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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. _)
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/x/ Preliminary Proxy Statement
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
/ / Confidential, for use of the Commission only (as permitted by Rule
14a-6(e)(2)
WESTERN PUBLISHING GROUP, INC.
(Name of Registrant As Specified In Its Charter)
WESTERN PUBLISHING GROUP, INC.
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/x/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(j)(2), or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price of other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11:
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
1) Amount previously paid:
2) Form, Schedule or Registration Statement No.:
3) Filing party:
4) Date filed:
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PRELIMINARY COPY
[WPGI LOGO AND LETTERHEAD]
March __, 1996
Dear Western Publishing
Group, Inc. Stockholder:
You are cordially invited to attend a Special Meeting of
Stockholders of Western Publishing Group, Inc. (the "Company") to
be held at 10:00 A.M., local time, on ________, April __, 1996,
at Chemical Bank, 270 Park Avenue, __th Floor, Room ____, New
York, New York.
At this important meeting, you will be asked to vote on a set of
proposals relating to the acquisition by Golden Press Holding,
L.L.C. of a significant equity interest in the Company. Golden
Press Holding is a company recently formed by Richard E. Snyder,
the former Chairman and Chief Executive Officer of Simon &
Schuster, Inc., Arrow Holdings, LLC, an entity controlled by
Barry Diller, the Chairman and Chief Executive Officer of Silver
King Communications, Inc. and Chairman of Home Shopping Network,
Inc., and Warburg, Pincus Ventures, L.P. Golden Press Holding
will invest $65 million in the Company in exchange for shares of
a new series of convertible preferred stock, convertible at a
price of $10 per share into approximately 23% of the outstanding
common stock of the Company, and a warrant to purchase an
additional 3,250,000 shares of common stock at an exercise price
of $10 per share. Approximately $10 million of the investment
proceeds will be used to redeem the Company's outstanding
Series A Preferred Stock due March 31, 1996, and the balance will
be available for general working capital purposes, including new
product development and future acquisitions.
Consistent with my prior public statements and my letter to
stockholders appearing in our 1995 annual report, and unlike the
proposed transactions announced in September and October of last
year, this transaction has been structured so that, like all
other common stockholders, I will not be selling my shares and
the proceeds from the Golden Press Holding equity investment will
be invested directly in the Company. We have negotiated every
aspect of this transaction with the best interests of the
Company's stockholders as the paramount consideration.
Furthermore, in order to secure the participation of Mr. Snyder
and Warburg Pincus, I have given up my right to vote the
approximately four million shares of common stock that I
beneficially own, for so long as I own them, by granting an
irrevocable proxy to Golden Press Holding to vote these shares in
its sole discretion. Golden Press Holding has agreed to vote
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2
these shares, which represent approximately 20% of the
outstanding shares, in favor of the proposals to be considered at
the Special Meeting. In addition, to provide further comfort to
Golden Press Holding, I have agreed to certain transfer
restrictions which will significantly limit my freedom to sell my
shares in the future.
The newly-issued preferred stock would entitle Golden Press
Holding, for so long as it owns a significant portion of the
preferred stock, to elect three directors of the Company who,
together with the four nominees of Golden Press Holding standing
for election at the Special Meeting, would constitute a majority
of a nine-member board of directors following the closing of the
equity investment. The preferred stock also would vote, on an
as-if-converted basis, with the Company's common stock on all
matters submitted to a vote of the Company's stockholders,
including the election of directors, and have certain class
voting rights with respect to certain material corporate
transactions.
In order to help ensure a smooth transition of the Company's
management, Mr. Snyder has been elected and has begun to serve as
President of the Company. This has allowed Mr. Snyder an
opportunity to gain a familiarity and insight into the Company's
operations so as to enable Mr. Snyder and me to set the stage to
rapidly implement his direction and strategy for the Company's
future once the equity investment transaction is complete. Upon
the closing of the Golden Press investment, I will resign my
positions with the Company and Mr. Snyder will become Chairman
and Chief Executive Officer.
After careful consideration of a number of factors, including the
terms relating to Golden Press Holding's investment and the
benefits that will be derived from the involvement of Mr. Snyder
and Warburg Pincus in the management of the Company and its
businesses, as well as the cash infusion to be made by Golden
Press Holding, the Board of Directors has unanimously determined
that the Securities Purchase Agreement and the transactions
contemplated thereby, considered as a whole, are fair to and in
the best interests of the Company and its stockholders and
therefore unanimously recommends that you vote FOR each of the
proposals to be considered at the Special Meeting. Your Board of
Directors firmly believes that it is in the long-term best
interests of the Company and its stockholders, employees and
customers that this important transaction be approved and
completed.
Details concerning the proposals that you will be asked to
consider at the Special Meeting are set forth in the accompanying
Proxy Statement. In addition to voting on the Golden Press
Holding investment, you will be asked to approve the election of
Barry Diller, Linda L. Janklow, Sharaha Ahmad-
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3
Llewellyn and Richard E. Snyder as directors of the Company,
amendments to the Company's stock option plan, adoption of a new
bonus plan for executive officers and three proposed amendments to
the Company's certificate of incorporation. Please note that
unless all of these proposals are approved by stockholders (other
than the proposed amendments to the Company's certificate of
incorporation), none will be effected by the Company. We urge you
to read the entire Proxy Statement carefully. It is important that
your shares be represented at the Special Meeting no matter how
many shares you own. Even if you plan to attend the Special
Meeting, please sign, date and mail promptly the enclosed Proxy in
the postage-paid envelope. This action will not limit your right
to vote in person if you wish to attend the Special Meeting.
On behalf of the Board of Directors, thank you for your
cooperation and your continued support.
Sincerely,
Richard A. Bernstein
Chairman of the Board and
Chief Executive Officer
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WESTERN PUBLISHING GROUP, INC.
444 Madison Avenue
New York, New York 10022
---------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To be Held April __, 1996
---------------
To the Stockholders of
WESTERN PUBLISHING GROUP, INC.:
A special meeting of stockholders (the "Special Meeting") of
Western Publishing Group, Inc. (the "Company") will be held at
Chemical Bank, 270 Park Avenue, __th Floor, Room ____, New York,
New York, on _________, April __, 1996 at 10:00 A.M., local time,
to consider and act on seven proposals (the "Proposals") relating
to the Securities Purchase Agreement dated as of January 31, 1996
between the Company and Golden Press Holding, L.L.C. ("GPH"), as
it may be amended from time to time (the "Securities Purchase
Agreement"). The seven Proposals are summarized as follows:
(1) To approve the Securities Purchase Agreement and the
performance by the Company of all transactions and acts on the
part of the Company contemplated thereby, including, without
limitation, the issuance by the Company and sale to GPH, for a
cash purchase price of $65 million, of (i) 13,000 shares of
the Company's Series B Convertible Preferred Stock, without
par value (the "Series B Convertible Preferred Stock"),
together with the shares of Common Stock, par value $.01 per
share, of the Company (the "Common Stock") issuable upon
conversion of the Series B Convertible Preferred Stock and as
dividends on the Series B Convertible Preferred Stock, and
(ii) a warrant (the "Warrant") to purchase 3,250,000 shares of
Common Stock, together with the shares of Common Stock
issuable upon the exercise of the Warrant. (Proposal No. 1)
(2) To elect Barry Diller, Linda L. Janklow, Sharaha Ahmad-
Llewellyn and Richard E. Snyder as directors of the Company,
who will qualify as directors only upon the closing of the
transactions under the Securities Purchase Agreement, to serve
until the next annual meeting of stockholders of the Company
and until their successors have been duly elected and
qualified. (Proposal No. 2)
(3) To approve the adoption of several amendments to the
Company's 1995 Stock Option Plan. (Proposal No. 3)
(4) To approve the adoption of the Executive Officer Bonus
Plan. (Proposal No. 4)
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2
(5) To adopt an amendment to Article First of the Company's
Amended and Restated Certificate of Incorporation (the
"Restated Certificate") to change the name of the Company to
"Golden Press, Inc.". (Proposal No. 5)
(6) To adopt an amendment to Article Fourth of the Restated
Certificate to increase the authorized number of shares of
Common Stock from 40,000,000 shares to 60,000,000 shares.
(Proposal No. 6)
(7) To adopt an amendment to Article Fourth of the Restated
Certificate to increase the authorized number of shares of the
Company's preferred stock from 100,000 shares to 200,000
shares. (Proposal No. 7)
At the Special Meeting, the stockholders also will consider and
vote on such other matters as may properly be presented incident
to the conduct of the Special Meeting or any and all adjournments
or postponements thereof.
Among the other actions contemplated by the Securities Purchase
Agreement are (a) the redemption by the Company of the Company's
outstanding shares of Series A Preferred Stock due March 31,
1996, using a portion of the proceeds from the GPH investment;
(b) the grant of certain registration rights to GPH in respect of
the Series B Convertible Preferred Stock and the Warrant and the
underlying Common Stock; (c) the grant of certain registration
rights to Richard A. Bernstein and certain of his affiliated
entities in respect of shares of Common Stock owned by them; and
(d) the Company's execution of an employment agreement and
certain related arrangements with Richard E. Snyder following the
closing of the transactions contemplated by the Securities
Purchase Agreement, pursuant to which Mr. Snyder would become the
Chairman and Chief Executive Officer of the Company.
Unless all the Proposals are approved and adopted by the
stockholders at the Special Meeting, none will be effected by the
Company, except that the other Proposals will be effected
regardless of whether any of the proposals to amend the Restated
Certificate (Proposal Nos. 5, 6 or 7) is adopted. Accordingly,
if the Proposals (including Proposal No. 1) are not approved, no
individual elected as a director at the Special Meeting will be
qualified as a director or will take office, and the current
directors will remain in office until their successors are duly
elected and qualified. For further information with respect to
the election of directors at the Special Meeting, see "ELECTION
OF DIRECTORS" in the accompanying Proxy Statement.
Only holders of record of the Common Stock at the close of
business on March __, 1996 are entitled to notice of, and to vote
at, the Special Meeting or any adjournment or postponement
thereof. A complete list of stockholders entitled to vote at the
Special Meeting will be kept at the Company's offices at 444
Madison Avenue, New York, New York 10022, for a period of ten
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3
days prior to the Special Meeting and will be available for
examination by any stockholder for any purpose germane to the
Special Meeting during ordinary business hours.
By Order of the Board of Directors,
James A. Cohen
Secretary
PLEASE SIGN AND DATE THE ACCOMPANYING PROXY AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES.
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TABLE OF CONTENTS
Page
----
SUMMARY 1
The Proposals 1
The Parties to the Transactions 3
The Special Meeting 4
Background of and Reasons for the Transactions 5
Recommendation of the Board of Directors 5
Opinions of Financial Advisors 6
Use of Proceeds 6
Certain Considerations 6
Certain Negotiated Features of the Transactions 7
Interests of Certain Persons in the Transactions 9
Certain Terms of the Securities Purchase Agreement 10
Certain Terms of the Series B Convertible Preferred Stock 12
Certain Terms of the Warrant 12
Certain Terms of the GPH Registration Rights Agreement 12
Regulatory Matters 13
Section 203 of the DGCL 13
Litigation 13
Election of Directors 13
Amendments to 1995 Stock Option Plan 14
Executive Officer Bonus Plan 14
Charter Amendments 14
Pro Forma Capitalization 15
Price Range of Common Stock; Dividend Policy 18
INTRODUCTION 20
Proxy Solicitation 20
Voting at the Special Meeting 20
Revocability of Proxies 23
BENEFICIAL STOCK OWNERSHIP 23
Principal Stockholders 23
Directors and Executive Officers 25
THE PROPOSALS 28
Background of and Reasons for the Transactions 28
Recommendation of the Board of Directors 32
Opinions of Financial Advisors 34
Use of Proceeds 49
Certain Considerations 49
Diminished Ability to Sell the Company; Antitakeover Effect 50
Board Representation; Control of Management 51
Dilution 51
Certain Negotiated Features of the Transactions 52
Status of Bernstein Shares 52
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Irrevocable Proxies 53
Termination of the Securities Purchase Agreement 54
Election of Directors 54
Series B Convertible Preferred Stock Antidilution Adjustments 54
Management Services 55
Interests of Certain Persons in the Transactions 55
Bernstein Registration Rights Agreement 56
Redemption of Series A Preferred Stock due March 31, 1996 57
Directors' and Officers' Liability Insurance Coverage 57
Snyder Employment Arrangements 58
Severance and Management Arrangements 62
Regulatory Matters 62
Section 203 of the DGCL 63
Litigation 63
SECURITIES PURCHASE AGREEMENT (Proposal No. 1) 64
Issuance and Sale of Series B Convertible Preferred Stock and Warrant 65
Terms of the Series B Convertible Preferred Stock 65
Terms of the Warrant 70
Terms of the GPH Registration Rights Agreement 71
Representations and Warranties 72
Pre-Closing Covenants 73
Non-Solicitation of Business Combination Proposals 75
Conditions to Closing 77
Termination and Termination Fee 77
Expenses 78
ELECTION OF DIRECTORS (Proposal No. 2) 79
General 79
Business Experience of Nominees 80
Business Experience of Series B Directors 81
Business Experience of Current Directors 82
Board Meetings and Committees of the Board 83
Compensation Committee Interlocks and Insider Participation 85
Executive Compensation 86
Certain Transactions 90
Compliance with Section 16(a) of the Exchange Act 91
AMENDMENTS TO 1995 STOCK OPTION PLAN (Proposal No. 3) 91
EXECUTIVE OFFICER BONUS PLAN (Proposal No. 4) 94
CHARTER AMENDMENTS 97
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AMENDMENT TO CHANGE THE NAME OF THE COMPANY (Proposal No. 5) 97
AMENDMENTS TO INCREASE THE AUTHORIZED COMMON AND PREFERRED STOCK (Proposal
Nos. 6 and 7) 98
STOCKHOLDER PROPOSALS FOR THE 1996 ANNUAL MEETING 100
INDEPENDENT AUDITORS 100
AVAILABLE INFORMATION 101
INCORPORATION OF DOCUMENTS BY REFERENCE 101
APPENDICES
Appendix I -- Securities Purchase Agreement I-1
Appendix II -- Bernstein Registration Rights Agreement II-1
Appendix III -- Bernstein Irrevocable Proxy III-1
Appendix IV -- Certificate of Designations of Series B Convertible
Preferred Stock IV-1
Appendix V -- Form of Warrant V-1
Appendix VI -- GPH Registration Rights Agreement VI-1
Appendix VII -- Executive Officer Bonus Plan VII-1
Appendix VIII -- Charter Amendments VIII-1
Appendix IX -- Fairness Opinion of Bear, Stearns & Co. Inc. IX-1
Appendix X -- Fairness Opinion of Jefferies & Company, Inc. X-1
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SUMMARY
The following is a brief summary (the "Summary") of the
information in this Proxy Statement. The Summary is not intended
to be complete and is qualified in its entirety by the more
detailed information contained elsewhere in this Proxy Statement
and in the Appendices to this Proxy Statement. Cross references
in the Summary are to the captions of sections of this Proxy
Statement unless otherwise indicated. Stockholders are urged to
read this Proxy Statement and the Appendices in their entirety.
The Proposals
The seven proposals described in this Proxy Statement (the
"Proposals") relate to the transactions and acts (the
"Transactions") contemplated on the part of Western Publishing
Group, Inc., a Delaware corporation (the "Company"), by the
Securities Purchase Agreement dated as of January 31, 1996
between the Company and Golden Press Holding, L.L.C. ("GPH"), as
it may be amended from time to time (the "Securities Purchase
Agreement"), and consist of:
(1) the approval of the Securities Purchase Agreement and the
performance by the Company of all transactions and acts on the
part of the Company contemplated under the Securities
Purchase Agreement, including, without limitation, the
issuance and sale to GPH, for a cash purchase price of $65
million, of (i) 13,000 shares of the Company's Series B
Convertible Preferred Stock, without par value (the "Series
B Convertible Preferred Stock"), together with the shares of
Common Stock, par value $.01 per share, of the Company (the
"Common Stock") issuable upon conversion of the Series B
Convertible Preferred Stock and as dividends on the Series B
Convertible Preferred Stock, and (ii) a warrant (the
"Warrant") to purchase an additional 3,250,000 shares of
Common Stock, together with the shares of Common Stock
issuable upon the exercise of the Warrant ("Proposal No. 1
-- Securities Purchase Proposal");
(2) the election of four directors of the Company, who will
qualify as directors only upon the closing of the
Transactions (the "Closing"), to serve until the next annual
meeting of stockholders of the Company and until their
successors have been duly elected and qualified ("Proposal
No. 2 -- Election Proposal");
(3) the approval of the adoption of certain amendments to the
Company's 1995 Stock Option Plan (the
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"Stock Option Plan") ("Proposal No. 3 -- Stock Option Plan
Amendment Proposal");
(4) the approval of the adoption of the Company's Executive
Officer Bonus Plan (the "Bonus Plan") ("Proposal No. 4 --
Bonus Plan Proposal"); and
(5) the adoption of three amendments (the "Charter Amendments")
to the Company's Amended and Restated Certificate of
Incorporation (the "Restated Certificate") to (a) amend
Article First to change the name of the Company to "Golden
Press, Inc." (Proposal No. 5), (b) amend Article Fourth to
increase the number of authorized shares of Common Stock
from 40,000,000 shares to 60,000,000 shares (Proposal No. 6)
and (c) amend Article Fourth to increase the number of
authorized shares of preferred stock, without par value, of
the Company (the "Preferred Stock") from 100,000 shares to
200,000 shares (Proposal No. 7) (collectively, the "Charter
Amendment Proposals"). Except as described in this Proxy
Statement, the Company has no current plans for any
issuances of Common or Preferred Stock. See "THE
PROPOSALS."
Approval of each of the Proposals by the requisite vote of the
stockholders of the Company (other than the Charter Amendments)
is a condition to the consummation of the Transactions under the
Securities Purchase Agreement. See "SECURITIES PURCHASE
AGREEMENT -- Conditions to Closing."
Among the other Transactions contemplated by the Securities
Purchase Agreement are (a) the redemption by the Company of the
outstanding shares of Series A Preferred Stock due March 31,
1996, without par value, of the Company (the "Series A Preferred
Stock") at a redemption price equal to the liquidation value
thereof plus accrued and unpaid dividends to the date of
redemption, using a portion of the proceeds from the GPH
investment (see "THE PROPOSALS -- Interests of Certain Persons in
the Transactions -- Redemption of Series A Preferred Stock due
March 31, 1996"); (b) the grant of certain registration rights to
GPH in respect of the Series B Convertible Preferred Stock and
the Warrant and the Common Stock underlying each of the Series B
Convertible Preferred Stock and the Warrant pursuant to a
registration rights agreement between the Company and GPH (the
"GPH Registration Rights Agreement") (see "SECURITIES PURCHASE
AGREEMENT -- Terms of the GPH Registration Rights Agreement"); (c)
the grant of certain registration rights to Richard A. Bernstein,
the current Chairman and Chief Executive Officer of the Company,
and certain of his affiliated entities in respect of shares of
Common Stock owned by them pursuant to a registration rights
agreement between the Company, Mr. Bernstein and such affiliated
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entities (the "Bernstein Registration Rights Agreement") (see
"THE PROPOSALS -- Interests of Certain Persons in the Transactions
- -- Bernstein Registration Rights Agreement"); and (d) the
Company's execution of an employment agreement (the "Snyder
Employment Agreement") and related arrangements (the "Snyder
Employment Arrangements") with Richard E. Snyder upon the Closing
pursuant to which Mr. Snyder would become the Chairman and Chief
Executive Officer of the Company (see "THE PROPOSALS -- Interests
of Certain Persons in the Transactions -- Snyder Employment
Arrangements").
The Parties to the Transactions
The Company. The Company, through its Western Publishing Company
subsidiary, creates, publishes, manufactures, prints and markets
story and picture books, coloring and activity books, interactive
electronic books and games, and computer and multi-media
"edutainment" products for children. These products are sold
principally under the GOLDEN BOOKS(R) brand. The Company also
produces and markets Frame-Tray(R) puzzles, children's pre-recorded
videos and special interest books for the entire family. Western
Publishing Company also offers a wide range of printing, graphic,
creative and distribution services to customers in industry and
government.
Through the Beach Products Division of its Penn Corporation
subsidiary, the Company is engaged in the manufacture and sale of
decorated paper tableware, party goods, stationery and gift
products.
The Bernstein Entities. Richard A. Bernstein is the Chairman and
Chief Executive Officer of the Company, Chairman of the Company's
Western Publishing Company, Inc. subsidiary and Chairman,
President and Chief Executive Officer of the Company's Penn
Corporation subsidiary. References in this Proxy Statement to
(i) the "Bernstein Entities" mean, collectively, Mr. Bernstein,
the Trust for the benefit of Mr. Bernstein dated March 16, 1978,
The Richard A. Bernstein Trust of 1986 and The Richard A. and
Amelia Bernstein Foundation, Inc. and (ii) the "Bernstein Shares"
shall mean, collectively, the shares of Common Stock owned by the
Bernstein Entities.
Richard E. Snyder. From 1975 to 1994, Mr. Snyder served as
Chairman and Chief Executive Officer of Simon & Schuster, Inc.
In order to help ensure a smooth transition of the Company's
management prior to the Closing, Mr. Snyder was elected as the
President of the Company on January 31, 1996 upon the signing of
the Securities Purchase Agreement. He will succeed Mr. Bernstein
as Chairman and Chief Executive Officer of the Company following
the Closing. See "THE PROPOSALS -- Interests of Certain Persons
in the Transactions -- Snyder Employment Arrangements."
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Warburg, Pincus Ventures, L.P. Warburg, Pincus Ventures, L.P.
("Warburg Pincus"), a Delaware limited partnership, is engaged in
making venture capital and similar investments. The sole general
partner of Warburg Pincus is Warburg, Pincus & Co., a New York
general partnership, and its manager is E.M. Warburg, Pincus &
Co., a New York general partnership.
Golden Press Holding, L.L.C. GPH is a newly-organized Delaware
limited liability company recently formed by Mr. Snyder, Arrow
Holdings, LLC, an entity controlled by Barry Diller, the Chairman
and Chief Executive Officer of Silver King Communications, Inc.
and Chairman of Home Shopping Network, Inc., and Warburg Pincus
solely for purposes of consummating the Transactions and holding
securities of the Company.
The Special Meeting
Proxy Solicitation. This Proxy Statement is being furnished in
connection with the solicitation of proxies for the adoption of
the Proposals by the board of directors of the Company (the
"Board of Directors") for use at a special meeting of
stockholders of the Company to be held on _________, April __,
1996, at 10:00 A.M., local time, at Chemical Bank, 270 Park
Avenue, __th Floor, Room ____, New York, New York, or at any
adjournment or postponement thereof (the "Special Meeting").
Vote Required. Approval of the Securities Purchase Proposal by
the Company's stockholders is required by the rules of the
National Association of Securities Dealers, Inc. (the "NASD"),
governing corporations, such as the Company, with securities
quoted on the Nasdaq National Market. The affirmative vote of
the holders of a majority of the votes cast at the Special
Meeting is required to approve the Securities Purchase Proposal,
the Stock Option Plan Amendment Proposal and the Bonus Plan
Proposal (Proposal Nos. 1, 3 and 4). The four nominees (the
"Nominees") receiving a plurality of the votes cast at the
Special Meeting for the election of directors (Proposal No. 2)
will be elected as directors (but will qualify as such only upon
the closing of the Transactions; see "ELECTION OF DIRECTORS").
The affirmative vote of the holders of a majority of the
outstanding shares of Common Stock is required to approve each of
the Charter Amendment Proposals (Proposal Nos. 5, 6 and 7).
Unless all the Proposals are approved and adopted by the
stockholders at the Special Meeting, none will be effected by the
Company, except that the other Proposals will be effected
regardless of whether any of the Charter Amendment Proposals is
adopted. Accordingly, if the Proposals (including Proposal No.
1) are not effected, the Nominees will not qualify as directors
and will not take office, and the current directors will remain
in office until their successors are duly elected and qualified.
See "ELECTION OF DIRECTORS". Pursuant to the Securities Purchase
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Agreement, 3,996,771 shares of Common Stock owned by certain of
the Bernstein Entities, representing approximately 20% of the
Common Stock entitled to vote at the Special Meeting, will be
voted in favor of the Proposals. See "THE PROPOSALS -- Certain
Negotiated Features of the Transactions -- Irrevocable Proxies."
Shares of Common Stock represented by properly executed proxies
received prior to or at the Special Meeting, unless such proxies
have been revoked, will be voted in accordance with the
instructions indicated on the proxies. If no instructions are
indicated on a properly executed proxy, the shares will be voted
FOR each of the Proposals.
No Appraisal Rights. Stockholders are not entitled to appraisal
rights under the Delaware General Corporation Law (the "DGCL") or
otherwise in respect of any of the Proposals.
Record Date. The record date for the Special Meeting is
March __, 1996.
Background of and Reasons for the Transactions
Formal negotiations between the Company and Mr. Snyder and
Warburg Pincus concerning the purchase of a significant equity
interest in the Company commenced in August 1995. Mr. Snyder and
Mr. Bernstein began preliminary discussions in April 1995, and
the participation of Warburg Pincus commenced in May 1995.
Although agreements in principle were announced in September and
October 1995, the Company publicly announced termination of the
negotiations on October 17, 1995. Discussions began again in
December concerning revised terms for a significant investment by
Mr. Snyder and Warburg Pincus, culminating with the public
announcement of the signing of the Securities Purchase Agreement
and the election of Mr. Snyder as President of the Company on
January 31, 1996. See "THE PROPOSALS -- Background of and Reasons
for the Transactions."
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE
SECURITIES PURCHASE AGREEMENT AND THE TRANSACTIONS, CONSIDERED AS
A WHOLE, ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND
ITS STOCKHOLDERS AND THEREFORE UNANIMOUSLY RECOMMENDS THAT THE
COMPANY'S STOCKHOLDERS VOTE FOR APPROVAL OF EACH OF THE PROPOSALS
AT THE SPECIAL MEETING.
For a discussion of the factors considered by the Board of
Directors in reaching its decision, see "THE PROPOSALS --
Recommendation of the Board of Directors," "-- Opinions of
Financial Advisors," "-- Certain Considerations" and "-- Interests
of Certain Persons in the Transactions."
5
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Opinions of Financial Advisors
The Company has retained each of Bear, Stearns & Co. Inc. ("Bear
Stearns") and Jefferies & Company, Inc. ("Jefferies") on behalf
of the Board of Directors to render a fairness opinion with
respect to the consideration to be received by the Company
pursuant to the equity investment contemplated by the Securities
Purchase Agreement. On January 31, 1996, each of Bear Stearns
and Jefferies delivered its written opinion to the effect that,
as of such date and based upon and subject to certain matters as
stated in such opinions, the consideration to be received by the
Company from the equity investment contemplated by the Securities
Purchase Agreement is fair to the Company from a financial point
of view. In rendering their opinions, neither Bear Stearns nor
Jefferies considered or opined as to any other transactions or
contractual arrangements to be entered into, or payments to be
made by or to the Company or to any other person, concurrently
with GPH's equity investment. See "THE PROPOSALS -- Opinions of
Financial Advisors." A copy of the written opinion of each of
Bear Stearns and Jefferies, which sets forth the assumptions
made, matters considered and limits on the review undertaken, is
attached to this Proxy Statement as Appendix IX and Appendix X,
respectively, and should be read carefully by stockholders in
their entirety.
Use of Proceeds
The estimated net cash proceeds to the Company from the sale of
the Series B Convertible Preferred Stock and the Warrant to GPH
will be $59,500,000, after giving effect to the payment of
estimated transaction expenses (see "SECURITIES PURCHASE
AGREEMENT -- Expenses"), but prior to the payments under the
severance and management arrangements described under "THE
PROPOSALS -- Interests of Certain Persons in the Transactions --
Severance and Management Arrangements." Approximately $10
million of such proceeds will be used by the Company to redeem
the outstanding shares of Series A Preferred Stock (which is
mandatorily redeemable by the Company on March 31, 1996) as
contemplated by the Securities Purchase Agreement (see "THE
PROPOSALS -- Interests of Certain Persons in the Transactions --
Redemption of Series A Preferred Stock due March 31, 1996"), and
the remainder will be available to the Company for general
working capital purposes, including new product development and
future acquisitions. The Company does not currently have any
commitments or understandings regarding the use of such proceeds.
See "THE PROPOSALS -- Use of Proceeds."
Certain Considerations
While the Board of Directors is of the opinion that the Proposals
are in the best interests of the Company and its stockholders, in
evaluating the Proposals stockholders should
6
<PAGE>
consider, among other things, the following possible consequences of
completion of the Transactions:
(i) the significant ownership interest of GPH in the Company,
coupled with the irrevocable proxies granted by Mr. Bernstein
and certain of the other Bernstein Entities to GPH with respect
to 3,996,771 shares of Common Stock (the "Irrevocable Proxies"),
and the fact that the Securities Purchase Agreement does not
restrict GPH from acquiring additional shares in the open market
or otherwise, may render it more difficult for a third party to
effect a change of control of the Company without the consent of
GPH and thereby discourage third parties from any attempt to
acquire control of the Company;
(ii) GPH's ability to influence the management and policies of
the Company through Mr. Snyder's status as Chairman and Chief
Executive Officer of the Company, the class voting rights
afforded to the holders of the Series B Convertible Preferred
Stock to elect one-third of the members of the Board of
Directors and approve certain material corporate transactions,
the fact that, immediately following the Closing, a majority of
the members of the Board of Directors will be nominees of GPH
and the right of the holders of the Series B Convertible
Preferred Stock to vote as a class with the holders of the
Common Stock in the election of the remainder of the members of
the Board of Directors; and
(iii) the potential dilution of the voting and economic rights
of the existing holders of the Common Stock resulting from the
issuance of the Series B Convertible Preferred Stock and the
payment of Common Stock dividends on the Series B Convertible
Preferred Stock for the first four years from issuance thereof,
the exercise of the Warrant after two years from the issuance
thereof (or earlier upon the occurrence of certain events) and
the Snyder Employment Arrangements.
See "SUMMARY -- Pro Forma Capitalization" and "THE PROPOSALS --
Certain Considerations."
Certain Negotiated Features of the Transactions
Stockholders should be aware of the following additional aspects
and provisions of the Securities Purchase Agreement and the
Transactions that were negotiated on behalf of the Company and
the stockholders and were required by the parties as a condition
to the signing of the Securities Purchase Agreement:
7
<PAGE>
(i) unlike the proposed transactions between the Company, Mr.
Snyder and Warburg Pincus announced in September and October
1995, none of the shares of Common Stock beneficially owned by
Mr. Bernstein will be purchased as part of the Transactions and
GPH's entire investment will be made directly in the Company
(see "SECURITIES PURCHASE AGREEMENT -- Issuance and Sale of
Series B Convertible Preferred Stock and Warrant");
(ii) Mr. Bernstein and certain of the other Bernstein Entities
currently owning in the aggregate 3,996,771 shares of Common
Stock (representing approximately 20% of the shares currently
outstanding) (a) have relinquished their voting rights with
respect to such shares by granting GPH irrevocable proxies to
vote such shares in its sole discretion, subject to certain
conditions, for so long as Mr. Bernstein and such other entities
own such shares, and (b) have agreed to certain transfer
restrictions which will significantly limit their freedom to
sell such shares in a block or blocks in the future (see "THE
PROPOSALS -- Certain Negotiated Features of the Transactions --
Irrevocable Proxies");
(iii) the Securities Purchase Agreement permits the Company,
upon the payment of a $2 million break-up fee, to terminate the
Securities Purchase Agreement and accept an unsolicited proposal
from a third party which the Board of Directors reasonably
believes is likely to result in a business combination that is
likely to be more favorable to the stockholders of the Company
than the Transactions (see "SECURITIES PURCHASE AGREEMENT --
Termination and Termination Fee");
(iv) GPH does not have a contractual right to name any directors
of the Company (other than the directors who are to be elected
by the holders of the Series B Convertible Preferred Stock)
following the election of directors at the Special Meeting (see
"ELECTION OF DIRECTORS");
(v) the holders of the Series B Convertible Preferred Stock are
not entitled to antidilution adjustment of the conversion price
in respect of (a) an issuance of Common Stock to GPH and certain
of its affiliates unless such issuance has been approved by a
majority of the directors of the Company who are neither the
designees of the holders of the Series B Convertible Preferred
Stock nor individuals associated with Warburg Pincus or certain
of its affiliates or (b) an issuance of Common Stock in a
transaction that has not been registered under the Securities
Act of 1933, as amended (the "Securities Act"), unless an
investment bank of national standing and reputation, engaged for
a fee by the Company pursuant to a written engagement letter,
has been
8
<PAGE>
consulted by the Company with respect to the structure,
and has participated in the negotiation, of such issuance (see
"SECURITIES PURCHASE AGREEMENT -- Terms of the Series B
Convertible Preferred Stock"); and
(vi) Mr. Bernstein has agreed to cause a corporation owned by
him to employ certain Company employees who will be terminated
at the Closing to provide certain management services (including
finance and accounting, cash management, real estate matters,
labor negotiations and corporate administration) to the Company
as requested from time to time by Mr. Snyder for the 180-day
transition period following the Closing, and the Company will
pay such corporation $1.2 million upon the Closing for the cost
(including the cost of employing such former employees) of
providing such services (see "THE PROPOSALS -- Certain
Negotiated Features of the Transactions -- Management
Services").
Interests of Certain Persons in the Transactions
In considering the recommendation of the Board of Directors with
respect to the Proposals, stockholders should be aware that
certain members of the Board of Directors and management have
certain interests with respect to the Proposals that may conflict
with and are in addition to the interests of the other
stockholders of the Company, including:
(i) at the Closing, in view of the fact that the Bernstein
Entities would otherwise be restricted under the federal
securities laws and the rules and regulations promulgated
thereunder as to the manner in which they can sell their shares
of Common Stock because of the size of the block and Mr.
Bernstein's affiliation with the Company, the Bernstein
Registration Rights Agreement, pursuant to which the Bernstein
Entities will have the right to require the Company, at the
Bernstein Entities' cost, to register the sale of Bernstein
Shares with the Securities and Exchange Commission (the "SEC")
under the Securities Act, and to participate in other
registrations initiated by the Company, will become effective
(see "THE PROPOSALS -- Interests of Certain Persons in the
Transactions -- Bernstein Registration Rights Agreement");
(ii) at the Closing, the Company will use a portion of the
proceeds from the GPH investment to redeem the outstanding
Series A Preferred Stock due March 31, 1996, 46.07% of which is
owned by Mr. Bernstein (see "THE PROPOSALS -- Interests of
Certain Persons in the Transactions -- Redemption of Series A
Preferred Stock due March 31, 1996");
9
<PAGE>
(iii) the Company has agreed in the Securities Purchase
Agreement to provide the usual extended coverage under the
Company's executive liability insurance for a three-year period
following the Closing for current and former directors and
officers and certain persons serving in fiduciary capacities
(see "THE PROPOSALS -- Interests of Certain Persons in the
Transactions -- Directors' and Officers' Liability Insurance
Coverage");
(iv) the Company will enter into the Snyder Employment Agreement
immediately following the Closing pursuant to which, among other
things, Mr. Snyder will replace Mr. Bernstein as Chairman and
Chief Executive Officer of the Company and will be granted
options to purchase 1,113,293 shares of Common Stock (see "THE
PROPOSALS -- Interests of Certain Persons in the Transactions --
Snyder Employment Arrangements"); and
(v) certain officers and employees of the Company (other than
Mr. Bernstein) whose employment will be terminated at the
Closing will receive severance payments totaling $1.8 million at
the time of the Closing, and as described above a corporation
owned by Mr. Bernstein will receive a payment of $1.2 million
upon the Closing for the cost (including the cost of employing
former employees of the Company) of providing certain management
services to the Company as requested from time to time by Mr.
Snyder for the 180-day transition period following the Closing
(see "THE PROPOSALS -- Interests of Certain Persons in the
Transactions -- Severance and Management Arrangements."
Certain Terms of the Securities Purchase Agreement
The Company makes customary representations and warranties in the
Securities Purchase Agreement to GPH concerning its business,
operations, properties and financial condition and its ability to
consummate the Transactions. None of these representations and
warranties will survive the Closing.
Under the Securities Purchase Agreement, the Company has
generally agreed that prior to the Closing it will, among other
things, (i) carry on its businesses in the usual, regular and
ordinary course in substantially the same manner as heretofore
conducted, and (ii) afford GPH and its representatives full
access during normal business hours to its properties, books and
records and personnel. While the Company has the right to
participate in discussions or negotiations with or furnish
information to a third party which makes an unsolicited proposal
of a transaction which the Board of Directors reasonably believes
is likely to result in a business combination that is likely to
be more favorable to the stockholders of the Company than the
Transactions, the Company has otherwise agreed prior to the
10
<PAGE>
Closing to refrain from soliciting, entering into any agreements
or participating in any discussions or negotiations concerning,
or furnishing any information to any person in connection with or
otherwise facilitating, any proposal for certain tender or
exchange offers, mergers or other business combination
transactions (the "Non-Solicitation Covenant"). See "SECURITIES
PURCHASE AGREEMENT -- Pre-Closing Covenants" and "-- Non-
Solicitation of Business Combination Proposals."
The obligations of the Company and GPH to effect the Closing are
subject to the satisfaction of various customary closing
conditions, including the approval of the Proposals (other than
the Charter Amendment Proposals) by the Company's stockholders.
There can be no assurance that each of the conditions to the
Closing will be satisfied prior to May 1, 1996, at which time
each of the Company and GPH will, subject to the terms of the
Securities Purchase Agreement, have the right to terminate the
Securities Purchase Agreement. See "SECURITIES PURCHASE
AGREEMENT -- Conditions to Closing."
The Securities Purchase Agreement may be terminated at any time
prior to the Closing, whether before or after approval of the
Proposals by the Company's stockholders, subject to certain
conditions, (i) by either party if the Closing has not occurred
on or before May 1, 1996, (ii) by either party if the Company's
stockholders fail to approve the Proposals (other than the
Charter Amendment Proposals), or (iii) by the Company or GPH if
the Board of Directors reasonably determines that a proposal for
a business combination by a third party is likely to result in a
business combination which is financially superior to the
Transactions and is likely to be consummated. See "SECURITIES
PURCHASE AGREEMENT -- Termination and Termination Fee."
In the event that (i) the Transactions are not consummated as a
result of a material breach by the Company of the Non-
Solicitation Covenant, (ii) the Securities Purchase Agreement is
terminated as described above because the Board of Directors has
determined that a third party business combination proposal is
financially superior to the Transactions, or (iii) certain third
party business combinations occur prior to certain terminations
of the Securities Purchase Agreement or within nine months
following a termination by GPH as a result of a material breach
by the Company of any representation, warranty, covenant or
agreement set forth in the Securities Purchase Agreement, the
Company is required to pay to GPH a termination fee in the amount
of $2 million. See "SECURITIES PURCHASE AGREEMENT -- Termination
and Termination Fee."
11
<PAGE>
Certain Terms of the Series B Convertible Preferred Stock
The Series B Convertible Preferred Stock will (i) be entitled to
a 12% annual cumulative dividend payable (x) during the first
four years following issuance, by delivery of 195,000 shares of
Common Stock per quarter (subject to certain adjustments), and
(y) thereafter, at the quarterly rate of $150 per share,
compounded quarterly, payable in cash; (ii) have a liquidation
preference of $5,000 per share; (iii) be subject to redemption at
the option of the Company from time to time after the fourth
anniversary of the date of issuance at a price of $5,000 per
share; (iv) be convertible into shares of Common Stock at the
initial rate of $10 per share, subject to customary antidilution
adjustments; (v) for so long as GPH owns a significant portion of
the Series B Convertible Preferred Stock, be entitled to elect
one-third of the members of the Board of Directors (the "Series B
Directors") as a class and have class voting rights with respect
to certain material transactions; and (vi) have the right to vote
on an as-if-converted basis with the Common Stock as a single
class on all matters submitted to a vote of the stockholders of
the Company, including the election of all directors other than
the Series B Directors. See "SECURITIES PURCHASE AGREEMENT --
Terms of the Series B Convertible Preferred Stock."
Certain Terms of the Warrant
The Warrant will entitle GPH to purchase 3,250,000 shares of
Common Stock at a price of $10 per share, subject to customary
antidilution adjustments. The Warrant will be exercisable
beginning on the second anniversary of the date of issuance
(subject to acceleration in certain circumstances) until the
seventh anniversary of the date of issuance. GPH has agreed in
the Securities Purchase Agreement not to sell, transfer or assign
the Warrant for a two-year period following the Closing, subject
to acceleration in certain circumstances. See "SECURITIES
PURCHASE AGREEMENT -- Terms of the Warrant."
Certain Terms of the GPH Registration Rights Agreement
It is a condition to GPH's obligation to complete its equity
investment that the Company execute and deliver the GPH
Registration Rights Agreement at the Closing. Pursuant to the
GPH Registration Rights Agreement, GPH and certain of its
transferees will have the right to require the Company to
register the sale of shares of Series B Convertible Preferred
Stock, the Warrant or the underlying shares of Common Stock with
the SEC under the Securities Act, and to participate in other
registrations initiated by the Company. The Company will pay the
expenses of GPH or such transferees in connection with any such
registration, other than underwriting discounts and commissions
and the fees and expenses of legal counsel to the selling
12
<PAGE>
stockholders. The GPH Registration Rights Agreement will also
contain customary indemnification and contribution provisions.
See "SECURITIES PURCHASE AGREEMENT -- Terms of the GPH
Registration Rights Agreement."
Regulatory Matters
On February __, 1996, notification and report forms were filed
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), with respect to the Transactions.
The waiting period under the HSR Act is scheduled to expire on
March __, 1996 unless a request for additional information is
received. The Company is not aware of any other regulatory
approvals or filings, or any other consents or approvals,
required for the consummation of the Transactions. See "THE
PROPOSALS -- Regulatory Matters."
Section 203 of the DGCL
As required by the Securities Purchase Agreement, the Board of
Directors has taken appropriate action so that the provisions of
Section 203 of the DGCL restricting "business combinations" with
"interested stockholders" (each as defined in Section 203 of the
DGCL) will not be applicable to the execution and delivery of the
Securities Purchase Agreement and the consummation of the
Transactions, including the grant by certain of the Bernstein
Entities of irrevocable proxies with respect to their Bernstein
Shares to GPH. See "THE PROPOSALS -- Section 203 of the DGCL."
Litigation
Class action lawsuits were filed in the Delaware Chancery Court
following public announcement of the initial and revised
proposals for a transaction between the Company and Mr. Snyder
and Warburg Pincus challenging the then proposed transactions on
several grounds primarily relating to the allegation that
Mr. Bernstein would receive consideration for his shares
different from that to be received by the other stockholders of
the Company. The Company, each of the directors, Warburg Pincus
and Mr. Snyder are each named as defendants. In view of the
terms of the Securities Purchase Agreement, the Company believes,
based on the advice of counsel, that the claims in the class
action lawsuits are no longer relevant and wholly without merit.
For a more complete discussion of the allegations and relief
sought in the class actions, see "THE PROPOSALS -- Litigation."
Election of Directors
As contemplated by the Securities Purchase Agreement, the
stockholders are being asked at the Special Meeting to elect
13
<PAGE>
the four Nominees -- Barry Diller, Linda L. Janklow, Sharaha Ahmad-
Llewellyn and Richard E. Snyder -- as directors of the Company,
who will qualify as directors only upon the Closing and will
serve until the next annual meeting of stockholders of the
Company and until their successors have been duly elected and
qualified. Upon the Closing, (i) the size of the Board of
Directors will be increased to nine, (ii) GPH (in its capacity as
the holder of the Series B Convertible Preferred Stock) will
elect David A. Tanner, John L. Vogelstein and a third designee of
GPH as Series B Directors, and (iii) Mr. Bernstein, John F. Moore
and Michael A. Pietrangelo will resign as directors of the
Company. Mr. Richard H. Hochman and Ms. Jenny Morgenthau will
continue to serve as directors of the Company following the
Closing. Consequently, following the Closing, the nominees of
GPH will constitute a majority of the Board of Directors.
Amendments to 1995 Stock Option Plan
Concurrent with its approval of the Securities Purchase
Agreement, the Board of Directors adopted certain amendments to
the Stock Option Plan, subject to stockholder approval, that will
facilitate the granting of options to Mr. Snyder as contemplated
by the Snyder Employment Agreement, as well as the granting of
options to other employees following the Closing. See "THE
PROPOSALS -- Interests of Certain Persons in the Transactions --
Snyder Employment Arrangements." Adoption of the amendments to
the Stock Option Plan is a condition to the consummation of the
Transactions contemplated by the Securities Purchase Agreement.
If the Closing does not occur under the Securities Purchase
Agreement for any reason, the amendments to the Stock Option Plan
will be abandoned, regardless of their approval by stockholders.
See "AMENDMENTS TO 1995 STOCK OPTION PLAN."
Executive Officer Bonus Plan
Concurrent with the Board of Directors' approval of the
Securities Purchase Agreement, the Compensation Committee of the
Board of Directors adopted the Bonus Plan, subject to stockholder
approval. It is anticipated that certain performance-based
bonuses potentially payable to Mr. Snyder in accordance with the
Snyder Employment Agreement would be granted under the Bonus
Plan. See "THE PROPOSALS -- Interests of Certain Persons in the
Transactions -- Snyder Employment Arrangements." The Bonus Plan
is designed to preserve the deductibility by the Company of such
bonus payments under Section 162(m) of the Internal Revenue Code
of 1986, as amended. Adoption of the Bonus Plan is a condition
to the consummation of the Transactions contemplated by the
Securities Purchase Agreement. If the Closing does not occur for
any reason, the Bonus Plan will be abandoned, regardless of its
approval by stockholders. See "EXECUTIVE OFFICER BONUS PLAN."
Charter Amendments
14
<PAGE>
At the Special Meeting, the stockholders will consider the
adoption of the Charter Amendments. The Charter Amendments will
(i) change the name of the Company to "Golden Press, Inc."; (ii)
increase the authorized number of shares of Common Stock from
40,000,000 shares to 60,000,000 shares; and (iii) increase the
authorized number of shares of Preferred Stock from 100,000
shares to 200,000 shares. Adoption of any of the Charter
Amendments by the stockholders is not a condition to the
consummation of the Transactions contemplated by the Securities
Purchase Agreement. If the Closing does not occur under the
Securities Purchase Agreement for any reason, the Charter
Amendments will not be effected regardless of their approval by
stockholders. Except as described elsewhere in this Proxy
Statement, the Company has no current plans for any issuances of
Common or Preferred Stock. See "CHARTER AMENDMENTS," "AMENDMENT
TO CHANGE THE NAME OF THE COMPANY" and "AMENDMENT TO INCREASE THE
AUTHORIZED COMMON AND PREFERRED STOCK."
Pro Forma Capitalization
The following table summarizes the consolidated capitalization of
the Company at October 28, 1995, and as adjusted to give effect
to the Transactions, including the issuance of the Series B
Convertible Preferred Stock and the Warrant to GPH and the
receipt by the Company of the net proceeds (after payment of
estimated transaction expenses) of $59,500,000 therefrom, the
application of a portion of the proceeds to the redemption of the
Series A Preferred Stock due March 31, 1996, the payments under
the severance and management arrangements described under "THE
PROPOSALS -- Interests of Certain Persons in the Transactions --
Severance and Management Arrangements," and the impact of certain
aspects of the Snyder Employment Arrangements:
15
<PAGE>
October 28, 1995
----------------------
As
Actual Adjusted
----------------------
(unaudited)
(In thousands of dollars)
Cash $ 22,190 $ 66,895
======== ========
Current Liabilities (1) 61,141 60,931
Long-Term Debt 149,840 149,840
Other Noncurrent Liabilities (4) 30,096 33,096
Convertible Preferred Stock -
Series A, without par value,
due March 31, 1996 9,985 --
Stockholders' Equity:
Series B Convertible Preferred
Stock, without par value (2) -- 59,500
Common Stock, $.01 par value (3) 213 219
Additional paid-in capital (4) 81,430 87,044
Retained earnings (deficit) (3)(4) 9,814 (3,406)
Cumulative translation
adjustments (1,483) (1,483)
-------- --------
89,974 141,874
Less -- cost of Common Stock
in treasury 2,822 2,822
-------- --------
Total Stockholders'
Equity 87,152 139,052
-------- --------
Total Capitalization $338,214 $382,919
======== ========
Note 1 - Series A Convertible Preferred Stock
The As Adjusted amount reflects the redemption of the Series A
Preferred Stock due March 31, 1996 at its carrying value ($9.985
million) and accumulated unpaid dividends ($.2 million). See
"THE PROPOSALS -- Interests of Certain Persons in the Transactions
- -- Redemption of Series A Preferred Stock due March 31, 1996."
Note 2 - Series B Convertible Preferred Stock
The As Adjusted amount reflects the investment by GPH of $65
million (net of estimated transaction expenses) in the Company in
exchange for 13,000 shares of Series B Convertible
16
<PAGE>
Preferred Stock and a Warrant to purchase an additional 3,250,000
shares of Common Stock. See "SECURITIES PURCHASE AGREEMENT --
Issuance and Sale of Series B Convertible Preferred Stock and Warrant."
Note 3 - Incentive Stock of Richard E. Snyder
Pursuant to Mr. Snyder's interim employment agreement, the
Company issued 599,465 shares of Common Stock to him on
January 31, 1996, at a price of $8.00 per share in exchange for a
non-recourse note executed by him in the amount of the purchase
price, secured by a pledge of the shares. The As Adjusted amount
reflects the issuance of the shares and the recognition of
compensation expense at $9.375 per share, the market price of the
Common Stock on January 31, 1996. In the event that the
Securities Purchase Agreement is terminated or Mr. Snyder is not
employed by the Company on May 1, 1996, the stock issuance and
note will be rescinded. See "THE PROPOSALS -- Interests of
Certain Persons in the Transactions -- Snyder Employment
Arrangements."
Note 4 - Impact of the Transactions
The As Adjusted amounts give effect to the Transactions as
follows:
(a) The effect of certain aspects of the Snyder Employment
Arrangements ($10.22 million) which will result in an immediate
charge to operations when they are entered into following the
completion of the GPH equity investment, including the compensation
expense associated with the issuance of Common Stock to Mr. Snyder
on January 31, 1996 (see Note 3), the special bonus associated with
the stock options to be granted to purchase 1,113,293 shares of
Common Stock and the supplemental retirement benefit to be provided
to Mr. Snyder. For the purposes of determining the special bonus
payable to Mr. Snyder, the market price of the Common Stock as of
the Closing was assumed to be approximately $10.75. See "THE
PROPOSALS -- Interests of Certain Persons in the Transactions --
Snyder Employment Arrangements."
(b) The $1.8 million of severance payments to be received by
certain officers and employees (other than Mr. Bernstein) of the
Company, who will resign their positions with the Company. See
"THE PROPOSALS -- Interests of Certain Persons in the
Transactions -- Severance and Management Arrangements."
(c) The $1.2 million payment to a corporation owned by Mr.
Bernstein for the cost (including the cost of employing
17
<PAGE>
certain former employees of the Company) of providing certain
management services (including finance and accounting, cash
management, real estate matters, labor negotiations and corporate
administration) to the Company as requested from time to time by
Mr. Snyder for the 180-day transition period following the
Closing. See "THE PROPOSALS -- Interests of Certain Persons in
the Transactions -- Severance and Management Arrangements."
Price Range of Common Stock; Dividend Policy
The Common Stock is quoted on the Nasdaq National Market under
the symbol "WPGI." After the Special Meeting, the Company
intends to change its listing symbol to ________, in accordance
with the change in the Company's name contemplated by this Proxy
Statement. The following table sets forth, for the periods
indicated, the range of high and low prices per share of the
Common Stock as reported on the Nasdaq National Market. Such
prices reflect inter-dealer prices, without retail mark-up, mark-
down or commission, and may not necessarily represent actual
transactions. Stockholders are urged to obtain current market
quotations for the Common Stock.
Period High Low
- ------ ---- ---
Fiscal Year Ended January 28, 1995:
First Quarter $20.250 $11.000
Second Quarter 12.875 9.625
Third Quarter 14.125 10.000
Fourth Quarter 12.625 9.250
Fiscal Year Ended February 3, 1996:
First Quarter $ 9.9375 $ 8.000
Second Quarter 11.750 9.0625
Third Quarter 14.50 7.875
Fourth Quarter 10.875 7.750
Fiscal Year Ending February 1, 1997:
First Quarter through
March , 1996 $ $
Closing Price on:
September 5, 1995(1) $11.750
October 2, 1995(2) 13.5625
October 18, 1995(3) 8.875
January 31, 1996(4) 9.375
February 1, 1996 (5) 10.750
- ----------------
18
<PAGE>
(1) The last trading day before the Company publicly announced the
terms of the initial proposal for a transaction with Mr. Snyder
and Warburg Pincus.
(2) The last trading day before the Company publicly announced the
revised terms of the initial proposal for a transaction with
Mr. Snyder and Warburg Pincus.
(3) The first trading day after the Company publicly announced
that it had not reached agreement on the terms of a transaction
with Mr. Snyder and Warburg Pincus.
(4) The last trading day before the Company publicly announced the
signing of the Securities Purchase Agreement.
(5) The first trading day after the Company publicly announced the
signing of the Securities Purchase Agreement.
Holders of Common Stock are entitled to receive such dividends as
may be lawfully declared by the Board of Directors. Since its
organization in 1984, the Company has not paid a cash dividend on
the Common Stock, and management does not currently anticipate
the payment of cash dividends on the Common Stock in the
foreseeable future.
19
<PAGE>
WESTERN PUBLISHING GROUP, INC.
---------------
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
APRIL __, 1996
---------------
INTRODUCTION
Proxy Solicitation
This Proxy Statement is being furnished in connection with the
solicitation of proxies by the board of directors (the "Board of
Directors") of Western Publishing Group, Inc., a Delaware
corporation (the "Company"), for use at the special meeting of
stockholders of the Company to be held on ________, April __,
1996, at 10:00 A.M., local time, at Chemical Bank, 270 Park
Avenue, __th Floor, Room ____, New York, New York, or at any
adjournment or postponement thereof (the "Special Meeting"), for
the purposes set forth in the foregoing Notice of Special Meeting
of Stockholders. This Proxy Statement and a form of proxy are
first being mailed on or about March __, 1996 to holders of
record of the Common Stock, par value $.01 per share, of the
Company (the "Common Stock") at the close of business on
March __, 1996, the record date for the Special Meeting.
The cost of soliciting proxies will be borne by the Company and
will consist of expenses of printing, postage and handling,
including the expenses of brokerage houses, custodians, nominees
and fiduciaries in forwarding documents to beneficial owners.
Solicitation may also be made by the Company's officers,
directors or regular employees personally or by telephone. The
firm of ________________, New York, New York, has been retained
to assist in the solicitation of proxies for the Special Meeting
at an estimated fee of $______ plus direct out-of-pocket
expenses.
The principal executive offices of the Company are located at 444
Madison Avenue, New York, New York 10022.
Voting at the Special Meeting
Vote Required. The seven proposals set forth in the foregoing
Notice of Special Meeting of Stockholders (the "Proposals") are
being submitted to the stockholders pursuant to a requirement of
the Securities Purchase Agreement dated as of January 31, 1996,
as the same may be amended from time to time (the "Securities
Purchase Agreement"), between the Company and Golden Press
Holding, L.L.C. ("GPH"), and the rules of the National
Association of Securities Dealers, Inc. (the "NASD")
20
<PAGE>
governing corporations, such as the Company, with securities quoted
on the Nasdaq National Market. In addition, under the Delaware
General Corporation Law (the "DGCL"), the adoption of each of the
Proposals relating to the proposed amendments to the Amended and
Restated Certificate of Incorporation of the Company (the
"Restated Certificate") set forth in the foregoing Notice of
Special Meeting of Stockholders (the "Charter Amendments") must
be submitted to a vote of the holders of the outstanding shares
of Common Stock.
The presence, in person or by properly executed proxy, of the
holders of shares entitled to cast a majority of the votes
entitled to be cast by the holders of record of all outstanding
shares of Common Stock is necessary to constitute a quorum at the
Special Meeting. Shares of Common Stock represented by a
properly signed, dated and returned proxy will be treated as
present at the Special Meeting for purposes of determining a
quorum, without regard to whether the proxy is marked as casting
a vote or abstaining. Proxies relating to "street name" shares
that are voted by brokers will be counted as shares present for
purposes of determining the presence of a quorum, but will not be
treated as shares present at the Special Meeting as to any
proposal as to which authority to vote is withheld from the
broker.
Pursuant to the rules of the NASD and the Company's By-laws, the
affirmative vote of the holders of a majority of the total votes
cast at the Special Meeting is required to approve the Proposals
relating to the Securities Purchase Agreement and the
transactions contemplated thereby (the "Transactions"). Pursuant
to the Company's By-laws, the amendments to the Company's 1995
Stock Option Plan (the "Stock Option Plan") and the Company's
Executive Officer Bonus Plan (the "Bonus Plan") require the
affirmative vote of the holders of a majority of the total votes
cast at the Special Meeting. Accordingly, abstentions will have
the same effect as votes against these Proposals, but broker non-
votes will have no effect on the approval of these Proposals.
The four nominees receiving a plurality of the votes cast at the
Special Meeting for the election of directors will be elected as
directors (but will qualify as such only upon the completion of
the Transactions; see "ELECTION OF DIRECTORS"). Accordingly,
abstentions and broker non-votes will have no effect on the
election of directors. The affirmative vote of the holders of a
majority of the outstanding shares of Common Stock is required to
approve each of the Proposals relating to the Charter Amendments.
Accordingly, abstentions and broker non-votes will have the same
effect as votes against the Charter Amendments.
Unless all the Proposals are approved and adopted by the
stockholders at the Special Meeting, none will be effected by the
Company, except that the other Proposals will be effected
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<PAGE>
regardless of whether any of Proposal Nos. 5, 6 or 7 relating to
the Charter Amendments is adopted. Accordingly, if the Proposals
(including Proposal No. 1) are not effected, the persons elected
as directors at the Special Meeting will not qualify as directors
and will not take office, and the current directors will remain
in office until their successors are duly elected and qualified.
See "ELECTION OF DIRECTORS."
Record Date; Voting Rights. Holders of record of the Common
Stock at the close of business on March __, 1996 (the "Record
Date") are entitled to notice of and to vote at the Special
Meeting. As of the close of business on the Record Date, there
were ____________ shares of Common Stock outstanding and entitled
to vote at the Special Meeting. The holders of Common Stock will
vote as a single class with regard to all matters to be acted
upon at the Special Meeting. Each stockholder of record may cast
one vote for each share of Common Stock entitled to be voted on
each of the Proposals. The Common Stock is the Company's only
class of voting securities outstanding. As described below under
"THE PROPOSALS -- Certain Negotiated Features of the Transactions
- -- Irrevocable Proxies," Richard A. Bernstein, the current
Chairman and Chief Executive Officer of the Company, and certain
of his affiliated entities have granted GPH irrevocable proxies
pursuant to agreements dated January 31, 1996 in respect of
3,996,771 shares of Common Stock owned by them (representing
approximately ___% of the shares of Common Stock currently
outstanding) for so long as such shares are owned by Mr.
Bernstein or his affiliates (the "Irrevocable Proxies"), and GPH
has agreed to vote those shares in favor of the Proposals at the
Special Meeting. Mr. Snyder, who owns 599,465 shares of Common
Stock, representing approximately ___% of the outstanding Common
Stock, has indicated that he intends to vote in favor of the
Proposals. The Company's other directors and executive officers
(who collectively own shares of Common Stock representing
approximately __% of the outstanding Common Stock) have indicated
that they intend to vote in favor of the Proposals.
Shares of Common Stock represented by properly executed proxies
received prior to or at the Special Meeting, unless such proxies
have been revoked, will be voted in accordance with the
instructions indicated on the proxies. If no instructions are
indicated on a properly executed proxy, the shares will be voted
FOR each of the Proposals and, in any case, in the judgment of
the proxy holder as to any other matters that may properly come
before the Special Meeting.
If a stockholder has invested in the Common Stock through the
Company 401(k) plan, the proxy will also serve as voting
instructions for the Trustee for the 401(k) plan. The Trustee
will vote unallocated shares of Common Stock in the 401(k) plan
and allocated shares for which it has not received
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<PAGE>
timely direction in its discretion pursuant to its obligations as a
fiduciary.
Revocability of Proxies
Any proxy given pursuant to this solicitation or otherwise may be
revoked by the person giving it, at any time before it is voted,
by delivering to the Secretary of the Company, at 444 Madison
Avenue, New York, New York 10022, on or before the business day
prior to the Special Meeting or at the Special Meeting itself, a
subsequent written notice of revocation or subsequently-dated
proxy relating to the same shares or by attending the Special
Meeting and voting in person. However, attendance at the Special
Meeting will not in itself constitute the revocation of a proxy.
BENEFICIAL STOCK OWNERSHIP
Principal Stockholders
The following table sets forth certain information regarding the
beneficial ownership as of March __, 1996 (except as set forth in
notes 3 and 4 below) of the Common Stock (the Company's only
outstanding class of voting securities) by each person or group
known by the Company to be the beneficial owner of more than 5%
of the Common Stock:
Beneficial Ownership(1)
-----------------------
Name and Address Number of Shares
of Beneficial Owner of Common Stock Percentage
- ------------------- ---------------- ----------
Richard A. Bernstein 4,280,937(2) %
444 Madison Avenue
New York, New York 10022
Gabelli Funds, Inc. 5,515,850(3) %
655 Third Avenue
New York, New York 10017
The Capital Group Companies, Inc. 2,451,000(4) %
333 South Hope Street
Los Angeles, California 90071
- ---------------
(1) Except where otherwise indicated, all parties listed above
have sole voting and dispositive power over the shares
beneficially owned by them.
(2) Includes 400,000 shares of Common Stock owned by a trust for
the benefit of Mr. Bernstein dated March 16, 1978 (the "1978
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<PAGE>
Trust"), 95,771 shares of Common Stock owned by The Richard A.
Bernstein Trust of 1986 ("1986 Trust") and 191,666 shares of
Common Stock issuable upon conversion of the 9,200 shares of
Series A Preferred Stock due March 31, 1996, without par value,
of the Company (the "Series A Preferred Stock") owned by Mr.
Bernstein. Each share of Series A Preferred Stock currently is
convertible at any time into 20.833 shares of Common Stock. Mr.
Bernstein has no voting or investment power over the shares in
the 1986 Trust. Also includes 60,000 shares of Common Stock
owned by The Richard A. and Amelia Bernstein Foundation, Inc. as
to which Mr. Bernstein has shared voting and dispositive power,
but Mr. Bernstein disclaims any other beneficial interest in such
shares, and 32,500 shares of Common Stock which may be acquired
by Mr. Bernstein within 60 days upon exercise of options granted
under the Company's Amended and Restated 1986 Employee Stock
Option Plan.
