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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 28, 1995
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 13, 1995, was approximately $190,525,000.
As of April 13, 1995, 21,023,274 shares of the Registrant's $.01 par value
common stock were outstanding.
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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 creates, produces and markets a variety of consumer products
including children's story and picture books, interactive electronic books and
games, computer and multi-media "edutainment" products, coloring books and other
activity books, educational workbooks sold at retail, craft products, children's
pre-recorded audio cassettes, book and audio cassette sets, pre-recorded video
cassettes, FRAME-TRAY(Copyright) puzzles, 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) educational kit
manufacturing, including printing, sourcing, packaging, development and assembly
of educational kits; and (3) Custom Publishing(Copyright) 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.
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 April 7, 1994, the Company adopted a plan (the "Plan") designed to
improve its competitive position and reduce its cost structure through the sale,
divestiture, consolidation or phase out of certain operations, properties and
products, and a workforce reduction.
The Plan included the following major components:
o An agreement to sell its game and puzzle operation (including
certain inventories) to Hasbro, Inc. ("Hasbro"). This transaction
was completed in August 1994 for cash proceeds of approximately
$101,400,000.
o The decision to exit the Direct Marketing Continuity Clubs and School
Book Club businesses. These businesses were sold during the second
and third quarters of Fiscal 1995 for aggregate cash proceeds of
approximately $14,500,000.
o The closedown and sale of the Company's Fayetteville, North Carolina
manufacturing and distribution facility, which was primarily
dedicated to the game and puzzle operation but was not included in
the sale to Hasbro. This property, which is comprised of 702,000
square feet of office, warehousing and distribution space, has been
closed and is currently being marketed for sale.
o The decision to streamline the Company's publishing business so as to
focus on its core competencies. This included a reduction in the
management, administrative and direct labor workforces.
The Company used the net cash proceeds arising from the Plan to repay
outstanding debt under its Revolving Credit Agreement. The Plan, which was
announced in the first quarter of Fiscal 1995, resulted in a pre-tax gain of
approximately $20,000,000, inclusive of operating losses of the game, puzzle,
direct marketing and school book club operations from January 30, 1994 through
their respective disposition dates.
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Provision for Write-down of Division
During Fiscal 1994, the Company established a provision, including
operating losses through the expected disposition date, to write-down the assets
of the Advertising Specialty Division of its Penn Corporation subsidiary to net
realizable value.
On August 5, 1994, the sale of the Ritepoint/Chromatic and Adtrend
businesses of the Division was completed for cash proceeds of approximately
$5,650,000. On November 7, 1994, the sale of the Vitronic and K-Studio
businesses of the Division was completed for cash proceeds of approximately
$8,350,000. As the proceeds from the sale of this Division exceeded
management's estimate, the Company adjusted its previously recorded provision
for write-down of Division by recognizing a pre-tax gain of $1,100,000 in the
fourth quarter of Fiscal 1995. The net cash proceeds from the sale of this
Division were utilized to repay outstanding debt under the Revolving Credit
Agreement.
BUSINESS SEGMENT INFORMATION
For certain information with respect to net sales, 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
the Western Publishing Group, Inc. Consolidated Financial Statements, said Note
being set forth on pages F-23 to F-24 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, including story and picture books for children aged two
through eight, are principally marketed under the GOLDEN BOOKS(Registered),
LITTLE GOLDEN BOOKS(Registered), GOLDEN BOOKS(Registered) WITH SOUND, GOLDEN
SIGHT & SOUND(Registered), GOLDEN SING-A-LONG(Registered), MY FIRST GOLDEN
BOOK(Registered) with SOUND, GOLDEN TALKING TALES(Registered), GOLDEN SEEK 'N'
SOUND(Registered), GOLDEN SOUND STORY(Registered) and SOUND STORY(Trademark)
trademarks. Activity books and products and educational workbooks for children
are marketed under the GOLDEN BOOK(Registered), MERRIGOLD PRESS(Registered) and
GOLDEN BOOK(Registered)/STEP AHEAD(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) PADS, 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 VIDEO(Registered) and GOLDEN
MUSIC(Registered) trademarks. Coin collecting products are marketed 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 GOLDEN BOOK 'N' TAPE(Registered) trademark and other
products that complement its lines of books, activity products and puzzles.
Western Publishing Company, Inc. believes that its GOLDEN BOOK(Registered)
brand name has 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(Copyright)" and the "Golden Treasury of Children's Literature." 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.'s hard cover trade imprint, ARTIST &
WRITERS GUILD(Registered), has met with critical success. Publishing twenty
titles a year, the imprint appeals to children and their parents and has
garnered a large number of awards from the publishing, parenting and library
media.
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Through August, 1994, Western Publishing Company, Inc. was one of the
nation's largest manufacturers and marketers of children's and adult jigsaw
puzzles and one of the largest producers and marketers of children's games, card
games, classic family board games and adult board games. As set forth in the
section entitled "Sale and Phase Out of Operations," the Company sold its games
and puzzles business to Hasbro, Inc. The Company continues to manufacture and
market children's FRAME-TRAY(Registered) puzzles as well as electronic sound
games.
Many of Western Publishing Company, Inc.'s products are published or
produced under license from authors, inventors and other owners of intellectual
properties. Products often feature popular characters licensed from other
companies, including The Walt Disney Company, Children's Television Workshop
(Sesame Street(Registered)), Mattel, Inc., Jim Henson Productions, Inc. DC
Comics Inc., Marvel Entertainment Group, Inc., MCA/Universal Merchandising,
Inc., Saban Entertainment, Inc., Time-Warner, Inc., Paramount Pictures
Corporation and Twentieth Century Fox Film 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. However, Western Publishing Company, Inc. does not have
significant market share in the adult book category.
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 and guest towels, in a variety of coordinated
designs, themes and colors. Penn Corporation works directly with leading design
studios such as Gloria Vanderbilt, Gear, Giordano, Nick & Nora, Merrimekko,
Laurette, Bob Van Allen, 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 markets an extensive line of children's party
tableware, party favors and accessories (such as games, 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 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 BY CONTEMPO(Trademark) giftware line
includes hand-crafted keepsake boxes, 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. Imaginative gift books featuring The Walt
Disney Company and Jim Henson's Muppet Babies(Trademark) characters are also
marketed to gift and department stores under the RENNER DAVIS BY
CONTEMPO(Trademark) brand.
Licensing
Licensing agreements are important factors in the differentiation of
Western Publishing Group, Inc. products from those of its competitors. In the
year ended January 28, 1995 ("Fiscal 1995"), approximately 61% of Western
Publishing Group, Inc.'s Consumer Products segment sales were generated by
books, games, FRAME-TRAY(Registered) puzzles, activity products, paper party
goods and party favors featuring popular juvenile characters and
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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 virtually all of its licensors.
Licenses from authors and inventors are generally longer in duration, often for
the term of the copyright.
Approximately 39% of the Consumer Products segment sales in Fiscal 1995
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)), DC Comics Inc., Saban
Entertainment, Inc. and Mattel, Inc.
Royalty rates paid by Western Publishing Company, Inc. generally range
from 6% to 10% of the invoiced price of the product 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. 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 in part because of the large number of consumer
impressions it creates and the royalties it generates. 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 1995, Western Publishing Company, Inc. entered into many new licensing
agreements, including Animaniacs(Trademark) with Time-Warner, Inc.,
Toontown(Registered) with The Walt Disney Company, Spot(Trademark) the Dog with
Copyrights Group Limited, Mighty Morphin Power Rangers(Registered) with Saban
Entertainment, Inc., and a new multi-year agreement with Marvel Entertainment
Group, Inc. for Spiderman(Registered), X-Men(Registered), Fantastic
Four(Registered) and Iron Man(Registered). In addition, licenses were obtained
and product lines were produced in conjunction with Disney's release of the
movie, "The Lion King", and re-release of "Snow White" on home video. Further,
a licensing agreement was entered into with The Walt Disney Company for "A
Goofy Movie" (an early 1995 spring theatrical release), "Pocahantas" (a summer
1995 theatrical release) and "The Toy Story" (a Thanksgiving release). A
licensing agreement was also entered into with Universal City Studios, Inc. and
Amblin Entertainment, Inc. for products related to their upcoming theatrical
release of Casper(Trademark) and with DC Comics Inc. for their upcoming release
of Batman Forever(Trademark).
Upon obtaining a license, Western Publishing Company, Inc. develops story
and activity books and other products featuring the licensed character or
property to incorporate into its 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 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 generally
range from 5% to 10% of the invoiced price of the product featuring the licensed
characters and properties.
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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 1992, it introduced new SOUND
STORY(Registered) products including LITTLE GOLDEN BOOKS(Registered) SOUND
STORY(Registered) Books, GOLDEN SING-A-LONG(Registered) Books and BIG BIRD'S
TALKING BINGO(Trademark). In calendar 1993, it introduced new SOUND
STORY(Registered) products including MY FIRST GOLDEN SOUND STORY(Registered)
and GOLDEN TALKING TALES(Registered) books as well as GOLDEN SEEK 'N'
SOUND(Registered) games. In calendar 1994, it introduced a number of items to
its growing boxed arts & crafts category, including BARBIE(Trademark) party
pins and keepsakes, a button and magnet maker kit that features easy to make
plaster designs; and JIM HENSON'S MUPPET WORKSHOP(Trademark), a series of paper
based, make your own Muppet(Trademark) craft kits. The GOLDEN
BOOKS(Registered) WITH SOUND product line introductions included MAGIC
CORNER(Registered) books, a one sound board book series and SOUNDS BY
ME(Trademark), a story book that includes sounds and a recording feature. As
of calendar 1994, all of these products are marketed utilizing the GOLDEN
BOOKS(Registered) brand as their primary brand.
The Company, since acquiring Sight & Sound, Inc. in July 1990, has
expanded its GOLDEN BOOKS(Registered) WITH SOUND product line to over 113
titles, including GOLDEN SOUND STORY(Registered) BOOKS DELUXE EDITION with 10
sounds, MY FIRST GOLDEN SOUND STORY(Registered) BOOKS with 5 sounds, the
RANDOMIZER(Trademark) BOOKS electronic book adventures, GOLDEN TALKING
TALES(Registered) with prerecorded conversations and 9 sounds, LITTLE GOLDEN
BOOKS(Registered) SOUND STORY(Registered) BOOKS with 4 sounds, GOLDEN SOUND
STORY(Registered) FAVORITES with 7 sounds; MAGIC CORNER(Registered) BOOKS, a
board book with random sounds, GOLDEN SEEK 'N' SOUND(Registered), a sound
based activity board, GOLDEN SING-A-LONG(Registered) with 5 sound effects and
8 songs, and SOUNDS BY ME(Trademark) which features pre-programmed sounds and a
recording capability to create sounds. The Company sources sound pad
components and finished goods abroad and as a result, scheduling is an important
prerequisite to producing and distributing particular licensed product in a
timely fashion. In fiscal 1996, the above products will be re-branded as GOLDEN
BOOKS(Registered) WITH SOUND for consistency and to take advantage of the
strong brand loyalty that customers have shown towards the GOLDEN
BOOK(Registered) brand (See "Management's Discussion and Analysis of Financial
Condition and Results of Operations").
In calendar 1992, Penn Corporation's Beach/Contempo Division introduced
the Pretty Florals collection of decorated paper tableware which represented one
of the top selling designs for the year. In addition, the Garden Variety and
Hot 'n Spicy collections were introduced. In calendar 1993, it introduced its
first shape and die cut paper plates and its 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. In calendar 1994, the Company
introduced its European designs giftwrap selections with dozens of floral and
artistic designs on premium paper. The year also saw the introduction of a full
line of party favors, accessories and decorations. The success of the expanded
favors and decorations was most evident in the broad line of products
successfully launched featuring Disney's Lion King characters.
Toward the end of Fiscal 1995, Beach introduced new products including (a)
paper plates with special shapes such as octagon and flower/petal scallops (b)
napkins featuring the works of noted artists with edge to edge printing (c) a
new selection of stationery, keepsake gifts and tableware products featuring the
Vatican Library Collection and (e) the Gale and Ardie Sayers Celebration
Collection of tableware designs.
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., Fred Meyer Inc., Caldor, Inc. and Target Stores
Incorporated; 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 Toys, Inc.;
supermarkets such as Winn Dixie Stores, Inc., H.E. Butt Grocery Co. and Smith's
Food and Drug Centers, Inc.; drug chains such as Walgreen Co., Revco D.S., Inc.,
Long's Drug Stores Corporation and Eckerd Drug Co.; warehouse clubs such as
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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 146 employee direct sales force,
which it believes is larger than any of its competitors. The sales force was
reorganized in Fiscal 1995 to ensure the retention of top sales people from the
Company's business units that were sold.
Western Publishing Company, Inc. also sells through wholesalers,
distributors, sales representative organizations and food brokers. Western
Publishing Company, Inc. generally provides retailers with wood racks, spinners,
plan-o-gramming and its computerized space management planning service, all of
which it believes provides 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 (See "Retail Businesses").
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 Company, Inc. and third party in-store retail merchandising forces.
Brand Equity
The Company renewed its emphasis on its core publishing businesses in
Fiscal 1995, and its GOLDEN BOOKS(Registered) brand name in the juvenile
publishing, arts & crafts, color/activity, educational, audio and video
categories. A GOLDEN BOOKS(Registered) Brand Equity plan was developed to
capitalize on the brand's high level of awareness among consumers. The plan
includes a packaging "line look" that incorporates a new GOLDEN
BOOKS(Registered) logo and consumer advertising. All products previously
marketed under the GOLDEN(Registered) brand will now carry the GOLDEN
BOOKS(Registered) brand.
In-Store Merchandising
In Fiscal 1995, Western Publishing Group, Inc. made significant use of its
in-store retail merchandising service unit. This unit was reorganized as a
result of the disposition of several business units. The merchandising unit is
responsible for providing in-store merchandising services in support of all
Western Publishing Group, Inc.'s product lines. 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 all 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.
Retail Businesses
o Category Management
Western Publishing Company, Inc.'s Total Category Management(Service Mark)
program provides retailers with Western's management of all operational and
supply chain management functions to operate children's book departments.
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In Fiscal 1995, Western's innovative "shop-within-a-store" Books 'R'
Us(Trademark) concept at Toys 'R' Us was expanded to approximately 330 stores as
Toys 'R' Us assumed the day-to-day management of these "shops-within-a-store" as
of February 1, 1994. Western has been advised that Toys 'R' Us intends to open
approximately 100 additional Books 'R' Us locations in calendar 1995; all of
which will feature a full array of GOLDEN BOOKS(Registered) products.
Western's GOLDEN BOOKS STORYLAND FOR KIDS(Service Mark) "store-within-an-
aisle" program features a greatly expanded book department at mass market
retailers, with a bookstore atmosphere including special racks, signage and full
face presentation of children's books. The STORYLAND(Trademark) program is
managed and serviced by Western. Wal-Mart Stores, Inc., Caldor Inc., Fred
Meyer Inc. and other national chains embraced this program with approximately
650 participating retail outlets in operation at year end. The number of
chains and stores adapting the STORYLAND(Trademark) program is growing and
Western plans to open 550 additional locations in calendar 1995. In each case
where a STORYLAND(Trademark) program has been installed, sales of children's
books in general and Western's books in particular have significantly
increased. To date, Wal-Mart Stores, Inc. has been the largest user of this
program.
During fiscal 1995, Western placed its GOLDEN BOOKS(Registered) kiosk
units, a part of its retail management services efforts, in 190 Kids 'R' Us
stores. The kiosk unit, which is a four-sided display unit specifically
designed to showcase a variety of products in the least amount of floor space,
features a full product assortment mix of the top selling GOLDEN
BOOKS(Registered), storybooks and activity/entertainment products. The Kids 'R'
Us GOLDEN BOOKS(Registered) kiosk features seasonal products as well as everyday
favorites.
o GOLDEN BOOKS(Registered) Showcase Stores
The Company has three GOLDEN BOOKS(Registered) Showcase Store locations.
Its first GOLDEN BOOKS(Registered) Showcase store was opened in Schaumburg, IL
in November 1992; the second store was opened in the CityWalk Center at
Universal City in Burbank, CA in June 1993; and the third store was opened 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. The Schaumburg, IL store is located in the Woodfield
Mall, an upscale suburban mall. The CityWalk store is located adjacent to the
Universal City theme park in Burbank, CA. The New York City store is located
in a midtown, high-trafficked urban area. All three GOLDEN BOOKS(Registered)
Showcase stores permit the Company to support and expand its GOLDEN
BOOK(Registered) brand recognition as well as test product and survey consumers
in different environments.
o GOLDEN BOOKS(Registered) Factory Outlet Program
The Company set up its first GOLDEN BOOKS(Registered) Mini Factory Outlet
Kiosk in August 1994 in the Gurnee Mills Mall in Gurnee, IL to provide an outlet
for effective liquidation of corporate overstocks and discontinued products.
The kiosk features an array of GOLDEN BOOK(Registered) storybooks and products,
and will be used as a model for similar factory outlet kiosks in other
locations. The Company is currently scheduled to open a kiosk in the Franklin
Mills Mall in Philadelphia, PA in calendar 1995.
International Sales
Western Publishing Group, Inc.'s international sales in Fiscal 1995 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. consumer
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. Additionally, the Company has been
expanding its export sales to its distributor in Australia as well as to
customers in Spanish speaking countries including Mexico and South America.
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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 & 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 FRAME-TRAY(Registered) puzzles 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, including Hallmark Cards, Inc., American
Greetings Corp., James River Corp., Unique Industries, Inc., and Amscan, Inc.
Trademarks
Western Publishing Company, Inc. has numerous registered trademarks and
service marks in the United States and other countries, including for various
uses LITTLE GOLDEN BOOKS(Registered), GOLDEN BOOKS(Registered), GOLDEN
PRESS(Registered), SIGHT & SOUND(Registered), GOLDEN SOUND STORY(Registered),
ARTISTS & WRITERS GUILD(Registered), STEP AHEAD(Registered),
MERRIGOLD(Registered), GOLDEN SEEK 'N' SOUND(Registered), GOLDEN TALKING
TALES(Registered), GOLDEN SING-A-LONG(Registered), GOLDEN BOOK 'N'
TAPE(Registered), PAINT WITH WATER(Registered) and WHITMAN(Registered). Western
Publishing Company, Inc. believes that the GOLDEN BOOK(Registered) trademark is
material to the conduct of its business. Western Publishing Company, Inc. also
has registered trademarks for MAGIC SLATE(Registered), its well-known children's
activity product, STICKER FUN(Registered), its children's activity books,
FRAME-TRAY(Registered), its popular children's puzzles and WHITMAN(Registered),
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 support the just-in-time
nature of its business and fulfill its customer service requirements (see
Management's Discussion and Analysis on page 19 for a discussion of inventory).
Under certain circumstances, when Company approval is secured in advance, a
customer may return saleable merchandise. Both companies provide payment terms
standard in their respective industries. Backlog is not meaningful to either
company's business.
9
<PAGE>
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 has incurred no
material costs in complying with these regulations.
COMMERCIAL PRODUCTS SEGMENT
Western Publishing Company, Inc., through its Diversified Products
Division, provides creative, printing and publishing services to others.
Western Publishing Company, Inc. groups these activities into three business
categories: graphic art services and commercial printing; educational kit
manufacturing and custom publishing services. During calendar 1994, the
Diversified Products Division refocused its business emphasis to better utilize
its core manufacturing competencies and creative resources.
Graphic Art 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, maps 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 the Company has production
capacity available. Customers include Parachute Press, Inc., Bantam Doubleday
Dell Publishing Group, Grass Roots Publishing, Inc., International Bible
Society, American Bible Society, Random House, Inc., World Pog Federation,
Ralston Purina Company, General Motors Corp., American Greetings Corp. and The
Walt Disney Company.
Educational Kit Manufacturing
Educational kit manufacturing includes the development, printing, sourcing,
packaging and assembly 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 Scott Foresman & Company, World Book,
Inc., Houghton Mifflin Company, Harcourt Brace & Co., Macmillan/McGraw-Hill
School Publishing Company, Grolier, Inc. and IBM Corp.
Custom Publishing
Custom Publishing(Registered) 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(Registered) customers include Long John Silver's, Inc., Planters
Lifesavers Co., Mars Inc., Wendy's International, Inc., Mattel, Inc., Toys 'R'
Us, Inc., Pizza Hut Inc., Continental Airlines Corp., American Airlines, Inc.
and Payless Shoe Source. Custom Publishing(Registered) utilizes the complete
creative capabilities of Western Publishing Company, Inc., as well as its
marketing, art, editorial, rights and royalty and product engineering groups.
10
<PAGE>
Marketing and Competition
Western Publishing Company, Inc.'s Diversified Products services are sold
by approximately 40 employee sales representatives located in 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 formats,
price, quality and delivery, is intense, particularly in the graphic art and
commercial printing businesses. Western Publishing Company, Inc. has several
unique manufacturing processes and creative resources which enhance its
competitive position in the marketplace. Western Publishing Company, Inc.
competes in this area with numerous companies, the largest of which is R.R.
Donnelly & Sons Company.
GENERAL INFORMATION
Seasonality
Western Publishing Group, Inc. experiences seasonality, particularly in its
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 by its Consumer Products segment
for its graphic art and commercial printing activities, thereby somewhat
reducing the seasonality of Western Publishing Company, Inc.'s overall
business. However, revenues in the second half of the Company's fiscal year
were approximately 57% of Fiscal 1995 revenues.
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. However, due to
increased industry-wide demand, Western is experiencing price increases and has
experienced some difficulty in obtaining certain grades of paper from time to
time. Western does not anticipate any interruption in its business because of
current conditions.
Employees
Western Publishing Group, Inc. employs in the aggregate approximately 2,800
full-time employees and 550 part-time employees. Approximately 900 employees
are represented by labor unions. In Fiscal 1995, Western Publishing (Canada),
Inc. negotiated a new three-year contract with the International Automobile
Workers Union 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, MD and Racine, WI plants. Capacity utilization in these
facilities, based on operating three shifts a day, five days a week, averaged
approximately 58% in Fiscal 1995.
11
<PAGE>
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 napkin, table cover, paper plate and cup making machinery,
color presses, a narrow web press, plate formers, table cover embosser/folders
and Senning wrap-over machines at its BEACH(Registered)/CONTEMPO(Registered)
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, WI 960,000 Corporate, creative and marketing offices;
printing and warehousing facilities
Coffeyville, KS 672,000 Warehousing and distribution
Crawfordsville, IN 403,000 Warehousing and distribution
Cambridge, MD 200,000 Printing; warehousing
Cambridge, 148,000 Canadian corporate offices; sales offices;
Ontario, Canada warehousing and distribution
Kalamazoo, MI 458,000 Corporate offices; manufacturing;
warehousing and distribution
W. Springfield, MA 41,000 Manufacturing; warehousing
New York, NY 35,000 Publishing offices; sales offices
All of these properties are owned by either Western Publishing Company,
Inc. or Penn Corporation, except for two leases covering 438,000 square feet of
the Wisconsin properties (leases expire August 31, 1995 and January 31, 1996
with Western Publishing Company, Inc. having options to renew with respect to
these leases); two leases covering 90,000 square feet in Cambridge, MD, the
first of which expires on September 30, 1995 and the second of which is on a
month to month basis; two leases covering 60,000 square feet in Coffeyville, KS
which expired April 30, 1994, and are leased on a month to month basis; one
lease covering the Massachusetts property (lease expires May 31, 1995 with Penn
Corporation having an option to renew); and a lease covering a New York property
(lease expires December 31, 2003). All of these properties, except for West
Springfield, MA; Kalamazoo, MI and Canadian locations are employed in both the
Consumer Products and Commercial Business segments; the West Springfield, MA;
Kalamazoo, MI and Canadian 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, 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 approximately $19,300,000
in Fiscal 1995.
12
<PAGE>
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 the Company believes will be 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"), have been informed by
the United States Environmental Protection Agency ("EPA") and/or state
regulatory agencies that they may be potentially responsible parties ("PRPs")
and face liabilities under the Comprehensive Environmental Response,
Compensation, and Liability Act (commonly known as "CERCLA" or "Superfund") or
similar state laws at seven sites that are currently undergoing investigation
and/or remediation of environmental contamination. In all but one instance, the
relevant subsidiary of Western Publishing Group, Inc. is one of a number of PRPs
that have been identified by EPA or the relevant state agency with respect to
the site.
Western is investigating its alleged connection to three sites identified
in the past year. With respect to one of those sites, Western has not yet
discovered any information demonstrating that it shipped any material to this
site. The state has identified approximately 100 PRPs at the site. With
respect to the second recently identified site, the evidence of Western's
involvement as set forth by Federal EPA in support of its claim is conflicting.
At most, Western would have used the disposal site for only four of the 30 years
that the site was in operation. The estimated cost of the selected remedy for
the site is $7.4 million and the owner/operator has agreed to accept a 70%
allocable share, leaving the approximately 60 generator PRPs (including Western)
with the remaining 30% share. At the third recently identified site, the PRP is
in the process of negotiating with the Wisconsin Department of Natural Resources
("WDNR") to resolve its liability at the site. Based on current information,
the drum removal action proposed by WDNR, if accepted by Western will cost in
the range of $100,000 to $200,000.
At another site, Western's liability pursuant to the terms of a consent
decree is limited to approximately 4% of the total costs at the site. The
current estimate of total costs is in the range of $22 million. In accordance
with the consent decree, Western has provided for its share of the probable
cleanup costs.
A division of Penn Corporation has been identified as a PRP at a Michigan
site. 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 Corporation and approximately 40 other PRPs in the
U.S. District Court for the Western District of Michigan. The percentage of
waste at the site attributed to Penn Corporation is approximately 1% or less of
the total volume of waste shipped to the site, but Penn Corporation has not been
able to reach a settlement with the plaintiff PRP. The litigation is currently
in discovery.
At the Hertel Landfill in Plattekill, New York, Western is one of five
PRPs sued by EPA in 1994 for recovery of past EPA response costs. United States
v. Western Publishing Company, Civil Action No. 94-CV-1247 (CGC\DNH)
(N.D.N.Y.). In September 1991, EPA approved a remedial action for the Hertel
Landfill site that had a present value cost of approximately $8 million.
Currently, one of the PRPs is complying with an EPA unilateral administrative
order requiring investigation and cleanup of the Site and is seeking
contribution towards its cost from approximately 25 PRPs, including Western. At
the time that order was issued, Western, as one of the recipients of the order,
chose not to comply with the order, believing that it had sufficient cause not
to comply. The 1994 action filed by the United States does not seek penalties
or damages related to Western's decision not to comply with the EPA unilateral
administrative order. At the current time, the PRPs have not allocated
responsibility at this site.
13
<PAGE>
Western also has been identified as a PRP at another site in New York
State. Western and nine other PRPs received a notice letter from the State of
New York regarding this site and is in the process of investigating that alleged
use of this site for disposal. The State has incurred past oversight costs of
at least $500,000 in connection with this site and has sought to recover a
portion of those costs from Western. In addition, there may be future
monitoring costs associated with this site, but the amount of these costs is
presently not known.
Western and Penn are actively pursuing resolution of the aforementioned
matters. Environmental expenditures that relate to current operations are
expensed or capitalized, as appropriate. Liabilities are recorded when
environmental assessments and/or remedial efforts are probable, the cost can be
reasonably estimated and the Company's responsibility is established. While it
is not feasible to predict or determine the outcome of these proceedings, it is
the opinion of management that their outcome, to the extent not provided for
through insurance or otherwise, will not have a materially adverse effect on the
Company's financial position or future results of operations. Western Publishing
Group, Inc. believes that certain of its insurance policies may cover these
claims and is currently litigating against its insurers for coverage.
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 58 Senior Vice President-Logistics and Distribution of
Western Publishing Company, Inc.
Bruce A. Bernberg 51 Senior Vice President-Finance and Administration of
Western Publishing Company, Inc.
Richard A. Bernstein 48 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 49 Senior Vice President-Legal Affairs and Secretary
of Western Publishing Group, Inc.; Senior Vice
President-Legal Affairs and Secretary of Western
Publishing Company, Inc. and Vice President-Legal
Affairs and Secretary of Penn Corporation.
Ira A. Gomberg 51 Vice President-Business Development and Corporate
Communications of Western Publishing Group, Inc.;
Vice President of Western Publishing Company, Inc.;
Vice President of Penn Corporation
Dale Gordon 47 Vice President and General Counsel of Western
Publishing Group, Inc.; Western Publishing Company,
Inc. and Penn Corporation
14
<PAGE>
Steven M. Grossman 34 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.
Ilan Reich 40 Vice President-Special Projects of Western
Publishing Group, Inc.
Laurence Usdin 52 Vice President and Corporate Controller of Western
Publishing Group, Inc.; Vice President and Assistant
Secretary of Western Publishing Company, Inc.
Hal B. Weiss 38 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 & 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
Chief Financial Officer in 1984. Mr. Bernberg is a director of St. Mary's
Medical Center and St. Luke's Hospital in Racine, Wisconsin.
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 New York University's Hospital for
Joint Diseases/Orthopaedic Institute, a member of the Board of Directors of The
Big Apple Circus, Inc., 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. He became Senior Vice President-Legal
Affairs & Secretary of Western Publishing Company, Inc. in January 1995. From
February 1984 until December 1991 he was Vice President, General Counsel and
Secretary of Western Publishing Group, Inc. In March 1987, Mr. Cohen became
Secretary of Western Publishing Company, Inc. and in January 1993, Vice
President-Legal Affairs of that company. In November 1986, Mr. Cohen became
Secretary of Penn Corporation, in April 1987, Vice President and General
Counsel, and in May 1991, Vice President-Legal Affairs and Secretary of that
corporation.
15
<PAGE>
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 has been Executive Vice President, Treasurer and Chief
Financial Officer of Western Publishing Group, Inc. since June 1994. Prior to
that, Mr. Grossman was Vice President-Financial Planning. Since July, 1992, he
has also been an employee of P & E Properties, Inc. 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. 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. 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 at the firm of
Turner, Imowitz and Company.
16
<PAGE>
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 transactions) by
quarter as provided by the National Association of Securities Dealers, Inc.
Fiscal Year Ended January 28, 1995
- --------------------------------------------
High Low
First Quarter 20 1/4 11
Second Quarter 12 7/8 9 5/8
Third Quarter 14 1/8 10
Fourth Quarter 12 5/8 9 1/4
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
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).
17
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
(In Thousands Except For Per Share Data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
REVENUES:
Net sales $ 398,354 $ 613,464 $ 649,089 $ 552,360 $ 491,089
Royalties and other income 4,201 3,211 3,062 2,141 2,486
--------- --------- --------- --------- ---------
Total revenues 402,555 616,675 652,151 554,501 493,575
--------- --------- --------- --------- ---------
COSTS AND EXPENSES:
Cost of sales 297,421 432,503 425,274 365,913 324,082
Selling, general and administrative 124,128 203,042 188,161 160,059 148,293
Gain on streamlining plan (20,352)
Provision for write-down of Division (1,100) 28,180
--------- --------- --------- --------- ---------
Total costs and expenses 400,097 663,725 613,435 525,972 472,375
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE INTEREST EXPENSE, INCOME TAXES AND
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 2,458 (47,050) 38,716 28,529 21,200
INTEREST EXPENSE 17,567 16,270 10,358 6,255 7,533
--------- --------- --------- --------- ---------
(LOSS) INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (15,109) (63,320) 28,358 22,274 13,667
PROVISION (BENEFIT) FOR INCOME TAXES 2,470 (22,295) 10,860 8,580 5,650
--------- --------- --------- --------- ---------
(LOSS) INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (17,579) (41,025) 17,498 13,694 8,017
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (14,800)
--------- --------- --------- --------- ---------
NET (LOSS) INCOME $ (17,579) $ (55,825) $ 17,498 $ 13,694 $ 8,017
========= ========= ========= ========= =========
(LOSS) INCOME PER COMMON SHARE:
Before cumulative effect of change in accounting principle $ (.88) $ (1.99) $ .80 $ .62 $ .34
Cumulative effect of change in accounting principle (.71)
--------- --------- --------- --------- ---------
NET (LOSS) INCOME $ (.88) $ (2.70) $ .80 $ .62 $ .34
========= ========= ========= ========= =========
BALANCE SHEET DATA (AT PERIOD END):
Working capital $ 227,990 $ 332,979 $ 283,101 $ 106,556 $ 95,474
Total assets 428,806 505,116 508,585 390,965 331,740
Long-term debt 149,828 229,812 179,797
Convertible preferred stock 9,985 9,985 9,985 9,985 9,985
Common stockholders' equity 140,794 158,673 215,246 199,393 186,857
</TABLE>
The selected financial data should be read in conjunction with the audited
consolidated financial statements and notes thereto included elsewhere herein.
18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Fiscal Year Ended January 28, 1995 (Fiscal 1995)
Compared to Fiscal Year Ended January 29, 1994 (Fiscal 1994)
On May 12, 1993, the Company established a provision, including operating losses
through the expected disposition date, to write-down the assets of the
Advertising Specialty Division of its Penn Corporation subsidiary to net
realizable value. Further, on April 7, 1994, the Company announced the adoption
of a plan (the "Plan" or "streamlining plan") designed to improve its
competitive position and reduce its operating cost structure through the sale,
divestiture, consolidation or phase out of certain operations, properties and
products, and a reduction in its management, administrative and direct labor
workforces. The Plan included the sale of the game and puzzle operation, the
exit from direct marketing continuity clubs and school book club businesses, the
closure and sale of the Company's Fayetteville, North Carolina manufacturing and
distribution facility and streamlining the Company's publishing business so as
to focus on its core competencies. Therefore, subsequent to the Company's
quarter ended May 1, 1993, the results of operations do not include the results
of the Advertising Specialty Division and subsequent to January 29, 1994, the
results of operations do not include the results of those businesses and
facilities sold or closed as part of the Plan.
During the year ended January 28, 1995, the game and puzzle operation was sold
to Hasbro, Inc. for cash proceeds of $101.4 million; the sale of the Advertising
Specialty Division was completed for cash proceeds of $14.0 million; the Direct
Marketing Continuity Clubs business was sold for cash proceeds of $10.2 million
and the Company completed the sale of its School Book Club business for cash
proceeds of $4.3 million.
Revenues for the year ended January 28, 1995 decreased $214.1 million (34.7%) to
$402.6 million as compared to $616.7 million for the year ended January 29,
1994. Excluding revenues of the operations disposed of under the Plan, revenues
decreased $76.3 million (15.9%) for the year ended January 28, 1995, as compared
to the prior year. Consumer Products Segment revenues from ongoing operations
decreased $68.7 million (16.6%) for the year ended January 28, 1995. The decline
for the year resulted from lower sales of non-Western products after the
management of the Books 'R' Us program at Toys 'R' Us was assumed by Toys 'R' Us
at the beginning of fiscal 1995; lower sales of interactive electronic
storybooks as the growth in new electronic storybook formats was offset by
original formats approaching maturity; and the continued reductions in
retailers' on-hand inventories, resulting in a slower order rate for restocking
and future orders. Additionally, the decrease for the year was further impacted
by the decline in domestic consumer product sales caused by distractions
resulting from the previously contemplated sale of the Company; market
uncertainties and employee concerns associated with announced and implemented
overhead reduction measures and the sales of certain of the Company's businesses
as outlined in the Plan. Commercial product segment revenues (other than
revenues of the Advertising Specialty Division), which are comprised of printing
services, decreased $7.6 million (11.7%) for the year ended January 28, 1995.
The decline for the year was due to decreases in sales of kits, services to
third party software developers and custom publishing.
Price increases in the Consumer Products Segment were approximately 3%. 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.
Income before interest expense and income taxes for the year ended January 28,
1995 was $2.5 million as compared to a loss of $47.1 million for the year ended
January 29, 1994. This improvement of $49.6 million was the result of a $20.4
million gain on streamlining plan, a $1.1 million reduction to the Company's
previously recorded provision for write-down of the Advertising Specialty
Division, a $78.9 million decrease in selling, general and administrative
expenses and a $79.0 million decrease in gross profit. In addition, operations
for the year ended January 29, 1994 included 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.
19
<PAGE>
Gross profit for the year ended January 28, 1995 was $105.1 million, as compared
to $184.2 million for the year ended January 29, 1994, a decrease of 42.9%. As a
percentage of revenues, the gross profit margin decreased to 26.1% for fiscal
1995 as compared to 29.9% for fiscal 1994. For ongoing operations, gross profit
for fiscal 1995 decreased $32.3 million (23.5%) to $105.1 million, compared to
$137.5 million in fiscal 1994. As a percentage of revenues, the gross profit
margin decreased to 26.1% for fiscal 1995 as compared to 28.7% for fiscal 1994.
In the Consumer Products Segment, gross profit of on-going operations decreased
$32.3 million (24.7%) to $98.3 million for the year ended January 28, 1995, as
compared to the year ended January 29, 1994. As a percentage of revenues, the
Consumer Products Segment gross profit margin decreased to 28.5% for fiscal 1995
as compared to 31.5% for fiscal 1994. A substantial portion of the decrease in
gross profit margin for the year arose from negative manufacturing variances due
to lower production in response to the Company's continuing efforts to reduce
inventories. Additionally, the decrease in gross profit margin was attributable
to a change in product mix, which caused an increase in royalty costs and
increased freight costs associated with category management and direct store
shipment programs. In the Commercial Products Segment, the gross profit margin
of printing services increased to 12.0% in fiscal 1995 from 10.7% in fiscal
1994. The increase for the year was due to a more favorable product mix.
Selling, general and administrative expenses for the year ended January 28, 1995
decreased $78.9 million (38.9%) to $124.1 million as compared to $203.0 million
for the year ended January 29, 1994. For ongoing operations, selling, general
and administrative expenses for the year ended January 28, 1995 decreased $19.6
million (13.6%) to $124.1 million as compared to $143.7 million for the year
ended January 29, 1994. The decrease was primarily attributable to decreased
sales promotion costs, including the costs of corrugated displays and co-op
advertising, and reduced personnel and other costs resulting from the
implementation of the Plan.
Interest expense for the year increased $1.3 million to $17.6 million as
compared to $16.3 million in fiscal 1994. While the increase was due to higher
interest rates, it was substantially offset by increased earnings from invested
cash balances of $1.2 million. Total average outstanding debt decreased to
$221.3 million for the year from $248.7 million for the previous year (see
Financial Condition, Liquidity and Capital Resources), while average interest
rates increased from 6.6% to 7.9%. The increase in average interest rates
resulted primarily from the increase in short term rates.
The Company's income tax provision for fiscal 1995 includes income taxes
resulting from the streamlining plan gain, the adjustment of the provision for
write-down of Division and an effective income tax benefit rate of 16.0% from
operations. The effective income tax benefit rate from operations is
significantly below the federal statutory rate due to losses incurred during the
year for which no tax benefit has been recognized, partially offset by permanent
differences relating to the sale of the Advertising Specialty Division.
Profitable operating results in subsequent years will benefit from an income tax
provision rate which will be lower than the statutory rate due to the
reinstatement of deferred tax assets for which a valuation allowance was
establishing in fiscal 1995. For the year ended January 29, 1994, the income tax
benefit rate was 35.2%.
The loss for the year ended January 28, 1995, before the streamlining plan gain
and the adjustment of the provision for write-down of Division was $30.7 million
or $1.50 per share, compared to a loss of $21.7 million or $1.07 per share,
before the provision for write-down of Division and the cumulative effect of a
change in accounting principle (postretirement benefits other than pensions),
for the year ended January 29, 1994. During the year, the Company recorded a
streamlining plan gain of $20.4 million ($12.4 million, net of income taxes) or
$.59 per share and adjusted its provision for write-down of Division by $1.1
million ($.8 million, net of income taxes) or $.03 per share. Therefore, the net
loss for the year ended January 28, 1995 was $17.6 million or $.88 per share.
During the year ended January 29, 1994, the Company adopted Statement of
Financial Accounting Standards ("FASB") No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions", using the immediate recognition
method. As a result, the Company recorded a 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. Further, 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
ended January 29, 1994 was $55.8 million or $2.70 per share.
20
<PAGE>
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 $7.6 million (1.2%) for the year ended January 29,
1994, 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 $42.7 million decrease in gross profit and a $14.9 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 $184.2 million, as compared
to $226.9 million for the year ended January 30, 1993, a decrease of 18.8%. 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 $33.5 million (16.0%) to $176.4 million for the year
ended January 29, 1994, as compared to the year ended January 30, 1993. As a
percentage of revenues, the Consumer Products Segment gross profit margin
decreased to 32.0% 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% in fiscal 1994 from 11.9% in fiscal 1993.
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 $14.9 million (7.9%) to $203.0 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
21
<PAGE>
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
FASB No. 106, using the immediate recognition method. As a result, the Company
recorded a 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.
Effects of Inflation
For fiscal 1993, fiscal 1994 and the first three quarters of fiscal 1995, the
Company's raw material costs, principally paper, remained relatively stable.
During the fourth quarter of fiscal 1995, the Company experienced paper price
increases due to increased demand, decreases in imported paper and an overall
reduction in industry capacity. Management believes that paper price increases
will continue to impact on its production throughout fiscal 1996, a portion of
which will be recouped through price increases and product specification
changes.
Financial Condition, Liquidity and Capital Resources
Operations for the year ended January 28, 1995, excluding the streamlining plan
gain, the adjustment of the provision for write-down of Division, and non-cash
charges for depreciation, amortization and the provision for losses on accounts
receivable utilized cash of approximately $26.0 million. The 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 and the provision for the write-down of Division, provided cash of
approximately $17.5 million. During the years ended January 28, 1995 and January
29, 1994, other changes in assets and liabilities, resulting from operating
activities provided $39.7 million and used $32.0 million of cash, respectively,
resulting in fiscal 1995 net cash provided by operating activities of $13.6
million and fiscal 1994 cash used in operating activities of $14.5 million.
Acquisitions of property, plant and equipment were $19.3 million during the year
ended January 28, 1995 as compared to $37.4 million during the year ended
January 29, 1994. Fiscal 1995 capital expenditures include costs associated with
the Company's new order processing, customer service and inventory management
system, retail fixtures utilized in its category management programs and the
completion of its third Golden Books Showcase store which opened in New York
City in April 1994. The Company is currently finalizing 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. Although the Company is committed to an expansion, no material
contracts for this facility expansion have been executed.
During the year ended January 28, 1995, the Company utilized cash for financing
activities by repaying $48.0 million of outstanding borrowings under its
Revolving Credit Agreement. Cash provided by financing activities during the
year ended January 29, 1994 was primarily from borrowings of $50.0 million
under the Company's Revolving Credit Agreement.
22
<PAGE>
Working capital decreased to $228.0 million from $333.2 million at January 29,
1994. The decrease in working capital is due in part to the reclassification of
the loans outstanding under the Revolving Credit Agreement at January 28, 1995
of $32.0 million as the Company's Revolving Credit Agreement expires on May 31,
1995. The balance of the decline is attributable to the repayment of borrowings
under the Revolving Credit Agreement as a result of the completion of the Plan;
lower accounts receivable resulting from asset sales, lower sales from ongoing
operations and the planned reduction in inventories.
Further, the completion of the Plan has had and will have a favorable effect on
the Company's financial position, results of operations and future capital
requirements. 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, began to be realized in the second quarter of fiscal 1995.
While the Company will continue to evaluate opportunities for additional cost
savings, the Plan has been completed.
As discussed in Note 6 to the Consolidated Financial Statements, in the first
quarter of fiscal 1996 the Company repaid all outstanding notes under its
Revolving Credit Agreement and the Agreement was terminated. The Company is
currently in the process of negotiating with a number of financial institutions
to arrange financing for its seasonal borrowing requirements, which are
projected to be significantly reduced from historical levels. In the opinion of
management, the Company will be able to negotiate an acceptable financing
arrangement to meet these requirements. However, if the Company is unable to
successfully negotiate an acceptable financing arrangement, management has
developed alternative plans which could include the deferral of capital
expenditures, the implementation of working capital management programs, and/or
the sale of assets, resulting in a reduction in its peak seasonal needs. At
January 28, 1995, the Company had available cash balances of approximately $85.4
million and outstanding notes under its Revolving Credit Agreement of $32.0
million. Accordingly, in the opinion of management, the implementation of the
alternative plans, if necessary, will not materially impact planned operating
levels.
23
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements and Schedules on Page F-1.
24
<PAGE>
CONSOLIDATED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
(In Thousands Except For Per Share Data)
<S> <C> <C> <C> <C>
1995
Net sales $ 67,308 $ 104,410 $ 129,269 $ 97,367
Gross profit 10,629 28,370 39,282 22,652
Net (loss) income (1) (14,017) (2,932) 5,383 (6,013)
Net (loss) income per common share $ (.68) $ (.15) $ .25 $ (.30)
Weighted average number of common shares 20,959 20,985 21,020 21,023
1994
Net sales $ 110,325 $ 130,988 $ 200,573 $ 171,578
Gross profit 33,765 40,785 63,999 42,412
(Loss) income before cumulative effect
of change in accounting principle (2) (30,312) (3,966) 2,426 (9,173)
Net (loss) income (2) (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
</TABLE>
(1) Includes gain on streamlining plan of $20,352 ($12,396, net of income taxes)
which was recognized in the third quarter, as well as a reduction to
the Company's previoulsy recorded provision for write-down of Division
of $1,100 ($753, net of income taxes) which was recognized in the fourth
quarter.
(2) Includes provision for write-down of Division of $28,180 ($19,280, net of
income taxes). The income tax impact of $8,900 was recorded as follows:
$6,400 in the first quarter and $2,500 in the fourth quarter.
25
<PAGE>
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 will be incorporated by
reference to the information under "Business Experience of Nominees for Election
as Directors" in the Registrant's Proxy Statement or Form 10-K-A to be filed on
or prior to May 30, 1995.
ITEM 11. EXECUTIVE COMPENSATION
The information called for will be incorporated by reference to the information
under "Executive Compensation" in the Registrant's Proxy Statement or Form
10-K-A to be filed on or prior to May 30, 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for will be incorporated by reference to the information
under "Stock Ownership of Principal Stockholders" and "Stock Ownership of
Directors and Officers", respectively in the Registrant's Proxy Statement or
Form 10-K-A to be filed on or prior to May 30, 1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for will be incorporated by reference to the information
under "Certain Transactions" in the Registrant's Proxy Statement or Form 10-K-A
to be filed on or prior to May 30, 1995.
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.
26
<PAGE>
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 Registrant's
Annual Report on From 10-K for fiscal year 1991 (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 Registrant's Annual
Report on Form 10-K for fiscal year 1989 (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")).
10.33 Lease dated February 1, 1989, between Golden Press, Inc. and 850 Third
Avenue LP (incorporated by reference to Exhibit 10.33 to 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 LP and Golden Press, Inc., as
modified by Letter Agreement dated February 3, 1993 (incorporated by
reference to Exhibit 10.33a to the 1990 Form 10-K).
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).
27
<PAGE>
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 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).
10.40 Golden Comprehensive Security Program, as amended and restated,
effective January 1, 1993 (incorporated by reference to Exhibit 10.40 to
the Registrant's Annual Report on Form 10-K for the fiscal year 1993
(the "1993 Form 10-K")).
10.41 First Amendment of Golden Comprehensive Security Program, as amended
and restated, effective as of January 1, 1994.
10.53 Golden Retirement Savings Program, as amended and restated, effective
as of January 1, 1993 (incorporated by reference to Exhibit 10.53 to the
1993 Form 10-K).
10.54 First Amendment of Golden Retirement Savings Program, as amended and
restated, effective as of January 1, 1994.
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 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 1992 (the
"1992 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 fiscal year 1994 (the
"1994 Form 10-K")).
10.71c Eleventh Amendment of Penn Corporation Comprehensive Security Program
effective as of January 1, 1994.
28
<PAGE>
10.72 Beach Products (Division of Penn Corporation) Retirement Savings
Program, effective May 2, 1989 (incorporated by reference to Exhibit
10.72 to 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 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 1992 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 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 1994 Form 10-K).
10.74c Fifth Amendment of Beach Products (Division of Penn Corporation)
Retirement Savings Program, effective as of January 1, 1994.
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 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
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 (incorporated by reference to Exhibit 10.89 to
the 1994 Form 10-K).
10.90 Amendment No. 2 dated as of October 30, 1993, to the Credit Agreement
dated as of November 12, 1992 (incorporated by reference to Exhibit 10.90
to the 1994 Form 10-K).
