-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, NVPznGB0du2lvwYndyrSQFB1i09h6iHgENf4pKKSPFsCL34rwQj0N7j3R9qPtDyK HOu7gYhd6KnpF6HyjPQUTg== 0000912057-94-004192.txt : 19941216 0000912057-94-004192.hdr.sgml : 19941216 ACCESSION NUMBER: 0000912057-94-004192 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941215 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DISNEY WALT CO CENTRAL INDEX KEY: 0000029082 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 950684440 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04083 FILM NUMBER: 94564838 BUSINESS ADDRESS: STREET 1: 500 S BUENA VISTA ST CITY: BURBANK STATE: CA ZIP: 91521 BUSINESS PHONE: 8185601000 FORMER COMPANY: FORMER CONFORMED NAME: DISNEY WALT PRODUCTIONS DATE OF NAME CHANGE: 19860221 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended September 30, 1994 Commission File Number 1-4083 THE WALT DISNEY COMPANY Incorporated in Delaware I.R.S. Employer Identification No. 500 South Buena Vista Street 95-0684440 Burbank, California 91521 (818) 560-1000 Securities Registered Pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered - ------------------- --------------------- Common Stock, $.025 par value New York Stock Exchange Pacific Stock Exchange Swiss Stock Exchange Tokyo Stock Exchange Securities Registered Pursuant to Section 12(g) of the Act: None. 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.. No.... Indicate by check mark if disclosure of delinquent filers pursuant to Rule 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ..... As of November 30, 1994, the aggregate market value of registrant's common stock held by non-affiliates (based on the closing price on such date as reported on the New York Stock Exchange-Composite Transactions) was $20.7 billion. All executive officers and directors of registrant and all persons filing a Schedule 13D with the Securities and Exchange Commission in respect to registrant's common stock have been deemed, solely for the purpose of the foregoing calculation, to be "affiliates" of the registrant. There were 517,054,527 shares of common stock outstanding as of December 9, 1994. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the 1995 Annual Meeting of Stockholders are incorporated by reference into Part III. PART I ITEM 1. BUSINESS The Walt Disney Company, together with its subsidiaries (the "Company"), is a diversified international entertainment company with operations in three business segments: Filmed Entertainment, Theme Parks and Resorts and Consumer Products. Information on revenues, operating income, identifiable assets and supplemental revenue data of the Company's business segments appears in the Consolidated Statement of Income and in Note 12 of Notes to Consolidated Financial Statements included in Item 8 hereof. The Company employs approximately 65,000 people. FILMED ENTERTAINMENT The Company produces and acquires live-action and animated motion pictures for distribution to the theatrical, television and home video markets. The Company also produces original television programming for the network and first- run syndication markets. In addition, the Company provides programming for and operates The Disney Channel, a pay television programming service, and KCAL-TV, a Los Angeles, California television station. The success of all the Company's theatrical motion pictures and television programming is heavily dependent upon public taste, which is unpredictable and subject to change without warning. In addition, filmed entertainment operating results fluctuate due to the timing of theatrical and home video releases. Release dates are determined by several factors, including timing of vacation and holiday periods and competition in the market. THEATRICAL FILMS Walt Disney Pictures and Television, a wholly-owned subsidiary of the Company, produces and acquires live-action motion pictures that are distributed under the names Walt Disney Pictures, Touchstone Pictures, Hollywood Pictures and Caravan Pictures. The Company's Miramax Film Corp. subsidiary distributes films under its own banner. In addition, the Company distributes films produced or acquired by the independent production companies Cinergi Pictures Entertainment, Interscope Communications and Merchant-Ivory Productions. The Company also produces animated motion pictures under the name Walt Disney Pictures. The Company plans to distribute approximately 20 to 30 feature films each year under the total Walt Disney Company banners, including several live-action family feature films each year and one to two full-length animated films every eighteen months under the Walt Disney Pictures name, together with a total of between fifteen and twenty-five teenage and adult films each year under the various motion picture banners. The Company also expects that Miramax will independently acquire and produce up to 25 films per year. In addition, the Company periodically reissues previously released animated films. As of September 30, 1994, the Company had released 285 full-length live-action (primarily color) features, 32 full-length animated color features and approximately 536 cartoon shorts. The Company distributes its filmed products through its own distribution and marketing companies in the United States and most foreign markets. HOME VIDEO The Company distributes directly home video releases from each of its studios in the domestic market. In the international market, the Company distributes both directly and through foreign distribution companies. In addition, the Company acquires and produces original programming for direct-to-video release. As of September 30, 1994, approximately 591 titles, including 143 feature films and 207 cartoon shorts and features were available to the domestic marketplace. Approximately 498 titles, including 191 feature films and 237 cartoon and animated features were available to the international home entertainment market. -1- NETWORK TELEVISION The Company's network television operation develops, produces and distributes television programming to network and other broadcasters, under the Touchstone Television and Walt Disney Television labels. Program development is carried out in collaboration with a number of independent writers, producers and creative teams under exclusive development arrangements. Since 1991, the Company has focused on the development, production and distribution of half-hour comedies for network prime-time broadcast, including such series as HOME IMPROVEMENT, EMPTY NEST, BLOSSOM, BOY MEETS WORLD and ELLEN. The Company seeks to syndicate in the domestic market those series that produce enough programs to permit syndicated "strip" broadcasting on a five-days-per-week basis. The Company licenses television series developed for United States networks in a number of foreign markets, including Canada, Italy, the United Kingdom, Spain, Germany and Australia. Walt Disney Television currently distributes two animated cartoon series for Saturday morning: ALADDIN and THE LITTLE MERMAID. The Company also offers a variety of prime-time specials for exhibition on network television. The Company believes that its television programs complement the marketing and distribution of its theatrical motion pictures, the Walt Disney World destination resort, Disneyland and other businesses. PAY TELEVISION AND TELEVISION SYNDICATION The Company licenses a number of feature films to pay television services, including its wholly-owned subsidiary, The Disney Channel. The Company's Buena Vista Television subsidiary licenses the theatrical and television film library to the domestic television syndication market. Major packages of the Company's feature films and television programming have been licensed for broadcast and basic cable continuing over several years. The Company currently licenses its feature films for pay television on an output basis in several geographic markets, including the United Kingdom and Scandinavia, and has an arrangement with Showtime through 1996 for the United States. In 1993, the Company entered into an agreement to license to the Encore pay television service, over a multi-year period, exclusive domestic pay television rights to Miramax films beginning in 1994 and Touchstone Pictures and Hollywood Pictures films starting in 1997. The Company also produces first-run animated and live-action syndicated programming. The Disney Afternoon is a two-hour block of cartoons airing five days per week including DARKWING DUCK, GOOF TROOP, BONKERS, and the recently added ALADDIN and GARGOYLES series. TALE SPIN, DUCK TALES and CHIP 'N DALE are also syndicated nationally. Live action programming includes: LIVE WITH REGIS AND KATHIE LEE, MIKE & MATY and JUDGE FOR YOURSELF, one-hour daily talk shows; SISKEL & EBERT, a weekly half-hour motion picture review program; BILL NYE THE SCIENCE GUY, a weekly half-hour educational program for children; and THE CRUSADERS, a weekly one-hour investigative news show. The Company also has two off-network programs in syndication, GOLDEN GIRLS and EMPTY NEST. Certain of the Company's television programs are also syndicated by the Company abroad, including THE DISNEY CLUB, a weekly series that the Company produces for foreign markets. The Company's television programs are telecast regularly in many countries, including Australia, Brazil, Canada, China, France, Germany, Italy, Japan, Mexico, Spain and the United Kingdom. The Company has also teamed with Compagnie Luxembourgeoise de Telediffusion to develop a new family-oriented channel in Germany. -2- THE DISNEY CHANNEL The Disney Channel, which has more than eight million subscribers, is the Company's nationwide premium television service. New shows developed for original use by The Disney Channel include dramatic, adventure, comedy and educational series, as well as documentaries and first-run television movies. In addition, entertainment specials include shows originating from both the Walt Disney World destination resort and Disneyland. The balance of the programming consists of products acquired from third parties and products from the Company's theatrical film and television programming library. KCAL-TV The Company operates KCAL-TV, an independent commercial station on VHF channel 9 in the Los Angeles area. Its revenues are derived from the sale of advertising time to local, regional and national advertisers. WALT DISNEY THEATRICAL PRODUCTIONS In 1994, the Company produced a Broadway-style stage musical based on the animated feature film BEAUTY AND THE BEAST. The stage adaptation, currently playing in New York City, is scheduled to open in additional cities around the world beginning in 1995. COMPETITIVE POSITION The Company's filmed entertainment businesses (including theatrical films, product distributed through the network, syndication and pay television and home video markets, and The Disney Channel) compete with all forms of entertainment. The Company also competes to obtain creative talents, story properties, advertiser support, broadcast rights and market share, which are essential to the success of all of the Company's filmed entertainment businesses. A significant number of companies produce and/or distribute theatrical and television films, exploit products in the home video market and provide pay television programming service. The Company produces and distributes films designed for family audiences and believes that it is a significant source of such films. THEME PARKS AND RESORTS The Company operates the Walt Disney World [REGISTERED TRADEMARK] destination resort in Florida and the Disneyland Park [REGISTERED TRADEMARK] and the Disneyland Hotel in California. The Company earns royalties on revenues generated by the Tokyo Disneyland theme park. All of the theme parks and most of the associated resort facilities are operated on a year-round basis. Historically, the theme parks and resorts business experiences fluctuations in park attendance and resort occupancy resulting from the nature of vacation travel. Peak attendance and resort occupancy generally occur during the summer months when school vacations occur and during early-winter and spring holiday periods. WALT DISNEY WORLD DESTINATION RESORT The Walt Disney World destination resort is located on approximately 29,900 acres of land owned by the Company 15 miles southwest of Orlando, Florida. The resort includes three theme parks (the Magic Kingdom, Epcot and the Disney-MGM Studios Theme Park), hotels and villas, an entertainment complex, a shopping village, conference centers, campgrounds, golf courses, water parks and other recreational facilities designed to attract visitors for an extended stay. The Company markets the entire Walt Disney World destination resort through a variety of national, international and local advertising and promotional activities. A number of attractions in each of the theme parks are sponsored by corporate participants through long-term participation agreements. MAGIC KINGDOM -- The Magic Kingdom, which opened in 1971, consists of seven principal areas: Main Street, Liberty Square, Frontierland, Tomorrowland, Fantasyland, Adventureland and Mickey's Starland. These areas feature themed rides and attractions, restaurants, refreshment stands and merchandise shops. -3- EPCOT -- Epcot, which opened in 1982, consists of two major themed areas: Future World and World Showcase. Future World dramatizes certain historical developments and addresses the challenges facing the world today through major pavilions, displaying high-tech products of the future ("Innoventions"), communication and technological exhibitions ("Spaceship Earth"), energy, transportation, imagination, life and health, the land and seas. World Showcase presents a community of nations focusing on the culture, traditions and accomplishments of people around the world. World Showcase includes as a central showpiece the American Adventure pavilion, which highlights the history of the American people. Other nations represented are Canada, Mexico, Japan, China, France, the United Kingdom, Germany, Italy, Morocco and Norway. Both areas feature themed rides and attractions, restaurants, refreshment stands and merchandise shops. DISNEY-MGM STUDIOS THEME PARK -- The Disney-MGM Studios Theme Park, which opened in 1989, consists of a theme park and a production facility. The theme park centers around Hollywood as it was during the 1930's and 1940's and features a backstage tour of the production facilities in addition to themed food service and merchandise facilities and other attractions. The production facility consists of three sound stages, merchandise shops and a back lot area and currently hosts both feature film and television productions. RESORT FACILITIES -- As of September 30, 1994, the Company owned and operated 10 resort hotels and a complex of villas and suites at the Walt Disney World destination resort, with a total of approximately 12,400 rooms. An additional resort hotel, Disney's All-Star Music Resort, is expected to open in 1995 with a capacity of more than 1,900 rooms. In addition, Disney's Fort Wilderness camping and recreational area offers approximately 1,200 campsites and wilderness homes. Several of the resort hotels also contain conference centers and related facilities. Recreational activities available at the resort facilities include five championship golf courses, a zoological park, tennis, sailing, water skiing, swimming, horseback riding and a number of noncompetitive sports and leisure time activities. The Company also operates two water parks, River Country and Typhoon Lagoon. An additional themed water park, Blizzard Beach, is expected to open in 1995. The Company has also developed a shopping facility known as the Disney Village Marketplace. Pleasure Island, an evening entertainment center which opened in 1989, is adjacent to Disney Village Marketplace and includes restaurants, night clubs and shopping facilities. Currently under development are Celebration, a 5,000-acre town; Disney's Boardwalk, a major new mixed-use resort built around a turn-of-the-century Atlantic boardwalk theme; and the Disney Institute, a resort community offering participatory programs and enriching experiences. At the Disney Village Marketplace Hotel Plaza, seven independently operated hotels are situated on property leased from the Company. These hotels have a capacity of approximately 3,700 rooms. Additionally, two hotels--the Walt Disney World Swan and the Walt Disney World Dolphin, with an aggregate capacity of approximately 2,300 rooms--are independently operated on property leased from the Company near Epcot. Another hotel, the 290-room Shades of Green on Walt Disney World Resort, is leased from the Company and operated by a non-profit organization as an armed forces recreation center. DISNEY VACATION CLUB In 1994, Disney Vacation Development, Inc., a wholly-owned subsidiary of the Company, neared completion of its 531-unit Disney Vacation Club at the Walt Disney World Resort. In addition, sales have commenced and construction has begun on a 436-unit Disney Vacation Club in Vero Beach, Florida. Both facilities are intended to be sold under a vacation ownership plan and operated partially as rental property until the units are completely sold. Disney Vacation Development, Inc. has begun development of a resort site on Hilton Head Island, South Carolina and an additional property at Walt Disney World. Plans have also been announced to build a resort in Newport Beach, California. -4- DISNEYLAND The Company owns 330 acres and has under long-term lease an additional 39 acres of land in Anaheim, California. Disneyland, which opened in 1955, consists of eight principal areas: Toontown, Fantasyland, Adventureland, Frontierland, Tomorrowland, New Orleans Square, Main Street and Critter Country. These areas feature themed rides and attractions, restaurants, refreshment stands and merchandise shops. A number of the Disneyland attractions are sponsored by corporate participants. The Company markets Disneyland through national and local advertising and promotional activities. The Company also owns and operates the 1,100-room Disneyland Hotel near Disneyland. TOKYO DISNEYLAND The Company earns royalties on revenues generated by the Tokyo Disneyland theme park, which is owned and operated by Oriental Land Co., Ltd., an unrelated Japanese corporation. The park, which opened in 1983, is similar in size and concept to Disneyland and is located approximately six miles from downtown Tokyo, Japan. DISNEY DESIGN AND DEVELOPMENT Disney Design and Development, encompassing the Company's two major design and development organizations, Walt Disney Imagineering and Disney Development Company, provides master planning, real estate development, attraction and show design, engineering support, production support, project management and other development services for the Company's operations. COMPETITIVE POSITION The Company's theme parks and resorts compete with all other forms of entertainment, lodging, tourism and recreational activities. The profitability of the leisure-time industry is influenced by various factors which are not directly controllable, such as economic conditions, amount of available leisure time, oil and transportation prices and weather patterns. The Company believes its theme parks and resorts benefit substantially from the Company's reputation in the entertainment industry for excellent quality and from synergy with activities in other business segments of the Company. CONSUMER PRODUCTS The Company licenses the name Walt Disney, as well as the Company's characters, visual and literary properties and songs and music, to various consumer manufacturers, retailers, show promoters and publishers throughout the world. The Company also engages in direct retail distribution through The Disney Stores and consumer catalogs, and is a publisher of books, magazines and comics in the United States and Europe. In addition, the Company produces audio and computer software for all markets, as well as film and video products for the educational marketplace. Operating results for the consumer products business are influenced by seasonal consumer purchasing behavior and by the timing of animated theatrical releases. CHARACTER MERCHANDISE AND PUBLICATIONS LICENSING The Company's domestic and foreign licensing activities generate royalties which are usually based on a fixed percentage of the wholesale or retail selling price of the licensee's products. The Company licenses characters based upon both traditional and newly-created film properties. Character merchandise categories which have been licensed include apparel, watches, toys, gifts, housewares, stationery, sporting goods and domestic items such as sheets and towels. Publication categories which have been licensed include continuity- series books, book sets, art and picture books, magazines and newspaper comic strips. In addition to receiving licensing fees, the Company is actively involved in the development and approval of licensed merchandise and in the conceptualization, development, writing and illustration of licensed publications. The Company continually seeks to create new characters to be used in licensed products. -5- PUBLISHING The Company has book imprints in the United States offering trade books for children (Mouse Works, Disney Press and Hyperion Books for Children) and adults (Hyperion Press). In addition, the Company is a joint venture partner in Disney Hachette Editions, which produces children's books, and Disney Hachette Presse, which produces children's magazines and computer software magazines in France. In the United States, Italy and France, the Company publishes comic magazines for children. The Company also publishes the children's magazine DISNEY ADVENTURES, the general science magazine DISCOVER and the family entertainment and informational magazines FAMILYFUN and FAMILY PC. THE DISNEY STORES The Company markets Disney-related products directly through its retail facilities operated under "The Disney Store" name. These facilities are generally located in leading shopping malls and similar retail complexes. The stores carry a wide variety of Disney merchandise and promote other businesses of the Company. During fiscal 1994, the Company opened 59 new Disney Stores in the United States and Canada, 18 in Europe and 8 in Japan, bringing the total number to 324 as of September 30, 1994. The Company expects to open additional stores in the future in selected markets throughout the country, as well as in Japan and other Asian, European, and Latin American countries. AUDIO PRODUCTS AND MUSIC PUBLISHING Walt Disney Records, a division of the Company, produces and distributes records, audio cassettes and compact discs primarily directed at the children's market in the United States and France, consisting primarily of soundtracks for animated films and read-along products, and licenses the creation of similar products throughout the rest of the world. In addition, the Company commissions new music for its motion pictures, television programs and records and exploits the song copyrights created for the Company by means of printed music, records, audiovisual devices and public performances. Domestic retail sales of records, compact discs, audio cassettes and related materials are the largest source of revenues, while direct marketing, which utilizes catalogs, coupon packages and television, is a secondary means of distribution for the Company. In both the United States and abroad, the Company signs, produces and promotes entertainers primarily for the children's market. OTHER ACTIVITIES The Company produces audiovisual materials for the educational market, including videocassettes and film strips. It also licenses the manufacture and sale of posters and other teaching aids. The Company markets and distributes, through various channels, animation cel art and other animation-related artwork. In addition, the Company licenses the manufacture of software products for video game machines and publishes its own software programs for personal computers in the areas of entertainment, creativity and children's programs. The Company is a direct marketer of children's educational toys, play equipment, classroom furniture and activewear apparel through THE DISNEY CATALOG, CHILDCRAFT, JUST FOR KIDS and PLAYCLOTHES. COMPETITIVE POSITION The Company competes in its character merchandising and other licensing, publishing and retail activities with other licensors, publishers and retailers of character, brand and celebrity names. In the record and music publishing business the Company competes with several other companies. Although public information is limited, the Company believes it is the largest worldwide licensor of character-based merchandise and producer/distributor of children's audio products. -6- OTHER OPERATIONS HOLLYWOOD RECORDS Hollywood Records seeks to develop and market recordings from new talent across the spectrum of popular music, as well as soundtracks from the Company's live-action motion pictures. Domestic and foreign distribution is handled by PolyGram Group Distribution. DISNEY SPORTS ENTERPRISES Disney Sports Enterprises provides management and development services for the Company's National Hockey League franchise, the Mighty Ducks of Anaheim. DISNEYLAND PARIS Disneyland Paris (formerly referred to as the Euro Disney Resort) is located on a 4,800-acre site at Marne-la-Vallee, approximately 20 miles east of Paris, France. The project has been developed pursuant to a 1987 master agreement with French governmental authorities by Euro Disney S.C.A., a publicly held French company in which the Company holds a 39% equity interest and which is managed by a subsidiary of the Company. The Disneyland Paris theme park, which opened in April 1992, draws on a number of European traditions in its five themed lands. Six themed hotels, with a total of approximately 5,200 rooms, are part of the resort complex, together with an entertainment center offering a variety of retail, dining and show facilities and a 595-space camping area. The complex is served by direct rail transport to Paris and by high-speed TGV train service. In connection with the project, the Company has licensed various intellectual property rights to Euro Disney, for which the Company is entitled to royalties on certain revenues generated by Disneyland Paris. In addition, the subsidiary of the Company that manages Euro Disney is entitled to management fees based on the revenues and incentive fees based on cash flows of Euro Disney. In 1992, the Company agreed to defer receipt of its base management fees for 1992 and 1993 until Disneyland Paris achieved profitability. In 1994, the Company, Euro Disney, Euro Disney's principal creditors and Euro Disney's shareholders approved a financial restructuring that included an offering of new shares, to which the Company subscribed 49%, and various other contributions and concessions by and from the Company and Euro Disney's creditors. In connection with the restructuring, the Company agreed to waive its royalties and base management fees through September 30, 1998. (See Note 2 of Notes to Consolidated Financial Statements and Management's Discussion and Analysis on page 15 for further information.) ITEM 2. PROPERTIES The Walt Disney World destination resort, Disneyland Park and other California and Florida properties are described in Item 1 under the caption THEME PARKS AND RESORTS. Film library properties are described in Item 1 under the caption FILMED ENTERTAINMENT. The Company owns approximately 51 acres of land in Burbank, California on which are located its studios and executive offices. The studio facilities are used for the production of both live-action and animated motion pictures and television products. In addition, the Company leases office and warehouse space for certain of its studio and corporate activities. The Company's KCAL-TV facilities are located in Hollywood, California. It is the Company's practice to obtain United States and foreign legal protection for its theatrical and television product and its other original works, including the various names and designs of the animated characters and the publications and music which have been created in connection with the Company's filmed products. The Company owns all rights to the name, likeness and portrait of Walt Disney. -7- ITEM 3. LEGAL PROCEEDINGS The Company, together with, in some instances, certain of its directors and officers, is a defendant or co-defendant in various legal actions involving copyright, breach of contract and various other claims incident to the conduct of its businesses. Management does not expect the Company to suffer any material liability by reason of such actions. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of stockholders during the fourth quarter of the fiscal year covered by this report. EXECUTIVE OFFICERS OF THE COMPANY The executive officers of the Company are elected each year at the organizational meeting of the Board of Directors which follows the annual meeting of the stockholders and at such other meetings as appropriate. Each of the executive officers has been employed by the Company in the position or positions indicated in the list and pertinent notes below. Messrs. Eisner, Disney, Murphy and Shapiro have been employed by the Company as executive officers for more than five years. At September 30, 1994, the executive officers were as follows:
Executive Officer Name Age Title Since - ------------------------- ----- ------------------------------------------------------------ ------------ Michael D. Eisner 52 Chairman of the Board, Chief Executive Officer 1984 and President (1) Roy E. Disney 64 Vice Chairman of the Board 1984 Sanford M. Litvack 58 Senior Executive Vice President and Chief of Corporate 1991 Operations (2) Lawrence P. Murphy 42 Executive Vice President-Strategic Planning 1985 and Development Richard D. Nanula 34 Executive Vice President and Chief Financial Officer (3) 1990 Joe Shapiro 48 Executive Vice President (4) 1985 John J. Garand 47 Vice President-Planning and Control (5) 1992 ____________________ (1) Frank G. Wells served as President and Chief Operating Officer of the Company until his death in April 1994. (2) Mr. Litvack joined the Company as Senior Vice President-General Counsel in 1991. He was named Executive Vice President-Law and Human Resources in 1992 and was named Senior Executive Vice President and Chief of Corporate Operations in August 1994. Mr. Litvack was previously a member of the executive committee and chairman of the litigation department of the law firm of Dewey Ballantine, of which he was a partner from January 1987 until April 1991. (3) Mr. Nanula joined the Company's strategic planning operation in 1986 and was named Vice President-Treasurer of the Company in January 1990. He was named Senior Vice President and Chief Financial Officer in August 1991 and was named Executive Vice President in February 1994. (4) Mr. Shapiro retired from the Company effective October 1, 1994. (5) Mr. Garand was previously Senior Vice President and Chief Financial Officer for Morse Shoe, Inc. from April 1990 until March 1992. Prior to that, Mr. Garand served in various positions at the corporate and subsidiary offices of PepsiCo, Inc. from 1981 until March 1990.
-8- PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's common stock is listed on the New York, Pacific, Swiss and Tokyo stock exchanges (NYSE symbol DIS). The following sets forth the high and low composite sale prices for the fiscal periods indicated.
Sales Price --------------------------- High Low ------------ ------------ 1994 1st Quarter..................................... $ 45 3/8 $ 37 1/8 2nd Quarter..................................... 48 5/8 40 7/8 3rd Quarter..................................... 45 1/8 39 5/8 4th Quarter..................................... 44 1/4 38 3/4 1993 1st Quarter..................................... $ 45 1/4 $ 33 1/4 2nd Quarter..................................... 47 7/8 41 3/4 3rd Quarter..................................... 45 1/8 38 1/4 4th Quarter..................................... 41 3/8 36
The Company declared one quarterly dividend of $.0625 per share and three quarterly dividends of $.075 per share in 1994, and in 1993 declared one quarterly dividend of $.0525 per share and three quarterly dividends of $.0625. As of September 30, 1994, the approximate number of record holders of the Company's common stock was 458,900. -9- ITEM 6. SELECTED FINANCIAL DATA
(In millions, except per share data) 1994 1993 * 1992 1991 1990 ------------ ------------ ------------ ------------ ------------ Statement of Income Revenues $ 10,055.1 $ 8,529.2 $ 7,504.0 $ 6,112.0 $ 5,757.3 Operating income 1,965.7 1,724.5 1,435.3 1,094.5 1,339.1 Income before cumulative effect of accounting changes 1,110.4 671.3 816.7 636.6 824.0 Cumulative effect of accounting changes (371.5) Net income 1,110.4 299.8 816.7 636.6 824.0 Per Share Earnings before cumulative effect of accounting changes $ 2.04 $ 1.23 $ 1.52 $ 1.20 $ 1.50 Cumulative effect of accounting changes (.68) Earnings 2.04 .55 1.52 1.20 1.50 Cash dividends .29 .24 .20 .17 .14 Balance Sheet Total assets $ 12,826.3 $11,751.1 $10,861.7 $ 9,428.5 $ 8,022.3 Borrowings 2,936.9 2,385.8 2,222.4 2,213.8 1,584.6 Stockholders' equity 5,508.3 5,030.5 4,704.6 3,871.3 3,488.6 Statement of Cash Flows Cash flow from operations $ 2,807.3 $ 2,145.2 $ 1,838.1 $ 1,496.7 $ 1,358.9 Investing activities (2,886.7) (2,659.7) (1,923.7) (1,726.3) (1,181.9) Financing activities (96.7) 112.7 (35.7) 295.9 262.0 * See Notes 1, 6, 7, and 11 of Notes to Consolidated Financial Statements for description of accounting changes adopted in the third quarter of 1993, retroactive to October 1, 1992.
-10- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS 1994 VS. 1993 Revenues increased 18% or $1.53 billion to a record $10.06 billion in 1994, driven by $1.12 billion of growth in Filmed Entertainment, primarily due to the success of home video releases worldwide, the theatrical release of THE LION KING worldwide, except for Europe, and growth in the number of titles available for theatrical and television distribution, and $383.1 million of growth in Consumer Products, reflecting continued expansion of the Disney Stores and the strength of character merchandise licensing worldwide. Revenues of $2.36 billion from foreign operations in all business segments increased 30% or $539.1 million in 1994 and represented 23% of total revenues, an increase of two percentage points over 1993. Operating income rose 14% or $241.2 million to a record $1.97 billion in 1994, driven by increases in Filmed Entertainment and Consumer Products operating income of $233.9 million and $70.1 million, respectively, partially offset by Theme Parks and Resorts results, which declined $62.8 million. Filmed Entertainment growth was generated primarily by the success of home video activities, including the worldwide release of ALADDIN, the domestic releases of THE FOX AND THE HOUND and THE RETURN OF JAFAR, and the international releases of THE JUNGLE BOOK and BAMBI. The strong performance of THE LION KING (excluding Europe) also contributed to growth. Increased Consumer Products operating income was driven by worldwide character merchandise licensing growth generated by traditional Disney characters and new animated film properties, including ALADDIN and THE LION KING. Theme Parks and Resorts operating income reflected lower attendance at Florida and California theme parks, partially offset by higher guest spending and increased occupied rooms in Florida. Costs and expenses increased 19% or $1.28 billion in 1994, reflecting higher film cost amortization, increased distribution and selling costs related to home video and theatrical product, increased operating costs related to expansion of the Disney Stores, and increased operating costs associated with the expansion of theme park attractions and resorts in Florida. Income increased 65% to a record $1.11 billion and earnings per share increased 66% to a record $2.04 from $671.3 million and $1.23, respectively, before the cumulative effect of accounting changes in 1993. Excluding Euro Disney reserves, which negatively impacted 1993 results, income and earnings per share grew 25%. 1993 VS. 1992 Revenues increased 14% or $1.03 billion to $8.53 billion in 1993, driven by $558.2 million of growth in Filmed Entertainment, resulting primarily from successful home video releases and increased international theatrical distribution activities, and $333.2 million of growth in Consumer Products, reflecting continued expansion of the Disney Stores worldwide and increased character merchandise licensing activities. Revenues of $1.82 billion from foreign operations in all business segments increased 25% or $362.1 million in 1993 and represented 21% of total revenues, an increase of two percentage points over 1992. Operating income increased 20% or $289.2 million to $1.72 billion in 1993, reflecting Filmed Entertainment growth of $113.9 million, Theme Parks and Resorts growth of $102.9 million, and Consumer Products growth of $72.4 million. Higher Filmed Entertainment operating income was due to the successful worldwide home video and international theatrical release of BEAUTY AND THE BEAST, the strong theatrical release of ALADDIN worldwide, except for Europe, the domestic home video release of PINOCCHIO, and greater product availabilities in pay television and worldwide television syndication. Theme Parks and Resorts operating income grew as a result of increased theme park per capita spending and higher occupied rooms at Florida resorts together with increased sales at the Disney Vacation Club and higher royalties from Tokyo Disneyland. Consumer Products results primarily reflected increased demand for Disney licensed products in worldwide markets. Costs and expenses increased 12% or $736.0 million in 1993, reflecting higher film cost amortization, distribution and selling costs related to increased product availabilities in Filmed Entertainment, increased costs associated with the expansion of resort properties in Florida, and increased operating and start-up costs related to expansion of the Disney Stores and new business ventures in Consumer Products. -11- Income and earnings per share before the cumulative effect of accounting changes in 1993 (described below) decreased 18% to $671.3 million and 19% to $1.23, respectively, from $816.7 million and $1.52 in 1992. The decrease reflected the impact of a $350.0 million charge to fully reserve the Company's current receivables and funding commitment to Euro Disney and the Company's equity share of Euro Disney's operating loss. (See Note 2 of Notes to Consolidated Financial Statements.) The Company's 1993 net income and earnings per share were significantly impacted by the change in accounting method for pre-opening costs and the impact of adopting two new required Statements of Financial Accounting Standards, EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (SFAS 106) and ACCOUNTING FOR INCOME TAXES (SFAS 109). The cumulative effect of the change in accounting method for pre-opening costs resulted in a charge of $271.2 million or $.50 per share. In addition, the cumulative effect of adopting SFAS 106 was a charge of $130.3 million or $.24 per share, partially offset by the $30.0 million or $.06 per share benefit from adopting SFAS 109. (See Notes 1, 6, 7 and 11 of Notes to Consolidated Financial Statements.) Net income after the cumulative effect of accounting changes in 1993 decreased 63% to $299.8 million from $816.7 million in 1992 and earnings per share fell 64% to $.55 from $1.52. FILMED ENTERTAINMENT 1994 VS. 1993 Revenues increased 30% or $1.12 billion to $4.79 billion in 1994, driven by growth of $731 million in worldwide home video revenues, $224 million in worldwide theatrical revenues, and $99 million in television revenues. Domestic home video revenues were driven by ALADDIN, THE FOX AND THE HOUND and THE RETURN OF JAFAR compared to BEAUTY AND THE BEAST and PINOCCHIO in 1993, while international home video revenues were driven by THE JUNGLE BOOK, ALADDIN and BAMBI compared to BEAUTY AND THE BEAST and CINDERELLA in the prior year. Theatrical revenues increased due to the worldwide release of THE LION KING, except for Europe, ALADDIN in Europe, and continued expansion of theatrical productions, including full-year operations of Miramax, which was acquired in June 1993. Television revenues grew due to increased title availabilities worldwide. Operating income increased 38% or $233.9 million to $856.1 million in 1994, driven by growth in worldwide home video activity and television, partially offset by lower worldwide theatrical operating income, reflecting lower results per film in 1994. Theatrical results in 1993 were driven by the worldwide release of ALADDIN, except for Europe, and international releases of BEAUTY AND THE BEAST, SISTER ACT and THE JUNGLE BOOK compared to the current year's release of THE LION KING, the European release of ALADDIN, and the international release of COOL RUNNINGS. Costs and expenses increased 29% or $886.0 million, principally due to higher film cost amortization, and increased distribution and selling costs, resulting from increased home video and theatrical activities. 1993 VS. 1992 Revenues grew 18% or $558.2 million to $3.67 billion in 1993, driven by growth of $283 million in worldwide home video revenues, $137 million in international theatrical revenues, and $107 million in television revenues. Worldwide home video growth was driven by BEAUTY AND THE BEAST and PINOCCHIO domestically and BEAUTY AND THE BEAST and CINDERELLA internationally. Higher theatrical revenues reflected the release of ALADDIN and the international releases of BEAUTY AND THE BEAST, SISTER ACT and THE JUNGLE BOOK, offset by the disappointing performances of certain domestic live-action releases. Television revenues increased primarily as a result of growth in pay television and worldwide syndication, reflecting increased activity as more product was made available to those markets. Operating income rose 22% or $113.9 million to $622.2 million in 1993, primarily due to growth in worldwide home video and television distribution. Results also reflected the positive impact of continued growth in The Disney Channel subscriber base. Strong international theatrical performances were offset by lower domestic theatrical results. Costs and expenses increased 17% or $444.3 million, principally due to higher film cost amortization and increased distribution and selling costs, resulting from increased home video and theatrical activities. -12- THEME PARKS AND RESORTS 1994 VS. 1993 Revenues of $3.46 billion in 1994 were substantially unchanged from the prior year, as $86 million of growth in guest spending at Florida theme parks and resorts and $47 million of growth from increased occupied rooms at Florida resorts offset the $114 million impact of lower attendance at Florida and California theme parks. Guest spending rose, primarily due to expanded product offerings and certain price increases, while the increase in occupied rooms reflected absorption of additional capacity from the third quarter openings of Disney's Wilderness Lodge and Disney's All-Star Sports Resort, and expansion at the Disney Vacation Club. Lower attendance was driven by reduced international tourism. Operating income decreased 8% or $62.8 million to $684.1 million in 1994, reflecting the impact of reduced revenues from lower theme park attendance. Costs and expenses, which consist principally of labor, costs of merchandise, food and beverages sold, depreciation, repairs and maintenance, entertainment and marketing, increased 3% or $85.7 million, primarily due to expansion of theme park attractions and resorts in Florida and a charge recorded in the fourth quarter to write off certain development costs associated with Disney's America, as a result of the Company's decision to seek a new site for the theme park. 1993 VS. 1992 Revenues rose 4% or $133.8 million to $3.44 billion in 1993, primarily due to $40 million of growth in per capita spending at the theme parks, $25 million of growth from increased occupied rooms at Florida resorts, and $52 million of growth from sales of ownership interests at the Disney Vacation Club and increased royalties from Tokyo Disneyland. Per capita spending was higher primarily due to price increases. The increase in occupied rooms resulted from the absorption of additional capacity from the Dixie Landings Resort. Total attendance was flat with the prior year, as the impact of the opening of Mickey's Toontown at Disneyland and the Splash Mountain attraction at Tokyo Disneyland was offset by weakness in the international tourism market at Walt Disney World, due to the poor European economy. Operating income increased 16% or $102.9 million to $746.9 million in 1993, driven by increased per capita spending at the parks, increased occupied rooms and higher room rates at Florida resorts, continued development and sales of ownership interests at the Disney Vacation Club, and increased royalties from Tokyo Disneyland. Costs and expenses increased 1% or $30.9 million, reflecting increased costs related primarily to resort expansion in Florida, partially offset by decreased current year development spending at Walt Disney Imagineering. In addition, year-over-year comparisons were positively impacted by the prior-year charge relating to the termination of the lease on the Queen Mary hotel and attraction. CONSUMER PRODUCTS 1994 VS. 1993 Revenues increased 27% or $383.1 million to $1.80 billion in 1994, driven by growth of $166 million from the Disney Stores, $109 million from worldwide character merchandise licensing, and $87 million from publications, catalogs, and records and audio entertainment. Full-year operations at 62 stores opened in 1993 and 7% higher sales at 177 existing stores generated 58% of Disney Stores' revenue growth; sales from 85 new stores worldwide contributed the remaining 42%. Worldwide merchandise licensing growth was generated by increased demand for traditional Disney characters and new animated film properties, including ALADDIN and THE LION KING. Operating income increased 20% or $70.1 million to $425.5 million in 1994, primarily due to the worldwide success of character merchandise licensing and expansion of the Disney Stores, partially offset by higher costs and expenses. Costs and expenses, which consist principally of costs of goods sold, labor and publicity and promotion, increased 30% or $313.0 million, primarily reflecting expansion and revenue growth of the Disney Stores and higher expenses in catalog businesses. -13- 1993 VS. 1992 Revenues increased 31% or $333.2 million to $1.42 billion in 1993, reflecting growth of $161 million from worldwide expansion of the Disney Stores, $78 million from worldwide character merchandise licensing activities, and $87 million from publications, catalogs and records and audio entertainment. Full-year operations at 64 stores opened in 1992 and 11% higher sales at 113 existing stores generated 60% of Disney Stores' revenue growth; sales from 62 new stores worldwide contributed the remaining 40%. Operating income increased 26% or $72.4 million to $355.4 million in 1993, driven by strong sales of ALADDIN and BEAUTY AND THE BEAST character merchandise in domestic publications, records and audio entertainment and in the Disney Stores domestically. Additionally, increased sales of both film and standard character properties contributed to the favorable results in domestic and international licensing. Costs and expenses increased 33% or $260.8 million, primarily due to domestic expansion and start-up costs associated with international expansion of the Disney Stores. Growth in domestic publications and catalog businesses also resulted in higher expenses. CORPORATE ACTIVITIES GENERAL AND ADMINISTRATIVE EXPENSES 1994 VS. 1993 General and administrative expenses decreased 1% or $2.0 million to $162.2 million in 1994, reflecting operating income from Disney Sports Enterprises (The Mighty Ducks of Anaheim) and lower losses incurred by Hollywood Records, partially offset by higher corporate general and administrative expenses incurred to support growth in the Company's operations and performance-related incentive programs. 1993 VS. 1992 General and administrative expenses rose 11% or $16.0 million to $164.2 million in 1993. While corporate general and administrative expenses remained virtually flat, the increase reflected higher operating losses at Hollywood Records in contrast to the prior year, which reflected the success of the QUEEN catalog. INVESTMENT AND INTEREST INCOME AND INTEREST EXPENSE 1994 VS. 1993 Total investment and interest income decreased 30% or $56.2 million to $129.9 million in 1994. The decrease reflected both lower average investment balances and yields. Interest expense decreased 24% or $37.8 million to $119.9 million in 1994, primarily due to the 1993 write-off of unamortized issuance costs related to subordinated notes redeemed by the Company, and increased capitalized interest, resulting from higher capital expenditures in the current year. 1993 VS. 1992 Total investment and interest income increased 43% or $55.8 million to $186.1 million in 1993. The increase reflected higher average investment balances, gains on termination of interest rate swap agreements and the favorable impact of leveraged leasing activities. Interest expense increased 24% or $30.9 million to $157.7 million in 1993, primarily due to the write-off of unamortized issuance costs on subordinated notes, which were redeemed during the year, and higher average borrowing balances, partially offset by the impact of lower average rates. The average borrowing rate decreased from 7.2% in 1992 to 6.9% in 1993. Capitalized interest was flat compared to the prior year. -14- INVESTMENT IN EURO DISNEY 1994 VS. 1993 The Company's investment in Euro Disney resulted in a loss of $110.4 million in 1994. The loss consisted of a $52.8 million charge recognized in the third quarter as a result of the Company's participation in the Euro Disney financial restructuring, and the Company's equity share of fourth quarter operating results. The prior year loss reflected the Company's equity share of Euro Disney's operating results and a $350.0 million charge to fully reserve receivables from and a funding commitment to Euro Disney, partially offset by royalties and gain amortization related to the investment. The funding commitment was intended to help support Euro Disney for a limited period, while Euro Disney pursued a financial restructuring. A proposed restructuring plan for Euro Disney was announced in March 1994. During the third quarter of 1994, the Company entered into agreements with Euro Disney and the Euro Disney lenders participating in the restructuring (the "Lenders"), to provide certain debt, equity and lease financing to Euro Disney. Under the restructuring agreements, which specify amounts denominated in French francs, the Company committed to increase its equity investment in Euro Disney by subscribing for 49% of a $1.1 billion rights offering of new shares; to provide long-term lease financing at a 1% interest rate for approximately $255 million of theme park assets; and to subscribe, in part through an offset against fully-reserved advances previously made to Euro Disney under the Company's funding commitment, for securities reimbursable in shares with a face value of approximately $180 million and a 1% coupon. In addition, the Company agreed to cancel fully-reserved receivables from Euro Disney of approximately $210 million, to waive royalties and base management fees for a period of five years and to reduce such amounts for specified periods thereafter, and to modify the method by which management incentive fees will be calculated. During the fourth quarter of 1994, the financial restructuring was completed and the Company funded its commitments. In addition to the commitments described above, the Company agreed to arrange for the provision of a 10-year unsecured standby credit facility of approximately $210 million, upon request, bearing interest at PIBOR. As of September 30, 1994, Euro Disney had not requested the Company to establish this facility. As part of the restructuring, the Company received 10-year warrants for the purchase of up to 27.8 million shares of Euro Disney at a price of FF 40 per share. The terms of the restructuring also provide that, in the event that Euro Disney decides to launch the second phase of the development of its theme park and resort complex, and commitments for the necessary financing have been obtained, the Company will be entitled to a development fee of approximately $225 million. Upon receipt of the development fee, the Company's entitlement to purchase Euro Disney shares by exercise of the warrants described above will be reduced to 15 million shares. In connection with the restructuring, Euro Disney Associes S.N.C. ("Disney SNC"), an indirect wholly-owned affiliate of the Company, entered into a lease arrangement (the "Lease") with the entity (the "Park Financing Company") which financed substantially all of the Disneyland Paris theme park assets, and then entered into a sublease agreement (the "Sublease") with Euro Disney. Under the Lease, which replaced an existing lease between Euro Disney and the Park Financing Company, Disney SNC leased the theme park assets of the Park Financing Company for a noncancelable term of 12 years. Aggregate lease rentals of FF 10.5 billion ($2.0 billion) receivable from Euro Disney under the Sublease, which has a 12-year term, will approximate the amounts payable by Disney SNC under the Lease. At the conclusion of the Sublease term, Euro Disney will have the option to assume Disney SNC's rights and obligations under the Lease. If Euro Disney does not exercise its option, Disney SNC may continue to lease the assets, with an ongoing option to purchase them for an amount approximating the balance of the Park Financing Company's outstanding debt. Alternatively, Disney SNC may terminate the Lease, in which case Disney SNC would pay the Park Financing Company an amount equal to 75% of its then-outstanding debt, estimated to be $1.4 billion; Disney SNC could then sell or lease the assets on behalf of the Park Financing Company in order to satisfy the remaining debt, with any excess proceeds payable to Disney SNC. -15- As part of the overall restructuring, the Lenders agreed to underwrite 51% of the Euro Disney rights offering, to forgive certain interest charges for the period from April 1, 1994 to September 30, 2003, having a present value of approximately $300 million, and to defer all principal payments until three years later than originally scheduled. As consideration for their participation in the financial restructuring, Euro Disney issued to the Lenders 10-year warrants for the purchase of up to 40 million shares of Euro Disney stock at a price of FF 40 per share. Euro Disney has reported that it expects to incur a loss in 1995, which will have a negative impact on the Company's results. The impact on the Company's earnings, however, will be reduced as a result of the sale by the Company in October 1994 of approximately 75 million shares, or 20% of its investment in Euro Disney, to Prince Alwaleed Bin Talal Bin Abdulaziz Al Saud. The sale will reduce the Company's ownership interest in Euro Disney to approximately 39%. Beginning in 1995, the Company will record its equity share of Euro Disney's operating results based upon its reduced ownership interest. The Company has agreed, so long as any obligations to the Lenders are outstanding, to maintain ownership of at least 34% of the outstanding common stock of Euro Disney until June 1999, at least 25% for the subsequent five years and at least 16.67% for an additional term thereafter. 