Directed Employee Benefit Trust Agreement

DIRECTED EMPLOYEE BENEFIT TRUST AGREEMENT


This TRUST AGREEMENT ("Trust Agreement" or "Agreement"), entered into this 17th day of June, 1996, by and between MONTEREY PASTA COMPANY corporation (the "Company"), and THE CHARLES SCHWAB TRUST COMPANY (the "Trustee").


PURPOSE


The Company has adopted a plan called MONTEREY PASTA COMPANY 401(k) PLAN (the "Plan") for the exclusive purpose of providing benefits to certain of its employees and their beneficiaries and defraying reasonable expenses of administering the Plan. The Plan provides that, from time to time, cash and other assets may be paid to the Trustee by the Company to be held and administered as a trust (the "Trust Fund" or "Trust") for the uses and purposes of the Plan. The Company intends that the Plan shall qualify under section 401 of the Internal Revenue Code of 1986, as amended (the "Code"), and that the Trust shall constitute a part of the Plan, as a tax exempt entity within the meaning of Code section 501(a).


Subject to specific conditions set forth in this Agreement, the Trustee agrees that it will hold in the Trust and invest cash and other acceptable property received pursuant to this Agreement and received as contributions from the Company or transfers from another plan qualified under section 401(a) of the Code upon the terms and conditions stated below.


ARTICLE 1 TRUST FUND


1.1 The Company's President or other duly authorized official shall certify in writing to the Trustee the names and specimen signatures of all those persons who are authorized to act as or on behalf of the Plan's named fiduciary, which term shall include the administrator of the Plan (the "Administrator") and these names and specimen signatures shall be updated as necessary by the President or other duly authorized official.


1.2 All contributions or transfers shall be received by the Trustee in cash or in any other property acceptable to the Trustee as determined by the Trustee under its Investment Guidelines, which are incorporated herein and made part of the Agreement as amended from time to time. The Trust Fund shall consist of the contributions and transfers received by the Trustee, together with the income and earnings from them and any increments to them. The Trustee shall manage and administer the Trust Fund without distinction between principal and income. The Trustee shall have no duty to (i) compute any amount required to be transferred or paid to it by the Company, (ii) collect any contributions or transfers to the Trust Fund, or (iii) determine whether any contribution or transfer complies with the terms of the Plan.


If the Company creates or maintains one or more employee benefit plans qualified under Code section 401(a) in addition to the Plan, the Company may request the Trustee to hold the assets of the additional plan or plans in the Trust Fund. The Administrator shall keep records showing the interest of the Plan and each additional plan in the Trust Fund unless the Trustee enters into an agreement with the Company to keep separate accounts for each such plan. The Company and the Administrator shall not permit or cause the assets of one plan to be used to pay benefits or the administrative expenses of any other plan with the assets in the Trust Fund.


1.3 The Trustee shall accept a contribution of cash or other property otherwise acceptable to the Trustee that has been distributed to a participant (or an eligible employee who is about to become a participant) from another employee benefit plan qualified under Code section 401(a), or from an individual retirement account or annuity described in Code section 408, at the direction of the Administrator. The Administrator shall be solely responsible for determining that such assets represent an eligible rollover contribution within the meaning of Code section 402(C)(4) or 408(d)(3). The Trustee shall accept a transfer of cash or other property acceptable to the Trustee on behalf of a participant (or an employee who is about to become a participant) directly from the trustee of an employee benefit plan qualified under Code section 401(a) at the direction of the Administrator.


ARTICLE 2 INVESTMENTS AND DISTRIBUTIONS


2.1 (a) Except as provided below, the Administrator shall have all power over and responsibility for the management, disposition, and investment of the Trust assets, and the Trustee shall comply with proper written directions of the Administrator concerning those assets. The Administrator shall not issue directions in violation of the terms of the Plan and Trust or prohibited by the fiduciary responsibility rules of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Except to the extent


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required by ERISA or otherwise provided in this Agreement, the Trustee shall have no duty or responsibility to review, initiate action, or make recommendations regarding Trust assets and shall retain assets until directed in writing by the Administrator to dispose of them.