As described under "THE PROPOSALS -- Certain Negotiated Features
of the Transactions -- Irrevocable Proxies," on January 31, 1996,
Mr. Bernstein, the 1978 Trust and the 1986 Trust granted
irrevocable proxies to GPH with respect to 3,996,771 shares of
Common Stock, giving GPH the power to vote such shares, for as
long as they are owned by Mr. Bernstein or his affiliates, in
such manner as GPH deems proper (subject to certain limitations),
for the term of such irrevocable proxies. Mr. Bernstein, the
1978 Trust and the 1986 Trust have retained sole dispositive
power with respect to these shares. According to the Schedule
13D filed on February 12, 1996 by GPH, Warburg, Pincus Ventures,
L.P., Warburg, Pincus & Co. and E.M. Warburg, Pincus & Company,
each such entity has shared voting power, and no dispositive
power, as to such shares.
(3) The Gabelli Funds, Inc. has reported to the Company that GAMCO
Investors, Inc. beneficially owned, as of November 10, 1995,
4,537,350 shares of Common Stock, including sole voting power
with respect to 4,071,950 shares and sole dispositive power with
respect to 4,537,350 shares, and The Gabelli Funds, Inc.
beneficially owned, as of such date, 912,000 shares of Common
Stock, with respect to which it had sole voting and dispositive
power. Additionally, Gabelli International Limited beneficially
owned, as of such date, 45,000 shares of Common Stock, with
respect to which it had sole voting and dispositive power,
Gabelli International Limited II beneficially owned, as of such
date, 18,000 shares of Common Stock, with respect to which it had
sole voting and dispositive power, and Gabelli and Company, Inc.
beneficially owned, as of such date, 1,000 shares of Common
Stock, with respect to which it had sole voting and dispositive
power. Furthermore, Mr. Gabelli is deemed to have beneficial
ownership of the securities beneficially
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<PAGE>
owned by each of the persons listed in this footnote and Gabelli
Funds, Inc. is deemed to have beneficial ownership of the
securities owned beneficially by each of the persons listed in
this footnote other than Mr. Gabelli. Mr. Gabelli is the
majority stockholder of, and controls and acts as chief
investment officer for, each of the foregoing persons.
(4) The Capital Group Companies, Inc. has reported to the Company
that its operating subsidiaries, Capital Guardian Trust Company
and Capital Research and Management Company, have, as of December
29, 1995, sole voting and dispositive power with respect to
1,651,000 and 800,000 shares of Common Stock, respectively.
Directors and Executive Officers
The following table sets forth certain information regarding the
beneficial ownership as of March __, 1996 of Series A Preferred
Stock and Common Stock by (i) each executive officer of the
Company named in the Summary Compensation Table below under
"ELECTION OF DIRECTORS -- Executive Compensation", (ii) each
director of the Company, (iii) each nominee for director at the
Special Meeting and (iv) all directors and executive officers as
a group.
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<PAGE>
Beneficial
Ownership
of Common
Stock(1)
Number of
Shares of Percentage Number of
Series A of Series A Shares of Percentage
Preferred Preferred Common of Common
Beneficial Owner Stock Stock Stock(2) Stock(2)
- ---------------- --------- ----------- --------- ----------
Richard A. Bernstein 9,200 46.07% 4,280,937(3) _____%
John F. Moore 300,000(4) _____%
Steven M. Grossman 20,179(5) *
James A. Cohen 50 * 50,087(6) *
Ira A. Gomberg 36,667(7) *
Ilan K. Reich 21,767(8) *
Bruce A. Bernberg 65,021(9) *
Richard H. Hochman 7,000 *
Jenny Morgenthau 2,000 *
Michael A. Pietrangelo 5,000 *
Barry Diller 0 *
Linda L. Janklow 0 *
Sharaha Ahmad-Llewellyn 0 *
Richard E. Snyder 599,465(10) ____%
- ---------------
All directors and executive
officers as a group (15
individuals) 9,250 46.32% 5,616,092(11) ____%
- ---------------
* Represents less than 1% of the Common Stock outstanding.
(1) Except where otherwise indicated, all parties listed above
have sole voting and dispositive power over the shares
beneficially owned by them. Adjustments are made to avoid
double counting of shares as to which more than one beneficial
owner is listed.
(2) Includes shares of Common Stock issuable upon conversion of
the beneficial owner's shares of Series A Preferred Stock. Each
share of Series A Preferred Stock is convertible at any time
into 20.833 shares of Common Stock.
(3) Includes 400,000 shares of Common Stock owned by a trust for
the benefit of Mr. Bernstein dated March 16, 1978 (the "1978
Trust"), 95,771 shares of Common Stock owned by The Richard
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<PAGE>
A. Bernstein Trust of 1986 (the "1986 Trust") and 191,666 shares
of Common Stock issuable upon conversion of Mr. Bernstein's
shares of Series A Preferred Stock. Mr. Bernstein has no voting
or investment power over the shares in the 1986 Trust. Also
includes 60,000 shares of Common Stock owned by The Richard A.
and Amelia Bernstein Foundation, Inc. as to which Mr. Bernstein
has shared voting and dispositive power, but Mr. Bernstein
disclaims any other beneficial interest in such shares, and
32,500 shares of Common Stock which may be acquired by Mr.
Bernstein within 60 days upon exercise of options granted under
the Company's Amended and Restated 1986 Employee Stock Option
Plan (the "1986 Option Plan").
As described under "THE PROPOSALS -- Certain Negotiated Features
of the Transactions -- Irrevocable Proxies," on January 31,
1996, Mr. Bernstein, the 1978 Trust and the 1986 Trust granted
irrevocable proxies to GPH with respect to 3,996,771 shares of
Common Stock, giving GPH the power to vote such shares, for so
long as they are owned by Mr. Bernstein or his affiliates, in
such manner as GPH deems proper (subject to certain
limitations), for the term of such irrevocable proxies. Mr.
Bernstein, the 1978 Trust and the 1986 Trust have retained sole
dispositive power with respect to their shares. According to
the Schedule 13D filed on February 12, 1996 by GPH, Warburg,
Pincus Ventures, L.P., Warburg, Pincus & Co. and E.M. Warburg,
Pincus & Company, each such entity has shared voting power, and
no dispositive power, as to such shares.
(4) Includes 300,000 shares of Common Stock which may be acquired
by Mr. Moore within 60 days upon exercise of options granted
under the 1986 Option Plan.
(5) Includes 20,000 shares of Common Stock which may be acquired
by Mr. Grossman within 60 days upon exercise of options granted
under the 1986 Option Plan.
(6) Includes 1,042 shares of Common Stock issuable upon conversion
of Mr. Cohen's shares of Series A Preferred Stock and 36,667
shares of Common Stock which may be acquired by Mr. Cohen within
60 days upon exercise of options granted under the 1986 Option
Plan.
(7) Includes 36,667 shares of Common Stock which may be acquired
by Mr. Gomberg within 60 days upon exercise of options granted
under the 1986 Option Plan.
(8) Includes 21,667 shares of Common Stock which may be acquired
by Mr. Reich within 60 days upon exercise of options granted
under the 1986 Option Plan.
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<PAGE>
(9) Includes 42,500 shares of Common Stock which may be acquired
by Mr. Bernberg within 60 days upon exercise of options granted
under the 1986 Option Plan.
(10) Represents shares issued by the Company to Mr. Snyder upon
his election as President of the Company on January 31, 1996 in
exchange for a nonrecourse note secured by a pledge of such
shares. In the event that the Securities Purchase Agreement is
terminated in accordance with its terms or Mr. Snyder is not
employed by the Company on May 1, 1996, this stock issuance and
the note will be rescinded. These shares do not include non-
qualified stock options to purchase 1,113,293 shares of Common
Stock to be granted to Mr. Snyder following the closing of GPH's
equity investment pursuant to the terms of his employment
agreement. See "THE PROPOSALS -- Interests of Certain Persons
in the Transactions -- Snyder Employment Arrangements."
(11) Includes 516,668 shares of Common Stock which may be acquired
by certain executive officers within 60 days upon exercise of
options granted under the 1986 Option Plan.
THE PROPOSALS
UNLESS ALL THE PROPOSALS ARE APPROVED AND ADOPTED BY THE
STOCKHOLDERS AT THE SPECIAL MEETING, EACH OF THE PROPOSALS WILL
BE DEEMED TO HAVE BEEN REJECTED BY THE STOCKHOLDERS AND NONE OF
THE PROPOSALS WILL BE EFFECTED, EXCEPT THAT THE OTHER PROPOSALS
WILL BE EFFECTED REGARDLESS OF WHETHER ANY OF THE PROPOSALS
RELATING TO THE CHARTER AMENDMENTS IS ADOPTED.
Background of and Reasons for the Transactions
In 1988, Simon & Schuster, Inc., of which Mr. Snyder was then
Chairman and Chief Executive Officer, held discussions with the
Company regarding a possible business combination with the
Company, but no such transaction was agreed upon.
In November 1993, the Company announced that it had retained
Bear, Stearns & Co. Inc. ("Bear Stearns") and Morgan Stanley &
Co. Incorporated ("Morgan Stanley") to examine overtures from
other entities regarding proposed business combination proposals
and to explore strategic alternatives to maximize stockholder
value. The subsequent solicitation process did not result in a
business combination transaction involving the Company. However,
in 1994 the Company did sell its games and puzzles operations to
Hasbro, Inc., sold the Advertising Specialty Division of Penn
Corporation, closed its facility in Fayetteville, North Carolina,
sold its school book club and direct marketing businesses and
implemented certain reductions in the Company's overhead.
28
<PAGE>
Mr. Snyder and Mr. Bernstein met in April 1995 and subsequently
held preliminary discussions concerning a potential transaction
involving Mr. Snyder and the Company. After several meetings
with Mr. Snyder and his financial advisor, Mr. Snyder introduced
Warburg, Pincus Ventures, L.P. ("Warburg Pincus" and, together
with Mr. Snyder, the "Snyder/Warburg Pincus Group") to a possible
transaction. Thereafter, Mr. Snyder and Warburg Pincus jointly
pursued a transaction with the Company. In May, Mr. Snyder and
Warburg Pincus signed a confidentiality agreement with the
Company and began to review detailed information concerning the
Company. In August, the parties began to outline the parameters
of a potential transaction in which the Snyder/Warburg Pincus
Group would acquire a significant equity interest in the Company.
Following the publication of an article concerning the
possibility of a transaction between the Company, Mr. Snyder and
Warburg Pincus in The New York Times, the Company issued a press
release on September 6, 1995 announcing (the "September
Announcement") that it had reached an agreement in principle for
the acquisition of a significant equity interest in the Company
by the Snyder/Warburg Pincus Group, subject to the completion of
due diligence, the execution of definitive legal agreements and
the approval of the Board of Directors and the Company's
stockholders. The September Announcement contemplated a
transaction in which the Snyder/Warburg Pincus Group would
purchase the Company's wholly-owned subsidiary, Penn Corporation,
from the Company for $23 million in cash and contribute
$56 million to the capital of Penn Corporation. The
Snyder/Warburg Pincus Group would then purchase Mr. Bernstein's
approximate 20% stake in the Company, paying him in exchange
therefor $14 per share in cash and 20% of the shares of Penn
Corporation. The remaining 80% of the stock of Penn Corporation
would then be distributed to the other stockholders of the
Company in connection with a merger transaction in which the
Snyder/Warburg Pincus Group would acquire $120 million of
convertible preferred stock, convertible at $14 per share and
representing a 33% stake in the Company, and a $15 million note.
The September Announcement also contemplated that, upon the
closing of the transaction, Mr. Synder would succeed Mr.
Bernstein as Chairman and Chief Executive Officer of the Company.
Because the transaction outlined in the September Announcement
contemplated the purchase of the Bernstein Shares, the Board of
Directors formed an independent committee of outside directors to
advise the Board of Directors with respect to the proposed
transaction. The committee in turn retained Bear Stearns and
Jefferies & Company, Inc. ("Jefferies") to consider the fairness
of the proposed transaction from a financial point of view.
29
<PAGE>
Following the September Announcement, representatives of the
Snyder/Warburg Pincus Group, including their advisor SBC Capital
Markets, Inc., continued to conduct their due diligence
investigation with respect to the Company and its businesses,
operations and properties. In addition, the parties and their
legal counsel conducted extensive negotiations concerning the
legal documentation for the proposed transaction. In late
September, representatives of the Snyder/Warburg Pincus Group
approached the Company to express their concern with the
Company's recent results of operations and to advise the Company
that it was not prepared to proceed with the transaction
contemplated in the September Announcement. After further
negotiations, the Company issued a press release on October 3,
1995 announcing (the "October Announcement") that it had agreed
in principle with the Snyder/Warburg Pincus Group on a revised
transaction. The October Announcement contemplated a transaction
in which the Snyder/Warburg Pincus Group would purchase the
Bernstein Shares at a cash price of $15.50 per share. The
Snyder/Warburg Pincus Group would then exchange these shares,
together with approximately $50 million in cash, for convertible
preferred stock, convertible at $14 per share and representing a
34% stake in the Company, and warrants to purchase an additional
four million shares at an exercise price of $15 per share. Mr.
Snyder would succeed Mr. Bernstein as Chairman and Chief
Executive Officer of the Company upon completion of the
transaction. Under the revised terms, Penn Corporation would
remain a wholly-owned subsidiary of the Company. The October
Announcement also indicated that the proposed transaction
remained subject to the same conditions as set forth in the
September Announcement, that no definitive agreement had been
signed to date and that there could be no assurance that the
parties would reach a definitive agreement.
Following the September Announcement, a class action lawsuit was
filed in the Delaware Court of Chancery entitled Samuel Pill v.
Richard A. Bernstein, et al. (the "Pill Class Action"). An
amended complaint was filed on October 5, 1995 following the
October Announcement (the "Amended Pill Complaint"). On
October 6, 1995, two additional and substantially similar class
action lawsuits were filed in the Delaware Court of Chancery
entitled Charles Miller v. Richard Bernstein, et al. (the "Miller
Class Action") and Harry Polikoff v. Richard A. Bernstein, et al.
(the "Polikoff Class Action" and, together with the Pill Class
Action and the Miller Class Action, the "Class Actions"). For a
discussion of the allegations contained in the Class Actions, see
"THE PROPOSALS -- Litigation."
The parties continued to negotiate the terms of the revised
transaction following the October Announcement. Representatives
of the Snyder/Warburg Pincus Group also continued their due
diligence. However, the parties could not reach final
30
<PAGE>
agreement on the terms of the proposed transaction and, on October
17, 1995, the Company publicly announced (the "Termination
Announcement") that all negotiations between the parties had been
terminated.
Although the Company received and considered several preliminary
expressions of interest from third parties for a variety of
transactions during the ensuing weeks, none resulted in a formal
offer. In November, Mr. Snyder and Warburg Pincus approached the
Company to attempt to negotiate a new transaction, which
negotiations culminated in the signing of the Securities Purchase
Agreement on January 31, 1996. As negotiated, the revised
transaction contemplated that the Snyder/Warburg Pincus Group
would not purchase any of the Bernstein Shares. Instead, the
entire investment would be made directly in the Company in
exchange for shares of convertible preferred stock, convertible
at $10 per share, and warrants exercisable at $10 per share. The
revised transaction also provided for the Company to use a
portion of the proceeds from the investment to redeem the
outstanding shares of Series A Preferred Stock due March 31,
1996. In addition, the Snyder/Warburg Pincus Group required that
Mr. Bernstein and certain of his affiliates grant it irrevocable
proxies to vote their shares of Common Stock for so long as such
shares were owned by Mr. Bernstein and such affiliates.
Several weeks of negotiations and additional due diligence
followed. The Board of Directors met on December 19, 1995,
January 17, 1996 and January 25, 1996 to receive reports from
management concerning the renewed negotiations with the
Snyder/Warburg Pincus Group and the other expressions of interest
received since the Termination Announcement. In addition, at the
January 25, 1996 meeting representatives of Jefferies made an
oral presentation to the Board of Directors as to the fairness to
the Company of the consideration to be received by the Company in
the proposed transaction (which at the time contemplated a $60
million investment).
On January 26, 1996, John F. Moore resigned as President and
Chief Executive Officer of the Company's principal operating
subsidiary, Western Publishing Company, Inc., although he
remained a director of the Company.
The Board of Directors met again on January 31, 1996 to consider
the final terms of the Securities Purchase Agreement and related
legal documentation, which contemplated a $65 million investment
by the Snyder/Warburg Pincus Group. The Board of Directors heard
the oral presentation and opinion of Bear Stearns that the
consideration to be received by the Company in the proposed
transaction was fair to the Company from a financial point of
view, and was advised that Jefferies was prepared to deliver its
fairness opinion. At that meeting, the Board of Directors, after
considering numerous factors set forth below
31
<PAGE>
under "THE PROPOSALS -- Recommendation of the Board of Directors," by
a unanimous vote, determined that the Transactions, considered as a
whole, are fair to and in the best interests of the Company and its
stockholders. Later that day, Bear Stearns and Jefferies delivered
written fairness opinions, the Securities Purchase Agreement and
related documents were signed by the parties and the Company issued a
press release announcing the Transactions. In addition, in order to
help ensure a smooth transition of the Company's management, Mr.
Snyder was elected as President by the Board of Directors and agreed
to serve in that capacity through the closing of GPH's equity
investment. See "THE PROPOSALS -- Interests of Certain Persons in
the Transactions -- Snyder Employment Arrangements."
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE
SECURITIES PURCHASE AGREEMENT AND THE TRANSACTIONS, CONSIDERED AS
A WHOLE, ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND
ITS STOCKHOLDERS AND THEREFORE UNANIMOUSLY RECOMMENDS THAT THE
COMPANY'S STOCKHOLDERS VOTE FOR APPROVAL OF EACH OF THE PROPOSALS
AT THE SPECIAL MEETING.
As described above under "THE PROPOSALS -- Background of and
Reasons for the Transactions," the decision of the Board of
Directors to approve the Securities Purchase Agreement and
related documentation and the Transactions followed extensive
negotiations over a period of over six months between the
Company, Mr. Snyder, Warburg Pincus and their respective
representatives. During the period between the September
Announcement and the signing of the Securities Purchase Agreement
and related documentation, the Board of Directors met seven times
to consider and review information concerning various aspects of
the proposed transactions.
At its meeting held on January 31, 1996, the Board of Directors
unanimously concluded that the Transactions, considered as a
whole, are fair to and in the best interests of the Company and
its stockholders. During the course of its deliberations, the
Board of Directors considered, without assigning relative weights
to, the following other factors:
(i) the terms and conditions for the Transactions as set forth in
the Securities Purchase Agreement and the related documentation,
including the infusion of cash to be made to the Company by GPH
for its stake in the Company, which the Board of Directors
concluded represents the most favorable transaction possible
with the Snyder/Warburg Pincus Group and available to the
Company;
(ii) the historical and prospective operations of the Company,
including, among other things, the current
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<PAGE>
financial condition and future prospects of the Company, the
strategic direction of the Company's businesses, the current
conditions in, and future prospects of, the Company's various
lines of business and the competitive position of the Company in
its various lines of business;
(iii) historical data relating to market prices and trading
volume of the Common Stock, the favorable reactions by the
public market for the Common Stock to the September and October
Announcements, the generally higher prices at which the Common
Stock has traded since the September Announcement, presumably in
anticipation of a transaction involving the Company, and the
potential dilutive effect of the issuance of the Series B
Convertible Preferred Stock and the Warrant (including the
issuance of Common Stock in accordance with the terms of those
securities);
(iv) the desire of Mr. Bernstein to step down as the Chief
Executive Officer of the Company and the benefits to the Company
of obtaining the services of Mr. Snyder as its Chief Executive
Officer in view of his experience and track record in the
publishing industry, together with the financial expertise and
resources of Warburg Pincus;
(v) the various matters described under "THE PROPOSALS --
Certain Considerations" and "THE PROPOSALS -- Interests of
Certain Persons in the Transactions;"
(vi) the opportunity for the Company's stockholders to retain a
significant equity interest in the Company;
(vii) the fact that the Company is permitted under the
Securities Purchase Agreement to terminate the Securities
Purchase Agreement and, subject to paying a $2 million
termination fee, to enter into an agreement for a business
combination that the Board of Directors reasonably determines is
likely to be more favorable to the Company's stockholders than
the Transactions;
(viii) the failure of any formal competing offers to emerge
following the November 1993 public announcement that the Company
had retained Bear Stearns and Morgan Stanley to consider
strategic alternatives, as well as following the September and
October Announcements and the Termination Announcement;
(ix) the presentation of Bear Stearns to the Board of Directors
at its meeting on January 31, 1996, together with Bear Stearns'
written opinion delivered on that date that, as of such date,
the consideration to be received by the Company from the equity
investment contemplated by the
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Securities Purchase Agreement is fair to the Company from a
financial point of view; and
(x) the presentation of Jefferies to the Board of Directors at
its meeting on January 25, 1996, together with Jefferies'
written opinion delivered on January 31, 1996 that, as of such
date, the consideration to be received by the Company from the
equity investment contemplated by the Securities Purchase
Agreement is fair to the Company from a financial point of view.
Opinions of Financial Advisors
Bear Stearns. At the January 31, 1996 meeting of the Board of
Directors, Bear Stearns delivered its oral presentation and
opinion, which it confirmed in writing later that day, to the
effect that, based upon the matters presented to the Board of
Directors and subject to various considerations set forth in Bear
Stearns' opinion, as of January 31, 1996, the consideration to be
received by the Company from the equity investment contemplated
by the Securities Purchase Agreement is fair to the Company from
a financial point of view.
The full text of the opinion of Bear Stearns, dated __________,
1996, is attached as Appendix IX to this Proxy Statement and sets
forth the assumptions made, matters considered and limits on the
review undertaken. Stockholders are urged to read the opinion of
Bear Stearns in its entirety. Bear Stearns' opinion is directed
only to the fairness, from a financial point of view, of the
consideration to be received by the Company from the equity
investment contemplated by the Securities Purchase Agreement,
pursuant to which, among other things, GPH will purchase, for a
purchase price of $65 million which will be paid in cash, shares
of Series B Convertible Preferred Stock with an aggregate
redemption value of $65 million and a Warrant to purchase
3,250,000 shares of Common Stock (the "Securities Issuance").
Except as set forth below and in the full text of Bear Stearns'
opinion, no limitations were imposed by the Board of Directors
upon Bear Stearns with respect to the investigations made or
procedures followed by it in rendering its opinion. In rendering
its opinion, Bear Stearns did not opine as to any other
transactions or contractual arrangements to be entered into or
payments to be made by or to the Company or any other person
concurrently with the Securities Issuance.
The summary of the opinion of Bear Stearns set forth in this
Proxy Statement is qualified in its entirety by reference to the
full text of such opinion set forth as Appendix IX to this Proxy
Statement. Bear Stearns' opinion does not constitute a
recommendation to any stockholder of the Company as to how such
stockholder should vote on the Proposals at the Special Meeting.
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In arriving at its opinion, Bear Stearns, among other things: (i)
reviewed the Securities Purchase Agreement; the Certificate of
Designations, Number, Voting Powers, Preferences and Rights
relating to the Series B Convertible Preferred Stock; the form of
the Warrant; the GPH Registration Rights Agreement; and certain
related agreements; (ii) reviewed the Company's Annual Reports to
Shareholders for the fiscal years ended on or about January 31,
1993 through 1995; its Annual Reports on Form 10-K for the fiscal
years ended on or about January 31, 1993 through 1995; and its
Quarterly Reports on Form 10-Q for the periods ended April 29,
1995, July 29, 1995 and October 28, 1995; (iii) reviewed certain
operating and financial information, including budgets and
current estimates for Fiscal 1996 (FYE February 3, 1996) provided
to Bear Stearns by the Company's senior management, relating to
the Company's businesses and prospects; (iv) met with certain
members of the Company's senior management to discuss the
Company's businesses and operations, previous restructuring
initiatives, historical financial performance, estimated
financial performance for Fiscal 1996 (FYE February 3, 1996),
current financial condition and liquidity, expected capital
requirements and future prospects; (v) met with Mr. Snyder and
Warburg Pincus to discuss their prospective business strategy for
the Company and their views of the Company's corporate and
operating management, previous business strategies, businesses
and operations, previous restructuring initiatives, historical
financial performance, estimated financial performance for Fiscal
1996 (FYE February 3, 1996), current financial condition and
liquidity, expected capital requirements and future prospects;
(vi) reviewed the historical prices, trading activity and
valuation parameters of the shares of Common Stock and the
Company's 7.65% Senior Notes due 2002 (the "Senior Notes"); (vii)
reviewed publicly available financial data, stock market
performance data and valuation parameters of certain companies
which Bear Stearns deemed generally comparable to the Company;
(viii) reviewed the terms of selected precedent investment
transactions, to the extent publicly available, which Bear
Stearns deemed generally comparable to the Securities Issuance;
(ix) reviewed the terms of selected precedent mergers and
acquisitions, to the extent publicly available, involving
companies which Bear Stearns deemed generally comparable to the
Company; (x) reviewed the terms of selected issuances of
convertible preferred stock in the public securities market; and
(xi) conducted such other studies, analyses, inquiries and
investigations as Bear Stearns deemed appropriate.
In connection with the foregoing, Bear Stearns relied upon and
assumed the accuracy and completeness of the financial and other
information provided to it by the Company and representations of
the Company's senior management related thereto. With respect to
the Company's budgets and current estimates, Bear Stearns assumed
that they had been reasonably prepared on bases reflecting the
best currently available
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estimates and judgments of the senior management of the Company as to
the expected future performance of the Company. Bear Stearns was
informed by the senior management of the Company that no budget or
forecast was available for Fiscal 1997 (FYE February 1, 1997). Bear
Stearns did not assume any responsibility for the information or
current estimates provided to it and relied upon the assurances of
the senior management of the Company that it was unaware of any facts
that would make the information provided to Bear Stearns incomplete
or misleading. In arriving at its opinion, Bear Stearns did not
perform or obtain any independent appraisal of the assets of the
Company. Bear Stearns' opinion was necessarily based on economic,
market and other conditions, and the information made available to
it, as of the date thereof.
In rendering its opinion, Bear Stearns considered (i) the
reaction of the stock market and certain major shareholders to
previous proposed transactions between the Company and the
Snyder/Warburg Pincus Group which had been publicly disclosed
during the Fall of 1995 and the potential positive impact on the
prices of the Company's equity and debt securities of new senior
management; (ii) the Company's recent financial performance,
current financial condition and future prospects; (iii) the
potential negative impact on the prices of the Company's equity
and debt securities of the Company's expected financial
performance for Fiscal 1996 (FYE February 3, 1996) in the absence
of the proposed transaction with the Snyder/Warburg Pincus Group
or another similar extraordinary transaction; (iv) the fact that
(a) no other potential equity investors or strategic acquirors
had made a formal investment or acquisition proposal to the
Company since the September Announcement and (b) the Company had
failed to effect a sale transaction or similar extraordinary
transaction despite various discussions with potential financial
and strategic buyers throughout 1995 and during a public auction
conducted during 1994; (v) the Company's prospects for raising
debt and/or equity in the public and private capital markets; and
(vi) various terms and conditions of the Securities Issuance,
including that (x) the Securities Issuance is subject to a vote
of the Company's stockholders, (y) the "no solicitation" and
"termination" provisions of the Securities Purchase Agreement
provide the Board of Directors of the Company with the
flexibility to exercise its fiduciary duty to pursue certain
alternative transactions in lieu of the Securities Issuance and
(z) the Irrevocable Proxies granted by Mr. Bernstein and certain
of his affiliates to GPH as a condition to the Securities
Issuance.
The following is a summary of the principal financial and
valuation analyses performed by Bear Stearns to arrive at its
opinion. Based on these financial and valuation analyses and the
other factors discussed herein, Bear Stearns determined that, as
of the date of its opinion, the consideration to be received by
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the Company pursuant to the Securities Issuance is fair, from a
financial point of view, to the Company.
Review and Analysis of the Company's Financial and Operating
Performance. Bear Stearns reviewed and analyzed the historical
financial and operating performance of the Company for Fiscal
1993, 1994 and 1995 and the nine months ended October 28, 1995
and the estimated financial and operating performance of the
Company for Fiscal 1996. This review and analysis considered the
Company's reported revenues, gross profit, earnings before
interest, taxes, depreciation and amortization ("EBITDA"),
earnings before interest and taxes ("EBIT"), net income and free
cash flow. Bear Stearns noted that the Company's results for
Fiscal 1993, 1994 and 1995 and for the nine months ended
October 28, 1995 were (i) total revenues of $652.2 million,
$616.7 million, $402.6 million and $285.4 million, respectively,
(ii) EBITDA of $52.0 million, ($30.1) million, $16.3 million and
($19.4) million, respectively, (iii) EBIT of $38.8 million,
($47.1) million, ($17.6) million and ($30.5) million,
respectively, and (iv) net income of $17.5 million, ($41.0)
million, ($17.6) million and ($53.8) million, respectively. Bear
Stearns also noted that the Company's free cash flow from
operations before financing activities was ($97.0) million for
Fiscal 1993, ($49.8) million for Fiscal 1994, ($4.9) million for
Fiscal 1995 and ($37.7) million for the nine months ended October
28, 1995.
Valuation of the Company's Common Stock Absent a Transaction. As
part of its review and analysis, Bear Stearns summarized the
historical trading performance of the Common Stock in light of
the recent financial and operating performance of the Company.
In particular, Bear Stearns reviewed the prices of the Common
Stock following the Termination Announcement and the release of
the Company's third quarter results on December 7, 1995. From
December 8, 1995 through December 29, 1995, the closing price of
the Common Stock ranged from $7.75 to $8.50, and the price of the
Common Stock stood at $7.88 on December 29, 1995 (the "Unaffected
Market Price"). Bear Stearns noted that the price of the Common
Stock had risen significantly during the weeks leading up to the
meeting of the Board of Directors to approve the Securities
Issuance, closing at $9.63 on January 30, 1995 (the "Affected
Market Price"). Based on a review of selected publicly traded
companies and precedent merger and acquisition transactions, Bear
Stearns estimated the price at which the Common Stock might trade
(i) in light of the financial and operating performance of the
Company and (ii) absent the prospect of any extraordinary
transaction such as the Securities Issuance (the "Hypothetical
Intrinsic Value"); as described more fully herein, Bear Stearns
estimated the Hypothetical Intrinsic Value utilizing, for Bear
Stearns' analytical purposes, a range of enterprise value to
revenue multiples of 0.60x to 0.70x.
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Valuation of the Securities to be Issued. Bear Stearns estimated
the value of the securities to be issued pursuant to the
Securities Issuance based on three alternative scenarios assuming
underlying per share prices for the Common Stock of $6.00, $8.00
and $10.00 (approximating the Hypothetical Intrinsic Value, the
Unaffected Market Price and the Affected Market Price,
respectively). For each assumed underlying stock price, Bear
Stearns calculated a theoretical value to be ascribed to the
Series B Convertible Preferred Stock and the Warrant and compared
such theoretical value to the consideration being received by the
Company in the Securities Issuance. These theoretical values
were determined based on (i) the terms of the Series B
Convertible Preferred Stock and assuming a cross-yield of 15-17%
for valuing the fixed income portion of the Series B Convertible
Preferred Stock (reflecting the trading price of the Senior Notes
plus an appropriate spread), a volatility factor of 30% for
valuing the equity component and a 5-10% discount due to certain
transfer restrictions and other unique features of the Series B
Convertible Preferred Stock and (ii) the terms of the Warrant and
assuming a volatility factor of 30%. At an assumed underlying
price for the Common Stock of $6.00, Bear Stearns determined that
the theoretical value of the Series B Convertible Preferred Stock
was approximately $57.2 million and the theoretical value of the
Warrant was approximately $4.3 million, for a total of $61.5
million, which is $3.5 million below the $65.0 million
consideration to be received by the Company (or $0.5 million
above such consideration after accounting for up to $4.0 million
of expenses of Warburg Pincus to be reimbursed from the proceeds
of the Securities Issuance). At an assumed underlying price for
the Common Stock of $8.00, Bear Stearns determined that the
theoretical value of the Series B Convertible Preferred Stock was
approximately $69.6 million and the theoretical value of the
Warrant was approximately $8.1 million, for a total of $77.7
million, which is $12.7 million above the $65.0 million
consideration to be received by the Company (or $16.7 million
above such consideration after accounting for up to $4.0 million
of expenses of Warburg Pincus to be reimbursed from the proceeds
of the Securities Issuance). At an assumed underlying price for
the Common Stock of $10.00, Bear Stearns determined that the
theoretical value of the Series B Convertible Preferred Stock was
approximately $81.9 million and the theoretical value of the
Warrant was approximately $12.9 million, for a total of $94.8
million, which is $29.8 million above the $65.0 million
consideration to be received by the Company (or $33.8 million
above such consideration after accounting for up to $4.0 million
of expenses of Warburg Pincus to be reimbursed from the proceeds
of the Securities Issuance).
Analysis of Selected Publicly Traded Companies. Bear Stearns
compared certain operating and financial information of the
Company to certain publicly available operating, financial,
trading and valuation information of six publicly traded
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companies, which, in Bear Stearns' judgment, were comparable to
the Company for purposes of this analysis. These companies
included Mattel, Inc., Scholastic Corporation, Banta Corporation,
Hasbro, Inc., American Greetings Corp. and Houghton Mifflin Co.
(collectively, the "Comparable Companies"). Bear Stearns'
analysis of the Comparable Companies included reviewing their
enterprise values as a multiple of revenues, EBITDA and EBIT and
their stock prices as a multiple of earnings per share; in
addition, Bear Stearns analyzed various financial and operating
performance measures of the Comparable Companies including
revenue growth, EBITDA growth, EBITDA margins, EBIT growth, EBIT
margins, net income margins, earning per share growth, return on
equity and total debt as a percentage of total capitalization.
In reviewing the valuation parameters of the Company, Bear
Stearns noted that the Company could only be analyzed based on a
multiple of revenues as a result of its recent financial and
operating performance and the lack of any estimates or
projections for the Company. Bear Stearns' analysis of the
Comparable Companies indicated that the range of enterprise value
to revenues multiples was 1.02x to 2.16x with a harmonic mean
(the reciprocal of the arithmetic mean of reciprocals) of 1.37x.
Bear Stearns estimated the Hypothetical Intrinsic Value of the
Common Stock based on a range of enterprise value to revenue
multiples of 0.60x to 0.70x, which reflects a significant
discount to the trading multiples of revenue for the Comparable
Companies due to the Company's financial and operating
performance.
Analysis of Selected Precedent Merger and Acquisition
Transactions. Bear Stearns reviewed and analyzed the publicly
available financial terms of ten selected recent merger and
acquisition transactions which, in Bear Stearns' judgment, were
reasonably comparable to the Securities Issuance for purposes of
this analysis. The ten transactions were (i) the acquisition of
Cleo, Inc. from Gibson Greetings, Inc. by CSS Industries, Inc.;
(ii) the acquisition of D.C. Heath from Raytheon Co. by Houghton
Mifflin Co.; (iii) the acquisition of Thomas C. Wright Inc. by
Tribune Co.; (iv) the acquisition of McDougal Littell & Co. by
Houghton Mifflin Co.; (v) the acquisition of Fisher-Price, Inc.
by Mattel, Inc.; (vi) the acquisition of Affiliated Publications,
Inc. by New York Times Co.; (vii) the acquisition of the Fleer
Corp. by Marvel Entertainment Group, Inc.; (viii) the acquisition
of Universal Matchbox Group Limited by Tyco Toys, Inc.; (ix) the
acquisition of Tonka Corp. by Hasbro Bradley, Inc.; and (x) the
acquisition of Harcourt Brace Jovanovich, Inc. by General Cinema
Corp. (collectively, the "Precedent M&A Transactions"). Bear
Stearns reviewed the prices paid in the Precedent M&A
Transactions and analyzed various operating and financial
information and imputed valuation multiples and ratios. Bear
Stearns noted that none of the Precedent M&A Transactions was
identical to the Securities Issuance and that, accordingly, any
analysis of the Precedent M&A Transactions necessarily involved
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complex considerations and judgments concerning differences in
financial and operating characteristics and other factors that
would necessarily affect the value of the Company versus the
acquisition values of the companies to which the Company was
being compared. In addition, Bear Stearns noted that the
Precedent M&A Transactions could generally be analyzed based on
various valuation parameters such as enterprise value as a
multiple of revenues, EBITDA and EBIT and equity value as a
multiple of net income whereas the Company could only be analyzed
based on a multiple of revenues as a result of its recent
financial and operating performance and the lack of any estimates
or projections for the Company. Bear Stearns' analysis of the
Precedent M&A Transactions indicated that the range of enterprise
value to revenues multiples was 0.76x to 2.94x with a harmonic
mean of 1.30x and an average of 1.68x. Bear Stearns estimated the
Hypothetical Intrinsic Value of the Common Stock based on a range
of enterprise value to revenue multiples of 0.60x to 0.70x, which
reflects a significant discount to the multiples of revenue
implied by the Precedent M&A Transactions due to the Company's
financial and operating performance.
Precedent Investment Transactions. Bear Stearns summarized and
analyzed two transactions in which private equity investors had
purchased significant equity stakes directly from publicly traded
corporations and been granted certain rights, including
representation on the board of directors of the corporation.
These two transactions were (i) the investment by Haas Wheat &
Harrison Incorporated in Playtex Products, Inc. and (ii) the
investment by Kohlberg Kravis Roberts & Co. in TW Holdings, Inc.
(collectively, the "Precedent Investment Transactions"). Bear
Stearns noted that neither of the Precedent Investment
Transactions was identical to the Securities Issuance and that,
accordingly, any analysis of the Precedent Investment
Transactions necessarily involved complex considerations and
judgments concerning differences in transaction structures,
financial and operating characteristics of the issuing
corporation and other factors that would necessarily affect the
terms of the Securities Issuance versus the terms of the
Precedent Investment Transactions. Notwithstanding the numerous
and significant differences between the Securities Issuance and
the Precedent Investment Transactions, this analysis provided a
useful benchmark as to certain structural, corporate governance
and financial aspects of such investment transactions.
Based on the foregoing analyses and factors Bear Stearns arrived
at its opinion; however, the summary set forth above does not
purport to be a complete description of the analysis performed
and factors considered by Bear Stearns in arriving at its
opinion. The preparation of a fairness opinion is a complex
process and is not necessarily susceptible to partial analysis or
summary description. Selecting portions of the analyses or of
the summary set forth above, without
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considering the analysis as a whole, could create an incomplete view
of the processes underlying Bear Stearns' opinion. In arriving at
its opinion, Bear Stearns considered the results of all such reviews,
calculations and analyses. The analyses were prepared solely for
purposes of providing its opinion as to the fairness of the
consideration to be received by the Company pursuant to the
Securities Issuance, from a financial point of view, to the Company
and do not purport to be appraisals or necessarily reflect the prices
at which securities might actually be sold to other parties.
Analyses based upon forecasts of future results are not necessarily
indicative of actual future results, which may be significantly more
or less favorable than suggested by such analyses. As described
above, Bear Stearns' opinion and presentation to the Board of
Directors was one of many factors taken into consideration by the
Board of Directors in making its determination to approve the
Securities Issuance and recommend the Proposals to the stockholders
of the Company.
Bear Stearns is an internationally recognized investment banking
firm and is continually engaged in the valuation of businesses
and their securities and in rendering opinions in connection with
mergers, acquisitions, corporate transactions and other purposes.
The Company retained Bear Stearns based on its qualifications,
expertise and reputation in providing advice to companies as well
as its familiarity with the Company.
Previously, in November 1993, Bear Stearns and Morgan Stanley
were jointly engaged by the Company to assist it as its financial
advisors in responding to "several companies expressing a desire
to discuss a business combination." Bear Stearns and Morgan
Stanley were charged with "exploring all alternatives to maximize
shareholder value." Although such efforts by Bear Stearns and
Morgan Stanley did not produce any offers for the Company in its
entirety, the Company did sell its games and puzzles business to
Hasbro, Inc. In connection with the aforementioned sale of the
games and puzzles business, Bear Stearns and Morgan Stanley were
each paid a customary transaction fee. In September 1992, Bear
Stearns lead-managed, with Morgan Stanley as co-manager, the
Company's $150 million offering of Senior Notes.
Jefferies. At the January 25, 1996 meeting of the Board of
Directors, Jefferies made an oral presentation as to its analysis
of the fairness from a financial point of view of the
consideration to be received by the Company from the GPH equity
investment (which at the time, as described above, contemplated a
$60 million investment by GPH). On January 31, 1996, Jefferies
delivered its written opinion as of such date to the Board of
Directors to the effect that, based upon and subject to the
various considerations set forth in its opinion, the
consideration to be received by the Company from the Securities
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Issuance is fair to the Company from a financial point of view.
Except as set forth below and in the full text of Jefferies'
opinion, no limitations were imposed by the Board of Directors
upon Jefferies with respect to the investigations made or
procedures followed by it in rendering its opinion. In rendering
its opinion, Jefferies did not opine as to any other transactions
or contractual arrangements to be entered into or payments to be
made by or to the Company or any other person concurrently with
the Securities Issuance. In addition, Jefferies was not
requested to opine as to, and its opinion did not address, the
underlying business decision of the Board of Directors to proceed
with or to effect the Securities Issuance.
The full text of the opinion of Jefferies, dated _________, 1996,
is attached as Appendix X to this Proxy Statement and sets forth
the assumptions made, matters considered and limits on the review
undertaken. Stockholders are urged to read the opinion of
Jefferies in its entirety. The summary of the opinion of
Jefferies set forth in this Proxy Statement is qualified in its
entirety by reference to the full text of such opinion set forth
as Appendix X to this Proxy Statement. The Jefferies opinion is
addressed only to the Board of Directors, is directed only to the
fairness, from a financial point of view, of the consideration to
be received by the Company from the Securities Issuance and does
not constitute a recommendation to any stockholder of the Company
as to how such stockholder should vote on the Proposals at the
Special Meeting.
The Jefferies opinion notes that: (i) the Company has elected to
pursue the Securities Issuance following a thorough consideration
of the financial alternatives available to it, in which process
it was assisted by another nationally-recognized investment
banking firm; (ii) Jefferies was not authorized by the Company or
the Board of Directors to solicit, nor did Jefferies solicit,
offers for transactions alternative to the Securities Issuance
(including a sale of all of the Company's equity securities or
any of its constituent businesses), nor was Jefferies asked to
advise the Company or the Board of Directors as to financial
alternatives to the Securities Issuance; (iii) the Jefferies
opinion was only one factor considered by the Board of Directors
in making its determination to approve the Securities Issuance;
(iv) Jefferies has consented to the references to its opinion in
this Proxy Statement, but has disclaimed any obligation to the
stockholders of the Company in connection with the delivery of
such opinion or otherwise in connection with the Securities
Issuance; and (v) such opinion is intended to be for the sole use
of the Board of Directors and may not be used for any other
purpose, or otherwise referred to, relied upon or circulated,
without Jefferies' prior written consent.
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In connection with the provision of its opinion, Jefferies, among
other things, (i) reviewed drafts of the Securities Purchase
Agreement (including the Exhibits thereto) and certain financial
and other information about the Company that was publicly
available or furnished to Jefferies by the Company, including
certain internal financial analyses, budgets and estimated
financial performance for its fiscal year ending February 3,
1996, reports and other information prepared by the Company's
management; (ii) held discussions with representatives of the
management of the Company concerning the business, properties and
prospects of the Company; and (iii) conducted such other reviews,
analyses and inquiries relating to the Company as it deemed
appropriate.
In addition, Jefferies assumed and relied upon, without
independent investigation or verification, the accuracy,
completeness and fair presentation of all financial and other
information that was provided to Jefferies by or on behalf of the
Company, Mr. Snyder, GPH or Warburg Pincus or that was publicly
available for purposes of rendering its opinion, and its opinion
is expressly conditioned upon all such information (whether
written or oral) being complete, accurate and fair in all
material respects. Furthermore, the Company did not prepare, and
Jefferies did not accordingly review or conduct valuation
analyses based upon, any financial projections with respect to
the estimated future performance of the Company, and Jefferies'
opinion is, as a result, qualified by the absence of such reviews
and analyses. Jefferies, moreover, did not make an independent
evaluation or appraisal or conduct a physical inspection of any
of the tangible or intangible assets of the Company, nor was
Jefferies furnished with any such appraisals.
In performing its analysis, Jefferies considered such financial
and other factors as Jefferies deemed appropriate under the
circumstances, including, among others: (i) the business and
financial aspects of the Securities Issuance; (ii) the historical
and current markets for the Common Stock; (iii) the financial
impact of the Securities Issuance upon the Company; (iv) the
discussions with Mr. Snyder and with representatives of GPH,
Warburg Pincus and the Company's management referred to above;
(v) certain of the Company's operating and financial information;
(vi) the Company's Annual Reports to Stockholders and Annual
Reports on Form 10-K for its last three full fiscal years and its
Quarterly Reports on Form 10-Q filed since the date of its most
recent such Form 10-K; (vii) the potential negative impact on the
prices of the Company's equity and debt securities of the
Company's expected financial performance for its fiscal year
ending February 3, 1996 in the absence of the proposed
transaction with GPH or another similar extraordinary
transaction; (viii) the fact that (a) the Company was
unsuccessful in effecting a sale or similar extraordinary
transaction during a public auction conducted during 1994 or
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thereafter and (b) no other potential equity investors or
strategic acquirors have made a formal investment or acquisition
proposal to the Company since the September Announcement;
(ix) the degree of control that GPH and Warburg Pincus will have
with respect to the Company; (x) the potentially positive impact
of new senior management led by Mr. Snyder and the affiliation
with Warburg Pincus on the prices of the Company's equity and
debt securities, its capital raising capacity and its ability to
access the capital markets; (xi) the consummation of the
Securities Issuance being conditioned upon the approval of the
Company's stockholders; and (xii) such other information as
Jefferies deemed to be appropriate. Jefferies also conducted
such other reviews, analyses and inquiries relating to the
Company, Mr. Snyder, GPH and Warburg Pincus (in addition to those
set forth above) as it considered proper.
Jefferies' opinion is based on economic, monetary, political and
market conditions prevailing, and stock prices and other
circumstances and conditions existing, on the date thereof.
Jefferies also notes that such conditions are subject to rapid
and unpredictable change. In addition, Jefferies did not express
any opinion as to the market value of the Common Stock or the
price or trading range at which any of the securities of the
Company may trade following the consummation of the Securities
Issuance.
The following is a summary of the analyses performed by Jefferies
in connection with Jefferies' opinion to the Board of Directors.
The following does not purport to be a complete description of
the analyses performed, or the matters considered, by Jefferies
in arriving at its opinion.
Financial and Operating Performance of the Company. As part of
its overall analysis, Jefferies examined the historical financial
and operating performance of the Company for its last three full
fiscal years and for the twelve-month period ended October 28,
1995 ("LTM"). This analysis considered the Company's reported
revenues, gross profit, earnings before interest and income taxes
("EBIT"), earnings before interest, taxes, depreciation and
amortization ("EBITDA") and net income. Jefferies noted (i) that
on an LTM basis, EBITDA, EBIT and net income were all
substantially negative, and (ii) that the Company expected to
report significant negative EBITDA, EBIT and net income for the
fiscal year ending February 3, 1996.
Jefferies noted that because of the significant negative
operating results for the Company on an LTM basis, it was not
meaningful to conduct any valuation analysis based on (i) total
enterprise value to EBIT, (ii) total enterprise value to EBITDA
and (iii) price/earnings multiples.
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The Series B Convertible Preferred Stock. As part of its overall
analysis, Jefferies also evaluated the terms of the Series B
Convertible Preferred Stock, including the implied floating
dividend yield of 7.5% to 15% and the implied conversion premium
associated with such Series B Convertible Preferred Stock. In
its review of the Series B Convertible Preferred Stock's implied
floating dividend yield, Jefferies considered the financial
condition of the Company and Jefferies' historical experience
involving private equity investments and trading levels of public
and private high yield securities. In its review of the Series B
Convertible Preferred Stock's implied conversion premium,
Jefferies noted that, based upon (i) the $10 conversion price
associated with the Series B Convertible Preferred Stock and (ii)
the closing price of the Common Stock of $9.625 per share on
January 29, 1995, the resulting 4% implied conversion premium
associated with the Series B Convertible Preferred Stock
appeared, in isolation, historically low. However, Jefferies
noted that such implied conversion premium was likely understated
in light of other factors, including, (i) the price at which the
Common Stock would presumably trade in light of the expected
financial and operating performance for the fiscal year ending
February 3, 1996 and in the absence of an extraordinary
transaction such as the Securities Issuance, and (ii) the fact
that the price of the Common Stock had increased significantly,
approximately 18.5%, during the three-week period leading up to
the public announcement of the execution of the Securities
Purchase Agreement. In addition, based on a range of market
prices of the Common Stock, Jefferies noted that the following
range of implied conversion premiums of the Series B Convertible
Preferred Stock would result: (i) at a Common Stock price of
$6.00 per share, the implied conversion premium would be 66.7%;
(ii) at a Common Stock price of $7.00 per share, the implied
conversion premium would be 42.9%; (iii) at a Common Stock price
of $8.00 per share, the implied conversion premium would be
25.0%; (iv) at a Common Stock Price of $9.00 per share, the
implied conversion premium would be 11.1%; and (v) at a Common
Stock price of $10.00 per share, the implied conversion premium
would be 0.0%.
The Warrant. Jefferies also analyzed the terms of the Warrant as
part of its overall analysis. In its valuation of the Warrant,
Jefferies undertook various considerations, including use of the
Black-Scholes model, to develop a reference valuation range for
the Warrant, at an assumed volatility level of 40%, ranging from
approximately $6 million to $8 million. Jefferies noted that the
Warrant also provided an incentive for the new senior management
of the Company to increase the market price of the Common Stock
and would be a source of an additional equity infusion into the
Company upon exercise of the Warrant (unless the holder elects a
cashless exercise as permitted by the terms of the Warrant).
Furthermore, Jefferies noted various intangible benefits to be
received by the Company in connection with the
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Securities Issuance, including among others: (i) the potentially
positive impact of new senior management led by Mr. Snyder and the
affiliation of Warburg Pincus on the prices of the Company's
equity and debt securities, as evidenced (and described more
fully below) by the respective movements of the Company's equity
and debt securities in reaction to the Company's public
announcements involving Mr. Snyder and Warburg Pincus during the
five-month period preceding the public announcement of the
Securities Issuance; (ii) the likely resulting increase in the
credibility of the Company with its stockholders and other
constituencies, including suppliers, vendors and equity analysts;
(iii) the greater likelihood for realizing the value of the
Company's intangible assets, including its well-established brand
names, archives and libraries; and (iv) the significant
investment of cash and immediate access to growth capital created
by the Securities Issuance.
Stock Market and Bond Market Trading Activity. As part of its
review and analysis, Jefferies also examined the historical
trading performance of the Common Stock in light of the recent
financial and operating trends of the Company. In particular,
Jefferies reviewed the closing prices of the Common Stock
surrounding the dates of each of the September and October
Announcements, the Termination Announcement and the public
announcement of the execution of the Securities Purchase
Agreement. Jefferies noted that (i) in the two weeks immediately
prior to the first trading day after the date of the September
Announcement, the closing price of the Common Stock had increased
significantly, by approximately 20%; (ii) on the first trading
day after the date of the September Announcement, the closing
price of the Common Stock had increased approximately 18.4% from
the previous day's close; (iii) on the date of the Termination
Announcement, the closing price of the Common Stock had fallen
approximately 22.6% from the previous day's close; (iv) on the
day after the date of the Termination Announcement, the closing
price of the Common Stock had fallen approximately 33.0% from the
Common Stock's closing price on October 16, 1995, the day prior
to the Termination Announcement; and (v) by late December 1995,
the closing price of the Common Stock had fallen approximately
24.4% from the Common Stock's closing price on the date of the
Termination Announcement.
In addition to examining the trading performance in the Common
Stock, Jefferies reviewed the performance levels in the Company's
debt securities. Following the Termination Announcement in
October 1995, Standard & Poor's downgraded the Company's $150
million face amount Senior Notes from "BB-" to "B". On November
1, 1995, Moody's Investors Service downgraded the Senior Notes
from "Ba3" to "B1". Jefferies noted that these downgradings
still did not fully reflect the continuing declines in operating
profitability of the Company. In that connection, Jefferies
noted that, as of January 24, 1996, there was a bid for
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the Senior Notes at approximately 77% of par, implying a yield of
approximately 13%, a yield more typical for securities with lower
ratings than the above-referenced downgradings of the Senior
Notes.
Analysis of Selected Publicly Traded Companies. Jefferies
compared certain operating and financial information of the
Company to certain publicly available operating, financial,
trading and valuation information of six publicly traded
companies, which, in Jefferies' judgment, were comparable to the
Company for purposes of this analysis. These companies included
Houghton Mifflin Company, Scholastic Corporation, Thomas Nelson
Inc., Educational Development Corporation, John Wiley & Sons and
Steek-Vaughn Publishing Corporation (collectively, the
"Comparable Companies"). Jefferies' analysis of the Comparable
Companies included reviewing their total enterprise values as a
multiple of revenues, EBITDA and EBIT and the market prices of
the stock of those companies as a multiple of earnings per share.
In addition, Jefferies analyzed various financial and operating
performance measures of the Comparable Companies, including
revenue growth, EBITDA growth, EBITDA margins, EBIT growth, EBIT
margins, net income margins, earnings per share growth, return on
equity and total debt as a percentage of total capitalization.
In reviewing the valuation parameters of the Company, Jefferies
noted that the Company's value could only be analyzed based on a
multiple of revenues as a result of its recent financial and
operating performance and the lack of any estimates or
projections for the Company. Jefferies' analysis of the
Comparable Companies indicated that the range of total enterprise
value to revenues multiples was 1.1x to 3.5x with an arithmetic
mean of 1.4x. Jefferies noted that on a total enterprise value
to revenue multiple basis, the Company traded at a significant
discount to the trading multiples of its peers. Jefferies also
noted that total enterprise value to revenue multiple valuations
are not generally regarded as a reliable method of valuation.
Recent Trends in the Company's Results of Operations. In
evaluating the terms of the Securities Issuance, Jefferies
considered all of the intangible aspects of the Securities
Issuance as well as the lack of alternative options or strategic
opportunities for the Company. Jefferies noted that no formal
offers were made to acquire the Company in its entirety as a
result of the efforts of Bear Stearns and Morgan Stanley
commencing in November 1993, as described above. Jefferies
further noted that the Company's operating performance, working
capital investment and liquidity had continued to decline
following this auction process. In addition to evaluating both
the tangible and intangible benefits of the Securities Issuance,
Jefferies reviewed the existing liquidity and prospects for
future liquidity for the business under several scenarios.
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Based on the foregoing analyses and factors Jefferies arrived at
its opinion; however, the summary set forth above does not
propose to be a complete description of the analysis performed
and factors considered by Jefferies in arriving at its opinion.
The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of
financial analyses and the application of those methods to
particular circumstances and, therefore, such an opinion is not
readily susceptible to summary description. Furthermore, in
arriving at its opinion, Jefferies did not attribute any
particular weight to any analysis or factor considered by it, but
rather made qualitative judgments as to the significance and
relevance of each analysis and factor. Accordingly, Jefferies'
analyses must be considered as a whole. Considering any portion
of such analyses and of the factors considered, without
considering all analyses and factors, could create a misleading
or incomplete view of the process underlying the Jefferies
opinion. In its analyses, Jefferies made many assumptions with
respect to general business and economic conditions and other
matters, many of which are beyond the control of the Company. In
addition, analyses relating to the value of the Company's
securities do not purport to be appraisals or to reflect the
prices at which securities might actually be sold to other
parties.
The Company selected Jefferies to render an opinion in connection
with the Securities Issuance based upon Jefferies'
qualifications, expertise and reputation, including the fact that
Jefferies, as part of its investment banking business, is
continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions,
competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for
corporate and other purposes. In the ordinary course of its
business, Jefferies may actively trade securities of the Company
for its own account and for the accounts of its customers and,
accordingly, may, at any time, hold a long or short position in
such securities.
Fees and Expenses. Pursuant to letter agreements entered into on
September 11, 1995 with Bear Stearns and on October 6, 1995 (and
as amended on January 10, 1996) with Jefferies, Bear Stearns and
Jefferies were retained to render fairness opinions in respect of
the Transactions. Bear Stearns and Jefferies originally were
retained following the September Announcement to render fairness
opinions to an independent committee of the Board of Directors
appointed at that time to assist the Board of Directors in
assessing the proposed transactions. Because the Transactions
contemplated by the Securities Purchase Agreement did not involve
any sale of shares by Mr. Bernstein or his affiliates to GPH, the
Board of Directors determined, upon advice of legal counsel, that
an independent
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committee was not required in connection with the Board of
Directors' assessment of the Transactions. Accordingly, the
independent committee was disbanded, and Bear Stearns and
Jefferies were retained to issue opinions to the Board of
Directors on the same terms.
The Company has agreed to pay (i) Bear Stearns a fee of $575,000
and up to an additional $25,000 for Bear Stearns' reasonable out-
of-pocket expenses (including the reasonable fees and
disbursements of counsel) incurred in connection with the
rendering of such fairness opinion and (ii) Jefferies a fee of
$400,000 plus expenses up to an additional $50,000. Pursuant to
a separate letter agreement entered into on September 11, 1995,
the Company has agreed to pay Bear Stearns an additional fee of
$650,000 in respect of other financial advisory services
performed in connection with the GPH equity investment. The
Company has agreed to indemnify both Bear Stearns and Jefferies
and certain related persons against certain liabilities in
connection with their respective engagements by the Company,
including certain liabilities under the federal securities laws.
Use of Proceeds
The estimated net cash proceeds to the Company from the sale of
the Series B Convertible Preferred Stock and the Warrant to GPH
will be $59,500,000, after giving effect to the payment of
estimated transaction expenses (see "SECURITIES PURCHASE
AGREEMENT -- Expenses") but prior to payments under the severance
and management arrangements described under "THE PROPOSALS --
Interests of Certain Persons in the Transactions -- Severance and
Management Arrangements." Approximately $10 million of such
proceeds will be used by the Company to redeem the outstanding
shares of Series A Preferred Stock (which is mandatorily
redeemable by the Company on March 31, 1996) as contemplated by
the Securities Purchase Agreement (see "THE PROPOSALS -- Interests
of Certain Persons in the Transactions -- Redemption of Series A
Preferred Stock due March 31, 1996"), and the remainder will be
available to the Company for general working capital purposes,
including new product development and future acquisitions. The
Company does not currently have any commitments or understandings
regarding the use of such proceeds. See "THE PROPOSALS -- Use of
Proceeds."
Certain Considerations
While the Board of Directors is unanimously of the opinion that
the Proposals are fair to, and in the best interests of, the
Company and its stockholders, stockholders should consider the
following possible consequences of completion of the Transactions
when evaluating the Proposals:
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Diminished Ability to Sell the Company; Antitakeover Effect
The Series B Convertible Preferred Stock initially will be
convertible into shares of Common Stock representing
approximately 23% of the shares of Common Stock then outstanding,
and the Series B Convertible Preferred Stock will vote on an as-
if-converted basis together with the Common Stock, as a single
class, on all matters submitted to a vote of the stockholders of
the Company, including the election of directors other than the
Series B Directors (as defined below). The Series B Convertible
Preferred Stock also will initially be entitled to vote as a
class for one-third of the nine members of the Board of Directors
(the "Series B Directors"). During each of the first four years
following initial issuance of the Series B Convertible Preferred
Stock, 195,000 shares of Common Stock will be delivered quarterly
(subject to certain adjustments) in lieu of cash dividends on the
Series B Convertible Preferred Stock. Moreover, the Warrant will
entitle GPH to purchase up to 3,250,000 shares of Common Stock,
at an exercise price of $10 per share, beginning in the third
year after initial issuance (or sooner under certain
circumstances). See "SECURITIES PURCHASE AGREEMENT -- Terms of
Series B Convertible Preferred Stock" and "-- Terms of the
Warrant." In addition, Mr. Snyder purchased 599,465 shares of
Common Stock from the Company on January 31, 1996 when he was
elected as President, and will be granted a non-qualified stock
option following completion of the GPH equity investment to
purchase an additional 1,113,293 shares. In the event that the
Securities Purchase Agreement is terminated in accordance with
its terms or Mr. Snyder is not employed by the Company on May 1,
1996, the stock grant will be rescinded. See "THE PROPOSALS --
Interests of Certain Persons in the Transactions -- Snyder
Employment Arrangements." Further, by virtue of the Irrevocable
Proxies granted to GPH by Mr. Bernstein and certain of his
affiliated entities, GPH will control, through the Irrevocable
Proxies, the voting of an additional 3,996,771 shares of Common
Stock immediately following completion of its equity investment
(which, after giving effect to the consummation of the
Transactions, will constitute approximately 14% of the total
voting power of the outstanding shares of capital stock of the
Company immediately following the consummation of the
Transactions). However, such voting power is subject to decrease
if Mr. Bernstein or such other entities transfer the shares to
which the Irrevocable Proxies relate to persons other than
affiliates of Mr. Bernstein. Furthermore, the Securities
Purchase Agreement contains no restrictions on the ability of GPH
to acquire additional shares of Common Stock, whether in the open
market or otherwise. Accordingly, GPH, together with Mr. Snyder,
will control approximately __% of the voting power of the
outstanding capital stock of the Company immediately following
completion of its equity investment and will have the ability to
acquire an even greater stake. Finally, for so long as at least
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one-half of the shares of Series B Convertible Preferred Stock
initially issued are owned by GPH and certain of its affiliates,
certain matters will be subject to the consent of the holders of
a majority of the shares of Series B Convertible Preferred Stock.
See "SECURITIES PURCHASE AGREEMENT -- Terms of the Series B
Convertible Preferred Stock." The foregoing will make it more
difficult for a third party to acquire control of the Company
without the consent of GPH and, therefore, may discourage third
parties from making an acquisition proposal or seeking to acquire
control of the Company.
Board Representation; Control of Management
The Series B Convertible Preferred Stock will initially be
entitled to vote separately as a class for the Series B Directors
and will vote, on an as-if-converted basis, together with the
Common Stock on the election of the remaining members of the
Board of Directors. If the Proposals are adopted at the Special
Meeting, the nominees of GPH will constitute a majority of the
members of the Board of Directors immediately following
completion of its equity investment. See "ELECTION OF
DIRECTORS." In addition, Mr. Snyder will serve as Chairman and
Chief Executive Officer of the Company upon the completion of
GPH's equity investment. Consequently, Mr. Snyder and GPH will
have significant influence over the management and policies of
the Company.
