As filed with the Securities and Exchange Commission on October 17, 1996
Registration No. 333-____
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
---------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------
Golden Books Family Entertainment, Inc. Delaware 06-1104930
Golden Books Publishing Company, Inc. Delaware 39-0975399
Golden Books Financing Trust Delaware to be applied
(Exact name of registrant as specified (State or other for (I.R.S.
in its charter) jurisdiction and Employer
incorporation Identification No.)
organization)
850 Third Avenue, New York, NY 10022; (212) 583-6700
(Address, including zip code, and telephone number, including area code, of
each registrant's principal executive offices)
Philip E. Rowley
Executive Vice President and Chief Financial Officer
Golden Books Family Entertainment, Inc.
850 Third Avenue, New York, New York 10022; (212) 583-6700
(Name, address, including zip code, and telephone number, including area
code, of agent for service for each registrant)
---------
Copies to:
Andre Weiss
Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
(212) 756-2000
---------
Approximate date of commencement of proposed sale to the public: From time to
time after the Registration Statement becomes effective.
---------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [x]
<PAGE>
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------
Proposed Proposed maximum Amount of
Title of each class of securities to Amount to be maximum offering aggregate offering registration
be registered registered price per unit price fee
- ------------------------------------ --------------- ----------------- ----------------------- ---------------
<S> <C> <C> <C> <C>
Convertible Trust Originated Preferred 2,300,000 $57.00(1)(2) $131,100,000.00(1)(2) $39,730.00
Securities (SM) Of Golden Books Financing
Trust
Convertible Debentures of Golden Books (3) (3) (3) --
Family Entertainment, Inc. and Golden
Books Publishing Company, Inc.
Common Stock of Golden Books 8,846,260(4) (4) (4) (4)
Family Entertainment, Inc.
Preferred Securities Guarantee of Golden (5) (5) (5) (5)
Books Family Entertainment, Inc.
Total 2,300,000 100%(1)(2) $131,100,000.00(1)(2) $39,730.00
</TABLE>
- --------------
(1) Estimated solely for the purpose of computing the registration fee in
accordance with rule 457(c) of the securities act.
(2) Exclusive of accrued interest and distributions, if any.
(3) $115,000,000 In aggregate principal amount of 8-3/4% convertible
Debentures due 2016 (the "Convertible Debentures") issued on a joint and
several basis by Golden Books Family Entertainment, Inc., a Delaware
Corporation (the "Company"), and Golden Books Publishing Company, Inc., a
Delaware Corporation ("Golden Books Publishing"), were issued and sold to
Golden Books Financing Trust, a Delaware statutory business trust (the
"Trust"), in connection with the issuance by the Trust of $115,000,000 of
its 8-3/4% Convertible Trust Originated Preferred Securities SM (the
"Convertible TOPrS SM" or the "Preferred Securities"). The Convertible
Debentures may be distributed, under certain circumstances, to the
holders of Preferred Securities for no additional consideration.
<PAGE>
(4) The Preferred Securities are convertible into Convertible Debentures,
which are convertible into shares of common stock, par value $.01 Per
share, of the Company (the "Common Stock"). Each Preferred Security is
initially convertible into 3.8462 Shares of Common Stock, subject to
adjustment under certain circumstances. Shares of Common Stock issued
upon conversion of the Preferred Securities will be issued without the
payment of additional consideration.
(5) Includes the obligations of the Company and Golden Books Publishing under
the Guarantee (as defined herein) and certain back-up undertakings under
(i) the indenture (as defined herein) pursuant to which the Convertible
Debentures were issued, (ii) the Convertible Debentures and (iii) the
Amended and Restated Declaration of Trust of the Trust, including the
Company's obligations under such Indenture to pay costs, expenses, debts
and liabilities of the trust (other than with respect to the Preferred
Securities and the Common Securities of the Trust), which in the
aggregate provide a full and unconditional guarantee of amounts due on
the Preferred Securities. No separate consideration will be received for
the Guarantee and such back-up undertakings.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
PRELIMINARY PROSPECTUS -- SUBJECT TO COMPLETION -- DATED OCTOBER 17, 1996
PROSPECTUS
2,300,000 PREFERRED SECURITIES
GOLDEN BOOKS FINANCING TRUST
8-3/4% CONVERTIBLE TRUST ORIGINATED PREFERRED
SECURITIES SM (CONVERTIBLE TOPRS SM)
(LIQUIDATION AMOUNT $50 PER PREFERRED SECURITY),
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY,
AND CONVERTIBLE INTO COMMON STOCK OF,
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
--------------------------
This Prospectus relates to the 8-3/4% Convertible Trust Originated
Preferred Securities SM (the "Convertible TOPrS SM" or "Preferred
Securities"), which represent preferred undivided beneficial ownership
interests in the assets of Golden Books Financing Trust, a statutory business
trust formed under the laws of the State of Delaware ("Golden Books Finance"
or the "Trust"), and the shares of common stock, par value $.01 per share (the
"Common Stock"), of Golden Books Family Entertainment, Inc., a Delaware
corporation (the "Company" or "Golden Books"), issuable upon conversion of the
Preferred Securities. The Preferred Securities were issued and sold (the
"Original Offering") on August 20, 1996 and September 9, 1996 (together, the
"Original Offering Date") to the Initial Purchasers (as defined herein) and
were simultaneously sold by the Initial Purchasers in transactions exempt from
the registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), in the United States to persons reasonably believed by the
Initial Purchasers to be "qualified institutional buyers," as defined in Rule
144A under the Securities Act, and to institutional "accredited investors" (as
defined in Rule 501(a) (1), (2), (3), or (7) under the Securities Act). The
Company owns all of the common securities (the "Common Securities" and,
together with the Preferred Securities, the "Trust Securities") representing
undivided beneficial interests in the assets of the Trust. The Trust exists
for the sole purpose of issuing the Trust Securities and investing the
proceeds thereof to purchase an equivalent principal amount of 8-3/4%
Convertible Debentures due 2016 (the "Convertible Debentures") issued on a
joint and several basis by the Company and
<PAGE>
Golden Books Publishing Company, Inc., a Delaware corporation and a
wholly-owned subsidiary of the Company ("Golden Books Publishing"). Upon an
event of default under the Declaration (as defined herein), the holders of the
Preferred Securities will have a preference over the holders of the Common
Securities with respect to payments in respect of distributions and payments
upon redemption, liquidation and otherwise.
The Preferred Securities, the Convertible Debentures and the Common Stock
issuable upon conversion of the Preferred Securities or the Convertible
Debentures, as applicable (collectively, the "Offered Securities"), may be
offered and sold from time to time by the holders named herein or by their
transferees, pledgees, donees or their successors (collectively, the "Selling
Holders") pursuant to this Prospectus. The Offered Securities may be sold by
the Selling Holders from time to time directly to purchasers or through
agents, underwriters or dealers. See "Plan of Distribution" and "Selling
Holders." If required, the names of any such agents or underwriters involved
in the sale of the Offered Securities and the applicable agent's commission,
dealer's purchase price or underwriter's discount, if any, will be set forth
in an accompanying supplement to this Prospectus (the "Prospectus
Supplement"). The Selling Holders will receive all of the net proceeds from
the sale of the Offered Securities and will pay all underwriting discounts and
selling commissions and transfer taxes, if any, applicable to any such sale.
The Company is responsible for payment of all other expenses incident to the
registration of the Offered Securities. The Selling Holders and any agents,
underwriters or dealers that participate in the distribution of the Offered
Securities may be deemed to be "underwriters" within the meaning of the
Securities Act, and any commission received by them and any profit on the
resale of the Offered Securities purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act. See "Plan of
Distribution" for a description of indemnification arrangements. (continued on
following page)
"Convertible Trust Originated Preferred Securities" and "Convertible
TOPrS" are service marks of Merrill Lynch & Co., Inc.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER
THE CAPTION "RISK FACTORS" COMMENCING ON PAGE 8.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE. THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF
SECURITIES UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
The date of this Prospectus is _____ __, 1996.
2
<PAGE>
(continued from front cover)
Each Preferred Security is convertible at the option of the holder
thereof into shares of Common Stock at an initial conversion rate of 3.8462
shares of Common Stock for each Preferred Security (equivalent to $13 per
share of Common Stock), subject to adjustment in certain circumstances. The
Common Stock is quoted on The Nasdaq National Market ("Nasdaq") under the
symbol "GBFE." The Company intends to apply to have the Preferred Securities
listed on Nasdaq.
Holders of the Preferred Securities will be entitled to receive
cumulative cash distributions at an annual rate of 8-3/4% of the liquidation
amount of $50 per Preferred Security, accruing from the date of the original
issuance and payable quarterly in arrears on each February 20, May 20, August
20 and November 20, commencing November 20, 1996. See "Description of the
Preferred Securities--Distributions." The payment of distributions out of
moneys held by the Trust and payments on liquidation of the Trust or the
redemption of Preferred Securities, as described below, are guaranteed by the
Company (the "Guarantee") to the extent the Trust has funds available therefor
as described under "Description of the Guarantee." The Guarantee, when taken
together with the Company's obligations under the Indenture (as defined
herein) pursuant to which the Convertible Debentures were issued, the
Convertible Debentures and its obligations under the Declaration (as defined
herein), including its obligations under the Indenture to pay costs, expenses,
debts and liabilities of the Trust (other than with respect to the Trust
Securities), provide a full and unconditional guarantee of amounts due on the
Preferred Securities. The Company's obligations under the Guarantee rank (i)
pari passu with all other unsecured obligations of the Company, except any
obligations that are expressly subordinated to the Guarantee, and (ii) senior
to (A) all preferred or preference stock issued from time to time by the
Company, (B) any guarantee now or hereafter entered into by the Company in
respect of any preferred or preference stock or preferred securities of any
affiliate of the Company and (C) the Common Stock. See "Description of the
Guarantee." The Convertible Debentures are joint and several senior unsecured
obligations of each of the Company and Golden Books Publishing and rank pari
passu with all other unsecured obligations, including trade credit, except for
such obligations which are expressly subordinated to the Convertible
Debentures.
The distribution rate and the distribution payment dates and other
payment dates for the Preferred Securities correspond to the interest rate and
interest payment dates and other payment dates for the Convertible Debentures,
which are the sole assets of the Trust. If the Company and Golden Books
Publishing fail to make principal or interest payments on the Convertible
Debentures, the Trust will not have sufficient funds to make distributions on
the Preferred Securities, in which event the Guarantee will not apply to such
distributions until the Trust has sufficient funds available therefor.
The Company and Golden Books Publishing have the right to defer payments
of interest on the Convertible Debentures at any time for up to 20 consecutive
quarters (each, an "Extension Period"), but not beyond the maturity of the
Convertible Debentures. If interest payments are so deferred, distributions on
the Preferred Securities also will be deferred. During any Extension Period,
distributions will continue to accrue with interest thereon (to the extent
permitted by
3
<PAGE>
applicable law) at a rate of 8-3/4% per annum compounded quarterly. During any
Extension Period, holders of Preferred Securities will be required to include
such deferred interest in their gross income for United States Federal income
tax purposes in advance of receipt of the cash distributions with respect to
such deferred interest payments. Moreover, if a holder of Preferred Securities
converts its Preferred Securities into Common Stock during any Extension
Period, the holder will not receive any cash related to the deferred
distributions. There could be multiple Extension Periods of varying lengths
throughout the term of the Convertible Debentures (but distributions would
continue to accumulate quarterly and accrue interest until the end of any such
Extension Period). See "Risk Factors--Option to Extend Interest Payment
Period; Tax Consequences," "Description of the Preferred
Securities--Distributions" and "Description of the Convertible
Debentures--Option to Extend Interest Payment Period."
The Convertible Debentures are redeemable by the Company or Golden Books
Publishing, in whole or in part, from time to time, on or after August 20,
1999 at the redemption prices set forth herein. The Convertible Debentures may
also be redeemed in certain circumstances upon the occurrence of a Tax Event
(as defined herein). If the Company or Golden Books Publishing redeems
Convertible Debentures, the Trust must redeem Trust Securities on a pro rata
basis having an aggregate liquidation amount equal to the aggregate principal
amount of the Convertible Debentures so redeemed at a redemption price
corresponding to the redemption price of the Convertible Debentures plus
accrued and unpaid distributions thereon (the "Redemption Price") to the date
fixed for redemption. See "Description of the Preferred
Securities--Redemption." The Preferred Securities will be redeemed upon the
maturity of the Convertible Debentures. In addition, the Trust will be
dissolved, except in certain limited circumstances, upon the occurrence of a
Tax Event arising from a change in law or a change in legal interpretation
regarding tax matters. In certain circumstances involving a Tax Event, the
Company will have the right to redeem the Convertible Debentures. The Trust
will also be dissolved upon the occurrence of an Investment Company Event (as
defined herein). Upon dissolution of the Trust, the Convertible Debentures
will be distributed to the holders of the securities of the Trust, on a pro
rata basis, in lieu of any cash distribution. If the Convertible Debentures
are distributed to the holders of the Preferred Securities, the Company will
use its best efforts to cause the Convertible Debentures to be listed on
Nasdaq or such other national securities exchange or similar organization on
which the Preferred Securities are then listed or quoted. See "Description of
the Preferred Securities--Special Event Redemption or Distribution" and
"Description of the Convertible Debentures."
In the event of the liquidation, winding up or termination of the Trust,
the holders of the Preferred Securities will be entitled to receive for each
Preferred Security a liquidation amount of $50 plus accrued and unpaid
distributions thereon (including interest thereon) to the date of payment,
unless, in connection with such dissolution, Convertible Debentures are
distributed to the holders of the Preferred Securities. See "Description of
the Preferred Securities--Liquidation Distribution Upon Dissolution."
4
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the information reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files periodic reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC" or the
"Commission"). Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the SEC
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the regional offices of the SEC located at Seven World Trade Center,
13th Floor, New York, New York 10049 and Citicorp Center, 500 West Madison
Street (Suite 1400), Chicago, Illinois 60661. Copies of all or part of such
materials may also be obtained at prescribed rates from the public reference
facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. Such materials can also be inspected at
the offices of the National Association of Securities Dealers, Inc., at 33
Whitehall Street, 10th Floor, New York, New York 10004. Additionally, the
Company files such reports, proxy statements and other information with the
SEC pursuant to the SEC's EDGAR system. The SEC maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC pursuant to the
EDGAR system. The address of the SEC's web site is http://www.sec.gov. While
any Preferred Securities, Convertible Debentures or Common Stock issuable upon
conversion of the Convertible Debentures remain outstanding, the Company will
make available, upon request, to any holder and any prospective purchaser
thereof the information required by Rule 144A(d)(4) under the Securities Act
during any period in which the Company is not subject to Section 13 or 15(d)
of the Exchange Act. Any such request should be mailed to Corporate Secretary,
Golden Books Family Entertainment, Inc., 850 Third Avenue, New York, New York
10022. Telephone requests may be directed to the Corporate Secretary at
212-583-6700.
The Company has filed with the Commission a registration statement
(together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the securities offered
hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement, certain items of which are contained in exhibits to
the Registration Statement, as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the
securities offered by this Prospectus, reference is made to the Registration
Statement, including the exhibits thereto, and the financial statements and
notes incorporated by reference as a part thereof, which are on file at the
offices of the Commission and may be obtained upon payment of the fee
prescribed by the Commission, or may be examined without charge at the offices
of the Commission. Statements made in the Prospectus concerning the contents
of any document referred to herein are not necessarily complete, and, in each
such instance, are qualified in all respects by reference to the applicable
documents filed with the Commission. The Registration Statement and the
exhibits thereto filed by the Company with the Commission may be inspected and
copied at the locations described above.
5
<PAGE>
No separate financial statements of the Trust have been included herein.
The Company does not consider that such financial statements would be material
to holders of Preferred Securities because (i) all of the voting securities of
the Trust are owned by the Company, a reporting company under the Exchange
Act, (ii) the Trust has no independent operations and exists for the sole
purpose of issuing securities representing undivided beneficial interests in
the assets of the Trust and investing the proceeds thereof in the Convertible
Debentures issued by the Company and Golden Books Publishing and (iii) the
obligations of the Trust under the Securities Act are fully and
unconditionally guaranteed by the Company to the extent that the Trust has
funds available to meet such obligations. See "Description of the Convertible
Debentures" and "Description of the Guarantee."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which are filed under File No. 0-14399 by the
Company with the Commission under the Exchange Act, are hereby incorporated
herein by reference:
(i) the Annual Report on Form 10-K, as amended by the Form 10-K/A, for
the year ended February 3, 1996;
(ii) the Proxy Statement dated April 18, 1996;
(iii) the Quarterly Report on Form 10-Q, as amended by the Form 10-Q/A,
for the quarter ended May 4, 1996;
(iv) the Quarterly Report on Form 10-Q for the quarter ended August 3,
1996; and
(v) the Interim Reports on Form 8-K, dated May 8, 1996, June 20, 1996,
July 1, 1996, July 30, 1996, August 2, 1996, August 20, 1996 (as
amended by a Form 8-K/A filed October 16, 1996), September 6, 1996
and September 25, 1996.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Prospectus and prior to
the filing of a post-effective amendment that indicates the termination of the
offering of the securities offered hereby shall be deemed to be incorporated
in this Prospectus by reference and to be a part hereof from the date of
filing of such documents.
Any statements contained herein or in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of the offering of the securities offered hereby to
the extent that a statement contained herein or in any other subsequently
filed document which also is or is deemed to be incorporated by reference
herein modifies or supersedes such statement. Any such statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide, without charge, to each person to whom this
Prospectus has been delivered, a copy of any or all of the documents referred
to above that have been or may be incorporated by reference herein other than
exhibits to such documents (unless such exhibits are
6
<PAGE>
specifically incorporated by reference therein). Written requests should be
mailed to Corporate Secretary, Golden Books Family Entertainment, Inc., 850
Third Avenue, New York, New York 10022. Telephone requests may be directed to
the Corporate Secretary at (212) 583-6700.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
THE STATEMENTS CONTAINED IN THIS PROSPECTUS OR IN DOCUMENTS INCORPORATED
HEREIN BY REFERENCE THAT ARE NOT HISTORICAL FACTS, INCLUDING, WITHOUT
LIMITATION, IN PARTICULAR, STATEMENTS MADE (1) UNDER THE CAPTION "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" IN
THE COMPANY'S ANNUAL REPORT ON FORM 10-K, IN THE COMPANY'S QUARTERLY REPORTS
ON FORM 10-Q AND THE AMENDMENTS TO SUCH REPORTS AND (2) IN THE COMPANY'S
CURRENT REPORTS ON FORM 8-K, AND THE AMENDMENTS TO SUCH REPORTS MAY, IN SOME
CASES, INCLUDE STATEMENTS OF FUTURE EXPECTATIONS, PROJECTIONS OF REVENUE AND
INCOME, STATEMENTS OF FUTURE ECONOMIC PERFORMANCE AND OTHER FORWARD-LOOKING
STATEMENTS THAT ARE SUBJECT TO IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE IN ANY SUCH FORWARD-LOOKING STATEMENTS,
INCLUDING, WITHOUT LIMITATION, THE RISKS OF IMPLEMENTING THE COMPANY'S NEW
STRATEGY, THE ABILITY OF MANAGEMENT OF THE COMPANY TO MAINTAIN AND IMPROVE ITS
RELATIONSHIPS WITH KEY CUSTOMERS AND LICENSORS, PRODUCT DEMAND AND MARKET
ACCEPTANCE RISKS, THE EFFECT OF ECONOMIC CONDITIONS, THE IMPACT OF COMPETITIVE
PRODUCTS AND PRICING, PRODUCT DEVELOPMENT AND OTHER RISKS DETAILED HEREIN IN THE
SECTION ENTITLED "RISK FACTORS," ELSEWHERE HEREIN AND IN THE COMPANY'S OTHER
SECURITIES AND EXCHANGE COMMISSION FILINGS.
7
<PAGE>
RISK FACTORS
Prospective purchasers of the Offered Securities should consider
carefully the information set forth or incorporated by reference in this
Prospectus and, in particular, should evaluate the following risks in
connection with an investment in the Offered Securities.
LOSSES
During fiscal 1994, 1995 and 1996, the Company experienced net losses of
$55.8 million, $17.6 million and $67.0 million, respectively. For the six
months ended August 3, 1996, the Company experienced net losses of $118.2
million. The Company's net losses for the six months ended August 3, 1996
resulted primarily from the Company having recorded write-downs and other
charges in its second quarter financial statements totaling $80.1 million as
follows: (i) a restructuring charge totaling $40.7 million pertaining to a
$30.1 million writedown of the net assets of Penn Corporation ("Penn"), a
wholly-owned subsidiary of the Company that designs, produces and distributes
decorated paper tableware, party accessories, invitations, gift wrap,
stationery and giftware, to net realizable value, a $3.0 million reduction in
the net realizable value of the Company's Fayetteville facility and $7.6
million in costs associated with the termination of certain customer program
initiatives; (ii) a cost of sales adjustment of $25.0 million comprised of
$17.6 million of costs pertaining to the Company's decision to discontinue or
replace certain product lines and expeditiously liquidate related inventory
and slow moving product and $7.4 million of other inventory related costs,
consisting primarily of licensor and prepublication costs; (iii) a selling,
general and administrative charge of $11.0 million relating to costs
associated with management's revised plans to resolve certain legal and
contractual matters; and (iv) adjustments to revenue totaling $3.4 million to
establish reserves in connection with the Company's plans to resolve
differences with customers with a view toward mending and improving the
Company's relationships with its customers. Such write-downs and other charges
were in addition to charges of $16.2 million in connection with the sale of a
significant equity interest to Golden Press Holding, L.L.C. ("GPH") on May 8,
1996. The Company expects to record additional substantial write-downs and
other charges, which will be primarily non-cash in nature, in fiscal 1997.
The Company's new management has adopted a new strategy to build a
leading family entertainment company that creates, publishes and licenses
children's entertainment products. The Company intends to build on the
Company's position as a leader in the children's publishing market, utilizing
the strength of the Golden Books brand to provide family-oriented content
through multiple media. If the Company's strategy is successful, the Company
still does not expect to generate positive net income until fiscal 1999 at the
earliest. The Company's return to profitability is dependent in part on the
successful implementation of management's new strategy. There can be no
assurance that this strategy will be successful, that the Company will not
continue to experience net losses or that the Company's net losses will not
increase. See "--Risks of Implementation of New Strategy."
8
<PAGE>
LEVERAGE
The Company has substantial indebtedness in relation to its stockholders'
equity and there can be no assurance that the Company's operating results will
be sufficient for payment of all of its indebtedness. The degree to which the
Company is leveraged could have important consequences to holders of the
Offered Securities, including the following: (i) the Company's ability to
obtain other financing in the future may be impaired; (ii) a substantial
portion of the Company's cash flow from operations must be dedicated to the
payment of principal and interest on its indebtedness; and (iii) a high degree
of leverage may make the Company more vulnerable to economic downturns and may
limit its ability to withstand competitive pressures. The Company's ability to
make scheduled payments on or, to the extent not restricted pursuant to the
terms thereof, refinance its indebtedness depends on its financial and
operating performance, which may fluctuate significantly from quarter to
quarter and is subject to prevailing economic conditions and to financial,
business and other factors beyond its control. See "--Fluctuations in
Quarterly Operating Results; Seasonality." The Indenture limits the amount of
additional indebtedness that the Company or any of its subsidiaries can
create, incur, assume or guarantee.
RISKS OF IMPLEMENTATION OF NEW STRATEGY
The Company's management team is in the initial stages of implementing
the Company's new strategy. As part of this strategy, the Company intends to
make changes in its existing product lines, introduce new product lines,
enlarge the Golden Books character library and exploit new distribution
channels for its products. The Company's strategy also involves revitalizing
its editorial, sales and marketing functions. Management also has initiated an
expense reduction program that builds upon the Company's already-taken
cost-saving measures. In addition, the Company has decided to divest Penn.
There can be no assurance that the Company will be able to successfully
implement all or any part of its strategy, including its expense reduction
program and the divestiture of Penn, or that the implementation of this
strategy will increase the profitability of the Company or improve its cash
flow. In addition, the Company's restructuring measures will in part be offset
by the incurrence of additional expenses in retaining new management and
editorial staff as well as other upgrading measures relating to the Company's
new strategy.
DEPENDENCE ON AND RELATIONSHIPS WITH KEY CUSTOMERS AND LICENSORS
During fiscal 1996, approximately 36% of the Company's children's
publishing revenues and 28% of the Company's revenues generally were
attributable to sales to the Company's four largest customers. The loss of any
such customer or a substantial decrease in business from any such customer
would have a material adverse effect on the Company.
The Company believes that the variety and popularity of characters
(whether licensed or owned) is among the most important factors that
differentiate the Company's products from those of its competitors.
Approximately 73% of the Company's children's publishing revenues were
attributable to products utilizing characters and other properties licensed by
the Company from third parties. Approximately 47% of fiscal 1996 children's
publishing revenues were attributable to children's products incorporating
characters and properties licensed from the Company's five
9
<PAGE>
largest sources of licensed property. The character licenses covering
characters licensed by the Company generally have two to three year terms. The
Company's main character license from The Walt Disney Company ("Disney")
pertaining to the use in children's storybooks and color/activity books of
Disney characters expires on December 31, 1997. Management intends to seek the
renewal of this license. While the Company believes that its relationship with
Disney is good, competition for licenses is strong and there can be no
assurance that such license, or any of the Company's other licenses, will be
renewed on favorable terms if at all. See "--Competition." The loss of any of
the Company's principal licenses would have a material adverse effect on the
Company. In addition, the loss of a significant license by the Company would
impair its distribution capabilities which, in turn, could adversely affect
its ability to obtain new licenses and to renew existing licenses on favorable
terms, if at all.
The Company's relationships with a number of its significant customers
and licensors have been contentious from time to time because of disputes, in
the case of its customers, relating to prior pricing, return and merchandising
policies and, in the case of its licensors, alleged non-compliance by the
Company with certain license terms. New management has taken steps to repair
these relationships and believes that it has been successful in this regard.
However, there can be no assurance that such relationships, or other
relationships with customers and/or licensors, will not again become
contentious in the future, which could have a material adverse effect on the
Company.
DEPENDENCE ON KEY PERSONNEL
The implementation of the Company's strategy will require the active
participation of its new management team and, in particular, Richard E.
Snyder, the Company's Chairman and Chief Executive Officer. The loss of the
services of Mr. Snyder could have a material adverse effect on the ability of
the Company to implement its strategy. The loss of any of the other members of
the Company's new management team could adversely affect the implementation of
selected aspects of the Company's strategy or delay the implementation of such
aspects until a qualified replacement can be obtained. In addition to
adversely affecting the ability of the Company to implement its strategy, the
loss of any of the foregoing key employees of the Company could otherwise have
a material adverse effect on the Company. The Company does not maintain
"key-man" insurance in respect of Mr. Snyder or any of its other key
employees.
COMPETITION
The children's publishing market is highly competitive. Competition is
based primarily on price, quality, distribution, marketing and licenses. In
mass market sales, the Company faces competition primarily from smaller
competitors. In the trade and specialty trade categories, the Company's
principal competitors are large publishing companies. The Company also
competes for a share of consumer spending on children's entertainment and
educational products against companies that market a broad range of products
utilizing a broad range of technologies that are unrelated to those marketed
by the Company.
The market for licenses also is highly competitive and the Company
competes against many other licensees for significant licenses. In recent
years, licensors have fragmented licenses,
10
<PAGE>
which has reduced the cost of purchasing a license. As a result, smaller
bidders have been able to enter the market for licenses, which has resulted in
increased competition in this market.
The Company also experiences strong competition for its other products
and services, based on a number of factors, including, but not limited to,
price, quality, formats, delivery and licenses.
Many of the Company's current competitors have greater financial
resources than the Company and, in selected markets, greater experience than
the Company. The markets which the Company intends to enter as part of its
growth strategy each contain a number of competing entities, many of which
have greater resources and experience with respect to these markets than the
Company.
The Company's operations also may be adversely affected by a number of
factors beyond its control, including economic downturns, cyclical variations
in the markets for its products and related products of other companies and
changes in consumer preferences.
RISKS RELATING TO INTELLECTUAL PROPERTIES
The value of the materials in the Company's library, both to the Company
as a licensor and as an end user, is subject to consumer taste. There can be
no assurance that these properties will be attractive to third-party licensees
or that they will be suitable for inclusion in the Company's products. If
properties that are being exploited cease to be attractive to third-party
licensees, licensing revenue from such licenses will decrease.
