-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, LO95xvqm7XR0Zl6+yYBpGi/Eyo2jgx1+Yk9T4Q18gvVL31BIahEmTIp9p/j38uYU mWN0tjU0SPLV39gN9LQVgA== 0000950115-94-000159.txt : 19940523 0000950115-94-000159.hdr.sgml : 19940523 ACCESSION NUMBER: 0000950115-94-000159 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19940129 FILED AS OF DATE: 19940516 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTERN PUBLISHING GROUP INC CENTRAL INDEX KEY: 0000790706 STANDARD INDUSTRIAL CLASSIFICATION: 2731 IRS NUMBER: 061104930 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-14399 FILM NUMBER: 94528829 BUSINESS ADDRESS: STREET 1: 444 MADISON AVE STREET 2: STE 601 CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2126884500 MAIL ADDRESS: STREET 1: 444 MADISON AVE STREET 2: STE 601 CITY: NEW YORK STATE: NY ZIP: 10022 10-K 1 ANNUAL REPORT FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) /x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the Fiscal year ended January 29, 1994 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ...... to ...... Commission file number 0-14399 ------- Western Publishing Group, Inc. ------------------------------ (Exact name of registrant as specified in its charter) Delaware 06-1104930 -------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 444 Madison Avenue, New York, New York 10022 - - ------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 212-688-4500 ------------ Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of Each Class ------------------- Common Stock, par value $ .01 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes /x/ or No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, is definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /x/ The aggregate market value of the Registrant's voting stock held by non-affiliates of the Registrant, computed by reference to the closing sales price as quoted on NASDAQ on April 11, 1994, was approximately $246,263,000. As of April 11, 1994, 20,958,524 shares of the Registrant's $.01 par value common stock were outstanding. Documents Incorporated by Reference Definitive Proxy Statement for the annual meeting of stockholders to be held on June 15, 1994 (the "Proxy Statement"), filed pursuant to Section 14(a) of the Securities Exchange Act of 1934 on May 24, 1994 incorporated by reference into Part III. PART I ITEM 1. BUSINESS BACKGROUND Western Publishing Group, Inc., through its two operating subsidiaries, Western Publishing Company, Inc., a Delaware corporation, and Penn Corporation, a Delaware corporation, is engaged in two business segments. The Consumer Products segment produces and markets a variety of consumer products including children's story and picture books, coloring and activity books, educational workbooks sold at retail, interactive story books, craft products, children's pre-recorded music cassettes, book and audio cassette sets, pre-recorded video cassettes, puzzles, games, activity products incorporating electronic sounds, special interest books for adults, decorated paper tableware, paper party accessories, gift wrap products, invitations, stationery and gift items. The Commercial Products segment provides the following printing and manufacturing services: (1) graphic services and commercial printing, such as the printing of books, catalogs, labels, tax forms, magazines and trading cards; (2) specialty printing and game manufacturing, such as manufacturing, packaging and distribution of games, instructional manuals for computer software manufacturers and educational kits; (3) "Custom Publishing" services, such as the creation, production, assembly and distribution for consumer product and fast food companies of customized products for their marketing and promotional programs; and (4) manufacturing and/or the imprinting of customized writing instruments, vinyl products and wearables for the advertising specialty market and for executive gifts. Western Publishing Group, Inc.'s principal offices are located at 444 Madison Avenue, New York, New York 10022, and its telephone number is (212) 688-4500. Sale and Phase Out of Operations On November 29, 1993, the Company announced that it had recently been approached by several companies expressing a desire to discuss a business combination. The Board of Directors of the Company authorized the retention of two investment banking firms as its advisors to explore alternatives to maximize shareholder value. Based on an analysis of various alternatives, the Company adopted a plan designed to improve its competitive position and reduce its cost structure through the sale or phase out of certain operations, property divestitures and consolidations, and a workforce reduction. The plan includes the following major components: o An agreement in principle to sell the game and puzzle operation (including certain inventories) to Hasbro, Inc. (Hasbro) for approximately $103,000,000. This transaction is subject to customary conditions and is expected to be completed in the second quarter of Fiscal 1995. o The decision to exit the direct marketing continuity clubs and school book club businesses. It is anticipated that this will be completed by the end of Fiscal 1995. o The closedown and sale of the Company's Fayetteville, North Carolina manufacturing and distribution facility, which is primarily dedicated to the game and puzzle operation but will not be included in the sale to Hasbro. o The decision to streamline the Company's publishing business so as to focus on its core competencies. This will include a reduction in the management, administrative and direct labor workforces. The Company intends to use the net cash proceeds arising from the plan to repay outstanding debt under its Revolving Credit Agreement. It is anticipated that the plan, which will begin to be implemented in the first quarter of Fiscal 1995, will result in a net gain, inclusive of operating losses of the game, puzzle, direct marketing and school book club operations from January 30, 1994 through the expected disposition dates. Accordingly, the anticipated gain will not be reflected in the consolidated statement of operations until realized. Provision for Write-Down of Division On May 12, 1993, the Board of Directors of the Company directed management to review the operations of the Advertising Specialty Division of the Company's Penn Corporation subsidiary and evaluate various strategic alternatives, including its disposition. Accordingly, the Company established a provision, including operating losses through the expected disposition date, to write-down the assets of the Division to net realizable value. On April 29, 1994, the Company entered into a letter of intent to sell this Division for approximately $14,000,000. It is anticipated that this transaction, which is expected to be completed in the second quarter of Fiscal 1995, will result in a net gain. The net cash proceeds from the sale of this division will be utilized to repay outstanding debt under the Revolving Credit Agreement. BUSINESS SEGMENT INFORMATION For certain information with respect to revenues, operating profits and identifiable assets attributable to Western Publishing Group, Inc.'s Consumer Products and Commercial Products business segments, see Note 14 of the Notes to Western Publishing Group, Inc.'s consolidated financial statements, said Note being set forth on pages F-23 to F-25 herein. CONSUMER PRODUCTS SEGMENT Products Western Publishing Company, Inc. is the largest creator, publisher, manufacturer, printer and marketer of children's books in the United States. Children's books include story and picture books for children aged two through eight marketed as GOLDEN BOOKS(Registered) and LITTLE GOLDEN BOOKS(Registered), Sound Story Books and musical story books for children aged three and up marketed under the GOLDEN BOOKS(Registered) with sound, GOLDEN SIGHT & SOUND(Registered), GOLDEN(Registered) SING ALONG, MY FIRST GOLDEN SOUND STORY(Trademark), GOLDEN TALKING TALES(Trademark), GOLDEN SEEK N' SOUND(Trademark), GOLDEN(Registered) SOUND STORY(Registered) and SOUND STORY(Trademark) trademarks and activity books and products and educational workbooks for children aged two through eight marketed under the GOLDEN(Registered), MERRIGOLD(Registered), GOLDEN/STEP AHEAD(Registered) and GOLDEN/BOOK 'N' TAPE(Registered) trademarks. Activity books and products include coloring books, PAINT WITH WATER(Registered) books, STICKER FUN(Registered) books, paper doll books, pop-up books, board books, shape books, MAGIC SLATE(Registered), crayons and boxed activity products. Western Publishing Company, Inc. also produces and markets pre-recorded video and audio cassettes for children under its GOLDEN BOOK VIDEOS(Registered) and GOLDEN MUSIC(Registered) trademarks and coin collecting products under its WHITMAN(Registered) trademark. Western Publishing Company, Inc. also sells arts and crafts products under its MERRIGOLD(Registered), GOLDEN(Registered), and COLOR EXPRESS(Registered) trademarks, pre- recorded audio cassette tapes packaged with books under its BOOK 'N' TAPE trademark and other products that complement its lines of books, puzzles and games. Western Publishing Company, Inc. believes that its GOLDEN(Registered) and GOLDEN BOOK(Registered) brand names have strong consumer awareness and recognition and a reputation among consumers for creativity, quality, entertainment and educational value and customer satisfaction. Among the best known GOLDEN BOOK(Registered) titles are "Richard Scarry's Best Word Book Ever", "Pat the Bunny", "The Poky Little Puppy" and the "Golden Treasury of Children's Literature." GOLDEN(Registered) and GOLDEN BOOK(Registered) products are believed by Western Publishing Company, Inc., as a result of market research, to be recognized by virtually all American mothers with children under the age of ten. Western Publishing Company, Inc. believes that it is the nation's largest manufacturer and marketer of children's and adult jigsaw puzzles and is one of the largest producers and marketers of children's games, electronic sound games, card games, classic family board games and adult board games. Western Publishing Company, Inc.'s GUILD(Registered), FRAME TRAY(Registered) and other jigsaw puzzles range in piece count from as few as 12 piece puzzles for pre-schoolers to 1,500 piece puzzles for adults. Western Publishing Company, Inc. markets classic games such as bingo, checkers, chess, backgammon, dominoes and various boxed card games under the GOLDEN(Registered) and WHITMAN(Registered) trademarks and children's games which incorporate licensed characters. Board games include PICTIONARY(Registered), PRETTY PRETTY PRINCESS(Trademark), BALDERDASH(Trademark), OUTBURST(Registered), SONGBURST(Registered), GIRL TALK(Registered), and HI-HO! CHERRY-O(Registered). As set forth in the section entitled "Sale and Phase Out of Operations," the Company has agreed in principle to sell its games and puzzles business to Hasbro, Inc. Many of Western Publishing Company, Inc.'s products are published or produced under license from authors, inventors and other owners of intellectual properties. Other products often feature popular characters licensed from other companies, including The Walt Disney Company, Children's Television Workshop (Sesame Street(Registered)), Mattel, Inc., The Lyons Group, Time Warner, Inc. (through Warner Brothers, Inc. and D.C. Comics), MCA/Universal Merchandising, Inc., Saban Entertainment, Inc., Paramount Pictures Corporation, and Twentieth Century Fox Corporation. Western Publishing Company, Inc.'s adult non-fiction book line is designed to inform the family on subjects of special interest and includes the GOLDEN GUIDES(Registered) line of books on subjects such as science, birds and astronomy and WHITMAN(Registered) coin collector products and other special interest adult books. Western Publishing Company, Inc. however is not a major factor in the market for adult books. Penn Corporation believes that it is a recognized leader in the design and production of quality decorated paper tableware, party accessories, invitations, gift wrap products, stationery and giftware. Under its BEACH(Registered) and CONTEMPO(Registered) trademarks, Penn Corporation produces and markets to retailers an extensive line of decorated paper tableware consisting of plates, cups, napkins, table covers, guest towels, coasters and doilies in a variety of coordinated designs, themes and colors. Penn Corporation works directly with leading design studios such as Gloria Vanderbilt, Gear, Saloomey Design, Laurette, Bob Van Allen, Joan Luntz, Mary Quant and J.G. Hook to offer tableware patterns that it believes are representative of the most current international design trends. Penn Corporation also produces and/or markets an extensive line of children's party tableware, party favors and accessories (such as horns, hats and blowouts), many of which feature characters licensed from The Walt Disney Company, Western Publishing Company, Inc., Children's Television Workshop (Sesame Street(Registered)), Time Warner, Inc. and Marvel Entertainment Group, Inc. Penn Corporation also produces under its CONTEMPO(Registered) trademark a complete line of gift wrap products, including gift wrap paper, ribbons, bows, gift enclosure cards, tissue paper and tote bags. Penn Corporation's gift wrap products are produced in a wide variety of colors and designs, including the designs of many of the same leading fashion designers who design Penn Corporation's tableware products. Penn Corporation's gift wrap paper also comes in a variety of materials, including metallic and high gloss paper. Under the RENNER DAVIS(Registered) by CONTEMPO(Trademark) trademark, Penn Corporation produces and markets hand-crafted stationery and giftware. RENNER DAVIS(Registered) stationery items include correspondence cards, invitations, writing papers and envelopes. Penn Corporation's writing papers are crafted by hand from fine quality watermarked papers with a high cotton fiber content. All sheets and notes are individually hand-edged and all envelopes are either lined or hand-bordered. The RENNER DAVIS(Registered) by CONTEMPO(Trademark) giftware line includes hand-crafted keepsake boxes, imaginative gift books featuring Walt Disney Company characters, desk accessories and decorative kitchen accessories, such as address books, memo holders, picture frames and pencil holders, which are constructed from quality materials coordinated for color, finish, texture, pattern and style. Licensing Licensing agreements are important factors in the differentiation of Western Publishing Group, Inc.'s products from those of its competitors. In the year ended January 29, 1994 ("Fiscal 1994"), approximately 66% of Western Publishing Group, Inc.'s Consumer Products segment's sales were generated by books, games, activity products, paper party goods and party favors featuring popular juvenile characters and properties licensed by Western Publishing Company, Inc. and Penn Corporation from authors, illustrators, inventors and other companies. Most of Western Publishing Group, Inc.'s character licenses have terms of one to three years. Despite the relatively short period of each license, Western Publishing Group, Inc. has longstanding relationships with many of its licensors. Licenses from authors and inventors are generally longer in duration, often for the term of the copyright. Approximately 44% of the Consumer Products segment's sales in Fiscal 1994 were attributable to juvenile products incorporating characters and properties licensed from its five largest licensors: The Walt Disney Company, Children's Television Workshop (Sesame Street(Registered)), The Lyons Group, Mattel, Inc., and Time Warner, Inc. (through Warner Brothers, Inc. and D.C. Comics, Inc.). Royalty rates paid by Western Publishing Company, Inc. generally range from 6% to 10% of the invoiced price of the merchandise featuring the licensed characters and properties. Many license agreements require advance royalty payments and minimum royalty guarantees, contain editorial standards that govern Western Publishing Company, Inc.'s use of the characters and properties and can be cancelled for failure to meet these standards or certain other contractual obligations. In recent years, none of Western Publishing Company, Inc.'s licenses has been cancelled by the licensor for failure to meet these standards or obligations. Western Publishing Company, Inc. selects the characters and properties to be licensed primarily on such factors as adaptability to its markets, compatibility with its product lines, the identity of the licensor and other licensees of the character, the amount of licensor advertising and marketing support for the character, the timing of any scheduled promotion of the character and the terms offered by the licensor. Western Publishing Company, Inc. believes that the large breadth of its product categories and its vast distribution network, as well as the breadth and effectiveness of its sales and in-store retail merchandising forces, gives it an advantage over its competitors in obtaining licensing rights. However, competition to obtain licenses is intense, and Western Publishing Company, Inc. sometimes does not obtain a license that it seeks, or only obtains a non-exclusive license, and other times does not obtain a license for all of its desired product categories. In Fiscal 1994, Western Publishing Company, Inc. entered into many new licensing agreements, including Thomas The Tank Engine with Quality Family Entertainment, Sonic The Hedgehog with Sega, Muppet Workshop with Henson Associates, Ghost Writer with Children's Television Workshop and Mighty Morphin Power Rangers(Trademark) with Saban Entertainment, Inc. In addition, licenses were obtained and product lines were produced in conjunction with Disney's release of the movie, Aladdin(Registered), The Nightmare Before Christmas(Registered), Snow White(Registered) and the re-release of Pinocchio(Registered). Further, a licensing agreement was entered into with The Walt Disney Company for The Lion King, Disney's spring theatrical release. A licensing agreement was also entered into with MCA/Universal Merchandising, Inc. and Amblin Entertainment, Inc. for products related to their upcoming theatrical release of The Flintstone Movie and with 20th Century Fox Film Corporation for their upcoming "Page Master " theatrical release. Upon obtaining a license, Western Publishing Company, Inc. develops story books and other products featuring the licensed character or property to incorporate into its GOLDEN(Registered) and GOLDEN BOOK (Registered) lines and associated products. To develop those products, Western Publishing Company, Inc. utilizes its internal creative staff of over 100 editors, artists and game and puzzle designers and an extensive network of authors, artists and inventors who work on a regular, but free-lance basis, with Western Publishing Company, Inc. Penn Corporation's Beach/Contempo Division produces a line of children's party tableware and accessories featuring characters licensed from, among others, The Walt Disney Company, Western Publishing Company, Inc., Children's Television Workshop (Sesame Street(Registered)), Time Warner, Inc. and Marvel Entertainment Group, Inc. Royalty rates paid by Penn Corporation range from 5% to 10% of the invoiced price of the product on which the licensed characters appear. New Product Lines Western Publishing Group, Inc., through market research activities, has intensified its efforts to identify opportunities for either the development or acquisition of new product lines that consumers will recognize as offering value at a popular price and has allocated substantial resources to its new product acquisition and development efforts. In calendar 1991, it introduced SECRET DIARY(Trademark), a game of sharing secrets for girls, SESAME STREET ALL-STAR BAND(Trademark), a fun-filled electronic music activity product, movie poster puzzles and unreleased pre-recorded videos acquired from Media Home Entertainment, Inc. Also in 1991, Western Publishing Company, Inc. entered into a joint venture with Hersch and Company to manufacture, market, promote, sell and distribute SONGBURST(Registered), a board game based upon musical lyrics. In calendar 1992, it introduced SQUIGGLY WORMS(Trademark), a juvenile skill and action game, a relaunched HI-HO! CHERRY-O(Registered), a child's first counting game, SOUND SAFARI(Trademark), an electronic sound adventure game for children. New SOUND STORY(Registered) products in 1992 included LITTLE GOLDEN BOOKS(Registered) SOUND STORY Books, GOLDEN SING-A-LONG(Trademark) Books and BIG BIRDS TALKING BINGO(Trademark). In calendar 1993, it introduced SONGBURST COUNTRY AND WESTERN EDITION(Trademark), POPPIN POPCORN(Registered), a juvenile action game, BARBIE(Trademark) DRESS UP GAME, a dress your doll with fashion accessories game for children. It also reintroduced HUSKER DU(Registered), the match the pictures memory game and BOOBY TRAP, the suspenseful spring action game. New SOUND STORY(Registered) products in 1993 included GOLDEN SING ALONG(Trademark), MY FIRST GOLDEN SOUND STORY(Trademark) and GOLDEN TALKING TALES(Trademark) books as well as GOLDEN SEEK N' SOUND(Trademark) games. In calendar 1991, Penn Corporation's Beach/Contempo Division expanded on the success of The Victoria collection, which once again was its number one selling ensemble, as well as introducing Sesame Street(Registered) licensed products under its Contempo brand and sold to the gift and party store markets. In addition, new size gift bags, metallic tableware and die cut invitations, announcements and note pads were successfully introduced. In calendar 1992, it introduced The Pretty Florals collection of decorated paper tableware which represented the top selling designs for the year. In addition, the Garden Variety and Hot 'n Spicy collections were introduced. In calendar 1993, it introduced the first shape and die cut paper plates and the first all over spring designs for napkins and table covers. It also introduced The Disney Gift Book program of social expression books in 8 innovative formats. The Company, since acquiring Sight & Sound, Inc. in July 1990, has expanded its SOUND STORY(Registered) product line to over 85 titles, including the DELUXE SOUND STORY(Registered) with 10 sounds, the CLASSIC SOUND STORY(Registered) with 7 sounds, LITTLE GOLDEN BOOK(Registered) SOUND STORY(Registered) with 4 sounds, GOLDEN SEEK N' SOUND(Trademark) with 10 sounds and GOLDEN SING ALONG(Trademark) with 8 songs and 5 sounds. It should be pointed out that the Company sources sound pad components abroad and as a result, scheduling is an important pre-requisite to producing and distributing particular licensed product in a timely fashion. The Company experienced scheduling problems in Fiscal 1994 and, as a result, virtually none of its new sound emitting product introductions were shipped in time for the Fiscal 1994 selling season. In July 1991, Western Publishing Company, Inc. acquired the rights to a library of never before released children's pre-recorded video programs from Media Home Entertainment, Inc. This series includes such well known children's favorites as titles featuring the character Madeline, Baby Songs(Trademark) and others. Western believes that this acquired group of products has provided new product introductions since acquisition as well as a number of backlist titles. To effectively handle these new products, as well as existing video and audio products, Western Publishing Company, Inc. established separate and distinct groups of sales, creative and marketing personnel called the Golden Entertainment Group. In February 1992, Western Publishing Company, Inc. announced that, as a result of a series of agreements with Games Gang, Ltd., it had obtained the exclusive right to sell Pictionary(Registered) and Balderdash(Registered) and a group of other popular board games in the United States and other specified territories. Marketing and Distribution Western Publishing Company, Inc.'s marketing strategy for its consumer products is to create consumer demand through advertising, promotion and attractive point-of-purchase presentations in order to sell a high volume of popularly priced products, through mass merchandising chains such as Wal-Mart Stores, Inc., K-Mart Corp., Caldor, Inc. and Target Stores Incorporated, a division of Dayton Hudson Corporation; national book chains such as B. Dalton Book Seller and Walden Book Co., Inc.; toy stores such as Toys "R" Us, Inc. and Kay-Bee Toy & Hobby Shops, Inc.; supermarkets such as Winn Dixie Stores, Inc., HE Butt Grocery Co. Inc. and Smith's Food and Drug Centers, Inc.; drug chains such as Walgreens Co., Revco D.S., Inc., Long's Drug Stores Corporation and Eckerd Corporation; warehouse clubs such as The Price/Costco and Sam's Clubs (Wal-Mart Stores, Inc.); deep discount drug stores such as Drug Emporium, Inc., Marc Glassman, Inc. (Marc's) and Phar-Mor, Inc.; trade bookstores; independent toy stores and other retail outlets. A majority of Western Publishing Company, Inc.'s consumer products sales are made directly to retailers through its 164 employee direct sales force, which it believes is larger than any of its competitors. This sales force is divided into four groups. The GOLDEN Press Group, with approximately 111 salespersons, handles all book products. The GOLDEN Games Group, consisting of approximately 35 salespersons, is responsible for all games and puzzle sales. The GOLDEN Entertainment Group, consisting of 6 salespersons (established in 1991), is responsible for the sale of video and audio products. In Fiscal 1993, Western established a fourth sales force of approximately 12 salespersons dedicated to calling upon independent and emerging chain trade bookstores and designed to support the sales of Western's rapidly increasing list of higher priced, trade books sold under The Artists and Writer's Guild (Registered) and GOLD KEY(Registered) imprints. Western Publishing Company, Inc. also sells through wholesalers, distributors, sales representatives and food brokers. Western Publishing Company, Inc. generally provides retailers with permanent wood racks, spinners, plan-o-gramming and its computerized space management planning service, all of which it believes provides it with a competitive advantage in obtaining favorable shelf space for its products. To promote sales, Western Publishing Company, Inc. uses print media, television, cooperative advertising programs, point-of-sale displays and a variety of consumer promotions. Western Publishing Company, Inc. also markets selected products directly to the consumer through its Direct Marketing group. The Company intends to dispose of its Direct Marketing business as set forth in the section on "Sale and Phase Out of Operations" on page 3. Presently, its most common method of sale is through continuity club plans. This sales method features an introductory offer delivered directly to the consumer, followed by regular shipments until the program is completed or the consumer chooses to terminate the program. These programs are offered through traditional direct response media, which include direct mail, magazine and television advertising. The product offerings are divided into children's and adult programs. Current children's programs include the popular Sesame Street(Registered) Book Club and The Berenstain Bears(Registered) Cub Club, a juvenile program based on the popular Berenstain Bears and Girl Talk Fun Club, a continuity book club for preteen girls. The adult programs feature craft programs such as programs involving knitting, crocheting and sewing. Western's school book club, the Golden(Registered) Book Club, first introduced in 1990, made progress in expanding its name recognition, sales and market penetration. Beach Products markets its products to retailers through a combination of independent sales representatives and its own sales force. Beach Products provides retailers with display units and racks for its party goods and gift wrap products and conducts various sales incentive programs for its representatives and retailers. Beach Products also markets its decorated paper tableware directly to food service organizations and other institutional customers under the CUSTOMPRINTS(Registered) trademark. These items are imprinted with names, logos or messages for business and promotional use. In the mass market and chain store channels, Beach Products utilizes Western Publishing Group, Inc.'s in-store retail merchandising force. International Sales Western Publishing Group, Inc.'s international sales in Fiscal 1994 were approximately 6% of net sales, the majority of which were derived through a Canadian subsidiary of Western Publishing Company, Inc., Western Publishing (Canada) Inc., and a sales, distribution and licensing division of Western Publishing Company, Inc. in the United Kingdom. The Canadian subsidiary serves the Canadian market and distributes Western Publishing Company, Inc.'s books, puzzles and game products, as well as distributing toy and hobby products for other manufacturers. The operation located in London, England serves the United Kingdom and other European markets. The Company has been expanding its international sales to its distributor in Australia as well as to customers in Spanish speaking countries including Mexico and South America. In addition, the Company has been exporting sound pads for its SOUND STORY(Registered) books to many countries throughout Europe and the Far East. In-Store Merchandising In Fiscal 1994, Western Publishing Group, Inc. made significant investments in the further development and expansion of its in-store retail merchandising service unit. This merchandising unit operates independently of any of Western's business units or sales groups and is responsible for providing in-store merchandising services in support of all Western Publishing Group, Inc.'s product lines, i.e. Golden Press, Golden Games, Golden Entertainment and Beach Products. This unit is focused on mass market, discount, toy and chain drug classes of trade and supports Western's expansion into other retail channels. By setting plan-o-grams, moving merchandise out of stock rooms, building displays, managing racks and product presentation and performing store level ordering services, product take away has increased and additional retail space has been captured. Sales increases have been experienced in major retail chains where Western's merchandising services have been initiated. The Company believes it is providing vital services to the retailer which will enhance the long-term relationship between Western and the retailer. The merchandising group currently consists of the equivalent of over 800 permanent part-time employees. Retail Businesses o Category Management Under Western Publishing Company, Inc.'s Total Category Management program, the retailer never touches the product, but rather provides strategic direction and parameters to Western who, in turn, manages all the operational and supply chain management tasks. In Fiscal 1994, Western further enhanced its innovative "shop- within-a-store" Books 'R' Us(Trademark) concept at Toys 'R' Us. It designed, serviced, supplied, warehoused and distributed the best juvenile books from Western and more than 40 other publishers. The program was expanded to approximately 190 stores. Western returned the day to day actual operation of these "shop-within-a-store" locations over to Toys 'R' Us as of February 1, 1994. Toys 'R' Us intends to open approximately 125 additional Books 'R' Us locations in calendar 1994. All will feature a full array of Golden Books. Western has created similar merchandising innovations designed to enhance the retail environment for its product category. Just For Kids(Trademark) is a new children's book, audio and video "store-within- a-store" at Wal-Mart, Inc. Approximately 100 Just For Kids(Trademark), Wal-Mart stores are scheduled to be opened in 1994. Western's Storyland(Trademark) "store-within-an-aisle" program is a scaled down version of the same concept. It features a greatly expanded books department at mass market retailers, with a bookstore atmosphere including special racks, signage and full face presentation of children's books. The Storyland program is managed and serviced by Western. Wal-Mart, Caldor's, Fred Meyers and several other national chains are installing the program with approximately 130 stores currently in place. The number of chains and stores adapting the Storyland program is growing and Western has plans to open 550 additional locations in calendar 1994. In each case where a Storyland program has been installed, sales of children's books and of Western's books in particular, have increased markedly. o Company Stores After opening its first Golden Book(Registered) Showcase store in Schaumburg, IL. in November 1992, Western Publishing Company opened its second Golden Book(Registered) Showcase store in the CityWalk Center in Burbank, CA in June 1993. The Company opened its third store in Rockefeller Center in New York City in April 1994. Each of the stores features only Western Publishing Group, Inc. consumer products. Each store is located in a different environment. For example, the Schaumburg, IL store is located in the Woodfield Mall, an upscale suburban mall. The CityWalk store is located just outside of the Universal City tour in Burbank, CA. The New York City store is located in a midtown, high-trafficked urban area. All three Golden Book(Registered) Showcase stores permit the Company to support and expand its Golden brand recognition as well as test product and survey customers in different environments. Competition Although Western Publishing Company, Inc. has one of the largest shares of the market for children's story books and activity books, there are other major competitors in the industry, such as Random House, Inc., Simon and Schuster, Inc. and G.P. Putnam & Sons, a division of The Putnam Berkley Publishing Group, as well as many other publishers. There also are numerous competitors in the markets for puzzles, games and adult books marketed by Western Publishing Company, Inc. Competition is intense and is based primarily on price, quality, distribution, advertising and licenses. In addition, Western Publishing Company, Inc. competes for a share of consumer spending on juvenile entertainment and educational products against companies that market a broad range of other products for children. Western Publishing Company, Inc. believes that its specialized manufacturing equipment for many of its products results in lower production costs and its integrated production facilities provide it with greater flexibility in the timing and volume of its production of inventory. Its large market share in most of the product lines in which it competes gives it greater economies of scale in producing, marketing, selling and distributing those products. Penn Corporation has many major competitors in the paper tableware, gift wrap and stationery industries, such as Hallmark Cards, Inc., American Greetings, Inc., James River Company, Unique Industries, Inc., Amscan, Inc. and many other companies. Trademarks Western Publishing Company, Inc. has numerous registered trademarks in the United States and other countries, including for various uses the names LITTLE GOLDEN BOOKS(Registered), GOLDEN BOOKS(Registered), GOLDEN PRESS(Registered), GOLDEN SIGHT & SOUND(Registered), GOLDEN(Registered) SOUND STORY(Trademark), MERRIGOLD(Registered) and WHITMAN(Registered). Western Publishing Company, Inc. believes that the GOLDEN(Registered) and GOLDEN Book (Registered)trademarks are material to the conduct of its business. Western Publishing Company, Inc. also has registered the trademark MAGIC SLATE (Registered) for its well-known children's activity product and WHITMAN (Registered) for its line of products for coin collecting enthusiasts. Western Publishing Company, Inc. has certain patents, some of which are material to the conduct of its business. Penn Corporation has several registered trademarks in the United States, including BEACH(Registered), CONTEMPO(Registered) and RENNER DAVIS(Registered). Inventory; Returns; Backlog Both Western Publishing Company, Inc. and Penn Corporation have their own production capabilities and do not rely to any material extent on suppliers for their finished product inventory needs, except for a limited number of products that they do not self-manufacture. Western Publishing Company, Inc. continues to maintain a high level of finished goods inventory to improve customer service (see Management's Discussion & Analysis on page 20 for a discussion of inventory). When Company approval is secured in advance, a customer may return saleable merchandise. Both companies provide payment terms standard in their respective industries, which, in the case of Western Publishing Company, Inc., includes extended dating programs. Backlog is not meaningful to either company's business. Regulation Some of Western Publishing Company, Inc.'s products must comply with the child safety laws which, in general, prohibit the use of materials that might be hazardous to children. Western Publishing Company, Inc. maintains its own materials testing laboratory to assure the quality and safety of its products. Western Publishing Company, Inc. has experienced no difficulty and incurred no material costs in complying with these laws. Certain of Penn Corporation's tableware products are subject to regulations of the Food and Drug Administration and the Company has experienced no difficulty and incurred no material costs in complying with these regulations. COMMERCIAL PRODUCTS SEGMENT Western Publishing Company, Inc., through its Diversified Products Division, provides printing and publishing services to others. Western Publishing Company, Inc. groups these activities into five principal categories: graphic services and commercial printing; specialty printing and game manufacturing; custom publishing services; literature and software distribution services; and educational kit manufacturing. Western Publishing Company, Inc. has been shifting its business emphasis from commercial printing to the other activities of its Diversified Products Division, which are less price sensitive and which can utilize its creative resources and specialized production equipment. Graphic Services and Commercial Printing A substantial portion of Western Publishing Company's graphic services and commercial printing business is concentrated in the printing of books, industrial manuals, catalogs, labels and promotional materials. Western Publishing Company, Inc. also engages in commodity printing (such as tax instruction booklets and tax forms), which business usually is obtained on a competitive bid basis and is generally produced when Western has open production capacity available. Customers include Random House, Inc., Bantam Doubleday Dell Inc., the American Bible Society, the International Bible Society, the U.S. government, Houghton Miflin Company, Musical Heritage Society, Inc., etc. Specialty Printing and Game Manufacturing Specialty printing services include printing, packaging and distributing for others printed products such as games, puzzles, playing cards, trading picture cards and posters. Customers include Classic Games, Inc. (a subsidiary of The Score Board, Inc.), Regina Press (a division of Malhave & Co.), Publishers and Importers, Inc. and TH-Q, Inc. Custom Publishing Custom publishing includes the creation, design, production, assembly and distribution for major consumer products and fast food companies of customized products for their marketing and promotional programs. Recent Custom Publishing customers include Wendy's International, Inc., Pizza Hut Inc., Continental Baking Company, Motts Division (Cadbury Beverages Inc.) and Continental Airlines, Inc. Custom publishing utilizes the complete creative capabilities of Western Publishing Company, Inc., as well as its marketing, art, editorial, rights and royalty and product engineering groups. Educational Kit Manufacturing Educational kit manufacturing includes the printing, sorting and collating of as many as 200 different components for one kit. Western Publishing Company, Inc. has produced educational kits for the nation's foremost educational publishers, including World Book, Inc., Scott Foresman & Company, Inc. and Macmillan/McGraw-Hill. Literature Distribution and Software Publishing The literature distribution and software manual printing segment includes the printing of manuals, providing telemarketing services and physical distribution for software publishing companies. Recent customers for whom Western Publishing Company, Inc. has provided these services have included IBM, Sun Microsystems, Inc., Xerox Corporation and Aldus Corporation. Marketing and Competition Western Publishing Company, Inc.'s Diversified Products services are sold by approximately 38 employee sales representatives located in ten field sales offices throughout the United States. Western Publishing Company, Inc. utilizes its consumer products resources and relationships to assist in the marketing of its Diversified Products services. Competition, which is based upon price, quality and delivery, is intense, particularly in the graphics and commercial printing businesses. Western Publishing Company, Inc. competes in this area with hundreds of companies, the largest of which is R.R. Donnelly & Sons Company. GENERAL INFORMATION Seasonality Western Publishing Group, Inc. experiences seasonality, particularly in the Consumer Products segment, with highest revenues in the third fiscal quarter. Western Publishing Company, Inc. generally uses certain of its production facilities that are not being fully utilized for its consumer products for its graphics and commercial printing activities, thereby somewhat reducing the seasonality of Western Publishing Company, Inc.'s overall business. However, overall sales have migrated to the second half of the fiscal year and, in Fiscal 1994, approximately 61% of revenues were generated in this time period. Raw Materials Both Western Publishing Company, Inc. and Penn Corporation use a wide variety of paper, plastic, inks and other raw materials in the manufacture of their products. Neither Western Publishing Company, Inc. nor Penn Corporation is dependent on any one supplier for any raw material, and neither has experienced any material difficulty in obtaining raw materials or subcontracted products. Employees Western Publishing Group, Inc. employs in the aggregate approximately 4,200 full-time employees and 799 part time employees. Approximately 1,100 employees are represented by labor unions. In Fiscal 1994, Western Publishing Company, Inc. negotiated new three-year contracts with the International Automobile workers on terms it considers satisfactory. Western Publishing Company, Inc. and Penn Corporation, believe that their relations with their employees are generally good. ITEM 2. PROPERTIES Western Publishing Company, Inc.'s facilities are designed principally for the manufacture of products of its Consumer Products and Diversified Products Divisions. Western Publishing Company, Inc. devotes substantial resources to maintain its facilities in good operating condition and, where appropriate, to improve facilities so that they are cost-efficient and competitive in the principal markets in which it competes. Western Publishing Company, Inc. has substantial sheetfed and web press manufacturing capacity in its Cambridge, Maryland and Racine, Wisconsin plants, and substantial game and puzzle manufacturing and printing capacity in its Fayetteville, North Carolina plant. Capacity utilization in these facilities, based on operating three shifts a day, five days a week, averaged approximately 81% in Fiscal 1994. Penn Corporation's manufacturing facilities are designed solely for the manufacture of its products. These facilities are maintained in good operating condition and, where necessary, upgraded in line with business needs. Penn Corporation employs certain sophisticated machinery in its manufacturing facilities including sophisticated napkin, table cover, paper plate and cup making machinery, including color presses, a narrow web press, plate formers, table cover embosser/folders and Senning wrap-over machines at its BEACH/CONTEMPO Division; and paper cutting, scoring, box erecting and envelope making machinery at its RENNER DAVIS(Registered) Division. Certain information as to the significant properties used by Western Publishing Company, Inc. and Penn Corporation in the conduct of their businesses is set forth in the following table: Location Square Feet Type of Use - - -------- ----------- ----------- Racine, 1,556,000 Corporate, creative and marketing Wisconsin offices; printing and facilities; warehousing Fayetteville, 1,036,000 Game and puzzle production and North Carolina assembly; warehousing and distribution Coffeyville, 672,000 Warehousing and distribution Kansas Kalamazoo, 458,000 Corporate offices; manufacturing; Michigan warehousing and distribution Cambridge, 200,000 Printing; warehousing Maryland Cambridge, 148,000 Canadian corporate offices; sales Ontario, Canada offices; warehousing and distribution Crawfordsville, 403,000 Distribution and Warehousing Indiana Little Rock, 135,000 Warehousing Arkansas Fenton, 74,000 Manufacturing; warehousing and Missouri distribution W. Springfield, 41,000 Manufacturing; warehousing Massachusetts New York, 35,000 Publishing offices; sales offices New York New York, 17,000 Showroom New York New York, 2,213 Retail Store New York All of these properties are owned by either Western Publishing Company, Inc. or Penn Corporation, except for three leases covering 438,000 square feet of the Wisconsin properties (leases expire July 31, 1994, January 31, 1995, and August 31, 1995 with Western Publishing Company, Inc. having options to renew with respect to these leases); one lease in Little Rock, Arkansas expiring May 31, 1994, which will not be renewed; two leases covering 90,000 square feet in Cambridge, Maryland, the first of which expires on September 30, 1995 and the second of which is on a month to month basis; two leases covering 283,000 square feet in Fayetteville, North Carolina, the first of which expired on March 31, 1994 but was renewed on a month to month basis and the second of which expires on June 30, 1994; one lease covering 60,000 square feet in Coffeyville, Kansas which expired April 30, 1994, and will not be renewed; one lease covering the Massachusetts property (lease expires May 31, 1995 with Penn Corporation having an option to renew); one lease covering the Creve Coeur, Missouri property (lease expires May 31, 1995 with Penn Corporation having an option to renew); and three leases covering the New York properties (leases expire March 31, 2003, April 30, 2003 and March 31, 2003; two of which are with a subsidiaries of Western Publishing Company, Inc.). All of these properties, except for West Springfield, Massachusetts and Canada are employed in both the Consumer Products and Commercial Business Segments; the West Springfield, Massachusetts, the Little Rock, Arkansas and the Canada properties are used solely in the Consumer Products business segment. In addition to the properties described above, Western Publishing Company, Inc. and Penn Corporation own or rent various other properties that are used for administration, sales offices and warehousing. Western Publishing Group, Inc. believes that, in general, its plants and equipment are well maintained and in good operating condition and adequate for its present needs. Western Publishing Group, Inc. regularly upgrades and modernizes its facilities and equipment. Capital additions were $37,359,000 in Fiscal 1994. ITEM 3. LEGAL PROCEEDINGS Western Publishing Group, Inc. and its subsidiaries are parties to certain legal proceedings which are incidental to their ordinary business and none of which involve amounts in controversy which are material to Western Publishing Group, Inc. or its subsidiaries. Two subsidiaries of Western Publishing Group, Inc., Western Publishing Company, Inc. ("Western") and Penn Corporation ("Penn"), face potential environmental liabilities under the Comprehensive Environmental Response, Compensation and Liability Act (commonly know as "CERCLA" or "SuperFund") and other federal and state laws as a result of past off-site waste disposal practices. The United States Environmental Protection Agency ("EPA"), and in some cases state regulatory agencies, have informed Western that it is a potentially responsible party ("PRP") at six disposal sites and that Penn is a PRP at one such site. In each instance, the affected subsidiary of Western Publishing Group, Inc. is one of a number of PRPs that have been identified by EPA or the relevant state agency. In addition, Western maintains insurance coverage for certain of its liabilities and has asserted claims against its insurers. At three of these sites, the volume of waste disposed of by Western is relatively small compared to other PRPs. As such, Western either has been, or is likely to be, determined to be a "de minimis" party. In addition, during the first quarter of 1994, Western was identified as a PRP at a fourth site. To date in its investigation, Western has not discovered any information demonstrating that it shipped any material to this site. At a fifth site, Western's liability is limited to approximately 4% of the total costs at the site, which are estimated to be in the range of $22,000,000. Western has reached a settlement with certain of its insurance carriers with respect to this site pursuant to which these insurers have reimbursed Western for a portion of Western's liability and defense costs. At a sixth site, the Hertel Landfill in Plattekill, New York, Western is one of six PRPs that have been identified by EPA. In September 1991, EPA approved a remedial action for the site that had a present value cost of approximately $8 million. In September 1992, EPA issued a unilateral administrative order to the six PRPs. This order requires the implementation of the remedial design and remedial action for the site. Believing that it had sufficient cause not to comply, Western did not comply with the order. One of the other PRPs is complying with the order. Western anticipates that this PRP will seek a monetary contribution from Western in the future. In addition, although Western has certain defenses available to it, EPA could seek penalties of up to $25,000 per day and/or its costs plus treble damages from Western resulting from Western's decision not to comply with the administrative order. Western and the performing PRP are actively engaged in an effort to identify other PRPs at the Hertel Landfill site, with the goal of seeking contribution from them for the remedial design and remedial action activities. The parties have not allocated responsibility at this site on a percentage basis, and liability for response costs under CERCLA can be joint and several. Western and certain of Western's insurers have entered into a Confidential Partial Interim Settlement Agreement pursuant to which they have agreed, inter alia, subject to certain conditions, to stay litigation brought by Western for a period of two years. Upon expiration of the stay, it is anticipated that the parties would resume litigation concerning the insurers' duty to defend and indemnify Western. A division of Penn has been identified as a PRP at the West KL Avenue Landfill site in Kalamazoo, Michigan. In September 1990, EPA approved a remedial action for this site that EPA estimated would cost $16.2 million. The PRP identified as the largest contributor to the site is conducting the cleanup, and has entered into settlements with approximately 225 other PRPs. This PRP filed a private cost recovery action against Penn and approximately 40 other PRPs in 1992 in the U.S. District Court for the Western District of Michigan. The percentage of waste at the site attributed to Penn is approximately 1% or less of the total volume of waste shipped to the site, but Penn has not been able to reach a settlement with the plaintiff PRP. The litigation is currently in discovery. Western and Penn are actively pursuing resolution of the aforementioned matters. Western Publishing Group, Inc. does not believe that any of these liabilities will be material to its business, financial condition or results of operations. Where known, provision has been made for any uninsured portion of any liabilities Western or Penn may have. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. EXECUTIVE OFFICERS OF THE REGISTRANT NAME AGE POSITION(S) - - ---- --- ----------- Glenn R. Albrecht 57 Senior Vice President-Logistics and Distribution of Western Publishing Company, Inc. Bruce A. Bernberg 50 Senior Vice President, Finance and Administration of Western Publishing Company, Inc. Richard A. Bernstein 47 Director, Chairman and Chief Executive Officer of Western Publishing Group, Inc.; Chairman of Western Publishing Company, Inc.; Chairman, President and Chief Executive Officer of Penn Corporation James A. Cohen 48 Senior Vice President-Legal Affairs and Secretary of Western Publishing Group, Inc.; Vice President-Legal Affairs and Secretary of Western Publishing Company, Inc. and Penn Corporation. Frank P. DiPrima 56 Director, President and Chief Operating Officer of Western Publishing Group, Inc. Ira A. Gomberg 50 Vice President-Business Development and Corporate Communications of Western Publishing Group, Inc.; Vice President of Penn Corporation Dale Gordon 45 Vice President and General Counsel of Western Publishing Group, Inc., Western Publishing Company, Inc. and Penn Corporation Steven M. Grossman 33 Vice President-Financial Planning of Western Publishing Group, Inc. George P. Oess 58 President of Western Publishing Company, Inc. Lily Lai Ray 34 Vice President -- Worldwide Sourcing of Western Publishing Group, Inc. Ilan Reich 39 Vice President-Special Projects of Western Publishing Group, Inc. Stuart Turner 49 Executive Vice President, Treasurer and Chief Financial Officer of Western Publishing Group, Inc.; Executive Vice President and Treasurer of Western Publishing Company, Inc.; Executive Vice President, Treasurer and Chief Financial Officer of Penn Corporation Laurence Usdin 51 Vice President and Corporate Controller of Western Publishing Group, Inc. Hal B. Weiss 37 Vice President and Assistant Treasurer of Western Publishing Group, Inc. Mr. Albrecht has been Senior Vice President-Logistics and Distribution of Western Publishing Company, Inc. since March 24, 1994. Prior to that Mr. Albrecht had been Senior Vice President-Manufacturing and Distribution from May 24, 1991 to March 23, 1994. From August 1986 to May 1991, Mr. Albrecht had been Vice President of Manufacturing. Mr. Albrecht joined Western Publishing Company, Inc. in a manufacturing management capacity in 1973. Prior to being appointed Vice President, Mr. Albrecht held a succession of manufacturing management positions. Mr. Albrecht is a board member of the Racine United Way, a director of Printing Industries of Wisconsin and a director of the Racine Area Manufacturers Association. Mr. Bernberg has been Senior Vice President-Finance and Administration of Western Publishing Company, Inc. since May 1987. Mr. Bernberg joined Western Publishing Company, Inc. as Vice President, Finance in 1982 and was elected Treasurer and Chief Financial Officer in 1984. Mr. Bernberg is a director of St. Mary's Medical Center and St. Lukes Hospital in Racine, Wisconsin. He is also a director of MEI, Inc. Mr. Bernstein has been Chairman and Chief Executive Officer of Western Publishing Group, Inc. and Chairman of Western Publishing Company, Inc. since February 1984. From 1984 to August 1989, Mr. Bernstein was also President of Western Publishing Group, Inc. In November 1986, Mr. Bernstein became Chairman, President and Chief Executive Officer of Penn Corporation. He is President of P&E Properties, Inc., a private commercial real estate ownership/management company, and has been for more than five years. Mr. Bernstein is the sole shareholder of P&E Properties, Inc. He is a member of the Regional Advisory Board of Chemical Bank, a member of the Board of Trustees of New York University, a member of the Board of Overseers of the New York University Stern School of Business, a Director and Vice President of the Police Athletic League, Inc., a member of the Board of Trustees of the Hospital for Joint Diseases/Orthopaedic Institute, a member of the Board of Directors of The Big Apple Circus, Inc., a member of the Investment Advisory Board of the New York State Employees Retirement System, a member of The New York State Legislative Commission on Expenditure Review and a member of The Economic Club of New York. Mr. Cohen has been Senior Vice President-Legal Affairs and Secretary of Western Publishing Group, Inc. since December 1991 and a senior executive of P&E Properties, Inc. since February 1984. From February 1984 until December 1991 he was Vice President, General Counsel and Secretary of Western Publishing Group, Inc. He became Vice President- Legal Affairs and Secretary of Western Publishing Company, Inc. in March 1987. In November 1986, Mr. Cohen became Secretary of Penn Corporation and in April 1987, Vice President and General Counsel of that corporation. From March 1982 to February 1984 Mr. Cohen held various senior positions with the United States Department of Housing and Urban Development, including Regional Counsel. From 1976 to 1982 Mr. Cohen was the Deputy Regional Counsel of the United States Department of Energy. Mr. DiPrima is President and Chief Operating Officer of Western Publishing Group, Inc., serving in that capacity since May 1990. From June 1987 to May 1990, Mr. DiPrima served as Executive Vice President and Chief Operating Officer of Thompson Medical Company, Inc., a corporation that owns and markets a variety of advertised non-prescription drugs and at the time of Mr. DiPrima's employment also owned and marketed SLIM-FAST(Registered) products. Between June 1984 and June 1987, Mr. DiPrima was Executive Vice President and Chief Operating Officer of Jeffrey Martin, Inc., a national marketer of health and beauty aids. Previously, Mr. DiPrima served for four years at Merck & Co., Inc., nine years at Schering-Plough Corporation, and five years at Playboy Enterprises, Inc., in various capacities in legal and financial affairs and in general management. Mr. DiPrima is a former member of the Board of Directors of the Nonprescription Drug Manufacturers Association. He is admitted to practice law in the states of New York, New Jersey, Illinois and Tennessee and in the District of Columbia. Mr. Gomberg has been Vice President-Business Development and Corporate Communications of Western Publishing Group, Inc. since February 1986. In April 1987, Mr. Gomberg became a Vice President of Penn Corporation. In addition, he is a Vice President and Assistant Secretary of Western Publishing Company, Inc. Since February 1986, he has also been a senior executive of P&E Properties, Inc. From 1976 through January 1986, Mr. Gomberg was employed by Sony Corporation of America, a manufacturer and distributor of consumer electronic products, first as General Counsel and after November 1983 as Vice President-Government Affairs. Mr. Gordon joined Western Publishing Company, Inc. in August 1993 as Vice President and General Counsel. He became Vice President and General Counsel of Western Publishing Group, Inc. and Penn Corporation in January, 1994. From 1980 through July 1993 he was with Playboy Enterprises, Inc. in various legal/management positions, most recently as Vice President, Secretary and Associate General Counsel. Mr. Grossman joined Western Publishing Group, Inc. in July 1992 as Vice President-Financial Planning. From August 1983 to July 1992 Mr. Grossman was with the public accounting firm of Deloitte & Touche. He is a Certified Public Accountant licensed in the State of New York. Mr. Oess was elected President of Western Publishing Company, Inc. on April 7, 1992. He had been Executive Vice President-Consumer Products from May 1991 through April 7, 1992. Mr. Oess joined Western Publishing Company, Inc. in a sales management capacity in 1968 and since then has held a succession of management responsibilities. He was appointed Vice President-Commercial Products of Western Publishing Company, Inc. in 1976 and Senior Vice President-Business Development in 1989. Ms. Ray joined Western Publishing, Group, Inc. in February 1993 as Vice President -- Worldwide Sourcing. From 1991 to January 1993 she served as an independent consultant for Mattel KK (Japan) working on projects related to shipping and planning. From 1989 to 1991 she served as Senior Group Manager of Planning and Development at Mattel as well as General Manager of their Arco Toys Division in Thailand. Mr. Reich has been Vice President-Special Projects of Western Publishing Group, Inc. since October 1992. Since December, 1987 he has also been an employee of P&E Properties, Inc. Mr. Turner has been the Executive Vice President, Treasurer and Chief Financial Officer of Western Publishing Group, Inc. and Executive Vice President of Western Publishing Company, Inc. since February 1984. In November 1986, Mr. Turner became the Executive Vice President, Treasurer and Chief Financial Officer of Penn Corporation. Since May 1981, Mr. Turner has been a senior executive of P&E Properties, Inc. From 1969 to May 1981 he was a partner of Turner, Imowitz and Company, a firm of certified public accountants. Mr. Usdin has been Vice President, Corporate Controller of Western Publishing Group, Inc. since August 1990. Mr. Usdin joined Western Publishing Group, Inc. in 1989 as Corporate Controller. From 1988 to 1989, Mr. Usdin was Vice President-Finance of New American Shoe Company, Inc. and from 1982 to 1988 he was Vice President-Finance and Corporate Controller of Ziff Communications Company. From 1973 to 1982 he was associated with Mego International, Inc. in several financial positions, including Senior Vice President-Finance. Mr. Usdin is a Certified Public Accountant. He serves on the Advisory Board to Pace University's Masters of Science in Publishing program. Mr. Weiss has been Vice President and Assistant Treasurer of Western Publishing Group, Inc. since August 1990. From April 1986 until July 1990, Mr. Weiss was Controller and Assistant Treasurer of Western Publishing Group, Inc. and from November 1986 until July 1989 he was Controller of Penn Corporation. In addition, Mr. Weiss has been Controller of P&E Properties, Inc. since 1985. Mr. Weiss is a Certified Public Accountant. Prior to joining Western Publishing Group, Inc. in 1985, Mr. Weiss practiced public accounting. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS STOCKHOLDERS' INFORMATION COMMON STOCK PRICES Western Publishing Group, Inc. completed an initial public offering of its Common Stock on April 22, 1986. The Common Stock is traded over-the-counter and is quoted on the NASDAQ National Market System (symbol WPGI). The following table sets forth the range of prices (which represent actual transaction) by quarter as provided by the National Association of Securities Dealers, Inc. Fiscal Year Ended January 29, 1994 High Low First Quarter 18 1/2 13 1/4 Second Quarter 17 3/8 13 3/8 Third Quarter 16 3/4 13 3/8 Fourth Quarter 20 1/4 12 1/4 Fiscal Year Ended January 30, 1993 High Low First Quarter 19 1/8 16 1/4 Second Quarter 18 5/8 15 Third Quarter 22 3/4 15 5/8 Fourth Quarter 22 1/2 16 DIVIDEND POLICY Since its organization in 1984, Western Publishing Group, Inc. has not paid any cash dividends on its Common Stock. Management does not anticipate the payment of cash dividends on Common Stock in the foreseeable future (see Note 6 to the Company's Consolidated Financial Statements). ITEM 6. SELECTED FINANCIAL DATA
1994 1993 1992 1991 1990 (In Thousands Except For Per Share Data) INCOME STATEMENT DATA: REVENUES: Net sales $613,464 $649,089 $552,360 $491,089 $507,785 Royalties and other income 3,211 3,062 2,141 2,486 3,865 -------- -------- -------- -------- -------- Total revenues 616,675 652,151 554,501 493,575 511,650 -------- -------- -------- -------- -------- COSTS AND EXPENSES: Cost of sales 432,192 425,274 365,913 324,082 320,718 Selling, general and administrative 203,353 188,161 160,059 148,293 147,709 Provision for write-down of division 28,180 -------- -------- -------- -------- -------- Total costs and expenses 663,725 613,435 525,972 472,375 468,427 -------- -------- -------- -------- -------- (LOSS) INCOME BEFORE INTEREST EXPENSE, INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (47,050) 38,716 28,529 21,200 43,223 INTEREST EXPENSE 16,270 10,358 6,255 7,533 8,230 -------- -------- -------- -------- -------- (LOSS) INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (63,320) 28,358 22,274 13,667 34,993 (BENEFIT) PROVISION FOR INCOME TAXES (22,295) 10,860 8,580 5,650 12,045 -------- -------- -------- -------- -------- (LOSS) INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (41,025) 17,498 13,694 8,017 22,948 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (14,800) -------- -------- -------- -------- -------- NET (LOSS) INCOME $(55,825) $ 17,498 $ 13,694 $ 8,017 $ 22,948 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- (LOSS) INCOME PER COMMON SHARE: Before cumulative effect of change in accounting principle $ (1.99) $ .80 $ .62 $ .34 $ 1.05 Cumulative effect of change in accounting principle (.71) -------- -------- -------- -------- -------- NET (LOSS) INCOME $ (2.70) $ .80 $ .62 $ .34 $ 1.05 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- BALANCE SHEET DATA (AT PERIOD END): Working capital $332,979 $283,101 $106,556 $ 95,474 $ 95,466 Total assets 505,116 508,585 390,965 331,740 311,906 Long-term debt 229,812 179,797 3,902 Convertible preferred stock 9,985 9,985 9,985 9,985 9,985 Common stockholders' equity 158,673 215,246 199,393 186,857 182,245
The selected financial data should be read in conjunction with the audited consolidated financial statements and notes thereto included elsewhere herein. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FISCAL YEAR ENDED JANUARY 29, 1994 (FISCAL 1994) COMPARED TO FISCAL YEAR ENDED JANUARY 30, 1993 (FISCAL 1993) Revenues for the year ended January 29, 1994 decreased $35.5 million (5.4%) to $616.7 million as compared to $652.2 million for the year ended January 30, 1993. On May 12, 1993, the Board of Directors of the Company directed management to review the operations of the Advertising Specialty Division of the Company's Penn Corporation subsidiary and evaluate various strategic alternatives, including its disposition. Therefore, subsequent to the Company's first quarter ended May 1, 1993, the results of operations do not include the results of this Division. Excluding revenues of the Advertising Specialty Division for both periods, revenues decreased 1.2% or $7.6 million as compared to the prior year. Consumer Products Segment revenues decreased $7.4 million (1.4%) for the year ended January 29, 1994. The decrease was primarily due to decreases in domestic consumer product sales and the negative effect of foreign currency rates with respect to the Company's international sales during the year. The decline in domestic consumer product sales was primarily the result of out-of- stock conditions of fast moving titles and late availability of new product introductions, partially offset by increased sales from category management programs. Commercial product segment revenues, other than revenues of the Advertising Specialty Division, is comprised of printing services which decreased $.3 million (.4%) for the year ended January 29, 1994. The decline for the year was due to a decrease in sales of graphic products, offset by increases in the sale of kits and custom publishing. Price increases in the Consumer Products Segment were approximately 5%. Sales of printing services are the result of individual agreements entered into with customers as to price and services performed. Accordingly, the effects on inflation cannot be determined on the sales of printing services. The loss before the provision for write-down of Division, interest expense, income taxes and the cumulative effect of a change in accounting principle for the year ended January 29, 1994 was $18.9 million as compared to income of $38.7 million for the year ended January 30, 1993. This decrease of $57.6 million was the result of a $42.4 million decrease in gross profit and a $15.2 million increase in selling, general and administrative expenses. In addition, the Company recorded a $28.2 million provision to write- down the carrying value of the assets of the Advertising Specialty Division to their estimated net realizable value. Gross profit for the year ended January 29, 1994 was $184.5 million, compared to $226.9 million for the year ended January 30, 1993, a decrease of 18.7%. As a percentage of revenues, the gross profit margin decreased to 29.9% for fiscal 1994 as compared to 34.8% for fiscal 1993. In the Consumer Products Segment, gross profit decreased $33.8 million (16.1%) to $176.1 million for the year ended January 29, 1994 as compared to the year ended January 30, 1993. As a percentage of revenues, the consumer gross profit margin decreased to 32.7% for fiscal 1994 as compared to 38.5% for fiscal 1993. A substantial portion of the decrease in gross profit margin was due to lower production in response to higher average inventories, resulting in negative manufacturing variances. Additionally, the decrease in gross profit was attributable to an unfavorable change in product mix, increased inventory obsolescence, increased freight costs associated with category management programs and increased storage costs incurred in conjunction with higher average inventories. In the Commercial Products Segment, the gross profit margin of printing services decreased to 11.3% from 11.9% of revenues for the year, as compared to the prior year. The decrease was primarily due to the change in sales mix to lower margin services, partially offset by a reduction in unfavorable manufacturing variances. Selling, general and administrative expenses for the year ended January 29, 1994 increased $15.2 million (8.1%) to $203.4 million as compared to $188.2 million for the year ended January 30, 1993. Consumer Products Segment increases were primarily attributable to increased costs for the expansion of the in-store retail merchandising force and category management programs of $11.4 million, increased creative costs and increased general and administrative expenses, including the annual costs of postretirement benefits, other than pension costs, offset by a decrease in consumer advertising. Interest expense for the year increased $5.9 million to $16.3 million as compared to $10.4 million in fiscal 1993. The increase was due to higher average debt outstanding and higher interest rates. Total average outstanding debt increased to $248.7 million in fiscal 1994 from $168.4 million in fiscal 1993 (see Financial Condition, Liquidity and Capital Resources), while average interest rates increased to 6.6% for fiscal 1994 as compared to 6.1% for fiscal 1993. The increase in average interest rates resulted primarily from the issuance of $150 million, 10 year maturity, 7.65% Senior Notes in September, 1992. The effective income tax benefit rate was 35.2% in fiscal 1994, as compared to an income tax rate of 38.3% in fiscal 1993. The change in effective tax rate is primarily the result of the inability to utilize loss carrybacks against state taxes, resulting in a lower state income tax benefit in fiscal 1994. This was offset by the 1% increase in the federal statutory rate. The loss for the year ended January 29, 1994, before the provision to write-down of Division and the cumulative effect of a change in accounting principle (postretirement benefits other than pensions) was $21.7 million or $1.07 per share, compared to income of $17.5 million or $.80 per share for the year ended January 30, 1993. During the first quarter of fiscal 1994, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions", using the immediate recognition method. As a result, the Company recorded a pre-tax non-cash charge of $24.3 million ($14.8 million, net of income taxes) or $.71 per share as a cumulative effect of a change in accounting principle in the statement of operations. The Company's provision for write-down of Division was $28.2 million ($19.3 million, net of income taxes) or $.92 per share. Therefore, the net loss for the year was $55.8 million or $2.70 per share. The seasonality of the Company's business, which leads to a greater percentage of sales and profits in the third quarter of the fiscal year, continued in fiscal 1994. With respect to fiscal 1995, the Company's operating results for the first quarter will experience a downturn as compared with the prior year due to the continuing difficult retail environment caused by unusually severe weather conditions in much of the country, distractions resulting from the contemplated sale of the Company, overhead reduction measures announced during the first quarter and the pending sales of certain of the Company's operating divisions and product lines. FISCAL YEAR ENDED JANUARY 30, 1993 (FISCAL 1993) COMPARED TO FISCAL YEAR ENDED FEBRUARY 1, 1992 (FISCAL 1992) Western Publishing Group, Inc.'s revenues increased $97.7 million (17.6%) to $652.2 million in fiscal 1993, as compared to $554.5 million in fiscal 1992. Consumer Products Segment revenues increased $105.7 million (24.0%). This increase was due, in large part, to growth in sales of storybooks (includes Sound Storybooks(Registered)), puzzles, activity books, games, paper tableware and party goods. Commercial Products Segment revenues decreased $7.6 million (6.7%) due to a sales decrease of $9.3 million (11.6%) in printing services partially offset by a sales increase of $1.7 million (5.0%) in sales of Advertising Specialty products over the comparable period in the prior year. Price increases in the Consumer Products Segment were approximately 4%. Sales of printing services are the result of individual agreements entered into with customers as to price and services performed. Accordingly, the effects of inflation cannot be determined on the sales of printing services. Income before interest expense and income taxes increased $10.2 million (35.7%) to $38.7 million in fiscal 1993, as compared to $28.5 million in fiscal 1992. As a percentage of total revenues, this was an increase to 5.9% of revenues in fiscal 1993 as compared to 5.1% in fiscal 1992. This increase was the result of a $38.3 million increase in gross profit, offset by a $28.1 increase in selling, general and administrative expenses. Gross profit increased $38.3 million (20.3%) to $226.9 million for the year ended January 30, 1993, as compared to $188.6 million for the year ended February 1, 1992. As a percentage of revenues, the gross profit margin increased to 34.8% for the year ended January 30, 1993, from 34.0% for the year ended February 1, 1992. The increase in gross profit margin for the year is due to a change in product mix to higher gross profit margin consumer products and a decrease in sales of lower margin commercial products. In the Consumer Products Segment, gross profit increased $39.5 million (23.2%) to $209.9 million in fiscal 1993 as compared to $170.3 million in fiscal 1992. The increase in gross profit was attributable to increased sales. As a percentage of revenues, the gross profit margin was approximately the same at 38.5% in fiscal 1993 as compared to 38.7% in fiscal 1992. Notwithstanding a decrease in sales in the Commercial Products Segment, the gross profit margin increased to 14.9% in fiscal 1993 from 14.1% in fiscal 1992. The increase was primarily in printing services which experienced a change in sales mix to higher margin products. Selling, general and administrative expenses for the year ended January 30, 1993, increased $28.1 million (17.6%) to $188.2 million as compared to $160.1 million for the year ended February 1, 1992. This increase was primarily in the Consumer Products Segment and was attributable to increases in sales promotion, selling expense (primarily costs for the in-store retail merchandising force) and advertising. Interest expense increased $4.1 million (65.6%) to $10.4 million in fiscal 1993 as compared with $6.3 million in fiscal 1992. The increase was due to higher average debt outstanding, partially offset by lower interest rates. Total outstanding debt, due to the planned increase in consumer products finished goods inventory, increased to an average of $168.4 million in fiscal 1993 from $92.5 million in fiscal 1992, (see Financial Condition, Liquidity and Capital Resources), while average interest rates were 6.1% and 6.6%, respectively. The effective tax rate decreased to 38.3% in fiscal 1993, from 38.5% in fiscal 1992. The slight decrease was primarily due to the favorable effect of foreign tax credits. Net income increased $3.8 million (27.8%) to $17.5 million as compared to $13.7 million in 1992. Income per common share increased 29.0% to $.80 per share in fiscal 1993, from $.62 per share in fiscal 1992. The trend toward seasonality, leading to greater sales and profits in the third fiscal quarter continued in fiscal 1993. EFFECTS OF INFLATION During fiscal 1990, the Company experienced significant increases in its costs for certain raw materials, particularly paper, which is the Company's primary raw material. A portion of the inflationary effects were recouped through price increases. In fiscal 1991, additional productive capacity in the paper industry caused a decline in paper costs. In fiscal 1993 and fiscal 1994, paper prices remained stable. Management does not anticipate that there will be any significant increase in the cost of raw materials in fiscal 1995. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES Operations for the year ended January 29, 1994, excluding non-cash charges for depreciation, amortization, provision for losses on accounts receivable, the adoption of FASB No. 106, the provision for the write-down of a division and changes in working capital, provided cash of approximately $17.5 million. The profit for the year ended January 30, 1993, excluding depreciation, amortization, provision for losses on accounts receivable and changes in working capital, provided cash of approximately $36.7 million. During the years ended January 29, 1994 and January 30, 1993, other changes in assets and liabilities, resulting from operating activities, amounted to $32.0 million and $107.5 million, respectively, resulting in net cash used in operating activities of $14.5 million and $70.8 million, respectively. Acquisitions of property, plant and equipment, were $37.4 million during the year ended January 29, 1994 as compared to $23.7 million during the year ended January 30, 1993. In fiscal 1994, the Company acquired and retrofitted a 403,000 square foot distribution center in Crawfordsville, Indiana. The distribution center is expected to cost approximately $10 million, of which $9.0 million was expended through January 29, 1994. The Company is currently reconsidering its previously announced plans to undertake a facility expansion of its paper tableware and party goods operations in Kalamazoo, Michigan in conjunction with the Company's plan to improve its competitive position and reduce its overall operating cost structure. As yet, no material commitments for this facility expansion have been made. Cash provided by financing activities during the year ended January 29, 1994, was primarily from borrowings under the Company's Revolving Credit Agreement, while the issuance of the 7.65% Senior Notes provided the cash from financing activities during the year ended January 30, 1993. Working capital increased to $333.0 million from $283.1 million at January 30, 1993. This increase includes $17.0 million of games, puzzles, direct marketing continuity and school book club non- current assets which were reclassified to net assets held for sale. Accounts receivable at January 29, 1994, decreased $7.1 million (a 4.9% decrease), as compared to the prior year, which is consistent with the decrease in revenues. Inventories, including $30.6 million which was reclassified to net assets held for sale, decreased $56.5 million, as compared to January 30, 1993. This is the result of the Company's inventory management program which was designed and implemented in fiscal 1994 to reduce overall inventory levels. Additionally, the income tax effect of the fiscal 1994 operating results increased refundable and current deferred income taxes $22.3 million. The balance of loans outstanding under the Revolving Credit Agreement at January 29, 1994 as compared to January 30, 1993, increased by $50.0 million to a total of $80.0 million. The increase in the loan balance was primarily utilized to fund operating losses and capital expenditures, offset by reductions in accounts receivable and inventories. The Company's Revolving Credit Agreement, dated November 12, 1992, initially provided for a line of credit totaling $200 million. The facility provides for the seasonal working capital requirements of the Company. In October, 1993, the Revolving Credit Agreement was amended to provide credit availability of $140 million from December 28, 1993 until the third quarter of fiscal 1995. Subsequently, an agreement was entered into to further amend the Revolving Credit Agreement to provide for borrowings up to $125 million through July 31, 1994 and $140 million thereafter; in each case, including letters of credit of $10 million. Concurrent with the completion of the sale of the game and puzzle operation (the "Sale"), the Revolving Credit Agreement facility will be $90 million, including letters of credit of $10 million. Additionally, the provision that borrowings not exceed $115 million during any thirty day period in the first quarter of each fiscal year will be $15 million after the Sale. The Revolving Credit Agreement expires May 31, 1995. The Company's management believes that the credit facilities available under the Revolving Credit Agreement are sufficient to meet the Company's seasonal borrowing needs. RECENT EVENTS As discussed in Note 2 to the Consolidated Financial Statements, the Company adopted a plan which is aimed at focusing management's attention on its core competencies, and therefore grow the Company's publishing, paper party goods, stationery and printing businesses. The plan is designed to improve the Company's competitive position and reduce its operating cost structure through the sale or closedown of certain operations, property divestitures and consolidations, and a reduction in the management, administrative and direct labor workforces. It is anticipated that the plan will be substantially completed by the fourth quarter of fiscal 1995. This plan was adopted after extensive consultation with the Company's investment bankers upon completion of discussions with parties which had expressed an interest in a business combination with the Company, as the best means available to maximize value to shareholders. The Company is no longer engaged in discussions regarding a business combination. As part of the plan, the Company has entered into an agreement in principle to sell its game and puzzle operation to Hasbro, Inc. for approximately $103 million (including the sale of certain inventories). This transaction is subject to customary conditions and is expected to be completed in the second quarter of fiscal 1995. In conjunction therewith, the Company intends to close its Fayetteville manufacturing and distribution facility, where manufacturing is primarily dedicated to games and puzzles. Additionally, the Company will exit the direct marketing continuity and school book club businesses. The sale of the game and puzzle operation, along with the implementation of the balance of the plan is expected to have a favorable effect on the Company's financial position, results of operations, and future capital requirements. As a result of the plan, the Company will dispose of operations with fiscal 1994 aggregate sales of approximately $125,000,000 and pre-tax operating losses of approximately $20,000,000. Furthermore, the Company estimates that the disposition of those operations will reduce the Company's average working capital needs by approximately $60,000,000. The Company will use the net cash proceeds from the sale of the game and puzzle operation to repay outstanding indebtedness under its Revolving Credit Agreement facility, which was $100 million on April 30, 1994. Annual operating cost savings associated with the plan, exclusive of the impact of the sale of the game, puzzle, direct marketing and school book club operations will begin to be realized in the second quarter of fiscal 1995. The Company will continue to evaluate opportunities for additional cost savings through fiscal 1995, including possible additional facility consolidations and further headcount reductions. In addition to the plan's adoption, the Company entered into a letter of intent to sell the Advertising Specialty Division of the Company's Penn Corporation subsidiary for approximately $14 million. The transaction, which is subject customary conditions, is expected to be completed in the second quarter of fiscal 1995. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Index to Consolidated Financial Statements and Schedules on Page F-1. CONSOLIDATED QUARTERLY FINANCIAL INFORMATION
First Second Third Fourth Quarter Quarter Quarter Quarter (In Thousands Except For Per Share Data) 1994 Net sales $ 110,325 $ 130,988 $ 200,573 $ 171,578 Gross profit 33,765 40,785 63,999 42,723 (Loss) income before cumulative effect of change in accounting principle (1) (30,312) (3,966) 2,426 (9,173) Net (loss) income (1) (45,112) (3,966) 2,426 (9,173) (Loss) income per common share: Before cumulative effect of change in accounting principle $ (1.45) $ (.20) $ .11 $ (.45) Net (loss) income (2.16) (.20) .11 (.45) Weighted average number of common shares 20,950 20,957 20,959 20,959 1993 Net sales $ 120,997 $ 123,840 $ 227,176 $ 177,076 Gross profit 41,300 42,964 83,484 56,067 Net income 2,133 1,376 12,936 1,053 Net income per common share $ .09 $ .06 $ .61 $ .04 Weighted average number of common shares 20,869 20,880 20,912 20,935
(1) Includes provision for write-down of Division of $28,180, before income taxes of $8,900 ($6,400 of which was recognized in the first quarter and $2,500 in the fourth quarter). The impact on net loss per share for the year was $.92. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information called for with respect to directors is incorporated by reference to the information under "Business Experience of Nominees for Election as Directors" at pages 3 through 5 of the Proxy Statement. The information called for with respect to executive officers appears in Part I of this Report. ITEM 11. EXECUTIVE COMPENSATION The information called for is incorporated by reference to the information under "Executive Compensation" at page 10 and 11 of the Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information called for is incorporated by reference to the information under "Stock Ownership of Principal Stockholders" and "Stock Ownership of Directors ard Officers at pages 2 and 5 of the Proxy Statement, respectively. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information called for is incorporated by reference to the information under "Certain Transactions" at page 12 of the Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) See Index to Consolidated Financial Statements and Schedules on Page F-1. EXHIBITS 3.1 Restated Certificate of Incorporation of the Registrant dated March 11, 1986 (incorporated by reference to Exhibit 3.1 to the Registrant's Registration Statement No 33-4127 on Form S-1 (the "Registration Statement")). 3.2 Certificate of Correction of the Certificate of Incorporation of the Registrant dated January 13, 1987 (incorporated by reference to Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for fiscal year 1988 (the "1988 Form 10-K")). 3.3 Amendment to Certificate of Incorporation of Registrant as approved by a majority of the stockholders at the Annual Meeting of Stockholders held May 14, 1987 (incorporated by reference to Exhibit 3.3 to the 1988 Form 10-K). 3.4 Amendment to Certificate of Incorporation of Registrant as approved by a majority of the stockholders at the Annual Meeting of Stockholders held May 17, 1990 (incorporated by reference to Exhibit 3.4 to the 1991 Form 10-K). 3.5 By-laws of the Registrant (incorporated by reference to Exhibit 3.4 to the 1988 Form 10-K). 4.1 Form of certificate for shares of the Registrant's Common Stock (incorporated by reference to Exhibit 4.4 to the Registration Statement). 10.27 Lease dated January 15, 1985, between PG Investments and Western Publishing Company, Inc. with amendment dated January 22, 1986 (incorporated by reference to Exhibit 10.9 to the Registration Statement). 10.28 Amendment dated December 29, 1986, between PG Investments and Western Publishing Company, Inc. to the lease dated January 15, 1985, as amended (incorporated by reference to Exhibit 10.9 to the 1988 Form 10-K). 10.29 Amendment dated January 18, 1988, between PG Investments and Western Publishing Company, Inc. to the Lease dated January 15, 1985, as amended (incorporated by reference to Exhibit 10.10 to the 1988 Form 10-K). 10.30 Amendment dated August 25, 1988, between PG Investments and Western Publishing Company, Inc. to the Lease dated January 15, 1985, as amended (incorporated by reference to Exhibit 10.16 to the 1989 Form 10-K). 10.31 Amendment dated December 21, 1989, between PG Investments and Western Publishing Company, Inc. to the Lease dated January 15, 1985, as amended (incorporated by reference to Exhibit 10.31 to the Registrant's Annual Report on Form 10-K for the fiscal year 1990 (the "1990 Form 10-K")). 10.32 Lease commencing July 24, 1988, between Jeno Partnership and Western Publishing Company, Inc. (incorporated by reference to Exhibit 10.17 to the 1989 Form 10-K). 10.33 Lease dated February 1, 1989, between Golden Press, Inc. and 850 Third Ave. LP (incorporated by reference to Exhibit 10.33 to the Registrant's Annual Report on Form 10-K for the fiscal year 1990 (the "1990 Form 10-K")). 10.33a First Amendment Agreement dated as of February 3, 1993 (to lease dated February 1, 1989) between 850 Third Avenue Limited Partnership and Golden Press, Inc., as modified by Letter Agreement dated February 3, 1993 (incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year 1990). 10.34 Lease dated November 9, 1992, between 200 Fifth Avenue Associates and Western Publishing Company, Inc. 10.35 Warehouse Lease Agreement -- Indenture dated as of April 15, 1987, between Cambridge Terminal Warehouse and Western Publishing Company, Inc. (incorporated by reference to Exhibit 10.21 to the 1988 Form 10-K). 10.36 Lease Amendment dated March 17, 1989, between Cambridge Terminal Warehouse and Western Publishing Company, Inc. to the Warehouse Lease Agreement -- Indenture dated as of April 15, 1987 (incorporated by reference to Exhibit 10.36 to the Registrant's Annual Report on Form 10-K for the fiscal year 1990 (the "1990 Form 10-K")). 10.37 Lease dated May 1, 1987, between West Springfield Industrial Center, Inc. and Penn Corporation (incorporated by reference to Exhibit 10.23 to the 1988 Form 10-K). 10.39 Indenture to Lease dated March 24, 1988, between The Equitable Life Assurance Society of the United States and Penn Corporation (incorporated by reference to Exhibit 10.29 to the 1989 Form 10-K). 10.40 Golden Comprehensive Security Program, as amended and restated, effective January 1, 1993 10.53 Golden Retirement Savings Program, as amended and restated, effective as of January 1, 1993. 10.63 Penn Corporation Comprehensive Security Program, effective January 1, 1987 (incorporated by reference to Appendix A to the Registrant's Registration Statement 33-18430 on Form S-8 (the "Penn Comprehensive Registration Statement")). 10.64 First Amendment of Penn Corporation Comprehensive Security Program, effective November 2, 1987 (incorporated by reference to Appendix A to the Penn Comprehensive Registration Statement). 10.65 Second Amendment of Penn Corporation Comprehensive Security Program, effective January 1, 1987 (incorporated by reference to Exhibit 10.36 to the 1988 Form 10-K). 10.66 Third Amendment of Penn Corporation Comprehensive Security Program, effective November 2, 1987 (incorporated by reference to Exhibit 10.37 to the 1988 Form 10-K). 10.67 Fourth Amendment of Penn Corporation Comprehensive Security Program, effective January 1, 1988 (incorporated by reference to Exhibit 10.48 to the 1989 Form 10-K). 10.68 Fifth Amendment of Penn Corporation Comprehensive Security Program, effective January 1, 1988 (incorporated by reference to Exhibit 10.49 to the 1989 Form 10-K). 10.69 Sixth Amendment of Penn Corporation Comprehensive Security Program, effective January 1, 1988 (incorporated by reference to Exhibit 10.50 to the 1989 Form 10-K). 10.70 Seventh Amendment of Penn Corporation Comprehensive Security Program, effective January 1, 1987, 1988 or 1989 as applicable (incorporated by reference to Exhibit 10.52 to the 1990 Form 10-K). 10.71 Eighth Amendment of Penn Corporation Comprehensive Security Program, effective October 18, 1989 (incorporated by reference to Exhibit 10.67 to the Registrant's Annual Report on Form 10-K for the fiscal year 1990 (the "1990 Form 10-K")). 10.71a Ninth Amendment of Penn Corporation Comprehensive Security Program, effective July 1, 1991 (incorporated by reference to Exhibit 10.67 to the Registrant's Annual Report on Form 10-K for the fiscal year 1990 (the "1990 Form 10-K")). 10.71b Tenth Amendment of Penn Corporation Comprehensive Security Program effective April 1, 1993 (incorporated by reference to Exhibit 10.67 to the Registrant's Annual Report on Form 10-K for the fiscal year 1990 (the "1990 Form 10-K")). 10.72 Beach Products (Division of Penn Corporation) Retirement Savings Program, effective May 2, 1989 (incorporated by reference to Exhibit 10.72 to the Registrant's Annual Report on Form 10-K for the fiscal year 1992 (the "1992 Form 10-K")). 10.73 First Amendment of Beach Products (Division of Penn Corporation) Retirement Savings Program, effective October 1, 1990 (incorporated by reference to Exhibit 10.73 to the Registrant's Annual Report on Form 10-K for the fiscal year 1992 (the "1992 Form 10-K")). 10.74 Second Amendment of Beach Products (division of Penn Corporation) Retirement Savings Program, effective October 17, 1991 (incorporated by reference to Exhibit 10.74 to the Registrant's Annual Report on Form 10-K for the fiscal year 1993 (the "1993 Form 10-K")). 10.74a Third Amendment of Beach Products (division of Penn Corporation) Retirement Savings Program, effective July 1, 1991 (incorporated by reference to Exhibit 10.73 to the Registrant's Annual Report on Form 10-K for the fiscal year 1993 (the "1993 Form 10-K")). 10.74b Fourth Amendment of Beach Products (division of Penn Corporation) Retirement Savings Program, effective April 1, 1993 (incorporated by reference to Exhibit 10.73 to the Registrant's Annual Report on Form 10-K for the fiscal year 1993 (the "1993 Form 10-K")). 10.75 Master Trust Agreement between the Registrant, Western Publishing Company, Inc., Penn Corporation and Bankers Trust Company, effective November 19, 1987 (incorporated by reference to Exhibit 10.38 to the 1988 Form 10-K). 10.76 Form of Agreement between the Registrant, Penn Corporation and certain employees of Penn Corporation relating to the award of shares of common stock of the Registrant, as adopted by the Board of Directors of the Registrant on May 1, 1987 (incorporated by reference to Exhibit 10.39 to the 1988 Form 10-K). 10.77 Amended and Restated 1986 Employee Stock Option Plan of the Registrant (incorporated by reference to Exhibit 10.40 to the 1988 Form 10-K). 10.78 Amendment dated April 11, 1989 to the Amended and Restated 1986 Employee Stock Option Plan of the Registrant (incorporated by reference to Exhibit 10.56 to the 1990 Form 10-K). 10.79 Employment Agreement dated the 24th day of April, 1990 between Western Publishing Group, Inc. and Frank P. DiPrima (incorporated by reference to Exhibit 10.72 to the Registrant's Annual Report on Form 10-K for the fiscal year 1991 (the "1991 Form 10-K")). 10.80 Western Publishing Company, Inc.'s Executive Medical Reimbursement Plan dated January 1, 1991 (incorporated by reference to Exhibit 10.73 to the Registrant's Annual Report on Form 10-K for the fiscal year 1991 (the "1991 Form 10-K")). 10.88 Credit Agreement dated as of November 12, 1992, providing up to $200 million, among the Registrant, Western Publishing Group, Inc. and a group of commercial banks (incorporated by reference to Exhibit 10.88 to the Form 10-Q for the quarter ended October 31, 1992). 10.89 Amendment No. 1 dated as of July 31, 1993, to the Credit Agreement dated as of November 12, 1992 10.90 Amendment No. 2 dated as of October 30, 1993, to the Credit Agreement dated as of November 12, 1992. 10.91 Guarantee Agreement dated as of December 13, 1993, to the Credit Agreement dated as of November 12, 1992. 10.92 Amendment No. 3 dated as of May 13, 1994 to the Credit Agreement dated as of November 12, 1992. 21.1 List of Subsidiaries. 23.1 Consent dated May 13, 1994 of Deloitte & Touche, Independent Auditors. 99.1 Financial Statements for the Golden Comprehensive Security Program. 99.2 Financial Statements for the Golden Retirement Savings Program. 99.3 Financial Statements for the Penn Corporation Comprehensive Security Program. 99.4 Undertaking incorporated by reference into Part II of certain registration statements on Form S-8 of the Registrant. b) Reports on Form 8-K. None. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: May 16, 1994 Western Publishing Group, Inc. By: /s/ Richard A. Bernstein -------------------------- Richard A. Bernstein, Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been executed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. Signature Title Date - - --------- ----- ---- /s/ Richard A. Bernstein Chairman, Chief Executive May 16, 1994 - - ------------------------------ Officer and Director Richard A. Bernstein (Principal Executive Officer) /s/ Stuart Turner Executive Vice President, May 16, 1994 - - ------------------------------ Treasurer and Chief Financial Stuart Turner Officer (Principal Financial and Accounting Officer) /s/ Frank P. DiPrima President, Chief Operating May 16, 1994 - - ------------------------------ Officer and Director Frank P. DiPrima /s/ Allan S. Gordon Director May 16, 1994 - - ------------------------------ Allan S. Gordon /s/ Robert A. Bernhard Director May 16, 1994 - - ------------------------------ Robert A. Bernhard /s/ Samuel B. Fortenbaugh, III Director May 16, 1994 - - ------------------------------ Samuel B. Fortenbaugh, III /s/ Michael A. Pietrangelo Director May 16, 1994 - - ------------------------------ Michael A. Pietrangelo /s/ Jenny Morgenthau Director May 16, 1994 - - ------------------------------ Jenny Morgenthau WESTERN PUBLISHING GROUP, INC AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS AND SCHEDULES Financial Statements PAGE - - -------------------- ---- Independent Auditors' Report F-2 Consolidated Balance Sheets as of January 29, 1994 and January 30, 1993. F-3 Consolidated Statements of Operations for the Years ended January 29, 1994, January 30, 1993 F-4 and February 1, 1992. Consolidated Statements of Common Stockholders' Equity for the Years Ended January 29, 1994, January 30, 1993 and February 1, 1992. F-5 Consolidated Statements of Cash Flows for the Years Ended January 29, 1994, January 30, 1993 and February 1, 1992. F-6 Notes to Consolidated Financial Statements. F-7 Schedules VIII -- Valuation and Qualifying Accounts S-1 IX -- Short-Term Borrowings S-2 X -- Supplementary Income Statement Information S-3 Schedules which are not included have been omitted because either they are not required or are not applicable or because the required information has been included elsewhere in the consolidated financial statements or notes thereto. INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Western Publishing Group, Inc.: We have audited the accompanying consolidated balance sheets of Western Publishing Group, Inc. and subsidiaries as of January 29, 1994 and January 30, 1993, and the related consolidated statements of operations, common stockholders' equity and cash flows for each of the three years in the period ended January 29, 1994. Our audits also included the financial statement schedules listed in the Index at Item 14. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the companies at January 29, 1994 and January 30, 1993, and the results of their operations and their cash flows for each of the three years in the period ended January 29, 1994 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. As discussed in Note 13 to the consolidated financial statements, in fiscal 1994 the companies changed their method of accounting for postretirement benefits other than pensions to conform with Statement of Financial Accounting Standards No. 106. DELOITTE & TOUCHE Milwaukee, Wisconsin May 13, 1994 WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JANUARY 29, 1994 AND JANUARY 30, 1993 (In Thousands Except for Share and Per Share Data)
ASSETS 1994 1993 CURRENT ASSETS: Cash and cash equivalents $ 9,513 $ 10,441 Accounts receivable 137,921 145,006 Inventories 121,178 177,630 Prepublication and prepaid advertising costs 7,720 17,600 Royalty advances 2,970 4,020 Refundable income taxes 12,830 Deferred income taxes 20,823 11,362 Net assets held for sale 88,523 Other current assets 10,361 9,707 -------- -------- Total current assets 411,839 375,766 -------- -------- OTHER ASSETS: Deferred income taxes 1,439 Other noncurrent assets 11,008 16,353 -------- -------- Total other assets 12,447 16,353 -------- -------- PROPERTY, PLANT AND EQUIPMENT: Cost: Land 1,013 1,556 Buildings and improvements 21,472 22,344 Machinery and equipment 76,874 86,446 Machinery and equipment in process of installation 9,242 3,908 -------- -------- 108,601 114,254 Less accumulated depreciation 41,351 40,597 -------- -------- Total property, plant and equipment 67,250 73,657 IDENTIFIED INTANGIBLES AND COST IN EXCESS OF NET ASSETS ACQUIRED (GOODWILL), less accumulated amortization of $17,066 and $35,088 13,580 42,809 -------- -------- TOTAL $505,116 $508,585 -------- -------- -------- --------
See notes to consolidated financial statements.
