-----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, Vr/x03vx4w1lnEEAufJcs1UlglpPOPEkvj405pV/NyQhYOq401UJz6ptJFUW0F2O N3DYFYUsk+4HX4QIfuVHdw== 0000039273-02-000006.txt : 20020416 0000039273-02-000006.hdr.sgml : 20020416 ACCESSION NUMBER: 0000039273-02-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020409 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FROZEN FOOD EXPRESS INDUSTRIES INC CENTRAL INDEX KEY: 0000039273 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 751301831 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10006 FILM NUMBER: 02605748 BUSINESS ADDRESS: STREET 1: 1145 EMPIRE CENTRAL PLACE CITY: DALLAS STATE: TX ZIP: 75247 BUSINESS PHONE: 2146308090 10-K 1 k1002.txt FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO ________ COMMISSION FILE NUMBER 1-10006 FROZEN FOOD EXPRESS INDUSTRIES, INC. - --------------------------------------------------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) TEXAS 75-1301831 - --------------------------------------------------------------------------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 1145 EMPIRE CENTRAL PLACE, DALLAS, TEXAS 75247-4309 - --------------------------------------------------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) Registrant's telephone number, including area code: (214) 630-8090 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to section 12(g) of the Act: i) Common Stock $1.50 par value ii) Rights to purchase common stock - --------------------------------------------------------------------------- Indicate by check mark whether the registrant (l) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of March 22, 2002 16,624,936 shares of the registrant's common stock, $l.50 par value, were outstanding. The aggregate market value of voting and non-voting common equity held by non-affiliates on such date was $35,920,000. DOCUMENTS INCORPORATED BY REFERENCE The sections "Outstanding Capital Stock; Principal Shareholders", "Nominees for Directors", "Executive Compensation", and "Transactions with Management" of the Proxy Statement for the Annual Meeting of Shareholders to be held May 8, 2002, are incorporated by reference into Part III of this Form 10-K. Portions of the Annual Report to Shareholders for the year ended December 31, 2001, are incorporated by reference into Parts I and II of this Form 10-K. PART I ITEM 1. BUSINESS. Frozen Food Express Industries, Inc. is the largest full-service, publicly-owned, temperature-controlled trucking company in North America. References herein, unless the context requires otherwise, include Frozen Food Express Industries, Inc., and our subsidiaries, all of which are wholly owned. In our 55 years of operation, 2001, 2000 and 1999 are the only years we were not profitable. We are also the only nationwide, full-service, temperature-controlled trucking company in the United States offering all of the following services: - FULL-TRUCKLOAD: A load, typically weighing between 20,000 and 40,000 pounds and usually from a single shipper, filling the trailer. Normally, a full-truckload shipment has a single destination, although we are also able to provide multiple deliveries. Management believes we are one of the five largest temperature-controlled, full-truckload carriers in North America. - DEDICATED FLEETS: In providing certain full-truckload services, we enter into a contract with a customer to provide service involving the assignment of specific trucks and drivers to handle certain of the customer's transportation needs. Frequently we and customer anticipate that dedicated fleet logistics services will both lower the customer's transportation costs and improve the quality of service the customer receives. - LESS-THAN-TRUCKLOAD ("LTL"): A load, typically consisting of 18 to 30 shipments, each weighing as little as 50 pounds or as much as 20,000 pounds, from multiple shippers destined to multiple receivers. Our temperature-controlled LTL operation is the largest in the United States and the only one offering regularly scheduled nationwide service. We are the only major LTL carrier which uses multi-compartment refrigerated trailers to carry goods requiring different temperatures on one trailer, enhancing customer service and operating efficiencies. - DISTRIBUTION: Distribution services generally involve the delivery of cargo within a 50-to-75-mile radius of a company terminal. Full- truckload or large LTL loads are divided into smaller shipments at a terminal and delivered by distribution trucks to "end users," such as grocery stores, food brokers or drug stores, typically within a single metropolitan area. Following is a summary of certain financial and statistical data for the years ended December 31, 1997 through 2001 (LTL data also includes distribution shipments): 2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- Revenue* Full-truckload and dedicated fleet $236.4 $221.6 $211.5 $206.1 $190.6 Less-than-truckload 90.9 101.9 99.4 100.0 95.5 Non-freight 51.1 68.9 61.2 43.8 30.5 ----- ----- ----- ----- ----- Total $378.4 $392.4 $372.1 $349.9 $316.6 ===== ===== ===== ===== ===== Operating ratio 99.6% 99.6% 104.1% 95.2% 95.2% Full-truckload Loaded miles* 166.3 159.9 157.2 155.0 143.9 Shipments** 178.5 173.9 165.0 166.0 156.9 Revenue per shipment** $ 1.3 $ 1.3 $ 1.3 $ 1.2 $ 1.2 Loaded miles per load 932 919 953 934 917 Less-than-truckload Hundredweight* 7.4 8.3 8.1 8.5 8.5 Revenue per hundredweight $12.31 $12.29 $12.30 $11.76 $11.19 Shipments** 253.0 284.4 277.9 293.1 293.1 Revenue per shipment $ 359 $ 358 $ 358 $ 341 $ 326 * In millions ** In thousands The percent of total freight revenue contributed by full-truckload operations and by LTL operations during the past five years is summarized below: Percent of Total Freight Revenue --------------------------------- 2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- Full-truckload and dedicated fleet 72% 68% 68% 67% 67% LTL and distribution 28 32 32 33 33 --- --- --- --- --- Total 100% 100% 100% 100% 100% === === === === === We offer nationwide "one call does all" services to about 7,000 customers, each of which accounted for less than 10% of total revenue during each of the past five years. Freight revenue from international activities was less than 10% of total freight revenue during each of the past five years. TEMPERATURE-SENSITIVE MARKET - ---------------------------- More than 80% of the cargo we transport is temperature-sensitive. Examples are meat, poultry, seafood, processed foods, candy and other confectioneries, dairy products, pharmaceuticals, medical supplies, fruits and vegetables, cosmetics, film and heat-sensitive manufacturing materials. The common and contract hauling of temperature-sensitive cargo is highly fragmented and comprised primarily of carriers generating less than $50 million in annual revenue. Industry publications report that only 10 temperature-controlled carriers generated $100 million or more of revenue in 2000, the most recent year for which data is available. In addition, many major food companies, food distribution firms and grocery chains transport a portion of their freight with their own fleets ("private carriage"). Large shippers have traditionally sought to lower their cost structures by reducing their private carriage capabilities and turning to common and contract carriers ("core carriers") for their transportation needs. As core carriers continue to improve their service capabilities through such means as satellite communications systems and electronic data interchange, some shippers have abandoned their private carriage fleets in favor of common or contract carriage. We believe that the temperature- controlled private carriage segment accounts for more than 40% of the total temperature-controlled portion of the motor carrier industry. During 2000 and continuing into 2001, a number of refrigerated motor carriers reduced the scale of or ceased their operations. Others have entered reorganization proceedings. We believe that our substantial capital strength will enable us to gain market penetration as the industry continues to consolidate. GROWTH STRATEGY - --------------- We have pursued a growth strategy that combines both internal growth and selected acquisitions. From the beginning of 1997 through 2001, our company-operated, full- truckload tractor fleet increased from about 1,110 units to 1,300 units. During the same period, we have emphasized expansion of its fleet of independent contractor ("owner-operator") provided full-truckload tractors. As of December 31, 2001, our full-truckload fleet also included 510 tractors provided by owner-operators as compared to 440 at the beginning of 1997. The management of a number of factors is critical to a trucking company's growth and profitability, including: - EMPLOYEE-DRIVERS: Driver shortages and high turnover can reduce revenue and increase operating expenses through reduced operating efficiency and higher recruiting costs. Until 2000, operations were not significantly affected by driver shortages. During 2000, due to historically low unemployment, competition for skilled labor intensified. As a result, we were unable in 2000 to attract and retain a sufficient number of qualified drivers. We maintain an active driver-recruiting program. During the summer of 2000, employee-driver mileage-based pay rates were significantly increased in an effort to better attract and retain quality employee- drivers. As the labor market began to soften in 2001, however, the availability of drivers increased, alleviating the driver shortage of 2000. - OWNER-OPERATORS: We actively seek to expand our fleet with equipment provided by owner-operators. The owner-operator provides the tractor and driver to pull our loaded trailer. The owner-operator pays the drivers' wages, fuel, equipment-related expenses and other transportation expenses and receives a portion of the revenue from each load. At the end of 2001, we had contracts for 510 owner-operator tractors in our full-truckload divisions and 195 in our LTL operations. The percent of full-truckload and LTL revenue generated from shipments transported by owner-operators during each of the last five years is summarized below: Percent of Revenue from Shipments Transported by Owner-Operators ------------------------------ 2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- Full-truckload and dedicated fleet 26% 27% 25% 24% 26% LTL and distribution 68% 69% 69% 69% 71% We have traditionally relied on owner-operator-provided equipment to transport much of our customers' freight. As competition for employee- drivers has increased, other trucking companies have initiated or expanded owner-operator fleets. Accordingly, we became more aggressive in our solicitation for and retention of owner-operator-provided equipment. - FUEL: The average per-gallon fuel cost we paid increased by approximately 35% during 2000 and did not change significantly in 2001. Such costs increased by 10% in 1999 from 1998. Owner-operators are responsible for all costs associated with their equipment, including fuel. Therefore, the cost of such fuel is not a direct expense of ours. Fuel price fluctuations result from many external market factors that cannot be influenced or predicted by us. In addition, each year several states increase fuel taxes. Recovery of future increases or realization of future decreases in fuel prices and fuel taxes, if any, will continue to depend upon competitive freight-market conditions. - RISK MANAGEMENT: Liability for accidents is a significant concern in the trucking industry. Exposure can be large and occurrences unpredictable. The cost and human impact of work-related injury claims are also significant concerns. To address these concerns, we maintain a risk management program designed to minimize the frequency and severity of accidents and to manage insurance coverage and claims. As part of the program, we carry insurance policies under which we retain liability for up to $5 million on each property, casualty and general liability claim, $1 million for substantially all individual work-related injury claims and $250,000 on each cargo claim. Prior to December 1, 2001 our retained liability was limited to $1 million per occurrence (other than cargo claims). During 2001, our industry was subjected to cost prohibitive renewal prices for a deductible below the $5 million. Because of our retained liability, a series of very serious traffic accidents, work-related injuries or unfavorable developments in the outcomes of existing claims could materially adversely affect our operating results. Claims and insurance expense can vary significantly from year to year. Reserves representing our estimate of ultimate claims outcomes are established based on the information available at the time of an incident. As additional information regarding the incident becomes available, any necessary adjustments are made to previously recorded amounts. The aggregate amount of open claims, some of which involve litigation, is significant. We believe that these claims can be resolved without a material adverse effect on our financial position or our results of operations. A major component of our risk management program is the enhancement of safety in our operations. Our safety department conducts programs that include driver education and over-the-road observation. All drivers must meet or exceed specific guidelines relating to safety records, driving experience and personal standards, including a physical examination and mandatory drug testing. Drivers must also complete our training program, which includes tests for motor vehicle safety and over-the-road driving. They must have a current commercial drivers license before being assigned a tractor. Student drivers undergo a more extensive training program as a second driver with an experienced instructor-driver. In accordance with federal regulations, we conduct drug tests on all driver candidates and maintain a continuing program of random testing for use of such substances. Drivers and applicants who test positive for drugs are turned away and drivers who test positive for such substances are immediately disqualified from driving. Insurance premiums do not significantly contribute to our costs, partially because we carry large deductibles under our policies of liability insurance. Claims and insurance costs on a per-mile basis fell by 10% during 2001. The reduced 2001 claims and insurance expense was due primarily to improved claims experience. OPERATING STRATEGY - ------------------ Our "one call does all" full-service capability, combined with the service-oriented corporate culture we gained from our many years as a successful LTL carrier, enables us to compete on the basis of service, rather than solely on price. We also believe that major shippers will require increasing levels of service and that they will rely on their core carriers to provide transportation and logistics solutions, such as providing the shipper real-time information about the movement and condition of any shipment. Our full-truckload fleets use computer and satellite technology to enhance efficiency and customer service. The satellite-based communications system provides automatic hourly position updates of each full-truckload tractor and permits real-time communication between operations personnel and drivers. Dispatchers relay pick-up, delivery, weather, road and other information to the drivers while shipment status and other information is relayed by the drivers to our computers via the satellite. We plan to add up to 50 trucks to our company-operated, full-truckload fleet during 2002. Changes in the fleet depend upon acquisitions, if any, of other motor carriers, developments in the nation's economy, demand for our services and the availability of qualified employee drivers. Continued emphasis will be placed on improving the operating efficiency and increasing the utilization of this fleet through enhanced driver training and retention and reducing the percentage of empty, non-revenue producing miles. Temperature-controlled LTL trucking requires a system of terminals, capable of holding refrigerated and frozen products, located at strategic distribution points across the United States. We have 9 such LTL terminals. Terminals are located in or near New York City, Philadelphia, Atlanta, Orlando, Memphis, Chicago, Dallas, Salt Lake City and Los Angeles. Several of these LTL terminals also serve as full-truckload driver centers where company-operated, full-truckload fleets are based. During 2000 and 2001, we closed terminals in several other locations. In addition to the LTL terminals, which also serve as full-truckload employee-driver centers, full-truckload activities are conducted from terminals in Fort Worth and Laredo, Texas. Laredo, located on the Texas- Mexico border, is a drop-off point for our trailers, which are picked up by a Mexican trucking company for movement into Mexico's interior. We also maintain, in various locations, small centers for employee-driver recruitment. During 2002, the North American Free Trade Agreement ("NAFTA") is expected to be fully-implemented with regard to the ability of Mexico and United States-based trucking companies to operate in one another's nations. We do not anticipate altering our method of service into Mexico nor do we expect NAFTA to generate a significant presence of Mexico-based carriers transporting freight into the United States. For more than a decade, FFEX has partnered with Mexico-based truckers to facilitate freight moving both ways across the border. Freight moving from Mexico is hauled in FFEX trailers to the border by the Mexico-based carrier. There, the trailer is exchanged. Southbound shipments work much the same way. This system has been in place for a long time. Often, we have sold used trailer equipment to these carriers for use in the intra-Mexico operations. Based on discussions with our Mexico-based partners, we do not anticipate a need to change our manner of dealing with southbound international freight. About 7% of our consolidated freight revenue during 2001 involved international shipments, all of which was billed in United States currency. Temperature-controlled LTL trucking is service and capital intensive. LTL freight rates are higher than those for full-truckload and are based on mileage, weight, type of commodity, space required in the trailer and pick- up and delivery. We believe that only one other refrigerated LTL motor carrier competes with us on a nationwide basis. Efficient information management is essential to a successful temperature-controlled LTL operation. On a typical day, our LTL system handles about 5,000 shipments - about 3,000 on the road, 1,000 being delivered and 1,000 being picked up. In 2001, the LTL operation handled about 253,000 individual shipments. Temperature-controlled, full-truckload service requires a substantially lower capital investment for terminals and lower costs of shipment handling and information management than that of LTL. Pricing is based primarily on mileage, weight and type of commodity. At the end of 2001, our full-truckload tractor fleet consisted of 1,300 tractors owned or leased by us and 510 tractors contracted to us by owner-operators, making us one of the seven largest temperature-controlled, full-truckload carriers in North America. We offer a wide range of transportation and logistics services that include railroad-based intermodal long-haul transportation. In providing such service, we contract with railroads to transport loaded full-truckload trailers on railroad flat cars. During 1998, our ability to offer intermodal service was negatively impacted by the reduced capacity of railroad companies. During 2000 and 2001, these constraints were somewhat alleviated and we recommenced our efforts to provide intermodal service to our customers. Less than 5% of our domestic full-truckload shipments are transported in this manner. In intermodal transportation services we transport more loaded trailers (which require relatively lower capital investment) while engaging fewer tractors (which involve relatively higher capital investment). Full-truckload services generally involve the utilization of more trailers to enable tractors to remain in service while idle trailers are being loaded and unloaded. Prior to 1998, we conducted limited operations involving "dedicated fleets". In such an arrangement, we contract with a customer to provide service involving the assignment of specific trucks to handle transportation needs of its customers. Frequently we and customer anticipate that dedicated fleet logistics services will both lower the customer's transportation costs and improve the quality of the service the customer receives. In late 1998, we improved our capability to provide and expanded efforts to market dedicated fleet services. About 10% of our company-operated full-truckload fleet is now engaged in such operations. EQUIPMENT - --------- We operate premium company-operated tractors in order to help attract and retain qualified employee-drivers, promote safe operations, minimize maintenance and repair costs and assure dependable service to our customers. We believe that the higher initial investment for our equipment is recovered through more efficient vehicle performance and improved resale value. Prior to 2002, we had a three-year replacement policy for most of our full- truckload tractors. Repair costs are mostly recovered through efficient vehicle performance and manufacturers' warranties. But routing and preventative maintenance is our expense. During 2001, the demand for and value of previously-owned trucks plummeted. When we acquired such assets three years previously, the truck manufacturer agreed to buy the trucks back for a specified price at the end of our three-year replacement cycle. By mid-2001, the manufacturer began expressing concern about its obligation to buy used trucks for which there was little, if any, demand. After extensive discussions between us and the manufacturer, in January 2002, we agreed to extend the turn-in dates of two- thirds of our trucks and to proportionally reduce the price we will be paid for those used trucks. Concurrently, we agreed that new trucks purchased during 2002 and 2003 will be returned at predetermined prices to the manufacturer after 42 or 48 months of service, at our option. We expect this extended replacement cycle to increase our maintenance expenses by minor amounts. Most of our tractors are leased for 36 month terms. We will approach our equipment lessors to request extended lease terms to match the extended trade-back schedule. The first such affected lessor has indicated its willingness to do so. REGULATION - ---------- Our interstate operations are subject to regulation by the United States Department of Transportation, which regulates driver qualifications, safety, equipment standards and insurance requirements. We are also subject to regulation of various state regulatory agencies with respect to certain aspects of our operations. State regulations generally involve safety and the weight and dimensions of equipment. SEASONALITY - ----------- Our full-truckload operations are somewhat affected by seasonal changes. The early winter, late spring and summer growing seasons for fruits and vegetables in California and Texas typically create increased demand for trailers equipped to transport cargo requiring refrigeration. In addition, winter driving conditions can be hazardous and impair our operations from time to time in certain portions of our service areas. Our LTL operations are also impacted by the seasonality of certain commodities. As a result, LTL shipment volume during the winter months is normally lower than other months. Shipping volumes of LTL freight are usually highest during July through October. EMPLOYEES - --------- The number of our employees as of December 31, 2001 and 2000, was as follows: Dec. 31, 2001 Dec. 31, 2000 ------------- ------------- Freight Operations: Drivers and Trainees 1,515 1,470 Non-driver personnel Full time 646 709 Part time 87 136 ----- ----- Total Freight Operations 2,248 2,315 Non-freight Operations 192 332 ----- ----- Total 2,440 2,647 ===== ===== NON-FREIGHT SEGMENT - ------------------- We are engaged in a non-freight business segment, which until December 2001 consisted primarily of a franchised dealer and repair facility for Wabashr trailers and Carrier Transicoldr brand truck and trailer refrigeration equipment. We sold this dealership in December 2001. This dealer also provides refrigeration units and repair service for our trailers. The non-freight segment will continue to distribute motor vehicle air conditioning parts and to re-manufacture mechanical air conditioning and refrigeration components. We sold the dealership business during December 2001, retaining a 19.9% ownership interest in the buyer's entity. OUTLOOK - ------- This report contains information and forward-looking statements that are based on management's current beliefs and expectations and assumptions we made based upon information currently available. Forward-looking statements include statements relating to our plans, strategies, objectives, expectations, intentions, and adequacy of resources, may be identified by words such as "will", "could", "should", "believe", "expect", "intend", "plan", "schedule", "estimate", "project" and similar expressions. These statements are based on our current expectations and are subject to uncertainty and change. Although we believe that the expectations reflected in such forward- looking statements are reasonable, we can give no assurance that such expectations will be realized. Should one or more of the risks or uncertainties underlying such expectations not materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those we expect. Among the key factors that are not within our control and that may have a bearing on operating results are demand for our services and products, and our ability to meet that demand, which may be affected by, among other things, competition, weather conditions and the general economy, the availability and cost of labor, our ability to negotiate favorably with lenders and lessors, the effects of terrorism and war, the availability and cost of equipment, fuel and supplies, the market for previously-owned equipment, the impact of changes in the tax and regulatory environment in which we operate, operational risks and insurance, risks associated with the technologies and systems we use and the other risks and uncertainties described elsewhere in our filings with the Securities and Exchange Commission. ITEM 2. PROPERTIES ---------- At December 31, 2001, we maintained terminals or office facilities of 10,000 square feet or more in or near the following cities: Approximate ----------- (O)wned or Division/Location Square Feet Acreage (L)eased ----------------- ----------- ------- -------- Freight Division Lancaster, TX 100,000 80.0 O Ft. Worth, TX 34,000 7.0 O Bridgeview, IL 37,000 5.0 O Dundee, FL 26,000 15.0 O Avenel, NJ 17,000 5.0 O Doraville, GA 40,000 7.0 L Downey, CA 40,000 6.0 L Salt Lake City, UT 25,000 7.0 L Non-Freight Division Mesquite, TX 103,000 8.5 O Oklahoma City, OK 20,000 2.0 O Corporate Office Dallas, TX 34,000 1.7 O Lease terms range from one month to twelve years. We expect that present facilities are sufficient to support our operations. We also own three properties in Texas that we lease to W&B Service Company, LP, an entity in which we hold a 19.9% ownership interest. The following table sets forth certain information regarding our revenue equipment at December 31, 2001 and 2000: Age in Years ------------------------------------ Tractors Less than 1 1 thru 3 4 or more Total - -------- ----------- -------- --------- ----- 2001 2000 2001 2000 2001 2000 2001 2000 ---- ---- ---- ---- ---- ---- ---- ---- Company owned and leased 482 380 890 848 17 37 1,389 1,265 Owner-operator provided 77 83 225 248 402 422 704 753 --- --- --- --- --- --- ----- ----- Total 559 463 1,115 1,096 419 459 2,093 2,018 === === ===== ===== === === ===== ===== Age in Years ------------------------------------ Trailers Less than 1 1 thru 5 6 or more Total ----------- -------- --------- ----- 2001 2000 2001 2000 2001 2000 2001 2000 ---- ---- ---- ---- ---- ---- ---- ---- Company owned and leased 214 78 2,163 2,473 705 599 3,082 3,150 Owner-operator provided 2 4 12 16 7 5 21 25 --- -- ----- ----- ---- --- ----- ----- Total 216 82 2,175 2,489 712 604 3,103 3,175 === == ===== ===== === === ===== ===== Approximately 80% of the our trailers are insulated and equipped with refrigeration units capable of providing the temperature control necessary to handle perishable freight. Trailers that are used primarily in LTL operations are equipped with movable partitions permitting the transportation of goods requiring maintenance of different temperatures. We also operate a fleet of non-refrigerated trailers in our "dry freight" full- truckload operation. Company-operated trailers are primarily 102 inches wide. Full-truckload trailers used in dry freight operations are 53 feet long. Temperature controlled operations are conducted with both 48 and 53 foot refrigerated trailers. Our general policy is to replace our company-operated, heavy-duty tractors every three and one-half to four years. Company-operated, full- truckload trailers are usually retired after seven years of service. Occasionally, retired equipment is kept by us for use in local delivery operations. ITEM 3. LEGAL PROCEEDINGS. ----------------- We are party to routine litigation incidental to our businesses, primarily involving claims for personal injury and property damage incurred in the transportation of freight. The aggregate amount of these claims is significant. We maintain insurance programs and accrue for expected losses in amounts designed to cover liability resulting from personal injury and property damage claims. We do not believe that adverse results in one or more of these pending cases would have a material effect on our financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. --------------------------------------------------- No matters were submitted to a vote of our shareholders during the fourth quarter of 2001. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS. ------------------------------------------------------------- The information regarding common stock price per share and common stock trading volume set forth under the caption "Quarterly Financial, Stock and Dividend Information" appearing on page 26 of the Annual Report to Shareholders for the year ended December 31, 2001, is incorporated by reference into this Report. ITEM 6. SELECTED FINANCIAL DATA. ----------------------- The information set forth under the caption "Five-Year Financial and Statistical Information" appearing on page 16 of the Annual Report to Shareholders for the year ended December 31, 2001, is incorporated by reference into this Report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. --------------------------------------------------------------- The information set forth under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing on pages 8 through 15 of the Annual Report to Shareholders for the year ended December 31, 2001, is incorporated by reference into this Report. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK --------------------------------------------------------- The information set forth under the caption "Fair Value of Financial Instruments" on page 14 of the Annual Report to Shareholders for the year ended December 31, 2001 is incorporated by reference into this report. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. ------------------------------------------- (a) The following Consolidated Financial Statements of Frozen Food Express Industries, Inc., and Report of Independent Public Accountants, with respect thereto set forth on pages 17 through 25 of the Annual Report to Shareholders for the year ended December 31, 2001, are incorporated by reference into this Report: Consolidated Statements of Income -- Years ended December 31, 2001, 2000, and 1999 Consolidated Balance Sheets -- As of December 31, 2001 and 2000. Consolidated Statements of Cash Flows -- Years ended December 31, 2001, 2000, and 1999 Consolidated Statements of Shareholders' Equity -- Years ended December 31, 2001, 2000, and 1999 Notes to Consolidated Financial Statements. Report of Independent Public Accountants. Supplementary Information - Quarterly Financial Data (unaudited) Financial Statements previously filed with regard to 1999 and 2000 have been refiled herein to reflect a retroactive change in the Company's manner of accounting for a life insurance investment. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. --------------------------------------------------------------- None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. -------------------------------------------------- In accordance with General Instruction G to Form 10-K, the information required by Item 10 is incorporated herein by reference from the portion of our Proxy Statement for the Annual Meeting of Shareholders to be held May 8, 2002, appearing under the captions "Nominees for Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance". ITEM 11. EXECUTIVE COMPENSATION. ---------------------- In accordance with General Instruction G to Form 10-K, the information required by Item 11 is incorporated herein by reference from the portions of our Proxy Statement for the Annual Meeting of Shareholders to be held May 8, 2002 appearing under the captions "Executive Compensation" and "Transactions with Management and Directors". ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. -------------------------------------------------------------- In accordance with General Instruction G to Form 10-K, the information required by Item 12 is incorporated herein by reference from the portions of our Proxy Statement for the Annual Meeting of Shareholders to be held May 8, 2002, appearing under the captions "Outstanding Capital Stock; Principal Shareholders" and "Nominees for Directors". ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. ---------------------------------------------- In accordance with General Instruction G to Form 10-K, the information required by Item 13 is incorporated herein by reference from the portions of our Proxy Statement for the Annual Meeting of Shareholders to be held May 8, 2002, appearing under the captions "Nominees for Directors", "Transactions with Management and Directors" and "Executive Compensation". PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. ---------------------------------------------------------------- (a) 1. & 2. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES: The financial statements listed in the index to financial statements and financial statement schedules in Item 8 hereof are filed as part of this Annual Report on Form 10-K. Financial Statements previously filed with regard to 1999 and 2000 have been refiled herein to reflect a retroactive change in the Company's manner of accounting for a life insurance investment. Financial statement schedules are omitted since the required information is not present, is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements and notes thereto. 3. EXHIBITS: -------- 3.l Articles of Incorporation of the Registrant and all amendments to date (filed as Exhibit 3.1 to Registrant's annual report on Form 10-K for the fiscal year ended December, 31, 1993; SEC File Number 1-10006 and incorporated herein by reference). 3.2 Bylaws of the Registrant (filed as Exhibit 3.2 to Registrant's Annual Report on Form 10-K for the fiscal year ended December, 31, 1998; SEC File Number 1-10006 and incorporated herein by reference). 3.3 Amendment to Bylaws of the Registrant, dated June 14,2000 (filed as Exhibit 3.1 to Registrant's Report on Form 8-K filed with the Commission on June 28, 2000 and incorporated herein by reference). 3.4 Amendment to Bylaws of the Registrant, dated April 3, 2002. 4.1 Rights Agreement dated as of June 14, 2000, between the Registrant and Fleet National Bank, which includes as exhibits, the form of the Rights Certificate and the Summary of Rights (filed as Exhibit 4.1 to Registrant's Form 8-A Registration Statement filed on June 19, 2000 and incorporated herein by reference). 10.1 Frozen Food Express Industries, Inc. 1995 Non-Employee Director Stock Plan (filed as Exhibit 4.3 to Registrant's Registration Statement #033-59645 as filed with the Commission and incorporated herein by reference). 10.2 Second Amended and Restated Credit Agreement among Wells Fargo Bank (Texas) National Association as agent for itself and other banks and FFE Transportation Services, Inc. as Borrower and certain of its affiliates (filed as Exhibit 10.2 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1999; SEC File Number 1-10006 and incorporated herein by reference). 10.3 First Amendment to Second Amended and Restated Credit Agreement (filed as Exhibit 10.1 to Registrant's report on Form 8-K filed with the Commission on June 9, 2000 and incorporated herein by reference). 10.4 Second Amendment to Second Amended and Restated Credit Agreement (filed as Exhibit 10.1 to Registrant's report on Form 10-Q for the period ended March 31, 2001 and incorporated herein by reference). 10.5 Third Amendment to Second Amended and Restated Credit Agreement. 10.6 Fourth Amendment to Second Amended and Restated Credit Agreement and Waiver. 10.7 Frozen Food Express Industries, Inc., 1992 Incentive and Nonstatutory Stock Option Plan (filed as Exhibit 4.3 to Registrant's Registration Statement #33-48494 as filed with the Commission, and incorporated herein by reference). 10.8 Amendment No. 1 to Frozen Food Express Industries, Inc. 1992 Incentive and Nonstatutory Stock Option Plan (filed as Exhibit 4.4 to Registrant's Registration Statement #333-38133 and incorporated herein by reference). 10.9 Amendment No. 2 to Frozen Food Express Industries, Inc. 1992 Incentive Stock Option Plan (filed as Exhibit 4.5 to Registrant's Registration #333-38133 and incorporated herein by reference). 10.10 Amendment No. 3 to Frozen Food Express Industries, Inc. 1992 Incentive and Nonstatutory Stock Option Plan (filed as Exhibit 4.6 to Registrant's Registration Statement #333-87913 and incorporated herein by reference). 10.11 FFE Transportation Services, Inc. 1994 Incentive Bonus Plan, as amended (filed as Exhibit 10.6 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994; SEC File Number 1-10006 and incorporated herein by reference). 10.12 FFE Transportation Services, Inc. 1999 Executive Bonus and Phantom Stock Plan (filed as Exhibit 10.8 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1999; SEC File Number 1-10006 and incorporated herein by reference). 10.13 Frozen Food Express Industries, Inc. 401(k) Savings Plan. 10.14 First Amendment to the Frozen Food Express Industries, Inc. 401(k) Savings Plan. 10.15 Frozen Food Express Industries, Inc. Employee Stock Option Plan (filed as Exhibit 4.1 to Registrant's Registration #333-21831 as filed with the Commission, and incorporated herein by reference). 10.16 Amendment to the Frozen Food Express Industries, Inc. Employee Stock Option Plan (filed as Exhibit 4.4 to Registrant's Registration Statement #333-52701 and incorporated herein by reference). 10.17 FFE Transportation Services, Inc. 401(k) Wrap Plan (filed as Exhibit 4.4 to Registrant's Registration Statement #333-56248 and incorporated herein by reference). 10.18 Form of Change in Control Agreement (filed as Exhibit 10.1 to Registrant's report on Form 8-K filed with the Commission on June 28, 2000 and incorporated herein by reference). 10.19 Asset Purchase Agreement between W&B Refrigeration Service Company and W&B Newco, LP. 11.1 Computation of basic and diluted net income per share of common stock (incorporated by reference to Footnote 9 to the financial statements appearing in the Annual Report to Shareholders of the Registrant for the year ending December 31, 2001). 13.1 Annual Report to Shareholders of the Registrant for the year ended December 31, 2001. Except for those portions of such Annual Report to Shareholders expressly incorporated by reference into this Report, such Annual Report to Shareholders is furnished solely for the information of the Securities and Exchange Commission and shall not be deemed a "Filed" Document. 21.1 Subsidiaries of Frozen Food Express Industries, Inc. 23.1 Consent of Independent Public Accountants. 25.1 A Power of Attorney is found on page 13 of this Report. 99.1 Confirmation of receipt of assurance from Arthur Andersen, LLP. (b) REPORTS ON FORM 8-K: ------------------- On December 28, 2001, we filed a report on Form 8-K. The purpose of that filing was to announce that we had sold a significant portion of our non-freight operations. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS Annual Report to Shareholders ---------- Consolidated Statements of Income -- Years ended December 31, 2001, 2000 and 1999 17 Consolidated Balance Sheets -- As of December 31, 2001 and 2000 18 Consolidated Statements of Cash Flows -- Years ended December 31, 2001, 2000 and 1999 19 Consolidated Statements of Shareholders' Equity -- Years ended December 31, 2001, 2000 and 1999 20 Notes to Consolidated Financial Statements 21 Report of Independent Public Accountants 26 Supplementary Information -- Quarterly financial data (unaudited) 26 Financial statement schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements and notes thereto. The financial statements listed in the above index, which are included in the Annual Report to Shareholders of Frozen Food Express Industries, Inc., for the year ended December 31, 2001, are hereby incorporated by reference, and are filed herewith as Exhibit 13.1. The financial statements listed in the index to financial statements and financial statement schedules in Item 8 hereof are filed as part of this Annual Report on Form 10-K. Financial Statements previously filed with regard to 1999 and 2000 have been refiled herein to reflect a retroactive change in the Company's manner of accounting for a life insurance investment. POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS that each of the undersigned directors and officers of Frozen Food Express Industries, Inc., hereby appoints Stoney M. Stubbs, Jr., and F. Dixon McElwee, Jr. his true and lawful attorneys-in- fact and agents, for him and in his name, place and stead, in any and all capacities, with full power to act alone, to sign any and all amendments to this Annual Report on Form 10-K and to file each such amendment to the Report, with all exhibits thereto, and any and all other documents in connection therewith, with the Securities and Exchange Commission, hereby granting unto said attorneys-in-fact and agents full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents may lawfully do or cause to be done by virtue hereof. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on our behalf by the undersigned, thereunto duly authorized. FROZEN FOOD EXPRESS INDUSTRIES, INC. Date: April 3, 2002 By /s/ F. Dixon McElwee, Jr. ------------------------- --------------------------------- F. Dixon McElwee, Jr. Senior Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Date: April 3, 2002 /s/ Stoney M. Stubbs, Jr. ------------------------- ---------------------------------- Stoney M. Stubbs, Jr., Chairman of the Board of Directors and President (Principal Executive Officer) Date: April 3, 2002 /s/ F. Dixon McElwee, Jr. ------------------------- ---------------------------------- F. Dixon McElwee, Jr., Senior Vice President and Director (Principal Financial and Accounting Officer) Date: April 3, 2002 /s/ Charles G. Robertson ------------------------- ---------------------------------- Charles G. Robertson Executive Vice President and Director Date: April 3, 2002 /s/ Edgar O. Weller ------------------------- ---------------------------------- Edgar O. Weller Vice Chairman of the Board of Directors Date: April 3, 2002 /s/ W. Mike Baggett ------------------------- ---------------------------------- W. Mike Baggett, Director Date: April 3, 2002 /s/ Brian R. Blackmarr ------------------------- ---------------------------------- Brian R. Blackmarr, Director Date: April 3, 2002 /s/ Leroy Hallman ------------------------- ---------------------------------- Leroy Hallman, Director Date: April 3, 2002 /s/ T. Michael O'Connor ------------------------- ---------------------------------- T. Michael O'Connor, Director EX-3 3 ex34.txt EXHIBIT 3.4 Exhibit 3.4 ----------- AMENDMENT TO SECTION 1 OF ARTICLE II OF THE BY-LAWS OF FROZEN FOOD EXPRESS INDUSTRIES, INC. ARTICLE II SHAREHOLDERS' MEETING Section 1. Annual Meeting. An annual meeting of the Shareholders of the Corporation shall be held each calendar year on such date and at such time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice of such meeting. At such meeting, the Shareholders of the Corporation shall elect a Board of Directors and transact such other business as may properly be brought before the meeting. By: /s/ Stoney M. Stubbs, Jr. ------------------------- Stoney M. Stubbs, Jr. Chairman of the Board and Chief Executive Officer (Principal Executive Officer) ATTEST: /s/ Leonard W. Bartholomew -------------------------- Leonard W. Bartholomew Secretary ADOPTED: April 3, 2002 EX-10 4 ex105.txt EXHIBIT 10.5 Exhibit 10.5 ------------ THIRD AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT AND LIMITED CONSENT THIS THIRD AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT AND LIMITED CONSENT (this "Amendment"), dated effective as of December 26, 2001, is by and among FFE TRANSPORTATION SERVICES, INC., a Delaware corporation ("Borrower"), FROZEN FOOD EXPRESS INDUSTRIES, INC., a Texas corporation ("Parent"), FFE, INC., a Delaware corporation ("FFE"), CONWELL CORPORATION, a Delaware corporation ("Conwell"), W&B REFRIGERATION SERVICE COMPANY, a Delaware corporation ("W&B"), LISA MOTOR LINES, INC., a Delaware corporation ("LML"), FROZEN FOOD EXPRESS, INC., a Texas corporation ("Express"), CONWELL CARTAGE, INC., a Texas corporation ("Cartage"), MIDDLETON TRANSPORTATION COMPANY, a Texas corporation ("Middleton"), COMPRESSORS PLUS, INC., a Texas corporation ("CPI"), FFE LOGISTICS, INC., a Delaware corporation, formerly known as AEL TRANSPORTS, INC., a Delaware corporation (herein, "AEL"), FLEET NATIONAL BANK ("Fleet"), COMERICA BANK - TEXAS ("Comerica"), WELLS FARGO BANK TEXAS, NATIONAL ASSOCIATION ("Wells Fargo"), each other entity which may from time to time become party hereto as a lender hereunder or any successor or assignee thereof (collectively, other than the Companies, the "Banks") and Wells Fargo as agent for the Banks (in such capacity, "Agent"). RECITALS: -------- A. Borrower, Parent, FFE, Conwell, W&B, LML, Express, Cartage, Middleton, CPI, AEL, Fleet (formerly known as BankBoston, N.A.), Wells Fargo (successor by consolidation to Wells Fargo Bank (Texas), National Association) and Comerica (successor by assignment from Chase Bank of Texas, National Association) are parties to that certain Second Amended and Restated Credit Agreement, dated as of March 1, 2000 (as the same has been and may be further amended, restated or otherwise modified from time to time, the "Credit Agreement"). B. Borrower and W&B have informed the Banks that, pursuant to the terms of that certain Asset Purchase Agreement (the "Asset Sale Agreement") dated as of December 26, 2001, by and between W&B and W&B Newco, L.P., a Texas limited partnership (the "Purchaser"), W&B intends to, among other things, sell to the Purchaser the properties and assets of W&B constituting the "Purchased Assets", as such term is defined therein (the "Assets", and such sale of the Assets in accordance with the terms of the Asset Sale Agreement being referred to herein as the "Asset Sale"). C. In consideration for the Assets, the Purchaser intends to (i) pay cash to W&B, on the closing date of the Asset Sale, of an amount equal to the "Cash Purchase Price", as such term is defined and more fully described in the Asset Sale Agreement, provided however, such amount shall not be less than Six Million Dollars ($6,000,000) (herein, the "Asset Sale Payment"), (ii) issue to W&B no less than 19.9% of the total outstanding partnership interests of the Purchaser, and (iii) execute and deliver a promissory note payable to the order of W&B and made by its terms expressly subordinate to the Purchaser's obligations to Wells Fargo Business Credit, Inc., a copy of which is attached hereto as Exhibit A (the "Asset Sale Note"). D. Borrower, W&B and the other Companies have requested that the Banks consent to the Asset Sale and, in connection therewith, amend the Credit Agreement in certain respects and the Banks are willing to comply with such requests subject to the terms and provisions of this Amendment. NOW, THEREFORE, BE IT RESOLVED, THAT, in consideration of the premises herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE 1 --------- Definitions ----------- Section 1.1 Definitions. Capitalized terms used in this Amendment, to the extent not otherwise defined herein, shall have the same meanings as in the Credit Agreement, as amended hereby. ARTICLE 2 ---------- Amendments ---------- Section 2.1 Amendment to Article I. The definition of "Final Maturity Date" in Article I of the Credit Agreement is amended and restated to read in its entirety as follows: "Final Maturity Date" means the later to occur of (a) the Revolving Credit Commitment Termination Date or (if applicable, and only if applicable) (b) the "Final Extended Maturity Date", as such term is defined in Section 2.3(b). Section 2.2 Amendment to Section 2.3. Section 2.3 of the Credit Agreement is amended and restated to read in its entirety as follows: Section 2.3 Repayment of Loans. (a) Repayment. Subject to clause (b) of this Section 2.3, Borrower shall pay to the Agent for the account of each Bank the outstanding principal amount of all Loans, including without limitation, Swingline Advances (in the aggregate, such amount outstanding on the Revolving Credit Commitment Termination Date being referred to herein as the "Outstanding Loans Amount"), on the Revolving Credit Commitment Termination Date in a single installment. (b) Optional Extended Repayment. Subject to clause (c) of this Section 2.3, Borrower may, with at least ten (10) days written notice to the Agent prior to the Revolving Credit Commitment Termination Date (such notice, the "Extended Repayment Notice"), pay to the Agent for the account of each Bank the Outstanding Loans Amount in thirteen (13) consecutive monthly installments (the date of the final such installment being referred to as the "Final Extended Maturity Date"), commencing on the first day of the first month following the Revolving Credit Commitment Termination Date, each of which installments shall be in an amount equal to the Outstanding Loans Amount divided by forty-eight (48). In addition, Borrower shall pay to the Agent for the account of each Bank the remaining outstanding aggregate principal amount of the Loans, including Swingline Advances, on the Final Extended Maturity Date. (c) Extension Fee; Amendment. Notwithstanding anything to the contrary, the effectiveness of the Extended Repayment Notice and clause (b) of this Section 2.3 is subject to the conditions precedent that (i) the Agent on behalf of each Bank shall have received an extension fee in an amount equal to each such Bank's pro rata portion (based on the Commitments of the Banks) of one percent (1.00%) of the Outstanding Loans Amount on the Revolving Credit Commitment Termination Date, provided that said fee in the aggregate shall not exceed one percent (1.00%) of the total Outstanding Loans Amount on the Revolving Credit Commitment Termination Date and (ii) no Default or Potential Default shall have occurred and be continuing on the Revolving Credit Commitment Termination Date. Upon satisfaction of the foregoing conditions precedent and upon timely delivery of the Extended Repayment Notice in accordance with the foregoing Section 2.3(b), this Agreement shall be automatically amended as follows: (i) Clause (iii) of Section 2.4(b) shall be deleted in its entirety and (ii) the chart that is a part of Section 2.4(b) and the text following such chart shall be amended and restated to read as follows: Base Rate LIBOR Rate Funded Debt to EBITDAR Ratio Margin Margin ----------------------------- --------- ---------- Greater than or equal to 2.75 3.50% 4.75% Greater than or equal to 2.25 but less than 2.75 3.25% 4.50% Greater than or equal to 1.75 but less than 2.25 3.00% 4.25% Greater than or equal to 1.25 but less than 1.75 2.50% 4.00% Less than 1.25 2.00% 3.50% Upon delivery of each Quarterly Report pursuant to this Agreement, the LIBOR Rate Margin (for Interest Periods commencing after the applicable Adjustment Date) and the Base Rate Margin shall automatically be adjusted in accordance with the Funded Debt to EBITDAR Ratio set forth therein and the table set forth above, such automatic adjustment to take effect as of the first Business Day after the receipt by the Agent of the related Quarterly Report (each such Business Day when such margins change pursuant to this sentence or the next following sentence, herein an "Adjustment Date"). If Parent fails to deliver such Quarterly Report which so sets forth the Funded Debt to EBITDAR Ratio within the period of time required by this Agreement or if a Default exists and the Agent provides notice of the Default to Parent: (i) the LIBOR Rate Margin (for Interest Periods commencing after the applicable Adjustment Date) shall automatically be adjusted to four and three-quarters percent (4.75%) per annum and (ii) the Base Rate Margin shall automatically be adjusted to three and one-half percent (3.50%), such automatic adjustments to take effect as of the first Business Day after the last day on which Parent was required to deliver the applicable Quarterly Report in accordance with this Agreement or, in the case of a Default, on the date the written notice is given to Parent and to remain in effect until subsequently adjusted in accordance herewith upon the delivery of such Quarterly Report or, in the case of a Default, when such Default has been cured to the satisfaction of the Agent or waived by the Required Banks. (d) Miscellaneous, etc. If any payment of principal becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day and interest shall be payable at the then applicable rate during such extension. Notwithstanding anything to the contrary, including without limitation, the effectiveness (if at all) of the Extended Repayment Notice and Section 2.3(b), the Commitments of the Banks to make Loans and make or participate in Letter of Credit Liabilities shall terminate on the Revolving Credit Commitment Termination Date. Section 2.3 Amendment to Section 2.4(b). The chart that is part of Section 2.4(b) and the text following such chart in Section 2.4(b) is amended and restated to read in its entirety as follows: Base Rate LIBOR Rate Commitment Funded Debt to EBITDAR Ratio Margin Margin Fee Rate - ----------------------------- --------- ---------- ---------- Greater than or equal to 2.75 1.50% 2.75% 0.50% Greater than or equal to 2.25 but less than 2.75 1.25% 2.50% 0.35% Greater than or equal to 1.75 but less than 2.25 1.00% 2.25% 0.25% Greater than or equal to 1.25 but less than 1.75 0.50% 2.00% 0.25% Less than 1.25 0.00% 1.50% 0.20% Upon delivery of each Quarterly Report pursuant to this Agreement, commencing with such Quarterly Report delivered as of the period ending on December 31, 1999, the LIBOR Rate Margin (for Interest Periods commencing after the applicable Adjustment Date), the Base Rate Margin and the Commitment Fee Rate shall automatically be adjusted in accordance with the Funded Debt to EBITDAR Ratio set forth therein and the table set forth above, such automatic adjustment to take effect as of the first Business Day after the receipt by the Agent of the related Quarterly Report (each such Business Day when such margins or fees change pursuant to this sentence or the next following sentence, herein an "Adjustment Date"). If Parent fails to deliver such Quarterly Report which so sets forth the Funded Debt to EBITDAR Ratio within the period of time required by this Agreement or if a Default exists and the Agent provides notice of the Default to Parent: (i) the LIBOR Rate Margin (for Interest Periods commencing after the applicable Adjustment Date) shall automatically be adjusted to two and three-quarters percent (2.75%) per annum; (ii) the Base Rate Margin shall automatically be adjusted to one and one-half percent (1.50%); and (iii) the Commitment Fee Rate shall automatically be adjusted to one-half of one percent (.50%), such automatic adjustments to take effect as of the first Business Day after the last day on which Parent was required to deliver the applicable Quarterly Report in accordance with this Agreement or, in the case of a Default, on the date the written notice is given to Parent and to remain in effect until subsequently adjusted in accordance herewith upon the delivery of such Quarterly Report or, in the case of a Default, when such Default has been cured to the satisfaction of the Agent or waived by the Required Banks. Section 2.4 Amendment to Section 4.8. Section 4.8 of the Credit Agreement is amended and restated to read in its entirety as follows: Section 4.8 Ownership of the Companies. (i) Parent owns all of the issued and outstanding capital stock of FFE, Express, Cartage and Middleton, (ii) FFE owns all of the issued and outstanding capital stock of Borrower, Conwell, W&B, AEL and Lisa, (iii) W&B owns 19.9% of the partnership interests of W&B Newco, L.P. a Texas limited partnership, and is a limited partner of such company, (iv) W&B owns all of the issued and outstanding capital stock of CPI, and (v) except as provided in this Section 4.8, none of the Companies has any Other Subsidiary. Section 2.5 Amendment to Section 5.2. Section 5.2(a) of the Credit Agreement is amended and restated to read in its entirety as follows: (a) Minimum Tangible Net Worth. Permit, as of the last day of any fiscal quarter, Parent's Consolidated Tangible Net Worth to be less than the sum of (i) $79,500,000, plus (ii) eighty-five percent (85%) of its positive, consolidated net income for each fiscal quarter after December 31, 1999 (i.e., any negative net income for a fiscal quarter shall not reduce the minimum Consolidated Tangible Net Worth), plus (iii) one hundred percent (100%) of the net proceeds from any issuances of equity securities by Parent or other contributions to the capital equity of Parent, minus (iv) one hundred percent (100%) of the outstanding principal amount under the "Asset Sale Note" as such term is defined in the Third Amendment to Second Amended and Restated Credit Agreement and Limited Consent dated effective as of December__, 2001, by and among the Companies, the Agent and the Banks. Section 2.6 Amendment to Schedules. Schedules 1.1, 4.3, 4.9 and 4.11 of the Credit Agreement are amended and restated to read in their respective entireties as set forth on Schedules 1.1, 4.3, 4.9 and 4.11 to this Amendment. Section 2.7 Amendment to Exhibit E. Exhibit E of the Credit Agreement is amended and restated to read in its entirety as set forth in Exhibit "E" to this Amendment. ARTICLE 3 --------- Limited Consent and Release --------------------------- Section 3.1 Consent. Subject to the terms of this Amendment, including without limitation, the satisfaction of the conditions precedent set forth in Article 4, the Banks hereby consent to (a) W&B changing its name to AirPro Holdings, Inc., a Delaware corporation, subsequent to the effective date of this Amendment and AEL having changed its name to FFE Logistics, Inc., a Delaware corporation, prior to the effective date of this Amendment (together, the "Name Changes") provided that, W&B and AEL shall promptly take all action reasonably deemed necessary or desirable by Agent to protect Agent's Liens with the perfection and priority thereof required by the Loan Papers, and (b) the Asset Sale in accordance with the terms of the Asset Sale Agreement, provided, that (i) the Asset Sale Agreement must be in form and substance reasonably satisfactory to the Agent, (ii) the Asset Sale must be completed on terms satisfactory to Agent in its sole discretion, including without limitation, for an aggregate consideration in an amount no less than the greater of (A) $11,000,000 or (B) the book value of the Assets; (iii) the Asset Sale must be completed by no later than January 15, 2002, (iv) the Asset Sale Payment must not be less than Six Million Dollars ($6,000,000), (v) upon consummation of the Asset Sale and at all times thereafter, (A) W&B must own and continue to own all of the issued and outstanding capital stock of CPI, (B) Borrower must own and continue to own all of the issued and outstanding capital stock of W&B, and (C) W&B must own and continue to own no less than 19.9% of the partnership interests of the Purchaser and must be a limited partner of such company. The consents given in this Section 3.1 are given only to the limited extent necessary to consent to and permit the Name Changes and the Asset Sale upon the terms and conditions set forth herein. Section 3.2 Limitation of Consent. Each consent granted in Section 3.1 of this Amendment shall be limited strictly as written and shall not be deemed to constitute a waiver of, or any consent to noncompliance with, any term or provision of any Loan Paper except as expressly set forth herein. Further, neither consent granted in Section 3.1 of this Amendment shall constitute a waiver of any Default arising as a result of the violation of any other term or provision of any Loan Paper, or a waiver of any rights or remedies arising as a result of any such Default. Section 3.3 Release. Subject to terms of this Amendment, including without limitation, the satisfaction of the conditions precedent set forth in Article 4 and the following proviso, Agent and the Banks hereby release their Liens against the Assets; provided, however, that Agent and the Banks do not hereby release their Liens on any proceeds (including, without limitation, the Asset Sale Payment, the Asset Sale Note and any other cash or non-cash proceeds) of the Assets received by any Company in connection with the Asset Sale or otherwise. In connection therewith, Agent and each of the Banks agrees to execute such UCC-3 partial releases or other release agreements as may be reasonably requested by Borrower or W&B as necessary to further evidence such Lien release under this Agreement. ARTICLE 4 --------- Conditions Precedent -------------------- Section 4.1 Conditions. The effectiveness of this Amendment is subject to the satisfaction of the following conditions precedent: (a) Agent shall have received all of the following, each dated (unless otherwise indicated) the date of this Amendment, fully executed and in form and substance reasonably satisfactory to Agent and the Banks: (i) Resolutions. Resolutions of the Board of Directors (or other similar authorizing documents) of Borrower and each other Company certified by its Secretary, an Assistant Secretary, or another authorized Person which authorize its execution, delivery, and performance of this Amendment and the Loan Papers to which it is or is to be a party hereunder; (ii) Incumbency Certificate. A certificate of incumbency certified by the Secretary, an Assistant Secretary or other authorized Person of Borrower and each other Company certifying the names of its representatives who are authorized to sign this Amendment and the Loan Papers to which it is or is to be a party hereunder (including the certificates contemplated herein) together with specimen signatures of each such officers; (iii) Articles of Incorporation. The articles of incorporation, articles of organization, certificate of limited partnership or similar governing document, as applicable of the Borrower and each other Company certified by the Secretary of State of the State of its incorporation or organization (or the other appropriate governmental officials of its jurisdiction of organization) and dated a current date; (iv) Bylaws. The bylaws of Borrower and each other Company certified by its Secretary or an Assistant Secretary; (v) Governmental Certificates. Certificates of the appropriate government officials of the state of incorporation of Borrower and each other Company as to its existence and good standing; (vi) Amendment. An original counterpart of this Amendment; (vii) Asset Sale Note. The original Asset Sale Note endorsed by W&B in favor of Agent; (viii) Completion of Asset Sale. Evidence of the completion of the Asset Sale on terms satisfactory to Agent in its sole discretion, including without limitation, for an aggregate consideration in an amount equal to the greater of (A) $11,000,000 or (B) the book value of the Assets; (ix) Amendment to Security Agreements. An Amendment to that certain Amended and Restated Security Agreement dated as of April 6, 2001, by and among Agent and the Companies, in form and substance satisfactory to Agent, evidencing, among other things, a Lien granted by W&B to Agent and the Banks in and to the Asset Sale Note; (x) Asset Sale Agreement. A copy of the Asset Sale Agreement in form and substance reasonably satisfactory to Agent; (xi) Asset Sale Payment. Evidence of the irrevocable payment in full by the Purchaser to W&B of the Asset Sale Payment; (xii)Additional Information. Such additional documentation and information as Agent may reasonably request; and (b) The representations and warranties contained herein and in all other Loan Papers, as amended hereby, shall be true and correct in all material respects as of the date hereof as if made on the date hereof, except for such representations and warranties limited by their terms to a specific date; (c) Agent and the Banks shall have received all fees and expenses payable to them under Section 6.3 of this Amendment and all other fees and expenses payable to Agent and the Banks on or before the date of this Amendment, including without limitation, (i) an amendment and consent fee to each Bank party to this Amendment in an amount equal to its pro rata portion (based on the Commitments of such Banks) of $50,000, and (ii) the reasonable fees, costs and expenses of the Agent's legal counsel, Jenkens & Gilchrist, a Professional corporation; (d) No Potential Default or Default shall have occurred and be continuing; and (e) All proceedings taken in connection with the transactions contemplated by this Amendment and all documentation and other legal matters incident thereto shall be reasonably satisfactory to Agent and each Bank. ARTICLE 5 --------- Ratifications; Representations and Warranties --------------------------------------------- Section 5.1 General Ratification. The terms and provisions set forth in this Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Credit Agreement and the other Loan Papers, and, except as expressly modified and superseded by this Amendment, the terms and provisions of the Credit Agreement and the other Loan Papers are ratified and confirmed and shall continue in full force and effect. The Companies, Agent and the Banks agree that the Credit Agreement and the other Loan Papers, as amended hereby, shall continue to be legal, valid, binding and enforceable in accordance with their respective terms. Section 5.2 Further Consent, Ratification and Reaffirmation. Notwithstanding anything to the contrary contained in any Loan Paper, including without limitation, in any Security Agreement or Guaranty Agreement, each of the Companies, jointly and severally, hereby (a) consents to and approves of the terms of this Amendment, (b) reaffirms that, after giving effect to the Amendment, all of its representations and warranties made in the Loan Papers to which it is a party remain true and correct as of the date of this Amendment (except to the extent that any such representations or warranties are expressly made only as of another specific date), (c) confirms, ratifies and reaffirms all of its covenants, agreements, indebtedness, liabilities and obligations under the Loan Papers to which it is a party, which include, without limitation, the grant of Liens in all of such party's interests in the Collateral owned by it as security for the payment and performance of the Obligations, (d) agrees that the Loan Papers to which it is a party shall and do remain in full force and effect, (e) reaffirms all of the other terms of the Loan Papers to which it is a party, (f) agrees that the Loan Papers to which it is a party shall and do continue to constitute the legal, valid and binding obligations of such party, enforceable against it in accordance with the terms of such Loan Papers and that such obligations shall not be and have not been discharged, diminished or affected by any modification, extension, forbearance, renewal or amendment of the terms of the Credit Agreement or the other Loan Papers (including, without limitation, the release by Agent and the Banks of their Liens on the Assets as set forth in Section 3.3) except as specifically set forth therein, and (g) agrees and acknowledges that there are no defenses, counterclaims or set-offs to the Loan Papers to which it is a party or its covenants, agreements, indebtedness, liabilities and obligations under such Loan Papers, and agrees that any (if any) such defenses, counterclaims or set-offs are hereby expressly waived, and (h) agrees and acknowledges that no consent by such party is required for the effectiveness of any future modification, extension, forbearance, renewal or amendment or any other action with respect to the Loans, the Collateral, the Credit Agreement or any of the other Loan Papers. Section 5.3 Representations and Warranties. Borrower and each other Company jointly and severally represent and warrant to Agent and the Banks that (a) the execution, delivery and performance of this Amendment and any and all other Loan Papers executed and/or delivered in connection herewith have been authorized by all requisite corporate action on the part of the Companies and will not violate the Articles of Incorporation or Bylaws of any Company; (b) the representations and warranties contained in the Credit Agreement, as amended hereby, and other Loan Papers are true and correct on and as of the date hereof and on and as of the date of execution hereof as though made on and as of each such date; (c) no Default under the Credit Agreement, as amended hereby, has occurred and is continuing, unless such Default has been specifically waived in writing by Agent and the Required Banks; (d) each Company is in full compliance with all covenants and agreements applicable to it contained in the Credit Agreement and the other Loan Papers, as amended hereby; and (e) none of the Companies have amended or rescinded or otherwise modified its resolutions attached to the Corporate Certificate delivered by such Company to Agent on March 1, 2000, in connection with the closing of the Credit Agreement. ARTICLE 6 --------- Miscellaneous Provisions ------------------------ Section 6.1 Survival of Representations and Warranties. All representations and warranties made in the Credit Agreement and any other Loan Papers, including, without limitation, the documents furnished in connection with this Amendment, shall survive the execution and delivery of this Amendment and the other Loan Papers, and no investigation by Agent or the Banks shall affect the representations and warranties or the right of Agent or the Banks to rely upon them. Section 6.2 Reference to Credit Agreement. Each of the Credit Agreement and the other Loan Papers, and any and all other agreements, documents or instruments now or hereafter executed and delivered pursuant to the terms hereof or pursuant to the terms of the Credit Agreement, as amended hereby, are hereby amended so that any reference in the Credit Agreement and such other Loan Papers to the Credit Agreement shall mean a reference to the Credit Agreement as amended hereby. Section 6.3 Expenses of Agent and the Banks. As provided in the Credit Agreement, the Companies agree to pay on demand all reasonable costs and expenses incurred by Agent and the Banks in connection with the preparation, negotiation, and execution of this Amendment and the other Loan Papers executed pursuant hereto and any and all amendments, modifications, and supplements thereto, including, without limitation, the reasonable costs and fees of Agent's legal counsel, and all reasonable costs and expenses incurred by Agent in connection with the enforcement or preservation of any rights under the Credit Agreement, as amended hereby, or any other Loan Papers, including, without limitation, the costs and fees of Agent's and the Banks legal counsel. Section 6.4 Severability. Any provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the provision so held to be invalid or unenforceable. Section 6.5 Successors and Assigns. This Amendment is binding upon and shall inure to the benefit of Agent, the Banks, Borrower and the other Companies and their respective successors and assigns, except that Borrower and the other Companies may not assign or transfer any of their rights or obligations hereunder without the prior written consent of Agent and the Banks. Section 6.6 Counterparts. This Amendment may be executed in one or more counterparts, each of which when so executed shall be deemed to be an original, but all of which when taken together shall constitute one and the same instrument. Section 6.7 Effect of Consent or Waiver. No consent or waiver, express or implied, by Agent or the Banks to or for any breach of or deviation from any covenant or condition by Borrower or any other Company shall be deemed a consent to or waiver of any other breach of the same or any other covenant, condition or duty. Section 6.8 Headings. The headings, captions, and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment. Section 6.9 Applicable Law. THIS AMENDMENT AND ALL OTHER LOAN PAPERS EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. CHAPTER 346 OF THE TEXAS FINANCE CODE SHALL NOT APPLY TO THE REVOLVING CREDIT LOANS. Section 6.10 Final Agreement. THE CREDIT AGREEMENT AND THE OTHER LOAN PAPERS, EACH AS AMENDED HEREBY, REPRESENT THE ENTIRE EXPRESSION OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF ON THE DATE THIS AMENDMENT IS EXECUTED. THE CREDIT AGREEMENT AND THE OTHER LOAN PAPERS, AS AMENDED HEREBY, MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. NO MODIFICATION, RESCISSION, WAIVER, RELEASE OR AMENDMENT OF ANY PROVISION OF THIS AMENDMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED BY AN AUTHORIZED OFFICER OF EACH COMPANY AND EACH OF THE REQUIRED BANKS. Section 6.11 Release of Claims. EACH COMPANY HEREBY ACKNOWLEDGES THAT AT THIS TIME IT HAS NO DEFENSE, COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS LIABILITY TO REPAY THE "OBLIGATIONS" OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF ANY KIND OR NATURE FROM AGENT OR THE BANKS, EACH COMPANY HEREBY VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER DISCHARGES AGENT AND THE BANKS, THEIR PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, FROM UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS AMENDMENT IS EXECUTED, WHICH SUCH COMPANY MAY NOW OR HEREAFTER HAVE AGAINST AGENT AND/OR THE BANKS, THEIR PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, AND ARISING FROM ANY LOANS, INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN AGREEMENT OR OTHER AGREEMENTS, AND NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT. Section 6.12 Agreement for Binding Arbitration. Each party to this Amendment hereby acknowledges that it has agreed to be bound by the terms and provisions of the Arbitration Program, a copy of which is attached to the Credit Agreement as Exhibit "H" thereto, and which is incorporated by reference herein and is acknowledged as received by the parties pursuant to which any and all disputes shall be resolved by mandatory binding arbitration upon the request of any party. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment effective as of the date first written above. AGENT: ------ WELLS FARGO BANK TEXAS, NATIONAL ASSOCIATION, successor by consolidation to Wells Fargo Bank (Texas), National Association, Individually and as Agent By: /s/ Daniel T. Brown --------------------------------------- Name: Daniel T. Brown ------------------------------------ Title: Vice President ------------------------------------ BORROWER: --------- FFE TRANSPORTATION SERVICES, INC. By: /s/ T. G. Yetter --------------------------------------- Name: T. G. Yetter ------------------------------------ Title: Vice President ------------------------------------ OTHER BANKS: ------------ COMERICA BANK - TEXAS By: /s/ Donald P. Hellman ---------------------------------------- Name: Donald P. Hellman ------------------------------------- Title: Senior Vice President ------------------------------------- FLEET NATIONAL BANK By: /s/ Jeffrey G. Millman ---------------------------------------- Name: Jeffrey G. Millman ------------------------------------- Title: Director ------------------------------------- OTHER COMPANIES: ---------------- FROZEN FOOD EXPRESS INDUSTRIES, INC. By: /s/ T. G. Yetter --------------------------------------- Name: T. G. Yetter ------------------------------------ Title: Treasurer ------------------------------------ FFE, INC. By: /s/ T. G. Yetter --------------------------------------- Name: T. G. Yetter ------------------------------------ Title: Vice President ------------------------------------ CONWELL CORPORATION By: /s/ T. G. Yetter --------------------------------------- Name: T. G. Yetter ------------------------------------ Title: Vice President ------------------------------------ W & B REFRIGERATION SERVICE COMPANY By: /s/ F. Dixon McElwee, Jr. --------------------------------------- Name: F. Dixon McElwee, Jr. ------------------------------------- Title: Vice President ------------------------------------ LISA MOTOR LINES, INC. By: /s/ Leonard W. Bartholomew --------------------------------------- Name: Leonard W. Bartholomew ------------------------------------ Title: Secretary ----------------------------------- FROZEN FOOD EXPRESS, INC. By: /s/ F. D. McElwee, Jr. ------------------------------------- Name: F. D. McElwee, Jr. ---------------------------------- Title: Vice President ---------------------------------- CONWELL CARTAGE, INC. By: /s/ Leonard W. Bartholomew ---------------------------------------- Name: Leonard W. Bartholomew ------------------------------------ Title: Secretary ------------------------------------ MIDDLETON TRANSPORTATION COMPANY By: /s/ F. Dixon McElwee, Jr. ---------------------------------------- Name: F. Dixon McElwee, Jr. ------------------------------------ Title: Vice President ------------------------------------ COMPRESSORS PLUS, INC. By: /s/ Leonard W. Bartholomew ---------------------------------------- Name: Leonard W. Bartholomew ------------------------------------ Title: Secretary ------------------------------------ FFE LOGISTICS, INC., formerly known as AEL Transports, Inc. By: /s/ Leonard W. Bartholomew ---------------------------------------- Name: Leonard W. Bartholomew ------------------------------------ Title: Secretary ------------------------------------ EX-10 5 ex106.txt EXHIBIT 10.6 Exhibit 10.6 ------------ FOURTH AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT AND WAIVER THIS FOURTH AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT AND LIMITED CONSENT (this "Amendment"), dated effective as of March 29, 2002, is by and among FFE TRANSPORTATION SERVICES, INC., a Delaware corporation ("Borrower"), FROZEN FOOD EXPRESS INDUSTRIES, INC., a Texas corporation ("Parent"), FFE, INC., a Delaware corporation ("FFE"), CONWELL CORPORATION, a Delaware corporation ("Conwell"), AIRPRO HOLDINGS, INC., a Delaware corporation (formerly known as W&B Refrigeration Service Company) ("AirPro"), LISA MOTOR LINES, INC., a Delaware corporation ("LML"), FROZEN FOOD EXPRESS, INC., a Texas corporation ("Express"), CONWELL CARTAGE, INC., a Texas corporation ("Cartage"), MIDDLETON TRANSPORTATION COMPANY, a Texas corporation ("Middleton"), COMPRESSORS PLUS, INC., a Texas corporation ("CPI"), FFE LOGISTICS, INC., a Delaware corporation (formerly known as AEL Transports, Inc.) ("Logistics"), FLEET NATIONAL BANK ("Fleet"), COMERICA BANK - TEXAS ("Comerica"), WELLS FARGO BANK TEXAS, NATIONAL ASSOCIATION ("Wells Fargo"), each other entity which may from time to time become party to the Credit Agreement referred to below as a lender or any successor or assignee thereof (collectively, other than the Companies, the "Banks") and Wells Fargo as agent for the Banks (in such capacity, "Agent"). RECITALS: -------- A. Borrower, Parent, FFE, Conwell, AirPro, LML, Express, Cartage, Middleton, CPI, and Logistics (together, the "Companies"), Fleet (formerly known as BankBoston, N.A.), Wells Fargo (successor by consolidation to Wells Fargo Bank (Texas), National Association) and Comerica (successor by assignment from Chase Bank of Texas, National Association) are parties to that certain Second Amended and Restated Credit Agreement, dated as of March 1, 2000 (as the same has been and may be further amended, restated or otherwise modified from time to time, the "Credit Agreement"). B. Borrower and the other Companies have requested that the Banks amend the Credit Agreement in certain respects and the Banks are willing to comply with such requests subject to the terms and provisions of this Amendment. NOW, THEREFORE, BE IT RESOLVED, THAT, in consideration of the premises herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE 1 --------- Definitions - ----------- Section 1.1 Definitions. Capitalized terms used in this Amendment to the extent not otherwise defined herein, shall have the same meanings as in the Credit Agreement, as amended hereby. ARTICLE 2 --------- Amendments - ---------- Section 2.1 Addition of Definition of "Weller Insurance Policy". As of the date of this Amendment, the Credit Agreement is amended as follows: Article I of the Credit Agreement is amended to add the following definition of "Weller Insurance Policy" to read in its entirety as follows: "Weller Insurance Policy" means that TransAmerica Occidental Life Insurance Company policy, Policy number 92462701. Section 2.2 Amendment to Section 5.1. Section 5.1 of the Credit Agreement is hereby amended as follows: (i) Clause (a) is hereby amended and restated to read in its entirety as follows: (a) Quarterly Report. On or before forty-five days after the end of the first, second and third fiscal quarters of each year, and on or before ninety (90) days after the fourth fiscal quarter of each year, deliver to each Bank a Quarterly Report (herein so called), in the form of Exhibit E attached hereto with the blanks completed accurately to reflect the facts for the immediately preceding fiscal quarter, signed by the chief financial officer or Vice President of Finance of Borrower, except that for the fiscal quarter ending December 31, 2001, such Quarterly Report shall be delivered within one hundred and ten (110) days after the end of such fiscal quarter. (ii) Clause (b) (i) is hereby amended and restated to read in its entirety as follows: (i) and in any event within ninety (90) days after the end of each fiscal year of Parent, complete and detailed Financial Statements (prepared on a consolidated basis), including balance sheet, operating statement, reconciliation of earned surplus and such supporting schedules as any Bank may request, accompanied by the certificate of a firm of independent public accountants acceptable to the Banks that such statements have been prepared in accordance with GAAP and fairly present the consolidated financial condition of the Companies during the fiscal year just ended, and that during the course of their audit of the Companies nothing came to their attention that caused them to believe the Companies were not in compliance with the terms of Subsections 5.1(f), 5.1(k), 5.2(a) and 5.2(f), except that for the fiscal year ending December 31, 2001, such Financial Statements shall be delivered within one hundred and ten (110) days after the end of such fiscal year, Section 2.2 Amendment to Section 5.2(a). Section 5.2(a) of the Credit Agreement is amended and restated to read in its entirety as follows: (a) Minimum Tangible Net Worth. Permit, as of the last day of any fiscal quarter, Parent's Consolidated Tangible Net Worth to be less than the sum of (i) $79,500,000, plus (ii) eighty-five percent (85%) of its positive consolidated net income for each fiscal quarter after December 31, 1999 (i.e., any negative net income for a fiscal quarter shall not reduce the minimum Consolidated Tangible Net Worth), plus (iii) one hundred percent (100%) of the net proceeds from any issuances of equity securities by Parent or other contributions to the capital equity of Parent, minus (iv) one hundred percent (100%) of the outstanding principal amount under the "Asset Sale Note" as such term is defined in the Third Amendment to Second Amended and Restated Credit Agreement and Limited Consent dated effective as of December 26, 2001, by and among the Companies, the Agent and the Banks and, (v) with respect to the fiscal quarter ending December 31, 2001 only, minus the lesser of (A) $8,000,000 or (B) the dollar amount by which the asset represented by the Weller Insurance Policy as recorded on the books of the Borrower is reduced in book value for such fiscal quarter. ARTICLE 3 --------- Waiver - ------ Section 3.1 Waiver. Subject to the terms of this Amendment and Section 9.2 of the Credit Agreement, including without limitation, the satisfaction of the conditions precedent set forth in Article 4, the Banks hereby waive any Potential Default or Default which exists by reason of any non-compliance by the Companies with the requirements of Section 5.2(a) of the Credit Agreement as a result of the one-time reduction in Parent's Consolidated Net Worth at December 31, 2001 due to the asset of the Borrower represented by the Weller Insurance Policy being reduced in book value as reflected in the Quarterly Report for the fiscal quarter ending December 31, 2001. Section 3.2 Limitation of Waiver. The waiver agreed to in Section 3.1 of this Amendment shall be limited strictly as written and shall not be deemed to constitute a waiver of, or any consent to noncompliance with, any term or provision of any Loan Paper except as expressly set forth herein. Further, the waiver agreed to in Section 3.1 of this Amendment shall not constitute a waiver of any Default arising as a result of the violation of any other term or provision of any Loan Paper, or a waiver of any rights or remedies arising as a result of any such Default. ARTICLE 4 --------- Conditions Precedent - -------------------- Section 4.1 Conditions. The effectiveness of this Amendment is subject to the satisfaction of the following conditions precedent: (a) Agent shall have received all of the following, each dated (unless otherwise indicated) the date of this Amendment, fully executed and in form and substance reasonably satisfactory to Agent and the Banks: (i) Amendment. An original counterpart of this Amendment; (ii) Additional Information. Such additional documentation and information as Agent may reasonably request; and (b) The representations and warranties contained herein and in all other Loan Papers, as amended or waived hereby, shall be true and correct in all material respects as of the date hereof as if made on the date hereof, except for such representations and warranties limited by their terms to a specific date; (c) Agent and the Banks shall have received all fees and expenses payable to them under Section 6.3 of this Amendment and all other fees and expenses payable to Agent and the Banks on or before the date of this Amendment, including without limitation, (i) an amendment and wavier fee to each Bank party to this Amendment in an amount equal to its pro rata portion (based on the Commitments of such Banks) of $10,000, and (ii) the reasonable fees, costs and expenses of the Agent's legal counsel, Jenkens & Gilchrist, a Professional corporation; (d) Except for the Potential Default or Default to be waived as provided in Section 3.1 above, no Potential Default or Default shall have occurred and be continuing; and (e) All proceedings taken in connection with the transactions contemplated by this Amendment and all documentation and other legal matters incident thereto shall be reasonably satisfactory to Agent and each Bank. ARTICLE 5 --------- Ratifications; Representations and Warranties - --------------------------------------------- Section 5.1 General Ratification. The terms and provisions set forth in this Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Credit Agreement and the other Loan Papers, and, except as expressly modified and superseded by this Amendment, the terms and provisions of the Credit Agreement and the other Loan Papers are ratified and confirmed and shall continue in full force and effect. The Companies, Agent and the Banks agree that the Credit Agreement and the other Loan Papers, as amended hereby, shall continue to be legal, valid, binding and enforceable in accordance with their respective terms. Section 5.2 Further Consent, Ratification and Reaffirmation. Notwithstanding anything to the contrary contained in any Loan Paper, including without limitation, in any Security Agreement or Guaranty Agreement, each of the Companies, jointly and severally, hereby (a) consents to and approves of the terms of this Amendment, (b) reaffirms that, after giving effect to this Amendment, all of its representations and warranties made in the Loan Papers to which it is a party remain true and correct as of the date of this Amendment (except to the extent that any such representations or warranties are expressly made only as of another specific date), (c) confirms, ratifies and reaffirms all of its covenants, agreements, indebtedness, liabilities and obligations under the Loan Papers to which it is a party, which include, without limitation, the grant of Liens in all of such party's interests in the Collateral owned by it as security for the payment and performance of the Obligations, (d) agrees that the Loan Papers to which it is a party shall and do remain in full force and effect, (e) reaffirms all of the other terms of the Loan Papers to which it is a party, (f) agrees that the Loan Papers to which it is a party shall and do continue to constitute the legal, valid and binding obligations of such party, enforceable against it in accordance with the terms of such Loan Papers and that such obligations shall not be and have not been discharged, diminished or affected by any modification, extension, forbearance, renewal or amendment of the terms of the Credit Agreement or the other Loan Papers except as specifically set forth therein, and (g) agrees and acknowledges that there are no defenses, counterclaims or set-offs to the Loan Papers to which it is a party or its covenants, agreements, indebtedness, liabilities and obligations under such Loan Papers, and agrees that any (if any) such defenses, counterclaims or set-offs are hereby expressly waived, and (h) agrees and acknowledges that no consent by such party is required for the effectiveness of any future modification, extension, forbearance, renewal or amendment or any other action with respect to the Loans, the Collateral, the Credit Agreement or any of the other Loan Papers. Section 5.3 Representations and Warranties. Borrower and each other Company jointly and severally represent and warrant to Agent and the Banks that (a) the execution, delivery and performance of this Amendment and any and all other Loan Papers executed and/or delivered in connection herewith have been authorized by all requisite corporate action on the part of the Companies and will not violate the Articles of Incorporation or Bylaws of any Company; (b) no Potential Default or Default under the Credit Agreement, as amended hereby, has occurred and is continuing, unless Potential Default or Default has been specifically waived in writing by Agent and the Required Banks, including, without limitation, as provided in Section 3.1 hereof; and (c) none of the Companies have amended or rescinded or otherwise modified its resolutions attached to the Corporate Certificate delivered by such Company to Agent on March 1, 2000, in connection with the closing of the Credit Agreement. ARTICLE 6 --------- Miscellaneous Provisions - ------------------------ Section 6.1 Survival of Representations and Warranties. All representations and warranties made in the Credit Agreement and any other Loan Papers, including, without limitation, this Amendment and the documents furnished in connection with this Amendment, shall survive the execution and delivery of this Amendment and the other Loan Papers, and no investigation by Agent or the Banks shall affect the representations and warranties or the right of Agent or the Banks to rely upon them. Section 6.2 Reference to Credit Agreement. Each of the Credit Agreement and the other Loan Papers, and any and all other agreements, documents or instruments now or hereafter executed and delivered pursuant to the terms hereof or pursuant to the terms of the Credit Agreement, as amended hereby, are hereby amended so that any reference in the Credit Agreement and such other Loan Papers to the Credit Agreement shall mean a reference to the Credit Agreement as amended hereby. Section 6.3 Expenses of Agent and the Banks. As provided in the Credit Agreement, the Companies agree to pay on demand all reasonable costs and expenses incurred by Agent and the Banks in connection with the preparation, negotiation, and execution of this Amendment and the other Loan Papers executed pursuant hereto and any and all amendments, modifications, and supplements thereto, including, without limitation, the reasonable costs and fees of Agent's legal counsel, and all reasonable costs and expenses incurred by Agent in connection with the enforcement or preservation of any rights under the Credit Agreement, as amended hereby, or any other Loan Papers, including, without limitation, the costs and fees of Agent's and the Banks legal counsel. Section 6.4 Severability. Any provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the provision so held to be invalid or unenforceable. Section 6.5 Successors and Assigns. This Amendment is binding upon and shall inure to the benefit of Agent, the Banks, Borrower and the other Companies and their respective successors and assigns, except that Borrower and the other Companies may not assign or transfer any of their rights or obligations hereunder without the prior written consent of Agent and the Banks. Section 6.6 Counterparts. This Amendment may be executed in one or more counterparts, each of which when so executed shall be deemed to be an original, but all of which when taken together shall constitute one and the same instrument. Section 6.7 Headings. The headings, captions, and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment. Section 6.8 Applicable Law. THIS AMENDMENT AND ALL OTHER LOAN PAPERS EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. CHAPTER 346 OF THE TEXAS FINANCE CODE SHALL NOT APPLY TO THE REVOLVING CREDIT LOANS. Section 6.9 Final Agreement. THE CREDIT AGREEMENT AND THE OTHER LOAN PAPERS, EACH AS AMENDED HEREBY, REPRESENT THE ENTIRE EXPRESSION OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER THEREOF ON THE DATE THIS AMENDMENT IS EXECUTED. THE CREDIT AGREEMENT AND THE OTHER LOAN PAPERS, AS AMENDED HEREBY, MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. NO MODIFICATION, RESCISSION, WAIVER, RELEASE OR AMENDMENT OF ANY PROVISION OF THIS AMENDMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED BY AN AUTHORIZED OFFICER OF EACH COMPANY AND EACH OF THE REQUIRED BANKS. Section 6.10 Release of Claims. EACH COMPANY HEREBY ACKNOWLEDGES THAT AT THIS TIME IT HAS NO DEFENSE, COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS LIABILITY TO REPAY THE "OBLIGATIONS" OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF ANY KIND OR NATURE FROM AGENT OR THE BANKS. EACH COMPANY HEREBY VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER DISCHARGES AGENT AND THE BANKS, THEIR PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, FROM UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL CLAIMS OR LIABILITIES, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS AMENDMENT IS EXECUTED, WHICH SUCH COMPANY MAY NOW OR HEREAFTER HAVE AGAINST AGENT AND/OR THE BANKS, THEIR PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS OR LIABILITIES ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, AND ARISING FROM ANY LOANS, INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN AGREEMENT OR OTHER AGREEMENTS, AND NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT. Section 6.11 Agreement for Binding Arbitration. Each party to this Amendment hereby acknowledges that it has agreed to be bound by the terms and provisions of the Arbitration Program, a copy of which is attached to the Credit Agreement as Exhibit "H" thereto, and which is incorporated by reference herein and is acknowledged as received by the parties pursuant to which any and all disputes shall be resolved by mandatory binding arbitration upon the request of any party. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment effective as of the date first written above. AGENT: WELLS FARGO BANK TEXAS, NATIONAL ASSOCIATION, successor by consolidation to Wells Fargo Bank (Texas), National Association, Individually and as Agent By: /s/ Daniel T. Brown --------------------------- Name: Daniel T. Brown Title: Vice President BORROWER: FFE TRANSPORTATION SERVICES, INC. By: /s/ Thomas G. Yetter --------------------------- Name: Thomas G. Yetter Title: Vice President OTHER BANKS: COMERICA BANK - TEXAS By: /s/ Deborah T. Purvin -------------------------- Name: Deborah T. Purvin Title: Vice President FLEET NATIONAL BANK By: /s/ Jeffrey G. Millman -------------------------- Name: Jeffrey G. Millman Title: Vice President OTHER COMPANIES: FROZEN FOOD EXPRESS INDUSTRIES, INC. By: /s/ Thomas G. Yetter -------------------------- Name: Thomas G. Yetter Title: Treasurer FFE, INC. By: /s/ Thomas G. Yetter -------------------------- Name: Thomas G. Yetter Title: Vice President CONWELL CORPORATION By: /s/ Thomas G. Yetter -------------------------- Name: Thomas G. Yetter Title: Controller AIRPRO HOLDINGS, INC. (formerly known as W & B Refrigeration Service Company) By: /s/ F. Dixon McElwee, Jr. -------------------------- Name: F. Dixon McElwee, Jr. Title: Vice President LISA MOTOR LINES, INC. By: /s/ Leonard W. Bartholomew -------------------------- Name: L. W. Bartholomew Title: Secretary FROZEN FOOD EXPRESS, INC. By: /s/ F. Dixon McElwee, Jr. -------------------------- Name: F. Dixon McElwee, Jr. Title: Vice President CONWELL CARTAGE, INC. By: /s/ Leonard W. Bartholomew -------------------------- Name: L. W. Bartholomew Title: Secretary MIDDLETON TRANSPORTATION COMPANY By: /s/ F. Dixon McElwee, Jr. -------------------------- Name: F. Dixon McElwee, Jr. Title: Vice President COMPRESSORS PLUS, INC. By: /s/ Leonard W. Bartholomew -------------------------- Name: L. W. Bartholomew Title: Secretary FFE LOGISTICS, INC., formerly known as AEL Transports, Inc. By: /s/ Leonard W. Bartholomew -------------------------- Name: L. W. Bartholomew Title: Secretary EX-10 6 ex1013.txt EXHIBIT 10.13 Exhibit 10.13 ------------- FROZEN FOOD EXPRESS INDUSTRIES, INC. 401(k) SAVINGS PLAN Restated Effective January 1, 2001 Table of Contents ----------------- Page Article One PURPOSE.............................................1 Section 1.1 Introduction...................................1 Section 1.2 Purpose........................................1 Section 1.3 Limitation.....................................1 Article Two DEFINITIONS.........................................2 Section 2.1 Accounting Date................................2 Section 2.2 Accounts.......................................2 Section 2.3 Administrator..................................2 Section 2.4 Affiliate......................................2 Section 2.5 Alternate Payee................................2 Section 2.6 Beneficiary....................................2 Section 2.7 Break in Service...............................2 Section 2.8 Code...........................................4 Section 2.9 Committee......................................4 Section 2.10 Company.......................................4 Section 2.11 Company Stock.................................4 Section 2.12 Compensation..................................5 Section 2.13 Current Market Value..........................7 Section 2.14 Disability....................................7 Section 2.15 Discretionary Employer Contribution...........7 Section 2.16 Discretionary Employer Contribution Account...8 Section 2.17 Early Retirement..............................8 Section 2.18 Early Retirement Date.........................8 Section 2.19 Effective Date................................8 Section 2.20 Employee......................................8 Section 2.21 Employer Contributions........................8 Section 2.22 Employer......................................9 Section 2.23 Employment Commencement Date..................9 Section 2.24 Entrance Date.................................9 Section 2.25 ERISA.........................................9 Section 2.26 ESOP Accounts.................................9 Section 2.27 ESOP Rollover Account.........................9 Section 2.28 ESOP Transfer Account.........................9 Section 2.29 Former Participant...........................10 Section 2.30 Highly Compensated Employee..................10 Section 2.31 Hours of Service.............................11 Section 2.32 Incentive Contribution.......................12 Section 2.33 Matching Employer Contribution...............13 Section 2.34 Matching Employer Contribution Account.......13 Section 2.35 Named Fiduciary..............................13 Section 2.36 Nonforfeitable...............................13 Section 2.37 Non-Highly Compensated Employee..............13 Section 2.38 Normal Retirement Age........................13 Section 2.39 Normal Retirement Date.......................13 Section 2.40 Owner-Employee...............................13 Section 2.41 Participant..................................14 Section 2.42 Participating Employer.......................14 Section 2.43 Participation................................14 Section 2.44 Plan.........................................14 Section 2.45 Plan Sponsor.................................14 Section 2.46 Plan Year....................................14 Section 2.47 Prior Plan...................................14 Section 2.48 Re-Employment Commencement Date..............14 Section 2.49 Related Employer.............................14 Section 2.50 Retirement...................................15 Section 2.51 Rollover Account.............................15 Section 2.52 Savings Account..............................15 Section 2.53 Savings Contributions........................15 Section 2.54 Self-Employed Individual.....................15 Section 2.55 Separation from Service......................16 Section 2.56 Service......................................16 Section 2.57 Shareholder-Employee.........................16 Section 2.58 Separated from Service.......................16 Section 2.59 Special Employer Contributions...............16 Section 2.60 Spouse.......................................16 Section 2.61 Trust........................................17 Section 2.62 Trust Agreement..............................17 Section 2.63 Trust Fund...................................17 Section 2.64 Trustee......................................17 Section 2.65 Valuation Date...............................17 Section 2.66 Vested Percentage............................17 Section 2.67 W & B Plan Rollover Account..................17 Section 2.68 Year of Service..............................18 Article Three ELIGIBILITY AND PARTICIPATION......................20 Section 3.1 Eligibility...................................20 Section 3.2 Eligibility Following Separation From Service.20 Section 3.3 Participation During Leave of Absence.........20 Section 3.4 Notification of Eligibility and Commencement of Participation..............................21 Article Four CONTRIBUTIONS......................................22 Section 4.1 Savings Contributions.........................22 Section 4.2 Employer Contributions........................31 Section 4.3 Discretionary Employer Contributions..........41 Section 4.4 Payment of Employer Contributions.............41 Section 4.5 Rollover Contributions........................42 Section 4.6 Special Rules under USERRA....................43 Article Five ALLOCATIONS........................................44 Section 5.1 Accounts......................................44 Section 5.2 Allocation of Income and Expense..............44 Section 5.3 Allocation of Savings Contributions...........45 Section 5.4 Allocation of Employer Contributions..........45 Section 5.5 Forfeitures...................................46 Section 5.6 Maximum Additions.............................46 Section 5.7 Notification to Participants..................51 Article Six VESTING............................................52 Section 6.1 Retirement, Death, or Disability..............52 Section 6.2 Separated From Service........................52 Section 6.3 Computation of Years of Service for Vesting...54 Section 6.4 Determination of Amount.......................55 Article Seven INVESTMENT OF TRUST ASSETS.........................57 Section 7.1 Appointment of Trustee........................57 Section 7.2 Investment of Accounts........................57 Section 7.3 Income and Expenses...........................60 Section 7.4 Company Stock.................................60 Section 7.5 Exclusive Benefit.............................61 Section 7.6 Valuation.....................................61 Article Eight BENEFICIARY........................................63 Section 8.1 Designation of Beneficiary....................63 Section 8.2 No Beneficiary................................63 Section 8.3 Mandatory Distribution of Death Benefits......63 Article Nine NOTICES............................................68 Section 9.1 Notice to Trustee.............................68 Section 9.2 Subsequent Notices............................68 Section 9.3 Copy to Participant...........................68 Section 9.4 Reliance Upon Notice..........................68 Article Ten IN-SERVICE WITHDRAWALS AND LOANS TO PARTICIPANTS.......................................76 Section 10.1 Withdrawals from Accounts....................69 Section 10.2 Loans to Participants........................71 Article Eleven METHODS OF PAYMENT.................................74 Section 11.1 Participant Election.........................74 Section 11.2 Joint and Survivor Annuity...................76 Section 11.3 Joint and Survivor Annuity Requirements......77 Section 11.4 Notice and Explanation to Participants.......82 Section 11.5 Direct Rollover Optional Form of Benefit.....82 Section 11.6 Election to Defer Receipt of Benefits........83 Section 11.7 Election of Form of Payment of Benefits......83 Section 11.8 Limit on Commencement of Distribution........84 Section 11.9 Minority or Disability.......................85 Section 11.10 Unclaimed Benefit...........................85 Article Twelve TOP HEAVY PROVISIONS...............................87 Section 12.1 Application..................................87 Section 12.2 Top-Heavy Plan Status/Super Top-Heavy Plan Status..................................87 Section 12.3 Top-Heavy Minimum Allocation.................91 Section 12.4 Amendments...................................93 Article Thirteen REPURCHASE OF COMPANY STOCK; NONTERMINABLE PROTECTIONS AND RIGHTS...........................94 Section 13.1 Employee Stock Ownership Plan................94 Section 13.2 Put Option...................................94 Section 13.3 Payment of Purchase Price....................95 Section 13.4 Notice.......................................96 Section 13.5 Nonterminable Protections and Rights.........96 Section 13.6 Investment in Company Stock..................96 Section 13.7 Partial Diversification of Investment........98 Article Fourteen ADOPTION BY OTHER ORGANIZATIONS.................100 Section 14.1 Procedure for Adoption......................100 Article Fifteen AMENDMENT AND TERMINATION OF PLAN.................101 Section 15.1 Amendment of the Plan.......................101 Section 15.2 Right to Terminate..........................101 Section 15.3 Consolidation or Merger.....................102 Section 15.4 Liquidation of Trust Fund Upon Termination..102 Section 15.5 Permanent Discontinuance of Contributions...102 Section 15.6 Consolidation or Merger of Plan.............102 Article Sixteen GENERAL PROVISIONS................................103 Section 16.1 Non-Guarantee of Employment.................103 Section 16.2 Manner of Payment...........................103 Section 16.3 Nonalienation of Benefits...................103 Section 16.4 Titles for Convenience Only.................105 Section 16.5 Governing Law...............................105 Section 16.6 Contributions Contingent Upon Approval......105 Section 16.7 Payment of Expenses.........................105 Section 16.8 Rights to Trust Assets......................105 Section 16.9 Disclaimer of Liability.....................106 Section 16.10 Persons May Serve in More than One Capacity...................................106 Section 16.11 Construction...............................106 Section 16.12 Counterparts...............................106 Section 16.13 No Involuntary Retirement Because of Age...107 Section 16.14 Mistake of Fact............................107 Section 16.15 Disallowance of Deduction..................107 Article Seventeen PLAN ADMINISTRATION.............................108 Section 17.1 Committee...................................108 Section 17.2 Claims Procedure............................108 Section 17.3 Powers and Duties of the Committee..........109 Section 17.4 Limitation on Powers........................110 Section 17.5 Limitation on Duties........................110 Section 17.6 Rules and Decisions.........................110 Section 17.7 Committee Procedures........................110 Section 17.8 Liability of Committee......................111 Section 17.9 Bonding.....................................111 FROZEN FOOD EXPRESS INDUSTRIES, INC. 401(k) SAVINGS PLAN ARTICLE ONE ----------- PURPOSE Section 1.1 Introduction. Frozen Food Express Industries, Inc., a Texas corporation (hereinafter referred to as "Employer"), previously established the Frozen Food Express Industries, Inc. 401(k) Savings Plan as a 401(k) profit sharing plan and employee stock ownership plan for the exclusive benefit of its eligible Employees and their Beneficiaries. The Plan is hereby restated for the purposes of (i) incorporating the four amendments that have been adopted following the Plan's most recent restatement and (ii) incorporating certain changes relevant to the Plan made by the Community Renewal Tax Relief Act of 2000. As restated, the Plan is intended to be qualified under Sections 401(a), 401(k), and 4975(e)(7) of the Internal Revenue Code of 1986, as amended (the "Code"), and Section 407(d)(6) of the Employee Retirement Income Security Act ("ERISA") and applicable regulations thereunder. The restated Plan is generally effective January 1, 2001, except as otherwise provided herein. The Plan consists of the Plan document herein and the separate Trust Agreement. Section 1. 2 Purpose. The purpose of the Plan is to reward eligible Employees for their loyal and faithful service, to share with such Employees a portion of the Employers' profits, to help such Employees accumulate funds for their retirement, and to provide funds for such Employees or their Beneficiaries in the event of death or disability. The benefits provided by the Plan will be paid from the Trust and will be in addition to the benefits eligible Employees are entitled to receive under any other programs of the Employer and/or from the federal Social Security Act. The Plan and the Trust are established and shall be maintained for the exclusive benefit of the eligible Employees and their Beneficiaries. Section 1.3 Limitation. The provisions of this Plan, as amended and restated, shall apply solely to an Employee who terminates employment with an Employer on or after the restated Effective Date of this Plan. If an Employee terminates employment with an Employer prior to the restated Effective Date, that Employee shall be entitled to benefits under the terms of the Prior Plan, the FFE Transportation Services ESOP, or the Conwell ESOP, as applicable. ARTICLE TWO ----------- DEFINITIONS When used herein, the following words and phrases shall have the respective meanings set forth below, unless the context clearly indicates otherwise: Section 2.3 Accounting Date. Accounting Date means the last business day of each calendar quarter of any Plan Year. Section 2.4 Accounts. Accounts means the value of all of the accounts maintained by the Committee for a particular Participant, including his Discretionary Employer Contribution Account, Matching Employer Contribution Account, Rollover Account, Savings Account, W & B Plan Rollover Account, ESOP Transfer Account, and ESOP Rollover Account. Section 2.5 Administrator. Administrator means the Company, unless the Company designates another person to hold the position of Administrator by written action. Section 2.6 Affiliate. Affiliate means any company, other than an Employer, included within a "controlled group of corporations" defined by Code Section 1563(a) determined without regard to Code Sections 1563(a)(4) and (e)(3)(C) and Code Section 409(l)(4), which contains an Employer. Section 2.7 Alternate Payee. Alternate Payee means any spouse, former spouse, child, or other dependent of a Participant who is recognized by a domestic relations order as having a right to receive all, or a portion of, the benefits payable under the Plan with respect to such Participant. Section 2.8 Beneficiary. Beneficiary means a person or entity, either in an individual or fiduciary capacity, designated by a Participant or Former Participant pursuant to Article 8 to receive any benefit payable under this Plan upon the death of such Participant or Former Participant. Section 2.9 Break in Service. (a) A Break in Service, for purposes of eligibility, means a Period of Severance of at least twelve (12) consecutive months. A Period of Severance means a continuous period of time during which an Employee is not employed by the Employer. Such period shall begin on the date the Employee retires, quits, is discharged, or dies, or, if earlier, the twelve (12) month anniversary of the date on which the Employee was otherwise first absent from work. (b) A Break in Service, for purposes of vesting, means a Period of Severance of at least twelve (12) consecutive months. A Period of Severance means a continuous period of time during which an Employee is not employed by the Employer. Such period shall begin on the date the Employee retires, quits, is discharged, or dies, or, if earlier, the twelve (12) month anniversary of the date on which the Employee was otherwise first absent from work. (c) An Employee shall receive credit for purposes of determining whether he has incurred a Break in Service under subsection (a) or (b) above for the aggregate of all time period(s) commencing with the first day such Employee completes an Hour of Service, the Employment Commencement Date, (including such day following reemployment) and ending on the date a Break in Service begins. An Employee shall also receive credit for any Period of Severance of less than twelve (12) consecutive months. Fractional periods of a year shall be expressed in terms of days. (d) Further, solely for the purpose of determining whether a Participant has incurred a Break in Service under (a) or (b) above, Hours of Service shall be recognized for "authorized leaves of absence" and "maternity and paternity leaves of absence." (i) An "authorized leave of absence" means an unpaid temporary cessation from active employment with the Employer pursuant to an established nondiscriminatory policy, whether occasioned by illness, military service or any other reason if: (A) a person is absent on a leave of absence with the prior consent of his Employer, which consent shall be granted under uniform rules applied to all Employees on a nondiscriminatory basis, but only if such person is an Employee immediately prior to the commencement of such period of authorized absence and resumes employment with an Employer not later than the first working day following the expiration of such period of authorized absence; (B) a person is a member of the Armed Forces of the United States and his reemployment rights are guaranteed by law, but only if such person is an Employee immediately prior to becoming a member of such Armed Forces and resumes employment with an Employer within the period during which his reemployment rights are guaranteed by law; or (C) a person who is at any time an Employee who is employed by an entity which is not an Employer but whose employees are deemed, under Code Section 414, to be employed, together with all Employees, by a common entity, including a period or periods of such employment prior to or after any particular time such person is an Employee. (ii) A "maternity or paternity leave of absence" means an absence from work for any period because of the Employee's pregnancy, birth of the Employee's child, placement of a child with the Employee relating to the adoption of the child, or any absence for the purpose of caring for the child for a period immediately following the birth or placement. For purposes of a maternity and paternity leave of absence, Hours of Service shall be credited for the Computation Period in which the absence from work begins, only if the credit is necessary to prevent the Employee from incurring a Break in Service, or, in any other case, in the immediately following Computation Period. The Hours of Service credited for a "maternity or paternity leave of absence" shall be those which would normally have been credited but for the absence, or, in any case in which the Administrator is unable to determine the hours normally credited, eight (8) Hours of Service per day. The total Hours of Service required to be credited for a "maternity or paternity leave of absence" shall not exceed five hundred one (501) hours. (e) Notwithstanding the foregoing, no credit will be given for such absences from work unless the Employee furnishes to the Committee such timely information as it may reasonably require to establish that the absence from work is for the reason(s) referred to above and the number of days for which there was such an absence. Section 2.10 Code. Code means the Internal Revenue Code of 1986, as amended from time to time. Section 2.11 Committee. Committee means the Savings Plan Committee appointed pursuant to Article 17 to administer the Plan. Section 2.12 Company. Company means Frozen Food Express Industries, Inc., a corporation organized under the laws of the State of Texas. Section 2.13 Company Stock. (a) Company Stock means those unrestricted shares of voting common stock issued by the Company and any common or preferred stock issued by the Employer or by an Affiliate which constitute Employer Securities under Code Sections 409(l) and 4975(e)(8). (b) Qualifying Company Stock means: (i) Common stock issued by the Employer (or by a corporation which is a member of the same controlled group) which is readily tradable on an established securities market; or (ii) If there is no common stock which meets the requirements of (i) above, then common stock issued by the Employer (or by a corporation which is a member of the same controlled group) having a combination of voting power and dividend rights equal to or in excess of: (A) that class of common stock of the Employer (or any other such corporation) having the greatest voting power; and (B) that class of common stock of the Employer (or of any other such corporation) having the greatest dividend rights; or (iii) Noncallable preferred stock, if such stock is convertible at any time into stock which meets the requirements of (i) or (ii) (whichever is applicable) and if such conversion is at a conversion price that is reasonable. A preferred stock will be considered noncallable if after the call there will be a reasonable opportunity for a conversion which meets the requirements of the preceding sentence in accordance with applicable Treasury regulations. Notwithstanding the foregoing, references in the Plan to Company Stock shall mean Qualifying Company Stock as defined in this subsection (b). Section 2.14 Compensation. (a) Compensation, pursuant to the safe harbor definition of Treasury Regulation Section 1.415-2(d)(10), means wages, salaries, and fees for professional services and other amounts received (without regard to whether or not an amount is paid in cash) for personal services actually rendered in the course of employment with the Employer maintaining the Plan to the extent that the amounts are includable in gross income including, but not limited to, commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, bonuses, fringe benefits, and reimbursements or other expense allowances under a nonaccountable plan described in Treasury Regulation Section 1.62-2(c), plus, effective January 1, 1998, any amounts excluded from income pursuant to Code Sections 125 and 401(k), and effective January 1, 2001, Code Section 132(f) and excluding the following: (i) contributions by the Employer to any qualified deferred compensation plan (to the extent not includable in the Participant's gross income) or simplified employee pension defined in Code Section 408(k) (to the extent not includable in the Participant's gross income) (other than, effective January 1, 1998, amounts contributed pursuant to Code Sections 401(k) and 125, and, effective January 1, 2001, Code Section 132(f)); (ii) distributions from any plan of deferred compensation; (iii) amounts realized from the exercise of any nonqualified stock option, or, in the case of restricted stock, when such stock becomes freely transferable or is no longer subject to a substantial risk of forfeiture; (iv) amounts realized from the sale, exchange, or other disposition of stock acquired under a qualified stock option; and (v) other amounts which receive special tax benefits such as premiums paid by the Employer (to the extent not includable in the Participant's gross income) under group term life insurance, contributions by the Employer to an annuity under Code Section 403(b) (to the extent not includable in the Participant's gross income), and any other amounts received under any Employer sponsored fringe benefit plan (to the extent not includable in the Participant's gross income). (b) Compensation for any Limitation Year includes compensation received by an Employee in that Limitation Year from an Employer prior to the Employee becoming a Participant in the Plan. (c) Notwithstanding the foregoing, Compensation taken into account for determining all benefits provided under the Plan for any determination period shall not exceed $150,000, or such larger amount the Secretary of the Treasury may prescribe for the relevant year. If the period for determining compensation used in calculating an Employee's allocation for a determination period is a short Plan Year, the Compensation limit is an amount equal to the otherwise applicable Compensation limit multiplied by a fraction, the numerator of which is the number of months in the short Plan Year and the denominator of which is twelve (12). If Compensation for any prior determination period is taken into account in determining an Employee's allocations or benefits for the current determination period, the Compensation for such prior year is subject to the applicable Compensation limit in effect for that prior year. (d) For purposes of determining whether the Plan discriminates in favor of Highly Compensated Employees, Compensation means Compensation defined in this Section 2.12, except any exclusions from Compensation other than the exclusions described in clauses (a)(i), (ii), (iii), (iv), and (v) do not apply. The Employer also may elect to use an alternate nondiscriminatory definition, under Code Section 414(s) and the applicable Treasury regulations. In determining Compensation under this paragraph, the Employer may elect to exclude all Savings Contributions made by the Employer on behalf of the Employees. The Employer's election to exclude Savings Contributions must be consistent and uniform for Employees and all plans of the Employer for any particular Plan Year. The Employer may make this election to exclude Savings Contributions for nondiscrimination testing purposes, whether or not this Section includes Savings Contributions in the general Compensation definition of the Plan. (e) Notwithstanding the foregoing, Compensation for any Self-Employed Individual means earned income. Section 2.15 Conwell ESOP Conwell ESOP means the Conwell Corporation Employee Stock Ownership Plan, formerly maintained by Conwell Corporation, which has been merged into and consolidated with this Plan, pursuant to that certain Plan merger agreement effective December 31, 1999. Section 2.16 Current Market Value. Current Market Value means the Current Market Value of each asset included in the Trust Assets on any particular date, which shall be that amount determined by the Trustee on a basis uniformly applied which, in the Trustee's opinion, fairly reflects the fair market value of such asset on such date. Section 2.17 Disability. Disability means a physical or mental condition which, in the opinion of the Committee, totally and presumably permanently prevents a Participant or Former Participant from satisfactorily performing substantially the same duties assigned to him by his Employer (which includes for purposes of this Section 2.15 an employing entity described in Section 2.42 at the time such condition develops, or if such Participant or Former Participant is on an authorized leave of absence (other than an authorized leave of absence referred to in Section 2.7(d)(i)) or any other leave of absence approved by his Employer when such condition develops, substantially the same duties assigned to him by his Employer immediately prior to the commencement of such period of authorized or approved absence or such other duties which the Employer makes available to the Participant and for which the Participant is qualified by reason of his training, education, or experience. A determination that Disability exists shall be based upon competent medical evidence satisfactory to the Committee. The date any person's Disability occurs shall be deemed to be the date such condition is determined to exist by the Committee. Section 2.18 Discretionary Employer Contribution. Discretionary Employer Contribution means any contribution to the Plan made by an Employer for the Plan Year and allocated to a Participant's Discretionary Employer Contribution Account. Section 2.19 Discretionary Employer Contribution Account. Discretionary Employer Contribution Account means the account or record maintained or caused to be maintained by the Trustee showing the composition and value of the individual interest of a particular Participant, Former Participant or Beneficiary in the Trust Assets attributable to Discretionary Employer Contributions, if any. Section 2.20 Early Retirement. Early Retirement means the date the Participant attains age 55 and completes ten (10) Years of Service. Section 2.21 Early Retirement Date. Early Retirement Date means the first day next following the date the Participant attains Early Retirement Age and which immediately follows the last day on which the Participant is an Employee, or, if later, the last day of the Participant's authorized leave of absence, if any. Section 2.22 Effective Date. The original Effective Date of this Plan is October 1, 1987. The Effective Date of this Plan as restated is January 1, 2001, except as otherwise provided herein. Section 2.23 Employee. (a) Employee means any individual currently employed by the Employer maintaining the Plan or of any other Employer required to be aggregated with the Employer under Code Sections 414(b), (c), (m) or (o). (b) The Plan does not treat any Leased Employee as an Employee of the Employer. A Leased Employee is an individual, who otherwise is not an Employee of the Employer, who, pursuant to a leasing agreement between the Employer and any other person, has performed services for the Employer (or for the Employer and any persons related to the Employer within the meaning of Code Section 144(a)(3)) on a substantially full time basis for at least one (1) year and who performs services under the primary direction and control of the Employer. (c) Notwithstanding the preceding, the term "Employee" shall not include any individual who is designated as an "Independent Contractor" by the Employer, even if the status of such individual subsequently is changed from that of an Independent Contractor to that of an employee as a result of administrative or legal proceedings. Section 2.24 Employer Contributions. Employer Contributions means the Matching Employer Contributions, Discretionary Employer Contributions and Incentive Contributions made by the Employer pursuant to Section 4.2. Section 2.25 Employer. Employer means FROZEN FOOD EXPRESS INDUSTRIES, INC., FFE TRANSPORTATION SERVICES, INC., CONWELL CORPORATION, W & B REFRIGERATION SERVICE COMPANY, INC., LISA MOTOR LINES, INC., GLOBAL REFRIGERANT MANAGEMENT, INC., or any other Affiliate who, with the written consent of the Plan Sponsor, adopts this Plan on the effective date of its election to participate. Section 2.26 Employment Commencement Date. Employment Commencement Date means the first day for which an Employee is to be credited with an Hour of Service. Section 2.27 Entrance Date. Entrance Date means the first business day of the month following an Employee's completion of ninety (90) days of employment. Section 2.28 ERISA. ERISA means the Employee Retirement Income Security Act of 1974, as amended from time to time. Section 2.29 ESOP Accounts. ESOP Accounts means the ESOP Transfer Accounts and ESOP Rollover Accounts maintained under this Plan. Section 2.30 ESOP Rollover Account. ESOP Rollover Account means the account(s) or record(s) maintained or caused to be maintained by the Plan Administrator showing the composition and value of the individual interest of a particular Participant, Former Participant, or Beneficiary in the Trust Assets attributable to rollover contributions to the FFE Transportation Services ESOP and/or the Conwell ESOP contributed to the Trust pursuant to that certain Plan Merger Agreement effective December 31, 1999. Section 2.31 ESOP Transfer Account. ESOP Transfer Account means the account(s) or record(s) maintained or caused to be maintained by the Plan Administrator showing the composition and value of the individual interest of a particular Participant, Former Participant, or Beneficiary in the Trust Assets attributable to the Participant's or Former Participant's Employer Securities Account and Employer Investment Account under the FFE Transportation Services ESOP or Conwell ESOP, contributed to the Trust pursuant to that certain Plan Merger Agreement effective December 31, 1999. Section 2.32 FFE Transportation Services ESOP FFE Transportation Services ESOP means the FFE Transportation Services, Inc. Employee Stock Ownership Plan, formerly maintained by FFE Transportation Services, Inc., which has been merged into and consolidated with this Plan, pursuant to that certain Plan merger agreement effective December 31, 1999. Section 2.33 Former Participant. Former Participant means a Participant who is no longer participating in the Plan but who has a vested account balance which has not been paid in full. Section 2.34 Highly Compensated Employee. Highly Compensated Employee means any Participant or Former Participant who is a Highly Compensated Employee, defined in Code Section 414(q). Generally, any Participant or Former Participant is considered a Highly Compensated Employee if the Participant or Former Participant: (a) was at any time during the Plan Year or during the preceding Plan Year a Five Percent Owner as defined in Section 12.2(g)(iii); or (b) for the preceding Plan Year (i) had Compensation from the Employer in excess of $80,000, as adjusted by the Secretary of the Treasury for the relevant year and (ii) was in the top-paid group during the preceding Plan Year. (c) An Employee is in the top-paid group of Employees for any Plan Year if such Employee is in the group consisting of the top twenty percent (20%) of the Employees when ranked on the basis of Compensation paid during the Plan Year. However, solely for determining the total number of active Employees for a year, the following Employees are disregarded: (i) The Employees described in this subsection (i) are excluded on the basis of age or Service: (A) Employees who have not completed six (6) months of Service by the end of the year. (An Employee's Service in the immediately preceding year is added to the Employee's Service in the current year to determine whether the exclusion applies in the current year.); (B) Employees who normally work less than 17 1/2 hours per week. (This determination is made independently for each year. Weeks during which the Employee did not work are not considered. An Employee who works less than 17 1/2 hours a week for fifty percent (50%) or more of the total weeks worked by the Employee during the year is deemed to normally work less than 17 1/2 hours per week under this rule.); (ii) Employees who are included in a unit of employees covered by an agreement that the Secretary of Labor finds to be a collective bargaining agreement between Employee representatives and the Employer which satisfies Code Section 7701(a)(46) and Temporary Treasury Regulation Section 301.7701-17T are included in determining the number of Employees in the top-paid group unless the following exception applies. If ninety percent (90%) or more of the Employees of the Employer are covered under collective bargaining agreements that the Secretary of Labor finds to be collective bargaining agreements between Employee representatives and the Employer, which agreements satisfy Code Section 7701(a)(46) and Temporary Treasury Regulation Section 301.7701-17T, and the Plan covers only Employees who are not covered under the agreements, then the Employees who are covered under the agreements are (A) not counted in determining the number of noncollective bargaining employees who will be included in the top-paid group in testing the Plan; and (B) not included in the top-paid group in testing the Plan. The Committee must make the determination of who is a Highly Compensated Employee consistent with Code Section 414(q) and regulations issued under that Code Section. The Employer may make a calendar year election to determine the Highly Compensated Employees for the preceding Plan Year, as prescribed by Treasury regulations. A calendar year election must apply to all plans and arrangements of the Employer. For purposes of this Section, Compensation means Compensation defined in Section 2.12, and including deferrals under (a) Code Section 402(a)(8) relating to a Code Section 401(k) arrangement; (b) Code Section 125 relating to a cafeteria plan; (c) Code Section 403(b) relating to a tax sheltered annuity plan; (d) Code Section 408(h) relating to a simplified employee pension; (e) effective January 1, 1998, Code Section 402(k) relating to a simple retirement account; and (f) effective January 1, 2001, Code Section 132(f) relating to transportation fringe benefits. Compensation from each Related Employer shall be taken into account. Section 2.35 Hours of Service. (a) Hours of Service shall be credited for periods during which an Employee is either: (i) directly or indirectly paid, or entitled to payment, by an Employer or an entity described in Section 2.44 for the performance of duties in his capacity as an Employee of such Employer or entity; (ii) directly or indirectly paid or entitled to payment, by an Employer or an entity described in Section 2.44 on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or