In view of the complex nature of the Company's intellectual property
rights, there is a risk of third parties asserting claims of ownership or
infringement or asserting a right to payment with respect to the past, present
or future exploitation of such properties. There can be no assurance that the
Company would prevail in any such claim. In addition, the Company's ability to
demonstrate, maintain or enforce these rights may be difficult. Impairments or
difficulties in demonstrating the Company's ownership or license rights in
such properties could adversely affect the ability of the Company to generate
revenue from or use such properties. In many cases, the rights owned or being
acquired by the Company are limited in scope, do not extend to exploitation in
all present or future media or in perpetuity and may not include the right to
create derivative works, such as merchandising and character rights, remakes
or sequels.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; SEASONALITY
The Company has historically experienced significant fluctuations in
quarterly operating results. The children's publishing business in general is
seasonal and depends to a significant extent on the Christmas selling season,
resulting in a disproportionately higher percentage of revenues in the
Company's third fiscal quarter (between 30% and 35% of children's publishing
revenues over the three most recently completed fiscal years). The acquisition
(the "Acquisition") consummated on August 20, 1996 by the Company of
substantially all of the assets of Broadway Video Entertainment, L.P. ("BVE,
L.P.") is expected to add to the volatility of the Company's quarterly
results. The Company's quarterly operating results also will fluctuate based
on the
11
<PAGE>
timing of the introduction of products that utilize licensed characters,
which, in the case of characters appearing in movies, will be dependent upon
the timing of the movie release. In addition, the Company's quarterly
operating results may fluctuate significantly due to the seasonality of new
product introductions, changes in sales and product mixes and the timing of
selling and marketing expenses. Many of the Company's new products have or
will have a lengthy development cycle. As a result, these products may not
begin to generate revenues during the accounting period in which costs and
expenses attributable to the development and introduction of such products are
incurred. Significant fluctuations in the Company's quarterly operating
results could adversely affect the Company's cash flow, which could adversely
affect the Company's ability to pay interest on its indebtedness, including
the Convertible Debentures. See "--Leverage."
COST OF PAPER SUPPLIES AND OTHER MATERIAL COSTS
In fiscal 1996, paper supply purchases, exclusive of Penn, totaled
approximately $47 million. Paper supplies and other material costs constitute
a significant portion of the Company's product costs and are susceptible to
numerous factors beyond the control of the Company. Significant increases in
these costs could have a material adverse effect on the Company's operating
results.
CONTROL OF THE COMPANY
GPH, which is controlled by Warburg, Pincus Ventures, L.P., owns 195,000
shares of Common Stock and 13,000 shares of Series B Convertible Preferred
Stock, no par value, of the Company (the "Series B Preferred Stock"),
convertible into an aggregate of 6,500,000 shares of Common Stock (an
aggregate of 20.8% of the issued and outstanding shares of Common Stock after
giving effect to such conversion). The Series B Preferred Stock votes on an
as-converted basis with the Common Stock on all matters submitted to a vote of
the stockholders of the Company, including the election of directors. GPH also
has irrevocable proxies with respect to 3,996,771 shares of Common Stock
(12.4% of the issued and outstanding shares of Common Stock after giving
effect to the conversion of the Series B Preferred Stock) owned by Richard A.
Bernstein and certain trusts affiliated with Mr. Bernstein. Pursuant to such
proxy, GPH generally has the power to vote such shares in such manner as it
deems proper. As a consequence of such Common Stock and Series B Preferred
Stock ownership and proxy, GPH, controls approximately 33.3% of the total
voting power of the Company. The Series B Preferred Stock entitles GPH, during
the first four years following issuance, to receive dividends of approximately
195,000 shares of Common Stock per fiscal quarter of the Company (subject to
certain adjustments). See "Description of Capital Stock--Preferred Stock." GPH
also holds a Warrant (the "Warrant") to purchase 3,250,000 shares of Common
Stock (subject to anti-dilution adjustments) that will be exercisable
beginning on May 8, 1998, subject to acceleration upon certain circumstances.
The Warrant will be exercisable until May 8, 2003.
For so long as at least one-half of the shares of Series B 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 Preferred Stock. Furthermore, the holders of
12
<PAGE>
the Series B Preferred Stock will have the right to elect up to one-third of
the members of the Board of Directors (the "Series B Directors"), each of the
current members of which was nominated by GPH in connection with its
investment in the Company. The appointment of additional members of the Board
of Directors of the Company in connection with the Acquisition provided GPH
with the right to designate two additional directors; however, GPH has advised
the Company that it does not presently intend to exercise such right, although
it reserves the right to do so in the future.
The foregoing factors provide GPH with significant influence over the
management and policies of the Company. The foregoing factors also may render
it more difficult for a third party to effect a change of control of the
Company without the consent of GPH and may thereby discourage third parties
from any attempt to acquire control of the Company.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES
The Company and Golden Books Publishing have the right under the
Indenture to defer interest payments from time to time on the Convertible
Debentures for successive periods not exceeding 20 consecutive quarterly
interest periods during which no interest shall be due and payable, provided,
that no such Extension Period may extend beyond the maturity date of the
Convertible Debentures. Upon the termination of any Extension Period and the
payment of all amounts then due, the Company or Golden Books Publishing may
select a new Extension Period, subject to the requirements described herein.
As a consequence of such extension, quarterly distributions on the Preferred
Securities would be deferred (although such distributions would continue to
accrue with interest thereon compounded quarterly) by the Trust during any
such Extension Period. In the event that this right is exercised, then, during
such period the Company (i) may not declare or pay dividends on, make
distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock (except for (a)
dividends or distributions in shares of Common Stock on Common Stock or on its
Series B Preferred Stock, (b) purchases or acquisitions of shares of Common
Stock made in connection with employee benefit plans of the Company or its
subsidiaries or pursuant to employment agreements with officers or employees
of the Company or its subsidiaries (subject to certain limitations), (c)
conversions or exchanges of common stock of one class into common stock of
another class and (d) purchases of fractional interests in shares of the
Company's capital stock pursuant to the conversion or exchange provisions of
any of the Company's securities being converted or exchanged), (ii) may not
make any payment of interest, principal of or premium, if any, on, or repay,
repurchase or redeem any debt securities issued by the Company that rank
junior to the Convertible Debentures (except by conversion into or
exchange for shares of Common Stock), and (iii) may not make any guarantee
payments with respect to the foregoing. In addition, during any Extension
Period, Golden Books Publishing (a) if Golden Books Publishing is not a
wholly-owned subsidiary of the Company, shall not declare or pay dividends on,
make distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock (except for (i)
dividends or distributions in shares of its common stock made on outstanding
shares of its common stock, (ii) conversions or exchanges of its common stock
of one class into its common stock of another class or (iii) purchases of
fractional interests in shares of the capital stock of Golden Books Publishing
13
<PAGE>
pursuant to the conversion or exchange provisions of any of the securities of
Golden Books Publishing being converted or exchanged) and (b) shall not make
any payment of interest, principal of or premium, if any, on, or repay,
repurchase or redeem any debt securities issued by Golden Books Publishing
that rank junior to the Convertible Debentures (except by conversion into or
exchange for shares of its common stock). Prior to the termination of any such
Extension Period, the Company or Golden Books Publishing may further extend
the Extension Period; provided, that such Extension Period, together with all
previous and further extensions thereof, may not exceed 20 consecutive
quarters and that such Extension Period may not extend beyond the maturity
date of the Convertible Debentures. Consequently, there could be multiple
Extension Periods of varying lengths throughout the term of the Convertible
Debentures. See "Description of the Preferred Securities--Distributions" and
"Description of the Convertible Debentures--Option to Extend Interest Payment
Period."
Should the Company or Golden Books Publishing exercise the right to defer
payments of interest on the Convertible Debentures, each holder of Preferred
Securities will continue to accrue income (as original issue discount ("OID")
in respect of the deferred interest allocable to its Preferred Securities for
United States Federal income tax purposes, which will be allocated but not
distributed to holders of record of Preferred Securities. As a result, each
such holder of Preferred Securities will recognize income for United States
Federal income tax purposes in advance of the receipt of cash and will not
receive the cash from the Trust related to such income if such holder disposes
of its Preferred Securities prior to the record date for the date on which
distributions of such amounts are made. Moreover, if a holder of Preferred
Securities converts its Preferred Securities into Common Stock during any
Extension Period, the holder will not receive any cash related to the deferred
distributions. Should the Company or Golden Books Publishing determine to
exercise such right in the future, the market price of the Preferred
Securities is likely to be affected. A holder that disposes of or converts its
Preferred Securities during any Extension Period, therefore, might not receive
the same return on its investment as a holder that continues to hold its
Preferred Securities. In addition, as a result of the existence of the right
to defer interest payments, the market price of the Preferred Securities
(which represent an undivided beneficial interest in the Convertible
Debentures) may be more volatile than other similar securities where the
issuer does not have such rights to defer interest payments. See
"Taxation--Potential Extension of Interest Payment Period and Original Issue
Discount."
PROPOSED TAX LEGISLATION
On March 19, 1996, as part of President Clinton's Fiscal 1997 Budget
Proposal, the Treasury Department proposed legislation (the "Proposed
Legislation") that, among other things, would treat as equity for United
States Federal income tax purposes instruments with a maximum term of more
than 20 years that are not shown as indebtedness on the consolidated balance
sheet of the issuer. On March 29, 1996, Senate Finance Committee Chairman
William V. Roth, Jr. and House Ways and Means Committee Chairman Bill Archer
issued a joint statement (the "Joint Statement") indicating their intent that
certain legislative proposals initiated by the Clinton administration,
including the Proposed Legislation, that may be adopted by either of the
tax-writing committees of Congress, would have an effective date that is no
earlier than the date of "appropriate Congressional action." Based on the
Joint Statement, it is expected that if the
14
<PAGE>
Proposed Legislation were enacted, such legislation would not apply to the
Convertible Debentures since they were issued prior to the date of any
"appropriate Congressional action." Furthermore, even if the Proposed
Legislation were enacted in its current form with effective date provisions
making it applicable to the Convertible Debentures, it would not cause the
Convertible Debentures to be treated as equity for United States Federal
income tax purposes since the maximum term of the Convertible Debentures does
not exceed 20 years. There can be no assurances, however, that any proposed
legislation enacted after the date hereof will not otherwise adversely affect
the tax treatment of the Convertible Debentures. If legislation is enacted
that adversely affects the tax treatment of the Convertible Debentures, such
legislation could result in the distribution of the Convertible Debentures to
holders of the Preferred Securities or, in certain limited circumstances, the
redemption of such securities by the Company or Golden Books Publishing and
the distribution of the resulting cash in redemption of the Preferred
Securities. See "Description of the Preferred Securities--Special Event
Redemption or Distribution."
RIGHTS UNDER THE GUARANTEE
The Guarantee Trustee (as defined herein) holds the Guarantee for the
benefit of the holders of the Preferred Securities. The Guarantee guarantees
to the holders of the Preferred Securities the payment of (i) any accrued and
unpaid distributions that are required to be paid on the Preferred Securities,
to the extent the Trust has funds available therefor, (ii) the Redemption
Price, with respect to the Preferred Securities called for redemption by the
Trust, to the extent the Trust has funds available therefor, and (iii) upon a
voluntary or involuntary dissolution, winding up or termination of the Trust
(other than in connection with a distribution of the Convertible Debentures to
holders of Preferred Securities or a redemption of all of the Preferred
Securities), the lesser of (a) the aggregate of the liquidation amount and all
accrued and unpaid distributions on the Preferred Securities to the date of
payment, to the extent the Trust has funds available therefor, and (b) the
amount of assets of the Trust remaining available for distribution to holders
of the Preferred Securities upon the liquidation of the Trust. The holders of
a majority in liquidation amount of the Preferred Securities have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Guarantee Trustee or to direct the exercise of any trust or
power conferred upon the Guarantee Trustee under the Guarantee.
Notwithstanding the foregoing, any holder of Preferred Securities may directly
institute a legal proceeding directly against the Company to enforce the
obligations of the Guarantor under the Guarantee without first instituting a
legal proceeding against Golden Books Publishing, the Trust, the Guarantee
Trustee, or any other person or entity. If the Company and Golden Books
Publishing were to default on the obligation to pay amounts payable on the
Convertible Debentures, the Trust would lack available funds for the payment
of distributions or amounts payable on redemption of the Preferred Securities
or otherwise, and in such event holders of the Preferred Securities would not
be able to rely upon the Guarantee for payment of such amounts. Instead, a
holder of the Preferred Securities would be required to rely on the
enforcement (1) by the Property Trustee (as defined herein) of its rights, as
registered holder of the Convertible Debentures, against the Company and
Golden Books Publishing pursuant to the terms of the Convertible Debentures or
(2) by such holder of Preferred Securities of its right against the Company
and Golden Books Publishing to enforce payments on the Convertible Debentures.
See
15
<PAGE>
"Description of the Guarantee" and "Description of the Convertible
Debentures." The Declaration provides that each holder of Preferred
Securities, by acceptance thereof, agrees to the provisions of the Guarantee
and the Indenture.
The operations of the Company are generally currently conducted through
subsidiaries, primarily Golden Books Publishing. Accordingly, the ability of
the Company to make debt service payments and payments on the Guarantee are
substantially dependent on the cash flow and earnings of its subsidiaries. See
"--Leverage." Pursuant to the terms of the indenture (the "Senior Notes
Indenture") governing Golden Books Publishing's 7.65% senior notes in an
aggregate principal amount of $150,000,000, Golden Books Publishing is
currently prohibited from making distributions or loans or advances to the
Company.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If a Declaration Event of Default (as defined herein) occurs and is
continuing, then the holders of Preferred Securities would rely on the
enforcement by the Property Trustee of its rights as the sole holder of the
Convertible Debentures against the Company and Golden Books Publishing. In
addition, the holders of a majority in liquidation amount of the Preferred
Securities will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Property Trustee or
to direct the exercise of any trust or power conferred upon the Property
Trustee under the Declaration, including the right to direct the Property
Trustee to exercise the remedies available to it under the Indenture as a
holder of the Convertible Debentures. If the Property Trustee fails to enforce
its rights under the Convertible Debentures, any holder of Preferred
Securities may directly institute a legal proceeding against the Company and
Golden Books Publishing to enforce the Property Trustee's rights under the
Convertible Debentures without first instituting any legal proceeding against
the Property Trustee or any other person or entity. Notwithstanding the
foregoing, if a Declaration Event of Default has occurred and is continuing
and such event is attributable to the failure of the Company and Golden Books
Publishing to pay interest or principal on the Convertible Debentures on the
date such interest or principal is otherwise payable (or in the case of
redemption, on the redemption date), then a holder of Preferred Securities may
directly institute a proceeding for enforcement of payment to such holder of
the principal of or interest on the Convertible Debentures having a principal
amount equal to the aggregate liquidation amount of the Preferred Securities
of such holder (a "Direct Action") on or after the respective due date
specified in the Convertible Debentures. In connection with such Direct
Action, the Company and Golden Books Publishing will be subrogated to the
rights of such holder of Preferred Securities under the Declaration to the
extent of any payment made by the Company or Golden Books Publishing to such
holder of Preferred Securities in such Direct Action. The holders of Preferred
Securities are not able to exercise directly any other remedy available to the
holders of the Convertible Debentures.
16
<PAGE>
SPECIAL EVENT REDEMPTION OR DISTRIBUTION
Upon the occurrence of a Tax Event or an Investment Company Act Event
(each as defined herein, and each, a "Special Event"), the Trust will be
dissolved, except in the limited circumstance described below, with the result
that the Convertible Debentures would be distributed to the holders of the
Trust Securities in connection with the liquidation of the Trust. In certain
circumstances, the Company and Golden Books Publishing shall have the right to
redeem the Convertible Debentures, in whole (but not in part), in lieu of a
distribution of the Convertible Debentures by the Trust, in which event the
Trust will redeem the Trust Securities. See "Description of the Preferred
Securities--Special, Event Redemption or Distribution."
Under current United States Federal income tax law, a distribution of
Convertible Debentures upon the dissolution of the Trust would not be a
taxable event to holders of the Preferred Securities. Upon the occurrence of a
Special Event, however, a dissolution of the Trust in which holders of the
Preferred Securities receive cash would be a taxable event to such holders.
See "Taxation--Receipt of Convertible Debentures or Cash Upon Liquidation of
the Trust."
There can be no assurance as to the market prices for the Preferred
Securities or the Convertible Debentures that may be distributed in exchange
for Preferred Securities if a dissolution or liquidation of the Trust were to
occur. Accordingly, the Preferred Securities that an investor may purchase,
whether pursuant to the offer made hereby or in the secondary market, or the
Convertible Debentures that a holder of Preferred Securities may receive on
dissolution and liquidation of the Trust, may trade at a discount to the price
that the investor paid to purchase the Preferred Securities offered hereby.
Because holders of Preferred Securities may receive Convertible Debentures
upon the occurrence of a Special Event, prospective purchasers of Preferred
Securities also are making an investment decision with regard to the
Convertible Debentures and should carefully review all the information
regarding the Convertible Debentures contained herein. See "Description of the
Preferred Securities--Special Event Redemption or Distribution" and
"Description of the Convertible Debentures--General."
NO VOTING RIGHTS
Holders of Preferred Securities have no voting rights, including with
respect to the appointment, removal or replacement, or the increase or
decrease in the number, of the Issuer Trustees (as defined herein). See
"Description of Preferred Securities--Voting Rights."
LACK OF PUBLIC MARKET FOR THE PREFERRED SECURITIES
There is no existing public trading market for the Preferred Securities,
and there can be no assurance regarding the future development of any public
trading market for the Preferred Securities, the ability of holders of the
Preferred Securities to sell their Preferred Securities or the price at which
such holders may be able to sell their Preferred Securities. If such a market
were to develop, the Preferred Securities could trade at prices that may be
higher or lower than the offering price hereunder depending on many factors,
including prevailing interest rates, the price of the Common Stock, the
Company's operating results, any election by the Company or Golden
17
<PAGE>
Books Publishing to extend interest payment periods and the market for similar
securities. The Company intends to apply to list the Preferred Securities on
Nasdaq upon the effectiveness of the Shelf Registration Statement. However,
there can be no assurance as to the liquidity of any trading market for the
Preferred Securities or that an active public market for the Preferred
Securities will develop.
TRADING CHARACTERISTICS OF PREFERRED SECURITIES
If a public trading market for the Preferred Securities develops, they
may trade at a price that does not fully reflect the value of accrued but
unpaid distributions. In addition, as a result of the right of the Company and
Golden Books Publishing to defer interest payments, the market price of the
Preferred Securities (which represent undivided interests in the Convertible
Debentures) may be more volatile than other similar securities where the
issuer does not have such right to defer interest payments. A holder who
disposes of or converts its Preferred Securities between record dates for
payments of distributions thereon will be required to include for federal
income tax purposes accrued but unpaid interest on the Convertible Debentures
through the date of disposition or conversion in income as ordinary income
(i.e., original issue discount), and to add such amount to its adjusted tax
basis in its pro rata share of the underlying Convertible Debentures deemed
disposed of. To the extent the selling price is less than the holder's
adjusted tax basis (which will include, in the form of original issue
discount, all accrued but unpaid interest), a holder will recognize a capital
loss. Subject to certain limited exceptions, capital losses cannot be applied
to offset ordinary income for United States Federal income tax purposes. See
"Taxation."
ENVIRONMENTAL REGULATION
The Company's operations are subject to extensive and evolving
environmental laws and regulations regarding the clean-up and protection of
the environment and worker health and safety. The Company believes that it is
in material compliance with applicable environmental requirements. However,
there can be no assurance that in the future the Company will not receive
notices that certain of its operations are not in compliance with its permits
or other environmental requirements, that current environmental requirements
will not become more onerous or that new laws and regulations will not be
adopted or become applicable to the Company. Any of the foregoing could result
in the imposition of fines or penalties, operating constraints, the issuance
of judicial or administrative orders requiring the Company to cease operating
a facility, increased operating and capital expenditures or other liabilities,
any of which could have a material adverse effect on the Company's business,
financial condition or results of operations.
SHARES OF COMMON STOCK ELIGIBLE FOR SALE
GPH and Richard A. Bernstein have the right (subject to certain
conditions) to require the Company to register for offer and sale issued and
outstanding shares of Common Stock and/or shares of Common Stock issuable upon
the exercise or conversion, as applicable, of options, warrants and
convertible securities. See "--Control of the Company." BVE, L.P. and H C
Crown Corp., a subsidiary of Hallmark Cards, Incorporated ("Hallmark"),
respectively, also have registration rights with respect to, in the aggregate,
3,257,606 shares of Common Stock acquired
18
<PAGE>
by them from the Company. Additionally, in connection with the investment in
the Company by Hallmark, Hallmark and the Company intend to agree to an
additional investment by H C Crown Corp. of $25 million in Common Stock in
conjunction with reaching an operational understanding. Of the foregoing
shares, 4,056,771 shares held directly or indirectly by Mr. Bernstein may be
included in any registration statement that the Company is required to file
with respect to the Common Stock issuable upon conversion of the Convertible
Debentures, including a registration statement relating to an underwritten
offering that is requested by the holders thereof. Sales of substantial
amounts of such shares could adversely affect the market value of the Common
Stock and, in the case of convertible securities, may effect a dilution of the
book value per share of Common Stock, depending upon the timing of any such
sales. In connection with the Original Offering, GPH agreed to certain
restrictions on its ability to sell securities of the Company held by GPH. The
901,408 shares of Common Stock acquired by BVE, L.P. in connection with the
Acquisition are subject to an escrow of at least one year and the 2,356,198
shares acquired by Hallmark in connection with the September 6, 1996 purchase
by Hallmark of $25 million of Common Stock are subject to certain transfer
restrictions, including restrictions under the Securities Act. The shares held
by Mr. Bernstein are not subject to contractual restrictions on transfer,
although the transfer of such shares is restricted under the Securities Act
and any such transfers (unless such shares are sold pursuant to an effective
registration statement under the Securities Act) may be subject to certain
volume limitations thereunder. See "Plan of Distribution."
19
<PAGE>
THE COMPANY
Golden Books is the largest publisher of children's books in the North
America retail market. The Company creates, publishes and markets an extensive
range of children's entertainment products, including "Little Golden Books"
and other storybooks, coloring/activity books, electronic storybooks, puzzles,
educational workbooks, reference books and novelty book formats. The Company
has published its flagship product line, "Little Golden Books," for over 50
years.
The Company believes that Golden Books is one of the strongest consumer
brand franchises of children's products in the United States. Management
believes that the Golden Books brand name not only has strong consumer
recognition, but also a reputation among consumers for wholesomeness,
entertainment and spending quality time with a child. The Company's primary
customers are women with children or grandchildren. Based on preliminary
market research conducted on behalf of the Company in 1996, over half of the
women in the United States have bought the Golden Books brand. Management
believes that the favorable response to the Golden Books brand is comparable
to that of many companies with substantially greater financial resources and
significantly higher expenditures than the Company on marketing and brand
awareness.
The Company's products utilize both owned and licensed characters. The
Company's owned characters include The Poky Little Puppy and Little Lulu. Many
of the Company's products, particularly its coloring/activity books, use
licenses from Children's Television Workshop (the creator of Sesame Street),
DC Comics Inc., Mattel, Inc., Mercer Mayer (the creator of Little Critters)
and Disney. Characters licensed from these and other companies include Sesame
Street, Barbie, the Muppets, Superman and Barney. The Disney character license
allows the Company to use, in selected product categories, all of Disney's
animated characters, including Mickey Mouse, Winnie the Pooh and Pinnochio and
characters from The Little Mermaid, The Lion King, Aladdin and Pocahontas, as
well as characters from new releases such as The Hunchback of Notre Dame, the
fall 1996 home video release of Toy Story and the November 1996 release of the
live action version of 101 Dalmatians. In addition, the Company has agreements
in principle with respect to three new licensing arrangements in connection
with the movie re-release of the Star Wars trilogy, the next Batman movie and
The Big Bag, a new series from Children's Television Workshop. The Company
believes that the variety and popularity of its owned and licensed characters
are among its most important competitive strengths.
Approximately 45% of the Company's fiscal 1996 children's publishing
sales were through mass merchandisers such as Wal Mart Stores, Inc., K Mart
Corp. and Target Stores, a division of the Dayton Hudson Corporation, and toy
stores such as Toys "R" Us, Inc. In addition, but to a lesser extent, the
Company's children's publishing products are sold through the following
channels: national and regional bookstore chains; independent bookstores;
supermarkets and drugstores; and special markets such as book clubs, book
fairs and educational
20
<PAGE>
institutions. In fiscal 1996, approximately 8% of the Company's children's
publishing sales were generated outside of North America.
The Company is a Delaware corporation. Its executive offices are located
at 850 Third Avenue, New York, NY 10022; telephone (212) 583- 6700.
GOLDEN BOOKS FINANCING TRUST
Golden Books Financing Trust is a statutory business trust formed under
Delaware law pursuant to (i) a declaration of trust executed by the Company,
as sponsor of the Trust, and the trustees of the Trust (the "Issuer Trustees")
and (ii) the filing of a certificate of trust with the Secretary of State of
the State of Delaware. Such initial declaration was amended and restated in
its entirety to provide for the issuance of the Trust Securities (as so
amended and restated, the "Declaration"). The Company acquired Common
Securities in an aggregate liquidation amount equal to 3% of the total capital
of the Trust. The Common Securities rank pari passu, and payments will be made
thereon pro rata, with the Preferred Securities, except that, upon the
occurrence and during the continuance of an event of default under the
Declaration, the rights of the holders of the Common Securities to payment in
respect of distributions and payments upon liquidation, redemption and
otherwise are subordinated to the rights of the holders of the Preferred
Securities. The assets of the Trust consist entirely of the Convertible
Debentures. The Trust exists for the exclusive purpose of (i) issuing the
Trust Securities representing undivided beneficial interests in the assets of
the Trust, (ii) investing the gross proceeds of the Trust Securities in the
Convertible Debentures and (iii) engaging in only those other activities
necessary or incidental thereto.
Pursuant to the Declaration, the number of Issuer Trustees is four. Two
of the Issuer Trustees (the "Regular Trustees") are individuals who are
officers of the Company. The third trustee is a financial institution that is
unaffiliated with the Company (the "Property Trustee"). The fourth trustee is
an entity that maintains its principal place of business in the State of
Delaware (the "Delaware Trustee"). Initially The Bank of New York, a New York
banking corporation, is acting as Property Trustee and its affiliate, The Bank
of New York (Delaware), a Delaware banking corporation, is acting as Delaware
Trustee until, in each case, removed or replaced by the holder of the Common
Securities. The Bank of New York is also acting as trustee under the Guarantee
(the "Guarantee Trustee") and as trustee under the Indenture (the "Indenture
Trustee").
The Property Trustee holds title to the Convertible Debentures for the
benefit of the holders of the Trust Securities, and the Property Trustee has
the power to exercise all rights, powers and privileges under the Indenture as
the holder of the Convertible Debentures. In addition, the Property Trustee
maintains exclusive control of a segregated non-interest bearing bank account
(the "Property Account") to hold all payments made in respect of the
Convertible Debentures for the benefit of the holders of the Trust Securities.
The Guarantee Trustee holds the Guarantee for the benefit of the holders of
the Preferred Securities. The Company or one of its subsidiaries, as the
holder of all the Common Securities, has the right to appoint, remove or
replace any of the Issuer Trustees and to increase or decrease the number of
trustees; provided
21
<PAGE>
that the number of trustees shall be at least three; provided further that at
least one trustee shall be a Delaware Trustee, at least one trustee shall be
Property Trustee and at least one Trustee shall be a Regular Trustee. The
Company and Golden Books Publishing will pay all fees and expenses related to
the Trust. See "Description of the Convertible Debentures."
The rights of the holders of the Preferred Securities, including economic
rights, rights to information and voting rights, are as set forth in the
Declaration and the Delaware Business Trust Act, as amended (the "Trust Act").
See "Description of the Preferred Securities." The Declaration, the Indenture
and the Guarantee also incorporate by reference the terms of the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act").
The place of business and the telephone number of the Trust are the
principal executive offices and telephone number of the Company.
ACCOUNTING TREATMENT
The financial statements of the Trust will be reflected in the Company's
consolidated financial statements, with the Preferred Securities shown as
"Company-Obligated Mandatorily Redeemable Convertible Preferred Securities of
Golden Books Financing Trust Holding Solely Convertible Debentures."