10.91 Guarantee Agreement dated as of December 13, 1993, to the Credit
Agreement dated as of November 12, 1992 (incorporated by reference to
Exhibit 10.91 to the 1994 Form 10-K).
10.92 Amendment No. 3 dated as of May 13, 1994, to the Credit Agreement dated
as of November 12, 1992 (incorporated by reference to Exhibit 10.92 to
the 1994 Form 10-K).
29
<PAGE>
10.93 Amended and Restated Credit Agreement dated as of May 31, 1994,
providing up to $140 million, among the Registrant, Western Publishing
Group, Inc. and a group of commercial banks.
10.94 Amendment No. 1 dated as of August 4, 1994, to the Amended and Restated
Credit Agreement dated as of May 31, 1994.
10.95 Amendment No. 2 dated as of February 21, 1995, to the Amended and
Restated Credit Agreement dated as of May 31, 1994.
10.96 Asset Purchase and Supply Agreement dated as of August 4, 1994 among
Western Publishing Company, Inc., Western Publishing (Canada), Ltd., and
Hasbro, Inc.
10.97 Agreement dated as of September 23, 1994 between Western Publishing
Group, Inc. and George P. Oess.
21.1 List of Subsidiaries.
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.
30
<PAGE>
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 15, 1995
Western Publishing Group, Inc.
By: /s/ Richard A. Bernstein
------------------------------------
Richard A. Bernstein,
Chairman and Chief Executive Officer
31
<PAGE>
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 15, 1995
- ------------------------------ Officer and Director
Richard A. Bernstein (Principal Executive Officer)
/S/ Steven M. Grossman Executive Vice President, May 15, 1995
- ------------------------------ Treasurer and
Steven M. Grossman Chief Financial Officer
(Principal Financial and
Accounting Officer)
/S/ Allan S. Gordon Director May 15, 1995
- ------------------------------
Allan S. Gordon
/S/ Robert A. Bernhard Director May 15, 1995
- ------------------------------
Robert A. Bernhard
/S/ Samuel B. Fortenbaugh, III Director May 15, 1995
- ------------------------------
Samuel B. Fortenbaugh, III
/S/ Michael A. Pietrangelo Director May 15, 1995
- ------------------------------
Michael A. Pietrangelo
/S/ Jenny Morgenthau Director May 15, 1995
- ------------------------------
Jenny Morgenthau
32
<PAGE>
WESTERN PUBLISHING GROUP, INC AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Financial Statements PAGE
- -------------------- ----
Independent Auditors' Report F-2
Consolidated Balance Sheets as of January 28, 1995
and January 29, 1994. F-3
Consolidated Statements of Operations for the
Years ended January 28, 1995, January 29, 1994 F-4
and January 30, 1993.
Consolidated Statements of Common Stockholders' Equity
for the Years Ended January 28, 1995, January 29, 1994
and January 30, 1993. F-5
Consolidated Statements of Cash Flows for the Years Ended
January 28, 1995, January 29, 1994 and January 30, 1993. F-6
Notes to Consolidated Financial Statements. F-7
Schedule
- --------
II - Valuation and Qualifying Accounts S-1
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.
F-1
<PAGE>
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 28, 1995 and January 29,
1994, and the related consolidated statements of operations, common
stockholders' equity and cash flows for each of the three years in the period
ended January 28, 1995. Our audits also included the financial statement
schedule listed in the Index at Item 14. These financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statements and
financial statement schedule 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 Company at January 28, 1995 and
January 29, 1994, and the results of their operations and their cash flows for
each of the three years in the period ended January 28, 1995 in conformity with
generally accepted accounting principles. Also, in our opinion, the financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
As discussed in Note 13 to the consolidated financial statements, in fiscal 1994
the Company changed their method of accounting for postretirement benefits other
than pensions to conform with Statement of Financial Accounting Standards No.
106.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
April 21, 1995
(May 6, 1995 as to Note 6)
F-2
<PAGE>
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 28, 1995 AND JANUARY 29, 1994
(In Thousands Except for Share and Per Share Data)
ASSETS
1995 1994
CURRENT ASSETS:
Cash and cash equivalents $ 85,406 $ 9,513
Accounts receivable 83,251 137,921
Inventories 108,738 121,178
Prepublication and prepaid advertising costs 7,3147,720
Royalty advances 2,221 2,970
Refundable income taxes 5,940 12,830
Deferred income taxes 10,676 20,823
Net assets held for sale 17,681 88,523
Other current assets 6,397 10,361
-------- --------
Total current assets 327,624 411,839
-------- --------
OTHER ASSETS:
Deferred income taxes 3,210 1,439
Other noncurrent assets 10,834 11,008
-------- --------
Total other assets 14,044 12,447
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Cost:
Land 1,022 1,013
Buildings and improvements 21,463 21,472
Machinery and equipment 96,317 76,874
Machinery and equipment in process of installation 4,188 9,242
-------- --------
122,990 108,601
Less accumulated depreciation 47,325 41,351
-------- --------
Total property, plant and equipment 75,665 67,250
IDENTIFIED INTANGIBLES AND COST IN EXCESS
OF NET ASSETS ACQUIRED (GOODWILL), less accumulated
amortization of $19,173 and $17,066 11,473 13,580
-------- --------
TOTAL $428,806 $505,116
======== ========
See notes to consolidated financial statements.
LIABILITIES AND STOCKHOLDERS' EQUITY
1995 1994
CURRENT LIABILITIES:
Accounts payable $ 18,461 $ 40,532
Accrued compensation and fringe benefits 9,812 10,644
Notes payable to banks 32,000
Other current liabilities 39,111 27,684
-------- --------
Total current liabilities 99,384 78,860
NONCURRENT LIABILITIES:
Long-term debt 149,828 229,812
Accumulated postretirement benefit obligation 26,894 25,949
Other 1,921 1,837
-------- --------
Total noncurrent liabilities 178,643 257,598
-------- --------
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, 21,232,074 and 21,167,324 shares issued 212 212
Additional paid-in capital 80,914 80,213
Retained earnings 64,287 82,714
Cumulative translation adjustments (1,797) (1,644)
-------- --------
143,616 161,495
Less cost of Common Stock in treasury - 208,800 shares 2,822 2,822
-------- --------
Total common stockholders' equity 140,794 158,673
-------- --------
TOTAL $428,806 $505,116
======== ========
F-3
<PAGE>
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE YEARS ENDED JANUARY 28, 1995
(In Thousands Except for Per Share Data)
1995 1994 1993
REVENUES:
Net sales $398,354 $613,464 $649,089
Royalties and other income 4,201 3,211 3,062
-------- -------- --------
Total revenues 402,555 616,675 652,151
-------- -------- --------
COSTS AND EXPENSES:
Cost of sales 297,421 432,503 425,274
Selling, general and administrative 124,128 203,042 188,161
Gain on streamlining plan (20,352)
Provision for write-down of Division (1,100) 28,180
-------- -------- --------
Total costs and expenses 400,097 663,725 613,435
-------- -------- --------
INCOME (LOSS) BEFORE INTEREST EXPENSE,
INCOME TAXES AND CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE 2,458 (47,050) 38,716
INTEREST EXPENSE 17,567 16,270 10,358
-------- -------- --------
(LOSS) INCOME BEFORE INCOME TAXES
AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE (15,109) (63,320) 28,358
PROVISION (BENEFIT) FOR INCOME TAXES 2,470 (22,295) 10,860
-------- -------- --------
(LOSS) INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE (17,579) (41,025) 17,498
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (14,800)
-------- -------- --------
NET (LOSS) INCOME $(17,579) $(55,825) $ 17,498
======== ======== ========
(LOSS) INCOME PER COMMON SHARE:
Before cumulative effect of change in
accounting principle $ (.88) $ (1.99) $ .80
Cumulative effect of change in accounting
principle (.71)
-------- -------- --------
Net (loss) income $ (.88) $ (2.70) $ .80
======== ======== ========
See notes to consolidated financial statements.
F-4
<PAGE>
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
THREE YEARS ENDED JANUARY 28, 1995
(In Thousands Except for Share and Per Share Data)
<TABLE>
<CAPTION>
Common Stock Additional Cumulative Treasury Stock
------------------- Paid-In Retained Translation -----------------
Shares Amount Capital Earnings Adjustments Shares Amount
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, FEBRUARY 2, 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
Net loss (17,579)
Dividends on Preferred Stock - $42.50 per share (848)
Exercise of stock options, including related
income tax benefits 64,750 701
Translation adjustments (153)
------------ -------- -------- ---------- --------- --------- -------
BALANCES, JANUARY 28, 1995 21,232,074 $212 $80,914 $64,287 $(1,797) 208,800 $2,822
============ ======== ======== ========== ========= ========= =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED JANUARY 28, 1995
(In Thousands)
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(17,579) $(55,825) $17,498
Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:
Depreciation 10,419 12,108 8,506
Amortization of intangibles arising from
acquisition 3,457 4,888 4,798
Provision for losses on accounts receivable 472 5,662 5,855
Provision for write-down of Division (2,450) 26,405
Cumulative effect of change in accounting
principle (before income tax benefit) 24,300
Gain on streamlining plan (20,352)
(Gains) losses on sale of equipment (187) (26) 109
Other 2,001 1,330 720
Changes in assets and liabilities:
Accounts receivable 54,174 (9,222) (29,669)
Inventories 12,504 17,959 (62,088)
Prepublication, prepaid advertising costs
and royalty advances 1,189 1,229 (2,947)
Net assets held for sale (37,719)
Refundable income taxes 6,890 (12,830)
Other current assets 3,954 (2,280) (4,041)
Accounts payable (22,226) (1,087) (6,301)
Accrued compensation and fringe benefits (1,122) (1,021) (625)
Other current liabilities 11,839 (5,708) (2,827)
Deferred income taxes 8,376 (20,340) 210
-------- -------- --------
Net cash provided by (used in)
operating activities 13,640 (14,458) (70,802)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property, plant and equipment (19,307) (37,359) (23,704)
Proceeds from streamlining plan 115,971
Proceeds from sale of Division 14,001
Proceeds from sale of equipment 225 119 281
Acquisition of rights to market games (1,125)
Return of (investment in) joint venture 500 1,900 (1,600)
-------- -------- --------
Net cash provided by (used in) 111,390 (35,340) (26,148)
investing activities -------- -------- --------
</TABLE>
See notes to consolidated financial statements.
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED JANUARY 28, 1995
(In Thousands)
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayments) borrowings under Credit Agreement $(48,000) $50,000 $ 30,000
Proceeds from issuance of senior notes 149,792
Costs in connection with issuance of senior notes (1,440)
Decrease in notes payable under
bridge credit agreement (79,000)
Proceeds from sale of Common stock (exercise
of options) 656 300 1,049
Dividends paid on Preferred Stock (848) (848) (848)
Other (941) (562) (870)
-------- -------- --------
Net cash (used in) provided by financing activities (49,133) 48,890 98,683
-------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH (4) (20) (66)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 75,893 (928) 1,667
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 9,513 10,441 8,774
-------- -------- --------
CASH AND CASH EQUIVALENTS, END
OF YEAR $ 85,406 $ 9,513 $ 10,441
========= ======== =========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for:
Interest $ 16,663 $15,738 $ 6,590
Income taxes, net of refunds received (12,829) 6,124 13,556
</TABLE>
F-6
<PAGE>
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED JANUARY 28, 1995
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 1995, 1994, and 1993 each contained 52
weeks.
Cash and Cash Equivalents - The Company considers all highly liquid debt
investments purchased with maturities of three months or less to be cash
equivalents. Cash equivalents consist of investments in high grade
commercial paper. Accordingly, these investments are subject to minimal
credit and market risk. As of January 30, 1994, the Company adopted
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". Under this statement,
the Company is required to classify cash equivalents into one or more of
the following categories: held to maturity, trading, or available for
sale. The adoption of this statement had no effect on the consolidated
financial statements. At January 28, 1995, all of the Company's cash
equivalents are classified as held to maturity and their carrying amounts
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 international operations are
valued using the first-in, first-out ("FIFO") method. At January 28, 1995
and January 29, 1994, approximately 93% 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) are
deferred. Such costs are amortized from the date of initial product sale,
generally over a period of one year.
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
F-7
<PAGE>
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 15 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. The gains and losses resulting from the
translation adjustments have been accumulated 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 April 7, 1994, the Company adopted a plan (the "Plan") designed to
improve its competitive position and reduce its cost structure through the
sale, divestiture, consolidation or phase out of certain operations,
properties and products, and a workforce reduction.
The Plan included the following major components:
o An agreement to sell the game and puzzle operation (including certain
inventories) to Hasbro, Inc. ("Hasbro"). This transaction was
completed on August 4, 1994 for cash proceeds of approximately
$101,400,000.
F-8
<PAGE>
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
o The decision to exit the Direct Marketing Continuity Clubs and
School Book Club businesses. The sale of the School Book Club
business was consummated on July 1, 1994 for cash proceeds of
approximately $4,300,000 and the sale of the Direct Marketing
Continuity Club business was completed on October 7, 1994 for cash
proceeds of approximately $10,200,000.
o The closedown and sale of the Company's Fayetteville, North Carolina
manufacturing and distribution facility, which was primarily dedicated
to the game and puzzle operation but was not included in the sale to
Hasbro. This facility is closed and is for sale.
o The decision to streamline the Company's publishing business so as to
focus on its core competencies. This included a reduction in the
management, administrative and direct labor workforces.
The net assets of the game, puzzle, direct marketing and school book club
operations and the Fayetteville facility have been classified as net
assets held for sale. The net cash proceeds arising from the Plan were
utilized to repay outstanding debt under the Company's Revolving Credit
Agreement. During the third quarter ended October 29, 1994, the Company
recorded a net gain from the Plan of $20,352,000 ($12,396,000, net of
income taxes), inclusive of operating losses of the game, puzzle, direct
marketing and school book club operations from January 30, 1994 through
their respective disposition dates.
For fiscal 1994 and 1993 the game, puzzle, direct marketing and school
book club operations had revenues of approximately $125,000,000, and
$142,000,000, respectively.
Provision for Write-Down of Division
During fiscal 1994, the Company established a provision, including
operating losses through the expected disposition date, of $28,180,000
($19,280,000, net of income taxes) to write-down the assets of the
Advertising Specialty Division of its Penn Corporation subsidiary to net
realizable value.
On August 5, 1994, the sale of the Ritepoint and Adtrend businesses of
the Division was completed for cash proceeds of approximately
$5,650,000. The sale of the Vitronic and K-Studio businesses of the
Division was completed on November 7, 1994 for cash proceeds of
approximately $8,350,000. As the proceeds from the sale of this
Division exceeded management's estimate, the Company adjusted its
previously recorded provision for write-down of Division by recognizing
a gain of $1,100,000 ($753,000, net of income taxes) in the fourth
quarter of fiscal 1995. The net cash proceeds from the sale of this
Division were utilized to repay outstanding debt under the Revolving
Credit Agreement.
F-9
<PAGE>
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Revenues and losses before interest expense and income taxes of the
Division, included in the accompanying consolidated statements of
operations, exclusive of the provision for write-down, are as follows
(subsequent to May 1, 1993, the consolidated statements of operations do
not include the results of the Division):
1994 1993
(In thousands)
Revenues $ 7,202 $ 35,037
======= ========
Loss before interest expense and income taxes,
exclusive of the provision for write-down $ 2,083 $ 4,635
======= ========
Net Assets Held for Sale
Net assets held for sale consisted of the following:
1995 1994
(In thousands)
Current assets $ 2,181 $ 60,020
Property, plant and equipment, net 17,500 32,655
Other assets (primarily identified intangibles
and goodwill), net 27,933
------- --------
19,681 120,608
Less:
Current liabilities (2,000) (5,680)
Provision for write-down, net of Division
operations subsequent to May 1, 1993 (26,405)
------- --------
Net assets held for sale $17,681 $ 88,523
======= ========
3. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following:
1995 1994
(In thousands)
Accounts receivable $94,790 $154,090
Allowance for doubtful accounts (4,067) (4,491)
Allowance for returns (7,472) (11,678)
------- --------
$83,251 $137,921
======= ========
F-10
<PAGE>
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INVENTORIES
Inventories consisted of the following:
1995 1994
(In thousands)
Raw materials $ 9,934 $ 14,913
Work-in-process 19,900 28,783
Finished goods 78,904 77,482
-------- --------
$108,738 $121,178
======== ========
At January 28, 1995 and January 29, 1994, the replacement cost of
inventories valued using the LIFO method exceeded the net carrying amount of
such inventories by approximately $9,200,000 and $8,890,000, 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:
1995 1994
(In thousands)
Goodwill $ 5,928 $ 6,114
Identified intangibles:
Customer lists 4,832 6,730
Other 713 736
------- -------
$11,473 $13,580
======= =======
6. LONG-TERM DEBT
Long-term debt consisted of the following:
1995 1994
(In thousands)
Notes payable to banks $ 32,000 $ 80,000
7.65% Senior Notes ($150,000,000 face
amount) due in 2002 149,828 149,812
-------- --------
181,828 229,812
Less current portion 32,000
-------- --------
$149,828 $229,812
======== ========
F-11
<PAGE>
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company maintained an amended and restated revolving credit agreement
dated May 31, 1994 as amended (the "Agreement"), with a group of commercial
banks, which expires on May 31, 1995. On January 28, 1995, notes totalling
$32,000,000 at a weighted average interest rate of 9.3% and letters of
credit for inventory purchase commitments of approximately $920,000 were
outstanding. During the first quarter of fiscal 1996, all outstanding notes
were repaid and the Agreement was terminated.
The Company is currently in the process of negotiating with a number of
financial institutions to arrange financing for its seasonal borrowing
requirements. In the opinion of management, the Company will be able to
negotiate an acceptable financing arrangement to meet these requirements.
However, if the Company is unable to obtain such financing, management has
developed alternative plans which could include the deferral of capital
expenditures, the implementation of working capital management programs,
and/or the sale of assets, resulting in a reduction in its peak seasonal
needs.
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 Indenture covering the Senior Notes contains certain provisions limiting
additional indebtedness, guarantees, liens and the payment of cash dividends
on Common Stock. At January 28, 1995, there were no retained earnings
available to pay dividends on Common Stock.
Notes payable to banks at January 28, 1995 and January 29, 1994 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 1994 and 1993, respectively. Western Publishing Group, Inc.'s
7.65% Senior Notes had a fair value of approximately $111,000,000 on January
28, 1995 and $142,000,000 on January 29, 1994, respectively, based on market
interest rates.
7. OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following:
1995 1994
(In thousands)
Royalties payable $ 6,320 $ 4,757
Advertising and promotion 3,828 8,507
Costs associated with streamlining plan 7,690
Other 21,273 14,420
------- -------
$39,111 $27,684
======= =======
F-12
<PAGE>
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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%). Options granted after February 3,
1990 but prior to June 21, 1994 become exercisable in their entirety
five years after the date of grant. Options granted subsequent to June
21, 1994 (except as noted below) become exercisable on the date of grant
(33 1/3%), one year after the date of grant (33 1/3%) and two years after
the date of grant (33 1/3%).
The following table includes options to purchase 55,000 shares of Common
Stock which became exercisable on the date of grant and expire in 1997.
Additionally, the table includes options to purchase 9,500 shares of Common
Stock which become exercisable one year after the date of grant (33 1/3%),
two years after the date of grant (33 1/3%), and three years after date of
grant (33 1/3%) and expire in 2004.
F-13
<PAGE>
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following data is presented in connection with the stock option plan:
Shares
------------------------------------
Outstanding
Reserved Options Available
-------- ------- ---------
Balances, February 2, 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
Granted - $11.50 to $12.75 871,650 (871,650)
Cancelled - $10.00 to $20.00 (428,950) 428,950
Exercised - $10.00 to $12.00 (64,750) (64,750)
---------- --------- --------
Balances, January 28, 1995 1,874,300 1,376,700 497,600
========== ========= ========
F-14
<PAGE>
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Options outstanding and exercisable at January 28, 1995 are as follows:
Expiration Exercise Number of Options
Date Price Outstanding Exercisable
April 23, 1996 $20.00 33,000 33,000
April 22, 1997 12.00 20,500 20,500
September 23, 1997 12.75 55,000 55,000
April 23, 1998 14.50 21,000 21,000
March 2, 1999 16.75 52,500 52,500
February 2, 2001 11.75 101,000
September 17, 2001 10.00 110,000
January 3, 2002 15.00 30,000
July 1, 2002 15.50 148,000
October 27, 2002 17.25 7,500
June 22, 2004 11.75 621,700 207,067
August 23, 2004 11.50 167,000 55,666
December 1, 2004 11.50 9,500
--------- -------
1,376,700 444,733
========= =======
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. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain facilities, machinery and vehicles under various
noncancellable operating lease agreements over periods of one to 10 years.
Future minimum lease payments required under such leases in effect at
January 28, 1995 were as follows (by fiscal year):
(In thousands)
1996 $ 3,905
1997 3,258
1998 2,870
1999 2,488
2000 2,057
2001 through 2005 6,328
-------
$20,906
=======
F-15
<PAGE>
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Total rental expense charged to operations was $6,914,000, $8,330,000 and
$7,732,000 for the years ended January 28, 1995, January 29, 1994 and
January 30, 1993, respectively.
Contingencies
The Company has been named in various legal proceedings in the normal
course of its business. Additionally, the Company, along with other
parties, is involved in a number of proceedings brought under the
Comprehensive Environmental Response, Compensation and Liability Act,
commonly known as Superfund, as well as under other Federal and state
statues. Environmental expenditures that relate to current operations are
expensed or capitalized, as appropriate. Liabilities are recorded when
environmental assessments and/or remedial efforts are probable, the cost
can be reasonably estimated and the Company's responsibility is
established.
While it is not feasible to predict or determine the outcome of these
proceedings, it is the opinion of management that their outcome, to the
extent not provided for through insurance or otherwise, will not have a
materially adverse effect on the Company's financial position or results of
future operations.
11. ROYALTIES AND OTHER INCOME
Royalties and other income consisted of the following:
1995 1994 1993
(In thousands)
Royalties $1,948 $2,043 $1,771
Interest income 1,994 807 836
Other 259 361 455
------ ------ ------
$4,201 $3,211 $3,062
====== ====== ======
F-16
<PAGE>
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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:
1995 1994 1993
(In thousands)
Currently (refundable) payable:
Federal $ (6,656) $(11,185) $ 7,700
State 380 (240) 2,240
Foreign 370 (30) 710
-------- -------- --------
(5,906) (11,455) 10,650
-------- -------- --------
Deferred:
Federal 8,239 (9,520) 230
State 222 (1,300) 80
Foreign (85) (20) (100)
-------- -------- --------
8,376 (10,840) 210
-------- -------- --------
$ 2,470 $(22,295) $10,860
======== ======== =======
Income (loss) before income tax expense (benefit) of Western Publishing
Company, Inc.'s Canadian subsidiary was $1,461,000, $(82,000) and
$1,122,000 for the years ended January 28, 1995, January 29, 1994 and
January 30, 1993, respectively.
A reconciliation of the statutory United States Federal income tax rate to
the Company's effective income tax rate follows:
1995 1994 1993
Statutory rate 35.0% 35.0% 34.0%
State income taxes, net of Federal benefit (2.6) 1.6 5.5
Valuation allowance (82.4)
Permanent differences relating to the sale of
the Advertising Specialty Division 35.9
Other - net (2.2) (1.4) (1.2)
---- ---- ----
(16.3)% 35.2% 38.3%
===== ==== =====
F-17
<PAGE>
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
28, 1995 and January 29, 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
Assets Liabilities Assets Liabilities
(In thousands)
<S> <C> <C> <C> <C>
Allowances for doubtful accounts and
returns not currently deductible $ 4,035 $ 5,222
Inventories:
Excess of book basis over tax
basis due to purchase accounting $ (6,108) $ (6,121)
Other 9,803 8,580
Advertising costs (1,259)
Provision for write-down of division 8,197
Property, plant and equipment:
Excess of tax basis over
acquisition accounting basis 3,746 3,934
Excess of tax over book depreciation (6,555) (8,294)
Identified intangibles (1,096) (4,486)
Deferred gain on sale of plant (738) (693)
Accrued expenses not
currently deductible 9,714 5,800
Deductible pension contributions
in excess of pension expense (1,768) (1,760)
Postretirement benefits 10,758 10,379
AMT and State NOL carryforwards 4,026 1,185
Other - net 514 1,578
Valuation Allowance (12,445)
------- -------- ------- --------
Total $30,151 $(16,265) $44,875 $(22,613)
======= ======== ======= ========
</TABLE>
F-18
<PAGE>
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred income taxes are classified as follows:
<TABLE>
<CAPTION>
1995 1994
Assets Assets
Current Noncurrent Current Noncurrent
(In thousands)
<S> <C> <C> <C> <C>
Deferred income taxes $17,536 $8,795 $20,823 $1,439
Valuation allowance (6,860) (5,585)
------- ------ ------- ------
$10,676 $3,210 $20,823 $1,439
======= ====== ======= ======
</TABLE>
The valuation allowance of $12,445,000, which was recorded in 1995,
relates to the
uncertainty of realizing certain Federal and state deferred tax assets.
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 Company's 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 28, 1995 and
January 29, 1994, and for each of the three years ended January 28, 1995:
1995 1994
(In thousands)
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including
vested benefits of $11,897,000 and $14,177,000 $12,052 $14,458
======= =======
Projected benefit obligations for service rendered $12,472 $15,026
Plan assets at fair value (primarily U.S. government
securities, corporate bonds and equity mutual funds) 15,051 17,314
------- -------
Projected benefit obligations less than plan assets 2,579 2,288
Unrecognized net (gain) loss (181) 10
Unrecognized prior service cost 2,272 2,516
Unamortized portion of unrecognized net asset
at January 31, 1987 (249) (414)
------- -------
Prepaid pension costs recognized in
accompanying balance sheets $ 4,421 $ 4,400
======= =======
F-19
<PAGE>
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1995 1994 1993
(In thousands)
<S> <C> <C> <C>
Net pension (income) expense, included the
following components:
Service cost - benefits earned during the period $ 509 $ 573 $ 530
Interest cost on projected benefit obligations 1,105 1,104 1,078
Actual return on plan assets 415 (1,836) (1,814)
Net amortization and deferral (1,995) 211 33
Net settlement gain (50)
------- ------- -------
Net pension (income) expense for the year $ (16) $ 52 $ (173)
======= ======= ========
</TABLE>
The weighted average discount rate used in determining
the actuarial present value of the projected benefit obligations was 7.5%
in 1995 and 1994. The expected long-term rate of return on assets was
10.0%.
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 $376,000, $598,000 and $314,000 for the years
ended January 28, 1995, January 29, 1994 and January 30, 1993,
respectively.
Subsidiaries of the Company also maintain defined contribution contributory
retirement plans for substantially all domestic employee groups. Under the
plans, the subsidiaries 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 $3,723,000, $4,157,000 and $3,819,000 for the years
ended January 28, 1995, January 29, 1994 and January 30, 1993,
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 earnings by $24,300,000
($14,800,000, net of income taxes).
F-20
<PAGE>
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 postretirement benefit obligation recorded in the consolidated balance
sheets consisted of the following components:
1995 1994
(In thousands)
Retirees currently receiving benefits $12,594 $12,549
Current employees eligible to receive benefits 5,600 6,600
Current employees not yet eligible to receive benefits 6,600 8,500
Unrecognized net loss (gain) from past experience 1,800 (1,700)
Unrecognized prior service cost 300
------- -------
$26,894 $25,949
======= =======
The net postretirement benefit cost, which is not currently funded,
consisted of the following components:
1995 1994
(In thousands)
Service cost - benefits earned during the year $ 600 $ 700
Interest cost on accumulated postretirement benefit
obligation 2,000 1,900
Recognition of transition obligation 24,300
------ -------
$2,600 $26,900
====== =======
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation as of January 1, 1995 was 8% for 1995
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, 1995 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
as of January 1, 1995 and January 1, 1994 was 8.5% and 7.5%, respectively.
F-21
<PAGE>
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 for the year ended January 30,
1993.
Postemployment Benefits
During November 1992, the FASB issued Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits",
which requires the cost of such benefits be accrued over the employee
service period. The adoption of this statement in Fiscal 1995 did not have
a material effect on the Company's 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, manufacturing,
printing and marketing of story and picture books, interactive electronic
books and games, coloring books and other activity books and products for
children as well as multimedia "edutainment" products. 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.
The Company's Commercial Products Segment provides printing, graphic,
creative and distribution services and was engaged in the manufacture of
advertising specialties including imprinted writing instruments, wearable
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, net assets held for sale,
refundable income taxes, 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 28, 1995, January
29, 1994 and January 30, 1993.
F-22
<PAGE>
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Information by industry segment is set forth below:
1995 1994 1993
(In thousands)
Net sales:
Consumer Products $340,970 $535,603 $543,154
Commercial Products 57,384 77,86 105,935
-------- -------- --------
$398,354 $613,464 $649,089
======== ======== ========
Operating (loss) profit:
Consumer Products $ (7,737) $ 192 $ 53,625
Commercial Products (112) (2,558) (3,609)
-------- -------- --------
(7,849) (2,366) 50,016
Other income 2,253 1,168 1,291
General corporate expense (13,398) (17,672) (12,591)
Gain on streamlining plan 20,352
Provision for write-down of division 1,100 (28,180)
Interest expense (17,567) (16,270) (10,358)
-------- -------- --------
(Loss) income before income taxes
and cumulative effect of change
in accounting principle $(15,109) $(63,320) $ 28,358
======== ======== ========
Consumer Commercial
Products Products Corporate Total
(In thousands)
Identifiable assets:
1995 $268,517 $23,201 $137,088 $428,806
1994 331,502 27,974 145,640 505,116
1993 396,277 74,197 38,111 508,585
Depreciation and amortization:
1995 10,852 2,236 788 13,876
1994 11,155 5,153 688 16,996
1993 7,851 5,059 394 13,304
Capital expenditures:
1995 18,805 372 130 19,307
1994 33,524 2,443 1,392 37,359
1993 19,374 3,446 884 23,704
F-23
<PAGE>
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Other Information
For the year ended January 28, 1995, net sales from the Company's two major
customers, Wal-Mart Stores, Inc. and Toys R Us, Inc. totaled approximately
$91,700,000, or 23% of net sales. For the year ended January 29, 1994,
revenues from these customers totaled approximately $133,400,000 or 22% of
net sales.
15. NET (LOSS) INCOME PER COMMON SHARE
Net (loss) income per common share was computed as follows:
1995 1994 1993
(In thousands except for
per share data)
Net (loss) income $(17,579) $(55,825) $17,498
Preferred dividend requirements (848) (848) (848)
-------- -------- -------
(Loss) income applicable to Common Stock $(18,427) $(56,673) $16,650
======== ======== =======
Weighted average common shares
outstanding 20,997 20,956 20,899
======== ======== =======
Net (loss) income per common share $ (.88) $ (2.70) $ .80
======== ======== =======
* * * * *
F-24
<PAGE>
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED JANUARY 28, 1995 (IN THOUSANDS)
Allowance for Allowance
Doubtful for
Accounts Returns Total
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
Additions charged to costs and expenses 472 26,248 26,720
Deductions - amounts written off (885) (30,442) (31,327)
Foreign currency conversion (11) (12) (23)
-------- -------- --------
BALANCES, JANUARY 28, 1995 $ 4,067 $ 7,472 $ 11,539
======== ======== ========
S-1
FIRST AMENDMENT
OF
GOLDEN COMPREHENSIVE SECURITY PROGRAM
(As Amended and Restated Effective January 1, 1993)
WHEREAS, this corporation maintains the Golden
Comprehensive Security Program (the "plan"); and
WHEREAS, the plan was completely amended and restated
effective January 1, 1993, and further amendment of the plan is
now considered desirable;
NOW, THEREFORE, IT IS RESOLVED that, by virtue and
in exercise of the power reserved to this corporation under
subsection 11.1 of the plan, the plan, as previously amended,
be and it hereby is further amended, effective as of January 1,
1994, by adding the following sentence at the end of subsection
3.3 of the plan:
"Beginning with the plan year commencing January 1,
1994, in no event shall compensation in excess of
$150,000 (or such greater amount as may be permitted
under Section 401(a)(17)(B) of the Code) be included
in a participant's compensation for any plan year."
* * *
I, James A. Cohen, Secretary of Western
Publishing Company, Inc. hereby certify that the foregoing
is a correct copy of a resolution duly adopted by the Board
of Directors of said corporation on December 23, 1994 and
that said resolution has not been changed or repealed.
Dated this 23 day of December, 1994.
/s/ James A. Cohen
--------------------------------
Secretary as Aforesaid
(Corporate Seal)
* * *
The undersigned, as committee members under the
Golden Comprehensive Security Program, hereby acknowledge
receipt of a certified copy of the foregoing amendment and
hereby consent thereto this 23 day of December, 1994.
/s/ James A. Cohen
---------------------------------
/s/ Hal B. Weiss
---------------------------------
/s/ Steven M. Grossman
---------------------------------
---------------------------------
As Committee Members As Aforesaid
FIRST AMENDMENT
OF
GOLDEN RETIREMENT SAVINGS PROGRAM
(As Amended and Restated Effective January 1, 1993)
WHEREAS, this corporation maintains the Golden
Retirement Savings Program (the "plan"); and
WHEREAS, the plan was completely amended and restated
effective January 1, 1993, and further amendment of the plan is
now considered desirable;
NOW, THEREFORE, IT IS RESOLVED that, by virtue and
in exercise of the power reserved to this corporation under
subsection 11.1 of the plan, the plan, as previously amended,
be and it hereby is further amended, effective as of January 1,
1994, by adding the following sentence at the end of subsection
3.2 of the plan:
"Beginning with the plan year commencing January 1,
1994, in no event shall compensation in excess of
$150,000 (or such greater amount as may be permitted
under Section 401(a)(17)(B) of the Code) be included
in a participant's compensation for any plan year."
* * *
I, James A. Cohen, Secretary of Western
Publishing Company, Inc. hereby certify that the foregoing
is a correct copy of a resolution duly adopted by the Board
of Directors of said corporation on December 23, 1994 and
that said resolution has not been changed or repealed.
Dated this 23 day of December, 1994.
/s/ James A. Cohen
--------------------------------
Secretary as Aforesaid
(Corporate Seal)
* * *
The undersigned, as committee members under the
Golden Retirement Savings Program, hereby acknowledge receipt
of a certified copy of the foregoing amendment and hereby
consent thereto this 23 day of December, 1994.
/s/ James A. Cohen
---------------------------------
/s/ Steven M. Grossman
---------------------------------
/s/ Hal B. Weiss
---------------------------------
---------------------------------
As Committee Members As Aforesaid
ELEVENTH 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 January 1,
1994, by adding the following sentence at the end of subsection
3.3 of the plan:
"Beginning with the plan year commencing January 1,
1994, in no event shall compensation in excess of
$150,000 (or such greater amount as may be permitted
under Section 401(a)(17)(B) of the Code) be included
in a participant's compensation for any plan year."
* * *
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 23, 1994, and that said
resolution has not been changed or repealed.
Dated this 23 day of December, 1994.
/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 23 day of December, 1994.
/s/ James A. Cohen
---------------------------------
/s/ Steven M. Grossman
---------------------------------
/s/ Hal B. Weiss
---------------------------------
---------------------------------
As Committee Members As Aforesaid
FIFTH 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 January 1,
1994, by adding the following sentence at the end of subsection
3.3 of the plan:
"Beginning with the plan year commencing January 1,
1994, in no event shall compensation in excess of
$150,000 (or such greater amount as may be permitted
under Section 401(a)(17)(B) of the Code) be included
in a participant's compensation for any plan year."
* * *
I, /s/ James A. Cohen, Esq., 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 23, 1994, and that said
resolution has not been changed or repealed.
Dated this 23 day of December, 1994.
/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 23 day
of December, 1994.
/s/ James A. Cohen
---------------------------------
/s/ Steven M. Grossman
---------------------------------
/s/ Hal. B. Weiss
---------------------------------
---------------------------------
As Committee Members As Aforesaid
**************************************************************************
WESTERN PUBLISHING GROUP, INC.
--------------------
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of May 31, 1994
--------------------
FLEET BANK,
as Agent
--------------------
THE BANK OF NEW YORK,
as Co-Agent
**************************************************************************
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to which it is attached but
is inserted for convenience only.
Page
----
Section 1. Definitions and Accounting Matters . . . . . . . . . . . 1
1.01. Certain Defined Terms . . . . . . . . . . . . . . . . . 1
1.02. Accounting Terms and Determinations . . . . . . . . . . 14
1.03. Types of Loans and Commitments. . . . . . . . . . . . . 15
Section 2. Commitments. . . . . . . . . . . . . . . . . . . . . . . 15
2.01. Loans . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.02. Borrowings. . . . . . . . . . . . . . . . . . . . . . . 16
2.03. Letters of Credit . . . . . . . . . . . . . . . . . . . 16
2.04. Changes of Commitments; Mandatory Prepayments . . . . . 21
2.05. Commitment Fees.. . . . . . . . . . . . . . . . . . . . 22
2.06. Lending Offices . . . . . . . . . . . . . . . . . . . . 22
2.07. Several Obligations; Remedies Independent . . . . . . . 22
2.08. Notes . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.09. Prepayments of Loans. . . . . . . . . . . . . . . . . . 23
Section 3. Payments of Principal and Interest . . . . . . . . . . . 24
3.01. Repayment of Loans. . . . . . . . . . . . . . . . . . . 24
3.02. Interest. . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4. Payments; Pro Rata Treatment; Computations; Etc. . . . . 24
4.01. Payments. . . . . . . . . . . . . . . . . . . . . . . . 24
4.02. Pro Rata Treatment. . . . . . . . . . . . . . . . . . . 25
4.03. Computations. . . . . . . . . . . . . . . . . . . . . . 26
4.04. Minimum Amounts . . . . . . . . . . . . . . . . . . . . 26
4.05. Certain Notices . . . . . . . . . . . . . . . . . . . . 26
4.06. Non-Receipt of Funds by the Agent . . . . . . . . . . . 27
4.07. Sharing of Payments, Etc. . . . . . . . . . . . . . . . 27
Section 5. Yield Protection, Etc. . . . . . . . . . . . . . . . . . 28
5.01. Additional Costs. . . . . . . . . . . . . . . . . . . . 28
5.02. Additional Costs in Respect of Letters of Credit. . . . 30
5.03. Option to Replace Banks . . . . . . . . . . . . . . . . 30
Section 6. Conditions Precedent . . . . . . . . . . . . . . . . . . 32
6.01. Effectiveness . . . . . . . . . . . . . . . . . . . . . 32
6.02. Additional Conditions.. . . . . . . . . . . . . . . . . 34
Section 7. Representations and Warranties . . . . . . . . . . . . . 35
7.01. Corporate Existence . . . . . . . . . . . . . . . . . . 35
7.02. Financial Condition . . . . . . . . . . . . . . . . . . 35
7.03. Litigation. . . . . . . . . . . . . . . . . . . . . . . 35
7.04. No Breach. . . . . . . . . . . . . . . . . . . . . . . 36
7.05. Action. . . . . . . . . . . . . . . . . . . . . . . . 36
7.06. Approvals. . . . . . . . . . . . . . . . . . . . . . . 36
7.07. Use of Loans. . . . . . . . . . . . . . . . . . . . . 36
7.08. ERISA. . . . . . . . . . . . . . . . . . . . . . . . . 36
7.09. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . 37
7.10. Investment Company Act. . . . . . . . . . . . . . . . 37
7.11. Public Utility Holding Company Act. . . . . . . . . . 37
7.12. Credit Agreements. . . . . . . . . . . . . . . . . . . 37
7.13. Hazardous Materials. . . . . . . . . . . . . . . . . . 37
7.14. Subsidiaries, Etc. . . . . . . . . . . . . . . . . . . 40
7.15. No Offsets, Etc. . . . . . . . . . . . . . . . . . . . 41
Section 8. Covenants of the Company. . . . . . . . . . . . . . . . 41
8.01. Financial Statements. . . . . . . . . . . . . . . . . 41
8.02. Litigation. . . . . . . . . . . . . . . . . . . . . . 44
8.03. Existence, Access, Etc. . . . . . . . . . . . . . . . 44
8.04. Insurance. . . . . . . . . . . . . . . . . . . . . . . 45
8.05. Prohibition of Fundamental Changes. . . . . . . . . . 45
8.06. Limitation on Liens. . . . . . . . . . . . . . . . . . 46
8.07. Indebtedness. . . . . . . . . . . . . . . . . . . . . 48
8.08. Investments. . . . . . . . . . . . . . . . . . . . . . 48
8.09. Dividend Payments. . . . . . . . . . . . . . . . . . . 49
8.10. Leverage Ratio. . . . . . . . . . . . . . . . . . . . 50
8.11. Tangible Net Worth. . . . . . . . . . . . . . . . . . 50
8.12. Interest Coverage Ratio. . . . . . . . . . . . . . . . 50
8.13. Lines of Business. . . . . . . . . . . . . . . . . . . 50
8.14. Transactions with Affiliates. . . . . . . . . . . . . 51
8.15. Use of Proceeds. . . . . . . . . . . . . . . . . . . . 51
8.16. Limitation on Payment Restrictions Affecting
Subsidiaries. . . . . . . . . . . . . . . . . . . . . 51
8.17. Clean-Down. . . . . . . . . . . . . . . . . . . . . . . 52
8.18. Cash Flow . . . . . . . . . . . . . . . . . . . . . . . 52
8.19. Loans Outstanding . . . . . . . . . . . . . . . . . . . 52
8.20. Capital Expenditures. . . . . . . . . . . . . . . . . . 54
8.21. Guarantee and Pledge. . . . . . . . . . . . . . . . . . 54
Section 9. Events of Default. . . . . . . . . . . . . . . . . . . 54
Section 10. The Agent and Co-Agent. . . . . . . . . . . . . . . . . 58
10.01. Appointment, Powers and Immunities. . . . . . . . . . 58
10.02. Reliance by Agent and Co-Agent. . . . . . . . . . . . 59
10.03. Defaults. . . . . . . . . . . . . . . . . . . . . . . 59
10.04. Rights as a Bank. . . . . . . . . . . . . . . . . . . 59
10.05. Indemnification. . . . . . . . . . . . . . . . . . . 60
10.06. Non-Reliance on Agent, Co-Agent and Other Banks. . . 60
10.07. Failure to Act. . . . . . . . . . . . . . . . . . . . 61
10.08. Resignation or Removal of Agent or Co-Agent. . . . . . 61
Section 11. Miscellaneous.. . . . . . . . . . . . . . . . . . . . . 62
11.01. Waiver. . . . . . . . . . . . . . . . . . . . . . . . 62
11.02. Notices. . . . . . . . . . . . . . . . . . . . . . . 62
11.03. Expenses, Etc. . . . . . . . . . . . . . . . . . . . 62
11.04. Amendments, Etc. . . . . . . . . . . . . . . . . . . 63
11.05. Successors and Assigns. . . . . . . . . . . . . . . . 64
11.06. Assignments and Participations.. . . . . . . . . . . . 64
11.07. Survival. . . . . . . . . . . . . . . . . . . . . . . 66
11.08. Captions. . . . . . . . . . . . . . . . . . . . . . . 66
11.09. Counterparts. . . . . . . . . . . . . . . . . . . . . 66
11.10. Governing Law; Submission to Jurisdiction. . . . . . 66
11.11. Waiver of Jury Trial. . . . . . . . . . . . . . . . . 67
11.12. Confidentiality. . . . . . . . . . . . . . . . . . . 67
AMENDED AND RESTATED CREDIT AGREEMENT
AMENDED AND RESTATED CREDIT AGREEMENT dated as of May 31,
1994, among: 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 that is a signatory hereto or which, pursuant to Section 11.06(b)
hereof, shall become a "Bank" hereunder (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 Banks have extended credit to the Company by making loans and by
issuing (or acquiring participations in) letters of credit under the Credit
Agreement dated as of November 12, 1992, among the Company, the Banks, the Agent
and the Co-Agent, as amended (the "Old Credit Agreement"). The Company, the
Banks, the Agent and the Co-Agent desire to amend and restate in its entirety
the Old Credit Agreement pursuant to this Agreement. Accordingly, the parties
hereto agree as follows:
Section 1. Definitions and Accounting Matters.
1.01. Certain Defined Terms. As used herein, the following terms
shall have the following meanings (all terms defined in this Section 1.01 or in
other provisions of this Agreement in the singular to have the same meanings
when used in the plural and vice versa):
"Affiliate" shall mean any Person which directly or indirectly
controls, or is under common control with, or is controlled by, the Company. As
used in this definition, "control" (including, with its correlative meanings,
"controlled by" and "under common control with") shall mean possession, directly
or indirectly, of power to direct or cause the direction of management or
policies (whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise), provided that, in any event, any
Person which owns directly or indirectly 5% or more of the securities having
ordinary voting power for the election of directors or other governing body of a
corporation or 5% or more of the partnership or other ownership interests of any
other Person (other than as a limited partner of such other Person) will be
deemed to control such corporation or other Person. Notwithstanding the
foregoing, no individual shall be deemed to be an Affiliate solely by reason of
his or her being a director, officer or employee of the Company or any of its
Subsidiaries and the Company and its Subsidiaries shall not be deemed to be
Affiliates of each other.
"Applicable Margin" shall mean a rate per annum equal to 1.00%;
provided, however, that if the aggregate principal amount of outstanding
Facility B Loans at any time exceeds $100,000,000, the Applicable Margin shall
be increased to 2.00% per annum with respect to Facility B Loans in principal
amount equal to the amount by which such aggregate principal amount of Facility
B Loans outstanding exceeds $100,000,000. The Applicable Margin shall be
increased by 0.50% per annum above the margins specified above for the period
(if any) from the earlier of (a) the thirtieth day after the Disposition of the
assets of the Games and Puzzles division of Western, and (b) September 30, 1994,
until the date on which (i) Western 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 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.
"Base Rate" shall mean, for any day, the higher of (a) the Federal
Funds Rate for such day plus 0.50% per annum and (b) the Prime Rate for such
day. Each change in any interest rate provided for herein based upon the Base
Rate resulting from a change in the Base Rate shall take effect on the Business
Day on which such change in the Base Rate is effective.
"Business Day" shall mean any day on which commercial banks are not
authorized or required to close in New York City.
"Capital Expenditures" shall mean all payments for or Indebtedness
incurred in connection with fixed assets or improvements or for replacements,
substitutions or additions thereto, that have a useful life of more than one
year and which are required to be capitalized under GAAP.
"Capital Lease Obligations" shall mean, for any Person, the
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) real and/or personal property which
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP and, for purposes of this
Agreement, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.
"Cash Flow" shall mean, for any period, the sum, for the Company and
its Consolidated Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP), of the following: (a) net operating
income (calculated before income taxes, Interest Expense and extraordinary and
unusual items and without deducting any commitment fees payable pursuant to
Section 2.05(b) hereof, the amendment fee payable pursuant to Section 6.01(h)
hereof or the fees and expenses payable pursuant to 6.01(i) or Section 11.03
hereof) for such period plus (b) depreciation and amortization (to the extent
deducted in determining net operating income) for such period.
"Closing Date" shall mean the date upon which the conditions
precedent to the effectiveness hereof set forth in Section 6 hereof have been
satisfied.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, or any successor statute of the United States.
"Commitment" shall mean as to each Bank, the Facility A Commitment,
Facility B Commitment or Letter of Credit Commitment of suchBank, all of which
for each Bank are collectively referred to herein as the "Commitments".
"Commitment Percentage" shall mean, with respect to any Bank, the
ratio of (a) the amount of the Commitments of such Bank to (b) the aggregate
amount of the Commitments of all of the Banks.
"Commitment Termination Date" shall mean the last Business Day of
May, 1995.
"Consolidated Subsidiary" shall mean, for any Person, each Subsidiary
of such Person (whether now existing or hereafter created or acquired) the
financial statements of which shall be (or should have been) consolidated with
the financial statements of such Person in accordance with GAAP.
"Default" shall mean an Event of Default or an event which with
notice or lapse of time or both would become an Event of Default.
"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, including obsolete or worn-out equipment, sold or disposed of in the
ordinary course of business), whether now owned or hereafter acquired.