any other leave of absence approved by such Employer or entity; (iii) entitled to back pay, irrespective of mitigation of damages, which is either awarded or agreed to by an Employer or an entity described in Section 2.44; or (iv) on an authorized leave of absence. (b) An Employee shall not receive credit for the same Hours of Service under more than one paragraph of this Section 2.33(a); (c) An Employee shall also receive credit for any additional Hours of Service required by applicable federal law (other than ERISA) to be credited to him, the nature and extent of such credit to be determined under such law. (i) Except as provided in the following sentence, Hours of Service under Subsection 2.33(a)(i) shall be computed by crediting an Employee with 190 Hours of Service for each month such Employee is entitled to be credited with one Hour of Service under Subsection 2.33(a)(i). If an Employee is a part-time Employee, such Employee shall receive credit for Hours of Service equal to the actual number of hours worked by such Employee, as determined from the appropriate payroll records. (ii) Hours of Service under Subsection 2.33(a)(ii) shall be determined pursuant to the rules set forth in paragraphs (b) and (c) of Section 2530.200b-2 of the United States Department of Labor Regulations, which rules are hereby incorporated and made a part of this Plan by reference. (iii) Except for part-time Employees, Hours of Service under Subsection 2.33(a)(iv) shall be credited on the basis of 190 hours for each complete calendar month of a person's authorized leave of absence, but no such Hours of Service shall be credited for any month for which an Employee receives credit for Hours of Service under Subsection 2.33(a)(i) or (ii). (iv) For purposes of this Section an Employee works "part-time" if he normally is employed for less than twenty (20) hours per week or less than six (6) months per Plan Year. (d) The terms defined in this Section 2.33 shall include Hours of Service rendered by an Employee prior to the Effective Date for an Employer or a member of a controlled group of corporations including an Employer. Section 2.36 Incentive Contribution. Incentive Contribution means any contribution to the Plan made by FFE Transportation Services, Inc. pursuant to the 1994 Incentive Bonus Plan and allocated to a Participant's Savings Account. All Employer Contributions under Section 4.2(b)(ii) are Incentive Contributions. Section 2.37 Matching Employer Contribution. Matching Employer Contribution means any contribution to the Plan made by an Employer for the Plan Year and allocated to a Participant's Matching Employer Contribution Account by reason of the Participant's Savings Contributions. All Employer Contributions under Section 4.2(a) are Matching Employer Contributions. Section 2.38 Matching Employer Contribution Account. Matching Employer Contribution Account means the account or record maintained or caused to be maintained by the Trustee showing the composition and value of the individual interest of a particular Participant, Former Participant or Beneficiary in the Trust Assets attributable to Matching Employer Contributions and Special Employer Contributions, if any. Section 2.39 Named Fiduciary. Named Fiduciary means one or more fiduciaries named in this Agreement who jointly and severally shall have authority to control or manage the operation and administration of the Plan. Frozen Food Express Industries, Inc. shall be the Named Fiduciary unless it designates another person by written Employer action. Section 2.40 Nonforfeitable. Nonforfeitable means a vested interest attained by a Participant or Beneficiary in that part of the Participant's benefit under the Plan arising from the Participant's Service, which claim is unconditional and legally enforceable against the Plan. Section 2.41 Non-Highly Compensated Employee. Non-Highly Compensated Employee means an Employee who is not a Highly Compensated Employee. Section 2.42 Normal Retirement Age. Normal Retirement Age means the 65th birthday of a Participant or Former Participant. Section 2.43 Normal Retirement Date. Normal Retirement Date means, for each Participant, the first day next following the date the Participant attains Normal Retirement Age and which immediately follows the last day on which the Participant is an Employee, or, if later, the last day of the Participant's authorized leave of absence, if any. Section 2.44 Owner-Employee. Owner Employee means a sole proprietor or a partner who owns more than ten percent (10%) of either the capital interest or profits interest in an unincorporated Employer and who receives income from such unincorporated Employer for personal services. Section 2.45 Participant. Participant means an Employee of the Employer who has met the eligibility requirements of this Plan and who has been enrolled as a Participant in this Plan pursuant to Article 3. Section 2.46 Participating Employer. Participating Employer means any Related Employer that may elect to adopt this Plan pursuant to Article 14. Section 2.47 Participation. Participation means any period commencing on the date the Employee becomes a Participant and ending on the date on which the Employee incurs a Severance from Service. Section 2.48 Plan. Plan means the Frozen Food Express Industries, Inc. 401(k) Savings Plan, as restated herein. Section 2.49 Plan Sponsor. Plan Sponsor means Frozen Food Express Industries, Inc. Section 2.50 Plan Year. The annual period beginning on January 1 and ending on December 31. Section 2.51 Prior Plan. Prior Plan means the Frozen Food Express Industries, Inc. 401(k) Savings Plan as in effect prior to the Effective Date. Section 2.52 Re-Employment Commencement Date. The first date on which an Employee is credited with an Hour of Service upon his return to employment with an Employer after he has Separated from Service. Section 2.53 Related Employer. A related group of employers is a controlled group of corporations (defined in Code Section 414(b)), trades or businesses (whether or not incorporated) which are under common control (defined in Code Section 414(c)) or an affiliated service group (defined in Code Section 414(m) or in Code Section 414(o)). If the Employer is a member of a related group, the term "Employer" includes the related group members for purposes of crediting Hours of Service, determining Years of Service and Breaks in Service under Articles 2 and 6, applying the participation test of Code Section 401(a)(26) and the coverage test of Code Section 410(b), applying the limitations on allocations in Article 5, applying the top-heavy rules and the minimum allocation requirements of Article 12, the definitions of Employee, Highly Compensated Employee, Compensation and Leased Employee, and for any other purpose required by the applicable Code Section or by a Plan provision. However, an Employer may contribute to the Plan only by being a signatory to a Participation Agreement to the Plan. If one or more of the Employer's related group members become Participating Employers by executing a Participation Agreement to the Plan, the term "Employer" includes the participating related group members for all purposes of the Plan, and Administrator means the Employer that is the signatory to the Plan. For Plan allocation purposes, Compensation does not include Compensation received from a Related Employer that is not participating in this Plan. Section 2.54 Retirement. A Participant's or Former Participant's being Separated from Service on or after his Normal Retirement Date. Retirement shall be considered as commencing on that day which occurs on or after a Participant or Former Participant had reached Normal Retirement Date and which immediately follows (i) the last day of which such Participant or Former Participant is an Employee or, if later, (ii) the last day of an authorized leave of absence or any other leave of absence approved by such Participant's or Former Participant's Employer. Section 2.55 Rollover Account. The account(s) or record(s) maintained or caused to be maintained by the Trustee showing the composition and value of the individual interest of a particular Participant, Former Participant or Beneficiary in the Trust Assets attributable to each contribution of a Rollover Amount (as defined in Section 4.5) or a direct trustee-to-trustee transfer of assets to the Trust from a qualified plan or Code Section 403(b) annuity on behalf of a Participant. Section 2.56 Savings Account. The account or record maintained or caused to be maintained by the Trustee showing the composition and value of the individual interest of a particular Participant, Former Participant or Beneficiary in the Trust Assets attributable to Savings Contributions elected by Participants, Incentive Contributions, Qualified Non-Elective Contributions and Qualified Matching Contributions. Section 2.57 Savings Contributions. Savings Contributions means Employer contributions to the Plan made pursuant to Participants' elections under Section 4.1. Section 2.58 Self-Employed Individual. Self-Employed Individual means, regarding an unincorporated business, an individual described in Code Section 401c(1). A Self-Employed Individual shall be treated as an Employee if the individual has an ownership interest in either the capital or profits interest of an unincorporated Employer and receives income from the Employer for personal services. Section 2.59 Separation from Service. Separation from Service occurs whenever a person ceases to be an Employee of the Employer and is no longer being credited with Hours of Service. Section 2.60 Service. Service means any period of time the Employee is in the employ of the Employer. Service in all cases includes periods during which the Employee is on an "authorized leave of absence" or a "maternity or paternity leave of absence" defined in Section 2.7(d) relating to a Break in Service. Leaves of absence also shall include periods of absence in connection with military service during which the Employee's re-employment rights are legally protected. Except for absence by reason of military service, leaves of absence shall be for a maximum period of two (2) years. Leaves of absence shall be granted on a uniform and nondiscriminatory basis. If the Employer maintains the plan of a Predecessor Employer, Service shall include service for the Predecessor Employer. To the extent it may be required under applicable Treasury regulations under Code Section 414, Service shall include all service for any Predecessor Employer. For purposes of determining vesting of a Participant's ESOP Transfer Account, the Participant will be credited with the greater of (i) his Service as determined in accordance with the elapsed time method described in the Plan, or (ii) the Years of Service credited to such Participant as of December 31, 1999, under the FFE Transportation Services ESOP and/or the Conwell ESOP, plus the number of Years of Service credited under this Plan from and after January 1, 2000 (using the elapsed time method from such date forward). Section 2.61 Shareholder-Employee. Shareholder-Employee means a Participant who owns more than five percent (5%) of the Employer's outstanding capital stock during any year in which the Employer elected to be taxed as a Small Business Corporation under Code Section 1362(a) and who receives income from the Employer for personal services. Section 2.62 Separated from Service. A person is Separated from Service when he is no longer an Employee. Section 2.63 Special Employer Contributions. Special Employer Contributions means the Special Employer Contributions made by the Employers pursuant to the terms of the Prior Plan. Section 2.64 Spouse. Spouse means the spouse to whom a Participant or Former Participant is married on the date the Participant or Former Participant becomes entitled to benefit payments under the Plan, or if such entitlement has not occurred, the spouse to whom the Participant or Former Participant was married on the date of his death; provided, however, that the Participant or Former Participant had been married to such spouse for at least one year ending on the date the Participant becomes entitled to benefit payments or the date of the Participant's or Former Participant's death. Section 2.65 Trust. Trust means the trust created by the Trust Agreement between Frozen Food Express Industries, Inc. and the Trustee. Section 2.66 Trust Agreement. Trust Agreement means the agreement, entered into by Frozen Food Express Industries, Inc. and the Trustee, or any successor Trustee, establishing the Trust and specifying the duties of the Trustee. Section 2.67 Trust Fund. Trust Fund means all assets of any kind and nature from time to time held by the Trustee or its agent under the Trust Agreement without distinction between income and principal. This Plan contemplates a single Trust for all Employers participating under the Frozen Food Express Industries, Inc. 401(k) Savings Plan. However, the Trustee will maintain separate records of account to reflect properly each Participant's Account Balance from each Participating Employer. Section 2.68 Trustee. Trustee means at any particular time, the then acting Trustee or, collectively, if there is more than one, the then acting Trustees of the Trust. Section 2.69 Valuation Date. Valuation Date means any business day on which the Nasdaq National Market is open. Section 2.70 Vested Percentage. Vested Percentage means that percentage of a Participant's Discretionary Employer Contribution Account, Matching Employer Contribution Account, W & B Plan Rollover Account, and ESOP Transfer Account, if any, in which the Participant's rights are nonforfeitable and fully vested, which percentage is determined by reference to the vesting schedule set forth in Section 6.2. Section 2.71 W & B Plan Rollover Account. W & B Plan Rollover Account means the account(s) or record(s) maintained or caused to be maintained by the Plan Administrator showing the composition and value of the individual interest of a particular Participant, Former Participant, or Beneficiary in the Trust assets attributable to the direct trustee-to-trustee transfers of assets to the Trust from the W & B Refrigeration Service Co., Inc. Employees' Profit Sharing Plan and Trust. Section 2.72 Year of Service. (a) For purposes of eligibility, a Year of Service means the twelve (12) consecutive month period commencing on an Employee's Employment Commencement Date and ending on the anniversary of the Employee's Employment Commencement Date. If an Employee fails to complete a Year of Service on the first anniversary of the Employment Commencement Date, the Employee shall be deemed to complete a Year of Service upon the completion of twelve (12) months of Service. An Employee shall receive credit for the aggregate of all time periods commencing with the first day the Employee is entitled to credit for an Hour of Service, including the Re-Employment Commencement Date, and ending on the date a Break in Service begins. An Employee also shall receive credit for any Period of Severance of less than twelve (12) consecutive months. Fractional periods of a year shall be expressed in terms of months, with credit for a month of service being given for each thirty (30) days of Service. (b) For purposes of vesting, and subject to Section 6.3, a Year of Service means twelve (12) months of Service. For purposes of determining an Employee's Years of Service for vesting purposes, an Employee shall receive credit for the aggregate of all time periods commencing on an Employee's Employment Commencement Date, including the Re-Employment Commencement Date, and ending on the date a Break in Service begins. An Employee also shall receive credit for any Period of Severance of less than twelve (12) consecutive months. Fractional periods of a year shall be expressed in terms of months, with credit for a month of service being given for each thirty (30) days of Service. In computing an Employee's Years of Service, the following rules shall apply: (i) For an Employee who terminates employment and is subsequently re-employed after incurring a Break in Service, Service prior to the Break in Service shall be taken into account immediately upon re-employment. (ii) For a Participant who terminates employment and who subsequently is re-employed after incurring five (5) consecutive Breaks in Service, Years of Service after the Break in Service shall not be taken into account for purposes of determining the Nonforfeitable percentage of an Employee's Account Balance derived from Employer Contributions which accrued before the Break in Service. (iii) For a Participant who terminates employment without any vested right to his Discretionary Employer Contribution Account or Matching Employer Contribution Account and who is re-employed after a Break in Service, Service before the Break in Service shall be taken into account for purposes of determining the Nonforfeitable percentage of an Employee's Account Balance derived from Employer Contributions which accrue after the Break in Service. (iv) Years of Service, for purposes of vesting, shall include all Years of Service of the Employee with any Predecessor Employer. (v) Years of Service with the Employer before a Participant enters the Plan shall be considered for purposes of vesting. (vi) If the Employer is a member of a group of Related Employers, then Year of Service for purposes of vesting shall include Service with any Related Employer. (vii) For purposes of determining Years of Service for vesting, the following definitions shall apply: (A) Employment Commencement Date means the date on which an Employee is first entitled to credit for an Hour of Service. (B) Period of Severance means the period of time commencing on the Severance from Service Date and ending on the date on which the Employee again performs an Hour of Service for the Employer. (C) Re-Employment Commencement Date means the first date, following a Period of Severance which is not required to be considered under the Service rules, on which the Employee performs an Hour of Service for the Employer. (D) Severance from Service Date means the date on which occurs the earlier of: (i) the date on which an Employee quits, retires, is discharged or dies; or (ii) the first anniversary of the first date of a period in which an Employee remains absent from Service, with or without pay, with the Employer for any other reason, such as vacation, holiday, sickness, disability, leave of absence or layoff. (c) For purposes of vesting, an Employee's years of service with W & B Refrigeration Service Co., Inc. shall be counted as Years of Service under this Plan to the extent that such service was counted as years of service under the W & B Refrigeration Service Co., Inc. Employees' Profit Sharing Plan and Trust. (d) For purposes of determining vesting of a Participant's ESOP Transfer Account, the Service crediting provisions of Section 2.58 of the Plan shall apply. (e) The terms defined in this Section 2.70 shall include Years of Service performed by an Employee prior to the Effective Date. * * * * * * ARTICLE THREE ------------- ELIGIBILITY AND PARTICIPATION Section 3.3 Eligibility. (a) Any Employee included under the provisions of the Prior Plan as of December 31, 2000, shall continue to participate in accordance with the provisions of this Plan. (b) Any other Employee shall become a Participant as of the Entrance Date following the date on which he completes ninety (90) days of employment. (c) An Employee who has not satisfied the requirements of Section 3.1(b) above and is entitled to receive an allocation of Incentive Contributions under the FFE Transportation Services, Inc. 1994 Incentive Bonus Plan shall become a Participant in the Plan as of the Entrance Date immediately following his completion of one day of employment; provided, however, that such participation shall be limited to his ability to receive an allocation of Incentive Contributions under Section 4.2(b)(ii) and shall not cause him to be eligible to receive an allocation of any other contributions to the Plan. Section 3.4 Eligibility Following Separation From Service. If an Employee who has satisfied the eligibility requirements of Section 3.1 has Separated from Service and later returns to Service with an Employer, he shall become a Participant on his Re-Employment Commencement Date; provided, however, that any Employee who Separated from Service at a time when he had no Vested Percentage and who has incurred five consecutive Breaks- in-Service before his Re-Employment Commencement Date, must meet the eligibility requirements of Section 3.1 anew before he will become or again become a Participant. Section 3.5 Participation During Leave of Absence. During an authorized leave of absence or any other leave of absence approved by a Participant's or Former Participant's Employer: (a) The Participant's Accounts shall share in the allocation of net earnings, net losses, taxes (if any) and expenses of the Trust during such period; and (b) In the case of an authorized leave of absence under Section 2.7, the Participant's interest in his Discretionary Employer Contribution Account, Matching Employer Contribution Account, and ESOP Transfer Account shall continue to vest, as provided in Article 6, until he is Separated from Service. In the case of any other authorized leave of absence or any other leave of absence approved by his Employer, his interest in his Discretionary Employer Contribution Account, Matching Employer Contribution Account and ESOP Transfer Account shall continue to vest, as provided in Article 6, but only if he resumes employment with an Employer not later than the first working day following the expiration of the period of such leave. If such employment is not so resumed, the date he is Separated from Service for purposes of such vesting shall be deemed to be the last day of employment prior to the commencement of such authorized or approved absence and such Participant or Former Participant shall not receive credit for any Hours of Service under Section 2.33(a)(ii) after such last day. Section 3.6 Notification of Eligibility and Commencement of Participation. As soon as administratively feasible prior to each Entrance Date, the Employers shall furnish the Committee with a list of all Employees who become eligible or re-eligible to participate in the Plan as of that Entrance Date. The Committee shall promptly notify each such Employee of his prospective participation and provide each such Employee with such explanation of the Plan as the Committee may provide for that purpose, together with such forms as the Committee may prescribe for elections to participate in the Plan. Such forms shall include elections for (1) Savings Contributions (via payroll deduction); (2) investment direction of a Participant's accounts and (3) Beneficiary designation. Each Employee shall be eligible to have Savings Contributions made on his behalf as of the Entrance Date concurrent with or next following the date on which he (1) becomes a Participant in accordance with Plan Section 3.1, and (2) has signed and returned all election forms as required by the Employer. In accordance with Plan Section 4.1(b), if the Employee has not submitted all election forms as of the Entrance Date concurrent with or next following the date on which he becomes a Participant, the Employee shall be eligible to have Savings Contributions made on his behalf as of the payroll period concurrent with or next following the date the Employee submits such election forms. * * * * * * * ARTICLE FOUR ------------ CONTRIBUTIONS Section 4.3 Savings Contributions. (a) Subject to the provisions of Sections 4.1(d) and (f), each Participant may elect that an amount, in any whole percentage of his Compensation, not to exceed twenty percent (20%) of his Compensation, be withheld from his Compensation and contributed by his Employer to the Trust. The Plan Administrator may permit a Participant to make an election under this Section through any written, electronic or telephonic means authorized by the Committee. Such contributions shall be known as Savings Contributions. (b) A Participant who does not have an election to have Savings Contributions made on his behalf in effect, or any Participant who would like to amend his election, may make such election or amend such election, effective as of the next following payroll period by filing an election with the Plan Administrator within a reasonable time prior to commencement of such payroll period. The Plan Administrator may permit a Participant to make an election under this Section through any written, electronic or telephonic means authorized by the Committee. Any such election or amendment of an election shall be effective only with respect to Compensation payable after the Plan Administrator receives such election. (c) Savings Contributions shall be effected by payroll deductions for each pay period of the electing Participant commencing after the effective date of his election and shall be paid over to the Trustee no later than the fifteenth (15th) business day of the month following the month of such payroll deduction. (d) No Employee shall be permitted to have Savings Contributions made under this Plan during any Plan Year which exceed the statutory dollar limitation under Code Section 402(g) for the taxable year of the Participant, as adjusted annually by the Secretary of the Treasury ($10,500 for 2000). In computing this limitation, a Participant shall include any Elective Deferrals under other retirement arrangements. For this purpose, "Elective Deferrals" means, for any taxable year, the sum of: (i) any Employer contribution under a qualified cash or deferred arrangement defined in Code Section 401(k), to the extent not includable in gross income for the taxable year under Code Section 402(e)(3), determined without regard to the dollar limitation under Code Section 402(g); (ii) any Employer contribution under a simplified employee pension as defined in Code Section 408(k)(6), pursuant to a salary reduction agreement; (iii) any Employer contribution toward the purchase of a tax sheltered annuity contract as defined in Code Section 403(b), pursuant to a salary reduction agreement; and (iv) effective January 1, 1998, any Employer contribution under a SIMPLE Plan pursuant to Code Section 408(p)(2) If the statutory dollar limitation under Code Section 402(g) is exceeded, the Committee shall direct the Trustee to distribute the Excess Elective Deferrals (defined below), and any income or loss allocable to such Excess Elective Deferrals, to the Participant not later than the first April 15 following the close of the Participant's taxable year. The amount of Excess Elective Deferrals to be distributed to an Employee for a taxable year will be reduced by Excess Contributions previously distributed or recharacterized for the Plan Year beginning in the taxable year of the Employee. The term "Excess Elective Deferrals" means those Elective Deferrals that are includable in a Participant's gross income under Code Section 402(g) to the extent the Participant's Elective Deferrals for a taxable year exceed the dollar limitation under Code Section 402(g). Excess Elective Deferrals under this Plan shall be treated as Annual Additions under the Plan, unless such amounts are distributed no later than the first April 15 following the close of the Participant's taxable year. If a Participant is also a Participant in (i) another qualified cash or deferred arrangement defined in Code Section 401(k); (ii) a simplified employee pension defined in Code Section 408(k); (iii) a salary reduction arrangement pursuant to which an employer purchases a tax sheltered annuity contract defined in Code Section 403(b) or (iv) a SIMPLE Plan defined in Code Section 408(p), and the Elective Deferrals made under the other arrangement(s) and this Plan cumulatively exceed the amount of the dollar limitation under Code Section 402(g) in effect on January 1 of each calendar year, as adjusted annually by the Secretary of the Treasury ($10,500 for 2000), then the Participant may, not later than March 1 following the close of the Participant's taxable year, notify the Administrator in writing of the excess and request that the Participant's Savings Contributions under this Plan be reduced by an amount specified by the Participant. The specified amount then shall be distributed in the same manner as provided in the preceding paragraph. A Participant is deemed to notify the Administrator of any Excess Elective Deferrals that arise by taking into account only those Elective Deferrals made to this Plan and any other plans of this Employer. (e) Limitations on Savings Contributions. (i) Actual Deferral Percentage Test. The annual allocation derived from Savings Contributions to a Participant's Savings Account shall satisfy one of the following tests: (A) The Average Actual Deferral Percentage for Participants who are Eligible Highly Compensated Employees for the Plan Year shall not exceed the Average Actual Deferral Percentage for Participants who are Eligible Non-Highly Compensated Employees for the current Plan Year multiplied by 1.25; or (B) The Average Actual Deferral Percentage for Participants who are Eligible Highly Compensated Employees for the Plan Year shall not exceed the Average Actual Deferral Percentage for Participants who are Eligible Non-Highly Compensated Employees for the current Plan Year multiplied by two (2); provided that the Average Actual Deferral Percentage for Participants who are Eligible Highly Compensated Employees for the Plan Year does not exceed the Average Actual Deferral Percentage for Participants who are Eligible Non-Highly Compensated Employees for the current Plan Year by more than two (2) percentage points or the amount as may be prescribed in applicable Treasury regulations to prevent the multiple use of this alternative limitation for any Highly Compensated Employee. (ii) Definitions. For the purposes of this Section, the following definitions shall apply: (A) Actual Deferral Percentage means the ratio, expressed as a percentage, of (i) the amount of Savings Contributions actually paid to the Trust Fund on behalf of the Eligible Participant for the Plan Year to (ii) the Eligible Participant's Compensation for the Plan Year, whether or not the Employee was a Participant for the entire Plan Year. Savings Contributions on behalf of any Participant shall include: (i) any Savings Contributions, (including Excess Elective Deferrals of Highly Compensated Employees), but excluding (1) Excess Elective Deferrals of Non-Highly Compensated Employees that arise solely fromSavings Contributions made under this plan or plans of this Employer, and (2) Savings Contributions that are taken into account in the Contribution Percentage Test (provided the Actual Deferral Percentage Test is satisfied both with and without exclusion of these Savings Contributions); and (ii) at the election of the Employer, Qualified Non-Elective Contributions and Qualified Matching Contributions. A Savings Contribution will be taken into account under the Actual Deferral Percentage Test for a Plan Year only if it relates to compensation that either would have been received by the Employee in the Plan Year, but for the deferral election, or is attributable to services performed by the Employee in the Plan Year and would have been received by the Employee within two and one-half (2 1/2) months after the close of the Plan Year, but for the deferral election. To compute Actual Deferral Percentages, an Employee who would be a Participant but for the failure to make Savings Contributions shall be treated as a Participant on whose behalf no Savings Contributions are made. (B) Average Actual Deferral Percentage means the average, expressed as a percentage, of the Actual Deferral Percentages of the Eligible Participants in a group. (C) Eligible Participant means any Employee of the Employer who is directly or indirectly eligible under the Plan to have Savings Contributions (or Qualified Non-Elective Contributions or Qualified Matching Contributions, or both, if treated as Savings Contributions for the Actual Deferral Percentage Test) allocated to his or her Savings Account for all or any portion of the Plan Year. Eligible Participant includes an Employee whose eligibility to make Savings Contributions has been suspended because of an election (other than certain one-time elections) not to participate, a distribution, or a loan; and an Employee who cannot defer because of Code Section 415 limitations. (D) Qualified Non-Elective Contributions means Employer Contributions, other than Savings Contributions and Matching Contributions, allocated to Participants' accounts which are 100% Nonforfeitable at all times and which are subject to the distribution restrictions described in Section 4.1(g). Employer Contributions are not 100% Nonforfeitable at all times if the Employee has a 100% Nonforfeitable interest because of Years of Service taken into account under a vesting schedule. Any Employer Contributions allocated to a Participant's Savings Account under the Plan automatically satisfy the definition of Qualified Non-Elective Contributions. (E) Qualified Matching Contributions means Matching Employer Contributions allocated to Participants' accounts which are 100% Nonforfeitable at all times and which are subject to the distribution restrictions described in Section 4.1(g). Matching Contributions are not 100% Nonforfeitable at all times if the Employee has a 100% Nonforfeitable interest because of Years of Service taken into account under a vesting schedule. Any Matching Contributions allocated to a Participant's Savings Account under the Plan automatically satisfy the definition of Qualified Matching Contributions. (iii) Special Rules. (A) For purposes of this Section, the Actual Deferral Percentage for any Participant who is a Highly Compensated Employee for the Plan Year who is eligible to have Savings Contributions (or Qualified Non-Elective Contributions or Qualified Matching Contributions, or both, if treated as Savings Contributions for the Actual Deferral Percentage Test) allocated to his or her account under two (2) or more plans or arrangements described in Code Section 401(k) that are maintained by the Employer or a Related Employer shall be determined as if all Savings Contributions (and, if applicable, Qualified Non-Elective Contributions or Qualified Matching Contribution, or both) were made under a single arrangement. If a Highly Compensated Employee participates in two (2) or more cash or deferred arrangements that have different plan years, all cash or deferred arrangements ending with or within the same calendar year shall be treated as a single arrangement. Notwithstanding the foregoing, certain plans shall be treated as separate if mandatorily disaggregated under applicable Treasury regulations pursuant to Code Section 401(k). (B) If this Plan satisfies the requirements of Code Sections 401(k), 401(a)(4) or 410(b) only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of the Code Sections only if aggregated with this Plan, then this Section shall be applied by determining the Actual Deferral Percentage of Employees as if all such plans were a single plan. Plans may be aggregated to satisfy Code Section 401(k) only if they have the same Plan Year. (C) To determine the Actual Deferral Percentage Test, Savings Contributions, Qualified Non-Elective Contributions, and Qualified Matching Contributions must be made before the last day of the twelve (12) month period immediately following the Plan Year to which contributions relate. (D) The Employer shall maintain records sufficient to demonstrate satisfaction of the Actual Deferral Percentage Test and the amount of Qualified Non- Elective Contributions or Qualified Matching Contributions, or both, used in the test. (E) The determination and treatment of the Actual Deferral Percentage amounts of any Participant shall satisfy other requirements prescribed by applicable Treasury regulations. (iv) Fail-Safe Provisions. If the initial allocations of the Savings Contributions do not satisfy one of the tests set forth in paragraph (i) of this Subsection, the Administrator shall adjust the accounts of the Participants pursuant to one (1) or more of the following options: (A) Distribution of Excess Contributions. If the Committee determines that the initial allocations of the Savings Contributions do not satisfy one of the Actual Deferral Percentage Tests set forth in paragraph (i) of this Subsection, the Administrator must distribute the Excess Contributions, as adjusted for allocable income, during the next Plan Year. However, the Employer will incur an excise tax equal to 10% of the amount of Excess Contributions for a Plan Year not distributed to the appropriate Highly Compensated Employees during the first two and one-half (2 1/2) months of the next Plan Year. The Excess Contributions are the amount of Savings Contributions made at the election of the Highly Compensated Employees which causes the Plan to fail to satisfy the Actual Deferral Percentage Test. The Administrator shall make distributions to each Highly Compensated Employee of his or her respective share of the Excess Contributions pursuant to the following steps: (1) The Administrator shall calculate total Excess Contributions for the Highly Compensated Employees. (2) The Administrator shall calculate the total dollar amount by which the Excess Contributions for the Highly Compensated Employees must be reduced in order to satisfy the Average Deferral Percentage Test. (3) The Administrator shall calculate the total dollar amount of the Excess Contributions for each Highly Compensated Employee. (4) The Administrator shall reduce the Excess Contributions of the Highly Compensated Employee(s) with the highest dollar amount of Excess Contributions by refunding such contributions to such Highly Compensated Employee(s) in the amount required to cause the dollar amount of such Highly Compensated Employee(s)' Savings Contributions to equal the dollar amount of the Savings Contributions of the Highly Compensated Employee(s) with the next highest dollar amount of Savings Contributions. (5) If the total dollar amount distributed pursuant to Step (4) above is less than the total dollar amount of Excess Contributions, Step (4) shall be applied to the Highly Compensated Employee(s) with the next highest dollar amount of Excess Contributions until the total amount of distributed Excess Contributions equals the total dollar amount calculated in Step (2). (6) When calculating the amount of a distribution under Step (4), if a lesser reduction, when added to any amounts already distributed under this Section, would equal the total amount of distributions necessary to permit the Plan to satisfy the requirements of paragraph (i) of this Subsection, the lesser amount shall be distributed from the Plan. (B) Allocable Income. To determine the amount of the corrective distribution required under this Section, the Administrator must calculate the allocable income for the Plan Year in which the Excess Contributions arose. The income allocable to Excess Contributions is equal to the sum of the allocable gain or loss for the Plan Year. (1) Method of Allocating Income. The Administrator may use any reasonable method for computing the income allocable to Excess Contributions, provided that the method does not violate Code Section 401(a)(4), is used consistently for all Participants and for all corrective distributions under the Plan for the Plan Year, and is used by the Plan for allocating income to Participants' Accounts. (2) Alternative Method of Allocating Income. A Plan may allocate income to Excess Contributions by multiplying the income for the Plan Year allocable to Savings Contributions and amounts treated as Savings Contributions by a fraction. The numerator of the fraction is the Excess Contributions for the Employee for the Plan Year. The denominator of the fraction is equal to the sum of: (a) The total account balance of the Employee attributable to Savings Contributions and amounts treated as Savings Contributions as of the beginning of the Plan Year; plus (b) The Employee's Savings Contributions, and amounts treated as Savings Contributions for the Plan Year. (C) Recharacterization of Matching Contributions. A portion of the Employer's Matching Contribution shall be deemed a Savings Contribution for purposes of paragraph (i) of this Subsection and for vesting and withdrawal purposes. The portion shall be equal to an amount necessary to satisfy one of the tests set forth in paragraph (i) of this Subsection, taking into account the Administrator's action under any option herein and shall be reallocated to the Savings Account. Reallocation of the Employer's Matching Contribution shall be made on behalf of Participants who are Non-Highly Compensated Employees. (D) Qualified Non-Elective and Qualified Matching Contributions. The Employer shall make Qualified Non-Elective Contributions or Qualified Matching Contributions on behalf of Participants who are Non-Highly Compensated Employees in an amount sufficient to satisfy one of the tests set forth in paragraph (i) of this Subsection, taking into account the Administrator's action under any option herein. These contributions shall be made in the minimum amount of dollars required to satisfy the requirements of paragraph (i) of this Subsection and shall be allocated first to the lowest-paid such Participant, subject to Section 5.6, and then to the next lowest-paid Participant, subject to Section 5.6, and thereafter in like manner in ascending order until the limitations of paragraph (i) are met. Such additional contributions shall be fully vested and subject to the distribution restrictions of Section 4.1(g) hereof, and must be made prior to the last day of the twelve month period immediately following the Year to which they relate. The Qualified Non-Elective and Qualified Matching Contributions may be treated as Savings Contributions provided that each of the following requirements, to the extent applicable, is satisfied: (1) The amount of Employer Contributions, including those Qualified Non-Elective Contributions treated as Savings Contributions for purposes of the Actual Deferral Percentage Test, satisfies the requirements of Code Section 401(a)(4). (2) The amount of Employer Contributions, excluding those Qualified Non-Elective Contributions treated as Savings Contributions for purposes of the Actual Deferral Percentage Test and those Qualified Non-Elective Contributions treated as Matching Contributions under Treasury Regulations Section 1.401(m)-1(b)(5) for purposes of the Average Contribution Percentage Test, satisfies the requirements of Code Section 401(a)(4). (3) The Matching Contributions, including those Qualified Matching Contributions treated as Savings Contributions for purposes of the Actual Deferral Percentage Test, satisfy the requirements of Code Section 401(a)(4). (4) The Matching Contributions, excluding those Qualified Matching Contributions treated as Savings Contributions for purposes of the Actual Deferral Percentage Test, satisfy the requirements of Code Section 401(a)(4). (5) The Qualified Non-Elective Contributions and Qualified Matching Contributions satisfy the requirements of Treasury Regulations Section 1.401(k)-1(b)(4)(i) for the Plan Year as if the contributions were Savings Contributions. (6) The plan that includes the cash or deferred arrangement and the plan or plans to which the Qualified Non-Elective Contributions and Qualified Matching Contributions are made could be aggregated for purposes of Code Section 410(b). (f) Wrap-Plan Provisions. Savings Contributions elected by Participants who are Highly Compensated Employees may be prospectively limited by the Committee without the Participant's consent if necessary to meet the limits of Section 4.1(e). Any Participant in this Plan who is both a Highly Compensated Employee and a Participant for the Plan Year in the FFE Transportation Services, Inc. 401(k) Wrap Plan ("Highly Compensated Wrap Plan Participant") may not elect to have Savings Contributions made on his behalf by payroll deductions under this Plan during such Plan Year. In lieu of Savings Contributions effected by payroll deductions on behalf of any Highly Compensated Wrap Plan Participant, as soon as administratively feasible after the end of a Plan Year, but in no event later than 2 1/2 months following the end of that Plan Year, the Committee shall permit the transfer to the Plan of all the Nonqualified Savings Contributions credited to the Nonqualified Savings Account of each Highly Compensated Wrap Plan Participant in the FFE Transportation Services, Inc. 401(k) Wrap Plan, but in no event shall an amount be transferred that would cause this Plan to exceed the limitations of Code Section 401(k)(3) set forth in Plan Section 4.1(e) for such Plan Year. In determining the permitted transfer amounts, the Employers may authorize a Qualified Non-Elective Contribution or Qualified Matching Contribution to be made for such year, and allocated as provided in Section 4.1(e)(iv)c. (g) Restrictions on Distributions. Subject to the following limitations, amounts held in the Participant's Savings Account may not be distributable prior to the earliest of: (i) separation from Service, total and permanent disability or death; (ii) attainment of age fifty-nine and one-half (59 1/2) years; (iii) Plan termination without establishment of another defined contribution plan, other than an employee stock ownership plan (as defined in Code Sections 4975(e) or 409) or a simplified employee pension plan as defined in Code Section 408(k); (iv) disposition by a corporation to an unrelated corporation of substantially all of the assets (within the meaning of Code Section 409(d)(2)) used in a trade or business of the corporation, if the corporation continues to maintain this Plan after the disposition, but only with respect to Employees who continue employment with the corporation acquiring the assets; (v) disposition by a corporation to an unrelated entity of the corporation's interest in a subsidiary (within the meaning of Code Section 409(d)(3)) if the corporation continues to maintain this Plan, but only with respect to Employees who continue employment with the subsidiary; or (vi) proven financial hardship, subject to the limitations set forth in Article 10. All distributions that may be made pursuant to one or more of the foregoing distributable events are subject to the spousal and Participant consent requirements, if applicable, of Code Sections 401(a)(11) and 417. In addition, distributions that are triggered by one of the preceding events enumerated as (iii), (iv), (v), or (vi) must be made in a lump sum distribution. Section 4.4 Employer Contributions. (a) Matching Employer Contributions. In addition to the total amount of Savings Contributions elected for each month pursuant to Section 4.1, but subject to the limits of Section 4.2(c), each Employer shall, as a Matching Employer Contribution to the Plan, pay to the Trustee for each calendar quarter an amount equal to 100% of each Participant's Savings Contributions for each payroll period pursuant to Section 4.1 hereof which does not exceed four percent (4%) of his Compensation for such payroll period. Effective November 1, 2001, Section 4.2(a) reads as follows. (a) Matching Employer Contributions. In addition to the total amount of Savings Contributions elected for each month pursuant to Section 4.1, but subject to the limits of Section 4.2(c), each Employer shall, as a Matching Employer Contribution to the Plan, pay to the Trustee for each calendar quarter an amount equal to fifty percent (50%) of each Participant's Savings Contributions for each payroll period pursuant to Section 4.1 hereof which does not exceed four percent (4%) of his Compensation for such payroll period. Matching Employer Contributions shall be made in Company Stock in accordance with the closing market price on the business day immediately preceding the day such Contributions are made. In accordance with Section 7.2(a), such Contributions may be re-invested by the Trustee in accordance with Participant direction. (b) Qualified Non-Elective Contributions and Qualified Matching Contributions. (i) General. The Employer may, in its discretion, make Qualified Non-Elective Contributions and/or Qualified Matching Contributions to the Plan from time to time. Any Qualified Non-Elective Contributions made pursuant to this Section 4.2(b)(i) shall be treated as a Savings Contribution for purposes of Section 4.1(e)(i) and shall be allocated as provided in Section 4.1(e)(iv)(C). Any Qualified Matching Contributions made pursuant to this Section shall be treated as a Matching Employer Contribution for purposes of Section 4.2(c)(i) and shall be allocated as provided in Section 4.2(c)(iv)(C). (ii) Incentive Contributions. FFE Transportation Services, Inc. shall make Qualified Non-Elective Contributions to the Plan as provided pursuant to the terms of the FFE Transportation Services, Inc. 1994 Incentive Bonus Plan. Contributions under this Section 4.2(b)(ii) shall be treated as Savings Contributions for purposes of Plan Section 4.1(e)(i) and shall be contributed to the Plan on an annual basis. (c) Limitations on Matching Employer Contributions. (i) Average Contribution Percentage Test. The annual allocation derived from Matching Contributions and Qualified Matching Contributions to a Participant's Individual Account shall satisfy one of the following tests: (A) The Average Contribution Percentage for Participants who are Eligible Highly Compensated Employees for the Plan Year shall not exceed the Average Contribution Percentage for Participants who are Eligible Non-Highly Compensated Employees for the current Plan Year multiplied by 1.25; or (B) The Average Contribution Percentage for Participants who are Eligible Highly Compensated Employees for the Plan Year shall not exceed the Average Contribution Percentage for Participants who are Eligible Non-Highly Compensated Employees for the current Plan Year multiplied by two (2); provided that the Average Contribution Percentage for Participants who are Eligible Highly Compensated Employees for the Plan Year does not exceed the Average Contribution Percentage for Participants who are Eligible Non-Highly Compensated Employees for the current Plan Year by more than two (2) percentage points or the amount prescribed in applicable Treasury regulations to prevent the multiple use of this alternative limitation for any Highly Compensated Employee. (ii) Definitions. (A) Aggregate Limit means the greater of (1) or (2), described as follows: (1) The sum of: (a) 1.25 multiplied by the greater of the Actual Deferral Percentage or the Average Contribution Percentage for Participants who are Eligible Non-Highly Compensated Employees, and (b) Two (2) percentage points plus the lesser of Actual Deferral Percentage or the Average Contribution Percentage of Participants who are Eligible Non-Highly Compensated Employees. (In no event shall this amount exceed twice the lesser of the Actual Deferral Percentage or Average Contribution Percentage of Participants who are Eligible Non- Highly Compensated Employees). (2) The sum of: (a) 1.25 multiplied by the lesser of the Actual Deferral Percentage or the Average Contribution Percentage of Participants who are Eligible Non-Highly Compensated Employees, and (b) Two (2) percentage points plus the greater of Actual Deferral Percentage or the Average Contribution Percentage of Participants who are Eligible Non-Highly Compensated Employees. (In no event shall this amount exceed twice the greater of the Actual Deferral Percentage or Average Contribution Percentage of Participants who are Eligible Non-Highly Compensated Employees). (B) Average Contribution Percentage means the average, expressed as a percentage, of the Contribution Percentages of the Eligible Participants in a group. (C) Contribution Percentage means the ratio, expressed as a percentage, of the sum of the Matching Contributions and Qualified Matching Contributions, if any, under the Plan on behalf of the Eligible Participant for the Plan Year to the Eligible Participant's Compensation for the Plan Year. (D) Contribution Percentage Amounts means the sum of the Matching Contributions and Qualified Matching Contributions, to the extent not taken into account for purposes of the Actual Deferral Percentage Test, made under the Plan on behalf of the Participant for the Plan Year. Contribution Percentage Amounts shall include Forfeitures of Excess Aggregate Contributions or Matching Contributions allocated to the Participant's Account that shall be taken into account in the year in which the Forfeiture is allocated. Notwithstanding the foregoing, Contribution Percentage Amounts shall not include Matching Contributions that are forfeited either to correct Excess Aggregate Contributions or because the contributions to which they relate are Excess Deferrals, Excess Contributions, or Excess Aggregate Contributions. The Employer may include Qualified Non-Elective Contributions in the Contribution Percentage Amounts. The Employer also may elect to use Savings Contributions in the Contribution Percentage Amount if the Actual Deferral Percentage Test is met before the Savings Contributions are used in the Average Contribution Percentage Test and continues to be met following the exclusion of those Savings Contributions that are used to meet the Average Contribution Percentage Test. In the case of an Eligible Participant who makes no Savings Contributions and receives no Matching Contributions, the Contribution Percentage Amount shall be zero. (E) Eligible Participant means any Employee who is eligible to make a Savings Contribution, if the Employer takes the contributions into account in calculating the Contribution Percentage, or to receive a Matching Contribution, including Forfeitures, or a Qualified Matching Contribution. (F) Matching Contribution means an Employer Contribution made to this or any other defined contribution plan on behalf of a Participant on account of a Savings Contribution made by the Participant, or on account of a Participant's election to defer a portion of his or her Compensation under a plan maintained by the Employer. (G) Qualified Non-Elective Contributions means Employer Contributions, other than Savings Contributions and Matching Contributions, allocated to Participants' accounts which are 100% Nonforfeitable at all times and which are subject to the distribution restrictions described in Section 4.1(g). Employer Contributions are not 100% Nonforfeitable at all times if the Employee has a 100% Nonforfeitable interest because of Years of Service taken into account under a vesting schedule. Any Employer Contributions allocated to a Participant's Savings Account under the Plan automatically satisfy the definition of Qualified Non-Elective Contributions. (H) Qualified Matching Contributions means Matching Employer Contributions allocated to Participants' accounts which are 100% Nonforfeitable at all times and which are subject to the distribution restrictions described in Section 4.1(g). Matching Contributions are not 100% Nonforfeitable at all times if the Employee has a 100% Nonforfeitable interest because of Years of Service taken into account under a vesting schedule. Any Matching Contributions allocated to a Participant's Savings Account under the Plan automatically satisfy the definition of Qualified Matching Contributions. (iii) Special Rules (A) Multiple Use. If one or more Highly Compensated Employees participate in both a cash or deferred arrangement subject to Code Section 401(k) and a plan maintained by the Employer subject to Code Section 401(m) and the sum of the Actual Deferral Percentage and Average Contribution Percentage of those Highly Compensated Employees subject to either or both tests exceeds the Aggregate Limit, then the Average Contribution Percentage of those Highly Compensated Employees who also participate in a cash or deferred arrangement will be reduced in the manner described in Section 4.1(e) so that the limit is not exceeded. The amount by which each Highly Compensated Employee's Contribution Percentage Amount is reduced shall be treated as an Excess Aggregate Contribution. The Actual Deferral Percentage and Average Contribution Percentage of the Highly Compensated Employees are determined after: (1) use of Qualified Non-Elective Contributions and Qualified Matching Contributions to meet the Actual Deferral Percentage Test; (2) use of Qualified Non-Elective Contributions and Elective Contributions to meet the Actual Deferral Percentage Test; (3) any corrective distribution or forfeiture of Excess Deferrals, Excess Contributions or Excess Aggregate Contributions; and (4) after any recharacterization of Excess Contributions required without regard to multiple use of the alternative limitation; and are deemed to be the maximum permitted under such tests for the Plan Year. Multiple use occurs if the Actual Deferral Percentage and Average Contribution Percentage of the Highly Compensated Employees exceeds the Aggregate Limit. For purposes of this Section, the "Aggregate Limit" is the greater of: (1) the sum of (i) 1.25 times the greater of the relevant actual deferral percentage or the relevant actual contribution percentage, and (ii) two percentage points plus the lesser of the relevant actual deferral percentage or the relevant actual contribution percentage; provided, however, that this amount may not exceed twice the lesser of the relevant actual deferral percentage or the relevant actual contribution percentage; or (2) the sum of (i) 1.25 times the lesser of the relevant actual deferral percentage or the relevant actual contribution percentage, and (ii) two percentage points plus the greater of the relevant actual deferral percentage or the relevant actual contribution percentage; provided, however, that this amount may not exceed twice the greater of the relevant actual deferral percentage or the relevant actual contribution percentage. For purposes of the preceding sentence, the "relevant" actual deferral percentage and actual contribution percentage is the actual deferral percentage and actual contribution percentage of the Non-Highly Compensated Employees. (B) For purposes of this Section, the Contribution Percentage for any Participant who is an Eligible Highly Compensated Employee for the Plan Year who is eligible to have Contribution Percentage Amounts allocated under two (2) or more plans described in Code Section 401(a) or arrangements described in Code Section 401(k) that are maintained by the Employer or a Related Employer shall be determined as if the total of the Contribution Percentage Amounts were made under each plan. If a Highly Compensated Employee participates in two (2) or more cash or deferred arrangements that have different plan years, all cash or deferred arrangements ending with or within the same calendar year shall be treated as a single arrangement. Notwithstanding the foregoing, certain plans shall be treated as separate if mandatorily disaggregated under regulations pursuant to Code Section 401(m). (C) If this Plan satisfies the requirements of Code Sections 401(m), 401(a)(4) or 410(b) only if aggregated with one (1) or more other plans, or if one (1) or more other plans satisfy the requirements of the Code Sections only if aggregated with this Plan, then this Section shall be applied by determining the Contribution Percentages of Eligible Participants as if all such plans were a single plan. (D) The Employer shall maintain records sufficient to demonstrate satisfaction of the Average Contribution Percentage Test. (E) The determination and treatment of the Contribution Percentage of any Participant shall satisfy other requirements prescribed by applicable Treasury regulations. (iv) Fail Safe Provisions. If the initial allocations of the Matching Employer Contributions do not satisfy one of the tests set forth in paragraph (i) of this Section, the Administrator shall adjust the accounts of the Participants pursuant to one (1) or more of the following options: (A) Distribution of Excess Aggregate Contributions. The Administrator will determine Excess Aggregate Contributions after determining Excess Elective Deferrals under Section 4.1(d) and Excess Contributions under Section 4.1(e). If the Administrator determines that the Plan fails to satisfy the Average Contribution Percentage Test for a Plan Year, it must distribute the Excess Aggregate Contributions, as adjusted for allocable income, during the next Plan Year. However, the Employer will incur an excise tax equal to 10% of the amount of Excess Aggregate Contributions for a Plan Year not distributed to the appropriate Highly Compensated Employees during the first two and one-half (2 1/2) months of the next Plan Year. The Excess Aggregate Contributions are the amount of aggregate contributions allocated on behalf of the Highly Compensated Employees which causes the Plan to fail to satisfy the Average Contribution Percentage Test. The Administrator shall make distributions to each Highly Compensated Employee of his or her respective share of the Excess Aggregate Contributions in accordance with the following steps: (1) The Administrator shall calculate total Excess Aggregate Contributions for the Highly Compensated Employees. (2) The Administrator shall calculate the total dollar amount by which the Excess Aggregate Contributions for the Highly Compensated Employees must be reduced in order to satisfy the Average Contribution Percentage Test. (3) The Administrator shall calculate the total dollar amount of the Excess Aggregate Contributions for each Highly Compensated Employee. (4) The Administrator shall reduce the Excess Aggregate Contributions of the Highly Compensated Employee(s) with the highest dollar amount of Excess Aggregate Contributions by refunding such contributions to such Highly Compensated Employee(s) in the amount required to cause the dollar amount of such Highly Compensated Employee(s)' Matching Employer Contributions to equal the dollar amount of the Matching Employer Contributions of the Highly Compensated Employee(s) with the next highest dollar amount of such contributions. (5) If the total dollar amount distributed pursuant to Step (4) above is less than the total dollar amount of Excess Aggregate Contributions, Step (4) shall be applied to the Highly Compensated Employee(s) with the next highest dollar amount of Excess Aggregate Contributions until the total amount of distributed Excess Aggregate Contributions equals the total dollar amount calculated in Step (2). (6) When calculating the amount of a distribution under Step (4), if a lesser reduction, when added to any amounts already distributed under this Section, would equal the total amount of distributions necessary to permit the Plan to satisfy the requirements of Section 4.2c(i), the lesser amount shall be distributed from the Plan. (B) Allocable Income. To determine the amount of the corrective distribution required under this Section, the Administrator must calculate the allocable income for the Plan Year in which the Excess Aggregate Contributions arose. The income allocable to Excess Aggregate Contributions is equal to the sum of the allocable gain or loss for the Plan Year. (1) Method of Allocating Income. The Administrator may use any reasonable method for computing the income allocable to Excess Aggregate Contributions, provided that the method does not violate Code Section 401(a)(4), is used consistently for all Participants and for all corrective distributions under the Plan for the Plan Year, and is used by the Plan for allocating income to Participants' Accounts. (2) Alternative Method of Allocating Income. A Plan may allocate income to Excess Aggregate Contributions by multiplying the income for the Plan Year allocable to Matching Contributions and amounts treated as Matching Contributions by a fraction. The numerator of the fraction is the Excess Aggregate Contributions for the Employee for the Plan Year. The denominator of the fraction is equal to the sum of: (a) The total account balance of the Employee attributable to Matching Contributions and amounts treated as Matching Contributions as of the beginning of the Plan Year; plus (b) The Matching Contributions and amounts treated as Matching Contributions for the Plan Year. (C) Characterization of Excess Aggregate Contributions. The Administrator will treat a Highly Compensated Employee's allocable share of Excess Aggregate Contributions in the following priority: (i) first as attributable to his or her Matching Contributions allocable with respect to Excess Contributions determined under the Actual Deferral Percentage Test described in Section 4.1(e); (ii) then on a pro rata basis to Matching Contributions and to the Savings Contributions relating to those Matching Contributions which the Administrator has included in the Average Contribution Percentage Test; (iii) then on a pro rata basis to Savings Contributions which are mandatory contributions, if any, and to the Matching Contributions allocated on the basis of those mandatory contributions; and (iv) last to Qualified Non-Elective Contributions used in the Average Contribution Percentage Test. To the extent the Highly Compensated Employee's Excess Aggregate Contributions are attributable to Matching Contributions, and he or she is not 100% vested in the Account Balance attributable to Matching Contributions, the Administrator will distribute only the vested portion and forfeit the nonvested portion. The vested portion of the Highly Compensated Employee's Excess Aggregate Contributions attributable to Matching Employer Contributions is the total amount of the Excess Aggregate Contributions (as adjusted for allocable income) multiplied by his or her vested percentage (determined as of the last day of the Plan Year for which the Employer made the Matching Contribution). (D) Qualified Non-Elective and Qualified Matching Contributions. The Employer shall make Qualified Non-Elective Contributions or Qualified Matching Contributions that, in combination with Matching Contributions, satisfy one of the tests set forth in paragraph (i) of this Subsection, taking into account the Administrator's action under any option herein. Any such contribution shall be treated as a Participant Savings Contribution and shall be allocated to the Account of each Participant. The total of these contributions shall be at least equal to the amount necessary to satisfy the requirements of paragraph (i) of this Subsection and shall be allocated first to the lowest-paid such Participant, subject to Section 5.6, and then to the next lowest-paid Participant, subject to Section 5.6, and thereafter in like manner in ascending order until the limitations of paragraph (i) are met. Such additional contributions shall be fully vested and subject to the distribution restrictions of Section 4.1(g) hereof, and must be made prior to the last day of the twelve month period immediately following the Year to which they relate. The Qualified Non-Elective and Qualified Matching Contributions may be treated as Matching Contributions provided that each of the following requirements, to the extent applicable, is satisfied: (1) The amount of Employer Contributions, including those Qualified Non-Elective and Qualified Matching Contributions treated as Matching Contributions for purposes of the Average Contribution Percentage Test, satisfies the requirements of Code Section 401(a)(4). (2) The amount of Employer Contributions, excluding those Qualified Non-Elective Contributions and Qualified Matching treated as Matching Contributions for purposes of the Average Contribution Percentage Test and those Qualified Non- Elective Contributions treated as Elective and Qualified Matching Contributions under Treasury Regulations Section 1.401(k)- 1(b)(5) for purposes of the Actual Deferral Percentage Test, satisfies the requirements of Code Section 401(a)(4). (3) The Savings Contributions, including those treated as Qualified Matching Contributions for purposes of the Average Contribution Percentage Test, satisfy the requirements of Code Section 401(k)(3) for the Plan Year. (4) The Qualified Non-Elective and Qualified