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                          HASTINGS ENTERTAINMENT, INC.
                  ASSOCIATES' 401(k) PLAN AND TRUST AGREEMENT
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                               TABLE OF CONTENTS
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                                                                                                                     PAGE
<S>                                                                                                                    <C>
ARTICLE I

         INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

ARTICLE II

         DEFINITIONS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
         2.01    Definitions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
         2.02    Number and Gender  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  12
         2.03    Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13

ARTICLE III

         ELIGIBILITY AND PARTICIPATION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  14
         3.01    Eligibility for Participation  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  14
         3.02    Eligibility to Make Elective Deferrals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  14
         3.03    Eligibility Upon Reemployment  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  14
         3.04    Omission of Eligible Associate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  14
         3.05    Inclusion of Ineligible Associate  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15
         3.06    Election Not to Participate  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15


ARTICLE IV

         CONTRIBUTIONS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16
         4.01    Elective Deferrals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16
         4.02    Matching Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17
         4.03    Profit Sharing Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  18
         4.04    Rollover Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  18
         4.05    Transfer Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  19
         4.06    Qualified Matching Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  19
         4.07    Qualified Non-elective Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  19
         4.08    Actual Deferral Percentage Test  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  20
         4.09    Limitations on Matching Contributions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  22
         4.10    Annual Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  25

ARTICLE V

         ALLOCATION TO PARTICIPANTS' ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  34
         5.01    Individual Accounts  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  34
         5.02    Valuation of the Trust Fund  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  34
         5.03    Priority of Allocations to Accounts  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  34
         5.04    Net Expense  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  35

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ARTICLE VI

         DETERMINATION AND DISTRIBUTION OF BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  36
         6.01    Vesting of Accounts  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  36
         6.02    Forfeitures  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  37
         6.03    Timing of Distributions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  37
         6.04    Form of Payment  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  40
         6.05    Designation of Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  40
         6.06    Distribution for Minor Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  41
         6.07    Location of Participant, Former Participant or Beneficiary Unknown . . . . . . . . . . . . . . . . .  41
         6.08    Limitations on Benefits and Distributions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  41

ARTICLE VII

         FORMER PARTICIPANTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  42
         7.01    Participation by Former Participant  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  42
         7.02    Reinstatement of Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  42
         7.03    Separate Account Balances  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  42
         7.04    Years of Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  43

ARTICLE VIII

         WITHDRAWALS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  44
         8.01    In-service Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  44
         8.02    Hardship Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  44

ARTICLE IX

         PLAN ADMINISTRATION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  47
         9.01    Powers and Responsibilities  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  47
         9.02    Assignment and Designation of Administrative Authority / Compensation of Benefits Committee  . . . .  47
         9.03    Allocation and Delegation of Responsibilities  . . . . . . . . . . . . . . . . . . . . . . . . . . .  48
         9.04    Powers, Duties and Responsibilities  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  48
         9.05    Records and Reports  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  49
         9.06    Appointment of Advisors  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  49
         9.07    Information from Employer  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  50
         9.08    Payment of Expenses  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  50
         9.09    Majority Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  50
         9.10    Bonding  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  50
         9.11    Indemnification  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  50
         9.12    Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  51
         9.13    Claims Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  51
         9.14    Claims Review Procedure  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  51


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ARTICLE X

         TRUST ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  53
         10.01   Establishment and Acceptance of Trust  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  53
         10.02   Scope of Trustee's Functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  53
         10.03   Powers and Duties  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  54
         10.04   Liability of Trustees  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  56
         10.05   Reliance Upon Acts of Trustee  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  56
         10.06   Records and Accounting of Trustee / Valuation of Plan Assets . . . . . . . . . . . . . . . . . . . .  56
         10.07   Payment of Compensation and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  57
         10.08   Resignation or Removal of Trustee / Withdrawal From Trust  . . . . . . . . . . . . . . . . . . . . .  57
         10.09   Successor Trustee  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  57
         10.10   Accounting Upon Resignation or Removal of Trustee  . . . . . . . . . . . . . . . . . . . . . . . . .  57
         10.11   Employment of Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  58
         10.12   Employer Securities and Real Property  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  58

ARTICLE XI

         AMENDMENT, TERMINATION AND MERGERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  59
         11.01   Amendment  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  59
         11.02   Termination  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  59
         11.03   Successor Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  60
         11.04   Plan Assets  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  60

ARTICLE XII

         MISCELLANEOUS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  61
         12.01   Participant's Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  61
         12.02   Alienation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  61
         12.03   Construction of Agreement  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  61
         12.04   Legal Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  61
         12.05   Prohibition Against Diversion of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  62
         12.06   Employer's and Trustee's Protective Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  62
         12.07   Receipt and Release for Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  62
         12.08   Action by the Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  62
         12.09   Named Fiduciaries and Allocation of Responsibility . . . . . . . . . . . . . . . . . . . . . . . . .  62
         12.10   Approval by the Internal Revenue Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  63
         12.11   Uniformity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  63

ARTICLE XIII

         PARTICIPATING EMPLOYERS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  64
         13.01   Adoption by Other Employers  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  64
         13.02   Requirements of Participating Employers  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  64

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         13.03   Designation of Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  65
         13.04   Associate Transfers  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  65
         13.05   Participating Employers Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  65
         13.06   Amendment  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  65
         13.07   Discontinuance of Participation  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  65
         13.08   Plan Administrator's Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  66

ARTICLE XIV

         TOP-HEAVY PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  67
         14.01   Generally  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  67
         14.02   Minimum Contributions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  67
         14.03   Super Top-Heavy Plans  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  67
         14.04   Determination of Top Heaviness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  68
         14.05   Determination of Super Top Heaviness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  68
         14.06   Calculation of Top-Heavy Ratios  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  68
         14.07   Cumulative Accounts and Cumulative Accrued Accounts  . . . . . . . . . . . . . . . . . . . . . . . .  68
         14.08   Other Definitions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  70
         14.09   Top Heavy Vesting Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  71

ARTICLE XV

         PLAN LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  73
         15.01   Authorization for Plan Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  73
         15.02   Loan Procedures  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  73

ARTICLE XVI

         ELIGIBLE ROLLOVER DISTRIBUTIONS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  74
         16.01   General Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  74
         16.02   Definitions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  74

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                                   ARTICLE I

                                  INTRODUCTION

         THIS AGREEMENT, by and between Hastings Entertainment, Inc., a
corporation organized and existing under the laws of the State of Texas (herein
referred to as the "Plan Sponsor") and Trustees as shall be appointed from time
to time by the Plan Sponsor (herein referred to as the "Trustee") for the
benefit of all associates of the Plan Sponsor and its affiliated companies who
are or may become eligible hereunder and who elect to participate in the
Hastings Entertainment, Inc. Associates' 401(k) Plan and Trust hereby
established.

                              W I T N E S S E T H:

         WHEREAS, the Plan Sponsor heretofore adopted the Western
Merchandisers, Inc.  Employees Profit Sharing Plan and Trust Agreement (the
"Western Merchandisers Plan"), as amended and restated effective June 1, 1989,
in recognition of the contribution made to its successful operation by its
associates and for the exclusive benefit of its eligible associates; and

         WHEREAS, the Plan Sponsor is no longer an affiliate of Western
Merchandisers, Inc., as defined by Section 414(b) of the Internal Revenue Code
of 1986, as amended; and

         WHEREAS, under the terms of the Western Merchandisers Plan, a
Participating Employer has the ability to modify and amend the Western
Merchandisers Plan by electing not to remain as a Participating Employer; and

         WHEREAS, the Plan Sponsor previously established the Hastings Books,
Music & Video, Inc. Employees Profit Sharing Plan and Trust Agreement for the
exclusive benefit of its associates, effective as of June 1, 1993 (the "Prior
Plan"); and

         WHEREAS, in accordance with the terms of the Prior Plan, the Plan
Sponsor has from time to time amended the Prior Plan, including a change in the
name of the Plan and the Plan Sponsor, and wishes to amend and restate the
Prior Plan in accordance with the terms and conditions hereafter set forth.

         NOW, THEREFORE, effective October 1, 1996 (except as otherwise noted
herein), the Plan Sponsor hereby amends and restates the Hastings
Entertainment, Inc. Associates' 401(k) Plan and Trust (herein referred to as
the "Plan"), as set forth herein.

         Except as otherwise provided herein, and subject to the following
sentence, the provisions of the amended and restated Plan as contained herein
are applicable to Associates and Participants who terminate employment for any
reason, including death, disability or retirement, on or after October 1, 1996,
or who are reemployed by the Employer on or after October 1, 1996 and while
they are still entitled to restatement of rights under the Plan.  Except as
otherwise provided herein, any Associate or Participant who died, retired,
became disabled or terminated employment prior to October 1, 1996 shall receive
any benefits to which he or she is entitled based upon the appropriate
provisions of the Prior Plan as in effect prior to October 1, 1996.





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                                   ARTICLE II

                                  DEFINITIONS

2.01     Definitions.

         (1)     Actual Deferral Percentage (also referred to as ADP).  Shall
                 mean, for a specified (group of Participants for a Plan Year,
                 the average of the ratios (calculated separately for each
                 Participant in such group) of:

                 (a)      the amount of the Employer contributions actually
                          paid over to the trust on behalf of such Participant
                          for the Plan Year to

                 (b)      the Participant's Compensation for such Plan Year.

                 Employer contributions on behalf of any Participant shall
                 include:

                 (c)      any Elective Deferrals made pursuant to the
                          Participant's deferral election (including Excess
                          Elective Deferrals of Highly Compensated Employees),
                          but excluding:

                          (i)     Excess Elective Deferrals of Non-Highly
                                  Compensated Employees that arise solely from
                                  Elective Deferrals made under the Plan or
                                  plans of this Employer and

                          (ii)    Elective Deferrals that are taken into
                                  account in the Contribution Percentage test
                                  (provided the ADP test is satisfied both with
                                  and without exclusion of these Elective
                                  Deferrals); and

                 (d)      at the election of the Employer, Qualified
                          Non-elective Contributions and Qualified Matching
                          Contributions.  For purposes of computing Actual
                          Deferral Percentages, an Associate who would be a
                          Participant but for the failure to make Elective
                          Deferrals shall be treated as a Participant on whose
                          behalf no Elective Deferrals are made.

         (2)     Adoption Agreement.  The agreement by which an Affiliate or a
                 Subsidiary adopts this Plan for its associates.

         (3)     Affiliate.  Any corporation, association, joint venture,
                 proprietorship or partnership that for Federal income tax
                 purposes is a member of a controlled group of corporations
                 (within the meaning of Section 414 of the Code) of which the
                 Plan Sponsor is a member.

         (4)     Aggregate Account.  The total interest of a Participant in the
                 Trust Fund consisting of his Pre-Tax Savings Account, his
                 Voluntary Nondeductible Contribution Account, his Profit
                 Sharing Contribution Account, his Matching Contribution
                 Account, his Qualified Non-







                                       2
<PAGE>   8
                 elective Contribution Account, his Qualified Matching
                 Contribution Account, his Rollover Account and his Transfer
                 Account as such accounts are established for a Participant.

         (5)     Aggregate Limit.  The sum of:

                 (a)      125 percent of the greater of the ADP of the
                          Non-Highly Compensated Employees for the Plan Year or
                          the ACP of Non-Highly Compensated Employees under the
                          Plan subject to Code Section 401(m) for the Plan Year
                          beginning with or within the Plan Year of the CODA
                          and

                 (b)      the lesser of 200 percent or two plus the lesser of
                          such ADP of ACP.

                 "Lesser" is substituted for "greater" in "(a)," above, and
                 "greater" is substituted for "lesser" after "two plus the" in
                 "(b)" if it would result in a larger Aggregate Limit.

         (6)     Associate.  Associate shall mean any employee of the Employer
                 maintaining the Plan or of any other employer required to be
                 aggregated with such Employer under Sections 414(b) , (c), (m)
                 or (o) of the Code.

                 The term Associate shall also include any leased employee
                 deemed to be an employee of any employer described in the
                 previous paragraph as provided in Sections 414(n) or (o) of
                 the Code.  Notwithstanding the previous sentence, if such
                 leased employees constitute not more than 20 percent of the
                 Employer's nonhighly compensated work force within the meaning
                 of Section 414(n)(5)(C)(ii) of the Code, the term "Associate"
                 shall not include those leased employees covered by the plan
                 described in Section 414(n)(5) of the Code.

         (7)     Authorized Leave of Absence.  Any absence authorized by the
                 Employer under the Employer's standard personnel practices,
                 provided that all persons under similar circumstances must be
                 treated alike in the granting of such Authorized Leaves of
                 Absence and provided further that the Participant returns at
                 the end of the period of authorized absence.  Absence due to
                 mandatory military service in the armed forces of the United
                 States (including enlistment in lieu of impending mandatory
                 service) shall be considered as an Authorized Leave of
                 Absence.

         (8)     Average Contribution Percentage (also referred to as ACP).
                 The average of the Contribution Percentages of the
                 Participants in a group.

         (9)     Beneficiary.  A person or persons designated by a Participant
                 or a Former Participant in accordance with the provisions of
                 Section 6.05 to receive any death benefit which shall be
                 payable under this Plan.

         (10)    Break-in-Service.  The 12-consecutive month period measured by
                 Plan Years beginning with the Plan Year which includes the
                 first anniversary of an Associate's Employment Commencement
                 Date during which a Participant does not complete more than
                 500 Hours of Service with the Employer.  For the purpose of
                 the first computation period, service will





                                       3
<PAGE>   9
                 be counted from the Associate's Employment Commencement Date
                 to the end of the initial Plan Year.  An Associate shall not
                 incur a Break-in-Service for the Plan Year in which he becomes
                 a Participant, dies, retires, or becomes disabled.  Further,
                 solely for the purpose of determining whether a Participant
                 has incurred a Break-in-Service,  Hours of Service shall be
                 recognized for Authorized Leaves of Absence and for maternity
                 and paternity leaves of absence.

                 A "maternity or paternity leave of absence" shall mean an
                 absence from work for any period by reason of the Associate's
                 pregnancy, birth of the Associate's child, placement of a
                 child with the Associate in connection with the adoption of
                 such child, or any absence for the purpose of caring for such
                 child for a period immediately following such birth or
                 placement.  For this purpose, Hours of Service shall be
                 credited for the computation period in which the absence from
                 work begins, only if the credit is necessary to prevent the
                 Associate 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 such absence, or, in any case in which the
                 Plan Administrator is unable to determine such hours normally
                 credited, eight Hours of Service per work day.  The total
                 Hours of Service required to be credited for a maternity or
                 paternity leave of absence shall not exceed 501.

         (11)    CODA.  A qualified cash or deferred arrangement as described
                 in Section 401(k) of the Code.

         (12)    Code.  The Internal Revenue Code of 1986, as amended, or any
                 subsequent applicable Internal Revenue Code which becomes law
                 of the United States of America.

         (13)    Committee (also referred to as Benefits Committee).  The
                 person(s) appointed by the Plan Administrator to assist in the
                 administration of the Plan.  The Committee shall serve at the
                 pleasure of the Plan Administrator.

         (14)    Compensation.  The Participant's salary and wages including
                 overtime, bonuses and commissions paid by the Employer for a
                 Plan Year.  Amounts contributed by the Employer under the Plan
                 and any non-taxable fringe benefits provided by the Employer
                 shall not be considered as Compensation.

                 Compensation for any Self-Employed Individual shall be equal
                 to his Earned Income.

                 Compensation shall include only that compensation which is
                 actually paid to the Associate during the Plan Year.

                 Notwithstanding the above, Compensation shall include any
                 amount which is contributed by the Employer pursuant to a
                 salary reduction agreement and which is not includible in the
                 gross income of the Associate under Sections 125, 402(a)(8),
                 402(h) or 403(b) of the Code.

                 Notwithstanding the foregoing, for Plan Years beginning prior
                 to January 1, 1994, the annual Compensation of a Participant
                 in excess of $200,000 shall be disregarded under the





                                       4
<PAGE>   10
                 Plan.  This dollar limitation shall be adjusted by the
                 Secretary of the Treasury at the same time and in the same
                 manner as provided under Section 415(d) of the Code.  For Plan
                 Years beginning on or after January 1, 1994, the annual
                 Compensation of a Participant in excess of $150,000 shall be
                 disregarded under the Plan.  This dollar limitation shall be
                 adjusted by the Secretary of the Treasury at the same time and
                 in the same manner as provided under Section 401(a)(17)(B) of
                 the Code.

                 In applying the dollar limitation provided herein, the family
                 group of a Highly Compensated Participant who is subject to
                 the Family Member aggregation rules of Section 414(q)(6) of
                 the Code because such Participant is either a "five percent
                 owner" of the Employer or one of the ten (10) Highly
                 Compensated Employees paid the greatest "415 Compensation"
                 during the year, shall be treated as a single Participant,
                 except that for this purpose Family Members shall include only
                 the affected Participant's spouse and any lineal descendants
                 who have not attained age nineteen (19) before the close of
                 the year.  If, as a result of the application of such rules,
                 the adjusted $200,000 limitation is exceeded, then the
                 limitation shall be prorated among the affected individuals in
                 proportion to each such individual's Compensation as
                 determined under this Section prior to the application of this
                 limitation.

         (15)    Contribution Percentage.  The Contribution Percentage shall
                 mean the ratio (expressed as a percentage) of the
                 Participant's Contribution Percentage Amounts to a
                 Participant's Compensation for the Plan Year.

         (16)    Contribution Percentage Amounts.  The sum of the Matching
                 Contributions and Qualified Matching Contributions (to the
                 extent not taken into account for purposes of the ADP test)
                 made under the Plan, on behalf of the Participant for the Plan
                 Year.  Such 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 may also use Elective
                 Deferrals in the Contribution Percentage Amounts so long as
                 the ADP test is met before the Elective Deferrals are used in
                 the ACP test and continues to be met following the exclusion
                 of those Elective Deferrals that are used to meet the ACP
                 test.

         (17)    Disability.  A physical or mental condition of a Participant
                 resulting from bodily injury, disease, or mental disorder
                 which renders him incapable of continuing any gainful
                 occupation and which condition constitutes total disability
                 under the federal Social Security Acts.

         (18)    Early Retirement Age.  The later of the date on which the
                 Participant (i) attains age 55, or (ii) completes 5 Years of
                 Service.

         (19)    Earned Income.  The net earnings of a Self-Employed Individual
                 from self-employment in the trade or business with respect to
                 which the Plan is established for which the personal





                                       5
<PAGE>   11
                 services of the individual are a material income-producing
                 factor.  Net earnings will be determined without regard to
                 items not included in gross income and the deductions
                 allocable to such items.  Net earnings are reduced by
                 contributions by the Employer to a qualified Plan to the
                 extent deductible under Section 404 of the Code.  Net earnings
                 shall be determined with regard to the deduction allowed to
                 the Employer by Code Section 164(f).

         (20)    Effective Date.  The Effective Date of this amendment and
                 restatement shall be October 1, 1996.  Certain provisions
                 herein may be effective on such other dates as are noted
                 within such provisions.

         (21)    Elective Deferral.  Any Employer contribution made to the Plan
                 at the election of the Participant, in lieu of cash
                 compensation, including contributions made pursuant to a
                 salary reduction agreement or other deferral mechanism.  With
                 respect to any taxable year, a Participant's Elective Deferral
                 is the sum of all Employer contributions made on behalf of
                 such Participant pursuant to an election to defer under any
                 CODA, any simplified employee pension cash or deferred
                 arrangement as described in Section 402(h)(1)(B) of the Code,
                 any eligible deferred compensation plan under Section 457 of
                 the Code, any plan described under Section 501(c)(18) of the
                 Code, and any Employer contributions made on behalf of a
                 Participant for the purchase of an annuity contract under
                 Section 403(b) pursuant to a salary reduction agreement.
                 Elective Deferrals shall not include any deferrals properly
                 distributed as excess annual additions.

         (22)    Employer.  Hastings Entertainment, Inc. or any Affiliate or
                 Subsidiary which shall adopt this Plan, or any successor which
                 shall assume the obligations of this Plan.

         (23)    Employment Commencement Date.  The date on which an Associate
                 first performs an Hour of Service for the Employer.

         (24)    Entry Date.  The date on which an Associate becomes a
                 Participant in accordance with Section 3.01.

         (25)    ERISA.  Public Law No. 93-406, the Employee Retirement Income
                 Security Act of 1974, as amended from time to time.

         (26)    Excess Aggregate Contributions.  With respect to any Plan
                 Year. the excess of

                 (a)      The aggregate Contribution Percentage Amounts taken
                          into account in computing the numerator of the
                          Contribution Percentage actually made on behalf of
                          Highly Compensated Employees for such Plan Year, over

                 (b)      The maximum Contribution Percentage Amounts permitted
                          by the ACP test (determined by reducing contributions
                          made on behalf of Highly Compensated Employees in
                          order of their Contribution Percentages beginning
                          with the highest of such percentages).