USE OF PROCEEDSUSE OF PROCEEDS
The Selling Holders will receive all of the proceeds from any sale of the
Offered Securities. None of the Company, Golden Books Publishing or the Trust
will receive any proceeds from the sale of Offered Securities.
22
<PAGE>
RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
(UNAUDITED)
The following table sets forth the Company's ratio of earnings to
combined fixed charges and preferred stock dividends on a historical basis for
each of the five fiscal years in the period ended February 3, 1996 and for the
six month period ended August 3, 1996 and on a pro forma basis for the year
ended February 3, 1996 and for the six month period ended August 3, 1996. The
pro forma information gives pro forma effect to (i) the issuance of the Series
B Preferred to GPH, (ii) the Acquisition, (iii) the Original Offering, (iv)
the investment of $25 million in Common Stock by Hallmark and (v) future
payments to Richard E. Snyder pursuant to his employment agreement. See the
Unaudited Pro Forma Condensed Financial Statements incorporated herein by
reference to Form 8-K/A filed by the Company on October 16, 1996.
Historical
- ------------------------------------------------------------------------------
Six Months
Years Ended Ended
February 1, January 30, January 29, January 28, February 3, August 3,
1992 1993 1994 1995 1996 1996
---- ---- ---- ---- ---- ----
(dollars in thousands, except ratios)
3.31 X 2.89 X $(78,968) $(15,957) $(56,563) $(120,193)
Pro Forma
---------------------------------------
Six Months
Year Ended Ended
February 3, August 3,
1996 1996
---- ----
(dollars in thousands)
$(78,849) $(128,745)
For purposes of the ratio of earnings to combined fixed charges and
preferred stock dividends, earnings were calculated by adding pretax income,
interest expense, amortization of debt issuance costs, the portion of rents
representative of an interest factor and preferred stock dividend requirements
for majority owned subsidiaries. Combined fixed charges and preferred stock
dividends consist of interest expense, the portion of rents representative of
an interest factor and preferred stock dividend requirements (as adjusted for
taxes where appropriate) of Golden Books and its subsidiaries. For the periods
in which earnings were insufficient to cover combined fixed charges and
preferred stock dividends, the dollar amount of the coverage deficiency, instead
of the ratio, is disclosed.
23
<PAGE>
DESCRIPTION OF THE PREFERRED SECURITIES
The following summary of certain material terms and provisions of the
Preferred Securities does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the Declaration. The Preferred
Securities were issued in the Original Offering pursuant to the terms of the
Declaration. The Declaration incorporates by reference terms of the Trust
Indenture Act. The Declaration has been qualified under the Trust Indenture
Act. The Bank of New York, as Property Trustee, acts as indenture trustee for
the Declaration for purposes of compliance with the Trust Indenture Act.
Capitalized terms not otherwise defined herein have the meanings assigned to
them in the Declaration.
GENERAL
The Preferred Securities were issued in the Original Offering in fully
registered form without interest coupons. Bearer Preferred Securities were not
issued.
The Declaration authorizes the Regular Trustees to issue the Trust
Securities on behalf of the Trust. The Preferred Securities represent
undivided beneficial ownership interests in the assets of the Trust and
entitle the holders thereof to a preference in certain circumstances with
respect to distributions and amounts payable on redemption or liquidation over
the Common Securities, as well as other benefits as described in the
Declaration.
All of the Common Securities are owned by the Company. The Common
Securities rank pari passu, and payments are made thereon on a pro rata basis,
with the Preferred Securities, except that upon the occurrence of a
Declaration Event of Default, the rights of the holders of the Common
Securities to receive payment of periodic distributions and payments upon
liquidation, redemption and otherwise will be subordinated to the rights of
the holders of Preferred Securities. See "--Subordination of Common
Securities." Title to the Convertible Debentures is held by the Property
Trustee for the benefit of the holders of the Trust Securities. The
Declaration does not permit the issuance by the Trust of any securities other
than the Trust Securities or the incurrence of any indebtedness by the Trust.
The payment of distributions out of money held by the Trust, and payments upon
redemption of the Preferred Securities or liquidation of the Trust, are
guaranteed by the Company to the extent described under "Description of the
Guarantee." The Guarantee is held by The Bank of New York, the Guarantee
Trustee, for the benefit of the holders of the Preferred Securities. The
Guarantee does not cover payment of distributions when the Trust does not have
sufficient available funds to pay such distributions. In such event, the
remedy of a holder of Preferred Securities is to (i) vote to direct the
Property Trustee to enforce the Property Trustee's rights under the
Convertible Debentures or (ii) if the failure of the Trust to pay
distributions is attributable to the failure of the Company and Golden Books
Publishing to pay interest or principal on the Convertible Debentures, to
institute a proceeding directly against the Company and Golden Books
Publishing for enforcement of payment to such holder of the principal of or
interest on the Convertible Debentures having a principal amount equal to the
aggregate liquidation amount of the Preferred Securities of such holder on or
after the respective due date specified in the Convertible Debentures. See
"--Voting Rights."
24
<PAGE>
DISTRIBUTIONS
Distributions on Preferred Securities are fixed at a rate per annum of 8-
3/4% of the stated liquidation amount of $50 per Preferred Security.
Distributions in arrears for more than one quarter will bear interest thereon at
a rate per annum of 8-3/4% thereof compounded quarterly. The term "distribution"
as used herein includes any such interest (including any Additional Interest and
Liquidation Damages, each as defined herein) payable unless otherwise stated.
The amount of distributions payable for any period are computed on the basis
of a 360-day year of twelve 30-day months.
Distributions on the Preferred Securities are cumulative, accrue from the
date of initial issuance and are payable in quarterly arrears on each February
20, May 20, August 20 and November 20, commencing November 20, 1996, when, as
and if available for payment, by the Property Trustee, except as otherwise
described below. The Company and Golden Books Publishing have the right under
the Indenture to defer interest. As a consequence of such extension, quarterly
distributions on the Preferred Securities would be deferred (though such
distributions would continue to accrue with interest) during any such extended
interest payment period. In the event that the Company and Golden Books
Publishing exercise this right, then, during such period, the Company (a)
shall not declare or pay dividends on, make distributions with respect to, or
redeem, purchase or acquire, or make a liquidation payment with respect to,
any of its capital stock (except for (i) dividends or distributions in shares
of Common Stock on Common Stock or on its Series B Preferred Stock, (ii)
purchases or acquisitions of shares of Common Stock made in connection with
any employee benefit plan of the Company or its subsidiaries or pursuant to
employment agreements with officers or employees of the Company or its
subsidiaries, provided that such repurchases by the Company made from officers
or employees of the Company or its subsidiaries pursuant to employment
agreements shall be made at a price not to exceed market value on the date of
any such repurchase and shall not exceed $5 million in the aggregate for all
such employees and officers, (iii) conversions or exchanges of Common Stock of
one class into Common Stock of another class or (iv) purchases of fractional
interests in shares of the Company's capital stock pursuant to the conversion
or exchange provisions of any of the Company's securities being converted or
exchanged), (b) shall not make any payment of interest, principal of or
premium, if any, on, or repay, repurchase or redeem any debt securities issued
by the Company that rank junior to the Convertible Debentures (except by
conversion into or exchange for shares of Common Stock) and (c) shall not make
any guarantee payments with respect to the foregoing (other
than such payments made pursuant to the Guarantee). In addition, during any
Extension Period, Golden Books Publishing (a) if Golden Books Publishing is
not a wholly-owned subsidiary of the Company, shall not declare or pay
dividends on, make distributions with respect to, or redeem, purchase or
acquire, or make a liquidation payment with respect to, any of its capital
stock (except for (i) dividends or distributions in shares of its common stock
made on outstanding shares of its common stock, (ii) conversions or exchanges
of its common stock of one class into common stock of another class or (iii)
purchases of fractional interests in shares of the capital stock of Golden
Books Publishing being converted or exchanged) and (b) shall not make any
payment of interest, principal of or premium, if any, on, or repay, repurchase
or redeem any debt securities issued by the Golden Books Publishing that rank
junior to the Convertible Debentures (except by conversion into or
25
<PAGE>
exchange for shares of its common stock). Prior to the termination of any such
Extension Period, the Company or Golden Books Publishing may further extend
such Extension Period; provided, that such Extension Period, together with all
previous and further extensions thereof, may not exceed 20 consecutive
quarters and that such Extension Period may not extend beyond the maturity
date of the Convertible Debentures. Upon the termination of any Extension
Period and the payment of all amounts then due, the Company or Golden Books
Publishing may commence a new Extension Period, subject to the above
requirements. Consequently, there could be multiple Extension Periods of
varying lengths throughout the term of the Convertible Debentures. See
"Description of the Convertible Debentures--Interest" and "Description of the
Convertible Debentures--Option to Extend Interest Payment Period." If
distributions are deferred, the deferred distributions and accrued interest
thereon shall be paid to the holders of record of Preferred Securities as they
appear on the books and records of the Trust on the record date next following
the termination of such deferral period.
Distributions on the Preferred Securities are made to the extent that the
Trust has funds available for the payment of such distributions in the
Property Account. Amounts available to the Trust for distribution to the
holders of the Preferred Securities are limited to payments received by the
Trust from the Company or Golden Books Publishing for the Convertible
Debentures. See "Description of the Convertible Debentures." The payment of
distributions out of funds held by the Trust is guaranteed by the Company, as
set forth under "Description of the Guarantee."
Distributions on the Preferred Securities are payable to the holders
thereof as they appear on the books and records of the Trust on the relevant
record dates, which are fifteen days prior to the relevant payment dates.
Subject to any applicable laws and regulations and the provisions of the
Declaration, each such payment will be made as described under "--Book-Entry
Only Issuance--The Depository Trust Company" below. In the event that any date
on which distributions are payable on the Preferred Securities is not a
Business Day, payment of the distribution payable on such date will be made on
the next succeeding day which is a Business Day (without any distribution or
other payment in respect of any such delay), except that, if such Business Day
is in the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and
effect as if made on such date. A "Business Day" shall mean any day other than
a day on which banking institutions in The City of New York or in Wilmington,
Delaware are authorized or required by law to close.
CONVERSION RIGHTS
General. Preferred Securities are convertible at any time prior to the
close of business on the Business Day immediately preceding the date of
repayment of such Preferred Securities, whether at maturity or upon redemption
(either at the option of the Company or pursuant to a Tax Event), at the
option of the holder thereof and in the manner described below, into shares of
Common Stock at an initial conversion rate of 3.8462 shares of Common Stock
for each Preferred Security (equivalent to a conversion price of $13 per share
of Common Stock), subject to adjustment as described under "--Conversion Price
Adjustments" below. The Trust covenants in the Declaration not to convert
Convertible Debentures held by it except pursuant to a notice of conversion
delivered to the Property Trustee, as conversion agent (the "Conversion
Agent"), by a
26
<PAGE>
holder of Preferred Securities. A holder of a Preferred Security wishing to
exercise its conversion right shall deliver an irrevocable conversion notice,
together, if the Preferred Security is a Certificated Security (as defined
herein), with such Certificated Security, to the Conversion Agent which shall,
on behalf of such holder, exchange such Preferred Security for a portion of
the Convertible Debentures and immediately convert such Convertible Debentures
into Common Stock. Holders may obtain copies of the required form of the
conversion notice from the Conversion Agent. Procedures for converting
book-entry Preferred Securities into shares of Common Stock will differ, as
described under "--Book-Entry Only Issuance--The Depository Trust Company."
Holders of Preferred Securities at the close of business on a
distribution record date are entitled to receive the distribution payable on
such Preferred Securities on the corresponding distribution payment date
notwithstanding the conversion of such Preferred Securities following such
distribution record date but prior to such distribution payment date. Except
as provided in the immediately preceding sentence, neither the Trust nor the
Company will make, or be required to make, any payment, allowance or
adjustment for accumulated and unpaid distributions, whether or not in
arrears, on the converted Preferred Securities. The Company will make no
payment or allowance for distributions on the shares of Common Stock issued
upon such conversion, except to the extent that such shares of Common Stock
are held of record on the record date for any such distributions and except as
provided in the preceding sentence. Each conversion will be deemed to have
been effected immediately prior to the close of business on the day on which
the related conversion notice was received by the Conversion Agent.
No fractional shares of Common Stock will be issued as a result of
conversion, but in lieu thereof such fractional interest will be paid by the
Company and Golden Books Publishing in cash based on the last reported sale
price of Common Stock on the date such Preferred Securities are surrendered
for conversion.
Conversion Price Adjustments--General. The conversion price is subject to
adjustment in certain events, including (a) the issuance of shares of Common
Stock as a dividend or a distribution with respect to Common Stock, (b)
subdivisions, combinations and reclassification of Common Stock, (c) the
issuance to all holders of Common Stock of rights or warrants entitling them
(for a period not exceeding 45 days) to subscribe for shares of Common Stock
at less than the then Current Market Price (as defined below) of the Common
Stock, (d) the distribution to holders of Common Stock of evidences of
indebtedness of the Company, securities or capital stock, cash or assets
(including securities, but excluding those rights, warrants, dividends and
distributions referred to above and dividends and distributions paid
exclusively in cash), (e) the payment of dividends (and other distributions)
on Common Stock paid exclusively in cash, excluding cash dividends if the
annualized per share amount thereof does not exceed 15% of the Current Market
Price of Common Stock as of the trading day immediately preceding the date of
declaration of such dividend (such adjustment being limited to the amount in
excess of 15% of such Current Market Price), and (f) payment to holders of
Common Stock in respect of a tender or exchange offer (other than an odd-lot
offer) by the Company or any subsidiary for Common Stock at a price in excess
of 110% of the then Current Market Price of Common Stock as of the trading day
next succeeding the last date tenders or
27
<PAGE>
exchanges may be made pursuant to such tender or exchange offer. "Current
Market Price" means the average of the daily closing prices for the five
consecutive trading days selected by the Company and Golden Books Publishing
commencing not more than 20 trading days before, and ending not later than,
the earlier of the day in question or, if applicable, the day before the "ex"
date with respect to the issuance or distribution in question.
The Company from time to time may reduce the conversion price of the
Convertible Debentures (and thus the conversion price of the Preferred
Securities) by any amount selected by the Company for any period of at least
20 days, in which case the Company shall give at least 15 days' notice of such
reduction. The Company may, at its option, make such reductions in the
conversion price, in addition to those set forth above, as the Company's Board
of Directors deems advisable to avoid or diminish any income tax to holders of
Common Stock resulting from any dividend or distribution of stock (or rights
to acquire stock) or from any event treated as such for income tax purposes.
See "Taxation--Adjustment of Conversion Price."
No adjustment of the conversion price will be made upon the issuance of
any shares of Common Stock pursuant to any present or future plan providing
for the reinvestment of dividends or interest payable on securities of the
Company and the investment of additional optional amounts in shares of Common
Stock under any such plan. No adjustment in the conversion price will be
required unless such adjustment would require a change of at least one percent
(1%) in the price then in effect; provided, however, that any adjustment that
would not be required to be made shall be carried forward and taken into
account in any subsequent adjustment. If any action would require adjustment
of the conversion price pursuant to more than one of the provisions described
above, only one adjustment shall be made and such adjustment shall be the
amount of adjustment that has the highest absolute value to the holder of the
Preferred Securities.
Conversion Price Adjustments--Fundamental Changes. If any transaction
shall occur (including without limitation (i) any recapitalization or
reclassification of shares of Common Stock (other than a change in par value,
or from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination of Common Stock), (ii) any
consolidation or merger of the Company with or into another person or any
merger of another person into the Company (other than a merger that does not
result in a reclassification, conversion, exchange or cancellation of Common
Stock), (iii) any sale or transfer of all or substantially all of the assets
of the Company, or (iv) any compulsory share exchange) pursuant to which
either shares of Common Stock shall be converted into the right to receive
other securities, cash or other property, or, in the case of a sale or
transfer of all or substantially all of the assets of the Company, the holders
of Common Stock shall be entitled to receive other securities, cash or other
property, then appropriate provision shall be made so that the holder of each
Preferred Security then outstanding shall have the right thereafter to convert
such Preferred Security only into:
(x) in the case of any such transaction that does not constitute a
Common Stock Fundamental Change (as defined below) and subject to funds
being legally available for such purpose under applicable law at the time
of such conversion, the kind and amount of
28
<PAGE>
the securities, cash or other property that would have been receivable
upon such recapitalization, reclassification, consolidation, merger,
sale, transfer or share exchange by a holder of the number of shares of
Common Stock issuable upon conversion of such Preferred Security
immediately prior to such recapitalization, reclassification,
consolidation, merger, sale, transfer or share exchange, after giving
effect, in the case of any Non-Stock Fundamental Change (as defined
below), to any adjustment in the conversion price in accordance with
clause (i) of the following paragraph, and
(y) in the case of any such transaction that constitutes a Common
Stock Fundamental Change, common stock of the kind received by holders of
Common Stock as a result of such Common Stock Fundamental Change in an
amount determined in accordance with clause (ii) of the following
paragraph.
The company formed by such consolidation or resulting from such merger or that
acquires such assets or that acquires the Company's shares, as the case may
be, shall make provisions in its certificate or articles of incorporation or
other constituent document to establish such right. Such certificate or
articles of incorporation or other constituent document shall provide for
adjustments that, for events subsequent to the effective date of such
certificate or articles of incorporation or other constituent document, shall
be as nearly equivalent as may be practicable to the relevant adjustments
provided for in the preceding paragraphs and in this paragraph.
Notwithstanding any other provision in the preceding paragraphs to
the contrary, if any Fundamental Change (as defined below) occurs, then
the conversion price in effect will be adjusted immediately after such
Fundamental Change as follows:
(i) in the case of a Non-Stock Fundamental Change, the conversion
price immediately following such Non-Stock Fundamental Change shall be
the lower of (A) the conversion price in effect immediately prior to such
Non-Stock Fundamental Change, but after giving effect to any other prior
adjustments effected pursuant to the preceding paragraphs, and (B) the
product of (1) the greater of the Applicable Price (as defined below) and
the then applicable Reference Market Price (as defined below) and (2) a
fraction, the numerator of which is $50 and the denominator of which is
(x) the amount of the redemption price for one Preferred Security if the
redemption date were the date of such Non-Stock Fundamental Change (or,
for the period commencing on the first date of original issuance of the
Preferred Securities and through August 19, 1997 and the twelve-month
periods commencing August 20, 1997 and August 20, 1998, the product of
1.08750, 1.07875 and 1.07000, respectively, times $50) plus (y) any
then-accrued and unpaid distributions on one Preferred Security; and
(ii) in the case of a Common Stock Fundamental Change, the
conversion price of the Preferred Securities immediately following such
Common Stock Fundamental Change shall be the conversion price in effect
immediately prior to such Common Stock Fundamental Change, but after
giving effect to any other prior adjustments effected pursuant to the
preceding paragraphs, multiplied by a fraction, the numerator of which is
the Purchaser Stock Price (as defined below) and the denominator of which
is the
29
<PAGE>
Applicable Price; provided, however, that in the event of a Common Stock
Fundamental Change in which (A) 100% of the value of the consideration
received by a holder of Common Stock is common stock of the successor,
acquiror or other third party (and cash, if any, paid with respect to any
fractional interests in such common stock resulting from such Common
Stock Fundamental Change) and (B) all of the Common Stock shall have been
exchanged for, converted into or acquired for, common stock of the
successor, acquiror or other third party (and any cash with respect to
fractional interests), the conversion price of the Preferred Securities
immediately following such Common Stock Fundamental Change shall be the
conversion price in effect immediately prior to such Common Stock
Fundamental Change multiplied by a fraction, the numerator of which is
one (1) and the denominator of which is the number of shares of common
stock of the successor, acquiror or other third party received by a
holder of one share of Common Stock as a result of such Common Stock
Fundamental Change.
Depending upon whether a Fundamental Change is a Non-Stock Fundamental
Change or a Common Stock Fundamental Change, a holder may receive
significantly different consideration upon conversion. In the event of a
Non-Stock Fundamental Change, the holder has the right to convert Preferred
Securities into the kind and amount of the shares of stock and other
securities or property or assets (including cash), except as otherwise
provided above, as is determined by the number of shares of Common Stock
receivable upon conversion at the conversion price as adjusted in accordance
with clause (i) of the preceding paragraph. However, in the event of a Common
Stock Fundamental Change in which less than 100% of the value of the
consideration received by a holder of Common Stock is common stock of the
successor, acquiror or other third party, a holder of a Preferred Security who
converts such share following the Common Stock Fundamental Change will receive
consideration in the form of such common stock only, whereas a holder who
converted such share prior to the Common Stock Fundamental Change would have
received consideration in the form of such common stock as well as any other
securities or assets (which may include cash) issuable upon conversion of such
Convertible Preferred Security immediately prior to such Common Stock
Fundamental Change.
The term "Applicable Price" means (i) in the event of a Non-Stock
Fundamental Change in which the holders of Common Stock receive only cash, the
amount of cash received by a holder of one share of Common Stock and (ii) in
the event of any other Fundamental Change, the average of the daily Closing
Price (as defined in the Indenture) for one share of Common Stock during the
10 Trading Days (as defined in the Indenture) immediately prior to the record
date for the determination of the holders of Common Stock entitled to receive
cash, securities, property or other assets in connection with such Fundamental
Change or, if there is no such record date, prior to the date upon which the
holders of Common Stock shall have the right to receive such cash, securities,
property or other assets.
The term "Common Stock Fundamental Change" means any Fundamental Change
in which more than 50% of the value (as determined in good faith by the Board
of Directors of the Company) of the consideration received by holders of
Common Stock consists of common stock that, for the 10 Trading Days
immediately prior to such Fundamental Change, has been admitted for listing or
admitted for listing subject to notice of issuance on a national securities
exchange or
30
<PAGE>
quoted on Nasdaq; provided, however, that a Fundamental Change shall not be a
Common Stock Fundamental Change unless either (i) the Company continues to
exist after the occurrence of such Fundamental Change and the outstanding
Preferred Securities continue to exist as outstanding Preferred Securities, or
(ii) not later than the occurrence of such Fundamental Change, the outstanding
Preferred Securities are converted into or exchanged for shares of convertible
preferred stock or debentures of a corporation succeeding to the business of
the Company, which convertible preferred stock or debentures of a corporation
succeeding to the business of the Company, which convertible preferred stock
has powers, preferences and relative, participating, optional or other rights,
and qualifications, limitations and restrictions substantially similar to
those of the Preferred Securities and which debentures have terms
substantially similar to those of the Convertible Debentures.
The term "Fundamental Change" means the occurrence of any transaction or
event or series of transactions or events pursuant to which all or
substantially all of the Common Stock shall be exchanged for, converted into,
acquired for or shall constitute solely the right to receive cash, securities,
property or other assets (whether by means of an exchange offer, liquidation,
tender offer, consolidation, merger, combination, reclassification,
recapitalization or otherwise); provided, however, in the case of any such
series of transactions or events, for purposes of adjustment of the conversion
price, such Fundamental Change shall be deemed to have occurred when
substantially all of the Common Stock shall have been exchanged for, converted
into or acquired for, or shall constitute solely the right to receive, such
cash, securities, property or other assets, but the adjustment shall be based
upon the consideration that the holders of Common Stock received in the
transaction or event as a result of which more than 50% of the Common Stock
shall have been exchanged for, converted into or acquired for, or shall
constitute solely the right to receive, such cash, securities, property or
other assets.
The term "Non-Stock Fundamental Change" means any Fundamental Change
other than a Common Stock Fundamental Change.
The term "Purchaser Stock Price" means, with respect to any Common Stock
Fundamental Change, the average of the daily Closing Price for one share of
the common stock received by holders of Common Stock in such Common Stock
Fundamental Change during the 10 Trading Days immediately prior to the date
fixed for the determination of the holders of Common Stock entitled to receive
such common stock or, if there is no such date, prior to the date upon which
the holders of Common Stock shall have the right to receive such common stock.
The term "Reference Market Price" initially means $7 (which is an amount
equal to 66 2/3% of the reported last sale price for Common Stock on Nasdaq on
August 14, 1996) and, in the event of any adjustment to the conversion price
other than as a result of a Fundamental Change, the Reference Market Price
shall also be adjusted so that the ratio of the Reference Market Price to the
conversion price after giving effect to any such adjustment shall always be
the same as the ratio of the initial Reference Market Price to the initial
conversion price of $13 per share.
31
<PAGE>
REDEMPTION
The Convertible Debentures will mature on August 20, 2016, and may be
redeemed, in whole or in part, at any time after August 20, 1999 or at any
time in certain circumstances upon the occurrence of a Tax Event or an
Investment Company Event (in whole, but not in part). Upon the repayment of
the Convertible Debentures, whether at maturity or upon redemption, the
proceeds from such repayment shall simultaneously be applied to redeem Trust
Securities having an aggregate liquidation amount equal to the Convertible
Debentures so repaid or redeemed at the applicable Redemption Price, together
with accrued and unpaid distributions through the date of redemption;
provided, that holders of the Trust Securities shall be given not less than 30
nor more than 60 days' notice of such redemption. See "--Special Event
Redemption or Distribution," "--Redemption Procedures," "Description of the
Convertible Debentures--General" and "Description of the Convertible
Debentures--Optional Redemption."
SPECIAL EVENT REDEMPTION OR DISTRIBUTION
If, at any time, a Tax Event or an Investment Company Event shall occur
and be continuing, the Trust shall, unless the Convertible Debentures are
redeemed in the limited circumstances described below, be dissolved with the
result that, after satisfaction of creditors, if any, of the Trust,
Convertible Debentures with an aggregate principal amount equal to the
aggregate stated liquidation amount of, with an interest rate identical to the
distribution rate of, and accrued and unpaid interest equal to accrued and
unpaid distributions on, and having the same record date for payment as the
Preferred Securities and the Common Securities outstanding at such time would
be distributed on a pro rata basis to the holders of the Preferred Securities
and the Common Securities in liquidation of such holders' interests in the
Trust, within 90 days following the occurrence of such Special Event;
provided, however, that in the case of the occurrence of a Tax Event, as a
condition of such dissolution and distribution, the Regular Trustees shall
have received an opinion of nationally recognized independent tax counsel
experienced in such matters (a "No Recognition Opinion"), which opinion may
rely on published revenue rulings of the Internal Revenue Service, to the
effect that the holders of the Preferred Securities will not recognize any
income, gain or loss for United States Federal income tax purposes as a result
of such dissolution and distribution of Convertible Debentures; and, provided,
further, that if at the time there is available to the Trust the opportunity
to eliminate, within such 90-day period, the Special Event by taking some
ministerial action, such as filing a form or making an election, or pursuing
some other similar reasonable measure which in the sole judgment of the
Company has or will cause no adverse effect on the Trust, the Company or the
holders of the Trust Securities and will involve no material cost, the Trust
will pursue such measure in lieu of dissolution. Furthermore, if in the case
of the occurrence of a Tax Event, (i) the Regular Trustees have received an
opinion (a "Redemption Tax Opinion"') of nationally recognized independent tax
counsel experienced in such matters that, as a result of a Tax Event, there is
more than an insubstantial risk that the Company and Golden Books Publishing
would be precluded from deducting the interest on the Convertible Debentures
for United States Federal income tax purposes even if the Convertible
Debentures were distributed to the holders of Preferred Securities and Common
Securities in liquidation of such holders' interests in the Trust as described
above or (ii) the Regular Trustees shall have been informed by such tax
counsel that
32
<PAGE>
a No Recognition Opinion cannot be delivered to the Trust, the Company or
Golden Books Publishing shall have the right, upon not less than 30 nor more
than 60 days' notice, to cause the redemption of the Convertible Debentures in
whole (but not in part) for cash within 90 days following the occurrence of
such Tax Event, and promptly following such redemption, the Preferred
Securities and Common Securities will be redeemed by the Trust at the
Redemption Price; provided, however, that if at the time there is available to
the Company, Golden Books Publishing or the Trust the opportunity to
eliminate, within such 90-day period, the Tax Event by taking some ministerial
action, such as filing a form or making an election, or pursuing some other
similar reasonable measure which in the sole judgment of the Company has or
will cause no adverse effect on the Trust, the Company or the holders of the
Trust Securities and will involve no material cost, the Company, Golden Books
Publishing or the Trust will pursue such measure in lieu of redemption.