1993 VS. 1992 The Company's investment in Euro Disney resulted in a loss of $514.7 million in 1993, including the charge referred to below, after being partially offset by royalties and gain amortization related to the investment. The operating results of Euro Disney were lower than expected, due in part to the European recession affecting Euro Disney's largest markets. During 1993, Euro Disney, its principal lenders and the Company began exploring a financial restructuring for Euro Disney. The Company agreed to help fund Euro Disney for a limited period, to afford Euro Disney time to pursue the financial restructuring. The operating results for the fourth quarter and the year, and the need for a financial restructuring, created uncertainty regarding the Company's ability to collect its current receivables and the funding commitment to Euro Disney. Consequently, the Company recorded a charge of $350.0 million in the fourth quarter to fully reserve its current receivables and funding commitment. In 1992, the Company's investment in Euro Disney contributed income of $11.2 million. Although Euro Disney incurred a loss for 1992, the Company's 49% share of the net loss was offset by royalties and gain amortization related to the investment. LIQUIDITY AND CAPITAL RESOURCES The Company generates significant cash from operations and has substantial borrowing capacity to meet its operating and discretionary cash requirements. Cash provided by operations increased 31% or $662.1 million to $2.81 billion in 1994, primarily due to the success of home video releases in Filmed Entertainment and expanded character merchandise licensing activities worldwide in Consumer Products. Net borrowings (the Company's borrowings less cash and liquid investments) increased $1.32 billion to $1.73 billion, reflecting incremental financing activity during the year and the sale of investments to fund cash requirements. New borrowings during the year included $475 million of senior participating notes (described further below), $285 million of Japanese yen bonds, and $164 million of medium-term notes. -16- In 1994, the Company invested $1.43 billion to develop and produce film and television properties and $1.03 billion to design and develop new theme park attractions and resort properties, including Sunset Boulevard and the Twilight Zone Tower of Terror at the Disney-MGM Studios Theme Park, Disney's Wilderness Lodge and initial phases of Disney's All-Star Resorts in Florida, and the Indiana Jones Adventure at Disneyland. The Company also participated in the financial restructuring completed by Euro Disney in 1994, pursuant to which the Company provided $971.1 million of equity capital and long-term financing to Euro Disney, and agreed to arrange for, upon Euro Disney's request, a 10-year FF 1.1 billion ($210 million) unsecured standby credit facility. In addition, pursuant to agreements executed in connection with the restructuring, the Company sold approximately 75 million (20%) of its Euro Disney shares to Prince Alwaleed Bin Talal Bin Abdulaziz Al Saud for approximately $145 million in October 1994. The Company repurchased 13.8 million shares of its common stock for $570.7 million in 1994, and has repurchased an additional 8.9 million shares for $348.7 million through November 1994. Under its share repurchase program, the Company is authorized to purchase up to an additional 104 million shares, including 90 million shares authorized by the Board of Directors in November 1994. The Company evaluates share repurchase decisions on an ongoing basis, taking into account borrowing capacity, management's target capital structure, and other investment opportunities. The Company also used $153 million to fund dividend payments during the year. The Company currently maintains significant borrowing capacity to take advantage of growth and investment opportunities. The Company focuses on net borrowings, which take into account its cash and investment balances, when monitoring borrowing capacity. The Company's borrowing capacity includes a $525 million line of credit which is available for general corporate purposes and to support commercial paper issuance. The Company's financial condition remains strong. The Company believes that its cash, other liquid assets, operating cash flows, access to equity capital markets and borrowing capacity taken together provide more than adequate resources to fund ongoing operating requirements and future capital expenditures related to the expansion of existing businesses and development of new projects. Expansion of existing businesses includes the design and development of theme park attractions, resort properties, and other real estate developments, expansion of the Disney Stores worldwide, and continued film and television production. Theme park and resort projects currently under development include Blizzard Beach, Celebration, Disney's Boardwalk Resort, the Disney Institute, and additional Disney Vacation Club sites. In addition, the Company continually evaluates discretionary investments in new projects which complement its existing businesses. RISK MANAGEMENT STRATEGIES The Company employs a variety of on-and off-balance-sheet financial instruments to manage its business and financial market risks. During 1994 and 1993, the Company raised $475 million and $400 million, respectively, from the issuance of senior participating notes. The notes, due 2001 with a minimum yield of 4.2% and due 2000 with a minimum yield of 1.5%, respectively, are unique in that a portion of the interest paid is contingent upon the performance of a portfolio of live-action films from Walt Disney Pictures, Hollywood Pictures, Touchstone Pictures, Caravan Pictures, and Miramax. In the future, the Company will continue to seek partners that will share the risks and rewards of its live-action film business. The Company's foreign currency revenues continue to grow and management believes it is prudent to reduce the risk associated with fluctuations in the value of the U.S. dollar in the foreign exchange markets. The Company uses foreign currency forward contracts, purchased options and option combinations to reduce the impact of changes in the value of its existing foreign currency assets and liabilities and its anticipated future foreign currency revenues denominated in Japanese yen, French francs, German marks, British pounds, and other currencies. The primary focus of the Company's foreign exchange risk management program is to reduce earnings volatility. By policy, the Company maintains hedge coverages between minimum and maximum percentages of its anticipated foreign exchange exposures for each of the next five fiscal years. -17- The Company is exposed to interest rate risk related to its investments and borrowings. The Company monitors the net interest rate sensitivity of its portfolio of investments and borrowings and uses interest rate swaps, exchange-traded futures, forwards and purchased options to manage the net interest exposure and to lower overall borrowing costs. The Company's objective is to manage the impact of interest rate changes on earnings and on the market value of its investments and borrowings. The Company does not expect interest rate movements to significantly affect its liquidity or operating results in the foreseeable future. For 1994 and 1993, a 1% increase or decrease in interest rates would not have had a material impact on the Company's liquidity or operating results. The Company continually monitors its positions with, and the credit quality of, the financial institutions which are counterparties to its off-balance-sheet financial instruments, and does not anticipate failure to perform by such institutions. The Company enters into off-balance-sheet transactions only with financial institution counterparties which have a credit rating of single A-or better. The Company's current policy in agreements with financial institution counterparties is generally to require collateral in the event credit ratings fall below single A-. With respect to certain contracts, the Company has the right to offset amounts payable to the counterparties to the extent of amounts receivable, further reducing the risk associated with counterparty nonperformance. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Index to Financial Statements and Supplemental Data on page 24. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. -18- PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY Information regarding directors appearing under the caption ELECTION OF DIRECTORS in the Company's Proxy Statement for the 1995 Annual Meeting of Stockholders (the "1995 Proxy Statement") is hereby incorporated by reference. Information regarding executive officers is included in Part I of this Form 10-K as permitted by General Instruction G(3). ITEM 11. EXECUTIVE COMPENSATION Information appearing under the captions DIRECTORS' REMUNERATION; ATTENDANCE and EXECUTIVE COMPENSATION in the 1995 Proxy Statement is hereby incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information setting forth the security ownership of certain beneficial owners and management appearing under the caption STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS and STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS in the 1995 Proxy Statement is hereby incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain related transactions appearing under the caption RELATED TRANSACTIONS in the 1995 Proxy Statement is hereby incorporated by reference. -19- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Exhibits and Financial Statements and Schedules (1) Financial Statements and Schedules See Index to Financial Statements and Supplemental Data at page 24. (2) Exhibits 3(a) Restated Certificate of Incorporation of the Company, filed as Exhibit 3(a) to the Company's Annual Report on Form 10-K for the year ended September 30, 1992, is hereby incorporated by reference. 3(b) Bylaws of the Company, as amended, are filed herewith as Exhibit 3(b). 4(a) Rights Agreement, dated as of June 21, 1989, between the Company and Security Pacific National Bank, as Rights Agent (including the form of Certificate of Designation of the Series R Preferred Stock attached as Exhibit A thereto and the form of Rights Certificate attached as Exhibit B thereto), filed as Exhibit 1 to the Company's Current Report on Form 8-K, dated June 21, 1989, is hereby incorporated by reference. 4(b) Indenture, dated as of November 30, 1990, between the Company and Bankers Trust Company, as Trustee, with respect to certain senior debt securities of the Company, filed as Exhibit 2 to the Company's Current Report on Form 8-K, dated January 14, 1991, is hereby incorporated by reference. 4(c) Amended and Restated Credit Agreement, dated as of October 3, 1994, among the Company, Citicorp USA, Inc., as Agent, and certain financial institutions is filed herewith as Exhibit 4(c). 4(d) Other long-term borrowing instruments issued by the Company are omitted pursuant to Item 601(b) (4) (iii) of Regulation S-K. The Company undertakes to furnish copies of such instruments to the Commission upon request. 10(a) (i) Agreement on the Creation and the Operation of Euro Disneyland en France, dated March 25, 1987, and (ii) Letter relating thereto of Michael D. Eisner, Chairman of the Company, dated March 24, 1987, filed as Exhibits 10(b) and 10(a), respectively, to the Company's Current Report on Form 8-K filed April 24, 1987, are hereby incorporated by reference. 10(b) Limited Recourse Financing Facility Agreement, dated as of April 27, 1988, among the Company, Citibank Channel Island Limited and Citicorp International, filed as Exhibit (10a) to the Company's Current Report on Form 8-K filed April 29, 1988, is hereby incorporated by reference. 10(c) (i) Employment Agreement, dated as of January 10, 1989, between the Company and Michael D. Eisner, filed as Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1989; (ii) Agreement, dated March 1, 1985, between the Company and Michael D. Eisner, filed as Exhibit 2 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1985; and (iii) description of action by the Compensation Committee taken on November 30, 1990, filed as Exhibit 10(c) to the Company's Annual Report on Form 10-K for the year ended September 30, 1990, are hereby incorporated by reference. -20- 10(d) (i) Employment Agreement, dated January 10, 1989, between the Company and Frank G. Wells, filed as Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1989; (ii) Agreement, dated March 1, 1985, between the Company and Frank G. Wells, filed as Exhibit 3 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1985; and (iii) description of action by the Compensation Committee taken on November 30, 1990, filed as Exhibit 10(c) to the Company's Annual Report on Form 10-K for the year ended September 30, 1990, are hereby incorporated by reference. 10(e) Amended and Restated Employment Agreement, dated as of February 1, 1991, between the Company and Joe Shapiro, filed as Exhibit 1 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1991, is hereby incorporated by reference. 10(f) (i) Contract, dated December 14, 1979, with E. Cardon Walker, to purchase a 2% interest in certain motion pictures to be produced by the Company and to acquire an additional 2% profit participation; and (ii) Amendment thereto, dated August 8, 1980, filed as Exhibits 1 and 3, respectively, to the Company's Annual Report on Form 10-K for the year ended September 30, 1980, are hereby incorporated by reference. 10(g) Form of Indemnification Agreement entered into or to be entered into by certain officers and directors of the Company as determined from time to time by the Board of Directors, included as Annex C to the Proxy Statement for the Company's 1988 Annual Meeting of Stockholders, is hereby incorporated by reference. 10(h) Loan Plan for Corporate Officers, filed as Exhibit 10(u) to the Company's Annual Report on Form 10-K for the year ended September 30, 1986, is hereby incorporated by reference. 10(i) 1990 Stock Incentive Plan and the Rules relating to Stock Options and Stock Appreciation Rights thereunder, filed as Exhibits 28(a) and 28(b), respectively, to the Company's Registration Statement on Form S-8 (No. 33-39770), dated April 5, 1991, are hereby incorporated by reference. 10(j) (i) 1987 Stock Incentive Plan and the Rules relating to Stock Options and Stock Appreciation Rights thereunder, (ii) 1984 Stock Incentive Plan and the Rules relating to Stock Options and Stock Appreciation Rights thereunder, (iii) 1981 Incentive Plan and the Rules relating to Stock Options and Stock Appreciation Rights thereunder and (iv) 1980 Stock Option Plan, all as set forth as Exhibits 1(a), 1(b), 2(a), 2(b), 3(a), 3(b) and 4, respectively, to the Prospectus contained in Part I of the Company's Registration Statement on Form S-8 (No. 33- 26106), dated December 20, 1988, are hereby incorporated by reference. 10(k) Contingent Stock Award Rules under the Company's 1984 Stock Incentive Plan, filed as Exhibit 10(t) to the Company's Annual Report on Form 10-K for the year ended September 30, 1986, is hereby incorporated by reference. 10(l) Disney Salaried Retirement Plan, as amended through March 1, 1994, is filed herewith as Exhibit 10(l). 10(m) The Walt Disney Company and Associated Companies Key Employees Deferred Compensation and Retirement Plan, filed as Exhibit 10(u) to the Company's Annual Report on Form 10-K for the year ended September 30, 1985, is hereby incorporated by reference. 10(n) Supplemental Medical and Group Term Life Insurance Plan (summary plan description), filed as Exhibit 10(x) to the Company's Annual Report on Form 10-K for the year ended September 30, 1985, is hereby incorporated by reference. 10(o) Group Personal Excess Liability Insurance Plan (summary plan description), filed as Exhibit 10(z) to the Company's Annual Report on Form 10-K for the year ended September 30, 1986, is hereby incorporated by reference. 10(p) Family Income Assurance Plan (summary plan description), filed as Exhibit 10(aa) to the Annual Report on Form 10-K for the year ended September 30, 1986, is hereby incorporated by reference. -21- 10(q) Disney Salaried Savings and Investment Plan, as amended and restated through June 1, 1990, filed as Exhibit 28 (a) to the Company's Registration Statement on Form S-8 (No. 33-35405), filed June 14, 1990, is hereby incorporated by reference. 10(r) Disney Salaried Savings and Investment Plan Trust Agreement, dated June 30, 1992, filed as Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1992, is hereby incorporated by reference. 10(s) Master Trust Agreement for Employees Savings and Retirement Plans, as amended and restated through June 1, 1990, between the Company and Bankers Trust Company, as Trustee, filed as Exhibit 28 (b) to the Company's Registration Statement on Form S-8 (No. 33-35405), filed June 14, 1990, is hereby incorporated by reference. 18 Letter from the Company's independent auditors, dated August 9, 1993, regarding preferability of the change in accounting method for project-related pre-opening costs, filed as Exhibit 1 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1993, is hereby incorporated by reference. 21 Subsidiaries of The Walt Disney Company. 23 Consent of Price Waterhouse LLP, the Company's independent accountants, is included herein at page 25. 27 Financial Data Schedule (filed electronically only) 28 Financial statements required by Form 11-K with respect to the Disney Salaried Savings and Investment Plan for the year ended December 31, 1993, filed as Exhibit 28 to the Annual Report on Form 10-K for the year ended September 30, 1993, as amended by Amendment No. 1 on Form 10-K/A dated June 30, 1994, are hereby incorporated by reference. (b) Reports on Form 8-K (1) The Company filed a Current Report on Form 8-K, dated March 14, 1994, with respect to a joint press release, dated March 14, 1994, by the Company, Euro Disney S.C.A. and the Steering Committee for the lenders to Euro Disney S.C.A. -22- 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. THE WALT DISNEY COMPANY ------------------------------------------------- (Registrant) Date: December 14, 1994 By: MICHAEL D. EISNER ------------------------------------------------- (Michael D. Eisner, Chairman, Chief Executive Officer and President) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- PRINCIPAL EXECUTIVE OFFICERS MICHAEL D. EISNER Chairman of the Board, - ---------------------------------------------- Chief Executive Officer and (Michael D. Eisner) President December 14, 1994 SANFORD M. LITVACK Senior Executive Vice - ---------------------------------------------- President and Chief of (Sanford M. Litvack) Corporate Operations December 14, 1994 PRINCIPAL FINANCIAL AND ACCOUNTING OFFICERS RICHARD D. NANULA Executive Vice President - ---------------------------------------------- and Chief Financial Officer December 14, 1994 (Richard D. Nanula) JOHN J. GARAND Vice President - - ---------------------------------------------- Planning and Control December 14, 1994 (John J. Garand) DIRECTORS REVETA F. BOWERS Director December 14, 1994 - ---------------------------------------------- (Reveta F. Bowers) ROY E. DISNEY Director December 14, 1994 - ---------------------------------------------- (Roy E. Disney) MICHAEL D. EISNER Director December 14, 1994 - ---------------------------------------------- (Michael D. Eisner) STANLEY P. GOLD Director December 14, 1994 - ---------------------------------------------- (Stanley P. Gold) IGNACIO E. LOZANO, JR. Director December 14, 1994 - ---------------------------------------------- (Ignacio E. Lozano, Jr.) RICHARD A. NUNIS Director December 14, 1994 - ---------------------------------------------- (Richard A. Nunis) IRWIN E. RUSSELL Director December 14, 1994 - ---------------------------------------------- (Irwin E. Russell) ROBERT A.M. STERN Director December 14, 1994 - ---------------------------------------------- (Robert A.M. Stern) E. CARDON WALKER Director December 14, 1994 - ---------------------------------------------- (E. Cardon Walker) RAYMOND L. WATSON Director December 14, 1994 - ---------------------------------------------- (Raymond L. Watson) GARY L. WILSON Director December 14, 1994 - ---------------------------------------------- (Gary L. Wilson)
-23- THE WALT DISNEY COMPANY AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Page ---- Report of Independent Accountants and Consent of Independent Accountants . . . . . . . . . . . . . . . . 25 Consolidated Financial Statements of The Walt Disney Company and Subsidiaries Consolidated Statement of Income for the Years Ended September 30, 1994, 1993 and 1992. . . . . . . . 26 Consolidated Balance Sheet as of September 30, 1994 and 1993. . . . . . . . . . . . . . . . . . . . . 27 Consolidated Statement of Cash Flows for the Years Ended September 30, 1994, 1993 and 1992. . . . . . 28 Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Quarterly Financial Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Financial Statement Schedules II. Amounts Receivable from Related Parties and Underwriters, Promoters and Employees Other than Related Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 V. Property, Plant and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 VI. Accumulated Depreciation of Property, Plant and Equipment. . . . . . . . . . . . . . . . . . 49 IX. Short-term Borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 X. Supplementary Income Statement Information . . . . . . . . . . . . . . . . . . . . . . . . . 51
Schedules other than those listed above are omitted for the reason that they are not applicable or the required information is included in the financial statements or related notes. -24- REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of The Walt Disney Company In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of The Walt Disney Company and its subsidiaries (the "Company") at September 30, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1994, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audits 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Notes 1, 6, 7 and 11 to the consolidated financial statements, the Company adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards ("SFAS") No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," and SFAS No. 109, "Accounting for Income Taxes," and changed its method of accounting for pre-opening costs in fiscal 1993. PRICE WATERHOUSE LLP Los Angeles, California November 21, 1994 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the prospectuses constituting part of the Registration Statements on Form S-8 (Nos. 33-26106, 33-35405 and 33-39770) and Form S-3 (No. 33-49891) of The Walt Disney Company of our report dated November 21, 1994 which appears above. PRICE WATERHOUSE LLP Los Angeles, California December 14, 1994 -25- CONSOLIDATED STATEMENT OF INCOME (In millions, except per share data)
Year ended September 30 1994 1993 1992 - ---------------------------------------------------------------------------------------------------------------- REVENUES Filmed entertainment $ 4,793.3 $ 3,673.4 $ 3,115.2 Theme parks and resorts 3,463.6 3,440.7 3,306.9 Consumer products 1,798.2 1,415.1 1,081.9 --------- --------- --------- 10,055.1 8,529.2 7,504.0 --------- --------- --------- COSTS AND EXPENSES Filmed entertainment 3,937.2 3,051.2 2,606.9 Theme parks and resorts 2,779.5 2,693.8 2,662.9 Consumer products 1,372.7 1,059.7 798.9 --------- --------- --------- 8,089.4 6,804.7 6,068.7 --------- --------- --------- OPERATING INCOME Filmed entertainment 856.1 622.2 508.3 Theme parks and resorts 684.1 746.9 644.0 Consumer products 425.5 355.4 283.0 --------- --------- --------- 1,965.7 1,724.5 1,435.3 --------- --------- --------- CORPORATE ACTIVITIES General and administrative expenses 162.2 164.2 148.2 Interest expense 119.9 157.7 126.8 Investment and interest income (129.9) (186.1) (130.3) --------- --------- --------- 152.2 135.8 144.7 --------- --------- --------- INCOME (LOSS) FROM INVESTMENT IN EURO DISNEY (110.4) (514.7) 11.2 --------- --------- --------- INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES 1,703.1 1,074.0 1,301.8 Income taxes 592.7 402.7 485.1 --------- --------- --------- INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES 1,110.4 671.3 816.7 CUMULATIVE EFFECT OF ACCOUNTING CHANGES Pre-opening costs - (271.2) - Postretirement benefits - (130.3) - Income taxes - 30.0 - --------- --------- --------- NET INCOME $ 1,110.4 $ 299.8 $ 816.7 --------- --------- --------- --------- --------- --------- AMOUNTS PER COMMON SHARE EARNINGS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES $ 2.04 $ 1.23 $ 1.52 CUMULATIVE EFFECT OF ACCOUNTING CHANGES Pre-opening costs - (.50) - Postretirement benefits - (.24) - Income taxes - .06 - --------- --------- --------- EARNINGS PER SHARE $ 2.04 $ .55 $ 1.52 --------- --------- --------- --------- --------- --------- AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 545.2 544.5 536.8 --------- --------- --------- --------- --------- --------- PRO FORMA AMOUNTS ASSUMING THE NEW ACCOUNTING METHOD FOR PRE-OPENING COSTS IS APPLIED RETROACTIVELY NET INCOME $ 571.0 $ 672.7 --------- --------- --------- --------- EARNINGS PER SHARE $ 1.05 $ 1.25 --------- --------- --------- ---------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -26- CONSOLIDATED BALANCE SHEET (In millions)
September 30 1994 1993 - ---------------------------------------------------------------------------------------------------- ASSETS Cash and cash equivalents $ 186.9 $ 363.0 Investments 1,323.2 1,888.5 Receivables 1,670.5 1,390.3 Merchandise inventories 668.3 608.9 Film and television costs 1,596.2 1,360.9 Theme parks, resorts and other property, at cost Attractions, buildings and equipment 7,450.4 6,732.1 Accumulated depreciation (2,627.1) (2,286.4) --------- --------- 4,823.3 4,445.7 Projects in progress 879.1 688.2 Land 112.1 94.3 --------- --------- 5,814.5 5,228.2 Investment in Euro Disney 629.9 - Other assets 936.8 911.3 --------- --------- $12,826.3 $11,751.1 --------- --------- --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable and other accrued liabilities $ 2,474.8 $ 2,530.1 Income taxes payable 267.4 291.0 Borrowings 2,936.9 2,385.8 Unearned royalty and other advances 699.9 840.7 Deferred income taxes 939.0 673.0 Stockholders' equity Preferred stock, $.10 par value Authorized - 100.0 million shares Issued - none Common stock, $.025 par value Authorized - 1.2 billion shares Issued - 567.0 million shares and 564.6 million shares 945.3 876.4 Retained earnings 5,790.3 4,833.1 Cumulative translation adjustments 59.1 36.7 --------- --------- 6,794.7 5,746.2 Less treasury stock, at cost - 42.9 million shares and 29.1 million shares 1,286.4 715.7 --------- --------- 5,508.3 5,030.5 --------- --------- $12,826.3 $11,751.1 --------- --------- --------- ---------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -27- CONSOLIDATED STATEMENT OF CASH FLOWS (In millions)
Year ended September 30 1994 1993 1992 - ------------------------------------------------------------------------------------------------------- Cash Provided by Operations Before Income Taxes $ 3,127.7 $ 2,453.9 $ 2,132.0 Income taxes paid (320.4) (308.7) (293.9) --------- --------- --------- 2,807.3 2,145.2 1,838.1 --------- --------- --------- INVESTING ACTIVITIES Film and television costs (1,433.9) (1,264.6) (606.0) Investments in theme parks, resorts and other property (1,026.1) (813.9) (599.1) Euro Disney investment (971.1) (140.1) (68.3) Purchases of investments (952.7) (1,313.5) (1,008.5) Proceeds from sales of investments 1,494.1 841.0 409.0 Other 3.0 31.4 (50.8) --------- --------- --------- (2,886.7) (2,659.7) (1,923.7) --------- --------- --------- FINANCING ACTIVITIES Borrowings 1,866.4 1,256.0 182.8 Reduction of borrowings (1,315.3) (1,119.2) (184.6) Repurchases of common stock (570.7) (31.6) - Dividends (153.2) (128.6) (105.3) Other 76.1 136.1 71.4 --------- --------- --------- (96.7) 112.7 (35.7) --------- --------- --------- Decrease in Cash and Cash Equivalents (176.1) (401.8) (121.3) Cash and Cash Equivalents, Beginning of Year 363.0 764.8 886.1 --------- --------- --------- Cash and Cash Equivalents, End of Year $ 186.9 $ 363.0 $ 764.8 --------- --------- --------- --------- --------- ---------
The difference between Income Before Income Taxes and Cumulative Effect of Accounting Changes as shown on the Consolidated Statement of Income and Cash Provided by Operations Before Income Taxes is explained as follows. Income Before Income Taxes and Cumulative Effect of Accounting Changes $ 1,703.1 $ 1,074.0 $ 1,301.8 --------- --------- --------- Cumulative effect of accounting changes - (514.2) - CHARGES TO INCOME NOT REQUIRING CASH OUTLAYS Depreciation 409.7 364.2 317.3 Amortization of film and television costs 1,198.6 664.2 442.3 Euro Disney 110.4 350.0 - Other 121.1 163.5 155.4 CHANGES IN Receivables (280.2) (211.0) (161.5) Merchandise inventories (59.4) (146.1) (151.2) Other assets (81.5) 197.0 (121.3) Accounts payable and other accrued liabilities 146.7 544.4 335.9 Unearned royalty and other advances (140.8) (32.1) 13.3 --------- --------- --------- 1,424.6 1,379.9 830.2 --------- --------- --------- Cash Provided by Operations Before Income Taxes $ 3,127.7 $ 2,453.9 $ 2,132.0 --------- --------- --------- --------- --------- --------- Supplemental Cash Flow Information: Interest paid $ 99.3 $ 77.3 $ 62.5 --------- --------- --------- --------- --------- ---------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -28- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Tabular dollars in millions, except per share data) 1 Description of the Business and Summary of Significant Accounting Policies The Walt Disney Company, together with its subsidiaries (the "Company"), is a diversified international entertainment company with operations or investments in the following businesses. FILMED ENTERTAINMENT The Company produces and acquires live-action and animated motion pictures for distribution to the theatrical, television and home video markets. The Company also produces original television programming for the network and first-run syndication markets. The Company distributes its filmed product through its own distribution and marketing companies in the United States and most foreign markets. The Company provides programming for and operates The Disney Channel, a pay television programming service, and a Los Angeles, California television station. THEME PARKS AND RESORTS The Company operates the Walt Disney World-R- destination resort in Florida and the Disneyland Park-R- and Disneyland Hotel in California. The Walt Disney World destination resort includes the Magic Kingdom, Epcot and the Disney-MGM Studios Theme Park, ten resort hotels and a complex of villas and suites, a nighttime entertainment complex, a shopping village, conference centers, campgrounds, golf courses, water parks and other recreational facilities. The Company earns royalties on revenues generated by the Tokyo Disneyland theme park near Tokyo, Japan, which is owned and operated by an unrelated Japanese corporation. The Company's Disney Design and Development unit designs and develops new theme park concepts and attractions, as well as resort properties. The Company also manages and markets vacation ownership interests in the Disney Vacation Club. CONSUMER PRODUCTS The Company licenses the name Walt Disney, as well as the Company's characters, visual and literary properties and songs and music, to various consumer manufacturers, retailers, show promoters and publishers throughout the world. The Company also engages in direct retail distribution through the Disney Stores and consumer catalogs, and is a publisher of books, magazines and comics in the United States and Europe. In addition, the Company produces audio and computer software for all markets, as well as film and video products for the educational marketplace. INVESTMENT IN EURO DISNEY The Company is an equity investor in Euro Disney S.C.A. ("Euro Disney"), the operator of the Disneyland Paris Resort (see Note 2). SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements of the Company include the accounts of The Walt Disney Company and its subsidiaries after elimination of intercompany accounts and transactions. Investments in affiliated companies are accounted for using the equity method. REVENUE RECOGNITION Revenues from the theatrical distribution of motion pictures are recognized when motion pictures are exhibited. Television licensing revenues are recorded when the program material is available for telecasting by the licensee and when certain other conditions are met. Revenues from video sales are recognized on the date that video units are made widely available for sale by retailers. Revenues from participants and sponsors at the theme parks are generally recorded over the period of the applicable agreements commencing with the opening of the related attraction. -29- CASH, CASH EQUIVALENTS AND INVESTMENTS Cash and cash equivalents consist of cash on hand and marketable securities with original maturities of three months or less. Debt securities are carried at cost, adjusted for unamortized premium or discount. Marketable equity securities are carried at the lower of aggregate cost or market. Realized gains and losses are determined on an average cost basis. In May 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") 115 ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. The Company will adopt the new standard in the first quarter of 1995, and does not expect the impact to be material to its financial condition or results of operations. MERCHANDISE INVENTORIES Carrying amounts of merchandise, materials and supplies inventories are generally determined on a moving average cost basis and are stated at the lower of cost or market. FILM AND TELEVISION COSTS Film and television production and participation costs are expensed based on the ratio of the current period's gross revenues to estimated total gross revenues from all sources on an individual production basis. Estimates of total gross revenues are reviewed periodically and amortization is adjusted accordingly. Television broadcast rights are amortized principally on an accelerated basis over the estimated useful lives of the programs. THEME PARKS, RESORTS AND OTHER PROPERTY Theme parks, resorts and other property are carried at cost. Depreciation is computed on the straight-line method based upon estimated useful lives ranging from three to fifty years. OTHER ASSETS Rights to the name, likeness and portrait of Walt Disney, goodwill and other intangible assets are amortized over periods ranging from two to forty years. RISK MANAGEMENT CONTRACTS In the normal course of business, the Company employs a variety of off-balance-sheet financial instruments to manage its exposure to fluctuations in interest and foreign currency exchange rates, including interest rate swap agreements, futures, forwards and purchased options, and foreign currency forward contracts, purchased options and option combinations. The Company designates interest rate swaps as hedges of investments and debt, and accrues the differential to be paid or received under the agreements as interest rates change over the lives of the contracts. Gains and losses arising from interest rate futures, forwards and options, and foreign currency forward contracts and options are recognized in income as offsets of gains and losses resulting from the underlying hedged transactions. Cash flows from interest rate and foreign exchange risk management activities are classified in the same category as the cash flows from the related investment, borrowing or foreign exchange activity. EARNINGS PER SHARE Earnings per share amounts are based upon the weighted average number of common and common equivalent shares outstanding during the year. Common equivalent shares are excluded from the computation in periods in which they have an anti-dilutive effect. -30- ACCOUNTING CHANGES During the quarter ended June 30, 1993, the Company adopted SFAS 106 EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (see Note 7) and SFAS 109 ACCOUNTING FOR INCOME TAXES (see Note 6) and changed its method of accounting for pre-opening costs (see Note 11). These changes, adopted retroactive to October 1, 1992, had no cash impact. The pro forma amounts reflect the effect of retroactive application of expensing pre-opening costs on 1992 results. RECLASSIFICATIONS Certain reclassifications have been made in the 1993 and 1992 financial statements to conform to the 1994 presentation. 2 Investment in Euro Disney Euro Disney, a publicly traded French company, operates the Disneyland Paris theme park and resort complex on a 4,800-acre site near Paris, France. Euro Disney commenced operations on April 12, 1992. The Company has accounted for its 49% ownership interest in Euro Disney using the equity method of accounting. In 1993, Euro Disney, its principal lenders and the Company began exploring a financial restructuring for Euro Disney. The Company agreed to help fund Euro Disney for a limited period, to afford Euro Disney time to attempt a financial restructuring by spring 1994. Euro Disney's 1993 operating results and the need for a financial restructuring created uncertainty regarding the Company's ability to collect its current receivables and the funding commitment to Euro Disney. Consequently, the Company recorded a $350.0 million charge to income in the fourth quarter of 1993 to fully reserve its outstanding receivables and funding commitment. During the third quarter of 1994, the Company entered into agreements with Euro Disney and the lenders participating in its restructuring plan (the "Lenders") to provide certain debt, equity and lease financing to Euro Disney as part of its commitments under the restructuring plan, and recorded a charge of $52.8 million to reflect its participation in the restructuring. In the fourth quarter, the Company recorded a charge of $57.6 million to reflect its equity share of Euro Disney's operating results for that period. Under the restructuring agreements, which specify amounts denominated in French francs, the Company committed to increase its equity investment in Euro Disney by subscribing for 49% of a $1.1 billion rights offering of new shares; to provide long-term lease financing at a 1% interest rate for approximately $255 million of Disneyland Paris theme park assets; and to subscribe, in part through an offset against fully-reserved advances previously made to Euro Disney under the Company's funding commitment, for securities reimbursable in shares with a face value of approximately $180 million and a 1% coupon. In addition, the Company agreed to cancel fully-reserved receivables from Euro Disney of approximately $210 million, to waive royalties and base management fees for a period of five years and to reduce such amounts for specified periods thereafter, and to modify the method by which management incentive fees will be calculated. During the fourth quarter of 1994, the financial restructuring was completed and the Company funded its commitments. In addition to the commitments described above, the Company agreed to arrange for the provision of a 10-year unsecured standby credit facility of approximately $210 million, upon request, bearing interest at PIBOR. As of September 30, 1994, Euro Disney had not requested the Company to establish this facility. -31- As part of the restructuring, the Company received 10-year warrants for the purchase of up to 27.8 million shares of Euro Disney at a price of FF 40 per share. The terms of the restructuring also provide that, in the event that Euro Disney decides to launch the second phase of the development of its theme park and resort complex, and commitments for the necessary financing have been obtained, the Company will be entitled to a development fee of approximately $225 million. Upon receipt of the development fee, the Company's entitlement to purchase Euro Disney shares by exercise of the warrants described above will be reduced to 15 million shares. The Company also agreed, so long as any obligations to the Lenders are outstanding, to maintain ownership of at least 34% of the outstanding common stock of Euro Disney until June 1999, at least 25% for the subsequent five years and at least 16.67% for an additional term thereafter. In connection with the restructuring, Euro Disney Associes S.N.C. ("Disney SNC"), an indirect wholly-owned affiliate of the Company, entered into a lease arrangement (the "Lease") with the entity (the "Park Financing Company") which financed substantially all of the Disneyland Paris theme park assets, and then entered into a sublease agreement (the "Sublease") with Euro Disney. Under the Lease, which replaced an existing lease between Euro Disney and the Park Financing Company, Disney SNC leased the theme park assets of the Park Financing Company for a noncancelable term of 12 years. Aggregate lease rentals of FF 10.5 billion ($2.0 billion) receivable from Euro Disney under the Sublease, which has a 12-year term, will approximate the amounts payable by Disney SNC under the Lease. At the conclusion of the Sublease term, Euro Disney will have the option to assume Disney SNC's rights and obligations under the Lease. If Euro Disney does not exercise its option, Disney SNC may continue to lease the assets, with an ongoing option to purchase them for an amount approximating the balance of the Park Financing Company's outstanding debt. Alternatively, Disney SNC may terminate the Lease, in which case Disney SNC would pay the Park Financing Company an amount equal to 75% of its then-outstanding debt, estimated to be $1.4 billion; Disney SNC could then sell or lease the assets on behalf of the Park Financing Company in order to satisfy the remaining debt, with any excess proceeds payable to Disney SNC. As part of the overall restructuring, the Lenders agreed to underwrite 51% of the Euro Disney rights offering, to forgive certain interest charges for the period from April 1, 1994 to September 30, 2003, having a present value of approximately $300 million, and to defer all principal payments until three years later than originally scheduled. As consideration for their participation in the financial restructuring, Euro Disney issued to the Lenders 10-year warrants for the purchase of up to 40 million shares of Euro Disney stock at a price of FF 40 per share. Pursuant to agreements executed in May 1994 with Prince Alwaleed Bin Talal Bin Abdulaziz Al Saud, Chairman of United Saudi Commercial Bank, the Company sold Prince Alwaleed approximately 75 million Euro Disney shares for approximately $145 million, in October 1994. As a result of the sale, the Company's equity ownership in Euro Disney was reduced from 49% at September 30, 1994 to approximately 39%. Beginning in 1995, the Company will record its equity share of Euro Disney's operating results based upon its reduced ownership interest. The quoted market value of the Company's Euro Disney shares at September 30, 1994 was approximately $566 million. In October 1989, Euro Disney completed its initial public equity offering of approximately $1 billion. As a result of the offering, the Company's share of the net assets of Euro Disney exceeded its investment by approximately $375 million. Through 1993, the Company recognized this gain ratably using an eight- year amortization period, which represented the Company's contractual obligation to manage the development and operation of the complex and maintain an ownership interest of at least 17%. Subsequent to the Company fully reserving its outstanding receivables and funding commitment during the fourth quarter of 1993, the Company discontinued recognition of gain amortization. As a result of the Company's participation in the Euro Disney financial restructuring, no further gain amortization will be recognized by the Company. -32- In addition to recording its equity share of Euro Disney's operating results and amortization of the gain, the Company earned $36.3 and $32.9 million of royalties in 1993 and 1992, respectively, under agreements with Euro Disney. The Company agreed to defer its base management fees for 1993 and 1992. As part of the Euro Disney financial restructuring, the Company permanently waived receipt of deferred base management fees. Euro Disney's consolidated financial statements are prepared in accordance with accounting principles generally accepted in France ("French GAAP"). Under French GAAP, Euro Disney incurred a 1994 net loss of FF 1.8 billion, a net loss of FF 5.3 billion in 1993 (FF 2.1 billion before the cumulative effect of an accounting change) and a net loss of FF 188 million in 1992. During 1993, Euro Disney changed its method of accounting for project-related pre-opening costs. Under the new method, such costs are expensed as incurred. The cumulative effect of the change in method on prior years was a charge against income of FF 3.2 billion. The effect of the change in 1993 was to decrease the loss before the cumulative effect of accounting change by FF 338 million. U.S. generally accepted accounting principles ("U.S. GAAP") differ in certain significant respects from French GAAP applied by Euro Disney, principally as they relate to accounting for leases and the calculation of interest expense relating to the debt affected by Euro Disney's financial restructuring. In addition, the U.S. GAAP treatment of receivables due from Euro Disney and canceled by the Company in connection with Euro Disney's financial restructuring differs significantly from French GAAP applied by Euro Disney. The summarized consolidated financial statements for Euro Disney set forth below are stated in U.S. dollars in accordance with U.S. GAAP.
Balance Sheet 1994 1993 - ------------------------------------------------------------------------------ Cash and investments $ 289 $ 211 Receivables 227 268 Fixed assets, net 3,791 3,704 Other assets 137 214 --------- --------- Total Assets $ 4,444 $ 4,397 --------- --------- --------- --------- Accounts payable and other liabilities $ 560 $ 647 Borrowings 3,051 3,683 Stockholders' equity 833 67 --------- --------- Total Liabilities and Stockholders' Equity $ 4,444 $ 4,397 --------- --------- --------- ---------
Statement of Operations 1994 1993 1992 - ----------------------------------------------------------------------------------------- Revenues $ 751 $ 873 $ 738 Costs and expenses 1,198 1,114 808 Net interest expense 280 287 95 --------- --------- --------- Loss before income taxes and cumulative effect of accounting change (727) (528) (165) Income tax benefit - - 30 --------- --------- --------- Loss before cumulative effect of accounting change (727) (528) (135) Cumulative effect of change in accounting for pre-opening costs - (578) - --------- --------- --------- Net Loss $ (727) $ (1,106) $ (135) --------- --------- --------- --------- --------- --------- Pro forma amount assuming the change in accounting method is applied retroactively $ (528) $ (418) --------- --------- --------- ---------
-33- 3 Film and Television Costs
1994 1993 - --------------------------------------------------------------------------------------------------- Theatrical Film Costs Released, less amortization $ 436.7 $ 329.0 In process 627.1 548.5 --------- --------- 1,063.8 877.5 --------- --------- Television Costs Released, less amortization 281.9 230.0 In process 124.7 130.1 --------- --------- 406.6 360.1 --------- --------- Television Broadcast Rights 125.8 123.3 --------- --------- $ 1,596.2 $ 1,360.9 --------- --------- --------- ---------
Based on management's total gross revenue estimates as of September 30, 1994, approximately 88% of unamortized production costs applicable to released theatrical and television productions are expected to be amortized during the next three years. 4 Borrowings
Fiscal Effective Year Interest Rate Maturity 1994 1993 - ------------------------------------------------------------------------------------------------------ Medium-term notes (a) 5.9% 1995-2093 $ 948.0 $ 783.7 Senior participating notes (a) (b) 6.0 2000-2001 722.8 312.5 Commercial paper (c) 4.9 1995 609.1 520.0 Japanese yen bonds (d) 4.8 1998 285.4 - Securities sold under agreements to repurchase (e) 7.0 1995 57.5 437.5 Other (d) 8.4 1995-2013 314.1 332.1 --------- --------- 5.9% $ 2,936.9 $ 2,385.8 --------- --------- --------- --------- (a) The effective interest rate reflects the effect of interest rate swaps entered into with respect to certain of these borrowings. (b) The average coupon rate is 3% on $875 million face value amount of notes. Additional interest may be paid based on the performance of designated portfolios of films. (c) The Company has available through 2000 an unsecured revolving line of bank credit of up to $525 million for general corporate purposes, including the support of commercial paper borrowings. The Company has the option to borrow at various interest rates. (d) The effective interest rate reflects the effect of cross-currency swaps entered into with respect to certain of these borrowings. (e) Securities sold under agreements to repurchase are collateralized by certain marketable securities.