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993 CURRENT LIABILITIES: Accounts payable $ 40,532 $ 44,469 Accrued compensation and fringe benefits 10,644 12,760 Income taxes 342 4,879 Other current liabilities 27,342 30,557 -------- -------- Total current liabilities 78,860 92,665 -------- -------- NONCURRENT LIABILITIES AND CREDITS: Long-term debt 229,812 179,797 Accumulated postretirement benefit obligation 25,949 Deferred income taxes 9,440 Other 1,837 1,452 -------- -------- Total noncurrent liabilities and credits 257,598 190,689 -------- -------- CONVERTIBLE PREFERRED STOCK - Series A, 20,000 shares authorized, no par value, 19,970 shares issued and outstanding; at mandatory redemption amount 9,985 9,985 -------- -------- COMMON STOCKHOLDERS' EQUITY: Common Stock, $.01 par value, 30,000,000 shares authorized, 21,167,324 and 21,148,424 shares issued 212 211 Additional paid-in capital 80,213 79,914 Retained earnings 82,714 139,387 Cumulative translation adjustments (1,644) (1,444) -------- -------- 161,495 218,068 Less cost of Common Stock in treasury - 208,800 shares 2,822 2,822 -------- -------- Total common stockholders' equity 158,673 215,246 -------- -------- TOTAL $505,116 $508,585 -------- -------- -------- --------
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS THREE YEARS ENDED JANUARY 29, 1994 (In Thousands Except for Per Share Data)
1994 1993 1992 REVENUES: Net sales $613,464 $649,089 $552,360 Royalties and other income 3,211 3,062 2,141 -------- -------- -------- Total revenues 616,675 652,151 554,501 -------- -------- -------- COSTS AND EXPENSES: Cost of sales 432,192 425,274 365,913 Selling, general and administrative 203,353 188,161 160,059 Provision for write-down of division 28,180 -------- -------- -------- Total costs and expenses 663,725 613,435 525,972 -------- -------- -------- (LOSS) INCOME BEFORE INTEREST EXPENSE, INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (47,050) 38,716 28,529 INTEREST EXPENSE 16,270 10,358 6,255 -------- -------- -------- (LOSS) INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (63,320) 28,358 22,274 (BENEFIT) PROVISION FOR INCOME TAXES (22,295) 10,860 8,580 -------- -------- -------- (LOSS) INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (41,025) 17,498 13,694 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (14,800) -------- -------- -------- NET (LOSS) INCOME $(55,825) $ 17,498 $ 13,694 -------- -------- -------- -------- -------- -------- (LOSS) INCOME PER COMMON SHARE: Before cumulative effect of change in accounting principle $ (1.99) $ .80 $ .62 Cumulative effect of change in accounting principle (.71) -------- -------- -------- Net (loss) income $ (2.70) $ .80 $ .62 -------- -------- -------- -------- -------- --------
See notes to consolidated financial statements. WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY THREE YEARS ENDED JANUARY 29, 1994 (In Thousands Except for Share and Per Share Data)
Common Stock Additional Cumulative Treasury Stock ------------------ Paid-In Retained Translation --------------- Shares Amount Capital Earnings Adjustments Shares Amount BALANCES, FEBRUARY 3, 1991 21,070,924 $211 $78,669 $109,891 $ 908 208,800 $2,822 Net income 13,694 Dividends on Preferred Stock - $42.50 per share (848) Exercise of stock options, including related income tax benefits 4,500 60 Translation adjustments (370) ---------- ---- ------- -------- ------- ------- ------ BALANCES, FEBRUARY 1, 1992 21,075,424 211 78,729 122,737 538 208,800 2,822 Net income 17,498 Dividends on Preferred Stock - $42.50 per share (848) Exercise of stock options, including related income tax benefits 73,000 1,185 Translation adjustments (1,982) ---------- ---- ------- -------- ------- ------- ------ BALANCES, JANUARY 30, 1993 21,148,424 211 79,914 139,387 (1,444) 208,800 2,822 Net loss (55,825) Dividends on Preferred Stock - $42.50 per share (848) Excercise of stock options, including related income tax benefits 18,900 1 299 Translation adjustments (200) ---------- ---- ------- -------- ------- ------- ------ BALANCES, JANUARY 29, 1994 21,167,324 $212 $80,213 $ 82,714 $(1,644) 208,800 $2,822 ---------- ---- ------- -------- ------- ------- ------ ---------- ---- ------- -------- ------- ------- ------
See notes to consolidated financial statements. WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS THREE YEARS ENDED JANUARY 29, 1994 (In Thousands)
1994 1993 1992 CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $(55,825) $ 17,498 $ 13,694 Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Depreciation 12,108 8,506 8,128 Amortization of intangibles arising from acquisition 4,888 4,798 5,210 Provision for losses on accounts receivable 5,662 5,855 5,061 Provision for write-down of division 26,405 Cumulative effect of change in accounting principle (before income tax benefit) 24,300 (Gains) losses on sale of equipment (26) 109 61 Other 1,330 720 80 Changes in assets and liabilities: Accounts receivable (9,222) (29,669) (29,146) Inventories 17,959 (62,088) (25,531) Prepublication and prepaid advertising costs 1,431 (3,482) (2,918) Royalty advances (202) 535 (1,510) Refundable income taxes (12,830) Other current assets (2,280) (4,041) (1,060) Accounts payable (1,087) (6,301) 25,265 Accrued compensation and fringe benefits (1,021) (625) 1,828 Income taxes (4,466) (3,599) 438 Other current liabilities (1,242) 772 4,345 Deferred income taxes (20,340) 210 (670) -------- -------- -------- Net cash (used in) provided by operating activities (14,458) (70,802) 3,275 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions of property, plant and equipment (37,359) (23,704) (11,860) Proceeds from sale of equipment 119 281 226 Acquisition of rights to market games (1,125) Acquisition of video rights (2,500) Investment in joint venture (1,600) (1,500) Return of investment in joint venture 1,900 -------- -------- -------- Net cash used in investing activities (35,340) (26,148) (15,634) -------- -------- --------
See notes to consolidated financial statements. WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS THREE YEARS ENDED JANUARY 29, 1994 (In Thousands)
1994 1993 1992 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sale of Common Stock (exercise of options) $ 300 $ 1,049 $ 60 Proceeds from borrowings under Credit Agreement 50,000 30,000 Proceeds from issuance of senior notes 149,792 Costs in connection with issuance of senior notes (1,440) (Decrease) increase in notes payable under bridge credit agreement (79,000) 14,500 Dividends paid on Preferred Stock (848) (848) (848) Other (562) (870) (59) -------- -------- -------- Net cash provided by financing activities 48,890 98,683 13,653 -------- -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (20) (66) (9) -------- -------- -------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (928) 1,667 1,285 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 10,441 8,774 7,489 -------- -------- -------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 9,513 $ 10,441 $ 8,774 -------- -------- -------- -------- -------- -------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 16,016 $ 6,590 $ 6,122 Income taxes 6,124 13,556 9,418
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE YEARS ENDED JANUARY 29, 1994 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation - The consolidated financial statements include the accounts of Western Publishing Group, Inc., and its wholly-owned subsidiaries (the "Company"). Certain reclassifications have been made in the prior year financial statements to conform with the current year presentation. All significant intercompany transactions and balances are eliminated in consolidation. Fiscal Year - The fiscal year of the Company ends on the Saturday nearest January 31. Accordingly, fiscal 1994, 1993, and 1992 each contained 52 weeks. Cash and Cash Equivalents - The Company considers all highly liquid debt instruments purchased with maturities of three months or less to be cash equivalents. The carrying amounts of short-term financial instruments approximate fair value. Inventories - Inventories are valued at the lower of cost or market. Cost is determined by the last-in, first-out (LIFO) method for substantially all domestic inventories. Inventories of Western Publishing Company, Inc.'s international operations are valued using the first-in, first-out (FIFO) method. At January 29, 1994 and January 30, 1993, approximately 93% and 95% of total inventories were valued under the LIFO method. Prepublication and Prepaid Advertising Costs - Prepublication costs (comprised principally of externally developed art, manuscript and editorial costs and internally or externally developed plate costs) and advertising and premium costs associated with the Company's direct marketing operation are deferred. Such costs are amortized from the date of initial product sale, generally over a period of one year. At January 29, 1994, the direct marketing advertising and premium costs were included as a component of Net Assets Held for Sale. Properties and Depreciation - Property, plant and equipment are stated at cost and depreciated on the straight-line method over the following estimated useful lives for financial statement purposes: Buildings and improvements 10-40 years Machinery and equipment 3-10 years WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Expenditures which significantly increase value or extend useful lives are capitalized, while maintenance and repairs are expensed as incurred. The cost and related accumulated depreciation of assets replaced, retired or disposed of are eliminated from the property accounts, and any gain or loss is reflected in operations. Costs related to the development of information systems that are expected to benefit future periods are capitalized and amortized over the estimated useful lives of the systems. Identified Intangibles - Identified intangibles arising from the acquisition of Penn Corporation in fiscal 1987 are being amortized generally by accelerated methods over periods of from 10 to 26 years. Cost in Excess of Net Assets Acquired - The cost in excess of net assets acquired (goodwill) arising from the acquisition of Penn Corporation is being amortized on the straight-line method over a 40-year period. Foreign Currency Translation - Foreign currency assets and liabilities are translated into United States dollars at end of period rates of exchange, and income and expense accounts are translated at the weighted average rates of exchange for the period. Resulting translation adjustments are included as a separate component of common stockholders' equity. 2. SALE AND PHASE OUT OF OPERATIONS; PROVISION FOR WRITE-DOWN OF DIVISION; NET ASSETS HELD FOR SALE Sale and Phase Out of Operations On November 29, 1993, the Company announced that it had recently been approached by several companies expressing a desire to discuss a business combination. The Board of Directors of the Company authorized the retention of two investment banking firms as its advisors to explore alternatives to maximize shareholder value. Based on an analysis of various alternatives, the Company adopted a plan designed to improve its competitive position and reduce its cost structure through the sale or phase out of certain operations, property divestitures and consolidations, and a workforce reduction. The plan includes the following major components: o An agreement in principle to sell the game and puzzle operation (including certain inventories) to Hasbro, Inc. (Hasbro) for approximately $103,000,000. This transaction is subject to customary conditions and is expected to be completed in the second quarter of fiscal 1995. o The decision to exit the direct marketing continuity clubs and school book club businesses. It is anticipated that this will be completed by the end of fiscal 1995. WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) o The closedown and sale of the Company's Fayetteville, North Carolina manufacturing and distribution facility, which is primarily dedicated to the game and puzzle operation but will not be included in the sale to Hasbro. o The decision to streamline the Company's publishing business so as to focus on its core competencies. This will include a reduction in the management, administrative and direct labor workforces. The Company will use the net cash proceeds arising from the plan to repay outstanding debt under its Revolving Credit Agreement (see Note 6). It is anticipated that the plan, which will begin to be implemented in the first quarter of fiscal 1995, will result in a net gain, inclusive of operating losses of the game, puzzle, direct marketing and school book club operations from January 30, 1994 through the expected disposition dates. Accordingly, the anticipated gain will not be reflected in the consolidated statement of operations until realized. The net assets of the game, puzzle, direct marketing and school book club operations and the Fayetteville facility are included as a component of Net Assets Held for Sale at January 29, 1994. For fiscal 1994, 1993 and 1992 the game, puzzle, direct marketing and school book club operations had revenues of approximately $125,000,000, $142,000,000, and $123,000,000, respectively. Provision for Write-Down of Division On May 12, 1993, the Board of Directors of the Company directed management to review the operations of the Advertising Specialty Division of the Company's Penn Corporation subsidiary and evaluate various strategic alternatives, including its disposition. Accordingly, the Company established a provision, including operating losses through the expected disposition date, to write-down the assets of the Division to net realizable value. On April 29, 1994, the Company entered into a letter of intent to sell this Division for approximately $14,000,000, subject to customary conditions. It is anticipated that this transaction, which is expected to be completed in the second quarter of fiscal 1995, will result in a net gain. The net cash proceeds from the sale of this Division will be utilized to repay outstanding debt under the Revolving Credit Agreement (see Note 6). Revenues and losses before interest expense and income taxes of the Division, included in the accompanying statements of operations, exclusive of the provision for write-down, are as follows (subsequent to May 1, 1993, the statements of operations do not include the results of the Division): 1994 1993 1992 (In Thousands) Revenues $7,202 $35,037 $33,367 ------ ------- ------- ------ ------- ------- Loss before interest expense and income taxes, exclusive of the provision for write-down $2,083 $ 4,635 $ 6,638 ------ ------- ------- ------ ------- ------- WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Net Assets Held for Sale As of January 29, 1994, net assets held for sale consisted of the following: (In thousands) Current assets $ 60,020 Property, plant and equipment, net 32,655 Other assets (primarily identified intangibles and goodwill), net 27,933 -------- 120,608 Less: Current liabilities (5,680) Provision for write-down, net of Division operations subsequent to May 1, 1993 (26,405) -------- Net assets held for sale $ 88,523 -------- -------- 3. ACCOUNTS RECEIVABLE Accounts receivable consisted of the following: 1994 1993 (In thousands) Accounts receivable $154,090 $160,178 Allowance for doubtful accounts (4,491) (6,929) Allowance for returns (11,678) (8,243) -------- -------- $137,921 $145,006 -------- -------- -------- -------- 4. INVENTORIES Inventories consisted of the following: 1994 1993 (In thousands) Raw materials $ 14,913 $ 25,205 Work-in-process 28,783 36,050 Finished goods 77,482 116,375 -------- -------- $121,178 $177,630 -------- -------- -------- -------- WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) At January 29, 1994 and January 30, 1993, the replacement cost of inventories valued using the LIFO method exceeded the net carrying amount of such inventories by $8,840,000 and $6,930,000, respectively. 5. IDENTIFIED INTANGIBLES AND GOODWILL Identified intangibles and goodwill, all of which result from the acquisition of Penn Corporation in fiscal 1987, net of amortization, included in the accompanying consolidated balance sheets, were as follows (see Note 2): 1994 1993 (In thousands) Goodwill $ 6,114 $16,229 Identified intangibles: Customer lists 6,730 8,707 Other 736 2,854 Distributor network 15,019 ------- ------- $13,580 $42,809 ------- ------- ------- ------- In connection with the provision for write-down of the Advertising Specialty Division, the portion of identified intangibles and goodwill related to this Division ($24,341,000, net of amortization at January 29, 1994) has been included as a component of Net Assets Held for Sale (see Note 2). 6. LONG-TERM DEBT Long-term debt consisted of the following: 1994 1993 (In thousands) Notes payable to banks $ 80,000 $ 30,000 7.65% Senior Notes ($150,000,000 face amount) due in 2002 149,812 149,797 -------- -------- $229,812 $179,797 -------- -------- -------- -------- WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company maintains a Revolving Credit Agreement dated November 12, 1992, with a group of commercial banks, which expires on May 31, 1995. Under the terms of an agreement to amend the Revolving Credit Agreement, the Company may borrow up to $125,000,000 through July 31, 1994 and $140,000,000 thereafter; in each case, including letters of credit of $10,000,000. Concurrent with the completion of the sale of the game and puzzle operation (the "Sale") (see Note 2), the Revolving Credit Agreement facility will be $90,000,000, including letters of credit of $10,000,000. Additionally, the provision that borrowings not exceed $115,000,000 during any thirty day period in the first quarter of each fiscal year will be $15,000,000 after the Sale. Further reductions in the facility will occur based upon the net cash proceeds from other asset sales, including the sale of the Advertising Specialty Division of the Company's Penn Corporation subsidiary (see Note 2). Borrowings will bear interest at one percent above the Base Rate. A commitment fee of 1/2% is payable quarterly on the unused portion of the facility. On January 29, 1994, notes totalling $80,000,000 at a weighted average interest rate of 4.16% were outstanding. On September 17, 1992, the Company completed an offering of $150,000,000 of 7.65% Senior Notes due September 15, 2002. Interest is payable semiannually on March 15 and September 15. There is no obligation to redeem, purchase or repay the Senior Notes prior to maturity. The Revolving Credit Agreement and the Indenture covering the Senior Notes contain certain provisions limiting additional indebtedness, guarantees, liens, the payment of cash dividends on Common Stock and tangible net worth requirements. Additionally, the Revolving Credit Agreement contains certain ratio requirements and limitations on investments. At January 29, 1994, there were no retained earnings available to pay dividends on Common Stock. Under the Company's Revolving Credit Agreement, the commitment may be utilized for letters of credit for the Company or any of its subsidiaries. At January 29, 1994, the Company's subsidiaries had letters of credit outstanding for inventory purchase commitments of approximately $3,600,000 under the line. Notes payable to banks at January 29, 1994 and January 30, 1993 under the Company's Revolving Credit Agreement approximate fair value, as the short-term interest rates on the then outstanding balances were reset in December 1993 and 1992, respectively. Western Publishing Group, Inc.'s 7.65% Senior Notes had a fair value of approximately $142,000,000 at January 29, 1994 based on market interest rates. At January 30, 1993, the fair value of the Senior Notes approximated carrying value. WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. OTHER CURRENT LIABILITIES Other current liabilities consisted of the following: 1994 1993 (In thousands) Royalties payable $ 4,757 $ 6,445 Advertising and promotion 8,507 7,894 Other 14,078 16,218 ------- ------- $27,342 $30,557 ------- ------- ------- ------- 8. PREFERRED STOCK The Company has 100,000 authorized preferred shares, no par value, including 20,000 shares of Convertible Preferred Stock, Series A. The Convertible Preferred Stock has a dividend rate of 8.5% per annum. The conversion price is $24 per share. The stock is redeemable at the option of the Company at any time for $500 a share plus all dividends (whether or not earned or declared) accrued and unpaid to the date fixed for redemption. Western Publishing Group, Inc. is obligated to redeem the stock no later than March 31, 1996. There is no significant difference between the carrying amount and approximate fair value of the Convertible Preferred Stock. 9. EMPLOYEE STOCK OPTIONS In March 1986, the Company adopted a stock option plan, which as amended, provides for the granting of options to purchase up to 2,100,000 shares of Common Stock through 1996 to employees of the Company and its subsidiaries. Options granted through February 3, 1990 become exercisable two years after the date of grant (50%) and three years after the date of grant (50%). Generally, options granted subsequent to February 3, 1990, except as noted below, become exercisable in their entirety five years after the date of grant. The following table includes options to purchase 300,000 shares of Common Stock granted in 1991 to the Company's President. In accordance with his employment agreement, these options vest over a seven year period, expire in 2001 and are priced as follows: 60,000 each at $11.75, $10.00 and $15.00 and 120,000 at $12.50 per share. WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Additionally, the President of Western Publishing Company, Inc. has options to purchase 90,000 shares of Common Stock; of which 20,000 were granted in fiscal 1993 and 70,000 were granted in fiscal 1994 pursuant to his employment agreement. Such options vested immediately upon issuance and expire in 2002 and 2003, respectively. The following data is presented in connection with the stock option plan:
Shares ---------------------------------------------- Outstanding Reserved Options Available -------- ----------- --------- Balances, February 3, 1991 - $10.00 to $20.00 835,450 790,050 45,400 Increase in authorization 600,000 600,000 Granted - $10.00 to $15.00 222,000 (222,000) Cancelled - $10.00 to $20.00 (63,200) 63,200 Exercised - $10.00 to $14.50 (4,500) (4,500) --------- --------- -------- Balances, February 1, 1992 - $10.00 to $20.00 1,430,950 944,350 486,600 Granted - $15.50 to $17.25 207,000 (207,000) Cancelled - $10.00 to $20.00 (39,700) 39,700 Exercised - $10.00 to $16.75 (73,000) (73,000) --------- --------- -------- Balances, January 30, 1993 - $10.00 to $20.00 1,357,950 1,038,650 319,300 Increase in authorization 600,000 600,000 Granted - $12.50 70,000 (70,000) Cancelled -$10.00 to $20.00 (91,000) 91,000 Exercised - $11.75 to $16.75 (18,900) (18,900) --------- --------- -------- Balances, January 29, 1994 - $10.00 to $20.00 1,939,050 998,750 940,300 --------- --------- -------- --------- --------- -------- Options exercisable at January 29, 1994: $20.00 36,000 16.75 60,550 15.50 20,000 15.00 20,000 14.50 27,000 12.50 70,000 12.00 27,200 11.75 59,000 10.00 40,000 --------- 359,750 --------- ---------
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Options outstanding at January 29, 1994 expire as follows: Expiration Exercise Number of Date Price Options April 21, 1996 $20.00 36,000 April 21, 1997 12.00 27,200 April 22, 1998 14.50 27,000 March 1, 1999 16.75 60,550 February 2, 2001 11.75 179,500 February 2, 2001 10.00 60,000 February 2, 2001 15.00 60,000 February 2, 2001 12.50 120,000 September 16, 2001 10.00 130,000 January 3, 2002 15.00 30,000 June 30, 2002 15.50 186,000 October 26, 2002 17.25 12,500 November 30, 2003 12.50 70,000 ------- 998,750 ------- ------- In addition to the shares reserved for the exercise of stock options, the Company has reserved 416,042 shares of Common Stock for the conversion of its Preferred Stock (see Note 8). 10. LEASE COMMITMENTS The Company leases certain facilities, machinery and vehicles under various noncancelable operating lease agreements over periods of one to 10 years. Future minimum lease payments required under such leases in effect at January 29, 1994, were as follows (by fiscal year): (In thousands) 1995 $ 5,638 1996 4,452 1997 3,959 1998 3,112 1999 2,712 2000 through 2007 7,917 ------- $27,790 ------- ------- WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Total rental expense charged to operations was $8,330,000, $7,732,000 and $5,695,000 for the years ended January 29, 1994, January 30, 1993 and February 1, 1992, respectively. 11. ROYALTIES AND OTHER INCOME Royalties and other income consisted of the following: 1994 1993 1992 (In thousands) Royalties $2,043 $1,771 $1,004 Interest income 807 836 1,019 Other 361 455 118 ------ ------ ------ $3,211 $3,062 $2,141 ------ ------ ------ ------ ------ ------ 12. INCOME TAXES Income tax expense (benefit) (calculated in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes") consisted of the following: 1994 1993 1992 (In thousands) Currently (refundable) payable: Federal $(11,185) $ 7,700 $6,320 State (240) 2,240 2,030 Foreign (30) 710 900 -------- ------- ------ (11,455) 10,650 9,250 Deferred: -------- ------- ------ Federal (9,520) 230 (390) State (1,300) 80 (250) Foreign (20) (100) (30) -------- ------- ------ (10,840) 210 (670) -------- ------- ------ $(22,295) $10,860 $8,580 -------- ------- ------ -------- ------- ------ Income (loss) before income tax expense of Western Publishing Company, Inc.'s Canadian subsidiary was $(82,000), $1,122,000 and $1,963,000 for the years ended January 29, 1994, January 30, 1993 and February 1, 1992, respectively. WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) A reconciliation of the statutory United States Federal income tax rate to the Company's effective income tax rate follows: 1994 1993 1992 Statutory rate 35.0% 34.0% 34.0% State income taxes, net of Federal benefit 1.6 5.5 5.3 Effect of foreign taxes (1.7) Effect of capital loss on write-down of division (1.8) Other - net .4 .5 (.8) ---- ---- ---- 35.2% 38.3% 38.5% ---- ---- ---- ---- ---- ---- WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The income tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at January 29, 1994 and January 30, 1993 were as follows: January 29, 1994 ----------------------------- Assets Liabilities Total (In thousands) Allowances for doubtful accounts and returns not currently deductible $ 5,222 $ 5,222 Inventories: Excess of book basis over tax basis due to purchase accounting $ (6,121) (6,121) Other 8,580 8,580 Advertising costs (1,259) (1,259) Accrued expenses not currently deductible 5,800 5,800 Provision for write-down of division 8,197 8,197 Other - net 404 404 ------- -------- ------- Current 28,203 (7,380) 20,823 ------- -------- ------- Property, plant and equipment: Excess of tax basis over acquisition accounting basis 3,934 3,934 Excess of tax over book depreciation (8,294) (8,294) Identified intangibles (4,486) (4,486) Deferred gain on sale of plant (693) (693) Deductible pension contributions in excess of pension expense (1,760) (1,760) Postretirement benefits 10,379 10,379 State NOL carryforwards 1,185 1,185 Other - net 1,174 1,174 ------- -------- ------- Noncurrent 16,672 (15,233) 1,439 ------- -------- ------- Total $44,875 $(22,613) $22,262 ------- -------- ------- ------- -------- ------- WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) January 30, 1993 ------------------------------- Assets Liabilities Total (In thousands) Allowances for doubtful accounts and returns not currently deductible $ 5,043 $ 5,043 Inventories: Excess of book basis over tax basis due to purchase accounting $ (5,969) (5,969) Other 9,632 9,632 Advertising costs (1,956) (1,956) Accrued expenses not currently deductible 4,402 4,402 Other - net 210 210 ------- --------- ------- Current 19,287 (7,925) 11,362 ------- --------- ------- Property, plant and equipment: Excess of tax basis over acquisition accounting basis 4,055 4,055 Excess of tax over book depreciation (6,949) (6,949) Identified intangibles (5,104) (5,104) Deferred gain on sale of plant (809) (809) Deductible pension contributions in excess of pension expense (1,703) (1,703) Other - net 1,070 1,070 ------- --------- ------- Noncurrent 5,125 (14,565) (9,440) ------- --------- ------- Total $24,412 $(22,490) $ 1,922 ------- --------- ------- ------- --------- ------- WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. PENSION, POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS Pension Benefits Western Publishing Company, Inc. and its Canadian subsidiary have noncontributory defined benefit retirement plans covering substantially all domestic hourly and Canadian salaried and hourly employees. The benefits are generally based on a unit amount at the date of termination multiplied by the participant's credited service. The Companies' funding policy is to contribute amounts within the limits which can be deducted for income tax purposes. The following tables set forth the plans' funded status and amounts recognized in the consolidated financial statements at January 29, 1994 and January 30, 1993, and for each of the three years ended January 29, 1994: 1994 1993 (In thousands) Actuarial present value of benefit obligations: Accumulated benefit obligations, including vested benefits of $14,177,000 and $13,480,000 $14,458 $13,682 ------- ------- ------- ------- Projected benefit obligations for service rendered $15,026 $14,248 Plan assets at fair value (primarily U.S. government securities, corporate bonds and equity mutual funds) 17,314 18,199 ------- ------- Projected benefit obligations less than plan assets 2,288 3,951 Unrecognized net loss (gain) 10 (233) Unrecognized prior service cost 2,516 1,261 Unamortized portion of unrecognized net (asset) at January 31, 1987 (414) (613) ------- ------- Prepaid pension costs recognized in accompanying balance sheets $ 4,400 $ 4,366 ------- ------- ------- ------- 1994 1993 1992 (In thousands) Net pension expense (income), included the following components: Service cost - benefits earned during the period $ 573 $ 530 $ 445 Interest cost on projected benefit obligations 1,104 1,078 1,017 Actual return on plan assets (1,836) (1,814) (3,428) Net amortization and deferral 211 33 2,012 ------- ------- ------- Net pension expense (income) for the year $ 52 $ (173) $ 46 ------- ------- ------- ------- ------- ------- The weighted average discount rate used in determining the actuarial present value of the projected benefit obligations was 7.5% in 1994 and 1993. The expected long-term rate of return on assets was 10.0%. WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Pension expense charged to operations for these plans and for other multi-employer plans in which certain union employees of the Company's subsidiaries participate was $598,000, $314,000 and $565,000 for the years ended January 29, 1994, January 30, 1993 and February 1, 1992, respectively. Subsidiaries of the Company also maintain defined contribution contributory retirement plans for substantially all domestic employee groups. Under the plans, the companies make contributions based on employee compensation and in certain cases based on specified levels of voluntary employee contributions. Western Publishing Company, Inc.'s Canadian subsidiary also maintains a profit sharing plan for certain salaried employees. Expense for these plans was $4,157,000, $3,819,000 and $3,484,000 for the years ended January 29, 1994, January 30, 1993 and February 1, 1992, respectively. Postretirement Benefits Western Publishing Company, Inc. provides certain health care and life insurance benefits for substantially all of its retired employees. Effective January 31, 1993, the Company adopted Statement of Financial Accounting Standards (FASB) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." FASB No. 106 requires the Company to accrue the estimated cost of retiree benefit payments during the years the employee provides services. The Company previously expensed the cost of these benefits, which are principally health care, as claims were incurred. FASB No. 106 allows recognition of the cumulative effect of the liability in the year of adoption or the amortization of the obligation over a period of up to twenty years. The Company elected to recognize the cumulative effect of this obligation on the immediate recognition basis. As of January 31, 1993, the Company recognized the accumulated liability for such benefits (transition obligation). The cumulative effect of this change in accounting principle reduced net earnings by $24,300,000 ($14,800,000, net of income taxes). For the year ended January 29, 1994, the incremental effect of adopting FASB No. 106 was to increase the loss before cumulative effect of change in accounting principle by approximately $990,000 ($.05 per share). The Company's postretirement health care plans are not currently funded. The status of the plans is as follows: The accrued postretirement benefits (actuarial present value of accumulated postretirement benefit obligation) at January 1, 1994 consisted of: (In thousands) Retirees currently receiving benefits $12,549 Current employees eligible to receive benefits 6,600 Current employees not yet eligible to receive benefits 8,500 Unrecognized net loss from past experience (1,700) ------- $25,949 ------- ------- WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The net postretirement benefit cost for the year ended January 29, 1994 consisted of the following components: (In thousands) Service cost - benefits earned during the year $ 700 Interest cost on accumulated postretirement benefit obligation 1,900 Recognition of transition obligation 24,300 ------- $26,900 ------- The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation as of January 1, 1994 was 8% for 1994 decreasing linearly to 5% in 2010; and remaining level thereafter. If the health care cost trend rate were increased one percentage point in each year, the accumulated postretirement benefit obligation as of January 1, 1994 and the net postretirement cost would have increased by approximately 15% and 19%, respectively. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 7.5%. Prior to Fiscal 1994, the Company recognized postretirement health care and life insurance benefits as an expense as claims were paid. On that basis, the costs of such benefits were $926,000 and $1,175,000 for the years ended January 30, 1993 and February 1, 1992, respectively. Postemployment Benefits During November 1992, the FASB issued Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" (FASB No. 112), which requires the cost of such benefits be accrued over the employee service period. The Company has reviewed its policies and practices to determine the applicability of FASB No. 112 and believes the adoption of FASB No. 112 in Fiscal 1995 will not have a material effect on its financial statements. 14. INDUSTRY SEGMENT INFORMATION The Company has two industry segments, Consumer Products and Commercial Products. The Company is engaged in the creation, publication, printing and marketing of story and picture books, interactive electronic books, coloring books, activity books, books and games that feature special effects and prerecorded audio and video products for juveniles, as well as puzzles, games and special interest books for the entire family (see Note 2). The Company is also engaged in the manufacture and sale of decorated paper tableware, party goods, stationery and gift products. The Company's foreign operations within the Consumer Products Segment consist of a marketing subsidiary in Canada and a marketing branch in the United Kingdom. WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company's Commercial Products Segment provides printing and creative publishing services and is engaged in the manufacture of advertising specialties including imprinted writing instruments, wearables and simulated leather items, such as wallets, folders and other promotional business products (see Note 2). Operating profit represents income before income taxes, interest expense and general corporate income and expense. Identifiable assets are those assets used specifically in the operations of each industry segment or which are allocated when used jointly. Corporate assets are principally comprised of cash and cash equivalents, deferred income taxes, prepaid pension costs and certain other assets. Domestic sales to foreign markets were less than 10% of total consolidated sales for the years ended January 29, 1994, January 30, 1993 and February 1, 1992. Information by industry segment is set forth below: 1994 1993 1992 (In thousands) Net sales: Consumer Products $535,603 $543,154 $438,706 Commercial Products 77,861 105,935 113,654 -------- -------- -------- $613,464 $649,089 $552,360 -------- -------- -------- -------- -------- -------- Operating profit (loss): Consumer Products $ 192 $ 53,625 $ 45,161 Commercial Products (2,558) (3,609) (3,694) -------- -------- -------- (2,366) 50,016 41,467 Other income 1,168 1,291 1,137 General corporate expense (17,672) (12,591) (14,075) Provision for write-down of division (28,180) Interest expense (16,270) (10,358) (6,255) -------- -------- -------- (Loss) income before income taxes and cumulative effect of change in accounting principle $(63,320) $ 28,358 $ 22,274 -------- -------- -------- -------- -------- -------- WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Consumer Commercial Products Products Corporate Total (In thousands) Identifiable assets: 1994 $401,817 $38,731 $64,568 $505,116 1993 396,277 74,197 38,111 508,585 1992 281,745 72,729 36,491 390,965 Depreciation and amortization: 1994 11,155 5,153 688 16,996 1993 7,851 5,059 394 13,304 1992 7,022 5,813 503 13,338 Capital expenditures: 1994 33,524 2,443 1,392 37,359 1993 19,374 3,446 884 23,704 1992 6,978 4,241 641 11,860 Other Information During Fiscal 1994, sales to the Company's two largest customers, Toys R Us, Inc., and Wal-Mart Stores, Inc., amounted to approximately 12% and 10% of consolidated net sales, respectively. 15. NET (LOSS) INCOME PER COMMON SHARE Net (loss) income per common share was computed as follows: 1994 1993 1992 (In thousands except for per share data) Net (loss) income $(55,825) $17,498 $13,694 Preferred dividend requirements (848) (848) (848) -------- ------- ------- (Loss) income applicable to Common Stock $(56,673) $16,650 $12,846 -------- ------- ------- -------- ------- ------- Weighted average common shares outstanding 20,956 20,899 20,864 -------- ------- ------- -------- ------- ------- Net (loss) income per common share $ (2.70) $ .80 $ .62 -------- ------- ------- -------- ------- ------- * * * * * * WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS THREE YEARS ENDED JANUARY 29, 1994 (IN THOUSANDS)
Allowance Allowance for Doubtful for Accounts Returns Total BALANCES, FEBRUARY 3, 1991 $ 8,986 $ 7,931 $ 16,917 Additions charged to costs and expenses 5,061 22,631 27,692 Deductions - amounts written off (5,830) (21,641) (27,471) Foreign currency conversion (30) (4) (34) ------- -------- -------- BALANCES, FEBRUARY 1, 1992 8,187 8,917 17,104 Additions charged to costs and expenses 5,855 27,509 33,364 Deductions - amounts written off (7,041) (28,131) (35,172) Foreign currency conversion (72) (52) (124) ------- -------- -------- BALANCES, JANUARY 30, 1993 6,929 8,243 15,172 Additions charged to costs and expenses 5,577 40,951 46,528 Deductions - amounts written off (5,686) (40,268) (45,954) Other changes - net (2,318) 2,767 449 Foreign currency conversion (11) (15) (26) ------- -------- -------- BALANCES, JANUARY 29, 1994 $ 4,491 $ 11,678 $ 16,169 ------- -------- -------- ------- -------- --------
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES SCHEDULE IX - SHORT-TERM BORROWINGS THREE YEARS ENDED JANUARY 29, 1994 (IN THOUSANDS) Category of Aggregate Short-Term Borrowings 1994 1993 1992 Notes payable to banks: Balance at end of period $ -0- $ -0- $ 79,000 Weighted average interest rate - - 5.4% Maximum amount outstanding during the period -0- $198,000 $128,400 Average amount outstanding during the period (a) $ -0- $ 94,895 $ 92,482 Weighted average interest rate during the period (b) - 5.0% 6.6% (a) Average amount outstanding during the period computed by dividing the total of daily outstanding principal balances by number of days in the fiscal year. (b) Weighted average interest rate for the fiscal year computed by dividing the actual short-term interest expense by the average short-term borrowings outstanding. WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION THREE YEARS ENDED JANUARY 29, 1994 (IN THOUSANDS) 1994 1993 1992 Maintenance and repairs $ 9,257 $10,099 $ 9,484 Royalties 40,826 41,988 36,671 Advertising costs 31,035 35,114 28,397 Depreciation 11,442 8,506 8,128 Amortization of intangible assets 2,861 4,798 5,210 Amounts for taxes, other than payroll and income taxes, are not presented as such amounts are less than 1% of net sales. EX-10.40 2 GOLDEN COMPREHENSIVE SECURITY PROGRAM GOLDEN COMPREHENSIVE SECURITY PROGRAM (As Amended and Restated Effective January 1, 1993) McDermott, Will & Emery Chicago, Illinois C E R T I F I C A T E I, James A. Cohen, Secretary of WESTERN PUBLISHING COMPANY, INC., hereby certify that the attached is a full, true and complete copy of the GOLDEN COMPREHENSIVE SECURITY PROGRAM, as in effect on the date hereof. Dated this 28 day of December, 1993. /s/ James A. Cohen -------------------------------- Secretary as Aforesaid (Corporate Seal) TABLE OF CONTENTS PAGE ---- SECTION 1 1 Introduction 1 Purpose 1 Effective Date, Plan Year 1 Employers 2 Plan Administration 2 Trustee, Trust Agreement, Trust Fund 2 Examination of Plan Documents 2 Notices 3 Gender and Number 3 Supplements 3 SECTION 2 4 Eligibility and Participation 4 Eligibility 4 Continuity of Employment 5 Leave of Absence 8 Reemployed Former Participant 9 Leased Employees 9 SECTION 3 11 Employer Contributions 11 Annual Employer Contribution 11 Income Deferral Contributions 11 Compensation and Adjusted Compensation 12 Matching Employer Contributions 13 Employer Contributions Made From Profits 14 Limitations on Income Deferrals 14 Highly Compensated Participants 20 Verification of Employer Contributions 22 No Interest in Employers 22 SECTION 4 24 Participant Contributions 24 Amount of Participant Contributions 24 Deduction or Payment of Participant Contributions 24 Variation, Discontinuance, Resumption and With- drawal of Participant Contributions 24 SECTION 5 26 Period of Participation 26 Termination Date 26 Restricted Participation 27 SECTION 6 29 Accounting 29 Separate Accounts 29 Accounting Dates 30 Employer Contributions Considered Made on Last Day of Plan Year 30 Adjustment of Participants' Accounts 30 Allocation of Employer Contributions and For 32 Statement of Accounts 32 Contribution Limitations 33 Investment Funds 35 SECTION 7 39 Payment of Account Balances 39 Retirement or Death 39 Resignation or Dismissal 39 Forfeitures 41 Manner of Distribution 42 Commencement of Distributions 46 Designation of Beneficiary 47 Missing Participants or Beneficiaries 48 Facility of Payment 49 Latest Date for Distribution 53 Direct Transfer of Eligible Rollover Distributions 53 Withdrawal of Income Deferral Contributions 54 SECTION 8 56 Prior Plan Accounts 56 Transfer of Prior Plan Balances 56 Prior Plan Accounts 56 Withdrawals from Prior Plan Accounts 57 Other Transferred Amounts and Rollovers 57 SECTION 9 59 The Committee 59 Membership 59 Committee's General Powers, Rights and Duties 59 Manner of Action 60 Interested Committee Member 61 Resignation or Removal of Committee Members 61 Committee Expenses 62 Information Required by Committee 62 Uniform Rules 62 Review of Benefit Determinations 63 Committee's Decision Final 63 SECTION 10 64 General Provisions 64 Additional Employers 64 Action by Employers 64 Waiver of Notice 64 Controlling Law 64 Employment Rights 64 Litigation by Participants 65 Interests Not Transferable 65 Absence of Guaranty 66 Evidence 66 SECTION 11 67 Amendment and Termination 67 Amendment 67 Termination 67 Reorganizations 68 Vesting and Distribution on Termination 68 Notice of Amendment or Termination 69 Plan Merger, Consolidation, Etc 69 SECTION 12 70 Top-Heavy Rules 70 Purpose and Effect 70 Top-Heavy Plan 70 Key Employee 71 Aggregated Plans 72 Maximum Earnings 72 No Duplication of Benefits 73 Adjustment of Combined Benefit Limitations 73 SUPPLEMENT A Golden Comprehensive Security Program A-1 SUPPLEMENT B Golden Comprehensive Security Program B-1 GOLDEN COMPREHENSIVE SECURITY PROGRAM SECTION 1 Introduction 1.1. Purpose. GOLDEN COMPREHENSIVE SECURITY PROGRAM (the "plan") is maintained by WESTERN PUBLISHING COMPANY, INC. (the "company") and, effective April 23, 1986, by WESTERN PUB- LISHING GROUP, INC., the company's parent ("parent") for eligi- ble employees of the company and the parent and the eligible employees of any other United States subsidiary of the company or the parent which adopts the plan, with the consent of the company. The purpose of the plan is to replace the Western Pension Plan for Salaried Employees and other plans previously maintained for eligible employees and to provide for the accu- mulation of funds from both employer and participant contribu- tions in order to provide retirement income to participants when they retire from the employ of the employers, thereby providing for their future financial security. The plan is designed as a qualified pension and profit sharing plan under the provisions of Sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as amended (the "Code"). 1.2. Effective Date, Plan Year. The original effective date of the plan was November 1, 1984. The plan, as set forth below, constitutes an amendment and restatement of the plan effective January 1, 1993 (the "effective date"). A "plan year" means each calendar year. 1.3. Employers. The company, the parent and any United States subsidiary of the company or the parent which adopts the plan and trust with the consent of the company are sometimes referred to hereinafter collectively as the "employ- ers" and individually as an "employer." 1.4. Plan Administration. The plan will be admin- istered by a pension security committee (the "committee") appointed by the company, as described in Section 9. Partici- pants will be notified of the identity of the committee members and of any change in the membership of such committee. 1.5. Trustee, Trust Agreement, Trust Fund. Funds contributed by the employers or participants under the plan will be held and invested in a trust fund, until distributed, by a trustee (the "trustee") appointed by the company. The trustee will act under a trust agreement between the employers and the trustee. Participants will be notified of the identity of the trustee, and of any change in trustee. 1.6. Examination of Plan Documents. Copies of the plan and trust agreement, and any amendments thereto, will be made available at the principal office of each employer where they may be examined by any participant or beneficiary entitled to receive benefits under the plan. The provisions of and benefits under the plan are subject to the terms and provisions of the trust agreement. 1.7. Notices. Any notice or document required to be given to or filed with the committee shall be considered as given or filed if delivered or mailed by registered mail, post- age prepaid, addressed as follows: Benefit Plans Administration Committee Western Publishing Company, Inc. 444 Madison Avenue New York, New York 10022 1.8. Gender and Number. Words in the masculine gen- der shall include the feminine and neuter genders and, where the context admits, the plural shall include the singular, and the singular shall include the plural. 1.9. Supplements. The company and any other employ- er (with the consent of the company) may establish supplements to this plan with respect to any group or class of employees of an employer to which the plan has been extended. Each such supplement will be a part of the plan as it applies to the employees affected thereby. To the extent that the provisions of any supplement are inconsistent with the other features of the plan, the provisions of the supplement shall control. SECTION 2 Eligibility and Participation 2.1. Eligibility. Subject to the conditions and limitations of the plan, each employee of an employer who was an active participant in the plan immediately prior to the effective date will continue to participate in the plan in accordance with the provisions of this plan. Each other employee of an employer will become a participant in the plan on January 1, 1993, or on the first January 1, April 1, July 1 or October 1 (the "quarterly entry date") coincident with or next following the date he meets all of the following requirements: (a) He is either: (i) A salaried employee (that is, an employee whose basic compensation for services rendered to an employer is paid to him in fixed amounts at stated intervals without regard to the number of hours worked, even though he may receive additional compensation in the form of bonuses, overtime pay or commissions); or (ii) A member of a group or class of employees of an employer to whom the plan has been extended by the Board of Directors of the employer; and (b) He does not belong to a collective bargaining unit of employees represented by a collective bargaining representative, except to the extent that an agreement between the employer and such representative extends the plan to such unit of employees; and (c) He has completed six months of continuous employment (as defined in subsection 2.2). Each employee will be notified of the date as of which he becomes a participant in the plan and will be furnished with a summary plan description in accordance with governmental rules and regulations. An employee who would be eligible to participate in the plan on the applicable quarterly entry date except for the requirements of subparagraph 2.1(a) or (b) will become a participant on the date he satisfies the conditions for participation under such subparagraphs but will not be eligible to make income deferral contributions (as defined in subsection 3.2) or voluntary participant contributions until the quarterly entry date coincident with or next following the date he becomes a participant. 2.2. Continuity of Employment. In determining an employee's or participant's continuity of employment, the fol- lowing rules shall apply: (a) An employee's or participant's continuous employment will be computed in terms of full and fractional years of continuous employment, with fractional years computed in completed days of employment, commencing on the date an employee is first employed by an employer (i.e., the date he first completes an hour of service) or, if he has incurred a one-year break in employment (as defined in subparagraph (g) below), the date of his reemployment (i.e., the date he first completes an hour of service upon reemployment). (b) A leave of absence (as defined in subsec- tion 2.3) will not interrupt continuity of employment for purposes of the plan. (c) A period of concurrent employment with two or more employers will be considered as employment with one employer during that period. (d) The termination of any employee's employ- ment with one employer will not interrupt the continuity of his employment or par- ticipation if, concurrently with or imme- diately after such termination, he is employed by one or more other employers. (e) If a former employee of the employers is reemployed by an employer before he has incurred a one-year break in employment (as defined in subparagraph (g) below), his employment with the employers will not be deemed to have terminated. (f) A period of employment with a controlled group member (as defined below) which is not an employer will be considered a period of employment with an employer for purposes of determining years and days of continuous employment. A "controlled group member" means any corporation or other trade or business which is under common control with an employer within the meaning of Sections 414(b), 414(c) and 414(m) of the Code. (g) In determining an employee's or partici- pant's continuous employment for an employee or participant who incurs a one-year break in employment and is reem- ployed by an employer or controlled group member, continuous employment (both before and after such one-year break in employ- ment) will be taken into account for plan purposes upon his reemployment, except as follows: If a former employee of the employers who is not vested with respect to any portion of his employer contribution account balance, income deferral contribution account balance, or matched employer contribution account balance is reemployed by an employer or controlled group member after he has incurred five consecutive one-year breaks in employment and if such consecutive one-year breaks in employment equal or exceed his years of continuous employment, his period of continuous employment with the employers or controlled group members prior to such five consecutive one-year breaks in employment shall be disregarded for purposes of determining the vested portion of his employer contribution account or matched employer contribution account upon his reemployment. In no event shall a period of continuous employ- ment after an employee has incurred five consecutive one-year breaks in employment be taken into account in determining the vested portion of his employer contribution account or matched employer contribution account attributable to employment prior to such five consecutive one-year breaks in employment. A "one-year break in employment" will be deemed to have occurred for each 12-month period commencing on the date of an employee's termination of employment, and on each anniversary thereof, during which such employee is not employed by an employer or controlled group member. In the case of a maternity or paternity absence (as defined below), the 12-month period beginning on the first day of such absence and the first anniversary thereof shall not constitute one-year breaks in service. A "maternity or paternity absence" means an employee's absence from work because of the pregnancy of the employee or birth of a child of the employee, the placement of a child with the employee in connection with the adoption of such, or for purposes of caring for the child immediately following such birth or placement. (h) In determining the continuous employment of an employee who had previously been employed by Sight & Sound, Inc., and who was transferred to employment with an employer after such acquisition, such continuous employment will commence on the date such employee was first employed by Sight & Sound, Inc. An "hour of service" means each hour for which an employee is directly or indirectly paid, or entitled to payment, by an employer for the performance of duties, determined in accordance with Department of Labor Reg. Sec. 2530.200b-2. A "year of continuous employment" means 365 days of continuous employment under this subsection. 2.3. Leave of Absence. A leave of absence will not interrupt continuity of employment or participation in the plan. A "leave of absence" for plan purposes means a leave of absence required by law or granted by an employer on account of service in military or governmental branches described in any applicable statute granting reemployment rights to employees who entered such branches, or any other military or governmen- tal branch designated by the employers, and also means any other absence from active employment with an employer under conditions which are not treated by it as a termination of employment including, but not limited to, vacations, holidays, maternity, illness, incapacity or jury duty. Leaves of absence will be governed by rules uniformly applied to all employees similarly situated. If an employee or participant does not return to work with an employer or controlled group member on or before termination of a leave of absence, he will be con- sidered to have resigned on the date his last leave ended unless his employment actually terminated prior to the expira- tion of such leave. 2.4. Reemployed Former Participant. If a former participant in the plan who has completed the requirements of subparagraph 2.1(c) is reemployed by an employer after incurring a one-year break in employment, he will again become a participant in the plan on the date he meets the requirements of subparagraphs 2.1(a) and (b) and will be eligible to make income deferral contributions under subsection 3.2 or voluntary participant contributions under subsection 4.1 on the quarterly entry date coincident with or next following the date he becomes a participant. 2.5. Leased Employees. A leased employee (as defined below) shall not be eligible to participate in the plan. A leased employee means any person who is not an employee of an employer but who has provided services to an employer of the type which have historically (within the business field of the employers) been provided by employees on a substantially full-time basis for a period of at least one year pursuant to an agreement between an employer and a leasing organization. The period during which a leased employee performs services for an employer shall be taken into account for purposes of subsection 2.2 of the plan unless (i) such leased employee is a participant in a money purchase pension plan maintained by the leasing organization which provides a nonintegrated employer contribution rate of at least ten percent (10%) of compensation, immediate participation for all employees and full and immediate vesting and (ii) leased employees do not constitute more than twenty percent (20%) of the employer's nonhighly compensated work force. SECTION 3 Employer Contributions 3.1. Annual Employer Contribution. Subject to the limitations of the plan, each employer will contribute to the plan for each plan year an amount equal to three percent (3%) of the adjusted compensation (as defined in subsection 3.3) of participants entitled to share in the contribution for that year. The amount of the employer's contribution for a plan year, as described above, will be reduced, however, by any forfeitures to be credited under subsection 7.3 for that plan year; and the employer's contribution, as so reduced, will be the actual amount paid to the trustee as a contribution for that year under this subsection. An employer's contribution for any plan year under this subsection shall be paid to the trustee not later than the earlier of (i) the latest date for making such contribution under the provisions of Section 412(c)(10) of the Code or (ii) the time required for the filing of the employer's federal income tax return for the fiscal year in which such plan year ends, including extensions thereof. 3.2. Income Deferral Contributions. Subject to the limitations of the plan, by writing filed with the committee, a participant, if he so desires, may defer payment of a percentage (in increments of one percent (1%)) of his compensation ("income deferral contributions"), not exceeding sixteen percent (16%) thereof, by electing to have such percentage withheld from his compensation and contributed to the plan on his behalf by his employer. For plan years beginning on or after January 1, 1993, no participant may elect to make income deferral contributions for any calendar year in excess of $8,994 (or such greater amount as determined pursuant to Section 402(g)(5) of the Code). The amounts withheld from a participant's compensation pursuant to the participant's election shall be contributed to the plan by the participant's employer and credited to his income deferral contribution account as soon as practicable after being withheld but, in any event, not later than 30 days following the end of the pay period for which such contributions are made. A participant may elect to change the rate of his deferrals, or suspend or resume such deferrals, within the limits stated above, by filing a new election with the committee. Each election under this subsection shall be made at such time, in such manner and in accordance with such rules as the committee shall determine and shall be effective for compensation paid on the first payment date (i.e., a date on which regular salary payments are made to employees of the employer) coincident with or next following the quarterly entry date or such other date specified by the committee for which such election is effective. 