"Tax Event" means that the Regular Trustees shall have received an
opinion of nationally recognized independent tax counsel experienced in such
matters (a "Dissolution Tax Opinion") to the effect that as a result of (a)
any amendment to, or change (including any announced prospective change) in,
the laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, (b) any amendment to, or
change in, an interpretation or application of any such laws or regulations by
any legislative body, court, governmental agency or regulatory authority
(including the enactment of any legislation and the publication of any
judicial decision or regulatory determination), (c) any interpretation or
pronouncement that provides for a position with respect to such laws or
regulations that differs from the theretofore generally accepted position or
(d) any action taken by any governmental agency or regulatory authority, which
amendment or change is enacted, promulgated, issued or announced or which
interpretation or pronouncement is issued or announced or which action is
taken, in each case, after August 14, 1996 (collectively, a "Change in Tax
Law"), there is more than an insubstantial risk that (i) the Trust is, or will
be within 90 days of the date thereof, subject to United States Federal income
tax with respect to interest accrued or received on the Convertible
Debentures, (ii) the Trust is, or will be within 90 days of the date thereof,
subject to more than a de minimis amount of other taxes, duties or other
governmental charges or (iii) interest payable by the Company or Golden Books
Publishing on the Convertible Debentures is not, or within 90 days of the date
thereof will not be, deductible for United States Federal income tax purposes.
Notwithstanding anything in the previous sentence to the contrary, a Tax Event
shall not include any Change in Tax Law that requires the Company or Golden
Books Publishing for United States Federal income tax purposes to defer taking
a deduction for any original issue discount ("OID") that accrues with respect
to the Convertible Debentures until the interest payment related to such OID
is paid in money; provided, that such Change in Tax Law does not create more
than an insubstantial risk that the Company or Golden Books Publishing will be
prevented from taking a deduction for OID accruing with respect to the
Convertible Debentures at a date that is no later than the date the interest
payment related to such OID is actually paid by the Company or Golden Books
Publishing in money.
"Investment Company Event" means that the Regular Trustees shall have
received an opinion of nationally recognized independent counsel experienced
in practice under the Investment Company Act of 1940, as amended (the "1940
Act"), that as a result of the
33
<PAGE>
occurrence of a change in law or regulation or a change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority (a "Change in 1940 Act Law"), there is more
than an insubstantial risk that the Trust is or will be considered an
"investment company" which is required to be registered under the 1940 Act,
which Change in 1940 Act Law becomes effective on or after the date hereof.
On the date fixed for any distribution of Convertible Debentures, upon
dissolution of the Trust, (i) the Preferred Securities and the Common
Securities will no longer be deemed to be outstanding and (ii) certificates
representing Trust Securities will be deemed to represent beneficial interests
in the Convertible Debentures having an aggregate principal amount equal to
the stated liquidation amount of, and bearing accrued and unpaid interest
equal to accrued and unpaid distributions on, such Trust Securities until such
certificates are presented to the Company, Golden Books Publishing or the
Company's agent for transfer or reissuance.
There can be no assurance as to the market price for the Convertible
Debentures which may be distributed in exchange for Preferred Securities if a
dissolution and liquidation of the Trust were to occur. Accordingly, the
Convertible Debentures which the investor may subsequently receive on
dissolution and liquidation of the Trust may trade at a discount to the price
of the Preferred Securities exchanged. If the Convertible Debentures are
distributed to the holders of the Preferred Securities, the Company will use
its best efforts to cause the Convertible Debentures to be listed on Nasdaq or
on any such other national securities exchange or similar organization as the
Preferred Securities are then listed or quoted.
REDEMPTION PROCEDURES
The Trust may not redeem fewer than all of the outstanding Preferred
Securities unless all accrued and unpaid distributions have been paid on all
Preferred Securities for all quarterly distribution periods terminating on or
prior to the date of redemption.
In the event of any redemption in part, the Trust shall not be required
to (i) issue, register the transfer of or exchange any Preferred Security
during a period beginning at the opening of business 15 days before any
selection for redemption of Preferred Securities and ending at the close of
business on the earliest date on which the relevant notice of redemption is
deemed to have been given to all holders of Preferred Securities to be so
redeemed and (ii) register the transfer of or exchange of any Preferred
Securities so selected for redemption, in whole or in part, except for the
unredeemed portion of any Preferred Securities being redeemed in part.
If the Trust gives a notice of redemption in respect of Preferred
Securities (which notice will be irrevocable), and if the Company or Golden
Books Publishing has paid to the Property Trustee a sufficient amount of cash
in connection with the related redemption or maturity of the Convertible
Debentures, then, by 12:00 noon, New York time, on the redemption date, the
Trust will irrevocably deposit with The Depository Trust Company ("DTC") funds
sufficient to pay the amount payable on redemption of all book-entry
certificates and will give DTC irrevocable instructions and authority to pay
such amount in respect of Preferred Securities represented by the Global
Certificates (as defined herein) and will irrevocably deposit with the paying
agent for the Preferred Securities funds sufficient to pay such amount in
respect of any Certificated
34
<PAGE>
Securities and will give such paying agent irrevocable instructions and
authority to pay such amount to the holders of Certificated Securities upon
surrender of their certificates. If notice of redemption shall have been given
and funds are deposited as required, then upon the date of such deposit, all
rights of holders of such Preferred Securities so called for redemption will
cease, except the right of the holders of such Preferred Securities to receive
the Redemption Price, but without interest on such Redemption Price. In the
event that any date fixed for redemption of Preferred Securities is not a
Business Day, then payment of the amount payable on such date will be made on
the next succeeding day which is a Business Day (without any interest or other
payment in respect of any such delay), except that, if such Business Day falls
in the next calendar year, such payment will be made on the immediately
preceding Business Day. In the event that payment of the Redemption Price in
respect of Preferred Securities is improperly withheld or refused and not paid
either by the Trust or by the Company pursuant to the Guarantee described
under "Description of the Guarantee," distributions on such Preferred
Securities will continue to accrue at the then applicable rate, from the
original redemption date to the date of payment, in which case the actual
payment date will be considered the date fixed for redemption for purposes of
calculating the amount payable upon redemption (other than for calculating any
premium).
In the event that fewer than all of the outstanding Preferred Securities
are to be redeemed, the Preferred Securities will be redeemed pro rata.
Subject to the foregoing and applicable law (including, without
limitation, United States Federal securities laws), the Company or its
subsidiaries may at any time and from time to time purchase outstanding
Preferred Securities by tender, in the open market or by private agreement.
SUBORDINATION OF COMMON SECURITIES
Payment of distributions on, and the amount payable upon redemption of,
the Trust Securities, as applicable, shall be made pro rata based on the
liquidation amount of the Trust Securities; provided, however, that if on any
distribution date or redemption date a Declaration Event of Default shall have
occurred and be continuing, no payment of any distribution on, or amount
payable upon redemption of, any Common Security, and no other payment on
account of the redemption, liquidation or other acquisition of Common
Securities, shall be made unless payment in full in cash of all accumulated
and unpaid distributions on all outstanding Preferred Securities for all
distribution periods terminating on or prior thereto, or in the case of
payment of the amount payable upon redemption of the Preferred Securities, the
full amount of such amount in respect of all outstanding Preferred Securities,
shall have been made or provided for, and all funds available to the Property
Trustee shall first be applied to the payment in full in cash of all
distributions on, or the amount payable upon redemption of, Preferred
Securities then due and payable.
In the case of any Declaration Event of Default, the holder of Common
Securities will be deemed to have waived any such Declaration Event of Default
until all such Declaration Events of Default with respect to the Preferred
Securities have been cured, waived or otherwise eliminated. Until any such
Declaration Events of Default with respect to the Preferred Securities have
been so cured, waived or otherwise eliminated, the Property Trustee shall act
solely on
35
<PAGE>
behalf of the holders of the Preferred Securities and not the holder of the
Common Securities, and only the holders of the Preferred Securities will have
the right to direct the Property Trustee to act on their behalf.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary liquidation, dissolution,
winding-up or termination of the Trust (each a "Liquidation"), the then
holders of the Preferred Securities will be entitled to receive out of the
assets of the Trust, after satisfaction of liabilities to creditors,
distributions in an amount equal to the aggregate of the stated liquidation
amount of $50 per Preferred Security plus accrued and unpaid distributions
thereon to the date of payment (the "Liquidation Distribution"), unless, in
connection with such Liquidation related to a Special Event, Convertible
Debentures in an aggregate stated principal amount equal to the aggregate
stated liquidation amount of, with an interest rate identical to the
distribution rate of, and accrued and unpaid interest equal to accrued and
unpaid distributions on, the Preferred Securities have been distributed on a
pro rata basis to the holders of the Preferred Securities.
If, upon any such Liquidation, the Liquidation Distribution can be paid
only in part because the Trust has insufficient assets available to pay in
full the aggregate Liquidation Distribution, then the amounts payable directly
by the Trust on the Preferred Securities shall be paid on a pro rata basis.
The holders of the Common Securities will be entitled to receive distributions
upon any such dissolution pro rata with the holders of the Preferred
Securities, except that if a Declaration Event of Default has occurred and is
continuing, the Preferred Securities shall have a preference over the Common
Securities with regard to such distributions.
Pursuant to the Declaration, the Trust shall terminate (i) on August 20,
2025, the expiration of the term of the Trust, (ii) upon the bankruptcy of the
Company or Golden Books Publishing, (iii) upon the filing of a certificate of
dissolution or the equivalent with respect to the Company or Golden Books
Publishing, the filing of a certificate of cancellation with respect to the
Trust after having obtained the consent of at least a majority in liquidation
amount of the Trust Securities, voting together as a single class, to file
such certificate of cancellation, or the revocation of the charter of the
Company or Golden Books Publishing and the expiration of 90 days after the
date of revocation without a reinstatement thereof, (iv) upon the distribution
of all of the Convertible Debentures upon the occurrence of a Special Event,
(v) upon the entry of a decree of a judicial dissolution of the Company or
Golden Books Publishing or the Trust or (vi) upon the redemption or conversion
of all the Preferred Securities.
MERGER, CONSOLIDATION OR AMALGAMATION OF THE TRUST
The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety, to any corporation or other entity, except as
described below. The Trust may, with the consent of a majority of the Regular
Trustees and without the consent of the holders of the Trust Securities, the
Property Trustee or the Delaware Trustee, consolidate, amalgamate, merge with
or into, or be replaced by a trust organized as such under the laws of any
State of the United States; provided, that (i) if the Trust is not the
survivor, such successor entity either (x) expressly assumes all of the
obligations
36
<PAGE>
of the Trust under the Trust Securities or (y) substitutes for the Preferred
Securities other securities having substantially the same terms as the
Securities (the "Successor Securities"), so long as the Successor Securities
rank the same as the Securities rank with respect to distributions, assets and
payments, (ii) the Company and Golden Books Publishing expressly acknowledge a
trustee of such successor entity possessing the same powers and duties as the
Property Trustee as the holder of the Convertible Debentures, (iii) the
Preferred Securities or any Successor Securities are listed, or any Successor
Securities will be listed upon notification of issuance, on any national
securities exchange or with another organization on which the Preferred
Securities are then listed or quoted, (iv) such merger, consolidation,
amalgamation or replacement does not cause the Preferred Securities (including
any Successor Securities) to be downgraded by any nationally recognized
statistical rating organization, (v) such merger, consolidation, amalgamation
or replacement does not adversely affect the rights, preferences and
privileges of the holders of the Preferred Securities (including any Successor
Securities) in any material respect (other than with respect to any dilution
of the holders' interest in the new entity), (vi) such successor entity has a
purpose substantially identical to that of the Trust, (vii) the Company
guarantees the obligations of such successor entity under the Successor
Securities to the same extent as provided by the Guarantee, (viii) prior to
such merger, consolidation, amalgamation or replacement, the Company has
received an opinion of a nationally recognized independent counsel to the
Trust reasonably acceptable to the Property Trustee experienced in such
matters to the effect that: (A) such merger, consolidation, amalgamation or
replacement will not adversely affect the rights, preferences and privileges
of the holders of the Trust Securities (including any Successor Securities) in
any material respect (other than with respect to any dilution of the holders'
interest in the new entity), (B) following such merger, consolidation,
amalgamation or replacement, neither the Trust nor such successor entity will
be required to register as an investment company under the 1940 Act and (C)
following such merger, consolidation, amalgamation or replacement, the Trust
(or such successor trust) will be treated as a grantor trust for United States
Federal income tax purposes.
DECLARATION EVENTS OF DEFAULT
An event of default under the Indenture (an "Indenture Event of Default")
constitutes an event of default under the Declaration with respect to the
Trust Securities (a "Declaration Event of Default"); provided, that pursuant
to the Declaration, the holder of the Common Securities will be deemed to have
waived any Declaration Event of Default with respect to the Common Securities
until all Declaration Events of Default with respect to the Preferred
Securities have been cured, waived or otherwise eliminated. Until such
Declaration Events of Default with respect to the Preferred Securities have
been so cured, waived or otherwise eliminated, the Property Trustee will be
deemed to be acting solely on behalf of the holders of the Preferred
Securities and only the holders of the Preferred Securities will have the
right to direct the Property Trustee with respect to certain matters under the
Declaration and, therefore, the Indenture.
If the Property Trustee fails to enforce its rights under the Convertible
Debentures after a holder of Preferred Securities has made a written request,
such holder of record of Preferred Securities may directly institute a legal
proceeding against the Company and Golden Books
37
<PAGE>
Publishing to enforce the Property Trustee's rights under the Convertible
Debentures without first instituting any legal proceeding against the Property
Trustee or any other person or entity. Notwithstanding the foregoing, if a
Declaration Event of Default has occurred and is continuing and such event is
attributable to the failure of the Company and Golden Books Publishing to pay
interest or principal on the Convertible Debentures on the date such interest
or principal is otherwise payable (or in the case of redemption, the
redemption date), then a holder of Preferred Securities may directly institute
a proceeding for enforcement of payment to such holder directly of the
principal of or interest on the Convertible Debentures having a principal
amount equal to the aggregate liquidation amount of the Preferred Securities
of such holder on or after the respective due date specified in the
Convertible Debentures. In connection with such Direct Action, the Company and
Golden Books Publishing will be subrogated to the rights of such holder of
Preferred Securities under the Declaration to the extent of any payment made
to such holder of Preferred Securities in such Direct Action. The holders of
Preferred Securities are not able to exercise directly any other remedy
available to the holders of the Convertible Debentures.
Upon the occurrence of a Declaration Event of Default, the Property
Trustee as the sole holder of the Convertible Debentures has the right under
the Indenture to declare the principal of and interest on the Convertible
Debentures to be immediately due and payable. The Company and the Trust are
each required to file annually with the Property Trustee an officer's
certificate as to its compliance with all conditions and covenants under the
Declaration.
VOTING RIGHTS
Except as described herein, under the Trust Act, the Trust Indenture Act
and under "Description of the Guarantee--Amendments and Assignment," and as
otherwise required by law and the Declaration, the holders of the Preferred
Securities have no voting rights.
Subject to the requirement of the Property Trustee obtaining a tax
opinion in certain circumstances set forth in the last sentence of this
paragraph, the holders of a majority in liquidation amount of the Preferred
Securities have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Property Trustee, or direct the
exercise of any trust or power conferred upon the Property Trustee under the
Declaration, including the right to direct the Property Trustee, as holder of
the Convertible Debentures, to (i) exercise the remedies available to it under
the Indenture as a holder of the Convertible Debentures, (ii) waive any past
Indenture Event of Default that is waivable under the Indenture, (iii)
exercise any right to rescind or annul a declaration that the principal of all
the Convertible Debentures shall be due and payable or (iv) consent to any
amendment, modification, or termination of the Indenture or the Convertible
Debentures where such consent shall be required; provided, however, that where
a consent or action under the Indenture would require the consent or act of
the holders of more than a majority of the aggregate principal amount of
Convertible Debentures affected thereby, only the holders of the percentage of
the aggregate stated liquidation amount of the Preferred Securities which is
at least equal to the percentage required under the Indenture may direct the
Property Trustee to give such consent or take such action. If the Property
Trustee fails to enforce its rights under the Convertible Debentures after a
holder of record of Preferred Securities has made a written request, such
holder of record of Preferred
38
<PAGE>
Securities may directly institute a legal proceeding directly against the
Company and Golden Books Publishing to enforce the Property Trustee's rights
under the Convertible Debentures without first instituting any legal
proceeding against the Property Trustee or any other person or entity.
Notwithstanding the foregoing, if a Declaration Event of Default has occurred
and is continuing and such event is attributable to the failure of the Company
and Golden Books Publishing to pay interest or principal on the Convertible
Debentures on the date such interest or principal is otherwise payable (or in
the case of redemption on the redemption date), then a holder of Preferred
Securities may directly institute a proceeding for enforcement of payment to
such holder of the principal of or interest on the Convertible Debentures
having a principal amount equal to the aggregate liquidation amount of the
Preferred Securities of such holder on or after the respective due date
specified in the Convertible Debentures. The Property Trustee shall notify all
holders of the Preferred Securities of any notice of default received from the
Indenture Trustee with respect to the Convertible Debentures. Such notice
shall state that such Indenture Event of Default also constitutes a
Declaration Event of Default. The Property Trustee shall be under no
obligation to take any of the actions described in clause (i), (ii) or (iii)
above unless the Property Trustee has obtained an opinion of independent tax
counsel to the effect that as a result of such action, the Trust will not fail
to be classified as a grantor trust for United States Federal income tax
purposes and each holder will be treated as owning an undivided beneficial
interest in the Convertible Debentures.
In the event the consent of the Property Trustee, as the holder of the
Convertible Debentures, is required under the Indenture with respect to any
amendment, modification or termination of the Indenture, the Property Trustee
shall request the direction of the holders of the Trust Securities with
respect to such amendment, modification or termination and shall vote with
respect to such amendment. modification or termination as directed by a
majority in liquidation amount of the Trust Securities voting together as a
single class; provided, however, that where a consent under the Indenture
would require the consent of the holders of more than a majority of the
aggregate principal amount of the Convertible Debentures, the Property Trustee
may only give such consent at the direction of the holders of at least the
same proportion in aggregate stated liquidation amount of the Trust
Securities. The Property Trustee shall not take any such action in accordance
with the directions of the holders of the Trust Securities unless the Property
Trustee has obtained an opinion of tax counsel to the effect that for the
purposes of United States Federal income tax the Trust will not be classified
as other than a grantor trust.
A waiver of an Indenture Event of Default will constitute a waiver of the
corresponding Declaration Event of Default.
Any required approval or direction of holders of Preferred Securities may
be given at a separate meeting of holders of Preferred Securities convened for
such purpose, at a meeting of all of the holders of Trust Securities or
pursuant to written consent. The Regular Trustees will cause a notice of any
meeting at which holders of Preferred Securities are entitled to vote, or of
any matter upon which action by written consent of such holders is to be
taken, to be mailed to each holder of record of Preferred Securities. Each
such notice will include a statement setting forth the following information:
(i) the date of such meeting or the date by which such action is to be taken;
(ii) a description of any resolution proposed for adoption at such meeting on
which such
39
<PAGE>
holders are entitled to vote or of such matter upon which written consent is
sought; and (iii) instructions for the delivery of proxies or consents. No
vote or consent of the holders of Preferred Securities is required for the
Trust to redeem and cancel Preferred Securities or distribute Convertible
Debentures in accordance with the Declaration.
Notwithstanding that holders of Preferred Securities are entitled to vote
or consent under any of the circumstances described above, any of the
Preferred Securities that are owned at such time by the Company or any entity
directly or indirectly controlling or controlled by, or under direct or
indirect common control with, the Company, shall not be entitled to vote or
consent and shall, for purposes of such vote or consent, be treated as if such
Preferred Securities were not outstanding.
The procedures by which holders of Preferred Securities represented by
the Global Certificates may exercise their voting rights are described below.
See "--Book-Entry Only Issuance--The Depository Trust Company."
Holders of the Preferred Securities have no rights to appoint or remove
the Regular Trustees, who were appointed and may be removed or replaced solely
by the Company as the holder of all of the Common Securities.
MODIFICATION OF THE DECLARATION
The Declaration may be modified and amended if approved by the Regular
Trustees (and in certain circumstances the Property Trustee and the Delaware
Trustee), provided, that if any proposed amendment provides for, or the
Regular Trustees otherwise propose to effect, (i) any action that would
adversely affect the powers, preferences or special rights of the Trust
Securities, whether by way of amendment to the Declaration or otherwise, or
(ii) the dissolution, winding-up or termination of the Trust other than
pursuant to the terms of the Declaration, then the holders of the Trust
Securities voting together as a single class will be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the approval of at least a majority in liquidation amount of the
Trust Securities affected thereby; provided, that if any amendment or proposal
referred to in clause (i) above would adversely affect only the Preferred
Securities or the Common Securities, then only the affected class will be
entitled to vote on such amendment or proposal and such amendment or proposal
shall not be effective except with the approval of a majority in liquidation
amount of such class of Securities.
Notwithstanding the foregoing, no amendment or modification may be made
to the Declaration if such amendment or modification would (i) cause the Trust
to be classified for purposes of United States Federal income taxation as
other than a grantor trust, (ii) reduce or otherwise adversely affect the
powers of the Property Trustee or (iii) cause the Trust to be deemed an
"investment company" which is required to be registered under the 1940 Act.
40
<PAGE>
REGISTRATION RIGHTS
In connection with the Original Offering, the Company, Golden Books
Publishing and the Trust entered into a registration rights agreement with the
Initial Purchasers, dated August 20, 1996 (the "Registration Rights
Agreement") pursuant to which the Company, Golden Books Publishing and the
Trust agreed, at the Company's expense, for the benefit of the holders of the
Preferred Securities, the Guarantee, the Convertible Debentures and the Common
Stock issuable upon conversion thereof (together, the "Registrable
Securities"), to (i) file with the Commission within 60 days after the
Original Offering Date, a registration statement (the "Shelf Registration
Statement") covering resales of the Registrable Securities, (ii) use their
best efforts to cause the Shelf Registration Statement to be declared
effective under the Securities Act within 150 days after the Original Offering
Date and (iii) use their best efforts to keep effective the Shelf Registration
Statement until three years after the date it is declared effective or such
earlier date as all Registrable Securities shall have been disposed of or on
which all Registrable Securities held by persons that are not affiliates of
the Company or the Trust may be resold without registration pursuant to Rule
144(k) under the Securities Act (the "Effectiveness Period"). Pursuant to the
Registration Rights Agreement, the Company agreed to provide to each holder of
Registrable Securities copies of the prospectus which is a part of the Shelf
Registration Statement, notify each holder when the Shelf Registration
Statement has become effective and take certain other actions as are required
to permit unrestricted resales of the Registrable Securities.
If the Shelf Registration Statement has not been declared effective
within 150 days of the Original Offering Date (a "Registration Default"),
additional interest ("Liquidated Damages") will accrue on the Convertible
Debentures, and, accordingly, additional distributions will accrue on the
Preferred Securities, from and including the day following such Registration
Default. Liquidated Damages will be paid quarterly in arrears, with the first
quarterly payment due on the first interest or distribution payment date, as
applicable, following the date on which such Liquidated Damages begin to
accrue, and will accrue at a rate per annum equal to an additional one-quarter
of one percent (0.25%) of the principal amount or liquidation amount, as
applicable, to and including the 90th day following such Registration Default
and one-half of one percent (0.50%) thereof from and after the 91st day
following such Registration Default. In the event that the Shelf Registration
Statement ceases to be effective during the Effectiveness Period for more than
60 days, whether or not consecutive, during any 12-month period then the
interest rate borne by the Convertible Debentures and the distribution rate
borne by the Preferred Securities will each increase by an additional one-half
of one percent (0.50%) per annum from the 61st day of the applicable 12-month
period such Shelf Registration Statement ceases to be effective until such
time as the Shelf Registration Statement again becomes effective.
The Company and the Trust agreed in the Registration Rights Agreement to
use their best efforts to cause the Preferred Securities and Common Stock
issuable upon conversion thereof to be listed on Nasdaq on or prior to the
effective date of the Shelf Registration Statement.
41
<PAGE>
This summary of the material provisions of the Registration Rights
Agreement does not purport to be complete, and reference is made to the
Registration Rights Agreement incorporated by reference herein as an exhibit
to the Registration Statement.
BOOK-ENTRY ONLY ISSUANCE--THE DEPOSITORY TRUST COMPANY
The description of book-entry procedures in this Prospectus includes
summaries of certain rules and operating procedures of DTC that affect
transfers of interests in the global certificate or certificates issued in
connection with sales of Preferred Securities made pursuant to this
Prospectus. Substantially all of the Preferred Securities were issued as fully
registered securities registered in the name of Cede & Co. (as nominee for
DTC). Fully registered global Preferred Security certificates (the "Global
Certificates") were issued, representing such Preferred Securities and were
deposited with DTC. Definitive fully registered Preferred Securities in
certificated form were issued in respect of Preferred Securities sold to
institutional "accredited investors" (as defined in Rule 501 (a)(1), (2), (3)
or (7) under the Securities Act) .
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC holds securities that its participants ("Participants") deposit with
DTC. DTC also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities certificates.
Participants in DTC include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations. DTC is owned
by a number of its Participants and by The New York Stock Exchange, Inc., the
American Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc. Access to the DTC system is also available to others such as
securities brokers and dealers, banks and trust companies that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants"). The rules applicable to DTC and its
Participants are on file with the Commission.
Purchases of Preferred Securities within the DTC system must be made by
or through Participants, which will receive a credit for the Preferred
Securities on DTC's records. The ownership interest of each actual purchaser
of Preferred Securities ("Beneficial Owner") within the DTC system is in turn
to be recorded on the Participants' and Indirect Participants' records.
Beneficial Owners will not receive written confirmation from DTC of their
purchases, but Beneficial Owners are expected to receive written confirmations
providing details of the transactions, as well as periodic statements of their
holdings, from the Participants or Indirect Participants through which the
Beneficial Owners purchased Preferred Securities. Transfers of ownership
interests in the Preferred Securities within the DTC system are to be
accomplished by entries made on the books of Participants and Indirect
Participants acting on behalf of Beneficial Owners. Beneficial Owners will not
receive certificates representing their ownership interests in
42
<PAGE>
Preferred Securities, except in the event that use of the book-entry system
for the Preferred Securities is discontinued.
DTC has no knowledge of the actual Beneficial Owners of the Preferred
Securities; DTC's records reflect only the identity of the Participants to
whose accounts such Preferred Securities are credited, which may or may not be
the Beneficial Owners. The Participants and Indirect Participants will remain
responsible for keeping account of their holdings on behalf of their
customers.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Certificate, DTC or such nominee, as the case may be, will be
considered the sole owner or holder of the Preferred Securities represented
thereby for all purposes under the Declaration and the Preferred Securities.
No beneficial owner of an interest in a Global Certificate will be able to
transfer that interest except in accordance with DTC's applicable procedures,
in addition to those provided for under the Declaration.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Preferred Securities (including the presentation of
Preferred Securities for exchange as described below) only at the direction of
one or more Participants to whose account the DTC interests in the Global
Certificates are credited and only in respect of such portion of the aggregate
liquidation amount of Preferred Securities as to which such Participant or
Participants has or have given such direction.
Conveyance of notices and other communications by DTC to Participants, by
Participants to Indirect Participants, and by Participants and Indirect
Participants to Beneficial Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
Redemption notices in respect of the Preferred Securities held in
book-entry form will be sent to Cede & Co. If less than all of the Preferred
Securities are being redeemed, DTC will determine the amount of the interest
of each Participant to be redeemed in accordance with its procedures.
Although voting with respect to the Preferred Securities is limited, in
those cases where a vote is required, neither DTC nor Cede & Co. will itself
consent or vote with respect to Preferred Securities. Under its usual
procedures, DTC would mail an Omnibus Proxy to the Trust as soon as possible
after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or
voting rights to those Participants to whose accounts the Preferred Securities
are credited on the record date (identified in a listing attached to the
Omnibus Proxy).
Distributions on the Preferred Securities held in book-entry form will be
made to DTC in immediately available funds. DTC's practice is to credit
Participants' accounts on the relevant payment date in accordance with their
respective holdings shown on DTC's records unless DTC has reason to believe
that it will not receive payments on such payment date. Payments by
Participants and Indirect Participants to Beneficial Owners will be governed
by standing instructions and customary practices and will be the
responsibility of such Participants and
43
<PAGE>
Indirect Participants and not of DTC, the Trust, or the Company or Golden
Books Publishing, subject to any statutory or regulatory requirements as may
be in effect from time to time. Payment of distributions to DTC is the
responsibility of the Trust, disbursement of such payments to Participants is
the responsibility of DTC, and disbursement of such payments to the Beneficial
Owners is the responsibility of Participants and Indirect Participants.