"Dividend Payment" shall mean dividends (in cash, property or
obligations) on, or other payments or distributions on account of, or the
setting apart of money for a sinking or other analogous fund for, or the
purchase, redemption, retirement or other acquisition of, any shares of any
class of stock of the Company, but excluding (i) dividends payable solely in
shares of common stock of the Company (or in warrants, options or similar rights
to acquire shares of common stock of the Company), (ii) dividends on and
mandatory redemptions of the Company's presently outstanding Series A Preferred
Stock, (iii) any dividends (in cash, property or obligations) on or other
payments or distributions on account of any class of stock of any Subsidiary of
the Company and (iv) the purchase, redemption or retirement of any shares of any
class of capital stock of the Company made with the proceeds of a concurrent or
substantially concurrent sale of other shares of the capital stock of the
Company.
"Dollars" and "$" shall mean lawful money of the United States of
America.
"Environmental Claim" shall mean any written notice, claim, demand or
other communication, or any oral notice, claim, demand or other communication of
which the Company has knowledge, alleging or asserting liability for
investigatory costs, cleanup costs, governmental response costs, damages to
natural resources or other property, personal injuries, fines or penalties
arising out of, based on or resulting from (a) the presence, or Release into the
environment of any Hazardous Material at any location or (b) any violation or
alleged violation of any Environmental Law.
"Environmental Laws" shall mean any and all applicable federal,
state, local and foreign statutes, laws, regulations, ordinances, rules,
judgments, orders, decrees, permits, licenses, codes, injunctions or other
governmental restrictions, requirements or prohibitions relating to the
environment or to emissions, discharges, Releases or threatened Releases of
Hazardous Materials, pollutants, contaminants, chemicals, or industrial, toxic
or hazardous substances or wastes into the environment including, without
limitation, ambient air, surface water, ground water, or land, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal,
transport, or handling of Hazardous Materials, pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes.
Environmental Laws does not include the Occupational Safety and Health Act of
1970 or similar state statutes.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA Affiliate" shall mean any corporation or trade or business
which is a member of the same controlled group of corporations (within the
meaning of Section 414(b) of the Code) as the Company or is under common control
(within the meaning of Section 414(c) of the Code) with the Company.
"Event of Default" shall have the meaning assigned to such term in
Section 9 hereof.
"Facility A Commitment" shall mean, as to each Bank, the obligation
of such Bank to make Facility A Loans in an aggregate amount at any one time
outstanding up to but not exceeding the amount set opposite such Bank's name on
the signature pages hereof under the caption "Facility A Commitment" (as the
same may be reduced at any time or from time to time pursuant to Section 2.04
hereof). On the date hereof, the aggregate amount of the Facility A Commitments
is $15,000,000.
"Facility A Loans" shall mean loans provided for by Section 2.01
hereof which are specified by the Company pursuant to Section 4.05 to be
Facility A Loans, subject to the provisions of Sections 2.01 and 2.09 hereof.
"Facility A Notes" shall mean the promissory notes evidencing the
Facility A Loans as provided for in Section 2.08 hereof.
"Facility B Commitment" shall mean, as to each Bank, the obligation
of such Bank to make Facility B Loans in an aggregate amount at any one time
outstanding up to but not exceeding the amount set opposite such Bank's name on
the signature pages hereof under the caption "Facility B Commitment" (as the
same may be reduced at any time or from time to time pursuant to Section 2.04
hereof). On the date hereof, the aggregate amount of the Facility B Commitments
is $115,000,000 (subject to the limitations on the availability thereof set
forth in Section 2.01).
"Facility B Loans" shall mean loans provided for by Section 2.01
hereof which are specified by the Company pursuant to Section 4.05 to be
Facility B Loans, subject to the provisions of Sections 2.01 and 2.09 hereof.
"Facility B Notes" shall mean the promissory notes evidencing the
Facility B Loans as provided for in Section 2.08 hereof.
"Federal Funds Rate" shall mean, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, provided that (i) if the day for which such rate is to
be determined is not a Business Day, the Federal Funds Rate for such day shall
be such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day, and (ii) if such rate is not so
published for any day, the Federal Funds Rate for such day shall be the average
rate charged to the Agent on such day on such transactions as reasonably
determined by the Agent.
"Fleet" shall mean Fleet Bank.
"GAAP" shall mean generally accepted accounting principles applied in
the manner set forth in Section 1.02 hereof.
"Guarantee" shall mean a guarantee, an endorsement, a contingent
agreement to purchase or to furnish funds for the payment or maintenance of, or
otherwise to be or become contingently liable under or with respect to, the
Indebtedness, other obligations, net worth, working capital or earnings of any
other Person, or a guarantee of the payment of dividends or other distributions
upon the stock or equity interests of any other Person, or an agreement on other
than ordinary commercial terms to purchase, sell or lease (as lessee or lessor)
property, products, materials, supplies or services primarily for the purpose of
enabling a debtor to make payment of his, her or its obligations or an agreement
to assure a creditor against loss, and including, without limitation, causing a
bank or other financial institution to issue a letter of credit or other similar
instrument for the benefit of another Person, but excluding endorsements for
collection or deposit in the ordinary course of business and obligations in
connection with the relocation of employees. The terms "Guarantee" and
"Guaranteed" used as a verb shall have a correlative meaning.
"Hazardous Material" shall mean, collectively, any pollutant,
contaminant, toxic substance, hazardous waste, hazardous material or hazardous
substance, including without limitation, petroleum, crude oil or fractions
thereof, as those terms are defined in (i) the Resource Conservation and
Recovery Act, as amended, 42 U.S.C. Section 6901 et seq., (ii) the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), as amended,
42 U.S.C. Section 9601 et seq., or (iii) any other applicable federal or state
Environmental Law.
"Indebtedness" shall mean, for any Person: (a) indebtedness created,
issued or incurred by such Person for borrowed money (whether by loan or the
issuance and sale of debt securities or the sale of property (other than
inventory or intellectual property sold in the ordinary course of business and
consistent with such Person's customary trade practices) to another Person
subject to an understanding or agreement, contingent or otherwise, to repurchase
such property from such Person); (b) obligations of such Person to pay the
deferred purchase or acquisition price of property or services, other than trade
accounts payable arising, and accrued expenses incurred in the ordinary course
of business and consistent with such Person's customary trade practices; (c)
Indebtedness of another Person secured by a Lien on the property of such Person,
whether or not the respective Indebtedness so secured has been assumed by such
Person; (d) payment obligations of such Person in respect of letters of credit,
bankers' acceptances or similar instruments issued or accepted by banks and
other financial institutions for account of such Person; (e) Capital Lease
Obligations of such Person; and (f) Indebtedness of others Guaranteed by such
Person.
"Interest Coverage Ratio" shall mean, for any period, the ratio of
(a) Cash Flow for such period to (b) Interest Expense for such period.
"Interest Expense" shall mean, for any period, the sum, for the
Company and its Consolidated Subsidiaries (determined on a consolidated basis
without duplication in accordance with GAAP), of the following: (a) all
interest in respect of Indebtedness accrued or capitalized during such period
(whether or not actually paid during such period) plus (b) all commissions,
fees, discounts and other expenses accrued during such period (whether or not
actually paid during such period) in respect of standby letters of credit (but
not commercial letters of credit) and bankers' acceptances plus (c) the net
amounts payable (or minus the net amounts receivable) under Interest Rate
Protection Agreements accrued during such period (whether or not actually paid
or received during such period).
"Interest Rate Protection Agreement" shall mean, for any Person, an
interest rate swap, cap or collar agreement or similar arrangement providing for
the transfer or mitigation of interest rate risks either generally or under
specific contingencies.
"Investment" shall mean, for any Person: (a) the acquisition
(whether for cash, property, services or securities or otherwise) of capital
stock, bonds, notes, debentures, partnership or other ownership interests or
other securities of any other Person or any agreement to make any such
acquisition (including, without limitation, any "short sale" or any sale of any
securities at a time when such securities are not owned by the Person entering
into such short sale); (b) the making of any deposit with, or advance, loan or
other extension of credit to, any other Person (including the purchase of
property from another Person subject to an understanding or agreement,
contingent or otherwise, to resell such property to such Person, but excluding
any such purchase of property made in the ordinary course of business which is
consistent with such Person's customary trade practices), excluding real estate
security deposits made in the ordinary course of business, advances to
employees, obligations in connection with relocating employees and advances to
vendors of such Person in the ordinary course of business; (c) the entering into
of any Guarantee of, or other contingent obligation with respect to,
Indebtedness or other liability of any other Person and (without duplication)
any amount committed to be advanced, lent or extended to such Person; or (d) the
entering into of any Interest Rate Protection Agreement.
"Issuing Bank" shall mean the Agentor any other Bank (or, with the
reasonable consent of the Agent and the consent of the Company, a bank affiliate
of a Bank) that has agreed with the Company to act as an issuer of Letters of
Credit under Section 2.03 hereof, together with their respective successors and
assigns in such capacity.
"Knowledge" shall mean only matters as to which any officer of the
Company has actual knowledge, and shall not include matters which are not
actually known by any officer.
"Lending Office" shall mean, for each Bank, the "Lending Office" of
such Bank designated on the signature pages hereof or such other office of such
Bank (or of an affiliate of such Bank) as such Bank may from time to time
specify to the Agent and the Company as the office by which its Loans are to be
made and maintained.
"Letter of Credit" shall have the meaning assigned to such term in
Section 2.03 hereof.
"Letter of Credit Commitment" shall mean, as to each Bank, the
obligation of such Bank to issue (or acquire participations in) Letters of
Credit in an aggregate amount at any one time outstanding up to but not
exceeding the amount set opposite such Bank's name on the signature pages hereof
under the caption "Letter of Credit Commitment" (as the same may be reduced at
any time or from time to time pursuant to Section 2.04 hereof). On the date
hereof, the aggregate amount of the Letter of Credit Commitments is $10,000,000.
"Letter of Credit Documents" shall mean, with respect to any Letter
of Credit, collectively, such Letter of Credit, any amendments thereto, any
documents delivered thereunder, any application therefor and any other
agreements, instruments, guarantees or other documents (whether general in
application or applicable only to such Letter of Credit) governing or providing
for (a) the rights and obligations of the parties concerned or at risk or (b)
any collateral security for any of such obligations, each as the same may be
modified and supplemented and in effect from time to time.
"Letter of Credit Interest" shall mean, for each Bank, such Bank's
participation interest (or, in the case of the Issuing Bank, the Issuing Bank's
retained interest) in the Issuing Bank's liability under a Letter of Credit and
such Bank's rights and interests in the related Reimbursement Obligations and
fees, interest and other amounts payable in connection with such Letter of
Credit and such Reimbursement Obligations.
"Letter of Credit Liability" shall mean, without duplication, at any
time and in respect of any Letter of Credit, the sum of (a) the undrawn face
amount of such Letter of Credit plus (b) the aggregate unpaid principal amount
of all Reimbursement Obligations of the Company at such time due and payable in
respect of all drawings made under such Letter of Credit. For purposes of this
Agreement, a Bank (other than the Issuing Bank for such Letter of Credit) shall
be deemed to hold a Letter of Credit Liability in an amount equal to its
participation interest in the related Letter of Credit under Section 2.03
hereof, and the Issuing Bank shall be deemed to hold a Letter of Credit
Liability in an amount equal to its retained interest in the related Letter of
Credit after giving effect to the acquisition by the Banks other than the
Issuing Bank of their participation interests under said Section 2.03.
"Leverage Ratio" shall mean, at any time, the ratio of Total
Indebtedness to Tangible Net Worth at such time.
"Lien" shall mean, with respect to any property, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
property. For purposes of this Agreement, the Company or any of its
Subsidiaries shall be deemed to own subject to a Lien any property which it has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
(other than an operating lease) relating to such property.
"Loan Documents" shall mean this Agreement, the Pledge Agreement, the
Subsidiary Guarantee, the Subsidiary Note, the Subsidiary Security Agreement and
all other agreements, instruments and documents, including, without limitation,
security agreements, notes, guaranties, releases, mortgages, deeds of trust,
pledges, powers of attorney, consents, assignments, collateral assignments,
letter agreements, contracts, notices, leases, amendments, financing statements,
letter of credit applications and reimbursement agreements, and all other
writings, now or hereafter executed by or on behalf of the Company or any
Subsidiary of the Company and delivered to Agent or the Banks pursuant to this
Agreement, together with all agreements, instruments and documents referred to
therein or contemplated thereby.
"Loans" shall mean, collectively, the Facility A Loans and the
Facility B Loans.
"Majority Banks" shall mean Banks holding more than 66-2/3% of the
aggregate unpaid principal amount of the outstanding Loans and Letter of Credit
Liabilities, or, if no Loans or Letter of Credit Liabilities are outstanding,
Banks having more than 66-2/3% of the aggregate amount of the Commitments;
provided that for such purpose there shall be excluded any Commitments, Loans
and Letter of Credit Liabilities directly or indirectly held by the Company or
any of its Affiliates (other than a financial institution not a Subsidiary of
the Company) following an assignment or participation as contemplated by Section
11.06 hereof.
"Margin Stock" shall mean margin stock within the meaning of
Regulations U and X.
"Material Adverse Effect" shall mean a material adverse effect on (a)
the business, operations or financial condition of the Company and its
Subsidiaries, taken as a whole, (b) the validity or enforceability against the
Company of this Agreement or the Notes, (c) the timely payment of the principal
of or interest on the Loans or the Reimbursement Obligations or (d) the
Company's ability to pay when due other amounts payable in connection therewith.
"Multiemployer Plan" shall mean a multiemployer plan defined as such
in Section 3(37) of ERISA to which contributions have been made by the Company
or any ERISA Affiliate and which is covered by Title IV of ERISA.
"Notes" shall mean, collectively, the Facility A Notes and the
Facility B Notes.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Permitted Investments" shall mean, for any Person: (a) direct
obligations of the United States of America, or of any agency thereof, or
obligations guaranteed as to principal and interest by the United States of
America, or of any agency thereof, in either case maturing not more than one
year from the date of acquisition thereof by such Person; (b) time deposits
with, or certificates of deposit issued by, or bankers' acceptances of, any bank
or trust company organized under the laws of the United States of America or any
state thereof and having capital, surplus and undivided profits of at least
$100,000,000 or of any bank of recognized international standing having capital,
surplus and undivided profits of at least $500,000,000, maturing not more than
90 days from the date of acquisition thereof by such Person; (c) commercial
paper having the highest credit rating from Standard & Poor's Corporation or
Moody's Investors Service, Inc. and maturing not more than 270 days from the
date of acquisition thereof by such Person; (d) investments in shares of money
market mutual funds having assets in excess of $2,000,000,000 and which invest
solely in obligations of the type described in clauses (a), (b) and (c) above;
(e) repurchase obligations fully secured by investments of the type described in
clauses (a), (b), (c) or (d) above; and (f) securities secured by standby
letters of credit issued by banks or trust companies referred to in clause (b)
of this definition and having a maturity of not more than one year.
"Person" shall mean any individual, corporation, company, voluntary
association, partnership, joint venture, trust, unincorporated organization or
government (or any agency, instrumentality or political subdivision thereof).
"Plan" shall mean an employee pension plan as defined in Section 3(2)
of ERISA established or maintained by the Company or any ERISA Affiliate and
which is covered by ERISA.
"Pledge Agreement" shall mean that certain Pledge Agreement dated as
of even date herewith, by the Company in favor of the Agent, in substantially
the form attached hereto as Exhibit C.
"Post-Default Rate" shall mean (x) in respect of any principal of or
interest on any Loan or any Reimbursement Obligation or any commitment fee or
Letter of Credit issuance fee that is not paid when due (whether at stated
maturity, by acceleration or otherwise), a rate per annum during the period from
and including the due date to but excluding the date on which such amount is
paid in full equal to 2.00% above the Base Rate plus the Applicable Margin, each
as in effect from time to time, and (y) in respect of any other amount payable
under this Agreement or any Note that is not paid when due, a rate per annum
during the period from and including the due date to but excluding the date on
which such amount is paid in full equal to the Base Rate plus the Applicable
Margin, each as in effect from time to time.
"Prime Rate" shall mean the rate of interest from time to time
announced by Fleet at the Principal Office, or any successor Agent at its
principal office, as its prime commercial lending rate.
"Principal Office" shall mean the principal office of the Agent and
Fleet, presently located at 56 East 42nd Street, New York, New York 10017 or the
principal office of any successor Agent.
"Quarterly Dates" shall mean the last Business Day of March, June,
September and December in each year, the first of which shall be the first such
day after the date of this Agreement.
"Regulations D, U and X" shall mean, respectively, Regulations D, U
and X of the Board of Governors of the Federal Reserve System (or any
successor), as the same may be amended or supplemented from time to time.
"Regulatory Change" shall mean, with respect to any Bank, any change
after the date of this Agreement in United States Federal, state or foreign law
or regulations (including, without limitation, Regulation D) applying generally
to a class of banks including such Bank, or the adoption or making after such
date of any interpretation, directive or request applying generally to a class
of banks including such Bank of or under any United States Federal, state or
foreign law or regulations (whether or not having the force of law and whether
or not failure to comply therewith would be unlawful) by any court or
governmental or monetary authority charged with the interpretation or
administration thereof.
"Reimbursement Obligations" shall mean, at any time, the obligations
of the Company then outstanding, or which may thereafter arise in respect of all
Letters of Credit then outstanding, to reimburse amounts paid by the relevant
Issuing Bank in respect of any drawings under a Letter of Credit.
"Release" shall mean any "release" as such term is defined in 42
U.S.C. Section 9601(22).
"Significant Subsidiary" shall mean, at any time, a Subsidiary whose
assets at such time exceed 10% of the assets of the Company and its Subsidiaries
(on a consolidated basis).
"Subsidiary" shall mean, for any Person, any corporation, partnership
or other entity of which more than 50% of the securities or other ownership
interests having by the terms thereof ordinary voting power to elect a majority
of the board of directors or other persons performing similar functions of such
corporation, partnership or other entity (irrespective of whether or not at the
time securities or other ownership interests of any other class or classes of
such corporation, partnership or other entity shall have or might have voting
power by reason of the happening of any contingency) is at the time directly or
indirectly owned or controlled by such Person or one or more Subsidiaries of
such Person or by such Person and one or more Subsidiaries of such Person.
"Wholly-Owned Subsidiary" shall mean any such corporation, partnership or other
entity of which all of such securities or other ownership interests (other than,
in the case of a corporation, directors' qualifying shares) are so owned or
controlled.
"Subsidiary Guarantee" shall mean the Guarantee Agreement dated as of
December 13, 1993, made by Western in favor of the Banks and the Agent.
"Subsidiary Note" shall mean that certain promissory note in
substantially the form attached hereto as Exhibit D, dated of even date
herewith, issued by Western to the Company and pledged to the Agent pursuant to
the Pledge Agreement, which evidences the advances by the Company to Western
from time to time of all of the proceeds of Facility A Loans made hereunder, as
required by Section 2.01 hereof.
"Subsidiary Security Agreement" shall mean that certain Security
Agreement in substantially the form attached hereto as Exhibit E, dated as of
even date herewith, between Western and the Company, pursuant to which Western
has granted to the Company a security interest in all of its accounts receivable
and inventory to secure its obligations under the Subsidiary Note.
"Tangible Net Worth" shall mean, as at any date, the sum for the
Company and its Consolidated Subsidiaries (determined on a consolidated basis
without duplication in accordance with GAAP), of the following:
(a) the amount of capital stock (whether preferred or common), plus
(b) the amount of surplus and retained earnings (or, in the case
of a surplus or retained earnings deficit, minus the amount of such
deficit), plus
(c) the amount of negative goodwill, minus
(d) the sum of the following: cost of treasury shares and the book
value of all assets which should be classified as intangibles (without
duplication of deductions in respect of items already deducted in arriving
at surplus and retained earnings) but in any event including goodwill,
research and development costs, trademarks, trade names, copyrights,
patents and franchises, unamortized debt discount and expense and any
write-up in the book value of assets resulting from a revaluation thereof
subsequent to February 1, 1992.
"Total Indebtedness" shall mean, as at any date, the aggregate amount
of Indebtedness of the Company and its Consolidated Subsidiaries (determined on
a consolidated basis without duplication in accordance with GAAP).
"Type" shall have the meaning assigned that term in Section 1.03
hereof.
"Western" shall mean Western Publishing Company, Inc., a Delaware
corporation and a Subsidiary of the Company.
1.02. Accounting Terms and Determinations.
(a) Except as otherwise expressly provided herein, all accounting
terms used herein shall be interpreted, and all financial statements and
certificates and reports as to financial matters required to be delivered to the
Banks hereunder shall (subject to compliance with paragraph (b) of this Section
1.02) be prepared, in accordance with generally accepted accounting principles
as from time to time in effect. All calculations made for the purposes of
determining compliance with the terms of Sections 8.10, 8.11, 8.12, 8.18, 8.19
and 8.20 hereof shall be made by application of generally accepted accounting
principles applied on a basis consistent with that used in the preparation of
the annual financial statements referred to in Section 7.02 hereof unless the
Company and the Majority Banks shall have otherwise agreed in writing.
Notwithstanding the foregoing, for purposes of this Agreement, generally
accepted accounting principles shall not give effect to FASB Statement No. 106.
(b) The Company shall deliver to the Banks at the same time as the
delivery of any annual, quarterly or monthly financial statements under Section
8.01 hereof a description in reasonable detail of the effect of any change in
accounting principle employed in the preparation of such statement from those
employed in the preparation of the most recent financial statements previously
furnished to the Banks and a reconciliation of the effects thereof.
(c) To enable the ready and consistent determination of compliance
with the covenants set forth in Section 8 hereof, the Company will not, without
the prior written consent of the Majority Banks (which consent shall not be
unreasonably withheld), change the last day of its fiscal year from the Saturday
nearest to January 31 of each year, or the last days of the first three fiscal
quarters in each of its fiscal years from the Saturday nearest to each April 30,
July 31 and October 31 of each year, respectively, unless the Majority Banks and
the Company shall have agreed to amend the covenants set forth in Section 8
hereof to take account of such change. Each of the Banks agrees that if the
Company proposes to change the last day of its fiscal year or any of its fiscal
quarters, such Bank will negotiate in good faith to amend the covenants set
forth in Section 8 hereof so as to preserve, as nearly as practicable, the
economic effect of such covenants as in effect immediately prior to such
proposed change.
1.03. Types of Loans and Commitments. Loans and Commitments
hereunder are distinguished by "Type". The "Type" of a Loan or Commitment
refers to whether such Loan is a Facility A Loan or a Facility B Loan, or
whether such Commitment is a Facility A Commitment, a Facility B Commitment or a
Letter of Credit Commitment, each of which constitutes a Type.
Section 2. Commitments.
2.01. Loans. Each Bank severally agrees, onthe terms of this
Agreement, to make Loans to the Company in Dollars during the period from and
including the Closing Date to but not including the Commitment Termination Date
in an aggregate principal amount at any one time outstanding up to but not
exceeding (i) in the case of Facility A Loans, the amount of the Facility A
Commitment of such Bank as in effect from time to time, and (ii) in the case of
Facility B Loans, the amount of the Facility B Commitment of such Bank in effect
from time to time. In no event shall the aggregate principal amount of all
Facility A Loans or Facility B Loans exceed the aggregate amount of the
respective Facility A Commitments or Facility B Commitments, as the case may be,
as in effect from time to time. Subject to the terms of this Agreement, during
such period the Company may borrow, repay and reborrow the amount of the
Facility A Commitments by means of Facility A Loans and the Facility B
Commitments by means of Facility B Loans; provided that no Facility B Loans
shall be made unless the entire aggregate amount of the Facility A Commitments
has been borrowed, and no Facility A Loans shall be repaid unless there are no
Facility B Loans then outstanding. Notwithstanding the foregoing, at all times
prior to the delivery by the Company to the Agent of the compliance certificate
described in Section 8.01 hereof required to be delivered at the time the
Company delivers to the Agent financial statements for the Company's fiscal
quarter ending on or about July 31, 1994, the aggregate amount of Facility B
Loans outstanding shall not at any time exceed $100,000,000 (less the aggregate
amount of any reductions in the Commitments pursuant to Section 2.04 hereof),
and in any event subject to the provisions of Section 8.19 hereof. The Company
shall immediately advance all proceeds of Facility A Loans made hereunder to
Western, to fund the working capital needs of such Subsidiary. All Loans
outstanding under the Old Credit Agreement shall be Facility B Loans hereunder
from and after the Closing Date, in principal amount equal to the principal
amount thereof outstanding under the Old Credit Agreement.
2.02. Borrowings. The Company shall give the Agent (which shall
promptly notify the Banks) notice of each borrowing hereunder as provided in
Section 4.05 hereof. Not later than 12:00 noon New York time on the date
specified for each borrowing hereunder, each Bank shall make available the
amount of the Loan to be made by it on such date to the Agent, in immediately
available funds, for account of the Company. The amount so received by the
Agent shall, subject to the terms and conditions of this Agreement, be made
available to the Company by depositing the same, in immediately available funds,
in an account of the Company maintained with the Agent designated by the
Company.
2.03. Letters of Credit. Subject to the terms and conditions
hereof, the Commitments may be utilized, upon the request of the Company, in
addition to the Loans provided for by Section 2.01 hereof, by the issuance by
any Issuing Bank of letters of credit (herein collectively called "Letters of
Credit") for account of the Company or any of its Subsidiaries (as specified by
the Company), provided that in no event shall (i) the aggregate amount of all
Letter of Credit Liabilities exceed at any time the aggregate amount of the
Letter of Credit Commitments as in effect at such time and (ii) the expiration
date of any Letter of Credit extend beyond the earlier of (A) the date occurring
one year following the issuance of such Letter of Credit or the final expiry
date of such Letter of Credit as renewed if such Letter of Credit provides for
renewal terms of not more than one year each and permits the Issuing Bank (at
the direction of the Majority Banks) to elect prior to the date on which such
renewal term would otherwise commence that such Letter of Credit shall not be
renewed and (B) the date which is three Business Days prior to the Commitment
Termination Date. The following additional provisions shall apply to Letters of
Credit:
(a) The Company shall give the Agent and the relevant Issuing Bank
at least one Business Day's irrevocable prior notice (effective upon
receipt) specifying the date (which shall be no later than thirty days
preceding the Commitment Termination Date) each Letter of Credit is to be
issued, the Issuing Bank for such Letter of Credit and the account party
or parties therefor and describing in reasonable detail the proposed terms
of such Letter of Credit (including the beneficiary thereof) and the
nature of the transactions or obligations proposed to be supported
thereby.
(b) On each day during the period commencing with the issuance by
any Issuing Bank of any Letter of Credit and until such Letter of Credit
shall have expired or been terminated, the Commitment of each Bank shall
be deemed to be utilized for all purposes hereof in an amount equal to
such Bank's Commitment Percentage of the then undrawn portion of the face
amount of such Letter of Credit. Each Bank (other than the Issuing Bank
for such Letter of Credit) agrees that, upon the issuance of any Letter of
Credit hereunder, it shall automatically acquire a participation in such
Issuing Bank's liability under such Letter of Credit in an amount equal to
such Bank's Commitment Percentage of such liability, and each Bank (other
than the Issuing Bank) thereby shall absolutely, unconditionally and
irrevocably assume, as primary obligor and not as surety, and shall be
unconditionally obligated to such Issuing Bank to pay and discharge when
due, its Commitment Percentage of the Issuing Bank's liability under such
Letter of Credit.
(c) Upon receipt from the beneficiary of any Letter of Credit of any
demand for payment under such Letter of Credit which the Issuing Bank has
determined to honor (without consulting the Company, the Agent or any
other Person), the Issuing Bank for such Letter of Credit shall promptly
notify the Company and the Agent of the amount to be paid by the Issuing
Bank as a result of such demand and the date on which payment is to be
made by the Issuing Bank to such beneficiary in respect of such demand.
Notwithstanding the identity of the account party of any Letter of Credit,
the Company hereby unconditionally agrees to pay and reimburse the Issuing
Bank for the amount of each demand for payment under such Letter of Credit
at or prior to the date on which payment is to be made by the Issuing Bank
to the beneficiary thereunder, without presentment, demand, protest or
other formalities of any kind.
(d) The Company agrees that neither the Issuing Bank for any Letter
of Credit, nor any of its officers or directors (unless otherwise provided
in the relevant Letter of Credit Documents), shall be liable or
responsible for, and the obligations of the Company to the Issuing Bank
and the Banks hereunder shall not in any manner be affected by: (i) the
use which may be made of such Letter of Credit or the proceeds thereof by
the beneficiary or any other Person; (ii) the validity, sufficiency or
genuineness of documents other than such Letter of Credit, or of any
endorsements thereon, even if such documents should, in fact, prove to be
in any or all respects, invalid, insufficient, fraudulent or forged; or
(iii) any other circumstances whatsoever in making or failing to make
payment under such Letter of Credit, except that (unless otherwise
provided in the relevant Letter of Credit Documents) the Company shall
have a claim against the Issuing Bank (and not against any other Bank),
and the Issuing Bank shall be liable to the Company, to the extent, but
only to the extent, of any direct, as opposed to consequential, damages
suffered by the Company which the Company proves are caused by the Issuing
Bank's willful misconduct or gross negligence in determining whether
documents presented under such Letter of Credit substantially complied
with the terms of such Letter of Credit or the Bank's willful failure to
pay under such Letter of Credit after the presentation to it of documents
strictly complying with the terms and conditions of such Letters of
Credit. In furtherance of and not in limitation of the foregoing (unless
otherwise provided in the relevant Letter of Credit Documents), the
Issuing Bank may accept documents that appear on their face to be in order
without responsibility for further investigation, regardless of any notice
or information to the contrary.
(e) Forthwith upon its receipt of a notice referred to in paragraph
(c) of this Section 2.03, the Company shall advise the Agent whether or
not the Company intends to borrow hereunder to finance its obligation to
reimburse the relevant Issuing Bank for the amount of the related demand
for payment and, if it does, submit a notice of such borrowing as provided
in Section 4.05 hereof. In the event that the Company fails to so advise
the Agent, or if the Company fails to reimburse such Issuing Bank for a
demand for payment under a Letter of Credit by the date of such payment,
the Agent shall give each Bank prompt notice of the amount of the demand
for payment, specifying such Bank's Commitment Percentage of the amount of
the related demand for payment.
(f) Each Bank (other than the Issuing Bank) shall pay to the Agent
for account of the Issuing Bank at the Principal Office in Dollars and in
immediately available funds, the amount of such Bank's Commitment
Percentage of any payment under a Letter of Credit upon notice by the
Issuing Bank for such Letter of Credit (through the Agent) to such Bank
requesting such payment and specifying such amount. Each such Bank's
obligation to make such payments to the Agent for account of the Issuing
Bank under this paragraph (f), and the Issuing Banks's right to receive
the same, shall be absolute and unconditional and shall not be affected by
any circumstance whatsoever, including, without limiting the effect of the
foregoing, (i) the failure of any other Bank to make its payment under
this paragraph (f), the financial condition of the Company (or any other
account party), the existence of any Default or (ii) the termination of
the Letter of Credit Commitments. Each such payment to the Issuing Bank
shall be made without any offset, abatement, withholding or reduction
whatsoever.
(g) Upon the making of each payment by a Bank to the Issuing Bank
pursuant to paragraph (f) above in respect of any Letter of Credit, such
Bank shall, automatically and without any further action on the part of
the Agent, the Issuing Bank or such Bank, acquire (i) a participation in
an amount equal to such payment in the Reimbursement Obligation owing to
the Issuing Bank by the Company hereunder and under the Letter of Credit
Documents relating to such Letter of Credit and (ii) a participation in a
percentage equal to such Bank's Commitment Percentage in any interest or
other amounts payable by the Company hereunder and under such Letter of
Credit Documents in respect of such Reimbursement Obligation. Upon
receipt by the Issuing Bank from or for account of the Company of any
payment in respect of any Reimbursement Obligation or any such interest or
other amount (including by way of setoff or application of proceeds of any
collateral security) the Issuing Bank shall promptly pay to the Agent for
account of each Bank entitled thereto, such Bank's Commitment Percentage
of such payment, each such payment by the Issuing Bank to be made in the
same money and funds in which received by the Issuing Bank. In the event
any payment received by the Issuing Bank and so paid to the Banks
hereunder is rescinded or must otherwise be returned by the Issuing Bank
(including any interest thereon which is required to be paid by the
Issuing Bank), each Bank shall, upon the request of the Issuing Bank
(through the Agent), repay to the Issuing Bank (through the Agent) the
amount of such payment paid to such Bank (and any such required interest),
with interest thereon at the rate specified in paragraph (k) of this
Section 2.03.
(h) The Company shall pay to the Agent for account of the Issuing
Bank in respect of each Letter of Credit an issuance fee in an amount
equal to 1.50% per annum of the daily average undrawn face amount of such
Letter of Credit for the period from and including the date of issuance of
such Letter of Credit to but excluding the date such Letter of Credit is
drawn in full, expires or is terminated, such fee to be non-refundable and
to be paid in arrears quarterly, on each Quarterly Date, and on the
Commitment Termination Date. The Issuing Bank authorizes and directs the
Agent to pay each Bank (other than the Issuing Bank), promptly upon
payment thereof by the Company, but only to the extent actually received
from the Company, an amount equal to such Bank's Commitment Percentage of
all such issuance fees in respect of each Letter of Credit (including any
such issuance fee in respect of any period of any renewal or extension
thereof). In addition, the Company shall pay to the Issuing Bank in
respect of each Letter of Credit all charges, costs and expenses, in the
amounts customarily charged by the Issuing Bank from time to time in like
circumstances (or as stated in the relevant Letter of Credit Documents)
with respect to the issuance of each Letter of Credit and drawings,
extensions and other transactions relating thereto.
(i) Promptly following the end of each calendar month, each Issuing
Bank shall deliver (through the Agent) to each Bank and the Company a
notice describing the aggregate amount of all Letters of Credit issued by
such Issuing Bank and outstanding at the end of such month. Upon the
request of any Bank from time to time, each Issuing Bank shall deliver any
other information reasonably requested by such Bank with respect to each
Letter of Credit issued by such Issuing Bank and then outstanding.
(j) The issuance by any Issuing Bank of each Letter of Credit shall,
in addition to the conditions precedent set forth in Section 6 hereof, be
subject to the conditions precedent that (i) such Letter of Credit shall
be in such form, contain such terms and support such transactions as shall
be reasonably satisfactory to the Issuing Bank consistent with its then
current practices and procedures with respect to letters of credit of the
same type and (ii) the Company shall have executed and delivered such
other instruments and agreements relating to such Letter of Credit as the
Issuing Bank shall have reasonably requested consistent with its then
current practices and procedures with respect to letters of credit of the
same type.
(k) To the extent that any Bank fails to pay any amount required to
be paid pursuant to paragraph (f) or (g) of this Section 2.03 on the due
date therefor, such Bank shall pay interest to the relevant Issuing Bank
(through the Agent) on such amount from and including such due date to but
excluding the date such payment is made (i) during the period from and
including such due date to but excluding the date three Business Days
thereafter, at a rate per annum equal to the Federal Funds Rate (as in
effect from time to time) and (ii) thereafter, at a rate per annum equal
to the Base Rate (as in effect from time to time) plus 2.00%.
The Company hereby indemnifies and holds harmless each of the Banks, the Issuing
Bank and the Agent (unless otherwise provided in the relevant Letter of Credit
Documents in the case of the Issuing Bank) from and against any and all claims,
damages, losses, liabilities, costs or expenses which such Bank, the Issuing
Bank or the Agent may incur (or which may be claimed against such Bank or the
Agent by any Person whatsoever) by reason of or in connection with the execution
and delivery or transfer of or payment or refusal to pay by the Issuing Bank
under any Letter of Credit; provided that the Company shall not be required to
indemnify any Bank or the Agent for any claims, damages, losses, liabilities,
costs or expenses to the extent, but only to the extent, such claims, damages,
losses, liabilities, costs or expenses are caused by (x) the willful misconduct
or gross negligence of the Issuing Bank or (y) in the case of the Issuing Bank,
such Bank's failure to pay under any Letter of Credit after the presentation to
it of a request strictly complying with the terms and conditions of such Letter
of Credit. Nothing in this Section 2.03 is intended to limit the other
obligations of the Company, any Bank or the Agent under this Agreement.
2.04. Changes of Commitments; Mandatory Prepayments.
(a) The Commitments shall be automatically terminated on the
Commitment Termination Date.
(b) The Company shall have the right at any time or from time to
time (i) so long as no Facility A Loans, Facility B Loans or Letter of Credit
Liabilities are outstanding, to terminate the respective Facility A Commitments,
the Facility B Commitments or the Letter of Credit Commitments, as the case may
be, and (ii) to reduce the aggregate unused amount of the Facility A
Commitments, the Facility B Commitments or the Letter of Credit Commitments;
provided that (x) the Company shall give notice of each such termination or
reduction as provided in Section 4.05 hereof, and (y) each partial reduction
shall be in an aggregate amount at least equal to $1,000,000 and in multiples of
$1,000,000 in excess thereof.
(c) Without affecting Section 8.05 hereof 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 100% 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 (including net
cash proceeds subsequently received in connection with (i) such Disposition, or
(ii) any non-cash consideration received in connection with such Disposition);
provided, that, notwithstanding the foregoing, the aggregate amount of the
Facility B Commitments shall be reduced to $65,000,000 (less the aggregate
amount of any reductions in the Facility B Commitments previously made pursuant
to this paragraph (c)) concurrently with the Disposition of substantially all of
the assets of the Games and Puzzles division of Western. Any prepayments and
reductions in the Commitments required under this paragraph (c) shall be made
(i) first with respect to outstanding Facility B Loans and the Facility B
Commitments, (ii) second with respect to outstanding Facility A Loans and the
Facility A Commitments, and (iii) third with respect to outstanding Letter of
Credit Liabilities and the Letter of Credit Commitments.
(d) Upon the prepayment by Western of any portion of the outstanding
principal of the Subsidiary Note, the Company shall prepay the principal of the
Facility A Loans outstanding hereunder in an aggregate principal amount equal to
the aggregate principal amount prepaid in respect of the Subsidiary Note.
(e) Any of the Commitments once terminated or reduced may not be
reinstated.
2.05. Commitment Fees.
(a) The Company shall pay to the Agent for account of each Bank a
commitment fee on the daily average unused amount of each of such Bank's
Commitments, for the period from and including the date of this Agreement to but
not including the earlier of the date such Commitments are terminated and the
Commitment Termination Date, at a rate per annum equal, for each day during such
period, to 0.50%. Accrued commitment fees 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.
(b) In addition to the commitment fees provided for in paragraph (a)
of this Section 2.05, the Company shall pay to the Agent, for the account of the
Banks, an additional one-time commitment fee of $300,000 upon the aggregate
outstanding principal amount of Facility B Loans first exceeding $100,000,000.
The Agent shall pay to each Bank, promptly upon payment thereof by the Company,
an amount equal to such Bank's Commitment Percentage of such additional
commitment fee.
2.06. Lending Offices. The Loans made by each Bank shall be made
and maintained at such Bank's Lending Office; provided, however, that a Bank may
not change its Lending Office if doing so would subject the Loans of such Bank
to any of the consequences contemplated by Section 5.01 hereof, unless such Bank
shall have waived, to the reasonable satisfaction of the Company, such
consequences.
2.07. Several Obligations; Remedies Independent. The failure of any
Bank to make any Loan to be made by it on the date specified therefor shall not
relieve any other Bank of its obligation to make its Loan on such date, but
neither any Bank nor the Agent shall be responsible for the failure of any other
Bank to make a Loan to be made by such other Bank. The amounts payable by the
Company at any time hereunder and under the Notes to each Bank shall be a
separate and independent debt and each Bank shall be entitled to protect and
enforce its rights arising out of this Agreement and the Notes in accordance
with (and subject to) their respective terms, and it shall not be necessary for
any other Bank or the Agent to consent to, or be joined as an additional party
in, any proceedings for such purposes.
2.08. Notes.
(a) The Facility A Loans made by each Bank shall be evidenced by a
single promissory note of the Company substantially in the form of Exhibit A-1
hereto, dated the date hereof, payable to such Bank in a principal amount equal
to the amount of its Facility A Commitment as originally in effect and otherwise
duly completed. The Facility B Loans made by each Bank shall be evidenced by a
single promissory note of the Company substantially in the form of Exhibit A-2
hereto, dated the date hereof, payable to such Bank in a principal amount equal
to the amount of its Facility B Commitment as originally in effect and otherwise
duly completed.
(b) The date, amount and interest rate of each Facility A Loan or
Facility B Loan made by each Bank to the Company, and each payment made on
account of the principal thereof, shall be recorded by such Bank on its books
and, prior to any transfer of the respective Facility A Note or Facility B Note,
as the case may be, held by it, endorsed by such Bank on the schedule attached
to such respective Facility A Note or Facility B Note; provided that the failure
of such Bank to make any such recordation or endorsement shall not affect the
obligations of the Company to make a payment when due of any amount owing under
such respective Facility A Note or Facility B Note.
(c) No Bank shall be entitled to have its Facility A Note or
Facility B Note subdivided, by exchange for promissory notes of lesser
denominations or otherwise, except in connection with a permitted assignment of
all or any portion of such Bank's Facility A Commitment, Facility A Loans and
Facility A Note, or such Bank's Facility B Commitment, Facility B Loans and
Facility B Note, as the case may be, pursuant to Section 11.06(b) hereof.
2.09. Prepayments of Loans. Subject to Section 4.04 hereof,the
Company shall have the right to prepay Facility A Loans or Facility B Loans, at
any time or from time to time, provided that: (i) the Company shall give the
Agent notice of each such prepayment as provided in Section 4.05 hereof, and
(ii) no Facility A Loans may be prepaid if any Facility B Loans are then
outstanding. The Company shall be required to prepay the Loans as required
under Section 2.04 hereof.
Section 3. Payments of Principal and Interest.
3.01. Repayment of Loans. The Company hereby promises to pay to the
Agent for the account of each Bank the entire outstanding principal amount of
such Bank's Loans, and each Loan shall mature, on the Commitment Termination
Date.
3.02. Interest. The Company hereby promises to pay to the Agent for
the account of each Bank interest on the unpaid principal amount of each Loan
made by such Bank for the period from and including the date of such Loan to but
excluding the date such Loan shall be paid in full, at the following rates per
annum:
(a) in the case of a Facility A Loan, the Base Rate (as in effect
from time to time) and
(b) in the case of a Facility B Loan, the Base Rate plus the
Applicable Margin (each as in effect from time to time).
Notwithstanding the foregoing, the Company hereby promises to pay to the Agent
for the account of each Bank interest at the applicable Post-Default Rate on any
principal of any Loan made by such Bank, on any Reimbursement Obligation held by
such Bank, and on any other amount payable by the Company hereunder or under any
Note held by such Bank to or for the account of such Bank, which shall not be
paid in full when due (whether at stated maturity, by acceleration or
otherwise), for the period from and including the due date thereof to but
excluding the date the same is paid in full. Accrued interest on each Loan
shall be payable (i) quarterly on the Quarterly Dates, and (ii) upon the payment
or prepayment of any principal thereof (but only on the principal amount so paid
or prepaid), except that interest payable at the Post-Default Rate shall be
payable from time to time on demand. Promptly after the determination of any
interest rate provided for herein or any change therein, the Agent shall give
notice thereof to the Banks to which such interest is payable and to the
Company.
Section 4. Payments; Pro Rata Treatment; Computations; Etc.
4.01. Payments.
(a) Except to the extent otherwise provided herein, all payments of
principal, interest, Reimbursement Obligations, commitment fees and letter of
credit issuance fees to be made by the Company under this Agreement and the
Notes shall be made in Dollars, in immediately available funds, without
deduction or set-off, to the Agent at such account at the Principal Office as
may be designated by the Agent to the Company from time to time, not later than
1:00 p.m. New York time on the date on which such payment shall become due (each
such payment made after such time on such due date to be deemed to have been
made on the next succeeding Business Day).
(b) The Company shall, at the time of making each payment under this
Agreement or any Note, specify to the Agent (which shall so notify the intended
recipient(s) thereof) or the Issuing Bank (as applicable) the Loans,
Reimbursement Obligations or other amounts payable by the Company hereunder to
which such payment is to be applied, provided that the Company may not specify
that any payment be applied to the Facility A Loans if any Facility B Loans are
then outstanding (and in the event that it fails to so specify, or if an Event
of Default has occurred and is continuing, such Bank may apply the amount of
such payment received by it from the Agent in such manner as such Bank may
determine to be appropriate).
(c) Each payment received by the Agent under this Agreement or any
Note for account of any Bank shall be paid by the Agent promptly to such Bank,
in immediately available funds, for the account of such Bank's Lending Office.
(d) If the due date of any payment under this Agreement or any Note
would otherwise fall on a day which is not a Business Day, such date shall be
extended to the next succeeding Business Day and interest shall be payable for
any principal so extended for the period of such extension.
4.02. Pro Rata Treatment. Except to the extent otherwise provided
herein: (a) each borrowing from the Banks under Section 2.01 hereof shall be
made from the Banks, each payment of commitment fee under Section 2.05 hereof
shall be made for the account of the Banks, and each termination or reduction of
the amount of the Commitments under Section 2.04 hereof shall be applied to the
respective Facility A Commitments, Facility B Commitments or Letter of Credit
Commitments of the Banks, as the case may be, pro rata according to the amounts
of their respective Commitments of such Type; (b) the making of Facility A Loans
or Facility B Loans, as the case may be, shall be made pro rata among the Banks
according to the amounts of their respective Facility A Commitments or Facility
B Commitments, as applicable; (c) each payment or prepayment of principal of
Facility A Loans or Facility B Loans by the Company shall be made for the
account of the Banks pro rata in accordance with the respective unpaid principal
amounts of the Facility A Loans or Facility B Loans, as the case may be, held by
them; and (d) each payment of interest on Facility A Loans or Facility B Loans
by the Company shall be made for account of the Banks pro rata in accordance
with the amounts of interest on such Facility A Loans or Facility B Loans, as
the case may be, then due and payable to the respective Banks.
4.03. Computations. Letter of Credit issuance fees shall be
computed on the basis of a year of 360 days and actual days elapsed (including
the first day but excluding the last day) occurring in the period for which
payable, and commitment fees and interest on Loans (and any interest computed at
the Post-Default Rate by reference to the Base Rate) shall be computed on the
basis of a year of 365 or 366 days, as the case may be, and actual days elapsed
(including the first day but excluding the last day) occurring in the period for
which payable.
4.04. Minimum Amounts. Each borrowing and prepayment of principal
of Loans shall be in an amount at least equal to $1,000,000 and in multiples of
$1,000,000 in excess thereof (borrowings or prepayments of Loans of different
Types at the same time hereunder to be deemed separate borrowings and
prepayments for purposes of the foregoing, one for each Type).
4.05. Certain Notices. Notices by the Company to the Agent of
terminations or reductions of the Commitments, and of borrowings and optional
prepayments of Loans, shall be irrevocable and shall be effective only if
received by the Agent not later than 12:00 noon New York time on the number of
Business Days prior to the date of the relevant termination, reduction,
borrowing or prepayment specified below:
Number of
Business
Type of Notice Days Prior
------------- ----------
Termination or reduction
of Commitments 1
Borrowings of Loans 1
Prepayment of Loans 1
Each such notice of termination or reduction shall specify the amount and Type
of the Commitments to be terminated or reduced. Each such notice of borrowing
or optional prepayment shall specify the Loans to be borrowed or prepaid and the
amount (subject to Section 4.04 hereof) and Type (subject to Sections 2.01 and
2.09 hereof) of each Loan to be borrowed or prepaid and the date of borrowing or
optional prepayment (which shall be a Business Day). The Agent shall promptly
notify the Banks of the contents of each such notice.
4.06. Non-Receipt of Funds by the Agent. Unless the Agent shall
have been notified by a Bank or the Company (the "Payor") prior to the date on
which the Payor is to make payment to the Agent of (in the case of a Bank) the
proceeds of a Loan to be made by it, or a participation in a Letter of Credit
drawing to be acquired by it, hereunder or (in the case of the Company) a
payment to the Agent for the account of one or more of the Banks hereunder (such
payment being herein called the "Required Payment"), which notice shall be
effective upon receipt, that the Payor does not intend to make the Required
Payment to the Agent, the Agent may assume that the Required Payment has been
made and may, in reliance upon such assumption (but shall not be required to),
make the amount thereof available to the intended recipient(s) on such date and,
if the Payor has not in fact made the Required Payment to the Agent, the
recipient(s) of such payment shall, on demand, repay to the Agent the amount so
made available together with interest thereon in respect of each day during the
period commencing on the date such amount was so made available by the Agent
until the date the Agent recovers such amount at a rate per annum equal to the
Federal Funds Rate for such day and, if such recipient(s) shall fail promptly to
make such payment, the Agent shall be entitled to recover such amount, on
demand, from the Payor, together with interest as aforesaid.
