SEC Filing | Hasbro, Inc.

SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the period ended March 29, 1998 Commission file number 1-6682 HASBRO, INC. -------------------- (Name of Registrant) Rhode Island O5-0155090 - - ------------------------ ------------------------------------ (State of Incorporation) (I.R.S. Employer Identification No.) 1027 Newport Avenue, Pawtucket, Rhode Island 02861 --------------------------------------------------- (Principal Executive Offices) (401) 431-8697 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 (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X or No --- --- The number of shares of Common Stock, par value $.50 per share, outstanding as of April 26, 1998 was 132,852,476. HASBRO, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Thousands of Dollars Except Share Data) (Unaudited) Mar. 29, Mar. 30, Dec. 28, Assets 1998 1997 1997 -------- -------- -------- Current assets Cash and cash equivalents $ 430,601 289,546 361,785 Accounts receivable, less allowance for doubtful accounts of $53,400, $47,000 and $51,700 362,328 517,022 783,008 Inventories: Finished products 219,105 214,342 198,215 Work in process 14,743 17,167 12,208 Raw materials 35,249 37,436 32,279 --------- --------- --------- Total inventories 269,097 268,945 242,702 Deferred income taxes 97,576 77,641 96,489 Prepaid expenses 107,633 102,754 89,890 --------- --------- --------- Total current assets 1,267,235 1,255,908 1,573,874 Property, plant and equipment, net 271,607 299,626 280,603 --------- --------- --------- Other assets Cost in excess of acquired net assets, less accumulated amortization of $131,873, $118,986 and $128,237 478,558 455,358 486,502 Other intangibles, less accumulated amortization of $145,030, $107,850 and $135,467 486,474 362,267 478,798 Other 88,092 76,729 79,940 --------- --------- --------- Total other assets 1,053,124 894,354 1,045,240 --------- --------- --------- Total assets $2,591,966 2,449,888 2,899,717 ========= ========= ========= HASBRO, INC. AND SUBSIDIARIES Consolidated Balance Sheets, Continued (Thousands of Dollars Except Share Data) (Unaudited) Mar. 29, Mar. 30, Dec. 28, Liabilities and Shareholders' Equity 1998 1997 1997 -------- -------- -------- Current liabilities Short-term borrowings $ 112,465 69,543 122,024 Trade payables 83,075 91,967 179,156 Accrued liabilities 447,949 315,913 596,033 Income taxes 85,991 120,428 106,333 --------- --------- --------- Total current liabilities 729,480 597,851 1,003,546 Long-term debt, excluding current installments - 149,208 - Deferred liabilities 59,771 68,937 58,054 --------- --------- --------- Total liabilities 789,251 815,996 1,061,600 --------- --------- --------- Shareholders' equity Preference stock of $2.50 par value. Authorized 5,000,000 shares; none issued - - - Common stock of $.50 par value. Authorized 300,000,000 shares; issued 139,799,011, 132,168,378 and 139,799,011 69,900 66,084 69,900 Additional paid-in capital 487,734 280,128 489,447 Retained earnings 1,454,697 1,379,737 1,457,495 Accumulated other comprehensive earnings (12,185) 4,533 (3,903) Treasury stock, at cost, 6,726,738, 3,705,166 and 6,357,948 shares (197,431) (96,590) (174,822) --------- --------- --------- Total shareholders' equity 1,802,715 1,633,892 1,838,117 --------- --------- --------- Total liabilities and shareholders' equity $2,591,966 2,449,888 2,899,717 ========= ========= ========= See accompanying condensed notes to consolidated financial statements. HASBRO, INC. AND SUBSIDIARIES Consolidated Statements of Earnings (Thousands of Dollars Except Share Data) (Unaudited) Quarter Ended -------------------- Mar. 29, Mar. 30, 1998 1997 -------- -------- Net revenues $482,820 555,784 Cost of sales 204,312 235,371 ------- ------- Gross profit 278,508 320,413 ------- ------- Expenses Amortization 14,143 10,032 Royalties, research and development 67,336 63,892 Advertising 55,757 71,302 Selling, distribution and administration 135,249 134,781 ------- ------- Total expenses 272,485 280,007 ------- ------- Operating profit 6,023 40,406 ------- ------- Nonoperating (income) expense Interest expense 2,312 4,430 Other (income), net (8,097) (4,171) ------- ------- Total nonoperating (income) expense (5,785) 259 ------- ------- Earnings before income taxes 11,808 40,147 Income taxes 4,015 14,453 ------- ------- Net earnings $ 7,793 25,694 ======= ======= Per common share Net earnings Basic $ .06 .20 ======= ======= Diluted $ .06 .20 ======= ======= Cash dividends declared $ .08 .08 ======= ======= See accompanying condensed notes to consolidated financial statements. HASBRO, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Quarters Ended March 29, 1998 and March 30, 1997 (Thousands of Dollars) (Unaudited) 1998 1997 ---- ---- Cash flows from operating activities Net earnings $ 7,793 25,694 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization of plant and equipment 19,548 20,600 Other amortization 14,143 10,032 Deferred income taxes (5,644) (1,553) Change in operating assets and liabilities (other than cash and cash equivalents): Decrease in accounts receivable 413,956 271,373 Increase in inventories (29,002) (2,616) Increase in prepaid expenses (18,525) 4,757 Decrease in trade payables and accrued liabilities (255,514) (164,747) Other (5,289) 930 ------- ------- Net cash provided by operating activities 141,466 164,470 ------- ------- Cash flows from investing activities Additions to property, plant and equipment (17,559) (12,536) Investments and acquisitions, net of cash acquired (17,500) (2,719) Other 10,627 (1,577) ------- ------- Net cash utilized by investing activities (24,432) (16,832) ------- ------- Cash flows from financing activities Proceeds from borrowings with original maturities of more than three months 850 - Repayments of borrowings with original maturities of more than three months (838) (2,499) Net repayments of other short-term borrowings (7,234) (42,596) Purchase of common stock (52,371) (32,511) Stock option transactions 28,049 14,191 Dividends paid (10,640) (8,561) ------- ------- Net cash utilized by financing activities (42,184) (71,976) ------- ------- Effect of exchange rate changes on cash (6,034) (5,087) ------- ------- Increase in cash and cash equivalents 68,816 70,575 Cash and cash equivalents at beginning of year 361,785 218,971 ------- ------- Cash and cash equivalents at end of period $430,601 289,546 ======= ======= Supplemental information Cash paid during the period for: Interest $ 1,740 1,697 Income taxes $ 25,226 29,617 See accompanying condensed notes to consolidated financial statements. HASBRO, INC. AND SUBSIDIARIES Condensed Notes to Consolidated Financial Statements (Thousands of Dollars) (Unaudited) (1) In the opinion of management and subject to year-end audit, the accompanying unaudited interim financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position of the Company as of March 29, 1998 and March 30, 1997, and the results of operations and cash flows for the periods then ended. The results of operations for the quarter ended March 29, 1998, are not necessarily indicative of results to be expected for the full year. (2) Earnings per share data for the fiscal quarters ended March 29, 1998 and March 30, 1997 were computed as follows: 1998 1997 ----------------- ----------------- Basic Diluted Basic Diluted ------- ------- ------- ------- Net earnings $ 7,793 7,793 25,694 25,694 Effect of dilutive securities; 6% Convertible Notes due 1998 - - - 1,437 ------- ------- ------- ------- Adjusted net earnings $ 7,793 7,793 25,694 27,131 ======= ======= ======= ======= Average shares outstanding (in thousands) 133,110 133,110 128,599 128,599 Effect of dilutive securities; 6% Convertible Notes due 1998 - - - 7,635 Options and warrants - 5,099 - 2,475 ------- ------- ------- ------- Equivalent shares 133,110 138,209 128,599 138,709 ======= ======= ======= ======= Earnings per share $ .06 .06 .20 .20 ======= ======= ======= ======= HASBRO, INC. AND SUBSIDIARIES Condensed Notes to Consolidated Financial Statements (continued) (Thousands of Dollars) (Unaudited) (3) Effective for fiscal 1998, Hasbro adopted Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS 130). SFAS 130 requires that all items recognized under accounting standards as components of comprehensive earnings be reported in a financial statement that is displayed with the same prominence as other financial statements. SFAS 130 also requires that an entity classify items of other comprehensive earnings by their nature in the financial statements and display the accumulated amount thereof separately within the equity section of the balance sheet. The Company's other comprehensive earnings (loss) primarily results from foreign currency translation adjustments. Hasbro's total comprehensive earnings (loss) for the fiscal quarters ended March 29, 1998 and March 30, 1997 were as follows: 1998 1997 ---- ---- Net earnings $ 7,793 25,694 Other comprehensive earnings (loss) (8,282) (15,460) ------- ------- Total comprehensive earnings (loss) $ (489) 10,234 ======= ======= (4) Late in the fourth quarter of 1997, the Company announced a global integration and profit enhancement program which anticipated the redundancy of approximately 2,500 employees, principally in manufacturing, and provided for actions in three principal areas: a continued consolidation of the Company's manufacturing operations; the streamlining of marketing and sales, while exiting from certain underperforming markets and product lines; and the further leveraging of overheads. Of the $140,000 estimated costs related to these actions, $125,000 was reported as a nonrecurring charge and $15,000 was reflected in cost of sales. Of the nonrecurring amount, approximately $54,000 related to severance and people costs, $52,000 to property, plant and equipment and leases and $19,000 to product line related costs. During the first quarter of 1998, approximately 1,000 employees were terminated. The approximate $110,000 accrual remaining at March 29, 1998, is principally attributable to severance costs, which will be disbursed over the employee's entitlement period, and property, plant and equipment costs, which will not be incurred prior to the cessation of production at the various facilities. The program remains on schedule to be substantially completed by the end of 1998. HASBRO, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations (Thousands of dollars) NET REVENUES - - ------------ Net revenues for the first quarter of 1998 were $482,820, compared with the $555,784 reported for the same period of 1997, a decrease of approximately 13%. Substantially all of the decrease was due to changes in inventory flow policies at Toys `R Us, a key customer, including a significant reduction in their absolute level of inventories and a change in their seasonal purchasing patterns. The stronger U.S. dollar did, however, also contribute approximately $10,000 to the reduction in revenues. Offsetting these decreases was approximately $33,000 in additional revenues attributable to the Company's OddzOn unit, acquired in the second quarter of 1997. Taking these factors into consideration, the Company's product lines performed substantially as expected. In the first quarter of 1997, revenues were boosted by the timing of movie releases of two of the Company's major entertainment properties, Star Wars(TM) and Jurassic Park(R). GROSS PROFIT - - ------------ The Company's gross profit margin, expressed as a percentage of net revenues, remained constant with the 1997 level of 57.7%. The lower mix of promotional product sales, which could have been expected to erode margins, was offset by the benefits of certain cost saving actions implemented by the Company during mid-1997. EXPENSES - - -------- Royalties, research and development expenses for the quarter increased in both amount and as a percentage of revenues from 1997 levels. The royalty component decreased in dollars, reflecting the lower revenues, while increasing as a percentage of revenues, more closely reflecting the rates experienced during the later quarters of 1997. Research and development, at $35,276, increased in both dollars and as a percentage of revenues from the $31,057 in 1997. This increase reflects both the activities of the Company's OddzOn unit, acquired in May of 1997, and the increased development activity within the Company's Interactive unit as it continues building for the future. The current quarter advertising expense decreased as a percentage of net revenues to 11.5% from 12.8% a year ago, as well as decreasing in