Except as provided herein, a Beneficial Owner of an interest in a Global
Certificate is not entitled to receive physical delivery of Preferred
Securities. Accordingly, each Beneficial Owner must rely on the procedures of
DTC to exercise any rights under the Preferred Securities.
Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Certificates among
Participants of DTC, DTC is under no obligation to perform or continue to
perform such procedures, and such procedures may be discontinued at any time.
Neither the Company, Golden Books Publishing, the Trust nor the Trustee have
any responsibility for the performance by DTC or its Participants or Indirect
Participants under the rules and procedures governing DTC. DTC may discontinue
providing its services as securities depository with respect to the Preferred
Securities at any time by giving notice to the Trust. Under such
circumstances, in the event that a successor securities depository is not
obtained, Preferred Security certificates are required to be printed and
delivered. Additionally, the Trust (with the consent of the Company) may
decide to discontinue use of the system of book-entry transfers through DTC
(or a successor depository). In that event, certificates for the Preferred
Securities will be printed and delivered. In each of the above circumstances,
the Company will appoint a paying agent with respect to the Preferred
Securities.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in the global
Preferred Securities as represented by a Global Certificate.
PAYMENT AND PAYING AGENCY
Payments in respect of the Preferred Securities represented by the Global
Certificates shall be made to DTC, which shall credit the relevant accounts at
DTC on the applicable distribution dates or, in the case of Certificated
Securities, such payments shall be made by check mailed to the address of the
holder entitled thereto as such address as shall appear on the Register. The
Paying Agent initially is The Bank of New York. The Paying Agent is permitted
to resign as Paying Agent upon 30 days' written notice to the Issuer Trustees.
In the event that The Bank of New York shall no longer be the Paying Agent,
the Trustee shall appoint a successor to act as Paying Agent (which shall be a
bank or trust company).
REGISTRAR, TRANSFER AGENT, PAYING AGENT AND CONVERSION AGENT
The Property Trustee presently acts as Registrar, Transfer Agent, Paying
Agent and Conversion Agent for the Preferred Securities.
Registration of transfers of Preferred Securities will be effected
without charge by or on behalf of the Trust, but upon payment (with the giving
of such indemnity as the Trust or the
44
<PAGE>
Company and Golden Books Publishing may require) in respect of any tax or
other government charges which may be imposed in relation to it.
The Trust will not be required to register or cause to be registered the
transfer of Preferred Securities after such Preferred Securities have been
called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Company and certain of its subsidiaries may maintain deposit accounts
and conduct other banking transactions with the Property Trustee in the
ordinary course of their businesses. The Property Trustee, prior to the
occurrence of a default with respect to the Trust Securities, undertakes to
perform only such duties as are specifically set forth in the Declaration and,
after default, shall exercise the same degree of care as a prudent individual
would exercise in the conduct of his or her own affairs. Subject to such
provisions, the Property Trustee is under no obligation to exercise any of the
powers vested in it by the Declaration at the request of any holder of
Preferred Securities, unless offered reasonable indemnity by such holder
against the costs, expenses and liabilities which might be incurred thereby.
The holders of Preferred Securities are not required to offer such indemnity
in the event such holders, by exercising their voting rights, direct the
Property Trustee to take any action following a Declaration Event of Default.
GOVERNING LAW
The Declaration and the Preferred Securities are governed by, and
construed in accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to conduct the affairs
of and to operate the Trust in such a way that the Trust will not be deemed to
be an "investment company" required to be registered under the 1940 Act or
characterized as other than a grantor trust for United States Federal income
tax purposes so that the Convertible Debentures will be treated as
indebtedness of the Company for United States Federal income tax purposes. In
this connection, the Regular Trustees are authorized to take any action, not
inconsistent with applicable law, the certificate of trust or the Declaration
that the Regular Trustees determine in their discretion to be necessary or
desirable for such purposes as long as such action does not adversely affect
the interests of the holders of the Preferred Securities.
Holders of the Preferred Securities have no preemptive rights.
45
<PAGE>
DESCRIPTION OF THE GUARANTEE
Set forth below is a summary of information concerning the Guarantee
which was executed and delivered by the Company for the benefit of the holders
from time to time of Preferred Securities. The summary does not purport to be
complete and is subject in all respects to the provisions of, and is qualified
in its entirety by reference to, the Guarantee. The Guarantee incorporates by
reference the terms of the Trust Indenture Act. It is expected that at the
time the Shelf Registration Statement becomes effective, the Guarantee will be
qualified under the Trust Indenture Act. The Bank of New York, as the
Guarantee Trustee, holds the Guarantee for the benefit of the holders of the
Preferred Securities.
GENERAL
Pursuant to and to the extent set forth in the Guarantee, the Company
irrevocably and unconditionally agreed to pay in full to the holders of the
Preferred Securities (except to the extent paid by the Trust), as and when
due, regardless of any defense, right of set off or counterclaim which the
Trust may have or assert, the following payments (the "Guarantee Payments"),
without duplication: (i) any accrued and unpaid distributions that are
required to be paid on the Preferred Securities to the extent the Trust has
funds available therefor, (ii) the Redemption Price with respect to any
Preferred Securities called for redemption by the Trust, to the extent the
Trust has funds available therefor, and (iii) upon a voluntary or involuntary
dissolution, winding-up or termination of the Trust (other than in connection
with the distribution of Convertible Debentures to the holders of Preferred
Securities or the redemption of all the Preferred Securities), the lesser of
(a) the aggregate of the liquidation amount and all accrued and unpaid
distributions on the Preferred Securities to the date of payment, to the
extent the Trust has funds available therefor, and (b) the amount of assets of
the Trust remaining available for distribution to holders of Preferred
Securities upon the liquidation of the Trust. The holders of a majority in
liquidation amount of the Preferred Securities have the right to direct the
time, method and place of conducting any proceeding for any remedy available
to the Guarantee Trustee or to direct the exercise of any trust or power
conferred upon the Guarantee Trustee under the Guarantee. Any holder of
Preferred Securities may directly institute a legal proceeding against the
Company to enforce the obligations of the Company under the Guarantee without
first instituting a legal proceeding against the Trust, the Guarantee Trustee
or any other person or entity. If the Company and Golden Books Publishing were
to default on their obligation to pay amounts payable on the Convertible
Debentures, the Trust would lack available funds for the payment of
distributions or amounts payable on redemption of the Preferred Securities or
otherwise, and in such event holders of the Preferred Securities would not be
able to rely upon the Guarantee for payment of such amounts. Instead, a holder
of the Preferred Securities would be required to rely on the enforcement (1)
by the Property Trustee of its rights, as registered holder of the Convertible
Debentures, against the Company and Golden Books Publishing pursuant to the
terms of the Convertible Debentures or (2) by such holder of Preferred
Securities of its right against the Company and Golden Books Publishing to
enforce payments on the Convertible Debentures. See "Description of the
Convertible Debentures." The Declaration provides that each holder of
Preferred Securities, by acceptance thereof, agrees to the provisions of the
Guarantee and the Indenture.
46
<PAGE>
The Guarantee is a guarantee with respect to the Preferred Securities
from the time of issuance of such Preferred Securities but does not apply to
any payment of distributions or the Redemption Price, or to payments upon the
dissolution, winding-up or termination of the Trust, except to the extent the
Trust shall have funds available therefor. If the Company and Golden Books
Publishing do not make interest payments on the Convertible Debentures, the
Trust will not pay distributions on the Preferred Securities and will not have
funds available therefor. See "Description of the Convertible Debentures." The
Guarantee, when taken together with the Company's obligations under the
Convertible Debentures, the Indenture and the Declaration, including its
obligations to pay costs, expenses, debts and liabilities of the Trust (other
than with respect to the Trust Securities), provides a full and unconditional
guarantee by the Company of payments due on the Preferred Securities issued by
the Trust.
CERTAIN COVENANTS OF THE COMPANY
In the Guarantee, the Company has covenanted that, so long as any
Preferred Securities remain outstanding, if (i) the Company and Golden Books
Publishing have exercised their option to defer interest payments on the
Convertible Debentures by extending the interest payment period and such
extension shall be continuing, (ii) the Company shall be in default with
respect to its payment or other obligations under the Guarantee or (iii) there
shall have occurred and be continuing any event that, with the giving of
notice or the lapse of time or both, would constitute an Indenture Event of
Default, then the Company (a) may not declare or pay dividends on, make
distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock (except for (i)
dividends or distributions in shares of Common Stock on Common Stock or on its
Series B Preferred Stock, (ii) purchases or acquisitions of shares of Common
Stock made in connection with employee benefit plans of the Company or its
subsidiaries or pursuant to employment agreements with officers or employees
of the Company or its subsidiaries, provided that repurchases by the Company
made from officers or employees of the Company or its subsidiaries pursuant to
employment agreements shall be made at a price not to exceed market value on
the date of any such repurchase and shall not exceed $5 million in the
aggregate for all such employees and officers, (iii) conversions or exchanges
of any class of common stock into any other class of common stock or (iv)
purchases of fractional interests in shares of the Company's capital stock
pursuant to the conversion or exchange provisions of any of the Company's
securities being converted or exchanged), (b) shall not make any payment of
interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities of the Company that rank junior to the Convertible Debentures
(except by conversion into or exchange for shares of Common Stock), and (c)
shall not make any guarantee payments with respect to the foregoing (other
than such payments made pursuant to the Guarantee).
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely
affect the rights of holders of Preferred Securities (in which case no vote
will be required), the Guarantee may be amended only with the prior approval
of the holders of at least a majority in liquidation amount of all the
outstanding Preferred Securities. The manner of obtaining any such approval of
holders of the Preferred Securities will be as set forth under "Description of
the Preferred
47
<PAGE>
Securities--Voting Rights." All guarantees and agreements contained in the
Guarantee bind the successors, assigns, receivers, trustees and
representatives of the Company and inure to the benefit of the holders of the
Preferred Securities then outstanding. Except in connection with any permitted
merger or consolidation of the Company with or into another entity or any
permitted sale, transfer or lease of the Company's assets to another entity as
described below under "Description of the Convertible
Debentures--Restrictions," the Company may not assign its rights or delegate
its obligations under the Guarantee without the prior approval of the holders
of at least a majority of the aggregate stated liquidation amount of the
Preferred Securities then outstanding.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate as to each holder of Preferred Securities
(i) upon full payment of the Redemption Price of all Preferred Securities,
(ii) upon distribution of the Convertible Debentures held by the Trust to the
holders of the Preferred Securities, (iii) upon liquidation of the Trust or
(iv) upon the distribution of Common Stock to such holder in respect of the
conversion of such holder's Preferred Securities into Common Stock, and will
terminate completely upon full payment of the amounts payable in accordance
with the Declaration. The Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any holder of Preferred
Securities must restore payment of any sum paid under such Preferred
Securities or such Guarantee.
STATUS OF THE GUARANTEE
The Guarantee constitutes an unsecured obligation of the Company and
ranks (i) pari passu with all other unsecured obligations of the Company,
except any obligations that are expressly subordinated to the Guarantee, and
(ii) senior to (A) all preferred or preference stock issued from time to time
by the Company, (B) any guarantee now or hereafter entered into by the Company
in respect of any preferred or preference stock or preferred securities of any
affiliate of the Company and (C) the Common Stock.
The Guarantee constitutes a guarantee of payment and not of collection
(that is, the guaranteed party may directly institute a legal proceeding
against the Company to enforce its rights under the Guarantee without
instituting a legal proceeding against any other person or entity).
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, prior to the occurrence of a default with respect
to the Guarantee, undertakes to perform only such duties as are specifically
set forth in the Guarantee and, after default with respect to the Guarantee,
shall exercise the same degree of care as a prudent man would exercise in the
conduct of his own affairs. Subject to such provision, the Guarantee Trustee
is under no obligation to exercise any of the powers vested in it by the
Guarantee at the request of any holder of Preferred Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby.
48
<PAGE>
GOVERNING LAW
The Guarantee is governed by, and construed in accordance with, the laws
of the State of New York.
DESCRIPTION OF THE CONVERTIBLE DEBENTURES
Set forth below is a description of the specific terms of the Convertible
Debentures in which the Trust invested the proceeds from the issuance and sale
of the Trust Securities. The following description does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
the Indenture (the "Indenture") among the Company, Golden Books Publishing and
the Indenture Trustee, a copy of which may be obtained from the Company upon
request. Certain capitalized terms used herein are defined in the Indenture.
Under certain circumstances involving the dissolution of the Trust
following the occurrence of a Special Event, Convertible Debentures may be
distributed to the holders of the Trust Securities in liquidation of the
Trust. See "Description of the Preferred Securities--Special Event Redemption
or Distribution."
If the Convertible Debentures are distributed to the holders of Preferred
Securities, the Company will use its best efforts to have the Convertible
Debentures listed on Nasdaq or on such other national securities exchange or
similar organization on which the Preferred Securities are then listed or
quoted.
GENERAL
The Convertible Debentures were issued as unsecured debt under the
Indenture. The Convertible Debentures are limited in aggregate principal
amount to $118,556,700, such amount being the sum of the aggregate stated
liquidation amount of the Preferred Securities and the Common Securities.
The Convertible Debentures are not subject to a sinking fund provision.
The entire principal amount of the Convertible Debentures will become due and
payable, together with any accrued and unpaid interest thereon, including
Compounded Interest (as defined herein) and Additional Interest, if any, on
August 20, 2016.
The Convertible Debentures, if distributed to holders of Preferred
Securities in liquidation of such holders' interest in the Trust, will
initially be issued in the same form as the Preferred Securities that such
Convertible Debentures replace. Any Global Certificate will be replaced with
one or more Global Securities (as defined under "--Book-Entry and
Settlement"). Under certain limited circumstances, Convertible Debentures may
be issued in certificated form in exchange for a Global Security. In the event
that Convertible Debentures are issued in certificated form, such Convertible
Debentures will be in denominations of $50 and integral multiples thereof and
may be transferred or exchanged at the offices described below.
49
<PAGE>
Payments on Convertible Debentures issued as a Global Security will be
made to DTC, a successor depository or, in the event that no depository is
used, to a Paying Agent for the Convertible Debentures. In the event
Convertible Debentures are issued in certificated form, principal and interest
will be payable, the transfer of the Convertible Debentures will be
registrable and Convertible Debentures will be exchangeable for Convertible
Debentures of other denominations of a like aggregate principal amount at the
corporate trust office of the Indenture Trustee in The City of New York;
provided, that unless the Convertible Debentures are held by the Trust or any
successor permissible under "Description of the Preferred Securities--Merger,
Consolidation or Amalgamation of the Trust," payment of interest may be made
at the option of the Company by check mailed to the address of the persons
entitled thereto.
There are no covenants or provisions in the Indenture that afford holders
of Convertible Debentures protection in the event of a highly leveraged
transaction or other similar transaction involving the Company that may
adversely affect such holders.
INTEREST
Each Convertible Debenture bears interest at the rate of 8-3/4% per annum
from the original date of issuance, payable quarterly in arrears on February
20, May 20, August 20 and November 20 (each, an "Interest Payment Date"),
commencing November 20, 1996, to the person in whose name such Convertible
Debenture is registered, subject to certain exceptions, at the close of
business on the Business Day next preceding such Interest Payment Date. If any
Preferred Securities are held in certificated form, the record date for each
Interest Payment Date shall be 15 days prior to such Interest Payment Date.
The amount of interest payable for any period will be computed on the
basis of a 360-day year of twelve 30-day months. The amount of interest
payable for any period shorter than a full quarterly period will be computed
on the basis of the actual number of days elapsed. In the event that any date
on which interest is payable on the Convertible Debentures is not a Business
Day, then payment of the interest payable on such date will he made on the
next succeeding day which is a Business Day (without any interest or other
payment in respect of any such delay), except that, if such Business Day is in
the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and
effect as if made on such date.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
The Company and Golden Books Publishing have the right at any time during
the term of the Convertible Debentures to defer interest payments from time to
time by extending the interest payment period for successive periods not
exceeding 20 consecutive quarters for each such period; provided, no Extension
Period may extend beyond the maturity date of the Convertible Debentures. At
the end of each Extension Period, the Company or Golden Books Publishing shall
pay all interest then accrued and unpaid (including Additional Interest and
Liquidated Damages) together with interest thereon compounded quarterly at the
rate specified for the Convertible Debentures to the extent permitted by
applicable law ("Compounded Interest"); provided, that during any Extension
Period, the Company (a) shall not declare or pay dividends
50
<PAGE>
on, make distributions with respect to, or redeem, purchase or acquire, or
make a liquidation payment with respect to, any of its capital stock (except
for (i) dividends or distributions in shares of Common Stock on Common Stock
or on its Series B Preferred Stock, (ii) purchases or acquisitions of shares
of Common Stock made in connection with any employee benefit plan of the
Company or its subsidiaries or pursuant to employment agreements with officers
4or employees of the Company or its subsidiaries, provided that repurchases by
the Company made from officers or employees of the Company or its subsidiaries
pursuant to employment agreements shall be made at a price not to exceed the
market value on the date of any such repurchase and shall not exceed $5
million in the aggregate for all such employees and officers, (iii)
conversions or exchanges of any shares of any class of common stock into any
other class of common stock and (iv) purchases of fractional interests of
shares of the Company's capital stock pursuant to the conversion or exchange
provisions of any of the Company's securities being converted or exchanged),
(b) shall not make any payment of interest, principal or premium, if any, on
or repay, repurchase or redeem, any debt securities issued by the Company that
rank junior to the Convertible Debentures (except by conversion into or
exchange for shares of Common Stock) and (c) shall not make any guarantee
payments with respect to the foregoing. In addition, during any Extension
Period, Golden Books Publishing (a) if Golden Books Publishing is not a
wholly-owned subsidiary of the Company, shall not declare or pay dividends on,
make distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock (except for (i)
dividends or distributions in shares of its common stock made on outstanding
shares of its common stock, (ii) conversions or exchanges of its common stock
of one class into common stock of another class or (iii) purchases of
fractional interests in shares of the capital stock of Golden Books Publishing
being converted or exchanged) and (b) shall not make any payment of interest,
principal of or premium, if any, on, or repay, repurchase or redeem any debt
securities issued by Golden Books Publishing that rank junior to the
Convertible Debentures (except by conversion into or exchange for shares of
its common stock). Prior to the termination of any such Extension Period, the
Company or Golden Books Publishing may further extend such Extension Period;
provided, that such Extension Period together with all previous and further
extensions thereof may not exceed 20 consecutive quarters and may not extend
beyond the maturity of the Convertible Debentures. Upon the termination of any
Extension Period and the payment of all amounts then due, the Company or
Golden Books Publishing may commence a new Extension Period, subject to the
above requirements. No interest during an Extension Period, except at the end
thereof, shall be due and payable. Neither the Company nor Golden Books
Publishing has any current intention of exercising its right to defer payments
of interest by extending the interest payment period on the Convertible
Debentures. If the Property Trustee shall be the sole holder of the
Convertible Debentures, the Company or Golden Books Publishing shall give the
Regular Trustees and the Property Trustee notice of its selection of such
Extension Period at least one Business Day prior to the earlier of (i) the
date the distributions on the Preferred Securities are payable or (ii) the
date the Trust is required to give notice to Nasdaq (or any applicable
self-regulatory organization) or to holders of the Preferred Securities of the
record date or the date such distribution is payable, but in any event not
less than ten Business Days prior to such record date. The Company shall cause
the Trust to give notice of the selection of such Extension Period to the
holders of the Preferred Securities. If the Property Trustee shall not be the
sole holder of the Convertible Debentures, the Company or Golden Books
Publishing shall give the holders of the
51
<PAGE>
Convertible Debentures notice of its selection of such Extension Period at
least ten Business Days prior to the earlier of (i) the Interest Payment Date
or (ii) the date the Company is required to give notice to Nasdaq (or any
applicable self-regulatory organization) or to holders of the Convertible
Debentures on the record or payment date of such related interest payment, but
in any event not less than two Business Days prior to such record date.
ADDITIONAL INTEREST
If the Trust is required to pay any taxes, duties, assessments or
governmental charges of whatever nature (other than withholding taxes) imposed
by the United States, or any other taxing authority, then, in any such case,
the Company and Golden Books Publishing will pay as additional interest
("Additional Interest") such amounts as shall be required so that the net
amounts received and retained by the Trust after paying any such taxes,
duties, assessments or governmental charges will be not less than the amounts
the Trust would have received had no such taxes, duties, assessments or
governmental charges been imposed.
CONVERSION OF THE CONVERTIBLE DEBENTURES
The Convertible Debentures are convertible into Common Stock at the
option of the holders of the Convertible Debentures at any time prior to the
close of business on the Business Day immediately preceding the date of
repayment of such Convertible Debentures, whether at maturity or upon
redemption at the initial conversion price set forth on the cover page of this
Prospectus subject to the conversion price adjustments described under
"Description of the Preferred Securities--Conversion Rights." The Trust has
covenanted not to convert Convertible Debentures held by it except pursuant to
a notice of conversion delivered to the Conversion Agent by a holder of
Preferred Securities. Upon surrender of a Preferred Security to the Conversion
Agent for conversion, the Trust will distribute $50 principal amount of the
Convertible Debentures to the Conversion Agent on behalf of the holder of the
Preferred Securities so converted, whereupon the Conversion Agent will convert
such Convertible Debentures to Common Stock on behalf of such holder. The
Company's delivery to the holders of the Convertible Debentures (through the
Conversion Agent) of the fixed number of shares of Common Stock into which the
Convertible Debentures are convertible (together with the cash payment, if
any, in lieu of fractional shares) will be deemed to satisfy the Company's and
Golden Books Publishing's obligation to pay the principal amount of the
Convertible Debentures so converted, and the accrued and unpaid interest
thereon attributable to the period from the last date to which interest has
been paid or duly provided for; provided, however, that if any Convertible
Debenture is converted after a record date for payment of interest, the
interest payable on the related interest payment date with respect to such
Convertible Debenture shall be paid to the Trust (which will distribute such
interest to the holder of the Preferred Securities on the record date) or
other holder of Convertible Debentures as of the record date, as the case may
be, despite such conversion.
52
<PAGE>
OPTIONAL REDEMPTION
The Company and Golden Books Publishing have the right to redeem the
Convertible Debentures, in whole or in part, at any time or from time to time
after August 20, 1999 upon not less than 30 nor more than 60 days' notice, at
a redemption price equal to 106.125% of the principal amount of the
Convertible Debentures to be redeemed plus any accrued and unpaid interest,
including Additional Interest, Compounded Interest and Liquidated Damages, if
any, to the redemption date if redeemed on or before August 19, 2000, and at
the following optional redemption prices (expressed as a percentage of the
principal amount of Convertible Debentures), if redeemed during the 12-month
period beginning August 20, 2000:
Year Optional Redemption Price
- ---- -------------------------
2000 105.250%
2001 104.375
2002 103.500
2003 102.625
2004 101.750
2005 100.875
2006 and thereafter 100.000
plus, in each case, accrued and unpaid interest, including Additional
Interest, Compounded Interest and Liquidated Damages, if any, to the
redemption date.
If a partial redemption of the Preferred Securities resulting from a
partial redemption of the Convertible Debentures would result in the delisting
of the Preferred Securities, the Company and Golden Books Publishing may only
redeem Convertible Debentures in whole.
PROPOSED TAX LEGISLATION
On March 19, 1996, as part of President Clinton's fiscal 1997 Budget
Proposal, the Treasury Department proposed the Proposed Legislation that,
among other things, would treat as equity for United States Federal income tax
purposes instruments with a maximum term of more than 20 years that are not
shown as indebtedness on the consolidated balance sheet of the issuer. On
March 29, 1996, Senate Finance Committee Chairman William V. Roth, Jr. and
House Ways and Means Committee Chairman Bill Archer issued the Joint Statement
indicating their intent that certain legislative proposals initiated by the
Clinton administration, including the Proposed Legislation, that may be
adopted by either of the tax-writing committees of Congress, would have an
effective date that is no earlier than the date of "appropriate Congressional
action." Based on the Joint Statement, it is expected that if the Proposed
Legislation were enacted, such legislation would not apply to the Convertible
Debentures since they were issued prior to the date of any "appropriate
Congressional action." Furthermore, even if the Proposed Legislation were
enacted in its current form with effective date provisions making it
applicable to the Convertible
53
<PAGE>
Debentures, it would not cause the Convertible Debentures to be treated as
equity for United States Federal income tax purposes since the maximum term of
the Convertible Debentures will not exceed 20 years. There can be no
assurances, however, that any proposed legislation enacted after the date
hereof will not otherwise adversely affect the tax treatment of the
Convertible Debentures. If legislation is enacted that adversely affects the
tax treatment of the Convertible Debentures, such legislation could result in
the distribution of the Convertible Debentures to holders of the Preferred
Securities or, in certain limited circumstances, the redemption of such
securities by the Company or Golden Books Publishing and the distribution of
the resulting cash in redemption of the Preferred Securities. See "Description
of the Preferred Securities--Special Event Redemption or Distribution."
RANKING
The Convertible Debentures are senior unsecured obligations of each of
the Company and Golden Books Publishing and rank pari passu with all of their
other unsecured obligations, including trade credit, except for such
obligations which are expressly subordinated to the Convertible Debentures.
The Indenture does not limit the amount of additional indebtedness which
the Company and Golden Books Publishing can create, incur, assume or
guarantee, nor does the Indenture limit the amount of indebtedness which any
subsidiary can create, incur, assume or guarantee.
CERTAIN COVENANTS
In the Indenture, the Company covenanted (i) to directly or indirectly
maintain 100% ownership of the Common Securities of the Trust; provided,
however, that any permitted successor of the Company under the Indenture may
succeed to the Company's ownership; and (ii) to use its reasonable efforts to
cause the Trust (x) to remain a statutory business trust, except in connection
with the distribution of Convertible Debentures to the holders of Trust
Securities in liquidation of the Trust, the redemption of all of the Trust
Securities of the Trust, or certain mergers, consolidations or amalgamations,
each as permitted by the Declaration, and (y) to otherwise continue to be
classified as a grantor trust for United States Federal income tax purposes.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Indenture provides that neither the Company nor Golden Books
Publishing will consolidate with or merge into any other entity or convey,
transfer or lease its assets substantially as an entirety unless (a) if the
Company or Golden Books Publishing, as the case may be, is not the survivor,
the successor is a corporation organized in the United States and expressly
assumes the due and punctual payment of the principal of (and premium, if any)
and interest on all Convertible Debentures issued thereunder and the
performance of every other covenant of the Indenture on the part of the
Company or Golden Books Publishing, as the case may be, and (b) immediately
thereafter no event of default under the Indenture and no event which, after
notice or lapse of time, or both, would become an event of default under the
Indenture, shall have happened and be continuing. Upon any such consolidation,
merger, conveyance or transfer, the
54
<PAGE>
successor corporation shall succeed to and be substituted for the Company or
Golden Books Publishing, as the case may be, under the Indenture and
thereafter the predecessor corporation shall be relieved of all obligations
and covenants under the Indenture and the Convertible Debentures.
BOOK-ENTRY AND SETTLEMENT
If distributed to holders of the Preferred Securities in connection with
the involuntary or voluntary dissolution, winding-up or liquidation of the
Trust as a result of the occurrence of a Special Event, the Convertible
Debentures will be issued in the same form as the Preferred Securities which
such Convertible Debentures replace. Any Global Certificate will be replaced
by one or more global certificates (each a "Global Security") registered in
the name of the depository or its nominee. Except under the limited
circumstances described below, the Convertible Debentures represented by the
Global Security will not be exchangeable for, and will not otherwise be
issuable as, Convertible Debentures in definitive form. The Global Securities
described above may not be transferred except by the depository to a nominee
of the depository or by a nominee of the depository to the depository or
another nominee of the depository or to a successor depository or its nominee.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
laws may impair the ability to transfer beneficial interests in such a Global
Security.
Except as provided below, owners of beneficial interests in such a Global
Security will not be entitled to receive physical delivery of Convertible
Debentures in definitive form and will not be considered the holders thereof
for any purpose under the Indenture, and no Global Security representing
Convertible Debentures shall be exchangeable, except for another Global
Security of like denomination and tenor to be registered in the name of the
depository or its nominee or to a successor depository or its nominee.
