-----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, KfqsUpFPwwuRl50+Ks81F6qhOAwc39pd4IL80Gohu7u/JMLvGGttPfdBAZa+nwFe wAqGCT64tYysF7XdhU5fMQ== 0000020041-95-000007.txt : 19951023 0000020041-95-000007.hdr.sgml : 19951023 ACCESSION NUMBER: 0000020041-95-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19950731 FILED AS OF DATE: 19951020 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHOCK FULL O NUTS CORP CENTRAL INDEX KEY: 0000020041 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FOOD PREPARATIONS & KINDRED PRODUCTS [2090] IRS NUMBER: 130697025 STATE OF INCORPORATION: NY FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04183 FILM NUMBER: 95582914 BUSINESS ADDRESS: STREET 1: 370 LEXINGTON AVE CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2125320300 MAIL ADDRESS: STREET 1: 370 LEXINGTON AVENUE CITY: NEW YORK STATE: NY ZIP: 10017 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JULY 31, 1995 OR [] TRANSITION REPORT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-4183 CHOCK FULL O' NUTS CORPORATION (Exact name of registrant as specified in its charter) NEW YORK 13-0697025 (State of Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 370 Lexington Avenue, New York, New York 10017 (Address of Principal Executive Offices) (Zip Code) (212) 532-0300 (Registrant's Telephone Number, Including Area Code) Securities Registered Pursuant to Section 12(b) of the Act: Name of Each Exchange Title Of Each Class On Which Registered Common Stock, par value $.25 per share New York Stock Exchange 8% Convertible Subordinated Debentures, American Stock Exchange due September 15, 2006 7% Convertible Senior Subordinated Debentures, New York Stock Exchange due April 1, 2012 Securities Registered Pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days.Yes x No Aggregate market value of the Common Stock ($.25 par value) held by nonaffiliates of the registrant as of October 13 , 1995: $59,190,000 Number of Shares of Common Stock ($.25 par value) outstanding as of October 13, 1995: 10,736,000 DOCUMENTS INCORPORATED BY REFERENCE Portions of the annual proxy statement for the year ended July 31, 1995 are incorporated by reference into Part III. PART I Item 1. BUSINESS Item 101 (a) and (c) of Regulation S-K The Company's primary business is the roasting, packing and marketing of a broad range of regular and decaffeinated, ground roast, instant and specialty coffees for the Foodservice and Retail Grocery Industries. These products are sold regionally throughout the United States and Canada under various well known trademarks, including Chock full o' Nuts, LaTouraine and Cain's. Best known among its products is Chock full o' Nuts brand premium, vacuum packed, all-method grind coffee. The Company is also one of the largest marketers of foodservice and private label coffees. The balance of the Company's business is derived from its developing Retail Restaurant and Cafe Division (commencing in fiscal 1994) and from real estate operations. Incorporated in 1932, for many years, the Company's primary business was the operation of counter service restaurants, under the Chock full o' Nuts name. In 1953, the Company expanded its business by marketing the coffee made famous in its restaurants to consumers via supermarkets and other Retail Grocery outlets. Impactful advertising, featuring the "Heavenly Coffee" jingle, made Chock full o' Nuts brand premium coffee a market leader. In 1983, Management discontinued the Company's restaurant operations and concentrated its efforts on the sale of coffee and related food products. Since 1984, the Company's overall strategy has been to diversify within its core areas of strength, thereby lessening its dependence on any single business area. In March 1994, the Company acquired all the assets and liabilities of a company ("Quikava") whose menu features a full assortment of the most popular specialty coffee beverages, plus a broad variety of freshly prepared foods and snacks. Quikava's unique "double drive-thru" format targets the consumer "on the go" and adds a new dimension to the concept of take out foods and beverages. Quikava and the more traditionally formatted Cafes, which conmenced operation in June 1994, represent a renewed commitment to leverage the Company's restaurant heritage while taking advantage of the growth of Speciality Coffees,"away from home", where annual growth rates are significant. In December 1992, the Company acquired the stock of Cain's Coffee Co. ("Cain's") and certain trademarks related to that business. Cain's primary business is the direct sale and distribution of coffee and related products under the Cain's label to Foodservice customers in twelve states primarily West of the Mississippi. Cain's also sells coffee and tea to Retail Grocery Customers, using a direct store distribution system. In November 1992, the Company acquired a controlling interest in a partnership, which owns Dana Brown Private Brands, Inc., a company which markets and sells private label coffee and tea products to food retailers and distributors, located primarily in the Midwest. In December 1986, the Company acquired Greenwich Mills Company ("Greenwich"). Established in 1912, Greenwich is a leading manufacturer and supplier of coffee, tea and allied products to Foodservice and private label customers. The majority of their customers are located in markets East of the Mississippi. Greenwich's best known trademark is LaTouraine. In November 1993, the Company sold Hillside Coffee of California, Inc., whose business consisted of roasting, packing, distributing and marketing specialty coffee under the Hillside name, primarily to supermarkets. See Note 6 of notes to conolidated financial statements. In July 1993, the Company sold its interest in Jimbo's Jumbos, Incorporated ("JJI"). The business of JJI consisted primarily of (1) shelling farmers' stock peanuts into commercial and seed grades of raw peanuts for sale to commercial processors of peanuts, seed dealers and farmers and (2) processing and packaging of in-the-shell peanuts and nuts, and shelled peanuts and nuts, for sale to supermarkets. See Note 5 of notes to consolidated financial statements. Corporate Management is currently focused on the following growth initiatives: (1) Expansion of its developing Retail Restaurant and Cafe Division; (2) Maximizing the Company's Foodservice franchise by significantly broadening its customer base for Cain's, Chock full o' Nuts and LaTouraine brand coffee, tea and allied products; (3) Increasing Retail Grocery Market shares for such higher margin products as Chock full o' Nuts brand Cafe Blend, decaffeinated, instant and Rich French Roast coffees and (4) Selectively pursuing new business development opportunities that will deliver significant volume and profit growth. The following table sets forth revenues and operating results from continuing operations before interest and corporate expenses attributable to the Company's food products sales and real estate operations, for the fiscal years ended July 31, 1995, 1994 and 1993: Fiscal Years Ended July 31, 1995 1994 1993 (In Thousands) Revenues Net Sales - Food Products $328,378 $263,638 $251,641 Rentals from Real Estate 2,061 2,060 1,876 Operating Profit: Food Products (1) 15,552 10,389 11,532 (2) Real Estate Operations 490 317 (9) (1) See Note 6 of notes to consolidated financial statements regarding product line sold. (2) Includes restructuring charge of $3,598,000 and officers' termination benefits of $818,000 (see Notes 11(c) and 11(d) of notes to consolidated financial statements). COFFEE AND RELATED PRODUCTS Description of Coffee Market According to certain available industry surveys and Company estimates, total United States coffee sales by manufacturers in 1994 were approximately $6 billion. Approximately 35% of total United States coffee sales in 1994 were to Foodservice customers. Foodservice Sales and Marketing In January 1985, the Company began using Company sales personnel and independent food brokers to market its coffee and allied products to foodservice customers. These include chain and independent restaurants, hospitals, airlines, schools, governmental institutions, vending and office coffee service operators and other institutional distributors. In December 1986, the Company acquired Greenwich, which is a major direct sales and distribution supplier in the Eastern United States of coffee, tea and allied products to Foodservice Customers and private label customers. Greenwich's best-known label is LaTouraine, which enjoys a reputation for high quality. LaTouraine also distributes spices, international coffee mixes, speciality coffees, whole bean and pod Espresso, hot chocolate, iced and hot tea, powdered soft drinks, soup bases, and portion controlled jams, jellies and condiments. In December 1992, the Company acquired Cain's, which is a major supplier in the Midwest and Southwest of products similar to those sold by Greenwich and LaTouraine to Foodservice Customers. In fiscal 1995, approximately 44% of sales were derived from processing and marketing coffee and allied products for sale to Foodservice Customers. Sales of coffee products to Foodservice Customers have traditionally been less price-sensitive and depend more on the level of customer service provided. They also tend to generate higher operating margins, due to lower marketing and advertising expenses, than do sales of such products to Retail Customers. In addition, the absence of competitors with a dominant market position, makes the Company's pricing to Foodservice Customers less susceptible, as compared to pricing to Retail Customers, to changes in price in response to pricing actions of any single competitor. Retail Sales and Marketing The Company currently sells most of its Retail Grocery coffee products to supermarket chains, wholesalers and independent food outlets ("Retail Customers") through independent food brokers. The Company's retail products include coffees sold under the Chock full o' Nuts, Cain's and Safari labels. The Company's best known product, Chock full o' Nuts premium, vacuum packed, all-method grind coffee, is superior to most competitors in being able to produce a more consistent, better tasting, finished brew from a single, "all-method grind", regardless of the coffee maker used. The Company also sells an "extended yield" coffee, which produces more cups than equivalent quantities of standard yield coffee. Additionally, the Company sells decaffeinated roast and ground coffee, instant coffees, a premium quality Cafe blend and a Rich French Roast coffee, as well as a ready-to-drink iced cappuccino product, called Chock o'ccino. The Company and Greenwich roast, pack and market regular, decaffeinated and instant coffees for sale by others under a variety of private labels. In fiscal 1995 the Company's coffee sales to Retail Customers accounted for approximately 48% of sales and represented approximately 4% of total Retail Grocery coffee sales in the United States. Chock full o' Nuts all-method grind coffee is sold in most major metropolitan areas of the United States and in the provinces of Ontario and Quebec, Canada. Sales are concentrated in the New York metropolitan area, upstate New York, New England, Philadelphia, Washington, D.C. and Florida. The Company believes that its distinctive packaging design and one grind concept are important factors in the marketing of its coffee products. Marketing a single important factors in the marketing of its coffee products. Marketing a single grind coffee has enabled the Company's all-method grind coffee to be consistently one of the fastest moving items off supermarket shelves in its core markets. The sales of Cain's and Safari brand products are concentrated in the Midwest and Southwest. Suppliers and Manufacturing The Company's coffee is primarily a blend of readily available Central and South American coffees. The Company purchases approximately 100 million pounds of green coffee beans annually. All such coffee is purchased from approximately 25 importers located in New York City, New Orleans and Miami, who assume the risk of delivering beans that meet the Company's quality requirements at a guaranteed price. The Company generally buys its coffee pursuant to contracts providing for delivery in 4 to 12 weeks and supplements such contracts with purchases on the spot market. All purchases are subject to inspection and approval by the United States Food and Drug Administration. Manufacturing activities for coffee and related products are presently conducted at the following facilities: Location Principal Use Brooklyn, New York............Coffee Roasting Plant, Warehouse St. Louis, Missouri...........Coffee Roasting Plant, Warehouse Hialeah, Florida..............Coffee Roasting Plant, Warehouse Rochester, New York...........Coffee Roasting Plant, Warehouse Oklahoma City, Oklahoma.......Coffee Roasting Plant and Processing Plant for Tea and Related Food Products, Warehouse Springfield, Missouri.........Processing Plant for Spices, Warehouse All of the above facilities are owned, except the Rochester, New York and Springfield, Missouri facilities, which are leased. The Company rents executive office space in New York City and maintains warehousing facilities in over forty-five locations throughout the United States. The Company believes that it has sufficient production capacity to meet its current and future needs. Competition The coffee business is highly competitive. The Company competes for Retail Customers with a number of nationally and regionally established brands. Its largest competitors are Kraft Foods (Maxwell House, Yuban and Sanka coffees), Procter & Gamble (Folger's coffees) and The Nestle Company (Hills, MJB and Chase & Sanborn coffees), with combined annual sales accounting for approximately 80% of the United States coffee market. The profitability of the Company's coffee sales to Retail Customers is largely dependent on competitive pricing conditions. See "Management's Discussion and Analysis of Financial Condition and Results of Operations". There are many competitors in the business of selling coffee to Foodservice Customers. However, the Company believes that no single competitor's sales constitute more than 15% of this market. Sales of coffee, tea and allied products to Foodservice Customers have traditionally been less price- sensitive and more dependent on the level of service provided to such customers than sales of such products to Retail Customers. In addition, the absence of direct competitors with a dominant market position has traditionally made the Company's pricing to Foodservice Customers less susceptible, as compared to pricing to Retail Customers, to changes in price in response to pricing actions of any single competitor. Retail Restaurant and Cafe Division In June 1994, with the opening of a flagship store in Midtown Manhattan, the Company began to develop the business of operating retail cafes which offer moderately priced specialty coffees, sandwiches, salads, bakery products, snacks, and other assorted food and beverage products. The cafe has an upscale motif, featuring a rich wood and granite interior and utilizes a quick-service format. The Company has developed a number of formats for expansion of this retail cafe concept, including the full cafe (2500 to 3500 square feet with seating for 45-75), the mini-cafe (400-1000 square feet with limited seating), and Chock Full O'Nuts EXPRESS-Osm (a modular kiosk of 150 square feet). The Company intends to open additional locations utilizing the above formats, in central business districts and high-volume public locations. In March 1994, the Company acquired Quikava, Inc., an operator and franchisor of double-drive thru buildings, which offer a variety of specialty coffees, espresso-based drinks, baked goods, and snacks. Quikava units are situated on major commuter thoroughfares and offer quick-service of quality beverages and snacks. The Company intends to develop additional Quikava units, both company-operated and franchised. RESEARCH AND DEVELOPMENT The Company invested a nominal amount in research and development for the three years ended July 31, 1995. EMPLOYEES The Company employs approximately 1,150 employees, 15% of whom are represented by labor unions. The Company believes that its relations with both union and non-union employees are good. REAL ESTATE OPERATIONS The Company is both lessor and lessee on certain properties and an owner of one property in New York City. Such properties had been part of the Company's former restaurant operations. Additionally, the Company owns a coffee roasting facility in Castroville, California which it leases to the owner of Hillside Coffee of California, Inc. OTHER MATTERS Reference is made to Notes 2, 5 and 6 of notes to consolidated financial statements with respect to the acquisition and disposition of certain assets. Item 101 (b) of Regulation S-K Segment Information is incorporated herein by reference. Item 101 (d) of Regulation S-K All of the Company's operations are located in the United States. Export sales are not significant. Item 2. PROPERTIES The Company leases certain premises which are under long-term leases expiring on various dates through 2009 and certain of which contain renewal options. Reference should be made to Note 7 of the notes to consolidated financial statements for additional information about these leases. The following table sets forth the location and certain information with respect to the Company's plants and certain other properties as of October 13, 1995, all of which premises the Company considers adequate for its present and anticipated needs. PLANTS AND OTHER PROPERTIES Approximate Whether Square Feet Owned of Or Location Principal Use Floor Space Leased (1) Brooklyn, New York Coffee Roasting Plant, Warehouse 55,000 Owned St. Louis, Missouri Coffee Roasting Plant, Warehouse 77,000 Owned Secaucus, New Jersey Warehouse and Offices 104,000 Owned Hialeah, Florida Coffee Roasting Plant, Warehouse 50,000 Owned Rochester, New York Coffee Roasting Plant, Warehouse 50,000 Leased Oklahoma City, Oklahoma Coffee Roasting Plant and Processing Plant for Tea and Related Food Products, Warehouse 150,000 Owned Springfield, Missouri Processing Plant for Spices, Warehouse 30,000 Leased 574 Fifth Avenue Real Estate New York, New York Operation 13,000 Leased 422 Madison Avenue Real Estate and Restaurant New York, New York Operation 8,750 Leased 532 Madison Avenue Real Estate New York, New York Operation 12,250 Leased 49 Broadway Real Estate New York, New York Operation 12,000 Leased 1420 Broadway Real Estate New York, New York Operation 6,750 Leased 370 Lexington Avenue Corporate New York, New York Headquarters 11,000 Leased Waverly Place corner Green Street Real Estate New York, New York Operation 2,500 Leased 336 Broadway Real Estate New York, New York Operation 10,500 Owned Castroville, California Real Estate 66,000 Owned Operation 512 Seventh Avenue Restaurant Operation 2,500 Leased New York, New York 1114 Avenue of the Americas Restaruant Operation 2,800 Leased New York, New York 43 West 42 Street Restaurant Operation 340 Leased New York, New York Chelsea Piers Restaurant Operation 4,300 Leased Pier 61 Hudson River New York, New York Expo Design Center Restaurant Operation 3,000 Leased Westbury, New York Queen Ann Plaza Restaurant Operation 250 Leased Norwell, Mass Brown Avenue Manchester, New Hampshire Restaurant Operation 500 Leased Natick Crossing Mall Restaurant Operation 1,500 Leased Natick, Mass. 190 Old Derby Street Headquarters, Quikava 1,196 Leased Hingham, Mass. (1) -- No Company-leased premises are owned by any officer or director of the Company. See Note 7 of notes to the consolidated financial statements. Item 3. LEGAL PROCEEDINGS None Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS "Common Share Prices" and related security holder matters are incorporated herein by reference. Item 6. SELECTED FINANCIAL DATA "Selected Financial Data" is incorporated herein by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS "Management's Discussion and Analysis of Financial Condition and Results of Operations" is incorporated herein by reference. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The response to this Item is submitted in a separate section of this report. Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES Not applicable. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT and Item 11. EXECUTIVE COMPENSATION and Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT and Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Omitted, per General Instruction G. The information required by Part III shall be incorporated by reference from the Registrant's definitive proxy statement pursuant to Regulation 14A for the fiscal year ended July 31, 1995 which is to be filed with the Commission. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) and (2) The response to this portion of Item 14 is submitted as a separate section of this report. (3) The response to this portion of Item 14 is submitted as a separate section of this report (see below). (b) Reports on Form 8-K: None (c) The response to this portion of Item 14 is submitted as a separate section of this report (see below). (d) The response to this portion of Item 14 is submitted as a separate section of this report. Pursuant to Regulation S-K Item 601, following is a list of Exhibits. Exhibit 3 Articles of incorporation and by laws. (a) Articles of incorporation filed as an Exhibit to Form 10-K for the fiscal year ended July 31, 1994 is incorporated herein by reference. (b) By-laws filed as an Exhibit to Form 10-K for the fiscal year ended July 31, 1994 is incorporated herein by reference. Exhibit 4 Instruments defining the rights of security holders, including indentures. (a) Indenture dated as of September 15, 1986 between the Company and Manufacturers Hanover Trust Company ("Manufacturers") filed as an Exhibit to Form 10-K for the fiscal year ended July 31, 1994 is incorporated herein by reference. (b) Form of the Company's 8% Convertible Subordinated Debenture included in Exhibit 4(a) filed as an Exhibit to Form 10-K for the fiscal year ended July 31, 1994 is incorporated herein by reference. (c) Instrument of resignation, appointment and acceptance dated August 9, 1993 among the Company, Manufacturers and Liberty Bank and Trust Company of Oklahoma City filed as an Exhibit to Form 10-K for the fiscal year ended July 31, 1994 is incorporated herein by reference. (d) Indenture dated as of April 1, 1987 between the Company and IBJ Schroder Bank and Trust Company filed as an Exhibit to Form 10-K for the fiscal year ended July 31, 1994 is incorporated herein by reference. (e) Form of the Company's 7% Convertible Senior Subordinated Debenture included in Exhibit 4(d) filed as an Exhibit to Form 10-K for the fiscal year ended July 31, 1994 is incorporated herein by reference. Exhibit 9 Voting Trust Agreement, not applicable. Exhibit 10 Material contracts (a) Rights Agreement, dated as of December 30, 1987, with IBJ Schroder Bank and Trust Company, as Rights Agent, the form of Rights Certificate and Summary of Rights to Purchase Common Stock filed as an Exhibit to Form 10-K for the fiscal year ended July 31, 1994 is incorporated herein by reference. (b) Benefits protection trust with National Westminster Bank USA filed as an Exhibit to Form 10-K for the fiscal year ended July 31, 1994 is incorporated herein by reference. (c) Resolution of the Board of Directors adopting severance policy filed as an Exhibit to Form 10-K for the fiscal year ended July 31, 1994 is incorporated herein by reference. (d) Chock full o' Nuts Corporation Employees' Stock Ownership Plan dated December 16, 1988 filed herein. (e) Stock purchase agreement dated October 16, 1992 by and between Chock full o' Nuts Corporation and Nestle' Beverage Corporation filed as an Exhibit to Form 10-K for the fiscal year ended July 31, 1994 is incorporated herein by reference. (f) Amended and Restated Credit Agreement dated December 4, 1992 among Chock full o' Nuts Corporation and its Subsidiaries and National Westminster Bank USA and Chemical Bank filed as an Exhibit to Form 8-K dated December 10, 1992 is incorporated herein by reference. (g) Agreement and Plan of Merger by and among JJJ Acquisition Corp., Chock full o' Nuts Corporation and Jimbo's Jumbos, Incorporated dated April 22, 1993 filed as an Exhibit to Form 8-K dated July 8, 1992 is incorporated herein by reference. (h) Agreement with Joseph Breslin dated August 5, 1993 filed as an Exhibit to Form 10-K for the fiscal year ended July 31, 1993 is incorporated herein by reference. (i) Stock Purchase Agreement between Chock full o' Nuts Corporation, Hillside Holding Corporation and Gourmet Coffees of America, Inc. dated October 8, 1993 filed as an Exhibit to Form 10-K for the fiscal year ended July 31, 1993 is incorporated herein by reference. (j) Agreement dated November 7, 1989 by and between Chock full o'Nuts Corporation and Tetley, Inc. for the purchase of Tetley's instant coffee business filed as an Exhibit to Form 10K for the fiscal year ended July 31, 1990 is incorporated herein by reference. (k) Standstill agreement by and among Chock full o'Nuts Corporation and Steven Schulman and Leon Pordy, M.D. dated June 21, 1991 filed as an Exhibit to Form 10K for the fiscal year ended July 31, 1991 is incorporated herein by reference. (l) Form of restricted stock agreement dated January 2, 1988 with key employees (including certain officers and directors) filed as an Exhibit to Form 10-K for the fiscal year ended July 31, 1994 is incorportated herein by reference. Exhibit 11 Statement re: Computation of Per Share Earnings Exhibit 12 Statement re: Computation of ratios, not applicable. Exhibit 13 Not applicable. Exhibit 18 Letter rechange in accounting principles, not applicable. Exhibit 21 Subsidiaries of the registrant. Exhibit 22 Published report regarding matter submitted to vote of security holders, not applicable. Exhibit 23 Consent of experts and counsel, not applicable. Exhibit 24 Power of attorney, not applicable. Exhibit 27 Financial Data Schedule. Exhibit 99 Additional exhibits, not applicable. 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. CHOCK FULL O' NUTS CORPORATION (Registrant) October 13, 1995 /s/Howard M. Leitner Howard M. Leitner, Vice President, Chief Financial and Accounting Officer and Director 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. October 13, 1995 /s/Norman E. Alexander October 13, 1995 Norman E. Alexander Mark A. Alexander Chairman of the Board Director October 13, 1995 October 13, 1995 /s/Martin J. Cullen Virgil Gladieux Martin J. Cullen Director Vice President and Director October 13, 1995 /s/Stuart Z. Krinsly October 13, 1995 /s/Marvin I. Haas Stuart Z. Krinsly Marvin I. Haas Director President and Chief Executive Officer and Director October 13, 1995 /s/Howard M. Leitner October 13, 1995 Howard M. Leitner Henry Salzhauer Vice President and Director Chief Financial Officer and Director October 13, 1995 /s/R. Scott Schafler October 13, 1995 R. Scott Schafler David S. Weil Director Director ANNUAL REPORT ON FORM 10-K ITEM 8, ITEM 14(a)(1) AND (2), (c) and (d) LIST OF FINANCIAL STATEMENTS, SUPPLEMENTARY DATA AND FINANCIAL STATEMENT SCHEDULES CERTAIN EXHIBITS YEAR ENDED JULY 31, 1995 CHOCK FULL O' NUTS CORPORATION NEW YORK, NEW YORK FORM 10-K--ITEM 14(a)(1) and (2) CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES LIST OF FINANCIAL STATEMENTS AND SCHEDULES The following consolidated financial statements of the Registrant and its subsidiaries are included in Item 8: Page Report of Independent Auditors..................................... 17 Consolidated Balance Sheets--July 31, 1995 and 1994................ 18 and 19 Consolidated Statements of Operations--Years Ended July 31, 1995, 1994 and 1993..................................... 20 Consolidated Statements of Cash Flows-- Years Ended July 31, 1995, 1994 and 1993......................... 21 and 22 Consolidated Statements of Stockholders' Equity-- Years Ended July 31, 1995, 1994 and 1993......................... 23 and 24 Notes to Consolidated Financial Statements......................... 25 to 35 The following consolidated financial statement schedule of the registrant and its subsidiaries is included in Item 14(d): Page Schedule II -- Valuation and Qualifying Accounts................... 41 All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. Ernst & Young LLP Report of Independent Auditors The Board of Directors and Stockholders Chock Full o'Nuts Corporation New York, NY We have audited the accompanying consolidated balance sheets of Chock Full o'Nuts Corporation and subsidiaries as of July 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended July 31, 1995. Our audits also included the financial statement schedule listed in the index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Chock Full o'Nuts Corporation and subsidiaries at July 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended July 31, 1995 in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP New York, NY October 5, 1995 CONSOLIDATED BALANCE SHEETS CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES July 31, 1995 and 1994 ASSETS 1995 1994 CURRENT ASSETS: Cash and cash equivalents $ 8,386,620 $5,939,456 Receivables, principally trade, less allowances for doubtful accounts and discounts of $1,251,000 and $928,000-- Notes 3 and 11(a) 37,703,214 31,935,437 Inventories--Notes 1 and 3 60,576,420 45,543,048 Investments in marketable securities, at cost (market value of $6,975,000) 6,972,928 25,786,080 Prepaid expenses and other -- Note 4 2,916,690 3,466,246 TOTAL CURRENT ASSETS 116,555,872 112,670,267 PROPERTY, PLANT AND EQUIPMENT, at cost- Note 3: Land 3,114,889 3,754,639 Buildings and improvements 14,457,466 18,652,07 Leaseholds and leasehold improvements 2,443,678 1,795,326 Machinery and equipment 71,022,693 72,603,462 91,038,726 96,805,506 Less allowances for depreciation and amortization 39,273,602 41,510,772 51,765,124 55,294,734 REAL ESTATE HELD FOR SALE OR DEVELOPMENT, at cost - Note 3 7,747,107 5,404,243 OTHER ASSETS AND DEFERRED CHARGES, net--Note 11(b) 25,099,333 29,367,430 EXCESS OF COST OVER NET ASSETS ACQUIRED, net --Notes 1 and 2 5,869,138 6,070,268 $207,036,574 $208,806,942 See notes to consolidated financial statements CONSOLIDATED BALANCE SHEETS CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES July 31, 1995 and 1994 1995 1994 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 12,937,578 $ 11,851,998 Accrued expenses 12,438,512 17,381,839 Income taxes--Note 4 1,530,543 1,698,293 TOTAL CURRENT LIABILITIES 26,906,633 30,932,130 LONG-TERM DEBT -- Note 3 106,568,896 110,427,265 OTHER NON-CURRENT LIABILITIES-- Notes 9 and 11(c) 1,468,358 4,743,855 DEFERRED INCOME TAXES -- Note 4 7,156,000 4,442,000 STOCKHOLDERS' EQUITY--Notes 3, 8 and 9: Common stock, par value $.25 per share; Authorized 50,000,000 shares; Issued 11,211,068 and 10,898,130 shares 2,802,767 2,724,533 Additional paid-in capital 51,357,008 49,322,585 Retained earnings 18,970,435 16,217,803 73,130,210 68,264,921 Deduct: Cost of 475,522 shares in treasury (6,573,719) (6,573,719) Deferred compensation under stock bonus plan and employees' stock ownership plan (1,619,804) (1,663,510) Unfunded pension losses (1,766,000) TOTAL STOCKHOLDERS' EQUITY 64,936,687 58,261,692 LEASES--Note 7 ___________ $207,036,574 $208,806,942 See notes to consolidated financial statements CONSOLIDATED STATEMENTS OF OPERATIONS CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES Years ended July 31, 1995, 1994 and 1993 1995 1994 1993 Revenues: Net sales $328,377,727 $263,638,453 $251,641,474 Rentals from real estate 2,061,015 2,059,647 1,875,578 330,438,742 265,698,100 253,517,052 Costs and expenses: Cost of sales 235,146,454 175,664,343 157,206,889 Selling, general and administrative expenses 78,101,749 77,851,623 78,687,340 Expenses of real estate 1,571,090 1,742,462 1,884,106 Restructuring charge -- Note 11(c) 3,597,769 Officer's termination benefits -- Note 11 (d) ___________ 817,535 314,819,293 255,258,428 242,193,639 OPERATING PROFIT--Note 6 15,619,449 10,439,672 11,323,413 Interest and dividend income 903,887 867,517 861,076 Interest expense (9,191,495) (8,802,413) (10,228,159) Gain on sale of product line -- Note 6 12,475,246 Gain on sales of marketable securities 455,558 Other income/(deductions)-- Note 11(f)532,447 775,292 (1,063) INCOME BEFORE INCOME TAXES 7,864,288 15,755,314 2,410,825 Income taxes--Note 4: Current: Federal 2,267,000 6,742,000 1,648,000 State and local 161,000 348,000 348,000 Deferred 573,000 781,000 (647,000) 3,001,000 7,871,000 1,349,000 INCOME FROM CONTINUING OPERATIONS 4,863,288 7,884,314 1,061,825 Discontinued operations -- Note 5: Income from operations, net of income taxes of $1,339,000 1,103,029 Loss on disposition (3,171,240) (2,068,211) NET INCOME/(LOSS) $4,863,288 $7,884,314 $(1,006,386) Earnings/(loss) per share--Note 1: Primary: Continuing operations $.45 $ .73 $ .10 Discontinued operations (.19) Net income/(loss) $.45 $.73 $(.09) Fully diluted: Continuing operations $.42 $.54 $ .10 Discontinued operations ____ (.19) Net income/(loss) $.42 $.54 $(.09) See notes to consolidated financial statements CONSOLIDATED STATEMENTS OF CASH FLOWS CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES Years Ended July 31, 1995, 1994 and 1993 1995 1994 1993 Operating Activities - Continuing Operations: Net income $4,863,288 $ 7,884,314 $ 1,061,825 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property, plant and equipment 6,006,989 6,187,476 6,983,539 Amortization of deferred compensation and deferred charges 4,646,287 4,430,010 5,311,264 Restructuring charge 2,900,000 (Gain) on sale of property,plant and equipment (589,137) (Gain) on sales of marketable securities (455,558) Deferred income taxes 573,000 781,000 (647,000) Gain on sale of product line (12,475,246) Other, net 1,850 (1,533,353) (2,844,800) Changes in operating assets and liabilities, net of effects from acquired companies: (Increase)in accounts receivable (6,090,777) (4,226,971) (307,577) (Increase) in inventory (15,033,372) (7,151,651) (3,631,870) (Increase)/decrease in prepaid expenses (1,481,444) 617,452 149,693 (Decrease)/increase in accounts payable, accrued expenses and income taxes (780,497) 659,932 4,309,899 __________ __________ __________ NET CASH (USED IN)/PROVIDED BY OPERATING ACTIVITIES (7,883,813) (4,827,037)(1)12,829,415 Investing Activities - Continuing Operations: Purchases of marketable securities (11,473,787) (29,117,568) (275,591) Proceeds from sale and collection of principal of marketable securities 31,086,939 3,331,488 23,595,522 Purchases of property, plant and equipment (9,004,570) (5,680,956) (8,057,739) Acquisition of businesses (473,788)(56,019,777) Proceeds from sale of product line 38,055,704 Increase in net assets of product line sold (1,265,892) Sale of business 32,917,500 Proceeds from sale of property, plant and equipment 4,078,764 _________ NET CASH PROVIDED BY/(USED IN) INVESTING ACTIVITIES 14,687,346 4,848,988 (7,840,085) CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES Years Ended July 31, 1995, 