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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. 2)
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/x/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
/ / Confidential, for use of the Commission only (as permitted by
Rule 14a-6(e)(2)
WESTERN PUBLISHING GROUP, INC.
(Name of Registrant As Specified In Its Charter)
WESTERN PUBLISHING GROUP, INC.
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(j)(2), or Item
22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price of other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11:
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
/x/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
1) Amount previously paid:
2) Form, Schedule or Registration Statement No.:
3) Filing party:
4) Date filed:
<PAGE>
[LOGO] WESTERN PUBLISHING GROUP, INC.
444 Madison Avenue, New York, New York 10222 (212) 688-4500
RICHARD A. BERNSTEIN
CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
April 18, 1996
Dear Western Publishing Group, Inc. Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Western Publishing Group, Inc. (the 'Company') to be held at 10:00 A.M., local
time, on Wednesday, May 8, 1996, at Chemical Bank, 270 Park Avenue, 11th Floor,
Room C, New York, New York.
At this important meeting, you will be asked to vote on a set of proposals
relating to the acquisition by Golden Press Holding, L.L.C. of a significant
equity interest in the Company. Golden Press Holding is a company recently
formed by Richard E. Snyder, the former Chairman and Chief Executive Officer of
Simon & Schuster, Inc., Arrow Holdings, LLC, an entity controlled by Barry
Diller, the Chairman and Chief Executive Officer of Silver King Communications,
Inc. and Chairman of Home Shopping Network, Inc., and Warburg, Pincus Ventures,
L.P. Golden Press Holding will invest $65 million in the Company in exchange for
shares of a new series of convertible preferred stock, convertible at a price of
$10 per share into approximately 23% of the outstanding common stock of the
Company, and a warrant to purchase an additional 3,250,000 shares of common
stock at an exercise price of $10 per share. Approximately $10 million of the
investment proceeds will be used to redeem the Company's outstanding Series A
Preferred Stock due March 31, 1996, and the balance will be available for
general working capital purposes, including new product development and future
acquisitions.
Consistent with my prior public statements and my letter to stockholders
appearing in our 1995 annual report, and unlike the proposed transactions
announced in September and October of last year, this transaction has been
structured so that, like all other common stockholders, I will not be selling my
shares and the proceeds from the Golden Press Holding equity investment will be
invested directly in the Company. We have negotiated every aspect of this
transaction with the best interests of the Company's stockholders as the
paramount consideration.
Furthermore, in order to secure the participation of Mr. Snyder and Warburg
Pincus, I have given up my right to vote the approximately four million shares
of common stock that I beneficially own, for so long as I own them, by granting
an irrevocable proxy to Golden Press Holding to vote these shares in its sole
discretion. Golden Press Holding has agreed to vote these shares, which
represent approximately 20% of the outstanding shares, in favor of the proposals
to be considered at the Special Meeting. In addition, to provide further comfort
to Golden Press Holding, I have agreed to certain transfer restrictions which
will significantly limit my freedom to sell my shares in the future.
The newly-issued preferred stock would entitle Golden Press Holding, for so
long as it owns a significant portion of the preferred stock, to elect three
directors of the Company who, together with the six nominees standing for
election at the Special Meeting, would constitute the nine-member board of
directors following the closing of the equity investment. The preferred stock
also would vote, on an as-if-converted basis, with the Company's common stock on
all matters submitted to a vote of the Company's stockholders, including the
election of directors, and have certain class voting rights with respect to
certain material corporate transactions.
In order to help ensure a smooth transition of the Company's management,
Mr. Snyder has been elected and has begun to serve as President of the Company.
This has allowed Mr. Snyder an opportunity to gain a familiarity and insight
into the Company's operations so as to enable Mr. Snyder and me to set the stage
to rapidly implement his direction and strategy for the Company's future once
the equity investment transaction is
<PAGE>
complete. Upon the closing of the Golden Press investment, I will resign my
positions with the Company and Mr. Snyder will become Chairman and Chief
Executive Officer.
After careful consideration of a number of factors, including the terms
relating to Golden Press Holding's investment and the benefits that will be
derived from the involvement of Mr. Snyder and Warburg Pincus in the management
of the Company and its businesses, as well as the cash infusion to be made by
Golden Press Holding, THE BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE
SECURITIES PURCHASE AGREEMENT, AS AMENDED, AND THE TRANSACTIONS CONTEMPLATED
THEREBY, CONSIDERED AS A WHOLE, ARE FAIR TO AND IN THE BEST INTERESTS OF THE
COMPANY AND ITS STOCKHOLDERS AND THEREFORE UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR EACH OF THE PROPOSALS TO BE CONSIDERED AT THE SPECIAL MEETING. Your Board of
Directors firmly believes that it is in the long-term best interests of the
Company and its stockholders, employees and customers that this important
transaction be approved and completed.
Details concerning the proposals that you will be asked to consider at the
Special Meeting are set forth in the accompanying Proxy Statement. In addition
to voting on the Golden Press Holding investment, you will be asked to approve
the election of Shahara Ahmad-Llewellyn, Barry Diller, Linda L. Janklow,
Marshall Rose, Richard E. Snyder and H. Brian Thompson as directors of the
Company, amendments to the Company's stock option plan, adoption of a new bonus
plan for executive officers and three proposed amendments to the Company's
certificate of incorporation. PLEASE NOTE THAT UNLESS ALL OF THESE PROPOSALS ARE
APPROVED BY STOCKHOLDERS (OTHER THAN THE PROPOSED AMENDMENTS TO THE COMPANY'S
CERTIFICATE OF INCORPORATION), NONE WILL BE EFFECTED BY THE COMPANY. WE URGE YOU
TO READ THE ENTIRE PROXY STATEMENT CAREFULLY. IT IS IMPORTANT THAT YOUR SHARES
BE REPRESENTED AT THE SPECIAL MEETING NO MATTER HOW MANY SHARES YOU OWN. EVEN IF
YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE SIGN, DATE AND MAIL PROMPTLY THE
ENCLOSED PROXY IN THE POSTAGE-PAID ENVELOPE. THIS ACTION WILL NOT LIMIT YOUR
RIGHT TO VOTE IN PERSON IF YOU WISH TO ATTEND THE SPECIAL MEETING.
On behalf of the Board of Directors, thank you for your cooperation and
your continued support.
Sincerely,
/s/ Richard A. Bernstein
Richard A. Bernstein
Chairman of the Board and
Chief Executive Officer
2
<PAGE>
WESTERN PUBLISHING GROUP, INC.
444 MADISON AVENUE
NEW YORK, NEW YORK 10022
------------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
MAY 8, 1996
------------------------------
To the Stockholders of WESTERN PUBLISHING GROUP, INC.:
A special meeting of stockholders (the 'Special Meeting') of Western
Publishing Group, Inc. (the 'Company') will be held at Chemical Bank, 270 Park
Avenue, 11th Floor, Room C, New York, New York, on Wednesday, May 8, 1996 at
10:00 A.M., local time, to consider and act on seven proposals (the 'Proposals')
relating to the Securities Purchase Agreement dated as of January 31, 1996
between the Company and Golden Press Holding, L.L.C. ('GPH'), as amended by
Amendment No. 1 thereto dated as of April 15, 1996 and as it may be further
amended from time to time (the 'Securities Purchase Agreement'). The seven
Proposals are summarized as follows:
(1) To approve the Securities Purchase Agreement and the performance by
the Company of all transactions and acts on the part of the Company
contemplated thereby, including, without limitation, the issuance by
the Company and sale to GPH, for a cash purchase price of $65 million,
of (i) 13,000 shares of the Company's Series B Convertible Preferred
Stock, without par value (the 'Series B Convertible Preferred Stock'),
together with the shares of Common Stock, par value $.01 per share, of
the Company (the 'Common Stock') issuable upon conversion of the
Series B Convertible Preferred Stock and as dividends on the Series B
Convertible Preferred Stock, and (ii) a warrant (the 'Warrant') to
purchase 3,250,000 shares of Common Stock, together with the shares of
Common Stock issuable upon the exercise of the Warrant.
(PROPOSAL NO. 1)
(2) To elect Shahara Ahmad-Llewellyn, Barry Diller, Linda L. Janklow,
Marshall Rose, Richard E. Snyder and H. Brian Thompson as directors of
the Company, who will qualify as directors only upon the closing of
the transactions under the Securities Purchase Agreement, to serve
until the next annual meeting of stockholders of the Company and until
their successors have been duly elected and qualified.
(PROPOSAL NO. 2)
(3) To approve the adoption of several amendments to the Company's 1995
Stock Option Plan. (PROPOSAL NO. 3)
(4) To approve the adoption of the Executive Officer Bonus Plan.
(PROPOSAL NO. 4)
(5) To adopt an amendment to Article First of the Company's Amended and
Restated Certificate of Incorporation (the 'Restated Certificate') to
change the name of the Company to 'Golden Books Family Entertainment,
Inc.'. (PROPOSAL NO. 5)
(6) To adopt an amendment to Article Fourth of the Restated Certificate to
increase the authorized number of shares of Common Stock from
40,000,000 shares to 60,000,000 shares. (PROPOSAL NO. 6)
(7) To adopt an amendment to Article Fourth of the Restated Certificate to
increase the authorized number of shares of the Company's preferred
stock from 100,000 shares to 200,000 shares. (PROPOSAL NO. 7)
At the Special Meeting, the stockholders also will consider and vote on
such other matters as may properly be presented incident to the conduct of the
Special Meeting or any and all adjournments or postponements thereof.
Among the other actions contemplated by the Securities Purchase Agreement
are (a) the redemption by the Company of the Company's outstanding shares of
Series A Preferred Stock due March 31, 1996, using a portion of the proceeds
from the GPH investment; (b) the grant of certain registration rights to GPH in
respect of the Series B Convertible Preferred Stock and the Warrant and the
underlying Common Stock; (c) the grant of certain registration rights to Richard
A. Bernstein and certain of his affiliated entities in respect of shares of
Common Stock owned by them; and (d) the Company's execution of an employment
agreement and certain related arrangements with Richard E. Snyder following the
closing of the transactions contemplated by the Securities
<PAGE>
Purchase Agreement, pursuant to which Mr. Snyder would become the Chairman and
Chief Executive Officer of the Company.
UNLESS ALL THE PROPOSALS ARE APPROVED AND ADOPTED BY THE STOCKHOLDERS AT
THE SPECIAL MEETING, NONE WILL BE EFFECTED BY THE COMPANY, EXCEPT THAT THE OTHER
PROPOSALS WILL BE EFFECTED REGARDLESS OF WHETHER ANY OF THE PROPOSALS TO AMEND
THE RESTATED CERTIFICATE (PROPOSAL NOS. 5, 6 OR 7) IS ADOPTED. Accordingly, if
the Proposals (including Proposal No. 1) are not approved, no individual elected
as a director at the Special Meeting will be qualified as a director or will
take office, and the current directors will remain in office until their
successors are duly elected and qualified. For further information with respect
to the election of directors at the Special Meeting, see 'ELECTION OF DIRECTORS'
in the accompanying Proxy Statement.
Only holders of record of the Common Stock at the close of business on
April 9, 1996 are entitled to notice of, and to vote at, the Special Meeting or
any adjournment or postponement thereof. A complete list of stockholders
entitled to vote at the Special Meeting will be kept at the Company's offices at
444 Madison Avenue, New York, New York 10022, for a period of ten days prior to
the Special Meeting and will be available for examination by any stockholder for
any purpose germane to the Special Meeting during ordinary business hours.
By Order of the Board of Directors,
/s/ JAMES A. COHEN
James A. Cohen
Secretary
April 18, 1996
New York, New York
PLEASE SIGN AND DATE THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
2
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TABLE OF CONTENTS
<TABLE>
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PAGE
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INTRODUCTION............................................................................................... 1
Proxy Solicitation....................................................................................... 1
Voting at the Special Meeting............................................................................ 1
Revocability of Proxies.................................................................................. 2
SUMMARY.................................................................................................... 3
The Proposals............................................................................................ 3
The Parties to the Transactions.......................................................................... 4
The Special Meeting...................................................................................... 4
Background of and Reasons for the Transactions........................................................... 5
Recommendation of the Board of Directors................................................................. 5
Opinions of Financial Advisors........................................................................... 6
Use of Proceeds.......................................................................................... 6
Certain Considerations................................................................................... 6
Certain Negotiated Features of the Transactions.......................................................... 7
Interests of Certain Persons in the Transactions......................................................... 8
Certain Terms of the Securities Purchase Agreement....................................................... 9
Certain Terms of the Series B Convertible Preferred Stock................................................ 9
Certain Terms of the Warrant............................................................................. 10
Certain Terms of the GPH Registration Rights Agreement................................................... 10
Regulatory Matters....................................................................................... 10
Section 203 of the DGCL.................................................................................. 10
Litigation............................................................................................... 10
Election of Directors.................................................................................... 11
Amendments to 1995 Stock Option Plan..................................................................... 11
Executive Officer Bonus Plan............................................................................. 11
Charter Amendments....................................................................................... 11
Pro Forma Capitalization................................................................................. 12
Price Range of Common Stock; Dividend Policy............................................................. 13
BENEFICIAL STOCK OWNERSHIP................................................................................. 15
Principal Stockholders................................................................................... 15
Directors and Executive Officers......................................................................... 17
THE PROPOSALS.............................................................................................. 19
Backgrounds of and Reasons for the Transactions.......................................................... 19
Recommendation of the Board of Directors................................................................. 21
Opinions of Financial Advisors........................................................................... 22
Use of Proceeds.......................................................................................... 31
Certain Considerations................................................................................... 31
Certain Negotiated Features of the Transactions.......................................................... 33
Interests of Certain Persons in the Transactions......................................................... 35
Regulatory Matters....................................................................................... 39
Section 203 of the DGCL.................................................................................. 39
Litigation............................................................................................... 39
SECURITIES PURCHASE AGREEMENT (PROPOSAL NO. 1)............................................................. 40
Issuance and Sale of Series B Convertible Preferred Stock and Warrant.................................... 41
Terms of the Series B Convertible Preferred Stock........................................................ 41
Terms of the Warrant..................................................................................... 44
Terms of the GPH Registration Rights Agreement........................................................... 44
Representations and Warranties........................................................................... 45
Pre-Closing Covenants.................................................................................... 45
Non-Solicitation of Business Combination Proposals....................................................... 46
Conditions to Closing.................................................................................... 47
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PAGE
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Termination and Termination Fee ......................................................................... 48
Expenses................................................................................................. 48
ELECTION OF DIRECTORS (PROPOSAL NO. 2)..................................................................... 49
General.................................................................................................. 49
Business Experience of Nominees.......................................................................... 49
Business Experience of Series B Directors................................................................ 51
Business Experience of Current Directors................................................................. 51
Business Experience of Executive Officers................................................................ 52
Board Meetings and Committees of the Board............................................................... 54
Compensation Committee Interlocks and Insider Participation.............................................. 54
Executive Compensation................................................................................... 55
Certain Transactions..................................................................................... 57
Compliance with Section 16(a) of the Exchange Act........................................................ 58
AMENDMENTS TO 1995 STOCK OPTION PLAN (PROPOSAL NO. 3)...................................................... 59
EXECUTIVE OFFICER BONUS PLAN (PROPOSAL NO. 4).............................................................. 61
CHARTER AMENDMENTS......................................................................................... 62
AMENDMENT TO CHANGE THE NAME OF THE COMPANY
(PROPOSAL NO. 5)......................................................................................... 63
AMENDMENTS TO INCREASE THE AUTHORIZED COMMON AND PREFERRED STOCK (PROPOSAL NOS. 6 AND 7)................... 63
STOCKHOLDER PROPOSALS FOR THE 1996 ANNUAL MEETING.......................................................... 64
INDEPENDENT AUDITORS....................................................................................... 64
AVAILABLE INFORMATION...................................................................................... 65
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................... 66
INDEX TO FINANCIAL STATEMENTS.............................................................................. F-1
</TABLE>
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APPENDICES
<S> <C> <C>
Appendix I --Amended Securities Purchase Agreement.............................................. I-1
Appendix II --Bernstein Registration Rights Agreement............................................ II-1
Appendix III --Bernstein Irrevocable Proxy........................................................ III-1
Appendix IV --Certificate of Designations of Series B Convertible Preferred Stock................ IV-1
Appendix V --Form of Warrant.................................................................... V-1
Appendix VI --GPH Registration Rights Agreement.................................................. VI-1
Appendix VII --Executive Officer Bonus Plan....................................................... VII-1
Appendix VIII --Charter Amendments................................................................. VIII-1
Appendix IX --Fairness Opinion of Bear, Stearns & Co. Inc........................................ IX-1
Appendix X --Fairness Opinion of Jefferies & Company, Inc....................................... X-1
</TABLE>
ii
<PAGE>
WESTERN PUBLISHING GROUP, INC.
------------------------------
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
MAY 8, 1996
------------------------------
INTRODUCTION
PROXY SOLICITATION
This Proxy Statement is being furnished in connection with the solicitation
of proxies by the board of directors of Western Publishing Group, Inc., a
Delaware corporation (the 'Company'), for use at the special meeting of
stockholders of the Company to be held on Wednesday, May 8, 1996, at 10:00 A.M.,
local time, at Chemical Bank, 270 Park Avenue, 11th Floor, Room C, New York, New
York, or at any adjournment or postponement thereof (the 'Special Meeting'), for
the purposes set forth in the foregoing Notice of Special Meeting of
Stockholders. This Proxy Statement and a form of proxy are first being mailed on
or about April 15, 1996 to holders of record of the Common Stock, par value $.01
per share, of the Company (the 'Common Stock') at the close of business on April
9, 1996, the record date for the Special Meeting.
The cost of soliciting proxies will be borne by the Company and will
consist of expenses of printing, postage and handling, including the expenses of
brokerage houses, custodians, nominees and fiduciaries in forwarding documents
to beneficial owners. Solicitation may also be made by the Company's officers,
directors or regular employees personally or by telephone.
The principal executive offices of the Company are located at 444 Madison
Avenue, New York, New York 10022.
VOTING AT THE SPECIAL MEETING
Vote Required. The seven proposals set forth in the foregoing Notice of
Special Meeting of Stockholders (the 'Proposals') are being submitted to the
stockholders pursuant to a requirement of the Securities Purchase Agreement
dated as of January 31, 1996, as amended by Amendment No. 1 thereto dated as of
April 15, 1996 and as the same may be further amended from time to time (the
'Securities Purchase Agreement'), between the Company and Golden Press Holding,
L.L.C. ('GPH'), and the rules of the National Association of Securities Dealers,
Inc. (the 'NASD') governing corporations, such as the Company, with securities
quoted on the Nasdaq National Market. In addition, under the Delaware General
Corporation Law, the adoption of each of the Proposals relating to the proposed
amendments to the Amended and Restated Certificate of Incorporation of the
Company set forth in the foregoing Notice of Special Meeting of Stockholders
(the 'Charter Amendments') must be submitted to a vote of the holders of the
outstanding shares of Common Stock.
The presence, in person or by properly executed proxy, of the holders of
shares entitled to cast a majority of the votes entitled to be cast by the
holders of record of all outstanding shares of Common Stock is necessary to
constitute a quorum at the Special Meeting. Shares of Common Stock represented
by a properly signed, dated and returned proxy will be treated as present at the
Special Meeting for purposes of determining a quorum, without regard to whether
the proxy is marked as casting a vote or abstaining. Proxies relating to 'street
name' shares that are voted by brokers will be counted as shares present for
purposes of determining the presence of a quorum, but will not be treated as
shares present at the Special Meeting as to any proposal as to which authority
to vote is withheld from the broker.
Pursuant to the rules of the NASD and the Company's By-laws, the
affirmative vote of the holders of a majority of the total votes cast at the
Special Meeting is required to approve the Proposals relating to the Securities
Purchase Agreement and the transactions contemplated thereby (the
'Transactions'). Pursuant to the Company's By-laws, the amendments to the
Company's 1995 Stock Option Plan and the Company's Executive Officer Bonus Plan
require the affirmative vote of the holders of a majority of the total votes
cast at the Special Meeting. Accordingly, abstentions will have the same effect
as votes against these Proposals, but broker non-votes will have no effect on
the approval of these Proposals. The six nominees receiving a plurality of the
votes cast at the Special Meeting for the election of directors will be elected
as directors (but will qualify as such only
<PAGE>
upon the completion of the Transactions; see 'ELECTION OF DIRECTORS').
Accordingly, abstentions and broker non-votes will have no effect on the
election of directors. The affirmative vote of the holders of a majority of the
outstanding shares of Common Stock is required to approve each of the Proposals
relating to the Charter Amendments. Accordingly, abstentions and broker
non-votes will have the same effect as votes against the Charter Amendments.
UNLESS ALL THE PROPOSALS ARE APPROVED AND ADOPTED BY THE STOCKHOLDERS AT
THE SPECIAL MEETING, NONE WILL BE EFFECTED BY THE COMPANY, EXCEPT THAT THE OTHER
PROPOSALS WILL BE EFFECTED REGARDLESS OF WHETHER ANY OF PROPOSAL NOS. 5, 6 OR 7
RELATING TO THE CHARTER AMENDMENTS IS ADOPTED. Accordingly, if the Proposals
(including Proposal No. 1) are not effected, the persons elected as directors at
the Special Meeting will not qualify as directors and will not take office, and
the current directors will remain in office until their successors are duly
elected and qualified. See 'ELECTION OF DIRECTORS.'
Record Date; Voting Rights. Holders of record of the Common Stock at the
close of business on April 9, 1996 are entitled to notice of and to vote at the
Special Meeting. As of the close of business on the Record Date, there were
21,666,739 shares of Common Stock outstanding and entitled to vote at the
Special Meeting. The holders of Common Stock will vote as a single class with
regard to all matters to be acted upon at the Special Meeting. Each stockholder
of record may cast one vote for each share of Common Stock entitled to be voted
on each of the Proposals. The Common Stock is the Company's only class of voting
securities outstanding. As described below under 'THE PROPOSALS--Certain
Negotiated Features of the Transactions--Irrevocable Proxies,' Richard A.
Bernstein, the current Chairman and Chief Executive Officer of the Company, and
certain of his affiliated entities have granted GPH irrevocable proxies pursuant
to agreements dated January 31, 1996 in respect of 3,996,771 shares of Common
Stock owned by them (representing approximately 20% of the shares of Common
Stock currently outstanding) for so long as such shares are owned by Mr.
Bernstein or his affiliates, and GPH has agreed to vote those shares in favor of
the Proposals at the Special Meeting. The Company's President, Richard E.
Snyder, who owns 599,465 shares of Common Stock (representing approximately 3%
of the outstanding Common Stock) and will become Chairman and Chief Executive
Officer of the Company upon the consummation of the Transactions (see 'THE
PROPOSALS--Interests of Certain Persons in the Transactions--Snyder Employment
Arrangements'), has indicated that he intends to vote in favor of the Proposals.
The Company's other directors and executive officers (who collectively own
shares of Common Stock representing approximately 3% of the outstanding Common
Stock) have indicated that they intend to vote in favor of the Proposals.
Shares of Common Stock represented by properly executed proxies received
prior to or at the Special Meeting, unless such proxies have been revoked, will
be voted in accordance with the instructions indicated on the proxies. IF NO
INSTRUCTIONS ARE INDICATED ON A PROPERLY EXECUTED PROXY, THE SHARES WILL BE
VOTED FOR EACH OF THE PROPOSALS AND, IN ANY CASE, IN THE JUDGMENT OF THE PROXY
HOLDER AS TO ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE SPECIAL
MEETING.
If a stockholder has invested in the Common Stock through the Company
401(k) plan, the proxy will also serve as voting instructions for the Trustee
for the 401(k) plan. The Trustee will vote unallocated shares of Common Stock in
the 401(k) plan and allocated shares for which it has not received timely
direction in its discretion pursuant to its obligations as a fiduciary.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation or otherwise may be revoked
by the person giving it, at any time before it is voted, by delivering to the
Secretary of the Company, at 444 Madison Avenue, New York, New York 10022, on or
before the business day prior to the Special Meeting or at the Special Meeting
itself, a subsequent written notice of revocation or subsequently-dated proxy
relating to the same shares or by attending the Special Meeting and voting in
person. However, attendance at the Special Meeting will not in itself constitute
the revocation of a proxy unless such proxy is revoked by one of the means
described in the preceding sentence.
2
<PAGE>
SUMMARY
The following is a brief summary (the 'Summary') of the information in this
Proxy Statement. The Summary is not intended to be complete and is qualified in
its entirety by the more detailed information contained elsewhere in this Proxy
Statement and in the Appendices to this Proxy Statement. Cross references in the
Summary are to the captions of sections of this Proxy Statement unless otherwise
indicated. Stockholders are urged to read this Proxy Statement and the
Appendices in their entirety.
THE PROPOSALS
The seven proposals described in this Proxy Statement (the 'Proposals')
relate to the transactions and acts (the 'Transactions') contemplated on the
part of Western Publishing Group, Inc., a Delaware corporation (the 'Company'),
by the Securities Purchase Agreement dated as of January 31, 1996 between the
Company and Golden Press Holding, L.L.C. ('GPH'), as amended by Amendment No. 1
thereto dated as of April 19, 1996 and as it may be further amended from time to
time (the 'Securities Purchase Agreement'), and consist of:
(1) the approval of the Securities Purchase Agreement and the
performance by the Company of all transactions and acts on the part of the
Company contemplated under the Securities Purchase Agreement, including,
without limitation, the issuance and sale to GPH, for a cash purchase price
of $65 million, of (i) 13,000 shares of the Company's Series B Convertible
Preferred Stock, without par value (the 'Series B Convertible Preferred
Stock'), together with the shares of Common Stock, par value $.01 per
share, of the Company (the 'Common Stock') issuable upon conversion of the
Series B Convertible Preferred Stock and as dividends on the Series B
Convertible Preferred Stock, and (ii) a warrant (the 'Warrant') to purchase
an additional 3,250,000 shares of Common Stock, together with the shares of
Common Stock issuable upon the exercise of the Warrant ('PROPOSAL NO.
1--SECURITIES PURCHASE PROPOSAL');
(2) the election of six directors of the Company, who will qualify as
directors only upon the closing of the Transactions (the 'Closing'), to
serve until the next annual meeting of stockholders of the Company and
until their successors have been duly elected and qualified ('PROPOSAL NO.
2--ELECTION PROPOSAL');
(3) the approval of the adoption of certain amendments to the
Company's 1995 Stock Option Plan (the 'Stock Option Plan') ('PROPOSAL NO.
3--STOCK OPTION PLAN AMENDMENT PROPOSAL');
(4) the approval of the adoption of the Company's Executive Officer
Bonus Plan (the 'Bonus Plan') ('PROPOSAL NO. 4--BONUS PLAN PROPOSAL'); and
(5) the adoption of three amendments (the 'Charter Amendments') to the
Company's Amended and Restated Certificate of Incorporation (the 'Restated
Certificate') to (a) amend Article First to change the name of the Company
to 'Golden Books Family Entertainment, Inc.' (PROPOSAL NO. 5), (b) amend
Article Fourth to increase the number of authorized shares of Common Stock
from 40,000,000 shares to 60,000,000 shares (PROPOSAL NO. 6) and (c) amend
Article Fourth to increase the number of authorized shares of preferred
stock, without par value, of the Company (the 'Preferred Stock') from
100,000 shares to 200,000 shares (PROPOSAL NO. 7) (collectively, the
'Charter Amendment Proposals'). Except as described in this Proxy
Statement, the Company has no current plans for any issuances of Common or
Preferred Stock. See 'THE PROPOSALS.'
Approval of each of the Proposals by the requisite vote of the stockholders of
the Company (other than the Charter Amendments) is a condition to the
consummation of the Transactions under the Securities Purchase Agreement. See
'SECURITIES PURCHASE AGREEMENT--Conditions to Closing.'
Among the other Transactions contemplated by the Securities Purchase
Agreement are (a) the redemption by the Company of the outstanding shares of
Series A Preferred Stock due March 31, 1996, without par value, of the Company
(the 'Series A Preferred Stock') at a redemption price equal to the liquidation
value thereof plus accrued and unpaid dividends to the date of redemption, using
a portion of the proceeds from the GPH investment (see 'THE PROPOSALS--Interests
of Certain Persons in the Transactions--Redemption of Series A Preferred Stock
due March 31, 1996'); (b) the grant of certain registration rights to GPH in
respect of the Series B Convertible Preferred Stock and the Warrant and the
Common Stock underlying each of the Series B
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Convertible Preferred Stock and the Warrant pursuant to a registration rights
agreement between the Company and GPH (the 'GPH Registration Rights Agreement')
(see 'SECURITIES PURCHASE AGREEMENT--Terms of the GPH Registration Rights
Agreement'); (c) the grant of certain registration rights to Richard A.
Bernstein, the current Chairman and Chief Executive Officer of the Company, and
certain of his affiliated entities in respect of shares of Common Stock owned by
them pursuant to a registration rights agreement between the Company, Mr.
Bernstein and such affiliated entities (the 'Bernstein Registration Rights
Agreement') (see 'THE PROPOSALS--Interests of Certain Persons in the
Transactions--Bernstein Registration Rights Agreement'); and (d) the Company's
execution of an employment agreement (the 'Snyder Employment Agreement') and
related arrangements (the 'Snyder Employment Arrangements') with Richard E.
Snyder upon the Closing pursuant to which Mr. Snyder would become the Chairman
and Chief Executive Officer of the Company (see 'THE PROPOSALS--Interests of
Certain Persons in the Transactions--Snyder Employment Arrangements').
THE PARTIES TO THE TRANSACTIONS
The Company. The Company, through its Western Publishing Company
subsidiary, creates, publishes, manufactures, prints and markets story and
picture books, coloring and activity books, interactive electronic books and
games, and computer and multi-media 'edutainment' products for children. These
products are sold principally under the GOLDEN BOOKS(Registered) brand. The
Company also produces and markets Frame-Tray(Registered) puzzles, children's
prerecorded videos and special interest books for the entire family. Western
Publishing Company also offers a wide range of printing, graphic, creative and
distribution services to customers in industry and government.
Through the Beach Products Division of its Penn Corporation subsidiary, the
Company is engaged in the manufacture and sale of decorated paper tableware,
party goods, stationery and gift products.
The Bernstein Entities. Richard A. Bernstein is the Chairman and Chief
Executive Officer of the Company, Chairman of the Company's Western Publishing
Company, Inc. subsidiary and Chairman, President and Chief Executive Officer of
the Company's Penn Corporation subsidiary. References in this Proxy Statement to
(i) the 'Bernstein Entities' mean, collectively, Mr. Bernstein, the Trust for
the benefit of Mr. Bernstein dated March 16, 1978, The Richard A. Bernstein
Trust of 1986 and The Richard A. and Amelia Bernstein Foundation, Inc. and (ii)
the 'Bernstein Shares' shall mean, collectively, the shares of Common Stock
owned by the Bernstein Entities.
Richard E. Snyder. From 1975 to 1994, Mr. Snyder served as Chairman and
Chief Executive Officer of Simon & Schuster, Inc. In order to help ensure a
smooth transition of the Company's management prior to the Closing, Mr. Snyder
was elected as the President of the Company on January 31, 1996 upon the signing
of the Securities Purchase Agreement. He will succeed Mr. Bernstein as Chairman
and Chief Executive Officer of the Company following the Closing. See 'THE
PROPOSALS--Interests of Certain Persons in the Transactions--Snyder Employment
Arrangements.'
Warburg, Pincus Ventures, L.P. Warburg, Pincus Ventures, L.P. ('Warburg
Pincus'), a Delaware limited partnership, is engaged in making venture capital
and similar investments. The sole general partner of Warburg Pincus is Warburg,
Pincus & Co., a New York general partnership, and its manager is E.M. Warburg,
Pincus & Co., a New York general partnership.
Golden Press Holding, L.L.C. GPH is a newly-organized Delaware limited
liability company recently formed by Mr. Snyder, Arrow Holdings, LLC, an entity
controlled by Barry Diller, the Chairman and Chief Executive Officer of Silver
King Communications, Inc. and Chairman of Home Shopping Network, Inc., and
Warburg Pincus solely for purposes of consummating the Transactions and holding
securities of the Company.
THE SPECIAL MEETING
Proxy Solicitation. This Proxy Statement is being furnished in connection
with the solicitation of proxies for the adoption of the Proposals by the board
of directors of the Company (the 'Board of Directors') for use at a special
meeting of stockholders of the Company to be held on Wednesday, May 8, 1996, at
10:00 A.M., local
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time, at Chemical Bank, 270 Park Avenue, 11th Floor, Room C, New York, New York,
or at any adjournment or postponement thereof (the 'Special Meeting').
Vote Required. Approval of the Securities Purchase Proposal by the
Company's stockholders is required by the rules of the National Association of
Securities Dealers, Inc. (the 'NASD'), governing corporations, such as the
Company, with securities quoted on the Nasdaq National Market. The affirmative
vote of the holders of a majority of the votes cast at the Special Meeting is
required to approve the Securities Purchase Proposal, the Stock Option Plan
Amendment Proposal and the Bonus Plan Proposal (PROPOSAL NOS. 1, 3 AND 4). The
six nominees receiving a plurality of the votes cast at the Special Meeting for
the election of directors (PROPOSAL NO. 2) will be elected as directors (but
will qualify as such only upon the closing of the Transactions; see 'ELECTION OF
DIRECTORS'). The affirmative vote of the holders of a majority of the
outstanding shares of Common Stock is required to approve each of the Charter
Amendment Proposals (PROPOSAL NOS. 5, 6 AND 7). UNLESS ALL THE PROPOSALS ARE
APPROVED AND ADOPTED BY THE STOCKHOLDERS AT THE SPECIAL MEETING, NONE WILL BE
EFFECTED BY THE COMPANY, EXCEPT THAT THE OTHER PROPOSALS WILL BE EFFECTED
REGARDLESS OF WHETHER ANY OF THE CHARTER AMENDMENT PROPOSALS IS ADOPTED.
Accordingly, if the Proposals (INCLUDING PROPOSAL NO. 1) are not effected, the
nominees elected at the Special Meeting will not qualify as directors and will
not take office, and the current directors will remain in office until their
successors are duly elected and qualified. See 'ELECTION OF DIRECTORS'. Pursuant
to the Securities Purchase Agreement, 3,996,771 shares of Common Stock owned by
certain of the Bernstein Entities, representing approximately 20% of the Common
Stock entitled to vote at the Special Meeting, will be voted in favor of the
Proposals. See 'THE PROPOSALS--Certain Negotiated Features of the
Transactions--Irrevocable Proxies.'
Shares of Common Stock represented by properly executed proxies received
prior to or at the Special Meeting, unless such proxies have been revoked, will
be voted in accordance with the instructions indicated on the proxies. IF NO
INSTRUCTIONS ARE INDICATED ON A PROPERLY EXECUTED PROXY, THE SHARES WILL BE
VOTED FOR EACH OF THE PROPOSALS.
No Appraisal Rights. Stockholders are not entitled to appraisal rights
under the Delaware General Corporation Law (the 'DGCL') or otherwise in respect
of any of the Proposals.
Record Date. The record date for the Special Meeting is April 9, 1996 (the
'Record Date').
BACKGROUND OF AND REASONS FOR THE TRANSACTIONS
Formal negotiations between the Company and Mr. Snyder and Warburg Pincus
concerning the purchase of a significant equity interest in the Company
commenced in August 1995. Mr. Snyder and Mr. Bernstein began preliminary
discussions in April 1995, and the participation of Warburg Pincus commenced in
May 1995. Although agreements in principle were announced in September and
October 1995, the Company publicly announced termination of the negotiations on
October 17, 1995. Discussions began again in December concerning revised terms
for a significant investment by Mr. Snyder and Warburg Pincus, culminating with
the public announcement of the signing of the Securities Purchase Agreement and
the election of Mr. Snyder as President of the Company on January 31, 1996. See
'THE PROPOSALS--Background of and Reasons for the Transactions.'
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE SECURITIES
PURCHASE AGREEMENT AND THE TRANSACTIONS, CONSIDERED AS A WHOLE, ARE FAIR TO AND
IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND THEREFORE
UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS VOTE FOR APPROVAL OF EACH
OF THE PROPOSALS AT THE SPECIAL MEETING.
For a discussion of the factors considered by the Board of Directors in
reaching its decision, see 'THE PROPOSALS--Recommendation of the Board of
Directors,' 'Opinions of Financial Advisors,' '--Certain Considerations' and
'--Interests of Certain Persons in the Transactions.'
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OPINIONS OF FINANCIAL ADVISORS
The Company has retained each of Bear, Stearns & Co. Inc. ('Bear Stearns')
and Jefferies & Company, Inc. ('Jefferies') on behalf of the Board of Directors
to render a fairness opinion with respect to the consideration to be received by
the Company pursuant to the equity investment contemplated by the Securities
Purchase Agreement. On January 31, 1996, each of Bear Stearns and Jefferies
delivered its written opinion to the effect that, as of such date and based upon
and subject to certain matters as stated in such opinions, the consideration to
be received by the Company from the equity investment contemplated by the
Securities Purchase Agreement is fair to the Company from a financial point of
view. In rendering their opinions, neither Bear Stearns nor Jefferies considered
or opined as to any other transactions or contractual arrangements to be entered
into, or payments to be made by or to the Company or to any other person,
concurrently with GPH's equity investment. See 'THE PROPOSALS--Opinions of
Financial Advisors.' A copy of the written opinion of each of Bear Stearns and
Jefferies, which sets forth the assumptions made, matters considered and limits
on the review undertaken, is attached to this Proxy Statement as Appendix IX and
Appendix X, respectively, and should be read carefully by stockholders in their
entirety.
USE OF PROCEEDS
The estimated net cash proceeds to the Company from the sale of the Series
B Convertible Preferred Stock and the Warrant to GPH will be $56,500,000, after
giving effect to the payment of estimated transaction expenses (see 'SECURITIES
PURCHASE AGREEMENT--Expenses') and the payments under the severance and
management arrangements described under 'THE PROPOSALS--Interests of Certain
Persons in the Transactions--Severance and Management Arrangements.'
Approximately $10 million of such proceeds will be used by the Company to redeem
the outstanding shares of Series A Preferred Stock (which is mandatorily
redeemable by the Company on March 31, 1996) as contemplated by the Securities
Purchase Agreement (see 'THE PROPOSALS--Interests of Certain Persons in the
Transactions--Redemption of Series A Preferred Stock due March 31, 1996'), and
the remainder will be available to the Company for general working capital
purposes, including new product development and future acquisitions. The Company
does not currently have any commitments or understandings regarding the use of
such proceeds. Mr. Snyder has advised the Company that he intends to use the net
proceeds from the investment to pursue a multi-pronged strategy to build upon
the GOLDEN BOOKS(Registered) franchise. This strategy will include strengthening
relationships with the Company's existing mass market retailers, increasing
distribution through non-mass channels, including bookstores, extending the
existing product line to include books for parents and families and, where
appropriate, expanding the GOLDEN BOOKS(Registered) name into non-book areas,
such as home video, television and multi-media. Although Mr. Snyder has advised
the Company that he has not yet finalized any plans regarding the future
operations of the Company, Mr. Snyder has indicated that his plans, when fully
developed, may involve a restructuring of operations which could result in
substantial charges to operations or changes in the classification of the
Company's assets and liabilities. See 'THE PROPOSALS--Use of Proceeds.'
CERTAIN CONSIDERATIONS
While the Board of Directors is of the opinion that the Proposals are in
the best interests of the Company and its stockholders, in evaluating the
Proposals stockholders should consider, among other things, the following
possible consequences of completion of the Transactions:
(i) the significant ownership interest of GPH in the Company (which
will represent approximately 23% of the aggregate voting power of the
outstanding shares of capital stock of the Company after giving effect to
the issuance of the Series B Convertible Preferred Stock, and approximately
31% after giving effect to the exercise of the Warrant), coupled with the
irrevocable proxies granted by Mr. Bernstein and certain of the other
Bernstein Entities to GPH with respect to 3,996,771 shares of Common Stock
(the 'Irrevocable Proxies'), and the fact that the Securities Purchase
Agreement does not restrict GPH from acquiring additional shares in the
open market or otherwise, may render it more difficult for a third party to
effect a change of control of the Company without the consent of GPH and
thereby discourage third parties from any attempt to acquire control of the
Company;
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(ii)(a) GPH's ability to influence the management and policies of the
Company through Mr. Snyder's status as Chairman and Chief Executive Officer
of the Company, (b) the class voting rights afforded to the holders of the
Series B Convertible Preferred Stock to elect one-third of the members of
the Board of Directors and approve certain material corporate transactions,
(c) the fact that the Series B Convertible Preferred Stock will vote on an
as-if-converted basis with the Common Stock as a single class on all
matters submitted to a vote of the stockholders of the Company, including
the election of all directors not elected by the holders of the Series B
Convertible Preferred Stock, (d) the fact that, immediately following the
Closing, the members of the Board of Directors will all be nominees of GPH,
and (e) the right of the holders of the Series B Convertible Preferred
Stock to vote as a class with the holders of the Common Stock in the
election of the remainder of the members of the Board of Directors;
(iii) the potential dilution of the voting and economic rights of the
existing holders of the Common Stock resulting from the issuance of the
Series B Convertible Preferred Stock and the payment of Common Stock
dividends on the Series B Convertible Preferred Stock for the first four
years from issuance thereof, the exercise of the Warrant after two years
from the issuance thereof (or earlier upon the occurrence of certain
events) and the Snyder Employment Arrangements; and
(iv) the fact that the success of the Company will be dependent in
part on the efforts and abilities of Mr. Snyder and that, if the Company
were to lose the services of Mr. Snyder before a qualified replacement
could be obtained, the Company's business could be materially and adversely
affected.
See 'SUMMARY--Pro Forma Capitalization' and 'THE PROPOSALS--Certain
Considerations.'
CERTAIN NEGOTIATED FEATURES OF THE TRANSACTIONS
Stockholders should be aware of the following additional aspects and
provisions of the Securities Purchase Agreement and the Transactions that were
negotiated on behalf of the Company and the stockholders and were required by
the parties as a condition to the signing of the Securities Purchase Agreement:
(i) unlike the proposed transactions between the Company, Mr. Snyder
and Warburg Pincus announced in September and October 1995, none of the
shares of Common Stock beneficially owned by Mr. Bernstein will be
purchased as part of the Transactions and GPH's entire investment will be
made directly in the Company (see 'SECURITIES PURCHASE AGREEMENT--Issuance
and Sale of Series B Convertible Preferred Stock and Warrant');
(ii) Mr. Bernstein and certain of the other Bernstein Entities
currently owning in the aggregate 3,996,771 shares of Common Stock
(representing approximately 20% of the shares currently outstanding) (a)
have relinquished their voting rights with respect to such shares by
granting GPH irrevocable proxies to vote such shares in its sole
discretion, subject to certain conditions, for so long as Mr. Bernstein and
such other entities own such shares, and (b) have agreed to certain
transfer restrictions which will significantly limit their freedom to sell
such shares in a block or blocks in the future (see 'THE PROPOSALS--Certain
Negotiated Features of the Transactions--Irrevocable Proxies');
(iii) the Securities Purchase Agreement permits the Company, upon the
payment of a $2 million break-up fee, to terminate the Securities Purchase
Agreement and accept an unsolicited proposal from a third party which the
Board of Directors reasonably believes is likely to result in a business
combination that is likely to be more favorable to the stockholders of the
Company than the Transactions (see 'SECURITIES PURCHASE
AGREEMENT--Termination and Termination Fee');
(iv) GPH does not have a contractual right to name any directors of
the Company (other than the directors who are to be elected by the holders
of the Series B Convertible Preferred Stock) following the election of
directors at the Special Meeting (see 'ELECTION OF DIRECTORS');
(v) the holders of the Series B Convertible Preferred Stock are not
entitled to antidilution adjustment of the conversion price in respect of
(a) an issuance of Common Stock to GPH and certain of its affiliates unless
such issuance has been approved by a majority of the directors of the
Company who are neither the designees of the holders of the Series B
Convertible Preferred Stock nor individuals associated with
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Warburg Pincus or certain of its affiliates or (b) an issuance of Common
Stock in a transaction that has not been registered under the Securities
Act of 1933, as amended (the 'Securities Act'), unless an investment bank
of national standing and reputation, engaged for a fee by the Company
pursuant to a written engagement letter, has been consulted by the Company
with respect to the structure, and has participated in the negotiation, of
such issuance (see 'SECURITIES PURCHASE AGREEMENT--Terms of the Series B
Convertible Preferred Stock'); and
(vi) Mr. Bernstein has agreed to cause a corporation owned by him to
employ certain Company employees who will be terminated at the Closing to
provide certain management services (including finance and accounting, cash
management, real estate matters, labor negotiations and corporate
administration) to the Company as requested from time to time by Mr. Snyder
for the 180-day transition period following the Closing, and the Company
will pay such corporation $1.2 million upon the Closing for the cost
(including the cost of employing such former employees) of providing such
services (see 'THE PROPOSALS--Certain Negotiated Features of the
Transactions--Management Services').
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
In considering the recommendation of the Board of Directors with respect to
the Proposals, stockholders should be aware that certain members of the Board of
Directors and management have certain interests with respect to the Proposals
that may conflict with and are in addition to the interests of the other
stockholders of the Company, including:
(i) at the Closing, in view of the fact that the Bernstein Entities
would otherwise be restricted under the federal securities laws and the
rules and regulations promulgated thereunder as to the manner in which they
can sell their shares of Common Stock because of the size of the block and
Mr. Bernstein's affiliation with the Company, the Bernstein Registration
Rights Agreement, pursuant to which the Bernstein Entities will have the
right to require the Company, at the Bernstein Entities' cost, to register
the sale of Bernstein Shares with the Securities and Exchange Commission
(the 'SEC') under the Securities Act, and to participate in other
registrations initiated by the Company, will become effective (see 'THE
PROPOSALS--Interests of Certain Persons in the Transactions--Bernstein
Registration Rights Agreement');
(ii) at the Closing, the Company will use a portion of the proceeds
from the GPH investment to redeem the outstanding Series A Preferred Stock
due March 31, 1996, 46.07% of which is owned by Mr. Bernstein (see 'THE
PROPOSALS--Interests of Certain Persons in the Transactions--Redemption of
Series A Preferred Stock due March 31, 1996');
(iii) the Company has agreed in the Securities Purchase Agreement to
provide the usual extended coverage under the Company's executive liability
insurance for a three-year period following the Closing for current and
former directors and officers and certain persons serving in fiduciary
capacities (see 'THE PROPOSALS--Interests of Certain Persons in the
Transactions--Directors' and Officers' Liability Insurance Coverage');
(iv) the Company will enter into the Snyder Employment Agreement
immediately following the Closing pursuant to which, among other things,
Mr. Snyder will replace Mr. Bernstein as Chairman and Chief Executive
Officer of the Company and will be granted options to purchase 1,113,293
shares of Common Stock (see 'THE PROPOSALS--Interests of Certain Persons in
the Transactions--Snyder Employment Arrangements'); and
(v) certain officers and employees of the Company (other than Mr.
Bernstein) whose employment will be terminated at the Closing will receive
severance payments totaling $1.8 million at the time of the Closing, and as
described above a corporation owned by Mr. Bernstein will receive a payment
of $1.2 million upon the Closing for the cost (including the cost of
employing former employees of the Company) of providing certain management
services to the Company as requested from time to time by Mr. Snyder for
the 180-day transition period following the Closing (see 'THE
PROPOSALS--Interests of Certain Persons in the Transactions--Severance and
Management Arrangements.')
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CERTAIN TERMS OF THE SECURITIES PURCHASE AGREEMENT
The Company makes customary representations and warranties in the
Securities Purchase Agreement to GPH concerning its business, operations,
properties and financial condition and its ability to consummate the
Transactions. None of these representations and warranties will survive the
Closing.
Under the Securities Purchase Agreement, the Company has generally agreed
that prior to the Closing it will, among other things, (i) carry on its
businesses in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted, and (ii) afford GPH and its representatives full
access during normal business hours to its properties, books and records and
personnel. While the Company has the right to participate in discussions or
negotiations with or furnish information to a third party which makes an
unsolicited proposal of a transaction which the Board of Directors reasonably
believes is likely to result in a business combination that is likely to be more
favorable to the stockholders of the Company than the Transactions, the Company
has otherwise agreed prior to the Closing to refrain from soliciting, entering
into any agreements or participating in any discussions or negotiations
concerning, or furnishing any information to any person in connection with or
otherwise facilitating, any proposal for certain tender or exchange offers,
mergers or other business combination transactions (the 'Non-Solicitation
Covenant'). See 'SECURITIES PURCHASE AGREEMENT--Pre-Closing Covenants' and
'--Non-Solicitation of Business Combination Proposals.'
The obligations of the Company and GPH to effect the Closing are subject to
the satisfaction of various customary closing conditions, including the approval
of the Proposals (other than the Charter Amendment Proposals) by the Company's
stockholders. There can be no assurance that each of the conditions to the
Closing will be satisfied prior to May 22, 1996, at which time each of the
Company and GPH will, subject to the terms of the Securities Purchase Agreement,
have the right to terminate the Securities Purchase Agreement. See 'SECURITIES
PURCHASE AGREEMENT--Conditions to Closing.'
The Securities Purchase Agreement may be terminated at any time prior to
the Closing, whether before or after approval of the Proposals by the Company's
stockholders, subject to certain conditions, (i) by either party if the Closing
has not occurred on or before May 22, 1996, (ii) by either party if the
Company's stockholders fail to approve the Proposals (other than the Charter
Amendment Proposals), or (iii) by the Company or GPH if the Board of Directors
reasonably determines that a proposal for a business combination by a third
party is likely to result in a business combination which is financially
superior to the Transactions and is likely to be consummated. See 'SECURITIES
PURCHASE AGREEMENT--Termination and Termination Fee.'
In the event that (i) the Transactions are not consummated as a result of a
material breach by the Company of the Non-Solicitation Covenant, (ii) the
Securities Purchase Agreement is terminated as described above because the Board
of Directors has determined that a third party business combination proposal is
financially superior to the Transactions, or (iii) certain third party business
combinations occur prior to certain terminations of the Securities Purchase
Agreement or within nine months following a termination by GPH as a result of a
material breach by the Company of any representation, warranty, covenant or
agreement set forth in the Securities Purchase Agreement, the Company is
required to pay to GPH a termination fee in the amount of $2 million. See
'SECURITIES PURCHASE AGREEMENT--Termination and Termination Fee.'
CERTAIN TERMS OF THE SERIES B CONVERTIBLE PREFERRED STOCK
The Series B Convertible Preferred Stock will (i) be entitled to a 12%
annual cumulative dividend payable (x) during the first four years following
issuance, by delivery of 195,000 shares of Common Stock per quarter (subject to
certain adjustments), and (y) thereafter, at the quarterly rate of $150 per
share, compounded quarterly, payable in cash; (ii) have a liquidation preference
of $5,000 per share; (iii) be subject to redemption at the option of the Company
from time to time after the fourth anniversary of the date of issuance at a
price of $5,000 per share; (iv) be convertible into shares of Common Stock at
the initial rate of $10 per share, subject to customary antidilution
adjustments; (v) for so long as GPH owns a significant portion of the Series B
Convertible Preferred Stock, be entitled to elect one-third of the members of
the Board of Directors (the 'Series B Directors') as a class and have class
voting rights with respect to certain material transactions; and (vi) have the
right to vote on an as-if-converted basis with the Common Stock as a single
class on all matters submitted to a vote of the
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stockholders of the Company, including the election of all directors other than
the Series B Directors. See 'SECURITIES PURCHASE AGREEMENT--Terms of the Series
B Convertible Preferred Stock.'
CERTAIN TERMS OF THE WARRANT
The Warrant will entitle GPH to purchase 3,250,000 shares of Common Stock
at a price of $10 per share, subject to customary antidilution adjustments. The
Warrant will be exercisable beginning on the second anniversary of the date of
issuance (subject to acceleration in the event of a public announcement of
certain bona fide Business Combination Proposals (as defined in 'SECURITIES
PURCHASE AGREEMENT--Pre-Closing Covenants') or the initiation of a proxy
solicitation for control of the Board of Directors by any person or entity
(other than GPH or certain of its affiliated entities)) until the seventh
anniversary of the date of issuance. GPH has agreed in the Securities Purchase
Agreement not to sell, transfer or assign the Warrant for a two-year period
following the Closing, subject to acceleration in certain circumstances. See
'SECURITIES PURCHASE AGREEMENT--Terms of the Warrant.'
CERTAIN TERMS OF THE GPH REGISTRATION RIGHTS AGREEMENT
It is a condition to GPH's obligation to complete its equity investment
that the Company execute and deliver the GPH Registration Rights Agreement at
the Closing. Pursuant to the GPH Registration Rights Agreement, GPH and certain
of its transferees will have the right to require the Company to register the
sale of shares of Series B Convertible Preferred Stock, the Warrant or the
underlying shares of Common Stock with the SEC under the Securities Act, and to
participate in other registrations initiated by the Company. The Company will
pay the expenses of GPH or such transferees in connection with any such
registration, other than underwriting discounts and commissions and the fees and
expenses of legal counsel to the selling stockholders. The GPH Registration
Rights Agreement will also contain customary indemnification and contribution
provisions.
See 'SECURITIES PURCHASE AGREEMENT--Terms of the GPH Registration Rights
Agreement.'
REGULATORY MATTERS
On March 8, 1996 and March 11, 1996, notification and report forms were
filed under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the 'HSR Act'), with respect to the Transactions by GPH and the Company,
respectively. Early termination of the waiting period under the HSR Act was
granted on March 25, 1996. The Company is not aware of any other regulatory
approvals or filings, or any other consents or approvals, required for the
consummation of the Transactions. See 'THE PROPOSALS--Regulatory Matters.'
SECTION 203 OF THE DGCL
As required by the Securities Purchase Agreement, the Board of Directors
has taken appropriate action so that the provisions of Section 203 of the DGCL
restricting 'business combinations' with 'interested stockholders' (each as
defined in Section 203 of the DGCL) will not be applicable to the execution and
delivery of the Securities Purchase Agreement and the consummation of the
Transactions, including the grant by certain of the Bernstein Entities of
irrevocable proxies with respect to their Bernstein Shares to GPH. See 'THE
PROPOSALS--Section 203 of the DGCL.'
LITIGATION
Class action lawsuits were filed in the Delaware Chancery Court following
public announcement of the initial and revised proposals for a transaction
between the Company and Mr. Snyder and Warburg Pincus challenging the then
proposed transactions on several grounds primarily relating to the allegation
that Mr. Bernstein would receive consideration for his shares different from
that to be received by the other stockholders of the Company. The Company, each
of the directors, Warburg Pincus and Mr. Snyder are each named as defendants. On
April 18, 1996, the parties to the class action lawsuits entered into a
Memorandum of Understanding relating to the settlement of such lawsuits. For a
more complete discussion of the allegations and relief sought in the class
actions, as well as the terms of the proposed settlement, see 'THE PROPOSALS--
Litigation.'
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ELECTION OF DIRECTORS
As contemplated by the Securities Purchase Agreement, the stockholders are
being asked at the Special Meeting to elect six nominees nominated by
GPH--Shahara Ahmad-Llewellyn, Barry Diller, Linda L. Janklow, Marshall Rose,
Richard E. Snyder and H. Brian Thompson--as directors of the Company, who will
qualify as directors only upon the Closing and will serve until the next annual
meeting of stockholders of the Company and until their successors have been duly
elected and qualified. Upon the Closing, (i) the size of the Board of Directors
will be increased to nine, (ii) GPH (in its capacity as the holder of the Series
B Convertible Preferred Stock) will elect James A. Eskridge, David A. Tanner and
John L. Vogelstein as Series B Directors and (iii) the incumbent directors will
resign as directors of the Company. Accordingly, immediately following the
Closing, all members of the Board of Directors will have been nominated by GPH.
AMENDMENTS TO 1995 STOCK OPTION PLAN
In connection with its approval of the Securities Purchase Agreement, the
Board of Directors adopted certain amendments to the Stock Option Plan, subject
to stockholder approval, that will facilitate the granting of options to Mr.
Snyder as contemplated by the Snyder Employment Agreement, as well as the
granting of options to other employees following the Closing. See 'THE
PROPOSALS--Interests of Certain Persons in the Transactions--Snyder Employment
Arrangements.' Adoption of the amendments to the Stock Option Plan is a
condition to the consummation of the Transactions contemplated by the Securities
Purchase Agreement. If the Closing does not occur under the Securities Purchase
Agreement for any reason, the amendments to the Stock Option Plan will be
abandoned, regardless of their approval by stockholders. See 'AMENDMENTS TO 1995
STOCK OPTION PLAN.'
EXECUTIVE OFFICER BONUS PLAN
In connection with the Board of Directors' approval of the Securities
Purchase Agreement, the Compensation Committee of the Board of Directors adopted
the Bonus Plan, subject to stockholder approval. It is anticipated that certain
performance-based bonuses potentially payable to Mr. Snyder in accordance with
the Snyder Employment Agreement would be granted under the Bonus Plan. See 'THE
PROPOSALS--Interests of Certain Persons in the Transactions--Snyder Employment
Arrangements.' The Bonus Plan is designed to preserve the deductibility by the
Company of such bonus payments under Section 162(m) of the Internal Revenue Code
of 1986, as amended. Adoption of the Bonus Plan is a condition to the
consummation of the Transactions contemplated by the Securities Purchase
Agreement. If the Closing does not occur for any reason, the Bonus Plan will be
abandoned, regardless of its approval by stockholders. See 'EXECUTIVE OFFICER
BONUS PLAN.'
CHARTER AMENDMENTS
At the Special Meeting, the stockholders will consider the adoption of the
Charter Amendments. The Charter Amendments will (i) change the name of the
Company to 'Golden Books Family Entertainment, Inc.'; (ii) increase the
authorized number of shares of Common Stock from 40,000,000 shares to 60,000,000
shares; and (iii) increase the authorized number of shares of Preferred Stock
from 100,000 shares to 200,000 shares. Adoption of any of the Charter Amendments
by the stockholders is not a condition to the consummation of the Transactions
contemplated by the Securities Purchase Agreement. If the Closing does not occur
under the Securities Purchase Agreement for any reason, the Charter Amendments
will not be effected regardless of their approval by stockholders. Except as
described elsewhere in this Proxy Statement, the Company has no current plans
for any issuances of Common or Preferred Stock. See 'CHARTER AMENDMENTS,'
'AMENDMENT TO CHANGE THE NAME OF THE COMPANY' and 'AMENDMENT TO INCREASE THE
AUTHORIZED COMMON AND PREFERRED STOCK.'
11
<PAGE>
PRO FORMA CAPITALIZATION
The following table summarizes the consolidated capitalization of the
Company at February 3, 1996, and as adjusted to give effect to the Transactions,
including the issuance of the Series B Convertible Preferred Stock and the
Warrant to GPH and the receipt by the Company of the net proceeds of $56,500,000
therefrom (after payment of estimated transaction expenses and the payments
under the severance and management arrangements described under 'THE
PROPOSALS--Interests of Certain Persons in the Transactions--Severance and
Management Arrangements'), the application of a portion of the proceeds to the
redemption of the Series A Preferred Stock due March 31, 1996 and the impact of
certain aspects of the Snyder Employment Arrangements:
<TABLE>
<CAPTION>
AS
ACTUAL ADJUSTMENTS ADJUSTED
-------- ----------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Cash........................................................... $ 45,223 $59,500 (1) $ 89,288
(10,835)(2)
(4,600)(4)
-------- --------- --------
Total Cash................................................... $ 45,223 $44,065 $ 89,288
-------- --------- --------
-------- --------- --------
Current Liabilities............................................ $ 57,714 $ (850)(2) $ 56,864
Long-Term Debt................................................. 149,845 -- 149,845
Other Noncurrent Liabilities................................... 30,053 3,060 (4) 33,113
Convertible Preferred Stock--Series A,
without par value............................................ 9,985 (9,985)(2) --
Stockholders' Equity:
Series B Convertible Preferred Stock,
without par value......................................... -- 59,500 (1) 59,500
Common Stock, $.01 par value................................. 219 -- 219
Additional paid-in capital................................... 87,044 -- 87,044
Note Receivable from sale of Common Stock.................... (4,796) 4,796 (3) --
Retained earnings (deficit).................................. (3,608) (4,796)(3) (16,064)
(7,660)(4)
Cumulative translation adjustments........................... (1,669) -- (1,669)
-------- --------- --------
77,190 51,840 129,030
Less--cost of Common Stock in treasury....................... 2,822 -- 2,822
-------- --------- --------
Total Stockholders' Equity.............................. 74,368 51,840 126,208
-------- --------- --------
Total Capitalization................................. $321,965 $44,065 $366,030
-------- --------- --------
-------- --------- --------
</TABLE>
Note 1--Series B Convertible Preferred Stock
The Adjustment amounts reflect the investment by GPH of $65 million (net of
estimated transaction expenses of $5.5 million) in the Company in exchange for
13,000 shares of Series B Convertible Preferred Stock and a Warrant to purchase
an additional 3,250,000 shares of Common Stock. See 'SECURITIES PURCHASE
AGREEMENT--Issuance and Sale of Series B Convertible Preferred Stock and
Warrant.'
Note 2--Series A Convertible Preferred Stock
The Adjustment amounts reflect the redemption of the Series A Preferred
Stock at its carrying value ($9.985 million) and accumulated unpaid dividends
($.4 million). See 'THE PROPOSALS--Interests of Certain Persons in the
Transactions--Redemption of Series A Preferred Stock due March 31, 1996.'
Note 3--Incentive Stock of Richard E. Snyder
Pursuant to Mr. Snyder's interim employment agreement, the Company issued
599,465 shares of Common Stock to him on January 31, 1996, at a price of $8.00
per share in exchange for a non-recourse note executed by him in the amount of
the purchase price, secured by a pledge of the shares. The Adjustment amounts
reflect the
12
<PAGE>
recognition of compensation expense relating to the vesting of the shares upon
consummation of the Transactions. In the event that the Securities Purchase
Agreement is terminated or Mr. Snyder is not employed by the Company on May 22,
1996, the stock issuance and note will be rescinded. See 'THE PROPOSALS--
Interests of Certain Persons in the Transactions--Snyder Employment
Arrangements.'
Note 4--Impact of the Transactions
The Adjustment amounts give effect to the Transactions as follows:
(a) The effect of certain aspects of the Snyder Employment
Arrangements ($4.66 million) which will result in an immediate charge to
operations when they are entered into following the completion of the GPH
equity investment, principally the special bonus payable ($3.06 million)
associated with the stock options to be granted to purchase 1,113,293
shares of Common Stock and the supplemental retirement benefit ($1.6
million) to be provided to Mr. Snyder. For the purposes of determining the
special bonus payable to Mr. Snyder, the market price of the Common Stock
as of the Closing was assumed to be approximately $10.75. See 'THE
PROPOSALS--Interests of Certain Persons in the Transactions--Snyder
Employment Arrangements.'
(b) The $1.8 million of severance payments to be received by certain
officers and employees (other than Mr. Bernstein) of the Company, who will
resign their positions with the Company. See 'THE PROPOSALS--Interests of
Certain Persons in the Transactions--Severance and Management
Arrangements.'
(c) The $1.2 million payment to a corporation owned by Mr. Bernstein
for the cost (including the cost of employing certain former employees of
the Company) of providing certain management services (including finance
and accounting, cash management, real estate matters, labor negotiations
and corporate administration) to the Company as requested from time to time
by Mr. Snyder for the 180-day transition period following the Closing. See
'THE PROPOSALS--Interests of Certain Persons in the Transactions--
Severance and Management Arrangements.'
(d) The statement of operations effects relating to the Impact of the
Transactions and the Incentive Stock of Richard E. Snyder represent
nonrecurring charges to operations.
PRICE RANGE OF COMMON STOCK; DIVIDEND POLICY
The Common Stock is quoted on the Nasdaq National Market under the symbol
'WPGI.' After the Special Meeting, the Company intends to change its listing
symbol to 'GBFE', in accordance with the change in the Company's name
contemplated by this Proxy Statement. The following table sets forth, for the
periods indicated, the range of high and low prices per share of the Common
Stock as reported on the Nasdaq National Market. Such prices reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not necessarily represent actual transactions. STOCKHOLDERS ARE URGED TO OBTAIN
CURRENT MARKET QUOTATIONS FOR THE COMMON STOCK.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
- ------------------------------------------------------------------------------------------ -------- --------
<S> <C> <C>
FISCAL YEAR ENDED JANUARY 28, 1995:
First Quarter........................................................................... $20.250 $11.000
Second Quarter.......................................................................... 12.875 9.625
Third Quarter........................................................................... 14.125 10.000
Fourth Quarter.......................................................................... 12.625 9.250
FISCAL YEAR ENDED FEBRUARY 3, 1996:
First Quarter........................................................................... $ 9.9375 $ 8.000
Second Quarter.......................................................................... 11.750 9.0625
Third Quarter........................................................................... 14.50 7.875
Fourth Quarter.......................................................................... 10.875 7.750
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
PERIOD HIGH LOW
- ------------------------------------------------------------------------------------------ -------- --------
<S> <C> <C>
FISCAL YEAR ENDING FEBRUARY 1, 1997:
First Quarter through April 17, 1996.................................................... $11.750 $ 9.375
Closing Price on:
September 5, 1995(1).................................................................... $11.750
October 2, 1995(2)...................................................................... 13.5625
October 18, 1995(3)..................................................................... 8.875
January 31, 1996(4)..................................................................... 9.375
February 1, 1996(5)..................................................................... 10.750
</TABLE>
- ------------------
(1) The last trading day before the Company publicly announced the terms of the
initial proposal for a transaction with Mr. Snyder and Warburg Pincus.
(2) The last trading day before the Company publicly announced the revised terms
of the initial proposal for a transaction with Mr. Snyder and Warburg
Pincus.
(3) The first trading day after the Company publicly announced that it had not
reached agreement on the terms of a transaction with Mr. Snyder and Warburg
Pincus.
(4) The last trading day before the Company publicly announced the signing of
the Securities Purchase Agreement.
(5) The first trading day after the Company publicly announced the signing of
the Securities Purchase Agreement.
Holders of Common Stock are entitled to receive such dividends as may be
lawfully declared by the Board of Directors. Since its organization in 1984, the
Company has not paid a cash dividend on the Common Stock, and management does
not currently anticipate the payment of cash dividends on the Common Stock in
the foreseeable future.
14
<PAGE>
BENEFICIAL STOCK OWNERSHIP
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership as of April 9, 1996 (except as set forth in notes 3 and 4 below) of
the Common Stock (the Company's only outstanding class of voting securities) by
each person or group known by the Company to be the beneficial owner of more
than 5% of the Common Stock:
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
------------------------------
NUMBER OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER OF COMMON STOCK PERCENTAGE
- ------------------------------------------------------------------------- ---------------- ----------
<S> <C> <C>
Richard A. Bernstein .................................................... 4,280,937(2) 19.56%
444 Madison Avenue
New York, New York 10022
Mario J. Gabelli ........................................................ 5,520,650(3) 25.48%
Gabelli Funds, Inc.
655 Third Avenue
New York, New York 10017
The Capital Group Companies, Inc. ....................................... 2,451,000(4) 11.31%
333 South Hope Street
Los Angeles, California 90071
</TABLE>
- ------------------
(1) Except where otherwise indicated, all parties listed above have sole voting
and dispositive power over the shares beneficially owned by them.
(2) Includes 400,000 shares of Common Stock owned by a trust for the benefit of
Mr. Bernstein dated March 16, 1978 (the '1978 Trust'), 95,771 shares of
Common Stock owned by The Richard A. Bernstein Trust of 1986 ('1986 Trust')
and 191,666 shares of Common Stock issuable upon conversion of the 9,200
shares of Series A Preferred Stock due March 31, 1996, without par value, of
the Company (the 'Series A Preferred Stock') owned by Mr. Bernstein. Each
share of Series A Preferred Stock currently is convertible at any time into
20.833 shares of Common Stock. Mr. Bernstein has no voting or investment
power over the shares in the 1986 Trust. Also includes 60,000 shares of
Common Stock owned by The Richard A. and Amelia Bernstein Foundation, Inc.
as to which Mr. Bernstein has shared voting and dispositive power, but Mr.
Bernstein disclaims any other beneficial interest in such shares, and 32,500
shares of Common Stock which may be acquired by Mr. Bernstein within 60 days
upon exercise of options granted under the Company's Amended and Restated
1986 Employee Stock Option Plan. As described under 'THE PROPOSALS--Certain
Negotiated Features of the Transactions--Irrevocable Proxies,' on January
31, 1996, Mr. Bernstein, the 1978 Trust and the 1986 Trust granted
irrevocable proxies to GPH with respect to 3,996,771 shares of Common Stock,
giving GPH the power to vote such shares, for as long as they are owned by
Mr. Bernstein or his affiliates, in such manner as GPH deems proper (subject
to certain limitations), for the term of such irrevocable proxies. Mr.
Bernstein, the 1978 Trust and the 1986 Trust have retained sole dispositive
power with respect to these shares. According to the Schedule 13D filed on
February 12, 1996 by GPH, Warburg, Pincus Ventures, L.P., Warburg, Pincus &
Co. and E.M. Warburg, Pincus & Company, each such entity has shared voting
power, and no dispositive power, as to such shares.
(3) The Gabelli Funds, Inc. has reported to the Company that GAMCO Investors,
Inc. beneficially owned, as of December 11, 1995, 4,545,650 shares of Common
Stock, including sole voting power with respect to 4,079,150 shares and sole
dispositive power with respect to 4,545,650 shares, and The Gabelli Funds,
Inc. beneficially owned, as of such date, 912,000 shares of Common Stock,
with respect to which it had shared voting and sole dispositive power.
Additionally, Gabelli International Limited beneficially owned, as of such
date, 45,000 shares of Common Stock, with respect to which it had sole
voting and dispositive power, and Gabelli International II Limited
beneficially owned, as of such date, 18,000 shares of Common Stock, with
(Footnotes continued on next page)
15
<PAGE>
(Footnotes continued from previous page)
respect to which it had sole voting and dispositive power. Furthermore, Mr.
Gabelli is deemed to have beneficial ownership of the securities
beneficially owned by each of the persons listed in this footnote and
Gabelli Funds, Inc. is deemed to have beneficial ownership of the securities
owned beneficially by each of the persons listed in this footnote other than
Mr. Gabelli. Mr. Gabelli is the majority stockholder of, and controls and
acts as chief investment officer for, each of the foregoing persons.
(4) The Capital Group Companies, Inc. has reported to the Company that its
operating subsidiaries, Capital Guardian Trust Company and Capital Research
and Management Company, have, as of December 29, 1995, sole voting and
dispositive power with respect to 1,651,000 and 800,000 shares of Common
Stock, respectively.
16
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the beneficial
ownership as of April 9, 1996 of Series A Preferred Stock and Common Stock by
(i) each executive officer of the Company named in the Summary Compensation
Table below under 'ELECTION OF DIRECTORS--Executive Compensation', (ii) each
director of the Company, (iii) each nominee for director at the Special Meeting
and (iv) all directors and executive officers as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF COMMON STOCK(1)
------------------------------------------------------------------------
NUMBER OF
SHARES OF PERCENTAGE NUMBER OF
SERIES A OF SERIES A SHARES OF PERCENTAGE OF
BENEFICIAL OWNER PREFERRED STOCK PREFERRED STOCK STOCK COMMON(2) STOCK COMMON(2)
- ------------------------------------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Richard A. Bernstein....................... 9,200 46.07% 4,280,937(3) 19.56%
John F. Moore.............................. 300,000(4) 1.37%
Steven M. Grossman......................... 20,179(5) *
James A. Cohen............................. 50 * 50,087(6) *
Ira A. Gomberg............................. 36,667(7) *
Ilan K. Reich.............................. 21,767(8) *
Bruce A. Bernberg.......................... 65,021(9) *
Richard H. Hochman......................... 7,000 *
Jenny Morgenthau........................... 2,000 *
Michael A. Pietrangelo..................... 5,000 *
Shahara Ahmad-Llewellyn.................... 0 *
Barry Diller............................... 0 *
Linda L. Janklow........................... 0 *
Marshall Rose.............................. 0 *
Richard E. Snyder.......................... 599,465(10) 2.77%
H. Brian Thompson.......................... 0 *
All directors and executive officers
as a group (15 individuals).............. 9,250 46.32% 5,616,092(11) 25.10%
</TABLE>
- ------------------
* Represents less than 1% of the Common Stock outstanding.
(1) Except where otherwise indicated, all parties listed above have sole voting
and dispositive power over the shares beneficially owned by them.
Adjustments are made to avoid double counting of shares as to which more
than one beneficial owner is listed.
(2) Includes shares of Common Stock issuable upon conversion of the beneficial
owner's shares of Series A Preferred Stock. Each share of Series A
Preferred Stock is convertible at any time into 20.833 shares of Common
Stock.
(3) Includes 400,000 shares of Common Stock owned by a trust for the benefit of
Mr. Bernstein dated March 16, 1978 (the '1978 Trust'), 95,771 shares of
Common Stock owned by The Richard A. Bernstein Trust of 1986 (the '1986
Trust') and 191,666 shares of Common Stock issuable upon conversion of Mr.
Bernstein's shares of Series A Preferred Stock. Mr. Bernstein has no voting
or investment power over the shares in the 1986 Trust. Also includes 60,000
shares of Common Stock owned by The Richard A. and Amelia Bernstein
Foundation, Inc. as to which Mr. Bernstein has shared voting and
dispositive power, but Mr. Bernstein disclaims any other beneficial
interest in such shares, and 32,500 shares of Common Stock which may be
acquired by Mr. Bernstein within 60 days upon exercise of options granted
under the Company's Amended and Restated 1986 Employee Stock Option Plan
(the '1986 Option Plan').