                                       6
<PAGE>   12
         (27)    Excess Contributions.  With respect to any Plan Year, the
                 excess of:

                 (a)      The aggregate amount of Employer contributions
                          actually taken into account in computing the ADP of
                          Highly Compensated Employees for such Plan Year, over

                 (b)      The maximum amount of such contributions permitted by
                          the ADP test (determined by reducing contributions
                          made on behalf of Highly Compensated Employees in
                          order of the ADPs, beginning with the highest of such
                          percentages).

         (28)    Excess Elective Deferrals.  Those Elective Deferrals that are
                 includible in a Participant's gross income under Section
                 402(g) of the Code to the extent such Participant's Elective
                 Deferrals for a taxable year exceed the dollar limitation
                 under such Code section.  Excess Elective Deferrals 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.

         (29)    Fiduciaries.  The Employer, the Plan Sponsor, the Plan
                 Administrator, the Benefits Committee and the Trustee, but
                 only with respect to the specific responsibilities of each for
                 Plan and Trust administration, all as described in Article IX.

         (30)    Former Participant.  A Participant whose employment with the
                 Employer has terminated but who has a vested account balance
                 under the Plan which has not been paid in full.

         (31)    Highly Compensated Employee.  A Highly Compensated Employee
                 ("HCE") includes any Associate who during the Plan Year
                 performs service for the Employer and who (i) is a 5-percent
                 owner, (ii) receives Compensation for the Plan Year in excess
                 of the Code Section 414(q)(1)(B) amount for the Plan Year,
                 (iii) receives Compensation for the Plan Year in excess of the
                 Code Section 414(q)(1)(C) amount for the Plan Year and is a
                 member of the top paid group of employees within the meaning
                 of Code Section 414(q)(4), or (iv) is an officer and receives
                 Compensation during the Plan Year that is greater than 50
                 percent of the dollar limitation in effect under Code Section
                 415(b)(1)(A) for the Plan Year.  If no officer satisfies the
                 Compensation requirement during the Plan Year, the highest
                 paid officer for such Plan Year shall be treated as an HCE.

                 For purposes of determining who is an HCE, "Compensation"
                 means Compensation as defined in Section 4.10(a)(4) hereof,
                 except that amounts excluded pursuant to Code Sections 125,
                 402(e)(3), 402(h)(1)(B) and 403(b) are included.

                 If an Associate is a family member of either a 5-percent owner
                 (whether active or former) or an HCE who is one of the 10 most
                 highly compensated Associates ranked on the basis of
                 Compensation paid by the Employer during such Plan Year, then
                 the family member and the 5-percent owner or top-ten HCE shall
                 be aggregated.  In such case, the family member and 5-percent
                 owner or top-ten HCE shall be treated as a single Associate
                 receiving Compensation and Plan contributions or benefits
                 equal to the sum of the Compensation and benefits of the
                 family member and 5-percent owner or top-ten HCE.  For
                 purposes of this Section, family





                                       7
<PAGE>   13
                 member includes the spouse, lineal ascendants and descendants
                 of the Associate or former Associate, and the spouses of such
                 lineal ascendants and descendants.

                 The determination of who is an HCE, including the
                 determinations of the number and identity of Associates in the
                 top paid group, the number of Associates treated as officers
                 and the Compensation that is taken into account, shall be made
                 in accordance with Code Section 414(q) and Section 1.414(q)-
                 1T of the temporary Income Treasury Regulations to the extent
                 they are not inconsistent with the method established above.

         (32)    Hour of Service.

                 (a)      Each hour for which an Associate is paid, or entitled
                          to payment, for the performance of duties for the
                          Employer.  These hours shall be credited to the
                          Associate for the computation period or periods in
                          which duties are performed; and

                 (b)      Each hour for which an Associate is paid, or entitled
                          to payment, by the Employer 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 Authorized Leave of Absence.  No
                          more than 501 Hours of Service shall be credited
                          under this paragraph for any single continuous period
                          (whether or not such period occurs in a single
                          computation period).  Hours under this paragraph
                          shall be calculated and credited pursuant to Section
                          2530.200b-2 of the Department of Labor Regulations
                          which are incorporated herein by this reference; and

                 (c)      Each hour for which back pay, irrespective of
                          mitigation of damages, is either awarded or agreed to
                          by the Employer.  The same Hours of Service shall not
                          be credited both under paragraph (a) or paragraph
                          (b), as the case may be, and under this paragraph
                          (c).  These hours shall be credited to the Associate
                          for the computation period in which the award or
                          agreement pertains rather than the computation period
                          in which the award, agreement or payment is made.

                 (d)      Hours of Service shall be determined on the basis of
                          actual hours for which an Associate is paid or
                          entitled to payment.

                 (e)      An Hour of Service respecting any member of an
                          affiliated service group (as defined in Section
                          414(m) of the Code) of which the Employer is a member
                          or respecting any incorporated or unincorporated
                          trade or business which is under common control with
                          the Employer (as defined in Section 414(c) of the
                          Code) shall be credited as an Hour of Service with
                          the Employer.

                 (f)      Hours of Service also will be credited for any
                          individual considered an Associate for purposes of
                          this Plan under Section 414(n) of the Code.





                                       8
<PAGE>   14
        (33)     Investment Manager.  Any person, firm or corporation,
                 who:
                 (a)   is a registered investment advisor under the Investment 
                       Act of 1940;
                     
                 (b)   is a bank or an insurance company;
                     
                 (c)   has the power to manage, acquire or dispose of Plan 
                       assets; and
                     
                 (d)   acknowledges in writing his fiduciary responsibility to 
                       the Plan.
                     
         (34)    Matching Contribution Account.  The portion of a Participant's
                 Aggregate Account which is credited with Matching
                 Contributions, as adjusted for earnings and losses
                 attributable to such contributions.

         (35)    Matching Contribution.  An Employer contribution made to this
                 or any other defined contribution plan on behalf of a
                 Participant on account of a Participant's Elective Deferral,
                 under a plan maintained by the Employer.

         (36)    Non-Highly Compensated Employee.  Any Participant who is not a
                 Highly Compensated Employee.

         (37)    Normal Retirement Age.  The date on which the Participant
                 attains age 65, or the fifth anniversary of participation in
                 the Plan, if later.

         (38)    Normal Retirement Date.  The first day of the month coincident
                 with or next following the date the Participant attains Normal
                 Retirement Age.  The Participant may, however, agree to
                 service past Normal Retirement Age and his Normal Retirement
                 Date is the date such Participant actually retires.

         (39)    Owner-Employee.  A sole proprietor who owns the entire
                 interest in the Employer or a partner who owns more than 10%
                 of either the capital interest or the profits interest in the
                 Employer and who receives income for personal services from
                 the Employer.

         (40)    Participant.  An Associate participating in the Plan in
                 accordance with the provisions of Section 3.01 and whose
                 vested interest under this Plan has not been fully
                 distributed.

         (41)    Plan.  Hastings Entertainment, Inc. Associates' 401(k) Plan
                 and Trust, which is the Plan set forth herein, as amended from
                 time to time.

         (42)    Plan Administrator.  Hastings Entertainment, Inc.

         (43)    Plan Sponsor.  Hastings Entertainment, Inc.

         (44)    Plan Year.  The Plan's accounting year of twelve (12)
                 consecutive months commencing on February 1 and ending the
                 following January 31.





                                       9
<PAGE>   15
         (45)    Predecessor Plan.  The Western Merchandisers, Inc. Employees
                 Profit Sharing Plan and Trust Agreement, as amended and
                 restated effective June 1, 1989.

         (46)    Pre-Tax Savings Account.  The portion of a Participant's
                 Aggregate Account which is credited with Elective Deferrals,
                 as adjusted for earnings and losses attributable to such
                 contributions.

         (47)    Prior Plan.  The Hastings Books, Music & Video, Inc. Employees
                 Profit Sharing Plan and Trust, as established effective June
                 1, 1993.

         (48)    Profit Sharing Contribution Account.  The portion of a
                 Participant's Aggregate Account which is credited with profit
                 sharing contributions under Section 4.03, as adjusted for
                 earnings and losses attributable to such contributions.

         (49)    Qualified Matching Contributions.  Matching Contributions
                 which are subject to the distribution and nonforfeitability
                 requirements under Section 401(k) of the Code when made.

         (50)    Qualified Matching Contributions Account.  The portion of a
                 Participant's Aggregate Account which is credited with
                 Qualified Matching Contributions, as adjusted for earnings and
                 losses attributable to such contributions.

         (51)    Qualified Non-elective Contributions.  Contributions (other
                 than Matching Contributions or Qualified Matching
                 Contributions) made by the Employer and allocated to
                 Participants' accounts that the Participants may not elect to
                 receive in cash until distributed from the Plan; that are
                 nonforfeitable when made; and that are distributable only in
                 accordance with the distribution provisions that are
                 applicable to Elective Deferrals and Qualified Matching
                 Contributions.

         (52)    Qualified Non-elective Contributions Account.  The portion of
                 a Participant's Aggregate Account which is credited with
                 Qualified Non-elective Contributions, as adjusted for earnings
                 and losses attributable to such contributions.

         (53)    Rollover Account.  The portion of an Associate's Aggregate
                 Account credited with rollover contributions under Section
                 4.04, as adjusted for earnings and losses attributable to such
                 contributions.

         (54)    Self-Employed Individual.  An individual who has earned income
                 for the taxable year from the trade or business for which the
                 Plan is established, and, also, an individual who would have
                 had earned income but for the fact that the trade or business
                 had no net profits for the taxable year.  A Self-Employed
                 Individual shall be treated as an Associate.

         (55)    Spouse.  The spouse of an Associate who was legally married to
                 the Associate under the laws of the jurisdiction in which the
                 marriage was contracted at the time of the Associate's death
                 or actual retirement date.





                                       10
<PAGE>   16
         (56)    Subsidiary.  Any corporation, association, joint venture,
                 proprietorship or partnership that is considered a subsidiary
                 under Section 424(f) of the Code.

         (57)    Transfer Account.  The portion of a Participant's Aggregate
                 Account credited with funds transferred from qualified plans
                 pursuant to Section 4.05, as adjusted for earnings and losses
                 attributable to such funds.

         (58)    Trust Agreement.  The agreement entered into between the Plan
                 Sponsor and the Trustee establishing the Trust.

         (59)    Trust Fund; Trust; or Fund.  The Hastings Entertainment, Inc.
                 Associates' 401(k) Plan and Trust.

         (60)    Trustee.  The person, persons or entity appointed as Trustee
                 by the Plan Sponsor and any duly appointed, qualified and
                 acting successor trustee which assumes responsibility and
                 liability for the Plan assets under such terms acceptable to
                 the Trustee and upon execution of such document or documents
                 acceptable to the Trustee evidencing acceptance of Plan assets
                 and liabilities by such successor trustee.

         (61)    Valuation Date.  Each business day of the Plan Year on which
                 the New York Stock Exchange is open for business, and also the
                 last day of the Plan Year, if not such a business day.

         (62)    Voluntary Nondeductible Contribution.  Contributions made by a
                 Participant on an after-tax basis under the Predecessor Plan.
                 Such contributions are not permitted by the Plan.

         (63)    Voluntary Nondeductible Contribution Account.  The portion of
                 a Participant's Aggregate Account derived from the
                 Participant's Voluntary Nondeductible Contributions, as
                 adjusted for earnings and losses attributable to such
                 contributions.

         (64)    Year of Service.  The initial Year of Service is defined as a
                 twelve (12) consecutive month period, measured from the
                 Associate's Employment Commencement Date, during which the
                 Associate completes at least 1,000 Hours of Service.
                 Subsequent Years of Service will be measured by Plan Years
                 beginning with the Plan Year which includes the first
                 anniversary of the Associate's Employment Commencement Date.
                 For purposes of vesting, each Plan Year, including the initial
                 Plan Year of employment, during which the Associate completes
                 1,000 Hours of Service shall count as a Year of Service.
                 Years of Service with any participating, or nonparticipating
                 Affiliate or Subsidiary shall be treated as Years of Service
                 with the Employer.  An Associate who transfers from a
                 participating Employer to another participating Affiliate or
                 Subsidiary shall continue to be covered by this Plan without
                 interruption and shall not be considered to have incurred a
                 termination of service.  The Employer shall have the right to
                 credit prior service with other organizations that are not
                 affiliates or subsidiaries as Years of Service under this Plan
                 and such prior service credit shall be given in a
                 nondiscriminatory manner.





                                       11
<PAGE>   17
                 For an Associate with at least one Hour of Service after
                 October 1, 1996, all of such Associate's Years of Service with
                 the Employer are counted to determine the nonforfeitable
                 percentage in the Associate's Aggregate Account derived from
                 Employer contributions.

2.02     Number and Gender.  Whenever appropriate herein, words used in the
         singular shall be considered to include the plural and the plural to
         include the singular.  The masculine gender, when appearing in this
         Plan, shall be deemed to include the feminine gender.

2.03     Headings.  The headings of Articles and Sections herein are included
         solely for convenience and if there is any conflict between such
         headings and the text of the Plan, the text shall control.





                                       12
<PAGE>   18
                                  ARTICLE III

                         ELIGIBILITY AND PARTICIPATION

3.01     Eligibility for Participation.  Each Associate who is a Participant in
         the Plan on the Effective Date shall remain a Participant.  Each
         Associate who is an employee of the Employer on the Effective Date but
         who is not a Participant in the Plan shall become a Participant as of
         the Effective Date.  Each other Associate shall become a Participant
         in the Plan on the later of (i) his Employment Commencement Date, or
         (ii) the February 1, May 1, August 1, or November 1 immediately
         following the date on which he attains age twenty-one (21).

         Leased employees (as described in Section 414(n) of the Code),
         independent contractors, and nonresident aliens who receive no earned
         income from the Employer which constitutes income from sources within
         the United States shall not be eligible to participate in the Plan.

3.02     Eligibility to Make Elective Deferrals.  In order to make Elective
         Deferrals hereunder, each Associate must make application to the
         Employer for participation in the Plan and agree to the terms hereof.
         The Associate shall supply all information, including designation of
         Beneficiary form, required by the Employer in such manner and at such
         time as determined by the Employer.  Upon the acceptance of any
         benefits under this Plan, such Associate shall automatically be bound
         by the terms and conditions of this Plan and all amendments hereto.

3.03     Eligibility Upon Reemployment.  If a terminated Associate who was a
         Participant is reemployed, such Associate shall become a Participant
         immediately upon reemployment.  All other Associates who are
         reemployed must meet the requirements of Section 3.01.

3.04     Omission of Eligible Associate.  If, in any year, any Associate who
         should be included as a Participant in the Plan is erroneously omitted
         and discovery of such omission is not made until after a contribution
         has been made by the Employer for the year, the Employer shall make a
         subsequent contribution with respect to the omitted associate in the
         amount which the Employer would have contributed with respect to him
         had he not been omitted.  Such contribution shall be made regardless
         of whether or not it is deductible in whole or in part in any taxable
         year under applicable provisions of the Code.

         Where an Associate has been erroneously omitted from the Plan and
         discovery of such omission is made during the Plan Year in which such
         Associate should have become a Participant in the Plan, such Associate
         shall be allowed to defer an amount which is equal to the amount the
         Associate would have been allowed to defer if the Associate had been
         allowed to enter the Plan upon his correct Entry Date, subject to the
         annual twelve (12) percent limit imposed by Section 4.01 of the Plan.
         Such deferral shall be made against Compensation not yet earned.

3.05     Inclusion of Ineligible Associate.  If, in any year, any person who
         should not have been included as a Participant in the Plan is
         erroneously included and discovery of such incorrect inclusion is not
         made until after a contribution by the Employer has been made for the
         Plan Year, the Employer shall not be entitled to recover the
         contribution made with respect to the ineligible person





                                       13
<PAGE>   19
         regardless of whether or not a deduction is allowed with respect to
         such contribution. in such event, the amount contributed with respect
         to the ineligible person shall constitute a forfeiture in the Plan
         Year in which the discovery is made.

3.06     Election Not to Participate.  An Associate may, subject to the
         approval of the Employer, elect voluntarily not to participate in the
         Plan.  The election not to participate must be communicated to the
         Employer in writing, upon commencement of employment or initial
         eligibility under this Plan or any other plan of the Employer.





                                       14
<PAGE>   20
                                   ARTICLE IV

                                 CONTRIBUTIONS

4.01     Elective Deferrals.  For any Plan Year, each Participant may enter
         into a salary reduction agreement in which he elects to have allocated
         to his Pre-Tax Savings Account any whole percentage, not to exceed
         twelve (12) percent, of the Participant's Compensation.

         (a)     All salary reduction agreements shall be made at the time, in
                 the manner and subject to the conditions specified by the Plan
                 Administrator which shall prescribe uniform and
                 nondiscriminatory rules for such agreements.

         (b)     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 at the beginning of such taxable year.

                 A Participant may assign to this Plan any Excess Elective
                 Deferrals made during a taxable year of the Participant by
                 notifying the Plan Administrator on or before March 1 of the
                 Excess Elective Deferrals to be assigned to the Plan.  A
                 Participant is deemed to notify the Plan 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.

                 Notwithstanding any other provision of the Plan, Excess
                 Elective Deferrals, plus any income and minus any loss
                 allocable thereto, shall be distributed no later than April 15
                 to any Participant to whose account Excess Elective Deferrals
                 were assigned for the preceding year and who claims Excess
                 Elective Deferrals for such taxable year.

                 Excess Elective Deferrals shall be adjusted for any income or
                 loss up to the date of distribution.  The income or loss
                 allocable to Excess Elective Deferrals is the sum of:

                 (i)      income or loss allocable to the Participant's Pre-Tax
                          Savings Account for the taxable year multiplied by a
                          fraction, the numerator of which is such
                          Participant's Excess Elective Deferrals for the year
                          and the denominator is the Participant's account
                          balance attributable to Elective Deferrals without
                          regard to any income or loss occurring during such
                          taxable year; and

                 (ii)     ten percent of the amount determined under (i)
                          multiplied by the number of whole calendar months
                          between the end of the Participant's taxable year and
                          the date of distribution, counting the month of
                          distribution if distribution occurs after the 15th of
                          such month.

         (c)     A Participant may change (increase, decrease, discontinue or
                 resume) the rate of Elective Deferrals to his Pre-Tax Savings
                 Account once each Plan quarter, to be effective on the first
                 day of the following Plan quarter (February 1, May 1, August 1
                 or November 1),





                                       15
<PAGE>   21
                 provided the Plan Administrator receives the amended salary
                 reduction agreement within a specified time prior to the
                 effective date of the change.

         (d)     Elective Deferrals shall be paid to the Trustee as soon as
                 such amounts reasonably can be segregated from the general
                 assets of the Employer, but in no event later than the 15th
                 business day of the month following the month in which such
                 amounts would otherwise have been payable to the Participant
                 in cash.  Elective Deferrals shall be made in cash.

4.02     Matching Contributions.  For any Plan Year, the Employer may make
         Matching Contributions to the Plan on behalf of all eligible
         Participants who make Elective Deferrals to the Plan in such amount as
         its Board of Directors in its sole discretion may authorize.  Such
         Matching Contribution will be calculated as a percentage of Elective
         Deferrals made during such Plan Year by each eligible Participant,
         except that the amount of an eligible Participant's Elective Deferrals
         which exceeds six percent (6%) of such Participant's Compensation for
         the Plan Year shall not be taken into account when calculating the
         Matching Contribution.  The Employer shall determine in writing at or
         before the beginning of each Plan Year the percentage of Elective
         Deferrals which will be contributed as a Matching Contribution for
         such Plan Year; provided, however, that the Employer may determine
         that no Matching Contribution shall be made.  If the Employer does not
         change the percentage rate of Elective Deferrals which will be
         contributed as a Matching Contribution for a Plan Year, then the
         amount which was determined for the prior Plan Year will remain in
         effect.

         Matching Contributions shall be made on behalf of those Participants
         who are credited with a Year of Service during the Plan Year and are
         employed on the last day of the Plan Year.  A Participant whose
         employment is terminated before the end of a Plan Year, but after he
         has completed 1,000 Hours of Service for the Plan Year, shall not
         share in Matching Contributions for the Plan Year unless by the
         terminated Participants not sharing in Matching Contributions for the
         Plan Year, the Plan would fail to meet the coverage requirements of
         Code Section 410(b)(1) for the Plan Year, in which case members of the
         group of terminated Participants shall share in Matching Contributions
         for the Plan Year as follows:  the minimum number required to meet the
         coverage tests under Code Section 410(b)(1) based on their number of
         Hours of Service credited during the Plan Year, ranked in descending
         order.  If more than one individual receives credit for the lowest
         number of Hours of Service for which any individual must be covered in
         order to meet the coverage tests (pursuant to the sentence above),
         then all individuals receiving credit for exactly that number of Hours
         of Service shall share in the allocation of Matching Contributions.
         Notwithstanding the preceding sentences, a Participant who terminated
         employment with the Employer during the Plan Year because of death,
         Disability or retirement is entitled to a Matching Contribution
         regardless of the number of Hours of Service completed by the
         Participant in such Plan Year.