Matching Contributions are allocated to the Employee under the Plan as of a date within the Plan Year, and the Savings Contributions satisfy the requirements of Treasury Regulations Section 1.401(k)- 1(b)(4)(i) for the Plan Year. (5) The plan that takes Qualified Non-Elective Contributions and Qualified Matching Contributions into account in determining whether Savings and Matching Contributions satisfy the requirements of Code Section 401(m)(2)(A), and the plans to which the Qualified Non-Elective Contributions and Qualified Matching Contributions are made, are or could be aggregated for purposes of Code Section 410(b). (E) Forfeiture of Non-Vested Matching Employer Contributions. Matching Employer Contributions that are not vested may be forfeited to correct Excess Aggregate Contributions. Notwithstanding the foregoing sentence, Excess Aggregate Contributions for a Plan Year may not remain unallocated or be allocated to a suspense account for allocation to one or more Employees in any future year. Forfeitures of Matching Contributions to correct Excess Aggregate Contributions shall be applied to reduce the Employers' Matching Employer Contributions for the Plan Year in which the excess arose. (d) Notwithstanding the foregoing provisions of this Section 4.2 the Employer Contribution specified therein shall be limited by and in no event shall exceed the following limits: (i) The total amount deductible by such Employer under Code Section 404; or (ii) The maximum amount that may be allocated to a particular Participant's Accounts under the annual additions limit of Section 5.6 (and, if applicable, Article 12). Section 4.5 Discretionary Employer Contributions. For each Plan Year, the amount of the Discretionary Employer Contribution to the Trust Fund will equal the amount, if any, the Employer may from time to time determine and authorize. Although the Employer may contribute to this Plan whether or not it has net profits, the Employer intends the Plan to be a profit sharing plan, including a qualified cash or deferred arrangement, and an employee stock ownership plan, for all purposes of the Code. The Employer shall not authorize contributions at such times or in such amounts that the Plan in operation discriminates in favor of Highly Compensated Employees. Notwithstanding the foregoing, the Discretionary Employer Contribution for any Plan Year shall not exceed the maximum amount allowable as a deduction to the Employer under Code Section 404. The Discretionary Employer Contributions shall be allocated to the Participants' Discretionary Employer Contribution Accounts under the formula provided in Section 5.4. Section 4.6 Payment of Employer Contributions. (a) Matching Employer Contributions shall be paid to the Trustee as soon as administratively feasible following the payroll period to which they relate. Notwithstanding the preceding sentence, Employer Contributions shall be paid to the Trustee no later than the date prescribed by law for filing such Employer's federal income tax return for its taxable year ending with or within the Plan Year for which such contribution is made, including extensions which have been granted for the filing of such tax return. The Trustee shall hold all such Employer Contributions subject to the provisions of the Plan and Trust Agreement, and no part of such contributions shall be used for, or diverted to, any purpose other than those specified in the Plan and Trust Agreement. (b) Notwithstanding anything to the contrary contained herein, an Employer Contribution for a Plan Year may be returned to the Employer to the extent that the amount of such contribution exceeds the amount that such Employer would have contributed for such Plan Year but for (i) a good faith mistake of fact made in determining the amount of such contribution or (ii) a good faith mistake in determining that the contribution made would be deductible under Code Section 404. The return of a portion of an Employer Contribution shall be subject to the following conditions: (i) earnings attributable to the amount to be returned may not be distributed to the Employer but losses attributable thereto must reduce the amount to be returned; (ii) the amount to be returned shall be limited so as to avoid reducing the balance in the Participant's Discretionary Employer Contribution Account and Matching Employer Contribution Account to less than the balance which would have been in such account if the amount attributable to such mistake had not been contributed; (iii) the return of an amount attributable to a mistake of fact may only be made within one year after such amount was paid to the Trustee; and (iv) the return of an amount attributable to a mistake in determining such deductibility may only be made within one year after the disallowance of such deduction. Except as provided in the preceding sentence, an appropriate adjustment shall be made in the Participant's Discretionary Employer Contribution Account and Matching Employer Contribution Account, if any, to reflect the return of a portion of an Employer Contribution. Section 4.7 Rollover Contributions (a) Upon approval by the Committee, an Employee who has received an eligible rollover distribution, as defined in Code Section 402(c)(4) may contribute such eligible rollover distribution to a Rollover Account under the Plan. An Employee may also transfer to a Rollover Account under the Plan (upon Committee approval) an eligible rollover distribution from an individual retirement account or from an individual retirement annuity, but only if such distribution or proceeds qualify for tax-free rollovers under Code Section 408(d)(3)(A)(ii). In addition, the Plan will accept (upon Committee approval) direct trustee-to-trustee transfers from another qualified plan or a Code Section 403(b) annuity and will account for such transfers separately from any other Rollover Account. Notwithstanding the foregoing, in no event shall an eligible rollover distribution be contributed to an ESOP Account under the Plan. (b) Any contribution under this Section 4.5 shall be treated as the contribution of a "Rollover Amount" and, except in the case of trustee-to-trustee transfers, shall be subject to the following requirements and conditions: (i) The Employee must transfer the Rollover Amount or cause to be transferred such amount to the Committee for delivery to the Trustee or, if the Committee directs, to the Trustee, in time for the Trustee to receive such amount on or before the 60th day after the day on which such amount was received by the Employee. (ii) The Employee must furnish such evidence as the Committee may require that such Rollover Amount includes all of (and does not include anything other than) the amount required to be transferred by Code Section 402c(4) or 408(d)(3)(A)(ii), as appropriate. (c) The Committee shall not deliver or cause the delivery of any Rollover Amount to the Trustee prior to its receipt of such evidence as may be required by it pursuant to Section 4.5(b) and, except in the case of trustee-to-trustee transfers, shall not deliver or cause the delivery of any Rollover Amount to the Trustee if such Rollover Amount would not be received by the Trustee on or before the 60th day after the day on which such amount was received by the Employee who wishes to transfer such amount to the Plan. (d) An Employee shall be eligible to transfer amounts to a Rollover Account pursuant to this Section 4.5 notwithstanding the provisions of Article 3 hereof. (e) An Employee who establishes and maintains a Rollover Account or Accounts shall be deemed to be a Participant under the Plan notwithstanding the provisions of Article 3, but no such Employee shall be entitled to share in any Employer Contributions or elect Savings Contributions unless he is otherwise participating under Article 3. (f) Fees and expenses of the Trustee attributable to the maintenance of Rollover Accounts shall be paid as provided in Section 16.7. (g) Articles 6, 8, and 11 shall govern the time and method of payment from an Employee's Rollover Accounts. Section 4.8 Special Rules under USERRA. Notwithstanding any provision of this Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Code Section 414(u). * * * * * * * ARTICLE FIVE ------------ ALLOCATIONS Section 5.3 Accounts. The Committee shall maintain or cause to be maintained adequate records to disclose the interest in the Trust of each Participant, Former Participant, and Beneficiary. Such records shall be in the form of individual accounts, and credits and charges shall be made to such accounts in the manner herein described. When appropriate, a Participant shall have, as separate accounts, a Matching Employer Contribution Account, a Discretionary Employer Contribution Account, a Rollover Account, a Savings Account, a W & B Plan Rollover Account, an ESOP Transfer Account, and an ESOP Rollover Account. The maintenance of separate accounts is only for accounting purposes, and a segregation of the Trust Assets to each account shall not be required. Each Account shall reflect its allocable share of income, loss, appreciation, and depreciation of the Trust Assets. Distributions made from an Account shall be charged to such Account as of the Valuation Date on which the distribution is made. Section 5.4 Allocation of Income and Expense. (a) Except as otherwise provided in Section 7.3(a), income of the Trust Assets shall be allocated as of each Valuation Date to the Accounts that generated such income. (b) Except as otherwise provided by Sections 7.3(b) and 16.7, expenses paid from the Trust Assets and not reimbursed by an Employer shall be allocated as of each Valuation Date to the Accounts of Participants, Former Participants and Beneficiaries who had undistributed balances in their Accounts on such last preceding Valuation Date in proportion to the balances in such Accounts on such date, but after first reducing each such account balance by any distributions from the account since such last preceding Valuation Date. (c) cUpon instruction from the Committee, the Trustee shall distribute to each Participant with an ESOP Account, in cash, all or a portion of the dividends paid to the Plan with respect to Company Stock held by the Plan and allocated to ESOP Accounts, within ninety (90) days after the close of the Plan Year in which such dividends are paid. The dividends, if distributed in accordance with this Section, shall be paid out as if each Participant directly owned the numbers of shares of Company Stock allocated to the Participant's ESOP Accounts (including fractional shares so allocated), as of the Accounting Date corresponding with, or if none, next following the record date for such dividend declaration. Such dividend payments shall not be considered to be distributions under the Plan. Section 5.5 Allocation of Savings Contributions. Savings Contributions elected by a Participant during any calendar month shall be credited and allocated to his Savings Account no later than the fifteenth (15th) business day of the month following the month such Savings Contributions are effected by payroll deduction. Section 5.6 Allocation of Employer Contributions. (a) Matching Employer Contributions. Each Participant who is a Participant during a payroll period is entitled to share in the Matching Employer Contribution for such payroll period. Subject to Section 5.6, the Committee shall instruct the Trustee to allocate the portion of the Matching Employer Contribution for each payroll period to the Matching Employer Contribution Account of each Participant or Former Participant for whom Savings Contributions were made during such payroll period pursuant to Section 4.2(a). (b) Discretionary Employer Contributions. Each Participant who is employed on the last business day of the Plan Year is entitled to share in the allocation of Discretionary Employer Contributions, if any, for such Plan Year. The Committee shall allocate the Discretionary Employer Contributions, if any, to each eligible Participant's Discretionary Employer Contribution Account in the same ratio that each Participant's Annual Compensation for the Plan Year bears to the total Annual Compensation of all Participants for such Plan Year. Notwithstanding the preceding, a Former Participant who would have been a Participant on the last business day of the Plan Year but for his death, Disability, Early Retirement, or Retirement during the Plan Year shall be entitled to share in the allocation of the Discretionary Contributions, if any, for such Plan Year. (c) Qualified Non-Elective Contributions and Qualified Matching Contributions. Each Participant who is a Non-Highly Compensated Employee and who is a Participant on the last business day of the Plan Year and each Former Participant who is a Non-Highly Compensated Employee and who would have been a Participant on the last business day of the Plan Year but for his death, Disability, Early Retirement, or Retirement during the Plan Year, is entitled to share in the allocation of Qualified Non- Elective Contributions and/or Qualified Matching Contributions, if any, for such Plan Year. Such contributions shall be allocated pursuant to the provisions of Section 4.2(b)(i). (d) Incentive Contributions. Each Participant who is entitled to receive an allocation of Incentive Contributions under the terms of the FFE Transportation Services, Inc. 1994 Incentive Bonus Plan (the "Incentive Plan") shall receive an allocation of such amounts under this Plan. The Committee shall allocate the Incentive Contributions, if any, to each eligible Participant's Savings Account in the manner provided by the terms of the Incentive Plan. Section 5.7 Forfeitures. Amounts forfeited pursuant to Sections 5.6 or 6.3 shall be used to pay Plan expenses in the Plan Year in which they are forfeited. To the extent such Forfeitures exceed Plan expenses in such Plan Year, they shall be used to reduce the Matching Employer Contributions to the Plan under Section 4.2(a) during the subsequent Plan Year, unless the Employer directs that such Forfeitures are to be used to reduce the Matching Employer Contributions to the Plan under Section 4.2(a) during the Plan Year in which they are forfeited. Section 5.8 Maximum Additions. (a) Defined Contribution Plan Limits. The amount of Annual Additions that the Committee may allocate under this Plan on a Participant's behalf for a Limitation Year may not exceed the Maximum Permissible Amount. If the amount the Employer otherwise would contribute to the Participant's Account would cause the Annual Additions for the Limitation Year to exceed the Maximum Permissible Amount, the Employer will reduce the amount of its contribution so the Annual Additions for the Limitation Year will equal the Maximum Permissible Amount. If an allocation of Employer Contributions pursuant to Section 5.4 would result in an Excess Amount (other than an Excess Amount resulting from the circumstances described in Section 5.6(c)) to the Participant's Account, the Committee will reallocate the Excess Amount to the remaining Participants who are eligible for an allocation of Employer Contributions for the Plan Year in which the Limitation Year ends. The Committee will make this reallocation on the basis of the allocation method under the Plan as if the Participant whose Individual Account otherwise would receive the Excess Amount is not eligible for an allocation of Employer Contributions. (b) Estimation. Prior to the determination of the Participant's actual Compensation for a Limitation Year, the Committee may determine the Maximum Permissible Amount on the basis of the Participant's estimated Compensation defined in Section 5.6(e) for the Limitation Year. The Committee must make this determination on a reasonable and uniform basis for all Participants similarly situated. The Committee must reduce any Employer Contributions (including any allocation of Forfeitures) based on estimated Compensation by any Excess Amounts carried over from prior years. As soon as administratively feasible after the end of the Limitation Year, the Committee will determine the Maximum Permissible Amount for the Limitation Year based on the Participant's actual Compensation for the Limitation Year. (c) Disposition of Excess Amount. If, pursuant to Section 5.6(b) or because of an allocation of Forfeitures, there is an Excess Amount attributable to a Participant for a Limitation Year, then the Committee will dispose of the Excess Amount as follows: (i) The Committee shall return any nondeductible Participant voluntary after tax contributions to the Participant to the extent that the return would reduce the Excess Amount. (ii) If, after the application of clause (i) an Excess Amount still exists, and the Plan covers the Participant at the end of the Limitation Year, then the Committee will use the Excess Amounts to reduce future Employer Contributions (including any allocation of Forfeitures) under the Plan for the next Limitation Year and for each succeeding Limitation Year, as is necessary, for the Participant. The Participant may elect to limit Compensation for allocation purposes to the extent necessary to reduce the allocation for the Limitation Year to the Maximum Permissible Amount and eliminate the Excess Amount. (iii) If, after the application of clause (i) an Excess Amount still exists and the Plan does not cover the Participant at the end of the Limitation Year, then the Committee shall hold the Excess Amount in a suspense account and use the Excess Amount to reduce Employer Contributions on behalf of remaining Participants and shall allocate and reallocate to the Individual Accounts of remaining Participants in succeeding Limitation Years to the extent permissible under the foregoing limitations, prior to any further Annual Additions to the Plan. If the Plan should be terminated or contributions should be completely discontinued, the funds in the suspense account will be allocated to the extent not prohibited by Code Section 415. Any suspense account shall not be adjusted for investment gains or losses of the Trust Fund. (iv) The Committee will not distribute any Excess Amount(s) to Participants or to Former Participants. (v) Notwithstanding the first sentence and the foregoing paragraphs (i), (ii), (iii), and (iv), the Committee may distribute Elective Deferrals (within the meaning of Code Section 402(g)(3)) or return voluntary or mandatory Employee Contributions, to the extent the distribution or return would reduce the excess amounts in the Participant's account. (d) Multiple Defined Contribution Plan Limits. If the Employer maintains any other qualified defined contribution plan, the amount of the Annual Addition which may be allocated to a Participant's Individual Account in this Plan shall not exceed the Maximum Permissible Amount, reduced by the amount of Annual Additions to such Participant's accounts for the same Limitation Year in the other plan(s). The Excess Amount attributed to this Plan equals the product of: (i) the total Excess Amount allocated as of such date (including any amount the Committee would have allocated but for the limitations of Code Section 415), multiplied by (ii) the ratio of: (A) the amount allocated to the Participant as of such date under this Plan, divided by (B) the total amount allocated as of such date under all qualified defined contribution plans (determined without regard to the limitations of Code Section 415). (e) Definitions. For purposes of the limitations of Code Section 415 set forth in this Section, the following definitions shall apply: (i) Annual Additions means the sum of the following amounts allocated on behalf of a Participant for a Limitation Year: (A) all Employer Contributions; (B) all Forfeitures; (C) call Employee Contributions; (D) excess contributions described in Code Section 401(k) and excess aggregate contributions described in Code Section 401(m), irrespective of whether the Plan distributes or forfeits such Excess Amounts, and excess deferrals described in Code Section 402(g), unless the excess deferrals are distributed no later than the first April 15 following the close of the Participant's taxable year; (E) excess Amounts reapplied to reduce Employer Contributions under this Section 5.6; (F) amounts allocated after March 31, 1984 to an individual medical account, as defined in Code Section 415(l)(2), included as part of a pension or annuity plan maintained by the Employer; (G) contributions paid or accrued after December 31, 1985, in taxable years ending after that date, which are attributable to post-retirement medical benefits allocated to the separate account of a Key Employee as defined in Code Section 419A(d)(3), under a welfare benefit fund, as described in Code Section 419(e), maintained by the Employer; and (H) allocations under a simplified employee pension plan. (ii) Compensation means the total amount of salary, wages, commissions, bonuses and overtime, paid or otherwise includable in the gross income of a Participant during the Limitation Year plus, effective January 1, 1998, any amounts excluded from income pursuant to Code Sections 125 and 401(k) and, effective January 1, 2001, Code Section 132(f), but excluding: (A) Employer contributions to any deferred compensation plan (to the extent the contributions are not included in the Participant's gross income for the taxable year in which contributed) or simplified employee pension under Code Section 408(k) (to the extent the contributions are excludable from the Participant's gross income) (effective January 1, 1998, other than any amounts excluded from income pursuant to Code Sections 401(k) and 125, and, effective January 1, 2001, Code Section 132(f)); (B) distributions from any plan of deferred compensation, whether or not such amounts are includable in the gross income of the Employees when distributed; (C) camounts realized from the exercise of any nonqualified stock option, or when restricted stock becomes freely transferable or is no longer subject to a substantial risk of forfeiture; (D) amounts realized from the sale, exchange, or other disposition of stock acquired under a qualified stock option described in Part II, Subchapter D, Chapter 1 of the Code; (E) premiums paid by the Employer for group term life insurance (to the extent the premiums are not includable in the Participant's gross income); contributions by the Employer to an annuity under Code Section 403(b) (to the extent not includable in the Participant's gross income); and any other amounts received under any Employer sponsored fringe benefit plan (to the extent not includable in the Participant's gross income); (F) any contribution for medical benefits, within the meaning of Code Section 419A(f)(2), after separation from Service which is otherwise treated as an Annual Addition; and (G) any amount otherwise treated as an Annual Addition under Code Section 415(l)(1). (iii) Average Compensation means the average compensation during a Participant's highest three (3) consecutive Years of Service, which period is the three (3) consecutive calendar years (or the actual number of consecutive years of employment for those Employees who are employed for less than three (3) consecutive years with the Employer) during which the Participant had the greatest aggregate compensation from the Employer (iv) Notwithstanding the foregoing, in the case of a Participant (i) who is permanently and totally disabled (as provided in Code Section 415c(3)c), (ii) who is not a Highly Compensated Employee, and (iii) with respect to whom the Employer elects to have this subparagraph apply, the term Compensation shall mean the Compensation the Participant would have received for the Plan Year if the Participant had been paid at the rate of Compensation paid immediately before becoming permanently and totally disabled. This subparagraph (iv) shall apply only if contributions made with respect to amounts treated as Compensation under this subparagraph (iv) are nonforfeitable when made. (v) Employer means the Employer that adopts this Plan. All Related Employers shall be considered a single Employer for purposes of applying the limitations of this Section. (vi) Excess Amount means the excess of the Participant's Annual Additions for the Limitation Year over the Maximum Permissible Amount, less administrative charges allocable to such Excess Amount. (vii) Limitation Year means the Limitation Year specified in the Plan or, if none is specified, the calendar year. (viii) Maximum Permissible Amount means, with respect to any Participant for a Limitation Year, the lesser of: (A) $30,000 (with such amount to be adjusted automatically to reflect any cost-of-living adjustment authorized by section 415(d) of the Code); or (B) twenty-five percent (25%) of the Participant's Compensation, within the meaning of Code Section 415(c)(3). (ix) Projected Annual Benefit means the benefit of the Participant payable annually in the form of a straight life annuity (with no ancillary benefits) under the terms of a defined benefit plan to which employees do not contribute and under which no rollover contributions are made, assuming that the Participant continues employment until Normal Retirement Age (or current age, if later), compensation continues at the same rate as in effect in the Limitation Year under consideration until the date of Normal Retirement Age, and all other relevant factors used to determine benefits under the defined benefit plan remain constant as of the current Limitation Year for all future Limitation Years. Section 5.9 Notification to Participants. At least once annually the Committee shall advise each Participant or Former Participant of the then-composition and value of his Accounts. * * * * * * * ARTICLE SIX ----------- VESTING Section 6.3 Retirement, Death, or Disability. If a Participant ceases to be an Employee due to the Participant's Retirement, Early Retirement, death, or Disability, such Participant, Former Participant, or the Beneficiary, as the case may be, shall be fully vested in and entitled to the total amount credited to each of his Accounts. Section 6.4 Separated From Service If a Participant or Former Participant is Separated from Service for any reason other than Retirement, Early Retirement, death, or Disability, such Participant or Former Participant, or the Beneficiary, as the case may be, shall be entitled to the sum of the following: (a) The total amount credited to the Participant's Savings Account, Rollover Account, and ESOP Rollover Account , if any; and (b) The Vested Percentage at the date he is Separated from Service, of the total amount credited to the Participant's Matching Employer Contribution Account, Discretionary Employer Contribution Account, W & B Plan Rollover Account, and ESOP Transfer Account, if any. The Vested Percentage shall be determined in accordance with the following schedule: YEARS OF SERVICE NONFORFEITABLE PERCENTAGE ---------------- ------------------------- Less than 3 years 0% At least 3 but less than 4 years 20% At least 4 but less than 5 years 40% At least 5 but less than 6 years 60% At least 6 but less than 7 years 80% At least 7 or more years 100% (c) Notwithstanding the foregoing vesting schedule, for any Plan Year in which the Plan is a Top-Heavy Plan, the following vesting schedule shall apply: YEARS OF SERVICE NONFORFEITABLE PERCENTAGE ---------------- ------------------------- Less than 2 years 0% At least 2 but less than 3 years 20% At least 3 but less than 4 years 40% At least 4 but less than 5 years 60% At least 5 but less than 6 years 80% At least 6 or more years 100% (d) If, in any subsequent Plan Year, the Plan ceases to be a Top-Heavy Plan, the vesting schedule in paragraph c shall continue to apply unless the Employer elects, in writing, to revert to the vesting schedule set forth in paragraph (b). Any reversion shall be treated as a plan amendment and shall be subject to the restrictions of Section 15.1 and this paragraph. No such amendment shall be effective unless, in the event it changes the Plan's applicable vesting schedule (determined in accordance with regulations under Code Section 411), each Participant's nonforfeitable percentage of his accounts (determined as of the later of the date such amendment is adopted or becomes effective) is not less than such percentage computed under this Section 6.2 without regard to such amendment and unless, in such event, each Participant having not less than three (3) Years of Service, is permitted to elect (pursuant to regulations under Code Section 411) to have his nonforfeitable percentage computed under the Plan without regard to such amendment. (e) If the Trustee pays any amount outstanding to the credit of a Participant in the Participant's Discretionary Employer Account, Matching Employer Account, or W & B Plan Rollover Account while the Participant is not fully vested in such account(s), other than a Cashout Distribution defined in Section 6.3(b), and prior to the date on which the Participant shall incur five (5) consecutive one year Breaks in Service, his or her vested and undistributed Discretionary Employer Account, Matching Employer Account, and W & B Plan Rollover Account shall be determined at any time prior to and including the date on which the Participant shall incur five (5) consecutive one year Breaks in Service under the following formula: X = P(AB + (RxD)) - (RxD). For this formula, the variables represent the following factors: X is the value of the vested portion of the Participant's account; P is the Participant's Nonforfeitable percentage at the relevant time; AB is the account balance of the Participant's account at the relevant time; D is the amount of the distribution; and R is the ratio of the Participant's account balance at the relevant time to the Participant's account balance after the distribution. (f) Notwithstanding the foregoing, a Participant's Vested Percentage in his W & B Plan Rollover Account and ESOP Accounts, if any, shall never be less than his vested percentage in the assets transferred to such Account at the time such assets were transferred to the Plan from the W & B Refrigeration Service Co., Inc. Employees' Profit-Sharing Plan and Trust, the FFE Transportation Services ESOP, or the Conwell ESOP, respectively. Section 6.5 Computation of Years of Service for Vesting. (a) General. For purposes of computing a Participant's or Former Participant's Vested Percentage of his Discretionary Employer Contribution Account, Matching Employer Contribution Account, and ESOP Transfer Account, each Participant or Former Participant shall be credited with all Years of Service to which he is entitled pursuant to Section 2.68. (b) Forfeitures. When a Participant has Separated from Service, his Matching Employer Contribution, Discretionary Employer Contribution, and ESOP Transfer Accounts shall be divided into two portions, one representing the vested portion, and the other representing the forfeiture portion, of such Accounts. Such Accounts shall continue to receive income allocations pursuant to Section 5.2 until distributed in full. A Participant shall forfeit the forfeiture portion of his Matching Employer Contribution, Discretionary Employer Contribution, and ESOP Transfer Accounts on the earlier of the date on which the Participant incurs five (5) consecutive one year Breaks-in-Service or the date on which the Participant receives a Cashout Distribution. A "Cashout Distribution" means a lump sum distribution pursuant to Section 11.1 that occurs concurrently with or at any time subsequent to the date on which the Participant separates from Service. For purposes of this Section, a Participant who separates from Service without a nonforfeitable percentage in the Participant's Matching Employer Contribution, Discretionary Employer Contribution, and ESOP Transfer Accounts shall be deemed to have received a distribution of such Accounts on the date of separation from Service, or if the Participant is entitled to an allocation of Matching Employer Contributions for the Plan Year in which he separates from Service, on the last day of that Plan Year. The amount forfeited under this Section shall remain in the Trust Fund and shall be allocated as provided in Section 5.5. (c) Benefit Accruals and Repayments. (i) For purposes of determining a Participant's Vested Percentage under the Plan, the Plan will disregard service performed by the Participant with respect to which he has received a distribution if the present value of his entire Vested Percentage of such distribution was not more than $5,000. This paragraph (i) shall apply, however, only if such distribution was made on termination of the Participant's participation in the Plan. (ii) For purposes of determining a Participant's Vested Percentage under the Plan, the Plan will not disregard service as provided in paragraph c(i) above if the Participant repays the full amount of the distribution described in such paragraph c(i). Upon such repayment, the Participant's account balance prior to the distribution will be restored (unadjusted by any gains or losses between the time of distribution and the time of repayment) and his Vested Percentage will be recomputed by taking into account service so disregarded. This paragraph (ii) shall apply, however, only in the case of a Participant who- (A) resumes employment before the date on which he would have incurred five (5) consecutive Breaks-in- Service; and (B) repays the full amount of such distribution before the date on which he would have incurred five (5) consecutive Breaks-in-Service. The Employer will make a special restoration contribution to the Plan in order to restore any account balances hereunder. For purposes of Plan Section 5.6 and Code Section 415c, the repayment by the Participant and the restoration will not be treated as "annual additions." Section 6.6 Determination of Amount. (a) For purposes of Sections 6.1, 6.2 and 6.3, the amount credited to the Accounts of a Participant or Former Participant shall be determined as of the Valuation Date next preceding the date such Accounts are distributed, and the distribution from the Plan of such amount shall be made or shall commence as soon thereafter as practicable in the manner determined under Article 11. (b) If, on the Valuation Date referred to in Section 6.4(a), the amount credited to the Account in question does not include the allocation, if any, to which such Account is entitled under Article 5 for the months which include and/or follow such Valuation Date, then the particular Participant's or Former Participant's vested portion, determined under Section 6.1, 6.2 and 6.3, as appropriate, of such allocation shall be distributed in the manner provided under Section 11.1(d) as soon as practicable after such allocation is made. * * * * * * * ARTICLE SEVEN ------------- INVESTMENT OF TRUST ASSETS Section 7.3 Appointment of Trustee. The Board of Directors of the Company shall determine the number of Trustees, shall appoint such Trustees, and may at any time and from time to time increase or decrease the number of Trustees. The Board of Directors of the Company may remove any Trustee at any time and appoint a successor Trustee or Trustees or reduce the number of Trustees (but not to less than one). The Trustee or Trustees shall have such rights, powers and duties as shall from time to time be specified in or determined pursuant to the Trust Agreement. The Trust Agreement shall form a part of the Plan, and the Trust Assets shall be administered in accordance with the terms of the Plan and the Trust Agreement. Section 7.4 Investment of Accounts. (a) Participant Direction of Investment. Except as provided in Section 7.2(c)(i) (regarding the Restricted Company Stock Fund), the following Accounts shall be known as Participant-Directed Accounts and shall be invested and reinvested by the Trustee in accordance with Participant direction, as provided herein: Discretionary Employer Contribution Accounts, Matching Employer Contribution Accounts, Savings Accounts, and W & B Plan Rollover Accounts. (i) Each Participant, in his written application for participation or through such other means as may be authorized by the Plan Administrator, if any, shall direct the Committee and the Trustee as to which Investment Fund(s) (as defined in Section 7.2(b) below) he wishes to utilize and the percentage of his Participant-Directed Accounts he wishes to have invested in each fund. The Participant shall make a separate investment election for his Rollover Account, if any, and his W & B Plan Rollover Account, if any. The Participant's direction shall include the percentage of his Accounts to be invested in each such Investment Fund; provided, however, that all investments shall be made in whole percentages. Such election shall be expressed in terms of the percentage amount of the Accounts, other than amounts invested in the Restricted Company Stock Fund, to be allocated to each Investment Fund. (ii) A Participant may change his designation of the manner for investment of such Participant's Participant-Directed Accounts, other than amounts held in the Restricted Company Stock Fund, or current contributions made on behalf of or by the Participant, or both, to any other manner permitted hereunder. This change may be made in writing to the Committee or through such other means as may be authorized by the Plan Administrator, if any. A change shall be applicable as soon as administratively feasible following its delivery to the Committee. In order to comply with applicable federal or state securities laws, the Committee may establish such rules with respect to the change of investment designation by participants as it shall deem necessary or advisable to prevent possible violations of such laws. (iii) To the extent a Participant fails to direct the investment of all or any portion of his Participant-Directed Accounts, the Committee shall direct the Trustee to invest such Participant-Directed Accounts in the Investment Fund(s) designated by the Committee from time to time in a uniform and nondiscriminatory manner. (iv) The Plan Administrator may permit a Participant to make an election under this Section 7.2 through any electronic or telephonic means authorized by the Committee. (b) Investment Funds. The Plan Committee will select the "Investment Funds" available under the Plan in accordance with a separate written Investment Policy. The Committee shall select and maintain such Investment Funds in accordance with the Committee's written Investment Policy. Such Investment Funds shall be communicated to Participants in writing. All Participant-Directed Accounts shall be allocated by the Committee to the Investment Funds specified in the separate written Investment Policy. Dividends, interest and other distributions shall be reinvested in the same Investment Fund from which they are received. Except as provided in paragraph c and (d) below, the assets of each Investment Fund shall be invested exclusively in shares of the registered investment company designated by the Committee, provided that such shares constitute securities described in ERISA Section 401(b)(1). Amounts in any such Investment Fund in amounts estimated by the Trustee to be needed for cash withdrawals, or in amounts too small to be reasonably invested, or in amounts which the Trustee deems to be in the best interest of the Participants, may be retained by the Trustee in cash or invested temporarily. There shall be at least five Investment Funds for the Participants to choose between, not including the Unrestricted Company Stock Fund and the Restricted Company Stock Fund. The Committee may, from time to time and in its sole discretion, increase or decrease the number and type of the Investment Fund(s) available for the Participants to choose among; provided, however, that the Committee shall not decrease the number of Investment Funds to fewer than five. (c) Company Stock Funds. The Trustee shall maintain a Restricted Company Stock Fund and an Unrestricted Company Stock Fund (collectively, the "Company Stock Funds") under this Plan. The Company Stock Funds shall be invested solely in Company Stock. The Trustee is explicitly authorized to acquire and hold shares of Company Stock in the Company Stock Funds. Any and all investments, reinvestments, or purchases shall be made at prices not in excess of the fair market value of the Company Stock prevailing at the time of such purchase or investment. (i) Restricted Company Stock Fund. All amounts invested in Company Stock that were subject to investment restrictions pursuant to the terms of the Prior Plan shall be invested and reinvested by the Trustee in the Restricted Company Stock Fund. Each Participant's investment in the Restricted Company Stock Fund shall be equal to the portion of his Participant-Directed Accounts that was invested in the Restricted Company Stock Fund under the Prior Plan. Participants shall have no right to direct investment of any amounts held in the Restricted Company Stock Fund. During each Diversification Period, the Trustee shall transfer a portion of each Participant's investment in the Restricted Company Stock Fund to the Unrestricted Company Stock Fund as follows: (A) The transfer shall be made as of the first day of the calendar month immediately following the calendar month that includes the anniversary of a Participant's Employment Commencement Date. (B) The amount transferred shall be equal to the Participant's investment in the Unrestricted Company Stock Fund times a fraction, the numerator of which shall be one and the denominator of which shall be equal to (i) for the Diversification Period beginning July 1, 1999, four, (ii) for the Diversification Period beginning July 1, 2000, three, (iii) for the Diversification Period beginning July 1, 2001, two, and (iv) for the Diversification Period beginning July 1, 2002, one. For purposes of this Section, the term "Diversification Period" shall mean the twelve month period beginning each July 1st and ending each June 30th. (ii) Unrestricted Company Stock Fund. Any amounts invested in shares of Company Stock on or after the Effective Date, any amounts invested in Company Stock that were not subject to investment restrictions pursuant to the terms of the Prior Plan, and any amounts transferred from the Restricted Company Stock Fund, shall be invested and reinvested by the Trustee in the Unrestricted Company Stock Fund. Each Participant shall be permitted to direct the Trustee to cause his Participant-Directed Accounts to purchase or sell shares of Company Stock held in the Unrestricted Company Stock Fund at any time. Any transfer of funds within a Participant-Directed Account from the Unrestricted Company Stock Fund to any other Investment Fund, will require that the Company Stock allocated to such Account be sold for its then market value and the sales proceeds transferred to the other Investment Fund (which will remain allocated to that same Account). The Trustee may sell shares of Company Stock to private purchasers (including an Employer) or in the open market; provided, however, that a sale to a private purchaser shall be made for no less than the market price then prevailing. Any transfer of funds within a Participant-Directed Account from another Investment Fund to the Unrestricted Company Stock Fund will require that the transferred funds be used to purchase shares of Company Stock (such stock to be allocated to the same Account from which the fund transfer was made). (d) ESOP Accounts. The ESOP Accounts shall be invested and reinvested by the Trustee in accordance with Article 13. Section 7.5 Income and Expenses. (a) Except as provided in Section 5.2, the dividends, capital gains distributions, and other earnings received on any share of Company Stock or an Investment Fund that is specifically credited to a Participant's or Former Participant's separate Account under the Plan shall be allocated to such separate Account and immediately reinvested, to the extent practicable, in additional shares of Company Stock or shares of such Investment Fund. (b) Except as otherwise provided in Sections 5.5 and 16.7, fees charged by the Trustee and other expenses of operating the Trust may be paid by the Employers or, in the absence of such payments (which are not obligatory), out of the general Trust assets and charged to the separate Accounts of all Participants and Former Participants under the Plan in the ratio that the fair market value of each such Account bears to the total fair market value of all separate Accounts; provided, however, that such amounts shall be adjusted to reflect any revenue sharing payments received from an Investment Fund. However, notwithstanding the above, any brokerage fees, commissions, taxes and other costs incurred by the Trust (and not reimbursed by the Employers) with respect to the purchase, sale, or distribution of Company Stock pursuant to an inter-fund transfer in connection with an in-service withdrawal or a distribution made at the direction of a Participant, Former Participant, or Beneficiary pursuant to Section 10.1 or 11.1(a) or (b), shall be charged to and paid by such Participant's, Former Participant's, or Beneficiary's separate Accounts. Section 7.6 Company Stock. (a) Acquisition of Stock by Trustee. The Trustee shall acquire shares of Company Stock pursuant to Participants' elections under Section 7.2 from private sources (including an Employer) or the open market, at not more than the market price then prevailing. All shares of Company Stock shall be carried by the Trustee at the actual cost thereof, including taxes, brokerage fees and commissions, if any, incident to the purchase, if the shares of Company Stock were purchased, or shall be carried by the Trustee at their value at the time of contribution to the Plan, if contributed in kind to the Plan by the Employer, determined by the average of the closing prices of such stock for the twenty (20) consecutive trading days immediately preceding their contribution to the Plan. (b) Stock Rights, Stock Splits, and Stock Dividends. No Participant, Former Participant or Beneficiary shall have any right of request, direction, or demand upon the Committee or the Trustee to exercise in his behalf rights or privileges to acquire, convert into, or exchange for Company Stock or other securities. The Trustee, in its sole discretion, may exercise or sell any such rights or privileges. The separate Accounts shall be appropriately credited if such rights are exercised or sold. Company Stock received by the Trustee by reason of a stock split, stock dividend or recapitalization shall be appropriately allocated to the separate Accounts of the affected Participant, Former Participant, or Beneficiary. (c) Voting of Company Stock. At each annual meeting and special meeting of the stockholders of the Company, the Committee shall direct the Trustee how to vote the shares of Company Stock held in Participant-Directed Accounts. Notwithstanding the foregoing, Company Stock held in ESOP Accounts shall be voted in accordance with Section 13.6c. Section 7.7 Exclusive Benefit. The Plan and the Trust are established and shall be maintained for the exclusive benefit of the Participants, Former Participants and their Beneficiaries. Subject to the exceptions expressly set forth in the Plan or the Trust Agreement, no part of the Trust Assets may ever revert to an Employer or be used for or diverted to purposes other than the exclusive benefit of the Participants, Former Participants and Beneficiaries. Section 7.8 Valuation. The value of each Account shall be determined as of each Valuation Date, on the basis of the fair market value of the assets allocated to each such Account, as appraised by the Trustee. (a) As of each Valuation Date, the Committee shall determine the fair market value of each Investment Fund being administered by the Trustee. With respect to each such Investment Fund, the Committee shall determine (a) the change in value between the current Valuation Date and the then last preceding Valuation Date, (b) the net gain or loss resulting from expenses paid (including fees and expenses, if any, which are to be charged to such Investment Fund) and (c) realized and unrealized gains and losses. Contributions and rollovers received by the Plan shall be credited to a Participant's Accounts as of the Valuation Date that such amounts are invested in an Investment Fund and shall not be considered in allocating gains and losses to the Participant's Accounts on such Valuation Date. The transfer of funds to or from an Investment Fund pursuant to Section 7.2 and 7.3 and payments, distributions and withdrawals from an Investment Fund to provide benefits under the Plan for Participants or Beneficiaries shall not be deemed to be gains, expenses or losses of an Investment Fund. As of each Valuation Date, the Committee shall allocate the net gain or loss of each Investment Fund on the Valuation Date to the Accounts of Participants participating in such Investment Fund on such Valuation Date. (b) The reasonable and equitable decision of the Committee as to the value of each Investment Fund, and of any Account as of each Valuation Date shall be conclusive and binding upon all persons having any interest, direct or indirect, in the Investment Funds or in any Account. * * * * * * * ARTICLE EIGHT ------------- BENEFICIARY Section 8.3 Designation of Beneficiary. Each Participant or Former Participant may, from time to time, designate any person or persons (who may be designated contingently or successively and who may be an entity or a natural person), either individually or in a fiduciary capacity, the Beneficiary or Beneficiaries to whom his Plan benefits are to be paid if he dies before receipt of all such benefits. However, a married Participant or a married Former Participant may not select a Beneficiary other than his Spouse unless the Spouse consents to such selection in writing, and the Spouse's consent acknowledges the effect of such selection and is witnessed by a Plan representative or a notary public. Each Beneficiary designation shall be in the form prescribed by the Committee and will be effective only when filed with the Committee during the Participant's or Former Participant's lifetime. Each Beneficiary designation filed with the Committee will cancel all Beneficiary designations previously filed with the Committee. Section 8.4 No Beneficiary. If any Participant or Former Participant fails to designate a Beneficiary in the manner provided above, or if the Beneficiary designated by a Participant, or Former Participant dies before him and the Participant or Former Participant fails to designate a new Beneficiary, or if the Beneficiary designated by a deceased Participant or Former Participant dies before complete distribution of the deceased Participant's or Former Participant's benefit, the Committee shall direct the Trustee to distribute such Participant's or Former Participant's benefits (or the balance thereof) to one or more of the following, as determined by the Committee in its sole discretion: (a) To the surviving spouse of such Participant or Former Participant; (b) To any one or more or all of the next of kin of such Participant or Former Participant, and in such proportions, as the Committee shall determine; or (c) To the estate of the last to die of such Participant or Former Participant and his Beneficiary or Beneficiaries; or (d) To such recipient as may be required by applicable law. Section 8.5 Mandatory Distribution of Death Benefits. The Committee may not direct the Trustee to distribute the Participant's Nonforfeitable Account Balance to the Beneficiary or Designated Beneficiary, under a method of payment which, as of the Required Beginning Date, does not satisfy the minimum distribution requirements under Code Section 401(a)(9) and the applicable Treasury regulations. With respect to distributions made for calendar years beginning on or after January 1, 2002, the Plan will apply the minimum distribution requirements of section 401(a)(9) of the Code in accordance with the regulations under Section 401(a)(9) that were proposed on January 17, 2001, notwithstanding any provision of the Plan to the contrary. The foregoing sentence shall continue in effect until the end of the last calendar year beginning before the effective date of final regulations under Section 401(a)(9) or such other date as may be specified in guidance published by the Internal Revenue Service. (a) Limits on Distribution Periods. (i) If the Participant or Former Participant dies after distribution has commenced, the Trustee shall continue to distribute the remaining portion of the Participant's or Former Participant's Nonforfeitable Account Balance at least as rapidly as under the method of distribution used prior to the Participant's death. (ii) If the Participant or Former Participant dies before distribution commences, the Trustee shall complete distribution of the Participant's or Former Participant's Nonforfeitable Account Balance by December 31 of the calendar year containing the fifth (5th) anniversary of the Participant's or Former Participant's death, except to the extent that the Designated Beneficiary elects to receive distributions under paragraphs (A) or (B) below: (A) If any portion of the Participant's or Former Participant's Nonforfeitable Account Balance is payable to a Designated Beneficiary, the Designated Beneficiary may elect distributions over the life or over a period certain not greater than the life expectancy of the Designated Beneficiary commencing on or before December 31 of the calendar year immediately following the calendar year in which the Participant or Former Participant died; (B) If the Designated Beneficiary is the Participant's Surviving Spouse, the date distributions must begin under paragraph (A) above shall not be earlier than the later of: (1) December 31 of the calendar year immediately following the calendar year in which the Participant or Former Participant died; or (2) December 31 of the calendar year in which the Participant or Former Participant would have attained age seventy and one-half (70 1/2) years. If the Participant has not made an election pursuant to this Section by the time of death, the Designated Beneficiary must elect the method of distribution no later than the earlier of: (1) December 31 of the calendar year in which distributions must begin under this Section; or (2) December 31 of the calendar year which contains the fifth (5th) anniversary of the date of death of the Participant or Former Participant. If the Participant has no Designated Beneficiary, or if the Designated Beneficiary does not elect a method of distribution, distribution of the Nonforfeitable Account Balance of the Participant or Former Participant must be completed by December 31 of the calendar year containing the fifth (5th) anniversary of death. (C) If the Surviving Spouse is the Beneficiary of any portion of a deceased Participant's or Former Participant's benefits under the Plan, the Surviving Spouse shall be permitted to direct that this distribution of benefits commence at a reasonable time following the death of the Participant or Former Participant under applicable Treasury regulations. (D) If the Surviving Spouse dies after the Participant or Former Participant, but before payments to the Spouse begin, the preceding provisions of this Section, with the exception of paragraph (B), shall be applied as if the Surviving Spouse had been the Participant. (b) Minimum Distribution Amounts. If the Trustee will distribute a Participant's or Former Participant's Nonforfeitable Account Balance in accordance with the Designated Beneficiary's life expectancy, the minimum distribution for a calendar year equals the Participant's Nonforfeitable Account Balance as of the latest Valuation Date preceding the beginning of the calendar year divided by the Designated Beneficiary's life expectancy. For purposes of this Section, payments will be calculated by using the expected return multiples specified in Tables V and VI of Treasury Regulations Section 1.72-9. Except as the Surviving Spouse may otherwise elect in Section 8.3(d)(i) below, the life expectancy of a Surviving Spouse shall be recalculated annually; however, in the case of any other Designated Beneficiary, life expectancy will be calculated when the first payment commences without further recalculation. For purposes of this Section, any amount paid to a child of the Participant or Former Participant will be treated as if it had been paid to the Surviving Spouse, if the amount becomes payable to the Surviving Spouse when the child reaches the age of majority. (c) Commencement of Benefits. (i) General Rule. For the purposes of this Section, distribution of a Participant's or Former Participant's Nonforfeitable Account Balance is considered to begin on the Participant's or Former Participant's Required Beginning Date or, if Section 8.3(a)(ii)(D) applies, the date distribution is required to begin to the Surviving Spouse pursuant to Section 8.3(a)(ii)(A). If distribution in the form of an annuity irrevocably commences before the Required Beginning Date, the date distribution is considered to begin is the date distribution actually commences. (ii) Required Beginning Date. A Participant's (or Former Participant's) "Required Beginning Date" shall be as follows: (A) For a Participant who is a Five Percent Owner, the Required Beginning Date shall commence on the first day of April following the later of: (1) the calendar year in which the Participant attains age seventy and one-half (70 1/2) years; or (2) the earlier of the calendar year with or within which ends the Plan Year in which the Participant becomes a Five Percent Owner, or the calendar year in which the Participant retires. (B) For a Participant who is not a Five Percent Owner, the Required Beginning Date is the first day of April of the calendar year immediately following the later of: (1) the calendar year in which the Participant attains age seventy and one-half (70 1/2); or (2) the calendar year in which the Participant terminates employment with the Employer. A Participant is treated as a "Five Percent Owner" for purposes of this Section if the Participant is a Five Percent Owner as defined in Section 12.2(g)(iii) and Code Section 416(i) (determined under Code Section 416 but without regard to whether the Plan is Top-Heavy) at any time during the Plan Year ending with or within the calendar year in which the owner attains age sixty-six and one-half (66 1/2) years or any subsequent Plan Year. Once distributions have begun to a Five Percent Owner under this Section, they must continue to be distributed, even if the Participant ceases to be a Five Percent Owner in a subsequent year. (d) Definitions. (i) Applicable Life Expectancy means the life expectancy calculated using the attained age of the Participant (or the Designated Beneficiary) as of the Participant's (or the Designated Beneficiary's) birthday in the applicable calendar year reduced by one for each calendar year which has elapsed since the date life expectancy was first calculated. If the Designated Beneficiary is the Spouse of the Participant, such Spouse may make an irrevocable election to recalculate his or her life expectancy, prior to the Participant's Required Beginning Date. If life expectancy is being recalculated, the Applicable Life Expectancy shall be the life expectancy as recalculated. The applicable calendar year shall be the first Distribution Calendar Year and, if life expectancy is being recalculated, the succeeding calendar year. (ii) Designated Beneficiary means the individual who is designated as the Beneficiary under the Plan under Code Section 401(a)(9) and the applicable Treasury regulations. (iii) Distribution Calendar Year means a calendar year for which a minimum distribution is required. For distributions beginning before the Participant's death, the first Distribution Calendar Year is the calendar year immediately preceding the calendar year which contains the Participant's Required Beginning Date. For distributions beginning after the Participant's death, the first Distribution Calendar Year is the calendar year in which distributions are required to begin pursuant to this Section. (iv) Participant's Nonforfeitable Account Balance means the Account Balance as of the last Valuation Date in the calendar year immediately preceding the Distribution Calendar Year (Valuation Calendar Year), increased by the amount of any Contributions or Forfeitures allocated to the Account Balance as of the dates in the Valuation Calendar Year after the Valuation Date and decreased by distributions made in the Valuation Calendar Year after the Valuation Date. If any portion of the minimum distribution for the first Distribution Calendar Year is made in the second Distribution Calendar Year on or before the Required Beginning Date, the amount of the minimum distribution made in the second Distribution Calendar Year shall be treated as if it had been made in the immediately preceding Distribution Calendar Year. * * * * * * * ARTICLE NINE ------------ NOTICES Section 9.3 Notice to Trustee. As soon as practicable after a Participant, Former Participant or Beneficiary becomes entitled to benefits in accordance with Article 6, the Committee shall give written notice to the Trustee, which notice shall include the following information and directions: (a) The name and address of the Participant, Former Participant, or Beneficiary. (b) The percentage or amount to which the Participant, Former Participant, or Beneficiary is entitled under Article 6. (c) The time, manner and amount of payments to be made pursuant to Article 11. Section 9.4 Subsequent Notices. At any time and from time to time after giving the notice provided for in Section 9.1, the Committee may modify such original notice or any subsequent notice by means of a further written notice or notices to the Trustee, but any action taken or payments made by the Trustee pursuant to the original notice and prior to the receipt of a subsequent notice shall not be affected by such subsequent notice. Section 9.5 Copy to Participant. A copy of each notice provided for in Sections 9.1 and 9.2 shall be mailed by the Committee to the Participant or Former Participant or to each Beneficiary involved, as the case may be, but if, for any reason, such copy is not sent or received, that fact shall not affect the validity of any notice to the Trustee nor the validity of any action taken or payment made pursuant thereto. Section 9.6 Reliance Upon Notice. Upon receipt of any notice as provided in this Article 9, the Trustee shall promptly take whatever action and make whatever payments are called for therein. * * * * * * * ARTICLE TEN ----------- IN-SERVICE WITHDRAWALS AND LOANS TO PARTICIPANTS Section 10.3 Withdrawals from Accounts. (a) Savings Accounts. (i) Hardship Distributions. Distribution of Savings Contributions, Incentive Contributions, Qualified Non- Elective Contributions, and Qualified Matching Contributions made pursuant to a Participant's Savings Contributions, including any shares of Company Stock held in the Restricted Company Stock Fund, may be made to a Participant in the event of hardship. For the purposes of this Section, a hardship distribution is defined pursuant to the safe harbor definition of Treasury Regulation Section 1.401(k)-1(d)(2)(iv) and means a distribution necessary to satisfy an immediate and heavy financial need of an Employee who lacks other available resources. (A) A distribution will be considered to satisfy an immediate and heavy need of an Employee if the distribution is for: (1) expenses incurred for or necessary to obtain medical care, described in Code Section 213(d), of the Employee, the Employee's spouse, children, or dependents; (2) costs directly related to the purchase, excluding mortgage payments, of a principal residence for the Employee; (3) payment of tuition and related educational fees for the next twelve (12) months of post- secondary education for the Employee, the Employee's Spouse, children or dependents; or (4) payment necessary to prevent the eviction of the Employee from, or a foreclosure on the mortgage of, the Employee's principal residence. (B) A distribution will be considered necessary to satisfy an immediate and heavy financial need of an Employee who lacks other available resources only if: (1) the Employee has obtained all distributions, other than hardship distributions, and all nontaxable loans under all plans maintained by the Employer; and (2) the distribution is not in excess of the amount of an immediate and heavy financial need, including amounts necessary to pay any federal, state or local income taxes or penalties reasonably anticipated to result from the distribution. (C) In addition to the conditions above, any hardship withdrawal to a Participant made pursuant to this Section shall be increased by an amount equal to the lesser of: (1) all federal, state, and local income taxes and associated penalties (including, if applicable, the additional income tax described in Code Section 72(t) imposed with respect to such hardship withdrawal); or (2) the amount, if any, in such Participant's Savings Account in excess of such hardship withdrawal. (ii) Upon Attainment of Age 59 1/2. A Participant may elect to receive a lump-sum distribution of the amount in his Savings Account at any time after such Participant attains age fifty-nine and one-half (59 1/2); provided, however, that such distribution shall not include any shares of Company Stock held in the Restricted Company Stock Fund. (b) Matching Employer Contribution Accounts and Discretionary Employer Contribution Accounts. (i) Prior to Attainment of Age 59 1/2. A Participant may not receive a distribution from his Matching Employer Contribution Account or his Discretionary Employer Contribution Account prior to his attainment of age fifty-nine and one-half (59 1/2). (ii) After Attainment of Age 59 1/2. A Participant may elect to receive a lump-sum distribution of the vested amount in his Matching Employer Contribution Account and/or his Discretionary Employer Contribution Account at any time after such Participant attains age fifty-nine and one-half (59 1/2); provided, however, that such distribution shall not include any shares of Company Stock held in the Restricted Company Stock Fund. (c) Rollover Accounts. A Participant may receive an in-service distribution from his Rollover Account at any time. A Participant may not receive an in-service distribution from his W & B Plan Rollover Account. (d) ESOP Accounts. (i) Hardship Distributions. A Participant may not receive a hardship distribution from his ESOP Accounts. (ii) In-service Distributions. A Participant may not receive an in-service distribution from his ESOP Accounts. (e) Section 16 Insiders. Notwithstanding the preceding, if the Participant requesting a withdrawal from the Company Stock Funds is an executive officer, director or 10% shareholder of the Company (a "Section 16 Insider"), then any such withdrawal from the Company Stock Funds shall be paid by a distribution in kind of Company Stock, and cash may be distributed only to the extent that the distribution is made pursuant to an election made at least six (6) months following the date of the most recent election, with respect to any employee benefit plan of the Company, that effected an opposite way "discretionary transaction," qualifying for exemption under the requirements for an exempt "discretionary transaction," as that term is defined in Rule 16b-3, issued by the Securities and Exchange Commission under Section 16 of the Securities Exchange Act of 1934. The Committee shall give such directions to the Trustee as shall be appropriate to effectuate the distribution in accordance with the terms hereof of the amount being withdrawn. Such withdrawals described in Section 10.2(b) below shall be debited to the Participant's Savings Account, and the Committee shall charge the sum of such debits to the Company Stock Funds and/or other Investment Fund(s) within such Savings Account in such manner as the Participant designates in writing; provided, however, if the Participant fails to make such a written designation, the Committee shall charge the sum of such debits to the investment fund to be determined by the Committee. Section 10.4 Loans to Participants. The Committee may authorize a loan to the Participants and to any Former