As described under 'THE PROPOSALS--Certain Negotiated Features of the
Transactions--Irrevocable Proxies,' on January 31, 1996, Mr. Bernstein, the
1978 Trust and the 1986 Trust granted irrevocable proxies to GPH with
respect to 3,996,771 shares of Common Stock, giving GPH the power to vote
such
(Footnotes continued on next page)
17
<PAGE>
(Footnotes continued from previous page)
shares, for so long as they are owned by Mr. Bernstein or his affiliates,
in such manner as GPH deems proper (subject to certain limitations), for
the term of such irrevocable proxies. Mr. Bernstein, the 1978 Trust and the
1986 Trust have retained sole dispositive power with respect to their
shares. According to the Schedule 13D filed on February 12, 1996 by GPH,
Warburg, Pincus Ventures, L.P., Warburg, Pincus & Co. and E.M. Warburg,
Pincus & Company, each such entity has shared voting power, and no
dispositive power, as to such shares.
(4) Includes 300,000 shares of Common Stock which may be acquired by Mr. Moore
within 60 days upon exercise of options granted under the 1986 Option Plan.
(5) Includes 20,000 shares of Common Stock which may be acquired by Mr.
Grossman within 60 days upon exercise of options granted under the 1986
Option Plan.
(6) Includes 1,042 shares of Common Stock issuable upon conversion of Mr.
Cohen's shares of Series A Preferred Stock and 36,667 shares of Common
Stock which may be acquired by Mr. Cohen within 60 days upon exercise of
options granted under the 1986 Option Plan.
(7) Includes 36,667 shares of Common Stock which may be acquired by Mr. Gomberg
within 60 days upon exercise of options granted under the 1986 Option Plan.
(8) Includes 21,667 shares of Common Stock which may be acquired by Mr. Reich
within 60 days upon exercise of options granted under the 1986 Option Plan.
(9) Includes 42,500 shares of Common Stock which may be acquired by Mr.
Bernberg within 60 days upon exercise of options granted under the 1986
Option Plan.
(10) Represents shares issued by the Company to Mr. Snyder upon his election as
President of the Company on January 31, 1996 in exchange for a nonrecourse
note secured by a pledge of such shares. In the event that the Securities
Purchase Agreement is terminated in accordance with its terms or Mr. Snyder
is not employed by the Company on May 22, 1996, this stock issuance and the
note will be rescinded. These shares do not include non-qualified stock
options to purchase 1,113,293 shares of Common Stock to be granted to Mr.
Snyder following the closing of GPH's equity investment pursuant to the
terms of his employment agreement. See 'THE PROPOSALS--Interests of Certain
Persons in the Transactions--Snyder Employment Arrangements.'
(11) Includes 516,668 shares of Common Stock which may be acquired by certain
executive officers within 60 days upon exercise of options granted under
the 1986 Option Plan.
18
<PAGE>
THE PROPOSALS
UNLESS ALL THE PROPOSALS ARE APPROVED AND ADOPTED BY THE STOCKHOLDERS AT
THE SPECIAL MEETING, EACH OF THE PROPOSALS WILL BE DEEMED TO HAVE BEEN REJECTED
BY THE STOCKHOLDERS AND NONE OF THE PROPOSALS WILL BE EFFECTED, EXCEPT THAT THE
OTHER PROPOSALS WILL BE EFFECTED REGARDLESS OF WHETHER ANY OF THE PROPOSALS
RELATING TO THE CHARTER AMENDMENTS IS ADOPTED.
BACKGROUND OF AND REASONS FOR THE TRANSACTIONS
In 1988, Simon & Schuster, Inc., of which Mr. Snyder was then Chairman and
Chief Executive Officer, held discussions with the Company regarding a possible
business combination with the Company, but no such transaction was agreed upon.
In November 1993, the Company announced that it had retained Bear, Stearns
& Co. Inc. ('Bear Stearns') and Morgan Stanley & Co. Incorporated ('Morgan
Stanley') to examine overtures from other entities regarding proposed business
combination proposals and to explore strategic alternatives to maximize
stockholder value. The subsequent solicitation process did not result in a
business combination transaction involving the Company. However, in 1994 the
Company did sell its games and puzzles operations to Hasbro, Inc., sold the
Advertising Specialty Division of Penn Corporation, closed its facility in
Fayetteville, North Carolina, sold its school book club and direct marketing
businesses and implemented certain reductions in the Company's overhead.
Mr. Snyder and Mr. Bernstein met in April 1995 and subsequently held
preliminary discussions concerning a potential transaction involving Mr. Snyder
and the Company. After several meetings with Mr. Snyder and his financial
advisor, Mr. Snyder introduced Warburg, Pincus Ventures, L.P. ('Warburg Pincus'
and, together with Mr. Snyder, the 'Snyder/Warburg Pincus Group') to a possible
transaction. Thereafter, Mr. Snyder and Warburg Pincus jointly pursued a
transaction with the Company. In May, Mr. Snyder and Warburg Pincus signed a
confidentiality agreement with the Company and began to review detailed
information concerning the Company. In August, the parties began to outline the
parameters of a potential transaction in which the Snyder/Warburg Pincus Group
would acquire a significant equity interest in the Company.
Following the publication of an article concerning the possibility of a
transaction between the Company, Mr. Snyder and Warburg Pincus in The New York
Times, the Company issued a press release on September 6, 1995 announcing (the
'September Announcement') that it had reached an agreement in principle for the
acquisition of a significant equity interest in the Company by the
Snyder/Warburg Pincus Group, subject to the completion of due diligence, the
execution of definitive legal agreements and the approval of the board of
directors of the Company (the 'Board of Directors') and the Company's
stockholders. The September Announcement contemplated a transaction in which the
Snyder/Warburg Pincus Group would purchase the Company's wholly-owned
subsidiary, Penn Corporation, from the Company for $23 million in cash and
contribute $56 million to the capital of Penn Corporation. The Snyder/Warburg
Pincus Group would then purchase Mr. Bernstein's approximate 20% stake in the
Company, paying him in exchange therefor $14 per share in cash and 20% of the
shares of Penn Corporation. The remaining 80% of the stock of Penn Corporation
would then be distributed to the other stockholders of the Company in connection
with a merger transaction in which the Snyder/Warburg Pincus Group would acquire
$120 million of convertible preferred stock, convertible at $14 per share and
representing a 33% stake in the Company, and a $15 million note. The September
Announcement also contemplated that, upon the closing of the transaction, Mr.
Snyder would succeed Mr. Bernstein as Chairman and Chief Executive Officer of
the Company.
Because the transaction outlined in the September Announcement contemplated
the purchase of the Bernstein Shares, the Board of Directors formed an
independent committee of outside directors to advise the Board of Directors with
respect to the proposed transaction. The committee in turn retained Bear Stearns
and Jefferies & Company, Inc. ('Jefferies') to consider the fairness of the
proposed transaction from a financial point of view. As described under 'THE
PROPOSALS--Opinions of Financial Advisors--Bear Stearns,' Bear Stearns also
performed and received a fee for certain other financial advisory services for
the Company in connection with the proposed transactions.
19
<PAGE>
Following the September Announcement, representatives of the Snyder/Warburg
Pincus Group, including their advisor SBC Capital Markets, Inc., continued to
conduct their due diligence investigation with respect to the Company and its
businesses, operations and properties. In addition, the parties and their legal
counsel conducted extensive negotiations concerning the legal documentation for
the proposed transaction. In late September, representatives of the
Snyder/Warburg Pincus Group approached the Company to express their concern with
the Company's recent results of operations and to advise the Company that it was
not prepared to proceed with the transaction contemplated in the September
Announcement. After further negotiations, the Company issued a press release on
October 3, 1995 announcing (the 'October Announcement') that it had agreed in
principle with the Snyder/Warburg Pincus Group on a revised transaction. The
October Announcement contemplated a transaction in which the Snyder/Warburg
Pincus Group would purchase the Bernstein Shares at a cash price of $15.50 per
share. The Snyder/Warburg Pincus Group would then exchange these shares,
together with approximately $50 million in cash, for convertible preferred
stock, convertible at $14 per share and representing a 34% stake in the Company,
and warrants to purchase an additional four million shares at an exercise price
of $15 per share. Mr. Snyder would succeed Mr. Bernstein as Chairman and Chief
Executive Officer of the Company upon completion of the transaction. Under the
revised terms, Penn Corporation would remain a wholly-owned subsidiary of the
Company. The October Announcement also indicated that the proposed transaction
remained subject to the same conditions as set forth in the September
Announcement, that no definitive agreement had been signed to date and that
there could be no assurance that the parties would reach a definitive agreement.
Following the September Announcement, a class action lawsuit was filed in
the Delaware Court of Chancery entitled Samuel Pill v. Richard A. Bernstein, et
al. (the 'Pill Class Action'). An amended complaint was filed on October 5, 1995
following the October Announcement (the 'Amended Pill Complaint'). On October 6,
1995, two additional and substantially similar class action lawsuits were filed
in the Delaware Court of Chancery entitled Charles Miller v. Richard Bernstein,
et al. (the 'Miller Class Action') and Harry Polikoff v. Richard A. Bernstein,
et al. (the 'Polikoff Class Action' and, together with the Pill Class Action and
the Miller Class Action, the 'Class Actions'). For a discussion of the
allegations contained in the Class Actions, as well as the terms of a proposed
settlement, see 'THE PROPOSALS--Litigation.'
The parties continued to negotiate the terms of the revised transaction
following the October Announcement. Representatives of the Snyder/Warburg Pincus
Group also continued their due diligence. However, the parties could not reach
final agreement on the terms of the proposed transaction and, on October 17,
1995, the Company publicly announced (the 'Termination Announcement') that all
negotiations between the parties had been terminated.
Company management received and considered several preliminary expressions
of interest from third parties for a variety of transactions during the ensuing
weeks. However, none of these parties was prepared to make a formal offer
containing financial or other terms for any of these transactions and,
consequently, the Board of Directors was not presented with a transaction that
it could pursue. In November, Mr. Snyder and Warburg Pincus approached the
Company to attempt to negotiate a new transaction, which negotiations culminated
in the signing of the Securities Purchase Agreement on January 31, 1996. As
negotiated, the revised transaction contemplated that the Snyder/Warburg Pincus
Group would not purchase any of the Bernstein Shares. Instead, the entire
investment would be made directly in the Company in exchange for shares of
convertible preferred stock, convertible at $10 per share, and warrants
exercisable at $10 per share. The revised transaction also provided for the
Company to use a portion of the proceeds from the investment to redeem the
outstanding shares of Series A Preferred Stock due March 31, 1996. In addition,
the Snyder/Warburg Pincus Group required that Mr. Bernstein and certain of his
affiliates grant it irrevocable proxies to vote their shares of Common Stock for
so long as such shares were owned by Mr. Bernstein and such affiliates.
Several weeks of negotiations and additional due diligence followed. The
Board of Directors met on December 19, 1995, January 17, 1996 and January 25,
1996 to receive reports from management concerning the renewed negotiations with
the Snyder/Warburg Pincus Group and the other expressions of interest received
since the Termination Announcement. In addition, at the January 25, 1996 meeting
representatives of Jefferies made an oral presentation to the Board of Directors
as to the fairness to the Company of the consideration to be received by the
Company in the proposed transaction (which at the time contemplated a $60
million investment).
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On January 26, 1996, John F. Moore resigned as President and Chief
Executive Officer of the Company's principal operating subsidiary, Western
Publishing Company, Inc., although he remained a director of the Company.
The Board of Directors met again on January 31, 1996 to consider the final
terms of the Securities Purchase Agreement and related legal documentation,
which contemplated a $65 million investment by the Snyder/Warburg Pincus Group.
The Board of Directors heard the oral presentation and opinion of Bear Stearns
that the consideration to be received by the Company in the proposed transaction
was fair to the Company from a financial point of view, and was advised that
Jefferies was prepared to deliver its fairness opinion. At that meeting, the
Board of Directors, after considering numerous factors set forth below under
'THE PROPOSALS--Recommendation of the Board of Directors,' by a unanimous vote,
determined that the Securities Purchase Agreement and the transactions
contemplated thereby (the 'Transactions'), considered as a whole, are fair to
and in the best interests of the Company and its stockholders. Later that day,
Bear Stearns and Jefferies delivered written fairness opinions, the Securities
Purchase Agreement and related documents were signed by the parties and the
Company issued a press release announcing the Transactions. In addition, in
order to help ensure a smooth transition of the Company's management, Mr. Snyder
was elected as President by the Board of Directors and agreed to serve in that
capacity through the closing of GPH's equity investment. See 'THE
PROPOSALS--Interests of Certain Persons in the Transactions--Snyder Employment
Arrangements.'
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE SECURITIES
PURCHASE AGREEMENT AND THE TRANSACTIONS, CONSIDERED AS A WHOLE, ARE FAIR TO AND
IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND THEREFORE
UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS VOTE FOR APPROVAL OF EACH
OF THE PROPOSALS AT THE SPECIAL MEETING.
As described above under 'THE PROPOSALS--Background of and Reasons for the
Transactions,' the decision of the Board of Directors to approve the Securities
Purchase Agreement and related documentation and the Transactions followed
extensive negotiations over a period of over six months between the Company, Mr.
Snyder, Warburg Pincus and their respective representatives. During the period
between the September Announcement and the signing of the Securities Purchase
Agreement and related documentation, the Board of Directors met seven times to
consider and review information concerning various aspects of the proposed
transactions.
AT ITS MEETING HELD ON JANUARY 31, 1996, THE BOARD OF DIRECTORS UNANIMOUSLY
CONCLUDED THAT THE TRANSACTIONS, CONSIDERED AS A WHOLE, ARE FAIR TO AND IN THE
BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS. During the course of its
deliberations, the Board of Directors considered, without assigning relative
weights to, the following factors:
(i) the terms and conditions for the Transactions as set forth in the
Securities Purchase Agreement and the related documentation, including the
infusion of cash to be made to the Company by GPH for its stake in the
Company, which the Board of Directors concluded represents the most
favorable transaction possible with the Snyder/Warburg Pincus Group and
available to the Company, based on the history of the Company's
negotiations with the Snyder/Warburg Pincus Group and the failure of any
formal competing offers to emerge following the November 1993 public
announcement that the Company had retained Bear Stearns and Morgan Stanley
to consider strategic alternatives, or following the September and October
Announcements and the Termination Announcement;
(ii) the historical and prospective operations of the Company,
including, among other things, the current financial condition and future
prospects of the Company, the strategic direction of the Company's
businesses, the current conditions in, and future prospects of, the
Company's various lines of business and the competitive position of the
Company in its various lines of business, which when considered in their
entirety by the Board of Directors, demonstrated the desirability of
obtaining a significant equity investment in the Company of the size
proposed by the Snyder/Warburg Pincus Group;
(iii) historical data relating to market prices and trading volume of
the Common Stock, the favorable reactions by the public market for the
Common Stock to the September and October Announcements, the
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generally higher prices at which the Common Stock has traded since the
September Announcement, presumably in anticipation of a transaction
involving the Company, which in the view of the Board of Directors
indicated that the public markets would favor the equity investment by the
Snyder/Warburg Pincus Group;
(iv) the desire of Mr. Bernstein to step down as the Chief Executive
Officer of the Company and the benefits to the Company of obtaining the
services of Mr. Snyder as its Chief Executive Officer based on his
experience and track record in the publishing industry, together with the
financial expertise and resources of Warburg Pincus;
(v) the various matters described under 'THE PROPOSALS--Certain
Considerations' and 'THE PROPOSALS--Interests of Certain Persons in the
Transactions, which the Board of Directors concluded do not outweigh or
materially detract from the benefits of the Transactions to the Company;'
(vi) the opportunity for the Company's stockholders to retain a
significant equity interest in the Company, which the Board of Directors
concluded would be welcomed by stockholders who do not want to sell their
shares at the then current market prices for the Common Stock;
(vii) the fact that the Company is permitted under the Securities
Purchase Agreement to terminate the Securities Purchase Agreement and,
subject to paying a $2 million termination fee, to enter into an agreement
for a business combination that the Board of Directors reasonably
determines is likely to be more favorable to the Company's stockholders
than the Transactions, which the Board of Directors concluded would permit
it to consider and enter into a more favorable transaction should one
present itself following public announcement of the signing of the
Securities Purchase Agreement;
(viii) the presentation of Bear Stearns to the Board of Directors at
its meeting on January 31, 1996, together with Bear Stearns' written
opinion delivered on that date that, as of such date, the consideration to
be received by the Company from the equity investment contemplated by the
Securities Purchase Agreement is fair to the Company from a financial point
of view; and
(ix) the presentation of Jefferies to the Board of Directors at its
meeting on January 25, 1996, together with Jefferies' written opinion
delivered on January 31, 1996 that, as of such date, the consideration to
be received by the Company from the equity investment contemplated by the
Securities Purchase Agreement is fair to the Company from a financial point
of view.
OPINIONS OF FINANCIAL ADVISORS
Bear Stearns
At the January 31, 1996 meeting of the Board of Directors, Bear Stearns
delivered its oral presentation and opinion, which it confirmed in writing later
that day, to the effect that, based upon the matters presented to the Board of
Directors and subject to various considerations set forth in Bear Stearns'
opinion, as of January 31, 1996, the consideration to be received by the Company
from the equity investment contemplated by the Securities Purchase Agreement is
fair to the Company from a financial point of view. Bear Stearns subsequently
delivered a confirmatory written opinion dated April 18, 1996. As described
below under '--Fees and Expenses,' Bear Stearns also performed and received a
fee for certain other financial advisory services for the Company in connection
with the GPH equity investment, including analyzing and advising the Company's
management with respect to certain structural and financial aspects of the
transactions proposed by the Snyder/Warburg Pincus Group over the course of the
negotiations, as well as participating in the negotiations between the parties
at various stages of the discussions.
THE FULL TEXT OF THE OPINION OF BEAR STEARNS, DATED APRIL 18, 1996, IS
ATTACHED AS APPENDIX IX TO THIS PROXY STATEMENT AND SETS FORTH THE ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN. STOCKHOLDERS ARE
URGED TO READ THE OPINION OF BEAR STEARNS IN ITS ENTIRETY. Bear Stearns' opinion
is directed only to the fairness, from a financial point of view, of the
consideration to be received by the Company from the equity investment
contemplated by the Securities Purchase Agreement, pursuant to which, among
other things, GPH will purchase, for a purchase price of $65 million which will
be paid in cash, shares of Series B Convertible Preferred Stock with an
aggregate redemption value of $65 million and a Warrant to purchase 3,250,000
shares of Common Stock (the 'Securities Issuance'). Except as set forth below
and in the
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full text of Bear Stearns' opinion, no limitations were imposed by the Board of
Directors upon Bear Stearns with respect to the investigations made or
procedures followed by it in rendering its opinion. In rendering its opinion,
Bear Stearns did not opine as to any other transactions or contractual
arrangements to be entered into or payments to be made by or to the Company or
any other person concurrently with the Securities Issuance.
THE SUMMARY OF THE OPINION OF BEAR STEARNS SET FORTH IN THIS PROXY
STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH
OPINION SET FORTH AS APPENDIX IX TO THIS PROXY STATEMENT. BEAR STEARNS' OPINION
DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF THE COMPANY AS TO HOW
SUCH STOCKHOLDER SHOULD VOTE ON THE PROPOSALS AT THE SPECIAL MEETING.
In arriving at its opinion, Bear Stearns, among other things: (i) reviewed
the Securities Purchase Agreement; the Certificate of Designations, Number,
Voting Powers, Preferences and Rights relating to the Series B Convertible
Preferred Stock; the form of the Warrant; the GPH Registration Rights Agreement;
and certain related agreements; (ii) reviewed the Company's Annual Reports to
Shareholders for the fiscal years ended on or about January 31, 1993 through
1995; its Annual Reports on Form 10-K for the fiscal years ended on or about
January 31, 1993 through 1995; and its Quarterly Reports on Form 10-Q for the
periods ended April 29, 1995, July 29, 1995 and October 28, 1995; (iii) reviewed
certain operating and financial information, including budgets and current
estimates for Fiscal 1996 (FYE February 3, 1996) provided to Bear Stearns by the
Company's senior management, relating to the Company's businesses and prospects
(Bear Stearns having been informed by senior management of the Company that no
quantitative forecasts of financial performance were available for any period
after the fiscal year ending February 3, 1996); (iv) met with certain members of
the Company's senior management to discuss the Company's businesses and
operations, previous restructuring initiatives, historical financial
performance, estimated financial performance for Fiscal 1996 (FYE February 3,
1996), current financial condition and liquidity, expected capital requirements
and future prospects; (v) met with Mr. Snyder and Warburg Pincus to discuss
their prospective business strategy for the Company and their views of the
Company's corporate and operating management, previous business strategies,
businesses and operations, previous restructuring initiatives, historical
financial performance, estimated financial performance for Fiscal 1996 (FYE
February 3, 1996), current financial condition and liquidity, expected capital
requirements and future prospects; (vi) reviewed the historical prices, trading
activity and valuation parameters of the shares of Common Stock and the
Company's 7.65% Senior Notes due 2002 (the 'Senior Notes'); (vii) reviewed
publicly available financial data, stock market performance data and valuation
parameters of certain companies which Bear Stearns deemed generally comparable
to the Company; (viii) reviewed the terms of selected precedent investment
transactions, to the extent publicly available, which Bear Stearns deemed
generally comparable to the Securities Issuance; (ix) reviewed the terms of
selected precedent mergers and acquisitions, to the extent publicly available,
involving companies which Bear Stearns deemed generally comparable to the
Company; (x) reviewed the terms of selected issuances of convertible preferred
stock in the public securities market; and (xi) conducted such other studies,
analyses, inquiries and investigations as Bear Stearns deemed appropriate.
In connection with the foregoing, Bear Stearns relied upon and assumed the
accuracy and completeness of the financial and other information provided to it
by the Company and representations of the Company's senior management related
thereto. With respect to the Company's budgets and current estimates for Fiscal
1996 (FYE February 3, 1996) referred to in clause (iv) of the previous
paragraph, Bear Stearns assumed that they had been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the senior
management of the Company as to the expected performance of the Company for
Fiscal 1996. Bear Stearns was informed by the senior management of the Company
that no budget or forecast was available for Fiscal 1997 (FYE February 1, 1997).
Bear Stearns did not assume any responsibility for the information or current
estimates provided to it and relied upon the assurances of the senior management
of the Company that it was unaware of any facts that would make the information
provided to Bear Stearns incomplete or misleading. In arriving at its opinion,
Bear Stearns did not perform or obtain any independent appraisal of the assets
of the Company. Bear Stearns' opinion was necessarily based on economic, market
and other conditions, and the information made available to it, as of the date
thereof.
In rendering its opinion, Bear Stearns considered (i) the reaction of the
stock market and certain major stockholders to previous proposed transactions
between the Company and the Snyder/Warburg Pincus Group which had been publicly
disclosed during the Fall of 1995 and the potential positive impact on the
prices of the Company's equity and debt securities of new senior management;
(ii) the Company's recent financial
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performance, current financial condition and (based on recent trends as well as
the discussions with senior management, Mr. Snyder and Warburg Pincus described
above) future prospects; (iii) the potential negative impact on the prices of
the Company's equity and debt securities of the Company's expected financial
performance for Fiscal 1996 (FYE February 3, 1996) in the absence of the
proposed transaction with the Snyder/Warburg Pincus Group or another similar
extraordinary transaction; (iv) the fact that (a) no other potential equity
investors or strategic acquirors had made a formal investment or acquisition
proposal to the Company since the September Announcement and (b) the Company had
failed to effect a sale transaction or similar extraordinary transaction despite
various discussions with potential financial and strategic buyers throughout
1995 and during a public auction conducted during 1994; (v) the Company's
prospects for raising debt and/or equity in the public and private capital
markets; and (vi) various terms and conditions of the Securities Issuance,
including that (x) the Securities Issuance is subject to a vote of the Company's
stockholders, (y) the 'no solicitation' and 'termination' provisions of the
Securities Purchase Agreement provide the Board of Directors of the Company with
the flexibility to exercise its fiduciary duty to pursue certain alternative
transactions in lieu of the Securities Issuance and (z) the irrevocable proxies
granted by Mr. Bernstein and certain of his affiliates to GPH as a condition to
the Securities Issuance.
The following is a summary of the principal financial and valuation
analyses performed by Bear Stearns to arrive at its opinion. Based on these
financial and valuation analyses and the other factors discussed herein, Bear
Stearns determined that, as of the date of its opinion, the consideration to be
received by the Company pursuant to the Securities Issuance is fair, from a
financial point of view, to the Company.
Review and Analysis of the Company's Financial and Operating
Performance. Bear Stearns reviewed and analyzed the historical financial and
operating performance of the Company for Fiscal 1993, 1994 and 1995 and the nine
months ended October 28, 1995 and the estimated financial and operating
performance of the Company for Fiscal 1996. This review and analysis considered
the Company's reported revenues, gross profit, earnings before interest, taxes,
depreciation and amortization ('EBITDA'), earnings before interest and taxes
('EBIT'), net income and free cash flow. Bear Stearns noted that the Company's
results for Fiscal 1993, 1994 and 1995, for the nine months ended October 28,
1995 and as projected by the Company for Fiscal 1996 were (i) total revenues of
$652.2 million, $616.7 million, $402.6 million, $285.4 million and $380.0
million, respectively, (ii) EBITDA of $52.0 million, ($30.1) million, $16.3
million, ($19.4) million and ($34.7) million, respectively, (iii) EBIT of $38.8
million, ($47.1) million, $2.5 million, ($30.5) million and ($49.2) million,
respectively, and (iv) net income of $17.5 million, ($41.0) million, ($17.6)
million, ($53.8) million and ($76.1) million, respectively. Bear Stearns also
noted that the Company's free cash flow from operations before financing
activities was ($97.0) million for Fiscal 1993, ($49.8) million for Fiscal 1994,
($4.9) million for Fiscal 1995 and ($37.7) million for the nine months ended
October 28, 1995. Bear Stearns noted that the Company's EBITDA, EBIT and net
income are in most cases negative, and the Company's periodic growth in EBITDA,
EBIT and net income was also generally negative.
Valuation of the Company's Common Stock Absent a Transaction. As part of
its review and analysis, Bear Stearns summarized the historical trading
performance of the Common Stock in light of the recent financial and operating
performance of the Company. In particular, Bear Stearns reviewed the prices of
the Common Stock following the Termination Announcement and the release of the
Company's third quarter results on December 7, 1995. From December 8, 1995
through December 29, 1995, the closing price of the Common Stock ranged from
$7.75 to $8.50, and the price of the Common Stock stood at $7.88 on December 29,
1995 (the 'Unaffected Market Price'). Bear Stearns noted that the price of the
Common Stock had risen significantly during the weeks leading up to the meeting
of the Board of Directors to approve the Securities Issuance, closing at $9.63
on January 30, 1995 (the 'Affected Market Price'). Based on a review of selected
publicly traded companies and precedent merger and acquisition transactions,
Bear Stearns estimated the price at which the Common Stock might trade (i) in
light of the financial and operating performance of the Company and (ii) absent
the prospect of any extraordinary transaction such as the Securities Issuance
(the 'Hypothetical Intrinsic Value'); as described more fully herein, Bear
Stearns estimated the Hypothetical Intrinsic Value utilizing, for Bear Stearns'
analytical purposes, a range of enterprise value to revenue multiples of 0.60x
to 0.70x.
Valuation of the Securities to be Issued. Bear Stearns estimated the value
of the securities to be issued pursuant to the Securities Issuance based on
three alternative scenarios assuming underlying per share prices for the Common
Stock of $6.00, $8.00 and $10.00 (approximating the Hypothetical Intrinsic
Value, the Unaffected
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Market Price and the Affected Market Price, respectively). As described below,
Bear Stearns noted that in two of these three alternative scenarios, the value
of the securities to be issued pursuant to the Securities Issuance exceeded the
proceeds to the Company resulting from the Securities Issuance. For each assumed
underlying stock price, Bear Stearns calculated a theoretical value to be
ascribed to the Series B Convertible Preferred Stock and the Warrant and
compared such theoretical value to the consideration being received by the
Company in the Securities Issuance. These theoretical values were determined
based on (i) the terms of the Series B Convertible Preferred Stock and assuming
a cross-yield of 15-17% for valuing the fixed income portion of the Series B
Convertible Preferred Stock (reflecting the trading price of the Senior Notes
plus an appropriate spread), a volatility factor of 30% for valuing the equity
component and a 5-10% discount due to certain transfer restrictions and other
unique features of the Series B Convertible Preferred Stock and (ii) the terms
of the Warrant and assuming a volatility factor of 30%. At an assumed underlying
price for the Common Stock of $6.00, Bear Stearns determined that the
theoretical value of the Series B Convertible Preferred Stock was approximately
$57.2 million and the theoretical value of the Warrant was approximately $4.3
million, for a total of $61.5 million, which is $3.5 million below the $65.0
million consideration to be received by the Company (or $0.5 million above such
consideration after accounting for up to $4.0 million of expenses of Warburg
Pincus to be reimbursed from the proceeds of the Securities Issuance). At an
assumed underlying price for the Common Stock of $8.00, Bear Stearns determined
that the theoretical value of the Series B Convertible Preferred Stock was
approximately $69.6 million and the theoretical value of the Warrant was
approximately $8.1 million, for a total of $77.7 million, which is $12.7 million
above the $65.0 million consideration to be received by the Company (or $16.7
million above such consideration after accounting for up to $4.0 million of
expenses of Warburg Pincus to be reimbursed from the proceeds of the Securities
Issuance). At an assumed underlying price for the Common Stock of $10.00, Bear
Stearns determined that the theoretical value of the Series B Convertible
Preferred Stock was approximately $81.9 million and the theoretical value of the
Warrant was approximately $12.9 million, for a total of $94.8 million, which is
$29.8 million above the $65.0 million consideration to be received by the
Company (or $33.8 million above such consideration after accounting for up to
$4.0 million of expenses of Warburg Pincus to be reimbursed from the proceeds of
the Securities Issuance).
Analysis of Selected Publicly Traded Companies. Bear Stearns compared
certain operating and financial information of the Company to certain publicly
available operating, financial, trading and valuation information of six
publicly traded companies which are engaged in the publishing, juvenile products
or greeting card business and which, in Bear Stearns' judgment, were comparable
to the Company for purposes of this analysis. These companies included Mattel,
Inc., Scholastic Corporation, Banta Corporation, Hasbro, Inc., American
Greetings Corp. and Houghton Mifflin Co. (collectively, the 'Comparable
Companies'). Bear Stearns' analysis of the Comparable Companies included
reviewing their enterprise values as a multiple of revenues, EBITDA and EBIT and
their stock prices as a multiple of earnings per share; in addition, Bear
Stearns analyzed various financial and operating performance measures of the
Comparable Companies including revenue growth, EBITDA growth, EBITDA margins,
EBIT growth, EBIT margins, net income margins, earning per share growth, return
on equity and total debt as a percentage of total capitalization. In reviewing
the valuation parameters of the Company, Bear Stearns noted that the Company
could only be analyzed based on a multiple of revenues as a result of its recent
financial and operating performance and the lack of any estimates or projections
for the Company. Bear Stearns' analysis of the Comparable Companies indicated
that the range of enterprise value to revenues multiples was 1.02x to 2.16x with
a harmonic mean (the reciprocal of the arithmetic mean of reciprocals) of 1.37x.
Bear Stearns estimated the Hypothetical Intrinsic Value of the Common Stock
based on a range of enterprise value to revenue multiples of 0.60x to 0.70x,
which reflects a significant discount to the trading multiples of revenue for
the Comparable Companies due to the Company's financial and operating
performance.
Analysis of Selected Precedent Merger and Acquisition Transactions. Bear
Stearns reviewed and analyzed the publicly available financial terms of ten
selected recent merger and acquisition transactions which involved companies
which are engaged in the publishing, juvenile products or greeting card business
and which, in Bear Stearns' judgment, were reasonably comparable to the
Securities Issuance for purposes of this analysis. The ten transactions were (i)
the acquisition of Cleo, Inc. from Gibson Greetings, Inc. by CSS Industries,
Inc.; (ii) the acquisition of D.C. Heath from Raytheon Co. by Houghton Mifflin
Co.; (iii) the acquisition of Thomas C. Wright Inc. by Tribune Co.; (iv) the
acquisition of McDougal Littell & Co. by Houghton Mifflin Co.; (v) the
acquisition of Fisher-Price, Inc. by Mattel, Inc.; (vi) the acquisition of
Affiliated Publications, Inc. by New York Times Co.; (vii) the acquisition of
the Fleer Corp. by Marvel Entertainment Group, Inc.; (viii) the acquisition of
Universal
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Matchbox Group Limited by Tyco Toys, Inc.; (ix) the acquisition of Tonka Corp.
by Hasbro Bradley, Inc.; and (x) the acquisition of Harcourt Brace Jovanovich,
Inc. by General Cinema Corp. (collectively, the 'Precedent M&A Transactions').
Bear Stearns reviewed the prices paid in the Precedent M&A Transactions and
analyzed various operating and financial information and imputed valuation
multiples and ratios. Bear Stearns noted that none of the Precedent M&A
Transactions was identical to the Securities Issuance and that, accordingly, any
analysis of the Precedent M&A Transactions necessarily involved complex
considerations and judgments concerning differences in financial and operating
characteristics and other factors that would necessarily affect the value of the
Company versus the acquisition values of the companies to which the Company was
being compared. In addition, Bear Stearns noted that the Precedent M&A
Transactions could generally be analyzed based on various valuation parameters
such as enterprise value as a multiple of revenues, EBITDA and EBIT and equity
value as a multiple of net income whereas the Company could only be analyzed
based on a multiple of revenues as a result of its recent financial and
operating performance and the lack of any estimates or projections for the
Company. Bear Stearns' analysis of the Precedent M&A Transactions indicated that
the range of enterprise value to revenues multiples was 0.66x to 2.94x with a
harmonic mean of 1.30x and an average of 1.68x. Bear Stearns estimated the
Hypothetical Intrinsic Value of the Common Stock based on a range of enterprise
value to revenue multiples of 0.60x to 0.70x, which reflects a significant
discount to the multiples of revenue implied by the Precedent M&A Transactions
due to the Company's financial and operating performance.
Precedent Investment Transactions. Bear Stearns summarized and analyzed
two transactions in which private equity investors had purchased significant
equity stakes directly from publicly traded corporations and been granted
certain rights, including representation on the board of directors of the
corporation. These two transactions were (i) the investment by Haas Wheat &
Harrison Incorporated in Playtex Products, Inc. and (ii) the investment by
Kohlberg Kravis Roberts & Co. in TW Holdings, Inc. (collectively, the 'Precedent
Investment Transactions'). Bear Stearns noted that neither of the Precedent
Investment Transactions was identical to the Securities Issuance and that,
accordingly, any analysis of the Precedent Investment Transactions necessarily
involved complex considerations and judgments concerning differences in
transaction structures, financial and operating characteristics of the issuing
corporation and other factors that would necessarily affect the terms of the
Securities Issuance versus the terms of the Precedent Investment Transactions.
Notwithstanding the numerous and significant differences between the Securities
Issuance and the Precedent Investment Transactions, this analysis provided a
useful benchmark as to certain structural, corporate governance and financial
aspects of such investment transactions.
Based on the foregoing analyses and factors Bear Stearns arrived at its
opinion; however, the summary set forth above does not purport to be a complete
description of the analysis performed and factors considered by Bear Stearns in
arriving at its opinion, although it does reflect all material factors
considered and analyses performed by Bear Stearns. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. Selecting portions of the analyses or of the
summary set forth above, without considering the analysis as a whole, could
create an incomplete view of the processes underlying Bear Stearns' opinion. In
arriving at its opinion, Bear Stearns considered the results of all such
reviews, calculations and analyses. The analyses were prepared solely for
purposes of providing its opinion as to the fairness of the consideration to be
received by the Company pursuant to the Securities Issuance, from a financial
point of view, to the Company and do not purport to be appraisals or necessarily
reflect the prices at which securities might actually be sold to other parties.
Analyses based upon future prospects are not necessarily indicative of actual
future results, which may be significantly more or less favorable than suggested
by such analyses. As described above, Bear Stearns' opinion and presentation to
the Board of Directors was one of many factors taken into consideration by the
Board of Directors in making its determination to approve the Securities
Issuance and recommend the Proposals to the stockholders of the Company.
Bear Stearns is an internationally recognized investment banking firm and
is continually engaged in the valuation of businesses and their securities and
in rendering opinions in connection with mergers, acquisitions, corporate
transactions and other purposes. The Company retained Bear Stearns based on its
qualifications, expertise and reputation in providing advice to companies as
well as its familiarity with the Company.
Previously, in November 1993, Bear Stearns and Morgan Stanley were jointly
engaged by the Company to assist it as its financial advisors in responding to
'several companies expressing a desire to discuss a business combination.' Bear
Stearns and Morgan Stanley were charged with 'exploring all alternatives to
maximize
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shareholder value.' Although such efforts by Bear Stearns and Morgan Stanley did
not produce any offers for the Company in its entirety, the Company did sell its
games and puzzles business to Hasbro, Inc. In connection with the aforementioned
sale of the games and puzzles business, Bear Stearns and Morgan Stanley were
each paid a customary transaction fee. In September 1992, Bear Stearns
lead-managed, with Morgan Stanley as co-manager, the Company's $150 million
offering of Senior Notes.
Jefferies
At the January 25, 1996 meeting of the Board of Directors, Jefferies made
an oral presentation as to its analysis of the fairness from a financial point
of view of the consideration to be received by the Company from the GPH equity
investment (which at the time, as described above, contemplated a $60 million
investment by GPH). On January 31, 1996, Jefferies delivered its written opinion
as of such date to the Board of Directors to the effect that, based upon and
subject to the various considerations set forth in its opinion, the
consideration to be received by the Company from the Securities Issuance is fair
to the Company from a financial point of view. Jefferies subsequently delivered
a confirmatory written opinion dated April 18, 1996. Except as set forth below
and in the full text of Jefferies' opinion, no limitations were imposed by the
Board of Directors upon Jefferies with respect to the investigations made or
procedures followed by it in rendering its opinion. In rendering its opinion,
Jefferies did not opine as to any other transactions or contractual arrangements
to be entered into or payments to be made by or to the Company or any other
person concurrently with the Securities Issuance. In addition, Jefferies was not
requested to opine as to, and its opinion did not address, the underlying
business decision of the Board of Directors to proceed with or to effect the
Securities Issuance.
THE FULL TEXT OF THE OPINION OF JEFFERIES, DATED APRIL 18, 1996, IS
ATTACHED AS APPENDIX X TO THIS PROXY STATEMENT AND SETS FORTH THE ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN. STOCKHOLDERS ARE
URGED TO READ THE OPINION OF JEFFERIES IN ITS ENTIRETY. THE SUMMARY OF THE
OPINION OF JEFFERIES SET FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION SET FORTH AS APPENDIX X
TO THIS PROXY STATEMENT. THE JEFFERIES OPINION IS DIRECTED ONLY TO THE FAIRNESS,
FROM A FINANCIAL POINT OF VIEW, OF THE CONSIDERATION TO BE RECEIVED BY THE
COMPANY FROM THE SECURITIES ISSUANCE AND DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY STOCKHOLDER OF THE COMPANY AS TO HOW SUCH STOCKHOLDER SHOULD VOTE ON THE
PROPOSALS AT THE SPECIAL MEETING.
In connection with the provision of its opinion, Jefferies, among other
things, (i) reviewed the Securities Purchase Agreement (including the Exhibits
thereto) and certain financial and other information about the Company that was
publicly available or furnished to Jefferies by the Company, including certain
internal financial analyses, budgets and estimated financial performance for its
fiscal year ending February 3, 1996, reports and other information prepared by
the Company's management; (ii) reviewed a draft of this Proxy Statement in
substantially the form in which it is being distributed to stockholders; (iii)
held discussions with representatives of the management of the Company
concerning the business, properties and prospects of the Company; and (iv)
conducted such other reviews, analyses and inquiries relating to the Company as
it deemed appropriate.
In addition, Jefferies assumed and relied upon, without independent
investigation or verification, the accuracy, completeness and fair presentation
of all financial and other information that was provided to Jefferies by or on
behalf of the Company, Mr. Snyder, GPH or Warburg Pincus or that was publicly
available for purposes of rendering its opinion, and its opinion is expressly
conditioned upon all such information (whether written or oral) being complete,
accurate and fair in all material respects. Furthermore, the Company did not
prepare, and Jefferies did not accordingly review or conduct valuation analyses
based upon, any financial projections with respect to the estimated future
performance of the Company, and Jefferies' opinion is, as a result, qualified by
the absence of such reviews and analyses. Jefferies, moreover, did not make an
independent evaluation or appraisal or conduct a physical inspection of any of
the tangible or intangible assets of the Company, nor was Jefferies furnished
with any such appraisals.
In performing its analysis, Jefferies considered such financial and other
factors as Jefferies deemed appropriate under the circumstances, including,
among others: (i) the business and financial aspects of the Securities Issuance;
(ii) the historical and current markets for the Common Stock; (iii) the
financial impact of the Securities Issuance upon the Company; (iv) the
discussions with Mr. Snyder and with representatives of GPH, Warburg Pincus and
the Company's management referred to above; (v) certain of the Company's
operating and
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financial information; (vi) the Company's Annual Reports to Stockholders and
Annual Reports on Form 10-K for its last three full fiscal years and its
Quarterly Reports on Form 10-Q filed since the date of its most recent such Form
10-K; (vii) the potential negative impact on the prices of the Company's equity
and debt securities of the Company's expected financial performance for its
fiscal year ending February 3, 1996 in the absence of the proposed transaction
with GPH or another similar extraordinary transaction; (viii) the fact that (a)
the Company was unsuccessful in effecting a sale or similar extraordinary
transaction during a public auction conducted during 1994 or thereafter and (b)
no other potential equity investors or strategic acquirors have made a formal
investment or acquisition proposal to the Company since the September
Announcement; (ix) the degree of control that GPH and Warburg Pincus will have
with respect to the Company; (x) the potentially positive impact of new senior
management led by Mr. Snyder and the affiliation with Warburg Pincus on the
prices of the Company's equity and debt securities, its capital raising capacity
and its ability to access the capital markets; (xi) the consummation of the
Securities Issuance being conditioned upon the approval of the Company's
stockholders; and (xii) such other information as Jefferies deemed to be
appropriate. Jefferies also conducted such other reviews, analyses and inquiries
relating to the Company, Mr. Snyder, GPH and Warburg Pincus (in addition to
those set forth above) as it considered proper.
Jefferies' opinion is based on economic, monetary, political and market
conditions prevailing, and stock prices and other circumstances and conditions
existing, on the date thereof. Jefferies also notes that such conditions are
subject to rapid and unpredictable change. In addition, Jefferies did not
express any opinion as to the market value of the Common Stock or the price or
trading range at which any of the securities of the Company may trade following
the consummation of the Securities Issuance.
The following is a summary of the analyses performed by Jefferies in
connection with the rendering of Jefferies' opinion to the Board of Directors.
Financial and Operating Performance of the Company. As part of its overall
analysis, Jefferies examined the historical financial and operating performance
of the Company for its last three full fiscal years and for the twelve-month
period ended October 28, 1995 ('LTM'), and the estimated financial and operating
performance of the Company for the fiscal year ending February 3, 1996 furnished
by senior management and described above under 'THE PROPOSALS--Opinions of
Financial Advisors--Bear Stearns--Review and Analysis of the Company's Financial
and Operating Performance'. This analysis considered the Company's reported
revenues, gross profit, earnings before interest and income taxes ('EBIT'),
earnings before interest, taxes, depreciation and amortization ('EBITDA') and
net income. Jefferies noted (i) that on an LTM basis, EBITDA, EBIT and net
income were all substantially negative, and (ii) that the Company expected to
report significant negative EBITDA, EBIT and net income for the fiscal year
ending February 3, 1996.
Jefferies noted that because of the significant negative operating results
for the Company on an LTM basis, it was not meaningful to conduct any valuation
analysis based on (i) total enterprise value to EBIT, (ii) total enterprise
value to EBITDA and (iii) price/earnings multiples.
The Series B Convertible Preferred Stock. As part of its overall analysis,
Jefferies also evaluated the terms of the Series B Convertible Preferred Stock,
including the implied floating dividend yield of 7.5% to 15% and the implied
conversion premium associated with such Series B Convertible Preferred Stock. In
its review of the Series B Convertible Preferred Stock's implied floating
dividend yield, Jefferies considered the financial condition of the Company and
Jefferies' historical experience involving private equity investments and
trading levels of public and private high yield securities. In its review of the
Series B Convertible Preferred Stock's implied conversion premium, Jefferies
noted that, based upon (i) the $10 conversion price associated with the Series B
Convertible Preferred Stock and (ii) the closing price of the Common Stock of
$9.625 per share on January 29, 1995, the resulting 4% implied conversion
premium associated with the Series B Convertible Preferred Stock appeared, in
isolation, historically low. However, Jefferies noted that such implied
conversion premium was likely understated in light of other factors, including,
(i) the price at which the Common Stock would presumably trade in light of the
expected financial and operating performance for the fiscal year ending February
3, 1996 and in the absence of an extraordinary transaction such as the
Securities Issuance, and (ii) the fact that the price of the Common Stock had
increased significantly, approximately 18.5%, during the three-week period
leading up to the public announcement of the execution of the Securities
Purchase Agreement. In addition, based on a range of market prices of the Common
Stock, Jefferies noted that the following range of implied conversion premiums
of the Series B Convertible Preferred Stock would result: (i) at a Common Stock
price of
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$6.00 per share, the implied conversion premium would be 66.7%; (ii) at a Common
Stock price of $7.00 per share, the implied conversion premium would be 42.9%;
(iii) at a Common Stock price of $8.00 per share, the implied conversion premium
would be 25.0%; (iv) at a Common Stock Price of $9.00 per share, the implied
conversion premium would be 11.1%; and (v) at a Common Stock price of $10.00 per
share, the implied conversion premium would be 0.0%.
The Warrant. Jefferies also analyzed the terms of the Warrant as part of
its overall analysis. In its valuation of the Warrant, Jefferies undertook
various considerations, including use of the Black-Scholes model, to develop a
reference valuation range for the Warrant, at an assumed volatility level of
40%, ranging from approximately $6 million to $8 million. Jefferies noted that
the Warrant also provided an incentive for the new senior management of the
Company to increase the market price of the Common Stock and would be a source
of an additional equity infusion into the Company upon exercise of the Warrant
(unless the holder elects a cashless exercise as permitted by the terms of the
Warrant (see 'SECURITIES PURCHASE AGREEMENT--Terms of the Warrant--Exercise').
Furthermore, Jefferies noted various intangible benefits to be received by the
Company in connection with the Securities Issuance, including among others: (i)
the potentially positive impact of new senior management led by Mr. Snyder and
the affiliation of Warburg Pincus on the prices of the Company's equity and debt
securities, as evidenced (and described more fully below) by the respective
movements of the Company's equity and debt securities in reaction to the
Company's public announcements involving Mr. Snyder and Warburg Pincus during
the five-month period preceding the public announcement of the Securities
Issuance; (ii) the likely resulting increase in the credibility of the Company
with its stockholders and other constituencies, including suppliers, vendors and
equity analysts; (iii) the greater likelihood for realizing the value of the
Company's intangible assets, including its well-established brand names,
archives and libraries; and (iv) the significant investment of cash and
immediate access to growth capital created by the Securities Issuance.
Stock Market and Bond Market Trading Activity. As part of its review and
analysis, Jefferies also examined the historical trading performance of the
Common Stock in light of the recent financial and operating trends of the
Company. In particular, Jefferies reviewed the closing prices of the Common
Stock surrounding the dates of each of the September and October Announcements,
the Termination Announcement and the public announcement of the execution of the
Securities Purchase Agreement. Jefferies noted that (i) in the two weeks
immediately prior to the first trading day after the date of the September
Announcement, the closing price of the Common Stock had increased significantly,
by approximately 20%; (ii) on the first trading day after the date of the
September Announcement, the closing price of the Common Stock had increased
approximately 18.4% from the previous day's close; (iii) on the date of the
Termination Announcement, the closing price of the Common Stock had fallen
approximately 22.6% from the previous day's close; (iv) on the day after the
date of the Termination Announcement, the closing price of the Common Stock had
fallen approximately 33.0% from the Common Stock's closing price on October 16,
1995, the day prior to the Termination Announcement; and (v) by late December
1995, the closing price of the Common Stock had fallen approximately 24.4% from
the Common Stock's closing price on the date of the Termination Announcement.
In addition to examining the trading performance in the Common Stock,
Jefferies reviewed the performance levels in the Company's debt securities.
Following the Termination Announcement in October 1995, Standard & Poor's
downgraded the Company's $150 million face amount Senior Notes from 'BB-' to
'B'. On November 1, 1995, Moody's Investors Service downgraded the Senior Notes
from 'Ba3' to 'B1'. Jefferies noted that these downgradings still did not fully
reflect the continuing declines in operating profitability of the Company. In
that connection, Jefferies noted that, as of January 24, 1996, there was a bid
for the Senior Notes at approximately 77% of par, implying a yield of
approximately 13%, a yield more typical for securities with lower ratings than
the above-referenced downgradings of the Senior Notes.
Analysis of Selected Publicly Traded Companies. Jefferies compared certain
operating and financial information of the Company to certain publicly available
operating, financial, trading and valuation information of six publicly traded
companies which are engaged in the publishing, juvenile products or greeting
card business and which, in Jefferies' judgment, were comparable to the Company
for purposes of this analysis. These companies included Houghton Mifflin
Company, Scholastic Corporation, Thomas Nelson Inc., Educational Development
Corporation, John Wiley & Sons and Steek-Vaughn Publishing Corporation
(collectively, the 'Comparable Companies'). Jefferies' analysis of the
Comparable Companies included reviewing their total
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enterprise values as a multiple of revenues, EBITDA and EBIT and the market
prices of the stock of those companies as a multiple of earnings per share. In
addition, Jefferies analyzed various financial and operating performance
measures of the Comparable Companies, including revenue growth, EBITDA growth,
EBITDA margins, EBIT growth, EBIT margins, net income margins, earnings per
share growth, return on equity and total debt as a percentage of total
capitalization. In reviewing the valuation parameters of the Company, Jefferies
noted that the Company's value could only be analyzed based on a multiple of
revenues as a result of its recent financial and operating performance and the
lack of any estimates or projections for the Company. Jefferies' analysis of the
Comparable Companies indicated that the range of total enterprise value to
revenues multiples was 1.1x to 3.5x with an arithmetic mean of 1.4x. Jefferies
noted that on a total enterprise value to revenue multiple basis, the Company
traded at a significant discount to the trading multiples of its peers.
Jefferies also noted that total enterprise value to revenue multiple valuations
are not generally regarded as a reliable method of valuation.
Recent Trends in the Company's Results of Operations. In evaluating the
terms of the Securities Issuance, Jefferies considered all of the intangible
aspects of the Securities Issuance as well as the lack of alternative options or
strategic opportunities for the Company. Jefferies noted that no formal offers
were made to acquire the Company in its entirety as a result of the efforts of
Bear Stearns and Morgan Stanley commencing in November 1993, as described above.
Jefferies further noted that the Company's operating performance, working
capital investment and liquidity had continued to decline following this auction
process. In addition to evaluating both the tangible and intangible benefits of
the Securities Issuance, Jefferies reviewed the existing liquidity and prospects
for future liquidity for the business under several scenarios.
Based on the foregoing analyses and factors Jefferies arrived at its
opinion; however, the summary set forth above does not propose to be a complete
description of the analysis performed and factors considered by Jefferies in
arriving at its opinion, although it does reflect all material factors
considered and analyses performed by Jefferies. The preparation of a fairness
opinion involves various determinations as to the most appropriate and relevant
methods of financial analyses and the application of those methods to particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. Furthermore, in arriving at its opinion, Jefferies did not
attribute any particular weight to any analysis or factor considered by it, but
rather made qualitative judgments as to the significance and relevance of each
analysis and factor. Accordingly, Jefferies' analyses must be considered as a
whole. Considering any portion of such analyses and of the factors considered,
without considering all analyses and factors, could create a misleading or
incomplete view of the process underlying the Jefferies opinion. In its
analyses, Jefferies made many assumptions with respect to general business and
economic conditions and other matters, many of which are beyond the control of
the Company. In addition, analyses relating to the value of the Company's
securities do not purport to be appraisals or to reflect the prices at which
securities might actually be sold to other parties. As described above,
Jefferies opinion was only one factor considered by the Board of Directors in
making its determination to approve the Securities Issuance.
The Company retained Jefferies in connection with the Securities Issuance
based upon Jefferies' qualifications, expertise and reputation, including the
fact that Jefferies, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. In the ordinary course of its business, Jefferies may
actively trade securities of the Company for its own account and for the
accounts of its customers and, accordingly, may, at any time, hold a long or
short position in such securities.
Fees and Expenses
Pursuant to letter agreements entered into on September 11, 1995 with Bear
Stearns and on October 6, 1995 (and as amended on January 10, 1996) with
Jefferies, Bear Stearns and Jefferies were retained to render fairness opinions
in respect of the Transactions. Bear Stearns and Jefferies originally were
retained following the September Announcement to render fairness opinions to an
independent committee of the Board of Directors appointed at that time to assist
the Board of Directors in assessing the proposed transactions. Because the
Transactions contemplated by the Securities Purchase Agreement did not involve
any sale of shares by Mr. Bernstein or his affiliates to GPH, the Board of
Directors determined, upon advice of legal counsel, that an
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independent committee was not required in connection with the Board of
Directors' assessment of the Transactions. Accordingly, the independent
committee was disbanded, and Bear Stearns and Jefferies were retained to issue
opinions to the Board of Directors on the same terms.
The Company has agreed to pay (i) Bear Stearns a fee of $575,000 and up to
an additional $25,000 for Bear Stearns' reasonable out-of-pocket expenses
(including the reasonable fees and disbursements of counsel) incurred in
connection with the rendering of such fairness opinion and (ii) Jefferies a fee
of $400,000 plus expenses up to an additional $50,000. Pursuant to a separate
letter agreement entered into on September 11, 1995, the Company has agreed to
pay Bear Stearns an additional fee of $650,000 in respect of other financial
advisory services performed in connection with the GPH equity investment as
described above. The Company has agreed to indemnify both Bear Stearns and
Jefferies and certain related persons against certain liabilities in connection
with their respective engagements by the Company, including certain liabilities
under the federal securities laws.
USE OF PROCEEDS
The estimated net cash proceeds to the Company from the sale of the Series
B Convertible Preferred Stock and the Warrant to GPH will be $56,500,000, after
giving effect to the payment of estimated transaction expenses (see 'SECURITIES
PURCHASE AGREEMENT--Expenses') and the payments under the severance and
management arrangements described under 'THE PROPOSALS--Interests of Certain
Persons in the Transactions--Severance and Management Arrangements.'
Approximately $10 million of such proceeds will be used by the Company to redeem
the outstanding shares of Series A Preferred Stock (which is mandatorily
redeemable by the Company on March 31, 1996) as contemplated by the Securities
Purchase Agreement (see 'THE PROPOSALS--Interests of Certain Persons in the
Transactions--Redemption of Series A Preferred Stock due March 31, 1996'), and
the remainder will be available to the Company for general working capital
purposes, including new product development and future acquisitions. The Company
does not currently have any commitments or understandings regarding the use of
such proceeds. Mr. Snyder has advised the Company that
he intends to use the net proceeds from the investment to pursue a multi-pronged
strategy to build upon the GOLDEN BOOKS(Registered) franchise. This strategy
will include strengthening relationships with the Company's existing mass market
retailers, increasing distribution through non-mass channels, including
bookstores, extending the existing product line to include books for parents and
families and, where appropriate, expanding the GOLDEN BOOKS(Registered) name
into non-book areas, such as home video, television and multi-media. Although
Mr. Snyder has advised the Company that he has not yet finalized any plans
regarding the future operations of the Company, Mr. Snyder has indicated that
his plans, when fully developed, may involve a restructuring of operations which
could result in substantial charges to operations or changes in the
classification of the Company's assets and liabilities.
CERTAIN CONSIDERATIONS
While the Board of Directors is unanimously of the opinion that the
Proposals are fair to, and in the best interests of, the Company and its
stockholders, stockholders should consider the following possible consequences
of completion of the Transactions when evaluating the Proposals:
Diminished Ability to Sell the Company; Antitakeover Effect
The Series B Convertible Preferred Stock initially will be convertible into
shares of Common Stock representing approximately 23% of the shares of Common
Stock then outstanding, and the Series B Convertible Preferred Stock will vote
on an as-if-converted basis together with the Common Stock, as a single class,
on all matters submitted to a vote of the stockholders of the Company, including
the election of directors other than the Series B Directors (as defined below).
The Series B Convertible Preferred Stock also will initially be entitled to vote
as a class for one-third of the nine members of the Board of Directors (the
'Series B Directors'). During each of the first four years following initial
issuance of the Series B Convertible Preferred Stock, 195,000 shares of Common
Stock will be delivered quarterly (subject to certain adjustments) in lieu of
cash dividends on the Series B Convertible Preferred Stock. Moreover, the
Warrant will entitle GPH to purchase up to 3,250,000 shares of Common Stock, at
an exercise price of $10 per share, beginning in the third year after initial
issuance (or sooner under certain circumstances). See 'SECURITIES PURCHASE
AGREEMENT--Terms of Series B Convertible Preferred Stock' and '--Terms of the
Warrant.' In addition, Mr. Snyder purchased 599,465 shares of Common Stock from
the Company on January 31, 1996 when he was elected as President, and will be
granted
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a non-qualified stock option following completion of the GPH equity investment
to purchase an additional 1,113,293 shares. In the event that the Securities
Purchase Agreement is terminated in accordance with its terms or Mr. Snyder is
not employed by the Company on May 22, 1996, the stock grant will be rescinded.
See 'THE PROPOSALS--Interests of Certain Persons in the Transactions--Snyder
Employment Arrangements.' Further, by virtue of the irrevocable proxies granted
to GPH by Mr. Bernstein and certain of his affiliated entities pursuant to
agreements dated January 31, 1996 in respect of 3,996,771 shares of Common Stock
owned by them (the 'Irrevocable Proxies'), GPH will control, through the
Irrevocable Proxies, the voting of an additional 3,996,771 shares of Common
Stock immediately following completion of its equity investment (which, after
giving effect to the consummation of the Transactions, will constitute
approximately 14% of the total voting power of the outstanding shares of capital
stock of the Company immediately following the consummation of the
Transactions). However, such voting power is subject to decrease if Mr.
Bernstein or such other entities transfer the shares to which the Irrevocable
Proxies relate to persons other than affiliates of Mr. Bernstein. Furthermore,
the Securities Purchase Agreement contains no restrictions on the ability of GPH
to acquire additional shares of Common Stock, whether in the open market or
otherwise. Accordingly, GPH, together with Mr. Snyder, will control
approximately 39% of the voting power of the outstanding capital stock of the
Company immediately following completion of its equity investment and will have
the ability to acquire an even greater stake. Finally, for so long as at least
one-half of the shares of Series B Convertible Preferred Stock initially issued
are owned by GPH and certain of its affiliates, certain matters will be subject
to the consent of the holders of a majority of the shares of Series B
Convertible Preferred Stock. See 'SECURITIES PURCHASE AGREEMENT--Terms of the
Series B Convertible Preferred Stock.' The foregoing will make it more difficult
for a third party to acquire control of the Company without the consent of GPH
and, therefore, may discourage third parties from making an acquisition proposal
or seeking to acquire control of the Company.
Board Representation; Control of Management
The Series B Convertible Preferred Stock will initially be entitled to vote
separately as a class for the Series B Directors and on the approval of certain
material corporate transactions, and will vote, on an as-if-converted basis,
together with the Common Stock on the election of the remaining members of the
Board of Directors and on all other matters submitted to a vote of the
stockholders of the Company. If the Proposals are adopted at the Special
Meeting, each of the members of the Board of Directors immediately following
completion of GPH's equity investment will have been nominated by GPH. See
'ELECTION OF DIRECTORS.' In addition, Mr. Snyder will serve as Chairman and
Chief Executive Officer of the Company upon the completion of GPH's equity
investment. Consequently, Mr. Snyder and GPH will have significant influence
over the management and policies of the Company.
Dilution
The Securities Purchase Agreement contemplates the issuance by the Company
of 13,000 shares of Series B Convertible Preferred Stock convertible into shares
of Common Stock initially representing approximately 23% of the voting power of
the outstanding Common Stock, at an initial conversion price of $10 per share.
Because the Series B Convertible Preferred Stock will vote on an as-if-converted
basis with the Common Stock, the issuance of the Series B Convertible Preferred
Stock will dilute the voting rights of existing holders of Common Stock. This
issuance also could have the effect of diluting the economic interests of the
existing holders of Common Stock. The Series B Convertible Preferred Stock will
be entitled to receive dividends and liquidating distributions prior to the
payment of such dividends or distributions on the Common Stock. Whether such
issuance will have a dilutive effect on the earnings per share of the Common
Stock and, if so, the extent of such dilution will depend upon, among other
factors, the actual earnings generated by the application of the proceeds to the
Company from the Transactions. See 'THE PROPOSALS--Use of Proceeds.' The
issuance of up to 3,250,000 shares of Common Stock upon exercise of the Warrant,
at an exercise price of $10 per share, or upon the payment of dividends on the
Series B Convertible Preferred Stock by delivery of 3,120,000 shares of Common
Stock over the first four years after the date of initial issuance, will have
the effect of further diluting the voting rights of existing holders of Common
Stock. Moreover, such issuances, as well as the right of the holder of the
Warrant, in lieu of exercising the Warrant, to receive shares of Common Stock
having a value equal to the difference between the then current market price of
the Common Stock and the $10 exercise price, may, depending on the market price
of the Common Stock at the time, have a dilutive effect on their economic
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interests as well. In addition, 599,465 shares of Common Stock were issued to
Mr. Snyder when he was elected President of the Company, it is expected that Mr.
Snyder will be granted a non-qualified stock option to purchase 1,113,293 shares
of Common Stock pursuant to his employment agreement following the closing of
GPH's equity investment, and certain aspects of the Snyder Employment
Arrangements are expected to result in an immediate charge to operations when
they are entered into following the completion of the GPH equity investment. See
'SUMMARY--Pro Forma Capitalization,' 'THE PROPOSALS--Interests of Certain
Persons in the Transactions--Snyder Employment Arrangements' and 'SECURITIES
PURCHASE AGREEMENT--Terms of the Series B Convertible Preferred Stock' and
'--Terms of the Warrant.'
Dependence on Mr. Snyder
Following the completion of GPH's equity investment, the success of the
Company will be dependent in part on the efforts and abilities of Mr. Snyder.
Accordingly, if the Company were to lose the services of Mr. Snyder before a
qualified replacement could be obtained, the Company's business could be
materially and adversely affected. The Company is advised by Mr. Snyder and GPH
that, under the terms of an employment agreement to be entered into upon the
closing of GPH's equity investment, if Mr. Snyder dies or becomes disabled
during the term of his employment with the Company, the Company will pay him or
his legal representatives any accrued, but unpaid, salary and vacation pay, a
pro-rated annual bonus, any deferred compensation not yet paid to him and any
other benefits provided by the Company in accordance with the terms and
provisions of the Company's plans or programs. See 'THE PROPOSALS--Interests of
Certain Persons in the Transactions--Snyder Employment Arrangements' for a
description of the terms of Mr. Snyder's employment agreement, including the
Company's obligations to him upon the termination of his employment under
various circumstances.
CERTAIN NEGOTIATED FEATURES OF THE TRANSACTIONS
Stockholders should be aware of the following additional aspects and
provisions of the Securities Purchase Agreement and the Transactions that were
negotiated on behalf of the Company and the stockholders and were required by
the parties as a condition to the signing of the Securities Purchase Agreement.
Status of Bernstein Shares
As described under 'THE PROPOSALS--Background of and Reasons for the
Transactions,' the transactions described in the September and October
Announcements contemplated that shares of Common Stock beneficially owned by Mr.
Bernstein and certain of his affiliated entities would be purchased in
connection with the arrangements contemplated thereby. Consistent with public
statements made by Mr. Bernstein and as also stated in his letter to
stockholders appearing in the Company's 1995 annual report to stockholders, the
Transactions contemplated by the Securities Purchase Agreement do not provide
for the purchase of shares owned by Mr. Bernstein or any of his affiliates,
which will remain outstanding following the completion of GPH's equity
investment. The investment by GPH of $65 million (prior to the payment of
expenses) will be made directly in the Company in exchange for the issuance of
the Series B Convertible Preferred Stock and Warrant. Pursuant to the Bernstein
Registration Rights Agreement, Bernstein Entities will have certain registration
rights with respect to their shares of Common Stock. See 'The
Proposals--Interests of Certain Persons in the Transactions--Bernstein
Registration Rights Agreement.'
Irrevocable Proxies
Warburg Pincus required that Mr. Bernstein and certain of the Bernstein
Entities relinquish their voting rights with respect to their shares of Common
Stock as a condition to Warburg Pincus' participation in the Transactions. In
addition, Warburg Pincus required that Mr. Bernstein and such entities agree to
certain transfer restrictions with respect to their shares of Common Stock.
Accordingly, concurrent with the execution of the Securities Purchase Agreement,
each of Mr. Bernstein and certain of the Bernstein Entities owning in the
aggregate 3,996,771 shares of Common Stock executed Irrevocable Proxies in favor
of GPH in respect of such shares. The following is a summary of certain
provisions of the Irrevocable Proxies, each of which is substantially identical.
The Irrevocable Proxy granted by Mr. Bernstein to GPH is attached as Appendix
III to this Proxy Statement and is incorporated herein by reference. Such
summary is qualified in its entirety by reference to the Irrevocable Proxies.
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Pursuant to the Irrevocable Proxies, GPH will have the power to vote, on
behalf of the Bernstein Entities party thereto, their Bernstein Shares in such
manner and upon such matters as GPH deems proper (other than voting against, or
for the removal of, existing members of the Board of Directors except as
contemplated by the Securities Purchase Agreement), including voting such
Bernstein Shares in favor of the Proposals and against any transaction that
would make it impractical for GPH to effect the Transactions. Pursuant to the
Securities Purchase Agreement, GPH has agreed to vote the Irrevocable Proxies in
favor of the Proposals at the Special Meeting. Such voting rights will terminate
upon the earlier to occur of (i) the termination of the Securities Purchase
Agreement in accordance with its terms and (ii) whenever GPH and certain
affiliates beneficially own in the aggregate less than 15% of the outstanding
Common Stock on a fully-diluted basis (determined as described in the
Irrevocable Proxies).
Mr. Bernstein has agreed in his Irrevocable Proxy, subject to his fiduciary
duties to the Company, to use his best efforts to prevent the Company from
taking any action in violation of the Securities Purchase Agreement.
Additionally, pursuant to the Irrevocable Proxies the Bernstein Entities party
thereto have agreed, prior to completion of GPH's equity investment, not to (i)
take or permit any action that would result in the representations contained in
the Irrevocable Proxies not being true, (ii) directly or indirectly, solicit or
initiate any proposals or offers from any person or entity relating to the
acquisition of any properties, assets, business or equity interest, or any
merger or other business combination, of the Company, or discuss, furnish any
information or otherwise assist any person or entity with respect to such
proposals or offers; provided that Mr. Bernstein may participate in discussions
or negotiations with or furnish information to any other person or entity if the
Board of Directors, on advice of counsel, determines that Mr. Bernstein, in his
capacity as Chairman and Chief Executive Officer of the Company, should so
participate or furnish such information, (iii) grant any proxies or enter into
any voting trusts with respect to their Bernstein Shares, (iv) acquire or sell
or otherwise dispose of shares of Common Stock or (v) seek or solicit any such
acquisition or sale or other disposition of shares of Common Stock.
Notwithstanding the foregoing, the Bernstein Entities shall be entitled to sell
all or a portion of their Bernstein Shares to any purchaser (i) in amounts not
to exceed the limitations set forth in SEC Rule 144(e) in the case of
non-negotiated, public, open-market transactions, and (ii) in all other cases,
other than to an Entrepreneurial Investor (as defined in the Irrevocable
Proxies).
Once any Bernstein Shares subject to the Irrevocable Proxies are
transferred in accordance with the terms thereof, the purchaser of such shares
will not be bound by the voting and transfer restrictions described above.
Termination of the Securities Purchase Agreement
The Securities Purchase Agreement permits the Company, in certain specified
circumstances, upon the payment of a $2 million break-up fee, to terminate the
Securities Purchase Agreement and accept an unsolicited proposal from a third
party which the Board of Directors reasonably believes is likely to result in a
business combination that is likely to be more favorable to the stockholders of
the Company than the Transactions. See 'SECURITIES PURCHASE
AGREEMENT--Termination and Termination Fee.'
Election of Directors
As described under 'ELECTION OF DIRECTORS,' if the Transactions are
consummated, a majority of the members of the Board of Directors will be
designees of GPH. However, other than the Series B Directors, GPH will have no
contractual right thereafter to name any of the directors of the Company.
Series B Convertible Preferred Stock Antidilution Adjustments
As described below under 'SECURITIES PURCHASE AGREEMENT--Terms of the
Series B Convertible Preferred Stock,' the rate and price at which the shares of
Series B Convertible Preferred Stock are convertible into shares of Common Stock
are subject to customary antidilution adjustments. However, the Series B
Convertible Preferred Stock provides that the conversion rate and price will not
be subject to adjustment in respect of (i) an issuance of Common Stock to
Warburg Pincus and certain of its affiliates unless such issuance has been
approved by a majority of the directors of the Company who are neither the
designees of the holders of the Series B Convertible Preferred Stock nor
individuals associated with Warburg Pincus or certain of its affiliates, or (ii)
an issuance of Common Stock in a transaction that has not been registered under
the Securities Act of 1933, as amended (the 'Securities Act'), unless an
investment bank of national standing and reputation,
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engaged for a fee by the Company pursuant to a written engagement letter, has
been consulted by the Company with respect to the structure and has participated
in the negotiation of such issuance.
Management Services
The Board of Directors has authorized the Company to enter into a
Management Agreement (the 'Management Agreement') with P&E Properties, Inc., a
corporation owned by Mr. Bernstein ('P&E Properties'). Pursuant to the
Management Agreement, for a transition period of 180 days following completion
of GPH's equity investment, P&E Properties will perform such duties as are
requested from time to time by Mr. Snyder, but in no event will P&E Properties
be required to perform duties other than those that are substantially the same
as those performed by the Company's employees located at the Company's principal
executive offices in New York City as of the date of the Management Agreement.
In addition, P&E Properties will use its best efforts to retain the services and
pay the compensation of such employees, whose employment by the Company will be
terminated upon completion of GPH's equity investment, as are necessary to
perform such services on P&E Properties' behalf. Mr. Bernstein has agreed to
cause P&E Properties to perform its obligations under the Management Agreement.
The Company will pay P&E Properties the sum of $1.2 million at the closing of
GPH's equity investment for the cost (including the cost of employing such
former Company employees) of providing such management services.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
In considering the recommendation of the Board of Directors with respect to
the Proposals, stockholders should be aware that certain members of the Board of
Directors and management have certain interests with respect to the Proposals
that may conflict with and are in addition to the interests of the other
stockholders of the Company. The Board of Directors was aware of these interests
and considered them, among other matters, in approving the Securities Purchase
Agreement, the Transactions and the Proposals.
Bernstein Registration Rights Agreement
In view of the fact that Mr. Bernstein and the other Bernstein Entities
would otherwise be restricted under the federal securities laws and the rules
and regulations promulgated thereunder as to the manner in which they can sell
their shares of Common Stock because of the size of the block and Mr.
Bernstein's affiliation with the Company, GPH has agreed that the Company grant
certain registration rights to the Bernstein Entities, effective following the
closing of GPH's equity investment, in respect of their shares of Common Stock
pursuant to a registration rights agreement between the Company and the
Bernstein Entities (the 'Bernstein Registration Rights Agreement'). The
following is a summary of certain provisions of the Bernstein Registration
Rights Agreement, which is attached as Appendix II to this Proxy Statement and
is incorporated herein by reference. Such summary is qualified in its entirety
by reference to the Bernstein Registration Rights Agreement.
The Bernstein Registration Rights Agreement contains customary terms and
conditions and provides, among other things, that the holders of Registrable
Securities (as defined below) thereunder will have the right to require the
Company to use its best efforts to register under the Securities Act,
Registrable Securities in up to two demand registrations (subject to a
'black-out' period of up to 90 days not more than once during any 12-month
period and the requirement that shares not be sold to 'Entrepreneurial
Investors', as defined below under '--Irrevocable Proxies') and an unlimited
number of incidental ('piggyback') registrations. Subject to certain
limitations, holders of Registrable Securities will also have the right, during
the first two months following completion of the GPH equity investment, to
request a shelf registration of their securities pursuant to Securities and
Exchange Commission (the 'SEC') Rule 415 for up to a three-month period
following the closing of the GPH equity investment. 'Registrable Securities' are
defined in the Bernstein Registration Rights Agreement as any shares of Common
Stock owned by the Bernstein Entities on the date of execution of the Bernstein
Registration Rights Agreement and any capital stock of the Company issued as a
dividend or other distribution with respect to, or in exchange for or in
replacement of, any such shares. The Bernstein Entities will pay all
registration expenses (including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel for the
Company, blue sky fees and expenses, the expense of any special audits incident
to or required by any such registration (but excluding the compensation of
regular employees of the Company, which shall be paid in any event by the
Company)) in connection with each registration of Registrable Securities
requested by the Bernstein Entities pursuant to the Bernstein Registration
Rights Agreement, together with
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underwriting discounts and commissions and fees and disbursements of counsel to
the Bernstein Entities. The Company also will agree in the Bernstein
Registration Rights Agreement to customary indemnification and contribution
protections to selling holders of Registrable Securities under the federal
securities laws and otherwise; provided that the Company shall not be required
to indemnify the Bernstein Entities for any losses arising out of or based on
any representation or warranty made by the Company in the Securities Purchase
Agreement until the date of issuance of the Company's audited consolidated
financial statements for the fiscal year ending February 1, 1997.