amount. This decrease reflects both the Company's efforts to make more effective use of its advertising dollars and the greater proportion of first quarter revenues arising from products which are not as extensively advertised as many of the Company's other offerings. HASBRO, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued (Thousands of dollars) The Company's selling, distribution and administration expenses, which are largely fixed, increased $500 from their 1997 levels, despite the inclusion of the OddzOn unit, acquired in May of 1997, and the full quarter impact of the Latin American units, which began operation during the first quarter of 1997. The increase in percentage terms is principally a function of the lower 1998 revenues. NONOPERATING (INCOME) EXPENSE - - ----------------------------- Within the nonoperating category, the lower interest expense, $2,312 in 1998 compared with $4,430 in 1997, reflects both the conversion of the Company's 6% notes into common stock during the fourth quarter of 1997 and the lower short-term borrowing requirements and rates in 1998. The increased level of other nonoperating income, net in 1998 reflects increases in both earnings from short-term investments and income resulting from minority interests in certain subsidiaries. INCOME TAXES - - ------------ Income tax expense as a percentage of pretax earnings in the first quarter of 1998 remained constant with the full year 1997 rate of 34.0% while decreasing from 36.0% in the first quarter of 1997. The decrease in the quarter to quarter rate resulted primarily from the continued reorganization of the Company's global business which reduced the tax on international earnings. OTHER INFORMATION - - ----------------- During the past several years the Company has experienced a shift in its revenue pattern wherein the second half of the year has grown in significance to its overall business and within that half the fourth quarter has become more prominent. The Company expects that this trend will continue. This concentration increases the risk of (a) underproduction of popular items, (b) overproduction of less popular items and (c) failure to achieve tight and compressed shipping schedules. The business of the Company is characterized by customer order patterns which vary from year to year largely because of differences in the degree of consumer acceptance of a product line, product availability, marketing strategies and inventory levels of retailers and differences in overall economic conditions. Also, quick response inventory management practices now being used results in fewer orders being placed in advance of shipment and more orders, when placed, for immediate delivery. As a result, comparisons of unshipped orders on any date in a given year with those at the same date in a prior year are not necessarily indicative of sales for the entire year. In addition, it is a general industry practice that orders are subject to amendment or cancellation by customers prior to shipment. At the end of its fiscal April (April 26, 1998 and April 27, 1997) the Company's unshipped orders were approximately $190,000 and $410,000, respectively. HASBRO, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued (Thousands of dollars) Late in the fourth quarter of 1997, the Company announced a global integration and profit enhancement program which anticipated the redundancy of approximately 2,500 employees, principally in manufacturing, and provided for actions in three principal areas: a continued consolidation of the Company's manufacturing operations; the streamlining of marketing and sales, while exiting from certain underperforming markets and product lines; and the further leveraging of overheads. Of the $140,000 estimated costs related to these actions, $125,000 was reported as a nonrecurring charge and $15,000 was reflected in cost of sales. Of the nonrecurring amount, approximately $54,000 related to severance and people costs, $52,000 to property, plant and equipment and leases and $19,000 to product line related costs. During the first quarter of 1998, approximately 1,000 employees were terminated. The approximate $110,000 accrual remaining at March 29, 1998, is principally attributable to severance costs, which will be disbursed over the employee's entitlement period, and property, plant and equipment costs, which will not be incurred prior to the cessation of production at the various facilities. The program remains on schedule to be substantially completed by the end of 1998. LIQUIDITY AND CAPITAL RESOURCES - - ------------------------------- Because of the seasonality of the Company's business coupled with certain customer incentives, mainly in the form of extended payment terms, the interim cash flow statements are not representative of that which may be expected for the full year. As a result of these extended payment terms, the majority of the Company's cash collections occur late in the fourth quarter and early in the first quarter of the subsequent year. As receivables are collected late in the fourth quarter and through the first quarter of the subsequent year, cash flow from operations becomes positive and is used to repay a significant portion of the short-term borrowings. As a result, management believes that on an interim basis, rather than discussing its cash flows, a better understanding of its liquidity and capital resources can be obtained through a discussion of the various balance sheet categories. Also, as several of the major categories, including cash and cash equivalents, accounts receivable, inventories and short-term borrowings, fluctuate significantly from quarter to quarter, again due to the seasonality of its business and the extended payment terms offered, management believes that a comparison to the comparable period in the prior year is generally more meaningful than a comparison to the prior year-end. HASBRO, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued (Thousands of dollars) Net cash (cash and cash equivalents less short- and long-term borrowings), at $318,136 increased more than threefold from the $70,795 at March 28, 1997, even though more than $330,000 of cash was utilized during the last twelve months for acquisitions and the continuation of Hasbro's share repurchase program. The Company attempts to keep its cash and cash equivalents at the lowest level possible whenever it has short-term borrowings, although at times the cash available and the borrowing requirement may be in different countries and currencies which may make it impractical to substitute one for the other. At March 29, 1998, the Company had committed unsecured lines of credit totaling approximately $550,000 available to it. It also had available uncommitted lines approximating $760,000. The Company believes that these amounts are adequate for its needs. Of these available lines, approximately $130,000 was in use at March 29, 1998. The subsequent acquisition of the assets of Tiger Electronics, Inc. (see Recent Information) utilized some of the available cash with additional funds provided by short-term borrowings. Receivables, at $362,328, were down slightly more than double the quarter's revenue decrease. This reflects lower balances at the beginning of the current year and the impact of increased revenues generated from the Company's letter of credit and emerging business units, each of which has shorter payment terms. Inventories remained essentially constant with those of a year ago with the impact of the OddzOn acquisition being largely offset by the impact of foreign currency translation rates. Other assets, as a group, increased from their 1997 levels, reflecting the acquisition of the OddzOn unit as well as several acquisitions of product rights and licenses during the most recent twelve months, all partially offset by twelve additional months of amortization expense. RECENT INFORMATION - - ------------------ On April 1, 1998, the Company completed its previously announced acquisition of the business and operating assets of Tiger Electronics, Inc. and certain affiliates thereof, for $335,000, subject to post-closing adjustment, plus the acquisition date value of acquired inventory, tooling, equipment and prepaid assets. In February 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits (SFAS 132). SFAS 132, which will be adopted by the Company during 1998, revises disclosure requirements related to pensions and other postretirement benefits and as such will not have any impact on the Company's financial condition or its results of operations. PART II. Other Information Item 1. Legal Proceedings. None. Item 2. Changes in Securities. None. Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. None Item 5. Other Information. None. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 10 Amended and Restated Nonqualified Deferred Compensation Plan 11 Computation of Earnings Per Common Share - Quarters Ended March 29, 1998 and March 30, 1997. 12 Computation of Ratio of Earnings to Fixed Charges - Quarter Ended March 29, 1998. 27 Financial Data Schedule. (b) Reports on Form 8-K A Current Report on Form 8-K dated April 1, 1998 was filed by the Company and included the Asset Purchase Agreement dated as of February 8, 1998, together with Amendment thereto dated as of March 31, 1998, by and among Hasbro, Inc., HIAC X Corp., a Delaware corporation wholly owned by Hasbro, Inc. and now named Tiger Electronics, Ltd., Tiger Electronics, Inc. and certain affiliates thereof and Owen Randall Rissman and the Rissman Family 1997 Trust. A Current Report on Form 8-K dated April 16, 1998 was filed by the Company and included the Press Release dated April 16, 1998 announcing the Company's results for the current quarter. Consolidated Statements of Earnings (without notes) for the quarters ended March 29, 1998 and March 30, 1997 and Consolidated Condensed Balance Sheets (without notes) as of said dates were also filed. SIGNATURES Pursuant to the requirements 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. HASBRO, INC. ------------ (Registrant) Date: May 13, 1998 By: /s/ John T. O'Neill --------------------- John T. O'Neill Executive Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) HASBRO, INC. AND SUBSIDIARIES Quarterly Report on Form 10-Q For the Period Ended March 29, 1998 Exhibit Index Exhibit No. Exhibits - - ------- -------- 10 Amended and Restated Nonqualified Deferred Compensation Plan 11 Statement re computation of per share earnings - quarter 12 Statement re computation of ratios 27 Financial Data Schedule

EXHIBIT 10 HASBRO, INC. NONQUALIFIED DEFERRED COMPENSATION PLAN Effective October 1, 1997 (As Amended and Restated as of March 20, 1998) TABLE OF CONTENTS Purpose ARTICLE 1 - Definitions ARTICLE 2 - Selection, Enrollment, Eligibility 2.1 Selection by Committee 2.2 Enrollment Requirements 2.3 Eligibility; Commencement of Participation 2.4 Termination of Participation and/or Deferrals ARTICLE 3 - Deferral Commitments/Company Matching/Crediting/Taxes 3.1 Minimum Deferrals 3.2 Maximum Deferral 3.3 Election to Defer; Effect of Election Form 3.4 Withholding of Annual Deferral Amounts 3.5 Annual Company Matching Amount 3.6 Investment of Trust Assets 3.7 Vesting 3.8 Crediting/Debiting of Account Balances 3.9 FICA and Other Taxes 3.10 Distributions 3.11 Employer Deferral ARTICLE 4 - Short-Term Payout; Unforeseeable Financial Emergencies; Withdrawal Election ARTICLE 5 - Retirement Benefit ARTICLE 6 - Pre-Retirement Survivor Benefit ARTICLE 7 - Termination Benefit ARTICLE 8 - Disability Waiver and Benefit 8.1 Disability Waiver 8.2 Continued Eligibility; Disability Benefit ARTICLE 9 - Beneficiary Designation 9.1 Beneficiary 9.2 Beneficiary Designation; Change 9.3 Acknowledgment 9.4 No Beneficiary Designation 9.5 Doubt as to Beneficiary 9.6 Discharge of Obligations ARTICLE 10 - Leave of Absence ARTICLE 11 - Termination, Amendment or Modification 11.1 Termination 11.2 Amendment 11.3 Plan Agreement 11.4 Effect of Payment ARTICLE 12 - Administration 12.1 Committee Duties 12.2 Agents 12.3 Binding Effect of Decisions 12.4 Indemnity of Committee 12.5 Employer Information ARTICLE 13 - Other Benefits and Agreements 13.1 Coordination with Other Benefits ARTICLE 14 - Claims Procedures 14.1 Presentation of Claim 14.2 Notification of Decision 14.3 Review of a Denied Claim 14.4 Decision on Review 14.5 Legal Action ARTICLE 15 - Trust 15.1 Establishment of the Trust 15.2 Interrelationship of the Plan and the Trust 15.3 Distributions From the Trust ARTICLE 16 - Miscellaneous 16.1 Status of Plan 16.2 Unsecured General Creditor 16.3 