Dilution
The Securities Purchase Agreement contemplates the issuance by
the Company of 13,000 shares of Series B Convertible Preferred
Stock convertible into shares of Common Stock initially
representing approximately 23% of the voting power of the
outstanding Common Stock, at an initial conversion price of $10
per share. Because the Series B Convertible Preferred Stock will
vote on an as-if-converted basis with the Common Stock, the
issuance of the Series B Convertible Preferred Stock will dilute
the voting rights of existing holders of Common Stock. This
issuance also could have the effect of diluting the economic
interests of the existing holders of Common Stock. The Series B
Convertible Preferred Stock will be entitled to receive dividends
and liquidating distributions prior to the payment of such
dividends or distributions on the Common Stock. Whether such
issuance will have a dilutive effect on the earnings per share of
the Common Stock and, if so, the extent of such dilution will
depend upon, among other factors, the actual earnings generated
by the application of the proceeds to the Company from the
Transactions. See "THE PROPOSALS -- Use of Proceeds." The
issuance of up to 3,250,000 shares of Common Stock upon exercise
of the Warrant, at an exercise price of $10 per share, or upon
the payment of dividends on the Series B Convertible Preferred
Stock by delivery of 3,120,000 shares of Common Stock over the
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first four years after the date of initial issuance, will have
the effect of further diluting the voting rights of existing
holders of Common Stock. Moreover, such issuances, as well as
the right of the holder of the Warrant, in lieu of exercising the
Warrant, to receive shares of Common Stock having a value equal
to the difference between the then current market price of the
Common Stock and the $10 exercise price, may, depending on the
market price of the Common Stock at the time, have a dilutive
effect on their economic interests as well. In addition, 599,465
shares of Common Stock were issued to Mr. Snyder when he was
elected President of the Company, it is expected that Mr. Snyder
will be granted a non-qualified stock option to purchase
1,113,293 shares of Common Stock pursuant to his employment
agreement following the closing of GPH's equity investment, and
certain aspects of the Snyder Employment Arrangements are
expected to result in an immediate charge to operations when they
are entered into following the completion of the GPH equity
investment. See "SUMMARY -- Pro Forma Capitalization," "THE
PROPOSALS -- Interests of Certain Persons in the Transactions --
Snyder Employment Arrangements" and "SECURITIES PURCHASE
AGREEMENT -- Terms of the Series B Convertible Preferred Stock"
and "-- Terms of the Warrant."
Certain Negotiated Features of the Transactions
Stockholders should be aware of the following additional aspects
and provisions of the Securities Purchase Agreement and the
Transactions that were negotiated on behalf of the Company and
the stockholders and were required by the parties as a condition
to the signing of the Securities Purchase Agreement.
Status of Bernstein Shares
As described under "THE PROPOSALS -- Background of and Reasons for
the Transactions," the transactions described in the September
and October Announcements contemplated that shares of Common
Stock beneficially owned by Mr. Bernstein and certain of his
affiliated entities would be purchased in connection with the
arrangements contemplated thereby. Consistent with public
statements made by Mr. Bernstein and as also stated in his letter
to stockholders appearing in the Company's 1995 annual report to
stockholders, the Transactions contemplated by the Securities
Purchase Agreement do not provide for the purchase of shares
owned by Mr. Bernstein or any of his affiliates, which will
remain outstanding following the completion of GPH's equity
investment. The investment by GPH of $65 million (prior to the
payment of expenses) will be made directly in the Company in
exchange for the issuance of the Series B Convertible Preferred
Stock and Warrant. Pursuant to the Bernstein Registration Rights
Agreement, Bernstein Entities will have certain registration
rights with respect to their shares of Common Stock. See "The
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Proposals -- Interests of Certain Persons in the Transactions --
Bernstein Registration Rights Agreement."
Irrevocable Proxies
Warburg Pincus required that Mr. Bernstein and certain of the
Bernstein Entities relinquish their voting rights with respect to
their shares of Common Stock as a condition to Warburg Pincus'
participation in the Transactions. In addition, Warburg Pincus
required that Mr. Bernstein and such entities agree to certain
transfer restrictions with respect to their shares of Common
Stock. Accordingly, concurrent with the execution of the
Securities Purchase Agreement, each of Mr. Bernstein and certain
of the Bernstein Entities owning in the aggregate 3,996,771
shares of Common Stock executed Irrevocable Proxies in favor of
GPH in respect of such shares. The following is a summary of
certain provisions of the Irrevocable Proxies, each of which is
substantially identical. The Irrevocable Proxy granted by
Mr. Bernstein to GPH is attached as Appendix III to this Proxy
Statement and is incorporated herein by reference. Such summary
is qualified in its entirety by reference to the Irrevocable
Proxies.
Pursuant to the Irrevocable Proxies, GPH will have the power to
vote, on behalf of the Bernstein Entities party thereto, their
Bernstein Shares in such manner and upon such matters as GPH
deems proper (other than voting against, or for the removal of,
existing members of the Board of Directors except as contemplated
by the Securities Purchase Agreement), including voting such
Bernstein Shares in favor of the Proposals and against any
transaction that would make it impractical for GPH to effect the
Transactions. Pursuant to the Securities Purchase Agreement, GPH
has agreed to vote the Irrevocable Proxies in favor of the
Proposals at the Special Meeting. Such voting rights will
terminate upon the earlier to occur of (i) the termination of the
Securities Purchase Agreement in accordance with its terms and
(ii) whenever GPH and certain affiliates beneficially own in the
aggregate less than 15% of the outstanding Common Stock on a
fully-diluted basis (determined as described in the Irrevocable
Proxies).
Mr. Bernstein has agreed in his Irrevocable Proxy, subject to his
fiduciary duties to the Company, to use his best efforts to
prevent the Company from taking any action in violation of the
Securities Purchase Agreement. Additionally, pursuant to the
Irrevocable Proxies the Bernstein Entities party thereto have
agreed, prior to completion of GPH's equity investment, not to
(i) take or permit any action that would result in the
representations contained in the Irrevocable Proxies not being
true, (ii) directly or indirectly, solicit or initiate any
proposals or offers from any person or entity relating to the
acquisition of any properties, assets, business
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or equity interest, or any merger or other business combination, of
the Company, or discuss, furnish any information or otherwise assist
any person or entity with respect to such proposals or offers;
provided that Mr. Bernstein may participate in discussions or
negotiations with or furnish information to any other person or
entity if the Board of Directors, on advice of counsel, determines
that Mr. Bernstein, in his capacity as Chairman and Chief Executive
Officer of the Company, should so participate or furnish such
information, (iii) grant any proxies or enter into any voting trusts
with respect to their Bernstein Shares, (iv) acquire or sell or
otherwise dispose of shares of Common Stock or (v) seek or solicit
any such acquisition or sale or other disposition of shares of Common
Stock. Notwithstanding the foregoing, the Bernstein Entities shall
be entitled to sell all or a portion of their Bernstein Shares to any
purchaser (i) in amounts not to exceed the limitations set forth in
SEC Rule 144(e) in the case of non-negotiated, public, open-market
transactions, and (ii) in all other cases, other than to an
Entrepreneurial Investor (as defined in the Irrevocable Proxies).
Once any Bernstein Shares subject to the Irrevocable Proxies are
transferred in accordance with the terms thereof, the purchaser
of such shares will not be bound by the voting and transfer
restrictions described above.
Termination of the Securities Purchase Agreement
The Securities Purchase Agreement permits the Company, in certain
specified circumstances, upon the payment of a $2 million break-
up fee, to terminate the Securities Purchase Agreement and accept
an unsolicited proposal from a third party which the Board of
Directors reasonably believes is likely to result in a business
combination that is likely to be more favorable to the
stockholders of the Company than the Transactions. See
"SECURITIES PURCHASE AGREEMENT -- Termination and Termination
Fee."
Election of Directors
As described under "ELECTION OF DIRECTORS," if the Transactions
are consummated, a majority of the members of the Board of
Directors will be designees of GPH. However, other than the
Series B Directors, GPH will have no contractual right thereafter
to name any of the directors of the Company.
Series B Convertible Preferred Stock Antidilution Adjustments
As described below under "SECURITIES PURCHASE AGREEMENT -- Terms
of the Series B Convertible Preferred Stock," the rate and price
at which the shares of Series B Convertible Preferred Stock are
convertible into shares of Common Stock are subject to
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customary antidilution adjustments. However, the Series B
Convertible Preferred Stock provides that the conversion rate and
price will not be subject to adjustment in respect of (i) an issuance
of Common Stock to Warburg Pincus and certain of its affiliates
unless such issuance has been approved by a majority of the directors
of the Company who are neither the designees of the holders of the
Series B Convertible Preferred Stock nor individuals associated with
Warburg Pincus or certain of its affiliates, or (ii) an issuance of
Common Stock in a transaction that has not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), unless an
investment bank of national standing and reputation, engaged for a
fee by the Company pursuant to a written engagement letter, has been
consulted by the Company with respect to the structure and has
participated in the negotiation of such issuance.
Management Services
The Board of Directors has authorized the Company to enter into a
Management Agreement (the "Management Agreement") with P&E
Properties, Inc., a corporation owned by Mr. Bernstein ("P&E
Properties"). Pursuant to the Management Agreement, for a
transition period of 180 days following completion of GPH's
equity investment, P&E Properties will perform such duties as are
requested from time to time by Mr. Snyder, but in no event will
P&E Properties be required to perform duties other than those
that are substantially the same as those performed by the
Company's employees located at the Company's principal executive
offices in New York City as of the date of the Management
Agreement. In addition, P&E Properties will use its best efforts
to retain the services and pay the compensation of such
employees, whose employment by the Company will be terminated
upon completion of GPH's equity investment, as are necessary to
perform such services on P&E Properties' behalf. Mr. Bernstein
has agreed to cause P&E Properties to perform its obligations
under the Management Agreement. The Company will pay P&E
Properties the sum of $1.2 million at the closing of GPH's equity
investment for the cost (including the cost of employing such
former Company employees) of providing such management services.
Interests of Certain Persons in the Transactions
In considering the recommendation of the Board of Directors with
respect to the Proposals, stockholders should be aware that
certain members of the Board of Directors and management have
certain interests with respect to the Proposals that may conflict
with and are in addition to the interests of the other
stockholders of the Company. The Board of Directors was aware of
these interests and considered them, among other matters, in
approving the Securities Purchase Agreement, the Transactions and
the Proposals.
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Bernstein Registration Rights Agreement
In view of the fact that Mr. Bernstein and the other Bernstein
Entities would otherwise be restricted under the federal
securities laws and the rules and regulations promulgated
thereunder as to the manner in which they can sell their shares
of Common Stock because of the size of the block and Mr.
Bernstein's affiliation with the Company, GPH has agreed that the
Company grant certain registration rights to the Bernstein
Entities, effective following the closing of GPH's equity
investment, in respect of their shares of Common Stock pursuant
to a registration rights agreement between the Company and the
Bernstein Entities (the "Bernstein Registration Rights
Agreement"). The following is a summary of certain provisions of
the Bernstein Registration Rights Agreement, which is attached as
Appendix II to this Proxy Statement and is incorporated herein by
reference. Such summary is qualified in its entirety by
reference to the Bernstein Registration Rights Agreement.
The Bernstein Registration Rights Agreement contains customary
terms and conditions and provides, among other things, that the
holders of Registrable Securities (as defined below) thereunder
will have the right to require the Company to use its best
efforts to register under the Securities Act, Registrable
Securities in up to two demand registrations (subject to a
"black-out" period of up to 90 days not more than once during any
12-month period and the requirement that shares not be sold to
"Entrepreneurial Investors", as defined below under "--
Irrevocable Proxies") and an unlimited number of incidental
("piggyback") registrations. Subject to certain limitations,
holders of Registrable Securities will also have the right,
during the first two months following completion of the GPH
equity investment, to request a shelf registration of their
securities pursuant to Securities and Exchange Commission (the
"SEC") Rule 415 for up to a three-month period following the
closing of the GPH equity investment. "Registrable Securities"
are defined in the Bernstein Registration Rights Agreement as any
shares of Common Stock owned by the Bernstein Entities on the
date of execution of the Bernstein Registration Rights Agreement
and any capital stock of the Company issued as a dividend or
other distribution with respect to, or in exchange for or in
replacement of, any such shares. The Bernstein Entities will pay
all registration expenses (including, without limitation, all
registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, blue sky fees and
expenses, the expense of any special audits incident to or
required by any such registration (but excluding the compensation
of regular employees of the Company, which shall be paid in any
event by the Company)) in connection with each registration of
Registrable Securities requested by the Bernstein Entities
pursuant to the Bernstein Registration Rights Agreement, together
with underwriting discounts and commissions and fees and
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disbursements of counsel to the Bernstein Entities. The Company
also will agree in the Bernstein Registration Rights Agreement to
customary indemnification and contribution protections to selling
holders of Registrable Securities under the federal securities
laws and otherwise; provided that the Company shall not be
required to indemnify the Bernstein Entities for any losses
arising out of or based on any representation or warranty made by
the Company in the Securities Purchase Agreement until the date
of issuance of the Company's audited consolidated financial
statements for the fiscal year ending February 1, 1997.
Redemption of Series A Preferred Stock due March 31, 1996
As described above under "THE PROPOSALS -- Use of Proceeds,"
approximately $10 million of the proceeds from the sale of the
Series B Convertible Preferred Stock and the Warrant to GPH will
be used by the Company to redeem the outstanding shares of
Series A Preferred Stock due March 31, 1996 concurrent with the
closing of the GPH equity investment, at a redemption price equal
to the liquidation value thereof plus accrued and unpaid
dividends to the date of redemption. The Series A Preferred
Stock is mandatorily redeemable by the Company in accordance with
its terms on March 31, 1996. Although the stockholders of the
Company approved adoption of an amendment to the Restated
Certificate at the 1995 annual meeting of stockholders providing
for an extension of the mandatory redemption date until March 31,
1998, in view of the resumption of discussions with Mr. Snyder
and Warburg Pincus during December 1995, such amendment was not
made effective by the necessary filings with the Delaware
Secretary of State. Mr. Bernstein owns 9,200 shares of Series A
Preferred Stock, representing 46.07% of the shares of Series A
Preferred Stock outstanding. If the Transactions are not
consummated, the Company intends to file the amendment with the
Delaware Secretary of State, thereby extending the mandatory
redemption date to March 31, 1998.
Directors' and Officers' Liability Insurance Coverage
The Company has agreed in the Securities Purchase Agreement that,
through the third anniversary of the completion of GPH's equity
investment and for so long thereafter as any claim asserted prior
to such date has not been fully adjudicated by a court of
competent jurisdiction, it will provide the usual extended
coverage under the Company's executive liability insurance for
current and former directors and officers of the Company and its
subsidiaries and other persons serving in a fiduciary capacity at
the direction of the board of directors or any officer of the
Company or any of its subsidiaries, with respect to matters
occurring prior to completion of GPH's equity investment, at
least to the extent covered by the current Company liability
insurance coverage. Such insurance coverage will be of
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a scope of coverage and in amounts and having deductibles at
least equivalent to that currently maintained by the Company and
otherwise reasonably comparable to the coverage currently
maintained by the Company. The Company has been advised that the
costs of such coverage are estimated to not exceed $350,000 for
such three-year period. The Company also has agreed during such
period not to amend or modify provisions of the Restated
Certificate or the Company's By-laws providing for
indemnification of directors and officers in any manner that
would adversely affect such individuals, unless required by law.
The extended insurance coverage will enable the Company to fund
its obligations to such directors, officers and fiduciaries under
such indemnity provisions.
Snyder Employment Arrangements
Concurrent with the signing of the Securities Purchase Agreement,
Mr. Snyder entered into an interim employment agreement with the
Company (the "Interim Employment Agreement"), which was
unanimously approved by the Board of Directors, pursuant to which
Mr. Snyder became President of the Company until the earlier of
the completion of GPH's equity investment, the termination of the
Securities Purchase Agreement in accordance with its terms and
his death or disability. Mr. Snyder will be compensated during
this period based on a per annum salary of $400,000, and will be
entitled to participate in employee benefit plans and programs
sponsored by the Company. The Company has agreed in the
Securities Purchase Agreement not to terminate Mr. Snyder's
employment as President prior to the completion of GPH's equity
investment other than for cause.
In accordance with the Interim Employment Agreement, the Company
issued 599,465 shares of Common Stock (the "Snyder Shares") to Mr. Snyder
on January 31, 1996, at a price of $8.00 per share, in exchange for
a ten-year nonrecourse note executed by Mr. Snyder in the amount of the
purchase price, secured by a pledge of such shares. See Note 3
to the table under "SUMMARY -- Pro Forma Capitalization." In addition,
the Interim Employment Agreement provides that upon the earliest of (x)
a termination of Mr. Snyder's employment for any reason, (y) the tenth
anniversary of the Interim Employment Agreement and (z) a disposition of
any of the Snyder Shares after the closing of GPH's equity investment,
Mr. Snyder will receive a special bonus equal in amount to the purchase
price of the Snyder Shares (prorated in the case of a sale of less than
all of the Snyder Shares). The Interim Employment Agreement also grants
Mr. Snyder rights to acquire a proportionate amount of additional shares
at the same price as the initial purchase, and on other similar terms
(including the use of a nonrecourse note), in respect of issuances by
the Company of additional equity of up to $50 million during the 12
months following completion of GPH's equity investment. In the event
that the Securities Purchase Agreement is terminated in accordance with
its terms or Mr. Snyder is not employed by the Company on May 1, 1996,
the stock issuance and the note will be rescinded.
The Company is advised by Mr. Snyder and GPH that, upon the
closing of GPH's equity investment, Mr. Snyder will enter into an
employment agreement with the Company pursuant to which he will
become Chairman and Chief Executive Officer of the
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Company (the "Snyder Employment Agreement"). The following
description of the Snyder Employment Agreement and the other
arrangements for Mr. Snyder's employment by the Company following
completion of GPH's equity investment (together, the "Snyder
Employment Arrangements") is based on the draft of the Snyder
Employment Agreement furnished by Mr. Snyder and Warburg Pincus to
the Board of Directors in connection with its approval of the
Securities Purchase Agreement and the Transactions. GPH has advised
the Company that it is contemplated that the Snyder Employment
Agreement will be entered into immediately upon the closing of GPH's
equity investment. In determining that the Transactions are fair to
and in the best interests of the Company and the stockholders, the
Board of Directors has not separately considered the fairness of the
terms of, or approved the Company's entering into, the Snyder
Employment Agreement. Similarly, neither Bear Stearns nor Jefferies
have taken the Snyder Employment Arrangements into account in
rendering their fairness opinions described elsewhere in this Proxy
Statement.
Under the Snyder Employment Agreement, Mr. Snyder will continue
as the Company's President and will succeed Mr. Bernstein as the
Company's Chairman of the Board of Directors and Chief Executive
Officer. The term of employment under the Snyder Employment
Agreement will be five years (the "Term"). If less than three
years remain in the Term upon the occurrence of a change of
control (as defined in the Snyder Employment Agreement), the Term
will automatically be extended until the third anniversary of the
change of control upon the consent of the Company or its
successor. In the absence of such consent, the Term shall
automatically end and Mr. Snyder will receive payments and
benefits as if he had been terminated without cause (as defined
in the Snyder Employment Agreement). Mr. Snyder will receive an
annual base salary, subject to discretionary increases, of
$500,000 (retroactive to February 1, 1996) and an annual
incentive bonus equal to 100% of annual base salary under the
Bonus Plan, if certain targeted performance criteria are met.
The annual incentive bonus could be increased to up to 200% of
annual base salary if the Company's performance exceeds targeted
goals.
The Snyder Employment Agreement also provides that the Company
will grant Mr. Snyder a non-qualified stock option to acquire
1,113,293 shares of Common Stock at a per share exercise price
equal to the fair market value of the Common Stock on the date of
grant (the "Option"). The Option will have a term of ten years
and will become exercisable upon the earliest to occur of: (1)
three years and four months following the date of grant; (2) upon
a change of control; (3) upon Mr. Snyder's termination of
employment due to death or disability (as defined in the Snyder
Employment Agreement); (4) upon Mr. Snyder's termination by the
Company without cause (as defined in the Snyder Employment
Agreement); or (5) upon termination by Mr. Snyder of his
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employment for good reason (as defined in the Snyder Employment
Agreement). If the Company issues up to an additional $50
million of equity securities within twelve months after
completion of GPH's equity investment, additional options will be
granted to avoid dilution of the interest in the Company
represented by the Option. In addition, the Company will pay
Mr. Snyder a one-time special bonus (the "Special Bonus") equal
to the product obtained by multiplying the number of shares
covered by the Option by the amount by which the fair market
value of the Common Stock on the date of grant of the Option or
the date immediately preceding the payment of the Special Bonus,
whichever is less, exceeds $8.00. The Special Bonus will be paid
on the earlier of (i) the fifth anniversary of the Snyder
Employment Agreement (if Mr. Snyder is employed by the Company on
that date) or (ii) the date of Mr. Snyder's termination of
employment other than by the Company for cause or by Mr. Snyder
without good reason or upon his death or disability. The Special
Bonus will cease to be payable upon the termination of Mr.
Snyder's employment for cause or termination by Mr. Snyder
without good reason.
Commencing on the later of the fifth anniversary of the Snyder
Employment Agreement or the cessation of Mr. Snyder's employment
(other than due to his death), Mr. Snyder will receive a
supplemental single-life annuity retirement benefit of $250,000
per annum. This retirement benefit will be increased to 60% of
Mr. Snyder's highest average base salary and bonus payments if
the fair market value of the Common Stock on the fifth
anniversary of the date of the Snyder Employment Agreement is
less than the exercise price of the Option, as described above.
This increased retirement benefit will be offset by any other
defined benefit pension amounts payable to Mr. Snyder by any
previous employer (which the Company has been advised are
significant) or by the Company.
In addition, Mr. Snyder will receive active and retiree medical
benefits (not to exceed a $3 million lifetime cap) and, at his
election, either term life insurance coverage with a death
benefit of at least $3 million or a monthly cash allowance equal
to the cost of such insurance. Mr. Snyder will also be eligible
to participate generally in all incentive, savings, retirement
and welfare benefit programs available to other senior executives
of the Company. In no event shall the incentive, savings,
retirement and welfare benefits programs maintained by the
Company after a change of control provide less favorable benefits
to Mr. Snyder or his family than were provided to them prior to
the change of control.
If Mr. Snyder's employment is terminated by the Company without
cause or by Mr. Snyder for good reason, all stock options and
other stock-based awards will become immediately exercisable or
vested, as the case may be, and the Company will pay
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Mr. Snyder in cash in one lump sum (1) any salary and vacation pay
accrued, but unpaid, through the date of termination and any deferred
compensation not yet paid to him; (2) the greater of the target
annual bonus for the year of termination or the actual bonus amount
paid or payable for the most recently completed fiscal year of the
Company (the "Highest Annual Bonus"), in each case pro-rated through
the date of termination; (3) three times his annual base salary and
Highest Annual Bonus or, if greater, the sum of his annual base
salary and Highest Annual Bonus times the number of years (including
fractions thereof) remaining in the Term as of the date of
termination; and (4) the actuarial equivalent of any retirement
benefits that would have accrued during the remainder of the Term or
three years, whichever is longer. In addition, Mr. Snyder will be
entitled to continuation of welfare and fringe benefits for the
greater of three years or the remaining Term.
If Mr. Snyder terminates his employment without good reason or if
he dies or becomes disabled, the Company will pay him or his
legal representatives any accrued, but unpaid, salary and
vacation pay, a pro-rated annual bonus (determined as set forth
above), any deferred compensation not yet paid to him and any
other benefits provided by the Company in accordance with the
terms and provisions of the Company's plans or programs. If
Mr. Snyder's employment is terminated by the Company for cause,
or by Mr. Snyder without good reason, the Company will pay him
accrued, but unpaid, salary and deferred compensation not yet
paid to him and any other benefits provided by the Company in
accordance with the terms and provisions of the Company's plan or
programs. In that case, Mr. Snyder will forfeit all unvested
stock options.
The Company also will pay all legal and professional fees which
Mr. Snyder may reasonably incur as a result of the negotiation or
enforcement of any provision of the Snyder Employment Agreement.
If any payments made to Mr. Snyder under the Snyder Employment
Agreement or otherwise are subject to the 20% excise tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Excess Parachute Payments"), the Company will pay
Mr. Snyder an additional amount (the "Additional Payment") such
that, after payment of all taxes attributable to the Additional
Payment (including any additional excise taxes thereon), he
retains a portion of the Additional Payment equal to the excise
tax imposed on the Excess Parachute Payments.
Under the terms of the Snyder Employment Agreement, Mr. Snyder
may not disclose any confidential information relating to the
Company or any affiliate to anyone other than the Company and
those designated by it, and he may not solicit any employee or
customer of the Company or any affiliate prior to the later of
the fifth anniversary of the Snyder Employment Agreement or one
year after his termination of employment with the Company.
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Severance and Management Arrangements
Concurrent with its approval of the Securities Purchase
Agreement, the Board of Directors determined that the Company
will make severance payments totalling $1.8 million to certain
officers and employees (other than Mr. Bernstein) of the Company
who will resign their positions with the Company on the date of
completion of GPH's equity investment. See Note 2 under the
Summary Compensation Table under "ELECTION OF DIRECTORS --
Executive Compensation" for additional information with respect
to the severance payments.
As described above under "THE PROPOSALS -- Certain Negotiated
Features of the Transactions -- Management Services," upon the
completion of GPH's equity investment the Company will enter into
the Management Agreement with a corporation owned by Mr.
Bernstein for the purpose of providing management services as
requested from time to time by Mr. Snyder for a transition period
of 180 days thereafter.
Regulatory Matters
The Company is not aware of any regulatory approvals or filings,
or any other consents or approvals, required for the consummation
of the Transactions, except as provided under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended ("HSR
Act"). Under the HSR Act and the rules promulgated thereunder by
the Federal Trade Commission (the "FTC"), the Transactions may
not be consummated until notifications have been given and
certain information has been furnished to the FTC and the
Antitrust Division of the Department of Justice (the "Antitrust
Division") and the applicable waiting period has expired or been
terminated. On February __, 1996, notification and report forms
were filed by the Company and by GPH under the HSR Act with the
FTC and the Antitrust Division relating to the Transactions.
Accordingly, the waiting period under the HSR Act is scheduled to
expire on March __, 1996, unless a request for additional
information concerning the Transactions is received from the FTC
or the Antitrust Division.
At any time before or after consummation of the Transactions,
notwithstanding that the waiting period under the HSR Act has
expired or been terminated, the Antitrust Division, the FTC or
any state could take such action under applicable antitrust laws
as it deems necessary or desirable in the public interest. Such
action could include seeking to enjoin the consummation of the
Transactions or seeking divestiture of substantial assets of the
Company. Private parties may also seek to take legal action
under applicable antitrust laws under certain circumstances.
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Section 203 of the DGCL
The Company is a Delaware corporation subject to Section 203 of
the DGCL. Generally, Section 203 prohibits a publicly-held
Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years
after the date the person became an interested stockholder,
unless (i) prior to such date, either the business combination in
question or the transaction resulting in such person becoming an
interested stockholder is approved by the board of directors of
the relevant corporation, (ii) upon consummation of the
transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owns at least
85% of the outstanding voting stock of the relevant corporation
or (iii) on or after such date the business combination is
approved by the board of directors of the relevant corporation
and by the affirmative vote of at least 66 2/3% of the
outstanding voting stock that is not owned by the interested
stockholder. A "business combination" includes mergers, assets
sales and other transactions resulting in a financial benefit to
the interested stockholder. An "interested stockholder" is a
person who, together with affiliates and associates, beneficially
owns 15% or more of the relevant corporation's outstanding voting
stock. As required by the Securities Purchase Agreement, the
Board of Directors has taken appropriate action so that the
provisions of Section 203 of the DGCL shall not be applicable to
the execution and delivery of the Securities Purchase Agreement
and the consummation of the Transactions, including the execution
and delivery of the Irrevocable Proxies.
Litigation
On September 8, 1995, the Pill Class Action was filed on behalf
of all stockholders of the Company (other than the defendants
named below) in the Delaware Court of Chancery. The Amended
Complaint was filed on October 5, 1995. The substantially
similar Miller and Polikoff Class Actions were filed in the
Delaware Chancery Court on October 6, 1995. The Class Actions
name as defendants the Company, the directors of the Company, the
President of the Company's wholly-owned subsidiary, Western
Publishing Company, Inc., Warburg Pincus and Mr. Snyder. The
Class Actions challenge the transactions contemplated by the
October Announcement, alleging, among other things, that (i) such
transaction was an attempt to deny the Company's stockholders
(other than the defendants) their right to share in the control
premium being paid to Mr. Bernstein, (ii) the public stockholders
were not being adequately compensated for the potential earnings
of the Company, (iii) Mr. Bernstein was being unduly compensated by
such transaction, obtaining the right, given to no other stockholder,
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to sell his Common Stock at a substantial premium, (iv) the
defendants failed to consider alternate transactions and (v) the
defendants violated fiduciary and other common law duties
owed to the stockholders (other than the defendants) by not
exercising independent business judgment and having conflicts of
interest. The Class Actions seek to preliminarily and
permanently enjoin such transaction or, if consummated, to
rescind such transaction, and also pray for an award of
compensatory damages. The defendants have denied, and continue
to deny, that they have committed any violations of law in
connection with the transactions proposed at the date of filing
of the respective Class Actions. Additionally, in view of the
revised structure for the Transactions contemplated by the
Securities Purchase Agreement, the defendants believe, based on
the advice of counsel, that the claims made in the Class Actions
are no longer relevant and wholly without merit. Should the
Class Actions proceed, the defendants intend to defend such
lawsuits vigorously.
SECURITIES PURCHASE AGREEMENT (Proposal No. 1)
At the Special Meeting, the stockholders are being asked to
approve the Securities Purchase Agreement and the performance by
the Company of all transactions and acts on the part of the
Company contemplated under the Securities Purchase Agreement,
including (a) the issuance and sale to GPH, for a cash purchase
price of $65 million, of shares of Series B Convertible Preferred
Stock (and any shares of Common Stock issuable upon the
conversion thereof) and the Warrant (and any shares of Common
Stock issuable upon the exercise thereof), (b) the redemption by
the Company of the outstanding shares of Series A Preferred Stock
due March 31, 1996 from the proceeds of GPH's investment, (c) the
grant of certain registration rights to GPH in respect of the
Series B Convertible Preferred Stock and the Warrant and the
underlying Common Stock pursuant to a registration rights
agreement between the Company and GPH (the "GPH Registration
Rights Agreement"), (d) the grant of certain registration rights
to Mr. Bernstein and certain of his affiliates in respect of
their shares of Common Stock pursuant to the Bernstein
Registration Rights Agreement and (e) the Company's execution of
the Snyder Employment Agreement upon the closing of GPH's equity
investment. The approval of the matters set forth in clause (a)
of the preceding sentence is required by the rules of the NASD
for corporations with securities quoted on the Nasdaq National
Market. The following is a summary of certain provisions of the
Securities Purchase Agreement, which is attached as Appendix I to
this Proxy Statement and is incorporated herein by reference.
Such summary is qualified in its entirety by reference to the
Securities Purchase Agreement.
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The Board of Directors reserves its right, pursuant to the
Securities Purchase Agreement, to amend the provisions of the
Securities Purchase Agreement in all respects in accordance with
its terms and without stockholder approval before or after
approval of the Proposals by the Company's stockholders. The
Board of Directors also reserves the right to terminate the
Securities Purchase Agreement in accordance with its terms
notwithstanding stockholder approval.
Issuance and Sale of Series B Convertible Preferred Stock
and Warrant
Pursuant to the terms of the Securities Purchase Agreement, the
Company has agreed, subject to the terms and conditions set forth
therein, to issue to GPH at the closing of the equity investment
by GPH contemplated by the Securities Purchase Agreement (the
"Closing"), 13,000 shares of Series B Convertible Preferred Stock
with a liquidation value of $65 million, and the Warrant to
purchase 3,250,000 shares of Common Stock at a price of $10 per
share, in exchange for the payment by GPH of $65 million in cash
at the Closing.
Terms of the Series B Convertible Preferred Stock
General
Pursuant to the terms of the Securities Purchase Agreement, the
Company will issue and sell, and GPH will purchase, 13,000 shares
of Series B Convertible Preferred Stock at the Closing. The
preferences and rights of the Series B Convertible Preferred
Stock are set forth in a Certificate of Designations, Number,
Voting Powers, Preferences and Rights of Series B Convertible
Preferred Stock that will be filed with the Secretary of State of
Delaware at the time of the Closing (the "Certificate of
Designations"). The following is a summary of certain provisions
of the Certificate of Designations, which is attached as
Appendix IV to this Proxy Statement and is incorporated herein by
reference. Such summary is qualified in its entirety by
reference to the Certificate of Designations.
Dividends
Pursuant to the Certificate of Designations, the Series B
Convertible Preferred Stock shall be entitled to receive a 12%
annual dividend payable (i) during each of the first four years
following the date of initial issuance of the Series B
Convertible Preferred Stock (the "Initial Issuance Date"), by
delivery quarterly of an aggregate of 195,000 shares of Common
Stock, subject to certain adjustments described below, and (ii)
thereafter, when and as declared out of legally available funds,
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in cash (computed on the basis of a 360-day year of twelve 30-day
months) at the rate of $150 per share, compounded quarterly, all
of which dividends shall be cumulative from the Initial Issuance
Date. In the event that (x) the product of (i) the number of
shares of Common Stock per share of Series B Convertible
Preferred Stock to be distributed in any quarter during the first
four years following the Initial Issuance Date and (ii) the
average closing price of a share of Common Stock for the ten
consecutive trading days immediately preceding the applicable
dividend payment date (the "Dividend Value") is less than $93.75,
then, in addition to such shares of Common Stock, the holders of
Series B Convertible Preferred Stock shall receive on the
applicable dividend payment date, out of legally available funds
of the Company, cash per share of Series B Convertible Preferred
Stock in an amount equal to the excess of $93.75 over the
Dividend Value, compounded quarterly, and (y) the Dividend Value
exceeds $187.50, then the number of shares of Common Stock to be
so distributed shall be reduced by an amount sufficient to cause
the Dividend Value to equal $187.50 (subject in each case to
adjustment in the event of any dividend, stock split, stock
distribution or combination with respect to any such shares).
Dividends will be payable on the 1st day of February, May, August
and November of each year before any dividends are paid on the
Common Stock.
Liquidation
The holders of Series B Convertible Preferred Stock shall have
the right to receive $5,000 per share, plus accrued and unpaid
dividends, in the event of a voluntary or involuntary
liquidation, dissolution or winding up of the Company. Such
liquidation preference shall rank senior to any liquidation
rights of the Common Stock. The merger or sale of the Company or
the sale of all or substantially all its assets shall not be
deemed to be a liquidation, dissolution or winding up of the
Company for this purpose.
Redemption
The Series B Convertible Preferred Stock shall be subject to
optional redemption by the Company at a redemption price of
$5,000 per share, plus an amount equal to any accrued and unpaid
dividends, at any time on or after the fourth anniversary of the
Initial Issuance Date. The Company is not required to
mandatorily redeem the Series B Convertible Preferred Stock and
the Series B Convertible Preferred Stock is not the subject of
any sinking fund requirement.
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Voting and Other Rights
In addition to any voting rights granted under the DGCL, each
share of Series B Convertible Preferred Stock shall be entitled
to vote, on an as-if-converted basis, together with the Common
Stock as one class on all matters submitted to a vote of the
stockholders of the Company, including the election of directors
(in addition to electing the Series B Directors). Consequently,
subject to adjustment as provided in the Certificate of
Designations, each share of Series B Convertible Preferred Stock
will have a vote equal to 500 shares of Common Stock. In
addition, the Company may not, without the affirmative vote or
consent of a majority of the holders of Series B Convertible
Preferred Stock, amend, alter or repeal the preferences, special
rights or other powers of the Series B Convertible Preferred
Stock so as to adversely affect the rights of the holders of
Series B Convertible Preferred Stock, including, without
limitation, authorizing a series or class of stock having any
preference or priority over, or being on a parity with, the
Series B Convertible Preferred Stock either as to dividends or on
liquidation.
Subject to the limitations described below, the holders of Series
B Convertible Preferred Stock will have the right to elect, as a
class, one-third of the members of the Board of Directors, which
shall on the Initial Issuance Date have nine members; provided,
however, that upon such time as less than (i) 40% of the shares
of Series B Convertible Preferred Stock issued on the Initial
Issuance Date are owned by GPH and certain of its affiliates, the
holders of Series B Convertible Preferred Stock will have the
right to elect, as a class, two Series B Directors, (ii) 30% of
the shares of Series B Convertible Preferred Stock issued
pursuant on the Initial Issuance Date are owned by GPH and
certain of its affiliates, the holders of Series B Convertible
Preferred Stock will have the right to elect, as a class, one
Series B Director and (iii) 20% of the shares of Series B
Convertible Preferred Stock issued on the Initial Issuance Date
are owned by GPH and certain of its affiliates, the holders of
Series B Convertible Preferred Stock shall no longer have a
right, as a class, to elect any member of the Board of Directors.
Furthermore, the Certificate of Designations will prohibit the
Company (and, in the case of clauses (ii), (iii), (iv) and (v)
below, its subsidiaries), for so long as at least one-half of the
shares of Series B Convertible Preferred Stock issued on the
Initial Issuance Date are owned by GPH and certain of its
affiliates, without first obtaining the consent of the holders of
a majority of the shares of Series B Convertible Preferred Stock,
voting as a separate class, from engaging in the following
transactions or taking the following actions:
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(i) amend or repeal any provision of the Restated Certificate or
the Company's By-laws, including without limitation a change in
the number of members of the Board of Directors;
(ii) authorize or effect the incurrence or issuance of any
indebtedness (other than pursuant to an agreement to incur the
same which has been approved in writing by holders of a majority
of outstanding shares of Series B Convertible Preferred Stock,
and other than pursuant to that certain Credit Agreement, dated
September 29, 1995, between Western Publishing Company, Inc. and
Heller Financial, Inc.) or shares of capital stock or rights to
acquire capital stock other than, in the case of shares of
Common Stock, (x) options to acquire up to 1,874,300 shares of
Common Stock issued to employees of the Company pursuant to the
Amended and Restated 1986 Employee Stock Option Plan (the "1986
Plan") or (y) thereafter approved with the consent of the
holders of record of a majority of the then outstanding shares
of Series B Convertible Preferred Stock; provided, however, that
the incurrence of indebtedness among the Company and its
subsidiaries shall not require such consent;
(iii) authorize or effect (A) in one or in a series of two or
more related transactions, any sale, lease, license, transfer or
other disposition of assets for consideration in excess of
$5,000,000 (other than in the ordinary course of business or
among the Company and its subsidiaries); (B) any merger or
consolidation or other reorganization involving the Company or
any of its subsidiaries (other than with one another or in
respect of which the aggregate consideration paid to or received
by the Company or its subsidiaries is less than $5,000,000) or
(C) a liquidation, winding up, dissolution or adoption of any
plan for the same other than the liquidation, winding up,
dissolution or adoption of any plan for the same of a subsidiary
into the Company or another subsidiary thereof;
(iv) authorize or effect, in one or in a series of two or more
related transactions, (A) any acquisition or lease of assets or
(B) any license of patent, trademark or other rights relating to
any intellectual property, in each case, that involves by its
terms a per annum payment in excess of $5,000,000 as determined
in good faith by the Board of Directors, other than among the
Company and its subsidiaries or in the ordinary course of
business; or
(v) terminate the employment of the chief executive officer of
the Company.
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Notwithstanding the foregoing, in the event that the shares of
Series B Convertible Preferred Stock are held by more than 10
holders, then the right of the holders to elect Series B
Directors and to vote as a class on the matters listed above
shall terminate.
Conversion
The Series B Convertible Preferred Stock is convertible, at the
option of the holders of Series B Convertible Preferred Stock,
into shares of Common Stock, at the exchange rate of 500 shares
of Common Stock for each share of Series B Convertible Preferred
Stock, at any time from and after the Initial Issuance Date,
representing a conversion price of $10 per share of Series B
Convertible Preferred Stock. The number of shares of Common
Stock for which the Series B Convertible Preferred Stock may be
converted is subject to customary antidilution adjustments
pursuant to the Certificate of Designations to prevent dilution
on the occurrence of certain events ("Triggering Transactions"),
including: (i) stock dividends or other distributions of Common
Stock, (ii) certain issuances of Common Stock (or other
securities convertible into or exercisable for Common Stock) at a
price per share (or having a conversion or exercise price per
share) less than the conversion price of the Series B Convertible
Preferred Stock at such time, or (iii) a merger, consolidation or
other reorganization of the Company. Notwithstanding the
foregoing, the conversion rate shall not be so reduced if (A) for
so long as the holders of the Series B Convertible Preferred
Stock have class voting rights to elect one or more Series B
Directors or to approve certain transactions as described above,
such Triggering Transaction involves a grant, issuance or sale of
Common Stock to GPH or certain of its affiliates, other than
ratably to all holders of Common Stock, and such Triggering
Transaction has not been approved by a majority of the non-
Series B Directors (other than natural persons having certain
relations with GPH) or (B) the Triggering Transaction involves a
grant, issuance or sale of Common Stock that has not been
registered pursuant to the Securities Act and an investment bank
of national standing and reputation, engaged for a fee by the
Company pursuant to a written engagement letter, has not been
consulted by the Company with respect to the structure of such
Triggering Transaction and participated in the negotiation of
such Triggering Transaction. The foregoing anti-dilution
adjustments will not apply to any Common Stock issued or issuable
to any person or entity: (i) on exercise of options outstanding
as of the Initial Issuance Date to acquire up to 1,874,300 shares
of Common Stock issued to employees of the Company pursuant to
the 1986 Plan and any options approved by the holders of record
of a majority of the outstanding shares of Series B Convertible
Preferred Stock, (ii)
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pursuant to options granted to Mr. Snyder under the terms of the
Snyder Employment Arrangements, (iii) on conversion of the Series B
Convertible Preferred Stock or Series A Preferred Stock, (iv) as a
dividend on the Series B Convertible Preferred Stock or (v) on
exercise of the Warrant.
Preemptive Rights
The holders of Series B Convertible Preferred Stock will have no
preemptive rights to purchase any securities issued by the
Company. The holders of Common Stock and Series A Preferred
Stock have no preemptive rights to purchase Series B Convertible
Preferred Stock or any other securities issued by the Company.
Terms of the Warrant
General
The Warrant is to be issued to GPH pursuant to the Securities
Purchase Agreement. The following is a summary of certain
provisions of the Warrant, the form of which is attached as
Appendix V to this Proxy Statement and is incorporated herein by
reference. Such summary is qualified in its entirety by
reference to such form of Warrant.
Exercise
The Warrant will initially entitle the holder thereof to purchase
3,250,000 shares of Common Stock at a price of $10 per share (the
"Exercise Price"), subject to adjustment as described below. The
Warrant will be exercisable beginning on the second anniversary
of the date of issuance (subject to acceleration in certain
circumstances) until the seventh anniversary of the date of
issuance. The Warrant may be exercised by surrendering the
Warrant to the Company, at its office in New York, New York,
accompanied by payment of an amount equal to the Exercise Price
multiplied by the number of shares being purchased pursuant to
such exercise. In lieu of exercising the Warrant, the holder may
elect to receive a payment equal to the difference between (i)
the market price of the Common Stock multiplied by the number of
shares as to which the Warrant is then being exercised and (ii)
the Exercise Price with respect to such shares, payable by the
Company to the holder of the Warrant only in shares of Common
Stock valued at the market price on the date of exercise.
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Antidilution and Exercise Price Adjustments
The number of shares of Common Stock purchasable upon the
exercise of the Warrant and the Exercise Price are subject to
customary antidilution adjustments in connection with the
occurrence of certain events, substantially the same as those
applicable to the Series B Convertible Preferred Stock as
described above under "THE SECURITIES PURCHASE AGREEMENT -- Terms
of the Series B Convertible Preferred Stock -- Conversion."
Transferability
The Securities Purchase Agreement prohibits GPH from selling,
transferring or assigning the Warrant other than to an affiliate
until the earlier to occur of (i) the second anniversary of the
Closing Date and (ii) the date on which a bona fide Business
Combination Proposal (as defined below in "SECURITIES PURCHASE
AGREEMENT -- Pre-Closing Covenants") is publicly announced or a
proxy solicitation for control of the Board of Directors is
initiated by any person other than GPH or any of its affiliates.
Terms of the GPH Registration Rights Agreement
Pursuant to the terms of the Securities Purchase Agreement, the
Company has agreed to enter into the Registration Rights
Agreement with GPH at the Closing. The following is a summary of
certain provisions of the GPH Registration Rights Agreement,
which is attached as Appendix VI to this Proxy Statement and is
incorporated herein by reference. Such summary is qualified in
its entirety by reference to the GPH Registration Rights
Agreement.
The GPH Registration Rights Agreement will contain customary
terms and conditions and will provide, among other things, that
the holders of Registrable Securities (as defined below)
thereunder will have the right to require the Company to use its
best efforts to register under the Securities Act Registrable
Securities in up to three demand registrations and an unlimited
number of incidental ("piggyback") registrations. Subject to
certain limitations, holders of Registrable Securities will also
have the right to request unlimited registrations of their
securities on SEC Form S-3 and to effect a shelf registration of
such securities pursuant to SEC Rule 415, and to keep such shelf
registration continuously effective for up to 18 months.
"Registrable Securities" will be defined in the GPH Registration
Rights Agreement as (i) any shares of Series B Convertible
Preferred Stock, (ii) any shares of Common Stock issued upon
conversion of shares of Series B Convertible
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Preferred Stock, (iii) the Warrant or any portion thereof, (iv) any
shares of Common Stock issued upon the exercise of the Warrant or any
portion thereof and (v) any capital stock of the Company issued as a
dividend or other distribution with respect to, or in exchange for or
in replacement of, any securities referred to in clauses (i) through
(iv) above. The Company will pay all registration expenses in
connection with each registration of Registrable Securities pursuant
to the GPH Registration Rights Agreement, except for underwriting
discounts and commissions and fees and disbursements of counsel to
the selling holders. The Company also will agree in the GPH
Registration Rights Agreement to customary indemnification and
contribution protections to selling holders of Registrable Securities
under the federal securities laws and otherwise.
Representations and Warranties
The Securities Purchase Agreement contains various customary
representations and warranties of the parties, none of which
survive the Closing, made as of the date of the Securities
Purchase Agreement and to be made as of the date of the Closing,
including, among other things, representations (A) from both
parties relating to (i) each party's organization and similar
corporate matters, (ii) the authorization, execution, delivery,
performance and enforceability of the Securities Purchase
Agreement and related matters and (iii) required consents or
approvals and violations of any instruments or laws; (B)
representations from the Company relating to (i) the capital
structure of the Company and its subsidiaries and equity
investments, (ii) the documents and reports filed by the Company
with the SEC and the accuracy of the information contained
therein, (iii) the accuracy of the information provided by the
Company with respect to this Proxy Statement, (iv) the Company's
business, properties, assets, condition (financial or otherwise),
liabilities or operations of the Company and the absence of any
material adverse change thereto and (v) the Company's having
taken all actions so that the restrictions of Section 203 of the
DGCL will not apply to the consummation of the transactions
contemplated by the Securities Purchase Agreement; and (C)
representations from GPH relating to (i) GPH's having sufficient
funds to effect the transactions contemplated by the Securities
Purchase Agreement and (ii) GPH's purchasing the Series B
Convertible Preferred Stock and the Warrant for investment for
its own (or an affiliate's) account and not with a view to the
distribution of any part of the Series B Convertible Preferred
Stock or the Warrant.
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Pre-Closing Covenants
Pursuant to the Securities Purchase Agreement, the Company has
agreed that prior to the Closing, unless otherwise agreed to by
either GPH or Mr. Snyder, it will, among other things: (i)
afford GPH and its representatives full access during normal
business hours to its properties, books, contracts, commitments,
records and personnel; (ii) carry on its business in the usual,
regular and ordinary course; (iii) preserve intact its business
organization; (iv) keep available the services of officers and
employees; (v) preserve its relationships with customers,
suppliers and others material to the operation of its business;
(vi) maintain its insurance coverage and its books and records;
(vii) comply in all material respects with all applicable laws
and regulations, (viii) maintain its properties and equipment in
good repair, working order and condition, ordinary wear and tear
excepted; and (ix) maintain in full force and effect and perform
in all material respects its obligations under all material
contracts and commitments. Further, the Company has agreed that
prior to the Closing, unless otherwise agreed to by either GPH or
Mr. Snyder, it will not, among other things: (i) sell or pledge
or agree to sell or pledge any capital stock owned by it or any
of its subsidiaries; (ii) amend the Restated Certificate or the
By-laws, except as contemplated by the Securities Purchase
Agreement; (iii) split, combine or reclassify its outstanding
capital stock or issue or authorize or propose the issuance of
any other securities in respect of, in lieu of or in substitution
for shares of the capital stock, or, except as contemplated by
the Securities Purchase Agreement, declare, set aside or pay any
dividend or other distribution payable in cash, stock or property
(other than dividends payable on the Series A Preferred Stock, to
the extent otherwise permitted); or (iv) directly or indirectly
redeem, purchase or otherwise acquire or agree to redeem,
purchase or otherwise acquire any shares of its capital stock,
except as contemplated by the Securities Purchase Agreement or
pursuant to existing contractual rights.
Additionally, the Company has agreed that unless otherwise agreed
to by either GPH or Mr. Snyder, it will not, nor will it permit
any of its subsidiaries to: (i) except as required by the
Securities Purchase Agreement, issue, deliver or sell or agree to
issue, deliver or sell any additional shares of, or stock
appreciation rights or rights of any kind to acquire any shares
of, its capital stock of any class, or any option, rights or
warrants to acquire, or securities convertible into, shares of
capital stock other than (x) issuances of Common Stock pursuant
to the exercise of outstanding warrants or stock options or (y)
grants of employee stock options at fair market value at the time
of grant and issuances of Common Stock upon exercise thereof, in
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the ordinary course of business and consistent with past practice
(other than to certain executive officers of the Company located
at its New York City offices and their affiliates, who shall not
be eligible to receive such grants subsequent to the date of the
Securities Purchase Agreement); provided that the number of
shares of Common Stock issuable upon exercise of all employee
stock options outstanding on the date of the Securities Purchase
Agreement and those granted thereafter and before the Closing
shall not exceed the sum of 1,874,300; (ii) except for the sale
of the Company's Fayetteville, North Carolina facility, acquire,
lease or dispose or agree to acquire, lease or dispose of any
capital assets or any other assets other than in the ordinary
course of business; (iii) incur additional indebtedness or
encumber or grant a security interest in any asset or enter into
any transaction other than in the ordinary course of business;
(iv) incur any liability or obligation, or contribute any asset,
to a subsidiary of the Company other than in the ordinary course
of business; (v) acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial equity
interest in, or by any other manner, any business or any
corporation, partnership or other business organization or
division thereof, in each case in this clause (v) which are
material, individually or in the aggregate, to the Company and
its subsidiaries taken as a whole; (vi) adopt, enter into, amend
or terminate any contract, agreement or other arrangement with
respect to the actions described in clauses (i) through (v) that
is not otherwise permitted by the exceptions contained therein;
(vii) except as required to comply with applicable law, (A)
adopt, enter into, terminate or amend any Company employee
benefit plan or arrangement, (B) increase in any manner the
compensation or fringe benefits of any director, officer or
employee (except for normal increases in the ordinary course of
business that are consistent with past practice and that, in the
aggregate, do not result in a material increase in benefits or
compensation expense to such party and its subsidiaries relative
to the level in effect prior to such increase), (C) pay any
benefit not provided under any existing Company employee benefit
plan or arrangement, (D) except for benefits that have already
been earned or vested without acceleration, grant any awards or
make any payments under any bonus, incentive, performance or
other compensation plan or arrangement or Company benefit plan,
except for (x) the making of matching and annual contributions to
401(k) plans in the ordinary course of business and consistent
with past practice and (z) the granting of employee stock options
and the issuance of Common Stock upon exercise thereof, to the
extent permitted by subclauses (x) and (y) of clause (i) above,
(E) take any action to fund or in any other way secure the
payment of compensation or benefits under any Company employee
benefit plan or arrangement, other than in the ordinary course of
business consistent with past practice, or (F) adopt, enter into,
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amend or terminate any contract, agreement or other arrangement
to do any of the actions described in this clause (vii) that is
not otherwise permitted by the exceptions contained herein;
(viii) make any investments in non-investment grade securities;
(ix) make any change in its accounting policies or procedures
except as required under statutory accounting practices or
generally accepted accounting principles, as applicable; (x) take
any action that would, or reasonably might be expected to, result
in any of its representations and warranties set forth in the
Securities Purchase Agreement being or becoming untrue in any
material respect, or in any of the conditions set forth in the
Securities Purchase Agreement not being satisfied, or (unless
such action is required by applicable law) which would adversely
affect the ability of the Company to obtain any of the regulatory
approvals required to consummate the transactions contemplated by
the Securities Purchase Agreement; (xi) terminate or materially
modify the employment arrangements of Mr. Snyder, other than for
"cause" (as defined in the draft of the Snyder Employment
Agreement furnished to the Board of Directors); and (xii) enter
into any agreement to perform any of the actions prohibited under
this paragraph and the immediately preceding paragraph and not
otherwise permitted by the exceptions contained therein.
Non-Solicitation of Business Combination Proposals
The Securities Purchase Agreement provides that the Company shall
not, nor shall any of its subsidiaries, directly or indirectly,
take (nor shall the Company authorize or permit its subsidiaries,
officers, directors, employees, representatives, investment
bankers, attorneys, accountants or other agents or affiliates, to
take) any action to (i) solicit or initiate the submission of any
Business Combination Proposal (as defined below), (ii) enter into
any agreement with respect to any Business Combination Proposal
or (iii) participate in any way in discussions or negotiations
with, or furnish any information to, any person in connection
with, or take any other action to facilitate any inquiries or the
making of any proposal that constitutes, or may reasonably be
expected to lead to, any Business Combination Proposal.
"Business Combination Proposal" means any tender or exchange
offer, proposal for a merger, consolidation or other series of
related transactions in a business combination involving the
Company or any subsidiary of the Company or any other proposal or
offer to enter into a Third Party Business Combination (as
defined below). "Third Party Business Combination" means the
occurrence of any of the following events: (A) the Company or
any subsidiary of the Company is acquired by merger or otherwise
by any person, entity or group, other than GPH or certain
affiliates thereof (a "Third Party"); (B) the Company or any
subsidiary of the Company enters into an agreement with a Third
Party which contemplates the
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acquisition of 25% or more of the total assets of the Company and its
subsidiaries taken as a whole; (C) the Company enters into a merger
or other agreement with a Third Party which contemplates the
acquisition of beneficial ownership of more than 25% of the
outstanding shares of the Common Stock (or securities convertible
thereinto or exercisable therefor); (D) a Third Party acquires more
than 25% of the total assets of the Company and its subsidiaries
taken as a whole; (E) a Third Party who, as of the date 10 days
preceding the date of the Securities Purchase Agreement, beneficially
owns less than 10% of the outstanding shares of the Common Stock
obtains beneficial ownership of such number of shares of Common Stock
such that it beneficially owns more than 25% of the outstanding
shares of Common Stock, or any person, entity or group which
beneficially owns (or has the right to acquire) 10% or more of the
outstanding shares of the Common Stock increases its beneficial
ownership of the outstanding shares of Common Stock by 10% or more;
(F) the Company adopts a plan of liquidation relating to more than
25% of the total assets of the Company and its subsidiaries taken as
a whole; (G) the Company repurchases more than 25% of the outstanding
shares of the Company's capital stock; or (H) there is a public
announcement or written proposal with respect to a plan or intention
by the Company or a Third Party to effect any of the foregoing
transactions (provided such transaction is consummated during the
nine month period following such public announcement or written
proposal).
Notwithstanding the foregoing, the Company may participate in
discussions or negotiations with or furnish information to any
third party which makes an unsolicited proposal of a transaction
which the Board of Directors reasonably believes is likely to
result in a Business Combination Proposal pursuant to which such
third party would, or would have the right to, acquire more than
25% of the outstanding voting capital stock of the Company and
which the Board of Directors reasonably determines, based upon
advice of its financial advisors, is financially superior than
the transactions contemplated by the Securities Purchase
Agreement and is likely to be consummated (a "Superior
Proposal").
In addition to the obligations of the Company set forth in the
preceding two paragraphs, the Securities Purchase Agreement also
provides that the Company (i) shall promptly advise GPH of any
request for information or of any Business Combination Proposal,
or any inquiry with respect to or which appears to be intended to
or could reasonably be expected to lead to any Business
Combination Proposal, the material terms and conditions of such
request, Business Combination Proposal or inquiry, and the
identity of the
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person making any such request, Business Combination Proposal or
inquiry, and the identity of the person making any such request,
Business Combination Proposal or inquiry, and (ii) shall keep GPH
fully informed of the status and details of any such request,
Business Combination Proposal or inquiry and (iii) shall promptly
furnish GPH a copy of any written proposal in connection therewith.
Conditions to Closing
In addition to the approval and adoption of the Proposals by the
stockholders of the Company, the obligations of the Company and
GPH to effect the Transactions are subject to the fulfillment or
waiver of certain conditions specified in the Securities Purchase
Agreement, including, among others: (i) the continuing accuracy
of the representations and warranties of the respective parties
contained in the Securities Purchase Agreement in all material
respects except if the aggregate of any breaches have not
resulted in, and are not likely to result in, a material adverse
effect on the business, properties, assets, condition (financial
or otherwise), liabilities or operations of the breaching party
and its subsidiaries taken as a whole; (ii) the performance and
compliance in all material respects by the respective parties of
all obligations under the Securities Purchase Agreement required
to be performed on or prior to the Closing Date; (iii) the
absence of any injunction or other order by any federal or state
court preventing consummation of the Transactions and of any
legal challenge seeking to prevent such consummation; (iv) the
applicable waiting period under the HSR Act having expired or
been terminated; and (v) the absence of a material breach of any
of the provisions of the Irrevocable Proxies.
Termination and Termination Fee
The Securities Purchase Agreement may be terminated (a) at any
time by mutual consent of the parties; (b) by either party if
(i) the Transactions have not occurred on or before May 1, 1996,
provided the terminating party is not otherwise in material
breach of its representations, warranties, covenants or
agreements under the Securities Purchase Agreement; (ii) the
requisite vote of the stockholders of the Company to approve any
of the Proposals (other than the Proposals relating to the
Charter Amendments) has not been obtained; (iii) any court or
other governmental entity of competent jurisdiction shall have
issued a final permanent order enjoining or otherwise prohibiting
the consummation of the Transactions; or (iv) if there has been a
material breach on the part of the other of any representation,
warranty, covenant or agreement set forth in the Securities
Purchase Agreement which has not been cured within fifteen
business days of notice by the other party thereof; or (c) by
either party, if the Board of Directors reasonably determines
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that a Business Combination Proposal is likely to result in a
Superior Proposal; provided, however, that such termination under
this clause (c) shall not be effective unless and until
(i) simultaneously with such termination the Company enters into
a definitive agreement to effect such Business Combination
Proposal and (ii) the Company has made payment in full of the
Termination Fee (as defined below).
If (i) the Transactions are not consummated as a result of a
material breach of the non-solicitation covenant described above
under "THE SECURITIES PURCHASE AGREEMENT -- Non-Solicitation of
Business Combination Proposals," (ii) the Securities Purchase
Agreement is terminated as a result of the Company's entering
into a definitive agreement with respect to a Business
Combination Proposal or (iii) a Third Party Business Combination
has been consummated either (A) prior to the termination of the
Securities Purchase Agreement under specified circumstances or
(B) within nine months following the date of the termination of
the Securities Purchase Agreement by GPH as a result of the
breach of a representation, warranty, covenant or agreement by
the Company in the Securities Purchase Agreement (which shall not
have been cured within fifteen days of notice thereof), then the
Company shall pay to GPH a termination fee of $2,000,000 (the
"Termination Fee").
Expenses
Except with respect to the Termination Fee described above, the
Securities Purchase Agreement provides that each party will pay
its own costs and expenses incurred in connection therewith;
provided that (a) if the Transactions are consummated or if they
are not consummated as a result of a material breach by the
Company of any representation or warranty contained in the
Securities Purchase Agreement, all costs and expenses incurred by
GPH in connection therewith shall be paid by the Company, and (b)
if the Transactions are not consummated for any other reason, all
costs and expenses incurred by GPH in connection therewith from
and after December 14, 1995 shall be paid by the Company. In
either case the Company shall not be responsible for costs and
expenses incurred by GPH in an amount exceeding $4,000,000.
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---------------
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE
APPROVAL OF THE SECURITIES PURCHASE AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
---------------
ELECTION OF DIRECTORS (Proposal No. 2)
General
The Board of Directors currently consists of five
directors. As required by the Securities Purchase Agreement,
four additional directors are to be elected at the Special
Meeting, who will qualify as such only upon the Closing, to serve
until the next annual meeting of stockholders of the Company and
until their successors are duly elected and qualified. The Board
of Directors proposes the election of the following four
nominees, who have been designated by GPH in accordance with the
provisions of the Securities Purchase Agreement:
Barry Diller
Linda L. Janklow
Sharaha Ahmad-Llewellyn
Richard E. Snyder
The Board of Directors has no reason to believe that
any of the foregoing nominees will not serve if elected and
qualified, but if any of them should become unavailable to serve
as a director or be withdrawn from nomination, the Board of
Directors will designate a substitute nominee named by GPH, and
the persons named as proxy holders will vote for the substitute
nominee.
If the nominees listed above are elected and are
qualified as directors, they are expected to serve until the 1996
annual meeting of stockholders and until their successors are
duly elected and qualified. Because such nominees have been
nominated by the Board of Directors pursuant to the terms of the
Securities Purchase Agreement, they will not be qualified as
directors and take office, even if elected at the Special
Meeting, until immediately upon the Closing. Until such time, in
accordance with the Company's By-laws, the current directors will
remain in office. Moreover, if the Closing does not occur for
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any reason, including by reason of any of the Proposals (other
than the Proposals relating to the Charter Amendments) not being
approved at the Special Meeting, then the foregoing nominees will
not qualify as directors even if elected at the Special Meeting,
and the current directors will continue to serve in office until
their successors are duly elected and qualified in accordance
with the DGCL and the Company's By-laws.
In addition to the four directors to be elected at the
Special Meeting, upon the Closing (i) the size of the Board of
Directors will be increased to nine, (ii) the two individuals
named below under "ELECTION OF DIRECTORS -- Business Experience of
Series B Directors," together with a third designee of GPH, will
be elected by GPH in its capacity as the holder of the Series B
Convertible Preferred Stock to serve as the Series B Directors,
and (iii) Mr. Bernstein, John F. Moore and Michael A. Pietrangelo
will resign as directors of the Company. Mr. Richard H. Hochman
and Ms. Jenny Morgenthau will continue to serve as directors of
the Company following the Closing. Consequently, following the
Closing, the nominees of GPH will constitute a majority of the
members of the Board of Directors.
---------------
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ELECTION
OF THE NOMINEES AS DIRECTORS LISTED ABOVE.
---------------
Business Experience of Nominees
Barry Diller
Age: 53
Mr. Diller has been a director and the Chairman of the
Board and Chief Executive Officer of Silver King Communications,
Inc. since August 24, 1995. He was Chairman of the Board and
Chief Executive Officer of QVC Network, Inc. (now QVC, Inc.) from
January 1993 until February 28, 1995. From 1984 to 1992,
Mr. Diller served as the Chairman of the Board and Chief
Executive Officer of Fox, Inc. Prior to joining Fox, Inc.,
Mr. Diller served for 10 years as Chairman of the Board and Chief
Executive Officer of Gulf & Western's (now Paramount
Communications) Paramount Pictures Corporation. Mr. Diller is a
director and Chairman of the Board of Home Shopping Network,
Inc., and he also serves on the Board of the Museum of Television
and Radio and is a member of the Board of Councilors for the
University of Southern California's School of Cinema-Television.