Redemption of Series A Preferred Stock due March 31, 1996
As described above under 'THE PROPOSALS--Use of Proceeds,' approximately
$10 million of the proceeds from the sale of the Series B Convertible Preferred
Stock and the Warrant to GPH will be used by the Company to redeem the
outstanding shares of Series A Preferred Stock due March 31, 1996 concurrent
with the closing of the GPH equity investment, at a redemption price equal to
the liquidation value thereof plus accrued and unpaid dividends to the date of
redemption. The Series A Preferred Stock is mandatorily redeemable by the
Company in accordance with its terms on March 31, 1996. Although the
stockholders of the Company approved adoption of an amendment to the Amended and
Restated Certificate of Incorporation of the Company (the 'Restated
Certificate') at the 1995 annual meeting of stockholders providing for an
extension of the mandatory redemption date until March 31, 1998, in view of the
resumption of discussions with Mr. Snyder and Warburg Pincus during December
1995, such amendment was not made effective by the necessary filings with the
Delaware Secretary of State. Mr. Bernstein owns 9,200 shares of Series A
Preferred Stock, representing 46.07% of the shares of Series A Preferred Stock
outstanding. If the Transactions are not consummated, the Company intends to
file the amendment with the Delaware Secretary of State, thereby extending the
mandatory redemption date to March 31, 1998.
Directors' and Officers' Liability Insurance Coverage
The Company has agreed in the Securities Purchase Agreement that, through
the third anniversary of the completion of GPH's equity investment and for so
long thereafter as any claim asserted prior to such date has not been fully
adjudicated by a court of competent jurisdiction, it will provide the usual
extended coverage under the Company's executive liability insurance for current
and former directors and officers of the Company and its subsidiaries and other
persons serving in a fiduciary capacity at the direction of the board of
directors or any officer of the Company or any of its subsidiaries, with respect
to matters occurring prior to completion of GPH's equity investment, at least to
the extent covered by the current Company liability insurance coverage. Such
insurance coverage will be of a scope of coverage and in amounts and having
deductibles at least equivalent to that currently maintained by the Company and
otherwise reasonably comparable to the coverage currently maintained by the
Company. The Company has been advised that the costs of such coverage are
estimated to not exceed $350,000 for such three-year period. The Company also
has agreed during such period not to amend or modify provisions of the Restated
Certificate or the Company's By-laws providing for indemnification of directors
and officers in any manner that would adversely affect such individuals, unless
required by law. The extended insurance coverage will enable the Company to fund
its obligations to such directors, officers and fiduciaries under such indemnity
provisions.
Snyder Employment Arrangements
Concurrent with the signing of the Securities Purchase Agreement, Mr.
Snyder entered into an interim employment agreement with the Company (the
'Interim Employment Agreement'), which was unanimously approved by the Board of
Directors, pursuant to which Mr. Snyder became President of the Company until
the earlier of the completion of GPH's equity investment, the termination of the
Securities Purchase Agreement in accordance with its terms and his death or
disability. Mr. Snyder will be compensated during this period based on a per
annum salary of $400,000, and will be entitled to participate in employee
benefit plans and programs sponsored by the Company. The Company has agreed in
the Securities Purchase Agreement not to terminate Mr. Snyder's employment as
President prior to the completion of GPH's equity investment other than for
cause.
In accordance with the Interim Employment Agreement, the Company issued
599,465 shares of Common Stock (the 'Snyder Shares') to Mr. Snyder on January
31, 1996, at a price of $8.00 per share, in exchange for a ten-year nonrecourse
note executed by Mr. Snyder in the amount of the purchase price, secured by a
pledge of
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such shares. See Note 3 to the table under 'SUMMARY--Pro Forma Capitalization.'
In addition, the Interim Employment Agreement provides that upon the earliest of
(x) a termination of Mr. Snyder's employment for any reason, (y) the tenth
anniversary of the Interim Employment Agreement and (z) a disposition of any of
the Snyder Shares after the closing of GPH's equity investment, Mr. Snyder will
receive a special bonus equal in amount to the purchase price of the Snyder
Shares (prorated in the case of a sale of less than all of the Snyder Shares).
The Interim Employment Agreement also grants Mr. Snyder rights to acquire a
proportionate amount of additional shares at the same price as the initial
purchase, and on other similar terms (including the use of a nonrecourse note),
in respect of issuances by the Company of additional equity of up to $50 million
during the 12 months following completion of GPH's equity investment. In the
event that the Securities Purchase Agreement is terminated in accordance with
its terms or Mr. Snyder is not employed by the Company on May 22, 1996, the
stock issuance and the note will be rescinded.
The Company is advised by Mr. Snyder and GPH that, upon the closing of
GPH's equity investment, Mr. Snyder will enter into an employment agreement with
the Company pursuant to which he will become Chairman and Chief Executive
Officer of the Company (the 'Snyder Employment Agreement'). The following
description of the Snyder Employment Agreement and the other arrangements for
Mr. Snyder's employment by the Company following completion of GPH's equity
investment (together, the 'Snyder Employment Arrangements') is based on the
draft of the Snyder Employment Agreement furnished by Mr. Snyder and Warburg
Pincus to the Board of Directors in connection with its approval of the
Securities Purchase Agreement and the Transactions. GPH has advised the Company
that it is contemplated that the Snyder Employment Agreement will be entered
into immediately upon the closing of GPH's equity investment. In determining
that the Transactions are fair to and in the best interests of the Company and
the stockholders, the Board of Directors has not separately considered the
fairness of the terms of, or approved the Company's entering into, the Snyder
Employment Agreement. Similarly, neither Bear Stearns nor Jefferies have taken
the Snyder Employment Arrangements into account in rendering their fairness
opinions described elsewhere in this Proxy Statement.
Under the Snyder Employment Agreement, Mr. Snyder will continue as the
Company's President and will succeed Mr. Bernstein as the Company's Chairman of
the Board of Directors and Chief Executive Officer. The term of employment under
the Snyder Employment Agreement will be five years (the 'Term'). If less than
three years remain in the Term upon the occurrence of a change of control (as
defined in the Snyder Employment Agreement), the Term will automatically be
extended until the third anniversary of the change of control upon the consent
of the Company or its successor. In the absence of such consent, the Term shall
automatically end and Mr. Snyder will receive payments and benefits as if he had
been terminated without cause (as defined in the Snyder Employment Agreement).
Mr. Snyder will receive an annual base salary, subject to discretionary
increases, of $500,000 (retroactive to February 4, 1996) and an annual incentive
bonus equal to 100% of annual base salary under the Company's Executive Officer
Bonus Plan, if certain targeted performance criteria are met. The annual
incentive bonus could be increased to up to 200% of annual base salary if the
Company's performance exceeds targeted goals.
The Snyder Employment Agreement also provides that the Company will grant
Mr. Snyder a non-qualified stock option to acquire 1,113,293 shares of Common
Stock at a per share exercise price equal to the fair market value of the Common
Stock on the date of grant (the 'Option'). The Option will have a term of ten
years and will become exercisable upon the earliest to occur of: (1) three years
and four months following the date of grant; (2) upon a change of control; (3)
upon Mr. Snyder's termination of employment due to death or disability (as
defined in the Snyder Employment Agreement); (4) upon Mr. Snyder's termination
by the Company without cause (as defined in the Snyder Employment Agreement); or
(5) upon termination by Mr. Snyder of his employment for good reason (as defined
in the Snyder Employment Agreement). If the Company issues up to an additional
$50 million of equity securities within twelve months after completion of GPH's
equity investment, additional options will be granted to avoid dilution of the
interest in the Company represented by the Option. In addition, the Company will
pay Mr. Snyder a one-time special bonus (the 'Special Bonus') equal to the
product obtained by multiplying the number of shares covered by the Option by
the amount by which the fair market value of the Common Stock on the date of
grant of the Option or the date immediately preceding the payment of the Special
Bonus, whichever is less, exceeds $8.00. The Special Bonus will be paid on the
earlier of (i) the fifth anniversary of the Snyder Employment Agreement (if Mr.
Snyder is employed by the Company on that date) or (ii) the date of Mr. Snyder's
termination of employment other than by the Company for cause or by Mr. Snyder
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without good reason or upon his death or disability. The Special Bonus will
cease to be payable upon the termination of Mr. Snyder's employment for cause or
termination by Mr. Snyder without good reason.
Commencing on the later of the fifth anniversary of the Snyder Employment
Agreement or the cessation of Mr. Snyder's employment (other than due to his
death), Mr. Snyder will receive a supplemental single-life annuity retirement
benefit of $250,000 per annum. This retirement benefit will be increased to 60%
of Mr. Snyder's highest average base salary and bonus payments if the fair
market value of the Common Stock on the fifth anniversary of the date of the
Snyder Employment Agreement is less than the exercise price of the Option, as
described above. This increased retirement benefit will be offset by any other
defined benefit pension amounts payable to Mr. Snyder by any previous employer
(which the Company has been advised are significant) or by the Company.
In addition, Mr. Snyder will receive active and retiree medical benefits
(not to exceed a $3 million lifetime cap) and, at his election, either term life
insurance coverage with a death benefit of at least $3 million or a monthly cash
allowance equal to the cost of such insurance. Mr. Snyder will also be eligible
to participate generally in all incentive, savings, retirement and welfare
benefit programs available to other senior executives of the Company. In no
event shall the incentive, savings, retirement and welfare benefits programs
maintained by the Company after a change of control provide less favorable
benefits to Mr. Snyder or his family than were provided to them prior to the
change of control.
If Mr. Snyder's employment is terminated by the Company without cause or by
Mr. Snyder for good reason, all stock options and other stock-based awards will
become immediately exercisable or vested, as the case may be, and the Company
will pay Mr. Snyder in cash in one lump sum (1) any salary and vacation pay
accrued, but unpaid, through the date of termination and any deferred
compensation not yet paid to him; (2) the greater of the target annual bonus for
the year of termination or the actual bonus amount paid or payable for the most
recently completed fiscal year of the Company (the 'Highest Annual Bonus'), in
each case pro-rated through the date of termination; (3) three times his annual
base salary and Highest Annual Bonus or, if greater, the sum of his annual base
salary and Highest Annual Bonus times the number of years (including fractions
thereof) remaining in the Term as of the date of termination; and (4) the
actuarial equivalent of any retirement benefits that would have accrued during
the remainder of the Term or three years, whichever is longer. In addition, Mr.
Snyder will be entitled to continuation of welfare and fringe benefits for the
greater of three years or the remaining Term.
If Mr. Snyder terminates his employment without good reason or if he dies
or becomes disabled, the Company will pay him or his legal representatives any
accrued, but unpaid, salary and vacation pay, a pro-rated annual bonus
(determined as set forth above), any deferred compensation not yet paid to him
and any other benefits provided by the Company in accordance with the terms and
provisions of the Company's plans or programs. If Mr. Snyder's employment is
terminated by the Company for cause, or by Mr. Snyder without good reason, the
Company will pay him accrued, but unpaid, salary and deferred compensation not
yet paid to him and any other benefits provided by the Company in accordance
with the terms and provisions of the Company's plan or programs. In that case,
Mr. Snyder will forfeit all unvested stock options.
The Company also will pay all legal and professional fees which Mr. Snyder
may reasonably incur as a result of the negotiation or enforcement of any
provision of the Snyder Employment Agreement. If any payments made to Mr. Snyder
under the Snyder Employment Agreement or otherwise are subject to the 20% excise
tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the 'Excess Parachute Payments'), the Company will pay Mr. Snyder an additional
amount (the 'Additional Payment') such that, after payment of all taxes
attributable to the Additional Payment (including any additional excise taxes
thereon), he retains a portion of the Additional Payment equal to the excise tax
imposed on the Excess Parachute Payments.
Under the terms of the Snyder Employment Agreement, Mr. Snyder may not
disclose any confidential information relating to the Company or any affiliate
to anyone other than the Company and those designated by it, and he may not
solicit any employee or customer of the Company or any affiliate prior to the
later of the fifth anniversary of the Snyder Employment Agreement or one year
after his termination of employment with the Company.
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Severance and Management Arrangements
Concurrent with its approval of the Securities Purchase Agreement, the
Board of Directors determined that the Company will make severance payments
totalling $1.8 million to certain officers and employees (other than Mr.
Bernstein) of the Company who will resign their positions with the Company on
the date of completion of GPH's equity investment. See Note 2 under the Summary
Compensation Table under 'ELECTION OF DIRECTORS--Executive Compensation' for
additional information with respect to the severance payments.
As described above under 'THE PROPOSALS--Certain Negotiated Features of the
Transactions--Management Services,' upon the completion of GPH's equity
investment the Company will enter into the Management Agreement with a
corporation owned by Mr. Bernstein for the purpose of providing management
services as requested from time to time by Mr. Snyder for a transition period of
180 days thereafter.
REGULATORY MATTERS
The Company is not aware of any regulatory approvals or filings, or any
other consents or approvals, required for the consummation of the Transactions,
except as provided under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended ('HSR Act'). Under the HSR Act and the rules promulgated
thereunder by the Federal Trade Commission (the 'FTC'), the Transactions may not
be consummated until notifications have been given and certain information has
been furnished to the FTC and the Antitrust Division of the Department of
Justice (the 'Antitrust Division') and the applicable waiting period has expired
or been terminated. On March 8, 1996 and March 11, 1996, notification and report
forms were filed by GPH and by the Company, respectively, under the HSR Act with
the FTC and the Antitrust Division relating to the Transactions. Early
termination of the waiting period under the HSR Act was granted by the FTC on
March 25, 1996.
At any time before or after consummation of the Transactions,
notwithstanding that the waiting period under the HSR Act has expired or been
terminated, the Antitrust Division, the FTC or any state could take such action
under applicable antitrust laws as it deems necessary or desirable in the public
interest. Such action could include seeking to enjoin the consummation of the
Transactions or seeking divestiture of substantial assets of the Company.
Private parties may also seek to take legal action under applicable antitrust
laws under certain circumstances.
SECTION 203 OF THE DGCL
The Company is a Delaware corporation subject to Section 203 of the
Delaware General Corporation Law (the 'DGCL'). Generally, Section 203 prohibits
a publicly-held Delaware corporation from engaging in a 'business combination'
with an 'interested stockholder' for a period of three years after the date the
person became an interested stockholder, unless (i) prior to such date, either
the business combination in question or the transaction resulting in such person
becoming an interested stockholder is approved by the board of directors of the
relevant corporation, (ii) upon consummation of the transaction which resulted
in the stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of the outstanding voting stock of the relevant
corporation or (iii) on or after such date the business combination is approved
by the board of directors of the relevant corporation and by the affirmative
vote of at least 66 2/3% of the outstanding voting stock that is not owned by
the interested stockholder. A 'business combination' includes mergers, assets
sales and other transactions resulting in a financial benefit to the interested
stockholder. An 'interested stockholder' is a person who, together with
affiliates and associates, beneficially owns 15% or more of the relevant
corporation's outstanding voting stock. As required by the Securities Purchase
Agreement, the Board of Directors has taken appropriate action so that the
provisions of Section 203 of the DGCL shall not be applicable to the execution
and delivery of the Securities Purchase Agreement and the consummation of the
Transactions, including the execution and delivery of the Irrevocable Proxies.
LITIGATION
On September 8, 1995, the Pill Class Action was filed on behalf of all
stockholders of the Company (other than the defendants named below) in the
Delaware Court of Chancery. The Amended Complaint was filed on October 5, 1995.
The substantially similar Miller and Polikoff Class Actions were filed in the
Delaware Chancery Court on October 6, 1995. The Class Actions name as defendants
the Company, the directors of the Company, the President of the Company's
wholly-owned subsidiary, Western Publishing Company, Inc., Warburg Pincus
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and Mr. Snyder. The Class Actions challenge the transactions contemplated by the
October Announcement, alleging, among other things, that (i) such transaction
was an attempt to deny the Company's stockholders (other than the defendants)
their right to share in the control premium being paid to Mr. Bernstein, (ii)
the public stockholders were not being adequately compensated for the potential
earnings of the Company, (iii) Mr. Bernstein was being unduly compensated by
such transaction, obtaining the right, given to no other stockholder, to sell
his Common Stock at a substantial premium, (iv) the defendants failed to
consider alternate transactions and (v) the defendants violated fiduciary and
other common law duties owed to the stockholders (other than the defendants) by
not exercising independent business judgment and having conflicts of interest.
The Class Actions seek to preliminarily and permanently enjoin such transaction
or, if consummated, to rescind such transaction, and also pray for an award of
compensatory damages. The defendants have denied, and continue to deny, that
they have committed any violations of law in connection with the transactions
proposed at the date of filing of the respective Class Actions. Additionally, in
view of the revised structure for the Transactions contemplated by the
Securities Purchase Agreement, the defendants believe, based on the advice of
counsel, that the claims made in the Class Actions are no longer relevant and
wholly without merit.
On April 18, 1996, the parties to the Class Actions entered into a
Memorandum of Understanding (the 'Memorandum') with respect to a proposed
settlement. Pursuant to the Memorandum, the parties and their counsel have
agreed to negotiate in good faith a settlement agreement (the 'Stipulation of
Settlement'), which will contain a 'global' release of any and all claims,
rights or causes of action, known or unknown, that any of the stockholders of
the Company may have arising out of, or relating to, or in connection with, the
subject matter of the Class Actions, provided that the Transactions are
consummated. The Stipulation of Settlement also will provide that all defendants
deny that they have committed any violations of law or breaches of fiduciary
duty, and that the defendants are entering into the Stipulation of Settlement to
eliminate the distraction, burden and expense of further litigation and the
resulting uncertainty regarding the Transactions. The Memorandum states that the
pendency of the Class Actions was a significant fact that Warburg Pincus and Mr.
Snyder considered in making the changes to the proposed transactions and
structuring the Transactions. The Memorandum contemplates that, subject to the
completion of such discovery as is reasonable and as plaintiffs' counsel deem
necessary to confirm that the settlement is fair and reasonable, and following
the signing of the Stipulation of Settlement, the parties will jointly apply to
the Delaware Court of Chancery for approval of the Stipulation of Settlement.
The settlement contemplated by the Memorandum will not be binding upon any party
until the confirmatory discovery referred to above has been completed, and will
cease to be of any force or effect if (i) plaintiffs' counsel determine that,
based upon discovery or subsequent events, the Stipulation of Settlement is not
fair and reasonable, (ii) the Stipulation of Settlement is not approved by the
Court or (iii) the Transactions are not consummated. If the Court approves the
Stipulation of Settlement, plaintiffs' counsel will apply for an allowance of
attorneys' fees and expenses for the prosecution and investigation of the Class
Actions, payable by the Company, in an amount not exceeding $100,000, to which
defendants will not object. In addition, the Company will pay the costs of
identifying and notifying the class of the settlement. Such payments will
satisfy any and all claims against defendants in the Class Actions for
attorneys' fees and expenses.
If completed, the proposed settlement will release all claims of the
certified class of Company stockholders that arise out of or relate to the
subject matter of the Class Actions, the Transactions, the negotiation and
consideration of the Transactions and the fiduciary or disclosure obligations of
the defendants (or other persons to be released) with respect to the foregoing.
It is expected that stockholders of the Company will separately be provided with
a notice containing further information regarding the proposed settlement and
related proceedings, including a settlement hearing to be scheduled by the
Court.
Should the proposed settlement not be completed and if the Class Actions
proceed, the defendants intend to defend such lawsuits vigorously.
SECURITIES PURCHASE AGREEMENT
(PROPOSAL NO. 1)
At the Special Meeting, the stockholders are being asked to approve the
Securities Purchase Agreement and the performance by the Company of all
transactions and acts on the part of the Company contemplated under the
Securities Purchase Agreement, including (a) the issuance and sale to GPH, for a
cash purchase price of $65 million, of shares of Series B Convertible Preferred
Stock (and any shares of Common Stock issuable upon
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the conversion thereof) and the Warrant (and any shares of Common Stock issuable
upon the exercise thereof), (b) the redemption by the Company of the outstanding
shares of Series A Preferred Stock due March 31, 1996 from the proceeds of GPH's
investment, (c) the grant of certain registration rights to GPH in respect of
the Series B Convertible Preferred Stock and the Warrant and the underlying
Common Stock pursuant to a registration rights agreement between the Company and
GPH (the 'GPH Registration Rights Agreement'), (d) the grant of certain
registration rights to Mr. Bernstein and certain of his affiliates in respect of
their shares of Common Stock pursuant to the Bernstein Registration Rights
Agreement and (e) the Company's execution of the Snyder Employment Agreement
upon the closing of GPH's equity investment. The approval of the matters set
forth in clause (a) of the preceding sentence is required by the rules of the
National Association of Securities Dealers, Inc. (the 'NASD') for corporations
with securities quoted on the Nasdaq National Market. The following is a summary
of certain provisions of the Securities Purchase Agreement, which is attached as
Appendix I to this Proxy Statement and is incorporated herein by reference. Such
summary is qualified in its entirety by reference to the Securities Purchase
Agreement.
The Board of Directors reserves its right, pursuant to the Securities
Purchase Agreement, to amend the provisions of the Securities Purchase Agreement
in all respects in accordance with its terms and without stockholder approval
before or after approval of the Proposals by the Company's stockholders. The
Board of Directors also reserves the right to terminate the Securities Purchase
Agreement in accordance with its terms notwithstanding stockholder approval.
ISSUANCE AND SALE OF SERIES B CONVERTIBLE PREFERRED STOCK AND WARRANT
Pursuant to the terms of the Securities Purchase Agreement, the Company has
agreed, subject to the terms and conditions set forth therein, to issue to GPH
at the closing of the equity investment by GPH contemplated by the Securities
Purchase Agreement (the 'Closing'), 13,000 shares of Series B Convertible
Preferred Stock with a liquidation value of $65 million, and the Warrant to
purchase 3,250,000 shares of Common Stock at a price of $10 per share, in
exchange for the payment by GPH of $65 million in cash at the Closing.
TERMS OF THE SERIES B CONVERTIBLE PREFERRED STOCK
General
Pursuant to the terms of the Securities Purchase Agreement, the Company
will issue and sell, and GPH will purchase, 13,000 shares of Series B
Convertible Preferred Stock at the Closing. The preferences and rights of the
Series B Convertible Preferred Stock are set forth in a Certificate of
Designations, Number, Voting Powers, Preferences and Rights of Series B
Convertible Preferred Stock that will be filed with the Secretary of State of
Delaware at the time of the Closing (the 'Certificate of Designations'). The
following is a summary of certain provisions of the Certificate of Designations,
which is attached as Appendix IV to this Proxy Statement and is incorporated
herein by reference. Such summary is qualified in its entirety by reference to
the Certificate of Designations.
Dividends
Pursuant to the Certificate of Designations, the Series B Convertible
Preferred Stock shall be entitled to receive a 12% annual dividend payable (i)
during each of the first four years following the date of initial issuance of
the Series B Convertible Preferred Stock (the 'Initial Issuance Date'), by
delivery quarterly of an aggregate of 195,000 shares of Common Stock, subject to
certain adjustments described below, and (ii) thereafter, when and as declared
out of legally available funds, in cash (computed on the basis of a 360-day year
of twelve 30-day months) at the rate of $150 per share, compounded quarterly,
all of which dividends shall be cumulative from the Initial Issuance Date. In
the event that (x) the product of (i) the number of shares of Common Stock per
share of Series B Convertible Preferred Stock to be distributed in any quarter
during the first four years following the Initial Issuance Date and (ii) the
average closing price of a share of Common Stock for the ten consecutive trading
days immediately preceding the applicable dividend payment date (the 'Dividend
Value') is less than $93.75, then, in addition to such shares of Common Stock,
the holders of Series B Convertible Preferred Stock shall receive on the
applicable dividend payment date, out of legally available funds of the Company,
cash per share of Series B Convertible Preferred Stock in an amount equal to the
excess of $93.75 over the Dividend Value, compounded quarterly, and (y) the
Dividend Value exceeds $187.50, then the number of shares of
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Common Stock to be so distributed shall be reduced by an amount sufficient to
cause the Dividend Value to equal $187.50 (subject in each case to adjustment in
the event of any dividend, stock split, stock distribution or combination with
respect to any such shares). Dividends will be payable on the 1st day of
February, May, August and November of each year before any dividends are paid on
the Common Stock.
Liquidation
The holders of Series B Convertible Preferred Stock shall have the right to
receive $5,000 per share, plus accrued and unpaid dividends, in the event of a
voluntary or involuntary liquidation, dissolution or winding up of the Company.
Such liquidation preference shall rank senior to any liquidation rights of the
Common Stock. The merger or sale of the Company or the sale of all or
substantially all its assets shall not be deemed to be a liquidation,
dissolution or winding up of the Company for this purpose.
Redemption
The Series B Convertible Preferred Stock shall be subject to optional
redemption by the Company at a redemption price of $5,000 per share, plus an
amount equal to any accrued and unpaid dividends, at any time on or after the
fourth anniversary of the Initial Issuance Date. The Company is not required to
mandatorily redeem the Series B Convertible Preferred Stock and the Series B
Convertible Preferred Stock is not the subject of any sinking fund requirement.
Voting and Other Rights
In addition to any voting rights granted under the DGCL, each share of
Series B Convertible Preferred Stock shall be entitled to vote, on an
as-if-converted basis, together with the Common Stock as one class on all
matters submitted to a vote of the stockholders of the Company, including the
election of directors (in addition to electing the Series B Directors).
Consequently, subject to adjustment as provided in the Certificate of
Designations, each share of Series B Convertible Preferred Stock will have a
vote equal to 500 shares of Common Stock. In addition, the Company may not,
without the affirmative vote or consent of a majority of the holders of Series B
Convertible Preferred Stock, amend, alter or repeal the preferences, special
rights or other powers of the Series B Convertible Preferred Stock so as to
adversely affect the rights of the holders of Series B Convertible Preferred
Stock, including, without limitation, authorizing a series or class of stock
having any preference or priority over, or being on a parity with, the Series B
Convertible Preferred Stock either as to dividends or on liquidation.
Subject to the limitations described below, the holders of Series B
Convertible Preferred Stock will have the right to elect, as a class, one-third
of the members of the Board of Directors, which shall on the Initial Issuance
Date have nine members; provided, however, that upon such time as less than (i)
40% of the shares of Series B Convertible Preferred Stock issued on the Initial
Issuance Date are owned by GPH and certain of its affiliates, the holders of
Series B Convertible Preferred Stock will have the right to elect, as a class,
two Series B Directors, (ii) 30% of the shares of Series B Convertible Preferred
Stock issued pursuant on the Initial Issuance Date are owned by GPH and certain
of its affiliates, the holders of Series B Convertible Preferred Stock will have
the right to elect, as a class, one Series B Director and (iii) 20% of the
shares of Series B Convertible Preferred Stock issued on the Initial Issuance
Date are owned by GPH and certain of its affiliates, the holders of Series B
Convertible Preferred Stock shall no longer have a right, as a class, to elect
any member of the Board of Directors. Furthermore, the Certificate of
Designations will prohibit the Company (and, in the case of clauses (ii), (iii),
(iv) and (v) below, its subsidiaries), for so long as at least one-half of the
shares of Series B Convertible Preferred Stock issued on the Initial Issuance
Date are owned by GPH and certain of its affiliates, without first obtaining the
consent of the holders of a majority of the shares of Series B Convertible
Preferred Stock, voting as a separate class, from engaging in the following
transactions or taking the following actions:
(i) amend or repeal any provision of the Restated Certificate or the
Company's By-laws, including without limitation a change in the number of
members of the Board of Directors;
(ii) authorize or effect the incurrence or issuance of any
indebtedness (other than pursuant to an agreement to incur the same which
has been approved in writing by holders of a majority of outstanding shares
of Series B Convertible Preferred Stock, and other than pursuant to that
certain Credit Agreement, dated September 29, 1995, between Western
Publishing Company, Inc. and Heller Financial, Inc.) or shares of capital
stock or rights to acquire capital stock other than, in the case of shares
of Common Stock,
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(x) options to acquire up to 1,874,300 shares of Common Stock issued to
employees of the Company pursuant to the Amended and Restated 1986 Employee
Stock Option Plan (the '1986 Plan') or (y) thereafter approved with the
consent of the holders of record of a majority of the then outstanding
shares of Series B Convertible Preferred Stock; provided, however, that the
incurrence of indebtedness among the Company and its subsidiaries shall not
require such consent;
(iii) authorize or effect (A) in one or in a series of two or more
related transactions, any sale, lease, license, transfer or other
disposition of assets for consideration in excess of $5,000,000 (other than
in the ordinary course of business or among the Company and its
subsidiaries); (B) any merger or consolidation or other reorganization
involving the Company or any of its subsidiaries (other than with one
another or in respect of which the aggregate consideration paid to or
received by the Company or its subsidiaries is less than $5,000,000) or (C)
a liquidation, winding up, dissolution or adoption of any plan for the same
other than the liquidation, winding up, dissolution or adoption of any plan
for the same of a subsidiary into the Company or another subsidiary
thereof;
(iv) authorize or effect, in one or in a series of two or more related
transactions, (A) any acquisition or lease of assets or (B) any license of
patent, trademark or other rights relating to any intellectual property, in
each case, that involves by its terms a per annum payment in excess of
$5,000,000 as determined in good faith by the Board of Directors, other
than among the Company and its subsidiaries or in the ordinary course of
business; or
(v) terminate the employment of the chief executive officer of the
Company.
Notwithstanding the foregoing, in the event that the shares of Series B
Convertible Preferred Stock are held by more than 10 holders, then the right of
the holders to elect Series B Directors and to vote as a class on the matters
listed above shall terminate.
Conversion
The Series B Convertible Preferred Stock is convertible, at the option of
the holders of Series B Convertible Preferred Stock, into shares of Common
Stock, at the exchange rate of 500 shares of Common Stock for each share of
Series B Convertible Preferred Stock, at any time from and after the Initial
Issuance Date, representing a conversion price of $10 per share of Series B
Convertible Preferred Stock. The number of shares of Common Stock for which the
Series B Convertible Preferred Stock may be converted is subject to customary
antidilution adjustments pursuant to the Certificate of Designations to prevent
dilution on the occurrence of certain events ('Triggering Transactions'),
including: (i) stock dividends or other distributions of Common Stock, (ii)
certain issuances of Common Stock (or other securities convertible into or
exercisable for Common Stock) at a price per share (or having a conversion or
exercise price per share) less than the conversion price of the Series B
Convertible Preferred Stock at such time, or (iii) a merger, consolidation or
other reorganization of the Company. Notwithstanding the foregoing, the
conversion rate shall not be so reduced if (A) for so long as the holders of the
Series B Convertible Preferred Stock have class voting rights to elect one or
more Series B Directors or to approve certain transactions as described above,
such Triggering Transaction involves a grant, issuance or sale of Common Stock
to GPH or certain of its affiliates, other than ratably to all holders of Common
Stock, and such Triggering Transaction has not been approved by a majority of
the non-Series B Directors (other than natural persons having certain relations
with GPH) or (B) the Triggering Transaction involves a grant, issuance or sale
of Common Stock that has not been registered pursuant to the Securities Act and
an investment bank of national standing and reputation, engaged for a fee by the
Company pursuant to a written engagement letter, has not been consulted by the
Company with respect to the structure of such Triggering Transaction and
participated in the negotiation of such Triggering Transaction. The foregoing
anti-dilution adjustments will not apply to any Common Stock issued or issuable
to any person or entity: (i) on exercise of options outstanding as of the
Initial Issuance Date to acquire up to 1,874,300 shares of Common Stock issued
to employees of the Company pursuant to the 1986 Plan and any options approved
by the holders of record of a majority of the outstanding shares of Series B
Convertible Preferred Stock, (ii) pursuant to options granted to Mr. Snyder
under the terms of the Snyder Employment Arrangements, (iii) on conversion of
the Series B Convertible Preferred Stock or Series A Preferred Stock, (iv) as a
dividend on the Series B Convertible Preferred Stock or (v) on exercise of the
Warrant.
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Preemptive Rights
The holders of Series B Convertible Preferred Stock will have no preemptive
rights to purchase any securities issued by the Company. The holders of Common
Stock and Series A Preferred Stock have no preemptive rights to purchase Series
B Convertible Preferred Stock or any other securities issued by the Company.
TERMS OF THE WARRANT
General
The Warrant is to be issued to GPH pursuant to the Securities Purchase
Agreement. The following is a summary of certain provisions of the Warrant, the
form of which is attached as Appendix V to this Proxy Statement and is
incorporated herein by reference. Such summary is qualified in its entirety by
reference to such form of Warrant.
Exercise
The Warrant will initially entitle the holder thereof to purchase 3,250,000
shares of Common Stock at a price of $10 per share (the 'Exercise Price'),
subject to adjustment as described below. The Warrant will be exercisable
beginning on the second anniversary of the date of issuance (subject to
acceleration in the event of a public announcement of certain bona fide Business
Combination Proposals (as defined in 'SECURITIES PURCHASE AGREEMENT--Pre-Closing
Covenants') or the initiation of a proxy solicitation for control of the Board
of Directors by any person or entity (other than GPH or certain of its
affiliated entities)) until the seventh anniversary of the date of issuance. The
Warrant may be exercised by surrendering the Warrant to the Company, at its
office in New York, New York, accompanied by payment of an amount equal to the
Exercise Price multiplied by the number of shares being purchased pursuant to
such exercise. In lieu of exercising the Warrant, the holder may elect to
receive a payment equal to the difference between (i) the market price of the
Common Stock multiplied by the number of shares as to which the Warrant is then
being exercised and (ii) the Exercise Price with respect to such shares, payable
by the Company to the holder of the Warrant only in shares of Common Stock
valued at the market price on the date of exercise.
Antidilution and Exercise Price Adjustments
The number of shares of Common Stock purchasable upon the exercise of the
Warrant and the Exercise Price are subject to customary antidilution adjustments
in connection with the occurrence of certain events, substantially the same as
those applicable to the Series B Convertible Preferred Stock as described above
under 'THE SECURITIES PURCHASE AGREEMENT--Terms of the Series B Convertible
Preferred Stock--Conversion.'
Transferability
The Securities Purchase Agreement prohibits GPH from selling, transferring
or assigning the Warrant other than to an affiliate until the earlier to occur
of (i) the second anniversary of the Closing Date and (ii) the date on which a
bona fide Business Combination Proposal is publicly announced or a proxy
solicitation for control of the Board of Directors is initiated by any person
other than GPH or any of its affiliates.
TERMS OF THE GPH REGISTRATION RIGHTS AGREEMENT
Pursuant to the terms of the Securities Purchase Agreement, the Company has
agreed to enter into the Registration Rights Agreement with GPH at the Closing.
The following is a summary of certain provisions of the GPH Registration Rights
Agreement, which is attached as Appendix VI to this Proxy Statement and is
incorporated herein by reference. Such summary is qualified in its entirety by
reference to the GPH Registration Rights Agreement.
The GPH Registration Rights Agreement will contain customary terms and
conditions and will provide, among other things, that the holders of Registrable
Securities (as defined below) thereunder will have the right to require the
Company to use its best efforts to register under the Securities Act Registrable
Securities in up to three demand registrations and an unlimited number of
incidental ('piggyback') registrations. Subject to certain
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limitations, holders of Registrable Securities will also have the right to
request unlimited registrations of their securities on SEC Form S-3 and to
effect a shelf registration of such securities pursuant to SEC Rule 415, and to
keep such shelf registration continuously effective for up to 18 months.
'Registrable Securities' will be defined in the GPH Registration Rights
Agreement as (i) any shares of Series B Convertible Preferred Stock, (ii) any
shares of Common Stock issued upon conversion of shares of Series B Convertible
Preferred Stock, (iii) the Warrant or any portion thereof, (iv) any shares of
Common Stock issued upon the exercise of the Warrant or any portion thereof and
(v) any capital stock of the Company issued as a dividend or other distribution
with respect to, or in exchange for or in replacement of, any securities
referred to in clauses (i) through (iv) above. The Company will pay all
registration expenses in connection with each registration of Registrable
Securities pursuant to the GPH Registration Rights Agreement, except for
underwriting discounts and commissions and fees and disbursements of counsel to
the selling holders. The Company also will agree in the GPH Registration Rights
Agreement to customary indemnification and contribution protections to selling
holders of Registrable Securities under the federal securities laws and
otherwise.
REPRESENTATIONS AND WARRANTIES
The Securities Purchase Agreement contains various customary
representations and warranties of the parties, none of which survive the
Closing, made as of the date of the Securities Purchase Agreement and to be made
as of the date of the Closing, including, among other things, representations
(A) from both parties relating to (i) each party's organization and similar
corporate matters, (ii) the authorization, execution, delivery, performance and
enforceability of the Securities Purchase Agreement and related matters and
(iii) required consents or approvals and violations of any instruments or laws;
(B) representations from the Company relating to (i) the capital structure of
the Company and its subsidiaries and equity investments, (ii) the documents and
reports filed by the Company with the SEC and the accuracy of the information
contained therein, (iii) the accuracy of the information provided by the Company
with respect to this Proxy Statement, (iv) the Company's business, properties,
assets, condition (financial or otherwise), liabilities or operations of the
Company and the absence of any material adverse change thereto and (v) the
Company's having taken all actions so that the restrictions of Section 203 of
the DGCL will not apply to the consummation of the transactions contemplated by
the Securities Purchase Agreement; and (C) representations from GPH relating to
(i) GPH's having sufficient funds to effect the transactions contemplated by the
Securities Purchase Agreement and (ii) GPH's purchasing the Series B Convertible
Preferred Stock and the Warrant for investment for its own (or an affiliate's)
account and not with a view to the distribution of any part of the Series B
Convertible Preferred Stock or the Warrant.
PRE-CLOSING COVENANTS
Pursuant to the Securities Purchase Agreement, the Company has agreed that
prior to the Closing, unless otherwise agreed to by either GPH or Mr. Snyder, it
will, among other things: (i) afford GPH and its representatives full access
during normal business hours to its properties, books, contracts, commitments,
records and personnel; (ii) carry on its business in the usual, regular and
ordinary course; (iii) preserve intact its business organization; (iv) keep
available the services of officers and employees; (v) preserve its relationships
with customers, suppliers and others material to the operation of its business;
(vi) maintain its insurance coverage and its books and records; (vii) comply in
all material respects with all applicable laws and regulations, (viii) maintain
its properties and equipment in good repair, working order and condition,
ordinary wear and tear excepted; and (ix) maintain in full force and effect and
perform in all material respects its obligations under all material contracts
and commitments. Further, the Company has agreed that prior to the Closing,
unless otherwise agreed to by either GPH or Mr. Snyder, it will not, among other
things: (i) sell or pledge or agree to sell or pledge any capital stock owned by
it or any of its subsidiaries; (ii) amend the Restated Certificate or the
By-laws, except as contemplated by the Securities Purchase Agreement; (iii)
split, combine or reclassify its outstanding capital stock or issue or authorize
or propose the issuance of any other securities in respect of, in lieu of or in
substitution for shares of the capital stock, or, except as contemplated by the
Securities Purchase Agreement, declare, set aside or pay any dividend or other
distribution payable in cash, stock or property (other than dividends payable on
the Series A Preferred Stock, to the extent otherwise permitted); or (iv)
directly or indirectly redeem, purchase or otherwise acquire or agree to redeem,
purchase or otherwise acquire any shares of its capital stock, except as
contemplated by the Securities Purchase Agreement or pursuant to existing
contractual rights.
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Additionally, the Company has agreed that unless otherwise agreed to by
either GPH or Mr. Snyder, it will not, nor will it permit any of its
subsidiaries to: (i) except as required by the Securities Purchase Agreement,
issue, deliver or sell or agree to issue, deliver or sell any additional shares
of, or stock appreciation rights or rights of any kind to acquire any shares of,
its capital stock of any class, or any option, rights or warrants to acquire, or
securities convertible into, shares of capital stock other than (x) issuances of
Common Stock pursuant to the exercise of outstanding warrants or stock options
or (y) grants of employee stock options at fair market value at the time of
grant and issuances of Common Stock upon exercise thereof, in the ordinary
course of business and consistent with past practice (other than to certain
executive officers of the Company located at its New York City offices and their
affiliates, who shall not be eligible to receive such grants subsequent to the
date of the Securities Purchase Agreement); provided that the number of shares
of Common Stock issuable upon exercise of all employee stock options outstanding
on the date of the Securities Purchase Agreement and those granted thereafter
and before the Closing shall not exceed the sum of 1,874,300; (ii) except for
the sale of the Company's Fayetteville, North Carolina facility, acquire, lease
or dispose or agree to acquire, lease or dispose of any capital assets or any
other assets other than in the ordinary course of business; (iii) incur
additional indebtedness or encumber or grant a security interest in any asset or
enter into any transaction other than in the ordinary course of business; (iv)
incur any liability or obligation, or contribute any asset, to a subsidiary of
the Company other than in the ordinary course of business; (v) acquire or agree
to acquire by merging or consolidating with, or by purchasing a substantial
equity interest in, or by any other manner, any business or any corporation,
partnership or other business organization or division thereof, in each case in
this clause (v) which are material, individually or in the aggregate, to the
Company and its subsidiaries taken as a whole; (vi) adopt, enter into, amend or
terminate any contract, agreement or other arrangement with respect to the
actions described in clauses (i) through (v) that is not otherwise permitted by
the exceptions contained therein; (vii) except as required to comply with
applicable law, (A) adopt, enter into, terminate or amend any Company employee
benefit plan or arrangement, (B) increase in any manner the compensation or
fringe benefits of any director, officer or employee (except for normal
increases in the ordinary course of business that are consistent with past
practice and that, in the aggregate, do not result in a material increase in
benefits or compensation expense to such party and its subsidiaries relative to
the level in effect prior to such increase), (C) pay any benefit not provided
under any existing Company employee benefit plan or arrangement, (D) except for
benefits that have already been earned or vested without acceleration, grant any
awards or make any payments under any bonus, incentive, performance or other
compensation plan or arrangement or Company benefit plan, except for (x) the
making of matching and annual contributions to 401(k) plans in the ordinary
course of business and consistent with past practice and (z) the granting of
employee stock options and the issuance of Common Stock upon exercise thereof,
to the extent permitted by subclauses (x) and (y) of clause (i) above, (E) take
any action to fund or in any other way secure the payment of compensation or
benefits under any Company employee benefit plan or arrangement, other than in
the ordinary course of business consistent with past practice, or (F) adopt,
enter into, amend or terminate any contract, agreement or other arrangement to
do any of the actions described in this clause (vii) that is not otherwise
permitted by the exceptions contained herein; (viii) make any investments in
non-investment grade securities; (ix) make any change in its accounting policies
or procedures except as required under statutory accounting practices or
generally accepted accounting principles, as applicable; (x) take any action
that would, or reasonably might be expected to, result in any of its
representations and warranties set forth in the Securities Purchase Agreement
being or becoming untrue in any material respect, or in any of the conditions
set forth in the Securities Purchase Agreement not being satisfied, or (unless
such action is required by applicable law) which would adversely affect the
ability of the Company to obtain any of the regulatory approvals required to
consummate the transactions contemplated by the Securities Purchase Agreement;
(xi) terminate or materially modify the employment arrangements of Mr. Snyder,
other than for 'cause' (as defined in the draft of the Snyder Employment
Agreement furnished to the Board of Directors); and (xii) enter into any
agreement to perform any of the actions prohibited under this paragraph and the
immediately preceding paragraph and not otherwise permitted by the exceptions
contained therein.
NON-SOLICITATION OF BUSINESS COMBINATION PROPOSALS
The Securities Purchase Agreement provides that the Company shall not, nor
shall any of its subsidiaries, directly or indirectly, take (nor shall the
Company authorize or permit its subsidiaries, officers, directors, employees,
representatives, investment bankers, attorneys, accountants or other agents or
affiliates, to take) any
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action to (i) solicit or initiate the submission of any Business Combination
Proposal (as defined below), (ii) enter into any agreement with respect to any
Business Combination Proposal or (iii) participate in any way in discussions or
negotiations with, or furnish any information to, any person in connection with,
or take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
Business Combination Proposal. 'Business Combination Proposal' means any tender
or exchange offer, proposal for a merger, consolidation or other series of
related transactions in a business combination involving the Company or any
subsidiary of the Company or any other proposal or offer to enter into a Third
Party Business Combination (as defined below). 'Third Party Business
Combination' means the occurrence of any of the following events: (A) the
Company or any subsidiary of the Company is acquired by merger or otherwise by
any person, entity or group, other than GPH or certain affiliates thereof (a
'Third Party'); (B) the Company or any subsidiary of the Company enters into an
agreement with a Third Party which contemplates the acquisition of 25% or more
of the total assets of the Company and its subsidiaries taken as a whole; (C)
the Company enters into a merger or other agreement with a Third Party which
contemplates the acquisition of beneficial ownership of more than 25% of the
outstanding shares of the Common Stock (or securities convertible thereinto or
exercisable therefor); (D) a Third Party acquires more than 25% of the total
assets of the Company and its subsidiaries taken as a whole; (E) a Third Party
who, as of the date 10 days preceding the date of the Securities Purchase
Agreement, beneficially owns less than 10% of the outstanding shares of the
Common Stock obtains beneficial ownership of such number of shares of Common
Stock such that it beneficially owns more than 25% of the outstanding shares of
Common Stock, or any person, entity or group which beneficially owns (or has the
right to acquire) 10% or more of the outstanding shares of the Common Stock
increases its beneficial ownership of the outstanding shares of Common Stock by
10% or more; (F) the Company adopts a plan of liquidation relating to more than
25% of the total assets of the Company and its subsidiaries taken as a whole;
(G) the Company repurchases more than 25% of the outstanding shares of the
Company's capital stock; or (H) there is a public announcement or written
proposal with respect to a plan or intention by the Company or a Third Party to
effect any of the foregoing transactions (provided such transaction is
consummated during the nine month period following such public announcement or
written proposal).
Notwithstanding the foregoing, the Company may participate in discussions
or negotiations with or furnish information to any third party which makes an
unsolicited proposal of a transaction which the Board of Directors reasonably
believes is likely to result in a Business Combination Proposal pursuant to
which such third party would, or would have the right to, acquire more than 25%
of the outstanding voting capital stock of the Company and which the Board of
Directors reasonably determines, based upon advice of its financial advisors, is
financially superior than the transactions contemplated by the Securities
Purchase Agreement and is likely to be consummated (a 'Superior Proposal').
In addition to the obligations of the Company set forth in the preceding
two paragraphs, the Securities Purchase Agreement also provides that the Company
(i) shall promptly advise GPH of any request for information or of any Business
Combination Proposal, or any inquiry with respect to or which appears to be
intended to or could reasonably be expected to lead to any Business Combination
Proposal, the material terms and conditions of such request, Business
Combination Proposal or inquiry, and the identity of the person making any such
request, Business Combination Proposal or inquiry, and the identity of the
person making any such request, Business Combination Proposal or inquiry, and
(ii) shall keep GPH fully informed of the status and details of any such
request, Business Combination Proposal or inquiry and (iii) shall promptly
furnish GPH a copy of any written proposal in connection therewith.
CONDITIONS TO CLOSING
In addition to the approval and adoption of the Proposals by the
stockholders of the Company, the obligations of the Company and GPH to effect
the Transactions are subject to the fulfillment or waiver of certain conditions
specified in the Securities Purchase Agreement, including, among others: (i) the
continuing accuracy of the representations and warranties of the respective
parties contained in the Securities Purchase Agreement in all material respects
except if the aggregate of any breaches have not resulted in, and are not likely
to result in, a material adverse effect on the business, properties, assets,
condition (financial or otherwise), liabilities or operations of the breaching
party and its subsidiaries taken as a whole; (ii) the performance and compliance
in all material respects by the respective parties of all obligations under the
Securities Purchase Agreement required to be performed on or prior to the
Closing Date; (iii) the absence of any injunction or other order by any federal
or
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state court preventing consummation of the Transactions and of any legal
challenge seeking to prevent such consummation; (iv) the applicable waiting
period under the HSR Act having expired or been terminated; and (v) the absence
of a material breach of any of the provisions of the Irrevocable Proxies.
TERMINATION AND TERMINATION FEE
The Securities Purchase Agreement may be terminated (a) at any time by
mutual consent of the parties; (b) by either party if (i) the Transactions have
not occurred on or before May 22, 1996, provided the terminating party is not
otherwise in material breach of its representations, warranties, covenants or
agreements under the Securities Purchase Agreement; (ii) the requisite vote of
the stockholders of the Company to approve any of the Proposals (other than the
Proposals relating to the proposed amendments to the Restated Certificate) has
not been obtained; (iii) any court or other governmental entity of competent
jurisdiction shall have issued a final permanent order enjoining or otherwise
prohibiting the consummation of the Transactions; or (iv) if there has been a
material breach on the part of the other of any representation, warranty,
covenant or agreement set forth in the Securities Purchase Agreement which has
not been cured within fifteen business days of notice by the other party
thereof; or (c) by either party, if the Board of Directors reasonably determines
that a Business Combination Proposal is likely to result in a Superior Proposal;
provided, however, that such termination under this clause (c) shall not be
effective unless and until (i) simultaneously with such termination the Company
enters into a definitive agreement to effect such Business Combination Proposal
and (ii) the Company has made payment in full of the Termination Fee (as defined
below).
If (i) the Transactions are not consummated as a result of a material
breach of the non-solicitation covenant described above under 'THE SECURITIES
PURCHASE AGREEMENT--Non-Solicitation of Business Combination Proposals,' (ii)
the Securities Purchase Agreement is terminated as a result of the Company's
entering into a definitive agreement with respect to a Business Combination
Proposal or (iii) a Third Party Business Combination has been consummated either
(A) prior to the termination of the Securities Purchase Agreement under
specified circumstances or (B) within nine months following the date of the
termination of the Securities Purchase Agreement by GPH as a result of the
breach of a representation, warranty, covenant or agreement by the Company in
the Securities Purchase Agreement (which shall not have been cured within
fifteen days of notice thereof), then the Company shall pay to GPH a termination
fee of $2,000,000 (the 'Termination Fee').
EXPENSES
Except with respect to the Termination Fee described above, the Securities
Purchase Agreement provides that each party will pay its own costs and expenses
incurred in connection therewith; provided that (a) if the Transactions are
consummated or if they are not consummated as a result of a material breach by
the Company of any representation or warranty contained in the Securities
Purchase Agreement, all costs and expenses incurred by GPH in connection
therewith shall be paid by the Company, and (b) if the Transactions are not
consummated for any other reason, all costs and expenses incurred by GPH in
connection therewith from and after December 14, 1995 shall be paid by the
Company. In either case the Company shall not be responsible for costs and
expenses incurred by GPH in an amount exceeding $4,000,000.
------------------------------
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF THE
SECURITIES PURCHASE AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
------------------------------
48
<PAGE>
ELECTION OF DIRECTORS
(PROPOSAL NO. 2)
GENERAL
The Board of Directors currently consists of five directors. As
contemplated by the Securities Purchase Agreement, six directors are to be
elected at the Special Meeting, who will qualify as such only upon the Closing,
to serve until the next annual meeting of stockholders of the Company and until
their successors are duly elected and qualified. At the Closing, the five
incumbent directors will resign. The Board of Directors proposes the election of
the following six nominees, who have been designated by GPH in accordance with
the provisions of the Securities Purchase Agreement:
Shahara Ahmad-Llewellyn
Barry Diller
Linda L. Janklow
Marshall Rose
Richard E. Snyder
H. Brian Thompson
The Board of Directors has no reason to believe that any of the foregoing
nominees will not serve if elected and qualified, but if any of them should
become unavailable to serve as a director or be withdrawn from nomination, the
Board of Directors will designate a substitute nominee named by GPH, and the
persons named as proxy holders will vote for the substitute nominee.
If the nominees listed above are elected and are qualified as directors,
they are expected to serve until the 1996 annual meeting of stockholders and
until their successors are duly elected and qualified. Because such nominees
have been nominated by the Board of Directors pursuant to the terms of the
Securities Purchase Agreement, they will not be qualified as directors and take
office, even if elected at the Special Meeting, until immediately upon the
Closing. Until such time, in accordance with the Company's By-laws, the current
directors will remain in office. Moreover, if the Closing does not occur for any
reason, including by reason of any of the Proposals (other than the Proposals
relating to the proposed amendments to the Restated Certificate) not being
approved at the Special Meeting, then the foregoing nominees will not qualify as
directors even if elected at the Special Meeting, and the current directors will
continue to serve in office until their successors are duly elected and
qualified in accordance with the DGCL and the Company's By-laws.
In addition to the six directors to be elected at the Special Meeting, upon
the Closing (i) the size of the Board of Directors will be increased to nine,
(ii) the three individuals named below under 'ELECTION OF DIRECTORS--Business
Experience of Series B Directors' will be elected by GPH in its capacity as the
holder of the Series B Convertible Preferred Stock to serve as the Series B
Directors and (iii) the incumbent directors will resign as directors of the
Company. Accordingly, immediately following the Closing, all members of the
Board of Directors will have been nominated by GPH.
------------------------------
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ELECTION OF THE
NOMINEES AS DIRECTORS LISTED ABOVE.
------------------------------
BUSINESS EXPERIENCE OF NOMINEES
Shahara Ahmad-Llewellyn
Age: 52
Ms. Ahmad-Llewellyn is Vice Chairman of Philadelphia Coca-Cola Bottling
Company Inc. From its founding in 1971 until 1991, she served as President of
H.A.V.A. Inc., a home health care company. Ms. Ahmad-Llewellyn is President of
the Board of Directors of the Northside Center for Child Development, and a
member of the Board of Directors of The New 42nd Street Corporation, The Dance
Theater of Harlem, Jazz at Lincoln Center, the American Red Cross of Greater New
York and The Madeira School in McLean, VA. Ms. Ahmad-Llewellyn previously served
as Chairperson of the Small Business Administration District Advisory Council
for
49
<PAGE>
Region II, as Vice President, of the Home Care Council of New York City Inc. and
as a Presidential appointee to the White House Conference on Small Business.
Barry Diller
Age: 53
Mr. Diller has been a director and the Chairman of the Board and Chief
Executive Officer of Silver King Communications, Inc. since August 24, 1995. He
was Chairman of the Board and Chief Executive Officer of QVC Network, Inc. (now
QVC, Inc.) from January 1993 until February 28, 1995. From 1984 to 1992, Mr.
Diller served as the Chairman of the Board and Chief Executive Officer of Fox,
Inc. Prior to joining Fox, Inc., Mr. Diller served for 10 years as Chairman of
the Board and Chief Executive Officer of Gulf & Western's (now Paramount
Communications) Paramount Pictures Corporation. Mr. Diller is a director and
Chairman of the Board of Home Shopping Network, Inc., and he also serves on the
Board of the Museum of Television and Radio and is a member of the Board of
Councilors for the University of Southern California's School of
Cinema-Television. Mr. Diller also serves on the Board of Directors for AIDS
Project Los Angeles and the Executive Board for the Medical Sciences for UCLA.
Linda L. Janklow
Age: 56
Ms. Janklow is Chairman, Lincoln Center Theater, having served in this
capacity since 1991. Prior thereto, she served as Vice-Chairman, Lincoln Center
Theater since 1979. She is a member of the Board of Directors, Lincoln Center
for the Performing Arts, Inc. She has also been Chairman of Arts Connection, the
largest arts-in-education organization in New York City since its founding in
1978. She is Chairman of the Collection Committee and a founding Trustee of the
American Museum of the Moving Image. She is also a member of the Board of
Directors of The New 42nd Street Corporation.
Marshall Rose
Age: 59
Mr. Rose is Managing Partner of The Georgetown Group, a privately held real
estate development and financial services group. Mr. Rose serves as a Director
of One Liberty Properties and Estee Lauder Companies, Inc. and as a Trustee of
BRT Realty Trust. In addition, Mr. Rose serves as Chairman of the Executive
Committee and Chairman of the Board Emeritus of The New York Public Library; as
Trustee of the New York University Medical Center; as Director of Lincoln Center
for the Performing Arts; as a Member of the Executive Committee of the Board of
Visitors of The Graduate School and University Center of The City University of
New York; as Director and Executive Committee member of the Bryant Park
Restoration Committee; and as a Trustee of the Robert Steel Foundation for
Pediatric Cancer Research.
Richard E. Snyder
Age: 62
On January 31, 1996, in connection with the signing of the Securities
Purchase Agreement, Mr. Snyder was elected as President of the Company. Prior to
that time, Mr. Snyder had, since 1994, been an independent business consultant
and investor. He was the Chairman and Chief Executive Officer of Simon &
Schuster from 1975 to 1994. Mr. Snyder is a director of Franklin Electronic
Publishers, Inc. and of Reliance Group Holdings, Inc.
H. Brian Thompson
Age: 56
Mr. Thompson has been Chairman of the Board of Directors and Chief
Executive Officer of LCI International and its subsidiaries since July 1991. Mr.
Thompson previously served as executive vice president of MCI Communications
Corporation where he was responsible for all eight of MCI's operating divisions
and various other senior management capacities from 1981 to 1991. These
capacities included vice president responsible for all staff functions,
Divisional president and Senior Vice President responsible for strategic
development and corporate planning. Mr. Thompson is a director of Microdyne
Corporation, NeXstar Pharmaceuticals, Inc., STN Incorporated and Comcast UK
Cable Partners Limited.
50
<PAGE>
BUSINESS EXPERIENCE OF SERIES B DIRECTORS
James A. Eskridge
Age: 53
Mr. Eskridge currently serves as a senior advisor for Mattel, Inc., and was
Group President-Mattel from April 1995 through March 1996, and served previously
as the President of Fisher-Price, Inc. from November 1993 through April 1995.
Prior thereto, Mr. Eskridge served as Executive Vice President and Chief
Financial Officer of Mattel from December 1988 through November 1993.
David A. Tanner
Age: 37
Mr. Tanner has served as a Managing Director of E.M. Warburg, Pincus & Co.,
Inc. since January 1993. Mr. Tanner served as a Vice President of E.M. Warburg
from January 1991 to January 1993 and was an associate at E.M. Warburg from
March 1986 to December 1990. Prior to joining E.M. Warburg, Mr. Tanner was
engaged in the private practice of law with the law firm of Simpson Thacher &
Bartlett. Mr. Tanner is a director of RenaissanceRe Holdings Ltd. and of several
private companies.
John L. Vogelstein
Age: 61
Mr. Vogelstein has served since 1982 as Vice Chairman of the Board of
Directors, and since 1994 as President, of E.M. Warburg Pincus & Co., Inc. Prior
thereto, he was an officer and a director of E.M. Warburg & Co. and certain of
its affiliates. Mr. Vogelstein is currently a director of AEGIS GROUP plc., ADVO
Inc., LCI International, Mattel Inc., Value Health, Inc., and several privately
held companies.
BUSINESS EXPERIENCE OF CURRENT DIRECTORS
Richard A. Bernstein
Director since: 1984
Age: 49
Mr. Bernstein has been Chairman and Chief Executive Officer of the Company
and Chairman of Western Publishing Company, Inc. since February 1984. From 1984
to August 1989, Mr. Bernstein was also President of the Company. In November
1986, Mr. Bernstein became Chairman, President and Chief Executive Officer of
Penn Corporation. He is President of P & E Properties, Inc., a private
commercial real estate ownership/management company, and has been for more than
five years. Mr. Bernstein is the sole shareholder of P & E Properties, Inc. He
is a member of the Regional Advisory Board of Chemical Bank, a member of the
Board of Trustees of New York University, a member of the Board of Overseers of
the New York University Stern School of Business, a Director and Vice President
of the Police Athletic League, Inc., a member of the Board of Trustees of New
York University's Hospital for Joint Diseases/Orthopedic Institute, a member of
the Board of Directors of The Big Apple Circus, Inc., and a member of The
Economic Club of New York.
Richard H. Hochman
Director since: 1995
Age: 50
Mr. Hochman has been Chairman of Regent Capital Partners, L.P., a private
investment company, since April 1995. From 1990 through April 1995 he was a
managing director of the Corporate Finance Department of PaineWebber
Incorporated. Mr. Hochman also serves on the Board of Directors of Cablevision
Systems Corporation and Alliance Entertainment Corporation.
John F. Moore
Director since: 1995
Age: 58
Mr. Moore is Chief Executive Officer of Mindscape, Inc. Mr. Moore served as
President and Chief Executive Officer of the Company's principal operating
subsidiary, Western Publishing Company, Inc., from May 1995 until his
resignation on January 26, 1996. From 1991 to 1995, Mr. Moore was President and
Chief
51
<PAGE>
Operating Officer of Penguin USA, the large book publishing unit of Pearson
Group, a London-based international media company. From 1985 to 1991, Mr. Moore
was President of Parker Brothers, Inc., and from 1980 to 1985, he was President
of Kenner Parker Toys Canada.
Jenny Morgenthau
Director since: 1992
Age: 50
Ms. Morgenthau is Executive Director, Chief Executive and Chief Operating
Officer of The Fresh Air Fund, serving in that capacity since 1983. Between 1977
and 1983, Ms. Morgenthau was the Director, Office of Program Planning, for the
New York City Human Resources Administration. Ms. Morgenthau is a member of the
Board of Directors of Paul Newman's Hole in the Wall Gang camp, The National
Dance Institute, The Baron de Hirsch Fund and the New York Chapter of The
American Jewish Committee.
Michael A. Pietrangelo
Director since: 1989
Age: 52
Mr. Pietrangelo is President of the Personal Care Products Group of IVAX
Corporation. From May 1990 through February 1994, he was President and Chief
Executive Officer of CLEO Inc., a subsidiary of Gibson Greetings, Inc. From July
1989 through April 1990, Mr. Pietrangelo served as President and Chief Operating
Officer of the Company. Between 1985 and July 1989, Mr. Pietrangelo was
President of Schering-Plough's Personal Care Group. Mr. Pietrangelo is a member
of the Board of Directors of Universal Heights, Inc., Medicis Pharmaceutical
Corporation, The American Parkinson Disease Association and The Memphis College
of Art. He is also Of Counsel to the law firm of Weirich and Pietrangelo in
Memphis, Tennessee.
BUSINESS EXPERIENCE OF EXECUTIVE OFFICERS
Richard A. Bernstein
Age: 49
Mr. Bernstein has been Chairman and Chief Executive Officer of the Company
and Chairman of Western Publishing Company, Inc. since February 1984. From 1984
to August 1989, Mr. Bernstein was also President of the Company. In November
1986, Mr. Bernstein became Chairman, President and Chief Executive Officer of
Penn Corporation. He is President of P & E Properties, Inc., a private
commercial real estate ownership/management company, and has been for more than
five years. Mr. Bernstein is the sole shareholder of P & E Properties, Inc. He
is a member of the Regional Advisory Board of Chemical Bank, a member of the
Board of Trustees of New York University, a member of the Board of Overseers of
the New York University Stern School of Business, a Director and Vice President
of the Police Athletic League, Inc., a member of the Board of Trustees of New
York University's Hospital for Joint Diseases/Orthopedic Institute, a member of
the Board of Directors of The Big Apple Circus, Inc., and a member of The
Economic Club of New York.
James A. Cohen
Age: 50
Mr. Cohen has been Senior Vice President-Legal Affairs and Secretary of the
Company since December 1991 and a senior executive of P & E Properties, Inc.
since February 1984. He became Senior Vice President-Legal Affairs & Secretary
of Western Publishing Company, Inc. in January 1995. From February 1984 until
December 1991 he was Vice President, General Counsel and Secretary of the
Company. In March 1987, Mr. Cohen became Secretary of Western Publishing
Company, Inc. and in January 1993, Vice President-Legal Affairs of that
corporation. In November 1986, Mr. Cohen became Secretary of Penn Corporation,
in April 1987, Vice President and General Counsel, and in May 1991, Vice
President-Legal Affairs and Secretary of that corporation.
Ira A. Gomberg
Age: 52
Mr. Gomberg has been Vice President-Business Development and Corporate
Communications of the Company since February 1986. In April 1987, Mr. Gomberg
became a Vice President of Penn Corporation. In
52
<PAGE>
addition, he is a Vice President and Assistant Secretary of Western Publishing
Company, Inc. Since February 1986, he has also been a senior executive of P & E
Properties, Inc. From 1976 through January 1986, Mr. Gomberg was employed by
Sony Corporation of America, a manufacturer and distributor of consumer
electronic products, first as General Counsel and after November 1983 as Vice
President-Government Affairs.
Dale Gordon
Age: 48
Mr. Gordon joined Western Publishing Company, Inc. in August 1993 as Vice
President and General Counsel. He became Vice President and General Counsel of
the Company and Penn Corporation in January, 1994. From 1980 through July 1993
he was with Playboy Enterprises, Inc. in various legal/management positions,
most recently as Vice President, Secretary and Associate General Counsel.
Steven M. Grossman
Age: 35
Mr. Grossman has been Executive Vice President, Treasurer and Chief
Financial Officer of the Company since June 1994. Prior to that, Mr. Grossman
was Vice President-Financial Planning. Since July 1992, he has also been an
employee of P & E Properties, Inc. From August 1983 to July 1992 Mr. Grossman
was with the public accounting firm of Deloitte & Touche LLP. He is a Certified
Public Accountant licensed in the State of New York.
Michael J. Kutchin
Age: 38
Mr. Kutchin joined Western Publishing Company, Inc. in February 1995 as
Vice President-Corporate Controller and was appointed Chief Financial Officer in
September 1995. Before joining Western Publishing Company, Inc., he was Vice
President-Chief Financial Officer of Ganton Technologies, Inc. From 1982 through
1989 Mr. Kutchin was with the public accounting firm of Price Waterhouse LLP. He
is a Certified Public Accountant.
Ilan Reich
Age: 41
Mr. Reich has been Vice President-Special Projects of the Company since
October 1992. Since December 1987 he has also been an employee of P & E
Properties, Inc.
Richard E. Snyder
Age: 63
Mr. Snyder was elected as President of the Company on January 31, 1996, in
connection with the signing of the Securities Purchase Agreement. Prior to that
time, Mr. Snyder had, since 1994, been an independent business consultant and
investor. He was the Chairman and Chief Executive Officer of Simon & Schuster
from 1975 to 1994. Mr. Snyder is a director of Franklin Electronic Publishers,
Inc. and of Reliance Group Holdings, Inc.
Hal B. Weiss
Age: 39
Mr. Weiss has been Vice President and Assistant Treasurer of the Company
since August 1990. From April 1986 until July 1990, Mr. Weiss was Controller and
Assistant Treasurer of the Company and from November 1986 until July 1989 he was
Controller of Penn Corporation. In addition, Mr. Weiss has been Controller of P
& E Properties, Inc. since 1985. Mr. Weiss is a Certified Public Accountant.
Prior to joining the Company in 1985, Mr. Weiss practiced public accounting at
the firm of Turner, Imowitz and Company.
53
<PAGE>
BOARD MEETINGS AND COMMITTEES OF THE BOARD
Board of Directors. During Fiscal 1996, the Board of Directors met nine
times and all directors attended more than 75% of the meetings and 100% of their
respective committee meetings.
Audit Committee. The Audit Committee met once during Fiscal 1996. Pursuant
to Board of Directors' authorization, the Committee reviews with the independent
auditors and the Company's internal audit department the general scope of their
respective audit coverages. Such reviews include consideration of the Company's
accounting practices, business ethics and conflicts of interest policies,
procedures and system of internal accounting controls and any significant
problems encountered. The Audit Committee also recommends to the Board of
Directors the appointment of the Company's principal independent auditors.
The Audit Committee advises the Board of Directors of its activities and
may present to the Board of Directors its recommendation and conclusions as to
any matters considered by the Audit Committee. At least annually, the Audit
Committee reviews the services performed and the fees charged by the independent
auditors engaged by the Company and determines that the non-audit services
rendered by the independent auditors do not compromise their independence.
The independent auditors and the Company's internal audit department have
direct access to the Audit Committee and may discuss with it any matters which
may arise in connection with audits, the maintenance of internal accounting
controls or any other matters relating to the Company's financial affairs.
Furthermore, the Audit Committee may authorize the independent auditors to
investigate any matters which the Audit Committee deems appropriate any may
present its recommendations and conclusions to the Board of Directors.
The Audit Committee is currently composed of Mr. Hochman (Chairperson), Ms.
Morgenthau and Mr. Pietrangelo.
Executive Compensation Committee. The Executive Compensation Committee
reviews the Company's executive compensation policies and practices each year
and approves the compensation of senior officers. The Committee's approval of
the compensation of the chief executive officer and other employee directors are
reviewed with and approved by all of the directors.
The Executive Compensation Committee is currently composed of Ms.
Morgenthau (Chairperson), Mr. Hochman and Mr. Pietrangelo.
Nominating Committee. The Board of Directors does not presently have a
nominating committee.
Stock Option Committee. The Stock Option Committee administers the Amended
and Restated 1986 Employee Stock Option Plan. The Stock Option Committee members
are not eligible to receive options. Options may be granted at such times and in
such amounts as may be determined by the Stock Option Committee.
The Stock Option Committee is currently composed of Mr. Pietrangelo
(Chairperson), Mr. Hochman and Ms. Morgenthau.
Directors Remuneration. Employee directors receive no additional
compensation for service on the Board of Directors or its committees. Each
non-employee director receives an annual retainer fee in the amount of $15,000
together with a fee in the amount of $500 for each meeting of the Board of
Directors attended and related out-of-pocket expenses.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Executive Compensation Committee and Stock Option Committee consist of
Mr. Hochman, Ms. Morgenthau and Mr. Pietrangelo, none of whom are former or
current officers or employees of the Company or any of its subsidiaries, other
than Mr. Pietrangelo who served as President and Chief Operating Officer of the
Company from July 1989 through April 1990. No executive officer of the Company
serves as an officer, director or member of a Compensation Committee of any
entity for which any of the persons serving on the Board of Directors of the
Company or on the executive Compensation Committee or Stock Option Committee of
the Company is an executive officer.
54
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information for the past three years for the
Chief Executive Officer, the other four most highly compensated executive
officers of the Company, the former President and Chief Executive Officer of
Western Publishing Company, Inc. and the former Senior Vice President, Finance
and Administration of Western Publishing Company, Inc.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
-------------------- ------------
Securities
Fiscal Underlying All Other
Name and Principal Position Year Salary ($) Bonus ($) Options(#)(4) Compensation ($)(5)
- --------------------------- ------ ---------- --------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
Richard A. Bernstein ............................... 1996 540,000 12,533
Chairman and Chief Executive Officer of 1995 540,000 30,000 12,706
Western Publishing Group, Inc.; Chairman of 1994 529,231 15,133
Western Publishing Company, Inc.; Chairman,
President and Chief Executive Officer of
Penn Corporation
John F. Moore(1) ................................... 1996 269,750 300,000 79,060
Former President and Chief Executive Officer
of Western Publishing Company, Inc.
Steven M. Grossman(2) .............................. 1996 207,000 10,044
Executive Vice President, Treasurer 1995 201,179 30,000 7,720
and Chief Financial Officer of 1994 96,701 4,334
Western Publishing Group, Inc.
James A. Cohen(2) .................................. 1996 212,500 10,044
Senior Vice President, Legal Affairs of 1995 196,809 25,000 10,044
Western Publishing Group, Inc. 1994 141,317 9,107
Ira A. Gomberg(2) .................................. 1996 238,500 10,044
Vice President, Business Development 1995 237,558 25,000 10,044
and Corporate Communications of 1994 178,605 10,649
Western Publishing Group, Inc.
Ilan K. Reich(2) ................................... 1996 212,500 8,657
Vice President, Special Projects of 1995 196,481 25,000 8,657
Western Publishing Group, Inc. 1994 149,817 7,723
Bruce A. Bernberg(3) ............................... 1996 230,000 25,000 12,741
Former Senior Vice President, Finance and 1995 230,000 25,000 13,861
Administration of Western Publishing 1994 230,000 23,650 15,000 15,983
Company, Inc.
</TABLE>
55
<PAGE>
- ------------------
(1) Mr. Moore joined the Company in May, 1995 and resigned effective January 26,
1996.
(2) Salaries of Messrs. Grossman, Cohen, Gomberg and Reich are allocated among
the Company and unaffiliated businesses based upon the services rendered to
each entity. As described under 'THE PROPOSALS--Interests of Certain Persons
in the Transactions--Severance and Management Arrangements,' Messrs.
Grossman, Cohen, Gomberg and Reich will each receive severance payments of
$375,000 upon the Closing.
(3) Effective February 16, 1996, Mr. Bernberg retired from the Company.
(4) Options to acquire shares of Common Stock.
(5) Includes amounts contributed by the Company as matching contributions equal
to 60% of the first 6% of earnings (to a maximum Company contribution of
$5,544) and a 3% annual Company contribution based on employee's annual
compensation (up to the Internal Revenue Service limitation of $150,000 of
compensation) to the Golden Comprehensive Security Program (the 'Program').
In calendar year 1995, contributions to the Program with respect to Messrs.
Bernstein, Grossman, Cohen, Gomberg, Reich and Bernberg were $10,044,
$10,044, $10,044, $10,044, $8,657 and $9,257, respectively. In calendar year
1994, contributions to the Program with respect to Messrs. Bernstein,
Grossman, Cohen, Gomberg, Reich and Bernberg were $10,044, $7,720, $10,044,
$10,044, $8,657 and $9,914, respectively. In calendar year 1993,
contributions to the Program with respect to Messrs. Bernstein, Grossman,
Cohen, Gomberg, Reich and Bernberg were $12,471, $4,334, $9,107, $10,649,
$7,723 and $12,296, respectively.