Employer's Liability 16.4 Nonassignability 16.5 Not a Contract of Employment 16.6 Furnishing Information 16.7 Terms 16.8 Captions 16.9 Governing Law 16.10 Notice 16.11 Successors 16.12 Validity 16.13 Incompetent 16.14 Distribution in the Event of Taxation 16.15 Insurance 16.16 Legal Fees To Enforce Rights After Change in Control HASBRO, INC. NONQUALIFIED DEFERRED COMPENSATION PLAN Effective October 1, 1997 (As Amended and Restated as of March 20, 1998) Purpose The purpose of this Plan is to provide specified benefits to a select group of management and highly compensated Employees who contribute materially to the continued growth, development and future business success of Hasbro, Inc., a Rhode Island corporation, and its subsidiaries, if any, that sponsor this Plan. This Plan shall be unfunded for tax purposes and for purposes of Title I of ERISA. ARTICLE 1 Definitions For purposes of this Plan, unless otherwise clearly apparent from the context, the following phrases or terms shall have the following indicated meanings: 1.1 "Account Balance" shall mean, with respect to a Participant, a credit on the records of the Employer equal to the sum of (i) the Deferral Account balance and (ii) the Company Matching and Discretionary Account balance. The Account Balance, and each other specified account balance, shall be a bookkeeping entry only and shall be utilized solely as a device for the measurement and determination of the amounts to be paid to a Participant, or his or her designated Beneficiary, pursuant to this Plan. 1.2 "Annual Bonus" shall mean any compensation, in addition to Base Annual Salary relating to services performed during any calendar year, whether or not paid in such calendar year or included on the Federal Income Tax Form W-2 for such calendar year, payable to a Participant as an Employee under any Employer's annual bonus and cash incentive plans, excluding stock options, holiday bonuses, retention bonuses, or any other discretionary or special bonus or awards. 1.3 "Annual Company Matching Amount" for any one Plan Year shall be the amount determined in accordance with Section 3.5. 1.4 "Annual Deferral Amount" shall mean that portion of a Participant's Base Annual Salary and Annual Bonus that a Participant elects to have, and is deferred, in accordance with Article 3, for any one Plan Year. In the event of a Participant's Retirement, Disability (if deferrals cease in accordance with Section 8.1), death or a Termination of Employment prior to the end of a Plan Year, such year's Annual Deferral Amount shall be the actual amount withheld prior to such event. 1.5 "Base Annual Salary" shall mean the annual cash compensation relating to services performed during any calendar year, whether or not paid in such calendar year or included on the Federal Income Tax Form W-2 for such calendar year, excluding bonuses of every type, commissions, overtime, fringe benefits, stock options, relocation expenses, incentive payments, nonmonetary awards, directors fees and other fees, automobile and other allowances paid to a Participant for employment services rendered (whether or not such allowances are included in the Employee's gross income). Base Annual Salary shall be calculated before reduction for compensation voluntarily deferred or contributed by the Participant pursuant to all qualified or non-qualified plans of any Employer and shall be calculated to include amounts not otherwise included in the Participant's gross income under Code Sections 125, 402(e)(3), 402(h), or 403(b) pursuant to plans established by any Employer; provided, however, that all such amounts will be included in compensation only to the extent that, had there been no such plan, the amount would have been payable in cash to the Employee. 1.6 "Annual Installment Method" shall be an annual installment payment over the number of years selected by the Participant in accordance with this Plan, calculated as follows: The Account Balance of the Participant shall be calculated as of the close of business three business days prior to the last business day of the year. The annual installment shall be calculated by multiplying this balance by a fraction, the numerator of which is one, and the denominator of which is the remaining number of annual payments due the Participant. By way of example, if the Participant elects a 10 year Annual Installment Method, the first payment shall be 1/10 of the Account Balance, calculated as described in this definition. The following year, the payment shall be 1/9 of the Account Balance, calculated as described in this definition. Each annual installment shall be paid on or as soon as practicable after the last business day of the applicable year. 1.7 "Beneficiary" shall mean one or more persons, trusts, estates or other entities, designated in accordance with Article 9, that are entitled to receive benefits under this Plan upon the death of a Participant. 1.8 "Beneficiary Designation Form" shall mean the form established from time to time by the Committee that a Participant completes, signs and returns to the Committee to designate one or more Beneficiaries. 1.9 "Board" shall mean the board of directors of the Company. 1.10 "Change in Control" shall mean the first to occur of any of the following events: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the "1934 Act") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of 20% or more of either (i) the then outstanding shares of Common Stock of Hasbro, Inc. ("Hasbro") (the "Outstanding Common Stock") or (ii) the combined voting power of the then outstanding voting securities of Hasbro entitled to vote generally in the election of directors (the "Outstanding voting Securities"); provided, however, that the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from Hasbro or any of its subsidiaries, (ii) any acquisition by Hasbro or any of its subsidiaries, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by Hasbro or any of its subsidiaries, (iv) any acquisition by Alan or Sylvia Hassenfeld, members of their respective immediate families, or heirs of Alan or Sylvia Hassenfeld or of any member of their respective immediate families, the Sylvia Hassenfeld Trust, the Merrill Hassenfeld Trust, the Alan Hassenfeld Trust, the Hassenfeld Foundation, any trust or foundation established by or for the primary benefit of any of the foregoing or controlled by one or more of any of the foregoing, or any affiliates or associates (as such terms are defined in Rule 12b-2 promulgated under the 1934 Act) of any of the foregoing or (v) any acquisition by any corporation with respect to which, following such acquisition, more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Common Stock and the Outstanding Voting Securities immediately prior to such acquisition in substantially the same proportions as their ownership, immediately prior to such acquisition, of the Outstanding Common Stock and Outstanding Voting Securities, as the case may be; or (b) Individuals who, as the effective date of the Plan constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the effective date of the Plan whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the 1934 Act) or other actual or threatened solicitation of proxies or consents; or (c) Approval by the shareholders of Hasbro of a reorganization, merger or consolidation, in each case, with respect to which all or substantially all of the individuals and entities who were the beneficial owners, respectively of the Outstanding Common Stock and Outstanding Voting Securities immediately prior to such reorganization, merger or consolidation do not, following such reorganization, merger or consolidation, beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such reorganization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation, of the outstanding Common Stock and Outstanding Voting Securities, as the case may be; or (d) Approval by the shareholders of Hasbro of (i) a complete liquidation or dissolution of Hasbro or (ii) the sale or other disposition of all or substantially all of the assets of Hasbro, other than to a corporation, with respect to which following such sale or other disposition, more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Common Stock and Outstanding Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Common Stock and Outstanding Voting Securities, as the case may be. 1.11 "Claimant" shall have the meaning set forth in Section 14.1. 1.12 "Code" shall mean the Internal Revenue Code of 1986, as it may be amended from time to time. 1.13 "Committee" shall mean the committee described in Article 12. 1.14 "Company" shall mean Hasbro, Inc., a Rhode Island corporation, and any successor to all or substantially all of the Company's assets or business. 1.15 "Company Matching and Discretionary Account" shall mean (i) the sum of all of a Participant's Annual Company Matching Amounts and Annual Company Discretionary Amounts, plus (ii) amounts credited in accordance with all the applicable crediting provisions of this Plan that relate to the Participant's Company Matching and Discretionary Account, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to the Participant's Company Matching and Discretionary Account. 1.16 "Deduction Limitation" shall mean the following described limitation on a benefit that may otherwise be distributable pursuant to the provisions of this Plan. Except as otherwise provided, this limitation shall be applied to all distributions that are "subject to the Deduction Limitation" under this Plan. If an Employer determines in good faith prior to a Change in Control that there is a reasonable likelihood that any compensation paid to a Participant for a taxable year of the Employer would not be deductible by the Employer solely by reason of the limitation under Code Section 162(m), then to the extent deemed necessary by the Employer to ensure that the entire amount of any distribution to the Participant pursuant to this Plan prior to the Change in Control is deductible, the Employer may defer all or any portion of a distribution under this Plan. Any amounts deferred pursuant to this limitation shall continue to be credited/debited with additional amounts in accordance with Section 3.8 below. The amounts so deferred and amounts credited thereon shall be distributed to the Participant or his or her Beneficiary (in the event of the Participant's death) at the earliest possible date, as determined by the Employer in good faith, on which the deductibility of compensation paid or payable to the Participant for the taxable year of the Employer during which the distribution is made will not be limited by Section 162(m), or if earlier, the effective date of a Change in Control. Notwithstanding anything to the contrary in this Plan, the Deduction Limitation shall not apply to any distributions made after a Change in Control. 1.17 "Deferral Account" shall mean (i) the sum of all of a Participant's Annual Deferral Amounts, plus (ii) amounts credited in accordance with all the applicable crediting provisions of this Plan that relate to the Participant's Deferral Account, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to his or her Deferral Account. 1.18 "Disability" shall mean a period of disability during which a Participant qualifies for disability benefits under the Participant's Employer's long-term disability plan, or, if a Participant does not participate in such a plan, a period of disability during which the Participant would have qualified for permanent disability benefits under such a plan had the Participant been a participant in such a plan, as determined in the sole discretion of the Committee. If the Participant's Employer does not sponsor such a plan, or discontinues to sponsor such a plan, Disability shall be determined by the Committee in its sole discretion. 1.19 "Disability Benefit" shall mean the benefit set forth in Article 8. 1.20 "Election Form" shall mean the form established from time to time by the Committee that a Participant completes, signs and returns to the Committee to make an election under the Plan. 1.21 "Employee" shall mean a person who is an employee of any Employer. 1.22 "Employer(s)" shall mean the Company and/or any of its subsidiaries (now in existence or hereafter formed or acquired) that have been selected by the Board or any authorized committee thereof to participate in the Plan and have adopted the Plan as a sponsor. 1.23 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as it may be amended from time to time. 1.24 "First Plan Year" shall mean the period beginning October 1, 1997 and ending December 31, 1997. 