3.3. Compensation and Adjusted Compensation. A par- ticipant's "compensation" for any plan year means the sum total of the adjusted compensation (as defined below) paid to him during that plan year for services rendered to the employers as an employee and the amount of any income deferral contributions made for such year under subsection 3.2. A participant's "adjusted compensation" for any plan year means the total cash compensation, including commissions, bonuses and overtime pay, but excluding any payments from the Western Incentive Compen- sation Program, paid during the period such participant is an active participant in the plan. In no event shall compensation in excess of $200,000 (or such greater amount as permitted in regulations issued by the Secretary of the Treasury) be included in a participant's compensation for any plan year. 3.4. Matching Employer Contributions. Subject to the limitations of the plan and in addition to the annual employer contributions made under subsection 3.1 and the income deferral contributions made under subsection 3.2, each employer will contribute for a participant an amount equal to sixty per- cent (60%) of the first six percent (6%) of income deferral contributions (but not exceeding $8,994 or such greater amount as determined pursuant to Section 402(g)(5) of the Code for plan years beginning on or after January 1, 1993) made on behalf of the participant under subsection 3.2, reduced by any forfeitures to be credited to such participant's matched em- ployer contribution account for such period as provided under subsection 7.3. Such contributions shall be paid to the trustee and credited to the participant's matched employer con- tribution account as soon as practicable after the end of the pay period for which such contribution is made but, in any event, not later than 60 days after the end of such period. 3.5. Employer Contributions Made From Profits. Each employer's contributions for or during a plan year under subsection 3.4 shall be made from net income (i.e., its net profits before federal and state taxes on income) for that plan year, or its accumulated profits (i.e., its net profits after federal and state taxes on income which have been accumulated and retained in the business), or both, as determined under generally accepted accounting principles and practices. Each employer's contributions are conditioned on their deductibility under Section 404 of the Code and, unless an employer specifies otherwise, shall not exceed an amount equal to the maximum amount deductible on account thereof by the employer for its fiscal year for purposes of federal taxes on income. 3.6. Limitations on Income Deferrals. In no event shall the actual deferral percentage (as defined below) of the highly compensated participants (as defined in subsection 3.8) for any plan year exceed the greater of: (a) the actual deferral percentage of all other participants for such plan year multiplied by 1.25; or (b) the actual deferral percentage of all other participants for such plan year multiplied by 2.00; provided that the actual deferral percentage of the highly compensated par- ticipants does not exceed that of all other participants by more than two percentage points. The "actual deferral percentage" of a group of participants for a plan year means the average of the ratios (determined sepa- rately for each participant in such group) of A to B where A equals the income deferral contributions credited to each such participant's income deferral contribution account for each plan year and B equals the participant's "compensation" for such plan year. For purposes of this subsection, the term "compensation" shall mean compensation as defined in Section 414(s) of the Code, including income deferral contributions. The committee shall determine from time to time based on the income deferral elections then on file with the committee whether the foregoing limitations will be satisfied and, to the extent necessary to insure compliance with such limitation, shall reduce, on an individual-by-individual basis, for each highly compensated participant who is exceeding such deferral percentage the applicable percentage of income deferral con- tributions to be withheld for such highly compensated partici- pant beginning with the highly compensated participant with the highest deferral percentage first and then reducing the appli- cable percentage for each subsequent highly compensated par- ticipant until such excess contributions are eliminated. In addition, if at any time a portion of the income deferrals withheld from a highly compensated participant's compensation cannot be credited to his income deferral contribution account because the limitations described above would be applicable, such amounts will not be considered contributions under sub- section 3.2 and the amount of such excess contributions (and any income allocable to such contributions) will be distributed to such highly compensated participant no later than two and one-half (2-1/2) months after the close of the plan year for which such excess contribution was made. For purposes of determining the amount of any income for a plan year attributable to any excess contributions by a highly compensated participant (as defined in subsection 3.8) to be returned to such participant, the following formula will be used: (i) first, the value of his income deferral contribution account as of the beginning of the plan year and as of the last day of the plan year shall be determined; (ii) next, the gain or loss on such income deferral contribution account shall be determined after first reducing the difference between the balance of the account as at the end of the year and the balance as at the beginning of the year by income deferral contributions made for such year; and (iii) finally, the amount calculated under paragraph (ii) shall be multiplied by a fraction the numerator of which is the excess income deferral contributions made by the participant for such year and the denominator of which is such participant's income deferral contribution account as of the last day of such year, reduced by the amount of any gain for such year and increased by the amount of any loss for such year. The amount calculated under this paragraph shall be the amount of income to be returned to the participant for such year. The actual deferral percentage of a highly compensated participant to whom the family attribution rules described in subsection 3.8 apply shall be the greater of: (i) the actual deferral ratio obtained by aggregating the income deferral contributions and compensation of only those family members who are highly compensated participants; or (ii) the actual deferral ratio obtained by aggregating the income deferral contributions and compensation of all family members who are participants. For purposes of this subsection, certain former employees (as determined under Section 414(q)(9) of the Code) shall be treated as employees for purposes of determining highly compensated participants. 3.7 Limitations on Matching Employer Contributions and Participant Contributions. In no event shall the contri- bution percentage (as defined below) of the highly compensated participants (as defined below) for any plan year exceed the greater of: (a) the contribution percentage of all other participants for such plan year multiplied by 1.25; or (b) the contribution percentage of all other participants for such plan year multiplied by 2.00; provided that the contribution percentage of the highly compensated participants does not ex- ceed that of all other participants by more than 2 percentage points. The "contribution percentage" of a group of participants for a plan year means the average of the ratios (determined separately for each participant in such group) of A to B where A equals the sum of the matching employer contributions under subsection 3.4 and the participant contributions under subsection 4.1, if any, credited, to such participant's accounts for such plan year and B equals the participant's compensation (as defined in subsection 3.6) for such plan year. The committee shall determine from time to time based on such participant's matching employer contributions and participant contributions whether the foregoing limitations will be satisfied and, to the extent necessary to insure compliance with such limitation, shall reduce, on an individual- by-individual basis, for each highly compensated participant who is exceeding such contribution percentage, the applicable percentage of participant contributions, if any, to be withheld for such highly compensated participant, beginning with the highly compensated participant with the highest contribution percentage first and then reducing the applicable percentage for each subsequent highly compensated participant until such contribution percentage satisfies the foregoing test. If, after reducing such participant contributions, such contribution percentage still exceeds such limitation, the matching employer contributions to be contributed for such highly compensated participants shall be reduced, beginning with the highly compensated participant with the highest matching employer contributions first and then reducing the applicable percentage for each subsequent highly compensated participant until such contribution percentage satisfies the foregoing test. If, because of the foregoing limitations, a portion of the matching employer contributions made on behalf of a highly compensated participant may not be credited to his account for a plan year, such portion (and the income allocable to such amount) will be forfeited and returned to the employer making such contribution not later than two and one-half months after the end of that plan year. The determination of any ex- cess aggregate matching contributions under this subparagraph shall be made after determining any excess income deferral con- tributions under subsection 3.6. Income on such excess participant contributions and, if applicable, matching employer contributions shall be calculated in the same manner as provided in subparagraphs (i) - (iii) of subsection 3.6 except that such calculations shall be made using the participant's participant contribution account balance and the participant's contributions and excess participant contributions made for such plan year and then, if necessary, such participant's matched employer contribution account balance and the employer's matching employer contributions and excess matching employer contributions made for such plan year. In the event that both the actual deferral percentage and the contribution percentage do not satisfy the requirements of subparagraphs 3.6(a) and 3.7(a) above, the following additional limitation shall apply to participant contributions and then to employer matching contributions of highly compensated participants under the plan. After the appropriate tests under subparagraph 3.6(a) or (b) above and subparagraph 3.7(a) or (b) have been made and any excess income deferral contributions and participant contributions have been returned to the participant and any excess employer matching contributions are forfeited, the "Aggregate Limit" test will be applied. The "Aggregate Limit" will be the sum of: (1) 125 percent of the greater of the actual deferral percentage or the contribution percentage for participants who are not highly compensated participants and (2) the lesser of (a) the actual deferral percentage or the contribution percentage, whichever is smaller, for participants who are not highly compensated participants plus two (2) percentage points or (b) the actual deferral percentage or contribution percentage, whichever is smaller, for participants who are not highly compensated participants multiplied by 2.0. If the sum of the actual deferral percentage and the contribution percentage for the highly compensated participants exceeds the Aggregate Limit, participant contributions and then employer matching contributions will be further reduced until the Aggregate Limit test is satisfied. 3.8. Highly Compensated Participants. For purposes of subsections 3.6 and 3.7 of the plan, a "highly compensated participant" means any participant who, during the current or immediately preceding plan year: (a) was a 5 percent (5%) owner of an employer or controlled group member; (b) received annual compensation from an em- ployer and/or controlled group member of more than $75,000; (c) received annual compensation from an em- ployer and/or controlled group member of more than $50,000 and was in the top-paid twenty percent (20%) of the employees; or (d) was an officer of an employer and/or con- trolled group member receiving annual compensation greater than fifty percent (50%) of the limitation in effect under Section 415(b)(1)(A) of the Internal Revenue Code; provided, that for purposes of this subparagraph (d), no more than 50 employees of the employer (or if lesser, the greater of 3 employees or 10 percent of the employees) shall be treated as officers. A participant not described in (b), (c) or (d) above for the immediately preceding year will not be considered a highly com- pensated participant for the current plan year under (b), (c) or (d) unless such participant is included within the group of the 100 highest paid employees of the employer and controlled group members for such current year. If any participant is a family member of a highly compensated participant who is either a 5 percent owner or one of the ten most highly compensated participants with respect to any plan year, that participant shall not be treated as a separate participant for purposes of this subsection and such individual's compensation will be treated as if paid to such highly compensated participant; pro- vided that, a "family member" of a highly compensated partici- pant means such participant's spouse, lineal ascendants or descendants and the spouses of such lineal ascendants or de- scendants. For purposes of this subsection, "compensation" shall be defined as provided in subsection 3.6 of the plan. The compensation thresholds in (b), (c) and (d) above will be adjusted in accordance with Section 414(q)(1) of the Code. 3.9. Verification of Employer Contributions. A cer- tificate of an independent certified public accountant selected by the employer shall be conclusive on all persons as to the amount of an employer's contributions under the plan for any plan year. 3.10. No Interest in Employers. The employers shall have no right, title or interest in the trust fund, nor will any part of the trust fund at any time revert or be repaid to an employer, unless: (a) the Internal Revenue Service determines that the plan does not meet the require- ments of Section 401(a) of the Internal Revenue Code of 1986, in which event con- tributions made to the plan by such em- ployer conditioned upon such qualification shall be returned to the employer within one year after the date notice of such determination is issued to the employer; or (b) a contribution is made by such employer by mistake of fact and such contribution is returned to the employer within one year after payment to the trustee; or (c) a contribution is disallowed as an expense for federal income tax purposes and such contribution (to the extent disallowed) is returned to the employer within one year after the disallowance of the deduction. The amount of any contribution that may be returned to an employer pursuant to subparagraph (b) or (c) above shall be reduced by any portion thereof previously distributed from the trust fund and by any losses of the trust fund allocable thereto and in no event may the return of such contribution cause any participant's account balances to be less than the amount of such balances had the contribution not been made under the plan. SECTION 4 Participant Contributions 4.1. Amount of Participant Contributions. In lieu of any income deferral contributions made by a participant under subsection 3.2 and subject to any limitations contained in the plan, a participant, if he so desires, may elect to make voluntary contributions under the plan for any plan year in an amount of not less than one percent (1%) nor more than sixteen percent (16%) of his adjusted compensation (as defined in subsection 3.3) for that year. Each such election by a participant under this subsection shall be made at such time, in such manner and in accordance with such rules as the committee shall determine. 4.2. Deduction or Payment of Participant Contributions. A participant's contributions may be made by regular payroll deductions (in multiples of one percent) or in any other way approved by the committee. Participant contributions deducted by an employer will be paid to the trustee as soon as practicable after the date the contributions are made. 4.3. Variation, Discontinuance, Resumption and With- drawal of Participant Contributions. A participant may elect to change his contribution rate (but not retroactively) within the limits specified above, to discontinue making contributions or to resume making such contributions. As of the first day of any plan year quarter, a participant may withdraw all or any portion of the then net credit balance in his participant con- tribution account. Each election by a participant under this subsection 4.3 shall be made at such time and in such manner as the committee shall determine, and shall be effective only in accordance with such rules as may be established from time to time by the committee. SECTION 5 Period of Participation 5.1. Termination Date. A participant's "termination date" will be the date on which his employment with all of the employers is terminated because of the first to occur of the following: (a) Normal or Late Retirement. The date of the participant's retirement on or after attaining age 65 years (his "normal retirement age"). A participant's right to all account balances shall be nonfor- feitable on and after his normal retirement age. (b) Early Retirement. The date of the partic- ipant's retirement on or after attaining age 55 years but before attaining age 65 years. (c) Disability Retirement. The date the par- ticipant is retired from the employ of all of the employers at any age because of disability (physical or mental), as deter- mined by a qualified physician selected by the committee. A participant will be con- sidered disabled for purposes of this sub- paragraph if, on account of a disability, he is no longer capable of performing the duties assigned to him by his employer. (d) Death. The date of the participant's death. (e) Resignation or Dismissal. The date the participant resigns or is dismissed from the employ of all of the employers before he attains age 55 years and for a reason other than disability retirement. If a participant is transferred from employment with an employer to employment with a controlled group member, his termination date will not be considered to have occurred until his employment with all employers and controlled group members has terminated but his participation in the plan will be restricted as provided in subsection 5.2. 5.2. Restricted Participation. If (i) payment of all of a participant's account balances is not made prior to the accounting date next following his termination date, or (ii) a participant transfers to a controlled group member which is not an employer, or (iii) a participant transfers to a group or class of employees who are not eligible to participate in the plan pursuant to the requirements of subparagraph 2.1(a) or (b), the participant or his beneficiary will be treated as a participant for all purposes of the plan, except as follows: (a) The participant may not make income deferral contributions and will not share in employer contributions and forfeitures (as defined in subsection 7.3) under Sec- tion 3 after his termination date, or dur- ing any period described in (i), (ii) or (iii) above, except as provided in subsec- tion 6.5. (b) The participant may not make contributions under Section 4 after his termination date or during any period described in (i), (ii), or (iii) above. (c) The beneficiary of a deceased participant cannot designate a beneficiary under subsection 7.6. If such participant subsequently again satisfies the requirements for participation in the plan, he will become an active participant in the plan on the date he satisfies the requirements of subparagraph 2.1 (a), (b) and (c) and will be eligible to make income deferral contributions under subsection 3.2 effective with the first payment date (i.e., a date on which regular salary payments are made to employees of the employer) coincident with or next following the date that he satisfies the requirements of subsection 2.4. SECTION 6 Accounting 6.1. Separate Accounts. The committee will maintain the following accounts in the name of each participant: (a) Employer Contribution Account. This account will reflect his share of employer contributions under subsection 3.1 and certain forfeitures arising under the plan, and the income, losses, appreciation and depreciation attributable thereto. (b) Income Deferral Contribution Account. If a participant elects to make income deferral contributions under subsection 3.2 of the plan, this account will reflect such contributions and the income, losses, appreciation and depreciation attributable thereto. (c) Matched Employer Contribution Account. If a participant has elected to make income deferral contributions under the plan, this account will reflect the matching employer contributions made under subsection 3.4 of the plan and certain forfeitures arising under the plan, and the income, losses, appreciation and depreciation attributable thereto. (d) Participant Contribution Account. If a participant has elected to make voluntary participant contributions under subsection 4.1 of the plan, this account will reflect such participant contributions and the income, losses, appreciation and deprecia- tion attributable thereto. (e) Prior Plan Account. If a participant has amounts attributable to his participation in any prior plan transferred to this plan as provided in Section 8, this account will reflect such amounts and the income, losses, appreciation and depreciation attributable thereto. The committee also may maintain such other accounts (including accounts reflecting amounts invested in any particular invest- ment fund) in the names of participants or otherwise as it con- siders advisable. Unless the context indicates otherwise, references in the plan to a participant's "accounts" means all accounts maintained in his name under the plan. 6.2. Accounting Dates. A "regular accounting date" is the last day of each month. A "special accounting date" is any date designated as such by the committee and a special accounting date occurring under subsection 11.4. The term "accounting date" includes both a regular accounting date and a special accounting date. 6.3. Employer Contributions Considered Made on Last Day of Plan Year. For purposes of this Section 6, each employ- er's contributions for any plan year under subsection 3.1 will be considered to have been made on the last day of that year, regardless of when paid to the trustee. 6.4. Adjustment of Participants' Accounts. As of each accounting date, the committee shall: (a) First, charge to the proper accounts all payments, distributions or withdrawals made since the last preceding accounting date that have not been charged previously; (b) Next, adjust the credit balances in the accounts of all participants upward or downward, pro rata, according to the credit balances so that the total of the credit balances will equal the then adjusted net worth (as defined below) of the trust fund or any separate investment fund (as defined below) established for such accounts; (c) Next, subject to the provisions of subsec- tion 6.7, credit any income deferral con- tributions that are to be credited as of that date in accordance with subsection 3.2; (d) Next, credit matching employer contri- butions and forfeitures, if any, that are to be credited as of that date in accor- dance with subsection 3.4; (e) Next, allocate and credit employer contri- butions and forfeitures, if any, that are to be allocated and credited as of that date in accordance with subsection 6.5; and (f) Finally, credit any participant contribu- tions that are to be credited as of that date in accordance with subsection 4.2. The "trust fund" as at any date will consist of all property of every kind then held by the trustee. The "adjusted net worth" of the trust fund as at any date means the then net worth of the trust fund as determined by the trustee, less an amount equal to the sum of employer and participant contributions not yet credited to the accounts of participants. The committee may establish one or more investment funds for the investment of employer and participant contributions under the plan and may adjust participant accounts in accordance with the accounting provisions established under any such investment funds. The investment funds established by the committee are described in subsection 6.8. The term "investment fund" includes any trust account, group annuity contract, separate account or other investment vehicle established under a contract with a licensed insurance company or under a trust agreement with a trustee. 6.5. Allocation of Employer Contributions and For- feitures. Subject to subsection 6.7, as of each regular accounting date occurring on the last day of a plan year, each employer's total contribution under subsection 3.1 of the plan for the plan year ending on that date, plus forfeitures (used to reduce an employer's contribution as provided in subsection 3.1), if any, that are to be allocated on that date in accor- dance with subsection 7.3, will be allocated and credited to the employer contribution accounts of participants who were employed by such employer during that plan year (excluding par- ticipants who resigned or were dismissed from the employ of all of the employers during that year under subparagraph 5.1(e)), pro rata, according to the adjusted compensation paid to them, respectively, by such employer during that year. 6.6. Statement of Accounts. Each participant will be furnished with a statement reflecting the condition of his accounts in the trust fund as of the last day of each plan year or more frequently, if so provided by the committee. No par- ticipant, except one authorized by the committee, shall have the right to inspect the records reflecting the accounts of any other participant. 6.7. Contribution Limitations. Notwithstanding any provisions in the plan to the contrary, the following limita- tions shall apply to each participant in the plan: (a) If such participant is not an active par- ticipant in any other defined contribution or defined benefit plan (as defined in Section 415(k) of the Internal Revenue Code of 1986) maintained by an employer or a controlled group member which is not an employer, the maximum "annual additions" (as defined below) to such participant's accounts for any plan year shall not exceed the lesser of $30,000 (or, if greater, 1/4 of the dollar limitation in effect under Section 415(b)(1)(A) of the Code for the calendar year which begins with or within that plan year) or 25 percent of the participant's compensation for the plan year. A participant's "annual additions" shall mean the sum of (i) employer contributions to be allocated and credited to his employer contribution account or matched employer contribution account for the year, (ii) any forfeitures to be allocated and credited to his employer contribution account for the year, (iii) any income deferral contributions credited to his income deferral contribution account for the year and (iv) participant contributions credited to his participant contribution account for such year. For purposes of this subparagraph, annual additions shall include excess aggregate contributions (as defined in Section 401(m)(6)(B) of the Code) and excess income deferrals (as described in Section 402(g) of the Code), regardless of whether such amounts are distributed or forfeited. For purposes of this subsection, "compensation" means compensation as defined for purposes of Section 415 of the Internal Revenue Code. (b) If such participant is an active partici- pant in any other defined contribution plan maintained by an employer or a controlled group member which is not an employer, the maximum "annual additions" provided in subparagraph (a) above shall apply to this plan and all such other defined contribution plans as if all such plans were one plan. (c) If such participant is an active partici- pant in any other defined benefit plan maintained by an employer or a controlled group member which is not an employer, the limitation provided in subparagraph (a) or (b) above, whichever is applicable, shall apply, and, in addition, the following additional limitation shall be applicable. If such participant's "defined contribution fraction" (as described below) when added to his "defined benefit fraction", determined under such other defined benefit plan as of the end of each plan year, exceeds 1.0 as calculated under Section 415(e) of the Code, the annual additions under this plan, the annual additions under such other defined contribution plan, or the annual benefit expected to be paid under the defined benefit plan shall be adjusted, in the sole discretion of the plan administrators under the plans, so that the defined contribution fraction when added to the defined benefit fraction will not exceed 1.0. A participant's defined contribution fraction as of the end of any plan year shall consist of a numerator which is the sum of the annual additions to such participant's accounts for all years, computed under subparagraph (a) or (b) above, whichever is applicable, and the denominator of which is the sum of the adjusted limitations for each year of such participant's service with the employers or controlled group members. For purposes of this subparagraph the "adjusted limitation" for a year shall mean the lesser of: (i) $30,000 (or, if greater, 1/4 of the dollar limitation in effect under Section 415(b)(1)(A) of the Code for the calendar year which begins with or within that plan year) multiplied by 125 percent and, (ii) 25 percent of such participant's compensation for such year multiplied by 140 percent. If, as a result of the limitations provided above, any partici- pant contributions cannot be credited to a participant's par- ticipant contribution account, the committee, after consulting with the participant, may in its sole discretion: (a) Reduce any future participant contributions to be made by the participant for such plan year. (b) Return to the participant any participant contributions which, because of the limi- tations contained in this subsection, can- not be credited to his participant contri- bution account for the year, without interest or earnings. Any employer contributions which cannot be credited to a par- ticipant's accounts because of the foregoing limitations will be used to reduce employer contributions for the next plan year (and succeeding plan years in order of time). 6.8. Investment Funds. Each participant may elect, subject to the following provisions, to have a portion or all of his income deferral contributions, matching employer contri- butions and participant contributions (but not employer con- tributions made under subsection 3.1 or his employer contribu- tion account) invested in one or more investment funds established by the committee. As at January 1, 1993, the following investment funds have been established: (a) Conservative Equity Fund. This fund will be primarily invested in equity securities that are deemed to have 'defensive' char- acteristics, the investment objective being a favorable rate of return paralleling the pattern of the general stock market, but the variability of its results expected to be lower than those of the general stock market. (b) Aggressive Equity Fund. This fund will be primarily invested in equity securities that are deemed to have 'aggressive' characteristics, the investment objective being a favorable rate of return parallel- ing the pattern of the general stock market, but the variability of its results expected to be greater than those of the general stock market. (c) Interest Accumulation Investment Fund. This fund will be invested with an insurance company under a group annuity contract or in an eligible pooled fund or funds consisting of such guaranteed investment contracts, or in a money market fund or funds, the investment objective being the preservation of principal and a favorable rate of interest on such principal. (d) Parent Company Stock Fund. This fund will be invested solely in the shares of common stock issued by Western Publishing Group, Inc., the parent of the company. An election by a participant will be subject to the following requirements: (a) Each election made in accordance with this subsection must be in writing and filed with the committee at such time as the committee determines. (b) Each election shall be effective on the first day of any plan year quarter (after all adjustments as of the next preceding accounting date have been made) for which a new election is effective. If no election is in effect with respect to a participant, such participant's income deferral contributions, matching employer contributions and participant contributions will be invested in the Interest Accumulation Investment Fund. (c) Any election made in accordance with this subsection to have amounts invested in one or more investment funds shall be in increments of 10 percent of such partici- pant's contributions or account balances. (d) Effective as of the dates specified in subparagraph (b) above, a participant may elect to have a portion or all of the amounts credited to his income deferral contribution account, matching employer contribution account, participant contri- bution account or prior plan account (after all adjustments as of the next preceding accounting date have been made) transferred from one investment fund to another investment fund. Each such election shall be subject to the provisions of subparagraphs (a) and (c) above and no election to transfer from the Interest Accumulation Investment Fund to another investment fund shall be effective unless such transfer is permitted under the Interest Accumulation Investment Fund, without penalty. (e) With respect to each participant who has an interest in the Parent Company Stock Fund (as defined in subparagraph 6.8(d) above), the trustee shall provide a copy of the notice and proxy statement for each meeting of the holders of common stock issued by Western Publishing Group, Inc., together with an appropriate form for the participant's use in instructing the trustee with respect to the voting of the shares of such stock that, at the record date for the determination of the shareholders entitled to such notice, and to vote at, such meeting, are allocable to such participant under the Parent Company Stock Fund as of such date. If a participant furnishes timely instructions to the trustee, the trustee (in person or by proxy) shall vote the shares (including fractional shares) of the common stock of Western Publishing Group, Inc. allocable to such participant in the Parent Company Stock Fund in accordance with the directions of the participant. Shares of such stock allocable to participants in the Parent Company Stock Fund for which timely voting instructions are not received by the trustee shall be voted by the trustee as directed by the committee. (f) Notwithstanding the foregoing, any elections by a participant who is an officer or director of Western Publishing Group, Inc. with respect to contributions to or withdrawals from, and elections to transfer amounts between the Parent Company Stock Fund and any other fund, may be limited in accordance with any regulations issued by the Securities and Exchange Commission under Section 16 of the Securities Exchange Act of 1934. SECTION 7 Payment of Account Balances 7.1. Retirement or Death. If a participant's employment with all of the employers and controlled group mem- bers is terminated because of retirement under subparagraph 5.1(a), (b) or (c), or if a participant dies while in the employ of an employer, any income deferral contributions or participant contributions made by him previously but not cred- ited to his appropriate account will be returned to him or, in the event of his death, to his beneficiary. The balances in all of his accounts as at the accounting date coincident with or next following his termination date (after all adjustments required under the plan as of that date have been made) shall be nonforfeitable and shall be distributable to him or, in the event of his death, to his beneficiary, under subsection 7.4. 7.2. Resignation or Dismissal. If a participant who immediately prior to November 1, 1984 was an active participant in the Western Pension Plan for Salaried Employees and who became a participant in this plan on November 1, 1984 resigns or is dismissed from the employ of all of the employers before retirement under subparagraph 5.1(a), (b) or (c), any income deferral contributions or participant contributions made by him previously but not credited to his appropriate account will be returned to him and the balances in all of his accounts as at the accounting date coincident with or next following his termination date (after all adjustments required under the plan as of that date have been made) shall be nonforfeitable and shall be distributable to him under subsection 7.4. In the case of any other participant who resigns or is dismissed under subparagraph 5.1(a), (b) or (c), any income deferral contribu- tions or participant contributions made by him previously but not credited to his appropriate account will be returned to him and the balances in his income deferral contribution account, participant contribution account and prior plan account, if any, as at the accounting date coincident with or next follow- ing his termination date (after all adjustments required under the plan as of that date have been made) shall be nonforfeit- able and shall be distributable to him under subsection 7.4 along with the vested balances in his employer contribution account and matched employer contribution account as at the accounting date coincident with or next following his termina- tion date (after all adjustments required under the plan as of that date have been made) determined in accordance with the following schedule: Vested Percentage of Years of continuous employer contribution employment under and matched employer subsection 2.2 contribution accounts ------------------- --------------------- Less than 1 0 1 25% 2 50% 3 75% 4 or more 100% 7.3. Forfeitures. The amount by which a partici- pant's employer contribution account and matched employer con- tribution account are reduced under subsection 7.2 shall be treated as a 'forfeiture' on the earlier of the date of distribution of such participant's account balances or the date such participant incurs five consecutive one-year breaks in employment. Prior to that date, such accounts will continue to be adjusted pursuant to the provisions of subparagraph 6.4(b). Forfeitures attributable to a participant's employer contribution account will be used to reduce the employer's contribution otherwise required under subsection 3.1 and shall be allocated and credited to the employer contribution accounts of other participants in accordance with subsection 6.5. Forfeitures attributable to a participant's matched employer contribution account will be used to reduce the employer's contribution otherwise required under subsection 3.4 and shall be credited to the matched employer contribution accounts of other participants in accordance with that subsection. If a participant is reemployed by an employer or controlled group member before he incurs five consecutive one-year breaks in employment, any forfeitures attributable to such participant shall be recredited to such participant's appropriate account(s) on the accounting date coincident with or next following the date of such participant's reemployment if the participant repays the total amount of any previous distribution attributable to his employer contribution account and matched employer contribution account within five years of his date of reemployment. Such participant's accounts shall be recredited from current unallocated forfeitures or, to the extent there are insufficient unallocated forfeitures for this purpose, from supplemental employer contributions necessary to restore such amount. The actual amount restored to such participant's accounts shall be the amount of such forfeitures, without investment adjustments. 7.4. Manner of Distribution. After each partici- pant's termination date, and subject to the conditions set forth below and in subsections 7.5 and 7.11, distribution of the net credit balance in the participant's accounts will be made to or for the benefit of the participant or, in the case of his death, to or for the benefit of his beneficiary, by one or both of the following methods: (a) By purchase of an annuity subject to the following requirements: (i) Except as otherwise provided in subparagraph (v) below, if such participant has a spouse to whom he is legally married as of the date payment of his account balances is to commence as a result of his termination of employment for a reason other than death, the participant's account bal- ances shall be applied to purchase an annuity for him and such annuity shall provide for payment of an annuity for the life of the participant with a survivor annuity payable for the life of his spouse which is one-half of the annuity payable during the joint lives of the participant and his spouse. (ii) Except as otherwise provided in subparagraph (v) below, if such participant has a spouse to whom he is legally married as of the date of his death, an annuity providing payments for the life of the spouse shall be purchased for the spouse with at least 50 percent of the participant's account balances unless such amount is less than $3,500, in which case, such amount shall be distributed to the spouse in a lump sum. Such spouse may elect in writing to have any amounts payable to the spouse paid in a lump sum. (iii) The portion of a participant's account balances, if any, which is not paid to the participant's spouse under subparagraph (ii) shall be paid to such participant's designated beneficiary under one or more of the methods described in subparagraph (v) below; provided such distributions commence within one year of the participant's death. (iv) The premium paid to the insurance company for a contract will be charged to the participant's accounts when paid. The committee may direct the trustee to cause the contract to be assigned or delivered to the person or persons then entitled to payments under it but, prior to assignment or delivery of the contract, it shall be rendered nontransferable and noncommutable. (v) In the event a participant does not have a spouse as of the date payment of his account balances is to commence to him or upon his death, or such participant elects, with the written consent of his spouse (which consent acknowledges the effect of such election and is witnessed by a plan representative or notary public), not to receive distribution in the form of an annuity described in (i) or (ii) above, the committee, after consulting with the participant, will direct the trustee to distribute such participant's benefits to him or, in the event of his death, to or for the benefit of his designated beneficiary, by any one or more of the following methods: (1) an annuity for life, with or without a refund feature; (2) an annuity for life and a period certain, which period certain may not exceed the joint life expectancy of the participant and his designated beneficiary; (3) an annuity for the joint life expectancy of the participant and his designated beneficiary; (4) with the written consent of the participant and, where applicable, his spouse, a lump sum under subparagraph (b) below. If such participant's designated beneficiary is not the participant's spouse and is more than 10 years younger than the participant, an annuity shall be paid over a period not exceeding the joint life expectancy of the participant and a designated beneficiary 10 years younger than the participant. (vi) Within a reasonable period of time prior to the earliest date on which a married participant could receive payment of benefits under the plan, the committee will furnish him with a written explanation of the terms and conditions of the form of payment specified in subparagraph (a)(i) above, and the financial effect of making an election not to receive payment in such form. An election not to receive payment in the form specified in subparagraph (a)(i) shall be in writing and signed by the participant and consented to by his spouse and may be made or revoked by the participant at any time during the 90-day period prior to commencement of his benefits. Within the three plan year period beginning (i) on the first day of the plan year in which a participant attains age 32 or (ii) if such employee becomes a participant in the plan after attaining age 32, with the plan year in which such employee becomes a participant, the committee will furnish him with a written explanation of the terms and conditions of the form of payment specified in subparagraph (a)(ii) above and the financial effect of making an election not to receive pay- ment in such form. An election not to receive payment in the form specified in subparagraph (a)(ii) may be made by a participant at any time on or after the first day of the plan year in which he attains age 35 years. Such election shall be in writing and consented to by his spouse and may be made or revoked by the participant at any time prior to his death. (b) Subject to the provisions of subparagraph (a), by payment in a lump sum. Subject to the requirements of subparagraph (a) above, the participant may elect the method of distributing his benefits to him and may direct how his benefits are to be paid to his beneficiary. The committee shall select the method of distributing the participant's benefits to his beneficiary if the participant has not filed a direction with the committee. The trustee may make distributions in cash or property, or partly in each, provided property is distributed at its fair market value as of the date of distribution as determined by the trustee. All distributions under the plan shall comply with the requirements of Section 401(a)(9) of the Code and the regulations thereunder. 7.5. Commencement of Distributions. Except as pro- vided in the following sentence, payment of a participant's benefits will be made within a reasonable time after his termi- nation date, but not later than 60 days after (a) the end of the plan year in which his termination date occurs, or (b) such later date on which the amount of the payment can be ascertained by the committee. However, if a participant's termination date occurs before he attains age 65 and if the aggregate nonforfeitable balance in his accounts at his termination date or at the time of any prior distribution exceeds $3,500, then payment of such benefits shall be deferred to his attainment of age 65 (or, if elected by the participant, age 70-1/2) unless the participant (or, in the event of his death, his surviving spouse) consents in writing to an immediate distribution. A (i) participant or (ii) former participant who previously made an election to defer commencement of his benefits whose nonforfeitable balance in his accounts as at his termination date (after any required adjustments) was less than $3,500 will automatically receive his distribution in a lump sum. A participant who previously made an election to defer commencement of his benefits may elect, not more frequently than once each plan year and in an amount not less than $1,000 in each such plan year, to receive a distribution from his account(s) in a lump sum payment. 7.6. Designation of Beneficiary. Each participant from time to time, by signing a form furnished by the committee, may designate any person or persons (who may be designated concurrently, contingently or successively) to whom his benefits are to be paid if he dies before he receives all of his benefits. A beneficiary designation form will be effective only when the form is filed with the committee while the participant is alive and will cancel all beneficiary designation forms previously filed with the committee. If a deceased participant failed to designate a beneficiary as provided above, or if the designated beneficiary dies before the participant or before complete payment of the participant's benefits, the committee, in its discretion, may direct the trustee to pay the participant's benefits as follows: (a) To or for the benefit of any one or more of his relatives by blood, adoption or marriage and in such proportions as the committee determines; or (b) To the legal representative or representa- tives of the estate of the last to die of the participant and his designated beneficiary. The term "designated beneficiary" as used in the plan means the person or persons (including a trustee or other legal represen- tative acting in a fiduciary capacity) designated by a partici- pant as his beneficiary in the last effective beneficiary designation form filed with the committee under this subsection and to whom a deceased participant's benefits are payable under the plan. The term "beneficiary" as used in the plan means the natural or legal person or persons to whom a deceased partici- pant's benefits are payable under this subsection. 7.7. Missing Participants or Beneficiaries. Each participant and each designated beneficiary must file with the committee from time to time in writing his post office address and each change of post office address. Any communication, statement or notice addressed to a participant or beneficiary at his last post office address filed with the committee, or if no address is filed with the committee then, in the case of a participant, at his last post office address as shown on the employer's records, will be binding on the participant and his beneficiary for all purposes of the plan. Neither the employ- ers nor the committee will be required to search for or locate a participant or beneficiary. If the committee notifies a par- ticipant or beneficiary that he is entitled to a payment and also notifies him of the provisions of this subsection, and the participant or beneficiary fails to claim his benefits or make his whereabouts known to the committee within three years after the notification, the benefits of the participant or benefi- ciary will be disposed of, to the extent permitted by appli- cable law, as follows: (a) If the whereabouts of the participant then is unknown to the committee but the where- abouts of the participant's designated beneficiary then is known to the committee, payment will be made to the designated beneficiary; (b) If the whereabouts of the participant and the participant's designated beneficiary then is unknown to the committee but the whereabouts of one or more relatives by blood, adoption or marriage of the partic- ipant is known to the committee, the com- mittee may direct the trustee to pay the participant's benefits to one or more of such relatives and in such proportions as the committee decides; or (c) If the whereabouts of such relatives and the participant's designated beneficiary then is unknown to the committee, the benefits of such participant or beneficiary will be disposed of in an equitable manner permitted by law under rules adopted by the committee. 7.8. Facility of Payment. When a person entitled to benefits under the plan is under legal disability, or in the committee's opinion, is in any way incapacitated so as to be unable to manage his financial affairs, the committee may direct the trustee to pay the benefits to such person's legal representative, or to a relative or friend of such person for such person's benefits, or the committee may direct the appli- cation of such benefits for the benefit of such person. Any payment made in accordance with the preceding sentence shall be a full and complete discharge of any liability for such payment under the plan. 7.9 Loans to Participants. While it is the primary purpose of the plan to accumulate funds for participants when they retire, it is recognized that under some circumstances it is in the best interests of participants to permit loans to be made to them while they continue in the active service of the employers. Accordingly, the committee, pursuant to such rules as it may from time to time establish, and upon written application by a participant supported by such evidence as the committee may request, may direct the trustee to make a loan to a participant subject to the following: (a) Subject to the provisions of this sub- section, each participant may borrow from his accounts (other than his employer contribution account and matched employer contribution account) for general purposes or for residential purposes by filing a written application wit the committee requesting such loan. The minimum amount which can be borrowed for any loan will be $1,000. All loans shall be made on a pro rata basis from a participant's income deferral contribution account, participant contribution account and prior plan account and no more than two loans may be outstanding at any time. (b) The principal amount of any loan made to a participant, when added to the outstanding balance of all other loans made to the participant from all qualified plans maintained by the employers, shall not exceed the least of: (i) $50,000, reduced by the excess (if any) of the highest outstanding balance during the one-year period ending immediately preceding the date of the loan, over the outstanding balance of all such loans from all such plans on the date of such loan; (ii) 50 percent of the participant's vested account balances under the plan; and (iii) the sum of a participant's income deferral contribution account, participant con- tribution account and prior plan account (excluding any amounts in such account attributable to the Western IRA Plan). (c) Each loan must be evidenced by a written note in a form approved by the committee, shall require substantially level amortization payments (with payments at least quarterly), shall be repaid by regu- lar payroll deduction and shall be secured by the participant's account balances. Each loan shall bear interest at the rate established by the committee and be commensurate with rates charged by com- mercial lenders on similar loans. Any loan to a married participant must be consented to in writing by the participant's spouse. Such spousal consent shall be obtained no earlier than the beginning of the ninety- day period ending on the date of the loan, must acknowledge the effect of the loan and must be witnessed by a plan representative or notary public. Such consent shall be binding with respect to the consenting spouse or any subsequent spouse with respect to that loan unless such loan is renegotiated, extended, reserved or otherwise revised. (d) Each loan shall specify a repayment period which shall not be less than 12 months nor more than 60 months for general purposes and not less than 120 months nor more than 240 months for residential loans used to acquire, construct, reconstruct or substantially rehabilitate any dwelling unit which within a reasonable time is to be used (determined at the time the loan is made) as a principal residence of the participant. No repayment period shall extend beyond a participant's normal retirement date. Amounts repaid by the participant will be recredited to the participant's accounts in the same ratio as the loan is made from such accounts. (e) If, on a participant's termination date (other than a termination date described in paragraph 5.1(c)), any loan or portion of a loan made to him under the plan, together with the accrued interest thereon, remains unpaid, the entire amount of the unpaid loan and accrued interest shall be due and payable by the participant; provided that, if such amount is not repaid by the end of the calendar month beginning after his ter- mination date, an amount equal to the outstanding balance of the loan, together with the accrued interest thereon, shall be charged to the participant's accounts after all other adjustments required under the plan, but before any distribution pursuant to subsection 7.4. A participant who has a termination date under subparagraph 5.1(c) need not repay the entire amount of the loan by the end of the calendar month beginning after his termination date, but if payments are in default at the end of any calendar month, such loan shall be charged against the participant's accounts as provided in the preceding sentence. (f) In determining the adjusted net worth of the trust fund as of each accounting date, the committee shall disregard any promissory notes held by the trustee evidencing loans made to participants, together with any interest and principal payments on such loans received by the trustee since the preceding accounting date. For purposes of adjusting partic- ipants' accounts under subsection 6.3, the committee shall exclude from the credit balance of a participant's accounts the unpaid amount of any loan made to him (disregarding any principal payments made since the last preceding accounting date). Interest paid by a participant on a loan made to him under this subsection 7.9 shall be credited to the accounts of the participant as of the accounting date which ends the accounting period during which such interest payment was made, after all adjustments required under the plan as of the date have been made. (g) Notwithstanding any provision to the contrary, the participant's ability to withdraw amounts from his participant contribution account under subsection 4.3 and from his prior plan account under subsection 8.3 shall be restricted to the extent that the outstanding principal and interest due on a loan equals or exceeds 50% of his vested account balances. 7.10. Latest Date for Distribution. Notwithstanding any provision of the plan to the contrary, payment of benefits to a participant shall be made (or commence) no later than the April 1 of the calendar year following the calendar year in which the participant has attained age 70-1/2. 