In addition, the following amounts were paid or accrued during the last three
years pursuant to the Executive Medical Reimbursement Plan and the excess
life insurance program:
In calendar year 1995, the Executive Medical Reimbursement Plan paid premiums
for each of Messrs. Bernstein, Moore and Bernberg of $1,800, $750 and $1,800,
respectively. During the same period, the Company paid excess life insurance
premiums for Messrs. Bernstein, Moore and Bernberg of $689, $402 and $680,
respectively. In calendar year 1994, the Executive Medical Reimbursement Plan
paid premiums for each of Messrs. Bernstein and Bernberg of $1,800. During
the same period, the Company paid excess life insurance premiums for Messrs.
Bernstein and Bernberg of $862 and $1,152, respectively. In calendar year
1993, the Executive Medical Reimbursement Plan paid premiums for each of
Messrs. Bernstein and Bernberg of $1,800. During the same period, the Company
paid excess life insurance premiums for each of Messrs. Bernstein and
Bernberg of $862.
In calendar years 1995, 1994 and 1993, $995, $995 and $1,025, respectively,
was paid to Mr. Bernberg for financial planning assistance.
In accordance with his employment agreement, Mr. Moore was entitled to the
reimbursement of moving expenses which amounted to $77,908, including the
related income tax gross up.
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<PAGE>
OPTION GRANTS IN THE LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
------------------------------
Number of Percent of Total Potential Realizable Value at
Securities Options Assumed Annual Rates of Stock
Underlying Granted To Appreciation For Option Term(3)
Options Employees In Exercise Price Expiration -------------------------------
Name Granted (#) Fiscal Year ($/Share) Date 5% 10%
- ---- ----------- ---------------- -------------- ---------- ---- -----
<S> <C> <C> <C> <C> <C> <C>
John F. Moore.................. 150,000 31.8% $ 9.50 5/30/97(2) 95,000 190,000
150,000 31.8% $13.50 5/30/97(2) 135,000 270,000
Bruce A. Bernberg(1)........... 25,000 5.3% $11.75 3/17/96 13,464 26,927
</TABLE>
- ------------------
(1) The options granted to Mr. Bernberg were immediately vested on the date
granted. As Mr. Bernberg retired effective February 16, 1996, these options
expired pursuant to their terms on March 17, 1996.
(2) In accordance with his employment agreement, Mr. Moore was granted options
to acquire 300,000 shares of Common Stock (150,000 shares at an exercise
price of $9.50 and 150,000 shares at an exercise price of $13.50). The
options granted vested one-fifth per year beginning on the first anniversary
of the grant. On January 25, 1996, the aforementioned options were
cancelled. Simultaneously, new options to acquire 300,000 shares of Common
Stock (150,000 shares at an exercise price of $9.50 and 150,000 shares at an
exercise price of $13.50) were granted. The market value of the underlying
securities at January 25, 1996 was $9.375. These options were immediately
vested on the date granted and expire May 30, 1997. The new options were
granted to Mr. Moore in consideration for his waiving all benefits under his
employment agreement upon his termination of employment.
(3) The dollar gains under these columns result from calculations assuming 5%
and 10% growth rates and are not intended to forecast future price
appreciation of Common Stock of the Company. The gains reflect a future
value based upon growth at these prescribed rates. The Company is not aware
of any formula which will determine with reasonable accuracy a present value
based on future unknown or volatile factors.
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR
AND FISCAL YEAR-END VALUE
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised Options In-The-Money Options At
Shares Held at February 3, 1996(#) February 3, 1996(1)
Acquired on Value ------------------------------ ------------------------------
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ ----------- ----------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Richard A. Bernstein.......... 32,500 35,000
John F. Moore................. 300,000 $ 206,250
Steven M. Grossman............ 20,000 17,500
James A. Cohen................ 36,667 23,333 $ 4,375
Ira A. Gomberg................ 36,667 23,333 4,375
Ilan K. Reich................. 21,667 23,333 4,375
Bruce A. Bernberg............. 42,500 12,500 21,875
</TABLE>
- ------------------
(1) Market value of underlying securities at February 3, 1996 was $10.875.
CERTAIN TRANSACTIONS
In Fiscal 1996, the Company paid P&E Properties, Inc. ('P&E Properties'), a
corporation owned by Mr. Bernstein, approximately $290,000 to reimburse P&E
Properties for the use of an airplane owned by P&E Properties. When commercially
available flights are available to the destination, the Company reimburses P&E
Properties at the rate of the normal first class fare. When commercial flights
are not available, the Company reimburses P&E Properties at an amount equal to
the hourly variable operating costs of the airplane, times the number of hours
of use. The Company also reimburses P&E Properties for out-of-pocket
expenditures made by P&E Properties on the Company's behalf.
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<PAGE>
Salaries are paid by P&E Properties to Mr. Bernstein and certain other
officers whose services are rendered to P&E Properties. Salaries paid to such
persons were not related to services performed by P&E Properties for the
Company. None of the services provided by P&E Properties to the Company were
provided pursuant to a written agreement. The Company believes that the terms of
its transactions with P&E Properties were no less favorable than could have been
obtained from unaffiliated third parties on an arm's-length basis.
During Fiscal 1996, the Company provided a bridge loan to Mr. John F.
Moore, former President and Chief Executive Officer of Western Publishing
Company, Inc., a wholly-owned subsidiary of the Company ('Western'), in the
amount of $620,000 for the purchase of a primary residence in Racine, Wisconsin.
Such loan and accrued interest at the applicable federal rate was repaid
following the closing of the sale of Mr. Moore's former primary residence in
September, 1995.
In Fiscal 1996, Western agreed to license six properties owned or licensed
by Western to Powerhouse Entertainment Company, Inc. ('Powerhouse'), a
corporation affiliated with Mr. Bernstein, pursuant to which Powerhouse would
develop certain interactive CD-ROM storybooks and other computer software
products (the 'Products') based upon these properties. Under the terms of the
arrangement, all development costs would be incurred by Powerhouse, the
Products' content, packaging and design would be subject to Westerns' approval
and Western would be paid a royalty based upon the net proceeds of the sales of
the Products. The Company believes that the terms of this arrangement with
Powerhouse were no less favorable than could be obtained from unaffiliated third
parties on an arms'-length basis.
Concurrent with the execution of the Securities Purchase Agreement and the
Transactions contemplated thereby, Western and Powerhouse entered into an
agreement relating to the existing arrangement between Powerhouse and Western
(the 'Powerhouse Agreement'). The Powerhouse Agreement provides, among other
things, that, immediately after the Closing, Western will exercise one of three
options (the 'Options'), such chosen Option to replace and supersede the
existing arrangement in its entirety. Under the Options, any one of which may be
selected by the Company, (i) the existing arrangement could continue in full
force and effect; (ii) the existing arrangement could be terminated, the
Products destroyed and Powerhouse reimbursed its development costs and expenses;
or (iii) upon the completion of the development of the Products, Western
acquires the Products from Powerhouse and pays a royalty to Powerhouse for the
use of its proprietary software technology.
As described under 'THE PROPOSALS--Interests of Certain Persons in the
Transactions--Severance and Management Arrangements,' P&E Properties will
receive a payment of $1.2 million upon the Closing pursuant to a management
agreement with the Company to provide services (including finance and
accounting, cash management, real estate matters, labor negotiations and
corporate administration) as requested from time to time by Mr. Snyder for a
period of 180 days following the Closing.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
'Exchange Act'), requires the Company's executive officers, directors and
persons who own more than ten percent of a registered class of the Company's
equity securities ('Reporting Persons') to file reports of ownership and changes
in ownership on Forms 3, 4 and 5 with the SEC. These Reporting Persons are
required by SEC regulation to furnish the Company with copies of all Forms 3, 4
and 5 they file with the SEC. Based solely on the Company's review of the copies
of the forms it has received and written representations from certain Reporting
Persons, the Company believes that all of its Reporting Persons complied with
all filing requirements applicable to them with respect to transactions during
calendar year 1995.
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AMENDMENTS TO 1995 STOCK OPTION PLAN
(PROPOSAL NO. 3)
On July 19, 1995, the Board of Directors adopted, subject to stockholder
approval, the 1995 Stock Option Plan (the 'Stock Option Plan') to serve as a
replacement for the 1986 Employee Stock Option Plan. Stockholders approved the
adoption of the Stock Option Plan at the 1995 Annual Meeting of Stockholders of
the Company.
In connection with the Board of Directors' approval of, and as contemplated
by, the Securities Purchase Agreement, the Board of Directors adopted the
following amendments to the Stock Option Plan (the 'Amendments'), subject to
stockholder approval and to the consummation of the Transactions under the
Securities Purchase Agreement: (1) an increase in the number of shares of Common
Stock available for the grant of options by 1,500,000 (including the formula
grant feature for non-employee directors of the Company referred to below); (2)
an increase in the maximum number of shares of Common Stock for which options
may be granted to any person in any one calendar year to 1,500,000; (3)
permitting the Stock Option Committee (as defined below) to determine the
meaning of the term 'cause' as used in the Stock Option Plan on a grant-by-grant
basis; and (4) a formula option grant feature for non-employee directors of the
Company. The Amendments will enable the Company to grant stock options to Mr.
Snyder as contemplated by the Snyder Employment Agreement at the Closing (see
'THE PROPOSALS--Interests of Certain Persons in the Transactions--Snyder
Employment Arrangements'), and will also increase the number of shares available
for the grant of options to key employees following the Closing.
The formula grant feature will provide for the grant of a non-qualified
stock option to purchase 5,000 shares of Common Stock to each non-employee
director of the Company on the date of Closing. Thereafter, on the date that a
person first becomes a non-employee director, he or she will automatically be
granted a non-qualified stock option to purchase 5,000 shares of Common Stock.
The formula grant feature also will provide for the annual automatic grant of an
option to purchase 3,000 shares of Common Stock to each non-employee director on
the date of each annual meeting of stockholders of the Company following such
individual's first becoming a non-employee director. Each such option granted to
a non-employee director will have an exercise price per share equal to the fair
market value of the Common Stock on the date of grant, will be fully vested and
exercisable as of the date of grant and will have a term of ten years.
Approval of the adoption of the Amendments at the Special Meeting is a
condition to the consummation of the Transactions under the Securities Purchase
Agreement and is necessary to effectuate elements of the Snyder Employment
Arrangements. See 'SECURITIES PURCHASE AGREEMENT--Conditions to Closing.' The
Amendments will be abandoned and the Stock Option Plan will not be so amended,
even if adoption of the Amendments is approved by the stockholders at the
Special Meeting, if the Transactions are not consummated for any reason.
Description of the Stock Option Plan
The Stock Option Plan currently provides for the issuance of options to
purchase up to an aggregate of 750,000 shares of Common Stock. The Stock Option
Plan provides for the granting of options intended to qualify as incentive stock
options as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the 'Code'), and non-qualified stock options to key employees of the
Company or its subsidiaries, including officers and employee directors of the
Company or its subsidiaries who are also employees, and to consultants who
perform services for the Company or its subsidiaries. Currently, no person may
receive in any one calendar year options to purchase more than 500,000 shares of
Common Stock.
The Stock Option Plan is administered by a disinterested committee
appointed by the Board of Directors which is comprised of at least two
disinterested members of the Board of Directors (the 'Stock Option Committee').
Among other things, the Stock Option Committee determines, subject to the
provisions of the Stock Option Plan, the key employees and consultants to whom
options should be granted, the nature of the options to be granted, the number
of options to be granted and the exercise price, the vesting schedule and the
term of the options and all other conditions and terms of the options to be
granted. The number of grantees may vary from year to year. It is not possible
to state in advance the exact number or identity of the grantees or the amounts
of the grants. To date, no options have been granted under the Stock Option
Plan. For information
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concerning stock options to be granted to Mr. Snyder pursuant to the Snyder
Employment Agreement following the Closing, see 'THE PROPOSALS--Interests of
Certain Persons in the Transactions--Snyder Employment Arrangements.'
The exercise price of incentive stock options granted under the Stock
Option Plan may not be less than the fair market value of the shares at the time
the option is granted. The exercise price of non-qualified stock options granted
under the Stock Option Plan may not be less than 85% of the fair market value of
the shares at the time the option is granted. An optionee may pay the option
price in cash or, if permitted by the Stock Option Committee, by delivering to
the Company shares of Common Stock that have a fair market value equal to the
option price or a combination of cash and shares. Shares may not be issued or
transferred upon the exercise of an option until the option price is paid in
full.
Options generally become exercisable over such period as the Stock Option
Committee may prescribe, and expire no later than ten years from the date of
grant, subject to earlier termination on the optionee's termination of
employment or relationship with the Company. The Stock Option Committee may
accelerate the exercisability of any outstanding stock options, at any time or
upon the occurrence of any event. Options are not assignable or otherwise
transferable other than by will or the laws of descent and distribution, except
that the Stock Option Committee may permit transfers by an optionee to his
family members. Shares subject to options granted under the Stock Option Plan
that have lapsed or terminated may again be subject to options granted under the
Stock Option Plan. Furthermore, the Stock Option Committee may offer to exchange
new options for existing options, with the shares subject to the existing
options again being available for grant under options.
The Board of Directors may amend or terminate the Stock Option Plan at any
time; provided that approval by the stockholders of the Company will be obtained
if necessary or desirable to comply with applicable law.
Federal Income Tax Consequences to Optionees
For federal tax purposes, an optionee is not subject to tax upon the grant
of an option. If the option is not an incentive stock option, the optionee will
generally recognize ordinary income at the time of exercise of the option in an
amount equal to the difference between the fair market value of the shares and
the exercise price. A subsequent sale of the shares will result in a capital
gain or loss. If the option is an incentive stock option, the optionee will
generally not recognize income until the sale of the shares. If the shares are
held for the requisite holding periods, then all gain on the sale will be
treated as long-term capital gain. If the requisite holding periods are not
satisfied (a 'disqualifying disposition'), then the portion of the gain equal to
the difference between the market value of the shares at the time of exercise
and the exercise price will generally be treated as ordinary income. The Company
will be entitled to a tax deduction in an amount corresponding to any ordinary
income recognized by the optionee.
Federal Income Tax Consequences to the Company
The Company will generally be entitled to a deduction for federal income
tax purposes at the same time and in the same amount as an optionee is required
to recognize ordinary income as described above. To the extent an optionee
realizes capital gains as described above, the Company will not be entitled to
any deduction for federal income tax purposes. Therefore, the Company will not
be entitled to any tax deduction in connection with incentive stock options with
respect to which there is no disqualifying disposition.
The Company believes that compensation attributable to options granted
under the Stock Option Plan at a price at least equal to the fair market value
of the underlying option shares at the date of grant may reasonably be treated
as performance-based compensation and will not be subject to the limitations
contained in Section 162(m) of the Code on the deductibility of non-performance
related compensation paid to certain corporate executives in excess of $1
million in any taxable year. For a discussion of Section 162(m) of the Code, see
'EXECUTIVE OFFICER BONUS PLAN.'
------------------------------
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL
OF THE ADOPTION OF THE AMENDMENTS TO THE STOCK OPTION PLAN.
------------------------------
60
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EXECUTIVE OFFICER BONUS PLAN
(PROPOSAL NO. 4)
In connection with the Board of Directors' approval of, and as contemplated
by, the Securities Purchase Agreement, the Compensation Committee of the Board
of Directors (the 'Compensation Committee') adopted the Executive Officer Bonus
Plan (the 'Bonus Plan'), subject to stockholder approval and to the consummation
of the Transactions under the Securities Purchase Agreement. The Bonus Plan will
enable the Company, through the Compensation Committee, to award bonuses to Mr.
Snyder under the Bonus Plan as contemplated by the Snyder Employment Agreement
following the Closing (see 'THE PROPOSALS--Interests of Certain Persons in the
Transactions--Snyder Employment Arrangements'), as well as to other executive
officers of the Company following the Closing.
Approval of the adoption of the Bonus Plan by the Compensation Committee is
a condition to the consummation of the Transactions under the Securities
Purchase Agreement. See 'SECURITIES PURCHASE AGREEMENT--Conditions to Closing.'
The Bonus Plan will be abandoned and no awards thereunder will be made, even if
adoption of the Bonus Plan is approved by the stockholders at the Special
Meeting, if the Transactions are not consummated for any reason.
The Bonus Plan has been structured, and its adoption has been made subject
to stockholder approval, in order to assure that the Company will be able to
deduct bonus payments to Mr. Snyder as contemplated by the Snyder Employment
Agreement and to other executive officers under the Bonus Plan. In 1993, the
Code was amended to add Section 162(m), which precludes the Company from taking
a tax deduction for individual compensation in excess of $1 million to each of
the Company's highest paid executives. There are, however, certain exceptions to
this limitation, specifically for compensation that is performance-based within
the meaning of Section 162(m) and approved by the stockholders. Accordingly, in
order to qualify the Bonus Plan under Section 162(m) of the Code and maximize
the deductibility by the Company of bonus payments made to executive officers
(including Mr. Snyder), the Compensation Committee directed that the Bonus Plan
be submitted to the stockholders of the Company for their approval at the
Special Meeting.
Terms of the Bonus Plan
The following is a summary of certain provisions of the Bonus Plan, which
is attached as Appendix VII to this Proxy Statement and is incorporated herein
by reference. Such summary is qualified in its entirety by reference to the
Bonus Plan.
The purpose of the Bonus Plan is to advance the interests of the Company
and its stockholders by providing incentives in the form of periodic cash bonus
awards to certain senior executive officers of the Company.
The Bonus Plan will be administered by the Compensation Committee, as such
committee is from time to time constituted. The Compensation Committee may
delegate its duties and powers in whole or in part to any subcommittee thereof
consisting solely of at least two 'outside directors,' as defined under Section
162(m) of the Code and Treasury Regulations promulgated thereunder.
The Compensation Committee has the exclusive authority to select the senior
executives of the Company (a 'Participant') to be granted bonus awards
('Bonuses') under the Bonus Plan, to determine the size and terms of the Bonus
to be made to each individual selected, to modify the terms of any Bonus that
has been granted (except with respect to any modification which would increase
the amount of compensation payable to a 'Covered Employee,' as such term is
defined in Section 162(m) of the Code), to determine the time when Bonuses will
be awarded, to establish performance objectives in respect to Bonuses and to
certify that such performance objectives were attained. The Compensation
Committee is authorized to interpret the Bonus Plan, to establish, amend and
rescind any rules and regulations relating to the Bonus Plan, and to make any
other determinations which it deems necessary or desirable for the
administration of the Bonus Plan.
The Compensation Committee may in its discretion award a Bonus to a
Participant for any fiscal year of the Company (a 'Year'). The amount of a
Participant's Bonus shall be an amount (the 'Maximum Bonus') determinable from
written performance goals approved by the Committee not later than 90 days
following the beginning of the Year to which such goals relate and while the
outcome is substantially uncertain. The performance goals and formula applicable
to each affected Participant shall be set forth in a written schedule
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established by the Compensation Committee (the 'Bonus Schedule'). The
performance goals must be objective and based on actual versus budgeted earnings
before interest, income taxes, depreciation and amortization. The Bonus Schedule
shall specify the manner in which the Maximum Bonuses shall be determined if the
performance goals are met and the period or periods to which the performance
goals apply. The performance goals and Maximum Bonus applicable to any affected
Participant may be adjusted in such manner as the Compensation Committee
determines to be proper and may be made without a loss of deductibility of
Bonuses under Section 162(m) of the Code. The amount of the Bonus actually paid
to any affected Participant may be less than the Maximum Bonus at the discretion
of the Compensation Committee, but shall be no greater than the amount of such
Participant's Maximum Bonus. No awards may be made under the Bonus Plan until
following the Closing. Notwithstanding any other provision of the Bonus Plan to
the contrary, however, in no event may a Participant's Maximum Bonus for any
Year under the Bonus Plan exceed $2 million. If the Company were nevertheless to
decide to pay a larger bonus, a portion thereof may not be deductible under
Section 162(m).
The Plan may be amended or suspended in whole or in part at any time and
from time to time, or may be terminated at any time, by the Compensation
Committee. Amendments will require stockholder approval only if required under
Section 162(m) of the Code.
Federal Income Tax Consequences
Under present federal income tax law, Participants will realize ordinary
income equal to the amount of the Bonus received in the year of receipt. The
Company will receive a deduction for the amount constituting ordinary income to
the Participant, provided that the Bonus Plan satisfies the requirements of
Section 162(m) of the Code. It is the Company's intention that the Bonus Plan be
adopted and administered in a manner that maximizes the deductibility of
compensation for the Company under Section 162(m) of the Code.
------------------------------
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF
THE ADOPTION OF THE BONUS PLAN.
------------------------------
CHARTER AMENDMENTS
The proposed amendments to the Restated Certificate set forth in the
foregoing Notice of Special Meeting of Stockholders (the 'Charter Amendments')
have been approved by the Board of Directors and are being submitted to a vote
of the stockholders of the Company pursuant to the requirements of the
Securities Purchase Agreement. However, approval of the Charter Amendments by
the stockholders is not a condition to the consummation of the Transactions
under the Securities Purchase Agreement. See 'SECURITIES PURCHASE
AGREEMENT--Conditions to Closing.' None of the Charter Amendments will be
effected, even if adopted by the stockholders at the Special Meeting, if the
Transactions are not consummated for any reason.
Approval of the Charter Amendments by the stockholders shall be deemed also
to constitute approval of a resolution authorizing the Board of Directors, at
any time prior to the filing of the Charter Amendments with the Delaware
Secretary of State, to abandon any such proposed amendment without further
action by the stockholders, in connection with the termination of the Securities
Purchase Agreement or otherwise, notwithstanding approval of such amendment by
the stockholders of the Company at the Special Meeting. Reference is made to
Appendix VIII to this Proxy Statement, which is incorporated by reference herein
and sets forth the full text of the Charter Amendments.
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AMENDMENT TO CHANGE THE NAME OF THE COMPANY
(PROPOSAL NO. 5)
The Board of Directors has adopted an amendment to Article First of the
Restated Certificate that, subject to stockholder approval, changes the name of
the Company to 'Golden Books Family Entertainment, Inc.' This is the name under
which GPH intends to operate the business of the Company following the Closing.
The Company has been advised by GPH that, in the view of Mr. Snyder and GPH, the
proposed name change will be of benefit to the Company and its stockholders in
view of the Company's well-known GOLDEN BOOKS(Registered) trademark.
------------------------------
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ADOPTION
OF THE PROPOSED AMENDMENT TO CHANGE THE NAME OF THE COMPANY
TO 'GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.'
------------------------------
AMENDMENTS TO INCREASE THE AUTHORIZED COMMON AND
PREFERRED STOCK
(PROPOSAL NOS. 6 AND 7)
The Restated Certificate currently authorizes the issuance of 40,000,000
shares of Common Stock and 100,000 shares of preferred stock, without par value
(the 'Preferred Stock'). As of April 9, 1996, 21,666,739 shares of Common Stock
were outstanding, 208,800 shares were held in treasury, 2,279,100 shares of
Common Stock were reserved for issuance upon the exercise of options granted and
available for future grants under the Company's existing stock option plans, and
416,042 shares were subject to the conversion privilege of the Series A
Preferred Stock (all of which will be redeemed at the Closing under the
Securities Purchase Agreement). In addition, as of the date of this Proxy
Statement, 19,970 shares of Preferred Stock were outstanding, representing the
shares of Series A Preferred Stock which will be redeemed at the Closing and
will thereupon again constitute authorized and unissued shares of Preferred
Stock. In connection with the consummation of the Transactions, the Board of
Directors has reserved an additional 14,370,000 shares, including 6,500,000
shares issuable upon conversion of the Series B Convertible Preferred Stock,
3,120,000 shares issuable as stock dividends on the Series B Convertible
Preferred Stock, 3,250,000 shares issuable upon exercise of the Warrant and
1,500,000 additional shares available for the grant of options under the Stock
Option Plan. See 'SECURITIES PURCHASE AGREEMENT--Terms of the Series B
Convertible Preferred Stock' and '--Terms of the Warrant' and 'AMENDMENTS TO
1995 STOCK OPTION PLAN.' Accordingly, giving effect to the consummation of the
Transactions contemplated by the Securities Purchase Agreement, a balance of
1,684,161 authorized shares of Common Stock and 87,000 authorized shares of
Preferred Stock will be available to the Board of Directors for future stock
issuances.
The Board of Directors has adopted an amendment to Article Fourth of the
Restated Certificate that, subject to stockholder approval, increases the
authorized number of shares of Common Stock to 60,000,000 and increases the
authorized number of shares of Preferred Stock to 200,000. The Board of
Directors believes that the authorization of such additional shares of Common
and Preferred Stock is appropriate in order to provide added flexibility for
future corporate purposes, which may include capital and financing needs, stock
distributions and stock splits, business acquisitions, management incentive and
employee benefit plans and other general corporate purposes. The increase in the
number of authorized shares of Common and Preferred Stock will permit the Board
of Directors to approve the issuance of additional shares of Common Stock or
Preferred Stock if warranted without the need for further action by stockholders
to authorize such shares, subject to present or future requirements of any stock
exchange upon which the Common Stock may be listed (including the rules of the
NASD governing corporations (such as the Company) with securities quoted on the
Nasdaq National Market) and applicable law. Currently, the rules of the NASD
require stockholder approval by a majority of the total votes cast in person or
by proxy prior to the issuance of designated securities by an issuer with
securities quoted on the Nasdaq National Market (1) where the issuance would
result in a change of control of the issuer, (2) in connection with the
acquisition of the stock or assets of another company if an affiliate of the
issuer has certain interlocking interests with the company to be acquired or
where the issuer issues more than 20% of its currently outstanding shares or
(3) in connection with a transaction, other than a public offering, involving
the sale or
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issuance of more than 20% of the common stock or voting power outstanding
before the issuance. The Board of Directors believes that the availability of
such additional shares of Common and Preferred Stock would enable the Company
to act promptly to take advantage of various corporate opportunities as such
opportunities arise without the delay or cost of calling a special meeting of
stockholders.
The additional authorized shares of Common Stock and Preferred Stock could
also conceivably be issued to make any attempt to acquire control of the Company
more difficult and costly and thereby discourage attempts to acquire the
Company. For example, additional shares of Common Stock or Preferred Stock could
be sold in private placement transactions to purchasers who support the Board of
Directors and who are opposed to a takeover bid which the Board of Directors
believes is not in the best interests of the Company and its stockholders.
Additionally, the Board of Directors could authorize holders of a series of
Preferred Stock to vote either separately as a class or with the holders of the
Common Stock on any merger, sale or exchange of assets by the Company or any
other extraordinary corporate transaction. Additional shares of Common Stock or
shares of Preferred Stock convertible into Common Stock could also be issued to
increase the aggregate number of outstanding shares of Common Stock, thereby
diluting the interest of parties attempting to obtain control of the Company. If
an issuance of additional shares of Common or Preferred Stock is made on other
than a pro rata basis to all stockholders, dilution of ownership interest and
voting power of existing stockholders may occur and, depending on the
consideration for which the shares were issued, could dilute earnings per share.
There are at present no plans or arrangements concerning the issuance of
additional shares of Common Stock or Preferred Stock, except pursuant to
outstanding stock options and employee benefit plans and the Series A Preferred
Stock (which will be redeemed at the Closing), and except as contemplated by the
Securities Purchase Agreement and the Snyder Employment Arrangements (see 'THE
PROPOSALS--Interests of Certain Persons in the Transactions--Snyder Employment
Arrangements'). If any plans or arrangements are made concerning the issuance of
any such shares, holders of the then outstanding shares of Common Stock or
Preferred Stock may or may not be given the opportunity to vote thereon,
depending upon the nature of any such transaction, the law applicable thereto,
the policy of any stock exchange (including the NASD) upon which the shares of
Common Stock may be listed at such time and the judgment of the Board of
Directors.
None of the outstanding shares of any class of capital stock of the Company
has preemptive rights or cumulative voting rights. The proposed amendment would
not change the terms and conditions of any outstanding shares of Common Stock.
Each certificate representing shares of Common Stock outstanding immediately
prior to the effective date of the proposed amendments, if they are adopted by
the stockholders at the Special Meeting, would remain outstanding and represent
the same number of shares of Common Stock as before such effective date.
------------------------------
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ADOPTION
OF THE PROPOSED AMENDMENTS TO INCREASE THE AUTHORIZED COMMON AND PREFERRED
STOCK.
------------------------------
STOCKHOLDER PROPOSALS FOR THE 1996 ANNUAL MEETING
Any proposal of a stockholder intended to be presented at the Company's
1996 Annual Meeting of Stockholders must have been received by the Secretary of
the Company by January 3, 1996 for inclusion in the notice of meeting and proxy
statement relating to the 1996 Annual Meeting.
INDEPENDENT AUDITORS
The consolidated financial statements of the Company and its subsidiaries
at February 3, 1996 and January 28, 1995 and for each of the three fiscal years
in the period ended February 3, 1996 included in this Proxy Statement have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report (which report expresses an unqualified opinion and includes an
explanatory paragraph relating to the change in
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fiscal 1994 in the method of accounting for postretirement benefits other than
pensions to conform with Statement of Financial Accounting Standards No. 106)
which appears elsewhere in this Proxy Statement.
Deloitte & Touche LLP has served as the Company's independent auditors
since its incorporation in 1984. Representatives of Deloitte & Touche LLP will
attend the Special Meeting and will have an opportunity to make a statement and
to respond to appropriate questions from stockholders.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act. In accordance therewith, the Company files reports, proxy statements and
other information with the SEC. Reports, proxy statements and other information
filed by the Company can be inspected and copied at the public reference
facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Regional Offices of the Commission at Seven
World Trade Center, New York, New York 10048, and Northwest Atrium Center, 500
West Madison Street, Chicago, Illinois 60621. Copies of such material can be
obtained from the Public Reference Section of the SEC at prescribed rates by
writing to the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549.
By Order of the Board of Directors,
/s/ JAMES A. COHEN
James A. Cohen
Secretary
April 18, 1996
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the audited
consolidated financial statements of the Company for the three fiscal years
ended February 3, 1996 and related notes thereto appearing above.
FISCAL YEAR ENDED FEBRUARY 3, 1996 (FISCAL 1996)
COMPARED TO FISCAL YEAR ENDED JANUARY 28, 1995 (FISCAL 1995)
Revenues for the year ended February 3, 1996 decreased $28.3 million (7.0%)
to $374.3 million as compared to $402.6 million for the year ended January 28,
1995. Consumer Products Segment revenues decreased $33.9 million (9.8%) for the
year. The decrease resulted from the decline in unit and dollar sales of the
Company's interactive electronic storybooks and products reflecting the
competitive environment, the maturity of certain older formats, and the price
reductions implemented by the Company on a number of formats in the third
quarter of Fiscal 1996 in an effort to further reduce its inventory of these
products. In addition, the Company experienced lower sales in its paper
tableware and party goods division as the performance of certain licensed
products declined in comparison to the prior year. The reduced productivity of
these licensed products is attributable to their declining popularity with the
consumer as these products approach maturity and in light of the Fiscal 1996
performance of certain licenses utilized by competitors. Sales in the Company's
other core Consumer Products categories, including picture, color and activity
books rebounded in the fourth quarter, in comparison to the comparable period of
the prior year, and concluded Fiscal 1996 with minor increases over the prior
year. All product categories utilizing licenses associated with major motion
pictures released in Fiscal 1996 experienced lower sales as compared to products
utilizing major motion picture releases in Fiscal 1995. Further, the minor sales
increases of core products and decreases in sales of non-core products resulted,
in part, from financial setbacks at a number of the Company's regional mass
merchant customers and the non-quantifiable impact of the personnel distractions
resulting from the contemplated sale of a major interest in the Company and the
resulting change in management. Commercial product segment revenues which are
comprised of printing services, increased $5.6 million (9.9%) for the year ended
February 3, 1996. The increase for the year reflects double-digit growth in the
Company's graphic products and kit businesses, partially offset by a decline in
custom publishing sales.
Price decreases in the Consumer Products Segment were approximately 4%.
This decline primarily resulted from pricing adjustments of the Company's older
electronic storybook formats to reflect the ongoing competitive pressures in
this category and inventory reduction measures partially offset by minor price
increases in other product categories. Sales of printing services in the
Commercial Products Segment are the result of individual agreements entered into
with customers as to price and services performed. Accordingly, the effects of
inflation cannot be determined on the sales of printing services.
The loss before interest expense and income taxes for the year ended
February 3, 1996 was $42.9 million as compared to income of $2.5 million for the
year ended January 28, 1995. During Fiscal 1996, the Company recorded an $8.7
million provision for restructuring and closure of operations and an additional
gain of $2.0 million from its streamlining plan (the 'Plan' or 'streamlining
plan') as certain costs and expenses of implementing the Plan were less than
originally anticipated. During Fiscal 1995, the Company recorded a $20.4 million
gain on its streamlining plan and a $1.1 million reduction to the Company's
previously recorded provision for write-down of the Advertising Specialty
Division (the 'Division'). Excluding the Fiscal 1996 and 1995 non-recurring
items, the loss before interest expense and income taxes increased $17.2
million. The increase was the result of a $12.3 million decrease in gross
profit, and a $4.9 million increase in selling, general and administrative
expenses.
Gross profit for the year ended February 3, 1996 was $92.9 million, as
compared to $105.1 million for the year ended January 28, 1995, a decrease of
11.7%. As a percentage of revenues, the gross profit margin decreased to 24.8%
for Fiscal 1996 as compared to 26.1% for Fiscal 1995. In the Consumer Products
Segment, gross profit decreased $13.8 million (14.1%) to $84.4 million for the
year ended February 3, 1996, as compared to the year ended January 28, 1995. As
a percentage of revenues, the Consumer Products Segment gross profit margin
decreased to 27.1% for Fiscal 1996 as compared to 28.5% for Fiscal 1995. A
portion of the decrease in
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<PAGE>
gross profit margin for the year resulted from unfavorable manufacturing
variances as actual production was less than planned due to the Company's lower
sales level and its continued efforts to reduce inventories.
Further, increased raw material prices for certain selling grades of paper,
certain price decreases in the Consumer Products Segment and the sell down of
inventory related to non-core discontinued product categories at less than
historical margins contributed to the decline in the gross profit margin. The
gross profit margin decline was mitigated by lower royalties as a percentage of
sales, reflecting a product mix shift from licensed to proprietary products. In
the Commercial Products Segment, the gross profit margin of printing services
increased to 13.4% in Fiscal 1996 from 12.0% in Fiscal 1995. The increase for
the year was due to lower unfavorable manufacturing variances.
Selling, general and administrative expenses for the year ended February 3,
1996 increased $4.9 million (3.9%) to $129.0 million as compared to $124.1
million for the year ended January 28, 1995. The increase for the year is
primarily attributable to accelerated amortization of the Company's Storyland
racks as a result of the resumption of the operation of the Wal-Mart Storyland
program by Wal-Mart management at the beginning of the first quarter in Fiscal
1997 (see Financial Condition, Liquidity and Capital Resources). In addition,
Fiscal 1996 reflects a full year of depreciation of the Company's order
processing, customer service and inventory management system that was placed in
service during the fourth quarter of Fiscal 1995.
Interest expense for the year decreased $4.7 million to $12.9 million as
compared to $17.6 million in Fiscal 1995. The decrease was due to lower average
debt outstanding as the Company repaid all outstanding notes under its Revolving
Credit Agreement in the first quarter of Fiscal 1996, partially offset by higher
interest rates in the first quarter of Fiscal 1996 and the costs associated with
the Company's Receivable Purchasing Agreement. Total average outstanding debt
decreased to $152.8 million in Fiscal 1996 from $221.3 million in Fiscal 1995,
while average interest rates increased from 7.9% to 8.2%. The increase in
average interest rates resulted primarily from the increase in first quarter
short term rates and the composition of the average debt outstanding (see
Financial Condition, Liquidity and Capital Resources).
The Company's provision for income taxes was $11.3 million and $2.5 million
for the years ended February 3, 1996 and January 28, 1995, respectively. The
Fiscal 1996 provision includes a non-cash charge of $13.9 million, reflecting an
increase in the income tax valuation allowance as the future realization of
existing deductible temporary differences was uncertain. The effective income
tax rates from operations of 20.3% in Fiscal 1996 and 16.3% in Fiscal 1995 are
significantly below the Federal statutory rate due to losses incurred during
each year for which no tax benefit has been recognized. In Fiscal 1995, the
disproportionate provision was partially offset by permanent differences
relating to the sale of the Advertising Specialty Division. Profitable operating
results in subsequent years will benefit from an income tax provision rate which
will be lower than the statutory rate due to the reinstatement of deferred tax
assets for which valuation allowances have been established. At February 3,
1996, the Company had available net operating loss carryforwards of
approximately $65.9 million for Federal income tax purposes and approximately
$6.5 million for state income tax purposes. In addition, the Company had tax
credit carryforwards of approximately $3.7 million.
The loss for the year ended February 3, 1996, before the provision for
restructuring and closure of operations, the additional gain on streamlining
plan and the non-cash write-off of deferred income taxes, was $46.4 million or
$2.25 per share, compared to a loss of $18.4 million or $.91 per share, before
the gain on streamlining plan, the adjustment of the previously recorded
provision for write-down of Division and the non-cash write-off of deferred
income taxes. During the year ended February 3, 1996, the Company recorded net
non-recurring charges of $20.6 million or $.98 per share for the provision for
restructuring and closure of operations, the additional gain on streamlining
plan and the non-cash write-off of deferred income taxes. Therefore, the net
loss for Fiscal 1996 was $67.0 million or $3.23 per share. During the year ended
January 28, 1995, the Company recorded non-recurring gains of $21.5 million
($13.2 million, net of income taxes) or $.62 per share for the Plan gain and the
adjustment of the previously recorded provision for write-down of Division and a
non-cash charge of $12.4 million or $.59 per share for the write-off of deferred
income taxes. Therefore, the net loss for Fiscal 1995 was $17.6 million or $.88
per share.
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<PAGE>
FISCAL YEAR ENDED JANUARY 28, 1995 (FISCAL 1995)
COMPARED TO FISCAL YEAR ENDED JANUARY 29, 1994 (FISCAL 1994)
On May 12, 1993, the Company established a provision, including operating
losses through the expected disposition date, to write-down the assets of the
Advertising Specialty Division of its Penn Corporation subsidiary to net
realizable value. Further, on April 7, 1994, the Company announced the adoption
of a plan (the 'Plan' or 'streamlining plan') designed to improve its
competitive position and reduce its operating cost structure through the sale,
divestiture, consolidation or phase out of certain operations, properties and
products, and a reduction in its management, administrative and direct labor
workforces. The Plan included the sale of the game and puzzle operation, the
exit from direct marketing continuity clubs and school book club businesses, the
closure and sale of the Company's Fayetteville, North Carolina manufacturing and
distribution facility and streamlining the Company's publishing business so as
to focus on its core competencies. Therefore, subsequent to the Company's
quarter ended May 1, 1993, the results of operations do not include the results
of the Advertising Specialty Division and subsequent to January 29, 1994, the
results of operations do not include the results of those businesses and
facilities sold or closed as part of the Plan.
During the year ended January 28, 1995, the game and puzzle operation was
sold to Hasbro, Inc. for cash proceeds of $101.4 million; the sale of the
Advertising Specialty Division was completed for cash proceeds of $14.0 million;
the Direct Marketing Continuity Clubs business was sold for cash proceeds of
$10.2 million and the Company completed the sale of its School Book Club
business for cash proceeds of $4.3 million.
Revenues for the year ended January 28, 1995 decreased $214.1 million
(34.7%) to $402.6 million as compared to $616.7 million for the year ended
January 29, 1994. Excluding revenues of the operations disposed of under the
Plan, revenues decreased $76.3 million (15.9%) for the year ended January 28,
1995, as compared to the prior year. Consumer Products Segment revenues from
ongoing operations decreased $68.7 million (16.6%) for the year. The decline
resulted from lower sales of non-Western products after the management of the
Books 'R' Us program at Toys 'R' Us was assumed by Toys 'R' Us at the beginning
of Fiscal 1995; lower sales of interactive electronic storybooks as the growth
in new electronic storybook formats was offset by original formats approaching
maturity; and the continued reductions in retailers' on-hand inventories,
resulting in a slower order rate for restocking and future orders. Additionally,
the decrease for the year was further impacted by the decline in domestic
consumer product sales caused by distractions resulting from the previously
contemplated sale of the Company, market uncertainties and employee concerns
associated with announced and implemented overhead reduction measures and the
sales of certain of the Company's businesses as outlined in the Plan. Commercial
product segment revenues (other than revenues of the Advertising Specialty
Division) which are comprised of printing services, decreased $7.6 million
(11.7%) for the year ended January 28, 1995. The decline for the year was due to
decreases in sales of kits, services to third party software developers and
custom publishing.
Price increases in the Consumer Products Segment were approximately 3%.
Sales of printing services are the result of individual agreements entered into
with customers as to price and services performed. Accordingly, the effects of
inflation cannot be determined on the sales of printing services.
Income before interest expense and income taxes for the year ended January
28, 1995 was $2.5 million as compared to a loss of $47.1 million for the year
ended January 29, 1994. This improvement of $49.6 million was the result of a
$20.4 million gain on streamlining plan, a $1.1 million reduction to the
Company's previously recorded provision for write-down of the Advertising
Specialty Division, a $78.9 million decrease in selling, general and
administrative expenses and a $79.0 million decrease in gross profit. In
addition, operations for the year ended January 29, 1994 included a $28.2
million provision to write-down the carrying value of the assets of the
Advertising Specialty Division to their estimated net realizable value.
Gross profit for the year ended January 28, 1995 was $105.1 million, as
compared to $184.2 million for the year ended January 29, 1994, a decrease of
42.9%. As a percentage of revenues, the gross profit margin decreased to 26.1%
for Fiscal 1995 as compared to 29.9% for Fiscal 1994. For ongoing operations,
gross profit for Fiscal 1995 decreased $32.3 million (23.5%) to $105.1 million,
compared to $137.5 million in Fiscal 1994. As a percentage of revenues, the
gross profit margin decreased to 26.1% for Fiscal 1995 as compared to 28.7% for
Fiscal 1994. In the Consumer Products Segment, gross profit of on-going
operations decreased $32.3 million (24.7%) to $98.3 million for the year ended
January 28, 1995, as compared to the year ended January 29, 1994.
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<PAGE>
As a percentage of revenues, the Consumer Products Segment gross profit margin
decreased to 28.5% for Fiscal 1995 as compared to 31.5% for Fiscal 1994. A
substantial portion of the decrease in gross profit margin for the year arose
from negative manufacturing variances due to lower production in response to the
Company's continuing efforts to reduce inventories. Additionally, the decrease
in gross profit margin was attributable to a change in product mix, which caused
an increase in royalty costs and increased freight costs associated with
category management and direct store shipment programs. In the Commercial
Products Segment, the gross profit margin of printing services increased to
12.0% in Fiscal 1995 from 10.7% in Fiscal 1994. The increase for the year was
due to a more favorable product mix.
Selling, general and administrative expenses for the year ended January 28,
1995 decreased $78.9 million (38.9%) to $124.1 million as compared to $203.0
million for the year ended January 29, 1994. For ongoing operations, selling,
general and administrative expenses for the year ended January 28, 1995
decreased $19.6 million (13.6%) to $124.1 million as compared to $143.7 million
for the year ended January 29, 1994. The decrease was primarily attributable to
decreased sales promotion costs, including the costs of corrugated displays and
co-op advertising, and reduced personnel and other costs resulting from the
implementation of the Plan.
Interest expense for the year increased $1.3 million to $17.6 million as
compared to $16.3 million in Fiscal 1994. While the increase was due to higher
interest rates, it was substantially offset by increased earnings from invested
cash balances of $1.2 million. Total average outstanding debt decreased to
$221.3 million for the year from $248.7 million for the previous year, while
average interest rates increased from 6.6% to 7.9%. The increase in average
interest rates resulted primarily from the increase in short term rates (see
Financial Condition, Liquidity and Capital Resources).
The Company's income tax provision for Fiscal 1995 includes income taxes
resulting from the streamlining plan gain, the adjustment of the provision for
write-down of Division and an effective income tax benefit rate of 16.0% from
operations. The effective income tax benefit rate from operations is
significantly below the federal statutory rate due to losses incurred during the
year for which no tax benefit has been recognized, partially offset by permanent
differences relating to the sale of the Advertising Specialty Division.
Profitable operating results in subsequent years will benefit from an income tax
provision rate which will be lower than the statutory rate due to the
reinstatement of deferred tax assets for which a valuation allowance was
established in Fiscal 1995. For the year ended January 29, 1994, the income tax
benefit rate was 35.2%.
The loss for the year ended January 28, 1995, before the streamlining plan
gain and the adjustment of the provision for write-down of Division and the
non-cash write-off of deferred income taxes was $18.4 million or $.91 per share,
compared to a loss of $21.7 million or $1.07 per share, before the provision for
write-down of Division and the cumulative effect of a change in accounting
principle (postretirement benefits other than pensions), for the year ended
January 29, 1994. During the year ended January 28, 1995, the Company recorded a
gain on streamlining plan of $20.4 million ($12.4 million, net of income taxes)
or $.59 per share, adjusted its provision for write-down of Division by $1.1
million ($.8 million, net of income taxes) or $.03 per share and recorded a
non-cash charge of $12.4 million or $.59 per share for the write-off of deferred
income taxes. Therefore, the net loss for Fiscal 1995 was $17.6 million or $.88
per share. During the year ended January 29, 1994, the Company adopted Statement
of Financial Accounting Standards No. 106, 'Employers' Accounting for
Postretirement Benefits Other than Pensions', using the immediate recognition
method. As a result, the Company recorded a non-cash charge of $24.3 million
($14.8 million, net of income taxes) or $.71 per share as a cumulative effect of
a change in accounting principle in the statement of operations. Further, the
Company's provision for write-down of Division was $28.2 million ($19.3 million,
net of income taxes) or $.92 per share. Therefore, the net loss for Fiscal 1994
was $55.8 million or $2.70 per share.
EFFECTS OF INFLATION
For Fiscal 1994 and the first three quarters of Fiscal 1995, the Company's
raw material costs, principally paper, remained relatively stable. In the fourth
quarter of Fiscal 1995 and throughout Fiscal 1996, the Company experienced
increases in the price of paper due to increased demand, decreases in imported
paper and an overall reduction in industry capacity. Pricing pressures make it
difficult for the Company to recover the effect of inflation and industry
dynamics on costs and expenses. To the extent possible, the Company's objective
is to
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<PAGE>
offset the impact of inflation through productivity enhancements, product
specification changes and price increases.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Operations for the year ended February 3, 1996, excluding the non-cash
portion of the provision for restructuring and closure of operations, the
additional Plan gain, non-cash charges for depreciation, amortization and the
provision for losses on accounts receivable utilized cash of $49.6 million. The
operations for the year ended January 28, 1995, excluding the Plan gain, the
adjustment of the previously recorded provision for write-down of Division,
non-cash charges for depreciation, amortization and the provision for losses on
accounts receivable utilized cash of $24.8 million. During the years ended
February 3, 1996 and January 28, 1995, other changes in assets and liabilities
resulting from operating activities, provided cash of $50.5 million and $38.4
million, respectively, resulting in net cash provided by operating activities of
$.9 million and $13.6 million in Fiscal 1996 and 1995, respectively.
Acquisitions of property, plant and equipment were $17.9 million during the
year ended February 3, 1996 as compared to $19.3 million during the year ended
January 28, 1995. Capital expenditures for the year ended February 3, 1996
include costs associated with the completion of the Company's new order
processing, customer service and inventory management system, the acquisition of
a five unit web press, retail fixtures utilized in its category management
programs and the installation of emission control equipment in one of its
manufacturing facilities. During the second quarter of Fiscal 1996, the Company
commenced a facility expansion of its paper tableware and party goods operations
in Kalamazoo, Michigan, which is expected to be completed in the second quarter
of Fiscal 1997. The construction of the building addition phase of the expansion
is estimated to cost $5.1 million; of which $2.6 million has been expended
through February 3, 1996.
During the year ended February 3, 1996, financing activities utilized cash
of $32.3 million, primarily by the repayment of $32.0 million of outstanding
borrowings under the Company's Revolving Credit Agreement, and the Agreement was
terminated. Financing activities during the year ended January 28, 1995 utilized
cash of $49.1 million primarily by the repayment of $48.0 million of outstanding
borrowings under the Company's Revolving Credit Agreement.
Working capital decreased to $165.3 million from $228.2 million at January
28, 1995. This decrease resulted from the Company's investment in property,
plant and equipment and the funds required by its operations during Fiscal 1996.
Further, during the third quarter of Fiscal 1996, deferred income taxes of $13.9
million, including $10.7 million of current deferred income taxes were charged
to expense as the future realization of existing deductible temporary
differences is uncertain.
During Fiscal 1994, the Company's Storyland category management program,
which provides retailers with the Company's management of all operational and
supply chain functions within a children's book department, was expanded to
Wal-Mart Stores, Inc. ('Wal-Mart') following a thirty store test in Fiscal 1993.
During Fiscal 1995 and 1996, the Storyland 'store-within-an- aisle' program,
which included special racks, signage and full face presentation of children's
books, grew to 664 locations. During Fiscal 1996, it was determined that despite
the success of the program in expanding the sales of children's books at the
mass market level, operation of the program would be returned to Wal-Mart
management.
In anticipation of this change and in recognition of the trend among mass
market retailers to consolidate operating decisions at the headquarters level
rather than at store level, the Company announced the elimination of
approximately 400 positions from its in-store merchandising and sales forces in
the third quarter of Fiscal 1996. This workforce reduction was completed in
January, 1996. Management of the Company believes that over time the reorganized
sales and merchandising forces will be more appropriately suited to interact
with and meet the needs of their customer base.
As a result of the Wal-Mart decision and the sales and merchandising force
reorganization, rack management and product presentation will be the
responsibility of the Company's customers. Additionally, the Company will no
longer be responsible for the sourcing of third party ('guest') publisher
product for Storyland locations at Wal-Mart. In light of these developments, the
Company anticipates that its Customer Products sales will significantly decline
in the first quarter of Fiscal 1997, reflecting the elimination of guest
publisher sales and
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sales declines in other product categories as the amount of retail selling space
dedicated to the Company's products has been reduced. However, the decline in
sales and related gross profits will be substantially offset by headcount
reductions and operating cost efficiencies completed and realized in Fiscal 1996
as well as a price increase implemented in the first quarter of Fiscal 1997 to
offset the impact of Fiscal 1996 raw material cost increases. Further,
management of the Company believes that its emphasis on the headquarters
operations of retailers will lead to promotional opportunities and sales
increases in the second half of Fiscal 1997.
During the year ended February 3, 1996, Western Publishing Company, Inc., a
wholly-owned subsidiary of the Company, entered into an extendable one-year
Receivables Purchasing Agreement, which includes a letter of credit facility,
with a financial institution providing for the sale of certain trade accounts
receivable on a non-recourse revolving basis, up to a maximum of $62.5 million
outstanding at any one time. As of February 3, 1996, there were $1.5 million of
receivables outstanding under this program. In the opinion of management, this
Agreement will provide adequate working capital to satisfy planned operating
levels.
PROPOSED EQUITY INVESTMENT
On January 31, 1996, the Company entered into a Securities Purchase
Agreement (the 'Agreement') with Golden Press Holding, L.L.C. ('Golden Press'),
a newly-formed Delaware limited liability company owned by Richard E. Snyder,
Barry Diller and Warburg, Pincus Ventures, L.P., pursuant to which Golden Press
will acquire a significant equity interest in the Company. The transaction is
subject to customary conditions, including stockholder approval.
Under the terms of the Agreement, Golden Press will invest $65 million of
cash in the Company in exchange for $65 million of newly-issued Series B
Convertible Preferred Stock and a warrant to purchase 3,250,000 shares of Common
Stock (the 'Warrant'). The Series B Convertible Preferred Stock will have a
dividend rate of 12% per annum, will be convertible at $10 per share, and will
not have a mandatory redemption date. The preferred stock dividend will be
payable quarterly in 195,000 shares of Common Stock for the first four years,
subject to certain adjustments based on the market price of the Common Stock at
that time. Thereafter, preferred stock dividends will be paid in cash. The
Warrant, which will not be exercisable for the first two years, will have a
seven year term and an exercise price of $10 per share.
In conjunction with the proposed equity investment, a stockholder meeting
will be held to consider and act upon several proposals, including approval of
the equity investment transaction; an amendment to increase the Company's
authorized number of shares of Common Stock from 40,000,000 to 60,000,000
shares; an amendment to increase the Company's authorized number of shares of
Preferred Stock from 100,000 to 200,000 shares; and an amendment to increase the
number of shares of Common Stock available under the 1995 stock option plan from
750,000 shares to 2,250,000 shares.
The Agreement contemplates the redemption of the Company's Series A
Convertible Preferred Stock which was mandatorily redeemable by the Company in
accordance with its terms on March 31, 1996. As a result, the charter amendment
providing for the extension of the mandatory redemption date until March 31,
1998, which was previously approved by the requisite preferred and common
stockholders, was not made effective. If the equity investment transaction is
not consummated the Company intends to file the charter amendment, thereby
extending the mandatory redemption date to March 31, 1998.
Coincident with the Agreement, the Company entered into an interim
employment agreement (the 'Interim Employment Agreement') with Richard E.
Snyder, whereby Mr. Snyder became President of the Company. Pursuant to the
Interim Employment Agreement, the Company issued 599,465 shares of Common Stock
to Mr. Snyder at a price of $8 per share in exchange for a non-recourse note in
the amount of the purchase price, secured by a pledge of the shares. Upon the
consummation of the equity investment, the Interim Employment Agreement will be
superseded by a five year employment agreement. Under the terms of the
agreement, Mr. Snyder will receive annual compensation of $500,000 and an annual
bonus opportunity of up to $1 million. Additionally, Mr. Snyder will receive
options to acquire 1,113,293 shares of the Company's Common Stock at fair value,
a one-time special bonus based on the market price of the Company's Common
Stock, supplemental retirement benefits, post-retirement medical benefits and
certain other benefits. A substantial portion of the costs associated with Mr.
Snyder's agreement will be charged to operations upon the closing of the equity
investment transaction.
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Since his appointment, Mr. Snyder has not been directly involved in the
Company's business or financial decisions but has been assessing its operations.
Mr. Snyder has not yet finalized any plans regarding future operations. Such
plans will likely be finalized during Fiscal 1997 and may involve a
restructuring of operations which could result in substantial charges to
operations or changes in the classification of the Company's assets and
liabilities.
On a pro forma basis, after giving effect to the transactions contemplated
by the Agreement, the Company would have cash of $89.3 million, Stockholder's
Equity of $126.2 million and Total Capitalization of $365.3 million at February
3, 1996.
CONSOLIDATED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1996
Net sales....................................................... $ 84,072 $ 93,093 $104,439 $ 87,968
Gross profit.................................................... 18,474 25,944 23,234 20,528
Net loss (1).................................................... (13,308) (3,041) (37,488) (13,210)
Net loss per common share....................................... $ (.64) $ (.15) $ (1.79) $ (.64)
Weighted average number of common shares........................ 21,023 21,025 21,043 21,092
1995
Net sales....................................................... $ 67,308 $104,410 $129,269 $ 97,367
Gross profit.................................................... 10,629 28,370 39,282 22,652
Net (loss) income (2)........................................... (14,017) (2,932) 5,383 (6,013)
Net (loss) income per common share.............................. $ (.68) $ (.15) $ .25 $ (.30)
Weighted average number of common shares........................ 20,959 20,985 21,020 21,023
</TABLE>
- ------------------
(1) Includes an additional gain on streamlining plan of $2,000 recognized in the
Second Quarter, and the provision for restructuring and closure of
operations of $8,701 recognized in the Third Quarter.
(2) Includes gain on streamlining plan of $20,352 ($12,396, net of income taxes)
recognized in the Third Quarter, and a reduction to the Company's previously
recorded provision for write-down of Division of $1,100 ($753, net of income
taxes) recognized in the Fourth Quarter.
72
<PAGE>
INDEX TO FINANCIAL STATEMENTS
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report......................................... F-2
Consolidated Balance Sheets as of February 3, 1996
and January 28, 1995............................................... F-3
Consolidated Statements of Operations for the
Years ended February 3, 1996, January 28, 1995 and
January 29, 1994................................................... F-4
Consolidated Statements of Common Stockholders' Equity
for the Years ended February 3, 1996, January 28, 1995 and
January 29, 1994................................................... F-5
Consolidated Statements of Cash Flows for the
Years ended February 3, 1996, January 28, 1995 and
January 29, 1994................................................... F-6
Notes to Consolidated Financial Statements........................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Western Publishing Group, Inc.:
We have audited the accompanying consolidated balance sheets of Western
Publishing Group, Inc. and subsidiaries as of February 3, 1996 and January 28,
1995, and the related consolidated statements of operations, common
stockholders' equity and cash flows for each of the three years in the period
ended February 3, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at February 3, 1996 and
January 28, 1995, and the results of their operations and their cash flows for
each of the three years in the period ended February 3, 1996 in conformity with
generally accepted accounting principles.
As discussed in Note 15 to the consolidated financial statements, in Fiscal 1994
the Company changed their method of accounting for postretirement benefits other
than pensions to conform with Statement of Financial Accounting Standards No.
106.
/s/ DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
April 2, 1996
F-2
<PAGE>
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 3, 1996 AND JANUARY 28, 1995
(In Thousands Except for Share and Per Share Data)
- --------------------------------------------------------------------------------
ASSETS
1996 1995
--------- ---------
CURRENT ASSETS:
Cash and cash equivalents $ 45,223 $ 85,406
Accounts receivable 61,033 83,251
Inventories 84,354 108,738
Prepublication and prepaid advertising costs 4,716 7,314
Royalty advances 3,240 2,221
Refundable income taxes 2,492 5,940
Deferred income taxes 10,676
Net assets held for sale 13,302 17,681
Other current assets 8,663 6,397
-------- -------
Total current assets 223,023 327,624
-------- -------
OTHER ASSETS:
Deferred income taxes 3,210
Other noncurrent assets 14,429 10,834
-------- -------
Total other assets 14,429 14,044
-------- -------
PROPERTY, PLANT AND EQUIPMENT:
Cost:
Land 1,022 1,022
Buildings and improvements 23,568 21,463
Machinery and equipment 98,420 96,317
Machinery and equipment in process
of installation 11,006 4,188
-------- -------
134,016 122,990
Less accumulated depreciation 58,566 47,325
------- -------
Total property, plant and equipment 75,450 75,665
------- -------
IDENTIFIED INTANGIBLES AND COST IN EXCESS
OF NET ASSETS ACQUIRED (GOODWILL), less accumulated
amortization of $21,205 and $19,173 9,063 11,473
-------- --------
TOTAL $321,965 $428,806
======== ========
See notes to consolidated financial statements.
LIABILITIES AND STOCKHOLDERS' EQUITY
1996 1995
-------- ---------
CURRENT LIABILITIES:
Accounts payable $ 19,000 $ 18,461
Accrued compensation and fringe benefits 8,073 8,770
Notes payable to banks 32,000
Other current liabilities 30,641 40,153
-------- ---------
Total current liabilities 57,714 99,384
NONCURRENT LIABILITIES:
Long-term debt 149,845 149,828
Accumulated post retirement benefit obligation 27,572 26,894
Other 2,481 1,921
-------- ---------
Total noncurrent liabilities 179,898 178,643
-------- ---------
CONVERTIBLE PREFERRED STOCK - Series A, 20,000
shares authorized, no par value, 19,970 shares
issued and outstanding; at mandatory
redemption amount 9,985 9,985
-------- ---------
COMMON STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value, 40,000,000 and
30,000,000 shares authorized, 21,875,539 and
21,232,074 shares issued 219 212
Additional paid-in capital 87,044 80,914
Note receivable from sale of Common Stock (4,796)
Retained earnings (deficit) (3,608) 64,287
Cumulative translation adjustments (1,669) (1,797)
-------- ---------
77,190 143,616
Less cost of Common Stock in
treasury - 208,800 shares 2,822 2,822
-------- ---------
Total common stockholders' equity 74,368 140,794
--------- ---------
TOTAL $ 321,965 $ 428,806
========= =========
F-3
<PAGE>
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE YEARS ENDED FEBRUARY 3,1996
(In Thousands Except for Per Share Data)
- --------------------------------------------------------------------------------
1996 1995 1994
--------- ---------- ---------
REVENUES:
Net sales $ 369,572 $ 398,354 $ 613,464
Royalties and other income 4,685 4,201 3,211
--------- ---------- ---------
Total revenues 374,257 402,555 616,675
--------- ---------- ---------
COSTS AND EXPENSES:
Cost of sales 281,392 297,421 432,503
Selling, general and administrative 129,020 124,128 203,042
Provision for restructuring and
closure of operations 8,701
Gain on streamlining plan (2,000) (20,352)
Provision for write-down of Division (1,100) 28,180
--------- ---------- ---------
Total costs and expenses 417,113 400,097 663,725
--------- ---------- ---------
(LOSS) INCOME BEFORE INTEREST EXPENSE,
INCOME TAXES AND CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE (42,856) 2,458 (47,050)
INTEREST EXPENSE 12,859 17,567 16,270
--------- ---------- ---------
LOSS BEFORE INCOME TAXES
AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE (55,715) (15,109) (63,320)
PROVISION (BENEFIT) FOR INCOME TAXES 11,332 2,470 (22,295)
LOSS BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE (67,047) (17,579) (41,025)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (14,800)
--------- --------- ---------
NET LOSS $ (67,047) $ (17,579) $ (55,825)
========= ========= =========
LOSS PER COMMON SHARE:
Before cumulative effect of change
in accounting principle $ (3.23) $ (0.88) $ (1.99)
Cumulative effect of change in
accounting principle (0.71)
--------- ---------- ---------
Net Loss $ (3.23) $ (0.88) $ (2.70)
========= ========= =========
See notes to consolidated financial statements.
F-4
<PAGE>
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
THREE YEARS ENDED FEBRUARY 3, 1996
(In Thousands Except for Share and Per Share Data)
<TABLE>
<CAPTION>
Common Stock Additional Note Receivable Retained Cumulative Treasury Stock
--------------- Paid-In from sale of Earnings Translation ---------------------
Shares Amount Capital Common Stock (deficit) Adjustments Shares Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, JANUARY 30, 1993 21,148,424 $211 $79,914 $ 0 $139,387 $(1,444) 208,800 $2,822
Net loss (55,825)
Dividends on Preferred
Stock - $42.50 per share (848)
Excercise of stock options 18,900 1 299
Translation adjustments (200)
---------- ---- ------- ------- -------- ------- ------- ------
BALANCES, JANUARY 29, 1994 21,167,324 212 80,213 0 82,714 (1,644) 208,800 2,822
Net loss (17,579)
Dividends on Preferred Stock
- $42.50 per share (848)
Exercise of stock options 64,750 701
Translation adjustments (153)
---------- ---- ------- ------- -------- ------- ------- ------
BALANCES, JANUARY 28, 1995 21,232,074 212 80,914 0 64,287 (1,797) 208,800 2,822
Net loss (67,047)
Dividends on Preferred Stock
- $42.50 per share (848)
Exercise of stock options 44,000 1 516
Issuance of Common Stock 599,465 6 5,614 (4,796)
Translation adjustments 128
---------- ---- ------- ------- -------- ------- ------- ------
BALANCES, FEBRUARY 3, 1996 21,875,539 $219 $87,044 $(4,796) $(3,608) $(1,669) 208,800 $2,822
========== ==== ======= ======= ======== ======= ======= ======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED FEBRUARY 3, 1996
(In Thousands)
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(67,047) $(17,579) $(55,825)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization 13,963 11,708 13,625
Amortization of intangibles arising
from acquisition 2,032 3,457 4,888
Provision for losses on accounts
receivable 1,440 472 5,662
Provision for restructuring and
closure of operations 1,954
Provision for write-down of Division (2,450) 26,405
Gain on streamlining plan (2,000) (20,352)
Cumulative effect of change in
accounting principle (before income
tax benefit) 24,300
Gains on sale of equipment (339) (187) (26)
Other 2,935 712 (187)
Changes in assets and liabilities:
Accounts receivable 20,451 54,174 (9,222)
Inventories 22,550 12,504 17,959
Prepublication, prepaid advertising
costs and royalty advances 1,579 1,189 1,229
Net assets held for sale (37,719)
Income taxes 2,614 6,890 (12,830)
Other current assets 546 3,954 (2,280)
Accounts payable 539 (22,226) (1,087)
Accrued compensation and fringe
benefits (696) (2,164) (1,021)
Other current liabilities (13,552) 12,881 (5,708)
Deferred income taxes 13,886 8,376 (20,340)
-------- -------- --------
Net cash provided by (used in)
operating activities 855 13,640 (14,458)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property, plant and
equipment (17,921) (19,307) (37,359)
Proceeds from streamlining plan 8,252 115,971
Proceeds from sale of Division 14,001
Proceeds from sale of equipment 566 225 119
Return of investment in joint venture 350 500 1,900
-------- -------- --------
Net cash (used in) provided
by investing activities (8,753) 111,390 (35,340)
-------- -------- --------
1996 1995 1994
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayments) borrowings under Credit
Agreement $(32,000) $(48,000) $50,000
Proceeds from sale of Common stock
(exercise of options) 517 701 300
Dividends paid on Preferred Stock (848) (848)
Other (768) (986) (562)
-------- -------- -------
Net cash (used in) provided
by financing activities (32,251) (49,133) 48,890
-------- -------- -------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH (34) (4) (20)
-------- -------- -------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (40,183) 75,893 (928)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 85,406 9,513 10,441
-------- -------- -------
CASH AND CASH EQUIVALENTS, END
OF YEAR $ 45,223 $ 85,406 $ 9,513
======== ======== =======
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for:
Interest $ 11,893 $ 16,663 $15,738
Income taxes, net of refunds
received (5,465) (12,829) 6,124
See notes to consolidated financial statements.
F-6
<PAGE>
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED FEBRUARY 3, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements
include the accounts of Western Publishing Group, Inc., and its
wholly-owned subsidiaries (the "Company"). Certain reclassifications
have been made in the prior year financial statements to conform with
the current year presentation. All significant intercompany
transactions and balances are eliminated in consolidation.
Use of Estimates - The financial statements, which are prepared in
conformity with generally accepted accounting principles, include
amounts that are based, in part, on management's best estimates and
judgments.
Fiscal Year - The fiscal year of the Company ends on the Saturday
nearest January 31. Accordingly, Fiscal 1996 contained 53 weeks and
Fiscal 1995 and 1994 each contained 52 weeks.
Cash and Cash Equivalents - The Company considers all highly liquid
debt investments purchased with maturities of three months or less to
be cash equivalents. Cash equivalents consist of investments in high
grade commercial paper. Accordingly, these investments are subject to
minimal credit and market risk. As of January 30, 1994, the Company
adopted Statement of Financial Accounting Standards ("FAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities".
Under this statement, the Company is required to classify cash
equivalents into one or more of the following categories: held to
maturity, trading, or available for sale. The adoption of this
statement had no effect on the consolidated financial statements. At
February 3, 1996 and January 28, 1995, all of the Company's cash
equivalents are classified as held to maturity and their carrying
amounts approximate fair value.
Inventories - Inventories are valued at the lower of cost or market.
Cost is determined by the last-in, first-out ("LIFO") method for
substantially all domestic inventories. Inventories of international
operations are valued using the first-in, first-out ("FIFO") method. At
February 3, 1996 and January 28, 1995, approximately 92% and 93% of
total inventories were valued under the LIFO method.
Prepublication Costs - Prepublication costs (comprised principally of
externally developed art, manuscript and editorial costs and internally
or externally developed plate costs) are deferred. Such costs are
amortized from the date of initial product sale, generally over a
period of one year.
Properties and Depreciation - Property, plant and equipment are stated
at cost and depreciated on the straight-line method over the following
estimated useful lives for financial statement purposes:
Buildings and improvements 10-40 years
Machinery and equipment 3-10 years
Expenditures which significantly increase value or extend useful lives
are capitalized, while maintenance and repairs are expensed as
incurred. The cost and related accumulated depreciation of assets
replaced, retired or disposed of are eliminated from the property
accounts, and any gain or loss is reflected in operations.
Costs related to the development of information systems that are
expected to benefit future periods are capitalized and amortized over
the estimated useful lives of the systems.
During Fiscal 1996, the Financial Accounting Standards Board ("FASB")
issued FAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of". The adoption of this
statement in the first quarter of Fiscal 1997 will not have a material
effect on the Company's financial statements.
Identified Intangibles - Identified intangibles arising from the
acquisition of Penn Corporation in Fiscal 1987 are being amortized
generally by accelerated methods over 15 years.
F-7
<PAGE>
Cost in Excess of Net Assets Acquired - The cost in excess of net
assets acquired ("goodwill") arising from the acquisition of Penn
Corporation is being amortized on the straight-line method over a
40-year period.
Foreign Currency Translation - Foreign currency assets and liabilities
are translated into United States dollars at end of period rates of
exchange, and income and expense accounts are translated at the
weighted average rates of exchange for the period. The gains and losses
resulting from the translation adjustments have been accumulated as a
separate component of common stockholders' equity.
2. PROPOSED EQUITY INVESTMENT
On January 31, 1996, the Company entered into a Securities Purchase
Agreement with Golden Press Holding, L.L.C. ("Golden Press"), a
newly-formed Delaware limited liability company owned by Richard E.
Snyder, Barry Diller and Warburg, Pincus Ventures, L.P., pursuant to
which Golden Press will acquire a significant equity interest in the
Company. The transaction is subject to customary conditions, including
stockholder approval.
Under the terms of the equity investment transaction, Golden Press will
invest $65 million of cash in the Company in exchange for $65 million
of newly-issued Series B Convertible Preferred Stock and a warrant to
purchase 3,250,000 shares of Common Stock (the "Warrant"). The Company
will utilize the investment proceeds to redeem its existing Series A
Convertible Preferred Stock which matured on March 31, 1996 (see Note
9), for expenses associated with the transaction and for general
working capital purposes.
The Series B Convertible Preferred Stock will have a dividend rate of
12% per annum, will be convertible at $10 per share, and will not have
a mandatory redemption date. The preferred stock dividend will be
payable quarterly in 195,000 shares of Common Stock for the first four
years, subject to certain adjustments based on the market price of the
Common Stock at that time. Thereafter, preferred stock dividends will
be paid in cash.
The Warrant, which will not be exercisable for the first two years,
will have a seven year term and an exercise price of $10 per share.
3. RESTRUCTURING AND ASSET DISPOSITIONS
Provision for Restructuring and Closure of Operations
During the quarter ended October 28, 1995, the Company recorded an
$8,701,000 provision for restructuring and closure of operations in a
further effort to reduce its operating cost structure and improve
future operating results, and to reflect the costs incurred in
connection with the termination of a previously announced transaction
to sell a significant interest in the Company. The provision includes a
non-cash charge of $2,000,000 and consists of the following components:
o Severance costs of $3,660,000 associated with the Company's
previously announced workforce reductions of salaried and
hourly personnel. These reductions were completed in the
fourth quarter of Fiscal 1996.
o Unrecoverable assets and costs of $3,171,000 to be incurred
in connection with the Company's decision to close certain of
its retail store locations.
o Transaction costs of $1,870,000 resulting from the
Company's October 17, 1995 announcement of the
termination of its initial agreement in principle to
sell a significant interest in the Company to Warburg,
Pincus Ventures, L.P. and Richard E. Snyder.
F-8
<PAGE>
Sale and Phase Out of Operations
On April 7, 1994, the Company adopted a plan (the "Plan") designed to
improve its competitive position and reduce its cost structure through
the sale, divestiture, consolidation or phase out of certain
operations, properties and products, and a workforce reduction.
The Plan included the following major components:
o An agreement to sell the game and puzzle operation
(including certain inventories) to Hasbro, Inc.
("Hasbro"). This transaction was completed on
August 4, 1994 for cash proceeds of approximately
$101,400,000.
o The decision to exit the Direct Marketing Continuity Clubs
and School Book Club businesses. The sale of the School Book
Club business was consummated on July 1, 1994 for cash
proceeds of approximately $4,300,000 and the sale of the
Direct Marketing Continuity Club business was completed on
October 7, 1994 for cash proceeds of approximately
$10,200,000.
o The closedown and sale of the Company's Fayetteville, North
Carolina manufacturing and distribution facility, which was
primarily dedicated to the game and puzzle operation but was
not included in the sale to Hasbro. This facility is closed
and is for sale.
o The decision to streamline the Company's publishing business
so as to focus on its core competencies. This included a
reduction in the management, administrative and direct labor
workforces.
Revenues of the game, puzzle, direct marketing and school book club
operations were approximately $125,000,000 for Fiscal 1994. As of
February 3, 1996, net assets held for sale primarily relates to the
Company's Fayetteville facility.
The Company recorded a net gain from the Plan of $20,352,000
($12,396,000, net of income taxes), inclusive of operating losses of
the game, puzzle, direct marketing and school book club operations from
January 30, 1994 through their respective disposition dates in the
third quarter of Fiscal 1995. During the second quarter ended July 29,
1995, an additional gain of $2,000,000 was recorded as certain costs
and expenses of implementing the Plan were less than originally
anticipated.
Provision for Write-Down of Division
During Fiscal 1994, the Company established a provision, including
operating losses through the expected disposition date, of $28,180,000
($19,280,000, net of income taxes) to write-down the assets of the
Advertising Specialty Division of its Penn Corporation subsidiary to
net realizable value.
On August 5, 1994, the sale of the Ritepoint and Adtrend businesses of
the Division was completed for cash proceeds of approximately
$5,650,000. The sale of the Vitronic and K-Studio businesses of the
Division was completed on November 7, 1994 for cash proceeds of
approximately $8,350,000. As the proceeds from the sale of this
Division exceeded management's estimate, the Company adjusted its
previously recorded provision for write-down of Division by recognizing
a gain of $1,100,000 ($753,000, net of income taxes) in the fourth
quarter of Fiscal 1995.