         Matching Contributions shall be made no later than the date prescribed
         by law for filing the Employer's Federal income tax return, including
         extensions, for the taxable year in which the Plan Year ends.
         Matching Contributions shall be made in cash or in other such property
         acceptable to the Trustee.

4.03     Profit Sharing Contributions.  For any Plan Year, the Employer may
         make a profit sharing contribution on behalf of each Participant who
         is credited with a Year of Service during the Plan





                                       16
<PAGE>   22
         Year and is employed on the last day of the Plan Year.  A Participant
         whose employment is terminated before the end of a Plan Year, but
         after he has completed 1,000 Hours of Service for the Plan Year, shall
         not share in profit sharing contributions for the Plan Year unless by
         the terminated Participants not sharing in profit sharing
         contributions for the Plan Year, the Plan would fail to meet the
         coverage requirements of Code Section 410(b)(1) for the Plan Year, in
         which case members of the group of terminated Participants shall share
         in profit sharing contributions for the Plan Year as follows: the
         minimum number required to meet the coverage tests under Code Section
         410(b)(1) based on their number of Hours of Service credited during
         the Plan Year, ranked in descending order.  If more than one
         individual receives credit for the lowest number of hours of Service
         for which any individual must be covered in order to meet the coverage
         tests (pursuant to the sentence above), then all individuals receiving
         credit for exactly that number of Hours of Service shall share in the
         allocation of profit sharing contributions.  Notwithstanding the
         preceding sentences, a Participant who terminated employment with the
         Employer during the Plan Year because of death, Disability or
         retirement is entitled to a profit sharing contribution regardless of
         the number of Hours of Service completed by the Participant in such
         Plan Year.  The amount of the profit sharing contribution shall be
         determined by the Employer each Plan Year.

         (a)     Profit sharing contributions shall be credited to the
                 Participant's Profit Sharing Contribution Account in the same
                 proportion that the Participant's Compensation bears to the
                 total Compensation of all Participants.  Compensation shall be
                 measured from the date the Associate became a Participant in
                 the Plan.

         (b)     Profit sharing contributions shall be made no later than the
                 date prescribed by law for filing the Employer's federal
                 income tax return, including extensions, for the taxable year
                 within which the Plan Year ends.  Profit sharing contributions
                 shall be made in cash or in other such property acceptable to
                 the Trustee.

4.04     Rollover Contributions.  The Trustee, at the written discretion of the
         Plan Administrator, may accept and hold for the account of a
         Participant "rollover amounts," as described in either Section
         402(a)(5)(A) or 408(d)(3)(A)(ii) of the Code.  The funds of assets
         rolled over shall be allocated to the Associate's Rollover Account.
         The Associate does not have to be a Participant in the Plan before the
         Trustee can allow assets to be rolled over to the Plan.

         (a)     The Plan Administrator shall develop rollover procedures, and
                 may require such information from an Associate desiring to
                 make such a rollover as it deems necessary or desirable.

         (b)     The rollover of assets must occur on or before the 60th day
                 following the Associate's receipt of the distribution from the
                 other qualified plan, individual retirement account or
                 individual retirement annuity.

         (c)     The amount transferred is subject to the maximum rollover
                 provision of Section 402(c)(2) of the Code.





                                       17
<PAGE>   23
4.05     Transfer Contributions.  The Trustee, at the written direction of the
         Plan Administrator, may accept and hold for the Transfer Account of a
         Participant amounts representing the Participant's vested interest
         transferred to the Trust by the trustee of another retirement plan
         qualified under Section 401(a) of the Code.  The assets transferred
         shall be allocated to the Associate's Transfer Account.  The Associate
         does not have to be a Participant in the Plan before the Trustee can
         allow assets to be transferred to the Plan.

         This Plan shall not accept any direct or indirect transfers (as that
         term is defined under Code Section 401(a)(11) and the regulations
         thereunder) from a defined benefit plan, money purchase plan
         (including a target benefit plan), stock bonus or profit sharing plan
         which would otherwise have provided for a life annuity form of payment
         to the Participant.

4.06     Qualified Matching Contributions.  The Employer may make Qualified
         Matching Contributions to the Plan on behalf of all Participants who
         are Non-Highly Compensated Employees who make Elective Deferrals to
         the Plan.  The Qualified Matching Contributions shall be allocated to
         all Participants eligible to receive a Qualified Matching Contribution
         in the same proportion that the Participant's Compensation bears to
         the total Compensation of all Participants who are Non-Highly
         Compensated Employees eligible to receive a Qualified Matching
         Contribution.

         Qualified Matching Contributions shall be made on behalf of those
         Non-Highly Compensated Participants who are credited with a Year of
         Service during the Plan Year and who are employed on the last day of
         the Plan Year.  Notwithstanding the preceding sentence, Non-Highly
         Compensated Participants who terminated employment with the Employer
         during the Plan Year because of death, Disability or retirement are
         entitled to a Qualified Matching Contribution.

         Qualified Matching Contributions shall be made no later than the end
         of the twelve-month period beginning on the day after the close of the
         Plan Year.  Qualified Matching Contributions shall be made in cash or
         in other such property acceptable to the Trustee.

4.07     Qualified Non-elective Contributions.  The Employer may elect to make
         Qualified Non-elective Contributions under the Plan on behalf of all
         Participants who are Non-Highly Compensated Employees in a ratio which
         each Non-Highly Compensated Participant's Compensation for the Plan
         Year bears to the total Compensation of all Non- Highly Compensated
         Participants for such Plan Year.

         (a)     Qualified Non-elective Contributions shall be made on behalf
                 of those Non-Highly Compensated Participants who are credited
                 with a Year of Service during the Plan Year and who are
                 employed on the last day of the Plan Year.  Notwithstanding
                 the preceding sentence, Non-Highly Compensated Participants
                 who terminated employment with the Employer during the Plan
                 Year because of death, Disability or retirement are entitled
                 to a Qualified Non-elective Contribution.

         (b)     Qualified Non-elective Contributions shall be made no later
                 than the end of the twelve-month period beginning on the day
                 after the close of the Plan Year.  Qualified Non-elective
                 Contributions shall be made in cash or in other such property
                 acceptable to the Trustee.





                                       18
<PAGE>   24
         4.08    Actual Deferral Percentage Test.  The Actual Deferral
                 Percentage (ADP) for Participants who are Highly Compensated
                 Employees for each Plan Year and the ADP for Participants who
                 are Non-highly Compensated Employees for the same Plan Year
                 must satisfy one of the following tests:

         (a)     The ADP for Participants who are Highly Compensated Employees
                 for the Plan Year shall not exceed the ADP for Participants
                 who are Non-Highly Compensated Employees for the same Plan
                 Year multiplied by 1.25; or

         (b)     The ADP for Participants who are Highly Compensated Employees
                 for the Plan Year shall not exceed the ADP for Participants
                 who are Non-Highly Compensated Employees for the same Plan
                 Year multiplied by two (2), provided that the ADP for
                 Participants who are Highly Compensated Employees does not
                 exceed the ADP for Participants who are Non-Highly Compensated
                 Employees by more than two (2) percentage points.

         (c)     The ADP for any Participant who is a Highly Compensated
                 Employee for the Plan Year and who is eligible to have
                 Elective Deferrals (and Qualified Non-elective Contributions
                 or Qualified Matching Contributions, or both, if treated as
                 Elective Deferrals for purposes of the ADP test) allocated to
                 his accounts under two or more arrangements described in
                 Section 401(k) of the Code, that are maintained by the
                 Employer, shall be determined as if such Elective Deferrals
                 (and, if applicable, such Qualified Non-elective Contributions
                 or Qualified Matching, Contributions, or both) were made under
                 a single arrangement.  If a Highly Compensated Employee
                 participates in two 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 under Section 401(k) of the
                 Code.

         (d)     In the event that this Plan satisfies the requirements of
                 Sections 401(k), 401(a)(4), or 410(b) of the Code only if
                 aggregated with one or more other plans, or if one or more
                 other plans satisfy the requirements of such sections of the
                 Code only if aggregated with this Plan, then this section
                 shall be applied by determining the ADP of Associates as if
                 all such plans were a single plan.  Plans may be aggregated in
                 order to satisfy Section 401(k) of the Code only if they have
                 the same Plan Year.

         (e)     For purposes of determining the ADP of a Participant who is a
                 5-percent owner or one of the ten most highly-paid Highly
                 Compensated Employees, the Elective Deferrals (and Qualified
                 Non-elective Contributions or Qualified Matching
                 Contributions, or both, if treated as Elective Deferrals for
                 purposes of the ADP test) and Compensation of such Participant
                 shall include the Elective Deferrals (and, if applicable,
                 Qualified Non-elective Contributions and Qualified Matching
                 Contributions, or both) and Compensation for the Plan Year of
                 Family Members (as defined in Section 414(q)(6) of the Code).
                 Family Members, with respect to such Highly Compensated
                 Employees, shall be disregarded as separate associates in
                 determining the ADP both for Participants who are Non-Highly
                 Compensated Employees and for Participants who are Highly
                 Compensated Employees.





                                       19
<PAGE>   25
         (f)     For purposes of determining the ADP test, Elective Deferrals,
                 Qualified Non-elective Contributions and Qualified Matching
                 Contributions must be made before the last day of the
                 twelve-month period immediately following the Plan Year to
                 which contributions relate.

         (g)     The Employer shall maintain records sufficient to demonstrate
                 satisfaction of the ADP test and the amount of Qualified
                 Non-elective Contributions or Qualified Matching
                 Contributions, or both, used in such test.

         (h)     The determination and treatment of the ADP amounts of any
                 Participant shall satisfy such other requirements as may be
                 prescribed by the Secretary of the Treasury.

         (i)     Notwithstanding any other provision of this Plan, Excess
                 Contributions, plus any income and minus any loss allocable
                 thereto, shall be distributed no later than the last day of
                 each Plan Year to Participants to whose accounts such Excess
                 Contributions were allocated for the preceding Plan Year.  If
                 such excess amounts are distributed more than 2 1/2 months
                 after the last day of the Plan Year in which such excess
                 amounts arose, a ten (10) percent excise tax will be imposed
                 on the Employer maintaining the Plan with respect to such
                 amounts.  Such distributions shall be made to Highly
                 Compensated Employees on the basis of the respective portions
                 of the Excess Contributions attributable to each of such
                 Associates.  Excess Contributions of Participants who are
                 subject to the family member aggregation rules shall be
                 allocated among the family members in proportion to the
                 Elective Deferrals (and amounts treated as Elective Deferrals)
                 of each family member that is combined to determine the
                 combined ADP.

                 Excess Contributions (including the amounts recharacterized)
                 shall be treated as annual additions under the Plan.

                 Excess Contributions shall be adjusted for any income or loss
                 up to the date of distribution.  The income or loss allocable
                 to Excess Contributions is the sum of:

                 (i)      income or loss allocable to the Participant's Pre-Tax
                          Savings Account (and, if applicable, the Qualified
                          Non-elective Contribution Account or the Qualified
                          Matching Contributions Account or both) for the Plan
                          Year multiplied by a fraction, the numerator of which
                          is such Participant's Excess Contributions for the
                          year and the denominator is the Participant's account
                          balance attributable to Elective Deferrals (and
                          Qualified Non-elective Contributions or Qualified
                          Matching Contributions, or both, if any of such
                          contributions are included in the ADP test) without
                          regard to any income or loss occurring during such
                          Plan Year; and

                 (ii)     ten percent of the amount determined under (i)
                          multiplied by the number of whole calendar months
                          between the end of the Plan Year and the date of
                          distribution, counting the month of distribution if
                          distribution occurs after the 15th of such month.





                                       20
<PAGE>   26
                 Excess Contributions shall be distributed from the
                 Participant's Pre-Tax Savings Account and Qualified Matching
                 Contribution Account (if applicable) in proportion to the
                 Participant's Elective Deferrals and Qualified Matching
                 Contributions (to the extent used in the ADP test) for the
                 Plan Year.  Excess Contributions shall be distributed from the
                 Participant's Qualified Non-elective Contributions Account
                 only to the extent that such Excess Contributions exceed the
                 balance in the Participant's Pre-Tax Savings Account and
                 Qualified Matching Contribution Account.

4.09     Limitations on Matching Contributions.  The ACP for Participants who
         are Highly Compensated Employees for each Plan Year and the ACP for
         Participants who are Non-highly Compensated Employees for the same
         Plan Year must satisfy one of the following tests:

         (a)     The ACP for Participants who are Highly Compensated Employees
                 for the Plan Year shall not exceed the ACP for Participants
                 who are Non-Highly Compensated Employees for the same Plan
                 Year multiplied by 1.25; or

         (b)     The ACP for Participants who are Highly Compensated Employees
                 for the Plan Year shall not exceed the ACP for Participants
                 who are Non-Highly Compensated Employees for the same Plan
                 Year multiplied by two (2), provided that the ACP for
                 Participants who are Highly Compensated Employees does not
                 exceed the ACP for Participants who are Non-Highly Compensated
                 Employees by more than two (2) percentage points.

         (c)     If one or more Highly Compensated Employees participate in
                 both a CODA and a plan subject to the ACP test maintained by
                 the Employer and the sum of the ADP and ACP of those Highly
                 Compensated Employees subject to either or both tests exceeds
                 the Aggregate Limit, then the ACP of those Highly Compensated
                 Employees who also participate in a CODA will be reduced
                 (beginning with such Highly Compensated Employee whose ACP is
                 the highest) 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 ADP and ACP of the Highly
                 Compensated Employees are determined after any corrections
                 required to meet the ADP and ACP tests.  Multiple use does not
                 occur if either the ADP or ACP of the Highly Compensated
                 Employees does not exceed 1.25 multiplied by the ADP and ACP
                 of the Non-Highly Compensated Employees.

         (d)     For purposes of this Section, the Contribution Percentage for
                 any Participant who is a Highly Compensated Employee and who
                 is eligible to have Contribution Percentage Amounts allocated
                 to his accounts under two or more plans described in Section
                 401(a) of the Code, or arrangements described in Section
                 401(k) of the Code that are maintained by the Employer, shall
                 be determined as if the total of such Contribution Percentage
                 Amounts were made under each plan.  If a Highly Compensated
                 Employee participates in two 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
                 under Section 401(m) of the Code.





                                       21
<PAGE>   27
         (e)     In the event that this Plan satisfies the requirements of
                 Sections 401(m), 401(a)(4), or 410(b) of the Code only if
                 aggregated with one or more other plans, or if one or more
                 other plans satisfy the requirements of such sections of the
                 Code only if aggregated with this Plan, then this section
                 shall be applied by determining the Contribution Percentage of
                 Associates as if all such plans were a single plan.  Plans may
                 be aggregated in order to satisfy Section 401(m) of the Code
                 only if they have the same Plan Year.

         (f)     For purposes of determining the Contribution Percentage of a
                 Participant who is a 5-percent owner or one of the ten most
                 highly-paid Highly Compensated Employees, the Contribution
                 Percentage Amounts and Compensation of such Participant shall
                 include the Contribution Percentage Amounts and Compensation
                 for the Plan Year of Family Members (as defined in Section
                 414(q)(6) of the Code).  Family Members, with respect to
                 Highly Compensated Employees, shall be disregarded as separate
                 associates in determining the Contribution Percentage both for
                 Participants who are Non-Highly Compensated Employees and for
                 Participants who are Highly Compensated Employees.

         (g)     For purposes of determining the Contribution Percentage test,
                 Matching Contributions and Qualified Non-elective
                 Contributions will be considered made for a Plan Year if made
                 no later than the end of the twelve-month period beginning on
                 the day after the close of the Plan Year.

         (h)     The Employer shall maintain records sufficient to demonstrate
                 satisfaction of the ACP test and the amount of Qualified
                 Non-elective Contributions or Qualified Matching
                 Contributions, or both, used in such test.

         (i)     The determination and treatment of the Contribution Percentage
                 amounts of any Participant shall satisfy such other
                 requirements as may be prescribed by the Secretary of the
                 Treasury.

         (j)     Notwithstanding any other provision of this Plan, Excess
                 Aggregate Contributions, plus any income and minus any loss
                 allocable thereto, shall be forfeited, if forfeitable, or if
                 not forfeitable, distributed no later than the last day of
                 each Plan Year to Participants to whose accounts such Excess
                 Aggregate Contributions were allocated for the preceding Plan
                 Year.  If such Excess Aggregate Contributions are distributed
                 more than 2 1/2 months after the last day of the Plan Year in
                 which such excess amounts arose, a ten (10) percent excise tax
                 will be imposed on the Employer maintaining the Plan with
                 respect to such amounts.  Such distributions shall be made to
                 Highly Compensated Employees on the basis of the respective
                 portions of the Excess Aggregate Contributions attributable to
                 each of such Associates.  Excess Aggregate Contributions of
                 Participants who are subject to the family member aggregation
                 rules shall be allocated among the family members in
                 proportion to the Matching Contributions (or amounts treated
                 as Matching, Contributions) of each family member that is
                 combined to determine the combined ACP.

                 Excess Aggregate Contributions shall be treated as annual
                 additions under the Plan.





                                       22
<PAGE>   28
                 Excess Aggregate Contributions shall be adjusted for any
                 income or loss up to the date of distribution.  The income or
                 loss allocable to Excess Aggregate Contributions is the sum
                 of:

                 (i)      income or loss allocable to the Participant's
                          Matching Contribution Account, Qualified Matching
                          Contribution Account (if any, and if all amounts
                          therein are not used in the ADP test) and, if
                          applicable, Qualified Non-elective Contribution
                          Account and Pre-Tax Savings Account for the Plan Year
                          multiplied by a fraction, the numerator of which is
                          such Participant's Excess Aggregate Contributions for
                          the year and the denominator is the Participant's
                          account balance(s) attributable to Contribution
                          Percentage Amounts without regard to any income or
                          loss occurring during such Plan Year; and

                 (ii)     ten percent of the amount determined under (i)
                          multiplied by the number of whole calendar months
                          between the end of the Plan Year and the date  of
                          distribution, counting the month of distribution if
                          distribution occurs after the 15th of such month.

         (k)     Forfeitures of Excess Aggregate Contributions shall be applied
                 to reduce Employer contributions for the Plan Year in which
                 the excess arose.  To the extent the excess exceeds Employer
                 contributions or the Employer has already contributed for such
                 Plan Year, forfeitures shall be allocated, after all other
                 forfeitures under the Plan, to the Matching Contribution
                 Account of each Non-Highly Compensated Employee who made
                 Elective Deferrals in the ratio which each such Participant's
                 Compensation for the Plan Year bears to the total Compensation
                 of all such Participants for such Plan Year.

         (l)     Excess Aggregate Contributions shall be forfeited, if
                 forfeitable, or distributed on a pro rata basis from the
                 Participant's Matching Contribution Account and Qualified
                 Matching Contribution Account (and, if applicable, the
                 Participant's Qualified Non-elective Contribution Account or
                 Pre-Tax Savings Account, or both).

4.10     Annual Additions.

         (a)     Definitions.  For purposes of this Section 4.10, the following
                 deletions and rules of interpretation shall apply:

                 (1)      "Annual Additions" to a Participant's Aggregate
                          Account under this Plan is the sum, credited to a
                          Participant's Aggregate Account for any Limitation
                          Year, of all Employer contributions, Associate
                          contributions and forfeitures, and, after March 31,
                          1984, amounts added to an individual medical account,
                          as defined in Section 415(l)(2) of the Code which is
                          part of a defined benefit plan maintained by the
                          Employer and amounts derived from contributions paid
                          or accrued after December 31, 1985, in taxable years
                          ending after such date, which are attributable to
                          post-retirement medical benefits allocated to a
                          separate account of a Key





                                       23
<PAGE>   29
                          Employee (as defined in Section 419A(d)(3) of the
                          Code) under a welfare benefit plan (as defined in
                          Section 419(e) of the Code) maintained by the
                          Employer.

                 (2)      "Annual Benefit":

                          (A)     A benefit which is payable annually in the
                                  form of a straight life annuity under a
                                  defined benefit plan.  Such benefit does not
                                  include any benefits attributable to either
                                  Associate contributions or rollover account
                                  contributions.  If a defined benefit plan
                                  provides for a benefit which is not payable
                                  in the form of a straight life annuity, the
                                  benefit is adjusted in accordance with
                                  Section 4.10(a)(2)(E) below.

                          (B)     Where a defined benefit plan provides for
                                  mandatory Associate contributions (as defined
                                  in Code Section 411(c)(2)(C)), the annual
                                  benefit attributable to mandatory
                                  contributions is determined by using the
                                  factors described in Code Section
                                  411(c)(2)(B) and the regulations thereunder,
                                  regardless of whether Code Section 411
                                  applies to that plan.  However, the mandatory
                                  Associate contributions and any voluntary
                                  Associate contributions are all considered a
                                  separate defined contribution plan maintained
                                  by the Employer.