1.25 "401(k) Plan" shall mean that certain Hasbro, Inc. Retirement Savings Plan adopted by the Company. 1.26 "Maximum 401(k) Amount" with respect to a Participant, shall be the maximum amount of elective contributions that can be made by such Participant, consistent with Code Section 402(g) and the limitations of Code Section 401(k)(3), for a given plan year under the 401(k) Plan. 1.27 "Participant" shall mean any Employee (i) who is selected to participate in the Plan, (ii) who elects to participate in the Plan, (iii) who signs a Plan Agreement, an Election Form and a Beneficiary Designation Form, (iv) whose signed Plan Agreement, Election Form and Beneficiary Designation Form are accepted by the Committee, (v) who commences participation in the Plan, and (vi) whose Plan Agreement has not terminated. A spouse or former spouse of a Participant shall not be treated as a Participant in the Plan or have an account balance under the Plan, even if he or she has an interest in the Participant's benefits under the Plan as a result of applicable law or property settlements resulting from legal separation or divorce. 1.28 "Plan" shall mean the Company's Nonqualified Deferred Compensation Plan, which shall be evidenced by this instrument and by each Plan Agreement, as they may be amended from time to time. 1.29 "Plan Agreement" shall mean a written agreement, as may be amended from time to time, which is entered into by and between an Employer and a Participant. Each Plan Agreement executed by a Participant and the Participant's Employer shall provide for the entire benefit to which such Participant is entitled under the Plan; should there be more than one Plan Agreement, the Plan Agreement bearing the latest date of acceptance by the Employer shall supersede all previous Plan Agreements in their entirety and shall govern such entitlement. The terms of any Plan Agreement may be different for any Participant, and any Plan Agreement may provide additional benefits not set forth in the Plan or limit the benefits otherwise provided under the Plan; provided, however, that any such additional benefits or benefit limitations must be agreed to by both the Employer and the Participant. 1.30 "Plan Year" shall, except for the First Plan Year, mean a period beginning on January 1 of each calendar year and continuing through December 31 of such calendar year. 1.31 "Pre-Retirement Survivor Benefit" shall mean the benefit set forth in Article 6 for purposes of this Plan only. 1.32 "Retirement", "Retire(s)" or "Retired" shall mean, with respect to an Employee, severance from employment from all Employers for any reason other than a leave of absence, death or Disability on or after the earlier of the attainment of (a) age sixty-five (65) or (b) age fifty-five (55) with ten (10) Years of Service. The definition in this Section 1.32 shall not have any effect on any other plan maintained by the Employer. 1.33 "Retirement Benefit" shall mean the benefit set forth in Article 5. 1.34 "Short-Term Payout" shall mean the payout set forth in Section 4.1. 1.35 "Termination Benefit" shall mean the benefit set forth in Article 7. 1.36 "Termination of Employment" shall mean the severing of employment with all Employers, voluntarily or involuntarily, for any reason other than Retirement, Disability, death or an authorized leave of absence. 1.37 "Trust" shall mean one or more trusts established pursuant to one or more trust agreements between the Company and the trustee named therein, as amended from time to time. 1.38 "Unforeseeable Financial Emergency" shall mean an unanticipated emergency that is caused by an event beyond the control of the Participant that would result in severe financial hardship to the Participant resulting from (i) a sudden and unexpected illness or accident of the Participant or a dependent of the Participant, (ii) a loss of the Participant's property due to casualty, or (iii) such other extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, all as determined in the sole discretion of the Committee. 1.39 "Years of Plan Participation" shall mean the total number of full Plan Years a Participant has been a Participant in the Plan prior to his or her Termination of Employment (determined without regard to whether deferral elections have been made by the Participant for any Plan Year). Any partial year shall not be counted. Notwithstanding the previous sentence, a Participant's first Plan Year of participation shall be treated as a full Plan Year for purposes of this definition, even if it is only a partial Plan Year of participation. 1.40 "Years of Service" shall mean the total number of full years in which a Participant has been employed by one or more Employers. For purposes of this definition, a year of employment shall be a 365 day period (or 366 day period in the case of a leap year) that, for the first year of employment, commences on the Employee's date of hiring and that, for any subsequent year, commences on an anniversary of that hiring date. Any partial year of employment shall not be counted. ARTICLE 2 Selection, Enrollment, Eligibility 2.1 Selection by Committee. Participation in the Plan shall be limited to a select group of management and highly compensated Employees of the Employers, as determined by the Committee in its sole discretion. From that group, the Committee shall select, in its sole discretion, Employees to participate in the Plan. 2.2 Enrollment Requirements. As a condition to participation, each selected Employee shall complete, execute and return to the Committee a Plan Agreement, an Election Form and a Beneficiary Designation Form, all within 30 days after he or she is selected to participate in the Plan. In addition, the Committee shall establish from time to time such other enrollment requirements as it determines in its sole discretion are necessary. 2.3 Eligibility; Commencement of Participation. Provided an Employee selected to participate in the Plan has met all enrollment requirements set forth in this Plan and required by the Committee, including returning all required documents to the Committee within the specified time period, that Employee shall commence participation in the Plan on the first day of the month following the month in which the Employee completes all enrollment requirements. If an Employee fails to meet all such requirements within the period required, in accordance with Section 2.2, that Employee shall not be eligible to participate in the Plan until the first day of the Plan Year following the delivery to and acceptance by the Committee of the required documents. 2.4 Termination of Participation and/or Deferrals. If the Committee determines in good faith that a Participant no longer qualifies as a member of a select group of management or highly compensated employees, as membership in such group is determined in accordance with Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA, the Committee shall have the right, in its sole discretion, to (i) terminate any deferral election the Participant has made for the remainder of the Plan Year in which the Participant's membership status changes, (ii) prevent the Participant from making future deferral elections and/or (iii) immediately distribute the Participant's then Account Balance as a Termination Benefit and terminate the Participant's participation in the Plan. ARTICLE 3 Deferral Commitments/Company Matching/Crediting/Taxes 3.1 Minimum Deferrals. (a) Base Annual Salary and Annual Bonus. For each Plan Year, a Participant may elect to defer, as his or her Annual Deferral Amount, part or all of the Participant's Base Annual Salary, and/or Annual Bonus in the following minimum amounts for each deferral elected: Deferral Minimum Amount Base Annual Salary $2,000 Annual Bonus $2,000 If an election is made for less than stated minimum amounts, or if no election is made, the amount deferred shall be zero. 3.2 Maximum Deferral (a) Base Annual Salary and Annual Bonus. For each Plan Year, a Participant may elect to defer, as his or her Annual Deferral Amount, part or all of the Participant's Base Annual Salary, and/or Annual Bonus up to the following maximum percentages for each deferral elected: Deferral Maximum Amount Base Annual Salary 100% Annual Bonus 100% Notwithstanding the foregoing, if a Participant first becomes a Participant after the first day of a Plan Year, or in the case of the first Plan Year of the Plan itself, the maximum Annual Deferral Amount, with respect to Base Annual Salary and/or Annual Bonus shall be limited to the amount of compensation not yet earned by the Participant as of the date the Participant submits a Plan Agreement and Election Form to the Committee for acceptance. An election to defer Base Annual Salary and/or Annual Bonus may be expressed as an election to defer (i) a specific percentage, (ii) a specific dollar amount or (iii) the excess over a specified dollar amount. 3.3 Election to Defer; Effect of Election Form. (a) First Plan Year. If a Participant's commencement of participation in the Plan is coincident with the Participant's commencement of employment, the Participant shall, within 30 days after commencement of participation, make an irrevocable deferral election for the Plan Year in which the Participant commences participation in the Plan, along with such other elections as the Committee deems necessary or desirable under the Plan. For these elections to be valid, the Election Form must be completed and signed by the Participant, timely delivered to the Committee (in accordance with Section 2.2 above) and accepted by the Committee. If a Participant's commencement of participation begins after commencement of employment, the Participant may not make a deferral election until the Plan Year beginning after commencement of employment. (b) Subsequent Plan Years. For each succeeding Plan Year, an irrevocable deferral election for that Plan Year, and such other elections as the Committee deems necessary or desirable under the Plan, shall be made by timely delivering to the Committee, in accordance with its rules and procedures, before the end of the Plan Year preceding the Plan Year for which the election is made, a new Election Form. If no such Election Form is timely delivered for a Plan Year, the Annual Deferral Amount shall be zero for that Plan Year. 3.4 Withholding of Annual Deferral Amounts. For each Plan Year, the Base Annual Salary portion of the Annual Deferral Amount shall be withheld from each regularly scheduled Base Annual Salary payroll in equal amounts, as adjusted from time to time for increases and decreases in Base Annual Salary. The Annual Bonus portion of the Annual Deferral Amount shall be withheld at the time the Annual Bonus is or otherwise would be paid to the Participant, whether or not this occurs during the Plan Year itself. No withholding shall be permitted within twelve months after the Participant has received a hardship distribution from the 401(k) Plan. 3.5 (a) Annual Company Matching Amount. For each Plan Year, an Employer, in its sole discretion, may, but is not required to, credit an Annual Company Matching Amount to the Company Matching and Discretionary Account of any Participant who makes a contribution to the 401(k) Plan of the Maximum 401(k) Amount. A Participant's Annual Company Matching Amount for any Plan Year shall be equal to the matching contributions that would have been made to the 401(k) Plan on his behalf for the plan year of the 401(k) Plan that corresponds to the Plan Year if the Participant had made no deferral and had made a contribution to the 401(k) Plan of the Maximum 401(k) Amount for such plan year, reduced by the amount of any matching contributions that were actually made to the 401(k) Plan on his or her behalf for such plan year. If a Participant is not employed by an Employer as of the last day of a Plan Year other than by reason of his or her Retirement or death, the Annual Company Matching Amount for such Plan Year shall be zero. In the event of Retirement or death, a Participant shall be credited with the Annual Company Matching Amount for the Plan Year in which he or she Retires or dies. (b) Annual Company Discretionary Amount. For each Plan year, an Employer, in its sole discretion, may, but is not required to, credit any amount it disires to any Participant's Matching and discretionary Account, which amount shall be for that Participant the Annual Company Discretioary Amount for that Plan Year. The amount so credited to a Participant may be smaller or larger that the amount credited to any other participant, and the amount credited to any Participant for a plan Year may be zero, even though one or more other Participants receive an Annual Company Discretionary Amount for that Plan Year. The Annual Company Discretionary Amount, if any, shall be credited to the participant's Annual Company Matching and Discretionary Account at any time during the Plan Year as determined by the Company. If a Participatn is not employed by an Employer as of the day within the Plan Year the Annual Company Discretionary Amount is to be credited to the Participant's Matching and Discretionary Account, other than by reason of his or her Retirement or death while employed, the Annual Company Discretionary Amount for that Plan Year for that Participant shall be zero. In the event of Retirement or death, a Participant shall be credited with the Annual Company Discretionary Amount for the Plan Year in which he or she Retires or dies. 3.6 Investment of Trust Assets. The Trustee of the Trust shall be authorized, upon written instructions received from the Committee or investment manager appointed by the Committee, to invest and reinvest the assets of the Trust in accordance with the applicable Trust Agreement, including the disposition of stock and reinvestment of the proceeds in one or more investment vehicles designated by the Committee. 