Accordingly, each Beneficial Owner must rely on the procedures of DTC or if
such person is not a Participant, on the procedures of the Participant through
which such person owns its interest to exercise any rights of a holder under
the Indenture.
THE DEPOSITORY
If Convertible Debentures are distributed to holders of Preferred
Securities in liquidation of such holders' interests in the Trust and a Global
Security is issued, DTC will act as securities depository for the Convertible
Debentures represented by such Global Security. For a description of DTC and
the specific terms of the depository arrangements, see "Description of the
Preferred Securities--Book-Entry Only Issuance--The Depository Trust Company."
As of the date of this Prospectus, the description therein of DTC's book-entry
system and DTC's practices as they relate to purchases, transfers, notices and
payments with respect to the Convertible Preferred Securities apply in all
material respects to any debt obligations represented by one or more Global
Securities held by DTC. The Company may appoint a successor to DTC or any
successor depository in the event DTC or such successor depository is unable
or unwilling to continue as a depository for the Global Securities.
55
<PAGE>
None of the Company, Golden Books Publishing, the Trust, the Indenture
Trustee, any paying agent and any other agent of the Company, Golden Books
Publishing or the Indenture Trustee have any responsibility or liability for
any aspect of the records relating to or payments made on account of
beneficial ownership interests in a Global Security for such Convertible
Debentures or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests.
DISCONTINUANCE OF THE DEPOSITORY'S SERVICES
A Global Security shall be exchangeable for Convertible Debentures
registered in the names of persons other than the Depository or its nominee
only if (i) the Depository notifies the Company and Golden Books Publishing
that it is unwilling or unable to continue as a depository for such Global
Security and no successor depository shall have been appointed, (ii) the
Depository, at any time, ceases to be a clearing agency registered under the
Exchange Act at which time the Depository is required to be so registered to
act as such depository and no successor depository shall have been appointed,
(iii) the Company and Golden Books Publishing, in their sole discretion,
determine that such Global Security shall be so exchangeable or (iv) there
shall have occurred an Event of Default with respect to such Convertible
Debentures. Any Global Security that is exchangeable pursuant to the preceding
sentence shall be exchangeable for Convertible Debentures registered in such
names as the Depository shall direct. It is expected that such instructions
will be based upon directions received by the Depository from its Participants
with respect to ownership of beneficial interests in such Global Security.
EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events, which has occurred and is continuing, constitutes an "Event of
Default" with respect to the Convertible Debentures: (i) failure for 90 days
to pay interest on the Convertible Debentures, including any Additional
Interest, Compounded Interest and Liquidated Damages in respect thereof, when
due, provided that a valid extension of an interest payment period will not
constitute a default in the payment of interest (including any Additional
Interest, Compounded Interest or Liquidated Damages) for this purpose; (ii)
failure to pay principal of or premium, if any, on the Convertible Debentures
when due whether at maturity, upon redemption, by declaration or otherwise;
(iii) failure by the Company to deliver shares of Common Stock upon an
election by a holder of Preferred Securities to convert such Preferred
Securities; (iv) failure to observe or perform any other covenant contained in
the Indenture for 180 days after notice to the Company and Golden Books
Publishing by the Trustee or by the holders of not less than 25% in aggregate
outstanding principal amount of the Convertible Debentures; (v) the
dissolution, winding up or termination of the Trust, except in connection with
the distribution of Convertible Debentures to the holders of Preferred
Securities in liquidation of the Trust upon the redemption of all outstanding
Preferred Securities and in connection with certain mergers, consolidations or
amalgamations permitted by the Declaration; or (vi) certain events in
bankruptcy, insolvency or reorganization of the Company or Golden Books
Publishing.
56
<PAGE>
The Indenture Trustee or the holders of not less than 25% in aggregate
outstanding principal amount of the Convertible Debentures may declare the
principal of and interest on the Convertible Debentures due and payable
immediately on the occurrence of an Event of Default; provided, however, that,
after such acceleration, but before a judgment or decree based on
acceleration, the holders of a majority in aggregate principal amount of
outstanding Convertible Debentures may, under certain circumstances, rescind
and annul such acceleration if all Events of Default, other than the
nonpayment of accelerated principal, have been cured or waived as provided in
the Indenture. For information as to waiver of Defaults, see "--Modifications
and Amendments of the Indenture."
Notwithstanding the foregoing, if an Indenture Event of Default has
occurred and is continuing and such event is attributable to the failure of
the Company and Golden Books Publishing to pay interest or principal on the
Convertible Debentures on the date such interest or principal is otherwise
payable, the Company and Golden Books Publishing acknowledge that, in such
event, a holder of Preferred Securities may institute a Direct Action for
payment on or after the respective due date specified in the Convertible
Debentures. The Company and Golden Books Publishing may not amend the
Indenture to remove the foregoing right to bring a Direct Action without the
prior written consent of all the holders of Preferred Securities.
Notwithstanding any payment made to such holder of Convertible Preferred
Securities by the Company or Golden Books Publishing in connection with a
Direct Action, the Company and Golden Books Publishing shall remain obligated
to pay the principal of or interest on the Convertible Debentures held by the
Trust or the Property Trustee and the Company and Golden Books Publishing
shall be subrogated to the rights of the holder of such Preferred Securities
with respect to payments on the Preferred Securities to the extent of any
payments made by the Company or Golden Books Publishing to such holder in any
Direct Action. The holders of Preferred Securities are not able to exercise
directly any other remedy available to the holders of the Convertible
Debentures.
The Holders of not less than a majority in principal amount of the
outstanding Convertible Debentures may on behalf of the holders of all the
Convertible Debentures waive any past defaults except (i) a default in payment
of the principal of (or premium, if any) or interest, if any, on any
Convertible Debentures and (ii) a default in respect of a covenant or
provision of the Indenture which cannot be amended or modified without the
consent of the holder of each Convertible Debenture; provided, however, that
if the Convertible Debentures are held by the Trust or a trustee of such
Trust, such waiver or modification to such waiver shall not be effective until
the holders of a majority in liquidation amount of Trust Securities shall have
consented to such waiver or modification to such waiver; provided, further,
that if the consent of the holder of each outstanding Convertible Debenture is
required, such waiver shall not be effective until each holder of the Trust
Securities shall have consented to such waiver.
A default under any other indebtedness of the Company or Golden Books
Publishing would not constitute an Event of Default under the Convertible
Debentures.
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee in case an Event of Default shall occur and be continuing,
the Indenture Trustee will be under no
57
<PAGE>
obligation to exercise any of its rights or powers under the Indenture at the
request or direction of any holders of Convertible Debentures, unless such
holders shall have offered to the Indenture Trustee reasonable indemnity.
Subject to such provisions for the indemnification of the Indenture Trustee,
the holders of a majority in aggregate principal amount of the Convertible
Debentures then outstanding will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Indenture
Trustee, or exercising any trust or power conferred on the Indenture Trustee.
No holder of any Convertible Debenture has any right to institute any
proceeding with respect to the Indenture or for any remedy thereunder, unless
(i) such holder shall have previously given to the Indenture Trustee written
notice of a continuing Event of Default, (ii) if the Trust is not the sole
holder of Convertible Debentures, the holders of at least 25% in aggregate
principal amount of the Convertible Debentures then outstanding shall also
have made written request, (iii) such holder has offered reasonable indemnity
to the Indenture Trustee to institute such proceeding as Indenture Trustee,
(iv) the Indenture Trustee shall have failed to institute such proceeding
within 60 days of such notice and (v) the Indenture Trustee shall not have
received from the holders of a majority in aggregate principal amount of the
outstanding Convertible Debentures a direction inconsistent with such request.
However, such limitations do not apply to a suit instituted by a holder of a
Convertible Debenture for enforcement of payment of the principal of or
interest on such Convertible Debenture on or after the respective due dates
expressed in such Convertible Debenture.
The Company is required to file annually with the Indenture Trustee and
the Property Trustee a certificate as to whether or not the Company is in
compliance with all the conditions and covenants under the Indenture.
MODIFICATIONS AND AMENDMENTS OF THE INDENTURE
The Indenture contains provisions permitting the Company, Golden Books
Publishing and the Indenture Trustee, with the consent of the holders of not
less than a majority in aggregate principal amount of the outstanding
Convertible Debentures, to modify the Indenture or the rights of the holders
of Convertible Debentures; provided, however, that no such modification may,
without the consent of the holder of each outstanding Convertible Debenture
affected thereby, (i) extend the stated maturity of the Convertible Debentures
or reduce the principal amount thereof, or reduce the rate or extend the time
of payment of interest thereon, or reduce any premium payable upon the
redemption thereof, or adversely affect the right to convert Convertible
Debentures or (ii) reduce the percentage in aggregate principal amount of
outstanding Convertible Debentures, the holders of which are required to
consent to any such supplemental indenture.
In addition, the Company, Golden Books Publishing and the Indenture
Trustee may execute, without the consent of any holder of Convertible
Debentures, any supplemental indenture to cure any ambiguities, comply with
the Trust Indenture Act and for certain other customary purposes.
58
<PAGE>
GOVERNING LAW
The Indenture and the Convertible Debentures are governed by, and
construed in accordance with, the laws of the State of New York.
INFORMATION CONCERNING THE INDENTURE TRUSTEE
The Indenture Trustee, prior to default, undertakes to perform only such
duties as are specifically set forth in the Indenture and, after default,
shall exercise the same degree of care as a prudent individual would exercise
in the conduct of his or her own affairs. Subject to such provision, the
Indenture Trustee is under no obligation to exercise any of the powers vested
in it by the Indenture at the request of any holder of Convertible Debentures,
unless offered reasonable indemnity by such holder against the costs, expenses
and liabilities which might be incurred thereby. The Indenture Trustee is not
required to expend or risk its own funds or otherwise incur personal financial
liability in the performance of its duties if the Indenture Trustee reasonably
believes that repayment or adequate indemnity is not reasonably assured to it.
EFFECT OF OBLIGATIONS UNDER THE CONVERTIBLE
DEBENTURES AND THE GUARANTEE
As set forth in the Declaration, the sole purpose of the Trust is to
issue the Trust Securities evidencing undivided beneficial interests in the
assets of the Trust, and to invest the proceeds from such issuance and sale in
the Convertible Debentures.
As long as payments of interest and other payments are made when due on
the Convertible Debentures, such payments will be sufficient to cover
distributions and payments due on the Trust Securities because of the
following factors: (i) the aggregate principal amount of Convertible
Debentures is equal to the sum of the aggregate stated liquidation amount of
the Trust Securities; (ii) the interest rate and the interest and other
payment dates on the Convertible Debentures match the distribution rate and
distribution and other payment dates for the Preferred Securities; (iii)
pursuant to the Indenture, the Company and Golden Books Publishing shall pay
all, and the Trust shall not be obligated to pay, directly or indirectly, all
costs, expenses, debt and obligations of the Trust other than with respect to
the Trust Securities; and (iv) the Declaration further provides that the
Issuer Trustees will not cause or permit the Trust to, among other things,
engage in any activity that is not consistent with the purposes of the Trust.
Payments of distributions (to the extent funds therefor are available)
and other payments due on the Preferred Securities (to the extent funds
therefor are available) are guaranteed by the Company as and to the extent set
forth under "Description of the Guarantee." If the Company or Golden Books
Publishing does not make interest payments on the Convertible Debentures
purchased by the Trust, the Trust will not have sufficient funds to pay
distributions on the Preferred Securities. The Guarantee is a guarantee with
respect to the Preferred Securities from the time of its issuance but does not
apply to any payment of distributions unless and until the Trust has
sufficient funds for the payment of such distributions.
59
<PAGE>
The Guarantee covers the payment of distributions and other payments on
the Preferred Securities only if and to the extent that the Company or Golden
Books Publishing has made a payment of interest or principal on the
Convertible Debentures held by the Trust as its sole asset. The Guarantee,
when taken together with the Company's obligations under the Convertible
Debentures and the Indenture and its obligations under the Declaration,
including its obligations to pay costs, expenses, debts and liabilities of the
Trust (other than with respect to the Trust Securities), provides a full and
unconditional guarantee of amounts due on the Preferred Securities.
If the Company or Golden Books Publishing fails to make interest or other
payments on the Convertible Debentures when due (taking account of any
Extension Period), the Declaration provides a mechanism whereby the holders of
the Preferred Securities, using the procedures described in "Description of
the Preferred Securities--Book-Entry Only Issuance--The Depository Trust
Company" and "Description of the Preferred Securities--Voting Rights," may
direct the Property Trustee to enforce its rights under the Convertible
Debentures. If the Property Trustee fails to enforce its rights under the
Convertible Debentures, any holder of Preferred Securities may directly
institute a legal proceeding against the Company and Golden Books Publishing
to enforce the Property Trustee's rights under the Convertible Debentures
without first instituting any legal proceeding against the Property Trustee or
any other person or entity. Notwithstanding the foregoing, if a Declaration
Event of Default has occurred and is continuing and such event is attributable
to the failure of the Company and Golden Books Publishing to pay interest or
principal on the Convertible Debentures on the date such interest or principal
is otherwise available (or in the case of redemption, on the redemption date),
then a holder of Preferred Securities may institute a Direct Action for
payment on or after the respective due date specified in the Convertible
Debentures. In connection with such Direct Action, the Company and Golden
Books Publishing will be subrogated to the rights of such holder of Preferred
Securities under the Declaration to the extent of any payment made by the
Company or Golden Books Publishing to such holder of Preferred Securities in
such Direct Action. The Company, under the Guarantee, acknowledges that the
Guarantee Trustee shall enforce the Guarantee on behalf of the holders of the
Preferred Securities. If the Company fails to make payments under the
Guarantee, the Guarantee provides a mechanism whereby the holders of the
Preferred Securities may direct the Guarantee Trustee to enforce its rights
thereunder. If the Guarantee Trustee fails to enforce the Guarantee, any
holder of Preferred Securities may directly institute a legal proceeding
against the Company to enforce the Guarantee Trustee's rights under the
Guarantee without first instituting a legal proceeding against the Trust, the
Guarantee Trustee or any other person or entity.
60
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 60,000,000 shares of
Common Stock and 100,000 shares of preferred stock, without par value.
COMMON STOCK
Holders of the Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders generally, including the election
of directors. Subject to the rights of holders of preferred stock, the holders
of the Common Stock are entitled to receive such dividends as may be declared
from time to time by the Board of Directors out of funds legally available
therefor. In the event of the liquidation, dissolution or winding up of the
Company, holders of the Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities of the Company, subject to the
rights of holders of preferred stock. The holders of the Common Stock have no
preemptive or conversion rights and are not subject to further calls or
assessments by the Company.
PREFERRED STOCK
The Company's Certificate of Incorporation, as amended, authorizes the
Board of Directors of the Company (without stockholder approval) to, among
other things, issue shares of preferred stock from time to time in one or more
series, each series to have 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 of Directors may fix by resolution.
SERIES B PREFERRED STOCK
The Board of Directors of the Company has authorized and issued 13,000
preferred shares of the Company, designated as Series B Preferred Stock. The
preferences and rights of the Series B Preferred Stock are set forth in a
Certificate of Designations, Number, Voting Powers, Preferences and Rights of
Series B Preferred Stock which was filed with the Secretary of State of
Delaware on May 8, 1996 (the "Certificate of Designations").
Voting and Other Rights. In addition to any voting rights granted under
the Delaware General Corporations Law, each share of Series B Preferred Stock
shall be entitled to vote, on an as-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 (as hereinafter defined)). Consequently, subject to
adjustment as provided in the Certificate of Designations, each share of
Series B 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 the Series B Preferred Stock, amend, alter or
repeal the preferences, special rights or other powers of the Series B
Preferred Stock so as to adversely affect the rights of the holders of Series
B 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 Preferred Stock either as to dividends or on liquidation.
61
<PAGE>
Subject to the limitations described below, the holders of the Series B
Preferred Stock will have the right to elect, as a class, one-third of the
members of the Board of Directors (the "Series B Directors"); provided,
however, that upon such time as less than (i) 40% of the shares of Series B
Preferred Stock issued on the date of the initial issuance thereof (the
"Initial Issuance Date") are owned by GPH and certain of its affiliates, the
holders of Series B Preferred Stock will have the right to elect, as a class,
two Series B Directors, (ii) 30% of the shares of Series B Preferred Stock
issued on the Initial Issuance Date are owned by GPH and certain of its
affiliates, the holders of Series B Preferred Stock will have the right to
elect, as a class, one Series B Director and (iii) 20% of the shares of Series
B Preferred Stock issued on the Initial Issuance Date are owned by GPH and
certain of its affiliates, the holders of Series B 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
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 Preferred Stock, voting as a separate
class, from engaging in the following transactions or taking the following
actions:
(i) amend or repeal any provision of the Company's Certificate of
Incorporation or 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 Preferred Stock, and other than pursuant to that
certain Credit Agreement, dated September 29, 1995, between Golden
Books 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
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 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;
62
<PAGE>
(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.
Notwithstanding the foregoing, in the event that the shares of Series B
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.
As a result of the appointment of additional members of the Board of
Directors of the Company in connection with the Acquisition, GPH has the right
to designate two additional directors; however, GPH has advised the Company
that it does not presently intend to exercise such right, although it reserves
the right to do so in the future. See "Risk Factors--Control of the Company."
Dividends. Pursuant to the Certificate of Designations, the Series B
Preferred Stock is entitled to receive a 12% annual dividend payable (i)
during each of the first four years following 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, 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 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 Preferred Stock shall receive
on the applicable dividend payment date, out of legally available funds of the
Company, 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) 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 on the Series B Preferred Stock are
payable quarterly before any dividends are paid on the Common Stock.
Liquidation. The holders of the Series B Preferred Stock 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
63
<PAGE>
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 Preferred Stock is 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 May
8, 2000. The Company is not required to mandatorily redeem the Series B
Preferred Stock and the Series B Preferred Stock is not the subject of any
sinking fund requirement.
Conversion. The Series B Preferred Stock is convertible, at the option of
the holders of the Series B Preferred Stock, into shares of Common Stock, at
the exchange rate of 500 shares of Common Stock for each share of Series B
Preferred Stock, representing a conversion price of $10.00 per share of Series
B Preferred Stock. The number of shares of Common Stock for which the Series B
Preferred Stock may be converted is subject to antidilution adjustments
pursuant to the Certificate of Designations to prevent dilution on the
occurrence of certain events as described in the Certificate of Designations.
LIMITATION ON DIRECTORS' LIABILITY
The Company's Certificate of Incorporation provides that no director of
the Company shall be personally liable to the Company or its stockholders for
monetary damages for the breach of any fiduciary duty as a director, except
(i) for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the Delaware General Corporation Law, as amended from time to time, or (iv)
for any transaction from which the director derived an improper personal
benefit. The effect of these provisions will be to eliminate the rights of the
Company and its stockholders (through stockholders' derivative suits on behalf
of the Company) to recover monetary damages against a director for breach of
fiduciary duty as a director (including breaches resulting from grossly
negligent behavior), except in the situations described above. These
provisions will not limit the liability of directors under the federal
securities laws.
64
<PAGE>
TAXATION
GENERAL
In the opinion of Skadden, Arps, Slate, Meagher & Flom, special United
States tax counsel to the Company, Golden Books Publishing and the Trust, the
following is a summary of certain of the material United States Federal income
tax consequences of the purchase, ownership, disposition and conversion of
Preferred Securities. Unless otherwise stated, this summary deals only with
Preferred Securities held as capital assets. This summary addresses the United
States Federal income tax considerations to holders of Preferred Securities
who are citizens or residents of the United States or any political
subdivision thereof or therein, or estates or trusts the income of which is
subject to United States Federal income taxation regardless of its source or
other holders who are otherwise subject to United States federal income
taxation on a net income basis with respect to Preferred Securities ("U.S.
Holders") and does not address the tax consequences to holders of Preferred
Securities who are not U.S. Holders. This summary does not deal with special
classes of holders such as banks, thrifts, real estate investment trusts,
regulated investment companies, insurance companies, dealers in securities or
currencies, tax-exempt investors, or persons that will hold the Preferred
Securities as other than a capital asset. This summary also does not address
the tax consequences to persons that have a functional currency other than the
U.S. Dollar or the tax consequences to shareholders, partners or beneficiaries
of a holder of Preferred Securities. Further, it does not include any
description of any alternative minimum tax consequences or the tax laws of any
state or local government or of any foreign government that may be applicable
to the Preferred Securities. This summary is based on the Internal Revenue
Code of 1986, as amended (the "Code"), Treasury regulations thereunder and
administrative and judicial interpretations thereof, as of the date hereof,
all of which are subject to change, possibly on a retroactive basis.
CLASSIFICATION OF THE CONVERTIBLE DEBENTURES
The Company and Golden Books Publishing have taken the position that the
Convertible Debentures are classified for United States Federal income tax
purposes as indebtedness of the Company or Golden Books Publishing under
current law and, by acceptance of a Preferred Security, each holder covenants
to treat the Convertible Debentures as indebtedness and the Preferred
Securities as evidence of an indirect beneficial ownership interest in the
Convertible Debentures. No assurance can be given, however, that such position
of the Company and Golden Books Publishing will not be challenged by the
Internal Revenue Service or, if challenged, that such a challenge will not be
successful. The remainder of this discussion assumes that the Convertible
Debentures are classified as indebtedness of the Company or Golden Books
Publishing for United States Federal income tax purposes.
CLASSIFICATION OF THE TRUST
In connection with the issuance of the Preferred Securities, Skadden,
Arps, Slate, Meagher & Flom, special United States tax counsel to the Company,
Golden Books Publishing and the Trust, rendered its opinion generally to the
effect that, under then current law and assuming full compliance with the
terms of the Declaration and the Indenture (and certain other
65
<PAGE>
documents), and based on certain facts and assumptions contained in such
opinion, the Trust is classified for United Stated Federal income tax purposes
as a grantor trust and not as an association taxable as a corporation.
Accordingly, for United States Federal income tax purposes, each holder of
Preferred Securities generally is considered the owner of an undivided
interest in the Convertible Debentures, and each holder is required to include
in its gross income any original issue discount accrued with respect to its
allocable share of those Convertible Debentures.
POTENTIAL EXTENSION OF INTEREST PAYMENT PERIOD AND ORIGINAL ISSUE DISCOUNT
Because the Company and Golden Books Publishing have the option, under
the terms of the Convertible Debentures, to defer payments of interest by
extending interest payment periods for up to 20 quarters, all of the stated
interest payments on the Convertible Debentures are treated as "original issue
discount." Holders of debt instruments issued with OID must include that
discount in income on an economic accrual basis before the receipt of cash
attributable to the interest, regardless of their method of tax accounting.
Generally, all of a holder's taxable interest income with respect to the
Convertible Debentures will be accounted for as OID. Actual payments and
distributions of stated interest (including payments of accrued interest upon
conversion of the Convertible Debentures) are, however, separately reported as
taxable income. The amount of OID that accrues in any quarter will
approximately equal the amount of the interest that accrues on the Convertible
Debentures in that quarter at the stated interest rate. In the event that the
interest payment period is extended, holders will continue to accrue OID
approximately equal to the amount of the interest payment due at the end of
the extended interest payment period on an economic accrual basis over the
length of the extended interest payment period.
Corporate holders of Preferred Securities are not entitled to a
dividends-received deduction with respect to any income recognized with
respect to the Preferred Securities.
MARKET DISCOUNT AND BOND PREMIUM
To the extent a holder acquires its Preferred Securities at a price that
is greater or less than their adjusted issue price (which generally should
approximate their original issue price plus accrued but unpaid interest of
such holder's share of the Convertible Debentures), the holder may be deemed
to have acquired its undivided interest in the Convertible Debentures with
bond premium (or acquisition premium) or with market discount, as the case may
be. A holder who purchases Preferred Securities at a premium will be permitted
to reduce the amount of OID required to be included in income to reflect the
acquisition premium. A holder who purchases Preferred Securities at a market
discount will also include the amount of such discount in income in accordance
with the market discount rules described below.
A holder that acquires its undivided beneficial interest in the
Convertible Debentures at a market discount generally will be required to
recognize ordinary income to the extent of accrued market discount on the
Preferred Securities upon the retirement of the underlying Convertible
Debentures or, to the extent of any gain, upon the disposition of the
Preferred Securities. Such
66
<PAGE>
market discount would accrue ratably, or, at the election of the holder, under
a constant yield method over the remaining term of the Convertible Debentures.
A holder will also be required to defer the deduction of a portion of the
interest paid or accrued on indebtedness incurred to purchase or carry
Preferred Securities that represent Convertible Debentures acquired with
market discount. In lieu of the foregoing, a holder may elect to include
market discount in income currently as it accrues on all market discount
instruments acquired by such holder in the taxable year of the election or
thereafter, in which case the interest deferral rule will not apply.
A holder may elect, in lieu of applying the market discount or premium
rules described above, to account for all income accrued with respect to the
Convertible Debentures as if it were OID. A holder that makes this election
and that is considered to have acquired its undivided beneficial interest in
the Convertible Debentures with market discount will be considered to have
made the election described in the immediately preceding paragraph. Such an
election would constitute an election to apply the market discount rules or
bond premium rules with respect to all other debt instruments with market
discount or amortizable bond premium, as the case may be, of such holder.
RECEIPT OF CONVERTIBLE DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
Under certain circumstances, as described under the caption "Description
of the Preferred Securities--Special Event Redemption or Distribution,"
Convertible Debentures may be distributed to holders in exchange for the
Preferred Securities and in liquidation of the Trust. Under current law, such
a distribution to holders, for United States Federal income tax purposes,
would be treated as a nontaxable event to each holder, and each holder would
receive an aggregate tax basis in the Convertible Debentures equal to such
holder's aggregate tax basis in its Preferred Securities. A holder's holding
period in the Convertible Debentures so received in liquidation of the Trust
would include the period during which the Preferred Securities were held by
such holder. If, however, the related Special Event is a Tax Event which
results in the Trust being treated as an association taxable as a corporation,
the distribution would likely constitute a taxable event to holders of the
Preferred Securities, in which event the Company or Golden Books Publishing,
if either elected to eliminate the Trust, would generally be required to cause
the redemption of the Convertible Debentures for cash and distribute the
redemption proceeds to the holders in liquidation of the Trust.
Under certain circumstances described herein (see "Description of the
Preferred Securities"), the Convertible Debentures may be redeemed for cash
and the proceeds of such redemption distributed to holders in redemption of
their Preferred Securities. Under current law, such a redemption would, for
United States Federal income tax purposes, constitute a taxable disposition of
the redeemed Preferred Securities, and a holder would recognize gain or loss
as if it sold such redeemed Preferred Securities for cash. See "--Sales of
Preferred Securities."
67
<PAGE>
SALES OF PREFERRED SECURITIES
A holder that sells Preferred Securities will recognize gain or loss
equal to the difference between the amount realized on the sale of the
Preferred Securities and the holder's adjusted tax basis in such Preferred
Securities. A holder's adjusted tax basis in the Preferred Securities
generally will be its initial purchase price increased by OID previously
includible in such holder's gross income to the date of disposition (and the
accrual of market discount, if any, if an election to accrue market discount
income is currently made) and decreased by payments received on the Preferred
Securities to the date of disposition. Subject to the market discount rules
described above, such gain or loss will be a capital gain or loss and will be a
long-term capital gain or loss if the Preferred Securities have been held for
more than one year at the time of sale.
The Preferred Securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest with respect to the
underlying Convertible Debentures. A holder who disposes of or converts his
Preferred Securities between record dates for payments of distributions
thereon will be required to include accrued but unpaid interest on the
Convertible Debentures through the date of disposition or conversion in income
as ordinary income, and to add such amount to his adjusted tax basis in his
pro rata share of the underlying Convertible Debentures deemed disposed of or
converted. To the extent the selling price is less than the holder's adjusted
tax basis (which basis will include, in the form of OID, all accrued but
unpaid interest), a holder will recognize a capital loss. Subject to certain
limited exceptions, capital losses cannot be applied to offset ordinary income
for United States Federal income tax purposes.