7.11. Direct Transfer of Eligible Rollover Distributions. Effective January 1, 1993, if payment of benefits to a participant, a participant's surviving spouse, or the spouse or former spouse of the participant who is an alternate payee under a qualified domestic relations order (as defined in Section 414(p) of the Code) constitutes an 'eligible rollover distribution' under Section 402(c)(4) of the Code, then the participant or the participant's spouse (or former spouse) may elect to have such distribution paid directly to an eligible retirement plan described in Section 402(c)(8)(B) of the Code (except that in the case of an eligible rollover distribution to a participant's surviving spouse on the death of a participant, the definition of an eligible retirement plan is limited to an individual retirement account or individual retirement annuity). Each election by a participant under this subsection shall be made at such time and in such manner as the committee shall determine and shall be effective only in accordance with such rules as shall be established from time to time by the committee. Any election by a participant under this subsection will be subject to the requirements of subparagraph 7.4(a)(v) of the plan. 7.12 Withdrawal of Income Deferral Contributions. With the consent of the committee, a participant may elect to withdraw any income deferral contributions made by such par- ticipant because of a "hardship" (as defined below) causing an immediate and heavy financial need on the participant. For purposes of this subsection a hardship shall include: (a) Medical expenses incurred (or not yet incurred but necessary to obtain such medical care) by the participant, the participant's spouse or the participant's dependents (as defined in Section 152 of the Internal Revenue Code) which are not reimbursed by insurance or otherwise; (b) Purchase of a principal residence for the participant, excluding mortgage payments; (c) Payment of tuition and related educational fees for the next twelve months of post- secondary education for the participant or the participant's spouse, children or dependents; (d) The need to prevent the eviction of the participant from his principal residence or foreclosure under the mortgage on the participant's principal residence; (e) Casualty losses or catastrophes such as flooding, hurricanes or tornadoes; or (f) Any other hardship which in the opinion of the committee creates an immediate and heavy financial need on the participant. A withdrawal will be considered necessary to satisfy an immedi- ate and heavy financial need only if the participant represents in writing to the committee that the need cannot reasonably be relieved (i) through reimbursement or compensation by insurance or otherwise, (ii) by liquidation of the employee's assets and the assets of the employee's spouse and minor children that are reasonably available to the employee, (iii) from other available distributions and loans under this plan or any other qualified retirement plan maintained by the employers or by borrowing from commercial sources on reasonable commercial terms in amounts sufficient to satisfy the need; or (iv) the cessation of income deferral contributions or voluntary contributions to the plan. Each such election shall be in writing, shall be filed with the committee at such time and in such manner as the committee shall determine and shall be effective in accordance with such rules as the committee may establish from time to time. Any withdrawal by a married participant must be consented to in writing by the participant's spouse, must acknowledge the effect of the withdrawal and must be witnessed by a plan representative or notary public. SECTION 8 Prior Plan Accounts 8.1. Transfer of Prior Plan Balances. Each partici- pant in the plan who prior to November 1, 1984 was covered by the Western Publishing Company Employees' Savings and Security Plan ("savings and security plan") and/or Western Profit Shar- ing Trust Plan has had his account balance(s) under such plan(s) transferred in a lump sum to this plan. In addition, each participant previously covered by the Western Pension Plan for Salaried Employees who was not eligible to receive an annuity under such plan had the option of having the present value of his accrued benefit determined under such plan transferred to this plan in a lump sum. The balances attributable to each such participant's participation in such plans (a "prior plan") will be subject to the provisions of this Section. 8.2. Prior Plan Accounts. All such amounts which are transferred to this plan from a prior plan will be held in a separate prior plan account established for the participant which will be fully vested and nonforfeitable at all times. Such prior plan account will be adjusted from time to time in accordance with the provisions of Section 6 and, except as otherwise provided in subsection 8.3, will be distributed in accordance with the provisions of Section 7. Appropriate sub- accounts will be maintained reflecting each participant's interest in a prior plan. 8.3. Withdrawals from Prior Plan Accounts. No with- drawals of any portion of a participant's prior plan account will be permitted prior to distribution in accordance with Sec- tion 7 of the plan unless such amounts are attributable to such participant's participation in the Savings and Security plan or unless such amounts are attributable to "rollover" amounts as described in subsection 8.4. 8.4. Other Transferred Amounts and Rollovers. Sub- ject to such rules and requirements as the committee may estab- lish, a participant may direct the trustee to receive a "roll- over" amount either in the form of a direct rollover (as defined in Section 401(a)(31) of the Code) or an indirect rollover as defined in Section 402(c)(5) or Section 408(d)(3) of the Code attributable to such participant's participation in any other qualified pension or profit sharing plan under Section 401(a) of the Code. Any such rollover amount shall be credited to a prior plan account and will be subject to the provisions of subsection 8.2. At the direction of a participant and with the consent of the committee, the trustee, under this plan, may receive assets held for a participant under any other plan pursuant to a trust-to-trust transfer between such qualified pension or profit sharing plan and this plan. Any such transferred amounts will be credited to a prior plan account and shall be subject to the provisions of subsec- tion 8.2. SECTION 9 The Committee 9.1. Membership. A committee consisting of three or more persons (who may but need not be employees of the employ- ers) shall be appointed by the company. The Secretary of the company shall certify to the trustee from time to time the appointment to (and termination of) office of each member of the committee and the person who is selected as secretary of the committee. 9.2. Committee's General Powers, Rights and Duties. Except as otherwise specifically provided and in addition to the powers, rights and duties specifically given to the com- mittee elsewhere in the plan and the trust agreement, the com- mittee shall have the following powers, rights and duties: (a) To select a secretary, if it believes it advisable, who may but need not be a committee member. (b) To determine all questions arising under the plan, including the power to determine the rights or eligibility of employees or participants and any other persons to benefits under the plan, and the amount of their benefits under the plan, and to remedy ambiguities, inconsistencies or omissions. (c) To adopt such rules of procedures and regulations as in its opinion may be necessary for the proper and efficient administration of the plan and as are con- sistent with the plan and trust agreement. (d) To enforce the plan in accordance with the terms of the plan and the trust agreement and the rules and regulations adopted by the committee. (e) To direct the trustee as respects payments or distributions from the trust fund in accordance with the provisions of the plan. (f) To furnish the employers with such infor- mation as may be required by them for tax or other purposes in connection with the plan. (g) To employ agents, attorneys, accountants or other persons (who also may be employed by the employers) and to allocate or delegate to them such powers, rights and duties as the committee may consider necessary or advisable to properly carry out admini- stration of the plan, provided that such allocation or delegation and the acceptance thereof by such agents, attorneys, accountants or other persons, shall be in writing. 9.3. Manner of Action. During a period in which two or more committee members are acting, the following provisions apply where the context admits: (a) A committee member by writing may delegate any or all of his rights, powers, duties and discretions to any other member, with the consent of the latter. (b) The committee members may act by meeting or by writing signed without meeting, and may sign any document by signing one document or concurrent documents. (c) An action or a decision of a majority of the members of the committee as to a matter shall be as effective as if taken or made by all members of the committee. (d) If, because of the number qualified to act, there is an even division of opinion among the committee members as to a matter, a disinterested party selected by the committee shall decide the matter and his decision shall control. (e) Except as otherwise provided by law, no member of the committee shall be liable or responsible for an act or omission of the other committee members in which the former has not concurred. (f) The certificate of the secretary of the committee or of a majority of the committee members that the committee has taken or authorized any action shall be conclusive in favor of any person relying on the certificate. 9.4. Interested Committee Member. If a member of the committee is also a participant in the plan, he may not decide or determine any matter or question concerning distribu- tions of any kind to be made to him or the nature or mode of settlement of his benefits unless such decision or determina- tion could be made by him under the plan if he were not serving on the committee. 9.5. Resignation or Removal of Committee Members. A member of the committee may be removed by the company at any time by 10 days' prior written notice to him and the other mem- bers of the committee. A member of the committee may resign at any time by giving 10 days' prior written notice to the company and the other members of the committee. The company may fill any vacancy in the membership of the committee; provided, how- ever, that if a vacancy reduces the membership of the committee to less than three, such vacancy shall be filled as soon as practicable. The company shall give prompt written notice thereof to the other members of the committee. Until any such vacancy is filled, the remaining members may exercise all of the powers, rights and duties conferred on the committee. 9.6. Committee Expenses. All costs, charges and expenses reasonably incurred by the committee will be paid by the employers in such proportions as the company may direct. No compensation will be paid to a committee member as such. 9.7. Information Required by Committee. Each person entitled to benefits under the plan shall furnish the committee with such documents, evidence, data or information as the com- mittee considers necessary or desirable for the purpose of administering the plan. The employers shall furnish the committee with such data and information as the committee may deem necessary or desirable in order to administer the plan. The records of the employers as to an employee's or partici- pant's period of employment, termination of employment and the reason therefor, leave of absence, reemployment, compensation and adjusted compensation will be conclusive on all persons unless determined to the committee's satisfaction to be incorrect. 9.8. Uniform Rules. The committee shall administer the plan on a reasonable and nondiscriminatory basis and shall apply uniform rules to all persons similarly situated. 9.9. Review of Benefit Determinations. The com- mittee will provide notice in writing to any participant or beneficiary whose claim for benefits under the plan is denied and the committee shall afford such participant or beneficiary a full and fair review of its decision if so requested. 9.10. Committee's Decision Final. Subject to appli- cable law, any interpretation of the provisions of the plan and any decisions on any matter within the discretion of the com- mittee made in good faith shall be binding on all persons. A misstatement or other mistake of fact shall be corrected when it becomes known and the committee shall make such adjustment on account thereof as it considers equitable and practicable. SECTION 10 General Provisions 10.1. Additional Employers. Any United States sub- sidiary of the company may adopt the plan and become a party to the trust agreement by: (a) Filing with the company, the committee and the trustee a written instrument to that effect; and (b) Filing with the committee and the trustee a certified copy of a resolution of the company's Board of Directors consenting to such action. 10.2. Action by Employers. Any action required or permitted to be taken by an employer under the plan shall be by resolution of its Board of Directors, by resolution of a duly authorized committee of its Board of Directors, or by a person or persons authorized by resolution of its Board of Directors or such committee. 10.3. Waiver of Notice. Any notice required under the plan may be waived by the person entitled to such notice. 10.4. Controlling Law. Except to the extent super- seded by laws of the United States, the laws of Wisconsin shall be controlling in all matters relating to the plan. 10.5. Employment Rights. The plan does not con- stitute a contract of employment, and participation in the plan will not give any employee the right to be retained in the employ of an employer, nor any right or claim to any benefit under the plan, unless such right or claim has specifically accrued under the terms of the plan. 10.6. Litigation by Participants. If a legal action begun against the trustee, an employer or the committee or any member thereof by or on behalf of any person results adversely to that person, or if a legal action arises because of con- flicting claims to a participant's or other person's benefits, the cost to the trustee, the employers or the committee or any member thereof of defending the action will be charged to the extent permitted by law to the sums, if any, which were involved in the action or were payable to the person concerned. 10.7. Interests Not Transferable. The interests of persons entitled to benefits under the plan are not subject to their debts or other obligations and, except as may be required by the tax withholding provisions of the Internal Revenue Code or any state's income tax act or pursuant to any qualified domestic relations order as defined in Section 414(p) of the Code, may not be voluntarily or involuntarily sold, transferred, alienated, assigned or encumbered, except as otherwise provided in Section 401(a)(13) of the Code. Notwithstanding any other provisions of the plan, the committee may direct the trustee to distribute benefits to an alternate payee on the earliest date specified in a qualified domestic relations order, without regard to whether such distribution is made or commences prior to the participant's earliest retirement age (as defined in Section 414(p)(4)(B) of the Code) or the earliest date that the participant could commence receiving benefits under the plan. 10.8. Absence of Guaranty. Neither the committee nor the employers in any way guarantee the trust fund from loss or depreciation. The liability of the trustee or the committee to make any payment under the plan will be limited to the assets held by the trustee which are available for that purpose. 10.9. Evidence. Evidence required of anyone under the plan may be by certificate, affidavit, document or other information which the person acting on it considers pertinent and reliable, and signed, made or presented by the proper party or parties. SECTION 11 Amendment and Termination 11.1. Amendment. While the employers expect and intend to continue the plan, the company reserves the right to amend the plan from time to time, except as follows: (a) The duties and liabilities of the committee cannot be changed substantially without its consent; (b) No amendment shall reduce the accrued benefit (as defined in Section 411(d)(6) of the Code) the participant would be entitled to receive if he had resigned from the employ of all the employers on the date of the amendment; and (c) Except as provided in subsection 3.8, under no condition shall an amendment result in the return or repayment to any employer of any part of the trust fund or the income from it or result in the distribution of the trust fund for the benefit of anyone other than persons entitled to benefits under the plan. 11.2. Termination. The plan will terminate as to all employers (i) on any date specified by the company if thirty days' advance written notice of the termination is given to the committee, the trustee and the other employers or (ii) on the date that contributions by all employers are completely discontinued under the plan. A partial termination of the plan may occur as to an individual employer or as to a group or class of employees on any date so specified by the company or as required by law. 11.3. Reorganizations. No plan termination will occur solely as a result of the judicially declared bankruptcy or insolvency of an employer, or the dissolution, merger, con- solidation or reorganization of an employer, or the sale by that employer of all or substantially all of its assets, or the termination or complete discontinuance of contributions by any one employer. However, arrangements may be made with the con- sent of the company whereby the plan will be continued by any successor to that employer or any purchaser of all or sub- stantially all of its assets, in which case the successor or purchaser will be substituted for that employer under the plan and the trust agreement; provided that, if an employer is merged, dissolved, or in any other way organized into, or con- solidated with, any other employer, the plan as applied to the former employer will automatically continue in effect without a termination thereof. 11.4. Vesting and Distribution on Termination. On termination or partial termination of the plan, the date of termination will be a "special accounting date" and, after all adjustments then required have been made, each affected par- ticipant's benefits will be nonforfeitable. If, on termination of the plan, the participant remains an employee of an employer, the amount of his benefits shall be retained in the trust fund until his termination of employment with all of the employers and then shall be paid to him in accordance with the provisions of subsection 7.4. In the event that the participant's employment with all of the employers is terminated coincident with the termination of the plan, his benefits shall be paid to him in a lump sum, subject to the provisions of subsection 7.4. 11.5. Notice of Amendment or Termination. Partici- pants will be notified of an amendment or termination of the plan within a reasonable time. 11.6. Plan Merger, Consolidation, Etc. In the case of any merger or consolidation of this plan with, or the trans- fer of assets or liabilities of this plan to, any other plan, each participant's benefits if such plan terminated immediately after such merger, consolidation or transfer shall be equal to or greater than the benefits he would have been entitled to receive if this plan had terminated immediately before the merger, consolidation or transfer. SECTION 12 Top-Heavy Rules 12.1. Purpose and Effect. The purpose of this Sec- tion is to comply with the requirements of Section 416 of the Code. Except for subsection 12.6, the provisions of this Section shall be effective for each plan year beginning with the plan year ending December 31, 1985 in which the plan is a "top-heavy plan" within the meaning of Section 416(g) of the Code. 12.2. Top-Heavy Plan. In general, the plan will be top-heavy plan for any plan year if, as of the last day of the preceding plan year (the "determination date"), the sum of the amounts in (a), (b) and (c) below for key employees (defined below and in Section 416(i)(1) of the Code) exceeds 60 percent of the sum of such amounts for all employees who are covered by a defined contribution plan or defined benefit plan which is aggregated in accordance with subsection 12.4 below: (a) The aggregate account balances of partici- pants under this plan. (b) The aggregate account balances or partici- pants under any other defined contribution plan included in subsection 12.4. (c) The present value of cumulative accrued benefits of participants calculated under any defined benefit plan included in sub- section 12.4. In determining the account balances of participants under this plan (i) such participant's account balances shall be increased by the aggregate distributions, if any, made with respect to the participant during the 5-year period ending on the determi- nation date, (ii) the account balances of a participant who was previously a key employee, but who is no longer a key employee, shall be disregarded, (iii) the accounts of a beneficiary of a participant shall be considered accounts of the participant and (iv) the account balances of a participant who has not performed any services for an employer during the 5-year period ending on the determination date shall be disregarded. 12.3. Key Employee. In general, a "key employee" is an employee who, at any time during the plan year ending on the determination date or during any of the four preceding plan years, is: (a) an officer of employer or a controlled group member whose compensation (as defined in subparagraph 6.7(a)) exceeds fifty percent (50%) of the dollar limitation specified in Section 415(b)(1)(A) of the Code for a plan year (including only the greater of three or ten percent of the total employees of the employer and controlled group members but not exceeding 50); (b) one of the ten employees owning the largest interests in an employer and all other controlled group members whose compensation (as defined in subparagraph 6.7(a)) exceeds the dollar limitation specified in subparagraph 6.7(a); (c) a 5 percent owner of an employer or controlled group member; or (d) a 1 percent owner of an employer or con- trolled group member receiving annual compensation from the employer and all other controlled group members of more than $150,000. A "key employee" for purposes of any other plan included in subsection 12.4 means a key employee as determined in accor- dance with such plan. 12.4. Aggregated Plans. Each other defined contri- bution plan and defined benefit plan maintained by an employer or controlled group member which covers a "key employee" as a participant or which is maintained by such employer or con- trolled group member in order for a plan covering a key employee to be qualified shall be aggregated in determining whether this plan is top-heavy. In addition, any other defined contribution or defined benefit plan of an employer or con- trolled group member may be included if all such plans which are included when aggregated will not discriminate in favor of officers, shareholders or highly compensated employees. 12.5. Maximum Earnings. For any plan year in which the plan is a top-heavy plan, a participant's adjusted compen- sation in excess of $200,000 (or such greater amount as may be determined by the Commissioner of Internal Revenue for that plan year) shall be disregarded for purposes of subsections 3.4 and 6.5 of the plan. 12.6. No Duplication of Benefits. If a participant is covered by another plan maintained by an employer or con- trolled group member, appropriate modification may be made in the plan in accordance with regulations issued by the Internal Revenue Service to prevent inappropriate duplication of minimum contributions or benefits under Section 416 of the Code. 12.7. Adjustment of Combined Benefit Limitations. For any plan year in which the plan is a top-heavy plan, the determination of the defined contribution plan fraction and defined benefit plan fraction under subsection 6.7 of the plan shall be adjusted in accordance with the provisions of Section 416(h) of the Code. SUPPLEMENT A TO GOLDEN COMPREHENSIVE SECURITY PLAN A-1. Purpose. The purpose of this Supplement A is to provide for the administration of accounts transferred to this plan effective as of March 31, 1987 from the Western Publishing Company Inc. Employees' IRA Plan (the "IRA plan"). A-2. Effective Date. The effective date of this Supplement is March 31, 1987 (the "transfer date"). A-3. Eligibility. Any employee who was a par- ticipant in this plan and in the IRA plan immediately prior to the transfer date and whose account balance in the IRA plan is transferred to this plan shall be eligible to participate in this Supplement and shall be known as a "Supplement A partici- pant." A-4. Supplement A Participants' Accounts. (a) The committee shall maintain, for each Supplement A participant, an account reflecting the amount transferred to this Supplement on his behalf from the IRA plan and the income, losses, appreciation and depreciation attributable thereto, (an "IRA account"). Each IRA account shall be invested in the same guaranteed interest fund ("Interest Fund II") in which it was invested immediately prior to the transfer date. (b) The committee shall adjust the IRA accounts of Supplement A participants in accordance with the provisions of Section 6 of the plan. Any cash amounts received by the trustee with respect to Interest Fund II (and credited to a Supplement A participant's IRA account under the provisions of this subsection) will be reinvested, to the extent possible, in the same Fund, unless such cash amounts are to be held pending distribution to or on account of the participant. (c) A Supplement A participant's IRA account will be fully vested in the Supplement A participant at all times. (d) A Supplement A participant's IRA account will not be considered an account for purposes of subsection 7.9 of this plan. A-5. Withdrawal of Supplement A Contributions. A Supplement A participant may elect to withdraw all or part of his IRA account no more than once per calendar month, subject to the following conditions and limitations: (a) The amount available for any such dis- tribution from the Interest Fund II will be based on the value of the Supplement A participant's IRA account in the Fund as determined as of the end of the month next preceding the date the distribution is to be made. (b) The amount withdrawn from a Supplement A participant's IRA account shall be paid in cash. If a participant elects to withdraw less than $250 from his IRA participant's account, the entire balance in his IRA account, will be distributed to him in cash. (c) Each election under this subsection shall be filed with the committee at such time and in such manner as specified by the committee. A-6. Distribution. A Supplement A participant shall be entitled to receive the balance in his IRA account after his termination date, in the manner described in Section 7 of the plan. A-7. Use of Terms. Notwithstanding Section 8 of the plan, all terms and provisions of the plan shall apply to this Supplement A, except that where the terms and provisions of the plan and this Supplement conflict, the terms and provisions of this Supplement shall control. SUPPLEMENT B TO GOLDEN COMPREHENSIVE SECURITY PROGRAM B-1. Purpose. The purpose of this Supplement B is to provide for the administration of accounts transferred to this plan effective March 15, 1993, as a result of the merger of the Sight & Sound, Inc. 401(k) Profit Sharing Plan ("S&S plan") and the requirements of Section 401(k)(10) of the Code. B-2. Effective Date. The effective date of this Supplement is March 15, 1993 (the "transfer date"). B-3. S&S Plan Participants. Each former participant in the S&S plan who has become a participant in this plan shall participate in this Supplement and shall be known as a "Supplement B participant." B-4. Supplement B Participants' Accounts. (a) The committee shall maintain for each Supplement B participant a fully vested nonforfeitable account reflecting the amount transferred to this Supplement on his behalf on the transfer date from the S&S plan attributable to his Participant's Elective Account under the S&S plan and any other account under the S&S plan that he elects to transfer to this plan. (b) Each Supplement B participant shall have the same investment choices with respect to the Participant's Elective Account (and any other account which is transferred from the S&S plan) as he would have with respect to his Income Deferral Contribution Account under the plan and, except as otherwise provided herein, such balances shall be distributed in the same manner as other benefits under the plan. (c) To the extent a Supplement B participant (or beneficiary of a Supplement B participant) chooses an optional form of payment with respect to transferred amounts which was permitted under the S&S plan but not permitted under this plan, such S&S participant may elect to have his benefits distributed in such form. (d) On and after the transfer date, a Supplement B participant's transferred Elective Account will be treated the same as an Income Deferral Contribution Account under the plan and will be subject to the same limitations applicable to such Income Deferral Contribution Account under the plan. B-5. Use of Terms. Notwithstanding Section 8 of the plan, all terms and provisions of the plan shall apply to this Supplement B, except that where the terms and provisions of the plan and this Supplement conflict, the terms and provisions of this Supplement shall control. EX-10.53 3 GOLDEN RETIREMENT SAVINGS PROGRAM GOLDEN RETIREMENT SAVINGS PROGRAM (As Amended and Restated Effective as of January 1, 1993) McDermott, Will & Emery Chicago, Illinois C E R T I F I C A T E I, James A. Cohen, Secretary of WESTERN PUBLISHING COMPANY, INC., hereby certify that the attached is a full, true and complete copy of the GOLDEN RETIREMENT SAVINGS PROGRAM, as in effect on the date hereof. Dated this 28 day of December, 1993. James A. Cohen -------------------------------- Secretary as Aforesaid (Corporate Seal) TABLE OF CONTENTS PAGE ---- SECTION 1 1 INTRODUCTION 1 Purpose 1 Effective Date and Plan Year 1 Employers 1 Plan Administration 2 Trustee, Trust Agreement, and Trust Fund 2 Examination of Plan Documents 2 Notices 2 Gender and Number 3 Supplements 3 SECTION 2 4 ELIGIBILITY AND PARTICIPATION 4 Eligibility 4 Continuity of Employment 5 Leave of Absence 7 Reemployed Former Participant 8 Leased Employees 8 SECTION 3 10 EMPLOYER CONTRIBUTIONS 10 Income Deferral Contributions 10 Compensation and Adjusted Compensation 11 Matching Employer Contributions 11 Limitations on Income Deferrals 12 Limitations on Matching Employer Contributions and Participant Contributions 15 Highly Compensated Participants 18 Verification of Employer Contributions 20 No Interest in Employers 20 SECTION 4 22 PARTICIPANT CONTRIBUTIONS 22 Amount of Participant Contributions 22 Deduction or Payment of Participant Contribu- tions 22 Variation, Discontinuance, Resumption, and Withdrawal of Participant Contributions 22 SECTION 5 24 PERIOD OF PARTICIPATION 24 Termination Date 24 Restricted Participation 25 SECTION 6 27 ACCOUNTING 27 Separate Accounts 27 Accounting Dates 28 Adjustment of Participants' Accounts 28 Statement of Account 29 Contribution Limitations 30 Investment Funds 32 SECTION 7 35 PAYMENT OF ACCOUNT BALANCES 35 Retirement or Death 35 Resignation or Dismissal 35 Forfeitures 36 Manner of Distribution 38 Commencement of Distributions 42 Designation of Beneficiary 43 Missing Participants or Beneficiaries 44 Facility of Payment 45 Latest Date for Distribution 45 Loans to Participants 46 Direct Transfer of Eligible Rollover Distributions 49 Withdrawal of Income Deferral Contributions 50 SECTION 8 53 PRIOR PLAN ACCOUNT 53 Transfer of Prior Plan Balance 53 Prior Plan Accounts 53 Withdrawals from Prior Plan Accounts 53 Other Transferred Amounts and Rollovers 54 SECTION 9 55 THE COMMITTEE 55 Membership 55 Committee's General Powers, Rights, and Duties 55 Manner of Action 56 Interested Committee Member 57 Resignation or Removal of Committee Members 57 Committee Expenses 58 Information Required by Committee 58 Uniform Rules 58 Review of Benefit Determinations 59 Committee's Decision Final 59 SECTION 10 60 GENERAL PROVISIONS 60 Additional Employers 60 Action by Employers 60 Waiver of Notice 60 Controlling Law 60 Employment Rights 60 Litigation by Participants 61 Interests Not Transferable 61 Absence of Guaranty 62 Evidence 62 SECTION 11 63 AMENDMENT AND TERMINATION 63 Amendment 63 Termination 63 Reorganizations 64 Vesting and Distribution on Termination 64 Notice of Amendment or Termination 65 Plan Merger, Consolidation, Etc 65 SECTION 12 66 TOP-HEAVY RULES 66 Purpose and Effect 66 Top-Heavy Plan 66 Key Employee 67 Aggregated Plans 68 Minimum Contribution 68 Maximum Earnings 69 No Duplication of Benefits 69 Adjustment of Combined Benefit Limitations 69 SUPPLEMENT A A-1 GOLDEN RETIREMENT SAVINGS PROGRAM SECTION 1 INTRODUCTION 1.1. Purpose. GOLDEN RETIREMENT SAVINGS PROGRAM (the "plan") is maintained by WESTERN PUBLISHING COMPANY, INC. (the "company") for eligible employees of the company and the eligible employees of any other United States subsidiary of the company which adopts the plan, with the consent of the company. The purpose of the plan is to provide for the accumulation of funds from both employer and participant contributions in order to provide retirement income to participants when they retire from the employ of the employers, thereby providing for their future financial security. The plan is designed as a qualified profit sharing plan under the provisions of Sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as amended (the "Code"). 1.2. Effective Date and Plan Year. The original effective date of the plan was July 1, 1987. The "effective date" of the plan as set forth herein is January 1, 1993. A "plan year" means each calendar year. 1.3. Employers. The company and any United States subsidiary of the company which adopts the plan and trust with the consent of the company are sometimes referred to herein- after collectively as the "employers" and individually as an "employer." 1.4. Plan Administration. The plan will be admin- istered by a pension security committee (the "committee") ap- pointed by the company, as described in Section 9. Partici- pants will be notified of the identity of the committee members and of any change in the membership of such committee. 1.5. Trustee, Trust Agreement, and Trust Fund. Funds contributed by the employers or participants under the plan will be held and invested in a trust fund, until distrib- uted, by a trustee (the "trustee") appointed by the company. The trustee will act under a trust agreement between the em- ployers and the trustee. Participants will be notified of the identity of the trustee and of any change in trustee. 1.6. Examination of Plan Documents. Copies of the plan and trust agreement, and any amendments thereto, will be made available at the principal office of each employer where they may be examined by any participant or beneficiary entitled to receive benefits under the plan. The provisions of and benefits under the plan are subject to the terms and provisions of the trust agreement. 1.7. Notices. Any notice or document required to be given to or filed with the committee shall be considered as given or filed if delivered or mailed by registered mail, post- age prepaid, addressed as follows: Benefit Plans Administration Committee Western Publishing Company, Inc. 444 Madison Avenue New York, New York 10022 1.8. Gender and Number. Words in the masculine gen- der shall include the feminine and neuter genders and, where the context admits, the plural shall include the singular, and the singular shall include the plural. 1.9. Supplements. The company and any other employ- er (with the consent of the company) may establish supplements to this plan with respect to any group or class of employees of an employer to which the plan has been extended. Each such supplement will be a part of the plan as it applies to the employees affected thereby. To the extent that the provisions of any supplement are inconsistent with the other features of the plan, the provisions of the supplement shall control. SECTION 2 ELIGIBILITY AND PARTICIPATION 2.1. Eligibility. Subject to the conditions and limitations of the plan, each employee of an employer who was an active participant in the plan immediately prior to the effective date will continue to participate in the plan in accordance with the provisions of this plan. Each other employee of an employer will become a participant in the plan on January 1, 1993, or on the first January 1, April 1, July 1, or October 1 thereafter (the "quarterly entry date") coincident with or next following the date he meets all of the following requirements: (a) He is a member of a group of employees to which the plan has been and continues to be extended by his employer, either unilater- ally or through collective bargaining, as described in Supplement A. (b) He has completed six months of continuous employment (as defined in subsection 2.2). Each employee will be notified of the date as of which he be- comes a participant in the plan and will be furnished with a summary plan description in accordance with governmental rules and regulations. An employee who would be eligible to partici- pate in the plan on the applicable quarterly entry date except for the requirements of subparagraph 2.1(a) or (b) will become a participant on the date he satisfies the conditions for par- ticipation under such subparagraphs but will not be eligible to make income deferral contributions (as defined in subsection 3.2) or voluntary participant contributions until the quarterly entry date coincident with or next following the date he becomes a participant. 2.2. Continuity of Employment. In determining an employee's or participant's continuity of employment, the fol- lowing rules shall apply: (a) An employee's or participant's continuous employment will be computed in terms of full and fractional years of continuous employment, with fractional years computed in completed days of employment, commencing on the date an employee is first employed by an employer (i.e, the date he first completes an hour of service) or, if he has incurred a one-year break in employment [as defined in subparagraph (g) below], the date of his reemployment (i.e., the date he first completes an hour of service upon reemployment). (b) A leave of absence (as defined in subsec- tion 2.3) will not interrupt continuity of employment for purposes of the plan. (c) A period of concurrent employment with two or more employers will be considered as employment with one employer during that period, and an employee's employment with any predecessor to an employer will be considered as employment with that employer. (d) The termination of any employee's employ- ment with one employer will not interrupt the continuity of his employment or par- ticipation if, concurrently with or imme- diately after such termination, he is em- ployed by one or more other employers. (e) If a former employee of the employers is reemployed by an employer before he has incurred a one-year break in employment [as defined in subparagraph (g) below], his employment with the employers will not be deemed to have terminated. (f) A period of employment with a controlled group member (as defined below) which is not an employer will be considered a period of employment with an employer for purposes of determining years and days of continuous employment. A "controlled group member" means any corporation or other trade or business which is under common control with an employer within the meaning of Sections 414(b), 414(c) and 414(m) of the Code. (g) In determining an employee's or partici- pant's continuous employment for an employ- ee or participant who incurs a one-year break in employment and is reemployed by an employer or controlled group member, con- tinuous employment (both before and after such one-year break in employment) will be taken into account for plan purposes upon his reemployment, except as follows: If a former employee of the employers who is not vested with respect to any portion of his income deferral contribution account or matched employer contribution account balance is reemployed by an employer or controlled group member after he has incurred five consecutive one-year breaks in employment and if such consecutive one-year breaks in employment equal or exceed his years of continuous employment, his period of continuous employment with the employers or controlled group members prior to such five consecutive one- year breaks in employment shall be disregarded for all purposes of the plan upon his reemployment, and such employee shall be treated as a new employee for all purposes of the plan. In no event shall a period of continuous employment after an employee has incurred five consecutive one-year breaks in employment be taken into account in determining the vested portion of his matched employer contribution account balance attributable to employment prior to such five consecutive one-year breaks in employment. A "one-year break in employment" will be deemed to have occurred for each 12-month period commencing on the date of an employee's termination of employment, and on each anniversary thereof, during which such employee is not employed by an employer or controlled group member. In the case of a maternity or paternity absence (as defined below), an employee's termination of employment will not be deemed to have occurred until the first anniversary of the date of such absence. A "maternity or paternity absence" means an employee's absence from work because of the pregnancy of the employee or birth of a child of the employee, the placement of a child with the employee in connection with the adoption of such child by the employee, or for purposes of caring for the child immediately following such birth or place- ment. An "hour of service" means each hour for which an employee is directly or indirectly paid, or entitled to payment, by an employer for the performance of duties, determined in accordance with Department of Labor Reg. Sec. 2530.200b-2. A "year of continuous employment" means 365 days of continuous employment under this subsection. 2.3. Leave of Absence. A leave of absence will not interrupt continuity of employment or participation in the plan. A "leave of absence" for plan purposes means a leave of absence required by law or granted by an employer on account of service in military or governmental branches described in any applicable statute granting reemployment rights to employees who entered such branches, or any other military or governmental branch designated by the employers, and also means any other absence from active employment with an employer under conditions which are not treated by it as a termination of employment including, but not limited to, vacations, holidays, maternity, illness, incapacity or jury duty. Leaves of absence will be governed by rules uniformly applied to all employees similarly situated. If an employee or participant does not return to work with an employer or controlled group member on or before termination of a leave of absence, he will be considered to have resigned on the date his last leave ended unless his employment actually terminated prior to the expiration of such leave. 2.4. Reemployed Former Participant. If a former participant in the plan who has completed one year of contin- uous employment is reemployed by an employer after incurring a one-year break in employment, he will again become a partici- pant in the plan on the date he meets the requirements of sub- paragraphs 2.1(a) and (b) and will be eligible to make income deferral contributions under subsection 3.1 or voluntary par- ticipant contributions under subsection 4.1 on the quarterly entry date coincident with or next following the date he be- comes a participant. 2.5. Leased Employees. A leased employee (as de- fined below) shall not be eligible to participate in the plan. A leased employee means any person who is not an employee of an employer but who has provided services to an employer of the type which have historically (within the business field of the employers) been provided by employees on a substantially full- time basis for a period of at least one year pursuant to an agreement between an employer and a leasing organization. The period during which a leased employee performs services for an employer shall be taken into account for purposes of subsection 2.2 of the plan unless (i) such leased employee is a partici- pant in a money purchase pension plan maintained by the leasing organization which provides a nonintegrated employer contribu- tion rate of at least ten percent (10%) of compensation, immediate participation for all employees and full and immediate vesting and (ii) leased employees do not constitute more than twenty percent (20%) of the employer's nonhighly compensated work force. SECTION 3 EMPLOYER CONTRIBUTIONS 3.1. Income Deferral Contributions. Subject to the limitations of the plan, by writing filed with the committee, a participant, if he so desires, may defer payment of a percent- age [in increments of one percent (1%)] of his compensation ("income deferral contributions"), not exceeding sixteen per- cent (16%) thereof, by electing to have such percentage with- held from his compensation and contributed to the plan on his behalf by his employer. For plan years beginning on or after January 1, 1993, no participant may elect to make income defer- ral contributions for any calendar year in excess of $8,994 [or such greater amount as determined pursuant to Section 402(g)(5) of the Code]. The amounts withheld from a participant's com- pensation pursuant to the participant's election shall be con- tributed to the plan by the participant's employer and credited to his income deferral contribution account as soon as practi- cable after being withheld but, in any event, not later than 30 days following the end of the pay period for which such contri- butions are made. A participant may elect to change the rate of his deferrals, or suspend or resume such deferrals, within the limits stated above, by filing a new election with the com- mittee. Each election under this subsection shall be made at such time, in such manner, and in accordance with such rules as the committee shall determine, and shall be effective for compensation paid on the first payment date (i.e., a date on which regular salary payments are made to employees of the employer) coincident with or next following the quarterly entry date or such other date specified by the committee for which such election is effective. 3.2. Compensation and Adjusted Compensation. A par- ticipant's "compensation" for any plan year means the sum total of the adjusted compensation (as defined below) paid to him during that plan year for services rendered to the employers as an employee and the amount of any income deferral contributions made for such year under subsection 3.1. A participant's "ad- justed compensation" for any plan year means the total cash compensation, including overtime, base pay, overtime premium, and shift premium, vacation and holiday compensation, but ex- cluding any payments representing cash reimbursements for ex- penses incurred by the participant and any compensation paid to him in a form other than cash, paid during the period such par- ticipant is an active participant in the plan. In no event shall compensation in excess of $200,000 (or such greater amount as permitted in regulations issued by the Secretary of the Treasury) be included in a participant's compensation for any plan year. 3.3. Matching Employer Contributions. Subject to the limitations of the plan and the income deferral contribu- tions made under subsection 3.1, each employer will contribute for a participant an amount equal to fifty percent (50%) of the first six percent (6%) of income deferral contributions [but not exceeding $8,994 or such greater amount as determined pur- suant to Section 402(g)(5) of the Code for plan years beginning on or after January 1, 1993] made on behalf of the participant under subsection 3.1, reduced by any forfeitures to be credited to such participant's matched employer contribution account for such period as provided under subsection 7.3. Such contri- butions shall be paid to the trustee and credited to the par- ticipant's matched employer contribution account as soon as practicable after the end of the pay period for which such con- tribution is made but, in any event, not later than 60 days after the end of such period. 3.4. Limitations on Income Deferrals. In no event shall the actual deferral percentage (as defined below) of the highly compensated participants (as defined in subsection 3.6) for any plan year exceed the greater of: (a) the actual deferral percentage of all other participants for such plan year multiplied by 1.25; or (b) the actual deferral percentage of all other participants for such plan year multiplied by 2.00; provided that the actual deferral percentage of the highly compensated par- ticipants does not exceed that of all other participants by more than two percentage points. The "actual deferral percentage" of a group of participants for a plan year means the average of the ratios (determined sepa- rately for each participant in such group) of A to B where A equals the income deferral contributions credited to each such participant's income deferral contribution account for each plan year and B equals the participant's "compensation" for such plan year. For purposes of this subsection, the term "compensation" shall mean compensation as defined in Section 414(s) of the Code, including income deferral contributions. The committee shall determine from time to time based on the income deferral elections then on file with the committee whether the foregoing limitations will be satisfied and, to the extent necessary to ensure compliance with such limitation, shall reduce, on an individual-by-individual basis, for each highly compensated participant who is exceeding such deferral percentage the applicable percentage of income deferral contributions to be withheld for such highly compensated participant beginning with the highly compensated participant with the highest deferral percentage first and then reducing the applicable percentage for such subsequent highly compensated participant until such excess contributions are eliminated. In addition, if at any time a portion of the income deferrals withheld from a highly compensated participant's compensation cannot be credited to his income deferral contribution account because the limitations described above would be applicable, such amounts will be not be considered contributions under subsection 3.1 and the amount of such excess contributions (and any income allocable to such contributions) will be distributed to such highly compensated participant no later than two and one-half (2-1/2) months after the close of the plan year for which such excess contribution was made. For purposes of determining the amount of any income for a plan year attributable to any excess contributions by a highly compensated participant (as defined in subsection 3.6) to be returned to such participant, the following formula will be used: (i) first, the value of his income deferral contribution account as of the beginning of the plan year and as of the last day of the plan year shall be determined; (ii) next, the gain or loss on such income deferral contribution account shall be determined after first reducing the dif- ference between the balance of the ac- count as at the end of the year and the balance as at the beginning of the year by income deferral contributions made for such year; and (iii) finally, the amount calculated under paragraph (ii) shall be multiplied by a fraction the numerator of which is the excess income deferral contributions made by the participant for such year and the denominator of which is such participant's income deferral contribution account as of the last day of such year reduced by the amount of any gain for such year and increased by the amount of any loss for such year. The amount calculated under this paragraph shall be the amount of income to be returned to the participant for such year. The actual deferral percentage of a highly compensated partic- ipant to whom the family attribution rules described in subsec- tion 3.6 apply shall be the greater of: (i) the actual deferral ratio obtained by aggregating the income deferral contribu- tions and compensation of only those family members who are highly compensated participants; or (ii) the actual deferral ratio obtained by aggregating the income deferral contribu- tions and compensation of all family members who are participants. For purposes of this subsection, certain former employees (as determined under Section 414(q)(9) of the Code) shall be treated as employees for purposes of determining highly compensated participants. 3.5. Limitations on Matching Employer Contributions and Participant Contributions. In no event shall the contribu- tion percentage (as defined below) of the highly compensated participants (as defined in subsection 3.6) for any plan year exceed the greater of: (a) the contribution percentage of all other participants for such plan year multiplied by 1.25; or (b) the contribution percentage of all other participants for such plan year multiplied by 2.00; provided that the contribution percentage of the highly compensated par- ticipants does not exceed that of all other participants by more than two (2) percent- age points. The "contribution percentage" of a group of participants for a plan year means the average of the ratios (determined separate- ly for each participant in such group) of A to B where A equals the sum of the matching employer contributions under subsection 3.3 and the participant contributions under subsection 4.1, if any, credited to such participant's accounts for such plan year and B equals the participant's compensation (as defined in sub- section 3.4) for such plan year. The committee shall determine from time to time based on such participant's matching employer contributions and participant contributions whether the fore- going limitations will be satisfied and, to the extent neces- sary to ensure compliance with such limitation, shall reduce, on an individual-by-individual basis, for each highly compen- sated participant who is exceeding such contribution percent- age, the applicable percentage of participant contributions, if any, to be withheld for such highly compensated participant, beginning with the highly compensated participant with the highest contribution percentage first and then reducing the applicable percentage for each subsequent highly compensated participant until such contribution percentage satisfies the foregoing test. If, after reducing such participant contribu- tions, such contribution percentage still exceeds such limita- tion, the matching employer contributions to be contributed for such highly compensated participants shall be reduced, begin- ning with the highly compensated participant with the highest matching employer contributions first and then reducing the applicable percentage for each subsequent highly compensated participant until such contribution percentage satisfies the foregoing test. If, because of the foregoing limitations, a portion of the matching employer contributions made on behalf of a highly compensated participant may not be credited to his account for a plan year, such portion (and the income allocable to such amount) will be forfeited and returned to the employer making such contribution not later than two and one-half months after the end of that plan year. The determination of any excess aggregate matching contributions under this subparagraph shall be made after determining any excess income deferral con- tributions under subsection 3.4. Income on such excess partic- ipant contributions and, if applicable, matching employer con- tributions shall be calculated in the same manner as provided in subparagraphs (i) - (iii) of subsection 3.4 except that such calculations shall be made using the participant's participant contribution account balance and the participant's contribu- tions and excess participant contributions made for such plan year and then, if necessary, such participant's matched employ- er contribution account balance and the employer's matching employer contributions and excess matching employer contribu- tions made for such plan year. In the event that both the actual deferral percentage and the contribution percentage do not satisfy the requirements of subparagraphs 3.4(a) and 3.5(a) above, the following additional limitation shall apply to participant contributions and then to employer matching contributions of highly compensated participants under the plan. After the appropriate tests under subparagraphs 3.4(a) or (b) above and subparagraphs 3.5(a) or (b) have been made and any excess income deferral contributions and participant contributions have been returned to the participant and any excess employer matching contributions are forfeited, the 'Aggregate Limit' test will be applied. The 'Aggregate Limit' will be the sum of: (1) 125 percent of the greater of the actual deferral percentage or the contribution percentage for participants who are not highly compensated participants and (2) the lesser of (a) the actual deferral percentage or the contribution percentage. whichever is smaller, for participants who are not highly compensated participants plus two (2) percentage points or (b) the actual deferral percentage or contribution percentage, whichever is smaller, for participants who are not highly compensated participants multiplied by 2.0. If the sum of the actual deferral percentage and the contribution percentage for the highly compensated participants exceeds the Aggregate Limit, participant contributions and then employer matching contributions will be further reduced until the Aggregate Limit test is satisfied. 3.6. Highly Compensated Participants. For purposes of subsections 3.4 and 3.5 of the plan, a "highly compensated participant" means any participant who, during the current or immediately preceding plan year: (a) was a five percent (5%) owner of an employ- er or controlled group member; (b) received annual compensation from an em- ployer and/or controlled group member of more than $75,000; (c) received annual compensation from an em- ployer and/or controlled group member of more than $50,000 and was in the top paid twenty percent (20%) of the employees; or (d) was an officer of an employer and/or con- trolled group member receiving annual com- pensation greater than fifty percent (50%) of the limitation in effect under Section 415(b)(1)(A) of the Internal Revenue Code; provided, that for purposes of this subparagraph (d), no more than 50 employees of the employer [or if lesser, the greater of 3 employees or ten percent (10%) of the employees] shall be treated as officers. A participant not described in (b), (c), or (d) above for the immediately preceding year will not be considered a highly com- pensated participant for the current plan year under (b), (c), or (d) unless such participant is included within the group of the 100 highest paid employees of the employer and controlled group members for such current year. For purposes of this subsection, "compensation" shall be defined as provided in subsection 3.4 of the plan. If any participant is a family member of a highly compensated participant who is either a 5 percent owner or one of the ten most highly compensated participants with respect to any plan year, that participant shall not be treated as a separate participant for purposes of this subsection and such individual's compensation will be treated as if paid to such highly compensated participant; provided that, a "family member" of a highly compensated participant means such participant's spouse, lineal ascendants or descendants and the spouses of such lineal ascendants or descendants. The compensation thresholds in (b), (c) and (d) above will be adjusted in accordance with Section 414(q)(1) of the Code. 3.7. Verification of Employer Contributions. A cer- tificate of an independent certified public accountant selected by the employer shall be conclusive on all persons as to the amount of an employer's contributions under the plan for any plan year. 3.8. No Interest in Employers. The employers shall have no right, title, or interest in the trust fund, nor will any part of the trust fund at any time revert or be repaid to an employer, unless: (a) the Internal Revenue Service determines that the plan does not meet the require- ments of Section 401(a) of the Internal Revenue Code of 1986, in which event con- tributions made to the plan by such employ- er conditioned upon such qualification shall be returned to the employer within one year after the date notice of such determination is issued to the employer; or (b) a contribution is made by such employer by mistake of fact and such contribution is returned to the employer within one year after payment to the trustee; or (c) a contribution is disallowed as an expense for federal income tax purposes and such contribution (to the extent disallowed) is returned to the employer within one year after the disallowance of the deduction. The amount of any contribution that may be returned to an em- ployer pursuant to subparagraph (b) or (c) above shall be re- duced by any portion thereof previously distributed from the trust fund and by any losses of the trust fund allocable there- to and in no event may the return of such contribution cause any participant's account balances to be less than the amount of such balances had the contribution not been made under the plan. SECTION 4 PARTICIPANT CONTRIBUTIONS 4.1. Amount of Participant Contributions. In lieu of any income deferral contributions made by a participant under subsection 3.1 and subject to any limitations contained in the plan, a participant, if he so desires, may elect to make voluntary contributions under the plan for any plan year in an amount of not less than one percent (1%) nor more than sixteen percent (16%) of his adjusted compensation (as defined in sub- section 3.2) for that year. Each such election by a partici- pant under this subsection shall be made at such time, in such manner and in accordance with such rules as the committee shall determine. 