Borrowings, excluding commercial paper and securities sold under agreements to repurchase, have the following scheduled maturities. 1995 $163.1 1996 116.1 1997 108.0 1998 411.1 1999 0.4
-34- The Company capitalizes interest on assets constructed for its theme parks, resorts and other property, and on theatrical and television productions in process. In 1994, 1993 and 1992, respectively, total interest costs incurred were $171.9, $183.7 and $152.1 million, of which $52.0, $26.0 and $25.3 million were capitalized. 5 Unearned Royalty and Other Advances
1994 1993 - ------------------------------------------------------------------------------------------------------ Tokyo Disneyland royalty advances $ 466.6 $ 490.9 Other 233.3 349.8 --------- --------- $ 699.9 $ 840.7 --------- --------- --------- ---------
In 1988, the Company monetized a substantial portion of its royalties through 2008 from certain Tokyo Disneyland operations. The Company has certain ongoing obligations under its contract with the owner and operator of Tokyo Disneyland, and accordingly, royalty advances are being amortized through 2008. The maximum amount the Company may be required to fund under certain recourse provisions of the monetization agreement is $145 million. The Company does not anticipate funding any significant amount under this agreement. 6 Income Taxes
1994 1993 1992 - ------------------------------------------------------------------------------------------------ INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES Domestic (including U.S. exports) $ 1,514.5 $ 931.4 $ 1,178.9 Foreign subsidiaries 188.6 142.6 122.9 --------- --------- --------- $ 1,703.1 $ 1,074.0 $ 1,301.8 --------- --------- --------- --------- --------- --------- INCOME TAX PROVISION Current Federal $ 117.3 $ 217.3 $ 225.8 State 29.9 47.1 40.3 Foreign subsidiaries 84.1 63.3 46.1 Other foreign 78.7 65.1 48.3 --------- --------- --------- 310.0 392.8 360.5 --------- --------- --------- Deferred Federal 259.6 17.0 109.9 State 23.1 (7.1) 14.7 --------- --------- --------- 282.7 9.9 124.6 --------- --------- --------- $ 592.7 $ 402.7 $ 485.1 --------- --------- --------- --------- --------- ---------
-35-
COMPONENTS OF DEFERRED TAX ASSETS AND LIABILITIES 1994 1993 - --------------------------------------------------------------------------------------------------- Deferred tax assets: Accrued liabilities $ (221.3) $ (142.3) Investment in Euro Disney (133.3) (204.6) State income taxes (72.9) (71.4) Pension and other benefit programs (26.2) (27.0) --------- --------- Total deferred tax assets (453.7) (445.3) --------- --------- Deferred tax liabilities: Theme parks, resorts and other property 954.8 753.6 Licensing revenues capitalized 66.1 65.7 Interest and property taxes 73.8 52.8 Purchase accounting adjustments 49.6 51.0 Leveraged leases 175.1 111.5 Other 23.5 33.9 --------- --------- Total deferred tax liabilities 1,342.9 1,068.5 --------- --------- Net deferred tax liability before valuation allowance 889.2 623.2 Valuation allowance 49.8 49.8 --------- --------- Net deferred tax liability $ 939.0 $ 673.0 --------- --------- --------- ---------
RECONCILIATION OF EFFECTIVE INCOME TAX RATE 1994 1993 1992 - --------------------------------------------------------------------------------------------------------------- Federal income tax rate 35.0% 34.8% 34.0% State income taxes, net of Federal income tax benefit 2.1 2.2 2.8 Effect of increase in statutory tax rate on deferred taxes - 1.6 - Other (2.3) (1.1) 0.5 --- --- --- 34.8% 37.5% 37.3% --- --- --- --- --- ---
As discussed in Note 1, the Company adopted SFAS 109 during the quarter ended June 30, 1993, retroactive to October 1, 1992. The adoption of SFAS 109 changed the Company's method of accounting for income taxes from the deferred method to the asset and liability method. SFAS 109 requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Differences between financial reporting and tax bases arise most frequently from differences in timing of income and expense recognition and as a result of business acquisitions. Prior year financial statements have not been restated to apply the provisions of SFAS 109. -36- As a result of adoption, the Company recognized a benefit in 1993 of $30.0 million, or $.06 per share, representing the cumulative effect of the change on results for years prior to October 1, 1992. The cumulative effect represented the adjustment of previously recorded deferred tax assets and liabilities to reflect the lower prevailing tax rates and the establishment of previously unrecorded deferred tax liabilities. The adoption had no effect on pre-tax income in 1993. In 1994 and 1993, income tax benefits of $12.6 and $144.7 million, respectively, were allocated to stockholders' equity. Such benefits were attributable to employee stock option transactions. 7 Pension and Other Benefit Programs The Company contributes to various pension plans under union and industry-wide agreements. Contributions are based upon the hours worked or gross wages paid to covered employees. In 1994, 1993 and 1992, the costs recognized under these plans were $13.1, $16.1 and $14.7 million, respectively. The Company's share of the unfunded liability, if any, related to these multi-employer plans is not material. The Company also maintains pension plans covering most of its domestic salaried and hourly employees not covered by union or industry-wide pension plans and a non-qualified, unfunded retirement plan for key employees. With respect to its qualified defined benefit pension plans, the Company's policy is to fund, at a minimum, the amount necessary on an actuarial basis to provide for benefits in accordance with the requirements of ERISA. Benefits are generally based on years of service and/or compensation. Net pension cost is summarized as follows.
1994 1993 1992 - ----------------------------------------------------------------------------------------------- Service cost of current period $ 35.1 $ 29.5 $ 23.1 Interest cost on projected benefit obligations 35.5 31.0 25.9 Gain on plan assets (12.1) (54.7) (43.3) Net amortization and deferral of unrecognized gain on plan assets (22.0) 26.2 19.1 --------- --------- --------- Net pension cost $ 36.5 $ 32.0 $ 24.8 --------- --------- --------- --------- --------- ---------
The weighted average discount rate was 8.5% for 1994 and 1993 and 9.5% for 1992, and the expected long-term rate of return on plan assets was 9.5% for 1994, 1993 and 1992. The assumed rate of increase in compensation for the salaried plans was 6.3% for 1994, 6.8% for 1993 and 7.0% for 1992. The mortality table used is the 1983 Group Annuity Mortality Table for Males and Females. -37- The funded status of the plans and the amounts included in the Company's consolidated balance sheet are as follows.
1994 1993 - --------------------------------------------------------------------------------------------------- Plan assets at fair value, primarily publicly traded stocks and bonds $ 484.8 $ 428.9 Actuarial present value of projected benefit obligations Accumulated benefit obligations Vested (383.2) (344.6) Non-vested (20.3) (23.0) Provision for future salary increases (72.2) (65.1) --------- --------- Excess (deficiency) of plan assets versus projected benefit obligations 9.1 (3.8) Unrecognized net loss 82.3 53.8 Unrecognized prior service cost (benefit) (10.6) 3.2 Unrecognized net obligation 3.7 4.0 --------- --------- Prepaid pension cost $ 84.5 $ 57.2 --------- --------- --------- ---------
The Company sponsors a plan to provide postretirement medical benefits to most of its domestic salaried and hourly employees, and contributes to multi-employer welfare plans to provide similar benefits to certain employees under collective bargaining agreements. In 1993, employees who had 20 years of service and attained the age of 62 were eligible to participate in the postretirement benefit plan. Effective March 1, 1994, benefits commence at age 65 for employees who have completed 20 qualifying years of service, worked until age 55, and who have commenced receiving monthly retirement benefits. The Company funds its postretirement health benefit liability on a discretionary basis. As discussed in Note 1, the Company adopted SFAS 106 during the quarter ended June 30, 1993, retroactive to October 1, 1992. SFAS 106 required accrual of postretirement benefit costs to actuarially allocate such costs to the years during which employees render qualifying service. Previously, such costs were expensed as actual claims were paid. SFAS 106 also required recognition of the unfunded and previously unrecognized accumulated postretirement benefit obligation ("transition obligation") for all participants in the Company-sponsored plan. The Company elected to immediately recognize the transition obligation, which resulted in a charge against income of $130.3 million, or $.24 per share, after related income tax benefit of $71.7 million, which represented the cumulative effect of the change in accounting on results prior to October 1, 1992. Under the provisions of SFAS 106, postretirement benefit expense in 1993 exceeded the amount under the previous accounting method by $17.0 million after-tax, or $.03 per share. Net postretirement benefit cost is summarized as follows.
1994 1993 - --------------------------------------------------------------------------------------------------- Service cost of current period $ 13.5 $ 13.9 Interest cost on accumulated postretirement benefit obligation 17.0 20.5 Actual return on plan assets (1.1) (8.5) Net amortization and deferral of unrecognized gain or loss on plan assets (15.5) 3.9 --------- --------- Net postretirement benefit cost $ 13.9 $ 29.8 --------- --------- --------- ---------
The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 8.5% for 1994 and 1993. The expected long term rate of return on plan assets was 9.5% for 1994 and 1993. -38- The annual rate of increase in the per capita cost of covered health care benefits was assumed to be 7% in 1994 and 1993. The health care cost trend rate has a significant effect on the amounts reported. An increase in the assumed health care cost trend rate of 1% for each year would increase the postretirement benefit obligation as of September 30, 1994 and 1993 by $39.2 and $53.3 million, respectively, and the net service and interest cost components of net postretirement benefit cost for 1994 and 1993 by $7.1 and $8.1 million, respectively. The funded status of the plan and the amounts included in the Company's consolidated balance sheet are as follows.
1994 1993 - --------------------------------------------------------------------------------------------------- Actuarial present value of accumulated postretirement benefit obligation Retirees $ 46.9 $ 40.4 Fully eligible active plan participants 57.8 75.7 Other active plan participants 77.7 132.0 --------- --------- 182.4 248.1 Plan assets at fair value, primarily publicly traded stocks and bonds (78.1) (66.8) Unrecognized net (gain) loss (23.1) 30.2 Unrecognized prior service cost 129.0 - --------- --------- Accrued postretirement benefit cost $ 210.2 $ 211.5 --------- --------- --------- ---------
In November 1992, the Financial Accounting Standards Board issued SFAS 112 EMPLOYERS' ACCOUNTING FOR POSTEMPLOYMENT BENEFITS. The Company currently plans to adopt SFAS 112 in 1995 and does not anticipate that the impact will be material to its financial condition or results of operations. 8 Stockholders' Equity
Common Paid-in Retained (Shares in millions) Shares Stock Capital Earnings - ------------------------------------------------------------------------------------------- Balance at September 30, 1991 548.6 $ 13.7 $ 536.0 $ 3,950.5 Exercise of stock options, net 3.6 0.1 70.1 - Dividends ($.20125 per share) - - - (105.3) Net income - - - 816.7 ----- ----- ----------- ----------- Balance at September 30, 1992 552.2 13.8 606.1 4,661.9 Exercise of stock options, net 12.4 0.3 256.2 - Dividends ($.24 per share) - - - (128.6) Net income - - - 299.8 ----- ----- ----------- ----------- Balance at September 30, 1993 564.6 14.1 862.3 4,833.1 Exercise of stock options, net 2.4 0.1 68.8 - Dividends ($.2875 per share) - - - (153.2) Net income - - - 1,110.4 ----- ----- ----------- ----------- Balance at September 30, 1994 567.0 $ 14.2 $ 931.1 $ 5,790.3 ----- ----- ----------- ----------- ----- ----- ----------- -----------
On February 18, 1992, the Board of Directors approved a four-for-one stock split of the Company's common stock, which was approved by the Company's stockholders and became effective on April 20, 1992. All share and per share data have been restated for all periods presented to reflect the stock split. -39- In June 1989, the Company adopted a stockholders' rights plan. The plan becomes operative in certain events involving the acquisition of 25% or more of the Company's common stock by any person or group in a transaction not approved by the Company's Board of Directors. Upon the occurrence of such an event, each right, unless redeemed by the Board, entitles its holder to purchase for $350 an amount of common stock of the Company, or in certain circumstances the acquiror, having a market value of twice the purchase price. In connection with the rights plan, 7.2 million shares of preferred stock were reserved. At September 30, 1994, and 1993, the Company's cumulative foreign currency translation adjustments were $59.1 and $36.7 million, net of deferred taxes of $27.5 and $25.0 million, respectively. Treasury stock activity for the three years ended September 30, 1994 was as follows.
Treasury (Shares in millions) Shares Stock - ------------------------------------------------------------------------------------------ Balance at September 30, 1991 and 1992 27.8 $ 664.1 Common stock repurchases 0.9 31.6 Common stock trade-ins on exercised options 0.4 20.0 --- ----------- Balance at September 30, 1993 29.1 715.7 Common stock repurchases 13.8 570.7 --- ----------- Balance at September 30, 1994 42.9 $ 1,286.4 --- ----------- --- -----------
In November 1984, the Company adopted a program to repurchase up to 56 million shares. In December 1990, the Company increased the authorized share repurchase amount to 90 million shares. Under this program, the Company purchased 13.8 million shares during the year ended September 30, 1994, and repurchased an additional 8.9 million shares through November 21, 1994. Since adoption of the program, a total of 75.5 million shares have been repurchased at prevailing market prices. On November 21, 1994, the Company increased the authorized share repurchase amount by 90 million. 9 Stock Incentive Plans Under various plans, the Company may grant stock option and other awards to key executive, management and creative personnel. Transactions under the various stock option and incentive plans for the periods indicated were as follows.
(Shares in millions) 1994 1993 1992 - --------------------------------------------------------------------------------------------- Outstanding at beginning of year 36.4 44.3 44.8 Awards cancelled (1.6) (1.1) (1.2) Awards granted 6.5 5.6 4.3 Awards exercised (2.5) (12.4) (3.6) --- --------- --- Outstanding at September 30 38.8 36.4 44.3 --- --------- --- --- --------- --- Exercisable at September 30 17.5 13.4 18.8 --- --------- --- --- --------- ---
-40- Stock option awards are granted at prices equal to at least market price on the date of grant. Options outstanding at September 30, 1994 and 1993 ranged in price from $3.61 to $47.31 and $3.23 to $44.06 per share, respectively. Options exercised ranged in price from $3.23 to $41.00 per share in 1994, from $3.23 to $33.35 per share in 1993, and from $3.23 to $32.66 per share in 1992. Shares available for future option grants at September 30, 1994 were 18.8 million. 10 Detail of Certain Balance Sheet Accounts
1994 1993 - ------------------------------------------------------------------------------------------------- RECEIVABLES Trade, net of allowances $ 1,328.4 $ 1,180.7 Other 342.1 209.6 --------- --------- $ 1,670.5 $ 1,390.3 --------- --------- --------- --------- OTHER ASSETS Intangibles $ 311.0 $ 380.3 Other 625.8 531.0 --------- --------- $ 936.8 $ 911.3 --------- --------- --------- --------- ACCOUNTS PAYABLE AND OTHER ACCRUED LIABILITIES Accounts payable $ 1,771.8 $ 1,755.4 Payroll and employee benefits 638.6 661.9 Other 64.4 112.8 --------- --------- $ 2,474.8 $ 2,530.1 --------- --------- --------- ---------
11 Pre-Opening Costs As discussed in Note 1, during 1993 the Company changed its method of accounting for pre-opening costs. In years prior to 1993, project-related pre-opening costs were capitalized and amortized on a straight-line basis over periods of up to five years. Under the new method, project-related pre-opening costs are expensed as incurred. The cumulative effect of the change in method on prior years was a charge against income of $271.2 million, or $.50 per share, after related income tax benefit of $71.0 million, of which $233.0 million related to the impact of the accounting change on the Company's investment in Euro Disney. The effect of the change was to increase income in 1993 by $40.2 million after-tax, or $.07 per share. -41- 12 Segments
BUSINESS SEGMENTS 1994 1993 1992 - ------------------------------------------------------------------------------------- CAPITAL EXPENDITURES Filmed entertainment $ 100.7 $ 130.2 $ 76.7 Theme parks and resorts 846.4 593.4 393.6 Consumer products 61.1 36.3 80.6 Corporate 17.9 54.0 48.2 --------- --------- --------- $ 1,026.1 $ 813.9 $ 599.1 --------- --------- --------- --------- --------- --------- DEPRECIATION EXPENSE Filmed entertainment $ 49.1 $ 38.5 $ 29.5 Theme parks and resorts 289.2 269.2 249.8 Consumer products 38.3 26.2 16.8 Corporate 33.1 30.3 21.2 --------- --------- --------- $ 409.7 $ 364.2 $ 317.3 --------- --------- --------- --------- --------- --------- IDENTIFIABLE ASSETS Filmed entertainment $ 3,791.5 $ 3,417.5 Theme parks and resorts 5,706.9 5,216.0 Consumer products 845.3 707.5 Corporate 1,852.7 2,410.1 Investment in Euro Disney 629.9 - --------- --------- $12,826.3 $11,751.1 --------- --------- --------- --------- SUPPLEMENTAL REVENUE DATA Filmed entertainment Theatrical product $ 3,734.2 $ 2,764.4 $ 2,251.7 Theme parks and resorts Admissions 1,179.6 1,215.6 1,193.3 Merchandise, food and beverage 1,238.1 1,232.7 1,223.1
-42-
GEOGRAPHIC SEGMENTS 1994 1993 1992 - ----------------------------------------------------------------------------------------- DOMESTIC REVENUES United States $ 7,697.6 $ 6,710.8 $ 6,047.7 United States export 458.0 399.8 406.0 INTERNATIONAL REVENUES Europe 1,344.8 984.6 763.1 Rest of world 554.7 434.0 287.2 --------- --------- --------- $10,055.1 $ 8,529.2 $ 7,504.0 --------- --------- --------- --------- --------- --------- OPERATING INCOME United States $ 1,392.7 $ 1,591.7 $ 1,402.7 Europe 405.0 121.8 39.1 Rest of world 226.0 82.5 48.4 Unallocated expenses (58.0) (71.5) (54.9) --------- --------- --------- $ 1,965.7 $ 1,724.5 $ 1,435.3 --------- --------- --------- --------- --------- --------- IDENTIFIABLE ASSETS United States $11,306.1 $11,084.5 Europe 1,237.8 519.7 Rest of world 282.4 146.9 --------- --------- $12,826.3 $11,751.1 --------- --------- --------- ---------
13 Financial Instruments INTEREST RATE RISK MANAGEMENT The Company uses interest rate swaps and other instruments to manage net exposure to interest rate changes related to its portfolio of investments and borrowings and to lower its overall borrowing costs. The Company's objective is to manage the impact of interest rate changes on earnings and on the market value of its investments and borrowings. Significant interest rate risk management instruments held by the Company at September 30, 1994 and 1993 are described below. INTEREST RATE RISK MANAGEMENT TRANSACTIONS - INVESTMENTS At September 30, 1994 and 1993, the Company had outstanding interest rate swaps on its investments with notional amounts totaling $131.3 and $456.5 million, respectively, which effectively converted certain fixed rate securities to variable rate instruments. Under these swap agreements, which expire in two to ten years, the Company received interest at LIBOR-based rates and paid interest at a weighted average fixed rate of 7.4% at September 30, 1994. At September 30, 1993, the Company had outstanding interest rate swaps on its U.S. dollar investments with notional amounts totaling $350.0 million, which effectively converted variable rate securities to fixed rate instruments. These swap agreements were terminated during 1994. At September 30, 1994 and 1993, the Company had outstanding spreadlock contracts with notional amounts totaling $250.0 and $50.0 million, respectively. Under these interest rate contracts, which expire within one year, the Company will receive payments if interest rate swap spreads rise above certain levels and will make payments if interest rate swap spreads fall below certain levels. -43- At September 30, 1994 and 1993, the Company held positions in certain investment securities through the use of futures and forward contracts, which it hedged with interest rate swaps. The aggregate notional amounts of such futures, forwards, and interest rate swaps were $263.5 and $273.2 million, respectively. The contracts expire in one to eight years. INTEREST RATE RISK MANAGEMENT TRANSACTIONS - BORROWINGS At September 30, 1994 and 1993, the Company had outstanding interest rate swaps on its borrowings with notional amounts totaling $985.0 and $1,058.7 million, respectively, which effectively converted medium-term notes and senior participating notes to commercial paper or LIBOR-based variable rate instruments. These swap agreements expire in one to 15 years. SUMMARY OF INTEREST RATE RISK MANAGEMENT TRANSACTIONS Following is a reconciliation of the notional or contractual amounts of the Company's interest rate contracts.
Balance at Balance at September 30, Maturities/ September 30, 1993 Additions Expirations Terminations 1994 - ------------------------------------------------------------------------------------------ Pay floating swaps $ 1,431.7 $ 1,047.4 $ (590.7) $ (851.0) $ 1,037.4 Pay fixed swaps 717.6 141.8 - (646.3) 213.1 Spreadlock contracts 50.0 300.0 - (100.0) 250.0 Forward contracts 212.1 96.5 - (207.9) 100.7 Futures contracts 18.7 824.3 (5.3) (571.3) 266.4 Option contracts 65.8 727.6 (147.6) (551.4) 94.4 ------------- ----------- ----------- ------------ ------------- $ 2,495.9 $ 3,137.6 $ (743.6) $ (2,927.9) $ 1,962.0 ------------- ----------- ----------- ------------ ------------- ------------- ----------- ----------- ------------ -------------
The notional amounts above reflect incremental changes in the Company's investments in each class of financial instrument. Rollforward activity, which represented renewal of existing positions, is excluded. FOREIGN EXCHANGE RISK MANAGEMENT The Company enters into foreign exchange hedging contracts to protect against changes in the value of its existing foreign currency assets and liabilities and its future foreign currency revenues. The primary focus of the Company's foreign exchange risk management program is to reduce earnings volatility. By policy, the Company maintains hedge coverages between minimum and maximum percentages of its anticipated foreign exchange exposures for each of the next five years. Most foreign exchange hedging contracts are option strategies providing for the sale of foreign currencies which hedge probable, but not firmly committed, revenues. The principal hedge currencies are Japanese yen, French francs, German marks and British pounds. FOREIGN EXCHANGE RISK MANAGEMENT TRANSACTIONS At September 30, 1994 and 1993, the Company had foreign currency hedging contracts with notional amounts of $7.4 and $4.0 billion, respectively, net of notional amounts of contracts with counterparties against which the Company has a legal right of offset, which effectively hedged $3.3 and $2.0 billion, respectively, of the Company's foreign exchange exposure. Foreign exchange contracts mature over one to five years. At September 30, 1994 and 1993, the Company had $334.6 and $49.2 million, respectively, of borrowings denominated in yen, and $77.2 and $119.5 million, respectively, of borrowings converted to yen borrowings through cross-currency swaps. Cross-currency swaps, which expire in one to four years, effectively converted $297.9 and $54.8 million, respectively, of yen borrowings to U.S. dollar LIBOR-based variable rate instruments. The remaining yen borrowings are hedged by certain of the Company's yen royalty receipts. -44- IMPACT OF RISK MANAGEMENT TRANSACTIONS The impact of risk management activities on income in 1994, 1993 and 1992 and the amount of deferred gains and losses from interest rate and foreign currency risk management as of September 30, 1994 and 1993 were not material. FAIR VALUE OF FINANCIAL INSTRUMENTS At September 30, 1994 and 1993, the Company's financial instruments included cash, cash equivalents, investments, borrowings, interest rate swap agreements and other interest rate contracts, cross currency swap agreements, and foreign exchange forward contracts and options. The fair values of cash and cash equivalents, commercial paper, and securities sold under agreements to repurchase approximated carrying values because of the short maturities of these instruments. The fair values of the Company's marketable equity securities, other investments, and other borrowings approximated carrying values and the fair value of each class of hedging instruments was not material, based on broker quotes or quoted market prices or rates for the same or similar instruments. CREDIT CONCENTRATIONS The Company continually monitors its positions with, and the credit quality of, the financial institutions which are counterparties to its off-balance-sheet financial instruments and does not anticipate nonperformance by the counterparties. The Company would not realize a material loss in the event of nonperformance by counterparties. The Company enters into off-balance-sheet transactions only with financial institution counterparties which have a credit rating of single A-or better. The Company's current policy in agreements with financial institution counterparties is generally to require collateral in the event credit ratings fall below single A-. At September 30, 1994, neither the Company nor the counterparties were required to collateralize their respective obligations under these off-balance-sheet financial instruments. The Company's trade receivables and investments do not represent significant concentrations of credit risk at September 30, 1994, due to the wide variety of customers and markets into which the Company's products are sold, as well as their dispersion across many geographic areas, and due to the diversification of the Company's portfolio among instruments and issuers. (See Note 2 for a discussion of the Company's investment in Euro Disney.) 14 Commitments and Contingencies The Company, together with, in some instances, certain of its directors and officers, is a defendant or co-defendant in various legal actions involving copyright, breach of contract and various other claims incident to the conduct of its businesses. Management does not expect the Company to suffer any material liability by reason of such actions, nor does it expect that such actions will have a material effect on the Company's liquidity or operating results as of September 30, 1994. -45- QUARTERLY FINANCIAL SUMMARY (In millions, except per share data) (Unaudited)
December 31 March 31 June 30 September 30 - --------------------------------------------------------------------------------------- 1994 Revenues $ 2,727.3 $ 2,275.8 $ 2,353.6 $ 2,698.4 Operating income 624.4 410.0 492.6 438.7 Net income 368.6 248.4 267.5 225.9 Earnings per share .68 .45 .49 .42 1993 Revenues $ 2,391.4 $ 2,026.4 $ 1,936.8 $ 2,174.6 Operating income 496.5 401.4 469.9 356.7 Income (loss) before cumulative effect of accounting changes 275.1 214.8 259.1 (77.7) Net income (loss) (96.4) 214.8 259.1 (77.7) Earnings (loss) per share before cumulative effect of accounting changes .50 .39 .48 (.15) Earnings (loss) per share (.18) .39 .48 (.15)
-46- SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992 (In millions)
Balance at beginning of Balance at year Additions Deductions end of year ------------- ------------- --------------- ----------- 1994 H. Weinstein(1) $ 4.8 $ 0.2 $ 5.0 R. Weinstein(1) 4.8 0.2 5.0 P. Sissman(2) 0.2 0.2 J. Rizzo(3) 0.1 0.1 --- --- ----- Total............................... $ 9.6 $ 0.7 $ 10.3 --- --- ----- --- --- ----- 1993 H. Weinstein(1) $ 4.8 $ 4.8 R. Weinstein(1) 4.8 4.8 J. Forsgren(4) $ 0.5 $ 0.5 --- --- --- ----- Total............................... $ 0.5 $ 9.6 $ 0.5 $ 9.6 --- --- --- ----- --- --- --- ----- 1992 J. Forsgren(4).......................... $ 0.5 $ 0.5 --- ----- --- ----- - -------- (1) Two unsecured notes: $2.5 million, interest payable at 6%, principal and interest payable monthly commencing October 1994, due January 1997; $2.3 million, non-interest bearing, payable monthly beginning January 1997, due not later than October 1998. (2) Unsecured loan; interest payable at 5%, with annual payments of interest only for two years, and annual payments of principal and interest thereafter, due October 2001. (3) Non-interest bearing demand loan, secured by real property. (4) Loan secured by a pledge of shares acquired pursuant to the exercise of stock options; interest payable at 6% on $0.3 million, with principal and interest due upon sale of the shares.
-47- SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992 (In millions)
Balance at Balance beginning Retirements at end of year Additions or sales Transfers of year ------------ ----------- ------------ ------------ ------------ 1994 Rides and attractions. . . . . . . . . . . . . . $ 2,084.9 $ (33.8) $ 213.6 $ 2,264.7 Buildings. . . . . . . . . . . . . . . . . . . . 1,935.3 $ 0.2 (2.6) 180.5 2,113.4 Equipment, furniture and fixtures. . . . . . . . 1,854.1 129.5 (53.4) 178.1 2,108.3 Land improvements. . . . . . . . . . . . . . . . 720.0 0.1 (2.0) 77.1 795.2 Leasehold improvements . . . . . . . . . . . . . 137.8 11.2 (3.7) 23.5 168.8 -------- -------- ----- ------ -------- 6,732.1 141.0 (95.5) 672.8 7,450.4 Projects in progress . . . . . . . . . . . . . . 688.2 863.7 (672.8) 879.1 Land . . . . . . . . . . . . . . . . . . . . . . 94.3 21.4 (3.6) 112.1 -------- -------- ----- ------ -------- $ 7,514.6 $ 1,026.1 $ (99.1) $ -- $ 8,441.6 -------- -------- ----- ------ -------- -------- -------- ----- ------ -------- 1993 Rides and attractions. . . . . . . . . . . . . . $ 2,013.8 $ 13.2 $ 84.3 $ 2,084.9 Buildings. . . . . . . . . . . . . . . . . . . . 1,784.1 $ 99.2 2.7 54.7 1,935.3 Equipment, furniture and fixtures. . . . . . . . 1,656.6 90.7 45.2 152.0 1,854.1 Land improvements. . . . . . . . . . . . . . . . 693.9 2.8 0.6 23.9 720.0 Leasehold improvements . . . . . . . . . . . . . 136.9 14.1 30.1 16.9 137.8 -------- -------- ----- ------ -------- 6,285.3 206.8 91.8 331.8 6,732.1 Projects in progress . . . . . . . . . . . . . . 440.1 579.9 (331.8) 688.2 Land . . . . . . . . . . . . . . . . . . . . . . 72.9 27.2 5.8 94.3 -------- -------- ----- ------ -------- $ 6,798.3 $ 813.9 $ 97.6 $ -- $ 7,514.6 -------- -------- ----- ------ -------- -------- -------- ----- ------ -------- 1992 Rides and attractions. . . . . . . . . . . . . . $ 1,902.9 $ 8.4 $ 119.3 $ 2,013.8 Buildings. . . . . . . . . . . . . . . . . . . . 1,624.1 $ 2.8 2.3 159.5 1,784.1 Equipment, furniture and fixtures. . . . . . . . 1,385.7 71.4 26.8 226.3 1,656.6 Land improvements. . . . . . . . . . . . . . . . 608.1 0.2 85.6 693.9 Leasehold improvements . . . . . . . . . . . . . 107.3 15.8 2.7 16.5 136.9 -------- -------- ----- ------ -------- 5,628.1 90.2 40.2 607.2 6,285.3 Projects in progress . . . . . . . . . . . . . . 540.9 506.4 (607.2) 440.1 Land . . . . . . . . . . . . . . . . . . . . . . 70.4 2.5 72.9 -------- -------- ----- ------ -------- $ 6,239.4 $ 599.1 $ 40.2 $ -- $ 6,798.3 -------- -------- ----- ------ -------- -------- -------- ----- ------ --------
-48- SCHEDULE VI - ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992 (In millions)
Balance at Balance beginning Retirements Other at end of year Additions or sales changes(1) of year ------------ ----------- ------------ ------------ ------------ 1994 Rides and attractions. . . . . . . . . . . . . . $ 763.1 $ 87.3 $ 22.0 $ 828.4 Buildings. . . . . . . . . . . . . . . . . . . . 363.5 73.8 0.9 436.4 Equipment, furniture and fixtures. . . . . . . . 858.4 218.4 42.5 1,034.3 Land improvements. . . . . . . . . . . . . . . . 237.2 29.6 1.3 265.5 Leasehold improvements . . . . . . . . . . . . . 64.2 0.6 2.3 62.5 ---------- ---------- ---------- ---------- $ 2,286.4 $ 409.7 $ 69.0 $ 2,627.1 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 1993 Rides and attractions. . . . . . . . . . . . . . $ 695.7 $ 79.6 $ 12.2 $ 763.1 Buildings. . . . . . . . . . . . . . . . . . . . 311.1 59.6 7.2 363.5 Equipment, furniture and fixtures. . . . . . . . 731.9 181.7 55.2 858.4 Land improvements. . . . . . . . . . . . . . . . 209.3 28.2 0.3 237.2 Leasehold improvements . . . . . . . . . . . . . 51.6 15.1 2.5 64.2 ---------- ---------- ---------- ---------- $ 1,999.6 $ 364.2 $ 77.4 $ 2,286.4 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 1992 Rides and attractions. . . . . . . . . . . . . . $ 634.0 $ 66.4 $ 4.7 $ 695.7 Buildings. . . . . . . . . . . . . . . . . . . . 272.2 51.1 12.2 311.1 Equipment, furniture and fixtures. . . . . . . . 542.7 159.1 10.4 $ 40.5 731.9 Land improvements. . . . . . . . . . . . . . . . 182.3 27.1 0.1 209.3 Leasehold improvements . . . . . . . . . . . . . 36.6 13.6 1.4 51.6 ---------- ---------- ---------- ---------- $ 1,667.8 $ 317.3 $ 27.4 $ 41.9 $ 1,999.6 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- - ------- (1) Amounts reclassified to conform to presentation of related assets.
-49- SCHEDULE IX - SHORT-TERM BORROWINGS YEARS ENDED SEPTEMBER 30, 1994, 1993 and 1992 (In millions)
At end of period --------------------------- Weighted Maximum Average average Weighted amount amount interest average outstanding outstanding rate interest during during during Balance rate the period(1) the period(2) the period(3) ------------ ------------ ------------ ------------ ------------ 1994 Commercial paper . . . . . . . . . . . . . . . . $ 609.1 4.9% $ 609.1 $ 263.9 3.5% -------- -------- -------- -------- -------- -------- Securities sold under agreements to repurchase . . . . . . . . . . . . . . . . . . $ 57.5 7.0% $ 640.5 $ 385.8 7.3% -------- -------- -------- -------- -------- -------- 1993 Commercial paper . . . . . . . . . . . . . . . . $ 520.0 3.4% $ 897.0 $ 473.2 3.1% -------- -------- -------- -------- -------- -------- Securities sold under agreements to repurchase . . . . . . . . . . . . . . . . . . $ 437.5 8.1% $ 473.3 $ 363.9 10.7% -------- -------- -------- -------- -------- -------- 1992 Commercial paper . . . . . . . . . . . . . . . . $ 181.4 3.2% $ 198.6 $ 115.5 4.0% -------- -------- -------- -------- -------- -------- Securities sold under agreements to repurchase . . . . . . . . . . . . . . . . . . $ 231.2 15.6% $ 272.0 $ 244.5 11.7% -------- -------- -------- -------- -------- -------- - ----------- (1) Maximum amount outstanding at any month-end during the period. (2) Average amount outstanding during the period is computed by dividing the total outstanding at each month-end by the number of months outstanding during the year. (3) Weighted average interest rate during the period is computed by dividing interest expense by the average amount outstanding.