The Administrator may delegate to any other person or persons any of the Administrator's rights, powers or responsibilities with respect to the operation and administration of the Trust Fund. Any such delegation shall be made in writing and communicated to the Trustee. The Administrator shall not be liable for any breach of fiduciary responsibility of a delegee that is not proximately caused by the Administrator's failure to properly select or supervise such delegee and in which the Administrator does not participate.


(b) If permissible under the Plan, each participant and/or beneficiary may have investment power over the account maintained for him or her, and may direct the investment and reinvestment of assets of the account among the options authorized by the Administrator. Such direction shall be furnished to the Trustee in writing under procedures agreed to by the Trustee and the Administrator. To the extent provided under ERISA section 404(c), the Trustee shall not be liable for any loss, or by reason of any breach, which results from such participant's or beneficiary's exercise of control. If a participant who has investment authority under the terms of the plan fails to provide such directions, the Administrator shall direct the investment of the participant's accounts. The Administrator shall maintain records showing the interest of each participant and/or beneficiary in the Trust Fund unless the Trustee enters into an agreement with the Company to keep separate accounts for each such participant and/or beneficiary. The Trustee shall have no duty or responsibility to review or make recommendations regarding investments made at the direction of the Administrator or participant and shall be required to act only upon receipt of proper written directions. A participant or beneficiary shall not have authority to direct the investment of assets in his or her account in a loan to any participant, including himself or herself, or "collectibles" within the meaning of Code section 408(m)(2).


(c) The Administrator may appoint an investment manager or managers within the meaning of section 3(38) of ERISA to direct, control or manage the investment of all or a portion of the Trust assets, as provided in sections 3(38) and 403(a)(2) of ERISA. The Administrator shall notify the Trustee in writing of the appointment of each investment manager, and the assets over which each manager shall exercise control and cause the investment manager to acknowledge to the Trustee in writing that the investment manager is a fiduciary with respect to the Plan. If the foregoing conditions are met, the investment manager shall have the power to manage, acquire, or dispose of any Trust assets identified as under such manager's control, and the Trustee shall not be liable for acts or omissions of the investment manager, or be under an obligation to invest or


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otherwise manage any asset of the Trust that is subject to the management of such investment manager. The Trustee shall act only upon receipt of proper written directions from a duly appointed investment manager, and shall have no liability to review or question any such directions.


(d) If the Plan authorizes loans to Plan participants, the duties of the Trustee and Administrator may be covered by a separate agreement to be incorporated as part of this Agreement.


2.2 (a) Subject to the Investment Guidelines of the Trustee, any general or specific investment guidelines formulated by the Company or the Administrator and the provisions of Section 2.1 above, the person with investment responsibility ("Authorized Person") may cause the Trust Fund to be invested and reinvested in every kind of investment including, without limitation, publicly traded equity and debt interests of all kinds issued by domestic or foreign governments, business organizations, limited partnerships, investment companies and trusts or other entities, convertible securities of all kinds, interest-bearing deposits in any depository institution (including the Trustee or any affiliate of the Trustee), money market securities of all kinds, collective investments as described in subsection (b) below and insurance contracts as described in subsection (c) below. Notwithstanding anything in the Trust Agreement to the contrary, the Trustee may hold uninvested and without liability for interest such part of the Trust Fund as may be reasonably necessary for the orderly administration of the Trust Fund.


(b) Subject to the following provisions, the assets of the Trust Fund may be invested and reinvested, in whole or in part, in any common or collective investment fund (referred to as the "fund") maintained by the Trustee or an investment manager in which the Trust Fund is eligible to participate. Notwithstanding any other provision of this Agreement, to the extent Trust Fund assets are invested in any such fund, the terms of the fund's governing instrument shall govern the investment responsibilities and powers of the entity responsible for management of the fund (referred to as "fund manager"), and the terms of such governing instrument shall be incorporated into the Trust Agreement. The value of any interest in a fund held by the Trust Fund shall be the fair market value of the interest as determined by the fund manager in accordance with the fund's governing instrument. For purposes of valuation of the Trust Fund assets, the Trustee shall be entitled to rely conclusively on the value reported by the fund manager.