1994 and 1993 FINANCING ACTIVITIES - Continuing Operations: Loan to employees' stock ownership plan (500,000) Purchase of treasury stock (1,850,000) Principal payments of long-term debt (3,856,369) (35,497,348) Proceeds from long-term debt 2,355,091 36,578,345 Other (56,745) (2,400,459) NET CASH (USED IN)/PROVIDED BY FINANCING ACTIVITIES (4,356,369) 448,346 (1,319,462) INCREASE IN CASH AND CASH EQUIVALENTS - CONTINUING OPERATIONS 2,447,164 470,297 3,669,868 Cash and cash equivalents at beginning of year - continuing operations 5,939,456 5,469,159 2,529,123 CASH AND CASH EQUIVALENTS AT END OF YEAR - - CONTINUING OPERATIONS $8,386,620 $5,939,456 $6,198,991(2) Supplemental Information Cash paid during the year: 1995 1994 1993 Interest $8,532,841 $8,103,742 $9,769,319 Income taxes 1,080,706 5,129,630 1,611,825 (1) Net cash used in operating activities in 1994 is, in large part, due to income taxes of approximately $6,000,000 related to the gain on sale of product line. Under FASB Statement No. 95, "Statement of Cash Flows", the pre-tax gain on sale of the product line was deducted in arriving at cash flow from operating activities but the related income taxes were not similarly treated. (2) Includes $729,832 of cash and cash equivalents included in net assets of product line sold. See notes to consolidated financial statements CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES Years Ended July 31, 1995, 1994 and 1993 Common Stock Issued In Treasury Shares Amount Shares Amount In Thousands Balance at July 31, 1992 10,192 $2,548 276 $4,724 Net (loss) 3% stock dividend 300 75 Conversion of debentures 100 25 Deferred compensation under stock bonus plan and employees' stock ownership plan: Amortization Other Increase in unfunded pension losses _____ _____ Balance at July 31, 1993 10,592 2,648 276 4,724 Net income 3% stock dividend 303 76 Conversion of debentures 3 1 Purchase of treasury stock 200 1,850 Deferred compensation under stock bonus plan and employees' stock ownership plan: Amortization Increase in unfunded pension losses ______ ___ ______ Balance at July 31, 1994 10,898 2,725 476 $6,574 Net income 3% stock dividend 313 78 Conversion of debentures Deferred compensation under stock bonus plan and employees' stock ownership plan: Amortization Loan to employees' stock ownership plan Decrease in unfunded pension losses _____ Balance at July 31, 1995 11,211 $2,803 476 $6,574 See notes to consolidated financial statements CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - Continued CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES Years Ended July 31, 1995, 1994, and 1993 Deferred Compensation Under Stock Bonus Plan and Employees' Unfunded Additional Stock Ownership Pension Paid-In Retained Plan Losses Capital Earnings In Thousands Balance at July 31, 1992 $3,089 $150 $43,868 $13,953 Net (loss) (1,006) 3% stock dividend 2,415 (2,490) Conversion of debentures 825 Deferred compensation under stock bonus plan and employees' stock ownership plan: Amortization (862) Other 148 Increase in unfunded pension losses 275 ______ Balance at July 31, 1993 2,227 425 47,256 10,457 Net income 7,884 3% stock dividend 2,048 (2,123) Conversion of debentures 19 Purchase of treasury stock Deferred compensation under stock bonus plan and employees' stock ownership plan: Amortization (563) Increase in unfunded pension losses 1,341 Balance at July 31, 1994 1,664 1,766 49,323 16,218 Net income 4,863 3% stock dividend 2,032 (2,111) Conversion of debentures 2 Deferred compensation under stock bonus plan and employees' stock ownership plan: Amortization (544) Loan to employees' stock ownership plan 500 Decrease in unfunded pension losses (1,766) Balance at July 31, 1995 $1,620 $ - $51,357 $18,970 See notes to consolidated financial statements NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES July 31, 1995, 1994 and 1993 NOTE 1--SIGNIFICANT ACCOUNTING POLICIES Fiscal year: During fiscal 1995, the Company elected to use a year ending on the Friday closest to July 31. Fiscal years are designated as ending July 31 for convenience of reference. Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation. Receivables - Concentration of Credit Risk: The Company's primary business is the roasting, packing and marketing of a broad range of regular and decaffeinated, ground roast, instant and specialty coffees for the Foodservice and Retail Grocery Industries. These products are sold regionally throughout the United States and Canada. The Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. Credit losses relating to customers consistently have been within management's expectations. Cash Equivalents: The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Inventories: Inventories are stated at the lower of cost (first-in, first-out) or market and consist of: July 31, 1995 1994 Finished goods $37,194,809 $24,684,609 Raw materials 19,928,214 16,889,428 Supplies 3,453,397 3,969,011 $60,576,420 $45,543,048 Property, Plant and Equipment: Depreciation and amortization of property, plant and equipment are computed by the straight-line method for financial reporting purposes and by accelerated methods for income tax purposes. Pre-opening Costs: Retail restaurant and cafe pre-opening costs are charged to operations as incurred. Excess of Cost over Net Assets Acquired: Excess of cost over net assets acquired is being amortized on a straight-line basis over periods of 40 and 15 years. Accumulated amortization amounted to $1,554,000 and $1,353,000 at July 31, 1995 and 1994, respectively. Other Intangibles: Other intangibles consist principally of trademarks, covenants not to compete and customer lists. Such items are being amortized on a straight-line basis over periods of 40, 5 and 7.5 years, respectively. Per Share Data: Primary per share data is based on the following weighted average number of common shares outstanding during each year retroactively adjusted for stock dividends:10,736,000 in 1995, 10,797,000 in 1994 and 10,884,000 in 1993. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- continued CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES Fully diluted per share data, assuming conversion of debentures, is based on 22,557,000 and 22,619,000 common shares outstanding for the years ended July 31, 1995 and 1994. Assumed conversion of debentures would have had an anti-dilutive effect for the year ended July 31, 1993. NOTE 2--ACQUISITIONS On March 11, 1994, the Company acquired, for approximately $467,000 in cash, all the operating assets and liabilities of a company engaged in the commercial franchising and operation of drive-through food service establishments primarily engaged in the sale of gourmet coffee complimented by fresh bakery goods, sandwiches and ancillary products. The acquisition is being accounted for as a purchase. The excess of cost over net assets acquired (approximately $360,000) is being amortized over a period of 15 years using the straight-line method. The pro forma effects on the Company's operations as if this business had been acquired on August 1, 1992 are not material. In December 1992, the Company acquired the stock of Cain's Coffee Co. ("Cains") and certain trademarks related to that business from Nestle' Beverage Company and an affiliate for approximately $52,000,000 in cash. Cain's business consists primarily of sales of coffee and related products to food service customers in parts of the Midwest and Southwest. In connection with the acquisition, which has been accounted for as a purchase transaction, the Company acquired assets with a fair value of approximately $55,750,000 (including trademarks, covenant not to compete and customer list of $20,900,000, included in other assets and deferred charges on the consolidated balance sheets) and assumed liabilities of approximately $3,750,000. The Company used the proceeds (approximately $20,500,000) from the sale of a substantial portion of its marketable securities to finance a portion of the purchase price and financed the remainder through additional borrowings from its banks. In November 1992, the Company acquired a controlling interest in a partnership which owns Dana Brown Private Brands, Inc., a company which markets and sells coffee and tea products, servicing food retailers and distributors located primarily in the Midwest. The purchase price was $2,000,000, plus approximately $2,500,000 for the cost of inventory. The pro forma effects on the Company's operations as if this business had been acquired on August 1, 1992 are not material. The following pro forma unaudited results of operations assume the acquisition of Cain's occurred at the beginning of fiscal 1993 and gives effect to certain adjustments, including depreciation of property, plant and equipment, amortization of intangibles and interest expense, resulting from the acquisition and related financing. Amounts for 1993 include the pre-acquisition results of operations for Cain's for the four months ended October 31, 1992. Year Ended July 31 1993 Net sales $275,000,000 Income from continuing operations 1,269,000 Income from continuing operations per share .12 Net (loss) (799,000) Net (loss) per share (.07) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- continued CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES NOTE 3--LONG TERM DEBT Long-term debt consists of the following: July 31 1995 1994 7% Convertible senior subordinated debentures due 2012 $ 51,693,000 $ 51,693,000 8% Convertible subordinated debentures due 2006 43,266,000 43,268,000 Revolving credit and term loan 11,609,896 15,466,265 ___________ $106,568,896 $110,427,265 The 7% and 8% debentures require annual sinking fund payments of $3,000,000 and $3,750,000, respectively, which after giving effect to previous conversions and redemptions, commence April 1, 2000 and March 15, 1998, respectively, and provide for balloon payments of $18,000,000 and $12,500,000 on April 1, 2012 and September 15, 2006, respectively. The debentures are convertible at the option of the debenture holders into shares of the Company's common stock at a price of $8.23 per share and $7.81 per share, respectively (subject to adjustment). During the years ended July 31,1995 and 1993, $2,000 and $437,000 of 8% debentures were converted into 248 and 51,000 shares of common stock, respectively. During the years ended July 31,1994 and 1993, $20,000 and $438,000 of 7% debentures were converted into 2,000 and 49,000 shares of common stock, respectively. As of July 31, 1995, approximately 11,821,000 common shares are reserved for issuance upon conversion of debentures Under the Company's amended and restated revolving credit and term loan agreements (collectively the "Loan Agreements") with National Westminster Bank USA and Chemical Bank (the "Banks"), the Company may, from time to time, borrow funds from the Banks, provided that the total principal amount of all such loans outstanding at any time may not exceed $40,000,000. Interest (8.75% at July 31, 1995) on all such loans is equal to the prime rate, subject to adjustment based on the level of loans outstanding. Outstanding borrowings under the Loan Agreements may not exceed certain percentages of and are collateralized by, among other things, the trade accounts receivable and inventories, and substantially all of the machinery and equipment and real estate of the Company and its subsidiaries. All loans made under the term loan agreement ($10,000,000 at July 31, 1995) are to be repaid in December 1997. Outstanding loans under the revolving credit agreements are to be repaid in December 1997. Pursuant to the terms of the Loan Agreements, the Company and its subsidiaries, among other things, must maintain a minimum net worth and meet ratio tests for liabilities to net worth and coverage of fixed charges and interest, all as defined. The Loan Agreements also provide, among other things, for restrictions on dividends (except for stock dividends) and requires repayment of outstanding loans with excess cash flow, as defined. As of July 31, 1995, long-term debt matures as follows: $12,269,896 (year ending July 31, 1998), $3,750,000 (year ending July 31, 1999), $4,443,000 (year ending July 31, 2000) and $86,000,000 thereafter. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES NOTE 4--INCOME TAXES The provision for income taxes for continuing operations differs from the expected Federal income tax for the reasons shown in the following table: 1995 1994 1993 Federal income tax provision expected at the statutory rate $2,673,858 $5,514,360 $ 819,681 Effect on Federal income tax of: Difference between tax and book basis of product line sold 1,721,214 State and local income taxes, net of Federal income tax benefit 106,260 226,200 229,680 Amortization of excess of cost over net assets acquired 68,000 88,200 178,160 Other 152,882 321,026 121,479 $3,001,000 $7,871,000 $1,349,000 Deferred tax liabilities and assets are comprised of the following at July 31, 1995 1994 Net deferred non-current tax liabilities: Net difference between tax and book basis of property, plant and equipment $7,668,000 $6,216,000 Unfunded pension liabilities 250,000 (931,000) Compensation under stock bonus plan and employees' stock ownership plan (332,000) (358,000) Other (430,000) (485,000) $7,156,000 $4,442,000 Net deferred current tax assets: Restructuring charges $ 130,000 $1,767,000 Net difference between tax and book basis of inventory 317,000 410,000 Officers' termination benefits 91,000 211,000 Allowance for doubtful accounts and discounts 343,000 400,000 Other 45,000 (166,000) Accrued cash bonus 190,000 Payment of underfunded pension plan (525,000) $ 591,000 $2,622,000 Under the Financial Accounting Standards Board Statement No. 109, "Accounting for Income Taxes", the liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES NOTE 5--DISCONTINUED OPERATIONS In April 1993, the Company and Jimbo's Jumbos, Incorporated ("JJI") entered into an agreement and plan of merger to merge JJI with and into JJJ Acquisition Corp. (a company controlled by John W. Kluge and his affiliates). Pursuant to the merger, which was consummated on July 8, 1993, the Company, as well as all other stockholders of JJI, received $6.93 per share for each share owned. The proceeds ($32,917,500) were used to reduce outstanding bank debt incurred for the acquisition of Cain's (see Note 2). A loss of $3,171,000 was incurred in connection with the sale and was charged to discontinued operations for the year ended July 31, 1993. The business of JJI consisted primarily of (1) shelling farmers' stock peanuts into commercial and seed grades of raw peanuts for sale to commercial processors of peanuts, seed dealers and farmers and (2) processing and packaging of in-shell peanuts and nuts, and shelled peanuts and nuts, for sale to supermarkets. The Company restated its financial statements to present the operating results of JJI as a discontinued operation. Operating profits from discontinued operations were as follows: 1993 Net sales $45,722,099 Costs and expenses: Cost of sales 37,240,237 Selling, general and administrative expenses 5,413,440 42,653,677 Operating profit $ 3,068,422 NOTE 6--PRODUCT LINE SOLD In October 1993, the Company and Gourmet Coffees of America ("GCA") entered into an agreement to sell Hillside Coffee of California, Inc. ("Hillside") to GCA. Hillside's business consisted of roasting, packing, distributing and marketing specialty coffee to supermarkets. Pursuant to the agreement which was consummated on November 19, 1993, the Company received (a) $38,500,000 and (b) shares of stock representing approximately one-half of one percent of the equity of GCA. The Company recorded an approximate $6,200,000 after tax gain upon consummation of the sale. The operating profits of Hillside, before intercompany management charges, for the period August 1, 1993 to November 19, 1993 and fiscal 1993 included in the results of operations are as follows: Period From August 1, 1993 to July 31, November 19, 1993 1993 Net sales $9,556,000 $ 27,720,163 Costs and expenses: Cost of sales 4,089,000 10,974,986 Selling, general and administrative expenses 3,288,000 11,240,716 7,377,000 22,215,702 Operating profit $2,179,000 $ 5,504,461 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES NOTE 7 -- LEASES The Company and subsidiaries lease manufacturing plants, warehouses, office space and restaurant locations and related premises. Leases which provide for payment of property taxes, utilities and certain other expenses, expire on various dates through 2009 and contain renewal options. As of July 31, 1995, the Company's obligation for future minimum rental payments, assuming the exercise of renewal options, aggregated $15,897,000. Payments required in the following five fiscal years amount to $3,698,000 (1996), $2,972,000 (1997), $2,308,000 (1998), $2,307,000 (1999) and $1,334,000 (2000). Rental expense charged to continuing operations under operating leases for the years ended July 31, 1995, 1994 and 1993 was $4,893,000, $4,496,000 and $1,797,000, respectively. As of July 31, 1995, future minimum rental payments due from tenants under sub-leases of retail facilities and related premises aggregated $10,790,000. Amounts receivable in the following five fiscal years amount to $1,621,000 (1996), $1,403,000 (1997), $1,395,000 (1998), $1,326,000 (1999) and $1,058,000 (2000). NOTE 8 -- STOCKHOLDERS' EQUITY A non-contributory employee stock ownership plan ("ESOP") has been established to acquire shares of the Company's common stock for the benefit of all eligible employees. The Company has made loans to the ESOP to be repaid in equal annual installments over 8 years with interest primarily at 9% and 10%. Deferred compensation equal to the loans has been recorded as a reduction of stockholders' equity representing the Company's prepayment of future compensation expense. As the Company makes annual contributions to the ESOP, these contributions will be used to repay the loans to the Company, together with accrued interest. As the loans are repaid, common stock is allocated to ESOP participants and deferred compensation is reduced by the amount of the principal payment on the loans. The Company has a Warrant Dividend Plan which provides for distribution to shareholders of a right to purchase one share of the Company's common stock currently for $24.13 (subject to anti-dilution adjustments) as a dividend on each of the Company's outstanding common shares. These rights are not currently exercisable and will only become exercisable upon the happening of certain events. Under certain circumstances, the rights entitle the holders to receive, upon payment of the then current exercise price of the right, that number of shares of Company common stock having a market value of two times the then current exercise price of the right. The rights will expire on December 30, 1997 and are redeemable at $.05 per right at any time prior to the occurrence of certain events. The Company's incentive compensation plan provides, among other things, for incentive or non-qualified stock options, stock appreciation rights, performance units, restricted stock and incentive bonus awards. During the years ended July 31, 1995 and 1994, respectively, non-qualified stock options for the purchase of 250,000 and 109,000 shares, at prices of $5.75 and $8.50 per share, were granted to key executives under the plan. During the year ended July 31, 1995 options to purchase 8,500 shares were forefeited. At July 31, 1995, there were outstanding options for 350,500 shares. The 1995 options were granted to the Chief Executive Officer. Options granted are exercisable at the fair market value at date of grant and, subject to termination of employment, expire ten years from the date of grant, are non-transferable other than on death, and are exercisable in three equal annual installments commencing three years from date of grant. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES NOTE 8--STOCKHOLDERS EQUITY--continued Under the incentive compensation plan, as of July 31, 1995, 47,000 common shares are outstanding which were issued to key executives in 1987 and 1988. These shares are subject to restricted stock agreements which provide that the shares will vest ratably over periods through 2001. Such shares are subject, upon the occurrence of certain events, to either forfeiture or accelerated vesting. The fair value of the shares on the dates of issuance is being charged to operations as compensation during the period the restrictions remain in effect. At July 31, 1995, 137,000 shares were available under the plan. NOTE 9--PENSION PLANS The Company has non-contributory defined benefit pension plans covering all employees who have completed one year of service, have attained age twenty and one-half and are not covered by union-sponsored plans. The benefits are based on years of service and the employee's compensation during the last 60 months of employment. The pension plans are funded to accumulate sufficient assets to provide for accrued benefits. In addition, contributions are made to multi-employer plans which provide defined benefits to union employees. A summary of the components of net periodic pension cost for the defined benefit plans for the three years ended July 31, 1995 and total contributions charged to pension expense for the union-sponsored plans follows (in thousands): 1995 1994 1993 Service cost-benefits earned during the year $1,813 $1,471 $1,058 Interest cost on projected benefit obligation 1,961 1,782 1,599 Actual return on plan assets (1,723) (1,654) (1,600) Net amortization and deferral 253 156 (4) NET PENSION COST OF DEFINED BENEFIT PLANS 2,304 1,755 1,053 UNION-SPONSORED PLANS 287 422 505 TOTAL PENSION EXPENSE $2,591 $2,177 $1,558 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES NOTE 9--PENSION PLANS--Continued The following table sets forth the funded status and amounts recognized in the consolidated balance sheet at July 31, for the defined benefit pension plans (in thousands): 1995 1995 1994 Plan Whose Assets Plans Whose Accumulated Exceed Accumulated Benefits Exceed Assets Actuarial present value of benefit obligations: Vested benefit obligation $(20,659) $(2,306) $(21,780) Accumulated benefit obligation $(20,973) $(2,309) $(22,124) Projected benefit obligation $(23,075) $(2,309) $(24,320) Plan assets, consisting primarily of U.S. treasury notes, other U.S. agency issues, guaranteed insurance contracts and corporate obli- gations, at fair value 21,056 2,046 20,202 Projected benefit obligation (in excess of)plan assets (2,019) (263) (4,118) Unrecognized prior service cost 270 124 395 Unrecognized net loss 4,414 39 5,884 Unrecognized net asset at August 1, 1987; net of amortization (593) (65) (745) Adjustment required to recognize minimum liability (3,338) Net pension asset(liability) recognized in the consolidated balance sheet $2,072 $(165) $(1,922) The weighted-average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation were 8.0% and 4% and 8.25% and 4%, respectively, at July 31, 1995 and 1994. The expected long-term rate of return on plan assets was 8.0%, 8.5% and 8.5% in 1995, 1994 and 1993, respectively. Provisions of FASB Statement No. 87 (the Statement) require the Company, under certain circumstances, to record a minimum pension liability relating to unfunded accumulated benefit obligations, establish an intangible asset relating thereto and reduce stockholders' equity, net of future tax benefits. During fiscal 1995, minimum pension liability recorded in prior years related to this matter was eliminated due to the current relationship of plan assets and accumulated benefit obligations. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES NOTE 10--QUARTERLY FINANCIAL DATA (UNAUDITED) The following is a summary of the unaudited quarterly results of operations for the years ended July 31, 1995 and 1994: Fiscal 1995 Three Months Ended October 31 January 31 April 30 July 31 (Thousands of Dollars Except Per Share Data) Net sales $73,572 $91,704 $81,005 $82,097 Gross profit $22,713 $25,225 $23,323 $21,970 NET INCOME $ 942 $ 1,295 $ 1,414 $ 1,213 Per share: Primary $ .09 $ .12 $ .13 $ .11 Fully diluted $ .09 $ .11 $ .11 $ .11 Fiscal 1994 Three Months Ended October 31 January 31 April 30 July 31 (Thousands of Dollars Except Per Share Data) Net sales $70,936 $62,108 $61,467 $69,127 Gross profit $25,505 $20,662 $20,160 $21,647 NET INCOME/(LOSS) $ 506 $ 7,244(1) $ (270) $ 404(2) Per share: Primary $ .05 $ .67(1) $ (.03) $ .04(2) Fully diluted $ .05 $ .37 $ (.03) $ .04 (1) Includes gain on sale of Hillside Coffee of California, Inc. of $7,068,000 ($.65 per share). See Note 6. (2) Includes reduction of aforementioned gain of $844,000 ($.08 per share). NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES NOTE 11--OTHER ITEMS a. Receivables other than trade at July 31, 1995 and 1994 amount to $2,656,000 and $3,242,000, respectively. See Note 11(c). b. Other assets and deferred charges consist of (in thousands): July 31, 1995 1994 Deferred financing costs (1) $3,412 $ 4,065 Non-compete agreements 4,468 6,170 Trademarks 4,667 4,793 Customer lists 5,819 6,972 Real estate and equipment held for rental, at cost net of accumulated depreciation and amortization of $705 and $1,654 677 617 Other 6,056 6,750 $25,099 $29,367 (1) Being amortized over the terms of the related indebtedness (see Note 3). c. The Company recorded a charge in the fourth quarter of fiscal 1993 of $3,598,000 to provide for the estimated cost of consolidating and closing certain production facilities. Such charge consisted primarily of accrued expenses related to closing such facilities. The Company substantially completed the restructuring during fiscal 1995. The after tax charge for such restructuring was $2,232,000 ($.21 per share) in fiscal 1993. In connection with closing a business and termination of a pension plan the Company has paid a liability for an underfunded pension plan of approximately $1,500,000 and recorded a similar amount receivable from the previous owner of such business pursuant to the acquisition agreement. The previous owner of the business is contesting the liability to the Company. The Company, based upon its interpretation of the acquisition agreement and after consultation with counsel, believes the previous owner of the business is responsible for an amount approximating the underfunded pension liability and has commenced litigation seeking such amount. d. In August 1993 Joseph Breslin then Chairman of the Board and Chief Executive Officer terminated his employment with the Company. In connection therewith, $818,000 was charged to operations in the fourth quarter of fiscal 1993 for compensation benefits (including 5,714 restricted shares of the Company's common stock which became subject to accelerated vesting) to which he was entitled as a result of his termination. The after-tax charge for such benefits was $507,000 ($.05 per share). NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES NOTE 11--OTHER ITEMS--Continued e. The Company believes that the fair value of its 7% and 8% convertible subordinated debentures approximates $49,625,000 and $43,266,000, respectively, as indicated by the public trading prices of such debt. f. In fiscal 1995, other income includes $589,000 from the sale of a former manufacturing plant. In fiscal 1994, other income includes $700,000 from the sale of the Company's private label tea and drink mix business. NOTE 12 -- INDUSTRY SEGMENT INFORMATION The Company's financial information by industry segment for 1995, 1994 and 1993 may be found on page 39 and is incorporated herein. SELECTED FINANCIAL DATA CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES YEAR ENDED JULY 31 1995 1994 1993 1992 1991 (Dollar Amounts in Thousands, Except Per Share Amounts) Net sales $328,378 $263,638 $251,641 $203,640 $200,037 Income/(loss) from continuing operations 4,863 7,884 1,062 (5,822) 1,380 Working capital 89,649 81,738 72,022 45,027(1) 44,947(1) Working capital ratio 4.3 to 1 3.6 to 1 3.8 to 1 3.2 to 1 3.9 to 1 Total assets 207,037 208,807 195,304 184,648 183,260 Long-term debt 106,569 110,427 108,092 107,053 108,862 Stockholders' equity 64,937 58,262 52,985 52,406 58,445 Per common share (2): Income/(loss) from continuing operations .45 .73 .10 (.56) .14 Stock dividends declared 3% 3% 3% 3% 3% Stockholders' equity 6.05 5.43 4.84 4.84 5.43 (1) Does not include $23,053 in 1992 and $23,184 in 1991 of marketable securities classified as non current. (2) Per share data has been retroactively adjusted for a 3% stock dividend in July of each year. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES RESULTS OF OPERATIONS In October 1993, the Company and Gourmet Coffees of America, Inc. ("GCA") entered into an agreement to sell Hillside Coffee of California, Inc. ("Hillside") to GCA. Pursuant to the agreement, which was consummated on November 19, 1993, the Company received (a) $38,500,000 in cash and (b) 75,000 shares of stock representing approximately one-half of one percent of the equity of GCA. A pre-tax gain of approximately $12,475,000 was recorded on the sale. Hillside's business consisted of roasting, packing, distributing and marketing specialty coffee to supermarkets. In December 1992, the Company acquired the stock of Cain's Coffee Co. ("Cains") and certain trademarks related to that business from Nestle' Beverage Co. and an affiliate for $52,000,000 in cash. The business of Cains consists primarily of sales of coffee and related products to Food service customers in parts of the Midwest and Southwest. In November 1992, the Company acquired a controlling interest in a partnership which owns Dana Brown Private Brands, Inc. ("Dana Brown"), a company which markets and sells coffee and tea products, servicing food retailers and distributors located primarily in the Midwest. The purchase price was $2,000,000, plus approximately $2,500,000 for the cost of inventory. In July 1993, the Company consummated the sale of its interest in Jimbo's Jumbos, Incorporated ("JJI"). The Company has presented the operating results of JJI as a discontinued operation in the consolidated financial statements for the year ended July 31, 1993. The discussion and analysis that follows relates solely to continuing operations of the Company, including those of specialty coffee (see Note 6 of notes to consolidated financial statements). Net sales increased $64,739,000 or 24.6% for the year ended July 31, 1995, compared to the prior year. The increase in net sales was due to an increase in the average selling price of coffee, partially offset by a decrease in coffee pounds sold and the loss of $9,557,000 of sales from Hillside (due to its disposition). Operating profits from food products were $15,552,000 an increase of 50% for the year ended July 31, 1995, compared to $10,389,000 for the prior year. The increase resulted primarily from increased gross profit margins partially offset by increased selling, general and administrative expenses and the loss of operating profits of $2,179,000 from Hillside (due to its disposition). Increased gross margins were due to an increase in the average selling price of coffee greater than the increase in the average cost of green coffee, partially offset by decreased coffee pounds sold. The price of green coffee has been volatile during the year ended July 31, 1995 and green coffee prices ranged from a low of $1.21 per pound to a high of $2.31 per pound. The Company consistently values its inventory and commitments at the lower of cost or market. Selling, general and administrative expenses increased primarily due to the Company's investment in its Cafe and Quikava operations, which are currently in the development stage and are currently not profitable, and increased advertising and payroll costs, partially offset by reduced coupon costs. Net income was $4,863,000 or $.45 per share for the year ended July 31, 1995, compared to $7,884,000 or $.73 per share for the prior year. The difference was primarily due to increased operating profits, offset by increased income taxes on such operating profits and the gain on sale of Hillside Coffee of California, Inc. (the Company's specialty coffee product line) of $6,224,000 after income taxes or $.58 per share in the prior year. Net sales increased $11,997,000 or 4.8% for the year ended July 31, 1994, compared to the prior year. The increase in net sales was primarily due to sales of Cains and Dana Brown (both acquired in the second quarter of the prior fiscal year)and increased selling prices on operations included in both the current and prior year, partially offset by the loss of sales from Hillside (due to its disposition) and reduced coffee pounds sold in operations included in both the current and the prior year. Cain's and Dana Brown were accounted for as purchases, and, therefore, were not included prior to their respective dates of acquisition. Operating profits from food products were $10,389,000, a decrease of 35% for the year ended July 31, 1994, compared to $15,948,000 for the prior year before deducting restructuring charges and officer's termination benefits. The decrease in operating profits resulted primarily from decreased gross margins in operations included in both the current and prior year and reduced operating profits from Hillside (due to its disposition), partially offset by the operations of Cain's (included for the entire period for the current year) and reduced selling, general and adminstrative expenses for operations included in both the current and prior year. The reduced gross margins were attributable to the inability to increase selling prices (due to competition) commensurate with the increased costs of coffee and a decrease in coffee pounds sold. Selling, general and administrative expenses decreased due to reduced advertising, brokerage and payroll costs. Income from continuing operations was $7,884,000 or $.73 per share, compared to $1,062,000 or $.10 per share for the prior year. The difference was primarily due to the gain on sale of Hillside Coffee of California, Inc. (the Company's specialty coffee product line) in fiscal 1994 of $6,224,000 after tax effect or $.58 per share, the restructuring charges and officer's termination benefits in fiscal 1993 aggregating $2,737,000 after tax effect or $.27 per share and reduced interest expense, partially offset by decreased operating profits from food products and reduced income taxes on the income excluding the gain on sale in fiscal 1994 and the aforementioned unusual charges in fiscal 1993. General inflation has been relatively low for the last several years; however, green coffee prices have changed significantly during fiscal 1994 and 1995. While the Company manages its inventory to have rapid turnover, the changes in green coffee prices have impacted the company's gross profit percentage. LIQUIDITY AND CAPITAL RESOURCES As of July 31, 1995, working capital was approximately $89,650,000 and the ratio of current assets to current liabilities was 4.3 to 1. As of July 31, 1995, the Company had unused borrowing capacity of approximately $28 million under its credit facilities of $40 million with National Westminster Bank USA and Chemical Bank (see Note 3 of notes to consolidated financial statements). The Company plans on expanding its cafe and Quikava, company operated and franchised operations, which in total are currently operating in 12 locations. The sales of these operations, which are in the development stage, are not material to the Company's consolidated sales. As a result of the rise in price of green coffee, the Company has financed increased inventories and receivables through the sale of marketable securities. The Company believes that its cash flow from operations, its marketable securities and cash equivalents and its amended and restated revolving credit andterm loan agreements with its Banks provide sufficient liquidity to meet its working capital, expansion and capital requirements. SEGMENT INFORMATION CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES Year Ended July 31 1995 1994 1993 (Amounts in Thousands) Net sales - food products $328,378 $263,638 $ 251,641 Rental revenues $ 2,061 $ 2,060 $ 1,876 Operating profit/(loss): Food products $ 15,552 $ 10,389 $ 11,532(1) Real estate 490 317 (9) Eliminations (423) (266) (200) $15,619 $ 10,440 $ 11,323 Identifiable assets: Food products $169,380 $153,751 $ 170,287 Real estate 9,564 9,913 7,356 Corporate 28,093 45,143 17,661 $207,037 $208,807 $ 195,304 Depreciation and amortization: Food products $ 5,804 $ 6,133 $ 6,925 Corporate 203 55 59 $ 6,007 $ 6,188 $ 6,984 Capital expenditures: Food products $ 8,991 $ 5,643 $ 7,887 Corporate 14 38 171 $ 9,005 $ 5,681 $ 8,058 (1) Includes restructuring charge of $3,598,000 and officer's termination benefits of $818,000. The food products segment is engaged in the (a) roasting, packing and marketing of regular, instant, decaffeinated and specialty coffees and (b) packing and marketing of regular and decaffeinated tea for sale to retail, Foodservice and private label customers. Additionally, other related food products are marketed and sold to Foodservice customers. See Notes 5 and 6. Operations of real estate represent rental and other income principally from the Company's former restaurant facilities. All of the Company's operations are located in the United States. Export sales are not significant. Identifiable assets under the caption "Corporate" include cash and cash equivalents, investments in marketable securities and short-term investments of $15,360,000 (1995), $31,726,000 (1994) and $5,469,000 (1993). CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES COMMON SHARE PRICES The Company's Common Stock is traded on the New York Stock Exchange under the symbol CHF. The Company has approximately 14,000 shareholders of record as of October 15, 1995. 