Participant who is a "party-in-interest" (as defined in ERISA Section 3(14)) who makes application therefore, of amounts credited to the Participant's Accounts, including any shares of Company Stock held in the Restricted Company Stock Fund. Provided, however, that no portion of the Annuity-Restricted Account (as defined in Section 11.2) or the ESOP Accounts shall be available for a loan. Loans shall not be available to any person who is not a party-in- interest as defined in ERISA Section 3(14). Each such loan shall be subject to the following provisions: (a) A Participant must apply for each loan either in writing on an application form provided by the Committee or through such other means as may be authorized by the Committee. As a condition to the making of the loan, the Participant shall agree to pay the loan set-up and annual loan administration fees associated with the extension of the loan from his Account (unless paid directly by the Participant). (b) The amount of any loan, when added to the outstanding balance of all other loans to the Participant or Former Participant under this Plan shall not exceed the lesser of: (i) $50,000, reduced by the excess (if any) of (i) the highest outstanding balance of loans to the Participant or Former Participant from the Plan and all related plans during the one year period ending on the day before the date the loan is made, over (ii) the outstanding balance of loans to the Participant or Former Participant from the Plan and all related plans on the date the loan is made; and (ii) 50% of the amount in which the Participant would have a vested interest in the event his Separation from Service was to occur on the date the loan is made. For purposes of this Section, a related plan is any "qualified employer plan," as defined in Code Section 72(p)(3), sponsored by the Employers or any related employer, determined according to Code Section 72(p)(2)c. (c) Each loan shall be evidenced by a promissory note payable to the order of the Plan. Each loan shall be adequately secured as determined by the Committee. A loan shall be considered adequately secured if the amount of the loan at the date the loan is granted does not exceed one-half of the amount in which the Participant would have a vested interest in the event of his Separation from Service. (d) Each loan shall bear an interest rate equal to the "prime lending rate" published in the Wall Street Journal plus one percent (1%) at the time such loan is requested. (e) Each such loan shall provide for the repayment of principal and accrued interest in substantially level amortized payments payable not less frequently than quarterly through payroll deduction payments. (f) Each loan shall extend for a stated period determined by agreement of the Participant and the Committee, not exceeding five years. The limitation in the preceding sentence shall not apply to any loan designated by the Committee as a home loan. For purposes of this Section 10.2, a "home loan" is a loan used to acquire any dwelling unit that within a reasonable time is to be used as the principal residence of the Participant. A home loan shall not exceed ten (10) years. (g) If a loan to a Participant is outstanding on the date a distribution is to be made from the Plan with respect to a portion of the Participant's Accounts represented by the loan, the balance of the loan, or a portion thereof equal to the amount to be distributed, if less, shall on such date become due and payable; provided that if the Participant is a party-in- interest (as defined in ERISA Section 3(14)), such loan shall not become due and payable if renegotiated on terms acceptable to the Committee. The portion of the loan due and payable shall be satisfied by offsetting such amount against the amount to be distributed to the Participant. Alternatively, the Committee may in its discretion direct that the portion of the Participant's Accounts equal to the outstanding loan balance be distributed in kind by distribution of the Participant's note. (h) If a loan to a Participant is outstanding at the time of the Participant's death, and if the Participant's executor or administrator does not repay the loan, the note shall be distributed in kind to the Participant's Beneficiary. (i) A loan shall be accelerated and immediately due in full upon a Participant's termination of employment. (j) If a Participant fails to pay interest or principal on an outstanding loan when due, his Account from which the loan was made shall, at the direction of the Committee, be reduced by the unpaid amount if a withdrawal would be permitted from said Account pursuant to Article 6. The Participant shall be treated as having received such a distribution and shall receive credit under the promissory note for the delinquent payment accordingly. If the Committee does not take such action, the Committee shall take whatever steps (including legal action) it deems necessary to collect the unpaid amount. (k) In accordance with the foregoing standards and requirements, loans shall be available to all Participants on a reasonably equivalent basis. A Participant shall only be entitled to have two (2) loans in effect at the same time. Each loan must be in a minimum amount of $1,000. (l) All loans shall be governed by such rules and regulations as the Committee may adopt which rules and regulations are hereby incorporated by reference. The Committee shall cause to be furnished to any Participant receiving a loan any information required to be furnished pursuant to the Federal Truth in Lending Act, if applicable, or pursuant to any other applicable law. (m) The portion of a Participant's Accounts represented by the outstanding loan principal shall be segregated and shall not share in the income or losses of the Plan. In lieu of sharing in such income or losses, the Participant's Accounts shall be credited with all interest paid by the Participant on the loan. The Trustee may charge to the Participant's Accounts any expenses attributable to the loan. (n) The investment funds held for a Participant's Accounts shall be liquidated to provide cash equal to the loan principal on a pro rata basis. (o) Loan repayments will be suspended under this Plan, as permitted under Code Section 414(u)(4), on behalf of those Participants who are on an authorized leave of absence pursuant to qualified military service. * * * * * * * ARTICLE ELEVEN -------------- METHODS OF PAYMENT Section 11.3 Participant Election. (a) Timing of Distributions. (i) Subject to the provisions of this Article 11, upon the Retirement or Disability of a Participant, or the death of a Participant or Former Participant, distribution of amounts to which a Participant, Former Participant or Beneficiary became entitled pursuant to Section 6.1 of the Plan shall commence as soon as administratively practicable following the event which caused entitlement to a distribution, and shall be completed as soon as administratively practicable following the end of the Plan Year in which the Participant or Former Participant Retired, became Disabled or died. (ii) Subject to the provisions of this Article 11, upon the Separation from Service of a Participant, distribution of amounts to which a Participant becomes entitled pursuant to Sections 6.2 and 6.3c of the Plan shall be completed as soon as administratively practicable following the event which caused entitlement to a distribution. (b) ESOP Account Distributions. (i) Notwithstanding the provisions of Section 11.1(a)(ii), if the Participant Separates from Service for any reason other than Retirement, Death or Disability and is not reemployed by the Employer at the end of the first Plan Year following the Plan Year of the Separation from Service, the Participant may elect to have distribution of the vested percentage of his ESOP Accounts made on or after the date that is one year after the close of the first Plan Year following the Plan Year in which the Participant Separated from Service by completing a distribution request form and submitting it to the Committee; in the absence of such an election, distribution of the vested percentage of the Participant's ESOP Accounts will begin during the sixty (60) day period following the end of the Plan Year in which the Participant reaches Normal Retirement Age. If the Participant is reemployed by the Employer by the end of the first Plan Year, distribution under the Plan will be governed by whichever part of this Article thereafter becomes applicable. The Committee shall combine the Nonforfeitable percentage of the ESOP Transfer Account of a Participant determined under Section 6.2 with the Participant's ESOP Rollover Account into one Account, and the Trustee shall make payments to the Participant pursuant to Article 11. (ii) Notwithstanding any contrary provision, unless other Plan distribution provisions require earlier distribution of the Participant's ESOP Accounts, if the Participant and, if applicable pursuant to Code Sections 401(a)(11) and 417, with the consent of the Participant's spouse, elects, the Committee shall direct the Trustee to commence distribution of the Participant's Account Balance attributable to Company Stock acquired after December 31, 1986 in the Participant's ESOP Accounts no later than one (1) year after the close of the Plan Year in which the Participant Separates from Service because of attainment of Normal Retirement Age, Disability, or death. This distribution requirement is subject to the form of distribution requirements of this Article 11. (iii) Notwithstanding any contrary provision, unless other Plan distribution provisions require earlier distribution of the Participant's ESOP Accounts, if the Participant and, if applicable pursuant to Code Sections 401(a)(11) and 417, with the consent of the Participant's spouse, elects, the Committee shall direct the Trustee to commence distribution of the Participant's Account Balance attributable to Company Stock acquired after December 31, 1986 in the Participant's ESOP Accounts no later than one (1) year after the close of the Plan Year which is the fifth (5th) Plan Year following the Plan Year in which the Participant Separates from Service for any reason other than attainment of Normal Retirement Age, death or disability. This distribution requirement is subject to the form of distribution requirements of this Article. If the Participant resumes employment with the Employer on or before the last day of the fifth (5th) Plan Year following the Plan Year of the Participant's Separation from Service, the distribution provisions of this paragraph will not apply until the Participant again may separate from Service for any reason other than attainment of Normal Retirement Age, death or disability. (c) Form of Distribution. (i) Participant-Directed Accounts. Except as provided in Section 11.2, distributions under this Plan shall be made in a lump sum. A Participant shall elect whether his lump sum distribution shall be made in cash or as a combination of Company Stock (and cash in lieu of fractional shares) from any Account balances invested in the Company Stock Funds and cash from any Account balances invested in the other Investment Fund(s). (ii) ESOP Accounts. Distributions from a Participant's ESOP Accounts shall be made in a lump sum and shall be in the form of whole shares of Company Stock. The value of any fractional shares shall be distributed in cash. If Company Stock is not readily tradable on an established market, the recipient shall receive a put option as described in Section 13.2. A Participant entitled to a distribution from his ESOP Accounts shall have the right to demand that all such distributions be made in Qualifying Company Stock or in cash for fractional shares. (d) An amount to which a Participant, Former Participant or Beneficiary is entitled pursuant to Section 6.4(b) shall be paid in cash to such Participant, Former Participant or Beneficiary as soon as administratively practicable after the determination of such amount or, if later, the date a payment is made to such Participant, Former Participant or Beneficiary under Section 11.1(a) or (b); provided, however, that if the total value of his vested interest in his Accounts is less than or equals $5,000 he shall be entitled to receive a distribution of the portion of such Accounts which was invested in Company Stock at the time the Participant became entitled thereto, in cash or shares of Company Stock, with the value of any fractional shares to be paid in cash. (e) Notwithstanding anything to the contrary herein contained, unless a Participant or Former Participant has attained age sixty-five (65), if the value of the vested interest in his Accounts exceeds $5,000, no distribution may be made to such Participant or Former Participant without his express written consent. (f) Notwithstanding anything to the contrary herein contained, a Participant's benefits will in all events be paid in a lump sum as soon as practicable following the end of the Plan Year in which such Participant terminates employment if the total value of his vested interest in all Accounts is less than or equals $5,000. Unless affirmatively elected otherwise, such distribution shall be made in cash and in whole shares of Company Stock for all ESOP Accounts and any other account balances invested in the Company Stock Funds. Section 11.4 Joint and Survivor Annuity. (a) Notwithstanding any provision of the Plan to the contrary, if any portion of a Participant's Rollover Account, W & B Plan Rollover Account, or ESOP Rollover Account represents a transfer of assets, directly or indirectly, from a defined benefit plan, or from a defined contribution plan that is either subject to the funding standards of Code Section 412 or otherwise subject to the requirements of Code Section 401(a)(11)(A), such portion (referred to in this Article 11 as the "Annuity-Restricted Account") shall, if the Participant does not die before the Annuity Starting Date, be distributed in the form of a qualified joint and survivor annuity in the absence of a qualified waiver under Section 11.3, or except as otherwise provided in Section 6.3(c). For purposes of this paragraph, Annuity Starting Date means the first day of the first period for which an amount is payable as an annuity, or, in the case of the benefit not payable in the form of an annuity, the first day on which all events have occurred which entitled the Participant to such benefit. The qualified joint and survivor annuity shall be purchased with the total amount (as determined under Article 11) credited to the Participant's Annuity-Restricted Account subject to this Section 11.2. (b) Notwithstanding any provision of the Plan to the contrary, in the case of any Participant who dies before distribution of his benefits under the Plan has commenced, a qualified preretirement survivor annuity shall be payable from the Annuity-Restricted Account (as determined under Article 11) to the Spouse of the Participant in the absence of a qualified waiver under Section 11.3, or except as otherwise provided in Section 6.3(c). Section 11.5 Joint and Survivor Annuity Requirements. (a) This Plan is a profit sharing plan and the provisions of this Section 11.3 apply only to a Participant described in Section 11.2 and this Section. The provisions of this Section 11.3 do not apply to any Participant in the Plan except: (i) a Participant described in Section 11.2; (ii) a Participant for whom the Plan is a direct or indirect transferee from a plan subject to the survivor annuity requirements of Code Sections 401(a)(11) and 417 and the Plan received the transfer after December 31, 1984, unless the transfer is an Elective Transfer; (iii) a Participant who elects a life annuity distribution (if the Plan is required to provide a life annuity distribution option); or (iv) a Participant whose benefits under a defined benefit plan maintained by the Employer are offset by benefits provided under this Plan. If the provisions of this Section apply to any Participant, the provisions of this Section shall apply to all vested benefits of the Participant, whether the Participant became vested in the benefit before or after death, which are payable under the Plan, including any proceeds from contracts, if any, on the Participant's life, owned by the Plan. (b) Qualified Joint and Survivor Annuity. Unless an optional form of benefit is selected pursuant to a Qualified Election within the ninety (90) day period ending on the Annuity Starting Date, a married Participant's Nonforfeitable Account Balance will be paid in the normal form of a Qualified Joint and Survivor Annuity, defined in Section 11.3(d)(vi), and an unmarried Participant's Nonforfeitable Account Balance will be paid in the normal form of an immediate life annuity. The Participant may elect to have the annuity distributed upon attainment of the Earliest Retirement Age under the Plan. A Participant shall be considered vested even if the Participant is only vested in Employee Contributions. For purposes of satisfying the Qualified Joint and Survivor Annuity requirements, Account Balances shall mean benefits derived from both Employee and Employer Contributions. (c) Qualified Preretirement Survivor Annuity. Unless an optional form of benefit has been selected within the Election Period pursuant to a Qualified Election, if a Participant dies before the Annuity Starting Date, then the Participant's Nonforfeitable Account Balance shall be applied toward the purchase of a Qualified Preretirement Survivor Annuity, defined in Section 11.3(d)(vii). The Surviving Spouse may elect to commence payment of the Qualified Preretirement Survivor Annuity within a reasonable period after the Participant's death. For purposes of this Section 11.3c, the amount of the Qualified Preretirement Survivor Annuity attributable to Employee Contributions shall not be an amount in excess of the ratio of Employee and Employer Contributions. In determining the value of the Qualified Preretirement Survivor Annuity, any portion of a Participant's Individual Account which is pledged as collateral to secure payment of a Plan Participant loan shall be included in the Nonforfeitable Account Balance. (d) Definitions. (i) Annuity Starting Date means the first day of the first period for which an amount is paid as an annuity or any other form. (ii) Election Period means the period that begins on the first day of the Plan Year in which the Participant attains age thirty-five (35) years and ends on the date of the Participant's death. If a Participant separates from Service prior to the first day of the Plan Year in which the Participant attains age thirty-five (35) years, for the Account Balance as of the date of separation, the Election Period shall begin on the date of separation. A Participant who will not yet attain age thirty-five (35) years as of the end of any current Plan Year may make a Special Qualified Election to waive the Qualified Preretirement Survivor Annuity for the period beginning on the date of the election and ending on the first day of the Plan Year in which the Participant will attain age thirty-five (35) years. The election shall not be valid unless the Participant receives a written explanation of the Qualified Preretirement Survivor Annuity in such terms as are comparable to the explanation required under Section 11.3(e)(i). Qualified Preretirement Survivor Annuity coverage will be automatically reinstated as of the first day of the Plan Year in which the Participant attains age thirty-five (35) years. Any new waiver on or after the date shall be subject to the full requirements of this Article. (iii) Earliest Retirement Age means the earliest date on which, under the Plan, the Participant could elect to receive retirement benefits. (iv) Nonforfeitable Account Balance means the aggregate value of the Participant's Nonforfeitable Account Balance derived from Employer and Employee Contributions, including rollovers, whether vested before or upon death, including the proceeds of contracts, if any, on the Participant's life. The provisions of this Article shall apply to a Participant who is vested in amounts attributable to Employer Contributions, Employee Contributions, or both, at the time of death or distribution. (v) Qualified Election means a waiver of a Qualified Joint and Survivor Annuity or a Qualified Preretirement Survivor Annuity. Any waiver of a Qualified Joint and Survivor Annuity or a Qualified Preretirement Survivor Annuity shall not be effective unless: (A) the Participant's Spouse to whom the Survivor Annuity or Preretirement Survivor Annuity is payable consents in writing to the waiver election; (B) the election designates a specific Beneficiary, including any class of Beneficiaries or any contingent Beneficiaries; (C) the Spouse is the Participant's sole primary Beneficiary, the Spouse consents to the Participant's Beneficiary designation or consents to any change in the Participant's Beneficiary designation without any further spousal consent; (D) the Spouse's consent acknowledges the effect of the election; and (E) the Spouse's consent is witnessed by a Plan representative or notary public. (F) Additionally, a Participant's waiver of the Qualified Joint and Survivor Annuity shall not be effective unless the election designates a form of benefit payment and the Spouse consents to the form of payment designated by the Participant or consents to any change in that designated form of payment without any further spousal consent. Notwithstanding this consent requirement, if the Participant establishes to the satisfaction of a Plan representative that written consent may not be obtained because there is no Spouse, or the Spouse cannot be located, a waiver will be deemed a Qualified Election. If the Spouse is legally incompetent to give consent, the Spouse's legal guardian, even if the guardian is the Participant, may give consent. Also, if the Participant is legally separated or the Participant has been abandoned (within the meaning of local law) and the Participant has a court order to such effect, spousal consent is not required unless a Qualified Domestic Relations Order described in Code Section 414(p) provides otherwise. Any consent obtained under this provision, or establishment that the consent of a Spouse may not be obtained, shall be effective only with respect to the Spouse who signs the consent, or in the event of a deemed Qualified Election, the designated spouse. A consent that permits designations by the Participant without any requirement of further consent by the Spouse must acknowledge that the Spouse has the right to limit consent to a specific Beneficiary, and a specific form of benefit where applicable, and that the Spouse voluntarily elects to relinquish either or both of the rights. A revocation of a prior waiver may be made by a Participant without the consent of the Spouse at any time before the commencement of benefits. The number of revocations shall not be limited. No consent obtained under this provision shall be valid unless the Participant has received notice as provided in Section 11.3(e). After the Participant's death, a Beneficiary may change the optional form of survivor benefit as permitted by the Plan. (vi) Qualified Joint and Survivor Annuity means, in the case of a married Participant who does not die before the Annuity Starting Date, an immediate annuity for the life of the Participant with a Survivor Annuity for the life of the Spouse which is equal to fifty percent (50%) of the amount of the annuity which is payable during the joint lives of the Participant and the Spouse and which is the amount of benefit which can be purchased with the Participant's Nonforfeitable Account Balance. In the case of an unmarried Participant who does not die before the Annuity Starting Date, the Qualified Joint and Survivor Annuity requirement means an annuity for the life of the Participant which is the amount of benefit which can be purchased with the Participant's Nonforfeitable Account Balance. (vii) Qualified Preretirement Survivor Annuity means an annuity for the life of the Participant's Spouse, the payments under which shall be equal to the amount of benefit which can be purchased with the Nonforfeitable Account Balance of the Participant. The Participant's Surviving Spouse will receive the same benefit that would be payable if the Participant had retired with an immediate Qualified Joint and Survivor Annuity on the day before the Participant's date of death. (viii) Spouse, Surviving Spouse means the Spouse or Surviving Spouse of the Participant, provided that a former spouse will be treated as the Spouse or Surviving Spouse and a current spouse will not be treated as the Spouse or Surviving Spouse to the extent provided under a Qualified Domestic Relations Order described in Code Section 414(p). (e) Notice Requirements. (i) For a Qualified Joint and Survivor Annuity described in Section 11.3(d)(vi), the Administrator shall provide, no less than thirty (30) days and no more than ninety (90) days prior to the Annuity Starting Date, to each Participant a written explanation of: (A) the terms and conditions of a Qualified Joint and Survivor Annuity; (B) the Participant's right to make and the effect of an election to waive the Qualified Joint and Survivor Annuity form of benefit; (C) the rights of a Participant's Spouse; and (D) the right to make, and the effect of, a revocation of a previous election to waive the Qualified Joint and Survivor Annuity. (ii) For a Qualified Preretirement Survivor Annuity described in Section 11.3(d)(vii), the Administrator shall provide, within the applicable notice period for the Participant, to each Participant a written explanation of the Qualified Preretirement Survivor Annuity in such terms and in such manner comparable to the explanation provided for meeting the requirements of Section 11.3(e)(i) applicable to a Qualified Joint and Survivor Annuity. The applicable notice period for the waiver of the Qualified Preretirement Survivor Annuity is whichever of the following periods ends last: (A) the period beginning with the first day of the Plan Year in which the Participant attains age thirty-two (32) years and ending with the close of the Plan Year preceding the Plan Year in which the Participant attains age thirty-five (35) years; (B) a reasonable period ending after the individual becomes a Participant; (C) a reasonable period ending after Section 11.3(e)(iii) ceases to apply to the Participant; or (D) a reasonable period ending after this Article first applies to the Participant. Notwithstanding the foregoing, notice must be provided within a reasonable period ending after separation from Service in the case of a Participant who separates from Service before attaining age thirty-five (35) years. For purposes of applying the preceding paragraph, a reasonable period ending after the events described in (B), (C) and (D) is the end of the two (2) year period beginning one (1) year prior to the date the applicable event occurs and ending one (1) year after that date. In the case of a Participant who separates from Service before the Plan Year in which the Participant attains age thirty-five (35) years, notice shall be provided within the two (2) year period beginning one (1) year prior to separation and ending one (1) year after separation. If the Participant thereafter returns to employment with the Employer, the applicable period for the Participant shall be redetermined. If a Participant enters the Plan after the first day of the Plan Year in which the Participant attained age thirty-two (32) years, the Administrator shall provide notice no later than the close of the second Plan Year succeeding the entry of the Participant in the Plan. (iii) Notwithstanding the other requirements of this Section 11.3(e), the respective notices prescribed by this Section shall be given to a Participant even if the Plan fully subsidizes the costs of a Qualified Joint and Survivor Annuity or Qualified Preretirement Survivor Annuity. For purposes of this Section 11.3(e), a plan fully subsidizes the costs of a benefit if under the plan the failure to waive the benefit by a Participant would not result in a decrease in any plan benefit with respect to the Participant and would not result in increased contributions from the Participant. Notwithstanding the foregoing, the Committee may provide the written explanation described above to the Participant after his benefit commencement date. The Participant (and his Spouse, if applicable) may waive the 30-day election period if the distribution of the elected form of benefit commences more than seven (7) days after the Committee provides the Participant (and his Spouse, if applicable) the written explanation. Section 11.6 Notice and Explanation to Participants. The Committee shall provide each Participant who has an Annuity- Restricted Account within a reasonable period of time prior to the commencement of benefits under the Plan a written explanation setting forth the provisions of Section 11.3. Section 11.7 Direct Rollover Optional Form of Benefit. (a) Direct Rollover. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee's election under this Section, a distributee may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover. (b) Definitions. (i) Eligible Rollover Distribution. An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Code Section 401(a)(9); 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); and hardship distributions made pursuant to Section 10.1(a)(i). (ii) Eligible Retirement Plan. An eligible retirement plan is an individual retirement account described in Code Section 408(a), an individual retirement annuity described in Code Section 408(b), an annuity plan described in Code Section 403(a), or a qualified trust described in Code Section 501(a), that accepts the distributee's eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity. (iii) Distributee. A distributee includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving Spouse and the Employee's or former Employee's Spouse or former Spouse who is the alternate payee under a qualified domestic relations order, as defined in Code Section 414(p), are distributees with regard to the interest of the Spouse or former Spouse. (iv) Direct Rollover. A direct rollover is a payment by the plan to the eligible retirement plan specified by the distributee. Section 11.8 Election to Defer Receipt of Benefits. Notwithstanding the foregoing, a Participant who leaves the employment of the Employer before his or her Normal Retirement Date or Early Retirement Date may elect to leave his or her Nonforfeitable Account Balance under the management of the Trustee until Normal Retirement Date or Early Retirement Date. The Trustee shall invest and reinvest and shall credit and charge the Individual Account with its proportionate share of gains and losses of the Trust Fund pursuant to Article 5 until the Nonforfeitable Account Balance is paid out to the Former Participant under this Article. Any election made under this Section shall be irrevocable and shall be made no later than fourteen (14) days before the electing Participant becomes entitled to receive his or her Nonforfeitable Account Balance in the Plan. Notwithstanding the foregoing, a Participant who has elected to leave his or her Nonforfeitable Account Balance under the management of the Trustee may later elect to have the Account Balance transferred to any pension or profit sharing plan maintained by another Employer in which the Participant has, at the time of the later election, become a Participant under the transferee plan. Section 11.9 Election of Form of Payment of Benefits. (a) The Participant, Former Participant, or Beneficiary shall elect the form or forms of payment of benefits permitted in Sections 11.1 and 11.5 which the Committee and Trustee shall implement. Not earlier than ninety (90) days, but not later than thirty (30) days, before the Participant's Annuity Starting Date, the Committee must provide a benefit notice to a Participant who is eligible to make an election under this Section. The Participant's Annuity Starting Date means the first day of the first period for which an amount is paid as an annuity or any other form. The benefit notice must explain the optional forms of benefit in the Plan, including the material features and relative values of those options, and the Participant's right to defer distribution until he or she attains the later of Normal Retirement Age or age 62. (b) If a distribution is one to which Code Sections 401(a)(11) and 417 do not apply, such distribution may commence less than thirty (30) days after the notice required under Treasury Regulations Section 1.411(a)-11(c) given, provided that: (i) the Plan Administrator clearly informs the Participant that he or she has a right to a period of at least thirty (30) days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and (ii) the Participant, after receiving the notice, affirmatively elects a distribution. (c) If a Participant, Former Participant, or Beneficiary makes an election prescribed by this Section, the Committee will direct the Trustee to distribute the Participant's Nonforfeitable Account Balance pursuant to that election. Any election under this Section is subject to the mandatory distribution requirements of Sections 11.8 and 8.3 and the survivor annuity requirements of Sections 11.2 and 11.3, if applicable. The Participant, Former Participant or Beneficiary must make an election under this Section by filing an election form with the Committee at any time before the Trustee otherwise would commence to pay a Participant's Account Balance under the applicable requirements of Articles 6, 8 and 11. Section 11.10 Limit on Commencement of Distribution. (a) Unless both the Employer and the Participant or Former Participant agree otherwise, the payment of benefits to which a Participant, Former Participant or Beneficiary is entitled shall in no event commence later than the latest of the following dates: (i) the 60th day after the close of the Plan Year in which such Participant or Former Participant attains his Normal Retirement Date; (ii) the 60th day after the close of the Plan Year in which occurs the date 10 years after the date such Participant or Former Participant first commenced participation in the Plan; or (iii) the 60th day after the close of the Plan Year in which such Participant or Former Participant terminates his employment with all Employers. (b) If payment does not commence earlier under Section 11.8(a), the payment of benefits to which a Participant, Former Participant or Beneficiary is entitled will be distributed or commence to be distributed to him not later than his Required Beginning Date. (c) The Committee may not direct the Trustee to distribute the Participant's Nonforfeitable Account Balance, nor may the Participant elect to make the Trustee distribute the Nonforfeitable Account Balance, under a method of payment which, as of the Required Beginning Date, does not satisfy the minimum distribution requirements under Code Section 401(a)(9) and the applicable Treasury Regulations. All distributions required under this Article shall be determined and made under Code Section 401(a)(9) and applicable Treasury Regulations, including the minimum distribution incidental benefit requirements of Treasury Regulation Section 1.401(a)(9)-2. With respect to distributions made for calendar years beginning on or after January 1, 2002, the Plan will apply the minimum distribution requirements of section 401(a)(9) of the Code in accordance with the regulations under Section 401(a)(9) that were proposed on January 17, 2001, notwithstanding any provision of the Plan to the contrary. The foregoing sentence shall continue in effect until the end of the last calendar year beginning before the effective date of final regulations under Section 401(a)(9) or such other date as may be specified in guidance published by the Internal Revenue Service. A mandatory distribution at the Participant's Required Beginning Date will be in one lump sum unless the provisions of Section 11.2 or Section 8.3 apply. As of the first Distribution Calendar Year, distributions may only be made in one of the optional forms of benefit permitted by Sections 11.1, 11.2, and 11.5 hereof. (d) Defined terms used in this Section 11.8 and not defined in this Article or in Article 2 are defined in Section 8.3c(ii) and (d). Section 11.11 Minority or Disability. During the minority or disability of any person entitled to receive benefits hereunder, the Committee may direct the Trustee to make payments thereof to the guardian or other legal representative authorized under applicable law to receive property on behalf of such person. If permitted under applicable law, the Committee may direct such payments to be made directly to such person, to such person's Spouse, to a relative of such person or to any individual or institution having custody of such person. If such applicable law does not permit payment of benefits to be made as provided above in this Section 11.9, then such payments shall be made in such manner, at such time, and to such person or entity as may be required or permitted under such applicable law. Except as may otherwise be provided by applicable law: (i) neither the Committee nor the Trustee shall be required to see to the application of any payments made under this Section 11.9; and (ii) the receipt of the payee shall be conclusive as to all interested parties. Section 11.12 Unclaimed Benefit. If at, after, or during the time when a benefit hereunder is payable to any Participant, Former Participant or Beneficiary, the Committee, upon request of the Trustee, or at its own instance, mails by registered or certified mail to such Participant, Former Participant or Beneficiary at his last known address, a written demand for his then address, or for satisfactory evidence of his continued life, or both, and if such Participant, Former Participant, or Beneficiary shall fail to furnish the same to the Committee within two years from the mailing of such demand, then, unless otherwise required by applicable law, the Committee may, in its sole discretion, determine that such Participant, Former Participant or Beneficiary has forfeited his right to such benefit and may declare such benefit, or any unpaid portion thereof, terminated as if the death of the Participant, Former Participant or Beneficiary (with no surviving Beneficiary) had occurred on the date of the last payment made thereon or on the date such Participant, Former Participant or Beneficiary first became entitled to receive benefit payments, whichever is later. All such forfeitures shall be used to reduce future Employer Contributions, shall at all times remain Trust Assets, and in no event shall they escheat to any governmental unit under any escheat law. If such applicable law does not permit this disposition of unclaimed benefits then such unclaimed benefits shall be administered in such manner as may be required or permitted under such applicable law. * * * * * * * ARTICLE TWELVE -------------- TOP HEAVY PROVISIONS Section 12.3 Application. This Article shall apply for any Plan Year beginning with the first Plan Year in which the Plan is determined to be top-heavy. Section 12.4 Top-Heavy Plan Status/Super Top-Heavy Plan Status. This Plan shall be a Top-Heavy Plan in any Plan Year in which, as of the Determination Date, (a) the Present Value of Accrued Benefits of Key Employees, or (b) the sum of the Aggregate Accounts of Key Employees of any plan of an Aggregation Group, exceeds sixty percent (60%) of the Present Value of Accrued Benefits or Aggregate Accounts of all Participants under this Plan and any plan of an Aggregation Group. If any Participant is a Non-Key Employee for any Plan Year, but the Participant was a Key Employee for any prior Plan Year, the Participant's Aggregate Account balance shall not be taken into account in determining whether this Plan is a Top-Heavy Plan (or whether any Aggregation Group which includes this Plan is a Top-Heavy Group) as further defined in Code Section 416(g) and the applicable Treasury regulations. This Plan shall be a Super Top-Heavy Plan for any Plan Year in which, as of the Determination Date, (a) the Present Value of Accrued Benefits of Key Employees, or (b) the sum of the Aggregate Accounts of Key Employees of any plan of an Aggregation Group, exceeds ninety percent (90%) of the Present Value of Accrued Benefits and the Aggregate Accounts of all Participants under this Plan and any plan of an Aggregation Group. If any Participant is a Non-Key Employee for any Plan Year, but the Participant was a Key Employee for any prior Plan Year, the Participant's Aggregate Account balance shall not be taken into account in determining whether this Plan is a Super Top-Heavy Plan (or whether any Aggregation Group which includes this Plan is a Top-Heavy Group) as further defined in Code Section 416(g) and the applicable Treasury regulations. For purposes of determining Top-Heavy and Super Top-Heavy status, the following definitions shall apply: (a) Aggregate Account means, as of the Determination Date, the sum of: (i) the account balances of the Savings Account, Discretionary Employer Contribution Account, Matching Employer Contribution Account and ESOP Transfer Account as of the most recent Valuation Date occurring within a twelve (12) month period ending on the Determination Date; (ii) the contributions that would be allocated as of a date not later than the Determination Date, even though those amounts are not yet made or required to be made; (iii) any plan distributions made during the Determination Period (However, in the case of distributions made after the Valuation Date and prior to the Determination Date, such distributions are not included as distributions for Top-Heavy purposes to the extent that the distributions are already included in the Participant's Aggregate Account balance as of the Valuation Date.); and (iv) any Employee contributions, whether voluntary or mandatory (However, amounts attributable to Participant Deductible Voluntary Contributions shall not be considered to be a part of the Participant's Aggregate Account balance.). (v) Regarding unrelated rollovers and plan-to-plan transfers (those which are (A) initiated by the Employee and (B) made from a plan maintained by one employer to a plan maintained by another employer), if this Plan provides for rollovers or plan-to-plan transfers, an unrelated rollover or plan-to-plan transfer shall be considered as a distribution for purposes of this Section. If this Plan is the plan accepting an unrelated rollover or plan-to-plan transfer, an unrelated rollover or plan-to-plan transfer shall not be considered as part of the Participant's Aggregate Account balance. (vi) Regarding related rollovers and plan-to-plan transfers (those either (A) not initiated by the Employee or (B) made to a plan maintained by the same Employer), if this Plan provides for rollovers or plan-to-plan transfers, a related rollover or plan-to-plan transfer shall be considered as a distribution for purposes of this Section. If this Plan is the plan accepting a related rollover or plan-to-plan transfer, a related rollover or plan-to-plan transfer shall be considered as part of the Participant's Aggregate Account balance, irrespective of the date on which the related rollover or plan-to-plan transfer is accepted. (b) Aggregation Group means either a Required Aggregation Group or a Permissive Aggregation Group as hereinafter determined. (i) Required Aggregation Group means the group of plans composed of (A) each plan of the Employer in which a Key Employee is a Participant or participated at any time during the Determination Period, regardless of whether the plan has terminated; and (B) each other plan of the Employer which enables any plan in which a Key Employee participates to meet the requirements of Code Sections 401(a)(4) or 410, which shall be aggregated. In the case of a Required Aggregation Group, each plan in the group will be considered a Top-Heavy Plan if the Required Aggregation Group is a Top-Heavy Group. No plan in the Required Aggregation Group will be considered a Top-Heavy Plan if the Required Aggregation Group is not a Top-Heavy Group. (ii) Permissive Aggregation Group means the Required Aggregation Group plus any other plan not required to be included in the Required Aggregation Group, provided the resulting group, taken as a whole, would continue to satisfy Code Sections 401(a)(4) and 410. In the case of a Permissive Aggregation Group, only a plan that is part of the Required Aggregation Group will be considered a Top-Heavy Plan if the Permissive Aggregation Group is a Top-Heavy Group. No plan in the Permissive Aggregation Group will be considered a Top-Heavy Plan if the Permissive Aggregation Group is not a Top-Heavy Group. (iii) Only those plans of the Employer in which the Determination Dates fall within the same calendar year shall be aggregated to determine whether the plans are Top- Heavy Plans. (c) Determination Date means for any Plan Year (i) the last day of the preceding Plan Year, or (ii) in the case of the first Plan Year of the Plan, the last day of the first Plan Year. (d) Determination Period means the five (5) year period ending on the Determination Date. (e) Employer means the Employer that adopts this Plan. Related Employers shall be considered a single Employer for purposes of applying the limitations of these top-heavy rules. (f) Excluded Employees means any Employee who has not performed any Service for the Employer during the five (5) year period ending on the Determination Date. Excluded Employees shall be excluded for purposes of a Top-Heavy determination. (g) Key Employee means any Employee or Former Employee, or Beneficiary of the Employee, who, for any Plan Year in the Determination Period is: (i) An officer of the Employer having Compensation from the Employer and any Related Employer greater than fifty percent (50%) of the amount in effect under Code Section 415(b)(1)(A); (ii) One of the ten (10) Employees having Compensation from the Employer and any Related Employer of more than the limitation in effect under Code Section 415c(1)(A) and owning (or considered as owning within the meaning of Code Section 318) the largest interests in the Employer; (iii) A Five Percent Owner of the Employer (Five Percent Owner means any person owning, or considered as owning within the meaning of Code Section 318, more than five percent (5%) of the outstanding stock of the Employer or stock possessing more than five percent (5%) of the total combined voting power of all stock of the Employer; or in the case of an unincorporated business, any person who owns more than five percent (5%) of the capital or profits interest in the Employer.); or (iv) A One Percent Owner of the Employer having Compensation from the Employer of more than $150,000 (One Percent Owner means any person having Compensation from the Employer and any Related Employer in excess of $150,000 and owning, or considered as owning within the meaning of Code Section 318, more than one percent (1%) of the outstanding stock of the Employer or stock possessing more than one percent (1%) of the total combined voting power of all stock of the Employer; or in the case of an unincorporated business, any person who owns more than one percent (1%) of the capital or profits interest in the Employer.). (v) Notwithstanding the foregoing, Key Employee shall have the meaning set forth in Code Section 416(i), as amended. (vi) For purposes of determining whether an Employee or Former Employee is an officer under this subsection (g), an officer of the Employer shall have the meaning set forth in the regulations under Code Section 416(i). (vii) For purposes of this Section, Compensation means Compensation determined under Section 2.32 for the definition of a Highly Compensated Employee. (viii) For purposes of determining ownership hereunder, employers that would otherwise be aggregated as Related Employers shall be treated as separate employers. (h) Non-Key Employee means any Employee or Former Employee, or Beneficiary of the Employee, who is not a Key Employee. (i) Present Value of Accrued Benefit. Solely for the purpose of determining if the Plan, or any other plan included in a Required Aggregation Group of which this Plan is a part, is a Top-Heavy Plan, the Accrued Benefit of a Non-Key Employee shall be determined under (i) the method, if any, that uniformly applies for accrual purposes under all plans maintained by the Related Employers, or (ii) if there is no uniform method, in accordance with the slowest accrual rate permitted under the fractional accrual method described in Code Section 411(b)(1)(C). To calculate the Present Value of Accrued Benefits from a defined benefit plan, the Committee will use the actuarial assumptions for interest and mortality only, prescribed by the defined benefit plan(s) to value benefits for Top-Heavy purposes. If an aggregated plan does not have a Valuation Date coinciding with the Determination Date, the Committee must value the Accrued Benefits in the aggregated plan as of the most recent Valuation Date falling within the twelve (12) month period ending on the Determination Date, except as Code Section 416 and applicable Treasury regulations require for the first and second plan year of a defined benefit plan. The Committee will determine whether a plan is Top-Heavy by referring to Determination Dates that fall within the same calendar year. (j) Top-Heavy Group means an Aggregation Group in which, as of the Determination Date, the sum of: (i) the Present Value of Accrued Benefits of Key Employees under all defined benefit plans included in the group; and (ii) the Aggregate Accounts of Key Employees under all defined contribution plans included in the group exceeds sixty percent (60%) of a similar sum determined for all Participants. (k) Valuation Date means the Determination Date defined above. Section 12.5 Top-Heavy Minimum Allocation. (a) Minimum Allocation. Notwithstanding the foregoing, for any Plan Year in which the Plan is determined to be Top-Heavy, the amount of Employer Non-Elective Contributions and Forfeitures allocated to the Individual Account of each Non-Key Employee shall be equal to the lesser of three percent (3%) of each Non-Key Employee's Compensation or the highest contribution rate for the Plan Year made on behalf of any Key Employee. However, if a defined benefit plan maintained by the Employer which benefits a Key Employee depends on this Plan to satisfy the nondiscrimination rules of Code Section 401(a)(4) or the coverage rules of Code Section 410 (or another plan benefiting the Key Employee so depends on the defined benefit plan), the top heavy minimum allocation is three percent (3%) of the Non-Key Employee's Compensation regardless of the contribution rate for the Key Employee. (b) Compensation. For purposes of this Section, Compensation means Compensation defined in Section 2.12 except (i) Compensation does not include Elective Contributions, and (ii) any exclusions from Compensation (other than the exclusion of Elective Contributions and the exclusions described in clauses (i) through (v) of Section 2.12(a)) do not apply. Notwithstanding the foregoing, effective January 1, 1998, Compensation, for purposes of this Section, shall include elective contributions (as defined in Code Section 402(g)(3)) and any amount which is contributed or deferred by the Employer at the election of the Employee and which is not includable in the gross income of the Employee by reason of Code Sections 125 or 457 and, effective January 1, 2001, Code Section 132(f)(4). Notwithstanding the definition of Compensation in Section 2.12, the period preceding a Participant's Entry Date shall be included in determining the minimum top-heavy allocation provided by this Section. (c) Contribution Rate. For purposes of this Section, a Participant's contribution rate is the sum of Employer Contributions (not including Employer Contributions to Social Security) and Forfeitures allocated to the Participant's Account for the Plan Year divided by his or her Compensation for the entire Plan Year. To determine a Participant's contribution rate, the Committee must treat all qualified top-heavy defined contribution plans maintained by the Employer (or by any Related Employers described in Section 2.51) as a single plan. For purposes of this Section, the following rules apply: (i) Savings Contributions on behalf of Key Employees are taken into account in determining the minimum required contribution under Code Section 416c(2). However, Savings Contributions on behalf of Employees other than Key Employees may not be treated as Employer Contributions for the minimum contribution or benefit requirement of Code Section 416. (ii) Matching Employer Contributions allocated to Key Employees are treated as Employer Contributions for determining the minimum contribution or benefit under Code Section 416. However, if a plan utilizes Matching Contributions allocated to Employees other than Key Employees as Employee Contributions or Elective Contributions to satisfy the minimum contribution requirement, the Matching Contributions are not treated as Matching Contributions for applying the requirements of Code Section 401(k) and 401(m). (iii) Qualified Non-Elective Contributions described in Code Section 401(m)(4)c may be treated as Employer Contributions for the minimum contribution or benefit requirement of Code Section 416. (d) Participant Entitled to Top-Heavy Minimum Allocation. The minimum allocation under this Section shall be provided to each Non-Key Employee who is a Participant and is employed by the Employer on the last day of the Plan Year, whether or not the Participant has been credited with one thousand (1,000) Hours of Service for the Plan Year. The minimum allocation under this Section shall not be provided to any Participant who was not employed by the Employer on the last day of the Plan Year. The provisions of this Section shall not apply to any Participant to the extent the Participant is covered under any other plan or plans of the Employer under which the minimum allocation or benefit requirements under Code Section 416c(1) or c(2) are met for the Participant. (e) Compliance. The Plan will satisfy the top-heavy minimum allocation under this Section. The Committee first will allocate the Employer Contributions (and Participant Forfeitures, if any) for the Plan Year pursuant to the allocation formula under Sections 5.4 and 5.6. The Employer then will contribute an additional amount for the Individual Account of any Participant entitled under this Section to a top-heavy minimum allocation and whose contribution rate for the Plan Year, under this Plan and any other plan aggregated under this Section, is less than the top-heavy minimum allocation. The additional amount is the amount necessary to increase the Participant's contribution rate to the top-heavy minimum allocation. The Committee will allocate the additional contribution to the Account of the Participant on whose behalf the Employer makes the contribution. Section 12.6 Amendments. If the Plan is determined to be top-heavy, the vesting schedule in Section 6.2c shall continue to apply notwithstanding a determination in a later Plan Year that the Plan is no longer top-heavy unless the Company shall amend the Plan to provide otherwise. No such amendment shall be effective unless, in the event it changes the Plan's applicable vesting schedule (determined in accordance with regulations under Code Section 411), each Participant's Nonforfeitable percentage of his Accounts (determined as of the later of the date such amendment is adopted or becomes effective) is not less than such percentage computed under Section 6.2c without regard to such amendment and unless, in such event, each Participant having not less than three (3) Years of Service is permitted to elect (pursuant to regulations under Code Section 411) to have his nonforfeitable percentage computed under the Plan without regard to such amendment * * * * * * * ARTICLE THIRTEEN ---------------- REPURCHASE OF COMPANY STOCK; NON-TERMINABLE PROTECTIONS AND RIGHTS Section 13.3 Employee Stock Ownership Plan. The ESOP Accounts in the Plan are specifically designated an "employee stock ownership plan" within the meaning of Code Section 4975(e)(7), ERISA Section 407(d)(6), and applicable regulations thereunder. This Article applies solely to the Company Stock held in ESOP Accounts. Section 13.4 Put Option. A share of Company Stock shall be subject to a put option if it is not publicly traded, or if it is subject to a trading limitation, when distributed. The Employer shall issue a put option to each Participant or Former Participant receiving a distribution of Company Stock from the Plan required under the conditions described in the foregoing sentence, in accordance with the terms set forth in this Section: (a) Exercise of Option. The put option shall be exercisable only by a Participant or Beneficiary; by a donee of the Participant or Beneficiary; or by a person, including an estate or its distributees, to whom such Company Stock has passed because of the death of the Participant. (b) Rights Under Put Option. The put option shall give to the eligible holder the right to put such shares to the Employer. Under no circumstances may it bind the Plan or Trust, but it may grant the Plan or Trust an option to assume the rights and obligations of the Employer at the time it is exercised; if it is known, at the time such stock is acquired, that Federal or state law will be violated if the Employer honors such put option, it must permit the stock subject thereto to be put, in a manner consistent with such law, to a third party (e.g., an affiliate or a shareholder of the Employer other than the Plan or the Trust) that has substantial net worth at the time such debt is incurred and whose net worth is reasonably expected to remain substantial. (c) Period of Option. (i) The put option must be exercisable at least during a sixty (60) day period following the date of distribution from the Trust to the Participant or Beneficiary and for an additional sixty (60) day period during the Plan Year immediately following the Plan Year in which the first option period ends; (ii) In the case of Company Stock that is publicly traded without limitation when distributed by the Trust but ceases to be so traded within the same Plan Year as the distribution, the Employer shall notify each holder of such stock in writing on or before the tenth day after such stock ceased to be so traded that for at least a sixty (60) day period during such Plan Year, and for an additional sixty (60) day period during the following Plan Year, such stock is subject to a put option. Such notice must inform such holders of the terms of such put option, which shall satisfy the requirements of this Section; (iii) The period during which it is exercisable shall not include any time when a distributee is unable to exercise it because the party bound by it is prohibited from honoring it by applicable Federal or state law; (iv) The put option shall be exercisable by the holder notifying the Employer in writing that it is being exercised; and (v) The price at which it is exercisable shall be the fair market value of the stock then prevailing, determined as of the most recent Accounting Date; provided, however, that such value shall be determined as of the date the put is honored if the holder of such put is a "disqualified person" (as defined under Section 4975 of the Code). (d) Option Rights Not Affected by Amendment. The rights provided to Participants under this Article shall be non-terminable and no amendment to this Plan shall affect these rights except such amendments to this Article as may be required to assure the continuing qualification of the Plan under the Code. Section 13.5 Payment of Purchase Price. If a Participant or Former Participant exercises a put option pursuant to Section 13.2, the purchaser may make payment by delivery of a note with payments commencing not more than thirty (30) days after the exercise of the put option. The payment obligation will be satisfied by the delivery of said note, which must meet the following requirements: (a) the note must bear a reasonable rate of interest determined at Closing; (b) the purchaser must provide adequate security for the note; (c) the note must provide for equal annual installments not to exceed five (5) years, with interest payable with each installment, the first installment due and payable thirty (30) days after the exercise of the Put Option; (d) the note must provide for acceleration upon thirty (30) days' default of the payment on interest or principal; and (e) the note must grant to the maker the right to prepay the note in whole or in part at any time or times without penalty; provided, however, the purchaser must not have the right to make any prepayment during the calendar year or fiscal year of the Participant (Beneficiary) in which Closing occurs. Payment under a put option may not be restricted by the provisions of a loan or any other arrangement, including the terms of the Company's articles of incorporation, unless so required by applicable state law. Section 13.6 Notice. A person has given notice under this Section when the person deposits the notice in the United States mail, first class, postage prepaid, addressed to the person entitled to the Notice at the address currently listed for the person in the Committee records. Any person affected by this Section has the obligation to inform the Committee of any change of address. Section 13.7 Non-terminable Protections and Rights. Except as provided in this Article, no Company Stock may be subject to a put, call, or other option, or buy-sell or similar arrangement when held by and when distributed from an ESOP Account, whether or not the Plan then qualifies as an employee stock ownership plan. The protections and rights granted in this Article and in Section 11.1 pursuant to Code Section 409(o) attributable to stock acquired after December 31, 1986, are non-terminable and shall continue to exist under the terms of this Plan with regard to Company Stock that is held in an ESOP Account or by any Participant or other person for whose benefit such protections and rights have been created. Neither the failure of the Plan to qualify as an employee stock ownership plan, nor an amendment of the Plan shall cause a termination of such protections and rights. Section 13.8 Investment in Company Stock. (a) Type of Company Stock. The Trustee shall invest ESOP Accounts primarily in Qualifying Company Stock to the extent practicable and may invest one hundred percent (100%) of the ESOP Accounts in Company Stock. The Company Stock may be Treasury Stock which has been purchased by the Employer; stock which has been authorized, but never issued by the Employer; Company Stock traded on a public market; or Company Stock owned by shareholders of the Employer. (b) Purchase Price. For the purchase of Company Stock, from the Parent or any Employer or from a shareholder of the Parent or any Employer, the Trustee shall not pay more than fair market value as determined by the current market price of the Company Stock, if there is a market, and if there is not a market for the stock, then as determined by an independent appraisal. All valuations of Company Stock which is not readily tradable on an established securities market, with respect to activities carried on by the Plan, must be made by an independent appraiser meeting requirements similar to requirements of the Regulations prescribed under Code Section 170A-1. For the purchase of Company Stock from a Disqualified Person, the value of the Company Stock must be determined as of the date of the transaction. For any other purchase, the value shall be based on a current valuation. Notwithstanding the preceding provisions of this Section, the Trustee may purchase Company Stock at a price lower than that determined in accordance with the preceding provisions of this Section 13.6(b) from any source whatsoever. If a public market is made for the Company Stock, the purchase price shall be the average of the closing prices on the OTC for the last three days for which such prices are quoted in the Wall Street Journal preceding the purchase. (c) Voting Rights. (i) Each Participant shall be entitled to direct the Trustee as to the manner in which voting rights with respect to shares of Company Stock allocated to such Participant's ESOP Accounts shall be exercised. (ii) In order to implement the voting rights granted in this Section, the Plan Administrator shall furnish the Trustee and Participants who have an ESOP Account with a notice or information statement which complies with both the law and the Plan Sponsor's charter and bylaws applicable to security holders in general. Allocated shares of Company Stock with respect to which timely voting instructions have not been received shall be voted by the Trustee on each matter in the same proportion as shares with respect to which such instructions have been received on such matter. (d) Tender Offer (i) Notwithstanding any other provisions of the Plan or Trust, the provisions of this Section shall govern the tendering of shares of Company Stock held in ESOP Accounts. Upon commencement of a tender offer for any securities held in ESOP Accounts that are Company Stock, the Plan Administrator shall notify each Participant of such tender offer, utilize its best efforts to timely distribute or cause to be distributed to the Participants such information as is distributed to shareholders of the Employer in connection with such tender offer, and shall provide a means by which the Participant can instruct the Trustee whether or not to tender the Company Stock allocated to such Participant's ESOP Accounts. The Plan Administrator shall provide the Trustee with a copy of any materials provided to Participants. Each Participant shall have the right to instruct the Trustee as to the manner in which the Trustee is to respond to the tender offer for any or all of the Company Stock allocated to such Participant's ESOP Accounts. The Trustee shall respond to the tender offer with respect to the Company Stock as instructed by the Participant. Allocated shares of Company Stock with respect to which timely tender instructions have not been received shall be tendered by the Trustee in the same proportion as shares with respect to which such instructions have been received. (ii) A Participant who has directed the Trustee to tender shares of Company Stock allocated to such Participant's ESOP Accounts may, at any time, prior to the tender offer withdrawal date, instruct the Trustee to withdraw, and the Trustee shall withdraw such shares of Company Stock from the tender offer prior to the withdrawal deadline. A Participant shall not be limited as to the number of instructions to tender or withdraw which he may give to the Trustee. (iii) The Trustee shall credit the proceeds received in exchange for the tendered Company Stock allocated to the ESOP Account of each Participant who instructed the Trustee to so tender, to that Participant's respective ESOP Account. The Trustee shall exercise its best efforts to invest the proceeds from such tender, whether cash or securities, in conformity with the requirements of Code Section 4975. (e) Shareholder Agreements. The Trustee may enter into agreements with shareholders to purchase shares of Company Stock under which the Trustee is granted an option to purchase all or a portion of the shares of Company Stock owned by the shareholders on the death of the shareholder or shareholders. To provide for the funding of the purchase of shares of Company Stock, the Trustee may apply for and pay premiums on contracts of life insurance on the life of such shareholder for the benefit of the Trust Fund as a whole, provided, however, that the Trustee may not enter into any agreement which would obligate the Plan and Trust to purchase Company Stock from a particular shareholder at an indefinite time determined upon the happening of an event such as death of the shareholder. Section 13.9 Partial Diversification of Investment. (a) For purposes of this Section, the following definitions apply: (i) "Qualified Participant" means any Employee who has completed at