-50- SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992 (In millions)
1994 1993 1992 - -------------------------------------------------------------------------------- Maintenance and repairs $ 228.4 $ 227.3 $ 220.2 Taxes, other than payroll and income taxes: Property 92.0 87.0 79.4 Advertising costs 1,273.5 963.7 859.6
-51- EX-3.B 2 BYLAWS OF THE COMPANY EXHIBIT 3(b) AS AMENDED, EFFECTIVE APRIL 25, 1994 BYLAWS OF THE WALT DISNEY COMPANY (hereinafter called the "Corporation") ARTICLE I OFFICES SECTION 1. REGISTERED OFFICE. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, Delaware. SECTION 2. PRINCIPAL PLACE OF BUSINESS. The principal place of business of the Corporation is hereby fixed and located at 500 South Buena Vista Street, Burbank, California 91521. SECTION 3. OTHER OFFICES. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine. ARTICLE II MEETINGS OF STOCKHOLDERS SECTION 1. PLACE OF MEETINGS. Meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors (and in the case of a special meeting, by the Board of Directors or the person calling the special meeting as authorized by Section 3 of this Article II) and stated in the notice of the meeting or in a duly executed waiver of notice thereof. SECTION 2. ANNUAL MEETINGS. The Annual Meetings of Stockholders shall be held on such date and at such time and place as may be fixed by the Board of Directors and stated in the notice of the meeting, for the purpose of electing directors and for the transaction of such other business as is properly brought before the meeting in accordance with these Bylaws. To be properly brought before the Annual Meeting, business must be either (i) specified in the notice of Annual Meeting (or any supplement or amendment thereto) given by or at the direction of the Board of Directors, (ii) otherwise brought before the Annual Meeting by or at the direction of the Board of Directors, or (iii) otherwise properly brought before the Annual Meeting by a stockholder. In addition to any other applicable requirements, for business to be properly brought before an Annual Meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at 500 South Buena Vista Street, Burbank, California 91521, not less than 50 days nor more than 75 days prior to the meeting; provided, however, that in the event that less than 65 days' notice or prior public disclosure of the date of the Annual Meeting is given or made to stockholders, notice by a stockholder to be timely must be so received not later than the close of business on the fifteenth day following the day on which such notice of the date of the Annual Meeting was mailed or such public disclosure was made, whichever first occurs. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the Annual Meeting (i) a brief description of the business desired to be brought before the Annual Meeting and the reasons for conducting such business at the Annual Meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the class, series and number of shares of the Corporation which are beneficially owned by the stockholder, and (iv) any material interest of the stockholder in such business. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at the Annual Meeting except in accordance with the procedures set forth in this Article II, Section 2. The person presiding at an Annual Meeting shall, if the facts warrant, determine and declare to the Annual Meeting that business was not properly brought before the Annual Meeting in accordance with the provisions of this Article II, Section 2, and if he should so determine, he shall so declare to the Annual Meeting and any such business not properly brought before the meeting shall not be transacted. Written notice of the Annual Meeting stating the place, date and hour of the Annual Meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. SECTION 3. SPECIAL MEETINGS. Special meetings of stockholders, for any purpose or purposes, may be called by the Board of Directors, the Chairman of the Board of Directors, or the President. Special meetings of stockholders may not be called by any other person or persons. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting, and only such business as is stated in such notice shall be acted upon thereat. -2- SECTION 4. QUORUM. Except as may be otherwise provided by law or by the Certificate of Incorporation, the holders of a majority of the capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder entitled to vote at the meeting. SECTION 5. VOTING. Unless otherwise required by law, the Certificate of Incorporation or these Bylaws, any question brought before any meeting of stockholders shall be decided by the vote of the holders of a majority of the stock represented and entitled to vote thereon. Unless otherwise provided in the Certificate of Incorporation, each stockholder represented at a meeting of stockholders shall be entitled to cast one vote for each share of the capital stock entitled to vote thereat held by such stockholder. The Board of Directors, in its discretion, or the officer of the Corporation presiding at a meeting of stockholders, in his discretion, may require that any votes cast at such meeting shall be cast by written ballot. SECTION 6. ORGANIZATION. All meetings of the stockholders shall be presided over by the Chairman of the Board of Directors or, if he is not present, by the Vice Chairman of the Board of Directors, and if he is not present, by such officer or director as is designated by the Board of Directors. The Secretary of the Corporation or, if he is not present, any Assistant Secretary or other person designated by the presiding officer shall act as secretary of the meeting. SECTION 7. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer of the Corporation who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not -3- so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder of the Corporation who is present. SECTION 8. STOCK LEDGER. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 7 of this Article II or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders. SECTION 9. INSPECTORS OF ELECTION. Before any meeting of stockholders, the Board of Directors shall appoint one or more inspectors to act at the meeting and make a written report thereof. The Board of Directors may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability. The inspectors shall: (a) ascertain the number of shares outstanding and the voting power of each; (b) determine the shares represented at the meeting and the validity of proxies and ballots; (c) count all votes and ballots; (d) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination made by the inspectors; and (e) certify their determination of the number of shares represented at the meeting, and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors. In determining the validity and counting of proxies and ballots, the inspectors shall act in accordance with applicable law. -4- ARTICLE III DIRECTORS SECTION 1. NUMBER AND ELECTION OF DIRECTORS. Subject to the rights, if any, of holders of preferred stock of the Corporation to elect directors of the Corporation, the Board of Directors shall consist of not less than nine nor more than fifteen members with the exact number of directors to be determined from time to time by resolution duly adopted by the Board of Directors. Directors shall be elected by a plurality of the votes cast at Annual Meetings of stockholders, and each director so elected shall hold office as provided by Article FIFTH of the Certificate of Incorporation. A director may be removed from office only as provided by Article SIXTH of the Certificate of Incorporation. Any director may resign at any time effective upon giving written notice to the Corporation, unless the notice specifies a later time for the effectiveness of such resignation. Directors need not be stockholders. SECTION 2. NOMINATION OF DIRECTORS. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the Corporation at the Annual Meeting may be made at such meeting by or at the direction of the Board of Directors, by any committee or persons appointed by the Board of Directors or by any stockholder of the Corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Article III, Section 2. Such nominations by any stockholder shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than 50 days nor more than 75 days prior to the meeting; provided, however, that in the event that less than 65 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the fifteenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. Such stockholder's notice to the Secretary shall set forth (i) as to each person whom the stockholder proposes to nominate for election or reelection as a director, (a) the name, age, business address and residence address of the person, (b) the principal occupation or employment of the person, (c) the class and number of shares of capital stock of the Corporation which are beneficially owned by the person, and (d) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to the Rules and Regulations of the Securities and Exchange Commission under Section 14 of the Securities Exchange Act of 1934, as amended; and (ii) as to the stockholder giving the notice (a) the name and record address of the stockholder and (b) the class and number of shares of capital stock of the Corporation which are beneficially owned by the stockholder. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by -5- the Corporation to determine the eligibility of such proposed nominee to serve as a director of the Corporation. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth herein. The officer of the Corporation presiding at an Annual Meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. SECTION 3. VACANCIES. Any vacancy on the Board of Directors, howsoever resulting, may be filled by a majority of the directors then in office, even if less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy shall hold office for a term that shall coincide with the term of the class to which such director shall have been elected. SECTION 4. DUTIES AND POWERS. The business of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders. SECTION 5. MEETINGS. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the Board of Directors may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors. Special meetings of the Board of Directors may be called by the Chairman of the Board of Directors, the President, or by a majority of the Board of Directors. Notice thereof, stating the place, date and hour of the meeting, shall be given to each director either by mail not less than four (4) days before the date of the meeting, or personally or by telephone, telegram, telex or similar means of communication on twelve (12) hours' notice, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances. SECTION 6. QUORUM; ACTION OF BOARD OF DIRECTORS. Except as may be otherwise specifically provided by law, the Certificate of Incorporation or these Bylaws, at all meetings of the Board of Directors, a majority of the entire Board of Directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. -6- SECTION 7. ACTION BY WRITTEN CONSENT. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all the members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. SECTION 8. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Members of the Board of Directors of the Corporation, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 8 shall constitute presence in person at such meeting. SECTION 9. COMMITTEES. The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee. In the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any absent or disqualified member. Any committee, to the extent allowed by law and provided in the resolution establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation. The Board of Directors shall appoint a committee designated the Executive Committee and the Board of Directors shall have the power to appoint the Chairman of the Executive Committee. The Board of Directors shall have the power to prescribe the manner in which proceedings of any such committee shall be conducted. In the absence of any such prescription, such committee shall have the power to prescribe the manner in which its proceedings shall be conducted. Unless the Board of Directors or such committee shall otherwise provide, regular and special meetings and other actions of any such committee shall be governed by the provisions of this Article III applicable to meetings and actions of the Board of Directors. Each committee shall keep regular minutes and report to the Board of Directors when required. SECTION 10. FEES AND COMPENSATION. Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by the Board of Directors. -7- ARTICLE IV OFFICERS SECTION 1. GENERAL. The officers of the Corporation shall be chosen by the Board of Directors and shall be a Chairman of the Board of Directors (who must be a director), a President, a Secretary and a Treasurer. The Board of Directors, in its sole discretion, may also choose a Vice Chairman of the Board of Directors (who must be a director), one or more Executive Vice Presidents, Senior Vice Presidents, Vice Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any number of offices may be held by the same person, unless otherwise prohibited by law, the Certificate of Incorporation or these Bylaws. SECTION 2. ELECTION. The Board of Directors at its first meeting held after each Annual Meeting of stockholders shall elect the officers of the Corporation who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time solely by the Board of Directors, which determination may be by resolution of the Board of Directors or in any bylaw provision duly adopted or approved by the Board of Directors; and all officers of the Corporation shall hold office until their successors are chosen and qualified, or until their earlier resignation or removal. Any officer elected by the Board of Directors may be removed at any time by the Board of Directors with or without cause. Any vacancy occurring in any office of the Corporation may be filled only by the Board of Directors. SECTION 3. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board of Directors shall be the Chief Executive Officer of the Corporation, shall preside at all meetings of the Board of Directors and of stockholders and shall, subject to the provisions of the Bylaws and the control of the Board of Directors, have general and active management, direction, and supervision over the business of the Corporation and over its officers. He shall be a member EX OFFICIO of all committees created by the Board of Directors, excluding the Audit Review Committee and any committee to which he has been designated a regular member by the Board of Directors. He shall perform all duties incident to the office of chief executive and such other duties as from time to time may be assigned to him by the Board of Directors. He shall have the right to delegate any of his powers to any other officer or employee. SECTION 4. PRESIDENT. The President shall be the Chief Operating Officer of the Corporation and shall report and be responsible to the Chairman of the Board. His primary responsibility shall be to supervise the conduct of the operations of the Corporation to achieve the Corporation's objectives and to -8- ensure that the activities of the various subsidiaries, divisions and other operating units of the Corporation are properly coordinated. The President shall perform all duties incident to the office of the Chief Operating Officer and such other duties as from time to time may be assigned or delegated to him by the Board of Directors. The President shall be a member EX OFFICIO of all committees created by the Board of Directors, excluding the Audit Review Committee and any committee to which he has been designated a regular member by the Board of Directors. He shall have the right to delegate any of his powers to any other officer or employee. During the absence, disability, or at the request of the Chairman of the Board of Directors, the President shall perform the duties and exercise the powers of the Chairman of the Board of Directors. In the absence or disability of both the President and the Chairman of the Board of Directors, the person designated by the Board of Directors shall perform the duties and exercise the powers of the President, and unless otherwise determined by the Board, the duties and powers of the Chairman. SECTION 5. EXECUTIVE VICE PRESIDENTS. The Executive Vice Presidents shall have such powers and perform such duties as from time to time may be prescribed for them respectively by the Board of Directors or are incident to the office of Executive Vice President. SECTION 6. SENIOR VICE PRESIDENTS. The Senior Vice Presidents shall have such powers and perform such duties as from time to time may be prescribed for them respectively by the Board of Directors or are incident to the office of Senior Vice President. SECTION 7. VICE PRESIDENTS. The Vice Presidents shall have such powers and perform such duties as from time to time may be prescribed for them respectively by the Board of Directors or are incident to the office of Vice President. SECTION 8. SECRETARY. The Secretary shall keep or cause to be kept, at the principal executive office or such other place as the Board of Directors may order, a book of minutes of all meetings of stockholders, the Board of Directors and its committees, with the time and place of holding, whether regular or special, and if special, how authorized, the notice thereof given, the names of those present at Board of Directors and committee meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof. The Secretary shall keep, or cause to be kept, a copy of the Bylaws of the Corporation at the principal executive office or business office of the Corporation. -9- The Secretary shall keep, or cause to be kept, at the principal executive office or at the office of the Corporation's transfer agent or registrar, if one be appointed, a stock register, or a duplicate stock register, showing the names of the stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors and any committees thereof required by these Bylaws or by law to be given, shall keep the seal of the Corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors. SECTION 9. TREASURER. The Treasurer shall have the custody of the corporate funds and securities of the Corporation and shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the Corporation, and shall send or cause to be sent to the stockholders of the Corporation such financial statements and reports as are by law or these Bylaws required to be sent to them. The Treasurer shall deposit all moneys and valuables in the name and to the credit of the Corporation with such depositaries as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, shall render to the President and directors, whenever they request it, an account of all transactions and of the financial condition of the Corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors. SECTION 10. OTHER OFFICERS. Such other officers or assistant officers as the Board of Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any other officer of the Corporation the power to choose such other officers and to prescribe their respective duties and powers. SECTION 11. EXECUTION OF CONTRACTS AND OTHER DOCUMENTS. Each officer of the Corporation may execute, affix the corporate seal and/or deliver, in the name and on behalf of the Corporation, deeds, mortgages, notes, bonds, contracts, agreements, powers of attorney, guarantees, settlements, releases, evidences of indebtedness, conveyances, or any other document or instrument which is authorized by the Board of Directors or is required to be executed in the ordinary course of business, except in cases where the execution, affixation of the corporate seal and/or delivery thereof shall be expressly and exclusively delegated by the Board of Directors to some other officer or agent of the Corporation. -10- ARTICLE V STOCK SECTION 1. FORM OF CERTIFICATES. Every holder of stock in the Corporation shall be entitled to have a certificate signed, in the name of the Corporation (i) by the Chairman or Vice Chairman of the Board of Directors, the President or any Executive Vice President, Senior Vice President or Vice President and (ii) by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by him in the Corporation. SECTION 2. SIGNATURES. Where a certificate is countersigned by (i) a transfer agent or (ii) a registrar, any other signature on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. SECTION 3. LOST CERTIFICATES. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or his legal representative, to advertise the same in such manner as the Board of Directors shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. SECTION 4. TRANSFERS. Transfers of shares of capital stock of the Corporation shall be made only on the stock record of the Corporation by the holder of record thereof or by his attorney thereunto authorized by the power of attorney duly executed and filed with the Secretary of the Corporation or the transfer agent thereof, and only on surrender of the certificate or certificates representing such shares, properly endorsed or accompanied by a duly executed stock transfer power. The Board of Directors may make such additional rules and regulations as it may deem expedient concerning the issue and transfer of certificates representing shares of the capital stock of the Corporation. SECTION 5. RECORD DATE. In order that the Corporation may determine the stockholders entitled to notice of or to vote at -11- any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty days nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. SECTION 6. BENEFICIAL OWNERS. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. ARTICLE VI NOTICES SECTION 1. NOTICES. Whenever written notice is required by law, the Certificate of Incorporation or these Bylaws, to be given to any director or stockholder, such notice may be given by mail, addressed to such director or stockholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Written notice may also be given personally or by telegram, telex, cable or facsimile transmission followed, if required by law, by deposit in the United States mail, with postage prepaid. SECTION 2. WAIVERS OF NOTICE. Whenever any notice is required by law, the Certificate of Incorporation or these Bylaws, to be given to any director or stockholder, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE VII GENERAL PROVISIONS SECTION 1. DISBURSEMENTS. All checks or demands for money and notes of the Corporation shall be signed by such officer -12- or officers or such other person or persons as the Board of Directors may from time to time designate. SECTION 2. FISCAL YEAR. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. SECTION 3. VOTING SECURITIES OWNED BY THE CORPORATION. Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the Chairman of the Board of Directors or the President or any other officer or officers authorized by the Board of Directors, the Chairman of the Board of Directors or the President, and any such officer may, in the name of and on behalf of the Corporation, vote, represent and exercise on behalf of the Corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of the Corporation and take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and power incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors may, by resolution, from time to time confer like powers upon any other person or persons. ARTICLE VIII INDEMNIFICATION SECTION 1. GENERAL. The Corporation shall indemnify to the full extent authorized or permitted by law (as now or hereafter in effect) any person made, or threatened to be made, a defendant or witness to any action, suit or proceeding (whether civil or criminal or otherwise) by reason of the fact that he, his testator or intestate, is or was a director or officer of the Corporation or by reason of the fact that such director or officer, at the request of the Corporation, is or was serving any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, in any capacity. Nothing contained herein shall affect any rights to indemnification to which employees other than directors and officers may be entitled by law. No amendment or repeal of this Section 1 shall apply to or have any effect on any right to indemnification provided hereunder with respect to any acts or omissions occurring prior to such amendment or repeal. SECTION 2. FURTHER ASSURANCE. In furtherance and not in limitation of the powers conferred by statute: -13- (a) the Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of law; and (b) the Corporation may create a trust fund, grant a security interest and/or use other means (including, without limitation, letters of credit, surety bonds and/or other similar arrangements), as well as enter into contracts providing indemnification to the full extent authorized or permitted by law and including as part thereof provisions with respect to any or all of the foregoing to ensure the payment of such amounts as may become necessary to effect indemnification as provided therein, or elsewhere. ARTICLE IX AMENDMENTS SECTION 1. GENERAL. These Bylaws may be altered, amended or repealed, in whole or in part, or new Bylaws may be adopted by either the holders of sixty-six and two-thirds percent (66-2/3%) of the outstanding capital stock entitled to vote thereon or by the Board of Directors. ARTICLE X EMERGENCY PROVISIONS SECTION 1. GENERAL. The provisions of this Article X shall be operative only during a national emergency declared by the President of the United States or the person performing the President's functions, or in the event of a nuclear, atomic or other attack on the United States or a disaster making it impossible or impracticable for the Corporation to conduct its business without recourse to the provisions of this Article X. Said provisions in such event shall override all other Bylaws of the Corporation in conflict with any provisions of this Article X, and shall remain operative so long as it remains impossible or impracticable to continue the business of the Corporation otherwise, but thereafter shall be inoperative; provided that all actions taken in good faith pursuant to such provisions shall thereafter remain in full force and effect unless and until revoked by action taken pursuant to the provisions of the Bylaws other than those contained in this Article X. -14- SECTION 2. UNAVAILABLE DIRECTORS. All directors of the Corporation who are not available to perform their duties as directors by reason of physical or mental incapacity or for any other reason or who are unwilling to perform their duties or whose whereabouts are unknown shall automatically cease to be directors, with like effect as if such persons had resigned as directors, so long as such unavailability continues. SECTION 3. AUTHORIZED NUMBER OF DIRECTORS. The authorized number of directors shall be the number of directors remaining after eliminating those who have ceased to be directors pursuant to Section 2 of this Article X, or the minimum number required by law, whichever number is greater. SECTION 4. QUORUM. The number of directors necessary to constitute a quorum shall be one-third of the authorized number of directors as specified in Section 3 of this Article X, or such other minimum number as, pursuant to the law or lawful decree then in force, it is possible for the Bylaws of a Corporation to specify. SECTION 5. CREATION OF EMERGENCY COMMITTEE. In the event the number of directors remaining after eliminating those who have ceased to be directors pursuant to Section 2 of this Article X is less than the minimum number of authorized directors required by law, then until the appointment of additional directors to make up such required minimum, all the powers and authorities which the Board of Directors could by law delegate including all powers and authorities which the Board of Directors could delegate to a committee, shall be automatically vested in an emergency committee, and the emergency committee shall thereafter manage the affairs of the Corporation pursuant to such powers and authorities and shall have all other powers and authorities as may by law or lawful decree be conferred on any person or body of persons during a period of emergency. SECTION 6. CONSTITUTION OF EMERGENCY COMMITTEE. The emergency committee shall consist of all the directors remaining after eliminating those who have ceased to be directors pursuant to Section 2 of this Article X, provided that such remaining directors are not less than three in number. In the event such remaining directors are less than three in number, the emergency committee shall consist of three persons, who shall be the remaining director or directors and either one or two officers or employees of the Corporation, as the remaining director or directors may in writing designate. If there is no remaining director, the emergency committee shall consist of the three most senior officers of the Corporation who are available to serve, and if and to the extent that officers are not available, the most senior employees of the Corporation. Seniority shall be determined in accordance with any designation of seniority in the minutes of the proceedings of the Board, and in the absence of such designation, shall be determined by rate of remuneration. In the event that there are no remaining directors and no officers or -15- employees of the Corporation available, the emergency committee shall consist of three persons designated in writing by the stockholder owning the largest number of shares of record as of the date of the last record date. SECTION 7. POWERS OF EMERGENCY COMMITTEE. The emergency committee, once appointed, shall govern its own procedures and shall have power to increase the number of members thereof beyond the original number, and in the event of a vacancy or vacancies therein, arising at any time, the remaining member or members of the emergency committee shall have the power to fill such vacancy or vacancies. In the event at any time after its appointment all members of the emergency committee shall die or resign or become unavailable to act for any reason whatsoever, a new emergency committee shall be appointed in accordance with the foregoing provisions of this Article X. SECTION 8. DIRECTORS BECOMING AVAILABLE. Any person who has ceased to be a director pursuant to the provisions of Section 2 of this Article X and who thereafter becomes available to serve as a director shall automatically become a member of the emergency committee. SECTION 9. ELECTION OF BOARD OF DIRECTORS. The emergency committee shall, as soon after its appointment as is practicable, take all requisite action to secure the election of a board of directors, and upon such election all the powers and authorities of the emergency committee shall cease. SECTION 10. TERMINATION OF EMERGENCY COMMITTEE. In the event, after the appointment of an emergency committee, a sufficient number of persons who ceased to be directors pursuant to Section 2 of this Article X become available to serve as directors, so that if they had not ceased to be directors as aforesaid, there would be enough directors to constitute the minimum number of directors required by law, then all such persons shall automatically be deemed to be reappointed as directors and the powers and authorities of the emergency committee shall be at an end. -16- EX-4.C 3 AMENDED AND RESTATED CREDIT AGMNT., AS OF 10/3/94 $525,000,000 AMENDED AND RESTATED CREDIT AGREEMENT Dated as of October 3, 1994 Among THE WALT DISNEY COMPANY AS BORROWER and THE FINANCIAL INSTITUTIONS NAMED HEREIN AS LENDERS and CITICORP USA, INC. AS AGENT TABLE OF CONTENTS SECTION PAGE - ------- ---- ARTICLE I DEFINITIONS AND ACCOUNTING TERMS 1.01 Certain Defined Terms 1 1.02 Computation of Time Periods 8 1.03 Accounting Terms 8 ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES 2.01 The Advances 8 2.02 Making the Advances 9 2.03 Facility Fee 10 2.04 Reduction of the Commitments 10 2.05 Repayment of Advances 10 2.06 Interest on Advances 10 2.07 Additional Interest on Eurodollar Rate Advances 10 2.08 Interest Rate Determination 11 2.09 Voluntary Conversion of Advances 11 2.10 Prepayments of Advances 12 2.11 Increased Costs 12 2.12 Illegality 13 2.13 Payments and Computations 13 2.14 Taxes 14 2.15 Sharing of Payments, Etc. 15 2.16 Mandatory Assignment by a Lender; Mitigation 16 2.17 Evidence of Debt 16 2.18 Use of Proceeds 17 2.19 Extension of Termination Date 17 2.20 Withdrawing Lenders 17 ARTICLE III CONDITIONS OF EFFECTIVENESS AND LENDING 3.01 Conditions Precedent to Effectiveness of this Agreement 17 3.02 Conditions Precedent to Each Borrowing 18 ARTICLE IV REPRESENTATIONS AND WARRANTIES 4.01 Representations and Warranties of the Borrower 18 4.02 Additional Representation and Warranty of the Borrower 19 - i - SECTION PAGE - ------- ---- ARTICLE V COVENANTS OF THE BORROWER 5.01 Affirmative Covenants 19 5.02 Negative Covenants 21 ARTICLE VI EVENTS OF DEFAULT 6.01 Events of Default 21 ARTICLE VII THE AGENT 7.01 Authorization and Action 22 7.02 Agent's Reliance, Etc 22 7.03 CUSA and Affiliates 23 7.04 Lender Credit Decision 23 7.05 Indemnification 23 7.06 Successor Agent 23 ARTICLE VIII MISCELLANEOUS 8.01 Amendments, Etc. 24 8.02 Notices, Etc. 24 8.03 No Waiver; Remedies 25 8.04 Costs and Expenses 25 8.05 Right of Set-off 25 8.06 Binding Effect 25 8.07 Assignments and Participations 25 8.08 Indemnification 27 8.09 Confidentiality 28 8.10 Consent to Jurisdiction and Service of Process 28 8.11 Governing Law 28 8.12 Execution in Counterparts 28 SCHEDULES AND EXHIBITS Schedule I - List of Applicable Lending Offices Exhibit A - Notice of Borrowing Exhibit B - Assignment and Acceptance Exhibit C - Form of Opinion of Counsel for the Borrower Exhibit D-1 - Form of Foreign Lender Certificate Exhibit D-2 - Form of Foreign Lender Certificate Exhibit E - Form of Withdrawal Agreement -ii- AMENDED AND RESTATED CREDIT AGREEMENT DATED AS OF OCTOBER 3, 1994 THE WALT DISNEY COMPANY, a Delaware corporation (the "Borrower"), the financial institutions (the "Initial Lenders") listed on the signature pages hereof under the heading "Initial Lenders", and CITICORP USA, INC., a Delaware corporation ("CUSA"), as agent (the "Agent") for the Lenders hereunder, agree as follows: PRELIMINARY STATEMENTS The parties hereto are parties to a Credit Agreement dated as of November 22, 1991. The parties hereto now wish to amend and restate such Credit Agreement in its entirety as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. CERTAIN DEFINED TERMS. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "ADVANCE" means an advance by a Lender to the Borrower as part of a Borrowing and refers to a Base Rate Advance or a Eurodollar Rate Advance, each of which shall be a "Type" of Advance. "AFFILIATE" means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person or is a director or officer of such Person. "ANNIVERSARY DATE" means February 15, 1996 and February 15 in each succeeding calendar year occurring during the term of this Agreement. "APPLICABLE LENDING OFFICE" means, with respect to each Lender, such Lender's Domestic Lending Office in the case of a Base Rate Advance and such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate Advance. "ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance entered into by a Lender and an Eligible Assignee, and accepted by the Agent, in substantially the form of Exhibit B hereto. "BASE RATE" means, for each day in any period, a fluctuating interest rate per annum as shall be in effect from time to time which rate per annum shall at all times for such day during such period be equal to the highest of: (a) the rate of interest announced publicly by Citibank in New York, New York, from time to time, as Citibank's base rate as in effect for such day; or (b) The sum (adjusted to the nearest 1/4 of one percent or, if there is no nearest 1/4 of one percent, to the next higher 1/4 of one percent) of (i) 1/2 of one percent per annum, PLUS (ii) the rate obtained by dividing (A) the latest three-week moving average of secondary market morning offering rates in the United States for three-month certificates of deposit of major United States money market banks, such three-week moving average (adjusted to the basis of a year of 365 or 366 days, as the case may be) being determined weekly on each Monday (or, if any such day is not a Business Day, on the next succeeding Business Day) for the three-week period ending on the previous Friday by Citibank on the basis of such rates reported by certificate of deposit dealers to and published by the Federal Reserve Bank of New York or, if such publication shall be suspended or terminated, on the basis of quotations for such rates received by Citibank from three New York certificate of deposit dealers of recognized standing selected by Citibank, by (B) a percentage equal to 100% minus the average of the daily percentages specified during such three-week period by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, but not limited to, any emergency, supplemental or other marginal reserve requirement) for Citibank in respect of liabilities consisting of or including (among other liabilities) three-month U.S. dollar nonpersonal time deposits in the United States, PLUS (iii) the average during such three-week period of the annual assessment rates estimated by Citibank for determining the then current annual assessment payable by Citibank to the Federal Deposit Insurance Corporation (or any successor) for insuring U.S. dollar deposits of Citibank in the United States; or (c) 0.50% per annum above the Federal Funds Rate for such day. "BASE RATE ADVANCE" means an Advance which bears interest as provided in Section 2.06(a)(i). "BORROWING" means a borrowing consisting of simultaneous Advances of the same Type made by each of the Lenders pursuant to Section 2.01. "BUSINESS DAY" means a day of the year on which banks are not required or authorized to close in Los Angeles, California, or New York City, New York, or San Francisco, California, or, if the applicable Business Day relates to any Eurodollar Rate Advances, on which dealings are carried on in the London interbank market. "CITIBANK" means Citibank, N.A., a national banking association. "COMMITMENT" has the meaning specified in Section 2.01. "CONSOLIDATED ADJUSTED INDEBTEDNESS" means, as of any date of determination, all indebtedness of the Borrower and its subsidiaries on a consolidated basis which would, in accordance with GAAP be classified as a liability of the Borrower and its subsidiaries, excluding, however (i) all deferred income taxes and unearned deposits and advances, (ii) subordinated indebtedness represented by the Borrower's Liquid Yield Option Notes due 2005, (iii) other indebtedness of the Borrower for borrowed money which is subordinated upon and otherwise containing terms and conditions no less favorable to the Lenders than the provisions contained in the Borrower's Liquid Option Yield Notes due 2005, and (iv) indebtedness for borrowed money which is secured by any Lien upon any asset of the Borrower or its subsidiaries which asset is not included in Consolidated Unencumbered Assets. "CONSOLIDATED EBIT" means, for any accounting period, net income (or net loss, as the case may be) of the Borrower and its subsidiaries on a consolidated basis for such period, as determined in accordance with GAAP, PLUS amounts which, in the determination of such consolidated net income (or net loss, as the case may be) for such period, have been deducted for (i) Consolidated Interest Expense and (ii) consolidated income tax expense. "CONSOLIDATED INTEREST EXPENSE" means, for any period, total interest expense of the Borrower and its subsidiaries on a consolidated basis for such period with respect to all outstanding Debt of the Borrower and its subsidiaries, all as determined in conformity with GAAP. "CONSOLIDATED UNENCUMBERED ASSETS" means, as of any date of determination, the sum of all amounts which are, in accordance with GAAP, included under "assets" on the consolidated balance sheet of the Borrower and its subsidiaries, PROVIDED, HOWEVER, that such amounts shall be net of all amounts attributable to (without duplication) (i) accumulated depreciation, (ii) any asset or group of assets that is subject to Liens securing obligations in aggregate amount equal to more than 33 1/3% of the aggregate net book value of such asset or group of assets, (iii) any asset that is included under the consolidated captions "Film Production Costs - In process" and "Projects in Progress" (or alternative similar captions) on the consolidated balance sheet of the Borrower and its subsidiaries, (iv) goodwill, trademarks, tradenames, and all other similar items which are treated as intangibles in conformity with GAAP, (v) all prepaid expenses, deferred or capitalized costs, unamortized debt discount and progress payments, and work in process on the date hereof, and (vi) any items not included in clauses (ii) through (v) which are treated as intangibles in conformity with GAAP. "CONVERT", "CONVERSION" and "CONVERTED" each refers to a conversion of Advances of one Type into Advances of another Type pursuant to Section 2.08 or 2.09. 2 "DEBT" means (i) indebtedness for borrowed money, (ii) obligations evidenced by bonds, debentures, notes or other similar instruments, (iii) obligations to pay the deferred purchase price of property or services (other than trade payables incurred in the ordinary course of business), (iv) obligations as lessee under leases which shall have been or should be, in accordance with GAAP, recorded as capital leases, and (v) obligations under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clauses (i) through (iv) above. "DOMESTIC LENDING OFFICE" means, with respect to any Lender, the office of such Lender specified as its "Domestic Lending Office" opposite its name on Schedule I hereto or in the Assignment and Acceptance pursuant to which it became a Lender, or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Agent. "EFFECTIVE DATE" means October 3, 1994. "ELIGIBLE ASSIGNEE" means (i) any Initial Lender or any Affiliate of any Initial Lender and (ii) any bank or other financial institution, or any other Person, which has been approved in writing by the Borrower and the Agent as an Eligible Assignee for purposes of this Agreement; PROVIDED, HOWEVER, that neither the Borrower's approval nor the Agent's approval shall be unreasonably withheld; and PROVIDED, FURTHER, HOWEVER, that Borrower may withhold its approval if Borrower reasonably believes that an assignment to such Eligible Assignee pursuant to Section 8.07 will result in the incurrence of increased costs payable by the Borrower pursuant to Sections 2.11 or 2.14. "ENVIRONMENTAL CLAIM" means any administrative, regulatory or judicial action, suit, demand, claim, lien, notice or proceeding relating to any Environmental Law or any Environmental Permit. "ENVIRONMENTAL LAW" means any federal, state or local statute, law, rule, regulation, ordinance, code, duly promulgated policy or rule of common law now or hereafter in effect and in each case as amended, and any judicial or administrative interpretation thereof, including any order, consent decree or judgment, relating to the environment, health, safety or any Hazardous Material. "ENVIRONMENTAL PERMIT" means any permit, approval, identification number, license or other authorization required under any applicable Environmental Law. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "ERISA AFFILIATE" means any Person who for purposes of Title IV of ERISA is a member of the Borrower's controlled group, or under common control with the Borrower, within the meaning of Section 414 of the Internal Revenue Code of 1986, as amended. "ERISA EVENT" means (a) the occurrence with respect to a Plan of a reportable event, within the meaning of Section 4043 of ERISA, unless the 30-day notice requirement with respect thereto has been waived by the Pension Benefit Guaranty Corporation; (b) the provision by the administrator of any Plan of a notice of intent to terminate such Plan, pursuant to Section 4041(a) (2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA); (c) the cessation of operations by the Borrower or any ERISA Affiliate at a facility in the circumstances described in Section 4062(e) of ERISA; (d) the withdrawal by the Borrower or any ERISA Affiliate from a Multiple Employer Plan during a plan year for which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (e) the failure by the Borrower or any ERISA Affiliate to make a payment to a Plan described in Section 302(f)(1)(A) of ERISA; (f) the adoption of an amendment to a Plan requiring the provision of security to such Plan, pursuant to Section 307 of ERISA; or (g) the institution by the Pension Benefit Guaranty Corporation of proceedings to terminate a Plan, pursuant to Section 4042 of ERISA, or the occurrence of any event or condition which is reasonably likely to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, a Plan. "EUROCURRENCY LIABILITIES" has the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. 3 "EURODOLLAR LENDING OFFICE" means, with respect to any Lender, the office of such Lender specified as its "Eurodollar Lending Office" opposite its name on Schedule I hereto or in the Assignment and Acceptance pursuant to which it became a Lender (or, if no such office is specified, its Domestic Lending Office), or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Agent. "EURODOLLAR RATE" means, for any Interest Period for each Eurodollar Rate Advance comprising part of the same Borrowing, an interest rate per annum equal to the average (rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if such average is not such a multiple) of the rate per annum at which deposits in U.S. dollars are offered by the principal office of each of the Reference Banks in London, England to prime banks in the London interbank market at 11:00 A.M. (London time) two Business Days before the first day of such Interest Period for a period equal to such Interest Period. The Eurodollar Rate for any Interest Period for each Eurodollar Rate Advance comprising part of the same Borrowing shall be determined by the Agent on the basis of applicable rates furnished to and received by the Agent from the Reference Banks two Business Days before the first day of such Interest Period, SUBJECT, HOWEVER, to the provisions of Section 2.08. "EURODOLLAR RATE ADVANCE" means an Advance which bears interest as provided in Section 2.06(a)(ii). "EURODOLLAR RATE MARGIN" means, for any day, the rate per annum opposite the higher of the ratings of the Borrower's long-term public senior debt securities as most recently announced by S&P and Moody's : RATING RATE PER ANNUM ------------------------------------ -------------------------- S&P MOODY'S --- ------- A+ or higher A1 or higher 0.125% A/A- A2/A3 0.200% BBB+/BBB Baa1/Baa2 0.250% BBB- or lower Baa3 or lower 0.500% or no rating or no rating "EURODOLLAR RATE RESERVE PERCENTAGE" of any Lender for any Interest Period for any Eurodollar Rate Advance means the reserve percentage applicable during such Interest Period (or if more than one such percentage shall be so applicable, the daily average of such percentages for those days in such Interest Period during which any such percentage shall be so applicable) under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for such Lender with respect to liabilities or assets consisting of or including Eurocurrency Liabilities having a term equal to such Interest Period. "EVENTS OF DEFAULT" has the meaning specified in Section 6.01. "EXISTING CREDIT AGREEMENT" means the Credit Agreement dated as of November 22, 1991 among the Borrower, the financial institutions party thereto and Citicorp USA, Inc. as Agent, as amended to the date hereof. "FACILITY FEE PERCENTAGE" means, for any day, the rate per annum opposite the higher of the ratings of the Borrower's long-term public senior debt securities as most recently announced by S&P and Moody's: 4 RATING RATE PER ANNUM ---------------------------------- -------------------------- S&P MOODY'S --- ------- A+ or higher A1 or higher 0.070% A/A- A2/A3 0.100% BBB+/BBB Baa1/Baa2 0.150% BBB- or lower Baa3 or lower 0.250% or no rating or no rating "FEDERAL FUNDS RATE" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three Federal funds brokers of recognized standing selected by the Agent. "GAAP" means generally accepted accounting principles consistent with those applied in the preparation of the financial statements referred to in Section 4.01(c) dated September 30, 1993, subject, however, to the provisions of Section 1.03. "HAZARDOUS MATERIAL" means (i) any petroleum or petroleum product, natural or synthetic gas, asbestos in any form that is or could become friable, urea formaldehyde foam insulation, or radon gas; or (ii) any substance defined as or included in the definition of "hazardous substances," hazardous wastes," hazardous materials," "toxic substances," "contaminants" or "pollutants," or words of similar import, under any applicable Environmental Law; or (iii) any other substance to which exposure is regulated by any governmental activity. "INTEREST PERIOD" means, for each Eurodollar Rate Advance comprising part of the same Borrowing, the period commencing on the date of such Eurodollar Rate Advance or the date of the Conversion of any Base Rate Advance into such a Eurodollar Rate Advance and ending on the last day of the period selected by the Borrower pursuant to the provisions below and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the Borrower pursuant to the provisions below. The duration of each such Interest Period shall be one, two, three, six or, if generally available, twelve months as the Borrower may, upon notice received by the Agent not later than 1:00 P.M. (New York City time) on the third Business Day prior to the first day of such Interest Period, select; PROVIDED, HOWEVER, that: (i) Interest Periods commencing on the same date for Eurodollar Rate Advances comprising part of the same Borrowing shall be of the same duration; (ii) Whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, PROVIDED, that if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day; and (iii) The Borrower may not select for any Advance any Interest Period which ends after the Termination Date. "LENDERS" means the Initial Lenders listed on the signature pages hereof and each Eligible Assignee that shall become a party hereto pursuant to Section 8.07. "LIEN" means any lien, security interest, or other charge or encumbrance of any kind, or any other type of preferential arrangement which has the same effect as a lien or security interest, including, without limitation, any conditional sale or title retention agreement, any capitalized lease, and the filing of, or agreement to give, any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction, but excluding, however, (i) materialmen's, suppliers', tax and other similar liens arising in the ordinary course of business and securing obligations which are not overdue or are being contested in good faith by appropriate proceedings, (ii) liens arising in connection with workmen's compensation, 5 unemployment insurance, and appeal and release bonds, and (iii) liens incurred in the ordinary course of business securing obligations or claims aggregating at any time less than $50,000,000. "MAJORITY LENDERS" means at any time Lenders owed at least 66 2/3% of the then aggregate unpaid principal amount of the Advances owing to Lenders, or, if no such principal amount is then outstanding, Lenders having at least 66 2/3% of the Commitments (PROVIDED that, for purposes of this definition, neither the Borrower, nor any of its Affiliates, if a Lender, shall be included in the Majority Lenders). "MATERIAL SUBSIDIARY" means a subsidiary of the Borrower whose total assets exceed $50,000,000. "MOODY'S" means Moody's Investors Service, Inc. "MULTIEMPLOYER PLAN" means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA Affiliate is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions. "MULTIPLE EMPLOYER PLAN" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that (i) is maintained for employees of the Borrower or any ERISA Affiliate and at least one Person other than the Borrower and its ERISA Affiliates or (ii) was so maintained and in respect of which the Borrower or an ERISA Affiliate could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "NOTICE OF BORROWING" has the meaning specified in Section 2.02(a). "PERSON" means an individual, partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. "PLAN" means a Single Employer Plan or a Multiple Employer Plan. "REFERENCE BANKS" means Bank of America NT & SA, Bankers Trust Company, Citibank and Morgan Guaranty Trust Company of New York. "REGISTER" has the meaning specified in Section 8.07(c). "S&P" means Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc. "SINGLE EMPLOYER PLAN" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that (i) is maintained for employees of the Borrower or an ERISA Affiliate and no Person other than the Borrower and its ERISA Affiliates or (ii) was so maintained and in respect of which the Borrower or an ERISA Affiliate could have liability under Section 4069 of ERISA in the event such plan has been or were to be terminated. "TERMINATION DATE" means, subject to Section 2.19, February 15, 2000 or the earlier date of termination in whole of the Commitments pursuant to Section 2.04 or 6.01. "UNITED STATES" or "U.S." each mean United States of America. "WITHDRAWAL AGREEMENT" means an agreement in substantially the form of Exhibit E hereto. "WITHDRAWING LENDER" means each financial institution which was a party to the Existing Credit Agreement immediately prior to the effectiveness of this Agreement but is not a party to this Agreement, as identified in Exhibit E hereto. SECTION 1.02. COMPUTATION OF TIME PERIODS. In this Agreement in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding". 6 SECTION 1.03. ACCOUNTING TERMS. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles consistent with those applied in the preparation of the financial statements referred to in Section 4.01(c) dated September 30, 1993; PROVIDED, HOWEVER, that if any changes in accounting principles from those used in the preparation of such financial statements hereafter occur by reason of the promulgation of rules, regulations, pronouncements, opinions or other requirements by the Financial Accounting Standards Board or the American Institute of Certified Public Accountants (or successors thereto or agencies with similar functions) and result in a change in the method of calculation of financial covenants or the terms related thereto contained in this Agreement, the Borrower shall, at Borrower's option, (i) furnish to the Agent, together with each delivery of the consolidated, financial statements of the Borrower and its subsidiaries required to be delivered pursuant to Section 5.01(f), a written reconciliation setting forth the differences that would have resulted if such financial statements had been prepared utilizing accounting principles and policies in conformity with those used to prepare the financial statements referred to in Section 4.01(c) dated September 30, 1993 or (ii) enter into negotiations with the Agent and the Lenders to amend such financial covenants or terms equitably to reflect such changes so that the criteria for evaluating the financial condition of the Borrower and its subsidiaries shall be the same after such changes as if such changes had not been made; PROVIDED, HOWEVER, that at all times in the case of clause (i) above, and in the case of clause (ii) above until the amendment referred to in such clause (ii) becomes effective, all covenants and related calculations under this Agreement shall be performed, observed and determined as though no such changes in accounting principles had been made. ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES SECTION 2.01. THE ADVANCES. Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make Advances to the Borrower from time to time on any Business Day during the period from the date hereof until the Termination Date in an aggregate amount not to exceed at any time outstanding the amount set opposite such Lender's name on the signature pages hereof or, if such Lender has entered into any Assignment and Acceptance, set forth for such Lender in the Register maintained by the Agent pursuant to Section 8.07(c), as such amount may be reduced pursuant to Section 2.04 (such Lender's "Commitment"). Each Borrowing shall be in an aggregate amount not less than $5,000,000 or an integral multiple of $1,000,000 in excess thereof and shall consist of Advances of the same Type made on the same day by the Lenders ratably according to their respective Commitments. Within the limits of each Lender's Commitment, the Borrower may from time to time borrow, prepay pursuant to Section 2.10 and reborrow under this Section 2.01. SECTION 2.02. MAKING THE ADVANCES. (a) Each Borrowing shall be made on notice, given not later than 1:00 p.m. (New York City time) on the Business Day prior to the date of a proposed Borrowing comprised of Base Rate Advances and on the third Business Day prior to the date of a proposed Borrowing comprised of Eurodollar Rate Advances, by the Borrower to the Agent, which shall give to each Lender prompt notice thereof by telecopier, telex or cable. Each such notice of a Borrowing (a "Notice of Borrowing") shall be by telecopier, telex or cable, or by telephone, confirmed immediately by telecopier, telex or cable, in substantially the form of Exhibit A hereto, specifying therein the requested (i) date of such Borrowing, (ii) Type of Advances comprising such Borrowing, (iii) aggregate amount of such Borrowing, and (iv) in the case of a Borrowing comprised of Eurodollar Rate Advances, initial Interest Period for each such Advance. Each Lender shall, before 1:00 p.m. (New York City time) on the date of such Borrowing, make available for the account of its Applicable Lending Office to the Agent at its address referred to in Section 8.02, in same day funds, such Lender's ratable portion of such Borrowing. After the Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Agent will make such funds available to the Borrower at the Agent's aforesaid address. (b) Anything in subsection (a) above or Section 2.01 to the contrary notwithstanding, the Borrower may not select Eurodollar Rate Advances for any Borrowing if the aggregate amount of such Borrowing is less than $20,000,000. (c) Each Notice of Borrowing shall be irrevocable and binding on the Borrower. In the case of any Borrowing which the related Notice of Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Borrower shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified in such Notice of Borrowing for such Borrowing the applicable conditions set forth in Article III, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Advance to be made by such Lender as part of such Borrowing when such Advance, as a result of such failure, is not made on such date. 7 (d) Unless the Agent shall have received notice from a Lender prior to the date of any Borrowing that such Lender will not make available to the Agent such Lender's ratable portion of such Borrowing, the Agent may assume that such Lender has made such portion available to the Agent on the date of such Borrowing in accordance with subsection (a) of this Section 2.02 and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made such ratable portion available to the Agent, such Lender agrees to pay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is paid to the Agent, at the Federal Funds Rate; PROVIDED, HOWEVER, that (i) within two Business Days after any Lender shall fail to make such ratable portion available to the Agent, the Agent shall notify the Borrower of such failure and (ii) if such Lender shall not pay such corresponding amount to the Agent within two Business Days after such demand by the Agent, the Borrower agrees to repay to the Agent forthwith, upon demand by the Agent to the Borrower, such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent, at the interest rate applicable at the time to Advances comprising such Borrowing. If and to the extent such corresponding amount shall be paid by such Lender to the Agent in accordance with this Section 2.02(d), such amount so paid shall constitute such Lender's Advance as part of such Borrowing for purposes of this Agreement. (e) The failure of any Lender to make the Advance to be made by it as part of any Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Advance on the date of such Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on the date of any Borrowing. SECTION 2.03. FACILITY FEE. The Borrower agrees to pay to each Lender a facility fee on the amount (whether used or unused) of such Lender's Commitment from the Effective Date in the case of each Initial Lender and from the effective date specified in the Assignment and Acceptance pursuant to which it became a Lender in the case of each other Lender until the Termination Date, payable quarterly in arrears on the first Business Day of each January, April, July and October during the term of such Lender's Commitment, commencing on January 2, 1995, and on the Termination Date, at the rate per annum equal to the Facility Fee Percentage in effect from time to time. SECTION 2.04. REDUCTION OF THE COMMITMENTS. The Borrower shall have the right, upon at least three Business Days' notice to the Agent, to terminate in whole or reduce ratably in part the unused portions of the respective Commitments of the Lenders, PROVIDED that each partial reduction shall be in the aggregate amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof. SECTION 2.05. REPAYMENT OF ADVANCES. The Borrower shall repay to each Lender on the Termination Date the aggregate principal amount of the Advances then owing to such Lender. SECTION 2.06. INTEREST ON ADVANCES. (a) ORDINARY INTEREST. The Borrower shall pay to each Lender interest on the unpaid principal amount of each Advance owing to such Lender from the date of such Advance until such principal amount shall be paid in full, at the following rates per annum: (i) BASE RATE ADVANCES. During such periods as such Advance is a Base Rate Advance, a rate per annum equal at all times to the remainder of (A) the Base Rate in effect from time to time minus (B) the Facility Fee Percentage in effect from time to time, payable quarterly in arrears on the first Business Day of each January, April, July, and October during such periods and on the date such Base Rate Advance shall be Converted or paid in full. (ii) EURODOLLAR RATE ADVANCES. During such periods as such Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during each Interest Period for such Advance to the sum of the Eurodollar Rate for such Interest Period plus the Eurodollar Rate Margin in effect from time to time, payable in arrears on the last day of such Interest Period and, if such Interest Period has a duration of more than three months, on the date which occurs three months and, if applicable, six months and nine months after the first day of such Interest Period. (b) DEFAULT INTEREST. The Borrower shall pay interest on the unpaid principal amount of each Advance that is not paid when due and on the unpaid amount of all interest, fees and other amounts payable hereunder that is not paid when due, payable on demand, at a rate per annum equal at all times to (i) in the case of any amount of principal, the greater of (x) 2% per annum above the rate per annum required to be paid on such Advance immediately prior to the 8 date on which such amount became due and (y) 2% per annum above the Base Rate in effect from time to time and (ii) in the case of all other amounts, 2% per annum above the Base Rate in effect from time to time. SECTION 2.07. ADDITIONAL INTEREST ON EURODOLLAR RATE ADVANCES. The Borrower shall pay to each Lender, so long as such Lender shall be required under regulations of the Board of Governors of the Federal Reserve System to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency Liabilities, additional interest on the unpaid principal amount of each Eurodollar Rate Advance of such Lender, from the date of such Advance until such principal amount is paid in full, at an interest rate per annum equal at all times to the remainder obtained by subtracting (i) the Eurodollar Rate for the Interest Period for such Advance from (ii) the rate obtained by dividing such Eurodollar Rate by a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage of such Lender for such Interest Period, payable on each date on which interest is payable on such Advance. Such additional interest shall be determined by such Lender and notified in reasonable detail to the Borrower through the Agent. SECTION 2.08. INTEREST RATE DETERMINATION. (a) Each Reference Bank agrees to furnish to the Agent timely information for the purpose of determining each Eurodollar Rate. If any one or more of the Reference Banks shall not furnish such timely information to the Agent for the purpose of determining such interest rate, the Agent shall determine such interest rate on the basis of timely information furnished by the remaining Reference Banks. (b) The Agent shall give prompt notice to the Borrower and the Lenders of the applicable interest rate determined by the Agent for purposes of Section 2.06(a)(i) or (ii), and the applicable rate, if any, furnished by each Reference Bank for the purpose of determining the applicable interest rate under Section 2.06(a)(ii). (c) If fewer than two Reference Banks furnish timely information to the Agent for determining the Eurodollar Rate for any Eurodollar Rate Advances, (i) the Agent shall forthwith notify the Borrower and the Lenders that the interest rate cannot be determined for such Eurodollar Rate Advances, (ii) each such Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance (or if such Advance is then a Base Rate Advance, will continue as a Base Rate Advance), and (iii) the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist. (d) If, with respect to any Eurodollar Rate Advances, the Majority Lenders notify the Agent that the Eurodollar Rate for any Interest Period for such Advances will not adequately reflect the cost to such Majority Lenders (which cost each such Majority Lender reasonably determines in good faith is material) of making, funding or maintaining their respective Eurodollar Rate Advances for such Interest Period, the Agent shall forthwith so notify the Borrower and the Lenders, whereupon, unless the Eurodollar Rate Margin shall be increased to reflect such costs as determined by such Majority Lenders and as agreed by the Borrower, (i) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance, and (ii) the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Majority Lenders shall notify the Agent, and the Agent shall notify the Borrower and the Lenders, that the circumstances causing such suspension no longer exist. The Agent shall use reasonable efforts to determine from time to time whether the circumstances causing such suspension no longer exist and, promptly after the Agent knows that the circumstances causing such suspension no longer exist, the Agent shall so notify the Borrower and the Lenders. (e) If the Borrower shall fail to select the duration of any Interest Period for any Eurodollar Rate Advances in accordance with the provisions contained in the definition of "Interest Period" in Section 1.01, the Agent will forthwith so notify the Borrower and the Lenders and such Advances will automatically, on the last day of the then existing Interest Period therefor, Convert into Base Rate Advances. (f) On the date on which the aggregate unpaid principal amount of Eurodollar Rate Advances comprising any Borrowing shall be reduced, by payment or prepayment or otherwise, to less than $20,000,000, such Eurodollar Rate Advances shall automatically Convert into Base Rate Advances, and on and after such date the right of the Borrower to Convert such Advances into Eurodollar Rate Advances shall terminate; PROVIDED, HOWEVER, that if and so long as each such Eurodollar Rate Advance shall have the same Interest Period as Eurodollar Rate Advances comprising another Borrowing or Borrowings, and the aggregate unpaid principal amount of all such Eurodollar Rate Advances shall equal or exceed $20,000,000, the Borrower shall have the right to continue all such Eurodollar Rate Advances as, or to Convert all such Advances into, Eurodollar Rate Advances having such Interest Period. 9 SECTION 2.09. VOLUNTARY CONVERSION OF ADVANCES. The Borrower may on any Business Day, upon notice given to the Agent not later than 1:00 P.M. (New York City time) on the Business Day prior to the date of the proposed Conversion in the case of a Conversion of Eurodollar Rate Advances to Base Rate Advances, and not later than 1:00 P.M. (New York City time) on the third Business Day prior to the date of the proposed Conversion in the case of a Conversion of Base Rate Advances to Eurodollar Rate Advances, and subject to the provisions of Sections 2.08 and 2.12, Convert all Advances of one Type comprising the same Borrowing into Advances of another Type; PROVIDED, HOWEVER, that any Conversion of any Eurodollar Rate Advances into Base Rate Advances shall be made on, and only on, the last day of an Interest Period for such Eurodollar Rate Advances. Promptly upon receipt from the Borrower of a notice of a proposed Conversion hereunder, the Agent shall give notice of such proposed Conversion to each Lender. Each such notice of a Conversion shall, within the restrictions specified above, specify (i) the date of such Conversion, (ii) the Advances to be Converted, and (iii) if such Conversion is into Eurodollar Rate Advances, the duration of the Interest Period for each such Advance. The Borrower may Convert all Eurodollar Rate Advances of any one Lender into Base Rate Advances of such Lender in accordance with the provisions of Section 2.12 by complying with the procedures set forth in this Section 2.09 as though each reference in this Section 2.09 to Advances of any Type was to such Advances of such Lender. SECTION 2.10. PREPAYMENTS OF ADVANCES. The Borrower may, upon at least one Business Day's notice to the Agent in the case of Borrowings consisting of Base Rate Advances and upon at least three Business Days' notice to the Agent in the case of Borrowings consisting of Eurodollar Rate Advances, stating the proposed date and aggregate principal amount of the prepayment, and if such notice is given the Borrower shall, prepay the outstanding principal amounts of the Advances constituting part of the same Borrowing in whole or ratably in part, together with accrued interest to the date of such prepayment on the principal amount prepaid; PROVIDED, HOWEVER, that (x) each partial prepayment shall be in an aggregate principal amount not less than $1,000,000 or an integral multiple of $1,000,000 in excess thereof, and (y) in the case of any such prepayment of a Eurodollar Rate Advance, the Borrower shall be obligated to reimburse the Lenders in respect thereof pursuant to Section 8.04(b). SECTION 2.11. INCREASED COSTS. (a) If after the date hereof, due to either (i) the introduction of or any change (other than any change by way of imposition or increase of reserve requirements included in the Eurodollar Rate Reserve Percentage) in or in the interpretation of any law or regulation or (ii) the compliance with any hereafter promulgated guideline or request from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost (excluding any allocation of corporate overhead) to any Lender (which cost such Lender reasonably determines in good faith is material) of agreeing to make or making, funding or maintaining Eurodollar Rate Advances, then such Lender shall so notify the Borrower promptly after such Lender knows of such increased cost and determines that such cost is material and the Borrower shall from time to time, upon demand by such Lender (with a copy of such demand to the Agent), pay to the Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost. A certificate of such Lender as to the amount of such increased cost in reasonable detail and stating the basis upon which such amount has been calculated and certifying that such Lender's method of allocating such costs is fair and reasonable and that such Lender's demand for payment of such costs hereunder is not inconsistent with its treatment of other borrowers which, as a credit matter, are substantially similar to the Borrower and which are subject to similar provisions, submitted to the Borrower and the Agent by such Lender, shall be conclusive and binding for all purposes, absent manifest error. (b) If, after the date hereof, either (i) the introduction of or change in or in the interpretation of any law or regulation or (ii) the compliance by any Lender with any hereafter promulgated guideline or request from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by such Lender or any corporation controlling such Lender and the amount of such capital is materially increased by or based upon the existence of such Lender's commitment to lend hereunder and other commitments of this type, then, such Lender shall so notify the Borrower promptly after such Lender makes such determination and, upon demand by such Lender (with a copy of such demand to the Agent), the Borrower shall pay to such Lender within five days from the date of such demand, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender or such corporation in the light of such circumstances, to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of such Lender's commitment to lend hereunder. A certificate of such Lender as to such amount in reasonable detail and stating the basis upon which such amount has been calculated and certifying that such Lender's method of allocating such increase of capital is fair and reasonable and that such Lender's demand for payment of such increase of capital hereunder is not inconsistent with its treatment of other borrowers which, as a credit matter, are substantially similar to the Borrower and which are subject to similar provisions, submitted to the Borrower and the Agent by such Lender, shall be conclusive and binding for all purposes, absent manifest error. 10 (c) The Borrower shall not be obligated to pay under this Section 2.11 any amounts which relate to costs or increases of capital incurred prior to 12 months preceding the date of demand for payment, unless the applicable law, regulation, guideline or request resulting in such costs or increases of capital is imposed retroactively. In the case of any law, regulation, guideline or request which is imposed retroactively, the Lender making demand for payment of any amount under this Section 2.11 shall notify the Borrower not later than 12 months from the date that such Lender should reasonably have known of such law, regulation, guideline or request and the Borrower's obligation to compensate such Lender for such amount is contingent upon such Lender's so notifying the Borrower, PROVIDED, HOWEVER, that any failure by such Lender to provide such notice shall not affect the Borrower's obligations under this Section 2.11 with respect to amounts resulting from costs or increases of capital incurred after the date which occurs 12 months before the date on which such Lender did notify the Borrower of such law, regulation, guideline or request. (d) If any Lender shall subsequently recoup costs (other than from the Borrower) for which such Lender has theretofore been compensated by the Borrower under this Section 2.11, such Lender shall remit to the Borrower the amounts of such recoupment. Amounts required to be paid by the Borrower pursuant to this Section 2.11 shall be paid in addition to, and without duplication of, any amounts required to be paid pursuant to Section 2.14. SECTION 2.12. ILLEGALITY. Notwithstanding any other provision of this Agreement, if any Lender shall notify the Agent that the introduction of or any change in or in the interpretation of any law or regulation after the date hereof makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for any Lender or its Eurodollar Lending Office to perform its obligations hereunder to make Eurodollar Rate Advances or to fund or maintain Eurodollar Rate Advances hereunder, (i) the obligation of such Lender to make, or to Convert Base Rate Advances into, Eurodollar Rate Advances shall be suspended until such Lender shall notify the Agent, and the Agent shall notify the Borrower and the other Lenders (which notice shall be given promptly after the Agent knows that the circumstances causing such suspension no longer exist), that the circumstances causing such suspension no longer exist and (ii) the Borrower shall forthwith prepay in full all Eurodollar Rate Advances of such Lender then outstanding, together with interest accrued thereon, unless the Borrower, within five Business Days of notice from the Agent or, if permitted by law, on and as of the last day of the then existing Interest Period for such Eurodollar Rate Advances, Converts all Eurodollar Rate Advances of such Lender then outstanding into Base Rate Advances in accordance with Section 2.09. SECTION 2.13. PAYMENTS AND COMPUTATIONS. (a) The Borrower shall make each payment hereunder not later than 11:00 A.M. (New York City time) on the day when due in U.S. dollars to the Agent at its address referred to in Section 8.02 in same day funds. The Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal or interest or facility fees ratably (other than amounts payable pursuant to Section 2.07, 2.11 or 2.14) to the Lenders for the account of their respective Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Lender to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. Upon its acceptance of an Assignment and Acceptance and recording of the information contained therein in the Register pursuant to Section 8.07(d), from and after the effective date specified in such Assignment and Acceptance, the Agent shall make all payments hereunder in respect of the interest assigned thereby to the Lender assignee thereunder, and the parties to such Assignment and Acceptance shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves. (b) All computations of interest based on the Base Rate shall be made by the Agent on the basis of a year of 365 or 366 days, as the case may be, and all computations of interest based on the Eurodollar Rate or the Federal Funds Rate and of facility fees shall be made by the Agent, and all computations of interest pursuant to Section 2.07 shall be made by a Lender, on the basis of a year of 360 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or facility fees are payable. Each determination by the Agent (or, in the case of Section 2.07, by a Lender) of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error. (c) Whenever any payment hereunder shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or facility fee, as the case may be; PROVIDED, HOWEVER, if such extension would cause payment of interest on or principal of Eurodollar Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. (d) Unless the Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Lenders hereunder that the Borrower will not make such payment in full, the Agent may 11 assume that the Borrower has made such payment in full to the Agent on such date and the Agent may, in reliance upon such assumption, cause to distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent that the Borrower shall not have so made such payment in full to the Agent, each Lender shall repay to the Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Agent, at the Federal Funds Rate. SECTION 2.14. TAXES. (a) Any and all payments by the Borrower hereunder shall be made, in accordance with Section 2.13, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, EXCLUDING, in the case of each Lender and the Agent, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Lender or the Agent (as the case may be) is organized or any political subdivision thereof and, in the case of each Lender, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction of such Lender's Applicable Lending Office or any political subdivision thereof or by any other jurisdiction in which such Lender or the Agent is doing business that is unrelated to this Agreement (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to any Lender or the Agent, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.14) such Lender or the Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) In addition, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement (hereinafter referred to as "Other Taxes"). (c) The Borrower will indemnify each Lender and the Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.14) paid by such Lender or the Agent (as the case may be) and any liability (including penalties to the extent not imposed as a result of such Lender's or the Agent's (as the case may be) gross negligence or willful misconduct, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. This indemnification shall be made within 30 days from the date such Lender or the Agent (as the case may be) makes written demand therefor. (d) Within 30 days after the date of any payment of Taxes, the Borrower will furnish to the Agent, at its address referred to in Section 8.02, the original or a certified copy of a receipt evidencing payment thereof. (e) Each Lender that is not created or organized under the laws of the United States or a political subdivision thereof shall deliver to the Borrower and the Agent, on or prior to the date of its execution and delivery of this Agreement, or in the case of each Lender that is not a party hereto on the date hereof, the date on which such Lender becomes a Lender pursuant to Section 8.07 hereof, a true and accurate certificate executed in duplicate by a duly authorized officer of such Lender in substantially the form set out in Exhibit D-1 or D-2, as applicable, to the effect that such Lender is eligible under the provisions of an applicable tax treaty concluded by the United States (in which case the certificate shall be accompanied by two executed copies of Form 1001 (or any successor or substitute form or forms) of the Internal Revenue Service ((the "IRS") of the United States), or under Section 1441(c) or 1442 of the Internal Revenue Code (in which case the certificate shall be accompanied by two copies of Form 4224 (or any successor or substitute form or forms) of the IRS) to receive, as of the date hereof or as of the date such party becomes a Lender hereto pursuant to Section 8.07, as appropriate, payments hereunder without deduction or withholding of United States federal income tax. Each Lender further agrees to deliver to the Borrower and the Agent from time to time, as reasonably requested by the Borrower or the Agent, and in any case before or promptly upon the occurrence of any events requiring a change in the most recent certificate previously delivered pursuant to this Section 2.14(e), a true and accurate certificate executed in duplicate by a duly authorized officer of such Lender in substantially the form set out in Exhibit D-1 or D-2, as applicable. Further, each Lender which delivers Exhibit D-1 agrees, to the extent permitted by law, to deliver to the Borrower and the Agent within 15 days prior to every third anniversary of the date of delivery of the initial Form 1001 by such Lender (or more often if required by law) on which this Agreement is still in effect, two accurate and complete original signed copies of Form 1001 (or any successor or substitute form or forms required under the Code or the applicable regulations promulgated thereunder) and such Exhibit D-1 and each Lender that delivers such Exhibit D-2 agrees to deliver to the Borrower and the Agent, 12 to the extent permitted by law, within 15 days prior to the beginning of each subsequent taxable year of such Lender (or more often if required by law) during which this Agreement is still in effect, two accurate and complete original signed copies of IRS Form 4224 (or any successor or substitute form or forms required under the Internal Revenue Code or the applicable regulations promulgated thereunder) and such Exhibit D-2. Each such certificate shall certify as to one of the following: (i) that such Lender is eligible to receive payments hereunder without deduction or withholding of United States federal income tax; (ii) that such Lender is not eligible to receive payments hereunder without deduction or withholding of United States federal income tax as specified therein but does not require additional payments therefor pursuant to Section 2.14(a) or (c) because it is eligible and able to recover the full amount of any such deduction or withholding from a source other than the Borrower; or (iii) that such Lender is not eligible to receive payments hereunder without deduction or withholding of United States federal income tax as specified therein and that it is not eligible and able to recover the full amount of the same from a source other than the Borrower. If any form or document referred to in this subsection (e) requires the disclosure of information, other than information necessary to compute the tax payable and information required on the date hereof by IRS Form 1001 or 4224, that any Lender reasonably considers to be confidential, such Lender promptly shall give notice thereof to the Borrower and the Agent and shall not be obligated to include in such form or document such confidential information, PROVIDED that such Lender certifies to the Borrower that the failure to disclose such confidential information does not increase the obligations of the Borrower under this Section 2.14. (f) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 2.14 shall survive the payment in full of principal and interest until such date that all applicable statutes of limitations (including any extensions thereof) have expired with respect to such agreements and obligations of the Borrower contained in this Section 2.14. SECTION 2.15. SHARING OF PAYMENTS ETC. If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the Advances made by it (other than pursuant to Section 2.07, 2.11 or 2.14) in excess of its ratable share of payments on account of the Advances obtained by all the Lenders, such Lender shall forthwith purchase from the other Lenders such participations in the Advances made by them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them, PROVIDED, HOWEVER, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery together with an amount equal to such Lender's ratable share (according to the proportion of (i) the amount of such Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.15 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. SECTION 2.16. MANDATORY ASSIGNMENT BY A LENDER; MITIGATION. If any Lender requests from the Borrower either payment of additional interest on Eurodollar Rate Advances pursuant to Section 2.07, or reimbursement for increased costs pursuant to Section 2.11, or payment of or reimbursement for Taxes pursuant to Section 2.14, or if any Lender notifies the Agent that it is unlawful for such Lender or its Eurodollar Lending Office to perform its obligations hereunder pursuant to Section 2.12, (i) such Lender will, upon three Business Days' notice by the Borrower to such Lender and the Agent, to the extent not inconsistent with such Lender's internal policies, use reasonable efforts to make, fund or maintain its Eurodollar Rate Advances through another Eurodollar Lending Office of such Lender if (A) as a result thereof the additional amounts required to be paid pursuant to Section 2.07, 2.11 or 2.14, as applicable, in respect of such Eurodollar Rate Advances would be materially reduced or the provisions of Section 2.12 would not apply to such Lender, as applicable) and (B) as determined by such Lender in good faith but in its sole discretion, the making or maintaining of such Eurodollar Rate Advances through such other Eurodollar Lending Office would not otherwise materially adversely affect such Eurodollar Rate Advances or such Lender and (ii) unless such Lender has theretofore taken steps to remove or cure, and has removed or cured, the conditions creating such obligation to pay such additional amounts or the circumstances described in Section 2.12, the Borrower may designate an Eligible Assignee to purchase for cash (pursuant to an Assignment and Acceptance) 13 all, but not less than all, of the Advances then owing to such Lender and such Lender's rights and obligations hereunder related to such Advances, without recourse to or warranty by, or expense to, such Lender, for a purchase price equal to the outstanding principal amount of each such Advance then owing to such Lender plus any accrued but unpaid interest thereon, and a proportionate part of accrued but unpaid facility fee, expense reimbursements and indemnities in respect of that Lender's Commitment hereunder. SECTION 2.17. EVIDENCE OF DEBT. (a) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Advance owing to such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. The Borrower agrees that upon notice by any Lender to the Borrower (with a copy of such notice to the Agent) to the effect that a promissory note or other evidence of indebtedness is required or appropriate in order for such Lender to evidence (whether for purposes of pledge, enforcement or otherwise) the Advances owing to, or to be made by, such Lender, the Borrower shall promptly execute and deliver to such Lender a promissory note or other evidence of indebtedness, in form and substance reasonably satisfactory to the Borrower and such Lender, payable to the order of such Lender in a principal amount equal to the aggregate principal amount of the Advances then owing to such Lender; PROVIDED, HOWEVER, that the execution and delivery of such promissory note or other evidence of indebtedness shall not be a condition precedent to the making of any Advance under this Agreement. (b) The Register maintained by the Agent pursuant to Section 8.07(c) shall include a control account, and a subsidiary account for each Lender, in which accounts (taken together) shall be recorded (i) the date and amount of each Borrowing made hereunder, the Type of Advances comprising such Borrowing and the Interest Period applicable thereto, (ii) the terms of each Assignment and Acceptance delivered to and accepted by it, (iii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder, and (iv) the amount of any sum received by the Agent from the Borrower hereunder and each Lender's share thereof. (c) Entries made in good faith by the Agent in the Register pursuant to subsection (b) above, and by each Lender in its account or accounts pursuant to subsection (a) above, shall be PRIMA FACIE evidence of the amount of principal and interest due and payable or to become due and payable from the Borrower to, in the case of the Register, each Lender and, in the case of such account or accounts, such Lender, under this Agreement, absent manifest error; PROVIDED, HOWEVER, that the failure of the Agent or such Lender to make an entry, or any finding that an entry is incorrect, in the Register or such account or accounts shall not limit or otherwise affect the obligations of the Borrower under this Agreement. SECTION 2.18. USE OF PROCEEDS. The proceeds of the Advances shall be available (and the Borrower agrees that it shall use such proceeds) (i) to support the obligations of the Borrower in respect of commercial paper issued by the Borrower and (ii) for general corporate purposes of the Borrower. SECTION 2.19. EXTENSION OF TERMINATION DATE. (a) At least 45 but not more than 75 days prior to the next Anniversary Date, the Borrower, by written notice to the Agent, may request that the Termination Date be extended one calendar year from its then current scheduled expiration. The Agent shall promptly notify each Lender of such request, and each Lender shall in turn, not later than 15 days prior to such next Anniversary Date, notify the Borrower and the Agent in writing as to whether such Lender will consent to such extension. (b) If any Lender shall fail to notify the Agent and the Borrower in writing of its consent to such request at least 15 days prior to the next Anniversary Date, such Lender shall be deemed to have not consented to such request. Any nonconsenting Lender will, upon not less than three Business Days' prior written notice by the Borrower to such Lender and the Agent, assign to an Eligible Assignee which shall have been designated by the Borrower in such notice and which shall have agreed to accept such assignment and to consent to the requested extension of the Termination Date, all of such Lender's rights and obligations hereunder, without recourse to or warranty by, or expense to, such Lender, for a cash purchase price equal to the outstanding principal amount of each Advance then owing to such Lender plus any accrued but unpaid interest thereon, plus a proportionate part of any accrued but unpaid facility fee, expense reimbursements and indemnities in respect of that Lender's Commitment hereunder and any other amounts then due and payable to such Lender hereunder. (c) If all of the Lenders (after giving effect to any assignments pursuant to subsection (b) above) consent in writing to a requested extension not later than the Business Day immediately preceding such Anniversary Date, the Agent shall so advise the Borrower and the Lenders, the Termination Date shall be so extended for such one calendar year, and all references herein, and in any promissory note executed and delivered by the Borrower pursuant to Section 2.17 hereof, to the "Termination Date" shall refer to the Termination Date as so extended. If any Lender (after giving 14 effect to any assignments pursuant to subsection (b) above) shall not so consent in writing, such Lender shall be deemed not to have consented to such requested extension and the Termination Date shall not be so extended. SECTION 2.20. WITHDRAWING LENDERS. Each Initial Lender consents to the effectiveness of the Withdrawal Agreement in accordance with the terms thereof. ARTICLE III CONDITIONS OF EFFECTIVENESS AND LENDING SECTION 3.01. CONDITION PRECEDENT TO EFFECTIVENESS OF THIS AGREEMENT. This Agreement shall become effective as of the Effective Date, subject to the satisfaction on or before such date of the following conditions precedent: (a) the Agent shall have received the following: (i) counterparts of this Agreement executed by the Borrower and each Lender (or, as to any of the Lenders, advice satisfactory to the Agent that such Lenders have executed this Agreement); (ii) certified copies of the resolutions of the Executive Committee of the Board of Directors of the Borrower authorizing the execution and delivery of this Agreement; (iii) a certificate of the Secretary or an Assistant Secretary of the Borrower certifying the name and true signature of the officer of the Borrower executing this Agreement on its behalf; and (iv) an opinion of counsel to the Borrower in substantially the form of Exhibit C hereto; (b) the Agent shall have received counterparts of the Withdrawal Agreement executed by the Borrower and each Withdrawing Lender; (c) the Borrower shall have paid or prepaid any Advances outstanding on the Effective Date under the Existing Credit Agreement, together with accrued interest thereon and any amounts payable in connection with such prepayment under Section 8.04(b) thereof; (d) the Borrower shall have paid all facility fees under Section 2.03 of the Existing Credit Agreement to the extent accrued and unpaid through the Effective Date. SECTION 3.02. CONDITIONS PRECEDENT TO EACH BORROWING. The obligation of each Lender to make an Advance on the occasion of each Borrowing (including the initial Borrowing) shall be subject to the further conditions precedent that on the date of such Borrowing the following statements shall be true (and each of the giving of the applicable Notice of Borrowing and the acceptance by the Borrower of the proceeds of such Borrowing shall constitute a representation and warranty by the Borrower that on the date of such Borrowing such statements are true): (a) The representations and warranties contained in Section 4.01 are correct in all material respects on and as of the date of such Borrowing, before and after giving effect to such Borrowing and to the application of the proceeds therefrom, as though made on and as of such date (except to the extent that such representations and warranties relate to an earlier date, which representations and warranties were correct in all material respects on and as of such earlier date), and (b) No event has occurred and is continuing, or would result from such Borrowing or from the application of the proceeds therefrom, which constitutes an Event of Default or would constitute an Event of Default but for the requirement that notice be given or time elapse or both. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. The Borrower represents and warrants as follows: (a) The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is duly qualified and in good standing as a foreign corporation authorized to do business in each jurisdiction (other than the jurisdiction of its incorporation) in which the nature of its activities or the character of the properties it owns or leases makes such qualification necessary and in which the failure so to qualify 15 would have a material adverse effect on the financial condition or operations of the Borrower and its subsidiaries taken as a whole. (b) The execution, delivery and performance by the Borrower of this Agreement are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action, and do not contravene (i) the Borrower's charter or by-laws or (ii) any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or any contractual restriction binding on or affecting the Borrower; no authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by the Borrower of this Agreement; and this Agreement is the legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms, subject to applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors' rights generally and general principles of equity. (c) The Borrower's most recent annual report on Form 10-K containing the consolidated balance sheet of the Borrower and its subsidiaries, and the related consolidated statements of income and of cash flows of the Borrower and its subsidiaries, copies of which have been furnished to each Lender prior to the date hereof or pursuant to Section 5.01(f), fairly present the consolidated financial condition of the Borrower and its subsidiaries as at the date of such balance sheet and the consolidated results of operations of the Borrower and its subsidiaries for the fiscal year ended on such date, all in accordance with generally accepted accounting principles consistently applied. (d) There is no pending or to the Borrower's knowledge, threatened claim, action or proceeding affecting the Borrower or any of its subsidiaries, which could reasonably be expected to adversely affect the financial condition or operations of the Borrower and its subsidiaries taken as a whole or which could reasonably be expected to affect the legality, validity or enforceability of this Agreement; and to the Borrower's knowledge, the Borrower and each of its subsidiaries have complied, and are in compliance, with all applicable laws, rules, regulations, permits, orders, consent decrees and judgments, except for matters which have not, and would not reasonably be expected to have, a material adverse effect on the financial condition or operations of the Borrower and its subsidiaries taken as a whole. (e) The Borrower and its ERISA Affiliates have not incurred and are not reasonably expected to incur any material liability in connection with their Single Employer or Multiple Employer Plans, other than ordinary liabilities for benefits; neither the Borrower nor any ERISA Affiliate has incurred or is reasonably expected to incur any material withdrawal liability (as defined in Part I of Subtitle E of Title IV of ERISA) to any Multiemployer Plan; and no Multiemployer Plan of the Borrower or any ERISA Affiliate is reasonably expected to be in reorganization or to be terminated, within the meaning of Title IV of ERISA. SECTION 4.02. ADDITIONAL REPRESENTATION AND WARRANTY OF THE BORROWER. The Borrower represents and warrants solely on the date of this Agreement (and at no subsequent time) that as of the date of this Agreement, except as disclosed in periodic and other reports filed by the Borrower and its subsidiaries during the period from June 30, 1994 to and including the date hereof pursuant to Section 13 of the Securities Exchange Act of 1934, as amended, copies of which have been furnished to the Agent, there has been no material adverse change in the business, financial condition, or operations of the Borrower since June 30, 1994. ARTICLE V COVENANTS OF THE BORROWER SECTION 5.01. AFFIRMATIVE COVENANTS. So long as any Advance shall remain unpaid or any Lender shall have any Commitment hereunder, the Borrower will, unless the Majority Lenders shall otherwise consent in writing: (a) COMPLIANCE WITH LAWS ETC. Comply, and cause each of its subsidiaries to comply, in all material respects with all applicable laws, rules, regulations, permits, orders, consent decrees and judgments binding on the Borrower and its subsidiaries the failure with which to comply would have a material adverse effect on the financial condition or operations of the Borrower and its subsidiaries taken as a whole. (b) PAYMENT OF TAXES ETC. Pay and discharge, and cause each of its subsidiaries to pay and discharge, before the same shall become delinquent, if the failure to so pay and discharge would have a material adverse effect on the financial condition or operations of the Borrower and its subsidiaries taken as a whole (i) all taxes, assessments and governmental charges or levies imposed upon it or upon its property, and (ii) all lawful claims which, if unpaid, 16 will by law become a Lien upon its property; PROVIDED, HOWEVER, that neither the Borrower nor any subsidiary shall be required to pay or discharge any such tax, assessment, charge or claim which is being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained as may be required by GAAP. (c) PRESERVATION OF CORPORATE EXISTENCE, ETC. Subject to Section 5.02(a), preserve and maintain its corporate existence, rights (charter and statutory) and franchises; PROVIDED, HOWEVER, that the Borrower shall not be required to preserve any right or franchise if the loss thereof does not have a material adverse effect on the financial condition or operations of the Borrower and its subsidiaries taken as a whole. (d) MAINTENANCE OF INTEREST COVERAGE RATIO. Maintain as of the last day of each fiscal quarter of the Borrower a ratio of (i) Consolidated EBIT for the period of four consecutive fiscal quarters of the Borrower ending with such fiscal quarter to (ii) Consolidated Interest Expense for such period, of not less than 3.0 to 1.0. (e) MAINTENANCE OF UNENCUMBERED ASSETS COVERAGE RATIO. Maintain a ratio of Consolidated Unencumbered Assets to Consolidated Adjusted Indebtedness of not less than 1.3 to 1.0. (f) REPORTING REQUIREMENTS. Furnish to the Agent, which shall furnish to the Lenders: (i) as soon as available and in any event within 50 days after the end of each of the first three quarters of each fiscal year of the Borrower, the Borrower's quarterly report to shareholders on Form 10-Q as filed with the Securities and Exchange Commission (the "SEC") containing a consolidated balance sheet of the Borrower and its subsidiaries as of the end of such quarter and consolidated statements of income and of cash flows of the Borrower and its subsidiaries for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, and a certificate of any of the Borrower's Chairman of the Board of Directors, President, Chief Financial Officer, Treasurer, Assistant Treasurer or Controller (i) stating that no Event of Default, or event which, with notice or lapse of time, or both, would constitute an Event of Default, has occurred and is continuing and (ii) containing a schedule which shall set forth the computations used by the Borrower in determining compliance with the covenants contained in Sections 5.01(d) and 5.01(e); (ii) as soon as soon as available and in any event within 100 days after the end of each fiscal year of the Borrower, a copy of the Borrower's annual report to shareholders on Form 10-K as filed with the SEC, containing consolidated financial statements for such year and a certificate of any of the Borrower's Chairman of the Board of Directors, President, Chief Financial Officer, Treasurer, Assistant Treasurer or Controller (i) stating that no Event of default, or event which, with notice or lapse of time, or both, would constitute an Event of Default, has occurred and is continuing and (ii) containing a schedule which shall set forth the computations used by the Borrower in determining compliance with the covenants contained in Sections 5.01(d) and 5.01(e); (iii) promptly after the Borrower obtains actual knowledge of the occurrence of each Event of Default, and each event which with the giving of notice or lapse of time or both would constitute an Event of Default, a statement of any of the Borrower's Chairman of the Board of Directors, President, Chief Financial Officer, Treasurer, Assistant Treasurer or Controller setting forth details of such Event of Default or event continuing on the date of such statement, and the action which the Borrower has taken and proposes to take with respect thereto; (iv) promptly after the commencement thereof, notice of any actions, suits and proceedings before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, affecting the Borrower or any subsidiary of the type described in Section 4.01(d); (v) promptly after the Borrower obtains actual knowledge thereof, written notice of any pending or threatened Environmental Claim against the Borrower or any of its subsidiaries or any of their respective properties which could reasonably be expected to materially adversely affect the financial condition or operations of the Borrower and its subsidiaries taken as a whole; (vi) promptly after the Borrower obtains actual knowledge of the occurrence of any ERISA Event which could reasonably be expected to materially adversely affect the financial condition or operations of the Borrower and its subsidiaries taken as a whole, a statement of any of the Borrower's Chairman of the 17 Board of Directors, President, Chief Financial Officer, Treasurer, Assistant Treasurer or Controller describing such ERISA Event and the action, if any, which the Borrower has taken and proposes to take with respect thereto; (vii) promptly after receipt thereof by the Borrower or any ERISA Affiliate from the sponsor of a Multiemployer Plan, a copy of each notice received by the Borrower or any ERISA Affiliate concerning (A) the imposition of withdrawal liability (as defined in Part I of Subtitle E of Title IV of ERISA) by a Multiemployer Plan, which withdrawal liability could reasonably be expected to materially adversely affect the financial condition or operations of the Borrower and its subsidiaries taken as a whole, (B) the reorganization or termination, within the meaning of Title IV of ERISA, of any Multiemployer Plan, which reorganization or termination could reasonably be expected to materially adversely affect the financial condition or operations of the Borrower and its subsidiaries taken as a whole or (C) the amount of liability incurred, or which may be incurred, by the Borrower or any ERISA Affiliate in connection with any event described in clause (A) or (B) above; and (viii) such other material information reasonably related to any Lender's credit analysis of the Borrower or any of its subsidiaries as any Lender through the Agent may from time to time reasonably request. SECTION 5.02. NEGATIVE COVENANT. So long as any Advance shall remain unpaid or any Lender shall have any Commitment hereunder, the Borrower will not, without the written consent of the Majority Lenders: (a) MERGERS, ETC. Merge or consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of the assets of the Borrower and its subsidiaries taken as a whole (whether now owned or hereafter acquired) to, any Person, or permit any of its subsidiaries to do so, unless immediately after giving effect to such proposed transaction, no Event of Default or event which, with the giving of notice or lapse of time, or both, would constitute an Event of Default would exist and in the case of any such merger to which the Borrower is a party, the Borrower is the surviving corporation or the Person into which the Borrower shall be merged or formed by any such consolidation shall be a corporation organized and existing under the laws of the United States or any State thereof and shall assume the Borrower's obligations hereunder in an agreement or instrument reasonably satisfactory in form and substance to the Majority Lenders. ARTICLE VI EVENTS OF DEFAULT SECTION 6.01. EVENTS OF DEFAULT. If any of the following events ("Events of Default") shall occur and be continuing: (a) The Borrower shall fail to pay any principal of any Advance when the same becomes due and payable; or the Borrower shall fail to pay any interest on any Advance or any fee or other amount payable under this Agreement, in each case within three Business Days after such interest, fee or other amount becomes due and payable; or (b) Any representation or warranty made by the Borrower herein or by the Borrower (or any of its officers) delivered in writing and identified as delivered in connection with this Agreement shall prove to have been incorrect in any material respect when made; or (c) The Borrower shall fail to perform or observe any covenant contained in Section 5.01(d) or Section 5.01(e) or Section 5.01(f)(iii) or Section 5.02; or (d) The Borrower shall fail to perform or observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed if the failure to perform or observe such other term, covenant or agreement shall remain unremedied for 30 days after written notice thereof shall have been given to the Borrower by the Agent or any Lender; or (e) The Borrower or any of its subsidiaries shall fail to pay any principal of or premium or interest on any Debt which is outstanding in a principal amount of at least $100,000,000 in the aggregate (but excluding Debt arising hereunder) of the Borrower or such subsidiary (as the case may be), when the same becomes due and payable 18 (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure (i) shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt and (ii) shall not have been cured or waived; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Debt and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt; or any such Debt shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), redeemed, purchased or defeased, or an offer to prepay, redeem, purchase or defease such Debt shall be required to be made, in each case prior to the stated maturity thereof; or (f) The Borrower or any of its Material Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Borrower or any of its Material Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for substantially all of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 60 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or the Borrower or any of its Material Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this subsection (f); or (g) Any money judgment, writ or warrant of attachment or similar process against the Borrower, any of its Material Subsidiaries or any of their respective assets involving in any case an amount in excess of $50,000,000 is entered and shall remain undischarged, unvacated, unbonded or unstayed for a period of 30 days or in any case within five days of any pending sale or disposition of any asset pursuant to any such process; then, and in any such event, the Agent (i) shall at the request, or may with the consent, of the Majority Lenders, by notice to the Borrower, declare the obligation of each Lender to make Advances to be terminated, whereupon the same shall forthwith terminate, and (ii) shall at the request, or may with the consent, of the Majority Lenders, by notice to the Borrower, declare the Advances, all interest thereon and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Advances, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; PROVIDED, HOWEVER, that in the event of an actual or deemed entry of an order for relief with respect to the Borrower under the Federal Bankruptcy Code, (A) the obligation of each Lender to make Advances shall automatically be terminated and (B) the Advances, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived by the Borrower. ARTICLE VII THE AGENT SECTION 7.01. AUTHORIZATION AND ACTION. Each Lender hereby appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement (including, without limitation, enforcement of this Agreement or collection of the Advances), the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Lenders, and such instructions shall be binding upon all Lenders; PROVIDED, HOWEVER, that the Agent shall not be required to take any action which exposes the Agent to personal liability or which is contrary to this Agreement or applicable law. The Agent agrees to give to each Lender prompt notice of each notice given to it by the Borrower pursuant to the terms of this Agreement. SECTION 7.02. AGENT'S RELIANCE ETC. Neither the Agent nor any of its directors, officers, agents or employees shall be liable to any Lender for any action taken or omitted to be taken by it or them under or in connection with this Agreement, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Agent: (i) may treat the Lender which made any Advance as the holder of the Debt resulting therefrom until the Agent receives and accepts an Assignment and Acceptance entered into by such Lender, as assignor, and an Eligible Assignee, as assignee, as provided in Section 8.07; (ii) may 19 consult with legal counsel (including counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (iii) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations (whether written or oral) made in or in connection with this Agreement; (iv) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement on the part of the Borrower or to inspect the property (including the books and records) of the Borrower; (v) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any instrument or document furnished pursuant hereto; and (vi) shall incur no liability under or in respect of this Agreement by acting upon any notice, consent, certificate or other instrument or writing (which may be by telecopier, telegram, cable or telex) believed by it to be genuine and signed or sent by the proper party or parties. SECTION 7.03. CUSA AND AFFILIATES. With respect to its Commitment and the Advances made by it, CUSA shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the Agent; and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include CUSA in its individual capacity. CUSA and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, the Borrower, any of its subsidiaries and any Person who may do business with or own securities of the Borrower or any such subsidiary, all as if CUSA were not the Agent and without any duty to account therefor to the Lenders. SECTION 7.04. LENDER CREDIT DECISION. Each Lender acknowledges that it has, independently and without reliance upon the Agent or any other Lender and based on the financial statements referred to in Section 4.01(c) and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. SECTION 7.05. INDEMNIFICATION. The Lenders agree to indemnify the Agent (to the extent not reimbursed by the Borrower), ratably according to the respective principal amounts of Advances then owing to each of them (or if no Advances are at the time outstanding or if any Advances are then owing to Persons which are not Lenders, ratably according to the respective amounts of their Commitments), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of this Agreement or any action taken or omitted by the Agent under this Agreement, PROVIDED that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or willful misconduct. Without limitation of the foregoing, each Lender agrees to reimburse the Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including reasonable counsel fees) incurred by the Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal or bankruptcy proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, to the extent that the Agent is not reimbursed for such expenses by the Borrower. SECTION 7.06. SUCCESSOR AGENT. The Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower and such resignation shall be effective upon the appointment of a successor Agent as provided herein. Upon any such resignation, the Majority Lenders shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Majority Lenders, and shall have accepted such appointment, within 30 days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent. Any successor Agent appointed hereunder shall be a commercial bank organized or licensed under the laws of the United States or of any State thereof, or an Affiliate of such bank, having a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, discretion, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article VII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. 