in the commingled funds. No Participant shall have any title to any specific asset in the Trust Fund. 10.03 Distributions from Participants' Accounts. Distributions representing any or all of the credit value of a Participant's Accounts shall be made by the Company or the Trustee only if, when, and in the amount and manner directed in writing by the Committee. Any distribution made to a Participant or for his benefit shall be debited against such participant's Account value. The trustee may make any payment required of the trustee hereunder by mailing or delivering the Trustee's check to the person to whom such payment is to be made or may make such payment by a distribution in kind or partly in kind and partly in cash. The Company may act as the Trustee's agent in delivering the Trustee's check (or other property) to the person to whom a benefit payment is to be made. CORPDAL:63526.1 14047-00001 17 XI. TRUST FUND 11.01 Trust Must Be Grantor Trust. As a means of administering the amounts credited to participants and anticipating the liability the Company will incur under the terms of this Plan, the Company may enter into one or more Trust Agreements with one or more Trustees and contribute to the Trust(s) assets that shall be held therein subject to the claims of the Company's creditors in the event of the Company's bankruptcy or insolvency until paid to participants and their Beneficiaries in such manner and at such times as specified in this Plan; provided, however, that any such Trust Agreement and any assets held by the Trustee to assist it in meeting its obligations shall conform to the terms of the Internal Revenue Service model grantor trust agreement as set forth in Revenue Procedure 92-64 or its successor. The Trust Agreement may be amended from time to time as the Company deems advisable, and as the Internal Revenue Service may require or permit, in order to effectuate the purpose of the Plan. In the event of the merger, acquisition, or reorganization of the Trustee, the surviving entity, if still empowered with trust powers, shall continue as Trustee unless and until removed as otherwise provided in the Trust Agreement. CORPDAL:63526.1 14047-00001 18 XII. FIDUCIARY 12.01 Article Controls. This Article shall control over any contrary, inconsistent or ambiguous provisions contained in the Plan. 12.02 General Allocation of Duties. each fiduciary with respect to the Plan shall have only those specific powers, duties, responsibilities and obligations as are specifically given him under the Plan. The Directors shall have the sole responsibility for authorizing contributions under the Plan and shall have the sole authority to appoint and remove members of the Committee and to amend or terminate this Plan in whole or in part. The directors shall also have the authority to appoint and remove the Trustee and to override the authority of the Committee in this regard. Except as otherwise specifically provided, the Trustee shall have the sole responsibility for the administration, investment and management of the assets held under the Plan. It is intended under the Plan that each fiduciary shall be responsible for the proper exercise of his own powers, duties, responsibilities and obligations hereunder and shall not be responsible for any act or failure to act of another fiduciary except to the extent provided by law or as specifically provided herein. 12.03 Delegation and Allocation. The Committee may appoint subcommittees, individuals or any other agents as it deems advisable and may delegate to any of such appointees any or all of the powers and duties of the Committee. Such appointment and delegation must be in writing, specifying the powers or duties being delegated, and must be accepted in writing by the delegatee. Upon such appointment, delegation and acceptance, the delegating Committee members shall have no liability for the acts or omissions of any such delegatee, as long as the delegating Committee members do not violate their fiduciary responsibility in making or continuing such delegation. CORPDAL:63526.1 14047-00001 19 XIII. AMENDMENTS No amendment of the Plan may be made which would reduce any then nonforfeitable interest of a Participant. Subject to these limitations, the Company may make any amendment to the Plan including, but not limited to, an increase or decrease of deferrals or contributions, a change or modification of the method of allocation of contributions, or a change of the provisions relating to the administration of the Plan. In the event of an amendment, each employing company will be deemed to have consented to and adopted the amendment unless the Employing Company notifies El Chico Restaurants, Inc., the Committee and the Trustee to the contrary in writing within thirty (30) days after