Mr. Diller also serves on the Board of Directors for AIDS Project
Los Angeles and the Executive Board for the Medical Sciences for
UCLA.
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Linda L. Janklow
Age: 56
Ms. Janklow is Chairman, Lincoln Center Theater, having
served in this capacity since 1991. Prior thereto, she served as
Vice-Chairman, Lincoln Center Theater since 1979. She is a
member of the Board of Directors, Lincoln Center for the
Performing Arts, Inc. She has also been Chairman of Arts
Connection, the largest arts-in-education organization in New
York City since its founding in 1978. She is Chairman of the
Collection Committee and a founding Trustee of the American
Museum of the Moving Image. She is also a member of the Board of
Directors of The New 42nd Street.
Sharaha Ahmad-Llewellyn
Age:
Ms. Ahmad-Llewellyn is [insert current position]. From
its founding in 1971 until ____, she served as President of
H.A.V.A. Inc., a home health care company. Ms. Ahmad-Llewellyn
is President of the Board of Directors of the Northside Center
for Child Development, and a director of The New 42nd Street
Corporation, The Dance Theater of Harlem, Jazz at Lincoln Center,
the American Red Cross of Greater New York and The Madeira School
in McLean, VA. Ms. Ahmad-Llewellyn previously served as
Chairperson of the Small Business Administration District
Advisory Council for Region II, as Vice President, of the Home
Care Council of New York City Inc. and as a Presidential
appointee to the White House Conference on Small Business.
Richard E. Snyder
Age: 62
On January 31, 1996, in connection with the signing of
the Securities Purchase Agreement, Mr. Snyder was elected as
President of the Company. Prior to that time, Mr. Snyder had,
since 1994, been an independent business consultant and investor.
He was the Chairman and Chief Executive Officer of Simon &
Schuster from 1975 to 1994. Mr. Snyder is a director of Franklin
Electronic Publishers, Inc. and of Reliance Group Holdings, Inc.
Business Experience of Series B Directors
David A. Tanner
Age: 37
Mr. Tanner has served as a Managing Director of E.M.
Warburg, Pincus & Co., Inc. since January 1993. Mr. Tanner
served as a Vice President of E.M. Warburg from January 1991 to
January 1993 and was an associate at E.M. Warburg from March 1986
to December 1990. Prior to joining E.M. Warburg, Mr. Tanner was
engaged in the private practice of law with the law firm of
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Simpson Thacher & Bartlett. Mr. Tanner is a director of
RenaissanceRe Holdings Ltd.
John L. Vogelstein
Age: 61
Mr. Vogelstein has served since 1982 as Vice Chairman
of the Board of Directors, and since 1994 as President, of E.M.
Warburg Pincus & Co., Inc. Prior thereto, he was an officer and
a director of E.M. Warburg & Co. and certain of its affiliates.
Mr. Vogelstein is currently a director of AEGIS GROUP plc., ADVO
Inc., LCI International, Mattel Inc., Value Health, Inc., and
several privately held companies.
Business Experience of Current Directors
Richard A. Bernstein
Director since: 1984
Age: 49
Mr. Bernstein is Chairman and Chief Executive Officer
of the Company and Chairman of Western Publishing Company, Inc.,
a wholly-owned subsidiary of the Company, and has served in such
capacities since February 1984. In November 1986, Mr. Bernstein
became the Chairman, President and Chief Executive Officer of
Penn Corporation, then a newly-acquired subsidiary of the
Company. He is President of P&E Properties, Inc., a privately-
owned commercial real estate ownership/management company, and
has served in that capacity for more than five years. Mr.
Bernstein is a member of the Regional Advisory Board of Chemical
Bank, a member of the Board of Trustees of New York University, a
member of the Board of Overseers of the New York University
Leonard N. Stern School of Business, a Director and Vice
President of the Police Athletic League, Inc., a member of the
Board of Trustees of New York University's Hospital for Joint
Diseases/Orthopaedic Institute, a member of the Board of Trustees
of The Big Apple Circus, Inc. and a member of The Economic Club
of New York.
Richard H. Hochman
Director since: 1995
Age: 50
Mr. Hochman has been Chairman of Regent Capital
Partners, L.P., a private investment company, since April 1995.
From 1990 through April 1995 he was a managing director of the
Corporate Finance Department of PaineWebber Incorporated.
Mr. Hochman also serves on the Board of Directors of Cablevision
Systems Corporation and Alliance Entertainment Corporation.
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John F. Moore
Director since: 1995
Age: 58
Mr. Moore is Chief Executive Officer of Mindscape, Inc.
Mr. Moore served as President and Chief Executive Officer of the
Company's principal operating subsidiary, Western Publishing
Company, Inc., from May 1995 until his resignation on January 26,
1996. From 1991 to 1995, Mr. Moore was President and Chief
Operating Officer of Penguin USA, the large book publishing unit
of Pearson Group, a London-based international media company.
From 1985 to 1991, Mr. Moore was President of Parker Brothers,
Inc., and from 1980 to 1985, he was President of Kenner Parker
Toys Canada.
Jenny Morgenthau
Director since: 1992
Age: 50
Ms. Morgenthau is Executive Director, Chief Executive
and Chief Operating Officer of The Fresh Air Fund, serving in
that capacity since 1983. Between 1977 and 1983, Ms. Morgenthau
was the Director, Office of Program Planning, for the New York
City Human Resources Administration. Ms. Morgenthau is a member
of the Board of Directors of Paul Newman's Hole in the Wall Gang
camp, The National Dance Institute, The Baron de Hirsch Fund and
the New York Chapter of The American Jewish Committee.
Michael A. Pietrangelo
Director since: 1989
Age: 52
Mr. Pietrangelo is President of the Personal Care
Products Group of IVAX Corporation. From May 1990 through
February 1994, he was President and Chief Executive Officer of
CLEO Inc., a subsidiary of Gibson Greetings, Inc. From July 1989
through April 1990, Mr. Pietrangelo served as President and Chief
Operating Officer of the Company. Between 1985 and July 1989,
Mr. Pietrangelo was President of Schering-Plough's Personal Care
Group. Mr. Pietrangelo is a member of the Board of Directors of
Universal Heights, Inc., Medicis Pharmaceutical Corporation, The
American Parkinson Disease Association and The Memphis College of
Art. He is also Of Counsel to the law firm of Weirich and
Pietrangelo in Memphis, Tennessee.
Board Meetings and Committees of the Board
Board of Directors. During Fiscal 1996, the Board of
Directors met nine times and all directors attended more than 75%
of the meetings and 100% of their respective committee meetings.
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Audit Committee. The Audit Committee met once during
Fiscal 1996. Pursuant to Board of Directors' authorization, the
Committee reviews with the independent auditors and the Company's
internal audit department the general scope of their respective
audit coverages. Such reviews include consideration of the
Company's accounting practices, business ethics and conflicts of
interest policies, procedures and system of internal accounting
controls and any significant problems encountered. The Audit
Committee also recommends to the Board of Directors the
appointment of the Company's principal independent auditors.
The Audit Committee advises the Board of Directors of
its activities and may present to the Board of Directors its
recommendation and conclusions as to any matters considered by
the Audit Committee. At least annually, the Audit Committee
reviews the services performed and the fees charged by the
independent auditors engaged by the Company and determines that
the non-audit services rendered by the independent auditors do
not compromise their independence.
The independent auditors and the Company's internal
audit department have direct access to the Audit Committee and
may discuss with it any matters which may arise in connection
with audits, the maintenance of internal accounting controls or
any other matters relating to the Company's financial affairs.
Furthermore, the Audit Committee may authorize the independent
auditors to investigate any matters which the Audit Committee
deems appropriate any may present its recommendations and
conclusions to the Board of Directors.
The Audit Committee is currently composed of
Mr. Hochman (Chairperson), Ms. Morgenthau and Mr. Pietrangelo.
Executive Compensation Committee. The Executive
Compensation Committee reviews the Company's executive
compensation policies and practices each year and approves the
compensation of senior officers. The Committee's approval of the
compensation of the chief executive officer and other employee
directors are reviewed with and approved by all of the directors.
The Executive Compensation Committee is currently
composed of Ms. Morgenthau (Chairperson), Mr. Hochman and
Mr. Pietrangelo.
Nominating Committee. The Board of Directors does not
presently have a nominating committee.
Stock Option Committee. The Stock Option Committee
administers the Amended and Restated 1986 Employee Stock Option
Plan. The Stock Option Committee members are not eligible to
options. Options may be granted at such times and in
such amounts as may be determined by the Stock Option Committee.
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The Stock Option Committee is currently composed of Mr.
Pietrangelo (Chairperson), Mr. Hochman and Ms. Morgenthau.
Directors Remuneration. Employee directors receive no
additional compensation for service on the Board of Directors or
its committees. Each non-employee director receives an annual
retainer fee in the amount of $15,000 together with a fee in the
amount of $500 for each meeting of the Board of Directors
attended and related out-of-pocket expenses.
Compensation Committee Interlocks and Insider Participation
The Executive Compensation Committee and Stock Option
Committee consist of Mr. Hochman, Ms. Morgenthau and Mr.
Pietrangelo, none of whom are former or current officers or
employees of the Company or any of its subsidiaries, other than
Mr. Pietrangelo who served as President and Chief Operating
Officer of the Company from July 1989 through April 1990. No
executive officer of the Company serves as an officer, director
or member of a Compensation Committee of any entity for which any
of the persons serving on the Board of Directors of the Company
or on the executive Compensation Committee or Stock Option
Committee of the Company is an executive officer.
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Executive Compensation
The following table sets forth information for the past
three years for the Chief Executive Officer, the other four most
highly compensated executive officers of the Company, the former
President and Chief Executive Officer of Western Publishing
Company, Inc. and the former Senior Vice President, Finance and
Administration of Western Publishing Company, Inc.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
Annual Long-Term
Compensation Compensation
------------ ------------
Securities
Fiscal Underlying All Other
Name and Principal Position Year Salary ($) Bonus ($) Options(#)(4) Compensation ($)(5)
- --------------------------- ------ ---------- --------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
Richard A. Bernstein 1996 540,000 12,533
Chairman and Chief Executive Officer of Western 1995 540,000 30,000 12,706
Publishing Group, Inc.; Chairman of Western Publishing 1994 529,231 15,133
Company, Inc.; Chairman, President and
Chief Executive Officer of Penn Corporation
John F. Moore(1) 1996 269,750 300,000 83,123
Former President and Chief Executive Officer of
Western Publishing Company, Inc.
Steven M. Grossman(2) 1996 207,000 10,044
Executive Vice President, Treasurer 1995 201,179 30,000 7,720
and Chief Financial Officer of 1994 96,701 4,334
Western Publishing Group, Inc.
James A. Cohen(2) 1996 212,500 10,044
Senior Vice President, Legal Affairs of 1995 196,809 25,000 10,044
Western Publishing Group, Inc. 1994 141,317 9,107
Ira A. Gomberg(2) 1996 238,500 10,044
Vice President, Business Development and 1995 237,558 25,000 10,044
Corporate Communications of 1994 178,605 10,649
Western Publishing Group, Inc.
Ilan K. Reich(2) 1996 212,500 8,657
Vice President, Special Projects of 1995 196,481 25,000 8,657
Western Publishing Group, Inc. 1994 149,817 7,723
Bruce A. Bernberg(3) 1996 230,000 25,000 25,000 12,741
Former Senior Vice President, Finance and 1995 230,000 15,000 13,861
Administration of Western Publishing Company, Inc. 1994 230,000 23,650 15,983
</TABLE>
- --------------
(1) Mr. Moore joined the Company in May, 1995 and resigned
effective January 26, 1996.
(2) Salaries of Messrs. Grossman, Cohen, Gomberg and Reich are
allocated among the Company and unaffiliated businesses
based upon the services rendered to each entity. As
described under "THE PROPOSALS -- Interests of Certain
Persons in the Transactions -- Severance and Management
Arrangements," Messrs. Grossman, Cohen, Gomberg and Reich
will each receive severance payments of $375,000 upon the
Closing.
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<PAGE>
(3) Effective February 16, 1996, Mr. Bernberg retired from the
Company.
(4) Options to acquire shares of Common Stock.
(5) Includes amounts contributed by the Company as matching
contributions equal to 60% of the first 6% of earnings (to a
maximum Company contribution of $5,544) and a 3% annual
Company contribution based on employee's annual compensation
(up to the Internal Revenue Service limitation of $150,000
of compensation) to the Golden Comprehensive Security
Program (the "Program"). In calendar year 1995,
contributions to the Program with respect to Messrs.
Bernstein, Grossman, Cohen, Gomberg, Reich and Bernberg were
$10,044, $10,044, $10,044, $10,044, $8,657 and $9,257,
respectively. In calendar year 1994, contributions to the
Program with respect to Messrs. Bernstein, Grossman, Cohen,
Gomberg, Reich and Bernberg were $10,044, $7,720, $10,044,
$10,044, $8,657 and $9,914, respectively. In calendar year
1993, contributions to the Program with respect to Messrs.
Bernstein, Grossman, Cohen, Gomberg, Reich and Bernberg were
$12,471, $4,334, $9,107, $10,649, $7,723 and $12,296,
respectively.
In addition, the following amounts were paid or accrued
during the last three years pursuant to the Executive
Medical Reimbursement Plan and the excess life insurance
program:
In calendar year 1995, the Executive Medical Reimbursement
Plan paid premiums for each of Messrs. Bernstein, Moore and
Bernberg of $1,800, $750 and $1,800, respectively. During
the same period, the Company paid excess life insurance
premiums for Messrs. Bernstein, Moore and Bernberg of $689,
$402 and $680, respectively. In calendar year 1994, the
Executive Medical Reimbursement Plan paid premiums for each
of Messrs. Bernstein and Bernberg of $1,800. During the
same period, the Company paid excess life insurance premiums
for Messrs. Bernstein and Bernberg of $862 and $1,152,
respectively. In calendar year 1993, the Executive Medical
Reimbursement Plan paid premiums for each of Messrs.
Bernstein and Bernberg of $1,800. During the same period,
the Company paid excess life insurance premiums for each of
Messrs. Bernstein and Bernberg of $862.
In calendar years 1995, 1994 and 1993, $995, $995 and
$1,025, respectively, was paid to Mr. Bernberg for financial
planning assistance.
In accordance with his employment agreement, Mr. Moore was
entitled to the reimbursement of moving expenses in 1995,
the income tax gross up of which was $81,971.
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<TABLE>
<CAPTION>
OPTION GRANTS IN THE LAST FISCAL YEAR
Individual Grants
-----------------
Number Of Percent of Total Potential Realizable Value at
Securities Options Assumed Annual Rates of Stock
Underlying Granted To Appreciation For Option Term(3)
Options Employees In Exercise Price Expiration -------------------------------
Name Granted (#) Fiscal Year $/Share Date 5% 10%
- ---- ----------- ---------------- -------------- ---------- -- ---
<S> <C> <C> <C> <C> <C> <C>
John F. Moore 150,000 31.8% $ 9.50 5/30/97(2) 95,000 190,000
150,000 31.8% $13.50 5/30/97(2) 135,000 270,000
Bruce A. Bernberg(1) 25,000 5.3% $11.75 3/17/96 13,464 26,927
</TABLE>
- ------------
(1) The options granted to Mr. Bernberg were immediately vested on
the date granted. As Mr. Bernberg retired effective February 16,
1996, these options will expire pursuant to their terms on March
17, 1996.
(2) In accordance with his employment agreement, Mr. Moore was
granted options to acquire 300,000 shares of Common Stock
(150,000 shares at an exercise price of $9.50 and 150,000 shares
at an exercise price of $13.50). The options granted vested 1/5
per year beginning on the first anniversary of the grant. On
January 25, 1996, the aforementioned options were cancelled.
Simultaneously, new options to acquire 300,000 shares of Common
Stock (150,000 shares at an exercise price of $9.50 and 150,000
shares at an exercise price of $13.50) were granted. The market
value of the underlying securities at January 25, 1996 was
$9.375. These options were immediately vested on the date
granted and expire May 30, 1997. The new options were granted to
Mr. Moore in consideration for his waiving all benefits under his
employment agreement upon his termination of employment.
(3) The dollar gains under these columns result from calculations
assuming 5% and 10% growth rates and are not intended to forecast
future price appreciation of Common Stock of the Company. The
gains reflect a future value based upon growth at these
prescribed rates. The Company is not aware of any formula which
will determine with reasonable accuracy a present value based on
future unknown or volatile factors.
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<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR
AND FISCAL YEAR-END VALUE
Value of Unexercised
Number of Unexercised In-The-Money Options At
Shares Options Held at February 3, 1996(1)
Acquired on Value February 3, 1996(#) --------------------------
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard A. Bernstein 32,500 35,000
John F. Moore 300,000 $206,250
Steven M. Grossman 20,000 17,500
James A. Cohen 36,667 23,333 $4,375
Ira A. Gomberg 36,667 23,333 4,375
Ilan K. Reich 21,667 23,333 4,375
Bruce A. Bernberg 42,500 12,500 21,875
</TABLE>
- -------------
(1) Market value of underlying securities at February 3, 1996 was $10.875.
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<PAGE>
Certain Transactions
In Fiscal 1996, the Company paid P&E Properties, Inc.
("P&E Properties"), a corporation owned by Mr. Bernstein,
approximately $290,000 to reimburse P&E Properties for the use of
an airplane owned by P&E Properties. When commercially available
flights are available to the destination, the Company reimburses
P&E Properties at the rate of the normal first class fare. When
commercial flights are not available, the Company reimburses P&E
Properties at an amount equal to the hourly variable operating
costs of the airplane, times the number of hours of use. The
Company also reimburses P&E Properties for out-of-pocket
expenditures made by P&E Properties on the Company's behalf.
Salaries are paid by P&E Properties to Mr. Bernstein
and certain other officers whose services are rendered to P&E
Properties. Salaries paid to such persons were not related to
services performed by P&E Properties for the Company. None of
the services provided by P&E Properties to the Company were
provided pursuant to a written agreement. The Company believes
that the terms of its transactions with P&E Properties were no
less favorable than could have been obtained from unaffiliated
third parties on an arm's-length basis.
During Fiscal 1996, the Company provided a bridge loan
to Mr. John F. Moore, former President and Chief Executive
Officer of Western Publishing Company, Inc., a wholly-owned
subsidiary of the Company ("Western"), in the amount of $620,000
for the purchase of a primary residence in Racine, Wisconsin.
Such loan and accrued interest at the applicable federal rate was
repaid following the closing of the sale of Mr. Moore's former
primary residence in September, 1995.
In Fiscal 1996, Western agreed to license six
properties owned or licensed by Western to Powerhouse
Entertainment Company, Inc. ("Powerhouse"), a corporation
affiliated with Mr. Bernstein, pursuant to which Powerhouse would
develop certain interactive CD-ROM storybooks and other computer
software products (the "Products") based upon these properties.
Under the terms of the arrangement, all development costs would
be incurred by Powerhouse, the Products' content, packaging and
design would be subject to Westerns' approval and Western would
be paid a royalty based upon the net proceeds of the sales of the
Products. The Company believes that the terms of this
arrangement with Powerhouse were no less favorable than could be
obtained from unaffiliated third parties on an arms'-length
basis.
Concurrent with the execution of the Securities
Purchase Agreement and the Transactions contemplated thereby,
Western and Powerhouse entered into an agreement relating to the
existing arrangement between Powerhouse and Western (the
"Powerhouse Agreement"). The Powerhouse Agreement provides,
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<PAGE>
among other things, that, immediately after the Closing, Western
will exercise one of three options (the "Options"), such chosen
Option to replace and supersede the existing arrangement in its
entirety. Under the Options, any one of which may be selected by
the Company, (i) the existing arrangement could continue in full
force and effect; (ii) the existing arrangement could be
terminated, the Products destroyed and Powerhouse reimbursed its
development costs and expenses; or (iii) upon the completion of
the development of the Products, Western acquires the Products
from Powerhouse and pays a royalty to Powerhouse for the use of
its proprietary software technology.
As described under "THE PROPOSALS -- Interests of
Certain Persons in the Transactions -- Severance and Management
Arrangements," P&E Properties will receive a payment of $1.2
million upon the Closing pursuant to a management agreement with
the Company to provide services (including finance and
accounting, cash management, real estate matters, labor
negotiations and corporate administration) as requested from time
to time by Mr. Snyder for a period of 180 days following the
Closing.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), requires the Company's executive
officers, directors and persons who own more than ten percent of
a registered class of the Company's equity securities ("Reporting
Persons") to file reports of ownership and changes in ownership
on Forms 3, 4 and 5 with the SEC. These Reporting Persons are
required by SEC regulation to furnish the Company with copies of
all Forms 3, 4 and 5 they file with the SEC. Based solely on the
Company's review of the copies of the forms it has received and
written representations from certain Reporting Persons, the
Company believes that all of its Reporting Persons complied with
all filing requirements applicable to them with respect to
transactions during calendar year 1995.
AMENDMENTS TO 1995 STOCK OPTION PLAN (Proposal No. 3)
On July 19, 1995, the Board of Directors adopted,
subject to stockholder approval, the 1995 Stock Option Plan (the
"Stock Option Plan") to serve as a replacement for the 1986
Employee Stock Option Plan. Stockholders approved the adoption
of the Stock Option Plan at the 1995 Annual Meeting of
Stockholders of the Company.
Concurrent with the Board of Directors' approval of,
and as contemplated by, the Securities Purchase Agreement, the
Board of Directors adopted the following amendments to the Stock
Option Plan (the "Amendments"), subject to stockholder approval
and to the consummation of the Transactions under the Securities
Purchase Agreement: (1) an increase in the number of shares of
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<PAGE>
Common Stock available for the grant of options by 1,500,000; (2)
an increase in the maximum number of shares of Common Stock for
which options may be granted to any person in any one calendar
year to 1,500,000; and (3) permitting the Stock Option Committee
(as defined below) to determine the meaning of the term "cause"
as used in the Stock Option Plan on a grant-by-grant basis. The
Amendments will enable the Company to grant stock options to
Mr. Snyder as contemplated by the Snyder Employment Agreement at
the Closing (see "THE PROPOSALS -- Interests of Certain Persons in
the Transactions -- Snyder Employment Arrangements"), and will
also increase the number of shares available for the grant of
options to key employees following the Closing.
Approval of the adoption of the Amendments at the
Special Meeting is a condition to the consummation of the
Transactions under the Securities Purchase Agreement and is
necessary to effectuate elements of the Snyder Employment
Arrangements. See "SECURITIES PURCHASE AGREEMENT -- Conditions to
Closing." The Amendments will be abandoned and the Stock Option
Plan will not be so amended, even if adoption of the Amendments
is approved by the stockholders at the Special Meeting, if the
Transactions are not consummated for any reason.
Description of the Stock Option Plan
The Stock Option Plan currently provides for the
issuance of options to purchase up to an aggregate of 750,000
shares of Common Stock. The Stock Option Plan provides for the
granting of options intended to qualify as incentive stock
options as defined in Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and non-qualified stock options to
key employees of the Company or its subsidiaries, including
officers and employee directors of the Company or its
subsidiaries who are also employees, and to consultants who
perform services for the Company or its subsidiaries. Currently,
no person may receive in any one calendar year options to
purchase more than 500,000 shares of Common Stock.
The Stock Option Plan is administered by a
disinterested committee appointed by the Board of Directors which
is comprised of at least two disinterested members of the Board
of Directors (the "Stock Option Committee"). Among other things,
the Stock Option Committee determines, subject to the provisions
of the Stock Option Plan, the key employees and consultants to
whom options should be granted, the nature of the options to be
granted, the number of options to be granted and the exercise
price, the vesting schedule and the term of the options and all
other conditions and terms of the options to be granted. The
number of grantees may vary from year to year. It is not
possible to state in advance the exact number or identity of the
grantees or the amounts of the grants. To date, no options have
been granted under the Stock Option Plan. For information
concerning stock options to be granted to Mr. Snyder pursuant to
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<PAGE>
the Snyder Employment Agreement following the Closing, see "THE
PROPOSALS -- Interests of Certain Persons in the Transactions --
Snyder Employment Arrangements."
The exercise price of incentive stock options granted
under the Stock Option Plan may not be less than the fair market
value of the shares at the time the option is granted. The
exercise price of non-qualified stock options granted under the
Stock Option Plan may not be less than 85% of the fair market
value of the shares at the time the option is granted. An
optionee may pay the option price in cash or, if permitted by the
Stock Option Committee, by delivering to the Company shares of
Common Stock that have a fair market value equal to the option
price or a combination of cash and shares. Shares may not be
issued or transferred upon the exercise of an option until the
option price is paid in full.
Options generally become exercisable over such period
as the Stock Option Committee may prescribe, and expire no later
than ten years from the date of grant, subject to earlier
termination on the optionee's termination of employment or
relationship with the Company. The Stock Option Committee may
accelerate the exercisability of any outstanding stock options,
at any time or upon the occurrence of any event. Options are not
assignable or otherwise transferable other than by will or the
laws of descent and distribution, except that the Stock Option
Committee may permit transfers by an optionee to his family
members. Shares subject to options granted under the Stock
Option Plan that have lapsed or terminated may again be subject
to options granted under the Stock Option Plan. Furthermore, the
Stock Option Committee may offer to exchange new options for
existing options, with the shares subject to the existing options
again being available for grant under options.
The Board of Directors may amend or terminate the Stock
Option Plan at any time; provided that approval by the
stockholders of the Company will be obtained if necessary or
desirable to comply with applicable law.
Federal Income Tax Consequences to Optionees
For federal tax purposes, an optionee is not subject to
tax upon the grant of an option. If the option is not an
incentive stock option, the optionee will generally recognize
ordinary income at the time of exercise of the option in an
amount equal to the difference between the fair market value of
the shares and the exercise price. A subsequent sale of the
shares will result in a capital gain or loss. If the option is
an incentive stock option, the optionee will generally not
recognize income until the sale of the shares. If the shares are
held for the requisite holding periods, then all gain on the sale
will be treated as long-term capital gain. If the requisite
holding periods are not satisfied (a "disqualifying
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<PAGE>
disposition"), then the portion of the gain equal to the
difference between the market value of the shares at the time of
exercise and the exercise price will generally be treated as
ordinary income. The Company will be entitled to a tax deduction
in an amount corresponding to any ordinary income recognized by
the optionee.
Federal Income Tax Consequences to the Company
The Company will generally be entitled to a deduction
for federal income tax purposes at the same time and in the same
amount as an optionee is required to recognize ordinary income as
described above. To the extent an optionee realizes capital
gains as described above, the Company will not be entitled to any
deduction for federal income tax purposes. Therefore, the
Company will not be entitled to any tax deduction in connection
with incentive stock options with respect to which there is no
disqualifying disposition.
The Company believes that compensation attributable to
options granted under the Stock Option Plan at a price at least
equal to the fair market value of the underlying option shares at
the date of grant may reasonably be treated as performance-based
compensation and will not be subject to the limitations contained
in Section 162(m) of the Code on the deductibility of non-
performance related compensation paid to certain corporate
executives in excess of $1 million in any taxable year. For a
discussion of Section 162(m) of the Code, see "EXECUTIVE OFFICER
BONUS PLAN."
---------------
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL
OF THE ADOPTION OF THE AMENDMENTS TO THE STOCK OPTION PLAN.
---------------
EXECUTIVE OFFICER BONUS PLAN (Proposal No. 4)
Concurrent with the Board of Directors' approval of,
and as contemplated by, the Securities Purchase Agreement, the
Compensation Committee of the Board of Directors (the
"Compensation Committee") adopted the Bonus Plan, subject to
stockholder approval and to the consummation of the Transactions
under the Securities Purchase Agreement. The Bonus Plan will
enable the Company, through the Compensation Committee, to award
bonuses to Mr. Snyder under the Bonus Plan as contemplated by the
Snyder Employment Agreement following the Closing (see "THE
PROPOSALS -- Interests of Certain Persons in the Transactions --
Snyder Employment Arrangements"), as well as to other executive
officers of the Company following the Closing.
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<PAGE>
Approval of the adoption of the Bonus Plan by the
Compensation Committee is a condition to the consummation of the
Transactions under the Securities Purchase Agreement. See
"SECURITIES PURCHASE AGREEMENT -- Conditions to Closing." The
Bonus Plan will be abandoned and no awards thereunder will be
made, even if adoption of the Bonus Plan is approved by the
stockholders at the Special Meeting, if the Transactions are not
consummated for any reason.
The Bonus Plan has been structured, and its adoption
has been made subject to stockholder approval, in order to assure
that the Company will be able to deduct bonus payments to
Mr. Snyder as contemplated by the Snyder Employment Agreement and
to other executive officers under the Bonus Plan. In 1993, the
Code was amended to add Section 162(m), which precludes the
Company from taking a tax deduction for individual compensation
in excess of $1 million to each of the Company's highest paid
executives. There are, however, certain exceptions to this
limitation, specifically for compensation that is performance-
based within the meaning of Section 162(m) and approved by the
stockholders. Accordingly, in order to qualify the Bonus Plan
under Section 162(m) of the Code and maximize the deductibility
by the Company of bonus payments made to executive officers
(including Mr. Snyder), the Compensation Committee directed that
the Bonus Plan be submitted to the stockholders of the Company
for their approval at the Special Meeting.
Terms of the Bonus Plan
The following is a summary of certain provisions of the
Bonus Plan, which is attached as Appendix VII to this Proxy
Statement and is incorporated herein by reference. Such summary
is qualified in its entirety by reference to the Bonus Plan.
The purpose of the Bonus Plan is to advance the
interests of the Company and its stockholders by providing
incentives in the form of periodic cash bonus awards to certain
senior executive officers of the Company.
The Bonus Plan will be administered by the Compensation
Committee, as such committee is from time to time constituted.
The Compensation Committee may delegate its duties and powers in
whole or in part to any subcommittee thereof consisting solely of
at least two "outside directors," as defined under Section 162(m)
of the Code and Treasury Regulations promulgated thereunder.
The Compensation Committee has the exclusive authority
to select the senior executives of the Company (a "Participant")
to be granted bonus awards ("Bonuses") under the Bonus Plan, to
determine the size and terms of the Bonus to be made to each
individual selected, to modify the terms of any Bonus that has
been granted (except with respect to any modification which would
increase the amount of compensation payable to a "Covered
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<PAGE>
Employee," as such term is defined in Section 162(m) of the
Code), to determine the time when Bonuses will be awarded, to
establish performance objectives in respect to Bonuses and to
certify that such performance objectives were attained. The
Compensation Committee is authorized to interpret the Bonus Plan,
to establish, amend and rescind any rules and regulations
relating to the Bonus Plan, and to make any other determinations
which it deems necessary or desirable for the administration of
the Bonus Plan.
The Compensation Committee may in its discretion award
a Bonus to a Participant for any fiscal year of the Company (a
"Year"). The amount of a Participant's Bonus shall be an amount
(the "Maximum Bonus") determinable from written performance goals
approved by the Committee not later than 90 days following the
beginning of the Year to which such goals relate and while the
outcome is substantially uncertain. The performance goals and
formula applicable to each affected Participant shall be set
forth in a written schedule established by the Compensation
Committee (the "Bonus Schedule"). The performance goals must be
objective and based on actual versus budgeted corporate
performance. The Bonus Schedule shall specify the manner in
which the Maximum Bonuses shall be determined if the performance
goals are met and the period or periods to which the performance
goals apply. The performance goals and Maximum Bonus applicable
to any affected Participant may be adjusted in such manner as the
Compensation Committee determines to be proper and may be made
without a loss of deductibility of Bonuses under Section 162(m)
of the Code. The amount of the Bonus actually paid to any
affected Participant may be less than the Maximum Bonus at the
discretion of the Compensation Committee, but shall be no greater
than the amount of such Participant's Maximum Bonus. No awards
may be made under the Bonus Plan until following the Closing.
Notwithstanding any other provision of the Bonus Plan to the
contrary, however, in no event may a Participant's Maximum Bonus
for any Year under the Bonus Plan exceed $2 million. If the
Company were nevertheless to decide to pay a larger bonus, a
portion thereof may not be deductible under Section 162(m).
The Plan may be amended or suspended in whole or in
part at any time and from time to time, or may be terminated at
any time, by the Compensation Committee. Amendments will require
stockholder approval only if required under Section 162(m) of the
Code.
Federal Income Tax Consequences
Under present federal income tax law, Participants will
realize ordinary income equal to the amount of the Bonus received
in the year of receipt. The Company will receive a deduction for
the amount constituting ordinary income to the Participant,
provided that the Bonus Plan satisfies the requirements of
Section 162(m) of the Code. It is the Company's intention that
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<PAGE>
the Bonus Plan be adopted and administered in a manner that
maximizes the deductibility of compensation for the Company under
Section 162(m) of the Code.
---------------
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
APPROVAL OF THE ADOPTION OF THE BONUS PLAN.
---------------
CHARTER AMENDMENTS
The Charter Amendments have been approved by the Board
of Directors and are being submitted to a vote of the
stockholders of the Company pursuant to the requirements of the
Securities Purchase Agreement. However, approval of the Charter
Amendments by the stockholders is not a condition to the
consummation of the Transactions under the Securities Purchase
Agreement. See "SECURITIES PURCHASE AGREEMENT -- Conditions to
Closing." None of the Charter Amendments will be effected, even
if adopted by the stockholders at the Special Meeting, if the
Transactions are not consummated for any reason.
Approval of the Charter Amendments by the stockholders
shall be deemed also to constitute approval of a resolution
authorizing the Board of Directors, at any time prior to the
filing of the Charter Amendments with the Delaware Secretary of
State, to abandon any such proposed amendment without further
action by the stockholders, in connection with the termination of
the Securities Purchase Agreement or otherwise, notwithstanding
approval of such amendment by the stockholders of the Company at
the Special Meeting. Reference is made to Appendix VIII to this
Proxy Statement, which is incorporated by reference herein and
sets forth the full text of the Charter Amendments.
AMENDMENT TO CHANGE THE NAME OF THE COMPANY (Proposal No. 5)
The Board of Directors has adopted an amendment to
Article First of the Restated Certificate that, subject to
stockholder approval, changes the name of the Company to "Golden
Press, Inc." This is the name under which GPH intends to operate
the business of the Company following the Closing. The Company
has been advised by GPH that, in the view of Mr. Snyder and GPH,
the proposed name change will be of benefit to the Company and
its stockholders in view of the Company's well-known GOLDEN
BOOKS(R) trademark.
---------------
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<PAGE>
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
VOTE FOR ADOPTION OF THE PROPOSED AMENDMENT TO
CHANGE THE NAME OF THE COMPANY TO "GOLDEN PRESS, INC."
---------------
AMENDMENTS TO INCREASE THE AUTHORIZED COMMON AND
PREFERRED STOCK (Proposal Nos. 6 and 7)
The Restated Certificate currently authorizes the
issuance of 40,000,000 shares of Common Stock and 100,000 shares
of preferred stock, without par value (the "Preferred Stock").
As of March __, 1996, ________ shares of Common Stock were
outstanding, ________ shares of Common Stock were reserved for
issuance upon the exercise of options granted and available for
future grants under the Company's existing stock option plans,
and ________ shares were subject to the conversion privilege of
the Series A Preferred Stock (all of which will be redeemed at
the Closing under the Securities Purchase Agreement). In
addition, as of the date of this Proxy Statement, ________ shares
of Preferred Stock were outstanding, representing the shares of
Series A Preferred Stock which will be redeemed at the Closing
and will thereupon again constitute authorized and unissued
shares of Preferred Stock. In connection with the consummation
of the Transactions, the Board of Directors has reserved an
additional 14,370,000 shares, including 6,500,000 shares issuable
upon conversion of the Series B Convertible Preferred Stock,
3,120,000 shares issuable as stock dividends on the Series B
Convertible Preferred Stock, 3,250,000 shares issuable upon
exercise of the Warrant and 1,500,000 additional shares available
for the grant of options under the Stock Option Plan. See
"SECURITIES PURCHASE AGREEMENT -- Terms of the Series B
Convertible Preferred Stock" and "-- Terms of the Warrant" and
"AMENDMENTS TO 1995 STOCK OPTION PLAN." Accordingly, giving
effect to the consummation of the Transactions contemplated by
the Securities Purchase Agreement, a balance of ________
authorized shares of Common Stock and 87,000 authorized shares of
Preferred Stock will be available to the Board of Directors for
future stock issuances.
The Board of Directors has adopted an amendment to
Article Fourth of the Restated Certificate that, subject to
stockholder approval, increases the authorized number of shares
of Common Stock to 60,000,000 and increases the authorized number
of shares of Preferred Stock to 200,000. The Board of Directors
believes that the authorization of such additional shares of
Common and Preferred Stock is appropriate in order to provide
added flexibility for future corporate purposes, which may
include capital and financing needs, stock distributions and
stock splits, business acquisitions, management incentive and
employee benefit plans and other general corporate purposes. The
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<PAGE>
increase in the number of authorized shares of Common and
Preferred Stock will permit the Board of Directors to approve the
issuance of additional shares of Common Stock or Preferred Stock
if warranted without the need for further action by stockholders
to authorize such shares, subject to present or future
requirements of any stock exchange upon which the Common Stock
may be listed (including the rules of the NASD governing
corporations (such as the Company) with securities quoted on the
Nasdaq National Market) and applicable law. Currently, the rules
of the NASD require stockholder approval by a majority of the
total votes cast in person or by proxy prior to the issuance of
designated securities by an issuer with securities quoted on the
Nasdaq National Market (1) where the issuance would result in a
change of control of the issuer, (2) in connection with the
acquisition of the stock or assets of another company if an
affiliate of the issuer has certain interlocking interests with
the company to be acquired or where the issuer issues more than
20% of its currently outstanding shares or (3) in connection with
a transaction, other than a public offering, involving the sale
or issuance of more than 20% of the common stock or voting power
outstanding before the issuance. The Board of Directors believes
that the availability of such additional shares of Common and
Preferred Stock would enable the Company to act promptly to take
advantage of various corporate opportunities as such
opportunities arise without the delay or cost of calling a
special meeting of stockholders.
The additional authorized shares of Common Stock and
Preferred Stock could also conceivably be issued to make any
attempt to acquire control of the Company more difficult and
costly and thereby discourage attempts to acquire the Company.
For example, additional shares of Common Stock or Preferred Stock
could be sold in private placement transactions to purchasers who
support the Board of Directors and who are opposed to a takeover
bid which the Board of Directors believes is not in the best
interests of the Company and its stockholders. Additionally, the
Board of Directors could authorize holders of a series of
Preferred Stock to vote either separately as a class or with the
holders of the Common Stock on any merger, sale or exchange of
assets by the Company or any other extraordinary corporate
transaction. Additional shares of Common Stock or shares of
Preferred Stock convertible into Common Stock could also be
issued to increase the aggregate number of outstanding shares of
Common Stock, thereby diluting the interest of parties attempting
to obtain control of the Company. If an issuance of additional
shares of Common or Preferred Stock is made on other than a pro
rata basis to all stockholders, dilution of ownership interest
and voting power of existing stockholders may occur and,
depending on the consideration for which the shares were issued,
could dilute earnings per share.
99
<PAGE>
There are at present no plans or arrangements
concerning the issuance of additional shares of Common Stock or
Preferred Stock, except pursuant to outstanding stock options and
employee benefit plans and the Series A Preferred Stock (which
will be redeemed at the Closing), and except as contemplated by
the Securities Purchase Agreement and the Snyder Employment
Arrangements (see "THE PROPOSALS -- Interests of Certain Persons
in the Transactions -- Snyder Employment Arrangements"). If any
plans or arrangements are made concerning the issuance of any
such shares, holders of the then outstanding shares of Common
Stock or Preferred Stock may or may not be given the opportunity
to vote thereon, depending upon the nature of any such
transaction, the law applicable thereto, the policy of any stock
exchange (including the NASD) upon which the shares of Common
Stock may be listed at such time and the judgment of the Board of
Directors.
None of the outstanding shares of any class of capital
stock of the Company has preemptive rights or cumulative voting
rights. The proposed amendment would not change the terms and
conditions of any outstanding shares of Common Stock. Each
certificate representing shares of Common Stock outstanding
immediately prior to the effective date of the proposed
amendments, if they are adopted by the stockholders at the
Special Meeting, would remain outstanding and represent the same
number of shares of Common Stock as before such effective date.
---------------
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
ADOPTION OF THE PROPOSED AMENDMENTS TO INCREASE THE
AUTHORIZED COMMON AND PREFERRED STOCK.
---------------
STOCKHOLDER PROPOSALS FOR THE 1996 ANNUAL MEETING
Any proposal of a stockholder intended to be presented
at the Company's 1996 Annual Meeting of Stockholders must have
been received by the Secretary of the Company by January 3, 1996
for inclusion in the notice of meeting and proxy statement
relating to the 1996 Annual Meeting.
INDEPENDENT AUDITORS
The consolidated financial statements of the Company and its
subsidiaries at January 28, 1995 and January 29, 1994 and for
each of the three fiscal years in the period ended January 28,
1995, incorporated by reference in this Proxy Statement, have
been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report (which report expresses an unqualified
opinion and includes an explanatory paragraph relating to the
100
<PAGE>
change in fiscal 1994 in the method of accounting for
postretirement benefits other than pensions to conform with
Statement of Financial Accounting Standards No. 106) included in
the Company's Annual Report on Form 10-K for the fiscal year
ended January 28, 1995. With respect to the unaudited interim
financial information for the periods ended April 29, 1995 and
April 30, 1994, July 29, 1995 and July 30, 1994 and October 28,
1995 and October 29, 1994, which is incorporated herein by
reference, Deloitte & Touche LLP have applied limited procedures
in accordance with professional standards for a review of such
information. However, as stated in their reports included in the
Company's Quarterly Reports on Form 10-Q for the quarters ended
April 29, 1995, July 29, 1995 and October 28, 1995 and
incorporated by reference herein, they did not audit and they do
not express an opinion on that interim financial information.
Accordingly, the degree of reliance on their reports on such
information should be restricted in light of the limited nature
of the review procedures applied.
Deloitte & Touche LLP has served as the Company's
independent auditors since its incorporation in 1984.
Representatives of Deloitte & Touche LLP will attend the Special
Meeting and will have an opportunity to make a statement and to
respond to appropriate questions from stockholders.
AVAILABLE INFORMATION
The Company is subject to the informational
requirements of the Exchange Act. In accordance therewith, the
Company files reports, proxy statements and other information
with the SEC. Reports, proxy statements and other information
filed by the Company can be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Regional
Offices of the Commission at Seven World Trade Center, New York,
New York 10048, and Northwest Atrium Center, 500 West Madison
Street, Chicago, Illinois 60621. Copies of such material can be
obtained from the Public Reference Section of the SEC at
prescribed rates by writing to the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549.
INCORPORATION OF DOCUMENTS BY REFERENCE
This Proxy Statement incorporates by reference the financial
statements, selected financial data and management's discussion
and analysis of financial condition and results of operations
regarding the Company, as applicable, included in the Company's
Annual Report on Form 10-K for the fiscal year ended January 28,
1995, its Quarterly Reports on Form 10-Q for the quarterly
periods ended April 29, 1995, July 29, 1995 and October 28, 1995.
This Proxy Statement also incorporates by reference the Current
Reports on Form 8-K filed by the Company on September 29, 1995
101
<PAGE>
and February 9, 1996 as well as any other Current Reports on Form
8-K filed by the Company after the date hereof and before the
date of the Special Meeting.
Any statement contained in a document incorporated by
reference in this Proxy Statement will be deemed to be modified
or superseded for purposes of this Proxy Statement to the extent
that a statement contained in this Proxy Statement or in any
other subsequently filed document which is also incorporated by
reference in this Proxy Statement modifies or supersedes such
statement. Any Statement so modified or superseded will not be
deemed, except as modified or superseded, to constitute a part of
this Proxy Statement.
The Company will provide, without charge, to each person to
whom this Proxy Statement is delivered upon written or oral
request of such person, by first class mail or other equally
prompt means within one business day of receipt of such request,
a copy of any and all the information that has been incorporated
by reference in the Proxy Statement (not including the exhibits
to the information that is incorporated by reference unless such
exhibits are specifically incorporated by reference to the
information that this Proxy Statement incorporates). Written
requests should be addressed to the Secretary, Western Publishing
Group, Inc., 444 Madison Avenue, New York, New York 10022. Oral
requests may be made by telephone to the following number: (212)
688-4500.
By Order of the Board of Directors,
James A. Cohen
Secretary
March __, 1996
102
<PAGE>
PROXY WESTERN PUBLISHING GROUP, INC. PROXY
444 Madison Avenue
New York, New York 10022
This Proxy is Solicited on Behalf of the Board of Directors.
The undersigned hereby appoints _____________ and _____________ as Proxies,
each with the power to appoint his substitute, and hereby authorizes them, and
each of them, to represent and vote, as designated below, all the shares of
Common Stock of Western Publishing Group, Inc. (the "Company") which the
undersigned is entitled to vote at the Special Meeting of Stockholders to be
held at Chemical Bank, 270 Park Avenue, __th Floor, Room ____, New York, New
York, on __________, April __, 1996 at 10:00 A.M., local time, and any
adjournment or postponement thereof (the "Special Meeting"), with all the powers
the undersigned would possess if personally present, upon the matters noted
below:
1. Approval of the Securities Purchase Agreement dated as of January 31, 1996
between Golden Press Holding, L.L.C. and the Company and the transactions
contemplated thereby.
/ / FOR / / AGAINST / / ABSTAIN
2. Election of Directors to hold office until the 1996 Annual Meeting of
Stockholders.
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the to vote for all nominees
contrary below) / / listed below / /
Barry Diller, Linda L. Janklow, Sharaha Ahmad-Llewellyn and Richard E. Snyder
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.)
_____________________________________________________________________________
(continued and to be signed and dated on the reverse side)
<PAGE>
3. Adoption of Amendments to the 1995 Stock Option Plan.
/ / FOR / / AGAINST / / ABSTAIN
4. Adoption of the Executive Officer Bonus Plan.
/ / FOR / / AGAINST / / ABSTAIN
5. Adoption of an amendment to the Amended and Restated Certificate of
Incorporation changing the name of the Company to Golden Press, Inc.
/ / FOR / / AGAINST / / ABSTAIN
6. Adoption of an amendment to the Amended and Restated Certificate of
Incorporation increasing the authorized number of shares of Common Stock from
40 million shares to 60 million shares.
/ / FOR / / AGAINST / / ABSTAIN
7. Adoption of an amendment to the Amended and Restated Certificate of
Incorporation increasing the authorized number of shares of Preferred Stock
from 100,000 shares to 200,000 shares.
/ / FOR / / AGAINST / / ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ADOPTION OF EACH OF THE
PROPOSALS LISTED ABOVE.
This proxy, when properly executed, will be voted in the manner directed by the
undersigned stockholder. If no direction is made, this proxy will be voted FOR
the adoption of Proposals No. 1, 2, 3, 4, 5, 6 and 7 above.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
Please sign exactly as name appears below.
When shares are held by joint tenants, both
should sign. When signing as attorney,
executor, administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full corporate
name by the President or other authorized
officer. If a partnership, please sign in
partnership name by authorized person.
_____________________________________________
Signature
_____________________________________________
Signature if held jointly
Dated: ________________________________, 1996
<PAGE>
APPENDIX I
SECURITIES PURCHASE AGREEMENT
DATED AS OF
JANUARY 31, 1996
BETWEEN
GOLDEN PRESS HOLDING, L.L.C.
AND
WESTERN PUBLISHING GROUP, INC.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I. SALE AND PURCHASE
Section 1.1. Agreement to Sell and to Purchase............... 3
Section 1.2. Closing......................................... 3
Section 1.3. Purchase Price.................................. 3
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF BUYER
Section 2.1. Organization and Qualification.................. 4
Section 2.2. Authority Relative to this Agreement............ 4
Section 2.3. Financing Arrangements.......................... 5
Section 2.4. Investment Intent............................... 5
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1. Organization and Qualification.................. 5
Section 3.2. Capitalization.................................. 6
Section 3.3. Subsidiaries and Equity Investments............. 7
Section 3.4. Authority Relative to this Agreement............ 8
Section 3.5. Reports and Financial Statements; Undisclosed
Liabilities.................................... 9
Section 3.6. Absence of Certain Changes or Events............ 11
Section 3.7. Litigation...................................... 11
Section 3.8. Disclosure...................................... 11
Section 3.9. Employee Benefit Plans.......................... 12
Section 3.10. ERISA.......................................... 13
Section 3.11. Compliance with Applicable Laws................ 15
Section 3.12. Taxes.......................................... 15
Section 3.13. Certain Agreements............................. 16
Section 3.14. Takeover Provisions Inapplicable............... 17
Section 3.15. Company Action................................. 17
Section 3.16. Fairness Opinions.............................. 17
Section 3.17. Financial Advisors; Expenses................... 18
Section 3.18. Title to Property.............................. 18
Section 3.19. Intellectual Property.......................... 18
Section 3.20. Licenses, Permits and Authorizations........... 19
Section 3.21. Insurance...................................... 20
Section 3.22. Environment.................................... 20
Section 3.23. Related Party Transactions..................... 21
Section 3.24. No Company Material Adverse Effect............. 21
ARTICLE IV. CONDUCT OF BUSINESS PENDING THE SALE AND PURCHASE
Section 4.1. Conduct of Business by the Company.............. 22
Section 4.2. Notice of Breach................................ 25
ARTICLE V. ADDITIONAL AGREEMENTS
Section 5.1. Access and Information.......................... 26
Section 5.2. Company Proxy Statement......................... 26
Section 5.3. Stockholders' Meeting........................... 27
Section 5.4. HSR Act......................................... 28
Section 5.5. Additional Agreements........................... 28
i
<PAGE>
Section 5.6. No Solicitation.................................. 28
Section 5.7. Transfer Restriction............................. 29
Section 5.8. Director and Officer Indemnification and
Insurance....................................... 30
Section 5.9. Board of Directors............................... 30
Section 5.10. Redemption of Company Preferred Stock........... 31
Section 5.11. Expenses........................................ 31
Section 5.12. Related Party Transactions...................... 31
Section 5.13. Moore Termination............................... 31
ARTICLE VI. CONDITIONS PRECEDENT
Section 6.1. Conditions to Each Party's Obligation to Effect
the Sale and Purchase............................ 32
Section 6.2. Conditions to Obligation of the Company to Effect
the Sale and Purchase........................... 32
Section 6.3. Conditions to Obligations of Buyer to Effect the
Sale and Purchase............................... 33
ARTICLE VII. TERMINATION, AMENDMENT AND WAIVER
Section 7.1. Termination..................................... 34
Section 7.2. Effect of Termination........................... 36
Section 7.3. Amendment....................................... 36
Section 7.4. Waiver.......................................... 36
ARTICLE VIII. GENERAL PROVISIONS
Section 8.1. Non-Survival of Representations, Warranties and
Agreements...................................... 37
Section 8.2. Notices.......................................... 37
Section 8.3. Expenses; Termination Fees....................... 38
Section 8.4. Publicity........................................ 39
Section 8.5. Specific Performance............................. 40
Section 8.6. Interpretation................................... 40
Section 8.7. Miscellaneous.................................... 40
Exhibit A -- Form of Series B Certificate of Designations
Exhibit B -- Form of Warrant
Exhibit C -- Form of Registration Rights Agreement
Exhibit D -- Form of Opinion of Willkie Farr & Gallagher
Exhibit E -- Form of Opinion of Milbank, Tweed, Hadley & McCloy
ii
<PAGE>
INDEX OF DEFINED TERMS
PAGE
Beneficial ownership........................................... 36
Bernstein...................................................... 5
Business Combination Proposal.................................. 26
Buyer.......................................................... 1
Buyer Disclosure Schedule...................................... 3
Buyer Material Adverse Effect.................................. 3
CERCLA......................................................... 18
Closing........................................................ 2
Closing Date................................................... 2
Code........................................................... 11
Commission..................................................... 6
Companies...................................................... 6
Company Benefit Plans.......................................... 10
Company Common Stock........................................... 1
Company Disclosure Schedule.................................... 4
Company Material Adverse Effect................................ 4
Company Meeting................................................ 24
Company Preferred Stock........................................ 5
Company Proxy Statement........................................ 10
Company SEC Reports............................................ 8
Company Voting Matters......................................... 25
Confidentiality Agreement...................................... 23
Continuing Directors........................................... 27
Environmental Laws............................................. 18
ERISA.......................................................... 10
Exchange Act................................................... 3
Excluded_Employees............................................. 20
Expenses....................................................... 34
GAAP........................................................... 8
Governmental Entity............................................ 13
HSR Act........................................................ 3
Intellectual Property.......................................... 16
Interim SEC Reports............................................ 8
Irrevocable Proxies............................................ 31
Moore.......................................................... 11
New Preferred Shares........................................... l
New Preferred Stock............................................ l
Purchase Price................................................. 2
Registration Rights Agreement.................................. 3
Securities Act................................................. 3
Series B Certificate of Designations........................... 1
Significant Agreements......................................... 14
Significant Subsidiary......................................... 6
Snyder......................................................... 19
Stock Option Plan.............................................. 5
Subsidiaries................................................... 6
Subsidiary..................................................... 6
Superior Proposal.............................................. 26
Tax_Subsidiaries............................................... 13
Third Party.................................................... 35
Third Party Business Combination............................... 35
Warrant........................................................ l
WPV............................................................ 25
iii
<PAGE>
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of January 31,
1996, between Western Publishing Group, Inc., a Delaware corporation (the
"Company"), and Golden Press Holding, L.L.C., a Delaware limited liability
company ("Buyer").
W I T N E S S E T H:
WHEREAS, the Company desires to create a series of its
Preferred Stock, no par value, consisting of 13,000 shares ("New Preferred
Shares") designated as its "Series B Convertible Preferred Stock" (the "New
Preferred Stock"). The terms, limitations and relative rights and preferences of
the New Preferred Stock are set forth in the Certificate of Designations,
Number, Voting Powers, Preferences and Rights of Series B Convertible Preferred
Stock of the Company, substantially in the form of Exhibit A attached hereto
(the "Series B Certificate of Designations");
WHEREAS, the Company desires to issue a warrant (the
"Warrant") to purchase an aggregate of 3,250,000 shares (subject to adjustment)
of the common stock, par value $.01 per share, of the Company ("Company Common
Stock"), substantially in the form of Exhibit B attached hereto;
WHEREAS, Buyer desires to purchase the New Preferred Shares
and the Warrant from the Company, and the Company desires to sell the New
Preferred Shares and the Warrant to Buyer, in each case upon the terms and
subject to the conditions set forth in this Agreement;
WHEREAS, the members of Buyer and the Board of Directors of
the Company have approved, and deem it advisable and in the best interests of
their members and stockholders, respectively, to consummate the purchase and
sale of the New Preferred Shares and the Warrant, upon the terms and subject to
the conditions set forth herein; and
WHEREAS, the Board of Directors of the Company, subject to
Section 5.3 hereof, has resolved to recommend approval of the purchase and sale
of the New Preferred Shares and the Warrant and the other transactions
contemplated herein to the holders of all the issued and outstanding shares of
Company Common Stock;
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties and agreements contained herein,
I-1
<PAGE>
and for other good and valuable consideration, the parties hereto agree as
follows:
I-2
<PAGE>
ARTICLE I.
SALE AND PURCHASE
Section 1.1. Agreement to Sell and to Purchase. On the
Closing Date (as defined below) and upon the terms and subject to
the conditions set forth in this Agreement, the Company shall
issue, sell, and deliver the New Preferred Shares and the Warrant
to Buyer, and Buyer shall purchase and accept the New Preferred
Shares and the Warrant from the Company.
Section 1.2. Closing. The closing of such sale and
purchase (the "Closing") shall take place (i) at the offices of
Willkie Farr & Gallagher, 153 East 53rd Street, New York, New
York, at 10:00 a.m. on the day on which the last of the
conditions set forth in Article VI is satisfied or waived, or
(ii) at such other time and place as the parties hereto shall
agree in writing. The date on which the Closing is to occur is
herein referred to as the "Closing Date."
At the Closing, the Company shall deliver to Buyer or
its designees a stock certificate representing the New Preferred
Shares and the Warrant, each of which shall be duly executed on
behalf of the Company and registered in the name of Buyer (or its
nominee). In full consideration for the New Preferred Shares and
the Warrant, Buyer shall thereupon pay to the Company the
Purchase Price (as defined below) as provided in Section 1.3
hereof.
Section 1.3. Purchase Price. The aggregate purchase
price for the New Preferred Shares and the Warrant ("Purchase
Price")shall be $65,000,000. At the Closing, Buyer shall deliver
to the Company $65,000,000 by wire transfer of immediately
available funds to such account as the Company shall designate
not less than three business days prior to the Closing Date.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Company as follows:
I-3
<PAGE>
Section 2.1. Organization and Qualification. Buyer is
a limited liability company duly authorized and validly existing
under the laws of the state of Delaware and has the requisite
power to carry on its business as it is now being conducted and
currently proposed to be conducted. Buyer is duly qualified to
do business, and is in good standing, in each jurisdiction where
the character of its properties owned or held under lease or the
nature of its activities make such qualification necessary,
except where the failure to be so qualified would not,
individually or in the aggregate, reasonably be expected to have
a material adverse effect on its business, properties, assets,
condition (financial or otherwise), liabilities or operations (a
"Buyer Material Adverse Effect"). Complete and correct copies as
of the date hereof of the certificate of formation of Buyer have
been delivered to the Company as part of a disclosure schedule
delivered by Buyer to the Company on the date of this Agreement
(the "Buyer Disclosure Schedule").
Section 2.2. Authority Relative to this Agreement.
Buyer has the requisite power to enter into this Agreement and to
carry out its obligations hereunder. The execution and delivery
of this Agreement and the Registration Rights Agreement between
the Company and Buyer to be entered into on the Closing Date (the
"Registration Rights Agreement"), substantially in the form of
Exhibit C attached hereto, and the consummation of the
transactions contemplated hereby and thereby have been duly
authorized by all necessary actions on the part of Buyer. This
Agreement and the Registration Rights Agreement, upon its
execution, each constitute a valid and binding obligation of
Buyer, enforceable in accordance with its terms except as
enforcement may be limited by bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights
generally and except that the availability of equitable remedies,
including specific performance, is subject to the discretion of
the court before which any proceeding therefor may be brought.
No other proceedings on the part of Buyer are necessary to
authorize this Agreement or the Registration Rights Agreement and
the transactions contemplated hereby and thereby. Buyer is not
subject to or obligated under (i) any operating agreement,
indenture or other loan document provision or (ii) any other
contract, license, franchise, permit, order, decree, concession,
lease, instrument, judgment, statute, law, ordinance, rule or
regulation applicable to Buyer or its properties or assets, that
would be breached or violated, or under which there would be a
default (with or without notice or lapse of time, or both), or
under which there would arise a right of termination,
cancellation or acceleration of any obligation or the loss of a
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material benefit, by its executing and carrying out this
Agreement other than, in the case of clause (ii) only, (A) any
breaches, violations, defaults, terminations, cancellations,
accelerations or losses which, either singly or in the aggregate,
will not have a Buyer Material Adverse Effect or prevent the
consummation of the transactions contemplated hereby and (B) the laws
and regulations referred to in the next sentence. Except as
disclosed in Section 2.2 of the Buyer Disclosure Schedule or, in
connection, or in compliance, with the provisions of the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), the Securities Act of 1933, as amended (the "Securities
Act"), the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the corporation, securities or blue sky laws or
regulations of the various states, no filing or registration with, or
authorization, consent or approval of, any
public body or authority is necessary for the consummation by
Buyer of the transactions contemplated by this Agreement, other
than filings, registrations, authorizations, consents or
approvals the failure of which to make or obtain would not
reasonably be expected to have a Buyer Material Adverse Effect or
prevent the consummation of the transactions contemplated hereby.
Section 2.3. Financing Arrangements. Buyer has funds
available to it sufficient to effect the transactions
contemplated by this Agreement.
Section 2.4. Investment Intent. Buyer is acquiring
the New Preferred Shares and the Warrant for investment for its
own (or an affiliate's) account, not as a nominee or agent and
not with a view to the distribution of any part thereof in
violation of law. Buyer has no present intention of selling,
granting any participation in, or otherwise distributing the
same.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Buyer as
follows:
Section 3.1. Organization and Qualification. The
Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has the
corporate power to carry on its business as it is now being
conducted and currently proposed to be conducted. The Company is
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<PAGE>
duly qualified as a foreign corporation to do business, and is in
good standing, in each jurisdiction where the character of its
properties owned or held under lease or the nature of its
activities makes such qualification necessary, except where the
failure to be so qualified would not reasonably be expected to
have a material adverse effect on the business, properties,
assets, condition (financial or otherwise), liabilities or
operations of the Company and its subsidiaries taken as a whole
(a "Company Material Adverse Effect"). Complete and correct
copies as of the date hereof of the Restated Certificate of
Incorporation and By-laws of the Company and each of its
subsidiaries have been delivered to Buyer or its representatives
as part of a disclosure schedule delivered by the Company to
Buyer on the date of this Agreement (the "Company Disclosure
Schedule").
Section 3.2. Capitalization. The authorized capital
stock of the Company consists of 40,000,000 shares of Company
Common Stock and 100,000 shares of preferred stock, no par value.
As of the date hereof, 21,276,074 shares of Company Common Stock
are validly issued and outstanding, fully paid and nonassessable
(which figure does not include shares issued upon exercise of
employee stock options granted after October 28, 1995), 208,800
shares of Company Common Stock are held in the Company's
treasury, 19,970 shares of preferred stock designated as Series A
Preferred Stock ("Company Preferred Stock") are outstanding, and
no shares of Company Preferred Stock are held in the Company's
treasury. As of October 28, 1995, employee stock options to
acquire up to 1,705,300 shares of Company Common Stock were
outstanding, and employee stock options to purchase 311,500
shares of Company Common Stock were issued from such date through
the date hereof. As of the date hereof, there are no bonds,
debentures, notes or other evidences of indebtedness having the
right to vote on any matters on which the Company's stockholders
may vote issued or outstanding. As of the date hereof, except
for (i) options to acquire up to 1,725,133 shares of Company
Common Stock issued to employees of the Company pursuant to the
Amended and Restated 1986 Employee Stock Option Plan of the
Company (the "Stock Option Plan") and (ii) 416,042 shares of
Company Common Stock issuable upon conversion of the Company
Preferred Stock, there are no options, warrants, calls or other
rights, agreements or commitments outstanding obligating the
Company to issue, deliver or sell shares of its capital stock or
debt securities, or obligating the Company to grant, extend or
enter into any such option, warrant, call or other such right,
agreement or commitment. Section 3.2 of the Company Disclosure
Schedule sets forth a complete and correct list of (a) all
agreements, offering memoranda, registration statements,
prospectuses or offering circulars concerning sales or attempted
sales of the Company's
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<PAGE>
securities (whether by the Company or by a substantial
stockholder) since January 1, 1992 and (b) all written proposals
concerning the acquisition or proposed acquisition of the
Company's securities since January 1, 1992. As of the date
hereof, the New Preferred Shares, including the Series B
Certificate of Designations, and the Warrant were duly authorized
by the Company's Board of Directors. On or prior to the Closing
Date, assuming approval of the Company Voting Matters (as defined
in Section 5.3 hereof) by holders of the Company Common Stock,
the Series B Certificate of Designations will have become
effective in accordance with the DGCL, and all of the New
Preferred Shares and all of the shares of Company Common Stock
issuable in payment of dividends in respect of or upon conversion
of the New Preferred Shares and upon exercise of the Warrant will
be, when so issued, duly authorized, validly issued, fully paid
and nonassessable and shall be delivered free and clear of all
liens, claims, charges and encumbrances of any kind or nature
whatsoever. The Company has duly reserved 3,250,000 shares of
Company Common Stock for issuance upon exercise of the Warrant
and 9,620,000 shares of Company Common Stock for issuance upon
conversion of the New Preferred Stock and upon payment of stock
dividends in respect thereof. The Company has not agreed to
register any securities under the Securities Act (other than
pursuant to the Registration Rights Agreement and the
Registration Rights Agreement, dated as of even date herewith,
between Richard A. Bernstein ("Bernstein") and certain of his
affiliates and the Company).