1995 1994 High Low High Low 1st Quarter 6 1/4 5 1/8 9 5/8 7 1/8 2nd Quarter 6 1/4 5 1/4 10 1/4 7 1/2 3rd Quarter 6 5/8 5 3/8 8 3/8 6 7/8 4th Quarter 7 6 3/8 7 3/8 5 5/8 The Company distributed a 3% stock dividend on July 27, 1995,and July 29, 1994. The Pursuant to certain provisions of a revolving credit and term loan agreement, the Company may not declare or pay any dividend (except for stock dividends). Item 14 (d) CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES SCHEDULE II- VALUATION AND QUALIFYING ACCOUNTS Column A Column B Column C Column D Column E Additions Balance at Charged to Balance Beginning Costs and at End Description of Period Expenses Other Deductions(1) of Period Year ended July 31, 1995: Allowance for doubtful accounts and discounts $ 928,000 $2,597,705 $2,274,705 $1,251,000 Year ended July, 1994: Allowance for doubtful accounts and discounts $1,081,000 $1,940,779 $ 24,664 $2,118,443 $ 928,000 Year ended July 31, 1993: Allowance for doubtful accounts and discounts $1,043,000 $1,787,000 $142,000(2)$1,891,000 $1,081,000 (1) Discounts taken by customers and uncollectible accounts written-off, net of recoveries. (2) Net addition due to acquisition of Cain's Coffee Co. and reclassification to net assets held for sale. EX-11 2 EXHIBIT 11 - STATMENT RE: COMPUTATION OF PER SHARE EARNINGS YEAR ENDED JULY 31, 1995 1994 1993 (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) PRIMARY AVERAGE SHARES OUTSTANDING 10,736 10,797 10,884 INCOME FROM CONTINUING OPERATIONS $4,863 $7,884 $1,062 NET INCOME/(LOSS) $4,863 $7,884 $(1,006) PER SHARE AMOUNTS: INCOME FROM CONTINUING OPERATIONS $.45 $0.73 $0.10 NET INCOME/(LOSS) $.45 $0.73 $(0.09) FULLY DILUTED AVERAGE SHARES OUTSTANDING 10,736 10,797 10,884 ASSUMED CONVERSION OF CONVERTIBLE DEBENTURES 11,821 11,822 11,542 TOTAL 22,557 22,619 22,426 INCOME FROM CONTINUING OPERATIONS $4,863 $7,884 $1,062 ADD CONVERTIBLE DEBENTURES INTEREST AND AMORTIZATION OF DEFERRED CHARGES, NET OF INCOME TAXES 4,670 4,373 4,796 TOTAL $9,533 $12,257 $5,858 NET INCOME/(LOSS) $4,863 $7,884 $(1,006) ADD CONVERTIBLE DEBENTURES INTEREST AND AMORTIZATION OF DEFERRED CHARGES, NET OF INCOME TAXES 4,670 4,373 4,796 TOTAL $9,533 $12,257 $3,790 PER SHARE AMOUNTS: INCOME FROM CONTINUING OPERATIONS $.42 $.54 $.26 NET INCOME $.42 $.54 $.17 EX-21 3 EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT As of October 13, 1995, the Company had directly and indirectly the following active subsidiaries, all of which are included in the Company's consolidated financial statements furnished herewith: Subsidiaries of Chock full o'Nuts Corporation Chock Realty Corporation California 100% CFN of New York, Inc. New York 100% Cain's Coffee Co. Delaware 100% Cain's Holding Company Delaware 100% Quikava, Inc. Massachusetts 100% EX-27 4
5 YEAR JUL-31-1995 JUL-31-1995 8386620 6972928 37703214 1251000 60576420 116555872 91038726 39273602 207036574 26909633 106568896 2802767 0 0 62133920 207036574 328377727 330438742 235146454 236717544 0 2597705 9191495 7864288 3001000 4863288 0 0 0 4863288 0.45 0.42
EX-99 5 CHOCK FULL O'NUTS CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN AS AMENDED AND RESTATED THROUGH JUNE 30, 1994 CHOCK FULL O'NUTS CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN TABLE OF CONTENTS ARTICLE CONTENTS PAGE PREAMBLE I DEFINITIONS 1 II ELIGIBILITY AND SERVICE 2.1 Conditions of Eligibility 8 2.2 Termination of Eligibility 8 2.3 Crediting Service on Reemployment 8 2.4 Status of Reemployed Participants 8 III CONTRIBUTION AND ALLOCATION 3.1 Formula for Determining Employer's Contribution 10 3.2 Time of Payment of Employer's Contribution 10 3.3 Allocation of Contribution, Forfeitures and Earnings 10 3.4 Maximum Annual Additions 13 3.5 Adjustment for Excessive Additions 16 IV INVESTMENT POLICY 4.1 Investment Policy 18 4.2 Application of Cash 18 4.3 Loans to the Trust 18 V VALUATIONS 5.1 Valuation of the Trust Fund 20 5.2 Method of Valuation 20 VI DETERMINATION AND DISTRIBUTION OF BENEFITS 6.1 Determination of Benefits Upon Retirement 21 6.2 Determination of Benefits Upon Death 21 6.3 Disability Retirement Benefits 22 6.4 Determination of Benefits Upon Termination 22 6.5 Distribution of Benefits 24 6.6 How Plan Benefits Will be Distributed 25 6.7 Distributions For Minor Beneficiaries 25 6.8 Location of Participant or Beneficiary Unknown 26 6.9 Limitations on Benefits and Distributions 26 6.10 Direct Rollovers 26 6.11 Directed Investment Account 28 VII AMENDMENT, TERMINATION, AND MERGERS 7.1 Amendments 29 7.2 Termination 29 7.3 Merger or Consolidation 30 VIII ADMINISTRATION 8.1 Powers and Responsibilities of the Employer 31 8.2 Assignment and Designation of Administrative Authority 31 8.3 Allocation and Delegation of Responsibilities 31 8.4 Powers and Duties of the Administrator 32 8.5 Records and Reports 33 8.6 Appointment of Advisors 33 8.7 Information from Employer 33 8.8 Payment of Expenses 34 8.9 Majority Actions 34 8.10 Claims Procedure 34 8.11 Claims Review Procedure 34 IX MISCELLANEOUS 9.1 Participant's Rights 36 9.2 Alienation 36 9.3 Construction of Plan 37 9.4 Gender and Number 37 9.5 Legal Action 37 9.6 Prohibition Against Diversion of Funds 37 9.7 Bonding 38 9.8 Receipt and Release for Payments 38 9.9 Action by the Employer 38 9.10 Named Fiduciaries and Allocation of Responsibility 39 9.11 Headings 39 9.12 Notices and Deliveries 39 9.13 Uniformity 40 9.14 Indemnification 40 9.15 Voting Passthroughs, Tender Offers; Rights 40 X PARTICIPATING EMPLOYERS 10.1 Adoption by Other Employers 42 10.2 Requirements of Participating Employers 42 10.3 Designation of Agent 42 10.4 Employee Transfers 43 10.5 Participating Employer's Contribution 43 10.6 Discontinuance of Participation 43 10.7 Administrator's Authority 43 CHOCK FULL O'NUTS CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN PREAMBLE The purpose of this Plan is to enable Participants to acquire stock ownership interests in the Employer and thereby share in the growth and prosperity of the Employer and accumulate capital for their future economic security. Therefore, it is intended that the assets of the Trust established under the Plan be invested primarily in Company Stock. The Plan, adopted effective as of January 1, 1988 and hereby amended and restated effective as of January 1, 1992 (except for those provisions which contain a different effective date), is a stock bonus plan constituting an employee stock ownership plan under Section 4975(e)(7) of the Code intended to qualify under Section 401(a) of the Code. The Plan is administered by the Administrator for the exclusive benefit of Participants (and their Beneficiaries), and all assets held under the Plan are administered, distributed, forfeited and otherwise governed by the provisions of this Plan and the related Trust. ARTICLE I DEFINITIONS 1.1 "Act" means the Employee Retirement Income Security Act of 1974, as amended from time to time. 1.2 "Administrator" means the person or persons designated by the Employer pursuant to Section 8.1 to administer the Plan on behalf of the Employer. 1.3 "Affiliated Employer" means the Employer and 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). 1.4 "Aggregate Account" means, with respect to each Participant, the value of all accounts maintained on behalf of a Participant. 1.5 "Anniversary Date" means January 1. 1.6 "Beneficiary" means the Participant's spouse unless the Participant designate another person to whom the share of a deceased Participant's total account is payable. 1.7 "Code" means the Internal Revenue Code of 1986, as amended from time to time. 1.8 "Company Stock" means common stock issued by the Employer which is readily tradeable on an established securities market. 1.9 "Company Stock Account" means the account of a Participant which is credited with the shares of Company Stock purchased and paid for by the Trust Fund or contributed to the Trust Fund. 1.10 "Compensation" means a Participant's total remuneration paid by the Employer as wages and salary for a calendar year, including incentive pay, bonuses, overtime pay, and amounts from the exercise of non-qualified stock options, but specifically excluding employer contributions to a plan of deferred compensation which are not includable in the Employee's gross income for the taxable year in which contributed. For all Plan Years beginning on or after January 1, 1989 and ending on or before December 31, 1993, Compensation in excess of $200,000 (as adjusted at the same time and in such manner as permitted under Code Section 415(d)) shall be disregarded. For all Plan Years beginning on or after January 1, 1994, the annual Compensation of each Employee taken into account under the Plan for a Plan Year shall not exceed $150,000, as adjusted for increases in the cost of living in accordance with Section 401(a)(17)(B) of the Code. In determining the Compensation of a Participant for purposes of these limitations, Section 414(q)(6) of the Code shall apply, except that the term "family" shall include only the spouse of a Participant and any lineal descendants of the Participant who have not attained the age of 19 before the close of the year. 1.11 "Credited Service" means Periods of Service credited to a Participant for all purposes according to the provisions of Article 2 herein. For vesting purposes hereunder Service prior to January 1, 1988 shall be excluded. Service with any Affiliated Employer shall be recognized for eligibility and vesting purposes of this Plan. Service rendered prior to the date on which a subsidiary or division becomes affiliated with the Employer, shall not be recognized for any Plan purposes, unless expressly provided for in an appendix hereunder. 1.12 "Current Obligations" means Trust obligations arising from extension of credit to the Trust and payable in cash within one (1) year from the date an Employer contribution is due. 1.13 "Eligible Employee" means any Employee other than (a) an Employee whose employment is governed by the terms of a collective bargaining agreement between Employee representatives and the Employer under which retirement benefits were the subject of good faith bargaining between the parties, unless such agreement expressly provides for such coverage in this Plan, (b) any person who is a "leased employee" within the meaning of Section 414(n) of the Code and (c) any Employee who is employed at a rate of less than 1,000 Hours of Service per year and who does not complete 1,000 Hours of Service with the Employer in a Plan Year. 1.14 "Employee" means any person who is employed by the Employer, including any person who is a "leased employee" within the meaning of Section 414(n) of the Code, or who is employed as an independent contractor. 1.15 "Employer" means Chock Full O'Nuts Corporation and any Participating Employer (as defined in Section 10.1) with the approval of the Board of Directors of Chock Full O'Nuts Corporation pursuant to Section 10.1 herein which shall adopt this Plan. 1.16 "Employment Commencement Date" or "Reemployment Commencement Date" means the date on which an Employee first performs, or again performs (after a Period of Severance) an Hour of Service with respect to the Employer. 1.17 "ESOP" means an employee stock ownership plan that meets the requirements of Code Section 4975(e)(7) and Regulation Section 54.4975-11. 1.18 "Exempt Loan" means a loan made to the Plan by a disqualified person or a loan to the Plan which is guaranteed by a disqualified person and which satisfies the requirements of Section 2550.408b-3 of the Department of Labor Regulations, Section 54.4975-7(b) of the Treasury Regulations and Section 4.3 hereof. 1.19 "Family Member" means an individual described in Code Section 414(q)(6)(B). 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 August 1 of each year and ending the following July 31. 1.22 "Forfeiture" means that portion of a Participant's Account that is not Vested. 1.23 "Former Participant" means a person who has been a Participant, but who has ceased to be a Participant for any reason. For purposes of this Section 1.23, a "Former Participant" shall be treated as a Highly Compensated Participant if such "Former Participant" was a Highly Compensated Participant when he separated from service with the Employer or was a Highly Compensated Participant at any time after attaining age 55. 1.24 "415 Compensation" means compensation as defined in Section 4.4(d). 1.25 "Highly Compensated Participant" means any Participant or Former Participant who is a highly compensated employee as defined in Code Section 414(q). Generally, any Participant or Former Participant is considered a Highly Compensated Participant if during the Plan Year or the preceding Plan Year such Participant or Former Participant: (a) was at any time a "five percent owner" as defined in Code Section 414(q)(3); (b) received "415 Compensation" from the Employer in excess of $75,000. In determining whether an individual has "415 Compensation" of more than $75,000, "415 Compensation" from each employer required to be aggregated under Code Sections 414(b), (c), and (m) shall be taken into account; or (c) received "415 Compensation" from the Employer in excess of $50,000 and was in the top-paid group of Employees for the Plan Year. An Employee is in the top-paid group of Employees for any Plan Year if such Employee is in the group consisting of the top twenty (20) percent of the Employees when ranked on the basis of "415 Compensation" paid during the Plan Year. In determining whether an individual has "415 Compensation" of more than $50,000, "415 Compensation" from each employer required to be aggregated under Code Sections 414(b), (c), and (m) shall be taken into account. 1.26 "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 elationship 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. All Hours of Service hereunder shall be counted for the purpose of determining a Month of Service, a year of Audited Service, a one year Period of Severance, and employment commencement date (or reemployment commencement date). The provisions of Department of Labor Regulations Sections 2530.200b-2(b) and (c) are incorporated herein by reference. 1.27 "Late Retirement Date" means a Participant's actual Retirement Date after having reached his Normal Retirement Date. 1.28 "Maternity or Paternity Leave of Absence" means an Employee's absence from work by reason of pregnancy of the Employee, by reason of birth of a child of the Employee, by reason of the placement of a child with the Employee in connection with adoption of such child by such Employee, or for purposes of caring for such child for a period beginning immediately following such birth or placement. 1.29 "Month of Service" means a calendar month during any part of which an Employee completed an Hour of Service. 1.30 "Non-Highly Compensated Participant" means any Participant or Former Participant who is neither a Highly Compensated Participant nor a Family Member. 