20 ARTICLE VIII MISCELLANEOUS SECTION 8.01. AMENDMENTS, ETC. No amendment or waiver of any provision of this Agreement, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Majority Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; PROVIDED, HOWEVER, that no amendment, waiver or consent shall, unless in writing and signed by all the Lenders, do any of the following: (a) waive any of the conditions specified in Section 3.01 or 3.02, (b) increase the Commitments of the Lenders or subject the Lenders to any additional obligations, (c) reduce the principal of, or interest on, the Advances or the facility fees payable hereunder, (d) postpone any date fixed for any payment of principal of, or interest on, the Advances, (e) change the percentage of the Commitments or of the aggregate unpaid principal amount of Advances, or the number of Lenders, which shall be required for the Lenders or any of them to take any action hereunder or (f) amend this Section 8.01; and PROVIDED, FURTHER, that no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Lenders required above to take such action, affect the rights or duties of the Agent under this Agreement. SECTION 8.02. NOTICES, ETC. All notices and other communications provided for hereunder shall be in writing (including telecopier, telegraphic, telex or cable communication) and mailed, telecopied, telegraphed, telexed, cabled or delivered, if to the Borrower, at its address at: The Walt Disney Company 500 South Buena Vista Street Burbank, California 91521 Attention: Mr. Edward Philip Telecopy Number: (818) 563-1682 if to any Initial Lender, at its Domestic Lending Office specified opposite its name on Schedule I hereto; if to any other Lender, at its Domestic Lending Office specified in the Assignment and Acceptance pursuant to which it became a Lender; if to the Agent, at its address at: Citicorp USA, Inc. One Court Square Long Island City, New York 11120 Attention: Jeff Stern Telecopy Number: (718) 248-4844 with a copy to: Citicorp Securities, Inc. One Sansome Street San Francisco, CA 94104 Attention: Mark Wilson Telecopy Number: (415) 433-0344 or, as to each party, at such other address as shall be designated by such party in a written notice to the other parties. All such notices and communications shall, when mailed, telecopied, telegraphed, telexed or cabled, be effective when deposited in the mails, telecopied, delivered to the telegraph company, confirmed by telex answerback or delivered to the cable company, respectively, except that notices and communications to the Agent pursuant to Article II or VII shall not be effective until received by the Agent. SECTION 8.03. NO WAIVER; REMEDIES. No failure on the part of any Lender or the Agent to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 8.04. COSTS AND EXPENSES. (a) The Borrower agrees to pay within five Business Days of demand all actual and reasonable costs and expenses, if any (including, without limitation, actual and reasonable counsel fees and expenses), of the Agent and each Lender in connection with the enforcement (whether through legal proceedings or otherwise) of this Agreement and the other instruments and documents to be delivered hereunder, including, without limitation, reasonable counsel fees and expenses in connection with the enforcement of rights under this Section 8.04(a). 21 (b) If any payment of principal of, or Conversion of, any Eurodollar Rate Advance is made other than on the last day of the Interest Period for such Advance, as a result of a payment or Conversion pursuant to Section 2.08(f) or acceleration of the maturity of the Advances pursuant to Section 6.01 or for any other reason (other than by reason of a payment pursuant to Section 2.12), the Borrower shall, within five Business Days of demand by any Lender (with a copy of such demand to the Agent), pay to such Lender any amounts required to compensate such Lender for any additional losses, costs or expenses which it may reasonably incur as a result of such payment or Conversion, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund or maintain such Advance. SECTION 8.05. RIGHT OF SET-OFF. Upon (i) the occurrence and during the continuance of any Event of Default and (ii) the making of the request or the granting of the consent specified by Section 6.01 to authorize the Agent to declare the Advances due and payable pursuant to the provisions of Section 6.01, each Lender (and, in the case of CUSA, Citibank) is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, but excluding trust accounts) at any time held and other indebtedness at any time owing by such Lender (and, in the case of CUSA, Citibank) to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement, whether or not such Lender shall have made any demand under this Agreement. Each Lender agrees promptly to notify the Borrower after any such set-off and application made by such Lender, PROVIDED that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which such Lender may have. SECTION 8.06. BINDING EFFECT. This Agreement shall become effective in accordance with the provisions of Section 3.01, and thereafter shall be binding upon and inure to the benefit of the Borrower, the Agent and each Lender and their respective successors and permitted assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lenders. SECTION 8.07. ASSIGNMENTS AND PARTICIPATIONS. (a) Each Lender may and, if requested by the Borrower upon notice by the Borrower delivered to such Lender and the Agent pursuant to clause (ii) of Section 2.16, will, assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment and the Advances owing to it); PROVIDED, HOWEVER, that (i) each such assignment shall be of a constant, and not a varying, percentage of all rights and obligations under this Agreement, (ii) the amount of the Commitment of the assigning Lender being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $5,000,000, (iii) each such assignment shall be to an Eligible Assignee, and (iv) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with a processing and recordation fee of $2,000. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and (y) the Lender assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights (other than any rights such Lender assignor may have under Sections 2.14 and 8.08) and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto). (b) By executing and delivering an Assignment and Acceptance, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any instrument or document furnished pursuant hereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under this Agreement or any instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.01(c) and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this 22 Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender. (c) The Agent shall maintain at its address referred to in Section 8.02 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Advances owing to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee representing that it is an Eligible Assignee, the Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit B hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrower. (e) Each Lender may sell participations to one or more banks or other entities in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment and the Advances owing to it); PROVIDED, HOWEVER, that (i) such Lender's obligations under this Agreement (including, without limitation, its Commitment to the Borrower hereunder) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the Borrower, the Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement, and (iv) such Lender shall not agree in any participation agreement with any participant or proposed participant to obtain the consent of such participant before agreeing to the amendment, modification or waiver of any of the terms of this Agreement, consenting to any action or failure to act by the Borrower or any other party, or exercising any rights it may have in respect thereof, unless such amendment, modification, waiver, consent or exercise would (i) increase the amount of such participant's portion of such Lender's Commitment, (ii) reduce the principal amount of or rate of interest on the Advances or any fee or other amounts payable hereunder to which such participant would be entitled to receive a share under such participation agreement, or (iii) postpone any date fixed for any payment of principal of or interest on the Advances or any fee or other amounts payable hereunder to which such participant would be entitled to receive a share under such participation agreement payable under this Agreement. (f) Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 8.07, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Borrower furnished to such Lender by or on behalf of the Borrower in writing and directly related to the transactions contemplated hereunder; PROVIDED that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree to preserve the confidentiality of any confidential information relating to the Borrower received by it from such Lender. (g) No participation or assignment hereunder shall be made in violation of the Securities Act of 1933, as amended from time to time, or any applicable state securities laws, and each Lender hereby represents that it will make any Advance for its own account in the ordinary course of its business and not with a view to the public distribution or sale thereof. (h) Anything in this Agreement to the contrary notwithstanding, any Lender may at any time create a security interest in all or any portion of its rights under this Agreement (including, without limitation, the Advances owing to it) and any promissory notes or other evidences of indebtedness issued to such Lender hereunder in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System (or any successor regulation) and the applicable operating circular of such Federal Reserve Bank. SECTION 8.08. INDEMNIFICATION. The Borrower agrees to indemnify and hold harmless the Agent and each Lender and each of their Affiliates and their respective officers, directors, employees, agents and advisors (each, an "Indemnified Party") from and against any and all claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and expenses of counsel) that may be incurred by or asserted against any Indemnified Party, in each case arising out of or in connection with or by reason of, or in connection with the preparation for a defense of, any investigation, litigation or proceeding (whether or not an Indemnified Party is a 23 party thereto) arising out of, related to or in connection with the Commitments hereunder or the Advances made pursuant hereto or any transactions done in connection herewith, including, without limitation, any transaction in which any proceeds of the Advances are, or are proposed, to be applied (collectively, the "Indemnified Matters"); PROVIDED that the Borrower shall have no obligation to any Indemnified Party under this Section 8.08 with respect to (i) matters for which such Indemnified Party has been compensated pursuant to any other provision of this Agreement or (ii) Indemnified Matters caused by or resulting from the intentional wrongful act or gross negligence of such Indemnified Party. If any action is brought against any Indemnified Party, such Indemnified Party shall promptly notify the Borrower in writing of the institution of such action and the Borrower shall thereupon have the right, at its option, to elect to assume the defense of such action. If the Borrower so elects, it shall promptly assume the defense of such action, including the employment of counsel (reasonably satisfactory to such Indemnified Party) and payment of expenses. Such Indemnified Party shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless (i) the employment of such counsel shall have been authorized in writing by the Borrower in connection with the defense of such action or (ii) the Borrower shall not have properly employed counsel reasonably satisfactory to such Indemnified Party to have charge of the defense of such action, in which case such fees and expenses shall be paid by the Borrower. If such Indemnified Party shall have reasonably concluded (based upon the advice of counsel) that the representation by one counsel of the Indemnified Party and the Borrower creates a conflict of interest for such counsel, the reasonable fees and expenses of such counsel shall be borne by the Borrower and the Borrower shall not have the right to direct the defense of such action on behalf of the Indemnified Party (but shall retain the right to direct the defense of such action on behalf of the Borrower). Anything in this Section 8.08 to the contrary notwithstanding, the Borrower shall not be liable for the fees and expenses of more than one counsel for any Indemnified Party in any jurisdiction as to any Indemnified Matter or for any settlement of any Indemnified Matter effected without its written consent. All Obligations of the Borrower under this Section 8.08 shall survive the making and repayment of the Advances and the termination of this Agreement. SECTION 8.09. CONFIDENTIALITY. Subject to the provisions of Section 8.07(f), each Lender shall, and shall instruct its Affiliates, successors, assigns, advisors, officers, employees, directors, agents, legal counsel or other professional advisors (the "Informed Parties") to, hold all nonpublic information obtained pursuant to this Agreement in accordance with its customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices and in any event may make disclosure reasonably required by a bona fide transferee or participant in connection with the contemplated transfer or participation or to an Informed Party agreeing to hold such nonpublic information as confidential or as required or requested by law or to any governmental authority or representative thereof or pursuant to legal process; PROVIDED that unless specifically prohibited by applicable law or court order, each Lender shall notify the Borrower of any request by any governmental authority or representative thereof (other than any such request in connection with an examination of the financial condition of such Lender by such governmental authority) for disclosure of any such nonpublic information prior to disclosure of such information; and FURTHER, PROVIDED, that in no event shall any Lender be obligated or required to return any materials furnished by the Borrower. SECTION 8.10. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. All judicial proceedings brought against the Borrower with respect to this Agreement or any instrument or other documents delivered hereunder may be brought in any state or federal court in the Borough of Manhattan in the State of New York, and by execution and delivery of this Agreement, the Borrower accepts, for itself and in connection with its properties, generally and unconditionally, the nonexclusive jurisdiction of the aforesaid courts, and irrevocably agrees to be bound by any final judgment rendered thereby in connection with this Agreement or any instrument or other document delivered hereunder from which no appeal has been taken or is available. The Borrower agrees to receive service of process in any such proceeding in any such court at its office at 500 Park Avenue, New York, New York 10022 (or at such other address in the Borough of Manhattan in the State of New York as the Borrower shall notify the Agent from time to time) and, if the Borrower ever ceases to maintain such office in the Borough of Manhattan, irrevocably designates and appoints CT Corporation System, 1633 Broadway, New York, New York 10019, or any other address in the State of New York communicated by CT Corporation System to the Agent, as its agent to receive on its behalf service of all process in any such proceeding in any such court, such service being hereby acknowledged by the Borrower to be effective and binding service in every respect. SECTION 8.11. GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. SECTION 8.12. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 24 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. THE WALT DISNEY COMPANY By: /s/ STEVEN J. SCHOCH ----------------------- Title: Vice President CITICORP USA, INC., as Agent By: /s/ BARBARA A. COHEN ----------------------- Title: Vice President
COMMITMENT LENDERS ---------- ------- $17,500,000 ABN AMRO BANK, N.V. By: /s/ PAUL K. STIMPHL ----------------------- Title: Vice President By: /s/ DAVID A. STASSEL ----------------------- Title: Vice President $17,500,000 BANK OF AMERICA NT & SA By: /s/ MATTHEW J. KOENIG ----------------------- Title: Vice President $17,500,000 THE BANK OF CALIFORNIA, N.A. By: /s/ ANNA BADGASARIAN ----------------------- Title: Vice President/Manager $17,500,000 BANKERS TRUST COMPANY By: /s/ KATHERINE A. JUDGE ----------------------- Title: Vice President $17,500,000 BANQUE NATIONALE DE PARIS By: /s/ CHRISTIAN MORIO ----------------------- Title: Senior Vice President and Manager By: /s/ JANICE S.H. HO ----------------------- Title: Vice President $17,500,000 BARCLAYS BANK PLC By: /s/ JOHN B. ALT ----------------------- Title: Associate Director 25 $17,500,000 CHEMICAL BANK By: /s/ J. HOWE ----------------------- Title: Vice President $17,500,000 CITICORP USA, INC. By: /s/ BARBARA A. COHEN ----------------------- Title: Vice President $17,500,000 CREDIT SUISSE By: /s/ DAVID J. WORTHINGTON ----------------------- Title: Member of Senior Management By: /s/ STEPHEN M. FLYNN ----------------------- Title: Member of Senior Management $17,500,000 THE DAI-ICHI KANGYO BANK, LTD. LOS ANGELES AGENCY By: /s/ TOMOHIRO NOZAKI ----------------------- Title: Senior Vice President & Joint General Manager $17,500,000 DEUTSCHE BANK AG LOS ANGELES AND CAYMAN ISLAND BRANCHES By: /s/ STEVEN N. WARDEN ------------------------- Title: Director By: /s/ J. SCOTT JESSUP ----------------------- Title: Vice President $17,500,000 THE FIRST NATIONAL BANK OF CHICAGO By: /s/ L. GENE BEUBE ------------------------ Title: Senior Vice President $17,500,000 FIRST INTERSTATE BANK OF CALIFORNIA By: /s/ GREGORY P. BROWN Title: Vice President By: /s/ DANIEL H. HOM ----------------------- Title: Vice President $17,500,000 THE FUJI BANK LIMITED LOS ANGELES AGENCY By: /s/ YASUJI IKAWA ------------------------- Title: Joint General Manager $17,500,000 THE INDUSTRIAL BANK OF JAPAN, LIMITED LOS ANGELES AGENCY By: /s/ KAZUTAKA KIYOTO ----------------------- Title: Senior Vice President and Senior Manager 26 $17,500,000 THE LONG-TERM CREDIT BANK OF JAPAN, LTD. LOS ANGELES AGENCY By: /s/ CURT M. BIREN ----------------------- Title: Vice President $17,500,000 MELLON BANK, N.A. By: /s/ G. LOUIS ASHLEY ----------------------- Title: First Vice President-Manager-Media Section $17,500,000 THE MITSUBISHI TRUST AND BANKING CORPORATION By: /s/ TAKASHI SUGITA ----------------------- Title: Senior Vice President and Chief Manager $17,500,000 THE MITSUI TRUST & BANKING CO., LTD. By: /s/ KEN TAKAHASHI ----------------------- Title: General Manager and Agent $17,500,000 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ DIANA H. IMHOF ----------------------- Title: Associate $17,500,000 NATIONAL WESTMINSTER BANK PLC By: /s/ HAL SADOFF ----------------------- Title: Vice President $17,500,000 NATIONSBANK OF TEXAS, N.A. By: /s/ MICHELLE M. SHAFROTH ----------------------- Title: Senior Vice President $17,500,000 THE SAKURA BANK, LTD. LOS ANGELES AGENCY By: /s/ FERNANDO BUESA ----------------------- Title: Vice President By: /s/ OFUSA SATO ----------------------- Title: Senior Vice President & Assistant General Manager $17,500,000 SOCIETE GENERALE By: /s/ MAUREEN KELLY ----------------------- Title: Vice President $17,500,000 THE SUMITOMO BANK, LIMITED By: /s/ HIROSHI AMANO ----------------------- Title: General Manager $17,500,000 THE SUMITOMO TRUST & BANKING CO., LTD. LOS ANGELES AGENCY By: /s/ MASAYUKI IMANAKA ----------------------- Title: Senior Manager $17,500,000 SUNBANK, NATIONAL ASSOCIATION By: /s/ LORRAINE D. MCCULLERS ----------------------- Title: Vice President-National Banking 27 $17,500,000 SWISS BANK CORPORATION SAN FRANCISCO BRANCH By: /s/ DAVID L. PARROT ----------------------- Title: Associate Director-Merchant Banking By: /s/ HANS-UELI SURBER ----------------------- Title: Executive Director-Merchant Banking $17,500,000 TORONTO DOMINION (TEXAS), INC. By: /s/ WARREN FINLAY ----------------------- Title: Vice President $17,500,000 THE YASUDA TRUST & BANKING CO., LTD. LOS ANGELES BRANCH By: /s/ KIYOSHI TERAO ----------------------- Title: Joint General Manager $525,000,000
28 SCHEDULE I The Walt Disney Company $525,000,000 Credit Agreement
DOMESTIC EURODOLLAR -------- ---------- NAME OF BANK LENDING OFFICE LENDING OFFICE - ------------ -------------- -------------- ABN AMR0 Bank, N.V. ABN AMR0 Bank, N.V. ABN AMR0 Bank, N.V. Los Angeles/Int'l Branch Los Angeles/Int'l Branch 300 S. Grand Ave., #1115 300 S. Grand Ave., #1115 Los Angeles, CA 90071 Los Angeles, CA 90071 Bank of America Bank of America, NT & SA Bank of America, NT & SA NT & SA PSO Acct. Admin. #5693 PSO Acct. Admin. #5693 1850 Gateway Bl., 4th fl. 1850 Gateway Bl., 4th Fl. Concord, CA 94520 Concord, CA 94520 The Bank of California, N.A. The Bank of California, N.A. The Bank of California, N.A. 550 S. Hope St., 5th Fl. 550 S. Hope St., 5th Fl. Los Angeles, CA 90071 Los Angeles, CA 90071 Bankers Trust Bankers Trust Company Bankers Trust Company Company 1 Bankers Trust Plaza 1 Bankers Trust Plaza New York, NY 10006 New York, NY 10006 Banque Nationale de Banque Nationale de Paris Banque Nationale de Paris Paris 725 S. Figueroa, #2090 725 S. Figueroa, #2090 Los Angeles, CA 90017 Los Angeles, CA 90017 Barclays Bank PLC Barclays Bank PLC Barclays Bank PLC New York, NY Nassau, Bahamas Chemical Bank Chemical Bank Chemical Bank 52 Broadway 52 Broadway New York, NY 10015 New York, NY 10015 Attn: Loan Services Dept. Attn: Loan Services Dept. Pedro Valentin, A.T. Pedro Valentin, A.T. Citicorp USA, Inc. Citicorp USA, Inc. Citicorp USA, Inc. 399 Park Avenue 399 Park Avenue New York, New York 10043 New York, NY 10043 Credit Suisse Credit Suisse Credit Suisse 800 Wilshire Bl., 8th Fl. 800 Wilshire Bl., 8th Fl. Los Angeles, CA 90017 Los Angeles, CA 90017 Deutsche Bank AG Deutsche Bank AG Deutsche Bank AG 300 S. Grand Avenue Cayman Islands Branch Los Angeles, CA 90071 c/o New York Branch 31 W. 52nd St. New York, NY 10019 The Dai-Ichi Kangyo The Dai-Ichi Kangyo Bank, The Dai-Ichi Kangyo Bank, Bank, Ltd. Ltd., Los Angeles Agency Ltd., Los Angeles Agency Los Angeles Agency 555 W. 5th Street, 5th Floor 555 W. 5th Street, 5th Floor Los Angeles, CA 90013 Los Angeles, CA 90013 29 DOMESTIC EURODOLLAR -------- ---------- NAME OF BANK LENDING OFFICE LENDING OFFICE - ------------ -------------- -------------- The First National The First National Bank The First National Bank Bank of Chicago of Chicago of Chicago One First National Plaza One First National Plaza Suite 0324 Suite 0324 Chicago, Illinois 60670 Chicago, Illinois 60670 First Interstate Bank First Interstate Bank of First Interstate Bank of of California California California 1200 W. 7th Street 1200 W. 7th Street Los Angeles, CA 90017 Los Angeles, CA 90017 The Fuji Bank, Limited, The Fuji Bank, Limited The Fuji Bank, Limited Los Angeles Agency Los Angeles Agency Los Angeles Agency 333 South Grand Avenue 333 South Grand Avenue Suite 2500 Suite 2500 Los Angeles, CA 90071 Los Angeles, CA 90071 The Industrial Bank of The Industrial Bank of The Industrial Bank of Japan, Limited Japan, Limited Japan, Limited Los Angeles Agency Los Angeles Agency Los Angeles Agency 350 South Grand Avenue 350 South Grand Avenue Suite 1500 Suite 1500 Los Angeles, CA 90071 Los Angeles, CA 90071 The Long-Term Credit The Long Term Credit The Long Term Credit Bank of Japan, Ltd. Bank of Japan, Ltd. Bank of Japan, Ltd. Los Angeles Agency Los Angeles Agency Los Angeles Agency 444 S. Flower St., #3700 444 S. Flower St., #3700 Los Angeles, CA 90071 Los Angeles, CA 90071 Mellon Bank, N.A. Mellon Bank, N.A. Mellon Bank, N.A. Mellon Bank Center 1 Mellon Bank Center Pittsburgh, PA 15258 Pittsburgh, PA 15258 The Mitsubishi Trust The Mitsubishi Trust The Mitsubishi Trust and Banking Corporation and Banking Corporation and Banking Corporation 911 Wilshire BI., #1650 911 Wilshire BI., #165 Los Angeles, CA 90017 Los Angeles, CA 90017 The Mitsui Trust & The Mitsui Trust & The Mitsui Trust & Banking Co., Ltd. Banking Co., Ltd. Banking Co., Ltd. 611 West 6th Street 611 West 6th Street Los Angeles, CA 90017 Los Angeles, CA 90017 Morgan Guaranty Trust Morgan Guaranty Trust Morgan Guaranty Trust Company of New York Company of New York Company of New York 60 Wall Street Nassau, Bahamas Office New York, NY 10260-0060 c/o J.P. Morgan Attention: Loan Department Services, Inc. Euro-Loan Servicing 902 Market Street Wilmington, DE 19801 National Westminster Bank, PLC National Westminster Bank, PLC National Westminster Bank, PLC New York Branch Nassau Branch 175 Water Street, 19th Floor c/o 175 Water Street, 19th Fl. New York, NY 10038 New York, NY 10038 NationsBank of Texas, N.A NationsBank of Texas, N.A. NationsBank of Texas, N.A. 901 Main Street, 11th Fl. 901 Main Street, 11th Dallas, Texas 75206 Dallas, Texas 75206 Attn: Commercial Loans Attn: Commercial Loans 30 DOMESTIC EURODOLLAR -------- ---------- NAME OF BANK LENDING OFFICE LENDING OFFICE - ------------ -------------- -------------- The Sakura Bank, Ltd. The Sakura Bank, Ltd. The Sakura Bank, Ltd. Los Angeles Agency Los Angeles Agency 515 S. Figueroa Street 515 S. Figueroa Street Suite 400 Suite 400 Los Angeles, CA 90071 Los Angeles, CA 90071 Societe Generale Societe Generale Societe Generale 2029 Century Park East 2029 Century Park East Suite 2900 Suite 2900 Los Angeles, CA 90067 Los Angeles, CA 90067 The Sumitomo Bank, The Sumitomo Bank, The Sumitomo Bank, Limited Limited Limited 611 West 6th Street 611 West 6th Street Los Angeles, CA 90017 Los Angeles, CA 90017 The Sumitomo Trust & The Sumitomo Trust & The Sumitomo Trust & Banking Co., Ltd. Banking Co., Ltd. Banking Co., Ltd. Los Angeles Agency Los Angeles Agency Los Angeles Agency 333 S. Grand Av., #5300 333 S. Grand Av. #5300 Los Angeles, CA 90071 Los Angeles, CA 90071 Sunbank, National Sunbank, National Sunbank, National Association Association Association P.0. Box 3833 P.0. Box 3833 200 S. Orange Avenue 200 S. Orange Avenue Orlando, FL 32802 Orlando, FL 32802 Swiss Bank Corporation Swiss Bank Corporation Swiss Bank Corporation San Francisco Branch San Francisco Branch San Francisco Branch 101 California Street 101 California Street Suite 1700 Suite 1700 San Francisco, CA 94111 San Francisco, CA 94111 Toronto Dominion (Texas), Inc. Toronto Dominion (Texas), Inc. Toronto Dominion (Texas), Inc. 909 Fannin, Suite 1700 909 Fannin, Suite 1700 Houston, TX 77010 Houston, TX 77010 The Yasuda Trust & Banking Co., The Yasuda Trust & Banking Co., The Yasuda Trust & Banking Co., Ltd. Ltd. Los Angeles Branch Los Angeles Branch Los Angeles Branch Ltd. 725 S. Figueroa Street 725 S. Figueroa Street Suite 3990 Suite 3990 Los Angeles, CA 90017 Los Angeles, CA 90017
31 EXHIBIT A NOTICE OF BORROWING [Date] Citicorp USA, Inc., as Agent for the Lenders party to the Amended and Restated Credit Agreement referred to below 399 Park Avenue New York, New York 10043 Attention: ___________________ Ladies and Gentlemen: The undersigned, The Walt Disney Company, refers to the Amended and Restated Credit Agreement, dated as of October 3, 1994 (said Agreement as it may be amended, modified or supplemented from time to time, being the "Credit Agreement", the terms defined therein being used herein as therein defined), among the undersigned, the financial institutions party thereto as Lenders and Citicorp USA, Inc., as Agent for such Lenders, and hereby gives you notice, irrevocably, pursuant to Section 2.02 of the Credit Agreement that the undersigned hereby requests a Borrowing under the Credit Agreement, and in that connection sets forth below the information relating to such Borrowing (the "Proposed Borrowing") as required by Section 2.02(a) of the Credit Agreement: (i) The Business Day of the Proposed Borrowing is _____________ 19___. (ii) The Type of Advances comprising the Proposed Borrowing is [Base Rate Advances] [Eurodollar Rate Advances]. (iii) The aggregate amount of the Proposed Borrowing is $___________. *[(iv) The initial Interest Period for each Advance made as part of the Proposed Borrowing is [one] [two] [three] [six] [twelve] months.] The undersigned hereby certifies that, pursuant to Section 3.02 of the Credit Agreement, each of the following statements is true, and will be true on the date of the Proposed Borrowing: (A) the representations and warranties contained in Section 4.01 of the Credit Agreement are correct in all material respects on and as of the date of the Proposed Borrowing, before and after giving effect to the Proposed Borrowing, and to the application of the proceeds therefrom, as though made on and as of such date (except to the extent that such representations and warranties relate to an earlier date), which representations and warranties were correct in all material respects on and as of such earlier date); and (B) no event has occurred and is continuing, or would result from such Proposed Borrowing or from the application of the proceeds therefrom, which constitutes an Event of Default or would constitute an Event of Default but for the requirement that notice be given or time elapse or both. Very truly yours, THE WALT DISNEY COMPANY By Title: * To be included for a Proposed Borrowing comprised of Eurodollar Rate Advances. 32 EXHIBIT B ASSIGNMENT AND ACCEPTANCE Dated __________________________, 19 Reference is made to the Amended and Restated Credit Agreement dated as of October 3, 1994 (said Agreement as it may be amended, modified or supplemented from time to time, being the "Credit Agreement") among The Walt Disney Company, a Delaware corporation (the "Borrower"), the financial institutions party thereto as Lenders, and Citicorp USA, Inc., as Agent for the Lenders (the "Agent"). Terms defined in the Credit Agreement are used herein with the same meanings. _______________________ (the "Assignor") and __________________________ (the "Assignee") agree as follows: tabs 1. The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, that interest in and to all of the Assignor's rights and obligations under the Credit Agreement as of the date hereof which represents the percentage interest specified on Schedule 1 of all outstanding rights and obligations under the Credit Agreement (including, without limitation, such interest in the Assignor's Commitment and the Advances owing to the Assignor). After giving effect to such sale and assignment, the Assignee's Commitment and the amount of the Advances owing to the Assignee will be as set forth in Section 2 of Schedule 1. 2. The Assignor (i) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any instrument or document furnished pursuant thereto; and (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition or operations of the Borrower or the performance or observance by the Borrower of any of its obligations under the Credit Agreement or any instrument or document furnished pursuant thereto. 3. The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Section 4.01(c) thereof, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon the Agent, the Assignor or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iii) confirms that it is an Eligible Assignee; (iv) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (v) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement are required to be performed by it as a Lender; (vi) specifies as its Domestic Lending Office (and address for notices) and Eurodollar Lending Office the offices set forth beneath its name on the signature pages hereof; and (vii) if the Assignee is not created or organized under the laws of the United States or a political subdivision thereof, attaches hereto the certificates and forms required under Section 2.14(e) of the Credit Agreement and represents that the information contained therein is accurate and complete. 4. Following the execution of this Assignment and Acceptance by the Assignor and the Assignee, it will be delivered to the Agent for acceptance and recording by the Agent. The effective date of this Assignment and Acceptance shall be the date of acceptance thereof by the Agent, unless otherwise specified on Schedule l hereto (the "Effective Date"). 5. Upon such acceptance and recording by the Agent, as of the Effective Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights (other than any rights the Assignor may have under Sections 2.14 and 8.08 of the Credit Agreement) and be released from its obligations under the Credit Agreement. 6. Upon such acceptance and recording by the Agent, from and after the Effective Date, the Agent shall make all payments under the Credit Agreement in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest and facility fees with respect thereto) to the Assignee. The Assignor 33 and Assignee shall make all appropriate adjustments in payments under the Credit Agreement for periods prior to the Effective Date directly between themselves. 7. This Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the State of New York. IN WITNESS WHEREOF, the Assignor and Assignee have caused this Assignment and Acceptance to be executed by the respective officers thereunto duly authorized, as of the date first above written. [NAME OF ASSIGNOR] By: Title: [NAME OF ASSIGNEE] By: Title: Domestic Lending Office address for notices): ------------------------------ Eurodollar Lending Office ------------------------------ Accepted this ____ day of ______________, 19 CITICORP USA, INC., as Agent By: Title: 34 Schedule 1 to Assignment and Acceptance Dated _____________, 19___ between ________________________, as Assignor, and ________________________, as Assignee SECTION 1. Percentage Interest assigned: __________% SECTION 2. Assignee's Commitment: $__________ Aggregate Outstanding Principal Amount of Advances owing to the Assignee $__________ SECTION 3. Effective Date*: ________________, 19___ * This date should be no earlier than the date of acceptance by the Agent. 35 EXHIBIT C FORM OF OPINION OF COUNSEL TO THE BORROWER October 3, 1994 To each of the Lenders as defined in and party to the Amended and Restated Credit Agreement referred to below and to Citicorp USA, Inc., as Agent c/o Citicorp USA, Inc. 399 Park Avenue New York, New York 10043 Re: The Walt Disney Company ----------------------- Ladies and Gentlemen: This opinion is furnished to you pursuant to Section 3.01(a)(iv) of the Amended and Restated Credit Agreement dated as of October 3, 1994 (the "Credit Agreement") among The Walt Disney Company (the "Borrower"), the Lenders party thereto, and Citicorp USA, Inc., as Agent for such Lenders. Terms defined in the Credit Agreement and not otherwise defined herein are used herein as therein defined. I am Vice President - Assistant General Counsel to the Borrower and in that capacity I have acted as counsel for the Borrower in connection with the preparation, execution and delivery of the Credit Agreement. In that connection, I have examined the Credit Agreement, the documents furnished by the Borrower pursuant to Section 3.01(a) of the Credit Agreement, the Certificate of Incorporation of the Borrower and all amendments thereto (the "Charter"), and the by-laws of the Borrower and all amendments thereto (the "By- laws"). In addition, I have examined the originals, or copies certified to my satisfaction, of such other corporate records of the Borrower, certificates of public officials and of officers of the Borrower, and agreements, instruments and other documents, as I have deemed necessary as a basis for the opinions expressed below. As to questions of fact material to such opinions, I have, when relevant facts were not independently established by me, relied upon certificates of the Borrower or its officers or of public officials. I have assumed the due execution and delivery, pursuant to due authorization, of the Credit Agreement by the Lenders and the Agent. Based upon the foregoing and upon such investigation as I have deemed necessary, I am of the following opinion: 1. The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is duly qualified and in good standing as a foreign corporation authorized to do business in each jurisdiction (other than the jurisdiction of its incorporation) in which the nature of its activities or the character of the properties it owns or leases makes such qualification necessary and in which the failure to so qualify would have a material adverse effect on the financial condition or operations of the Borrower and its subsidiaries taken as a whole. 2. The execution, delivery and performance by the Borrower of the Credit Agreement are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action, and do not contravene (i) the Charter or the By-laws or (ii) any applicable law, rule or regulation or (iii) to the best of my knowledge, any contractual or legal restriction contained in any agreement or instrument, or any order, judgment or decree, binding on or affecting the Borrower. The Credit Agreement has been duly executed and delivered on behalf of the Borrower. 3. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by the Borrower of the Credit Agreement. 4. The Credit Agreement is the legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms. The opinions set forth in paragraph 4 above are subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors' rights generally and to the effect of general principles of equity, including (without limitation) concepts of materiality, reasonableness, good faith and fair dealing (regardless of whether considered in a proceeding in equity or at law). 36 My opinions expressed above are limited to the law of the State of New York and the Federal law of the United States, and I do not express any opinion herein concerning any other law. Without limiting the generality of the foregoing, I express no opinion as to the effect of the law of any jurisdiction other than the State of New York, wherein any Lender may be located or wherein enforcement of the Credit Agreement may be sought which limits the rates of interest legally chargeable or collectible. This opinion is rendered to you in connection with the execution and delivery of the Credit Agreement; this opinion is solely for your benefit and is not to be used, circulated, quoted or otherwise referred to for any other purpose without, in each instance, my prior written consent. Very truly yours, 37 EXHIBIT D-1 FORM OF FOREIGN LENDER CERTIFICATE To: The Walt Disney Company Reference is made to the Amended and Restated Credit Agreement, dated as of October 3, 1994 (said Agreement, as it may be amended, supplemented or otherwise modified from time to time being the "Credit Agreement"), among The Walt Disney Company, as Borrower (the "Borrower"), the financial institutions from time to time party thereto as Lenders (the "Lenders") and Citicorp USA, Inc., as agent for the Lenders (the "Agent"). Terms defined in the Credit Agreement and not otherwise defined herein are used herein as therein defined. Pursuant to Section 2.14(e) of the Credit Agreement, the undersigned Lender hereby certifies to the Borrower and the Agent that under the provisions of the income tax convention between the United States and [Name of Country] the undersigned Lender * [is eligible to receive payments under the Credit Agreement without deduction or withholding of the United States federal income tax] * [is not eligible to receive payments under the Credit Agreement without deduction or withholding of United States federal income tax but does not require additional payments therefor pursuant to Section 2.14(a) or (c) of the Credit Agreement because it is eligible and able to recover the full amount of any such deduction or withholding from a source other than the Borrower.] [or] * [is not eligible to receive payments under the Agreement without deduction or withholding of United States federal income tax and is not eligible and able to recover the full amount of the same from a source other than the Borrower.] The undersigned Lender is a corporation organized under the laws of [Name of Country] and [is not acting through a branch, agency or office in the United States] [has a branch, agency or office in the United States but its activities in connection with the Credit Agreement are not connected effectively with such branch, agency, or office.] Accompanying this Certificate are two copies of Form 1001 (or any successor or substitute form) of the United States Internal Revenue Service, properly completed and duly executed by an appropriate representative of the undersigned Lender. Dated: _____________, 19 [NAME OF LENDER] By: ------------------ Title: --------------- * Insert applicable statement. 38 EXHIBIT D-2 FORM OF FOREIGN LENDER CERTIFICATE To: The Walt Disney Company Reference is made to the Amended and Restated Credit Agreement, dated as of October 3, 1994 (said Agreement, as it may be amended, supplemented or otherwise modified from time to time, being the "Credit Agreement"), among The Walt Disney Company, as Borrower (the "Borrower"), the financial institutions from time to time party thereto as Lenders (the "Lenders") and Citicorp USA, Inc., as agent for the Lenders (the "Agent"). Terms defined in the Credit Agreement and not otherwise defined herein are used herein as therein defined. Pursuant to Section 2.14(e) of the Credit Agreement, the undersigned Lender hereby certifies to the Borrower and the Agent that under the provisions of Sections 1441(c) or 1442 of the Internal Revenue Code of 1986 of the United States, as amended, and Treasury Regulation Section 1.1441-4, as amended, the undersigned Lender * [is eligible to receive payments under the Credit Agreement without deduction or withholding of the United States federal income tax.] * [is not eligible to receive payments under the Credit Agreement without deduction or withholding of United States federal income tax as specified therein but does not require additional payments therefor pursuant to Section 2.14(a) or (c) of the Credit Agreement because it is eligible and able to recover the full amount of any such deduction or withholding from a source other than the Borrower. [or] * [is not eligible to receive payments under the Credit Agreement without deduction or withholding of United States federal income tax and is not eligible and able to recover the full amount of the same from a source other than the Borrower.] The undersigned Lender is a corporation organized under the laws of [Name of Country] and is acting through a branch, agency or office operating in the United States in respect of the Credit Agreement and any payment received or to be received by it in connection with the Credit Agreement is effectively connected with its conduct of a trade or business in the United States. Accompanying this Certificate are two copies of Form 4224 (or any successor or substitute form) of the United States Internal Revenue Service, properly completed and duly executed by an appropriate representative of the undersigned Lender. Dated: ,19 ---------------- [NAME OF LENDER] By: ------------------- Title: ----------------- * Insert applicable statement. 39 EXHIBIT E FORM OF WITHDRAWAL AGREEMENT This Agreement is executed by THE BANK OF NOVA SCOTIA, BANQUE INDOSUEZ and BANK OF AMERICA, ILLINOIS (formerly known as CONTINENTAL BANK N.A.) (each a "Withdrawing Lender"), THE WALT DISNEY COMPANY (the "Borrower") and CITICORP USA, INC., as Agent for the financial institutions party to the Existing Credit Agreement referred to below (in such capacity, the "Agent"). PRELIMINARY STATEMENTS. The Borrower, the Withdrawing Lenders, certain other financial institutions and the Agent are parties to a Credit Agreement dated as of November 22, 1991 (as amended, the "Existing Credit Agreement"). The parties hereto wish to terminate the Commitments of the Withdrawing Lenders as hereinafter set forth in connection with the effectiveness of that certain Amended and Restated Credit Agreement dated as of October 3, 1994 (the "Amended and Restated Credit Agreement") among the Borrower, the financial institutions party thereto and Citicorp USA, Inc. as Agent for such financial institutions. Terms defined in the Existing Credit Agreement are used in this Agreement as defined in the Existing Credit Agreement and, except as otherwise indicated, all references to Sections and Articles refer to the corresponding Sections and Articles of the Existing Credit Agreement. The parties hereto therefore agree as follows: SECTION 1. TERMINATION OF COMMITMENTS OF THE WITHDRAWING LENDERS. Effective on the Agreement Effective Date (as defined in Section 2 hereof) and subject to the satisfaction of the conditions precedent set forth in Section 2 hereof, the Commitment of each Withdrawing Lender is reduced to zero, and each Withdrawing Lender shall relinquish its rights and be released from its obligations under the Existing Credit Agreement and shall cease to be a party thereto, PROVIDED that each Withdrawing Lender shall continue to enjoy the benefits of Sections 2.14 and 8.08 with respect to any period ending on or prior to the Agreement Effective Date. SECTION 2. CONDITIONS TO EFFECTIVENESS. This Agreement shall be effective as of October 3, 1994 (the "Agreement Effective Date") subject to the satisfaction of the following conditions precedent: (a) the Borrower shall have paid all facility fees under Section 2.03 to the extent accrued and unpaid through the Agreement Effective Date; (b) the Borrower shall have paid or prepaid any Advances outstanding on the Agreement Effective Date, together with accrued interest thereon and any amounts payable in connection with such prepayment under Section 8.04(b); and (c) all other conditions to the effectiveness of the Amended and Restated Credit Agreement (except for the condition under Section 3.01(b)) shall have been satisfied or waived. SECTION 3. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts and by any combination of the parties hereto in separate counterparts, each of which counterparts shall be an original and all of which taken together shall constitute one and the same Agreement. SECTION 4. GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. 40 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. THE WALT DISNEY COMPANY By Title CITICORP USA, INC., as Agent By Vice President WITHDRAWING LENDERS: THE BANK OF NOVA SCOTIA By Title BANQUE INDOSUEZ By Title BANK OF AMERICA, ILLINOIS (formerly known as CONTINENTAL BANK N.A.) By Title 41 EX-10.L 4 DISNEY SALARIED RETIREMENT PLAN, AMENDED - 3/1/94 EXHIBIT 10(L) DISNEY SALARIED RETIREMENT PLAN As Amended through March 1, 1994 ARTICLE I PURPOSE OF PLAN 1.01 TYPE OF BENEFITS. The purpose of the Disney Salaried Retirement Plan is to provide retirement, health and welfare benefits for retired Participants and disability benefits for disabled Participants. 1.02 EFFECTIVE DATE. At the Restatement Date, the Plan amends and merges the Predecessor Plans, and benefits payable under the Predecessor Plans shall be payable under the Plan, provided that persons who retired, died or terminated employment with an Employer prior to January 1, 1988, shall receive benefits under the terms and conditions of the Predecessor Plans. ARTICLE II DEFINITIONS 2.01 ACCRUED PENSION. "Accrued Pension" means, as of any Determination Date, the projected or actual normal retirement Pension, commencing on the Participant's Normal Retirement Date or immediately if the Participant has already attained his Normal Retirement Age, computed under Section 4.01(b). 2.02 ACTUARIAL EQUIVALENT. "Actuarial Equivalent" means the equivalent, payable in an alternate form, of a benefit payable in a normal form under the Plan as described in Section 4.01(b). Such equivalent shall generally be calculated based on the Pension Benefit Guaranty Corporation's assumptions under Appendix B to 29 C.F.R. Part 2619 for the preceding December and assuming that all Participants are male and all Contingent Annuitants and Beneficiaries are female. With respect to the calculation of lump sum payments in accordance with Section 6.01(c), the interest rate utilized shall be the applicable interest rate which would be used by the Pension Benefit Guaranty Corporation for valuing a lump sum distribution under the Plan as if the Plan had terminated as of the first day of the Plan Year in which the distribution occurs. 2.03 ADJUSTMENT FACTOR. "Adjustment Factor" means the cost of living adjustment factor prescribed by the Secretary of the Treasury under Section 415(d) of the Code applied to such items and in such manner as the Secretary shall provide. 2.04 AFFILIATED EMPLOYER. "Affiliated Employer" means any company not participating in the Plan which is a member of a controlled group of corporations (as defined in Section 414(b) of the Code) or a trade or business under common control (as defined in Section 414(c) of the Code) or a member of an affiliated service group (as defined in Section 414(m) of the Code) or any other entity required to be aggregated pursuant to regulations under Section 414(o) of the Code, with an Employer. 2.05 AGE. "Age" means how old a person was on his immediate past birthday. 2.06 ANNUITY STARTING DATE. "Annuity Starting Date" means, with respect to a Participant, the applicable of: (a) The first day of the first period for which an amount is payable as an annuity under the Plan, or (b) Where the benefit is not payable in the form of an annuity, the first day on which all events have occurred which entitle the Participant to his benefit under the Plan. 2.07 ASSOCIATED PLANS. "Associated Plans" means the Walt Disney Productions and Associated Companies' Retirement Plan, the Disneyland and Associated Companies' Retirement Plan, The Walt Disney World Co. and Associated Companies' Retirement Plan, and the MAPO Retirement Plan. 2.08 AVERAGE MONTHLY COMPENSATION. "Average Monthly Compensation means one-sixtieth of the average of a Participant's Compensation over sixty consecutive calendar months within the one-hundred-twenty-month period preceding the month in which occurs the earliest of: (1) he ceases being a Covered Employee; or (2) for a Participant whose benefits are determined because of Breaks in Service before Normal Retirement Date, the month in which his Break in Service begins. The sixty consecutive months selected must be those that produce the highest average. If a Participant is an Employee for fewer than one- hundred twenty months, his sixty-month period for this subsection is determined within the period in which he was an Employee. If a Participant is an Employee for fewer than sixty consecutive calendar months, his Average Monthly Compensation is his actual Compensation during a period of his completed full consecutive calendar months as an Employee, divided by the number of those consecutive months. A Participant's Average Monthly Compensation cannot exceed one- sixtieth of the average of his compensation over sixty consecutive calendar months within the one-hundred-twenty-month period preceding the month in which he ceases being a Covered Employee or, for a Participant whose benefits are determined because of a Break in Service, preceding the month in which his Break in Service begins. The sixty consecutive months selected must be those that produce the highest average. If a Participant is an Employee for fewer than one hundred twenty months, his sixty-month period for this subsection is determined within the period in which he was an Employee. If a Participant is an Employee for fewer than sixty consecutive calendar months, his Average Monthly Compensation is his actual Compensation during a period of his completed full consecutive calendar months as an Employee ending on the last day he was a Covered Employee, divided by the number of those consecutive months. 