                          (C)     If rollover account contributions are made to
                                  a defined benefit plan, the annual benefit
                                  attributable to these contributions is
                                  determined on the basis of reasonable
                                  actuarial assumptions.

                          (D)     When there is a transfer of assets or
                                  liabilities from one qualified plan to
                                  another, the annual benefit attributable to
                                  the assets transferred shall not be taken
                                  into account by the transferee plan in
                                  applying the limitations of Code Section 415.
                                  The annual benefit payable on account of the
                                  transfer for any individual that is
                                  attributable to the assets transferred will
                                  be equal to the annual benefit transferred on
                                  behalf of such individual multiplied by a
                                  fraction, the numerator of which is the total
                                  assets transferred and the denominator of
                                  which is the total liabilities transferred.

                          (E)     Where a defined benefit plan subject to the
                                  limitations of Code Section 415(b) provides a
                                  retirement benefit in any form other than a
                                  straight life annuity, a defined benefit plan
                                  benefit is adjusted to a straight life
                                  annuity beginning at the same age which is
                                  the actuarial equivalent of such benefit in
                                  accordance with rules determined by the
                                  Commissioner of Internal Revenue.  However,
                                  the following values are not taken into
                                  account:

                                  (i)      the value of a qualified joint and
                                           survivor annuity (as defined in Code
                                           Section 417(a)(3)(A) and the
                                           regulations thereunder)





                                       24
<PAGE>   30
                                           provided by a defined benefit plan to
                                           the extent that such value exceeds
                                           the sum of (a) the value of a
                                           straight life annuity beginning on
                                           the same date, and (b) the value of
                                           any post-retirement death benefits
                                           which would be payable even if the
                                           annuity were not in the form of a
                                           joint and survivor annuity;

                                  (ii)     the value of benefits that are not
                                           directly related to retirement
                                           benefits (such as pre-retirement
                                           disability and death benefits and
                                           post-retirement medical benefits);

                                  (iii)    the value of benefits provided by a
                                           defined benefit plan which reflect
                                           post-retirement cost-of-living
                                           increases to the extent that such
                                           increases are in accordance with
                                           Code Section 415(d) and the
                                           regulations thereunder.

                          (F)     Where a defined benefit plan provides a
                                  retirement plan benefit beginning before the
                                  Social Security retirement age, a defined
                                  benefit plan benefit is adjusted to the
                                  actuarial equivalent of a benefit beginning
                                  at the Social Security retirement age in
                                  accordance with rules determined by the
                                  Commissioner.  The reduction under this
                                  provision shall be made in such manner as the
                                  Commissioner may prescribe which is
                                  consistent with the reduction for old-age
                                  insurance benefits commencing before the
                                  Social Security retirement age under the
                                  Social Security Act.

                          (G)     Where a Participant has less than ten (10)
                                  years of participation in a defined benefit
                                  plan with the Employer at the time the
                                  Participant begins to receive retirement
                                  benefits under a defined benefit plan, the
                                  benefit limitations described in Code Section
                                  415(b)(1) and (4) are to be reduced by
                                  multiplying the otherwise applicable
                                  limitation by a fraction:

                                  (i)      the numerator of which is the number
                                           of Years of Service with the
                                           Employer as of, and including, the
                                           Current Limitation Year, and

                                  (ii)     the denominator of which is ten
                                           (10).

                          (H)     If the retirement benefit under a defined
                                  benefit plan begins after the Social Security
                                  retirement age, the determination as to
                                  whether the Maximum Permissible Defined
                                  Benefit Amount limitation has been satisfied
                                  shall be made, in accordance with regulations
                                  prescribed by the Commissioner, by adjusting
                                  such benefit so that it is equivalent to such
                                  a benefit beginning at the Social Security
                                  retirement age.

                          (I)     The annual benefit to which a Participant is
                                  entitled at any time under all defined
                                  benefit plans maintained by the Employer
                                  shall not, during the Limitation Year, exceed
                                  the Maximum Permissible Defined Benefit
                                  Amount.





                                       25
<PAGE>   31
                 (3)      "Employer" - Hastings Entertainment, Inc. and any
                          Affiliate or Subsidiary who adopts the Plan.

                 (4)      "Compensation" with respect to the Limitation Year:

                          (A)     Includes amounts accrued to a Participant
                                  (regardless of whether he was such during the
                                  entire Limitation Year):

                                  (i)      as wages, salaries, fees for
                                           professional services, and other
                                           amounts received for personal
                                           services actually rendered in the
                                           course of employment with the
                                           Employer including but not limited
                                           to commissions, compensation for
                                           services on the basis of a
                                           percentage of profits and bonuses;

                                  (ii)     for purposes of (i) above, earned
                                           income from sources outside the
                                           United States (as defined in Code
                                           Section 911(b)), whether or not
                                           excludable from gross income under
                                           Code Section 911;

                                  (iii)    amounts described in Code Sections
                                           104(a)(3), 105(a) and 105(h), but
                                           only to the extent that these
                                           amounts are includible in the gross
                                           income of the Participant;

                                  (iv)     amounts paid or reimbursed by the
                                           Employer for moving expenses
                                           incurred by the Participant, but
                                           only to the extent that these
                                           amounts are not deductible by the
                                           Participant under Code Section 217.

                          (B)     Does not include:

                                  (i)      notwithstanding (a)(4)(A)(i) of this
                                           Section 4.10, there shall be
                                           excluded from Compensation amounts
                                           contributed to this Plan as Elective
                                           Deferrals;

                                  (ii)     other contributions made by the
                                           Employer to a plan of deferred
                                           compensation to the extent that,
                                           before the application of the Code
                                           Section 415 limitations to that
                                           plan, the contributions are not
                                           includible in the gross income of
                                           the Participant for the taxable year
                                           in which contributed.  In addition,
                                           Employer contributions made on
                                           behalf of a participant to a
                                           simplified employee pension
                                           described in Code Section 408(k) are
                                           not considered as Compensation for
                                           the taxable year in which
                                           contributed to the extent such
                                           contributions are excludable by the
                                           Participant from gross income under
                                           Code Section 408(k)(6).
                                           Additionally, any distributions from
                                           a plan of deferred compensation are
                                           not considered as Compensation,
                                           regardless of





                                       26
<PAGE>   32
                                           whether such amounts are includible
                                           in the gross income of the
                                           Participant when distributed. 
                                           However, any amounts received by a
                                           Participant pursuant to an unfunded
                                           nonqualified plan shall be considered
                                           as Compensation in the year such
                                           amounts are includible in the gross
                                           income of the Participant;

                                  (iii)    Amounts realized from the exercise
                                           of a non-qualified stock option, or
                                           when restricted stock (or property)
                                           held by an associate either becomes
                                           freely transferable or is no longer
                                           subject to a substantial risk of
                                           forfeiture (pursuant to Code Section
                                           83 and regulations thereunder).

                 (5)      "Limitation Year" - the Plan Year.

                 (6)      "Maximum Permissible Defined Benefit Amount" - for a
                          Limitation Year the maximum permissible defined
                          benefit amount with respect to any Participant shall
                          be the lesser of the amounts determined under
                          paragraphs (A) and (B) below, subject to the rules of
                          paragraphs (C), (D) and (E) below, where:

                          (A)     is $90,000, and

                          (B)     is 100 percent of the Participant's average
                                  Compensation for his high three consecutive
                                  Years of Service.

                          (C)     As of January 1 of each calendar year
                                  commencing with the calendar year 1988, the
                                  dollar limitation set forth in paragraph (A)
                                  above shall be adjusted automatically to
                                  equal the dollar limitation as determined by
                                  the Commissioner of Internal Revenue for that
                                  calendar year under Code Section
                                  415(d)(1)(A).  This adjusted dollar
                                  limitation applies for the Limitation Year
                                  ending with the calendar year.  It is
                                  applicable to associates who are participants
                                  of the defined benefit plan and to associates
                                  who have retired or otherwise terminated
                                  their service under a defined benefit plan
                                  with a nonforfeitable right to accrued
                                  benefits, regardless of whether they have
                                  actually begun to receive such benefits.  The
                                  annual benefit payable to a terminated
                                  Participant which is otherwise limited by the
                                  dollar limitation shall be increased to take
                                  into account the adjustment of the dollar
                                  limitation.

                          (D)     With regard to Participants who have
                                  separated from service with a nonforfeitable
                                  right to accrued benefits, the Compensation
                                  limitation described in paragraph (B) above
                                  applicable to Limitation Years commencing on
                                  or after January 1, 1976, shall be adjusted
                                  annually to take into account increases in
                                  the cost of living.  For any Limitation Year
                                  beginning after the separation occurs, the
                                  adjustment of the Compensation limitation is
                                  made as specified in regulations and rules
                                  prescribed by the





                                       27
<PAGE>   33
                                  Commissioner.  In the case of a Participant
                                  who separated from service prior to January
                                  1, 1976, the cost-of-living adjustment of the
                                  Compensation limitation under this paragraph
                                  for all Limitation Years prior to January 1,
                                  1976, is to be determined as provided by the
                                  Commissioner.

                          (E)     Anything herein to the contrary
                                  notwithstanding, the Maximum Permissible
                                  Defined Benefit Amount for any Associate who
                                  was a participant of a defined benefit plan
                                  before January 1, 1983, shall in no case be
                                  less than the "current accrued benefit" of
                                  such Associate as of the close of the last
                                  Limitation Year beginning before January 1,
                                  1983, as such term is defined in Section
                                  235(g)(4) of the Tax Equity and Fiscal
                                  Responsibility Act of 1982 ("TEFRA").

                 (7)      "Maximum Permissible Defined Contribution Amount" -
                          for a Limitation Year the maximum permissible defined
                          contribution amount with respect to any Participant
                          shall be the lesser of:

                          (A)     $30,000, adjusted automatically as of January
                                  1 of each calendar Year commencing with the
                                  calendar year 1988, to equal the dollar
                                  limitation as determined by the Commissioner
                                  of Internal Revenue for that calendar year
                                  under Code Section 415(d)(1)(A) (or, if
                                  greater,  1/4 of the dollar limitation in
                                  effect under Code Section 415(b)(1)(A)), or

                          (B)     25 percent of the Participant's Compensation
                                  for the Limitation Year.

                 (8)      "Projected Annual Benefit" - the annual benefit to
                          which a Participant would be entitled under a defined
                          benefit plan on the assumption that he or she
                          continues employment until the Normal Retirement Age
                          (or current age, if that is later) thereunder, that
                          his or her compensation continues at the same rate as
                          in effect for the Limitation Year under consideration
                          until such age, and that 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.

          (b)    For purpose of applying the limitations of Code Sections
                 415(b), (c) and (e) applicable to a Participant for a
                 particular Limitation Year, all qualified defined benefit
                 plans (without regard to whether a plan has been terminated)
                 ever maintained by the Employer will be treated as one defined
                 benefit plan and all qualified defined contribution plans
                 (without regard to whether a plan has been terminated) ever
                 maintained by the Employer will be treated as part of this
                 Plan.

                 (1)      Annual Addition Limits.  The amount of the Annual
                          Addition which may be credited under this Plan to any
                          Participant's Aggregate Account as of any allocation
                          date shall not exceed the Maximum Permissible Defined
                          Contribution Amount (based upon his Compensation up
                          to such allocation date) reduced by the sum of any
                          credits of





                                       28
<PAGE>   34
                          Annual Additions made to the Participant's Aggregate
                          Account under all defined contribution plans as of
                          any preceding allocation date within the Limitation
                          Year. If an allocation date of this Plan coincides
                          with an allocation date of any other qualified
                          defined contribution plan maintained by the Employer,
                          the amount of the Annual Additions which may be
                          credited under this Plan to any Participant's
                          Aggregate Account as of such date shall be an amount
                          equal to the product of the amount to be credited
                          under this Plan without regard to this Section 4.10
                          multiplied by the lesser of one (1) or a fraction,
                          the numerator of which is the amount described in
                          this subsection (b)(1) of Section 4.10 during the
                          Limitation Year and the denominator of which is the
                          amount that would otherwise be credited on this
                          allocation date under all defined contribution plans
                          without regard to this Section 4.10.  If
                          contributions to this Plan on behalf of a Participant
                          are to be reduced as a result of this Section 4.10,
                          such reduction shall be effected by first reducing
                          the amount of Participant profit sharing
                          contributions.  If, as a result of a reasonable error
                          in estimating a Participant's Compensation or under
                          the limited facts and circumstances which the
                          Commissioner of Internal Revenue finds justify the
                          availability of the rules set forth in Section
                          1.415-6(b)(6) of the Income Tax Regulations,
                          allocation of Annual Additions under the terms of the
                          Plan for a particular Participant would cause the
                          limitations of Code Section 415 applicable to that
                          Participant for the Limitation Year to be exceeded,
                          the excess amount shall not be deemed to be Annual
                          Additions in that Limitation Year if they are treated
                          as follows:

                          (A)     The excess amount in the Participant's profit
                                  sharing contributions shall be used to reduce
                                  contributions for the next Limitation Year
                                  (and succeeding Limitation Years, as
                                  necessary) for that Participant if that
                                  Participant is covered by the Plan as of the
                                  end of the Limitation Year.  However, if that
                                  Participant is not covered by the Plan as of
                                  the end of the Limitation Year, then the
                                  excess amounts must be held unallocated in a
                                  suspense account for the Limitation Year and
                                  allocated and reallocated in the next
                                  Limitation Year to all of the remaining
                                  Participants in the Plan.  If a suspense
                                  account is in existence at any time during a
                                  particular Limitation Year, other than the
                                  first Limitation Year described in the
                                  preceding sentence, all amounts in the
                                  suspense account must be allocated and
                                  reallocated to Participants' Accounts
                                  (subject to the limitations of Code Section
                                  415) before any contributions which would
                                  constitute Annual Additions may be made to
                                  the Plan for that Limitation Year.
                                  Furthermore, the excess amounts must be used
                                  to reduce contributions for the next
                                  Limitation Year (and succeeding Limitation
                                  Years, as necessary) for all of the remaining
                                  Participants in the Plan.  For purposes of
                                  this subdivision, except as provided in
                                  (b)(1), excess amounts may not be distributed
                                  to Participants or Former Participants.





                                       29
<PAGE>   35
                          (B)     In the event of termination of the Plan, the
                                  suspense account described in (A) above shall
                                  revert to the Employer to the extent it may
                                  not then be allocated to any Participant's
                                  Aggregate Account.

                          (C)     Notwithstanding any other provisions in this
                                  Section 4.10, the Employer shall not
                                  contribute any amount that would cause an
                                  allocation to the suspense account as of the
                                  date the contribution is allocated.  If the
                                  contribution is made prior to the date as of
                                  which it is to be allocated, then such
                                  contribution shall not exceed an amount that
                                  would cause an allocation to the suspense
                                  account if the date of contributions were an
                                  allocation date.

                          (D)     Alternatively, the Plan Administrator may
                                  elect to follow the procedure described below
                                  in lieu of the procedure described in
                                  subparagraphs (A), (B) and (C) above.  A
                                  Participant's Elective Deferrals made under
                                  Section 4.01 may be distributed to the extent
                                  that the distribution would reduce the excess
                                  amounts in the Participant's Account.  These
                                  excess amounts to be distributed shall be
                                  adjusted for income or loss, provided such
                                  method is used consistently for all
                                  Participants and for all such corrective
                                  distributions under the Plan for the Plan
                                  Year, and is used by the Plan for allocating
                                  income or loss to Participants' accounts.

                 (2)      Overall Limit.  For any Participant of this Plan who
                          at any time participated in a defined benefit plan of
                          the Employer, the rate of benefit accrual by such
                          Participant in each defined benefit plan in which the
                          Participant participates during the Limitation Year
                          will be reduced to the extent necessary to prevent
                          the sum of the following fractions, computed as of
                          the close of the Limitation Year, from exceeding 1.0:

                                  Project Annual Benefit of the Participant
                                  under all defined benefit plans

                                                  divided by

                                  The lesser of (1) the product of 1.25
                                  multiplied by the dollar limitation in effect
                                  under Code Section 415(b)(1)(A) for such
                                  Limitation Year, or (2) the product of 1.4
                                  multiplied by the amount which may be taken
                                  into account under Code Section 415(b)(1)(B)
                                  with respect to such Participant for such
                                  Limitation Year

                                                     plus

                                  The sum of Annual Additions to such
                                  Participant's Aggregate Account under all
                                  defined contribution plans in such Limitation
                                  Year and for all prior Limitation Years





                                       30
<PAGE>   36
                                                  divided by

                                  The sum of the lesser of the following
                                  amounts determined for such Limitation Year
                                  and for each prior year of service with the
                                  Employer: (1) the product of 1.25 multiplied
                                  by the dollar limitation in effect under Code
                                  Section 415(c)(1)(A) for such Limitation
                                  Year, or (2) the product of 1.4 multiplied by
                                  25 percent of the Participant's Compensation
                                  for such Limitation Year.





                                       31
<PAGE>   37
                                   ARTICLE V

                      ALLOCATION TO PARTICIPANTS' ACCOUNTS


5.01     Individual Accounts.  The Plan Administrator shall create and maintain
         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.  Each
         Participant and Former Participant may have a Pre-Tax Savings Account,
         a Voluntary Nondeductible Contribution Account, a Matching
         Contribution Account, a Profit Sharing Contribution Account, a
         Qualified Non-elective Contribution Account, a Qualified Matching
         Contribution Account, a Rollover Account and a Transfer Account.  The
         maintenance of individual accounts is only for accounting purposes.

5.02     Valuation of the Trust Fund.  The Trustee shall value the assets of
         the Trust Fund on each Valuation Date.  In making such valuation, the
         Trustee shall take into account earnings or losses of the Trust Fund,
         net of reasonable expenses, and capital appreciation or depreciation
         in such assets whether or not realized.  The method of valuation shall
         be determined by the Trustee and shall be followed with reasonable
         consistency from Valuation Date to Valuation Date.

5.03     Priority of Allocations to Accounts.  As of each Valuation Date, the
         account balances of Participants and Former Participants shall be
         adjusted to reflect adjustments in the value of the Trust Fund, to
         reflect payments of benefits and to reflect transfers of benefits to
         or for the benefit of any Participant or Former Participant.

         The following procedures shall apply when adjusting the account
         balances of Participants and Former Participants:

         (a)     First, charge to the proper Accounts all payments,
                 distributions and forfeitures made since the last Valuation
                 Date; and

         (b)     Next, credit the total Elective Deferrals, principal and
                 interest loan repayments, rollover contributions and transfer
                 contributions made since the last Valuation Date to the proper
                 Participant's Account; and

         (c)     Next, allocate the net gain or loss (as defined below) in each
                 investment fund to all Participants and Former Participants,
                 according to the then credit balance in their Accounts in that
                 investment fund after the adjustments made in (a) and (b)
                 above; and

         (d)     Finally, if the Valuation Date corresponds to the Plan Year
                 end, credit to the Account of each Participant and Former
                 Participant who is eligible to share in Matching, Profit
                 Sharing, Qualified Non- elective, and Qualified Matching
                 Contributions, any such contributions made for the Plan Year.





                                       32
<PAGE>   38
         For those accounts which are unitized, dividend income shall be
         allocated in proportion to the units on which such dividend was
         earned, except that any distributions or withdrawals paid since the
         date the dividend was earned shall first be subtracted.

         The "net gain or loss" of an investment fund to be allocated as of any
         Valuation Date means the amount equal to the sum of all interest
         income, dividend income, realized gains or losses and unrealized gains
         or losses credited or accrued to that fund since the previous
         Valuation Date, less an amount equal to any Net Expense (as defined in
         Section 5.04) incurred for that fund since the previous Valuation
         Date.

5.04     Net Expense.  Any investment expense attributable to a particular
         investment fund shall be charged to that fund.  Any other expenses of
         the Plan shall be charged on a pro rata basis to all investment funds
         maintained under this Plan if not paid by the Employer.

5.05     Participant Direction of Investments.  A Participant may elect to have
         one percent (1%), or any multiple thereof up to one hundred percent
         (100%), of such Participant's Aggregate Account invested in any
         investment fund established hereunder.  Such election shall apply to
         the existing Aggregate Account balance and future contributions made
         by or on behalf of such Participant.  To the extent a Participant
         fails to direct the investment of all or any portion of his Aggregate
         Account and future contributions, they shall be invested in the
         investment fund or funds selected by the Trustee.  Upon a
         Participant's termination of employment or cessation of participation
         for any reason, such Participant (or Beneficiary, in the case of the
         Participant's death) shall continue to have the right to direct the
         investment of his Aggregate Account until such time as he receives a
         distribution hereunder.