Section 3.3. Subsidiaries and Equity Investments.
(a) Section 3.3 of the Company Disclosure Schedule
sets forth (i) the name of each corporation that is a
"Significant Subsidiary" (as such term is defined in Rule 1-02 of
Regulation S-X of the Securities and Exchange Commission (the
"Commission") (such subsidiaries hereinafter referred to
collectively as "Subsidiaries" and individually as a
"Subsidiary", and collectively with the Company, the
"Companies")), (ii) the name of each corporation, partnership,
joint venture or other entity (other than the Subsidiaries) in
which any of the Companies has, or pursuant to any agreement has
the right or obligation to acquire at any time by any means,
directly or indirectly, an equity interest or investment; (iii)
in the case of each of such corporations described in clauses (i)
and (ii) above, (A) the jurisdiction of incorporation, (B) the
capitalization thereof and the percentage of each class of voting
capital stock owned by any of the Companies, (C) a description of
any contractual limitations on the holder's ability to vote or
alienate such securities, (D) a
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<PAGE>
description of any outstanding options or other rights to acquire
securities of such corporation, and (E) a description of any
other contractual charge or impediment which would materially
limit or impair any of the Companies' ownership of such entity or
interest or its ability effectively to exercise the full rights
of ownership of such entity or interest; and (iv) in the case of
each of such unincorporated entities, information substantially
equivalent to that provided pursuant to clause (iii) above with
regard to corporate entities.
(b) Each Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all requisite corporate
power and authority to own its properties and assets and to
conduct its business as now conducted. Each Subsidiary is duly
qualified to do business as a foreign corporation in every
jurisdiction in which the character of the properties owned or
leased by it or the nature of the business conducted by it makes
such qualification necessary, except where the failure to be so
qualified would not reasonably be expected to have a Company
Material Adverse Effect. All the outstanding shares of capital
stock of each Subsidiary have been duly authorized and validly
issued, are fully paid and non-assessable, and (except as
specified in Section 3.3 of the Company Disclosure Schedule) are
owned of record and beneficially, directly or indirectly, by the
Company, free and clear of any liens, claims, charges, security
interests or other legal or equitable encumbrances, limitations
or restrictions. There are no outstanding options, warrants,
agreements, conversion rights, preemptive rights or other rights
to subscribe for, purchase or otherwise acquire any issued or
unissued shares of capital stock of any Subsidiary. Except as
set forth in the Company's Annual Report on Form 10-K for the
fiscal year ended January 28, 1995 or as disclosed in Section 3.3
of the Company Disclosure Schedule, the Company does not own,
directly or indirectly, any interest in any other corporation,
partnership, joint venture or other business association or
entity.
Section 3.4. Authority Relative to this Agreement.
The Company has the corporate power to enter into this Agreement
and the Registration Rights Agreement and to issue the Warrant
and, subject to approval of the Company Voting Matters by holders
of the Company Common Stock, to carry out its obligations
hereunder and thereunder. The execution and delivery of this
Agreement, the Registration Rights Agreement and the Warrant and
the consummation of the transactions contemplated hereby and
thereby have been duly authorized by the Company's Board of
Directors. Each of this Agreement, the Registration Rights
Agreement (when executed) and the Warrant (when issued)
constitutes a valid and binding obligation of the Company
enforceable in accordance with its terms except as enforcement
may be limited by bankruptcy, insolvency or other similar laws
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<PAGE>
affecting the enforcement of creditors' rights generally and
except that the availability of equitable remedies, including
specific performance, is subject to the discretion of the court
before which any proceeding therefor may be brought. Except for
the approval of the holders of Company Common Stock described in
Section 5.3, no other proceedings on the part of the Company are
necessary to authorize this Agreement, the Registration Rights
Agreement and the Warrant and the transactions contemplated
hereby and thereby.
Except as set forth in Section 3.4 of the Company Disclosure
Schedule, neither the Company nor any subsidiary is subject to or
obligated under (i) any charter, by-law, indenture or other loan
document provision or (ii) any other contract, license,
franchise, permit, order, decree, concession, lease, instrument,
judgment, statute, law, ordinance, rule or regulation applicable
to the Company or any of its subsidiaries or their respective
properties or assets, that would be breached or violated, or
under which there would be a default (with or without notice or
lapse of time, or both), or under which there would arise a right
of termination, cancellation or acceleration of any obligation or
the loss of a material benefit, or a right to receive a severance
or other similar payment, by its executing and carrying out this
Agreement and the transactions contemplated herein, except, in
the case of clause (ii), where such breach, violation or default
would not reasonably be expected to have a Company Material
Adverse Effect. Except as disclosed in Section 3.4 of the
Company Disclosure Schedule or, in connection, or in compliance,
with the provisions of the HSR Act, the Securities Act, the
Exchange Act, and the corporation, securities or blue sky laws or
regulations of the various states, no filing or registration
with, or authorization, consent or approval of, any public body
or authority is necessary for the consummation by the Company of
the transactions contemplated hereby, except where the failure to
so file or register or to receive an authorization, consent or
approval would not reasonably be expected to have a Company
Material Adverse Effect.
Section 3.5. Reports and Financial Statements;
Undisclosed Liabilities.
(a) The Company has furnished Buyer with true and
complete copies of its (i) Annual Reports on Form 10-K for the
fiscal years ended January 29, 1994 and January 28, 1995, as
filed with the Commission, (ii) Quarterly Reports on Form 10-Q
for the quarters ended April 29, 1995, July 29, 1995 and October
28, 1995, as filed with the Commission, (iii) proxy statements
related to all meetings of its stockholders (whether annual or
special) held since January 1, 1993 and (iv) all other reports
filed with, or registration statements declared effective by, the
Commission since December 31, 1992, except registration
statements on Form S-8 relating to employee benefit plans, which
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are all the documents (other than preliminary material) that the
Company filed or was required to file with the Commission from
that date through the date hereof (clauses (i) through (iv) being
referred to herein collectively as the "Company SEC Reports").
From the date hereof through the Closing Date, the Company will
furnish to Buyer copies of any reports and registration
statements to be filed with the Commission (the "Interim SEC
Reports") within a reasonable amount of time prior to filing
thereof. As of the their respective dates, the Company SEC
Reports (or the Interim SEC Reports, as the case may be) complied
in all material respects with the requirements of the Securities
Act or the Exchange Act, as the case may be, and the rules and
regulations of the Commission thereunder applicable to such
reports and registration statements. As of their respective
dates, the Company SEC Reports (or the Interim SEC Reports, as
the case may be) did not contain any untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in
light of the circumstances under which they were, or will be,
made, not misleading. The audited consolidated financial
statements and unaudited interim financial statements of the
Company included in the Company SEC Reports (or the Interim SEC
Reports, as the case may be) comply as to form in all material
respects with applicable accounting requirements of the
Securities Act or the Exchange Act, as applicable, and with the
published rules and regulations of the Commission with respect
thereto. The financial statements and the condensed financial
statements, as applicable, included in the Company SEC Reports
(or in the Interim SEC Reports, as the case may be) (i) have been
prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a consistent basis (except as may
be indicated therein or in the notes thereto), (ii) present
fairly, in all material respects, the financial position of the
Company and its subsidiaries as at the dates thereof and the
results of their operations and cash flows for the periods then
ended subject, in the case of the unaudited interim financial
statements, to normal year-end audit adjustments and any other
adjustments described therein and the fact that certain
information and notes have been condensed or omitted in
accordance with the Exchange Act and the rules promulgated
thereunder, and (iii) are in all material respects in accordance
with the books and records of the Company.
(b) Except as set forth in Section 3.5(b) or Section
3.17 of the Company Disclosure Schedule and except for
indebtedness or liabilities that are reflected or reserved
against in the most recent financial statements included in the
Company SEC Reports or that have been incurred since October 28,
1995 in the ordinary course of business, the Company does not
have any liabilities, whether absolute, accrued, contingent or
otherwise.
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<PAGE>
Section 3.6. Absence of Certain Changes or Events.
Except as disclosed in the Company SEC Reports or as disclosed in
Section 3.6 of the Company Disclosure Schedule and except for the
transactions contemplated by this Agreement, since October 28,
1995, there has not been (i) any transaction, commitment, dispute
or other event or condition (financial or otherwise) of any
character (whether or not in the ordinary course of business)
individually or in the aggregate having, or which could
reasonably be expected to have, a Company Material Adverse Effect
(other than as a result of changes in laws or regulations of
general applicability), (ii) any damage, destruction or loss,
whether or not covered by insurance, which, individually or in
the aggregate, has had or, insofar as reasonably can be foreseen,
in the future would reasonably be expected to have, a Company
Material Adverse Effect, or (iii) any entry into any commitment
or transaction material to the Company and its subsidiaries taken
as a whole (including, without limitation, any borrowing or sale
or purchase of assets) except in the ordinary course of business
consistent with past practice.
Section 3.7. Litigation. Except as disclosed in the
Company's Annual Report on Form 10-K for the year ended January
28, 1995, or the Company's Quarterly Reports on Form 10-Q for the
quarters ended April 29, 1995, July 29, 1995 and October 28,
1995, or as disclosed in Section 3.7 of the Company Disclosure
Schedule, there is no claim, suit, action or proceeding pending
or, to the knowledge of the Company, threatened against or
affecting the Company or any subsidiary which, either alone or in
the aggregate, would reasonably be expected to have a Company
Material Adverse Effect, nor is there any judgment, decree,
injunction, rule or order of any court, governmental department,
commission, agency, instrumentality or arbitrator outstanding
against the Company or any subsidiary having, or which in the
future could reasonably be expected to have, either alone or in
the aggregate, any such Company Material Adverse Effect.
Section 3.8. Disclosure. None of the information with
respect to the Company or its subsidiaries to be included or
incorporated by reference in the proxy statement of the Company,
including any amendments or supplements thereto (collectively,
the "Company Proxy Statement"), to be mailed to the stockholders
of the Company in connection with the transactions contemplated
herein will, at the time of the mailing of the Company Proxy
Statement and at the time of the Company Meeting (as defined in
Section 5.3), contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading;
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<PAGE>
provided, however, that this provision shall not apply to
statements or omissions in the Company Proxy Statement based upon
information expressly furnished by or on behalf of Buyer for use
therein. The Company Proxy Statement will comply as to form in
all material respects with the provisions of the Exchange Act and
the rules and regulations thereunder. No representation or
warranty made by the Company contained in this Agreement and no
statement contained in any certificate, list, exhibit or other
instrument specified in this Agreement, including without
limitation the Company Disclosure Schedule, contains any untrue
statement of a material fact or omits or will omit to state a
material fact necessary to make the statements contained therein,
in light of the circumstances under which they were made,
not misleading, and no fact or circumstance exists or has
occurred which has, or in the future can reasonably be expected
to have, a Company Material Adverse Effect which has not been
disclosed in this Agreement, the Company Disclosure Schedule or
the Company SEC Reports. Prior to the date hereof, the Company
has provided or made available to Buyer or its representatives
complete and accurate copies of (i) all unredacted minutes of
meetings and written consents of the Board of Directors of the
Company and committees thereof since January 1, 1993 and (ii) all
documents and agreements, including any amendments, renewals or
modifications thereof, referenced in the Company Disclosure
Schedule.
Section 3.9. Employee Benefit Plans. (a) Except as
disclosed in the Company SEC Reports or as disclosed in Section
3.9(a) of the Company Disclosure Schedule, there are no material
employee benefit or compensation plans, agreements or
arrangements, including, but not limited to, "employee benefit
plans," as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and including,
but not limited to, plans, agreements or arrangements relating to
former employees, including, but not limited to, retiree medical
plans, maintained by the Company or any of its subsidiaries or to
which the Company or any of its subsidiaries has an obligation to
make contributions or material collective bargaining agreements
to which the Company or any of its subsidiaries is a party
(together, "Company Benefit Plans"). No default exists with
respect to the obligations of the Company or any of its
subsidiaries under any such Company Benefit Plan, which default,
either alone or in the aggregate, would reasonably be expected to
have a Company Material Adverse Effect. Since January 1, 1993,
there have been no disputes or grievances subject to any
grievance procedure, unfair labor practice proceedings,
arbitration or litigation under such Company Benefit Plans, that
have not been finally resolved, settled or otherwise disposed of,
nor is there any default, or any condition which, with notice or
lapse of time or both, would constitute such a default, under any
such Company
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<PAGE>
Benefit Plans, by the Company or its subsidiaries or, to the best
knowledge of the Company, any other party thereto, which failure
to resolve, settle or otherwise dispose of or default, either
alone or in the aggregate, would reasonably be expected have a
Company Material Adverse Effect. Since January 1, 1993 there
have been no strikes, lockouts or work stoppages or slowdowns, or
to the best knowledge of the Company and its subsidiaries,
jurisdictional disputes or organizing activity occurring or
threatened with respect to the business or operations of the
Company or its subsidiaries that, individually or in the
aggregate, have had or would reasonably be expected to have a
Company Material Adverse Effect.
(b) All of the approximately 175 employees of the
Company or its subsidiaries who, pursuant to letters distributed
in December 1993, were made beneficiaries of certain benefits
payable upon a "change of control" of the Company have
subsequently received letters in July 1994 effectively
terminating such benefits, and no such person has or will, or
could in the future, under any circumstances, become eligible for
such benefits. Section 3.9(b) of the Company Disclosure Schedule
sets forth in reasonable detail the amount of benefits that would
have been payable to such beneficiaries who are employed by the
Company or any of its subsidiaries on the date hereof pursuant to
such letters had all the requisite conditions therefor been
subsequently satisfied in December 1993 and assuming that such
benefits had never been revoked.
(c) The employment of John F. Moore ("Moore") with the
Company and its subsidiaries was terminated as of January 26,
1996. The terms of such termination are set forth in Section
3.9(c) of the Company Disclosure Schedule.
Section 3.10. ERISA. All Company Benefit Plans have
been administered in accordance with, and are in compliance with,
the applicable provisions of ERISA, the Internal Revenue Code of
1986, as amended (the "Code") and all other Laws, domestic or
foreign, except where such failures to administer or comply would
not reasonably be expected to have a Company Material Adverse
Effect. Except as disclosed in Section 3.10 of the Company
Disclosure Schedule, each of the Company Benefit Plans which is
intended to meet the requirements of Section 401(a) of the Code
has been determined, or, as described in Section 3.10 of the
Company Disclosure Schedule, is in the process of being
determined by the Internal Revenue Service to be "qualified,"
within the meaning of such section of the Code, and the Company
knows of no fact which is likely to have an adverse effect on the
qualified status of such plans, including any failure to request
a determination letter from the Internal Revenue Service
regarding any such plan's compliance with the applicable
requirements of the Tax Reform Act of 1986 within the Code
Section 401(b) remedial amendment period.
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None of the Company Benefit Plans which are defined
benefit pension plans have incurred any "accumulated funding
deficiency" (whether or not waived) as that term is defined in
Section 412 of the Code and, as disclosed in the Coopers &
Lybrand actuarial report dated April 7, 1995 delivered by the
Company to the Buyer prior to the date hereof, the fair market
value of the assets of each such plan equal or exceed the accrued
liabilities of such plan. To the best knowledge of the Company,
there are not now nor have there been any non-exempt "prohibited
transactions," as such term is defined in Section 4975 of the
Code or Section 406 of ERISA, involving the Company's Benefit
Plans which could subject the Company, its subsidiaries or Buyer
to the penalty or tax imposed under Section 502(i) of ERISA or
Section 4975 of the Code and which would reasonably be expected
to have a Company Material Adverse Effect. Except as set forth
in Section 3.10 of the Company Disclosure Schedule, no Company
Benefit Plan which is subject to Title IV of ERISA has been
completely or partially terminated; no proceedings to completely
or partially terminate any Company Benefit Plan have been
instituted by the Pension Benefit Guaranty Corporation under
Title IV of ERISA; and no reportable event within the meaning of
Section 4043(c) of ERISA has occurred with respect to any Company
Benefit Plan. Neither the Company nor any of its subsidiaries
has any outstanding liability under Section 4062, 4063 or 4064 of
ERISA with respect to any "single-employer plan", as defined in
Section 4001(a)(15) of ERISA, and, to the best knowledge of the
Company, no event has occurred which could reasonably be expected
to result in any such liability except for any such liability
which would not reasonably be expected to have a Company Material
Adverse Effect. Neither the Company nor any of its subsidiaries
has made a complete or partial withdrawal, within the meaning of
Section 4201 of ERISA, from any "multiemployer plan", as defined
in Section 4001(a)(3) of ERISA, which has resulted in, or is
reasonably expected to result in, any withdrawal liability to the
Company or any of its subsidiaries except for any such liability
which would not reasonably be expected to have a Company Material
Adverse Effect. Neither the Company nor any of its subsidiaries
has engaged in any transaction described in Section 4069 of ERISA
within the last five years except for any such transaction which
would not reasonably be expected to have a Company Material
Adverse Effect. The Company and its subsidiaries have complied
with all requirements of the Worker Adjustment and Retraining
Notification Act and any similar state or local "plant closing"
law with respect to the employees of the Company and its
subsidiaries, except for such failures to comply as would not
reasonably be expected to have a Company Material Adverse Effect.
Except as disclosed in Section 3.10 of the Company Disclosure
Schedule, neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby will
(i) result in any payment becoming due to any current, former or
retired employee of the Company and its subsidiaries, (ii)
increase any benefits otherwise payable under any Company Benefit
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Plan or (iii) result in the acceleration of the time for payment
or vesting of any benefits under any Company Benefit Plan.
Section 3.11. Compliance with Applicable Laws. Except
as disclosed in the Company SEC Reports filed prior to the date
of this Agreement or in Section 3.11 of the Company Disclosure
Schedule, the businesses of the Company and its subsidiaries are
not being conducted in violation of any law, ordinance,
regulation, order or writ of any governmental or regulatory
authority, domestic or foreign ("Governmental Entity"), except
for possible violations that individually or in the aggregate do
not and would not reasonably be expected to have a Company
Material Adverse Effect. Neither the Company nor any of its
subsidiaries has received notice of violation of any law,
ordinance, regulation, order or writ, or is in default with
respect to any order, writ, judgment, award, injunction or decree
of any Governmental Entity, that would affect any of their
respective assets, properties or operations, except for such
violations or defaults as would not, individually or in the
aggregate, reasonably be expected to have a Company Material
Adverse Effect. Except as disclosed in Section 3.11 of the
Company Disclosure Schedule, no investigation or review by any
Governmental Entity with respect to the Company or any of its
subsidiaries (a) is pending, nor (b) to the knowledge of the
Company, (i) is threatened nor (ii) has any Governmental Entity
indicated an intention to conduct the same, other than those the
outcome of which would not reasonably be expected to have a
Company Material Adverse Effect. Section 3.11 of the Company
Disclosure Schedule sets forth a complete and correct list as of
the date hereof of all material filings and correspondence with,
reports to, and transcripts of any significant proceedings
(including dates thereof) before, any Governmental Entity since
January 1, 1993.
Section 3.12. Taxes.
(a) Each of the Company and the subsidiaries of which
it owns 50% or more of the capital stock (the "Tax Subsidiaries")
has filed all tax returns required to be filed by any of them and
has paid (or the Company has paid on its behalf), or has set up
an adequate reserve for the payment of, all taxes required to be
paid in respect of the periods covered by such returns, except
where the failure to pay would not reasonably be expected to have
a Company Material Adverse Effect. The information contained in
such tax returns is true, complete and accurate in all material
respects, except where a failure to be so would not reasonably be
expected to have a Company Material Adverse Effect. Except as
disclosed in Section 3.12 of the Company Disclosure Schedule,
neither the Company nor any Tax Subsidiary is delinquent in the
payment of
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any assessed tax or other assessed governmental charge, except
where such delinquency would not reasonably be expected to have a
Company Material Adverse Effect. Except as disclosed in Section
3.12 of the Company Disclosure Schedule, no deficiencies for any
taxes have been proposed, asserted or assessed against the
Company or any of its Tax Subsidiaries that have not been finally
settled or paid in full, which would reasonably be expected to
have a Company Material Adverse Effect, and no requests for
waivers of the time to assess any such tax are pending.
(b) Neither the Company nor any of its subsidiaries is
a party to any contract or arrangement which would result in an
"excess parachute payment" within the meaning of Section 280G of
the Code as a consequence of the transactions contemplated
hereby, assuming for this purpose satisfaction of the
requirements of Section 280(G)(b)(2)(A)(i) of the Code.
Section 3.13. Certain Agreements. Neither the Company
nor any of its subsidiaries is in default (or would be in default
with notice or lapse of time, or both) under, is in violation (or
would be in violation with notice or lapse of time, or both) of,
or has otherwise breached, any indenture, note, credit agreement,
loan document, lease, license or other agreement, including,
without limitation, any Significant Agreement (as defined below),
whether or not such default has been waived, which default, alone
or in the aggregate with all other such defaults, would
reasonably be expected to have a Company Material Adverse Effect.
Section 3.13(a) of the Company Disclosure Schedule contains a
complete and correct list as of the date hereof of each
agreement, contract and commitment of the following types,
written or oral, to which the Company or its subsidiaries is a
party or by which they or any of their assets are bound: (a)
mortgages, indentures, security agreements, guarantees, pledges
and other agreements and instruments relating to the borrowing of
money or extension of credit; (b) employment, severance and
material consulting agreements; (c) licenses of patent, trademark
and other rights relating to any Intellectual Property (as
defined below) and any other licenses, permits and authorizations
relating to the businesses of the Company and its subsidiaries
(whether as licensor or licensee) that involve by their terms a
per annum payment in excess of $100,000 or resulted in a payment
obligation in excess of $100,000 in the calendar year ended
December 31, 1995; (d) joint venture or partnership contract or
agreement; and (e) consignment sales contracts and franchise
agreements (whether as franchisor or franchisee) granting the
franchisee the privilege to sell the franchisor's products or
services in a specified geographic area ((a) through (e)
collectively, "Significant Agreements"). Prior to the date
hereof, the Company has delivered or made available to Buyer or
its representatives complete and correct copies of all written
Significant Agreements together will all amendments thereto, and
accurate descriptions
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of all oral Significant Agreements. Each Significant Agreement
is in full force and effect and is binding upon the Company and,
to the Company's knowledge, is binding upon such other parties,
in each case in accordance with its terms. There are no material
unresolved disputes involving the Company or any of its
subsidiaries under any Significant Agreement.
Section 3.14. Takeover Provisions Inapplicable. As of
the date hereof and at all times on or prior to the Closing Date,
Section 203 of the DGCL is, and shall be, inapplicable to the
transactions contemplated by this Agreement (including the
granting of an irrevocable proxy by Bernstein to Buyer). Section
3.14 of the Company Disclosure Schedule sets forth a complete and
correct copy of the resolutions of the Board of Directors of the
Company to the effect that such section of the DGCL is, and shall
be, inapplicable to the transactions contemplated by this
Agreement.
Section 3.15. Company Action. The Board of Directors
of the Company (at a meeting duly called and held) has by
unanimous vote of the directors (i) determined that the
transactions that are the subject of the Company Voting Matters
(as defined in Section 5.3 hereof) are advisable and in the best
interests of the Company and its stockholders, (ii) recommended
the approval of this Agreement, the transactions that are the
subject of the Company Voting Matters and the other matters to be
voted upon at the Company Meeting as contemplated hereby by the
holders of the Company Common Stock and directed that the
transactions that are the subject of the Company Voting Matters
and the other matters to be voted upon at the Company Meeting as
contemplated hereby be submitted for consideration by the
Company's stockholders at the Company Meeting, and (iii) adopted
a resolution having the effect of causing the Company not to be
subject, to the extent permitted by applicable law, to any state
takeover law that may purport to be applicable to the
transactions contemplated by this Agreement.
Section 3.16. Fairness Opinions. The Company has
received, and has furnished the Buyer with a complete and correct
copy of, the written opinion of each of Bear, Stearns & Co. Inc.
("Bear Stearns") and Jefferies & Company, Inc. ("Jefferies"), the
financial advisors to the Company, dated the date hereof, to the
effect that the consideration to be received by the Company for
the New Preferred Shares and the Warrant is fair to the Company
from a financial point of view, and such opinions have not been
withdrawn or otherwise modified.
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Section 3.17. Financial Advisors; Expenses.
(a) Except for Bear Stearns and Jefferies, a complete
and correct copy of the engagement letter between each of whom
and the Company has been furnished to Buyer, no broker, finder or
investment banker is entitled to any brokerage, finder's or other
fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or
on behalf of the Company.
(b) The fees, costs and expenses (including without
limitation, all attorneys' and accountants' fees and expenses but
excluding the fees, costs and expenses incurred by Buyer and its
affiliates) incurred through the date hereof by each of the
Company and its subsidiaries, any committees of the Company's
Board of Directors and Bernstein in connection with the
transactions contemplated hereby, including, without limitation,
all severance and related costs, consulting fees, payments made
for non-compete agreements and all fees and commissions
(including expenses) payable to Bear Stearns and Jefferies, as
well as a good faith projection of all such fees, costs and
expenses that will be incurred by each such party from the date
hereof through the Closing Date, are set forth in reasonable
detail on Section 3.17 of the Company Disclosure Schedule.
Section 3.18. Title to Property. Except as set forth
on Section 3.18 of the Company Disclosure Schedule, the Company
and its subsidiaries have good, marketable and unencumbered
title, or valid leasehold rights in the case of leased property,
to all real property and all personal property purported to be
owned or leased by them or that is required for the conduct of
the businesses of the Company or its subsidiaries as presently
conducted, free and clear of all liens, security interests,
claims, encumbrances and charges, excluding (i) liens for fees,
taxes, levies, duties or governmental charges of any kind that
are not yet delinquent or are being contested in good faith by
appropriate proceedings which suspend the collection thereof,
(ii) liens for mechanics, materialmen, laborers, employees,
suppliers or other liens arising by operation of law for sums
which are not yet delinquent or are being contested in good faith
by appropriate proceedings, (iii) easements and similar
encumbrances ordinarily created for fuller utilization and
enjoyment of property, and (iv) liens or defects in title or
leasehold rights that, in the aggregate, do not and would not
reasonably be expected to have a Company Material Adverse Effect.
Section 3.19. Intellectual Property. The Companies
own or possess adequate licenses or other valid rights to use all
patents, patent rights, copyrights, service marks, service mark
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rights, trademarks, trademark rights, trade names, trade name
rights, proprietary characters and products (or any likeness or
other attribute thereof) and proprietary information used or held
for use in connection with the businesses of the Company and its
subsidiaries (collectively, the "Intellectual Property") as
currently being conducted and are unaware of any assertions or
claims challenging the validity of any of the foregoing that,
individually or in the aggregate, would reasonably be expected to
have a Company Material Adverse Effect; and the conduct of the
businesses of the Company and its subsidiaries as now conducted
or now proposed to be conducted by the Company does not and will
not conflict with any patents, patent rights, copyrights, service
marks, service mark rights, licenses, trademarks, trademark
rights, trade names, trade name rights or copyrights of others in
any way that would reasonably be expected to have a Company
Material Adverse Effect. No known existing infringement of any
proprietary right owned by or licensed by or to the Company and
its subsidiaries would reasonably be expected to have a Company
Material Adverse Effect. Other than as set forth in the Company
SEC Reports or Section 3.19 of the Company Disclosure Schedule,
neither the Company nor any of its subsidiaries, since January 1,
1993, has transferred, assigned, hypothecated or otherwise
disposed of any rights to use, produce, market or in any way
exploit through any electronic medium (including computer
software) any Intellectual Property. Except as set forth in
Section 3.19 of the Company Disclosure Schedule, neither the
Company nor any of its subsidiaries, orally or in writing, has
assigned, transferred, hypothecated or otherwise disposed of (or
agreed to do any of the foregoing) any of its rights with respect
to any Intellectual Property to any affiliates of the Company, or
any officers, directors or affiliates of any officers or
directors of the Company, except to wholly owned subsidiaries of
the Company or the Company.
Section 3.20. Licenses, Permits and Authorizations.
No license, permit or authorization that is currently held by the
Company or any of its subsidiaries with respect to the businesses
of the Company and its subsidiaries, or which is required for the
conduct of the businesses of the Company or its subsidiaries as
presently conducted, is subject to any restriction or condition
that limits in any material respect the businesses of the Company
and its subsidiaries as presently conducted, and there are no
applications by the Company or any of its subsidiaries with
respect to any material aspect of the businesses of the Company
or its subsidiaries, or complaints by other persons or entities
pending or threatened as of the date hereof before any
Governmental Entity relating to any material licenses, permits or
authorizations applicable to the businesses of the Company or its
subsidiaries, where such complaints have or would reasonably be
expected to have a Company Material Adverse Effect. The Company
has provided the Buyer or its representatives with copies of all
material licenses, permits, and authorizations
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that are currently held by the Company or any of its
subsidiaries. Except as set forth on Section 3.20 of the Company
Disclosure Schedule, no consents or approvals of a Governmental
Entity are necessary for the material licenses, permits and
authorizations of the Companies to continue in full force and
effect following consummation of the transactions contemplated by
this Agreement.
Section 3.21. Insurance. The insurance policies in
force at the date hereof, with respect to the assets, properties
or operations of each of the Company and its subsidiaries are in
full force and effect with reputable insurers in such amounts and
insure against such losses and risks (including product
liability) as are consistent with historical practices and
customary to protect the properties and businesses of the Company
and its subsidiaries.
Section 3.22. Environment.
(a) As used herein, the term "Environmental Laws"
means all federal, state, local or foreign laws relating to
pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges,
releases or threatened releases of chemicals, pollutants,
contaminants, or industrial, toxic or hazardous substances or
wastes into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of chemicals, pollutants,
contaminants, or industrial, toxic or hazardous substances or
wastes, as well as all authorizations, codes, decrees, demands or
demand letters, injunctions, judgments, licenses, notices or
notice letters, orders, permits, plans or regulations issued,
entered, promulgated or approved thereunder.
(b) Except as disclosed on Section 3.22 of the Company
Disclosure Schedule or in the Company SEC Reports, there are,
with respect to the Company and its subsidiaries, and all real
property currently or formerly owned, leased, or otherwise used
by the Company or its subsidiaries, no past or present violations
of Environmental Laws, releases of any material into the
environment, actions, activities, circumstances, conditions,
events, incidents, or contractual obligations which may give rise
to any common law or other legal liability, including, without
limitation, liability under the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980 ("CERCLA") or
similar state or local laws, which liabilities, either
individually or in the aggregate, would have a Company Material
Adverse Effect. Except as disclosed on Schedule 3.22 hereto or
in the Company SEC Reports, to the
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knowledge of the Company, there have been and are no (i)
polychlorinated biphenyls, (ii) underground storage tanks, or
(iii) asbestos-containing materials located on, under, or in any
portion of real property currently or formerly owned, leased, or
otherwise used by the Company or its subsidiaries.
(c) The Company has provided to Buyer all
environmental studies and reports pertaining to the previous and
current real property and the improvements thereon of the Company
and its subsidiaries that they are aware of, have commissioned or
have in their possession. To the knowledge of the Company and
its subsidiaries, the information furnished by the Company to
Willkie Farr & Gallagher under cover of a letter dated December
14, 1995 is true and correct in all material respects, and there
is no environmental condition or noncompliance that has resulted
in, or would reasonably be expected to result in, a Company
Material Adverse Effect.
Section 3.23. Related Party Transactions. Section
3.23(a) of the Company Disclosure Schedule and the Company SEC
Reports together set forth the transactions and agreements
(whether oral or written) during the past five years between the
Company and its subsidiaries on the one hand, and (i) any
employee, officer or director of the Companies, (ii) a record or
beneficial owner of five percent (5%) or more of Company Common
Stock, or (iii) any affiliate of any such employee, officer,
director or beneficial owner, on the other hand, other than
payment of employee compensation. Except as disclosed in the
Company SEC Reports or in Section 3.23(a) of the Company
Disclosure Schedule, during the past three years no employee,
officer or director of the Companies, or any spouse or relative
of any of such persons, has been a director or officer of, or has
had any direct or indirect interest in, any firm, corporation,
association or business enterprise which during such period has
been a supplier, customer, sales agent, or licensor or licensee
of real or personal property or Intellectual Property, of the
Company or any of its subsidiaries or has competed with or been
engaged in any business of the kind being conducted by the
businesses of the Company and its subsidiaries.
Section 3.24. No Company Material Adverse Effect.
Except as disclosed in the Company SEC Reports filed prior to the
date hereof or in Section 3.24 or any other Section of the
Company Disclosure Schedule, there does not exist any fact or
circumstance which, alone or together with another fact or
circumstance, would reasonably be expected to result in a Company
Material Adverse Effect.
ARTICLE IV.
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CONDUCT OF BUSINESS PENDING THE SALE AND PURCHASE
Section 4.1. Conduct of Business by the Company. From
the date hereof through the Closing Date, unless either Buyer or
Richard E. Snyder ("Snyder") shall otherwise agree in writing:
(i) the Company shall, and shall cause its subsidiaries to,
carry on their respective businesses in the usual, regular and
ordinary course in substantially the same manner as heretofore
conducted, and shall, and shall cause its subsidiaries to, use
their best efforts to preserve intact their present business
organizations, keep available the services of their present
officers and employees and preserve their relationships with
customers, suppliers and others having business dealings with
them to the end that their goodwill and on-going businesses shall
be unimpaired on the Closing Date, except such impairment as
would not reasonably be expected to have a Company Material
Adverse Effect. The Company shall, and shall cause its
subsidiaries to, (A) maintain insurance coverages and its books
and records in a manner consistent with prior practices, (B)
comply in all material respects with all laws, ordinances and
regulations of Governmental Entities applicable to the Company
and its subsidiaries, (C) maintain and keep its properties and
equipment in good repair, working order and condition, ordinary
wear and tear excepted, and (D) perform in all material respects
its obligations under all contracts and commitments to which it
is a party or by which it is bound, except in each case where the
failure to so maintain, comply or perform, either individually or
in the aggregate, would not reasonably be expected to result in a
Company Material Adverse Effect;
(ii) the Company shall not, nor shall it propose to,
except as required by this Agreement, (A) sell or pledge or
agree to sell or pledge any capital stock owned by it in any
of its subsidiaries, (B) amend its Certificate of
Incorporation or By-laws, (C) split, combine or reclassify
its outstanding capital stock or issue or authorize or
propose the issuance of any other securities in respect of,
in lieu of or in substitution for shares of the capital
stock, or, except as contemplated by this Agreement,
declare, set aside or pay any dividend or other distribution
payable in cash, stock or property (other than dividends
payable on the Company Preferred Stock, to the extent
otherwise permitted), or (D) directly or indirectly redeem,
purchase or otherwise acquire or agree to redeem, purchase
or otherwise acquire any shares of its capital stock, except
as contemplated by this Agreement or except pursuant to (x)
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<PAGE>
the exercise of rights granted to such party to repurchase
shares of its capital stock from employees upon termination
of employment or (y) contractual obligations arising under
agreements existing on the date hereof and disclosed in the
Company Disclosure Schedule;
(iii) the Company shall not, nor shall it permit any
of its subsidiaries to, (A) except as required by this
Agreement, issue, deliver or sell or agree to issue, deliver
or sell any additional shares of, or stock appreciation
rights or rights of any kind to acquire any shares of, its
capital stock of any class, or any option, rights or
warrants to acquire, or securities convertible into, shares
of capital stock other than (x) issuances of Company Common
Stock pursuant to the exercise of warrants or stock options
outstanding on the date hereof and disclosed on Section
4.1(iii) of the Company Disclosure Schedule, or (y) the
grant of employee stock options and the issuance of Company
Common Stock upon exercise thereof, at fair market value at
the time of grant of the options, in each case in the
ordinary course of business and consistent with past
practice, to employees (other than Richard A. Bernstein,
James A. Cohen, Ilan K. Reich, Steven M. Grossman and Ira A.
Gomberg (collectively, the "Excluded Employees")), provided
that such employees are not affiliates or immediate family
members of Excluded Employees, and provided further that the
sum of the number of shares of Company Common Stock issuable
upon exercise of all employee stock options outstanding on
the date hereof and the aggregate number of such options
granted pursuant to this clause (y) shall not exceed the sum
of 1,874,300 and such number of options outstanding on the
date hereof that expire or are canceled (but not exercised)
after the date hereof, (B) except for the sale of the
facility located in Fayetteville, North Carolina, acquire,
lease or dispose or agree to acquire, lease or dispose of
any capital assets or any other assets other than in the
ordinary course of business, (C) incur additional
indebtedness or encumber or grant a security interest in any
asset or enter into any transaction other than in the
ordinary course of business, (D) incur any liability or
obligation, or contribute any asset, to a subsidiary of the
Company other than in the ordinary course of business, (E)
acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial equity interest in, or
by any other manner, any business or any corporation,
partnership, association or other business organization or
division thereof, in each case in this clause (E) which are
material, individually or in the aggregate, to the Company
and its subsidiaries taken as a whole, or (F) adopt, enter
into, amend or terminate any contract, agreement, commitment
or arrangement with respect to any of the foregoing that is
not otherwise permitted by the exceptions applicable to the
foregoing;
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(iv) the Company shall not, nor shall it permit any of
its subsidiaries to, except as required to comply with
applicable law, (A) except as set forth in Section 4.1(iv)
of the Company Disclosure Schedule, adopt, enter into,
terminate or amend any bonus, profit sharing, compensation,
severance, termination, stock option, pension, retirement,
deferred compensation, employment or other Company Benefit
Plan agreement, trust, fund or other arrangement for the
benefit or welfare of any director, officer or current or
former employee, (B) increase in any manner the compensation
or fringe benefits of any director, officer or employee
(except for normal increases in the ordinary course of
business that are consistent with past practice and that, in
the aggregate, do not result in a material increase in
benefits or compensation expense to such party and its
subsidiaries relative to the level in effect prior to such
increase), (C) pay any benefit not provided under any
Company Benefit Plan disclosed to Buyer in Section 3.9(a) of
the Company Disclosure Schedule or any employee benefit or
compensation plan or agreement of the Company or any of its
subsidiaries which, by its terms, is not required to be
disclosed therein, in each case, that is in existence on the
date hereof, provided that the aggregate amount of bonuses
under the Company's Management Incentive Plan, which is the
only bonus plan for the Excluded Employees, paid pursuant to
this clause (C) to Excluded Employees shall not exceed
$375,000, (D) except for benefits that have already been
earned or vested without acceleration, grant any awards or
make any payments under any bonus, incentive, performance or
other compensation plan or arrangement or Company Benefit
Plan (including, without limitation, the grant of stock
options, stock appreciation rights, stock based or stock
related awards, performance units or restricted stock, or
the removal of existing restrictions in any benefit plans or
agreements or awards made thereunder), except for (x) making
of matching and annual contributions to 401(k) plans and (y)
the grant of employee stock options (and the issuance of
Company Common Stock upon exercise thereof), at fair market
value at the time of grant of the options, to employees
(other than Excluded Employees), provided that such
employees are not affiliates or immediate family members of
Excluded Employees, and provided further that the sum of the
number of shares of Company Common Stock issuable upon
exercise of all employee stock options outstanding on the
date hereof and the aggregate number of such options granted
pursuant to this clause (y) shall not exceed the sum of
1,874,300 and such number of options outstanding on the date
hereof that expire or are canceled (but not exercised) after
the date hereof, in the case of each of clause (x) and (y),
in the ordinary course of business and consistent with past
practice, (E) take any action to fund or in any other way
secure the payment of compensation or benefits under any
employee plan, agreement, contract or arrangement or Company
Benefit Plan, other than in the ordinary course of business
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consistent with past practice, or (F) adopt, enter into,
amend or terminate any contract, agreement, commitment or
arrangement to do any of the foregoing that is not otherwise
permitted by the exceptions applicable to the foregoing;
(v) the Company shall not, nor shall it permit any of
its subsidiaries to, make any investments in non-investment
grade securities;
(vi) the Company shall not, nor shall it permit its
subsidiaries to make any change in its accounting policies
or procedures except as required under statutory accounting
practices or GAAP, as applicable;
(vii) the Company shall use its best reasonable efforts
to refrain from taking, nor shall it permit any of its
subsidiaries to take, any action that would, or reasonably
might be expected to, result in any of its representations
and warranties set forth in this Agreement being or becoming
untrue in any material respect, or in any of the conditions
set forth in Article VI not being satisfied, or (unless such
action is required by applicable law) which would adversely
affect the ability of the Company to obtain any of the
regulatory approvals required to consummate the transactions
contemplated hereby;
(viii) the Company shall use its best efforts to
maintain in full force and effect each of the Significant
Agreements;
(ix) the Company shall not terminate or materially
modify the employment arrangements of Snyder, including the
employment agreement, dated as of even date herewith,
between the Company and Snyder, other than for cause (as
defined in the 1/31/96 draft of the employment agreement to
be entered into between the Company and Snyder on the
Closing Date); and
(x) the Company shall not enter into any agreement to
perform any of the actions prohibited under this Section 4.1
and not otherwise permitted by the exceptions contained
therein.
Section 4.2. Notice of Breach. Each party shall
promptly give written notice to the other party upon becoming
aware of the occurrence or, to its knowledge, impending or
threatened occurrence, of any event which would cause any of its
representations or warranties to be untrue on the Closing Date or
cause a material breach of any covenant contained or referenced
in this Agreement and will use its best reasonable efforts to
prevent or promptly remedy the same. Any such notification shall
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not be deemed an amendment of the Company Disclosure Schedule or
the Buyer Disclosure Schedule.
ARTICLE V.
ADDITIONAL AGREEMENTS
Section 5.1. Access and Information. The Company and
its subsidiaries shall afford to Buyer and to Buyer's
accountants, counsel and other representatives full access during
normal business hours (and at such other times as the parties may
mutually agree) throughout the period prior to the Closing to all
of its properties, books, contracts, commitments, records and
personnel and, during such period, the Company shall furnish
promptly to Buyer a copy of (i) each report, schedule and other
document filed or received by it pursuant to the requirements of
federal or state securities laws, and (ii) monthly financial
statements and all other information concerning its business,
properties and personnel as the Buyer or its representatives may
reasonably request. Buyer shall hold, and shall cause its
employees and agents to hold, in confidence all such information
in accordance with the terms of the Confidentiality Agreement,
dated May 19, 1995, between Buyer, Snyder and the Company (the
"Confidentiality Agreement").
Section 5.2. Company Proxy Statement.
(a) As promptly as practicable after the execution of
this Agreement, the Company shall prepare and file with the
Commission preliminary proxy materials which shall constitute the
preliminary Company Proxy Statement. Buyer shall furnish to the
Company such information regarding Buyer as the Company may
reasonably request in writing and as shall be reasonably required
in connection with preparation of the Company Proxy Statement.
As promptly as practicable after comments are received from the
Commission with respect to such preliminary materials and after
the furnishing by the Company of all information required to be
contained therein, the Company shall file with the Commission the
definitive Company Proxy Statement.
The Company shall mail the foregoing to its stockholders as
promptly as practicable after clearance by the Commission. The
Company shall provide Buyer for its review a copy of the
preliminary and the final Company Proxy Statement at least such
amount of time prior to its filing and mailing as is customary in
transactions of the type contemplated hereby and shall not file
or mail such Company Proxy Statement without the
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prior written consent of Buyer, which consent shall not be
unreasonably withheld or delayed.
(b) The Company shall retain the services of a proxy
soliciting firm mutually acceptable to Buyer and the Company for
the purpose of communicating to the Company's stockholders the
recommendation of the Company's Board of Directors in favor of
the transactions contemplated hereby and of seeking to obtain
sufficient votes to satisfy the requirements of Section 5.3 and
of applicable law for the completion of the transactions
contemplated hereby.
(c) Buyer and the Company shall make all necessary
filings applicable to it with respect to the transactions
contemplated hereby under the Securities Act and the Exchange Act
and the rules and regulations thereunder and under applicable
Blue Sky or similar securities laws and shall use its best
reasonable efforts to obtain required approvals and clearances
with respect thereto.
Section 5.3. Stockholders' Meeting. The Company shall
take all action necessary, in accordance with applicable law,
including the rules and regulations of the National Association
of Securities Dealers, Inc., and the Company's Certificate of
Incorporation and By-laws, to convene a meeting of the holders of
Company Common Stock (the "Company Meeting") as promptly as
practicable for the purpose of considering and taking action to
authorize this Agreement and the transactions contemplated
hereby, including the transactions contemplated by Section 6.1(d)
hereof and (subject to the consummation of the transactions
contemplated hereby) the election as directors of the Company of
the individuals set forth on Schedule 5.9 hereof (collectively,
the "Company Voting Matters"), as well as amendments to the
Restated Certificate of Incorporation of the Company changing the
name of the Company to "Golden Press, Inc." and increasing the
authorized number of shares of Company Common Stock from
40,000,000 to 50,000,000 and the authorized number of shares of
preferred stock from 100,000 to 200,000. Subject to its
fiduciary duties as advised by outside counsel in connection with
the receipt by the Company of a Business Combination Proposal (as
defined in Section 5.6) that the Board of Directors of the
Company reasonably believes is likely to result in a Superior
Proposal (as defined in Section 5.6), the Board of Directors of
the Company will recommend that holders of Company Common Stock
vote in favor of and approve the Company Voting Matters and the
other matters described above at the Company Meeting. At the
Company Meeting, all of the shares of Company Common Stock then
owned by Buyer, each member thereof, any affiliates of any member
(other than of Warburg, Pincus Ventures, L.P. ("WPV")) and the
general partnership that acts as a general partner
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of WPV, or with respect to which such persons or entities hold
the power to direct the voting, will be voted in favor of the
Company Voting Matters and the other matters described above.
Prior to Closing, the Company shall take all actions necessary to
permit the change of the name of the Company as contemplated
above, including changing the name of any subsidiary of the
Company that presently has the desired name and reserving the
desired name with the Secretary of State of the State of
Delaware.
Section 5.4. HSR Act. The Company and Buyer shall use
their reasonable best efforts to file as soon as practicable
notifications under the HSR Act in connection with the
transactions contemplated hereby, and to respond as promptly as
practicable to any inquiries received from the Federal Trade
Commission and the Antitrust Division of the Department of
Justice for additional information or documentation and to
respond as promptly as practicable to all inquiries and requests
received from any State Attorney General or other governmental
authority in connection with antitrust matters relating to the
transactions contemplated by this Agreement.
Section 5.5. Additional Agreements.
(a) Subject to the terms and conditions herein
provided, each of the parties hereto agrees to cooperate with
each other and use its best reasonable efforts to take, or cause
to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions
contemplated by this Agreement, including using its best
reasonable efforts to obtain all necessary waivers, consents and
approvals, and to effect all necessary registrations and filings
(including, but not limited to, filings under the HSR Act and
with all applicable Governmental Entities).
(b) In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes of
this Agreement, Buyer and the Company shall take all such
necessary action.
Section 5.6. No Solicitation.
(a) Except as contemplated by this Agreement, the
Company shall not, nor shall any of its subsidiaries, directly or
indirectly, take (nor shall the Company authorize or permit its
subsidiaries, officers, directors, employees, representatives,
investment bankers, attorneys, accountants or other agents or
affiliates, to take) any action to (i) solicit or initiate the
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submission of any Business Combination Proposal (as defined
below), (ii) enter into any agreement with respect to any
Business Combination Proposal or (iii) participate in any way in
discussions or negotiations with, or furnish any information to,
any person or entity in connection with, or take any other action
to facilitate any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any
Business Combination Proposal; provided, however, that (A) the
Company may participate in discussions or negotiations with or
furnish information to any Third Party (as defined in Section
8.3(b)) which makes an unsolicited proposal of a transaction
which the Board of Directors of the Company reasonably believes
is likely to result in a Superior Proposal (as defined below) and
(B) the Company may recommend to its shareholders a Business
Combination Proposal which it has reasonably determined is likely
to result in a Superior Proposal. For purposes of this
Agreement, "Business Combination Proposal" shall mean, with
respect to the Company, any tender or exchange offer, proposal
for a merger, consolidation or other series of related
transactions in a business combination involving the Company or
any Subsidiary of the Company or any other proposal or offer to
enter into a Third Party Business Combination (as defined in
Section 8.3(b)), and "Superior Proposal" shall mean, with respect
to the Company, any Business Combination Proposal pursuant to
which a Third Party would, or would have the right to, acquire
more than 25% of the outstanding voting capital stock of the
Company and which the Board of Directors of the Company
reasonably determines, based upon advice of its financial
advisors, is financially superior than the transactions
contemplated hereby and is likely to be consummated.
(b) In addition to the obligations of the Company set
forth in Section 5.6(a), the Company shall promptly advise Buyer
of any request for information or of any Business Combination
Proposal, or any inquiry with respect to or which appears to be
intended to or could reasonably be expected to lead to any
Business Combination Proposal, the material terms and conditions
of such request, Business Combination Proposal or inquiry, and
the identity of the person or entity making any such request,
Business Combination Proposal or inquiry. The Company shall keep
Buyer fully informed of the status and details of any such
request, Business Combination Proposal or inquiry and shall
promptly furnish Buyer a copy of any written proposal in
connection therewith.
Section 5.7. Transfer Restriction. Until the earlier
to occur of (i) the second anniversary of the issuance of the
Warrant and (ii) the date on which a bona fide Business
Combination Proposal is publicly announced or a proxy
solicitation for control of the Company's Board of Directors is
initiated by any person or entity (other than Buyer, each member
thereof, any affiliates of such
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members (other than of WPV) and the general partnership that acts
as a general partner of WPV), Buyer shall not sell, transfer or
assign the Warrant other than to any members of Buyer or to any
affiliate of Buyer or such members.
Section 5.8. Director and Officer Indemnification and
Insurance. From the date hereof through the third anniversary of
the Closing Date and for so long as any claim asserted prior to
such date has not been fully adjudicated by a court of competent
jurisdiction, the Company (i) shall at all times maintain
liability insurance coverage with respect to each of the
Company's and its subsidiaries' respective current and former
directors and officers and persons serving in a fiduciary
capacity at the direction of the board of directors or of any
officer of the Company or any of its subsidiaries (at least to
the extent covered by the current Company liability insurance
policies), insuring each such individual against liability for
their actions in such capacities occurring prior to the Closing
and in scope of coverage and in amounts and having deductibles at
least equivalent to that maintained by the Company on the date
hereof and otherwise reasonably comparable to the coverage
maintained by the Company on the date hereof and (ii) shall not
amend or modify any of the provisions of Article Eight of the
Company's Restated Certificate of Incorporation or Article 6 of
the Company's By-laws in any manner that would adversely affect
such individuals, unless required by law.
Section 5.9. Board of Directors. The individuals set
forth on Schedule 5.9 hereto (the "Continuing Directors"),
subject to their election at the Company Meeting by the holders
of Company Common Stock as contemplated by Section 5.3 and to the
applicable provisions of the Restated Certificate of
Incorporation and By-laws of the Company, shall be the directors
of the Company until their respective successors shall be duly
elected or appointed and qualified. A majority of the Continuing
Directors set forth on Schedule 5.9 shall be designated by Buyer
(the "Designated Directors"). Schedule 5.9 will be provided
subsequent to the date hereof but prior to the filing of the
preliminary Company Proxy Statement, and the Designated Directors
set forth thereon shall be approved by the Company's Board of
Directors, subject only to their fiduciary duties.
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Section 5.10. Redemption of Company Preferred Stock.
Effective upon the Closing, the Company shall duly cause all of
the shares of the Company Preferred Stock then outstanding to be
redeemed for cash, including payment of all accumulated and
unpaid dividends thereon, pursuant to the terms of the Company's
Restated Certificate of Incorporation.
Section 5.11. Expenses. The expenses incurred (or to
be incurred) by the Company or its subsidiaries at any time from
the commencement of discussions among the parties hereto and
their representatives in connection with the transactions
contemplated hereby (including, without limitation, the proposed
transactions that ultimately evolved into the transactions
contemplated hereby) through the Closing Date relating to (i)
severance and related costs in respect of employees located at
444 Madison Avenue and payments made for non-compete agreements
and all fees and commissions (including expenses) payable to Bear
Stearns and Jefferies and (ii) any independent committees of the
Company's Board of Directors, shall not exceed $3,925,000 in the
aggregate.
Section 5.12. Related Party Transactions. Except as
set forth in Section 5.12 of the Company Disclosure Schedule, any
and all transactions set forth in Section 3.23 of the Company
Disclosure Schedule between the Company or any of its
subsidiaries and any of the persons or entities described in
clauses (i), (ii) and (iii) of Section 3.23 shall be canceled by
the Closing Date such that the Company and its subsidiaries will
have no rights to any assets or properties of such persons or
entities or obligations whatsoever with respect to such
transactions, and such other persons or entities will have no
rights to any assets or property (including Intellectual
Property) of the Company or any of its subsidiaries or
obligations whatsoever with respect to such transactions.
Section 5.13. Moore Termination. The Company shall
deliver to Buyer prior to the Closing Date copies of written
agreements duly executed by the Company (or the appropriate
subsidiary of the Company) and Moore, in form and substance
reasonably satisfactory to Buyer, implementing the terms of the
termination of Moore as described in Section 3.9(c) of the
Company Disclosure Schedule.
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ARTICLE VI.
CONDITIONS PRECEDENT
Section 6.1. Conditions to Each Party's Obligation to
Effect the Sale and Purchase. The respective obligations of each
party to effect the transactions contemplated by this Agreement
shall be subject to the satisfaction on or prior to the Closing
Date of the following conditions, any one or more of which may be
waived in a writing executed by Buyer and the Company subject to
and in accordance with Section 7.4 hereof:
(a) This Agreement and the other Company Voting
Matters shall have been approved and adopted by the requisite
vote of the holders of the Company Common Stock.
(b) The waiting period applicable to the consummation
of the sale and purchase of the New Preferred Shares under the
HSR Act shall have expired or been terminated.
(c) No preliminary or permanent injunction or other
order by any federal or state court in the United States which
prevents the consummation of the transactions contemplated hereby
shall have been issued and remain in effect, and no other legal
proceedings, challenge or litigation challenging the legality of
or threatening the consummation of, or otherwise arising out of,
the transactions contemplated hereby or seeking an injunction in
order to prevent the consummation of the transactions
contemplated hereby shall be pending.
(d) The amendments to the Stock Option Plan adopted by
the Company's Board of Directors on the date hereof and the
Company's Incentive Bonus Plan in the form delivered to Buyer on
the date hereof shall have been approved by the Company's Board
of Directors (and such approval shall not have been modified or
rescinded) and by the requisite vote of the holders of Company
Common Stock in a manner that complies with the requirements of
Rule 16b-3 of the Exchange Act and Section 162(m) of the Code.
Section 6.2. Conditions to Obligation of the Company
to Effect the Sale and Purchase. The obligation of the Company
to effect the transactions contemplated by this Agreement shall
be subject to the satisfaction on or prior to the Closing Date of
the additional following conditions, unless waived in writing by
the Company in accordance with Section 7.4 hereof:
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(a) Buyer shall have performed in all material
respects its agreements contained in this Agreement required to
be performed on or prior to the Closing Date, and the
representations and warranties of Buyer contained in this
Agreement shall be true in all respects when made and on and as
of the Closing Date as if made on and as of such date (except to
the extent they are expressly made as of another specific date
and except if any breaches of such representations and warranties
have not, in the aggregate, resulted in, and would not reasonably
be expected to result in, a Buyer Material Adverse Effect), and
the Company shall have received, on behalf of Buyer, a
certificate executed by an authorized member of Buyer to that
effect. For purposes of this Section 6.2(a), all representation
and warranties qualified by materiality shall not be deemed to be
so qualified.
(b) All permits, consents, authorizations, approvals,
registrations, qualifications, designations and declarations set
forth in Section 2.2 of the Buyer Disclosure Schedule shall have
been obtained, and, to the extent required to be submitted prior
to the Closing, all filings and notices set forth in Section 2.2
of the Buyer Disclosure Schedule shall have been submitted by
Buyer.
(c) The Company shall have received an opinion of
Willkie Farr & Gallagher relating to certain matters set forth in
Article II, substantially in the form of Exhibit D attached
hereto.
Section 6.3. Conditions to Obligations of Buyer to
Effect the Sale and Purchase. The obligations of Buyer to effect
the transactions contemplated by this Agreement shall be subject
to the satisfaction on or prior to the Closing Date of the
additional following conditions, unless waived in writing by
Buyer in accordance with Section 7.4 hereof:
(a) The Company shall have performed in all material
respects its agreements contained in this Agreement required to
be performed on or prior to the Closing Date, and the
representations and warranties of the Company contained in this
Agreement shall be true in all respects when made and on and as
of the Closing Date as if made on and as of such date (except to
the extent they are expressly made as of another specific date
and except if any breaches of such representations and warranties
have not, in the aggregate, resulted in, and would not reasonably
be expected to result in, a Company Material Adverse Effect) and
Buyer shall have received a certificate executed by the Chief
Executive Officer and the Chief Financial Officer of the Company
on behalf of the Company to that effect. For purposes of this
Section 6.3(a), all representation and warranties qualified by
materiality shall not be deemed to be so qualified.
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(b) All permits, consents, authorizations, approvals,
registrations, qualifications, designations and declarations set
forth in Sections 3.4 and 6.3(b) of the Company Disclosure
Schedule shall have been obtained and, to the extent required to
be submitted prior to the Closing, all filings and notices set
forth in Sections 3.4 and 6.3(b) of the Company Disclosure
Schedule shall have been submitted by the Company.
(c) Neither the Board of Directors of the Company nor
any committee thereof shall have amended, modified, rescinded or
repealed the recommendation of the Company's Board of Directors
to the stockholders of the Company to approve the adoption of
this Agreement, and neither the Board of Directors of the Company
nor any committee thereof shall have adopted any other
resolutions in connection with this Agreement and the
transactions contemplated hereby inconsistent with such
recommendation of the consummation of the transactions
contemplated hereby.
(d) The Registration Rights Agreement shall have been
entered into by the Company.
(e) Buyer shall have received opinions from Milbank,
Tweed, Hadley & McCloy, substantially in the form of Exhibit E
attached hereto.
(f) The Irrevocable Proxies, dated as of even date
herewith, between Buyer and each of Bernstein and certain of his
affiliates (the "Irrevocable Proxies") shall be in full force and
effect and no representation, warranty, covenant or agreement set
forth therein shall have been breached in any material respect on
the part of Bernstein or any of his affiliates, as the case may
be.
ARTICLE VII.
TERMINATION, AMENDMENT AND WAIVER
Section 7.1. Termination. This Agreement may be
terminated at any time prior to the Closing, whether before or
after approval of the Company Voting Matters by the stockholders
of the Company:
(a) by mutual consent of the members of Buyer and the
Board of Directors of the Company;
(b) by either Buyer or the Company if the transactions
contemplated by this Agreement shall not have been consummated on
or before May 1, 1996 (provided the terminating party is not
otherwise (i) in material breach of its covenants or agreements
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<PAGE>
under this Agreement or (ii) in breach (determined without regard
to any materiality qualifier therein) of its representations and
warranties contained in this Agreement such that such breaches of
representations and warranties, in the aggregate, have resulted,
or would reasonably be expected to result in (A) if Buyer is the
terminating party, a Buyer Material Adverse Effect or (B) if the
Company is the terminating party, a Company Material Adverse
Effect);
(c) by the Company if any of the conditions specified
in Sections 6.1 or 6.2 have not been met or waived by the Company
at such time as such condition is no longer capable of
satisfaction, including the failure to obtain any required
approval of the Company Voting Matters at a duly held meeting of
stockholders or at an adjournment thereof (provided the Company
is not otherwise (i) in material breach of its covenants or
agreements under this Agreement or (ii) in breach (determined
without regard to any materiality qualifier therein) of its
representations and warranties contained in this Agreement such
that such breaches of representations and warranties, in the
aggregate, have resulted, or would reasonably be expected to
result in, a Company Material Adverse Effect, and provided
further that the failure to obtain such approval is not due to a
breach by Bernstein or any of his affiliates of their respective
obligations under the Irrevocable Proxies);
(d) by Buyer if any of the conditions specified in
Sections 6.1 or 6.3 have not been met or waived by Buyer at such
time as such condition is no longer capable of satisfaction,
including the failure to obtain any required approval of the
Company's stockholders at the Company Meeting or at an
adjournment thereof (provided Buyer is not otherwise (i) in
material breach of its covenants or agreements under this
Agreement or (ii) in breach (determined without regard to any
materiality qualifier therein) of its representations and
warranties contained in this Agreement such that such breaches of
representations and warranties, in the aggregate, have resulted,
or would reasonably be expected to result in, a Buyer Material
Adverse Effect);
(e) by either Buyer or the Company if there has been a
breach on the part of the other of any of (i) its covenants or
agreements under this Agreement in a material respect or (ii) its
representations and warranties contained in this Agreement
(determined without regard to any materiality qualifier therein)
such that such breaches of representations and warranties, in the
aggregate, have resulted, or would reasonably be expected to
result in, (A) if Buyer is the terminating party, a Company
Material Adverse Effect or (B) if the Company is the terminating
party, a Buyer Material Adverse Effect), or by Buyer if there has
been a material breach on the part of Bernstein or any of his
affiliates of any representation, warranty, covenant or agreement
set forth in any of the Irrevocable Proxies, which breach has not
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<PAGE>
been cured within fifteen business days following receipt by the
breaching party of written notice of such breach;
(f) by either Buyer or the Company upon written notice
to the other party if any Governmental Entity of competent
jurisdiction shall have issued a final permanent order enjoining
or otherwise prohibiting the consummation of the transactions
contemplated by this Agreement, and in any such case the time for
appeal or petition for reconsideration of such order shall have
expired without such appeal or petition being granted; or
(g) by either Buyer or the Company if the Board of
Directors of the Company reasonably determines that a Business
Combination Proposal is likely to result in a Superior Proposal;
provided, however, that termination of this Agreement under this
Section 7.1(g) by the Company shall not be effective unless and
until (i) simultaneously with such termination the Company enters
into a definitive agreement to effect the Business Combination
Proposal and (ii) the Company has made payment in full of the fee
required in Section 8.3(b) hereof.