4.07. Sharing of Payments, Etc.
(a) The Company agrees that, in addition to (and without limitation
of) any right of set-off or banker's lien a Bank may otherwise have, each Bank
shall be entitled, at its option, upon the occurrence and during the continuance
of a Default to offset balances held by it for account of the Company at any of
its offices, in Dollars or in any other currency, against any principal of or
interest on any of such Bank's Loans, the Reimbursement Obligations, or any
other amount payable to such Bank hereunder, that is not paid when due
(regardless of whether such balances are then due to the Company), in which case
it shall promptly notify the Company and the Agent thereof, provided that such
Bank's failure to give such notice shall not affect the validity thereof.
(b) If any Bank shall obtain from the Company payment of any
principal of or interest on any Loan or Letter of Credit Liability owing to it
or payment of any other amount under this Agreement or any Note held by it
through the exercise of any right of set-off, banker's lien or similar right
(other than from the Agent as provided herein), and, as a result of such
payment, such Bank shall have received a greater percentage of the principal of
or interest on any Type of Loans or Letter of Credit Liabilities or such other
amounts then due hereunder by the Company to such Bank than the percentage
received by any other Banks, it shall promptly purchase from such other Banks
participations in (or, if and to the extent specified by such Bank, direct
interests in) the Loans of such Type or Letter of Credit Liabilities or such
other amounts, respectively, owing to such other Banks (or in interest due
thereon, as the case may be) in such amounts, and make such other adjustments
from time to time as shall be equitable, to the end that all the Banks shall
share the benefit of such excess payment (net of any expenses which may be
incurred by such Bank in obtaining or preserving such excess payment) pro rata
in accordance with the unpaid principal of and/or interest on the Loans of such
Type or Letter of Credit Liabilities or such other amounts, respectively, owing
to each of the Banks. To such end all the Banks shall make appropriate
adjustments among themselves (by the resale of participations sold or otherwise)
if such payment is rescinded or must otherwise be restored.
(c) The Company agrees that any Bank purchasing such a participation
(or direct interest) as provided in this Section 4.07 may exercise all rights of
set-off, banker's lien or similar rights with respect to such participation as
fully as if such Bank were a direct holder of Loans or other amounts (as the
case may be) owing to such Bank in the amount of such participation.
(d) Nothing contained herein shall require any Bank to exercise any
such right or shall affect the right of any Bank to exercise, and retain the
benefits of exercising, any such right with respect to any other indebtedness or
obligation of the Company. If, under any applicable bankruptcy, insolvency or
other similar law, any Bank receives a secured claim in lieu of a set-off to
which this Section 4.07 applies, such Bank shall, to the extent practicable,
exercise its rights in respect of such secured claim in a manner consistent with
the rights of the Banks entitled under this Section 4.07 to share in the
benefits of any recovery on such secured claim.
Section 5. Yield Protection, Etc.
5.01. Additional Costs.
(a) The Company shall pay directly to each Bank from time to time on
request such amounts as such Bank may reasonably determine in good faith to be
necessary to compensate such Bank (or, without duplication, the bank holding
company of which such Bank is a subsidiary) for any costs hereinafter incurred
which it determines are attributable to the maintenance by such Bank (or any
Lending Office or such bank holding company), pursuant to any law or regulation
or any interpretation, directive or request (whether or not having the force of
law) of any court or governmental or monetary authority (i) following any
Regulatory Change or (ii) implementing any risk-based capital guideline or
requirement (whether or not having the force of law and whether or not the
failure to comply therewith would be unlawful) hereafter issued by any
government or governmental or supervisory authority implementing at the national
level the Basle Accord (including, without limitation, the Final Risk-Based
Capital Guidelines of the Board of Governors of the Federal Reserve System (12
CFR Part 208, Appendix A; 12 CFR Part 225, Appendix A) and the Final Risk-Based
Capital Guidelines of the Office of the Comptroller of the Currency (12 CFR Part
3, Appendix A)), of capital in respect of its Commitments, Loans, Reimbursement
Obligations or participations in Letters of Credit (such compensation to
include, without limitation, an amount equal to any reduction of the rate of
return on assets or equity of such Bank (or any Lending Office or such bank
holding company) to a level below that which such Bank (or any Lending Office or
such bank holding company) could have achieved but for such law, regulation,
interpretation, directive or request). For purposes of this Section 5.01(a),
"Basle Accord" shall mean the proposals for risk-based capital framework
described by the Basle Committee on Banking Regulations and Supervisory
Practices in its paper entitled "International Convergence of Capital
Measurement and Capital Standards" dated July 1988, as amended, modified and
supplemented and in effect from time to time.
(b) Each Bank shall notify the Company of any event occurring after
the date of this Agreement that will entitle such Bank to compensation under
paragraph (a) of this Section 5.01 as promptly as practicable, but in any event
within 45 days, after such Bank obtains actual knowledge thereof; provided, that
(i) if any Bank fails to give such notice within 45 days after it obtains actual
knowledge of such an event, such Bank shall, with respect to compensation
payable pursuant to this Section 5.01 in respect of any costs resulting from
such event, only be entitled to payment under this Section 5.01 for costs
incurred from and after the date 45 days prior to the date that such Bank does
give such notice and (ii) each Bank will designate a different Lending Office
for the Loans of such Bank affected by such event if such designation will avoid
the need for, or reduce the amount of, such compensation and will not, in the
sole opinion of such Bank, be disadvantageous to such Bank. Each Bank will
furnish to the Company a certificate setting forth the basis and amount of each
request by such Bank for compensation under paragraph (a) of this Section 5.01.
Determinations and allocations by any Bank for purposes of this Section 5.01 of
the effect of capital maintained pursuant to paragraph (a) of this Section 5.01
on its costs or rate of return of maintaining Loans or its obligation to make
Loans, or on amounts receivable by it in respect of Loans, and of the amounts
required to compensate such Bank under this Section 5.01, shall be conclusive,
provided that such determinations and allocations are made on a reasonable
basis.
(c) If requested by the Company after such Bank has notified the
Company of any such event entitling it to compensation under paragraph (a) of
this Section 5.01, such Bank shall promptly notify the Company when such event
is no longer applicable.
5.02. Additional Costs in Respect of Letters of Credit. Without
limiting the obligations of the Company under Section 5.01 hereof (but without
duplication), if as a result of any Regulatory Change there shall be imposed,
modified or deemed applicable any tax (other than income or franchise taxes),
reserve, special deposit, capital adequacy or similar requirement against or
with respect to or measured by reference to Letters of Credit issued or to be
issued hereunder and the result shall be to increase the cost to any Bank or
Banks of issuing (or purchasing participations in) or maintaining its obligation
hereunder to issue (or purchase participations in) any Letter of Credit
hereunder or reduce any amount receivable by any Bank hereunder in respect of
any Letter of Credit (which increases in cost, or reduction in amount
receivable, shall be the result of such Bank's or Banks' reasonable allocation
of the aggregate of such increases or reductions resulting from such event),
then, upon demand by such Bank or Banks, the Company shall pay immediately to
such Bank or Banks, from time to time as specified by such Bank or Banks, such
additional amounts as shall be sufficient to compensate such Bank or Banks for
such increased costs or reductions in amount. A statement as to such increased
costs or reductions in amount incurred by any such Bank or Banks, submitted by
such Bank or Banks to the Company shall be conclusive in the absence of manifest
error as to the amount thereof. Each Bank shall notify the Company of any event
occurring after the date of this Agreement that will entitle such Bank to
compensation under this Section 5.02 as promptly as practicable, but in any
event within 45 days, after such Bank obtains actual knowledge thereof;
provided, that if any Bank falls to give such notice within 45 days after it
obtains actual knowledge of such an event, such Bank shall, with respect to
compensation payable pursuant to this Section 5.02 in respect of any costs
resulting from such event, only be entitled to payment under this Section 5.02
for costs incurred from and after the date 45 days prior to the date that such
Bank does give such notice. If requested by the Company after such Bank has
notified the Company of any such event, such Bank shall promptly notify the
Company when such event is no longer applicable.
5.03. Option to Replace Banks. If any Bank shall become an Affected
Bank, then, provided there does not then exist any Default:
(a) The Company may request one or more of the other Banks to
purchase all (but not part) of such Affected Bank's then outstanding Loans,
Reimbursement Obligations and participations in outstanding Letters of Credit
and to assume all (but not part) of such Affected Bank's Commitments and
obligations hereunder. If one or more Banks shall so agree in writing (herein
collectively called the "Assenting Banks" and individually called an "Assenting
Bank") with respect to such Affected Bank, then (x) the Facility A Commitments,
Facility B Commitments and Letter of Credit Commitments of each Assenting Bank
and the obligations of such Assenting Bank under this Agreement shall be
increased by its respective pro rata share of the Facility A Commitments,
Facility B Commitments and Letter of Credit Commitments, as the case may be, of
such Affected Bank under this Agreement and (y) each Assenting Bank shall make
Facility A Loans and/or Facility B Loans to the Company pro rata in accordance
with the amount of such Affected Bank's Facility A Loans and/or Facility B
Loans, as the case may be, being purchased by such Assenting Bank in principal
amounts which, when aggregated with Facility A Loans and/or Facility B Loans
being made by other Assenting Banks, if any, are equal to the outstanding
principal amounts of all the Facility A Loans and/or Facility B Loans of the
Affected Bank, on a date mutually acceptable to the Assenting Banks, such
Affected Bank and the Company. The proceeds of such Loans, together, if
necessary, with funds of the Company, shall be used to prepay the Loans of such
Affected Bank, together with all interest accrued thereon (calculated on the
basis set forth in a certificate delivered by such Affected Bank) and all other
amounts owing to such Affected Bank hereunder, and, upon such assumption by the
Assenting Banks and prepayment by the Company, such Affected Bank shall cease to
be a "Bank" for purposes of this Agreement and shall no longer have any
obligations hereunder.
(b) So long as no Event of Default shall have occurred and be
continuing, the Company may designate a Replacement Bank to assume the
Commitments and the obligations of any such Affected Bank hereunder and to
purchase the outstanding Loans of such Affected Bank and such Affected Bank's
rights hereunder without recourse upon, or warranty by, or expense to such
Affected Bank, for a purchase price equal to the outstanding principal amount of
the Loans of such Affected Bank plus all interest accrued and unpaid thereon
(calculated on the basis set forth in a certificate delivered by such Affected
Bank) and all other amounts owing to such Affected Bank hereunder, and upon such
assumption and purchase by the Replacement Bank, such Replacement Bank shall be
deemed to be a "Bank" for purposes of this Agreement and such Affected Bank
shall cease to be a "Bank" for purposes of this Agreement and shall no longer
have any obligations hereunder. The Company shall provide replacement Notes to
such Replacement Bank and to any Assenting Bank making Loans pursuant to
subsection (a) above to reflect the identity of and/or the outstanding amount of
the Loans of such Replacement Bank or such Assenting Bank.
As used in this Section 5.03, "Affected Bank" shall mean any Bank
that (i) is subject to taxes or Additional Costs described in Section 5.01 or
5.02 hereof and claims reimbursement for such taxes or Additional Costs pursuant
to Section 5.01 or 5.02 hereof or (ii) breaches in any material respect its
obligations to make Loans hereunder; and "Replacement Bank" shall mean a lending
institution designated by the Company pursuant to this Section 5.03, which, at
the time of such designation, is not a Bank.
Section 6. Conditions Precedent.
6.01. Effectiveness. The effectiveness of this Agreement is subject
to the receipt by the Agent on the date of the execution and delivery of this
Agreement of the following documents, each of which shall be satisfactory to the
Agent in form and substance and shall be dated or certified on or as of the
Closing Date, unless otherwise indicated or agreed to by the Agent:
(a) Corporate Documents of the Company. The following documents,
each certified as indicated below:
(i) a copy of the charter, as amended, of the Company
certified by the Secretary of State of the State of Delaware, and a
certificate as to the good standing of and charter documents filed by the
Company from such Secretary of State, dated as of a recent date;
(ii) a certificate of the Secretary of the Company, dated the
date hereof and certifying (A) that attached thereto is a true and
complete copy of the by-laws of the Company as in effect on the date of
such certificate, (B) that attached thereto is a true and complete copy of
resolutions duly adopted by the board of directors of the Company
authorizing the execution, delivery and performance of this Agreement, the
Notes, the Pledge Agreement, the Subsidiary Security Agreement and the
extensions of credit hereunder, and that such resolutions have not been
modified, rescinded or amended and are in full force and effect, (C) that
the charter of the Company has not been amended since the date of the
certification thereof furnished pursuant to clause (i) above, and (D) as
to the incumbency and specimen signature of each officer of the Company
executing this Agreement or any of the Notes and each other document to be
delivered by the Company from time to time in connection herewith (and the
Agent and each Bank may conclusively rely on such certificate until it
receives notice in writing from the Secretary of the Company); and
(iii) a certificate of another officer of the Company as to the
incumbency and specimen signature of the Secretary of the Company.
(b) Corporate Documents of Western. The following documents, each
certified as indicated below:
(i) a copy of the charter, as amended, of Western certified by
the Secretary of State of the State of Delaware, and a certificate as to
the good standing of and charter documents filed by Western from such
Secretary of State, dated as of a recent date;
(ii) a certificate of the Secretary of Western, dated the date
hereof and certifying (A) that attached thereto is a true and complete
copy of the by-laws of Western as in effect on the date of such
certificate, (B) that attached thereto is a true and complete copy of
resolutions duly adopted by the board of directors of Western authorizing
the execution, delivery and performance of the Subsidiary Note and the
Subsidiary Security Agreement, and that such resolutions have not been
modified, rescinded or amended and are in full force and effect, (C) that
the charter of Western has not been amended since the date of the
certification thereof furnished pursuant to clause (i) above, and (D) as
to the incumbency and specimen signature of each officer of Western
executing the Subsidiary Note, the Subsidiary Security Agreement and each
other document to be delivered by Western from time to time in connection
therewith (and the Agent and each Bank may conclusively rely on such
certificate until it receives notice in writing from the Secretary of
Western); and
(iii) a certificate of another officer of Western as to the
incumbency and specimen signature of the Secretary of Western.
(c) Officer's Certificate. A certificate of a senior officer of the
Company to the effect set forth in the first sentence of Section 6.02
hereof.
(d) Opinion of Counsel to the Company. An opinion of Morgan, Lewis
& Bockius, counsel to the Company, substantially in the form of Exhibit F
hereto.
(e) Pledge Agreement. The Pledge Agreement, duly executed by the
Company.
(f) Subsidiary Note. The Subsidiary Note, duly executed by Western,
to be held by the Agent pursuant to the Pledge Agreement.
(g) Subsidiary Security Agreement. Evidence that the Subsidiary
Security Agreement has been duly executed and delivered by the Company and
Western, and that all actions reasonably necessary or appropriate to
perfect the Liens on Western's accounts receivables and inventory arising
thereunder has been taken.
(h) Amendment Fee. Payment of an amendment fee of $468,750, for the
pro-rata account of the Banks.
(i) Expenses. Payment of all reasonable out-of-pocket costs and
expenses incurred prior to the Closing Date which the Company is required
to pay pursuant to Section 11.03 hereof.
(j) Accrued Interest and Fees. Payment of all accrued interest,
fees and other amounts (other than the principal of the Loans) outstanding
under the Old Credit Agreement.
(k) Other Documents. Such other documents as the Agent or any Bank
or special New York counsel to the Banks may reasonably request in
connection with the execution and delivery of this Agreement, the Notes
and the other Loan Documents required hereunder to be delivered on the
Closing Date and the extensions of credit hereunder.
The execution and delivery of this Credit Agreement by the Agent
shall constitute its acknowledgment that the documents delivered pursuant to
this Section 6.01 are satisfactory to the Agent as to form and substance.
6.02. Additional Conditions. Each of the effectiveness of this
Agreement and the obligation of the Banks to make any Loan or otherwise extend
any credit to the Company upon the occasion of each borrowing or other extension
of credit hereunder is subject to the further conditions precedent that, both
immediately prior to the making of such Loan or other extension of credit and
also after giving effect thereto: (i) no Default shall have occurred and be
continuing; (ii) the representations and warranties made by the Company in
Section 7 hereof shall be true and complete in all material respects on and as
of the date of the making of such Loan or other extension of credit with the
same force and effect as if made on and as of such date (except to the extent
that such representations and warranties expressly relate to an earlier date);
and (iii) with respect to any borrowing of a Facility A Loan, the Company
represents and warrants that Western has requested a borrowing under the
Subsidiary Note equal to the amount to be borrowed with respect to such Facility
A Loan. Each notice of borrowing or request for the issuance of a Letter of
Credit by the Company hereunder shall constitute a certification by the Company
to the effect set forth in the preceding sentence (both as of the date of such
notice or request and, unless the Company otherwise notifies the Agent prior to
the date of such borrowing or issuance, as of the date of such borrowing or
issuance).
Section 7. Representations and Warranties. The Company represents
and warrants to the Banks that:
7.01. Corporate Existence. Each of the Company and its
Subsidiaries: (a) is a corporation, partnership or other entity duly organized
and validly existing under the laws of the jurisdiction of its organization; (b)
has all requisite corporate or other power, and has all material governmental
licenses, authorizations, consents and approvals necessary to own its assets and
carry on its business as now being 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.
7.02. Financial Condition. The consolidated and consolidating
balance sheets of the Company and its Consolidated Subsidiaries as at January
29, 1994 and the related consolidated and consolidating statements of
operations, retained earnings and cash flow of the Company and its Consolidated
Subsidiaries for the fiscal year ended on said date, with the opinion thereon
(in the case of said consolidated balance sheet and consolidated statements of
operations, retained earnings and cash flow) of Deloitte & Touche, heretofore
furnished to each of the Banks, are complete and correct and fairly present in
all material respects the consolidated financial condition of the Company and
its Consolidated Subsidiaries, and the unconsolidated financial condition of the
Company and of each of its Consolidated Subsidiaries, as at said date and the
consolidated and unconsolidated results of their operations for the fiscal year
ended on said date, all in accordance with GAAP applied on a consistent basis.
Neither the Company nor any of its Subsidiaries had on said dates any contingent
liabilities, liabilities for taxes, unusual forward or long-term commitments or
unrealized or anticipated losses from any unfavorable commitments which in the
aggregate is material to the financial condition of the Company and its
Subsidiaries taken as a whole (determined on a consolidated basis), except as
referred to or reflected or provided for in said balance sheets as at said dates
(including the notes thereto). Since January 29, 1994, there has been no
material adverse change in the consolidated financial condition, operations or
business of the Company and its Consolidated Subsidiaries taken as a whole from
that set forth in said financial statements as at said date.
7.03. Litigation. Except as disclosed in Schedule IV hereto, there
are no legal or arbitral proceedings, or any proceedings by or before any
governmental or regulatory authority or agency, now pending or (to the Knowledge
of the Company) threatened against the Company or any of its Subsidiaries which,
if adversely determined, could reasonably be expected to have a Material Adverse
Effect.
7.04. No Breach. None of the execution and delivery of this
Agreement, the Notes, and the other Loan Documents or the consummation of the
transactions contemplated hereby and thereby and compliance by the Company and
Western with the terms and provisions hereof and thereof will conflict with or
result in a breach of, or require any consent under, the charter or by-laws of
the Company or Western, or any applicable law or regulation, or any applicable
order, writ, injunction or decree of any court or governmental authority or
agency, or any material (determined by reference to the Company and its
Subsidiaries, taken as a whole) agreement or instrument to which the Company or
any of its Significant 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.
7.05. Action. Each of the Company and Western has all necessary
corporate power and authority to execute, deliver and perform its obligations
under this Agreement, the Notes and the other Loan Documents; the execution,
delivery and performance by the Company and Western of this Agreement, the Notes
and the other Loan Documents have been duly authorized by all necessary
corporate action on their respective parts; and this Agreement and each of the
other Loan Documents has been duly and validly executed and delivered by the
Company and Western (to the extent party thereto) and constitutes, and each of
the Notes when executed and delivered for value will constitute, the Company's
or Western's, as the case may be, 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).
7.06. 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 Company
or Western (to the extent party thereto) of this Agreement, the Notes or the
other Loan Documents or for the validity or enforceability thereof.
7.07. Use of Loans. Neither the Company nor any of its Subsidiaries
is engaged principally, or as one of its important activities, in the business
of extending credit for the purpose, whether immediate, incidental or ultimate,
of buying or carrying Margin Stock and no part of the proceeds of any extension
of credit hereunder will be used to buy or carry any Margin Stock.
7.08. ERISA. The Company and the ERISA Affiliates have fulfilled
their respective obligations under the minimum funding standards of ERISA and
the Code with respect to each Plan and are in compliance in all material
respects with the presently applicable provisions of ERISA and the Code, and
have not incurred any liability to the PBGC or any Plan or Multiemployer Plan
(other than to make contributions to the Plans and to pay premiums to the PBGC,
in each case in the ordinary course of business).
7.09. Taxes. United States Federal income tax returns of the
Company and its Subsidiaries have been examined and closed through the fiscal
year of the Company ended January 30, 1988. The Company and its Consolidated
Subsidiaries have filed all United States Federal income tax returns and all
other tax returns which are required to be filed by them (other than such tax
returns the failure of which to file would not have a Material Adverse Effect)
and have paid all taxes due pursuant to such returns or pursuant to any
assessment received by the Company or any of its Consolidated Subsidiaries,
except such taxes as are being contested in good faith by appropriate
proceedings and for which, in the reasonable opinion of the Company, adequate
reserves are maintained on the books of the Company and its Subsidiaries. If
the Company is a member of an affiliated group of corporations filing
consolidated returns for United States Federal income tax purposes, it is the
"common parent" of such group.
7.10. Investment Company Act. The Company is not an "investment
company", or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.
7.11. Public Utility Holding Company Act. The Company is not a
"holding company", or an "affiliate" of a "holding company" or a "subsidiary
company" of a "holding company", within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
7.12. Credit Agreements. Schedule I hereto is a complete and
correct list, as of the date of this Agreement, of each credit agreement, loan
agreement, indenture, note purchase agreement, guarantee or other arrangement
providing for or otherwise relating to any Indebtedness (or commitment therefor)
to, or Guarantee by, the Company or any of its Subsidiaries, the aggregate
principal or face amount of which equals or exceeds (or may equal or exceed)
$1,000,000 and the aggregate principal or face amount outstanding or which may
become outstanding under each such arrangement is correctly described in said
Schedule I.
7.13. Hazardous Materials. (a) The Company and each of its
Subsidiaries have obtained all permits, licenses and other authorizations which
the Company and each of its Subsidiaries are required to have under all
Environmental Laws, except to the extent failure to have any such permit,
license or authorization would not have a Material Adverse Effect. The Company
and each of its Subsidiaries are in compliance with (i) the terms and conditions
of all such permits, licenses and authorizations, and (ii) all Environmental
Laws except to the extent the failure to comply with (i) and/or (ii) would not
have a Material Adverse Effect.
(b) Neither the Company nor any off its Subsidiaries has retained,
assumed or otherwise become or remained liable for, whether by contract,
operation of law or otherwise, any Environmental Claim with respect to any
former Subsidiary or division of the Company or any of its Subsidiaries,
which would have a Material Adverse Effect.
(c) No written notice, notification, demand, request for
information, citation, summons or order has been received by the Company
or any of its Subsidiaries nor does the Company after diligent inquiry
have Knowledge of any of the same being issued, no complaint has been
served on the Company or any of its Subsidiaries nor does the Company
after diligent inquiry have Knowledge of any complaint being filed, no
penalty has been assessed against the Company or any of its Subsidiaries,
to the Knowledge of the Company after diligent inquiry no investigation or
review is pending or threatened by any governmental entity, and neither
the Company nor any of its Subsidiaries has received any written notice or
has any Knowledge of any pending or threatened investigation by any other
entity with respect to any (i) alleged failure by the Company or any of
its Subsidiaries to have any permit, license or authorization required in
connection with the conduct of the business of the Company or any of its
Subsidiaries or (ii) alleged Environmental Law violation involving the
generation, treatment, storage, recycling, transportation, discharge,
disposal or any Release of any Hazardous Materials by the Company or any
of its Subsidiaries or at any of the properties owned or leased by any of
them, except to the extent that such failure or violation would not have a
Material Adverse Effect.
(d) Neither the Company nor any of its Subsidiaries has generated,
treated, stored, recycled, transported, discharged, disposed of or
Released any Hazardous Material on any property now or previously owned or
leased by the Company or any of its Subsidiaries to an extent that it
would have a Material Adverse Effect; and
(i) no PCB is present at any property now owned or leased
by the Company or any of its Subsidiaries and the Company has not
received any written notice and does not have any Knowledge of the
presence of any PCB at any property previously owned or leased by the
Company or any of its Subsidiaries to the extent that any such
presence would have a Material Adverse Effect;
(ii) no asbestos is present at any property now owned or
leased by the Company or any of its Subsidiaries and the Company has
not received any written notice and does not have any Knowledge of
the presence of any asbestos at any property previously owned or
leased by the Company or any of its Subsidiaries to the extent that
any such presence would have a Material Adverse Effect;
(iii) there are no underground storage tanks for Hazardous
Materials, active or abandoned, present at any property now owned or
leased by the Company or any of its Subsidiaries and the Company has
not received any written notice and does not have any Knowledge of
the presence of any such tanks at any property previously owned or
leased by the Company or any of its Subsidiaries to the extent that
any such presence would have a Material Adverse Effect;
(iv) no Hazardous Materials have been Released at, on or
under any property now owned or leased by the Company or any of its
Subsidiaries and the Company has not received any written notice and
does not have any Knowledge of any Release of Hazardous Materials at
any property previously owned or leased by the Company or any of its
Subsidiaries to the extent that any such Release would have a
Material Adverse Effect.
(e) Except as set forth on Schedule II hereto, since January 1, 1980
neither the Company nor any of its Subsidiaries has transported or
arranged for the transportation of any Hazardous Material to any location
which is listed on the National Priorities List under CERCLA, listed for
possible inclusion on the National Priorities List by the United States
Environmental Protection Agency in the Comprehensive Environmental
Response, Compensation and Liability Information System ("CERCLIS") or on
any similar published state list. The Company has not received any
written notice and has no Knowledge of any allegations that the Company or
any of its Subsidiaries is liable, in connection with the transportation
or arranging for transportation of Hazardous Materials, for clean-up
costs, remedial work, damages to natural resources on or for personal
injury claims, including, but not limited to, claims under CERCLA, to the
extent such liability would have a Material Adverse Effect.
(f) The hazardous material annual generator reports which the
Company and each of its Subsidiaries were required to file for calendar
years 1991, 1992 and 1993 pursuant to 40 CFR Part 262.41 and 40 CFR Part
262.56 or any similar state regulation are contained in Schedule II,
except as otherwise set forth therein.
(g) Except as set forth in Schedule II, no written notification of a
Release of a Hazardous Material in violation of any Environmental Law or
any permit, license or authorization held or received by the Company or
any of its Subsidiaries has been filed or made by or on behalf of the
Company or any of its Subsidiaries.
(h) Except as set forth in Schedule II hereto, no property now or,
to the Knowledge of the Company, previously owned or leased by the Company
or any of its Subsidiaries is listed on the National Priorities List under
CERCLA, listed for possible inclusion on the National Priorities List in
CERCLIS or on any similar published state list.
(i) No Liens which would have a Material Adverse Effect have arisen
under or pursuant to any Environmental Laws on any of the property or
properties owned or leased by the Company or any of its Subsidiaries and
neither the Company nor any of its Subsidiaries has received any notice or
has any Knowledge of any government action which has been taken or is in
the process of being taken which could subject any of such Properties to
any such Lien.
(j) There have been no environmental investigations, studies,
audits, tests, reviews or other analyses of which records exist conducted
by or on behalf of the Company or any of its Subsidiaries and which are in
the possession or control of the Company or any of its Subsidiaries or any
of their consultants, attorneys, agents or representatives in relation to
any property or facility now or previously owned or leased by the Company
or any of its Subsidiaries which have not been made available to the
Banks, except for tests, studies, reviews, and other analyses routinely
taken to comply or determine compliance with permits held by the Company
and its Subsidiaries.
7.14. Subsidiaries, Etc. Set forth in Schedule III hereto is a
complete and correct list, as of the date of this Agreement, of all Subsidiaries
of the Company (and the respective jurisdiction of incorporation of each such
Subsidiary). Except as disclosed in said Schedule III, the Company owns, free
and clear of Liens, all outstanding shares of such Subsidiaries (and each such
Subsidiary owns, free and clear of Liens, all outstanding shares of its
Subsidiaries) and all such shares are validly issued, fully paid and
non-assessable.
7.15. No Offsets, Etc. As of the Closing Date, the Company has
Facility B Loans outstanding to the Banks hereunder in the aggregate principal
amount of $100,000,000. Such amount is due and owing to the Banks and is not
subject to any counterclaim, offset or defense.
Section 8. Covenants of the Company. The Company covenants and
agrees with the Banks and the Agent that, so long as any Commitment, Loan, or
Letter of Credit Liability is outstanding and until payment in full of all
amounts payable by the Company hereunder:
8.01. Financial Statements. The Company shall deliver to the Agent,
with sufficient copies for each of the Banks:
(a) as soon as available and in any event within 15 Business Days
after the end of each fiscal month, consolidated and consolidating
statements of operations, retained earnings and cash flow of the Company
and its Consolidated Subsidiaries for such period and for the period from
the beginning of the respective fiscal year to the end of such period, and
the related consolidated and consolidating balance sheets as at the end of
such period, setting forth in each case in comparative form the
corresponding consolidated and consolidating figures for the corresponding
period in the preceding fiscal year, accompanied by a certificate of a
senior financial officer of the Company, which certificate shall state
that said financial statements fairly present in all material respects the
consolidated financial condition and results of operations of the Company
and its Consolidated Subsidiaries, and the unconsolidated financial
condition and results of operations of the Company and of each of its
Consolidated Subsidiaries, in accordance with GAAP, as at the end of, and
for, such period (subject to normal year-end audit adjustments);
(b) as soon as available and in any event within 45 days after the
end of each of the first three quarterly fiscal periods of each fiscal
year of the Company, consolidated and consolidating statements of
operations, retained earnings and cash flow of the Company and its
Consolidated Subsidiaries for the period from the beginning of the
respective fiscal year to the end of such period, and consolidated and
consolidating statements of operations for such quarterly fiscal period,
and the related consolidated and consolidating balance sheets as at the
end of such period, setting forth in each case in comparative form the
corresponding consolidated and consolidating figures for the corresponding
period in the preceding fiscal year, accompanied by a certificate of a
senior financial officer of the Company, which certificate shall state
that said financial statements fairly present in all material respects the
consolidated financial condition and results of operations of the Company
and its Consolidated Subsidiaries, and the unconsolidated financial
condition and results of operations of the Company and of each of its
Consolidated Subsidiaries, in accordance with GAAP, as at the end of, and
for, such period (subject to normal year-end audit adjustments);
(c) as soon as available and in any event within 105 days after the
end of each fiscal year of the Company, consolidated and consolidating
statements of operations, retained earnings and cash flow of the Company
and its Consolidated Subsidiaries for such year and the related
consolidated and consolidating balance sheets as at the end of such year,
setting forth in each case in comparative form the corresponding
consolidated and consolidating figures for the preceding fiscal year, and
accompanied (i) in the case of said consolidated statements and balance
sheet, by an opinion thereon of Deloitte & Touche or other independent
certified public accountants of recognized national standing, which
opinion shall state that said consolidated financial statements fairly
present in all material respects the consolidated financial condition and
results of operations of the Company and its Consolidated Subsidiaries as
at the end of, and for, such fiscal year in accordance with GAAP, and (ii)
in the case of said consolidating statements and balance sheets, by a
certificate of a senior financial officer of the Company, which
certificate shall state that said consolidating financial statements
fairly present in all material respects (based upon the financial
condition of the Company and its Subsidiaries, taken as a whole) the
unconsolidated financial condition and results of operations of the
Company and of each of its Consolidated Subsidiaries in accordance with
GAAP, consistently applied, as at the end of, and for, such fiscal year;
(d) promptly upon their becoming available, copies of all
registration statements and regular periodic reports, if any, which the
Company shall have filed with the Securities and Exchange Commission (or
any governmental agency substituted therefor) or any national securities
exchange;
(e) promptly upon the mailing thereof to the shareholders of the
Company generally, copies of all financial statements, reports and proxy
statements so mailed;
(f) as soon as reasonably practicable, and in any event within 30
days after the Company knows or has reason to know that any of the events
or conditions specified below with respect to any Plan or Multiemployer
Plan have occurred or exist, a statement signed by a senior financial
officer of the Company setting forth details respecting such event or
condition and the action, if any, which the Company or its ERISA Affiliate
proposes to take with respect thereto (and a copy of any report or notice
required to be filed with or given to PBGC by the Company or an ERISA
Affiliate with resect to such event or condition):
(i) any reportable event, as defined in Section 4043(b) of
ERISA and the regulations issued thereunder, with respect to a Plan,
as to which PBGC has not by regulation waived the requirement of
Section 4043(a) of ERISA that it be notified within 30 days of the
occurrence of such event (provided that a failure to meet the minimum
funding standard of Section 412 of the Code or Section 302 of ERISA
shall be a reportable event regardless of the issuance of any waivers
in accordance with Section 412(d) of the Code);
(ii) the filing under Section 4041 of ERISA of a notice of
intent to terminate any Plan or the termination of any Plan;
(iii) the institution by PBGC of proceedings under Section
4042 of ERISA for the termination of, or the appointment of a trustee
to administer, any Plan, or the receipt by the Company or any ERISA
Affiliate of a notice from a Multiemployer Plan that such action has
been taken by PBGC with respect to such Multiemployer Plan;
(iv) the complete or partial withdrawal by the Company or
any ERISA Affiliate under Section 4201 or 4204 of ERISA from a
Multiemployer Plan, or the receipt by the Company or any ERISA
Affiliate of notice from a Multiemployer Plan that it is in
reorganization or insolvency pursuant to Section 4241 or 4245 of
ERISA or that it intends to terminate or has terminated under Section
4041A of ERISA; and
(v) the institution of a proceeding by a fiduciary of any
Multiemployer Plan against the Company or any ERISA Affiliate to
enforce Section 515 of ERISA, which proceeding is not dismissed
within 60 days;
(g) promptly upon its becoming available, any management letter
furnished to the Company by Deloitte & Touche or other independent
certified public accountants of recognized national standing engaged by
the Company;
(h) promptly upon their becoming available, copies of all documents
relating to the proposed Disposition of all or substantially all of the
assets of Western's Games and Puzzles division, including without
limitation, any contract for the Disposition thereof;
(i) promptly after the Company knows that any Default has occurred,
a notice of such Default describing the same in reasonable detail and,
together with such notice or as soon thereafter as possible, a description
of the action that the Company has taken and proposes to take with respect
thereto; and
(j) from time to time such other information regarding the financial
condition, operations or business of the Company or any of its
Subsidiaries (including, without limitation, any Plan or Multiemployer
Plan and any reports or other information required to be filed under
ERISA) as any Bank or the Agent may reasonably request.
The Company will furnish to the Agent, with sufficient copies for each Bank, at
the time it furnishes each set of financial statements pursuant to paragraph
(a), (b) or (c) above, a certificate of a senior financial officer of the
Company (i) to the effect that no Default has occurred and is continuing (or, if
any Default has occurred and is continuing, describing the same in reasonable
detail and describing the action that the Company has taken and proposes to take
with respect thereto) and (ii) setting forth in reasonable detail the
computations necessary to determine whether the Company is in compliance with
Sections 8.07(d), 8.09, 8.10, 8.11, 8.12, 8.18, 8.19 and 8.20 hereof as of the
end of the respective fiscal month, quarterly fiscal period or fiscal year.
8.02. Litigation. Promptly after the service of a complaint or the
Company otherwise obtains Knowledge thereof, the Company will give to the Agent
notice of any legal or arbitral proceeding, and of any proceeding by or before
any governmental or regulatory authority or agency, to which the Company or any
of its Subsidiaries is a party, except any proceeding which, if adversely
determined, could not reasonably be expected to have a Material Adverse Effect.
8.03. Existence, Access, Etc. The Company will, and will cause each
of its Subsidiaries to: preserve and maintain its legal existence, and maintain
all of its rights, privileges and franchises, except for such rights, privileges
and franchises the termination of which would not result in a Material Adverse
Effect (provided that nothing in this Section 8.03 shall prohibit any
transaction expressly permitted under Section 8.05 hereof); comply with the
requirements of all applicable laws, rules, regulations and orders of
governmental or regulatory authorities (including, without limitation, all
Environmental Laws) if failure to comply with such requirements would have a
Material Adverse Effect, except for such laws, rules, regulations or orders
which the Company is contesting in good faith by appropriate proceedings, and
for which, in the reasonable opinion of the Company, adequate reserves are
maintained on the books of the Company and its Subsidiaries, unless contesting
any such law, rule or regulation would itself subject the Company or such
Subsidiary to or result in a Material Adverse Effect; pay and discharge all
taxes, assessments and governmental charges or levies imposed on it or on its
income or profits or on any of its property prior to the date on which penalties
attach thereto, except for any such tax, assessment, charge or levy the payment
of which is being contested in good faith and by appropriate proceedings and
against which adequate reserves (as reasonably estimated by the Company) are
being maintained in accordance with GAAP; maintain all of its material
properties used or useful in its business in good working order and condition,
ordinary wear and tear excepted; and permit, and cause each of its Subsidiaries
to permit, at the Company's reasonable expense, representatives of, or financial
advisors or consultants to, the Banks or the Agent, on reasonable prior notice
and during normal business hours, to examine, copy and make extracts from the
books and records of the Company and its Subsidiaries, to inspect the properties
of the Company and its Subsidiaries, and to discuss the business and affairs of
the Company and its Subsidiaries with their executive officers and employees,
all to the extent reasonably requested by the Banks or the Agent or their
representatives, financial advisors or consultants (as the case may be).
8.04. Insurance. The Company will, and will cause each of its
Subsidiaries to, keep insured by financially sound and reputable insurers
(determined as at the time such insurance is obtained) all property of a
character usually insured by corporations engaged in the same or similar
business similarly situated against loss or damage of the kinds and in the
amounts customarily insured against by such corporations and carry such other
insurance as is usually carried by such corporations.
8.05. Prohibition of Fundamental Changes. The Company will not, nor
will it permit any of its Significant Subsidiaries to, enter into any
transaction of merger or consolidation or amalgamation, or liquidate, wind up or
dissolve itself (or suffer any liquidation or dissolution). The Company will
not, and will not permit any of its Significant Subsidiaries to, convey, sell,
lease, transfer or otherwise dispose of, in one transaction or a series of
transactions, all or a substantial part of its business or property, whether now
owned or hereafter acquired (including, without limitation, receivables and
leasehold interests, but excluding (i) any inventory or other property sold or
disposed of in the ordinary course of business and on ordinary business terms
and (ii) obsolete or worn-out property, tools or equipment no longer used or
useful in its business). Notwithstanding the foregoing provisions of this
Section 8.05:
(a) any Subsidiary of the Company may be merged, consolidated or
amalgamated with or into: (i) the Company if the Company shall be the
continuing or surviving corporation or (ii) any other such Subsidiary;
provided that if any such transaction shall be between a Subsidiary and a
Wholly-Owned Subsidiary, the Wholly-Owned Subsidiary shall be the
continuing or surviving corporation;
(b) any such Significant Subsidiary may sell, lease, transfer or
otherwise dispose of any or all of its business or property (upon
voluntary liquidation, dissolution or otherwise) to the Company or a
Wholly-Owned Subsidiary of the Company;
(c) the Company or any Subsidiary of the Company may merge or
consolidate with any other Person if (i) in the case of a merger or
consolidation of the Company, the Company is the surviving corporation
and, in any other case, the surviving corporation is or becomes a
Wholly-Owned Subsidiary of the Company and (ii) after giving effect
thereto no Default would exist hereunder; and
(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.
8.06. Limitation on Liens. The Company will not, nor will it permit
any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien
upon any of its property, whether now owned or hereafter acquired, except:
(a) Liens imposed by any governmental authority for taxes,
assessments or charges not yet due or which are being contested in good
faith and by appropriate proceedings if adequate reserves (in the
reasonable estimation of the Company) with respect thereto are maintained
on the books of the Company or any of its Subsidiaries, as the case may
be, in accordance with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business which are not overdue for a period of more than 30 days or
which are being contested in good faith and by appropriate proceedings and
Liens securing judgments but only to the extent for an amount and for a
period not resulting in an Event of Default under Section 9(h) hereof;
(c) pledges or deposits under worker's compensation, unemployment
insurance and other similar social security legislation;
(d) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business;
(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business and encumbrances
consisting of zoning restrictions, easements, licenses, restrictions on
the use of property or minor imperfections in title thereto which, in the
aggregate, are not material in amount, and which do not in any case
materially detract from the value of the property subject thereto or
interfere with the ordinary conduct of the business of the Company or any
of its Subsidiaries;
(f) Liens on property of any corporation which becomes a Subsidiary
of the Company after the date of this Agreement, provided that such Liens
and the Indebtedness secured thereby are in existence at the time such
corporation becomes a Subsidiary of the Company and were not created in
anticipation thereof;
(g) Liens upon real and/or tangible personal property acquired,
constructed or improved after the date hereof (by purchase, construction
or otherwise) by the Company or any of its Subsidiaries, each of which
Liens either (A) existed on such property before the time of its
acquisition and was not created in anticipation thereof, or (B) was
created solely for the purpose of securing Indebtedness representing, or
incurred to finance, refinance or refund, the cost (including the cost of
construction or improvement) of such property; provided that no such Lien
shall extend to or cover any property of the Company or such Subsidiary
other than the property so acquired and improvements thereon; and
provided, further, that the principal amount of Indebtedness secured by
any such Lien shall at no time exceed the fair market value (as determined
in good faith by a senior financial officer of the Company) of such
property at the time it was acquired (by purchase, construction or
otherwise);
(h) Liens securing reimbursement obligations with respect to
commercial letters of credit or bankers' acceptances incurred in the
ordinary course of business, provided that such Liens extend only to
property acquired in transactions supported by such letters of credit or
in transactions financed by such bankers' acceptances; and
(i) Liens upon property of any Subsidiary which secure only
Indebtedness of such Subsidiary owing to the Company or any other
Subsidiary of the Company;
(j) Liens existing on the date hereof and listed in Schedule I
hereto; and
(k) any extension, renewal or replacement (in whole or in part) of
the foregoing, provided, however, that the Liens permitted hereunder shall
not be spread to cover any additional Indebtedness or property.
8.07. Indebtedness. The Company will not, and will not permit any
of its Subsidiaries to, create, incur or suffer to exist any Indebtedness
except:
(a) Indebtedness to the Banks hereunder;
(b) Indebtedness outstanding on the date hereof and listed in
Schedule I hereto;
(c) Indebtedness of Subsidiaries of the Company to the Company or to
other Subsidiaries of the Company;
(d) additional Indebtedness of Subsidiaries of the Company in an
aggregate amount at any time outstanding up to but not exceeding 10% of
the Company's Tangible Net Worth at such time; and
(e) Indebtedness of the Company and its Subsidiaries secured by
Liens permitted under Section 8.06(f), Section 8.06(g) or Section 8.06(h).
8.08. Investments. The Company will not, and will not permit any of
its Subsidiaries to, make or permit to remain outstanding any Investments
except:
(a) demand deposit accounts with banks;
(b) Permitted Investments;
(c) Investments by the Company and its Subsidiaries in capital
stock, or Indebtedness, of Subsidiaries of the Company (whether now owned
or existing or hereafter acquired) and advances by the Company and its
Subsidiaries to Subsidiaries of the Company in the ordinary course of
business;
(d) Interest Rate Protection Agreements which are reasonably related
to floating rate Indebtedness of the Company or its Subsidiaries
outstanding or anticipated to be outstanding during the term of the
respective Interest Rate Protection Agreement;
(e) Investments outstanding on the date hereof;
(f) Investments acquired in bankruptcy, liquidation, reorganization
or similar proceedings in settlement of claims of the Company or any of
its Subsidiaries in such proceedings;
(g) subject to Section 8.13, Investments in joint ventures entered
into in the ordinary course of the Company's business and having an
aggregate book value not exceeding $20,000,000 at any time;
(h) Investments constituting forward purchases of foreign exchange
entered into in the ordinary course of the Company's business and having a
term not exceeding one year;
(i) Investments in Indebtedness of the Company, provided that no
Event of Default has occurred and is continuing at the time of acquisition
of any such Investment; and
(j) other Investmentsin an aggregate amount not exceeding $2,000,000
at any time.
8.09. Dividend Payments. The Company will not, and will not permit
any of its Subsidiaries to, declare or make any Dividend Payment at any time;
provided, however, that the Company may at any time after the date hereof,
declare and make Dividend Payments in cash, subject to the satisfaction of each
of the following conditions:
(a) no Default shall have occurred and be continuing at the time
such Dividend Payment was declared; and
(b) at the time of the declaration of the Dividend Payment the
aggregate amount of Dividend Payments made during the period commencing on
August 1, 1992 through and including the date of such Dividend Payment
shall not exceed an amount equal to 50% of consolidated net income of the
Company and its Consolidated Subsidiaries for the period from August 1,
1992 through and including the last day of the fiscal quarter most
recently ended prior to the date of such Dividend Payment (treated for
these purposes as a single accounting period).
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).
8.11. Tangible Net Worth. The Company will not permit Tangible Net
Worth at any time to be less than the sum of (i) $150,000,000 plus (ii) an
amount equal to (but not less than zero) 50% of the Company's consolidated net
income (determined in accordance with GAAP) for the period from May 2, 1992
through the end of the Company's fiscal quarter most recently ended (treated for
this purpose as a single accounting period).
8.12. Interest Coverage Ratio. The Company will not permit the
Interest Coverage Ratio for any period set forth below to be less than the ratio
set forth below opposite such period:
Period Ratio
------ -----
Two fiscal quarters ending January 29, 1994 0.30 to 1
Fiscal quarter ending July 30, 1994 0.25 to 1
Fiscal quarter ending October 29, 1994 3.00 to 1
Fiscal quarter ending January 28, 1995 3.00 to 1
Two fiscal quarters ending April 29, 1995 1.50 to 1
and each fiscal quarter thereafter
Notwithstanding the foregoing, in the event that Western sells all or
substantially all of the assets of its Games and Puzzles division, the ratio set
forth above for the fiscal quarter ending July 30, 1994 shall be increased to
0.65 to 1.
8.13. Lines of Business. Neither the Company nor any of its
Subsidiaries shall engage to any substantial extent in any line or lines of
business activity other than those in which the Company and its Subsidiaries are
engaged on the date hereof and extensions of such lines of business activity and
other lines of business activity reasonably related thereto.
8.14. Transactions with Affiliates. Except as expressly permitted
by this Agreement, the Company will not, nor will it permit any of its
Subsidiaries to, directly or indirectly: (a) make any material (based upon the
financial condition of the Company and its Subsidiaries, taken as a whole)
Investment in an Affiliate; (b) transfer, sell, lease, assign or otherwise
dispose of any material (based upon the financial condition of the Company and
its Subsidiaries, taken as a whole) property to an Affiliate; (c) merge into or
consolidate with, or purchase or acquire any material (based upon the financial
condition of the Company and its Subsidiaries, taken as a whole) property from,
an Affiliate; or (d) enter into any other material (based upon the financial
condition of the Company and its Subsidiaries, taken as a whole) transaction
directly or indirectly with or for the benefit of an Affiliate (including,
without limitation, guarantees and assumptions of obligations of an Affiliate);
provided that the Company and its Subsidiaries may enter into transactions
(other than extensions of credit by the Company or any of its Subsidiaries to an
Affiliate) with an Affiliate if the monetary or business consideration to the
Company arising therefrom would be comparable to, or more favorable than, the
monetary or business consideration which would obtain in a comparable
transaction with a Person not an Affiliate.
8.15. Use of Proceeds. The Company will (and, in the case of the
Facility A Loans, shall cause Western to) use the proceeds of the Loans
hereunder solely for its general corporate purposes, including to finance
acquisitions (whether of capital stock or of tangible and/or intangible assets)
in privately negotiated transactions or in transactions approved or recommended
by the board of directors (or comparable governing body) of the acquired entity
(but not for any other type of acquisition); provided that neither the Agent nor
any Bank shall have any responsibility as to the use of any of such proceeds.