         A Participant may change his designation of the manner for investment
         of his Aggregate  Account  to any other manner permitted under this
         Section, provided that (i) the change must be made on a form
         prescribed by the Committee, or, if a telephone voice response system
         is available, the change may be made by using the telephone voice
         response system, (ii) the change shall become effective no later than
         the business day next following (a) the date the change is received by
         the Trustee, in the case of a written change, or (b) the date the
         change is made using the telephone voice response system, and (iii)
         the change shall be applicable to the Participant's existing Aggregate
         Account and to contributions made after the application for change
         shall have become effective.  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.





                                       33
<PAGE>   39
                                   ARTICLE VI

                   DETERMINATION AND DISTRIBUTION OF BENEFITS

6.01     Vesting of Accounts.  Participants shall vest in their Accounts in
         accordance with the following:

         (a)     Participants who retire on or after attaining Normal
                 Retirement Age or Early Retirement Age or who terminate
                 employment because of Disability or death shall be 100 percent
                 vested in their Aggregate Account as of the date of such
                 event.  A Participant's Accounts shall be distributed in
                 accordance with the applicable sections of this Article VI.

         (b)     Participants who terminate employment with the Employer before
                 their Normal Retirement Date or for any other reason other
                 than death, Disability, or attainment of Early Retirement Age
                 shall have the vested portion of their Accounts as of the date
                 of termination of employment determined in the following
                 manner.  They shall be:

                 (1)      100 percent vested in their Pre-Tax Savings Account,
                          their Voluntary Nondeductible Contribution Account,
                          their Qualified Non-elective Contribution Account,
                          their Qualified Matching Contribution Account, their
                          Rollover Account and their Transfer Account; and

                 (2)      vested in a certain percentage of their Matching
                          Contribution Account and their Profit Sharing
                          Contribution Account, determined in accordance with
                          the following schedule (for Participants credited
                          with at least one Hour of Service on or after October
                          1, 1996):

<TABLE>
<CAPTION>
                                  Years of Service                  Vested Percentage
                                  ----------------                  -----------------
                                  <S>                               <C>
                                  Less than 2                                  0%
                                  2 but less than 3                           25%
                                  3 but less than 4                           50%
                                  4 but less than 5                           75%
                                  5 or more years                            100%
</TABLE>

                 Participants who are not credited with an Hour of Service on
                 or after October 1, 1996 will be subject to the vesting
                 schedule of the Prior Plan.

                 The vested portion of a Participant's Accounts as determined
                 above shall be distributed in accordance with the applicable
                 Sections of this Article VI.

         (c)     The computation of a Participant's nonforfeitable percentage
                 of his interest in the Plan shall not be reduced as the result
                 of any direct or indirect amendment to this Plan.  In the
                 event that the Plan is amended to change or modify any vesting
                 schedule, a Participant with at least three (3) Years of
                 Service as of the expiration date of the election period may
                 elect to have his nonforfeitable percentage computed under the
                 Plan without regard to such





                                       34
<PAGE>   40
                 amendment.  If a Participant fails to make such election, then
                 such Participant shall be subject to the new vesting schedule.
                 The Participant's election period shall commence on the
                 adoption date of the amendment and shall end 60 days after the
                 latest of:

                 (1)      the adoption date of the amendment,

                 (2)      the effective date of the amendment, or

                 (3)      the date the Participant receives written notice of
                          the amendment from the Employer or Plan
                          Administrator.

6.02     Forfeitures.  Any portion of the final balance in the Participant's
         Account upon the Participant's termination of employment for reasons
         other than death, Disability or retirement which is not vested will be
         forfeited.  A forfeiture of the Participant's nonvested Account shall
         take place upon the earlier of the occurrence of five (5) consecutive
         one-year Breaks-in-Service or the distribution of his entire vested
         account balance upon his termination of employment.  Forfeitures shall
         first be used to reinstate previously forfeited account balances of
         rehired Former Participants who are entitled to reinstatement pursuant
         to Section 7.02 of the Plan.  Remaining forfeitures shall first be
         used to reduce the Employer's matching contributions for the Plan
         Year, and then, to the extent there are still remaining forfeitures,
         to reduce the Employer's profit sharing contributions for the Plan
         Year.  If a Participant is not vested to any extent, he shall be
         deemed to have received a distribution of his entire account balance
         upon his termination of employment.

6.03     Timing of Distributions.

         (a)     If the amount of the Participant's total distribution is
                 $3,500 or less, the Account shall be immediately distributed
                 in a single lump sum payment without the consent of the
                 Participant, or in the case of the death of the Participant,
                 his Beneficiary.

                 If the amount of the Participant's total distribution exceeds
                 $3,500, the Participant must consent before an immediate
                 distribution may be made.  The Participant's Aggregate Account
                 is immediately distributable if any part of the benefit may be
                 distributed to the Participant before the later of Normal
                 Retirement Age or age 62.  If the Participant, or his
                 Beneficiary in the case of death, does not consent to
                 immediate payment, the distribution will be deferred until the
                 Valuation Date coinciding with or next following the day the
                 Participant reaches age 65 (or, in the case of a Beneficiary
                 receiving the distribution, the date the Participant would
                 have reached age 65 had he lived).  A Former Participant or
                 Beneficiary who has not consented to an immediate distribution
                 may consent to such distribution on any subsequent Valuation
                 Date.

                 If a distribution is one to which Sections 401(a)(11) and 417
                 of the Code do not apply, such distribution may commence less
                 than 30 days after the notice required under Section
                 1.411(a)-11(c) of the Income Tax Regulations is given,
                 provided that:





                                       35
<PAGE>   41
                 (1)      the Plan Administrator clearly informs the
                          Participant that the Participant has a right to a
                          period of at least 30 days after receiving the notice
                          to consider the decision of whether or not to elect a
                          distribution (and, if applicable, a particular
                          distribution option), and

                 (2)      the Participant, after receiving the notice,
                          affirmatively elects a distribution.

         (b)     Account balances shall be distributed to Former Participants
                 or Beneficiaries no later than ninety (90) days following the
                 Valuation Date coincident with or next following the
                 Participant's date of termination of employment.

         (c)     Payment of a Participant's or Former Participant's benefits,
                 unless the Participant or Former Participant otherwise elects,
                 will begin not later than the 60th day after the latest of the
                 close of the Plan Year in which:

                 (1)      The date on which the Participant attains age 65;

                 (2)      Occurs the 10th anniversary of the year in which the
                          Participant commenced Participation; or

                 (3)      The Participant terminates his service with the
                          Employer.

         (d)     All distributions required under this Section 6.03(d) shall be
                 determined and made in accordance with the proposed
                 Regulations under Code Section 401(a)(9), including the
                 minimum distribution incidental benefit requirement of Section
                 1.401(a)(9)-2 of the proposed Regulations and will take
                 precedence over any inconsistent provisions of this Plan.

                 For Plan Years beginning after December 31, 1988,
                 distributions to all Participants or Former Participants who
                 attain age 70 1/2 on or after January 1, 1988 must commence no
                 later than the first day of April following the calendar year
                 in which the individual attains age 70 1/2.  For those
                 Participants or Former Participants who attain age 70 1/2
                 before January 1, 1988, and who are not five percent owners
                 (as defined in Section 416(i) of the Code), distributions must
                 commence no later than the later of the first day of April
                 following the calendar year in which the individual attains
                 age 70 1/2 or retires.  Distributions which commenced prior to
                 January 1, 1989 under the provisions of Code Section 401(a)(9)
                 and the regulations thereunder as then in effect, shall
                 continue unchanged.

                 As of the first distribution calendar year, distributions, if
                 not made in a form pursuant to Section 6.04, may only be made
                 over one of the following periods (or a combination thereof):

                 (1)      The life of the Participant;

                 (2)      The life of the Participant and a designated
                          beneficiary;





                                       36
<PAGE>   42
                 (3)      A period certain not extending beyond the life
                          expectancy of the Participant; or

                 (4)      A period certain not extending beyond the joint and
                          last survivor expectancy of the Participant and a
                          designated Beneficiary.

         (e)     Notwithstanding any provision in this Plan to the contrary, if
                 a Former Participant's benefits have commenced and the Former
                 Participant dies before his entire interest has been
                 distributed to him, the remaining portion of such interest
                 will be distributed at least as rapidly as under the method of
                 distribution being used prior to the Former Participant's
                 death.

         (f)     If a Participant dies before his distributions have commenced,
                 such Participant's entire interest will be distributed within
                 five years after his death.  The preceding sentence shall not
                 apply if:

                 (1)      any portion of a Participant's benefit is payable to
                          (or for the benefit of) any individual designated (or
                          if the applicable law permits, deemed designated) as
                          a Beneficiary by the Participant and such portion
                          will be distributed over a period not extending
                          beyond the life expectancy of such Beneficiary and
                          such distribution begins not later than one year
                          after the date of the Participant's death (or such
                          later date as is prescribed by regulations); or

                 (2)      if the designated Beneficiary is the Participant's
                          surviving Spouse, then Section 6.03(e) of the Plan
                          shall apply, except that the distribution need only
                          begin on the date on which the Participant would have
                          attained age 70 1/2 (rather than one year after the
                          date of the Participant's death); provided, however,
                          if the surviving Spouse then dies before payments are
                          required to begin, then the entire interest must be
                          distributed with five years of the surviving Spouse's
                          death.

         (g)     Pursuant to Section 401(a)(9)(D) of the Code, the Participant,
                 Former Participant or his Spouse, in the case of a
                 distribution pursuant to Sections 401(a)(9)(B)(iii) and (iv)
                 of the Code, may elect to have his life expectancy and the
                 life expectancy of his designated beneficiary recalculated
                 each year in order to determine the minimum distribution
                 requirements for each year.  The election must be made no
                 later than the time the first distribution is required under
                 Section 401(a)(9) of the Code.

                 The election by the Participant, Former Participant or his
                 Spouse shall be irrevocable as of the date of the first
                 required distribution under Section 401(a)(9) of the Code.
                 Prior to such date the Participant, Former Participant or his
                 Spouse may change the election.

         (h)     Notwithstanding anything to the contrary, the surviving Spouse
                 of the Participant can direct the commencement of benefits
                 within a reasonable time after the death of the Participant.





                                       37
<PAGE>   43
6.04     Form of Payment.  Benefits from the Participant's or Former
         Participant's vested Account shall be paid, to a Participant or Former
         Participant who does not die before the annuity starting date, in one
         of the optional forms explained below:

         (a)     Lump sum payment; or

         (b)     Equal installments over a fixed period of time in which the
                 Former Participant will receive equal payments in monthly,
                 quarterly, semi-annual or annual installments for any period
                 of time not exceeding the life expectancy of the Former
                 Participant, or the joint life expectancy of the Former
                 Participant and his designated Beneficiary.

6.05     Designation of Beneficiary.  Each Participant or Former Participant
         from time to time may designate any person or persons (who may be
         designated contingently or successively and who may be an entity other
         than a natural person) as his Beneficiary or Beneficiaries to whom his
         Plan benefits are paid if he dies before receipt of all such benefits.
         Each Beneficiary designation shall be in a form prescribed by the Plan
         Administrator and will be effective only when filed with the Plan
         Administrator during the Participant's or Former Participant's
         lifetime.  Each Beneficiary designation filed with the Plan
         Administrator will cancel all Beneficiary designations previously
         filed with the Plan Administrator.  In the event a married Participant
         or Former Participant designates a Beneficiary other than his Spouse,
         his Spouse must consent to such designation in writing, witnessed by a
         notary public or the Plan Administrator.  This consent must be on file
         with the Plan Administrator before the Beneficiary designation can be
         honored.  A spousal consent filed with the Plan Administrator shall be
         applicable only with respect to the Spouse who has signed such form.

         If a married Participant or Former Participant fails to designate a
         Beneficiary in the manner provided above, or if the Beneficiary
         designated by a deceased Participant or Former Participant dies before
         him or before complete distribution of the Participant's or Former
         Participant's benefits, the Plan Administrator in its discretion, may
         direct the Trustee to distribute such Participant's or Former
         Participant's benefits (or the balance thereof) to:

         (a)     The surviving Spouse of the Participant or Former Participant;

         (b)     The Participant's lineal descendants, in equal parts, per 
                 stirpes; or

         (c)     The estate of the last to die of such Participant or Former
                 Participant and his Beneficiary or Beneficiaries.

6.06     Distribution for Minor Beneficiary.  In the event a distribution is to
         be made to a minor Beneficiary, or to the custodian for such minor
         Beneficiary under the Uniform Gifts to Minors Act or Gift to Minors
         Act, if such is permitted by the laws of the state in which such
         Beneficiary resides, such payment to the legal guardian or parent of a
         minor Beneficiary shall fully discharge the Trustee, Employer, and
         Plan from further liability on account thereof.





                                       38
<PAGE>   44
6.07     Location of Participant, Former Participant or Beneficiary Unknown.
         In the event that all, or any portion, of the distribution payable to
         a Participant or Former Participant or his Beneficiary hereunder
         shall, at the expiration of five (5) years after it shall become
         payable, remains unpaid solely by reason of the inability of the Plan
         Administrator, after sending a registered letter, return receipt
         requested, to the last known address, and after further diligent
         effort, to ascertain the whereabouts of such Participant, Former
         Participant or his Beneficiary, the amount so distributable shall be
         reallocated in the same manner as a forfeiture pursuant to this
         agreement.  In the event a Participant, Former Participant or
         Beneficiary is located subsequent to his benefit being reallocated,
         such benefit shall be restored.

6.08     Limitations on Benefits and Distributions.  All rights and benefits,
         including, elections, provided to a Participant or Former Participant
         in this Plan shall be subject to the rights afforded to any "alternate
         payee" under a "qualified domestic relations order" as those terms are
         defined in Code Section 414(p).





                                       39
<PAGE>   45
                                  ARTICLE VII

                              FORMER PARTICIPANTS


7.01     Participation by Former Participant.  An Associate who is a Former
         Participant and who is rehired by the Employer shall be eligible to
         participate in the Plan immediately upon his rehire.

7.02     Reinstatement of Account.  If any Former Participant is reemployed
         before he receives a distribution of the vested portion of his
         Account, the Former Participant shall continue to participate in the
         Plan in the same manner as if such termination of employment had not
         occurred.

         If any Former Participant shall be reemployed by the Employer before
         five consecutive one-year Breaks-in-Service, and such Former
         Participant had received a distribution of his entire vested interest
         prior to his reemployment, that portion of his Account that was
         forfeited shall be reinstated to the amount on the date of
         distribution if the Associate repays to the Plan the full amount of
         the distribution attributable to employer contributions before the
         earlier of five years after the first date on which the Former
         Participant is subsequently reemployed by the Employer, or the date
         the Former Participant incurs five consecutive one-year
         Breaks-in-Service following the date of the distribution.  If an
         Associate is deemed to receive a distribution pursuant to Section 6.02
         of the Plan, and the Associate resumes employment covered under this
         Plan before the date the Former Participant incurs five consecutive
         one-year Breaks-in-Service, upon the reemployment of such Associate,
         the Employer-derived account balance of the Associate will be restored
         to the amount on the date of such deemed distribution.

         The full amount of his Matching Contribution Account and Profit
         Sharing Contribution Account which was forfeited shall be reinstated
         to his Matching Contribution Account and Profit Sharing Contribution
         Account, respectively, and thereafter, at any subsequent date, the
         vested balance in his Matching Contribution Account and Profit Sharing
         Contribution Account will be determined in accordance with the
         following formula:

                 Vested Balance = [VP (AB + PW)] - PW

                                  where

                 VP = Current Vested Percent
                 AB = Current Account Balance (including restored forfeitures)
                 PW = Prior Withdrawal or distribution

7.03     Separate Account Balances.  If a Former Participant is reemployed
         after five consecutive one-year Breaks-in-Service, then separate
         Accounts will be maintained as follows:

         (a)     One Account for nonforfeitable benefits attributable to
                 pre-break service; and

         (b)     One Account representing his status in the Plan attributable
                 to post-break service.





                                       40
<PAGE>   46
7.04     Years of Service.  If any Former Participant is reemployed after a
         one-year Break-in-Service has occurred, Years of Service shall include
         Years of Service prior to his one-year Break-in-Service subject to the
         following rules:

         (a)     A Former Participant's pre-break and post-break service shall
                 be used for computing Years of Service for vesting purposes
                 only after the Former Participant has completed one Year of
                 Service following his date of reemployment with the Employer.

         (b)     The vested account balance attributable to post-break service
                 of a Former Participant who did not have a nonforfeitable
                 interest in any portion of his Account attributable to
                 contributions made by the Employer shall not be increased as a
                 result of pre-break service if his consecutive one-year
                 Breaks-in-Service equal or exceed the greater of five or the
                 aggregate number of his pre-break Years of Service.

         (c)     A Former Participant who had a nonforfeitable right to a
                 portion of his Account attributable to contributions made by
                 the Employer shall have pre-break and post-break Years of
                 Service taken into account in determining his vested account
                 balance.

         (d)     A Former Participant's vested account balance attributable to
                 pre-break service shall not be increased as a result of
                 post-break service after five consecutive one-year
                 Breaks-in-Service.





                                       41
<PAGE>   47
                                  ARTICLE VIII

                                  WITHDRAWALS


8.01     In-service Withdrawals.  Elective Deferrals, Qualified Non-elective
         Contributions and Qualified Matching Contributions, and income
         allocable to each are not distributable to a Participant or his
         Beneficiary or Beneficiaries, in accordance with such Participant's,
         Beneficiary's or Beneficiaries' election, earlier than upon separation
         from service, death or Disability.  Such amounts may also be
         distributed upon:

         (a)     Termination of the Plan without the establishment of another
                 defined contribution plan, other than an employee stock
                 ownership plan (as defined in Section 4975(e) or Section 409
                 of the Code) or a simplified employee pension plan as defined
                 in Code Section 408(k).

         (b)     The disposition by a corporation to an unrelated corporation
                 of substantially all of the assets (within the meaning of
                 Section 409(d)(2) of the Code) used in a trade or business of
                 such corporation if such corporation continues to maintain
                 this Plan after disposition, but only with respect to
                 Associates who continue employment with the corporation
                 acquiring such assets.

         (c)     The disposition by a corporation to an unrelated entity of
                 such corporation's interest in a subsidiary (within the
                 meaning of Section 409(d)(3) of the Code) if such corporation
                 continues to maintain this Plan, but only with respect to
                 Associates who continue employment with such subsidiary.

         (d)     The attainment of age 59 1/2.

         (e)     The hardship of the Participant as described in Section 8.02.

         Such withdrawals shall be paid in a single lump sum and shall be
         subject to federal income tax withholding as prescribed by Section
         3405 of the Code and the regulations thereunder.

8.02     Hardship Withdrawals.  Upon the application of any Participant who is
         an Associate, the Plan Administrator, in accordance with a uniform
         nondiscriminatory policy, shall at any time permit such Participant to
         withdraw all or any portion of the amounts in the Participant's
         Pre-Tax Savings Account, if the withdrawal is in light of an immediate
         and heavy financial need of the Associate and is necessary to satisfy
         such financial need.  However, any withdrawal under this Section 8.02
         may not include earnings credited to a Participant's Pre-Tax Savings
         Account after December 31, 1988.  The amount of the withdrawal shall
         not exceed the amount required to meet the financial need.

         (a)     The determination of whether an Associate has an immediate and
                 heavy financial need shall be based on all relevant facts and
                 circumstances pursuant to Treasury Regulation Section
                 1.401(k)-l(d)(2). The Plan Administrator will require
                 application for such hardship,





                                       42
<PAGE>   48
                 review such application and shall request any additional
                 information necessary to verify existence of such hardship.
                 The Plan Administrator shall make determination in a
                 nondiscriminatory manner based upon objective criteria applied
                 on a uniform and nondiscriminatory basis.

         (b)     A distribution will be deemed to be made on account of an
                 immediate and heavy financial need of the Associate if the
                 distribution is on account of:

                 (1)      Expenses incurred or necessary for medical care,
                          described in Section 213(d) of the Code, of the
                          Associate, the Associate's Spouse or any dependents
                          of the Associate (as defined in Section 152 of the
                          Code);

                 (2)      The purchase (excluding mortgage payments) of a
                          principal residence for the Associate;

                 (3)      Payment of tuition, related educational fees, and
                          room and board expenses for the next twelve (12)
                          months of post-secondary education for the Associate,
                          the Associate's Spouse, children or dependents (as
                          defined in Section 152 of the Code);

                 (4)      The need to prevent the eviction of the Associate
                          from, or a foreclosure on the mortgage of, the
                          Associate's principal residence; or

                 (5)      Any such extraordinary financial hardship as shall be
                          identified by the Commissioner of Internal Revenue.

         (c)     The determination as to whether the distribution is necessary
                 to satisfy a financial need shall be based on all the relevant
                 facts and circumstances including the Associate's
                 representation that the need cannot be relieved:

                 (1)      Through reimbursement or compensation by insurance or
                          otherwise;

                 (2)      By reasonable liquidation of the Associate's assets,
                          to the extent such liquidation would not itself cause
                          an immediate and heavy financial need;

                 (3)      By cessation of Elective Deferrals to the Plan; or

                 (4)      By other distributions or nontaxable (at the time of
                          the loan) loans from plans maintained by the Employer
                          or by any other employer, or by borrowing from
                          commercial sources on reasonable commercial terms.