Revenues of $7,202,000 and losses before interest expense and income
taxes, exclusive of the provision for write-down, of $2,083,000 for the
Division, are included in the accompanying consolidated statements of
operations for Fiscal 1994. Subsequent to May 1, 1993, the consolidated
statements of operations do not include the results of the Division.
F-9
<PAGE>
Net Assets Held for Sale
Net assets held for sale consisted of the following:
1996 1995
(In thousands)
Current assets $ 802 $ 2,181
Property, plant and equipment, net 14,500 17,500
------- -------
15,302 19,681
Less:
Current liabilities (2,000) (2,000)
------- -------
Net assets held for sale $13,302 $17,681
======= =======
4. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following:
1996 1995
(In thousands)
Accounts receivable $68,037 $94,790
Allowance for doubtful accounts (2,522) (4,067)
Allowance for returns (4,482) (7,472)
------- -------
$61,033 $83,251
======= =======
On September 29, 1995, Western Publishing Company, Inc. ("WPC"), a
wholly-owned subsidiary of the Company entered into an extendable
one-year Receivables Purchasing Agreement, which includes a letter of
credit facility, with a financial institution to sell in pools, certain
trade accounts receivable on a revolving basis, up to a maximum of
$62.5 million outstanding at any one time. The pools are sold on a
non-recourse basis for credit losses and subject to a discount fee.
During Fiscal 1996, the Company sold approximately $19,000,000 of
receivables, of which approximately $1,500,000 were outstanding at
February 3, 1996. The proceeds from the sale of receivables are
reported as providing operating cash flow in the accompanying
statements of cash flows. The costs associated with this program of
$571,000 are included as a component of interest expense in the
accompanying consolidated statement of operations.
5. INVENTORIES
Inventories consisted of the following:
1996 1995
(In thousands)
Raw materials $ 10,877 $ 9,780
Work-in-process 13,014 19,838
Finished goods 60,463 79,120
-------- --------
$ 84,354 $108,738
======== ========
At February 3, 1996 and January 28, 1995, the replacement cost of
inventories valued using the LIFO method exceeded the net carrying
amount of such inventories by approximately $9,800,000 and $9,200,000,
respectively.
F-10
<PAGE>
6. IDENTIFIED INTANGIBLES AND GOODWILL
Identified intangibles and goodwill, all of which result from the
acquisition of Penn Corporation in Fiscal 1987, net of amortization,
included in the accompanying consolidated balance sheets, were as
follows:
1996 1995
(In thousands)
Goodwill $ 5,364 $ 5,928
Identified intangibles:
Customer lists 3,008 4,832
Other 691 713
-------- --------
$ 9,063 $ 11,473
======== ========
During Fiscal 1996, the Company reduced the unamortized portion of
goodwill by a tax benefit of approximately $378,000, resulting from a
carryback of certain related items.
7. LONG-TERM DEBT
Long-term debt consisted of the following:
1996 1995
(In thousands)
Notes payable to banks $ $ 32,000
7.65% Senior Notes ($150,000,000
face amount) due in 2002 149,845 149,828
-------- --------
149,845 181,828
Less current portion 32,000
-------- --------
$149,845 $149,828
======== ========
The Company maintained an amended and restated revolving credit
agreement dated May 31, 1994, as amended (the "Agreement"), with a
group of commercial banks, which expired on May 31, 1995. During the
first quarter of Fiscal 1996, all outstanding notes were repaid and the
Agreement was terminated.
On September 17, 1992, the Company completed an offering of
$150,000,000 of 7.65% Senior Notes due September 15, 2002. Interest is
payable semiannually on March 15 and September 15. There is no
obligation to redeem, purchase or repay the Senior Notes prior to
maturity.
The Indenture covering the Senior Notes contains certain provisions
limiting additional indebtedness, guarantees, liens and the payment of
cash dividends on Preferred and Common Stock. At February 3, 1996,
there were no retained earnings available to pay dividends on Common
Stock.
The Company's 7.65% Senior Notes had a fair value of approximately
$125,000,000 and $111,000,000 at February 3, 1996 and January 28, 1995,
respectively, based on market interest rates. Notes payable to banks at
January 28, 1995 under the Company's Revolving Credit Agreement
approximate fair value, as the short-term interest rates on the then
outstanding balances were reset in December 1994.
F-11
<PAGE>
8. OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following:
1996 1995
(In thousands)
Royalties payable $ 5,985 $ 6,320
Accrued interest 4,339 4,151
Costs associated with restructuring
and closure of operations 5,247
Costs associated with streamlining plan 3,919 8,732
Other 11,151 20,950
------- --------
$ 30,641 $ 40,153
======== ========
9. PREFERRED STOCK
The Company has 100,000 authorized preferred shares, no par value,
including 20,000 shares of Convertible Preferred Stock, Series A. The
Series A Convertible Preferred Stock has a dividend rate of 8.5% per
annum. The conversion price is $24 per share. The stock is redeemable
at the option of the Company at any time for $500 a share plus all
dividends (whether or not earned or declared) accrued and unpaid to the
date fixed for redemption.
The Series A Convertible Preferred Stock was mandatorily redeemable by
the Company in accordance with its terms on March 31, 1996. Although
the requisite approval of the preferred stockholders was obtained and
the common stockholders of the Company approved adoption of a charter
amendment which provided for the extension of the mandatory redemption
date until March 31, 1998, such amendment was not made effective as all
outstanding Series A Convertible Preferred Stock is expected to be
redeemed pursuant to the Securities Purchase Agreement between Golden
Press and the Company (see Note 2) . If the transaction is not
consummated, the Company intends to file the charter amendment, thereby
extending the mandatory redemption date to March 31, 1998. The carrying
amount of preferred stock approximates its fair value.
10. EMPLOYEE STOCK OPTIONS
In December 1995, the Company adopted a stock option plan ("the 1995
stock option plan"), which provides for the granting of options to
purchase up to 750,000 shares of Common Stock through 2005 to
employees of the Company and its subsidiaries. As of February 3,
1996, no options have been granted under the 1995 stock option plan.
In March 1986, the Company adopted a stock option plan ("the 1986
stock option plan"), which as amended, provides for the granting of
options to purchase up to 2,100,000 shares of Common Stock through
1996 to employees of the Company and its subsidiaries.
Prior to February 3, 1990, options granted become exercisable two
years after the date of grant (50%) and three years after the date of
grant (50%). Options granted between February 4, 1990 and January 29,
1994 become exercisable in their entirety five years after the date of
grant. Options granted between January 30, 1994 and February 28, 1995
generally become exercisable on the date of grant (33 1/3%), one year
after the date of grant (33 1/3%) and two years after the date of
grant (33 1/3%). Options granted subsequent to February 28, 1995
become exercisable one year after the date of grant (33 1/3%), two
years after the date of grant (33 1/3%) and three years after the
date of grant (33 1/3%).
For Fiscal 1995 and 1996, the Company granted options to purchase
366,500 shares of Common Stock which became exercisable on the date of
grant and expire during calendar 1997.
F-12
<PAGE>
The following data is presented in connection with the stock option
plan:
<TABLE>
<CAPTION>
Shares
--------------------------------------------
Available
Option Price Reserved Outstanding For Grant
---------------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Balances, January 30, 1993 $10.00 to $20.00 1,357,950 1,038,650 319,300
Increase in authorization 600,000 600,000
Granted $12.50 70,000 (70,000)
Cancelled $10.00 to $20.00 (91,000) 91,000
Exercised $11.75 to $16.75 (18,900) (18,900)
--------- --------- -------
Balances, January 29, 1994 $10.00 to $20.00 1,939,050 998,750 940,300
Granted $11.50 to $12.75 871,650 (871,650)
Cancelled $10.00 to $20.00 (428,950) 428,950
Exercised $10.00 to $12.00 (64,750) (64,750)
--------- --------- -------
Balances, January 28, 1995 $10.00 to $20.00 1,874,300 1,376,700 497,600
Granted $ 8.25 to $13.50 771,000 (771,000)
Cancelled $ 9.50 to $20.00 (539,600) 539,600
Exercised $10.00 to $11.75 (44,000) (44,000)
--------- --------- -------
Balances, February 3, 1996 1,830,300 1,564,100 266,200
========= ========= =======
</TABLE>
As of February 3, 1996, stock option grants to purchase 1,012,315
shares of the Company's Common Stock were exercisable at an average
price of $12.17. In addition to the shares reserved for the exercise of
stock options, the Company has reserved 416,042 shares of Common Stock
for the conversion of its Preferred Stock (see Note 9).
During Fiscal 1996, the FASB issued FAS No. 123, "Accounting for
Stock-Based Compensation". While the Company does not currently
anticipate that it will adopt FAS No. 123, proforma disclosures of
operating results and earnings per share will be presented beginning
with the first quarter of Fiscal 1997 in accordance with the
pronouncement.
11. STOCKHOLDERS' EQUITY
During Fiscal 1996, the Board of Directors adopted a resolution, that
was approved by the stockholders of the Company, to increase the
authorized number of shares of the Company's Common Stock, $.01 par
value from 30,000,000 shares to 40,000,000 shares.
On January 31, 1996, the Company entered into an interim employment
agreement (the "Employment Agreement") with Richard E. Snyder, in
conjunction with the execution of the Securities Purchase Agreement,
whereby Mr. Snyder became President of the Company (see Note 2).
Pursuant to the Employment Agreement, the Company issued 599,465
shares of Common Stock to Mr. Snyder at a price of $8.00 per share
in exchange for a non-recourse note in the amount of the purchase
price, secured by a pledge of the shares. The non-recourse note is
shown as a separate component of stockholder's equity. The difference
between the market price of $9.375 per share on January 31, 1996 and
the purchase price was recorded as compensation to Mr. Snyder.
Since his appointment, Mr. Snyder has not been directly involved in
the Company's business or financial decisions but has been assessing
its operations. Mr. Snyder has not yet finalized any plans regarding
future operations. Such plans will likely be finalized during Fiscal
1997 and may involve a restructuring of
F-13
<PAGE>
operations which could result in substantial charges to operations
or changes in the classification of the Company's assets and
liabilities.
In conjunction with the proposed equity investment, a stockholder
meeting will be held to consider and act upon several proposals,
including approval of the transaction; an amendment to increase the
Company's authorized number of shares of Common Stock from 40,000,000
to 60,000,000 shares; an amendment to increase the Company's
authorized number of shares of Preferred Stock from 100,000 to
200,000 shares, and an amendment to increase the number of shares of
Common Stock available under the 1995 stock option plan from 750,000
shares to 2,250,000 shares (see Note 2).
12. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain facilities, machinery and vehicles under
various noncancellable operating lease agreements over periods of one
to 10 years. Future minimum lease payments required under such leases
in effect at February 3, 1996 were as follows (by fiscal year):
(In thousands)
1997 $ 4,493
1998 3,207
1999 2,472
2000 1,920
2001 1,663
2002 through 2006 4,111
-------
$17,866
=======
Total rental expense charged to operations was $6,105,000, $6,914,000
and $8,330,000 for the years ended February 3, 1996, January 28, 1995
and January 29, 1994, respectively.
Contingencies
The Company has been named in various legal proceedings in the normal
course of its business. Additionally, the Company, along with other
parties, is involved in a number of proceedings brought under the
Comprehensive Environmental Response, Compensation and Liability Act,
commonly known as Superfund, as well as under other Federal and state
statues. Environmental expenditures that relate to current operations
are expensed or capitalized, as appropriate. Liabilities are recorded
when environmental assessments and/or remedial efforts are probable,
the cost can be reasonably estimated and the Company's responsibility
is established.
While it is not feasible to predict or determine the outcome of these
proceedings, it is the opinion of management that their outcome, to
the extent not provided for through insurance or otherwise, will not
have a materially adverse effect on the Company's financial position
or results of future operations.
F-14
<PAGE>
13. ROYALTIES AND OTHER INCOME
Royalties and other income consisted of the following:
1996 1995 1994
(In thousands)
Royalties $1,299 $1,948 $2,043
Interest income 2,963 1,994 807
Other 423 259 361
------ ------ ------
$4,685 $4,201 $3,211
====== ====== ======
14. INCOME TAXES
Income tax expense (benefit) (calculated in accordance with Statement
of Financial Accounting Standards No. 109, "Accounting for Income
Taxes") consisted of the following:
1996 1995 1994
(In thousands)
Currently (refundable)
payable:
Federal $(2,092) $(6,656) $(11,185)
State 78 380 (240)
Foreign (540) 370 (30)
------- ------- --------
(2,554) (5,906) (11,455)
------- ------- --------
Deferred:
Federal 11,281 8,239 (9,520)
State 2,615 222 (1,300)
Foreign (10) (85) (20)
------- ------- --------
13,886 8,376 (10,840)
------- ------- --------
$11,332 $ 2,470 $(22,295)
======= ======= ========
Income (loss) before income tax expense (benefit) of Western
Publishing Company, Inc.'s Canadian subsidiary was $(1,257,000),
$1,412,000 and $(106,000) for the years ended February 3, 1996,
January 28, 1995 and January 29, 1994, respectively.
A reconciliation of the statutory United States Federal income tax
rate to the Company's effective income tax rate follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Statutory rate 35.0% 35.0% 35.0%
State income taxes, net of Federal benefit (.2) (2.6) 1.6
Valuation allowance, net of refundable amounts (56.8) (82.4)
Permanent differences relating to the sale of
the Advertising Specialty Division 35.9
Other - net 1.7 (2.2) (1.4)
----- ----- ----
(20.3)% (16.3)% 35.2%
===== ===== ====
</TABLE>
F-15
<PAGE>
The income tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities at
February 3, 1996 and January 28, 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
Assets Liabilities Assets Liabilities
(In thousands)
<S> <C> <C> <C> <C>
Allowances for doubtful accounts and
returns not currently deductible $ 2,098 $ 4,035
Inventories:
Excess of book basis over tax
basis due to purchase accounting $ (6,117) $ (6,108)
Other 7,395 9,803
Property, plant and equipment:
Excess of tax basis over
acquisition accounting basis 3,620 3,746
Excess of tax over book depreciation (9,107) (6,555)
Identified intangibles (1,096) (1,096)
Deferred gain on sale of plant (794) (738)
Accrued expenses not
currently deductible 7,396 9,714
Deductible pension contributions
in excess of pension expense (1,717) (1,768)
Postretirement benefits 11,028 10,758
Net operating loss carryforwards
and credits 32,811 4,026
Other - net 557 514
Valuation Allowance (46,074) (12,445)
--------- -------- --------- ---------
Total $ 18,831 $(18,831) $ 30,151 $ (16,265)
========= ======== ========= =========
</TABLE>
Deferred income taxes are classified as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
Assets Assets
Current Noncurrent Current Noncurrent
(In thousands)
<S> <C> <C> <C> <C>
Deferred income taxes $ 11,169 $ 34,905 $ 17,536 $ 8,795
Valuation allowance (11,169) (34,905) (6,860) (5,585)
--------- -------- --------- ---------
$ - $ - $ 10,676 $ 3,210
========= ======== ========= =========
</TABLE>
At February 3, 1996, the Company had available net operating loss
carryforwards of approximately $65,900,000 for Federal income tax
purposes that expire in 2011 and approximately $6,500,000 for state
income tax purposes. The Federal carryforwards primarily resulted from
operating losses generated in Fiscal 1996. The Company also has tax
credit carryforwards at February 3, 1996 of approximately $3,700,000.
The valuation allowance relates to the uncertainty of realizing
certain Federal and state deferred tax assets.
F-16
<PAGE>
15. PENSION, POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
Pension Benefits
Western Publishing Company, Inc. and its Canadian subsidiary have
noncontributory defined benefit retirement plans covering
substantially all domestic hourly and Canadian salaried and hourly
employees. The benefits are generally based on a unit amount at the
date of termination multiplied by the participant's credited service.
The Company's funding policy is to contribute amounts within the
limits which can be deducted for income tax purposes.
The following tables set forth the plans' funded status and amounts
recognized in the consolidated financial statements at February 3,
1996 and January 28, 1995, and for each of the three years ended
February 3, 1996:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
(In thousands)
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including
vested benefits of $15,052,000 and $11,897,000 $ 15,222 $ 12,052
========= ========
Projected benefit obligations for service rendered $ 15,745 $ 12,472
Plan assets at fair value (primarily U.S. government
securities, corporate bonds and equity mutual funds) 16,995 15,051
-------- --------
Projected benefit obligations less than plan assets 1,250 2,579
Unrecognized net loss (gain) 978 (181)
Unrecognized prior service cost 2,205 2,272
Unamortized portion of unrecognized net asset
at January 31, 1987 (140) (249)
-------- --------
Prepaid pension costs recognized in
accompanying balance sheets $ 4,293 $ 4,421
========= ========
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
(In thousands)
Net pension (income) expense, included the following components:
Service cost - benefits earned during the period $ 441 $ 509 $ 573
Interest cost on projected benefit obligations 1,054 1,105 1,104
Actual return on plan assets (3,437) 415 (1,836)
Net amortization and deferral 2,070 (1,995) 211
Net settlement gain (3) (50)
--------- -------- ---------
Net pension expense (income) $ 125 $ (16) $ 52
========= ======== =========
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligations was 7.0% and 8.5%
in 1996 and 1995. The expected long-term rate of return on assets was
10.0%.
Pension expense charged to operations for these plans and for other
multi-employer plans in which certain union employees of the Company's
subsidiaries participate was $503,000, $376,000 and $598,000 for the
years ended February 3, 1996, January 28, 1995 and January 29, 1994,
respectively.
Subsidiaries of the Company also maintain defined contribution
contributory retirement plans for substantially all domestic employee
groups. Under the plans, the subsidiaries make contributions based on
employee compensation and in certain cases based on specified levels
of voluntary employee contributions.
F-17
<PAGE>
Western Publishing Company, Inc.'s Canadian subsidiary also
maintains a profit sharing plan for certain salaried employees.
Expense for these plans was $3,123,000, $3,723,000 and $4,157,000
for the years ended February 3, 1996, January 28, 1995 and
January 29, 1994, respectively.
Postretirement Benefits
Western Publishing Company, Inc. provides certain health care and life
insurance benefits for substantially all of its retired employees.
Effective January 31, 1993, the Company adopted FAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions." FAS No. 106 requires the Company to accrue the estimated
cost of retiree benefit payments during the years the employee
provides services. The Company previously expensed the cost of these
benefits, which are principally health care, as claims were incurred.
FAS No. 106 allows recognition of the cumulative effect of the
liability in the year of adoption or the amortization of the
obligation over a period of up to twenty years. The Company elected
to recognize the cumulative effect of this obligation on the
immediate recognition basis. At January 31, 1993, the Company
recognized the accumulated liability for such benefits (transition
obligation). The cumulative effect of this change in accounting
principle reduced earnings by $24,300,000 ($14,800,000, net of income
taxes).
The postretirement benefit obligation recorded in the consolidated
balance sheets consisted of the following components:
</TABLE>
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
(In thousands)
Retirees currently receiving benefits $ 13,872 $ 12,594
Current employees eligible to receive benefits 6,500 5,600
Current employees not yet eligible to receive benefits 9,400 6,600
Unrecognized net (gain) loss from past experience (4,900) 1,800
Unrecognized prior service cost 2,700 300
--------- -------
$ 27,572 $ 26,894
========= ========
</TABLE>
The net postretirement benefit cost, which is not currently funded,
consisted of the following components:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
(In thousands)
Service cost - benefits earned during the year $ 500 $ 600 $ 700
Interest cost on accumulated postretirement benefit
obligation 2,000 2,000 1,900
Net amortization and deferral of unrecognized amounts (100)
Recognition of transition obligation 24,300
--------- -------- ---------
Net postretirement benefit expense $ 2,400 $ 2,600 $ 26,900
========= ======== =========
</TABLE>
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefit obligation as of January 1, 1996
was 7.5% for 1996 decreasing linearly to 5% in 2010; and remaining
level thereafter.
If the health care cost trend rate were increased one percentage point
in each year, the accumulated postretirement benefit obligation as of
January 1, 1996 and the net postretirement cost would have both
increased by approximately 13%. The weighted average discount rate
used in determining the accumulated postretirement benefit obligation
as of January 1, 1996 and January 1, 1995 was 7.0% and 8.5%,
respectively.
F-18
<PAGE>
Postemployment Benefits
During November 1992, the FASB issued FAS No. 112, "Employers'
Accounting for Postemployment Benefits", which requires the cost of
such benefits be accrued over the employee service period. The
adoption of this statement in Fiscal 1995 did not have a material
effect on the Company's financial statements.
16. INDUSTRY SEGMENT INFORMATION
The Company has two industry segments, Consumer Products and
Commercial Products.
The Company is engaged in the creation, publication, manufacturing,
printing and marketing of story and picture books, interactive
electronic books and games, coloring books and other activity books
and products for children as well as multimedia "edutainment"
products. The Company is also engaged in the manufacture and sale of
decorated paper tableware, party goods, stationery and gift products.
The Company's foreign operations within the Consumer Products Segment
consist of a marketing subsidiary in Canada and a marketing branch
in the United Kingdom.
The Company's Commercial Products Segment provides printing, graphic,
creative and distribution services and prior to May 1, 1993, was
engaged in the manufacture of advertising specialties including
imprinted writing instruments, wearable and simulated leather items,
such as wallets, folders and other promotional business products (see
Note 3).
Operating profit represents income before income taxes, interest
expense and general corporate income and expense. Identifiable assets
are those assets used specifically in the operations of each industry
segment or which are allocated when used jointly. Corporate assets are
principally comprised of cash and cash equivalents, net assets held
for sale, refundable income taxes, deferred income taxes, prepaid
pension costs and certain other assets. Domestic sales to foreign
markets were less than 10% of total consolidated sales for the years
ended February 3, 1996, January 28, 1995 and January 29, 1994.
Information by industry segment is set forth below:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
(In thousands)
Net sales:
Consumer Products $ 306,543 $340,970 $ 535,603
Commercial Products 63,029 57,384 77,861
--------- -------- ---------
$ 369,572 $398,354 $ 613,464
========= ======== =========
Operating (loss) profit:
Consumer Products $ (23,887) $ (7,487) $ 192
Commercial Products 805 (112) (2,558)
--------- -------- ---------
(23,082) (7,599) (2,366)
Other income 3,386 2,253 1,168
General corporate expense (16,459) (13,648) (17,672)
Provision for restructuring and closure
of operations (8,701)
Gain on streamlining plan 2,000 20,352
Provision for write-down of Division 1,100 (28,180)
Interest expense (12,859) (17,567) (16,270)
--------- -------- ---------
Loss before income taxes and
cumulative effect of change in accounting
principle $ (55,715) $(15,109) $ (63,320)
========= ======== =========
</TABLE>
F-19
<PAGE>
<TABLE>
<CAPTION>
Consumer Commercial
Products Products Corporate Total
-------- ---------- --------- -----
<S> <C> <C> <C> <C>
(In thousands)
Identifiable assets:
1996 $ 213,792 $ 33,521 $ 74,652 $ 321,965
1995 268,517 23,201 137,088 428,806
1994 331,502 27,974 145,640 505,116
Depreciation and amortization:
1996 12,816 1,734 1,445 15,995
1995 11,263 2,293 1,609 15,165
1994 12,176 5,153 1,184 18,513
Capital expenditures:
1996 12,540 5,202 179 17,921
1995 18,805 372 130 19,307
1994 33,524 2,443 1,392 37,359
</TABLE>
Other Information
For the year ended February 3, 1996, net sales from the Company's two
largest customers, Wal-Mart Stores, Inc. and Toys `R' Us, Inc. totaled
approximately $78,400,000, or 21% of net sales. For the years ended
January 28, 1995 and January 29, 1994, revenues from these customers
totaled approximately $91,700,000 or 23% of net sales and $133,400,000
or 22% of net sales, respectively. The Company's products are
primarily sold to mass market retailers throughout the United States,
Canada and the United Kingdom.
17. NET LOSS PER COMMON SHARE
Net loss per common share was computed as follows:
1996 1995 1994
(In thousands except for
per share data)
Net loss $ (67,047) $(17,579) $ (55,825)
Preferred dividend requirements (848) (848) (848)
--------- -------- ---------
Loss applicable to Common Stock $ (67,895) $(18,427) $ (56,673)
========= ======== =========
Weighted average common shares
outstanding 21,047 20,997 20,956
========= ======== =========
Net loss per common share $ (3.23) $ (.88) $ (2.70)
========= ======== =========
* * * * * *
F-20
<PAGE>
APPENDIX I
[COMPOSITE COPY]
AMENDED SECURITIES PURCHASE AGREEMENT
AMENDED SECURITIES PURCHASE AGREEMENT
BETWEEN
GOLDEN PRESS HOLDING, L.L.C.
AND
WESTERN PUBLISHING GROUP, INC.
Dated as of January 31, 1996, as Amended by Amendment No. 1 Thereto, Dated as of
April 15, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I. SALE AND PURCHASE
Section 1.1. Agreement to Sell and to Purchase........................................................... I-1
Section 1.2. Closing..................................................................................... I-1
Section 1.3. Purchase Price.............................................................................. I-1
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF BUYER
Section 2.1. Organization and Qualification.............................................................. I-2
Section 2.2. Authority Relative to this Agreement........................................................ I-2
Section 2.3. Financing Arrangements...................................................................... I-2
Section 2.4. Investment Intent........................................................................... I-2
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1. Organization and Qualification.............................................................. I-3
Section 3.2. Capitalization.............................................................................. I-3
Section 3.3. Subsidiaries and Equity Investments......................................................... I-4
Section 3.4. Authority Relative to this Agreement........................................................ I-4
Section 3.5. Reports and Financial Statements; Undisclosed Liabilities................................... I-5
Section 3.6. Absence of Certain Changes or Events........................................................ I-5
Section 3.7. Litigation.................................................................................. I-6
Section 3.8. Disclosure.................................................................................. I-6
Section 3.9. Employee Benefit Plans...................................................................... I-6
Section 3.10. ERISA....................................................................................... I-7
Section 3.11. Compliance with Applicable Laws............................................................. I-8
Section 3.12. Taxes....................................................................................... I-8
Section 3.13. Certain Agreements.......................................................................... I-8
Section 3.14. Takeover Provisions Inapplicable............................................................ I-9
Section 3.15. Company Action.............................................................................. I-9
Section 3.16. Fairness Opinions........................................................................... I-9
Section 3.17. Financial Advisors; Expenses................................................................ I-9
Section 3.18. Title to Property........................................................................... I-9
Section 3.19. Intellectual Property....................................................................... I-10
Section 3.20. Licenses, Permits and Authorizations........................................................ I-10
Section 3.21. Insurance................................................................................... I-10
Section 3.22. Environment................................................................................. I-11
Section 3.23. Related Party Transactions.................................................................. I-11
Section 3.24. No Company Material Adverse Effect.......................................................... I-11
ARTICLE IV. CONDUCT OF BUSINESS PENDING THE SALE AND PURCHASE
Section 4.1. Conduct of Business by the Company.......................................................... I-12
Section 4.2. Notice of Breach............................................................................ I-14
ARTICLE V. ADDITIONAL AGREEMENTS
Section 5.1. Access and Information...................................................................... I-14
Section 5.2. Company Proxy Statement..................................................................... I-14
Section 5.3. Stockholders' Meeting....................................................................... I-15
Section 5.4. HSR Act..................................................................................... I-15
Section 5.5. Additional Agreements....................................................................... I-15
Section 5.6. No Solicitation............................................................................. I-15
Section 5.7. Transfer Restriction........................................................................ I-16
Section 5.8. Director and Officer Indemnification and Insurance.......................................... I-16
Section 5.9. Board of Directors.......................................................................... I-16
Section 5.10. Redemption of Company Preferred Stock....................................................... I-16
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 5.11. Expenses.................................................................................... I-16
Section 5.12. Related Party Transactions.................................................................. I-17
Section 5.13. Moore Termination........................................................................... I-17
ARTICLE VI. CONDITIONS PRECEDENT
Section 6.1. Conditions to Each Party's Obligation to Effect the Sale and Purchase....................... I-17
Section 6.2. Conditions to Obligation of the Company to Effect the Sale and Purchase..................... I-17
Section 6.3. Conditions to Obligations of Buyer to Effect the Sale and Purchase.......................... I-18
ARTICLE VII. TERMINATION, AMENDMENT AND WAIVER
Section 7.1. Termination................................................................................. I-18
Section 7.2. Effect of Termination....................................................................... I-19
Section 7.3. Amendment................................................................................... I-19
Section 7.4. Waiver...................................................................................... I-20
ARTICLE VIII. GENERAL PROVISIONS
Section 8.1. Non-Survival of Representations, Warranties and Agreements.................................. I-20
Section 8.2. Notices..................................................................................... I-20
Section 8.3. Expenses; Termination Fees.................................................................. I-21
Section 8.4. Publicity................................................................................... I-21
Section 8.5. Specific Performance........................................................................ I-22
Section 8.6. Interpretation.............................................................................. I-22
Section 8.7. Miscellaneous............................................................................... I-22
</TABLE>
ii
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Beneficial ownership........................................................................................ 21
Bernstein................................................................................................... 4
Business Combination Proposal............................................................................... 16
Buyer....................................................................................................... 1
Buyer Disclosure Schedule................................................................................... 2
Buyer Material Adverse Effect............................................................................... 2
CERCLA...................................................................................................... 11
Closing..................................................................................................... 1
Closing Date................................................................................................ 1
Code........................................................................................................ 7
Commission.................................................................................................. 4
Companies................................................................................................... 4
Company Benefit Plans....................................................................................... 6
Company Common Stock........................................................................................ 1
Company Disclosure Schedule................................................................................. 3
Company Material Adverse Effect............................................................................. 3
Company Meeting............................................................................................. 15
Company Preferred Stock..................................................................................... 3
Company Proxy Statement..................................................................................... 6
Company SEC Reports......................................................................................... 5
Company Voting Matters...................................................................................... 15
Confidentiality Agreement................................................................................... 14
Continuing Directors........................................................................................ 16
Environmental Laws.......................................................................................... 11
ERISA....................................................................................................... 6
Exchange Act................................................................................................ 2
Excluded Employees.......................................................................................... 12
Expenses.................................................................................................... 21
GAAP........................................................................................................ 5
Governmental Entity......................................................................................... 8
HSR Act..................................................................................................... 2
Intellectual Property....................................................................................... 10
Interim SEC Reports......................................................................................... 5
Irrevocable Proxies......................................................................................... 18
Moore....................................................................................................... 7
New Preferred Shares........................................................................................ 1
New Preferred Stock......................................................................................... 1
Purchase Price.............................................................................................. 1
Registration Rights Agreement............................................................................... 2
Securities Act.............................................................................................. 2
Series B Certificate of Designations........................................................................ 1
Significant Agreements...................................................................................... 9
Significant Subsidiary...................................................................................... 4
Snyder...................................................................................................... 12
Stock Option Plan........................................................................................... 3
Subsidiaries................................................................................................ 4
Subsidiary.................................................................................................. 4
Superior Proposal........................................................................................... 16
Tax Subsidiaries............................................................................................ 8
Third Party................................................................................................. 21
Third Party Business Combination............................................................................ 21
Warrant..................................................................................................... 1
WPV......................................................................................................... 15
</TABLE>
iii
<PAGE>
AMENDED SECURITIES PURCHASE AGREEMENT
THIS AMENDED SECURITIES PURCHASE AGREEMENT, dated as of January 31, 1996,
as amended by Amendment No. 1 thereto, dated as of April 15, 1996, between
Western Publishing Group, Inc., a Delaware corporation (the 'Company'), and
Golden Press Holding, L.L.C., a Delaware limited liability company ('Buyer').
WITNESSETH:
WHEREAS, the Company desires to create a series of its Preferred Stock, no
par value, consisting of 13,000 shares ('New Preferred Shares') designated as
its 'Series B Convertible Preferred Stock' (the 'New Preferred Stock'). The
terms, limitations and relative rights and preferences of the New Preferred
Stock are set forth in the Certificate of Designations, Number, Voting Powers,
Preferences and Rights of Series B Convertible Preferred Stock of the Company,
substantially in the form of Exhibit A attached hereto (the 'Series B
Certificate of Designations');
WHEREAS, the Company desires to issue a warrant (the 'Warrant') to purchase
an aggregate of 3,250,000 shares (subject to adjustment) of the common stock,
par value $.01 per share, of the Company ('Company Common Stock'), substantially
in the form of Exhibit B attached hereto;
WHEREAS, Buyer desires to purchase the New Preferred Shares and the Warrant
from the Company, and the Company desires to sell the New Preferred Shares and
the Warrant to Buyer, in each case upon the terms and subject to the conditions
set forth in this Agreement;
WHEREAS, the members of Buyer and the Board of Directors of the Company
have approved, and deem it advisable and in the best interests of their members
and stockholders, respectively, to consummate the purchase and sale of the New
Preferred Shares and the Warrant, upon the terms and subject to the conditions
set forth herein; and
WHEREAS, the Board of Directors of the Company, subject to Section 5.3
hereof, has resolved to recommend approval of the purchase and sale of the New
Preferred Shares and the Warrant and the other transactions contemplated herein
to the holders of all the issued and outstanding shares of Company Common Stock;
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties and agreements contained herein, and for other good
and valuable consideration, the parties hereto agree as follows:
ARTICLE I.
SALE AND PURCHASE
SECTION 1.1. Agreement to Sell and to Purchase. On the Closing Date (as
defined below) and upon the terms and subject to the conditions set forth in
this Agreement, the Company shall issue, sell, and deliver the New Preferred
Shares and the Warrant to Buyer, and Buyer shall purchase and accept the New
Preferred Shares and the Warrant from the Company.
SECTION 1.2. Closing. The closing of such sale and purchase (the
'Closing') shall take place (i) at the offices of Willkie Farr & Gallagher, 153
East 53rd Street, New York, New York, at 10:00 a.m. on the day on which the last
of the conditions set forth in Article VI is satisfied or waived, or (ii) at
such other time and place as the parties hereto shall agree in writing. The date
on which the Closing is to occur is herein referred to as the 'Closing Date.'
At the Closing, the Company shall deliver to Buyer or its designees a stock
certificate representing the New Preferred Shares and the Warrant, each of which
shall be duly executed on behalf of the Company and registered in the name of
Buyer (or its nominee). In full consideration for the New Preferred Shares and
the Warrant, Buyer shall thereupon pay to the Company the Purchase Price (as
defined below) as provided in Section 1.3 hereof.
SECTION 1.3. Purchase Price. The aggregate purchase price for the New
Preferred Shares and the Warrant ('Purchase Price') shall be $65,000,000. At the
Closing, Buyer shall deliver to the Company
I-1
<PAGE>
$65,000,000 by wire transfer of immediately available funds to such account as
the Company shall designate not less than three business days prior to the
Closing Date.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Company as follows:
SECTION 2.1. Organization and Qualification. Buyer is a limited liability
company duly authorized and validly existing under the laws of the state of
Delaware and has the requisite power to carry on its business as it is now being
conducted and currently proposed to be conducted. Buyer is duly qualified to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned or held under lease or the nature of its activities make
such qualification necessary, except where the failure to be so qualified would
not, individually or in the aggregate, reasonably be expected to have a material
adverse effect on its business, properties, assets, condition (financial or
otherwise), liabilities or operations (a 'Buyer Material Adverse Effect').
Complete and correct copies as of the date hereof of the certificate of
formation of Buyer have been delivered to the Company as part of a disclosure
schedule delivered by Buyer to the Company on the date of this Agreement (the
'Buyer Disclosure Schedule').
SECTION 2.2. Authority Relative to this Agreement. Buyer has the
requisite power to enter into this Agreement and to carry out its obligations
hereunder. The execution and delivery of this Agreement and the Registration
Rights Agreement between the Company and Buyer to be entered into on the Closing
Date (the 'Registration Rights Agreement'), substantially in the form of Exhibit
C attached hereto, and the consummation of the transactions contemplated hereby
and thereby have been duly authorized by all necessary actions on the part of
Buyer. This Agreement and the Registration Rights Agreement, upon its execution,
each constitute a valid and binding obligation of Buyer, enforceable in
accordance with its terms except as enforcement may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
generally and except that the availability of equitable remedies, including
specific performance, is subject to the discretion of the court before which any
proceeding therefor may be brought. No other proceedings on the part of Buyer
are necessary to authorize this Agreement or the Registration Rights Agreement
and the transactions contemplated hereby and thereby. Buyer is not subject to or
obligated under (i) any operating agreement, indenture or other loan document
provision or (ii) any other contract, license, franchise, permit, order, decree,
concession, lease, instrument, judgment, statute, law, ordinance, rule or
regulation applicable to Buyer or its properties or assets, that would be
breached or violated, or under which there would be a default (with or without
notice or lapse of time, or both), or under which there would arise a right of
termination, cancellation or acceleration of any obligation or the loss of a
material benefit, by its executing and carrying out this Agreement other than,
in the case of clause (ii) only, (A) any breaches, violations, defaults,
terminations, cancellations, accelerations or losses which, either singly or in
the aggregate, will not have a Buyer Material Adverse Effect or prevent the
consummation of the transactions contemplated hereby and (B) the laws and
regulations referred to in the next sentence. Except as disclosed in Section 2.2
of the Buyer Disclosure Schedule or, in connection, or in compliance, with the
provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the 'HSR Act'), the Securities Act of 1933, as amended (the 'Securities
Act'), the Securities Exchange Act of 1934, as amended (the 'Exchange Act'), and
the corporation, securities or blue sky laws or regulations of the various
states, no filing or registration with, or authorization, consent or approval
of, any public body or authority is necessary for the consummation by Buyer of
the transactions contemplated by this Agreement, other than filings,
registrations, authorizations, consents or approvals the failure of which to
make or obtain would not reasonably be expected to have a Buyer Material Adverse
Effect or prevent the consummation of the transactions contemplated hereby.
SECTION 2.3. Financing Arrangements. Buyer has funds available to it
sufficient to effect the transactions contemplated by this Agreement.
SECTION 2.4. Investment Intent. Buyer is acquiring the New Preferred
Shares and the Warrant for investment for its own (or an affiliate's) account,
not as a nominee or agent and not with a view to the
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distribution of any part thereof in violation of law. Buyer has no present
intention of selling, granting any participation in, or otherwise distributing
the same.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Buyer as follows:
SECTION 3.1. Organization and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has the corporate power to carry on its business as it is
now being conducted and currently proposed to be conducted. The Company is duly
qualified as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of its properties owned or held under
lease or the nature of its activities makes such qualification necessary, except
where the failure to be so qualified would not reasonably be expected to have a
material adverse effect on the business, properties, assets, condition
(financial or otherwise), liabilities or operations of the Company and its
subsidiaries taken as a whole (a 'Company Material Adverse Effect'). Complete
and correct copies as of the date hereof of the Restated Certificate of
Incorporation and By-laws of the Company and each of its subsidiaries have been
delivered to Buyer or its representatives as part of a disclosure schedule
delivered by the Company to Buyer on the date of this Agreement (the 'Company
Disclosure Schedule').
SECTION 3.2. Capitalization. The authorized capital stock of the Company
consists of 40,000,000 shares of Company Common Stock and 100,000 shares of
preferred stock, no par value. As of the date hereof, 21,276,074 shares of
Company Common Stock are validly issued and outstanding, fully paid and
nonassessable (which figure does not include shares issued upon exercise of
employee stock options granted after October 28, 1995), 208,800 shares of
Company Common Stock are held in the Company's treasury, 19,970 shares of
preferred stock designated as Series A Preferred Stock ('Company Preferred
Stock') are outstanding, and no shares of Company Preferred Stock are held in
the Company's treasury. As of October 28, 1995, employee stock options to
acquire up to 1,705,300 shares of Company Common Stock were outstanding, and
employee stock options to purchase 311,500 shares of Company Common Stock were
issued from such date through the date hereof. As of the date hereof, there are
no bonds, debentures, notes or other evidences of indebtedness having the right
to vote on any matters on which the Company's stockholders may vote issued or
outstanding. As of the date hereof, except for (i) options to acquire up to
1,725,133 shares of Company Common Stock issued to employees of the Company
pursuant to the Amended and Restated 1986 Employee Stock Option Plan of the
Company (the 'Stock Option Plan') and (ii) 416,042 shares of Company Common
Stock issuable upon conversion of the Company Preferred Stock, there are no
options, warrants, calls or other rights, agreements or commitments outstanding
obligating the Company to issue, deliver or sell shares of its capital stock or
debt securities, or obligating the Company to grant, extend or enter into any
such option, warrant, call or other such right, agreement or commitment. Section
3.2 of the Company Disclosure Schedule sets forth a complete and correct list of
(a) all agreements, offering memoranda, registration statements, prospectuses or
offering circulars concerning sales or attempted sales of the Company's
securities (whether by the Company or by a substantial stockholder) since
January 1, 1992 and (b) all written proposals concerning the acquisition or
proposed acquisition of the Company's securities since January 1, 1992. As of
the date hereof, the New Preferred Shares, including the Series B Certificate of
Designations, and the Warrant were duly authorized by the Company's Board of
Directors. On or prior to the Closing Date, assuming approval of the Company
Voting Matters (as defined in Section 5.3 hereof) by holders of the Company
Common Stock, the Series B Certificate of Designations will have become
effective in accordance with the DGCL, and all of the New Preferred Shares and
all of the shares of Company Common Stock issuable in payment of dividends in
respect of or upon conversion of the New Preferred Shares and upon exercise of
the Warrant will be, when so issued, duly authorized, validly issued, fully paid
and nonassessable and shall be delivered free and clear of all liens, claims,
charges and encumbrances of any kind or nature whatsoever. The Company has duly
reserved 3,250,000 shares of Company Common Stock for issuance upon exercise of
the Warrant and 9,620,000 shares of Company Common Stock for issuance upon
conversion of the New Preferred Stock and upon payment of stock dividends in
respect thereof. The Company has not agreed to register any securities under the
Securities Act (other than pursuant to the Registration Rights
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Agreement and the Registration Rights Agreement, dated as of even date herewith,
between Richard A. Bernstein ('Bernstein') and certain of his affiliates and the
Company).
SECTION 3.3. Subsidiaries and Equity Investments.
(a) Section 3.3 of the Company Disclosure Schedule sets forth (i) the name
of each corporation that is a 'Significant Subsidiary' (as such term is defined
in Rule 1-02 of Regulation S-X of the Securities and Exchange Commission (the
'Commission') (such subsidiaries hereinafter referred to collectively as
'Subsidiaries' and individually as a 'Subsidiary', and collectively with the
Company, the 'Companies')), (ii) the name of each corporation, partnership,
joint venture or other entity (other than the Subsidiaries) in which any of the
Companies has, or pursuant to any agreement has the right or obligation to
acquire at any time by any means, directly or indirectly, an equity interest or
investment; (iii) in the case of each of such corporations described in clauses
(i) and (ii) above, (A) the jurisdiction of incorporation, (B) the
capitalization thereof and the percentage of each class of voting capital stock
owned by any of the Companies, (C) a description of any contractual limitations
on the holder's ability to vote or alienate such securities, (D) a description
of any outstanding options or other rights to acquire securities of such
corporation, and (E) a description of any other contractual charge or impediment
which would materially limit or impair any of the Companies' ownership of such
entity or interest or its ability effectively to exercise the full rights of
ownership of such entity or interest; and (iv) in the case of each of such
unincorporated entities, information substantially equivalent to that provided
pursuant to clause (iii) above with regard to corporate entities.
(b) Each Subsidiary is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation and has all
requisite corporate power and authority to own its properties and assets and to
conduct its business as now conducted. Each Subsidiary is duly qualified to do
business as a foreign corporation in every jurisdiction in which the character
of the properties owned or leased by it or the nature of the business conducted
by it makes such qualification necessary, except where the failure to be so
qualified would not reasonably be expected to have a Company Material Adverse
Effect. All the outstanding shares of capital stock of each Subsidiary have been
duly authorized and validly issued, are fully paid and non-assessable, and
(except as specified in Section 3.3 of the Company Disclosure Schedule) are
owned of record and beneficially, directly or indirectly, by the Company, free
and clear of any liens, claims, charges, security interests or other legal or
equitable encumbrances, limitations or restrictions. There are no outstanding
options, warrants, agreements, conversion rights, preemptive rights or other
rights to subscribe for, purchase or otherwise acquire any issued or unissued
shares of capital stock of any Subsidiary. Except as set forth in the Company's
Annual Report on Form 10-K for the fiscal year ended January 28, 1995 or as
disclosed in Section 3.3 of the Company Disclosure Schedule, the Company does
not own, directly or indirectly, any interest in any other corporation,
partnership, joint venture or other business association or entity.
SECTION 3.4. Authority Relative to this Agreement. The Company has the
corporate power to enter into this Agreement and the Registration Rights
Agreement and to issue the Warrant and, subject to approval of the Company
Voting Matters by holders of the Company Common Stock, to carry out its
obligations hereunder and thereunder. The execution and delivery of this
Agreement, the Registration Rights Agreement and the Warrant and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by the Company's Board of Directors. Each of this Agreement, the
Registration Rights Agreement (when executed) and the Warrant (when issued)
constitutes a valid and binding obligation of the Company enforceable in
accordance with its terms except as enforcement may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
generally and except that the availability of equitable remedies, including
specific performance, is subject to the discretion of the court before which any
proceeding therefor may be brought. Except for the approval of the holders of
Company Common Stock described in Section 5.3, no other proceedings on the part
of the Company are necessary to authorize this Agreement, the Registration
Rights Agreement and the Warrant and the transactions contemplated hereby and
thereby.
Except as set forth in Section 3.4 of the Company Disclosure Schedule,
neither the Company nor any subsidiary is subject to or obligated under (i) any
charter, by-law, indenture or other loan document provision or (ii) any other
contract, license, franchise, permit, order, decree, concession, lease,
instrument, judgment, statute, law, ordinance, rule or regulation applicable to
the Company or any of its subsidiaries or their respective properties or assets,
that would be breached or violated, or under which there would be a default
(with or without
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notice or lapse of time, or both), or under which there would arise a right of
termination, cancellation or acceleration of any obligation or the loss of a
material benefit, or a right to receive a severance or other similar payment, by
its executing and carrying out this Agreement and the transactions contemplated
herein, except, in the case of clause (ii), where such breach, violation or
default would not reasonably be expected to have a Company Material Adverse
Effect. Except as disclosed in Section 3.4 of the Company Disclosure Schedule
or, in connection, or in compliance, with the provisions of the HSR Act, the
Securities Act, the Exchange Act, and the corporation, securities or blue sky
laws or regulations of the various states, no filing or registration with, or
authorization, consent or approval of, any public body or authority is necessary
for the consummation by the Company of the transactions contemplated hereby,
except where the failure to so file or register or to receive an authorization,
consent or approval would not reasonably be expected to have a Company Material
Adverse Effect.
SECTION 3.5. Reports and Financial Statements; Undisclosed Liabilities.
(a) The Company has furnished Buyer with true and complete copies of its
(i) Annual Reports on Form 10-K for the fiscal years ended January 29, 1994 and
January 28, 1995, as filed with the Commission, (ii) Quarterly Reports on Form
10-Q for the quarters ended April 29, 1995, July 29, 1995 and October 28, 1995,
as filed with the Commission, (iii) proxy statements related to all meetings of
its stockholders (whether annual or special) held since January 1, 1993 and (iv)
all other reports filed with, or registration statements declared effective by,
the Commission since December 31, 1992, except registration statements on Form
S-8 relating to employee benefit plans, which are all the documents (other than
preliminary material) that the Company filed or was required to file with the
Commission from that date through the date hereof (clauses (i) through (iv)
being referred to herein collectively as the 'Company SEC Reports'). From the
date hereof through the Closing Date, the Company will furnish to Buyer copies
of any reports and registration statements to be filed with the Commission (the
'Interim SEC Reports') within a reasonable amount of time prior to filing
thereof. As of the their respective dates, the Company SEC Reports (or the
Interim SEC Reports, as the case may be) complied in all material respects with
the requirements of the Securities Act or the Exchange Act, as the case may be,
and the rules and regulations of the Commission thereunder applicable to such
reports and registration statements. As of their respective dates, the Company
SEC Reports (or the Interim SEC Reports, as the case may be) did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were, or will be, made, not misleading. The
audited consolidated financial statements and unaudited interim financial
statements of the Company included in the Company SEC Reports (or the Interim
SEC Reports, as the case may be) comply as to form in all material respects with
applicable accounting requirements of the Securities Act or the Exchange Act, as
applicable, and with the published rules and regulations of the Commission with
respect thereto. The financial statements and the condensed financial
statements, as applicable, included in the Company SEC Reports (or in the
Interim SEC Reports, as the case may be) (i) have been prepared in accordance
with generally accepted accounting principles ('GAAP') applied on a consistent
basis (except as may be indicated therein or in the notes thereto), (ii) present
fairly, in all material respects, the financial position of the Company and its
subsidiaries as at the dates thereof and the results of their operations and
cash flows for the periods then ended subject, in the case of the unaudited
interim financial statements, to normal year-end audit adjustments and any other
adjustments described therein and the fact that certain information and notes
have been condensed or omitted in accordance with the Exchange Act and the rules
promulgated thereunder, and (iii) are in all material respects in accordance
with the books and records of the Company.
(b) Except as set forth in Section 3.5(b) or Section 3.17 of the Company
Disclosure Schedule and except for indebtedness or liabilities that are
reflected or reserved against in the most recent financial statements included
in the Company SEC Reports or that have been incurred since October 28, 1995 in
the ordinary course of business, the Company does not have any liabilities,
whether absolute, accrued, contingent or otherwise.
SECTION 3.6. Absence of Certain Changes or Events. Except as disclosed in
the Company SEC Reports or as disclosed in Section 3.6 of the Company Disclosure
Schedule and except for the transactions contemplated by this Agreement, since
October 28, 1995, there has not been (i) any transaction, commitment, dispute or
other event or condition (financial or otherwise) of any character (whether or
not in the ordinary course of business) individually or in the aggregate having,
or which could reasonably be expected to have, a Company Material Adverse Effect
(other than as a result of changes in laws or regulations of general
applicability), (ii) any
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damage, destruction or loss, whether or not covered by insurance, which,
individually or in the aggregate, has had or, insofar as reasonably can be
foreseen, in the future would reasonably be expected to have, a Company Material
Adverse Effect, or (iii) any entry into any commitment or transaction material
to the Company and its subsidiaries taken as a whole (including, without
limitation, any borrowing or sale or purchase of assets) except in the ordinary
course of business consistent with past practice.
SECTION 3.7. Litigation. Except as disclosed in the Company's Annual
Report on Form 10-K for the year ended January 28, 1995, or the Company's
Quarterly Reports on Form 10-Q for the quarters ended April 29, 1995, July 29,
1995 and October 28, 1995, or as disclosed in Section 3.7 of the Company
Disclosure Schedule, there is no claim, suit, action or proceeding pending or,
to the knowledge of the Company, threatened against or affecting the Company or
any subsidiary which, either alone or in the aggregate, would reasonably be
expected to have a Company Material Adverse Effect, nor is there any judgment,
decree, injunction, rule or order of any court, governmental department,
commission, agency, instrumentality or arbitrator outstanding against the
Company or any subsidiary having, or which in the future could reasonably be
expected to have, either alone or in the aggregate, any such Company Material
Adverse Effect.
SECTION 3.8. Disclosure. None of the information with respect to the
Company or its subsidiaries to be included or incorporated by reference in the
proxy statement of the Company, including any amendments or supplements thereto
(collectively, the 'Company Proxy Statement'), to be mailed to the stockholders
of the Company in connection with the transactions contemplated herein will, at
the time of the mailing of the Company Proxy Statement and at the time of the
Company Meeting (as defined in Section 5.3), contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading; provided, however, that
this provision shall not apply to statements or omissions in the Company Proxy
Statement based upon information expressly furnished by or on behalf of Buyer
for use therein. The Company Proxy Statement will comply as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations thereunder. No representation or warranty made by the Company
contained in this Agreement and no statement contained in any certificate, list,
exhibit or other instrument specified in this Agreement, including without
limitation the Company Disclosure Schedule, contains any untrue statement of a
material fact or omits or will omit to state a material fact necessary to make
the statements contained therein, in light of the circumstances under which they
were made, not misleading, and no fact or circumstance exists or has occurred
which has, or in the future can reasonably be expected to have, a Company
Material Adverse Effect which has not been disclosed in this Agreement, the
Company Disclosure Schedule or the Company SEC Reports. Prior to the date
hereof, the Company has provided or made available to Buyer or its
representatives complete and accurate copies of (i) all unredacted minutes of
meetings and written consents of the Board of Directors of the Company and
committees thereof since January 1, 1993 and (ii) all documents and agreements,
including any amendments, renewals or modifications thereof, referenced in the
Company Disclosure Schedule.
SECTION 3.9. Employee Benefit Plans.
(a) Except as disclosed in the Company SEC Reports or as disclosed in
Section 3.9(a) of the Company Disclosure Schedule, there are no material
employee benefit or compensation plans, agreements or arrangements, including,
but not limited to, 'employee benefit plans,' as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ('ERISA'), and
including, but not limited to, plans, agreements or arrangements relating to
former employees, including, but not limited to, retiree medical plans,
maintained by the Company or any of its subsidiaries or to which the Company or
any of its subsidiaries has an obligation to make contributions or material
collective bargaining agreements to which the Company or any of its subsidiaries
is a party (together, 'Company Benefit Plans'). No default exists with respect
to the obligations of the Company or any of its subsidiaries under any such
Company Benefit Plan, which default, either alone or in the aggregate, would
reasonably be expected to have a Company Material Adverse Effect. Since January
1, 1993, there have been no disputes or grievances subject to any grievance
procedure, unfair labor practice proceedings, arbitration or litigation under
such Company Benefit Plans, that have not been finally resolved, settled or
otherwise disposed of, nor is there any default, or any condition which, with
notice or lapse of time or both, would constitute such a default, under any such
Company Benefit Plans, by the Company or its subsidiaries or, to the best
knowledge of the Company, any other party thereto, which failure to resolve,
settle or otherwise dispose of or default, either alone or in the aggregate,
would reasonably be expected have a Company Material Adverse Effect. Since
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January 1, 1993 there have been no strikes, lockouts or work stoppages or
slowdowns, or to the best knowledge of the Company and its subsidiaries,
jurisdictional disputes or organizing activity occurring or threatened with
respect to the business or operations of the Company or its subsidiaries that,
individually or in the aggregate, have had or would reasonably be expected to
have a Company Material Adverse Effect.
(b) All of the approximately 175 employees of the Company or its
subsidiaries who, pursuant to letters distributed in December 1993, were made
beneficiaries of certain benefits payable upon a 'change of control' of the
Company have subsequently received letters in July 1994 effectively terminating
such benefits, and no such person has or will, or could in the future, under any
circumstances, become eligible for such benefits. Section 3.9(b) of the Company
Disclosure Schedule sets forth in reasonable detail the amount of benefits that
would have been payable to such beneficiaries who are employed by the Company or
any of its subsidiaries on the date hereof pursuant to such letters had all the
requisite conditions therefor been subsequently satisfied in December 1993 and
assuming that such benefits had never been revoked.
(c) The employment of John F. Moore ('Moore') with the Company and its
subsidiaries was terminated as of January 26, 1996. The terms of such
termination are set forth in Section 3.9(c) of the Company Disclosure Schedule.
SECTION 3.10. ERISA. All Company Benefit Plans have been administered in
accordance with, and are in compliance with, the applicable provisions of ERISA,
the Internal Revenue Code of 1986, as amended (the 'Code') and all other Laws,
domestic or foreign, except where such failures to administer or comply would
not reasonably be expected to have a Company Material Adverse Effect. Except as
disclosed in Section 3.10 of the Company Disclosure Schedule, each of the
Company Benefit Plans which is intended to meet the requirements of Section
401(a) of the Code has been determined, or, as described in Section 3.10 of the
Company Disclosure Schedule, is in the process of being determined by the
Internal Revenue Service to be 'qualified,' within the meaning of such section
of the Code, and the Company knows of no fact which is likely to have an adverse
effect on the qualified status of such plans, including any failure to request a
determination letter from the Internal Revenue Service regarding any such plan's
compliance with the applicable requirements of the Tax Reform Act of 1986 within
the Code Section 401(b) remedial amendment period.
None of the Company Benefit Plans which are defined benefit pension plans
have incurred any 'accumulated funding deficiency' (whether or not waived) as
that term is defined in Section 412 of the Code and, as disclosed in the Coopers
& Lybrand actuarial report dated April 7, 1995 delivered by the Company to the
Buyer prior to the date hereof, the fair market value of the assets of each such
plan equal or exceed the accrued liabilities of such plan. To the best knowledge
of the Company, there are not now nor have there been any non-exempt 'prohibited
transactions,' as such term is defined in Section 4975 of the Code or Section
406 of ERISA, involving the Company's Benefit Plans which could subject the
Company, its subsidiaries or Buyer to the penalty or tax imposed under Section
502(i) of ERISA or Section 4975 of the Code and which would reasonably be
expected to have a Company Material Adverse Effect. Except as set forth in
Section 3.10 of the Company Disclosure Schedule, no Company Benefit Plan which
is subject to Title IV of ERISA has been completely or partially terminated; no
proceedings to completely or partially terminate any Company Benefit Plan have
been instituted by the Pension Benefit Guaranty Corporation under Title IV of
ERISA; and no reportable event within the meaning of Section 4043(c) of ERISA
has occurred with respect to any Company Benefit Plan. Neither the Company nor
any of its subsidiaries has any outstanding liability under Section 4062, 4063
or 4064 of ERISA with respect to any 'single-employer plan', as defined in
Section 4001(a)(15) of ERISA, and, to the best knowledge of the Company, no
event has occurred which could reasonably be expected to result in any such
liability except for any such liability which would not reasonably be expected
to have a Company Material Adverse Effect. Neither the Company nor any of its
subsidiaries has made a complete or partial withdrawal, within the meaning of
Section 4201 of ERISA, from any 'multiemployer plan', as defined in Section
4001(a)(3) of ERISA, which has resulted in, or is reasonably expected to result
in, any withdrawal liability to the Company or any of its subsidiaries except
for any such liability which would not reasonably be expected to have a Company
Material Adverse Effect. Neither the Company nor any of its subsidiaries has
engaged in any transaction described in Section 4069 of ERISA within the last
five years except for any such transaction which would not reasonably be
expected to have a Company Material Adverse Effect. The Company and its
subsidiaries have complied with all requirements of the Worker Adjustment and
Retraining Notification Act and any similar state or local 'plant closing' law
with respect to the employees of the Company and its
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subsidiaries, except for such failures to comply as would not reasonably be
expected to have a Company Material Adverse Effect. Except as disclosed in
Section 3.10 of the Company Disclosure Schedule, neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby will (i) result in any payment becoming due to any current, former or
retired employee of the Company and its subsidiaries, (ii) increase any benefits
otherwise payable under any Company Benefit Plan or (iii) result in the
acceleration of the time for payment or vesting of any benefits under any
Company Benefit Plan.
SECTION 3.11. Compliance with Applicable Laws. Except as disclosed in the
Company SEC Reports filed prior to the date of this Agreement or in Section 3.11
of the Company Disclosure Schedule, the businesses of the Company and its
subsidiaries are not being conducted in violation of any law, ordinance,
regulation, order or writ of any governmental or regulatory authority, domestic
or foreign ('Governmental Entity'), except for possible violations that
individually or in the aggregate do not and would not reasonably be expected to
have a Company Material Adverse Effect. Neither the Company nor any of its
subsidiaries has received notice of violation of any law, ordinance, regulation,
order or writ, or is in default with respect to any order, writ, judgment,
award, injunction or decree of any Governmental Entity, that would affect any of
their respective assets, properties or operations, except for such violations or
defaults as would not, individually or in the aggregate, reasonably be expected
to have a Company Material Adverse Effect. Except as disclosed in Section 3.11
of the Company Disclosure Schedule, no investigation or review by any
Governmental Entity with respect to the Company or any of its subsidiaries (a)
is pending, nor (b) to the knowledge of the Company, (i) is threatened nor (ii)
has any Governmental Entity indicated an intention to conduct the same, other
than those the outcome of which would not reasonably be expected to have a
Company Material Adverse Effect. Section 3.11 of the Company Disclosure Schedule
sets forth a complete and correct list as of the date hereof of all material
filings and correspondence with, reports to, and transcripts of any significant
proceedings (including dates thereof) before, any Governmental Entity since
January 1, 1993.
SECTION 3.12. Taxes.
(a) Each of the Company and the subsidiaries of which it owns 50% or more
of the capital stock (the 'Tax Subsidiaries') has filed all tax returns required
to be filed by any of them and has paid (or the Company has paid on its behalf),
or has set up an adequate reserve for the payment of, all taxes required to be
paid in respect of the periods covered by such returns, except where the failure
to pay would not reasonably be expected to have a Company Material Adverse
Effect. The information contained in such tax returns is true, complete and
accurate in all material respects, except where a failure to be so would not
reasonably be expected to have a Company Material Adverse Effect. Except as
disclosed in Section 3.12 of the Company Disclosure Schedule, neither the
Company nor any Tax Subsidiary is delinquent in the payment of any assessed tax
or other assessed governmental charge, except where such delinquency would not
reasonably be expected to have a Company Material Adverse Effect. Except as
disclosed in Section 3.12 of the Company Disclosure Schedule, no deficiencies
for any taxes have been proposed, asserted or assessed against the Company or
any of its Tax Subsidiaries that have not been finally settled or paid in full,
which would reasonably be expected to have a Company Material Adverse Effect,
and no requests for waivers of the time to assess any such tax are pending.
(b) Neither the Company nor any of its subsidiaries is a party to any
contract or arrangement which would result in an 'excess parachute payment'
within the meaning of Section 280G of the Code as a consequence of the
transactions contemplated hereby, assuming for this purpose satisfaction of the
requirements of Section 280(G)(b)(2)(A)(i) of the Code.
SECTION 3.13. Certain Agreements. Neither the Company nor any of its
subsidiaries is in default (or would be in default with notice or lapse of time,
or both) under, is in violation (or would be in violation with notice or lapse
of time, or both) of, or has otherwise breached, any indenture, note, credit
agreement, loan document, lease, license or other agreement, including, without
limitation, any Significant Agreement (as defined below), whether or not such
default has been waived, which default, alone or in the aggregate with all other
such defaults, would reasonably be expected to have a Company Material Adverse
Effect. Section 3.13(a) of the Company Disclosure Schedule contains a complete
and correct list as of the date hereof of each agreement, contract and
commitment of the following types, written or oral, to which the Company or its
subsidiaries is a party or by which they or any of their assets are bound: (a)
mortgages, indentures, security agreements, guarantees, pledges and other
agreements and instruments relating to the borrowing of money or extension of
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credit; (b) employment, severance and material consulting agreements; (c)
licenses of patent, trademark and other rights relating to any Intellectual
Property (as defined below) and any other licenses, permits and authorizations
relating to the businesses of the Company and its subsidiaries (whether as
licensor or licensee) that involve by their terms a per annum payment in excess
of $100,000 or resulted in a payment obligation in excess of $100,000 in the
calendar year ended December 31, 1995; (d) joint venture or partnership contract
or agreement; and (e) consignment sales contracts and franchise agreements
(whether as franchisor or franchisee) granting the franchisee the privilege to
sell the franchisor's products or services in a specified geographic area ((a)
through (e) collectively, 'Significant Agreements'). Prior to the date hereof,
the Company has delivered or made available to Buyer or its representatives
complete and correct copies of all written Significant Agreements together will
all amendments thereto, and accurate descriptions of all oral Significant
Agreements. Each Significant Agreement is in full force and effect and is
binding upon the Company and, to the Company's knowledge, is binding upon such
other parties, in each case in accordance with its terms. There are no material
unresolved disputes involving the Company or any of its subsidiaries under any
Significant Agreement.
SECTION 3.14. Takeover Provisions Inapplicable. As of the date hereof and
at all times on or prior to the Closing Date, Section 203 of the DGCL is, and
shall be, inapplicable to the transactions contemplated by this Agreement
(including the granting of an irrevocable proxy by Bernstein to Buyer). Section
3.14 of the Company Disclosure Schedule sets forth a complete and correct copy
of the resolutions of the Board of Directors of the Company to the effect that
such section of the DGCL is, and shall be, inapplicable to the transactions
contemplated by this Agreement.
SECTION 3.15. Company Action. The Board of Directors of the Company (at a
meeting duly called and held) has by unanimous vote of the directors (i)
determined that the transactions that are the subject of the Company Voting
Matters (as defined in Section 5.3 hereof) are advisable and in the best
interests of the Company and its stockholders, (ii) recommended the approval of
this Agreement, the transactions that are the subject of the Company Voting
Matters and the other matters to be voted upon at the Company Meeting as
contemplated hereby by the holders of the Company Common Stock and directed that
the transactions that are the subject of the Company Voting Matters and the
other matters to be voted upon at the Company Meeting as contemplated hereby be
submitted for consideration by the Company's stockholders at the Company
Meeting, and (iii) adopted a resolution having the effect of causing the Company
not to be subject, to the extent permitted by applicable law, to any state
takeover law that may purport to be applicable to the transactions contemplated
by this Agreement.
SECTION 3.16. Fairness Opinions. The Company has received, and has
furnished the Buyer with a complete and correct copy of, the written opinion of
each of Bear, Stearns & Co. Inc. ('Bear Stearns') and Jefferies & Company, Inc.
('Jefferies'), the financial advisors to the Company, dated the date hereof, to
the effect that the consideration to be received by the Company for the New
Preferred Shares and the Warrant is fair to the Company from a financial point
of view, and such opinions have not been withdrawn or otherwise modified.
SECTION 3.17. Financial Advisors; Expenses.
(a) Except for Bear Stearns and Jefferies, a complete and correct copy of
the engagement letter between each of whom and the Company has been furnished to
Buyer, no broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company.
(b) The fees, costs and expenses (including without limitation, all
attorneys' and accountants' fees and expenses but excluding the fees, costs and
expenses incurred by Buyer and its affiliates) incurred through the date hereof
by each of the Company and its subsidiaries, any committees of the Company's
Board of Directors and Bernstein in connection with the transactions
contemplated hereby, including, without limitation, all severance and related
costs, consulting fees, payments made for non-compete agreements and all fees
and commissions (including expenses) payable to Bear Stearns and Jefferies, as
well as a good faith projection of all such fees, costs and expenses that will
be incurred by each such party from the date hereof through the Closing Date,
are set forth in reasonable detail on Section 3.17 of the Company Disclosure
Schedule.
SECTION 3.18. Title to Property. Except as set forth on Section 3.18 of
the Company Disclosure Schedule, the Company and its subsidiaries have good,
marketable and unencumbered title, or valid leasehold
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rights in the case of leased property, to all real property and all personal
property purported to be owned or leased by them or that is required for the
conduct of the businesses of the Company or its subsidiaries as presently
conducted, free and clear of all liens, security interests, claims, encumbrances
and charges, excluding (i) liens for fees, taxes, levies, duties or governmental
charges of any kind that are not yet delinquent or are being contested in good
faith by appropriate proceedings which suspend the collection thereof, (ii)
liens for mechanics, materialmen, laborers, employees, suppliers or other liens
arising by operation of law for sums which are not yet delinquent or are being
contested in good faith by appropriate proceedings, (iii) easements and similar
encumbrances ordinarily created for fuller utilization and enjoyment of
property, and (iv) liens or defects in title or leasehold rights that, in the
aggregate, do not and would not reasonably be expected to have a Company
Material Adverse Effect.
SECTION 3.19. Intellectual Property. The Companies own or possess
adequate licenses or other valid rights to use all patents, patent rights,
copyrights, service marks, service mark rights, trademarks, trademark rights,
trade names, trade name rights, proprietary characters and products (or any
likeness or other attribute thereof) and proprietary information used or held
for use in connection with the businesses of the Company and its subsidiaries
(collectively, the 'Intellectual Property') as currently being conducted and are
unaware of any assertions or claims challenging the validity of any of the
foregoing that, individually or in the aggregate, would reasonably be expected
to have a Company Material Adverse Effect; and the conduct of the businesses of
the Company and its subsidiaries as now conducted or now proposed to be
conducted by the Company does not and will not conflict with any patents, patent
rights, copyrights, service marks, service mark rights, licenses, trademarks,
trademark rights, trade names, trade name rights or copyrights of others in any
way that would reasonably be expected to have a Company Material Adverse Effect.
No known existing infringement of any proprietary right owned by or licensed by
or to the Company and its subsidiaries would reasonably be expected to have a
Company Material Adverse Effect. Other than as set forth in the Company SEC
Reports or Section 3.19 of the Company Disclosure Schedule, neither the Company
nor any of its subsidiaries, since January 1, 1993, has transferred, assigned,
hypothecated or otherwise disposed of any rights to use, produce, market or in
any way exploit through any electronic medium (including computer software) any
Intellectual Property. Except as set forth in Section 3.19 of the Company
Disclosure Schedule, neither the Company nor any of its subsidiaries, orally or
in writing, has assigned, transferred, hypothecated or otherwise disposed of (or
agreed to do any of the foregoing) any of its rights with respect to any
Intellectual Property to any affiliates of the Company, or any officers,
directors or affiliates of any officers or directors of the Company, except to
wholly owned subsidiaries of the Company or the Company.
SECTION 3.20. Licenses, Permits and Authorizations. No license, permit or
authorization that is currently held by the Company or any of its subsidiaries
with respect to the businesses of the Company and its subsidiaries, or which is
required for the conduct of the businesses of the Company or its subsidiaries as
presently conducted, is subject to any restriction or condition that limits in
any material respect the businesses of the Company and its subsidiaries as
presently conducted, and there are no applications by the Company or any of its
subsidiaries with respect to any material aspect of the businesses of the
Company or its subsidiaries, or complaints by other persons or entities pending
or threatened as of the date hereof before any Governmental Entity relating to
any material licenses, permits or authorizations applicable to the businesses of
the Company or its subsidiaries, where such complaints have or would reasonably
be expected to have a Company Material Adverse Effect. The Company has provided
the Buyer or its representatives with copies of all material licenses, permits,
and authorizations that are currently held by the Company or any of its
subsidiaries. Except as set forth on Section 3.20 of the Company Disclosure
Schedule, no consents or approvals of a Governmental Entity are necessary for
the material licenses, permits and authorizations of the Companies to continue
in full force and effect following consummation of the transactions contemplated
by this Agreement.
SECTION 3.21. Insurance. The insurance policies in force at the date
hereof, with respect to the assets, properties or operations of each of the
Company and its subsidiaries are in full force and effect with reputable
insurers in such amounts and insure against such losses and risks (including
product liability) as are consistent with historical practices and customary to
protect the properties and businesses of the Company and its subsidiaries.
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SECTION 3.22. Environment.
(a) As used herein, the term 'Environmental Laws' means all federal, state,
local or foreign laws relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants, contaminants, or industrial, toxic or hazardous
substances or wastes into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of chemicals, pollutants, contaminants, or industrial,
toxic or hazardous substances or wastes, as well as all authorizations, codes,
decrees, demands or demand letters, injunctions, judgments, licenses, notices or
notice letters, orders, permits, plans or regulations issued, entered,
promulgated or approved thereunder.
(b) Except as disclosed on Section 3.22 of the Company Disclosure Schedule
or in the Company SEC Reports, there are, with respect to the Company and its
subsidiaries, and all real property currently or formerly owned, leased, or
otherwise used by the Company or its subsidiaries, no past or present violations
of Environmental Laws, releases of any material into the environment, actions,
activities, circumstances, conditions, events, incidents, or contractual
obligations which may give rise to any common law or other legal liability,
including, without limitation, liability under the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980 ('CERCLA') or similar state or
local laws, which liabilities, either individually or in the aggregate, would
have a Company Material Adverse Effect. Except as disclosed on Schedule 3.22
hereto or in the Company SEC Reports, to the knowledge of the Company, there
have been and are no (i) polychlorinated biphenyls, (ii) underground storage
tanks, or (iii) asbestos-containing materials located on, under, or in any
portion of real property currently or formerly owned, leased, or otherwise used
by the Company or its subsidiaries.
(c) The Company has provided to Buyer all environmental studies and reports
pertaining to the previous and current real property and the improvements
thereon of the Company and its subsidiaries that they are aware of, have
commissioned or have in their possession. To the knowledge of the Company and
its subsidiaries, the information furnished by the Company to Willkie Farr &
Gallagher under cover of a letter dated December 14, 1995 is true and correct in
all material respects, and there is no environmental condition or noncompliance
that has resulted in, or would reasonably be expected to result in, a Company
Material Adverse Effect.
SECTION 3.23. Related Party Transactions. Section 3.23(a) of the Company
Disclosure Schedule and the Company SEC Reports together set forth the
transactions and agreements (whether oral or written) during the past five years
between the Company and its subsidiaries on the one hand, and (i) any employee,
officer or director of the Companies, (ii) a record or beneficial owner of five
percent (5%) or more of Company Common Stock, or (iii) any affiliate of any such
employee, officer, director or beneficial owner, on the other hand, other than
payment of employee compensation. Except as disclosed in the Company SEC Reports
or in Section 3.23(a) of the Company Disclosure Schedule, during the past three
years no employee, officer or director of the Companies, or any spouse or
relative of any of such persons, has been a director or officer of, or has had
any direct or indirect interest in, any firm, corporation, association or
business enterprise which during such period has been a supplier, customer,
sales agent, or licensor or licensee of real or personal property or
Intellectual Property, of the Company or any of its subsidiaries or has competed
with or been engaged in any business of the kind being conducted by the
businesses of the Company and its subsidiaries.