PROPOSED TAX LEGISLATION
On March 19, 1996, as part of President Clinton's fiscal 1997 Budget
Proposal, the Treasury Department proposed the Proposed Legislation that,
among other things, would treat as equity for United States Federal income tax
purposes instruments with a maximum term of more than 20 years that are not
shown as indebtedness on the consolidated balance sheet of the issuer. On
March 29, 1996, Senate Finance Committee Chairman William V. Roth, Jr. and
House Ways and Means Committee Chairman Bill Archer issued the Joint Statement
indicating their intent that certain legislative proposals initiated by the
Clinton administration, including the Proposed Legislation, that may be
adopted by either of the tax-writing committees of Congress, would have an
effective date that is no earlier than the date of "appropriate Congressional
action." Based on the Joint Statement, it is expected that if the Proposed
Legislation were enacted, such legislation would not apply to the Convertible
Debentures since they were issued prior to the date of any "appropriate
Congressional action." Furthermore, even if the Proposed Legislation were
enacted in its current form with effective date provisions making it
applicable to the Convertible Debentures, it would not cause the Convertible
Debentures to be treated as equity for United States Federal income tax
purposes since the maximum term of the Convertible Debentures will not exceed
20 years. There can be no assurances, however, that any proposed legislation
enacted after the date hereof will not otherwise adversely affect the tax
treatment of the Convertible Debentures. If legislation is enacted that
adversely affects the tax treatment of the Convertible Debentures, such
legislation could result in the distribution of the Convertible Debentures to
68
<PAGE>
holders of the Preferred Securities or, in certain limited circumstances, the
redemption of such securities by the Company or Golden Books Publishing and
the distribution of the resulting cash in redemption of the Preferred
Securities. See "Description of the Preferred Securities--Special Event
Redemption or Distribution."
CONVERSION OF PREFERRED SECURITIES INTO COMMON STOCK
A holder will not recognize income, gain or loss upon the conversion,
through the Conversion Agent, of Preferred Securities into Common Stock. A
holder will, however, recognize gain upon the receipt of cash in lieu of a
fractional share of Common Stock equal to the amount of cash received less the
holder's tax basis in such fractional share. A holder's tax basis in the
Common Stock received upon conversion should generally be equal to the
holder's tax basis in the Preferred Securities delivered to the Conversion
Agent for conversion less the basis allocated to any fractional share for
which cash is received and less the amount of cash a holder receives in
payment of accrued interest on the Convertible Debentures. A holder's holding
period in the Common Stock received upon conversion of its Preferred
Securities should generally begin on the date the holder acquired the
Preferred Securities delivered to the Conversion Agent for conversion.
ADJUSTMENT OF CONVERSION PRICE
Treasury Regulations promulgated under Section 305 of the Code would
treat holders of Preferred Securities as having received a constructive
distribution from the Company in the event the conversion ratio of the
Convertible Debentures were adjusted if (i) as a result of such adjustment,
the proportionate interest (measured by the quantum of Common Stock into or
for which the Convertible Debentures are convertible) of the holders of the
Preferred Securities in the assets or earnings and profits of the Company were
increased, and (ii) the adjustment was not made pursuant to a bona fide,
reasonable antidilution formula. An adjustment in the conversion ratio would
not be considered made pursuant to such a formula if the adjustment was made
to compensate for certain taxable distributions with respect to the Common
Stock. Thus, under certain circumstances, a reduction in the conversion price
for the holders may result in deemed dividend income to holders to the extent
of the current or accumulated earnings and profits of the Company. Holders of
the Preferred Securities would be required to include their allocable share of
such deemed dividend income in gross income but would not receive any cash
related thereto.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Generally, income on the Preferred Securities will be reported to holders
on Forms 1099, which forms should be mailed to holders of Preferred Securities
by January 31 following each calendar year.
Payments made on, and proceeds from the sale of, the Preferred Securities
may be subject to a "backup" withholding tax of 31% unless the holder complies
with certain identification requirements. Any withheld amounts will be allowed
as a credit against the holder's United States Federal income tax, provided
the required information is provided to the Internal Revenue Service.
69
<PAGE>
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS
INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON
A HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS
WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES
IN UNITED STATES FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
Generally, employee benefit plans that are subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975
of the Code ("Plans"), may purchase Preferred Securities, subject to the
investing fiduciary's determination that the investment in Preferred
Securities satisfies ERISA's fiduciary standards and other requirements
applicable to investments by the Plan.
The Department of Labor ("DOL") has issued a regulation (29 C.F.R.
Section 2510.3-101) (the "DOL Regulation") concerning the definition of what
constitutes the assets of a Plan. The DOL Regulation provides that, as a
general rule, the underlying assets and properties of corporations,
partnerships, trusts and certain other entities in which a Plan makes an
"equity" investment will be deemed for purposes of ERISA to be assets of the
investing plan unless certain exceptions apply.
There can be no assurance that any of the exceptions set forth in the DOL
Regulation will apply to the purchase of Preferred Securities offered hereby
and, as a result, an investing Plan's assets could be considered to include an
undivided interest in the Convertible Debentures and any other assets held in
the Trust. In the event that assets of the Trust are considered assets of an
investing Plan, the Company, the Issuer Trustees and other persons, in
providing services with respect to the Convertible Debentures, may be
considered fiduciaries to such Plan and subject to the fiduciary
responsibility provisions of Title I of ERISA and the prohibited transaction
provisions of Section 4975 of the Code with respect to transactions involving
such assets unless a statutory or administrative exemption applies.
The Company and/or any of its affiliates may be considered a "party in
interest" (within the meaning of ERISA) or a "disqualified person" (within the
meaning of Section 4975 of the Code) with respect to certain Plans. The
acquisition and ownership of Preferred Securities by a Plan (or by an
individual retirement arrangement or other plan described in Section
4975(e)(1) of the Code) with respect to which the Company or any of its
affiliates is considered a party in interest or a disqualified person may
constitute or result in a prohibited transaction under ERISA or Section 4975
of the Code, unless such Preferred Securities are acquired pursuant to and in
accordance with an applicable exemption.
70
<PAGE>
As a result, Plans with respect to which the Company or any of its affiliates
is a party in interest or a disqualified person should not acquire Preferred
Securities unless such Preferred Securities are acquired pursuant to and in
accordance with an applicable prohibited transaction exemption. Any Plans or
other entities whose assets include Plan assets subject to ERISA or Section
4975 of the Code proposing to acquire Preferred Securities should consult with
their own counsel.
SELLING HOLDERS
The Preferred Securities were originally issued by the Trust and sold by
Merrill Lynch, Pierce, Fenner & Smith, Incorporated, Donaldson, Lufkin &
Jenrette Securities Corporation and SBC Warburg Inc., a subsidiary of Swiss
Bank Corporation (the "Initial Purchasers"), in a transaction exempt from the
registration requirements of the Securities Act, to persons reasonably
believed by such Initial Purchasers to be "qualified institutional buyers" (as
defined in Rule 144A under the Securities Act) and institutional "accredited
investors" (as defined in Rule 501(a) (1), (2), (3) or (7) under the
Securities Act). The Selling Holders may from time to time offer and sell
pursuant to this Prospectus any or all of the Offered Securities. The term
Selling Holder includes the holders listed below and the beneficial owners of
the Preferred Securities and their transferees, pledgees, donees or other
successors.
The following table sets forth information with respect to the Selling
Holders of the Preferred Securities and the respective number of Preferred
Securities beneficially owned by each Selling Holder that may be offered
pursuant to this Prospectus.
SELLING HOLDERS NUMBER OF PREFERRED SHARES
--------------- --------------------------
AIM Capital Management Inc. 20,000
American Capital Management, Inc. 35,000
Aon Corporation 10,000
Bank of Tokyo Trust Co. 10,000
Bankers Trust Co. 5,000
Baupost Group Inc. 55,000
Blackheath Capital Ltd. 9,000
BNP 20,000
Calamos Asset Management, Inc. 30,000
Camden Asset Management 20,000
Capital International Inc. 100,000
Carlson Capital Management 5,000
CBI/UBP 17,000
Cincinnati Financial 50,000
Cooper Neff Advisors 35,000
71
<PAGE>
Credit Suisse Geneva 4,000
Dean Witter Reynolds Inc. 40,000
Delaware Investment Advisers 5,000
Deprince Race & Zollo 5,000
Desai Capital Management Inc. 35,000
Eagle Asset Management 5,000
Eagle Capital Management 1,000
EBF Associates L.P. 5,000
Fiduciary Management Associate 20,000
Florida (State of) Board of Admin. 20,000
Gabelli & Company 30,000
GEM Capital Management Inc. 30,000
General Motors Investment Management 70,000
Hansa Ag 16,000
Harvard University 20,000
Highbridge 50,000
Husic Capital Management 15,000
IDS Advisory Group Inc. 100,000
Janus Capital Corporation 40,000
John A. Levin & Co. 40,000
John Glaser 5,000
Lazard Freres & Cie 6,000
Liberty Investment Management 100,000
Lipco Partners L.P. 10,000
Loews Corp. 20,000
MacKay-Shields Financial Corporation 50,000
Massachusetts Financial Services Inc. 25,000
McVeigh 45,000
Moore Capital Management 10,000
New York Life Insurance Co. 50,000
Nicholas-Applegate Capital Mgmt. 30,000
Northwestern Mutual Life Insurance Co. 90,000
Oaktree 36,200
Oaktree Capital Management 53,800
Offshore 2,000
Pacific Mutual Life Insurance Co. 40,000
Palisade 35,000
Palladin Group, L.P. 20,000
Paloma Partners Management Co. 10,000
Pecks Management 90,000
Pell Rudman & Co. 5,000
Prudential Insurance 60,000
Q Investments L.P. 20,000
Royal Plaza 1,000
Sandler Capital Management 50,000
72
<PAGE>
Saville Inn 4,000
Scudder Stevens & Clark Inc. 40,000
South Cape Ltd. 18,000
SSI 5,000
Starke 50,000
Strong Capital Management Inc. 20,000
Sun Bank Florida 25,000
T. Rowe Price Assoc. Inc. 100,000
Taft Securities 25,000
TCW Group Inc. 125,000
Templeton 5,000
Travelers Investment Management 30,000
Vereins und Westbank Ag Hamburg 2,000
Zazove 15,000
None of the Selling Holders has, or within the past three years has had,
any position, office or other material relationship with the Trust or the
Company or any of their predecessors or affiliates. Because the Selling
Holders may, pursuant to this Prospectus, offer all or some portion of the
Preferred Securities, the Convertible Debentures or the Common Stock issuable
upon conversion of the Preferred Securities, no estimate can be given as to
the amount of the Preferred Securities, the Convertible Debentures or the
Common Stock issuable upon conversion of the Preferred Securities that will be
held by the Selling Holders upon termination of any such sales. In addition,
the Selling Holders identified above may have sold, transferred or otherwise
disposed of all or a portion of their Preferred Securities since the date on
which they provided the information regarding their Preferred Securities
included herein in transactions exempt from the registration requirements of
the Securities Act.
PLAN OF DISTRIBUTION
The Offered Securities may be sold from time to time to purchasers
directly by the Selling Holders. Alternatively, the Selling Holders may from
time to time offer the Offered Securities to or through underwriters,
broker/dealers or agents, who may receive compensation in the form of
underwriting discounts, concessions or commissions from the Selling Holders or
the purchasers of such securities for whom they may act as agents. The Selling
Holders and any underwriters, broker/dealers or agents that participate in the
distribution of Offered Securities may be deemed to be "underwriters" within
the meaning of the Securities Act and any profit on the sale of such
securities and any discounts, commissions, concessions or other compensation
received by any such underwriter, broker/dealer or agent may be deemed to be
underwriting discounts and commissions under the Securities Act.
The Offered Securities may be sold from time to time in one or more
transactions at fixed prices, at prevailing market prices at the time of sale,
at varying prices determined at the time of sale or at negotiated prices. The
sale of the Offered Securities may be effected in transactions
73
<PAGE>
(which may involve crosses or block transactions) (i) on any national
securities exchange or quotation service on which the Offered Securities may
be listed or quoted at the time of sale, (ii) in the over-the-counter market,
(iii) in transactions otherwise than on such exchanges or in the
over-the-counter market or (iv) through the writing of options. At the time a
particular offering of the Offered Securities is made, a Prospectus
Supplement, if required, will be distributed which will set forth the
aggregate amount and type of Offered Securities being offered and the terms of
the offering, including the name or names of any underwriters, broker/dealers
or agents, any discounts, commissions and other terms constituting
compensation from the Selling Holders and any discounts, commissions or
concessions allowed or reallowed or paid to broker/dealers.
To comply with the securities laws of certain jurisdictions, if
applicable, the Offered Securities will be offered or sold in such
jurisdictions only through registered or licensed brokers or dealers. In
addition, in certain jurisdictions the Offered Securities may not be offered
or sold unless they have been registered or qualified for sale in such
jurisdictions or any exemption from registration or qualification is available
and is complied with.
The Selling Holders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of purchases and sales of any of the Offered Securities by
the Selling Holders. The foregoing may affect the marketability of such
securities.
Pursuant to the Registration Rights Agreement, all expenses of the
registration of the Offered Securities will be paid by the Company, including,
without limitation, Commission filing fees and expenses of compliance with
state securities or "blue sky" laws; provided, however, that the Selling
Holders will pay all underwriting discounts and selling commissions, if any.
The Selling Holders will be indemnified by the Company and the Trust, jointly
and severally against certain civil liabilities, including certain liabilities
under the Securities Act, or will be entitled to contribution in connection
therewith. The Company and the Trust will be indemnified by the Selling
Holders severally against certain civil liabilities, including certain
liabilities under the Securities Act, or will be entitled to contribution in
connection therewith.
LEGAL MATTERS
The validity of the Preferred Securities, the Convertible Debentures and
the Guarantee and certain United States Federal income taxation matters will
be passed upon for the Company, Golden Books Publishing and the Trust by
Skadden, Arps, Slate, Meagher & Flom, special Delaware counsel and special
United States tax counsel to the Company, Golden Books Publishing and the
Trust. The validity of the Common Stock issuable upon conversion of the
Convertible Debentures will be passed upon for the Company by Schulte Roth &
Zabel LLP, special counsel to the Company.
74
<PAGE>
EXPERTS
The financial statements and the related financial statement schedule
incorporated in this Prospectus by reference from the Company's Annual Report
on Form 10-K for the year ended February 3, 1996 have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their reports (which reports
express an unqualified opinion and include an explanatory paragraph concerning
the adoption of Statement of Financial Accounting Standards No. 106), which
are incorporated herein by reference, and have been so incorporated in
reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
With respect to the unaudited interim financial information for the
periods ended May 4, 1996 and April 29, 1995, 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 report included in the Company's Quarterly Report on Form 10-Q
for the quarter ended May 4, 1996 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 report on such
information should be restricted in light of the limited nature of the review
procedures applied. Deloitte & Touche LLP are not subject to the liability
provisions of Section 11 of the Securities Act for their report on the
unaudited interim financial information because that report is not a "report"
or a "part" of the Registration Statement prepared or certified by an
accountant within the meaning of Sections 7 and 11 of the Securities Act.
With respect to the unaudited condensed consolidated interim financial
information for the three-month period ended May 4, 1996, incorporated by
reference in this Prospectus, Ernst & Young LLP have reported that they have
applied limited procedures in accordance with professional standards for a
review of such information. However, their separate report, included in the
Company (formerly Western Publishing Group, Inc.) Quarterly Report on Form
10-Q for the quarter ended May 4, 1996, and incorporated herein by reference,
states that they did not audit and they do not express an opinion on that
interim financial information. Accordingly, the degree of reliance on their
report on such information should be restricted considering the limited nature
of the review procedures applied. Ernst & Young LLP are not subject to the
liability provisions of Section 11 of the Securities Act for their report on
the unaudited condensed consolidated interim financial information because
that report is not a "report" or a "part" of the Registration Statement
prepared or certified by the auditors within the meaning of Sections 7 and 11
of the Securities Act.
The consolidated financial statements of BVE, L.P. as of December 31,
1995 and 1994, and for the year ended December 31, 1995 and for the period
from inception (August 1, 1994) through December 31, 1994, and the financial
statements of Palladium Limited Partnership for the seven months in the period
ended July 31, 1994, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon and incorporated herein by
reference in the Registration Statement. Such financial statements are
incorporated herein by reference in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
75
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS
BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS. IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY 2,300,000 Preferred
GOLDEN BOOKS FINANCING TRUST, GOLDEN BOOKS Securities
FAMILY ENTERTAINMENT, INC., GOLDEN BOOKS
PUBLISHING COMPANY, INC. OR ANY OF THEIR AGENTS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO Golden Books
SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF Financing Trust
THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION
WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL 8-3/4% Convertible Trust
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE Originated Preferred
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE Securities SM ("Convertible TOPrS SM"),
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, guaranteed to the extent
CREATE AN IMPLICATION THAT THERE HAS NOT BEEN set forth herein,
ANY CHANGE IN THE FACTS SET FORTH IN THIS and convertible into
PROSPECTUS OR IN THE AFFAIRS OF GOLDEN BOOKS Common Stock of,
FINANCING TRUST, GOLDEN BOOKS FAMILY
ENTERTAINMENT, INC. OR GOLDEN BOOKS PUBLISHING
COMPANY, INC. SINCE THE DATE HEREOF.
GOLDEN BOOKS FAMILY
TABLE OF CONTENTS ENTERTAINMENT, INC.
-----------------
Available Information.................................... 5
Incorporation of Certain Documents by Reference.......... 6 PROSPECTUS
Special Note Regarding Forward-Looking Statements ....... 7
Risk Factors............................................. 8
The Compan............................................... 20
Golden Books Financing Trust............................. 21
Accounting Treatment..................................... 22
Use of Proceeds.......................................... 22
Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends.......................... 23
Description of the Preferred Securities.................. 24
Description of the Guarantee............................. 46
Description of the Convertible Debentures................ 49
Effect of Obligations Under the Convertible
Debentures and the Guarantee........................... 59
Description of Capital Stock............................. 61
Taxation................................................. 65
ERISA Considerations..................................... 70
Selling Holders.......................................... 71
Plan of Distribution..................................... 73
Legal Matters............................................ 74
Experts.................................................. 74
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the distribution of the
securities being registered hereunder, other than underwriting discounts and
commissions, are:
Securities and Exchange Commission
registration filing fee.............................. $ 39,730.00
Blue Sky qualification fees and
expenses, including legal fee........................
Printing and engraving expenses........................
Transfer agent and trustee fees and expenses...........
Accounting fees and expenses...........................
Legal fees and expenses................................
Miscellaneous .........................................
Total.................................................. $ 39,730.00
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS OF THE COMPANY.
The Company's Certificate of Incorporation and Bylaws provide that the
Company will indemnify and advance litigation expenses to the fullest extent
permitted by Section 145 of the General Corporation Law of Delaware, as
amended from time to time (the "GCL"), to each person who is or was an officer
or director of the Company and is or was a party or is threatened to be made a
party to any action, suit or proceeding by reason of the fact that such
officer or director is or was a director, officer, employee or agent of the
Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise. Section 145 of the GCL provides as follows:
"(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or
II-1
<PAGE>
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation,
and, with respect to any criminal action or proceeding, had reasonable cause
to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that he is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the corporation and except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to
the extent that the Court of Chancery or the court in which such action or
suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in subsections
(a) and (b). Such determination shall be made (1) by a majority vote of the
board of directors who are not parties to such action, suit or proceeding,
even though less than a quorum, or (2) if there are no such directors, or if
such directors so direct, by independent legal counsel in a written opinion,
or (3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative, or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount
if it shall ultimately be determined that he is not entitled to be indemnified
by the corporation as authorized in this section. Such expenses (including
attorneys' fees) incurred by other employees
II-2
<PAGE>
and agents may be so paid upon such terms and conditions, if any, as the board
of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the corporation would have the power to
indemnify him against such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power
and authority to indemnify its directors, officers, and employees or agents,
so that any person who is or was a director, officer, employee or agent of
such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall
stand in the same position under this section with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee,
or agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the corporation" as referred to
in this section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
II-3
<PAGE>
(k) The Court of Chancery is hereby vested with exclusive jurisdiction to
hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any bylaw, agreement, vote of stockholders
or disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees)."
The Company maintains directors' and officers' liability insurance.
Section 10.2 of the Amended and Restated Declaration of the Trust (the
"Declaration") provides as follows:
"(a) No Trustee, affiliate of any Trustee, or any officers, directors,
shareholders, members, partners, employees, representatives or agent of any
Trustee, or any employee or agent of the Trust or its affiliates (each an
"Indemnified Person") shall be liable, responsible or accountable in damages
or otherwise to the Trust or any officer, director, shareholder, partner,
member, representative, employee or agent of the Trust or its affiliates or
any holder of Preferred Securities for any loss, damage or claim incurred by
reason of any act or omission performed or omitted by such Indemnified Person
in good faith on behalf of the Trust and in a manner such Indemnified Person
reasonably believed to be within the scope of the authority conferred on such
Indemnified Person by the Declaration or by law, except that an Indemnified
Person shall be liable for any such loss, damage or claim incurred by reason
of such Indemnified Person's negligence (or, in the case of the Property
Trustee, negligence) or willful misconduct with respect to such acts or
omissions.
(b) An Indemnified Person shall be fully protected in relying in good
faith upon the records of the Trust upon such information, opinions, reports
or statements presented to the Trust by any Person as to matters the
Indemnified Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable
care by or on behalf of the Trust, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities, profits,
losses, or any other facts pertinent to the existence and amount of assets
from which Distributions to Holders of Securities might properly be paid."
Section 10.4 of the Declaration provides as follows:
"(a) (i) The Company and Golden Books Publishing shall indemnify, to the
full extent permitted by law, any Indemnified Person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Trust) by reason
of the fact that he is or was a Company Indemnified Person against expenses
(including attorney's fees), judgments, fines and amount paid in settlement
actually and reasonably incurred by him in connection with such action, suit
or proceeding if he acted in good faith and in a matter he reasonably believed
to be in or not opposed to the best interests of the Trust, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement,
II-4
<PAGE>
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the Company Indemnified Person did not act
in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Trust, and, with respect to any criminal
action or proceeding, had reasonable cause to believe that his conduct was
unlawful.
(ii) The Debenture Issuers shall indemnify, to the full extent
permitted by law, any Company Indemnified Person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Trust to procure a judgment in
its favor by reason of the fact that he is or was a Company Indemnified
Person against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement
of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Trust and except that no such indemnification shall be made in respect of
any claim, issue or matter as to which such Company Indemnified Person
shall have been adjudged to be liable to the Trust unless and only to the
extent that the Court of Chancery of Delaware or the court in which such
action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses which such Court of Chancery or such other court shall deem
proper.
(iii) To the extent that a Company Indemnified Person shall be
successful on the merits or otherwise (including dismissal of an action
without prejudice or the settlement of an action without admission of
liability) in defense of any action, suit or proceeding referred to in
paragraphs (i) and (ii) of this Section 10.4(a), or in defense of any
claim, issue or matter therein, he shall be indemnified, to the full
extent permitted by law, against expenses (including attorney's fees)
actually and reasonably incurred by him in connection therewith.
(iv) Any indemnification under paragraphs (i) and (ii) of this
Section 10.4 (a) (unless ordered by a court) shall be made by the
Debenture Issuers only as authorized in the specific case upon a
determination that indemnification of the Company Indemnified Person is
proper in the circumstances because he has met the applicable standard of
conduct set forth in paragraphs (i) and (ii). Such determination shall be
made (1) by the Regular Trustees by a majority vote of a quorum
consisting of such Regular Trustees who were not parties to such action,
suit or proceeding, (2) if such a quorum is not obtainable, or even if
obtainable, if a quorum of disinterested Regular Trustees so directs, by
independent legal counsel in a written opinion, or (3) by the Common
Security Holder of the Trust.
II-5
<PAGE>
(v) Expenses (including attorneys' fees) incurred by a Company
Indemnified Person in defending a civil, criminal, administrative or
investigative action, suit or proceeding referred to in paragraphs (i)
and (ii) of this Section 10.4 (a) shall be paid by the Debenture Issuers
in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such Company
Indemnified Person to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the Debenture
Issuers as authorized in this Section 10.4 (a). Notwithstanding the
foregoing, no advance shall be made by the Debenture Issuers if a
determination is reasonably and promptly made (i) by the Regular Trustees
by a majority vote of quorum of disinterested Regular Trustees, (ii) if
such a quorum is not obtainable, or, even if obtainable, if a quorum of
disinterested Regular Trustees so directs, by independent legal counsel
in a written opinion or (iii) the Common Security Holder of the Trust,
that, based upon the facts known to the Regular Trustees, counsel or the
Common Security Holder at the Time such determination is made, such
Company Indemnified Person acted in bad faith or in a manner that such
person did not believe to be in or not opposed to the best interests of
the Trust, or, with respect to any criminal proceeding, that such Company
Indemnified Person believed or had reasonable cause to believe his
conduct was unlawful. In no event shall any advance be made in instances
where the Regular Trustees, independent legal counsel or Common Security
Holder reasonably determine that such person deliberately breached his
duty to the Trust or its Common or Preferred Security Holders.
(vi) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other paragraphs of this Section 10.4 (a) shall
not be deemed exclusive of any other rights to which those seeking
indemnification and advancement of expenses may be entitled under any
agreement, vote of stockholders or disinterested directors of the
Debenture Issuers or Preferred Security Holders of the Trust or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office. All rights to indemnification
under this Section 10.4 (a) shall be deemed to be provided by a contract
between the Debenture Issuers and each Company Indemnified Person who
serves in such capacity at any time while this Section 10.4 (a) is in
effect. Any repeal or modification of this Section 10.4 (a) shall not
adversely affect any rights or obligations then existing.
(vii) The Debenture Issuers or the Trust may purchase and maintain
insurance on behalf of any person who is or was a Company Indemnified
Person against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not
the Debenture Issuers would have the power to indemnify him against such
liability under the provisions of this Section 10.4 (a).
II-6
<PAGE>
(viii) For purpose of this Section 10.4 (a), references to the "the
Trust" shall include, in addition to the resulting or surviving entity,
any constituent entity (including any constituent of a constituent)
absorbed in a consolidation or merger, so that any person who is or was a
director, trustee, officer or employee of such constituent entity, or is
or was serving at the request of such constituent entity as a director,
trustee, officer, employee or agent of another entity, shall stand in the
same position under the provisions of this Section 10.4 (a) with respect
to the resulting or surviving entity as he would have with respect to
such constituent entity if its separate existence had continued.
(ix) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Section 10.4 (a) shall, unless otherwise
provided when authorized or ratified, continue as to a person who has
ceased to be a Company Indemnified Person and shall inure to the benefit
of the heirs, executors and administrators of such a person.
(b) The Debenture Issuers agree to indemnify the (i) Property Trustee,
(ii) the Delaware Trustee, (iii) any Affiliate of the Property Trustee and the
Delaware Trustee, and (iv) any officers, directors, shareholders, members,
partners, employees, representatives, custodians, nominees or agents of the
Property Trustee and the Delaware Trustee (each of the Persons in (i) through
(iv) being referred to as a "Fiduciary Indemnified Person") for, and to hold
each Fiduciary Indemnified Person harmless against, any and all loss,
liability or expense including taxes (other than taxes based on the income of
such Fiduciary Indemnified Person) incurred without negligence or bad faith on
it part, arising out of or in connection with the acceptance or administration
or the trust or trusts hereunder, including the costs and expenses (including
reasonable legal fees and expenses) of defending itself against or
investigating any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder. The obligation to
indemnify as set forth in this Section 10.4 (b) shall survive the satisfaction
and discharge of this Declaration."
ITEM 16. EXHIBITS.
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
4.1 Certificate of Trust of Golden Books Financing Trust.
4.2 Amended and Restated Declaration of Trust of Golden Books
Financing Trust, dated as of August 20, 1996, among Golden
Books Family Entertainment, Inc., as Sponsor, The Bank of
New York, as Property Trustee, The Bank of New York
(Delaware), as Delaware Trustee and Willa M. Perlman and
Philip E. Rowley, as
II-7
<PAGE>
Trustees (Incorporated by reference to Exhibit 10.1 of the
Form 10-Q of Golden Books Family Entertainment, Inc. for
the quarterly period ended August 3, 1996).
4.3 Indenture for the 8-3/4% Convertible Debentures, dated as
of August 20, 1996, among Golden Books Family
Entertainment, Inc., Golden Books Publishing Company, Inc.
and The Bank of New York, as Indenture Trustee
(Incorporated by reference to Exhibit 10.2 of the Form
10-Q of Golden Books Family Entertainment, Inc. For the
quarterly period ended August 3, 1996).
4.4 Form of 8-3/4% Preferred Securities (Included in Exhibit
A-1 to Exhibit 4.2 above).
4.5 Form of 8-3/4% Convertible Debentures (Included in Exhibit
A to Exhibit 4.3 above).