         (d)     A distribution shall be deemed to satisfy an immediate and
                 heavy financial need if:





                                       43
<PAGE>   49
                 (1)      The Associate has obtained all distributions, other
                          than hardship distributions, and all nontaxable loans
                          currently available under all plans maintained by the
                          Employer;

                 (2)      All plans maintained by the Employer provide that the
                          Associate's Elective Deferrals (and Associate
                          Contributions) will be suspended for twelve (12)
                          months after the receipt of the hardship
                          distribution;

                 (3)      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); and

                 (4)      All plans maintained by the Employer provide that the
                          Associate may not make Elective Deferrals for the
                          Associate's taxable year immediately following the
                          taxable year of the hardship distribution in excess
                          of the applicable limit under Section 402(g) of the
                          Code for such taxable year less the amount of such
                          Associate's Elective Deferrals for the taxable year
                          of the hardship distribution.

         (e)     A Participant making an application under this Section 8.02
                 shall have the burden of presenting to the Plan Administrator
                 evidence of such need.  If a Participant's application for a
                 hardship withdrawal is approved, the Plan Administrator shall
                 then instruct the Trustee to make such payment of the approved
                 amount to the Participant.  Hardship withdrawals shall be paid
                 in a single lump sum.

         (f)     Hardship withdrawals shall be subject to Federal income tax
                 withholding as prescribed by Section 3405 of the Code and the
                 regulations thereunder.





                                       44
<PAGE>   50
                                   ARTICLE IX

                              PLAN ADMINISTRATION

9.01     Powers and Responsibilities.

         (a)     Hastings Entertainment, Inc., as Plan Administrator, shall be
                 empowered to appoint and remove the Trustee and Benefits
                 Committee from time to time as it deems necessary for the
                 proper administration of the Plan and for the sole and
                 exclusive benefit of the Participants, Former Participants and
                 their Beneficiaries in accordance with the terms of this Plan,
                 the Code and ERISA.

         (b)     The Plan Administrator shall establish a funding policy and
                 method, including, but not limited to determination of the
                 short-term objectives for liquidity and long-term objectives
                 for investment growth, or shall appoint a qualified person to
                 do so.

         (c)     The Plan Administrator may in its discretion appoint an
                 Investment Manager to manage all or a designated portion of
                 the assets of the Plan.  In such event, the Trustee shall
                 follow the written directive of the Investment Manager in
                 investing the assets of the Plan managed by the Investment
                 Manager.

         (d)     The Plan Administrator shall periodically review the
                 performance of any Fiduciary or other person to whom duties
                 have been delegated or allocated by it under the provisions of
                 this Plan or pursuant to procedures established hereunder.
                 This requirement may be satisfied by formal periodic review by
                 the Employer or by a qualified person specifically designated
                 by the Employer, through day-to-day conduct and evaluation, or
                 through other appropriate means.

9.02     Assignment and Designation of Administrative Authority / Compensation
         of Benefits Committee.  The Plan Administrator shall appoint one or
         more individuals to the Benefits Committee.  The Benefits Committee
         shall have authority to assist in the administration of the Plan and
         shall be empowered to carry out the duties of the Plan Administrator,
         except as described in 9.01(a) above.  Any person, including, but not
         limited to, the shareholders, officers, and Associates of the Employer
         shall be eligible to serve on the Benefits Committee.  A member of the
         Benefits Committee may resign by delivering his written resignation to
         the Employer or be removed by the Employer by written notice of
         removal, to take effect at a date specified therein.  The Plan
         Administrator shall furnish the Trustee with proper written evidence
         of the names and individuals on the Benefits Committee and of any
         resignations and replacements thereof.  The Plan Administrator, upon
         the resignation or removal of a member of the Benefits Committee
         shall, as soon as administratively possible after such vacancy is
         created, designate in writing a successor to this position.

         The Benefits Committee shall select a Chairman from among its members.
         A Secretary shall also be appointed by the Benefits Committee who may
         or may not be a member of the Benefits Committee.  The Chairman shall
         preside at all meetings of the Benefits Committee unless, in his
         absence, a Vice Chairman selected by the Benefits Committee presides.
         The Secretary shall keep all minutes of





                                       45
<PAGE>   51
         Benefits Committee proceedings and such records and documents as are
         necessary for the proper administration of the Plan.

         Benefits Committee members may receive reasonable compensation for
         services rendered, or for the reimbursement of expenses properly and
         actually incurred in the performance of duties with the Plan; except
         that no person so serving on the Benefits Committee who already
         receives full-time pay from the Employer or an association of
         Employers whose Associates are Participants in the Plan, shall receive
         compensation from the Plan, except for reimbursement of expenses
         properly and actually incurred.

         Any bond which may be required by applicable laws or regulations for
         the performance of duties by members of the Benefits Committee and all
         reasonable and necessary costs, expenses, and liabilities incurred by
         the Benefits Committee in the supervision and administration of the
         Plan which are not paid by the Employer shall be a charge against the
         Plan assets and shall be paid therefrom by the Trustee as directed in
         writing by the Benefits Committee.

9.03     Allocation and Delegation of Responsibilities.  If more than one
         person is appointed to serve on the Benefits Committee, the
         responsibilities of each member may be specified by the Plan
         Administrator and accepted in writing by each member.  In the event
         that no such delegation is made by the Plan Administrator, the
         Benefits Committee members may allocate the responsibilities among
         themselves, in which event the Benefits Committee shall notify the
         Plan Administrator and the Trustee in writing of such action and
         specify the responsibilities of each member of the Benefits Committee.
         The Trustee thereafter shall accept and rely upon any documents
         executed by the appropriate member of the Benefits Committee until
         such time as the Plan Administrator or the Benefits Committee files
         with the Trustee a written revocation of such designation.

9.04     Powers, Duties and Responsibilities.  The primary responsibility of
         the Plan Administrator is to administer the Plan for the exclusive
         benefit of the Participants, Former Participants and their
         Beneficiaries, subject to the specific terms of the Plan.  The Plan
         Administrator shall have the discretionary authority to control and
         manage the operation and administration of the Plan, shall administer
         the Plan in accordance with the terms hereof, and shall have the power
         to determine all questions arising in connection with the
         administration, interpretation, and application of the Plan.  Any such
         determination by the Plan Administrator shall be conclusive and
         binding upon all persons.  The Plan Administrator may correct any
         defect, supply any information, or reconcile any inconsistency in such
         manner and to such extent as shall be deemed necessary or advisable to
         carry out the purpose of this Plan; provided, however, that any
         interpretation or construction shall be done in a nondiscriminatory
         manner and shall be consistent with the intent that the Plan shall
         continue to be deemed a qualified plan under the terms of Section
         401(a) of the Code and the Trust which is a part hereof exempt under
         Section 501(a) of the Code and shall comply with the terms of ERISA
         and all regulations issued pursuant thereto.  The Plan Administrator
         shall have all powers necessary or appropriate to accomplish its
         duties under this Plan.

         The Plan Administrator shall be charged with the duties of the general
         administration of the Plan, including, but not limited to, the
         following:





                                       46
<PAGE>   52
         (a)     Determining all questions relating to the eligibility of
                 Associates to participate or remain Participants hereunder;

         (b)     Computing, certifying, and directing the Trustee with respect
                 to the amount and the kind of benefits to which any
                 Participant or Former Participant shall be entitled hereunder;

         (c)     Authorizing and directing the Trustee with respect to all
                 nondiscretionary or otherwise directed disbursements from the
                 Trust;

         (d)     Maintaining all necessary records for the administration of
                 the Plan;

         (e)     Interpreting the provisions of the Plan and making and
                 publishing such rules for regulation of the Plan as are
                 consistent with the terms hereof;

         (f)     Determining the size and type of any annuity contract to be
                 purchased from any insurer, and designating the insurer from
                 which such contract shall be purchased;

         (g)     Computing and certifying to the Employer and to the Trustee
                 from time to time the sums of money necessary or desirable to
                 be contributed to the Plan;

         (h)     Assisting any Participant or Former Participant regarding his
                 rights, benefits, or elections available under the Plan; and

         (i)     Preparing and implementing a procedure for notifying eligible
                 Associates that they may elect to have a portion of the
                 Employer's contribution deferred into the Plan through a
                 salary reduction agreement.

9.05     Records and Reports.  The Plan Administrator shall keep a record of
         all actions taken and shall keep all other books of account, records,
         and other data that may be necessary, for proper administration of the
         Plan and shall be responsible for supplying all information and
         reports to the Internal Revenue Service, Department of Labor,
         Participants, Former Participants, Beneficiaries and others as
         required by law.

9.06     Appointment of Advisors.  The Plan Administrator or the Trustee with
         the consent of the Plan Administrator may appoint counsel,
         specialists, advisers, and other persons as the Plan Administrator or
         the Trustee deems necessary or desirable in connection with the
         administration of this Plan.

9.07     Information from Employer.  To enable the Plan Administrator to
         perform its functions, the Employer shall supply full and timely
         information to the Plan Administrator on all matters relating to the
         compensation of all Participants, Hours of Service, Years of Service,
         occurrences of retirement, death, Disability, or termination of
         employment, and such other pertinent facts and data as the Plan
         Administrator may require; and the Plan Administrator shall advise the
         Trustee of the foregoing facts as may be pertinent to the Trustee's
         duties under the Plan.  The Plan





                                       47
<PAGE>   53
         Administrator and Trustee may rely upon such information as is
         supplied by the Employer and shall have no duty or responsibility to
         verify such information.

9.08     Payment of Expenses.  All expenses of administration may be paid out
         of the Plan assets unless paid by the Employer.  Such expenses shall
         include any expenses incident to the functioning of the Plan
         Administrator, including, but not limited to, fees of accountants,
         counsel, and other specialists, and other costs of administering the
         Plan.  Until paid, the expenses shall constitute a liability of the
         Plan assets.  However, the Employer may reimburse the Trust for any
         administrative expenses incurred pursuant to the above.  Any
         administration expense paid to the Trust as a reimbursement shall not
         be considered as an Employer contribution.

9.09     Majority Actions. Except where there has been an allocation and
         delegation of administrative authority pursuant to Section 9.03, if
         there shall be more than one member of the Benefits Committee, they
         shall act by a majority of their number, but may authorize one or more
         of them to sign all papers on their behalf.

9.10     Bonding.  Every Fiduciary, except a bank or an insurance company,
         unless exempted by ERISA and regulations thereunder, shall be bonded
         in an amount not less than 10 percent of the amount of the fund such
         Fiduciary handles; provided, however, that the minimum bond shall be
         $1,000 and the maximum bond, $500,000.  The amount of the bond shall
         be determined at the beginning of each Plan Year by the amount of
         funds handled by each such person, group, or class to be covered and
         their predecessors, if any, during the preceding Plan Year, or if
         there is no preceding Plan Year, then by the amount of the funds to be
         handled during the then current year.  The bond shall provide
         protection to the Plan against any loss by reason of acts of fraud or
         dishonesty by the Fiduciary alone or in connivance with others.  The
         surety shall be an approved corporate surety company (as such term is
         used in Section 412(a)(2) of ERISA), and the bond shall be in the form
         approved by the Secretary of Labor.  Notwithstanding anything herein
         to the contrary, the cost of such bonds shall be an expense of the
         Plan and may, at the election of the Plan Administrator, be paid from
         the Plan assets or by the Employer.

9.11     Indemnification.  The Employer shall indemnify the Plan Administrator
         and each member of the Benefits Committee from and against any and all
         liabilities, costs, or expenses incurred as a result of any act or
         omission to act in connection with the performance of fiduciary duties
         or responsibilities, if any, under this Plan and applicable laws and
         regulations, but not for liabilities and claims arising from such
         Fiduciary's willful misconduct or gross negligence.

9.12     Interpretation.  This Plan has been executed for the exclusive benefit
         of the Participants, Former Participants and their Beneficiaries.  So
         far as possible, this Plan shall be interpreted and administered in a
         manner consistent with this intent and with the intention of the
         Employer that this Plan shall at all times fully comply with the
         requirements of applicable laws and regulations.  Neither the Employer
         nor the Plan Administrator shall exercise any power or right to do or
         perform any act which is in conflict with or violates such laws and
         regulations.  Any power or right granted under this Plan or retained
         by the Employer shall be void to the extent that its exercise or
         retention shall violate laws and regulations.  The Employer shall make
         any and all retroactive amendments to this Plan that are required
         under applicable laws and regulations in order to





                                       48
<PAGE>   54
         establish and maintain the Plan in conformity as a qualified Plan
         pursuant to Section 401(a) of the Code and the Trust which is a part
         hereof exempt pursuant to Section 501(a) of the Code.

9.13     Claims Procedure.  Claims for benefits under the Plan may be filed
         with the Plan Administrator on forms supplied by the Employer.
         Written notice of the disposition of a claim shall be furnished to the
         claimant within ninety (90) days after the application thereof is
         filed.  In the event the claim is denied, the reasons for the denial
         shall be specifically set forth in the notice in language calculated
         to be understood by the claimant, pertinent provisions of the Plan
         shall be cited, and, where appropriate, an explanation as to how the
         claimant can perfect the claim will be provided.  In addition the
         claimant shall be furnished with an explanation of the Plan's claims
         review procedure.

9.14     Claims Review Procedure.  Any Associate, former Associate, or
         Beneficiary of either, who has been denied a benefit by a decision of
         the Plan Administrator pursuant to Section 9.13 shall be entitled to
         request a review of the claim by filing with the Plan Administrator
         (on a form which may be obtained from the Plan Administrator) a
         request for a hearing.  Such request, together with a written
         statement of the reasons why the claimant believes his claim should be
         allowed, shall be filed with the Plan Administrator no later than
         sixty (60) days after receipt of the written notification provided for
         in Section 9.13. The Plan Administrator shall then conduct a hearing
         within the next sixty (60) days, at which time the claimant may be
         represented by an attorney or any other representative of his choosing
         and at which time the claimant shall have an opportunity to submit
         written and oral evidence and arguments in support of his claim.  At
         the hearing (or prior thereto upon five (5) business days written
         notice to the Plan Administrator) the claimant or his representative
         shall have an opportunity to review all documents in the possession of
         the Plan Administrator which are pertinent to the claim at issue and
         its disallowance.  Either the claimant or the Administrator may cause
         a court reporter to attend the hearing and record the proceedings.  In
         such event, a complete written transcript of the proceedings shall be
         furnished to both parties by the court reporter.  The full expense of
         any such court reporter and such transcripts shall be borne by the
         party causing the court reporter to attend the hearing.  A final
         decision as to the allowances, of the claim shall be made by the Plan
         Administrator with sixty (60) days of receipt of the appeal unless
         there has been an extension of sixty (60) days and shall be
         communicated in writing to the claimant.  Such communication shall be
         written in a manner calculated to be understood by the claimant and
         shall include specific reasons for the decision and specific
         references to the pertinent Plan provisions on which the decision is
         based.





                                       49
<PAGE>   55

                                   ARTICLE X

                              TRUST ADMINISTRATION


10.01    Establishment and Acceptance of Trust.  The Trustee, as of the date of
         signature hereon, accepts the Trust hereby established and consents to
         act as Trustee subject to the terms, provisions, conditions, and
         limitations of this Plan.

10.02    Scope of Trustee's Functions.  In all matters relating to the detailed
         administration of the Plan the Trustee shall act only upon the
         authorization evidenced by certificate of the Plan Administrator and
         shall be fully protected in relying and acting thereon; provided,
         however, if at any time the Plan Administrator shall fail to give
         directions or instructions to the Trustee in regard to any detail
         affecting the administration of the Plan over which the Plan
         Administrator has jurisdiction, then and in that event the Trustee,
         although being under no obligation to do so, may act without such
         directions or instructions and may exercise its own discretion and
         judgment as seems appropriate and advisable under the circumstances in
         order to effectuate the purposes of the Plan.  Where the Trustee does
         so act without direction or instruction from the Plan Administrator,
         it shall act solely in the interests of the Participants and their
         Beneficiaries and for the exclusive purpose of providing the benefits
         required and defraying reasonable expenses of administering the Plan.

         The Trustee shall not be required to act on instructions received from
         the Plan Administrator, other than instructions from a qualified
         Investment Manager, if in its sole discretion and opinion it believes
         that compliance with such instructions would result in an action which
         would be improper or imprudent.  In the event the Trustee declines or
         refuses to follow such instructions given in writing by the Plan
         Administrator or its duly authorized representative, notice of such
         refusal shall be furnished to the Plan Administrator in writing within
         fifteen (15) days of receipt of the Plan Administrator's written
         instructions.

         If at any time the Plan Administrator fails or refuses to provide the
         Trustee with written instructions concerning any action which, in the
         sole discretion of the Trustee, is deemed necessary in order to
         properly administer the Plan under the provisions hereunder and in
         accordance with applicable laws and regulations, then and in that
         event, the Trustee shall notify the Plan Administrator in writing of
         the Trustee's intent to take such action on a date no earlier than
         thirty (30) days from the date notice is received by the Plan
         Administrator.  The notice shall describe the action which will be
         performed by the Trustee on a certain date unless written notice is
         received from the Plan Administrator within thirty (30) days
         disapproving such action and instructing the Trustee concerning the
         course of action which the Trustee should follow.  If the Plan
         Administrator fails or refuses to respond to the Trustee's
         notification of intended action, such failure or refusal to respond
         shall be deemed by the Trustee as implied consent on the part of the
         Plan Administrator and on behalf of the Employer to the action
         intended to be performed by





                                       50
<PAGE>   56
         the Trustee and shall be deemed as authorizing the Trustee to so act
         at the expiration of the thirty (30) day period.

10.03    Powers and Duties.  The Trustee is hereby authorized and empowered to
         establish and maintain for and on behalf of the Plan Participants such
         pooled investment accounts as the Plan Administrator may direct, and
         into which the Plan assets shall be invested.  In establishing such
         pooled investment accounts, or in utilizing such other investments as
         the Plan Administrator may from time to time direct, the Trustee shall
         be authorized and empowered to perform the following functions with
         respect to the Plan:

         (a)     To invest and reinvest the Plan assets in real, personal, or
                 mixed property including but not limited to securities of
                 domestic and foreign corporations and investment trusts
                 (whether open-end or not), bonds, preferred stocks, common
                 stocks, mortgages, mortgage participations, interests in any
                 common trust fund or commingled employee benefit fund to the
                 extent allowed under applicable laws and regulations and with
                 complete discretion as to converting realty into personalty or
                 personalty into realty.

         (b)     To invest in land, whether improved or unimproved, and improve
                 any such land in any manner determined by the Plan
                 Administrator to be feasible and prudent.  To lease real,
                 personal, or mixed property on such terms as the Plan
                 Administrator shall deem proper, including the power to make
                 leases that may extend beyond any time in which Plan
                 termination may be necessary by such Employer; and to
                 foreclose, extend, renew, assign, release, or partially
                 release and discharge mortgages or other liens.

         (c)     To invest in bonds, stocks, secured notes, or similar
                 securities permitted by applicable laws and regulations.

         (d)     To borrow funds at the direction of the Plan Administrator,
                 from any party permitted by applicable laws and regulations
                 for the purpose of purchasing as investments any property as
                 collateral to secure such loan.

         (e)     To make investments of types other than specified herein,
                 provided such investments are in accordance with applicable
                 laws and regulations.

         (f)     To make distribution to or for the benefit of a retiree,
                 disabled Participant, inactive Participant, Former Participant
                 or of their Beneficiaries.

         (g)     To purchase an annuity contract on behalf of a Participant or
                 Former Participant as directed by the Plan Administrator.

         (h)     To acquire or retain property returning no income or slight
                 income as may be deemed advisable by the Plan Administrator
                 without liability therefor.

         (i)     To sell, exchange, give options, partition, convey, or
                 otherwise dispose of, with or without covenants of warranty of
                 title, any property, which may from time to time be or





                                       51
<PAGE>   57
                 become a part of the Plan assets at public or private sale or
                 otherwise, for cash or other consideration or on credit, and
                 upon such terms and conditions and for such consideration as
                 the Plan Administrator shall consider advisable, and to
                 transfer the same free of all trusts.

         (j)     To vote, in person or by proxy, any stocks or other properties
                 having voting rights; to execute any options, rights or
                 privileges pertaining to any property; to participate in any
                 merger, reorganization or consolidation affecting any part of
                 the Plan assets and in connection therewith to take any action
                 which an individual could take with respect to property owned
                 outright by such individual including the payment of expenses
                 or assessments, the deposit of stock or property with a
                 protective committee, the acceptance or retention of new
                 securities or property and the payment of such amounts of
                 money as may seem advisable in connection therewith; and to
                 hold any item constituting a part of the Plan assets for any
                 length of time in the name of a nominee or nominees without
                 mention of the Trust or any instrument of ownership.