SECTION 3.24. No Company Material Adverse Effect. Except as disclosed in
the Company SEC Reports filed prior to the date hereof or in Section 3.24 or any
other Section of the Company Disclosure Schedule, there does not exist any fact
or circumstance which, alone or together with another fact or circumstance,
would reasonably be expected to result in a Company Material Adverse Effect.
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ARTICLE IV.
CONDUCT OF BUSINESS PENDING THE SALE AND PURCHASE
SECTION 4.1. Conduct of Business by the Company. From the date hereof
through the Closing Date, unless either Buyer or Richard E. Snyder ('Snyder')
shall otherwise agree in writing:
(i) the Company shall, and shall cause its subsidiaries to, carry on
their respective businesses in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted, and shall, and shall
cause its subsidiaries to, use their best efforts to preserve intact their
present business organizations, keep available the services of their
present officers and employees and preserve their relationships with
customers, suppliers and others having business dealings with them to the
end that their goodwill and on-going businesses shall be unimpaired on the
Closing Date, except such impairment as would not reasonably be expected to
have a Company Material Adverse Effect. The Company shall, and shall cause
its subsidiaries to, (A) maintain insurance coverages and its books and
records in a manner consistent with prior practices, (B) comply in all
material respects with all laws, ordinances and regulations of Governmental
Entities applicable to the Company and its subsidiaries, (C) maintain and
keep its properties and equipment in good repair, working order and
condition, ordinary wear and tear excepted, and (D) perform in all material
respects its obligations under all contracts and commitments to which it is
a party or by which it is bound, except in each case where the failure to
so maintain, comply or perform, either individually or in the aggregate,
would not reasonably be expected to result in a Company Material Adverse
Effect;
(ii) the Company shall not, nor shall it propose to, except as
required by this Agreement, (A) sell or pledge or agree to sell or pledge
any capital stock owned by it in any of its subsidiaries, (B) amend its
Certificate of Incorporation or By-laws, (C) split, combine or reclassify
its outstanding capital stock or issue or authorize or propose the issuance
of any other securities in respect of, in lieu of or in substitution for
shares of the capital stock, or, except as contemplated by this Agreement,
declare, set aside or pay any dividend or other distribution payable in
cash, stock or property (other than dividends payable on the Company
Preferred Stock, to the extent otherwise permitted), or (D) directly or
indirectly redeem, purchase or otherwise acquire or agree to redeem,
purchase or otherwise acquire any shares of its capital stock, except as
contemplated by this Agreement or except pursuant to (x) the exercise of
rights granted to such party to repurchase shares of its capital stock from
employees upon termination of employment or (y) contractual obligations
arising under agreements existing on the date hereof and disclosed in the
Company Disclosure Schedule;
(iii) the Company shall not, nor shall it permit any of its
subsidiaries to, (A) except as required by this Agreement, issue, deliver
or sell or agree to issue, deliver or sell any additional shares of, or
stock appreciation rights or rights of any kind to acquire any shares of,
its capital stock of any class, or any option, rights or warrants to
acquire, or securities convertible into, shares of capital stock other than
(x) issuances of Company Common Stock pursuant to the exercise of warrants
or stock options outstanding on the date hereof and disclosed on Section
4.1(iii) of the Company Disclosure Schedule, or (y) the grant of employee
stock options and the issuance of Company Common Stock upon exercise
thereof, at fair market value at the time of grant of the options, in each
case in the ordinary course of business and consistent with past practice,
to employees (other than Richard A. Bernstein, James A. Cohen, Ilan K.
Reich, Steven M. Grossman and Ira A. Gomberg (collectively, the 'Excluded
Employees')), provided that such employees are not affiliates or immediate
family members of Excluded Employees, and provided further that the sum of
the number of shares of Company Common Stock issuable upon exercise of all
employee stock options outstanding on the date hereof and the aggregate
number of such options granted pursuant to this clause (y) shall not exceed
the sum of 1,874,300 and such number of options outstanding on the date
hereof that expire or are canceled (but not exercised) after the date
hereof, (B) except for the sale of the facility located in Fayetteville,
North Carolina, acquire, lease or dispose or agree to acquire, lease or
dispose of any capital assets or any other assets other than in the
ordinary course of business, (C) incur additional indebtedness or encumber
or grant a security interest in any asset or enter into any transaction
other than in the ordinary course of business, (D) incur any liability or
obligation, or contribute any asset, to a subsidiary of the Company other
than in the ordinary course of business, (E) acquire or agree to acquire by
merging or consolidating with, or by purchasing a substantial equity
interest in, or by any other manner, any business or any corporation,
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partnership, association or other business organization or division
thereof, in each case in this clause (E) which are material, individually
or in the aggregate, to the Company and its subsidiaries taken as a whole,
or (F) adopt, enter into, amend or terminate any contract, agreement,
commitment or arrangement with respect to any of the foregoing that is not
otherwise permitted by the exceptions applicable to the foregoing;
(iv) the Company shall not, nor shall it permit any of its
subsidiaries to, except as required to comply with applicable law, (A)
except as set forth in Section 4.1(iv) of the Company Disclosure Schedule,
adopt, enter into, terminate or amend any bonus, profit sharing,
compensation, severance, termination, stock option, pension, retirement,
deferred compensation, employment or other Company Benefit Plan agreement,
trust, fund or other arrangement for the benefit or welfare of any
director, officer or current or former employee, (B) increase in any manner
the compensation or fringe benefits of any director, officer or employee
(except for normal increases in the ordinary course of business that are
consistent with past practice and that, in the aggregate, do not result in
a material increase in benefits or compensation expense to such party and
its subsidiaries relative to the level in effect prior to such increase),
(C) pay any benefit not provided under any Company Benefit Plan disclosed
to Buyer in Section 3.9(a) of the Company Disclosure Schedule or any
employee benefit or compensation plan or agreement of the Company or any of
its subsidiaries which, by its terms, is not required to be disclosed
therein, in each case, that is in existence on the date hereof, provided
that the aggregate amount of bonuses under the Company's Management
Incentive Plan, which is the only bonus plan for the Excluded Employees,
paid pursuant to this clause (C) to Excluded Employees shall not exceed
$375,000, (D) except for benefits that have already been earned or vested
without acceleration, grant any awards or make any payments under any
bonus, incentive, performance or other compensation plan or arrangement or
Company Benefit Plan (including, without limitation, the grant of stock
options, stock appreciation rights, stock based or stock related awards,
performance units or restricted stock, or the removal of existing
restrictions in any benefit plans or agreements or awards made thereunder),
except for (x) making of matching and annual contributions to 401(k) plans
and (y) the grant of employee stock options (and the issuance of Company
Common Stock upon exercise thereof), at fair market value at the time of
grant of the options, to employees (other than Excluded Employees),
provided that such employees are not affiliates or immediate family members
of Excluded Employees, and provided further that the sum of the number of
shares of Company Common Stock issuable upon exercise of all employee stock
options outstanding on the date hereof and the aggregate number of such
options granted pursuant to this clause (y) shall not exceed the sum of
1,874,300 and such number of options outstanding on the date hereof that
expire or are canceled (but not exercised) after the date hereof, in the
case of each of clause (x) and (y), in the ordinary course of business and
consistent with past practice, (E) take any action to fund or in any other
way secure the payment of compensation or benefits under any employee plan,
agreement, contract or arrangement or Company Benefit Plan, other than in
the ordinary course of business consistent with past practice, or (F)
adopt, enter into, amend or terminate any contract, agreement, commitment
or arrangement to do any of the foregoing that is not otherwise permitted
by the exceptions applicable to the foregoing;
(v) the Company shall not, nor shall it permit any of its subsidiaries
to, make any investments in non-investment grade securities;
(vi) the Company shall not, nor shall it permit its subsidiaries to
make any change in its accounting policies or procedures except as required
under statutory accounting practices or GAAP, as applicable;
(vii) the Company shall use its best reasonable efforts to refrain
from taking, nor shall it permit any of its subsidiaries to take, any
action that would, or reasonably might be expected to, result in any of its
representations and warranties set forth in this Agreement being or
becoming untrue in any material respect, or in any of the conditions set
forth in Article VI not being satisfied, or (unless such action is required
by applicable law) which would adversely affect the ability of the Company
to obtain any of the regulatory approvals required to consummate the
transactions contemplated hereby;
(viii) the Company shall use its best efforts to maintain in full
force and effect each of the Significant Agreements;
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(ix) the Company shall not terminate or materially modify the
employment arrangements of Snyder, including the employment agreement,
dated as of even date herewith, between the Company and Snyder, other than
for cause (as defined in the 1/31/96 draft of the employment agreement to
be entered into between the Company and Snyder on the Closing Date); and
(x) the Company shall not enter into any agreement to perform any of
the actions prohibited under this Section 4.1 and not otherwise permitted
by the exceptions contained therein.
SECTION 4.2. Notice of Breach. Each party shall promptly give written
notice to the other party upon becoming aware of the occurrence or, to its
knowledge, impending or threatened occurrence, of any event which would cause
any of its representations or warranties to be untrue on the Closing Date or
cause a material breach of any covenant contained or referenced in this
Agreement and will use its best reasonable efforts to prevent or promptly remedy
the same. Any such notification shall not be deemed an amendment of the Company
Disclosure Schedule or the Buyer Disclosure Schedule.
ARTICLE V.
ADDITIONAL AGREEMENTS
SECTION 5.1. Access and Information. The Company and its subsidiaries
shall afford to Buyer and to Buyer's accountants, counsel and other
representatives full access during normal business hours (and at such other
times as the parties may mutually agree) throughout the period prior to the
Closing to all of its properties, books, contracts, commitments, records and
personnel and, during such period, the Company shall furnish promptly to Buyer a
copy of (i) each report, schedule and other document filed or received by it
pursuant to the requirements of federal or state securities laws, and (ii)
monthly financial statements and all other information concerning its business,
properties and personnel as the Buyer or its representatives may reasonably
request. Buyer shall hold, and shall cause its employees and agents to hold, in
confidence all such information in accordance with the terms of the
Confidentiality Agreement, dated May 19, 1995, between Buyer, Snyder and the
Company (the 'Confidentiality Agreement').
SECTION 5.2. Company Proxy Statement.
(a) As promptly as practicable after the execution of this Agreement, the
Company shall prepare and file with the Commission preliminary proxy materials
which shall constitute the preliminary Company Proxy Statement. Buyer shall
furnish to the Company such information regarding Buyer as the Company may
reasonably request in writing and as shall be reasonably required in connection
with preparation of the Company Proxy Statement. As promptly as practicable
after comments are received from the Commission with respect to such preliminary
materials and after the furnishing by the Company of all information required to
be contained therein, the Company shall file with the Commission the definitive
Company Proxy Statement.
The Company shall mail the foregoing to its stockholders as promptly as
practicable after clearance by the Commission. The Company shall provide Buyer
for its review a copy of the preliminary and the final Company Proxy Statement
at least such amount of time prior to its filing and mailing as is customary in
transactions of the type contemplated hereby and shall not file or mail such
Company Proxy Statement without the prior written consent of Buyer, which
consent shall not be unreasonably withheld or delayed.
(b) The Company shall retain the services of a proxy soliciting firm
mutually acceptable to Buyer and the Company for the purpose of communicating to
the Company's stockholders the recommendation of the Company's Board of
Directors in favor of the transactions contemplated hereby and of seeking to
obtain sufficient votes to satisfy the requirements of Section 5.3 and of
applicable law for the completion of the transactions contemplated hereby.
(c) Buyer and the Company shall make all necessary filings applicable to it
with respect to the transactions contemplated hereby under the Securities Act
and the Exchange Act and the rules and regulations thereunder and under
applicable Blue Sky or similar securities laws and shall use its best reasonable
efforts to obtain required approvals and clearances with respect thereto.
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SECTION 5.3. Stockholders' Meeting. The Company shall take all action
necessary, in accordance with applicable law, including the rules and
regulations of the National Association of Securities Dealers, Inc., and the
Company's Certificate of Incorporation and By-laws, to convene a meeting of the
holders of Company Common Stock (the 'Company Meeting') as promptly as
practicable for the purpose of considering and taking action to authorize this
Agreement and the transactions contemplated hereby, including the transactions
contemplated by Section 6.1(d) hereof and (subject to the consummation of the
transactions contemplated hereby) the election as directors of the Company of
the individuals set forth on Schedule 5.9 hereof (collectively, the 'Company
Voting Matters'), as well as amendments to the Restated Certificate of
Incorporation of the Company changing the name of the Company to 'Golden Books
Family Entertainment, Inc.' and increasing the authorized number of shares of
Company Common Stock from 40,000,000 to 60,000,000 and the authorized number of
shares of preferred stock from 100,000 to 200,000. Subject to its fiduciary
duties as advised by outside counsel in connection with the receipt by the
Company of a Business Combination Proposal (as defined in Section 5.6) that the
Board of Directors of the Company reasonably believes is likely to result in a
Superior Proposal (as defined in Section 5.6), the Board of Directors of the
Company will recommend that holders of Company Common Stock vote in favor of and
approve the Company Voting Matters and the other matters described above at the
Company Meeting. At the Company Meeting, all of the shares of Company Common
Stock then owned by Buyer, each member thereof, any affiliates of any member
(other than of Warburg, Pincus Ventures, L.P. ('WPV')) and the general
partnership that acts as a general partner of WPV, or with respect to which such
persons or entities hold the power to direct the voting, will be voted in favor
of the Company Voting Matters and the other matters described above. Prior to
Closing, the Company shall take all actions necessary to permit the change of
the name of the Company as contemplated above, including changing the name of
any subsidiary of the Company that presently has the desired name and reserving
the desired name with the Secretary of State of the State of Delaware.
SECTION 5.4. HSR Act. The Company and Buyer shall use their reasonable
best efforts to file as soon as practicable notifications under the HSR Act in
connection with the transactions contemplated hereby, and to respond as promptly
as practicable to any inquiries received from the Federal Trade Commission and
the Antitrust Division of the Department of Justice for additional information
or documentation and to respond as promptly as practicable to all inquiries and
requests received from any State Attorney General or other governmental
authority in connection with antitrust matters relating to the transactions
contemplated by this Agreement.
SECTION 5.5. Additional Agreements.
(a) Subject to the terms and conditions herein provided, each of the
parties hereto agrees to cooperate with each other and use its best reasonable
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including using its best reasonable efforts to obtain all
necessary waivers, consents and approvals, and to effect all necessary
registrations and filings (including, but not limited to, filings under the HSR
Act and with all applicable Governmental Entities).
(b) In case at any time after the Closing any further action is necessary
or desirable to carry out the purposes of this Agreement, Buyer and the Company
shall take all such necessary action.
SECTION 5.6. No Solicitation.
(a) Except as contemplated by this Agreement, the Company shall not, nor
shall any of its subsidiaries, directly or indirectly, take (nor shall the
Company authorize or permit its subsidiaries, officers, directors, employees,
representatives, investment bankers, attorneys, accountants or other agents or
affiliates, to take) any action to (i) solicit or initiate the submission of any
Business Combination Proposal (as defined below), (ii) enter into any agreement
with respect to any Business Combination Proposal or (iii) participate in any
way in discussions or negotiations with, or furnish any information to, any
person or entity in connection with, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Business Combination Proposal; provided, however, that
(A) the Company may participate in discussions or negotiations with or furnish
information to any Third Party (as defined in Section 8.3(b)) which makes an
unsolicited proposal of a transaction which the Board of Directors of the
Company reasonably believes is likely to result in a Superior Proposal (as
defined below) and (B) the Company may
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recommend to its shareholders a Business Combination Proposal which it has
reasonably determined is likely to result in a Superior Proposal. For purposes
of this Agreement, 'Business Combination Proposal' shall mean, with respect to
the Company, any tender or exchange offer, proposal for a merger, consolidation
or other series of related transactions in a business combination involving the
Company or any Subsidiary of the Company or any other proposal or offer to enter
into a Third Party Business Combination (as defined in Section 8.3(b)), and
'Superior Proposal' shall mean, with respect to the Company, any Business
Combination Proposal pursuant to which a Third Party would, or would have the
right to, acquire more than 25% of the outstanding voting capital stock of the
Company and which the Board of Directors of the Company reasonably determines,
based upon advice of its financial advisors, is financially superior than the
transactions contemplated hereby and is likely to be consummated.
(b) In addition to the obligations of the Company set forth in Section
5.6(a), the Company shall promptly advise Buyer of any request for information
or of any Business Combination Proposal, or any inquiry with respect to or which
appears to be intended to or could reasonably be expected to lead to any
Business Combination Proposal, the material terms and conditions of such
request, Business Combination Proposal or inquiry, and the identity of the
person or entity making any such request, Business Combination Proposal or
inquiry. The Company shall keep Buyer fully informed of the status and details
of any such request, Business Combination Proposal or inquiry and shall promptly
furnish Buyer a copy of any written proposal in connection therewith.
SECTION 5.7. Transfer Restriction. Until the earlier to occur of (i) the
second anniversary of the issuance of the Warrant and (ii) the date on which a
bona fide Business Combination Proposal is publicly announced or a proxy
solicitation for control of the Company's Board of Directors is initiated by any
person or entity (other than Buyer, each member thereof, any affiliates of such
members (other than of WPV) and the general partnership that acts as a general
partner of WPV), Buyer shall not sell, transfer or assign the Warrant other than
to any members of Buyer or to any affiliate of Buyer or such members.
SECTION 5.8. Director and Officer Indemnification and Insurance. From the
date hereof through the third anniversary of the Closing Date and for so long as
any claim asserted prior to such date has not been fully adjudicated by a court
of competent jurisdiction, the Company (i) shall at all times maintain liability
insurance coverage with respect to each of the Company's and its subsidiaries'
respective current and former directors and officers and persons serving in a
fiduciary capacity at the direction of the board of directors or of any officer
of the Company or any of its subsidiaries (at least to the extent covered by the
current Company liability insurance policies), insuring each such individual
against liability for their actions in such capacities occurring prior to the
Closing and in scope of coverage and in amounts and having deductibles at least
equivalent to that maintained by the Company on the date hereof and otherwise
reasonably comparable to the coverage maintained by the Company on the date
hereof and (ii) shall not amend or modify any of the provisions of Article Eight
of the Company's Restated Certificate of Incorporation or Article 6 of the
Company's By-laws in any manner that would adversely affect such individuals,
unless required by law.
SECTION 5.9. Board of Directors. The individuals set forth on Schedule
5.9 hereto (the 'Continuing Directors'), subject to their election at the
Company Meeting by the holders of Company Common Stock as contemplated by
Section 5.3 and to the applicable provisions of the Restated Certificate of
Incorporation and By-laws of the Company, shall be the directors of the Company
until their respective successors shall be duly elected or appointed and
qualified. A majority of the Continuing Directors set forth on Schedule 5.9
shall be designated by Buyer (the 'Designated Directors'). Schedule 5.9 will be
provided subsequent to the date hereof but prior to the filing of the
preliminary Company Proxy Statement, and the Designated Directors set forth
thereon shall be approved by the Company's Board of Directors, subject only to
their fiduciary duties.
SECTION 5.10. Redemption of Company Preferred Stock. Effective upon the
Closing, the Company shall duly cause all of the shares of the Company Preferred
Stock then outstanding to be redeemed for cash, including payment of all
accumulated and unpaid dividends thereon, pursuant to the terms of the Company's
Restated Certificate of Incorporation.
SECTION 5.11. Expenses. The expenses incurred (or to be incurred) by the
Company or its subsidiaries at any time from the commencement of discussions
among the parties hereto and their representatives in connection with the
transactions contemplated hereby (including, without limitation, the proposed
transactions
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that ultimately evolved into the transactions contemplated hereby) through the
Closing Date relating to (i) severance and related costs in respect of employees
located at 444 Madison Avenue and payments made for non-compete agreements and
all fees and commissions (including expenses) payable to Bear Stearns and
Jefferies and (ii) any independent committees of the Company's Board of
Directors, shall not exceed $3,925,000 in the aggregate.
SECTION 5.12. Related Party Transactions. Except as set forth in Section
5.12 of the Company Disclosure Schedule, any and all transactions set forth in
Section 3.23 of the Company Disclosure Schedule between the Company or any of
its subsidiaries and any of the persons or entities described in clauses (i),
(ii) and (iii) of Section 3.23 shall be canceled by the Closing Date such that
the Company and its subsidiaries will have no rights to any assets or properties
of such persons or entities or obligations whatsoever with respect to such
transactions, and such other persons or entities will have no rights to any
assets or property (including Intellectual Property) of the Company or any of
its subsidiaries or obligations whatsoever with respect to such transactions.
SECTION 5.13. Moore Termination. The Company shall deliver to Buyer prior
to the Closing Date copies of written agreements duly executed by the Company
(or the appropriate subsidiary of the Company) and Moore, in form and substance
reasonably satisfactory to Buyer, implementing the terms of the termination of
Moore as described in Section 3.9(c) of the Company Disclosure Schedule.
ARTICLE VI.
CONDITIONS PRECEDENT
SECTION 6.1. Conditions to Each Party's Obligation to Effect the Sale and
Purchase. The respective obligations of each party to effect the transactions
contemplated by this Agreement shall be subject to the satisfaction on or prior
to the Closing Date of the following conditions, any one or more of which may be
waived in a writing executed by Buyer and the Company subject to and in
accordance with Section 7.4 hereof:
(a) This Agreement and the other Company Voting Matters shall have
been approved and adopted by the requisite vote of the holders of the
Company Common Stock.
(b) The waiting period applicable to the consummation of the sale and
purchase of the New Preferred Shares under the HSR Act shall have expired
or been terminated.
(c) No preliminary or permanent injunction or other order by any
federal or state court in the United States which prevents the consummation
of the transactions contemplated hereby shall have been issued and remain
in effect, and no other legal proceedings, challenge or litigation
challenging the legality of or threatening the consummation of, or
otherwise arising out of, the transactions contemplated hereby or seeking
an injunction in order to prevent the consummation of the transactions
contemplated hereby shall be pending.
(d) The amendments to the Stock Option Plan adopted by the Company's
Board of Directors on the date hereof and the Company's Incentive Bonus
Plan in the form delivered to Buyer on the date hereof shall have been
approved by the Company's Board of Directors (and such approval shall not
have been modified or rescinded) and by the requisite vote of the holders
of Company Common Stock in a manner that complies with the requirements of
Rule 16b-3 of the Exchange Act and Section 162(m) of the Code.
SECTION 6.2. Conditions to Obligation of the Company to Effect the Sale
and Purchase. The obligation of the Company to effect the transactions
contemplated by this Agreement shall be subject to the satisfaction on or prior
to the Closing Date of the additional following conditions, unless waived in
writing by the Company in accordance with Section 7.4 hereof:
(a) Buyer shall have performed in all material respects its agreements
contained in this Agreement required to be performed on or prior to the
Closing Date, and the representations and warranties of Buyer contained in
this Agreement shall be true in all respects when made and on and as of the
Closing Date as if made on and as of such date (except to the extent they
are expressly made as of another specific date and except if any breaches
of such representations and warranties have not, in the aggregate, resulted
in, and would not reasonably be expected to result in, a Buyer Material
Adverse Effect), and the Company shall
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have received, on behalf of Buyer, a certificate executed by an authorized
member of Buyer to that effect. For purposes of this Section 6.2(a), all
representation and warranties qualified by materiality shall not be deemed
to be so qualified.
(b) All permits, consents, authorizations, approvals, registrations,
qualifications, designations and declarations set forth in Section 2.2 of
the Buyer Disclosure Schedule shall have been obtained, and, to the extent
required to be submitted prior to the Closing, all filings and notices set
forth in Section 2.2 of the Buyer Disclosure Schedule shall have been
submitted by Buyer.
(c) The Company shall have received an opinion of Willkie Farr &
Gallagher relating to certain matters set forth in Article II,
substantially in the form of Exhibit D attached hereto.
SECTION 6.3. Conditions to Obligations of Buyer to Effect the Sale and
Purchase. The obligations of Buyer to effect the transactions contemplated by
this Agreement shall be subject to the satisfaction on or prior to the Closing
Date of the additional following conditions, unless waived in writing by Buyer
in accordance with Section 7.4 hereof:
(a) The Company shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior
to the Closing Date, and the representations and warranties of the Company
contained in this Agreement shall be true in all respects when made and on
and as of the Closing Date as if made on and as of such date (except to the
extent they are expressly made as of another specific date and except if
any breaches of such representations and warranties have not, in the
aggregate, resulted in, and would not reasonably be expected to result in,
a Company Material Adverse Effect) and Buyer shall have received a
certificate executed by the Chief Executive Officer and the Chief Financial
Officer of the Company on behalf of the Company to that effect. For
purposes of this Section 6.3(a), all representation and warranties
qualified by materiality shall not be deemed to be so qualified.
(b) All permits, consents, authorizations, approvals, registrations,
qualifications, designations and declarations set forth in Sections 3.4 and
6.3(b) of the Company Disclosure Schedule shall have been obtained and, to
the extent required to be submitted prior to the Closing, all filings and
notices set forth in Sections 3.4 and 6.3(b) of the Company Disclosure
Schedule shall have been submitted by the Company.
(c) Neither the Board of Directors of the Company nor any committee
thereof shall have amended, modified, rescinded or repealed the
recommendation of the Company's Board of Directors to the stockholders of
the Company to approve the adoption of this Agreement, and neither the
Board of Directors of the Company nor any committee thereof shall have
adopted any other resolutions in connection with this Agreement and the
transactions contemplated hereby inconsistent with such recommendation of
the consummation of the transactions contemplated hereby.
(d) The Registration Rights Agreement shall have been entered into by
the Company.
(e) Buyer shall have received opinions from Milbank, Tweed, Hadley &
McCloy, substantially in the form of Exhibit E attached hereto.
(f) The Irrevocable Proxies, dated as of even date herewith, between
Buyer and each of Bernstein and certain of his affiliates (the 'Irrevocable
Proxies') shall be in full force and effect and no representation,
warranty, covenant or agreement set forth therein shall have been breached
in any material respect on the part of Bernstein or any of his affiliates,
as the case may be.
ARTICLE VII.
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1. Termination. This Agreement may be terminated at any time
prior to the Closing, whether before or after approval of the Company Voting
Matters by the stockholders of the Company:
(a) by mutual consent of the members of Buyer and the Board of
Directors of the Company;
(b) by either Buyer or the Company if the transactions contemplated by
this Agreement shall not have been consummated on or before May 22, 1996
(provided the terminating party is not otherwise (i) in material breach of
its covenants or agreements under this Agreement or (ii) in breach
(determined without regard to any materiality qualifier therein) of its
representations and warranties contained in this Agreement such that such
breaches of representations and warranties, in the aggregate, have
resulted, or would
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reasonably be expected to result in (A) if Buyer is the terminating party,
a Buyer Material Adverse Effect or (B) if the Company is the terminating
party, a Company Material Adverse Effect);
(c) by the Company if any of the conditions specified in Sections 6.1
or 6.2 have not been met or waived by the Company at such time as such
condition is no longer capable of satisfaction, including the failure to
obtain any required approval of the Company Voting Matters at a duly held
meeting of stockholders or at an adjournment thereof (provided the Company
is not otherwise (i) in material breach of its covenants or agreements
under this Agreement or (ii) in breach (determined without regard to any
materiality qualifier therein) of its representations and warranties
contained in this Agreement such that such breaches of representations and
warranties, in the aggregate, have resulted, or would reasonably be
expected to result in, a Company Material Adverse Effect, and provided
further that the failure to obtain such approval is not due to a breach by
Bernstein or any of his affiliates of their respective obligations under
the Irrevocable Proxies);
(d) by Buyer if any of the conditions specified in Sections 6.1 or 6.3
have not been met or waived by Buyer at such time as such condition is no
longer capable of satisfaction, including the failure to obtain any
required approval of the Company's stockholders at the Company Meeting or
at an adjournment thereof (provided Buyer is not otherwise (i) in material
breach of its covenants or agreements under this Agreement or (ii) in
breach (determined without regard to any materiality qualifier therein) of
its representations and warranties contained in this Agreement such that
such breaches of representations and warranties, in the aggregate, have
resulted, or would reasonably be expected to result in, a Buyer Material
Adverse Effect);
(e) by either Buyer or the Company if there has been a breach on the
part of the other of any of (i) its covenants or agreements under this
Agreement in a material respect or (ii) its representations and warranties
contained in this Agreement (determined without regard to any materiality
qualifier therein) such that such breaches of representations and
warranties, in the aggregate, have resulted, or would reasonably be
expected to result in, (A) if Buyer is the terminating party, a Company
Material Adverse Effect or (B) if the Company is the terminating party, a
Buyer Material Adverse Effect), or by Buyer if there has been a material
breach on the part of Bernstein or any of his affiliates of any
representation, warranty, covenant or agreement set forth in any of the
Irrevocable Proxies, which breach has not been cured within fifteen
business days following receipt by the breaching party of written notice of
such breach;
(f) by either Buyer or the Company upon written notice to the other
party if any Governmental Entity of competent jurisdiction shall have
issued a final permanent order enjoining or otherwise prohibiting the
consummation of the transactions contemplated by this Agreement, and in any
such case the time for appeal or petition for reconsideration of such order
shall have expired without such appeal or petition being granted; or
(g) by either Buyer or the Company if the Board of Directors of the
Company reasonably determines that a Business Combination Proposal is
likely to result in a Superior Proposal; provided, however, that
termination of this Agreement under this Section 7.1(g) by the Company
shall not be effective unless and until (i) simultaneously with such
termination the Company enters into a definitive agreement to effect the
Business Combination Proposal and (ii) the Company has made payment in full
of the fee required in Section 8.3(b) hereof.
SECTION 7.2. Effect of Termination. In the event of termination of this
Agreement by either Buyer or the Company as provided above, this Agreement shall
forthwith become void and (except for termination of this Agreement pursuant to
Section 7.1(e) resulting from a breach of a covenant set forth in this
Agreement) there shall be no liability on the part of either the Company or
Buyer or their respective officers or directors; provided that Section 3.17, the
last sentence of Section 5.1, this Section 7.2 and Sections 8.3, 8.6 and 8.7
shall survive the termination.
SECTION 7.3. Amendment. This Agreement may be amended by the parties
hereto, by or pursuant to action taken by Buyer's members and the Company's
Board of Directors, at any time before or after approval hereof by the
stockholders of the Company, but, after such approval, no amendment shall be
made which in any way materially adversely affects the rights of such
stockholders, without the further approval of such stockholders. This Agreement
may not be amended except by an instrument in writing signed on behalf of each
of the parties hereto.
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SECTION 7.4. Waiver. At any time prior to the Closing, the parties
hereto, by or pursuant to action taken by Buyer's members and the Company's
Board of Directors, may (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties of any other party contained
herein or in any documents delivered pursuant hereto by any other party and
(iii) waive compliance with any of the agreements or conditions contained
herein; provided, however, that no such waiver shall materially adversely affect
the rights of the stockholders of the Company or Buyer, as the case may be. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid if set forth in an instrument in writing signed on behalf of such party.
ARTICLE VIII.
GENERAL PROVISIONS
SECTION 8.1. Non-Survival of Representations, Warranties and
Agreements. All representations and warranties set forth in this Agreement
shall terminate at the earlier of (x) the Closing and (y) termination of this
Agreement in accordance with Article VII hereof. All covenants and agreements
set forth in this Agreement shall survive in accordance with their terms.
SECTION 8.2. Notices. All notices or other communications under this
Agreement shall be in writing and shall be given (and shall be deemed to have
been duly given upon receipt) by delivery in person, by cable, telegram, telex
or other standard form of telecommunications, or by registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:
If to the Company:
Western Publishing Group, Inc.
444 Madison Avenue
Suite 601
New York, New York 10022
Attention: Richard A. Bernstein
Telecopy No.: (212) 888-5025
With a copy to:
James A. Cohen, Esq.
Senior Vice President--
Legal Affairs
Western Publishing Group, Inc.
444 Madison Avenue
New York, New York 10022
Telecopy No.: (212) 888-5025
and a copy to:
Milbank, Tweed, Hadley & McCloy
One Chase Manhattan Plaza
New York, New York 10005
Attention: Lawrence Lederman, Esq.
Telecopy No.: (212) 530-5219
If to Buyer:
Golden Press Holding, L.L.C.
c/o Warburg, Pincus Ventures, L.P.
466 Lexington Avenue
New York, New York 10017
Attention: Joanne R. Wenig
Telecopy No.: (212) 878-9351
With a copy to:
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
Attention: Jack H. Nusbaum, Esq.
Telecopy No.: (212) 821-8111
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or to such other address as any party may have furnished to the other parties in
writing in accordance with this Section 8.2.
SECTION 8.3. Expenses; Termination Fees.
(a) Except in cases in which a fee is paid pursuant to Section 8.3(b), all
costs, fees and expenses incurred in connection with this Agreement and the
transactions contemplated hereby (collectively, 'Expenses') shall be paid by the
party incurring such costs and expenses, provided that (i) if the transactions
contemplated by this Agreement are consummated or if they are not consummated as
a result of a breach (determined without regard to any materiality qualifier
therein) by the Company of any representation or warranty made as of the date
hereof in this Agreement (such that such breach, in the aggregate, has resulted,
or would reasonably be expected to result in, a Company Material Adverse
Effect), all Expenses incurred by Buyer shall be paid by the Company and (ii) if
the transactions contemplated by this Agreement are not consummated for any
other reason, all Expenses incurred by Buyer from and after December 14, 1995
shall be paid by the Company, in each case not to exceed an aggregate amount of
$4,000,000.
(b) If (i) the transactions contemplated by this Agreement are not
consummated as a result of a material breach by the Company of Section 5.6
hereof, (ii) the Agreement is terminated pursuant to Section 7.1(g) hereof, or
(iii) a Third Party Business Combination (as defined below) shall occur either
prior to the termination of this Agreement pursuant to Section 7.1(a), 7.1(b),
7.1(c) (other than by the Company as a result of the failure of a condition
specified in Section 6.2 to be satisfied), 7.1(d) or 7.1(g) hereof or within
nine months following the date this Agreement is terminated pursuant to Section
7.1(e) hereof (unless properly terminated by the Company pursuant to Section
7.1(e)), then the Company shall pay to Buyer, within five business days after
receipt of a written request therefor in the case of clause (i) and immediately
after the termination of this Agreement pursuant to Section 7.1(g) or the
occurrence of a Third Party Business Combination in the case of clauses (ii) and
(iii), respectively, an amount in same day funds equal to $2,000,000. For
purposes of this Agreement, the term 'Third Party Business Combination' of the
Company hereto means the occurrence of any of the following events: (A) the
Company or any Subsidiary of the Company is acquired by merger or otherwise by
any person, entity or group, other than the other party hereto or any affiliate
thereof (a 'Third Party'); (B) the Company or any subsidiary of the Company
enters into an agreement with a Third Party which contemplates the acquisition
of 25% or more of the total assets of the Company and its subsidiaries taken as
a whole; (C) the Company enters into a merger or other agreement with a Third
Party which contemplates the acquisition of beneficial ownership of more than
25% of the outstanding shares of the Company Common Stock (or securities
convertible thereinto or exercisable therefor); (D) a Third Party acquires more
than 25% of the total assets of the Company and its subsidiaries taken as a
whole; (E) a Third Party who, as of the date 10 days preceding the date hereof,
beneficially owns less than 10% of the outstanding shares of the Company Common
Stock obtains beneficial ownership of such number of shares of Company Common
Stock such that it beneficially owns more than 25% of the outstanding shares of
the Company Common Stock, or any person, entity or group which beneficially owns
(or has the right to acquire) 10% or more of the outstanding shares of the
Company Common Stock increases its beneficial ownership of the outstanding
shares of Company Common Stock by 10% or more; (F) the Company adopts a plan of
liquidation relating to more than 25% of the total assets of the Company and its
subsidiaries taken as a whole; (G) the Company repurchases more than 25% of the
outstanding shares of the Company's capital stock; or (H) there is a public
announcement or written proposal with respect to a plan or intention by the
Company or a Third Party to effect any of the foregoing transactions (provided
such transaction is consummated during the nine month period following such
public announcement or written proposal). For purposes of this Agreement, the
term 'beneficial ownership' shall have the meaning set forth in Rule 13d-3 of
the Exchange Act.
SECTION 8.4. Publicity. So long as this Agreement is in effect, Buyer and
the Company agree to consult with each other in issuing any press release or
otherwise making any public statement with respect to the transactions
contemplated by this Agreement, and none of them shall issue any press release
or make any public statement prior to such consultation. The commencement of
litigation relating to this Agreement or the transactions contemplated hereby or
any proceedings in connection therewith shall not be deemed a violation of this
Section 8.4.
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SECTION 8.5. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
SECTION 8.6. Interpretation. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 8.7. Miscellaneous. This Agreement (including the documents,
exhibits, schedules and instruments referred to herein), together with the
Confidentiality Agreement, (i) constitutes the entire agreement and supersedes
all other prior agreements and understandings, both written and oral, among the
parties, or any of them, with respect to the subject matter hereof, (ii) except
for certain persons under Section 5.8 hereof, is not intended to confer upon any
other person or entity any rights or remedies hereunder and shall be binding
upon and inure to the benefit solely of each party hereto, and their respective
successors and assigns, (iii) shall not be assigned by operation of law or
otherwise, and (iv) shall be governed in all respects, including validity,
interpretation and effect, by the laws of the State of New York (without giving
effect to the provisions thereof relating to conflicts of law); provided,
however, that the law of the State of Delaware shall govern as to internal
corporate matters. This Agreement may be executed in any number of counterparts
which together shall constitute a single agreement.
IN WITNESS WHEREOF, each of Buyer and the Company has caused this Agreement
to be duly signed on its behalf all as of the date first written above.
GOLDEN PRESS HOLDING, L.L.C.
By: WARBURG, PINCUS VENTURES, L.P.
Member
By: Warburg, Pincus & Co., its
General Partner
By: /s/ DAVID A. TANNER
Name: David A. Tanner
Title: Partner
WESTERN PUBLISHING GROUP, INC.
By: /s/ RICHARD A. BERNSTEIN
Name: Richard A. Bernstein
Title: Chairman and Chief Executive
Officer
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APPENDIX II
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of January 31, 1996, is
entered into by and among Western Publishing Group, Inc., a Delaware corporation
(the 'Company'), Richard A. Bernstein ('Bernstein'), the Trust, fbo Richard A.
Bernstein u/a March 16, 1978, Richard A. Bernstein and Stuart Turner, as
trustees (the 'Bernstein Trust'), The Richard A. and Amelia Bernstein
Foundation, Inc., a New York not-for-profit corporation (the 'Bernstein
Foundation'), and the Trust fbo Richard A. Bernstein u/a Barry S. Bernstein
dated April 5, 1986, Fleet National Bank of Connecticut, as trustee (the 'Fleet
National Trust').
WHEREAS, Bernstein is the owner of 3,501,000 shares of common stock, par
value $.01 per share, of the Company ('Common Stock'), the Bernstein Trust is
the owner of 400,000 shares of Common Stock, the Bernstein Foundation is the
owner of 60,000 shares of Common Stock and the Fleet National Trust is the owner
of 95,771 shares of Common Stock (collectively, the 'Registrable Securities'
(subject to Section 1(e) below));
WHEREAS, the Company has agreed to grant to each Holder certain rights to
have the shares of Common Stock owned by such Holder registered under the
Securities Act of 1933, as amended (the 'Act');
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and covenants herein contained, the parties hereto hereby agree as follows:
SECTION 1. Definitions. As used in this Agreement:
(a) 'Commission' shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Act;
(b) 'Exchange Act' shall mean the Securities Exchange Act of 1934, as
amended;
(c) the term 'Holders' shall mean Bernstein, the Bernstein Trust, the
Bernstein Foundation, the Fleet National Trust and permitted transferees of
Registrable Securities pursuant to Section 10 hereof;
(d) the term 'Initiating Holder' shall mean any Holder or Holders who
in the aggregate are Holders of more than 50% of the then outstanding
Registrable Securities;
(e) the terms 'register,' 'registered' and 'registration' refer to a
registration effected by preparing and filing a registration statement in
compliance with the Act (and any post-effective amendments filed or
required to be filed) and the declaration or ordering of effectiveness of
such registration statement;
(f) 'Registrable Securities' is defined in the first recital hereof
and shall also include any capital stock of the Company issued as a
dividend or other distribution with respect to, or in exchange for or in
replacement of, any such securities, provided, however, that any shares
transferred to a person other than a Holder shall cease to be Registrable
Securities;
(g) 'Registration Expenses' shall mean all expenses incurred by the
Company in compliance with Sections 2, 3, 4, 5 and 6 hereof, including,
without limitation, all registration and filing fees, printing expenses,
fees and disbursements of counsel for the Company, blue sky fees and
expenses, the expense of any special audits incident to or required by any
such registration (but excluding the compensation of regular employees of
the Company, which shall be paid in any event by the Company);
(h) 'Selling Expenses' shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities and
all fees and disbursements of counsel for each of the Holders.
SECTION 2. Demand Registration.
(a) Request for Registration. If the Company shall receive from an
Initiating Holder, at any time after the Company's publicly announcing (which
may include disclosure in the proxy statement mailed to the holders of Company
Common Stock in connection with the transaction contemplated by the Securities
Purchase Agreement (as defined in Section 7(a) hereof)) the consolidated
financial results of the Company and its consolidated subsidiaries for the
fiscal year ending February 3, 1996 in the same detail as the Company's public
announcement of such results for the fiscal year ended January 29, 1995
(containing at least the consolidated
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revenues, operating income and net income of the Company and its consolidated
subsidiaries), a written request that the Company effect any registration with
respect to all or a part of the Registrable Securities, the Company will:
(i) within five (5) days of receipt of such request, give written
notice of the proposed registration, qualification or compliance to all
other Holders; and
(ii) as soon as practicable, use its diligent best efforts to effect
such registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification
under applicable blue sky or other state securities laws and appropriate
compliance with applicable regulations issued under the Act) as may be so
requested and as would permit or facilitate the sale and distribution of
all or such portion of such Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities of
any Holder or Holders joining in such request as are specified in a written
request received by the Company within ten (10) days after written notice
from the Company is given under Section 2(a)(i) above; provided further
that the Company shall not be obligated to effect, or take any action to
effect, any such registration pursuant to this Section 2:
(A) In any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting
such registration, qualification or compliance, unless the Company is
already subject to service in such jurisdiction and except as may be
required by the Act or applicable rules or regulations thereunder;
(B) After the Company has effected two (2) such registrations
pursuant to this Section 2, provided that the Company shall be deemed to
have effected such a registration if a registration statement is filed
at the request of the Holders and (x) is subsequently withdrawn other
than at the initiative of the Company or (y) is declared effective;
(C) If, after the first anniversary of the date hereof, in the good
faith judgment of the Board of Directors of the Company, it would not be
in the best interests of the Company and its stockholders generally for
such registration statement to be filed, provided that such deferral
does not last longer than 90 days and will not occur more than once in
any 12-month period.
The registration statement filed pursuant to the request of the Initiating
Holders may, subject to the provisions of Section 2(b) below, include other
securities of the Company which are held by officers or directors of the
Company, or which are held by persons who, by virtue of agreements with the
Company, are entitled to include their securities in any such registration, but
the Company shall have no absolute right to include any of its securities in any
such registration.
(b) Underwriting. Any distribution of Registrable Securities pursuant to
this Section 2 shall be accomplished by means of a firm commitment underwriting.
If officers or directors of the Company holding other securities of the
Company shall request inclusion in any registration pursuant to Section 2, or if
holders of securities of the Company other than Registrable Securities who are
entitled, by contract with the Company or otherwise, to have securities included
in such a registration (the 'Other Stockholders') request such inclusion, the
Holders shall offer to include the securities of such officers, directors and
Other Stockholders in the underwriting and may condition such offer on their
acceptance of the further applicable provisions of this Section 2. The Holders
whose shares are to be included in such registration and the Company shall
(together with all officers, directors and Other Stockholders proposing to
distribute their securities through such underwriting) enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting by the Company, which
selection shall be reasonably acceptable to the Initiating Holders.
Notwithstanding any other provision of this Section 2, if the representative
advises the Holders in writing that marketing factors require a limitation on
the number of shares to be underwritten, the securities of the Company held by
officers or directors (other than Registrable Securities) of the Company and the
securities held by Other Stockholders shall be excluded from such registration
to the extent so required by such limitation. If, after the exclusion of such
shares, further reductions are still required, the number of shares included in
the registration by each Holder shall be reduced on a pro rata basis (based on
the number of shares originally proposed to be registered by such Holder) by
such minimum number of shares as is necessary to comply with such request. No
Registrable Securities or any other
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securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration. If any of the
Holders or any officer, director or Other Stockholder who has requested
inclusion in such registration as provided above disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the underwriter and the Initiating Holders. The securities so
withdrawn shall also be withdrawn from registration. If the underwriter has not
limited the number of Registrable Securities or other securities to be
underwritten, the Company may include its securities for its own account in such
registration if the representative so agrees and if the number of Registrable
Securities and other securities which would otherwise have been included in such
registration and underwriting will not thereby be limited.
(c) Conditions. Any offering of Registrable Securities registered pursuant
to this Section 2 shall be subject to the following conditions:
(i) No purchaser shall be an Entrepreneurial Investor (as defined in
the Irrevocable Proxy, dated as of even date herewith, between Golden Press
Holding, L.L.C. ('GP Holding') and the Shareholder); and
(ii) Such offering shall not be made for reasonable periods before
and, as determined by the managing underwriter in respect of such offering,
after the effective date of a registration statement for any primary or
secondary public offering of the Company's securities.
SECTION 3. Company Registration.
(a) Request For Registration. If the Company shall determine to register
any of its equity securities either for its own account or for the account of a
security holder or holders exercising their respective demand registration
rights (other than a registration relating solely to employee benefit plans, or
a registration relating solely to a Commission Rule 145 transaction, or a
registration on any registration form which does not permit secondary sales or
does not include substantially the same information as would be required to be
included in a registration statement covering the sale of Registrable
Securities), the Company will:
(i) promptly give to each of the Holders a written notice thereof
which shall describe in reasonable detail the proposed registration and
distribution (including those jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable blue sky or other
state securities laws); and
(ii) include in such registration (and any related qualification under
blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests, made by the Holders within fifteen (15) days after receipt of the
written notice from the Company described in clause (i) above, except as
set forth in Section 3(b) below. Such written request may specify all or a
part of the Holders' Registrable Securities.
(b) Underwriting. If the registration of which the Company gives notice is
for a registered public offering involving an underwriting, the Company shall so
advise each of the Holders as a part of the written notice given pursuant to
Section 3(a)(i). In such event, the right of each of the Holders to registration
pursuant to this Section 3 shall be conditioned upon such Holder's participation
in such underwriting and the inclusion of such Holder's Registrable Securities
in the underwriting to the extent provided herein. The Holders whose shares are
to be included in such registration shall (together with the Company and the
Other Stockholders distributing their securities through such underwriting)
enter into an underwriting agreement in customary form with the representative
of the underwriter or underwriters selected for underwriting by the Company.
Notwithstanding any other provision of this Section 3, if the representative
determines that marketing factors require a limitation on the number of shares
to be underwritten, the representative may (subject to the allocation priority
set forth below) limit the number of Registrable Securities to be included in
the registration and underwriting as the representative deems necessary and
appropriate. The Company shall so advise all holders of securities requesting
registration, and the number of shares of securities that are entitled to be
included in the registration and underwriting shall be allocated in the
following manner: The securities of the Company held by officers, directors and
Other Stockholders of the Company (other than Registrable Securities, securities
held by holders who by contractual right demanded such registration ('Demanding
Holders') and securities held by 'Holders' under the Registration Rights
Agreement, dated as of the effective date of this Agreement, between the Company
and GP Holding (the 'GP Holding Holders')) shall be excluded from such
registration and underwriting to the extent required by such limitation, and, if
a limitation on the number of shares is still required, the number of shares
that
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may be included in the registration and underwriting by each of the Holders and
the GP Holding Holders (if the GP Holding Holders are not Demanding Holders)
shall be reduced, on a pro rata basis (based on the number of shares originally
proposed to be registered by each such person), by such minimum number of shares
as is necessary to comply with such limitation. If any of the Holders disapprove
of the terms of any such underwriting, such Holder may elect to withdraw
therefrom by written notice to the Company and the underwriter. Any Registrable
Securities or other securities excluded or withdrawn from such underwriting
shall be withdrawn from such registration. The Company shall have the right to
withdraw such registration at any time in its sole discretion.
(c) Number. Each of the Holders shall be entitled to have its shares
included in an unlimited number of registrations pursuant to this Section 3.
SECTION 4. Shelf Registration. If the Company shall receive from an
Initiating Holder, at any time prior to two (2) months after the effective date
hereof set forth in Section 19 hereof, a written request that the Company effect
a registration pursuant to Rule 415, or any successor rule under the Act, that
would permit the sale of all or a part of the Registrable Securities from time
to time:
(a) The Company shall use its best efforts to file with the Commission
and thereafter to cause to be declared effective as promptly as practicable
a registration statement on an appropriate form under the Act as reasonably
determined by the Company relating to the offer and sale of the Registrable
Securities by the Holders from time to time pursuant to Rule 415, or any
successor rule under the Act, in accordance with the methods of
distribution set forth in such registration statement (a 'Shelf
Registration Statement').
(b) The Company shall use its best efforts to keep the Shelf
Registration Statement continuously effective in order to permit the
prospectus forming part thereof to be usable by Holders for the period
ending three (3) months after the effective date hereof or such shorter
period that will terminate when all the Registrable Securities covered by
the Shelf Registration Statement have been sold. Notwithstanding any other
provision hereof, the Company may postpone or suspend the filing or the
effectiveness of the Shelf Registration Statement (or any amendments or
supplements thereto) if (i) such action is required by applicable law, or
(ii) such action is taken by the Company in good faith and for valid
business reasons (not including avoidance of the Company's obligations
hereunder), including the acquisition or divestiture of assets, other
pending corporate developments, public filings with the Commission or other
similar events, so long as the Company promptly thereafter complies with
the requirements of Section 6(a)(v) hereof, if applicable. The Company
shall be deemed not to have used its best efforts to keep the Shelf
Registration Statement effective during the requisite period if it
intentionally takes any action not contemplated by clause (i) or (ii) above
that would result in holders of Registrable Securities covered thereby not
being able to offer and sell such Registrable Securities during the period.
SECTION 5. Expenses of Registration. With respect to a registration
pursuant to Section 2 and 4 hereof, all Registration Expenses and all Selling
Expenses shall be borne by the Holders of the securities so registered, together
with any other party whose shares are included in such registration (including
the Company, either because shares are included in such registration for its own
account or because it agreed to pay the expenses of other registering holders),
pro rata, on the basis of the number of their shares so registered. With respect
to a registration pursuant to Section 3(a) hereof, all Registration Expenses
shall be borne by the Company and all Selling Expenses shall be borne by the
Holders of the securities so registered, together with any other party whose
shares are included in such registration (including the Company, either because
shares are included in such registration for its own account or because it
agreed to pay the expenses of another registering holder), pro rata on the basis
of the number of their shares so registered. In addition to the Company's other
rights in respect of expenses in this Agreement, the Company shall have the
right, in order to cover such expenses, to deduct the amount of such expenses
from the offering proceeds to which the Bernstein Trust, the Bernstein
Foundation and the Fleet National Trust would otherwise have been entitled.
SECTION 6. Registration Procedure.
(a) In the case of each registration effected by the Company pursuant to
this Agreement, the Company will:
(i) provide the Holders of Registrable Securities to be registered
under the registration statement, their underwriters, if any, and their
respective counsel and accountants, a reasonable opportunity to participate
in
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the preparation of such registration statement, each prospectus included
therein or filed with the Commission, and each amendment thereof or
supplement thereto;
(ii) notify each Holder as to the filing of the registration statement
and of all amendments or supplements thereto filed prior to the effective
date of such registration statement;
(iii) notify each Holder, promptly after it shall receive notice
thereof, of the time when such registration statement becomes effective or
when any amendment or supplement to any prospectus forming a part of such
registration statement has been filed;
(iv) notify each Holder promptly of any request by the Commission for
the amending or supplementing of such registration statement or prospectus
or for additional information;
(v) prepare and promptly file with the Commission, and promptly notify
each Holder of the filing of, any amendments or supplements to such
registration statement or prospectus as may be necessary to correct any
statements or omissions if, at any time when a prospectus relating to the
Registrable Securities is required to be delivered under the Act, any event
with respect to the Company shall have occurred as a result of which any
such prospectus or any other prospectus as then in effect would include an
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading, and, in addition,
prepare and file with the Commission, promptly upon the written request of
any Holder, any amendments or supplements to such registration statement or
prospectus which may be reasonably necessary or advisable in connection
with the distribution of the Registrable Securities;
(vi) prepare promptly upon request of the Holders or any underwriters
for the Holders such amendment or amendments to such registration statement
and such prospectus or prospectuses as may be reasonably necessary to
permit compliance with the requirements of Section 10(a)(3) of the Act,
unless, in the good faith judgment of the Board of Directors of the
Company, it would not be in the best interests of the Company and its
stockholders generally for such amendment or amendments to be filed,
provided that such deferral does not last longer than 90 days and will not
occur more than once in any 12-month period;
(vii) advise each Holder promptly after the Company shall receive
notice or obtain knowledge of the issuance of any stop order by the
Commission suspending the effectiveness of any such registration statement
or amendment thereto or of the initiation or threatening of any proceeding
for that purpose, and promptly use its best efforts to prevent the issuance
of any stop order or obtain its withdrawal promptly if such stop order
should be issued;
(viii) use its best efforts to qualify as soon as reasonably
practicable the Registrable Securities included in the registration
statement for sale under the blue sky or other state securities laws of
such states and jurisdictions within the United States as shall be
reasonably requested by any Holder, provided that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business, to become subject to taxation or to file a consent to service of
process generally in any of the aforesaid states or jurisdictions;
(ix) furnish each Holder, as soon as available, copies of any
registration statement and each preliminary or final prospectus, or
supplement or amendment required to be prepared pursuant hereto, all in
such quantities as any Holder may from time to time reasonably request;
(x) furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Agreement, on the date that such
Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this Agreement, if such
securities are being sold through underwriters or, if such securities are
not being sold through underwriters, on the date that the registration
statement with respect to such securities becomes effective, (i) an
opinion, dated such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily
given by company counsel to the underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the holders
requesting registration of Registrable Securities, and (ii) a letter, dated
such date, from the independent certified public accountant of the Company,
in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public
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offering, addressed to the underwriters, if any, and, if customarily given
to holders of securities to be sold in a registration, to the Holders
requesting registration of Registrable Securities;
(xi) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders as soon as reasonably practicable, but not later than 16 months
after the effective date of the registration statement, an earnings
statement covering a period of at least twelve (12) months beginning after
the effective date of the registration statement, which earnings statement
shall satisfy the provision of Section 11(a) of the Act; and
(xii) enter into and perform an underwriting agreement with the
managing underwriter, if any, selected as provided in Section 2(b) and
3(b), containing customary (y) terms of offer and sale of the securities,
payment provisions, underwriting discounts and commissions, and (z)
representations, warranties, covenants, indemnities, terms and conditions
provided that the Holders may, at their option, require that any or all
agreements on the part of the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of such Holders, any
or all of the conditions precedent to the obligations of the Company shall
also be conditions precedent to the obligations of such Holders, and all
representations and warranties by the Company to and for the benefit of
such underwriters shall also be made to and for the benefit of such
Holders, and provided further that such Holders shall not be required to
make any representations or warranties to or agreements with the Company or
the underwriters other than representations, warranties or agreements
reasonably requested by the managing underwriter or otherwise required by
law.
(b) At the expense of the Company, the Company will keep each registration
effected by the Company pursuant to Section 3(a) effective for a period of nine
(9) months or until the Holders have completed the distribution described in the
registration statement relating thereto, whichever first occurs. At the expense
of the Holders, together with any other party whose shares are included in such
registration (including the Company, either because shares are included in such
registration for its own account or because it agreed to pay the expenses of
other registering holders), pro rata, on the basis of the number of their shares
so registered, the Company will keep each registration effected by the Company
pursuant to Section 2 effective for a period of nine (9) months or until the
Holders have completed the distribution described in the registration statement
relating thereto, whichever first occurs, unless, in the good faith judgment of
the Board of Directors of the Company, it would not be in the best interests of
the Company and its stockholders generally for such registration to be kept
effective for such period, provided that such deferral does not last longer than
90 days and will not occur more than once in any 12-month period. In addition to
the Company's other rights in respect of expenses in this Agreement, the Company
shall have the right, in order to cover such expenses, to deduct the amount of
such expenses from the offering proceeds to which the Bernstein Trust, the
Bernstein Foundation and the Fleet National Trust would otherwise have been
entitled.
SECTION 7. Indemnification.
(a) To the extent permitted by law, the Company will indemnify each of the
Holders, each of its officers, directors, agents, trustees, representatives and
affiliates of the foregoing, each underwriter (as defined in the Act), if any,
and each person controlling each of the Holders or such underwriter within the
meaning of the Act and the rules and regulations thereunder, with respect to
each registration which has been effected pursuant to this Agreement, against
all claims, losses, damages and liabilities (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any prospectus, offering circular or other document
(including any related registration statement, notification or the like)
incident to any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
any violation by the Company of the Act or any rule or regulation thereunder
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, qualification or compliance,
and will reimburse each of the Holders, each of its officers, directors,
partners, members, managers, agents, representatives and their affiliates, each
such underwriter and each person controlling any such Holder or underwriter, for
any legal and any other expenses reasonably incurred in connection with
investigating and defending any such claim, loss, damage, liability or action,
provided that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability or expense arises out of or is based on
any
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untrue statement or omission based upon (i) written information furnished to the
Company by the Holders or underwriter and stated to be specifically for use
therein or (ii) until the date of issuance of the Company's audited consolidated
financial statements for the fiscal year ended on or about January 31, 1997, any
representation or warranty made by the Company in that certain Securities
Purchase Agreement, dated as of even date herewith, between the Company and GP
Holding (the 'Securities Purchase Agreement').
(b) To the extent permitted by law, each of the Holders will, if
Registrable Securities held by it are included in the securities as to which
such registration, qualification or compliance is being effected, indemnify the
Company, each of its directors, officers, agents and representatives and each
underwriter, if any, and each person controlling the Company or such underwriter
within the meaning of the Act and the rules and regulations thereunder, against
all claims, losses, damages and liabilities (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any such registration statement, prospectus,
offering circular or other document made by such Holder, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements by such Holder therein not misleading, and
will reimburse the Company and such directors, officers, agents,
representatives, underwriters or control persons for any legal or any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by such Holder and
stated to be specifically for use therein; provided, however, that the indemnity
agreement contained in this Section 7(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holders, and provided further
that the obligations of each of the Holders hereunder shall be limited to an
amount equal to the proceeds to such Holder of securities sold as contemplated
herein.
(c) Each party entitled to indemnification under this Section 7 (the
'Indemnified Party') shall give notice to the party required to provide
indemnification (the 'Indemnifying Party') promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld) and the Indemnified Party may participate in such
defense at such party's expense (unless the Indemnified Party shall have
reasonably concluded that there may be a conflict of interest between the
Indemnifying Party and the Indemnified Party in such action, in which case the
fees and expenses of counsel shall be at the expense of the Indemnifying Party),
and provided further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 7 unless the Indemnifying Party is materially prejudiced
thereby. No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably request
in writing and as shall be reasonably required in connection with the defense of
such claim and litigation resulting therefrom.
(d) If the indemnification provided for in this Section 7 is held by a
court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage or expense referred to herein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party
hereunder, shall contribute to the amount paid or payable by such Indemnified
Party as a result of such loss, liability, claim, damage or expense in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and of the Indemnified Party on the other in connection
with the statements or omissions which resulted in such loss, liability, claim,
damage or expense, as well as any other relevant equitable considerations,
provided, however, that the obligations of each Holder shall be limited to an
amount equal to the proceeds to such Holder from the sale of Registrable
Securities as contemplated herein. The relative fault of the Indemnifying Party
and of the Indemnified Party shall be determined by reference to, among other
things, whether the untrue or alleged untrue
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statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Indemnifying Party or by
the Indemnified Party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act), shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation.
(e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting agreement entered
into in connection with any underwritten public offering contemplated by this
Agreement are in conflict with the foregoing provisions, the provisions in such
underwriting agreement shall be controlling.
(f) The foregoing indemnity agreements are subject to the condition that,
insofar as they relate to any loss, claim, liability or damage made in a
preliminary prospectus but eliminated or remedied in the amended prospectus on
file with the Commission at the time the registration statement in question
becomes effective or the amended prospectus filed with the Commission pursuant
to Commission Rule 424(b) (the 'Final Prospectus'), such indemnity agreement
shall not inure to the benefit of any underwriter if a copy of the Final
Prospectus was furnished to the underwriter and was not furnished to the person
asserting the loss, liability, claim or damage at or prior to the time such
action is required by the Act.
(g) The obligations of the Company and the Holders under this Section 7
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Agreement and otherwise.
(h) The foregoing indemnity agreements shall include reasonable fees and
expenses of counsel incurred by the Indemnified Party in any action or
proceeding between the Indemnifying Party and the Indemnified Party or between
the Indemnified Party and any third party or otherwise.
SECTION 8. Information by the Holders. Each of the Holders shall furnish
to the Company such information regarding such Holder and the distribution
proposed by such Holder as the Company may reasonably request in writing and as
shall be reasonably required in connection with any registration, qualification
or compliance referred to in this Agreement.
SECTION 9. Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may permit the
sale of restricted securities to the public without registration, the Company
agrees to use its reasonable best efforts to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Act;
(b) file with the Commission in a timely manner all reports and other
documents required of the Company under the Act and the Exchange Act; and
(c) furnish to any Holder upon request, (i) a written statement by the
Company as to its compliance with the reporting requirements of Rule 144,
the Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company filed with the Commission and such other
reports and documents so filed by the Company and (iii) such other
information as a Holder may reasonably request in availing itself or any
rule or regulation of the Commission allowing such Holder to sell any such
securities without registration.
SECTION 10. Assignability. No party may assign or transfer its rights or
obligations hereunder without the prior written consent of the other, except
that Bernstein's rights hereunder may be transferred by will or the laws of
descent and distribution to a charitable organization, an immediate family
member or a trust (25% or more of the beneficial interests of which are owned by
affiliates of Bernstein or one or more members of his immediate family), in each
case to which Bernstein has transferred Registrable Securities to the extent
permitted by Section 5(d)(i) or (iv) of the Irrevocable Proxy, dated as of even
date herewith, between GP Holding and Bernstein.
SECTION 11. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
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SECTION 12. Amendment. Any modification, amendment or waiver of this
Agreement or any provision hereof shall be in writing and executed by the
Company, GP Holding and the Holders of not less than 50% of the Registrable
Securities, provided, however, that no such modification, amendment or waiver
shall reduce the aforesaid percentage of Registrable Securities without the
consent of all of the Holders of the Registrable Securities.
SECTION 13. Notices. All notices, requests, consents and demands shall be
in writing and shall be personally delivered, mailed, postage prepaid,
telecopied or telegraphed or delivered by any nationally recognized overnight
delivery service to the Company at:
to the Company:
Western Publishing Group, Inc.
444 Madison Avenue
New York, New York 10022
Telecopy: (212) 888-5025
Attn: Chief Executive Officer
with a copy to:
General Counsel
Western Publishing Group, Inc.
444 Madison Avenue
New York, New York 10022
Telecopy: (212) 888-5025
and, until the effective date hereof, a copy to:
Milbank, Tweed, Hadley & McCloy
One Chase Manhattan Plaza
New York, New York 10028
Telecopy: (212) 530-5219
Attn: Lawrence Lederman, Esq.
and to GP Holding and each Holder at such address set forth on the signature
page hereof or as shall be furnished in writing to the Company. All such
notices, requests, demands and other communication shall, when mailed
(registered or certified mail, return receipt requested, postage prepared),
personally delivered, or telegraphed, be effective four (4) days after deposit
in the mails, when personally delivered, or when delivered to the telegraph
company, respectively, addressed as aforesaid, unless otherwise provided herein
and, when telecopied or delivered by any nationally recognized overnight
delivery service, shall be effective upon actual receipt.
SECTION 14. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
SECTION 15. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
SECTION 16. Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
SECTION 17. Headings. The various headings of this Agreement are inserted
for convenience only and shall not affect the meaning or interpretation of this
Agreement or any provisions hereof or thereof.
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<PAGE>
SECTION 18. Entire Agreement. This Agreement constitutes the entire
understanding among the parties hereto with respect to the subject matter hereof
and supersedes any prior agreements, written or oral, with respect thereto.
SECTION 19. Effective Date. This Agreement shall become effective as of
the date of consummation of the transactions contemplated by the Securities
Purchase Agreement, and this Agreement shall have no effect for any purpose
unless and until such transactions have been consummated.
IN WITNESS WHEREOF, the Company and each of the undersigned parties has
executed this Agreement effective for all purposes as of the date first above
written.
WESTERN PUBLISHING GROUP, INC.
By: /s/ JAMES A. COHEN
James A. Cohen
/s/ RICHARD A. BERNSTEIN
Richard A. Bernstein
RICHARD A. BERNSTEIN AND STUART
TURNER, trustees u/a March 16, 1978
fbo Richard A. Bernstein
By: /s/ RICHARD A. BERNSTEIN
Richard A. Bernstein
Trustee
By: /s/ STUART TURNER
Stuart Turner
Trustee
THE RICHARD A. AND AMELIA BERNSTEIN
FOUNDATION, INC.
/s/ RICHARD A. BERNSTEIN
Richard A. Bernstein
President
Address for notices for all Holders
named above:
FLEET NATIONAL BANK OF CONNECTICUT
trustee u/a Barry S. Bernstein dated
April 5, 1986
fbo Richard A. Bernstein
By: /s/ CATHERINE O. CLARK
Catherine O. Clark
Vice President
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<PAGE>
Address for notices:
Fleet National Bank of Connecticut
P.O. Box 1454
One Landmark Square
Stamford, Connecticut 06904
Telecopy: ______________________
Attn: Ms. Catherine Clark
Section 12 is hereby acknowledged and
agreed to:
GOLDEN PRESS HOLDING, L.L.C.
By: WARBURG, PINCUS VENTURES, L.P.
Member
By: Warburg, Pincus & Co., General
Partner
By: /s/ DAVID A. TANNER
David A. Tanner
Partner
Address for notices:
Golden Press Holding, L.L.C.
c/o Warburg, Pincus Ventures, L.P.
466 Lexington Avenue
New York, New York 10017
Telecopy: (212) 878-9351
Attn: Joanne R. Wenig
with a copy to:
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
Telecopy: (212) 821-8111
Attn: Jack H. Nusbaum, Esq.
II-11
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
Bernstein.................................................................................................. 1
Bernstein Foundation....................................................................................... 1
Bernstein Trust............................................................................................ 1
Commission................................................................................................. 1
Common Stock............................................................................................... 1
Company.................................................................................................... 1
Demanding Holders.......................................................................................... 3
Exchange Act............................................................................................... 1
Fleet National Trust....................................................................................... 1
Final Prospectus........................................................................................... 8
GP Holding................................................................................................. 3
Holders.................................................................................................... 1
Indemnified Party.......................................................................................... 7
Indemnifying Party......................................................................................... 7
Initiating Holder.......................................................................................... 1
Registrable Securities..................................................................................... 1
Registration Expenses...................................................................................... 1
Selling Expenses........................................................................................... 1
Shelf Registration Statement............................................................................... 4
Act........................................................................................................ 1
GP Holding Holders......................................................................................... 3
Securities Purchase Agreement.............................................................................. 7
</TABLE>
II-12
<PAGE>
APPENDIX III
IRREVOCABLE PROXY
THIS AGREEMENT, dated as of January 31, 1996, between Golden Press Holding,
L.L.C., a Delaware limited liability company (the 'Buyer'), and Richard A.
Bernstein (the 'Shareholder'), a shareholder of Western Publishing Group, Inc.,
a Delaware corporation (the 'Company').
W I T N E S S E T H:
WHEREAS, contemporaneously with the execution of this Agreement, the
Company and the Buyer are entering into a Securities Purchase Agreement (the
'Securities Purchase Agreement') pursuant to which the Buyer will purchase (the
'Securities Purchase') 13,000 shares of the Company's Series B Convertible
Preferred Stock, no par value ('Series B Preferred Stock'), and a warrant (the
'Warrant') to purchase 3,250,000 shares (subject to adjustment) of the Company's
common stock, par value $.01 per share ('Company Common Stock');
WHEREAS, contemporaneously with the execution of this Agreement, Buyer is
entering into an agreement substantially similar to this Agreement with each of
(i) the Trust, fbo Richard A. Bernstein u/a March 16, 1978, Richard A. Bernstein
and Stuart Turner, as trustees, and (ii) the Trust fbo Richard A. Bernstein u/a
Barry S. Bernstein dated April 5, 1986, Fleet National Bank of Connecticut, as
trustee (collectively, the 'Other Shareholders'), which own 400,000 and 95,771
shares of Company Common Stock, respectively; and
WHEREAS, the Buyer, as a condition to its willingness to enter into the
Securities Purchase Agreement, has required the Shareholder to grant the Buyer
an irrevocable proxy with respect to all of the shares of Company Common Stock
owned by the Shareholder, together with any additional shares of Company Common
Stock hereafter acquired by the Shareholder (such specified number of shares,
and any additional shares when and if they are acquired by Shareholder or any
'Affiliate' (as defined in Rule 405 under the Securities Act of 1933, as amended
(the 'Securities Act'), and including, without limitation, immediate family
members and trusts, 25% or more of the beneficial interests of which are owned
by such person or one or more members of his immediate family members; provided
that the Company shall not be deemed an 'Affiliate' of the Shareholder for
purposes of this Agreement), being referred to as the 'Shares') on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto agree as follows:
1. Irrevocable Proxy. By entering into this Agreement, the
Shareholder hereby grants a proxy (the 'Proxy') appointing the Buyer (or
any designee of the Buyer) as the Shareholder's lawful agent, attorney-
in-fact and proxy, with full power of substitution, for and in the
Shareholder's name, to vote, express consent or dissent, or otherwise to
utilize such voting power in such manner and upon such matters as the Buyer
or its proxy or substitute shall, in the Buyer's sole discretion, deem
proper with respect to the Shares, including without limitation, to vote
any or all the Shares at any meeting, or in connection with any written
consent, of the Company's shareholders (i) in favor of the Securities
Purchase (or any similar transaction involving the Company and the Buyer
(or an Affiliate thereof)), (ii) in favor of the Securities Purchase
Agreement or other agreement evidencing any such transaction and in favor
of any other related transactions or matters presented in connection with
any such transaction, including the Company Voting Matters (as defined in
the Securities Purchase Agreement), and (iii) against any other proposal
which provides for any merger, sale of assets or other Third Party Business
Combination (as defined in the Securities Purchase Agreement) between the
Company (or any subsidiary of the Company) and any other person or entity
or which would make it impractical for the Buyer to effect the Securities
Purchase or other similar transaction involving the Company and the Buyer
(or an Affiliate thereof); provided, however, that, until the consummation
of the Securities Purchase, the Proxy shall not allow Buyer to vote
against, or for the removal of, existing members of the Company's Board of
Directors, except that the Proxy will be voted for the Company Voting
Matters as contemplated by Section 5.3 of the Securities Purchase
Agreement. The Proxy
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<PAGE>
is irrevocable, is coupled with an interest, and is granted in
consideration of the Buyer's entering into this Agreement and the
Securities Purchase Agreement; provided, however, that the Proxy shall be
revoked upon the earlier to occur of (x) the termination of the Securities
Purchase Agreement in accordance with its terms prior to the consummation
of the Securities Purchase and (y) the failure of the aggregate 'beneficial
ownership' (as defined in Rule 13d-3 under the Securities Exchange Act of
1934, as amended) of Buyer, each member thereof, any affiliates of such
members (other than of Warburg, Pincus Ventures, L.P. ('WPV')) and the
general partnership that acts as a general partner of WPV, at any time
following the consummation of the Securities Purchase, to constitute 15% or
more of the outstanding Company Common Stock (after taking into account the
conversion or exercise of all outstanding securities of the Company that
are convertible into or exercisable for shares of Company Common Stock,
provided, however, that the shares of Company Common Stock issuable upon
exercise of the Warrant shall be taken into account only in the amount of
the excess, if any, of the number of such shares over the number of shares
of Company Common Stock issued to such parties as dividends on the Series B
Preferred Stock). If the proxy granted in this Section 1 shall be
determined to be invalid for any reason, the Shareholder hereby agrees to
vote the Shares, in any circumstances set forth in this Section 1, in
accordance with the written instructions of Buyer. Notwithstanding any
implication to the contrary in this Agreement, the proxy granted in this
Section 1 shall be revoked, and the agreement set forth in the immediately
preceding sentence shall be terminated, with respect to any Shares upon the
sale or transfer of such Shares to a third party (other than an Affiliate
of the Shareholder), provided that such sale or transfer is otherwise
permitted under the terms of this Agreement.
2. Legending of Certificates; Nominee Shares. The Shareholder agrees
to submit to the Buyer contemporaneously with or promptly following
execution of this Agreement (or promptly following receipt of any
additional certificates representing any additional Shares) all
certificates representing the Shares so that the Buyer may note thereon a
legend referring to the transfer restrictions in this Agreement. If any of
the Shares beneficially owned by the Shareholder are held of record by a
brokerage firm in 'street name' or in the name of any other nominee (a
'Nominee,' and, as to the Shares, 'Nominee Shares'), the Shareholder agrees
that, upon written notice by the Buyer requesting it, the Shareholder will
within five days of the giving of such notice execute and deliver to the
Buyer a limited power of attorney in such form as shall be reasonably
satisfactory to the Buyer enabling the Buyer to require the Nominee to
grant to the Buyer an irrevocable proxy to the same effect as Section 1
hereof with respect to the Nominee Shares held by such Nominee and to
submit to the Buyer the certificates representing such Nominee Shares for
notation of the foregoing legend thereon.