3.7 Vesting. (a) A Participant shall at all times be 100% vested in his or her Deferral Account. (b) A Participant's Company Matching and Discretionary Account shall vest on the January 1 next following the Participant's completion of a Year of Service. (c) Notwithstanding anything to the contrary contained in this Section 3.7, in the event of a Change in Control, a Participant's Company Matching and Discretionary Account shall immediately become 100% vested (if it is not already vested in accordance with the above vesting schedule). 3.8 Crediting/Debiting of Account Balances. In accordance with, and subject to, the rules and procedures that are established from time to time by the Committee, in its sole discretion, amounts shall be credited or debited to a Participant's Account Balance in accordance with the following rules: (a) Election of Measurement Funds. A Participant, in connection with his or her initial deferral election in accordance with Section 3.2(a) above, shall elect, on the Election Form, one or more Measurement Fund(s) (as described in Section 3.8(c) below) to be used to determine the additional amounts to be credited to his or her Account Balance for the first calendar quarter or portion thereof in which the Participant commences participation in the Plan and continuing thereafter for each subsequent calendar quarter in which the Participant participates in the Plan, unless changed in accordance with the next sentence. Commencing with the first calendar quarter that follows the Participant's commencement of participation in the Plan and continuing thereafter for each subsequent calendar quarter in which the Participant participates in the Plan, no later than the next to last business day of the calendar quarter, the Participant may (but is not required to) elect, by submitting an Election Form to the Committee that is accepted by the Committee, to add or delete one or more Measurement Fund(s) to be used to determine the additional amounts to be credited to his or her Account Balance, or to change the portion of his or her Account Balance allocated to each previously or newly elected Measurement Fund. If an election is made in accordance with the previous sentence, it shall apply to the next calendar quarter and continue thereafter for each subsequent calendar quarter in which the Participant participates in the Plan, unless changed in accordance with the previous sentence. Notwithstanding the preceding sentence, a Participant may only allocate a portion of his or her Account Balance to a Measurement Fund which reflects the performance of the Common Stock of the Company (the "Company Stock Fund"); additions to the Account Balance may not be allocated to the Company Stock Fund. An election by a Participant to allocate a portion of his or her Account to the Company Stock Fund may be made only once during the period beginning on October 25 and ending on November 5 of each Plan Year, such election to be effective as of January 1 of the next Plan Year. For the year the Company Stock Fund comes into effect, 1998, the reallocation period is from March 16 through March 25 and will be effective as of April 1, 1998. The Committee may in its sole discretion impose such additional restrictions on allocations to or from the Company Stock Fund as it deems necessary or advisable. (b) Proportionate Allocation. In making any election described in Section 3.8(a) above, the Participant shall specify on the Election Form, in increments of one percentage point (1%), the percentage of his or her Account Balance to be allocated to a Measurement Fund (as if the Participant was making an investment in that Measurement Fund with that portion of his or her Account Balance). (c) Measurement Funds. The Participant may elect one or more of the following measurement funds set forth on Schedule A. As necessary, the Committee may, in its sole discretion, discontinue, substitute or add a Measurement Fund. Each such action will take effect as of the first day of the calendar quarter that follows by thirty (30) days the day on which the Committee gives Participants advance written notice of such change. (d) Crediting or Debiting Method. Subject to charges for administrative expenses as provided in Section 3.8(f), the performance of each elected Measurement Fund (either positive or negative) will be determined by the Committee, in its sole discretion, based on the performance of the Measurement Funds themselves. A Participant's Account Balance shall be credited or debited on a daily basis based on the performance of each Measurement Fund selected by the Participant, as determined by the Committee in its sole discretion, as though (i) a Participant's Account Balance were invested in the Measurement Fund(s) selected by the Participant, in the percentages applicable to such calendar quarter, as of the close of business on the first business day of such calendar quarter, at the closing price on such date; (ii) the portion of the Annual Deferral Amount that was actually deferred during any calendar quarter were invested in the Measurement Fund(s) selected by the Participant, in the percentages applicable to such calendar quarter, no later than the close of business on the third business day after the day on which such amounts are actually deferred from the Participant's Base Annual Salary through reductions in his or her payroll, at the closing price on such date; and (iii) any distribution made to a Participant that decreases such Participant's Account Balance ceased being invested in the Measurement Fund(s), in the percentages applicable to such calendar quarter, no earlier than three business days prior to the distribution, at the closing price on such date. The Participant's Annual Company Matching and Discretionary Amount shall be credited to his or her Company Matching Account for purposes of this Section 3.8(d) as of the close of business on the first business day in March of the Plan Year following the Plan Year to which it relates. In the case of an account for which the Company Stock Fund is a Measurement Fund, the equivalent of any cash dividends paid with respect to the Common Stock shall be credited to such account on the last day of the calendar quarter during which the cash dividend was paid. In the event the Company pays a stock dividend or reclassifies or divides or combines its outstanding Common Stock, then an appropriate adjustment shall be made in the Company Stock Fund. (e) No Actual Investment. Notwithstanding any other provision of this Plan that may be interpreted to the contrary, the Measurement Funds are to be used for measurement purposes only, and a Participant's election of any such Measurement Fund, the allocation to his or her Account Balance thereto, the calculation of additional amounts and the crediting or debiting of such amounts to a Participant's Account Balance shall not be considered or construed in any manner as an actual investment of his or her Account Balance in any such Measurement Fund. In the event that the Company or the Trustee (as that term is defined in the Trust), in its own discretion, decides to invest funds in any or all of the Measurement Funds, no Participant shall have any rights in or to such investments themselves. Without limiting the foregoing, a Participant's Account Balance shall at all times be a bookkeeping entry only and shall not represent any investment made on his or her behalf by the Company or the Trust; the Participant shall at all times remain an unsecured creditor of the Company. (f) Expenses. The Account Balance of each Participant shall be debited by the amount of the reasonable administrative expenses of the Plan in the same proportion that the Participant's Account Balance bears to the total Account Balances of all Participants. 3.9 FICA and Other Taxes. (a) Annual Deferral Amounts. For each Plan Year in which an Annual Deferral Amount is being withheld from a Participant, the Participant's Employer(s) shall withhold from that portion of the Participant's Base Annual Salary and Bonus that is not being deferred, in a manner determined by the Employer(s), the Participant's share of FICA and other employment taxes on such Annual Deferral Amount. If necessary, the Committee may reduce the Annual Deferral Amount in order to comply with this Section 3.9. (b) Company Matching Amounts. When a participant becomes vested in a portion of his or her Company Matching and Discretionary Account, the Participant's Employer(s) shall withhold from the Participant's Base Annual Salary and/or Bonus that is not deferred, in a manner determined by the Employer(s), the Participant's share of FICA and other employment taxes. If necessary, the Committee may reduce the vested portion of the Participant's Company Matching Account in order to comply with this Section 3.9. 3.10 Distributions. The Participant's Employer(s), or the trustee of the Trust, shall withhold from any payments made to a Participant under this Plan all federal, state and local income, employment and other taxes required to be withheld by the Employer(s), or the trustee of the Trust, in connection with such payments, in amounts and in a manner to be determined in the sole discretion of the Employer(s) and the trustee of the Trust. 3.11 Employer Deferral. If an Employer determines in good faith prior to a Change in Control that there is a reasonable likelihood that any compensation paid to a Participant for a taxable year would not be deductible by the Employer solely by reason of the limitation under Code Section 162(m), then to the extent deemed necessary by the Employer to ensure that all of the compensation payable to the Participant prior to the Change in Control is deductible, the Employer may reduce the Participant's Base Annual Salary and/or Annual Bonus and treat the amount of such reduction as an amount deferred by the Participant. The amount so deferred and amounts credited thereon shall be distributed to the Participant (or his or her Beneficiary in the event of the Participant's death) at the earliest possible date, as determined by the Employer in good faith, on which the deductibility of compensation paid or payable to the Participant for the taxable year of the Employer during which the distribution is made will not be limited by Section 162(m), or if earlier, the effective date of a Change in Control. No deferrals may be made under this Section 3.11 after the effective date of a Change in Control. For purposes of this Section 3.11 only, the term "Participant" shall mean any Employee who has been selected to participate in the Plan. ARTICLE 4 Short-Term Payout; Unforeseeable Financial Emergencies; Withdrawal Election 4.1 Short-Term Payout. In connection with each election to defer an Annual Deferral Amount, a Participant may irrevocably elect to receive a future "Short-Term Payout" from the Plan with respect to such Annual Deferral Amount. Subject to the Deduction Limitation, the Short-Term Payout shall be a lump sum payment in an amount that is equal to the Annual Deferral Amount plus amounts credited or debited in the manner provided in Section 3.8 above on that amount, determined at the time that the Short-Term Payout becomes payable (rather than the date of a Termination of Employment). Subject to the Deduction Limitation and the other terms and conditions of this Plan, each Short-Term Payout elected shall be paid out during a period beginning 1 day and ending 60 days after the last day of any Plan Year designated by the Participant that is at least three Plan Years after the Plan Year in which the Annual Deferral Amount is actually deferred. By way of example, if a three year Short-Term Payout is elected for Annual Deferral Amounts that are deferred in the Plan Year commencing January 1, 1998, the three year Short-Term Payout would become payable during a 60 day period commencing January 1, 2002. 