         (k)     To execute and deliver oil, gas, and other mineral leases,
                 containing such unitization, pooling, and recycling agreements
                 and other provisions as the Plan Administrator may deem
                 proper; to execute mineral and royalty conveyances; to
                 purchase leases, royalties, and any type of mineral interest;
                 and to execute and deliver drilling contracts or other
                 contracts or options and other instruments which the Plan
                 Administrator may consider necessary or desirable in
                 connection with oil, gas, or other mineral interests.  All
                 such instruments may be executed and delivered for such
                 consideration as the Plan Administrator, in its sole
                 discretion, deems to be fair and reasonable.

         (l)     To exercise all other powers presently granted to Trustees by
                 the Texas Trust Code as amended and in force on the effective
                 date of this Plan, as amended from time to time thereafter,
                 and not in conflict with the provisions hereof.

         (m)     To do any and all things necessary and proper, including the
                 power to execute any other instruments which may be required
                 to fully and completely accomplish any of the powers herein
                 conferred.

         (n)     As a condition precedent to acting as Trustee for and on
                 behalf of the Employer, the Trustee may require that the Plan
                 Administrator execute any appropriate and proper instruments
                 authorizing investment of Plan assets by the Trustee in
                 investments so directed by the Plan Administrator or
                 authorizing any action by the Trustee so desired by the Plan
                 Administrator.

10.04    Liability of Trustees.  The Trustee shall not be responsible for any
         acts or omissions of the Plan Administrator.  Any certificate or other
         instrument duly signed by the Plan Administrator purporting to
         evidence any instructions, direction, or order of the Plan
         Administrator shall be accepted by the Trustee as conclusive proof
         thereof.





                                       52
<PAGE>   58
10.05    Reliance Upon Acts of Trustee.  No person dealing with the Trustee
         shall be required to verify the application by the Trustee of any
         money paid or other property delivered to the Trustee, and all persons
         dealing with the Trustee shall be entitled to rely upon the
         representations and decisions of the Trustee as to its authority and
         are released from any duty of inquiry with respect thereto.  Any
         action of the Trustee hereunder shall be conclusively evidenced for
         all purposes of the Trust by the certification of the Trustee, and
         such certificate when received by an issuing company or by any other
         person, shall be conclusive evidence of the facts recited therein and
         shall fully protect all persons relying upon the truth thereof.  A
         third person dealing with the Trustee shall not be required to make
         any inquiry whether the Plan Administrator has instructed the Trustee,
         or whether the Trustee is otherwise authorized to take or omit any
         action.

10.06    Records and Accounting of Trustee/Valuation of Plan Assets.  The
         Trustee shall keep proper accounts of all investments, receipts,
         disbursements, and other transactions affected by it hereunder and all
         accounts, books, and records relating thereto shall be open for
         inspection at all reasonable times by the Plan Administrator, or any
         other representative designated by the Employer.

         Within ninety (90) days following the Valuation Date which coincides
         with the last day of the Plan Year, and at such other interim
         Valuation Dates as may be requested by the Plan Administrator, the
         Trustee shall furnish the Plan Administrator with a detailed statement
         of the Plan assets for the period beginning with the day following the
         previous Valuation Date for which a statement was required and ending
         with the Valuation Date for which the current statement is required.

         Reports prepared for the Employer by the Trustee as provided in the
         preceding paragraph shall reflect the fair market value of all assets
         to the Employer's account as of the Valuation Date for which the
         report is prepared.  Each report shall reflect:

         (a)     A detailed record of all cash receipts and disbursements for
                 the period.

         (b)     Value of all Plan assets on a cash basis held for the
                 Employer.

         (c)     Statement of earned income on a cash basis, other than capital
                 gains or losses, during the preceding period.

         All such Plan assets which are listed by a recognized stock exchange
         or which otherwise have a readily ascertainable market value shall be
         valued by the Trustee as of the Valuation Date.  Any assets held in
         the Employer's Trust account by the Trustee which do not have a
         readily ascertainable market value shall be valued by the Plan
         Administrator as of the Valuation Date and such value reported to the
         Trustee in writing.  Upon the expiration of ninety (90) days from the
         date of filing such account, or upon the earlier specific approval
         thereof by the Plan Administrator, the Trustee, to the extent
         permitted by ERISA, shall be forever released and discharged from
         liability and accountability to anyone with respect to the propriety,
         of its accounts and transactions shown in such accounting, except with
         respect to such accounts or transactions as to which the Plan
         Administrator shall within such ninety (90) day period file written
         objection with the Trustee or with respect to any fraudulent act of
         the Trustee.  Nothing





                                       53
<PAGE>   59
         herein contained, however, shall preclude the Trustee from its right
         to have any of its accounts judicially settled by a court of competent
         jurisdiction.

10.07    Payment of Compensation and Expenses.  The compensation of the
         Trustee, payable by the Employer or directly from the Plan assets,
         shall be determined by agreement wherein the Employer shall entitle
         the Trustee to receive a reasonable rate of compensation for services
         rendered in the performance of duties as Trustee.  All reasonable
         expenses necessarily incurred by the Trustee in the performance of its
         duties shall also be agreed to and shall be paid by the Employer or
         upon approval of the Plan Administrator directly from Plan assets.
         The cost of any bond required of the Trustee in accordance with
         applicable laws and regulations, or as may be required by the Plan
         Administrator, shall be paid by the Employer or directly from Plan
         assets.

10.08    Resignation or Removal of Trustee/Withdrawal From Trust.  The
         trustee may resign as Trustee hereunder for any reason, but such
         resignation shall become effective only at the expiration of thirty
         (30) days after written notice thereof has been forwarded by
         registered mail to the Employer and after an audit of the books and
         records of the Trustee has been made under the direction of the Plan
         Administrator and has been approved by the Plan Administrator.

         At the discretion of the Employer, the Trustee may be removed as
         Trustee hereunder, but such removal shall become effective only at the
         expiration of thirty (30) days after the Employer delivers written
         notice by registered mail to the Trustee and informs the Trustee of
         the name and address of the successor trustee to which assets are to
         be transferred.

10.09    Successor Trustee.  If at any time the Trustee acting hereunder shall
         resign or be removed or cease to exist, a successor trustee or
         successor trustees shall be appointed forthwith by the Employer.
         Successor trustees may be a bank or other corporation with trust
         powers organized under the laws of the United States of America or of
         any State, an individual trustee, or a board of trustees.  Any
         successor trustee appointed hereunder may qualify as such by
         executing, acknowledging, and delivering to the Plan Administrator an
         instrument accepting such appointment, whereupon such successor shall
         be and become vested with all the estate, rights, powers, discretions,
         duties, and obligations of the original Trustee as provided in this
         Plan.

10.10    Accounting Upon Resignation or Removal of Trustee.  In the event of
         resignation or removal of the Trustee, the Trustee shall have the
         right to a full, final, and complete settlement of its account with
         the Trust either (1) by agreement of settlement between the Trustee
         and the Employer, or (2) if no such agreement can be reached, then by
         judicial settlement in an action instituted by the Trustee in a court
         of competent jurisdiction in the county where the Trustee's principal
         place of business is located.  Upon the making of such settlement, the
         Trustee shall transfer to the successor trustee all Plan assets as
         they may then be constituted, and true copies of all its records
         relating to the Trust, and shall execute all documents necessary to
         transfer the Plan assets to the successor trustee, and the Trustee
         thereupon shall be discharged from further liability for all matters
         embraced within such settlement.

10.11    Employment of Agents.  The Trustee shall be empowered to employ legal,
         accounting, clerical, and other assistance which may be required in
         carrying out the provisions of this Plan with such





                                       54
<PAGE>   60
         expenses to be paid by the Employer; provided, however, that the Plan
         Administrator may direct the Trustee to pay such expenses from Plan
         assets.

10.12    Employer Securities and Real Property.  The Trustee shall be empowered
         to acquire and hold "qualifying Employer securities" and "qualifying
         Employer real property," as those terms are defined in ERISA,
         provided, however, that the Trustee shall not be permitted to acquire
         any qualifying Employer securities or qualifying Employer real
         property if, immediately after the acquisition of such securities or
         property, the fair market value of all qualifying Employer securities
         and qualifying Employer real property held by the Trustee hereunder
         should amount to more than 100% of the fair market value of all the
         assets in the Trust Fund.





                                       55
<PAGE>   61
                                   ARTICLE XI

                       AMENDMENT, TERMINATION AND MERGERS


11.01    Amendment.  The Employer shall have the right at any time to amend
         this Agreement.  However, no such amendment shall authorize or permit
         any part of the Trust Fund (other than such part as is required to pay
         taxes and administration expenses) to be used for or diverted to
         purposes other than for the exclusive benefit of the Participants,
         Former Participants or their Beneficiaries or estates; no such
         amendment shall cause any reduction in the amount credited to the
         account of any Participant or Former Participant or cause or permit
         any portion of the Trust Fund to revert to or become property of the
         Employer; and no such amendment which affects the rights, duties or
         responsibilities of the Trustee and Plan Administrator may be made
         without the Trustee's and Plan Administrator's written consent.  Any
         such amendment shall become effective as provided therein upon its
         execution.  The Trustee shall not be required to execute any such
         amendment unless the Trust provisions contained herein are a part of
         this Agreement and the amendment affects the duties of the Trustee
         hereunder.

         For the purposes of this Section, a Plan amendment which has the
         effect of eliminating or reducing an early retirement benefit or
         eliminating, an optional form of benefit (as provided in Treasury
         regulations) shall be treated as reducing the amount credited to the
         account of a Participant or Former Participant.

11.02    Termination.  The Employer shall have the right at any time to
         terminate the Plan by delivering to the Trustee and Plan Administrator
         written notice of such termination.  A complete discontinuance of the
         Employer's contributions to the Plan shall be deemed to constitute a
         termination.  Upon any termination (full or partial) or complete
         discontinuance of contributions, all amounts credited to the affected
         Participants' or Former Participants' Accounts shall become 100%
         vested and shall not thereafter be subject to forfeiture and all
         unallocated amounts shall be allocated to the accounts of all
         Participants and Former Participants in accordance with the provisions
         hereof.  Upon such termination of the Plan, the Employer, by written
         notice to the Trustee and Plan Administrator, may direct either:

         (a)     complete distribution of the assets in the Trust Fund to the
                 Participants and Former Participants, in accordance with the
                 modes of distribution provided for in Section 6.04 of the
                 Plan, as soon as the Trustee deems it to be in the best
                 interests of the Participants and Former Participants, but in
                 no event later than two years after such termination; or,

         (b)     continuation of the Trust created by this agreement and the
                 distribution of benefits at such time and in such manner as
                 though the Plan had not been terminated.

         Provided, however, that any distributions made pursuant to this
         Section shall be subject to the rights of consent afforded to the
         Participant pursuant to Section 6.03.





                                       56
<PAGE>   62
11.03    Successor Employer.  In the event of the dissolution, merger,
         consolidation or reorganization of the Employer, provisions may be
         made by which the Plan will be continued by the successor; and, in
         that event, such successor shall be substituted for the Employer under
         the Plan.  The substitution of the successor shall constitute an
         assumption of Plan liabilities by the successor and the successor
         shall have all the powers, duties, and responsibilities of the
         Employer under the Plan.

11.04    Plan Assets.  In the event of any merger or consolidation of the Plan
         with, or transfer in whole or in part of the assets and liabilities of
         the Trust Fund to another trust fund held under, any other plan of
         deferred compensation maintained or to be established for the benefit
         of all or some of the Participants or Former Participants of this
         Plan, the assets of the Trust Fund applicable to such Participants or
         Former Participants shall be transferred to the other trust fund only
         if:

         (a)     Each Participant or Former Participant would (if either this
                 Plan or the other plan then terminated) receive a benefit
                 immediately after the merger, consolidation or transfer which
                 is equal to or greater than the benefit he would have been
                 entitled to receive immediately before the merger,
                 consolidation or transfer;

         (b)     Actions of the Employer under this Plan, or of any new or
                 successor employer of the affected Participants or Former
                 Participants, shall authorize such transfer of assets; and, in
                 the case of the new or successor employer of the affected
                 Participants or Former Participants, its resolutions shall
                 include an assumption of liabilities with respect to such
                 Participants' or Former Participants' inclusion in the new
                 employer's plan; and

         (c)     Such other plan and trust are qualified under Sections 401(a)
                 and 501(a) of the Code.





                                       57
<PAGE>   63
                                  ARTICLE XII

                                 MISCELLANEOUS


12.01    Participant's Rights.  This Plan shall not be deemed to constitute a
         contract between the Employer and any Participant or to be a
         consideration or an inducement for the employment of any Participant
         or Associate.  Nothing contained in this Plan shall be deemed to give
         any Participant or Associate the right to be retained in the service
         of the Employer or to interfere with the right of the Employer to
         discharge any Participant or Associate at any time regardless of the
         effect which such discharge shall have upon him as a Participant of
         this Plan.

12.02    Alienation.

         (a)     Subject to the exceptions provided below, no benefit which
                 shall be payable out of the Trust Fund to any person
                 (including a Participant, Former Participant or his
                 Beneficiary) shall be subject in any manner to anticipation,
                 alienation, sale,  transfer, assignment, pledge, encumbrance,
                 or charge, and any attempt to anticipate, alienate, sell,
                 transfer, assign, pledge, encumber, or charge the same shall
                 be void; and no such benefit shall in any manner be liable
                 for, or subject to, the debts, contracts, liabilities,
                 engagement, or torts of any such person, and the same shall
                 not be recognized by the Trustee, except to such extent as may
                 be required by law.

         (b)     This provision shall not apply to a "qualified domestic
                 relations order" defined in Code Section 414(p), and those
                 other domestic relations orders permitted to be so treated by
                 the Plan Administrator under the provisions of the Retirement
                 Equity Act of 1984.  The Plan Administrator shall establish a
                 written procedure to determine the qualified status of
                 domestic relations orders and to administer distributions
                 under such qualified orders.  Further, to the extent provided
                 under a "qualified domestic relations order," a former Spouse
                 of a Participant or Former Participant shall be treated as the
                 Spouse or surviving Spouse for all purposes under the Plan.

12.03    Construction of Agreement.  This Plan and Trust shall be construed and
         enforced according to ERISA and the laws of the State of Texas, other
         than its laws respecting choice of law, to the extent not preempted by
         ERISA.

12.04    Legal Action.  In the event any claim, suit, or proceeding is brought
         regarding the Trust and/or Plan established hereunder to which the
         Trustee or the Plan Administrator may be a party, and such claim,
         suit, or proceeding is resolved in favor of the Trustee or Plan
         Administrator, they shall be entitled to be reimbursed from the Trust
         Fund for any and all costs, attorney's fees, and other expenses
         pertaining thereto incurred by them for which they shall have become
         liable.





                                       58
<PAGE>   64
12.05    Prohibition Against Diversion of Funds.

         (a)     Except as provided below and otherwise specifically permitted
                 by law, it shall be impossible by operation of the Plan or of
                 the Trust, by termination of either, by power of revocation or
                 amendment, by the happening of any contingency, by collateral
                 arrangement or by any other means, for any part of the corpus
                 or income of any Trust Fund maintained pursuant to the Plan or
                 any funds contributed thereto to be used for, or diverted to,
                 purposes other than the exclusive use of Participants, Former
                 Participants or their Beneficiaries.

         (b)     In the event the Employer shall make an excessive contribution
                 under a mistake of fact pursuant to Section 403(c)(2)(A) of
                 ERISA, the Employer may demand repayment of such excessive
                 contribution at any time within one (1) year following the
                 time of payment and the Trustees shall return such amount to
                 the Employer within the one (1) year period.  Earnings of the
                 Plan attributable to the excess contributions may not be
                 returned to the Employer but any losses attributable thereto
                 must reduce the amount so returned.

12.06    Employer's and Trustee's Protective Clause.  Neither the Employer nor
         the Trustee, nor their successors, shall be responsible for the
         validity of any contract issued hereunder or for the failure on the
         part of the insurer to make payments provided by any such contract, or
         for the action of any person which may delay payment or render a
         contract null and void or unenforceable in whole or in part.

12.07    Receipt and Release for Payments.  Any payment to any Participant,
         Former Participant, his legal representative, Beneficiary, or to any
         guardian or committee appointed for such Participant, Former
         Participant or Beneficiary in accordance with the provisions of this
         agreement, shall, to the extent thereof, be in full satisfaction of
         all claims hereunder against the Trustee and the Employer, either of
         whom may require such Participant, Former Participant, legal
         representative, Beneficiary, guardian or committee, as a condition
         precedent to such payment, to execute a receipt and release thereof in
         such form as shall be determined by the Trustee or Employer.

12.08    Action by the Employer.  Whenever the Employer under the terms of this
         agreement is permitted or required to do so or perform any act or
         matter or thing, it shall be done and performed by a person duly
         authorized by its legally constituted authority.

12.09    Named Fiduciaries and Allocation of Responsibility.  The "Named
         Fiduciaries" of this Plan are (1) the Employer, (2) the Plan
         Administrator, (3) the Benefits Committee, (4) the Trustee and (5) any
         Investment Manager appointed hereunder.  The Named Fiduciaries shall
         have only those specific powers, duties, responsibilities, and
         obligations as are specifically given them under this agreement.  In
         general, the Employer shall have the sole responsibility for the
         administration of this agreement, which responsibility is specifically
         described in this agreement.  The Benefits Committee shall have any
         responsibility for the administration of the Plan as is given to them
         by the Plan Administrator.  The Trustee shall have the sole
         responsibility of management of the assets held under the Trust,
         except those assets, the management of which has been assigned to an
         Investment Manager, who shall be solely responsible for the management
         of the assets assigned to





                                       59
<PAGE>   65
         it, all as specifically provided in this agreement.  Each Named
         Fiduciary warrants that any directions given, information furnished,
         or action taken by it shall be in accordance with the provisions of
         this agreement, authorizing or providing for such direction,
         information or action.  Furthermore, each Named Fiduciary may rely
         upon any such direction, information or action of agreement to inquire
         into the propriety of any such direction, information or action.  It
         is intended under this agreement that each Named Fiduciary shall be
         responsible for the proper exercise of its own powers, duties,
         responsibilities and obligations under this agreement.  No Named
         Fiduciary shall guarantee the Trust Fund in any manner against
         investment loss or depreciation in asset value.  Any person or group
         may serve in more than one Fiduciary capacity.

12.10    Approval by the Internal Revenue Service.

         (a)     Notwithstanding anything herein to the contrary, if, pursuant
                 to an application filed by or in behalf of the Plan, the
                 Commissioner of Internal Revenue or his delegate should
                 determine that the Plan as amended and restated does not
                 initially qualify as a tax-exempt plan and trust under
                 Sections 401 and 501 of the Code, and such determination is
                 not contested, or if contested, is finally upheld, then the
                 Plan shall operate as if it had not been amended and restated.

         (b)     Any contribution by the Employer to the Trust Fund is
                 conditioned upon the deductibility of the contribution by the
                 Employer under the Code and, to the extent any such deduction
                 is disallowed, the Employer may within one (1) year following
                 a final determination of the disallowance, whether by
                 agreement with the Internal Revenue Service or by final
                 decision of a court of competent jurisdiction, demand
                 repayment of such disallowed contribution and the Trustee
                 shall return such contribution within one (1) year following
                 the disallowance.  Earnings of the Plan attributable to the
                 excess contribution may not be returned to the Employer, but
                 any losses attributable thereto must reduce the amount so
                 returned.

12.11    Uniformity.  All provisions of the Plan shall be interpreted and
         applied in a uniform, nondiscriminatory manner.





                                       60
<PAGE>   66
                                  ARTICLE XIII

                            PARTICIPATING EMPLOYERS


13.01    Adoption by Other Employers.  Notwithstanding anything herein to the
         contrary, with the consent of the Plan Administrator and Trustee, any
         other corporation or entity (provided an Owner-Employee of such entity
         does not participate in the Plan for Plan Years beginning before
         January 1, 1984), whether an Affiliate or Subsidiary or not, may adopt
         this Plan and all of the provisions hereof, and participate herein and
         be known as a Participating Employer, by a properly executed document
         evidencing said intent and will of such Participating Employer.

13.02    Requirements of Participating Employers.

         (a)     Each such Participating Employer shall be required to use the
                 same Trustee as provided in this Plan.

         (b)     The Trustee may, but shall not be required to, commingle, hold
                 and invest as one Trust Fund all contributions made by
                 Participating Employers, as well as all increments thereof.

         (c)     The transfer of any Participant from or to an Employer
                 participating in this Plan, whether he be an Associate of the
                 Employer or a Participating Employer, shall not affect such
                 Participant's rights under the Plan, and all amounts credited
                 to such Participant's Account as well as his accumulated
                 service time with the transferor or predecessor, and his
                 length of participation in the Plan, shall continue to his
                 credit.