8.16. Limitation on Payment Restrictions Affecting Subsidiaries. The
Company will not, and will not permit any of its Subsidiaries to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective any
restriction or encumbrance on the ability of any Subsidiary of the Company to
(i) pay dividends or make other distributions on such Subsidiary's capital stock
or any other interest or participation in, or measured by, its profits, or pay
any Indebtedness owed to the Company or any of its Subsidiaries, (ii) make any
loans or advances to the Company or any of its Subsidiaries, (iii) transfer any
of its property or assets to the Company or any of its Subsidiaries, or (iv)
guarantee any Indebtedness of the Company or any of its Subsidiaries; provided
that this Section 8.16 shall not prohibit any restriction or encumbrance
existing under or by reason of (a) applicable law or (b) any agreement or
instrument governing Indebtedness of a Person acquired by the Company or any
Subsidiary of the Company existing at the time of such acquisition (and not
created in anticipation thereof), which restriction or encumbrance is not
applicable to any Person or property or assets of any Person other than the
Person so acquired and/or its Subsidiaries.
8.17. Clean-Down. The Company will not permit the aggregate
principal amount of Loans outstanding hereunder to exceed (i) if the Disposition
by Western of all or substantially all of the assets of its Games and Puzzles
division has not been consummated, $115,000,000, or (ii) if such Disposition has
been consummated, $15,000,000, in each case 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 January 29, 1995) and after such
thirty day period, if the Company has not previously delivered the compliance
certificate required by Section 8.01 hereof in respect of the financial
statements for the last fiscal month of the preceding fiscal year, until such
compliance certificate has been delivered in accordance with Section 8.01
hereof.
8.18. Cash Flow. The Company will not permit its Cash Flow for any
period set forth below to be less than the amount set forth below opposite such
period:
Period Cash Flow
------ ---------
Fiscal quarter ended 4/30/94 $ (17,650,000)
One fiscal month ended 5/28/94 (1,645,000)
Two fiscal months ended 6/25/94 (1,189,000)
Three fiscal months ended 7/30/94 3,500,000
One fiscal month ended 8/27/94 4,047,000
Two fiscal months ended 9/24/94 10,007,000
Three fiscal months ended 10/29/94 23,900,000
One fiscal month ended 11/26/94 5,818,000
Two fiscal months ended 12/31/94 8,419,000
Three fiscal months ended 1/28/95 12,100,000
8.19. Loans Outstanding. From and after the Disposition by Western
of all or substantially all of the assets of its Games and Puzzles division, the
Company will not permit the aggregate principal amount of Loans outstanding at
any time during the period commencing with the delivery by the Company to the
Agent of a compliance certificate for any fiscal month and ending with the
delivery by the Company to the Agent of a compliance certificate for the next
succeeding fiscal month to exceed the percentage set forth below opposite such
fiscal month of the total amount of Inventory and Accounts Receivable (as each
such term is defined under GAAP) of the Company at the end of such fiscal month,
as certified by such compliance certificate:
Month Percentage
----- ----------
June, 1994 16.5%
July, 1994 16.5%
August, 1994 23.5%
September, 1994 24.0%
October, 1994 28.0%
November, 1994 29.0%
December, 1994 24.0%
January, 1995 6.5%
February, 1995 and 13.0%
thereafter
In addition, the Company shall comply with this Section 8.19 with
effect from the end of the most recent fiscal month ending prior to the
Disposition of all or substantially all of the assets of Western's Games and
Puzzles division as provided above in Section 8.19, such compliance to be
determined on a pro forma basis by subtracting $100,000,000 from the aggregate
principal amount of Loans outstanding and dividing the resulting amount by the
total amount of Inventory and Accounts Receivable of the Company at the end of
such fiscal month, and accordingly, the Company shall furnish to the Agent, with
sufficient copies for each Bank, on or prior to the third Business Day following
such Disposition, a certificate of a senior financial officer of the Company
setting forth in reasonable detail the computations necessary to determine
compliance by the Company with this Section 8.19. The Company shall not borrow
any Loans under this Agreement during the period commencing with such
Disposition and ending with the delivery of the compliance certificate described
in the immediately preceding sentence.
In the event that the Disposition of the Company's Advertising
Specialty division is consummated, the percentages set forth in this Section
8.19 for each fiscal month ending thereafter shall be reduced by the difference
between the Company's projection of "Loans Outstanding as a % of Accounts
Receivable and Inventories" for the relevant fiscal month and the respective
percentages obtained by dividing (i) the Company's projection of "Loans
Outstanding (Direct Borrowings)" for the relevant fiscal month less up to
$12,000,000 of the net cash proceeds of such Disposition received by the Company
or any of its Subsidiaries by (ii) the sum of the Company's projections for
"Accounts Receivable, Net" and "Inventories, Net" for the relevant fiscal month.
The projections referred to in the preceding sentence are set forth in Schedule
V attached hereto.
Notwithstanding anything to the contrary in this Section 8.19, the
Company shall be entitled to deliver to the Agent a compliance certificate of a
senior financial officer of the Company setting forth the total amount of
Inventory and Accounts Receivable of the Company as of the date of such
compliance certificate, and thereupon the aggregate principal amount of Loans
which the Company may permit to be outstanding for purposes of this Section 8.19
during the period commencing with the delivery of such compliance certificate
and ending with the delivery of any subsequent compliance certificate shall be
the percentage set forth in this Section 8.19 for the then current fiscal month
of the total amount of Inventory and Accounts Receivable reflected in such
compliance certificate.
8.20. Capital Expenditures. The Company shall not, and shall not
permit its Subsidiaries to, make Capital Expenditures that, in the aggregate,
exceed $27,500,000 during any fiscal year of the Company.
8.21. Guarantee and Pledge. The Company shall use its best efforts
(i) to cause Western to issue 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 this Credit Agreement and (ii) to pledge 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, in each case no later than the earlier of (a) the
thirtieth day after the Disposition of all or substantially all of the assets of
the Games and Puzzles division of Western, and (b) September 30, 1994. The
pledge of the stock of Western shall be to a Person and upon terms 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.
Section 9. Events of Default. If one or more of the following
events shall occur and be continuing:
(a) The Company shall default in the payment when due of any
interest on any Loan or any Reimbursement Obligation, any fee or any other
amount (other than principal of any Loan or any Reimbursement Obligation)
payable by it hereunder and such default shall have continued unremedied
for two or more Business Days, or the Company shall default in the payment
when due of any principal of any Loan or any Reimbursement Obligation
(including any prepayment thereof required pursuant to Section 2.04
hereof); or
(b) The Company or any of its Significant Subsidiaries shall
default in the payment when due (after giving effect to any applicable
grace period and any requirement for the giving of notice) of any
principal of or interest on any of its other Indebtedness aggregating
$5,000,000 or more; or any event specified in any note, agreement,
indenture or other document evidencing or relating to any such
Indebtedness shall occur if the effect of such event is to cause, or to
permit the holder or holders of such Indebtedness (or a trustee or agent
on behalf of such holder or holders) to cause, such Indebtedness to
become due, or to be prepaid in full (whether by redemption, purchase,
offer to purchase or otherwise), prior to its stated maturity; or
(c) Any representation, warranty or certification made or
deemed made herein (other than in Section 7.13 hereof) (or in any
modification or amendment hereto) or in any other Loan Document by the
Company or Western, or any certificate furnished by the Company or
Western to any Bank or the Agent pursuant to the provisions hereof or
thereof, shall prove to have been false or misleading as of the time
made or furnished in any material adverse respect; or
(d) Any representation or warranty made or deemed made in
Section 7.13 hereof by the Company shall prove to have been false or
misleading as of the time made in any material respect and the Agent
(acting at the direction of the Majority Banks) shall have given written
notice thereof to the Company and the Company shall have failed to cure
such breach of representation or warranty within 60 days after the
giving of such notice by causing such representation or warranty to
become true, by remedying the condition or event that is the basis of
such breach or by causing such event or condition no longer to have a
Material Adverse Effect or by taking such other action which has the
effect of curing such breach; or
(e) The Company shall default in the performance of any of
its obligations under any of Sections 8.05, 8.06, 8.07, 8.08, 8.09, 8.14
or 8.16 hereof; or the Company or Western shall default in the
performance of any of its other obligations in this Agreement or any
other Loan Document and such default shall continue unremedied for a
period of thirty days after notice thereof to the Company by the Agent
or any Bank (through the Agent); or
(f) The Company or any of its Significant Subsidiaries shall
admit in writing its inability to, or be generally unable to, pay its
debts as such debts become due; or
(g) The Company or any of its Significant Subsidiaries shall
(i) apply for or consent to the appointment of, or the taking of
possession by, a receiver, custodian, trustee or liquidator of itself or
of all or a substantial part of its property, (ii) make a general
assignment for the benefit of its creditors, (iii) commence a voluntary
case under the Bankruptcy Code (as now or hereafter in effect), (iv)
file a petition seeking to take advantage of any other law relating to
bankruptcy, insolvency, reorganization, winding-up, or composition or
readjustment of debts, (v) file to controvert in a timely and
appropriate manner, or acquiesce in writing to, any petition filed
against it in an involuntary case under the Bankruptcy Code, or (vi)
take any corporate action for the purpose of effecting any of the
foregoing; or
(h) A proceeding or case shall be commenced, without the
application or consent of the Company or any of its Significant
Subsidiaries, in any court of competent jurisdiction, seeking (i) its
liquidation, reorganization, dissolution or winding-up, or the
composition or readjustment of its debts, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of the Company or
such Significant Subsidiary or of all or any substantial part of its
assets, or (iii) similar relief in respect of the Company or such
Significant Subsidiary under any law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or adjustment of debts, and
such proceeding or case shall continue undismissed, or an order,
judgment or decree approving or ordering any of the foregoing shall be
entered and continue unstayed and in effect, for a period of 60 or more
days; or an order for relief against the Company or such Significant
Subsidiary shall be entered in an involuntary case under the Bankruptcy
Code; or
(i) A final judgment or judgments for the payment of money
in excess of $5,000,000 in the aggregate (exclusive of judgment amounts
fully covered by insurance where the insurer has admitted liability in
respect of such judgment) or in excess of $20,000,000 in the aggregate
(regardless of insurance coverage) shall be rendered by one or more
courts, administrative tribunals or other bodies having jurisdiction
against the Company and/or any of its Significant Subsidiaries and the
same shall not be discharged (or provision shall not be made for such
discharge), or a stay of execution thereof shall not be procured, within
30 days from the date of entry thereof and the Company or the relevant
Significant Subsidiary shall not, within said period of 30 days, or such
longer period during which execution of the same shall have been stayed,
appeal therefrom and cause the execution thereof to be stayed during
such appeal; or
(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;
(k) An event or condition specified in Section 8.01(e)
hereof shall occur or exist with respect to any Plan or Multiemployer
Plan and, as a result of such event or condition, together with all
other such events or conditions, the Company or any ERISA Affiliate
shall incur or in the reasonable opinion of the Majority Banks shall be
reasonably likely to incur a liability to a Plan, a Multiemployer Plan
or the PBGC (or any combination of the foregoing) which would
constitute, in the reasonable determination of the Majority Banks, a
Material Adverse Effect; or
(l) The Company shall permit Western to prepay all or any
portion of the outstanding principal of the Subsidiary Note while any
Facility B Loans are then outstanding;
THEREUPON: (1) in the case of any such event (other than one
referred to in paragraph (g) or (h) of this Section 9) with respect to
the Company, the Agent may, and upon request of the Majority Banks
shall, notify the Company that an "Event of Default" hereunder exists,
and the Agent may and, upon request of the Majority Banks, shall, by
notice to the Company, terminate the Commitments and/or declare the
principal amount then outstanding of, and the accrued interest on, the
Loans, the Reimbursement Obligations and all other amounts payable by
the Company hereunder and under the Notes (including, without
limitation, any amounts payable under Section 5.01 or 5.02 hereof) to be
forthwith due and payable, whereupon such amounts shall be immediately
due and payable without presentment, demand, protest or other
formalities of any kind, all of which are hereby expressly waived by the
Company; and (2) in the case of the occurrence of an Event of Default
referred to in paragraph (g) or (h) of this Section 9 with respect to
the Company, the Commitments shall automatically be terminated and the
principal amount then outstanding of, and the accrued interest on, the
Loans, the Reimbursement Obligations and all other amounts payable by
the Company hereunder and under the Notes (including, without
limitation, any amounts payable under Section 5.01 or 5.02 hereof) shall
automatically become immediately due and payable without presentment,
demand, protest or other formalities of any kind, all of which are
hereby expressly waived by the Company.
In addition, the Company agrees, upon the occurrence and during the
continuance of any Event of Default if the Agent has declared the principal
amount then outstanding of, and accrued interest on, the Loans, and all other
amounts payable by the Company hereunder and under the Notes to be due and
payable, it shall, if requested by the Agent or the Majority Banks through the
Agent (and, in the case of any Event of Default referred to in paragraph (f),
(g) or (h) of this Section 9 with respect to the Company, forthwith, without any
demand or the taking of any other action by the Agent or such Banks) provide
cash collateral for the Letter of Credit Liabilities then outstanding by paying
to the Agent immediately available funds in an amount equal to the then
aggregate undrawn face amount of all Letters of Credit, which funds shall be
held by the Agent as collateral security for the prompt payment in full when due
of the Letter of Credit Liabilities, and the Company hereby grants to the Agent
for the benefit of the Banks a security interest in any funds so paid.
Section 10. The Agent and Co-Agent.
10.01. Appointment, Powers and Immunities. Each Bank hereby
irrevocably appoints and authorizes the Agent and the Co-Agent to act as
its agents hereunder with such powers as are specifically delegated to
the Agent or the Co-Agent by the terms of this Agreement or any other
Loan Document, together with such other powers as are reasonably
incidental thereto. The Agent and the Co-Agent (which terms as used in
this sentence and in Section 10.05 and the first sentence of Section
10.06 hereof shall include reference to its affiliates and its own and
its affiliates' officers, directors, employees and agents): (a) shall
have no duties or responsibilities except those expressly set forth in
this Agreement, and shall not by reason of this Agreement be a trustee
for any Bank; (b) shall not be responsible to the Banks for any
recitals, statements, representations or warranties contained in this
Agreement, or in any other Loan Document, or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this
Agreement, any Note or any other Loan Document or for any failure by the
Company or any other Person to perform any of its obligations hereunder
or thereunder; (c) shall not be required to initiate or conduct any
litigation or collection proceedings hereunder; (d) shall not be
responsible to any Bank for any action taken or omitted to be taken by
it hereunder or under any other document or instrument referred to or
provided for herein or in connection herewith, except for its own gross
negligence or willful misconduct and (e) shall not be responsible to the
Company or the Banks for (i) determining whether or not any of the
transactions contemplated hereby qualifies as a highly leveraged
transaction ("HLT") as defined by any bank regulatory authority, (ii)
notifying the Banks regarding the HLT status of any transaction
contemplated hereby or of any change in that status or (iii) the
correctness of any determination as to HLT status. Notwithstanding
anything in this Agreement to the contrary, the Co-Agent shall have no
duties or responsibilities hereunder other than as a Bank, and shall not
have any right to take any action hereunder other than as a Bank, except
that upon the resignation or removal of the Agent, the Co-Agent shall,
as provided in Section 10.08 hereof, succeed to the office of Agent
hereunder. The Agent may employ agents and attorneys-in-fact and shall
not be responsible to any Bank for the negligence or misconduct of any
such agents or attorneys-in-fact selected by it in good faith. The
Agent and the Co-Agent may deem and treat the payee of any Note as the
holder thereof for all purposes hereof unless and until a notice of the
assignment or transfer thereof shall have been filed with the Agent.
The Agent shall provide to each Bank copies of financial statements and
other information furnished to it as required hereby to the extent that
the Company is not obligated to deliver such information directly to the
Banks.
10.02. Reliance by Agent and Co-Agent. The Agent and the
Co-Agent shall be entitled to rely upon any certification, notice or
other communication (including any thereof by telephone, telegram or
cable) reasonably believed by it to be genuine and correct and to have
been signed or sent by or on behalf of the proper Person or Persons, and
upon advice and statements of legal counsel, independent accountants and
other experts selected by the Agent or the Co-Agent, respectively. As
to any matters not expressly provided for by this Agreement, as between
the Agent or the Co-Agent (on the one hand) and the Banks (on the other
hand), the Agent and the Co-Agent shall in all cases be fully protected
in acting, or in refraining from acting, hereunder in accordance with
instructions given by the Majority Banks, and such instructions of the
Majority Banks and any action taken or failure to act pursuant thereto
shall be binding on all of the Banks.
10.03. Defaults. Neither the Agent nor the Co-Agent shall be deemed
to have knowledge or notice of the occurrence of a Default (other than, in the
case of the Agent, the non-payment of principal of or interest on Loans,
Reimbursement Obligations or of commitment fees or Letter of Credit issuance
fees) unless the Agent or the Co-Agent, respectively, has received notice from a
Bank or the Company specifying such Default and stating that such notice is a
"Notice of Default". In the event that the Agent receives such a notice of the
occurrence of a Default, the Agent shall give prompt notice thereof to the Banks
and (if such notice was received from a Bank) to the Company (and shall give
each Bank prompt notice of each such non-payment). The Agent shall (subject to
Section 10.07 hereof) take such action (or refrain from taking such action) with
respect to such Default as shall be directed by the Majority Banks, provided
that, unless and until the Agent shall have received such directions, the Agent
may (but shall not be obligated to) take such action, or refrain from taking
such action, with respect to such Default as it shall deem advisable in the best
interest of the Banks except to the extent that this Agreement expressly
requires that such action be taken, or not be taken, only with the consent or
upon the authorization of the Majority Banks or all of the Banks.
10.04. Rights as a Bank. With respect to its Commitment and the
Loans made by it, each of the Agent and the Co-Agent in its capacity as a Bank
hereunder shall have the same rights and powers hereunder as any other Bank and
may exercise the same as though it were not acting as the Agent or the Co-Agent
(as the case may be), and the term "Bank" or "Banks" shall, unless the context
otherwise indicates, include the Agent and/or the Co-Agent in its individual
capacity. Each of the Agent and the Co-Agent and their affiliates may (without
having to account therefor to any Bank) accept deposits from, lend money to and
generally, engage in any kind of banking, trust or other business with the
Company (and any of its Subsidiaries or Affiliates) as if it were not acting as
the Agent or the Co-Agent, as the case may be, and each of the Agent and the
Co-Agent and its affiliates may accept fees and other consideration from the
Company for services in connection with this Agreement or otherwise without
having to account for the same to the Banks.
10.05. Indemnification. The Banks agree to indemnify the
Agent and the Co-Agent (to the extent not reimbursed under Section
11.03 hereof, but without affecting the obligations of the Company under
said Section 11.03) ratably in accordance with the aggregate principal
amount of the Loans and Reimbursement Obligations held by the Banks (or,
if no Loans or Reimbursement Obligations are at the time outstanding,
ratably in accordance with their respective Commitments), for any and
all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind and
nature whatsoever which may be imposed on, incurred by or asserted
against the Agent or the Co-Agent (including by any Bank) arising out of
or by reason of any investigation or any way relating to or arising out
of this Agreement, any of the other Loan Documents or the transactions
contemplated hereby or thereby (including, without limitation, the costs
and expenses which the Company is obligated to pay under Section 11.03
hereof but excluding, unless an Event of Default has occurred and is
continuing, normal administrative costs and expenses incident to the
performance of its agency duties hereunder) or the enforcement of any of
the terms hereof or of any Loan Document, provided that no Bank shall be
liable for any of the foregoing to the extent they arise from the gross
negligence or willful misconduct of the party to be indemnified.
10.06. Non-Reliance on Agent, Co-Agent and Other Banks. Each Bank
agrees that it has, independently and without reliance on the Agent or
the Co-Agent or any other Bank, and based on such documents and
information as it has deemed appropriate, made its own credit analysis
of the Company and its Subsidiaries and decision to enter into this
Agreement and that it will, independently and without reliance upon the
Agent or the Co-Agent or any other Bank, and based on such documents and
information as it shall deem appropriate at the time, continue to make
its own analysis and decisions in taking or not taking action under this
Agreement. Neither the Agent nor the Co-Agent shall be required to keep
itself informed as to the performance or observance by the Company of
this Agreement or any other document referred to or provided for herein
or to inspect the properties or books and records of the Company or any
of its Subsidiaries. Except for notices, reports and other documents
and information expressly required to be furnished to the Banks by the
Agent hereunder, neither the Agent nor the Co-Agent shall have any duty
or responsibility to provide any Bank with any credit or other
information concerning the affairs, financial condition or business of
the Company or any of its Subsidiaries (or any of their affiliates)
which may come into the possession of the Agent or the Co-Agent or any
of their affiliates.
10.07. Failure to Act. Except for action expressly required of the
Agent hereunder, each of the Agent and the Co-Agent shall in all cases
be fully justified in failing or refusing to act hereunder unless it
shall receive further assurances to its satisfaction from the Banks of
their indemnification obligations under Section 10.05 hereof against any
and all liability and expense which may be incurred by it by reason of
taking or continuing to take any such action.
10.08. Resignation or Removal of Agent or Co-Agent. Subject to the
appointment and acceptance of a successor Agent or Co-Agent as provided
below, either or both of the Agent or Co-Agent may resign at any time by
giving notice thereof to the Banks and the Company, and either or both
of the Agent or Co-Agent may be removed at any time with or without
cause by Banks holding more than 50% of the aggregate unpaid principal
amount of the outstanding Loans and Letter of Credit Liabilities, or, if
no Loans or Letter of Credit Liabilities are outstanding, Banks having
more than 50% of the aggregate amount of the Commitments. Upon any such
resignation or removal of the Agent, the Co-Agent shall succeed to the
office of Agent hereunder unless the Majority Banks, with (so long as no
Event of Default shall have occurred and be continuing) the consent of
the Company (which consent shall not be unreasonably withheld), shall
have appointed a different successor Agent. Upon any such resignation
or removal of the Co-Agent, the Majority Banks shall have the right to
appoint a successor Co-Agent, with (so long as no Event of Default
shall have occurred and be continuing) the consent of the Company (which
consent shall not be unreasonably withheld). If no successor Agent or
Co-Agent (as the case may be) shall have been so appointed and shall
have accepted such appointment within 30 days after the retiring Agent's
or Co-Agent's giving of notice of resignation or the Banks' removal of
the retiring Agent or Co-Agent, then the retiring Agent or Co-Agent may,
on behalf of the Banks, appoint a successor Agent or Co-Agent, as the
case may be (with the consent of the Company, which consent shall not be
unreasonably withheld), which shall be a bank having a combined capital
and surplus of at least $50,000,000. Upon the acceptance of any
appointment as Agent or Co-Agent hereunder by a successor, such
successor shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent or Co-Agent,
as the case may be, and the retiring Agent or Co-Agent shall be
discharged from its duties and obligations hereunder. After any
retiring Agent's or Co-Agent's resignation or removal hereunder, the
provisions of this Section 10 shall continue in effect for its benefit
in respect of any actions taken or omitted to be taken by it while it
was acting as the Agent or Co-Agent, and the retiring Agent or Co-Agent
shall continue to be responsible (to the extent set forth herein and
only to such extent) for any actions taken or omitted to be taken by it
in its capacity as Agent or Co-Agent while it was acting as Agent or
Co-Agent hereunder.
Section 11. Miscellaneous.
11.01. Waiver. No failure on the part of the Agent, the Co-Agent or
any Bank to exercise and no delay in exercising, and no course of dealing with
respect to, any right, power or privilege under this Agreement, any Note or any
other Loan Document shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege under this Agreement, any Note
or any other Loan Document preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The remedies provided herein
are cumulative and not exclusive of any remedies provided by law.
11.02. Notices. All notices and other communications provided for
herein (including, without limitation, any modifications of, or waivers or
consents under, this Agreement) shall be given or made in writing (including,
without limitation, by telecopy) delivered to the intended recipient at the
"Address for Notices" specified below its name on the signature pages hereof;
or, as to any party, at such other address as shall be designated by such party
in a notice to each other party. Except as otherwise provided in this
Agreement, all such communications shall be deemed to have been duly given when
transmitted by telecopier or personally delivered (in either case during normal
business hours)
or, in the ease of a mailed notice, upon receipt, in each case given or
addressed as aforesaid. A copy of any notice to or from the Company shall be
sent by mail or delivered personally to the intended recipient not later than
one Business Day following the giving of such notice.
11.03 Expenses, Etc. The Company agrees to pay or reimburse each of
the Banks, the Agent and the Co-Agent for paying: (a) all reasonable
out-of-pocket costs and expenses of the Agent and the Co-Agent (including,
without limitation, the reasonable fees and expenses of Weil, Gotshal & Manges,
special New York counsel to the Agent), in connection with (i) the negotiation,
preparation, execution and delivery of this Agreement, the Notes and the other
Loan Documents and the extension of credit hereunder and (ii) any amendment,
modification or waiver of any of the terms of this Agreement, any of the Notes
or any of the other Loan Documents; (b) all reasonable out-of-pocket costs and
expenses of the Banks, the Agent and the Co-Agent (including reasonable
consultants' and counsels' fees) in connection with (i) any Event of Default and
any enforcement or collection proceedings resulting therefrom; (ii) the
enforcement of this Section 11.03; and (iii) the retention of any consultant to
advise the Agent and the Banks regarding the business and affairs of the Company
and its Subsidiaries; and (c) all transfer, stamp, documentary or other similar
taxes, assessments or charges levied by any governmental or revenue authority in
respect of this Agreement, any Letter of Credit or any of the Notes or any other
Loan Document.
The Company hereby agrees to indemnify the Agent, the
Co-Agent and each Bank and their respective directors, officers,
employees and agents for, and hold each of them harmless against, any
and all losses, liabilities, claims, damages or expenses incurred by any
of them arising out of or by reason of any litigation, or any
investigation in contemplation of litigation, or any other proceedings
(including any threatened investigation or litigation or other
proceedings, but excluding litigation involving only the Banks, the
Co-Agent and the Agent) relating to the extensions of credit hereunder
or any actual or proposed use by the Company or any of its Subsidiaries
of the proceeds of any of the extensions of credit hereunder or any
transaction contemplated hereby or by any other Loan Document,
including, without limitation, the reasonable fees and disbursements of
counsel incurred in connection with any such investigation or litigation
or other proceedings (but excluding any such losses, liabilities,
claims, damages or expenses incurred by reason of the gross negligence
or willful misconduct of the Person to be indemnified).
Whenever the Company is obligated to indemnify the Agent, the
Co-Agent, any Bank or any Issuing Bank hereunder, the Company shall not
be obligated to so indemnify the Agent, the Co-Agent or any Bank or any
Issuing Bank in respect of any settlement of any litigation or
threatened litigation unless the Company shall have consented to such
settlement. In addition, in each such instance the Company shall have
the right, at its sole option and expense, to conduct and control,
through counsel of its choice, and to defend against, negotiate, settle
or otherwise deal with any claim, investigation, action, suit or
proceeding for which it is obligated to provide indemnification
hereunder; provided, however, that no settlement of any such action,
investigation, suit or proceeding shall be made without the prior
written consent of the party or parties being indemnified if such
settlement does not release the party or parties being indemnified from
all liabilities or obligations with respect to any such claim,
investigation, action, suit or proceeding; and provided, further, that
if the defendants in such action, investigation, suit or proceeding
include both the Company and any of the Banks, the Agent or the
Co-Agent, and any Bank, the Agent or the Co-Agent shall have reasonably
concluded that there may be legal defenses available to it that are
different from or additional to those available to the Company and that
the Company is unable or unwilling to properly assert, such Bank, the
Agent or the Co-Agent (as the case may be) shall be entitled to separate
counsel (at the expense of the Company) to assert such defenses.
11.04. Amendments, Etc. Except as otherwise expressly
provided in this Agreement, any provision of this Agreement may be
amended or modified only by an instrument in writing signed by the
Company, the Agent and the Majority Banks, or by the Company and the
Agent acting with the consent of the Majority Banks, and any provision
of this Agreement may be waived by the Majority Banks and the Company or
by the Agent acting with the consent of the Majority Banks and the
Company; provided that no amendment, modification or waiver shall,
unless by an instrument signed by all of the Banks or by the Agent
acting with the consent of all of the Banks: (i) increase or extend the
term, or extend the time or waive any requirement for the reduction or
termination, of the Commitments, (ii) extend the date fixed for the
payment of principal of or interest on any Loan, any Reimbursement
Obligation or any fee hereunder, (iii) reduce the amount of any such
payment of principal, (iv) reduce the rate at which interest is payable
thereon or any commitment fee or Letter of Credit issuance fee is
payable hereunder, (v) alter the terms of Section 4.02 or 4.07(b) hereof
or of this Section 11.04, (vi) amend the definition of the term
"Majority Banks" or (vii) waive any of the conditions precedent set
forth in Section 6 hereof; and provided, further, that any amendment of
Section 10 hereof shall require the consent of the Agent.
11.05. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
11.06. Assignments and Participations.
(a) The Company may not assign its rights or obligations
hereunder or under the Notes or any other Loan Document without the
prior consent of all of the Banks and the Agent.
(b) Each Bank may, with the consent of the Company (which
consent shall not be unreasonably withheld), assign any of its Loans,
its Notes, its Commitments, and its Letter of Credit Interests (but only
with the consent of, in the case of an outstanding Commitment, the Agent
and, in the case of a Letter of Credit Interest, each Issuing Bank);
provided that, (i) no such consent by the Company or the Agent shall be
required in the case of any assignment to another Bank; (ii) any such
partial assignment shall be in an amount at least equal to $10,000,000;
and (iii) each such assignment by a Bank of its Loans, Notes,
Commitments, or Letter of Credit Interests shall be made in such manner
so that the same portion of each Type of its Loans, Notes, Commitments,
and Letter of Credit Interests is assigned to the respective assignee.
Upon execution and delivery by the assignee to the Company, the Agent,
and the Issuing Bank of an instrument in writing pursuant to which such
assignee agrees to become a "Bank" hereunder (if not already a Bank)
having the Commitments, Loans, and, if applicable, Letter of Credit
Interests specified in such instrument, and upon consent thereto by the
Company, the Agent, and the Issuing Banks to the extent required above,
the assignee shall have, to the extent of such assignment (unless
otherwise provided in such assignment with the consent of the Company,
the Agent, and each Issuing Bank), the obligations, rights and benefits
of a Bank hereunder holding the Commitments, Loans, and, if applicable,
Letter of Credit Interests (or portions thereof) assigned to it (in
addition to the Commitments, Loans, and Letter of Credit Interests, if
any, theretofore held by such assignee) and the assigning Bank shall, to
the extent of such assignment, be released from the Commitments (or
portions thereof) so assigned. Upon each such assignment the assigning
Bank shall pay the Agent an assignment fee of $2,000.
(c) A Bank may sell or agree to sell, to one or more
financial institutions organized under the laws of the United States or
any state thereof or, with the consent of the Company which will not be
unreasonably withheld, under the laws of any other country or political
subdivision thereof, a participation in all or any part of any Loans or
Letter of Credit Interests held by it, or in its Commitments, in which
event each purchaser of a participation (a "Participant") shall not,
except as otherwise provided in Section 4.07(c) hereof, have any rights
or benefits under this Agreement, any Notes or any other Loan Document
(the Participant's rights against such Bank in respect of such
participation to be those set forth in the agreements executed by such
Bank in favor of the Participant). All amounts payable by the Company
to any Bank under Section 5 hereof in respect of Loans, Letter of Credit
Interests held by it, and its Commitments, shall be determined as if
such Bank had not sold or agreed to sell any participations in such
Loans, Letter of Credit Interests and Commitments, and as if such Bank
were funding each of such Loans, Letter of Credit Interests and
Commitments in the same way that it is funding the portion of such
Loans, Letter of Credit Interests and Commitments in which no
participations have been sold. In no event shall a Bank that sells a
participation agree with the Participant to take or refrain from taking
any action hereunder except that such Bank may agree with the
Participant that it will not, without the consent of the Participant,
agree to (i) increase or extend the term, or extend the time or waive
any requirement for the reduction or termination, of any of such Bank's
Commitments, (ii) extend the date fixed for the payment of principal of
or interest on the related Loan or Loans, Reimbursement Obligations or
any portion of any commitment fee or Letter of Credit issuance fee
hereunder payable to the Participant, (iii) reduce the amount of any
such payment of principal, or (iv) reduce the rate at which interest is
payable thereon, or any commitment fee or Letter of Credit issuance fee
hereunder payable to the Participant, to a level below the rate at which
the Participant is entitled to receive such interest or fee.
(d) Anything in this Section 11.06 to the contrary
notwithstanding, any Bank may assign and pledge all or any portion of
its Loans and its Notes to any Federal Reserve Bank as collateral
security pursuant to Regulation A of the Board of Governors of the
Federal Reserve System and any Operating Circular issued by such Federal
Reserve Bank, and such Loans and Notes shall be fully transferrable as
provided therein. No such assignment shall release the assigning Bank
from its obligations hereunder.
(e) Each Bank may furnish any information concerning the
Company or any of its Subsidiaries in the possession of such Bank from
time to time to assignees and participants (including prospective
assignees and participants), subject, however, to the provisions of
Section 11.12 hereof.
11.07. Survival. The obligations of the Company under
Sections 5.01, 5.02, and 11.03 hereof and the obligations of the Banks
under Section 10.05 hereof shall survive the repayment of the Loans and
Reimbursement Obligations and the termination of the Commitments. In
addition, each representation and warranty made, or deemed to be made by
a notice of any extension of credit (whether by means of a Loan or a
Letter of Credit), herein or pursuant hereto shall survive the making of
such representation and warranty, and no Bank shall be deemed to have
waived, by reason of making any extension of credit hereunder (whether
by means of a Loan or a Letter of Credit), any Default which may arise
by reason of such representation or warranty proving to have been false
or misleading, notwithstanding that such Bank, the Agent or the Co-Agent
may have had notice or knowledge or reason to believe that such
representation or warranty was false or misleading at the time such
extension of credit was made.
11.08. Captions. The table of contents, captions and
section headings appearing herein are included solely for convenience of
reference and are not intended to affect the interpretation of any
provision of this Agreement.
11.09. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, and all of
which taken together shall constitute one and the same instrument, and
any of the parties hereto may execute this Agreement by signing any such
counterpart.
11.10. Governing Law; Submission to Jurisdiction. This
Agreement and the Notes shall be governed by, and construed in
accordance with, the law of the State of New York. Each of the Company,
the Agent, the Co-Agent and the Banks hereby submits to the nonexclusive
jurisdiction of the United States District Court for the Southern
District of New York and of any New York state court sitting in New York
City for the purposes of all legal proceedings arising out of or
relating to this Agreement, any other Loan Document or the transactions
contemplated hereby or thereby. Each of the Company, the Agent, the
Co-Agent and the Banks irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to
the laying of the venue of any such proceeding brought in such a court
and any claim that any such proceeding brought in such a court has been
brought in an inconvenient forum.
11.11. Waiver of Jury Trial. EACH OF THE COMPANY, THE
AGENT, THE CO-AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
11.12. Confidentiality. Each of the Banks, the Agent and
the Co-Agent agrees (on behalf of itself and each of its affiliates,
directors, officers, employees and representatives) to use reasonable
precautions to keep confidential any non-public information supplied to
it by or on behalf of the Company pursuant to this Agreement which is
identified by the Company as being confidential at the time the same is
delivered to the Banks, the Agent or the Co-Agent, provided that nothing
herein shall limit the disclosure of any such information (i) to the
extent required by applicable statute, rule or regulation or by judicial
process, (ii) to counsel for any of the Banks, the Agent or the Co-Agent
(provided that such counsel agrees, for the benefit of the Company, to
be bound by the terms of this Section 11.12), (iii) to bank examiners,
auditors or accountants, (iv) to the Agent, the Co-Agent or any other
Bank, (v) in connection with any litigation relating to this Agreement
or any other Loan Document to which any one or more of the Banks is a
party or (vi) to any assignee or participant (or prospective assignee or
participant) so long as such assignee or participant (or prospective
assignee or participant) first executes and delivers to the respective
Bank a Confidentiality Agreement in substantially the form of Exhibit G
hereto prior to the delivery of any such non-public information; and
provided that in no event shall any Bank, the Agent or the Co-Agent be
obligated or required to return any materials furnished by the Company;
and provided, further, that (A) unless specifically prohibited by
applicable law or court order, each Bank shall, prior to disclosure
thereof pursuant to clause (i) or (v) above, use reasonable efforts to
notify the Company of any request for disclosure of any such non-public
information (other than any such request in connection with an
examination of the financial condition of such Bank by, or any other
regulatory matter involving, such governmental agency) sufficiently in
advance of such intended disclosure to enable the Company to seek a
protective order and (B) such disclosure (except pursuant to any such
request in connection with an examination of the financial condition of
such Bank by, or any other regulatory matter involving, such
governmental agency) shall be limited to that information which counsel
for the Bank, the Agent or the Co-Agent, as applicable, advises that the
Bank, the Agent or the Co-Agent is legally required to disclose.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the day and year first above written.
WESTERN PUBLISHING GROUP, INC.
By: /s/ Steven M. Grossman
-------------------------------------------
Title: Executive Vice President
Address for Notices:
Western Publishing Group, Inc.
444 Madison Avenue
New York, New York 10022
Telecopier No.: 212-888-5025
Telephone No.: 212-688-4500
Attention: Mr. Steven M. Grossman
Executive Vice President &
Chief Financial Officer
With a copy to:
Morgan Lewis & Bockius
101 Park Avenue
New York, New York 10178
Telephone No.: 212-309-6000
Telecopier No.: 212-309-6273
Attention: Mitchell N. Baron, Esq.
Facility A
Commitment FLEET BANK
$ 3,000,000
Facility B By: /s/ Peter Hall
Commitment --------------------------
$23,000,000 Title: Vice President
Lending Office:
Letter of Credit Fleet Bank
Commitment 56 East 42nd Street
$ 2,000,000 New York, New York 10017
Address for Notices:
Fleet Bank
56 East 42nd Street
New York, New York 10017
Telephone No.: 212-907-5118
Telecopier No.: 212-907-5614
Attention: Mr. Peter C. Hall
Vice President
Facility A
Commitment THE BANK OF NEW YORK
$ 1,875,000
By: /s/ Richard P. Hebner
Facility B --------------------------
Commitment Title: Vice President
$14,375,000
Lending Office:
The Bank of New York
One Wall Street
New York, New York 10286
Letter of Credit
Commitment
$ 1,250,000 Address for Notices:
The Bank of New York
One Wall Street
New York, New York 10286
Telephone No.: 212-635-7214
Telecopier No.: 212-635-1480
Attention: Mr. Richard Hebner
Vice President
Facility A
Commitment CREDIT LYONNAIS
$ 1,500,000
By: /s/ S. Burdick
Facility B --------------------------
Commitment Title: Vice President
$11,500,000
By: __________________________
Title:
Letter of Credit Lending Office:
Commitment
$ 1,000,000
Credit Lyonnais, New York Branch
1301 Avenue of the Americas
New York, New York 10019
Address for Notices:
Credit Lyonnais, New York Branch
1301 Avenue of the Americas
New York, New York 10019
Telephone No.: 212-261-7343
Telecopier No.: 212-459-3179
Attention: Ms. Silvana Burdick
Vice President
Facility A
Commitment THE DAIWA BANK, LTD.
$ 1,500,000
By: /s/ James H. Broadley
Facility B --------------------------
Commitment Title: Vice President
$11,500,000
Lending Office:
Letter of Credit The Daiwa Bank, Ltd.
Commitment 233 S. Wacker Drive
$ 1,000,000 Suite 5400
Chicago, Illinois 60606
Address for Notices:
The Daiwa Bank, Ltd.
450 Lexington Avenue
Suite 1700
New York, NY 10017
Telephone No.: 212-808-2338
Telecopier No.: 212-818-0865
Attention: Mr. James H. Broadley
Vice President
Facility A
Commitment MELLON BANK, N.A.
$ 1,500,000
By: __________________________
Facility B Title:
Commitment
$11,500,000 Lending Office:
Letter of Credit Mellon Bank, N.A.
Commitment One Mellon Bank Center, #4835
$ 1,000,000 Pittsburgh, Pennsylvania 15258
Address for Notices:
Mellon Bank, N.A.
One Mellon Bank Center, #4835
Pittsburgh, Pennsylvania 15258
Telephone No.: 412-234-1055
Telecopier No.: 412-234-0286
Attention: Ms. Brigitte R. Bouchat
Vice President
Facility A
Commitment NATIONAL WESTMINSTER BANK USA
$ 1,500,000
By: /s/ Phillip Sorace
Facility B --------------------------
Commitment Title: Vice President
$11,500,000
Lending Office:
Letter of Credit National Westminster Bank USA
Commitment 592 Fifth Avenue
$ 1,000,000 New York, New York 10036
Address for Notices:
National Westminster Bank USA
592 Fifth Avenue
New York, New York 10036
Telephone No.: 212-602-2557
Telecopier No.: 212-602-2080
Attention: Mr. Philip Sorace
Vice President
Facility A STANDARD CHARTERED BANK
Commitment
$ 1,500,000
By: /s/ Brian Taylor
--------------------------
Facility B Title:
Commitment
$11,500,000 Lending Office:
Standard Chartered Bank,
Letter of Credit New York Branch
Commitment 160 Water Street
$ 1,000,000 New York, New York 10022
Address for Notices:
Standard Chartered Bank,
New York Branch
160 Water Street
New York, New York 10022
Telephone No.: 212-612-0242
Telecopier No.: 212-612-0225
Attention: Mr. Brian Talor
Assist. Vice President
Facility A
Commitment NORWEST BANK MINNESOTA, NATIONAL
$ 1,125,000 ASSOCIATION
By: __________________________
Title:
Facility B
Commitment Lending Office:
$ 8,625,000
Norwest Bank Minnesota, N.A.
Letter of Credit Sixth and Marquette Streets
Commitment Minneapolis, Minnesota
$ 750,000
Address for Notices:
Norwest Bank
Corporate Banking Offices
Suite 1200
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53233
Telephone No.: 414-224-3793
Telecopier No. 414-224-3795
Attention: Ms. Irene Hogan
Vice President
Facility A
Commitment THE FIRST NATIONAL BANK OF BOSTON
$ 1,500,000
By: __________________________
Title:
Facility B
Commitment Lending Office:
$11,500,000
The First National Bank of Boston
Letter of Credit 100 Federal Street
Commitment Boston, Massachusetts 02110
$ 1,000,000
Address for Notices:
The First National Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
Telephone No.: 617-434-1809
Telecopier No.: 617-434-1508
Attention: Mr. William Kelly
Vice President
FLEET BANK,
as Agent
By: /s/ Peter C. Hall
--------------------------
Title: Vice President
Address for Notices to
Fleet as Agent:
56 East 42nd Street
New York, New York 10017
Attention: Mr. Peter C. Hall
Telecopier No.: 212-907-5614
Telephone No.: 212-907-5118
THE BANK OF NEW YORK,
as Co-Agent
By: /s/ Richard P. Hebner
--------------------------
Title: Vice President
Address for Notices to
Co-Agent:
One Wall Street
New York, New York 10286
Telecopier No.: 212-635-1480
Telephone No.: 212-635-7214
Attention: Mr. Richard Hebner
AMENDMENT NO. 1
TO AMENDED AND RESTATED CREDIT AGREEMENT
AMENDMENT NO. 1 TO AMENDED AND RESTATED CREDIT AGREEMENT, dated as of
August 4, 1994 ("this Amendment"), 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").
WHEREAS, the Company, the Banks, the Agent and the Co-Agent are parties to
an Amended and Restated Credit Agreement dated as of May 31, 1994 (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; and
WHEREAS, the Company, the Banks, the Agent and the Co-Agent wish to amend
the Credit Agreement in certain respects;
NOW, THEREFORE, in consideration of the foregoing and the covenants and
agreements set forth herein, the parties hereto hereby agree as follows:
Section 1. Definitions. Except as otherwise defined in this Amendment,
terms defined in the Credit Agreement that are used herein 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 6 below, but effective as of the date hereof, the
Credit Agreement is hereby amended as follows:
A. Section 8.01(a) of the Credit Agreement is hereby amended and restated
in its entirety to read as follows:
(a) as soon as available and in any event within 20 Business Days
after the end of each fiscal month (except for the last fiscal month of
each of the first three fiscal quarters and except that, in the case of
December, 1994, such delivery shall be made within 15 calendar days after
the end thereof), consolidated and consolidating statements of operations,
retained earnings and cash flow of the Company and its Consolidated
Subsidiaries for such period and for the period from the beginning of the
respective fiscal year to the end of such period, and the related
consolidated and consolidating balance sheets as at the end of such
period, setting forth in each case in comparative form the corresponding
consolidated and consolidating figures for the corresponding period in the
preceding fiscal year, accompanied by a certificate of a senior financial
officer of the Company, which certificate shall state that said financial
statements fairly present in all material respects the consolidated
financial condition and results of operations of the Company and its
Consolidated Subsidiaries, and the unconsolidated financial condition and
results of operations of the Company and of each of its Consolidated
Subsidiaries, in accordance with GAAP, as at the end of, and for, such
period (subject to normal year-end audit adjustments);
B. Section 8.01 of the Credit Agreement is hereby amended by redesignating
subsections (i) and (j) thereof as subsections (k) and (l), respectively, and by
adding new subsections (i) and (j) which read as follows:
(i) on or before November 30, 1994, revised forecasted consolidated
financial statements for the Company and its Subsidiaries for the
fourteen-month period ending January, 1996, in substantially the same
detail as the forecasts previously furnished by the Company to the Banks;
(j) within 15 Business Days after the beginning of each fiscal
month, a forecast of the Company's working capital requirements on a
weekly basis, and the supporting assumptions for such forecast in
reasonable detail on a monthly basis, for the period beginning on the
first day of such fiscal month and ending on the last day of the next
succeeding fiscal month;
C. Section 8.03 of the Credit Agreement is hereby amended by adding the
following to the end thereof:
, including, without limitation, full access to all information used
in preparing the forecast required to be furnished to the Banks pursuant
to Section 8.01(i) hereof.
D. Section 2.04 of the Credit Agreement is hereby amended by redesignating
subsections (d) and (e) thereof as subsections (e) and (f), respectively, and
inserting a new subsection (d) which reads as follows:
(d) Immediately upon receipt thereof, the Company shall prepay the
principal of the Loans hereunder, and the Commitments shall be reduced, in
an aggregate principal amount equal to 100% of the proceeds derived from
any refund of amounts previously paid to satisfy the Company's obligations
with respect to any federal, state or local taxes arising from the
Disposition of the assets of the Company's Games and Puzzles division
and/or its Advertising Specialty division. The Company shall make any
necessary filings with federal, state and local tax authorities to claim
such refunds promptly upon the Company becoming entitled to do so, and
shall assign all rights to receive any such tax refund to the Agent, on
behalf of the Banks, and irrevocably instruct such tax authorities to pay
any such claimed tax refund directly to the Agent, on behalf of the Banks.
In addition, in the event that the Company's actual federal, state or
local tax liability is less than the Company's estimate of such liability
for purposes of calculating the amount of net cash proceeds received by
the Company in connection with a Disposition in accordance with Section
2.04(c) hereof, the Company shall immediately prepay the principal of the
Loans hereunder, and the Commitments shall be reduced, in an aggregate
principal amount equal to the difference between such actual tax liability
and such estimate.
E. Section 8.10 of the Credit Agreement is hereby amended and restated
in its entirety to read as follows:
Section 8.10. Leverage Ratio. Commencing with the fiscal quarter
ending January 28, 1995, 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).
F. Section 8.11 of the Credit Agreement is hereby amended and restated in
its entirety to read as follows:
8.11. Tangible Net Worth. The Company will not permit Tangible Net
Worth at any time on or after December 31, 1994, to be less than the sum
of (i) $150,000,000 plus (ii) an amount equal to (but not less than zero)
50% of the Company's consolidated net income (determined in accordance
with GAAP) for the period from May 2, 1992 through the end of the
Company's fiscal quarter most recently ended (treated for this purpose as
a single accounting period).