3. [Intentionally omitted.]
4. Representations and Warranties of the Shareholder. The Shareholder
represents and warrants to the Buyer that:
(a) On the date hereof, the Shareholder is the sole, true, lawful,
record and beneficial owner of 3,501,000 shares of Company Common Stock.
All of the Shares are validly issued, fully paid and nonassessable, with
no personal liability attaching to the ownership thereof; and the
Shareholder has good and valid title to the Shares, free and clear of
any agreements, liens, adverse claims or encumbrances whatsoever with
respect to the ownership of or the right to vote the Shares. The
Shareholder has not granted any proxies with respect to the Shares
except as contemplated by this Agreement.
(b) The Shareholder has the full right, power and authority to
enter into this Agreement, and this Agreement has been duly and validly
executed and delivered by the Shareholder.
(c) The execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby do not and will
not, with or without the giving of notice or the passage of time, (i)
violate any judgment, injunction or order of any court, arbitrator or
governmental agency applicable to the Shareholder, or (ii) conflict
with, result in the breach of any provision of, constitute a default
under, or give rise to a right of termination, cancellation or
acceleration of any right
III-2
<PAGE>
or obligation of the Shareholder under, or require the consent of any
third party under, any agreement, instrument, judgment, order or decree
to which the Shareholder is a party or by which the Shareholder may be
bound.
(d) This Agreement is the valid and binding Agreement of the
Shareholder, enforceable against the Shareholder in accordance with its
terms, except as enforcement may be limited by bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights
generally.
(e) The Shares and the shares of Company Common Stock owned of
record by the Other Shareholders (in the case of Fleet National Bank of
Connecticut, in its capacity as trustee under the trust referred to
above) and the 60,000 shares of Company Common Stock owned of record by
The Richard A. and Amelia Bernstein Foundation, Inc., a New York
not-for-profit corporation (the 'Bernstein Foundation'), are the only
shares of Company Common Stock beneficially owned or owned of record by
the Shareholder, the Other Shareholders and the Bernstein Foundation
and, except for the 9,200 shares of Series A Preferred Stock, no par
value, of the Company owned by the Shareholder and the 67,500 shares of
Company Common Stock issuable to the Shareholder upon the exercise of
options granted to him pursuant to the Company's Amended and Restated
1986 Employee Stock Option Plan, the Shareholder does not own any
options to purchase or rights to subscribe for or otherwise acquire any
securities of the Company and has no other interest in or voting rights
with respect to any securities of the Company. The Shareholder shall not
permit the Bernstein Foundation to acquire, directly or indirectly, any
additional shares of Company Common Stock during the term of this
Agreement.
(f) No investment banker, broker or finder is entitled to a
commission or fee from the Shareholder or the Company in respect of this
Agreement based upon any arrangement or agreement made by or on behalf
of the Shareholder.
5. Additional Covenants of the Shareholder. The Shareholder hereby
covenants and agrees that:
(a) Neither the Shareholder nor any Affiliate will enter into any
transaction, take any action, or by inaction permit any event to occur,
that would result in any of the representations or warranties of the
Shareholder herein contained not being true and correct at and as of the
time immediately after the occurrence of such transaction, action or
event.
(b) Until the termination of this Agreement, neither the
Shareholder nor any Affiliate, whether directly, indirectly, or through
any employee, agent or otherwise shall: (i) solicit or initiate any
inquiry or submission of a proposal or an offer from any person or
entity relating to any acquisition or purchase of (A) the assets,
business or property of the Company or any subsidiary thereof, or (B)
any equity interest in, or any merger, consolidation or business
combination with, the Company or any of its subsidiaries (an
'acquisition proposal'), or (ii) participate in any discussions or
negotiations regarding, or furnish to any other person or entity any
information with respect to, or otherwise cooperate in any way or assist
or facilitate any acquisition proposal by any other person or entity;
provided, however, that the Shareholder, in his capacity as the Chairman
of the Company's Board of Directors and the Company's Chief Executive
Officer, may participate in discussions or negotiations with or furnish
information to any other person or entity if the Company's Board of
Directors, on advice of counsel, determines that the Shareholder, in his
capacity as Chairman of the Company's Board of Directors and the
Company's Chief Executive Officer, should so participate or furnish such
information. Subject to his fiduciary duties to the Company, the
Shareholder shall promptly advise the Buyer of any communication
(including the identity of the person or entity making such
communication and the terms thereof) that the Shareholder may receive
relating to any of the foregoing.
(c) Until the termination of this Agreement, subject to his
fiduciary duties to the Company, the Shareholder will at all times use
his best efforts to prevent the Company from taking any action in
violation of the Securities Purchase Agreement, including, but not
limited to, any such action that
III-3
<PAGE>
would (i) amend or otherwise change its Certificate of Incorporation or
Bylaws, (ii) issue or sell or authorize for issuance or sale any stock
appreciation rights, stock options (other than pursuant to stock option
plans in effect on the date hereof), warrants or additional shares of
any class of capital stock, including the Company Common Stock, or any
securities convertible into or exchangeable for shares of any class of
capital stock, (iii) declare, set aside, make, pay or accelerate the
time for declaration or payment of, any dividend or other distribution
with respect to its capital stock, or (iv) redeem, purchase, or
otherwise acquire, directly or indirectly, any of its capital stock.
(d) Until the termination of this Agreement, neither the
Shareholder nor any Affiliate shall, directly or indirectly, (i) grant
any proxies or enter into any voting trust or other agreement or
arrangement with respect to the voting of any Shares or (ii) acquire,
sell, assign, transfer, encumber or otherwise dispose of, or enter into
any contract, option or other arrangement or understanding with respect
to the direct or indirect acquisition or sale, assignment, transfer,
encumbrance or other disposition of, any shares of capital stock of the
Company during the term of this Agreement other than with the Other
Shareholders. Neither the Shareholder nor any Affiliate shall seek or
solicit any such acquisition or sale, assignment, transfer, encumbrance
or other disposition or any such contract, option or other arrangement
or assignment or understanding and the Shareholder agrees to notify the
Buyer promptly and to provide all details requested by the Buyer if the
Shareholder shall be approached or solicited, directly or indirectly, by
any person or entity with respect to any of the foregoing.
Notwithstanding the foregoing, the Shareholder (and any Affiliate) shall
be entitled, (i) so long as the Shareholder at all times, until the
earlier to occur of the consummation of the Securities Purchase and the
termination of this Agreement, retains the right to vote (and give
consent in respect of) such Shares (subject to the terms of this
Agreement), to transfer for no consideration up to 400,000 Shares in the
aggregate to an organization that is described in Section 501(c)(3) of
the Internal Revenue Code of 1986, as amended, and (x) that is not an
Affiliate of the Shareholder and (y) that is not a person or entity in
respect of which the Shareholder or any Affiliate serves as trustee or
in any other fiduciary capacity, (ii) at any time beginning three
business days after the financial results of the Company for the fiscal
year ending February 3, 1996 have been Publicly Disclosed (as defined
below) by the Company, but not before consummation of the Securities
Purchase, to sell all or a portion of the Shares to any purchaser, (x)
in the case of non-negotiated, public, open-market transactions, in
amounts not to exceed the limitations set forth in Rule 144(e) under the
Securities Act (provided that the Shareholder and his Affiliates shall
be considered one person for purposes of such limitations) and (y) in
all other cases, other than to an Entrepreneurial Investor (as defined
below), (iii) to pledge Shares in order to secure a loan from a bona
fide lending institution, provided that (x) prior to such pledge such
institution agrees in writing to enter into an agreement with the Buyer
substantially identical to this Agreement and reasonably satisfactory in
all respects to the Buyer, such agreement to take effect immediately
prior to such institution's foreclosing or receiving any rights (other
than a security interest therein) in respect of such Shares, and (y)
prior to such foreclosure, the rights of such institution in respect of
such Shares shall be limited to a security interest therein and be
subject to this Agreement and (iv) to transfer Shares by will or
pursuant to the laws of descent and distribution to an Affiliate of the
Shareholder, provided that, at the time of such transfer, such
transferee enters into an agreement with the Buyer substantially
identical to this Agreement and reasonably satisfactory in all respects
to the Buyer. The Shareholder shall provide the Buyer with prior written
notice of any proposed transfer of Shares pursuant to this Section 5(d)
and evidence of compliance therewith. For purposes of this Agreement,
'Publicly Disclosed' means the Company's publicly announcing (which may
include disclosure in the Proxy Statement mailed to the holders of
Company Common Stock in connection with the Securities Purchase) the
consolidated financial results of the Company and its consolidated
subsidiaries for the fiscal year ending February 3, 1996 in the same
detail as the Company's public announcement of such results for the
fiscal year ended January 28, 1995 (containing at least the consolidated
revenues, operating income and net income of the Company and its
consolidated subsidiaries), and an 'Entrepreneurial Investor' means any
investor that (or any investor, any of whose Affiliates) (x) is
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<PAGE>
listed on Schedule I hereto or (y) is unacceptable to John Vogelstein,
in his sole discretion, provided that no individual or entity listed on
Schedule II hereto shall be deemed an Entrepreneurial Investor.
(e) The Shareholder shall execute and deliver any additional
documents reasonably necessary or desirable, in the reasonable opinions
of both the Buyer's counsel and the Shareholder's counsel, to evidence
the Proxy granted in Section 1 with respect to the Shares or otherwise
implement and effect the provisions of this Agreement.
(f) Effective upon consummation of the Securities Purchase, the
Shareholder shall resign from all of the positions then held by him with
the Company and its subsidiaries, including, without limitation, from
the offices of Chairman and Chief Executive Officer and from the Board
of Directors of the Company, from the office of Chairman and from the
Board of Directors of Western Publishing Company, Inc. and from the
offices of Chairman, President and Chief Executive Officer and from the
Board of Directors of Penn Corporation.
(g) The Shareholder hereby agrees promptly to cause the amendment,
in a manner reasonably acceptable to the Buyer, of the trademark license
agreement, dated September 11, 1995, between P&E Properties, Inc.
('P&E') and Western Publishing Company, Inc. relating to the right to
display 'The Poky Little Puppy' trademark on a corporate jet owned by
P&E, provided that no royalties shall be payable for such right and that
such right shall be not be assignable and shall terminate when such jet
is no longer owned by P&E or an Affiliate thereof.
6. Representations and Warranties of the Buyer. The Buyer represents
and warrants to the Shareholder that:
(a) The Buyer has all requisite power and authority to enter into
and perform all of its obligations under this Agreement. The execution,
delivery and performance of this Agreement and all of the transactions
contemplated hereby have been duly authorized by all necessary action on
the part of the Buyer. This Agreement has been duly executed and
delivered by the Buyer.
(b) Neither the execution, delivery or performance of this
Agreement by the Buyer nor the consummation of the transactions
contemplated herein will violate the organizational documents of the
Buyer or will conflict with or result in the breach of any material
term, condition or provision of any instrument, indenture, contract,
lease or other document or understanding, oral or written, to which the
Buyer is a party or is otherwise bound or affected in such a manner as
to materially and adversely affect the business of the Buyer.
7. Termination. This Agreement may be terminated by any party hereto
on or after the day of termination of the Securities Purchase Agreement in
accordance with its terms, prior to the consummation of the Securities
Purchase, and thereafter (i) by mutual written consent of both parties
hereto, provided that Section 10 hereof shall survive termination of this
Agreement or (ii) at such time as the Shareholder and the Other
Shareholders shall have disposed of direct and indirect 'beneficial
ownership' of all shares of Company Common Stock (excluding the 60,000
share of Company Common Stock owned by the Bernstein Foundation) in bona
fide transactions that do not violate this Agreement.
8. Binding Effect; Assignment. This Agreement shall inure to the
benefit of and be binding upon the parties and their respective successors
and permitted assigns. Except as contemplated by Section 5(d), the
Shareholder shall not assign its rights or obligations hereunder without
the Buyer's consent. The Buyer may assign its rights and obligations
hereunder to an Affiliate.
9. Notices. All notices and communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered personally
or by Federal Express or other courier service or sent by express
III-5
<PAGE>
mail, postage prepaid, return receipt requested, addressed to the
respective party at the applicable address below, on the date of such
personal delivery or on the date received:
If to the Buyer:
Golden Press Holding, L.L.C.
c/o Warburg, Pincus Ventures, L.P.
466 Lexington Avenue
New York, New York 10017
Attention: Joanne R. Wenig
Telecopy No.: (212) 878-9351
with a copy to:
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
Attention: Jack H. Nusbaum, Esq.
Telecopy No.: (212) 821-8111
If to the Shareholder:
Richard A. Bernstein
444 Madison Avenue
Suite 601
New York, New York 10022
Telecopy No.: (212) 888-5025
with a copy to:
James A. Cohen, Esq.
444 Madison Avenue
New York, New York 10022
Telecopy No.: (212) 888-5025
with a copy to:
Milbank, Tweed, Hadley & McCloy
One Chase Manhattan Plaza
New York, New York 10005
Attention: Lawrence Lederman, Esq.
Telecopy No.: (212) 530-5219
Any party may change the foregoing address from time to time by giving the
other party notice thereof.
10. Injunctive Relief; Remedies Cumulative.
(a) Each party hereto acknowledges that the other party will be
irreparably harmed and that there will be no adequate remedy at law for
a violation of any of the covenants or agreements of such party that are
contained in this Agreement. It is accordingly agreed that, in addition
to any other remedies that may be available to the non-breaching party
upon the breach by any other party of such covenants and agreements, the
non-breaching party shall have the right to obtain injunctive relief to
restrain any breach or threatened breach of such covenants or agreements
or otherwise to obtain specific performance of any of such covenants or
agreements.
(b) No remedy conferred upon or reserved to any party herein is
intended to be exclusive of any other remedy, and every remedy shall be
cumulative and in addition to every other remedy herein or now or
hereafter existing at law, in equity or by statute.
11. Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without regard to the
principles of conflicts of laws thereof; provided, however, that the laws
of the State of Delaware shall govern as to internal corporate matters.
III-6
<PAGE>
12. Counterparts. This Agreement may be executed in any number of
counterparts, all of which together shall constitute a single agreement.
13. Effect of Partial Invalidity. Whenever possible, each provision
of this Agreement shall be construed in such a manner as to be effective
and valid under applicable law. If any provision of this Agreement or the
application thereof to any party or circumstance shall be prohibited by or
invalid under applicable law, such provisions shall be ineffective to the
extent of such prohibition without invalidating the remainder of such
provision or any other provisions of this Agreement or the application of
such provision to the other party or other circumstances.
14. Entire Agreement. This Agreement constitutes the entire
understanding among the parties hereto with respect to the subject matter
hereof and supersedes any prior agreements, written or oral, with respect
thereto.
15. Jurisdiction and Process. Each party hereto irrevocably submits
to the non-exclusive jurisdiction of the United States District Court for
the Southern District of New York and of any New York state court sitting
in New York City for the purposes of all legal proceedings arising out of
or relating to this Agreement or the transactions contemplated hereby. Each
party hereto irrevocably waives, to the fullest extent permitted by law,
any objection which it may now or hereafter have to the laying of the venue
of any such proceeding brought in such a court and any claim that any such
proceeding brought in such a court has been brought in an inconvenient
forum. Each party hereto agrees that a final judgment in any such
proceeding shall be conclusive and may be enforced in other jurisdictions
by suit on the judgment or in any other manner provided by law. Each party
hereto consents to process being served in any such proceeding by mailing a
copy thereof by registered or certified mail, postage prepaid, return
receipt requested to such party at its address specified in Section 9 or at
such other address of which such party shall then have been notified
pursuant to said Section. Each party hereto agrees that such service upon
receipt (i) shall be deemed in every respect effective service of process
upon it in any such proceeding and (ii) shall, to the fullest extent
permitted by applicable law, be taken and held be valid personal service
upon and personal delivery to such party. Such service shall be
conclusively presumed received as evidenced by a delivery receipt furnished
by the United States Postal Service or any reputable commercial delivery
service.
IN WITNESS WHEREOF, this Agreement has been executed by the parties as of
the date first above written.
GOLDEN PRESS HOLDING, L.L.C.
By: WARBURG, PINCUS VENTURES, L.P.
Member
By: WARBURG, PINCUS & CO., its
General Partner
By: /s/ DAVID A. TANNER
David A. Tanner
Partner
/s/ RICHARD A. BERNSTEIN
Richard A. Bernstein
III-7
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
Affiliate.................................................................................................. 1
beneficial ownership....................................................................................... 2
Bernstein Foundation....................................................................................... 3
Buyer...................................................................................................... 1
Company.................................................................................................... 1
Company Common Stock....................................................................................... 1
Nominee.................................................................................................... 2
Nominee Shares............................................................................................. 2
Other Shareholders......................................................................................... 1
P&E........................................................................................................ 5
Proxy...................................................................................................... 1
Publicly Disclosed......................................................................................... 4
Securities Act............................................................................................. 1
Securities Purchase........................................................................................ 1
Securities Purchase Agreement.............................................................................. 1
Series B Preferred Stock................................................................................... 1
Shareholder................................................................................................ 1
Shares..................................................................................................... 1
Warrant.................................................................................................... 1
WPV........................................................................................................ 2
</TABLE>
III-8
<PAGE>
APPENDIX IV
CERTIFICATE OF DESIGNATIONS, NUMBER, VOTING POWERS,
PREFERENCES AND RIGHTS OF SERIES B CONVERTIBLE
PREFERRED STOCK
OF
[WESTERN PUBLISHING GROUP, INC.]
PURSUANT TO SECTION 151 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
The undersigned DOES HEREBY CERTIFY that the following resolution was duly
adopted by the Board of Directors of [Western Publishing Group, Inc.], a
Delaware corporation (hereinafter called the 'Corporation'), with the
preferences and rights set forth therein relating to dividends, conversion,
redemption, dissolution and distribution of assets of the Corporation having
been fixed by the Board of Directors pursuant to authority granted to it under
Article FOURTH of the Corporation's Certificate of Incorporation and in
accordance with the provisions of Section 151 of the General Corporation Law of
the State of Delaware:
RESOLVED: That, pursuant to authority conferred upon the Board of Directors
by the Certificate of Incorporation of the Corporation, the Board of Directors
hereby authorizes the issuance of 13,000 shares of Series B Convertible
Preferred Stock of the Corporation, and hereby fixes the designations, powers,
preferences and relative, participating, optional or other special rights, and
the qualifications, limitations or restrictions thereof, of such shares, in
addition to those set forth in the Certificate of Incorporation of the
Corporation, as follows:
1. DESIGNATION AND AMOUNT. The shares of such series shall be designated
'Series B Convertible Preferred Stock' (the 'Series B Preferred Stock') and the
number of shares constituting such series shall be 13,000.
2. DIVIDENDS.
(a) The holders of Series B Preferred Stock (i) shall receive on the first
day of February, May, August and November (each a 'Dividend Date') of each
twelve-month period following the date of initial issuance of the Series B
Preferred Stock (the 'Initial Issuance Date') through the fourth anniversary of
the Initial Issuance Date, a stock dividend per share of Series B Preferred
Stock equal to a number of shares of Common Stock of the Corporation ('Common
Stock') determined by multiplying the Conversion Rate (as determined pursuant to
Sections 5 and 6 below) by .03 (such that at the initial Conversion Rate the
holders of the Series B Preferred Stock shall receive in the aggregate 195,000
shares of Common Stock on a quarterly basis, resulting in the receipt of an
aggregate of 780,000 shares of Common Stock in each of the first four years
after the Initial Issuance Date, subject to adjustment in the event of any
dividend, stock split, stock distribution or combination with respect to any
such shares), provided, however, that (x) in the event that the product of the
number of shares of Common Stock per share of Series B Preferred Stock to be
distributed in any quarter and the Market Price (as defined below) (the
'Dividend Value') is less than $93.75, then, in addition to such shares of
Common Stock, the holders shall receive on such date, out of legally available
funds of the Corporation, cash per share of Series B Preferred Stock in an
amount equal to the excess of $93.75 over the Dividend Value, compounded
quarterly, and (y) in the event that the Dividend Value exceeds $187.50, then
the number of shares of Common Stock to be so distributed shall be reduced by an
amount sufficient to cause the Dividend Value to equal $187.50 (subject in each
case to adjustment in the event of any dividend, stock split, stock distribution
or combination with respect to any such shares), and (ii) shall be entitled to
receive thereafter, beginning on the first to occur of the first day of
February, May, August or November after the fourth anniversary of the Initial
Issuance Date, when and as declared, out of legally available funds of the
Corporation, cash dividends (computed on the basis of a 360-day year of twelve
30-day months) at the rate of $150 per share (subject to adjustment in the event
of any dividend, stock split, stock distribution or combination with respect to
any such shares), compounded quarterly, payable quarterly on the first day of
February, May, August and November of each twelve-month period after the fourth
anniversary of the Initial Issuance Date, on a pari passu basis with the Series
A Preferred Stock of the Corporation (the 'Series A Preferred Stock') (such
stock and any other class or series of the preferred stock of the Corporation
which shall rank with respect to the payment of dividends on a parity with the
Series B Preferred
IV-1
<PAGE>
Stock being referred to hereinafter, collectively, as 'Parity Stock') and before
any dividends shall be set apart for or paid upon the Common Stock or any other
stock ranking with respect to the payment of dividends junior to the Series B
Preferred Stock (such stock being referred to hereinafter collectively as
'Junior Stock') in any year. All dividends declared upon Series B Preferred
Stock shall be declared pro rata per share.
For purposes of this Section 2, the term 'Market Price' shall mean the
average closing price of a share of Common Stock for the ten consecutive trading
days immediately preceding the Dividend Date or the conversion date, as the case
may be, as reported on the principal national securities exchange on which the
shares of Common Stock or securities are listed or admitted to trading or, if
not listed or admitted to trading on any national securities exchange, the
average of the closing bid and asked prices during such ten trading day period
in the over-the-counter market as reported by the Nasdaq National Market or any
comparable system, or, if no such firm is then engaged in the business of
reporting such prices, as reported by The Wall Street Journal, or, if not so
reported, as furnished by any member of the National Association of Securities
Dealers, Inc. selected by the Corporation or, if the shares of Common Stock or
securities are not publicly traded, the Market Price for such date shall be the
fair market value thereof determined jointly by the Corporation and the holders
of record of a majority of the Series B Preferred Stock then outstanding;
provided, however, that if such parties are unable to reach agreement within a
reasonable period of time, the Market Price shall be determined in good faith by
an independent investment banking firm selected jointly by the Corporation and
the holders of record of a majority of the Series B Preferred Stock then
outstanding or, if that selection cannot be made within ten days, by an
independent investment banking firm selected by the American Arbitration
Association in accordance with its rules, and provided further, that the
Corporation shall pay all of the fees and expenses of any third parties incurred
in connection with determining the Market Price.
(b) Dividends on the Series B Preferred Stock shall be cumulative, whether
or not in any fiscal year there shall be net profits or surplus available for
the payment of dividends in such fiscal year, so that if in any fiscal year or
years, dividends in whole or in part are not paid upon the Series B Preferred
Stock, (i) unpaid dividends shall accumulate and no sums in any years shall be
paid to the holders of the Junior Stock until all dividends payable on the
Series B Preferred Stock have been paid in full, and (ii) no full dividends
shall be declared or paid or set apart for payment on any Parity Stock for any
period unless full cumulative dividends have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for such payment on the Series B Preferred Stock for all dividend payment
periods terminating on or prior to the date of payment of such full cumulative
dividends. If at any time the Corporation shall have failed to pay full
dividends which have accrued (whether or not earned or declared) on the shares
of the Series B Preferred Stock and any other Parity Stock, all dividends (other
than Series B Preferred Stock dividends paid in shares of Common Stock) declared
upon shares of the Series B Preferred Stock and any other Parity Stock shall be
declared pro rata so that the amount of dividends declared per share on the
Series B Preferred Stock and such other Parity Stock shall in all cases bear to
each other the same ratio that accrued dividends per share on the Series B
Preferred Stock and other such Parity Stock bear to each other.
3. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, the holders of shares of Series B Preferred
Stock then outstanding shall be entitled to be paid out of the assets of the
Corporation available for distribution to its stockholders, after and subject to
the payment in full of all amounts required to be distributed to the holders of
any other Preferred Stock of the Corporation ranking on liquidation prior and in
preference to the Series B Preferred Stock (such Preferred Stock being referred
to hereinafter as 'Senior Preferred Stock') upon such liquidation, dissolution
or winding up, but before any payment shall be made to the holders of Junior
Stock, an amount equal to $5,000 per share plus any dividends thereon cumulated
or accrued but unpaid, whether or not declared (subject to adjustment in the
event of any stock dividend, stock split, stock distribution or combination with
respect to such shares). If upon any such liquidation, dissolution or winding up
of the Corporation the remaining assets of the Corporation available for the
distribution to its stockholders after payment in full of amounts required to be
paid or distributed to holders of Senior Preferred Stock shall be insufficient
to pay the holders of shares of Series B Preferred Stock the full amount to
which they shall be entitled, the holders of shares of Series B Preferred Stock
and shares of Parity Stock shall share ratably in any distribution of the
remaining assets and funds of the Corporation in proportion to the respective
amounts
IV-2
<PAGE>
which would otherwise be payable in respect to the shares held by them upon such
distribution if all amounts payable on or with respect to said shares were paid
in full.
(b) After the payment of all preferential amounts required to be paid to
the holders of Senior Preferred Stock, Series B Preferred Stock and Parity Stock
and any other series of Preferred Stock upon the dissolution, liquidation or
winding up of the Corporation, the holders of shares of Common Stock then
outstanding shall be entitled to receive the remaining assets and funds of the
Corporation available for distribution to its stockholders.
(c) The merger or consolidation of the Corporation into or with another
corporation, the merger or consolidation of any other corporation into or with
the Corporation, or the sale, conveyance, mortgage, pledge or lease of all or
substantially all the assets of the Corporation shall not be deemed to be a
liquidation, dissolution or winding up of the Corporation for purposes of this
Section 3.
4. VOTING.
(a) Each issued and outstanding share of Series B Preferred Stock shall be
entitled to the number of votes equal to the number of shares of Common Stock
into which each such share of Series B Preferred Stock is convertible (as
adjusted from time to time pursuant to Section 5 thereof), at each meeting of
stockholders of the Corporation with respect to any and all matters presented to
the stockholders of the Corporation for their action or consideration,
including, without limitation, the election of all directors (the 'Non-Series B
Directors') other than those as to which the Series B Preferred Stock has rights
voting separately as a class as set out in paragraphs (b) and (c) below. Except
as provided by law, by the provisions of paragraphs (b), (c) and (d) below or by
the provisions establishing any other series of Preferred Stock, holders of
Series B Preferred Stock, and of any other outstanding Preferred Stock that is
entitled to vote together with the holders of Common Stock as a single class,
shall vote together with the holders of Common Stock as a single class.
(b) In addition to the right of the holders of Series B Preferred Stock to
vote together with the holders of Common Stock as a single class with respect to
the election of the Non-Series B Directors, for as long as at least (i) 40% of
the shares of Series B Preferred Stock issued on the Initial Issuance Date
(after taking into account any adjustments provided for hereunder)(the 'Initial
Series B Shares') are owned by Golden Press Holding, L.L.C. ('GP Holding'), any
of its members, any Affiliates (as defined below) of such members (other than of
Warburg, Pincus Ventures, L.P. ('WPV')) and the general partnership that acts as
a general partner of WPV (GP Holding, its members, such Affiliates, WPV and such
general partnership being herein collectively referred to as the 'GP Holding
Parties'), the holders of Series B Preferred Stock shall have the exclusive
right, voting separately as a class, to elect one-third of the members of the
Corporation's Board of Directors (herein referred to as the 'Series B
Directors'), (ii) 30% of the Initial Series B Shares are owned by GP Holding
Parties, the holders of Series B Preferred Stock shall have the exclusive right,
voting separately as a class, to elect two Series B Directors, and (iii) 20% of
the Initial Series B Shares are owned by GP Holding Parties, the holders of
Series B Preferred Stock shall have the exclusive right, voting separately as a
class, to elect one Series B Director. In case such number of members calculated
pursuant to clause (i) of the immediately preceding sentence is not an integer,
the number of Series B Directors shall be rounded up to the next integer. All
such Series B Directors shall be elected by the affirmative vote of the holders
of record of a majority of the outstanding shares of Series B Preferred Stock
either at meetings of stockholders at which directors are elected, a special
meeting of holders of Series B Preferred Stock or by written consent without a
meeting in accordance with the General Corporation Law of Delaware. Each Series
B Director so elected shall serve for a term of one year and until his successor
is elected and qualified, provided, however, that promptly upon any decrease in
the number of Series B Directors that the holders of the Series B Preferred
Stock are entitled to elect pursuant to the first sentence of this paragraph
(b), the appropriate number of Series B Directors shall resign from the
Corporation's Board of Directors. Any vacancy in the position of a Series B
Director, other than pursuant to the proviso in the immediately preceding
sentence, may be filled only by the holders of the Series B Preferred Stock.
Each Series B Director may, during his term of office, be removed at any time,
with or without cause, by and only by the affirmative vote, at a special meeting
of holders of Series B Preferred Stock called for such purpose, or the written
consent, of the holders of record of a majority of the outstanding shares of
Series B Preferred Stock. Any vacancy created by such removal may also be filled
at such meeting or by such consent. On the Initial Issuance Date, the Board of
Directors of the Corporation shall consist of nine members. For purposes hereof,
'Affiliates' shall include persons included under the definition thereof in Rule
405 under the Securities Act of 1933, as amended, immediate family
IV-3
<PAGE>
members and trusts, 25% or more of the beneficial interests of which are owned
by such persons or one or more of their immediate family members.
(c) In addition to any other rights provided by law, for as long as at
least one-half ( 1/2) of the Initial Series B Shares are owned by GP Holding
Parties, the Corporation shall not (nor shall it, in the case of clauses (ii),
(iii), (iv) and (v), permit any of its subsidiaries to), without first obtaining
the affirmative vote or written consent of the holders of record of a majority
of the shares of the Series B Preferred Stock, voting as a separate class:
(i) amend or repeal any provision of the Corporation's Certificate of
Incorporation or By-Laws, including without limitation a change in the
number of members of the Board of Directors of the Corporation;
(ii) authorize or effect the incurrence or issuance of any
Indebtedness (as defined below) (other than pursuant to an agreement to
incur the same which has been approved in writing by holders of a majority
of outstanding shares of Series B Preferred Stock, and other than pursuant
to that certain Credit Agreement, dated September 29, 1995, between Western
Publishing Company, Inc. and Heller Financial, Inc.) or shares of capital
stock or rights to acquire capital stock other than, in the case of shares
of Common Stock, (x) options to acquire up to 1,874,300 shares of Common
Stock issued to employees of the Corporation pursuant to the Amended and
Restated 1986 Employee Stock Option Plan of the Corporation (the 'Stock
Option Plan') or (y) thereafter approved with the consent of the holders of
record of a majority of the then outstanding shares of Series B Preferred
Stock; provided, however, that the incurrence of Indebtedness among the
Corporation and its subsidiaries shall not require such consent;
(iii) authorize or effect (A) in one or in a series of two or more
related transactions, any sale, lease, license, transfer or other
disposition of assets for consideration in excess of $5,000,000 (other than
in the ordinary course of business or among the Corporation and its
subsidiaries); (B) any merger or consolidation or other reorganization
involving the Corporation or any of its subsidiaries (other than with one
another or in respect of which the aggregate consideration paid to or
received by the Corporation or its subsidiaries is less than $5,000,000) or
(C) a liquidation, winding up, dissolution or adoption of any plan for the
same other than the liquidation, winding up, dissolution or adoption of any
plan for the same of a subsidiary into the Corporation or another
subsidiary thereof;
(iv) authorize or effect, in one or in a series of two or more related
transactions, (A) any acquisition or lease of assets or (B) any license of
patent, trademark or other rights relating to any intellectual property, in
each case, that involves by its terms a per annum payment in excess of
$5,000,000 as determined in good faith by the Corporation's Board of
Directors, other than among the Corporation and its subsidiaries or in the
ordinary course of business; or
(v) terminate the employment of the chief executive officer of the
Corporation.
For purposes of this Section 4(c), 'Indebtedness' means liability for
borrowed money or the deferred purchase price of property or services (except
payables arising in the ordinary course of business) and including any
guaranties thereof.
Notwithstanding anything in paragraphs (b) or (c) to the contrary, in the
event that the shares of Series B Preferred Stock are held by more than 10
holders, then (i) the right of the holders of Series B Preferred Stock to vote
separately as a class to elect the Series B Directors shall terminate, and the
holders of the Series B Preferred Stock shall have the right to vote together
with the holders of Common Stock with respect to the election of all directors
as set forth in paragraph (a) above and (ii) the restrictions on the Corporation
set forth in this paragraph (c) shall terminate, provided that for purposes of
this sentence, each member of GP Holding (other than WPV) together with the
Affiliates of such member shall be deemed to be one holder (if such member or
Affiliate directly owns shares of Series B Preferred Stock) and WPV and the
general partnership that acts as a general partner of WPV together shall be
deemed to be one holder (if any such entity directly owns shares of Series B
Preferred Stock).
(d) The Corporation shall not amend, alter or repeal the preferences,
special rights or other powers of the Series B Preferred Stock so as to affect
adversely the Series B Preferred Stock, without the written consent or
affirmative vote of the holders of record of at least a majority of the then
outstanding aggregate number of shares of such adversely affected Series B
Preferred Stock, given in writing or by vote at a meeting, consenting or voting
(as the case may be) separately as a class. For this purpose, without limiting
the generality of the
IV-4
<PAGE>
foregoing, the authorization or issuance of any series of Preferred Stock with
preference or priority over, or being on a parity with, the Series B Preferred
Stock as to the right to receive either dividends or amounts distributable upon
liquidation, dissolution or winding up of the Corporation shall be deemed so to
affect adversely the Series B Preferred Stock.
5. OPTIONAL CONVERSION. Each share of Series B Preferred Stock may be
converted at any time from and after the Initial Issuance Date, at the option of
the holder thereof, in the manner hereinafter provided, into fully-paid and
nonassessable shares of Common Stock, provided, however, that on any redemption
of any Series B Preferred Stock or any liquidation of the Corporation, the right
of conversion shall terminate at the close of business on the date fixed for
such redemption or for the payment of any amounts distributable on liquidation
to the holders of Series B Preferred Stock, as the case may be (unless the
Corporation defaults upon the payment due upon such redemption or liquidation).
(a) The applicable conversion rate ('Conversion Rate') and conversion price
('Conversion Price') of the Series B Preferred Stock from time to time in effect
is subject to adjustment as hereinafter provided. The initial Conversion Rate
shall be 500 shares of Common Stock for each one share of Series B Preferred
Stock surrendered for conversion representing an initial Conversion Price (for
purposes of Section 6) of $10.00 per share of Common Stock. Exercise of the
conversion right set forth herein by the exercising holder shall not extinguish
such holder's right to receive, and of the Corporation's obligation to pay, any
and all accrued but unpaid dividends, whether or not declared, up to and
including the time of conversion in respect of any shares of Series B Preferred
Stock then being converted. In the event any such accrued but unpaid dividends
are not paid at the time of such conversion, interest on the unpaid amount of
such dividends shall continue to accrue at the rate of 12% per annum, compounded
quarterly, until such amount is paid.
(b) The Corporation shall not issue fractions of shares of Common Stock
upon conversion of Series B Preferred Stock or scrip in lieu thereof. If any
fraction of a share of Common Stock would, except for the provisions of this
paragraph (b), be issuable upon conversion of any Series B Preferred Stock, the
Corporation shall in lieu thereof pay to the person entitled thereto an amount
in cash equal to such fraction multiplied by the Market Price of one share of
Common Stock, calculated to the nearest one-hundredth ( 1/100) of a share.
(c) Whenever the Conversion Rate and Conversion Price shall be adjusted as
provided in Section 6 hereof, the Corporation shall forthwith file at each
office designated for the conversion of Series B Preferred Stock, a statement,
signed by the Chairman of the Board, the President, any Vice President or
Treasurer of the Corporation, showing in reasonable detail the facts requiring
such adjustment and the Conversion Rate that will be effective after such
adjustment. The Corporation shall also cause a notice setting forth any such
adjustments to be sent by mail, first class, postage prepaid, to each holder of
record of Series B Preferred Stock at his or its address appearing on the stock
register. If such notice relates to an adjustment resulting from an event
referred to in paragraph 6(g), such notice shall be included as part of the
notice required to be mailed and published under the provisions of paragraph
6(g) hereof.
(d) In order to exercise the conversion privilege, the holder of record of
any Series B Preferred Stock to be converted shall surrender his or its
certificate or certificates therefor to the principal office of the transfer
agent for the Series B Preferred Stock (or if no transfer agent is at the time
appointed, then the Corporation at its principal office), and shall give written
notice to the Corporation at such office that the holder elects to convert the
Series B Preferred Stock represented by such certificates, or any number
thereof. Such notice shall also state the name or names (with address) in which
the certificate or certificates for shares of Common Stock which shall be
issuable on such conversion shall be issued, subject to any restrictions on
transfer relating to shares of the Series B Preferred Stock or shares of Common
Stock upon conversion thereof. If so required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly authorized in writing. The date of receipt by the transfer agent (or by the
Corporation if the Corporation serves as its own transfer agent) of the
certificates and notice shall be the conversion date. As soon as practicable
after receipt of such notice and the surrender of the certificate or
certificates for Series B Preferred Stock as aforesaid, the Corporation shall
cause to be issued and delivered at such office to such holder, or on his or its
written order, a certificate or certificates for the number of full shares of
Common Stock issuable on such conversion in accordance with the provisions
hereof and cash as provided in paragraph (b) of this Section 5 in respect of any
fraction of a share of Common Stock otherwise issuable upon such conversion.
IV-5
<PAGE>
(e) The Corporation shall at all times when the Series B Preferred Stock
shall be outstanding reserve and keep available out of its authorized but
unissued stock, for the purposes of effecting the conversion of the Series B
Preferred Stock, such number of its duly authorized shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding Series B Preferred Stock. Before taking any action which would cause
an adjustment reducing the Conversion Price below the then par value of the
shares of Common Stock issuable upon conversion of the Series B Preferred Stock,
the Corporation will take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Corporation may validly and legally
issue fully-paid and nonassessable shares of such Common Stock at such adjusted
Conversion Price.
(f) All shares of Series B Preferred Stock which shall have been
surrendered for conversion as herein provided shall no longer be deemed to be
outstanding and all rights with respect to such shares, including the rights, if
any, to receive notices and to vote, shall forthwith cease and terminate except
the right of the holder thereof to receive payment of any accrued but unpaid
dividends thereon and shares of Common Stock in exchange therefor. Any shares of
Series B Preferred Stock so converted shall be retired and cancelled and shall
not be reissued, and the Corporation may from time to time take such appropriate
action as may be necessary to reduce the authorized Series B Preferred Stock
accordingly.
6. ANTI-DILUTION PROVISIONS.
(a) In order to prevent dilution of the right granted hereunder, the
Conversion Price shall be subject to adjustment from time to time in accordance
with this paragraph 6(a). At any given time the Conversion Price, whether as the
initial price of $10.00 per share or as last adjusted, shall be that dollar (or
part of a dollar) amount the payment of which shall be sufficient at the given
time to acquire one share of Common Stock upon conversion of shares of Series B
Preferred Stock. Upon each adjustment of the Conversion Price pursuant to
Section 6, the Conversion Rate shall be adjusted such that the registered
holders of shares of Series B Preferred Stock shall thereafter be entitled to
acquire upon exercise, at the Conversion Price resulting from such adjustment,
the number of shares of Common Stock obtainable by multiplying the Conversion
Price in effect immediately prior to such adjustment by the number of shares of
Common Stock acquirable immediately prior to such adjustment and dividing the
product thereof by the Conversion Price resulting from such adjustment. For
purposes of this Section 6, the term 'Number of Common Shares Deemed
Outstanding' at any given time shall mean the sum of (x) the number of shares of
Common Stock outstanding at such time, (y) the number of shares of Common Stock
issuable assuming conversion at such time of the Corporation's Series A
Preferred Stock and Series B Preferred Stock and (z) the number of shares of
Common Stock deemed to be outstanding under subparagraphs 6(b)(1) to (9),
inclusive, at such time.
(b) Except as provided in paragraph 6(c) or 6(f) below, if and whenever on
or after the Initial Issuance Date, the Corporation shall issue or sell, or
shall in accordance with subparagraphs 6(b)(1) to (9), inclusive, be deemed to
have granted, issued or sold, any shares of its Common Stock for a consideration
per share less than the Conversion Price in effect immediately prior to the time
of such grant, issue or sale, then forthwith upon such grant, issue or sale (the
'Triggering Transaction'), the Conversion Price shall, subject to subparagraphs
(1) to (9) of this paragraph 6(b), be reduced to the Conversion Price
(calculated to the nearest tenth of a cent) determined by dividing:
(i) an amount equal to the sum of (x) the product derived by
multiplying the Number of Common Shares Deemed Outstanding immediately
prior to such Triggering Transaction by the Conversion Price then in
effect, plus (y) the consideration, if any, received by the Corporation
upon consummation of such Triggering Transaction, by
(ii) an amount equal to the sum of (x) the Number of Common Shares
Deemed Outstanding immediately prior to such Triggering Transaction, plus
(y) the number of shares of Common Stock granted, issued or sold (or deemed
to be granted, issued or sold in accordance with subparagraphs 6(b)(1) to
(9) hereof) in connection with such Triggering Transaction;
provided, however, that the Conversion Price shall not be so reduced if (A) for
so long as the holders of the Series B Preferred Stock have the right to elect
one or more Series B Directors pursuant to Section 4(b) hereof or to approve
certain transactions by the Corporation pursuant to Section 4(c) hereof, such
Triggering Transaction involves a grant, issuance or sale of Common Stock to any
GP Holding Party other than ratably to all holders of the Common Stock, and such
Triggering Transaction has not been approved by a majority of the Non-Series B
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<PAGE>
Directors (other than natural persons who are GP Holding Parties or officers,
directors or employees of entities that are GP Holding Parties) or (B) the
Triggering Transaction involves a grant, issuance or sale of Common Stock that
has not been registered pursuant to the Securities Act of 1933, as amended, and
an investment bank of national standing and reputation, engaged for a fee by the
Corporation pursuant to a written engagement letter, has not been consulted by
the Corporation with respect to the structure of such Triggering Transaction and
participated in the negotiation of such Triggering Transaction.
For purposes of determining the adjusted Conversion Price under this
paragraph 6(b), the following subsections (1) to (9), inclusive, shall be
applicable:
(1) In case the Corporation at any time shall in any manner grant
(whether directly or by assumption in a merger or otherwise) any rights to
subscribe for or to purchase, or any options for the purchase of, (A)
Common Stock or (B) any stock or other securities convertible into or
exchangeable for Common Stock (such rights or options being herein called
'Options' and such convertible or exchangeable stock or securities being
herein called 'Convertible Securities'), whether or not such Options or the
right to convert or exchange any such Convertible Securities are
immediately exercisable, and the price per share for which the Common Stock
is issuable upon exercise, conversion or exchange (determined by dividing
(x) the total amount, if any, received or receivable by the Corporation as
consideration for the granting of such Options, plus the minimum aggregate
amount of additional consideration, if any, payable to the Corporation upon
the exercise of all such Options, plus, in the case of such Options which
relate to Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange thereof, by (y)
the total maximum number of shares of Common Stock issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities) shall be less than the Conversion Price in effect immediately
prior to the granting of such Option, then the total maximum amount of
Common Stock issuable upon the exercise of such Options or in the case of
Options which relate to Convertible Securities, upon the conversion or
exchange of such Convertible Securities, shall (as of the date of granting
of such Options) be deemed to be outstanding and to have been issued and
sold by the Corporation for such price per share. No adjustment of the
Conversion Price shall be made upon the actual issue of such shares of
Common Stock or such Convertible Securities upon the exercise of such
Options, except as otherwise provided in subparagraph (3) below.
(2) In case the Corporation at any time shall in any manner issue
(whether directly or by assumption in a merger or otherwise) or sell any
Convertible Securities, whether or not the rights to exchange or convert
thereunder are immediately exercisable, and the price per share for which
Common Stock is issuable upon such conversion or exchange (determined by
dividing (x) the total amount received or receivable by the Corporation as
consideration for the issue or sale of such Convertible Securities, plus
the minimum aggregate amount of additional consideration, if any, payable
to the Corporation upon the conversion or exchange thereof, by (y) the
total maximum number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities) shall be less than the
Conversion Price in respect of such issue or sale, then the total maximum
number of shares of Common Stock issuable upon conversion or exchange of
all such Convertible Securities shall (as of the date of the issue or sale
of such Convertible Securities) be deemed to be outstanding and to have
been issued and sold by the Corporation for such price per share. No
adjustment of the Conversion Price shall be made upon the actual issue of
such Common Stock upon exercise of the rights to exchange or convert under
such Convertible Securities, except as otherwise provided in subparagraph
(3) below.
(3) If the purchase price provided for in any Options referred to in
subparagraph (1), the additional consideration, if any, payable upon the
conversion or exchange of any Convertible Securities referred to in
subparagraphs (1) or (2), or the rate at which any Convertible Securities
referred to in subparagraph (1) or (2) are convertible into or exchangeable
for Common Stock shall change at any time (other than under or by reason of
provisions designed to protect against dilution of the type set forth in
paragraphs 6(b) or 6(d)), the Conversion Price in effect at the time of
such change shall forthwith be readjusted to the Conversion Price which
would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed purchase price,
additional consideration or conversion rate, as the case may be, at the
time initially granted, issued or sold. If the purchase price provided for
in any Option referred to in subparagraph (1) or the rate at which any
Convertible Securities referred to in subparagraphs (1) or (2) are
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<PAGE>
convertible into or exchangeable for Common Stock, shall be reduced at any
time under or by reason of provisions with respect thereto designed to
protect against dilution, then in case of the delivery of Common Stock upon
the exercise of any such Option or upon conversion or exchange of any such
Convertible Security, the Conversion Price then in effect hereunder shall
forthwith be adjusted to such respective amount as would have been obtained
had such Option or Convertible Security never been issued as to such Common
Stock and had adjustments been made upon the issuance of the shares of
Common Stock delivered as aforesaid, but only if as a result of such
adjustment the Conversion Price then in effect hereunder is hereby reduced.
(4) On the expiration of any Option or the termination of any right to
convert or exchange any Convertible Securities, the Conversion Price then
in effect hereunder shall forthwith be increased to the Conversion Price
which would have been in effect at the time of such expiration or
termination had such Option or Convertible Securities, to the extent
outstanding immediately prior to such expiration or termination, never been
issued.
(5) In case any Options shall be issued in connection with the issue
or sale of other securities of the Corporation, together comprising one
integral transaction in which no specific consideration is allocated to
such Options by the parties thereto, such Options shall be deemed to have
been issued without consideration (but shall otherwise be deemed issued for
the specific consideration allocated thereto).
(6) In case any shares of Common Stock, Options or Convertible
Securities shall be issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor less any underwriting
discounts, selling commissions and other expenses paid or incurred in
respect of such issuance or sale, shall be deemed to be the amount received
by the Corporation therefor. In case any shares of Common Stock, Options or
Convertible Securities shall be issued or sold for a consideration other
than cash, the amount of the consideration other than cash received by the
Corporation shall be the fair value of such consideration as determined in
good faith by the Board of Directors of the Corporation. In case any shares
of Common Stock, Options or Convertible Securities shall be issued in
connection with any merger in which the Corporation is the surviving
corporation, the amount of consideration therefor shall be deemed to be the
value attributable to such shares in such merger, provided that, to the
extent such value is not readily ascertainable, such value shall be the
fair value of such consideration as determined in good faith by the Board
of Directors of the Corporation.
(7) The number of shares of Common Stock outstanding at any given time
shall not include shares owned or held by or for the account of the
Corporation, and the disposition of any shares so owned or held shall be
considered an issue or sale of Common Stock for the purpose of this
paragraph 6(b).
(8) In case the Corporation shall declare a dividend or make any other
distribution upon the stock of the Corporation (other than dividends
payable on the Series B Preferred Stock pursuant to Section 2 hereof)
payable in Common Stock, Options, or Convertible Securities (other than a
dividend or distribution payable in Common Stock covered by subparagraph
6(c) or 6(d)), then in such case any Common Stock, Options or Convertible
Securities, as the case may be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or sold without
consideration.
(9) For purposes of this paragraph 6(b), in case the Corporation shall
take a record of the holders of its Common Stock for the purpose of
entitling them (x) to receive a dividend or other distribution payable in
Common Stock, Options or in Convertible Securities, or (y) to subscribe for
or purchase Common Stock, Options or Convertible Securities, then such
record date shall be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or
the date of the granting of such right or subscription or purchase, as the
case may be.
(c) In the event the Corporation shall declare a dividend upon the Common
Stock payable otherwise than out of earnings or earned surplus, determined in
accordance with generally accepted accounting principles, including the making
of appropriate deductions for minority interests, if any, in subsidiaries but
without increasing the same as a result of any write-up of assets related to
such dividend or any gain from the sale of any capital assets related to such
dividend (herein referred to as 'Liquidating Dividends'), then, the Corporation
shall pay to the holders of the Series B Preferred Stock (in respect of each
share of Class B Preferred Stock), at the time such
IV-8
<PAGE>
dividend is paid to holders of the Common Stock and in addition to any other
dividend required to be paid to the holders of the Series B Preferred Stock, an
amount equal to the product of the Conversion Rate then in effect and the
aggregate value at such time of all Liquidating Dividends paid in respect of one
share of Common Stock. For the purposes of this paragraph 6(c), a dividend shall
be considered payable out of earnings or earned surplus only if paid in cash and
to the extent that such earnings or earned surplus are charged an amount equal
to the fair value of such dividend as determined in good faith by the Board of
Directors of the Corporation.
(d) In case the Corporation shall at any time subdivide its outstanding
shares of Common Stock into a greater number of shares, the Conversion Price in
effect immediately prior to such subdivision shall be proportionately reduced,
and, conversely, in case the outstanding shares of Common Stock of the
Corporation shall be combined into a smaller number of shares, the Conversion
Price in effect immediately prior to such combination shall be proportionately
increased.
(e) If any capital reorganization or reclassification of the capital stock
of the Corporation, or consolidation or merger of the Corporation with another
corporation, or the sale of all or substantially all of its assets to another
corporation (other than pursuant to a liquidation subject to Section 3 hereof)
shall be effected in such a way that holders of Common Stock shall be entitled
to receive stock, securities, cash or other property with respect to or in
exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the holders of the Series B Preferred Stock shall have the
right to acquire and receive upon conversion of the Series B Preferred Stock,
which right shall be pari passu with the rights of holders of Parity Stock and
prior to the rights of the holders of Junior Stock (but after and subject to the
rights of holders of Senior Preferred Stock, if any), such shares of stock,
securities, cash or other property issuable or payable (as part of the
reorganization, reclassification, consolidation, merger or sale) with respect to
or in exchange for such number of outstanding shares of Common Stock as would
have been received upon conversion of the Series B Preferred Stock at the
Conversion Price then in effect. The Corporation will not effect any such
consolidation, merger or sale, unless prior to the consummation thereof the
successor corporation (if other than the Corporation) resulting from such
consolidation or merger or the corporation purchasing such assets shall assume
by written instrument (in form and substance reasonably satisfactory to the
holders of a majority of the outstanding Series B Preferred Stock) mailed or
delivered to the holders of the Series B Preferred Stock at the last address of
each such holder appearing on the books of the Corporation, the obligation to
deliver to each such holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
purchase.
(f) The provisions of this Section 6 shall not apply to any Common Stock
issued or issuable to any person or entity, or deemed outstanding, under
subparagraphs 6(b)(1) to (9) inclusive: (i) on exercise of options outstanding
as of the Initial Issuance Date to acquire up to 1,874,300 shares of Common
Stock issued to employees of the Corporation pursuant to the Stock Option Plan
or any options approved by the holders of record of a majority of the
outstanding shares of Series B Preferred Stock pursuant to Section 4(c)(ii)(y)
hereof, (ii) pursuant to options granted to Richard E. Snyder under the Stock
Option Plan, as amended by the Corporation's Board of Directors on January 31,
1996, (iii) on conversion of the Series B Preferred Stock or Series A Preferred
Stock, (iv) as a dividend on the Series B Preferred Stock, or (v) on exercise of
the Warrant issued to GP Holding on the Initial Issuance Date.
(g) In the event that:
(1) the Corporation shall declare any cash dividend upon its Common
Stock, or
(2) the Corporation shall declare any dividend upon its Common Stock
payable in stock or make any special dividend or other distribution to the
holders of its Common Stock, or
(3) the Corporation shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or
other rights, or
(4) there shall be any capital reorganization or reclassification of
the capital stock of the Corporation, including any subdivision or
combination of its outstanding shares of Common Stock, or consolidation or
merger of the Corporation with, or sale of all or substantially all of its
assets to, another individual or entity, or
(5) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Corporation;
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<PAGE>
then, in connection with such event, the Corporation shall give to the holders
of the Series B Preferred Stock:
(i) at least ten (10) days' prior written notice of the date on which
the books of the Corporation shall close or a record shall be taken for
such dividend, distribution or subscription rights or for determining
rights to vote in respect of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up; and
(ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at
least twenty (20) days' prior written notice of the date when the same
shall take place. Such notice in accordance with the foregoing clause (i)
shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Common Stock shall be
entitled thereto, and such notice in accordance with the foregoing clause
(ii) shall also specify the date on which the holders of Common Stock shall
be entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification consolidation,
merger, sale, dissolution, liquidation or winding up, as the case may be.
Each such written notice shall be given by first class mail, postage
prepaid, addressed to the holders of the Series B Preferred Stock at the
address of each such holder as shown on the books of the Corporation.
(h) If at any time or from time to time on or after the Initial Issuance
Date, the Corporation shall grant, issue or sell any Options, Convertible
Securities, rights to purchase property or evidences of indebtedness (the
'Purchase Rights') pro rata to the record holders of any class of Common Stock
and such grants, issuances or sales do not result in an adjustment of the
Conversion Price under paragraph 6(b) hereof, then each holder of record of
Series B Preferred Stock shall be entitled to acquire (within thirty (30) days
after the later to occur of the initial exercise date of such Purchase Rights or
receipt by such holder of the notice concerning Purchase Rights to which such
holder shall be entitled under paragraph 6(g)) and upon the terms applicable to
such Purchase Rights either:
(i) the aggregate Purchase Rights which such holder could have
acquired if it had held the number of shares of Common Stock acquirable
upon conversion of the Series B Preferred Stock immediately before the
grant, issuance or sale of such Purchase Rights; provided that if any
Purchase Rights were distributed to holders of Common Stock without the
payment of additional consideration by such holders, corresponding Purchase
Rights shall be distributed to the exercising holders of the Series B
Preferred Stock as soon as possible after such exercise and it shall not be
necessary for the exercising holders of the Series B Preferred Stock
specifically to request delivery of such rights; or
(ii) in the event that any such Purchase Rights shall have expired or
shall expire prior to the end of said thirty (30) day period, the number of
shares of Common Stock or the amount of property which such holder could
have acquired upon such exercise at the time or times at which the
Corporation granted, issued or sold such expired Purchase Rights.
(i) If any event occurs as to which, in the opinion of the Board of
Directors of the Corporation, the provisions of this Section 6 are not strictly
applicable or if strictly applicable would not fairly protect the rights of the
holders of the Series B Preferred Stock in accordance with the essential intent
and principles of such provisions, then the Board of Directors shall make an
adjustment in the application of such provisions, in accordance with such
essential intent and principles, so as to protect such rights as aforesaid, but
in no event shall any adjustment have the effect of increasing the Conversion
Price as otherwise determined pursuant to any of the provisions of this Section
6 except in the case of a combination of shares of a type contemplated in
paragraph 6(d) and then in no event to an amount larger than the Conversion
Price as adjusted pursuant to paragraph 6(d).
7. REDEMPTION.
(a) The Corporation, at its option, may redeem (to the extent that such
redemption shall not violate any applicable provisions of the laws of the State
of Delaware) all or a portion of the shares of Series B Preferred Stock at a
price of $5,000 per share (subject to adjustment in the event of any stock
dividend, stock split, stock distribution or combination with respect to such
shares), plus an amount equal to any dividends thereon cumulated or accrued but
unpaid, whether or not declared (such amount is hereinafter referred to as the
'Redemption Price'), from time to time after the fourth anniversary of the
Initial Issuance Date (any such date of redemption is hereafter referred to as a
'Redemption Date'), if prior to such redemption all accrued but unpaid dividends
on all outstanding shares of Series B Preferred Stock have been paid, provided,
however, that,
IV-10
<PAGE>
without the written consent of the holders of a majority of the outstanding
shares of Class A Preferred Stock, the Corporation shall not redeem any shares
of Class B Preferred Stock so long as any shares of Class A Preferred Stock
remain outstanding.
(b) In the event of any redemption of only a part of the then outstanding
Series B Preferred Stock, the Corporation shall effect such redemption pro rata
among the holders thereof (based on the number of shares of Series B Preferred
Stock held on the date of notice of redemption).
(c) At least thirty (30) days prior to any proposed Redemption Date,
written notice shall be mailed, postage prepaid, to each holder of record of
Series B Preferred Stock to be redeemed, at his or its post office address last
shown on the records of the Corporation, notifying such holder of the number of
shares so to be redeemed, specifying the Redemption Date and the date on which
such holder's conversion rights (pursuant to Section 5 hereof) as to such shares
terminate and calling upon such holder to surrender to the Corporation, in the
manner and at the place designated, his or its certificate or certificates
representing the shares to be redeemed (such notice is hereinafter referred to
as the 'Redemption Notice'). On or prior to each Redemption Date, each holder of
record of Series B Preferred Stock to be redeemed shall surrender his or its
certificate or certificates representing such shares to the Corporation, in the
manner and at the place designated in the Redemption Notice, and thereupon the
Redemption Price of such shares shall be payable to the order of the person
whose name appears on such certificate or certificates as the owner thereof and
each surrendered certificate shall be cancelled. In the event less than all the
shares represented by any such certificate are redeemed, a new certificate shall
be issued representing the unredeemed shares. From and after the Redemption
Date, unless there shall have been a default in payment of the Redemption Price,
all rights of the holders of the Series B Preferred Stock designated for
redemption in the Redemption Notice as holders of Series B Preferred Stock of
the Corporation (except the right to receive the Redemption Price upon surrender
of their certificate or certificates) shall cease with respect to such shares,
and such shares shall not thereafter be transferred on the books of the
Corporation or be deemed to be outstanding for any purpose whatsoever.
(d) Except as provided in paragraph (a) above, the Corporation shall have
no right to redeem the shares of Series B Preferred Stock. Any shares of Series
B Preferred Stock so redeemed shall be permanently retired, shall no longer be
deemed outstanding and shall not under any circumstances be reissued, and the
Corporation may from time to time take such appropriate corporate action as may
be necessary to reduce the amount of authorized Series B Preferred Stock
accordingly. Nothing herein contained shall prevent or restrict the purchase by
the Corporation, from time to time either at public or private sale, of the
whole or any part of the Series B Preferred Stock at such price or prices as the
Corporation and the selling holders of the Series B Preferred Stock may mutually
determine, subject to the provisions of applicable law.
IN WITNESS WHEREOF, [Western Publishing Group, Inc.] has caused this
Certificate of Designations, Number, Voting Powers, Preferences and Rights of
Series B Convertible Preferred Stock to be duly executed by its
this day of , 1996.
[WESTERN PUBLISHING GROUP, INC.]
By:
----------------------------------
Name:
Title:
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<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
Affiliates................................................................................................. 3
Common Stock............................................................................................... 1
Conversion Price........................................................................................... 5
Conversion Rate............................................................................................ 5
Convertible Securities..................................................................................... 7
Corporation................................................................................................ 1
Dividend Date.............................................................................................. 1
Dividend Value............................................................................................. 1
GP Holding................................................................................................. 3
GP Holding Parties......................................................................................... 3
Indebtedness............................................................................................... 4
Initial Issuance Date...................................................................................... 1
Initial Series B Shares.................................................................................... 3
Junior Stock............................................................................................... 2
Liquidating Dividends...................................................................................... 8
Market Price............................................................................................... 2
Non-Series B Directors..................................................................................... 3
Number of Common Shares Deemed Outstanding................................................................. 6
Parity Stock............................................................................................... 2
Redemption Date............................................................................................ 10
Redemption Notice.......................................................................................... 11
Redemption Price........................................................................................... 10
Senior Preferred Stock..................................................................................... 2
Series A Preferred Stock................................................................................... 1
Series B Directors......................................................................................... 3
Series B Preferred Stock................................................................................... 1
Stock Option Plan.......................................................................................... 4
Triggering Transaction..................................................................................... 6
WPV........................................................................................................ 3
</TABLE>
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<PAGE>
APPENDIX V
FORM OF WARRANT
THIS WARRANT AND THE SECURITIES ISSUABLE UPON ITS EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE 'ACT'), AND MAY NOT
BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION UNDER THE ACT OR IN
A TRANSACTION WHICH, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO
[WESTERN PUBLISHING GROUP, INC.], QUALIFIES AS AN EXEMPT TRANSACTION UNDER THE
ACT AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER.
[WESTERN PUBLISHING GROUP, INC.]
COMMON STOCK PURCHASE WARRANT
[Western Publishing Group, Inc.], a Delaware corporation (the 'Company'),
hereby certifies that, for value received, Golden Press Holding, L.L.C. (the
'Holder'), or assigns, is entitled, subject to the terms set forth below, to
purchase from the Company, at any time and from time to time during the period
beginning on the earlier to occur of (i) the second anniversary of the date of
issuance hereof and (ii) the date on which a bona fide Business Combination
Proposal (as defined in the Securities Purchase Agreement, dated as of January
31, 1996, between the Company and the Holder) is publicly announced or a proxy
solicitation for control of the Company's Board of Directors is initiated by any
person or entity other than a Holder Party (as defined in Section 3.1
hereof)(the 'Earliest Exercise Date'), and ending on , 2003, in
whole or in part, an aggregate of 3,250,000 fully paid and non-assessable shares
of the Common Stock of the Company at a purchase price, subject to the
provisions of Paragraph 3 hereof, of $10.00 per share (the 'Purchase Price').
The Purchase Price and the number and character of such shares are subject to
adjustment as provided below, and the term 'Common Stock' shall mean, unless the
context otherwise requires, the stock or other securities or property at the
time deliverable upon the exercise of this Warrant.
1. EXERCISE OF WARRANT. The purchase rights evidenced by this Warrant
shall be exercised by the holder surrendering this Warrant, with the form of
subscription at the end hereof duly executed by such holder, to the Company at
its office in New York, New York, accompanied by payment of an amount (the
'Exercise Amount') equal to the Purchase Price multiplied by the number of
shares being purchased pursuant to such exercise, payable as follows: (i) by
payment to the Company in cash, by certified or official bank check, or by wire
transfer of the Exercise Amount, (ii) by surrender to the Company for
cancellation of securities of the Company having a Market Price (as hereinafter
defined) in respect of such exercise equal to the Exercise Amount, or (iii) by a
combination of the methods described in clauses (i) and (ii) above. In lieu of
exercising this Warrant pursuant to the immediately preceding sentence, the
holder may elect to receive a payment equal to the difference between (i) the
Market Price multiplied by the number of shares as to which this Warrant is then
being exercised and (ii) the Purchase Price with respect to such shares, payable
by the Company to the Holder only in shares of Common Stock valued at the Market
Price in respect of such exercise, by surrendering this Warrant, with the form
of subscription at the end hereof duly executed by such holder, to the Company
at its office in New York, New York. For purposes hereof, the term 'Market
Price' shall mean the average closing price of a share of Common Stock for the
ten consecutive trading days immediately preceding the date of exercise of this
Warrant as reported on the principal national securities exchange on which the
shares of Common Stock or securities are listed or admitted to trading or, if
not listed or admitted to trading on any national securities exchange, the
average of the closing bid and asked prices during such ten trading day period
in the over-the-counter market as reported by the Nasdaq National Market or any
comparable system, or, if no such firm is then engaged in the business of
reporting such prices, as reported by The Wall Street Journal, or, if not so
reported, as furnished by any member of the National Association of Securities
Dealers, Inc. selected by the Company or, if the shares of Common Stock or
securities are not publicly traded, the Market Price for such day shall be the
fair market value thereof determined jointly by the Company and the holder of
this Warrant; provided, however, that if such parties
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<PAGE>
are unable to reach agreement within a reasonable period of time, the Market
Price shall be determined in good faith by an independent investment banking
firm selected jointly by the Company and the holder of this Warrant or, if that
selection cannot be made within ten days, by an independent investment banking
firm selected by the American Arbitration Association in accordance with its
rules, and provided further, that the Company shall pay all of the fees and
expenses of any third parties incurred in connection with determining the Market
Price.
1.1. Partial Exercise. This Warrant may be exercised for less than the
full number of shares of Common Stock, in which case the number of shares
receivable upon the exercise of this Warrant as a whole, and the sum payable
upon the exercise of this Warrant as a whole, shall be proportionately reduced.
Upon any such partial exercise, the Company at its expense will forthwith issue
to the holder hereof a new Warrant or Warrants of like tenor calling for the
number of shares of Common Stock as to which rights have not been exercised,
such Warrant or Warrants to be issued in the name of the holder hereof or its
nominee (upon payment by such holder of any applicable transfer taxes).
2. DELIVERY OF STOCK CERTIFICATES ON EXERCISE. As soon as practicable
after the exercise of this Warrant and payment of the Purchase Price, and in any
event within ten (10) days thereafter, the Company, at its expense, will cause
to be issued in the name of and delivered to the holder hereof a certificate or
certificates for the number of fully paid and non-assessable shares or other
securities or property to which such holder shall be entitled upon such
exercise, plus, in lieu of any fractional share to which such holder would
otherwise be entitled, cash in an amount determined in accordance with Paragraph
3.9 hereof. The Company agrees that the shares so purchased shall be deemed to
be issued to the holder hereof as the record owner of such shares as of the
close of business on the date on which this Warrant shall have been surrendered
and payment made for such shares as aforesaid.
3. ANTI-DILUTION PROVISIONS AND OTHER ADJUSTMENTS. In order to prevent
dilution of the right granted hereunder, the Purchase Price shall be subject to
adjustment from time to time in accordance with this Paragraph 3. Upon each
adjustment of the Purchase Price pursuant to this Paragraph 3, the registered
Holder of this Warrant shall thereafter be entitled to acquire upon exercise, at
the Purchase Price resulting from such adjustment, the number of shares of
Common Stock obtainable by multiplying the Purchase Price in effect immediately
prior to such adjustment by the number of shares of Common Stock acquirable
immediately prior to such adjustment and dividing the product thereof by the
Purchase Price resulting from such adjustment.
3.1. Adjustment for Issue or Sale of Common Stock at Less than Purchase
Price. Except as provided in Paragraph 3.2 or 3.5 below, if and whenever on or
after the date of issuance hereof the Company shall grant, issue or sell, or
shall in accordance with subparagraphs 3.1(1) to (9), inclusive, be deemed to
have granted, issued or sold, any shares of its Common Stock for a consideration
per share less than the Purchase Price in effect immediately prior to the time
of such grant, issue or sale, then forthwith upon such grant, issue or sale (the
'Triggering Transaction'), the Purchase Price shall, subject to subparagraphs
(1) to (9) of this Paragraph 3.1, be reduced to the Purchase Price (calculated
to the nearest tenth of a cent) determined by dividing:
(i) an amount equal to the sum of (x) the product derived by
multiplying the Number of Common Shares Deemed Outstanding immediately
prior to such Triggering Transaction by the Purchase Price then in effect,
plus (y) the consideration, if any, received by the Company upon
consummation of such Triggering Transaction, by
(ii) an amount equal to the sum of (x) the Number of Common Shares
Deemed Outstanding immediately prior to such Triggering Transaction plus
(y) the number of shares of Common Stock granted, issued or sold (or deemed
to be granted, issued or sold in accordance with subparagraphs 3.1(1) to
(9)) in connection with the Triggering Transaction;
provided, however, that the Purchase Price shall not be so reduced if (i) so
long as the Holder has the right to elect as a class one or more directors of
the Company's Board of Directors or to approve certain transactions by the
Company pursuant to Section 4(b) or 4(c), respectively, of the Certificate of
Designations of the Company's Series B Convertible Preferred Stock (the 'Series
B Preferred Stock'), such Triggering Transaction involves a grant, issuance or
sale of Common Stock to the Holder, any of its members, any affiliates of such
members (other than of Warburg, Pincus Ventures, L.P. ('WPV')) and the general
partnership that acts as a general partner of WPV (the Holder, its members, such
affiliates and such general partnership being herein collectively referred to
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<PAGE>
as the 'Holder Parties'), other than ratably to all holders of the Common Stock,
and such Triggering Transaction has not been approved by a majority of the
Non-Series B Directors (as defined in said Certificate of Designations and
excluding natural persons who are Holder Parties or officers, directors or
employees of entities that are Holder Parties) or (ii) the Triggering
Transaction involves a grant, issuance or sale of Common Stock that has not been
registered pursuant to the Securities Act of 1933, as amended, and an investment
bank of national standing and reputation, engaged for fee by the Company
pursuant to a written engagement letter, has not been consulted by the Company
with respect to the structure of such Triggering Transaction and participated in
the negotiation of such Triggering Transaction.
For purposes of this Paragraph 3, the term 'Number of Common Shares Deemed
Outstanding' at any given time shall mean the sum of (x) the number of shares of
Common Stock outstanding at such time, (y) the number of shares of Common Stock
issuable assuming conversion at such time of the Company's Series A Preferred
Stock and Series B Convertible Preferred Stock and (z) the number of shares of
the Company's Common Stock deemed to be outstanding under subparagraphs 3.1(1)
to (9), inclusive, at such time.
For purposes of determining the adjusted Purchase Price under this
Paragraph 3.1, the following subsections (1) to (9), inclusive, shall be
applicable:
(1) In case the Company at any time shall in any manner grant (whether
directly or by assumption in a merger or otherwise) any rights to subscribe
for or to purchase, or any options for the purchase of, Common Stock or any
stock or other securities convertible into or exchangeable for Common Stock
(such rights or options being herein called 'Options' and such convertible
or exchangeable stock or securities being herein called 'Convertible
Securities'), whether or not such Options or the right to convert or
exchange any such Convertible Securities are immediately exercisable and
the price per share for which the Common Stock is issuable upon exercise,
conversion or exchange (determined by dividing (x) the total amount, if
any, received or receivable by the Company as consideration for the
granting of such Options, plus the minimum aggregate amount of additional
consideration payable to the Company upon the exercise of all such Options,
plus, in the case of such Options which relate to Convertible Securities,
the minimum aggregate amount of additional consideration, if any, payable
upon the issue or sale of such Convertible Securities and upon the
conversion or exchange thereof, by (y) the total maximum number of shares
of Common Stock issuable upon the exercise of such Options or the
conversion or exchange of such Convertible Securities) shall be less than
the Purchase Price in effect immediately prior to the time of the granting
of such Option, then the total maximum amount of Common Stock issuable upon
the exercise of such Options, or, in the case of Options which relate to
Convertible Securities, upon the conversion or exchange of such Convertible
Securities, shall (as of the date of granting of such Options) be deemed to
be outstanding and to have been issued and sold by the Company for such
price per share. No adjustment of the Purchase Price shall be made upon the
actual issue of such shares of Common Stock or such Convertible Securities
upon the exercise of such Options, except as otherwise provided in
subparagraph (3) below.
(2) In case the Company at any time shall in any manner issue (whether
directly or by assumption in a merger or otherwise) or sell any Convertible
Securities, whether or not the rights to exchange or convert thereunder are
immediately exercisable, and the price per share for which Common Stock is
issuable upon such conversion or exchange (determined by dividing (x) the
total amount received or receivable by the Company as consideration for the
issue or sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (y) the total maximum number of shares
of Common Stock issuable upon the conversion or exchange of all such
Convertible Securities) shall be less than the Purchase Price in effect
immediately prior to the time of such issue or sale, then the total maximum
number of shares of Common Stock issuable upon conversion or exchange of
all such Convertible Securities shall (as of the date of the issue or sale
of such Convertible Securities) be deemed to be outstanding and to have
been issued and sold by the Company for such price per share. No adjustment
of the Purchase Price shall be made upon the actual issue of such Common
Stock upon exercise of the rights to exchange or convert under such
Convertible Securities, except as otherwise provided in subparagraph (3)
below.
(3) If the purchase price provided for in any Options referred to in
subparagraph (1), the additional consideration, if any, payable upon the
conversion or exchange of any Convertible Securities referred to in
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<PAGE>
subparagraphs (1) or (2), or the rate at which any Convertible Securities
referred to in subparagraph (1) or (2) are convertible into or exchangeable
for Common Stock shall change at any time (other than under or by reason of
provisions designed to protect against dilution of the type set forth in
Paragraph 3.1 or 3.3), the Purchase Price in effect at the time of such
change shall forthwith be readjusted to the Purchase Price which would have
been in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time initially
granted, issued or sold. If the purchase price provided for in any Option
referred to in subparagraph (1) or the rate at which any Convertible
Securities referred to in subparagraphs (1) or (2) are convertible into or
exchangeable for Common Stock, shall be reduced at any time under or by
reason of provisions with respect thereto designed to protect against
dilution, then in case of the delivery of Common Stock upon the exercise of
any such Option or upon conversion or exchange of any such Convertible
Security, the Purchase Price then in effect hereunder shall forthwith be
adjusted to such respective amount as would have been obtained had such
Option or Convertible Security never been issued as to such Common Stock
and had adjustments been made upon the issuance of the shares of Common
Stock delivered as aforesaid, but only if as a result of such adjustment
the Purchase Price then in effect hereunder is hereby reduced.