1.31 "Normal Retirement Date" means the later of the date on which a Participant attains the age of 65 years, or the fifth anniversary of the Participant's Employment Commencement Date. A Participant shall become fully Vested in his Account upon attaining his Normal Retirement Date. 1.32 "One Year Period of Severance" means a twelve (12) consecutive month period following an Employee's Severance From Service Date during which an Employee does not perform an Hour of Service. 1.33 "Other Investment Account" means the account of a Participant which is credited with his share of the net gain (or loss) of the Plan, Forfeitures and Employer contributions in other than Company Stock and which is debited with payments made to pay for Company Stock. 1.34 "Participant" means any Eligible Employee who has become a Participant pursuant to Section 3.1 and where participation has not terminated pursuant to Section 3.2. 1.35 "Participant's Account" means the Company Stock Account and the Other Investments 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 contributions. 1.36 "Period of Service" or "Service" means a period of service commencing on the Employee's Employment Commencement Date or Reemployment Commencement Date, whichever is applicable, and ending on the Severance From Service Date. 1.37 "Period of Severance" shall mean the period of time commencing on the Severance From Service Date and ending on the date on which the Employee again performs an Hour of Service. 1.38 "Plan" means this instrument, including all amendments thereto. 1.39 "Plan Year" means the Plan's accounting year of twelve (12) months commencing on January 1 of each year and ending the following December 31. 1.40 "Regulation" means the Income Tax Regulations as promulgated by the Secretary of the Treasury or his delegate, and as amended from time to time. 1.41 "Retired Participant" means a person who has been a Participant, but who has become entitled to retirement benefits under the Plan. 1.42 "Retirement Date" means the date as of which a Participant retires whether retirement occurs on a Participant's Normal Retirement Date or Late Retirement Date. 1.43 "Severance from Service Date" shall mean the earlier of: (a) the date on which an Employee's Service is terminated by reason of his resignation, retirement, discharge or death; or (b) the first anniversary of the first date of a period in which an Employee remains absent from Service (with or without Compensation) with the Employer for reasons other than those listed in (a) above, such as vacation, holiday, sickness, layoff, disability or an authorized leave of absence; or (c) in the case of a Maternity or Paternity Leave of Absence, the second anniversary of the first date of such absence. The period between the first and second anniversaries is neither a Period of Service nor a Period of Severance. 1.44 "Suspense Account" means a Former Participant's Account which has not Vested. 1.45 "Terminated Participant" means a person who has been a Participant, but whose employment has been terminated other than by retirement. 1.46 "Trust" means the legal entity resulting from the Trust Agreement between the Company and the Trustee who receives the Company's contributions to the Plan and holds, invests, and disburses funds to or for the benefit of Participants and their Beneficiaries. 1.47 "Trust Fund" means the assets of the Plan and Trust as the same shall exist from time to time. 1.48 "Unallocated Company Stock Suspense Account" means an account containing Company Stock acquired with the proceeds of an Exempt Loan and which has not been released from such account and allocated to the Participants' Company Stock Accounts. 1.49 "Vested" means the portion of a Participant's Account that is nonforfeitable. ARTICLE II ELIGIBILITY AND SERVICE 2.1 Conditions of Eligibility Each Eligible Employee shall become a Participant in the Plan as of the Anniversary Date next following the date he shall have completed six Months of Service, provided that he had (a) attained age 20-1/2 on or prior to such Anniversary Date, and (b) is still employed as an Eligible Employee on such Anniversary Date. 2.2 Termination of Eligibility In the event that the classification of a Participant shall change from that of an Eligible Employee to a ineligible Employee, such Former Participant shall continue to accrue Service under the Plan while an ineligible Employee. Additionally, his Participant's Account under the Plan shall continue to share in the earnings of the Trust Fund. 2.3 Crediting Service on Reemployment (a) If an Employee severs from Service by reason of a quit, discharge, disability or retirement, and performs an Hour of Service within twelve months after the Severance from Service Date, such Period of Severance shall be considered a Period of Service. (b) If a Participant who is granted an authorized leave of absence, incurred a Severance from Service Date within twelve months of the date of such authorized leave of absence, by reason of a quit, discharge, retirement or death, and again performs an Hour of Service within twelve months of the date on which the Employee was first absent from service, such Period of Severance shall be considered a Period of Service. 2.4 Status of Reemployed Participants In the event that a Participant has a one year Period of Severance and is subsequently reemployed by the Employer his status in the Plan shall be determined as follows: (a) If such Participant was Vested in his Account at the time he incurred such One Year Period of Severance, he shall resume participation in the Plan effective as of his Reemployment Commencement Date. (b) If such Participant was not Vested in his Account at the time he incurred such One Year Period of Severance and his Period of Severance exceeds his prior Period of Service, he shall be treated as a new Employee as of his Reemployment Commencement Date. ARTICLE III CONTRIBUTION AND ALLOCATION 3.1 Formula for Determining Employer's Contribution (a) For each Plan Year, the Employer shall contribute to the Plan such amount as may be determined by its board of directors. (b) Employer contributions for each Plan Year shall never be less than the amount required to enable the Plan to discharge its Current Obligations, notwithstanding whether some or all of such contributions may fail to qualify for income tax deductions by the Employer. (c) The Employer's contribution for any Plan Year, subject to the limitation provided above, shall not exceed the maximum amount allowable as a deduction to the Employer under the provisions of Code Section 404. 3.2 Time of Payment of Employer's Contribution Employer contributions will be paid in cash, Company Stock or other property as the Employer's board of directors may from time to time determine. Company Stock and other property will be valued at their then fair market value. The Employer's contribution will be paid to the Plan on or before the date required to make such contribution a deduction on the Employer's federal income tax return for the year. 3.3 Allocation of Contribution, Forfeitures and Earnings (a) The Administrator shall establish and maintain a Participant's Account in the name of each Participant to which the Administrator shall credit as of the last day of each Plan Year 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 contribution for each Plan Year and following the receipt by the Administrator of such information, the Administrator shall allocate such contribution to the Participant's Account of each Participant in the employ of the Employer on the last day of the Plan Year with respect to which such contribution pertains in the same proportion that each such Participant's Compensation for such year bears to the total Compensation of all Participants for such year. (c) The Company Stock Account of each Participant shall be credited as of the last day of each Plan Year with his allocable share of Forfeitures of Company Stock and of Company Stock (including fractional shares) purchased and paid for by the Plan or contributed in kind by the Employer. Stock dividends on Company Stock held in his Company Stock Account shall be credited to his Company Stock Account when paid. Company Stock acquired with the proceeds of any Exempt Loan shall be an asset of the Trust Fund and maintained in the Unallocated Company Stock Suspense Account, and shall only be allocated to each Participant's Company Stock Account upon release from the Unallocated Company Stock Suspense Account as provided in Section 4.3(e) herein. Company Stock received by the Trust during a Plan Year with respect to a contribution by the Employer for the preceding Plan Year shall be allocated to the accounts of Participants as of the end of such preceding Plan Year. (d) As of each June 30 and December 31, before allocation of Employer contributions and Forfeitures, any earnings or losses of the Trust Fund shall be allocated in the same proportion that each Participant's and Former Participant's nonsegregated accounts (other than each Participant's Company Stock Account) bear to the total of all Participants' and Former Participants' nonsegregated accounts (other than Participants' Company Stock Accounts) as of such date. Cash dividends on Company Stock allocated to each Participant's or Former Participant's nonsegregated accounts after the first month of the Plan Year shall not share in any earnings or losses of the Trust Fund for such year. Earnings or losses include the increase (or decrease) in the fair market value of assets of the Trust Fund (other than Company Stock in the Participants' Company Stock Accounts) since the preceding Valuation Date (as defined in Section 6.1 hereof). Earnings or losses do not include the interest paid under any installment contract for the purchase of Company Stock by the Trust Fund or on any loan used by the Trust Fund to purchase Company Stock, nor does it include income received by the Trust Fund with respect to Company Stock acquired with the proceeds of an Exempt Loan to the extent such income is used to repay the loan. (e) All Company Stock acquired by the Plan with the proceeds of an Exempt Loan must be added to and maintained in the Unallocated Company Stock Suspense Account. For each Plan Year during the duration of the loan, the number of shares of Company Stock released shall equal the number of shares held immediately before release for the current Plan Year multiplied by a fraction, the numerator of which is the amount of principal and interest paid for the Plan Year and the denominator of which is the sum of the numerator plus the principal and interest to be paid for all future Plan Years (assuming level interest payments in the case of a varying rate loan, for purposes of the foregoing computations). As of each December 31, the Plan must consistently allocate to each Participant's Account in the same manner as Employer discretionary contributions are allocated shares and fractional shares of Company Stock representing each Participant's interest in assets withdrawn from the Unallocated Company Stock Suspense Account. Income earned with respect to Company Stock in the Unallocated Company Stock Suspense Account shall be used to repay the Exempt Loan used to purchase such Company Stock. Any income which is not so used must be allocated as income of the Plan. (f) As of the last day of each Plan Year, any amounts which became Forfeitures within that Plan Year shall be allocated among the Participants' Accounts in the same proportion that each such Participant's Compensation for the year bears to the total Compensation of all Participants for the year. In the event the allocation of Forfeitures provided herein shall cause the "annual addition" (as defined in Section 3.4) to any Participant's Account to exceed the amount allowable by the Code, the excess shall be reallocated in accordance with Section 3.4. However, a Participant shall not share in the Plan Forfeitures for a Plan Year unless employed by the Employer on the last day of such Plan Year. (g) Notwithstanding the foregoing, the terms set forth in Appendix 3.3(g) attached hereto and incorporated herein shall govern the minimum allocations required for all Plan Years in which the Plan is "Top Heavy" or "Super Top Heavy", as such terms are defined therein. (h) For the purposes of this Section, "415 Compensation", as defined in Section 3.4(d), shall be limited in accordance with the provisions of Section 1.10 hereof. (i) Any Participant who terminated employment during the Plan Year for reasons other than retirement shall share only in the allocations of earnings or losses as provided in this Section. 3.4 Maximum Annual Additions (a) Notwithstanding the foregoing, the maximum "annual additions" credited to a Participant's Account 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". (b) The dollar amount provided above shall be increased by the lesser of the dollar amount determined above or the amount of Company Stock contributed, or purchased with cash contributed. The dollar amount shall be increased provided no more than one-third of the Employer's contributions for the year are allocated to Highly Compensated Participants. (c) For purposes of applying the limitations of Code Section 415, "annual additions" means the sum credited to a Participant's Account for any "limitation year" of Employer contributions and Forfeitures, and the following shall not be deemed "annual additions": (1) transfer of funds from one qualified plan to another; (2) Forfeitures of Company Stock purchased with the proceeds of an Exempt Loan; and (3) Employer contributions applied to the payment of interest on an Exempt Loan if no more than one-third of the Employer contributions for the year are allocated to Highly Compensated Participants. (d) For purposes of applying the limitations of Code Section 415, "415 Compensation" shall include Participant's wages, salaries, fees for professional service and other amounts for personal services actually rendered in the course of employment with an Employer maintaining the Plan paid during the "limitation year", but shall exclude (1)(A) contributions made by the Employer to a plan of deferred compensation to the extent that, before the application of Code Section 415 limitations to the Plan, the contributions are not includable in the gross income of the Employee for the taxable year in which contributed, (B) any distributions from a plan of deferred compensation to the extent such amounts are includable in the gross income of the Employee; (2) amounts realized from the exercise of a non-qualified stock option or when restricted stock (or property) held by an Employee either becomes freely transferrable or is no longer subject to substantial risk of Forfeiture; (3) amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and (4) other amounts which receive special tax benefits, such as premiums for group term life insurance (but only to the extent that the premiums are not includable in the gross income of the Employee). For "limitation years" beginning after December 31, 1988, "415 Compensation" shall be limited in accordance with the provisions of Section 1.10 hereof. (e) For purposes of applying the limitations of Code Section 415, the "limitation year" shall be the calendar year. (f) 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. (g) 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. (h) 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 Sections 414(b) and (c) as modified by Code Section 415(h) or is a member of an affiliated service group (as defined by Code Section 414(m)), all Employees of such Employers shall be considered to be employed by a single Employer. (i) Subject to the exception in Section 4.4(m) below, 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. (j) (1) The defined benefit plan fraction for any "limitation year" is a fraction (A) the numerator of which is the "projected annual benefit" of the Participant under the Plan (determined as of the close of the "limitation year"), and (B) the denominator of which is the greater of the product of 1.25 multiplied by the "protected current accrued benefit" or the lesser of: (i) the product of 1.25 multiplied by the maximum dollar limitation provided under Code Section 415(b)(1)(A) for such "limitation year", or (ii) the product of 1.4 multiplied by the amount which may be taken into account under Code Section 415(b)(1)(B) for such "limitation year". (2) For purposes of applying the limitations of Code Section 415, the "projected annual benefit" for any Participant is the benefit, payable annually, under the terms of the Plan determined pursuant to Regulation 1.415-7(b)(3). (k) The defined contribution plan fraction for any "limitation year" is a fraction (A) the numerator of which is the sum of the "annual additions" to the Participant's accounts as of the close of the "limitation year", adjusted pursuant to Regulation 1.415-7(d)(1), and (B) the denominator of which is the sum of the lesser of the following amounts determined for such year and each prior year of service with the Employer: (i) the product of 1.25 multiplied by the dollar limitation in effect under Code Section 415(c)(1)(A) for such "limitation year" (determined without regard to Code Section 415(c)(6)), or (ii) the product of 1.4 multiplied by the amount which may be taken into account under Code Section 415(c)(1)(B) for such "limitation year". (l) if the sum of the defined benefit plan fraction and the defined contribution plan fraction shall exceed 1.0 in any "limitation year" for any Participant in this Plan for reasons other than described in 3.4(m) below, the Administrator shall limit, to the extent necessary, the "annual additions" to such Participant's accounts for such "limitation year". If, after limiting the "annual additions" to such Participant's Accounts for the "limitation year", the sum of the defined benefit plan fraction and the defined contribution plan fraction still exceed 1.0, the Administrator shall then, in conjunction with the person or persons appointed to administer the defined benefit plan, effectuate an adjustment of the numerator of the defined benefit plan fraction so that the sum of both fractions shall not exceed 1.0 in any "limitation year" for such Participant. (m) If (1) the substitution of 1.00 for 1.25 and $41,500 for $51,875 above or (2) the excess benefit accruals or "annual additions" provided for in Internal Revenue Service Notice 82-19 cause the 1.0 limitation to be exceeded for any Participant in any "limitation year", such Participant shall be subject to the following restrictions for each future "limitation year" until the 1.0 limitation is satisfied: (A) the Participant's accrued benefit under the defined benefit plan shall not increase, (B) no "annual additions" may be credited to a Participant's Accounts, and (C) no Employee contributions (voluntary or mandatory) shall be made under any defined benefit plan or any defined contribution plan of the Employer. (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. 