receipt of a copy of the amendment, in which case the rejection will constitute a withdrawal from the Plan and Trust by that Employing Company. CORPDAL:63526.1 14047-00001 20 XIV. DISCONTINUATION OF CONTRIBUTIONS AND TERMINATION 14.01 Declaration of Intent. The Company has established the Plan with the bona fide intention and expectation that from year to year it will be able to, and will deem it advisable to, maintain the Plan as herein provided. However, the Company realizes that circumstances not now foreseen, or circumstances beyond its control, may make it either impossible or inadvisable to continue the Plan. Therefore, the Company shall have the power to discontinue credits under the Plan, terminate the Plan or partially terminate the Plan at any time hereafter. Each member of the Committee and the Trustee shall be notified of such discontinuance, termination or partial termination. 14.02 Administration of Plan in Case of Discontinuance of Contributions or Termination. (a) Unless the Plan is otherwise amended prior to dissolution of the Company, the Plan shall terminate as of the date of dissolution of the Company. (b) Upon discontinuance or termination, any previously unallocated contributions, credits and net increment (or net decrement) shall be allocated among the Accounts of the Participants on such date of discontinuance or termination according to the provisions of Article V, as if such date of discontinuance or termination were a Valuation Date. Thereafter, the net increments (or net decrements) shall continue to be allocated to the Accounts of the Participants until the balances are distributed. In the event of termination, the date of the final distribution shall be treated as a Valuation Date. CORPDAL:63526.1 14047-00001 21 XV. MISCELLANEOUS 15.01 Not Contract of Employment. The adoption and maintenance of this Plan shall not be deemed to be a contract between the Company and any person or to be consideration for the employment of any person. Nothing herein contained shall be deemed to give any person the right to be retained in the employ of the Company or to restrict the right of the Company to discharge any person at any time nor shall the Plan be deemed to give the Company the right to require any person to remain in the employ of the Company or to restrict any person's right to terminate his employment at anytime . 15.02 Rights to Payments of a Claim Against General Assets of the Company. This Plan is intended to be an unfunded plan for purposes of the Code and Title I of the Act. A Participant's status to enforce his rights under the Plan is that of a general unsecured creditor of the Company and the Plan constitutes a mere promise by the Company or other Employing Company to make benefit payments in the future. 15.03 Alienation of Interest Forbidden. No right or interest of any kind in any benefit shall be transferable or assignable by any Participant or any beneficiary or be subject to anticipation, adjustment, alienation, encumbrance, garnishment, attachment, execution or levy or any other legal or equitable process. 15.04 Severability. If any provision of this Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining provisions hereof; instead, each provision shall be fully severable and the Plan shall be construed and enforced as if said illegal or invalid provision had never been included herein. 15.05 Jurisdiction. The situs of the Plan hereby created is Dallas County, Texas. All provisions of the Plan shall be construed in accordance with the laws of the State of Texas except to the extent preempted by federal law. CORPDAL:63526.1 14047-00001 22 IN WITNESS WHEREOF, El Chico Restaurants, Inc. has caused this Plan to be executed this 1st day of January, 1994 . EL CHICO RESTAURANTS, INC. ATTEST:/s/John A. Cuellar By:/s/Lawrence E. White ------------------- -------------------------- Secretary Name:Lawrence E. White ------------------------ Its: ------------------------- CORPDAL:63526.1 14047-00001 23 FIRST AMENDMENT TO THE EL CHICO RESTAURANTS, INC. EXCESS SAVINGS PLAN W I T N E S S E T H: WHEREAS, EL CHICO RESTAURANTS, INC. (the "Company") adopted the EL CHICO RESTAURANTS, INC. EXCESS SAVINGS PLAN effective as of January 1, 1994, for the benefit of its eligible, highly compensated employees; WHEREAS, the Company reserved the right to amend the Plan and desires to amend the Plan, effective January 1, 1996; NOW, THEREFORE, the EL CHICO RESTAURANTS, INC. EXCESS SAVINGS PLAN is hereby amended as follows: The first paragraph of Section 3.01(a) of the Plan is amended to read as follows: 3.01(a) Eligibility. Any Eligible Employee shall be entitled to become a Participant commencing with the first pay period beginning on or after the first day of the immediately following Plan Year provided such