Section 7.2. Effect of Termination. In the event of
termination of this Agreement by either Buyer or the Company as
provided above, this Agreement shall forthwith become void and
(except for termination of this Agreement pursuant to Section
7.1(e) resulting from a breach of a covenant set forth in this
Agreement) there shall be no liability on the part of either the
Company or Buyer or their respective officers or directors;
provided that Section 3.17, the last sentence of Section 5.1,
this Section 7.2 and Sections 8.3, 8.6 and 8.7 shall survive the
termination.
Section 7.3. Amendment. This Agreement may be amended
by the parties hereto, by or pursuant to action taken by Buyer's
members and the Company's Board of Directors, at any time before
or after approval hereof by the stockholders of the Company, but,
after such approval, no amendment shall be made which in any way
materially adversely affects the rights of such stockholders,
without the further approval of such stockholders. This
Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
Section 7.4. Waiver. At any time prior to the
Closing, the parties hereto, by or pursuant to action taken by
Buyer's members and the Company's Board of Directors, may (i)
extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties of any other
party contained herein or in any documents delivered pursuant
hereto by any other party and (iii)
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<PAGE>
waive compliance with any of the agreements or conditions
contained herein; provided, however, that no such waiver shall
materially adversely affect the rights of the stockholders of the
Company or Buyer, as the case may be. Any agreement on the part
of a party hereto to any such extension or waiver shall be valid
if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE VIII.
GENERAL PROVISIONS
Section 8.1. Non-Survival of Representations,
Warranties and Agreements. All representations and warranties
set forth in this Agreement shall terminate at the earlier of (x)
the Closing and (y) termination of this Agreement in accordance
with Article VII hereof. All covenants and agreements set forth
in this Agreement shall survive in accordance with their terms.
Section 8.2. Notices. All notices or other
communications under this Agreement shall be in writing and shall
be given (and shall be deemed to have been duly given upon
receipt) by delivery in person, by cable, telegram, telex or
other standard form of telecommunications, or by registered or
certified mail, postage prepaid, return receipt requested,
addressed as follows:
If to the Company:
Western Publishing Group, Inc.
444 Madison Avenue
Suite 601
New York, New York 10022
Attention: Richard A. Bernstein
Telecopy No.: (212) 888-5025
With a copy to:
James A. Cohen, Esq.
Senior Vice President -
Legal Affairs
Western Publishing Group, Inc.
444 Madison Avenue
New York, New York 10022
Telecopy No.: (212) 888-5025
and a copy to:
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<PAGE>
Milbank, Tweed, Hadley & McCloy
One Chase Manhattan Plaza
New York, New York 10005
Attention: Lawrence Lederman, Esq.
Telecopy No.: (212) 530-5219
If to Buyer:
Golden Press Holding, L.L.C.
c/o Warburg, Pincus Ventures, L.P.
466 Lexington Avenue
New York, New York 10017
Attention: Joanne R. Wenig
Telecopy No.: (212) 878-9351
With a copy to:
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
Attention: Jack H. Nusbaum, Esq.
Telecopy No.: (212) 821-8111
or to such other address as any party may have furnished to the
other parties in writing in accordance with this Section 8.2.
Section 8.3. Expenses; Termination Fees.
(a) Except in cases in which a fee is paid pursuant to
Section 8.3(b), all costs, fees and expenses incurred in
connection with this Agreement and the transactions contemplated
hereby (collectively, "Expenses") shall be paid by the party
incurring such costs and expenses, provided that (i) if the
transactions contemplated by this Agreement are consummated or if
they are not consummated as a result of a breach (determined
without regard to any materiality qualifier therein) by the
Company of any representation or warranty made as of the date
hereof in this Agreement (such that such breach, in the
aggregate, has resulted, or would reasonably be expected to
result in, a Company Material Adverse Effect), all Expenses
incurred by Buyer shall be paid by the Company and (ii) if the
transactions contemplated by this Agreement are not consummated
for any other reason, all Expenses incurred by Buyer from and
after December 14, 1995 shall be paid by the Company, in each
case not to exceed an aggregate amount of $4,000,000.
(b) If (i) the transactions contemplated by this
Agreement are not consummated as a result of a material breach by
the Company of Section 5.6 hereof, (ii) the Agreement is
terminated pursuant to Section 7.1(g) hereof, or (iii) a Third
Party Business Combination (as defined below) shall occur either
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<PAGE>
prior to the termination of this Agreement pursuant to Section
7.1(a), 7.1(b), 7.1(c) (other than by the Company as a result of
the failure of a condition specified in Section 6.2 to be
satisfied), 7.1(d) or 7.1(g) hereof or within nine months
following the date this Agreement is terminated pursuant to
Section 7.1(e) hereof (unless properly terminated by the Company
pursuant to Section 7.1(e)), then the Company shall pay to Buyer,
within five business days after receipt of a written request
therefor in the case of clause (i) and immediately after the
termination of this Agreement pursuant to Section 7.1(g) or the
occurrence of a Third Party Business Combination in the case of
clauses (ii) and (iii), respectively, an amount in same day funds
equal to $2,000,000. For purposes of this Agreement, the term
"Third Party Business Combination" of the Company hereto means
the occurrence of any of the following events: (A) the Company
or any Subsidiary of the Company is acquired by merger or
otherwise by any person, entity or group, other than the other
party hereto or any affiliate thereof (a "Third Party"); (B) the
Company or any subsidiary of the Company enters into an agreement
with a Third Party which contemplates the acquisition of 25% or
more of the total assets of the Company and its subsidiaries
taken as a whole; (C) the Company enters into a merger or other
agreement with a Third Party which contemplates the acquisition
of beneficial ownership of more than 25% of the outstanding
shares of the Company Common Stock (or securities convertible
thereinto or exercisable therefor); (D) a Third Party acquires
more than 25% of the total assets of the Company and its
subsidiaries taken as a whole; (E) a Third Party who, as of the
date 10 days preceding the date hereof, beneficially owns less
than 10% of the outstanding shares of the Company Common Stock
obtains beneficial ownership of such number of shares of Company
Common Stock such that it beneficially owns more than 25% of the
outstanding shares of the Company Common Stock, or any person,
entity or group which beneficially owns (or has the right to
acquire) 10% or more of the outstanding shares of the Company
Common Stock increases its beneficial ownership of the
outstanding shares of Company Common Stock by 10% or more; (F)
the Company adopts a plan of liquidation relating to more than
25% of the total assets of the Company and its subsidiaries taken
as a whole; (G) the Company repurchases more than 25% of the
outstanding shares of the Company's capital stock; or (H) there
is a public announcement or written proposal with respect to a
plan or intention by the Company or a Third Party to effect any
of the foregoing transactions (provided such transaction is
consummated during the nine month period following such public
announcement or written proposal). For purposes of this
Agreement, the term "beneficial ownership" shall have the meaning
set forth in Rule 13d-3 of the Exchange Act.
Section 8.4. Publicity. So long as this Agreement is
in effect, Buyer and
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the Company agree to consult with each other in issuing any press
release or otherwise making any public statement with respect to
the transactions contemplated by this Agreement, and none of them
shall issue any press release or make any public statement prior
to such consultation. The commencement of litigation relating to
this Agreement or the transactions contemplated hereby or any
proceedings in connection therewith shall not be deemed a
violation of this Section 8.4.
Section 8.5. Specific Performance. The parties hereto
agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in
any court of the United States or any state having jurisdiction,
this being in addition to any other remedy to which they are
entitled at law or in equity.
Section 8.6. Interpretation. The headings contained
in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this
Agreement.
Section 8.7. Miscellaneous. This Agreement (including
the documents, exhibits, schedules and instruments referred to
herein), together with the Confidentiality Agreement,
(i) constitutes the entire agreement and supersedes all other
prior agreements and understandings, both written and oral, among
the parties, or any of them, with respect to the subject matter
hereof, (ii) except for certain persons under Section 5.8 hereof,
is not intended to confer upon any other person or entity any
rights or remedies hereunder and shall be binding upon and inure
to the benefit solely of each party hereto, and their respective
successors and assigns, (iii) shall not be assigned by operation
of law or otherwise, and (iv) shall be governed in all respects,
including validity, interpretation and effect, by the laws of the
State of New York (without giving effect to the provisions
thereof relating to conflicts of law); provided, however, that
the law of the State of Delaware shall govern as to internal
corporate matters. This Agreement may be executed in any number
of counterparts which together shall constitute a single
agreement.
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<PAGE>
IN WITNESS WHEREOF, each of Buyer and the Company has
caused this Agreement to be duly signed on its behalf all as of
the date first written above.
GOLDEN PRESS HOLDING, L.L.C.
By: WARBURG, PINCUS VENTURES, L.P.
Member
By:
----------------------------
Name:
Title: General Partner
WESTERN PUBLISHING GROUP, INC.
By:
----------------------------
Name:
Title:
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APPENDIX II
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of January 31,
1996, is entered into by and among Western Publishing Group, Inc., a Delaware
corporation (the "Company"), Richard A. Bernstein ("Bernstein"), the Trust, fbo
Richard A. Bernstein u/a March 16, 1978, Richard A. Bernstein and Stuart Turner,
as trustees (the "Bernstein Trust"), The Richard A. and Amelia Bernstein
Foundation, Inc., a New York not-for-profit corporation (the "Bernstein
Foundation"), and the Trust fbo Richard A. Bernstein u/a Barry S. Bernstein
dated April 5, 1986, Fleet National Bank of Connecticut, as trustee (the "Fleet
National Trust").
WHEREAS, Bernstein is the owner of 3,501,000 shares of common
stock, par value $.01 per share, of the Company ("Common Stock"), the Bernstein
Trust is the owner of 400,000 shares of Common Stock, the Bernstein Foundation
is the owner of 60,000 shares of Common Stock and the Fleet National Trust is
the owner of 95,771 shares of Common Stock (collectively, the "Registrable
Securities" (subject to Section 1(e) below));
WHEREAS, the Company has agreed to grant to each Holder
certain rights to have the shares of Common Stock owned by such Holder
registered under the Securities Act of 1933, as amended (the "Act");
NOW, THEREFORE, in consideration of the foregoing and the
mutual promises and covenants herein contained, the parties hereto hereby agree
as follows:
SECTION 1. Definitions.
As used in this Agreement:
(a) "Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the Act;
(b) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended;
(c) the term "Holders" shall mean Bernstein, the Bernstein
Trust, the Bernstein Foundation, the Fleet National Trust and permitted
transferees of Registrable Securities pursuant to Section 10 hereof;
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(d) the term "Initiating Holder" shall mean any Holder or
Holders who in the aggregate are Holders of more than 50% of the then
outstanding Registrable Securities;
(e) the terms "register," "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Act (and any post-effective amendments filed or
required to be filed) and the declaration or ordering of effectiveness of such
registration statement;
(f) "Registrable Securities" is defined in the first recital
hereof and shall also include any capital stock of the Company issued as a
dividend or other distribution with respect to, or in exchange for or in
replacement of, any such securities, provided, however, that any shares
transferred to a person other than a Holder shall cease to be Registrable
Securities;
(g) "Registration Expenses" shall mean all expenses incurred
by the Company in compliance with Sections 2, 3, 4, 5 and 6 hereof, including,
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel for the Company, blue sky fees and expenses, the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company, which shall
be paid in any event by the Company);
(h) "Selling Expenses" shall mean all underwriting discounts
and selling commissions applicable to the sale of Registrable Securities and all
fees and disbursements of counsel for each of the Holders.
SECTION 2. Demand Registration.
(a) Request for Registration. If the Company shall receive
from an Initiating Holder, at any time after the Company's publicly announcing
(which may include disclosure in the proxy statement mailed to the holders of
Company Common Stock in connection with the transaction contemplated by the
Securities Purchase Agreement (as defined in Section 7(a) hereof)) the
consolidated financial results of the Company and its consolidated subsidiaries
for the fiscal year ending February 3, 1996 in the same detail as the Company's
public announcement of such results for the fiscal year ended January 29, 1995
(containing at least the consolidated revenues, operating income and net income
of the Company and its consolidated subsidiaries),
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a written request that the
Company effect any registration with respect to all or a part of the Registrable
Securities, the Company will:
(i) within five (5) days of receipt of such
request, give written notice of the proposed registration,
qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its diligent best
efforts to effect such registration (including, without
limitation, the execution of an undertaking to file
post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued
under the Act) as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of
such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable
Securities of any Holder or Holders joining in such request as
are specified in a written request received by the Company
within ten (10) days after written notice from the Company is
given under Section 2(a)(i) above; provided further that the
Company shall not be obligated to effect, or take any action
to effect, any such registration pursuant to this Section 2:
(A) In any particular jurisdiction in
which the Company would be required to execute a
general consent to service of process in effecting
such registration, qualification or compliance,
unless the Company is already subject to service in
such jurisdiction and except as may be required by
the Act or applicable rules or regulations
thereunder;
(B) After the Company has effected two
(2) such registrations pursuant to this Section 2,
provided that the Company shall be deemed to have
effected such a registration if a registration
statement is filed at the request of the Holders and
(x) is subsequently withdrawn other than at the
initiative of the Company or (y) is declared
effective;
(C) If, after the first anniversary of
the date hereof, in the good faith judgment of the
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Board of Directors of the Company, it would not be in
the best interests of the Company and its
stockholders generally for such registration
statement to be filed, provided that such deferral
does not last longer than 90 days and will not occur
more than once in any 12-month period.
The registration statement filed pursuant to the request of
the Initiating Holders may, subject to the provisions of Section 2(b) below,
include other securities of the Company which are held by officers or directors
of the Company, or which are held by persons who, by virtue of agreements with
the Company, are entitled to include their securities in any such registration,
but the Company shall have no absolute right to include any of its securities in
any such registration.
(b) Underwriting. Any distribution of Registrable Securities
pursuant to this Section 2 shall be accomplished by means of a firm commitment
underwriting.
If officers or directors of the Company holding other
securities of the Company shall request inclusion in any registration pursuant
to Section 2, or if holders of securities of the Company other than Registrable
Securities who are entitled, by contract with the Company or otherwise, to have
securities included in such a registration (the "Other Stockholders") request
such inclusion, the Holders shall offer to include the securities of such
officers, directors and Other Stockholders in the underwriting and may condition
such offer on their acceptance of the further applicable provisions of this
Section 2. The Holders whose shares are to be included in such registration and
the Company shall (together with all officers, directors and Other Stockholders
proposing to distribute their securities through such underwriting) enter into
an underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting by the Company, which
selection shall be reasonably acceptable to the Initiating Holders.
Notwithstanding any other provision of this Section 2, if the representative
advises the Holders in writing that marketing factors require a limitation on
the number of shares to be underwritten, the securities of the Company held by
officers or directors (other than Registrable Securities) of the Company and the
securities held by Other Stockholders shall be excluded from such registration
to the extent so required by such limitation. If, after the exclusion of such
shares, further reductions are still required, the number of shares included in
the registration by each Holder shall be reduced on a pro rata basis (based on
the number of shares originally proposed to be registered by such Holder) by
such minimum number of shares as is
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<PAGE>
necessary to comply with such request. No
Registrable Securities or any other securities excluded from the underwriting by
reason of the underwriter's marketing limitation shall be included in such
registration. If any of the Holders or any officer, director or Other
Stockholder who has requested inclusion in such registration as provided above
disapproves of the terms of the underwriting, such person may elect to withdraw
therefrom by written notice to the Company, the underwriter and the Initiating
Holders. The securities so withdrawn shall also be withdrawn from registration.
If the underwriter has not limited the number of Registrable Securities or other
securities to be underwritten, the Company may include its securities for its
own account in such registration if the representative so agrees and if the
number of Registrable Securities and other securities which would otherwise have
been included in such registration and underwriting will not thereby be limited.
(c) Conditions. Any offering of Registrable Securities
registered pursuant to this Section 2 shall be subject to the following
conditions:
(i) No purchaser shall be an
Entrepreneurial Investor (as defined in the Irrevocable Proxy,
dated as of even date herewith, between Golden Press Holding,
L.L.C. ("GP Holding") and the Shareholder); and
(ii) Such offering shall not be made for
reasonable periods before and, as determined by the managing
underwriter in respect of such offering, after the effective
date of a registration statement for any primary or secondary
public offering of the Company's securities.
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<PAGE>
SECTION 3. Company Registration.
(a) Request For Registration. If the Company shall determine
to register any of its equity securities either for its own account or for the
account of a security holder or holders exercising their respective demand
registration rights (other than a registration relating solely to employee
benefit plans, or a registration relating solely to a Commission Rule 145
transaction, or a registration on any registration form which does not permit
secondary sales or does not include substantially the same information as would
be required to be included in a registration statement covering the sale of
Registrable Securities), the Company will:
(i) promptly give to each of the Holders a written
notice thereof which shall describe in reasonable detail the
proposed registration and distribution (including those
jurisdictions in which the Company intends to attempt to
qualify such securities under the applicable blue sky or other
state securities laws); and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in
any underwriting involved therein, all the Registrable
Securities specified in a written request or requests, made by
the Holders within fifteen (15) days after receipt of the
written notice from the Company described in clause (i) above,
except as set forth in Section 3(b) below. Such written
request may specify all or a part of the Holders' Registrable
Securities.
(b) Underwriting. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise each of the Holders as a part of the written notice
given pursuant to Section 3(a)(i). In such event, the right of each of the
Holders to registration pursuant to this Section 3 shall be conditioned upon
such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent provided
herein. The Holders whose shares are to be included in such registration shall
(together with the Company and the Other Stockholders distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the representative of the underwriter or underwriters
selected for underwriting by the Company. Notwithstanding any other provision of
this Section 3, if the representative determines that marketing factors require
a
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<PAGE>
limitation on the number of shares to be underwritten, the representative may
(subject to the allocation priority set forth below) limit the number of
Registrable Securities to be included in the registration and underwriting as
the representative deems necessary and appropriate. The Company shall so advise
all holders of securities requesting registration, and the number of shares of
securities that are entitled to be included in the registration and underwriting
shall be allocated in the following manner: The securities of the Company held
by officers, directors and Other Stockholders of the Company (other than
Registrable Securities, securities held by holders who by contractual right
demanded such registration ("Demanding Holders") and securities held by
"Holders" under the Registration Rights Agreement, dated as of the effective
date of this Agreement, between the Company and GP Holding (the "GP Holding
Holders")) shall be excluded from such registration and underwriting to the
extent required by such limitation, and, if a limitation on the number of shares
is still required, the number of shares that may be included in the registration
and underwriting by each of the Holders and the GP Holding Holders (if the GP
Holding Holders are not Demanding Holders) shall be reduced, on a pro rata basis
(based on the number of shares originally proposed to be registered by each such
person), by such minimum number of shares as is necessary to comply with such
limitation. If any of the Holders disapprove of the terms of any such
underwriting, such Holder may elect to withdraw therefrom by written notice to
the Company and the underwriter. Any Registrable Securities or other securities
excluded or withdrawn from such underwriting shall be withdrawn from such
registration. The Company shall have the right to withdraw such registration at
any time in its sole discretion.
(c) Number. Each of the Holders shall be entitled to have
its shares included in an unlimited number of registrations pursuant to this
Section 3.
SECTION 4. Shelf Registration. If the Company shall receive
from an Initiating Holder, at any time prior to two (2) months after the
effective date hereof set forth in Section 19 hereof, a written request that the
Company effect a registration pursuant to Rule 415, or any successor rule under
the Act, that would permit the sale of all or a part of the Registrable
Securities from time to time:
(a) The Company shall use its best efforts to file
with the Commission and thereafter to cause to be declared
effective as promptly as practicable a registration statement
on an appropriate form under the
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<PAGE>
Act as reasonably determined by the Company relating to the
offer and sale of the Registrable Securities by the Holders
from time to time pursuant to Rule 415, or any successor rule
under the Act, in accordance with the methods of distribution
set forth in such registration statement (a "Shelf
Registration Statement").
(b) The Company shall use its best efforts to keep
the Shelf Registration Statement continuously effective in
order to permit the prospectus forming part thereof to be
usable by Holders for the period ending three (3) months after
the effective date hereof or such shorter period that will
terminate when all the Registrable Securities covered by the
Shelf Registration Statement have been sold. Notwithstanding
any other provision hereof, the Company may postpone or
suspend the filing or the effectiveness of the Shelf
Registration Statement (or any amendments or supplements
thereto) if (i) such action is required by applicable law, or
(ii) such action is taken by the Company in good faith and for
valid business reasons (not including avoidance of the
Company's obligations hereunder), including the acquisition or
divestiture of assets, other pending corporate developments,
public filings with the Commission or other similar events, so
long as the Company promptly thereafter complies with the
requirements of Section 6(a)(v) hereof, if applicable. The
Company shall be deemed not to have used its best efforts to
keep the Shelf Registration Statement effective during the
requisite period if it intentionally takes any action not
contemplated by clause (i) or (ii) above that would result in
holders of Registrable Securities covered thereby not being
able to offer and sell such Registrable Securities during the
period.
SECTION 5. Expenses of Registration. With respect to a
registration pursuant to Section 2 and 4 hereof, all Registration Expenses and
all Selling Expenses shall be borne by the Holders of the securities so
registered, together with any other party whose shares are included in such
registration (including the Company, either because shares are included in such
registration for its own account or because it agreed to pay the expenses of
other registering holders), pro rata, on the basis of the number of their shares
so registered. With respect to a registration pursuant to Section 3(a) hereof,
all Registration Expenses shall be borne by the Company and all
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<PAGE>
Selling Expenses shall be borne by the Holders of the securities so registered,
together with any other party whose shares are included in such registration
(including the Company, either because shares are included in such registration
for its own account or because it agreed to pay the expenses of another
registering holder), pro rata on the basis of the number of their shares so
registered. In addition to the Company's other rights in respect of expenses in
this Agreement, the Company shall have the right, in order to cover such
expenses, to deduct the amount of such expenses from the offering proceeds to
which the Bernstein Trust, the Bernstein Foundation and the Fleet National Trust
would otherwise have been entitled.
SECTION 6. Registration Procedure.
(a) In the case of each registration effected by the Company
pursuant to this Agreement, the Company will:
(i) provide the Holders of Registrable Securities to
be registered under the registration statement, their
underwriters, if any, and their respective counsel and
accountants, a reasonable opportunity to participate in the
preparation of such registration statement, each prospectus
included therein or filed with the Commission, and each
amendment thereof or supplement thereto;
(ii) notify each Holder as to the filing of the
registration statement and of all amendments or supplements
thereto filed prior to the effective date of such registration
statement;
(iii) notify each Holder, promptly after it shall
receive notice thereof, of the time when such registration
statement becomes effective or when any amendment or
supplement to any prospectus forming a part of such
registration statement has been filed;
(iv) notify each Holder promptly of any request by
the Commission for the amending or supplementing of such
registration statement or prospectus or for additional
information;
(v) prepare and promptly file with the Commission,
and promptly notify each Holder of the filing of, any
amendments or supplements to such registration statement or
prospectus as may be necessary to correct any statements or
omissions if, at
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<PAGE>
any time when a prospectus relating to the Registrable
Securities is required to be delivered under the Act, any
event with respect to the Company shall have occurred as a
result of which any such prospectus or any other prospectus as
then in effect would include an untrue statement of a material
fact or omit to state any material fact necessary in order to
make the statements made, in the light of the circumstances
under which they were made, not misleading, and, in addition,
prepare and file with the Commission, promptly upon the
written request of any Holder, any amendments or supplements
to such registration statement or prospectus which may be
reasonably necessary or advisable in connection with the
distribution of the Registrable Securities;
(vi) prepare promptly upon request of the Holders or
any underwriters for the Holders such amendment or amendments
to such registration statement and such prospectus or
prospectuses as may be reasonably necessary to permit
compliance with the requirements of Section 10(a)(3) of the
Act, unless, in the good faith judgment of the Board of
Directors of the Company, it would not be in the best
interests of the Company and its stockholders generally for
such amendment or amendments to be filed, provided that such
deferral does not last longer than 90 days and will not occur
more than once in any 12-month period;
(vii) advise each Holder promptly after the Company
shall receive notice or obtain knowledge of the issuance of
any stop order by the Commission suspending the effectiveness
of any such registration statement or amendment thereto or of
the initiation or threatening of any proceeding for that
purpose, and promptly use its best efforts to prevent the
issuance of any stop order or obtain its withdrawal promptly
if such stop order should be issued;
(viii) use its best efforts to qualify as soon as
reasonably practicable the Registrable Securities included in
the registration statement for sale under the blue sky or
other state securities laws of such states and jurisdictions
within the United States as shall be reasonably requested by
any Holder, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to
do business, to become subject to taxation or to file a
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<PAGE>
consent to service of process generally in any of the
aforesaid states or jurisdictions;
(ix) furnish each Holder, as soon as available,
copies of any registration statement and each preliminary or
final prospectus, or supplement or amendment required to be
prepared pursuant hereto, all in such quantities as any Holder
may from time to time reasonably request;
(x) furnish, at the request of any Holder
requesting registration of Registrable Securities pursuant to
this Agreement, on the date that such Registrable Securities
are delivered to the underwriters for sale in connection with
a registration pursuant to this Agreement, if such securities
are being sold through underwriters or, if such securities are
not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes
effective, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such
registration, in form and substance as is customarily given by
company counsel to the underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the
holders requesting registration of Registrable Securities, and
(ii) a letter, dated such date, from the independent certified
public accountant of the Company, in form and substance as is
customarily given by independent certified public accountants
to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and, if customarily given to
holders of securities to be sold in a registration, to the
Holders requesting registration of Registrable Securities;
(xi) otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission, and
make available to its security holders as soon as reasonably
practicable, but not later than 16 months after the effective
date of the registration statement, an earnings statement
covering a period of at least twelve (12) months beginning
after the effective date of the registration statement, which
earnings statement shall satisfy the provision of Section
11(a) of the Act; and
(xii) enter into and perform an underwriting
agreement with the managing underwriter, if any,
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<PAGE>
selected as provided in Section 2(b) and 3(b), containing
customary (y) terms of offer and sale of the securities,
payment provisions, underwriting discounts and commissions,
and (z) representations, warranties, covenants, indemnities,
terms and conditions provided that the Holders may, at their
option, require that any or all agreements on the part of the
Company to and for the benefit of such underwriters shall also
be made to and for the benefit of such Holders, any or all of
the conditions precedent to the obligations of the Company
shall also be conditions precedent to the obligations of such
Holders, and all representations and warranties by the Company
to and for the benefit of such underwriters shall also be made
to and for the benefit of such Holders, and provided further
that such Holders shall not be required to make any
representations or warranties to or agreements with the
Company or the underwriters other than representations,
warranties or agreements reasonably requested by the managing
underwriter or otherwise required by law.
(b) At the expense of the Company, the Company will keep each
registration effected by the Company pursuant to Section 3(a) effective for a
period of nine (9) months or until the Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs. At the expense of the Holders, together with any other party whose
shares are included in such registration (including the Company, either because
shares are included in such registration for its own account or because it
agreed to pay the expenses of other registering holders), pro rata, on the basis
of the number of their shares so registered, the Company will keep each
registration effected by the Company pursuant to Section 2 effective for a
period of nine (9) months or until the Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs, unless, in the good faith judgment of the Board of Directors of the
Company, it would not be in the best interests of the Company and its
stockholders generally for such registration to be kept effective for such
period, provided that such deferral does not last longer than 90 days and will
not occur more than once in any 12-month period. In addition to the Company's
other rights in respect of expenses in this Agreement, the Company shall have
the right, in order to cover such expenses, to deduct the amount of such
expenses from the offering proceeds to which the Bernstein Trust, the Bernstein
Foundation and the Fleet National Trust would otherwise have been entitled.
SECTION 7. Indemnification.
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<PAGE>
(a) To the extent permitted by law, the Company will
indemnify each of the Holders, each of its officers, directors, agents,
trustees, representatives and affiliates of the foregoing, each underwriter (as
defined in the Act), if any, and each person controlling each of the Holders or
such underwriter within the meaning of the Act and the rules and regulations
thereunder, with respect to each registration which has been effected pursuant
to this Agreement, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the Company of the
Act or any rule or regulation thereunder applicable to the Company and relating
to action or inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse each of the
Holders, each of its officers, directors, partners, members, managers, agents,
representatives and their affiliates, each such underwriter and each person
controlling any such Holder or underwriter, for any legal and any other expenses
reasonably incurred in connection with investigating and defending any such
claim, loss, damage, liability or action, provided that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission based upon (i) written information furnished to the Company by the
Holders or underwriter and stated to be specifically for use therein or (ii)
until the date of issuance of the Company's audited consolidated financial
statements for the fiscal year ended on or about January 31, 1997, any
representation or warranty made by the Company in that certain Securities
Purchase Agreement, dated as of even date herewith, between the Company and GP
Holding (the "Securities Purchase Agreement").
(b) To the extent permitted by law, each of the Holders will,
if Registrable Securities held by it are included in the securities as to which
such registration, qualification or compliance is being effected, indemnify the
Company, each of its directors, officers, agents and representatives and each
underwriter, if any, and each person controlling the Company or such underwriter
within the meaning of the Act and the rules and regulations thereunder, against
all claims, losses, damages and liabilities (or actions in respect thereof)
arising out of or
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<PAGE>
based on any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus, offering circular or
other document made by such Holder, or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements by such Holder therein not misleading, and will reimburse the
Company and such directors, officers, agents, representatives, underwriters or
control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by such Holder and stated to be specifically for use
therein; provided, however, that the indemnity agreement contained in this
Section 7(b) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Holders, and provided further that the obligations of each of the
Holders hereunder shall be limited to an amount equal to the proceeds to such
Holder of securities sold as contemplated herein.
(c) Each party entitled to indemnification under this Section
7 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld) and the Indemnified Party may participate in such
defense at such party's expense (unless the Indemnified Party shall have
reasonably concluded that there may be a conflict of interest between the
Indemnifying Party and the Indemnified Party in such action, in which case the
fees and expenses of counsel shall be at the expense of the Indemnifying Party),
and provided further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 7 unless the Indemnifying Party is materially prejudiced
thereby. No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party, consent to entry of
any judgment or enter into any
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<PAGE>
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation. Each Indemnified Party shall
furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with the defense of such claim and litigation resulting
therefrom.
(d) If the indemnification provided for in this Section 7 is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage or expense referred to
herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense, as well as any other relevant equitable
considerations, provided, however, that the obligations of each Holder shall be
limited to an amount equal to the proceeds to such Holder from the sale of
Registrable Securities as contemplated herein. The relative fault of the
Indemnifying Party and of the Indemnified Party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Indemnifying Party or by the Indemnified
Party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act), shall be entitled to contribution from any person who is not guilty of
such fraudulent misrepresentation.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with any underwritten public offering
contemplated by this Agreement are in conflict with the foregoing provisions,
the provisions in such underwriting agreement shall be controlling.
(f) The foregoing indemnity agreements are subject to the
condition that, insofar as they relate to any loss, claim, liability or damage
made in a preliminary prospectus but eliminated or remedied in the amended
prospectus on file with the Commission at the time the registration statement in
question
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<PAGE>
becomes effective or the amended prospectus filed with the Commission
pursuant to Commission Rule 424(b) (the "Final Prospectus"), such indemnity
agreement shall not inure to the benefit of any underwriter if a copy of the
Final Prospectus was furnished to the underwriter and was not furnished to the
person asserting the loss, liability, claim or damage at or prior to the time
such action is required by the Act.
(g) The obligations of the Company and the Holders under this
Section 7 shall survive the completion of any offering of Registrable Securities
in a registration statement under this Agreement and otherwise.
(h) The foregoing indemnity agreements shall include
reasonable fees and expenses of counsel incurred by the Indemnified Party in any
action or proceeding between the Indemnifying Party and the Indemnified Party or
between the Indemnified Party and any third party or otherwise.
SECTION 8. Information by the Holders. Each of the Holders
shall furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder as the Company may reasonably request in
writing and as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Agreement.
SECTION 9. Rule 144 Reporting. With a view to making
available the benefits of certain rules and regulations of the Commission which
may permit the sale of restricted securities to the public without registration,
the Company agrees to use its reasonable best efforts to:
(a) make and keep public information available, as those
terms are understood and defined in Rule 144 under the Act;
(b) file with the Commission in a timely manner all reports
and other documents required of the Company under the Act and the Exchange Act;
and
(c) furnish to any Holder upon request, (i) a written
statement by the Company as to its compliance with the reporting requirements of
Rule 144, the Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company filed with the Commission and such other reports
and documents so filed by the Company and (iii) such other information as a
Holder may reasonably request in availing itself
II-16
<PAGE>
of any rule or regulation of the Commission allowing such Holder to sell any
such securities without registration.
SECTION 10. Assignability. No party may assign or transfer
its rights or obligations hereunder without the prior written consent of the
other, except that Bernstein's rights hereunder may be transferred by will or
the laws of descent and distribution to a charitable organization, an immediate
family member or a trust (25% or more of the beneficial interests of which are
owned by affiliates of Bernstein or one or more members of his immediate
family), in each case to which Bernstein has transferred Registrable Securities
to the extent permitted by Section 5(d)(i) or (iv) of the Irrevocable Proxy,
dated as of even date herewith, between GP Holding and Bernstein.
SECTION 11. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York.
SECTION 12. Amendment. Any modification, amendment or waiver
of this Agreement or any provision hereof shall be in writing and executed by
the Company, GP Holding and the Holders of not less than 50% of the Registrable
Securities, provided, however, that no such modification, amendment or waiver
shall reduce the aforesaid percentage of Registrable Securities without the
consent of all of the Holders of the Registrable Securities.
SECTION 13. Notices. All notices, requests, consents and
demands shall be in writing and shall be personally delivered, mailed, postage
prepaid, telecopied or telegraphed or delivered by any nationally recognized
overnight delivery service to the Company at:
to the Company:
Western Publishing Group, Inc.
444 Madison Avenue
New York, New York 10022
Telecopy: (212) 888-5025
Attn: Chief Executive Officer
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<PAGE>
with a copy to:
General Counsel
Western Publishing Group, Inc.
444 Madison Avenue
New York, New York 10022
Telecopy: (212) 888-5025
and, until the effective date hereof, a copy to:
Milbank, Tweed, Hadley & McCloy
One Chase Manhattan Plaza
New York, New York 10028
Telecopy: (212) 530-5219
Attn: Lawrence Lederman, Esq.
and to GP Holding and each Holder at such address set forth on the signature
page hereof or as shall be furnished in writing to the Company. All such
notices, requests, demands and other communication shall, when mailed
(registered or certified mail, return receipt requested, postage prepared),
personally delivered, or telegraphed, be effective four (4) days after deposit
in the mails, when personally delivered, or when delivered to the telegraph
company, respectively, addressed as aforesaid, unless otherwise provided herein
and, when telecopied or delivered by any nationally recognized overnight
delivery service, shall be effective upon actual receipt.
SECTION 14. Specific Performance. The parties hereto agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
SECTION 15. Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
SECTION 16. Severability. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this Agreement
or
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<PAGE>
affecting the validity or enforceability of such provision in any other
jurisdiction.
SECTION 17. Headings. The various headings of this Agreement
are inserted for convenience only and shall not affect the meaning or
interpretation of this Agreement or any provisions hereof or thereof.
SECTION 18. Entire Agreement. This Agreement constitutes the
entire understanding among the parties hereto with respect to the subject matter
hereof and supersedes any prior agreements, written or oral, with respect
thereto.
SECTION 19. Effective Date. This Agreement shall become
effective as of the date of consummation of the transactions contemplated by the
Securities Purchase Agreement, and this Agreement shall have no effect for any
purpose unless and until such transactions have been consummated.
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<PAGE>
IN WITNESS WHEREOF, the Company and each of the undersigned
parties has executed this Agreement effective for all purposes as of the date
first above written.
WESTERN PUBLISHING GROUP, INC.
By: _________________________
Name:
Title:
______________________________
Richard A. Bernstein
RICHARD A. BERNSTEIN AND STUART TURNER,
trustees u/a March 16, 1978 fbo Richard
A. Bernstein
By: ___________________________
Richard A. Bernstein
Trustee
By: ___________________________
Stuart Turner
Trustee
THE RICHARD A. AND AMELIA BERNSTEIN
FOUNDATION, INC.
_______________________________
Richard A. Bernstein
President
Address for notices for all
Holders named above:
_______________________________
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<PAGE>
FLEET NATIONAL BANK OF CONNECTICUT
trustee u/a Barry S. Bernstein dated
April 5, 1986 fbo Richard A. Bernstein
By: ________________________________
Name:
Title:
Address for notices:
Fleet National Bank of Connecticut
P.O. Box 1454
One Landmark Square
Stamford, Connecticut 06904
Telecopy: _______________
Attn: Ms. Catherine Clark
Section 12 is hereby
acknowledged and agreed to:
GOLDEN PRESS HOLDING, L.L.C.
By: WARBURG, PINCUS VENTURES, L.P.
Member
By: __________________________
Name:
Title: General Partner
Address for notices:
Golden Press Holding, L.L.C.
c/o Warburg, Pincus Ventures, L.P.
466 Lexington Avenue
New York, New York 10017
Telecopy: (212) 878-9351
Attn: Joanne R. Wenig
with a copy to:
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
Telecopy: (212) 821-8111
Attn: Jack H. Nusbaum, Esq.
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<PAGE>
Index of Defined Terms
Bernstein............................. 1
Bernstein Foundation.................. 1
Bernstein Trust....................... 1
Commission............................ 1
Common Stock.......................... 1
Company............................... 1
Demanding Holders..................... 7
Exchange Act.......................... 1
Fleet National Trust.................. 1
Final Prospectus...................... 16
GP Holding............................ 5
Holders............................... 1
Indemnified Party..................... 14
Indemnifying Party.................... 14
Initiating Holder..................... 2
Registrable Securities................ 2
Registration Expenses................. 2
Selling Expenses...................... 2
Shelf Registration Statement.......... 8
Act................................... 1
GP Holding Holders.................... 7
Securities Purchase Agreement......... 13
<PAGE>
APPENDIX III
IRREVOCABLE PROXY
THIS AGREEMENT, dated as of January 31, 1996, between Golden
Press Holding, L.L.C., a Delaware limited liability company (the "Buyer"), and
Richard A. Bernstein (the "Shareholder"), a shareholder of Western Publishing
Group, Inc., a Delaware corporation (the "Company").
W I T N E S S E T H:
WHEREAS, contemporaneously with the execution of this
Agreement, the Company and the Buyer are entering into a Securities Purchase
Agreement (the "Securities Purchase Agreement") pursuant to which the Buyer will
purchase (the "Securities Purchase") 13,000 shares of the Company's Series B
Convertible Preferred Stock, no par value ("Series B Preferred Stock"), and a
warrant (the "Warrant") to purchase 3,250,000 shares (subject to adjustment) of
the Company's common stock, par value $.01 per share ("Company Common Stock");
WHEREAS, contemporaneously with the execution of this
Agreement, Buyer is entering into an agreement substantially similar to this
Agreement with each of (i) the Trust, fbo Richard A. Bernstein u/a March 16,
1978, Richard A. Bernstein and Stuart Turner, as trustees, and (ii) the Trust
fbo Richard A. Bernstein u/a Barry S. Bernstein dated April 5, 1986, Fleet
National Bank of Connecticut, as trustee (collectively, the "Other
Shareholders"), which own 400,000 and 95,771 shares of Company Common Stock,
respectively; and
WHEREAS, the Buyer, as a condition to its willingness to enter
into the Securities Purchase Agreement, has required the Shareholder to grant
the Buyer an irrevocable proxy with respect to all of the shares of Company
Common Stock owned by the Shareholder, together with any additional shares of
Company Common Stock hereafter acquired by the Shareholder (such specified
number of shares, and any additional shares when and if they are acquired by
Shareholder or any "Affiliate" (as defined in Rule 405 under the Securities Act
of 1933, as amended (the "Securities Act"), and including, without limitation,
immediate family members and trusts, 25% or more of the beneficial interests of
which are owned by such person or one or more members of his immediate family
members; provided that the Company shall not be deemed an "Affiliate" of the
Shareholder for purposes of this Agreement), being referred to as the "Shares")
on the terms and conditions hereinafter set forth;
III-1
<PAGE>
NOW, THEREFORE, the parties hereto agree as follows:
1. Irrevocable Proxy. By entering into this Agreement, the
Shareholder hereby grants a proxy (the "Proxy") appointing the Buyer (or any
designee of the Buyer) as the Shareholder's lawful agent, attorney-in-fact and
proxy, with full power of substitution, for and in the Shareholder's name, to
vote, express consent or dissent, or otherwise to utilize such voting power in
such manner and upon such matters as the Buyer or its proxy or substitute shall,
in the Buyer's sole discretion, deem proper with respect to the Shares,
including without limitation, to vote any or all the Shares at any meeting, or
in connection with any written consent, of the Company's shareholders (i) in
favor of the Securities Purchase (or any similar transaction involving the
Company and the Buyer (or an Affiliate thereof)), (ii) in favor of the
Securities Purchase Agreement or other agreement evidencing any such transaction
and in favor of any other related transactions or matters presented in
connection with any such transaction, including the Company Voting Matters (as
defined in the Securities Purchase Agreement), and (iii) against any other
proposal which provides for any merger, sale of assets or other Third Party
Business Combination (as defined in the Securities Purchase Agreement) between
the Company (or any subsidiary of the Company) and any other person or entity or
which would make it impractical for the Buyer to effect the Securities Purchase
or other similar transaction involving the Company and the Buyer (or an
Affiliate thereof); provided, however, that, until the consummation of the
Securities Purchase, the Proxy shall not allow Buyer to vote against, or for the
removal of, existing members of the Company's Board of Directors, except that
the Proxy will be voted for the Company Voting Matters as contemplated by
Section 5.3 of the Securities Purchase Agreement. The Proxy is irrevocable, is
coupled with an interest, and is granted in consideration of the Buyer's
entering into this Agreement and the Securities Purchase Agreement; provided,
however, that the Proxy shall be revoked upon the earlier to occur of (x) the
termination of the Securities Purchase Agreement in accordance with its terms
prior to the consummation of the Securities Purchase and (y) the failure of the
aggregate "beneficial ownership" (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended) of Buyer, each member thereof, any affiliates
of such members (other than of Warburg, Pincus Ventures, L.P. ("WPV")) and the
general partnership that acts as a general partner of WPV, at any time following
the consummation of the Securities Purchase, to constitute 15% or more of the
outstanding Company Common Stock (after taking into account the
III-2
<PAGE>
conversion or exercise of all outstanding securities of the Company that are
convertible into or exercisable for shares of Company Common Stock, provided,
however, that the shares of Company Common Stock issuable upon exercise of the
Warrant shall be taken into account only in the amount of the excess, if any, of
the number of such shares over the number of shares of Company Common Stock
issued to such parties as dividends on the Series B Preferred Stock). If the
proxy granted in this Section 1 shall be determined to be invalid for any
reason, the Shareholder hereby agrees to vote the Shares, in any circumstances
set forth in this Section 1, in accordance with the written instructions of
Buyer. Notwithstanding any implication to the contrary in this Agreement, the
proxy granted in this Section 1 shall be revoked, and the agreement set forth in
the immediately preceding sentence shall be terminated, with respect to any
Shares upon the sale or transfer of such Shares to a third party (other than an
Affiliate of the Shareholder), provided that such sale or transfer is otherwise
permitted under the terms of this Agreement.
2. Legending of Certificates; Nominee Shares. The Shareholder
agrees to submit to the Buyer contemporaneously with or promptly following
execution of this Agreement (or promptly following receipt of any additional
certificates representing any additional Shares) all certificates representing
the Shares so that the Buyer may note thereon a legend referring to the transfer
restrictions in this Agreement. If any of the Shares beneficially owned by the
Shareholder are held of record by a brokerage firm in "street name" or in the
name of any other nominee (a "Nominee," and, as to the Shares, "Nominee
Shares"), the Shareholder agrees that, upon written notice by the Buyer
requesting it, the Shareholder will within five days of the giving of such
notice execute and deliver to the Buyer a limited power of attorney in such form
as shall be reasonably satisfactory to the Buyer enabling the Buyer to require
the Nominee to grant to the Buyer an irrevocable proxy to the same effect as
Section 1 hereof with respect to the Nominee Shares held by such Nominee and to
submit to the Buyer the certificates representing such Nominee Shares for
notation of the foregoing legend thereon.
3. [Intentionally omitted.]
4. Representations and Warranties of the Shareholder.
The Shareholder represents and warrants to the Buyer that:
(a) On the date hereof, the Shareholder is the sole,
true, lawful, record and beneficial owner of 3,501,000 shares of Company Common
Stock. All of the Shares are validly
III-3
<PAGE>
issued, fully paid and nonassessable, with no personal liability attaching to
the ownership thereof; and the Shareholder has good and valid title to the
Shares, free and clear of any agreements, liens, adverse claims or encumbrances
whatsoever with respect to the ownership of or the right to vote the Shares. The
Shareholder has not granted any proxies with respect to the Shares except as
contemplated by this Agreement.
(b) The Shareholder has the full right, power and
authority to enter into this Agreement, and this Agreement has been duly and
validly executed and delivered by the Shareholder.
(c) The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby do not
and will not, with or without the giving of notice or the passage of time, (i)
violate any judgment, injunction or order of any court, arbitrator or
governmental agency applicable to the Shareholder, or (ii) conflict with, result
in the breach of any provision of, constitute a default under, or give rise to a
right of termination, cancellation or acceleration of any right or obligation of
the Shareholder under, or require the consent of any third party under, any
agreement, instrument, judgment, order or decree to which the Shareholder is a
party or by which the Shareholder may be bound.
(d) This Agreement is the valid and binding Agreement
of the Shareholder, enforceable against the Shareholder in accordance with its
terms, except as enforcement may be limited by bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights generally.
(e) The Shares and the shares of Company Common Stock
owned of record by the Other Shareholders (in the case of Fleet National Bank of
Connecticut, in its capacity as trustee under the trust referred to above) and
the 60,000 shares of Company Common Stock owned of record by The Richard A. and
Amelia Bernstein Foundation, Inc., a New York not-for-profit corporation (the
"Bernstein Foundation"), are the only shares of Company Common Stock
beneficially owned or owned of record by the Shareholder, the Other Shareholders
and the Bernstein Foundation and, except for the 9,200 shares of Series A
Preferred Stock, no par value, of the Company owned by the Shareholder and the
67,500 shares of Company Common Stock issuable to the Shareholder upon the
exercise of options granted to him pursuant to the Company's Amended and
Restated 1986 Employee Stock Option Plan, the Shareholder does not own any
options to purchase or rights to subscribe for or otherwise
III-4
<PAGE>
acquire any securities of the Company and has no other interest in or voting
rights with respect to any securities of the Company. The Shareholder shall not
permit the Bernstein Foundation to acquire, directly or indirectly, any
additional shares of Company Common Stock during the term of this Agreement.
(f) No investment banker, broker or finder is
entitled to a commission or fee from the Shareholder or the Company in respect
of this Agreement based upon any arrangement or agreement made by or on behalf
of the Shareholder.
5. Additional Covenants of the Shareholder. The Shareholder
hereby covenants and agrees
that:
(a) Neither the Shareholder nor any Affiliate will
enter into any transaction, take any action, or by inaction permit any event to
occur, that would result in any of the representations or warranties of the
Shareholder herein contained not being true and correct at and as of the time
immediately after the occurrence of such transaction, action or event.
(b) Until the termination of this Agreement,
neither the Shareholder nor any Affiliate, whether directly, indirectly, or
through any employee, agent or otherwise shall: (i) solicit or initiate any
inquiry or submission of a proposal or an offer from any person or entity
relating to any acquisition or purchase of (A) the assets, business or property
of the Company or any subsidiary thereof, or (B) any equity interest in, or any
merger, consolidation or business combination with, the Company or any of its
subsidiaries (an "acquisition proposal"), or (ii) participate in any discussions
or negotiations regarding, or furnish to any other person or entity any
information with respect to, or otherwise cooperate in any way or assist or
facilitate any acquisition proposal by any other person or entity; provided,
however, that the Shareholder, in his capacity as the Chairman of the Company's
Board of Directors and the Company's Chief Executive Officer, may participate in
discussions or negotiations with or furnish information to any other person or
entity if the Company's Board of Directors, on advice of counsel, determines
that the Shareholder, in his capacity as Chairman of the Company's Board of
Directors and the Company's Chief Executive Officer, should so participate or
furnish such information. Subject to his fiduciary duties to the Company, the
Shareholder shall promptly advise the Buyer of any communication (including the
identity of the person or entity making such communication and the terms
thereof) that the Shareholder may receive relating to any of the foregoing.
III-5
<PAGE>
(c) Until the termination of this Agreement, subject
to his fiduciary duties to the Company, the Shareholder will at all times use
his best efforts to prevent the Company from taking any action in violation of
the Securities Purchase Agreement, including, but not limited to, any such
action that would (i) amend or otherwise change its Certificate of Incorporation
or Bylaws, (ii) issue or sell or authorize for issuance or sale any stock
appreciation rights, stock options (other than pursuant to stock option plans in
effect on the date hereof), warrants or additional shares of any class of
capital stock, including the Company Common Stock, or any securities convertible
into or exchangeable for shares of any class of capital stock, (iii) declare,
set aside, make, pay or accelerate the time for declaration or payment of, any
dividend or other distribution with respect to its capital stock, or (iv)
redeem, purchase, or otherwise acquire, directly or indirectly, any of its
capital stock.
(d) Until the termination of this Agreement, neither
the Shareholder nor any Affiliate shall, directly or indirectly, (i) grant any
proxies or enter into any voting trust or other agreement or arrangement with
respect to the voting of any Shares or (ii) acquire, sell, assign, transfer,
encumber or otherwise dispose of, or enter into any contract, option or other
arrangement or understanding with respect to the direct or indirect acquisition
or sale, assignment, transfer, encumbrance or other disposition of, any shares
of capital stock of the Company during the term of this Agreement other than
with the Other Shareholders. Neither the Shareholder nor any Affiliate shall
seek or solicit any such acquisition or sale, assignment, transfer, encumbrance
or other disposition or any such contract, option or other arrangement or
assignment or understanding and the Shareholder agrees to notify the Buyer
promptly and to provide all details requested by the Buyer if the Shareholder
shall be approached or solicited, directly or indirectly, by any person or
entity with respect to any of the foregoing. Notwithstanding the foregoing, the
Shareholder (and any Affiliate) shall be entitled, (i) so long as the
Shareholder at all times, until the earlier to occur of the consummation of the
Securities Purchase and the termination of this Agreement, retains the right to
vote (and give consent in respect of) such Shares (subject to the terms of this
Agreement), to transfer for no consideration up to 400,000 Shares in the
aggregate to an organization that is described in Section 501(c)(3) of the
Internal Revenue Code of 1986, as amended, and (x) that is not an Affiliate of
the Shareholder and (y) that is not a person or entity in respect of which the
Shareholder or any Affiliate serves as trustee or in any other fiduciary
capacity, (ii) at any
III-6
<PAGE>
time beginning three business days after the financial results of the Company
for the fiscal year ending February 3, 1996 have been Publicly Disclosed (as
defined below) by the Company, but not before consummation of the Securities
Purchase, to sell all or a portion of the Shares to any purchaser, (x) in the
case of non-negotiated, public, open-market transactions, in amounts not to
exceed the limitations set forth in Rule 144(e) under the Securities Act
(provided that the Shareholder and his Affiliates shall be considered one person
for purposes of such limitations) and (y) in all other cases, other than to an
Entrepreneurial Investor (as defined below), (iii) to pledge Shares in order to
secure a loan from a bona fide lending institution, provided that (x) prior to
such pledge such institution agrees in writing to enter into an agreement with
the Buyer substantially identical to this Agreement and reasonably satisfactory
in all respects to the Buyer, such agreement to take effect immediately prior to
such institution's foreclosing or receiving any rights (other than a security
interest therein) in respect of such Shares, and (y) prior to such foreclosure,
the rights of such institution in respect of such Shares shall be limited to a
security interest therein and be subject to this Agreement and (iv) to transfer
Shares by will or pursuant to the laws of descent and distribution to an
Affiliate of the Shareholder, provided that, at the time of such transfer, such
transferee enters into an agreement with the Buyer substantially identical to
this Agreement and reasonably satisfactory in all respects to the Buyer. The
Shareholder shall provide the Buyer with prior written notice of any proposed
transfer of Shares pursuant to this Section 5(d) and evidence of compliance
therewith. For purposes of this Agreement, "Publicly Disclosed" means the
Company's publicly announcing (which may include disclosure in the Proxy
Statement mailed to the holders of Company Common Stock in connection with the
Securities Purchase) the consolidated financial results of the Company and its
consolidated subsidiaries for the fiscal year ending February 3, 1996 in the
same detail as the Company's public announcement of such results for the fiscal
year ended January 28, 1995 (containing at least the consolidated revenues,
operating income and net income of the Company and its consolidated
subsidiaries), and an "Entrepreneurial Investor" means any investor that (or any
investor, any of whose Affiliates) (x) is listed on Schedule I hereto or (y) is
unacceptable to John Vogelstein, in his sole discretion, provided that no
individual or entity listed on Schedule II hereto shall be deemed an
Entrepreneurial Investor.
(e) The Shareholder shall execute and deliver any
additional documents reasonably necessary or desirable, in the reasonable
opinions of both the Buyer's counsel and the
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<PAGE>
Shareholder's counsel, to evidence the Proxy granted in Section 1 with respect
to the Shares or otherwise implement and effect the provisions of this
Agreement.
(f) Effective upon consummation of the Securities
Purchase, the Shareholder shall resign from all of the positions then held by
him with the Company and its subsidiaries, including, without limitation, from
the offices of Chairman and Chief Executive Officer and from the Board of
Directors of the Company, from the office of Chairman and from the Board of
Directors of Western Publishing Company, Inc. and from the offices of Chairman,
President and Chief Executive Officer and from the Board of Directors of Penn
Corporation.
(g) The Shareholder hereby agrees promptly to cause
the amendment, in a manner reasonably acceptable to the Buyer, of the trademark
license agreement, dated September 11, 1995, between P&E Properties, Inc.
("P&E") and Western Publishing Company, Inc. relating to the right to display
"The Poky Little Puppy" trademark on a corporate jet owned by P&E, provided that
no royalties shall be payable for such right and that such right shall be not be
assignable and shall terminate when such jet is no longer owned by P&E or an
Affiliate thereof.
6. Representations and Warranties of the Buyer.
The Buyer represents and warrants to the Shareholder that:
(a) The Buyer has all requisite power and authority
to enter into and perform all of its obligations under this Agreement. The
execution, delivery and performance of this Agreement and all of the
transactions contemplated hereby have been duly authorized by all necessary
action on the part of the Buyer. This Agreement has been duly executed and
delivered by the Buyer.
(b) Neither the execution, delivery or performance of
this Agreement by the Buyer nor the consummation of the transactions
contemplated herein will violate the organizational documents of the Buyer or
will conflict with or result in the breach of any material term, condition or
provision of any instrument, indenture, contract, lease or other document or
understanding, oral or written, to which the Buyer is a party or is otherwise
bound or affected in such a manner as to materially and adversely affect the
business of the Buyer.
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<PAGE>
7. Termination. This Agreement may be terminated by any party
hereto on or after the day of termination of the Securities Purchase Agreement
in accordance with its terms, prior to the consummation of the Securities
Purchase, and thereafter (i) by mutual written consent of both parties hereto,
provided that Section 10 hereof shall survive termination of this Agreement or
(ii) at such time as the Shareholder and the Other Shareholders shall have
disposed of direct and indirect "beneficial ownership" of all shares of Company
Common Stock (excluding the 60,000 share of Company Common Stock owned by the
Bernstein Foundation) in bona fide transactions that do not violate this
Agreement.
8. Binding Effect; Assignment. This Agreement shall inure to
the benefit of and be binding upon the parties and their respective successors
and permitted assigns. Except as contemplated by Section 5(d), the Shareholder
shall not assign its rights or obligations hereunder without the Buyer's
consent. The Buyer may assign its rights and obligations hereunder to an
Affiliate.
9. Notices. All notices and communications hereunder shall be
in writing and shall be deemed to have been duly given if delivered personally
or by Federal Express or other courier service or sent by express mail, postage
prepaid, return receipt requested, addressed to the respective party at the
applicable address below, on the date of such personal delivery or on the date
received:
If to the Buyer: Golden Press Holding, L.L.C.
c/o Warburg, Pincus Ventures, L.P.
466 Lexington Avenue
New York, New York 10017
Attention: Joanne R. Wenig
Telecopy No.: (212) 878-9351
with a copy to: Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
Attention: Jack H. Nusbaum, Esq.
Telecopy No.: (212) 821-8111
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<PAGE>
If to the Shareholder: Richard A. Bernstein
444 Madison Avenue
Suite 601
New York, New York 10022
Telecopy No.: (212) 888-5025
with a copy to: James A. Cohen, Esq.
444 Madison Avenue
New York, New York 10022
Telecopy No.: (212) 888-5025
with a copy to: Milbank, Tweed, Hadley & McCloy
One Chase Manhattan Plaza
New York, New York 10005
Attention: Lawrence Lederman, Esq.
Telecopy No.: (212) 530-5219
Any party may change the foregoing address from time to time by giving the other
party notice thereof.
10. Injunctive Relief; Remedies Cumulative.
(a) Each party hereto acknowledges that the other
party will be irreparably harmed and that there will be no adequate remedy at
law for a violation of any of the covenants or agreements of such party that are
contained in this Agreement. It is accordingly agreed that, in addition to any
other remedies that may be available to the non-breaching party upon the breach
by any other party of such covenants and agreements, the non-breaching party
shall have the right to obtain injunctive relief to restrain any breach or
threatened breach of such covenants or agreements or otherwise to obtain
specific performance of any of such covenants or agreements.
(b) No remedy conferred upon or reserved to any party
herein is intended to be exclusive of any other remedy, and every remedy shall
be cumulative and in addition to every other remedy herein or now or hereafter
existing at law, in equity or by statute.
11. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to the principles of conflicts of laws thereof; provided, however, that the laws
of the State of Delaware shall govern as to internal corporate matters.
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<PAGE>
12. Counterparts. This Agreement may be executed in any
number of counterparts, all of which together shall constitute a single
agreement.
13. Effect of Partial Invalidity. Whenever possible, each
provision of this Agreement shall be construed in such a manner as to be
effective and valid under applicable law. If any provision of this Agreement or
the application thereof to any party or circumstance shall be prohibited by or
invalid under applicable law, such provisions shall be ineffective to the extent
of such prohibition without invalidating the remainder of such provision or any
other provisions of this Agreement or the application of such provision to the
other party or other circumstances.
14. Entire Agreement. This Agreement constitutes the entire
understanding among the parties hereto with respect to the subject matter hereof
and supersedes any prior agreements, written or oral, with respect thereto.
15. Jurisdiction and Process. Each party hereto irrevocably
submits to the non-exclusive jurisdiction of the United States District Court
for the Southern District of New York and of any New York state court sitting in
New York City for the purposes of all legal proceedings arising out of or
relating to this Agreement or the transactions contemplated hereby. Each party
hereto irrevocably waives, to the fullest extent permitted by law, any objection
which it may now or hereafter have to the laying of the venue of any such
proceeding brought in such a court and any claim that any such proceeding
brought in such a court has been brought in an inconvenient forum. Each party
hereto agrees that a final judgment in any such proceeding shall be conclusive
and may be enforced in other jurisdictions by suit on the judgment or in any
other manner provided by law. Each party hereto consents to process being served
in any such proceeding by mailing a copy thereof by registered or certified
mail, postage prepaid, return receipt requested to such party at its address
specified in Section 9 or at such other address of which such party shall then
have been notified pursuant to said Section. Each party hereto agrees that such
service upon receipt (i) shall be deemed in every respect effective service of
process upon it in any such proceeding and (ii) shall, to the fullest extent
permitted by applicable law, be taken and held be valid personal service upon
and personal delivery to such party. Such service shall be conclusively presumed
received as evidenced by a delivery receipt furnished by the United States
Postal Service or any reputable commercial delivery service.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the
parties as of the date first above written.
GOLDEN PRESS HOLDING, L.L.C.
By: WARBURG, PINCUS VENTURES, L.P.
Member
By: ________________________________
Name:
Title: General Partner
-----------------------------------
Richard A. Bernstein
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<PAGE>
Index of Defined Terms
Affiliate 1
beneficial ownership 2
Bernstein Foundation 4
Buyer 1
Company 1
Company Common Stock 1
Nominee 3
Nominee Shares 3
Other Shareholders 1
P&E 8
Proxy 2
Publicly Disclosed 7
Securities Act 1
Securities Purchase 1
Securities Purchase Agreement 1
Series B Preferred Stock 1
Shareholder 1
Shares 1
Warrant 1
WPV 2
<PAGE>
APPENDIX IV
CERTIFICATE OF DESIGNATIONS, NUMBER, VOTING POWERS,
PREFERENCES AND RIGHTS OF SERIES B CONVERTIBLE
PREFERRED STOCK
OF
[WESTERN PUBLISHING GROUP, INC.]
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
The undersigned DOES HEREBY CERTIFY that the following
resolution was duly adopted by the Board of Directors of [Western Publishing
Group, Inc.], a Delaware corporation (hereinafter called the "Corporation"),
with the preferences and rights set forth therein relating to dividends,
conversion, redemption, dissolution and distribution of assets of the
Corporation having been fixed by the Board of Directors pursuant to authority
granted to it under Article FOURTH of the Corporation's Certificate of
Incorporation and in accordance with the provisions of Section 151 of the
General Corporation Law of the State of Delaware:
RESOLVED: That, pursuant to authority conferred upon the Board
of Directors by the Certificate of Incorporation of the Corporation, the Board
of Directors hereby authorizes the issuance of 13,000 shares of Series B
Convertible Preferred Stock of the Corporation, and hereby fixes the
designations, powers, preferences and relative, participating, optional or other
special rights, and the qualifications, limitations or restrictions thereof, of
such shares, in addition to those set forth in the Certificate of Incorporation
of the Corporation, as follows:
1. DESIGNATION AND AMOUNT. The shares of such series shall
be designated "Series B Convertible Preferred Stock" (the "Series B Preferred
Stock") and the number of shares constituting such series shall be 13,000.