3.5 Adjustment for Excessive Additions (a) If as a result of the allocation of Forfeitures, a reasonable error in estimating a Participant's Compensation, or other facts and circumstances to which Regulation 1.415-6(b)(6) shall be applicable, the "annual additions" under this Plan would cause the maximum "annual additions" to be exceeded for any Participant, the Administrator shall (1) hold any "excess amount" in a "Section 415 suspense account", (2) 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 contributions which would constitute "annual additions" are made to the Plan for such "limitation year", or (3) 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 3.4. (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. (d) The Plan may not distribute "excess amounts" to Participants or Former Participants. ARTICLE IV INVESTMENT POLICY 4.1 Investment Policy (a) The Plan is a stock bonus plan intended to invest primarily in Company Stock. (b) With due regard to subparagraph (a) above, funds under the Plan may also be invested in other property the ownership of which under the Code and the Regulations is permissible by the Trust. 4.2 Application of Cash Employer contributions in cash and other cash received by the Trust Fund shall first be applied to pay any Current Obligations of the Trust Fund. 4.3 Loans to the Trust (a) The Plan may borrow money, provided, the proceeds of an Exempt Loan are used within a reasonable time after receipt only for any or all of the following purposes: (1) To acquire Company Stock. (2) To repay such loan. (3) To repay a prior Exempt Loan. (b) All loans to the Trust which are made or guaranteed by a disqualified person must satisfy all requirements applicable to Exempt Loans including but not limited to the following: (1) The loan must be at a reasonable rate of interest; (2) Any collateral pledged to the creditor by the Plan shall consist only of Company Stock purchased with the borrowed funds; (3) Under the terms of the loan, any pledge of Company Stock shall provide for the release of shares so pledged on a pro-rata basis pursuant to Article III; (4) Under the terms of the loan, the creditor shall have no recourse against the Plan except with respect to such collateral, earnings attributable to such collateral, Employer contributions (other than contributions of Company Stock) that are made to meet Current Obligations and earnings attributable to such contributions; (5) The loan must be for a specific term and may not be payable at the demand of any person except in the case of default; (6) In the event of default upon an Exempt Loan, the value of the Trust Fund transferred in satisfaction of the Exempt Loan shall not exceed the amount of default. If the lender is a disqualified person, an Exempt Loan shall provide for a transfer of Trust Funds upon default only upon and to the extent of the failure of the Plan to meet the payment schedule of the Exempt Loan; (7) Exempt Loan payments during a Plan Year must not exceed an amount equal to: (A) the sum, over all Plan Years, of all contributions made by the Employer to the Plan with respect to such Exempt Loan and earnings on such Employer contributions, less (B) the sum of the Exempt Loan payments in all preceding Plan Years. A separate accounting shall be maintained for such Employer contributions and earnings until the Exempt Loan is repaid. (c) For purpose of this Section, the term "disqualified person" shall have the meaning ascribed to it in Section 4975(e) of the Code. ARTICLE V VALUATIONS 5.1 Valuation of the Trust Fund The Administrator shall direct the Trustee, as of each June 30 and December 31, and at such other date or dates deemed necessary by the Administrator (herein called the "Valuation Date"), to determine the net worth of the assets comprising the Trust Fund as it exists on the Valuation Date prior to taking into consideration any contribution to be allocated for that Plan Year. 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 shares of Company Stock held in the Trust Fund, the Administrator shall direct the Trustee to value the same at the prices they were last traded on such exchange as of the close of business on the Valuation Date. ARTICLE VI DETERMINATION AND DISTRIBUTION OF BENEFITS 6.1 Determination of Benefits Upon Retirement Upon the Normal Retirement Date of a Participant, all amounts credited to such Participant's Account (and not theretofore distributed pursuant to the election provided under the terms of Section 6.11 hereof) shall become distributable in accordance with the terms of Sections 6.5 and 6.6 hereof. 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 shall continue until his Late Retirement Date, and thereupon, all amounts credited to such Participant's Account (and not theretofore distributed pursuant to the election provided under the terms of Section 6.11 hereof) shall become distributable in accordance with the terms of Sections 6.5 and 6.6 hereof. 6.2 Determination of Benefits Upon Death (a) Upon the death of a Participant before his Retirement Date or other termination of employment, all amounts credited to such Participant's Account shall become fully Vested. On or before the last day of the Plan Year coinciding with or next following such death, the Administrator shall direct the Trustee, in accordance with the provisions of Sections 6.5 and 6.6, to distribute the value of the deceased Participant's Account to the Participant's Beneficiary. (b) On or before the last day of the Plan Year coinciding with or next following the death of a Former Participant, the Trustee, in accordance with the provisions of Sections 6.5 and 6.6, shall distribute any remaining amounts credited to the account of such deceased Former Participant to such Former Participant's Beneficiary. (c) 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. (d) 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 her right to be the Participant's Beneficiary, or (2) the Participant has no spouse, or (3) 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 such change or revocation. 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. (e) 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 Disability Retirement Benefits No disability benefits, other than those payable upon termination of employment, are provided in this Plan. 6.4 Determination of Benefits Upon Termination (a) On or before the last day of the Plan Year coinciding with or subsequent to the termination of a Participant's employment for any reason other than death or retirement, the Administrator shall direct the Trustee to segregate such Terminated Participant's Account, if the amount therein is Vested, which amount shall remain in a separate account for the Terminated Participant until such time as a distribution is made to the Terminated Participant. If the Terminated Participant's Account is not Vested, the amount therein shall be allocated to the accounts of the remaining Participants in accordance with the terms of the Plan as a Forfeiture as of the next succeeding Valuation Date. Subject to the provisions of Section 6.5(d) hereof, unless the Terminated Participant otherwise elects in writing a later distribution date, distribution of a Terminated Participant's Account shall commence as soon as practicable following the termination of his employment (provided that a Terminated Participant's Vested benefit derived from Employer contributions may not be paid without his written consent if the value exceeds $3,500). (b) Subject to Appendix 6.4(b), the determination as to whether a Participant's Account is Vested shall be made on the basis of the Participant's number of years of Credited Service according to the following schedule: Vesting Schedule Years of Credited Service Percentage 0-4 0% 5 100% (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 Article. In the event that the Plan is amended to change or modify the Vesting Schedule of Section 6.4(b) hereof, a Participant with at least three (3) years of Credited 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, if more favorable to him than the Vesting Schedule provided under Section 6.4(b) hereof. 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) If any Former Participant is reemployed after a one year Period of Severance has occurred, his Credited Service shall include Service prior to his one year Period of Severance subject to the following rules: (1) Such Service shall be recognized for vesting purposes only after he has been employed for six Months of Service following the date of his Reemployment Commencement Date; and (2) Nonvested Former Participants shall lose credits otherwise allowable under (1) above if their consecutive one year Periods of Severance equal or exceed the greater of five (5) or the aggregate number of their pre-severance Service. 6.5 Distribution of Benefits (a) The Administrator, pursuant to the election of the Participant (or if no election has been made prior to the Participant's death, by his Beneficiary), in his sole discretion, shall direct the Trustee to distribute to a Participant or his Beneficiary all amounts to which he is entitled under the Plan in one lump-sum payment. (b) Notwithstanding anything herein to the contrary, cash dividends on shares of Company Stock allocable to Participants' Accounts may be paid to Participants or their Beneficiaries, as determined in the sole discretion of the Administrator, within 90 days after the close of the Plan Year in which the dividend is paid. (c) Except as limited by Sections 6.5 and 6.6, whenever the Trustee is to make a distribution on or before an Anniversary Date, the distribution may be made on such date or as soon thereafter as is practicable, but in no event later than 180 days after the Anniversary Date. Except, 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 no later than one (1) year after the close of the Plan Year: (1) in which occurs the date on which the Participant separates from Service by reason of death, disability or attainment of his Normal Retirement Rate, or, (2) which is the fifth Plan Year following the Plan Year in which the Participant otherwise separates from Service with the Employer (except that this clause (2) shall not apply if the Participant is reemployed by the Employer before such year). For purposes of this Section 6.5(c), a Participant's benefits shall not include any portion of his Company Stock Account acquired with the proceeds of an Exempt Loan until the close of the Plan Year in which such loan is repaid in full. (d) Notwithstanding any provision in the Plan to the contrary, a Participant's benefits shall be distributed to him not later than April 1 of the calendar year following the calendar year in which the Participant attains age 70-1/2. 6.6 How Plan Benefits Will be Distributed (a) Distribution of a Participant's benefit will be made entirely in whole shares or other units of Company Stock. Any balance in a Participant's Other Investments Account will be applied to acquire for distribution the maximum number of whole shares or other units of Company Stock at the then fair market value. Any fractional unit value unexpended will be distributed in cash. (b) The Trustee will make distribution from the Trust only on instructions from the Administrator. (c) Except as otherwise provided in this Article, a Participant is not entitled to any payment, withdrawal or distribution under the Plan during his participation. 6.7 Distributions For Minor Beneficiaries In the event a distribution is to be made to a minor, then the Administrator may in the Administrator's sole discretion, 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 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. 6.8 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 expiration of five (5) years after it shall become payable, 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; provided, however, that any such forfeited amount shall be reinstated as a payable benefit in the event a claim therefor is subsequently made by the Participant or his Beneficiary. 6.9 Limitations on Benefits and Distributions 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 or has not reached the "earliest retirement age" under the Plan. For purposes of this Section, "alternate payee," "qualified domestic relations order" and "earliest retirement age" shall have the respective meanings set forth in Code Section 414(p). 6.10 Direct Rollovers (a) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee's election under this Section, a distributee may elect, at the time and in the manner prescribed by the Administrator, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover. (b) This Section 6.10 shall be effective with respect to distributions made on or after January 1, 1993. (c) For purposes of this Section the following definitions shall apply: (1) An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Code Section 401(a)(9); and the portion of any distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). (2) An eligible retirement plan is an individual retirement account described in Section 408(a) of the Code, 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 distributee includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Code Section 414(p), are distributees with regard to the interest of the spouse or former spouse. (4) A direct rollover is a payment by the Plan to the eligible retirement plan specified by the distributee. (d) If, after receiving a notice pursuant to Section 402(f) of the Code ("Section 402(f) Notice"), a Participant elects to make or not make a direct rollover, a distribution may be made less than 30 days after the Section 402(f) Notice 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 Section 402(f) Notice to consider the decision of whether or not to elect a distribution, and (2) the Participant, after receiving the Section 402(f) Notice, affirmatively elects a distribution. 6.11 Directed Investment Account (a) Each "Qualified Participant" may elect within 180 days after the close of each Plan Year during the "Qualified Election Period" to direct the Trustee in writing to distribute to him at least 25 percent of the Participant's Company Stock Account (to the extent such portion exceeds the amount to which a prior election under this Section 6.11 applies). In the case of the election year in which the Participant can make his last election, the preceding sentence shall be applied by substituting "50 percent" for "25 percent". (b) For the purposes of this Section the following definitions shall apply: (1) "Qualified Participant" means any Participant or Former Participant who has completed ten (10) Plan Years of Service as a Participant and has attained age 55. (2) "Qualified Election Period" means the six (6) Plan Year period beginning with the Plan Year after the Plan Year in which the Participant attains age 55 or if later, beginning with the Plan Year after the first Plan Year in which the Participant first became a "Qualified Participant"). ARTICLE VII AMENDMENT, TERMINATION, AND MERGERS 7.1 Amendments The Employer shall have the right at any time to amend the Plan by written instrument duly adopted by the Board. However, no such amendment shall authorize or permit any part of the Trust Fund (other than such part as is required to pay taxes and administration expenses) to be used for or diverted to purposes other than for the exclusive benefit of the Participants or their Beneficiaries or estates; no such amendment shall cause any reduction in the amount credited to the account of any Participant or cause or permit any portion of the Trust Fund to revert to or become the property of the Employer; and no such amendment which affects the rights, duties or responsibilities of the Trustee and Administrator may be made without 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. In addition, no such amendment shall have the effect of terminating the protections and rights set forth in Section 6.4(c), unless such termination shall then be permitted under the applicable provisions of the Code and Regulations. 