least ten (10) years of participation under the Plan and has attained age fifty-five (55) years. (ii) "Qualified Election Period" means the six (6) Plan Year period beginning with the Plan Year in which the Participant becomes a Qualified Participant. (iii) "Diversification Election Interval" means the span of ninety (90) days after the close of each Plan Year within a Qualified Participant's Qualified Election Period. (b) A Qualified Participant may elect within the Diversification Election Interval during his Qualified Election Period to direct the Trustee on the investment of: (a) not more than twenty-five percent (25%) of the Qualified Participant's ESOP Account Balance (excluding accumulated employee contributions) at the end of the Plan Year, reduced by amounts previously diversified, during the first five (5) years of his Qualified Election Period; and (b) not more than fifty percent (50%) of the Qualified Participant's ESOP Account Balance (excluding accumulated employee contributions) at the end of the Plan Year, reduced by amounts previously diversified, during the sixth (6th) year of his Qualified Election Period. The Trustee shall complete diversification of a Qualified Participant's investment in accordance with a Qualified Participant's Election no later than ninety (90) days after the close of the Diversification Election Interval. The Trustee shall satisfy this requirement: (a) by distributing to the Participant an amount equal to the amount for which the Participant elected diversification; or (b) by substituting for the amount of the Company Stock for which the Participant elected diversification an equivalent amount of participant-directed investments in other Investment Funds offered in the Plan pursuant to Article 7. * * * * * * * ARTICLE FOURTEEN ---------------- ADOPTION BY OTHER ORGANIZATIONS Section 14.3 Procedure for Adoption. Any corporation or other organization with employees, now in existence or hereafter formed or acquired, which is not already an Employer under the Plan and which is otherwise legally eligible, may, in the future, with the consent and approval of the Company, by resolution or decision of its own board or governing authority, adopt the Plan and the Trust, for all or any classification of persons in its employment, and thereby, from and after the effective date specified in such resolution or decision, become an Employer. The adoption resolution or decision may contain such specified changes and variations in the terms and provisions of the Plan or the Trust Agreement as may be acceptable to the Company and the Trustee. The adoption resolution or decision shall become, as to such adopting organization and its Employees, a part of the Plan and the Trust Agreement. It shall not be necessary for the adopting organization to sign or execute the Plan or the Trust Agreement. The effective date of the Plan for any such adopting organization shall be that stated in the resolution or decision of adoption, and from and after such effective date such adopting organization shall assume all the rights, obligations, and liabilities of an Employer under the Plan and the Trust Agreement, and shall be included within the meaning of the term Employer. The administrative powers and control of the Company, as provided in the Plan and the Trust Agreement, including the right of amendment and of appointment and removal of the Committee, the Trustee, and their successors, shall be the sole right of the Company and shall not be diminished by reason of the participation of any such adopting organization. Any participating Employer may withdraw from the Plan and the Trust at any time without affecting other Employers not withdrawing, by complying with the provisions of the Plan and the Trust Agreement. Separate records shall be kept as to each Employer and its Employees. * * * * * * * ARTICLE FIFTEEN --------------- AMENDMENT AND TERMINATION OF PLAN Section 15.3 Amendment of the Plan. The Company may, without the consent of any other party, make from time to time any amendment or amendments to the Plan which do not operate retroactively to reduce or divest the then-vested interest in any Discretionary Employer Contribution Account, Matching Employer Contribution Account, W & B Plan Rollover Account, or ESOP Transfer Account or to reduce or divest any benefit then payable hereunder. Each such amendment shall be in writing, signed by a duly authorized officer of the Company and shall become effective as of the date specified therein. In addition, no such amendment shall (i) reduce the vested percentage of any Participant with respect to Employer contributions made either before or after the effective date of the amendment; (ii) eliminate or reduce an early retirement benefit or a retirement-type subsidy or eliminate an optional form of benefit with respect to benefits attributable to service before the amendment; or (iii) restrict the availability of an "alternative form of benefit" to a certain select group or classification of Participants or Beneficiaries which favor the "prohibited group," or restrict or deny a Participant through the withholding of consent or the exercise of discretion by some person or persons other than the Participant (and, where relevant, his Spouse) of an alternative form of benefit. For purposes of this Section 15.1, Plan provisions will be considered to favor the prohibited group if the group of Employees to whom the benefit is available does not satisfy either the 70% test of Code Section 410(b)(1)(A) or the nondiscriminatory classification test of Code Section 410(b)(1)(B). For purposes of this Section 15.1, an alternative form of benefit encompasses the different forms of benefit payment available under the Plan which provide that (a) a Participant's benefits under the Plan may be paid in more than one form, or (b) payment of a particular form of benefits may commence at some time earlier or later than the normal date for the commencement of such benefit. Whenever Participating Employers have elected to adopt this Plan, amendment of this Plan by the Plan Sponsor shall be effective upon the written action of the Plan Sponsor. Each Participating Employer shall be deemed to have authorized irrevocably the Plan Sponsor or any person(s) duly authorized by resolution of the Board of Directors of the Plan Sponsor, to amend and modify this Plan in any manner it deems necessary or desirable, retroactively or prospectively, subject to the provisions of this Article. Section 15.4 Right to Terminate. An Employer may at any time terminate the Plan with respect to its Employees, pursuant to resolution or decision of the Board of Directors or other governing authority of such terminating Employer. Upon termination with respect to an Employer, the Committee shall direct the Trustee to distribute the share of the Trust Assets allocable to the Employees of such Employer, as provided in Section 15.4. If the Plan is terminated with respect to fewer than all Employers, the Plan shall continue in effect for Employees of the remaining Employers. Section 15.5 Consolidation or Merger. Upon an Employer's liquidation, dissolution, bankruptcy, or insolvency, or upon its sale, consolidation or merger to or with another organization that is not an employer hereunder, in which such Employer is not the surviving company, the Plan will terminate insofar as that Employer is concerned unless the successor to that Employer assumes the duties and responsibilities of such Employer by adopting the Plan and Trust, by combining the Plan and Trust with an existing plan and trust of such successor with the consent and agreement of that Employer, or by the establishment of a separate plan and trust to which the Trust Assets held on behalf of the Employees of such Employer shall be transferred with the consent and agreement of that Employer. If the successor to an Employer is itself an Employer, such successor shall succeed to all the rights and duties under the Plan and Trust of the Employers involved. Section 15.6 Liquidation of Trust Fund Upon Termination. Upon a complete or partial termination of the Plan with respect to any Employer, the Discretionary Employer Contribution Accounts, Matching Employer Contribution Accounts, W & B Plan Rollover Accounts, and ESOP Transfer Accounts, if any, of the Participants, Former Participants and Beneficiaries affected thereby shall become fully vested and Nonforfeitable, and the proportionate interests of such Participants, Former Participants and Beneficiaries in the Trust Assets, as determined by the Committee, shall be distributed as soon as practicable after provision is made for the expenses of administration, termination and liquidation. Distributions due to termination of the Plan will be made in accordance with the methods of distribution provided for in the Plan. Section 15.7 Permanent Discontinuance of Contributions. Upon a permanent discontinuance of contributions with respect to any Employer, the Discretionary Employer Contribution Accounts, Matching Employer Contribution Accounts, W & B Plan Rollover Accounts, and ESOP Transfer Accounts shall become fully vested and nonforfeitable and, unless such Employer provides by appropriate resolution that the Plan and Trust will continue for the purpose of holding, investing, and distributing Trust Assets pursuant to other provisions of the Plan and Trust Agreement, the proportionate interest of the Participants, Former Participants and Beneficiaries of such Employer in the Trust Assets, as determined by the Committee, shall be distributed (subject to the restrictions of Section 15.4(b)) as soon as practicable after provision is made for the expenses of administration, termination and liquidation. Section 15.8 Consolidation or Merger of Plan. In the event that the Plan is merged or consolidated with any other plan, or in the event that any assets or liabilities of the Plan are transferred to any other plan, the benefit any Participant, Former Participant or Beneficiary under the Plan would be entitled to receive if such other plan were terminated immediately after such merger, consolidation, or transfer shall be equal to or greater than the benefit such Participant, Former Participant or Beneficiary would be entitled to receive if the Plan terminated immediately before such merger, consolidation, or transfer. * * * * * * * ARTICLE SIXTEEN --------------- GENERAL PROVISIONS Section 16.3 Non-Guarantee of Employment. Nothing contained in the Plan or Trust Agreement shall be construed as a contract of employment between any person and an Employer, as a right of any person to be continued in the employment of an Employer (or such entity), or as a limitation of the right of an Employer (or such entity) to discharge any person, with or without cause. Section 16.4 Manner of Payment. Subject to the provisions of Sections 11.7 and 11.8, wherever and whenever it is herein provided for payments or distributions to be made, said payments or distributions shall be made directly into the hands of the Participant, Former Participant, Beneficiary, or their respective administrators, executors, or guardians, as the case may be. Deposit to the credit of any such person in any bank or trust company selected by such person shall be deemed to be payment into his hands. Section 16.5 Nonalienation of Benefits. (a) In General. Except as otherwise provided below in this Section 16.3, interests of Participants, Former Participants and Beneficiaries under the Plan and benefits payable under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, disposition, garnishment, execution, or levy of any kind, either voluntary or involuntary, including any liability for alimony or other payments for property settlement or support of a Spouse or former Spouse, or for any other relative of the Participant, Former Participant or Beneficiary, but excluding devolution by death or mental incompetency, prior to actually being received by the person entitled to the benefits under the terms of the Plan; any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any right to benefits payable hereunder shall be void; the Trust Assets shall not in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements or torts of any person entitled to benefits hereunder. (b) Qualified Domestic Relations Order. Notwithstanding anything to the contrary above, however, if the Committee determines that a domestic relations order is a "qualified domestic relations order" as defined in Section 206(d)(3) of ERISA, benefits shall be payable in accordance with the applicable requirements of any such order and in accordance with the requirements of Section 206(d)(3) of ERISA. To the extent of any conflict between the terms of any such order and the terms of ERISA Section 206(d)(3), the latter shall control in all respects. To the extent provided in an order, an "alternate payee," as described in Code Section 414(p), may elect to receive an immediate distribution of such payee's benefits from this Plan. Such a distribution may be received from any Account, as applicable. (c) Certain Judgments and Settlements. Nothing contained in this Plan shall prevent the Trustee from complying with a judgment or settlement entered into on or after August 5, 1997 which requires the Trustee to reduce a Participant's benefits under the Plan by an amount that the Participant is ordered or required to pay to the Plan if each of the following criteria are satisfied: (i) The order or requirement must arise: (A) under a judgment or conviction for a crime involving the Plan; (B) under a civil judgment (including a consent order or decree) entered by a court in an action brought in connection with an actual or alleged violation of Part 4 of Title I of ERISA; or (C) cunder a settlement agreement with either the Secretary of Labor or the Pension Benefit Guaranty Corporation and the Participant in connection with an actual or alleged violation of Part 4 of title I of ERISA by a fiduciary or any other person. (ii) The decree, judgment, order or settlement must expressly provide for the offset of all or part of the amount ordered or required to be paid to the Plan against the Participant's benefits under the Plan. (iii) In addition, if the joint and survivor annuity requirements of Code Section 401(a)(11) apply with respect to distributions from the Plan to the Participant and the Participant has a spouse at the time at which the offset is to be made, then one of the following three conditions must be satisfied: (A) Such spouse has consented in writing to such offset and such consent is witnessed by a notary public or representative of the Plan (or it is established to the satisfaction of a Plan representative that such consent may not be obtained by reason of circumstances described in Code Section 417(a)(2)(B)), or an election to waive the right of the spouse to either a qualified joint and survivor annuity or a qualified preretirement survivor annuity is in effect in accordance with the requirements of Code Section 417(a); (B) Such spouse is ordered or required in such judgment, order, decree, or settlement to pay an amount to the Plan in connection with a violation of part 4 of subtitle B of title I of ERISA; or (C) In such judgment, order, decree, or settlement, such spouse retains the right to receive the survivor annuity under a qualified joint and survivor annuity provided pursuant to section 401(a)(11)(A)(i) and under a qualified preretirement survivor annuity provided pursuant to Code Section 401(a)(11)(A)(ii), determined in accordance with Code Section 401(a)(13)(D). Section 16.6 Titles for Convenience Only. Titles of the Articles, Sections and Subsections hereof are for convenience only and shall not be considered in construing the Plan. Section 16.7 Governing Law. Except as may otherwise be required by applicable federal law, the Plan and each of its provisions shall be construed and their validity determined by the laws of the State of Texas. Section 16.8 Contributions Contingent Upon Approval. Any contribution to the Trust Fund associated with this Plan is con- ditioned on initial qualification of the Plan under Code Section 401(a) and of the exemption of the Trust created under the Plan under Code Section 501(a). If the Commissioner of the Internal Revenue Service, upon the Employer's request for initial approval of this Plan and Trust, determines that the Plan is not qualified or the Trust is not exempt, then the Trustee may return to each Employer, within one (1) year after the date of final disposition of the request for initial approval, any contribution made by the Employers, and any increment attributable to the contribution. The Plan and Trust shall then terminate and all rights of Participants, Former Participants and Beneficiaries with respect to such Employers' contributions shall cease. Section 16.9 Payment of Expenses. Except as otherwise specifically provided herein, all expenses incident to the administration, termination, or protection of the Plan and Trust, including but not limited to, actuarial, legal, accounting, and Trustee fees, may be paid by the Company, which may require reimbursement from the other Employers for their pro rata shares, or if not paid by the Company (which payment is not obligatory), shall be paid by the Trustee from the Trust Assets, but no amount paid pursuant to Section 17.9 or Subsection 16.9(d) shall be paid, directly or indirectly, from the Trust Assets. Notwithstanding the preceding, the expenses incident to maintaining an Account for a Former Participant shall be charged to such Former Participant's Account. Section 16.10 Rights to Trust Assets. No Participant, Former Participant or Beneficiary shall have any right to, or interest in, any Trust Assets upon termination of his employment or otherwise, except as provided from time to time under the Plan, and then only to the extent of the benefits payable to such Participant, Former Participant or Beneficiary out of the Trust Assets. All payments of benefits as provided for in the Plan shall be made solely out of the Trust Assets and, except as may otherwise be provided by applicable law, neither the boards of Directors of the Employers, the Employers, the Trustee, nor the Committee shall be liable therefore in any manner. Section 16.11 Disclaimer of Liability. Except as otherwise provided herein or under Sections 404 through 409 of ERISA (to the extent applicable): (a) Neither the Board of Directors of the Employers, the Employers, the Trustee, nor the Committee guarantees the Trust Assets or other Assets of the Plan in any manner against loss or depreciation, and they shall not be liable for any act or failure to act which is made in good faith pursuant to the provisions of the Plan and Trust Agreement. (b) The Board of Directors of the Employers and the Employers shall not be responsible for any act or failure to act of the Committee or the Trustee. (c) The Committee shall not be responsible for any act or failure to act of the Board of Directors of the Employers, the Employers, or the Trustee. (d) Each Employer shall indemnify each member of its Board of Directors against any liability or losses sustained by such member by reason of any act or failure to act relating to the Plan or Trust in his capacity as such member if such act or failure to act is in good faith and does not constitute willful misconduct. Such indemnification shall include attorney's fees and other costs and expenses reasonably incurred by such member in defense of any action brought against him by reason of any such act or failure to act. Section 16.12 Persons May Serve in More than One Capacity. A person may serve both as a member or secretary of the Committee and as a Trustee hereunder. A person serving as a member of the Board of Directors or as an officer of an Employer may serve as a member or secretary of the Committee or as a Trustee, or both, hereunder. Section 16.13 Construction. The masculine gender, where appearing in the Plan, shall be deemed to include the feminine gender, unless the context clearly indicates to the contrary. The words "herein," "hereof," "hereunder" and other similar compounds of the word "here" shall mean and refer to the entire Plan, not to any particular provision, section, or subsection, and words used in the singular or the plural may be construed as though in the plural or singular where they would so apply. Section 16.14 Counterparts. The Plan may be executed in any number of counterparts, each of which shall be considered an original, and only one such counterpart need be produced. Section 16.15 No Involuntary Retirement Because of Age. Notwithstanding the provisions hereof defining Normal Retirement Date and Retirement, nor any other provision hereof, nothing contained in the Plan or Trust Agreement shall be construed to require or permit the involuntary retirement of any Employee solely because of age. Section 16.16 Mistake of Fact. Notwithstanding any contrary provision in this Agreement, if a contribution is made by an Employer by a mistake of fact, the contribution may be returned to the Employer within one (1) year after the payment of the contribution. The amount of the mistaken contribution is equal to the excess of (a) the amount contributed over (b) the amount that would have been contributed had there not occurred a mistake of fact. Earnings attributable to mistaken contributions may not be returned to the Employer, but losses attributable thereto shall reduce the amount to be returned. Section 16.17 Disallowance of Deduction. Notwithstanding any contrary provision in this Agreement, any contributions by an Employer to the Plan and Trust are conditioned on the deductibility of the contribution by the Employer under the Code. To the extent any deduction is disallowed, the Employer, within one (1) year following a final determination of the disallowance, whether by agreement with the Internal Revenue Service or by final decision in a court of competent jurisdiction, may demand repayment of the disallowed contribution, and the Trustee shall return the contribution within one (1) year following the disallowance. Earnings attributable to excess contributions may not be returned to the Employer, but losses attributable thereto shall reduce the amount to be returned. * * * * * * ARTICLE SEVENTEEN ----------------- PLAN ADMINISTRATION Section 17.3 Committee. The Plan shall be administered by the Savings Plan Committee. The Committee shall consist of not less than three nor more then seven members. Each member shall be appointed, and may at any time be removed, by the Board of Directors of the Company, and the Board of Directors of the Company shall designate the chairman of the Committee. Any vacancy on the Committee resulting from resignation, death, removal by the Board of Directors of the Company, or otherwise, shall be filled by the Board of Directors of the Company. The chief executive officer of the Company may appoint a person to fill any vacancy during the period prior to action by the Board of Directors filling such vacancy. All usual and reasonable expenses of the Committee shall be paid as provided in Section 16.7. The members of the Committee shall not receive compensation from the Plan or the Trust with respect to their services in administering the Plan. Section 17.4 Claims Procedure. (a) The Committee shall make all determinations as to the right of any person to a benefit. Any denial by the Committee of a claim for benefits under the Plan by a Participant, Former Participant or Beneficiary shall be stated in writing and delivered or mailed to the Participant, Former Participant or Beneficiary. Such notice of denial shall to the best of the Committee's ability, be written to be understood without legal or actuarial counsel or other specialized knowledge or advice, and shall: (i) set forth the reasons for such denial; (ii) specify the pertinent provisions of the Plan on which such denial is based; (iii) describe any additional material or information necessary for perfection of such claim and explain why such material or information is necessary; and (iv) explain the claims review procedure established by the Committee under the Plan. (b) In the case of any Participant, Former Participant or Beneficiary whose claim for benefits under the Plan has been denied, such Participant, Former Participant or Beneficiary, or his duly authorized representative, may: (i) request a review of such denial by written application mailed or delivered to the Committee by the 60th day after receipt of such denial; and (ii) within such reasonable times as may be prescribed in the claims review procedure established by the Committee, (A) review pertinent documents; and (B) submit issues and comments in writing. (c) The Committee shall provide a full and fair review of any request submitted under Section 17.2(b). In connection with such review, the Committee may request an opinion from an Employer's counsel and shall be fully protected by the Company and such Employer from any liability resulting from good faith reliance on such opinion. Section 17.5 Powers and Duties of the Committee. The Committee shall have such powers and duties as may be necessary to discharge its duties hereunder, including, but not by way of limitation, the following powers and duties: (a) To administer the Plan; (b) To construe and interpret the Plan, decide all questions of eligibility and determine the amount, manner and time of payment of any benefits hereunder; (c) To review the performance of the Trustee and to report thereon to the Board of Directors of the Company; (d) To prescribe and establish (i) procedures to be followed and forms to be used by Employees, Participants, Former Participants or Beneficiaries for commencing or resuming participation in the Plan and for applying for benefits from the Plan and (ii) such additional procedures and forms for reviewing denials of claims for benefits as the Committee deems advisable which are not inconsistent with the provisions of the Plan or applicable law, but if any procedure or form is prescribed by the Plan or by applicable law, such procedure or form shall be used for the purpose prescribed; (e) To receive from the Employers and from Employees, Participants, Former Participants and Beneficiaries such information as shall be necessary for the proper administration of the Plan; (f) To prepare and distribute, in such manner as required by applicable law, information explaining the Plan; (g) To prepare such reports with respect to the Plan as are required by applicable law and such other reports as are reasonable and appropriate and requested by the Employers; (h) To appoint or employ such agents or employees as it deems advisable, including legal counsel, accountants, and actuaries, as needed for the discharge of its duties; (i) To allocate in writing any of its rights, powers, or duties hereunder to a particular member or members of the Committee; in the event of any such allocation, the exercise of right or power, or the discharge of a duty has been allocated shall be deemed to be an act of the Committee; and (j) To designate persons who are not members of the Committee to exercise any of the foregoing powers, to carry out any of the foregoing duties, or to authorize benefit payments. Section 17.6 Limitation on Powers. The Committee shall have no power to add to, subtract from, or modify any of the terms of the Plan, or to waive or fail to apply any requirements of eligibility for benefits under the Plan. Section 17.7 Limitation on Duties. Except as elsewhere provided herein, the Committee shall have no power to manage or responsibility for managing the investing (including selection, acquiring, retaining, or disposing) of the Trust Assets. Section 17.8 Rules and Decisions. The Committee may adopt such rules as it deems necessary, desirable, or appropriate. All rules and decisions of the Committee shall be uniformly and consistently applied to all Employees, Participants, Former Participants, and Beneficiaries in similar circumstances. Any rule or decision which is not inconsistent with the provisions of the Plan shall be conclusive and binding upon all persons affected by it, and, except as otherwise provided by applicable law or herein, there shall be no appeal from any decision by the Committee which is within its authority. When making a determination or calculation, the Committee shall be entitled to rely upon information furnished by an Employer, the legal counsel of an Employer, or an accountant or actuary of the Plan. When making any decision hereunder, the Committee may consult with any Participant, Former Participant, or Beneficiary affected thereby and may, if appropriate, take such Participant's, Former Participant's, or Beneficiary's preference into account, but the Committee shall not be required to consult with or follow the preference of any Participant, Former Participant, or Beneficiary in the making of any decision hereunder unless it is expressly required to do so by other provisions hereof or by applicable law. Section 17.9 Committee Procedures. The Committee may act at a meeting or in writing without a meeting. The Committee shall appoint a secretary, who may or may not be a Committee member, and advise the Trustee of such action in writing. The secretary shall keep a record of all meetings and forward all necessary communications to the Employers or the Trustee. The Committee may adopt such bylaws and regulations as it deems desirable for the conduct of its affairs. All decisions of the Committee shall be made by the vote of a majority of the total number of members at the time serving on the Committee including actions in writing taken without a meeting. Section 17.10 Liability of Committee. Except as may otherwise be required by applicable law, no member of the Committee shall be liable for any act or omission of his own or of any agent or employee appointed or employed by the Committee, unless such act or omission is the result of his own willful misconduct or bad faith. The Company shall indemnify each such member against any liability or loss sustained by him by reason of any act or failure to act in his capacity as such member if such act or failure to act is in good faith and does not constitute willful misconduct. Such indemnification shall include attorney's fees and other costs and expenses reasonably incurred by such member in defense of any action brought against him by reason of any such act or failure to act. Section 17.11 Bonding. The secretary and members of the Committee and any persons designated under Subsection 17.3(j) shall serve without bond except as otherwise required by applicable law or by the Company. The premium on any bond required of the secretary or members of the Committee shall be paid as provided in Section 16.7. IN WITNESS WHEREOF, FROZEN FOOD EXPRESS INDUSTRIES, INC. has caused this Plan to be executed by its duly appointed officers on this 1 day of January, 2001, to be effective January 1, 2001. FROZEN FOOD EXPRESS INDUSTRIES, INC. ------------------------------------ By: /s/ Stoney M. Stubbs, Jr. ------------------------------- Stoney M. Stubbs, Jr. President and Chief Executive Officer ATTEST: /s/ Leonard W. Bartholomew - ------------------------------ By: Leonard W. Barthomew Secretary EX-10 7 ex1014.txt EXHIBIT 10.14 EXHIBIT 10.14 ------------- FIRST AMENDMENT TO THE FROZEN FOOD EXPRESS INDUSTRIES, INC. 401(K) SAVINGS PLAN AS RESTATED EFFECTIVE JANUARY 1, 2001 PREAMBLE 1. Adoption and Effective Date of Amendment. This amendment of the Frozen Food Express Industries, Inc. 401(k) Savings Plan (the "Plan") is adopted to reflect certain provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA"). This amendment is intended as good faith compliance with the requirements of EGTRRA and is to be construed in accordance with EGTRRA and guidance issued thereunder. Except as otherwise provided, this amendment shall be effective as of the first day of the first Plan Year beginning after December 31, 2001. 2. Further Amendment. Frozen Food Express Industries, Inc. (the "Employer") has also determined to make certain other changes to the Plan that the Employer believes will be desirable in light of certain EGTRRRA provisions; in particular, the Employer desires to raise the Plan-imposed limit on elective salary deferrals from 20% to 75% and to provide a 6-year vesting schedule for discretionary employer contributions. 3. Supersession of Inconsistent Provisions. This amendment shall supersede the provisions of the Plan to the extent those provisions are inconsistent with the provisions of this amendment. 4. Defined Terms. Capitalized terms not defined herein are defined in the Plan. SECTION I. LIMITATIONS ON CONTRIBUTIONS 1. Effective Date. This section shall be effective January 1, 2002. 2. Maximum Annual Addition. Except to the extent permitted under Section X of this amendment and Section 414(v) of the Code, if applicable, the annual addition that may be contributed or allocated to a Participant's account under the Plan for any taxable year shall not exceed the lesser of: (a) $40,000, as adjusted for increases in the cost-of-living under Section 415(d) of the Code, or (b) 100 percent of the Participant's compensation, within the meaning of Section 415(c)(3) of the Code, for the taxable year. The compensation limit referred to in (b) shall not apply to any contribution for medical benefits after separation from service (within the meaning of Section 401(h) or Section 419(A)(f)(2) of the Code) which is otherwise treated as an annual addition. SECTION II. INCREASE IN COMPENSATION LIMIT The annual compensation of each Participant taken into account in determining allocations for any taxable year beginning after December 31, 2001, shall not exceed $200,000, as adjusted for cost-of-living increases in accordance with Section 401(a)(17)(B) of the Code. Annual compensation means compensation during the Plan Year or such other consecutive 12-month period over which compensation is otherwise determined under the Plan (the determination period). The cost-of-living adjustment in effect for a calendar year applies to annual compensation for the determination period that begins with or within such calendar year. SECTION III. MODIFICATION OF TOP-HEAVY RULES 1. Effective Date. This section shall apply for purposes of determining whether the Plan is a top-heavy plan under Section 416(g) of the Code for Plan Years beginning after December 31, 2001, and whether the Plan satisfies the minimum benefits requirements of Section 416(c) of the Code for such years. This section amends Article XII of the Plan. 2. Determination of Top-Heavy Status. 2.1 Key Employee. Key employee means any employee or former employee (including any deceased employee) who at any time during the Plan Year that includes the determination date was an officer of the employer having annual compensation greater than $130,000 (as adjusted under Section 416(i)(1) of the Code for Plan Years beginning after December 31, 2002), a 5-percent owner of the employer, or a 1-percent owner of the employer having annual compensation of more than $150,000. For this purpose, annual compensation means compensation within the meaning of Section 415(c)(3) of the Code. The determination of who is a key employee will be made in accordance with Section 416(i)(1) of the Code and the applicable regulations and other guidance of general applicability issued thereunder. 2.2 Determination of Present Values and Amounts. This section 2.2 shall apply for purposes of determining the present values of accrued benefits and the amounts of account balances of employees as of the determination date. 2.2.1 Distributions During Year Ending on the Determination Date. The present values of accrued benefits and the amounts of account balances of an employee as of the determination date shall be increased by the distributions made with respect to the employee under the Plan and any Plan aggregated with the Plan under Section 416(g)(2) of the Code during the 1-year period ending on the determination date. The preceding sentence shall also apply to distributions under a terminated plan which, had it not been terminated, would have been aggregated with the Plan under Section 416(g)(2)(A)(i) of the Code. In the case of a distribution made for a reason other than separation from service, death, or disability, this provision shall be applied by substituting "5-year period" for "1-year period." 2.2.2 Employees Not Performing Services During Year Ending on the Determination Date. The accrued benefits and accounts of any individual who has not performed services for the employer during the 1-year period ending on the determination date shall not be taken into account. 3. Minimum Benefits. 3.1 Matching Contributions. Employer matching contributions shall be taken into account for purposes of satisfying the minimum contribution requirements of Section 416(c)(2) of the Code and the Plan. The preceding sentence shall apply with respect to matching contributions under the Plan or, if the Plan provides that the minimum contribution requirement shall be met in another plan, such other plan. Employer matching contributions that are used to satisfy the minimum contribution requirements shall be treated as matching contributions for purposes of the actual contribution percentage test and other requirements of Section 401(m) of the Code. 3.2 Contributions Under Other Plans. The Employer may provide, in an addendum to this amendment, that the minimum benefit requirement shall be met in another plan (including another plan that consists solely of a cash or deferred arrangement which meets the requirements of Section 401(k)(12) of the Code and matching contributions with respect to which the requirements of Section 401(m)(11) of the Code are met). The addendum should include the name of the other plan, the minimum benefit that will be provided under such other plan, and the employees who will receive the minimum benefit under such other plan. SECTION IV. VESTING OF EMPLOYER CONTRIBUTIONS 1. Applicability. This section shall apply to Participants with accrued benefits derived from Matching Employer Contributions and Discretionary Employer Contributions who complete an Hour of Service under the Plan after December 31, 2001, with respect to benefits derived from Matching Employer Contributions and Discretionary Employer Contributions that accrue after December 31, 2001. 2. Vesting Schedule. If a Participant or Former Participant is Separated from Service for any reason other than Retirement, Early Retirement, death, or Disability, such Participant or Former Participant shall be entitled to the sum of the vested percentage at the date he is Separated from Service of the total amount credited to the Participant's Matching Employer Contribution Account, Discretionary Employer Contribution Account, W & B Plan Rollover Account, and ESOP Transfer Account, if any. The Vested Percentage shall be determined as follows: YEARS OF VESTING SERVICE NONFORFEITABLE PERCENTAGE ------------------------ ------------------------- 2 20% 3 40% 4 60% 5 80% 6 100% SECTION V. DIRECT ROLLOVERS OF PLAN DISTRIBUTIONS 1. Effective Date. This section shall apply to distributions made after December 31, 2001. 2. Modification of Definition of Eligible Retirement Plan. For purposes of the direct rollover provisions in Section 11.5 of the Plan, an eligible retirement plan shall also mean an annuity contract described in Section 403(b) of the Code and an eligible plan under Section 457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from this Plan. The definition of eligible retirement plan shall also apply in the case of a distribution to a surviving spouse, or to a spouse or former spouse who is the alternate payee under a qualified domestic relation order, as defined in Section 414(p) of the Code. 3. Modification of Definition of Eligible Rollover Distribution to Exclude Hardship Distributions. For purposes of the direct rollover provisions in Section 11.5 of the Plan, any amount that is distributed on account of hardship shall not be an eligible rollover distribution and the distributee may not elect to have any portion of such a distribution paid directly to an eligible retirement plan. 4. Modification of Definition of Eligible Rollover Distribution to Include After-tax Employee Contributions. For purposes of the direct rollover provisions in Section 11.5 of the Plan, a portion of a distribution shall not fail to be an eligible rollover distribution merely because the portion consists of after-tax employee contributions which are not includible in gross income. However, such portion may be transferred only to an individual retirement account or annuity described in Section 408(a) or (b) of the Code, or to a qualified defined contribution plan described in Section 401(a) or 403(a) of the Code that agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible. SECTION VI. ROLLOVERS FROM OTHER PLANS Effective Date. This section shall be effective January 1, 2002. DIRECT ROLLOVER: The Plan will accept a direct rollover of an eligible rollover distribution from (i) a qualified plan described in Section 401(a) or 403(a) of the Code, excluding after-tax employee contributions; (ii) an annuity contract described in Section 403(b) of the Code, excluding after-tax employee contributions; and (iii) an eligible plan under Section 457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state. PARTICIPANT ROLLOVER CONTRIBUTIONS FROM OTHER PLANS: The Plan will accept a Participant contribution of an eligible rollover distribution from (i) a qualified plan described in Section 401(a) or 403(a) of the Code; (ii) an annuity contract described in Section 403(b) of the Code; and (iii) an eligible plan under Section 457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state. SECTION VII. ROLLOVERS DISREGARDED IN INVOLUNTARY CASH-OUTS 1. Applicability and Effective Date. This section shall be effective for distributions after December 31, 2001. 2. Rollovers Disregarded in Determining Value of Account Balance for Involuntary Distributions. For purposes of Section 11.1(f) of the Plan, the value of a Participant's nonforfeitable account balance shall be determined without regard to that portion of the account balance that is attributable to rollover contributions (and earnings allocable thereto) within the meaning of Sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16) of the Code. If the value of the Participant's nonforfeitable account balance as so determined is $5,000 or less, the Plan shall immediately distribute the Participant's entire nonforfeitable account balance. SECTION VIII. REPEAL OF MULTIPLE USE TEST The multiple use test described in Treasury Regulation Section 1.401(m)-2 and Section 4.2(b)(iii)(A) of the Plan shall not apply for Plan Years beginning after December 31, 2001. SECTION IX. ELECTIVE DEFERRAL - CONTRIBUTION LIMITATION No Participant shall be permitted to have elective deferrals made under this Plan, or any other qualified plan maintained by the employer during any taxable year, in excess of the dollar limitation contained in Section 402(g) of the Code in effect for such taxable year, except to the extent permitted under Section X of this amendment and Section 414(v) of the Code, if applicable. SECTION X. CATCH-UP CONTRIBUTIONS Effective after December 31, 2001, all employees who are eligible to make elective deferrals under this Plan and who have attained age 50 before the close of the Plan Year shall be eligible to make catch-up contributions in accordance with, and subject to the limitations of, Section 414(v) of the Code. Such catch-up contributions shall not be taken into account for purposes of the provisions of the Plan implementing the required limitations of Sections 402(g) and 415 of the Code. The Plan shall not be treated as failing to satisfy the provisions of the Plan implementing the requirements of section 401(k)(3), 401(k)(11), 401(k)(12), 410(b), or 416 of the Code, as applicable, by reason of the making of such catch-up contributions. Such catch-up contributions will not be matched by Matching Employer Contributions. SECTION XII. DISTRIBUTION UPON SEVERANCE FROM EMPLOYMENT 1. Effective Date. This section shall apply for distributions after December 31, 2001, regardless of when the severance from employment occurred. 2. New Distributable Event. A Participant's elective deferrals, qualified nonelective contributions, qualified matching contributions, and earnings attributable to these contributions shall be distributed on account of the Participant's severance from employment. However, such a distribution shall be subject to the other provisions of the Plan regarding distributions, other than provisions that require a separation from service before such amounts may be distributed. SECTION XIII. PLAN LOANS FOR OWNER-EMPLOYEES AND SHAREHOLDER EMPLOYEES Effective for Plan loans made after December 31, 2001, Plan provisions prohibiting loans to any owner-employee or shareholder-employee shall cease to apply. SECTION XIV. AMENDMENT TO LIMIT ON SAVINGS CONTRIBUTIONS Effective April 1, 2002, Section 4.1(a) of the Plan shall be amended as underlined to be and read as follows: (a) Subject to the provisions of Sections 4.1(d) and (f), each Participant may elect that an amount, in any whole percentage of his Compensation, not to exceed seventy-five percent (75%) of his Compensation, be withheld from his Compensation and contributed by his Employer to the Trust. The Plan Administrator may permit a Participant to make an election under this Section through any written, electronic or telephonic means authorized by the Committee. Such contributions shall be known as Savings Contributions. Executed this 3 day of January, 2002. FROZEN FOOD EXPRESS INDUSTRIES, INC. By: /s/ Stoney M. Stubbs, Jr. ------------------------- Stoney M. Stubbs, Jr. Title: Chairman of the Board and Chief Executive Officer (Principal Executive Officer) EX-10 8 ex1019.txt EXHIBIT 10.19 EXHIBIT 10.19 ------------- ASSET PURCHASE AGREEMENT Between W&B NEWCO, L.P. Buyer, And W&B REFRIGERATION SERVICE COMPANY, Seller For the Purchase and Sale of Certain Assets of W&B Refrigeration Service Company Dated as of December 26, 2001 ----------------------------- TABLE OF CONTENTS Page ---- ARTICLE I DEFINITIONS.........................................1 1.1. "Assumed Contracts"....................................1 1.2. "Assumed Liabilities"..................................1 1.3. "Assumption Agreement".................................1 1.4. "Bill of Sale".........................................1 1.5. "Business Intellectual Property".......................1 1.6. "Buyer Documents"......................................2 1.7. "Buyer's Services".....................................2 1.8. "Cash Purchase Price"..................................2 1.9. "Closing"..............................................2 1.10. "Closing Date"........................................2 1.11. "Closing Date Balance Sheet"..........................2 1.12. "Closing Date Net Asset Value"........................2 1.13. "Code"................................................2 1.14. "Consulting Services Agreement".......................2 1.15. "Customer List".......................................3 1.16. "Deed"................................................3 1.17. "Effective Time"......................................3 1.18. "Employee Benefits"...................................3 1.19. "Employee Plans"......................................3 1.20. "Employees"...........................................3 1.21. "Equity Purchase Price"...............................3 1.22. "Estimated Net Asset Value"...........................3 1.23. "Estimated Purchase Price"............................3 1.24. "ERISA"...............................................4 1.25. "Excluded Assets".....................................4 1.26. "Excluded Inventory"..................................4 1.27. "Governmental Body"...................................4 1.28. "Intercreditor Agreement".............................4 1.29. "Inventory"...........................................4 1.30. "Knowledge of Buyer," "Buyer's Knowledge".............4 1.31. "Knowledge of Seller," "Seller's Knowledge"...........4 1.32. "Leased Real Property"................................4 1.33. "Leases"..............................................5 1.34. "Loan Agreement"......................................5 1.35. "Liabilities".........................................5 1.36. "Lien"................................................5 1.37. "Losses"..............................................5 1.38. "Machinery and Equipment".............................5 1.39. "Non-Competition Agreements"..........................5 1.40. "November Balance Sheet"..............................5 1.41. "Other Property"......................................5 1.42. "Partnership Agreement"...............................5 1.43. "Parts and Used Unit Inventory".......................6 1.44. "Permitted Liens".....................................6 1.45. "Person"..............................................6 1.46. "Pledge Agreement"....................................6 1.47. "Preliminary Balance Sheet"...........................6 1.48. "Purchased Assets"....................................6 1.49. "Purchase Price"......................................6 1.50. "Purchased Real Property".............................6 1.51. "Real Property".......................................6 1.52. "Refurbishment Allowance".............................6 1.53. "Refurbishment Cost"..................................6 1.54. "Security Agreement"..................................6 1.55. "Seller Documents"....................................6 1.56. "Seller Loan Documents"...............................6 1.57. "Seller Note".........................................7 1.58. "Shareholders' Agreement".............................7 1.59. "Tax" or "Taxes"......................................7 1.60. "UCC-1s"..............................................7 ARTICLE II PURCHASE AND SALE OF PURCHASED ASSETS..............7 ARTICLE III ASSUMPTION OF LIABILITIES.........................8 ARTICLE IV CLOSING............................................9 4.1. Closing Date...........................................9 4.2. Deliveries at the Closing..............................9 ARTICLE V PURCHASE PRICE AND PURCHASE PRICE ADJUSTMENTS......11 5.1. Purchase Price........................................11 5.2. Purchase Price Adjustment.............................11 5.3. Allocation of Purchase Price..........................12 ARTICLE VI REPRESENTATIONS AND WARRANTIES OF SELLER..........12 6.1. Organization..........................................12 6.2. Authority; Consents and Approvals.....................13 6.3. Title to Purchased Assets.............................13 6.4. Assumed Contracts.....................................13 6.5. No Injunctions or Orders..............................13 6.6. Real Property.........................................13 6.7. Employees.............................................14 6.8. Employee Benefits and Employee Plans..................14 6.9. Compliance with Laws..................................14 6.10. Litigation...........................................14 6.11. Brokers..............................................15 ARTICLE VII REPRESENTATIONS AND WARRANTIES OF BUYER..........15 7.1. Organization..........................................15 7.2. Authority, Consents and Approvals.....................15 7.3. No Injunctions or Orders..............................15 7.4. Brokers...............................................15 7.5. Litigation............................................16 7.6. No Knowledge..........................................16 ARTICLE VIII INDEMNIFICATION.................................16 8.1. Survival of Representations and Warranties............16 8.2. Indemnities by Seller.................................16 8.3. Indemnities by Buyer..................................16 8.4. Indemnity Procedures..................................16 8.5. Dollar and Other Limitations..........................17 8.6. Indemnification by FFE................................17 ARTICLE IX FURTHER AGREEMENTS................................18 9.1. Change of Name........................................18 9.2. Confidentiality.......................................18 9.3. Defense of Claims.....................................18 9.4. Additional Actions by Seller and Buyer................18 9.5. Certain Liabilities; Prorations.......................19 9.6. Announcements.........................................19 9.7. Attorneys' Fees and Other Transaction Costs...........19 9.8. Books and Records.....................................20 9.9. Employees.............................................20 9.10. Excluded Inventory as Fee for Services...............22 9.11. Accounts Payable; Accounts Receivable................22 9.12. Refurbishment Cost Adjustment........................22 9.13. Interim Services.....................................23 ARTICLE X MISCELLANEOUS .....................................23 10.1. Entire Understanding, Waiver, Etc.....................23 10.2. Severability..........................................24 10.3. Accounting Terms......................................24 10.4. Notices...............................................24 10.5. Successors and Assigns................................25 10.6. Waivers...............................................25 10.7. Counterparts..........................................25 10.8. Attorneys' Fees and Costs.............................25 10.9. Headings..............................................25 10.10. Governing Law........................................25 SCHEDULES AND EXHIBITS ---------------------- EXHIBIT A ASSIGNMENT AND ASSUMPTION AGREEMENT EXHIBIT B BILL OF SALE EXHIBIT C CONSULTING SERVICES AGREEMENT EXHIBIT D SPECIAL WARRANTY DEED EXHIBIT E INTERCREDITOR AGREEMENT EXHIBIT F-1 LEASE EXHIBIT F-2 LEASE EXHIBIT F-3 LEASE EXHIBIT G LOAN AGREEMENT EXHIBIT H-1 NON-COMPETITION AGREEMENT EXHIBIT H-2 CHISOLM NON-COMPETITION AGREEMENT EXHIBIT I PARTNERSHIP AGREEMENT EXHIBIT J-1 PLEDGE AGREEMENT EXHIBIT J-2 PLEDGE AGREEMENT EXHIBIT J-3 PLEDGE AGREEMENT EXHIBIT K SECURITY AGREEMENT EXHIBIT L SELLER NOTE EXHIBIT M SHAREHOLDERS' AGREEMENT EXHIBIT N-1 UCC-1 EXHIBIT N-2 UCC-1 ASSET PURCHASE AGREEMENT ======================== This Asset Purchase Agreement (this "Agreement") is entered into as of the 21st day of December, 2001, by and between W&B REFRIGERATION SERVICE COMPANY, a Delaware corporation ("Seller"), which will change its name to AirPro Holdings, Inc. following Closing (as defined below), and W&B NEWCO, L.P. a Texas limited partnership ("Buyer"), which will change its name to W&B Service Company, L.P. following Closing. WHEREAS, Seller is an indirect wholly-owned subsidiary of Frozen Food Express Industries, Inc. ("FFE"); and WHEREAS, Seller operates a business that repairs and maintains trailers and trailer refrigeration units and sells new and used trailers and trailer refrigeration units and the parts thereto (the "Business"); and WHEREAS, Seller desires to sell to Buyer, on the terms and subject to the conditions of this Agreement, the Purchased Assets (as defined below) used by Seller in the Business, and Buyer desires to acquire the Purchased Assets and to assume certain Assumed Liabilities (as defined below) of the Business upon the terms set forth in this Agreement; NOW, THEREFORE, intending to be legally bound, the parties agree as follows: ARTICLE I ========= DEFINITIONS ----------- The terms defined in this Article shall have the following meanings: 1.1. "Assumed Contracts" means those certain leases, contracts and agreements pertaining to the Business to which Seller is a party, including, but not limited to those listed on Schedule 1.1. 1.2. "Assumed Liabilities" shall have the meaning set forth in Article III. 1.3. "Assumption Agreement" means that certain Assignment and Assumption Agreement, in the form attached as Exhibit A to this Agreement, to be executed and delivered by Buyer and Seller at the Closing, pursuant to which Seller will assign the Assumed Contracts to Buyer and Buyer will assume the Assumed Contracts. 1.4. "Bill of Sale" means that certain Bill of Sale, in the form attached as Exhibit B to this Agreement, to be executed and delivered by Seller to Buyer at the Closing. 1.5. "Business Intellectual Property" means all rights to the trade name "W&B" and all derivatives thereof, including "W&B Refrigeration Service Company," "W&B Holdings," "W&B Management," and "W&B Service Company," and all of Seller's rights to use the trade names "Carrier Southwest," "Carrier Transicold of Dallas," "Carrier Transicold of Texas," and all derivatives thereof, and all of Seller's rights to and interest in all trademarks, service marks, trade names, Internet domain names, and logos together with all goodwill, registrations and applications related to the foregoing; all inventions, patents (including any registrations, continuations, renewals and applications for any of the foregoing); all copyrightable works, all copyrights (including any registered copyrights and registration applications); intellectual property license agreements; software (excluding commercially available mass-market software (e.g. Microsoft Windows, WordPerfect, Excel)); trade secrets, processes, confidential business information, technical formulas, technology and know-how, data, designs, drawings, specifications, supplier lists, pricing and cost information, business and marketing plans and proposals, and all copies and tangible embodiments thereof (in whatever form or medium) (collectively, "Intellectual Property"); in the case of each of the foregoing, that are primarily used in the conduct of the Business or are known by Seller to be necessary for the continued conduct of the Business by Buyer after the Closing Date, other than Excluded Assets. 1.6. "Buyer Documents" shall have the meaning set forth in Section 7.2. 1.7. "Buyer's Services" means any future services provided to Seller and its affiliates by Buyer, excluding equipment sales and parts sold across the counter. 1.8. "Cash Purchase Price" means six million eight hundred thirty-one thousand one hundred fifteen and No/100 Dollars ($6,831,115.00); provided, however, that such amount is subject to adjustment by the parties hereto pursuant to the adjustments to the Purchase Price described in Section 5.2. 1.9. "Closing" shall have the meaning set forth in Section 4.1. 1.10. "Closing Date" means the date on which a Closing actually occurs pursuant to Section 4.1 hereof. 1.11. "Closing Date Balance Sheet" means a balance sheet of the Business as of the Closing prepared in accordance with the methodologies used in calculating the November Balance Sheet. 1.12. "Closing Date Net Asset Value" means the net asset value of the Business as of the Closing Date, the components of which will consist of (i) accounts receivable, less allowance for doubtful accounts, (ii) inventories (less the amount of Excluded Inventory), (iii) all other current assets, (iv) investments and other assets, (v) property and equipment (including (A) the Purchased Real Property, but excluding all other land and buildings, (B) service equipment and (C) computer and related property), less accumulated depreciation, minus (vi) trade accounts payable, (vii) accrued payroll, (viii) all other accrued liabilities, and (ix) long term debt, all determined consistently with the principles used to prepare the Preliminary Balance Sheet. 1.13. "Code" means the Internal Revenue Code of 1986, as amended, or any successor statute thereto. 1.14. "Consulting Services Agreement" means that certain Consulting Services Agreement, in the form attached hereto as Exhibit C to be executed by Buyer and Seller at Closing. 1.15. "Customer List" means the name of each customer of Seller with respect to the Business to whom Seller has made sales or has provided services as of the Closing Date or within one year period prior to Closing, and the address of each such customer. 1.16. "Deed" means that certain Special Warranty Deed, in substantially the form attached as Exhibit D to this Agreement, to be executed and delivered by Seller. 1.17. "Effective Time" means the effective time of Closing specified in Section 4.1 hereof. 1.18. "Employee Benefits" means all wages, accrued vacation, sick leave and personal day payments, employment contracts and collective bargaining agreements, salary continuation (for disability or otherwise), scholarship programs or other compensatory practices, whether formal or informal, for the benefit of one or more present or former Employees or their beneficiaries, medical, dental and hospitalization, Medicare premium reimbursement, sick pay, sickness and accident benefits, short- and long-term disability benefits, workers' compensation, life insurance (and any other death benefits) and any and all other individual and group benefits under all Employee Plans and other arrangements in effect or covering one or more Employees or retired, disabled or terminated Employees (including their dependents and beneficiaries). 1.19. "Employee Plans" means any of the following, which is or was sponsored by Seller or Buyer or any member of any controlled group (within the meaning of the Code or ERISA) to which Seller or Buyer belongs, or to which Seller or Buyer or any member of the controlled group of Seller or Buyer contributes or contributed, with respect to Employees or former employees of the Business: any plan described in Section 3(3) of ERISA, any employee welfare benefit plan (within the meaning of Section 3(l) of ERISA) or any employee pension benefit plan (within the meaning of Section 3(2) of ERISA), including all collectively bargained plans, and all plans or policies providing for "fringe benefits" or Employee Benefits, and any trust, escrow or other agreement related thereto. 1.20. "Employees" means all employees of Seller whose services are or have been used by or in connection with the Business immediately prior to the Effective Time, including employees on leave of absence, short-term and long-term disability, layoff status with recall rights and part-time employees. 1.21. "Equity Purchase Price" means a 19.9% partnership interest in Buyer, comprised of a 19.9% interest in JM&R, Inc., the sole general partner of Buyer (the "General Partner"), and a 19.9% limited partner interest in Buyer, the implied value of which is One Million and No/100 Dollars ($1,000,000.00) at the Effective Time). 1.22. "Estimated Net Asset Value" means the estimated amount of net asset value of the Business as calculated pursuant to the Preliminary Balance Sheet." 1.23. "Estimated Purchase Price" means the estimate prepared prior to Closing of the Purchase Price payable to Seller by Buyer as consideration for the sale and assignment of the Purchased Assets. 1.24. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute thereto. 1.25. "Excluded Assets" means those assets to be retained by Seller and which are not to be included as part of the Purchased Assets, including the following assets of Seller: (a) all assets of Seller that are not used in the Business and are identified on Schedule 1.25, including those assets of Seller that are used primarily in connection with the operation of Airpro, a division of Seller ("Airpro"); (b) cash, except for petty cash at each of Seller's branch locations at which the Business is operated; (c) the Excluded Inventory; (d) all real property owned by Seller, except the Purchased Real Property; (e) the shares of stock of Compressors Plus, Inc. owned by Seller; and (f) all minute books, stock transfer records, tax records and financial statements of Seller. 1.26. "Excluded Inventory" means the Inventory described on Schedule 1.26 having a value of approximately Two Million Two Hundred Ninety-Three Thousand Two Hundred Ninety and No/100 Dollars ($2,293,290.00). 1.27. "Governmental Body" means any federal, state, local or other governmental department, commission, board, bureau, agency, instrumentality or other authority. 1.28. "Intercreditor Agreement" means the subordination agreement between Seller and the lender providing financing to Buyer for the purchase of the Purchased Assets (the "Senior Lender") in the form attached as Exhibit E. 1.29. "Inventory" means all inventories of Seller relating to the Business, including raw materials and supplies, parts and goods in process. 1.30. "Knowledge of Buyer," "Buyer's Knowledge" or any substantially similar term means the actual knowledge of Buyer, John B. Chisolm, Donald Rutledge, the General Partner or any officers of Buyer. 1.31. "Knowledge of Seller," "Seller's Knowledge" or any substantially similar term means the actual knowledge of the following individuals, Stoney M. Stubbs, Jr., S.S. McKenney III, F. Dixon McElwee, Jr., Thomas Yetter and Charles Robertson. 1.32. "Leased Real Property" means the parcels of real property owned or leased by Seller and located in Fort Worth, Houston, and Harlingen, Texas, which shall be leased or subleased by Seller to Buyer pursuant to the Leases. The Leased Real Property shall also mean the portion of the premises owned by Seller and located in Mesquite, Texas which shall be leased to Buyer pursuant to an oral month to month lease. 1.33. "Leases" means the lease or sublease agreements attached hereto as Exhibits F-1, F-2, and F-3 with respect to the Leased Real Property, and containing such options for purchase of the Leased Real Property as may be specified in such Leases. 1.34. "Loan Agreement" means the subordinated loan agreement between Buyer and Seller relating to the Seller Note, in the form attached as Exhibit G. 1.35. "Liabilities" means any indebtedness, liability, loss, damage, deficiency, or obligation, known or unknown, fixed or unfixed, choate or inchoate, liquidated or unliquidated, secured or unsecured, accrued, absolute, contingent or otherwise, whether or not of the kind required by generally accepted accounting principles to be set forth on a financial statement, including any liability for Taxes. 1.36. "Lien" means any lien, pledge, mortgage, security interest, claim, lease, charge, option, right of first refusal, easement, servitude, transfer restriction, or any other encumbrance, restriction or limitation whatsoever. 1.37. "Losses" means any and all losses, costs, expenses, obligations, liabilities, or damages, including attorneys' fees and disbursements. 1.38. "Machinery and Equipment" means all of the office equipment, machinery, vehicles, other equipment and computer hardware and software primarily utilized by Seller in the Business, including, but not limited to, those items identified on Schedule 1.38 attached hereto. 1.39. "Non-Competition Agreements" means the non-competition agreement among Buyer, Seller and FFE in the form attached hereto as Exhibit H-1 (the "Seller Non-Competition Agreement") and the non-competition agreement between Buyer and John B. Chisolm in the form attached hereto as Exhibit H-2, (the "Chisolm Non-Competition Agreement"). 1.40. "November Balance Sheet" means the balance sheet of Seller dated as of November 30, 2001, attached as Schedule 1.40. 1.41. "Other Property" means all guarantees, warranties, books and records, files, documents, supplies, and other personal property primarily owned or used by Seller in conducting the Business as it is presently being conducted by Seller, other than the Excluded Assets. 1.42. "Partnership Agreement" means the partnership agreement governing Buyer and, after the Closing, means the partnership agreement as amended and restated for the payment of the Equity Purchase Price and to include matters relating to Seller's investment in Buyer, in the form attached as Exhibit I, also referred to as the "Amended and Restated Partnership Agreement." 1.43. "Parts and Used Unit Inventory" means the Parts and Used Unit Inventory retained by Seller as part of the Excluded Inventory. 1.44. "Permitted Liens" means those Liens on the Purchased Assets listed on Schedule 1.44 hereto. 1.45. "Person" means an individual, partnership, corporation, trust, unincorporated organization, association or joint venture or Governmental Body. 1.46. "Pledge Agreement" means, collectively, the pledges of (i) the partnership interests owned by John B. Chisolm and the General Partner in the Partnership and (ii) the shares of stock owned by John B. Chisolm in the General Partner, in each case to secure the Seller Note, in the forms attached as Exhibits J-1, J-2 and J-3. 