2. DIVIDENDS.
(a) The holders of Series B Preferred Stock (i) shall receive
on the first day of February, May, August and November (each a "Dividend Date")
of each twelve-month period following the date of initial issuance of the Series
B Preferred Stock (the "Initial Issuance Date") through the fourth anniversary
of the Initial Issuance Date, a stock dividend per share of Series B Preferred
Stock equal to a number of shares of Common Stock of the
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Corporation ("Common Stock") determined by multiplying the Conversion Rate (as
determined pursuant to Sections 5 and 6 below) by .03 (such that at the initial
Conversion Rate the holders of the Series B Preferred Stock shall receive in the
aggregate 195,000 shares of Common Stock on a quarterly basis, resulting in the
receipt of an aggregate of 780,000 shares of Common Stock in each of the first
four years after the Initial Issuance Date, subject to adjustment in the event
of any dividend, stock split, stock distribution or combination with respect to
any such shares), provided, however, that (x) in the event that the product of
the number of shares of Common Stock per share of Series B Preferred Stock to be
distributed in any quarter and the Market Price (as defined below) (the
"Dividend Value") is less than $93.75, then, in addition to such shares of
Common Stock, the holders shall receive on such date, out of legally available
funds of the Corporation, cash per share of Series B Preferred Stock in an
amount equal to the excess of $93.75 over the Dividend Value, compounded
quarterly, and (y) in the event that the Dividend Value exceeds $187.50, then
the number of shares of Common Stock to be so distributed shall be reduced by an
amount sufficient to cause the Dividend Value to equal $187.50 (subject in each
case to adjustment in the event of any dividend, stock split, stock distribution
or combination with respect to any such shares), and (ii) shall be entitled to
receive thereafter, beginning on the first to occur of the first day of
February, May, August or November after the fourth anniversary of the Initial
Issuance Date, when and as declared, out of legally available funds of the
Corporation, cash dividends (computed on the basis of a 360-day year of twelve
30-day months) at the rate of $150 per share (subject to adjustment in the event
of any dividend, stock split, stock distribution or combination with respect to
any such shares), compounded quarterly, payable quarterly on the first day of
February, May, August and November of each twelve-month period after the fourth
anniversary of the Initial Issuance Date, on a pari passu basis with the Series
A Preferred Stock of the Corporation (the "Series A Preferred Stock") (such
stock and any other class or series of the preferred stock of the Corporation
which shall rank with respect to the payment of dividends on a parity with the
Series B Preferred Stock being referred to hereinafter, collectively, as "Parity
Stock") and before any dividends shall be set apart for or paid upon the Common
Stock or any other stock ranking with respect to the payment of dividends junior
to the Series B Preferred Stock (such stock being referred to hereinafter
collectively as "Junior Stock") in any year. All dividends declared upon Series
B Preferred Stock shall be declared pro rata per share.
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For purposes of this Section 2, the term "Market Price" shall
mean the average closing price of a share of Common Stock for the ten
consecutive trading days immediately preceding the Dividend Date or the
conversion date, as the case may be, as reported on the principal national
securities exchange on which the shares of Common Stock or securities are listed
or admitted to trading or, if not listed or admitted to trading on any national
securities exchange, the average of the closing bid and asked prices during such
ten trading day period in the over-the-counter market as reported by the Nasdaq
National Market or any comparable system, or, if no such firm is then engaged in
the business of reporting such prices, as reported by The Wall Street Journal,
or, if not so reported, as furnished by any member of the National Association
of Securities Dealers, Inc. selected by the Corporation or, if the shares of
Common Stock or securities are not publicly traded, the Market Price for such
date shall be the fair market value thereof determined jointly by the
Corporation and the holders of record of a majority of the Series B Preferred
Stock then outstanding; provided, however, that if such parties are unable to
reach agreement within a reasonable period of time, the Market Price shall be
determined in good faith by an independent investment banking firm selected
jointly by the Corporation and the holders of record of a majority of the Series
B Preferred Stock then outstanding or, if that selection cannot be made within
ten days, by an independent investment banking firm selected by the American
Arbitration Association in accordance with its rules, and provided further, that
the Corporation shall pay all of the fees and expenses of any third parties
incurred in connection with determining the Market Price.
(b) Dividends on the Series B Preferred Stock shall be
cumulative, whether or not in any fiscal year there shall be net profits or
surplus available for the payment of dividends in such fiscal year, so that if
in any fiscal year or years, dividends in whole or in part are not paid upon the
Series B Preferred Stock, (i) unpaid dividends shall accumulate and no sums in
any years shall be paid to the holders of the Junior Stock until all dividends
payable on the Series B Preferred Stock have been paid in full, and (ii) no full
dividends shall be declared or paid or set apart for payment on any Parity Stock
for any period unless full cumulative dividends have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for such payment on the Series B Preferred Stock for all dividend
payment periods terminating on or prior to the date of payment of such full
cumulative dividends. If at any time the Corporation shall have failed to pay
full dividends which have accrued (whether or not earned or declared) on the
shares of the Series B Preferred Stock and any other Parity Stock, all dividends
(other than Series B Preferred
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Stock dividends paid in shares of Common Stock) declared upon shares of the
Series B Preferred Stock and any other Parity Stock shall be declared pro rata
so that the amount of dividends declared per share on the Series B Preferred
Stock and such other Parity Stock shall in all cases bear to each other the same
ratio that accrued dividends per share on the Series B Preferred Stock and other
such Parity Stock bear to each other.
3. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series B
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, after and
subject to the payment in full of all amounts required to be distributed to the
holders of any other Preferred Stock of the Corporation ranking on liquidation
prior and in preference to the Series B Preferred Stock (such Preferred Stock
being referred to hereinafter as "Senior Preferred Stock") upon such
liquidation, dissolution or winding up, but before any payment shall be made to
the holders of Junior Stock, an amount equal to $5,000 per share plus any
dividends thereon cumulated or accrued but unpaid, whether or not declared
(subject to adjustment in the event of any stock dividend, stock split, stock
distribution or combination with respect to such shares). If upon any such
liquidation, dissolution or winding up of the Corporation the remaining assets
of the Corporation available for the distribution to its stockholders after
payment in full of amounts required to be paid or distributed to holders of
Senior Preferred Stock shall be insufficient to pay the holders of shares of
Series B Preferred Stock the full amount to which they shall be entitled, the
holders of shares of Series B Preferred Stock and shares of Parity Stock shall
share ratably in any distribution of the remaining assets and funds of the
Corporation in proportion to the respective amounts which would otherwise be
payable in respect to the shares held by them upon such distribution if all
amounts payable on or with respect to said shares were paid in full.
(b) After the payment of all preferential amounts required to
be paid to the holders of Senior Preferred Stock, Series B Preferred Stock and
Parity Stock and any other series of Preferred Stock upon the dissolution,
liquidation or winding up of the Corporation, the holders of shares of Common
Stock then outstanding shall be entitled to receive the remaining assets and
funds of the Corporation available for distribution to its stockholders.
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<PAGE>
(c) The merger or consolidation of the Corporation into or
with another corporation, the merger or consolidation of any other corporation
into or with the Corporation, or the sale, conveyance, mortgage, pledge or lease
of all or substantially all the assets of the Corporation shall not be deemed to
be a liquidation, dissolution or winding up of the Corporation for purposes of
this Section 3.
4. VOTING.
(a) Each issued and outstanding share of Series B Preferred
Stock shall be entitled to the number of votes equal to the number of shares of
Common Stock into which each such share of Series B Preferred Stock is
convertible (as adjusted from time to time pursuant to Section 5 thereof), at
each meeting of stockholders of the Corporation with respect to any and all
matters presented to the stockholders of the Corporation for their action or
consideration, including, without limitation, the election of all directors (the
"Non-Series B Directors") other than those as to which the Series B Preferred
Stock has rights voting separately as a class as set out in paragraphs (b) and
(c) below. Except as provided by law, by the provisions of paragraphs (b), (c)
and (d) below or by the provisions establishing any other series of Preferred
Stock, holders of Series B Preferred Stock, and of any other outstanding
Preferred Stock that is entitled to vote together with the holders of Common
Stock as a single class, shall vote together with the holders of Common Stock as
a single class.
(b) In addition to the right of the holders of Series B
Preferred Stock to vote together with the holders of Common Stock as a single
class with respect to the election of the Non-Series B Directors, for as long as
at least (i) 40% of the shares of Series B Preferred Stock issued on the Initial
Issuance Date (after taking into account any adjustments provided for
hereunder)(the "Initial Series B Shares") are owned by Golden Press Holding,
L.L.C. ("GP Holding"), any of its members, any Affiliates (as defined below) of
such members (other than of Warburg, Pincus Ventures, L.P. ("WPV")) and the
general partnership that acts as a general partner of WPV (GP Holding, its
members, such Affiliates, WPV and such general partnership being herein
collectively referred to as the "GP Holding Parties"), the holders of Series B
Preferred Stock shall have the exclusive right, voting separately
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<PAGE>
as a class, to elect one-third of the members of the Corporation's Board of
Directors (herein referred to as the "Series B Directors"), (ii) 30% of the
Initial Series B Shares are owned by GP Holding Parties, the holders of Series B
Preferred Stock shall have the exclusive right, voting separately as a class, to
elect two Series B Directors, and (iii) 20% of the Initial Series B Shares are
owned by GP Holding Parties, the holders of Series B Preferred Stock shall have
the exclusive right, voting separately as a class, to elect one Series B
Director. In case such number of members calculated pursuant to clause (i) of
the immediately preceding sentence is not an integer, the number of Series B
Directors shall be rounded up to the next integer. All such Series B Directors
shall be elected by the affirmative vote of the holders of record of a majority
of the outstanding shares of Series B Preferred Stock either at meetings of
stockholders at which directors are elected, a special meeting of holders of
Series B Preferred Stock or by written consent without a meeting in accordance
with the General Corporation Law of Delaware. Each Series B Director so elected
shall serve for a term of one year and until his successor is elected and
qualified, provided, however, that promptly upon any decrease in the number of
Series B Directors that the holders of the Series B Preferred Stock are entitled
to elect pursuant to the first sentence of this paragraph (b), the appropriate
number of Series B Directors shall resign from the Corporation's Board of
Directors. Any vacancy in the position of a Series B Director, other than
pursuant to the proviso in the immediately preceding sentence, may be filled
only by the holders of the Series B Preferred Stock. Each Series B Director may,
during his term of office, be removed at any time, with or without cause, by and
only by the affirmative vote, at a special meeting of holders of Series B
Preferred Stock called for such purpose, or the written consent, of the holders
of record of a majority of the outstanding shares of Series B Preferred Stock.
Any vacancy created by such removal may also be filled at such meeting or by
such consent. On the Initial Issuance Date, the Board of Directors of the
Corporation shall consist of nine members. For purposes hereof, "Affiliates"
shall include persons included under the definition thereof in Rule 405 under
the Securities Act of 1933, as amended, immediate family members and trusts, 25%
or more of the beneficial interests of which are owned by such persons or one or
more of their immediate family members.
(c) In addition to any other rights provided by law, for as
long as at least one-half (1/2) of the Initial Series B Shares are owned by GP
Holding Parties, the Corporation shall not (nor shall it, in the case of clauses
(ii), (iii), (iv) and (v), permit any of its subsidiaries to), without first
obtaining the affirmative vote or written consent of the holders of record of a
majority of the shares of the Series B Preferred Stock, voting as a separate
class:
(i) amend or repeal any provision of the Corporation's
Certificate of Incorporation or By-Laws, including without
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<PAGE>
limitation a change in the number of members of the Board of Directors
of the Corporation;
(ii) authorize or effect the incurrence or issuance of any
Indebtedness (as defined below) (other than pursuant to an agreement to
incur the same which has been approved in writing by holders of a
majority of outstanding shares of Series B Preferred Stock, and other
than pursuant to that certain Credit Agreement, dated September 29,
1995, between Western Publishing Company, Inc. and Heller Financial,
Inc.) or shares of capital stock or rights to acquire capital stock
other than, in the case of shares of Common Stock, (x) options to
acquire up to 1,874,300 shares of Common Stock issued to employees of
the Corporation pursuant to the Amended and Restated 1986 Employee
Stock Option Plan of the Corporation (the "Stock Option Plan") or (y)
thereafter approved with the consent of the holders of record of a
majority of the then outstanding shares of Series B Preferred Stock;
provided, however, that the incurrence of Indebtedness among the
Corporation and its subsidiaries shall not require such consent;
(iii) authorize or effect (A) in one or in a series of two or
more related transactions, any sale, lease, license, transfer or other
disposition of assets for consideration in excess of $5,000,000 (other
than in the ordinary course of business or among the Corporation and
its subsidiaries); (B) any merger or consolidation or other
reorganization involving the Corporation or any of its subsidiaries
(other than with one another or in respect of which the aggregate
consideration paid to or received by the Corporation or its
subsidiaries is less than $5,000,000) or (C) a liquidation, winding up,
dissolution or adoption of any plan for the same other than the
liquidation, winding up, dissolution or adoption of any plan for the
same of a subsidiary into the Corporation or another subsidiary
thereof;
(iv) authorize or effect, in one or in a series of two or more
related transactions, (A) any acquisition or lease of assets or (B) any
license of patent, trademark or other rights relating to any
intellectual property, in each case, that involves by its terms a per
annum payment in excess of $5,000,000 as determined in good faith by
the Corporation's Board of Directors, other than among the Corporation
and its subsidiaries or in the ordinary course of business; or
(v) terminate the employment of the chief executive officer
of the Corporation.
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<PAGE>
For purposes of this Section 4(c), "Indebtedness" means liability for borrowed
money or the deferred purchase price of property or services (except payables
arising in the ordinary course of business) and including any guaranties
thereof.
Notwithstanding anything in paragraphs (b) or (c) to the
contrary, in the event that the shares of Series B Preferred Stock are held by
more than 10 holders, then (i) the right of the holders of Series B Preferred
Stock to vote separately as a class to elect the Series B Directors shall
terminate, and the holders of the Series B Preferred Stock shall have the right
to vote together with the holders of Common Stock with respect to the election
of all directors as set forth in paragraph (a) above and (ii) the restrictions
on the Corporation set forth in this paragraph (c) shall terminate, provided
that for purposes of this sentence, each member of GP Holding (other than WPV)
together with the Affiliates of such member shall be deemed to be one holder (if
such member or Affiliate directly owns shares of Series B Preferred Stock) and
WPV and the general partnership that acts as a general partner of WPV together
shall be deemed to be one holder (if any such entity directly owns shares of
Series B Preferred Stock).
(d) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series B Preferred Stock so
as to affect adversely the Series B Preferred Stock, without the written consent
or affirmative vote of the holders of record of at least a majority of the then
outstanding aggregate number of shares of such adversely affected Series B
Preferred Stock, given in writing or by vote at a meeting, consenting or voting
(as the case may be) separately as a class. For this purpose, without limiting
the generality of the foregoing, the authorization or issuance of any series of
Preferred Stock with preference or priority over, or being on a parity with, the
Series B Preferred Stock as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of the Corporation
shall be deemed so to affect adversely the Series B Preferred Stock.
5. OPTIONAL CONVERSION. Each share of Series B Preferred Stock
may be converted at any time from and after the Initial Issuance Date, at the
option of the holder thereof, in the manner hereinafter provided, into
fully-paid and nonassessable shares of Common Stock, provided, however, that on
any redemption of any Series B Preferred Stock or any liquidation of the
Corporation, the right of conversion shall terminate at the close of business on
the date fixed for such redemption or for the payment of any amounts
distributable on liquidation to the holders of Series B Preferred Stock, as the
case may be
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<PAGE>
(unless the Corporation defaults upon the payment due upon such redemption or
liquidation).
(a) The applicable conversion rate ("Conversion Rate") and
conversion price ("Conversion Price") of the Series B Preferred Stock from time
to time in effect is subject to adjustment as hereinafter provided. The initial
Conversion Rate shall be 500 shares of Common Stock for each one share of Series
B Preferred Stock surrendered for conversion representing an initial Conversion
Price (for purposes of Section 6) of $10.00 per share of Common Stock. Exercise
of the conversion right set forth herein by the exercising holder shall not
extinguish such holder's right to receive, and of the Corporation's obligation
to pay, any and all accrued but unpaid dividends, whether or not declared, up to
and including the time of conversion in respect of any shares of Series B
Preferred Stock then being converted. In the event any such accrued but unpaid
dividends are not paid at the time of such conversion, interest on the unpaid
amount of such dividends shall continue to accrue at the rate of 12% per annum,
compounded quarterly, until such amount is paid.
(b) The Corporation shall not issue fractions of shares of
Common Stock upon conversion of Series B Preferred Stock or scrip in lieu
thereof. If any fraction of a share of Common Stock would, except for the
provisions of this paragraph (b), be issuable upon conversion of any Series B
Preferred Stock, the Corporation shall in lieu thereof pay to the person
entitled thereto an amount in cash equal to such fraction multiplied by the
Market Price of one share of Common Stock, calculated to the nearest
one-hundredth (1/100) of a share.
(c) Whenever the Conversion Rate and Conversion Price shall be
adjusted as provided in Section 6 hereof, the Corporation shall forthwith file
at each office designated for the conversion of Series B Preferred Stock, a
statement, signed by the Chairman of the Board, the President, any Vice
President or Treasurer of the Corporation, showing in reasonable detail the
facts requiring such adjustment and the Conversion Rate that will be effective
after such adjustment. The Corporation shall also cause a notice setting forth
any such adjustments to be sent by mail, first class, postage prepaid, to each
holder of record of Series B Preferred Stock at his or its address appearing on
the stock register. If such notice relates to an adjustment resulting from an
event referred to in paragraph 6(g), such notice shall be included as part of
the notice required to be mailed and published under the provisions of paragraph
6(g) hereof.
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(d) In order to exercise the conversion privilege, the holder
of record of any Series B Preferred Stock to be converted shall surrender his or
its certificate or certificates therefor to the principal office of the transfer
agent for the Series B Preferred Stock (or if no transfer agent is at the time
appointed, then the Corporation at its principal office), and shall give written
notice to the Corporation at such office that the holder elects to convert the
Series B Preferred Stock represented by such certificates, or any number
thereof. Such notice shall also state the name or names (with address) in which
the certificate or certificates for shares of Common Stock which shall be
issuable on such conversion shall be issued, subject to any restrictions on
transfer relating to shares of the Series B Preferred Stock or shares of Common
Stock upon conversion thereof. If so required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly authorized in writing. The date of receipt by the transfer agent (or by the
Corporation if the Corporation serves as its own transfer agent) of the
certificates and notice shall be the conversion date. As soon as practicable
after receipt of such notice and the surrender of the certificate or
certificates for Series B Preferred Stock as aforesaid, the Corporation shall
cause to be issued and delivered at such office to such holder, or on his or its
written order, a certificate or certificates for the number of full shares of
Common Stock issuable on such conversion in accordance with the provisions
hereof and cash as provided in paragraph (b) of this Section 5 in respect of any
fraction of a share of Common Stock otherwise issuable upon such conversion.
(e) The Corporation shall at all times when the Series B
Preferred Stock shall be outstanding reserve and keep available out of its
authorized but unissued stock, for the purposes of effecting the conversion of
the Series B Preferred Stock, such number of its duly authorized shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding Series B Preferred Stock. Before taking any action which
would cause an adjustment reducing the Conversion Price below the then par value
of the shares of Common Stock issuable upon conversion of the Series B Preferred
Stock, the Corporation will take any corporate action which may, in the opinion
of its counsel, be necessary in order that the Corporation may validly and
legally issue fully-paid and nonassessable shares of such Common Stock at such
adjusted Conversion Price.
(f) All shares of Series B Preferred Stock which shall have
been surrendered for conversion as herein provided shall no longer be deemed to
be outstanding and all rights with respect to such shares, including the rights,
if any, to receive notices and
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to vote, shall forthwith cease and terminate except the right of the holder
thereof to receive payment of any accrued but unpaid dividends thereon and
shares of Common Stock in exchange therefor. Any shares of Series B Preferred
Stock so converted shall be retired and cancelled and shall not be reissued, and
the Corporation may from time to time take such appropriate action as may be
necessary to reduce the authorized Series B Preferred Stock accordingly.
6. ANTI-DILUTION PROVISIONS.
(a) In order to prevent dilution of the right granted
hereunder, the Conversion Price shall be subject to adjustment from time to time
in accordance with this paragraph 6(a). At any given time the Conversion Price,
whether as the initial price of $10.00 per share or as last adjusted, shall be
that dollar (or part of a dollar) amount the payment of which shall be
sufficient at the given time to acquire one share of Common Stock upon
conversion of shares of Series B Preferred Stock. Upon each adjustment of the
Conversion Price pursuant to Section 6, the Conversion Rate shall be adjusted
such that the registered holders of shares of Series B Preferred Stock shall
thereafter be entitled to acquire upon exercise, at the Conversion Price
resulting from such adjustment, the number of shares of Common Stock obtainable
by multiplying the Conversion Price in effect immediately prior to such
adjustment by the number of shares of Common Stock acquirable immediately prior
to such adjustment and dividing the product thereof by the Conversion Price
resulting from such adjustment. For purposes of this Section 6, the term "Number
of Common Shares Deemed Outstanding" at any given time shall mean the sum of (x)
the number of shares of Common Stock outstanding at such time, (y) the number of
shares of Common Stock issuable assuming conversion at such time of the
Corporation's Series A Preferred Stock and Series B Preferred Stock and (z) the
number of shares of Common Stock deemed to be outstanding under subparagraphs
6(b)(1) to (9), inclusive, at such time.
(b) Except as provided in paragraph 6(c) or 6(f) below, if and
whenever on or after the Initial Issuance Date, the Corporation shall issue or
sell, or shall in accordance with subparagraphs 6(b)(1) to (9), inclusive, be
deemed to have granted, issued or sold, any shares of its Common Stock for a
consideration per share less than the Conversion Price in effect immediately
prior to the time of such grant, issue or sale, then forthwith upon such grant,
issue or sale (the "Triggering Transaction"), the Conversion Price shall,
subject to subparagraphs (1) to (9) of this paragraph 6(b), be reduced to the
Conversion Price (calculated to the nearest tenth of a cent) determined by
dividing:
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(i) an amount equal to the sum of (x) the product derived by
multiplying the Number of Common Shares Deemed Outstanding immediately
prior to such Triggering Transaction by the Conversion Price then in
effect, plus (y) the consideration, if any, received by the Corporation
upon consummation of such Triggering Transaction, by
(ii) an amount equal to the sum of (x) the Number of Common
Shares Deemed Outstanding immediately prior to such Triggering
Transaction, plus (y) the number of shares of Common Stock granted,
issued or sold (or deemed to be granted, issued or sold in accordance
with subparagraphs 6(b)(1) to (9) hereof) in connection with such
Triggering Transaction;
provided, however, that the Conversion Price shall not be so reduced if (A) for
so long as the holders of the Series B Preferred Stock have the right to elect
one or more Series B Directors pursuant to Section 4(b) hereof or to approve
certain transactions by the Corporation pursuant to Section 4(c) hereof, such
Triggering Transaction involves a grant, issuance or sale of Common Stock to any
GP Holding Party other than ratably to all holders of the Common Stock, and such
Triggering Transaction has not been approved by a majority of the Non-Series B
Directors (other than natural persons who are GP Holding Parties or officers,
directors or employees of entities that are GP Holding Parties) or (B) the
Triggering Transaction involves a grant, issuance or sale of Common Stock that
has not been registered pursuant to the Securities Act of 1933, as amended, and
an investment bank of national standing and reputation, engaged for a fee by the
Corporation pursuant to a written engagement letter, has not been consulted by
the Corporation with respect to the structure of such Triggering Transaction and
participated in the negotiation of such Triggering Transaction.
For purposes of determining the adjusted Conversion Price
under this paragraph 6(b), the following subsections (1) to (9), inclusive,
shall be applicable:
(1) In case the Corporation at any time shall in any
manner grant (whether directly or by assumption in a merger or
otherwise) any rights to subscribe for or to purchase, or any
options for the purchase of, (A) Common Stock or (B) any stock
or other securities convertible into or exchangeable for
Common Stock (such rights or options being herein called
"Options" and such convertible or exchangeable stock or
securities being herein called "Convertible Securities"),
whether or not such
IV-12
<PAGE>
Options or the right to convert or exchange any such
Convertible Securities are immediately exercisable, and the
price per share for which the Common Stock is issuable upon
exercise, conversion or exchange (determined by dividing (x)
the total amount, if any, received or receivable by the
Corporation as consideration for the granting of such Options,
plus the minimum aggregate amount of additional consideration,
if any, payable to the Corporation upon the exercise of all
such Options, plus, in the case of such Options which relate
to Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the issue or
sale of such Convertible Securities and upon the conversion or
exchange thereof, by (y) the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or the
conversion or exchange of such Convertible Securities) shall
be less than the Conversion Price in effect immediately prior
to the granting of such Option, then the total maximum amount
of Common Stock issuable upon the exercise of such Options or
in the case of Options which relate to Convertible Securities,
upon the conversion or exchange of such Convertible
Securities, shall (as of the date of granting of such Options)
be deemed to be outstanding and to have been issued and sold
by the Corporation for such price per share. No adjustment of
the Conversion Price shall be made upon the actual issue of
such shares of Common Stock or such Convertible Securities
upon the exercise of such Options, except as otherwise
provided in subparagraph (3) below.
(2) In case the Corporation at any time shall in any
manner issue (whether directly or by assumption in a merger or
otherwise) or sell any Convertible Securities, whether or not
the rights to exchange or convert thereunder are immediately
exercisable, and the price per share for which Common Stock is
issuable upon such conversion or exchange (determined by
dividing (x) the total amount received or receivable by the
Corporation as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Corporation
upon the conversion or exchange thereof, by (y) the total
maximum number of shares of Common Stock issuable upon the
conversion or exchange of all such Convertible Securities)
shall be less than the Conversion Price in respect of such
issue or sale, then the total maximum number of shares of
Common Stock
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<PAGE>
issuable upon conversion or exchange of all such Convertible
Securities shall (as of the date of the issue or sale of such
Convertible Securities) be deemed to be outstanding and to
have been issued and sold by the Corporation for such price
per share. No adjustment of the Conversion Price shall be made
upon the actual issue of such Common Stock upon exercise of
the rights to exchange or convert under such Convertible
Securities, except as otherwise provided in subparagraph (3)
below.
(3) If the purchase price provided for in any Options
referred to in subparagraph (1), the additional consideration,
if any, payable upon the conversion or exchange of any
Convertible Securities referred to in subparagraphs (1) or
(2), or the rate at which any Convertible Securities referred
to in subparagraph (1) or (2) are convertible into or
exchangeable for Common Stock shall change at any time (other
than under or by reason of provisions designed to protect
against dilution of the type set forth in paragraphs 6(b) or
6(d)), the Conversion Price in effect at the time of such
change shall forthwith be readjusted to the Conversion Price
which would have been in effect at such time had such Options
or Convertible Securities still outstanding provided for such
changed purchase price, additional consideration or conversion
rate, as the case may be, at the time initially granted,
issued or sold. If the purchase price provided for in any
Option referred to in subparagraph (1) or the rate at which
any Convertible Securities referred to in subparagraphs (1) or
(2) are convertible into or exchangeable for Common Stock,
shall be reduced at any time under or by reason of provisions
with respect thereto designed to protect against dilution,
then in case of the delivery of Common Stock upon the exercise
of any such Option or upon conversion or exchange of any such
Convertible Security, the Conversion Price then in effect
hereunder shall forthwith be adjusted to such respective
amount as would have been obtained had such Option or
Convertible Security never been issued as to such Common Stock
and had adjustments been made upon the issuance of the shares
of Common Stock delivered as aforesaid, but only if as a
result of such adjustment the Conversion Price then in effect
hereunder is hereby reduced.
(4) On the expiration of any Option or the
termination of any right to convert or exchange any
Convertible Securities, the Conversion Price then in
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<PAGE>
effect hereunder shall forthwith be increased to the
Conversion Price which would have been in effect at the time
of such expiration or termination had such Option or
Convertible Securities, to the extent outstanding immediately
prior to such expiration or termination, never been issued.
(5) In case any Options shall be issued in connection
with the issue or sale of other securities of the Corporation,
together comprising one integral transaction in which no
specific consideration is allocated to such Options by the
parties thereto, such Options shall be deemed to have been
issued without consideration (but shall otherwise be deemed
issued for the specific consideration allocated thereto).
(6) In case any shares of Common Stock, Options or
Convertible Securities shall be issued or sold or deemed to
have been issued or sold for cash, the consideration received
therefor less any underwriting discounts, selling commissions
and other expenses paid or incurred in respect of such
issuance or sale, shall be deemed to be the amount received by
the Corporation therefor. In case any shares of Common Stock,
Options or Convertible Securities shall be issued or sold for
a consideration other than cash, the amount of the
consideration other than cash received by the Corporation
shall be the fair value of such consideration as determined in
good faith by the Board of Directors of the Corporation. In
case any shares of Common Stock, Options or Convertible
Securities shall be issued in connection with any merger in
which the Corporation is the surviving corporation, the amount
of consideration therefor shall be deemed to be the value
attributable to such shares in such merger, provided that, to
the extent such value is not readily ascertainable, such value
shall be the fair value of such consideration as determined in
good faith by the Board of Directors of the Corporation.
(7) The number of shares of Common Stock outstanding
at any given time shall not include shares owned or held by or
for the account of the Corporation, and the disposition of any
shares so owned or held shall be considered an issue or sale
of Common Stock for the purpose of this paragraph 6(b).
(8) In case the Corporation shall declare a dividend
or make any other distribution upon the stock of the
Corporation (other than dividends payable on the
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<PAGE>
Series B Preferred Stock pursuant to Section 2 hereof) payable
in Common Stock, Options, or Convertible Securities (other
than a dividend or distribution payable in Common Stock
covered by subparagraph 6(c) or 6(d)), then in such case any
Common Stock, Options or Convertible Securities, as the case
may be, issuable in payment of such dividend or distribution
shall be deemed to have been issued or sold without
consideration.
(9) For purposes of this paragraph 6(b), in case the
Corporation shall take a record of the holders of its Common
Stock for the purpose of entitling them (x) to receive a
dividend or other distribution payable in Common Stock,
Options or in Convertible Securities, or (y) to subscribe for
or purchase Common Stock, Options or Convertible Securities,
then such record date shall be deemed to be the date of the
issue or sale of the shares of Common Stock deemed to have
been issued or sold upon the declaration of such dividend or
the making of such other distribution or the date of the
granting of such right or subscription or purchase, as the
case may be.
(c) In the event the Corporation shall declare a dividend upon
the Common Stock payable otherwise than out of earnings or earned surplus,
determined in accordance with generally accepted accounting principles,
including the making of appropriate deductions for minority interests, if any,
in subsidiaries but without increasing the same as a result of any write-up of
assets related to such dividend or any gain from the sale of any capital assets
related to such dividend (herein referred to as "Liquidating Dividends"), then,
the Corporation shall pay to the holders of the Series B Preferred Stock (in
respect of each share of Class B Preferred Stock), at the time such dividend is
paid to holders of the Common Stock and in addition to any other dividend
required to be paid to the holders of the Series B Preferred Stock, an amount
equal to the product of the Conversion Rate then in effect and the aggregate
value at such time of all Liquidating Dividends paid in respect of one share of
Common Stock. For the purposes of this paragraph 6(c), a dividend shall be
considered payable out of earnings or earned surplus only if paid in cash and to
the extent that such earnings or earned surplus are charged an amount equal to
the fair value of such dividend as determined in good faith by the Board of
Directors of the Corporation.
(d) In case the Corporation shall at any time subdivide its
outstanding shares of Common Stock into a greater number of shares, the
Conversion Price in effect immediately prior to such
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<PAGE>
subdivision shall be proportionately reduced, and, conversely, in case the
outstanding shares of Common Stock of the Corporation shall be combined into a
smaller number of shares, the Conversion Price in effect immediately prior to
such combination shall be proportionately increased.
(e) If any capital reorganization or reclassification of the
capital stock of the Corporation, or consolidation or merger of the Corporation
with another corporation, or the sale of all or substantially all of its assets
to another corporation (other than pursuant to a liquidation subject to Section
3 hereof) shall be effected in such a way that holders of Common Stock shall be
entitled to receive stock, securities, cash or other property with respect to or
in exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the holders of the Series B Preferred Stock shall have the
right to acquire and receive upon conversion of the Series B Preferred Stock,
which right shall be pari passu with the rights of holders of Parity Stock and
prior to the rights of the holders of Junior Stock (but after and subject to the
rights of holders of Senior Preferred Stock, if any), such shares of stock,
securities, cash or other property issuable or payable (as part of the
reorganization, reclassification, consolidation, merger or sale) with respect to
or in exchange for such number of outstanding shares of Common Stock as would
have been received upon conversion of the Series B Preferred Stock at the
Conversion Price then in effect. The Corporation will not effect any such
consolidation, merger or sale, unless prior to the consummation thereof the
successor corporation (if other than the Corporation) resulting from such
consolidation or merger or the corporation purchasing such assets shall assume
by written instrument (in form and substance reasonably satisfactory to the
holders of a majority of the outstanding Series B Preferred Stock) mailed or
delivered to the holders of the Series B Preferred Stock at the last address of
each such holder appearing on the books of the Corporation, the obligation to
deliver to each such holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
purchase.
(f) The provisions of this Section 6 shall not apply to any
Common Stock issued or issuable to any person or entity, or deemed outstanding,
under subparagraphs 6(b)(1) to (9) inclusive: (i) on exercise of options
outstanding as of the Initial Issuance Date to acquire up to 1,874,300 shares of
Common Stock issued to employees of the Corporation pursuant to the Stock Option
Plan or any options approved by the holders of record of a majority of the
outstanding shares of Series B Preferred Stock pursuant to Section 4(c)(ii)(y)
hereof, (ii) pursuant to options granted to
IV-17
<PAGE>
Richard E. Snyder under the Stock Option Plan, as amended by the Corporation's
Board of Directors on January 31, 1996, (iii) on conversion of the Series B
Preferred Stock or Series A Preferred Stock, (iv) as a dividend on the Series B
Preferred Stock, or (v) on exercise of the Warrant issued to GP Holding on the
Initial Issuance Date.
(g) In the event that:
(1) the Corporation shall declare any cash dividend upon its
Common Stock, or
(2) the Corporation shall declare any dividend upon its Common
Stock payable in stock or make any special dividend or other
distribution to the holders of its Common Stock, or
(3) the Corporation shall offer for subscription pro rata to
the holders of its Common Stock any additional shares of stock of any
class or other rights, or
(4) there shall be any capital reorganization or
reclassification of the capital stock of the Corporation, including any
subdivision or combination of its outstanding shares of Common Stock,
or consolidation or merger of the Corporation with, or sale of all or
substantially all of its assets to, another individual or entity, or
(5) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in connection with such event, the Corporation shall give to the holders
of the Series B Preferred Stock:
(i) at least ten (10) days' prior written notice of the
date on which the books of the Corporation shall
close or a record shall be taken for such dividend,
distribution or subscription rights or for
determining rights to vote in respect of any such
reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up;
and
(ii) in the case of any such reorganization,
reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, at least
twenty (20) days' prior written notice of the date
when the same shall take place. Such notice in
accordance with the foregoing clause (i) shall also
specify, in the case of any such dividend,
distribution or subscription rights, the date on
IV-18
<PAGE>
which the holders of Common Stock shall be entitled
thereto, and such notice in accordance with the
foregoing clause (ii) shall also specify the date on
which the holders of Common Stock shall be entitled
to exchange their Common Stock for securities or
other property deliverable upon such reorganization,
reclassification consolidation, merger, sale,
dissolution, liquidation or winding up, as the case
may be. Each such written notice shall be given by
first class mail, postage prepaid, addressed to the
holders of the Series B Preferred Stock at the
address of each such holder as shown on the books of
the Corporation.
(h) If at any time or from time to time on or after the
Initial Issuance Date, the Corporation shall grant, issue or sell any Options,
Convertible Securities, rights to purchase property or evidences of indebtedness
(the "Purchase Rights") pro rata to the record holders of any class of Common
Stock and such grants, issuances or sales do not result in an adjustment of the
Conversion Price under paragraph 6(b) hereof, then each holder of record of
Series B Preferred Stock shall be entitled to acquire (within thirty (30) days
after the later to occur of the initial exercise date of such Purchase Rights or
receipt by such holder of the notice concerning Purchase Rights to which such
holder shall be entitled under paragraph 6(g)) and upon the terms applicable to
such Purchase Rights either:
(i) the aggregate Purchase Rights which such holder could
have acquired if it had held the number of shares of
Common Stock acquirable upon conversion of the Series
B Preferred Stock immediately before the grant,
issuance or sale of such Purchase Rights; provided
that if any Purchase Rights were distributed to
holders of Common Stock without the payment of
additional consideration by such holders,
corresponding Purchase Rights shall be distributed to
the exercising holders of the Series B Preferred
Stock as soon as possible after such exercise and it
shall not be necessary for the exercising holders of
the Series B Preferred Stock specifically to request
delivery of such rights; or
(ii) in the event that any such Purchase Rights shall have
expired or shall expire prior to the end of said
thirty (30) day period, the number of shares of
Common Stock or the amount of property which such
holder could have acquired upon such exercise
IV-19
<PAGE>
at the time or times at which the Corporation
granted, issued or sold such expired Purchase Rights.
(i) If any event occurs as to which, in the opinion of the
Board of Directors of the Corporation, the provisions of this Section 6 are not
strictly applicable or if strictly applicable would not fairly protect the
rights of the holders of the Series B Preferred Stock in accordance with the
essential intent and principles of such provisions, then the Board of Directors
shall make an adjustment in the application of such provisions, in accordance
with such essential intent and principles, so as to protect such rights as
aforesaid, but in no event shall any adjustment have the effect of increasing
the Conversion Price as otherwise determined pursuant to any of the provisions
of this Section 6 except in the case of a combination of shares of a type
contemplated in paragraph 6(d) and then in no event to an amount larger than the
Conversion Price as adjusted pursuant to paragraph 6(d).
7. REDEMPTION.
(a) The Corporation, at its option, may redeem (to the extent
that such redemption shall not violate any applicable provisions of the laws of
the State of Delaware) all or a portion of the shares of Series B Preferred
Stock at a price of $5,000 per share (subject to adjustment in the event of any
stock dividend, stock split, stock distribution or combination with respect to
such shares), plus an amount equal to any dividends thereon cumulated or accrued
but unpaid, whether or not declared (such amount is hereinafter referred to as
the "Redemption Price"), from time to time after the fourth anniversary of the
Initial Issuance Date (any such date of redemption is hereafter referred to as a
"Redemption Date"), if prior to such redemption all accrued but unpaid dividends
on all outstanding shares of Series B Preferred Stock have been paid, provided,
however, that, without the written consent of the holders of a majority of the
outstanding shares of Class A Preferred Stock, the Corporation shall not redeem
any shares of Class B Preferred Stock so long as any shares of Class A Preferred
Stock remain outstanding.
(b) In the event of any redemption of only a part of the then
outstanding Series B Preferred Stock, the Corporation shall effect such
redemption pro rata among the holders thereof (based on the number of shares of
Series B Preferred Stock held on the date of notice of redemption).
(c) At least thirty (30) days prior to any proposed Redemption
Date, written notice shall be mailed, postage prepaid,
IV-20
<PAGE>
to each holder of record of Series B Preferred Stock to be redeemed, at his or
its post office address last shown on the records of the Corporation, notifying
such holder of the number of shares so to be redeemed, specifying the Redemption
Date and the date on which such holder's conversion rights (pursuant to Section
5 hereof) as to such shares terminate and calling upon such holder to surrender
to the Corporation, in the manner and at the place designated, his or its
certificate or certificates representing the shares to be redeemed (such notice
is hereinafter referred to as the "Redemption Notice"). On or prior to each
Redemption Date, each holder of record of Series B Preferred Stock to be
redeemed shall surrender his or its certificate or certificates representing
such shares to the Corporation, in the manner and at the place designated in the
Redemption Notice, and thereupon the Redemption Price of such shares shall be
payable to the order of the person whose name appears on such certificate or
certificates as the owner thereof and each surrendered certificate shall be
cancelled. In the event less than all the shares represented by any such
certificate are redeemed, a new certificate shall be issued representing the
unredeemed shares. From and after the Redemption Date, unless there shall have
been a default in payment of the Redemption Price, all rights of the holders of
the Series B Preferred Stock designated for redemption in the Redemption Notice
as holders of Series B Preferred Stock of the Corporation (except the right to
receive the Redemption Price upon surrender of their certificate or
certificates) shall cease with respect to such shares, and such shares shall not
thereafter be transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever.
(d) Except as provided in paragraph (a) above, the Corporation
shall have no right to redeem the shares of Series B Preferred Stock. Any shares
of Series B Preferred Stock so redeemed shall be permanently retired, shall no
longer be deemed outstanding and shall not under any circumstances be reissued,
and the Corporation may from time to time take such appropriate corporate action
as may be necessary to reduce the amount of authorized Series B Preferred Stock
accordingly. Nothing herein contained shall prevent or restrict the purchase by
the Corporation, from time to time either at public or private sale, of the
whole or any part of the Series B Preferred Stock at such price or prices as the
Corporation and the selling holders of the Series B Preferred Stock may mutually
determine, subject to the provisions of applicable law.
IN WITNESS WHEREOF, [Western Publishing Group, Inc.] has
caused this Certificate of Designations, Number, Voting Powers, Preferences and
Rights of Series B Convertible Preferred
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<PAGE>
Stock to be duly executed by its ______________ this ____ day of ____________,
1996.
[WESTERN PUBLISHING GROUP, INC.]
By:
----------------------------------
Name:
Title:
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<PAGE>
Index of Defined Terms
Affiliates 6
Common Stock 1
Conversion Price 8
Conversion Rate 8
Convertible Securities 12
Corporation 1
Dividend Date 1
Dividend Value 2
GP Holding 5
GP Holding Parties 5
Indebtedness 7
Initial Issuance Date 1
Initial Series B Shares 5
Junior Stock 2
Liquidating Dividends 16
Market Price 2
Non-Series B Directors 5
Number of Common Shares Deemed Outstanding 11
Parity Stock 2
Redemption Date 20
Redemption Notice 21
Redemption Price 20
Senior Preferred Stock 4
Series A Preferred Stock 2
Series B Directors 5
Series B Preferred Stock 1
Stock Option Plan 7
Triggering Transaction 11
WPV 5
<PAGE>
WF&G DRAFT
1/31/96
APPENDIX V
FORM OF WARRANT
THIS WARRANT AND THE SECURITIES ISSUABLE UPON ITS EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT
BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION UNDER THE ACT OR IN
A TRANSACTION WHICH, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO
[WESTERN PUBLISHING GROUP, INC.], QUALIFIES AS AN EXEMPT TRANSACTION UNDER THE
ACT AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER.
[WESTERN PUBLISHING GROUP, INC.]
Common Stock Purchase Warrant
[Western Publishing Group, Inc.], a Delaware corporation (the
"Company"), hereby certifies that, for value received, Golden Press Holding,
L.L.C. (the "Holder"), or assigns, is entitled, subject to the terms set forth
below, to purchase from the Company, at any time and from time to time during
the period beginning on the earlier to occur of (i) the second anniversary of
the date of issuance hereof and (ii) the date on which a bona fide Business
Combination Proposal (as defined in the Securities Purchase Agreement, dated as
of January 31, 1996, between the Company and the Holder) is publicly announced
or a proxy solicitation for control of the Company's Board of Directors is
initiated by any person or entity other than a Holder Party (as defined in
Section 3.1 hereof)(the "Earliest Exercise Date"), and ending on , 2003, in
whole or in part, an aggregate of 3,250,000 fully paid and non-assessable shares
of the Common Stock of the Company at a purchase price, subject to the
provisions of Paragraph 3 hereof, of $10.00 per share (the "Purchase Price").
The Purchase Price and the number and character of such shares are subject to
adjustment as provided below, and the term "Common Stock" shall mean, unless the
context otherwise requires, the stock or other securities or property at the
time deliverable upon the exercise of this Warrant.
1. EXERCISE OF WARRANT. The purchase rights evidenced by this
Warrant shall be exercised by the holder surrendering this Warrant, with the
form of subscription at the end hereof duly executed by such holder, to the
Company at its office in New
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<PAGE>
York, New York, accompanied by payment of an amount (the "Exercise Amount")
equal to the Purchase Price multiplied by the number of shares being purchased
pursuant to such exercise, payable as follows: (i) by payment to the Company in
cash, by certified or official bank check, or by wire transfer of the Exercise
Amount, (ii) by surrender to the Company for cancellation of securities of the
Company having a Market Price (as hereinafter defined) in respect of such
exercise equal to the Exercise Amount, or (iii) by a combination of the methods
described in clauses (i) and (ii) above. In lieu of exercising this Warrant
pursuant to the immediately preceding sentence, the holder may elect to receive
a payment equal to the difference between (i) the Market Price multiplied by the
number of shares as to which this Warrant is then being exercised and (ii) the
Purchase Price with respect to such shares, payable by the Company to the Holder
only in shares of Common Stock valued at the Market Price in respect of such
exercise, by surrendering this Warrant, with the form of subscription at the end
hereof duly executed by such holder, to the Company at its office in New York,
New York. For purposes hereof, the term "Market Price" shall mean the average
closing price of a share of Common Stock for the ten consecutive trading days
immediately preceding the date of exercise of this Warrant as reported on the
principal national securities exchange on which the shares of Common Stock or
securities are listed or admitted to trading or, if not listed or admitted to
trading on any national securities exchange, the average of the closing bid and
asked prices during such ten trading day period in the over-the-counter market
as reported by the Nasdaq National Market or any comparable system, or, if no
such firm is then engaged in the business of reporting such prices, as reported
by The Wall Street Journal, or, if not so reported, as furnished by any member
of the National Association of Securities Dealers, Inc. selected by the Company
or, if the shares of Common Stock or securities are not publicly traded, the
Market Price for such day shall be the fair market value thereof determined
jointly by the Company and the holder of this Warrant; provided, however, that
if such parties are unable to reach agreement within a reasonable period of
time, the Market Price shall be determined in good faith by an independent
investment banking firm selected jointly by the Company and the holder of this
Warrant or, if that selection cannot be made within ten days, by an independent
investment banking firm selected by the American Arbitration Association in
accordance with its rules, and provided further, that the Company shall pay all
of the fees and expenses of any third parties incurred in connection with
determining the Market Price.
1.1 Partial Exercise. This Warrant may be exercised for less
than the full number of shares of Common Stock, in which
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<PAGE>
case the number of shares receivable upon the exercise of this Warrant as a
whole, and the sum payable upon the exercise of this Warrant as a whole, shall
be proportionately reduced. Upon any such partial exercise, the Company at its
expense will forthwith issue to the holder hereof a new Warrant or Warrants of
like tenor calling for the number of shares of Common Stock as to which rights
have not been exercised, such Warrant or Warrants to be issued in the name of
the holder hereof or its nominee (upon payment by such holder of any applicable
transfer taxes).
2. DELIVERY OF STOCK CERTIFICATES ON EXERCISE. As soon as
practicable after the exercise of this Warrant and payment of the Purchase
Price, and in any event within ten (10) days thereafter, the Company, at its
expense, will cause to be issued in the name of and delivered to the holder
hereof a certificate or certificates for the number of fully paid and
non-assessable shares or other securities or property to which such holder shall
be entitled upon such exercise, plus, in lieu of any fractional share to which
such holder would otherwise be entitled, cash in an amount determined in
accordance with Paragraph 3.9 hereof. The Company agrees that the shares so
purchased shall be deemed to be issued to the holder hereof as the record owner
of such shares as of the close of business on the date on which this Warrant
shall have been surrendered and payment made for such shares as aforesaid.
3. ANTI-DILUTION PROVISIONS AND OTHER ADJUSTMENTS. In order to
prevent dilution of the right granted hereunder, the Purchase Price shall be
subject to adjustment from time to time in accordance with this Paragraph 3.
Upon each adjustment of the Purchase Price pursuant to this Paragraph 3, the
registered Holder of this Warrant shall thereafter be entitled to acquire upon
exercise, at the Purchase Price resulting from such adjustment, the number of
shares of Common Stock obtainable by multiplying the Purchase Price in effect
immediately prior to such adjustment by the number of shares of Common Stock
acquirable immediately prior to such adjustment and dividing the product thereof
by the Purchase Price resulting from such adjustment.
3.1. Adjustment for Issue or Sale of Common Stock at Less than
Purchase Price. Except as provided in Paragraph 3.2 or 3.5 below, if and
whenever on or after the date of issuance hereof the Company shall grant, issue
or sell, or shall in accordance with subparagraphs 3.1(1) to (9), inclusive, be
deemed to have granted, issued or sold, any shares of its Common Stock for a
consideration per share less than the Purchase Price in effect immediately prior
to the time of such grant, issue or sale, then forthwith upon such grant, issue
or sale (the
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<PAGE>
"Triggering Transaction"), the Purchase Price shall, subject to subparagraphs
(1) to (9) of this Paragraph 3.1, be reduced to the Purchase Price (calculated
to the nearest tenth of a cent) determined by dividing:
(i) an amount equal to the sum of (x) the product derived by multiplying the
Number of Common Shares Deemed Outstanding immediately prior to such Triggering
Transaction by the Purchase Price then in effect, plus (y) the consideration, if
any, received by the Company upon consummation of such Triggering Transaction,
by
(ii) an amount equal to the sum of (x) the Number of Common Shares Deemed
Outstanding immediately prior to such Triggering Transaction plus (y) the number
of shares of Common Stock granted, issued or sold (or deemed to be granted,
issued or sold in accordance with subparagraphs 3.1(1) to (9)) in connection
with the Triggering Transaction;
provided, however, that the Purchase Price shall not be so reduced if (i) so
long as the Holder has the right to elect as a class one or more directors of
the Company's Board of Directors or to approve certain transactions by the
Company pursuant to Section 4(b) or 4(c), respectively, of the Certificate of
Designations of the Company's Series B Convertible Preferred Stock (the "Series
B Preferred Stock"), such Triggering Transaction involves a grant, issuance or
sale of Common Stock to the Holder, any of its members, any affiliates of such
members (other than of Warburg, Pincus Ventures, L.P. ("WPV")) and the general
partnership that acts as a general partner of WPV (the Holder, its members, such
affiliates and such general partnership being herein collectively referred to as
the "Holder Parties"), other than ratably to all holders of the Common Stock,
and such Triggering Transaction has not been approved by a majority of the
Non-Series B Directors (as defined in said Certificate of Designations and
excluding natural persons who are Holder Parties or officers, directors or
employees of entities that are Holder Parties) or (ii) the Triggering
Transaction involves a grant, issuance or sale of Common Stock that has not been
registered pursuant to the Securities Act of 1933, as amended, and an investment
bank of national standing and reputation, engaged for fee by the Company
pursuant to a written engagement letter, has not been consulted by the Company
with respect to the structure of such Triggering Transaction and participated in
the negotiation of such Triggering Transaction.
For purposes of this Paragraph 3, the term "Number of Common
Shares Deemed Outstanding"
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at any given time shall mean the sum of (x) the number of shares of Common Stock
outstanding at such time, (y) the number of shares of Common Stock issuable
assuming conversion at such time of the Company's Series A Preferred Stock and
Series B Convertible Preferred Stock and (z) the number of shares of the
Company's Common Stock deemed to be outstanding under subparagraphs 3.1(1) to
(9), inclusive, at such time.
For purposes of determining the adjusted Purchase Price under
this Paragraph 3.1, the following subsections (1) to (9), inclusive, shall be
applicable:
(1) In case the Company at any time shall in any
manner grant (whether directly or by assumption in a merger or otherwise) any
rights to subscribe for or to purchase, or any options for the purchase of,
Common Stock or any stock or other securities convertible into or exchangeable
for Common Stock (such rights or options being herein called "Options" and such
convertible or exchangeable stock or securities being herein called "Convertible
Securities"), whether or not such Options or the right to convert or exchange
any such Convertible Securities are immediately exercisable and the price per
share for which the Common Stock is issuable upon exercise, conversion or
exchange (determined by dividing (x) the total amount, if any, received or
receivable by the Company as consideration for the granting of such Options,
plus the minimum aggregate amount of additional consideration payable to the
Company upon the exercise of all such Options, plus, in the case of such Options
which relate to Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange thereof, by (y) the
total maximum number of shares of Common Stock issuable upon the exercise of
such Options or the conversion or exchange of such Convertible Securities) shall
be less than the Purchase Price in effect immediately prior to the time of the
granting of such Option, then the total maximum amount of Common Stock issuable
upon the exercise of such Options, or, in the case of Options which relate to
Convertible Securities, upon the conversion or exchange of such Convertible
Securities, shall (as of the date of granting of such Options) be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. No adjustment of the Purchase Price shall be made upon the actual issue
of such shares of Common Stock or such Convertible Securities upon the exercise
of such Options, except as otherwise provided in subparagraph (3) below.
(2) In case the Company at any time shall in any
manner issue (whether directly or by assumption in a merger or
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otherwise) or sell any Convertible Securities, whether or not the rights to
exchange or convert thereunder are immediately exercisable, and the price per
share for which Common Stock is issuable upon such conversion or exchange
(determined by dividing (x) the total amount received or receivable by the
Company as consideration for the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any, payable
to the Company upon the conversion or exchange thereof, by (y) the total maximum
number of shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities) shall be less than the Purchase Price in effect
immediately prior to the time of such issue or sale, then the total maximum
number of shares of Common Stock issuable upon conversion or exchange of all
such Convertible Securities shall (as of the date of the issue or sale of such
Convertible Securities) be deemed to be outstanding and to have been issued and
sold by the Company for such price per share. No adjustment of the Purchase
Price shall be made upon the actual issue of such Common Stock upon exercise of
the rights to exchange or convert under such Convertible Securities, except as
otherwise provided in subparagraph (3) below.
(3) If the purchase price provided for in any
Options referred to in subparagraph (1), the additional consideration, if any,
payable upon the conversion or exchange of any Convertible Securities referred
to in subparagraphs (1) or (2), or the rate at which any Convertible Securities
referred to in subparagraph (1) or (2) are convertible into or exchangeable for
Common Stock shall change at any time (other than under or by reason of
provisions designed to protect against dilution of the type set forth in
Paragraph 3.1 or 3.3), the Purchase Price in effect at the time of such change
shall forthwith be readjusted to the Purchase Price which would have been in
effect at such time had such Options or Convertible Securities still outstanding
provided for such changed purchase price, additional consideration or conversion
rate, as the case may be, at the time initially granted, issued or sold. If the
purchase price provided for in any Option referred to in subparagraph (1) or the
rate at which any Convertible Securities referred to in subparagraphs (1) or (2)
are convertible into or exchangeable for Common Stock, shall be reduced at any
time under or by reason of provisions with respect thereto designed to protect
against dilution, then in case of the delivery of Common Stock upon the exercise
of any such Option or upon conversion or exchange of any such Convertible
Security, the Purchase Price then in effect hereunder shall forthwith be
adjusted to such respective amount as would have been obtained had such Option
or Convertible Security never been issued as to such Common Stock and had
adjustments been made upon the issuance of the shares of Common
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Stock delivered as aforesaid, but only if as a result of such adjustment the
Purchase Price then in effect hereunder is hereby reduced.
(4) On the expiration of any Option or the
termination of any right to convert or exchange any Convertible Securities, the
Purchase Price then in effect hereunder shall forthwith be increased to the
Purchase Price which would have been in effect at the time of such expiration or
termination had such Option or Convertible Securities, to the extent outstanding
immediately prior to such expiration or termination, never been issued.
(5) In case any Options shall be issued in
connection with the issue or sale of other securities of the Company, together
comprising one integral transaction in which no specific consideration is
allocated to such Options by the parties thereto, such Options shall be deemed
to have been issued without consideration (but shall otherwise be deemed issued
for the specific consideration allocated thereto).
(6) In case any shares of Common Stock, Options or
Convertible Securities shall be issued or sold or deemed to have been issued or
sold for cash, the consideration received therefor, less any underwriting
discounts, selling commissions and other expenses paid or incurred in respect of
such issuance or sale, shall be deemed to be the amount received by the Company
therefor. In case any shares of Common Stock, Options or Convertible Securities
shall be issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by the Company shall be the fair value of
such consideration as determined in good faith by the Board of Directors of the
Company. In case any shares of Common Stock, Options or Convertible Securities
shall be issued in connection with any merger in which the Company is the
surviving corporation, the amount of consideration therefor shall be deemed to
be the value attributable to such shares in such merger, provided that, to the
extent such value is not ascertainable, such value shall be the fair value of
such consideration as determined in good faith by the Board of Directors of the
Company.
(7) The number of shares of Common Stock outstanding
at any given time shall not include shares owned or held by or for the account
of the Company, and the disposition of any shares so owned or held shall be
considered an issue or sale of Common Stock for the purpose of this Paragraph
3.1.
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(8) In case the Company shall declare a dividend or
make any other distribution upon the stock of the Company payable in Common
Stock, Options, or Convertible Securities (other than a dividend or distribution
payable in Common Stock covered by Section 3.3 or 3.4), then in such case any
Common Stock, Options or Convertible Securities, as the case may be, issuable in
payment of such dividend or distribution shall be deemed to have been issued or
sold without consideration.
(9) For purposes of this Paragraph 3.1, in case the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them (x) to receive a dividend or other distribution payable in
Common Stock, Options or in Convertible Securities, or (y) to subscribe for or
purchase Common Stock, Options or Convertible Securities, then such record date
shall be deemed to be the date of the issue or sale of the shares of Common
Stock deemed to have been issued or sold upon the declaration of such dividend
or the making of such other distribution or the date of the granting of such
right or subscription or purchase, as the case may be.
3.2. Dividends Not Paid Out of Earnings or Earned Surplus. In
the event the Company shall declare a dividend upon the Common Stock payable
otherwise than out of earnings or earned surplus, determined in accordance with
generally accepted accounting principles, including the making of appropriate
deductions for minority interests, if any, in subsidiaries but without
increasing the same as a result of any write-up of assets related to such
dividend or any gain from the sale of any capital assets related to such
dividend (herein referred to as "Liquidating Dividends"), then, the Company
shall pay to the holder of this Warrant, at the time such dividend is paid to
the holders of the Common Stock, an amount equal to the product of (i) the
number of shares of Common Stock that the holder of this Warrant would be
entitled to acquire upon exercise of this Warrant at the Purchase Price then in
effect and (ii) the aggregate value at such time of all Liquidating Dividends
paid in respect of one share of Common Stock. For the purposes of this Paragraph
3.2, a dividend shall be considered payable out of earnings or earned surplus
only if paid in cash and to the extent that such earnings or earned surplus are
charged an amount equal to the fair value of such dividend as determined in good
faith by the Board of Directors of the Company.
3.3. Subdivisions and Combinations. In case the Company shall
at any time subdivide its outstanding shares of Common Stock into a greater
number of shares, the Purchase Price in effect immediately prior to such
subdivision shall be
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proportionately reduced, and, conversely, in case the outstanding shares of
Common Stock shall be combined into a smaller number of shares, the Purchase
Price in effect immediately prior to such combination shall be proportionately
increased.
3.4. Reorganization, Reclassification, Consolidation, Merger
or Sale of Assets. If any capital reorganization or reclassification of the
capital stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its assets to
another corporation shall be effected in such a way that holders of Common Stock
shall be entitled to receive stock, securities, cash or other property with
respect to or in exchange for Common Stock, then, as a condition of such
reorganization, reclassification, consolidation, merger or sale, lawful and
adequate provision shall be made whereby the holder of this Warrant shall have
the right to acquire and receive upon exercise of this Warrant such shares of
stock, securities, cash or other property issuable or payable (as part of the
reorganization, reclassification, consolidation, merger or sale) with respect to
or in exchange for such number of outstanding shares of the Company's Common
Stock as would have been received upon exercise of this Warrant at the Purchase
Price then in effect. The Company will not effect any such consolidation, merger
or sale, unless prior to the consummation thereof the successor corporation (if
other than the Company) resulting from such consolidation or merger or the
corporation purchasing such assets shall assume by written instrument (in form
and substance reasonably satisfactory to the holder of this Warrant) mailed or
delivered to the holder of this Warrant at the last address of such holder
appearing on the books of the Company, the obligation to deliver to such holder
such shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to purchase.
3.5. No Adjustment for Exercise of Certain Options, Warrants,
Etc. The provisions of this Section 3 shall not apply to any Common Stock issued
or issuable to any person or entity, or deemed outstanding, under subparagraphs
3.1(1) to (9) inclusive: (i) on exercise of options outstanding on the date of
issuance hereof to acquire up to 1,874,300 shares of Common Stock issued to
employees of the Company pursuant to the Amended and Restated 1986 Employee
Stock Option Plan of the Company (the "Stock Option Plan") or any options
approved with the consent of the holders of record of a majority of the
outstanding shares of Series B Preferred Stock; (ii) pursuant to options granted
to Richard E. Snyder under the Stock Option Plan, as amended by the Company's
Board of Directors on January 31, 1996; (iii) on conversion of the Series B
Preferred
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Stock or the Series A Preferred Stock of the Company; (iv) as a dividend on the
Series B Preferred Stock; or (v) on exercise of this Warrant.
3.6. Notices of Record Date, Etc. In the event that:
(1) the Company shall declare any cash dividend upon
its Common Stock, or
(2) the Company shall declare any dividend upon its
Common Stock payable in stock or make any special dividend or other distribution
to the holders of its Common Stock, or
(3) the Company shall offer for subscription pro
rata to the holders of its Common Stock any additional shares of stock of any
class or other rights, or
(4) there shall be any capital reorganization or
reclassification of the capital stock of the Company, including any subdivision
or combination of its outstanding shares of Common Stock, or consolidation or
merger of the Company with, or sale of all or substantially all of its assets
to, another corporation, or
(5) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in connection with such event, the Company shall give to the holder of
this Warrant:
(i) at least ten (10) days' prior written notice of the date on which the books
of the Company shall close or a record shall be taken for such dividend,
distribution or subscription rights or for determining rights to vote in respect
of any such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up; and
(ii) in the case of any such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up, at least twenty (20) days'
prior written notice of the date when the same shall take place. Such notice in
accordance with the foregoing clause (i) shall also specify, in the case of any
such dividend, distribution or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto, and such notice in accordance
with the foregoing clause (ii) shall also specify the date on which the holders
of Common Stock shall be entitled to exchange their Common Stock for securities
or other property deliverable upon such reorganization, reclassification
consolidation, merger, sale, dissolution,
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liquidation or winding up, as the case may be. Each such written notice shall be
given by first class mail, postage prepaid, addressed to the holder of this
Warrant at the address of such holder as shown on the books of the Company.
3.7. Grant, Issue or Sale of Options, Convertible Securities,
or Rights. If at any time or from time to time on or after the date of issuance
hereof, the Company shall grant, issue or sell any Options, Convertible
Securities, rights to purchase property or evidences of indebtedness (the
"Purchase Rights") pro rata to the record holders of any class of Common Stock
and such grants, issuances or sales do not result in an adjustment of the
Purchase Price under Paragraph 3.1 hereof, then the holder of this Warrant shall
be entitled to acquire (within thirty (30) days after the later to occur of the
initial exercise date of such Purchase Rights or receipt by such holder of the
notice concerning Purchase Rights to which such holder shall be entitled under
Paragraph 3.6) and upon the terms applicable to such Purchase Rights either:
(i) the aggregate Purchase Rights which such holder could have acquired if it
had held the number of shares of Common Stock acquirable upon exercise of this
Warrant immediately before the grant, issuance or sale of such Purchase Rights;
provided that if any Purchase Rights were distributed to holders of Common Stock
without the payment of additional consideration by such holders, corresponding
Purchase Rights shall be distributed to the exercising holder of this Warrant as
soon as possible after such exercise and it shall not be necessary for the
exercising holder of this Warrant specifically to request delivery of such
rights; or
(ii) in the event that any such Purchase Rights shall have expired or shall
expire prior to the end of said thirty (30) day period, the number of shares of
Common Stock or the amount of property which such holder could have acquired
upon such exercise at the time or times at which the Company granted, issued or
sold such expired Purchase Rights.