2.09 BENEFICIARY. "Beneficiary" means any person, persons or entity, other than a Contingent Annuitant, named by a Participant by written designation filed with the Committee to receive benefits payable in the event of the Participant's death. However, if the Participant is married, his spouse shall be deemed to be the Beneficiary unless or until he elects another Beneficiary by a written designation completed in accordance with rules established by the Committee and filed with the Committee. If any Participant is married at the time such designation is completed or at the death of the Participant, then any such designation shall not be effective without Spousal Consent. If no such designation is properly in effect, as determined by the Committee, at the time of death of the Participant, or if no person, persons or entity so designated shall survive the Participant, the person or persons included in the highest priority category among the following, in order of priority, as determined by the Committee, shall be deemed to be the Beneficiary: (a) The Participant's surviving Spouse; (b) The Participant's surviving children, including adopted children, in equal shares; (c) The Participant's surviving parents in equal shares; (d) The Participant's surviving brothers and sisters, in equal shares; or (e) The Participant's estate. 2.10 BOARD OF DIRECTORS. "Board of Directors" means the Board of Directors of the Company. The Board of Directors may, at its discretion, appoint the Executive Committee or another Committee to take those actions on its behalf which are the responsibility of the Board of Directors in accordance with the terms of the Plan. 2.11 BREAK IN SERVICE. "Break in Service" means a Plan Year or other Eligibility Computation Period during which an Employee has been credited with less than 501 Hours of Service. Solely for the purpose of determining whether an Employee has incurred a Break in Service, Hours of Service shall also include hours granted, on the basis of forty-five (45) hours per week, for periods during which an Employee is on an approved Leave of Absence. If an Employee is absent from work because of such Employee's pregnancy, the birth of a child, placement of an adopted child, or caring for an adopted or natural child following birth or placement, the individual shall not be treated as having incurred a Break in Service in the Plan Year in which the absence begins or, if the individual would not otherwise have suffered a Break in Service during that Plan Year, in the next following Plan Year. The Committee may require that a Employee file a written request to receive Hours of Service credit under this paragraph. Unless otherwise determined by the Committee or an Employer's personnel practices, an Employee who is absent from work for the reasons described in this paragraph shall be deemed to have terminated employment for all purposes of this Plan other than the special Break in Service rule in this paragraph. 2.12 CODE. "Code" means the Internal Revenue Code of 1986, as it may be amended from time to time. 2.13 COMMITTEE. "Committee" means the Committee appointed to administer the Plan in accordance with Article 8. 2.14 COMPANY. "Company" means The Walt Disney Company. 2.15 COMPENSATION. "Compensation" means an Employee's base pay (excluding overtime, bonuses, relocation reimbursement, stock options, or other extraordinary payments as determined by the Committee) paid during the calendar year by the Employer in return for the Employee's services. Compensation does not include: (a) Employer contributions to any Pension Plan other than contributions caused by an Employee's salary deferral reduction pursuant to Section 401(k) of the Code; (b) Employer contributions to this Plan or any other plan of deferred compensation maintained by an Employer; (c) Fringe benefits not taxable to the Employee; (d) Payments to or on behalf of an individual after he is no longer an Employee; (e) Salary deferral reductions pursuant to a Cafeteria Plan as described in Section 125 of the Code; (f) Imputed life insurance and all other forms of imputed income; and (g) For purposes of determining an Employee's benefits for service after 1983, Earnings after the Employee ceased being a Covered Employee. Effective January 1, 1989 compensation shall not, for Plan purposes, exceed $200,000 multiplied by the Adjustment Factor for the Plan year. 2.16 CONTINGENT ANNUITANT. "Contingent Annuitant" means a Participant's spouse, or other person designated in writing by a Participant, with Spousal Consent if necessary, to receive benefits under the Plan upon the death of the Participant where such benefit is payable in the form of an annuity with a remainder interest payable for the life of a Contingent Annuitant. 2.17 COVERED EMPLOYEE. "Covered Employee" means an Employee who: (1) Receives Compensation in the form of a salary (as distinguished from hourly-paid Employees), whether or not such Employee is exempt for wage-and-hour-law purposes; (2) Has a job category that does not include the term: (i) "temporary", (ii) "casual", or (iii) "seasonal"; (3) Has a job which requires or yields 1,000 Hours of Service under the first subsection of the definition of "Hour of Service" in Article II of the Plan, but without the application of the last subsection of that definition; and (4) Is not a member of a collective-bargaining unit that has a collective bargaining agent, unless the Board specifically waives this requirement. 2.18 DETERMINATION DATE. "Determination Date" means the date as of which an Accrued Pension or other benefit is calculated. 2.19 EARLY RETIREMENT DATE. "Early Retirement Date" means the first day of the calendar month on or immediately after the later of the Participant's 55th birthday or his completion of ten Years of Vesting Service. Effective January 1, 1989 the "ten" in the prior sentence will be replaced by the word "five". 2.20 EARNINGS. "Earnings" means for any relevant period, means an individuals wages, salaries for personal services, and other amounts received from the Employers and their Related Entities for personal services actually rendered. These Earnings include: but are not limited to, commissions paid salesmen; compensation for services on the basis of percentage of profits; commissions on insurance premiums; tips; bonuses; and other amounts permissibly included according to Treasury regulations as the base for computing statutory limits on Maximum Annual Benefits and Maximum Annual Additions. These Earnings do not include deferred compensation, certain stock options, and other like distributions that receive special tax benefits and are excluded from the base for computing those statutory limits. When computed for any Limitation Year, these Earnings are those paid (or deemed paid if the Plan operates to provide benefits according to accrued Earnings) or made available to the Participant within the Limitation Year. 2.21 EFFECTIVE DATE. "Effective Date" means the effective date of the two Predecessor Plans to this Plan, May 1, 1984. 2.22 ELIGIBILITY COMPUTATION PERIOD. "Eligibility Computation Period" means, with respect to an Employee, the applicable of (a) or (b) as follows: (a) A 12 consecutive month period commencing on the Employee's Employment Commencement Date in which he has been credited with at least 1,000 Hours of Service; or (b) Plan Year: In the case of an Employee who is not credited with at least 1,000 Hours of Service in the 12 month period described in Section 2.22(a) above, a Plan Year, commencing with the Plan Year beginning immediately following the Employee's Employment Commencement Date, in which he has been credited with at least 1,000 Hours of Service. 2.23 ELIGIBLE EMPLOYEE. "Eligible Employee" means a Covered Employee who has attained age eighteen and has completed one Eligibility Computation Period. If a Covered Employee was hired after Age 60 but before January 1, 1988, such individual is an Eligible Employee on the later of (i) January 1, 1988, or (ii) when the individual completed one Eligibility Computation Period. An Employee is an Eligible Employee on the day before he satisfies the requirements of Article III of the Plan. 2.24 EMPLOYEE. "Employee" means any person receiving compensation for services rendered to an Employer or an Affiliated Employer, which compensation is subject to withholding of income tax and/or for whom Social Security contributions are made by an Employer or an Affiliated Employer, including any Leased Employee but excluding any person who serves solely as a director or independent contractor. 2.25 EMPLOYER. "Employer" means the Company and any subsidiary or affiliated company which, with the approval of the Board of Directors and subject to such conditions as the Board of Directors may impose, adopts this Plan, and any successor or successors of any of them. 2.26 EMPLOYMENT COMMENCEMENT DATE. "Employment Commencement Date" means the first date as of which an Employee is credited with an Hour of Service for an Employer or an Affiliated Employer. 2.27 ERISA. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. 2.28 FLAT BENEFIT. "Flat Benefit" means the Accrued Benefit element described in Section 5.02(b). 2.29 FORMULA BENEFIT. "Formula Benefit" means the Accrued Benefit element described in Section 5.02(c). 2.30 HOUR OF SERVICE. "Hour of Service" means, with respect to any applicable computation period. (a) An Hour of Service is each hour for which an Employee is paid or is entitled to payment for the performance of duties for an Employer or Affiliate during the applicable computation period. (b) An Hour of Service is each hour for which an Employee is paid, or is entitled to payment, by an Employer or Affiliate on account of a period during which no duties are performed (regardless of whether the employment relationship has terminated) because of vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty, or leave of absence, but (1) no more than 501 Hours of Service are to be credited under this subsection (b) to an Individual for any single continuous period during which he performs no duties (whether or not the period occurs in a single computation period); (2) an hour is not credited where an individual is directly or indirectly paid or is entitled to payment because of a period during which no duties are performed if that payment is made or is due under a plan maintained solely for the purpose of complying with applicable worker's compensation or unemployment compensation or disability insurance laws; and (3) Hours of Service will not be credited for a payment that solely reimburses an individual for medical or medically related expenses incurred. For purposes of this subsection (b), a payment is deemed to be made by or be due from an Employer or Affiliate regardless of whether it is made by or due from that entity directly or indirectly through a trust fund or insurers (among others) to which that entity contributes or pays premiums and regardless of whether contributions made or due to the trust fund or insurer or other funding vehicle are for the benefit of particular individuals or are on behalf of a group of individuals in the aggregate. (c) An Hour of Service is each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by an Employer or Affiliate. The same Hours of Service must not be credited both under subsection (a) or (b) and also under this subsection (c). Thus, for example, if an individual receives a back-pay award following a determination that he was paid at an unlawful rate for Hours of Service previously credited, he is not entitled to additional credit for the same Hours of Service. Crediting of Hours of Service for back pay awarded or agreed to with respect to periods described in subsection (b) is subject to the limitations set forth in that subsection. For example, no more than 501 Hours of Service are required to be credited for payments of back pay, to the extent that the back pay is awarded or agreed to for a period of time during which an individual did not or would not have performed duties. (d) For determining Hours of Service for reasons other than the performance of duties, the special rule provided in 29 C.F.R. section 2530.200b-2(b) is incorporated by reference. That rule provides that Hours of Service are credited on the basis of the number of hours in the individual's regular work schedule or, in the case of a payment not calculated by units or time, by dividing the payment in question by the individual's most recent hourly rate of pay. (e) For purposes of crediting Hours of Service to computation periods, the special rule provided in 29 C.F.R. section 2530.200b-2(c) is incorporated by reference. That rule provides that Hours of Service are credited to an individual in the computation periods covered by the individual's regular work schedule during the period of nonperformance. (f) The determination of Hours of Service must be made from records of hours worked and hours for which payment is made or due. (g) For purpose of determining Hours of Service credited but not for purposes of determining whether an Employee is a Covered Employee, each Employee must be credited with at least forty-five Hours of Service for each week for which he would be required to be credited with at least one Hour of Service under subsection (a). 2.31 KEY PLAN. "Key Plan" means the Walt Disney Productions and Associated Company's Key Employees Deferred Compensation and Retirement Plan. 2.32 LEASED EMPLOYEE. "Leased Employee" means any person as so defined in Section 414(n) of the Code. 2.33 LEAVE OF ABSENCE. "Leave of Absence" means an absence authorized by an Employer under its standard personnel practices as applied in a uniform and nondiscriminatory manner to all persons similarly situated, provided that the Employee resumes employment with the Employer or an Affiliated Employer within the period specified in the authorization of the Leave of Absence. 2.34 MOTION PICTURE PLAN. "Motion Picture Plan" means the Motion Picture Industry Pension Plan. 2.35 NORMAL RETIREMENT AGE. "Normal Retirement Age" means an Employee's 65th birthday. 2.36 NORMAL RETIREMENT DATE. "Normal Retirement Date" means the first day of the calendar month on or immediately after an Employee's Normal Retirement Age. 2.37 OFFSET VALUE. "Offset Value" means the value of a Participant's Leveraged Offset Account under the Savings Plan at the time such account is distributed in a method that does not include periodic payments. If more than one distribution that is not a periodic payment is made from the Participant's Leveraged Offset Account under the Disney Savings and Investment Plan for Salaried Employees, an additional portion of his Offset Value is determined and added to his Offset Value as of the time of each such distribution. If the Participant's Leveraged Offset Account has not been distributed or is to be distributed in periodic payments, his Offset Value is determined initially or his Offset Value is determined and added to his Offset Value on the earlier of the time his Accrued Benefit under this Plan becomes payable or the time such periodic payments begin. On each determination date the fair-market value of the Leveraged Offset Account at that time is converted into an OFFSET VALUE using the Actuarial Equivalent basis. A Participant's OFFSET VALUE is an aggregate of all Offset Values accumulated for him under this subsection, and it is possible for his Offset Value to periodically yield a Negative Accrued Benefit under this Plan. 2.38 PARTICIPANT. "Participant" means any person included for participation in the Plan as provided in Article III and who continues to be entitled to benefits under the Plan. 2.39 PAST SERVICE AVERAGE MONTHLY COMPENSATION. "Past Service Average Monthly Compensation" means one-sixtieth of the sum of his Compensation over sixty consecutive calendar months within the one- hundred-twenty-month period preceding May 1, 1984. The sixty consecutive months selected must be those that produce the highest average. For purposes of this subsection, if a Participant is an Employee for fewer than one hundred twenty months before May 1, 1984, his sixty-month period for this subsection is determined within the period before May 1, 1984, in which he was an Employee. If a Participant is an Employee for fewer than sixty consecutive months before May 1, 1984, his Past Service Average Monthly Compensation is his actual Compensation before May 1, 1984, during his completed full consecutive calendar months as an Employee immediately before May 1, 1984, divided by the number of those consecutive months. 2.40 PAST SERVICE MONTH. "Past Service Month" means each month before May 1, 1984, for which an Employee who became a Participant on May 1, 1984 is credited with any Hours of Service during a period uninterrupted by a Separation from service and in which he was a Covered Employee, except for: (1) A Participant who was eligible to participate in the Key Plan and as of December 31, 1984, or earlier declined or is deemed to have declined to participate in the Key Plan is not credited with Past Service Months; (2) A Participant who was not eligible to participate in the Key Plan but was eligible to participate in the Associated Plans and declined or is deemed to have declined to participate in the Associated Plans is not credited with Past Service Months for periods before May 1, 1984, in which he was not a participant in the Motion Picture Plan; or (3) Service after attainment of age sixty-five is disregarded. 2.41 PENSION. "Pension" means a Participant's benefit under the Plan, generally payable in the form of an annuity. 2.42 PLAN. "Plan" means the Disney Salaried Retirement Plan as set forth in this document, or as amended from time to time. 2.43 PLAN YEAR. "Plan Year" means the calendar year. 2.44 POSTPONED RETIREMENT DATE. "Postponed Retirement Date" means the first day of the calendar month on or immediately after the date that a Participant terminates his employment with an Employer or an Affiliated Employer after his Normal Retirement Date. 2.45 PREDECESSOR EMPLOYER. "Predecessor Employer" means a company merged into, consolidated with or absorbed by an Employer, or where substantially all of the assets or business have been acquired by an Employer. 2.46 PREDECESSOR PLANS. "Predecessor Plans" means the Disney Salaried Service Pension Plan and the Disney Salaried Supplemental Pension Plan. 2.47 PRE-MAY 1984 SERVICE BENEFIT. "Pre-May 1984 Service Benefit" means the Accrued Benefit element described in Section 5.02(d). 2.48 POST-APRIL 1984 SERVICE BENEFIT. "Post-April 1984 Service Benefit" means the Accrued Benefit element described in Section 5.02(e). 2.49 REEMPLOYMENT COMMENCEMENT DATE. "Reemployment Commencement Date" means the date an Employee first is credited with an Hour of Service following a prior Break in Service. 2.50 RESTATEMENT DATE. "Restatement Date" means the effective date of the merger of the two Predecessor Plans, January 1, 1988. 2.51 RETIREMENT DATE. "Retirement Date" means a Participant's Normal Retirement Date, Early Retirement Date or Postponed Retirement Date. 2.52 RULE OF PARITY. "Rule of Parity" means a rule pursuant to which a Participant who incurs a Break in Service shall have his Eligibility Computation Periods, Years of Vesting Service, and/or which occur prior to such Break in Service ignored. If an Employee or Participant incurs a Break in Service and if he has no Non-forfeitable Accrued Benefit at the time of his Break in Service, his Eligibility Computation Periods prior to such Break in Service shall not be taken into account if the number of consecutive one year Breaks in Service equals or exceeds the greater of the Employee's or Participant's Eligibility Computation Periods completed prior to the first such Break in Service or five. If the preceding sentence would cause any Eligibility Computation Periods to be disregarded as of December 31, 1984 if that sentence's reference to five were ignored, such Eligibility Computation Periods shall continue to be disregarded. Eligibility Computation Periods previously eliminated by a prior application of this paragraph shall not be counted for purposes of the preceding sentences. For purposes of computing Years of Vesting Service, the Rule of Parity shall be applied under the preceding sentences by substituting "Years of Vesting Service" for "Eligibility Computation Period" in each place it appears. For purposes of computing Years and Benefit Services, the Rule of Parity shall be applied under the preceding sentences by substituting "Years of Benefit Services" for "Eligibility Computation Periods" in each place it appears. 2.53 SAVINGS PLAN. "Savings Plan" means the Disney Savings and Investment Plan for Salaried Employees. 2.54 SECTION. "Section" means a section in this Plan unless otherwise designated. 2.55 SOCIAL SECURITY BASE. "Social Security Base" means the annual amount of wages specified as the maximum amount to be included in the determination of Employer contributions under the Federal Insurance Contributions Act at the time in effect. 2.56 SOCIAL SECURITY RETIREMENT AGE. "Social Security Retirement Age" means, with respect to any Participant, the age used as his retirement age under Section 216(1) of the Social Security Act, except that said section of said Act shall be applied without regard to the age increase factor and as though the early retirement age under Section 216(1) (2) of said Act were 62. 2.57 SPOUSAL CONSENT. "Spousal Consent" means written consent given by a Participant's spouse to an election made by the Participant of a specified form of benefit or a designation by the Participant of a specified Contingent Annuitant or Beneficiary other than the spouse. That consent shall be duly witnessed by a Plan representative or notary public and shall acknowledge the effect on the spouse of the Participant's election. The requirement for spousal consent may be waived by the Committee if it is established to its satisfaction that there is no spouse, or that the spouse cannot be located, or because of such other circumstances as may be established by applicable law. 2.58 TRANSITIONAL PARTICIPANT. "Transitional Participant" means an Employee who is a Participant in this Plan for part of this Plan's Plan Year and who is a participant in the Associated Plans for part of that same Plan Year, who is credited with 1,000 Hours of Service during that Plan Year, but who is not credited with a Year of Benefit Service for that Plan Year because of the exclusion in Section 2.30(3). 2.59 TRUST AGREEMENT. "Trust Agreement" means the trust agreement or agreements that may be established from time to time hereunder and as the same may from time to time be amended and/or restated; provided that, to the extent the assets of this Plan are held pursuant to an annuity contract or other contract issued by an insurance company as provided in Section 401(f) of the Code, then the term "Trust Agreement" shall include such annuity contract or other contract. 2.60 TRUST FUND. "Trust Fund" means all money or other property which is held by the Trustee, pursuant to the terms of the Trust Agreement. 2.61 TRUSTEE. "Trustee" means the trustee acting under the Trust Agreement, or any other Trustee or Trustees designated in any trust agreement or agreements which may be established to carry out the purposes of this Plan, including any insurance company which is the issuer of an annuity or other contract qualifying as a Trust Agreement as defined in Section 2.44. 2.62 YEAR OF BENEFIT SERVICE. "Year of Benefit Service" means each Plan Year after December 31, 1983 for which a Participant is credited with at least 1,000 Hours of Service. In computing, the following are disregarded: (1) service before 1984; (2) service before becoming a Participant; (3) service other than as a Covered Employee; (4) [intentionally left blank]; (5) Hours of Service credited for periods in which no services were performed for the Employer, except as required by law; (6) Years of Benefit Service ignored under the Rule of Parity; and (7) for purposes of determining a Participant's Flat Benefit only, service during any period in which the participant's participation in the Motion Picture Plan requires a contribution from the Employers to that Plan. If a Participant has a Non-forfeitable Employer Contribution Accrued Benefit when his Break in Service begins, his Years of Benefit Service before his Break in Service must be restored when he is reemployed by an Employer. A Participant who Separates from Service and returns without a Break in Service loses no Years of Benefit Services credited before his Separation from Service occurred. If a Participant Separates from Service and returns after a Break in Service, and if the Rule of Parity does not apply, his credited Years of Benefit Services at the time he Separated from Service must be restored when he is reemployed by an Employer. 2.63 YEAR OF VESTING SERVICE. "Year of Vesting Service" means, with respect to any Employee, a Plan Year (including calendar years prior to the Effective Date) in which the Employee has been credited with 1,000 or more Hours of Service, subject to the following: (a) If his employment is terminated and he is later reemployed by an Employer or an Affiliated Employer after he has incurred one or more Breaks in Service, his Years of Vesting Service after reemployment shall be aggregated with his prior Years of Vesting Service provided (i) he was previously vested in his Accrued Pension, or (ii) his years of Break in Service do not equal or exceed the greater of five or his Years of Vesting Service before the Break in Service, and he is credited with at least one Year of Vesting Service after his return to employment with an Employer or Affiliated Employer; (b) Service with a Predecessor Employer shall count as Years of Vesting Service hereunder; (i) If an Employer continues to maintain a qualified plan sponsored by such Predecessor Employer; or (i) If an Employer continues to maintain a qualified plan sponsored by such Predecessor Employer; or (ii) If, and to the extent, employment with the Predecessor Employer is required to be treated; or (iii) If, and to the extent, granted by the Board of Director. (c) Service with any other company which has been or may later be acquired by an Employer or an Affiliated Employer shall not count unless required by law or unless determined by the Board of Directors; (d) If the Employee shall have been absent from the service of an Employer or an Affiliated Employer because of service in the Armed Forces of the United States and if he shall have returned to the service of an Employer or Affiliated Employer having applied to return while his reemployment rights were protected by law, that absence shall be included in his Years of Vesting Service; and (e) If he is on a Leave of Absence, the Company may authorize the inclusion in his Years of Vesting Service of any portion of that period of leave which is not included in his Years of Vesting Service under (d) above. (f) For purposes of determining non-forfeitability of Participant's Pension attributable to his service before May 1, 1984, each Participant's Year of Vesting Service shall not be less than one Year of Vesting Service for each twelve months during the period ending on May 1, 1984, in which he was a Covered Employee without a Separation from Service, nor are they less than his years of vesting service Associated Plans (as defined in the Associated Plans) nor are they less than his years of vesting service under the Motion Picture Plan (as defined in the Motion Picture Plan), provided he was an Employee of an Employer during such period. ARTICLE III ELIGIBILITY AND PARTICIPATION 3.01 ELIGIBILITY. Only Eligible Employees may participate in this Plan. 3.02 PARTICIPATION. An Employee who was a Participant prior to the Restatement Date shall remain a Participant thereafter provided that he remains an Eligible Employee. An Employee who becomes an Eligible Employee in accordance with Section 2.23 of the Plan shall become a Participant as of the first day of the month after he meets such eligibility requirements. 3.03 REEMPLOYMENT OF FORMER EMPLOYEES AND FORMER PARTICIPANTS. Any person reemployed by an Employer as an Eligible Employee who was previously a Participant shall be immediately eligible to become a Participant in the Plan. 3.04 TERMINATION OF ELIGIBILITY. A Participant who remains in the employ of an Employer or an Affiliated Employer, but ceases to be an Eligible Employee, shall continue to be a Participant in the Plan, but shall not accrue benefits under the Plan while his employment status is other than as an Eligible Employee. 3.05 TERMINATION OF PARTICIPATION. An Eligible Employee's participation in the Plan shall terminate on the date he terminates employment with an Employer or an Affiliated Employer unless the Participant is entitled to benefits under the Plan, in which event his participation shall terminate when those benefits have been distributed to him. ARTICLE IV CONTRIBUTIONS 4.01 EMPLOYER CONTRIBUTIONS. Each Employer shall, make such contributions to the Plan which are sufficient, on an actuarial basis approved by the Committee, to fund the cost of the benefits provided hereunder for the Participants. 4.02 PLAN-TO-PLAN TRANSFERS. Assets may be transferred to this Plan directly from another qualified plan where authority for such transfer is in accordance with law and- has been granted by the Board of Directors. Such transferred assets shall generally be utilized to provide benefits accrued by Participants under the other qualified plan in accordance with the terms of this Plan. 4.03 RETURN OF CONTRIBUTIONS. (a) If all or part of the Employer's deductions under Section 404 of the Code for contributions to the Plan are disallowed by the Internal Revenue Service, the portion of the contributions to which that disallowance applies shall be returned to the applicable Employer(s) without interest but reduced by any investment loss attributable to those contributions. The return shall be made within one year after the disallowance of deduction. (b) An Employer may recover without interest the amount of its contributions to the Plan made on account of a mistake of fact, reduced by any investment loss attributable to those contributions, if recovery is made within one year after the date of those contributions. ARTICLE V RETIREMENT BENEFITS 5.01 ACCRUED BENEFIT. (a) A Participant's Accrued Benefit is a benefit that begins at his Normal Retirement Date. It includes benefits accrued under this Plan attributable to Employer contributions to this Plan (and certain Employee Contribution Accrued Benefits attributable to buy-backs as described in Section 5.02(i)) and benefits accrued before May 1, 1984, under the Associated Plans attributable to Employer contributions and Employee contributions transferred to this Plan under Section 7.03(b) of the Predecessor Plans. (b) The value of a Participant's Accrued Benefit is based on his Normal Retirement Benefit as defined in Section 5.02(a) (considering that the Offset Value reduces the benefits that would otherwise have accrued under this Plan if there was no offset) computed as accrued under the appropriate accrual rule, as determined by the Committee, under Code section 411(b)(1). (c) A Participant's Accrued Benefit (computed as if payable annually or computed on a twelve-month basis) never exceeds the greatest amount allowable without exceeding the limitations described in Section 5.06. (d) A Participant's Normal Retirement Age is Age sixty-five. (e) A Participant's normal Retirement Date is on the first day of the month after he reaches his Normal Retirement Age. (f) The right of a Participant to his Normal Retirement Benefit shall be non-forfeitable as of his Normal Retirement Age. 5.02 NORMAL RETIREMENT BENEFIT. (a) A Participant's Normal Retirement Benefit is his Accrued Benefit (considering that the Offset Value reduces the benefits that would otherwise have accrued under this Plan if there was no offset) determined as of his Normal Retirement Age as a monthly income for the Participant's life equal to the sum of: (1) the Flat Benefit element described in Section 5.02(b), which element is subject to the special make-whole rules in Section 5.02(h), the special withdrawal and buy-back rules in Section 5.02(i), and is reduced by the Participant's Offset Value; (2) the Formula Benefit element described in Section 5.02(c), which element is reduced by the Participant's Offset Value; (3) the Pre-May 1984 Service Benefit element (accrued before May 1, 1984) described in Section 5.02(d); and (4) the Post-April 1984 Service Benefit element (accrued after April 30, 1984) described in Section 5.02(e), and which is reduced by the Participant's Offset Value Prior to January 1, 1988 a Participant's Normal Retirement Benefit could not exceed the Accrued Benefit that would be provided for him if he Separated from Service at Normal Retirement Age. (b) The Flat Benefit element is the monthly benefit corresponding to his Credited Hours of Service and Credited Years of Service according to the following table: Credited Credited Monthly Year of Hours of Benefit Service Service Amount ---------------------------------------------------------- 10 15,000 - 15,749 $200.00 10 15,750 or more 210.75 11 16,500 - 17,240 221.50 11 17,250 or more 232.25 12 18,000 - 18,749 243.00 12 18,750 or more 253.75 13 19,500 - 20,249 264.50 13 20,250 or more 275.25 14 21,000 - 21,749 286.00 14 21,750 or more 296.75 15 22,500 - 23,249 307.50 15 23,250 or more 318.25 16 24,000 - 24,749 329.00 16 24,750 or more 339.75 17 25,500 - 26,249 350.50 17 26,250 or more 361.25 18 27,000 - 27,749 372.00 18 27,750 or more 382.75 19 28,500 - 29,249 393.50 19 29,250 or more 404.25 20 30,000 - 30,749 415.00 20 30,750 or more 426.75 21 31,500 - 32,249 438.50 21 32,250 or more 450.25 22 33,000 - 33,749 462.00 22 33,750 or more 473.75 23 34,500 - 35,249 485.50 23 35,250 or more 497.25 24 36,000 - 36,749 509.00 24 36,750 or more 520.75 25 37,500 - 38,249 532.50 25 38,250 or more 544.25 26 39,000 - 39,749 556.00 26 39,750 or more 567.75 27 40,500 - 41,249 579.50 27 41,250 or more 591.25 28 42,000 - 42,749 603.00 28 42,750 or more 614.75 29 43,500 - 44,249 626.50 29 44,250 or more 638.25 30 or more 45,000 or more 650.00 (1) For purposes of this Section 5.02(b), a Participant's CREDITED HOURS OF SERVICE AND CREDITED YEARS OF SERVICE are equal to the sum of his Credited Hours of Service and Credited Years of Service before May 1, 1984, under the Associated Plans and his Credited Hours of Service and Credited Years of Service for Plan Years after 1983 in which he is credited with a Year of Benefit Service. (2) For purposes of this Section 5.02(b) only, a Transitional Participant for any Plan Year after 1983 is deemed to have a Year of Benefit Service unless he also is credited with a Year of Service under the Associated Plans for the Associated Plans' plan year ending within this Plan's Plan Year in which he is a Transitional Participant. (3) For purposes of this Section 5.02(b) only, a Participant who attained Age sixty-five before May 1, 1984, is also deemed to have a Year of Benefit Service as defined in Section 2.31. (4) A Participant is not entitled to a Flat Benefit under this Plan if such Flat Benefit duplicates a benefit to which he is entitled under the Associated Plans. (5) A Participant is not entitled to a Flat Benefit under this subsection to the extent that it duplicates his make-whole benefit described in Section 5.02(h). (6) For purposes of this Section 5.02(b) only, a Participant who is credited with a Year of Benefit Service is also credited with a Credited Year of Service. (7) Credited Hours of Service in the above table are Hours of Service credited for Plan Years in which the Participant is credited with a Year of Benefit Service. (8) If a Participant has less than ten Credited Years of Service, his Flat Benefit is equal to $200.00 multiplied by a fraction (not to exceed one), the numerator of which is his Credited Hours of service and the denominator which is 15,000. (9) If a Participant has at least ten Credited Years of Service and has less than the lowest number of Credited Hours of Service set forth opposite his number of Credited Years of Service in the above table, his Flat Benefit is equal to the lower benefit set forth opposite his Credited years of Service times a fraction, the numerator of which is the Participant's Credited Hours of Service and the denominator of which is that lowest number of Credited Hours of Service set forth opposite the Participant's number of Credited Years of Service. (c) The Formula Benefit element is a monthly benefit calculated by adding the products of the following formulas: (i) the Participant's Past Service Months multiplied by one- twelfth of the value resulting from adding sixty-five hundredths percent (0.65%) of his Average Monthly Compensation to twenty-five thousandths percent (0.025%) of his Average Monthly Compensation that is greater than $2,500; plus (ii) the Participant's Future Service Years of Participation multiplied by the value resulting from adding fifty- five hundredths percent (0.55%) of his Average Monthly Compensation to twenty-five thousandths percent (0.025%) of his Average Monthly Compensation that is greater than $2,500. A Participant's Formula Benefit cannot be greater than the amount that would yield the maximum percentage in the Special Limitation Table below, corresponding to twelve times his Average Monthly Compensation if his Formula Benefit was added to his accrued benefits under the Associated Plans, Sections 5.02(a) and 5.02(e) of the Plan, the Motion Picture Plan and this Plan's Flat-Benefit, and related to twelve times his Average Monthly Compensation. A Participant's Formula Benefit is zero if his accrued benefits under the Associated Plans, the Plan's Sections 5.02(d) and 5.02(e), the Motion Picture Plan, and this Plan's Flat Benefit equal or exceed his maximum percentage in the following Special Limitation Table: SPECIAL LIMITATION TABLE Twelve Times Average Maximum Monthly Compensation Percentage -------------------- ---------- Less than $21,000.00 60% $21,000 - 21,999.99 61 22,000 - 22,999.99 62 23,000 - 23,999.99 63 24,000 - 24,999.99 64 25,000 - 25,999.99 65 26,000 - 26,999.99 66 27,000 - 27,999.99 67 28,000 - 28,999.99 68 29,000 - 29,999.99 69 30,000 - 30,999.99 70 31,000 - 31,999.99 71 32,000 - 32,999.99 72 33,000 - 33,999.99 73 34,000 - 34,999.99 74 35,000 - 35,999.99 75 36,000 - 36,999.99 76 37,000 - 37,999.99 77 38,000 - 38,999.99 78 39,999 - 39,999.99 79 40,000 - 40,999.99 80 41,000 - 41,999.99 81 42,000 - 42,999.99 82 43,000 - 43,999.99 83 44,000 - 44,999.99 84 45,000 and over 85 (d) The Pre-May 1984 Service Benefits element is the Participant's Past Service Months multiplied by one-twelfth of the value resulting from adding one and fifteen hundredths percent (1.15%) of his Past Service Average Monthly Compensation to thirty-five hundredths percent (0.35%) of his Past Service Average Monthly Compensation that is greater than $2,500. (e) The Post-April 1984 Service Benefits element is the Participant's Future Service Years of Participation multiplied by the value resulting from adding one percent of his Future Service Average Monthly Compensation to thirty-five hundredths percent (0.35%) of his Average Monthly Compensation that is greater than $2,500. A Participant's Offset Value is applied first to reduce his Formula Benefit and last to reduce the applicable portion of his Flat Benefit. The applicable portion of his Flat Benefit is that attributable to Credited Years of Service for Plan Years after 1983 in which he is credited with a Year of Benefit Service. (f) For purposes of this Plan article, a BREAK IN SERVICE is any Plan Year in which the Participant is credited with fewer than 501 Hours of Service. (g) The accrual computation period is the calendar month for purposes of Past Service Months and the Plan Year for purposes of Future Service Years of Participation. The accrual computation period is used to measure benefit accruals. The Plan Year is the accrual computation period used to determine Breaks in Service and Future Service Years of Participation before Breaks in Service. (h) The paragraphs of this Section 5.02(h) define a make-whole benefit considered to be part of a Participant's Flat Benefit if it results in a payment from this Plan. (1) If an Employee's transfer has the effect of requiring him to become a participant in the Motion Picture Plan and ceasing to be a Participant in this Plan for purposes of accruing his Flat Benefit or has the effect of his becoming a Participant in this Plan and ceasing to be a participant in the Motion Picture Plan, his total benefits under this Plan, the Associated Plans, and the Motion Picture Plan must be not less than those that he would have received under this Plan, the Motion Picture Plan, and all such Associated Plans had he not been so required to become a participant in the Motion Picture Plan or a Participant in this Plan, as the case may be. If the total benefits otherwise payable under such plans are less than those that the Participant would have received had he not been required to become a participant in the Motion Picture Plan or that he would have received had he not been required to become a Participant in this Plan, his Flat Benefit under this Plan is the excess of (i) a benefit calculated under this Plan as though all Hours of Service as an Employee while he was a participant in the Motion Picture Plan were Credited Hours of Service, over (ii) the portion of the benefit under the Motion Picture Plan and other Associated Plans attributable to service as an Employee. If a Participant otherwise entitled to the benefits of this Plan section 5.02(h) either refuses to participate in the Motion Picture Plan or, having become a participant in that plan voluntarily withdraws from that plan at a time when he has a vested interest in that plan, he forfeits his rights under this Section. (2) If a Participant in this Plan has transferred from the Motion Picture Plan pursuant to an open enrollment for that purpose: (1) solely for the purpose of applying the rule in Section 5.02(b)(l), he is credited with a Credited Year of Service for each of the Associated Plans' Plan Years during which he completed at least 750 Hours of Service for that year as an Employee while he was a participant in the Motion Picture Plan; (ii) he is credited with a Vesting Credit for each vesting computation period during which he completed Hours of Service as an Employee while he was a Participant in the Motion Picture Plan; and (iii) solely for the purpose of determining his eligibility for the benefits described in Section 5.04 and Section 7.03, his Hours of Service as an Employee under the Motion Picture Plan are deemed to be Credited Hours of Service. (i) A Participant who ceases to be a Covered Employee and who does not become a Participant in the Associated Plans may elect to receive a lump-sum payment that is equal to his accumulated contributions as defined in the Associated Plans. That payment must be made to the Participant within ninety days after receipt of his election in writing. A Participant's benefits distributed from this Plan must always be at least equal to his accumulated contributions as defined in the Associated Plans and, if necessary, the Administrative Committee must direct a distribution in satisfaction of that liability. If a Participant does not have nonforfeitable accumulated contributions as defined in the Associated Plans and he does not elect to receive his accumulated contributions as defined in the Associated Plans, the Committee must direct that he be paid his accumulated contributions as defined in the Associated Plans following his fifth consecutive one-year Break in Service. The benefits of a Participant who receives a distribution under this subsection are based on the Plan as in effect on the date as of which the distribution is made to him. A Participant may elect to receive his accumulated contributions as defined in the Associated Plans and payment must be made to him within ninety days after receipt of his written election. A Participant's election to withdraw his accumulated contributions as defined in the Associated Plans pursuant to this subsection does not affect his Accrued Benefit attributable to employer contributions. Notwithstanding the above, for Employees with an Hour of Service on or after August 23, 1984, the payment of accumulated contributions must be in the form provided in Section 6.01 unless a Spousal Consent authorizing a lump sum is filed with the Committee. For purposes of this subsection, accumulated contributions shall be defined in accordance with the Associated Plans. 5.03 EARLY OR LATE RETIREMENT. (a) A Participant who has not reached his Normal Retirement Date but who has reached an Early Retirement Date may retire from service on an Early Retirement Date and commence to receive an early retirement Pension as of the first day of the calendar month after he submits to the Committee a written application for retirement benefits and after he separates from service. (b) Unless the Participant otherwise elects, the early retirement Pension shall be a deferred Pension beginning on the Participant's Normal Retirement Date and, subject to the provisions of Section 6.01, shall be equal to his Accrued Pension. However, the Participant may elect to receive an early retirement Pension beginning on the first day of any calendar month on or after his Early Retirement Date but before his Normal Retirement Date. In that case, the Participant's Pension shall be equal to the deferred Pension reduced by 1/180th for each of the first 60 months and 1/360th for each of the next 60 months by which the date the Participants early retirement Pension begins precedes his Normal Retirement Date. (c) If a Participant retires on a Postponed Retirement Date or otherwise postpones his retirement Pension, he shall commence to receive a late retirement Pension as of the earlier of the first day of the calendar month after his actual Retirement Date or the date that he is required by law to commence receiving payment of his benefit. (d) A late retirement Pension which commences following a Participant's actual Retirement Date shall, subject to provisions of Section 5.01, be equal to: (i) The amount determined in accordance with Section 5.02(a) but, where applicable, based on the Participant's Compensation, Average Monthly Compensation, Past Service Average Monthly Compensation, Future Service Years of Participation and Past Service Months through his Postponed Retirement Date, or, if greater: (ii) The amount of Pension to which the Participant would have been entitled under Section 5.02(a) if he had retired on his Normal Retirement Date, with such benefit adjusted to an Actuarial Equivalent to reflect the failure to pay such portion for each month subsequent to the Participant's Normal Retirement Date during which he did not receive a payment of such portion and during which he was not credited with an Hour of Service in each of eight days. (e) A late retirement Pension which commences prior to a Participant's Retirement Date in accordance with the requirements of Section 6.04(b) shall be calculated in accordance with Section 5.02(b) above, except that the benefit shall be calculated based on the Participant's Compensation, Earnings, Past Service Earnings, Years of Benefit Service and Credited Years of Past Service through the last day of the Plan Year preceding the date that benefits are to commence to be paid or adjusted rather than as of his Postponed Retirement Date. In addition, the amount of Pension to which a Participant is entitled under the Plan shall be recalculated annually, during the period that the Participant is still employed by an Employeror an Affiliated Employer, as of the end of each Plan Year with the amount of benefit being paid adjusted as of the first day of the following Plan Year. 5.04 DISABILITY. (a) An ELIGIBLE DISABLED PARTICIPANT is a Participant who has at least ten Years of Vesting Service and has attained Age fifty- five but not Age sixty-five and is determined to have a Disability. An Eligible Disabled Participant's Disability Date is the day on which his disability is deemed to have started. (b) DISABILITY means a total and permanent incapacity by bodily injury or disease that prevents an Employee from engaging in any occupation or employment for remuneration or profit, except for purposes of rehabilitation as determined by the Administrative Committee, and that entitles the Employee to a disability benefit under the Social Security Act of the United States. (c) A Participant who no longer satisfies each requirement in Section 5.04(b) is no longer an Eligible Disabled Participant. (d) An Eligible Disabled Participant is deemed to receive Compensation at the same base rate he received for the calendar month immediately before his Disability Date, and that amount is credited from his Disability Date to the earliest of: (i) his death; (ii) the date his Disability ceases; (iii) or his Early or Normal Retirement Date. (e) For purposes of determining his Future Service Years of Participation, an Eligible disabled Participant is credited with Hours of Service at the rate of forty-five hours for any week during which he is an Eligible Disabled Participant. 5.05 TERMINATION WITH VESTING. (a) A Participant shall be 100 percent vested in, and have a non- forfeitable right to his Accrued Pension upon attainment of Normal Retirement Age or upon completion of ten Years of Vesting Service. Effective January 1, 1989, the ten years of Vesting Service will change to the five years for all terminations on or after that date. If the Participant's employment with an Employer or an Affiliated Employer is terminated after he is 100 percent vested in his Accrued Pension for reasons other than retirement or death, he shall be eligible for a deferred vested Pension to commence, as of a date described in Section 5.05(b) below, after the Participant has provided written notification to the Committee of his intention to commence receiving his Pension benefits. (b) The deferred vested Pension shall generally commence to be paid as of the Participant's Normal Retirement Date and, subject to the provisions of Section 6.01, shall be equal to his Accrued Pension. However, if he had completed 10 Years of Vesting Service on the date of his termination (five Years of Vesting Service effective January 1, 1989), the Participant may elect to have his vested Pension commence as of the first day of any calendar month after his 55th birthday or his termination date if later, and before his Normal Retirement Date. In that case, the Participant's Pension shall be equal to the vested Pension otherwise payable at his Normal Retirement Date reduced as provided for Early Retirement in Section 5.03. 5.06 MAXIMUM BENEFIT LIMITATION. (a) The maximum annual Pension payable to a Participant under the Plan, when added to any pension attributable to contributions of an Employer or an Affiliated Employer provided to the Participant under any other qualified defined benefit plan, shall be equal to the lesser of (i) $90,000 (multiplied by the Adjustment Factor, when applicable); or (ii) The Participant's average annual Remuneration during three consecutive Plan Years (a Plan Year shall be considered a limitation year" for purposes of Section 415 of the Code) of his participation in the Plan affording the highest such average, or during all of the years in which he was a Participant in the Plan if less than three years, subject to the following adjustments: (A) If the Employee has not been a Participant in the Plan for at least 10 years, the maximum annual Pension in clause (i) above shall be multiplied by the ratio which the number of years of his participation in the Plan bears to 10. This adjustment shall be applied separately to the amount of the Participant's Pension resulting from each change in the benefit structure of the Plan, with the number of years of participation in the Plan being measured from the effective date of each such change. (B) If the Participant has not completed 10 Years of Vesting Service, the maximum annual Pension in clause (ii) above shall be multiplied by the ratio which the number of his Years of Vesting Service bears to 10. (C) If the Pension begins before the Participant's Social Security Retirement Age but on or after his 62nd birthday, the maximum Pension in clause (i) above shall be reduced by 5/9 of one percent for each of the first 36 months plus 5/12 of one percent for each additional month by which the Participant is younger than the Social Security Retirement Age at the date his Pension begins. If the Pension begins before the Participant's 62nd birthday, the maximum Pension in clause (i) above shall be the Actuarial Equivalent value, based on an interest rate of 5% per year in lieu of the interest rate otherwise used in the determination of Actuarial Equivalent, of the maximum benefit payable to age 62 as determined in accordance with the preceding sentence. (D) If the Pension begins after the Participant's Social Security Retirement Age, the maximum Pension in clause (i) above shall be the Actuarial Equivalent, based on an interest rate of 5% per year in lieu of the interest rate otherwise used in the determination of Actuarial Equivalent of that maximum benefit payable at the Social Security Retirement Age. (E) If the Participant's Pension is payable as a joint and survivor Pension with his spouse as the Contingent Annuitant, the modification of the Pension for that form of payment shall be made before the application of the maximum limitation, and, as so modified, shall be subject to the limitation. (F) If the Accrued Pension of a Participant on December 31, 1986 (as determined in accordance with the terms of the Plan on May 5, 1986) exceeded the maximum allowable limitation under this Section 5.06(a) above, the maximum dollar limitation applicable to such Participant shall be the amount of such Accrued Pension. (b) If a Participant has at any time both participated in a defined benefit plan and been credited with an "annual addition" under any qualified plan maintained by an Employer or an Affiliated Employer for a Plan Year, the sum of the Participant's "defined benefit plan fraction" and "defined contribution plan fraction" for such Plan Year shall not exceed 1.0. The terms "defined benefit plan fraction" and "defined contribution plan fraction" mean the following: (i) "Defined benefit plan fraction" for any calendar year is a fraction -- (A) The numerator of which is the projected annual benefit of the Participant (determined as of the close of the calendar year) under all defined benefit plans maintained by an Employer or an Affiliated Employer, and (B) The denominator of which is the lesser of (1) or (2) below: (1) The product of 1.25, multiplied by the defined benefit plan dollar limitation under Section 415(b) (l) (A) of the Code (as multiplied by the Adjustment Factor) in effect for such calendar year. (2) The product of 1.4, multiplied by an amount which is 100% of the Participant' s average Remuneration for the 3 consecutive years in which his Remuneration was the highest. (ii) "Defined contribution plan fraction" for any calendar year is a fraction -- (A) The numerator of which is the sum of the annual additions on behalf of Participant for such calendar year, and (B) The denominator of which is the sum of the lesser of (1) or (2) below determined for such calendar year and for each prior year of service with an Employer or an Affiliated Employer. (1) The product of 1.25, multiplied by the defined contribution plan dollar limitation under Section 415(c) (l) (A) of the Code (as multiplied by the Adjustment Factor) in effect for such calendar year. (2) The product of 1.4 multiplied by an amount equal to 25% of the Participant's remuneration for such year. The "annual addition" on behalf of a Participant under any qualified plan maintained by an Employer or an Affiliated Employer for a Plan Year shall not include transfers to this Plan from another qualified plan but shall include: (i) The total contributions made by the Participant or by an Employer or Affiliated Employer on the Participant's behalf under any qualified plan maintained by an Employer or an Affiliated Employer; and (ii) Forfeitures, if applicable, that have been allocated on behalf of the Participant under any qualified defined contribution plan maintained by an Employer or an Affiliated Employer. 