4.2 Other Benefits Take Precedence Over Short-Term. Should an event occur that triggers a benefit under Article 5, 6, 7 or 8, any Annual Deferral Amount, plus amounts credited or debited thereon, that is subject to a Short-Term Payout election under Section 4.1 shall not be paid in accordance with Section 4.1 but shall be paid in accordance with the other applicable Article. 4.3 Withdrawal Payout/Suspensions for Unforeseeable Financial Emergencies. If the Participant experiences an Unforeseeable Financial Emergency, the Participant may petition the Committee to (i) suspend any deferrals required to be made by a Participant and/or (ii) receive a partial or full payout from the Plan. The payout shall not exceed the lesser of the Participant's Account Balance, calculated as if such Participant were receiving a Termination Benefit, or the amount reasonably needed to satisfy the Unforeseeable Financial Emergency as determined by the Committee. If, subject to the sole discretion of the Committee, the petition for a suspension and/or payout is approved, suspension shall take effect upon the date of approval and any payout shall be made within 60 days of the date of approval. The payment of any amount under this Section 4.3 shall not be subject to the Deduction Limitation or any withdrawal penalty. 4.4 Withdrawal Election. A Participant (or, after a Participant's death, his or her Beneficiary) may elect, at any time, to withdraw all of his or her Account Balance, calculated as if there had occurred a Termination of Employment as of the day of the election, less a withdrawal penalty equal to 10% of such amount (the net amount shall be referred to as the "Withdrawal Amount"). This election can be made at any time, before or after Retirement, Disability, death or Termination of Employment, and whether or not the Participant (or Beneficiary) is in the process of being paid pursuant to an installment payment schedule. If made before Retirement, Disability or death, a Participant's Withdrawal Amount shall be his or her Account Balance calculated as if there had occurred a Termination of Employment as of the day of the election. No partial withdrawals of the Withdrawal Amount shall be allowed. The Participant (or his or her Beneficiary) shall make this election by giving the Committee advance written notice of the election in a form determined from time to time by the Committee. The Participant (or his or her Beneficiary) shall be paid the Withdrawal Amount within 60 days of his or her election. Once the Withdrawal Amount is paid, the Participant's participation in the Plan shall terminate and the Participant shall not be eligible to participate in the Plan until the next enrollment period which is at least 12 months after the date of withdrawal. The payment of this Withdrawal Amount shall not be subject to the Deduction Limitation. ARTICLE 5 Retirement Benefit 5.1 Retirement Benefit. Subject to the Deduction Limitation, a Participant who Retires shall receive, as a Retirement Benefit, his or her Account Balance. 5.2 Payment of Retirement Benefit. A Participant, in connection with his or her commencement of participation in the Plan, shall elect on an Election Form to receive the Retirement Benefit in a lump sum or pursuant to an Annual Installment Method of 5, 10 or 15 years. The Participant may annually change his or her election to an allowable alternative payout period by submitting a new Election Form to the Committee, provided that any such Election Form is submitted at least one year prior to the Participant's Retirement and is accepted by the Committee in its sole discretion. The Election Form most recently accepted by the Committee shall govern the payout of the Retirement Benefit. If a Participant does not make any election with respect to the payment of the Retirement Benefit, then such benefit shall be payable in a lump sum. The lump sum payment shall be made, or installment payments shall commence, no later than 60 days after the date the Participant Retires. Any payment made shall be subject to the Deduction Limitation. 5.3 Death Prior to Completion of Retirement Benefit. If a Participant dies after Retirement but before the Retirement Benefit is paid in full, the Participant's unpaid Retirement Benefit payments shall continue and shall be paid to the Participant's Beneficiary (a) over the remaining number of months and in the same amounts as that benefit would have been paid to the Participant had the Participant survived, or (b) in a lump sum, if requested by the Beneficiary and allowed in the sole discretion of the Committee, that is equal to the Participant's unpaid remaining Account Balance. ARTICLE 6 Pre-Retirement Survivor Benefit 6.1 Pre-Retirement Survivor Benefit. Subject to the Deduction Limitation, the Participant's Beneficiary shall receive a Pre-Retirement Survivor Benefit equal to the Participant's Account Balance if the Participant dies before he or she Retires, experiences a Termination of Employment or suffers a Disability. 6.2 Payment of Pre-Retirement Survivor Benefit. A Participant, in connection with his or her commencement of participation in the Plan, shall elect on an Election Form whether the Pre-Retirement Survivor Benefit shall be received by his or her Beneficiary in a lump sum or pursuant to an Annual Installment Method of 5, 10 or 15 years. The Participant may annually change this election to an allowable alternative payout period by submitting a new Election Form to the Committee, which form must be accepted by the Committee in its sole discretion. The Election Form most recently accepted by the Committee prior to the Participant's death shall govern the payout of the Participant's Pre-Retirement Survivor Benefit. If a Participant does not make any election with respect to the payment of the Pre-Retirement Survivor Benefit, then such benefit shall be paid in a lump sum. Despite the foregoing, if the Participant's Account Balance at the time of his or her death is less than $25,000, payment of the Pre- Retirement Survivor Benefit may be made, in the sole discretion of the Committee, in a lump sum or pursuant to an Annual Installment Method of not more than 5 years. The lump sum payment shall be made, or installment payments shall commence, no later than 60 days after the date the Committee is provided with proof that is satisfactory to the Committee of the Participant's death. Any payment made shall be subject to the Deduction Limitation. ARTICLE 7 Termination Benefit 7.1 Termination Benefit. Subject to the Deduction Limitation, the Participant shall receive a Termination Benefit, which shall be equal to the Participant's vested Account Balance if a Participant experiences a Termination of Employment prior to his or her Retirement, death or Disability. 7.2 Payment of Termination Benefit. If the Participant's vested Account Balance at the time of his or her Termination of Employment is less than $25,000, payment of his or her Termination Benefit shall be paid in a lump sum. If his or her vested Account Balance at such time is equal to or greater than that amount, the Committee, in its sole discretion, may cause the Termination Benefit to be paid in a lump sum or in substantially equal annual installment payments over a period of time that does not exceed five years in duration. The lump sum payment shall be made, or installment payments shall commence, no later than 60 days after the date of the Participant's Termination of Employment. Any payment made shall be subject to the Deduction Limitation. ARTICLE 8 Disability Waiver and Benefit 8.1 Disability Waiver. (a) Waiver of Deferral. A Participant who is determined by the Committee to be suffering from a Disability shall be excused from fulfilling that portion of the Annual Deferral Amount commitment that would otherwise have been withheld from a Participant's Base Annual Salary and Annual Bonus for the Plan Year during which the Participant first suffers a Disability. During the period of Disability, the Participant shall not be allowed to make any additional deferral elections, but will continue to be considered a Participant for all other purposes of this Plan. (b) Return to Work. If a Participant returns to employment with an Employer after a Disability ceases, the Participant may elect to defer an Annual Deferral Amount for the Plan Year following his or her return to employment or service and for every Plan Year thereafter while a Participant in the Plan; provided such deferral elections are otherwise allowed and an Election Form is delivered to and accepted by the Committee for each such election in accordance with Section 3.3 above. 8.2 Continued Eligibility; Disability Benefit. A Participant suffering a Disability shall, for benefit purposes under this Plan, continue to be considered to be employed and shall be eligible for the benefits provided for in Articles 4, 5, 6 or 7 in accordance with the provisions of those Articles. Notwithstanding the above, the Committee shall have the right to, in its sole and absolute discretion and for purposes of this Plan only, and must in the case of a Participant who is otherwise eligible to Retire, deem the Participant to have experienced a Termination of Employment, or in the case of a Participant who is eligible to Retire, to have Retired, at any time (or in the case of a Participant who is eligible to Retire, as soon as practicable) after such Participant is determined to be suffering a Disability, in which case the Participant shall receive a Disability Benefit equal to his or her Account Balance at the time of the Committee's determination; provided, however, that should the Participant otherwise have been eligible to Retire, he or she shall be paid in accordance with Article 5. The Disability Benefit shall be paid in a lump sum within 60 days of the Committee's exercise of such right. Any payment made shall be subject to the Deduction Limitation. ARTICLE 9 Beneficiary Designation 9.1 Beneficiary. Each Participant shall have the right, at any time, to designate his or her Beneficiary(ies) (both primary as well as contingent) to receive any benefits payable under the Plan to a beneficiary upon the death of a Participant. The Beneficiary designated under this Plan may be the same as or different from the Beneficiary designation under any other plan of an Employer in which the Participant participates. 9.2 Beneficiary Designation; Change. A Participant shall designate his or her Beneficiary by completing and signing the Beneficiary Designation Form, and returning it to the Committee or its designated agent. A Participant shall have the right to change a Beneficiary by completing, signing and otherwise complying with the terms of the Beneficiary Designation Form and the Committee's rules and procedures, as in effect from time to time. Upon the acceptance by the Committee of a new Beneficiary Designation Form, all Beneficiary designations previously filed shall be canceled. The Committee shall be entitled to rely on the last Beneficiary Designation Form filed by the Participant and accepted by the Committee prior to his or her death. 9.3 Acknowledgment. No designation or change in designation of a Beneficiary shall be effective until received in writing and acknowledged in writing by the Committee or its designated agent. 9.4 No Beneficiary Designation. If a Participant fails to designate a Beneficiary as provided in Sections 9.1, 9.2 and 9.3 above or, if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant's benefits, then the Participant's designated Beneficiary shall be deemed to be his or her surviving spouse. If the Participant has no surviving spouse, the benefits remaining under the Plan to be paid to a Beneficiary shall be payable to the then living issue of the Participant per stirpes and, if there is no such issue, to the executor or personal representative of the Participant's estate. 