4.2. Deduction or Payment of Participant Contribu- tions. A participant's contribution may be made by regular payroll deductions [in multiples of one percent (1%)] or in any other way approved by the committee. Participant contributions deducted by an employer will be paid to the trustee as soon as practicable after the date the contributions are made. 4.3. Variation, Discontinuance, Resumption, and Withdrawal of Participant Contributions. A participant may elect to change his contribution rate (but not retroactively) within the limits specified above, to discontinue making con- tributions or to resume making such contributions. As of the first day of any plan year quarter, a participant may withdraw all or any portion of the then net credit balance in his par- ticipant contribution account. Each election by a participant under this subsection 4.3 shall be made at such time and in such manner as the committee shall determine, and shall be effective only in accordance with such rules as may be estab- lished from time to time by the committee. SECTION 5 PERIOD OF PARTICIPATION 5.1. Termination Date. A participant's "termination date" will be the date on which his employment with all of the employers is terminated because of the first to occur of the following: (a) Normal or Late Retirement. The date of the participant's retirement on or after at- taining age 65 years (his "normal retire- ment age"). A participant's right to all account balances shall be nonforfeitable on and after his normal retirement age. (b) Early Retirement. The date of the partic- ipant's retirement on or after attaining age 60 years but before attaining age 65 years. (c) Disability Retirement. The date the par- ticipant is retired from the employ of all of the employers at any age because of disability (physical or mental), as deter- mined by a qualified physician selected by the committee. A participant will be con- sidered disabled for purposes of this sub- paragraph if, on account of a disability, he is no longer capable of performing the duties assigned to him by his employer. (d) Death. The date of the participant's death. (e) Resignation or Dismissal. The date the participant resigns or is dismissed from the employ of all of the employers before he attains age 60 years and for a reason other than disability retirement. If a participant is transferred from employment with an employ- er to employment with a controlled group member, his termina- tion date will not be considered to have occurred until his employment with all employers and controlled group members has terminated, but his participation in the plan will be restrict- ed as provided in subsection 5.2. 5.2. Restricted Participation. If (i) payment of all of a participant's account balances is not made prior to the accounting date next following his termination date, or (ii) a participant transfers to a controlled group member which is not an employer, or (iii) a participant transfers to a group or class of employees who are not eligible to participate in the plan pursuant to the requirements of subparagraph 2.1(a) or (b), the participant or his beneficiary will be treated as a participant for all purposes of the plan, except as follows: (a) The participant may not make income defer- ral contributions and will not share in employer contributions and forfeitures (as defined in subsection 7.3) under Section 3 after his termination date, or during any period described in (i), (ii), or (iii) above, except as provided in subsection 6.5. (b) The participant may not make contributions under Section 4 after his termination date or during any period described in (i), (ii), or (iii) above. (c) The beneficiary of a decreased participant cannot designate a beneficiary under sub- section 7.6. If such participant subsequently again satisfies the requirements for participation in the plan, he will become an active participant in the plan on the date he satisfies the requirements of subparagraph 2.1(a) and (b) and will be eligible to make income deferral contributions under subsection 3.2 effective with the first payment date (i.e., a date on which regular salary payments are made to employees of the employer) coincident with or next following the date that he satisfies the requirements of subsection 2.4. SECTION 6 ACCOUNTING 6.1. Separate Accounts. The committee will maintain the following accounts in the name of each participant: (a) Income Deferral Contribution Account. If a participant elects to make income deferral contributions under subsection 3.1 of the plan, this account will reflect such con- tributions and the income, losses, appreci- ation, and depreciation attributable there- to. (b) Matched Employer Contribution Account. If a participant has elected to make income deferral contributions under the plan, this account will reflect the matching employer contributions made under subsection 3.3 of the plan and certain forfeitures arising under the plan, and the income, losses, appreciation, and depreciation attributable thereto. (c) Participant Contribution Account. If a participant has elected to make voluntary participant contributions under subsection 4.1 of the plan, this account will reflect such participant contributions and the income, losses, appreciation, and deprecia- tion attributable thereto. (d) Prior Plan Account. If a participant has amounts attributable to his participation in any prior plan transferred to this plan as provided in Section 8, this account will reflect such amounts and the income, loss- es, appreciation, and depreciation attrib- utable thereto. The committee also may maintain such other accounts (including accounts reflecting amounts invested in any particular invest- ment fund) in the names of participants or otherwise as it considers advisable. Unless the context indicates otherwise, references in the plan to a participant's "accounts" means all accounts maintained in his name under the plan. 6.2. Accounting Dates. A "regular accounting date" is the last day of each month. A "special accounting date" is any date designated as such by the committee and a special accounting date occurring under subsection 11.4. The term "accounting date" includes both a regular accounting date and a special accounting date. 6.3. Adjustment of Participants' Accounts. As of each accounting date, the committee shall: (a) First, charge to the proper accounts all payments, distributions, or withdrawals made since the last preceding accounting date that have not been charged previously; (b) Next, adjust the credit balances in the accounts of all participants upward or downward, pro rata, according to the credit balances so that the total of the credit balances will equal the then adjusted net worth (as defined below) of the trust fund or any separate investment fund (as defined below) established for such accounts; (c) Next, subject to the provisions of subsec- tion 6.7, credit any income deferral con- tributions that are to be credited as of that date in accordance with subsection 3.1; (d) Next, credit matching employer contribu- tions and forfeitures, if any, that are to be credited as of that date in accordance with subsection 3.3; (e) Finally, credit any participant contribu- tions that are to be credited as of that date in accordance with subsection 4.2. The "trust fund" as at any date will consist of all property of every kind then held by the trustee. The "adjusted net worth" of the trust fund as at any date means the then net worth of the trust fund as determined by the trustee, less an amount equal to the sum of employer and participant contributions not yet credited to the accounts of participants. The committee may establish one or more investment funds for the investment of employer and participant contributions under the plan and may adjust participant accounts in accordance with the account- ing provisions established under any such investment funds. The investment funds established by the committee are described in subsection 6.6. The term "investment fund" includes any trust account, group annuity contract, separate account, or other investment vehicle established under a contract with a licensed insurance company or under a trust agreement with a trustee. 6.4. Statement of Account. Each participant will be furnished with a statement reflecting the condition of his accounts in the trust fund as of the last day of each plan year or more frequently, if so provided by the committee. No par- ticipant, except one authorized by the committee, shall have the right to inspect the records reflecting the accounts of any other participant. 6.5. Contribution Limitations. Notwithstanding any provisions in the plan to the contrary, the following limita- tions shall apply to each participant in the plan: (a) If such participant is not an active par- ticipant in any other defined contribution or defined benefit plan [as defined in Section 415(k) of the Internal Revenue Code of 1986] maintained by an employer or a controlled group member which is not an employer, the maximum "annual additions" (as defined below) to such participant's accounts for any plan year shall not exceed the lesser of $30,000 [or, if greater, 1/4 of the dollar limitation in effect under Section 415(b)(1)(a) of the Code for the calendar year which begins with or within that plan year] or twenty-five percent (25%) of the participant's compensation for the plan year. A participant's "annual additions" shall mean the sum of (i) em- ployer contributions and forfeitures to be allocated and credited to his employer contribution account for the year, (ii) any income deferral contributions credited to his income deferral contribution account for the year, and (iii) participant contributions credited to his participant contribution account for such year. For purposes of this subparagraph, annual additions shall include excess aggregate contributions (as defined in Section 401(m)(6)(B) of the Code) and excess income deferrals (as described in Section 402(g) of the Code), regardless of whether such amounts are distributed or forfeited. For purposes of this subsection, "compensation" means compensation as defined for purposes of Section 415 of the Internal Revenue Code. (b) If such participant is an active partici- pant in any other defined contribution plan maintained by an employer or a controlled group member which is not an employer, the maximum "annual additions" provided in subparagraph (a) above shall apply to this plan and all such other defined contribu- tion plans as if all such plans were one plan. (c) If such participant is an active partici- pant in any other defined benefit plan maintained by an employer or a controlled group member which is not an employer, the limitations provided in subparagraph (a) or (b) above, whichever is applicable, shall apply, and, in addition, the following additional limitation shall be applicable. If such participant's "defined contribution fraction" (as described below) when added to is "defined benefit fraction," deter- mined under such other defined benefit plan as of the end of each plan year, exceeds 1.0 as calculated under Section 415(e) of the Code, the annual additions under this plan, the annual additions under such other defined contribution plan, or the annual additions under such other defined contri- bution plan, or the annual benefit expected to be paid under the defined benefit plan shall be adjusted, in the sole discretion of the plan administrators under the plans, so that the defined contribution fraction when added to the defined benefit fraction will not exceed 1.0. A participant's de- fined contribution fraction as of the end of any plan year shall consist of a numera- tor which is the sum of the annual addi- tions to such participant's accounts for all years, computed under subparagraph (a) or (b) above, whichever is applicable, and the denominator of which is the sum of the adjusted limitations for each year of such participant's service with the employers or controlled group members. For purposes of this subparagraph, the "adjusted limita- tion" for a year shall mean the lesser of: (i) $30,000 [or, if greater, 1/4 of the dollar limitation in effect under Section 415(b)(1)(A) of the Code for the calendar year which begins with or within that plan year] multiplied by one hundred twenty-five percent (125%), and (ii) twenty-five per- cent (25%) of such participant's compensa- tion for such year multiplied by one hun- dred forty percent (140%). If, as a result of the limitations provided above, any partici- pant contributions cannot be credited to a participant's par- ticipant contribution account, the committee, after consulting with the participant, may in its sole discretion: (a) Reduce any future participant contributions to be made by the participant for such plan year. (b) Return to the participant any participant contributions which, because of the limi- tations contained in this subsection, can- not be credited to his participant contri- bution account for the year, without inter- est or earnings. Any employer contributions which cannot be credited to a par- ticipant's account because of the foregoing limitations will be used to reduce employer contributions for the next plan year (and succeeding plan years in order of time). 6.6. Investment Funds. Each participant may elect, subject to the following provisions, to have a portion or all of his income deferral contributions, matching employer contri- butions, and participant contributions invested in one or more investment funds established by the committee. As at Janu- ary 1, 1993, the following investment funds have been estab- lished: (a) Conservative Equity Fund. This fund will be primarily invested in equity securities that are deemed to have "defensive" char- acteristics, the investment objective being a favorable rate of return paralleling the pattern of the general stock market, but the variability of its results expected to be lower than those of the general stock market. (b) Aggressive Equity Fund. This fund will be primarily invested in equity securities that are deemed to have 'aggressive' char- acteristics, the investment objective being a favorable rate of return paralleling the pattern of the general stock market, but the variability of its results expected to be greater than those of the general stock market. (c) Interest Accumulation Investment Fund. This fund will be invested with any insurance company under a group annuity contract or in an eligible pooled fund or funds consisting of such guaranteed investment contracts, or in a money market fund or funds, the investment objective being the preservation of principal and a favorable rate of interest on such principal. (d) Parent Company Stock Fund. This fund will be invested solely in the shares of common stock issued by Western Publishing Group, Inc., the parent of the company. An election by a participant will be subject to the following requirements: (a) Each election made in accordance with this subsection must be in writing and filed with the committee at such time as the committee determines. (b) Each election shall be effective on the first day of any plan year quarter (after all adjustments as of the next preceding accounting date have been made) for which a new election is effective. If no election is in effect with respect to a participant, such participant's income deferral contributions, matching employer contributions and participant contributions will be invested in the Interest Accumulation Investment Fund. (c) Any election made in accordance with this subsection to have amounts invested in one or more investment funds shall be in in- crements of 10 percent of such partici- pant's contributions or account balances. (d) Effective as of the dates specified in subparagraph (b) above, a participant may elect to have a portion or all of the amounts credited to his income deferral contribution account, matching employer contribution account, participant contri- bution account or prior plan account (after all adjustments as of the next preceding accounting date have been made) transferred from one investment fund to another invest- ment fund. Each such election shall be subject to the provisions of subparagraphs (a) and (c) above and no election to trans- fer from the Interest Accumulation Investment Fund to another investment fund shall be effective unless such transfer is permitted under the Interest Accumulation Investment Fund, without penalty. (e) With respect to each participant who has an interest in the Parent Company Stock Fund (as defined in subparagraph 6.6(d) above), the trustee shall provide a copy of the notice and proxy statement for each meeting of the holders of common stock issued by Western Publishing Group, Inc., together with an appropriate form for the partici- pant's use in instructing the trustee with respect to the voting of the shares of such stock that, at the record date for the determination of the shareholders entitled to such notice, and to vote at, such meet- ing, are allocable to such participant under the Parent Company Stock Fund as of such date. If a participant furnishes timely instructions to the trustee, the trustee (in person or by proxy) shall vote the shares (including fractional shares) of the common stock of Western Publishing Group, Inc. allocable to such participant in the Parent Company Stock Fund in accor- dance with the directions of the partici- pant. Shares of such stock allocable to participants in the Parent Company Stock Fund for which timely voting instructions are not received by the trustee shall be voted by the trustee as directed by the committee. SECTION 7 PAYMENT OF ACCOUNT BALANCES 7.1. Retirement or Death. If a participant's em- ployment with all of the employers and controlled group members is terminated because of retirement under subparagraph 5.1(a), (b), or (c), or if a participant dies while in the employ of an employer, any income deferral contributions or participant con- tributions made by him previously but not credited to his ap- propriate account will be returned to him or, in the event of his death, to his beneficiary. The balances in all of his accounts as at the accounting date coincident with or next following his termination date (after all adjustments required under the plan as of that date have been made) shall be nonfor- feitable and shall be distributable to him or, in the event of his death, to his beneficiary, under subsection 7.4. 7.2. Resignation or Dismissal. If a participant who immediately prior to July 1, 1987 was an active participant in the Western Publishing Company Employees' Savings & Security Plan and who became a participant in this plan on July 1, 1987 resigns or is dismissed from the employ of all of the employers before retirement under subparagraph 5.(a), (b) or (c), any income deferral contributions or participant contributions made by him previously but not credited to his appropriate account will be returned to him and the balances in all of his accounts as at the accounting date coincident with or next following his termination date (after all adjustments required under the plan as of that date have been made) shall be nonforfeitable and shall be distributable to him under subsection 7.4. In the case of any other participant who resigns or is dismissed under subparagraph 5.1(a) (b) or (c), any income deferral contributions or participant contributions made by him previously but not credited to his appropriate account will be returned to him and the balances in his income deferral contri- bution account, participant contribution account and prior plan account, if any, as at the accounting date coincident with or next following his termination date (after all adjustments required under the plan as of that date have been made) shall be nonforfeitable and shall be distributable to him under sub- section 7.4 along with the vested balance in his matched em- ployer contribution account as at the accounting date coinci- dent with or next following his termination date (after all adjustments required under the plan as of that date have been made) determined in accordance with the following schedule: Years of continuous employment under Vested Percentage of matched subsection 2.2 employer contribution account ------------------- ----------------------------- Less than 1 0% 1 25% 2 50% 3 75% 4 or more 100% 7.3. Forfeitures. The amount by which a partici- pant's matched employer contribution account is reduced under subsection 7.2 shall be treated as a "forfeiture" on the earlier of the date of distribution of such participant's account balances or the date such participant incurs five consecutive one-year breaks in employment. Prior to that date, such accounts will continue to be adjusted pursuant to the provisions of subparagraph 6.3(b). Forfeitures attributable to a participant's matched employer contribution account will be used to reduce the employer's contribution otherwise required under subsection 3.4 and shall be credited to the matched employer contribution accounts of other participants in accordance with that subsection. If a participant is reemployed by an employer or controlled group member before he incurs five consecutive one-year breaks in employment, any for- feitures attributable to such participant shall be recredited to such participant's matched employer contribution account on the accounting date coincident with or next following the date of such participant's reemployment if the participant repays the total amount of any previous distribution attributable to his matched employer contribution account within five years of his date of reemployment. Such participant's matched employer contribution account shall be recredited from current unallocated forfeitures or, to the extent there are insufficient unallocated forfeitures for this purpose, from supplemental employer contributions necessary to restore such amount. The actual amount restored to such participant's account shall be the amount of such forfeitures, without investment adjustments. 7.4. Manner of Distribution. After each partici- pant's termination date, and subject to the conditions set forth below and in subsections 7.5 and 7.11, distribution of the net credit balance in the participant's accounts will be made to or for the benefit of the participant or, in the case of his death, to or for the benefit of his beneficiary, by one or both of the following methods: (a) By purchase of an annuity subject to the following requirements: (i) Except as otherwise provided in subparagraph (v) below, if such participant has a spouse to whom he is legally married as of the date payment of his account balances is to commence as a result of his term- ination of employment for a reason other than death, the participant's account balances shall be applied to purchase an annuity for the life of the participant with a survivor annuity payable for the life of his spouse which is one-half of the annuity payable during the joint lives of the participant and his spouse. (ii) Except as otherwise provided in subparagraph (v) below, if such participant has a spouse to whom he is legally married as of the date of his death, an annuity providing payments for the life of the spouse shall be purchased for the spouse with at least fifty percent (50%) of the participant's account balances unless such amount is less than $3,500, in which case, such amount shall be distributed to the spouse in a lump sum. Such spouse may elect in writing to have any amounts payable to the spouse paid in a lump sum. (iii) The portion of a participant's account balances, if any, which is not paid to the participant's spouse under subparagraph (ii) shall be paid to such participant's designated beneficiary under one or more of the methods described in subparagraph (v) below; provided such distributions commence within one year of the participant's death. (iv) The premium paid to the insurance company for a contract will be charged to the participant's accounts when paid. The committee may direct the trustee to cause the contract to be assigned or delivered to the person or persons then entitled to payments under it but, prior to assignment or delivery of the contract, it shall be rendered nontransferable and noncommutable. (v) In the event a participant does not have a spouse as of the date payment of his account balances is to com- mence to him or upon his death, or such participant elects, with the written consent of his spouse (which consent acknowledges the effect of such election and is witnessed by a plan representative or notary public), not to receive distribution in the form of an annuity described in (i) or (ii) above, the committee, after consulting with the participant, will direct the trustee to distribute such participant's benefits to him or, in the event of his death, to or for the benefit of his designated beneficiary, by any one or more of the following methods: (1) An annuity for life, with or without a refund feature. (2) An annuity for life and a period certain, which period certain may not exceed the joint life expectancy of the participant and his designated beneficiary. (3) An annuity for the joint life expectancy of the participant and his designated beneficiary. (4) With the written consent of the par- ticipant and, where applicable, his spouse, a lump sum under subparagraph (b) below. If such participant's designated beneficiary is not the participant's spouse and is more than 10 years younger than the participant, an annuity shall be paid over a period not exceeding the joint life expectancy of the participant and a designated beneficiary 10 years younger than the participant. (vi) Within a reasonable period of time prior to the earliest date on which a married participant could receive payment of benefits under the plan, the committee will furnish him with a written explanation of the terms and conditions of the form of payment specified in subparagraph (a)(i) above, and the financial effect of making an election not to receive payment in such form. An election not to receive payment in the form specified in subparagraph (a)(i) shall be in writing and signed by the participant and consented to by his spouse and may be made or revoked by the participant at any time during the 90-day period prior to commencement of his benefits. Within the three plan year period beginning (i) on the first day of the plan year in which a participant attains age 32 or (ii) if such employee becomes a participant in the plan after attaining age 32, with the plan year in which such employee becomes a participant, the committee will furnish him with a written explanation of the terms and conditions of the form of payment specified in subparagraph (a)(ii) above and the financial effect of making an election not to receive payment in such form. An election not to receive payment in the form specified in subparagraph (a)(ii) may be made by a participant at any time on or after the first day of the plan year in which he attains age 35 years. Such election shall be in writing and consented to by his spouse and may be made or revoked by the participant at any time prior to his death. (b) Subject to the provisions of subparagraph (a), by payment in a lump sum. Subject to the requirements of subparagraph (a) above, the par- ticipant may elect the method of distributing his benefits to him and may direct how his benefits are to be paid to his bene- ficiary. The committee shall select the method of distributing the participant's benefits to his beneficiary if the partici- pant has not filed a direction with the committee. The trustee may make distributions in cash or property, or partly in each, provided property is distributed at its fair market value as at the date of distribution as determined by the trustee. All distributions under the plan shall comply with the requirements of Section 401(a)(9) of the Code and the regulations thereunder. 7.5. Commencement of Distributions. Except as pro- vided in the following sentence, payment of a participant's benefits will be made within a reasonable time after his termi- nation date, but not later than 60 days after (a) the end of the plan year in which his termination date occurs, or (b) such later date on which the amount of the payment can be ascer- tained by the committee. However, if a participant's termination date occurs before he attains age 65 and if the aggregate nonforfeitable balance in his accounts at his termination date or at the time of any prior distribution exceeds $3,500, then payment of such benefits shall be deferred to his attainment of age 65 (or, if elected by the participant, age 70-1/2) unless the participant (or, in the event of his death, his surviving spouse) consents in writing to an immediate distribution. A (i) participant or (ii) former participant who previously made an election to defer commencement of his benefits whose nonforfeitable balance in his accounts as at his termination date (after any required adjustments) was less than $3,500 will automatically receive his distribution in a lump sum. A participant who previously made an election to defer commencement of his benefits may elect, not more frequently than once each plan year and in an amount not less than $1,000 in each such plan year, to receive a distribution from his account(s) in a lump sum payment. 7.6. Designation of Beneficiary. Each participant from time to time, by signing a form furnished by the commit- tee, may designate any person or persons (who may be designated concurrently, contingently, or successively) to whom his bene- fits are to be paid if he dies before he receives all of his benefits. A beneficiary designation form will be effective only when the form is filed with the committee while the par- ticipant is alive and will cancel all beneficiary designation forms previously files with the committee. If a deceased par- ticipant failed to designate a beneficiary as provided above, or if the designated beneficiary dies before the participant or before complete payment of the participant's benefits, the committee, in its discretion, may direct the trustee to pay the participant's benefits as follows: (a) To or for the benefit of any one or more of his relatives by blood, adoption, or mar- riage and in such proportions as the com- mittee determines; or (b) To the legal representative or representa- tives of the estate of the last to die of the participant and his designated benefi- ciary. The term "designated beneficiary" as used in the plan means the person or persons (including a trustee or other legal represen- tative acting in a fiduciary capacity) designated by a partici- pant as his beneficiary in the last effective beneficiary des- ignation form filed with the committee under this subsection and to whom a deceased participant's benefits are payable under the plan. The term "beneficiary" as used in the plan means the natural or legal person or persons to whom a deceased partici- pant's benefits are payable under this subsection. 7.7. Missing Participants or Beneficiaries. Each participant and each designated beneficiary must file with the committee from time to time in writing his post office address and each change of post office address. Any communication, statement, or notice addressed to a participant or beneficiary at his last post office address filed with the committee, or if no address is filed with the committee then, in the case of a participant, at his last post office address as shown on the employer's records, will be binding on the participant and his beneficiary for all purposes of the plan. Neither the employ- ers nor the committee will be required to search for or locate a participant or beneficiary. If the committee notifies a par- ticipant or beneficiary that he is entitled to a payment and also notifies him of the provisions of this subsection, and the participant or beneficiary fails to claim his benefits or make his whereabouts known to the committee within three years after the notification, the benefits of the participant or beneficia- ry will be disposed of, to the extent permitted by applicable law, as follows: (a) If the whereabouts of the participant then is unknown to the committee, but the whereabouts of the participant's designated beneficiary then is known to the committee, payment will be made to the designated beneficiary; (b) If the whereabouts of the participant and the participant's designated beneficiary then is unknown to the committee, but the whereabouts of one or more relatives by blood, adoption, or marriage of the par- ticipant is known to the committee, the committee may direct the trustee to pay the participant's benefits to one or more of such relatives and in such proportions as the committee decides; or (c) If the whereabouts of such relatives and the participant's designated beneficiary then is unknown to the committee, the bene- fits of such participant or beneficiary will be disposed of in an equitable manner permitted by law under rules adopted by the committee. 7.8. Facility of Payment. When a person entitled to benefits under the plan is under legal disability, or in the committee's opinion, is in any way incapacitated so as to be unable to manage his financial affairs, the committee may di- rect the trustee to pay the benefits to such person's legal representatives, or to a relative or friend of such person for such person's benefits, or the committee may direct the appli- cation of such benefits for the benefit of such person. Any payment made in accordance with the preceding sentence shall be a full and complete discharge of any liability for such payment under the plan. 7.9. Latest Date for Distribution. Notwithstanding any provision of the plan to the contrary, payment of benefits to a participant shall be made (or commence) no later than the April 1 of the calendar year following the calendar year in which the participant has attained age 70-1/2. 7.10 Loans to Participants. While it is the primary purpose of the plan to accumulate funds for participants when they retire, it is recognized that under some circumstances it is in the best interests of participants to permit loans to be made to them while they continue in the active service of the employers. Accordingly, the committee, pursuant to such rules as it may from time to time establish, and upon written application by a participant supported by such evidence as the committee may request, may direct the trustee to make a loan to a participant subject to the following: (a) Subject to the provisions of this sub- section, each participant may borrow from his accounts (other than his matched employer contribution account) for general purposes or for residential purposes by filing a written application with the committee requesting such loan. The minimum amount which can be borrowed for any loan will be $1,000. All loans shall be made on a pro rata basis from a participant's income deferral contribution account, participant contribution account and prior plan account and no more than two loans may be outstanding at any time. (b) For loans made before October 18, 1989, the principal amount of any loan made to a participant, when added to the outstanding balance of all other loans made to the participant from all qualified plans maintained by the employers, shall not exceed the least of: (i) $50,000, reduced by the excess (if any) of the highest outstanding balance during the one-year period ending immediately preceding the date of the loan, over the outstanding balance of all such loans from all such plans on the date of the loan; (ii) 50 per- cent of the amount to which the participant would be entitled under all such plans if he were to terminate his employment with the employers on the date the loan is made, or $10,000, whichever is greater; and (iii) the sum of a participant's income deferral contribution account, participant contribution account and prior plan account (excluding any amounts in such account attributable to the Western IRA Plan). (c) For loans made on or after October 18, 1989, the principal amount of any loan made to a participant, when added to the outstanding balance of all other loans made to the participant from all qualified plans maintained by the employers, shall not exceed the least of: (i) $50,000, reduced by the excess (if any) of the highest outstanding balance during the one-year period ending immediately preceding the date of the loan, over the outstanding balance of all such loans from all such plans on the date of such loan; (ii) 50 percent of the participant's vested account balances under the plan; or (iii) the sum of a participant's income deferral contribution account, participant contribution account and prior plan account (excluding any amounts in such account attributable to the Western IRA Plan). (d) Each loan must be evidenced by a written note in a form approved by the committee, shall require substantially level amortization payments (with payments at least quarterly), shall be repaid by regu- lar payroll deduction and shall be secured by the participant's account balances. Each loan made before October 18, 1989 shall bear interest at the rate then payable under the guaranteed investment contract established under subsection 6.6 at the time such loan is made. Each loan made on or after October 18, 1989 shall bear interest at the rate established by the committee and be commensurate with rates charged by commercial lenders on similar loans. Any loan to a married participant must be consented to by the participant's spouse. Such spousal consent shall be obtained no earlier than the beginning of the ninety-day period ending on the date of the loan, must acknowledge the effect of the loan and must be witnessed by a plan representative or notary public. Such consent shall be binding with respect to the consenting spouse or any subsequent spouse with respect to that loan unless such loan is renegotiated, extended, renewed or otherwise revised. (e) Each loan shall specify a repayment period which shall not be less than 18 months (or 12 months, if the loan is made on or after October 18, 1989), nor more than 60 months for general purposes and not less than 18 months (or 120 months, if the loan is made on or after October 18, 1989) nor more than 360 months (or 240 months if the loan is made on or after October 18, 1989) for residential loans used to acquire, con- struct, reconstruct or substantially rehabilitate any dwelling unit which within a reasonable time is to be used (determined at the time the loan is made) as a principal residence of the participant. No repayment period shall extend beyond a par- ticipant's normal retirement date. Amounts repaid by the participant will be recredited to the participant's accounts in the same ratio as the loan is made from such accounts. (f) If, on a participant's termination date (other than a termination date described in paragraph 5.1(c)), any loan or portion of a loan made to him under the plan, together with the accrued interest thereon, remains unpaid, the entire amount of the unpaid loan and accrued interest shall be due and payable by the participant; provided that, if such amount is not repaid by the end of the calendar month beginning after his ter- mination date, an amount equal to the outstanding balance of the loan, together with the accrued interest thereon, shall be charged to the participant's accounts after all other adjustments required under the plan, but before any distribution pursuant to subsection 7.4. A participant who has a termination date under subparagraph 5.1(c) need not repay the entire amount of the loan by the end of the calendar month beginning after his termination date, but if payments are in default at the end of any calendar month, such loan shall be charged against the participant's accounts as provided in the preceding sentence. (g) In determining the adjusted net worth of the trust fund as of each accounting date, the committee shall disregard any promissory notes held by the trustee evidencing loans made to participants, together with any interest and principal payments on such loans received by the trustee since the preceding accounting date. For purposes of adjusting partic- ipants' accounts under subsection 6.3, the committee shall exclude from the credit balance of a participant's accounts the unpaid amount of any loan made to him (disregarding any principal payments made since the last preceding accounting date). Interest paid by a participant on a loan made to him under this subsection 7.10 shall be credited to the accounts of the participant as of the accounting date which ends the accounting period during which such interest payment was made, after all adjustments required under the plan as of the date have been made. (h) Notwithstanding any provision to the contrary, the participant's ability to withdraw amounts from his participant contribution account under subsection 4.3 and from his prior plan account under subsection 8.3 shall be restricted to the extent that the outstanding principal and interest due on a loan equals or exceeds 50% of his vested account balances. 7.11. Direct Transfer of Eligible Rollover Distributions. Effective January 1, 1993, if payment of benefits to a participant, a participant's surviving spouse, or the spouse or former spouse of the participant who is an alternate payee under a qualified domestic relations order (as defined in Section 414(p) of the Code) constitutes an 'eligible rollover distribution' under Section 402(c)(4) of the Code, then the participant or the participant's spouse (or former spouse) may elect to have such distribution paid directly to an eligible retirement plan described in Section 402(c)(8)(B) of the Code (except that in the case of an eligible rollover distribution to a participant's surviving spouse on the death of a participant, the definition of an eligible retirement plan is limited to an individual retirement account or individual retirement annuity). Each election by a participant under this subsection shall be made at such time and in such manner as the committee shall determine and shall be effective only in accordance with such rules as shall be established from time to time by the committee. Any election by a participant under this subsection will be subject to the requirements of subparagraph 7.4(a)(v) of the plan. 7.12 Withdrawal of Income Deferral Contributions. With the consent of the committee, a participant may elect to withdraw any income deferral contributions made by such par- ticipant because of a "hardship" (as defined below) causing an immediate and heavy financial need on the participant. For purposes of this subsection a hardship shall include: (a) Medical expenses incurred (or not yet incurred but necessary to obtain such medical care) by the participant, the participant's spouse or the participant's dependents (as defined in Section 152 of the Internal Revenue Code) which are not reimbursed by insurance or otherwise; (b) Purchase of a principal residence for the participant, excluding mortgage payments; (c) Payment of tuition and related educational fees for the next twelve months of post- secondary education for the participant or the participant's spouse, children or dependents; (d) The need to prevent the eviction of the participant from his principal residence or foreclosure under the mortgage on the participant's principal residence; (e) Casualty losses or catastrophes such as flooding, hurricanes or tornadoes; or (f) Any other hardship which in the opinion of the committee creates an immediate and heavy financial need on the participant. A withdrawal will be considered necessary to satisfy an immedi- ate and heavy financial need only if the participant represents in writing to the committee that the need cannot reasonably be relieved (i) through reimbursement or compensation by insurance or otherwise, (ii) by liquidation of the employee's assets and the assets of the employee's spouse and minor children that are reasonably available to the employee, (iii) from other available distributions and loans under this plan or any other qualified retirement plan maintained by the employers or by borrowing from commercial sources on reasonable commercial terms in amounts sufficient to satisfy the need; or (iv) the cessation of income deferral contributions or voluntary contributions to the plan. Each such election shall be in writing, shall be filed with the committee at such time and in such manner as the committee shall determine and shall be effective in accordance with such rules as the committee may establish from time to time. Any withdrawal by a married participant must be consented to in writing by the participant's spouse, must acknowledge the effect of the withdrawal and must be witnessed by a plan representative or notary public. SECTION 8 PRIOR PLAN ACCOUNT 8.1. Transfer of Prior Plan Balance. Each partici- pant in the plan who, prior to July 1, 1987, was covered by the Western Publishing Company Employees' Savings and Security Plan ("savings and security plan") has had his account balance under such plan transferred in a lump sum to this plan. The balance attributable to such participant's participation in such plan (a "prior plan") will be subject to the provisions of this section. 8.2. Prior Plan Accounts. All such amounts which have been transferred to this plan from a prior plan will be held in a separate prior plan account established for the participant which will be fully vested and nonforfeitable at all times. Such prior plan account will be adjusted from time to time in accordance with the provisions of Section 6 and, except as otherwise provided in subsection 8.3, will be distributed in accordance with the provisions of Section 7. Appropriate subaccounts will be maintained reflecting each participant's interest in a prior plan. 8.3. Withdrawals from Prior Plan Accounts. No withdrawals of any portion of a participant's prior plan account will be permitted prior to distribution in accordance with Section 7 of the plan unless such amounts are attributable to such participant's participation in the Savings and Security Plan or unless such amounts are attributable "rollover" amounts as described in subsection 8.4. As of any day during any plan year quarter (but not more frequently than once in each plan year quarter), a participant may withdraw all or any portion of the net credit balance in his prior plan account reflecting his participation in the savings and security plan. 8.4. Other Transferred Amounts and Rollovers. Sub- ject to such rules and requirements as the committee may estab- lish, a participant may direct the trustee to receive a "roll- over" amount either in the form of a direct rollover (as defined in Section 401(a)(31) of the Code) or an indirect rollover as defined in Section 402(c)(5) or Section 408(d)(3) of the Code attributable to such participant's participation in any other qualified pension or profit sharing plan under Section 401(a) of the Code. Any such rollover amount shall be credited to a prior plan account and will be subject to the provisions of subsection 8.2. At the direction of a participant and with the consent of the committee, the trustee, under this plan, may receive assets held for a participant under any other plan pursuant to a trust-to-trust transfer between such qualified pension or profit sharing plan and this plan. Any such transferred amounts will be credited to a prior plan account and shall be subject to the provisions of subsec- tion 8.2. SECTION 9 THE COMMITTEE 9.1. Membership. A committee consisting of three or more persons (who may but need not be employees of the employ- ers) shall be appointed by the company. The secretary of the company shall certify to the trustee from time to time the appointment to (and termination of) office of each member of the committee and the person who is selected as secretary of the committee. 9.2. Committee's General Powers, Rights, and Duties. Except as otherwise specifically provided and in addition to the powers, rights, and duties specifically given to the com- mittee elsewhere in the plan and the trust agreement, the com- mittee shall have the following powers, rights, and duties: (a) To select a secretary, if it believes it advisable, who may but need not be a com- mittee member. (b) To determine all questions arising under the plan, including the power to determine the rights or eligibility of employees or participants and any other persons to bene- fit under the plan, and the amount of their benefits under the plan, and to remedy ambiguities, inconsistencies, or omissions. (c) To adopt such rules of procedures and regu- lations as in its opinion may be necessary for the proper and efficient administration of the plan and as are consistent with the plan and trust agreement. (d) To enforce the plan in accordance with the terms of the plan and the trust agreement and the rules and regulations adopted by the committee. (e) To direct the trustee as respects payments or distributions from the trust fund in accordance with the provisions of the plan. (f) To furnish the employers with such infor- mation as may be required by them for tax or other purposes in connection with the plan. (g) To employ agents, attorneys, accountants, or other persons (who also may be employed by the employers) and to allocate or dele- gate to them such powers, rights, and du- ties as the committee may consider neces- sary or advisable to properly carry out administration of the plan, provided that such allocation or delegation and the ac- ceptance thereof by such agents, attorneys, accountants, or other persons shall be in writing. 9.3. Manner of Action. During a period in which two or more committee members are acting, the following provisions apply where the context admits: (a) A committee member by writing may delegate any or all of his rights, powers, duties, and discretions to any other member, with the consent of the latter. (b) The committee members may act by meeting or by writing signed without meeting, and may sign any document by signing one document or concurrent documents. (c) An action or a decision of a majority of the members of the committee as to a matter shall be as effective as if taken or made by all members of the committee. (d) If, because of the number qualified to act, there is an even division of opinion among the committee members as to a matter, a disinterested party selected by the commit- tee shall decide the matter, and his deci- sion shall control. (e) Except as otherwise provided by law, no member of the committee shall be liable or responsible for an act or omission of the other committee members in which the former has not concurred. (f) The certificate of the secretary of the committee or of a majority of the committee members that the committee has taken or authorized any action shall be conclusive in favor of any person relying on the cer- tificate. 9.4. Interested Committee Member. If a member of the committee is also a participant in the plan, he may not decide or determine any matter or question concerning distribu- tions of any kind to be made to him or the nature or mode of settlement of his benefits unless such decision or determina- tion could be made by him under the plan if he were not serving on the committee. 9.5. Resignation or Removal of Committee Members. A member of the committee may be removed by the company at any time by ten days' prior written notice to him and the other members of the committee. A member of the committee may resign at any time by giving ten days' prior written notice to the company and the other members of the committee. The company may fill any vacancy in the membership of the committee provid- ed, however, that if a vacancy reduces the membership of the committee to less than three, such vacancy shall be filled as soon as practicable. The company shall give prompt written notice thereof to the other members of the committee. Until any such vacancy is filled, the remaining members may exercise all of the powers, rights, and duties conferred on the commit- tee. 9.6. Committee Expenses. All costs, charges, and expenses reasonably incurred by the committee will be paid by the employers in such proportions as the company may direct. No compensation will be paid to a committee member as such. 9.7. Information Required by Committee. Each person entitled to benefits under the plan shall furnish the committee with such documents, evidence, data, or information as the committee considers necessary or desirable for the purpose of administering the plan. The employers shall furnish the com- mittee with such data and information as the committee may deem necessary or desirable in order to administer the plan. The records of the employers as to an employee's or participant's period of employment, termination of employment, and the reason therefor, leave of absence, reemployment, compensation, and adjusted compensation, will be conclusive on all persons unless determined to the committee's satisfaction to be incorrect. 9.8. Uniform Rules. The committee shall administer the plan on a reasonable and nondiscriminatory basis and shall apply uniform rules to all persons similarly situated. 9.9. Review of Benefit Determinations. The commit- tee will provide notice in writing to any participant or bene- ficiary whose claim for benefits under the plan is denied, and the committee shall afford such participant or beneficiary a full and fair review of its decision if so requested. 9.10. Committee's Decision Final. Subject to appli- cable law, any interpretation of the provisions of the plan and any decisions on any matter within the discretion of the com- mittee made in good faith shall be binding on all persons. A misstatement or other mistake of fact shall be corrected when it becomes known, and the committee shall make such adjustment on account thereof as it considers equitable and practicable. SECTION 10 GENERAL PROVISIONS 10.1. Additional Employers. Any United States sub- sidiary of the company may adopt the plan and become a party to the trust agreement by: (a) Filing with the company, the committee, and the trustee a written instrument to that effect; and (b) Filing with the committee and the trustee a certified copy of a resolution of the com- pany's Board of Directors consenting to such action. 10.2. Action by Employers. Any action required or permitted to be taken by an employer under the plan shall be by resolution of its Board of Directors, by resolution of a duly authorized committee of its Board of Directors, or by a person or persons authorized by resolution of its Board of Directors or such committee. 10.3. Waiver of Notice. Any notice required under the plan may be waived by the person entitled to such notice. 10.4. Controlling Law. Except to the extent super- seded by laws of the United States, the laws of Wisconsin shall be controlling in all matters relating to the plan. 10.5. Employment Rights. The plan does not consti- tute a contract of employment, and participation in the plan will not give any employee the right to be retained in the employ of an employer, nor any right or claim to any benefit under the plan, unless such right or claim has specifically accrued under the terms of the plan. 10.6. Litigation by Participants. If a legal action begun against the trustee, an employer or the committee or any member thereof by or on behalf of any person results adversely to that person, or if a legal action arises because of con- flicting claims to a participant's or other person's benefits, the cost to the trustee, the employers, or the committee or any member thereof of defending the action will be charged to the extent permitted by law to the sums, if any, which were in- volved in the action or were payable to the person concerned. 10.7. Interests Not Transferable. The interests of persons entitled to benefits under the plan are not subject to their debts or other obligations and, except as may be required by the tax withholding provisions of the Internal Revenue Code or any state's income tax act or pursuant to any qualified domestic relations order as defined in Section 414(p) of the Code, may not be voluntarily or involuntarily sold, transferred, alienated, assigned or encumbered, except as otherwise provided in Section 401(a)(13) of the Code. Notwithstanding any other provisions of the plan, the committee may direct the trustee to distribute benefits to an alternate payee on the earliest date specified in a qualified domestic relations order, without regard to whether such distribution is made or commences prior to the participant's earliest retirement age (as defined in Section 414(p)(4)(B) of the Code) or the earliest date that the participant could commence receiving benefits under the plan. 10.8. Absence of Guaranty. Neither the committee nor the employers in any way guarantee the trust fund from loss or depreciation. The liability of the trustee or the committee to make any payment under the plan will be limited to the as- sets held by the trustee which are available for that purpose. 10.9. Evidence. Evidence required of anyone under the plan may be by certificate, affidavit, document, or other information which the person acting on it considers pertinent and reliable, and signed, made, or presented by the proper party or parties. SECTION 11 AMENDMENT AND TERMINATION 11.1. Amendment. While the employers expect and intend to continue the plan, the company reserves the right to amend the plan from time to time, except as follows: (a) The duties and liabilities of the committee cannot be changed substantially without its consent; (b) No amendment shall reduce the accrued bene- fit (as defined in Section 411(d)(6) of the Code) the participant would be entitled to receive if he had resigned from the employ of all the employers on the date of the amendment; and (c) Except as provided in subsection 3.8, under no condition shall an amendment result in the return or repayment to any employer of any part of the trust fund or the income from it or result in the distribution of the trust fund for the benefit of anyone other than persons entitled to benefits under the plan. 11.2. Termination. The plan will terminate as to all employees (i) on any date specified by the company if 30 days' advance written notice of the termination is given to the committee, the trustee, and the other employers, or (ii) on the date that contributions by all employers are completely discon- tinued under the plan. A partial termination of the plan may occur as to an individual employer or as to a group or class of employees on any date so specified by the company or as re- quired by law. 11.3. Reorganizations. No plan termination will occur solely as a result of the judicially declared bankruptcy or insolvency of an employer, or the dissolution, merger, con- solidation, or reorganization of an employer, or the sale by that employer of all or substantially all of its assets, or the termination or complete discontinuance of contributions by any one employer. However, arrangement may be made with the con- sent of the company whereby the plan will be continued by any successor to that employer or any purchaser of all or substan- tially all of its assets, in which case the successor or pur- chaser will be submitted for that employer under the plan and trust agreement provided that, if an employer is merged, dis- solved, or in any other way organized into, or consolidated with, any other employer, the plan as applied to the former employer will automatically continue in effect without a termi- nation thereof. 11.4. Vesting and Distribution on Termination. On termination or partial termination of the plan, the date of termination will be a "special accounting date" and, after all adjustments then required have been made, each affected partic- ipant's benefits will be nonforfeitable. If, on termination of the plan, the participant remains an employee of an employer, the amount of his benefits shall be retained in the trust fund until his termination of employment with all of the employers and then shall be paid to him in accordance with the provisions of subsection 7.4. In the event that the participant's employ- ment with all of the employers is terminated coincident with the termination of the plan, his benefits shall be paid to him in a lump sum, subject to the provisions of subsection 7.4. 