The Trust Fund may be invested in a pooled investment vehicle funded by contracts issued by an insurance company qualified to do business in a state (within the meaning of ERISA section 3(10)) including, without limitation, group annuity and guaranteed investment contracts. Any such contract may provide for the allocation of amounts received by the insurance company to its general account, one or more of its separate accounts (including pooled separate accounts), or both. To the extent Trust Fund assets are allocated to a separate account of an insurance company, the Administrator shall appoint the insurance company as an investment manager as provided above. Notwithstanding any other provision of the Trust Agreement, the terms of the contract(s)


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governing the separate account(s) in which the Trust Fund is invested shall govern the investment responsibilities and powers of the insurance company and, to the extent required by law, the terms of such contract(s) shall be incorporated into the Trust Agreement.


(c) To the extent permitted by the Plan, the Authorized Person may direct the Trustee to apply for and purchase life insurance or annuity contracts (referred to as "contracts") from an insurance company, subject to the following provisions:


(i) The Authorized Person shall be responsible for ensuring that the purchases conform with the requirements of the Plan and any rules and policies established by the Administrator regarding the form, value, optional settlement methods and other provisions of the contracts. The Trustee shall not be responsible for the validity or proper execution of any contract delivered to it, or any act of any persons which renders the contract void or voidable. The Trustee shall not be responsible if the contract held in the Trust Fund fails to meet the requirements of the Plan, and shall have no duty to inform participants of the terms and conditions of any such contract.


(ii) The Administrator shall instruct the insurance company to notify the Administrator of all premiums becoming due under the contracts. The Plan Administrator shall deliver all premium notices to the Trustee, together with a direction to the Trustee to pay the premiums out of the Trust Fund. The Trustee shall have no responsibility for paying the premium unless sufficient assets of the Trust Fund are available for that purpose.


(iii) The Administrator shall cause the Trustee to be designated as the sole owner of any such contract, with sole power to exercise all rights, privileges, options and other incidents of ownership at the Administrator's direction. The Administrator from time to time shall direct the Trustee regarding the designation of a beneficiary of the death benefit payable under any such contract in accordance with the applicable provisions of the Plan.


(d) To the extent permitted by the Plan and ERISA and subject to the applicable federal and state securities laws, the Authorized Person may direct the Trustee to invest in qualifying employer securities within the meaning of ERISA section 407(d)(5) ("Employer Securities"). The Administrator shall have full responsibility for determining that any such investment, and the voting rights attributable to such investment, complies with applicable law. Notwithstanding any other provision of the Plan or Trust Agreement, the Administrator shall have responsibility for voting any shares or directing that such shares shall be sold, exchange, or otherwise disposed of except to the extent that such duties are made the responsibility of another person or persons under the terms of the Plan or other governing document, and such person performs according to such terms.


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2.3 In its administration of the Trust Fund, the Trustee shall have and exercise whatever powers are necessary to discharge its obligations and exercise its rights under the Trust Agreement. Subject to the direction of the Administrator, participants, or an investment manager as provided in Section 2.1, the Trustee shall have full power and authority with respect to property held in the Trust Fund to do all such acts, take all proceedings, and exercise all such rights and privileges, whether specifically referred to or not in this document, as could be done, taken, or exercised by the absolute owner, including, without limitation, the following:


(a) To collect income generated by the Trust Fund investments and proceeds realized on the sale or disposition of assets and to hold the same pending reinvestment or distribution in accordance with this Agreement;


(b) To register Trust Fund property in the Trustee's own name, in the name of a nominee or in bearer form, provided the Trustee's records and accounts show that such property is an asset of the Trust Fund;


(c) To deposit securities in a security depository and permit the securities so deposited to be held in the name of the depository's nominee, and to deposit securities issued or guaranteed by the U.S. government or any agency or instrumentality thereof, including securities evidenced by book entry rather than by certificate, with t ...