3.8. Adjustment by Board of Directors. If any event occurs as
to which, in the opinion of the Board of Directors of the Company, the
provisions of this Section 3 are not strictly applicable or if strictly
applicable would not fairly protect the rights of the holder of this Warrant in
accordance with the essential intent and principles of such provisions, then the
Board of Directors shall make an adjustment in the application of such
provisions, in accordance with such essential intent and principles, so as to
protect such rights as aforesaid, but in no event shall any adjustment have the
effect of increasing the
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Purchase Price as otherwise determined pursuant to any of the provisions of this
Section 3 except in the case of a combination of shares of a type contemplated
in Paragraph 3.3 and then in no event to an amount larger than the Purchase
Price as adjusted pursuant to Paragraph 3.3.
3.9. Fractional Shares. The Company shall not issue fractions
of shares of Common Stock upon exercise of this Warrant or scrip in lieu
thereof. If any fraction of a share of Common Stock would, except for the
provisions of this Paragraph 3.9, be issuable upon exercise of this Warrant, the
Company shall in lieu thereof pay to the person entitled thereto an amount in
cash equal to the current value of such fraction, calculated to the nearest
one-hundredth (1/100) of a share, to be computed (i) if the Common Stock is
listed on any national securities exchange on the basis of the last sales price
of the Common Stock on such exchange (or the quoted closing bid price if there
shall have been no sales) on the date of conversion, or (ii) if the Common Stock
shall not be listed, on the basis of the mean between the closing bid and asked
prices for the Common Stock on the date of conversion as reported by the Nasdaq
National Market, or its successor, and if there are not such closing bid and
asked prices, on the basis of the fair market value per share as determined by
the Board of Directors of the Company.
3.10. Officers' Statement as to Adjustments. Whenever the
Purchase Price shall be adjusted as provided in Section 3 hereof, the Company
shall forthwith file at each office designated for the exercise of this Warrant,
a statement, signed by the Chairman of the Board, the President, any Vice
President or Treasurer of the Company, showing in reasonable detail the facts
requiring such adjustment and the Purchase Price that will be effective after
such adjustment. The Company shall also cause a notice setting forth any such
adjustments to be sent by mail, first class, postage prepaid, to the record
holder of this Warrant at his or its address appearing on the stock register. If
such notice relates to an adjustment resulting from an event referred to in
Paragraph 3.6, such notice shall be included as part of the notice required to
be mailed and published under the provisions of Paragraph 3.6 hereof.
4. NO DILUTION OR IMPAIRMENT. The Company will not, by
amendment of its charter or through reorganization, consolidation, merger,
dissolution, sale of assets or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such action as may be necessary or appropriate in order to
protect the rights of the holder hereof
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against dilution or other impairment. Without limiting the generality of the
foregoing, the Company will not increase the par value of any shares of stock
receivable upon the exercise of this Warrant above the amount payable therefor
upon such exercise, and at all times will take all such action as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and non-assessable stock upon the exercise of this Warrant.
5. RESERVATION OF STOCK, ETC., ISSUABLE ON EXERCISE OF
WARRANTS. The Company shall at all times reserve and keep available out of its
authorized but unissued stock, solely for the issuance and delivery upon the
exercise of this Warrant and other similar Warrants, such number of its duly
authorized shares of Common Stock as from time to time shall be issuable upon
the exercise of this Warrant and all other similar Warrants at the time
outstanding.
6. REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to it, or (in the case of mutilation) upon surrender and
cancellation thereof, the Company will issue, in lieu thereof, a new Warrant of
like tenor.
7. REMEDIES. The Company stipulates that the remedies at law
of the holder of this Warrant in the event of any default by the Company in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate, and that the same may be specifically enforced.
8. NEGOTIABILITY, ETC. This Warrant is issued upon the
following terms, to all of which each taker or owner hereof consents and agrees:
(a) Subject to the legend appearing on the first page hereof,
at any time beginning on the Earliest Exercise Date, title to this Warrant may
be transferred by endorsement (by the holder hereof executing the form of
assignment at the end hereof including guaranty of signature) and delivery in
the same manner as in the case of a negotiable instrument transferable by
endorsement and delivery.
(b) Subject to Section 8(a), any person in possession of this
Warrant properly endorsed is authorized to represent himself as absolute owner
hereof and is granted power to transfer absolute title hereto by endorsement and
delivery hereof to a
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bona fide purchaser hereof for value; each prior taker or owner waives and
renounces all of his equities or rights in this Warrant in favor of every such
bona fide purchaser, and every such bona fide purchaser shall acquire title
hereto and to all rights represented hereby.
(c) Until this Warrant is transferred on the books of the
Company, the Company may treat the registered holder of this Warrant as the
absolute owner hereof for all purposes without being affected by any notice to
the contrary.
(d) Prior to the exercise of this Warrant, the holder hereof
shall not be entitled to any rights of a shareholder of the Company with respect
to shares for which this Warrant shall be exercisable, including, without
limitation, the right to vote, to receive dividends or other distributions or to
exercise any preemptive rights, and shall not be entitled to receive any notice
of any proceedings of the Company, except, in each case, as provided herein.
(e) The Company shall not be required to pay any Federal or
state transfer tax or charge that may be payable in respect of any transfer
involved in the transfer or delivery of this Warrant or the issuance or
conversion or delivery of certificates for Common Stock in a name other than
that of the registered holder of this Warrant or to issue or deliver any
certificates for Common Stock upon the exercise of this Warrant until any and
all such taxes and charges shall have been paid by the holder of this Warrant or
until it has been established to the Company's satisfaction that no such tax or
charge is due.
9. SUBDIVISION OF RIGHTS. This Warrant (as well as any new
warrants issued pursuant to the provisions of this paragraph) is exchangeable,
upon the surrender hereof by the holder hereof, at the principal office of the
Company for any number of new warrants of like tenor and date representing in
the aggregate the right to subscribe for and purchase the number of shares of
Common Stock which may be subscribed for and purchased hereunder.
10. MAILING OF NOTICES, ETC. All notices and other
communications from the Company to the holder of this Warrant shall be mailed by
first-class certified mail, postage prepaid, to the address furnished to the
Company in writing by the last holder of this Warrant who shall have furnished
an address to the Company in writing.
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11. HEADINGS, ETC. The headings in this Warrant are for
purposes of reference only, and shall not limit or otherwise affect the meaning
hereof.
12. CHANGE, WAIVER, ETC. Neither this Warrant nor any term
hereof may be changed, waived, discharged or terminated orally but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
13. SUCCESSORS AND ASSIGNS. This Warrant and the rights
evidenced hereby shall inure to the benefit of and be binding upon the
successors and assigns of the Company, the holder hereof and (to the extent
provided herein) the holders of shares Common Stock issued upon exercise of this
Warrant, and shall be enforceable by any such holder.
14. MODIFICATION AND SEVERABILITY. If, in any action before
any court or agency legally empowered to enforce any provision contained herein,
any provision hereof is found to be unenforceable, then such provision shall be
deemed modified to the extent necessary to make it enforceable by such court of
agency. If any such provision is not enforceable as set forth in the preceding
sentence, the unenforceablilty of such provision shall not affect the other
provisions of this Warrant, but this Warrant shall be construed as if such
unenforceable provision had never been contained herein.
15. GOVERNING LAW. THIS WARRANT SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
[WESTERN PUBLISHING GROUP, INC.]
By
-------------------------------
Name:
Title:
Dated: _____________
Attest:
____________________
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[To be signed only upon exercise of Warrant]
To [Western Publishing Group, Inc.]
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, ______ shares of Common Stock of [Western Publishing Group,
Inc.] and herewith makes payment of $ ___________________________[specify
amount of cash and/or number, market value and type of securities being paid
or whether a cashless exercise is elected], and requests that the certificates
for such shares be issued in the name of, and be delivered to ________________,
whose address is _______________________________________________.
Dated: ___________________
_______________________________
(Signature must conform in all respects to name of Holder as
specified on the face of the Warrant)
_______________________________
Address
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[To be signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _______________________________________ the right represented by the
within Warrant to purchase the _____________ shares of the Common Stock of
[Western Publishing Group, Inc.] to which the within Warrant relates, and
appoints ___________________ attorney to transfer said right on the books of
[Western Publishing Group, Inc.] with full power of substitution in the
premises.
Dated:
__________________________
_____________________________
(Signature must conform in all respects to name of holder as
specified on the face of the Warrant)
_____________________________
Address
In the presence of
_____________________________
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Index of Defined Terms
ACT 1
Common Stock 1
Company 1
Convertible Securities 5
Earliest Exercise Date 1
Exercise Amount 2
Holder 1
Holder Parties 4
Liquidating Dividends 8
Market Price 2
Number of Common Shares Deemed Outstanding 4
Purchase Price 1
Purchase Rights 11
Series B Preferred Stock 4
Stock Option Plan 9
Triggering Transaction 4
WPV 4
<PAGE>
APPENDIX VI
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of __________ __,
1996, is entered into by and among [Western Publishing Group, Inc.], a Delaware
corporation (the "Company"), and Golden Press Holding, L.L.C., a Delaware
limited liability company ("GP Holding").
WHEREAS, the Company has agreed to issue to GP Holding, shares
of its Series B Convertible Preferred Stock ("Preferred Stock") and a Warrant
(the "Warrant") to purchase shares of its Common Stock ("Common Stock") and to
grant to GP Holding and any subsequent holders of such Preferred Stock and such
Warrant certain rights to have such Preferred Stock, such Warrant and certain
shares of Common Stock registered under the Securities Act of 1933, as amended
(the "Act").
NOW, THEREFORE, in consideration of the foregoing and the
mutual promises and covenants herein contained, the parties hereto hereby agree
as follows:
SECTION 1. Definitions.
As used in this Agreement:
(a) "Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the Act;
(b) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(c) the term "Holder" shall mean any holder of Registrable
Securities;
(d) the term "Initiating Holder" shall mean any Holder or
Holders who in the aggregate are Holders of more than 50% of the then
outstanding Registrable Securities;
(e) the terms "register," "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Act (and any post-effective amendments filed or
required to be filed) and the declaration or ordering of effectiveness of such
registration statement;
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(f) ( the term "Registrable Securities" means (i) any shares
of Preferred Stock, (ii) any shares of Common Stock issued upon conversion of
shares of Preferred Stock, (iii) the Warrant or any portion thereof, (iv) ny
shares of Common Stock issued upon exercise of the Warrant or any portion
thereof and (v) any capital stock of the Company issued as a dividend or other
distribution with respect to, or in exchange for or in replacement of, any
securities referred to in clauses (i) through (iv) above. For purposes of this
Agreement, a person will be deemed to be a Holder whenever such person has the
right to acquire directly or indirectly Registrable Securities (upon conversion
or exercise in connection with a transfer of securities or otherwise, but
disregarding any restrictions or limitations upon the exercise of such right),
whether or not such acquisition has actually been effected;
(g) "Registration Expenses" shall mean all expenses incurred
by the Company in compliance with Sections 2, 3 and 4 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, blue sky fees and expenses and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company, which shall
be paid in any event by the Company); and
(h) "Selling Expenses" shall mean all underwriting discounts
and selling commissions applicable to the sale of Registrable Securities and all
fees and disbursements of counsel for each of the Holders.
SECTION 2. Demand Registration.
(a) Request for Registration. If the Company shall receive
from an Initiating Holder, at any time, a written request that the Company
effect any registration with respect to all or a part of the Registrable
Securities, the Company will:
(i) within five (5) days of receipt of such
request, give written notice of the proposed registration,
qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its diligent best
efforts to effect such registration (including, without
limitation, the execution of an undertaking to file
post-effective amendments, appropriate qualification under
applicable blue sky or other state securities
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laws and appropriate compliance with applicable regulations
issued under the Act) as may be so requested and as would
permit or facilitate the sale and distribution of all or such
portion of such Registrable Securities as are specified in
such request, together with all or such portion of the
Registrable Securities of any Holder or Holders joining in
such request as are specified in a written request received by
the Company within ten (10) days after written notice from the
Company is given under Section 2(a)(i) above; provided that
the Company shall not be obligated to effect, or take any
action to effect, any such registration pursuant to this
Section 2:
(x) In any particular jurisdiction in
which the Company would be required to execute a
general consent to service of process in effecting
such registration, qualification or compliance,
unless the Company is already subject to service in
such jurisdiction and except as may be required by
the Act or applicable rules or regulations
thereunder; or
(y) After the Company has effected three
(3) such registrations pursuant to this Section 2 and
such registrations have been declared or ordered
effective and the sales of such Registrable
Securities shall have closed.
The registration statement filed pursuant to the request of
the Initiating Holders may, subject to the provisions of Section 2(b) below,
include other securities of the Company which are held by officers or directors
of the Company, or which are held by persons who, by virtue of agreements with
the Company, are entitled to include their securities in any such registration,
but the Company shall have no absolute right to include any of its securities in
any such registration.
The registration rights set forth in this Section 2 shall be
assignable, in whole or in part, to any transferee of Registrable Securities who
is a transferee of at least 5% of the then outstanding Registrable Securities, a
member of GP Holding, an affiliate of E.M. Warburg, Pincus & Co., Inc.
("Warburg") or a limited or general partner of an investment fund affiliated
with Warburg, and such transferee shall be bound by all obligations of this
Section 2.
(b) Underwriting. If the Initiating Holders intend to
distribute the Registrable Securities covered by their request by
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means of an underwriting, they shall so advise the Company as a part of their
request made pursuant to Section 2(a).
If officers or directors of the Company holding other
securities of the Company shall request inclusion in any registration pursuant
to Section 2, or if holders of securities of the Company other than Registrable
Securities who are entitled, by contract with the Company or otherwise, to have
securities included in such a registration (the "Other Stockholders") request
such inclusion, the Holders shall offer to include the securities of such
officers, directors and Other Stockholders in the underwriting and may condition
such offer on their acceptance of the further applicable provisions of this
Section 2. The Holders whose shares are to be included in such registration and
the Company shall (together with all officers, directors and Other Stockholders
proposing to distribute their securities through such underwriting) enter into
an underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting by the Initiating
Holders. Notwithstanding any other provision of this Section 2, if the
representative advises the Holders in writing that marketing factors require a
limitation on the number of shares to be underwritten, the securities of the
Company held by officers or directors (other than Registrable Securities) of the
Company and the securities held by Other Stockholders shall be excluded from
such registration to the extent so required by such limitation. If, after the
exclusion of such shares, further reductions are still required, the number of
shares included in the registration by each Holder shall be reduced on a pro
rata basis (based on the number of shares originally proposed to be registered
by such Holder), by such minimum number of shares as is necessary to comply with
such request. No Registrable Securities or any other securities excluded from
the underwriting by reason of the underwriter's marketing limitation shall be
included in such registration. If any of the Holders or any officer, director or
Other Stockholder who has requested inclusion in such registration as provided
above disapproves of the terms of the underwriting, such person may elect to
withdraw therefrom by written notice to the Company, the underwriter and the
Initiating Holders. The securities so withdrawn shall also be withdrawn from
registration. If the underwriter has not limited the number of Registrable
Securities or other securities to be underwritten, the Company may include its
securities for its own account in such registration if the representative so
agrees and if the number of Registrable Securities and other securities which
would otherwise have been included in such registration and underwriting will
not thereby be limited.
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SECTION 3. Company Registration.
(i) Request For Registration. If the Company shall determine
to register any of its equity securities either for its own account or for the
account of a security holder or holders exercising their respective demand
registration rights, other than a registration relating solely to employee
benefit plans, or a registration relating solely to a Commission Rule 145
transaction, or a registration on any registration form which does not permit
secondary sales or does not include substantially the same information as would
be required to be included in a registration statement covering the sale of
Registrable Securities, the Company will:
(i) promptly give to each of the Holders a written
notice thereof which shall describe in reasonable detail the
proposed registration and distribution (including those
jurisdictions in which the Company intends to attempt to
qualify such securities under the applicable blue sky or other
state securities laws); and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in
any underwriting involved therein, all the Registrable
Securities specified in a written request or requests, made by
the Holders within fifteen (15) days after receipt of the
written notice from the Company described in clause (i) above,
except as set forth in Section 3(b) below. Such written
request may specify all or a part of the Holders' Registrable
Securities.
(b) Underwriting. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise each of the Holders as a part of the written notice
given pursuant to Section 3(a)(i). In such event, the right of each of the
Holders to registration pursuant to this Section 3 shall be conditioned upon
such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent provided
herein; provided, however, that GP Holding shall not be required to participate
in such underwriting if GP Holding, or an affiliate of GP Holding who is a
Holder, notifies the Company that it is seeking registration of its shares to
enable it to distribute such shares to its members or to affiliates of Warburg
or limited or general partners of investment funds affiliated with Warburg. The
Holders whose shares are to be included in such registration (other than GP
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Holding if GP Holding, or an affiliate of GP Holding who is a Holder, elects not
to participate in such underwriting) shall (together with the Company and the
Other Stockholders distributing their securities through such underwriting)
enter into an underwriting agreement in customary form with the representative
of the underwriter or underwriters selected for underwriting by the Company.
Notwithstanding any other provision of this Section 3, if the representative
determines that marketing factors require a limitation on the number of shares
to be underwritten, the representative may (subject to the allocation priority
set forth below) limit the number of Registrable Securities to be included in
the registration and underwriting as the representative deems necessary and
appropriate. The Company shall so advise all holders of securities requesting
registration, and the number of shares of securities that are entitled to be
included in the registration and underwriting shall be allocated in the
following manner: The securities of the Company held by officers, directors and
Other Stockholders of the Company (other than Registrable Securities, securities
held by holders who by contractual right demanded such registration ("Demanding
Holders") and securities held by "Holders" under the Registration Rights
Agreement, dated as of January __, 1996, between the Company, Richard A.
Bernstein, and certain of his affiliates (the "Bernstein Holders")) shall be
excluded from such registration and underwriting to the extent required by such
limitation, and, if a limitation on the number of shares is still required, the
number of shares that may be included in the registration and underwriting by
each of the Holders and the Bernstein Holders (if the Bernstein Holders are not
Demanding Holders) shall be reduced, on a pro rata basis (based on the number of
shares originally proposed to be registered by each such person), by such
minimum number of shares as is necessary to comply with such limitation. If any
of the Holders or any officer, director or Other Stockholder disapproves of the
terms of any such underwriting, such person may elect to withdraw therefrom by
written notice to the Company and the underwriter. Any Registrable Securities or
other securities excluded or withdrawn from such underwriting shall be withdrawn
from such registration.
(c) Number and Transferability. Each of the Holders shall be
entitled to have its shares included in an unlimited number of registrations
pursuant to this Section 3. The registration rights granted pursuant to this
Section 3 shall be assignable, in whole or in part, to any transferee of
Registrable Securities who is a transferee of at least 5% of the then
outstanding Registrable Securities, a member of GP Holding, an affiliate of
Warburg or a limited or general partner of an
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investment fund affiliated with Warburg, and such transferee shall be bound by
all obligations of this Section 3.
SECTION 4. Form S-3 and Shelf Registration.
(a) Form S-3. The Company shall use its best efforts to
qualify for registration on Form S-3 for secondary sales. So long as the Company
is so qualified, Holders shall have the right to request unlimited registrations
on Form S-3 (such requests shall be in writing and shall state the number of
shares of Registrable Securities to be disposed of and the intended method of
disposition of shares by such holders), subject only to the following:
(i) The Company shall not be required to effect a
registration pursuant to this Section 4(a) within 120 days of
the effective date of the most recent registration pursuant to
this Section 4(a) in which securities held by the requesting
Holder could have been included for sale or distribution.
(ii) The Company shall not be required to effect a
registration pursuant to this Section 4(a) if the Company
shall furnish to the Holders a certificate signed by the
President or Chief Executive Officer of the Company stating
that in the good faith judgment of the Board of Directors of
the Company, it would be materially detrimental to the Company
and its stockholders for such registration statement to be
filed and it is therefore essential to defer the filing of
such registration statement. In such event, the Company shall
have the right to defer the filing of the registration
statement no more than once during any twelve (12) month
period for a period of not more than 90 days after receipt of
the request of the Holder or Holders under this Section 4(a).
(iii) The Company shall not be obligated to effect
any registration pursuant to this Section 4(a) in any
particular jurisdiction in which the Company would be required
to execute a general consent to service of process in
effecting such registration, qualification or compliance,
unless the Company is already subject to service in such
jurisdiction and except as may be required by the Act or
applicable rules or regulations thereunder.
The Company shall, within five (5) days of receipt of request
for registration pursuant to this Section 4(a), give
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<PAGE>
written notice to all Holders of the receipt of such request and shall provide a
reasonable opportunity for other Holders to participate in the registration,
provided that if the registration is for an underwritten offering, the terms of
Section 2(b) shall apply to all participants in such offering. Subject to the
foregoing, the Company will use its diligent best efforts to effect promptly the
registration of all shares of Registrable Securities on Form S-3 to the extent
requested by the Holder or Holders thereof for purposes of disposition.
(b) Shelf Registration. If the Company shall receive from an
Initiating Holder, at any time, a written request that the Company effect a
registration pursuant to Rule 415, or any successor rule under the Act, that
would permit the sale of all or a part of the Registrable Securities from time
to time:
(i) The Company shall use its best efforts to file
with the Commission and thereafter to cause to be declared
effective as promptly as practicable a registration statement
on an appropriate form under the Act as reasonably determined
by the Company relating to the offer and sale of the
Registrable Securities by the Holders from time to time
pursuant to Rule 415, or any successor rule under the Act, in
accordance with the methods of distribution set forth in such
registration statement (a "Shelf Registration Statement").
(ii) The Company shall use its best efforts to keep
the Shelf Registration Statement continuously effective in
order to permit the prospectus forming part thereof to be
usable by Holders for a period of 18 months from the effective
date thereof or such shorter period that will terminate when
all the Registrable Securities covered by the Shelf
Registration Statement have been sold. Notwithstanding any
other provision hereof, the Company may postpone or suspend
the filing or the effectiveness of the Shelf Registration
Statement (or any amendments or supplements thereto) if (i)
such action is required by applicable law, or (ii) such action
is taken by the Company in good faith and for valid business
reasons (not including avoidance of the Company's obligations
hereunder), including the acquisition or divestiture of
assets, other pending corporate developments, public filings
with the Commission or other similar events, so long as the
Company promptly thereafter complies with the requirements of
Section 6(a)(v) hereof, if applicable. The Company shall be
deemed not to have used its best
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efforts to keep the Shelf Registration Statement effective
during the requisite period if it intentionally takes any
action not contemplated by clause (i) or (ii) above that would
result in holders of Registrable Securities covered thereby
not being able to offer and sell such Registrable Securities
during the period.
SECTION 5. Expenses of Registration. All Registration Expenses
incurred in connection with any registration, qualification or compliance
pursuant to this Agreement shall be borne by the Company, and all Selling
Expenses shall be borne by the Holders of the securities so registered pro rata
on the basis of the number of their shares so registered.
SECTION 6. Registration Procedures.
(a) In the case of each registration effected by the
Company pursuant to this Agreement, the Company will:
(i) provide the Holders of Registrable Securities
to be registered under the registration statement, their
underwriters, if any, and their respective counsel and
accountants, a reasonable opportunity to participate in the
preparation of such registration statement, each prospectus
included therein or filed with the Commission, and each
amendment thereof or supplement thereto (reflecting in each
such document such comments as such persons may reasonably
propose), and provide each of them such access to its books
and records and such opportunities to discuss the business of
the Company with its officers and the independent public
accountants who have certified its financial statements as
shall be necessary, in the opinion of such Holders' and such
underwriters' respective counsel, to conduct a reasonable
investigation within the meaning of the Act;
(ii) notify each Holder as to the filing of the
registration statement and of all amendments or supplements
thereto filed prior to the effective date of such registration
statement;
(iii) notify each Holder, promptly after it shall
receive notice thereof, of the time when such registration
statement becomes effective or when any amendment or
supplement to any prospectus forming a part of such
registration statement has been filed;
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<PAGE>
(iv) notify each Holder promptly of any request by
the Commission for the amending or supplementing of such
registration statement or prospectus or for additional
information;
(v) prepare and promptly file with the Commission,
and promptly notify each Holder of the filing of, any
amendments or supplements to such registration statement or
prospectus as may be necessary to correct any statements or
omissions if, at any time when a prospectus relating to the
Registrable Securities is required to be delivered under the
Act, any event with respect to the Company shall have occurred
as a result of which any such prospectus or any other
prospectus as then in effect would include an untrue statement
of a material fact or omit to state any material fact
necessary in order to make the statements made, in the light
of the circumstances under which they were made, not
misleading, and, in addition, prepare and file with the
Commission, promptly upon the written request of any Holder,
any amendments or supplements to such registration statement
or prospectus which may be reasonably necessary or advisable
in connection with the distribution of the Registrable
Securities;
(vi) prepare promptly upon request of the Holders or
any underwriters for the Holders such amendment or amendments
to such registration statement and such prospectus or
prospectuses as may be reasonably necessary to permit
compliance with the requirements of Section 10(a)(3) of the
Act;
(vii) advise each Holder promptly after the Company
shall receive notice or obtain knowledge of the issuance of
any stop order by the Commission suspending the effectiveness
of any such registration statement or amendment thereto or of
the initiation or threatening of any proceeding for that
purpose, and promptly use its best efforts to prevent the
issuance of any stop order or obtain its withdrawal promptly
if such stop order should be issued;
(viii) use its best efforts to qualify as soon as
reasonably practicable the Registrable Securities included in
the registration statement for sale under the blue sky or
other state securities laws of such states and jurisdictions
within the United States as shall be reasonably requested by
any Holder, provided
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<PAGE>
that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business, to become
subject to taxation or to file a consent to service of process
generally in any of the aforesaid states or jurisdictions;
(ix) furnish each Holder, as soon as available,
copies of any registration statement and each preliminary or
final prospectus, or supplement or amendment required to be
prepared pursuant hereto, all in such quantities as any Holder
may from time to time reasonably request;
(x) furnish, at the request of any Holder
requesting registration of Registrable Securities pursuant to
this Agreement, on the date that such Registrable Securities
are delivered to the underwriters for sale in connection with
a registration pursuant to this Agreement, if such securities
are being sold through underwriters or, if such securities are
not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes
effective, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such
registration, in form and substance as is customarily given by
company counsel to the underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the
holders requesting registration of Registrable Securities, and
(ii) a letter, dated such date, from the independent certified
public accountant of the Company, in form and substance as is
customarily given by independent certified public accountants
to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and, if customarily given to
holders of securities to be sold in a registration, to the
Holders requesting registration of Registrable Securities;
(xi) otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission, and
make available to its security holders as soon as reasonably
practicable, but not later than 16 months after the effective
date of the registration statement, an earnings statement
covering a period of at least twelve (12) months beginning
after the effective date of the registration statement, which
earnings statement shall satisfy the provision of Section
11(a) of the Act; and
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(xii) enter into and perform an underwriting
agreement with the managing underwriter, if any, selected as
provided in Section 2(b) or 3(b), containing customary (y)
terms of offer and sale of the securities, payment provisions,
underwriting discounts and commissions, and (z)
representations, warranties, covenants, indemnities, terms and
conditions, provided that the Holders may, at their option,
require that any or all of the representations and warranties
by, and the other agreements on the part of, the Company to
and for the benefit of such underwriters shall also be made to
and for the benefit of such Holders and that any or all of the
conditions precedent to the obligations of the Company shall
also be conditions precedent to the obligations of such
Holders, and provided further that such Holders shall not be
required to make any representations or warranties to or
agreements with the Company or the underwriters other than
representations, warranties or agreements regarding such
Holders and such Holders' intended method of distribution and
any other representation required by law.
(b) At its expense, the Company will: keep each registration
effected by the Company pursuant to this Agreement effective for a period of
nine (9) months or until the Holders have completed the distribution described
in the registration statement relating thereto, whichever first occurs;
provided, however, that in the case of any registration of Registrable
Securities on Form S-3 which are intended to be offered on a continuous or
delayed basis, such nine-month period shall be extended until all such
Registrable Securities are sold, provided that Rule 415, or any successor rule
under the Act, permits an offering on a continuous or delayed basis, and
provided further that applicable rules under the Act governing the obligation to
file a post-effective amendment permit, in lieu of filing a post-effective
amendment which (y) includes any prospectus required by Section 10(a) of the Act
or (z) reflects facts or events representing a material or fundamental change in
the information set forth in the registration statement, the incorporation by
reference in the registration statement of information required to be included
in (y) and (z) above to be contained in periodic reports filed pursuant to
Section 12 or 15(d) of the Exchange Act.
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SECTION 7. Indemnification.
(a) To the extent permitted by law, the Company will
indemnify each of the Holders, each of its officers, directors, partners,
members, managers, agents, representatives and affiliates of the foregoing, each
underwriter (as defined in the Act), if any, and each person controlling each of
the Holders or such underwriter within the meaning of the Act and the rules and
regulations thereunder, with respect to each registration which has been
effected pursuant to this Agreement, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any prospectus, offering circular or other document (including any related
registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the Act or any rule or regulation thereunder applicable to the
Company and relating to action or inaction required of the Company in connection
with any such registration, qualification or compliance, and will reimburse each
of the Holders, each of its officers, directors, partners, members, managers,
agents, representatives and their affiliates, each such underwriter and each
person controlling any such Holder or underwriter, for any legal and any other
expenses reasonably incurred in connection with investigating and defending any
such claim, loss, damage, liability or action, provided that the Company will
not be liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by the Holders
or underwriter and stated to be specifically for use therein.
(b) To the extent permitted by law, each of the Holders will,
if Registrable Securities held by it are included in the securities as to which
such registration, qualification or compliance is being effected, indemnify the
Company, each of its directors, officers, agents and representatives and each
underwriter, if any, and each person controlling the Company or such
underwriter, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document made by such Holder,
or any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements by such Holder therein
not misleading, and will
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reimburse the Company and such directors, officers, agents, representatives,
underwriters or control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by such Holder and stated to be specifically for use
therein; provided, however, that the indemnity agreement contained in this
Section 7(b) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Holders, and provided further that the obligations of each of the
Holders hereunder shall be limited to an amount equal to the proceeds to such
Holder of securities sold as contemplated herein.
(c) Each party entitled to indemnification under this Section
7 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld) and the Indemnified Party may participate in such
defense at such party's expense (unless the Indemnified Party shall have
reasonably concluded that there may be a conflict of interest between the
Indemnifying Party and the Indemnified Party in such action, in which case the
fees and expenses of counsel shall be at the expense of the Indemnifying Party),
and provided further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 7 unless the Indemnifying Party is materially prejudiced
thereby. No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably request
in writing and as shall
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be reasonably required in connection with the defense of such claim and
litigation resulting therefrom.
(d) If the indemnification provided for in this Section 7 is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage or expense referred to
herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense, as well as any other relevant equitable
considerations, provided, however, that the obligations of each Holder shall be
limited to an amount equal to the proceeds to such Holder from the sale of
Registrable Securities as contemplated herein. The relative fault of the
Indemnifying Party and of the Indemnified Party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Indemnifying Party or by the Indemnified
Party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act), shall be entitled to contribution from any person who is not guilty of
such fraudulent misrepresentation.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with any underwritten public offering
contemplated by this Agreement are in conflict with the foregoing provisions,
the provisions in such underwriting agreement shall be controlling.
(f) The foregoing indemnity agreements are subject to the
condition that, insofar as they relate to any loss, claim, liability or damage
made in a preliminary prospectus but eliminated or remedied in the amended
prospectus on file with the Commission at the time the registration statement in
question becomes effective or the amended prospectus filed with the Commission
pursuant to Commission Rule 424(b) (the "Final Prospectus"), such indemnity
agreement shall not inure to the benefit of any underwriter if a copy of the
Final Prospectus was furnished to the underwriter and was not furnished to the
person asserting the loss, liability, claim or
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damage at or prior to the time such action is required by the Act.
(g) The obligations of the Company and the Holders under this
Section 7 shall survive the completion of any offering of Registrable Securities
in a registration statement under this Agreement and otherwise.
(h) The foregoing indemnity agreements shall include
reasonable fees and expenses of counsel incurred by the Indemnified Party in any
action or proceeding between the Indemnifying Party and the Indemnified Party or
between the Indemnified Party and any third party or otherwise.
SECTION 8. Information by the Holders. Each of the Holders
shall furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder as the Company may reasonably request in
writing and as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Agreement.
SECTION 9. Rule 144 Reporting. With a view to making
available the benefits of certain rules and regulations of the Commission which
may permit the sale of restricted securities to the public without registration,
the Company agrees to use its reasonable best efforts:
(a) make and keep public information available, as those
terms are understood and defined in Rule 144 under the Act;
(b) file with the Commission in a timely manner all reports
and other documents required of the Company under the Act and the Exchange Act;
and
(c) furnish to any Holder upon request, (i) a written
statement by the Company as to its compliance with the reporting requirements of
Rule 144, the Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company filed with the Commission and such other reports
and documents so filed by the Company and (iii) such other information as a
Holder may reasonably request in availing itself of any rule or regulation of
the Commission allowing such Holder to sell any such securities without
registration.
SECTION 10. Assignability. The rights to cause the Company
to register Registrable Securities pursuant to this
VI-16
<PAGE>
Agreement may be assigned by a Holder to any transferee or assignee of
Registrable Securities who is a transferee or assignee of at least 5% of the
then outstanding Registrable Securities, a member of GP Holding, an affiliate of
Warburg or a limited or general partner of an investment fund affiliated with
Warburg. The Company may not assign or transfer its rights or obligations
hereunder without the prior written consent of all the Holders.
SECTION 11. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York.
SECTION 12. Amendment. Any modification, amendment or waiver
of this Agreement or any provision hereof shall be in writing and executed by
the Company and the Holders of not less than 50% of the Registrable Securities
then outstanding, provided, however, that no such modification, amendment or
waiver shall reduce the aforesaid percentage of Registrable Securities without
the consent of all of the Holders of the Registrable Securities.
SECTION 13. Notices. All notices, requests, consents and
demands shall be in writing and shall be personally delivered, mailed, postage
prepaid, telecopied or telegraphed or delivered by any nationally recognized
overnight delivery service to the Company at:
to the Company:
[Western Publishing Group, Inc.]
444 Madison Avenue
Suite 601
New York, New York 10022
Telecopy: (212) 888-5025
Attn: Richard A. Bernstein
with a copy to:
James A. Cohen, Esq.
Senior Vice President - Legal Affairs
[Western Publishing Group, Inc.]
444 Madison Avenue
New York, New York 10022
Telecopy: (212) 888-5025
VI-17
<PAGE>
and a copy to:
Milbank, Tweed, Hadley & McCloy
One Chase Manhattan Plaza
New York, New York 10028
Telecopy: (212) 530-5219
Attn: Lawrence Lederman, Esq.
and to each Holder at such address set forth on the signature page hereof or as
shall be furnished in writing to the Company. All such notices, requests,
demands and other communication shall, when mailed (registered or certified
mail, return receipt requested, postage prepared), personally delivered, or
telegraphed, be effective four (4) days after deposit in the mails, when
personally delivered, or when delivered to the telegraph company, respectively,
addressed as aforesaid, unless otherwise provided herein and, when telecopied or
delivered by any nationally recognized overnight delivery service, shall be
effective upon actual receipt.
SECTION 14. Specific Performance. The parties hereto agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
SECTION 15. Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
SECTION 16. Severability. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this Agreement
or affecting the validity or enforceability of such provision in any other
jurisdiction.
SECTION 17. Headings. The various headings of this Agreement
are inserted for convenience only and shall not affect the meaning or
interpretation of this Agreement or any provisions hereof or thereof.
VI-18
<PAGE>
SECTION 18. Entire Agreement. This Agreement constitutes the
entire understanding among the parties hereto with respect to the subject matter
hereof and supersedes any prior agreements, written or oral, with respect
thereto.
VI-19
<PAGE>
IN WITNESS WHEREOF, the Company and each of the undersigned
parties has executed this Agreement effective for all purposes as of the date
first above written.
[WESTERN PUBLISHING GROUP, INC.]
By:
-------------------------------
Name:
Title:
GOLDEN PRESS HOLDING, L.L.C.
By: WARBURG, PINCUS VENTURES, L.P
Member
By:
---------------------------
Name:
Title:
Address for notices:
Golden Press Holding, L.L.C.
c/o Warburg, Pincus Ventures, L.P.
466 Lexington Avenue
New York, New York 10017
Telecopy: (212) 878-9351
Attn: Joanne R. Wenig
with a copy to:
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
Telecopy: (212) 821-8111
Attn: Jack H. Nusbaum, Esq.
VI-20
<PAGE>
Index of Defined Terms
Act 1
Bernstein Holders 6
Commission 1
Common Stock 1
Company 1
Demanding Holders 6
Exchange Act 1
Final Prospectus 15
GP Holding 1
Holder 1
Indemnified Party 14
Indemnifying Party 14
Initiating Holder 1
Other Stockholders 4
Preferred Stock 1
Registrable Securities 2
Registration Expenses 2
Selling Expenses 2
Shelf Registration Statement 8
Warburg 3
Warrant 1
<PAGE>
APPENDIX VII
EXECUTIVE OFFICER BONUS PLAN
WESTERN PUBLISHING GROUP, INC.
Executive Officer Bonus Plan
1. Purpose. The purpose of the Executive Officer Bonus Plan
(the "Plan") is to advance the interests of Western Publishing Group, Inc., a
Delaware corporation (the "Company"), and its stockholders by providing
incentives in the form of periodic cash bonus awards to certain senior executive
officers of the Company.
2. Administration. The Plan shall be administered by the
Compensation Committee of the Board of Directors of the Company (the
"Committee"), as such committee is from time to time constituted. The Committee
may delegate its duties and powers in whole or in part to any subcommittee
thereof consisting solely of at least two "outside directors", as defined under
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
and Treasury Regulations promulgated thereunder.
The Committee has all the powers vested in it by the terms of
the Plan set forth herein, such powers to include the exclusive authority to
select the employees and other individuals to be granted bonus awards
("Bonuses") under the Plan, to determine the size and terms of the Bonus to be
made to each individual selected, to modify the terms of any Bonus that has been
granted (except with respect to any modification which would increase the amount
of compensation payable to a "Covered Employee," as such term is defined in
Section 162(m) of the Code), to determine the time when Bonuses will be awarded,
to establish performance objectives in respect to Bonuses and to certify that
such performance objectives were attained. The Committee is authorized to
interpret the Plan, to establish, amend and rescind any rules and regulations
relating to the Plan, and to make any other determinations which it deems
necessary or desirable for the administration of the Plan. The Committee may
correct any defect or supply any omission or reconcile any inconsistency in the
Plan in the manner and to the extent the Committee deems necessary or desirable
to carry it into effect. Any decision of the Committee in the interpretation and
administration of the Plan, as described herein, shall lie within its sole and
absolute discretion and shall be final, conclusive and binding on all parties
concerned. No member of the Committee and no officer of the Company shall be
liable for anything done or omitted to be done by him or her, by any other
member of the Committee or by any officer of the company in connection with the
performance of duties under the Plan, except for his or her own willful
misconduct or as expressly provided by statute.
VII-1
<PAGE>
3. Participation. The Committee shall have exclusive power
(except as may delegated as permitted herein) to select the senior executives of
the Company who may participate in the Plan and be granted Bonuses under the
Plan ("Participants"); provided that prior to the first purchase of securities
of the Company by Golden Press Holdings LLC, the only person who may be
designated by the Committee to become a Participant is Richard E. Snyder.
4. Bonuses under the Plan.
(a) The Committee may in its discretion award a Bonus
to a Participant for any fiscal year of the Company (a "Year") under the terms
and conditions of this Section 4. Subject to subsections (b) and (c) of this
Section 4, the amount of a Participant's Bonus shall be an amount (the "Maximum
Bonus") determinable from written performance goals approved by the Committee
not later than 90 days following the beginning of the Year to which such goals
relate and while the outcome is substantially uncertain. The performance goals
and formula applicable to each affected Participant shall be set forth in a
written schedule established by the Committee (the "Bonus Schedule"). The
performance goals, which must be objective and shall be based on actual various
budgeted corporate performance. The Bonus Schedule shall specify the manner in
which the Maximum Bonuses shall be determined if the performance goals are met
and the period or periods to which the performance goals apply.
(b) The performance goals and Maximum Bonus
applicable to any affected Participant may be adjusted in the discretion of the
Committee in order to reflect a change in accounting method mandated by the
Financial Accounting Standards Board, or such other adjustment as the Committee
determines to be proper and may be made without a loss of deductibility of
Bonuses under Section 162(m) of the Code. The previous sentence shall be applied
in a manner which does not increase the amount of any Maximum Bonus, as
calculated without giving effect to the change in accounting method.
(c) The Committee shall determine whether the
performance goals have been met with respect to any affected Participant and, if
they have, so certify and ascertain the amount of the applicable Maximum Bonus.
No Bonuses will be paid until such certification is made by the Committee. The
amount of the Bonus actually paid to any affected Participant may be less than
the Maximum Bonus at the discretion of the Committee, but shall be no greater
than the amount of such Participant's Maximum Bonus. No Bonus shall be paid
unless the material terms of the Bonus, including the performance goals
applicable thereto, have been disclosed to and approved by the shareholders of
the Company in a manner designed to comply with the requirements of Section
162(m) of the Code.
(d) The provisions of this Section 4 shall be
administered and interpreted in accordance with Section 162(m) of
VII-2
<PAGE>
the Code to ensure the deductibility by the Company or its affiliates of the
payment of Bonuses.
(e) Notwithstanding anything in the Plan to the
Contrary, in no event may a Participant's Maximum Bonus for any Year exceed $2
million.
5. Miscellaneous Provisions.
(a) No employee of the Company or other person shall
have any claim or right to be paid a Bonus under the Plan. Determinations made
by the Committee under the Plan need not be uniform and may be made selectively
among eligible individuals under the Plan, whether or not such eligible
individuals are similarly situated. Neither the Plan nor any action taken
hereunder shall be construed as giving any employee or other person any right to
continue to be employed by or perform services for the Company or any affiliate,
and the right to terminate the employment of or performance of services by any
Participant at any time and for any reason is specifically reserved to the
Company and its affiliates, subject to the provisions of any applicable
employment agreement.
(b) Except as may be approved by the Committee, a
Participant's rights and interest under the Plan may not be assigned or
transferred, hypothecated or encumbered in whole or in part either directly or
by operation of law or otherwise (except in the event of a Participant's death)
including, but not by way of limitation, execution, levy, garnishment,
attachment, pledge, bankruptcy or in any other manner; provided, however, that,
subject to applicable law, any amounts payable to any Participant hereunder are
subject to reduction to satisfy any liabilities owed to the Company or any of
its affiliates by the Participant.
(c) The Company and its affiliates shall have the
right to deduct from any payment made under the Plan any federal, state, local
or foreign income or other taxes required by law to be withheld with respect to
such payment.
(d) The Company is the sponsor and legal obligor
under the Plan, and shall make all payments hereunder, other than any payments
to be made by any of its affiliates, which shall be made by such affiliate, as
appropriate. Nothing herein is intended to restrict the Company from charging an
affiliate that employs a Participant for all or a portion of the payments made
by the Company hereunder. The Company shall not be required to establish any
special or separate fund or to make any other segregation of assets to assure
the payment of any amounts under the Plan, and the rights of Participants to the
payment of Bonuses hereunder shall be no greater than the rights of the
company's unsecured general creditors. All expenses involved in administering
the Plan shall be borne by the Company.
VII-3
<PAGE>
(e) The validity, construction, interpretation,
administration and effect of the Plan and rights relating to the Plan and to
Bonuses granted under the Plan, shall be governed by the substantive laws, but
not the choice of law rules, of the State of Delaware.
(f) The Plan shall be effective as of February 1,
1996, subject to the receipt of shareholder approval prior to the payment of any
Bonuses in accordance with the last sentence of Section 4(c).
6. Plan Amendment or Suspension. The Plan may be amended or
suspended in whole or in part at any time and from time to time by the
Committee.
7. Plan Termination. The Plan shall terminate upon the
adoption of a resolution of the Committee terminating the Plan.
8. Actions and Decision Regarding the Business or Operations
of the Company and/or its Affiliates. Notwithstanding anything in the Plan to
the contrary, neither the Company nor any of its affiliates nor their respective
officers, directors, employees or agents shall have any liability to any
Participant (or his or her beneficiaries or heirs) under the Plan or otherwise
on account of any action taken, or not taken, in good faith by any of the
foregoing persons with respect to the business or operations of the Company or
any affiliates.
VII-4
<PAGE>
APPENDIX VIII
CHARTER AMENDMENTS
1. Article FIRST of the Amended and Restated Certificate of Incorporation of the
Company is hereby amended in its entirety to read as follows:
"FIRST: The name of the corporation (the
"Corporation") is Golden Press, Inc."
2. Article FOURTH of the Amended and Restated Certificate of Incorporation of
the Company is hereby amended in its entirety to read as follows:
"FOURTH: The Corporation shall have the authority to
issue 60,200,000 shares, consisting of 60,000,000 shares of
common stock, par value $.01, and 200,000 shares of preferred
stock, without par value. The Board of Directors may authorize
the issuance from time to time of preferred stock in one or
more series and with such designations, preferences, relative,
participating, optional and other special rights, and
qualifications, limitations or restrictions (which may differ
with respect to each series) as the Board may fix by
resolution."
VIII-1
<PAGE>
APPENDIX IX
FAIRNESS OPINION OF
BEAR, STEARNS & CO., INC.
January 31, 1996
Board of Directors
Western Publishing Group, Inc.
444 Madison Avenue
New York, NY 10222
Dear Sirs and Madame:
We understand that Western Publishing Group, Inc. ("Western Publishing" or the
"Company") intends to enter into a transaction with E.M. Warburg Pincus
Ventures, L.P. ("Warburg Pincus") and Mr. Richard E. Snyder (collectively, the
"Warburg Pincus Group"), pursuant to which, among other things, a newly formed
affiliate of the Warburg Pincus Group would purchase, for a purchase price of
$65 million which will be paid in cash, shares of Series B Convertible Preferred
Stock of Western Publishing with an aggregate redemption value of $65 million
(the "Series B Convertible Preferred Stock") and a Warrant (the "Warrant") to
purchase 3,250,000 shares of Common Stock of Western Publishing, all as more
fully described below and in the draft of the Securities Purchase Agreement
referred to below (collectively, the "Securities Issuance"). We further
understand that in connection with the Securities Issuance, Western Publishing
has agreed to reimburse the Warburg Pincus Group for up to $4 million of
investment banking, legal and other expenses. In addition, we understand that
the Company intends to redeem its currently outstanding shares of its Series A
Convertible Preferred Stock due March 31, 1996 for approximately $10 million.
The Series B Convertible Preferred Stock would (i) entitle its holder to receive
annual dividends at a rate of 780,000 shares of Common Stock of Western
Publishing (subject to certain adjustments based on the prevailing market value
of the shares of Common Stock when received) for four years and at 12.0% in cash
(or accruing at 12.0%) thereafter, (ii) be convertible into shares of Common
Stock of Western Publishing at a conversion price of $10.00, (iii) be redeemable
at the option of the Company after four years and (iv) have the right to elect
one-third of the Western Publishing directors voting separately as a class as
well as to vote with the other stockholders in the election of all other
directors, subject to certain limitations. The Warrant would be exercisable
after two years, have a term of seven years and would be exercisable, in whole
or in part, at a price of $10.00 per share (or in lieu thereof, the holder of
the Warrant
IX-1
<PAGE>
may elect to receive a cash payment equal to the difference between
the exercise price and the prevailing market price of the shares of Common Stock
of Western Publishing multiplied by the number of shares for which the Warrant
is exercisable and with respect to which this cash option is exercised).
You have asked us to render our opinion as to whether the consideration to be
received by the Company pursuant to the Securities Issuance is fair, from a
financial point of view, to Western Publishing. In that connection, we are not
opining as to any other transactions or contractual arrangements to be entered
into or payments to be made by or to Western Publishing or any other person
concurrently with the Securities Issuance.
In the course of performing our valuation and financial analyses for rendering
this opinion, we have:
1. Reviewed drafts of the Securities Purchase Agreement Between Golden
Press Holdings, L.L.C. and Western Publishing Group, Inc.; the
Certificate of Designations, Number, Voting Powers, Preferences and
Rights of Series B Preferred Stock of Western Publishing Group, Inc.;
the Form of Warrant; the Registration Rights Agreement; and certain
related agreements;
2. Reviewed Western Publishing's Annual Reports to Shareholders for the
fiscal years ended on or about January 31, 1993 through 1995; its
Annual Reports on Form 10-K for the fiscal years ended on or about
January 31, 1993 through 1995; and its Quarterly Reports on Form 10-Q
for the periods ended April 29, 1995, July 29, 1995 and October 28,
1995;
3. Reviewed certain operating and financial information, including budgets
and current estimates for Fiscal 1996 (FYE February 3, 1996) provided
to us by the Company's senior management, relating to Western
Publishing's businesses and prospects.
4. Met with certain members of Western Publishing's senior management to
discuss the Company's businesses and operations, previous restructuring
initiatives, historical financial performance, estimated financial
performance for Fiscal 1996 (FYE February 3, 1996), current financial
condition and liquidity, expected capital requirements and future
prospects;
5. Met with Mr. Snyder and Warburg Pincus to discuss their prospective
business strategy for Western Publishing and
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<PAGE>
their views of the Company's corporate and operating management,
previous business strategies, businesses and operations, previous
restructuring initiatives, historical financial performance, estimated
financial performance for Fiscal 1996 (FYE February 3, 1996), current
financial condition and liquidity, expected capital requirements and
future prospects;
6. Reviewed the historical prices, trading activity and valuation
parameters of the shares of Common Stock of Western Publishing and the
Company's 7.65% Senior Notes due 2002;
7. Reviewed publicly available financial data, stock market performance
data and valuation parameters of certain companies which we deemed
generally comparable to Western Publishing;
8. Reviewed the terms of selected precedent investment transactions, to
the extent publicly available, which we deemed generally comparable to
the Securities Issuance;
9. Reviewed the terms of selected precedent mergers and acquisitions, to
the extent publicly available, involving companies which we deemed
generally comparable to Western Publishing;
10. Reviewed the terms of selected issuances of convertible preferred stock
in the public securities market; and
11. Conducted such other studies, analyses, inquiries and investigations as
we deemed appropriate.
In the course of our review, we have relied upon and assumed the accuracy and
completeness of the financial and other information provided to us by Western
Publishing and representations of the Company's senior management related
thereto. With respect to the Company's budgets and current estimates, we have
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the senior management of Western
Publishing as to the expected future performance of Western Publishing. We have
been informed by the senior management of the Company that no budget or forecast
is available for Fiscal 1997 (FYE February 1, 1997). We have not assumed any
responsibility for the information or current estimates provided to us and we
have further relied upon the assurances of the senior management of Western
Publishing that it is unaware of any facts that would make the information
provided
IX-3
<PAGE>
to us incomplete or misleading. In arriving at our opinion, we have not
performed or obtained any independent appraisal of the assets of Western
Publishing. Our opinion is necessarily based on economic, market and other
conditions, and the information made available to us, as of the date hereof.
In rendering our opinion, we have considered (i) the reaction of the stock
market and certain major shareholders to previous proposed transactions between
Western Publishing and the Warburg Pincus Group which had been publicly
disclosed during the Fall of 1995 and the potential positive impact on the
prices of the Company's equity and debt securities of new senior management;
(ii) the Company's recent financial performance, current financial condition and
future prospects; (iii) the potential negative impact on the prices of Western
Publishing's equity and debt securities of the Company's expected financial
performance for Fiscal 1996 (FYE February 3, 1996) in the absence of the
proposed transaction with the Warburg Pincus Group or another similar
extraordinary transaction; (iv) the fact that (a) no other potential equity
investors or strategic acquirors have made a formal investment or acquisition
proposal to the Company since the public announcement of the original agreement
in principle between Western Publishing and Warburg Pincus on September 6, 1995
and (b) the Company had failed to effect a sale transaction or similar
extraordinary transaction despite various discussions with potential financial
and strategic buyers throughout 1995 and during a public auction conducted
during 1994; (v) the Company's prospects for raising debt and/or equity in the
public and private capital markets; and (vi) various terms and conditions of the
Securities Issuance, including that (x) the Securities Issuance will be subject
to a vote of the Company's shareholders, (y) the "no solicitation" and
"termination" provisions of the Securities Purchase Agreement Between Golden
Press Holdings, L.L.C. and Western Publishing Group, Inc. provide the Board of
Directors of the Company with the flexibility to exercise its fiduciary duty to
pursue certain alternative transactions in lieu of the Securities Issuance and
(z) the irrevocable proxies granted by Richard A. Bernstein and his affiliates
to Warburg Pincus as condition to the Securities Issuance.
Based on and subject to the foregoing, it is our opinion that the consideration
to be received by the Company pursuant to the Securities Issuance is fair, from
a financial point of view, to Western Publishing.
We have acted as financial advisor to Western Publishing in connection with the
Securities Issuance and will receive a fee for such services, payment of a
significant portion of which is
IX-4
<PAGE>
contingent upon the consummation of the Securities Issuance. Previously, in
November 1993, Bear Stearns and Morgan Stanley & Co. Incorporated ("Morgan
Stanley") were jointly engaged by Western Publishing to assist the Company as
its financial advisors in responding to "several companies expressing a desire
to discuss a business combination." Bear Stearns and Morgan Stanley were charged
with "exploring all alternatives to maximize shareholder value." Although such
efforts by Bear Stearns and Morgan Stanley did not produce any offers for the
Company in its entirety, Western Publishing did sell its games and puzzles
business to Hasbro, Inc. In connection with the aforementioned sale of the games
and puzzles business, Bear Stearns and Morgan Stanley were each paid a customary
transaction fee. In September 1992, Bear Stearns lead-managed, with Morgan
Stanley as co-manager, Western Publishing's $150 million offering of 7.65%
Senior Notes due 2002.
It is understood that this letter is intended solely for the benefit and use of
the Board of Directors of Western Publishing and is neither for the benefit of
nor being rendered to the public securityholders of Western Publishing. This
letter is not to be used for any other purpose, or reproduced, disseminated,
quoted or referred to at any time, in whole or in part, in any manner for any
purpose without our prior consent, except that this letter may be included in
its entirety in Western Publishing's proxy statement to be distributed to the
stockholders of the Company in connection with their approval of the Securities
Issuance.
We have not reviewed any proxy statement or similar document that may be used in
connection with the Securities Issuance as such materials had not been prepared
as of the date of this letter.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: _________________________
Senior Managing Director
IX-5
<PAGE>
APPENDIX X
FAIRNESS OPINION OF JEFFERIES & COMPANY, INC.
PRIVILEGED AND CONFIDENTIAL
January 31, 1996
The Board of Directors
WESTERN PUBLISHING GROUP, INC.
444 Madison Avenue
New York, NY 10022
To the Members of the Board of Directors:
You have requested our opinion as to the fairness, from a
financial point of view, to Western Publishing Group, Inc., a Delaware
corporation ("Western Publishing" or the "Company"), of the consideration to be
received by Western Publishing pursuant to the Securities Issuance described
below. With your consent, however, we are not opining with respect to, nor
including within our understanding of the Securities Issuance, any other
transactions or contractual arrangements to be entered into or payments to be
made by or to Western Publishing or any other person in connection with that
purchase and sale of securities.
We understand that, pursuant to a draft Securities Purchase
Agreement (the "Securities Purchase Agreement") between the Company and Golden
Press Holding, L.L.C., a Delaware limited liability company ("Golden") and an
affiliate of E.M. Warburg, Pincus & Co., Inc., ("Warburg Pincus"), Golden will
purchase from the Company, for an aggregate purchase price of $65,000,000, (i)
13,000 shares of a newly-created issue of Western Publishing Series B
Convertible Preferred Stock (the "Series B Preferred Stock"), and (ii) a Warrant
(the "Warrant") to purchase an aggregate of 3,250,000 shares of Western
Publishing Common Stock (such issuance and sale of the Series B Preferred Stock
and the Warrant, the "Securities Issuance"). We understand that the Series B
Preferred Stock will have the terms, limitations and relative rights and
preferences set forth in the Certificate of Designations attached to the
Securities Purchase Agreement as its draft Exhibit A, and that the Warrant will
be in substantially the form of the draft Exhibit B attached to such Securities
Purchase Agreement. We also understand that the Company will redeem the
outstanding shares of Western Publishing's Convertible Preferred Stock, Series
A, due March 31, 1996, for approximately $10 million. We further understand that
Western Publishing has agreed to reimburse Golden for up to $4 million of costs,
fees
X-1
<PAGE>
and other expenses incurred by Golden in connection with the Securities
Issuance.
We also understand that Warburg Pincus will, through Golden,
be permitted, subject to the approval of Western Publishing's stockholders, to
designate a majority of the members of the Company's Board of Directors
immediately following the consummation of the Securities Issuance. You have
further informed us that, upon such consummation, Mr. Richard A. Snyder ("Mr.
Snyder") will be named as the Chairman and Chief Executive Officer of Western
Publishing.
Jefferies & Company, Inc. ("Jefferies"), as part of its
investment banking business, is regularly engaged in the evaluation of capital
structures, the valuation of businesses and their securities in connection with
the mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
financial restructurings and other financial services. In the ordinary course of
our business, we may trade the securities of the Company for our own account and
for the accounts of customers and, accordingly, may at any time hold a long or
short position in those securities. As you are aware, Jefferies did not
participate in structuring or negotiating the terms of the Securities Issuance,
and has not heretofore provided any investment banking services to the Company
or any of its subsidiaries or affiliates.
As you are also aware, Jefferies has been engaged by the
Company to provide the opinion contained herein, and will receive a fee for
providing such opinion. In addition, we note that we have not been authorized by
the Company or its Board of Directors to solicit, nor have we solicited, offers
for transactions alternative to the Securities Issuance (including a sale of all
of the Company's equity securities or of any of its constituent businesses), nor
have we been asked to advise the Company or its Board as to financial
alternatives to the Securities Issuance.
In connection with our opinion, we have reviewed the
Securities Purchase Agreement (including the Exhibits thereto) and certain
financial and other information that was publicly available or furnished to us
by Western Publishing, including certain internal financial analyses, budgets,
reports and other information prepared by the Company's management. We have also
discussed with representatives of the management of Western Publishing the
business, properties and prospects of the Company and undertaken such other
reviews, analyses and inquiries relating to the Company as we deemed
appropriate. We also conducted discussions with Mr. Snyder and with
representatives of Warburg Pincus as to the Company's business, properties and
prospects and as to their plans for Western Publishing following the
consummation of the Securities Issuance.
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In our review and analysis and in rendering the opinion
contained herein, we have relied upon, and have not independently verified, the
accuracy, completeness and fair presentation of all financial and other
information that was provided to us by or on behalf of Western Publishing, Mr.
Snyder, Golden or Warburg Pincus or that was publicly available, and such
opinion is conditioned upon such information (whether written or oral) being
complete, accurate and fair in all material respects. We note that the Company
has not prepared, and we have not accordingly reviewed or conducted valuation
analyses based upon, any financial projections with respect to the estimated
future performance of Western Publishing, and our opinion is, as a result,
qualified by the absence of such reviews and analyses. We have not made an
independent evaluation or appraisal or conducted a physical inspection of any of
the assets of Western Publishing, nor have we been furnished with any such
appraisals. Our opinion is based on economic, monetary, political, market and
other conditions existing and which can be evaluated as of the date of this
opinion; however, such conditions are subject to rapid and unpredictable change.
In conducting our analysis and arriving at the opinion
expressed herein, we have considered such financial and other factors as we have
deemed appropriate under the circumstances, including, among others: (i) the
business and financial aspects of the Securities Issuance; (ii) the historical
and current markets for Western Publishing Common Stock; (iii) the financial
impact of the Securities Issuance upon the Company; (iv) the discussions with
Mr. Snyder and with representatives of Golden, Warburg Pincus and of the
Company's management referred to above; (v) certain of the Company's operating
and financial information; (vi) the Company's Annual Reports to Stockholders and
Annual Reports on Form 10-K for its last three full fiscal years and its
Quarterly Reports on Form 10-Q filed since the date of its most recent such Form
10-K; (vii) the potential negative impact on the prices of Western Publishing's
equity and debt securities of the Company's expected financial performance for
its fiscal year ending February 3, 1996 in the absence of the proposed
transaction with Golden or another similar extraordinary transaction; (viii) the
fact that (a) the Company was unsuccessful in effecting a sale or similar
extraordinary transaction during a public auction conducted during 1994 or
thereafter and (b) no other potential equity investors or strategic acquirors
have made a formal investment or acquisition proposal to the Company since the
public announcement of the original agreement in principle between the Company
and Warburg Pincus on September 6, 1995; (ix) the degree of control that Golden
and Warburg Pincus will have with respect to the Company; (x) the potentially
positive impact of new senior management led by Mr. Snyder and the affiliation
with Warburg Pincus on the prices of the Company's equity and debt securities,
its capital raising capacity and its ability to access the capital markets; and
(xi) such other information as we deemed to be appropriate. We also conducted
such other reviews, analyses and inquiries
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relating to the Company, Mr. Snyder, Golden and Warburg Pincus (in addition to
those set forth above) as we considered proper.
With your permission, in rendering such opinion we have also
assumed that: (i) the terms and provisions contained in the definitive
Securities Purchase Agreement (including the Exhibits thereto) will not differ
materially from those contained in the drafts of those documents we have
heretofore reviewed; (ii) the conditions to the consummation of the Securities
Issuance set forth in the Securities Purchase Agreement will be satisfied; and
(iii) there is not now, and there will not as a result of consummation of the
transactions contemplated by the Securities Purchase Agreement be, any default,
or event of default, under any indenture, credit agreement or other material
instrument to which the Company or any of its subsidiaries or affiliates is a
party.
Finally, in rendering the opinion set forth below we note
that: (i) the Company has elected to pursue the Securities Issuance following a
thorough consideration of the financial alternatives available to it, in which
process it was assisted by nationally recognized investment banking firm; (ii)
the consummation of the Securities Issuance is conditioned upon the approval of
Western Publishing's stockholders; (iii) in providing our opinion we are not
recommending any action the Company, the Board of Directors or any of its
security holders should take in connection with the Securities Issuance; and
(iv) we are not opining as to the prices at which any of the securities of the
Company may trade upon and following the consummation of the Securities
Issuance.
Based upon and subject to the foregoing, and upon such other
matters as we consider relevant, it is our opinion as investment bankers that,
as of the date hereof, the consideration to be received by Western Publishing
pursuant to the Securities Issuance is fair to Western Publishing from a
financial point of view.
It is understood and agreed that this opinion is provided
solely for the use of the Board of Directors of the Company as one element in
such Board's consideration of the Securities Issuance, and may not be used for
any other purpose, or otherwise referred to, relied upon or circulated, without
our prior written consent. This opinion may be reproduced in full in any proxy
statement mailed to holders of Western Publishing Common Stock in connection
with the Securities Issuance but may not otherwise be disclosed publicly in any
manner without our prior written approval.
Sincerely,
JEFFERIES & COMPANY, INC.
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By: ________________________
Chris M. Kanoff
Executive Vice President
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