11.5. Notice of Amendment or Termination. Partici- pants will be notified of an amendment or termination of the plan within a reasonable time. 11.6. Plan Merger, Consolidation, Etc. In the case of any merger or consolidation of this plan with, or the trans- fer of assets or liabilities of this plan to any other plan, each participant's benefits if such plan terminated immediately after such merger, consolidation, or transfer shall be equal to or greater than the benefits he would have been entitle to receive if this plan had terminated immediately before the merger, consolidation, or transfer. SECTION 12 TOP-HEAVY RULES 12.1. Purpose and Effect. The purpose of this sec- tion is to comply with the requirements of Section 416 of the Code. The provisions of this section shall be effective for each plan year in which the plan is a "top-heavy plan" within the meaning of Section 416(g) of the Code. 12.2. Top-Heavy Plan. In general, the plan will be a top-heavy plan for any plan year if, in the case of the first plan year, on the last day of such plan year, and in the case of any subsequent plan year, as of the last day of the preced- ing plan year (the "determination date"), the sum of the amounts in (a), (b), and (c) below for key employees (defined below and in Section 416(i)(1) of the Code) exceeds sixty per- cent (60%) of the sum of such amounts for all employees who are covered by a defined contribution plan or defined benefit plan which is aggregated in accordance with subsection 12.4 below: (a) The aggregate account balances of partici- pants under this plan. (b) The aggregate account balances of partici- pants under any other defined contribution plan included in subsection 12.4. (c) The present value of cumulative accrued benefits of participants calculated under any defined benefit plan included in sub- section 12.4. In determining the account balances of participants under this plan, (i) such participant's account balances shall be in- creased by the aggregate distributions, if any, made with re- spect to the participant during the five-year period ending on the determination date, (ii) the account balances of a partici- pant who was previously a key employee, but who is no longer a key employee, shall be disregarded, (iii) the accounts of a beneficiary of a participant shall be considered accounts of the participant, and (iv) the account balances of a participant who has not performed any services for an employer during the 5-year period ending on the determination date shall be disre- garded. 12.3. Key Employee. In general, a "key employee" is an employee who, at any time during the plan year ending on the determination date or during any of the four preceding plan years, is: (a) an officer of employer or a controlled group member whose compensation (as defined in subparagraph 6.5(a)) exceeds fifty per- cent (50%) of the dollar limitation speci- fied in Section 415(b)(1)(A) of the Code for a plan year (including only the greater of three or ten percent of the total employees of the employer and controlled group members but not exceeding 50); (b) one of the ten employees owning the largest interests in an employer and all other controlled group members in excess of a one-half percent interest and whose compen- sation [as defined in subparagraph 6.5(a)] exceeds the dollar limitation specified in subparagraph 6.5(a); (c) a five percent (5%) owner of an employer or controlled group member; or (d) a one percent (1%) owner of an employer or controlled group member receiving annual compensation from the employer and all other controlled group members of more than $150,000. A "key employee" for purposes of any other plan included in subsection 12.4 means a key employee as determined in accor- dance with such plan. 12.4. Aggregated Plans. Each other defined contri- bution plan and defined benefit plan maintained by an employer or controlled group member which covers a "key employee" as a participant or which is maintained by such employer or control- led group member in order for a plan covering a key employee to be qualified shall be aggregated in determining whether this plan is top-heavy. In addition, any other defined contribution or defined benefit plan or an employer or controlled group mem- ber may be included if all such plans which are included when aggregated will not discriminate in favor of officers, share- holders, or highly compensated employees. 12.5. Minimum Contribution. For any plan year in which the plan is a top-heavy plan, employer contributions and forfeitures (other than income deferral contributions) credited to each participant who is not a key employee shall not be less than 3 percent of such participant's adjusted compensation for that year, except that, in no event shall the employer contri- butions and forfeitures credited in any year to a participant who is not a key employee (expressed as a percentage of such participant's adjusted compensation) exceed the maximum employ- er contributions, income deferral contributions and forfeitures credited in that year to a key employee expressed as a percentage of such key employee's adjusted compensation up to $200,000 or such greater amount as may be determined by the Commissioner of Internal Revenue for that year. 12.6. Maximum Earnings. For any plan year in which the plan is a top-heavy plan, a participant's adjusted compen- sation in excess of $200,000 (or such greater amount as may be determined by the Commissioner of Internal Revenue for that plan year) shall be disregarded for purposes of subsections 3.4, and 6.5 of the plan. 12.7. No Duplication of Benefits. If a participant is covered by another plan maintained by an employer or con- trolled group member, appropriate modification may be made in the plan in accordance with regulations issued by the Internal Revenue Service to prevent inappropriate duplication of minimum contributions or benefits under Section 416 of the Code. 12.8. Adjustment of Combined Benefit Limitations. For any plan year in which the plan is a top-heavy plan, the determination of the defined contribution plan fraction and defined benefit plan fraction under subsection 6.5 of the plan shall be adjusted in accordance with the provisions of Section 416(h) of the Code. SUPPLEMENT A TO GOLDEN RETIREMENT SAVINGS PROGRAM 1. This Supplement A to the Golden Retirement Savings Program (the "plan") extends the plan to certain employees and former employees who are included in the following groups or classes of employees employed by Western Publishing Company, Inc. (the "employer'), as of the effective dates specified below: Group or Class Effective Date -------------- -------------- (a) Hourly rated Employees who July 1, 1987 are not represented by a collective bargaining agent and certain other former employees as designated by the company. (b) Employees who are members of the July 1, 1988 collective bargaining unit represented by Local 254M of the Graphic Communications International Union. (c) Employees who are members of the July 1, 1987 collective bargaining unit represented by Local 223B of the Graphic Communications International Union. (d) Employees who are members of the July 1, 1987 collective bargaining unit represented by Local 309 of the International Union of Operating Engineers. (e) Employees who are members of the July 1, 1987 collective bargaining unit represented by Local 43 of the International Brotherhood of Teamsters, Chauffeurs, Warehousemen, and Helpers of America. (f) Employees who are members of the July 1, 1988 collective bargaining unit represented by Local 1007 of the International Union, United Automobile, Aerospace & Agricultural Implement Workers of America, UAW. (g) Former employees who are members July 1, 1988 of the collective bargaining unit represented by Local 62B of the Graphic Communications International Union. 2. All provisions of the plan to the extent such provisions are not inconsistent with this Supplement A shall apply to plan participants covered by this Supplement A. 3. This Supplement A is effective as of July 1, 1988. EX-10.71B 4 COMPREHENSIVE SECURITY PROGRAM AMENDMENT TENTH AMENDMENT OF PENN CORPORATION COMPREHENSIVE SECURITY PROGRAM WHEREAS, this corporation maintains the Penn Corporation Comprehensive Security Program (the "plan"); and WHEREAS, further amendment of the plan now is considered desirable; NOW, THEREFORE, IT IS RESOLVED that by virtue and in exercise of the power reserved to this corporation under subsection 10.1 of the plan, the plan, as previously amended, be and it hereby is further amended, effective as of April 1, 1993, in the following particulars: 1. By deleting subparagraph 3.5(c)(iv) of the plan. 2. By substituting the reference "(iii)" for the reference "(iv)" where the latter reference appears in subsection 3.6 of the plan. 3. By substituting the following for subsection 7.3 of the plan: "7.3. Forfeitures. The amount by which a participant's employer contribution account is reduced under subsection 7.2 shall be treated as a 'forfeiture' on the earlier of the date of distribution of such participant's account balances or the date such participant incurs five consecu- tive one-year breaks in employment (as defined in subparagraph 2.2(g)). Prior to that date, such account will continue to be adjusted pursuant to the provisions of subparagraph 6.4(b). Forfeitures attributable to a participant's employer contribu- tion account will be used to reduce the employer's contribution otherwise required under subsection 3.1 and shall be allocated and credited to the employer contribution accounts of other participants in ac- cordance with subsection 6.5. If a participant is reemployed by an employer or controlled group member before he incurs five consecutive one-year breaks in employment, any forfeitures attributable to such par- ticipant shall be recredited to such participant's appropriate account on the accounting date coincident with or next following the date of such participant's reemployment if the participant repays the total amount of any previous distribution attributable to his employer contribution account within five years of his date of reemployment. Such participant's account shall be recredited from current unallocated forfeitures or, to the extent there are insufficient unallocated forfeitures for this purpose, from supplemental employer contributions necessary to restore such amount. The actual amount restored to such participant's account shall be the amount of such forfeitures, without investment adjustments." 4. By substituting the following for that portion of subsection 7.4 of the plan immediately preceding subparagraph 7.4(a) thereof: "7.4. Manner of Distribution. After each participant's termination date, and subject to the conditions set forth below and in subsections 7.5 and 7.12, distribution of the net credit balance in the participant's accounts will be made to or for the benefit of the participant or, in the case of his death, to or for the benefit of his beneficiary, by one or more of the following methods:" 5. By adding the following new subsection 7.12 to the plan immediately after subsection 7.11 thereof: "7.12. Direct Transfer of Eligible Rollover Distributions. Effective January 1, 1993, if pay- ment of benefits to a participant, a participant's surviving spouse, or the spouse or former spouse of the participant who is an alternate payee under a qualified domestic relations order (as defined in Section 414(p) of the Code) constitutes an 'eligible rollover distribution' under Section 402(c)(4) of the Code, then the participant or the participant's spouse (or former spouse) may elect to have such distribution paid directly to an eligible retirement plan described in Section 402(c)(8)(B) of the Code (except that in the case of an eligible rollover distribution to a participant's surviving spouse on the death of a participant, the definition of an eligible retirement plan is limited to an individual retirement account or individual retirement annuity). Each election by a participant under this subsection shall be made at such time and in such manner as the committee shall determine and shall be effective only in accordance with such rules as shall be established from time to time by the committee. Any election by a participant under this subsection will be subject to the requirements of subparagraph 7.4(a)(v) of the plan." 6. By adding the following new subsection 7.13 to the plan immediately after subsection 7.12 thereof: "7.13 Withdrawal of Income Deferral Contributions. With the consent of the committee, a participant may elect to withdraw any income deferral contributions made by such participant because of a "hardship" (as defined below) causing an immediate and heavy financial need on the participant. For purposes of this subsection a hardship shall include: (a) Medical expenses incurred (or not yet incurred but necessary to obtain such medical care) by the participant, the participant's spouse or the par- ticipant's dependents (as defined in Section 152 of the Code) which are not reimbursed by insurance or otherwise; (b) Purchase of a principal residence for the participant, excluding mortgage payments; (c) Payment of tuition and related educational fees for the next twelve months of post-secondary education for the participant or the participant's spouse, children or dependents; (d) The need to prevent the eviction of the participant from his principal residence or foreclosure under the mortgage on the participant's principal residence; (e) Casualty losses or catastrophes such as flooding, hurricanes or tornadoes; or (f) Any other hardship which in the opinion of the committee creates an immediate and heavy financial need on the participant. A withdrawal will be considered necessary to satisfy an immediate and heavy financial need only if the participant represents in writing to the commit- tee that the need cannot reasonably be relieved (i) through reimbursement or compensation by in- surance or otherwise, (ii) by liquidation of the employee's assets and the assets of the employee's spouse and dependents (as defined in Section 152 of the Code) that are reasonably available to the employee, (iii) from other available distributions and loans under this plan or any other qualified retirement plan maintained by the employers or by borrowing from commercial sources on reasonable commercial terms in amounts sufficient to satisfy the need; or (iv) the cessation of income deferral contributions or voluntary contributions to the plan. Each such election shall be in writing, shall be filed with the committee at such time and in such manner as the committee shall determine and shall be effective in accordance with such rules as the committee may establish from time to time. Any withdrawal by a married participant must be con- sented to in writing by the participant's spouse, must acknowledge the effect of the withdrawal and must be witnessed by a plan representative or notary public." 7. By substituting the following for subsection 9.7 of the plan: "9.7. Interests Not Transferable. The in- terests of persons entitled to benefits under the plan are not subject to their debts or other obli- gations and, except as may be required by the tax withholding provisions of the Code or any state's income tax act or pursuant to any qualified domestic relations order as defined in Section 414(p) of the Code, may not be voluntarily or involuntarily sold, transferred, alienated, assigned or encumbered, ex- cept as otherwise provided in Section 401(a)(13) of the Code. Notwithstanding any other provisions of the plan, the committee may direct the trustee to distribute benefits to an alternate payee on the earliest date specified in a qualified domestic relations order, without regard to whether such distribution is made or commences prior to the participant's earliest retirement age (as defined in Section 414(p)(4)(B) of the Code) or the earliest date that the participant could commence receiving benefits under the plan." * * * I, James A. Cohen, Secretary of Penn Corporation, hereby certify that the foregoing is a correct copy of a resolution duly adopted by the Board of Directors of said corporation on December 28, 1993, and that said resolution has not been changed or repealed. Dated this 28 day of December, 1993. /s/ James A. Cohen -------------------------------- Secretary as Aforesaid (Corporate Seal) * * * The undersigned, as committee members under the Penn Corporation Comprehensive Security Program, hereby acknowledge receipt of a certified copy of the foregoing amendment and hereby consent thereto, this 28th day of December, 1993. /s/ Stuart Turner --------------------------------- /s/ James A. Cohen --------------------------------- /s/ Steven M. Grossman --------------------------------- /s/ Hal Weiss --------------------------------- As Committee Members As Aforesaid EX-10.74B 5 RETIREMENT SAVINGS PROGRAM AMENDMENT FOURTH AMENDMENT OF BEACH PRODUCTS (DIVISION OF PENN CORPORATION) RETIREMENT SAVINGS PROGRAM WHEREAS, this corporation maintains the Beach Products (Division of Penn Corporation) Retirement Savings Program (the "plan"); and WHEREAS, further amendment of the plan now is considered desirable; NOW, THEREFORE, IT IS RESOLVED that by virtue and in exercise of the power reserved to this corporation under subsection 10.1 of the plan, the plan, as previously amended, be and it hereby is further amended, effective as of April 1, 1993, in the following particulars: 1. By substituting a period for the semicolon at the end of subparagraph 3.4(iii) of the plan and by deleting subparagraph 3.4(iv) of the plan. 2. By substituting the reference "(iii)" for the reference "(iv)" where the latter reference appears in subsection 4.4 of the plan. 3. By substituting the following for that portion of subsection 7.4 of the plan immediately preceding subparagraph 7.4(a) thereof: "7.4. Manner of Distribution. After each participant's termination date, and subject to the conditions set forth below and in subsections 7.5 and 7.11, distribution of the net credit balance in the participant's accounts will be made to or for the benefit of the participant or, in the case of his death, to or for the benefit of his beneficiary, by one or more of the following methods:" 4. By adding the following new subsection 7.11 to the plan immediately after subsection 7.10 thereof: "7.11. Direct Transfer of Eligible Rollover Distributions. Effective January 1, 1993, if pay- ment of benefits to a participant, a participant's surviving spouse, or the spouse or former spouse of the participant who is an alternate payee under a qualified domestic relations order (as defined in Section 414(p) of the Code) constitutes an 'eligible rollover distribution' under Section 402(c)(4) of the Code, then the participant or the participant's spouse (or former spouse) may elect to have such distribution paid directly to an eligible retirement plan described in Section 402(c)(8)(B) of the Code (except that in the case of an eligible rollover distribution to a participant's surviving spouse on the death of a participant, the definition of an eligible retirement plan is limited to an individual retirement account or individual retirement annuity). Each election by a participant under this subsection shall be made at such time and in such manner as the committee shall determine and shall be effective only in accordance with such rules as shall be established from time to time by the committee. Any election by a participant under this subsection will be subject to the requirements of subparagraph 7.4(a)(v) of the plan." 5. By adding the following new subsection 7.12 to the plan immediately after subsection 7.11 thereof: "7.12 Withdrawal of Income Deferral Contributions. With the consent of the committee, a participant may elect to withdraw any income deferral contributions made by such participant because of a "hardship" (as defined below) causing an immediate and heavy financial need on the participant. For purposes of this subsection a hardship shall include: (a) Medical expenses incurred (or not yet incurred but necessary to obtain such medical care) by the participant, the participant's spouse or the par- ticipant's dependents (as defined in Section 152 of the Code) which are not reimbursed by insurance or otherwise; (b) Purchase of a principal residence for the participant, excluding mortgage payments; (c) Payment of tuition and related educational fees for the next twelve months of post-secondary education for the participant or the participant's spouse, children or dependents; (d) The need to prevent the eviction of the participant from his principal residence or foreclosure under the mortgage on the participant's principal residence; (e) Casualty losses or catastrophes such as flooding, hurricanes or tornadoes; or (f) Any other hardship which in the opinion of the committee creates an immediate and heavy financial need on the participant. A withdrawal will be considered necessary to satisfy an immediate and heavy financial need only if the participant represents in writing to the committee that the need cannot reasonably be re- lieved (i) through reimbursement or compensation by insurance or otherwise, (ii) by liquidation of the employee's assets and the assets of the employee's spouse and dependents (as defined in Section 152 of the Code) that are reasonably available to the employee, (iii) from other available distributions and loans under this plan or any other qualified retirement plan maintained by the employers or by borrowing from commercial sources on reasonable commercial terms in amounts sufficient to satisfy the need; or (iv) the cessation of income deferral contributions or voluntary contributions to the plan. Each such election shall be in writing, shall be filed with the committee at such time and in such manner as the committee shall determine and shall be effective in accordance with such rules as the committee may establish from time to time. Any withdrawal by a married participant must be con- sented to in writing by the participant's spouse, must acknowledge the effect of the withdrawal and must be witnessed by a plan representative or notary public." 6. By substituting the following for the first sentence of Section 8 of the plan: "Subject to such rules and requirements as the committee may establish, a participant may direct the trustee to receive a 'rollover' amount either in the form of a direct rollover (as defined in Section 401(a)(31) of the Code) or an indirect rollover as defined in Section 402(c) and Section 408(d)(3) of the Code attributable to such participant's partic- ipation in any other qualified pension or profit sharing plan under Section 401(a) of the Code." 7. By substituting the following for subsection 10.6 of the plan: "10.6. Interests Not Transferable. The interests of persons entitled to benefits under the plan are not subject to their debts or other obligations and, except as may be required by the tax withholding provisions of the Code or any state's income tax act or pursuant to any qualified domestic relations order as defined in Section 414(p) of the Code, may not be voluntarily or involuntarily sold, transferred, alienated, assigned or encumbered, except as otherwise provided in Section 401(a)(13) of the Code. Notwithstanding any other provisions of the plan, the committee may direct the trustee to distribute benefits to an alternate payee on the earliest date specified in a qualified domestic relations order, without regard to whether such distribution is made or commences prior to the participant's earliest retirement age (as defined in Section 414(p)(4)(B) of the Code) or the earliest date that the participant could commence receiving benefits under the plan." * * * I, James A. Cohen, Secretary of Penn Corporation, hereby certify that the foregoing is a correct copy of a resolution duly adopted by the Board of Directors of said corporation on December 28, 1993, and that said resolution has not been changed or repealed. Dated this 28 day of December, 1993. /s/ James A. Cohen -------------------------------- Secretary as Aforesaid (Corporate Seal) * * * The undersigned, as committee members under the Beach Products (Division of Penn Corporation) Retirement Savings Program, hereby acknowledge receipt of a certified copy of the foregoing amendment and hereby consent thereto, this 28th day of December, 1993. /s/ Stuart Turner --------------------------------- /s/ James A. Cohen --------------------------------- /s/ Steven M. Grossman --------------------------------- /s/ Hal Weiss --------------------------------- As Committee Members As Aforesaid EX-10.89 6 CREDIT AGREEMENT AMENDMENT AMENDMENT No. 1 AMENDMENT No. 1 dated as of July 31, 1993 ("this Amendment No. 1"), between WESTERN PUBLISHING GROUP, INC., a corporation duly organized and validly existing under the laws of the State of Delaware (the "Company"); each of the banks listed on the signature pages hereof (individually, a "Bank" and, collectively, the "Banks"); FLEET BANK, a New York bank, as agent for the Banks (in such capacity, together with its successors in such capacity, the "Agent"); and THE BANK OF NEW YORK, a New York bank, as co-agent for the Banks (in such capacity, together with its successors in such capacity, the "Co-Agent"). The Company, the Banks, the Agent and the Co-Agent are parties to a Credit Agreement dated as of November 12, 1992 (as heretofore modified and supplemented and in effect on the date hereof, the "Credit Agreement"), providing, subject to the terms and conditions thereof, for extensions of credit (by making of loans and issuing letters of credit) by the Banks to the Company in an aggregate principal or face amount not exceeding $200,000,000. The Company, the Banks, the Agent and the Co-Agent wish to amend the Credit Agreement in certain respects, and accordingly, the parties hereto hereby agree as follows: Section 1. Definitions. Except as otherwise defined in this Amendment No. 1, terms defined in the Credit Agreement and are used herein as defined therein. Section 2. Amendments. Subject to the satisfaction of the conditions precedent specified in Section 4 below, but effective as of the date hereof, the Credit Agreement shall be amended as follows: A. The definition of Applicable Margin appearing in Section 1.01 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "Applicable Margin" shall mean, with respect to Eurodollar Loans during any fiscal quarter of the Company, a rate per annum equal to (i) 0.75% if the Interest Coverage Ratio for the then most recently ended period of four consecutive fiscal quarters of the Company shall be greater than or equal to 3.00 to 1, or (ii) 1.00% if the Interest Coverage Ratio for the then most recently ended period of four consecutive fiscal quarters of the Company shall be less than 3.00 to 1. During any period after the commencement of a fiscal quarter but prior to the delivery of the certificate of a senior financial officer of the Company which is to accompany the financial statements delivered pursuant to Section 8.01(a) or (b) (as the case may be) with respect to the immediately preceding fiscal period (any such period being hereinafter called a "Gap Period"), interest on each Eurodollar Loan shall be paid at the Eurodollar Rate plus the Applicable Margin as in effect at the end of the immediately preceding fiscal quarter. If such certificate of a senior financial officer of the Company, when delivered to the Agent, demonstrates an Interest Coverage Ratio requiring a change in the Applicable Margin, such change shall be retroactive to the beginning of such Gap Period. If such change in the Applicable Margin results in additional amounts of interest being payable by the Company, such amounts shall be immediately due and payable. If such change in the Applicable Margin results in an overpayment of interest by the Company, each Bank shall promptly return (through the Agent) to the Company the amount of overpayment paid to such Bank. B. Section 8.12 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: 8.12 Interest Coverage Ratio. The Company will not permit the Interest Coverage Ratio for any period of four consecutive fiscal quarters of the Company set forth below to be less than the ratio set forth below opposite such period of four consecutive fiscal quarters: Period of Four Consecutive Fiscal Quarters ending on Ratio -------------------------- ----- July 31, 1993 2.15 to 1 October 30, 1993 2.25 to 1 January 29, 1994 2.35 to 1 April 30, 1994 2.65 to 1 July 30, 1994 and each fiscal quarter thereafter 3.00 to 1 Section 3. Representations and Warranties. The Company represents and warrants to the Banks that the representations and warranties set forth in Section 7 of the Credit Agreement are true and complete in all material respects on the date hereof as if made on and as of the date hereof and as if each reference in said Section 7 to "this Agreement" included reference to this Amendment No. 1 (except to the extent that such representations and warranties expressly relate to an earlier date). Section 4. Condition Precedent. As provided in Section 2 above, the amendments to the Credit Agreement set forth in said Section 2 shall become effective, as of the date hereof, upon execution and delivery of this Amendment No. 1 by the Company and by the Majority Banks. Section 5. Expenses. Without limiting its obligations under Section 11.03 of the Credit Agreement, the Company agrees to pay, promptly following demand, all reasonable out-of-pocket costs and expenses of the Agent and the Banks (including the fees and disbursements of Whitman & Ransom, special New York counsel to the Banks) incurred in connection with the negotiation, preparation, execution and delivery of this Amendment No. 1. Section 6. Miscellaneous. Except as herein provided, the Credit Agreement shall remain unchanged and in full force and effect. This Amendment No. 1 may be executed in any number of counterparts, all of which taken together shall constitute one and the same amendatory instrument and any of the parties hereto may execute this Amendment No. 1 by signing any such counterpart. This Amendment No. 1 shall be governed by, and construed in accordance with, the law of the State on New York, without reference to principles of conflicts of law. IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to be duly executed as of the day and year first above written. WESTERN PUBLISHING GROUP, INC. By /s/ Stuart Turner --------------------- Title: Treasurer FLEET BANK By /s/ Peter C. Hall --------------------- Title: Assistant Vice President THE BANK OF NEW YORK By /s/ David K. Nichols --------------------- Title: Senior Vice President CREDIT LYONNAIS NEW YORK BRANCH By /s/ Sebastian Rocco --------------------- Title: First Vice President CAYMAN ISLAND BRANCH By /s/ Sebastian Rocco --------------------- Title: First Vice President THE DAIWA BANK LTD. By /s/ James H. Broadley --------------------- Title: Vice President By /s/ Barry W. Henry --------------------- Title: Vice President MELLON BANK, N.A. By /s/ Bryan T. Denney --------------------- Title: Banking Officer NATIONAL WESTMINSTER BANK USA By /s/ Phillip H. Sorace --------------------- Title: Vice President STANDARD CHARTERED BANK By /s/ Gerard Lob --------------------- Title: Vice President By /s/ K. McDavid --------------------- Title: Assistant Vice President NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION By /s/ Lou D. Banack --------------------- Title: Assistant Vice President THE FIRST NATIONAL BANK OF BOSTON By /s/ Anne K. Helgen --------------------- Title: Director FLEET BANK, as Agent By /s/ Peter C. Hall --------------------- Title: Assistant Vice President THE BANK OF NEW YORK, as Co-Agent By /s/ David K. Nichols --------------------- Title: Senior Vice President EX-10.90 7 CREDIT AGREEMENT AMENDMENT AMENDMENT No. 2 AMENDMENT No. 2 dated as of October 30, 1993 ("this Amendment No. 2"), between WESTERN PUBLISHING GROUP, INC., a corporation duly organized and validly existing under the laws of the State of Delaware (the "Company"); each of the banks listed on the signature pages hereto (individually, a "Bank" and, collectively, the "Banks"); FLEET BANK, a New York bank, as agent for the Banks (in such capacity, together with its successors in such capacity, the "Agent"); and THE BANK OF NEW YORK, a New York bank, as co-agent for the Banks (in such capacity, together with its successors in such capacity, the "Co-Agent"). The Company, the Banks, the Agent and the Co-Agent are parties to a Credit Agreement dated as of November 12, 1992 (as heretofore amended and in effect on the date hereof, the "Credit Agreement"), which provides, subject to the terms and conditions thereof, for extensions of credit (by making of loans and issuing letters of credit) by the Banks to the Company in an aggregate principal or face amount not exceeding $200,000,000. The Company, the Banks, the Agent and the Co-Agent wish to amend the Credit Agreement in certain respects, and accordingly, the parties hereto hereby agree as follows: Section 1. Definitions. Except as otherwise defined in this Amendment No. 2, terms defined in the Credit Agreement that are used herein shall have the same meanings herein as are ascribed to such terms in the Credit Agreement. Section 2. Amendments. Subject to the satisfaction of the conditions precedent specified in Section 4 below, but effective as of the date hereof, the Credit Agreement shall be amended as follows: A. The definition of Applicable Margin appearing in Section 1.01 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "Applicable Margin" shall mean, with respect to Eurodollar Loans during any fiscal quarter of the Company, a rate per annum equal to (i) 0.75% if the Interest Coverage Ratio for the then most recently ended Fiscal Period of the Company shall be greater than or equal to 3.00 to 1, or (ii) 1.00% if the Interest Coverage Ratio for the then most recently ended Fiscal Period of the Company shall be less than 3.00 to 1 and greater than or equal to 2.25 to 1, or (iii) 1.25% if the Interest Coverage Ratio for the then most recently ended Fiscal Period of the Company shall be less than 2.25 to 1 and greater than or equal to 1.50 to 1, or (iv) 1.50% if the Interest Coverage Ratio for the then most recently ended Fiscal Period of the Company shall be less than 1.50 to 1. As used herein, "Fiscal Period" shall mean (i) the fiscal quarter of the Company ending on or about October 30, 1993, (ii) the period of two consecutive fiscal quarters of the Company ending on or about January 29, 1994, (iii) the period of three consecutive fiscal quarters of the Company ending on or about April 30, 1994, (iv) the period of four consecutive fiscal quarters of the Company ending on or about July 30, 1994 and (v) each subsequent period of four consecutive fiscal quarters of the Company. During any period after the commencement of a fiscal quarter but prior to the delivery of the certificate of a senior financial officer of the Company which is to accompany the financial statements delivered pursuant to Section 8.01(a) or (b) (as the case may be) with respect to the immediately preceding fiscal quarter (any such period being hereinafter called a "Gap Period"), interest on each Eurodollar Loan shall be paid at the Eurodollar Rate plus the Applicable Margin as in effect at the end of such immediately preceding fiscal quarter. If such certificate of a senior financial officer of the Company, when delivered to the Agent, demonstrates an Interest Coverage Ratio requiring a change in the Applicable Margin, such change shall be retroactive to the beginning of such Gap Period. If such change in the Applicable Margin results in additional amounts of interest being payable by the Company, such amounts shall be immediately due and payable. If such change in the Applicable Margin results in an overpayment of interest by the Company, each Bank shall promptly return (through the Agent) to the Company the amount of overpayment paid to such Bank. The Applicable Margin shall be increased by 0.50% per annum above the margins specified above for the period (if any) from February 1, 1994 until the date on which (i) the Company's Subsidiary, Western Publishing Company, Inc., a Delaware corporation, issues a guarantee of all of the Company's obligations to the Banks, the Agent and the Co-Agent hereunder, in substantially the form set forth as Exhibit B to Amendment No. 2 to this Credit Agreement and (ii) the Company shall have pledged for the ratable benefit of the Banks and the holders (the "Holders") of the Company's 7.65% Debentures due 2002 (the "Debentures"), all of the issued and outstanding capital stock of Western Publishing Company, Inc. The pledge of the stock of Western Publishing Company, Inc. shall be to a Person reasonably acceptable to the Agent, the Holders of not less than a majority in aggregate principal amount of the outstanding Debentures (the "Majority Holders") and the Trustee for the Debentures. B. The definition of Commitment Termination Date appearing in Section 1.01 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "Commttment Termination Date" shall mean the last Business Day of May, 1995. C. The definition of Interest Coverage Ratio appearing in Section 1.01 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "Interest Coverage Ratio" shall mean, for any period, the ratio of (a) Cash Flow for such period to (b) Interest Expense for such period. D. Section 2.01 of the Credit Agreement is hereby amended by adding the following sentence at the end thereof: Notwithstanding the foregoing, during the period from and including December 13, 1993 through and including the date of delivery by the Company of its financial statements in respect of the fiscal quarter ending on or about July 31, 1994 (as required by Section 8.01(a) hereof) and delivery of the quarterly compliance certificate of a senior financial officer of the Company required by Section 8.01 hereof and demonstrating compliance by the Company with the financial covenants for which calculations are to be set forth therein, the aggregate principal amount of all Loans hereunder together with the aggregate face amount of all Letter of Credit Liabilities shall not exceed $145,000,000 during the portion of such period on or prior to December 27, 1993 and shall not exceed $140,000,000 during the portion of such period on or after December 28, 1993. E. Section 2.04 of the Credit Agreement is hereby amended by redesignating subsection (c) thereof as subsection (d) and by adding a new subsection (c) reading as follows: (c) Without affecting Section 8.05 in any way, concurrently with the making of any Disposition by the Company or any of its Subsidiaries, the Company shall prepay the principal of the Loans hereunder, and the Commitments shall be reduced, in an aggregate principal amount equal to 50% of the amount of the net cash proceeds (net of expenses reasonably incurred in connection therewith and taxes paid or payable in connection therewith) actually received by the Company or such Subsidiary from such Disposition. As used herein, "Disposition" shall mean, with respect to any Person, any sale, assignment, transfer or other disposition by such Person of any tangible or intangible assets (but excluding any inventory or Permitted Investments or other assets sold or disposed of in the ordinary course of business according to ordinary terms and any obsolete or worn-out assets), whether now owned or hereafter acquired. F. Section 2.05 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: 2.05 Commitment Fee. The Company shall pay to the Agent for account of each Bank a commitment fee on the daily average unused amount of such Bank's Commitment (for which purpose the aggregate amount of any Letter of Credit Liabilities shall be deemed to be a pro rata (based on the Commitments) use of each Bank's Commitment), for the period from and including the date of this Agreement to but not including the earlier of the date such Commitment is terminated and the Commitment Termination Date, at a rate per annum equal, for each day during such period, to: (i) 0.25% if the Interest Coverage Ratio for the then most recently ended Fiscal Period shall be greater than or equal to 2.25 to 1, or (ii) 0.375% if the Interest Coverage Ratio for the then most recently ended Fiscal Period shall be less than 2.25 to 1. During any period after the commencement of a fiscal quarter but prior to the delivery of the certificate of a senior financial officer of the Company which is to accompany the financial statements delivered pursuant to Section 8.01(a) or (b) (as the case may be) with respect to the immediately preceding fiscal quarter (any such period being hereinafter called a "Gap Period"), commitment fees shall be paid at the rate as in effect at the end of the immediately preceding fiscal quarter. If such certificate of a senior financial officer of the Company, when delivered to the Agent, demonstrates an Interest Coverage Ratio requiring a change in the applicable rate of commitment fee, such change shall be retroactive to the beginning of such Gap Period. If such change in the applicable rate of commitment fee results in additional amounts of commitment fee being payable by the Company, such amounts shall be immediately due and payable. If such change in the applicable rate of commitment fee results in an overpayment of commitment fee by the Company, each Bank shall promptly return (through the Agent) to the Company the amount of overpayment paid to such Bank. Accrued commitment fee shall be payable in arrears on each Quarterly Date and on the earlier of the date the Commitments are terminated and the Commitment Termination Date. G. Subsection (d) of Section 8.05 of the Credit Agreement is hereby amended in its entirety to read as follows: (d) the Company may convey, sell, lease, transfer or otherwise dispose of any business (whether maintained as a Subsidiary or division) to which is attributable at the time of such conveyance, sale, lease, transfer or other disposition less than 10% of the consolidated assets of the Company and its Consolidated Subsidiaries and to which is attributable less than 10% of the consolidated earnings of the Company and its Consolidated Subsidiaries, determined before taking into account Interest Expense and income taxes for the most recent twelve-month period. H. Section 8.10 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: 8.10 Leverage Ratio. The Company shall not permit the Leverage Ratio to exceed 2.50 to 1 as at the end of the third fiscal quarter of any fiscal year of the Company, and shall not permit the Leverage Ratio to exceed 2.00 to 1 as at the end of any first, second or fourth fiscal quarter of any fiscal year of the Company (being the fiscal quarters ending on or about the last day of the months of April, July or January, respectively). 1. Section 8.12 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: 8.12 Interest Coverage Ratio. The Company will not permit the Interest Coverage Ratio for the fiscal quarter of the Company ending on or about October 30, 1993 to be less than 1.90 to 1. The Company will not permit the Interest Coverage Ratio for the period of two consecutive fiscal quarters of the Company ending on or about January 29, 1994 to be less than 0.60 to 1. The Company will not permit the Interest Coverage Ratio for the period of three consecutive fiscal quarters of the Company ending on or about April 30, 1994 to be less than 0.60 to 1. The Company will not permit the Interest Coverage Ratio for any period of four consecutive fiscal quarters of the Company set forth below to be less than the ratio set forth below opposite such period of four consecutive fiscal quarters: Period of Four Consecutive Fiscal Quarters ending on or about Ratio ---------------------------------- ------- July 30, 1994 0.85 to 1 October 30, 1994 1.75 to 1 January 31, 1995 2.50 to 1 April 30, 1995 and each fiscal quarter thereafter 3.00 to 1 J. The Credit Agreement is hereby amended by adding a new Section 8.17 reading as follows: 8.17 Clean-Down. The Company will not permit the aggregate principal amount of Loans outstanding hereunder to exceed $115,000,000 for a period of thirty consecutive days during the first fiscal quarter of each fiscal year of the Company (beginning with the fiscal year commencing on or about January 31, 1994) and thereafter until delivery by the Company of the compliance certificate required by Section 8.01 hereof in respect of the financial statements for the preceding fiscal year. K. The Credit Agreement is hereby amended by adding a new Section 8.18 reading as follows: 8.18 Cash Flow. The Company will not permit its Cash Flow for any fiscal quarter of the Company set forth below to be less than the amount set forth below opposite such fiscal quarter: Fiscal Quarter ending on or about Amount ---------------------------------- ----------- October 30, 1993 $ 8,700,000 January 29, 1994 ($5,100,000) April 30, 1994 $ 3,000,000 July 30, 1994 $ 6,900,000 October 30, 1994 $25,000,000 January 31, 1995 $16,000,000 L. Section 9 of the Credit Agreement shall be amended by redesignating clause (j) thereof as clause (k) and by inserting a new clause (j) reading as follows: (j) Any Person (including any "person" as defined in Section 13(d) of the Securities Exchange Act of 1934, as amended), other than Richard A. Bernstein and/or any affiliates of Mr. Bernstein, shall acquire direct or indirect beneficial ownership of securities representing more than 50% of the total number of votes which may be cast in the election of directors of the Company by all stockholders entitled to vote in such election; or Section 3. Representations and Warranties. The Company represents and warrants to the Banks that the representations and warranties set forth in Section 7 of the Credit Agreement are true and complete in all material respects on the date hereof (except to the extent that such representations and warranties expressly relate to an earlier date) as if made on and as of the date hereof and as if each reference in said Section 7 to "this Agreement" included reference to the Credit Agreement as amended by this Amendment No. 2. Section 4. Conditions Precedent. As provided in Section 2 above, the amendments to the Credit Agreement set forth in said Section 2 shall become effective, as of the date hereof, upon the satisfaction of the following conditions precedent: A. This Amendment No. 2 shall have been executed and delivered by the Company and by the Majority Banks. B. Western Publishing Company, Inc., a Delaware corporation ("Western"), shall have executed and delivered to the Agent (in a sufficient number of counterparts for each of the Banks) a guarantee (the "Western Guarantee") in substantially the form of Exhibit A hereto. C. The Agent shall have received the following documents, each of which shall be satisfactory to the Agent in form and substance: (1) Corporate Documents. The following documents, each certified as indicated below: (a) if the certificate of incorporation of the Company or Western, as applicable, has been amended since the date of the certification thereto delivered pursuant to Section 6.01 of the Credit Agreement, a copy of such certificate, as amended, of each of the Company and Western; (b) a certificate of the Secretary or an Assistant Secretary of each of the Company and Western, dated as of a recent date and certifying (i) that attached thereto is a true and complete copy of the by-laws of such Person as in effect on the date of such certificate or that the by-laws of such Person have not been amended since the date of the certification thereto delivered pursuant to Section 6.01 of the Credit Agreement, (ii) that attached thereto is a true and complete copy of resolutions duly adopted by the board of directors of such Person authorizing the execution, delivery and performance of this Amendment No. 2 and the Credit Agreement as amended hereby and the extensions of credit under the Credit Agreement as amended hereby and, in the case of Western, the Western Guarantee, and that such resolutions have not been modified, rescinded or amended and are in full force and effect, (iii) that the certificate of incorporation of such Person has not been amended since the date of the certification thereto furnished pursuant to clause (a) above or Section 6.01 of the Credit Agreement, as the case may be, and (iv) as to the incumbency and specimen signature of each officer of such Person executing this Amendment No. 2 and each other document to be delivered by such Person from time to time in connection with the Credit Agreement as amended hereby (and the Agent and each Bank may conclusively rely on such certificate until it receives notice in writing from such Person); and (c) a certificate of another officer of each of the Company and Western as to the incumbency and specimen signature of the Secretary or such Assistant Secretary of such Person. (2) Opinion of Counsel to the Company and Western. An opinion of Shea & Gould, counsel to the Company and Western, as to the legal, valid and binding nature of the obligations of the Company and Western, as the case may be, under this Amendment No. 2, the Credit Agreement, as amended hereby, and the Western Guarantee and covering such other matters as the Agent or its special New York counsel may reasonably request. (3) Other Documents. Such other documents as the Agent or any Bank or special New York counsel to the Banks may reasonably request. Section 5. Amendment Fees. In connection with the amendments to the Credit Agreement effected hereby, the Company agrees to pay, on the date hereof, to the Agent for the pro rata account of each Bank executing this Amendment No. 2, an amendment fee in an aggregate amount equal to $350,000. The Company further agrees to pay to the Agent for the account of each Bank an additional fee equal to 0.25% of the amount of increase in the available portion of such Bank's Commitment when the aggregate amount of Loans together with the aggregate amount of Letter of Credit Liabilities can be up to (but not in excess of) $200,000,000, such additional fee to be payable on the effective date of such increase. Section 6. Expenses. Without limiting its obligations under Section 11.03 of the Credit Agreement, the Company agrees to pay, promptly following demand, all reasonable out-of-pocket costs and expenses of the Agent (including the reasonable fees and disbursements of Whitman Breed Abbott & Morgan, New York counsel to the Agent and the Banks) incurred in connection with the negotiation, preparation, execution and delivery of this Amendment No. 2. Section 7. Additional Agreement. The Company agrees to use its best efforts to obtain the consent of the Majority Holders to the pledge of the capital stock of Western Publishing Company, Inc. and the guarantee by Western Publishing Company, Inc., each as described in clauses (i) and (ii) of the last sentence of the definition of "Applicable Margin" (as amended hereby), on or before March 31, 1994. The Company further agrees that any breach of the agreement set forth in the preceding sentence shall constitute an Event of Default for all purposes of the Credit Agreement. In connection with employing its best efforts as required by this Section 7, the Company shall not be required to pay any unreasonable amendment or other fees (other than out-of-pocket costs and expenses, including reasonable legal fees and disbursements) to the Agent, the Banks or the Holders of the Debentures. Section 8. Miscellaneous. Except as expressly herein provided, the Credit Agreement shall remain unchanged and in full force and effect. This Amendment No. 2 may be executed in any number of counterparts, all of which taken together shall constitute one and the same amendatory instrument and any of the parties hereto may execute this Amendment No. 2 by signing any such counterpart. This Amendment No. 2 shall be governed by, and construed in accordance with, the law of the State on New York, without reference to its principles of conflicts of law. IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to be duly executed as of the day and year first above written. WESTERN PUBLISHING GROUP, INC. By /s/ Stuart Turner --------------------- Title: Treasurer FLEET BANK By /s/ Peter C. Hall --------------------- Title: Vice President THE BANK OF NEW YORK By /s/ Howard F. Bascom, Jr. ------------------------- Title: Vice President CREDIT LYONNAIS NEW YORK BRANCH By /s/ Mark A. Campellone ----------------------- Title: Vice President By /s/ S. Burdick --------------------- Title: Vice President THE DAIWA BANK, LTD. By /s/ James H. Broadley --------------------- Title: Vice President By /s/ Brian M. Smith --------------------- Title: Senior Vice President MELLON BANK, N.A. By /s/ Martin T. Hanning --------------------- Title: Vice President NATIONAL WESTMINSTER BANK USA By /s/ Janet Pickering --------------------- Title: Senior Vice President STANDARD CHARTERED BANK By /s/ Gerard Lob --------------------- Title: Vice President By /s/ Bruce H. Wehlau --------------------- Title: Senior Vice President NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION By --------------------- Title: THE FIRST NATIONAL BANK OF BOSTON By /s/ Mary M. Barcus --------------------- Title: FLEET BANK, as Agent By /s/ Peter C. Hall --------------------- Title: Vice President THE BANK OF NEW YORK, as Co-Agent By /s/ Howard F. Bascom, Jr. ------------------------- Title: Vice President EX-10.91 8 GUARANTEE AGREEMENT GUARANTEE AGREEMENT GUARANTEE AGREEMENT dated as of December 13, 1993 made by WESTERN PUBLISHING COMPANY, INC., a corporation duly organized and validly existing under the laws of Delaware (the "Guarantor"). Western Publishing Group, Inc., a Delaware corporation (the "Company"), certain banks and Fleet Bank, as agent for said banks (in such capacity, together with its successors in such capacity, the "Agent") and The Bank of New York, as co-agent for the Banks (the "Co-Agent") are parties to a Credit Agreement dated as of November 12, 1992, as heretofore amended (as so amended and in effect from time to time, the "Credit Agreement"), which provides, subject to the terms and conditions thereof, for extensions of credit (by making of loans and issuing letters of credit) to be made by said banks to the Company in an aggregate principal or face amount not exceeding $200,000,000. In addition, the Company has issued $150,000,000 in outstanding principal amount of its 7.65% Debentures Due 2002 (the "Debentures") under an Indenture (the "Indenture") dated as of September 15, 1992 between the Company and The Bank of New York, as trustee. The Company, the Banks, the Agent and the Co-Agent are entering into Amendment No. 2, dated as of even date herewith, to the Credit Agreement. As a condition to the effectiveness of said Amendment No. 2, the Guarantor is required to enter into this Agreement. Accordingly, the parties hereto agree as follows: Section 1. Definitions. Terms defined in the Credit Agreement or in the Indenture are used herein as defined therein. Section 2. The Guarantee. 2.01 The Guarantee. Subject to the limitation set forth in Section 2.07 hereof, the Guarantor hereby guarantees to each Bank and the Agent and their respective successors and assigns (to the extent permitted by the Credit Agreement) the prompt payment in full as and when due (whether at stated maturity, by acceleration or otherwise) of the principal of and interest on the Loans made by the Banks to, and the Note(s) held by each Bank of, the Company and all other amounts from time to time owing to the Banks or the Agent by the Company under the Credit Agreement and under the Notes and all Reimbursement Obligations, and interest thereon, in each case strictly in accordance with the terms thereof. The obligations of the Company guaranteed pursuant to the immediately preceding sentence are hereinafter collectively called the "Guaranteed Obligations". The Guarantor hereby further agrees that if the Company shall fail to pay in full when due (whether at stated maturity, by acceleration or otherwise) any of the Guaranteed Obligations, the Guarantor will promptly pay the same, promptly upon demand by the Agent, and that in the case of any extension of time of payment or renewal of any of the Guaranteed Obligations, the same will be promptly paid in full when due (whether at extended maturity, by acceleration or otherwise) in accordance with the terms of such extension or renewal. 2.02 Obligations Unconditional. Subject to the limitation set forth in Section 2.07 hereof, the obligations of the Guarantor under Section 2.01 hereof are absolute and unconditional irrespective of the value, genuineness, validity, regularity or enforceability of the Credit Agreement, the Notes or any other agreement or instrument evidencing any of the Guaranteed Obligations, or any substitution, release or exchange of any other guarantee of or security for any of the Guaranteed Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it heing the intent of this Section 2.02 that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances. Without limiting the generality of the foregoing, it is agreed that the occurrence of any one or more of the following shall not affect the liability of the Guarantor hereunder: (i) at any time or from time to time, without notice to the Guarantor, the time for any performance of or compliance with any of the Guaranteed Obligations shall be extended, or such performance or compliance shall be waived; (ii) the maturity of any of the Guaranteed Obligations shall be accelerated, or any of the Guaranteed Obligations shall be modified, supplemented or amended in any respect, or any right under the Credit Agreement or the Notes or any other agreement or instrument referred to herein or therein shall be waived or any other guarantee of any of the Guaranteed Obligations or any security therefor shall be released or exchanged in whole or in part or otherwise dealt with; or (iii) any lien or security interest granted to, or in favor of, the Agent or any Bank or Banks as security for any of the Guaranteed Obligations shall fail to be perfected. The Guarantor hereby expressly waives diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Agent or any Bank exhaust any right, power or remedy or proceed against the Company under the Credit Agreement or the Notes or any other agreement or instrument referred to herein or therein, or against any other Person under any other guarantee of, or security for, any of the Guaranteed Obligations. 2.03 Reinstatement. The obligations of the Guarantor under this Section 2 shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of the Company in respect of the Guaranteed Obligations is rescinded or must be otherwise restored by any holder of any of the Guaranteed Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise. 2.04 Subrogation. The Guarantor hereby agrees that until the payment and satisfaction in full of all Guaranteed Obligations and the expiration or termination of the Commitments and all Letter of Credit Liabilities of the Banks under the Credit Agreement it shall not exercise any right or remedy arising by reason of any performance by it of its guarantee in Section 2.01 hereof, whether by subrogation or otherwise, against the Company or any other guarantor of any of the Guaranteed Obligations or any security for any of the Guaranteed Obligations. 2.05 Remedies. The Guarantor agrees that, as between the Guarantor and the holders of the Guaranteed Obligations, the obligations of the Company under the Credit Agreement and the Notes may be declared to be forthwith due and payable as provided in Section 9 of the Credit Agreement (and shall be deemed to have become automatically due and payable in the circumstances expressly provided for in said Section 9), for purposes of Section 2.01 hereof notwithstanding any stay, injunction or other prohibition preventing such declaration (or such obligations from becoming automatically due and payable) as against the Company and that, in the event of such declaration (or such obligations being deemed to have become automatically due and payable), such obligations (whether or not due and payable by the Company) shall forthwith become due and payable by the Guarantor for purposes of said Section 2.01. 