9.5 Doubt as to Beneficiary. If the Committee has any doubt as to the proper Beneficiary to receive payments pursuant to this Plan, the Committee shall have the right, exercisable in its discretion, to cause the Participant's Employer to withhold such payments until this matter is resolved to the Committee's satisfaction. 9.6 Discharge of Obligations. The payment of benefits under the Plan to a Beneficiary shall fully and completely discharge all Employers and the Committee from all further obligations under this Plan with respect to the Participant, and that Participant's Plan Agreement shall terminate upon such full payment of benefits. ARTICLE 10 Leave of Absence 10.1 Paid Leave of Absence. If a Participant is authorized by the Participant's Employer for any reason to take a paid leave of absence from the employment of the Employer, the Participant shall continue to be considered employed by the Employer and the Annual Deferral Amount shall continue to be withheld during such paid leave of absence in accordance with Section 3.4. 10.2 Unpaid Leave of Absence. If a Participant is authorized by the Participant's Employer for any reason to take an unpaid leave of absence from the employment of the Employer, the Participant shall continue to be considered employed by the Employer and the Participant shall be excused from making deferrals until the earlier of the date the leave of absence expires or the Participant returns to a paid employment status. Upon such expiration or return, deferrals shall resume for the remaining portion of the Plan Year in which the expiration or return occurs, based on the deferral election, if any, made for that Plan Year. If no election was made for that Plan Year, no deferral shall be withheld. ARTICLE 11 Termination, Amendment or Modification 11.1 Termination. Although each Employer anticipates that it will continue the Plan for an indefinite period of time, there is no guarantee that any Employer will continue the Plan or will not terminate the Plan at any time in the future. Accordingly, each Employer reserves the right to discontinue its sponsorship of the Plan and/or to terminate the Plan at any time with respect to any or all of its participating Employees, by action of its board of directors or any duly authorized committee thereof. Upon the termination of the Plan with respect to any Employer, the Plan Agreements of the affected Participants who are employed by that Employer shall terminate and their Account Balances, determined as if they had experienced a Termination of Employment on the date of Plan termination or, if Plan termination occurs after the date upon which a Participant was eligible to Retire, then with respect to that Participant as if he or she had Retired on the date of Plan termination, shall be paid to the Participants as follows: Prior to a Change in Control, if the Plan is terminated with respect to all of its Participants, an Employer shall have the right, in its sole discretion, and notwithstanding any elections made by the Participant, to pay such benefits in a lump sum or pursuant to an Annual Installment Method of up to 15 years, with amounts credited and debited during the installment period as provided herein. If the Plan is terminated with respect to less than all of its Participants, an Employer shall be required to pay such benefits in a lump sum. After a Change in Control, the Employer shall be required to pay such benefits in a lump sum. The termination of the Plan shall not adversely affect any Participant or Beneficiary who has become entitled to the payment of any benefits under the Plan as of the date of termination; provided however, that the Employer shall have the right to accelerate installment payments without a premium or prepayment penalty by paying the Account Balance in a lump sum or pursuant to an Annual Installment Method using fewer years (provided that the present value of all payments that will have been received by a Participant at any given point of time under the different payment schedule shall equal or exceed the present value of all payments that would have been received at that point in time under the original payment schedule). 11.2 Amendment. Any Employer may, at any time, amend or modify the Plan in whole or in part with respect to that Employer by the action of its board of directors or any duly authorized committee thereof; provided, however, that no amendment or modification shall be effective to decrease or restrict the value of a Participant's Account Balance in existence at the time the amendment or modification is made, calculated as if the Participant had experienced a Termination of Employment as of the effective date of the amendment or modification or, if the amendment or modification occurs after the date upon which the Participant was eligible to Retire, the Participant had Retired as of the effective date of the amendment or modification. The amendment or modification of the Plan shall not affect any Participant or Beneficiary who has become entitled to the payment of benefits under the Plan as of the date of the amendment or modification; provided, however, that the Employer shall have the right to accelerate installment payments by paying the Account Balance in a lump sum or pursuant to an Annual Installment Method using fewer years (provided that the present value of all payments that will have been received by a Participant at any given point of time under the different payment schedule shall equal or exceed the present value of all payments that would have been received at that point in time under the original payment schedule). 11.3 Plan Agreement. Despite the provisions of Sections 11.1 and 11.2 above, if a Participant's Plan Agreement contains benefits or limitations that are not in this Plan document, the Employer may only amend or terminate such provisions with the consent of the Participant. 11.4 Effect of Payment. The full payment of the applicable benefit under Articles 4, 5, 6, 7 or 8 of the Plan shall completely discharge all obligations to a Participant and his or her designated Beneficiaries under this Plan and the Participant's Plan Agreement shall terminate. ARTICLE 12 Administration 12.1 Committee Duties. This Plan shall be administered by a Committee which shall consist of the Board, or such committee as the Board shall appoint. Members of the Committee may be Participants under this Plan. The Committee shall also have the complete discretion and authority to (i) make, amend, interpret, and enforce all appropriate rules and regulations for the administration of this Plan and (ii) decide or resolve any and all questions including interpretations of this Plan, as may arise in connection with the Plan. Any individual serving on the Committee who is a Participant shall not vote or act on any matter relating solely to himself or herself. When making a determination or calculation, the Committee shall be entitled to rely on information furnished by a Participant or the Company. 12.2 Agents. In the administration of this Plan, the Committee may, from time to time, employ agents and delegate to them such administrative duties as it sees fit (including acting through a duly appointed representative) and may from time to time consult with counsel who may be counsel to any Employer. 12.3 Binding Effect of Decisions. The decision or action of the Committee with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in the Plan. 12.4 Indemnity of Committee. All Employers shall indemnify and hold harmless the members of the Committee, and any Employee to whom the duties of the Committee may be delegated, against any and all claims, losses, damages, expenses or liabilities arising from any action or failure to act with respect to this Plan, except in the case of willful misconduct by the Committee or any of its members or any such Employee. 12.5 Employer Information. To enable the Committee to perform its functions, each Employer shall supply full and timely information to the Committee on all matters relating to the compensation of its Participants, the date and circumstances of the Retirement, Disability, death or Termination of Employment of its Participants, and such other pertinent information as the Committee may reasonably require. 12.6 Multiple Committees. The Board may divide the duties of the Committee among more than one Committee. If more than one Committee is established, the Board shall designate the scope of authority of each such Committee. Each such Committee shall have all the powers and privileges set forth above subject only to any limitations on the scope of its authority imposed by the Board. ARTICLE 13 Other Benefits and Agreements 13.1 Coordination with Other Benefits. The benefits provided for a Participant and Participant's Beneficiary under the Plan are in addition to any other benefits available to such Participant under any other plan or program for employees of the Participant's Employer. The Plan shall supplement and shall not supersede, modify or amend any other such plan or program except as may otherwise be expressly provided. ARTICLE 14 Claims Procedures 14.1 Presentation of Claim. Any Participant or Beneficiary of a deceased Participant (such Participant or Beneficiary being referred to below as a "Claimant") may deliver to the Committee a written claim for a determination with respect to the amounts distributable to such Claimant from the Plan. If such a claim relates to the contents of a notice received by the Claimant, the claim must be made within 60 days after such notice was received by the Claimant. All other claims must be made within 180 days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the Claimant. 14.2 Notification of Decision. The Committee shall consider a Claimant's claim within a reasonable time, and shall notify the Claimant in writing: (a) that the Claimant's requested determination has been made, and that the claim has been allowed in full; or (b) that the Committee has reached a conclusion contrary, in whole or in part, to the Claimant's requested determination, and such notice must set forth in a manner calculated to be understood by the Claimant: 1. the specific reason(s) for the denial of the claim, or any part of it; 2. specific reference(s) to pertinent provisions of the Plan upon which such denial was based; 3. a description of any additional material or information necessary for the Claimant to perfect the claim, and an explanation of why such material or information is necessary; and 4. an explanation of the claim review procedure set forth in Section 14.3 below. 14.3 Review of a Denied Claim. Within 60 days after receiving a notice from the Committee that a claim has been denied, in whole or in part, a Claimant (or the Claimant's duly authorized representative) may file with the Committee a written request for a review of the denial of the claim. Thereafter, but not later than 30 days after the review procedure began, the Claimant (or the Claimant's duly authorized representative): A. may review pertinent documents; B. may submit written comments or other documents; and/or C. may request a hearing, which the Committee, in its sole discretion, may grant. 14.4 Decision on Review. The Committee shall render its decision on review promptly, and not later than 60 days after the filing of a written request for review of the denial, unless a hearing is held or other special circumstances require additional time, in which case the Committee's decision must be rendered within 120 days after such date. Such decision must be written in a manner calculated to be understood by the Claimant, and it must contain: A. specific reasons for the decision; B. specific reference(s) to the pertinent Plan provisions upon which the decision was based; and C. such other matters as the Committee deems relevant. 14.5 Legal Action. A Claimant's compliance with the foregoing provisions of this Article 14 is a mandatory prerequisite to a Claimant's right to commence any legal action with respect to any claim for benefits under this Plan. ARTICLE 15 Trust 15.1 Establishment of the Trust. The Company shall establish the Trust, and each Employer shall at least annually transfer over to the Trust such assets as the Employer determines, in its sole discretion, are necessary to provide, on a present value basis, for its respective future liabilities created with respect to the Annual Deferral Amounts and Company Matching Amounts for such Employer's Participants for all periods prior to the transfer, as well as any debits and credits to the Participants' Account Balances for all periods prior to the transfer, taking into consideration the value of the assets in the trust at the time of the transfer. 