G. 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 set forth below to be less than the
ratio set forth below opposite such period:
Period Ratio
------ -----
Fiscal quarter ending January 28, 1995 3.00 to 1
Two fiscal quarters ending April 29, 1995 1.50 to 1
and each fiscal quarter thereafter
H. Section 8.18 of the Credit Agreement is hereby amended and restated in
its entirety to read as follows:
8.18 Cash Flow. The Company will not permit its Cash Flow for any
period set forth below to be less than the amount set forth below
opposite such period:
Period Cash Flow
------ ---------
Two fiscal months ended 12/31/94 8,419,000
Three fiscal months ended 1/28/95 12,100,000
I. Section 8.19 of the Credit Agreement is hereby amended and restated in
its entirety to read as follows:
8.19. Loans Outstanding. From and after November 26, 1994, the
Company will not permit the aggregate principal amount of Loans
outstanding at any time during the period commencing with the delivery by
the Company to the Agent of a compliance certificate for any fiscal month
and ending with the delivery by the Company to the Agent of a compliance
certificate for the next succeeding fiscal month to exceed the percentage
set forth below opposite such fiscal month of the total amount of
Inventory and Accounts Receivable (as each such term is defined under
GAAP) of the Company at the end of such fiscal month, as certified by such
compliance certificate:
Month Percentage
----- ----------
December, 1994 24.0%
January, 1995 6.5%
February, 1995 and 13.0%
thereafter
In the event that the Disposition of the Company's Advertising
Specialty division is consummated, the percentages set forth in this
Section 8.19 for each fiscal month ending thereafter shall be reduced by
the difference between the Company's projection of "Loans Outstanding as a
% of Accounts Receivable and Inventories" for the relevant fiscal month
and the respective percentages obtained by dividing (i) the Company's
projection of "Loans Outstanding (Direct Borrowings)" for the relevant
fiscal month less up to $12,000,000 of the net cash proceeds of such
Disposition received by the Company or any of its Subsidiaries by (ii) the
sum of the Company's projections for "Accounts Receivable, Net" and
"Inventories, Net" for the relevant fiscal month. The projections
referred to in the preceding sentence are set forth in Schedule V attached
hereto.
Notwithstanding anything to the contrary in this Section 8.19, the
Company shall be entitled to deliver to the Agent a compliance certificate
of a senior financial officer of the Company setting forth the total
amount of Inventory and Accounts Receivable of the Company as of the date
of such compliance certificate, and thereupon the aggregate principal
amount of Loans which the Company may permit to be outstanding for
purposes of this Section 8.19 during the period commencing with the
delivery of such compliance certificate and ending with the delivery of
any subsequent compliance certificate shall be the percentage set forth in
this Section 8.19 for the then current fiscal month of the total amount of
Inventory and Accounts Receivable reflected in such compliance
certificate.
J. The Credit Agreement is hereby amended by inserting a new Section 8.22,
which reads as follows:
Section 8.22. Blocked Account. The Company shall establish and
maintain an interest bearing account with Fleet Bank (the "Blocked
Account"). As promptly as practicable (but in no event later than ten
Business Days) after the earlier of (i) the Disposition of all or
substantially all of the assets of the Company's Advertising Specialty
division (the "Ad Specialty Disposition") and (ii) January 28, 1995, the
Company shall deliver to the Agent a certificate of Imowitz, Koenig &
Company, or another certified independent public accounting firm
reasonably satisfactory to the Agent, certifying the amount of the
Company's federal, state and local income tax obligations payable in
connection with the Disposition of the assets of its Games and Puzzles
division and the amount of any tax benefits arising from the Ad Specialty
Disposition or any other event which has the effect of reducing the
Company's tax obligations, and such certificate shall present an itemized
calculation of such tax obligations and benefits in reasonable detail.
The Company shall not withdraw any funds from the Blocked Account except
to the extent that such tax obligations, as reduced by such tax benefits,
exceed $10,000,000, as evidenced by such certificate, and the Company
shall provide such other evidence as the Agent may reasonably request to
establish the amount of such tax obligations to the Agent's reasonable
satisfaction, as well as to verify the amount and source of other funds
either utilized or to be utilized for the payment of such tax obligations.
No later than the third Business Day following satisfaction of the
conditions set forth in the two immediately preceding sentences, the Agent
shall wire transfer to an account designated by the Company the amount of
funds from the Blocked Account which the Company is permitted to withdraw
in accordance with this Section 8.22, and thereupon any amounts on deposit
in the Blocked Account in excess of the amount which the Company is
permitted to withdraw therefrom in accordance with this Section 8.22 shall
be applied by the Agent to the Loans, and the Commitments shall be
permanently reduced by such excess, all in accordance with Section 2.04(d)
of the Credit Agreement. If the Company fails to deliver the certificate
described in the second sentence of this Section 8.22 within the time
period specified in such sentence, the entire amount on deposit in the
Blocked Account shall be applied immediately by the Agent to the Loans,
and the Commitments shall be permanently reduced by such amount, all in
accordance with Section 2.04(d) of the Credit Agreement.
K. The Credit Agreement is hereby amended by inserting a new Section 8.23,
which reads as follows:
Section 8.23. Additional Restrictions on Dividends. Prior to
December 31, 1994, the Company shall not, and shall not permit any of its
Subsidiaries to, (i) declare or make any Dividend Payment on account of
any equity interest otherwise permitted by Section 8.09 of the Credit
Agreement, or (ii) declare or make any dividends (in cash, property or
obligations) on, or set apart money for a sinking or other analogous fund
for, or make any other payments or distributions on account of, or effect
any purchase, redemption, retirement or other acquisition of, the
Company's Series A Preferred Stock except as required pursuant to the
existing terms of the Company's currently outstanding Series A Preferred
Stock.
L. The Credit Agreement is hereby amended by inserting a new Section 8.24,
which reads as follows:
Section 8.24. Net Operating Loss. The Company will not permit its
net operating loss (determined on a consolidated basis in accordance with
GAAP), excluding any restructuring charges, during the period from July
30, 1994 through December 31, 1994, to exceed $20,000,000.
M. Section 9(e) of the Credit Agreement is hereby amended and restated to
read in its entirety as follows:
(e) The Company shall default in the performance of any of its
obligations under any of Sections 8.05, 8.06, 8.07, 8.08, 8.14, 8.16 or
8.23 hereof; or the Company or Western shall default in the performance of
any of its other obligations in this Agreement or any other Loan Document
and such default shall continue unremedied for a period of thirty days
(or, in the case of any such default in existence at December 31, 1994,
five calendar days) after notice thereof to the Company by the Agent or
any Bank through the Agent); or
Section 3. Reduction of Commitments. Effective as of the date hereof,
pursuant to Section 2.04(b) of the Credit Agreement, the Company hereby
permanently reduces the aggregate amount of (i) the Facility B Commitments to
$50,000,000 and (ii) the Letter of Credit Commitments to $5,000,000. In
addition, the Company agrees to permanently reduce the Facility B Commitments by
100% of the amount of any net proceeds of the Disposition of the assets of its
Games and Puzzles division (other than proceeds received from the holdback with
respect to the Over The Hill Gang consent) which are received by the Company
after the date hereof.
Section 4. Waiver. Subject to the satisfaction of the conditions
precedent specified in Section 6 below, but effective as of the date hereof, the
Banks hereby waive receipt of one day's prior notice of borrowing on the date
that this Amendment becomes effective of Loans up to the full amounts of the
unused Facility A Commitments and Facility B Commitments, after giving effect to
the reductions effected pursuant to Section 3 of this Amendment.
Section 5. 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.
Section 6. Conditions Precedent. As provided in Sections 2 and 4 above,
the amendments to and waivers under the Credit Agreement set forth in said
Sections shall become effective, as of the date hereof, upon the satisfaction of
the following conditions precedent:
A. This Amendment shall have been executed and delivered by the Company
and by the Majority Banks.
B. The Company shall have prepaid the Loans in the amount required
pursuant to Section 2.04(c) of the Credit Agreement in connection with the
Disposition of the assets of the Company's Games and Puzzles division.
C. The Company shall have deposited $15,000,000 in the Blocked Account.
D. Western shall have requested a $15,000,000 advance under the Subsidiary
Note.
E. 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 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 the Company;
(b) a certificate of the Secretary or an Assistant Secretary
of the Company, dated as of a recent date and certifying (i) that
attached thereto is a true and complete copy of the by-laws of the
Company as in effect on the date of such certificate or that the
by-laws of the Company 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 the
Company authorizing the execution, delivery and performance of this
Amendment and the performance of the Credit Agreement as amended
hereby, 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 the Company 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 the Company executing this Amendment and each other
document to be delivered by the Company from time to time in
connection with the Credit Agreement amended hereby (and the Agent
and each Bank may conclusively rely on such certificate until it
receives notice in writing from the Company); and
(c) a certificate of another officer of the Company as to the
incumbency and specimen signature of the Secretary or such Assistant
Secretary of the Company.
(2) Opinion of Counsel to the Company. An opinion of Morgan, Lewis
& Bockius, counsel to the Company, in the form attached hereto as
Exhibit A.
(3) Games and Puzzles Certificate. A certificate of a senior
financial officer of the Company certifying the total amount of proceeds
received by the Company in respect of the Disposition of the assets of its
Games and Puzzles division and itemizing in reasonable detail the amounts
deducted therefrom in determining the net proceeds of such Disposition for
purposes of Section 2.04(c) of the Credit Agreement.
(4) Other Documents. Such other documents as the Agent or any Bank
or counsel to the Banks may reasonably request.
Section 7. 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
Co-Agent (including the reasonable fees and disbursements of Weil, Gotshal &
Manges, counsel to the Agent and the Banks) incurred in connection with the
negotiation, preparation, execution and delivery of this Amendment.
Section 8. Miscellaneous. Except as expressly herein provided, the Credit
Agreement shall remain unchanged and in full force and effect. This Amendment
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 by signing any such counterpart. This Amendment
shall be governed by, and construed in accordance with, the law of the State on
New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day and year first above written.
WESTERN PUBLISHING GROUP, INC.
By /s/ Steven M. Grossman
----------------------------------------
Title: Executive Vice President
FLEET BANK
By /s/ Patrick F. McAuliffe
----------------------------------------
Title: Senior Vice President
THE BANK OF NEW YORK
By /s/ Richard P. Hebner
----------------------------------------
Title: Vice President
CREDIT LYONNAIS
NEW YORK BRANCH
By /s/ David Bonington
----------------------------------------
Title: Vice President
By /s/ S. Burdick
----------------------------------------
Title: Vice President
THE DAIWA BANK, LTD.
By /s/ Brian M.
----------------------------------------
Title: Senior Vice President
MELLON BANK, N.A.
By /s/ Brigitte R. Bouchat
----------------------------------------
Title: Vice President
NATIONAL WESTMINSTER BANK USA
By /s/ Charles Green
----------------------------------------
Title: Vice President
STANDARD CHARTERED BANK
By
----------------------------------------
Title:
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
By
----------------------------------------
Title:
THE FIRST NATIONAL BANK OF BOSTON
By
----------------------------------------
Title:
FLEET BANK,
as Agent
By /s/ Patrick F. McAuliffe
----------------------------------------
Title: Senior Vice President
THE BANK OF NEW YORK
as Co-Agent
By /s/ Richard P. Hebner
----------------------------------------
Title: Vice President
AMENDMENT NO. 2
TO AMENDED AND RESTATED CREDIT AGREEMENT
AMENDMENT NO. 2 TO AMENDED AND RESTATED CREDIT AGREEMENT, dated as of
February 21, 1995 ("this Amendment"), 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").
WHEREAS, the Company, the Banks, the Agent and the Co-Agent are parties to
an Amended and Restated Credit Agreement dated as of May 31, 1994, as amended by
Amendment No. 1 to Amended and Restated Credit Agreement, dated as of August 4,
1994 (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; and
WHEREAS, the Company, the Banks, the Agent and the Co-Agent wish to amend
the Credit Agreement in certain respects;
NOW, THEREFORE, in consideration of the foregoing and the covenants and
agreements set forth herein, the parties hereto hereby agree as follows:
Section 1. Definitions. Except as otherwise defined in this Amendment,
terms defined in the Credit Agreement that are used herein 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 5 below, but effective as of December 24, 1994,
the Credit Agreement is hereby amended as follows:
A. Section 2.03 of the Credit Agreement is hereby amended by adding a new
paragraph (l) thereto which reads as follows:
(l) Notwithstanding anything to the contrary in this Section 2.03, no
Letters of Credit shall be issued pursuant to this Section 2.03 after
February 1, 1995. Upon the expiration of any Letter of Credit after
February 1, 1995, the aggregate amount of the Letter of Credit
Commitments shall be automatically and permanently reduced by the
aggregate amount of Letter of Credit Liabilities relating to such
Letter of Credit.
B. Sections 2.04 and 4.04 of the Credit Agreement are hereby amended by
deleting the amount "$1,000,000" each time it appears in such Sections and
substituting in each instance the amount "$100,000" therefor.
C. Section 8.01(a) of the Credit Agreement is hereby amended and restated
in its entirety to read as follows:
(a) as soon as available and in any event within 20 Business Days
after the end of each fiscal month other than January, 1995 (except that,
in the case of fiscal February, March and April, such delivery shall be
made within 30 Business Days after the end of each such fiscal month),
consolidated and consolidating statements of operations, retained earnings
and cash flow of the Company and its Consolidated Subsidiaries for such
period and for the period from the beginning of the respective fiscal year
to the end of such period, and the related consolidated and consolidating
balance sheets as at the end of such period, setting forth in each case in
comparative form the corresponding consolidated and consolidating figures
for the corresponding period in the preceding fiscal year, accompanied by
a certificate of a senior financial officer of the Company, which
certificate shall state that said financial statements fairly present in
all material respects the consolidated financial condition and results of
operations of the Company and its Consolidated Subsidiaries, and the
unconsolidated financial condition and results of operations of the
Company and of each of its Consolidated Subsidiaries, in accordance with
GAAP, as at the end of, and for, such period (subject to normal year-end
audit adjustments);
D. The last paragraph of Section 8.01 of the Credit Agreement is hereby
amended by deleting the references to Sections 8.10, 8.11, 8.12, 8.18 and 8.19
appearing therein and substituting therefor a reference to Section 8.24.
E. Sections 8.10, 8.11, 8.12, 8.17, 8.18 and 8.19 of the Credit Agreement
are hereby deleted.
F. Section 8.24 of the Credit Agreement is hereby amended and restated in
its entirety to read as follows:
Section 8.24. Loss Before Interest Expense and Income Taxes. The
Company will not permit its cumulative Loss Before Interest Expense and
Income Taxes (determined on a consolidated basis in accordance with GAAP),
excluding any restructuring charges, as of the dates set forth below for
the period from and including January 29, 1995 through any such date to
exceed the amount set forth opposite such date:
Period Ending: Amount:
------------- ------
February 25, 1995 $ 7,500,000
March 25, 1995 $12,200,000
April 29, 1995 $17,400,000
May 27, 1995 $18,500,000
G. Section 8.01 of the Credit Agreement is hereby amended by redesignating
subsection (l) thereof as subsection (m), and by adding a new subsection (l)
which reads as follows:
(l) On or prior to March 15, 1995, a report in reasonable detail
describing the Company's financial situation and the status of
the Company's efforts, and the actions proposed to be taken by
the Company, to repay or refinance all outstanding Loans on or
prior to the Commitment Termination Date.
H. Section 9(e) of the Credit Agreement is hereby amended and restated to
read in its entirety as follows:
(e) The Company shall default in the performance of any of its
obligations under any of Section 8.05, 8.06, 8.07, 8.08, 8.09, 8.14, 8.16
or 8.23 hereof; or the Company or Western shall default in the performance
of any of its other obligations in this Agreement or any other Loan
Document and such default shall continue unremedied for a period of thirty
days (or, in the case of any default in the performance of its obligation
to deliver any certificate as required pursuant to the last paragraph of
Section 8.01, five Business Days) after notice thereof to the Company by
the Agent or any Bank through the Agent); or
Section 3. Reduction of Commitments. Effective as of the date hereof,
pursuant to Section 2.04(b) of the Credit Agreement, the Company hereby
permanently reduces the aggregate amount of (i) the Facility B Commitments to
$7,000,000 and (ii) the Letter of Credit Commitments to $747,491.19.
Section 4. 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.
Section 5. Conditions Precedent. As provided in Section 2 above, the
amendments to the Credit Agreement set forth in said Section shall become
effective, as of the date hereof, upon the satisfaction of the following
conditions precedent:
A. This Amendment shall have been executed and delivered by the Company
and by the Majority Banks.
B. The Company shall have prepaid the Facility B Loans in an amount equal
to $10,000,000.
C. The Company shall have paid all reasonable out-of-pocket costs and
expenses of the Agent and the Co-Agent, including, without limitation, the
reasonable fees and expenses of Weil, Gotshal & Manges and Alvarez & Marsal,
invoiced prior to the effectiveness of this Amendment.
D. 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 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 the Company;
(b) a certificate of the Secretary or an Assistant Secretary
of the Company, dated as of a recent date and certifying (i) that
attached thereto is a true and complete copy of the by-laws of the
Company as in effect on the date of such certificate or that the
by-laws of the Company 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 the
Company authorizing the execution, delivery and performance of this
Amendment and the performance of the Credit Agreement as amended
hereby, 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 the Company 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 the Company executing this Amendment and each other
document to be delivered by the Company 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 the Company); and
(c) a certificate of another officer of the Company as to the
incumbency and specimen signature of the Secretary or such Assistant
Secretary of the Company.
(2) Opinion of Counsel to the Company. An opinion of Morgan, Lewis
& Bockius, counsel to the Company, in the form attached hereto as
Exhibit A.
(3) Other Documents. Such other documents as the Agent or any Bank
or counsel to the Banks may reasonably request.
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 and the
Co-Agent (including the reasonable fees and disbursements of Weil, Gotshal &
Manges, counsel to the Agent and the Banks, and Alvarez & Marsal, consultant to
the Agent and the Banks) incurred in connection with the negotiation,
preparation, execution and delivery of this Amendment.
Section 7. Miscellaneous. Except as expressly herein provided, the Credit
Agreement shall remain unchanged and in full force and effect. This Amendment
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 by signing any such counterpart. This Amendment
shall be governed by, and construed in accordance with, the law of the State on
New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day and year first above written.
WESTERN PUBLISHING GROUP, INC.
By /s/ Steven M. Grossman
----------------------------------------
Title: Executive Vice President, Chief
Financial Officer
FLEET BANK
By /s/ Patrick F. McAuliffe
----------------------------------------
Title: Senior Vice President
THE BANK OF NEW YORK
By /s/ Richard P. Hebner
----------------------------------------
Title: Vice President
CREDIT LYONNAIS
NEW YORK BRANCH
By /s/ David Bonington
----------------------------------------
Title: Vice President
By
----------------------------------------
Title:
THE DAIWA BANK, LTD.
By /s/ Jim Broadley
----------------------------------------
Title: Vice President
MELLON BANK, N.A.
By /s/ Alan J. Kopolow
----------------------------------------
Title: Vice President
NATIONAL WESTMINSTER BANK USA
By
----------------------------------------
Title:
STANDARD CHARTERED BANK
By
----------------------------------------
Title:
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
By /s/ Paul Sedio
----------------------------------------
Title: Vice President
THE FIRST NATIONAL BANK OF BOSTON
By /s/ Ron A. Ferguson
----------------------------------------
Title: Vice President
FLEET BANK,
as Agent
By /s/ Patrick F. McAuliffe
----------------------------------------
Title: Senior Vice President
THE BANK OF NEW YORK
as Co-Agent
By /s/ Richard P. Hebner
----------------------------------------
Title: Vice President
- -------------------------------------------------------------
ASSET PURCHASE AND SUPPLY AGREEMENT
dated as of
August 4, 1994
among
WESTERN PUBLISHING COMPANY, INC.,
WESTERN PUBLISHING (CANADA), LTD.
and
HASBRO, INC.
- -------------------------------------------------------------
TABLE OF CONTENTS
Section Page
- ------- ----
ARTICLE I.
DEFINITIONS
SECTION 1.01. . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II.
PURCHASE, SALE AND ASSUMPTION
SECTION 2.01 Purchase and Sale of Purchased Assets . . . 2
SECTION 2.02 Assumption of Liabilities . . . . . . . . . 4
SECTION 2.03 Non-Assumption of Other Liabilities . . . . 5
SECTION 2.04 Purchase Price and Payment. . . . . . . . . 7
SECTION 2.05 Purchaser's Option With Respect to
Undelivered Assets . . . . . . . . . . . . 8
ARTICLE III.
CLOSING
SECTION 3.01 Date and Place. . . . . . . . . . . . . . . 8
SECTION 3.02 Deliveries by Sellers at Closing. . . . . . 8
SECTION 3.03 Post-Closing Deliveries by Sellers. . . . . 9
SECTION 3.04 Deliveries by Purchaser at Closing. . . . . 9
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF SELLERS
SECTION 4.01 Corporate Existence and Authority;
Authorization; Absence of Conflict . . . . 10
SECTION 4.02 Patents, Trademarks and Other Rights. . . . 11
SECTION 4.03 Molds . . . . . . . . . . . . . . . . . . . 12
SECTION 4.04 Purchased Assets Not in the Possession of
Seller . . . . . . . . . . . . . . . . . . 12
SECTION 4.05 Assigned Contracts. . . . . . . . . . . . . 12
SECTION 4.06 Legal Proceedings . . . . . . . . . . . . . 13
SECTION 4.07 Compliance with Law . . . . . . . . . . . . 14
SECTION 4.08 Compliance with Bulk Sales Laws . . . . . . 14
SECTION 4.09 Disclosure; Representations and
Warranties . . . . . . . . . . . . . . . . 14
SECTION 4.10 Finders or Brokers. . . . . . . . . . . . . 15
SECTION 4.11 Accuracy of Sales Reports . . . . . . . . . 15
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
SECTION 5.01 Corporate Existence; Authority. . . . . . . 15
SECTION 5.02 Authorization; Absence of Conflict. . . . . 15
SECTION 5.03 Finders or Brokers. . . . . . . . . . . . . 16
SECTION 5.04 Adequacy of Resources . . . . . . . . . . . 16
ARTICLE VI.
CERTAIN COVENANTS OF SELLERS AND PURCHASER
SECTION 6.01 Access and Information. . . . . . . . . . . 16
SECTION 6.02 Conduct Pending Closing; Certain
Covenants of Sellers . . . . . . . . . . . 16
SECTION 6.03 Confidentiality . . . . . . . . . . . . . . 17
SECTION 6.04 H-S-R Act . . . . . . . . . . . . . . . . . 18
SECTION 6.05 Updating Representations and Warranties . . 18
SECTION 6.06 Preservation of Rights and Commitments. . . 18
SECTION 6.07 Pre-Closing Covenants of Purchaser. . . . . 18
SECTION 6.08 Maintenance of Records. . . . . . . . . . . 19
SECTION 6.09 Product Returns . . . . . . . . . . . . . . 20
SECTION 6.10 Post-Closing Obligations. . . . . . . . . . 20
SECTION 6.11 Tax Matters . . . . . . . . . . . . . . . . 20
SECTION 6.12 Certain Obligations Relating to
Inventory, Molds and Other Items . . . . . 21
SECTION 6.13 Delivery of Purchased Product Records . . . 22
SECTION 6.14 Delivery of the Inventory . . . . . . . . . 22
SECTION 6.15 Purchaser's Rights with Respect to
Undelivered Assets . . . . . . . . . . . . 22
SECTION 6.16 Further Assurances. . . . . . . . . . . . . 25
ARTICLE VII.
MANUFACTURING AND SUPPLY AGREEMENT
SECTION 7.01 Agreement to Manufacture and Supply . . . . 26
SECTION 7.02 Order . . . . . . . . . . . . . . . . . . . 26
SECTION 7.03 Prices of Manufactured Products . . . . . . 26
SECTION 7.04 Purchaser's Instructions. . . . . . . . . . 26
SECTION 7.05 Payment for Purchased Products;
Reconciliation . . . . . . . . . . . . . . 27
SECTION 7.06 Risk of Loss. . . . . . . . . . . . . . . . 28
SECTION 7.07 Conduct Consistent with Past Practice . . . 28
SECTION 7.08 Handling Charge . . . . . . . . . . . . . . 28
SECTION 7.09 Representations and Warranties. . . . . . . 28
ARTICLE VIII.
INDEMNIFICATION
SECTION 8.01 Indemnification By Sellers. . . . . . . . . 29
SECTION 8.02 Indemnification by Purchaser. . . . . . . . 31
SECTION 8.03 Notification; Legal Proceedings . . . . . . 32
ARTICLE IX.
CONDITIONS
SECTION 9.01 Conditions to Obligations of Purchaser. . . 34
SECTION 9.02 Conditions to Obligations of Sellers. . . . 35
ARTICLE X.
TERMINATION OF AGREEMENT
SECTION 10.01 Termination. . . . . . . . . . . . . . . . 36
SECTION 10.02 Effect of Termination. . . . . . . . . . . 36
ARTICLE XI.
MISCELLANEOUS
SECTION 11.01 Expenses . . . . . . . . . . . . . . . . . 37
SECTION 11.02 Notices. . . . . . . . . . . . . . . . . . 37
SECTION 11.03 Binding Effect; Assignment . . . . . . . . 39
SECTION 11.04 Amendments . . . . . . . . . . . . . . . . 39
SECTION 11.05 Counterparts . . . . . . . . . . . . . . . 39
SECTION 11.06 Entire Agreement . . . . . . . . . . . . . 39
SECTION 11.07 Headings . . . . . . . . . . . . . . . . . 40
SECTION 11.08 Joint and Several Obligations. . . . . . . 40
SECTION 11.09 Governing Law. . . . . . . . . . . . . . . 40
SCHEDULES
Schedule 2.01 - Purchased Products
Schedule 2.01(a)(i) - Inventory
Schedule 2.01(a)(ii) - Molds
Schedule 2.01(a)(iii) - Assigned Rights
Schedule 2.01(a)(iv) - Mixed License Agreements
Schedule 2.01(a)(v) - Assigned Contracts
Schedule 2.02(i) - Assumed Guarantees
Schedule 4.01 - Required Consents
Schedule 4.03 - Ownership of Molds
Schedule 4.04 - Purchased Assets Not in the
Possession of Seller
Schedule 4.06 - Legal Proceedings; Outstanding
Judgments, Awards
Schedule 4.07(B) - Compliance With Law
Schedule 4.11 - Sales Reports
Schedule 6.12(b) - Destruction of Inventory
Schedule 6.15 - Current Retained Products
Schedule 7.08 - Handling Charge
Schedule 9.01(c) - Pending Action
EXHIBITS
Exhibit A - Sellers-to-Purchaser Short-Term
Trademark License Agreement
Exhibit B - Sellers-to-Purchaser Long-Term
License Agreement
Exhibit C - Form of Bill of Sale, Assignment
and Assumption Agreement
Exhibit D-1 - Form of Opinion of Purchaser's
General Counsel
Exhibit D-2 - Form of Opinion of Sellers'
General Counsel
ASSET PURCHASE AND SUPPLY AGREEMENT
THIS ASSET PURCHASE AND SUPPLY AGREEMENT, dated as
of August , 1994, between (1) WESTERN PUBLISHING COMPANY,
INC., a Delaware corporation ("Western"), (2) WESTERN
PUBLISHING (CANADA), LTD., an Ontario corporation
(individually, "Seller" and together, "Sellers") and (3)
HASBRO, INC., a Rhode Island corporation ("Purchaser").
W I T N E S S E T H:
WHEREAS, the Golden Games division (the "Division")
of Sellers is engaged in, among other things, the business
of manufacturing and marketing games and puzzles;
WHEREAS, Sellers desire to sell, transfer and
assign and, in some cases, license certain of the assets of
the Division to Purchaser, and Purchaser desires to purchase
and/or license such assets pursuant to the terms and
conditions hereinafter set forth;
WHEREAS, Sellers desire to assign to Purchaser and
Purchaser agrees to assume certain specified liabilities of
Sellers under the Assigned Contracts and the Mixed License
Agreements pursuant to the terms and conditions hereinafter
set forth; and
WHEREAS, Western desires, from and after the
Closing Date hereof until November 15, 1994, to continue to
manufacture and warehouse certain of the products purchased
hereunder and to transfer title to Purchaser of all of the
Inventory to be purchased hereunder upon the pickup thereof
by common carriers designated by Purchaser.
NOW, THEREFORE, in consideration of the mutual
covenants hereinafter set forth and other good and valuable
consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.01 Capitalized terms used herein shall
have the meanings set forth in Annex I hereto.
ARTICLE II.
PURCHASE, SALE AND ASSUMPTION
SECTION 2.01 Purchase and Sale of Purchased
Assets. (a) Subject to the terms and conditions specified
in this Agreement, on the Closing Date and, in the case of
the Inventory described in clause (i) below, at the times
indicated in Article VII, Purchaser shall purchase from
Sellers, and Sellers shall sell, convey, transfer, assign
and deliver to Purchaser, free and clear of all
Encumbrances, all right, title and interest in and to the
following assets and properties of Sellers, whether or not
any of the following has any value for accounting purposes
(such assets and properties along with all of the rights and
interests granted to Purchaser under the agreements
described in paragraph (b) of this Section 2.01 are
hereinafter collectively referred to as the "Purchased
Assets"):
(i) the finished goods inventory of Sellers
that relates to the Purchased Products wherever
located and in an amount not less than 90% and not
to exceed 110% of the total number of units of each
item of inventory set forth on Schedule 2.01(a)(i)
(collectively, the "Inventory");
(ii) all Molds including, without limitation,
those Molds set forth on Schedule 2.01(a)(ii);
(iii) all of Sellers' right, title and
interest in the registered and unregistered service
marks, trademarks, trade names, tradestyles,
patents, copyrights, business logos and product
names and logos, trade secrets and other
intellectual property rights (including any
applications for any of the foregoing and any
foreign counterparts of any of the foregoing, but
expressly excluding patents, trademarks and any
other rights which are licensed to Purchaser
pursuant to the agreements set forth in paragraph
(b) of this Section 2.01), used in the manufacture,
assembly, distribution and sale of the Purchased
Products including, without limitation, all those
set forth on Schedule 2.01(a)(iii), as well as all
of Sellers' right, title and interest in all other
design, style, appearance and other trademarks or
trade dress, trade secrets, confidential
information and processes owned by any of Sellers
(but expressly excluding patents, trademarks and
any other rights which are licensed to Purchaser
pursuant to the agreements set forth in paragraph
(b) of this Section 2.01) and used solely in
connection with the manufacture, assembly,
distribution or sale of the Purchased Products
(collectively, the "Assigned Rights");
(iv) all of the rights of Sellers to the
extent they relate to the Purchased Products under
any master, mixed or combined license agreement
with third parties, including, without limitation,
those license agreements set forth on
Schedule 2.01(a)(iv) (the "Mixed License
Agreements");
(v) all of the rights of Sellers under any
other agreements, including license, royalty,
distributorship and sublicense agreements with
third parties relating to any Purchased Assets,
including, without limitation, those license,
royalty, distributorship and sublicense agreements
set forth on Schedule 2.01(a)(v) (such agreements
that are specifically listed on Schedule 2.01(a)(v)
are herein collectively referred to as the
"Assigned Contracts" and the Assigned Contracts
that are license or royalty agreements are herein
called the "License Agreements");
(vi) all of the operating data, files and
records (in whatever format or formats such items
are kept) in Sellers' possession relating to the
Purchased Products including, without limitation,
legal records or copies thereof, customer lists,
customer service records, accounting records
(including, without limitation, product sales,
royalty and advertising information for each
Purchased Product), product listings, mold
drawings, product blueprints and specifications,
engineering, maintenance, operating and production
records relating to the Molds, art work, film
separations, mechanicals, advertising materials
(including, without limitation, commercials, print
advertising and market research data relating to
the Purchased Products) (the "Purchased Products
Records"); and
(vii) Sellers' prepaid expenses and deposits
relating to the Purchased Assets, including (A) all
claims against third parties (including claims for
breach of contract or claims for indemnification)
arising from or relating to the Purchased Assets,
(B) all royalties prepaid and advances paid by any
Seller to any licensor under any License Agreement
and (C) all royalties prepaid and advances paid to
any Seller by any licensee or distributor relating
to any Purchased Product, in each case, to the
extent that such prepaid expense or deposit remains
unused or unrecouped as of the Closing Date.
(b) Sellers shall license to Purchaser and
Purchaser shall acquire all of the rights granted by Sellers
to Purchaser under (A) the Sellers-to-Purchaser Short-Term
Trademark License Agreement attached as Exhibit A hereto,
(B) the Sellers-to-Purchaser Long-Term License Agreement
attached as Exhibit B hereto.
(c) To the extent that the sale, conveyance,
transfer or assignment of any agreement, contract or other
document or instrument requires the consent of any Person
other than Purchaser or a Seller, this Agreement shall not
constitute an agreement to effect such sale, conveyance,
transfer or assignment if such action would constitute a
breach thereof. Sellers and Purchaser shall cooperate
reasonably to obtain, on or prior to the Closing Date, all
required consents necessary to effect the sales,
conveyances, transfers and assignments contemplated hereby.
SECTION 2.02 Assumption of Liabilities. Subject
to the terms and conditions set forth herein, Purchaser
agrees that, at the Closing, it will assume and thereafter
pay, perform or discharge, as the case may be, the following
obligations and liabilities (and only the following
obligations and liabilities) to the extent they relate to
the Purchased Assets and to the extent the same do not
constitute Retained Liabilities (the "Assumed Liabilities"):
(i) all obligations and liabilities of
Sellers under (A) the Assigned Contracts, and (B)
the Mixed License Agreements identified on Schedule
2.01(a)(iv) to the extent (and only to the extent)
that the obligations and liabilities of Sellers
under such Mixed License Agreements relate to the
Purchased Products; provided, however, that there
shall be excepted from such obligations and
liabilities, and Purchaser shall not assume, any
liability or obligation of any Seller (A) that
arises as a result of a breach by any Seller of any
Assigned Contract or any Mixed License Agreement,
(B) that relates to an obligation, liability, event
or circumstance for any period prior to the Closing
(including those relating to royalties or other
amounts accrued with respect to products sold prior
to the Closing, whether payable before or after the
Closing), (C) relating to any guarantee payable
pursuant to any Assigned Contract or Mixed License
Agreement (except for those guarantees specifically
listed on Schedule 2.02(i) (the "Assumed
Guarantees"), or (D) that arises from or relates to
any Product Liability Event relating to product,
including the Purchased Products, manufactured or
sold by, or on behalf of, any Seller (whether
before or after the Closing); and
(ii) all obligations and liabilities arising
out of the ownership, use, operation and sale of
the Purchased Assets by Purchaser from and after
the Closing Date, including, without limitation,
all obligations and liabilities in connection with
Product Liability Events occurring after the
Closing Date and relating to the Purchased Products
that are manufactured and sold by or on behalf of
Purchaser after the Closing Date; provided,
however, that Purchaser shall not assume and the
Assumed Liabilities shall not include any
obligation or liability in connection with any
Product Liability Event relating to any product
(including the Purchased Products) that is
manufactured by or on behalf of any Seller and sold
to Purchaser whether before or after the Closing
Date.
SECTION 2.03 Non-Assumption of Other Liabilities.
Other than the Assumed Liabilities, Purchaser shall not
assume and shall in no event be liable for or deemed to have
assumed any claims, liabilities, damages, debts or
obligations of any Seller, whether accrued, absolute,
matured, contingent or otherwise, now existing or hereafter
arising (the "Retained Liabilities"). The Retained
Liabilities shall include, without limitation, the
following:
(i) all obligations and liabilities arising
out of the ownership, use, operation and sale of
the Purchased Assets by Sellers prior to the
Closing Date, including, without limitation, all
obligations and liabilities under the Assigned
Contracts and the Mixed License Agreements to the
extent relating to any period prior to the Closing,
whether or not any claim with respect to any of the
foregoing is asserted before or after the Closing;
(ii) all obligations and liabilities under
the Mixed License Agreements for products other
than the Purchased Products;
(iii) any obligation or liability of any
Seller with respect to guaranteed royalties or
other payments that accrued on or before the
Closing Date (other than the Assumed Guarantees)
under either the Assigned Contracts or the Mixed
License Agreements;
(iv) any Product Liability Event relating to
or arising in connection with the design,
manufacture, assembly or sale by, or on behalf of,
any Seller of any Purchased Product, whether any
claim relating thereto arises or is asserted before
or after the Closing;
(v) any violation of any Requirement of Law
by any Seller, including any such liability which
may arise in connection with agreements, contracts,
commitments or orders for the sale of goods or
services by any Seller;
(vi) any Environmental Liability relating to
any real or personal property that is or was owned,
leased or otherwise used or occupied by any Seller,
or relating to the conduct by any Seller of its
business or the manufacture, ownership, use or
operation of its businesses or assets or
properties, except that Purchaser shall be
responsible for the proper operation and disposal
of any Purchased Assets so as not to give rise to
an Environmental Liability;
(vii) any action, suit or proceeding to which
any Seller is a party, or to which any of its
assets, properties or business (including the
Purchased Assets) is subject, which is (A)
instituted on or before the Closing or (B)
instituted after the Closing and relates to facts,
acts, omissions or circumstances that existed,
occurred or arose prior to the Closing (whether or
not such action, suit or proceeding is disclosed in
any Schedule hereto);
(viii) subject to Section 11.01(b) hereof,
any Taxes incurred by or relating to any Seller
whether or not resulting from the transfer and sale
of the Purchased Assets to Purchaser hereunder;
(ix) any liability, obligation or
responsibility to any union, bargaining unit,
employee, former employee, retiree, consultant,
agent or distributor of any Seller, including any
compensation or other payments due to any such
persons by any Seller by contract or otherwise for
any reason including terminations, closure or
shutdown of any facility (whether partial or
otherwise) or the operations of any Seller whether
before or after the Closing Date; and
(x) except with respect to the Assigned
Contracts, any deduction from any receivable taken
by any Person as a result of any sales term or
commitment of any Seller.
The foregoing clauses (i) through (x) are illustrative of
the types of Retained Liabilities described in the first
sentence of this Section 2.03, and are not meant to exclude
other examples or types of Retained Liabilities. Sellers
shall retain all liability with respect to the Retained
Liabilities and shall indemnify Purchaser therefor as
provided below in Section 8.01.
SECTION 2.04 Purchase Price and Payment. (a) The
Purchased Assets shall be sold by Sellers and shall be
purchased by Purchaser for an aggregate purchase price equal
to the sum of (i) the Closing Payment, (ii) the Inventory
Advance, and (iii) any other Inventory payments that are
made in accordance with Article VII; provided that the
aggregate amount to be paid for Inventory shall not exceed
the Inventory Value (the sum of the preceding clauses (i),
(ii) and (iii) is hereinafter referred to as the "Purchase
Price"). For purposes of this Agreement, "Inventory Value"
means the value of the Inventory, calculated by multiplying
(x) the number of units of each item of Inventory that
Sellers are assigning and transferring to Purchaser pursuant
to this Agreement (provided that the number of units of such
item shall be an amount not less than 90% and not to exceed
110% of the number of units for such item set forth on
Schedule 2.01(a)(i)) times (y) the respective Cost Per Unit,
and subtracting $1,515,000.00 therefrom.
(b) The Purchase Price shall be paid by Purchaser
to Guarantor or as Guarantor may direct as agent for Sellers
as follows:
(i) on the Closing Date, Purchaser shall pay
to Sellers the sum of $88,000,000.00 (the "Closing
Payment");
(ii) on the Closing Date, Purchaser shall pay
to Sellers $6,598,925.86 (the "Inventory Advance");
and
(iii) Purchaser shall pay any additional
amounts which may be due for the Inventory that has
been accepted by Purchaser's designated common
carriers in accordance with the terms of
Article VII hereof.
(c) The Closing Payment, the Inventory Advance and
the payments for Inventory under Article VII shall be paid
by Purchaser to Sellers by wire transfer of immediately
available funds to the account or accounts that are
designated by Guarantor at least two business days prior to
the date such payment is to be made.
SECTION 2.05 Purchaser's Option With Respect to
Undelivered Assets. As additional consideration, Sellers
hereby grant to Purchaser an exclusive option (the "Option")
to acquire from Sellers after the Closing certain additional
assets as provided in Section 6.15.
ARTICLE III.
CLOSING
SECTION 3.01 Date and Place. Subject to the terms
and conditions set forth herein, the closing of the purchase
and sale of the Purchased Assets and the related
transactions described herein (the "Closing") shall take
place at the offices of Whitman Breed Abbott & Morgan, 200
Park Avenue, New York, New York 10166, at 10:00 a.m. on the
date hereof, or at such other date, place and time as the
parties hereto may agree (the date and time of the Closing
being hereinafter called the "Closing Date").
SECTION 3.02 Deliveries by Sellers at Closing. At
the Closing, Sellers shall deliver or cause to be delivered
to Purchaser the instruments specified in Section 9.01 and
all other documents and instruments necessary or reasonably
requested by Purchaser, to transfer to and to vest in
Purchaser all of the right, title and interest in and to the
Purchased Assets to the extent provided in Section 2.01, and
all such documents and instruments shall be in form and
substance reasonably satisfactory to Purchaser, including,
without limitation:
(a) certified resolutions of the Board of
Directors of Sellers and Guarantor which evidence the
authority of Sellers and Guarantor to execute and deliver
this Agreement and perform their respective obligations
hereunder;
(b) releases by the creditors of Sellers or other
holders of Encumbrances of all Encumbrances on the Purchased
Assets;
(c) a Bill of Sale, Assignment and Assumption
Agreement transferring to Purchaser all right, title and
interest in the Purchased Assets;
(d) all consents to assignments of Sellers' rights
under the Assigned Contracts and all of Sellers' rights
under the Mixed License Agreements with respect to the
Purchased Products as may be required from appropriate third
parties, in each case, in form and substance reasonably
satisfactory to Purchaser's counsel;
(e) assignments from Sellers assigning to
Purchaser all of Sellers' right, title and interest in
trademarks, patents and copyrights in form and substance
reasonably satisfactory to Purchaser's counsel;
(f) the Sellers-to-Purchaser Short-Term Trademark
License Agreement and the Sellers-to-Purchaser Long-Term
License Agreement, each duly executed by Sellers;
(g) a schedule setting forth a true, correct and
complete statement of the quantities of each type of
Purchased Product on hand as of a date not more than ten
days prior to the Closing Date (the "Closing Inventory
Estimate"); and
(h) such other documents, certificates and
instruments as may be reasonably requested by Purchaser in
connection with the transactions contemplated hereby.
SECTION 3.03 Post-Closing Deliveries by Sellers.
(a) Sellers shall deliver or cause to be delivered
to Purchaser the executed originals of the Assigned
Contracts within five days following the Closing Date.
(b) Sellers shall deliver the Purchased Products
Records as reasonably requested by Purchaser and in any
event by December 1, 1994.
(c) Sellers shall deliver within four days
following the Closing Date a final statement (the "Closing
Inventory Statement") setting forth the amount of each item
of Inventory on hand as of the Closing Date, together with a
complete listing of the locations thereof.
(d) Sellers shall deliver promptly following the
Closing Date the WP Return List.
(e) Sellers shall deliver or cause to be delivered
to Purchaser all Undelivered Assets as provided in Section
6.15 as well as any documents or instruments necessary or
reasonably requested by Purchaser to transfer to and vest in
Purchaser all right, title and interest in the Undelivered
Assets, and all such documents and instruments shall be in
form and substance reasonably satisfactory to Purchaser.
SECTION 3.04 Deliveries by Purchaser at Closing.
At the Closing, Purchaser shall deliver to Sellers the
instruments specified in Section 9.02 and:
(a) evidence of Purchaser's authority to execute,
deliver and perform this Agreement;
(b) the Bill of Sale, Assignment and Assumption
Agreement, duly executed by Purchaser;
(c) the Sellers-to-Purchaser Short-Term Trademark
License Agreement and the Sellers-to-Purchaser Long-Term
License Agreement, each duly executed by Purchaser; and
(d) such other documents, certificates and
instruments as may be reasonably requested by Sellers in
connection with the transaction contemplated hereby.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF SELLERS
In order to induce Purchaser to enter into this
Agreement and to consummate the transactions contemplated
hereby, each Seller, jointly and severally with each other
Seller, represents and warrants as follows in this
Article IV:
SECTION 4.01 Corporate Existence and Authority;
Authorization; Absence of Conflict. (a) Each Seller is a
corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of
incorporation. Each Seller has all requisite corporate
power and authority to execute, deliver and perform its
obligations under this Agreement and all other agreements,
documents and instruments to be delivered by it in
connection herewith.
(b) The execution, delivery and performance by
each Seller of this Agreement and consummation of the
transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of such Seller
and do not violate, conflict with, contravene or constitute
(with or without notice or lapse of time or both) a default
under any provision of its certificate of incorporation or
by-laws, any applicable law or regulation or any judgment,
order, decree, permit or other Requirement of Law that is
binding upon it or any of its properties.
(c) Except as set forth on Schedule 4.01, the
execution, delivery and performance by each Seller of this
Agreement and consummation of the transactions contemplated
hereby (including the purchase and sale of the Purchased
Assets) does not violate or conflict with and will not
result in a breach of any agreement that is binding on any
Seller or to which any Seller may be party or be bound and
that relates to or affects any Purchased Asset or the
transactions contemplated hereby. Schedule 4.01 sets forth
a complete list of all Required Consents.
(d) Except for applicable requirements of the
H-S-R Act which have already been fulfilled, and except for
notices already given, the execution, delivery and
performance by each Seller of this Agreement requires no
action by, or with respect to, or filing with, or notice to,
any governmental body, agency or official.
(e) This Agreement is a valid and binding
agreement of each Seller, enforceable against such Seller in
accordance with its terms, except to the extent that
enforceability may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting
creditors' rights generally and (ii) equitable principles of
general applicability.
SECTION 4.02 Patents, Trademarks and Other Rights.
(a) The manufacture and sale of the Purchased
Products within the last ten (10) years, has not infringed
upon or violated the patents, trademarks, trade names,
service marks, trade secrets, copyrights or other
intellectual property rights (collectively, "Intellectual
Property Rights") of any Person. There is no claim or
demand of any Person pending, or to the knowledge of Sellers
threatened, which challenges the right of any Seller to use
the Assigned Rights or rights granted to any Seller under
the Assigned Contracts or the Mixed License Agreements (to
the extent they relate to the Purchased Products) or rights
granted under the Sellers-to-Purchaser Short-Term Trademark
License Agreement and the Sellers-to-Purchaser Long-Term
License Agreement or charges that any of Purchased Assets or
the manufacture, marketing or sale of the Purchased Products
infringes upon the Intellectual Property Rights of others
and no basis exists for any such claim or demand.
(b) None of the Assigned Rights or rights granted
by the Assigned Contracts or the Mixed License Agreements
(to the extent relating to the Purchased Products), or the
Sellers-to-Purchaser Short-Term Trademark License Agreement
or the Sellers-to-Purchaser Long-Term License Agreement are
being infringed by others.
(c) The rights of Sellers to the Assigned Rights,
the Assigned Contracts and the Mixed License Agreements (to
the extent relating to the Purchased Products), together
with rights granted by Sellers under the Sellers-to-
Purchaser Short-Term Trademark License Agreement and the
Sellers-to-Purchaser Long-Term License Agreement constitute
all Intellectual Property Rights necessary to manufacture,
sell and distribute the Purchased Products and to own and
operate the Purchased Assets as now owned and operated.
SECTION 4.03 Molds. On the Closing Date, the
Molds shall be in good and working condition, reasonable
wear and tear excepted, and suitable and usable in the
ordinary course of business for the purpose for which
intended. To the best of Sellers' knowledge, the condition
of each Mold in Sellers' possession is of sufficient quality
to produce those Purchased Products specified on Schedule
2.01 on a basis equal to or in excess of Sellers' quality
control standards in effect as of April 7, 1994. No molds,
tools or dies (and, to the best of Sellers' knowledge, jigs,
assembly, line and test fixtures other than equipment which
is commonly considered to be part of a general assembly line
used to manufacture games and puzzles) which are dedicated
only to the manufacture and assembly of the Purchased
Products are owned by any Person other than Sellers except
as otherwise set forth in Schedule 4.03. All film, artwork
and color reproductions used in the production of the
Purchased Products are either owned by Sellers or licensed
by Sellers under one or more of the documents described on
Schedule 2.01(a)(iv) or Schedule 2.01(a)(v). The Molds and
the items referred to in the two preceding sentences
constitute all of the molds, tools, dies and film, artwork
and color reproductions (including jigs, assembly, line and
test fixtures other than equipment which is commonly
considered to be part of a general assembly line used to
manufacture games and puzzles) which are dedicated only to
the manufacture and assembly of the Purchased Products.