5.07 SUSPENSION OF BENEFITS. (a) If a Participant in receipt of a Pension is restored to service with an Employer as an Eligible Employee and is regularly scheduled to work at least 80 hours per month, the following shall apply: (i) His Pension shall cease and any election of an optional benefit in effect shall be void. (ii) Any Years of Vesting Service and Years of Benefit Service to which he was entitled when he retired or terminated service shall be restored to him. (iii) Upon later retirement or termination his Pension shall be calculated in accordance with the following: (A) If his reemployment occurred prior to his Normal Retirement Date, it shall be calculated under the benefit formula then in effect, based on his Compensation, Average Monthly Compensation, Past Service Average Monthly Compensation, Future Service Years of Participation and Past Service Months before and after the period when he was not in the service of an Employer, reduced by the Actuarial Equivalent value of the benefits, if any, he received before his return to service with an Employer; or (B) If his reemployment occurred on or after his Normal Retirement Date, it shall be equal to the greater of the benefit calculated as described in (A) above or the benefit the Participant was receiving as of his rehire date adjusted to be an Actuarial Equivalent for each month subsequent to his rehire date during which he did not receive payment of the benefit and during which he was not regularly scheduled to work at least 80 hours. (iv) The portion of the Participant's Pension upon later retirement payable with respect to Future Service Years of Participation rendered before his previous retirement or termination of service shall never be less than the amount of his previous Pension modified to reflect any option in effect on his later retirement. (b) The Committee will establish procedures consistent with Department of Labor Regulations Section 2530.203-3 regarding the suspension of benefits under this Section 5.07 including but not limited to, procedures for resumption of benefits, offsetting benefit payments and notice regarding suspension of benefits. ARTICLE VI FORM OF PAYMENT OF PENSION BENEFITS 6.01 AUTOMATIC FORM OF PAYMENT. (a) If the Participant is not married on the date his Pension begins, his Pension shall be payable in monthly installments ending with the last monthly payment before death, unless the Participant has elected an optional form of benefit as described in Section 6.02. (b) If the Participant is married on the date his Pension begins, and if he has not elected an optional form of benefit as described in Section 6.02, the Pension payable shall be a joint and survivor Pension which is the Actuarial Equivalent of the Pension otherwise payable, providing for a reduced Pension payable to the Participant during his life and after his death a Pension at the rate of one-half the Pension paid to the Participant, payable during the life of, and to, the spouse to whom he is married at the date his Pension begins. Once the payment of Participant's Pension has begun, no adjustment shall be made for any subsequent chance in marital status or health. (c) In any case, an Actuarial Equivalent lump sum payment may, in the discretion of the Committee, be made in lieu of all benefits if the present value of any Pension is less than $3,500. The lump sum payment may be made at any time on or after the date the Participant terminates employment. In addition, if a lump sum payment is to be made after a Participant's Annuity Starting Date, the Participant must consent in writing, to such form of distribution and, if he is married, Spousal Consent must also be obtained. 6.02 OPTIONS. (a) A Participant may, subject to the provisions of Section 6.03, elect to convert the Pension otherwise payable to him into one of the Actuarial Equivalent optional fords of benefit described below. However, if the Contingent Annuitant or Beneficiary selected is not the Participant's spouse, the present value of the Pension payable to the Participant under the option shall always be more than 50 per cent of the present value of the benefits payable under the option to the Participant and his Contingent Annuitant or Beneficiary. Option 1. A Pension payable for the life of the Participant only; Option 2. A modified Pension payable during the Participant's life, and after his death payable at 50% or 100% of the rate of his modified Pension during the life of, and to, the Contingent Annuitant named by him when he elected the option. In the event the Participant is married at the time the annuity starts, the Contingent Annuitant must be the individual legally then married to the Participant. Option 3. A modified Pension payable during the Participant's life, guaranteed for a 10 year period after the date the Pension begins. If the Participant dies during the designated period, the modified Pension shall be payable for the balance of that period to the Beneficiary named by him when he elected the option; provided that, if there is no designated Beneficiary or the Beneficiary then does not survive the 10 year period, an Actuarial Equivalent lump sum payment of the remaining payments shall be paid to the alternate Beneficiary or, if none, to the estate of the Beneficiary. (b) The following special options and payment apply with respect to the Actuarial Equivalent of a Participant's Accrued Benefit attributable to his Past Service Months under Section 5.02(d) (the "Special Lump Sum Payment"). (1) The Participant or his surviving spouse may elect to receive the Special Lump Sum Payment determined as a lump sum no later than the Participant's Age 65 or his earlier death. (2) This is a special death benefit equal to the Participant's Special Lump Sum Payment. For purposes of this death benefit, a Participant's surviving spouse (the person legally married to the Participant at the Participant's death) is the beneficiary. (3) If a Participant dies before his entire Special Lump Sum Report has been paid to him, or if distribution has begun to his surviving spouse and that surviving spouse dies before the Participant's entire Special Lump Sum has been distributed to the surviving spouse, the balance of the Participant's Special Lump Sum must be distributed to his Beneficiary within five years after his death (or the death of his surviving spouse). This shall not apply if the Participant's interest had begun to be distributed for a term certain. 6.03 ELECTION OF OPTIONS. (a) A married Participant's election of any option which does not provide for monthly payments to his spouse for life after the Participant's death in an equal amount equal to at least 50% but not more than 100% of the monthly amount payable under the option to the Participant shall be effective only if Spousal Consent to the election is received by the Committee. (b) The Committee shall furnish to each married participant within a reasonable time, but more than 90 days, before his projected Annuity Starting Date, a written explanation in nontechnical language of the terms and conditions of the joint and survivor Pension provided under Section 6.01(b), the financial effect upon the Participant's Pension of making an election under Section 6.02 in lieu of the joint and survivor Pension, the requirement for Spousal Consent as provided in paragraph (a) above, and the right of the participant to make and to revoke elections. under Section 6.02. An election under Section 6.02 shall be made on a form provided by the Committee, and may be made after that information is furnished to the participant and during the 90-day election period preceding the participant's Annuity Starting Date. However, a married participant may file with the Committee a written request for detailed information as to the amount of his Pension on a joint and survivor basis under Section 6.01(b) and under Option l of Section 6.02. If he makes that request, the period during which an election of Opt ion 1 may be made shall be extended, if necessary, to include the 60 days following receipt by the participant of that information. (c) An election of an option under Section 6.02 may be revoked on a form provided by the Committee, and subsequent electionS and revocations may be made at any time and from time to time during the applicable election period. An election of an optional benefit shall be effective on the date the participant's Pension begins. A revocation of any election shall be effective when the completed form is filed with the Committee. If a participant who has elected an optional benefit dies before the date the election of the option becomes effective, the election shall be revoked. If the Contingent Annuitant or Beneficiary designated under an option dies before the date the election of the option becomes effective, the election shall be revoked. 6.04 COMMENCEMENT OF PAYMENTS. (a) Except as otherwise provided in Article 6, payment of a Participant's Pension shall begin as soon as administratively practicable following the latest of: (i) The Participant's 65th birthday; (ii) The tenth anniversary of the date on which be became a Participant; or (iii) The date he terminates services with an Employer or Affiliated Employer (but not more than 60 days after the close of the plan Year in which the latest of (i), (ii) or (iii) occurs). (b) Notwithstanding the preceding paragraph, the Participant's Pension shall begin not later than April 1 after the applicable of the following dates: (i) Prior to January 1, 1989: (A) For an Employee who owns a five percent (5%)or more interest in an Employer or an Affiliated Employer, the last day of the calendar year in which he attains age seventy and one-half (70-1/2), or (B) For any other Employee, the later of: (1) The last day of the calendar year in which he terminates from an Employer or an Affiliated Employer, or (2) The last day of the calendar year in which he attains age seventy and one-half (70-1/2). (ii) After December 31, 1988: The end of the calendar year in which the Employee attains age seventy and one-half (70-1/2). Employees who attain age 70-1/2 in 1988 are deemed to have attained age 70-1/2 in 1989. However, an Employee who attains age seventy and one- half (70-1/2) before January 1, 1988 and does not at any time after he attains age sixty-six and one-half (66-1/2) own a five percent (5%) or more interest in an Employer or an Affiliated Employer may delay distribution of benefits until actual retirement. ARTICLE VII DEATH AND WELFARE BENEFITS 7.01 SPOUSE'S PENSION. (a) If a married Participant dies in active service after having met the requirements for any Pension, or after having terminated from an Employer or an Affiliated Employer after having become entitled to a vested Pension, a spouse's Pension shall be payable to his surviving spouse for life. (b) The spouse's Pension shall commence to be paid, unless the spouse makes written election to defer commencement to no later than the date the Participant would have attained age 65, as of the first day of the calendar month following the later of the Participant's date of death or what would have been the Participant's 55th birthday. It shall be equal to: (i) In the case of a Participant who dies after he has completed the requirements for a normal or early retirement Pension, the Pension that would have been payable to the spouse if the Participant had retired under Section 5.01 or 5.03, whichever is applicable, and his Pension had commenced as of the first day of the month in which his death occurred or such later date as is selected; or (ii) In the case of any other Participant, the Pension that would have been payable to the spouse, based on his Accrued Pension at date of death, if he had elected to have this vested Pension begin upon his attainment of age 55 or such later date as Is selected (or his date of death, if later) and then had died immediately thereafter. 7.02 LATEST DATE OF DISTRIBUTION OF SPOUSE'S PENSION. The following rules apply with respect to the latest allowable distribution of death benefits on a Participant's behalf under the Plan In accordance with Section 401(a) (9) of the Code: (a) If the Beneficiary is other than the Participant's spouse, distribution to such Beneficiary shall generally be made or commence within one (1) year of the Participant's date of death; or (b) If the Beneficiary Is the Participant's spouse, distribution to such Beneficiary shall generally be made or commence by the date on which the Participant would have attained age seventy and one- half (70 1/2). 7.03 OTHER WELFARE BENEFITS. (a) A Participant who: (1) has attained age sixty-two; (2) has at least 30,000 Credited Hours of Service for purposes of Section 5.02(b); (3) has at least twenty Years of Vesting Service; (4) has separated from service; and (5) has begun receiving early retirement benefits. is entitled to this section's welfare benefits. (b) Before his death, a Participant described in Section 7.03(a) is entitled to medical benefits (including dental benefits, if applicable) according to the standards (or insurance contracts) adopted and announced by the Administrative Committee. (c) The Spouse and eligible children of a Participant who Is eligible for the welfare benefits described in Section 7.03(a) are also eligible for those benefits until the Spouse remarries or dies before remarriage. If a Participant dies as an Employee and satisfies the conditions of 7.03(a) (2) and (3) and has satisfied the conditions to receive early retirement pension under Section 2.19, his Spouse and eligible children are entitled to the benefits described in this section, beginning on the date that would have been the Participant's sixty-second birthday (or his later death) and ending at the spouse's remarriage or death before remarriage. (d) This Section 7.03 is intended to comply with Code section 401(h) and must be construed accordingly. Funding for the welfare benefits under this Section must be maintained in a separate account within the Trust Fund. Except as provided in Section 7.03(e), the assets and Income of this section's separate account may only be used to provide welfare benefits under this section and may not be used for or diverted to any purpose other than providing welfare benefits under this section. (e) If all of the Plan's liabilities to provide the welfare benefits under this Section have been satisfied, any amount remaining in this Section's separate account must be returned to Disney or to the other Employers according to Disney's direction. (f) As to each Employee who is a five-percent owner as defined in Code section 416(i)(l)(B) during any Plan Year for which contributions are made under this Plan on his behalf to provide this section's welfare benefits, the Administrative Committee must cause the appropriate Trustees and co-Trustees to establish and maintain a separate account. Each such Employee's separate subaccount of this section's separate subaccount must hold the assets used to fund this section's benefits for that Employee and his Spouse and dependents. Benefits under this section for an Employee described in this subsection or for this Spouse and dependents may be paid only from the separate subaccount maintained for him. ARTICLE VIII ADMINISTRATION OF PLAN 8.01 APPOINTMENT OF PLAN COMMITTEE. The general administration of the Plan and the responsibility for carrying out the provisions of the Plan shall be placed with a Committee, consisting of not less than 3 persons, appointed by the Board of Directors to serve at the pleasure of such Board. Any member of the Committee may resign by delivering his written resignation to the Board of Directors. 8.02 DUTIES OF COMMITTEE. The members of the Committee shall elect a chairman from their number and a secretary who may be but need not be one of the members of the Committee; may appoint from their number such subcommittees with such powers as they shall determine; and may authorize one or more of their number or any agent to execute or deliver any instrument or make any payment on their behalf. In addition, the Committee may retain counsel, employ agents and provide for such clerical, accounting, actuarial and consulting services as they may require in carrying out the provisions of the Plan; and may allocate among themselves or delegate all or such portion of the duties under the Plan, other than those granted to the Trustee under the trust agreement adopted for use in implementing the Plan, as they, in their sole discretion, shall decide. 8.03 MEETINGS. The Committee shall hold meetings upon such notice, at such place or places, and at such time or times as it may from time to time determine. 8.04 ACTION OF MAJORITY. Any act which the Plan authorizes or requires the Committee to do may be done by a majority of its members. The action of that majority expressed from time to time by a vote at a meeting or in writing without a-meeting shall constitute the action of the Committee and shall have the same effect for all purposes as if assented to by all members of the Committee at the time in office. 8.05 COMPENSATION AND BONDING. No member of the Committee shall receive any compensation from the Plan for his services as such. Except as may otherwise be required by law, no bond or other security need be required of any member in that capacity in any jurisdiction. 8.06 ESTABLISHMENT OF RULES. Subject to the limitations of the Plan, the Committee from time to time shall establish rules for the administration of the Plan and the transaction of its business. The determination of the Committee as to any disputed question shall be conclusive. 8.07 PRUDENT CONDUCT. The Committee shall use that degree of care, skill, prudence and diligence that a prudent man acting in a like capacity and familiar with such matters would use in his conduct of a similar situation. 8.08 SERVICE IN MORE THAN ONE FIDUCIARY CAPACITY. Any individual, entity or group of persons may serve in more than one fiduciary capacity with respect to the Plan and/or the funds of the Plan. 8.09 LIMITATION OF LIABILITY. The Board of Directors, the Committee, the Employees and any officer, employee or agent of an Employer shall not incur any liability individually or on behalf of any other individuals or on behalf of an Employer for any act or failure to act, made in good faith in relation to the Plan or the funds of the Plan. However, this limitation shall not act to relieve any such Individual or an Employer from a responsibility or liability for any fiduciary responsibility, obligation or duty under Part 4, Title 1 of ERISA. 8. 10 INDEMNIFICATION. The Committee, the Board of Directors, and the officers, employees and agents of the Employers shall be indemnified against any and all liabilities arising by reason of any act, or failure to act, in relation to the Plan or the funds of the Plan, includIng, without limitation, expenses reasonably incurred In the defense of any claim relating to the Plan or the funds of the Plan, and amounts paid in any compromise or settlement relating to the Plan or the funds of the Plan, except for actions or failures to act made in bad faith. The foregoing indemnification shall be from the funds of the Plan to the extent of those funds and to the extent permitted under applicable law; otherwise from the assets of the Employers. 8.11 EXPENSES OF ADMINISTRATION. All expenses incurred prior to the termination of the Plan which shall arise in connection with the administration of the Plan, including but not limited to the compensation of the Trustee, administrative expenses and proper charges and disbursements of the Trustee and compensation and other expenses and charges of any enrolled actuary, counsel, accountant, specialist, or other person who shall be employed by the Committee in connection with the administration thereof, shall be paid from the trust fund to the extent not paid by the Employers. 8.12 CLAIMS PROCEDURES. The Committee will ordinarily instruct the Trustee to pay benefits when benefits become available without the necessity of a claim by Participants, Contingent Annuitants or Beneficiaries. If any Participant, Contingent Annuitant or Beneficiary makes a written claim for benefits under the Plan and such benefits are denied, the Committee, within 90 days of the date the claim is filed (or, if special circumstances require an extension of time for processing the claim and written notice is given to the claimant of such extension, up to 180 days after the original claim is filed), shall give the claimant notice in writing of the denial of claimed benefits, setting forth specific reasons for the denial, references to pertinent Plan provisions, the reason for and description of any additional material or information needed to perfect the claim and an explanation of the review procedure. The decision of the Committee shall be final unless the claimant, within 60 days after receipt of notice of the decision of the Committee, makes a written request for review of the decision. The claimant or his authorized representative shall have 30 days after submitting a written request for review during which Plan documents may be reviewed and written issues and comments may be submitted. Within 60 days after receipt of the written request for review, the Committee shall issue a written decision including reasons for the decision and references to controlling Plan provisions, which decision shall be final. ARTICLE IX MANAGEMENT OF FUNDS 9.01 TRUST AGREEMENT. All the funds of the Plan shall be held by a Trustee appointed from time to time by the Board of Directors under a Trust Agreement adopted, or as amended, by the Board of Directors for use in providing the benefits of the Plan and paying its expenses not paid directly by the Employers. The Employers shall have no liability for the payment of benefits under the Plan nor for the administration of the funds paid over to the Trustee. 9.02 APPOINTMENT OF INVESTMENT MANAGER. The Company may, in its discretion, appoint one or more investment managers (within the meaning of Section 3(38) of ERISA) to manage (including the power to acquire and dispose of) all or part of the assets of the Plan, as the Company shall designate. In that event authority over and responsibility for the management of the assets so designated shall be the sole responsibility of that investment manager. ARTICLE X GENERAL PROVISIONS 10.01 EXCLUSIVE BENEFIT RULE. Except as otherwise provided in the Plan, no part of the corpus or income of the funds of the Plan shall be used for, or diverted to, purposes other than for the exclusive benefit of Participants and other persons entitled to benefits under the Plan before satisfaction of all liabilities with respect to them. No person shall have any interest in or right to any part of the earnings of the funds of the Plan, or any right in, or to, any part of the assets held under the Plan, except as and to the extent expressly provided in the Plan. 10.02 NONALIENATION. Except as required by any applicable law, no benefit under the Plan shall in any manner be anticipated, assigned or alienated, and any attempt to do so shall be void. However, payment shall be made in accordance with the provisions of any judgment, decree, or order which: (a) Creates for, or assigns to, a spouse, former spouse, child or other dependent of a Participant the right to receive all or a portion of the Participant's benefits under the Plan for the purpose of providing child support, alimony payments or marital property rights to that spouse, child or dependent; (b) Is made pursuant to a state domestic relations law; (c) Does not require the Plan to provide any type of benefit, or any option, not otherwise provided under the Plan; and (d) Otherwise meets the requirements of Section 206(d) of ERISA, as amended, as a "Qualified Domestic Relations Order", as determined by the Committee. 10.03 CONDITIONS OF EMPLOYMENT NOT AFFECTED BY THE PLAN. The establIshment of the Plan shall not confer any legal Rights upon any Employee or other person for a contInuation of employment, nor shall It Interfere With the Rights of an Employer to discharge any Employee and to treat him Without regard to the effect which that treatment might have upon him as a Participant or potential Participant in the Plan. 10.04 FACILITY OF PAYMENT. If the Committee shall find that a Participant or other person entitled to a benefit is unable to care for his affairs because of illness or accident or is a minor, the Committee may direct that any benefit due him, unless claim shall have been made for the benefit by a duly appointed legal representative, be paid to his spouse, a child, a parent or other blood relative, or to a person with whom he resides. Any payment so made shall be a complete discharge of the liabilities of the Plan for that benefit. 10.05 INFORMATION REQUIRED FROM PARTICIPANT. Each Participant, Contingent Annuitant, Beneficiary or other person entitled to a benefit, before any benefit shall be payable to him or on his account under the Plan, shall file with the Committee the information that it shall require to establish his rights and benefits under the Plan. 10.06 CONSTRUCTION. (a) GOVERNING LAWS. Except as otherwise provided by ERISA, this Plan and all provisions thereof shall be construed and administered according to the laws of the State of California. (b) TITLE AND HEADINGS NOT TO CONTROL. The titles to the Articles and the headings of Sections in the Plan are placed herein for convenience of reference only, and in the case of any conflict, the text of this instrument rather than such titles or headings shall control. (c) GENDER AND PERSON. The masculine pronoun shall include the feminine, the feminine pronoun shall include the masculine and the singular shall include the plural wherever the context so requires. 10.07 NON-DUPLICATION OF BENEFITS. Any Pension payable under the Plan shall be reduced by any pension paid to a Participant under the terms of any other defined benefit pension plan to which an Employer contributes, directly or indirectly, other than by payment of taxes, to the extent that such pension is based on a period of employment with an Employer for which a Participant receives credit for Pension benefits under this Plan. 10.08 PROOF OF DEATH AND RIGHT OF BENEFICIARY OR OTHER PERSON. The Committee may require and rely upon such proof of death and such evidence of the right of any Contingent Annuitant or Beneficiary or other person to receive the value of the Plan benefits of a deceased Participant as the Committee may deem proper, and its determination of death and of the right of that Contingent Annuitant or Beneficiary or other person to receive payment shall be conclusive. 10.09 FAILURE TO LOCATE RECIPIENT. In the event that the Committee is unable to locate a Participant, Contingent Annuitant, or Beneficiary who is entitled to payment under the Plan within 5 years from the date such payment was to have been made, the amount to which such Participant, Contingent Annuitant or Beneficiary was entitled shall be declared a forfeiture and shall be used to reduce future Employer contributions to the Plan. If the Participant, Contingent Annuitant or Beneficiary is later located, the benefit which was previously forfeited hereunder shall be restored by means of additional Employer contributions to the Plan. 10.10 NO CONTRACT OF EMPLOYMENT. The Plan shall not be deemed to constitute a contract between any Participating Company and any person or to be consideration an inducement for the employment of any person by any plan any person or to be consideration or inducement for the employment of any person by any Participating Company. Nothing contained In the Plan shall be deemed: (a) To give any person the right to be retained in the service of a Participating Company; or (b) To interfere with the right of any Participating Company to discharge any person at any time without regard to the effect which such discharge shall have upon his rights or potential rights, if any, under the Plan. ARTICLE XI AMENDMENT, MERGER AND TERMINATION 11.01 AMENDMENT OF PLAN. The Board of Directors reserves the right at any time and from time to time, and retroactively if deemed necessary or appropriate, to amend in whole or in part any or all of the provisions of the Plan. However, no amendment shall make it possible for any part of the funds of the Plan to be used for, or diverted to, purposes other than for the exclusive benefit of persons entitled to benefits under the Plan before the satisfaction of all liabilities with respect to them. No amendment shall be made which has the effect of decreasing the Accrued Pension of any Participant or of reducing the nonforfeitable percentage of the Accrued Pension of a Participant below the nonforfeitable percentage computed under the Plan as in effect on the date on which the amendment is adopted or, if later, the date on which the amendment becomes effective. In addition, if the Plan is amended to change the vesting requirements, any Participant with at least three Years of Vesting Service may elect to have his vested percentage computed under the Plan without regard to the amendment. However, any right of the Company to cause mergers or asset and liability transfers or to take a reversion of assets terminate as of the date there is a Change in Control of Disney which is defined as follows: (1) any person (within the meaning of Sections 13(d) and 14(d) (2) of the Securities Exchange Act of 1934) is or becomes the beneficial owner, directly or indirectly, to securities of Disney representing fifty percent or more of the combined voting power of Disney's then outstanding securities; or (2) during any period of two consecutive years, individuals who at the beginning of such period constitute Disney's Board cease for any reason to constitute at least a majority of Disney's Board, unless the election (or the nomination for election by the Disney shareholders) of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. 11.02 DISTRIBUTION FOLLOWING PLAN TERMINATION. In the event of the complete or partial termination of the Plan, the Plan assets shall be converted into cash and, after payment of all costs or charges incidental to the allocation and distribution of assets, shall be distributed as provided herein and in Section 14.3. That portion of the assets of the Plan allocable to the separate account referred to in Section 6.4(a) and attributable to: (a) The contributions of each Participating Company with respect to which the Plan is terminating; and (b) The contributions of Participants with respect to such Company, together with interest thereon pursuant to Section 411(c) (2) (C) of the Internal Revenue Code, shall vest in such Participants and shall be used and applied for the account of such Participants and their Beneficiaries in the order specified in Section 4044 of ERISA. In the event of a partial termination, this paragraph shall apply only to the portion of the Plan so terminated. In the event there has not been a Change in Control of Disney, as defined in Section 11.01, any assets remaining after such distribution shall be distributed to the appropriate Participating Companies provided that: (a) All liabilities of the Plan to Participants and Beneficiaries have been satisfied; and (b) The distribution does not contravene any provisions of law. 11.03 In the event of termination of the Plan or of the provisions of Section 7.03, that portion of the assets of the Plan allocable to the separate account referred to in Section 7.03(d) and attributable to contributions of Participating Companies as to which the Plan (or Section 7.03) is terminating, after provision for such expenses as may be incurred, shall be applied toward making provisions for the payment of health and welfare benefits in accordance with the benefits in effect as of the date of termination, under the terms and conditions of Section 7.03. Upon the satisfaction of all liabilities under the Plan to provide such health and welfare benefits, any amount remaining in such separate account shall be returned to the appropriate Participating Companies. 11.04 MERGER OR CONSOLIDATION. The Plan may not be merged or consolidated with, and its assets or liabilities may not be transferred to, any other plan unless each person entitled to benefits under the Plan would, if the resulting plan were then terminated, receive a benefit immediately after the merger, consolidation, or transfer which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation, or transfer if the Plan had then terminated. 11.05 ADDITIONAL PARTICIPATING EMPLOYERS. (a) If any company is or becomes a subsidiary of or associated with an Employer, the Board of Directors may include the employees of that subsidiary or associated company as participants in the Plan upon appropriate action by that company necessary to adopt the Plan. In that event, or if any persons become Employees of an Employer as the result of merger or consolidation or as the result of acquisition of all or part of the assets or business of another company, the Board of Directors shall determine to what extent, if any, previous service with the subsidiary or associated company shall be recognized under the Plan, but subject to the continued qualification of the trust for the Plan as tax-exempt under the Code. (b) Any Employer may terminate its participation in the Plan upon appropriate action by it. In that event the assets of the Plan held on account of Participants in the employ of that Employer, and any unpaid Accrued Pensions of all Participants who have separated from the employ of that Employer, shall be determined by the Committee. Those assets shall be distributed as provided in Section 11.06 if the Plan is terminated; otherwise, they shall be segregated by the Trustee as a separate trust pursuant to certification to the Trustee by the Committee, in which case a separate plan for the employees of that Employer shall be created and the board of directors of that Employer shall succeed to all the powers and duties of the Board of Directors, including the appointment of a Committee, with respect to such assets. 11.06 TERMINATION OF PLAN. The Board of Directors may terminate the Plan for any reason at any time provided there has not been a Change in Control of Disney as defined in Section 11.02. In case of termination of the Plan, the rights of Participants to the benefits accrued under the Plan to the date of termination, to the extent then funded or guaranteed by the Pension Benefit Guaranty Corporation, if greater, shall be nonforfeitable. The funds of the Plan shall be used for the exclusive benefit of persons entitled to benefits under the Plan as of the date of termination, except as provided in Section 4.03. However, any funds not required to satisfy all liabilities of the Plan for benefits because of erroneous actuarial computation shall be returned to the Employers. The Committee shall determine on the basis of actuarial valuation the share of the funds of the Plan allocable to each person entitled to benefits under the Plan in accordance with Section 4044 of ERISA, or corresponding provision of any applicable law in effect at the time. In the event of a partial termination of the Plan, the provisions of this Section shall be applicable to the Participants affected by the partial termination. 11.07 LIMITATION CONCERNING 25 HIGHEST PAID EMPLOYEES. (a) The provisions of this Section shall apply to any Participant who is one of the 25 highest paid Employees of the Employers on any "commencement date" and whose anticipated annual Pension provided under the Plan at Normal Retirement Date exceeds $1,500. "Commencement date", for purposes of this Section, shall mean the Effective Date of the Plan or the effective date of any amendment to the Plan which increases the benefits. If the Plan is terminated during the first 10 years after a "commencement date", the amount of the Pension provided under the Plan for any one of the Participants to whom this Section applies shall not be greater than the amount of Pension that can be provided by the largest of the following amounts: (i) The Employers' contributions (or funds attributable to those contributions) which would have been applied to provide the Pension if the Plan as in effect on the date before that "commencement date" had been continued without change; (ii) $20,000; (iii) The sum of (A) The Employers' contributions (or funds attributable to those contributions) which would have been applied to provide benefits for the Employee if the Plan had been terminated on the day before that "commencement date"; plus (B) An amount computed by multiplying the smaller of $10,000 or 20 per cent of the average annual remuneration of that Employee during the last five years of service, by the number of years since that "commencement date"; or (iv) The present value of the maximum benefit guaranteed by the Pension Benefit Guaranty Corporation (PBGC), as described in Sect ion 4022(b) (3) (B) of ERISA, determined on the basis of the actuarial assumptions promulgated by the PBGC applicable as of the date of termination of the Plan or the date Pension payments commence, whichever is earlier. (b) Any excess reserves arising by application of the provisions of paragraph (a) above shall be used and applied as provided in the Plan for the benefit of the other persons entitled to benefits under the Plan. However, if sufficient funds are available to provide in full for the Pensions accrued for all other persons entitled to benefits under the Plan to the date of termination of the Plan, those excess reserves shall first be used and applied to provide the accrued Pensions of the Participants whose Pensions have been restricted by operation of the provisions of this Section. (c) If it should subsequently be determined by statute, court decision acquiesced in by the Commissioner of Internal Revenue, - or ruling by the Commissioner of Internal Revenue, that the provisions of this Section are no longer necessary to qualify the Plan under the Code, this Section shall be ineffective without the necessity of further amendment to the Plan. 11.08 CHANGE IN CONTROL. Notwithstanding any other provision of this Plan to the contrary, in the event of a change in control as defined in Section 11.01, any residual assets of the trust fund must be used to provide additional retirement benefits to the Participants, in the proportion to their relative Compensation, and then to provide Participants with nondiscriminatory welfare benefits as determined by a group of three individuals elected by a majority of the Participants voting PER CAPITA. For purposes of this Section 11.07 the term "Participants" means only those who were Participants one day prior to the change in control defined in Section 11.01. ARTICLE XII TOP-HEAVY PROVISIONS 12.01 For purposes of this Section, the Plan shall be "top-heavy" with respect to any Plan Year if, as of the applicable determination date, the top-heavy ratio exceeds 60 per cent. The top-heavy ratio shall be determined as of the applicable valuation date in accordance with Section 416(g) (3) and (4) of the Code utilizing the Plan actuarial assumptions (other than those used to calculate a lump sum) contained in the definition of "Actuarial Equivalent". For purposes of determining whether the Plan is top-heavy, the present value of Accrued Pensions under the Plan will be combined with the present value of accrued benefits or account balances under each other plan in the required aggregation group, and, in the Company's discretion, may be combined with the present value of accrued benefits or account balances under any other qualified plan in the permissive aggregation group. The following provisions shall be applicable to Participants for any Plan Year with respect to which the Plan is top-heavy: (a) The Accrued Pension of a Participant who is a non-key employee shall not be less than 2% of his average Remuneration multiplied by the number of his Years of Vesting Service, not in excess of 10, during the Plan Years for which the Plan is top-heavy. That minimum benefit shall be payable at a Participant's Normal Retirement Date. If payments commence at a time other than the Participant's Normal Retirement Date, the minimum Accrued Pension shall be of Actuarial Equivalent value to that minimum benefit. (b) A Participant shall vest in his Accrued Pension in accordance with the following schedule in lieu of the provisions of Section 5.05(a): Years of Vesting Service ------------------------ Less than 2 0% 2 but less than 3 20% 3 but less than 4 40% 4 but less than 5 60% 5 or more 100% (c) The multiplier "1.25" in subsections (b) (i) (B) (I) and (b)(ii)(B)(I) of Section 5.06 shall be reduced to "1.0". 12.03 The following definitions apply to the terms used in this Section: (i) "applicable determination date" means the last day of the preceding Plan Year; (ii) "top-heavy ratio" means the ratio of: (A) The present value of the Accrued Pension under the Plan for key employees to; (B) The present value of the Accrued Pension under the Plan for all key employees and non-key employees; (iii) "key employee" means an employee who is in a category of employees determined in accordance with the provisions of Section 416(i) (l) and (5) of the Code and any regulations thereunder, and where applicable, on the basis of the Employee's Remuneration from an Employer or an Affiliated Employer; (iv) "non-key employee" means any Employee who is not a key employee; (v) "applicable valuation date" means the valuation date coincident with or immediately preceding the last day of the first Plan Year or the preceding Plan Year, whichever is applicable; (vi) "average remuneration" means the average annual Remuneration of a Participant for the five consecutive Years of Vesting Service after December 31, 1988 during which he received the greatest aggregate Remuneration from an Employer or an Affiliated Employer, excluding any Remuneration for service after the last Plan Year with respect to which the Plan is top-heavy; (vii) "required aggregation group" beans any other qualified plan(s) of an Employer or an Affiliated Employer in which there are participants who are key employees or which enable(s) the Plan to beet the requirements of Section 401(a) (4) or 410 of the Code; and (viii) "permissive aggregation group" means each plan in the required aggregation group and any other qualified plan(s) of an Employer or an Affiliated Employer in which all participants are non-key employees, if the resulting aggregation group continues to meet the requirements of Section 401(a) (4) and 410 of the Code. ARTICLE XIII AMENDMENTS 13.01 AMENDMENTS EFFECTIVE OCTOBER 1, 1988. (a) Section 5.05(b) is amended by deleting the final period (".") and adding the following at the end thereof: "or in Section 5.08, if applicable, with respect to a Participant who terminates service after completing at least 25 Years of Vesting Service." (b) The following new Section 5.08 is added at the end of Article V: "5.08 SPECIAL EARLY RETIREMENT. (a) In lieu of, and notwithstanding the provisions of Section 5.03, the provisions of this Section 5.08 shall apply in the case of a Participant who: (i) has reached an Early Retirement Date, (ii) retires from service on or after September 15, 1986, (iii) retires from service prior to his Normal Retirement Date, and (iv) has completed at least 25 Years of Vesting Service. (b) A Participant who retires from service on or after October 1, 1988 and on or after his sixty-second birthday shall commence to receive an early retirement Pension as of the first day of the calendar month coincidental with or immediately following his retirement from service. Subject to the provisions of Section 6.01, the amount of such Pension shall be equal to the Participant's Accrued Pension. (c) A Participant who retires from service on or after October 1, 1988 but prior to his sixty-second birthday shall commence to receive an early retirement Pension as of the first day of the calendar month after he submits to the Committee a written application for retirement benefits and after he separates from service. Unless the Participant otherwise elects, the early retirement Pension shall be a deferred pension beginning on the first day of the month coincidental with or immediately following his sixty-second birthday and, subject to the provisions of Section 6.01, shall be equal to his Accrued pension. However, the Participant may elect to receive an early retirement Pension beginning on the first day of any calendar month on or after his Early Retirement Date but before his sixty-second birthday. In that case, the Participant's Pension shall be equal to the deferred Pension reduced by 5% for each year by which the date the Participant's early retirement Pension begins precedes the first day of the calendar month coincidental with or next following the Participant's sixty-second birthday, with a pro- rata reduction for any portion of year. (d) A Participant who retired from service on or after September 15, 1986 but prior to October 1, 1988 under the conditions specified in Section 5.08(a) above shall have his future Pension payments increased effective with the Pension payment payable as of October 1, 1988. Such increase shall be equal to the additional amount of Pension the Participant would have received at his original Pension commencement date had the provisions of Sections 5.08(b) or 5.08(c), whichever is applicable, been in effect on such date. If a Participant covered by this Section 5.08(d) had not yet commenced to receive Pension payments as of October 1, 1988, then the Pension subsequently payable to him from or after October 1, 1988 shall be determined under the provisions of Section 5.08(c)." 13.02 AMENDMENTS EFFECTIVE JANUARY 1, 1994. Section 7.03 is amended in its entirety to read as follows: "7.03 OTHER WELFARE BENEFITS. (a) A Participant who: (1) has an Employment Commencement Date prior to January 1, 1994 and, except as provided in Sections 7.03(b) and 7.03(e), has no rehire dates with an Employer or an Affiliated Employer after December 31, 1993; (2) has attained age 65; (3) has at least 30,000 Credited Hours of Service including Credited Hours of Service as defined in Section 5.02(b) plus credited hours under any of the Associated Plans after April 30, 1984; (4) has at least twenty years of Vesting Service, but only considering Vesting Service accumulated while in an employment classification providing eligibility for participation in this Plan or any of the Associated Plans; (5) has separated from service on account of Disability as defined in Section 5.04(b), or on or after attainment of age 55 in any other case; and (6) has begun receiving retirement benefits under the Plan is entitled to this Section's welfare benefits, provided the Participant is not "in competition" with an Employer, or any Affiliated Employer. For purposes of this Section, no Participant shall be considered "in competition" with an Employer, or any Affiliated Employer unless the Participant had been a Senior Vice President of an Employer (or any Affiliated Employer) for at least five years during his career with an Employer or any Affiliated Employers, and the Participant becomes either a 5% or greater percentage owner of a competing business or is employed by a competing business in a classification of Vice President or higher. Considering the preceding, the determination of competition with an Employer or with any Affiliated Employer shall be determined under Committee rules of uniform application. (b) In addition to the provisions of Section 7.03(a) above, a Participant who meets the following requirements shall also be entitled to this Section's welfare benefits: (1) has attained age 62; (2) has begun receiving early retirement benefits; and (3) has either (A) separated from service prior to July 1, 1994 and prior to March 1, 1994, completed at least 30,000 Credited Hours of Service including Credited Hours of Service as defined in Section 5.02(b) plus credited hours under any of the Associated Plans after April 30, 1984, and completed at least twenty years of Vesting Service, but only considering Vesting Service accumulated while in an employment classification providing eligibility for participation in this Plan or any of the Associated Plans or (B) attained age 60 prior to March 1, 1994, and separates from service after completion of at least 30,000 Credited Hours of Service, including Credited Hours of Service as defined in Section 5.02(b) plus credited hours under any of the Associated Plans after April 30, 1984, and completion of at least twenty years of Vesting Service, but only considering Vesting Service accumulated while in an employment classification providing eligibility for participation in this Plan or any of the Associated Plans. If a Participant who meets the requirements of this Section 7.03(b) is rehired by an Employer or an Affiliated Employer subsequent to June 30, 1994 and prior to his attainment of age 55, he will not be entitled to this Section's welfare benefits pursuant to the provisions of this Section 7.03(b). Subsequent eligibility, if any, for this Section's welfare benefits shall be dependent upon fulfillment of the requirements of Section 7.03(a), considering the provisions of Section 7.03(e). If a participant who meets the requirements of this Section 7.03(b) is rehired by an Employer or an Affiliated Employer on or after his attainment of age 55, he will remain entitled to this Section's welfare benefits pursuant to the provisions of this Section 7.03(b) upon his subsequent retirement. (c) Before his death, a Participant described in Sections or 7.03(b) is entitled to health benefits dental or vision benefits, if applicable) according to the standards (or insurance contracts) adopted and announced by the Committee from time to time. (d) The Spouse and eligible children of a Participant who is eligible under Sections 7.03(a) or 7.03(b) for the welfare benefits described in Section 7.03(c) are also eligible for those benefits until the Spouse remarries or dies before remarriage. If a Participant dies as an Employee and satisfies the conditions of Section 7.03(a)(1),(3) and (4) and has satisfied the conditions to receive an early retirement pension under Section 2.19, his Spouse and eligible children are entitled to the benefits described in this Section, beginning on the Participant's date of death, or if later the date that would have been the Participant's sixty-fifth birthday (sixty-second birthday if the Participant is eligible under Section 7.03(b) above) and ending at the Spouse's remarriage or death before remarriage. (e) In general, a Participant who has an Employment Commencement Date or any rehire date with an Employer or an Affiliated Employer that is after December 31, 1993 shall not be entitled to this Section's welfare benefits. However, a Participant's rehire date with an Employer or an Affiliated Employer which occurs after December 31, 1993 shall be ignored for purposes of Section 7.03(a) (1)if the participant satisfies the requirements of subsection (1) and the requirements of either subsection (2) or subsection (3) below: (1) Prior to the rehire date, the Participant has at least 30,000 Credited Hours of Service including Credited Hours of Service as defined in Section 5.02(b) plus credited hours under any of the Associated Plans after April 30, 1984 and, has at least twenty years of Vesting Service but only considering Vesting Service accumulated while in an employment classification providing eligibility for participation in this Plan or any of the Associated Plans, and (2) The Participant attained age 55 prior to or coincidental with his rehire date, or (3) The Participant fulfilled all of the following conditions: (A) The Participant has only one rehire date which occurs after December 31, 1993 and prior to attainment of age 55; (B) The Participant's period of termination of service immediately prior to the rehire date is less than 366 days; (C) The Participant's period of reemployment following his rehire date is at least 365 consecutive days during which he is credited with at least 1000 Hours of Service. For purposes of this Section 7.03(e), a Participant shall not be deemed to have a separation from service and shall not be deemed to have a rehire date that occurs subsequent to December 31, 1993, if the Participant's termination of service is on account of Disability as defined in section 5.04(b) and the Participant returns to service upon recovery from Disability or if the Participant is laid-off and recalled within 12 months of the layoff. In such cases and for the purposes of this Section, such Participant shall be treated as if there was no interruption in the continuity of his service. However, a layoff in excess of 12 months is deemed a separation from service as of the first day of lay off. Further, a Participant who has a rehire date due to the acquisition of his employer by an Employer or an Affiliated Employer, shall be deemed not to have a rehire date provided his employment terminates within the three month period commencing on the date of acquisition of his employer. (f) This Section 7.03 is intended to comply with Code Section 401(h) and must be construed accordingly. Funding for the welfare benefits under this Section must be maintained in a separate account within the Trust Fund. Except as provided in Section 7.03(g), the assets and income of this Section's separate account may only be used to provide welfare benefits under this Section and may not be used for or diverted to any purpose other than providing welfare benefits under this Section. (g) If all of the Plan's liabilities to provide the welfare benefits under this Section have been satisfied, any amount remaining in this Section's separate account must be returned to Disney or to the other Employers according to Disney's direction. (h) As to each Employee who is a five-percent owner as defined in Code section 416(i) (l) (B) during any Plan Year for which contributions are made under this Section's welfare benefits, the Administrative Committee must cause the appropriate Trustees and co-Trustees to establish and maintain a separate account. Each such Employee's separate subaccount of this Section's separate subaccount must hold the assets used to fund this Section's benefits for that Employee and his Spouse and dependents. Benefits under this Section for an Employee described in this subsection or for his Spouse and dependents may be paid only from the separate subaccount maintained for him." 13.03 AMENDMENTS EFFECTIVE MARCH 1, 1994. (a) Section 5.03(b) is amended effective March 1, 1994 with respect to Participants retiring from service on or after said date by adding the following sentence at the end thereof: "Notwithstanding the foregoing, the Pension payable under this Section 5.03(b) for any Participant who retires from service after completing twenty-five Years of Vesting Service shall not be less than his Accrued Pension as of February 28, 1994 reduced by 5% for each year by which the date the Participant's early retirement Pension begins precedes the first day of the calendar month coincidental with or next following the Participants sixty- second birthday, with a pro-rata reduction for any portion of a year." (b) The last sentence of Section 5.05(b) is amended to read as follows: "In that case, the Participant's Pension shall be equal to the vested Pension otherwise payable at his Normal Retirement Date reduced as provided for Early Retirement in Section 5.03." (c) Section 5.08 of the Plan is deleted effective March 1, 1994 for Participants retiring from service on or after said date. EX-21 5 EXHIBIT 21 Exhibit 21 THE WALT DISNEY COMPANY AND SUBSIDIARIES Name of subsidiary State of Incorporation - ------------------ ---------------------- Buena Vista Home Video, Inc. California Buena Vista International, Inc. California Buena Vista Pictures Distribution, Inc. California Buena Vista Television California EDL Holding Company Delaware Fidelity Television, Inc. California KCAL-TV, Inc. California Lake Buena Vista Communities, Inc. Delaware The Disney Channel California The Disney Store, Inc. California Walt Disney Pictures and Television California Walt Disney World Co. Delaware WCO Parent Corporation Delaware EX-27 6 EXHIBIT 27
5 The schedule contains summary financial information extracted from the consolidated balance sheet and consolidated statement of income found on pages 27 and 26 of the Company's Form 10-K for 1994 and is qualified in its entirety by reference to such financial statements. 1,000,000 US DOLLARS 12-MOS SEP-30-1994 OCT-1-1993 SEP-30-1994 1 187 1323 1670 0 668 0 8442 2627 12826 0 2937 945 0 0 4563 12826 10055 10055 0 8089 162 0 120 1703 593 1110 0 0 0 1110 2.04 2.04
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