         (d)     All rights and values forfeited by termination of employment
                 shall inure only to the benefit of the Associate Participants
                 of the Participating Employer by which the forfeiting
                 Participant was employed, except that if the forfeiture is for
                 an Associate whose Employer is a member of an affiliated or
                 controlled group, then said considered forfeiture shall be
                 allocated, based on Compensation to all Participant Accounts
                 of Participating Employers who are members of the affiliated
                 or controlled group.  Should an Associate of one ("First")
                 Employer be transferred to an associated ("Second") Employer
                 (the Employer, an Affiliate or Subsidiary), such transfer
                 shall not cause his account balance (generated while an
                 Associate of the "First" Employer) in any manner, or by any
                 amount to be forfeited.  Such Associate's Participant account
                 balance for all purposes of the Plan, including length of
                 service, shall be considered as though he had always been
                 employed by the "Second" Employer and as such had received
                 contributions, forfeitures, earning or losses, and
                 appreciation or depreciation in value of assets totaling
                 amounts so transferred.

         (e)     Any expenses of the Trust which are to be paid by the Employer
                 or borne by the Trust Fund shall be paid by each Participating
                 Employer in the same proportion that the total amount standing
                 to the credit of all Participants employed by such Employer
                 bears to the total standing to the credit of all Participants.





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<PAGE>   67
13.03    Designation of Agent.  Each Participating Employer shall be deemed to
         be part of this Plan; provided, however, that with respect to all of
         its relations with the Trustee and Plan Administrator for the purpose
         of this Plan, each Participating Employer shall be deemed to have
         designated irrevocably the Plan Administrator as its agent.  Unless
         the content of the Plan clearly indicates the contrary, the word
         "Employer" shall be deemed to include each Participating Employer as
         related to its adoption of the Plan.

13.04    Associate Transfers.  It is anticipated that an Associate may be
         transferred between Participating Employers, and the Associate
         involved shall carry with him accumulated service and eligibility.  No
         such transfer shall effect a termination of employment hereunder, and
         the Participating Employer to which the Associate is transferred shall
         thereupon become obligated hereunder with respect to such Associate in
         the same manner as was the Participating Employer from whom the
         Associate was transferred.

13.05    Participating Employers Contribution.  All contributions made by a
         Participating Employer, as provided for in this Plan, shall be paid to
         and held by the Trustee for the exclusive benefit of the Associates of
         such Participating Employer and the Beneficiaries of such Associates,
         subject to all the terms and conditions of this Plan.  Any forfeiture
         by an Associate of a Participating Employer subject to allocation
         during each Plan Year shall be allocated only for the exclusive
         benefit of the Participants of such Participating Employer in
         accordance with the provisions of this Plan.  On the basis of the
         information furnished by the Plan Administrator, the Trustee shall
         keep separate books and records concerning the affairs of each
         Participating Employer hereunder and as to the accounts and credits of
         the Associates of each Participating Employer.  The Trustee may, but
         need not, register contracts so as to evidence that a particular
         Participating Employer is the interested Employer hereunder, but in
         the event an Associate transfers from one Participating Employer to
         another, the employing Employer shall immediately notify the Trustee
         thereof.

13.06    Amendment.  Amendment of this Plan by the Employer at any time when
         there shall be a Participating Employer hereunder shall only be by
         written action of each and every Participating Employer and with the
         consent of the Trustee where such consent is necessary in accordance
         with the terms of this Plan.

13.07    Discontinuance of Participation.  Any Participating Employer shall be
         permitted to discontinue or revoke its participation in the Plan.  At
         any time of any such discontinuance or revocation, satisfactory
         evidence thereof and of any applicable conditions imposed shall be
         delivered to the Trustee.  The Trustee shall thereafter transfer,
         deliver and assign contracts and other Trust Fund assets allocable to
         the Participants of such Participating Employer to such new Trustee as
         shall have been designated by such Participating Employer, in the
         event that it has established a separate pension plan for its
         Associates.  If no successor is designated, the Trustee shall retain
         such assets for the Associates of said Participating Employer pursuant
         to the provisions of Article X hereof. In no such event shall any part
         of the corpus or income of the Trust as it relates to such
         Participating Employer be used for or diverted for purposes other than
         for the exclusive benefit of the Associates of such Participating
         Employer.





                                       62
<PAGE>   68
13.08    Plan Administrator's Authority.  The Plan Administrator shall have
         authority to make any and all necessary rules or regulations, binding
         upon all Participating Employers and all Participants, to effectuate
         the purpose of this Article.





                                       63
<PAGE>   69
                                  ARTICLE XIV

                              TOP-HEAVY PROVISIONS


14.01    Generally.  For any Plan Year in which the Plan is a Top-Heavy Plan,
         the requirements of Sections 14.02, 14.03 and 14.09 must be met in
         accordance with Section 416 of the Code and the regulations
         thereunder.

14.02    Minimum Contributions.  Minimum Employer contributions for a
         Participant who is not a Key Employee shall be required under the Plan
         for the Plan Year as follows:

         (a)     The amount of the minimum contributions shall be the lesser of
                 the following percentages of Compensation:

                 (1)      three percent or,

                 (2)      the highest percentage at which such contributions
                          are made under the Plan for the Plan Year on behalf
                          of a Key Employee.

                          (A)     For purposes of this paragraph (2), all
                                  defined contribution plans required to be
                                  included in an Aggregation Group shall be
                                  treated as one plan.

                          (B)     This paragraph (2) shall not apply if the
                                  Plan is required to be included in an
                                  Aggregation Group and the Plan enables a
                                  defined benefit plan required to be included
                                  in the Aggregation Group to meet the
                                  requirements of Sections 401(a)(4) or 410 of
                                  the Code.

         (b)     There shall be disregarded for purposes of this Section 14.02
                 any contributions or benefits under chapter 21 of the Code
                 (relating to the Federal Insurance Contributions Act), Title
                 11 of the Social Security Act, or any other Federal or State
                 law.

         (c)     For purposes of this Section 14.02, the term "Participant"
                 shall be deemed to refer to all Participants who have not
                 separated from service at the end of the Plan Year including
                 without limitation, individuals who declined to elect or make
                 contributions to the Plan.

         (d)     In determining whether a Non-Key Employee has received the
                 required minimum contribution, such Non-Key Employee's
                 Elective Deferrals shall not be taken into account.

14.03    Super Top-Heavy Plans.  If, for any Plan Year in which the Plan is a
         Top-Heavy Plan it is also Super Top-Heavy Plan, then for purposes of
         the limitations on contributions and benefit under Section 415 of the
         Code, the dollar limitations in the defined benefit plan fraction and
         the defined contribution fraction shall be multiplied by 1.0 rather
         than 1.25.  However, if the application of the provisions of this
         Section 14.03 would cause any individual to exceed the combined
         Section





                                       64
<PAGE>   70
         415 limitations on contributions and benefits, then the application of
         the provisions of this Section 14.03 shall be suspended as to such
         individual until such time as he no longer exceeds the combined
         Section 415 limitations modified by this Section 14.03.  During the
         period of such suspension, there shall be no Employer contributions or
         forfeitures allocated to such individual under this or any other
         defined contribution plan of the Employer and there shall be no
         accruals for such individual under an defined benefit plan of the
         Employer.

14.04    Determination of Top Heaviness.  The determination of whether a plan
         is Top-Heavy shall be made as follows:

         (a)     If the Plan is not required to be included in an Aggregation
                 Group with other plans, it shall be Top- Heavy only if, when
                 considered by itself, it is a Top-Heavy Plan and it is not
                 included in a permissive Aggregation Group that is not a
                 Top-Heavy Group.

         (b)     If the Plan is required to be included in an Aggregation Group
                 with other plans, it shall be Top-Heavy only if the
                 Aggregation Group, including any permissively aggregated
                 plans, is Top-Heavy.

         (c)     If a plan is not a Top-Heavy Plan and is not required to be
                 included in an Aggregation Group, then it shall not be
                 Top-Heavy even if it is permissively aggregated in an
                 Aggregation Group which is a Top-Heavy Group.

14.05    Determination of Super Top Heaviness.  A plan shall be a Super
         Top-Heavy Plan if it would be a Top-Heavy Plan under the provisions of
         Section 14.06, but substituting "90 percent" for "60 percent" in the
         ratio test in Section 14.06.

14.06    Calculation of Top-Heavy Ratios.  A plan shall be Top-Heavy and an
         Aggregation Group shall be a Top-Heavy Group with respect to any Plan
         Year as of the Determination Date, if the sum as of the Determination
         Date of the Cumulative Accrued Benefits and the Cumulative Accounts of
         Associates who are Key Employees for the Plan Year, exceeds 60 percent
         of a similar sum determined for all Associates, excluding former Key
         Employees.

14.07    Cumulative Accounts and Cumulative Accrued Accounts.  The Cumulative
         Accounts and Cumulative Accrued Benefits for any Associate shall be
         determined as follows:

         (a)     "Cumulative Account" shall mean the sum of the amount of an
                 Associate's account under a defined contribution plan (for an
                 unaggregated plan) or under all defined contribution plans
                 included in an Aggregation Group (for aggregated plans)
                 determined as of the most recent plan Valuation Date within a
                 12-month period ending on the Determination Date, increased by
                 any contributions due after such Valuation Date and before the
                 Determination Date.

          (b)    "Cumulative Accrued Benefit" means the sum of the present
                 value of an Associate's accrued benefits under a defined
                 benefit plan (for an unaggregated plan) or under all defined
                 benefit plans included in an Aggregation Group (for aggregated
                 plans), determined under





                                       65
<PAGE>   71
                 the actuarial assumptions set forth in such plan or such
                 plans, as of the most recent plan Valuation Date within a
                 12-month period ending on the Determination Date as if the
                 Associate voluntarily terminated service as of such Valuation
                 Date.

         (c)     Accounts and benefits shall be calculated to include all
                 amounts attributable to both Employer and Associate
                 contributions but excluding amounts attributable to voluntary
                 deductible Associate contributions.

         (d)     Accounts and benefits shall be increased by the aggregate
                 distributions during the five-year period ending on the
                 Determination Date made with respect to an Associate under the
                 plan or plans as the case may be or under a terminated plan
                 which, if it had not been terminated, would have been required
                 to be included in the Aggregation Group.

         (e)     If any Associate has not performed services for the Employer
                 maintaining the Plan at any time during the five-year period
                 ending on the Determination Date, any accrued benefit for such
                 Associate (and the account of such Associate) shall not be
                 taken into account.

         (f)     Rollovers and direct plan-to-plan transfers shall be handled
                 as follows:

                 (1)      If the transfer is initiated by the Associate and
                          made from a plan maintained by one employer to a plan
                          maintained by another employer, the transferring plan
                          continues to count the amount transferred under the
                          rules for counting distributions.  The receiving plan
                          does not count the amount if accepted after December
                          31, 1983, but does count the amount if accepted prior
                          to December 31, 1983.

                 (2)      If the transfer is not initiated by the Associate or
                          is made between plans maintained by the Employers,
                          the transferring plan shall no longer count the
                          amount transferred and the receiving plan shall count
                          the amount transferred.

                 (3)      For purposes of this subsection (f), all employers
                          aggregated under the rules of Sections 414(b), (c)
                          and (m) of the Code shall be considered a single
                          employer.

14.08    Other Definitions.  For purposes of this Article XIV, the following
         definitions shall apply, to be interpreted in accordance with the
         provisions of Section 416 of the Code and the regulations thereunder:

         (a)     "Aggregation Group" means a plan or group of plans which
                 includes all plans maintained by the Employers in which a Key
                 Employee is a participant or which enables any plan in which a
                 Key Employee is a participant to meet the requirements of Code
                 Section 401(a)(4) or Code Section 410, as well as other plans
                 selected by the Employer for permissive aggregation, inclusion
                 of which would not prevent the group of plans from continuing
                 to meet the requirements of such Code sections.





                                       66
<PAGE>   72
         (b)     "Compensation" shall have the meaning set forth in Section
                 4.10(a)(4), except that for purposes of this Article XIV,
                 salary deferral contributions and other deferred compensation
                 contributions made to the Plan by the Employer shall be
                 included  in compensation.

         (c)     "Determination Date" means, with respect to any Plan Year:

                 (1)      the last day of the preceding Plan Year, or

                 (2)      in the case of the first Plan Year of any plan, the
                          last day of such Plan Year.

         (d)     "Associate" means, for purposes of this Article XIV, any
                 person employed by an Employer and shall also include any
                 Beneficiary of such person, provided that the requirement of
                 Section 14.02 shall not apply to any person included in a unit
                 of Associates covered by an agreement which the Secretary of
                 Labor finds to be a collective bargaining agreement between
                 Associate representatives and one or more Employers if there
                 is evidence that retirement benefits were the subject of good
                 faith bargaining between such Associate representatives and
                 such Employer or Employers.

         (e)     "Employer" means any corporation which is a member of a
                 controlled group of corporations (as defined in Code Section
                 414(b)) which includes the Employer, or any trades or
                 businesses (whether or not incorporated) which are under
                 common control (as defined in Code Section 414(c)) with the
                 Employer, or a member of an affiliated service group (as
                 defined in Code Section 414(m)) which includes the Employer.

         (f)     "Hour of Service" shall have the meaning set forth in Section
                 2.01(32).

         (g)     "Key Employee" means as of any Determination Date, any
                 Associate, former Associate, or Beneficiary of a former
                 Associate who is, at any time during the Plan Year, or was,
                 during any one of the four preceding Plan Years any one or
                 more of the following:

                 (1)      An officer of an Employer having annual Compensation
                          greater than 50% of the limitation in effect under
                          Code Section 415(b)(1)(A) for any such Plan Year,
                          unless 50 other such officers (or, if lesser, a
                          number of such officers equal to the greater of three
                          or ten percent of the Associates) have higher annual
                          Compensation.

                 (2)      An owner (or considered an owner under Code Section
                          318) of one of the ten largest interest in the
                          Employer if such individual's annual Compensation
                          exceeds 100 percent of the dollar limitation in
                          effect under, Code Section 415(c)(1)(A).  For
                          purposes of this paragraph (2), if two Associates
                          have the same interest, the one with the greater
                          Compensation shall be treated as owning the larger
                          interest.





                                       67
<PAGE>   73
                 (3)      Any person owning (or considered as owning within the
                          meaning of Code Section 318) more than five percent
                          of the outstanding stock of an Employer or stock
                          possessing more than five percent of the total
                          combined voting power of such stock.

                 (4)      A person who would be described in paragraph (3)
                          above if "one percent" were substituted for "five
                          percent" each place it appears in paragraph (3)
                          above, and who has annual Compensation of more than
                          $150,000.  For purposes of determining ownership
                          under this subsection 14.08(g), Code Section
                          318(a)(2)(C) shall be applied by substituting "five
                          percent" for "50 percent" and the rules of
                          subsections (b), (c) and (m) of Section 414 of the
                          Code shall not apply.

         (h)     "Year of Service" means a year which constitute a "Year of
                 Service" under the rules of paragraphs (4), (5) and (6) of
                 Code Section 411(a) to the extent not inconsistent with the
                 provisions of this Article XIV.

         (i)     "Non-Key Employee" means an Associate who is not a Key
                 Employee.

14.09    Top Heavy Vesting Rule.

         (a)     Top Heavy Vesting Schedule Overrides Plan Regular Vesting
                 Schedule.  For any Top Heavy Plan Year in which the Plan's
                 Vesting Schedule contained in Section 6.01 is less rapid than
                 the "Top Heavy Vesting Schedule" below, the Vested portion of
                 any Participant's Aggregate Account (including amounts
                 credited to such Account prior to the Plan becoming Top
                 Heavy), and regardless whether a similar schedule applies to
                 Participant's Aggregate Account in any other plan, shall be
                 determined on the basis of the Participant's number of Years
                 of Service according to the following schedule:

<TABLE>
<CAPTION>
                          Years of Service                  Vested Percentage
                          ----------------                  -----------------
                          <S>                               <C>
                          Less than 2                                 0%
                          2 but less than 3                          25%
                          3 but less than 4                          50%
                          4 but less than 5                          75%
                          5 or more years                           100%
</TABLE>

         (b)     Discretion to Discontinue Top Heavy Schedule for Non-Top Heavy
                 Plan Years.  If in any Plan Year subsequent to a Top Heavy
                 Plan Year, the Plan ceases to be a Top Heavy Plan, the
                 Administrator may, in its sole and absolute discretion, elect
                 to: (1) if the Top Heavy Vesting Schedule Above is more rapid
                 than the Plan's current Vesting Schedule, to continue to apply
                 the Top Heavy Vesting Schedule at Section 14.09(a) above, in
                 determining a Participant's Aggregate Account, or (2) to
                 revert to the Vesting Schedule in effect before this Plan
                 became a Top Heavy Plan.  Any such reversion shall be treated
                 as a Plan amendment pursuant to the terms of Code section
                 411(a)(10), as set forth at Section 11.01 of the Plan.





                                       68
<PAGE>   74
         (c)     Non-application.  The Top Heavy vesting rule does not apply to
                 the Aggregate Account of any Participant who has not actually
                 worked an Hour of Service after the Plan becomes a Top Heavy
                 Plan.  Additionally, any Participants who are not credited
                 with an Hour of Service on or after October 1, 1996 will be
                 subject to the Top Heavy Vesting Schedule of the Prior Plan.





                                       69
<PAGE>   75
                                   ARTICLE XV

                                   PLAN LOANS


15.01    Authorization for Plan Loans.  The Trustee is authorized to make loans
         from the Plan ("Plan Loans") to Participants, Former Participants,
         Beneficiaries, and Alternate Payees who are "Parties in Interest" to
         the Plan, as that term is defined by ERISA Section 3(14).  For the
         purposes of this provision these individuals shall be referred to
         collectively as "Eligible Participants."

         Any outstanding loans existing on the Effective Date of this
         Restatement shall be governed by the terms of the Loan Agreement and
         the provisions of this Plan immediately before the Effective Date of
         this Restatement.  Any renewal, extension, or other modification of an
         existing loan shall be governed by the terms of this restated Plan.

15.02    Loan Procedures.  The Plan Administrator has established a loan policy
         which shall govern all loans granted or renewed pursuant to this
         Article XVI on or after the Effective Date of this Plan.  A copy of
         the loan policy is attached hereto and hereby incorporated by
         reference and made a part hereof for all purposes.





                                       70
<PAGE>   76
                                  ARTICLE XVI

                        ELIGIBLE ROLLOVER DISTRIBUTIONS


16.01    General Rule.  This Article applies to distributions made on or after
         January 1, 1993.  Notwithstanding any provision of the Plan to the
         contrary that would otherwise limit a Distributee's election under
         this Article XVI, 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.

16.02    Definitions.  For purposes of this Article XVI, the following
         definitions shall apply, to be interpreted in accordance with the
         provisions of Section 401(a)(31) of the Code and the regulations
         thereunder:

         (a)     "Eligible Rollover Distribution" means 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:

                 (1)      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;

                 (2)      any distribution to the extent such distribution is
                          required under Section 401(a)(9) of the Code; and

                 (3)      the portion of any distribution that is not
                          includible in gross income (determined without regard
                          to the exclusion for net unrealized appreciation with
                          respect to employer securities).

         (b)     "Eligible Retirement Plan" means an individual retirement
                 account described in Section 408(a) of the Code, an individual
                 retirement annuity described in Section 408(b) of the Code, an
                 annuity plan described in Section 403(a) of the Code, or a
                 qualified trust described in Section 401(a) of the Code, 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.

         (c)     "Distributee" includes an Associate or former Associate.  In
                 addition, the Associate's or former Associate's surviving
                 Spouse and the Associate's or former Associate's Spouse or
                 former Spouse who is the alternate payee under a qualified
                 domestic relations order, as





                                       71
<PAGE>   77
                 defined in Section 414(p) of the Code, are Distributees with
                 regard to the interest of the Spouse or former Spouse.

         (d)     "Direct Rollover" means a payment by the Plan to the Eligible
                 Retirement Plan specified by the Distributee.





                                       72
<PAGE>   78
         IN WITNESS WHEREOF, this Agreement has been executed this 5th day
of September, 1996.

                                                                         
                                                                         
                                       SPONSOR:                          
                                                                         
                                       HASTINGS ENTERTAINMENT, INC.      
                                                                         
                                                                         
                                       By: /s/ DENNIS McGILL
                                          -----------------------------------
                                       Name: Dennis McGill
                                            ---------------------------------
                                       Title: Vice President & CEO
                                             --------------------------------
                                                                         
                                                                         
                                                                         
                                       TRUSTEE:                          
                                                                         
                                       AMARILLO NATIONAL BANK            
                                                                         
                                                                         
                                       By: /s/ SUSAN L. POWERS
                                          -----------------------------------
                                       Name: Susan L. Powers
                                            ---------------------------------
                                       Title: Vice President & Trust Officer
                                             --------------------------------


                                      73