15.2 Interrelationship of the Plan and the Trust. The provisions of the Plan and the Plan Agreement shall govern the rights of a Participant to receive distributions pursuant to the Plan. The provisions of the Trust shall govern the rights of the Employers, Participants and the creditors of the Employers to the assets transferred to the Trust. Each Employer shall at all times remain liable to carry out its obligations under the Plan. 15.3 Distributions From the Trust. Each Employer's obligations under the Plan may be satisfied with Trust assets distributed pursuant to the terms of the Trust, and any such distribution shall reduce the Employer's obligations under this Plan. ARTICLE 16 Miscellaneous 16.1 Status of Plan. The Plan is intended to be a plan that is not qualified within the meaning of Code Section 401(a) and that "is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employee" within the meaning of ERISA Sections 201(2), 301(a)(3) and 401(a)(1). The Plan shall be administered and interpreted to the extent possible in a manner consistent with that intent. 16.2 Unsecured General Creditor. Participants and their Beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, interests or claims in any property or assets of an Employer. For purposes of the payment of benefits under this Plan, any and all of an Employer's assets shall be, and remain, the general, unpledged unrestricted assets of the Employer. An Employer's obligation under the Plan shall be merely that of an unfunded and unsecured promise to pay money in the future. 16.3 Employer's Liability. An Employer's liability for the payment of benefits shall be defined only by the Plan and the Plan Agreement, as entered into between the Employer and a Participant. An Employer shall have no obligation to a Participant under the Plan except as expressly provided in the Plan and his or her Plan Agreement. 16.4 Nonassignability. Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate, alienate or convey in advance of actual receipt, the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are expressly declared to be, unassignable and non-transferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure, attachment, garnishment or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency or be transferable to a spouse as a result of a property settlement or otherwise. 16.5 Not a Contract of Employment. The terms and conditions of this Plan shall not be deemed to constitute a contract of employment between any Employer and the Participant. Such employment is hereby acknowledged to be an "at will" employment relationship that can be terminated at any time for any reason, or no reason, with or without cause, and with or without notice, unless otherwise expressly provided in a written employment agreement. Nothing in this Plan shall be deemed to give a Participant the right to be retained in the service of any Employer or to interfere with the right of any Employer to discipline or discharge the Participant at any time. 16.6 Furnishing Information. A Participant or his or her Beneficiary will cooperate with the Committee by furnishing any and all information requested by the Committee and take such other actions as may be requested in order to facilitate the administration of the Plan and the payments of benefits hereunder, including but not limited to taking such physical examinations as the Committee may deem necessary. 16.7 Terms. Whenever any words are used herein in the masculine, they shall be construed as though they were in the feminine in all cases where they would so apply; and whenever any words are used herein in the singular or in the plural, they shall be construed as though they were used in the plural or the singular, as the case may be, in all cases where they would so apply. 16.8 Captions. The captions of the articles, sections and paragraphs of this Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions. 16.9 Governing Law. Subject to ERISA, the provisions of this Plan shall be construed and interpreted according to the internal laws of the State of Rhode Island without regard to its conflicts of laws principles. 16.10 Notice. Any notice or filing required or permitted to be given to the Committee under this Plan shall be sufficient if in writing and hand- delivered, or sent by registered or certified mail, to the address below: Deferred Compensation Committee c/o Benefits Dept., A-951 Hasbro, Inc. 1027 Newport Avenue P.O. Box 1059 Pawtucket, RI 02862-1059 Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Any notice or filing required or permitted to be given to a Participant under this Plan shall be sufficient if in writing and hand-delivered, or sent by mail, to the last known address of the Participant. 16.11 Successors. The provisions of this Plan shall bind and inure to the benefit of the Participant's Employer and its successors and assigns and the Participant and the Participant's designated Beneficiaries. 16.12 Validity. In case any provision of this Plan shall be illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal or invalid provision had never been inserted herein. 16.13 Incompetent. If the Committee determines in its discretion that a benefit under this Plan is to be paid to a minor, a person declared incompetent or to a person incapable of handling the disposition of that person's property, the Committee may direct payment of such benefit to the guardian, legal representative or person having the care and custody of such minor, incompetent or incapable person. The Committee may require proof of minority, incompetence, incapacity or guardianship, as it may deem appropriate prior to distribution of the benefit. Any payment of a benefit shall be a payment for the account of the Participant and the Participant's Beneficiary, as the case may be, and shall be a complete discharge of any liability under the Plan for such payment amount. 16.14 Distribution in the Event of Taxation. (a) In General. If, for any reason, all or any portion of a Participant's benefits under this Plan becomes taxable to the Participant prior to receipt, a Participant may petition the Committee before a Change in Control, or the trustee of the Trust after a Change in Control, for a distribution of that portion of his or her benefit that has become taxable. Upon the grant of such a petition, which grant shall not be unreasonably withheld (and, after a Change in Control, shall be granted), a Participant's Employer shall distribute to the Participant immediately available funds in an amount equal to the taxable portion of his or her benefit (which amount shall not exceed a Participant's unpaid Account Balance under the Plan). If the petition is granted, the tax liability distribution shall be made within 90 days of the date when the Participant's petition is granted. Such a distribution shall affect and reduce the benefits to be paid under this Plan. (b) Trust. If the Trust terminates in accordance with Section 3.6(e) of the Trust and benefits are distributed from the Trust to a Participant in accordance with that Section, the Participant's benefits under this Plan shall be reduced to the extent of such distributions. 16.15 Insurance. The Employers, on their own behalf or on behalf of the trustee of the Trust, and, in their sole discretion, may apply for and procure insurance on the life of the Participant, in such amounts and in such forms as the Trust may choose. The Employers or the trustee of the Trust, as the case may be, shall be the sole owner and beneficiary of any such insurance. The Participant shall have no interest whatsoever in any such policy or policies, and at the request of the Employers shall submit to medical examinations and supply such information and execute such documents as may be required by the insurance company or companies to whom the Employers have applied for insurance. 16.16 Legal Fees To Enforce Rights After Change in Control. The Company and each Employer is aware that upon the occurrence of a Change in Control, the Board or the board of directors of a Participant's Employer (which might then be composed of new members) or a shareholder of the Company or the Participant's Employer, or of any successor corporation might then cause or attempt to cause the Company, the Participant's Employer or such successor to refuse to comply with its obligations under the Plan and might cause or attempt to cause the Company or the Participant's Employer to institute, or may institute, litigation seeking to deny Participants the benefits intended under the Plan. In these circumstances, the purpose of the Plan could be frustrated. Accordingly, if, following a Change in Control, it should appear to any Participant that the Company, the Participant's Employer or any successor corporation has failed to comply with any of its obligations under the Plan or any agreement thereunder or, if the Company, such Employer or any other person takes any action to declare the Plan void or unenforceable or institutes any litigation or other legal action designed to deny, diminish or to recover from any Participant the benefits intended to be provided, then the Company and the Participant's Employer irrevocably authorize such Participant to retain counsel of his or her choice at the expense of the Company and the Participant's Employer (who shall be jointly and severally liable) to represent such Participant in connection with the initiation or defense of any litigation or other legal action, whether by or against the Company, the Participant's Employer or any director, officer, shareholder or other person affiliated with the Company, the Participant's Employer or any successor thereto in any jurisdiction. The Company may recover any legal fees paid if a court of competent jurisdiction finds that the retention of counsel by the Participant was frivolous. If the Participant prevails to any extent, the retention of counsel shall be conclusively determined not to be frivolous. IN WITNESS WHEREOF, the Company has signed this Amended and Restated Plan document as of this 20th day of March, 1998. "Company" Hasbro, Inc., a Rhode Island corporation By: /s/ Alfred J. Verrecchia ------------------------ Title: Executive Vice President and President, Global Operations ---------------------------------------------------------

EXHIBIT 11 HASBRO, INC. AND SUBSIDIARIES Computation of Earnings Per Common Share Quarters Ended March 29, 1998 and March 30, 1997 (Thousands of Dollars and Shares Except Per Share Data) 1998 1997 ----------------- ----------------- Basic Diluted Basic Diluted ------- ------- ------- ------- Net earnings $ 7,793 7,793 25,694 25,694 Interest and amortization on 6% convertible notes, net of taxes - - - 1,437 ------- ------- ------- ------- Net earnings applicable to common shares $ 7,793 7,793 25,694 27,131 ======= ======= ======= ======= Weighted average number of shares outstanding: Outstanding at beginning of period 133,441 133,441 128,863 128,863 Exercise of stock options and warrants: Actual 478 478 328 328 Assumed - 5,099 - 2,475 Conversion of 6% convertible notes: Actual - - 5 5 Assumed - - - 7,635 Purchase of common stock (809) (809) (597) (597) ------- ------- ------- ------- Total 133,110 138,209 128,599 138,709 ======= ======= ======= ======= Per common share: Net earnings $ .06 .06 .20 .20 ======= ======= ======= =======

EXHIBIT 12 HASBRO, INC. AND SUBSIDIARIES Computation of Ratio of Earnings to Fixed Charges Quarter Ended March 29, 1998 (Thousands of Dollars) Earnings available for fixed charges: Net earnings $ 7,793 Add: Fixed charges 5,750 Income taxes 4,015 ------- Total $ 17,558 ======= Fixed Charges: Interest charges $ 2,312 Rental expense representative of interest factor 3,438 ------- Total $ 5,750 ======= Ratio of earnings to fixed charges 3.05 =======

5 1000 3-MOS 3-MOS DEC-27-1998 DEC-28-1997 MAR-29-1998 MAR-30-1997 430,601 289,546 0 0 415,728 564,022 53,400 47,000 269,097 268,945 1,267,235 1,255,908 520,020 554,807 248,413 255,181 2,591,966 2,449,888 729,480 597,851 0 149,208 0 0 0 0 69,900 66,084 1,732,815 1,567,808 2,591,966 2,449,888 482,820 555,784 482,820 555,784 204,312 235,371 204,312 235,371 137,236 145,226 1,994 1,451 2,312 4,430 11,808 40,147 4,015 14,453 7,793 25,694 0 0 0 0 0 0 7,793 25,694 .06 .20 .06 .20 As required under Statement of Financial Accounting Standards No. 128, the Company has restated its earnings per share into the new 'Basic' and 'Diluted' amounts. 1997 data in column 2 is provided solely to reflect that restatement.