7.2 Termination 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 termination (full or partial) or a complete discontinuance of contributions, all amounts theretofore credited to the affected Participants' Accounts shall become 100% Vested and shall not thereafter be subject to forfeiture. Subject to the limitations of Section 3.4 hereof, all amounts outstanding in the Unallocated Company Stock Suspense Account at such time not used in repayment of any Exempt Loan then outstanding shall be allocated in accordance with the provisions of Section 3.3 and this Section 7.2. Upon such termination of the Plan, the Employer, by written notice to the Trustee and Administrator, may direct either: (a) complete distribution of the assets in the Participants' Accounts to the Participants in a manner consistent with the requirements of Article VI, (b) continuation of the Trust created by this agreement and the distribution of benefits at such time and in such manner as though the Plan had not been terminated, or (c) conversion of the Plan to another form of qualified defined contribution plan. 7.3 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. ARTICLE VIII ADMINISTRATION 8.1 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 furnish the Trustee with all necessary cooperation to effectuate the exercise of the voting rights of the Trustee and the Participants under the terms of the Trust and to insure the confidential- ity of votes cast by the Participants with respect to company stock notices and information statements when voting rights must be exercised. 8.2 Assignment and Designation of Administrative Authority The Employer shall appoint one or more Administrators. Any person, including, but not limited to, one or more Employees of the Employer, shall be eligible to serve as an Administrator. Any person so appointed shall signify his acceptance by filing a written acceptance with the 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. 8.3 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. 8.4 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 to determine any 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) to determine all questions relating to the eligibility of Employees to participate or remain a Participant hereunder; (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; (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; and (f) to assist any Participant regarding his rights, benefits, or elections available under the Plan. 8.5 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. 8.6 Appointment of Advisors The Administrator may appoint counsel, advisers, and other persons as the Administrator deems necessary or desirable in connection with the administration of this Plan. 8.7 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 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. 8.8 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. Any administration expense paid to the Trust Fund as a reimbursement shall not be considered an Employer contribution under Article IV hereof. 8.9 Majority Actions Except where there has been an allocation and delegation of administrative authority pursuant to Section 8.3, 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. 8.10 Claims Procedure Claims for benefits under the Plan may be filed with the Administrator on forms supplied by the Employer. 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. 8.11 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 8.10 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 his 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 8.10. 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 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 said 60 days' limitation 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 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 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. 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 New York, 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, attorneys' 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 a contribution under a mistake of fact pursuant to Section 403(c)(2)(A) of the Act, the Employer may demand repayment of such excessive contribution at any time within one (1) year following the time of payment and the Trustee 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 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 Section 412(a)(2) of the Act), 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 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. 9.9 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. 9.10 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; 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 for holding the assets under the Trust. Each named Fiduciary warrants that any directions given, informat- ion 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. Further- more, 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. 9.11 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. 9.12 Notices and Deliveries All notices hereunder shall be in writing. Any notices, payments or deliveries to the Employer shall be directed to the Human Resources Department of the Employer at the following address: Chock Full O'Nuts Corporation 370 Lexington Avenue New York, New York 10017 Any notices, payments or deliveries to the Trustee shall be directed to the Trustee Chock Full O'Nuts Corporation Employee Stock Ownership Plan at the above address. Any notices, payments or deliveries (other than to the Employer or Trustee) shall be directed to the addressee at the address designated by said addressee by notice to the Employer and the Trustee, or at such other address set forth herein. The Employer or the Trustee may designate a new address for the purpose of this Plan by notice to the other and to all Participants, Former Participants and Beneficiaries. Unless otherwise specified herein, notices shall be sent by registered or certified mail. 9.13 Uniformity All provisions of this Plan shall be interpreted and applied in a uniform, nondiscriminatory manner. 9.14 Indemnification Neither the Employer, any of its officers or directors, nor the Administrator shall be personally liable for any action or inaction with respect to any duty or responsibility imposed upon such person by the terms of the Plan, unless such action or inaction is judicially determined to be a breach of that person's fiduciary responsibility with respect to the Plan under any applicable law. The Employer shall indemnify or purchase insurance to underwrite indemnity for the Administrator and/or the Employer's board of directors against any personal liability or expense except for his own gross negligence. 9.15 Voting Passthroughs, Tender Offers; Rights (a) On all proposals on which the holders of shares of Company Stock are entitled to vote, each Participant shall have the right to direct the Trustee as to the manner in which to vote the Company Stock allocated to his Company Stock Account under the Plan. (b) In the case of a tender for any Company Stock, each Participant shall have the right to direct the Trustee whether to accept or reject such tender in connection with all or any part of the Company Stock allocated to his Company Stock Account under the Plan. (c) With respect to any conversion or subscription or other right appurtenant to Company Stock, each Participant shall have the right to direct the Trustee whether or not to exercise such right in connection with all or any part of the Company Stock allocated to his Company Stock Account under the Plan. (d) The Employer shall neither interfere with nor in any way attempt to influence any direction conveyed by a Participant to the Trustee pursuant to the preceding subsections (a), (b) or (c) of this Section 9.15, which direction shall be kept confidential at all times from the Employer by the Trustee. 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) 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 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. (b) 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 part of 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 irrevocably designated 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 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 All contributions made by a Participating Employer, as provided for in this Plan, shall be determined separately by each Participating Employer, and shall be paid to and held by the Trustee for the exclusive benefit of the Employees of such Participating Employer and the Beneficiaries of such Employees, subject to all the terms and conditions of this Plan. 10.6 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 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. 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 for purposes other than for the exclusive benefit of the Employees of such Participating Employer. 10.7 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. IN WITNESS WHEREOF, this Plan has been executed by a duly authorized officer of the Company as of this ________ day of August, 1994. CHOCK FULL O'NUTS CORP. By:___________________________ Howard M. Leitner President SECRETARY'S CERTIFICATE I, Howard M. Leitner, Secretary of the June 27, 1994 meeting of the Board of Directors of Chock Full O'Nuts Corporation hereby certify that the foregoing document comprises the Chock Full O'Nuts Corporation Employee Stock Ownership Plan, as amended and restated, adopted pursuant to resolution duly adopted by the Board of Directors of said Corporation, and that said Plan is currently in full force and effect. Dated:___________________ _____________________________ Howard M. Leitner Secretary of the Meeting CHOCK FULL O'NUTS CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN APPENDIX 1.11 Any employees of the Cain's Coffee Co. who became employees of the Employer pursuant to the Stock Purchase Agreement dated as of October 16, 1992 between the Employer and Nestle' Beverage Company shall have all service rendered to Cain's Coffee Co. prior to such acquisition recognized for eligibility for benefit commencement and vesting purposes hereunder. No service with Cain's Coffee Co. shall be recognized for purposes of eligibility to participate or allocations of Company Stock. Accordingly, such employees shall not be eligible to participate before January 1, 1994. Appendix 3.4(g) TOP HEAVY REQUIREMENTS 1.1 In General The terms of this Appendix 3.4(g) shall take effect with respect to the Chock Full o'Nuts Corporation Employee Stock Ownership Plan (the "Plan") in any Plan Year (as defined in the Plan) in which the Plan is Top Heavy or Super Top Heavy (as defined herein). Hereafter, any term that is defined in the Plan shall have in this Appendix 3.4(g) the same meaning ascribed to it in the Plan, unless the context clearly indicates a different meaning. 1.2 Definitions (a) "Key Employee" means an Employee as defined in Code Section 416(i) and the Regulations thereunder. Generally, an 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 or any of the preceding four (4) Plan Years, has been included in one of the following categories: 1. an officer of the Employer (as that term is deemed within the meaning of the Regulations under Code Section 416) having annual "415 Compensation" greater than 150 percent of the amount in effect under Code Section 415(c)(1)(A) for any such Plan Year. 2. one of the 10 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 considered as owning within the meaning of Code Section 318) both more than one-half percent interest and one of the ten largest interests in the Employer. 3. 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 (5 %) percent of the total 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 interests in the Employer. In determining percentage ownership hereunder, employers that would otherwise be aggregated under Code Sections 414(b), (c), and (m) shall be treated as separate employers. 4. 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 (1%) percent 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 interests in the Employer. In determining percentage ownership hereunder, employers that would otherwise be aggregated under Code Sections 414(b), (c), and (m) 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), and (m) shall be taken into account. 5. "Non-Key Employee" means any Employee or former Employee (and his Beneficiaries) who is not a Key Employee. 6. "Super Top Heavy Plan" means a plan described in Section 1.4(b) of this Appendix 3.4(g). 7. "Top Heavy Plan" means a plan described in Section 1.4(a) of this Appendix 3.4(g). 8. "Top Heavy Plan Year" means that, for a particular Plan Year, the Plan is a Top Heavy Plan. 1.3 Plan Requirements For any Top Heavy Plan Year, the Plan shall provide special minimum allocation requirements in accordance with Code Section 416(c) pursuant to the terms hereof. 1.4 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 (as defined herein), (1) the Present Value of Accrued Benefits (as defined herein) of Key Employees and (2) the sum of the Aggregate Accounts (as defined herein) of Key Employees under this Plan and all plans of an Aggregation Group (as defined herein), 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 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 valuation date but 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 deductible 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 purpose of this Section. (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) or (m) are treated as the same employer. (d) "Aggregation Group" means either a Required Aggregation Group or a Permissive Aggregation Group as hereinafter determined. (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 411(b)(1)(C). (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. 1.5 Minimum Allocations Required For Top Heavy Plan Years (a) Notwithstanding the provisions of Section 3.4 of the Plan, for any Top Heavy Plan Year, the sum of the Employer's contributions and Forfeitures allocated to the Participant's Account of each Non-Key Employee shall be equal to at least three percent (3 %) of such Non-Key Employee's "415 Compensation". However, if (i) the sum of the Employer's contributions and Forfeitures allocated to the Participant's 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 (ii) 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 and Forfeitures allocated to the Participant's Account of each Non-Key Employee shall be equal to the largest percentage allocated to the Participant's Account of any Key Employee. (b) For any Plan Year when (1) the Plan is a Top Heavy Plan but not a Super Top Heavy Plan and (2) a Key Employee is a Participant in both this Plan and a defined benefit plan included in a Required Aggregation Group which is top heavy, the extra minimum allocation shall be provided for each Non-Key Employee who is a Participant only in this Plan by substituting four percent (4%) for three percent (3%) in the Section above. (c) For purposes of the minimum allocations set forth above, the percentage allocated to the Participant's Account of any Key Employee shall be equal to the ratio of the sum of the Employer's contributions and Forfeitures allocated on behalf of such Key Employee divided by the "415 Compensation" for such Key Employee. (d) For any Top Heavy Plan Year, the minimum allocations set forth above shall be allocated to the Participant's Account of all Non-Key Employees who are Participants and who are employed by the Employer on the last day of the Plan Year. (e) In lieu of the above, in any Plan Year in which a Non-Key Employee is a Participant in both this Plan and a defined benefit pension plan included in a Required Aggregation Group which is top heavy, the Employee shall not be required to provide such Non-Key Employee with both the full separate defined benefit plan minimum benefit and the full separate defined contribution plan minimum allocation. Therefore, for any Plan Year when the Plan is a Top Heavy Plan, Non-Key Employees who are participating in this Plan and a defined benefit plan maintained by the Employer shall receive a minimum monthly accrued benefit in the defined benefit plan equal to the product of (1) one-twelfth (1/12th) of "415 Compensation" averaged over five (5) consecutive "limitation years" (or actual "limitation years" if less) which produce the highest average and (i) two per- cent (2%) multiplied by years of Credited Service when the Plan is top heavy, or (ii) twenty percent (20%). 1.6 Limitation Year Notwithstanding the foregoing, for any "limitation year" in which the Plan is a Top Heavy Plan, 1.0 shall be substituted for 1.25 in Sections 4.40(j)(1) and 4.4(k) of the Plan unless the extra minimum allocation is being provided pursuant to Section 1.5(b) of this Appendix 3.4(g). However, for any "limitation year" in which the Plan is a Super Top Heavy Plan, 1.0 shall be substituted for 1.25 in any event. 1.7 Vesting Notwithstanding the provisions of Section 7.4(b) of the Plan, for any Top Heavy Plan Year, the determination as to whether a Participant's Account is Vested shall be made on the basis of the Participant's number of years of Credited Service according to the following schedule: Vesting Schedule Years of Credited Service Percentage 2 20 3 40 4 60 5 80 6 or more 100 Appendix 7.4(b) Notwithstanding the provisions of Section 7(b) of the Plan, all Employees of Hillside Coffee of California, Inc. who were Participants in the Plan as of the date on which ownership of the stock of Hillside Coffee of California, Inc. was acquired by Gourmet Coffees of America, Inc., shall be fully vested in their Participant's Accounts under the Plan. -----END PRIVACY-ENHANCED MESSAGE-----