SECTION 4.04 Purchased Assets Not in the
Possession of Seller. Schedule 4.04 also sets forth a
complete list of all Inventory and Molds which are in the
possession of any vendors, suppliers, employees and other
Persons other than a Seller. Schedule 4.04 also includes an
accurate description of any such Inventory and Molds
sufficient to identify such Purchased Assets to Purchaser,
the names, addresses and telephone numbers of the Persons in
possession of any such Inventory and Molds, the addresses
where any such Inventory and Molds are located and any
consents required by any such Person for the transfer of any
such Inventory and Molds.
SECTION 4.05 Assigned Contracts. (a) Sellers
have delivered to Purchaser true and complete copies of all
Assigned Contracts (including all License Agreements) and
Mixed License Agreements now in effect and all amendments
and other agreements relating thereto. No default, alleged
default or anticipatory breach exists on the part of any
Seller or, to the best knowledge of any Seller, on the part
of any other party, under any Assigned Contract, and there
are no material agreements of the parties relating to any
Assigned Contract that has not been disclosed to Purchaser.
No Seller is a party to any written or oral contract or
commitment which could materially adversely affect the
Purchased Assets or the manufacture and sale of the
Purchased Products.
(b) There is no agreement, understanding,
commitment or other arrangement relating to the Purchased
Assets or the manufacture and sale of the Purchased Products
which is material to the Purchased Assets or the manufacture
and sale of the Purchased Products, other than the Assigned
Contracts, the Mixed License Agreements, the Sellers-to-
Purchaser Short-Term Trademark License Agreement and the
Sellers-to-Purchaser Long-Term License Agreement.
SECTION 4.06 Legal Proceedings. (a) Except as
set forth on Schedule 4.06, there is no claim, action, suit,
inquiry, investigation or proceeding pending or, to any
Seller's knowledge, threatened, against any Seller or any
affiliate of any Seller before any court or governmental
body, United States or foreign authority, which (i) could
create a claim or Encumbrance on any Purchased Asset or
could constitute a liability of Purchaser after the Closing
Date or (ii) separately or in the aggregate, could have a
material adverse effect on the Purchased Assets or the
ownership, use, control, operation or sale of any of the
Purchased Assets by Purchaser for their intended purposes or
(iii), if adversely determined, would have a material
adverse effect on or otherwise impair any Seller's ability
to perform its obligations under this Agreement. Except as
set forth on Schedule 4.06, there are no outstanding orders,
judgments, injunctions, awards or decrees of any court,
governmental or regulatory body or arbitration tribunal
against, or settlement agreements by, any Seller and
relating to, or affecting the ownership, use, operation or
sale of, any Purchased Asset.
(b) Without limiting the generality of the
foregoing, no Seller has received notice or is otherwise
aware of any claim, action, suit or proceeding relating to
any Product Liability Event. Except as set forth on
Schedule 4.06, there is no claim, suit, action, or
proceeding by any Person that alleges the breach by any
Seller of any Assigned Contract or any Mixed License
Agreement to the extent relating to the Purchased Products,
and there is no request by any Person to renegotiate any
term of any Assigned Contract or any Mixed License
Agreement. There is no claim, suit, action or proceeding by
any Seller against any Person relating to or arising in
connection with any Assigned Contract, any Mixed License
Agreement, or any of the Purchased Assets.
SECTION 4.07 Compliance with Law. (a) Except as
set forth on Schedule 4.07(B), each Seller is in compliance
with all Requirements of Law applicable to the ownership,
use, operation or sale of the Purchased Assets and the
manufacture, marketing and sale of the Purchased Products,
including laws, rules and regulations relating to the
protection of the environment or to health and safety,
except to the extent that any failure to so comply,
individually and in the aggregate, does not and will not
have a material adverse effect on the Purchased Assets or
the manufacture and sale of the Purchased Products. No
Seller has received any notice of violation (and there is no
pending audit, investigation or other review by governmental
authorities to determine the existence of any violation) of
applicable laws or governmental regulations which would have
an adverse effect on the manufacture, sale, use, operation
or control of the Purchased Assets for their intended
purposes.
(b) Sellers have furnished to Purchaser copies of
all letters listed in Schedule 4.07(B) and such letters
constitute all of the letters from the Consumer Products
Safety Commission (the "CPSC") to any Seller within the last
ten (10) years relating to the Purchased Assets or the
manufacture and sale of the Purchased Products. Neither the
CPSC nor any other governmental body or authority has made
any, and no Seller knows of any basis for any, determination
to recall, or other adverse determination with respect to,
any Purchased Product and there is no design, manufacturing
or other defect in any of the Purchased Products or the
Purchased Assets that could result in any material liability
to Sellers or, after the Closing, the Purchaser.
SECTION 4.08 Compliance with Bulk Sales Laws.
The sale, transfer and assignment by Sellers to Purchaser
hereunder and the consummation of the other transactions
contemplated hereby do not constitute a "bulk sale" for
purposes of Article VI of the Uniform Commercial Code (the
"Bulk Sales Laws") by any Seller, and it is not necessary
under the laws of any jurisdiction that any Seller comply
with the Bulk Sales Laws of such jurisdiction.
SECTION 4.09 Disclosure; Representations and
Warranties. Sellers' responses to Purchaser's requests for
information, documents, contracts and records of Sellers
relating to the Purchased Assets were, at the times such
responses were made, true and complete to the best of
Sellers' knowledge. Neither this Agreement, including any
Schedule or Exhibit hereto, nor any statement, certificate,
writing or document furnished to Purchaser by a Seller under
this Agreement contains, as of the dates of such documents,
any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained
therein not misleading. Except as set forth in this
Agreement or in a Schedule hereto, no fact with respect to
the Purchased Assets is known to any Seller which materially
and adversely affects the Purchased Assets or the
manufacture and sale of the Purchased Products in the
aggregate.
SECTION 4.10 Finders or Brokers. No Seller has
utilized the services of any investment banker, broker,
finder or intermediary in connection with the transactions
contemplated hereby who might be entitled to a fee or
commission in connection with this Agreement or upon
consummation of the transactions contemplated hereby.
SECTION 4.11 Accuracy of Sales Reports. The sales
reports of Sellers set forth in Schedule 4.11 are true and
complete in all respects.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
In order to induce Sellers to enter into this
Agreement and to consummate the transactions contemplated
hereby, Purchaser represents and warrants as follows in this
Article V:
SECTION 5.01 Corporate Existence; Authority.
Purchaser is a corporation duly organized, validly existing
and in good standing under the laws of the State of Rhode
Island. Purchaser has all requisite corporate power and
authority to execute, deliver and perform its obligations
under this Agreement and all other agreements, documents and
instruments to be delivered by it in connection herewith.
SECTION 5.02 Authorization; Absence of Conflict.
The execution, delivery and performance of this Agreement by
Purchaser and consummation of the transactions contemplated
hereby and thereby have been duly authorized by all
necessary corporate action on the part of Purchaser, and do
not and will not contravene or constitute a default under
any provision of the charter documents or by-laws of
Purchaser or of applicable law or regulation or of any
agreement, judgment, injunction, order, decree or other
instrument binding upon Purchaser or its properties. Except
for applicable requirements of the H-S-R Act which have
already been fulfilled, the execution, delivery and
performance by Purchaser of this Agreement require no action
by, or filing with, or notice to, any governmental body,
agency or official. This Agreement constitutes the valid
and binding agreement of Purchaser, enforceable against
Purchaser in accordance with its terms, except to the extent
that enforceability may be limited by (a) bankruptcy,
insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally and (b) equitable
principles of general applicability.
SECTION 5.03 Finders or Brokers. Purchaser has
not utilized the services of any investment banker, broker,
finder or intermediary in connection with the transactions
contemplated hereby who might be entitled to a fee or
commission in connection with this Agreement or upon
consummation of the transactions contemplated hereby.
SECTION 5.04 Adequacy of Resources. As of the
Closing Date, Purchaser will have funds and access to lines
of credit or other sources of funds which, in the aggregate,
will be adequate to enable Purchaser to perform its
obligations under this Agreement.
ARTICLE VI.
CERTAIN COVENANTS OF SELLERS AND PURCHASER
SECTION 6.01 Access and Information. Each Seller
will afford Purchaser and its accountants, counsel and other
representatives and financing institutions access to all of
the Purchased Assets at each of the locations where the
Purchased Assets are situated and all of Sellers' business
records relating thereto, upon reasonable notice during
normal business hours throughout the period from the date
hereof until the Closing, and during such period, Seller
will (or will cause its representatives to) furnish to
Purchaser and its accountants, counsel, other represent-
atives and financing institutions all such other information
concerning the Purchased Assets as Purchaser may reasonably
request.
SECTION 6.02 Conduct Pending Closing; Certain
Covenants of Sellers. Each Seller covenants and agrees
that, prior to the earlier of the Closing or termination of
this Agreement, except as otherwise agreed to in writing by
Purchaser or otherwise expressly contemplated by this
Agreement:
(i) Each Seller will maintain, preserve and
insure the Purchased Assets in a manner consistent
with such Seller's past practices and, subject to
the other provisions of this Agreement, use its
best efforts to maintain existing customer and
distribution relationships concerning such
Purchased Assets;
(ii) Each Seller shall conduct its business
operations that involve the Purchased Assets only
in the ordinary course;
(iii) Sellers shall not enter into, amend, or
undertake any contract or obligation concerning or
affecting the Purchased Assets without the prior
consent of Purchaser;
(iv) from the date hereof through the Closing
Date, Sellers shall notify Purchaser promptly of
(A) any action or proceeding pending or threatened
against any Seller which could impair its ability
to perform its obligations under this Agreement or
could affect the Purchased Assets or the
manufacture and sale of the Purchased Products and
(B) any requests for additional information or
documentary materials by any governmental or
regulatory body in connection with the transactions
contemplated hereby;
(v) No Seller shall obtain a refund or
repayment of any prepayments, advances or deposits
made by it relating to the Purchased Assets or the
manufacture and sale of Purchased Products nor
shall any Seller refund or repay any prepayments,
advances or deposits made to it relating to the
Purchased Assets or the manufacture and sale of the
Purchased Products; and
(vi) Each Seller will use its best efforts to
assure that all Closing conditions to be satisfied
by it are satisfied as expeditiously as possible.
SECTION 6.03 Confidentiality. Purchaser and
Sellers hereby acknowledge and agree that the certain letter
agreement between Guarantor and Purchaser dated December 6,
1993 (the "Confidentiality Agreement") is currently in
effect and the provisions of such Confidentiality Agreement
shall continue to be in effect and govern the treatment of
confidential information following the Closing. Sellers
agree to be bound by the Confidentiality Agreement and the
obligations of Guarantor under the Confidentiality Agreement
shall be the obligations of Sellers. Sellers further agree
not to (i) divulge, publish or otherwise reveal to any
person, firm, corporation or other entity for any reason or
purpose whatsoever, any confidential information related to
the Purchased Assets (including the Purchased Products
Records) or the manufacture and sale of the Purchased
Products as of the Closing Date; or (ii) interfere with,
disrupt or attempt to disrupt any past, present or
prospective contractual or other relationship between
Purchaser and any of the customers, suppliers, or employees
of Purchaser, as the same relate to the Purchased Assets
and/or the manufacture and sale of the Purchased Products.
SECTION 6.04 H-S-R Act. Purchaser and Sellers
have each filed a Notification and Report Form pursuant to
the H-S-R Act with respect to the acquisition of the
Purchased Assets by Purchaser, with the Antitrust Division
of the Department of Justice and the Bureau of Competition
of the Federal Trade Commission and the waiting period
thereunder has expired.
SECTION 6.05 Updating Representations and
Warranties. Between the date of this Agreement and the
Closing Date:
(a) Sellers shall notify Purchaser promptly of any
state of facts, event, circumstance, action or proceeding
that would have been required to be disclosed in a Schedule
hereto or would have been an exception to a representation
or warranty of Sellers herein if it occurred or existed
prior to the date hereof, or would otherwise result in the
inaccuracy of any representation or the breach of any
warranty; and any such notice shall describe such
inaccuracy, state of facts, event, circumstance, action or
proceeding in reasonable detail; and
(b) Purchaser shall notify Sellers promptly of any
state of facts, event, circumstance, action or proceeding
that would have been required to be disclosed in a Schedule
hereto or would have been an exception to a representation
or warranty of Purchaser herein if it occurred or existed
prior to the date hereof, or would otherwise result in the
inaccuracy of any representation or the breach of any
warranty; and any such notice shall describe such
inaccuracy, state of facts, event, circumstance, action or
proceeding in reasonable detail.
SECTION 6.06 Preservation of Rights and
Commitments. From the date hereof through the Closing Date,
Sellers shall not permit, through action or inaction, any
ownership or other rights in or to the Purchased Assets to
lapse or become void or unenforceable, if such lapse,
voidability or unenforceability of such rights would have a
material adverse effect on the Purchased Assets, on
Purchaser's right or ability to own, use, operate or sell
any Purchased Asset or Purchaser's ability to use or operate
the Purchased Assets substantially in the same manner as
heretofore conducted by Sellers.
SECTION 6.07 Pre-Closing Covenants of Purchaser.
Purchaser agrees to:
(a) use its best efforts to obtain, prior to the
Closing Date, all consents, approvals and authorizations
required to be obtained by Purchaser for the consummation of
the transactions contemplated by this Agreement; and
(b) use its best efforts to assure that all
Closing conditions to be satisfied by Purchaser are
satisfied as expeditiously as possible.
SECTION 6.08 Maintenance of Records. (a) Sellers
shall be entitled to make and keep copies of Purchased
Products Records, and any records delivered pursuant to the
Option, prior to their delivery to Purchaser hereunder.
Purchaser shall keep and maintain all Purchased Products
Records and any other records which are delivered to
Purchaser, for a period of six years after the Closing Date
(or for a longer period reasonably requested by Sellers);
provided, that Purchaser may destroy or otherwise dispose of
any such records prior to such date if Purchaser furnishes
Sellers with 30 days notice thereof and affords Sellers the
opportunity to take possession thereof; provided further,
that if Sellers receive such a notice from Purchaser and
thereafter deliver to Purchaser notice that Sellers desire
to take possession of such records proposed for destruction
or disposition, then Purchaser shall deliver such records to
Sellers, at Sellers' expense.
(b) Upon request made by any Seller to Purchaser
after the Closing Date, Purchaser shall make such Purchased
Products Records and any other records which are delivered
to Purchaser hereunder available to such Seller for
inspection and copying at Purchaser's facilities (or at such
other locations at which such records may be located), at
such Seller's expense, during regular business hours, in
order to permit such Seller to:
(i) prepare for, dispute or respond to, any
litigation, action, claim or proceeding, including,
without limitation, audits in connection with Tax
returns;
(ii) comply with governmental requirements
applicable to such Seller; and
(iii) prepare for any dispute or respond to
any inquiry, request, notice or other communication
from any licensor under any of the Assigned
Contracts or the Mixed License Agreements.
provided, however, that any such inspection pursuant to this
Section shall be conducted in such a manner so as not to
unreasonably interfere with the normal conduct of business
by Purchaser.
SECTION 6.09 Product Returns. Promptly following
the Closing, Sellers shall provide Purchaser with a list of
all Purchased Products which were (a) shipped and sold by or
on behalf of any Seller prior to the Closing Date and as to
which any Seller has authorized a return, and (b) not
returned to Sellers on or prior to the Closing Date (the "WP
Return List"). Any Purchased Products which are returned
within sixty (60) days following the Closing Date and which
cannot be otherwise identified as part of a shipment of any
Seller or Purchaser, will be presumed to be solely for the
account of Sellers and any credits or deductions taken by
customers in connection therewith shall be solely for the
account of Sellers. Any Purchased Products which are
returned after sixty (60) days following the Closing Date
and which cannot be otherwise identified as part of a
shipment of any Seller or Purchaser, will be presumed to be
solely for the account of Purchaser and any credits or
deductions taken by customers in connection therewith shall
be solely for the account of Purchaser. Purchaser shall
purchase any such returned Purchased Products which are for
the account of Sellers at a purchase price equal to the Cost
Per Unit for such items; provided, however, that such
returned Purchased Products are in good and merchantable
condition and otherwise salable in the ordinary course of
business. Any returned Purchased Products that are for the
account of Sellers and that are not in good and merchantable
condition and otherwise salable in the ordinary course of
business shall be destroyed by Sellers.
SECTION 6.10 Post-Closing Obligations. (a)
Seller shall afford Purchaser the right to perform a quality
audit of the Inventory described in the Closing Inventory
Statement at each of the locations where the Inventory is
located.
(b) Each party shall use reasonable efforts to
forward promptly to the other any misdirected payments it
may receive after the Closing.
(c) Purchaser agrees to pay to Sellers on
September 10, 1994, an amount equal to $75,000 in regard to
reimbursement of an advance paid by Sellers pursuant to the
agreement identified as item 3 on Schedule 2.01(a)(v)(II)
less an amount equal to eight percent (8%) of the net
shipments of the Purchased Products that Sellers have made
to Shopko in calendar year 1994 through the Closing Date
("Sellers' 1994 Shopko Shipments"). Sellers shall provide
Purchaser promptly after the Closing Date with a certificate
setting forth the actual amount of Sellers' 1994 Shopko
Shipments.
SECTION 6.11 Tax Matters. The Purchase Price,
together with the Assumed Liabilities, shall be allocated
among such Purchased Assets as set forth in a Schedule that
shall be prepared and agreed upon by the parties prior to or
after the Closing, but, in any event, prior to the date that
Purchaser's Federal income tax return for its 1994 fiscal
year shall be required to be filed (the "Tax Allocation
Schedule"), which will include, among other things, an
allocation between Sellers. Sellers, on the one hand, and
Purchaser, on the other hand, acknowledge and agree that,
when prepared and agreed upon by Sellers and Purchaser, such
allocation shall have been determined in accordance with the
fair market value of the properties and in arm's length
negotiations. All Federal, state and other tax returns
prepared by Sellers or Purchaser shall be prepared on a
basis consistent therewith, and no party shall voluntarily
take any position inconsistent therewith upon examination of
any such tax return, in any claim, in any tax litigation or
otherwise with respect to such tax returns; provided,
however, that such party may file a protective claim (by way
of an amended return or otherwise) if, in connection with
any examination of a tax return of a party other than the
filing party, an adjustment to such allocation is proposed
by any taxing authority which, if sustained, would entitle
the non-filing party to take a different position for tax
purposes than that agreed to herein. The parties shall
cooperate in good faith in the preparation of any required
returns or reports under the Code and any Canadian federal
or provincial Tax statutes reflecting the foregoing.
SECTION 6.12 Certain Obligations Relating to
Inventory, Molds and Other Items.
(a) Without limiting Sellers' obligations under
Section 6.02 with respect to the operations of the Purchased
Assets in the ordinary course between the date of this
Agreement and the Closing, Sellers shall not sell any
Purchased Products at other than the usual discount or
otherwise dispose of such Purchased Products, except in the
ordinary course of Sellers' business as conducted prior to
the date hereof and in accordance with agreements as in
effect on the date hereof.
(b) Sellers shall, promptly after the Closing,
destroy all of the finished goods inventory and work in
process inventory of the items set forth on Schedule
6.12(b). Promptly after the termination of the
manufacturing and supply arrangement described in Article
VII and no later than December 15, 1994, Sellers shall
destroy all finished goods inventory and work in process of
items set forth in Schedule 2.01(a)(i) that are not
purchased by Purchaser whether because the inventory
produced is in excess of the amounts set forth in Schedule
2.01(a)(i) or the inventory is not in good and merchantable
condition. Each Seller shall provide Purchaser with a
certificate of the President of Seller which certifies that
such finished goods inventory and work in process have been
destroyed.
(c) Sellers shall cancel and terminate, or cause
to be canceled and terminated, effective as of the Closing
Date, the portion of any purchase orders from customers that
relates to the Purchased Products.
(d) After the Closing and upon Purchaser's
request, Sellers shall deliver or cause to be delivered any
of the Molds that are located in the United States to
Purchaser's manufacturing facility in East Longmeadow,
Massachusetts or to other facilities of Purchaser in the
United States. Purchaser, on the one hand, and Sellers, on
the other hand, shall each pay half of the costs incurred in
connection with the delivery of such Molds to Purchaser's
manufacturing facility in East Longmeadow, Massachusetts or
to other facilities of Purchaser in the United States.
SECTION 6.13 Delivery of Purchased Product
Records. Sellers shall be responsible at their own expense
to deliver all of the Purchased Products Records to
Purchaser's manufacturing facility in East Longmeadow,
Massachusetts or to such other facility of Purchaser as
Purchaser may reasonably direct or partially to East
Longmeadow, Massachusetts and partially to such other of
Purchaser's facilities as Purchaser shall reasonably direct.
SECTION 6.14 Delivery of the Inventory. Within
ten (10) days following the receipt by Purchaser of the
Closing Inventory Statement, Sellers and Purchaser shall
calculate the aggregate amount of freight charges which
would have been incurred in the event that all of the
Inventory (assuming that (i) all of the items of Inventory
in the amounts set forth in the Closing Inventory Statement
were delivered to common carriers designated by Purchaser
and (ii) the permitted 90% - 110% range described in
Section 2.01(a)(i) did not apply) had been shipped to
Purchaser's facility at East Longmeadow, Massachusetts on
the Closing Date (the "Freight Charge"). Purchaser shall be
entitled to a credit against the Purchase Price in an amount
which is equal to fifty-percent (50%) of the Freight Charge.
SECTION 6.15 Purchaser's Rights with Respect to
Undelivered Assets. (a) From and after the Closing Date
and until the sixth anniversary of the Closing Date,
Purchaser may deliver to Sellers a notice ("Option Notice"),
specifying a date (an "Option Closing Date") not less than
thirty (30) days after the date of the Option Notice upon
which Sellers shall transfer, assign, convey and deliver to
Purchaser the Undelivered Assets of Sellers (the "Option
Closing") for (i) any products set forth in Schedule 6.15
(the "Current Retained Products") and (ii) any games and
puzzles which were previously but are not as of the date of
this Agreement manufactured or sold by Sellers and which are
in Sellers' archive (the "Archived Games and Puzzles").
(b) For purposes of the Option and this Section
6.15, the following assets and properties of Sellers are the
"Undelivered Assets" but only to the extent that any such
assets and properties exist and are in Sellers' possession
or control on any Option Closing Date:
(i) all right, title and interest of Sellers,
if any, under license agreements (including any
master, mixed or combined license agreements)
relating to the manufacture, marketing and sale of
the Current Retained Products and the Archived
Games and Puzzles (the "Section 6.15 Licenses"),
including rights to the prepaid expenses thereto
along the lines of Section 2.01(a)(vii);
(ii) all finished goods inventory, if any, of
Sellers that relates to the Current Retained
Products, at Sellers' actual cost calculated on a
basis comparable to the Cost Per Unit calculation
or the Archived Games and Puzzles;
(iii) all molds, tools, dies and film,
artwork and color reproductions (including jigs,
assembly, line and test fixtures other than
equipment which is commonly considered to be part
of a general assembly line used to manufacture
games and puzzles) which, in each case, are
dedicated only to the manufacture and assembly of
the Current Retained Products and the Archived
Games and Puzzles;
(iv) all right, title and interest of Sellers
with respect to any Intellectual Property Rights
pertaining to the Current Retained Products and the
Archived Games and Puzzles, except to the extent
that the Intellectual Property Rights are owned by
Sellers and extend beyond the games and puzzles
businesses; and
(v) all records of the kind described in
Section 2.01(a)(vi), for the Current Retained
Products and the Archived Games and Puzzles.
(c) In connection with each Option Closing,
Sellers hereby agree:
(i) to seek any necessary third-party
consents upon terms substantially similar to those
agreed by Sellers and Purchaser in connection with
the transfer of the Purchased Assets, or as
otherwise reasonably agreed by Purchaser and
Sellers;
(ii) to make disclosures, representations and
warranties comparable to those set forth in Article
IV hereof and Section 7.09; provided, however, that
all such representations and warranties shall be
updated as to the then existing knowledge of
Sellers as of such Option Closing Date and provided
further that in regard to Section 4.07, no
representations and warranties shall be made with
respect to Archived Games and Puzzles and the
representations and warranties with respect to
Current Retained Products shall be made as of the
Closing Date;
(iii) to execute and deliver to Purchaser
such assignments, conveyances, documents and
instruments and to take any other action reasonably
requested by Purchaser to effect transfer to
Purchaser of Sellers' rights in the Undelivered
Assets to be transferred at such Option Closing;
(iv) to the extent that the Intellectual
Property Rights are owned by Sellers and extend
beyond the games and puzzles businesses, to license
such rights to Purchaser under terms substantially
similar to those of the Sellers-to-Purchaser Short-
Term Trademark License Agreement and the Sellers-
to-Purchaser Long-Term License Agreement; and
(v) to indemnify Purchaser upon substantially
the same terms as set forth in Article VIII hereof
with respect to the Undelivered Assets sold,
assigned, transferred and delivered, or licensed,
at such Option Closing.
(d) In connection with any Option Closing, Sellers
shall disclose to Purchaser any liabilities of Sellers
required to be assumed by Purchaser at such Option Closing
in order to put Purchaser in the position of Sellers. If,
after such disclosure has been made, Purchaser determines to
proceed to such Option Closing, Purchaser shall assume all
such liabilities, except for Product Liability Events for
products that are sold or manufactured by Sellers prior to
the Option Closing.
(e) Sellers shall not be required to maintain any
of the Section 6.15 Licenses in full force and effect, or to
manufacture, distribute or sell any of the Current Retained
Products or the Archived Games and Puzzles, or other
property subject to the Option, and Sellers shall have no
liability hereunder to Purchaser if any of the Section 6.15
Licenses shall lapse or terminate, or any of the Undelivered
Assets shall become lost, damaged or destroyed prior to
exercise of the Option; provided, however, that Sellers
shall not intentionally transfer or destroy any of the
Undelivered Assets without notifying Purchaser in writing
and Purchaser shall, for a period not to exceed 10 business
days following the date of such notice, have the right to
exercise the Option with respect to such Undelivered Assets;
provided, further, that Sellers shall have the right during
the period from the Closing Date until the first anniversary
thereof to transfer Current Retained Products in the
ordinary course of business, including routine sales of
large lots at heavily discounted prices.
(f) From the first anniversary of the Closing Date
until the sixth anniversary thereof, Sellers agree to notify
Purchaser of any serious business discussion of Sellers
regarding the sale, transfer and assignment to any Third
Party of the Undelivered Assets with respect to any of the
Current Retained Products and Purchaser shall, for a period
not to exceed 10 business days following the date of such
notice, have the right to exercise the Option with respect
to such Undelivered Assets.
SECTION 6.16 Further Assurances.
(a) Sellers shall cooperate in an orderly transfer
of the Purchased Assets to Purchaser. At or after the
Closing Date, each Seller shall execute, acknowledge and
deliver to Purchaser any deeds, assignments, conveyances and
other assurances, documents and instruments reasonably
requested by Purchaser, and will take any other action that
may be reasonably requested by Purchaser, for the purpose of
assigning, transferring, granting, conveying and confirming
to Purchaser, or reducing to possession, any or all of the
Purchased Assets or otherwise to effect the purposes and
intent of this Agreement.
(b) In the event that Purchaser identifies any
information, documents, materials or items related to the
Purchased Assets which it considers necessary or appropriate
to facilitate Purchaser's operation of the Purchased Assets
Sellers shall use their best efforts promptly to locate
such information, documents, materials or other items and
deliver the same to Purchaser. Following the Closing,
Sellers shall, as promptly as practicable, forward to
Purchaser any telephone calls, orders, notices, requests,
inquiries and other communications relating to the Purchased
Assets that they or their affiliates may receive.
(c) At or after the Closing Date, Purchaser shall
execute, acknowledge and deliver to Sellers any deeds,
assignments, conveyances and other assurances, documents and
instruments reasonably requested by Sellers, and will take
any other action that may be reasonably requested by
Sellers, for the purpose of the assumption by Purchaser of
the Assumed Liabilities or otherwise to effect the purposes
and intent of this Agreement.
ARTICLE VII.
MANUFACTURING AND SUPPLY AGREEMENT
SECTION 7.01 Agreement to Manufacture and Supply.
Sellers hereby agree, from and after the Closing (i) until
November 1, 1994, to manufacture, and (ii) until
November 15, 1994, to package, and make available for
shipment, such Purchased Products as are included in the
Inventory. Sellers shall be responsible for providing
sufficient plant facilities, raw materials, supplies, labor
and equipment and maintaining any vendor relationships which
may be necessary or advisable in order to satisfy their
obligations under the terms of this Article VII. All
Purchased Products shall be packaged by Sellers at Sellers'
expense in standard master cartons.
SECTION 7.02 Order. Promptly following the
delivery of the Closing Inventory Statement by Sellers but
in no event later than August 19, 1994, Purchaser shall
deliver to Sellers an order for at least the difference (the
"Difference") between the number of units of each item of
Inventory set forth in the Closing Inventory Statement and
the corresponding number of units of such item of Inventory
set forth on Schedule 2.01(a)(i) (the "Order") and Sellers
shall make a good faith effort to manufacture no more than
the amounts of Inventory set forth in the Order; provided,
however, that delivery of the Order shall not affect the
rights and obligations of Purchaser, on the one hand, and
Sellers, on the other hand, to purchase and sell the amounts
of Inventory required to be purchased and sold pursuant to
Section 2.01. Purchaser agrees that any part of the Order
for more than the Difference for any item shall be subject
to Sellers' reasonable ability to manufacture said item at
no incremental cost above the Cost Per Unit using reasonable
lead times.
SECTION 7.03 Prices of Manufactured Products. The
purchase price for each Purchased Product described in the
Order shall be the Cost Per Unit for such Purchased Product.
SECTION 7.04 Purchaser's Instructions. (a)
Purchaser shall from time to time instruct Sellers to have
Purchased Products ready for pickup by submitting written
instructions to Sellers four days prior to the pickup date.
Each such written request shall specify the number of each
Purchased Product to be shipped, Sellers' locations where
the products will be picked up, the scheduled pickup date
and Purchaser's designated common carrier. Purchaser shall
designate the common carriers to be used for all shipments
of Purchased Products and Purchaser shall be responsible for
all freight charges incurred in connection with such
deliveries. Each of Purchaser's designated common carriers
shall use the "count and load" method of shipping whereby
the common carrier shall assume responsibility for risk of
loss and any discrepancies between the bill of lading and
the products actually delivered. Sellers have indicated to
Purchaser that they would like the Inventory which is
currently located outside of Fayetteville, North Carolina to
be used first. Purchaser agrees that it will use the
Inventory located outside of Fayetteville, North Carolina
(the "Outside Locations") for shipments to Purchaser's
customers before using the Inventory located in
Fayetteville, North Carolina provided that the Inventory to
be shipped from the Outside Locations is available and,
provided further, that if the Inventory to be shipped is
available both in Fayetteville, North Carolina and at the
Outside Locations, Purchaser will not designate
Fayetteville, North Carolina as the location for pickup
without prior consultation with and the reasonable agreement
of Sellers.
(b) Sellers agree that all the Inventory shall be
manufactured on or prior to November 1, 1994. Purchaser
shall not be required to purchase any Inventory that is not
manufactured on or prior to November 1, 1994.
(c) Upon Sellers' determination at any time that
Sellers will be unable to produce at least 90% of the
quantity of any Purchased Product identified on
Schedule 2.01(a)(i), Sellers shall promptly so advise
Purchaser. In such event, Sellers agree to permit
Purchaser, and Purchaser may thereafter elect, by notice to
Sellers hereunder, to manufacture such Purchased Product
pursuant to the Sellers-to-Purchaser Short-Term Trademark
License Agreement.
SECTION 7.05 Payment for Purchased Products;
Reconciliation. Purchaser shall pay for any Purchased
Products which have been accepted by Purchaser's designated
common carrier on or prior to the tenth calendar day of the
month following such acceptance; provided, however, that 75%
of the cost of such shipments shall be applied against the
Inventory Advance until the amount of the Inventory Advance
is fully recouped by Purchaser. On or prior to December 15,
1994, Purchaser and Sellers shall reconcile their respective
accounts against the bills of lading for the Purchased
Products and any applicable accounting and sales records.
Purchaser agrees to pay to Sellers the full amount of the
Inventory Value for all Inventory delivered to Purchaser's
common carriers in accordance with the terms of this
Agreement; and Sellers agree to pay to Purchaser any amounts
that Purchaser may have paid to Sellers that exceed the
Inventory Value for all Inventory delivered to Purchaser's
designated common carriers in accordance with the terms of
this Agreement. Any outstanding amounts which are owed
under Article VII by Purchaser, on the one hand, and
Sellers, on the other hand, may be netted against each
other.
SECTION 7.06 Risk of Loss. Sellers shall bear the
risk of damage to or deterioration or loss of any Inventory
or Purchased Products purchased by Purchaser pursuant to the
terms of this Agreement until such Purchased Products are
properly delivered into the possession of Purchaser's
designated common carrier and accepted by such common
carrier. Sellers shall be responsible for all costs
associated with misshipments caused by any Seller including,
without limitation, any additional freight, handling and
storage costs.
SECTION 7.07 Conduct Consistent with Past
Practice. In connection with the performance of their
obligations under this Article VII, Sellers agree to conduct
their business operations consistent with Sellers past
practices, including (i) providing for insurance coverage at
current levels, (ii) providing that the Purchased Products
manufactured by Sellers on behalf of Purchaser shall satisfy
Sellers' quality standards and (iii) taking periodic cycle
counts of the Purchased Products. Sellers shall provide
Purchaser with copies of all documentation reasonably
requested by Purchaser concerning Sellers' performance under
this Article VII.
SECTION 7.08 Handling Charge. Purchaser shall pay
Sellers handling charges as set forth on Schedule 7.08 for
Purchased Products delivered in accordance herewith.
SECTION 7.09 Representations and Warranties.
(a) On the date of each delivery of Inventory by
Sellers to Purchaser's designated common carrier, Seller
shall transfer good and marketable title to such Inventory,
free and clear of all Encumbrances.
(b) On the date of each delivery of Inventory by
Sellers to Purchaser's designated common carrier, all of
such Inventory shall be in good and merchantable condition,
in conformity with applicable voluntary Toy Manufacturing
Standards of the Toy Manufacturer's Association promulgated
on or before the Closing Date, and suitable and usable or
salable in the ordinary course of business for the purpose
for which intended.
(c) Schedule 2.01(a)(i) sets forth the unit cost
with respect to each item of Inventory listed thereon,
which, in each case, represents no more than the actual
cost, exclusive of handling and freight to Purchaser or
Purchaser's customers, to Sellers of such item or for the
manufacture of such item, as the case may be, as determined
in accordance with generally accepted accounting principles
applied on a basis consistent with Sellers' past practices
(such cost per unit of Inventory is herein called the "Cost
Per Unit").
SECTION 7.10 Access to Sellers' Facilities;
Information. Sellers will afford Purchaser and its
representatives access to all of Sellers' locations during
working hours and permit Purchaser to observe the
manufacturing, assembly and warehousing operations of
Sellers. Purchaser and its representatives shall be
permitted to examine any finished goods inventory of
Purchased Products as well as work in process and materials
used in connection with the manufacture and distribution of
the Purchased Products.
SECTION 7.11 Force Majeure. Sellers shall
not be liable for any failure to perform any obligation set
forth in this Article VII arising or resulting from events
outside Sellers' control, including, without limitation,
(i) the failure of any of Sellers' vendors in Southeast Asia
to perform their respective obligations made to Sellers,
(ii) war, riot, revolution, piracy or sabotage; (iii)
natural disasters, including storms, cyclones, earthquakes,
floods or destruction by lightning or otherwise; and (iv)
boycotts, strikes or lock-outs of any kind, work slowdowns
and work stoppages affecting Sellers' business operations;
provided, however, that Purchaser shall not be required to
purchase any Inventory of Sellers produced in the United
States unless it is packaged and available for shipment by
November 15, 1994.
ARTICLE VIII.
INDEMNIFICATION
SECTION 8.01 Indemnification By Sellers.
(a) Each of Sellers shall be jointly and severally
liable to Purchaser for, and shall indemnify, reimburse,
hold harmless, protect and defend Purchaser from any and all
Purchaser's Damages (as defined in Section 8.01(b)), without
duplication, in the manner and to the extent set forth in
this Section 8.01.
(b) The term "Purchaser's Damages" shall include
all Damages sustained by Purchaser, its officers, directors,
employees, affiliates, successors or assigns (collectively,
the "Purchaser Indemnified Parties") (provided that no
provision of any of the following clauses shall limit the
scope of any other such clause) arising out of, by reason
of, in connection with, or resulting from:
(i) any misrepresentation or breach of
warranty by any Seller contained in Article IV of
this Agreement;
(ii) any default by any Seller in the
performance of any of the covenants or obligations
that such Seller is required to perform under this
Agreement or under any certificate, instrument or
agreement delivered to Purchaser pursuant to or in
connection with this Agreement;
(iii) any claim, dispute, setoff or deduction
by any customer of any Seller against any
receivable of any of the Purchaser Indemnified
Parties from such customer on account of any claim,
dispute, setoff or deduction by such customer
against any Seller;
(iv) any failure to comply with the
Bulk Sales Laws or similar law of any
jurisdiction, or any claim or levy by any
Person against Purchaser, its successors
or assigns, or the Purchased Assets that
is based upon or arises in connection with
the Bulk Sales Laws of any jurisdiction;
and
(v) any of the Retained Liabilities.
provided, however, that, Sellers shall not be required to
pay any Purchaser's Damages arising under Section
8.01(b)(i), unless and until the aggregate amount of all
Purchaser's Damages shall have exceeded $300,000, in which
event Purchaser shall be entitled to indemnification for all
of Purchaser's Damages under Section 8.01(b)(i).
(c) The representations and warranties of Sellers
set forth in Article IV shall survive the Closing for a
period of two (2) years after the Closing Date. Any claim
for Purchaser's Damages which is made by Purchaser under
Section 8.01(b)(i) must be made within such two-year period
following the Closing Date. Any claim or demand against
Sellers arising out of Section 8.02(b)(i) of which notice
has been given pursuant to Section 8.03 at or prior to the
expiration of the two-year survival period shall continue to
be subject to indemnification hereunder notwithstanding the
expiration of such survival period.
(d) Except as otherwise provided in Section 8.01,
Sellers' obligations hereunder with respect to Purchaser's
Damages shall remain in effect indefinitely, and, as between
Purchaser, on the one hand, and Sellers, on the other hand,
each Seller hereby expressly waives any defense to any claim
by a Purchaser Indemnified Party with respect thereto which
defense is based upon the applicable statute of limitations;
provided, however, that nothing herein shall constitute a
waiver by any Seller of its rights to assert the statute of
limitations as a defense against any Third Party.
(e) The aggregate amount of Purchaser's Damages to
be paid by Sellers with respect to Purchaser's Damages
arising under Section 8.01(b)(i) shall not exceed the amount
of the Purchase Price.
SECTION 8.02 Indemnification by Purchaser.
(a) Purchaser shall be liable to Sellers for, and
shall indemnify, reimburse, hold harmless, protect and
defend each Seller for and from any and all Sellers' Damages
(as defined in Section 8.02(b)), without duplication, in the
manner and to the extent set forth in this Section 8.02.
(b) The term "Sellers' Damages" shall include all
Damages sustained by any Seller, its officers, directors,
employees, affiliates, successors or assigns (collectively,
the "Seller Indemnified Parties"), prior to any
reimbursement therefor (provided that no provision of any of
the following clauses shall limit the scope of any other
such clause) arising out of, by reason of, in connection
with, or resulting from:
(i) any misrepresentation or breach of
warranty by Purchaser contained in Article V of
this Agreement;
(ii) any default by Purchaser in the
performance of any of the covenants or obligations
that Purchaser is required to perform under this
Agreement or under any certificate, instrument or
agreement delivered to Sellers pursuant to or in
connection with this Agreement;
(iii) any Assumed Liability; and
(iv) the conduct of the businesses of
Purchaser, the ownership or use of Purchaser's
assets or properties, or the manufacture or sale of
its goods or products after the Closing Date,
except to the extent the liability therefor
constitutes a Retained Liability.
provided, however, that Purchaser shall not be required to
pay any Sellers' Damages arising under Section 8.02(b)(i)
unless and until the aggregate amount of all Sellers'
Damages shall have exceeded $300,000, in which event Sellers
shall be entitled to indemnification for all of Sellers'
Damages under Section 8.02(b)(i).
(c) The representations and warranties of
Purchaser set forth in Article V shall survive the Closing
for a period of two (2) years after the Closing Date. Any
claim or demand against Sellers arising out of Section
8.02(b)(i) of which notice has been given pursuant to
Section 8.03 at or prior to the expiration of the two-year
survival period shall continue to be subject to
indemnification hereunder notwithstanding the expiration of
such survival period.
(d) Except as otherwise provided in this
Section 8.02, Purchaser's obligations hereunder with respect
to Sellers' Damages shall remain in effect indefinitely,
and, as between Sellers, on the one hand, and Purchaser, on
the other hand, Purchaser hereby expressly waives any
defense to any claim by a Seller Indemnified Party with
respect thereto which defense is based upon the applicable
statute of limitations; provided, however, that nothing
herein shall constitute a waiver by Purchaser of its rights
to assert the statute of limitations as a defense against
any Third Party.
(e) The aggregate amount of Sellers' Damages to be
paid by Purchaser with respect to Sellers' Damages arising
under Section 8.02(b)(i) shall not exceed the amount of the
Purchase Price.
SECTION 8.03 Notification; Legal Proceedings.
(a) If any legal proceeding shall be instituted,
or any claim or demand made, against an indemnitee in
respect of which an indemnitor may be liable hereunder, then
such indemnitee shall give prompt written notice thereof to
the indemnitor. The indemnitor shall have the right, in its
sole discretion, to settle any such legal proceeding, claim
or demand; provided, however, that the indemnitor shall not,
without the written consent of the indemnitee, settle any
such proceeding, claim or demand or consent to an entry of
judgment which does not include as an unconditional term
thereof a release of the indemnitee from all liability
arising in connection with such proceeding, claim or demand.
The indemnitee, at its expense, may participate in any such
legal proceeding and the negotiation and settlement of any
such claim or demand.
(b) If the amount of Purchaser's Damages or
Sellers' Damages paid, at any time subsequent to such
payment, shall be reduced by any recovery, settlement or
otherwise (including by any insurance payment or
settlement), then the amount of such reduction, less any
expense incurred by the party receiving such recovery in
connection therewith, promptly shall be repaid to the
indemnitor.
(c) Sellers and Purchaser shall consult and use
their best efforts to cooperate in resolving questions
regarding Purchaser's Damages or Sellers' Damages. If
either Sellers or Purchaser shall believe that it has a
claim under this Article VIII, then such person shall give
prompt notice of such claim to the other party, specifying
in reasonable detail the nature of Purchaser's Damages or
Sellers' Damages for which payment is claimed, the Section
or Sections of this Agreement upon which such claim is based
and the amount payable in respect thereof. The party
seeking indemnification shall provide to the indemnitor
copies of such notices, service of process, pleadings and
other pertinent written information and communications that
such indemnitee has received or thereafter receives in
connection with the matter on which its claim is based.
(d) Notwithstanding the provisions of Section
8.03(a) or 8.03(b), if any indemnitee shall fail promptly to
notify the indemnitor of such a legal proceeding or of such
a claim, then such indemnitee shall not be barred from
recovery hereunder with respect to such claim except only to
the extent that the indemnitor with respect thereto has been
prejudiced or has incurred damages directly as a result of
such delay. For purposes of this Section, each Seller
hereby irrevocably designates and appoints the Guarantor as
the agent for such Seller to accept or receive on behalf of
such Seller any notice, demand or claim given or made
hereunder, and any such notice, demand or claim shall be
deemed to have been duly given or made hereunder by a
Purchaser Indemnified Party when given or made to the
Guarantor in accordance with Section 11.02.
(e) To the extent, if any, that the same factual
bases give rise both to a claim for indemnity by a Purchaser
Indemnified Party against a Seller (for example for the
period during which a Seller owned or controlled the
Purchased Assets prior to the Closing) and a claim for
indemnity by a Seller Indemnified Party against Purchaser
(for example for the period during which Purchaser owned or
controlled the Purchased Assets after the Closing) each
party will ultimately pay and be liable to the other for
that portion of such factual bases for which it is
responsible hereunder.
ARTICLE IX.
CONDITIONS
SECTION 9.01 Conditions to Obligations of
Purchaser. The obligation of Purchaser to purchase the
Purchased Assets and assume the Assumed Liabilities and
otherwise to consummate the transactions contemplated hereby
is subject to the satisfaction on or prior to the Closing
Date of the following conditions (any of which may be
waived, in whole or in part, by Purchaser in its sole
discretion):
(a) the receipt of all of documents, instruments
and agreements identified in Section 3.02 hereof;
(b) The representations and warranties of Sellers
contained in this Agreement (including the Schedules and
Exhibits hereto), or in any certificate or document
delivered to Purchaser hereunder shall be true in all
respects on the Closing Date as if made again on and as of
the Closing Date. Sellers shall have duly performed and
complied with all agreements and conditions required by this
Agreement to be performed or complied with by them on or
before the Closing Date. No material adverse change shall
have occurred in the financial condition or operations of
the Purchased Assets or the manufacture and sale of the
Purchased Products as at the Closing Date from the condition
thereof as at the date of this Agreement.
(c) There shall not be any statute, rule or
regulation promulgated or enacted which makes it illegal for
consummation of the transactions contemplated hereby; there
shall not be any order or judgment enjoining, restraining or
prohibiting or assessing substantial damages in respect of,
consummation of the transactions contemplated hereby; there
shall not be any suit, claim, action or proceeding
instituted by any Person which seeks to enjoin, restrain,
prohibit or to assess substantial damages in respect of,
consummation of the transactions contemplated hereby or
which would impair the ability of Purchaser to own and
control the Purchased Assets after the Closing; provided,
however, that the existence of the currently pending suit
described on Schedule 9.01(c) shall not constitute a
condition to Purchaser's obligations hereunder so long as
such suit is not amended after the date hereof in a manner
that expands the claims or relief or increases the damages
sought therein as of the date hereof.
(d) Sellers shall have received, or received
evidence satisfactory to Purchaser (in its sole discretion)
of, all written consents, authorizations and approvals
required by any applicable law, rule or regulation or by
contract or otherwise of any Federal, commonwealth or state
governmental or administrative body or any Third Party
respecting the sales, conveyances, transfers and assignments
of the Purchased Assets to Purchaser pursuant to the
provisions of this Agreement, including all Required
Consents. Sellers shall have furnished copies of such
consents, authorizations and approvals to Purchaser.
(e) Each of the parties under each Mixed License
Agreement shall have consented to the assignment by Sellers
of their obligations thereunder, to the extent related to
Purchased Products, to Purchaser.
(f) On the Closing Date, Purchaser shall have been
furnished with a certificate of each Seller, dated the
Closing Date, certifying in such detail as Purchaser may
reasonably request to the fulfillment of the foregoing
conditions in subparagraphs (b), (c) and (d) of this Section
9.01.
(g) Purchaser shall have received the Opinion of
Counsel for Sellers, dated the Closing Date, properly
completed and signed.
SECTION 9.02 Conditions to Obligations of Sellers.
The obligations of Sellers to sell the Purchased Assets and
otherwise to consummate the transactions contemplated hereby
is subject to the satisfaction on or prior to the Closing
Date of the following conditions (any of which may be
waived, in whole or in part, by Sellers in their sole
discretion):
(a) Purchaser shall have tendered to Sellers the
Closing Payment in accordance with Section 2.04(b)(i)
hereof.
(b) Purchaser shall have executed and delivered
the Bill of Sale, Assignment and Assumption Agreement.
(c) The representations and warranties of
Purchaser contained in this Agreement (including the
Schedules and Exhibits hereto), or in any certificate or
document delivered to Sellers hereunder shall be true in all
respects on the Closing Date as if made again on and as of
the Closing Date. Purchaser shall have duly performed and
complied with all agreements and conditions required by this
Agreement to be performed or complied with by it on or
before the Closing Date.
(d) On the Closing Date, Sellers shall have been
furnished with a certificate of Purchaser, dated the Closing
Date, certifying in such detail as Sellers may reasonably
request to the fulfillment of the foregoing conditions in
subparagraph (c) of this Section 9.02.