Eligible Employee is at least 21 years of age and commenced employment with the Employing Company no later than July 1 of the year. IN WITNESS WHEREOF, El Chico Restaurants, Inc. has caused this First Amendment to the Plan to be executed this 29th day of December, 1995. EL CHICO RESTAURANTS, INC. By:/s/Lawrence E. White ----------------------- Name:Lawrence E. White --------------------- Its:Executive Vice President ------------------------- ATTEST: - ---------------------------- Secretary CORPDAL:63525.1 14047-00001 AMENDMENT NUMBER ONE TO THE EL CHICO SAVINGS PLAN WITNESSETH: WHEREAS, EL CHICO RESTAURANTS, INC. (the "Company") adopted The El Chico Savings Plan effective as of January 1, 1985 and restated as of October 1,1995, for the benefit of its eligible employees; WHEREAS, the Company reserved the right to amend the restated Plan, and desires to adopt this First Amendment to the Plan, effective January 1, 1997; Section 1.8 of the Plan is amended to read as follows: "Compensation" with respect to any participant means such participant's wages as defined in Code Section 3401(a) and all other payments of compensation by the Employer (in the course of the employer's trade or business) for a Plan Year for which the Employer is required to furnish the participant a written statement under Code Sections 6041(d), 6051(a)(3) and 6052. "Compensation" shall exclude amounts paid or reimbursed by the Employer for moving expenses incurred by a Participant, but only to the extent that at the time of the payment it is reasonable to believe that these amounts are deductible by the Participant under Section 217. Compensation must be determined without regard to any rules under Code Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)). for purposes of this Section, the determination of compensation shall be made by: (a) including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includable in the gross income of the Participant under Code Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or 457, and employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. (b) excluding amounts realized from the exercise of a non-qualified stock option, or when restricted stock held by an employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture. Compensation shall be determined without regard to any rules that limit the amount to be included in wages based on the nature or location of the service performed. (the balance of this section to remain as listed in the October 1, 1995 plan document). IN WITNESS WHEREOF, El Chico Restaurants, Inc. has caused this First Plan Amendment to the Plan be executed this 6th day of February, 1997. EL CHICO RESTAURANTS, INC. By:/s/Lawrence E. White ----------------------- Name:Lawrence E. White --------------------- Title:Executive Vice President ------------------------ CORPDAL:63525.1 14047-00001 SECOND AMENDMENT TO THE EL CHICO RESTAURANTS, INC. EXCESS SAVINGS PLAN W I T N E S S T H: WHEREAS, EL CHICO RESTAURANTS, INC. (the "Company") adopted the EL CHICO RESTAURANTS, INC. EXCESS SAVINGS PLAN effective as of January 1, 1994, for the benefit of its eligible, highly compensated employees; WHEREAS, the Company reserved the right to amend the Plan, and desires to adopt this Second Amendment to the Plan, effective January 1, 1997; NOW, THEREFORE the EL CHICO RESTAURANTS, INC. EXCESS SAVINGS PLAN is hereby amended as follows: F I R S T Section 1.01(9) of the Plan is amended to read as follows: (9) Compensation: The total of all wages and other amounts paid by the Company or any Employing Company (in the course of its business) to or for the benefit of an Employee for services rendered or labor performed which is required to be reported on the Employee's Form W-2, excluding, however, (i) amounts paid or reimbursed by the Company or Employing Company for moving expenses incurred by the Employee (but only to the extent it is reasonable to believe at the time of the payment that the moving expenses will be deductible under Section 217 of the Code), and (ii) amounts realized from the exercise of a non-qualified stock option, or when restricted stock held by an employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture. Compensation shall be determined without regard to any rules that limit the amount to be included in wages based on the nature or location of the service performed. Notwithstanding the foregoing, for purposes of Section 1.01(11) and 4.01, a Participant's Compensation shall include amounts which he could have received in cash in lieu of a Savings Deferral under this Plan and any salary deferral or elective contributions under any Code Section 401(k) or cafeteria plan. S E C O N D Section 1.01(11) of the Plan is amended to read as follows: (11) Eligible Employee: Any Salaried Employee who is