2.06 Continuing Guarantee. The guarantee in this Section 2 is a continuing guarantee, and shall apply to all Guaranteed Obligations whenever arising. 2.07 Limitation on Guarantee. Notwithstanding the foregoing provisions of this Section 2, the aggregate amount which the Guarantor may be required to pay under Section 2.01 hereof in respect of the Guaranteed Obligations shall not exceed an amount equal to 10% of the Company`s Consolidated Net Tangible Assets (as defined in the Indenture) at the time of demand for payment hereunder. Section 3. Representations and Warranties. The Guarantor represents and warrants to the Banks and the Agent that: 3.01 Corporate Existence. Each of the Guarantor and its Subsidiaries: (a) is a corporation duly organized and validly existing under the laws of the jurisdiction of its incorporation; (b) has all requisite corporate power, and has all material governmental licenses, authorizations, consents and approvals necessary to own its assets and carry on its business as now being or as proposed to be conducted; and (c) is qualified to do business in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary and where failure so to qualify would have a material adverse effect on the consolidated financial condition, operations or business taken as a whole of the Guarantor and its Consolidated Subsidiaries. 3.02 No Breach. None of the execution and delivery of this Agreement, the consummation of the transactions herein contemplated or compliance with the terms and provisions hereof will conflict with or result in a breach of, or require any consent under, the charter or by-laws of the Guarantor, or any applicable law or regulation, or any order, writ, injunction or decree of any court or governmental authority or agency, or any material agreement or instrument to which the Guarantor or any of its Subsidiaries is a party or by which any of them is bound or to which any of them is subject, or constitute a default under any such agreement or instrument. 3.03 Corporate Action. The Guarantor has all necessary corporate power and authority to execute, deliver and perform its obligations under this Agreement; the execution, delivery and performance by the Guarantor of this Agreement have been duly authorized by all necessary corporate action on its part; and this Agreement has been duly and validly executed and delivered by the Guarantor and constitutes its legal, valid and binding obligation, enforceable in accordance with its terms, except as such enforceability may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or similar laws of general applicability affecting the enforcement of creditors' rights and (b) the application of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 3.04 Approvals. No authorizations, approvals or consents of, and no filings or registrations with, any governmental or regulatory authority or agency are necessary for the execution, delivery or performance by the Guarantor of this Agreement or for the validity or enforceability hereof. Section 4. Miscellaneous. 4.01 No Waiver. No failure on the part of the Agent or any of its agents to exercise, and no course of dealing with respect to, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by the Agent or any of its agents of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies herein are cumulative and are not exclusive of any remedies provided by law. 4.02 Governing Law. This Agreement shall be governed by, and construed in accordance with, the law of the State of New York, without reference to its principles of conflicts of law. 4.03 Waivers, Etc. The terms of this Agreement may be waived, altered or amended only by an instrument in writing duly executed by the Guarantor and the Agent (with the consent of the Banks as specified in the Credit Agreement). Any such amendment or waiver shall be binding upon each holder of any of the Guaranteed Obligations and the Guarantor. 4.04 Successors and Assigns. This Agreement shall he binding upon and inure to the benefit of the respective successors and assigns of the Guarantor and the holders of the Guaranteed Obligations (to the extent permitted by the Credit Agreement). 4.05 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument. 4.06 Severability. If any provision hereof is invalid and unenforceable in any jurisdiction, then, to the fullest extent permitted by law, (i) the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in order to carry out the intentions of the parties hereto as nearly as may be possible and (ii) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction. IN WITNESS WHEREOF, the Guarantor has caused this Agreement to be duly executed as of the day and year first above written. WESTERN PUBLISHING COMPANY, INC. By /s/ Stuart Turner --------------------- Title: Executive Vice President EX-23.1 9 INDEPENDENT AUDITORS' CONSENT Exhibit 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference of our report dated May 13, 1994, included in the Annual Report on Form 10-K of Western Publishing Group, Inc. for the fiscal year ended January 29, 1994, in Registration Statements on Form S-8 (File Nos. 33-18430, 33-18692, 33-18693 and 33-28019) and on Forms S-3 (File Nos. 33-36582 and 33-43214). We further consent to the incorporation by reference of our reports dated April 15, 1994, relating to Penn Corporation Comprehensive Security Program, Golden Comprehensive Security Program and Golden Retirement Savings Program, appearing as Exhibits to the Annual Report on Form 10-K of Western Publishing Group, Inc., for the fiscal year ended January 29, 1994 in Registration Statements on Form S-8, as follows: FILE NO. REPORT ON AUDIT OF FINANCIAL STATEMENTS 33-18430 Penn Corporation Comprehensive Security Program 33-18692 Golden Comprehensive Security Program 33-18693 Golden Retirement Savings Program DELOITTE & TOUCHE Milwaukee, Wisconsin May 13, 1994 EX-99.1 10 GOLDEN COMPREHENSIVE SECURITY PROGRAM GOLDEN COMPREHENSIVE SECURITY PROGRAM Financial Statements for the Years Ended December 31, 1993 and 1992 and Independent Auditors' Report GOLDEN COMPREHENSIVE SECURITY PROGRAM TABLE OF CONTENTS - - -------------------------------------------------------------------------------- Page INDEPENDENT AUDITORS' REPORT 1 FINANCIAL STATEMENTS: Statements of Net Assets Available for Benefits-- December 31, 1993 and 1992 2 Statements of Changes in Net Assets Available for Benefits-- Years ended December 31, 1993 and 1992 3 Notes to Financial Statements 4-11 ALL FUNDS OF THE PLAN ARE HELD IN A MASTER TRUST. AS A RESULT, SUPPLEMENTAL SCHEDULES ARE OMITTED BECAUSE THEY ARE INAPPLICABLE UNDER THE DEPARTMENT OF LABOR'S RULES AND REGULATIONS. INDEPENDENT AUDITORS' REPORT Benefit Plans Administration Committee Western Publishing Company, Inc.: We have audited the accompanying statements of net assets available for benefits of Golden Comprehensive Security Program as of December 31, 1993 and 1992, and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the net assets available for benefits of the Plan at December 31, 1993 and 1992, and the changes in net assets available for benefits for the years then ended in conformity with generally accepted accounting principles. DELOITTE & TOUCHE Milwaukee, Wisconsin April 15, 1994 GOLDEN COMPREHENSIVE SECURITY PROGRAM STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS DECEMBER 31, 1993 AND 1992 - - -------------------------------------------------------------------------------- 1993 1992 ASSETS: Investments in Western Publishing Group, Inc. Master Retirement Trust pooled investment accounts: Investment funds--Note 5 $24,924,230 $11,700,925 Guaranteed investment contracts--Note 6 33,635,413 38,139,286 Parent company stock--Note 7 2,473,163 1,557,734 Loans receivable from participants 2,229,615 2,191,808 Accrued income receivable 151,273 225,265 Receivable from investments sold 18,555 4,480,000 Contributions receivable: Employers 1,507,925 1,321,917 Participants 240,682 231,585 ----------- ----------- Total assets 65,180,856 59,848,520 ----------- ----------- LIABILITIES: Payable to: Participants 356,160 Third parties 33,114 58,631 ----------- ----------- Total liabilities 33,114 414,791 ----------- ----------- NET ASSETS AVAILABLE FOR BENEFITS $65,147,742 $59,433,729 ----------- ----------- ----------- ----------- See notes to financial statements. GOLDEN COMPREHENSIVE SECURITY PROGRAM STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS YEARS ENDED DECEMBER 31, 1993 AND 1992 - - -------------------------------------------------------------------------------- 1993 1992 Investment income--Increase in equity of allocable portion of Western Publishing Group, Inc. Master Retirement Trust pooled investment accounts--Note 9: Interest $ 3,332,445 $ 3,637,208 Dividends 674,687 433,087 Appreciation on pooled investment accounts 106,692 898,654 Contributions--Note 8: Employers 2,831,222 2,477,377 Participants 3,420,620 2,954,153 ----------- ----------- Total additions 10,365,666 10,400,479 ----------- ----------- Payments to or on behalf of participants 4,497,840 5,113,582 Administrative expenses 153,813 170,049 ----------- ----------- Total deductions 4,651,653 5,283,631 ----------- ----------- Net increase 5,714,013 5,116,848 Net assets available for benefits: Beginning of year 59,433,729 54,316,881 ----------- ----------- End of year $65,147,742 $59,433,729 ----------- ----------- ----------- ----------- See notes to financial statements. GOLDEN COMPREHENSIVE SECURITY PROGRAM NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1993 and 1992 - - -------------------------------------------------------------------------------- 1. THE PLAN Golden Comprehensive Security Program (the "Plan") is a contributory defined contribution plan offered to all eligible employees of Western Publishing Company, Inc. (the "Company") and effective April 23, 1986, to all eligible employees of Western Publishing Group, Inc., the Company's parent, and eligible employees of any United States subsidiary of the Company or the parent which adopts the Plan, with the consent of the Company, who meet certain eligibility requirements. The Plan became effective on November 1, 1984 and conforms with the requirements of the Employee Retirement Income Security Act of 1974 ("ERISA"). Beginning November 1, 1984, an employee becomes a participant of the Plan on specified quarterly entry dates after meeting the following requirements: a. Is a salaried employee or a member of a group or class of employees to which the Plan has been extended by the Board of Directors of the Company; and b. Is not a member of a collective bargaining unit of employees represented by a collective bargaining representative, except to the extent that an agreement between the participating company ("employer") and such representative extends the Plan to such unit of employees; and c. Has completed six months of continuous employment (as defined in the Plan). Participants, by means of authorized payroll deductions, may elect to make contributions to the Plan in amounts based on a percentage of compensation, as defined in the Plan. A participating employee's total contribution ("income deferral" and "participant") is limited to 16% of compensation. Income deferral contributions were limited to no more than $8,994 for 1993 and $8,728 for 1992 in accordance with the Internal Revenue Code ("Code"). Each participating employer annually contributes to the Plan an amount equal to 3% of the aggregate compensation of participants entitled to share in the contribution for that year. In addition, the employers contribute for a participant an amount equal to 60% of the first 6% of "income deferral contributions" made by, or on behalf of the participant. Employer contributions are reduced by any forfeitures to be credited for the applicable period. Forfeitures for 1993 and 1992 totalled $54,717 and $45,465, respectively. The employers' 3% contribution is always invested in the Interest Accumulation Fund. Amounts credited to a participant's account are designated as "Plan Credits." Contributions made by, or on behalf of, a participant are invested (in proportions designated by the participant) in one or more of the following funds: GOLDEN COMPREHENSIVE SECURITY PROGRAM NOTES TO FINANCIAL STATEMENTS (CONTINUED) - - -------------------------------------------------------------------------------- Number of Participants Invested in Fund at Fund Type December 31, 1993 Conservative Equity Fund 547 Aggressive Equity Fund 508 Interest Accumulation Fund 1,537 Parent Company Stock Fund 398 Interest, dividends and net realized and unrealized gains and losses on Plan investments are allocated to participants' accounts monthly based on their proportionate share of the applicable fund's assets. The employers' 3% contribution for each plan year is allocated to the participants' accounts pro rata based on the eligible compensation paid to the participant by the employer in that year. If a participant's employment terminates for any reason other than retirement, disability or death, the participant is entitled to receive Plan Credits resulting from employer contributions which are then vested according to the following schedule: Vested Percentage Years of Continuous of Employer Employment Contribution Account Less than 1 0% 1 but less than 2 25% 2 but less than 3 50% 3 but less than 4 75% 4 or more 100% Balances in a participant's income deferral contribution account, participant contribution account and prior plan account are fully vested at all times. In the event of a participant's retirement, disability or death, Plan Credits not previously vested, become fully vested and are not subject to forfeiture, and all Plan Credits become immediately distributable in the manner described below. When a participant's employment terminates for any reason, all vested Plan Credits of the participant may be distributed to the participant or, in the event of death, to the beneficiary by one or both of the following methods: GOLDEN COMPREHENSIVE SECURITY PROGRAM NOTES TO FINANCIAL STATEMENTS (CONTINUED) - - -------------------------------------------------------------------------------- a. By a lump-sum distribution of any or all Plan Credits. b. By applying the cash equivalent of any or all such Plan Credits towards the purchase of an annuity contract, subject to certain requirements as defined in the Plan. A participant may elect to defer distribution of vested Plan Credits until age 70-1/2. No more often than once per quarter, a participant may elect to withdraw all or any portion of the net credit balance in the participant's contribution account, prior plan account or rollover account. Participants may borrow, up to certain limits, against their account balance. The loan must be repaid over a period not to exceed 60 months unless the proceeds were used for the purchase of a primary residence in which case it must be repaid within 240 months (360 months for loans made prior to October 18, 1989). Generally, loan repayments are made by payroll deduction. 2. ACCOUNTING PRINCIPLES The Plan participates in investment accounts under the Western Publishing Group, Inc. Master Retirement Trust (the "Master Trust"). Investment income, realized gains and losses on investment transactions, expenses and investment appreciation or depreciation on assets held in the Master Trust are allocated monthly to each fund under the Plan based on its proportionate share of Master Trust assets. Plan participation in the Master Trust is adjusted monthly for withdrawals for benefit payments to Plan participants and for contributions made to the Plan. Investments in the Master Trust pooled investment accounts and parent company stock are valued at fair value. Investments in guaranteed investment contracts are valued at contract value. Contract value represents contributions made under the contract plus interest at the contract rate, less funds used to purchase annuities and pay administrative expenses. Plan expenses, such as trustee and accounting fees, are charged to the Plan. In 1993, the Plan changed its method of accounting for benefits payable to comply with the 1993 AICPA Audit and Accounting Guide, Audits of Employee Benefit Plans. The new guidance requires that benefits payable to persons who have withdrawn from participation in a defined contribution plan be disclosed in the footnotes to the financial statements rather than be recorded as a liability of the Plan. As of December 31, 1993, net assets available for benefits included benefits of $726,457 due to participants who have withdrawn from participation in the Plan. GOLDEN COMPREHENSIVE SECURITY PROGRAM NOTES TO FINANCIAL STATEMENTS (CONTINUED) - - -------------------------------------------------------------------------------- 3. INTERNAL REVENUE SERVICE STATUS The Internal Revenue Service has determined and informed the Company by a letter dated May 10, 1985, that the Plan is qualified and the trust established under the Plan is tax-exempt, under the appropriate sections of the Code. The Plan has been amended since receiving the determination letter. However, the plan administrator believes that the plan is currently designed and being operated in compliance with the applicable requirements of the Code. Therefore, the plan administrator believes that the Plan was qualified and the related trust was tax-exempt as of the financial statement date. 4. TERMINATION OF THE PLAN In the event that the Plan is terminated at some future time, each participant's account will become fully vested and will be distributed in accordance with provisions of the Plan. 5. INVESTMENTS IN MASTER TRUST POOLED INVESTMENT FUNDS Investments in Master Trust pooled investment funds at December 31, 1993 and 1992 were as follows: December 31, 1993 --------------------------- Units Fair Value Conservative Equity Fund (Evergreen Total Return Fund) 261,867 $ 5,137,839 Aggressive Equity Fund (Evergreen Fund) 303,284 4,306,646 Bankers Trust Pyramid Directed Account Cash Fund 15,479,745 15,479,745 ----------- $24,924,230 ----------- ----------- December 31, 1992 --------------------------- Units Fair Value Conservative Equity Fund (Evergreen Total Return Fund) 189,351 $ 3,679,092 Aggressive Equity Fund (Evergreen Fund) 260,156 3,649,995 Bankers Trust Pyramid Directed Account Cash Fund 4,371,838 4,371,838 ----------- $11,700,925 ----------- ----------- GOLDEN COMPREHENSIVE SECURITY PROGRAM NOTES TO FINANCIAL STATEMENTS (CONTINUED) - - -------------------------------------------------------------------------------- 6. GUARANTEED INVESTMENT CONTRACTS Investments in guaranteed investment contracts at December 31, 1993 and 1992 were as follows: 1993 1992 ----------- ----------- Massachusetts Mutual Life Insurance Company Contract #GAC-10121-1 $10,155,206 Principal Mutual Life Insurance Company Contract #GA4-6187-1 $ 8,154,315 CNA Insurance Company Contract #12732-006 7,315,142 7,892,356 Allstate Life Insurance Company Group Annuity Contract #GA-5343-1 7,217,607 8,707,741 New York Life Insurance Company Contract #GIC GA-06701-2-1 6,864,703 New York Life Insurance Company Contract #GA-06701-1 4,083,646 Metropolitan Life Insurance Company Contract #12177-069 5,915,113 Principal Mutual Life Insurance Company Contract #11948-1 5,468,870 ----------- ----------- $33,635,413 $38,139,286 ----------- ----------- ----------- ----------- 7. INVESTMENTS IN PARENT COMPANY STOCK Investments in parent company stock at December 31, 1993 and 1992 were as follows: Fair Shares Value Western Publishing Group, Inc. common stock: December 31, 1993 128,476 $2,473,163 ---------- ---------- December 31, 1992 74,622 $1,557,734 ---------- ---------- GOLDEN COMPREHENSIVE SECURITY PROGRAM NOTES TO FINANCIAL STATEMENTS (CONTINUED) - - -------------------------------------------------------------------------------- Transactions in the common stock of Western Publishing Group, Inc. were as follows: 1993 1992 --------------- --------------- Shares Amount Shares Amount Aggregate purchases 57,960 $923,155 21,739 $392,118 -------- -------- -------- -------- Aggregate sales and distributions to participants 4,106 $60,154 65,095 $895,306 -------- -------- -------- -------- 8. CONTRIBUTIONS Contributions from the Company, Western Publishing Group, Inc. and their respective participants were as follows: 1993 ---------------------------------- Employer Employee Total Western Publishing Company, Inc. $2,743,409 $3,324,537 $6,067,946 Western Publishing Group, Inc. 87,813 96,083 183,896 ---------- ---------- ---------- $2,831,222 $3,420,620 $6,251,842 ---------- ---------- ---------- ---------- ---------- ---------- 1992 ----------------------------------- Employer Employee Total Western Publishing Company, Inc. $2,409,245 $2,884,234 $5,293,479 Western Publishing Group, Inc. 68,132 69,919 138,051 ---------- ---------- ---------- $2,477,377 $2,954,153 $5,431,530 ---------- ---------- ---------- ---------- ---------- ---------- GOLDEN COMPREHENSIVE SECURITY PROGRAM NOTES TO FINANCIAL STATEMENTS (CONTINUED) - - -------------------------------------------------------------------------------- 9. CHANGES IN NET ASSETS BY FUND: Plan participants have the ability to self-direct employee and certain employer contributions into any of the funds described in Note 1. Net assets at December 31, 1993 and the changes in net assets available for benefits for the year then ended were as follows:
Interest Conservative Aggressive Parent Company Accumulation Equity Fund Equity Fund Stock Fund Fund Loan Fund Total Investment income: Interest $ 60,284 $ 344 $ 1,772 $ 3,096,813 $ 173,232 $ 3,332,445 Dividends 472,265 202,422 674,687 Appreciation (depreciation) on pooled investment accounts (4,223) 53,369 57,546 106,692 ---------- ---------- ---------- ----------- ---------- ----------- Total investment income 528,326 256,135 59,318 3,096,813 173,232 4,113,824 ---------- ---------- ---------- ----------- ---------- ----------- Contributions: Employers 202,714 224,299 140,944 2,263,265 2,831,222 Participants 514,548 559,459 329,655 2,016,958 3,420,620 Transfers of assets from (to) other funds 559,625 (692,763) (90,793) 301,317 (77,386) -- ---------- ---------- ---------- ----------- ---------- ----------- Total additions 1,805,213 347,130 439,124 7,678,353 95,846 10,365,666 ---------- ---------- ---------- ----------- ---------- ----------- Payments to or on behalf of participants 182,068 274,059 43,315 3,940,359 58,039 4,497,840 Administrative expenses 7,757 7,829 2,497 135,730 153,813 ---------- ---------- ---------- ----------- ---------- ----------- Total deduction 189,825 281,888 45,812 4,076,089 58,039 4,651,653 ---------- ---------- ---------- ----------- ---------- ----------- Net increase 1,615,388 65,242 393,312 3,602,264 37,807 5,714,013 ---------- ---------- ---------- ----------- ---------- ----------- Net assets available for benefits: Beginning of year 3,969,533 4,003,820 1,517,658 47,750,910 2,191,808 59,433,729 ---------- ---------- ---------- ----------- ---------- ----------- End of year $5,584,921 $4,069,062 $1,910,970 $51,353,174 $2,229,615 $65,147,742 ---------- ---------- ---------- ----------- ---------- ----------- ---------- ---------- ---------- ----------- ---------- -----------
GOLDEN COMPREHENSIVE SECURITY PROGRAM NOTES TO FINANCIAL STATEMENTS (CONTINUED) - - -------------------------------------------------------------------------------- Net assets at December 31, 1992 and the changes in net assets available for benefits for the year then ended were as follows:
Interest Conservative Aggressive Parent Company Accumulation Equity Fund Equity Fund Stock Fund Fund Loan Fund Total Investment income: Interest $ 264 $ 256 $ 900 $ 3,458,278 $ 177,510 $ 3,637,208 Dividends 263,750 169,337 433,087 Appreciation on pooled investment accounts 69,248 100,712 728,694 898,654 ---------- ---------- ---------- ----------- ---------- ----------- Total investment income 333,262 270,305 729,594 3,458,278 177,510 4,968,949 Contributions: Employers 148,027 176,572 95,731 2,057,047 2,477,377 Participants 347,484 415,701 226,311 1,964,657 2,954,153 Transfers of assets from (to) other funds 616,118 592,133 (887,108) (323,585) 2,442 ---------- ---------- ---------- ----------- ---------- ----------- Total addition 1,444,891 1,454,711 164,528 7,156,397 179,952 10,400,479 ---------- ---------- ---------- ----------- ---------- ----------- Payments to or on behalf of participants 68,711 166,998 50,326 4,751,142 76,405 5,113,582 Administrative expenses 7,293 8,101 4,742 149,913 170,049 ---------- ---------- ---------- ----------- ---------- ----------- Total deduction 76,004 175,099 55,068 4,901,055 76,405 5,283,631 ---------- ---------- ---------- ----------- ---------- ----------- Net increase 1,368,887 1,279,612 109,460 2,255,342 103,547 5,116,848 ---------- ---------- ---------- ----------- ---------- ----------- Net assets available for benefits: Beginning of year 2,600,646 2,724,208 1,408,198 45,495,568 2,088,261 54,316,881 ---------- ---------- ---------- ----------- ---------- ----------- End of year $3,969,533 $4,003,820 $1,517,658 $47,750,910 $2,191,808 $59,433,729 ---------- ---------- ---------- ----------- ---------- ----------- ---------- ---------- ---------- ----------- ---------- -----------
EX-99.2 11 GOLDEN RETIREMENT SAVINGS PROGRAM GOLDEN RETIREMENT SAVINGS PROGRAM Financial Statements for the Years Ended December 31, 1993 and 1992 and Independent Auditors' Report GOLDEN RETIREMENT SAVINGS PROGRAM TABLE OF CONTENTS - - ----------------------------------------------------------------------------- Page INDEPENDENT AUDITORS' REPORT 1 FINANCIAL STATEMENTS: Statements of Net Assets Available for Benefits - December 31, 1993 and 1992 2 Statements of Changes in Net Assets Available for Benefits - Years ended December 31, 1993 and 1992 3 Notes to Financial Statements 4-11 ALL FUNDS OF THE PLAN ARE HELD IN A MASTER TRUST. AS A RESULT, SUPPLEMENTAL SCHEDULES ARE OMITTED BECAUSE THEY ARE INAPPLICABLE UNDER THE DEPARTMENT OF LABOR'S RULES AND REGULATIONS. INDEPENDENT AUDITORS' REPORT Benefit Plans Administration Committee Western Publishing Company, Inc.: We have audited the accompanying statements of net assets available for benefits of Golden Retirement Savings Program as of December 31, 1993 and 1992, and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the net assets available for benefits of the Plan at December 31, 1993 and 1992, and the changes in net assets available for benefits for the years then ended in conformity with generally accepted accounting principles. DELOITTE & TOUCHE Milwaukee, Wisconsin April 15, 1994 GOLDEN RETIREMENT SAVINGS PROGRAM STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS DECEMBER 31, 1993 AND 1992 - - ------------------------------------------------------------------------------ 1993 1992 ASSETS: Investments in Western Publishing Group, Inc. Master Retirement Trust pooled investment accounts: Investment funds - Note 5 $ 8,574,837 $ 4,163,032 Guaranteed investment contracts - Note 6 17,737,713 17,506,240 Parent company stock - Note 7 963,135 605,521 Loans receivable from participants 1,425,192 1,342,578 Accrued income receivable 79,092 101,579 Receivable from investments sold 2,174,432 Contributions receivable: Western Publishing Company, Inc. 70,547 73,043 Participants 220,260 208,203 ----------- ----------- Total assets 29,070,776 26,174,628 LIABILITIES: Payable to: Participants 375,866 Third parties 28,689 45,203 ----------- ----------- Total liabilities 28,689 421,069 ----------- ----------- NET ASSETS AVAILABLE FOR BENEFITS $29,042,087 $25,753,559 ----------- ----------- ----------- ----------- See notes to financial statements. GOLDEN RETIREMENT SAVINGS PROGRAM STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS YEARS ENDED DECEMBER 31, 1993 AND 1992 - - ------------------------------------------------------------------------------- 1993 1992 Investment income - Increase in equity of allocable portion of Western Publishing Group, Inc. Master Retirement Trust pooled investment accounts - Note 8: Interest $ 1,554,415 $ 1,642,859 Dividends 181,828 112,332 Appreciation on pooled investment accounts 32,483 231,805 Contributions: Western Publishing Company, Inc. 843,875 840,170 Participants 2,366,834 2,347,383 ----------- ----------- Total additions 4,979,435 5,174,549 Payments to or on behalf of participants 1,584,775 1,660,923 Administrative expenses 106,132 111,340 ----------- ----------- Total deductions 1,690,907 1,772,263 ----------- ----------- Net increase 3,288,528 3,402,286 Net assets available for benefits: Beginning of year 25,753,559 22,351,273 ----------- ----------- End of year $29,042,087 $25,753,559 ----------- ----------- ----------- ----------- See notes to financial statements. GOLDEN RETIREMENT SAVINGS PROGRAM NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1993 and 1992 - - ------------------------------------------------------------------------------ 1. THE PLAN Golden Retirement Savings Program (the "Plan") is a contributory defined contribution plan offered to all eligible employees of Western Publishing Company, Inc. (the "Company") and eligible employees of any United States subsidiary of the Company which adopts the Plan, with the consent of the Company, who meet certain eligibility requirements. The Plan became effective on July 1, 1987 and conforms with the requirements of the Employee Retirement Income Security Act of 1974 ("ERISA"). An employee becomes a participant of the Plan on specified quarterly entry dates after meeting the following requirements: a. Is a member of a group of employees to which the Plan has been and continues to be extended by the participating company ("employer"), either unilaterally or through collective bargaining; and b. Has completed six months of continuous employment (as defined in the Plan). Participants, by means of authorized payroll deductions, may elect to make contributions to the Plan in amounts based on a percentage of compensation, as defined in the Plan. A participating employee's total contribution ("income deferral" and "participant") is limited to 16% of compensation. Income deferral contributions were limited to no more than $8,994 in 1993 and $8,728 for 1992 in accordance with the Internal Revenue Code ("Code"). Each participating employer contributes to the Plan an amount equal to 50% of the first 6% of income deferral contributions made by or on behalf of the participant. Employer contributions are reduced by any forfeitures to be credited for the applicable period. Forfeitures for 1993 and 1992 totalled $10,329 and $3,539, respectively. Amounts credited to a participant's account are designated as "Plan Credits." Contributions made by, or on behalf of, a participant are invested (in proportions designated by the participant) in one or more of the following funds: GOLDEN RETIREMENT SAVINGS PROGRAM NOTES TO FINANCIAL STATEMENTS (CONTINUED) - - ------------------------------------------------------------------------------ Number of Participants Invested in Fund at Fund Type December 31, 1993 Conservative Equity Fund 324 Aggressive Equity Fund 356 Interest Accumulation Fund 1,411 Parent Company Stock Fund 366 Interest, dividends and net realized and unrealized gains and losses on Plan investments are allocated to participants' accounts monthly based on their proportionate share of the applicable fund's assets. If a participant's employment terminates for any reason other than retirement, disability or death, the participant is entitled to receive Plan Credits resulting from employer contributions which are then vested according to the following schedule: Vested Percentage Years of Continuous of Employer Employment Contribution Account Less than 1 0% 1 but less than 2 25% 2 but less than 3 50% 3 but less than 4 75% 4 or more 100% Balances in a participant's income deferral contribution account, participant contribution account and prior plan account are fully vested at all times. In the event of a participant's retirement, disability or death, Plan Credits not previously vested, become fully vested and are not subject to forfeiture, and all Plan Credits become immediately distributable in the manner described below. When a participant's employment terminates for any reason, all vested Plan Credits of the participant will be distributed to the participant or, in the event of death, to the beneficiary by one or both of the following methods: GOLDEN RETIREMENT SAVINGS PROGRAM NOTES TO FINANCIAL STATEMENTS (CONTINUED) - - ------------------------------------------------------------------------------ a. By a lump-sum distribution of any or all Plan Credits. b. By applying the cash equivalent of any or all such Plan Credits towards the purchase of an annuity contract, subject to certain requirements as defined in the Plan. A participant may elect to defer distribution of vested Plan Credits until age 70-1/2. No more often than once per quarter, a participant may elect to withdraw all or any portion of the net credit balance in the participant's contribution account, prior plan account or rollover account. In addition, effective July 1, 1988 participants may borrow, up to certain limits, against their account balance. The loan must be repaid over a period not to exceed 60 months unless the proceeds were used for the purchase of a primary residence in which case it must be repaid within 240 months (360 months for loans made prior to October 18, 1989). Generally, loan repayments are made by payroll deduction. 2. ACCOUNTING PRINCIPLES The Plan participates in investment accounts under the Western Publishing Group, Inc. Master Retirement Trust (the "Master Trust"). Investment income, realized gains and losses on investment transactions, expenses and investment appreciation or depreciation on assets held in the Master Trust are allocated monthly to each fund under the Plan based on its proportionate share of Master Trust assets. Plan participation in the Master Trust is adjusted monthly for withdrawals for benefit payments to Plan participants and for contributions made to the Plan. Investments in the Master Trust pooled investment accounts and parent company stock are valued at fair value. Investments in guaranteed investment contracts are valued at contract value. Contract value represents contributions made under the contract plus interest at the contract rate, less funds used to purchase annuities and pay administrative expenses. Plan expenses, such as trustee and accounting fees, are charged to the Plan. In 1993, the Plan changed its method of accounting for benefits payable to comply with the 1993 AICPA Audit and Accounting Guide, Audits of Employee Benefit Plans. The new guidance requires that benefits payable to persons who have withdrawn from participation in a defined contribution plan be disclosed in the footnotes to the financial statements rather than be recorded as a liability of the Plan. As of December 31, 1993, net assets available for benefits included benefits of $160,070 due to participants who have withdrawn from participation in the Plan. GOLDEN RETIREMENT SAVINGS PROGRAM NOTES TO FINANCIAL STATEMENTS (CONTINUED) - - ------------------------------------------------------------------------------ 3. INTERNAL REVENUE SERVICE STATUS The Internal Revenue Service has determined and informed the Company by a letter dated July 27, 1989, that the Plan is qualified and the trust established under the Plan is tax-exempt, under the appropriate sections of the Code. The plan has been amended since receiving the determination letter. However, the plan administrator believes that the plan is currently designed and being operated in compliance with the applicable requirements of the Code. Therefore, the plan administrator believes that the Plan was qualified and the related trust was tax-exempt as of the financial statement date. 4. TERMINATION OF THE PLAN In the event that the Plan is terminated at some future time, each participant's account will become fully vested and will be distributed in accordance with provisions of the Plan. 5. INVESTMENTS IN MASTER TRUST POOLED INVESTMENT FUNDS Investments in Master Trust pooled investment funds at December 31, 1993 and 1992 were as follows: December 31, 1993 ------------------------- Units Fair Value Conservative Equity Fund (Evergreen Total Return Fund) 68,486 $1,343,705 Aggresive Equity Fund (Evergreen Fund) 90,663 1,287,415 Bankers Trust Pyramid Directed Account Cash Fund 5,943,717 5,943,717 ---------- $8,574,837 ---------- ---------- December 31, 1992 ------------------------- Units Fair Value Conservative Equity Fund (Evergreen Total Return Fund) 44,524 $ 865,096 Aggresive Equity Fund (Evergreen Fund) 79,082 1,109,524 Bankers Trust Pyramid Directed Account Cash Fund 2,188,412 2,188,412 ---------- $4,163,032 ---------- ---------- GOLDEN RETIREMENT SAVINGS PROGRAM NOTES TO FINANCIAL STATEMENTS (CONTINUED) - - ------------------------------------------------------------------------------ 6. GUARANTEED INVESTMENT CONTRACTS Investments in guaranteed investment contracts at December 31, 1993 and 1992 were as follows:
1993 1992 Principal Mutual Life Insurance Company Contract #GA4-6187-2 $ 4,188,938 New York Life Insurance Company Contract #GIC-GA-06701-2-2 4,013,043 Allstate Life Insurance Company Group Annuity Contract #GA-5343-2 3,857,719 $ 4,652,259 Massachusetts Mutual Life Insurance Company Contract #GAC-10121-2 4,328,700 CNA Insurance Company Contract #12732-016 3,666,600 3,940,364 New York Life Insurance Company Contract #GA-06701-2 2,011,413 Principal Mutual Life Insurance Company Contract #11948-2 2,728,562 Metropolitan Life Insurance Company Contract #12177-169 1,856,355 ----------- ----------- $17,737,713 $17,506,240 ----------- ----------- ----------- -----------
7. INVESTMENTS IN PARENT COMPANY STOCK Investments in parent company stock at December 31, 1993 and 1992 were as follows: Fair Shares Value Western Publishing Group, Inc. common stock: December 31, 1993 50,033 $963,135 -------- -------- December 31, 1992 29,007 $605,521 -------- -------- GOLDEN RETIREMENT SAVINGS PLAN NOTES TO FINANCIAL STATEMENTS (CONTINUED) - - ------------------------------------------------------------------------------ Transactions in the common stock of Western Publishing Group, Inc. were as follows: 1993 1992 -------------------- ------------------- Shares Amount Shares Amount Aggregate purchases 23,096 $366,846 8,610 $155,959 -------- -------- Aggregate sales and distributions to participants 2,070 $ 34,220 6,438 $104,798 -------- -------- -------- -------- GOLDEN RETIREMENT SAVINGS PROGRAM NOTES TO FINANCIAL STATEMENTS (CONTINUED) - - ------------------------------------------------------------------------------ 8. Changes in Net Assets by Fund: Plan participants have the ability to self-direct employee and employer contributions into any of the funds described in Note 1. Net assets at December 31, 1993 and the changes in net assets available for benefits for the year then ended were as follows:
Interest Conservative Aggressive Parent Company Accumulation Equity Fund Equity Fund Stock Fund Fund Loan Fund Total Investment income: Interest $ 14,442 $ 98 $ 712 $ 1,437,019 $ 102,144 $ 1,554,415 Dividends 121,673 60,155 181,828 Appreciation (depreciation) on pooled investment accounts (7,868) 14,321 26,030 32,483 ---------- --------- -------- ----------- ---------- ----------- Total investment income 128,247 74,574 26,742 1,437,019 102,144 1,768,726 Contributions: Western Publishing Company, Inc. 62,292 61,821 50,787 668,975 843,875 Participants 170,581 180,852 141,856 1,873,545 2,366,834 Transfers of assets from (to) other funds 187,194 (94,329) 76,847 (167,048) (2,664) ---------- --------- -------- ----------- ---------- ----------- Total additions 548,314 222,918 296,232 3,812,491 99,480 4,979,435 ---------- --------- -------- ----------- ---------- ----------- Payments to or on behalf of participants 22,992 17,879 19,194 1,507,844 16,866 1,584,775 Administrative expenses 3,573 3,780 2,034 96,745 106,132 ---------- --------- -------- ----------- ---------- ----------- Total deductions 26,565 21,659 21,228 1,604,589 16,866 1,690,907 ---------- --------- -------- ----------- ---------- ----------- Net increase 521,749 201,259 275,004 2,207,902 82,614 3,288,528 Net assets available for benefits: Beginning of year 951,158 1,098,135 577,465 21,784,223 1,342,578 25,753,559 ---------- --------- -------- ----------- ---------- ----------- End of year $1,472,907 $1,299,394 $852,469 $23,992,125 $1,425,192 $29,042,087 ---------- --------- -------- ----------- ---------- ----------- ---------- --------- -------- ----------- ---------- -----------
GOLDEN RETIREMENT SAVINGS PROGRAM NOTES TO FINANCIAL STATEMENTS (CONTINUED) Net assets at December 31, 1992 and the changes in net assets available for benefits for the year then ended were as follows:
Interest Conservative Aggressive Parent Company Accumulation Equity Fund Equity Fund Stock Fund Fund Loan Fund Total Investment income: Interest $ 59 $ 76 $ 318 $ 1,557,754 $ 84,652 $ 1,642,859 Dividends 60,858 51,474 112,332 Appreciation on pooled investment accounts 17,167 30,242 184,396 231,805 -------- ---------- -------- ----------- ---------- ----------- Total investment income 78,084 81,792 184,714 1,557,754 84,652 1,986,996 Contributions: Western Publishing Company, Inc. 49,225 52,328 31,496 707,121 840,170 Participants 135,526 157,554 92,498 1,961,805 2,347,383 Transfers of assets from (to) other funds 142,703 (11,886) (99,236) (354,956) 323,375 -------- ---------- -------- ----------- ---------- ----------- Total additions 405,538 279,788 209,472 3,871,724 408,027 5,174,549 -------- ---------- -------- ----------- ---------- ----------- Payments to or on behalf of participants 11,291 12,689 11,971 1,605,053 19,919 1,660,923 Administrative expenses 3,123 3,743 2,323 102,151 111,340 -------- ---------- -------- ----------- ---------- ----------- Total deductions 14,414 16,432 14,294 1,707,204 19,919 1,772,263 -------- ---------- -------- ----------- ---------- ----------- Net increase 391,124 263,356 195,178 2,164,520 388,108 3,402,286 Net assets available for benefits: Beginning of year 560,034 834,779 382,287 19,619,703 954,470 22,351,273 -------- ---------- -------- ----------- ---------- ----------- End of year $951,158 $1,098,135 $577,465 $21,784,223 $1,342,578 $25,753,559 -------- ---------- -------- ----------- ---------- ----------- -------- ---------- -------- ----------- ---------- -----------
EX-99.3 12 PENN CORPORATION COMPREHENSIVE SECURITY PROGRAM PENN CORPORATION COMPREHENSIVE SECURITY PROGRAM Financial Statements for the Years Ended December 31, 1993 and 1992 and Independent Auditors' Report PENN CORPORATION COMPREHENSIVE SECURITY PROGRAM TABLE OF CONTENTS - - ------------------------------------------------------------------------------- Page INDEPENDENT AUDITORS' REPORT 1 FINANCIAL STATEMENTS: Statements of Net Assets Available for Benefits - December 31, 1993 and 1992 2 Statements of Changes in Net Assets Available for Benefits - Years Ended December 31, 1993 and 1992 3 Notes to Financial Statements 4-11 ALL FUNDS OF THE PLAN ARE HELD IN A MASTER TRUST. AS A RESULT, SUPPLEMENTAL SCHEDULES ARE OMITTED BECAUSE THEY ARE INAPPLICABLE UNDER THE DEPARTMENT OF LABOR'S RULES AND REGULATIONS. INDEPENDENT AUDITORS' REPORT Benefit Plans Administration Committee Penn Corporation: We have audited the accompanying statements of net assets available for benefits of Penn Corporation Comprehensive Security Program as of December 31, 1993 and 1992, and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the net assets available for benefits of the Plan at December 31, 1993 and 1992, and the changes in net assets available for benefits for the years then ended in conformity with generally accepted accounting principles. DELOITTE & TOUCHE Milwaukee, Wisconsin April 15, 1994 PENN CORPORATION COMPREHENSIVE SECURITY PROGRAM STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS DECEMBER 31, 1993 AND 1992 _______________________________________________________________________________ 1993 1992 ---------- ---------- ASSETS: Investments in Western Publishing Group, Inc. Master Retirement Trust pooled investment accounts: Investment funds - Note 5 $1,077,562 $ 485,035 Guaranteed investment contracts - Note 6 1,880,389 1,859,999 Parent company stock - Note 7 165,319 177,333 Loans receivable from participants 79,017 51,687 Accrued income receivable 8,604 10,837 Receivable from investments sold 280,000 Contributions receivable: Penn Corporation 383,865 332,016 Participants 46,968 40,306 ---------- ---------- Total assets 3,641,724 3,237,213 ---------- ---------- LIABILITIES: Payable to: Participants 40,656 Third parties 2,401 570 ---------- ---------- Total liabilities 2,401 41,226 ---------- ---------- NET ASSETS AVAILABLE FOR BENEFITS $3,639,323 $3,195,987 ---------- ---------- ---------- ---------- See notes to financial statements. PENN CORPORATION COMPREHENSIVE SECURITY PROGRAM STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS YEARS ENDED DECEMBER 31, 1993 AND 1992 - - ------------------------------------------------------------------------------- 1993 1992 ---------- ---------- Investment income - Increase in equity of allocable portion of Western Publishing Group, Inc. Master Retirement Trust pooled investment accounts - Note 8: Interest $ 171,927 $ 173,069 Dividends 21,945 11,644 (Depreciation) appreciation on pooled investment accounts (14,252) 51,170 Contributions: Penn Corporation 383,915 332,445 Participants 524,379 457,433 ---------- ---------- Total additions 1,087,914 1,025,761 ---------- ---------- Payments to or on behalf of participants 627,373 352,136 Administrative expenses 17,205 11,280 ---------- ---------- Total deductions 644,578 363,416 ---------- ---------- Net increase 443,336 662,345 Net assets available for benefits: Beginning of year 3,195,987 2,533,642 ---------- ---------- End of year $3,639,323 $3,195,987 ---------- ---------- ---------- ---------- See notes to financial statements. PENN CORPORATION COMPREHENSIVE SECURITY PROGRAM NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1993 AND 1992 - - ------------------------------------------------------------------------------- 1. THE PLAN Penn Corporation Comprehensive Security Program (the "Plan") is a contributory defined contribution plan offered to certain employees of Penn Corporation (the "Company"), a wholly- owned subsidiary of Western Publishing Group, Inc., and eligible employees of any other United States corporation that is a member of the controlled group of corporations of which Penn Corporation is a member, which adopts the Plan, with the consent of the Company, who meet certain eligibility requirements. The Plan became effective on January 1, 1987 and conforms with the requirements of the Employee Retirement Income Security Act of 1974 ("ERISA"). An employee becomes a participant of the Plan on specified quarterly entry dates after meeting the following requirements: a. Is a salaried employee or a member of a group or class of employees to which the Plan has been extended by the Board of Directors of the employer; and b. Is not a member of a collective bargaining unit of employees represented by a collective bargaining representative, except to the extent that an agreement between the participating company ("employer") and such representative extends the Plan to such unit of employees; and c. Has completed six months of continuous employment (as defined in the Plan). Participants, by means of authorized payroll deductions, may elect to make contributions to the Plan in amounts based on a percentage of compensation, as defined in the Plan. A participating employee's total contribution ("income deferral" and "voluntary participant") is limited to 16% of compensation. Income deferral contributions were limited to $8,994 for 1993 and $8,728 for 1992 in accordance with the Internal Revenue Code ("Code"). The Company contributes to the Plan an amount equal to 3% of the aggregate compensation of participants entitled to share in the contribution for that year. Employer contributions are reduced by any forfeitures to be credited for the applicable period. Forfeitures for 1993 and 1992 totaled $4,769 and $12,908, respectively. The employers' contributions are always invested in the Interest Accumulation Fund. PENN CORPORATION COMPREHENSIVE SECURITY PROGRAM NOTES TO FINANCIAL STATEMENTS (CONTINUED) - - ------------------------------------------------------------------------------- Amounts credited to a participant's account are designated as "Plan Credits." Contributions made by, or on behalf of, a participant, are invested (in proportions designated by the participant) in one or more of the following funds: Number of Participants Invested in Fund at Fund Type December 31, 1993 --------- ---------------------- Conservative Equity Fund 97 Aggressive Equity Fund 93 Interest Accumulation Fund 612 Parent Company Stock Fund 81 Interest, dividends and net realized and unrealized gains and losses on Plan investments are allocated to participants' accounts based on their proportionate share of the applicable fund's assets. If a participant's employment terminates for any reason other than retirement, disability or death, the participant is entitled to receive Plan Credits resulting from employer contributions which are then vested according to the following schedule: Vested Percentage Years of Continuous of Employer Employment Contribution Account ------------------- -------------------- Less than 1 0% 1 but less than 2 25% 2 but less than 3 50% 3 but less than 4 75% 4 or more 100% Balances in a participant's income deferral contribution account and voluntary participant account are fully vested at all times. In the event of a participant's retirement, disability or death, Plan Credits not previously vested, become fully vested and are not subject to forfeiture, and all Plan Credits become immediately distributable in the manner described below. PENN CORPORATION COMPREHENSIVE SECURITY PROGRAM NOTES TO FINANCIAL STATEMENTS (CONTINUED) - - ------------------------------------------------------------------------------- When a participant's employment terminates for any reason, all vested Plan Credits of the participant may be distributed to the participant or, in the event of death, to the beneficiary by one or both of the following methods: a. By a lump-sum distribution of any or all Plan Credits. b. By applying the cash equivalent of any or all such Plan Credits towards the purchase of an annuity contract, subject to certain requirements as defined in the Plan. A participant may elect to defer distribution of vested Plan Credits until age 70-1/2. No more often than once per quarter, a participant may elect to withdraw all or any portion of the net credit balance in the voluntary participant contribution account or rollover account. In addition, participants may borrow, up to certain limits, against their account balance. The loan must be repaid over a period not to exceed 60 months unless the proceeds were used for the purchase of a primary residence in which case it must be repaid within 360 months. Generally, loan repayments are made by payroll deduction. 2. ACCOUNTING PRINCIPLES The Plan participates in investment accounts under the Western Publishing Group, Inc. Master Retirement Trust (the "Master Trust"). Investment income, realized gains and losses on investment transactions, expenses and investment appreciation or depreciation on assets held in the Master Trust are allocated monthly to each fund under the Plan based on its proportionate share of Master Trust assets. Plan participation in the Master Trust is adjusted monthly for withdrawals for benefit payments to Plan participants and annually for employer contributions made to the Plan. Investments in the Master Trust pooled investment accounts and parent company stock are valued at fair value. Investments in guaranteed investment contracts are valued at contract value. Contract value represents contributions made under the contract plus interest at the contract rate, less funds used to purchase annuities and pay administrative expenses. Plan expenses, such as trustee and accounting fees, are chargeable to the Plan. During 1993 and 1992, $17,205 and $11,280, respectively, of such expenses were paid by the Plan. In 1993, the Plan changed its method of accounting for benefits payable to comply with the 1993 AICPA Audit and Accounting Guide, Audits of Employee Benefit Plans. The new guidance requires that benefits payable to persons who have withdrawn from participation in a defined contribution plan be disclosed in the footnotes to the financial statements rather than be recorded as a liability of the Plan. As of December 31, 1993, net assets available for benefits included benefits of $61,944 due to participants who have withdrawn from participation in the Plan. PENN CORPORATION COMPREHENSIVE SECURITY PROGRAM NOTES TO FINANCIAL STATEMENTS (CONTINUED) - - ------------------------------------------------------------------------------- 3. INTERNAL REVENUE SERVICE STATUS The Internal Revenue Service has determined and informed the Company by a letter dated September 15, 1989, that the Plan is qualified and the trust established under the Plan is tax- exempt, under the appropriate sections of the Code. The Plan has been amended since receiving the determination letter. However, the plan administrator believes that the Plan is currently designed and being operated in compliance with the applicable requirements of the Code. Therefore, the plan administrator believes that the Plan was qualified and the related trust was tax- exempt as of the financial statement date. 4. TERMINATION OF THE PLAN In the event that the Plan is terminated at some future time, each participant's account will become fully vested and will be distributed in accordance with provisions of the Plan. 5. INVESTMENTS IN MASTER TRUST POOLED INVESTMENT FUNDS Investments in Master Trust pooled investment funds at December 31, 1993 and 1992, were as follows: December 31, 1993 Units Fair Value ------- ---------- Conservative Equity Fund (Evergreen Total Return Fund) 8,792 $ 172,491 Aggresive Equity Fund (Evergreen Fund) 12,533 177,973 Bankers Trust Pyramid Directed Account Cash Fund 727,098 727,098 ---------- $1,077,562 ---------- ---------- December 31, 1992 Units Fair Value ------- ---------- Conservative Equity Fund (Evergreen Total Return Fund) 4,814 $ 93,542 Aggresive Equity Fund (Evergreen Fund) 8,935 125,358 Bankers Trust Pyramid Directed Account Cash Fund 266,135 266,135 --------- $485,035 --------- --------- PENN CORPORATION COMPREHENSIVE SECURITY PROGRAM NOTES TO FINANCIAL STATEMENTS (CONTINUED) - - ------------------------------------------------------------------------------- 6. GUARANTEED INVESTMENT CONTRACTS Investments in guaranteed investment contracts at December 31, 1993 and 1992 were as follows: 1993 1992 ---------- ---------- Principal Mutual Life Insurance Company Contract #GA4-6187-3 $ 711,685 Massachusetts Mutual Life Insurance Company Contract #GAC 10121-3 $ 705,173 CNA Insurance Company Contract #12732-026 478,308 581,421 New York Life Insurance Company Contract #GIC-06701-2-3 255,940 New York Life Insurance Company Contract #GA-06701-3 222,404 Allstate Life Insurance Company Group Annuity Contract #GA-5343-3 212,052 288,156 Metropolitan Life Insurance Company Contract #12177-269 156,201 Principal Mutual Life Insurance Company Contract #11948-3 129,048 ---------- ---------- $1,880,389 $1,859,999 ---------- ---------- ---------- ---------- 7. INVESTMENTS IN PARENT COMPANY STOCK Investments in parent company stock at December 31, 1993 and 1992 were as follows: Fair Shares Value ---------- ---------- Western Publishing Group, Inc. common stock: December 31, 1993 8,588 $ 165,319 ---------- ---------- December 31, 1992 8,495 $ 177,333 ---------- ---------- PENN CORPORATION COMPREHENSIVE SECURITY PROGRAM NOTES TO FINANCIAL STATEMENTS (CONTINUED) - - ------------------------------------------------------------------------------- Transactions in the common stock of Western Publishing Group, Inc. were as follows: 1993 1992 -------------- --------------- Shares Amount Shares Amount ------ ------- ------ ------- Aggregate purchases 1,466 $23,267 2,525 $46,773 ------- ------- ------- ------- Aggregate sales 1,373 $22,835 2,453 $39,585 ------- ------- ------- ------- PENN CORPORATION COMPREHENSIVE SECURITY PROGRAM NOTES TO FINANCIAL STATEMENTS (CONTINUED) - - ------------------------------------------------------------------------------- 8. CHANGES IN NET ASSETS BY FUND: Plan participants have the ability to self-direct employee contributions into any of the funds described in Note 1. Net assets at December 31, 1993 and the changes in net assets available for benefits for the year then ended were as follows:
Interest Conservative Aggressive Parent Company Accumulation Equity Fund Equity Fund Stock Fund Fund Loan Fund Total Investment income: Interest $ 1,731 $ 12 $ 2 $ 165,436 $ 4,746 $ 171,927 Dividends 14,375 7,570 21,945 (Depreciation) appreciation on pooled investment accounts (2,463) 2,044 (13,833) (14,252) -------- -------- ---------- ---------- ------- --------- Total investment income (loss) 13,643 9,626 (13,831) 165,436 4,746 179,620 Contributions: Penn Corporation 383,915 383,915 Participants 67,909 70,258 52,196 334,016 524,379 Transfers of assets from (to) other funds 6,319 (10,230) (26,028) 4,297 25,642 --------- --------- ---------- ---------- --------- -------- Total additions 87,871 69,654 12,337 887,664 30,388 1,087,914 --------- --------- ---------- ---------- --------- --------- Payments to or on behalf of participants 8,328 10,058 16,354 589,574 3,059 627,373 Administrative expenses 598 367 858 15,382 17,205 --------- --------- ---------- ---------- --------- --------- Total deductions 8,926 10,425 17,212 604,956 3,059 644,578 --------- --------- ---------- ---------- --------- --------- Net increase (decrease) 78,945 59,229 (4,875) 282,708 27,329 443,336 --------- --------- ---------- ---------- --------- --------- Net assets available for benefits: Beginning of year 101,099 115,826 167,160 2,760,214 51,688 3,195,987 End of year $180,044 $175,055 $162,285 $3,042,922 $79,017 $3,639,323 --------- --------- ---------- ---------- --------- --------- --------- --------- ---------- ---------- --------- ---------
PENN CORPORATION COMPREHENSIVE SECURITY PROGRAM NOTES TO FINANCIAL STATEMENTS (CONTINUED) - - ------------------------------------------------------------------------------- 8. CHANGES IN NET ASSETS BY FUND: Net assets at December 31, 1992 and the changes in net assets available for benefits for the year then ended were as follows:
Interest Conservative Aggressive Parent Company Accumulation Equity Fund Equity Fund Stock Fund Fund Loan Fund Total Investment income: Interest $ 7 $ 10 $ 105 $ 170,601 $ 2,346 $ 173,069 Dividends 6,278 5,366 11,644 Appreciation on pooled investment accounts 1,312 3,850 46,008 51,170 --------- --------- ---------- ---------- -------- ---------- Total investment income 7,597 9,226 46,113 170,601 2,346 235,883 Contributions: Penn Corporation 332,445 332,445 Participants 35,747 49,265 43,694 328,727 457,433 Transfers of assets from (to) other funds 4,264 (15,244) (14,905) (1,940) 27,825 --------- --------- ---------- ---------- -------- ---------- Total additions 47,608 43,247 74,902 829,833 30,171 1,025,761 --------- --------- ---------- ---------- -------- ---------- Payments to or on behalf of participants 11,144 46,263 24,167 270,562 352,136 Administrative expenses 246 414 542 10,078 11,280 --------- --------- ---------- ---------- -------- ---------- Total deductions 11,390 46,677 24,709 280,640 363,416 --------- --------- ---------- ---------- -------- ---------- Net increase (decrease) 36,218 (3,430) 50,193 549,193 30,171 662,345 --------- --------- ---------- ---------- -------- ---------- Net assets available for benefits: Beginning of year 64,881 119,256 116,967 2,211,021 21,517 2,533,642 --------- --------- ---------- ---------- -------- ---------- End of year $101,099 $115,826 $167,160 $2,760,214 $51,688 $3,195,987 --------- --------- ---------- ---------- -------- ---------- --------- --------- ---------- ---------- -------- ----------
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