(e) Sellers shall have received the Opinion of
Counsel for Purchaser, dated the Closing Date, properly
completed and signed.
ARTICLE X.
TERMINATION OF AGREEMENT
SECTION 10.01 Termination. This Agreement and the
transactions contemplated hereby may be terminated at any
time prior to the Closing Date as follows:
(a) by mutual written consent of Sellers and
Purchaser;
(b) by either Purchaser or Sellers in the event
that the Closing does not take place prior to the close of
business on August __, 1994; provided, however, that the
party seeking to terminate this Agreement pursuant to this
Section 10.01(b) shall be permitted to do so only if the
failure to close shall not have resulted from the failure or
breach by such party with respect to any of the terms of
this Agreement or from the inaccuracy of any representation
or warranty of such party;
(c) by Purchaser, by notice to Sellers at any
time, if satisfaction of one or more of the conditions
specified in Section 9.01 is or becomes impossible or
impracticable and such condition has not been waived by
Purchaser;
(d) by Sellers, by notice to Purchaser at any
time, if satisfaction of one or more of the conditions
specified in Section 9.02 is or becomes impossible or
impracticable and such condition has not been waived by
Sellers.
SECTION 10.02 Effect of Termination. If this
Agreement shall be terminated pursuant to Section 10.01
hereof, all further obligations of Purchaser and Sellers
under this Agreement shall terminate without further
liability of any party hereto, except that the parties'
obligations under Sections 6.03 and Article VIII shall
survive such termination, and no termination shall relieve
any party of liability for any breach of warranty,
obligation, covenant or agreement of such party or for any
misrepresentation by such party hereunder.
ARTICLE XI.
MISCELLANEOUS
SECTION 11.01 Expenses. (a) All legal and other
costs and expenses incurred in connection herewith and the
transactions contemplated hereby shall be paid by the party
incurring such expenses.
(b) Notwithstanding Section 11.1(a), Sellers, on
the one hand, and Purchaser, on the other, shall divide
equally the cost of any transfer, conveyance or recording
taxes or charges assessed or payable as a result of the
sale, conveyance, transfer and assignment of the Purchased
Assets to, or the assumption of the Assumed Liabilities by,
Purchaser.
SECTION 11.02 Notices. (a) All notices,
requests, consents and other communications to any party
hereunder shall be in writing and shall be deemed given if
delivered personally, or sent by telecopy or other
telecommunications device capable of creating a written
record to the parties at the following addresses:
if to Purchaser, to:
Hasbro, Inc.
32 West 23rd Street
New York, New York 10010
Telephone: (212) 645-2400
Telecopy: (212) 741-0663
Attention: Mr. Barry J. Alperin
Vice Chairman
with copy to:
Hasbro, Inc.
32 West 23rd Street
New York, New York 10010
Telephone: (212) 645-2400
Telecopy: (212) 741-0663
Attention: Phillip H. Waldoks, Esq.
Senior Vice President -
Corporate Legal Affairs
and a copy to:
Hasbro, Inc.
1027 Newport Avenue
Pawtucket, Rhode Island 02862
Attention: General Counsel
Telephone: (401) 431-8691
Telecopy: (401) 727-5089
if to either Seller or both Sellers, to Guarantor
(the "Contact Seller"):
Western Publishing Group, Inc.
444 Madison Avenue
New York, New York 10022
Telephone: (212) 688-4500
Telecopy: (212) 888-5025
Attention: Richard A. Bernstein
Chairman and Chief
Executive Officer
with copies to
Western Publishing Company, Inc.
444 Madison Avenue
New York, New York 10022
Telephone: (212) 688-4500
Telecopy: (212) 888-5025
Attention: James A. Cohen, Esq.
Senior Vice President -
Legal Affairs
and:
Western Publishing Company, Inc.
1220 Mound Avenue
Racine, WI
Telephone: (414) 631-5253
Telecopy: (414) 631-1862
Attention: Dale C. Gordon, Esq.
Vice President and General Counsel
and:
Morgan, Lewis & Bockius
101 Park Avenue
New York, New York 10178
Telephone: (212) 309-6000
Telecopy: (212) 309-6273
Attention: Mitchell N. Baron, Esq.
or such other address or telecopy number as such party may
hereafter specify by notice to the other party. Each such
notice, request or other communication shall be effective
(i) if given by telecopy, when such telecopy is transmitted
to the telecopy number specified in this Section 11.02,
provided such telecopy is deposited in the U.S. mail
properly addressed as required by this Section 11.02, (ii)
if given by U.S. mail, on the fifth business day after the
deposit thereof in the mail, postage prepaid and properly
addressed to the address specified in this Section 11.02,
(iii) if sent by overnight courier, on the second business
day after the delivery thereof to a reputable, nationally
recognized courier service, and (iv) if given by hand, when
delivered at the address specified in this Section 11.02.
(b) Each Seller appoints Western Publishing Group,
Inc. as "Contact Seller" and hereby constitutes and appoints
the Contact Seller as such Seller's agent and attorney-in-
fact for purposes of executing and delivering all consents,
approvals and authorizations hereunder or in connection
herewith by such Seller, and any such consent, approval or
authorization so executed by the Contact Seller shall
constitute the legal, valid and binding agreement of such
Seller.
SECTION 11.03 Binding Effect; Assignment. This
Agreement shall be binding upon and shall inure to the
benefit of the parties and their respective successors and
assigns. Neither party may assign any of its rights or
delegate any of its duties under this Agreement without the
written consent of the other party, except that Purchaser
may assign the right to purchase the Purchased Assets, in
whole or in part, to any direct or indirect subsidiaries of
Purchaser, provided, that Purchaser shall remain liable for
all of Purchaser's obligations set forth in this Agreement.
The parties hereby agree that the Purchased Assets located
in Canada will be assigned and transferred to Hasbro Canada
Inc., a wholly owned subsidiary of Purchaser.
SECTION 11.04 Amendments. This Agreement may only
be amended by written agreement of Purchaser and Sellers.
SECTION 11.05 Counterparts. This Agreement may be
executed in one or more counterparts, all of which shall be
considered one and the same instrument and shall become
effective when one or more counterparts have been signed by
each of the parties and delivered to each of the other
parties.
SECTION 11.06 Entire Agreement. This Agreement
and the documents and exhibits described herein, or attached
or delivered pursuant hereto, together with a side letter
agreement(s) among the parties hereto of even date herewith,
set forth the entire agreement and understanding of the
parties in respect of the transactions contemplated hereby,
and supersedes all prior letters of intent, agreements,
arrangements and understandings relating to the subject
matter hereof.
SECTION 11.07 Headings. The article and section
headings contained in this Agreement are solely for the
purpose of reference, are not part of the agreement of the
parties, and shall not affect the meaning or interpretation
of this Agreement. All references in this Agreement to
Articles, Sections, Schedules and Exhibits are to articles
and sections of, and to schedules and exhibits to, this
Agreement unless otherwise indicated.
SECTION 11.08 Joint and Several Obligations. The
obligations of Sellers under this Agreement are joint and
several, and Purchaser may pursue, enforce, seek, obtain and
recover any Damages with respect to which any Seller is
liable hereunder from any one Seller or from any combination
of Sellers.
SECTION 11.09 Governing Law. This Agreement and
(unless otherwise provided) all amendments hereof, and
waivers and consents hereunder, shall be governed by, and
construed in, accordance with the laws of the State of New
York applicable to agreements made and to be wholly
performed within such state.
IN WITNESS WHEREOF, this Agreement has been duly
executed and delivered on behalf of each of the parties
hereto as of the day and year first above written.
WESTERN PUBLISHING COMPANY, INC.
By: /s/ James A. Cohen
---------------------
Name: James A. Cohen
Title: Vice President
WESTERN PUBLISHING (CANADA), LTD.
By: /s/ James A. Cohen
---------------------
Name: James A. Cohen
Title: Vice President
HASBRO, INC.
By: /s/ Barry J. Alger
---------------------
Name: Barry J. Alger
Title: Vice Chairman
GUARANTOR'S GUARANTEE
Western Publishing Group, Inc., a Delaware
corporation ("Guarantor"), hereby irrevocably and
unconditionally guarantees to Purchaser, its successors and
assigns, the full, faithful and prompt payment and
performance, as and when due, by each Seller of each of its
obligations, undertakings and agreements under the foregoing
Asset Purchase and Supply Agreement, including, without
limitation, its obligations under Articles II, VII and VIII
thereof. The foregoing guarantee of Guarantor shall remain
in effect without regard to, and shall not be released,
discharged, terminated or diminished as a result of, any
condition or event that might constitute a release,
discharge, termination of a guarantee by a guarantor,
including any subsequent amendment, supplement or
modification to such Asset Purchase Agreement or any other
agreement.
WESTERN PUBLISHING GROUP, INC.
By: /s/ James A. Cohen
----------------------
Name: James A. Cohen
Title: Vice President
[LETTERHEAD OF WESTERN PUBLISHING COMPANY, INC.]
Dale C. Gordon
Vice President and Direct Line: (414) 631-5253
General Counsel Facsimile: (414) 631-1862
As of September 23, 1994
Mr. George P. Oess
5 Ironwood Court
Racine, Wisconsin 53402
Dear George:
I make reference to any and all written or oral communications
between you and Western Publishing Group, Inc. ("Group") or Western
Publishing Company, Inc. ("Western") or representatives of either
company regarding the terms and benefits of your employment by
Western and your retirement from such employment as of the close of
business on September 23, 1994.
By your countersignature and return of the enclosed duplicate
original of this Letter Agreement to me, you will confirm your
agreement with all of the within terms. This letter is intended to
document the full and final agreement between you, Group, Western,
and any affiliates, subsidiaries, successors or assigns of either
concerning the terms of your retirement, which agreement is as
follows:
1. Retirement: This Agreement shall confirm your immediate
resignation, stemming from your retirement as of this date, from
any and all offices and directorships currently held by you in
Western and its affiliates.
2. Separation Payments. In recognition of your long service
to Western and its existing policies, Western shall pay separation
pay to you by continuing your current salary for twelve months
through September 23, 1995. Such payments shall be made by Western
through its normal payroll system as applicable to its full-time
employees from time to time (currently every other Friday), and all
payments shall be net of applicable taxes. In addition, this
separation benefit shall be continued if, on September 23, 1995,
you are not "Employed". As used herein, "Employed" shall refer
only to your employment as a full time salaried employee of an
independent third party. Your self-employment, consulting work or
immaterial third party employment such as the teaching of one or
more business education courses or your membership on a Board of
Directors shall not constitute the status of being Employed. If so
extended, your separation benefit shall expire on the first to
occur of your becoming "Employed" or on March 23, 1996. Separation
payments are not considered for purposes of the Golden
Comprehensive Security Program.
3. Mitigation. Should you achieve earned income during the
period of severance pay entitlement set forth in Paragraph 2 above,
whether from being Employed, from self-employment or from limited
third party employment, severance payments will be reduced by an
amount equal to 50% of the gross income derived from such sources
of earned income. You are obligated, if requested by Western, to
provide documentation such as periodic reports whether or not you
are Employed before or after the fact as to amount of such earned
income.
4. Insurance and Other Benefits Provided by Law. Western
shall continue at its expense through and including the date your
separation pay benefit expires pursuant to Paragraph 2, all of your
(and your previously covered dependents') life, health, dental,
prescription drug, vision and Executive Medical Reimbursement Plan
insurance (but neither short or long term disability) benefits.
Thereafter, you may continue health, dental, prescription drug,
vision and EMRP insurance, at your expense, under the provisions of
the Consolidated Omnibus Budget Reconciliation Act of 1986
("COBRA") for the period allowed under law. Additionally, nothing
in this Letter Agreement is meant to amend, modify or limit in any
way life insurance, health insurance or other benefits you or your
dependents are entitled to receive under (i) Western policies as a
retiree as Western's retiree policies may provide from time to
time, or (ii) any obligations of law.
5. Computer. You have agreed to purchase the personal
computer you are now using in the performance of your business
duties at Western. Western hereby agrees that it shall sell to you
the IBM Thinkpad Model 755C, the H.P. Model 4P Printer and all
accessories and software in your possession on an as-is where-is
basis for a total cost of $5,000, such amount to be paid by you to
Western, by means of a personal check delivered to my office on or
before January 10, 1995. If not so paid, the $5,000 price shall be
deducted from the first amounts thereafter due you under this
letter agreement.
6. Deferred Compensations. The "Rabbi Trust" Agreement dated
April 1, 1993 between you and the Company is currently "funded" in
the amount of $60,000--$30,000 on behalf of each of 1992 and 1993.
Western shall contribute $30,000 to said "fund" in regard to 1994
as its final contribution thereto and the trustee shall distribute
all such funds, including any interest payments due thereunder, in
accordance with the trust. Payments shall be made on or before
January 5, 1995.
7. Confidentiality. You agree that you will neither
disclose to anyone other than Western representatives nor use in
any way any trade secrets, records, processes, compilations of
information, specifications, customer lists, product information,
pricing structures, marketing strategies, future strategies, or any
other confidential information or knowledge pertaining to the
business of Western or any of its affiliates or subsidiaries
obtained by you during your employment with Western. You further
represent that you have returned all documents and records which
could in any manner be deemed to include such confidential
information or knowledge to Western and you agree that, if any such
documents and records are hereafter discovered to be in your
possession, custody or control, they will be returned to Western
immediately. You agree that this Section 7 shall be deemed a
material part of this agreement between you and Western and, in the
event of any breach of this specific section by you or your
representatives, Western may elect to seek any rights or remedies
it may have at law and equity or either, the latter to include
injunction and specific performance, and you hereby waive the
securing or posting of any bond in connection with any such
equitable remedy. You and Western further agree that this Letter
Agreement, as well as the terms and provisions of all prior written
or oral agreements between you and Western are strictly
confidential and shall not be divulged or disclosed in any way by
you to any other person and that you will protect the
confidentiality thereof in all regards. Western shall keep this
Letter Agreement and all of its provisions confidential, except
where required by law or an order of a court, administrative
tribunal or similar governmental body. It is acknowledged that, as
an Executive Officer of Group, proxy rules and the like will
require substantial disclosures.
8. Release. As a material inducement to Western to enter
into this agreement, you hereby irrevocably and unconditionally
release, acquit, and forever discharge Western, and Group, their
successors, assigns, agents, directors, officers, employees,
representatives, divisions, subsidiaries, departments and
affiliates and all other persons acting by, through or in concert
with any of them (collectively "Releasees") from any and all
charges, complaints, claims, liabilities, obligations, promises,
agreements, actions, damages, expenses (including attorneys' fees
and costs actually incurred), or rights of any and every kind or
nature, accrued or unaccrued, known or unknown, which you may have
or claim to have against Western, Group, or any of the Releasees.
This release pertains to but is in no way limited to all matters
related to or arising out of your employment and separation of your
employment from Western and all claims for separation benefits,
which are not explicitly mentioned in this Letter Agreement, the
enclosed letter and attachments from Patrick Hoffman dated
September 23, 1994 or otherwise provided you by law. This release
further pertains to but is in no way limited to rights and claims
under the Age Discrimination in Employment Act of 1967 (29
U.S.C. Section 621 et. seq.), the Wisconsin Fair Employment Act, Title VII
of the Civil Rights Act and the Americans With Disabilities Act.
9. Other Benefits. In addition to all other benefits
described herein, Western shall reimburse you for reasonable fees
(up to a maximum aggregate of $3,750) you incur from this date
through December 31, 1995 for advice secured from Mark Imowitz
and/or Arthur Andersen & Co. in regard to retirement and investment
planning. The aggregate maximum is just that -- a total
reimbursable for bills from one or both sources. All bills for
which reimbursement is sought must be submitted on or before
January 20, 1996.
10. Indemnification. Western hereby confirms that it shall
hereafter continue to indemnify you and hold you harmless from and
against any and all third party demands, claims, damages,
liabilities, costs and expenses, including reasonable attorneys'
fees, or causes of action arising out of your acts or omissions
while an employee of Western except no such obligation shall attach
in regard to instances where you incur liability because you
breached or failed to perform a duty you owed to Western and such
breach or failure constituted any action specified in
Section 180.0851(2)(a) of the Wisconsin Annotated Statutes Law as of this
date.
11. Entire Agreement. Western and you understand and agree
that no representations or commitments were made by the parties to
induce this Letter Agreement other than as expressly set forth
herein. You further represent that you have had the opportunity
and time to consult with legal counsel concerning the provisions of
this Agreement and that you have been given twenty-one days within
which to execute the same. This Agreement may not be modified or
supplemented except by a subsequent written agreement signed by the
party against whom enforcement is sought. To the extent the terms
of this Letter Agreement are inconsistent with those in Mr.
Hoffman's letter, this Letter Agreement shall prevail.
Very truly yours,
WESTERN PUBLISHING GROUP, INC. AND
WESTERN PUBLISHING COMPANY, INC.
/s/ Dale C. Gordon
Dale C. Gordon
Vice President and General Counsel
Agreed and Accepted by:
/s/ George P. Oess
George P. Oess
CAUTION: THIS IS A RELEASE. CONSULT WITH AN ATTORNEY AND READ IT
BEFORE SIGNING. THIS AGREEMENT MAY BE REVOKED IN WRITING BY YOU
WITHIN SEVEN DAYS OF YOUR EXECUTION OF THE DOCUMENT.
WESTERN PUBLISHING GROUP, INC.
Jurisdiction of Percentage of
Name of Subsidiary Incorporation Ownership
Subsidiaries of Western Publishing Group, Inc.
- ----------------------------------------------
Western Publishing Company, Inc. Delaware 100%
Penn Corporation Delaware 100%
Western Publishing (Hong Kong) Limited Hong Kong 100%
Subsidiaries of Penn Corporation
- --------------------------------
None
Subsidiaries of Western Publishing Company, Inc.
- ------------------------------------------------
Western Publishing (Canada) Inc./Les Editions Ontario, Canada 100%
Western (Canada) Inc.
Golden Press, Inc. New York 100%
Skil-Craft Corporation Illinois 100%
Dickie Do, Inc. Illinois 100%
Dickie Dony, Inc. Delaware 100%
Dickie Doc, Inc. Delaware 100%
Golden Showcase Stores, Inc. Delaware 100%
Children's Productions, Inc. Delaware 100%
GOLDEN COMPREHENSIVE
SECURITY PROGRAM
Financial Statements for the Years
Ended December 31, 1994 and 1993 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, 1994 and 1993 2
Statements of Changes in Net Assets Available for Benefits -
Years ended December 31, 1994 and 1993 3
Notes to Financial Statements 4-12
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, 1994 and 1993, 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, 1994 and 1993, and the changes in net assets
available for benefits for the years then ended in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE, LLP
Milwaukee, Wisconsin
April 21, 1995
GOLDEN COMPREHENSIVE SECURITY PROGRAM
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
ASSETS:
Investments in Western Publishing Group, Inc. Master
Retirement Trust pooled investment accounts (Notes 3 and 4):
Investment funds $ 9,221,176 $24,924,230
Guaranteed investment contracts 48,328,918 33,635,413
Parent company stock 1,093,811 2,473,163
Loans receivable from participants 2,197,940 2,229,615
Accrued income receivable 185,566 151,273
Receivable from investments sold 18,555
Contributions receivable:
Employers 1,117,331 1,507,925
Participants 207,133 240,682
----------- -----------
Total assets 62,351,875 65,180,856
----------- -----------
LIABILITIES:
Payable to third parties 51,113 33,114
----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS $62,300,762 $65,147,742
=========== ==========
</TABLE>
See notes to financial statements.
-2-
GOLDEN COMPREHENSIVE SECURITY PROGRAM
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Investment income - Increase in equity
of allocable portion of Western Publishing
Group, Inc. Master Retirement Trust pooled
investment accounts - (Notes 3 and 8):
Interest $ 2,712,885 $ 3,332,445
Dividends 1,018,924 674,687
(Depreciation) appreciation on pooled
investment accounts (2,321,334) 106,692
Contributions - Note 5:
Employers 2,475,965 2,831,222
Participants 3,586,212 3,420,620
----------- -----------
Total additions 7,472,652 10,365,666
----------- -----------
Payments to or on behalf of participants 10,155,071 4,497,840
Administrative expenses 164,561 153,813
----------- -----------
Total deductions 10,319,632 4,651,653
----------- -----------
Net (decrease) increase (2,846,980) 5,714,013
Net assets available for benefits:
Beginning of year 65,147,742 59,433,729
----------- -----------
End of year $62,300,762 $65,147,742
----------- -----------
----------- -----------
</TABLE>
See notes to financial statements.
-3-
GOLDEN COMPREHENSIVE SECURITY PROGRAM
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 AND 1993
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").
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 $9,240 for 1994 and $8,994 for 1993 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 1994 and 1993 totalled $242,089 and $54,717,
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:
-4-
GOLDEN COMPREHENSIVE SECURITY PROGRAM
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Number of Participants
Invested in Fund at
Fund Type December 31, 1994
Conservative Equity Fund 519
Aggressive Equity Fund 467
Interest Accumulation Fund 1,370
Parent Company Stock Fund 297
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:
-5-
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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting - The accompanying financial statements
have been prepared on the accrual basis of accounting.
Investments - 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.
Valuation of Investments - 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.
Expenses - Plan expenses, such as trustee and accounting
fees, are charged to the Plan.
Benefits Payable - 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. Net assets available for benefits included
benefits of $1,278,859 and $726,457 due to participants who
have withdrawn from participation in the Plan as of
December 31, 1994 and 1993, respectively.
-6-
GOLDEN COMPREHENSIVE SECURITY PROGRAM
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS IN MASTER TRUST
Investments in the Master Trust at December 31, 1994 and 1993
were as follows:
1994 1993
(Dollars in Thousands)
Guaranteed investment contracts $ 77,725 $ 54,077
Pooled investment funds 26,821 51,480
Common stock 1,610 3,602
-------- --------
Total investments $106,156 $109,159
======== ========
The net investment gain of the Master Trust for the years ended
December 31, 1994 and 1993 was as follows:
1994 1993
(Dollars in Thousands)
Interest and Dividends $ 6,129 $ 6,425
(Depreciation) appreciation in fair
value of investments (4,024) 1,404
Administrative expenses (453) (402)
------- -------
Net investment gain $ 1,652 $ 7,427
======= =======
The Plan's interest in the Master Trust as a percentage of
net assets of the Master Trust was approximately 56% at
December 31, 1994 and 1993.
4. INVESTMENTS
Investments in pooled investment funds at December 31, 1994
and 1993 were as follows:
<TABLE>
<CAPTION>
1994 1993
------------------- -----------------------
UNITS FAIR VALUE UNITS FAIR VALUE
<S> <C> <C> <C> <C>
Conservative Equity Fund
(Evergreen Total Return Fund) 306,156 $5,213,834 261,867 $ 5,137,839
Aggressive Equity Fund (Evergreen
Fund) 331,346 3,986,095 303,284 4,306,646
Bankers Trust Pyramid Directed
Account Cash Fund 21,247 21,247 15,479,745 15,479,745
---------- -----------
$9,221,176 $24,924,230
========== ===========
</TABLE>
-7-
GOLDEN COMPREHENSIVE SECURITY PROGRAM
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Investments in guaranteed investment contracts at December
31, 1994 and 1993 were as follows:
1994 1993
John Hancock Mutual Life Insurance Company
Contract #GAC-7313-0 $ 8,981,197
Principal Mutual Life Insurance Company
Contract #GAC4-6187-1 7,096,087 $ 8,154,315
CNA Insurance Company
Contract #12732-006 7,315,142
Allstate Life Insurance Company
Group Annuity Contract #GA-5343-1 6,301,458 7,217,607
New York Life Insurance Company
Contract #GA-06701-2-1 5,776,869 6,864,703
New York Life Insurance Company
Contract #GA-06701-1 3,553,714 4,083,646
Metropolitan Life Insurance Company
Contract #GA-13981-069 6,469,572
Metropolitan Life Insurance Company
Contract #A-13823-069 1,856,754
Hartford Life Insurance Company
Contract #GA3-10145-AA 8,293,267
----------- -----------
$48,328,918 $33,635,413
=========== ===========
Investments in parent company stock at December 31, 1994 and 1994 were as
follows:
Fair
Shares Value
Western Publishing Group, Inc.
common stock:
December 31, 1994 115,138 $1,093,811
==========
December 31, 1993 128,476 $2,473,163
==========
-8-
GOLDEN COMPREHENSIVE SECURITY PROGRAM
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Transactions in the common stock of Western Publishing Group,
Inc. were as follows:
1994 1993
----------------- -----------------
Shares Amount Shares Amount
Aggregate purchases 26,675 $326,799 57,960 $923,155
======== ========
Aggregate sales and
distributions to
participants 40,013 $595,345 4,106 $ 60,154
======== ========
5. CONTRIBUTIONS
Contributions from the Company, Western Publishing Group,
Inc. and their respective participants were as follows:
1994
-------------------------------------
Employer Employee Total
Western Publishing Company, Inc. $2,358,026 $3,459,197 $5,817,223
Western Publishing Group, Inc. 117,939 127,015 244,954
---------- ---------- ----------
$2,475,965 $3,586,212 $6,062,177
========== ========== ==========
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
========== ========== ==========
6. 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
-9-
GOLDEN COMPREHENSIVE SECURITY PROGRAM
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
letter and subsequent to December 31, 1994, the Company filed
the amended Plan with the Internal Revenue Service for the
purpose of obtaining an updated 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.
7. 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.
-10-
GOLDEN COMPREHENSIVE SECURITY PROGRAM
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. 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, 1994 and the changes in net assets available for benefits for
the year then ended were as follows:
<TABLE>
<CAPTION>
Interest
Conservative Aggressive Parent Company Accumulation
Equity Fund Equity Fund Stock Fund Fund Loan Fund Total
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Interest $ 519 $ 446 $ 1,502 $ 2,560,063 $ 150,355 $ 2,712,885
Dividends 398,017 620,907 1,018,924
Depreciation on pooled
investment accounts (738,220) (580,183) (1,002,931) (2,321,334)
---------- ---------- ---------- ----------- ---------- -----------
Total investment
income (loss) (339,684) 41,170 (1,001,429) 2,560,063 150,355 1,410,475
Contributions:
Employers 260,298 210,436 93,543 1,911,688 2,475,965
Participants 691,766 563,384 253,490 2,077,572 3,586,212
Transfers of assets from (to)
other funds (373,138) 42,880 277,361 32,669 20,228
---------- ---------- ---------- ----------- ---------- -----------
Total additions 239,242 857,870 (377,035) 6,581,992 170,583 7,472,652
---------- ---------- ---------- ----------- ---------- -----------
Payments to or on behalf
of participants 844,840 948,979 262,199 7,928,256 170,797 10,155,071
Administrative expenses 7,936 8,068 2,417 146,140 164,561
---------- ---------- ---------- ----------- ---------- -----------
Total deductions 852,776 957,047 264,616 8,074,396 170,797 10,319,632
---------- ---------- ---------- ----------- ---------- ----------
Net decrease (613,534) (99,177) (641,651) (1,492,404) (214) (2,846,980)
Net assets available
for benefits:
Beginning of year 5,584,921 4,069,062 1,910,970 51,353,174 2,229,615 65,147,742
---------- ---------- ---------- ----------- ---------- -----------
End of year $4,971,387 $3,969,885 $1,269,319 $49,860,770 $2,229,401 $62,300,762
========== ========== ========== =========== ========== ===========
</TABLE>
-11-
GOLDEN COMPREHENSIVE SECURITY PROGRAM
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. 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, 1994 and the changes in net assets available for
benefits for the year then ended were as follows:
<TABLE>
<CAPTION>
Interest
Conservative Aggressive Parent Company Accumulation
Equity Fund Equity Fund Stock Fund Fund Loan Fund Total
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Interest $ 519 $ 446 $ 1,502 $ 2,560,063 $ 150,355 $2,712,885
Dividends 398,017 620,907 1,018,924
Depreciation on pooled
investment accounts (738,220) (580,183) (1,002,193) (2,321,334)
----------- ----------- ----------- ------------ ---------- -----------
Total investment income (loss) (339,684) 41,170 (1,001,429) 2,560,063 150,355 1,410,475
Contributions:
Employers 260,298 210,436 93,543 1,911,688 2,475,965
Participants 691,766 563,384 253,490 2,077,572 3,586,212
Transfers of assets from (to)
other funds (373,138) 42,880 277,361 32,669 20,228
----------- ----------- ----------- ------------ ---------- -----------
Total additions 239,242 857,870 (377,035) 6,581,992 170,583 7,472,652
----------- ----------- ----------- ------------ ---------- -----------
Payments to or on behalf
of participants 844,840 948,979 262,199 7,928,256 170,797 10,155,071
Administrative expenses 7,936 8,068 2,417 146,140 164,561
----------- ----------- ----------- ------------ ---------- -----------
Total deductions 852,776 957,047 264,616 8,074,396 170,797 10,319,632
----------- ----------- ----------- ------------ ---------- -----------
Net decrease (613,534) (99,177) (641,651) (1,492,404) (214) (2,846,980)
Net assets available for benefits:
Beginning of year 5,584,921 4,069,062 1,910,970 $ 51,353,174 2,229,401 65,147,742
----------- ----------- ----------- ------------ ---------- -----------
End of year $ 4,971,387 $ 3,969,885 $ 1,269,319 $ 49,860,770 $2,229,401 $62,300,762
=========== =========== =========== ============ ========== ===========
</TABLE>
-12-
GOLDEN RETIREMENT
SAVINGS PROGRAM
Financial Statements for the Years
Ended December 31, 1994 and 1993 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, 1994 and 1993 2
Statements of Changes in Net Assets Available for Benefits -
Years ended December 31, 1994 and 1993 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, 1994 and 1993, 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, 1994 and 1993, and the changes in net assets
available for benefits for the years then ended in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE, LLP
Milwaukee, Wisconsin
April 21, 1995
GOLDEN RETIREMENT SAVINGS PROGRAM
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
ASSETS:
Investments in Western
Publishing Group, Inc. Master
Retirement Trust pooled investment
accounts (Notes 3 and 4):
Investment funds $ 2,895,585 $ 8,574,837
Guaranteed investment contracts 25,166,596 17,737,713
Parent company stock 451,051 963,135
Loans receivable from participants 1,446,781 1,425,192
Accrued income receivable 95,927 79,092
Contributions receivable:
Western Publishing Company, Inc. 10,417 70,547
Participants 198,176 220,260
----------- -----------
Total assets 30,264,533 29,070,776
----------- -----------
LIABILITIES:
Payable to third parties 43,791 28,689
----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS $30,220,742 $29,042,087
=========== ===========
</TABLE>
See notes to financial statements.
-2-
GOLDEN RETIREMENT SAVINGS PROGRAM
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Investment income - Increase in equity
of allocable portion of Western Publishing
Group, Inc. Master Retirement Trust pooled
investment accounts - (Notes 3 and 7):
Interest $ 1,370,732 $1,554,415
Dividends 324,364 181,828
(Depreciation) appreciation on pooled
investment accounts (856,321) 32,483
Contributions:
Western Publishing Company, Inc. 709,867 843,875
Participants 2,100,388 2,366,834
----------- -----------
Total additions 3,649,030 4,979,435
----------- -----------
Payments to or on behalf of participants 2,355,925 1,584,775
Administrative expenses 114,450 106,132
----------- -----------
Total deductions 2,470,375 1,690,907
----------- -----------
Net increase 1,178,655 3,288,528
Net assets available for benefits:
Beginning of year 29,042,087 25,753,559
----------- -----------
End of year $30,220,742 $29,042,087
=========== ===========
</TABLE>
See notes to financial statements.
-3-
GOLDEN RETIREMENT SAVINGS PROGRAM
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 and 1993
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 $9,240 in 1994 and $8,994
for 1993 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
1994 and 1993 totalled $60,837 and $10,329,
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:
-4-
GOLDEN RETIREMENT SAVINGS PROGRAM
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Number of Participants
Invested in Fund at
Fund Type December 31, 1994
Conservative Equity Fund 346
Aggressive Equity Fund 322
Interest Accumulation Fund 1,247
Parent Company Stock Fund 284
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:
-5-
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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting - The accompanying financing
statements have been prepared on the accrual basis for
accounting.
Investments - 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.
Valuation of Investments - 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.
Expenses - Plan expenses, such as trustee and accounting
fees, are charged to the Plan.
Benefits Payable - 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. Net
assets available for benefits included benefits of
$1,107,068 and $160,070 due to participants who have
withdrawn from participation in the Plan as of December
31, 1994, and 1993, respectively.
-6-
GOLDEN RETIREMENT SAVINGS PROGRAM
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS IN MASTER TRUST
Investments in the Master Trust at December 31, 1994 and
1993 were as follows:
1994 1993
(Dollars in Thousands)
Guaranteed investment contracts $ 77,725 $ 54,077
Pooled investment funds 26,821 51,480
Common stock 1,610 3,602
-------- --------
Total investments $106,156 $109,159
======== ========
The net investment gain of the Master Trust for the years ended
December 31, 1994 and 1993 was as follows:
1994 1993
(Dollars in Thousands)
Interest and Dividends $ 6,129 $ 6,425
(Depreciation) appreciation in fair
value of investments (4,024) 1,404
Administrative expenses (453) (402)
-------- --------
Net investment gain $ 1,652 $ 7,427
======== ========
The Plan's interest in the Master Trust as a percentage of net
assets of the Master Trust was approximately 27% and 25% at
December 31, 1994 and 1993, respectively.
4. INVESTMENTS
Investments in pooled investment funds at December 31, 1994
and 1993 were as follows:
<TABLE>
<CAPTION>
1994 1993
------------------- -----------------------
UNITS FAIR VALUE UNITS FAIR VALUE
<S> <C> <C> <C> <C>
Conservative Equity Fund
(Evergreen Total Return Fund) 88,049 $1,499,470 68,486 $ 1,343,705
Aggressive Equity Fund (Evergreen
Fund) 115,236 1,386,290 90,663 1,287,415
Bankers Trust Pyramid Directed
Account Cash Fund 9,825 9,825 5,943,717 5,943,717
---------- -----------
$2,895,585 $ 8,574,837
========== ===========
</TABLE>
-7-
GOLDEN RETIREMENT SAVINGS PROGRAM
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Investments in guaranteed investment contracts at December
31, 1994 and 1993 were as follows:
1994 1993
Principal Mutual Life
Insurance Company $3,915,676 $4,188,938
Contract #GA4-6187-2
New York Life Insurance
Company 3,626,593 4,013,043
Contract #GA-06701-2-2
Allstate Life Insurance
Company 3,617,030 3,857,719
Group Annuity Contract #GA-
5343-2
John Hancock Mutual Life
Insurance Company 3,963,771
Contract #GAC-7313-1
CNA Insurance Company
Contract #12732-016 3,666,600
New York Life Insurance
Company 1,879,800 2,011,413
Contract #GA-06701-2
Metropolitan Life Insurance
Company 3,470,292
Contract #GA-13981-169
Metropolitan Life Insurance
Company 1,264,372
Contract #GA-13823-169
Hartford Life Insurance
Company
Contract #GA-10145-A 3,429,062
----------- -----------
$25,166,596 $17,737,713
=========== ===========
Investments in parent company stock at December 31, 1994
and 1993 were as follows:
Fair
Shares Value
Western Publishing Group, Inc.
common stock:
December 31, 1994 47,479 $451,051
========
December 31, 1993 50,033 $963,135
========
-8-
GOLDEN RETIREMENT SAVINGS PROGRAM
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Transactions in the common stock of Western Publishing
Group, Inc. were as follows:
1994 1993
----------------- -----------------
Shares Amount Shares Amount
Aggregate purchases 14,411 $175,595 23,096 $366,846
======== ========
Aggregate sales and
distributions to
participants 16,965 $267,499 2,070 $ 34,220
======== ========
5. 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 and subsequent to December 31,
1994, the Company filed the amended Plan with the
Internal Revenue Service for the purpose of obtaining an
updated 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.
6. 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.
-9-
GOLDEN RETIREMENT SAVINGS PROGRAM
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. 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, 1994 and the changes in net assets available for
benefits for the year then ended were as follows:
<TABLE>
<CAPTION>
Interest
Conservative Aggressive Parent Company Accumulation
Equity Fund Equity Fund Stock Fund Fund Loan Fund Total
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Interest $ 138 $ 140 $ 743 $ 1,271,978 $ 97,733 $ 1,370,732
Dividends 108,427 215,937 324,364
Depreciation on pooled
investment accounts (201,820) (208,624) (445,877) (856,321)
---------- ---------- ---------- ----------- ---------- -----------
Total investment income (loss) (93,255) 7,453 (445,134) 1,271,978 97,733 838,775
Contributions:
Western Publishing
Company Inc. 70,740 50,310 34,771 554,046 709,867
Participants 216,268 170,599 112,896 1,600,625 2,100,388
Transfers of assets from (to)
other funds (119,647) (39,225) (24,670) 51,785 131,757
---------- ---------- ---------- ----------- ---------- -----------
Total additions 74,106 189,137 (322,137) 3,478,434 229,490 3,649,030
---------- ---------- ---------- ----------- ---------- -----------
Payments to or on behalf
of participants 54,692 85,748 58,247 1,961,833 195,405 2,355,925
Administrative expenses 3,758 3,823 2,065 104,804 114,450
---------- ---------- ---------- ----------- ---------- -----------
Total deductions 58,450 89,571 60,312 2,066,637 195,405 2,470,375
---------- ---------- ---------- ----------- ---------- -----------
Net decrease 15,656 99,566 (382,449) 1,411,797 34,085 1,178,655
Net assets available for benefits:
Beginning of year 1,472,907 1,299,394 852,469 23,992,125 1,425,192 29,042,087
---------- ---------- ---------- ----------- ---------- -----------
End of year $1,488,563 $1,398,960 $ 470,020 $25,403,922 $1,459,277 $30,220,742
========== ========== ========== =========== ========== ===========
</TABLE>
-10-
GOLDEN RETIREMENT SAVINGS PROGRAM
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Net assets at December 31, 1993 and the changes in net assets available for
benefits for the year then ended were as follows:
<TABLE>
<CAPTION>
Interest
Conservative Aggressive Parent Company Accumulation
Equity Fund Equity Fund Stock Fund Fund Loan Fund Total
<S> <C> <C> <C> <C> <C> <C>
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
========== ========== ========== =========== ========== ===========
(Concluded)
</TABLE>
-11-
PENN CORPORATION
COMPREHENSIVE
SECURITY PROGRAM
Financial Statements for the Years
Ended December 31, 1994 and 1993 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, 1994 and 1993 2
Statements of Changes in Net Assets Available for Benefits -
Years Ended December 31, 1994 and 1993 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, 1994 and 1993, 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, 1994 and 1993, and the changes in net assets
available for benefits for the years then ended in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Milwaukee, WI
April 21, 1995
PENN CORPORATION COMPREHENSIVE SECURITY PROGRAM
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
ASSETS:
Investments in Western Publishing Group, Inc. Master
Retirement Trust pooled investment accounts (Notes 3 and 4):
Investment funds $ 423,031 $1,077,562
Guaranteed investment contracts 2,925,750 1,880,389
Parent company stock 64,609 165,319
Loans receivable from participants 85,668 79,017
Accrued income receivable 13,524 8,604
Contributions receivable:
Penn Corporation 151,552 383,865
Participants 21,184 46,968
---------- ----------
Total assets 3,685,318 3,641,724
---------- ----------
LIABILITIES:
Payable to third parties 4,573 2,401
---------- ----------
NET ASSETS AVAILABLE FOR BENEFITS $3,680,745 $3,639,323
========== ==========
</TABLE>
See notes to financial statements.
-2-
PENN CORPORATION COMPREHENSIVE SECURITY PROGRAM
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED DECEMBER 31, 1994 AND 1993
1994 1993
Investment income - Increase in equity
of allocable portion of Western Publishing
Group, Inc. Master Retirement Trust pooled
investment accounts (Notes 3 and 7):
Interest $ 158,146 $ 171,927
Dividends 49,714 21,945
Depreciation on pooled investment accounts (137,350) (14,252)
Contributions:
Penn Corporation 150,521 383,915
Participants 482,664 524,379
---------- ----------
Total additions 703,695 1,087,914
---------- ----------
Payments to or on behalf of participants 651,549 627,373
Administrative expenses 10,724 17,205
---------- ----------
Total deductions 662,273 644,578
---------- ----------
Net increase 41,422 443,336
Net assets available for benefits:
Beginning of year 3,639,323 3,195,987
---------- ----------
End of year $3,680,745 $3,639,323
========== ==========
See notes to financial statements.
-3-
PENN CORPORATION COMPREHENSIVE SECURITY PROGRAM
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 and 1993
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
$9,240 for 1994 and $8,944 for 1993 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 1994 and 1993 totaled
$21,058 and $4,769, respectively. The employers'
contributions are always invested in the Interest
Accumulation Fund.
-4-
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, 1994
Conservative Equity Fund 65
Aggressive Equity Fund 59
Interest Accumulation Fund 288
Parent Company Stock Fund 40
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.
-5-
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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting - The accompanying financial statements
have been prepared on the accrual basis of accounting.
Investments - 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.
Valuation of Investments - 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.
Expenses - Plan expenses, such as trustee and accounting fees,
are chargeable to the Plan. During 1994 and 1993, $10,724 and
$17,205, respectively, of such expenses were paid by the Plan.
-6-
PENN CORPORATION COMPREHENSIVE SECURITY PROGRAM
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Benefits Payable - 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. Net
assets available for benefits included benefits of $1,476,859
and $61,944 due to participants who have withdrawn from
participation in the Plan as of December 31, 1994 and 1993,
respectively.
3. INVESTMENTS IN MASTER TRUST
Investments in the Master Trust at December 31, 1994 and 1993
were as follows:
1994 1993
(Dollars in Thousands)
Guaranteed investment contracts $ 77,725 $ 54,077
Pooled investment funds 26,821 51,480
Common stock 1,610 3,602
-------- --------
Total investments $106,156 $109,159
======== ========
The net investment gain of the Master Trust for the years
ended December 31, 1994 and 1993 was as follows:
1994 1993
(Dollars in Thousands)
Interest and Dividends $ 6,129 $ 6,425
(Depreciation) appreciation in fair
value of investments (4,024) 1,404
Administrative expenses (453) (402)
-------- --------
Net investment gain $ 1,652 $ 7,427
======== ========
The Plan's interest in the Master Trust as a percentage of net
assets of the Master Trust was approximately 3% at December
31, 1994 and 1993.
-7-
PENN CORPORATION COMPREHENSIVE SECURITY PROGRAM
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INVESTMENTS
Investments in pooled investment funds at December 31, 1994
and 1993 were as follows:
<TABLE>
<CAPTION>
1994 1993
------------------- -----------------------
UNITS FAIR VALUE UNITS FAIR VALUE
<S> <C> <C> <C> <C>
Conservative Equity Fund
(Evergreen Total Return Fund) 11,703 $ 199,306 8,792 $ 172,491
Aggressive Equity Fund (Evergreen
Fund) 18,368 200,963 12,533 177,973
Bankers Trust Pyramid Directed
Account Cash Fund 2,762 2,762 727,098 727,098
---------- -----------
$423,031 $1,077,562
========== ===========
</TABLE>
Investments in guaranteed investment contracts at December
31, 1994 and 1993 were as follows:
1994 1993
Principal Mutual Life Insurance Company
Contract #GA4-6187-3 $ 608,537 $ 711,685
John Hancock Mutual Life Insurance Company
Contract #GAC-7313-2 794,214
CNA Insurance Company
Contract #12732-026 478,308
New York Life Insurance Company
Contract #GA-06701-2-3 211,465 255,940
New York Life Insurance Company
Contract #GA-06701-3 190,114 222,404
Allstate Life Insurance Company
Group Annuity Contract #GA-5343-3 181,860 212,052
Metropolitan Life Insurance Company
Contract #GA-13981-269 412,737
Metropolitan Life Insurance Company
Contract #GA-13823-269 140,382
Hartford Life Insurance Company
Contract #GA-1014-AZ 386,441
---------- ----------
$2,925,750 $1,880,389
========== ==========
-8-
PENN CORPORATION COMPREHENSIVE SECURITY PROGRAM
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Investments in parent company stock at December 31, 1994 and
1993 were as follows:
Fair
Shares Value
Western Publishing Group, Inc.
common stock:
December 31, 1994 6,801 $ 64,609
========
December 31, 1993 8,588 $165,319
========
Transactions in the common stock of Western Publishing Group,
Inc. were as follows:
1994 1993
----------------- -----------------
Shares Amount Shares Amount
Aggregate purchases 1,510 $17,997 1,466 $23,267
======== ========
Aggregate sales 3,297 $52,502 1,373 $22,835
======== ========
5. 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 and
subsequent to December 31, 1994, the Company filed the
amended Plan with the Internal Revenue Service for the
purpose of obtaining an updated 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.
6. 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.
-9-
PENN CORPORATION COMPREHENSIVE SECURITY PROGRAM
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. 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, 1994 and the changes in net assets available for
benefits for the year then ended were as follows:
<TABLE>
<CAPTION>
Interest
Conservative Aggressive Parent Company Accumulation
Equity Fund Equity Fund Stock Fund Fund Loan Fund Total
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Intererest $ 19 $ 21 $ 120 $ 152,846 $ 5,140 $ 158,146
Dividends 15,241 34,473 49,714
Depreciation on pooled
investment accountants (27,193) (32,968) (77,189) (137,350)
-------- -------- -------- ---------- ------- ----------
Total investment income (loss) (11,933) 1,526 (77,069) 152,846 5,140 70,510
Contribtions:
Penn Corporation 150,521 150,521
Participants 87,608 82,244 35,450 277,362 482,664
Transfers of assets from (to)
other funds (9,455) (2,613) (34,623) 37,003 9,688
-------- -------- -------- ---------- ------- ----------
Total additions 66,220 81,157 (76,242) 617,732 14,828 703,695
-------- -------- -------- ---------- ------- ----------
Payments to or on behalf
of participants 43,030 32,075 16,127 548,525 11,792 651,549
Administrative expenses 182 196 584 9,762 10,724
-------- -------- -------- ---------- ------- ----------
Total deductions 43,212 32,271 16,711 558,287 11,792 662,273
-------- -------- -------- ---------- ------- ----------
Net increase (decrease) 23,008 48,886 (92,953) 59,445 3,036 41,422
Net assets available for benefits:
Beginning of year 180,044 175,055 162,285 3,042,922 79,017 3,639,323
-------- -------- ------- ---------- ------- ----------
End of year $203,052 $223,941 $69,332 $3,102,367 $82,053 $3,680,745
======== ======== ======= ========== ======= ==========
</TABLE>
-10-
PENN CORPORATION COMPREHENSIVE SECURITY PROGRAM
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Net assets at December 31, 1993 and the changes in net assets available for
benefits for the year then ended were as follows:
<TABLE>
<CAPTION>
Interest
Conservative Aggressive Parent Company Accumulation
Equity Fund Equity Fund Stock Fund Fund Loan Fund Total
<S> <C> <C> <C> <C> <C> <C>
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 8,946 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
======== ======== ======== ========== ======= ==========
(Concluded)
</TABLE>
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Western
Publishing Group, Inc. and Subsidiaries Consolidated Financial Statements as of
and for the year ended January 28, 1995 and is qualified in its entirety by
reference to such financial statements.
WESTERN PUBLISHING GROUP, INC.
Financial Data Schedule
Article 5 of Regulation S-X
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-28-1995
<PERIOD-END> JAN-28-1995
<CASH> 85,406
<SECURITIES> 0
<RECEIVABLES> 94,790
<ALLOWANCES> 11,539
<INVENTORY> 108,738
<CURRENT-ASSETS> 327,624
<PP&E> 122,990
<DEPRECIATION> 47,325
<TOTAL-ASSETS> 428,806
<CURRENT-LIABILITIES> 99,384
<BONDS> 149,828
9,985
0
<COMMON> 212
<OTHER-SE> 140,582
<TOTAL-LIABILITY-AND-EQUITY> 428,806
<SALES> 398,354
<TOTAL-REVENUES> 402,555
<CGS> 297,421
<TOTAL-COSTS> 124,128
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 472
<INTEREST-EXPENSE> 17,567
<INCOME-PRETAX> (15,109)
<INCOME-TAX> 2,470
<INCOME-CONTINUING> (17,579)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,579)
<EPS-PRIMARY> (0.88)
<EPS-DILUTED> 0
</TABLE>