included within a "select group of management or highly compensated employees," as such term is CORPDAL:63576.1 14047-00001 used in Section 401(a)(1) of ERISA, who is designated by the Committee as eligible to participate in this Plan; provided, however, that in the absence of a written Committee resolution specifying the Eligible Employees for a Plan Year, a Salaried Employee shall be an Eligible Employee for a Plan year if the Employee's annual rate of Compensation for the preceding Plan Year (or, for a newly hired Employee, determined on his Commencement Date) is in excess of the Eighty Thousand Dollar ($80,000.00) amount set forth in Section 414(q)(1)(B)(i) of the Code as adjusted from time to time by the Secretary of the treasury. T H I R D Section 4.01(a) of the Plan is amended to read as follows: 4.01 Savings Deferrals. (a) An eligible Participant may elect to defer from three percent (3%) to one hundred percent (100%) of Compensation to be credited to his Savings Account under the Plan. Compensation for a Plan Year not so deferred by such election or by any other applicable deferral election [e.g., Section 125 of the Code] shall be received by such Participant in cash. A Participant's initial election to defer an amount of his Compensation pursuant to this Section 4.01 shall be made by properly executing an Enrollment Form. The reduction in a Participant's Compensation for a Plan Year pursuant to his election under an Enrollment Form shall be effected by Compensation reductions as of each payroll period within such Plan Year. CORPDAL:63576.1 14047-00001 IN WITNESS WHEREOF, El Chico Restaurants, Inc. has caused this Second Amendment to the Plan to be executed this 12th day of December, 1996. EL CHICO RESTAURANTS, INC. By:/s/Lawrence E. White ------------------------- Name:/s/Lawrence E. White ----------------------- Its:Executive Vice President ------------------------ ATTEST: /s/Susan R. Holland - ------------------------- Secretary CORPDAL:63576.1 14047-00001 SECOND AMENDMENT TO THE EL CHICO RESTAURANTS, INC. EXCESS SAVINGS PLAN W I T N E S S T H: WHEREAS, EL CHICO RESTAURANTS, INC. (the "Company") adopted the EL CHICO RESTAURANTS, INC. EXCESS SAVINGS PLAN effective as of January 1, 1994, for the benefit of its eligible, highly compensated employees; WHEREAS, the Company reserved the right to amend the Plan, and desires to adopt this Second Amendment to the Plan, effective January 1, 1997; NOW, THEREFORE the EL CHICO RESTAURANTS, INC. EXCESS SAVINGS PLAN is hereby amended as follows: F I R S T Section 1.01(9) of the Plan is amended to read as follows: (9) Compensation: The total of all wages and other amounts paid by the Company or any Employing Company (in the course of its business) to or for the benefit of an Employee for services rendered or labor performed which is required to be reported on the Employee's Form W-2, excluding, however, (i) amounts paid or reimbursed by the Company or Employing Company for moving expenses incurred by the Employee (but only to the extent it is reasonable to believe at the time of the payment that the moving expenses will be deductible under Section 217 of the Code), and (ii) amounts realized from the exercise of a non-qualified stock option, or when restricted stock held by an employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture. Compensation shall be determined without regard to any rules that limit the amount to be included in wages based on the nature or location of the service performed. Notwithstanding the foregoing, for purposes of Section 1.01(11) and 4.01, a Participant's Compensation shall include amounts which he could have received in cash in lieu of a Savings Deferral under this Plan and any salary deferral or elective contributions under any Code Section 401(k) or cafeteria plan. S E C O N D Section 1.01(11) of the Plan is amended to read as follows: (11) Eligible Employee: Any Salaried Employee who is included within a "select group of management or highly compensated employees," as such term is CORPDAL:63576.1 14047-00001 used in Section 401(a)(1) of ERISA, who is designated by the Committee as eligible to participate in this Plan; provided, however, that in the absence of a written Committee resolution specifying the Eligible Employees for a Plan Year, a Salaried Employee shall be an Eligible Employee for a Plan year if the Employee's annual rate of Compensation for the preceding Plan Year (or, for a newly hired Employee, determined on his Commencement Date) is in excess of the Eighty Thousand Dollar ($80,000.00) amount set forth in Section 414(q)(1)(B)(i) of the Code as adjusted from time to time by the Secretary of the treasury. T H I R D Section 4.01(a) of the Plan is amended to read as follows: 4.01 Savings Deferrals. (a) An eligible Participant