1.47. "Preliminary Balance Sheet" means an estimated balance sheet of the Business as of November 30, 2001, prepared by Seller in accordance with the methodologies used in calculating the November Balance Sheet and delivered to Buyer by Seller on or before the Closing Date. 1.48. "Purchased Assets" shall have the meaning set forth in Article II. 1.49. "Purchase Price" shall have the meaning set forth in Section 5.1. 1.50. "Purchased Real Property" means the real property owned by Seller located at 660 Ft. Worth Avenue, Dallas, Texas 75208, together with all buildings, improvements and fixtures located thereon and any easements, rights of way or appurtenances thereto. 1.51. "Real Property" means all real property owned or leased by Seller in connection with the Business, including the Leased Real Property and the Purchased Real Property, identified on Schedule 1.51 hereto. 1.52. "Refurbishment Allowance" means $125,000.00, which amount is included in the Estimated Purchase Price as the estimated Refurbishment Cost. 1.53. "Refurbishment Cost" means the actual cost incurred by Buyer to refurbish the Used Trailer Inventory included in the Excluded Inventory identified on Schedule 1.25 to standard trade specifications. 1.54. "Security Agreement" means the subordinated security agreement establishing a second lien on all the Purchased Assets other than the Real Property to secure the Seller Note in the form attached as Exhibit K. 1.55. "Seller Documents" shall have the meaning set forth in Section 6.2. 1.56. "Seller Loan Documents" means the Seller Note, Loan Agreement, Pledge Agreement, Security Agreement, UCC-1s, Intercreditor Agreement and such other documents as may be required pursuant to the terms of the Loan Agreement. 1.57. "Seller Note" means the subordinated term note by Buyer in favor of Seller in the principal amount of four million one hundred thirty-four thousand seven hundred eighty-five and No/100 Dollars ($4,134,785.00) attached hereto as Exhibit L. 1.58. "Shareholders' Agreement" shall mean the agreement among the General Partner, John B. Chisolm and Seller governing the ownership and disposition of shares in the General Partner and certain other agreements between the Shareholders of the General Partner in the form attached hereto as Exhibit M. 1.59. "Tax" or "Taxes" means any federal, state, local or foreign income, gross receipt, license, payroll, employment, excise, severance, occupation, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not. 1.60. "UCC-1s" shall mean the UCC-1 financial statements filed relating to the security for the Seller Note in the forms attached as Exhibits N-1 and N-2. ARTICLE II ========== PURCHASE AND SALE OF PURCHASED ASSETS ------------------------------------- On the terms and subject to the conditions hereof, at Closing, Seller shall sell, transfer, assign, convey and deliver to Buyer, and Buyer shall purchase, acquire and accept from Seller all of Seller's right, title and interest in and to all properties and assets, both tangible and intangible that are used in, or arise in connection with, the conduct of the Business (the "Purchased Assets") including without limitation: (a) all prepaid expenses; (b) the Customer List; (c) the Machinery and Equipment; (d) all accounts, notes and other receivables of Seller; (e) the Inventory (other than the Excluded Inventory); (f) all Governmental Body licenses, permits, certificates of authority, authorizations, approvals, registrations, franchises and similar consents, to the extent assignable; (g) the Business Intellectual Property; (h) the Purchased Real Property and the leasehold interests in the Leased Real Property, including all improvements and fixtures thereon; (i) the Other Property; (j) the rights and interests of Seller under the Assumed Contracts and (k) petty cash located at each of Seller's branch locations at which time the Business is operated. All of the personal property is sold to Buyer "AS IS, WHERE IS." ARTICLE III =========== ASSUMPTION OF LIABILITIES ------------------------- On the terms and subject to the conditions hereof, at Closing, Buyer shall assume, perform and discharge when and as the same become due, each of the following liabilities relating to the Business (the "Assumed Liabilities"): (i) all obligations of Seller arising from and after the Closing Date under the Assumed Contracts and permits, licenses, authorizations and approvals of Seller related to the Business; (ii) all trade accounts payable and accrued expenses incurred by Seller in connection with the Business and reflected on the books and records of Seller as of the Effective Time; (iii) all liabilities arising from and after the Closing Date out of all employment-related matters resulting from decisions of Buyer made on or after the Effective Time, including but not limited to any and all liabilities arising under the Worker Adjustment and Retraining Notification Act, the Family Medical Leave Act, state and federal discrimination statutes and the Fair Labor Standards Act; (iv) all those Liabilities of Seller which expressly are set forth on Schedule 3; and (v) all liabilities of the Business arising from and after the Closing Date. Notwithstanding anything to the contrary set forth herein, the Assumed Liabilities shall expressly exclude: (i) any Liabilities of Seller for unpaid Taxes for periods prior to Closing, including any liability for income Taxes arising in connection with the consummation of the transactions contemplated hereby; (ii) any Liabilities of Seller for costs or expenses incurred in connection with this Agreement, or the transactions contemplated hereby, expressly assumed by Seller in Section 9.7 hereof that are not identified in the Financial Statements; and (iii) any Liabilities of Seller arising out of or in connection with the operations of Airpro. ARTICLE IV ========== CLOSING ------- 4.1. Closing Date. ------------ (a) Closing hereunder (the "Closing") shall take place simultaneously with the execution and delivery of this Agreement by the parties (the date of such execution and delivery, the "Closing Date"). (b) The effective time of the Closing hereunder will be deemed to have occurred at 5:00 p.m. (Central time) on the Closing Date (the "Effective Time"). 4.2. Deliveries at the Closing. ------------------------- (a) At the Closing, Seller will: (i) deliver to Buyer a duly executed Bill of Sale; (ii) deliver to Buyer a duly executed counterpart of the Assumption Agreement; (iii) deliver to Buyer a duly executed counterpart of the Consulting Services Agreement; (iv) deliver to Buyer a duly executed Deed with respect to the Purchased Real Property; (v) deliver to Buyer a duly executed counterpart of each of the Leases; (vi) deliver to Buyer the titles to and applications for transfer of the vehicles included in the Purchased Assets; (vii) deliver to Buyer a duly executed counterpart of the Amended and Restated Partnership Agreement; (viii) deliver to Buyer a duly executed counterpart of the Shareholders' Agreement; (ix) deliver all the Seller Loan Documents to be executed by Seller; (x) deliver to Buyer duly executed copies of the consent and approvals of third parties required in connection with the Assumed Contracts and Assigned Leases, including the consent of the Carrier Transicold Division of United Technologies Corporation; (xi) deliver to Buyer a counterpart of the Seller Non-Competition Agreement duly executed by Seller and FFE; (xii) deliver to Buyer a Certificate of the Secretary of Seller, including resolutions of the Board of Directors of Seller authorizing the execution, delivery and performance of this Agreement; (xiii) deliver to Buyer a UCC-3 Financing Statement Amendment releasing the lien of Seller's lender on the Purchased Assets; and (xiv) deliver to Buyer all such other deeds, endorsements, assignments and other instruments, documents and agreements as Buyer may reasonably request to carry out the transfers and assignments contemplated by this Agreement and to comply with the terms hereof. (b) At the Closing, Buyer will: (i) deliver to Seller a duly executed counterpart of the Assumption Agreement duly executed by Buyer; (ii) deliver to Seller a duly executed counterpart of the Consulting Services Agreement; (iii) deliver to Seller a duly executed counterpart of each of the Leases; (iv) deliver to Seller the Seller Loan Documents duly executed by Buyer, John B. Chisolm and the General Partner, as appropriate; (v) deliver to Seller a duly executed counterpart of the Amended and Restated Partnership Agreement, (vi) deliver to Seller a duly executed counterpart of the Shareholders' Agreement; (vii) deliver to Seller the Cash Purchase Price by wire transfer of immediately available funds; (viii) deliver to Seller duly executed counterparts of the Seller Non-Competition Agreement and the Chisolm Non-Competition Agreement; (ix) deliver to Seller a Certificate of the sole general partner of Borrower and a Certificate of the Secretary of the General Partner authorizing the execution, delivery and performance of this Agreement; (x) deliver to Seller certificates of insurance issued to Buyer evidencing Buyer's compliance with the insurance provisions of the Seller Loan Documents and the Leases; and (xi) deliver to Seller, such other instruments, documents or agreements as Seller may reasonably request to carry out the transactions contemplated by this Agreement and to comply with the terms hereof. ARTICLE V ========= PURCHASE PRICE AND PURCHASE PRICE ADJUSTMENTS --------------------------------------------- 5.1. Purchase Price. The purchase price payable to Seller by Buyer as consideration for the sale and assignment of the Purchased Assets (the "Purchase Price") shall consist of the sum of (i) the Cash Purchase Price, (ii) the Equity Purchase Price, (iii) the amount of the Seller Note, subject to adjustment as set forth in Section 5.2. 5.2. Purchase Price Adjustment. (a) Not later than thirty (30) days after the Closing Date, Seller will prepare and deliver to Buyer a statement (the "Closing Date Net Asset Value Statement"), certified by an appropriate senior executive officer of Seller, setting forth Seller's calculation of the Closing Date Net Asset Value of the Business as of the Closing Date. Upon delivery of the Closing Date Net Asset Value Statement, Seller shall provide Buyer and its representatives with reasonable access during business hours to the books and records of the Business in order to allow Buyer and its representatives to verify the accuracy of the calculation of the Closing Date Net Asset Value Statement. (b) (i) In the event that Buyer does not object to the Closing Date Net Asset Value Statement delivered by Seller by written notice of objection (the "Notice of Objection") delivered to Seller within ten (10) business days after the date on which the Closing Date Net Asset Value Statement was delivered to Buyer, such Notice of Objection to describe in reasonable detail Buyer's proposed adjustments to the Closing Date Net Asset Value Statement, the Closing Date Net Asset Value Statement shall be deemed final and binding. (ii) If Buyer delivers a timely Notice of Objection to Seller, then all undisputed amounts shall be released to the appropriate party and any remaining matters in dispute shall be resolved as follows: (A) Seller and Buyer shall promptly endeavor to agree upon the Closing Date Net Asset Value Statement. In the event that a written agreement as to the Closing Date Net Asset Value Statement has not been reached within ten (10) business days after the date of delivery by Buyer of the Notice of Objection, Seller's Closing Date Net Asset Value Statement, together with a description of any unresolved dispute, shall be submitted to the Dallas, Texas office of the American Arbitration Association (the "Arbitrator"). (B) Within thirty days of the submission of any dispute concerning the Closing Date Net Asset Value Statement to the Arbitrator, the Arbitrator shall render a decision in accordance with this Section 5.2 along with a statement of reasons therefor. The decision of the Arbitrator shall be final and binding upon each party hereto and deemed to be an arbitral award which may be entered in any court having competent jurisdiction. In the event Seller and Buyer submit any unresolved disputes to the Arbitrator for resolution pursuant to this Section 5.2(b)(ii), the losing party shall pay the fees and expenses of the Arbitrator and of counsel for the prevailing party. (c) If the Closing Date Net Asset Value of the Business as of the Closing Date as reflected on the final Closing Date Net Asset Value Statement is less than the Estimated Net Asset Value, then Seller shall be obligated to pay to Buyer the amount of any such deficiency within five (5) business days after the determination of the final Closing Date Net Asset Value Statement by (i) wire transfer of immediately available funds to an account designated in writing by Buyer, if Buyer and Seller agree that such amount is to be paid in Cash, (ii) a decrease in the equity interest in the Buyer by an appropriate adjustment to the Equity Purchase Price, if Buyer and Seller agree that such amount is to be paid in equity, or (iii) cancellation of the Seller Note in exchange for a substitute promissory note duly executed by Buyer with the only change to such Seller Note being the appropriate decrease to the principal amount of the Seller Note and the corresponding principal payments, if Buyer and Seller agree that such amount is to be paid by adjusting the Seller Note. If the Closing Date Net Asset Value of the Business as of the Closing Date as reflected on the final Closing Date Net Asset Value Statement exceeds the Estimated Net Asset Value, then Buyer shall be obligated to pay to Seller the amount of any such excess within five (5) business days after the determination of the final Closing Date Net Asset Value Statement at Buyer's election by (i) wire transfer of immediately available funds to an account designated in writing by Seller, if such amount is to be paid in Cash, (ii) an increase in the equity interest in the Buyer by an appropriate adjustment to the Equity Purchase Price, if such amount is to be paid in equity, or (iii) cancellation of the Seller Note in exchange for a substitute promissory note duly executed by Buyer with the only change to such Seller Note being the appropriate increase to the principal amount of the Seller Note and the corresponding adjustment to the principal payments, if such amount is to be paid by adjusting the Seller Note. Buyer and Seller shall make appropriate amendments to the Partnership Agreement, Seller Note or other appropriate documents in such components of the Purchase Price are adjusted and shall adjust the allocation of the Purchase Price as provided in Section 5.3 below. 5.3. Allocation of Purchase Price. At Closing, Buyer and Seller shall allocate the Purchase Price among the Purchased Assets. Buyer and Seller shall timely complete a Form 8594, Asset Acquisition Statement of Allocation, consistent with such allocation and shall file a copy of such form with its federal income tax return for the period that includes the Effective Time. Each of Buyer and Seller further agrees not to take any position inconsistent with such mutually agreed allocation for any tax purpose. ARTICLE VI ========== REPRESENTATIONS AND WARRANTIES OF SELLER ---------------------------------------- Seller hereby represents and warrants to Buyer as follows: 6.1. Organization. Seller is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has all requisite right, power and authority to own, lease and operate all of its properties and assets used in the Business and to carry out the Business as it is presently conducted. To the extent required by applicable law, Seller is licensed or qualified to do business in Texas, and in each jurisdiction in which the failure to be so qualified could reasonably be expected to have a material adverse effect on the Business or the transactions contemplated by this Agreement. 6.2. Authority; Consents and Approvals. Seller has all requisite corporate right, power and authority to execute, deliver and perform this Agreement and each other document referenced herein to be executed and delivered by Seller pursuant hereto (together, the "Seller Documents"). The execution, delivery, and performance of the Seller Documents by Seller has been duly and validly authorized and approved by all necessary corporate action. This Agreement constitutes a valid and legally binding obligation of Seller, and except as set forth on Schedule 6.2, the execution, delivery and performance of the Seller Documents by Seller will not violate Seller's Certificate of Incorporation or Bylaws, as each is amended to the date hereof, or to the knowledge of Seller, (a) violate in any material respect any applicable provision of law or any rule or regulation of any Governmental Body or any order, writ, injunction, judgment or decree of any court, administrative agency or Governmental Body, (b) require any consent under or constitute a default under any material agreement, indenture, mortgage, deed of trust, lease, or other instrument to which Seller is a party or by which it is bound (including any of the Assumed Contracts), or any license, permit or certificate held by it, or (c) result in the creation of any Lien upon any of the Purchased Assets or under any of the Assumed Contracts. 6.3. Title to Purchased Assets. At Closing, Seller will have the full right and power to convey and will convey to Buyer, effective as of the Effective Time, good and indefeasible title to the Purchased Assets, free and clear of any and all Liens except the Permitted Liens and for the lien of Seller's lender, which Seller shall cause to be released promptly following receipt by Seller of the Cash Purchase Price. 6.4. Assumed Contracts. Seller has made available to Buyer true and correct copies of all Assumed Contracts. To Seller's knowledge, such Assumed Contracts (a) constitute all of the contracts, leases and agreements material to the Business, other than (i) employment contracts or service contracts terminable at will without payment of any penalty, (ii) purchase orders entered into in the ordinary course of business, and (iii) miscellaneous contracts involving liabilities of not more than $250,000.00 in the aggregate, and (b) are in full force and effect and neither Seller nor any other party to such Assumed Contracts is in default thereunder. 6.5. No Injunctions or Orders. There are no necessary governmental consents, approvals or filings necessary for the sale by Seller of the Purchased Assets, and Seller is not subject to and, to Seller's knowledge, has not been threatened with any injunctions of any court or orders of any federal, state or municipal court or Governmental Body, which would limit or otherwise adversely affect Seller's ability to sell the Purchased Assets or to conduct the Business substantially as it is currently conducted by Seller. 6.6. Real Property. (a) Schedule 1.51 sets forth a true and complete list of the real property owned or leased by Seller which is used in the Business. (b) With respect to the Purchased Real Property: (i) to the knowledge of Seller, there are no pending or threatened condemnation proceedings, lawsuits or administrative actions relating to the Purchased Real Property; (ii) to the knowledge of Seller, there are no leases, subleases, licenses or other agreements, written or oral, granting to any party of right of use of occupancy of any portion of the Purchased Real Property; (iii) to the knowledge of Seller, there are no outstanding options or rights of first refusal to purchase the Purchased Real Property, or any portion thereof or interest therein; and (iv) to the knowledge of Seller, there are no Liens upon the Purchased Real Property other than those listed on Owner's Policy of Title Insurance to be obtained by Buyer with respect to the Purchased Real Property (the "Owner's Title Policy"). (c) To the knowledge of Seller, there are no Liens upon any of the leasehold interests of Seller in the Leased Real Property. To the knowledge of Seller, (i) each lease of each Leased Real Property is valid and binding and in full force and effect, (ii) Seller is not in default and has not received notice of alleged default, and (iii) no event has occurred which with notice or the passage of time would constitute a default under any of such leases. 6.7. Employees. Schedule 6.7 sets forth a true and complete list of all Employees of Seller who are engaged in the Business, along with their hourly rate or annual salary, title and bonus paid last year. 6.8. Employee Benefits and Employee Plans. Schedule 6.8 sets forth a list of all Employee Benefits and Employee Plans of Seller (each a "Seller Employee Plan" and collectively, the "Seller Employee Plans") currently provided to the Employees and relating to the Business. True and correct copies of the Seller Employee Plans and all amendments thereto have been delivered to Buyer. The administration of all Seller Employee Plans prior to date hereof will not result in the creation of any liens against the Purchased Assets or any liability on the part of Buyer therefor. 6.9. Compliance with Laws. To Seller's knowledge, Seller has complied in all material respects with the laws and regulations applicable to the Purchased Assets and the Business. 6.10. Litigation. To Seller's knowledge, there is no pending or threatened litigation against Seller relating to the Business that would result in a Lien against the Purchased Assets at Closing or otherwise prohibit Seller's ability to transfer the Purchased Assets to Buyer or to consummate the transactions contemplated by this Agreement. Except as set forth on Schedule 6.10 attached hereto, there is no suit, action, administrative proceeding, arbitration, grievance or other governmental investigation pending or, to the knowledge of Seller, threatened against Seller which individually or in the aggregate could create a Lien on the Purchased Assets or result in any liability on the part of Buyer therefor. 6.11. Brokers. No agent, broker, investment banker or employee of Seller or of FFE, or other person acting on behalf of or under the authority of Seller or FFE is or will be entitled to any broker's or finder's fee or any other commission or similar fee, directly or indirectly in connection with the transactions contemplated by this Agreement for which Buyer will be liable and no valid claim will exist against Buyer or against the Business or Purchased Assets for any broker's or finder's fee or any other commission or similar fee, directly or indirectly, in connection with the transactions contemplated by this Agreement. To Seller's knowledge, only the broker or finder listed on Schedule 6.11 alleges that a fee is due from Seller with respect to the transactions contemplated by this Agreement. ARTICLE VII =========== REPRESENTATIONS AND WARRANTIES OF BUYER --------------------------------------- Buyer hereby represents and warrants to Seller as follows: 7.1. Organization. Buyer is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Texas and has the full right, power and authority to own, lease and operate the Purchased Assets and the Business in the State of Texas. 7.2. Authority, Consents and Approvals. Buyer has all requisite partnership right, power and authority to execute, deliver and perform this Agreement and each other document and agreement to be executed and delivered by Buyer pursuant hereto (together, the "Buyer Documents"). The execution, delivery and performance of the Buyer Documents by Buyer have been duly and validly authorized and approved by all necessary partnership action. This Agreement constitutes a valid and legally binding obligation of Buyer. The execution, delivery and performance of the Buyer Documents by Buyer will not violate the Partnership Agreement as amended to the date hereof, and to the knowledge of Buyer, will not (a) violate any provision of law or any rule or regulation of any Governmental Body applicable to Buyer, or any order, writ, injunction, judgment or decree of any court, administrative agency or Governmental Body applicable to Buyer, (b) require any consent under or constitute a default under any agreement, indenture, mortgage, deed of trust, lease, license or other instrument to which Buyer is a party or by which it is bound, or any license, permit or certificate held by it, or (c) require any consent of, approval by, notice to or registration with any Governmental Body. 7.3. No Injunctions or Orders. Buyer is not engaged in, nor is there pending or, to Buyer's knowledge, threatened, any action, dispute, claim, litigation, arbitration, investigation or other proceeding at law or in equity or before any Governmental Body or other administrative agency nor are there any injunctions of any court or orders of any federal, state or municipal court or Governmental Body which could adversely affect Buyer's ability to perform any of its obligations hereunder or the transactions contemplated by this Agreement. 7.4. Brokers. No agent, broker, investment banker or other Person acting on behalf of Buyer or under its authority is or will be entitled to any broker's or finder's fee or any other commission or similar fee, directly or indirectly, in connection with the transactions contemplated by this Agreement for which Seller will be liable. 7.5. Litigation. There is no pending or, to Buyer's knowledge, threatened litigation against Buyer that would inhibit Buyer's ability to consummate the transactions contemplated by this Agreement. 7.6. No Knowledge. To the knowledge of Buyer, there are no (i) matters which (a) constitute a breach of a representation or warranty of Seller or (b) are a liability or contingent liability of Seller or (ii) written or oral agreements with any Person which would result in the deferral of any income in connection with the Business until after the Closing Date which are not known by the individuals listed in the definition of "Knowledge of Sellers." To the knowledge of Buyer, since the date of the November Balance Sheet, the Business has been carried on in the ordinary course and in substantially the manner as carried on prior thereto and no transaction has been entered into which is outside of the ordinary course of business or with an affiliated Person that is on other than arm's length terms that is not known to Seller. ARTICLE VIII ============ INDEMNIFICATION --------------- 8.1. Survival of Representations and Warranties. The representations contained in Sections 6.2, 6.3, 6.6(b), 6.8, 6.10, 6.11, 7.3, 7.4 and 7.6 of this Agreement shall survive the execution and delivery of this Agreement and continue in full force and effect for a period of one (1) year thereafter. EXCEPT AS EXPRESSLY PROVIDED HEREIN, THE REPRESENTATIONS AND WARRANTIES MADE BY ANY PARTY IN THIS AGREEMENT (INCLUDING ALL SCHEDULES HERETO) WILL NOT SURVIVE THE CLOSING. 8.2. Indemnities by Seller. After the Effective Time, Seller shall indemnify, defend and hold harmless Buyer from and against and in respect of any and all Losses that Buyer shall incur, suffer or have asserted against it, which arise, result from or relate to: (a) any material breach of any representation or warranty or covenant or agreement of Seller contained in this Agreement; and (b) all Liabilities of Seller other than the Assumed Liabilities, including but not limited to all Liabilities relating to the Purchased Assets or the Business that relate to the period prior to the Effective Time. 8.3. Indemnities by Buyer. After Closing, Buyer shall indemnify, defend and hold harmless Seller from and against and in respect of any and all Losses that Seller shall incur, suffer or have asserted against it, which arise, result from or relate to: (a) any material breach of any representation or warranty or covenant or agreement of Buyer contained in this Agreement; (b) any Assumed Liabilities; (c) any liabilities or contingent liabilities of Seller relating to the Business and not known to the individuals listed in the definition of "Seller's Knowledge" but known by the individuals listed in the definition of "Buyer's Knowledge," and (d) all Liabilities relating to the operation of the Business or the Purchased Assets arising after the Closing. 8.4. Indemnity Procedures. In case any claim, demand or action shall be brought against any party entitled to indemnity, such party shall notify the other party from whom indemnity is sought in writing within ten (10) days of the date such party receives notice thereof, and the indemnifying party shall assume the defense thereof, including the employment of counsel; provided, however, that any failure to notify the indemnifying party of a claim, demand or action shall not bar a claim of indemnity unless the indemnified party has been prejudiced or damaged, in which case the right to be indemnified shall be reduced by the Losses suffered as a result of such failure to give notice. If any party shall become aware of any facts which might result in any such claim, demand or action, such party shall promptly notify the other party from whom indemnity might be sought with respect thereto, which shall have the right to take such action as it may deem appropriate to resolve such matter. The indemnified party shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless the employment of such counsel has been specifically authorized by the indemnifying party or unless a conflict of interest exists between the interests of the indemnified and indemnifying parties that requires a separate representation, in which case the fees and expenses of separate counsel shall be paid by the indemnifying party. The indemnifying party shall not be liable for any settlement of any action effected without its consent, which consent will not be unreasonably withheld. 8.5. Dollar and Other Limitations. (a) Seller will not be liable to Buyer for indemnification hereunder until the Losses of Buyer in the aggregate under Section 8.2 exceed $20,000.00, and then only to the extent that such Losses exceed that amount. (b) The Buyer will not be liable to Seller for indemnification hereunder until the Losses of Seller in the aggregate under Section 8.3 exceed $20,000.00, and then only to the extent that such Losses exceed that amount. (c) The total amount payable pursuant to this Article VIII by Seller with respect to all Indemnification Claims brought by Buyer hereunder will not exceed $500,000.00. (d) The total amount payable pursuant to this Article VIII by Buyer with respect to all Indemnification Claims brought by Seller hereunder will not exceed $500,000.00. (e) No amount shall be payable to the extent of insurance, except to the extent there has been a claim of subrogation requiring payment by the party seeking indemnification hereunder, with respect to any Loss. 8.6. Indemnification by FFE. FFE shall indemnify, defend and hold harmless Buyer from and against and in respect of any and all Losses that Buyer shall incur which arise, result from or relate to: (a) any presently disclosed Liabilities associated with Compressors Plus, Inc., W&B Management, or Airpro, or (b) any Losses or Liabilities arising with respect to the Business and the Purchased Assets from any activity of Seller prior to Closing which is not an Assumed Liability and which is known to Seller at Closing. Such indemnification shall be provided only to the extent Buyer has made demand upon Seller, Seller does not contest such demand and Seller fails to so indemnify Buyer within 30 days thereafter. The obligation of FFE to indemnify Buyer hereunder and any amounts payable by FFE hereunder shall be subject to the same limitations as those of Seller pursuant to Sections 8.4 and 8.5 above. ARTICLE IX ========== FURTHER AGREEMENTS ------------------ 9.1. Change of Name. Within five business days after the Closing Date, Seller shall amend its Certificate of Incorporation to change its name from W&B Refrigeration Service Company to a name that does not include "W&B Refrigeration," "W&B Service," or any derivative of any such names and will cease using the "W&B Refrigeration" name or any component thereof and will not grant or renew any license to use such name or any component thereof. Following the Closing Date, Seller agrees to file a written consent and whatever other documents are required to permit Buyer (or any affiliate of Buyer) to incorporate, qualify or register using "W&B Refrigeration," "W&B Service" or any similar name. 9.2. Confidentiality. Whether or not the transactions contemplated by this Agreement are consummated, each of the parties hereto agrees to use its best efforts to keep confidential any and all information and data with respect to the other party which it has received as a result of any investigation made in connection with this Agreement and which is not otherwise available to the public; provided, however, that notwithstanding the foregoing, each of the parties hereto shall be free to disclose any such information or data (a) to the extent required by applicable law or (b) during the course of or in connection with any litigation or other proceeding based upon or in connection with the subject matter of this Agreement, including, without limitation, the failure of the parties to consummate the transactions contemplated hereby. 9.3. Defense of Claims. Buyer hereby agrees from and after Closing to use reasonable efforts to assist Seller and FFE with the defense, at Seller's or FFE's expense, of any proceeding brought against Seller or FFE, Seller's expense, arising out of or in connection with the Purchased Assets or this Agreement. 9.4. Additional Actions by Seller and Buyer. After the Closing, Seller and Buyer shall execute and deliver such documents and do and perform all such other acts as may reasonably be required by the other in order to consummate the transactions described in this Agreement. To the extent that Seller's rights under any Assumed Contract and Lease may not be assigned without the consent of another Person, which consent has not been obtained as of the Closing Date, and to the extent Buyer agrees to waive in writing obtaining such consent as a condition precedent to the Closing, this Agreement shall not constitute an agreement to assign the same if an attempted assignment would constitute a breach thereof or be unlawful. Seller shall use its commercially reasonable efforts (not including any payments) to obtain any such required consents as promptly as practicable. If any such consent shall not be obtained or if any attempted assignment without such consent would be ineffective or would impair Buyer's rights under the Assumed Contract and Lease in question, Seller shall act, for a period of one year after the Effective Time, or for the duration of the Assumed Contract and Lease in question, whichever is less, as Buyer's agent to obtain for Buyer the benefits thereunder and shall cooperate with Buyer in any other reasonable arrangement designed to provide such benefits to Buyer. Buyer shall execute and deliver all such documents and assumptions and do and perform all such other acts as may be reasonably requested by Seller to assure the assignment to and the assumption by Buyer of the Assumed Contracts and the Assumed Liabilities. 9.5. Certain Liabilities; Prorations. All unpaid ad valorem taxes, other property taxes and highway use taxes incurred prior to the Effective Time pertaining to the Purchased Assets shall be pro rated as of the Effective Time between Buyer and Seller, and Buyer shall assume the obligation to pay such prorated costs and taxes, including but not limited to, all unpaid ad valorem and other property taxes incurred in connection with the Real Property, but specifically excluding all unpaid utility costs (including charges for electricity, water, sewage, fuel oil, gas and telephone usage). Such assumed prorated costs and taxes that relate to the period prior to the Effective Time shall be included in the Assumed Liabilities. Although Buyer shall assume the obligation to pay such costs and taxes, Seller shall reimburse Buyer for all of such costs and taxes relating to the period prior to the Effective Time. 9.6. Announcements. The parties will mutually agree as to the time, form and content before issuing any press releases or otherwise making any public statements or statements to third parties with respect to transactions contemplated hereby, except as may be required by law or rule of any applicable securities exchange. 9.7. Attorneys' Fees and Other Transaction Costs. (a) Seller shall be responsible for the following: (i) the payment of (A) legal fees and expenses reasonably incurred by Buyer in connection with this Agreement and the transactions contemplated hereby, including the formation of Buyer as a Texas limited partnership and the formation of the General Partner, and Buyer obtaining loans from the Senior Lender (the "Senior Indebtedness") and the Seller for the financing of its purchase of the Purchased Assets, and (B) the health and dental expenses incurred by or on behalf of Bobby Green; provided that the total amount payable under this subsection (i) shall not exceed $140,000; and such items shall be payable by Seller when incurred either directly to the third party charging for such expenses or as a reimbursement of Buyer or Bobby Green, as appropriate. (ii) the payment of Seller's own costs and expenses incurred in connection with this Agreement and the transactions contemplated thereby; (iii) the reimbursement of Buyer at Closing for one-half of the cost of the premium for the Owner's Title Policy up to $5,000.00; and (iv) the payment of one-half of any Liabilities, up to $5,000.00, for transfer, sales, use, motor vehicle, or other Taxes, other than income Taxes of Seller, arising in connection with the sale by Seller to Buyer of the service vehicles included among the Purchased Assets. (b) Buyer shall be responsible for the following: (i) the payment of all costs and expenses relating to loan closing costs, the Senior Lender's fees and costs of the Senior Lender's legal counsel incurred in connection with the Senior Indebtedness; (ii) the payment of the costs of the premium for the Owner's Title Policy not paid by Seller pursuant to subsection (a) above; and (iii) the payment of one-half, plus the amount, if any, that such one-half exceeds $5,000.00, of any Liabilities for transfer, sales, use, motor vehicle, or other Taxes, other than income Taxes of Seller, arising in connection with the consummation of the transactions contemplated hereby. (c) To the extent Seller has paid any amounts to be paid by Buyer or such amounts have been taken into account in adjusting the Purchase Price, the provisions of subsection (a) above shall be inapplicable. 9.8. Books and Records. From and after Closing, Buyer shall own and be entitled to possession of all books and records of Seller exclusively pertaining to the Business or the Purchased Assets and operations of the Business prior to Closing, but, for five years after Closing, Seller shall have the right from time to time and at any time to examine and copy, at its own expense and upon request during normal business hours, the books and records pertaining to the Business and relating to any period prior to Closing. Seller shall provide access to any records of Seller which relate to the Business that are not included in the Purchased Assets, and to employees of Seller having knowledge of the Business to the extent reasonably requested by Buyer. 9.9. Employees. (a) As of the Effective Time, Buyer will offer employment to the Employees engaged in the Business and listed on Schedule 6.7. The terms and conditions of employment to be offered to such of the Employees will be determined by Buyer in its sole discretion. Each such employee who accepts Buyer's offer of employment will hereinafter be referred to as a "Transferred Employee", and each such employee who is not offered employment with Buyer or who does not accept Buyer's offer of employment will hereinafter be referred to as a "Former Employee." (b) Buyer agrees that it will assume all of the accrued but unused vacation days and all earned but unused sick days credited to each Transferred Employee under the applicable vacation and sick leave policies of Seller as of the Effective Time. After the Effective Time, each Transferred Employee shall accrue vacation days and earn sick days for service with Buyer only in accordance with the applicable vacation and sick leave policies of Buyer and each Transferred Employee will only be allowed to use or be paid for unused vacation days and sick days assumed by Buyer in accordance with the policies of Buyer; provided, however, that in no event shall the application of the policies of Buyer serve to eliminate any benefits accrued by a Transferred Employee to the use of such vacation days and sick days. Seller will be responsible for paying Former Employees for unused vacation days and sick days, and Buyer will reimburse Seller for any such payments within five (5) business days of receipt of an invoice from Seller for such payments and any appropriate documentation that Buyer may reasonably request. (c) Except as specifically provided herein, a Seller Employee Plan, but only in accordance with its otherwise applicable terms, conditions, and exclusions, shall be liable for all Seller Employee Plan obligations to Former Employees and their eligible dependents and beneficiaries, regardless of when incurred, and to Transferred Employees and their eligible dependents and beneficiaries incurred before or at the Effective Time. Except as specifically provided herein, a Employee Plan of Buyer (a "Buyer Employee Plan"), but only in accordance with its otherwise applicable terms, conditions, and exclusions, shall be liable for Employee Plan obligations to Transferred Employees and their eligible dependents and beneficiaries incurred after the Effective Time. (d) COBRA, Health, LTD, Life and AD&D Benefits. Except as otherwise required by applicable law, Seller shall be responsible for any group health plan continuation coverage, notices, and disclosure required under Section 4980B of the Code or Sections 601 through 608 of ERISA ("COBRA") with respect to any Former Employee or Transferred Employee or any "qualified beneficiary" (as defined in Section 4980B of the Code) of any Former Employee or Transferred Employee with respect to any Seller Employee Plan. Buyer agrees to obtain within one hundred twenty (120) days of Closing, Health, long-term disability ("LTD"), life, and accidental death and dismemberment ("AD&D") Employee Plans of Buyer with benefits that shall generally be either the same as the benefits of similarly situated Buyer employees or comparable to the benefits of the Seller health, LTD, life, and AD&D Employee Plans by which they were covered immediately before the Effective Time for Transferred Employees and their eligible dependents. (e) 401(k) Plan. (i) FFE shall take whatever action is required under or with respect to the Frozen Food Express Industries, Inc. 401(k) Savings Plan ("FFE's 401(k) Plan") to cause the trustee of FFE's 401(k) Plan to distribute, or offer to distribute, the account of each Transferred Employee in accordance with the terms of FFE's 401(k) Plan, as soon as administratively feasible after the Effective Time, but only to the extent distribution is determined by the Plan administrator of FFE's 401(k) Plan to be permissible under the Code. (ii) As soon as reasonably practicable after the Effective Time, Transferred Employees shall become eligible to participate in a 401(k) Plan to be established by Buyer ("Buyer's 401(k) Plan") in accordance with the terms of Buyer's 401(k) Plan. For purposes of determining their eligibility to participate in and vested percentage under Buyer's 401(k) Plan, Transferred Employees shall receive credit under Buyer's 401(k) Plan for service for which they received credit under FFE's 401(k) Plan before the Effective Time. (f) The parties agree to furnish each other with such information, and to take all such other action, as is necessary and appropriate to effect the transactions contemplated by this Section 9.9 of this Agreement. (g) No provision of this Section 9.9 of this Agreement shall create any third-party beneficiary or other rights in any Transferred Employee or Former Employee (including any beneficiary or dependent thereof) with respect to continued employment with Buyer or with respect to any Employee Plan of Buyer, Seller, or FFE, nor shall any provision of this Agreement modify or amend, or be deemed to modify or amend, the terms of any Employee Plan of Buyer, Seller, or FFE. No provision of this Agreement shall constitute a limitation on Buyer's, Seller's, or FFE's rights to amend, modify, or terminate after the Effective Time any Employee Plan. 9.10. Excluded Inventory as Fee for Services. After Closing, Seller shall have the option, exercisable in Seller's sole discretion, to pay for the Buyer's Services, as follows: (i) For the first $1,000,000.00 of Buyer's Services billed to Seller or its affiliates, being Frozen Food Express Industries, Inc., or any of its subsidiary entities, Seller may pay up to ten percent (10%) of each invoice for such services by transferring to Buyer certain of the Parts and Used Unit Inventory having a cost basis equal to ten percent (10%) of each such invoice; and (ii) Once the total amount billed to Seller and its affiliates, being Frozen Food Express Industries, Inc., or any of its subsidiary entities, for Buyer's Services exceeds $1,000,000.00, Seller may pay up to fifteen percent (15%) of each subsequent invoice by transferring to Buyer certain of the Parts and Used Unit Inventory having a cost basis equal to fifteen percent (15%) of each such invoice. In the event that Seller elects to exercise its option hereunder with respect to the payment for Buyer's Services performed within a given month, Seller shall notify Buyer within fifteen (15) days following the end of such month of its intention to exercise its option. The Parts and Used Unit Inventory to be transferred pursuant to this Section shall be selected by Seller, in its reasonable discretion, and delivered to Buyer together with a bill of sale or other appropriate title document to transfer such parts and used units inventory free and clear of any lien or encumbrance within thirty (30) days following the end of the month during which the Buyer's Services for which payment is being made were performed. 9.11. Accounts Payable; Accounts Receivable. Seller shall promptly forward to Buyer any payments Seller receives for any accounts receivable of the Business that are included in the Purchased Assets. Seller shall promptly forward to Buyer any bills, accounts payable or notes payable with respect to the Purchased Assets that are included in the Assumed Liabilities or otherwise payable by Buyer pursuant to the terms of this Agreement, and Buyer shall pay such items promptly when due. 9.12. Refurbishment Cost Adjustment. In the event that the Refurbishment Cost exceeds the Refurbishment Allowance, then Seller shall transfer to Buyer certain of the Parts and Used Unit Inventory having a cost basis equal to the amount of such excess. In the event the Refurbishment Cost is less than the Refurbishment Allowance, Buyer shall transfer to Seller additional used parts held in Buyer's inventory having a cost basis equal to the amount of such deficiency. Transfers of Excluded Inventory to be made pursuant to this Section shall be made within thirty (30) days of the date of determination of the Refurbishment Cost by the party required to transfer such inventory executing a bill of sale transferring such Excluded Inventory to the other party. 9.13. Interim Services. (a) Seller will provide to Buyer common payroll services, including paying all salaries, wages and commissions, and providing all related payroll tax deposit and tax reporting services (the "Payroll Services") for all of the Transferred Employees for a period commencing on the date hereof and terminating on December 31, 2001. Seller shall also cause IRS Form W-2 Wage and Tax Statements (the "W-2's") to be prepared and issued to the Transferred Employees for the 2001 tax year. (b) Buyer shall reimburse Seller for all amounts paid by Seller in connection with the Payroll Services and the issuance of the W-2's to the Transferred Employees, including, but not limited to the wages paid to Transferred Employees and the fees charged by Seller's payroll service provider, which amounts shall be payable by Buyer within fifteen (15) days of its receipt of a bill from Seller therefor. (c) Seller shall use commercially reasonable efforts to limit the Payroll Services to the payments of payroll and withholding of taxes described in subsection (a) above. However, in addition to reimbursement for the foregoing, Buyer shall be required to reimburse Seller for any amounts withheld or contributions made by Seller to any 401(k) accounts of Transferred Employees or any amounts contributed to any cafeteria plan of any Transferred Employees in connection with Seller's provision of the Payroll Services. (d) The parties acknowledge and agree that Seller and all employees, personnel, principals, officers, agents and independent contractors of Seller (the "Seller's Group") shall be independent contractors in relation to Buyer in connection with their provision of services under this Section 9.13. (e) Buyer shall protect, indemnify, defend and hold Seller harmless from and against all liabilities, claims, damages, losses and expenses, including, but not limited to, court costs and reasonable attorney's fees (collectively, the "Losses"), caused by or arising in connection with Seller's provision of services pursuant to this Section 9.13. The indemnification of Seller by Buyer under this Section 9.13 shall not be subject to the dollar limitations of Section 8.5 hereof. ARTICLE X ========= MISCELLANEOUS ------------- 10.1. Entire Understanding, Waiver, Etc. This Agreement (including all schedules and exhibits attached hereto) and all other agreements executed and delivered at the Closing set forth the entire understanding of the parties and supersede any and all prior or contemporaneous agreements and understandings relating to the subject matter hereof, and the provisions hereof may not be changed, modified, waived or altered except by an agreement in writing signed by the parties hereto. A waiver by any party of any of the terms or conditions of this Agreement, or of any breach thereof, shall not be deemed a waiver of such term or condition for the future, or of any other term or condition hereof, or of any subsequent breach thereof. 10.2. Severability. If any provision of this Agreement or the application of such provision shall be held by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions of this Agreement shall remain in full force and effect. 10.3. Accounting Terms. All accounting terms not specifically defined in this Agreement shall have the meanings given to them under accounting principles generally accepted in the United States. 10.4. Notices. All notices, requests, demands and other communications that are required or may be given under this Agreement shall be in writing. All notices shall be deemed to have been duly given or made: if by hand, immediately upon delivery; if by Federal Express, Express Mail or any other reputable overnight delivery service, one business day after being placed in the control of the courier for overnight delivery; and if mailed by certified mail, return receipt requested, five business days after mailing. All notices are to be given or made to the parties at the following addresses (or to such other address as either party may designate by notice in accordance with the provisions of this Section): (a) If to Seller: W&B Refrigeration Service Company, Inc. (and after Closing to AirPro Holdings, Inc., Seller's new name) 1145 Empire Central Place Dallas, Texas 75247 Attention: Dixon McElwee With a copy to: Carol Glendenning Strasburger & Price, L.L.P. 901 Main Street, Suite 4300 Dallas, Texas 75202 (b) If to Buyer: W&B Newco, L.P. (and after Closing to W&B Service Company LP, Buyer's new name) 660 Ft. Worth Avenue Dallas, Texas 75208 Attention: John B. Chisolm With a copy to: Paul E. Pesek, P.C. Key & Pesek, L.L.P. 8401 N. Central Expressway, Suite 340 Dallas, Texas 75225 10.5. Successors and Assigns. Neither this Agreement nor any of the rights or obligations arising hereunder shall be assignable without the prior written consent of the parties hereto; provided, that without such prior consent Buyer may assign this Agreement to an affiliate of Buyer or to the Senior Lender, as collateral for the Senior Indebtedness, and Seller may assign this Agreement to a successor by merger to Seller. Any such assignment will not release or discharge the applicable party to this Agreement from any obligations it may have pursuant to this Agreement. Nothing in this Agreement, express or implied, shall confer upon any Person, other than the parties hereto, and their successors and permitted assigns, any rights or remedies under or by reason of this Agreement. 10.6. Waivers. At any time prior to the Closing, any party hereto may (i) extend the time for the performance of any of the obligations or other acts of the other party hereto, (ii) waive any inaccuracies in the representations and warranties of the other party contained herein or in any document delivered pursuant hereto, and (iii) waive compliance with any of the agreements or conditions contained herein subject to any specific provisions governing the effect of such extensions or waivers. Any agreement on the part of a party hereto to grant any such extension or waiver will be valid only if set forth in a written instrument signed on behalf of such party. 10.7. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which, together, shall constitute one and the same instrument. 10.8. Attorneys' Fees and Costs. Unless otherwise provided herein to the contrary, in the event any action or proceeding is commenced by any party to this Agreement to determine rights, duties or obligations under this Agreement, determine a breach of this Agreement and obtain damages as a result of such breach or otherwise enforce this Agreement, the prevailing party in such action or proceeding shall be entitled to recover from the non-prevailing party all of the prevailing party's out-of-pocket costs and expenses, including all reasonable attorneys' fees, disbursements and related charges. 10.9. Headings. The headings contained in this Agreement are for the sole purpose of convenience of reference, and will not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Agreement. 10.10. Governing Law. THIS AGREEMENT SHALL BE CONTROLLED, CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN THAT STATE WITHOUT APPLICATION OF CONFLICTS OF LAW PROVISIONS. IN WITNESS WHEREOF, this Agreement has been executed by duly authorized officers of each of the parties all as of the date first above written. SELLER: W&B REFRIGERATION SERVICE COMPANY ----------------------------------- By: /s/ F. Dixon McElwee, Jr. ------------------------------- Name: F. Dixon McElwee, Jr. ----------------------------- Title: Senior Vice President ----------------------------- BUYER: W&B NEWCO, L.P. By: JM&R, Inc., its General Partner ----------------------------------- By: /s/ John B. Chisolm -------------------------------- Name: John B. Chisolm ------------------------------ Title: President ------------------------------ By signing below, Frozen Food Express Industries, Inc., a Texas corporation, hereby agrees to be bound by the provisions of Sections 8.6 and 9.9 of this Agreement. Dated: December 26, 2001 FROZEN FOOD EXPRESS INDUSTRIES, INC. ----------------- ------------------------------------- By: /s/ F. Dixon McElwee, Jr. --------------------------------- Name: F. Dixon McElwee, Jr. ------------------------------- Title: Senior Vice President ------------------------------- EX-13 9 ex13.txt EXHIBIT 13.1 EXHIBIT 13.1 ------------ FROZEN FOOD EXPRESS INDUSTRIES, INC. ANNUAL REPORT TO SHAREHOLDERS Management's Discussion and Analysis of Financial Condition and Results of Operations ------------------------------------------------ Results Of Operations - --------------------- Revenue (including revenue from our non-freight activities) decreased by 3.6% in 2001 to $378.4 million. For 2000, revenue totaled $392.4 million and was 5.4% above 1999 revenue. Freight revenue rose by 1.2% during 2001 and 4.1% in 2000. For our full-truckload operations, fuel adjustment charges as a percent of revenue were 0.1%, 3.3% and 3.2% during 1999, 2000 and 2001, respectively. Excluding the impact of these charges, full-truckload revenue rose by 6.8% in 2001 and 1.5% in 2000 and 1999. The 2001 increase principally resulted from a 2.6% increase in the number of full-truckload shipments and an increased average length of haul, which increased by 1.4%. Our prices are typically a function of shipment weight, commodity type and distance traveled. As a percent of total less-than-truckload ("LTL") revenue, fuel adjustment charges were 0.4%, 3.5% and 3.1% for 1999, 2000 and 2001, respectively. Excluding the impact of these charges, LTL revenue declined by 1% during 1999, 0.6% during 2000 and another 10.5% in 2001. These declines primarily resulted from a reduced number of LTL shipments, partially offset by increased average shipment size. Slackening demand for the refrigerated LTL service we offer, reflected by an 11% drop in the number of shipments we hauled, was the primary contributor to the 2001 decline. Our full-truckload operations continued to expand during 2001, while our LTL operation has continued to contract. Increased competition from logistics outsourcing and freight consolidators has negatively impacted our penetration of the market for refrigerated LTL services. Reduced demand for such services, together with the increased presence of competitors capable of arranging such services, has resulted in a decrease in the number of LTL shipments we transported in 2001, as compared to 2000. While LTL operations offer the opportunity to earn higher revenue on a per-mile and per- hundredweight basis than do full-truckload operations, the level of investment and fixed costs associated with LTL activities significantly exceed those of full-truckload activities. Accordingly, as LTL revenue fluctuates, many costs remain fixed, leveraging the impact from such revenue fluctuations on operating income. During 2001, as LTL activity and revenue declined, many LTL-related costs have remained static. We are assessing the profitability of our LTL operations. As a result, we have closed 5 LTL terminals during the past eighteen months. We have altered the frequency at which we service locations where freight volumes have declined. We have changed the mix of our company-operated vs. independent contractor-provided trucks in order to more closely match our operating costs to our lower LTL revenue. During 2001, we added 8 company-operated trucks to our LTL fleet and we reduced the number of independent contractor-provided LTL trucks by 20. At December 31, 2001, our entire LTL fleet consisted of approximately 280 tractors. At the end of 2001, our full-truckload fleet numbered approximately 1,810 trucks, as compared to about 1,725 at the end of 2000 and 1,620 at the end of 1999. Primarily due to the increased number of trucks, the number of full- truckload shipments rose by 2.6% during 2001 as compared to 5.4% in 2000. We plan to add up to 50 trucks to our company-operated, full-truckload fleet during 2002. The number of trucks in this fleet declined by almost 90 during 1999, rose by 40 to approximately 1,190 during 2000, and rose again to 1,300 during 2001. Continued emphasis will be placed on improving the efficiency and the utilization of this fleet through enhanced driver training and retention, by reducing the percentage of non-revenue-producing miles, by extending the average loaded miles per shipment and through expansion of dedicated fleet operations. During 2000, we retired and did not replace about 180 trailers. During 2001, we reduced our trailer fleet by an additional 70 trailers. We do not intend to significantly reduce the number of trailers in our fleets during 2002. Before 1998, we had limited dedicated fleet operations. In such an arrangement, we provide service involving the assignment of trucks solely to handle transportation needs of a specific customer. Generally we, and the customer, expect dedicated fleet logistics services to lower the customer's transportation costs and improve the quality of the service. In late 1998, we improved our capability to provide and expanded our efforts to market dedicated fleet services. About 10% of our company-operated, full-truckload fleet is now engaged in dedicated fleet operations. The operation of our full-truckload fleet involves satellite technology to enhance efficiency and customer service. Location updates of each tractor are provided by this network and we exchange dispatch, fuel and other information with the driver by way of satellite. During non-recessionary economic periods, we have difficulty attracting qualified employee-drivers for our full-truckload operations. Prior to 2001, as many as 100 of our company-operated trucks were idle due to a shortage of drivers. The shortage was a prime factor in reducing the size of the company- operated fleet during 1999. This situation is typical in the industry. Shortages increase costs of employee-driver compensation, training and recruiting. Significant resources are continually devoted to recruiting and retaining qualified employee-drivers and to improving their job satisfaction. As the economy softened during 2001, the shortage of qualified drivers diminished. Employee-drivers, as well as all other qualified employees, participate in 401(k), group health and other benefit programs. During 2001, we reduced the level of our matching 401(k) contributions from generally 100% of employee contributions to 50%. This was done as a cost cutting initiative and to set our matching policy at a level more comparable to other employers in our labor markets. In mid-2000, energy prices began to rise at an alarming rate. Pursuant to the contracts and tariffs by which our freight rates are determined, those rates automatically fluctuate as diesel fuel prices rise and fall. During the summer of 2000, we also began to incur escalating costs for labor. We continually seek to attract and retain more qualified driver personnel. In mid-2000, we increased the per-mile rate at which full-truckload employee drivers are compensated. Shippers had occasionally expressed dissatisfaction with our inability to provide service when needed. Shippers also had signaled a willingness to accept freight rate increases in exchange for the improved service expected to result from improved driver availability. It was in light of these factors that we implemented the employee-driver pay increase. We began to ask shippers to accept increases in basic freight rates to compensate us for the increased employee-driver payroll costs. Many shippers were unwilling to accept those increases. The shippers felt rates had already increased as much as they were willing to pay because of the impact of energy prices. Therefore, for most of 2000, we were forced to incur the increased employee-driver payroll costs with little of the expected offsetting revenue. As fuel prices and related fuel adjustment charges subsided during 2001, our customers began to signal an increased willingness to re-negotiate our prices. Changes in the percent of freight revenue generated from full-truckload versus LTL shipments, as well as in the mix of company-provided versus owner- operator-provided equipment and in the mix of leased versus owned equipment, contribute to variations among related operating and interest expenses. Salaries, wages and related expenses, as a percent of freight revenue, were 26.9%, 27.0% and 28.4% for 2001, 2000, and 1999, respectively. During 2000, expenses from work-related injuries fell by $1.2 million as compared to 1999. Other fringe benefits, primarily health insurance costs, declined by $1.5 million during 2000 from 1999 levels. Increased driver payroll expenses associated with a new driver compensation program partially offset those improvements. During 2001, further decline in work-related injuries and the reduced level of employer 401(k) contributions more than offset increased driver wages, which resulted from the addition of about 125 tractors to our company-operated fleets. Independent contractor equipment generated 25.3%, 27.7% and 26.3% of full- truckload revenue during 1999, 2000 and 2001, respectively. Independent contractors typically provide a tractor that they own to transport freight on our behalf. Contractors pay for the cost of operating their tractors, including but not limited to the expense of fuel, labor, taxes and maintenance. We pay these independent contractor owner-operators amounts determined by reference to the revenue associated with their activities. As of January 1, 1999, there were approximately 430 such tractors in the full- truckload fleet. At December 31, 2000, there were approximately 535 such tractors. At December 31, 2001, there were 510. As the number of these trucks fluctuates, so too does the amount of revenue generated by such units. We have traditionally relied on owner-operator provided equipment to transport much of our customers' freight. As demand for employee-drivers has increased, our competitors initiated or expanded owner-operator fleets. The number of full-truckload and LTL trucks provided to us by owner-operators rose by about 60 during 2000, but declined by almost 50 trucks during 2001. We attribute this reversal to a number of factors, foremost of which is the recessionary economic environment of 2001. As a result of fluctuations in the quantity and revenue contribution of such equipment, and as a result of the impact of fuel adjustment charges, which are passed through to independent contractors involved in the transportation of shipments billed with such charges, the percent of freight revenue absorbed by purchased transportation rose from 22.6% in 1999 to 24.1% in 2000, but fell to 22.6% in 2001. We will attempt to expand our fleet of owner-operator trucks during 2002. Supplies and expenses rose by $6.0 million in 1999, $5.8 million in 2000 and $3.8 million in 2001. For 1999, 2000 and 2001, 35%, 43% and 42%, respectively, of these costs were related to fuel for the company-operated fleet of tractors and refrigerated trailers. The average cost per gallon of the fuel we used increased by nearly 35% during 2000. Although our 2001 average price per gallon fell by 18% by the end of the year, the average price we paid throughout 2001 did not change from 2000. During the first three months of 2002, however, our average price per gallon has risen by 12%. The non-fuel components of supplies and expenses (principally repairs, tires and freight handling expenses) rose by $1.9 million in 1999 but fell by $3.3 million in 2000. The improvement during 2000 resulted from more effective management of our maintenance functions. During 2001, these expenses increased by about $3.6 million. A significant portion of this increase was the result of a problem we discovered with some of our trailer axles. Certain trailers delivered during 1998 and 1999 had a re-designed hub assembly that was factory-installed with an insufficient amount of lubricant. A number of these axles and components failed, but most were replaced at our expense before failure occurred. We are seeking to recover these expenses from the manufacturers involved, but the outcome is uncertain at this time. Sudden and dramatic fuel price volatility impacts our profits. We have in place a number of strategies designed to address this. Owner-operators are responsible for all costs associated with their equipment, including fuel. Therefore, the cost of such fuel is not a direct expense of the company. For company-operated equipment, we attempt to mitigate the impact of fluctuating