(4) On the expiration of any Option or the termination of any right to
convert or exchange any Convertible Securities, the Purchase Price then in
effect hereunder shall forthwith be increased to the Purchase Price which
would have been in effect at the time of such expiration or termination had
such Option or Convertible Securities, to the extent outstanding
immediately prior to such expiration or termination, never been issued.
(5) In case any Options shall be issued in connection with the issue
or sale of other securities of the Company, together comprising one
integral transaction in which no specific consideration is allocated to
such Options by the parties thereto, such Options shall be deemed to have
been issued without consideration (but shall otherwise be deemed issued for
the specific consideration allocated thereto).
(6) In case any shares of Common Stock, Options or Convertible
Securities shall be issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor, less any underwriting
discounts, selling commissions and other expenses paid or incurred in
respect of such issuance or sale, shall be deemed to be the amount received
by the Company therefor. In case any shares of Common Stock, Options or
Convertible Securities shall be issued or sold for a consideration other
than cash, the amount of the consideration other than cash received by the
Company shall be the fair value of such consideration as determined in good
faith by the Board of Directors of the Company. In case any shares of
Common Stock, Options or Convertible Securities shall be issued in
connection with any merger in which the Company is the surviving
corporation, the amount of consideration therefor shall be deemed to be the
value attributable to such shares in such merger, provided that, to the
extent such value is not ascertainable, such value shall be the fair value
of such consideration as determined in good faith by the Board of Directors
of the Company.
(7) The number of shares of Common Stock outstanding at any given time
shall not include shares owned or held by or for the account of the
Company, and the disposition of any shares so owned or held shall be
considered an issue or sale of Common Stock for the purpose of this
Paragraph 3.1.
(8) In case the Company shall declare a dividend or make any other
distribution upon the stock of the Company payable in Common Stock,
Options, or Convertible Securities (other than a dividend or distribution
payable in Common Stock covered by Section 3.3 or 3.4), then in such case
any Common Stock, Options or Convertible Securities, as the case may be,
issuable in payment of such dividend or distribution shall be deemed to
have been issued or sold without consideration.
(9) For purposes of this Paragraph 3.1, in case the Company shall take
a record of the holders of its Common Stock for the purpose of entitling
them (x) to receive a dividend or other distribution payable in Common
Stock, Options or in Convertible Securities, or (y) to subscribe for or
purchase Common Stock, Options or Convertible Securities, then such record
date shall be deemed to be the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold upon the declaration of
such dividend or the making of such other distribution or the date of the
granting of such right or subscription or purchase, as the case may be.
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<PAGE>
3.2. Dividends Not Paid Out of Earnings or Earned Surplus. In the event
the Company shall declare a dividend upon the Common Stock payable otherwise
than out of earnings or earned surplus, determined in accordance with generally
accepted accounting principles, including the making of appropriate deductions
for minority interests, if any, in subsidiaries but without increasing the same
as a result of any write-up of assets related to such dividend or any gain from
the sale of any capital assets related to such dividend (herein referred to as
'Liquidating Dividends'), then, the Company shall pay to the holder of this
Warrant, at the time such dividend is paid to the holders of the Common Stock,
an amount equal to the product of (i) the number of shares of Common Stock that
the holder of this Warrant would be entitled to acquire upon exercise of this
Warrant at the Purchase Price then in effect and (ii) the aggregate value at
such time of all Liquidating Dividends paid in respect of one share of Common
Stock. For the purposes of this Paragraph 3.2, a dividend shall be considered
payable out of earnings or earned surplus only if paid in cash and to the extent
that such earnings or earned surplus are charged an amount equal to the fair
value of such dividend as determined in good faith by the Board of Directors of
the Company.
3.3. Subdivisions and Combinations. In case the Company shall at any time
subdivide its outstanding shares of Common Stock into a greater number of
shares, the Purchase Price in effect immediately prior to such subdivision shall
be proportionately reduced, and, conversely, in case the outstanding shares of
Common Stock shall be combined into a smaller number of shares, the Purchase
Price in effect immediately prior to such combination shall be proportionately
increased.
3.4. Reorganization, Reclassification, Consolidation, Merger or Sale of
Assets. If any capital reorganization or reclassification of the capital stock
of the Company, or consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities, cash or other property with respect to
or in exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the holder of this Warrant shall have the right to acquire
and receive upon exercise of this Warrant such shares of stock, securities, cash
or other property issuable or payable (as part of the reorganization,
reclassification, consolidation, merger or sale) with respect to or in exchange
for such number of outstanding shares of the Company's Common Stock as would
have been received upon exercise of this Warrant at the Purchase Price then in
effect. The Company will not effect any such consolidation, merger or sale,
unless prior to the consummation thereof the successor corporation (if other
than the Company) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument (in form and substance
reasonably satisfactory to the holder of this Warrant) mailed or delivered to
the holder of this Warrant at the last address of such holder appearing on the
books of the Company, the obligation to deliver to such holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to purchase.
3.5. No Adjustment for Exercise of Certain Options, Warrants, Etc. The
provisions of this Section 3 shall not apply to any Common Stock issued or
issuable to any person or entity, or deemed outstanding, under subparagraphs
3.1(1) to (9) inclusive: (i) on exercise of options outstanding on the date of
issuance hereof to acquire up to 1,874,300 shares of Common Stock issued to
employees of the Company pursuant to the Amended and Restated 1986 Employee
Stock Option Plan of the Company (the 'Stock Option Plan') or any options
approved with the consent of the holders of record of a majority of the
outstanding shares of Series B Preferred Stock; (ii) pursuant to options granted
to Richard E. Snyder under the Stock Option Plan, as amended by the Company's
Board of Directors on January 31, 1996; (iii) on conversion of the Series B
Preferred Stock or the Series A Preferred Stock of the Company; (iv) as a
dividend on the Series B Preferred Stock; or (v) on exercise of this Warrant.
3.6. Notices of Record Date, Etc. In the event that:
(1) the Company shall declare any cash dividend upon its Common Stock,
or
(2) the Company shall declare any dividend upon its Common Stock
payable in stock or make any special dividend or other distribution to the
holders of its Common Stock, or
(3) the Company shall offer for subscription pro rata to the holders
of its Common Stock any additional shares of stock of any class or other
rights, or
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(4) there shall be any capital reorganization or reclassification of
the capital stock of the Company, including any subdivision or combination
of its outstanding shares of Common Stock, or consolidation or merger of
the Company with, or sale of all or substantially all of its assets to,
another corporation, or
(5) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then, in connection with such event, the Company shall give to the holder of
this Warrant:
(i) at least ten (10) days' prior written notice of the date on which
the books of the Company shall close or a record shall be taken for such
dividend, distribution or subscription rights or for determining rights to
vote in respect of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up; and
(ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at
least twenty (20) days' prior written notice of the date when the same
shall take place. Such notice in accordance with the foregoing clause (i)
shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Common Stock shall be
entitled thereto, and such notice in accordance with the foregoing clause
(ii) shall also specify the date on which the holders of Common Stock shall
be entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification consolidation,
merger, sale, dissolution, liquidation or winding up, as the case may be.
Each such written notice shall be given by first class mail, postage
prepaid, addressed to the holder of this Warrant at the address of such
holder as shown on the books of the Company.
3.7. Grant, Issue or Sale of Options, Convertible Securities, or
Rights. If at any time or from time to time on or after the date of issuance
hereof, the Company shall grant, issue or sell any Options, Convertible
Securities, rights to purchase property or evidences of indebtedness (the
'Purchase Rights') pro rata to the record holders of any class of Common Stock
and such grants, issuances or sales do not result in an adjustment of the
Purchase Price under Paragraph 3.1 hereof, then the holder of this Warrant shall
be entitled to acquire (within thirty (30) days after the later to occur of the
initial exercise date of such Purchase Rights or receipt by such holder of the
notice concerning Purchase Rights to which such holder shall be entitled under
Paragraph 3.6) and upon the terms applicable to such Purchase Rights either:
(i) the aggregate Purchase Rights which such holder could have
acquired if it had held the number of shares of Common Stock acquirable
upon exercise of this Warrant immediately before the grant, issuance or
sale of such Purchase Rights; provided that if any Purchase Rights were
distributed to holders of Common Stock without the payment of additional
consideration by such holders, corresponding Purchase Rights shall be
distributed to the exercising holder of this Warrant as soon as possible
after such exercise and it shall not be necessary for the exercising holder
of this Warrant specifically to request delivery of such rights; or
(ii) in the event that any such Purchase Rights shall have expired or
shall expire prior to the end of said thirty (30) day period, the number of
shares of Common Stock or the amount of property which such holder could
have acquired upon such exercise at the time or times at which the Company
granted, issued or sold such expired Purchase Rights.
3.8. Adjustment by Board of Directors. If any event occurs as to which, in
the opinion of the Board of Directors of the Company, the provisions of this
Section 3 are not strictly applicable or if strictly applicable would not fairly
protect the rights of the holder of this Warrant in accordance with the
essential intent and principles of such provisions, then the Board of Directors
shall make an adjustment in the application of such provisions, in accordance
with such essential intent and principles, so as to protect such rights as
aforesaid, but in no event shall any adjustment have the effect of increasing
the Purchase Price as otherwise determined pursuant to any of the provisions of
this Section 3 except in the case of a combination of shares of a type
contemplated in Paragraph 3.3 and then in no event to an amount larger than the
Purchase Price as adjusted pursuant to Paragraph 3.3.
3.9. Fractional Shares. The Company shall not issue fractions of shares of
Common Stock upon exercise of this Warrant or scrip in lieu thereof. If any
fraction of a share of Common Stock would, except for the provisions of this
Paragraph 3.9, be issuable upon exercise of this Warrant, the Company shall in
lieu thereof pay
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<PAGE>
to the person entitled thereto an amount in cash equal to the current value of
such fraction, calculated to the nearest one-hundredth (1/100) of a share, to be
computed (i) if the Common Stock is listed on any national securities exchange
on the basis of the last sales price of the Common Stock on such exchange (or
the quoted closing bid price if there shall have been no sales) on the date of
conversion, or (ii) if the Common Stock shall not be listed, on the basis of the
mean between the closing bid and asked prices for the Common Stock on the date
of conversion as reported by the Nasdaq National Market, or its successor, and
if there are not such closing bid and asked prices, on the basis of the fair
market value per share as determined by the Board of Directors of the Company.
3.10. Officers' Statement as to Adjustments. Whenever the Purchase Price
shall be adjusted as provided in Section 3 hereof, the Company shall forthwith
file at each office designated for the exercise of this Warrant, a statement,
signed by the Chairman of the Board, the President, any Vice President or
Treasurer of the Company, showing in reasonable detail the facts requiring such
adjustment and the Purchase Price that will be effective after such adjustment.
The Company shall also cause a notice setting forth any such adjustments to be
sent by mail, first class, postage prepaid, to the record holder of this Warrant
at his or its address appearing on the stock register. If such notice relates to
an adjustment resulting from an event referred to in Paragraph 3.6, such notice
shall be included as part of the notice required to be mailed and published
under the provisions of Paragraph 3.6 hereof.
4. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its
charter or through reorganization, consolidation, merger, dissolution, sale of
assets or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
holder hereof against dilution or other impairment. Without limiting the
generality of the foregoing, the Company will not increase the par value of any
shares of stock receivable upon the exercise of this Warrant above the amount
payable therefor upon such exercise, and at all times will take all such action
as may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and non-assessable stock upon the exercise of this
Warrant.
5. RESERVATION OF STOCK, ETC., ISSUABLE ON EXERCISE OF WARRANTS. The
Company shall at all times reserve and keep available out of its authorized but
unissued stock, solely for the issuance and delivery upon the exercise of this
Warrant and other similar Warrants, such number of its duly authorized shares of
Common Stock as from time to time shall be issuable upon the exercise of this
Warrant and all other similar Warrants at the time outstanding.
6. REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to it, or (in the case of mutilation) upon surrender and
cancellation thereof, the Company will issue, in lieu thereof, a new Warrant of
like tenor.
7. REMEDIES. The Company stipulates that the remedies at law of the holder
of this Warrant in the event of any default by the Company in the performance of
or compliance with any of the terms of this Warrant are not and will not be
adequate, and that the same may be specifically enforced.
8. NEGOTIABILITY, ETC. This Warrant is issued upon the following terms, to
all of which each taker or owner hereof consents and agrees:
(a) Subject to the legend appearing on the first page hereof, at any
time beginning on the Earliest Exercise Date, title to this Warrant may be
transferred by endorsement (by the holder hereof executing the form of
assignment at the end hereof including guaranty of signature) and delivery
in the same manner as in the case of a negotiable instrument transferable
by endorsement and delivery.
(b) Subject to Section 8(a), any person in possession of this Warrant
properly endorsed is authorized to represent himself as absolute owner
hereof and is granted power to transfer absolute title hereto by
endorsement and delivery hereof to a bona fide purchaser hereof for value;
each prior taker or owner waives and renounces all of his equities or
rights in this Warrant in favor of every such bona fide purchaser, and
every such bona fide purchaser shall acquire title hereto and to all rights
represented hereby.
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(c) Until this Warrant is transferred on the books of the Company, the
Company may treat the registered holder of this Warrant as the absolute
owner hereof for all purposes without being affected by any notice to the
contrary.
(d) Prior to the exercise of this Warrant, the holder hereof shall not
be entitled to any rights of a shareholder of the Company with respect to
shares for which this Warrant shall be exercisable, including, without
limitation, the right to vote, to receive dividends or other distributions
or to exercise any preemptive rights, and shall not be entitled to receive
any notice of any proceedings of the Company, except, in each case, as
provided herein.
(e) The Company shall not be required to pay any Federal or state
transfer tax or charge that may be payable in respect of any transfer
involved in the transfer or delivery of this Warrant or the issuance or
conversion or delivery of certificates for Common Stock in a name other
than that of the registered holder of this Warrant or to issue or deliver
any certificates for Common Stock upon the exercise of this Warrant until
any and all such taxes and charges shall have been paid by the holder of
this Warrant or until it has been established to the Company's satisfaction
that no such tax or charge is due.
9. SUBDIVISION OF RIGHTS. This Warrant (as well as any new warrants issued
pursuant to the provisions of this paragraph) is exchangeable, upon the
surrender hereof by the holder hereof, at the principal office of the Company
for any number of new warrants of like tenor and date representing in the
aggregate the right to subscribe for and purchase the number of shares of Common
Stock which may be subscribed for and purchased hereunder.
10. MAILING OF NOTICES, ETC. All notices and other communications from the
Company to the holder of this Warrant shall be mailed by first-class certified
mail, postage prepaid, to the address furnished to the Company in writing by the
last holder of this Warrant who shall have furnished an address to the Company
in writing.
11. HEADINGS, ETC. The headings in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect the meaning hereof.
12. CHANGE, WAIVER, ETC. Neither this Warrant nor any term hereof may be
changed, waived, discharged or terminated orally but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
13. SUCCESSORS AND ASSIGNS. This Warrant and the rights evidenced hereby
shall inure to the benefit of and be binding upon the successors and assigns of
the Company, the holder hereof and (to the extent provided herein) the holders
of shares Common Stock issued upon exercise of this Warrant, and shall be
enforceable by any such holder.
14. MODIFICATION AND SEVERABILITY. If, in any action before any court or
agency legally empowered to enforce any provision contained herein, any
provision hereof is found to be unenforceable, then such provision shall be
deemed modified to the extent necessary to make it enforceable by such court of
agency. If any such provision is not enforceable as set forth in the preceding
sentence, the unenforceablilty of such provision shall not affect the other
provisions of this Warrant, but this Warrant shall be construed as if such
unenforceable provision had never been contained herein.
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15. GOVERNING LAW. THIS WARRANT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
[WESTERN PUBLISHING GROUP, INC.]
By: _________________________________
Name:
Title:
Dated: ____________________________
Attest:
____________________________________
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<PAGE>
[To be signed only upon exercise of Warrant]
To [Western Publishing Group, Inc.]
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, shares of Common Stock of [Western Publishing Group,
Inc.] and herewith makes payment of $ [specify amount of cash and/or
number, market value and type of securities being paid or whether a cashless
exercise is elected], and requests that the certificates for such shares be
issued in the name of, and be delivered to , whose address is
.
Dated:
____________________________________________________________
(Signature must conform in all respects to name of Holder as specified on the
face of the Warrant)
____________________________________________________________
Address
[To be signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto the right represented by the within Warrant to
purchase the shares of the Common Stock of [Western Publishing
Group, Inc.] to which the within Warrant relates, and appoints
attorney to transfer said right on the books of [Western Publishing Group, Inc.]
with full power of substitution in the premises.
Dated:
____________________________________________________________
(Signature must conform in all respects to name of Holder as specified on the
face of the Warrant)
____________________________________________________________
Address
In the presence of
______________________________________________________
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<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
ACT.............................................................................................. 1
Common Stock..................................................................................... 1
Company.......................................................................................... 1
Convertible Securities........................................................................... 3
Earliest Exercise Date........................................................................... 1
Exercise Amount.................................................................................. 1
Holder........................................................................................... 1
Holder Parties................................................................................... 3
Liquidating Dividends............................................................................ 5
Market Price..................................................................................... 1
Number of Common Shares Deemed Outstanding....................................................... 3
Purchase Price................................................................................... 1
Purchase Rights.................................................................................. 6
Series B Preferred Stock......................................................................... 2
Stock Option Plan................................................................................ 5
Triggering Transaction........................................................................... 2
WPV.............................................................................................. 2
</TABLE>
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<PAGE>
APPENDIX VI
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of , 1996, is
entered into by and among [Western Publishing Group, Inc.], a Delaware
corporation (the 'Company'), and Golden Press Holding, L.L.C., a Delaware
limited liability company ('GP Holding').
WHEREAS, the Company has agreed to issue to GP Holding, shares of its
Series B Convertible Preferred Stock ('Preferred Stock') and a Warrant (the
'Warrant') to purchase shares of its Common Stock ('Common Stock') and to grant
to GP Holding and any subsequent holders of such Preferred Stock and such
Warrant certain rights to have such Preferred Stock, such Warrant and certain
shares of Common Stock registered under the Securities Act of 1933, as amended
(the 'Act').
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and covenants herein contained, the parties hereto hereby agree as follows:
SECTION 1. Definitions. As used in this Agreement:
(a) 'Commission' shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Act;
(b) 'Exchange Act' shall mean the Securities Exchange Act of 1934, as
amended.
(c) the term 'Holder' shall mean any holder of Registrable Securities;
(d) the term 'Initiating Holder' shall mean any Holder or Holders who
in the aggregate are Holders of more than 50% of the then outstanding
Registrable Securities;
(e) the terms 'register,' 'registered' and 'registration' refer to a
registration effected by preparing and filing a registration statement in
compliance with the Act (and any post-effective amendments filed or
required to be filed) and the declaration or ordering of effectiveness of
such registration statement;
(f) (the term 'Registrable Securities' means (i) any shares of
Preferred Stock, (ii) any shares of Common Stock issued upon conversion of
shares of Preferred Stock, (iii) the Warrant or any portion thereof, (iv)
any shares of Common Stock issued upon exercise of the Warrant or any
portion thereof and (v) any capital stock of the Company issued as a
dividend or other distribution with respect to, or in exchange for or in
replacement of, any securities referred to in clauses (i) through (iv)
above. For purposes of this Agreement, a person will be deemed to be a
Holder whenever such person has the right to acquire directly or indirectly
Registrable Securities (upon conversion or exercise in connection with a
transfer of securities or otherwise, but disregarding any restrictions or
limitations upon the exercise of such right), whether or not such
acquisition has actually been effected;
(g) 'Registration Expenses' shall mean all expenses incurred by the
Company in compliance with Sections 2, 3 and 4 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, blue sky fees and expenses and
the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the
Company, which shall be paid in any event by the Company); and
(h) 'Selling Expenses' shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities and
all fees and disbursements of counsel for each of the Holders.
SECTION 2. Demand Registration.
(a) Request for Registration. If the Company shall receive from an
Initiating Holder, at any time, a written request that the Company effect any
registration with respect to all or a part of the Registrable Securities, the
Company will:
(i) within five (5) days of receipt of such request, give written
notice of the proposed registration, qualification or compliance to all
other Holders; and
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(ii) as soon as practicable, use its diligent best efforts to effect
such registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification
under applicable blue sky or other state securities laws and appropriate
compliance with applicable regulations issued under the Act) as may be so
requested and as would permit or facilitate the sale and distribution of
all or such portion of such Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities of
any Holder or Holders joining in such request as are specified in a written
request received by the Company within ten (10) days after written notice
from the Company is given under Section 2(a)(i) above; provided that the
Company shall not be obligated to effect, or take any action to effect, any
such registration pursuant to this Section 2:
(x) In any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting
such registration, qualification or compliance, unless the Company is
already subject to service in such jurisdiction and except as may be
required by the Act or applicable rules or regulations thereunder; or
(y) After the Company has effected three (3) such registrations
pursuant to this Section 2 and such registrations have been declared or
ordered effective and the sales of such Registrable Securities shall
have closed.
The registration statement filed pursuant to the request of the Initiating
Holders may, subject to the provisions of Section 2(b) below, include other
securities of the Company which are held by officers or directors of the
Company, or which are held by persons who, by virtue of agreements with the
Company, are entitled to include their securities in any such registration, but
the Company shall have no absolute right to include any of its securities in any
such registration.
The registration rights set forth in this Section 2 shall be assignable, in
whole or in part, to any transferee of Registrable Securities who is a
transferee of at least 5% of the then outstanding Registrable Securities, a
member of GP Holding, an affiliate of E.M. Warburg, Pincus & Co., Inc.
('Warburg') or a limited or general partner of an investment fund affiliated
with Warburg, and such transferee shall be bound by all obligations of this
Section 2.
(b) Underwriting. If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
Section 2(a).
If officers or directors of the Company holding other securities of the
Company shall request inclusion in any registration pursuant to Section 2, or if
holders of securities of the Company other than Registrable Securities who are
entitled, by contract with the Company or otherwise, to have securities included
in such a registration (the 'Other Stockholders') request such inclusion, the
Holders shall offer to include the securities of such officers, directors and
Other Stockholders in the underwriting and may condition such offer on their
acceptance of the further applicable provisions of this Section 2. The Holders
whose shares are to be included in such registration and the Company shall
(together with all officers, directors and Other Stockholders proposing to
distribute their securities through such underwriting) enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting by the Initiating
Holders. Notwithstanding any other provision of this Section 2, if the
representative advises the Holders in writing that marketing factors require a
limitation on the number of shares to be underwritten, the securities of the
Company held by officers or directors (other than Registrable Securities) of the
Company and the securities held by Other Stockholders shall be excluded from
such registration to the extent so required by such limitation. If, after the
exclusion of such shares, further reductions are still required, the number of
shares included in the registration by each Holder shall be reduced on a pro
rata basis (based on the number of shares originally proposed to be registered
by such Holder), by such minimum number of shares as is necessary to comply with
such request. No Registrable Securities or any other securities excluded from
the underwriting by reason of the underwriter's marketing limitation shall be
included in such registration. If any of the Holders or any officer, director or
Other Stockholder who has requested inclusion in such registration as provided
above disapproves of the terms of the underwriting, such person may elect to
withdraw therefrom by written notice to the Company, the underwriter and the
Initiating Holders. The securities so withdrawn shall also be withdrawn from
registration. If the underwriter has not limited the number of Registrable
Securities or other securities to be underwritten, the
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Company may include its securities for its own account in such registration if
the representative so agrees and if the number of Registrable Securities and
other securities which would otherwise have been included in such registration
and underwriting will not thereby be limited.
SECTION 3. Company Registration.
(a) Request For Registration. If the Company shall determine to register
any of its equity securities either for its own account or for the account of a
security holder or holders exercising their respective demand registration
rights, other than a registration relating solely to employee benefit plans, or
a registration relating solely to a Commission Rule 145 transaction, or a
registration on any registration form which does not permit secondary sales or
does not include substantially the same information as would be required to be
included in a registration statement covering the sale of Registrable
Securities, the Company will:
(i) promptly give to each of the Holders a written notice thereof
which shall describe in reasonable detail the proposed registration and
distribution (including those jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable blue sky or other
state securities laws); and
(ii) include in such registration (and any related qualification under
blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests, made by the Holders within fifteen (15) days after receipt of the
written notice from the Company described in clause (i) above, except as
set forth in Section 3(b) below. Such written request may specify all or a
part of the Holders' Registrable Securities.
(b) Underwriting. If the registration of which the Company gives notice is
for a registered public offering involving an underwriting, the Company shall so
advise each of the Holders as a part of the written notice given pursuant to
Section 3(a)(i). In such event, the right of each of the Holders to registration
pursuant to this Section 3 shall be conditioned upon such Holder's participation
in such underwriting and the inclusion of such Holder's Registrable Securities
in the underwriting to the extent provided herein; provided, however, that GP
Holding shall not be required to participate in such underwriting if GP Holding,
or an affiliate of GP Holding who is a Holder, notifies the Company that it is
seeking registration of its shares to enable it to distribute such shares to its
members or to affiliates of Warburg or limited or general partners of investment
funds affiliated with Warburg. The Holders whose shares are to be included in
such registration (other than GP Holding if GP Holding, or an affiliate of GP
Holding who is a Holder, elects not to participate in such underwriting) shall
(together with the Company and the Other Stockholders distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the representative of the underwriter or underwriters
selected for underwriting by the Company. Notwithstanding any other provision of
this Section 3, if the representative determines that marketing factors require
a limitation on the number of shares to be underwritten, the representative may
(subject to the allocation priority set forth below) limit the number of
Registrable Securities to be included in the registration and underwriting as
the representative deems necessary and appropriate. The Company shall so advise
all holders of securities requesting registration, and the number of shares of
securities that are entitled to be included in the registration and underwriting
shall be allocated in the following manner: The securities of the Company held
by officers, directors and Other Stockholders of the Company (other than
Registrable Securities, securities held by holders who by contractual right
demanded such registration ('Demanding Holders') and securities held by
'Holders' under the Registration Rights Agreement, dated as of January , 1996,
between the Company, Richard A. Bernstein, and certain of his affiliates (the
'Bernstein Holders')) shall be excluded from such registration and underwriting
to the extent required by such limitation, and, if a limitation on the number of
shares is still required, the number of shares that may be included in the
registration and underwriting by each of the Holders and the Bernstein Holders
(if the Bernstein Holders are not Demanding Holders) shall be reduced, on a pro
rata basis (based on the number of shares originally proposed to be registered
by each such person), by such minimum number of shares as is necessary to comply
with such limitation. If any of the Holders or any officer, director or Other
Stockholder disapproves of the terms of any such underwriting, such person may
elect to withdraw therefrom by written notice to the Company and the
underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
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(c) Number and Transferability. Each of the Holders shall be entitled to
have its shares included in an unlimited number of registrations pursuant to
this Section 3. The registration rights granted pursuant to this Section 3 shall
be assignable, in whole or in part, to any transferee of Registrable Securities
who is a transferee of at least 5% of the then outstanding Registrable
Securities, a member of GP Holding, an affiliate of Warburg or a limited or
general partner of an investment fund affiliated with Warburg, and such
transferee shall be bound by all obligations of this Section 3.
SECTION 4. Form S-3 and Shelf Registration.
(a) Form S-3. The Company shall use its best efforts to qualify for
registration on Form S-3 for secondary sales. So long as the Company is so
qualified, Holders shall have the right to request unlimited registrations on
Form S-3 (such requests shall be in writing and shall state the number of shares
of Registrable Securities to be disposed of and the intended method of
disposition of shares by such holders), subject only to the following:
(i) The Company shall not be required to effect a registration
pursuant to this Section 4(a) within 120 days of the effective date of the
most recent registration pursuant to this Section 4(a) in which securities
held by the requesting Holder could have been included for sale or
distribution.
(ii) The Company shall not be required to effect a registration
pursuant to this Section 4(a) if the Company shall furnish to the Holders a
certificate signed by the President or Chief Executive Officer of the
Company stating that in the good faith judgment of the Board of Directors
of the Company, it would be materially detrimental to the Company and its
stockholders for such registration statement to be filed and it is
therefore essential to defer the filing of such registration statement. In
such event, the Company shall have the right to defer the filing of the
registration statement no more than once during any twelve (12) month
period for a period of not more than 90 days after receipt of the request
of the Holder or Holders under this Section 4(a).
(iii) The Company shall not be obligated to effect any registration
pursuant to this Section 4(a) in any particular jurisdiction in which the
Company would be required to execute a general consent to service of
process in effecting such registration, qualification or compliance, unless
the Company is already subject to service in such jurisdiction and except
as may be required by the Act or applicable rules or regulations
thereunder.
The Company shall, within five (5) days of receipt of request for
registration pursuant to this Section 4(a), give written notice to all Holders
of the receipt of such request and shall provide a reasonable opportunity for
other Holders to participate in the registration, provided that if the
registration is for an underwritten offering, the terms of Section 2(b) shall
apply to all participants in such offering. Subject to the foregoing, the
Company will use its diligent best efforts to effect promptly the registration
of all shares of Registrable Securities on Form S-3 to the extent requested by
the Holder or Holders thereof for purposes of disposition.
(b) Shelf Registration. If the Company shall receive from an Initiating
Holder, at any time, a written request that the Company effect a registration
pursuant to Rule 415, or any successor rule under the Act, that would permit the
sale of all or a part of the Registrable Securities from time to time:
(i) The Company shall use its best efforts to file with the Commission
and thereafter to cause to be declared effective as promptly as practicable
a registration statement on an appropriate form under the Act as reasonably
determined by the Company relating to the offer and sale of the Registrable
Securities by the Holders from time to time pursuant to Rule 415, or any
successor rule under the Act, in accordance with the methods of
distribution set forth in such registration statement (a 'Shelf
Registration Statement').
(ii) The Company shall use its best efforts to keep the Shelf
Registration Statement continuously effective in order to permit the
prospectus forming part thereof to be usable by Holders for a period of 18
months from the effective date thereof or such shorter period that will
terminate when all the Registrable Securities covered by the Shelf
Registration Statement have been sold. Notwithstanding any other provision
hereof, the Company may postpone or suspend the filing or the effectiveness
of the Shelf Registration Statement (or any amendments or supplements
thereto) if (i) such action is required by applicable law, or (ii) such
action is taken by the Company in good faith and for valid business reasons
(not including avoidance of the Company's obligations hereunder), including
the acquisition or divestiture of assets, other
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<PAGE>
pending corporate developments, public filings with the Commission or other
similar events, so long as the Company promptly thereafter complies with
the requirements of Section 6(a)(v) hereof, if applicable. The Company
shall be deemed not to have used its best efforts to keep the Shelf
Registration Statement effective during the requisite period if it
intentionally takes any action not contemplated by clause (i) or (ii) above
that would result in holders of Registrable Securities covered thereby not
being able to offer and sell such Registrable Securities during the period.
SECTION 5. Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Agreement shall be borne by the Company, and all Selling Expenses shall be borne
by the Holders of the securities so registered pro rata on the basis of the
number of their shares so registered.
SECTION 6. Registration Procedures.
(a) In the case of each registration effected by the Company pursuant to
this Agreement, the Company will:
(i) provide the Holders of Registrable Securities to be registered
under the registration statement, their underwriters, if any, and their
respective counsel and accountants, a reasonable opportunity to participate
in the preparation of such registration statement, each prospectus included
therein or filed with the Commission, and each amendment thereof or
supplement thereto (reflecting in each such document such comments as such
persons may reasonably propose), and provide each of them such access to
its books and records and such opportunities to discuss the business of the
Company with its officers and the independent public accountants who have
certified its financial statements as shall be necessary, in the opinion of
such Holders' and such underwriters' respective counsel, to conduct a
reasonable investigation within the meaning of the Act;
(ii) notify each Holder as to the filing of the registration statement
and of all amendments or supplements thereto filed prior to the effective
date of such registration statement;
(iii) notify each Holder, promptly after it shall receive notice
thereof, of the time when such registration statement becomes effective or
when any amendment or supplement to any prospectus forming a part of such
registration statement has been filed;
(iv) notify each Holder promptly of any request by the Commission for
the amending or supplementing of such registration statement or prospectus
or for additional information;
(v) prepare and promptly file with the Commission, and promptly notify
each Holder of the filing of, any amendments or supplements to such
registration statement or prospectus as may be necessary to correct any
statements or omissions if, at any time when a prospectus relating to the
Registrable Securities is required to be delivered under the Act, any event
with respect to the Company shall have occurred as a result of which any
such prospectus or any other prospectus as then in effect would include an
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading, and, in addition,
prepare and file with the Commission, promptly upon the written request of
any Holder, any amendments or supplements to such registration statement or
prospectus which may be reasonably necessary or advisable in connection
with the distribution of the Registrable Securities;
(vi) prepare promptly upon request of the Holders or any underwriters
for the Holders such amendment or amendments to such registration statement
and such prospectus or prospectuses as may be reasonably necessary to
permit compliance with the requirements of Section 10(a)(3) of the Act;
(vii) advise each Holder promptly after the Company shall receive
notice or obtain knowledge of the issuance of any stop order by the
Commission suspending the effectiveness of any such registration statement
or amendment thereto or of the initiation or threatening of any proceeding
for that purpose, and promptly use its best efforts to prevent the issuance
of any stop order or obtain its withdrawal promptly if such stop order
should be issued;
(viii) use its best efforts to qualify as soon as reasonably
practicable the Registrable Securities included in the registration
statement for sale under the blue sky or other state securities laws of
such states and
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jurisdictions within the United States as shall be reasonably requested by
any Holder, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business, to become
subject to taxation or to file a consent to service of process generally in
any of the aforesaid states or jurisdictions;
(ix) furnish each Holder, as soon as available, copies of any
registration statement and each preliminary or final prospectus, or
supplement or amendment required to be prepared pursuant hereto, all in
such quantities as any Holder may from time to time reasonably request;
(x) furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Agreement, on the date that such
Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this Agreement, if such
securities are being sold through underwriters or, if such securities are
not being sold through underwriters, on the date that the registration
statement with respect to such securities becomes effective, (i) an
opinion, dated such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily
given by company counsel to the underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the holders
requesting registration of Registrable Securities, and (ii) a letter, dated
such date, from the independent certified public accountant of the Company,
in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and, if customarily given to holders
of securities to be sold in a registration, to the Holders requesting
registration of Registrable Securities;
(xi) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders as soon as reasonably practicable, but not later than 16 months
after the effective date of the registration statement, an earnings
statement covering a period of at least twelve (12) months beginning after
the effective date of the registration statement, which earnings statement
shall satisfy the provision of Section 11(a) of the Act; and
(xii) enter into and perform an underwriting agreement with the
managing underwriter, if any, selected as provided in Section 2(b) or 3(b),
containing customary (y) terms of offer and sale of the securities, payment
provisions, underwriting discounts and commissions, and (z)
representations, warranties, covenants, indemnities, terms and conditions,
provided that the Holders may, at their option, require that any or all of
the representations and warranties by, and the other agreements on the part
of, the Company to and for the benefit of such underwriters shall also be
made to and for the benefit of such Holders and that any or all of the
conditions precedent to the obligations of the Company shall also be
conditions precedent to the obligations of such Holders, and provided
further that such Holders shall not be required to make any representations
or warranties to or agreements with the Company or the underwriters other
than representations, warranties or agreements regarding such Holders and
such Holders' intended method of distribution and any other representation
required by law.
(b) At its expense, the Company will: keep each registration effected by
the Company pursuant to this Agreement effective for a period of nine (9) months
or until the Holders have completed the distribution described in the
registration statement relating thereto, whichever first occurs; provided,
however, that in the case of any registration of Registrable Securities on Form
S-3 which are intended to be offered on a continuous or delayed basis, such
nine-month period shall be extended until all such Registrable Securities are
sold, provided that Rule 415, or any successor rule under the Act, permits an
offering on a continuous or delayed basis, and provided further that applicable
rules under the Act governing the obligation to file a post-effective amendment
permit, in lieu of filing a post-effective amendment which (y) includes any
prospectus required by Section 10(a) of the Act or (z) reflects facts or events
representing a material or fundamental change in the information set forth in
the registration statement, the incorporation by reference in the registration
statement of information required to be included in (y) and (z) above to be
contained in periodic reports filed pursuant to Section 12 or 15(d) of the
Exchange Act.
SECTION 7. Indemnification.
(a) To the extent permitted by law, the Company will indemnify each of the
Holders, each of its officers, directors, partners, members, managers, agents,
representatives and affiliates of the foregoing, each underwriter
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(as defined in the Act), if any, and each person controlling each of the Holders
or such underwriter within the meaning of the Act and the rules and regulations
thereunder, with respect to each registration which has been effected pursuant
to this Agreement, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the Company of the
Act or any rule or regulation thereunder applicable to the Company and relating
to action or inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse each of the
Holders, each of its officers, directors, partners, members, managers, agents,
representatives and their affiliates, each such underwriter and each person
controlling any such Holder or underwriter, for any legal and any other expenses
reasonably incurred in connection with investigating and defending any such
claim, loss, damage, liability or action, provided that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by the Holders
or underwriter and stated to be specifically for use therein.
(b) To the extent permitted by law, each of the Holders will, if
Registrable Securities held by it are included in the securities as to which
such registration, qualification or compliance is being effected, indemnify the
Company, each of its directors, officers, agents and representatives and each
underwriter, if any, and each person controlling the Company or such
underwriter, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document made by such Holder,
or any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements by such Holder therein
not misleading, and will reimburse the Company and such directors, officers,
agents, representatives, underwriters or control persons for any legal or any
other expenses reasonably incurred in connection with investigating or defending
any such claim, loss, damage, liability or action, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by such Holder and
stated to be specifically for use therein; provided, however, that the indemnity
agreement contained in this Section 7(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holders, and provided further
that the obligations of each of the Holders hereunder shall be limited to an
amount equal to the proceeds to such Holder of securities sold as contemplated
herein.
(c) Each party entitled to indemnification under this Section 7 (the
'Indemnified Party') shall give notice to the party required to provide
indemnification (the 'Indemnifying Party') promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld) and the Indemnified Party may participate in such
defense at such party's expense (unless the Indemnified Party shall have
reasonably concluded that there may be a conflict of interest between the
Indemnifying Party and the Indemnified Party in such action, in which case the
fees and expenses of counsel shall be at the expense of the Indemnifying Party),
and provided further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 7 unless the Indemnifying Party is materially prejudiced
thereby. No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably request
in writing and as shall be reasonably required in connection with the defense of
such claim and litigation resulting therefrom.
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(d) If the indemnification provided for in this Section 7 is held by a
court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage or expense referred to herein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party
hereunder, shall contribute to the amount paid or payable by such Indemnified
Party as a result of such loss, liability, claim, damage or expense in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and of the Indemnified Party on the other in connection
with the statements or omissions which resulted in such loss, liability, claim,
damage or expense, as well as any other relevant equitable considerations,
provided, however, that the obligations of each Holder shall be limited to an
amount equal to the proceeds to such Holder from the sale of Registrable
Securities as contemplated herein. The relative fault of the Indemnifying Party
and of the Indemnified Party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Indemnifying Party or by the Indemnified Party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act), shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation.
(e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting agreement entered
into in connection with any underwritten public offering contemplated by this
Agreement are in conflict with the foregoing provisions, the provisions in such
underwriting agreement shall be controlling.
(f) The foregoing indemnity agreements are subject to the condition that,
insofar as they relate to any loss, claim, liability or damage made in a
preliminary prospectus but eliminated or remedied in the amended prospectus on
file with the Commission at the time the registration statement in question
becomes effective or the amended prospectus filed with the Commission pursuant
to Commission Rule 424(b) (the 'Final Prospectus'), such indemnity agreement
shall not inure to the benefit of any underwriter if a copy of the Final
Prospectus was furnished to the underwriter and was not furnished to the person
asserting the loss, liability, claim or damage at or prior to the time such
action is required by the Act.
(g) The obligations of the Company and the Holders under this Section 7
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Agreement and otherwise.
(h) The foregoing indemnity agreements shall include reasonable fees and
expenses of counsel incurred by the Indemnified Party in any action or
proceeding between the Indemnifying Party and the Indemnified Party or between
the Indemnified Party and any third party or otherwise.
SECTION 8. Information by the Holders. Each of the Holders shall furnish
to the Company such information regarding such Holder and the distribution
proposed by such Holder as the Company may reasonably request in writing and as
shall be reasonably required in connection with any registration, qualification
or compliance referred to in this Agreement.
SECTION 9. Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may permit the
sale of restricted securities to the public without registration, the Company
agrees to use its reasonable best efforts:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Act;
(b) file with the Commission in a timely manner all reports and other
documents required of the Company under the Act and the Exchange Act; and
(c) furnish to any Holder upon request, (i) a written statement by the
Company as to its compliance with the reporting requirements of Rule 144,
the Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company filed with the Commission and such other
reports and documents so filed by the Company and (iii) such other
information as a Holder may reasonably request in availing itself of any
rule or regulation of the Commission allowing such Holder to sell any such
securities without registration.
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SECTION 10. Assignability. The rights to cause the Company to register
Registrable Securities pursuant to this Agreement may be assigned by a Holder to
any transferee or assignee of Registrable Securities who is a transferee or
assignee of at least 5% of the then outstanding Registrable Securities, a member
of GP Holding, an affiliate of Warburg or a limited or general partner of an
investment fund affiliated with Warburg. The Company may not assign or transfer
its rights or obligations hereunder without the prior written consent of all the
Holders.
SECTION 11. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 12. Amendment. Any modification, amendment or waiver of this
Agreement or any provision hereof shall be in writing and executed by the
Company and the Holders of not less than 50% of the Registrable Securities then
outstanding, provided, however, that no such modification, amendment or waiver
shall reduce the aforesaid percentage of Registrable Securities without the
consent of all of the Holders of the Registrable Securities.
SECTION 13. Notices. All notices, requests, consents and demands shall be
in writing and shall be personally delivered, mailed, postage prepaid,
telecopied or telegraphed or delivered by any nationally recognized overnight
delivery service to the Company at:
to the Company:
[Western Publishing Group, Inc.]
444 Madison Avenue
Suite 601
New York, New York 10022
Telecopy: (212) 888-5025
Attn: Richard A. Bernstein
with a copy to:
James A. Cohen, Esq.
Senior Vice President--Legal Affairs
[Western Publishing Group, Inc.]
444 Madison Avenue
New York, New York 10022
Telecopy: (212) 888-5025
and a copy to:
Milbank, Tweed, Hadley & McCloy
One Chase Manhattan Plaza
New York, New York 10028
Telecopy: (212) 530-5219
Attn: Lawrence Lederman, Esq.
and to each Holder at such address set forth on the signature page hereof or as
shall be furnished in writing to the Company. All such notices, requests,
demands and other communication shall, when mailed (registered or certified
mail, return receipt requested, postage prepared), personally delivered, or
telegraphed, be effective four (4) days after deposit in the mails, when
personally delivered, or when delivered to the telegraph company, respectively,
addressed as aforesaid, unless otherwise provided herein and, when telecopied or
delivered by any nationally recognized overnight delivery service, shall be
effective upon actual receipt.
SECTION 14. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
VI-9
<PAGE>
SECTION 15. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
SECTION 16. Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
SECTION 17. Headings. The various headings of this Agreement are inserted
for convenience only and shall not affect the meaning or interpretation of this
Agreement or any provisions hereof or thereof.
SECTION 18. Entire Agreement. This Agreement constitutes the entire
understanding among the parties hereto with respect to the subject matter hereof
and supersedes any prior agreements, written or oral, with respect thereto.
IN WITNESS WHEREOF, the Company and each of the undersigned parties has
executed this Agreement effective for all purposes as of the date first above
written.
[WESTERN PUBLISHING GROUP, INC.]
By: _________________________________
Name:
Title:
GOLDEN PRESS HOLDING, L.L.C.
By: WARBURG, PINCUS VENTURES, L.P
Member
By: _________________________________
Name:
Title:
Address for notices:
Golden Press Holding, L.L.C.
c/o Warburg, Pincus Ventures, L.P.
466 Lexington Avenue
New York, New York 10017
Telecopy: (212) 878-9351
Attn: Joanne R. Wenig
with a copy to:
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
Telecopy: (212) 821-8111
Attn: Jack H. Nusbaum, Esq.
VI-10
<PAGE>
APPENDIX VII
EXECUTIVE OFFICER BONUS PLAN
WESTERN PUBLISHING GROUP, INC.
EXECUTIVE OFFICER BONUS PLAN
1. PURPOSE. The purpose of the Executive Officer Bonus Plan (the 'Plan')
is to advance the interests of Western Publishing Group, Inc., a Delaware
corporation (the 'Company'), and its stockholders by providing incentives in the
form of periodic cash bonus awards to certain senior executive officers of the
Company.
2. ADMINISTRATION. The Plan shall be administered by the Compensation
Committee of the Board of Directors of the Company (the 'Committee'), as such
committee is from time to time constituted. The Committee may delegate its
duties and powers in whole or in part to any subcommittee thereof consisting
solely of at least two 'outside directors', as defined under Section 162(m) of
the Internal Revenue Code of 1986, as amended (the 'Code'), and Treasury
Regulations promulgated thereunder.
The Committee has all the powers vested in it by the terms of the Plan set
forth herein, such powers to include the exclusive authority to select the
employees and other individuals to be granted bonus awards ('Bonuses') under the
Plan, to determine the size and terms of the Bonus to be made to each individual
selected, to modify the terms of any Bonus that has been granted (except with
respect to any modification which would increase the amount of compensation
payable to a 'Covered Employee,' as such term is defined in Section 162(m) of
the Code), to determine the time when Bonuses will be awarded, to establish
performance objectives in respect to Bonuses and to certify that such
performance objectives were attained. The Committee is authorized to interpret
the Plan, to establish, amend and rescind any rules and regulations relating to
the Plan, and to make any other determinations which it deems necessary or
desirable for the administration of the Plan. The Committee may correct any
defect or supply any omission or reconcile any inconsistency in the Plan in the
manner and to the extent the Committee deems necessary or desirable to carry it
into effect. Any decision of the Committee in the interpretation and
administration of the Plan, as described herein, shall lie within its sole and
absolute discretion and shall be final, conclusive and binding on all parties
concerned. No member of the Committee and no officer of the Company shall be
liable for anything done or omitted to be done by him or her, by any other
member of the Committee or by any officer of the company in connection with the
performance of duties under the Plan, except for his or her own willful
misconduct or as expressly provided by statute.
3. PARTICIPATION. The Committee shall have exclusive power (except as may
delegated as permitted herein) to select the senior executives of the Company
who may participate in the Plan and be granted Bonuses under the Plan
('Participants'); provided that prior to the first purchase of securities of the
Company by Golden Press Holdings LLC, the only person who may be designated by
the Committee to become a Participant is Richard E. Snyder.
4. BONUSES UNDER THE PLAN.
(a) The Committee may in its discretion award a Bonus to a Participant for
any fiscal year of the Company (a 'Year') under the terms and conditions of this
Section 4. Subject to subsections (b) and (c) of this Section 4, the amount of a
Participant's Bonus shall be an amount (the 'Maximum Bonus') determinable from
written performance goals approved by the Committee not later than 90 days
following the beginning of the Year to which such goals relate and while the
outcome is substantially uncertain. The performance goals and formula applicable
to each affected Participant shall be set forth in a written schedule
established by the Committee (the 'Bonus Schedule'). The performance goals,
which must be objective, shall be based on the Company's actual versus budgeted
earnings before interest, taxes, depreciation and amortization. The Bonus
Schedule shall specify the manner in which the Maximum Bonuses shall be
determined if the performance goals are met and the period or periods to which
the performance goals apply.
(b) The performance goals and Maximum Bonus applicable to any affected
Participant may be adjusted in the discretion of the Committee in order to
reflect a change in accounting method mandated by the Financial
VII-1
<PAGE>
Accounting Standards Board, or such other adjustment as the Committee determines
to be proper and may be made without a loss of deductibility of Bonuses under
Section 162(m) of the Code. The previous sentence shall be applied in a manner
which does not increase the amount of any Maximum Bonus, as calculated without
giving effect to the change in accounting method.
(c) The Committee shall determine whether the performance goals have been
met with respect to any affected Participant and, if they have, so certify and
ascertain the amount of the applicable Maximum Bonus. No Bonuses will be paid
until such certification is made by the Committee. The amount of the Bonus
actually paid to any affected Participant may be less than the Maximum Bonus at
the discretion of the Committee, but shall be no greater than the amount of such
Participant's Maximum Bonus. No Bonus shall be paid unless the material terms of
the Bonus, including the performance goals applicable thereto, have been
disclosed to and approved by the shareholders of the Company in a manner
designed to comply with the requirements of Section 162(m) of the Code.
(d) The provisions of this Section 4 shall be administered and interpreted
in accordance with Section 162(m) of the Code to ensure the deductibility by the
Company or its affiliates of the payment of Bonuses.
(e) Notwithstanding anything in the Plan to the Contrary, in no event may a
Participant's Maximum Bonus for any Year exceed $2 million.
5. MISCELLANEOUS PROVISIONS.
(a) No employee of the Company or other person shall have any claim or
right to be paid a Bonus under the Plan. Determinations made by the Committee
under the Plan need not be uniform and may be made selectively among eligible
individuals under the Plan, whether or not such eligible individuals are
similarly situated. Neither the Plan nor any action taken hereunder shall be
construed as giving any employee or other person any right to continue to be
employed by or perform services for the Company or any affiliate, and the right
to terminate the employment of or performance of services by any Participant at
any time and for any reason is specifically reserved to the Company and its
affiliates, subject to the provisions of any applicable employment agreement.
(b) Except as may be approved by the Committee, a Participant's rights and
interest under the Plan may not be assigned or transferred, hypothecated or
encumbered in whole or in part either directly or by operation of law or
otherwise (except in the event of a Participant's death) including, but not by
way of limitation, execution, levy, garnishment, attachment, pledge, bankruptcy
or in any other manner; provided, however, that, subject to applicable law, any
amounts payable to any Participant hereunder are subject to reduction to satisfy
any liabilities owed to the Company or any of its affiliates by the Participant.
(c) The Company and its affiliates shall have the right to deduct from any
payment made under the Plan any federal, state, local or foreign income or other
taxes required by law to be withheld with respect to such payment.
(d) The Company is the sponsor and legal obligor under the Plan, and shall
make all payments hereunder, other than any payments to be made by any of its
affiliates, which shall be made by such affiliate, as appropriate. Nothing
herein is intended to restrict the Company from charging an affiliate that
employs a Participant for all or a portion of the payments made by the Company
hereunder. The Company shall not be required to establish any special or
separate fund or to make any other segregation of assets to assure the payment
of any amounts under the Plan, and the rights of Participants to the payment of
Bonuses hereunder shall be no greater than the rights of the company's unsecured
general creditors. All expenses involved in administering the Plan shall be
borne by the Company.
(e) The validity, construction, interpretation, administration and effect
of the Plan and rights relating to the Plan and to Bonuses granted under the
Plan, shall be governed by the substantive laws, but not the choice of law
rules, of the State of Delaware.
(f) The Plan shall be effective as of February 1, 1996, subject to the
receipt of shareholder approval prior to the payment of any Bonuses in
accordance with the last sentence of Section 4(c).
6. PLAN AMENDMENT OR SUSPENSION. The Plan may be amended or suspended in
whole or in part at any time and from time to time by the Committee.
VII-2
<PAGE>
7. PLAN TERMINATION. The Plan shall terminate upon the adoption of a
resolution of the Committee terminating the Plan.
8. ACTIONS AND DECISION REGARDING THE BUSINESS OR OPERATIONS OF THE COMPANY
AND/OR ITS AFFILIATES. Notwithstanding anything in the Plan to the contrary,
neither the Company nor any of its affiliates nor their respective officers,
directors, employees or agents shall have any liability to any Participant (or
his or her beneficiaries or heirs) under the Plan or otherwise on account of any
action taken, or not taken, in good faith by any of the foregoing persons with
respect to the business or operations of the Company or any affiliates.
VII-3
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<PAGE>
APPENDIX VIII
CHARTER AMENDMENTS
1. Article FIRST of the Amended and Restated Certificate of Incorporation of the
Company is hereby amended in its entirety to read as follows:
'FIRST: The name of the corporation (the 'Corporation') is Golden
Books Family Entertainment, Inc.'
2. Article FOURTH of the Amended and Restated Certificate of Incorporation of
the Company is hereby amended in its entirety to read as follows:
'FOURTH: The Corporation shall have the authority to issue 60,200,000
shares, consisting of 60,000,000 shares of common stock, par value $.01,
and 200,000 shares of preferred stock, without par value. The Board of
Directors may authorize the issuance from time to time of preferred stock
in one or more series and with such designations, preferences, relative,
participating, optional and other special rights, and qualifications,
limitations or restrictions (which may differ with respect to each series)
as the Board may fix by resolution.'
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<PAGE>
APPENDIX IX
[Letterhead of Bear Stearns]
April 18, 1996
Board of Directors
Western Publishing Group, Inc.
444 Madison Avenue
New York, NY 10222
Dear Sirs and Madame:
We understand that Western Publishing Group, Inc. ('Western Publishing' or
the 'Company') intends to enter into a transaction with E.M. Warburg Pincus
Ventures, L.P. ('Warburg Pincus') and Mr. Richard E. Snyder (collectively, the
'Warburg Pincus Group'), pursuant to which, among other things, a newly formed
affiliate of the Warburg Pincus Group would purchase, for a purchase price of
$65 million which will be paid in cash, shares of Series B Convertible Preferred
Stock of Western Publishing with an aggregate redemption value of $65 million
(the 'Series B Convertible Preferred Stock') and a Warrant (the 'Warrant') to
purchase 3,250,000 shares of Common Stock of Western Publishing, all as more
fully described below and in the Securities Purchase Agreement referred to below
(collectively, the 'Securities Issuance'). We further understand that in
connection with the Securities Issuance, Western Publishing has agreed to
reimburse the Warburg Pincus Group for up to $4 million of investment banking,
legal and other expenses. In addition, we understand that the Company intends to
redeem its currently outstanding shares of its Series A Convertible Preferred
Stock due March 31, 1996 for approximately $10 million. You have provided us
with the proxy statement, which includes the Securities Purchase Agreement, as
amended, in substantially the form to be sent to the stockholders of Western
Publishing (the 'Proxy Statement').
The Series B Convertible Preferred Stock would (i) entitle its holder to
receive annual dividends at a rate of 780,000 shares of Common Stock of Western
Publishing (subject to certain adjustments based on the prevailing market value
of the shares of Common Stock when received) for four years and at 12.0% in cash
(or accruing at 12.0%) thereafter, (ii) be convertible into shares of Common
Stock of Western Publishing at a conversion price of $10.00, (iii) be redeemable
at the option of the Company after four years and (iv) have the right to elect
one-third of the Western Publishing directors voting separately as a class as
well as to vote with the other stockholders in the election of all other
directors, subject to certain limitations. The Warrant would be exercisable
after two years, have a term of seven years and would be exercisable, in whole
or in part, at a price of $10.00 per share (or in lieu thereof, the holder of
the Warrant may elect to receive a cash payment equal to the difference between
the exercise price and the prevailing market price of the shares of Common Stock
of Western Publishing multiplied by the number of shares for which the Warrant
is exercisable and with respect to which this cash option is exercised).
You have asked us to render our opinion as to whether the consideration to
be received by the Company pursuant to the Securities Issuance is fair, from a
financial point of view, to Western Publishing. In that connection, we are not
opining as to any other transactions or contractual arrangements to be entered
into or payments to be made by or to Western Publishing or any other person
concurrently with the Securities Issuance.
IX-1
<PAGE>
In the course of performing our valuation and financial analyses for
rendering this opinion, we have:
1. Reviewed the Proxy Statement;
2. Reviewed the Securities Purchase Agreement between Golden Press
Holdings, L.L.C. and Western Publishing Group, Inc.; Amendment No. 1 to the
Securities Purchase Agreement between Golden Press Holdings, L.L.C. and Western
Publishing Group, Inc.; the Certificate of Designations, Number, Voting Powers,
Preferences and Rights of Series B Preferred Stock of Western Publishing Group,
Inc.; the Form of Warrant; the Registration Rights Agreement; and certain
related agreements;
3. Reviewed Western Publishing's Annual Reports to Shareholders for the
fiscal years ended on or about January 31, 1993 through 1995; its Annual Reports
on Form 10-K for the fiscal years ended on or about January 31, 1993 through
1995; and its Quarterly Reports on Form 10-Q for the periods ended April 29,
1995, July 29, 1995 and October 28, 1995;
4. Reviewed certain operating and financial information, including budgets
and current estimates for Fiscal 1996 (FYE February 3, 1996) provided to us by
the Company's senior management, relating to Western Publishing's businesses and
prospects;
5. Met with certain members of Western Publishing's senior management to
discuss the Company's businesses and operations, previous restructuring
initiatives, historical financial performance, estimated financial performance
for Fiscal 1996 (FYE February 3, 1996), current financial condition and
liquidity, expected capital requirements and future prospects;
6. Met with Mr. Snyder and Warburg Pincus to discuss their prospective
business strategy for Western Publishing and their views of the Company's
corporate and operating management, previous business strategies, businesses and
operations, previous restructuring initiatives, historical financial
performance, estimated financial performance for Fiscal 1996 (FYE February 3,
1996), current financial condition and liquidity, expected capital requirements
and future prospects;
7. Reviewed the historical prices, trading activity and valuation
parameters of the shares of Common Stock of Western Publishing and the Company's
7.65% Senior Notes due 2002;
8. Reviewed publicly available financial data, stock market performance
data and valuation parameters of certain companies which we deemed generally
comparable to Western Publishing;
9. Reviewed the terms of selected precedent investment transactions, to the
extent publicly available, which we deemed generally comparable to the
Securities Issuance;
10. Reviewed the terms of selected precedent mergers and acquisitions, to
the extent publicly available, involving companies which we deemed generally
comparable to Western Publishing;
11. Reviewed the terms of selected issuances of convertible preferred stock
in the public securities market; and
12. Conducted such other studies, analyses, inquiries and investigations as
we deemed appropriate.
In the course of our review, we have relied upon and assumed the accuracy
and completeness of the financial and other information provided to us by
Western Publishing and representations of the Company's senior management
related thereto. With respect to the Company's budgets and current estimates, we
have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the senior management of
Western Publishing as to the expected future performance of Western Publishing.
We have been informed by the senior management of the Company that no budget or
forecast is available for Fiscal 1997 (FYE February 1, 1997). We have not
assumed any responsibility for the information or current estimates provided to
us and we have further relied upon the assurances of the senior management of
Western Publishing that it is unaware of any facts that would make the
information provided to us incomplete or misleading. In arriving at our opinion,
we have not performed or obtained any independent appraisal of the assets of
Western Publishing. Our opinion is necessarily based on economic, market and
other conditions, and the information made available to us, as of the date
hereof.
IX-2
<PAGE>
In rendering our opinion, we have considered (i) the reaction of the stock
market and certain major shareholders to previous proposed transactions between
Western Publishing and the Warburg Pincus Group which had been publicly
disclosed during the Fall of 1995 and the potential positive impact on the
prices of the Company's equity and debt securities of new senior management;
(ii) the Company's recent financial performance, current financial condition and
future prospects; (iii) the potential negative impact on the prices of Western
Publishing's equity and debt securities of the Company's expected financial
performance for Fiscal 1996 (FYE February 3, 1996) in the absence of the
proposed transaction with the Warburg Pincus Group or another similar
extraordinary transaction; (iv) the fact that (a) no other potential equity
investors or strategic acquirors have made a formal investment or acquisition
proposal to the Company since the public announcement of the original agreement
in principle between Western Publishing and Warburg Pincus on September 6, 1995
and (b) the Company had failed to effect a sale transaction or similar
extraordinary transaction despite various discussions with potential financial
and strategic buyers throughout 1995 and during a public auction conducted
during 1994; (v) the Company's prospects for raising debt and/or equity in the
public and private capital markets; and (vi) various terms and conditions of the
Securities Issuance, including that (x) the Securities Issuance will be subject
to a vote of the Company's shareholders, (y) the 'no solicitation' and
'termination' provisions of the Securities Purchase Agreement Between Golden
Press Holdings, L.L.C. and Western Publishing Group, Inc. provide the Board of
Directors of the Company with the flexibility to exercise its fiduciary duty to
pursue certain alternative transactions in lieu of the Securities Issuance and
(z) the irrevocable proxies granted by Richard A. Bernstein and his affiliates
to Warburg Pincus as condition to the Securities Issuance.
Based on and subject to the foregoing, it is our opinion that the
consideration to be received by the Company pursuant to the Securities Issuance
is fair, from a financial point of view, to Western Publishing.
We have acted as financial advisor to Western Publishing in connection with
the Securities Issuance and will receive a fee for such services, payment of a
significant portion of which is contingent upon the consummation of the
Securities Issuance. Previously, in November 1993, Bear Stearns and Morgan
Stanley & Co. Incorporated ('Morgan Stanley') were jointly engaged by Western
Publishing to assist the Company as its financial advisors in responding to
'several companies expressing a desire to discuss a business combination.' Bear
Stearns and Morgan Stanley were charged with 'exploring all alternatives to
maximize shareholder value.' Although such efforts by Bear Stearns and Morgan
Stanley did not produce any offers for the Company in its entirety, Western
Publishing did sell its games and puzzles business to Hasbro, Inc. In connection
with the aforementioned sale of the games and puzzles business, Bear Stearns and
Morgan Stanley were each paid a customary transaction fee. In September 1992,
Bear Stearns lead-managed, with Morgan Stanley as co-manager, Western
Publishing's $150 million offering of 7.65% Senior Notes due 2002.
It is understood that this letter is intended for the benefit and use of
the Board of Directors of Western Publishing and does not constitute a
recommendation to any of the public securityholders of Western Publishing as to
how such holders should vote with respect to the Securities Issuance. This
letter is not to be used for any other purpose, or reproduced, disseminated,
quoted or referred to at any time, in whole or in part, in any manner for any
purpose without our prior consent, except that this letter may be included in
its entirety in Western Publishing's proxy statement to be distributed to the
stockholders of the Company in connection with their approval of the Securities
Issuance.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/ DAVID H. GLASER
Senior Managing Director
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<PAGE>
APPENDIX X
[Letterhead of Jefferies & Company, Inc.]
PRIVILEGED AND CONFIDENTIAL
April 18, 1996
The Board of Directors
WESTERN PUBLISHING GROUP, INC.
444 Madison Avenue
New York, NY 10022
To the Members of the Board of Directors:
You have requested our opinion as to the fairness, from a financial point
of view, to Western Publishing Group, Inc., a Delaware corporation ('Western
Publishing' or the 'Company'), of the consideration to be received by Western
Publishing pursuant to the Securities Issuance described below. With your
consent, however, we are not opining with respect to, nor including within our
understanding of the Securities Issuance, any other transactions or contractual
arrangements to be entered into or payments to be made by or to Western
Publishing or any other person in connection with that purchase and sale of
securities.
We understand that, pursuant to a Securities Purchase Agreement, as amended
to date (the 'Securities Purchase Agreement'), between the Company and Golden
Press Holding, L.L.C., a Delaware limited liability company ('Golden') and an
affiliate of E.M. Warburg, Pincus & Co., Inc., ('Warburg Pincus'), Golden will
purchase from the Company, for an aggregate purchase price of $65,000,000, (i)
13,000 shares of a newly-created issue of Western Publishing Series B
Convertible Preferred Stock (the 'Series B Preferred Stock'), and (ii) a Warrant
(the 'Warrant') to purchase an aggregate of 3,250,000 shares of Western
Publishing Common Stock (such issuance and sale of the Series B Preferred Stock
and the Warrant, the 'Securities Issuance'). We understand that the Series B
Preferred Stock will have the terms, limitations and relative rights and
preferences set forth in the Certificate of Designations attached to the
Securities Purchase Agreement as its draft Exhibit A, and that the Warrant will
be in substantially the form of the draft Exhibit B attached to such Securities
Purchase Agreement. We also understand that the Company will redeem the
outstanding shares of Western Publishing's Convertible Preferred Stock, Series
A, due March 31, 1996, for approximately $10 million. We further understand that
Western Publishing has agreed to reimburse Golden for up to $4 million of costs,
fees and other expenses incurred by Golden in connection with the Securities
Issuance.
We also understand that Warburg Pincus will, through Golden, be permitted,
subject to the approval of Western Publishing's stockholders, to designate a
majority of the members of the Company's Board of Directors immediately
following the consummation of the Securities Issuance. You have further informed
us that, upon such consummation, Mr. Richard A. Snyder ('Mr. Snyder') will be
named as the Chairman and Chief Executive Officer of Western Publishing.
Jefferies & Company, Inc. ('Jefferies'), as part of its investment banking
business, is regularly engaged in the evaluation of capital structures, the
valuation of businesses and their securities in connection with the mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements, financial
restructurings and other financial services. In the ordinary course of our
business, we may trade the securities of the Company for our own account and for
the accounts of customers and, accordingly, may at any time hold a long or short
position in those securities. As you are aware, Jefferies did not participate in
structuring or negotiating the terms of the Securities Issuance, and has not
heretofore provided any investment banking services to the Company or any of its
subsidiaries or affiliates.
X-1
<PAGE>
As you are also aware, Jefferies has been engaged by the Company to provide
the opinion contained herein, and will receive a fee for providing such opinion.
In addition, we note that we have not been authorized by the Company or its
Board of Directors to solicit, nor have we solicited, offers for transactions
alternative to the Securities Issuance (including a sale of all of the Company's
equity securities or of any of its constituent businesses), nor have we been
asked to advise the Company or its Board as to financial alternatives to the
Securities Issuance.
In connection with our opinion, we have reviewed the Securities Purchase
Agreement (including the Exhibits thereto) and certain financial and other
information that was publicly available or furnished to us by Western
Publishing, including certain internal financial analyses, budgets, reports and
other information prepared by the Company's management. We have also reviewed
the proxy statement of Western Publishing in substantially the form that will be
distributed to the stockholders of Western Publishing in connection with the
Securities Issuance. We have also discussed with representatives of the
management of Western Publishing the business, properties and prospects of the
Company and undertaken such other reviews, analyses and inquiries relating to
the Company as we deemed appropriate. We also conducted discussions with Mr.
Snyder and with representatives of Warburg Pincus as to the Company's business,
properties and prospects and as to their plans for Western Publishing following
the consummation of the Securities Issuance.
In our review and analysis and in rendering the opinion contained herein,
we have relied upon, and have not independently verified, the accuracy,
completeness and fair presentation of all financial and other information that
was provided to us by or on behalf of Western Publishing, Mr. Snyder, Golden or
Warburg Pincus or that was publicly available, and such opinion is conditioned
upon such information (whether written or oral) being complete, accurate and
fair in all material respects. We note that the Company has not prepared, and we
have not accordingly reviewed or conducted valuation analyses based upon, any
financial projections with respect to the estimated future performance of
Western Publishing, and our opinion is, as a result, qualified by the absence of
such reviews and analyses. We have not made an independent evaluation or
appraisal or conducted a physical inspection of any of the assets of Western
Publishing, nor have we been furnished with any such appraisals. Our opinion is
based on economic, monetary, political, market and other conditions existing and
which can be evaluated as of the date of this opinion; however, such conditions
are subject to rapid and unpredictable change.
In conducting our analysis and arriving at the opinion expressed herein, we
have considered such financial and other factors as we have deemed appropriate
under the circumstances, including, among others: (i) the business and financial
aspects of the Securities Issuance; (ii) the historical and current markets for
Western Publishing Common Stock; (iii) the financial impact of the Securities
Issuance upon the Company; (iv) the discussions with Mr. Snyder and with
representatives of Golden, Warburg Pincus and of the Company's management
referred to above; (v) certain of the Company's operating and financial
information; (vi) the Company's Annual Reports to Stockholders and Annual
Reports on Form 10-K for its last three full fiscal years and its Quarterly
Reports on Form 10-Q filed since the date of its most recent such Form 10-K;
(vii) the potential negative impact on the prices of Western Publishing's equity
and debt securities of the Company's expected financial performance for its
fiscal year ending February 3, 1996 in the absence of the proposed transaction
with Golden or another similar extraordinary transaction; (viii) the fact that
(a) the Company was unsuccessful in effecting a sale or similar extraordinary
transaction during a public auction conducted during 1994 or thereafter and (b)
no other potential equity investors or strategic acquirors have made a formal
investment or acquisition proposal to the Company since the public announcement
of the original agreement in principle between the Company and Warburg Pincus on
September 6, 1995; (ix) the degree of control that Golden and Warburg Pincus
will have with respect to the Company; (x) the potentially positive impact of
new senior management led by Mr. Snyder and the affiliation with Warburg Pincus
on the prices of the Company's equity and debt securities, its capital raising
capacity and its ability to access the capital markets; and (xi) such other
information as we deemed to be appropriate. We also conducted such other
reviews, analyses and inquiries relating to the Company, Mr. Snyder, Golden and
Warburg Pincus (in addition to those set forth above) as we considered proper.
With your permission, in rendering such opinion we have also assumed that:
(i) the conditions to the consummation of the Securities Issuance set forth in
the Securities Purchase Agreement will be satisfied; and (ii) there is not now,
and there will not as a result of consummation of the transactions contemplated
by the Securities Purchase Agreement be, any default, or event of default, under
any indenture, credit agreement or other material instrument to which the
Company or any of its subsidiaries or affiliates is a party.
X-2
<PAGE>
Finally, in rendering the opinion set forth below we note that: (i) the
Company has elected to pursue the Securities Issuance following a thorough
consideration of the financial alternatives available to it, in which process it
was assisted by nationally recognized investment banking firm; (ii) the
consummation of the Securities Issuance is conditioned upon the approval of
Western Publishing's stockholders; and (iii) we are not opining as to the prices
at which any of the securities of the Company may trade upon and following the
consummation of the Securities Issuance.
Based upon and subject to the foregoing, and upon such other matters as we
consider relevant, it is our opinion as investment bankers that, as of the date
hereof, the consideration to be received by Western Publishing pursuant to the
Securities Issuance is fair to Western Publishing from a financial point of
view.
It is understood and agreed that this opinion is provided for the use of
the Board of Directors of the Company as one element in such Board's
consideration of the Securities Issuance, and does not constitute a
recommendation to Western Publishing or its Board of Directors or to any
securityholders of Western Publishing as to how such holders should vote with
respect to the Securities Issuance. This letter is not to be used for any other
purpose, or otherwise referred to, relied upon or circulated, without our prior
written consent. This opinion may be reproduced in full in any proxy statement
mailed to holders of Western Publishing Common Stock in connection with the
Securities Issuance but may not otherwise be disclosed publicly in any manner
without our prior written approval.
Sincerely,
JEFFERIES & COMPANY, INC.
By: /s/ DAVID ST. JEAN
David St. Jean
Executive Vice President
X-3
PROXY WESTERN PUBLISHING GROUP, INC. PROXY
444 MADISON AVENUE
NEW YORK, NEW YORK 10022
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Richard A. Bernstein, Steven M. Grossman
and Ira A. Gomberg as Proxies, each with the power to appoint his substitute,
and hereby authorizes them, and each of them, to represent and vote, as
designated below, all the shares of Common Stock of Western Publishing Group,
Inc. (the "Company") which the undersigned is entitled to vote at the Special
Meeting of Stockholders to be held at Chemical Bank, 270 Park Avenue, 11th
Floor, Room C, New York, New York, on Wednesday, May 8, 1996 at 10:00 A.M.,
local time, and any adjournment or postponement thereof (the "Special Meeting"),
with all the powers the undersigned would possess if personally present, upon
the matters noted below:
1. Approval of the Securities Purchase Agreement dated as of January 31,
1996, as amended, between Golden Press Holding, L.L.C. and the Company
and the transactions contemplated thereby.
|_| FOR |_| AGAINST |_| ABSTAIN
2. Election of Directors to hold office until the 1996 Annual Meeting of
Stockholders.
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary below) |_| to vote for all nominees
listed below |-|
Shahara Ahmad-Llewellyn, Barry Diller, Linda L. Janklow, Marshall
Rose, Richard E. Snyder and H. Brian Thompson
(INSTRUCTION: To withhold authority to vote for any individual
nominee, write that nominee's name on the space
provided below.)
(continued and to be signed and dated on the reverse side)
3. Adoption of Amendments to the 1995 Stock Option Plan.
|_| FOR |_| AGAINST |_| ABSTAIN
4. Adoption of the Executive Officer Bonus Plan.
|_| FOR |_| AGAINST |_| ABSTAIN
5. Adoption of an amendment to the Amended and Restated Certificate of
Incorporation changing the name of the Company to "Golden Books Family
Entertainment, Inc."
|_| FOR |_| AGAINST |_| ABSTAIN
6. Adoption of an amendment to the Amended and Restated Certificate of
Incorporation increasing the authorized number of shares of Common
Stock from 40 million shares to 60 million shares.
|_| FOR |_| AGAINST |_| ABSTAIN
7. Adoption of an amendment to the Amended and Restated Certificate of
Incorporation increasing the authorized number of shares of Preferred
Stock from 100,000 shares to 200,000 shares.
|_| FOR |_| AGAINST |_| ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ADOPTION OF EACH OF
THE PROPOSALS LISTED ABOVE.
This proxy, when properly executed, will be voted in the manner directed by the
undersigned stockholder. If no direction is made, this proxy will be voted FOR
the adoption of Proposals No. 1, 2, 3, 4, 5, 6 and 7 above.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
Please sign exactly as name appears hereon.
When shares are held by joint tenants, both should
sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full
corporate name by the President or other authorized
officer. If a partnership, please sign in
partnership name by authorized person.
Signature
Signature if held jointly
Dated: , 1996