may elect to defer from three percent (3%) to one hundred percent (100%) of Compensation to be credited to his Savings Account under the Plan. Compensation for a Plan Year not so deferred by such election or by any other applicable deferral election [e.g., Section 125 of the Code] shall be received by such Participant in cash. A Participant's initial election to defer an amount of his Compensation pursuant to this Section 4.01 shall be made by properly executing an Enrollment Form. The reduction in a Participant's Compensation for a Plan Year pursuant to his election under an Enrollment Form shall be effected by Compensation reductions as of each payroll period within such Plan Year. CORPDAL:63576.1 14047-00001 IN WITNESS WHEREOF, El Chico Restaurants, Inc. has caused this Second Amendment to the Plan to be executed this __ day of __________, 1996. EL CHICO RESTAURANTS, INC. By: ------------------------- Name: ----------------------- Its: ------------------------ ATTEST: - ------------------------- Secretary CORPDAL:63576.1 14047-00001 EX-11 5 EXHIBIT 11 Exhibit 11 El Chico Restaurants, Inc. Computation of Per Share Data (In thousands of dollars, except per share amounts)
Year Ended December 31, ----------------------------------------------- 1996 1995 1994 ----------- ----------- ----------- Computation of earnings per share: Net earnings (loss) $ (3,062) $ 3,958 $ 3,728 ============= ============= ============= Weighted average number of common shares outstanding during the year 3,885,710 4,017,086 4,108,910 Net effect of dilutive stock options based on the treasury stock method using the average market price 6,751 29,403 151,382 ------------- ------------- ------------- Shares used for computation 3,892,461 4,046,489 4,260,292 ============= ============= ============= Earnings (loss) per share $ (0.79) $ 0.98 $ 0.88 ============= ============= =============
EX-21 6 EXHIBIT 21 EXHIBIT 21 LIST OF SUBSIDIARIES JURISDICTION OF VOTING STOCK OWNED NAME OF SUBSIDIARY FORMATION BY THE COMPANY El Chico Realty Corporation Texas 100% Concepts, Inc. Texas 100% El Chico Bebidas Company Texas 23% El Chico Restaurants of Louisiana, Inc. Delaware 100% El Chico Corporation of Oklahoma, Inc. Oklahoma 100% El Chico Restaurant No. 20, Inc. Delaware 100% Southwest Cafes of Tennessee, Inc. Tennessee 100% El Chico Corporation Georgia 100% El Chico Corporation of Alabama Alabama 100% El Chico Corporation of Florida Florida 100% Pronto Design & Supply, Inc. Texas 100% Nuevo Ventures, Inc. Texas 100% El Chico Restaurants of Kentucky, Inc. Kentucky 100% El Chico Restaurants of Ohio, Inc. Ohio 100% El Chico Restaurants of Indiana, Inc. Indiana 100% El Chico Restaurants of Illinois, Inc. Illinois 100% El Chico Service Company Delaware 100% ECRT, Inc. Delaware 100% NOTE: Texas El Chico Restaurants, L.P. is a Limited Partnership between two wholly owned subsidiaries - El Chico Service Company and ECRT, Inc. SUBSIDIARIES OF CONCEPTS, INC. JURISDICTION OF VOTING STOCK OWNED NAME OF SUBSIDIARY FORMATION BY CONCEPTS, INC. Concepts Beverages of Oklahoma City, Inc. Oklahoma 100% Concepts Beverages of South Meridian, Inc. Oklahoma 100% SUBSIDIARIES OF EL CHICO CORPORATION OF OKLAHOMA, INC. VOTING STOCK OWNED BY URISDICTION OF EL CHICO CORPORATION NAME OF SUBSIDIARY INCORPORATION OF OKLAHOMA, INC. Bebidas Company of Tulsa, Inc. Oklahoma 100% Bebidas Company of Oklahoma City, Inc. Oklahoma 100% Bebidas Company of Midwest City, Inc. Oklahoma 100% Bebidas Company of Tulsa No. 65, Inc. Oklahoma 100% Bebidas Company of Oklahoma City No. 36, Inc. Oklahoma 100% Bebidas Company of Oklahoma City No. 101, Inc. Oklahoma 100% Bebidas Company of Broken Arrow, Inc. Oklahoma 100% Bebidas Company of Oklahoma City No. 37, Inc. Oklahoma 100% Bebidas Company of Tulsa No. 23, Inc. Oklahoma 100% Bebidas Company of Edmond, Inc. Oklahoma 100% EX-23 7 EXHIBIT 23 Exhibit 23 INDEPENDENT AUDITORS' CONSENT The Board of Directors El Chico Restaurants, Inc.: We consent to incorporation by reference in the registration statements (No. 333-16699 and No. 33-63474) on Form S-8 of El Chico Restaurants, Inc. of our report dated February 6, 1997, relating to the consolidated balance sheets of El Chico Restaurants, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the years in the three year period ended December 31, 1996, which report appears in the December 31, 1996 annual report on Form 10-K of El Chico Restaurants, Inc. KPMG Peat Marwick LLP Dallas, Texas March 25, 1997 EX-27 8 FDS --
5 0000719961 EL CHICO RESTAURANTS, INC. 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 216 0 1,154 0 976 4,500 67,542 27,007 47,662 10,170 0 0 0 475 25,810 47,662 101,698 104,481 27,016 108,921 (75) 0 686 (5,051) (1,989) 0 0 0 0 (3,062) (.79) (.79)
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