fuel costs by purchasing more fuel-efficient tractors and aggressively managing our fuel purchasing. The rates we charge for our services are usually adjustable by reference to fuel prices. Relatively high or low fuel prices can result in upward or downward adjustment of freight rates, further mitigating the impact of such volatility on our profits. Such fluctuations result from many external market factors that we cannot influence or predict. In addition, each year several states increase fuel taxes. Recovery of future increases or realization of future decreases in fuel prices and fuel taxes, if any, will continue to depend upon competitive freight-market conditions. We use a computer software product designed to optimize our routing and fuel purchasing. The product enables us to select the most efficient route for a trip. It also assists us in deciding how much fuel to buy at a particular fueling station. The product helps us to optimize our fuel purchasing by, among other things, analyzing the prices at various retail locations as compared to prices at other retailers along a planned route of travel. This product enabled us to reduce our fuel consumption during 2001. The total of revenue equipment rent and depreciation expense was 11.8% of freight revenue in 2001, 11.4% in 2000 and 12.4% for 1999. These fluctuations were due in part to changes in the use of leasing to finance our fleet. Equipment rental includes a component of interest-related expense that is classified as non-operating expense when we incur debt to acquire equipment. Equipment rent and depreciation also are affected by the replacement of less expensive (three year old) company-operated tractors and (seven year old) trailers with more expensive new equipment. Effective in 2002, our tractor replacement cycle will be extended. For more than 10 years through 2001, our primary tractor manufacturer contracted to repurchase our new trucks at the end of 3 years of service for an agreed price. During 2001, as the economy and demand for new trucking assets slackened, the manufacturer found itself with a surplus of used trucks which were difficult to re-sell at prices near the amount the manufacturer paid. Such "sell-back" arrangements have been typical in the trucking industry for many years. As an accommodation to the manufacturer, in early 2002 we agreed to amend our sell-back arrangement. The amendment provides that our tractors will be sold back to the manufacturer under more restrictive terms. Also, the trade- back cycle for most of our trucks in service on December 31, 2001 and for trucks delivered to us after January 1, 2002 has been extended by up to 12 months. We expect the pre-agreed-to prices for trucks delivered to us after January 1, 2002 will result in slightly higher monthly value declines over the lives of the trucks. In order to help us with the increased cost of maintaining tractors beyond our former 36-month replacement cycle, the manufacturer has agreed to extend the warranties on specified major components of these tractors. The more restrictive terms on the tradeback will require that we more closely align our tractor purchases with resale to the manufacturer. It is probable that our maintenance costs will increase as a result of our new trade-back arrangement. We believe that we are not paying more for our new trucks than would be the case if we bought competitive equipment without such a trade-back feature. During 2000 and 2001, several motor carriers ceased or curtailed their level of operations. This has resulted in a surplus of two-to-three year old trucking assets available in the marketplace, at deeply discounted prices, relative to the price of new equipment. We have been able to benefit from this situation by acquiring some high-quality previously-owned tractors and trailers at attractive prices. We will continue to seek out such opportunities. Effective in October 2002, tractor manufacturers will be required to deliver trucks which produce significantly "cleaner" emissions than is presently the case. We expect the new trucks to be more costly to purchase, to be more expensive to maintain and to consume more fuel than is presently the case. It is possible that this requirement may increase the demand for and market value of late model previously-owned tractors. Claims and insurance expense fell from 6.0% of freight revenue during 1999 to 5.6% in 2000 and to 5.0% in 2001. This resulted from a variety of factors, including but not limited to fewer physical damage losses. In December 2000, we renewed our liability insurance coverage. Previously, we had incurred significant but fairly predictable premiums and a comparatively low deductible for accident claims. During 1999 and 2000, however, insurance companies generally began to increase premiums by as much as 40 to 50 percent. At the same time, our overall accident frequency (measured as incidents per million miles) improved, but accidents involving personal injury became more common. Because of these factors, in 2000, we selected a liability insurance product that featured a higher deductible and a higher premium. In December 2001, we again renewed this insurance. During the first 8 months of 2001, the marketplace for such coverage continued to harden. The September 11 attacks on America resulted in an unpredictable and costly insurance market. Trucking and other transportation companies reported significant cost increases in their insurance premiums. After a careful analysis of our claims experience and premium quotations from the limited number of carriers offering insurance to our industry in 2001, we selected a liability insurance product with reduced limits, a modestly lower premium and with a deductible of $5 million per occurrence, as compared to $1 million for the expiring policy. Continuing to maintain a $1 million deductible was cost-prohibitive. We have had very few claims above $1 million in our history. Because the amount of our retained risk is more than before, we expect to establish greater amounts of insurance reserves and related expenses than we did prior to 2002. We will continue to monitor the insurance market. When affordable policies with lower deductibles return to the market, we will evaluate all opportunities to lower our deductible. We intend to recover as much of our potential increased claims and insurance expense as possible by adjusting the amount of commissions we pay our independent contractor fleet and/or increasing the rates our customers pay for our services. We will continue to emphasize operational safety in an effort to mitigate the impact of these cost increases. Claims and insurance expenses can vary significantly from year to year. The amount of open claims is significant. We believe that these claims will be settled or litigated without a material adverse effect on our financial position or our results of operations. Gains on the disposition of equipment rose from $0.6 million in 1999, to $1.6 million in 2000 and fell to $1.4 million in 2001. The amount of such gains depends primarily upon conditions in the market for previously-owned equipment and on the quantity of retired equipment sold. We usually pre-arrange the retirement sales value when we accept delivery of a new tractor. Before 2000, the market for used trucking equipment was quite strong. The pre-arranged retirement value for tractors delivered in 1997-2000 was, accordingly, high. During 2000 and 2001, the market value of previously-owned trucking equipment fell dramatically. That situation does not impact the pre-arranged retirement value of tractors presently in our fleet, but softness in the market for used equipment could diminish future pre-arranged retirement values. That may require us to increase the amount of depreciation and rental expense we incur in 2002 and beyond. Because we do not intend to acquire significant quantities of trailers in 2002, we do not expect used equipment market prices to alter our current depreciation or rental expense related to trailers, but diminished market values could reduce the amount of gains on sale of trailers in future periods. Miscellaneous expenses were $6.7 million during 1999, a large proportion of which was due to increased provisions for uncollectible accounts receivable. During 2000, these expenses fell to a more normal level. Accounts receivable, net of allowances for doubtful accounts increased by 49% between 1997 and 1999, as compared to an 18% increase in revenue. Before offset of allowances for doubtful accounts, the 1997 through 1999 increase was 60%. Much of the increase occurred during the last six months of 1999. This was partially a result of temporary delays in our collection cycle. During 1999, we completed a major computer systems conversion. Following this conversion, we had problems regarding the presentation of invoices to some of our customers, contributing to increased past-due receivables. During 1999, an analysis resulted in an increased estimate of such receivables that might not ultimately be collected. During 2000, accounts receivable, net, fell by 9% reflecting improvements in our accounts receivable collection cycle. Net accounts receivable fell by an additional 17% during 2001. About half of 2001's decline in accounts receivable resulted from our having sold the majority of our non-freight business in December 2001. In December 2001, we sold the largest component of our non-freight operations. The business we sold is a dealership engaged in the sale and service of refrigeration equipment and of trailers used in freight transportation. Products offered included trailers manufactured by Wabashr and mobile trailer refrigeration machinery manufactured by Carrier Transicoldr. Dealerships were located in major markets, primarily in Texas and Arkansas. It had been operating under the name of W&B Refrigeration Service Company. There was no gain or loss on this transaction. The buyer group was led by our former employee who until the date of the sale managed the dealership on our behalf. We sold the majority of the operating assets of the dealership including accounts receivable, inventory, machinery, equipment and one real estate asset. The buyer also assumed all liabilities associated with the dealership including, but not limited to accounts payable and accrued payroll. The assets we sold had a book value of $14.7 million. The assumed liabilities totaled approximately $2.8 million. When the sale closed, we received as consideration $6.8 million in cash, a note receivable from the buyer for $4.1 million and a limited partnership interest in the buyer group to which we assigned a value of $1 million. Our note receivable from the buyer is subordinated to senior debt which the buyer borrowed to obtain the cash we received at closing. The note must be repaid in 3 equal installments in December 2007, 2008 and 2009, until which time monthly interest payments are due. Because we retained a 19.9% ownership interest in the buyer group, we were precluded from accounting for the dealership as a discontinued operation. We will account for our limited partnership interest according to the equity method. Non-freight revenue of $51.1 million in 2001 consisted of about $41 million from the dealership we sold in December 2001 and about $10 million from the rest of our non-freight business. Our remaining non-freight operations consist of a distributor of motor vehicle air conditioning parts and a company that sells new and remanufactured compressors for use in stationary commercial refrigeration applications (such as supermarket freezer display cases). We also have a small operation in Texas that specializes in the installation of air conditioners in school busses. The operating margin from our non-freight activities (including the dealership) improved slightly during 2000, but turned negative during 2001. Revenue from this segment was $51.1 million in 2001, $68.8 million in 2000, and $61.2 million in 1999. Operating profits from this segment of $2.6 million, and $1.0 million, were posted for 2000, and 1999, respectively. In 2001, our non-freight operations incurred an $800,000 operating loss. During the fourth quarter of 1999 we announced a plan to restructure certain of our operations. The plan involved closing terminals, eliminating certain non-driver employee positions and the early disposition of certain trailers scheduled for retirement in 2001 and 2002. In 1999's fourth quarter we recorded estimated restructuring expenses of $3.7 million which included $0.9 million for severance payments and $2.8 million for expenses associated with the early termination of trailer leases and the abandonment of a leased facility. The $3.7 million appears as restructuring expense on the 1999 consolidated statement of income. During the fourth quarter of 1999, we also recorded certain expenses associated with impairment of long-lived assets. In the 4th quarter of 2000, after negotiations with trailer lessors, we determined that we would not be able to early-terminate the majority of the leases to which our 1999 estimate of $2.8 million related. Accordingly, the remaining $1.8 million of the restructuring charges was reversed in the 4th quarter of 2000. Most of these trailers were returned to the lessors as the leases expired during 2001. We reduced our fleet by 183 company-operated trailers in 2000 and an additional 68 trailers in 2001. We do not intend to significantly reduce the number of trailers in our fleets during 2002. For 2000 and 2001 our consolidated operating income was $1.7 million in each year, as compared to a loss from operations of $15.2 million for 1999. Interest and other expense for 2001, 2000 and 1999, was $1.7 million, $3.7 million and $4.5 million, respectively. We began 2000 with debt of $26.5 million and ended 2001 with $2.0 million of debt. This ability to reduce debt is the principal reason for reduced interest expense. Lower interest rates also served to reduce our cost of borrowed funds. Interest and other expense also includes costs associated with certain life insurance policies which we own. For 2001, 2000 and 1999, our loss before income taxes was $52,000, $2.0 million and $19.7 million, respectively. During 2001, we incurred income tax expense of $102,000. During 2000 and 1999, our benefit from income taxes was $658,000 and $7.1 million, respectively. Our pre-tax losses include certain expenses associated with life insurance and other matters that are not tax deductible. For 2001, this resulted in our having a pre-tax loss for financial reporting purposes, but taxable income for purposes of determining our income tax expense. Therefore, for 2001, our after-tax loss was more than our pre-tax loss. For 2000 and 1999, our pre-tax losses resulted in a net benefit from income taxes. We have net operating loss carry forwards that will, if not taken against future taxable income, begin to expire in the year 2020. During 2001, we incurred a net loss of $154,000 as compared to net losses of $1.3 million and $12.6 million during 2000 and 1999, respectively. In March of 2002, we retroactively changed the manner in which we account for a life insurance policy that we acquired in 1993. The life insurance policy, with a death benefit of at least $17.25 million, was purchased to provide us funds with which we could purchase a large block of our common stock owned by a non-employee shareholder. If we determined that the sale of such shares in the open market by the estate would have an adverse effect on the market price of our stock, we could use the life insurance proceeds to purchase the shares directly from the estate. Due to the unusual nature of the life insurance arrangement, beginning in 1993, we and our independent public accountants believed that capitalizing the premium payments, not to exceed the policy's benefit payable on the death of the insured, as an investment to purchase the shares in the future was an acceptable accounting policy. We have changed the manner by which we account for the insurance policy. We now expense the excess of the premiums over the amount that we could actually realize under the insurance contract as of the date of the related financial statements. Benefit proceeds under the policy, if any, (and to the extent they exceed the book value of the policy) will be recorded as a non-operating gain in the future. Accordingly, for 2000 and 1999, our operating income and our restated net loss, net loss per share and shareholders' equity are as follows (in millions): 2000 1999 ---- ---- Operating income (loss): As previously reported $ 1.7 $(15.2) As restated 1.7 (15.2) Net loss: As previously reported $(1.2) $(12.1) As restated (1.3) (12.6) Net loss per share: As previously reported $(.07) $ (.74) As restated (.08) (.77) Shareholders' Equity: As previously reported $82.0 $ 83.1 As restated 74.4 75.6 Although this change resulted in a slight improvement to 2001's net loss, we expect this change to result in lower future earnings than would have been the case using our former method of accounting. We expect that our pre-tax income for 2002 will be about $500,000 less than it would have been absent this change. Other than the impact on the insurance markets, the attacks on the World Trade Center and Pentagon in 2001 and the subsequent use of biological agents to disrupt America's political, legal and economic systems have not yet had a measurable impact on our operations. Liquidity and Capital Resources - ------------------------------- We lease equipment and real estate. As of December 31, 2001 our debt was $2 million and letters of credit issued by us to insurance and equipment leasing companies were $4.7 million in total. Also, as of December 31, 2001, we had contracts to purchase tractors and trailers of $35 million during 2002 and 2003. We also are committed to pay a life insurance premium of $1.3 million during 2002. A summary of these obligations is as follows (in millions): After Payments Due by Year Total 2002 2003 2004 2005 2006 2006 - -------------------- ----- ---- ---- ---- ---- ---- ---- Rent $ 64.1 $26.0 $18.9 $10.4 $4.5 $2.9 $1.4 Debt 2.0 .3 1.7 - - - - Letters of credit 4.7 .6 4.1 - - - - Purchase obligations and life insurance 36.3 23.3 13.0 - - - - ----- ---- ---- ---- --- --- --- Total $107.1 $50.2 $37.7 $10.4 $4.5 $2.9 $1.4 ===== ==== ==== ==== === === === Rentals are due under non-cancelable operating leases. During 2001, we continued our long-standing practice of leasing most of our new company- operated tractors and trailers from various unrelated leasing companies. Most of our tractor leases involve end-of-lease residual values. We have partially guaranteed our tractor lessors that they will recover those residuals when the leases mature. At December 31, 2001, the amount of our obligations to lessors for these residuals did not exceed the amount we expect to recover from the manufacturer. Because our lease payments and residual guarantees do not cover more than 90% of the leased tractor's cost, these lease agreements are accounted for as operating leases and rentals are recorded to rent expense over the terms of the leases. Offsetting our lease residual guarantees, when our tractors were originally leased, the tractor manufacturer has agreed to re-purchase the tractors at the end of the term of the lease. The price to be paid by the manufacturer is generally equal to the full amount of the lessor's residual. When a leased tractor is removed from service, we pay the residual to the lessor and collect the funds from the manufacturer. Most of our $35 million obligation to acquire equipment during 2002 and 2003 relates to tractors. We expect to lease these tractors when they are placed into service during 2002 and 2003. We also lease a significant portion of our company-operated trailers. Because trailer leases generally do not involve guaranteed residuals, the lessor is fully at risk for the end-of-term value of the asset. Before 2001, the market value of used trailers was higher than it was during 2001. Due to the decline in values, many leasing companies incurred losses on their trailers that came off of lease in 2001. These losses have caused some lessors to exit the trailer leasing market and others to reduce the amount of their anticipated end-of-term residuals on leases commencing during 2001 and beyond. These reduced residual expectations will result in higher rental payments during the term of the lease. Our primary objective in leasing trailers has been the lower expense such arrangements had as compared to purchasing the asset ourselves. Because this advantage may no longer be as readily available to us in the future, we expect to buy, rather than lease more of our new trailers during 2002 and 2003. Trailers we buy will be paid for with proceeds from old trailers we sell, with borrowed funds and with cashflows from operations. Our lease commitments for 2002 and 2003 also include $1.1 and $0.5 million, respectively for rentals of tractors owned by 2 of our senior officers. Because the terms of these leases with related parties are more flexible than those governing tractors we lease from unaffiliated lessors, we pay the officers a modest premium over the rentals we pay to unaffiliated lessors. We also rent, on a month-to-month basis, certain trailers from the same officers at rates that are generally less than market-rate monthly trailer rentals. During 2000, we entered into a new $50 million credit agreement with a group of three banks. The credit agreement, which has since been amended, expires on June 1, 2002, and we may elect to convert the outstanding balance into a term loan. Debt is secured by our revenue equipment, trade accounts receivable and inventories. In December of 2001, our credit agreement was amended to obtain the bank's consent to sell our trailer and refrigeration unit dealership business in December 2001. That amendment provided, among other things, that the amount of credit available to us was reduced from $50 million to $33 1/3 million, that the interest margins applied to borrowing were increased by 50 basis points and that the term-loan option available to us was shortened from 48 to 13 months. The amended credit agreement expires on June 1, 2002. If we were to elect the term loan option available to us at that time, the term loan would be due on July 1, 2003, and one-fourth of the loan amount would be paid in 12 monthly installments beginning July 1, 2002. If we were to elect the term loan option, $4.7 million in letters of credit issued under the credit agreement at December 31, 2001 would likely be funded, resulting in $4.7 million more debt and $4.7 million in other non-current assets on our balance sheet. We are currently discussing the potential terms and conditions of a replacement credit facility with some banks and other lenders. Based on those discussions, we expect to obtain new financing on terms no more stringent than presently available to us. Our primary needs for capital resources are to finance working capital, capital expenditures and, from time to time, acquisitions. (The credit agreement requires the banks' approval prior to an acquisition.) Our working capital investment typically increases during periods of sales expansion when higher levels of receivables and, with regard to non-freight operations, inventory are present. On April 1, 2002 we announced a retroactive change in the manner by which we account for a life insurance policy that we own. The balance sheet impact of the change was to reduce shareholders' equity by $7.1 million as of December 31, 2001. Because our credit agreement contains restrictions as to the minimum amount of our shareholders' equity, on March 29, we and the banks amended the credit agreement. The amended agreement accommodates the reduction of shareholders' equity, retroactively to December 31, 2001. We had long-term debt including current maturities of $2 million as of December 31, 2001. Also, we had issued $4.7 million on letters of credit in connection with our risk management and leasing programs. Therefore, the unused portion of the credit facility was approximately $27 million. We plan to add up to 50 tractors to our company-operated fleet during 2002. Approximately 170 three-year old tractors, presently scheduled for retirement during 2002, are expected to be replaced. These expenditures will be financed with internally generated funds, borrowings under available credit agreements and leasing. We expect these sources of capital to be sufficient to finance the company's operations. During 2001 and 2000, cash provided by operating activities was $10.9 million and $11.6 million, respectively, as compared to cash used in operations of $3.8 million in 1999. These fluctuations have resulted from volatility in profitability coupled with fluctuating working capital. Expenditures for property and equipment totaled $11.7 million in 2001, $7.7 million in 2000, and $28.3 million during 1999. In addition, we financed, through operating leases, the acquisition of revenue equipment valued at approximately $40 million in 2001, $36 million in 2000, and $40 million during 1999. Fair Value of Financial Instruments - ----------------------------------- As of December 31, 2001, debt was $2.0 million, which approximated fair market value. During 2000 and 2001, we contributed approximately 237,000 shares of treasury stock into a rabbi trust for benefit of participants in a SERP. At December 31, 2001, 137,000 shares remained in the trust. The EITF has stated that the assets, liabilities and income (realized and unrealized) of such trusts must be reflected in our financial statements. If trust assets are invested in our common stock, EITF Issue 97-14 requires that future pre-tax income reflect changes in our stock's value. Future net income will be increased or decreased to reflect changes in the value of our shares held by the rabbi trust. We own life insurance policies that have cash surrender value. The investment returns earned by the insurance company serve to pay insurance costs and increase cash surrender value, which is a key determinant of the amount that we could receive pursuant to the policy as of the date of our financial statements. Accordingly, changes in the market value of and returns from those investments could impact the value of our life insurance assets. We held no other material market risk sensitive instruments (for trading or non-trading purposes) that would involve significant relevant market risks, such as equity price risk. Accordingly, the potential loss in our future earnings resulting from changes in such market rates or prices is not significant. Critical Accounting Policies - ---------------------------- We have a number of critical accounting policies. These require a more significant amount of management judgement than the other accounting policies we employ. The trucking business involves an inherent risk of injury to our employees and the public. Prior to 2002, we retained the first $500,000 and $1 million of these risks, respectively, on a per occurrence basis, due primarily to conditions in the insurance marketplace. In 2002, we will retain the first $1 million for work-related injuries and the first $5 million for public liability risk. Since our company was founded in 1946, events above the level of our pre-2002 retentions have been extremely rare. Because 2002's public liability and work-related injury retentions are significantly higher than in previous years, the potential adverse impact a single occurrence can have on our finances is more significant than before. When an event involving potential liability for one of these risks occurs, our internal staff of risk management professionals, in conjunction with management, estimates the most probable amount of our loss at the outcome of settlement or litigation. Our risk management department will, if appropriate, establish a reserve for this estimate. As additional information becomes available, we increase or reduce the amount of this reserve. We also maintain additional reserves for public liability and work-related injury events that may have been incurred but not reported. We extend credit terms to our customers. We also establish a reserve to represent our estimate of accounts that will not ultimately be collected. Once we conclude that a specific invoice is unlikely to be paid by the customer, we charge the invoice against the reserve. We estimate the amount of our bad debt reserve based on the composite age of our receivables. During 2001, the amount of our bad debt reserve declined by $3.1 million and the amount of receivables that were more than 90 days old also declined by a similar amount. Because we estimate our bad debt reserve based on the aging of our accounts receivable, significant changes in our receivables aging could impact our financial profits and financial condition. Our deferred tax liability is stated net of offsetting deferred tax assets. The assets consist of anticipated future tax deductions for an operating loss carryforward as well as insurance and bad debt expenses which have been reflected on our income statement but which are not yet tax deductible. We believe it is more likely than not that sufficient taxable income will occur in time to realize the full value of our tax assets. If our expectation of such realizability diminishes, we may be required to establish a valuation allowance on our balance sheet. This could diminish our net income. New Accounting Pronouncements - ----------------------------- In July 2001, the Financial Accounting Standards Board ("FASB") issued two new statements, Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141") and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141 supersedes Accounting Principles Board Opinion No. 16, "Business Combinations", eliminates the pooling-of-interests method of accounting for business combinations and modifies the application of the purchase accounting method. SFAS 141 is effective for all transactions completed after June 30, 2001, except transactions using the pooling-of- interests method that were initiated prior to July 1, 2001. Because we had no business combination transactions in process or otherwise initiated at June 30, 2001, adoption of SFAS 141 did not have an impact on our consolidated financial statements. SFAS 142 supersedes Accounting Principles Board Opinion No. 17, "Intangible Assets". It eliminates the requirement to amortize goodwill and indefinite-lived intangible assets, addresses the amortization of intangible assets with a defined life and requires impairment testing and recognition for goodwill and intangible assets. SFAS 142 became effective on January 1, 2002. Because we do not have a significant amount of goodwill included on our balance sheet, SFAS 142 did not have an impact on our consolidated financial statements. In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). This statement supercedes Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"), and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30 ("APB 30"). SFAS 144 retains the fundamental provisions of SFAS 121 and the basic requirements of APB 30; however, it establishes a single accounting model to be used for long-lived assets to be disposed of by sale and it expands the presentation of discontinued operations to include more disposal transactions. The provisions of SFAS 144 became effective January 1, 2002. Our adoption of SFAS 144 did not have an impact on our consolidated financial statements. ********* Five-Year Financial and Statistical Information - ----------------------------------------------- (unaudited and in thousands, except ratio, rate, equipment and per-share amounts) 2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- Summary of Operations Total revenue 378,409 392,393 372,149 349,932 316,568 Operating expenses 376,751 390,664 387,384 333,179 301,508 Net (loss) income* (154) (1,335) (12,575) 9,252 8,397 Pre-tax margin* - (0.5)% (5.3)% 4.3% 4.0% After-tax return on equity* (0.2)% (1.8)% (15.1)% 10.4% 10.1% Net (loss) income per common share, diluted* (.01) (.08) (.77) .54 .49 Financial Data Working capital 25,124 37,016 12,054 39,353 44,979 Current ratio 1.7 1.9 1.2 2.2 2.4 Cash provided by (used in) operations* 10,890 11,641 (3,826) 12,610 27,193 Capital expenditures, net 4,922 129 23,917 22,236 7,955 Debt 2,000 14,000 26,500 - - Shareholders' equity* 74,576 74,387 75,614 91,215 86,742 Debt-to-equity ratio* - .2 .4 - - Common Stock Average shares outstanding, diluted 16,378 16,318 16,352 17,039 17,056 Book value per share* 4.50 4.54 4.63 5.53 5.15 Market value per share High 2.790 4.875 8.500 10.500 10.250 Low 1.500 1.234 3.250 5.688 8.375 Revenue Full-truckload 236,443 221,623 211,545 206,098 190,576 Less-than-truckload 90,888 101,932 99,357 100,015 95,522 TL/LTL % revenue contribution 62/24 57/26 57/27 59/29 60/30 Equipment in Service at Yearend Tractors Company operated 1,389 1,265 1,240 1,328 1,220 Provided by owner-operators 704 753 690 672 628 ----- ----- ----- ----- ----- Total 2,093 2,018 1,930 2,000 1,848 Trailers Company operated 3,082 3,150 3,335 2,940 2,784 Provided by owner-operators 21 25 23 22 23 ----- ----- ----- ----- ----- Total 3,103 3,175 3,358 2,962 2,807 Full-Truckload Revenue 236,443 221,623 211,545 206,098 190,576 Loaded miles 166,322 158,041 157,248 155,045 143,902 Shipments 178.5 173.9 165.0 166.0 156.9 Revenue per shipment 1,325 1,274 1,282 1,242 1,215 Loaded miles per shipment 932 919 953 934 917 Revenue per loaded mile 1.42 1.40 1.35 1.33 1.32 Shipments per business day 708 690 655 659 623 Revenue per business day 938 879 839 817 756 Less-than-Truckload Revenue 90,888 101,932 99,357 100,015 95,522 Hundredweight 7,386 8,290 8,075 8,502 8,537 Shipments 253.0 284.4 277.9 293.1 293.1 Revenue per shipment 359 358 358 341 326 Revenue per hundredweight 12.31 12.29 12.30 11.76 11.19 Revenue per business day 361 404 394 397 379 Pounds per shipment 2,919 2,915 2,906 2,901 2,913 *Prior year amounts have been restated. See Note 2 of the Consolidated Notes. ******************************************************** Consolidated Statements of Income Frozen Food Express Industries, Inc. and Subsidiaries Years ended December 31, (in thousands, except per share amounts) 2001 2000* 1999* ---- ---- ---- Revenue Freight revenue $327,331 $323,555 $310,902 Non-freight revenue 51,078 68,838 61,247 ------- ------- ------- 378,409 392,393 372,149 Costs and expenses ------- ------- ------- Freight operating expenses Salaries, wages and related expenses 87,900 87,984 88,734 Purchased transportation 73,897 77,833 70,353 Supplies and expenses 98,545 94,719 88,870 Revenue equipment rent 27,024 25,144 26,949 Depreciation 11,458 11,582 11,752 Communications and utilities 3,766 4,325 3,949 Claims and insurance 16,673 18,040 18,577 Operating taxes and licenses 3,808 4,239 5,488 Gain on disposition of equipment (1,440) (1,604) (594) Miscellaneous expense 3,230 3,969 6,674 Impairment of long-lived assets - - 2,656 Restructuring - (1,821) 3,721 ------- ------- ------- 324,861 324,410 327,129 Non-freight costs and operating expenses 51,890 66,254 60,255 ------- ------- ------- 376,751 390,664 387,384 ------- ------- ------- Income (loss) from operations 1,658 1,729 (15,235) Interest and other expense* 1,710 3,722 4,464 ------- ------- ------- Loss before income tax* (52) (1,993) (19,699) Income tax provision (benefit) 102 (658) (7,124) ------- ------- ------- Net loss* $ (154) $ (1,335) $(12,575) ======= ======= ======= Net loss per share of common stock* Basic $ (.01) $ (.08) $ (.77) Diluted $ (.01) $ (.08) $ (.77) - ---------------------- ======= ======= ======= See accompanying notes. *Prior year amounts have been restated. See Note 2 of the Consolidated Notes. *********************************************** Consolidated Balance Sheets Frozen Food Express Industries, Inc. and Subsidiaries As of December 31, (in thousands) 2001 2000* Assets ---- ---- Current assets Cash and cash equivalents $ 3,236 $ 1,222 Accounts receivable, net 39,600 47,652 Inventories 7,409 17,208 Tires on equipment in use 4,558 4,424 Other current assets 5,246 7,546 ------- ------- Total current assets 60,049 78,052 Property and equipment, net 55,154 61,899 Other assets * 11,334 7,148 ------- ------- $126,537 $147,099 ======= ======= Liabilities and Shareholders' Equity Current liabilities Accounts payable $ 19,056 $ 22,209 Accrued claims 7,960 8,101 Accrued payroll 5,471 5,834 Current maturities of long-term debt 250 - Deferred federal income tax 289 416 Accrued liabilities 1,899 4,476 ------- ------- Total current liabilities 34,925 41,036 Long-term debt 1,750 14,000 Deferred federal income tax 2,186 1,551 Accrued claims and liabilities 13,100 16,125 Commitments and contingencies - - ------- ------- 51,961 72,712 Shareholders' equity ------- ------- Common stock (17,281 shares issued) 25,921 25,921 Additional paid-in capital 3,753 4,655 Retained earnings * 50,403 50,557 ------- ------- 80,077 81,133 Less - Treasury stock (845 and 965 shares), at cost 5,501 6,746 ------- ------- Total shareholders' equity 74,576 74,387 ------- ------- $126,537 $147,099 ======= ======= - ---------------------- See accompanying notes. * Prior year amounts have been restated. See Note 2 of the Consolidated Notes. ************************************* Consolidated Statements of Cash Flows Frozen Food Express Industries, Inc. and Subsidiaries Years ended December 31, (in thousands) 2001 2000* 1999* ---- ---- ---- Cash flows from operating activities Net loss * $ (154) $(1,335) $(12,575) Non-cash items involved in net loss Depreciation and amortization 15,459 15,988 13,564 Provision for losses on accounts receivable 2,143 3,122 5,296 Deferred federal income tax 508 (539) (6,124) Gain on disposition of equipment (1,440) (1,604) (594) Life insurance * (927) (1,144) (822) Impairment of long-lived assets - - 2,656 Restructuring expense - (1,821) 3,721 Non-cash contribution to employee benefit plans 368 169 - Change in assets and liabilities, net of divestiture Accounts receivable 1,576 922 (13,359) Inventories 642 511 (5,144) Tires on equipment in use (2,498) (1,410) 240 Other current assets 1,868 (3,520) (719) Accounts payable (1,917) (1,399) 6,505 Accrued claims and liabilities (4,774) 3,757 5,377 Accrued payroll 36 (56) (744) Federal income tax payable - - (1,104) ------ ------ ------ Net cash provided by (used in) operating activities 10,890 11,641 (3,826) ------ ------ ------ Cash flows from investing activities Proceeds from divestiture 6,832 - - Expenditures for property and equipment (11,746) (7,711) (28,294) Proceeds from sale of property and equipment 6,824 7,582 4,377 Other* 1,239 658 (141) ------ ------ ------ Net cash provided by (used in) investing activities 3,149 529 (24,058) ------ ------ ------ Cash flows from financing activities Borrowings 20,000 19,000 72,500 Payments against borrowings (32,000) (31,500) (46,000) Cash dividends paid - - (1,472) Proceeds from sale of treasury stock - 257 198 Purchases of treasury stock (25) (318) (1,752) Net cash (used in) provided by ------ ------ ------ financing activities (12,025) (12,561) 23,474 ------ ------ ------ Net increase (decrease) in cash and cash equivalents 2,014 (391) (4,410) Cash and cash equivalents at beginning of year 1,222 1,613 6,023 ------ ------ ------ Cash and cash equivalents at end of year $ 3,236 $ 1,222 $ 1,613 ====== ====== ====== - -------------------------- See accompanying notes. * Prior year amounts have been restated. See Note 2 of Consolidated Notes. ******************************************* Consolidated Statements of Shareholders' Equity Frozen Food Express Industries, Inc. and Subsidiaries Three Years Ended December 31, 2001 (in thousands) Shares Par of Value Shares Cost Common of Additional of of Total Stock Common Paid-In Retained Treasury Treasury Shareholders' Issued Stock Capital Earnings Stock Stock Equity ------ ----- ------- -------- ----- ----- ------ At 12/31/1998 as previously reported 17,281 $25,921 $5,323 $73,001 782 $5,968 $98,277 Effect of restatement (see Note 2) - - - (7,062) - - (7,062) Net loss* - - - (12,575) - - (12,575) Cash dividends paid - - - (1,472) - - (1,472) Treasury stock reacquired - - - - 239 1,752 (1,752) Exercise of stock options - - (267) - (61) (465) 198 ------ ------ ----- ------ --- ----- ------ At 12/31/1999* 17,281 25,921 5,056 51,892 960 7,255 75,614 Net loss* - - - (1,335) - - (1,335) Treasury stock reacquired - - - - 115 318 (318) Treasury stock reissued - - (305) - (94) (706) 401 Exercise of stock options - - (96) - (16) (121) 25 ------ ------ ----- ------ --- ----- ------ At 12/31/2000* 17,281 25,921 4,655 50,557 965 6,746 74,387 Net loss - - - (154) - - (154) Treasury stock reacquired - - - - 11 25 (25) Treasury stock reissued - - (902) - (131) (1,270) 368 ------ ------ ----- ------ --- ----- ------ At 12/31/2001 17,281 $25,921 $3,753 $50,403 845 $5,501 $74,576 ====== ====== ===== ====== === ===== ====== See accompanying notes. *Prior year amounts have been restated. See Note 2 of the Consolidated Notes. ********************************************* Notes to Consolidated Financial Statements - ------------------------------------------ 1. Summary of Significant Accounting Policies ------------------------------------------ Principles of Consolidation - These consolidated financial statements include Frozen Food Express Industries, Inc., a Texas corporation, and our subsidiaries, all of which are wholly-owned. We are primarily engaged in motor carrier transportation of perishable commodities, providing service for full-truckload and less-than-truckload throughout North America. All significant intercompany balances and transactions have been eliminated in consolidation. Accounting Estimates - The preparation of financial statements requires estimates and assumptions that affect the value of assets, liabilities, revenue and expenses. Estimates and assumptions also influence the disclosure of contingent assets and liabilities. Actual outcomes may vary from these estimates and assumptions. Cash Equivalents - We consider all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. Accounts Receivable - We extend trade credit to our customers who are primarily located in the United States. Accounts receivable from customers are stated net of estimated allowances for doubtful accounts of $4.3 million and $7.4 million as of December 31, 2001 and 2000, respectively. Inventories - Inventories are valued at the lower of cost (principally weighted average cost) or market and primarily consist of finished products which are ready for resale. Tires - We record the cost of tires purchased with vehicles and replacement tires as a current asset. Tires are then recorded to expense on a per-mile basis. Accrued Claims - We record an expense equal to our estimate of our liability for work-related or cargo claims at the time an event occurs. If additional information subsequently becomes available, we then determine whether our estimate should be revised. Freight Revenue and Expense Recognition - Freight revenue and associated direct operating expenses are recognized on the date the freight is picked up from the shipper. The Securities and Exchange Commission has issued a Staff Accounting Bulletin ("SAB") which provides guidance on revenue recognition issues in financial statements. We have reviewed our revenue recognition policies and determined that we are in compliance with the SAB. Income Taxes - Deferred income taxes are provided for temporary differences between the tax basis of assets and liabilities and their financial reporting amounts and are valued based upon statutory tax rates anticipated to be in effect when temporary differences are expected to reverse. Long-Lived Assets - We periodically evaluate whether the remaining useful life of our long-lived assets may require revision or whether the remaining unamortized balance is recoverable. When factors indicate that an asset should be evaluated for possible impairment, we use an estimate of the asset's undiscounted cash flow in evaluating whether an impairment exists. If an impairment exists, the asset is written down to net market value. Included in other non-current assets are costs associated with life insurance policies and related investments. Prior Period Amounts - Certain other prior period amounts have been reclassified to conform with the current year presentation. 2. Prior Year Restatement ---------------------- In March of 2002, we retroactively changed the manner in which we account for a life insurance policy that we acquired in 1993. The life insurance policy, with a death benefit of at least $17.25 million, was purchased to provide us funds with which we could purchase a large block of our common stock owned by a non-employee shareholder. Beginning in 1993, we had capitalized the premium payments as an investment to purchase the shares in the future. We have changed the manner in which we account for the insurance policy. We now expense the excess of the premiums over the amount that we could actually realize under the insurance contract as of the date of the related financial statements in accordance with the provisions of Financial Accounting Standards Board Technical Bulletin 85-4, "Accounting for Purchases of Life Insurance". Benefit proceeds under the policy, if any, (and to the extent they exceed the book value of the policy) will be recorded as a non-operating gain in the future. Accordingly, for 2000 and 1999, our operating income and our restated net loss and net loss per share were as follows (in millions): 2000 1999 ---- ---- Operating income (loss): As previously reported $ 1.7 $(15.2) As restated 1.7 (15.2) Net loss: As previously reported $ (1.2) $(12.1) As restated (1.3) (12.6) Net loss per share: As previously reported $ (.07) $ (.74) As restated (.08) (.77) 3. Divestiture ----------- In December 2001, we sold the largest component of our non-freight operations. The business we sold is a dealership involved in the sale and service of semi trailers and related refrigeration equipment. It had been operating under the name of W&B Refrigeration Service Company. The buyer group was led by our former employee who until the date of the sale managed the dealership on our behalf. We sold the majority of the operating assets of the dealership including accounts receivable, inventory, machinery, equipment and one real estate asset. The buyer also assumed all liabilities associated with the dealership including, but not limited to accounts payable and accrued payroll. The assets we sold had a net book value of $14.7 million. The assumed liabilities totaled approximately $2.8 million. There was no gain or loss on this transaction. When the sale closed, we received as consideration $6.8 million in cash, a note receivable from the buyer for $4.1 million and a limited partnership interest in the buyer group to which we assigned a value of $1 million, based on our estimate of its fair market value. Our note receivable from the buyer is subordinated to senior debt which the buyer borrowed to obtain the cash we received at closing. The note must be repaid in 3 equal installments in December 2007, 2008 and 2009, until which time monthly interest payments are due. At December 31, 2001, the note bore interest at 7%. Because we retained a 19.9% ownership interest in the buyer group, we were precluded from accounting for the dealership as a discontinued operation. The note and partnership interest are included in other non-current assets on our balance sheet. We will account for our limited partnership interest according to the equity method. Our total non-freight revenue was $51.1 million for 2001, $68.8 million for 2000 and $61.2 million for 1999. Had revenue from the sold dealership not been included in each of those years operations, our non- freight revenue would have been $9.6 million for 2001, $10.5 million for 2000 and $9.2 million for 1999. During 2000 and 1999, our consolidated pre-tax losses were $2.0 million and $19.7 million, respectively. Had the results of the sold dealership not been included in the pre-tax results for these years, our consolidated pre-tax loss would have been $2.0 million for 2000 and $20.1 million for 1999. For 2001, our consolidated pre-tax income would have been $1.1 million as compared to 2001's pre-tax loss of $52,000. 4. Property and Equipment ---------------------- Depreciation expense is recorded by the straight-line method. Repairs and maintenance are charged to expense as incurred. Property and equipment is shown at historical cost and consists of the following (in thousands): December 31, Estimated ----------- Useful Life 2001 2000 (Years) ---- ---- ----- Land $ 4,215 $ 4,845 - Buildings and improvements 16,118 16,421 20 - 30 Revenue equipment 50,481 53,098 3 - 7 Service equipment 15,708 17,233 2 - 20 Computer, software and related equipment 21,008 20,235 3 - 12 ------- ------- 107,530 111,832 Less accumulated depreciation 52,376 49,933 ------- ------- $ 55,154 $ 61,899 ======= ======= 5. Debt ---- As of December 31, 2001, we had a $33 1/3 million secured line of credit pursuant to a revolving credit agreement with three commercial banks. Interest is due quarterly. We may elect to borrow at a daily interest rate based on the bank's prime rate or for specified periods of time at fixed interest rates which are based on the London Interbank Offered Rate in effect at the time of a fixed rate borrowing. At December 31, 2001, $2 million was borrowed against this facility. Loans are secured by liens against our inventory, trade accounts receivable and over-the-road trucking equipment. The agreement also contains a pricing "grid" where increased levels of profitability and cash flows or reduced levels of indebtedness can reduce the rates of interest expense we incur. The agreement restricts, among other things, payments of cash dividends, repurchase of our stock and the amount of our capital expenditures. The amount we may borrow under the facility may not exceed the lesser of $33 1/3 million, as adjusted for letters of credit and other debt as defined in the agreement, a borrowing base or a multiple of a measure of cashflow as described in the agreement. The agreement expires on June 1, 2002, prior to which time we may elect to convert the amount then borrowed to a 13-month term loan. The term loan would be payable in 12 monthly installments beginning July 1, 2002, each in an amount equal to 1/48 of the amount borrowed. A final payment equal to the remaining 75% would be due on July 1, 2003. Because six of the monthly payments would be due during 2002, we have classified 6/48 of our long-term debt as a current liability at December 31, 2001. We intend to refinance this facility prior to June 1, 2002. In March 2002, we retroactively changed the manner by which we account for a life insurance policy that we own. The cumulative balance sheet impact of the change was to reduce shareholders' equity by $7.1 million as of December 31, 2001. Because our credit agreement contains restrictions as to the minimum amount of our shareholders' equity, on March 29, we and the banks amended the credit agreement. The amended agreement accommodates the reduction of shareholders' equity, retroactively to December 31, 2001. Letters of Credit issued against the credit facility in connection with our risk management and leasing programs totaling approximately $4.7 million were in effect as of December 31, 2001. Accordingly, approximately $26.6 million was available under the agreement. Total interest payments under the credit line during 2001, 2000 and 1999 were $1,118,000, $2,155,000 and $1,341,000, respectively. The weighted average interest rate we incurred during 2001 was 6.9%. 6. Commitments and Contingencies ----------------------------- We lease real estate and equipment. The aggregate future minimum rentals under non-cancelable operating leases at December 31, 2001 were (in thousands): Third Related Parties Parties Total ------- ------- ----- 2002 $24,907 $1,123 $26,030 2003 18,406 454 18,860 2004 10,358 - 10,358 2005 4,545 - 4,545 2006 2,931 - 2,931 After 2006 1,360 - 1,360 ------ ----- ------ Total $62,507 $1,577 $64,084 ====== ===== ====== Related parties involve tractors leased from two of our officers under non-cancelable operating leases. For 2001, 2000 and 1999, payments to officers under these leases were $1.6 million, $1.8 million and $1.4 million, respectively. Because the terms of our leases with related parties are more flexible than those governing tractors we lease from unaffiliated lessors, we pay the officers a modest premium over the rentals we pay to unaffiliated lessors. We also rent, on a month-to- month basis, certain trailers from the same officers at rates that are generally less than market-rate monthly trailer rentals. At December 31, 2001, we had commitments of approximately $35 million for the purchase of revenue equipment during 2002 and 2003 and $1.3 million for a life insurance premium due during November, 2002. We have accrued for costs related to public liability, cargo and work-related injury claims. When an incident occurs we record a reserve for the incident's estimated outcome. As additional information becomes available, adjustments are made. Accrued claims liabilities include all such reserves and our estimate for incidents which may have been incurred but not reported. In our opinion, any additional costs incurred over amounts incurred to resolve these claims will not materially deviate from the aggregate amounts accrued. At December 31, 2001, we had established $4.7 million of irrevocable letters of credit in favor of insurance companies and pursuant to certain insurance and leasing agreements. 7. Financing and Investing Activities Not Affecting Cash ----------------------------------------------------- During 2001 and 2000, we funded contributions to a Supplemental Executive Retirement Plan (a "SERP") and our 401(k) savings plan by transferring 187,188 and 79,346 shares, respectively, of treasury stock to the plan trustees. We recorded expense for the fair market value of the shares, which at the time of the contributions, was approximately $368,000 for 2001 and $169,000 for 2000. On December 26, 2001, we sold the largest component of our non- freight business. In addition to $6.8 million cash the buyer paid us, the buyer executed a note payable to us for $4.1 million and assumed liabilities of the business amounting to $2.8 million. The buyer also issued us a 19.9% interest in the buyer's business which we value at $1.0 million. As of December 31, 2001 and 2000, accounts receivable included $549,000 and $735,000, respectively, from the sale of equipment retired and sold in those years. At December 31, 2001 and 2000, accounts payable included $260,000 and $118,000, respectively, related to capital expenditures. 8. Savings Plan ------------ We sponsor a 401(k) Savings Plan for our employees. Our contributions to the 401(k) are determined by reference to voluntary contributions made by each of our employees. Additional contributions are made at the discretion of the Board of Directors. Prior to 2001, our 401(k) contributions were made in cash. Beginning in late 2001, we paid our contributions with shares of our treasury stock. For 2001, 2000 and 1999, our total cash contributions to the 401(k) were approximately $1,091,000, $1,370,000 and $1,481,000, respectively. During 2001, we also contributed 29,000 shares of our treasury stock valued at $62,000 to the 401(k). 9. Net Loss Per Share of Common Stock ---------------------------------- Our basic loss per share was computed by dividing our net loss by the weighted average number of shares of common stock outstanding during the year. The table below sets forth information regarding weighted average basic and diluted shares (in thousands): 2001 2000 1999 ----- ---- ---- Basic Shares 16,378 16,318 16,352 Common Stock Equivalents - - - ------ ------ ------ Diluted Shares 16,378 16,318 16,352 ====== ====== ====== For 2001, 2000 and 1999, approximately 15,000, 18,000 and 81,000, respectively, of common stock equivalent shares were excluded because their impact would have been anti-dilutive. All common stock equivalents result from stock options. 10. Income Taxes ------------ No federal income taxes were paid during 2001, 2000 or 1999. Net operating loss carryforwards will begin to expire in 2020. Changes in the primary components of the net deferred tax liability were (in thousands): December 31, December 31, 2000 Activity 2001 ---- -------- ---- Deferred Tax Assets: Accrued claims $ 7,215 $ (617) $ 6,598 Net operating loss 965 (7) 958 Allowance for bad debts 2,654 (1,026) 1,628 ------ ------ ------ 10,834 (1,650) 9,184 ------ ------ ------ Deferred Tax Liabilities: Prepaid expense (2,775) 174 (2,601) Property and equipment (7,658) 1,181 (6,477) Other (2,368) (213) (2,581) ------ ------ ------ (12,801) 1,142 (11,659) ------ ------ ------ $ (1,967) $ (508) $ (2,475) ====== ====== ====== The provision for (benefit from) income tax consists of the following (in thousands): 2001 2000 1999 Taxes currently payable: ---- ---- ---- Federal $(415) $(114) $(1,104) State 9 (5) 104 Deferred federal taxes 508 (539) (6,124) --- ---- ----- Total provision (benefit) $ 102 $(658) $(7,124) === ==== ===== Differences between the statutory federal income tax expense (benefit) and our effective income tax expense (benefit) are as follows (in thousands): 2001 2000 1999 ---- ---- ---- Income tax benefit at statutory federal rate $ (18) $(636) $(6,739) Non-deductible life insurance expense 116 42 156 State income taxes and other 4 (64) (541) --- ---- ------ $102 $(658) $(7,124) === ==== ====== 11. Shareholders' Equity -------------------- Since before 1999 there have been authorized 40 million shares of our $1.50 par value common stock. Our stock option plans provide that options may be granted to officers and employees at our stock's fair market value on the date of grant and to our non-employee directors at the greater of $1.50 or 50% of the market value at date of grant. Options may be granted for 10 years following plan adoption. Options expire 10 years after a grant. The following table summarizes information regarding stock options (in thousands, except per-share amounts): 2001 2000 1999 ---- ---- ---- Options outstanding at beginning of year 3,554 3,182 3,217 Cancelled (1,183) (323) (566) Granted 45 711 592 Exercised - (16) (61) ----- ----- ----- Options outstanding at year-end 2,416 3,554 3,182 ===== ===== ===== Exercisable options 1,076 1,363 1,402 Options available for future grants 2,748 1,642 2,045 Expense from director stock options $ 9 $ 29 $ 35 Weighted average price of options Cancelled during year $ 9.20 $ 8.36 $ 8.66 Granted during year $ 1.89 $ 2.77 $ 7.70 Exercised during year - $ 2.36 $ 3.13 Outstanding at year-end $ 6.47 $ 7.44 $ 8.55 ===== ===== ===== The range of unexercised option prices at December 31, 2001 was as follows: Quantity of Options (in thousands) Priced Between -------------- -------------- 816 $1.00 - $ 5.00 582 $5.01 - $ 8.00 1,018 $8.01 - $12.00 ===== ============== We apply APB Opinion 25 and related interpretations to account for our stock options. Accordingly, no expense has been recognized for stock option grants to employees. Had we elected to apply Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 123 to account for stock options, our net loss would have increased to $0.4, $2.3 and $13.7 million ($0.03, $0.14 and $0.84 per share) for 2001, 2000 and 1999, respectively. In calculating these amounts, we assumed that expenses from employee stock options would accrue over each option's vesting period. The fair value for these options was estimated at the date of grant using a Black-Scholes option valuation model with the following weighted average assumptions: 2001 2000 1999 ---- ---- ---- Risk-free interest rate 5.12% 6.00% 4.71% Dividend yield - - 1.50% Volatility factor .477 .467 .700 Expected life (years) 7.0 6.0 6.2 ==== ==== ==== The Black-Scholes model uses highly subjective assumptions. This model was developed for use in estimating the value of options that have no restrictions on vesting or transfer. Our stock options have such restrictions. Therefore, in our opinion, the existing models do not necessarily provide a reliable single measure of the fair value of our stock options. We sponsor a SERP for the benefit of certain "highly compensated" personnel (as determined in accordance with the Employee Retirement Income Security Act of 1974). The SERP's investment income, assets and liabilities which are contained in a rabbi trust, are included in our financial statements. During 2000 and 2001, we issued 237,000 shares of treasury stock into the rabbi trust. As of December 31, 2001, 137,000 shares remained in the trust. Consistent with the FASB's Emerging Issues Task Force ("EITF") Issue 97-14, the shares of our common stock held in a rabbi trust are accounted for as treasury stock until SERP participants elect to liquidate the stock. During 2000, our Board of Directors approved a rights agreement that authorized a distribution of one common stock purchase right for each outstanding share of our common stock. The rights become exercisable if certain events generally relating to a change of control occur. Rights initially have an exercise price of $11. If such events occur, the rights will be exercisable for a number of shares having a market value equal to two times the exercise price of the rights. We may redeem the rights for $.001 each. The rights will expire in 2010, but the rights agreement is subject to review every three years by an independent committee of our Board of Directors. 12. Operating Segments ------------------ We have two reportable operating segments as defined by SFAS No. 131 "Disclosures About Segments of an Enterprise and Related Information". The larger segment consists of our motor carrier operations, which are conducted in a number of divisions and subsidiaries and are similar in nature. We report all motor carrier operations as one segment. The smaller segment consists of our non-freight operations that were, until December 26, 2001, engaged primarily in the sale and service of refrigeration equipment and of trailers used in freight transportation. Although we sold the transportation equipment dealership in December, we retained a 19.9% ownership interest in the buyer. We will account for that interest by the equity method. The other portions of our non- freight segment, of which we continue to own 100%, are engaged in the sale and service of air conditioning and refrigeration components. Financial information for each segment is as follows (in millions): 2001 2000 1999 ---- ---- ---- Freight Operations Total Revenue $327.3 $323.6 $310.9 Restructuring Expense - (1.8) 3.7 Operating Income (Loss) 2.5 (0.9) (16.2) Total Assets 123.8 140.3* 149.0* Non-Freight Operations Total Revenue $ 54.9 $ 72.6 $ 74.7 Operating (Loss) Income (0.8) 2.6 1.0 Total Assets 18.8 31.5 33.2 Intercompany Eliminations Revenue $ 3.8 $ 3.8 $ 13.5 Total Assets 16.1 24.7 19.6 Consolidated Revenue $378.4 $392.4 $372.1 Restructuring Expense - (1.8) 3.7 Operating Income (Loss) 1.7 1.7 (15.2) Total Assets 126.5 147.1* 162.6* *Prior Year amounts have been restated. See Note 2. Intercompany eliminations relate to non-freight revenue from transfers at cost of inventory such as trailers and refrigeration units from the non-freight segment for use by the freight segment. **************************************************** Report of Independent Public Accountant --------------------------------------- To Frozen Food Express Industries, Inc.: We have audited the accompanying consolidated balance sheets of Frozen Food Express Industries, Inc. and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2001, (2000 and 1999 as restated - see Note 2 of the Consolidated Notes). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Frozen Food Express Industries, Inc. and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. Dallas, Texas /s/ ARTHUR ANDERSEN LLP April 3, 2002 ----------------------- ********************************************* Unaudited Quarterly Financial and Stock Information - --------------------------------------------------- (in thousands, except per-share amounts) First Second Third Fourth Quarter Quarter Quarter Quarter Year ------- ------- ------- ------ ---- 2001 - ---- Revenue $89,488 $99,273 $98,129 $91,519 $378,409 (Loss) Income from operations (831) 856 818 815 1,658 Net (loss) income* (884) 248 277 205 (154) Net (loss) income per share of common stock* Basic (.05) .02 .02 .01 (.01) Diluted (.05) .02 .02 .01 (.01) Common stock price per share High 2.500 2.710 2.790 2.480 2.790 Low 1.500 1.620 1.650 1.960 1.500 Common stock trading volume 1,076 2,059 677 712 4,524 ====== ====== ====== ====== ======= 2000 - ---- Revenue $92,416 $99,999 $101,402 $98,576 $392,393 Income (loss) from operations 258 1,904 (1,371) 938 1,729 Net (loss) income * (594) 722 (1,500) 37 (1,335) Net (loss) income per share of common stock* Basic (.04) .04 (.09) - (.08) Diluted (.04) .04 (.09) - (.08) Common stock price per share High 4.875 3.688 3.063 2.469 4.875 Low 2.906 2.250 2.281 1.234 1.234 Common stock trading volume 1,423 2,026 1,078 3,624 8,151 ====== ====== ======= ====== ======= * Prior year amounts have been restated. See Note 2 of the Consolidated Notes. As of March 2, 2002, we had approximately 5,000 beneficial shareholders, including participants in our retirement plans. EX-21 10 ex21.txt EXHIBIT 21.1 EXHIBIT 21.1 ------------ SUBSIDIARIES OF FROZEN FOOD EXPRESS INDUSTRIES, INC. Jurisdiciton of Name of Subsidiary Incorporation - ------------------ ------------- FFE Transportation Services, Inc. Delaware AirPro Holdings, Inc. (formerly W&B Refrigeration Service Company, Inc.) Delaware Conwell Corporation Delaware Lisa Motor Lines, Inc. Delaware FFE Logistics, Inc. Delaware Compressors Plus, Inc. Texas Compressors Plus, Inc. * Delaware FFE, Inc. Texas Conwell Cartage, Inc. * Texas Frozen Food Express, Inc. * Texas Middleton Transportation Company * Texas Each subsidiary does business under its corporate name. * Inactive EX-23 11 ex23.txt EXHIBIT 23.1 EXHIBIT 23.1 ------------ Consent of Independent Public Accountants As independent public accountants, we hereby consent to the incorporation by reference of our report included in this Form 10-K into the Company's previously filed registration statements on Form S-8 (Nos. 333-56204, 333-56248, 333-52701, 333-87913, and 033-59465). /s/ ARTHUR ANDERSEN LLP Dallas, Texas April 3, 2002 EX-99 12 ex99.txt EXHIBIT 99.1 EXHIBIT 99 ---------- Frozen Food Express Industries, Inc. 1145 Empire Central Place Dallas, Texas 75247 April 3, 2002 United States Securities and Exchange Commission 450 5th Street, N.W. Washington, D.C. 20549 Re: Annual Report on Form 10-K for the Year Ended December 31, 2001; Confirmation of Receipt of Assurances from Arthur Andersen LLP Ladies and Gentlemen: Frozen Food Express Industries, Inc. ("FFEX") engages Arthur Andersen LLP ("Andersen") as its independent public accountants. Andersen completed its audit work on our financial statements for the year ended December 31, 2001 on April 3, 2002, and Andersen's opinion with respect to our financial statements bears that date. However, we did not file our Annual Report on Form 10-K for the year ended December 31, 2001 until after March 14, 2002. We are aware of the contents of Release Nos. 33-8070 and 34- 45590 and the Addition of Temporary Note 3T to Article 3 of Regulation S-X (the "Temporary Note"). We have requested and received from Andersen a letter to the effect that Andersen has represented to FFEX that its audit was subject to Andersen's quality control system for the U.S. accounting and auditing practice to provide reasonable assurance that the engagement was conducted in compliance with the professional standards and that there was appropriate continuity of Andersen personnel working on audits, and availability of national office consultation. We do not have foreign affiliates, so the assurance from Andersen as to foreign affiliates is not relevant. Based on the foregoing, we respectfully request that the Commission accept FFEX's financial statements as audited by Andersen in FFEX's Annual Report on Form 10-K for the year ended December 31, 2001. Respectfully submitted, /s/ F. Dixon McElwee, Jr. - ------------------------ F. Dixon McElwee, Jr. Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----