4.6 Preferred Securities Guarantee Agreement, dated as of
August 20, 1996, between Golden Books Family
Entertainment, Inc., As Guarantor, and The Bank of New
York, as Guarantee Trustee (Incorporated by Reference to
Exhibit 10.3 of the Form 10-Q of Golden Books Family
Entertainment, Inc. For the quarterly period ended August
3, 1996).
*5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom, special
counsel to Golden Books Family Entertainment, Inc., Golden
Books Publishing Company, Inc. and Golden Books Financing
Trust, as to the legality of the Preferred Securities,
Convertible Debentures and Guarantee being registered
hereby.
*5.2 Opinion of Schulte Roth & Zabel LLP, special counsel to
Golden Books Family Entertainment, Inc., as to the
legality of the Common Stock of Golden Books Family
Entertainment, Inc. being registered hereby.
*8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom, special
United States tax counsel to Golden Books Family
Entertainment, Inc. and Golden Books Financing Trust, as
to certain tax matters.
10.1 Registration Rights Agreement, dated August 20, 1996,
between Golden Books Financing Trust and Merrill Lynch &
Co., as Representative of the Initial Purchasers
(Incorporated by reference to Exhibit 10.4 of the Form
10-Q of Golden Books Family
II-8
<PAGE>
Entertainment, Inc. for the quarterly period ended August
3, 1996).
12.1 Ratio of Earnings to Combined Fixed Charges and Preferred
Stock Dividends of Golden Books Family Entertainment, Inc.
15.1 Letter from Deloitte & Touche LLP re: Unaudited Interim
Financial Information.
15.2 Letter from Ernst & Young LLP re: Unaudited Interim
Financial Information.
*23.1 Consent of Skadden, Arps, Slate, Meagher & Flom (Included
in Exhibits 5.1 and 8.1).
*23.2 Consent of Schulte Roth & Zabel LLP (Included in Exhibit
5.2).
23.3 Consent of Deloitte & Touche LLP.
23.4 Consent of Ernst & Young LLP.
25.1 Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of The Bank of New
York, as Indenture Trustee under the 8-3/4% Convertible
Debenture Indenture.
25.2 Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of The Bank of New
York, as Property Trustee under the Amended and Restated
Declaration of Trust.
25.3 Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of The Bank of New
York, as Guarantee Trustee under the Guarantee.
* To be filed by amendment.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
II-9
<PAGE>
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
this registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this registration statement
or any material change to such information in this registration
statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in this
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as the indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions or otherwise,
the registrant has been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy
II-10
<PAGE>
as expressed in the Securities Act of 1033 and will be governed by the final
adjudication of such issue.
(d) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on October 16, 1996.
GOLDEN BOOK FINANCING TRUST
By: /s/ Philip E. Rowley
-------------------------
Name: Philip E. Rowley
Title: Regular Trustee
By: /s/ Willa M. Perlman
-------------------------
Name: Willa M. Perlman
Title: Regular Trustee
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of New York,
State of New York, on October 16, 1996.
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
By:/s/ Richard E. Snyder
--------------------
Name: Richard E. Snyder
Title: Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
---------
<S> <C> <C>
/s/ Richard E. Snyder Chairman of the Board and October 16, 1996
- ---------------------------------------- Chief Executive Officer
Richard E. Snyder
/s/ Philip E. Rowley Executive Vice President and October 16, 1996
- ---------------------------------------- Chief Financial Officer (principal
Philip E. Rowley financial and accounting officer)
/s/ Eric Ellenbogen Executive Vice President and October 16, 1996
- ---------------------------------------- Director
Eric Ellenbogen
/s/ Shahara Ahmad-Llewellyn Director October 16, 1996
- ----------------------------------------
Shahara Ahmad-Llewellyn
Director
- ----------------------------------------
Barry Diller
/s/ James A. Eskridge Director October 16, 1996
- ----------------------------------------
James A. Eskridge
/s/ Linda L. Janklow Director October 16, 1996
- ----------------------------------------
Linda L. Janklow
/s/ Lorne Michaels Director October 16, 1996
- ----------------------------------------
Lorne Michaels
/s/ Marshall Rose Director October 16, 1996
- ----------------------------------------
Marshall Rose
/s/ David A. Tanner Director October 16, 1996
- ----------------------------------------
David A. Tanner
/s/ H. Brian Thompson Director October 16, 1996
- ----------------------------------------
H. Brian Thompson
II-13
<PAGE>
/s/ John L. Vogelstein Director October 16, 1996
- ----------------------------------------
John L. Vogelstein
</TABLE>
II-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of New York,
State of New York, on October 16, 1996.
GOLDEN BOOKS PUBLISING COMPANY, INC.
By:/s/ Richard E. Snyder
------------------------
Name: Richard E. Snyder
Title: Chairman of the Board of Directors,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
---------
<S> <C> <C>
/s/ Richard E. Snyder Chairman of the Board, October 16, 1996
- ---------------------------------------- President and Chief
Richard E. Snyder Executive Officer
/s/ Philip E. Rowley Director and Chief October 16, 1996
- ---------------------------------------- Operating Officer
Philip E. Rowley (principal financial and accounting
officer)
/s/ Eric Ellenbogen Director October 16, 1996
- ----------------------------------------
Eric Ellenbogen
</TABLE>
II-15
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
4.1 Certificate of Trust of Golden Books Financing Trust.
4.2 Amended and Restated Declaration of Trust of Golden Books
Financing Trust, dated as of August 20, 1996, among Golden
Books Family Entertainment, Inc., as Sponsor, The Bank of
New York, as Property Trustee, The Bank of New York
(Delaware), as Delaware Trustee and Willa M. Perlman and
Philip E. Rowley, as Trustees (Incorporated by reference to
Exhibit 10.1 of the Form 10-Q of Golden Books Family
Entertainment, Inc. for the quarterly period ended August 3,
1996).
4.3 Indenture for the 8-3/4% Convertible Debentures, dated as
of August 20, 1996, among Golden Books Family
Entertainment, Inc., Golden Books Publishing Company, Inc.
and The Bank of New York, as Indenture Trustee
(Incorporated by reference to Exhibit 10.2 of the Form
10-Q of Golden Books Family Entertainment, Inc. For the
quarterly period ended August 3, 1996).
4.4 Form of 8-3/4% Preferred Securities (Included in Exhibit
A-1 to Exhibit 4.2 above).
4.5 Form of 8-3/4% Convertible Debentures (Included in Exhibit
A to Exhibit 4.3 above).
4.6 Preferred Securities Guarantee Agreement, dated as of
August 20, 1996, between Golden Books Family
Entertainment, Inc., As Guarantor, and The Bank of New
York, as Guarantee Trustee (Incorporated by Reference to
Exhibit 10.3 of the Form 10-Q of Golden Books Family
Entertainment, Inc. For the quarterly period ended August
3, 1996).
*5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom, special
counsel to Golden Books Family Entertainment, Inc., Golden
Books Publishing Company, Inc. and Golden Books Financing
Trust, as to the legality of the Preferred Securities,
Convertible
<PAGE>
Debentures and Guarantee being registered hereby.
*5.2 Opinion of Schulte Roth & Zabel LLP, special counsel to
Golden Books Family Entertainment, Inc., as to the
legality of the Common Stock of Golden Books Family
Entertainment, Inc. being registered hereby.
*8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom, special
United States tax counsel to Golden Books Family
Entertainment, Inc. and Golden Books Financing Trust, as
to certain tax matters.
10.1 Registration Rights Agreement, dated August 20, 1996,
between Golden Books Financing Trust and Merrill Lynch &
Co., as Representative of the Initial Purchasers
(Incorporated by reference to Exhibit 10.4 of the Form
10-Q of Golden Books Family Entertainment, Inc. for the
quarterly period ended August 3, 1996).
12.1 Ratio of Earnings to Combined Fixed Charges and Preferred
Stock Dividends of Golden Books Family Entertainment, Inc.
15.1 Letter from Deloitte & Touche LLP re: Unaudited Interim
Financial Information.
15.2 Letter from Ernst & Young LLP re: Unaudited Interim
Financial Information.
*23.1 Consent of Skadden, Arps, Slate, Meagher & Flom (Included
in Exhibits 5.1 and 8.1).
*23.2 Consent of Schulte Roth & Zabel LLP (Included in Exhibit
5.2).
23.3 Consent of Deloitte & Touche LLP.
23.4 Consent of Ernst & Young LLP.
25.1 Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of The Bank of New
York, as Indenture Trustee under the 8-3/4% Convertible
Debenture Indenture.
25.2 Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of The Bank of New
York, as Property Trustee under the Amended and Restated
Declaration of Trust.
<PAGE>
25.3 Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of The Bank of New
York, as Guarantee Trustee under the Guarantee.
* TO BE FILED BY AMENDMENT.
Exhibit 4.1
CERTIFICATE OF TRUST
The undersigned, the trustees of Golden Books Financing Trust,
desiring to form a business trust pursuant to Delaware Business Trust Act, 12
Del. C. [section] 3810, hereby certify as follows:
(a) The name of the business trust being formed hereby (the "Trust")
is "Golden Books Financing Trust".
(b) The name and business address of the trustee of the Trust which
has its principal place of business in the State of Delaware is
as follows:
The Bank of New York
White Clay Center
Route 273
Newark, Delaware 19711
(c) This Certificate of Trust shall be effective as of the date
of filing.
Dated: August 13, 1996
/s/ Richard E. Snyder
------------------------------
Name: Richard E. Snyder
Title: Regular Trustee
/s/ Philip E. Rowley
------------------------------
Name: Philip E. Rowley
Title: Regular Trustee
THE BANK OF NEW YORK (DELAWARE), as
Delaware Trustee
By: /s/ Jacqueline R. McSwiggan
-----------------------------------
Name: Jacqueline R. McSwiggan
Title: Secretary
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.,
as Sponsor
By: /s/ Philip E. Rowley
-----------------------------------
Name: Philip E. Rowley
Title: Chief Financial Officer
Exhibit 12.1
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------------------------------------------------------------- ----------------------
Years Ended Six Months Year Six Months
--------------------------------------------------------------- Ended Ended Ended
February 1, January 30, January 29, January 28, February 3, August 3, February 3, August 3,
1992 1993 1994 1995 1996 1996 1996 1996
---- ---- ---- ---- ---- ---- ---- ----
(dollars in thousands, except ratios)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Net income (loss) before
provision for income taxes $ 22,274 $ 28,358 $ (78,120) $ (15,109) $ (55,715) $(117,632) $(69,489) $(124,065)
Interest expense 6,255 10,358 16,270 17,567 12,859 4,391 13,072 4,497
Portion of rents representative
of an interest factor 1,410 2,577 2,777 2,305 2,035 968 2,035 968
Distributions on redeemable
preferred securities of
subsidiary trust - - - - - - 10,063 5,031
---------- ---------- ---------- ---------- ---------- ---------- --------- ----------
Total earnings $ 29,939 $ 41,293 $ (59,073) $ 4,783 $ (40,821) $(112,273) $(44,319) $(113,569)
========== ========== ========== ========== ========== ========== ========= ==========
Fixed Charges:
Interest expense $ 6,255 $ 10,358 $ 16,270 $ 17,567 $ 12,859 $ 4,391 $ 13,072 $ 4,497
Portion of rents representative
of an interest factor 1,410 2,577 2,777 2,305 2,035 968 2,035 968
Distributions on redeemable
preferred securities of
subsidiary trust - - - - - - 10,063 5,031
Preferred dividends paid 1,379 1,375 848 848 848 2,561 9,360 4,680
---------- ---------- ---------- ---------- ---------- ---------- --------- ----------
Total fixed charges
and Preferred Stock
dividends $ 9,044 $ 14,310 $ 19,895 $ 20,720 $ 15,742 $ 7,920 $ 34,530 $ 15,176
========== ========== ========== ========== ========== ========== ========= ==========
Ratio of earnings to combined
fixed charges and preferred
stock dividends (deficiency in
the coverage of combined
fixed charges and preferred
dividends by earnings before
fixed charges and preferred
stock dividends (a) 3.31 X 2.89 X $ (78,968) $ (15,957) $ (56,563) $(120,193) $(78,849) $(128,745)
========== ========== ========== ========== ========== ========== ========= ==========
</TABLE>
(a) For the purposes of the ratio of earnings to combined fixed charges and
preferred stock dividends, earnings were calculated by adding pretax
income, interest expense, amortization of debt issuance costs, the
portion of rents representative of an interest factor and preferred stock
dividend requirements for majority owned subsidiaries. Combined fixed
charges and preferred stock dividends consist of interest expense, the
portion of rents representative of an interest factor and preferred stock
dividend requirements (as adjusted for taxes where appropriate) of Golden
Books and its subsidiaries. For the periods in which earnings were
insufficient to cover combined fixed charges and preferred stock dividends,
the dollar amount of coverage deficiency, instead of the ratio is
disclosed.
Exhibit 15.1
October 14, 1996
Golden Books Family Entertainment, Inc.
850 Third Avenue
New York, NY 10022
We have made a review, in accordance with standards established by the
American Institute of Certified Public Accountants, of the unaudited interim
financial information of Golden Books Family Entertainment, Inc. (formerly
Western Publishing Group, Inc.) for the periods ended May 4, 1996 and April
29, 1995, as indicated in our report dated June 17, 1996; because we did not
perform an audit, we expressed no opinion on that information.
We are aware that our report referred to above, which is included in our
Quarterly Report on Form 10-Q for the quarter ended May 4, 1996, is being used
in this Registration Statement.
We also are aware that the aforementioned report, pursuant to Rule 436(c)
under the Securities Act of 1933, are not considered a part of the
Registration Statement prepared or certified by an accountant or a report
prepared or certified by an accountant within the meaning of Sections 7 and 11
of that Act.
DELOITTE & TOUCHE LLP
Exhibit 15.2
Board of Directors
Golden Books Family Entertainment, Inc.
We are aware of the incorporation by reference in the Registration Statement
(Form S-3) of Golden Books Family Entertainment, Inc. for the registration of
2,300,000 Preferred Securities of Golden Books Financing Trust of our report
dated July 30, 1996 relating to the unaudited condensed consolidated interim
financial statements of Golden Books Family Entertainment, Inc. (formerly
Western Publishing Group, Inc.) that are included in its Form 10-Q for the
quarter ended May 4, 1996.
Pursuant to Rule 436(c) of the Securities Act of 1993 our report are not a
part of the registration statement prepared or certified by accountants within
the meaning of Section 7 or 11 of the Securities Act of 1933.
Ernst & Young LLP
New York, New York
October 14, 1996
Exhibit 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Golden Books Family Entertainment, Inc. (formerly Western Publishing Group,
Inc.) on Form S-3 of our reports dated April 2, 1996 (which reports express an
unqualified opinion and include an explanatory paragraph concerning the
adoption of Statement of Financial Accounting Standards No. 106), incorporated
by reference in the Annual Report on 10-K of Golden Books Family
Entertainment, Inc. for the year ended February 3, 1996 and to the reference
to us under the heading "Experts" in the Prospectus, which is part of the
Registration Statement.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
October 14, 1996
Exhibit 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
incorporation by reference in the Registration on Form S-3 and related
Prospectus of Golden Books Family Entertainment, Inc. for the registration of
2,300,000 Preferred Securities of Golden Books Financing Trust and to the
incorporation by reference therein of (i) our report dated April 10, 1996,
with respect to the consolidated financial statements of Broadway Video
Entertainment, L.P. and subsidiaries for the year ended December 31, 1995, and
(ii) our report dated October 19, 1994 with respect to the statement of
operations, changes in partners' capital and cash flows of Palladium Limited
Partnership for the seven months ended July 31, 1994 included in the Current
Report on Form 8-K of Golden Books Family Entertainment, Inc. dated August 30,
1996.
ERNST & YOUNG LLP
New York, New York
October 14, 1996
THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING SUBMITTED
PURSUANT TO RULE 901(d) OF REGULATION S-T
===============================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) [ ]
----------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
----------------
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
(Exact name of obligor as specified in its charter)
Delaware 06-1104930
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
850 Third Avenue
New York, New York 10022
(Address of principal executive offices) (Zip code)
----------------
GOLDEN BOOKS PUBLISHING COMPANY, INC.
(Exact name of obligor as specified in its charter)
Delaware Applied For
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
850 Third Avenue
New York, New York 10022
(Address of principal executive offices) (Zip code)
----------------
Convertible Debentures
(Title of the indenture securities)
===============================================================================
<PAGE>
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH
IT IS SUBJECT.
- -------------------------------------------------------------------------------
Name Address
- -------------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y.
12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None. (See Note on page 3.)
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE
INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE
7A-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND RULE 24 OF THE
COMMISSION'S RULES OF PRACTICE.
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
-2-
<PAGE>
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or
examining authority.
NOTE
Inasmuch as this Form T-1 is filed prior to the ascertainment by the
Trustee of all facts on which to base a responsive answer to Item 2, the
answer to said Item is based on incomplete information.
Item 2 may, however, be considered as correct unless amended by an
amendment to this Form T-1.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York,
and State of New York, on the 10th day of October, 1996.
THE BANK OF NEW YORK
By: /S/MARY LAGUMINA
-------------------------------
Name: MARY LAGUMINA
Title: ASSISTANT VICE PRESIDENT
-4-
<PAGE>
Exhibit 7
- -------------------------------------------------------------------------------
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries, a member of the
Federal Reserve System, at the close of business March 31, 1996, published in
accordance with a call made by the Federal Reserve Bank of this District
pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts
ASSETS in Thousands
Cash and balances due from depos-
itory institutions:
Noninterest-bearing balances and
currency and coin ................... $ 2,461,550
Interest-bearing balances ........... 835,563
Securities:
Held-to-maturity securities ......... 802,064
Available-for-sale securities ....... 2,051,263
Federal funds sold in domestic of-
fices of the bank:
Federal funds sold .................... 3,885,475
Loans and lease financing
receivables:
Loans and leases, net of unearned
income ............................ 27,820,159
LESS: Allowance for loan and
lease losses ...................... 509,817
LESS: Allocated transfer risk
reserve............................ 1,000
Loans and leases, net of unearned
income, allowance, and reserve 27,309,342
Assets held in trading accounts ....... 837,118
Premises and fixed assets (including
capitalized leases) ................. 614,567
Other real estate owned ............... 51,631
Investments in unconsolidated
subsidiaries and associated
companies ........................... 225,158
Customers' liability to this bank on
acceptances outstanding ............. 800,375
Intangible assets ..................... 436,668
Other assets .......................... 1,247,908
-----------
Total assets .......................... $41,558,682
===========
LIABILITIES
Deposits:
In domestic offices ................. $18,851,327
Noninterest-bearing ................. 7,102,645
Interest-bearing .................... 11,748,682
In foreign offices, Edge and
Agreement subsidiaries, and IBFs .... 10,965,604
Noninterest-bearing ................. 37,855
Interest-bearing ................... 10,927,749
<PAGE>
Federal funds purchased and secu-
rities sold under agreements to re-
purchase in domestic offices of
the bank and of its Edge and
Agreement subsidiaries, and in
IBFs:
Federal funds purchased ............. 1,224,886
Securities sold under agreements
to repurchase ..................... 29,728
Demand notes issued to the U.S.
Treasury ............................ 118,870
Trading liabilities ................... 673,944
Other borrowed money:
With original maturity of one year
or less ........................... 2,713,248
With original maturity of more than
one year .......................... 20,780
Bank's liability on acceptances exe-
cuted and outstanding ............... 803,292
Subordinated notes and debentures ..... 1,022,860
Other liabilities ..................... 1,590,564
-----------
Total liabilities ..................... 38,015,103
-----------
EQUITY CAPITAL
Common stock .......................... 942,284
Surplus ............................... 525,666
Undivided profits and capital
reserves ............................ 2,078,197
Net unrealized holding gains
(losses) on available-for-sale
securities .......................... 3,197
Cumulative foreign currency transla-
tion adjustments .................... ( 5,765)
-----------
Total equity capital .................. 3,543,579
-----------
Total liabilities and equity
capital ............................. $41,558,682
===========
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
J. Carter Bacot )
Thomas A. Renyi ) Directors
Alan R. Griffith )
- -------------------------------------------------------------------------------
THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING SUBMITTED
PURSUANT TO RULE 901(d) OF REGULATION S-T
===============================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) [ ]
----------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
----------------
GOLDEN BOOKS FINANCING TRUST
(Exact name of obligor as specified in its charter)
Delaware Applied For
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
850 Third Avenue
New York, New York 10022
(Address of principal executive offices) (Zip code)
----------------
Convertible Trust Originated Preferred Securities
(Title of the indenture securities)
===============================================================================
<PAGE>
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH
IT IS SUBJECT.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y.
12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None. (See Note on page 3.)
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE
INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE
7A-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND RULE 24 OF THE
COMMISSION'S RULES OF PRACTICE.
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
-2-
<PAGE>
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or
examining authority.
NOTE
Inasmuch as this Form T-1 is filed prior to the ascertainment by the
Trustee of all facts on which to base a responsive answer to Item 2, the
answer to said Item is based on incomplete information.
Item 2 may, however, be considered as correct unless amended by an
amendment to this Form T-1.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York,
and State of New York, on the 10th day of October, 1996.
THE BANK OF NEW YORK
By: /S/MARY LAGUMINA
-------------------------------
Name: MARY LAGUMINA
Title: ASSISTANT VICE PRESIDENT
-4-
<PAGE>
Exhibit 7
- -------------------------------------------------------------------------------
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries, a member of the
Federal Reserve System, at the close of business March 31, 1996, published in
accordance with a call made by the Federal Reserve Bank of this District
pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts
ASSETS in Thousands
Cash and balances due from depos-
itory institutions:
Noninterest-bearing balances and
currency and coin ................... $ 2,461,550
Interest-bearing balances ........... 835,563
Securities:
Held-to-maturity securities ......... 802,064
Available-for-sale securities ....... 2,051,263
Federal funds sold in domestic of-
fices of the bank:
Federal funds sold .................... 3,885,475
Loans and lease financing
receivables:
Loans and leases, net of unearned
income ............................ 27,820,159
LESS: Allowance for loan and
lease losses ...................... 509,817
LESS: Allocated transfer risk
reserve............................ 1,000
Loans and leases, net of unearned
income, allowance, and reserve 27,309,342
Assets held in trading accounts ....... 837,118
Premises and fixed assets (including
capitalized leases) ................. 614,567
Other real estate owned ............... 51,631
Investments in unconsolidated
subsidiaries and associated
companies ........................... 225,158
Customers' liability to this bank on
acceptances outstanding ............. 800,375
Intangible assets ..................... 436,668
Other assets .......................... 1,247,908
-----------
Total assets .......................... $41,558,682
===========
LIABILITIES
Deposits:
In domestic offices ................. $18,851,327
Noninterest-bearing ................. 7,102,645
Interest-bearing .................... 11,748,682
In foreign offices, Edge and
Agreement subsidiaries, and IBFs .... 10,965,604
Noninterest-bearing ................. 37,855
Interest-bearing ................... 10,927,749
<PAGE>
Federal funds purchased and secu-
rities sold under agreements to re-
purchase in domestic offices of
the bank and of its Edge and
Agreement subsidiaries, and in
IBFs:
Federal funds purchased ............. 1,224,886
Securities sold under agreements
to repurchase ..................... 29,728
Demand notes issued to the U.S.
Treasury ............................ 118,870
Trading liabilities ................... 673,944
Other borrowed money:
With original maturity of one year
or less ........................... 2,713,248
With original maturity of more than
one year .......................... 20,780
Bank's liability on acceptances exe-
cuted and outstanding ............... 803,292
Subordinated notes and debentures ..... 1,022,860
Other liabilities ..................... 1,590,564
-----------
Total liabilities ..................... 38,015,103
-----------
EQUITY CAPITAL
Common stock .......................... 942,284
Surplus ............................... 525,666
Undivided profits and capital
reserves ............................ 2,078,197
Net unrealized holding gains
(losses) on available-for-sale
securities .......................... 3,197
Cumulative foreign currency transla-
tion adjustments .................... ( 5,765)
-----------
Total equity capital .................. 3,543,579
-----------
Total liabilities and equity
capital ............................. $41,558,682
===========
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
J. Carter Bacot )
Thomas A. Renyi ) Directors
Alan R. Griffith )
- -------------------------------------------------------------------------------
THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING SUBMITTED
PURSUANT TO RULE 901(d) OF REGULATION S-T
===============================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) [ ]
----------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
----------------
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
(Exact name of obligor as specified in its charter)
Delaware 06-1104930
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
850 Third Avenue
New York, New York 10022
(Address of principal executive offices) (Zip code)
----------------
Preferred Securities Guarantee of Golden Books Financing Trust
(Title of the indenture securities)
===============================================================================
<PAGE>
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH
IT IS SUBJECT.
- -------------------------------------------------------------------------------
Name Address
- -------------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y.
12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None. (See Note on page 3.)
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE
INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE
7A-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND RULE 24 OF THE
COMMISSION'S RULES OF PRACTICE.
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
-2-
<PAGE>
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or
examining authority.
NOTE
Inasmuch as this Form T-1 is filed prior to the ascertainment by the
Trustee of all facts on which to base a responsive answer to Item 2, the
answer to said Item is based on incomplete information.
Item 2 may, however, be considered as correct unless amended by an
amendment to this Form T-1.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York,
and State of New York, on the 10th day of October, 1996.
THE BANK OF NEW YORK
By: /S/MARY LAGUMINA
-------------------------------
Name: MARY LAGUMINA
Title: ASSISTANT VICE PRESIDENT
-4-
<PAGE>
Exhibit 7
- -------------------------------------------------------------------------------
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries, a member of the
Federal Reserve System, at the close of business March 31, 1996, published in
accordance with a call made by the Federal Reserve Bank of this District
pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts
ASSETS in Thousands
Cash and balances due from depos-
itory institutions:
Noninterest-bearing balances and
currency and coin ................... $ 2,461,550
Interest-bearing balances ........... 835,563
Securities:
Held-to-maturity securities ......... 802,064
Available-for-sale securities ....... 2,051,263
Federal funds sold in domestic of-
fices of the bank:
Federal funds sold .................... 3,885,475
Loans and lease financing
receivables:
Loans and leases, net of unearned
income ............................ 27,820,159
LESS: Allowance for loan and
lease losses ...................... 509,817
LESS: Allocated transfer risk
reserve............................ 1,000
Loans and leases, net of unearned
income, allowance, and reserve 27,309,342
Assets held in trading accounts ....... 837,118
Premises and fixed assets (including
capitalized leases) ................. 614,567
Other real estate owned ............... 51,631
Investments in unconsolidated
subsidiaries and associated
companies ........................... 225,158
Customers' liability to this bank on
acceptances outstanding ............. 800,375
Intangible assets ..................... 436,668
Other assets .......................... 1,247,908
-----------
Total assets .......................... $41,558,682
===========
LIABILITIES
Deposits:
In domestic offices ................. $18,851,327
Noninterest-bearing ................. 7,102,645
Interest-bearing .................... 11,748,682
In foreign offices, Edge and
Agreement subsidiaries, and IBFs .... 10,965,604
Noninterest-bearing ................. 37,855
Interest-bearing ................... 10,927,749
<PAGE>
Federal funds purchased and secu-
rities sold under agreements to re-
purchase in domestic offices of
the bank and of its Edge and
Agreement subsidiaries, and in
IBFs:
Federal funds purchased ............. 1,224,886
Securities sold under agreements
to repurchase ..................... 29,728
Demand notes issued to the U.S.
Treasury ............................ 118,870
Trading liabilities ................... 673,944
Other borrowed money:
With original maturity of one year
or less ........................... 2,713,248
With original maturity of more than
one year .......................... 20,780
Bank's liability on acceptances exe-
cuted and outstanding ............... 803,292
Subordinated notes and debentures ..... 1,022,860
Other liabilities ..................... 1,590,564
-----------
Total liabilities ..................... 38,015,103
-----------
EQUITY CAPITAL
Common stock .......................... 942,284
Surplus ............................... 525,666
Undivided profits and capital
reserves ............................ 2,078,197
Net unrealized holding gains
(losses) on available-for-sale
securities .......................... 3,197
Cumulative foreign currency transla-
tion adjustments .................... ( 5,765)
-----------
Total equity capital .................. 3,543,579
-----------
Total liabilities and equity
capital ............................. $41,558,682
===========
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
J. Carter Bacot )
Thomas A. Renyi ) Directors
Alan R. Griffith )
- -------------------------------------------------------------------------------
